The Trump administration postponed a scheduled tariff increase on certain furniture-related imports.
RH has been generating significant free cash flow.
The company is committed to its international expansion.
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The furniture industry just got a little wiggle room on the tariff front. On Dec. 31, the White House said it would delay a planned increase in tariff rates for upholstered furniture, kitchen cabinets and dressers that was scheduled to take effect on Jan. 1, 2026, while maintaining the current 25% tariff.
Actions of RH(NYSE: RH) and other furniture companies woke up to the news. Tariff uncertainty has been another burden in an already hectic context for the luxury furniture specialist. The company has faced the “worst housing market in nearly 50 years,” RH CEO Gary Friedman told investors in the company’s third-quarter update.
Despite the challenges it has faced, RH has returned to top-line growth and is reporting substantial free cash flow. Additionally, it has been investing heavily in a global expansion that it hopes will dramatically expand its addressable market.
Combining this positive tariff news with RH’s recent trade momentum and a stock that is still below previous highs, it’s a good time to look at the stock.
Image source: Getty Images.
Tariffs have hurt HR’s business in more ways than one. Yes, they hurt margins. But the volatile tariff environment has also created significant uncertainty for management and its clients. Putting the volatile environment into perspective, Friedman noted in the company’s most recent quarterly update that there have been “16 different tariff announcements over the past 10 months that have resulted in significant resources, product delays, stockouts, and have prompted multiple rounds of negotiations and price increases.”
While the White House did not eliminate the tariffs, it did delay a large increase in them. Not only will this save HR money, but it will also help you plan your marketing and sourcing with a little more confidence.
Meanwhile, the company has been doing everything it can to address tariff challenges head-on by shifting its sourcing away from China and implementing other measures to reduce its exposure to tariffs.
However, the best reason RH stock looks more interesting today is not the delay in fees, but the company’s recent cash generation.
Aided by 9% revenue growth in its most recent quarter, RH’s third-quarter free cash flow totaled $83 million, bringing year-to-date free cash flow to $198 million. Management also reiterated a full-year free cash flow outlook of between $250 million and $300 million. For a company with a market capitalization of $3.6 billion, this is substantial.
Strong free cash flow during a difficult housing market not only highlights the resilience of RH’s business, but also suggests that the company should have no problems paying down its debt in the coming years – and it has many. RH ended the third quarter with net debt of approximately $2.4 billion.
But strong free cash flow isn’t the only reason to be bullish on RH. The company’s international expansion also looks promising.
The company opened RH England in 2023 and expanded to Paris in 2025. What’s more, the company positioned these locations as more than just stores: they are immaculate, immersive brand statements designed to raise awareness and drive demand for its fledgling design services business. RH believes that these stores will make a lasting statement about its brand and establish RH as a global brand.
The company has also unveiled plans for additional European galleries, including openings in London and Milan in 2026.
Importantly, RH is telling investors to expect a short-term financial drag from this strategy. In its third-quarter outlook, management said its guidance included approximately a 200 basis point hit to operating margin from investments and start-up costs tied to international expansion.
But if RH manages to build a lasting luxury brand overseas, the current share price could look cheap in retrospect.
Overall, shares look attractive at a valuation of 13 times the midpoint of management’s full-year 2025 free cash flow guidance. But given the stock’s debt levels and the unpredictable nature of the real estate and furniture markets, investors should be aware that there are risks.
Additionally, it may make sense for investors buying the stock to keep their positions small, given how volatile furniture sales have proven to be in recent years. While RH sales could increase if the housing market recovers, uncertainty in the housing market could also cause luxury furniture sales to decline sharply.
The delay in fees is undoubtedly a positive development for HR. Reduces rate uncertainty and gives more visibility to management. But the real reason to be excited about RH stock is its free cash flow and international expansion.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.
Is RH Stock a Buy as Furniture Rate Increases Delay? was originally published by The Motley Fool
