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Luxury home furnishings firm RH (RH -44%) sinks to a nearly five-year low today after posting misses on its top and bottom lines in Q4 (Jan) and issuing alarming guidance for Q1 (Apr) and FY26. RH is facing many obstacles at the moment. If sticky inflationary pressures, elevated interest rates, and a depressed housing market were not enough, yesterday's sweeping tariffs are creating new challenges for the company.

Nearly three-quarters of RH's products last year were sourced from Asia, including 35% from Vietnam, 23% from China, and the remainder from Indonesia and India. Only 10% of products were made in the U.S. Some of the highest reciprocal tariffs last night were on Vietnam, China, Indonesia, and India, charging 46%, 34%, 32%, and 26%, respectively, putting RH in an uncomfortable position on how to mitigate the fallout. The company has been stockpiling inventory, which ballooned by 35% yr/yr in Q4. CEO Gary Friedman said he feels good about acquiring inventory at a reasonable price ahead of tariffs. Mr. Friedman also believes the tariffs will not completely stick, thinking they are primarily a negotiation tactic.

Nevertheless, tariffs added a new wrinkle to RH's story, which the company is trying to keep from becoming a minor tragedy.

• Turning to Q4 results, there was a noticeable change in trend from last quarter. RH was coming off a bullish Q3 (Oct) report, projecting Q4 revenue well above consensus as demand accelerated during November and December. However, mortgage rates shot up to six-month highs after the Federal Reserve signaled higher-for-longer rates. As a result, demand softened in mid-December, coinciding with a 22% plunge in mortgage applications, causing revenue to grow by just 10.0% yr/yr to $812.41 mln, far below RH's initial $868.5 mln forecast.
• RH remains optimistic. Mr. Friedman noted that even as the company operates in the worst housing market in nearly five decades, citing how there were similar existing homes sold in 1978 compared to 2024 despite a 53% surge in population, it is still performing at a level one would expect during a robust housing market.
• Still, for the year, the picture is bleak. RH projected FY26 revenue growth of +10-13%, a decent uptick from the +5% growth posted in FY25 but still falling short of analyst expectations. The company also enters the year with meaningful debt, primarily from spending $2.2 bln to buy back its stock. However, RH mentioned that it plans to monetize around $500 mln of assets and turn its $200-300 mln of excess inventory into cash, which will help pay down debt and lower interest rate expenses.

There were many headwinds on the horizon before tariffs entered the picture, likely making it challenging for RH to mount an aggressive comeback over the near term. The company's peers similarly feel the sting of import taxes, with decent-sized losses across the board, including W -28%, WSM -17%, HVT -11%, LZB -10%, and ETD -9%.