RH’s Europe Performance Is Crucial After CEO Issues Warning on Inflation

Core Viewpoint - The current economic environment poses significant challenges for RH, particularly due to inflation and tariffs, but the company remains optimistic about its growth potential in Europe and the Middle East [2][12]. Financial Performance - In the second quarter, RH reported an 8.4% increase in revenues, reaching $899.2 million, while net profit surged 79% to $51.7 million, generating $81 million in free cash flow [10]. - The company has adjusted its revenue growth forecast for the full fiscal year to 9-11%, down from a previous estimate of 10-13%, and revised its adjusted operating margin to 13-14% from 14-15% [11]. Market Impact - Analyst Cristina Fernandez lowered RH's target price to $220 from $255, citing the negative effects of tariffs on revenue and supply chain disruptions [3][4]. - Conversely, TD Cowen raised its target price to $265 from $235, maintaining a buy rating, indicating a positive sentiment shift towards RH shares [8]. Expansion Plans - The opening of RH Paris has exceeded expectations in foot traffic, and the company anticipates that RH Europe and the Middle East could enable it to double its size in the next five to seven years [5][6]. - RH England generated $46 million in total demand in its second full year, indicating strong performance and potential for future growth [7]. Industry Concerns - CEO Gary Friedman expressed concerns about the impact of tariffs on the broader furniture industry, particularly for small and medium-sized companies [13]. - He emphasized the need for the current administration to consider the implications of trade policies on the industry [14].