RH's core profit fell a third even as a $55.1 million refund lifted earnings to $2.70

Normalized adjusted EBITDA at the luxury home-furnishings retailer RH fell to $123.5 million from $185.1 million a year earlier, a decline of about a third. A $55.1 million refund of tariffs paid under the International Emergency Economic Powers Act, a U.S. emergency-powers statute used to levy import duties, helped produce adjusted earnings of $2.70 a share for the quarter ended August 1, against a Street estimate of $0.38. Shares traded at $142.70 after hours as of 8 p.m. Eastern, up 6.6% from the regular-session close of $133.89.

The refund, not the furniture

RH said it filed in April for refunds on $69 million of IEEPA tariffs already paid. In the second quarter it received $67 million plus $2.4 million of related interest. Of that, $55.1 million was recognized as a reduction in cost of goods sold; another $14 million came off merchandise inventories.

Gross margin rose to 48.2% from 45.5% a year earlier, a lift RH said included about 600 basis points from the refund. Adjusted EBITDA was $178.5 million, a 19.4% margin, still down from last year's $185.1 million even with the refund inside the number. On the "normalized" presentation RH uses when it removes the item, the margin was 13.4%.

Chairman and Chief Executive Gary Friedman wrote that RH recognized a tariff benefit of $55.1 million in the second quarter and expects another $13.9 million in the second half. The company plans to use the tariff benefit to offset $50 million of unplanned supply-chain cost increases, with the remaining $19 million benefiting earnings and included in the fiscal 2026 margin outlook. GAAP net income was $60.2 million, or $3.06 a diluted share, up from $51.7 million and $2.62.

The $2.70 still trailed last year's $2.93. Revenue of $922.2 million rose 2.6% and came in above a Street estimate of $915.1 million. Free cash flow was $99.6 million, up from $80.7 million.

A low bar, then a second-half stack

In June, after a first quarter whose revenue fell 1.7%, RH had told shareholders to expect second-quarter revenue growth of 0.5% to 2.5% and an adjusted EBITDA margin of 11.5% to 13.0%. Reported growth of 2.6% cleared that range. The 19.4% headline margin did not describe the business; the 13.4% normalized margin did, and it still cleared the range.

The full-year guide narrowed rather than leaping. Revenue growth is now 5.5% to 7.0%, from 4.5% to 8.0% in June: a higher floor, a lower ceiling. Adjusted EBITDA margin is 15.0% to 16.2%, from 14.2% to 16.0%. The cash range stayed $300 million to $400 million, now described as free cash flow, asset sales, and distributions from equity-method investments. International pre-opening and startup costs are now expected to take about 340 basis points off the full-year margin, compared with the 270 basis points RH had included in its June outlook.

The second half is not a deceleration. It is a stack. RH Estates is a brand extension of traditional and atelier furniture, including designs from Michael Taylor, Formations, and Dennis & Leen. Friedman wrote that the concept, introduced with a 268-page Sourcebook that arrived in homes from late June through mid-July, has the potential to double the RH brand's addressable market. For the third quarter RH guided revenue growth of 5.0% to 6.0% and a 12.5% to 13.5% adjusted EBITDA margin, a step down from this quarter's normalized 13.4%. It attributed 2.5 percentage points of that Q3 growth to reducing backlog, 2.0 to Estates, and 1.0 to new galleries and other factors. For the fourth quarter it guided growth of 16.1% to 21.2% and a 19.7% to 22.9% margin, with 6.5 points from backlog, 8.0 from Estates, and 4.0 from new galleries and other factors. In June the company had already said roughly $75 million of delayed orders should ship in the second half as tariff-related backorders normalize. That is delayed first-half demand, not a new housing cycle.

August home sales sit under the fourth-quarter guide

Freddie Mac's weekly survey put the 30-year fixed mortgage rate at 6.76% as of Thursday, up from 6.71% a week earlier. The National Association of Realtors said August existing-home sales fell 2.0% from July to a seasonally adjusted annual rate of 3.98 million. Lawrence Yun, the group's chief economist, said it was "not surprising to see a mild dip in home buying activity due to high mortgage rates." That is the demand backdrop the fourth-quarter stack is betting on, with the growth coming from backlog, Estates, and new galleries rather than a stronger housing market.

Home-furnishings and homebuilder shares had already fallen in the regular session — Williams-Sonoma, Lennar, and the iShares U.S. Home Construction ETF DITB, graded D by etf.net.

RH itself closed at $133.89 and is down 25.2% year to date.

For almost anyone who owns housing or small-cap growth through a fund, Friday's question is still the mortgage rate and the sales pace. The largest RH weight in etf.net's graded universe is 2.13% in the Level Four Large Cap Growth Active ETF BLGRO, graded B. The Hoya Capital Housing ETF BHOMZ, a 100-name U.S. housing basket graded C, holds 0.81% and fell 1.7% on Thursday. The $2.70 is RH's.

The next scheduled report is December 10, when the third-quarter margin RH just guided to 12.5% to 13.5% can be checked against Estates, the backlog release, and a refund that will not be this size again.