RH Beats Q2 Profit Estimates on Luxury Housing Momentum; Estates Launch Drives Growth

RH NYSE: RH beat second-quarter profit estimates, with revenue and earnings exceeding the high end of its own guidance. The luxury home furnishings retailer reported GAAP net revenue of $922.2 million, up 2.6% from a year earlier, representing a 4.2-point acceleration from the first quarter. Normalized adjusted EBITDA margin came in at 13.4%, also above the company’s forecast range.

Chairman and Chief Executive Officer Gary Friedman said RH generated $72.3 million of cash during the quarter, including free cash flow and a $42 million distribution from its Aspen joint ventures, excluding tariff refunds of $69.2 million.

Shares rose 8.2% in premarket trading following the results, according to multiple reports. The stock gains came even as the company missed analysts’ revenue expectations for the period. Following the release, several analysts cut their price targets on the stock, according to one report.

**RH Estates as growth engine**

Much of the call focused on RH Estates, a traditional and classic furniture collection introduced through a 268-page source book mailed from late June through mid-July. Friedman said the company believes the collection could double RH’s total addressable market, noting that more than 60% of luxury homes in North America have traditional or classic architecture.

RH has made acquisitions over the past six years — including Michael Taylor Designs, Formations, Dennis & Leen, Joseph Jeup and Dmitriy & Co. — to support the Estates opportunity, according to the company’s earnings call transcript. The initial Estates assortment carries an average price point about 45% higher than RH’s existing assortment. Friedman said the collection’s design, quality, finishes and exclusivity support the pricing, and the products have generated interest from customers who were not previously RH buyers.

The company plans to expand Estates circulation in November, place the collection on the main floor of galleries representing roughly 80% of its business, and build inventory levels to meet demand. Friedman said demand should increase as shoppers can see the products in person, particularly because luxury furniture customers typically prefer to inspect products before purchasing. The company expects Estates to be margin accretive, citing higher gross margins and operating leverage from the higher average price points. Most of the collection is protected by trade dress or design patents pending, and RH plans to pursue intellectual-property protections against unauthorized copies.

**International expansion underway**

RH opened RH London, The Gallery, Mayfair, on June 27. Friedman said the London location built a design pipeline of nearly $7 million in its first eight weeks, comparable with the design pipelines of RH Newport and RH New York. He said larger, complex projects will take several months to convert into revenue.

London has an advantage over Paris and Milan because the U.K. is English-speaking, has more expatriates, and has already benefited from the RH England location, which Friedman said had reached roughly $38 million in demand over three years. RH is continuing to learn how consumer and trade behavior differs across European markets, according to the call.

**Outlook and financial picture**

The company raised its fiscal 2026 outlook to revenue growth of 5.5% to 7% and adjusted EBITDA margin of 15% to 16.2%. RH also expects free cash flow, asset sales and distributions from equity-method investments of $300 million to $400 million.

The outlook includes an estimated 340-basis-point drag on adjusted EBITDA margin from pre-opening and startup costs associated with international expansion. That drag is expected to decline to 150 basis points in fiscal 2027, after the company cycles the opening costs for its global flagships in Paris, Milan and London.

For the third quarter, RH forecast revenue growth of 5% to 6%, including contributions of 2.5 percentage points from backlog reduction, 2 points from RH Estates and 1 point from new galleries and other sources. It expects adjusted EBITDA margin of 12.5% to 13.5%.

Fourth-quarter revenue growth is projected at 16.1% to 21.2%, with backlog reduction contributing 6.5 points, RH Estates 8 points, and new galleries and other sources 4 points. Fourth-quarter adjusted EBITDA margin is projected at 19.7% to 22.9%.

RH recognized a $55.1 million tariff benefit in the second quarter and expects another $13.9 million benefit in the second half. Friedman said the company plans to use tariff proceeds to offset approximately $50 million of unplanned supply-chain costs tied to higher oil prices amid the Middle East conflict. The remaining $19 million of tariff proceeds is included in the company’s updated margin outlook.

Adjusted capital expenditures are projected to decline to $175 million to $200 million in fiscal 2027 from $240 million to $260 million in fiscal 2026. New-gallery opening costs are expected to decrease to $18 million in 2027 from $48 million this year.

**Gallery format evolution**

RH is shifting toward new retail formats designed to reduce construction costs and improve returns. Its RH Compounds, which will feature multiple buildings, connected garden courtyards and a central restaurant, are under development in Naples and Aventura, Florida. The company expects both projects to open in 2027 and deliver payback periods of 12 to 18 months. RH is also developing single-story design galleries with integrated restaurants and pursuing “ecosystem” strategies in certain markets, where separate RH Estates, Interiors, Modern and Outdoor locations can operate near one another rather than requiring a single large gallery.