RH Q2 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Simeon Gutman - Morgan Stanley - Analyst : Thanks for the question. So my first question is the free cash flow is starting to sequentially improve, and you generated a decent amount this quarter. If you generate $250 million to $300 million for the full year and presumably even more through is real estate monetization still something you would or even need to pursue? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2025 / 9:00PM, RH.N - Q2 2025 RH Earnings Call

Question: Simeon Gutman - Morgan Stanley - Analyst : If I can ask a follow-up. And by the way, I'll be there next week, so for the Aspen party. My follow-up, it's maybe paraphrasing something you said, Gary, you said the clouds could be clearing soon. And you've gotten through a lot of things over the last couple of years between rates and housing. And now embedded in your financials is investment with Europe, you have all this newness and you're growing the revenue and you're generating cash now. So it feels like you're knocking on the door of that period. You mentioned soon. I don't know if you were giving a financial forecast or a weather forecast, but it's soon. So what's wrong with that logic that the business is on the cusp of this growth period that you've been engineering for the last several years?

Question: Steven Forbes - Guggenheim Securities LLC - Analyst : Gary, maybe shifting the focus to inventory, sort of a two-part question here. The first, given the change in the average tariff rate and the sort of excess inventory that you guys are winding down, any help on sort of coaching or framing how much room there is or for a continued reduction in net inventory on the balance sheet? And then the second point is there is given everything you just said, how much visibility is there into the planned launch of the new brand extension in spring? Or is there still some risk around that extension launching? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2025 / 9:00PM, RH.N - Q2 2025 RH Earnings Call

Question: Steven Forbes - Guggenheim Securities LLC - Analyst : In '18 and '19, we were running like 3%, 3.2%. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2025 / 9:00PM, RH.N - Q2 2025 RH Earnings Call

Question: Steven Forbes - Guggenheim Securities LLC - Analyst : And maybe just to confirm as a quick follow-up. So those three galleries are launching in conjunction or opening in conjunction with the launch of the brand extension in this ring.

Question: Max Rakhlenko - Cowen and Company LLC - Analyst : Great. So first, just on Europe. It's early, but with improvements in England and the strong sector Paris, can you share what you think those gallery can actually --

Question: Max Rakhlenko - Cowen and Company LLC - Analyst : Apologies, but Europe starting to scale England, that galleries improving and Paris, obviously off to a strong start. How should we think about the revenues per market or per gallery over the medium term? And then with that, how are you thinking about the four-wall economics in Europe compared to US galleries as we just think about that 200 basis points headwind easing over the medium term?

Question: Max Rakhlenko - Cowen and Company LLC - Analyst : Got it. That's super helpful. And then in the 10-Q, you discussed how the primary driver of the gross margin increase was due to increased margins in the core brand -- just any more color on what drove that? And then is the takeaway that we should consider is that promotions should continue to normalize ahead and the tariffs are just the major headwind? Or how should we take the learnings as we think about the rest of the year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2025 / 9:00PM, RH.N - Q2 2025 RH Earnings Call

Question: Michael Lasser - UBS AG - Analyst : So Gary, the investment community is very focused on the degree to which there's discounting and promotions in your messaging, the results in the quarter suggest that you've been able to overcome it with your profitability. But with that being said, is it driving incremental sales? And is the thesis that you will be able to pull back on some of this discounting oriented messaging as the housing market improves and the natural rate of demand simply increases and offset we're seeing done right now?

Question: Michael Lasser - UBS AG - Analyst : It's hard to name names right now, Gary. But it's a great segue into my second question, which is there is some skepticism around the margin outlook in the back half of the year. You're guiding below what was expected for the third quarter and well above for the fourth quarter. Can you give us more detail on what underlies those margin expectations and build the market confidence that those are realistic?

Question: Michael Lasser - UBS AG - Analyst : I'm just asking for what drives those or underlie those check. So if you could give us a sense for what you're expecting? Is it that tariffs are going to be a headwind in 3Q, but you think price by the time you get to has said you'll see a significant amount of leverage in the fourth quarter?

Question: Michael Lasser - UBS AG - Analyst : Yes, sir. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2025 / 9:00PM, RH.N - Q2 2025 RH Earnings Call

Question: Steven Zaccone - Citibank Cameroon SA - Analyst : I wanted to go up with that pricing comment and just kind of understand, Gary, you mentioned about pricing in the industry because of tariffs. What's your assessment of pricing from an industry perspective, does it get worse as we get into the back half of the year in terms of increases because of these tariffs? And do you think the second half is when we see the peak? Or is that kind of carry it to 2026?

Question: Steven Zaccone - Citibank Cameroon SA - Analyst : Yes, understood. Then a follow-up on the international margin question that Max had. So if we think about the 200 basis points drag this year, -- does that ease next year? Or should we be thinking London, opening in Milan are still going to have some pretty heavy start-up costs? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2025 / 9:00PM, RH.N - Q2 2025 RH Earnings Call

Question: Brian Nagel - Oppenheimer & Co Inc - Analyst : Thanks for slipping me in here. So a couple of questions. First, I want to make sure I understand the dynamic correctly. So if you look at an inventory growth perspective, it seems like you're managing inventory is much better here. We've seen growth moderate significantly in the second quarter. And then I guess that dynamic would help to drive cash. But again, I just want to make sure I've seen that correctly. But the question I have is as you think about managed inventories better, does that potentially become a headwind to sales if your inventories are spider through the back half of the year or whatever?

Question: Brian Nagel - Oppenheimer & Co Inc - Analyst : Great. I maybe ask just a quick follow-up. And I think maybe for Jack. But just with regard to tariffs. So should we expect that RH is in mitigation efforts, particularly price increases as a tariff fit? Or you were able to, in some instances, start adjusting prices before the actual tariff is hitting you? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2025 / 9:00PM, RH.N - Q2 2025 RH Earnings Call