Can RH Maintain Its 20-21% EBITDA Margin Outlook for Fiscal 2025?

RH RH, previously known as Restoration Hardware, is implementing several diverse in-house strategies to ensure margin expansion amid an uncertain market scenario marked by high mortgage rates, tariff-related risks and lingering inflationary pressures. The company is mainly prioritizing ways to increase its revenue visibility through global expansion, a customer-friendly membership approach and supply-chain optimization. In the first quarter of 2025, its adjusted EBITDA margin expanded 80 basis points year over year to 13.1%.

During the first quarter of fiscal 2025, the company highlighted market strength in Europe, with demand growing 60% across RH Munich and RH Dusseldorf alongside continued growth witnessed in noncomparable galleries, RH Brussels and RH Madrid. RH remains optimistic about the September 2025 opening in Paris, alongside another two openings in London and Milan in 2026. Notably, RH threw caution to the wind by increasing its membership discount from 25% to 30%, with the aim of expanding its market share and capturing additional membership opportunities, when the market’s choppy water settles down.

Although there remains ambiguity regarding the new tariff regime’s implementation, RH is taking necessary measures to minimize the adverse impacts to be on the safe side. It is currently focusing on shifting its sourcing out of China with the expectation of receipts reducing from 16% in the first quarter of fiscal 2025 to 2% in the fourth quarter of the same year. By the end of 2025, it projects 52% of its upholstered furniture to be produced in the United States and 21% in Italy.

Owing to these accretive initiatives and a brighter growth prospect, RH expects its adjusted EBITDA margin to be between 20% and 21%, up from 16.9% reported last year.

RH Stock’s Price Performance vs Other Market Players

Shares of this California-based luxury retailer in the home furnishing space have gained 13.9% in the past month, outperforming the Hoya Capital Housing ETF (HOMZ) index. HOMZ is an exchange-traded fund that offers a diversified glimpse of the U.S. residential housing industry through 100 companies across homebuilding, rental operators, home improvement, furnishings, mortgage services and real estate tech, to name a few.

Sharing market space with RH, other renowned players, including Williams-Sonoma, Inc. WSM and Arhaus, Inc. ARHS, seem to have been standing below it in the past month. During the said time frame, the share price performance of Williams-Sonoma and Arhaus has inched up 3.8% and 2.2%, respectively.

RH’s Discounted Valuation Trend

RH stock is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 15.3X. This is compared with the forward 12-month P/E ratios of 18.83X and 19.66X at which Williams-Sonoma and Arhaus are currently trading. The discounted valuation of the stock compared with the other market players looks promising for investors.

That said, in the long term, the valuation could move toward a premium, given the market fundamentals normalizing and the business strategies backing the company’s revenue visibility and profitability.

Earnings Estimate Revision of RH

RH’s earnings estimates for fiscal 2025 have trended upward in the past 30 days to $10.87 per share, which indicates robust 101.7% year-over-year growth. The analysts’ sentiments remain bullish for the year, backed by the in-house strategies RH is pulling off to counter the market risks.

However, even with the earnings estimates for fiscal 2026 having trended down in the past 30 days to $14.77 per share, the estimated figure indicates 35.9% year-over-year growth.

The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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