RH (Restoration Hardware) Q1 2026 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended May 2, 2026. RH is a leading retailer and luxury lifestyle brand operating primarily in the home furnishings market. As of the period end, the company operated 75 RH Galleries, 43 RH Outlet stores, one RH Guesthouse, one RH Interior Design Studio, and 14 Waterworks Showrooms across the United States, Canada, and Europe. The company continues its strategy of "Gallery Transformation," shifting from legacy retail footprints to larger Design Galleries, and expanding globally with recent openings in Milan and upcoming openings in London.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Net Revenues | $800.3 million | $814.0 million |
| Gross Profit | $331.3 million | $355.3 million |
| Gross Margin | 41.4% | 43.7% |
| Operating Income | $34.2 million | $55.9 million |
| Net Income (Loss) | $(13.7) million | $8.0 million |
| Diluted EPS | $(0.73) | $0.40 |
| Operating Cash Flow | $52.5 million | $86.6 million |
| Total Debt (Net of Cash) | $2.37 billion | $2.38 billion |
| Cash and Equivalents | $53.8 million | $46.1 million |
Material Changes vs. Prior Period
- Revenue Decline: Net revenues decreased 1.7% year-over-year, driven by lower revenue in core and Contract businesses, partially offset by increased hospitality revenue from new Gallery openings.
- Margin Compression: Gross margin decreased 230 basis points to 41.4%. The decline was primarily due to higher occupancy costs associated with new Gallery openings and decreased product margins in the RH outlet and core businesses.
- Profitability Shift: The company reported a net loss of $13.7 million compared to a net income of $8.0 million in the prior year. This was significantly impacted by a $31.7 million favorable legal settlement gain in the current period (related to credit card interchange fees) which, while a gain, was excluded from Adjusted Operating Income calculations to show underlying performance.
- Adjusted Operating Income: Excluding the legal settlement and non-cash compensation, Adjusted Operating Income dropped significantly to $2.6 million from $56.8 million in the prior year, reflecting the operational headwinds.
- Capital Expenditures: Adjusted capital expenditures increased to $77.8 million from $70.4 million, reflecting continued investment in new Design Galleries and infrastructure.
Guidance, Outlook, and Risks
- Capital Expenditure Outlook: Management anticipates adjusted capital expenditures of $240 million to $260 million for fiscal 2026, primarily for growth and expansion.
- Strategic Initiatives: The company is pursuing "Product Elevation" with new collections (RH Estates, RH Bespoke) and "Global Expansion" with planned openings in London (June 2026) and Sydney (future). They are also transitioning some real estate projects from a leasing model to a development model to optimize capital.
- Tariff and Trade Risks: Significant uncertainty remains regarding U.S. trade policy. While the Supreme Court invalidated certain IEEPA tariffs in February 2026, new tariffs were subsequently imposed. RH has filed for refunds of approximately $69 million in previously paid tariffs and has received about $9 million to date. The timing and recoverability of remaining refunds are uncertain.
- Legal Contingencies: The company faces various legal proceedings, including class actions and employment claims. While a $32 million settlement gain was recognized in Q1, future litigation outcomes remain unpredictable.
- Subsequent Event: In May 2026, RH received a $50 million cash distribution from Aspen LLCs and became the sole owner of four completed Gallery locations and three development-stage sites, positioning the company for potential near-term monetization via sale-leasebacks.
Investor Verification Checklist
- Tariff Refund Realization: Verify the timeline and probability of receiving the remaining ~$60 million in tariff refunds filed for in April 2026.
- Adjusted Operating Income Trend: Monitor the trajectory of Adjusted Operating Income, which fell sharply to $2.6 million, to assess if margin compression from new Gallery openings is stabilizing.
- Real Estate Monetization: Track the execution of the new real estate strategy, specifically the sale-leaseback or divestiture of the four newly acquired Gallery locations (England, Cleveland, Detroit, Indianapolis).
- Debt Covenants: Confirm continued compliance with the Fixed Charge Coverage Ratio (FCCR) covenant, which applies when unused availability under the ABL facility drops below specific thresholds.
- Inventory Levels: Review merchandise inventory levels ($802.4 million) relative to sales trends to ensure no significant write-downs are required given the macroeconomic slowdown in the luxury home market.