RH Grows Revenue and Reaffirms Outlook

Core Insights - RH reported Q1 2025 results with a revenue increase of 12% year over year, adjusted operating margin of 7%, adjusted EBITDA of 13.1%, and free cash flow of $34 million, maintaining full-year guidance for revenue growth of 10%-13% and free cash flow of $250 million-$350 million despite market challenges [1][10] Global Expansion - RH's international galleries showed strong demand growth, with RH England's gallery and online business up 47% and 44% year over year, and continental European galleries RH Munich and RH Dusseldorf up 60% [3] - Management acknowledged initial challenges in optimizing inventory and assortments for European markets, citing five-month lead times on special orders and earlier localization missteps [3][4] - Evidence of pent-up demand suggests that improved operational execution in Europe could significantly enhance profitability and support long-term international growth [4] Membership Strategy - A permanent increase in the RH membership discount from 25% to 30% was announced, marking a strategic shift aimed at increasing market share while maintaining brand value [5][6] - The membership discount enhancement is intended to directly compete with rivals in the home furnishings sector [6] Asset Monetization and Capital Efficiency - At the start of fiscal 2025, RH reported significant debt primarily from $2.2 billion in share repurchases, while holding a unique real estate portfolio valued at approximately $500 million [8] - Management plans to monetize assets through sale-leasebacks and direct sales, targeting $200 million to $300 million in excess inventory to be converted to cash over the next 12 to 18 months [8][9] - The strategy aims to improve capital efficiency and reduce leverage despite high interest rates [9] Future Outlook - Management reaffirmed guidance for FY2025, projecting revenue growth of 10%-13%, adjusted operating margin of 14%-15%, and adjusted EBITDA margin of 20%-21% [10] - Q2 guidance anticipates revenue growth of 8%-10% with deferred revenue expected to be recovered in the latter half of the year [10] - The launch of a new brand extension has been postponed to spring 2026 due to tariff uncertainties [10]