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The name RH (NYSE: RH) may not register with most investors, but its former branding and full name, Restoration Hardware, may sound familiar.

RH, or Restoration Hardware, an upscale retailer of furniture and home furnishings, certainly got investors’ attention with strong fiscal first quarter earnings. The company crushed earnings expectations, and the stock price soared about 20% higher at the open on Friday.

RH delivered revenue of $814 million in the first quarter, an increase of 12% year-over-year. However, it missed estimates of $818 million.

RH lowered the cost of goods sold as a percentage of revenue to 56.3%, from 57%, but had 14% higher selling, general and administrative expenses. Thus, operating income increased 2% to $55.9 million.

Net income jumped to $8.1 million, up from a net loss of $3.6 million in the same quarter a year ago. RH got the benefit of some favorable foreign exchange rates and did not have legal costs like it did in the same quarter a year ago. Adjusted earnings were 13 per share, up from a 40 cent per share net loss in the same quarter a year ago. It was also destroyed estimates of an 8 cents per share net loss.

“Our industry leading growth continued into fiscal 2025 as revenue increased 12% in the first quarter despite the polarizing impact of tariff uncertainty and the worst housing market in almost 50 years,” Gary Friedman, RH chairman and CEO, wrote in the shareholder letter. “Both adjusted operating margin of 7.0% and adjusted EBITDA margin of 13.1% were at the high end of our expectations, and we achieved positive free cash flow of $34 million in the quarter.”

Get your washtubs out

In the shareholder letter, Friedman said the company expects the higher risk environment to continue in 2025 due to tariffs, market volatility, inflation, global strife, and the worst housing market in almost 50 years.

“For context, in 1978 there were 4.09 million existing homes sold when the U.S. had a population of 223 million. Contrast that to 2024 where 4.06 million existing homes sold with a population of 341 million, and it illuminates just how depressed the housing market has been this past year,” wrote Friedman. “Despite that fact, we are performing at a level most would expect in a robust housing market.”

Yet, until Friday’s rally, the stock price had been tanking, down about 55% YTD to around $176 per share. But the company took the advice of Warren Buffett and went on offense in a defensive period.

“As Warren Buffett wrote in his 2016 letter to Berkshire Hathaway shareholders, ‘Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons,’” Friedman wrote.

RH had its washtubs out, buying back some 60% of the company’s outstanding shares at a discount for the long-term benefit of shareholders.

“We believe another washtub bet is to play offense in the current environment by increasing our membership discount from 25% to 30%. This incremental incentive will position us to capture increased market share and drive additional membership, which will serve us extremely well when the housing market recovers,” the CEO wrote.

Minimizing the impact of tariffs

Like all retailers, RH has to deal with the impact of tariffs. The good news is its exposure was relatively limited to begin with, and it lessened the impact after they were announced. It will reduce its sourcing from China from 16% to 2% by the end of the year. Further, it projects that 52% of its furniture will be produced from its own factory in North Carolina, with 21% coming from Italy.

“While there remains uncertainty until the reciprocal tariff negotiations are complete, we have proven we are well positioned to compete favorably in any market conditions,” Friedman wrote.

That’s not to say tariffs won’t have any impact. Friedman said the company expects tariffs to negatively affect revenue in the second quarter by 6 percentage points. That will result in 8% to 10% revenue growth in Q2.

The company anticipates recovering the projected Q2 revenue hit by the end of the fiscal year. Further, RH also delayed the rollout of a “new concept” that was initially planned for the second half of 2025 to mitigate tariff risk. The new concept will now be introduced in Spring of 2026 when there is more certainty around tariffs.

That said, RH maintains its guidance of 10% to 13% revenue growth this year and 14% to 15% adjusted operating margin. It was 7% in Q1. It also anticipates free cash flow of $250 million to $350 million.

RH stock spiked 20% on Friday to $210 per share. Its P/E ratio remains high at 41 but its forward P/E is just 17, so there could be opportunities to jump in if a dip comes along.

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