By Mariapaula Gonzalez and Sabrina Escobar

Restoration Hardware posted mixed quarterly results, but the stock has taken off because management is sticking with its financial forecasts for the year despite uncertainty over tariffs.

Shares were up roughly 8% to $14.79 Friday afternoon. Encouraging commentary from management, plus a short squeeze, are behind that gain.

The furniture retailer maintained its fiscal year outlook despite grappling with a high-risk business environment and what CEO Gary Friedman described as "the worst housing market in almost 50 years." The company continues to expect full-year revenue will grow between 10% to 13% from last year's total.

Investors had been fearing the company would cut the outlook to reflect the impact of tariffs. Much of the furniture sold in the U.S. is manufactured in Asia, particularly China and Vietnam, two countries at risk of higher levies.

Cristina Fernández, an analyst at Telsey Advisory Group, estimates that a little under three-quarters of the company's products were sourced from Asia in 2024. RH executives said they were shifting production out of China and were aiming to have 52% of the company's upholstered furniture produced in the U.S. and 21% produced in Italy by the end of 2025.

Traders reversing bets that the stock would fall are another reason for the surge. A little over 20% of RH's shares are sold short, meaning that many investors had borrowed the stock and sold it, hoping that the price would fall, allowing them to buy it back at a lower level.

That tactic has paid off for the better part of the year -- shares are down about 50% since January. But the company's surprise earnings beat and better-than-feared outlook drove shares higher Friday. That put pressure on short sellers to buy the stock to close their positions, which helped to boost the price.

The furniture retailer reported adjusted earnings of 13 cents a share after the close on Thursday, beating analyst expectations for an adjusted loss of 9 cents per share. Revenue rose 12% to $814 million, falling slightly short of expectations for $818.6 million, according to FactSet.

"All in, we came away with greater confidence that RH's product transformation continues to resonate with consumers and that the company can achieve its 2025 financial guidance despite a volatile economic backdrop," wrote Fernández. She rates the stock Outperform.

Luxury furniture retailer Williams Sonoma also reiterated its fiscal-year outlook in its May earnings report, saying it would revisit that call if tariffs changed. Last month, Wayfair also beat consensus estimates with adjusted first-quarter earnings of 10 cents a share.

That said, the bears may still win. RH executives indicated that there were still challenges ahead for the broader furniture industry. The company stopped shipments when President Donald Trump announced so-called reciprocal tariffs in April and manufacturers paused production as they waited to see how policies would shake out. The company is also delaying the launch of a new concept planned for the second half of 2025 to the spring of 2026, when there may be more certainty over tariffs and pricing strategies.

The disruption to the supply chain will negatively weigh on second-quarter revenue, which the company projects will grow between 8% to 10% year over year.

"When you stop the factory for a week or two, it's backed up and then you got to catch up, and so you're just going to have a deferral, kind of a lag of shipments," said Friedman, the CEO.

The quarter was "better than feared, but far from good," as Citi analyst Paul Lejuez put it.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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June 13, 2025 14:59 ET (18:59 GMT)

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