Business Context and Reporting Period
Company: RH (formerly Restoration Hardware)
Filing Type: Form 10-K (Annual Report)
Fiscal Year Ended: January 31, 2026 (Fiscal 2025)
Business Overview: RH is a leading luxury lifestyle brand and retailer of home furnishings, operating through integrated channels including Design Galleries, websites, and Sourcebooks. The company is executing a strategy of "Product Elevation," "Gallery Transformation," and "Global Expansion," recently opening locations in Paris, Brussels, and Madrid, with plans for Milan and London in 2026.
Key Financial Metrics
| Metric | Fiscal 2025 (Ended Jan 31, 2026) | Fiscal 2024 (Ended Feb 1, 2025) |
|---|---|---|
| Net Revenues | $3,439.5 million | $3,180.8 million |
| Gross Profit | $1,515.8 million | $1,414.9 million |
| Gross Margin | 44.1% | 44.5% |
| Operating Income | $387.3 million | $322.6 million |
| Operating Margin | 11.3% | 10.1% |
| Net Income | $124.8 million | $72.4 million |
| Diluted EPS | $6.31 | $3.62 |
| Adjusted EBITDA | $596.5 million | $539.1 million |
| Net Debt | $2,377.9 million | $2,593.7 million |
| Cash and Cash Equivalents | $41.2 million | $30.4 million |
| Operating Cash Flow | $452.2 million | $17.1 million |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 8.1% year-over-year, driven by higher revenue in the core RH business due to product transformation and platform expansion, as well as increased hospitality and outlet revenue.
- Profitability: Operating income increased 20.0% to $387.3 million. This improvement was aided by a significant reduction in asset impairments compared to the prior year (Fiscal 2024 included $36.1 million in impairments, primarily related to German galleries, whereas Fiscal 2025 had $3.6 million).
- Margin Pressure: Gross margin decreased 40 basis points to 44.1%, attributed to decreased margins in the core business and increased occupancy costs, partially offset by shipping cost leverage.
- Inventory Management: Merchandise inventories decreased by $201 million year-over-year, reflecting improved inventory management and a reduction in excess stock.
- Debt Reduction: Total debt decreased by approximately $205 million, primarily due to net repayments under the asset-based credit facility.
Guidance, Outlook, and Risks
- Capital Expenditures: Management anticipates adjusted capital expenditures of $240 million to $260 million for Fiscal 2026, focused on new Design Gallery construction and infrastructure investments.
- Expansion Strategy: The company plans to open RH Milan and RH London in 2026, continuing its global expansion. It also plans to introduce "RH Design Compounds" in Naples, Miami, and Walnut Creek.
- Tariff and Trade Risks: Significant uncertainty remains regarding U.S. trade policy. Following a Supreme Court ruling striking down certain tariffs in February 2026, new tariffs were announced on imports from all countries. The company faces risks related to increased costs of goods sold and potential supply chain disruptions.
- Macroeconomic Factors: The company notes that high interest rates, mortgage rates, and inflation continue to negatively affect the luxury home market and consumer spending.
- Subsequent Event: In February 2026, RH entered a settlement agreement regarding credit card interchange fees, expecting to recognize a net gain of approximately $30 million in the first quarter of Fiscal 2026.
Investor Verification Checklist
- Tariff Impact: Verify the specific financial impact of the new tariffs announced in February 2026 on cost of goods sold and pricing power.
- Inventory Turnover: Confirm the sustainability of the $201 million inventory reduction and its effect on future gross margins.
- Real Estate Execution: Monitor the timeline and cost overruns associated with the planned openings of RH Milan, RH London, and the new "Design Compounds."
- Debt Covenants: Review the Fixed Charge Coverage Ratio (FCCR) covenant compliance, particularly given the variable interest rate environment and the $2.4 billion term debt load.
- Legal Settlements: Track the recognition of the $30 million credit card interchange fee settlement and any ongoing litigation costs related to employment or product liability.