We came across a bearish thesis on RH on Matt McClintock Retail/Consumer Research - M Squared Capital’s Substack by Matthew McClintock. In this article, we will summarize the bulls’ thesis on RH. RH's share was trading at $215.04 as of August 8th. RH’s trailing and forward P/E were 50.96 and 20.12 respectively according to Yahoo Finance.
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Restoration Hardware’s (RH) 1Q25 results reinforced a bearish outlook despite a few positives, notably a 10% YoY rise in customer deposits, the strongest in three years. This contrasts with management’s 2Q25 guidance for a 600 bps tariff-related revenue hit, suggesting a pull-forward in custom furniture orders ahead of price hikes. Inventory cash flow was only $18M despite aggressive discounting, and excess stock of $200–$300M at cost remains a concern for vendor relationships.
Questions also arise over a 35% Outdoor discount amid claims prices weren’t raised, reduced capex alongside plans to open 7–9 galleries annually, and the untested “design compound” concept that purportedly halves build costs. Management’s $500M real estate sale claim lacks clarity given limited owned stores, and prior China sourcing commitments have slipped. International expansion optimism is unconvincing; EBIT drag guidance of 180 bps for 2025 matches prior forecasts, with ongoing losses in Germany despite reported 60% demand growth off a low base, slowing growth in England’s Aynho Park, and silence on RH Brussels and Sydney.
Paris’s planned September opening may align with Maison et Objet but could elevate SG&A. Sell-side models appear overly optimistic, assuming gross margin expansion despite permanent 30% RH Member discounts, continued clearance inventory, tariff impacts, and rising occupancy costs. SG&A forecasts also seem understated given upcoming store openings. Consensus EBIT guidance aligns with ~$10.50 EPS, but downside risk is significant, especially after a weaker-than-expected 1Q25 EPS of $0.13 vs. the bearish $0.20 scenario. The high-end EPS estimate remains $11.00, but the low-end is cut to $7.00, with visibility skewed toward downside risk.
Previously, we covered a bearish thesis on RH by Open Insights in March 2025, highlighting its costly luxury expansion and weak cash flow. The stock depreciated about 30% since coverage as these risks materialized. The thesis still stands, given ongoing profitability concerns. Matthew McClintock shares a similar view but emphasizes inventory challenges, tariff impacts, and downside earnings risks.
RH is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 46 hedge fund portfolios held RH at the end of the first quarter which was 51 in the previous quarter. While we acknowledge the potential of RH as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.
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