Bear of the Day: RH (RH)

RH (RH), formerly known as Restoration Hardware, has long been recognized as one of the most aspirational brands in luxury home furnishings. Its showrooms, or “Galleries,” as the company calls them, and its upscale catalog have helped RH stand apart from traditional retailers. Yet even strong brands can struggle when the broader industry faces headwinds, and that’s exactly what’s happening here.

Over the past several years, sales growth has stalled and margins have compressed, as high interest rates, global trade tensions and a weaker housing market weigh on consumer appetite for big-ticket discretionary items. RH’s stock has reflected that reality as price action remains heavy, with shares sliding well below key moving averages. Adding to the pressure, analysts have been steadily cutting earnings estimates, signaling that near-term visibility remains poor.

To put this weakness into context, I recently had a surprising real-world experience. I ordered a large custom sectional from another high-end furniture brand and was told it would be delivered within a week, a turnaround time that would have been unthinkable a few years ago. During the pandemic and post-COVID housing boom, custom furniture often took three to six months to arrive due to overwhelming demand. That this order can now be fulfilled almost immediately suggests that demand in the luxury furniture segment has softened dramatically and inventories are sitting idle.

RH Shares Slide Along with Earnings Estimates

RH has come under mounting pressure as analysts continue to trim their profit outlooks, earning the stock a Zacks Rank #5 (Strong Sell) rating. Over the past two months, current year earnings estimates have dropped 16%, while next year’s forecasts are down another 10.5%, reflecting persistent concern about the company’s margin outlook and weakening industry trends.

Revenue projections show modest improvement, with sales expected to rise roughly 10% this year and again next year. Even with those gains, RH’s annual earnings remain well below prior peaks, and profitability is still lagging pre-2022 levels when the company benefited from a post-pandemic home shopping boom.

The earnings track record has also been underwhelming. RH has missed Wall Street estimates in eight of the last eleven quarters, underscoring the difficulty of forecasting demand in a volatile, rate-sensitive housing and luxury furniture market. Persistent cost pressures, heavier promotional activity, and higher operating expenses have all weighed on consistency.

Until the company can deliver sustained earnings surprises or show a clear recovery in consumer spending, the path of least resistance for RH shares may remain lower. For now, the combination of falling estimates, weak momentum, and disappointing execution keeps the stock firmly in bearish territory.

Should Investors Avoid RH Stock?

While RH remains a respected brand with a loyal customer base and a differentiated luxury positioning, the near-term outlook remains difficult. The combination of softer demand, falling earnings estimates, and persistent margin pressure paints a challenging picture for the quarters ahead.

Even after its recent slide, RH shares trade at roughly 22.3x forward earnings, a valuation that’s not excessively high by market standards but still looks stretched given the current headwinds. With modest sales growth, that multiple may prove difficult to justify unless demand meaningfully rebounds or execution improves.

All that said, when demand does pick up for luxury furniture, such as that at RH, I am sure the stock will make a strong rebound. But until we see an earnings beat, or analysts begin to raise earnings estimates, investors would be better off seeking opportunities elsewhere in the market.

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This article originally published on Zacks Investment Research (zacks.com).

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