RS Group plc

Company Overview

Business Model: RH is a leading retailer and luxury lifestyle brand primarily operating in the home furnishings market. The Company offers curated and fully integrated assortments across categories including furniture, lighting, textiles, bathware, décor, outdoor and garden, and baby, child and teen furnishings. Products are distributed through a fully integrated sales platform comprising retail locations (RH Galleries, RH Interior Design Studios, Waterworks Showrooms), websites, Sourcebooks, and Trade, Contract, and Outlet channels. RH also integrates hospitality experiences, including restaurants and wine bars, into 25 of its Design Gallery locations and operates RH Guesthouses.

Market Position: RH positions itself as a luxury brand and design authority, aiming to build the most comprehensive collection of luxury home furnishings globally. The Company emphasizes its architecturally inspiring Galleries and seamlessly integrated ecosystem of immersive experiences (Products, Places, Services, and Spaces) to differentiate itself. RH operates in a highly competitive home furnishings sector, competing with national, regional, online, and specialty retailers, as well as the interior design trade. The Company's strategy focuses on elevating product design and quality, transforming its real estate platform, and expanding globally to disrupt fragmented international markets.

Recent Strategic Developments:

• Product Elevation: Introduced the most prolific collection of new products in its history through Sourcebook mailings in fiscal 2023, 2024, and 2025. Planned spring 2026 launch of RH Estates, featuring RH Bespoke furniture and RH Couture upholstery.
• Gallery Transformation: Continuing to transform its real estate platform from legacy retail to larger Design Galleries, with an expected total annual revenue opportunity of $5 to $6 billion. Plans to incorporate hospitality into many new Design Galleries. Developing RH Design Compounds (6-8 independent buildings with garden courtyards and atrium restaurants) in Naples, Miami, and Walnut Creek for 2026.
• Brand Elevation: Expanding beyond product sales to conceptualizing and selling spaces, building an ecosystem of immersive experiences. Opened RH Guesthouse New York in September 2022 and is constructing a second RH Guesthouse in Aspen. Opened RH England, The Gallery at the Historic Aynho Park, in June 2023. Offers bespoke experiences like RH Yountville, RH One & RH Two (private jets), and RH Three (luxury yacht).
• Global Expansion: Actively pursuing global expansion, projecting a $20 to $25 billion global brand in annual revenues. Opened RH England, RH Munich, and RH Düsseldorf in 2023; RH Brussels and RH Madrid in 2024; and RH Paris, The Gallery on the Champs-Élysées, in September 2025. Expects to open RH Milan, The Gallery on Corso Venezia, and RH London, The Gallery in Mayfair, in 2026, and RH Sydney, The Gallery in Double Bay, in Australia in coming years.
• Digital Reimagination: Multiyear effort to digitally reimagine the brand and business model. Internally, reimagining the RH Center of Innovation for digitally integrated visuals and decision data. Externally, enhancing The World of RH online portal with improved content, navigation, and search functionality, with significant investments in fiscal 2025 and planned for fiscal 2026.
• Acquisition: Acquired a home furnishings business operating under the brand names Formations and Dennis & Leen on July 8, 2025, for $32 million in cash.

Geographic Footprint: As of January 31, 2026, RH operates 89 total retail locations, including 75 RH retail locations (69 in North America, 6 in Europe) and 14 Waterworks Showrooms. Additionally, it operates 44 outlet stores (including one in the United Kingdom) and one RH Guesthouse.

• North America: 69 RH retail locations (39 Design Galleries, 25 Legacy Galleries, 2 Outdoor Galleries, 1 Modern Gallery, 1 Baby & Child Gallery, 1 Interior Design Studio).
• Europe: 6 Design Galleries (RH England, RH Munich, RH Düsseldorf, RH Brussels, RH Madrid, RH Paris).
• Other International: Sourcing operations in Shanghai and Hong Kong. Plans for RH Sydney in Australia.
• Long-lived assets by geographic location: North America $2,700,339 thousand, All other countries $619,424 thousand.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: 44.1% (FY2025), 44.5% (FY2024)
• Operating Margin: 11.3% (FY2025), 10.1% (FY2024)
• Net Margin: 3.6% (FY2025), 2.3% (FY2024)

Investment in Growth:

• R&D Expenditure: Not explicitly stated as R&D expenditure. The Company capitalizes certain direct costs associated with the development and purchase of internal-use software and website development, included in "computer software" within property and equipment. Capitalized cloud computing costs were $11,344 thousand (current) and $9,851 thousand (prior) in current assets, and $31,224 thousand (current) and $22,738 thousand (prior) in non-current assets.
• Capital Expenditures: $199,843 thousand (FY2025), $230,788 thousand (FY2024).
• Adjusted Capital Expenditures: $288,871 thousand (FY2025), $282,326 thousand (FY2024).
• Strategic Investments: $32,119 thousand for business acquisition (Formations and Dennis & Leen) in FY2025. Equity method investments of $374 thousand (FY2025) and $9,621 thousand (FY2024).

Business Segment Analysis

RH Segment

Financial Performance:

• Revenue: $3,241,389 thousand (+8.5% YoY)
• Operating Margin: 11.3% (calculated from segment operating income of $365,332 thousand and revenue of $3,241,389 thousand)
• Key Growth Drivers: Higher revenue in the core business driven by continued product transformation and platform expansion. Increased hospitality revenue due to new Gallery openings. Higher outlet revenue.
• Gross Margin: 43.5% (FY2025), 44.0% (FY2024). The decrease was primarily due to decreased margins in the core business and increased occupancy costs, partially offset by leverage in shipping costs.
• Selling, General and Administrative Expenses: 32.3% of net revenues (FY2025), 34.0% of net revenues (FY2024). The decrease as a percentage of net revenues was primarily driven by asset impairments in fiscal 2024 and decreases in advertising and occupancy costs, partially offset by increases in compensation and other corporate costs.

Product Portfolio:

• Major product lines and services within segment: RH Interiors, RH Modern, RH Outdoor, RH Beach House, RH Ski House, RH Baby & Child, RH Teen.
• New product launches or major updates: Introduced the most prolific collection of new products in its history throughout 2023, 2024, and 2025. Planned spring 2026 launch of RH Estates, featuring RH Bespoke furniture and RH Couture upholstery.

Market Dynamics:

• Competitive positioning within segment: Aims to be a global thought leader, taste and place maker in luxury home furnishings.
• Key customer types and market trends: Targets high-end home furnishings consumers. RH Members Program drove approximately 97% of sales in the core RH business in fiscal 2025.

Waterworks

Financial Performance:

• Revenue: $198,147 thousand (+2.7% YoY)
• Operating Margin: 11.1% (calculated from segment operating income of $21,936 thousand and revenue of $198,147 thousand)
• Gross Margin: 52.9% (FY2025), 52.7% (FY2024).
• Selling, General and Administrative Expenses: 41.8% of net revenues (FY2025), 39.7% of net revenues (FY2024).

Product Portfolio:

• Major product lines and services within segment: Waterworks products.

Market Dynamics:

• Key customer types and market trends: Products sold online through waterworks.com and rh.com.

Real Estate Segment

Financial Performance:

• Share of equity method investments operations: Income of $4,300 thousand (FY2025), loss of $11,000 thousand (FY2024).
• Key Growth Drivers: Primarily attributable to an Aspen LLC distribution of $7,900 thousand in the first quarter of fiscal 2025.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: No shares repurchased in fiscal 2025 or fiscal 2024. In fiscal 2023, RH repurchased 3,887,965 shares for approximately $1,261 million (including $12 million excise taxes) at an average price of $321.28 per share.
• Dividend Payments: RH has never declared or paid any cash dividends on its common stock and does not anticipate doing so in the foreseeable future.
• Future Capital Return Commitments: $201 million remains available for future share repurchases under the Share Repurchase Program as of January 31, 2026.

Balance Sheet Position:

• Cash and Equivalents: $41,191 thousand (January 31, 2026)
• Total Debt: $2,419,065 thousand (January 31, 2026)
• Net Cash Position: $(2,377,874) thousand (net debt position as of January 31, 2026)
• Debt Maturity Profile: Term Loan B and Term Loan B-2 mature on October 20, 2028. The ABL Credit Agreement matures on July 31, 2030, or 91 days prior to the final stated maturity of the Term Loan Credit Agreement.

Cash Flow Generation:

• Operating Cash Flow: $452,241 thousand (FY2025), $17,095 thousand (FY2024)
• Free Cash Flow: $252,398 thousand (FY2025), $(213,693) thousand (FY2024) (calculated as Operating Cash Flow - Capital Expenditures)
• Cash Conversion Metrics: Merchandise inventories decreased by $213,776 thousand in fiscal 2025, contributing to operating cash flow. Deferred revenue and customer deposits increased by $41,411 thousand.

Operational Excellence

Production & Service Model: RH operates a proprietary product development platform fully integrated from ideation to presentation. The Company collaborates closely with a global network of artisan partners and specialty vendors to produce high-quality, distinctive original designs and reinterpretations of antiques on a large scale. A manufacturing facility in North Carolina produces a number of RH's upholstery collections. The Company offers a white glove home delivery service for larger merchandise and furniture categories, with third-party personnel delivering smaller items.

Supply Chain Architecture: Key Suppliers & Partners:

• Vendor Concentration: In fiscal 2025, 76% of purchase dollar volume was sourced from 28 vendors, with one vendor accounting for 14% of total purchase dollar volume.
• Geographic Sourcing: Based on total dollar volume of purchases for fiscal 2025, 69% of products were sourced from Asia (39% from Vietnam, 13% from China, remainder predominantly from Indonesia and India), 21% from North America (13% from the United States), and 10% from Europe and other countries.
• Supply Chain Strategy: Actively shifting supply chain away from countries with higher tariff rates to other jurisdictions to mitigate financial impact.

Facility Network:

• Manufacturing: One manufacturing facility in North Carolina for upholstery collections.
• Research & Development: RH Center of Innovation supports the entire product development process, incorporating digitally integrated visuals and decision data.
• Distribution:
  • Four distribution centers in the United States servicing RH products (Patterson, California; Baltimore, Maryland; Ontario, California; West Jefferson, Ohio).
  • One distribution center in the United States servicing Waterworks products (Brookfield, Connecticut).
  • One third-party distribution center in Europe.
  • Home delivery services in 29 key markets in the United States, and six third-party home delivery center locations in Europe.

Operational Metrics: The Company has enhanced the quality of its delivery providers through metric-based accountability standards, which it believes has dramatically enhanced the customer experience while reducing return rates, damages, and deliveries per order.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Retail Locations: RH Galleries, RH Interior Design Studios, Waterworks Showrooms. As of January 31, 2026, 75 RH retail locations and 14 Waterworks Showrooms.
• Direct Sales: Direct sales to residential interior designers and decorators (Trade channel) and to hotel ownership groups, commercial property owners, builders, and developers (Contract channel).
• Digital Platforms: Primary RH websites (rh.com, rhbabyandchild.rh.com, rhteen.rh.com) and Waterworks websites (waterworks.com, rh.com). "The World of RH" online portal.
• Print Media: Sourcebooks (RH Interiors, RH Modern, RH Outdoor, RH Baby & Child, RH Teen) serve as primary branding and advertising vehicles.
• Outlet Stores: 44 outlet stores (RH Outlet or Restoration Hardware Outlet) for returned, discontinued, and overstock merchandise.

Customer Portfolio: Enterprise Customers:

• RH Members Program: Approximately 262,000 members at year-end fiscal 2025, driving approximately 97% of sales in the core RH business. The program offers a set discount, complimentary design services, and preferred financing plans for an annual fee.
• Trade and Contract Channels: Serve residential interior designers/decorators and large-scale luxury hospitality, commercial, and residential development projects globally.

Geographic Revenue Distribution:

• Revenues are predominantly denominated in U.S. dollars. Geographic revenues generated outside of the United States were not material to consolidated financial statements for all fiscal periods presented.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The home furnishings sector is highly competitive and cyclical, with sales sensitive to general economic conditions, particularly those affecting the housing market (e.g., interest rates, mortgage rates, stock market volatility, luxury home market slowdown). There is an increasing number of online and digital-centric business models.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: RH competes with a number of home furnishings retailers, including regional, national, and international businesses, new online market participants, the interior design trade, specialty stores, and antiques dealers. No specific company names are mentioned as direct competitors in the filing.

Emerging Competitive Threats: New entrants, disruptive technologies, and alternative solutions are recognized as potential threats.

Competitive Response Strategy: RH's strategy involves continuously elevating its product assortment, creating separation from competitors, originating and defining product trends, and timely anticipating and reacting to changing consumer demands. The Company also focuses on transforming its real estate platform and expanding globally to maintain competitive advantage.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics:

• Business Initiatives: Undertaking numerous initiatives simultaneously (international expansion, new categories, hospitality, Guesthouses, real estate development, organizational changes) carries risks of unsuccessful execution, unanticipated costs, and potential negative impacts on results.
• Consumer Spending: Sales are highly sensitive to general economic conditions, particularly the financial health of higher-end consumers and factors influencing the luxury home market (e.g., high interest rates, mortgage rates, stock market volatility, global economic uncertainty, inflation, shifts in consumption patterns towards travel/leisure).
• Competition: Intense competition from various retailers and new market entrants could lead to loss of market share, increased expenditures, and slower growth.

Operational & Execution Risks

Supply Chain Vulnerabilities:

• Vendor Dependency: Reliance on a limited number of third-party vendors (76% of purchases from 28 vendors, one vendor 14%), many of which are sole sources or have limited capacity, poses risks of supply disruption, quality issues, and inability to meet demand.
• Foreign Manufacturing & Imports: High dependence on foreign manufacturing (69% from Asia) exposes RH to risks from global trade policies, duties, tariffs (e.g., IEEPA, Section 232, USMCA review), trade restrictions, geopolitical tensions, and increased compliance costs (e.g., Uyghur Forced Labor Prevention Act).
• Distribution & Delivery: Risks associated with operating distribution centers, home delivery centers, and the broader supply chain, including capacity constraints, delays, and difficulties in fulfilling orders. Reliance on third-party transportation providers exposes RH to rate increases, fuel price fluctuations, and service disruptions.
• Product Quality & Liability: Merchandise may fail to meet quality standards, leading to product recalls, reputational damage, increased returns, and potential litigation. No product recall insurance.
• Information Systems & Cybersecurity: Dependence on complex IT systems, vulnerability to cyber threats, data breaches, and cyber fraud, which could disrupt operations, lead to data loss, fines, litigation, and reputational harm.
• Acquisition Integration: Risks associated with identifying, completing, and realizing benefits from acquisitions, including integration challenges and distraction of leadership.

Financial & Regulatory Risks

Market & Financial Risks:

• Liquidity & Capital Requirements: Significant capital requirements for operations, real estate strategy, international expansion, and new business development. Reliance on debt financing exposes RH to variable interest rate risk and restrictive covenants.
• Accounting Rules: Changes in accounting rules or interpretations could adversely affect reported results.
• Taxation: Fluctuations in tax obligations and effective tax rate due to changes in earnings mix, utilization of deferred tax assets, and tax law changes (e.g., IR Act excise tax, OBBBA, Pillar II proposals).

Regulatory & Compliance Risks:

• Broad Regulatory Landscape: Subject to numerous federal and state laws (labor, employment, customs, advertising, consumer protection, privacy, health/safety, real estate, environmental, IP). Expansion into new markets and business lines increases regulatory complexity and compliance costs.
• Legal Proceedings: Involvement in various legal and regulatory proceedings (class actions, employment, IP, product liability, securities fraud, regulatory investigations) can result in significant expenses, liability, and diversion of leadership time.

Geopolitical & External Risks

Geopolitical Exposure: Operations are subject to risks from natural or man-made disasters, acts of war, terrorism, geopolitical uncertainty, or widespread illness (e.g., pandemic impacts), which could disrupt business, affect consumer spending, and impact supply chains.

Innovation & Technology Leadership

Research & Development Focus: Core Technology Areas:

• Product Development Platform: RH has a proprietary, fully integrated product development platform, from ideation to presentation.
• RH Center of Innovation: This facility supports the entire product development process and incorporates digitally integrated visuals and decision data to amplify the creative process.
• Digital Experience: Focus on digitally reimagining the RH brand and business model, including enhancing "The World of RH" online portal with improved content, navigation, and search functionality.

Intellectual Property Portfolio:

• Patent Strategy: Owns design patent registrations for the ornamental appearance of several products, generally valid for 15 years from issuance.
• Trademark Strategy: Owns registered trademarks including "RH," "Restoration Hardware," "RH Interiors," "RH Modern," "RH Outdoor," "RH Baby & Child," "RH Teen," "RH Beach House," "RH Ski House," "RH Rugs," "RH Guesthouse," "The World of RH," and "Waterworks" in the U.S. and several foreign countries. These are perpetually renewable with continued use.
• Copyright Strategy: Owns copyright registrations for its Sourcebooks and website, covering photographs within these works.
• IP Protection: Vigorously protects its intellectual property rights against infringement.

Technology Partnerships: Not explicitly mentioned in the provided filing.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: The success of RH's business depends on retaining key personnel, particularly the Chairman and Chief Executive Officer, Gary Friedman. The Company has experienced changes in senior leadership and frequently implements organizational design changes, including personnel changes and reductions in force, which may impact retention.

Board Composition: The Board of Directors includes Gary Friedman, Carlos Alberini, Keith Belling, Eri Chaya, Mark Demilio, Hilary Krane, Katie Mitic, Ali Rowghani, and Leonard Schlesinger. The Certificate of Incorporation establishes a classified board of directors.

Human Capital Strategy

Workforce Composition:

• Total Employees: Approximately 7,230 team members as of January 31, 2026, an increase from 6,340 in fiscal 2024 and 5,960 in fiscal 2023.
• Geographic Distribution: Not explicitly detailed beyond total headcount.
• Skill Mix:
  • Retail and Outlet team members: Approximately 2,400.
  • Hospitality team members: Approximately 2,420.
  • Part-time team members: Approximately 720.
• Unionization: None of the team members are represented by a union.

Talent Management: Acquisition & Retention:

• Hiring Strategy: Committed to meritocratic hiring and performance-based advancement, aiming to ensure the right person is in every role.
• Retention Strategies: Focuses on attracting and retaining exceptional talent who share the Company's values.
• Employee Value Proposition: Equity and fairness are fundamental, with a strict non-discrimination policy governing all aspects of employment.

Diversity & Development:

• Diversity Metrics: Believes in driving performance and innovation through teams made up of diverse skills, experiences, and perspectives.
• Development Programs: Not explicitly detailed.
• Culture & Engagement: Committed to maintaining high standards for the safety, health, and well-being of team members and guests.

Environmental & Social Impact

Environmental Commitments: Not explicitly detailed in the provided filing.

Supply Chain Sustainability:

• Supplier Engagement: Extends safety, health, and well-being expectations to partners and vendors through a "Product Partner Code of Conduct," which addresses fair labor standards and prohibitions on forced labor and child labor.
• Responsible Sourcing: Subject to the Lacey Act (prohibiting illegally harvested wood) and regulations from the California Air Resources Board and the Environmental Protection Agency regarding formaldehyde emissions from composite wood products.

Social Impact Initiatives: Not explicitly detailed in the provided filing.

Business Cyclicality & Seasonality

Demand Patterns:

• Seasonal Trends: Historically experiences some seasonality, with sales typically higher in the second fiscal quarter, correlating with a peak selling season for outdoor furniture and accessories.
• Economic Sensitivity: The business is cyclical and its net revenues are affected by general economic conditions, particularly those influencing the housing market (e.g., high interest rates, mortgage rates, stock market volatility). Sales are particularly sensitive to the financial health and demand levels of higher-end consumers.
• Industry Cycles: The high-end housing market is influenced by factors such as stock market prices, financial market disruption, second/third home purchases, foreign buyers, foreign currency volatility, inflation, tax policies, and perceived capital appreciation prospects.

Planning & Forecasting: The Company's RH Members Program aims to make orders and sales more evenly distributed throughout the year.

Regulatory Environment & Compliance

Regulatory Framework: Industry-Specific Regulations:

• General Compliance: Subject to numerous federal and state laws and regulations, including those governing labor and employment, customs, truth in advertising, consumer protection, privacy, safety, real estate, environmental, zoning and occupancy, and intellectual property.
• Product Safety: Products are subject to the Consumer Product Safety Act and Federal Hazardous Substances Act, empowering the CPSC to establish product bans, substance limits, and performance requirements. Required to report safety incidents to the CPSC.
• Environmental Regulations: Certain products are subject to regulations from the California Air Resources Board and the Environmental Protection Agency regarding formaldehyde emissions.

Trade & Export Controls:

• Export Restrictions: Subject to U.S. and international sanctions and export control regimes that may restrict transactions with certain countries, entities, or financial institutions.
• Tariffs: Highly dependent on global trade and foreign manufacturing. Products are subject to existing duties, tariffs, and trade restrictions. The U.S. government implemented new tariff measures in 2025 (e.g., IEEPA, Section 232 on wood/upholstered furniture) and announced new tariffs in February 2026. The review of the United States-Mexico-Canada Agreement (USMCA) in 2026 may also result in changes.
• Forced Labor: Subject to import restrictions under the Uyghur Forced Labor Prevention Act for goods originating from the Xinjiang Uyghur Autonomous Region.

Legal Proceedings: RH and its senior leadership are involved in various legal and regulatory proceedings, including purported class action litigation (e.g., wage and hour, employment practices, consumer practices, securities fraud), intellectual property infringement claims, product liability claims, and regulatory investigations by agencies such as the EEOC, CPSC, FTC, U.S. Customs and Border Protection, OFAC, DOL, SEC, FINRA, and NYSE. A settlement agreement for credit card interchange fees, resulting in approximately $30 million net of legal costs, was entered in February 2026 and is expected to be recognized as a gain in Q1 fiscal 2026.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: 28.2% in fiscal 2025, up from 6.2% in fiscal 2024, primarily due to higher net income and the impact of higher net excess tax benefits from stock-based compensation in fiscal 2024.
• Geographic Tax Planning: Intends to permanently reinvest undistributed earnings of foreign subsidiaries outside of the United States, expecting immaterial U.S. tax liability upon repatriation due to the participation exemption in the Tax Cuts and Jobs Act of 2017.
• Tax Reform Impact: The Inflation Reduction Act (IR Act) imposed a 1% excise tax on certain stock repurchases (effective after December 31, 2022). The H.R.1 Reconciliation Act (One Big Beautiful Bill Act, OBBBA) implemented corporate tax law changes in fiscal 2025, including limitations on interest expense deductions, changes to foreign activity taxation, and reinstatement of 100% bonus depreciation. Further international tax provisions of OBBBA will take effect in fiscal 2026.

Insurance & Risk Transfer

Risk Management Framework:

• Insurance Coverage: Maintains insurance coverage for significant exposures and legally mandated risks. Has a managed self-insurance program for employee health care claims and carries workers' compensation insurance subject to deductibles. Maintains insurance to protect against cybersecurity risks and incidents.
• Risk Transfer Mechanisms: Purchase orders generally require vendors to indemnify RH against product liability claims, though this is not assured if vendors lack insurance or become insolvent. The Company does not currently have insurance coverage for product recalls.