- Revenue & Growth Momentum: Q3 2025 revenue rose 9% YoY, with two-year growth of 18%, and full-year 2025 guidance at 9-9.2%.
- Margin Expansion & Cash Flow: Adjusted operating margin reached 11.6%, and adjusted EBITDA hit 17.6%, generating $83M free cash flow in Q3 and $198M year-to-date.
- Inventory Reduction & Debt Management: Inventory fell 11% YoY ($82M reduction from Q2), while net debt declined $85M to $2.427B.
- Paris Location Success: RH Paris drove 62% core sales growth in its first 8 weeks, with 40% multilingual customers, and is set for replication in Milan.
Operational Highlights
The company is making progress in reducing inventory, which is down 11% versus last year and down $82 million versus Q2. RH's market share gains are coming from both smaller, independent retailers and larger national brands. The company is investing in its international expansion, with a new concept launch planned for spring 2025. RH Paris, the company's newest gallery, is generating significant interest, with a unique and immersive experience that includes a restaurant and interior design office.
Guidance and Outlook
Revenue growth for Q4 is expected to be 7-8%, with an adjusted operating margin of 12.5-13.5% and an adjusted EBITDA margin of 18.7-19.6%. For the full year 2025, the outlook is for revenue growth of 9-9.2%, an adjusted operating margin of 11.6-11.9%, an adjusted EBITDA margin of 17.6-18%, and free cash flow of $250-300 million. Analysts estimate next year's revenue growth at 8.6%.
Valuation and Metrics
With a P/E Ratio of 29.18 and an EV/EBITDA of 10.48, the market seems to be pricing in a certain level of growth and profitability. The company's Free Cash Flow Yield is 3.99%, indicating a decent return for investors. However, the ROE is -140.97%, which is a concern. The Net Debt / EBITDA ratio is 3.08, indicating a manageable debt level.
Management's Strategy and Insights
Gary Friedman, the CEO, believes that making pricing fair for everyone is essential. He also emphasized that their business model focuses on doing what they love with people they love, for people who love what they do. Friedman expressed excitement about a new collection to be launched next year, targeting high-end homes, and described it as a potential multi-billion-dollar opportunity.
Tariff Impact and Mitigation
The company has been navigating the tariff situation effectively through price increases, mitigation efforts, and resource optimization. Friedman notes that they've been proactive in managing the impact of tariffs on their business. In Q3, they experienced some surprises due to timing and delays in passing on price increases to customers.