RH: 4Q24 Business Update
-40% Stock Drop, Tariff Impacts, Debt Maturities Nearing, 7 Beautiful Gallery Launches, and Great Gary Friedman Quotes
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RH reported 4Q24 yesterday and today the stock is down -40%. This puts the stock’s YTD performance at -60%.
While RH has always been a volatile stock, this movement is extreme. While attributing stock price movements to specific events is always fraught with imprecision, high level we see three main factors: 1) depressed business activity driven by soft existing home sales, 2) illiquidity risks given their debt maturity in 2028, and 3) tariffs increasing costs and potentially precipitating a global economic slowdown and thus exacerbating the potential for a liquidity issue.
4Q24 Update.
Taking a step back, the 4Q24 results were fine. 4Q net revenues were +10% y/y, or on a comparable 13-week basis +18% y/y (there was an extra week of sales in the comp period).
Total 2024 annual revenues closed at $3.2bn or +5% y/y for the full year.
Operating income was $70mn with operating margins at 8.7%, flat y/y.
They guided full year 2025 revenues to +10-13% y/y with 1Q25 a little better at +12.5-13.5% y/y. Still though this represents a 500-800bps deceleration from their 4Q growth cadence.
Their outlook for adjusted margins of 14-15%, is about 270-370bps better than 2024.
In the letter, CEO Gary Friedman notes that existing home sales were lower in 2024 than in 1978, despite the U.S. having a 50%+ larger population now. He brings this up because when someone buys a home it is a very common trigger event for them to buy furniture to furnish their house.
While macro weakness continued in 2024, they continued to plow ahead with their multi-decade vision of transforming RH. They have plans to open 7 Design Galleries, 2 Outdoor Galleries, and 2 “New Concept Galleries” this year.
Their Paris Gallery on the Champs-Élysées will open in the back half of 2025, which they expect to drive an inflection in their Europe business. In 2026 they will open their London and Milan Gallery, which they think will build on their momentum in Europe. Additionally, they are planning an increase in their presence in Greenwich, Connecticut with a “multi-building design Ecosystem” and potentially something similar in East Hampton.
They will also be releasing a new RH Outdoor Sourcebook that will feature “the most dominant assortment of high-quality outdoor furniture in the world” with 8 furniture collections. Their RH Interiors Sourcebook will feature 42 new collections. These new products require increased inventory and since furniture has long lead times, they wanted to insure against stockouts, which could cause loss of sales. On the call Gary called this a “$100mn insurance” on inventory at the front end of the launch. They also noted that they delayed the launch of some collections due to the “changing economic outlook”.
Tariffs.
The real uncertainty though stems from Tariffs and the potential stress it could add to the business, when they are ~2.5 years out from needing to pay off or refinance $2.3bn in debt...
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*At the time of this writing, one or more contributors to this report has a position in RH. Furthermore, accounts one or more contributors advise on may also have a position in RH. This may change without notice.