MW RH's stock plummets 40% - and is 'fully at the mercy' of tariffs, analyst says

By Bill Peters

Stifel analysts said Trump's new tariffs 'quickly commandeered sentiment' over the high-end furniture chain

As President Donald Trump's new tariffs hammered retail and clothing stocks on Thursday, shares of upscale furniture chain RH were among the biggest losers - plunging to their biggest percentage drop ever, as analysts raised concerns about steeper costs and difficulties in finding new ways to secure some of the materials it uses to make products.

The 40% slide came after RH's $(RH)$ earnings release after hours on Wednesday landed roughly at the same time that Trump announced steeper tariffs globally - and particularly on nations like China and Vietnam, where RH makes a significant portion of its furniture.

Stifel analysts, in a note on Wednesday, said the tariffs "quickly commandeered sentiment" as RH's shares began falling after hours that afternoon.

They added that if tariffs became "the new normal, we believe the negative after-hours reaction implies RH is fully at the mercy" of the challenges related to those duties.

"While we continue to see opportunity within the company's new product assortment, the uncertain consumer reaction to tariffs may put additional pressure on consumers to defer big-ticket discretionary purchases," KeyBanc analyst Brad Thomas said in a note on Wednesday.

RH, during its earnings call on Wednesday, said that before Trump's tariff announcement, it had already stocked up on $200 million to $300 million worth of excess furniture and decor that its competitors didn't have. Those rivals, Chief Executive Gary Friedman said, might have to order additional furniture at a much higher cost.

"Inventory is our friend," he noted.

How long it might be the company's friend was up for debate. Wedbush analysts on Thursday estimated that RH's current surplus would likely only give it less than one quarter of sales "cushion" from higher tariff-related costs.

Friedman, during the call, tried to highlight the potential longer-term positives of Trump's trade escalations. RH has said it has been trying to rely less on China and Mexico, another target of Trump's tariffs, for production. In December, the company said it expected to make a full exit from China by the end of its second quarter.

However, the Wedbush analysts noted that management didn't reiterate that timeline on Wednesday. And according to RH's annual report filed on Wednesday, 72% of its products came from Asia in its fiscal 2024 when measured by dollar volume of purchases. Thirty-five percent came from Vietnam, 23% came from China, and the remaining portion largely came from Indonesia and India, that report said.

The Wedbush analysts said the tariffs placed on most of the nations where RH sources products could translate to a 38% jump in production-related costs for its merchandise, if it didn't shift manufacturing elsewhere. But even with changes the analysts assumed could take hold this year, those costs would still be up nearly 30%, they estimated.

The analysts also noted that RH on Wednesday called out the difficulties in pivoting away from nations like Indonesia, where it gets a lot of its teak used to make outdoor furniture. Friedman, during the call, said that Indonesia was "the capital of premium teak."

"With that said, we believe RH is better positioned than most discretionary retailers given its scale and higher-net-worth customer base," the analysts said.

Trump has said that the tariffs will help the U.S. negotiate more favorable deals with other nations and replenish the nation's manufacturing base by deterring companies from making products abroad.

But many economists have worried those tariffs will raise costs for consumers. Markets retreated on Thursday amid fears of a recession and disruptions to the global trade order. Within the housing industry, which often plays a big role in the furniture industry's fortunes, analysts expect higher home-building and remodeling costs, but potentially lower mortgage rates.

Retail groups, either way, didn't take Trump's announcement well. The National Retail Federation, in a statement on Wednesday, said the tariffs would further squeeze consumers who have been wrestling with price increases for the past few years.

"More tariffs equal more anxiety and uncertainty for American businesses and consumers," David French, the industry group's executive vice president of government relations, said in a statement. "While leaders in Washington may not care about higher prices, hardworking American families do."

The Home Furnishings Association, an industry advocacy group, said in a statement that "unfortunately, this round of tariff increases will negatively impact all stakeholders in the home-furnishings ecosystem.

"Even domestic manufacturers, who may not directly import finished goods, rely on imported components such as hardware, upholstery and cut-and-sew kits," it added.

The group said it was organizing a gathering in Washington next month, where retailers could meet with their state representatives to express their concerns.

-Bill Peters

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April 03, 2025 17:01 ET (21:01 GMT)

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