RH Outgrows Competition In Tough Economy — Yet Stock Stalls: CEO Says Investors Reward Companies That Set Low Expectations and Barely Beat Them

RH jumped after earnings, but not nearly enough to make a dent in its more than 60% slide this year.

• RH, formerly known as Restoration Hardware, reported 9% revenue growth for the last quarter; the pace was higher than that of its peers, Williams Sonoma, Arhaus, and Wayfair.
• RH shares jumped in premarket on Friday; however, they have trailed rival stocks by a wide margin this year.
• Low consumer uptake and new tariffs have suppressed the outlook for the furniture retail category of late.

Given the discretionary nature of purchases and the tepid new home sales, the furniture retail category has been less than exciting for a while. 

Then, President Donald Trump’s tariffs on softwood timber, kitchen cabinets, and certain upholstered furntiure over the last few months gave a further jolt. However, with third-quarter earnings now in the rearview, a clear pecking order has emerged — and RH sits at the top.

RH, the premium furniture and home decor seller, earlier known as Restoration Hardware, said in its quarterly report on Thursday that its market share has increased from 12 points two years ago to 28 points. 

RH's 9% Q3 revenue growth outpaced that of Williams-Sonoma (4.6%), Arhaus (8%), and Wayfair (8.1%). Williams-Sonoma houses brands Pottery Barn and West Elm, which compete with RH.

RH stock gained 4% in Friday’s premarket session, with the ticker trending among the top 20 on Stocktwits. Its retail sentiment shifted to nearly the highest reading – ‘extremely bullish’ (98/100) – with ‘extremely high’ message volume.

RH Commentary

“We continued to generate industry leading growth… demonstrating the disruptive nature of our brand despite the worst housing market in almost 50 years, and the polarizing impact of tariffs,” CEO Gary Friedman said in a shareholder letter on Thursday, adding that “16 different tariff announcements over the past 10 months” caused significant disruption in sourcing and production.

In a rare jab, Friedman said that despite RH’s strong performance, “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.”

Wayfair saw a much greater intraday gain (23%) after posting upbeat quarterly results and forecasts in late October, and the stock is up a whopping 123% year-to-date. Williams-Sonoma’s stock is up 1.3%, while RH is languishing with a 61% decline so far this year.

Industry View Glum

That said, analysts are broadly downbeat on the furniture industry.

Jefferies recently downgraded Wayfair to ‘Hold’ from ‘Buy,’ citing weak online traffic at the start of the holiday shopping season. Williams-Sonoma was hit with a wave of price-target cuts after its Nov. 19 quarterly report, despite beating expectations and raising its full-year operating margin outlook.

RBC said the upbeat report was driven mainly by tariff costs taking longer than initially anticipated to be realized. The research note added that current category momentum appears to be driven by pricing rather than demand, against a weakening consumer backdrop and rising tariff costs.

As of the last reading, the Stocktwits sentiment was ‘bearish’ for WSM and W, and ‘bullish’ for ARHS.

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