RH (RH 6.24%) has always been a different kind of home furnishings company. It sells aspiration as much as sofas, and it is willing to play through ugly industry cycles if it believes the payoff is on the other side.
That mindset showed up again in the company's latest earnings update for the quarter ended Nov. 1, 2025. Revenue rose nicely, and free cash flow was particularly impressive. In addition, management's outlook suggests the business is holding up heading into year-end, even in the face of continued uncertainty in the housing market. The icing on the cake? A bad housing market isn't stopping RH from expanding overseas.
While shares are up sharply over the last 30 days, the stock is still down massively year to date, and it's down 77% from its all-time high of $738.52 achieved in 2021, making the investment thesis worth revisiting today. Is it finally time to buy into the stock's huge pullback?
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Strong growth
In the third quarter of fiscal 2025, RH reported revenue of $884 million, up 9% year over year. Net income also increased 9%, coming in at $36 million.
The company's jump in profitability is notable in light of the cost headwinds the high-end furniture company has been facing. RH's operating margin for fiscal Q3 came in at 12%, contracting 0.5% from the year-ago period as tariffs were higher than expected. Additionally, opening expenses for its new store in Paris were also greater than expected during the quarter.
But where the company really shone bright was cash flow. RH reported free cash flow of $83 million in the third quarter of fiscal 2025 (up from negative free cash flow of $96 million in the year-ago quarter), bringing year-to-date free cash flow to $198 million. Further, management reiterated a full-year outlook for free cash flow of $250 million to $300 million.
Now for the part that adds nuance to the "turnaround gaining traction" idea. After revenue grew 9% year over year in fiscal Q3, RH's outlook calls for fiscal Q4 revenue growth of 7% to 8% -- a modest deceleration. But the margin outlook points the other way; management guided to an adjusted operating margin of 12.5% to 13.5% in fiscal Q4, which would be an improvement from fiscal Q3's 11.6% even with meaningful headwinds baked in.
An aggressive global expansion
But to fully grasp the bull case for RH, you need to look internationally. Part of the reason the company has invested so heavily in its brand in recent years is that it wanted to ensure it commanded a luxury brand that travels.
The company's business is still young overseas, with the opening of RH England in the summer of 2023 and an expansion to Paris this September. In addition, the company plans to open stores in Milan and London next year. Management has said RH England and RH Paris have seen great success, so these openings are a positive indicator for the company's overall international expansion.
Of course, there are costs involved with expansion. In the company's updated outlook, management stated that fiscal Q4 guidance includes an approximate 200 basis point negative adjusted operating margin impact from investments and start-up costs to support international expansion.
NYSE: RH
Key Data Points
Those pressures are manageable if demand trends stay firm. But they may become a bigger issue if the housing slump drags on longer than expected. Indeed, even RH CEO Gary Friedman called this "the worst housing market in almost 50 years" in his third-quarter update. If a market like this persists, the company's international expansion plans may face delays or unexpected challenges.
Overall, I think shares are attractive again. The stock has a price-to-earnings ratio of about 31 and a forward price-to-earnings ratio of 13, making it look fairly priced given RH's growth opportunities internationally. With that said, I would still keep any position in the stock small. After all, RH's net debt at the end of Q3 sat at more than $2.4 billion -- not the ideal a furniture company amid a slow-moving housing market. With that said, the company's return to positive free cash flow makes this debt manageable for now. But I'll want to see more progress before I'd consider buying anything more than a small position in the stock.
