RH (RH): A Bear Case Theory

We came across a bearish thesis on RH on Matt McClintock Retail/Consumer Research – M Squared Capital’s Substack by Matthew McClintock. In this article, we will summarize the bulls’ thesis on RH. RH’s share was trading at $215.04 as of August 8^th. RH’s trailing and forward P/E were 50.96 and 20.12 respectively according to Yahoo Finance.

Restoration Hardware’s (RH) 1Q25 results reinforced a bearish outlook despite a few positives, notably a 10% YoY rise in customer deposits, the strongest in three years. This contrasts with management’s 2Q25 guidance for a 600 bps tariff-related revenue hit, suggesting a pull-forward in custom furniture orders ahead of price hikes. Inventory cash flow was only $18M despite aggressive discounting, and excess stock of $200–$300M at cost remains a concern for vendor relationships.

Questions also arise over a 35% Outdoor discount amid claims prices weren’t raised, reduced capex alongside plans to open 7–9 galleries annually, and the untested “design compound” concept that purportedly halves build costs. Management’s $500M real estate sale claim lacks clarity given limited owned stores, and prior China sourcing commitments have slipped. International expansion optimism is unconvincing; EBIT drag guidance of 180 bps for 2025 matches prior forecasts, with ongoing losses in Germany despite reported 60% demand growth off a low base, slowing growth in England’s Aynho Park, and silence on RH Brussels and Sydney.

Paris’s planned September opening may align with Maison et Objet but could elevate SG&A. Sell-side models appear overly optimistic, assuming gross margin expansion despite permanent 30% RH Member discounts, continued clearance inventory, tariff impacts, and rising occupancy costs. SG&A forecasts also seem understated given upcoming store openings. Consensus EBIT guidance aligns with ~$10.50 EPS, but downside risk is significant, especially after a weaker-than-expected 1Q25 EPS of $0.13 vs. the bearish $0.20 scenario. The high-end EPS estimate remains $11.00, but the low-end is cut to $7.00, with visibility skewed toward downside risk.

Previously, we covered a bearish thesis on RH by Open Insights in March 2025, highlighting its costly luxury expansion and weak cash flow. The stock depreciated about 30% since coverage as these risks materialized. The thesis still stands, given ongoing profitability concerns. Matthew McClintock shares a similar view but emphasizes inventory challenges, tariff impacts, and downside earnings risks.

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Disclosure: None.