RH's Strategic Move Away from China
Luxury home furnishing retailer RH, formerly known as Restoration Hardware, has announced a significant shift in its production strategy, planning to move a substantial portion of its manufacturing from China to the United States and Italy. This decision comes in response to looming tariff uncertainties that could impact the cost of imported goods. According to a recent earnings report for the first quarter of fiscal 2025, RH is projecting that 52 percent of its upholstered furniture will be produced in the United States by the end of the fiscal year, a sharp increase from previous figures.
The company reported a 12 percent year-over-year revenue increase for Q1 2025, despite operating in what it describes as one of the toughest housing markets in nearly 50 years. RH's stock price surged nearly 7 percent on June 13, reflecting investor confidence in the company's ability to navigate these challenges through strategic sourcing adjustments. Chairman and CEO Gary Friedman emphasized the importance of this shift, stating, 'We're taking proactive steps to mitigate tariff risks by diversifying our supply chain.'
Tariff Challenges and Market Resilience
The backdrop to RH's production shift is the potential imposition of higher tariffs on imported goods, particularly from China, which could significantly affect the cost structure of luxury retailers reliant on overseas manufacturing. RH has been vocal about reducing its dependency on Chinese sourcing, with plans to lower the percentage of goods sourced from China from 16 percent to just 2 percent. This move is part of a broader trend among American companies reevaluating supply chains in light of geopolitical tensions and economic policies.
Despite missing revenue expectations for Q1 and guiding Q2 below consensus, RH reaffirmed its full-year 2026 revenue growth outlook of 10 to 13 percent. The company's adjusted operating margin stood at 7 percent, with adjusted EBITDA at 13.1 percent, both at the high end of expectations. This resilience is further evidenced by RH generating positive free cash flow during the quarter, a notable achievement amid market headwinds.
Future Outlook and Expansion Plans
Looking ahead, RH is not only focusing on production shifts but also on strategic delays and expansions to ensure long-term growth. Due to tariff uncertainty, the company has postponed the launch of a new concept from the second half of 2025 to spring 2026. This cautious approach aims to safeguard against potential cost increases while maintaining focus on innovation and market expansion.
Additionally, RH continues to invest in its retail presence, with plans to open new stores despite the challenging housing market. The recent appointment of Lisa Chi as President and Co-Chief Merchandising & Creative Officer on May 20 signals a push to elevate product offerings and enhance the brand's creative direction. As RH navigates these complex dynamics, its commitment to adapting sourcing strategies and maintaining financial stability positions it as a leader in the luxury home furnishing sector.