Shares of RH (RH 0.30%) were surging today even as the broad market was tumbling for a third straight session in response to President Trump's "Liberation Day" announcement of tariffs.
Today's gains came as the company updated its guidance after hours on Friday and received a favorable analyst note from Stifel. As of 1:05 p.m. ET, the stock was up 14.2% even as the S&P 500 (^GSPC +0.83%) was down 1.8% at the same time.
Image source: RH.
RH has upside
RH was in the bizarre position last Wednesday of holding its fourth-quarter earnings call while President Trump was announcing the tariffs. The stock plunged more than 40% Thursday in response to weak results and guidance, as well as the presumed impact of the tariffs.
In a press release after hours on Friday, the company said it has been operating with 25% tariffs on imports from China since the first Trump administration and has moved most of its China production to Vietnam. It's also moved a significant percentage of China production to its factory in North Carolina.
Management also said it believes that Trump is using the tariff as a negotiating tool, noting the president's reports of a productive call with Vietnam, though that belief seems speculative at this point.
In RH's quarter-to-date update, the company said the demand, a proxy for orders, is up 17%, and that it doesn't have more market risk than other higher-end home furnishing retailers.
It also announced 2025 free cash flow guidance of $250 million-$350 million, meaning the stock is trading at a multiple of about 10 based on that forecast. That compares to a free cash flow loss of $214 million in 2024, which was driven by accumulation of inventory as it released new product lines.
NYSE: RH
Key Data Points
One Wall Street analyst still approves
This morning, Stifel weighed in on the stock, maintaining a buy rating on it, but lowering its price target from $450 to $390. It estimated that the "Liberation Day" tariffs would generate a $362 million adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) headwind, though it thought the stock's plunge on Thursday represented the worst-case scenario.
RH's guidance implies some certainty at a time of high uncertainty, but its premise that the tariffs are just a negotiating tactic could be wrong.
Regardless of the impact of tariffs and a possible recession, the business is strong enough that it should eventually recover. Even after today's bounce, the stock is still down sharply from a week ago, meaning buying it now could pay off for patient investors, though volatility is likely.
