Shares of RH (NYSE:RH) rose about 6% at Friday’s open after the upscale home furnishings retailer posted third-quarter revenue slightly ahead of expectations but reported earnings that fell short of Wall Street forecasts.
The company reported quarterly revenue of $884 million, roughly in line with estimates of $883.26 million, while earnings per share of $1.71 missed expectations of $2.16.
RH said revenue grew 9% from a year earlier and 18% on a two-year basis, which it called evidence of “the disruptive nature of our brand despite the worst housing market in almost 50 years, and the polarizing impact of tariffs.”
Adjusted operating margin came in at 11.6%, below the 12.5% midpoint of its guidance, due to higher-than-expected tariff expenses on prior-period orders and higher costs tied to its Paris gallery opening. Adjusted EBITDA margin was 17.6%, and the company generated $83 million in free cash flow in the quarter.
Year-to-date free cash flow reached $198 million, putting RH on track to meet its full-year target of $250 million to $300 million. Net debt declined by $85 million from the prior quarter to $2.43 billion. The company said it continues to work through excess inventory, which is down 11% from a year ago.
RH said it continues to gain market share across design showrooms, regional high-end furniture retailers and national furniture-based brands. “We find it fascinating that the market chooses to reward companies that set remarkably low expectations and slightly beat them, versus setting high expectations, as we do, and at times miss them, while still meaningfully outperforming our industry,” the company said in a statement.
For the fourth quarter, RH expects revenue growth of 7% to 8%, an adjusted operating margin of 12.5% to 13.5%, and adjusted EBITDA margin of 18.7% to 19.6%.
For fiscal 2025, the company reaffirmed its outlook for revenue growth of 9% to 9.2%, an adjusted operating margin of 11.6% to 11.9%, and an adjusted EBITDA margin of 17.6% to 18%. The forecast includes ongoing margin pressure from international expansion and tariffs.