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RH (RH) is trading lower today after reporting its Q2 (Jul) results last night. The luxury home furnishings retailer posted a sharp EPS miss while revenue rose 8.4% yr/yr to $899.2 mln, slightly below consensus. The bigger reaction stems from revised guidance, with full year revenue growth now expected at 9-11%, down from 10-13%.

• Revenue +8.4% yr/yr with demand +13.7%, showing resilience despite tariffs and a weak housing market. Margins improved: adj. op margin +340 bps to 15.1%, adj. EBITDA +340 bps to 20.6%. Net income +79% with $81 mln FCF.
• Strong international performance with RH England demand up 76% and online demand up 34%. RH Paris off to a strong start with day-by-day traffic exceeding RH New York.
• Tariffs are a growing headwind with $30 mln incremental cost added to its outlook. Tariffs also resulted in a delay of its Fall Interiors sourcebook and shifts $40 mln revenue into 2H. Also, new 50% India tariffs impact 7% of business and a U.S. furniture investigation adds more uncertainty.
• As a result, full-year operating margin is now expected at 13-14% versus 14-15% previously, adjusted EBITDA at 19-20% versus 20-21%, and free cash flow at $250-300 mln, down $50 mln. The outlook also factors in about a 200 bps drag from international expansion and a 90 bps drag from tariffs.

Briefing.com Analyst Insight

RH continues to show underlying demand strength, and its affluent customer base has proven resilient, even as housing turnover sits at multi-decade lows. However, the incremental tariff burden and added uncertainty from a potential new investigation are difficult to ignore in the near term. While RH's scale and positioning could ultimately allow it to capitalize on tariffs relative to smaller peers and benefit from a housing recovery down the line, the current reality is one of pressured margins and reduced free cash flow. Longer term, its international expansion strategy adds growth optionality, but near-term profitability headwinds are weighing on sentiment.