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RH (RH +14%) is surging today following its Q3 (Oct) earnings report last night. What is surprising is that the stock for this luxury home furnishings company is sharply higher despite missing on EPS while revenue was generally in-line. It seems investors are focusing more on the significant upside revenue guidance for Q4 (Jan), the impressive demand guidance and some upbeat comments made on the call last night.

• Total Demand in Q3 grew 13%, in-line with its +12-14% prior guidance, despite operating in the worst housing market in 30 years. Unlike most companies, RH uses "demand" as an operating metric. Basically, it's the dollar value of orders placed (orders convert to net revenue upon a customer obtaining control of the merchandise) and excludes exchanges and shipping fees.
• What really stands out is RH's Q4 Total Demand growth guidance of +20-22%, which explains the big upside guidance for revenue. November Total Demand growth accelerated to +18% with RH Brand Demand Growth up 24%. The strong demand growth is impressive considering the cautious state of the consumer.
• RH is also pretty excited about its Waterworks line of luxury bath and kitchen products (faucets, tubs, tile, hardware, lighting). RH talked a lot about how it will begin to introduce the Waterworks brand across the RH platform starting this week. Its interior designers around the world will now be able to specify Waterworks in their design projects, and customers will be able to purchase Waterworks on the RH website in the next few weeks.
• RH also plans to test the Waterworks Sourcebook in 2H25. Like most luxury brands in the home space, Waterworks generates the vast majority of its revenue from the trade market, selling to architects, designers, developers and builders. RH sees a significant opportunity to amplify the Waterworks business on the RH platform by exposing the brand to a much larger consumer audience. Waterworks today is just shy of a $200 mln business but RH sees potential for it to become a $1 bln global brand.
• RH addressed investor concerns about higher tariffs. RH has been proactively moving sourcing away from China over the past several years with the expectation of fully exiting the country by the end of Q2. RH is also transitioning products manufactured in Mexico. RH believes it can successfully reposition sourcing with no disruption to the supply chain.

Overall, it seems investors are giving RH a pass on the Q3 EPS miss and focusing more on the Q4 revenue and demand guidance, which is pretty impressive given the macro headwinds. Even higher income consumers are being cautious as we saw with Oxford Ind (OXM) earlier this week. RH talked about the disruptive nature of its brand and how it has moved into more of an attack mode over the past couple of years. RH sees itself disrupting the market from a design and quality point of view. RH has now posted back-to-back impressive quarters, so it seems to be turning a corner.