Luxury home furnishings company RH has reported a modest sales drop in the first quarter, which management attributed to tariff-related resourcing.

The retailer’s net revenues stood at $800.3 million in the quarter ended May 2, down 1.7 per cent year-on-year. 

Revenues were negatively impacted by approximately $45 million due to higher backorder and special order balances that were approximately $75 million higher than the same period last year.

The company expects a similar elevated balance, primarily as a result of tariff-related resourcing, to recur in the second quarter before returning to normalized levels in the second half. Second-quarter revenues are forecast to increase 0.5-2.5 per cent.

On the bottom line, first-quarter operating income fell nearly 39 per cent to $34.2 million. The company also swung to a net loss of $13.6 million from a net income of $8 million a year ago.

Adjusted EBITDA was $56.9 million and adjusted EBITDA margin was 7.1 per cent. 

Management said both revenues and adjusted EBITDA margin exceeded the high end of our expectations. As a result, they have raised their outlook for the full year, with revenue expected to grow 4.5-8 per cent and adjusted EBITDA margin to be 14.2-16 per cent. 

Chairman and CEO Gary Friedman said the company will navigate through the current economic environment and achieve its growth targets for the year through several key initiatives, including backlog reduction, new store growth and new concept (RH Estates) growth.

Last year, RH’s net revenues increased 8.1 per cent to $3.44 billion, while its net income soared 72 per cent to $125 million. 

The company recently opened a seven-level retail concept in Milan, combining showrooms, dining, services and curated art installations under one roof.