CORTE MADERA, Calif. — Top 100 retailer RH reversed net income and per share losses from the first quarter of 2024 in the first quarter of FY2025.
In addition, Chairman and CEO Gary Friedman addressed tariffs, debt and other matters in a letter to investors that accompanied the results, which it reported on June 12.
For the three months ended May 3, the Corte Madera, Calif.-based retailer posted net revenues of $813.95 million, up almost 12% compared with $726.96 million a year ago. Net income totaled $8.039 million, or 40 cents per diluted share, reversing a loss of $3.625 million, or 20 cents per diluted share, in the first quarter of 2024.
Friedman noted these gains were made during a challenging housing market, comparing it to the late 1970s.
“In 1978 there were 4.09 million existing homes sold when the U.S. had a population of 223 million. Contrast that to 2024 where 4.06 million existing homes sold with a population of 341 million, and it illuminates just how depressed the housing market has been this past year,” he wrote. “Despite that fact, we are performing at a level most would expect in a robust housing market.”
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Friedman acknowledged that RH began the year with “meaningful debt,” which he said was almost entirely due to stock repurchases of $2.2 billion, but said the company also opened the year with incredible business momentum and meaningful assets. He said those assets include approximately $500 million in real estate that the company plans to monetize opportunistically as conditions warrant, and excess inventory of $200 million to $300 million in inventory that the company plans to turn into cash over the next 12 to 18 months.
He cited Warren Buffett’s 2016 statement, “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons,” and called the company’s positioning a “washtub bet.” He said RH is forecasting to generate $250 to $350 million of free cash flow in 2025.
“Our debt is reflective of a washtub bet on ourselves. We repurchased 60% of our outstanding shares that greatly benefited our long-term shareholders post the publishing of Mr. Buffett’s letter in 2016-2017 and repurchased 30% of the outstanding shares during this housing downturn in 2022-2023. In addition, we believe another washtub bet is to play offense in the current environment by increasing our membership discount from 25% to 30%. This incremental incentive will position us to capture increased market share and drive additional membership, which will serve us extremely well when the housing market recovers. While the sky in our sector has been darkened by inflation, interest rates, tariffs and global politics, those clouds will soon pass, and it will not only be clear skies, but also be clear that it was a good time to be a shareholder of RH.”
Considering tariffs and their ongoing impacts, Friedman said RH is continuing to shift sourcing out of China, and the company expects receipts to decrease from 16% in Q1 to 2% in Q4, with a meaningful portion of any tariffs absorbed by vendor partners. Additionally, RH projects that 52% of its upholstered furniture will be produced in North Carolina and 21% made in Italy by the end of FY2025.