Here's What's Driving the Massive Sell-Off in RH Stock Today

Source Motley_fool

The stock market is taking a hit today. Most sectors are in the red. The S&P 500 (SNPINDEX: ^GSPC) shed more than 4% by late morning.

But shares of luxury home furnishings company RH (NYSE: RH) are getting crushed. The company reported fourth-quarter earnings last night, but that's not the only thing driving the sell-off.

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RH stock was down an astounding 44.1% as of 10:43 a.m. ET. Here's why.

First housing, now tariffs

RH reported decent fourth-quarter results, with revenue increasing 10% and continued strong demand. The company said total demand -- defined by the company as the value of orders placed -- jumped 17% on a comparable basis. Those results were slightly disappointing to Wall Street analysts, though. But the stock is reacting more to the new tariff announcements from President Trump.

RH CEO Gary Friedman discussed the tariff situation on the company's conference call for investors. He said he believed the tariff announcements were made more for leverage in negotiations, and that the tariffs aren't "going to completely stick."

But in the letter to shareholders, Friedman also noted the difficult environment in which RH is now operating. He stated:

...we expect a higher-risk business environment this year, due to the uncertainty caused by tariffs, market volatility, and inflation risk [but] the fact is, we've [already] been operating in the worst housing market in almost 50 years.

One way RH is planning to navigate the current environment is by making adjustments to its supply chain. It plans to exit China-based manufacturing, transitioning it to Mexico-based manufacturers this year.

What are investors to do?

Today's reaction in RH stock seems to be one of panic. That's never a good emotion in investing. Long-term investors who want to add retail to a portfolio would be smart to do more research into RH and potentially take advantage of today's sell-off.

Should you invest $1,000 in RH right now?

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Howard Smith has no position in any of the stocks mentioned. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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