Luxury furniture company RH (NYSE: RH) faced a significant downturn in its stock price, plummeting by an astonishing 40% in the session following the release of its earnings report. This dramatic decline coincided with President Donald Trump's announcement of tariffs during what he dubbed 'Liberation Day.' The downward trend did not halt there; the company's stock continued to fall sharply the following day after China retaliated with its own tariffs, resulting in an alarming overall decline of more than 60% year-to-date—all of this transpiring in just the first four months of the year.

In light of these developments, investors are left to ponder whether this might be an opportune moment to acquire shares in the beleaguered company.

CEO Gary Friedman delivered a stark assessment of the current market during RH’s fiscal fourth quarter earnings call, stating that the company has been operating in 'the worst housing market in almost 50 years.' He went on to express concerns about navigating a higher-risk environment in the upcoming year, citing factors such as tariffs, market volatility, and rampant inflation that could further complicate the company's operations.

Historically, the home furnishing market experienced an uptick in demand as a result of the COVID-19 pandemic. With people spending extended periods at home, many sought to invest in enhancing their living spaces. However, with rising interest rates leading to a slowdown in home sales and renovations, the usual triggers for furniture purchases have significantly diminished.

Adding to the complexity of the situation, RH is currently engaged in an ambitious strategy to expand its footprint in Europe. The company is not merely dipping its toes into new markets; instead, it is committing to the development of large, extravagant showrooms in prime locations. Presently, RH operates galleries in several European cities, including Aynho Park in England, Munich and Düsseldorf in Germany, Madrid in Spain, and Brussels in Belgium. Moreover, the company has plans to further extend its presence with new galleries set to open in London and Paris by the end of the year. Its inaugural European gallery features an impressive layout situated on a sprawling 73-acre estate with 60 rooms, located just 75 miles from London.

The ambitious scale, prime location, and eye-catching design of RH's galleries come with hefty price tags attached. These are not the typical retail openings; rather, RH aims to make bold architectural statements with its real estate endeavors. For instance, the Boston gallery was uniquely constructed within the historic museum of natural history, while a massive 97,000-square-foot gallery stands in Newport Beach, California.

Financially, RH has shown a history of aggressive stock buybacks, which has contributed to the company accumulating a substantial debt burden totaling $2.6 billion. As of the end of its fiscal year, RH's leverage ratio stood at 4.8 times, calculated using the debt-to-adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) metric. Such a high level of debt poses significant risks for the company moving forward.

Additionally, RH relies heavily on sourcing its furniture from Asia, a region currently facing the brunt of increased tariffs. This situation will likely lead to higher prices for RH's already premium-priced furniture offerings. In a bid to mitigate some of these rising costs, the company aims to ensure that 14% of its total production is based in the U.S. by the end of the fiscal year.

In terms of financial results, the company's quarterly earnings report presented a mixed picture. While revenue saw a robust increase of nearly 10%, reaching $812 million, and adjusted earnings per share (EPS) more than doubled to $1.58, these figures fell short of analysts' expectations. Analysts had anticipated an EPS of $1.09 on sales of $830 million, highlighting a significant gap between projected and actual performance.