$78 million went into landlord assets under construction at RH during the six months ended August 1. That is the oddest line in a filing where revenue grew 2.6%, but operating cash flow fell 11.9%.
The figures were mixed: revenue reached $922.1 million, gross profit rose 8.7%, and gross margin widened to 48.2%. The divergence appeared below gross profit. Operating income fell 16.5% to $107.6 million, pulling operating margin down to 11.7% from 14.3%.
RH says the expansion itself is part of the bill. New Galleries lifted hospitality revenue, while the core and Contract businesses were lower over the six-month period. The company also cited higher compensation, pre-opening and corporate costs, plus advertising for the RH Estates launch.
"The increase in selling, general and administrative expenses as a percentage of net revenues was driven by increases in compensation, pre-opening and other corporate costs, primarily related to new Gallery openings, as well as higher advertising costs, primarily due to the launch of RH Estates in the second quarter of fiscal 2026."
RH, Form 10-Q, September 10, 2026
In plain English, the extra gross profit did not survive the cost of adding places to sell the furniture. RH's $14 million charge tied to the restructuring of variable interest entities added another specific drag to segment selling, general and administrative expenses.
Cash makes the expansion easier to see than earnings do. Operating cash flow was $197.7 million, down from $224.3 million, even as cash on hand rose to $125.5 million. The cash-flow bridge points to landlord assets under construction, lower operating lease liabilities, other liabilities, receivables and prepaid assets as uses of cash. RH also spent $84.9 million on capital expenditures, down from $109.6 million, so the construction commitment is not simply a capex line-item story.
"The use of cash from working capital was primarily driven by an increase in landlord assets under construction, net of tenant allowances, of $78 million, a decrease in operating lease liabilities of $55 million, a decrease in other current and non-current liabilities of $27 million, an increase in accounts receivable of $16 million and an increase in prepaid expense and other assets of $11 million."
RH, Form 10-Q, September 10, 2026
That sentence contains the filing's central tension: RH is reporting better gross economics while using more cash to build the physical platform around them. Receivables also rose 29.2% year over year to $79.1 million, faster than revenue, while deferred revenue and customer deposits provided a $64 million offset.
The latest annual record gives the current margin pressure some context. Revenue grew 8.1% in the fiscal year ended January 31, while operating margin reached 11.3%, up 1.1 percentage points. The six-month result is therefore not a simple continuation of that improvement: gross margin is higher, but operating margin has moved the other way as Gallery-related costs enter the period.
RH shares closed at $133.69 on September 10, down 4.1% for the day and 42.6% over the past year. The price move is a market fact, not an explanation for the filing. The unresolved operating question is narrower: how much of the improved gross profit can remain after the company pays to open and support more Galleries?
Source: RH Form 10-Q filed September 10, 2026, covering the six months ended August 1, 2026.