Financial Data and Key Metrics Changes - Revenue increased by 9% in Q3 and 18% on a two-year basis, despite challenging housing market conditions [4] - Adjusted operating margin was 11.6%, below the guidance midpoint of 12.5% due to higher-than-expected tariff expenses [4] - Adjusted EBITDA margin was reported at 17.6%, with free cash flow of $83 million in Q3 and $198 million year-to-date, on track to meet the annual target of $250 million to $300 million [4][5] Business Line Data and Key Metrics Changes - The company is making progress in reducing excess inventory, estimated at $300 million, with inventory down 11% year-over-year and $82 million lower than Q2 [5] - Market share gains are being achieved from fragmented design showrooms and high-end furniture stores, with two-year share gains ranging from 12 to 28 points [5] Market Data and Key Metrics Changes - The current housing market is described as the worst in nearly 50 years, with existing home sales projected to average 4.07 million from 2023 to 2025, compared to 4.09 million in 1978 [8] - Tariffs have disrupted supply chains, leading to increased prices and multiple rounds of price negotiations [8] Company Strategy and Development Direction - The company is focused on long-term growth, emphasizing innovation and investment during challenging times, with plans for a significant product transformation launch in spring next year [9] - A global hospitality business is being developed to enhance brand awareness and cash flow, with the RH Ocean Grill expected to generate significant operating income [10][11] - The establishment of a freestanding interior design firm aims to expand the brand's presence beyond product sales to conceptualizing and selling spaces [11][12] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the unusual market conditions and the risks involved, emphasizing the importance of navigating these challenges strategically [8][9] - The outlook for Q4 includes revenue growth of 7%-8% and an adjusted operating margin of 12.5%-13.5%, factoring in the impact of international expansion and tariffs [6][7] - For fiscal year 2025, the revenue growth outlook is set at 9%-9.2%, with adjusted operating margins expected to be between 11.6%-11.9% [7] Other Important Information - The company is launching a new collection targeting high-end architectural aesthetics, with plans to unveil it at the Salone in Milan [59][61] - The acquisition of Michael Taylor Designs is expected to enhance the brand's offerings in the high-end market [64] Q&A Session Summary Question: Demand for RH Paris and its influence on performance expectations for RH Milan and RH London - Management noted that RH Paris is unique and has set a tone for future openings, with expectations for strong performance in Milan and London [16][17] Question: Customer response to recent price increases and elasticity - Management indicated that they are learning from the price increases and navigating the tariff situation, aiming for a fair playing field in the market [51][53][55] Question: Guidance for Q4 and potential limitations on managing tariffs - Management acknowledged the dynamic situation with tariffs and indicated that while there may be some slowdown, they are proud of their navigation strategies [76][78]

Financial Data and Key Metrics Changes - Revenue increased by 9% in Q3 2025 and 18% on a two-year basis, despite challenging housing market conditions [4] - Adjusted operating margin was 11.6%, below the guidance midpoint of 12.5% due to higher-than-expected tariff expenses [4][6] - Adjusted EBITDA margin was reported at 17.6%, with free cash flow of $83 million in Q3 and $198 million year-to-date, on track to meet the annual target of $250 million to $300 million [4][5][7] Business Line Data and Key Metrics Changes - The company is making progress in reducing excess inventory, which is estimated at $300 million, with inventory down 11% year-over-year and $82 million lower than Q2 [5] - Market share gains are primarily coming from fragmented design showrooms and regional high-end furniture stores, with two-year share gains ranging from 12 to 28 points [5] Market Data and Key Metrics Changes - The company is navigating the worst housing market in nearly 50 years, with existing home sales projected to average 4.07 million from 2023 to 2025, compared to 4.09 million in 1978 [9] - Tariffs have disrupted supply chains, leading to increased prices and multiple rounds of price negotiations [9] Company Strategy and Development Direction - The company is focused on long-term growth, emphasizing innovation and investment during challenging times, with plans for a significant product transformation in the spring of next year [10][11] - The launch of RH Paris is seen as a pivotal move in building a global luxury brand, with plans for additional locations in Milan and London [20][21] - The company is developing a global hospitality business to enhance brand awareness and cash flow, with the RH Ocean Grill expected to generate significant operating income [12] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the unusual market conditions and the risks associated with tariffs and supply chain disruptions, but remains optimistic about gaining market share [9][10] - The company is preparing for a potential recovery in the housing market and believes its investments will pay off in the long run [8][61] Other Important Information - The company has opened a freestanding interior design office in Palm Desert, generating $1 million a month in design business [13] - The acquisition of Michael Taylor Designs is expected to enhance the company's offerings in the high-end market [56] Q&A Session Summary Question: How has RH Paris influenced performance expectations ahead of RH Milan and RH London? - Management noted that RH Paris is unique and has set a tone for future openings, emphasizing the importance of location and brand perception in Europe [16][17] Question: How did customers respond to price increases in Q3? - Management indicated that they are learning from the price increases and navigating the tariff situation, with a focus on maintaining fairness in pricing [47][48] Question: Is the company considering slowing the pace of initiatives for predictability? - Management expressed a commitment to high ambitions and strategic growth, emphasizing the importance of long-term brand building over short-term results [58][60]

Core Insights - RH, formerly known as Restoration Hardware, is set to report its third-quarter fiscal 2025 results on December 11, with previous quarter results showing adjusted EPS and net revenues missed estimates by 8.2% and 0.7%, respectively, but grew year-over-year by 73.4% and 8.3% [1][2] Earnings Performance - RH's earnings have topped consensus estimates in one of the last four quarters, with the average surprise being -0.14 [2][3] - The Zacks Consensus Estimate for fiscal third-quarter EPS is $2.13, indicating a decline from the year-ago EPS of $2.48, while net revenues are expected to reach $883 million, reflecting an 8.8% year-over-year increase [3][4] Revenue and Growth Expectations - For fiscal 2025, RH anticipates a 10% increase in net revenues and a 68.5% growth in its bottom line [4] - The current quarter's revenue growth is expected to be between 8% and 10% year-over-year, with adjusted operating margins projected to decline to 12-13% from 15% in the previous year [15] Market Trends and Expansion - RH operates in the luxury home furnishing market, which is experiencing resilience despite a depressed housing market, driven by demand for high-end furnishings [6][8] - The company is expanding its gallery format and premium positioning, with strong openings in Europe and plans for further expansion in London and Milan by 2026 [7][9] Sourcing and Production Strategy - RH is reducing its reliance on China for sourcing, expecting to decrease receipts from 16% to 2% by the fiscal fourth quarter, while increasing domestic production, particularly in upholstered furniture [11][12] - By the end of fiscal 2025, approximately 52% of upholstery will be produced in North Carolina, with additional production in Italy and Mexico [11] Challenges and Market Conditions - The company faces challenges from tariffs, a weak housing market, and macroeconomic uncertainties, which are impacting demand and increasing costs [13][14] - RH is investing heavily in market-share capture and promotional activities, which are affecting margins, alongside start-up costs from international expansion [14] Valuation and Stock Performance - RH stock is currently trading at a forward P/E ratio of 12.43, which is lower than competitors like Williams-Sonoma and Arhaus [20] - Despite the attractive valuation, RH has underperformed compared to peers in the past three months, reflecting broader market challenges [18][19] Investment Outlook - The company is balancing long-term growth opportunities with near-term pressures, supported by strong demand for luxury home furnishings and international expansion efforts [21] - However, ongoing macroeconomic headwinds and execution risks suggest a cautious approach for new investors, while existing investors may consider retaining their positions [24]