RH Faces Margin Pressure Despite Tariff Relief, Analyst Flags Weaker Housing Demand Ahead

Bank of America Securities analyst Curtis Nagle rerated internet and e-commerce stocks RH RH and Wayfair W on Wednesday.

Nagle downgraded RH, or Restoration Hardware, to Underperform and raised the price target from $144 to $172.

Nagle rerated after the company’s fourth-quarter 2024 earnings call that also coincided with Liberation Day, primarily on significant margin risk from tariffs and a weaker demand outlook.

Also Read: Amazon, Wayfair, Pinterest Win Analyst Backing Due To Tariff Pause, Supply Chain Relief, Discretionary Spend Recovery

These reduced tariffs remove a substantial overhang to RH sentiment and margins. However, the analyst remained cautious on demand trends throughout the year and noted continued risk to fiscal year guidance, particularly with a weaker outlook for housing and consumer discretionary spending that could offset RH share gains versus peers. Street estimates are at the low end of 2025 guidance but assume a sharp acceleration in 2-year revenue growth trends and over 100bps of gross margin expansion in the second half.

Prior to the US lowering tariff rates across the board, Nagle’s analysis indicated that full tariffs would significantly weigh on RH’s operating margins. Even when assuming substantial mitigation efforts and SG&A cuts, the analyst noted tariff costs would be far more manageable.

Despite removing significant tariff headwinds, several key factors kept the analyst cautious on RH. The company reported that demand growth through April 4 (before tariff impacts) plateaued at 17%, while BAC card data & data on luxury home volumes by the National Association of Realtors suggest decelerating quarter-to-date trends for the industry.

The guidance does not incorporate tariff costs, which could still weigh on second-half gross margins. While RH expects positive free cash flow, most of this will be driven by stockpiled inventory, RH’s high net leverage at 5 times, and cash interest expense.

Despite several added headwinds, the stock is now near its five-year average of 19 times and effectively back at its pre-fourth-quarter levels. Still, an improved tariff outlook removes a significant overhang on the stock, which Nagle noted will be reflected in the stock’s multiple.

Nagle raised his RH fiscal 2025 revenue and EBIT by 1.5% and 7.6% to $3.51 billion and $463 million from $3.45 billion and $430 million to reflect a slightly improved tariff outlook. His fiscal 2025 revenue and EBIT estimates are still 0.3% and 5.2% below the Street. For fiscal 2026, he raised his revenue and EBIT by 2.1% and 2.5% to $3.86 billion and $564 million from $3.78 billion and $550 million.

Nagle maintained Wayfair with a Neutral and raised the price target from $36 to $43.

With China tariffs now lowered to 30% (from 145%), Nagle noted tariff-related costs more manageable for Wayfair, particularly since Wayfair likely has the highest sourcing exposure to China within his Online furnishings coverage.

The price target boost reflects higher sector valuation and a de-escalation in tariff rhetoric.

Price Actions: RH stock is down 3.18% at $218.50 at last check Wednesday. W is down 0.25%.

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