Fiscal 2026 Guides Below Fiscal 2025 on Every Line; Downgrading to Underperform

Results vs. Consensus

Quality of Beat/Miss

• Revenue: A genuine miss with a partially mechanical explanation. Management sized roughly $30M of the shortfall to elevated backorder and special order balances caused by tariff-related resourcing, and roughly $10M to adverse weather at quarter-end. Adjusting for both would put growth near 8.6%, above the guide's top end. The company's own CFO said on the call the resourcing problem will take until the second half of fiscal 2026 to fully resolve, so the deferral is not a one-quarter event.
• Margins: Gross margin of 42.9% contracted 180bps, the worst quarterly gross margin of the fiscal year, on tariff cost running above plan. The CFO disclosed that the Q4 tariff drag guided at 170bps came in at 190bps. SG&A leverage of 460bps is real but flatters against a year-ago quarter that carried $16.5M of asset impairment and $4.4M of reorganization cost inside the SG&A line.
• EPS: The GAAP line is meaningless here. GAAP diluted EPS more than doubled to $1.46 only because the year-ago quarter carried $21.8M of pre-tax adjustments and a $6.1M tax benefit. Adjusted net income of $30.1M fell 5.3% year over year on 3.7% revenue growth, which is the honest read: the business earned less on more.

Fourth Quarter, Year over Year

Fiscal Year 2025

Assessment: The four reported quarters sum to the fiscal year exactly: $814.0M, $899.2M, $883.8M and $842.6M against $3,439.5M. The trajectory inside that total is what matters, and it is deteriorating: revenue growth of 10.1% in the first half stepped down to 8.9% then 3.7%, while quarterly gross margin went 43.7%, 45.5%, 44.1%, 42.9%. Fiscal 2025 delivered a full year of adjusted operating margin expansion of exactly 10bps against a year that opened guided to 14-15%.

Segment and Business Performance

RH does not report segment financials. This release also dispensed with the shareholder letter format, substituting a recorded video presentation, so the disclosed operating detail is what management chose to say on camera and on the call.

RH Estates

The brand extension finally has a name, a mechanism and a scale. RH Estates addresses the traditional and classic style segment, which management says represents 60% of luxury homes, and is built on four acquired to-the-trade brands (Michael Taylor, Joseph Jeup, Formations and Dennis & Leen) plus RH Couture Upholstery by Dmitriy & Co. It premieres at RH Milan during Salone, with a dedicated Sourcebook in mid-May, freestanding Estates Galleries in Greenwich and the San Francisco Design District opening early summer, and West Hollywood in 2027.

"About 30, 40 galleries -- our top 30, 40 galleries in the large design galleries, we'll take over the first floor with RH Estates. So this is a significant launch and a significant bet." — Gary Friedman, Chairman and CEO

Assessment: This is by some distance the most substantive strategic disclosure of the past four quarters, and it is also the source of the fiscal 2026 shape problem. Management stated plainly that Q2 carries significant Sourcebook, advertising and launch cost with little offsetting revenue until Q3 and Q4. Handing the first floor of the 30 to 40 highest-volume Galleries to an untested assortment is a real bet, made with inventory bought ahead of any read.

Europe

Paris, Milan and London are framed as the brand foundation rather than the revenue engine. Management was explicit that the cities exist for awareness and that the volume will come later from suburbs and second-home markets, noting that 90-92% of North American business comes from suburbs and second-home markets against roughly 8% from cities.

Assessment: This is a meaningful and quietly negative reframing. Three years of European narrative has been anchored on flagship city Galleries; management now says the flagships are marketing and the revenue requires a second, unbuilt wave of suburban locations. That pushes the European payback further out than any prior quarter implied, and it arrives alongside a hire whose stated purpose is to build exactly that suburban network.

Real estate and asset monetization

The $500M real estate figure moved from a talking point to a plan. Fiscal 2026 and 2027 cash flow guidance now explicitly includes $200-250M of asset sales each year, and the company rehired a real estate executive to run it. Management characterized the majority of the sales as sale-leaseback on assets RH will continue to operate, with the remainder investment properties in Aspen and a Madrid building it will not develop.

Assessment: Committing asset sales into the cash flow guide converts optionality into dependency. Roughly two thirds of the $300-400M fiscal 2026 cash flow target is now asset sales, and the CFO explicitly declined to give a cadence. Sale-leaseback also trades a one-time cash inflow for a permanent rent obligation, which is a worse trade at a depressed share price than management's framing suggests.

Key Topics & Management Commentary

Overall Management Tone: Long-horizon and unusually promotional for a quarter this weak. The prepared presentation spent more time on a 2030 destination than on the year just missed, and repeatedly asked investors to disregard the current cost structure as peak. Analyst pushback was sharper than in any of the prior three quarters and concentrated on why the market should extend credit to a plan when the last three guides were not met. Management's answers were framed rather than quantified, and the one place the numbers were specific, the balance sheet, is also the one place the company delivered.

The Fiscal 2026 Guide Is Below Fiscal 2025

The headline of this release is not the quarter; it is the year ahead. Fiscal 2026 adjusted EBITDA margin is guided to 14-16% against 17.3% delivered in fiscal 2025. Revenue growth of 4-8% compares to 8.1%. Q1 revenue is guided to decline 2-4% with an adjusted EBITDA margin of 5.5-6.5%, carrying a 420bps drag from international pre-opening and startup costs.

Management also stopped guiding adjusted operating margin. Fiscal 2025 was guided on adjusted operating margin every quarter; fiscal 2026 is guided on adjusted EBITDA margin only.

Assessment: Two things happened here and only one was explained. The margin step-down was attributed to peak investment. The disclosure change was not addressed at all. Moving the guided metric one line up the income statement, in the year that depreciation from a $289M capital program begins to land, removes the measure on which the company missed the last two quarters. That is the single most concerning thing in this release.

The 2030 Framework

Management introduced multi-year targets: revenue growth of 10-12% in 2027 reaching $5.4-5.8B by 2030, adjusted EBITDA margin of 25-28% by 2030, cash flow of $500-600M in 2027 and $3B cumulatively by 2030 inclusive of asset sales, and debt-free by 2029.

Asked how the out-year growth is composed, management gave a decomposition: roughly 4 to 5 points from platform expansion, 3 to 4 and possibly 5 points from product expansion, and 2 to 3 points assumed from a housing recovery.

"We do expect growth to accelerate to 10% to 12% in 2027, and reach $5.4 billion to $5.8 billion by 2030. Adjusted EBITDA in the 14% to 16% range for 2026, reaching 25% to 28% by 2030." — Gary Friedman, Chairman and CEO

Assessment: An adjusted EBITDA margin of 25-28% would exceed anything RH has produced since the buyback era, and it is being promised for a year five out by a management team that has missed its own one-quarter-ahead guide three times running. The decomposition is helpfully specific and it embeds 2 to 3 points of housing recovery in a market management itself describes as in its fourth down year. Long-dated targets introduced on the day of a 31% EPS miss are a communications decision as much as a planning one.

Peak Investment, Peak Risk

The organizing argument of the call is that fiscal 2025 was the peak of a capital and expense cycle and that both revenue acceleration and cost reduction arrive together from here. Adjusted capital expenditure of $289M in fiscal 2025 steps to $250-260M and then to $150-170M annually.

"I would say, peak investment, peak risk right now. You're looking at peak investment, peak risk." — Gary Friedman, Chairman and CEO

Assessment: The arithmetic of a capex step-down is sound and it is the most reliable element of the bull case. What the framing elides is that the capex already spent converts to depreciation and rent for a decade, and that the fiscal 2026 guide, which management controls and has just issued, already reflects the first year of the supposed harvest. If 14-16% is what the first post-peak year looks like, the peak-to-trough argument is not yet visible in any number the company has published.

Tariffs and the Resourcing Backlog

The CFO gave the most precise tariff accounting of the year: the Q4 drag guided at 170bps landed at 190bps, and the full fiscal 2025 impact was roughly 90bps. He also flagged that the tariff regime itself has changed following a Supreme Court decision, with a lower rate applying under one statutory authority and a possible replacement under another in the second half.

More consequentially, the CFO said the backorder and special order problem persists.

"that's something that's going to take probably until the second half to fully resolve itself just because of the complexities of resourcing." — Jack Preston, CFO

Management sized the resourcing effort at roughly 40% of the assortment, concentrated in the hardest categories to move: furniture at about 80% of the business, plus lighting and rugs.

Assessment: This is the specific mechanism that turned a two-quarter timing issue into a four-quarter one. Resourcing 40% of the assortment across furniture, lighting and rugs is a multi-year supply chain rebuild, and it explains why Q1 fiscal 2026 revenue is guided negative. It also means the shortfall management is describing as timing has now deferred revenue across five consecutive quarters.

Executive Changes and the Manufacturing Ambition

Two senior hires were announced with the results: a returning real estate executive to lead the asset monetization and European suburban expansion, and a new manufacturing leader. Management framed the second hire around building an owned, joint-venture and outsourced manufacturing platform, explicitly analogized to the concentrated core-category models of the large European luxury houses.

Assessment: Vertical integration into manufacturing is a rational answer to a tariff regime that has now cost RH two full points of margin, and it is also a fifth major initiative added to a year already carrying four. The company is not short of ideas; it is short of quarters in which the ideas do not collide.

Deleveraging Delivered

The balance sheet was the one clean win. Free cash flow of $252M met the guide against negative $214M the prior year, a $466M swing driven by operating cash flow of $452.2M against $17.1M. The revolver was repaid from $200M to $20M. Merchandise inventories fell 19.7% to $818.6M. Total borrowings ended at roughly $2.39B against $41.2M of cash, and stockholders' equity reached $60.6M from a $163.6M deficit a year earlier.

Assessment: Management said it would fund deleveraging from working capital and capex discipline and it did exactly that, on schedule, in the worst operating year of the cycle. This is why the downgrade is a rating on the equity's twelve-month risk and reward rather than a judgment on management's execution of the balance sheet plan.

The Promotional Posture, Restated

Management restated its promotional philosophy more plainly than in prior quarters, saying the company has always been more promotional in downturns and expects to fight harder for business given a furniture mix that carries more cyclical weight than a broader home furnishings assortment.

Assessment: Read against a gross margin that fell 180bps in the quarter and 40bps for the year, this is a forward warning. Promotional intensity plus tariff cost plus an Estates launch that requires trial pricing is not a combination that produces gross margin expansion in fiscal 2026.

Capital-Efficient Formats

Management detailed three new formats intended to cut build cost and time: design compounds of six to eight connected single-story buildings (Naples, Miami, Walnut Creek), design ecosystems clustering multiple buildings in one district (Greenwich, Palm Desert, West Hollywood), and 15,000 to 20,000 square foot single-story Galleries for secondary markets (Los Gatos, with Richmond and Milwaukee in design). The stated opportunity is 27 existing markets plus 48 new markets in North America, framed as a $2 billion opportunity.

Assessment: The formats are the credible half of the capex step-down. Single-story construction genuinely avoids the steel, elevator and mechanical costs that doubled post-COVID. None of the three has opened yet, so the cost savings are engineering estimates, and the fiscal 2027 capex figure depends on them.

Guidance & Outlook

Two definitional changes travel with this guide and both reduce comparability. Adjusted operating margin is no longer guided, so the metric on which fiscal 2025 was measured cannot be tracked against fiscal 2026. And the cash flow target is now "adjusted free cash flow," defined as free cash flow plus proceeds from asset sales, with $200-250M of those sales embedded. On a like-for-like basis against the $252M of fiscal 2025 free cash flow, the fiscal 2026 operating figure implied is roughly $50-200M.

Implied Q-over-Q ramp: On the fiscal 2025 base of $3,439.5M, the 4-8% guide implies $3,577M to $3,715M. With Q1 guided to decline 2-4% from $814.0M, Q1 lands near $781M to $798M. That leaves the final three quarters needing roughly $2,779M to $2,933M against $2,625.6M a year ago, or 5.9% to 11.7% growth, with the back half carrying almost all of it. Management confirmed the acceleration depends on RH Estates revenue flowing in Q3 and Q4, the second Sourcebook mailing, and the international opening cadence.

Street at: Consensus stood at $2.22 in adjusted EPS and $873.3M in revenue against $1.53 and $842.6M delivered. The fiscal 2026 EBITDA margin guide of 14-16% resets the Street's earnings base roughly 15-20% below where the fiscal 2025 exit rate implied.

Guidance style: Management described the fiscal 2026 plan as conservative and said it assumes the current environment persists rather than deteriorates. On the evidence of the last three quarters, "conservative" has not been a reliable descriptor: the December guide was set with one quarter of visibility and still missed on three of four metrics.

Analyst Q&A Highlights

Whether demand strength can coexist with margin deterioration

The opening question put the central tension directly: demand is outpacing the category but at a heavy cost to margin, so when does the margin turn. Management separated the two, attributing margin pressure entirely to the investment cadence and tariff timing rather than to anything in the demand equation.

Q: "I realize the demand is outpacing a lot of other home furnishing companies, but it's come at a pretty big cost to margin. So expectations around demand improving while we see the margin of the business begin to turn."
— Simeon Gutman, Morgan Stanley

A: "Simeon, the margin pressures somewhat disconnected and unrelated from the demand. The margin pressures really from -- kind of the investment cadence we have as far as expanding the business throughout Europe and some of the margin pressure coming from the tariffs, from a transition and timing and resourcing."
— Gary Friedman, Chairman and CEO

Assessment: The answer is analytically correct and strategically incomplete. Investment cadence and tariff timing do explain the compression. They do not explain why the compression keeps exceeding the guide that already incorporates them, which is the question the market is actually asking.

Why the market's skepticism about the growth model is wrong

The most pointed challenge of the call argued that RH's refusal to report on a same-store basis has left the market with a narrative that growth requires expensive physical expansion, and asked why recent experience should not be the default assumption. Management restated the peak-investment framing and asked investors to exclude the current cost structure from their models.

Q: "that has defaulted to the narrative where RH needs to grow concepts and its physical footprint in order to drive growth, and that comes with a significant cost. And as a result you may not be able to realize its aspiration... So why based on the recent experience is the default of the market wrong?"
— Michael Lasser, UBS

A: "I think the key is don't bake this cost structure into your model right now. You're looking at the -- a peak cost structure, both from capital and an expense perspective."
— Gary Friedman, Chairman and CEO

Assessment: A management team asking analysts not to model the cost structure it just guided to is asking for faith, not analysis. The fiscal 2026 guide is the company's own statement of what the first post-peak year looks like, and it is worse than the peak year on both revenue growth and margin.

What happens to cash flow if the second half does not materialize

The sharpest question of the quarter asked for the sensitivity of the cash flow plan to a back half that disappoints, and what levers would be pulled if additional financial flexibility became necessary. Management listed the levers without quantifying any of them.

Q: "what would be the sensitivity to your outlook for free cash flow in the event that sales in the back half just don't materialize like you would expect. And without asking you to show your hand, but it is important to the investment case, what options would you pursue in the event you needed more financial flexibility to execute on your strategy?"
— Michael Lasser, UBS

A: "we've got the ability to pull back investments further, right?... We have toggles we can pull. We have assets that we can monetize."
— Gary Friedman, Chairman and CEO

Assessment: The levers named are the same assets already embedded in the cash flow guide, which means the contingency plan and the base plan draw on the same pool. Pulling back investment in the year Estates launches and London and Milan open would also remove the growth the second half depends on. There is less optionality here than the answer implies.

The composition of the second-half revenue acceleration

A question on the shape of the year sought the components of an acceleration from negative Q1 revenue to a full-year 4-8%. Management named the drivers and confirmed the plan leans on a product launch that was originally scheduled a year earlier.

Q: "I wanted to ask about the cadence of the year from a revenue growth perspective because the first quarter, obviously calling for revenue to be down, but in the full year, it looks like an acceleration in the back half. Can you just talk through the points of the acceleration?"
— Steven Zaccone, Citi

A: "in Q3, Q4, you'll start seeing the revenues flow from demand in Q2. And you'll see a ramp in Estate. You'll have a second mailing of the book. You'll have newness in both Interiors and Modern."
— Gary Friedman, Chairman and CEO

Assessment: The acceleration rests on a single untested product launch plus international openings, with no cushion from the base business. If Estates reads poorly in its Q2 test, there is no second mechanism in the plan to recover the year, and the first read will not be visible to investors until the September report.

Tariff cadence and underlying product margin

A two-part question asked for the fiscal 2026 tariff assumption and for the health of product margin excluding tariffs and timing. Management declined the first and characterized the second without figures; the CFO then gave the most precise tariff accounting of the year.

Q: "If you could just isolate how you're thinking about the impact of tariffs for 2026, both the cadence and magnitude as I don't think you discussed that in the letter this time around."
— Max Rakhlenko, TD Cowen

A: "in Q4, we talked about last year tariffs having an impact of 90 basis points in terms of a drag. And Q4, we had talked about $170 million. We ended up at $190 million in Q4."
— Jack Preston, CFO

Assessment: The CFO is the only person on these calls who answers with numbers, and the number he gave is that the tariff drag exceeded its own guide by 20bps in the quarter it was supposed to be fully absorbed. He then declined to give a fiscal 2026 tariff assumption, which leaves the single largest swing factor in the margin guide unquantified.

Asset sale composition and timing

A follow-up asked how the $250M of annual asset sales splits between operated and non-core assets, and for timing that would let analysts model the interest expense saving. Management gave the composition and the CFO explicitly declined the cadence.

Q: "can you speak to sort of the value of the non-core assets or the assets that you don't plan to operate in the future versus the value of the assets RH is still planning to operate in the future. And then maybe any color on sort of timing for 2026 asset sales as we think through the potential interest expense savings."
— Steven Forbes, Guggenheim Securities

A: "No. I think from a timing perspective, Steve, we'll just keep you posted. We're not ready to commit us to show the cadence to 2026, and we'll just update you as things as appropriate."
— Jack Preston, CFO

Assessment: Asset sales are now roughly two thirds of the guided fiscal 2026 cash flow number and management will not commit to when they occur. A cash flow target whose largest component has no schedule is not a forecast investors can hold the company to, and it introduces market-timing risk into what is presented as an operating plan.

What is actually holding margins back

A question asked directly which factor is the binding constraint on margin recovery, offering investment timing, the top line and the macro as candidates. Management accepted all three and used the answer to make a valuation argument.

Q: "what do you think is the biggest factor holding back margins for improving? Is it just the fact that some of the investments have taken a little bit longer and have been a little bit higher than expected? Has it been the top line, the macro environment?"
— Steven Zaccone, Citi

A: "we're in peak investment cycle in trough -- economic cycle, especially from a home point of view... I mean we've resourced 40% of our assortment"
— Gary Friedman, Chairman and CEO

Assessment: The 40% resourcing figure is the most useful number in the answer and it reframes the whole tariff story. This is not a cost pass-through problem; it is a supply chain rebuild across the majority of the assortment, which is why the disruption has now spanned five quarters and is guided to continue into the second half of fiscal 2026.

Whether the 2026 low end assumes a worse housing market

The final question asked whether the low end of the fiscal 2026 revenue guide embeds housing deterioration or rate increases. Management said the plan assumes the current environment persists and argued the market is near a floor by historical volume standards.

Q: "Gary, I think on -- in the video, you mentioned that it's a bit conservative. I was just wondering at the low end, do you sort of embed any sort of deterioration in the housing market or maybe an increase in interest rates?"
— Marius Morar, Zelman

A: "I'd say we have embedded in this -- the current environment right now, which I believe is worse and mostly from a geopolitical point of view and a perception point of view"
— Gary Friedman, Chairman and CEO

Assessment: The guide assumes no macro help and no macro deterioration, which is the right construction. It also means the 4-8% range is entirely a function of company-controlled execution, and the last four quarters of company-controlled execution came in below guide three times.

What They're NOT Saying

1. Adjusted operating margin is no longer guided: The metric RH was measured against all of fiscal 2025, and missed on in the last two quarters, has been quietly replaced by adjusted EBITDA margin. The change was not explained or acknowledged.
2. No fiscal 2026 tariff assumption: Directly asked for cadence and magnitude, the CFO gave the fiscal 2025 history and declined to quantify next year, leaving the largest swing factor in the margin guide undisclosed.
3. No asset sale timing: $200-250M of asset sales are embedded in the fiscal 2026 cash flow target and management would not commit to a cadence, so the largest component of the cash flow guide has no schedule.
4. No demand or comparable growth metric, again: Two quarters ago demand growth of 13.7% was the headline. It has not been disclosed since, and management continues to decline same-store reporting, so no organic measure of the business is available.
5. Neither the Estates inventory commitment nor the acquisition economics were sized: $37M was spent on three brands, a fourth was named, and management said it "went out with a bigger inventory" without stating how much is committed ahead of the first read.
6. Nothing on the depreciation step-up: Fiscal 2025 carried $289M of adjusted capex on top of prior years. Guiding fiscal 2026 on EBITDA rather than operating margin conveniently sidesteps the resulting depreciation, which was neither quantified nor discussed.
7. No European revenue disclosure, fourth quarter running: Instead the framing shifted to say the flagships are for awareness and the revenue will come from suburbs that have not been built.
8. The Q1 EBITDA margin was not bridged: A guide of 5.5-6.5% against a full-year 14-16% is an extraordinary trough, and only the 420bps international component was quantified.

Market Reaction

• Pre-print setup: RH closed at $139.82 on March 31, down 22.0% year to date against the S&P 500's -4.6%, down 40.4% over the trailing twelve months and down 15.6% over the trailing thirty days. The pre-print 52-week closing range was $127.65 to $251.00.
• Next-day session: Shares gapped down to open at $110.57, a 20.9% decline, traded a $106.30 to $114.90 range, and closed at $112.85, down 19.3% or $26.97. The S&P 500 rose 0.7% on the same session.
• Volume: 8.8M shares against a 1.2M share thirty-day average, 7.5 times normal and the heaviest participation of the three quarters we have covered.

The stock never traded back to its pre-print close. The intraday high of $114.90 sits 17.8% below the prior close, meaning there was no point in the session at which buyers meaningfully contested the repricing. That is a different character of decline from the December session, which opened up 5.5% and faded: this was a wholesale reset of the earnings base rather than a debate about it.

What was repriced is identifiable. A 31% EPS miss against consensus set three months earlier costs credibility; a fiscal 2026 EBITDA margin guide three points below the year just delivered costs the model. Together they removed the assumption that fiscal 2025 was the trough. The stock had been supported since December by the balance sheet repair, and the balance sheet repair was still there on April 1. It stopped being enough the moment the company guided its first post-peak year below its peak year, against a market that rose 0.7% on the day.

Street Perspective

Debate: Is fiscal 2026 the last investment year or the new run rate?

Bull view: Adjusted capex falls from $289M to $250-260M and then to $150-170M, three capital-efficient formats are in construction, and the European openings are one-time costs. The 14-16% EBITDA margin is the cost of one more year, after which the leverage in the model appears.

Bear view: Fiscal 2026 was supposed to be the harvest year and it guides below the peak year. Depreciation from a $289M capital program is only now landing, the European drag widened to 270bps, and management stopped guiding the operating margin line where that depreciation shows up.

Our take: The bear case has the stronger evidence and the disclosure change is what tips it. If the post-peak year genuinely inflects, guiding on operating margin would demonstrate it. Withdrawing that metric in exactly this year is the most informative thing in the release.

Debate: Is the balance sheet still the reason to own it?

Bull view: Free cash flow swung $466M, the revolver is nearly repaid, inventory is down 19.7%, equity is $60.6M and management has committed to debt-free by 2029. The distress case is gone and the equity is a call option on a housing recovery.

Bear view: The fiscal 2026 cash flow target requires $200-250M of unscheduled asset sales to reach $300-400M, meaning underlying operating free cash flow may be as low as $50M. Inventory release, the engine of fiscal 2025, is largely spent. Sale-leaseback converts owned assets into permanent rent.

Our take: The bull case was right for two quarters and has now been consumed. What made the balance sheet story compelling was that it was funded by working capital the business no longer needed. Funding the next two years from asset sales at management's chosen timing is a materially lower-quality version of the same story.

Debate: Does RH Estates justify holding through the trough?

Bull view: Estates addresses 60% of luxury homes, is backed by four acquired heritage brands with owned intellectual property, launches at the largest design show in the world, and takes the first floor of the top 30-40 Galleries. Management calls it the largest and highest-margin brand extension it has attempted.

Bear view: It is an untested assortment carrying committed inventory, launching a year late into a fourth consecutive down housing year, with its cost fully in Q2 and its revenue entirely in the second half. The whole fiscal 2026 acceleration depends on it and the first real read lands in September.

Our take: Estates is the most interesting thing RH has done in years and it is not a reason to own the stock in the next two quarters. The cost is certain, the revenue is not, and the option can be bought later at a known read for what will likely be a modest premium to today's price.

Model Update Needed

Valuation impact: At the $112.85 close on 19.7M diluted shares, equity value is roughly $2.2B and enterprise value approximately $4.6B against roughly $2.35B of net debt, before finance leases. On the midpoint of the fiscal 2026 adjusted EBITDA margin guide applied to the revenue guide midpoint, implied adjusted EBITDA is approximately $547M, putting the stock near 8.4 times with net leverage around 4.3 times. The multiple looks undemanding and the leverage does not. That combination is the definition of an equity whose value is highly sensitive to a single year of execution, and the year in question opens with a revenue decline.

Thesis Scorecard Post-Earnings

Overall: Weakened materially. Bull 2 moves from At Risk to Broken and Bull 3 from At Risk to Broken; Bull 4 remains On Track but its funding source changes from working capital to asset sales. Bear 1 reverts from Contained to Emerging on the leverage ratio arithmetic despite genuine debt reduction, because the EBITDA base fell faster than the debt. The single new development, and the one that carries the rating, is that management withdrew adjusted operating margin from its guided disclosures in the year the depreciation from peak capex begins to land.

Action: Downgrading to Underperform from Hold. The December note named a fiscal 2026 margin guide below fiscal 2025 as the downgrade trigger and that is what was delivered. We would return to Hold on a Q1 print that lands at or above the top of its guided range with the backorder drag visibly narrowing, or on a credible early read on RH Estates. We would return to Outperform only on evidence that adjusted operating margin, not adjusted EBITDA margin, is inflecting.