Q1 2021 RH Earnings Call

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Ladies and gentlemen, todays conference is scheduled to begin momentarily on.

Until that time your lines will again be placed on music hold thank you for your patience.

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And.

Ooh and Ah.

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Got it.

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Ladies and gentlemen, thank you for standing by and welcome.

And to the R. H first quarter fiscal 'twenty 'twenty 1 earnings call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

And I ask a question. During this session you will need to press star 1 on your telephone.

Please be advised that today's conference is being recorded if.

If you require any further assistance please press star zero.

I would now like to hand, the conference over to your speaker today, Ms. Allison Malkin of ICR. Thank you.

Please go ahead ma'am.

Thank you good afternoon.

And everyone. Thank you for joining us for our first quarter fiscal 2021 conference call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer, and Jack Preston Chief Financial Officer, before we start I would like to remind you of our legal disclaimer that we will make certain statements today that are forward looking.

Within the meaning of the federal securities laws, including statements about the outlook for our business and other matters referenced in our press release issued today.

These forward looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings as well as our press release.

Today for a more detailed description of the risk factors that may affect our results. Please also note that these forward looking statements reflect our opinions only as of the date of this call and we undertake no obligation to revise or publicly release the results of any revision to these forward.

And looking statements in light of new information or future events.

Also during this call we may discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items you will find additional information regarding these non-GAAP financial measures and a reconciliation of these non.

Issued GAAP measures and today's financial results press release, a live broadcast of this call is also available on the Investor Relations section of our website at IR Dot RH dot com with that I'll turn the call over to Gary.

Great. Thank you everyone, we're going to start.

GAAP and overview of our shareholder letter with tight which highlights our results and outlook and then we'll open the call to questions.

So our people partners and shareholders fiscal 2021 is off to a strong start with revenues up 78% and the first quarter.

Versus down 19% a year ago.

Total company.

Start with the increased 101% and Q1 and RH core demand increased 109% the strongest demand trends and our industry.

We continue to set a new standard for financial performance among home furnishings retailers with adjusted operating margin, increasing 260 basis points from first quarter to 22, 6%.

And demand versus 10% a year ago.

Adjusted net income increased 375% and adjusted diluted earnings per share increased 285% to $44.89 per share versus $1.27 last year.

We generated 228.

Percentage of adjusted EBITDA, and the quarter and $136 million of free cash flow.

You ended Q1 ended with total net debt of $382 million and trailing 12 months adjusted EBITDA of $869.896 million.

Our expectation is to be net debt free by the end of this fiscal year.

And increase in fiscal 2021 outlook.

Based on our current business trends, we are raising our outlook for revenue growth and fiscal 2021 to a range of 25% to 30% versus our prior outlook of 15% to 20%.

We now expect adjusted operating margin and the range of $23.5.

5 to 24, 3% and increase of 170 to 250 basis points versus our prior outlook of 100 to 200 basis points with ROIC in excess of 60%.

As it relates to the second quarter, we expect revenue growth and the range of 35% to.

37% and adjusted operating margin and the range of $25.9 to 26, 1%.

While fiscal 2021, we will surely be a tale of 2 halves. There are many data points that lead us to feel optimistic that our strong performance will continue through the second half of 2020, 1 with growth accelerating.

In fiscal 2022 and beyond.

These include a strong housing and renovation market.

With pent up demand and a long tail.

A record stock market.

Low interest rates and the reopening of several large parts of our economy.

Additionally, the unmasking of the general public.

Great and good lead to a roaring twenties type of consumer exuberance.

Town and country captured the feeling perfectly on the recent covered their magazine titled Remember fun.

Get ready for that come back.

Combine that with the largest new product introduction cycle and our history, beginning this fall and the launch of RH International.

Our national next year and fund it could be.

You should also rest assured that we have pressure tested our business assumptions and risks.

And are confident and our ability to maintain and adjusted operating margin in excess of 20% and just about any economic downside scenario, we can envision.

The emergence of RH.

RH as a luxury brand generating luxury margins.

We've spent decades building our brand and business model that generates industry, leading profitability and return on invested capital and believe like Bernard Arnault luxury goods are the only area. It is possible to make luxury margins.

With 21, 8%.

<unk> adjusted operating margin in fiscal 2020, RH has eclipsed the operating margin and <unk> and we now have a clear line of sight to 25% plus adjusted operating margin over the next several years.

As it relates to our business model what is often overlooked is the simplicity and low risk nature of what.

We have built.

I thought it would be helpful to highlight some of the key attributes.

No seasonal inventory.

Don't offer seasonal categories like Valentine's day, Easter Halloween Thanksgiving and Christmas.

Nor do we carry collections or color pallets tied to spring summer fall and winter.

Like many home furnishings, and our home improvement retailers.

We spent years, eliminating those categories to avoid seasonal markdowns and enabling us to have a significantly higher margin business.

Limited fashion risks.

Our business is not driven by the fashion cycles found and retail models that require frequent discounting.

The major trends that drive our business are tied to architecture and the debt.

Architectural trends tend to change over decades not years as.

As an example, many point to the $19.97 openings at the Guggenheim Museum, and Bilbao, Spain by legendary architect Frank Gary.

At the beginning of the recent modern movement.

We launched RH modern and almost 2 decades later in the fall of 2015, when a critical mass of modern homes and condominiums was reached establishing a sizable new market.

As it relates to the dead generations pass away and their belongings move through estate sales, which feed the antique markets, which helped drive the high end.

And interior design market, which influences the high and redirection market and the trends continue to flow downstream. If you wanted to know where the mid century modern trend came from do the math or visit a cemetery.

Membership.

Moving from a promotional to a membership model as we did in 2016 simple.

Simplified and streamlined our business, eliminating the chaos and costs associated with the constantly changing customer proposition.

Membership also deepened our relationship with our customers and the majority of used our interior designers to furnish their homes.

This evolved our business from selling products to selling spaces.

Driving higher average.

Average orders and lower customer acquisition costs as RH is become their top of mind choice for luxury home furnishings.

Luxury positioning.

Luxury brands have proven to be less susceptible to economic downturns as their customers may temporarily paused their spending, but not but do not lose the ability to spend.

Additionally, investing in the home gross exponentially as customers accumulate well acquiring more homes, which drives higher sales, resulting in lower advertising costs and a more profitable operating model.

Our compelling a compelling vision for the future.

We entered this decade with a compelling vision.

And for the future of team passionate about bringing that vision to life and the strongest brand and business model and our industry.

We plan to launch and unimaginable amount of new innovative strategies designed to further elevate and expand the RH brand.

As I did in my recent annual shareholders letter I will outline the strategic separation we've created.

And the strategies, we are pursuing as we continue our quest to become 1 of the most admired brands and the world.

Product elevation.

We have built the most comprehensive and compelling collection of luxury luxury home furnishings under 1 brand and the world.

Our products are presented across multiple collections categories.

And channels that we control and their desirability and exclusivity has enabled us to achieve industry, leading revenues and margins are.

Our customers know them as RH interiors, RH modern RH Beach House RH Ski house.

Sorry to outdoor RH rugs, RH lighting are each linens.

RH baby and child, RH teen and waterworks.

Our strategy to elevate the design and quality of our product will continue is reintroduced RH contemporary and 2021 with a 400 page source book dedicated website.

National AD campaign, and a freestanding RH contemporary gallery, and the San Francisco design.

As Gary.

We also have plans to introduce RH procure pole Street.

H bespoke furniture and are each color over the next several years.

Gallery transformation.

Our ability to transform our legacy stores into multi day next dimensional design galleries that double our retail revenue.

Designed to stability and every market will enable the RH brand to reach $5 to $6 billion and revenues with mid twenties on adjusted operating margin and North America.

These inspiring and disruptive physical experiences render our products more valuable, while creating strategic separation and unmatched brand awareness.

And property and us to gain significant market share at lower advertising costs.

This presents the conundrum for our competition, we're closing or downsizing their stores, while we build the largest specialty stores and the history of our industry.

We believe our galleries are proving to be a huge competitive advantage, enabling RH to acquire customers.

Enablers and fixed costs versus variable digital advertising costs that can change daily for store lists or store closing brands.

All you need to do is walk them all to notice most retail stores are archaic windowless boxes that lack any sense of humanity.

There's generally no fresh air and natural light.

Planned to die and most retail stores and they can't be a good environment for humans either.

And that's why we don't build retail stores.

We create inspiring spaces that blurred the lines between residential and retail indoors and outdoors home and hospitality based.

Basis that are filled with fresh air and natural light with garden courtyard.

Rooftop parks restaurants, and wine bars spaces that activate all of defenses and spaces that cannot be replicated online.

RH, Dallas, which opened in May of this year is off to a tremendous start with our rooftop restaurant and booked until August.

Our plan is to open 3 additional design galleries and 2000.

Including RH San Francisco.

<unk> outbreak RH Jacksonville.

A freestanding RH contemporary gallery opening and San Francisco.

Plus our first RH guesthouse opening in New York This fall.

Brand elevation.

We are beginning to evolve the brand beyond Curating.

<unk> and selling products to conceptualizing and selling spaces by building an ecosystem of products and services places and spaces designed to elevate and render a product more valuable while establishing the RH brand as a thought leader tastes and placement growth.

Our products are the core of our ecosystem.

And include RH interiors, RH contemporary art modern RH Beach House, our ski House RH outdoor RH rugs, RH lighting, RH, Lindon, RH baby and child, RH teen and waterworks.

Our services RH interior design are each contract RH trade.

And your home render our product more valuable while extending the brand into adjacent businesses that amplify the court.

As an example.

RH and your debt.

As an example, we believe that RH interior design has become the largest residential design firm and North America and has facilitated.

And our transition from selling products to selling spaces.

Our each trade.

External it Tim and Terry designers and design firms partnering on projects and acting as a support organization managing the logistics of large complex designs.

Our H contract serves the hospitality and commercial markets.

With design and logistics support for large scale volume projects.

Our Asia and your home elevates, the customer experience with furniture ambassadors and each and every detail of your delivery extending the selling experience into the home, while creating memorable and lasting impression.

We're also exploring the opportunity.

Expand our services to include RH architecture, and like RH landscape architecture, as we receive constant inquiries regarding the design of our galleries garden courtyard and rooftop parks.

Our places include RH galleries, designed to elevate and render our product and brand more valuable RH restaurants.

Which further elevate the customer experience, while driving high quality incremental traffic to our galleries.

<unk> guesthouses, where our goal is to create a new market for travelers seeking privacy and luxury and the $200 billion hotel industry.

And our each residences.

Fully furnished luxury homes condominiums and apartments with integrator.

Weighted services that will deliver taste and time value to wealthy and affluent time starved customers.

Our spaces conceptualize to inspire and elevate the brand will initially include plain and yacht design and charter.

And where customers can access our design experience view are.

Work on line and charter, our H, 1 and RH to our private planes and our <unk> III, our luxury yacht, which is available and the meta training and Caribbean, where the wealthy and affluent visit and vacation.

We will also be and Dalian and our first RH Fab house and Spa as part of our Aspen guesthouse scheduled to open and the second half of 2020.

2.

As well as other exist exciting spaces, we will be revealing over the next several years.

We believe are seamlessly integrated ecosystem of immersive experiences and inspires customers to dream design, Dine and travel and live and a world thoughtfully curated by our H.

Great and an impression and connection unlike any other brand and the world.

Digital re imagination.

Our strategy is to digitally re imagine the RH brand and business model, both internally and externally.

Internally regarding how we innovate curate and integrate all the dynamic aspects of our brand.

And externally as we introduce our customers to the world of RH and new digital portal, presenting our products and services places and spaces.

This multiyear effort began internally last year with the re imagination of our center of innovation and product leadership, which will incorporate digitally integrated visuals and decision data.

<unk> designed to amplify the creative process from product ideation to product presentation.

Our external efforts will begin this fall with the launch of phase 1 of our new digital portal the world of RH, which will include rich immersive content with simplified navigation and search functionality on.

All designed to enhance.

Hence the shopping experience and render our product and brand more valuable.

We believe and opportunity exist to create similar strategic separation online as we have with our galleries offline.

Re conceptualizing, what a website can and should be.

Global expansion.

We believe that RH has the potential to become a 20% to $25 billion global brand and its current form and possibly larger if aspects of our ecosystem become meaningful revenue streams.

Our view is competitive environment. Our view is the competitive environment globally is more fragmented and primed for disruption and the North American market.

And there is no direct competitor has scaled but possesses the products operational platform our brand of RH.

Our global expansion and begins in spring of 2022 with the opening of RH, England. The gallery at Idaho part, a 73 acre historic estate designed and $16.15 by store Johnstone.

Soon arguably 1 of the most respected and celebrated architects at this time.

RH, England will feature the Idaho architectural library, the Idaho organic gardens.

The RH restaurant neurons, Uri and the RH Champagne and caviar seller among other unique experiences.

Pending reopening plans for France.

Our goal is to open RH Paris, the gallery on the shone fill a day in the fall of 2022.

Customers will arrive through magnificent 18 foot gapes and walk down and decompose granted path line with Majestic hedges that lead to a garden courtyard, where you encounter 18 foot grass stores and opened.

And that opened to a 6 foot atrium connected by traversing <unk> breast staircases and and glass elevator.

RH Paris will include a restaurant overlooking the gardens inspired by the Grand Palais a.

A sparkling champagne and caviar bar on the top floor.

And a remote romantic rooftop garden, where you can ship.

And our H Bellini, while enjoying views of the Eiffel tower.

In total we have secured 5 locations in Europe, including London, Munich, and Dusseldorf, and our and final lease negotiations for an additional 5 locations, which will open over the next 2 to 3 years.

Finally in the luxury mountain while.

Building a brand with no peer.

Remains Chanel, Louis Vuitton, Gucci, Cartier, Tiffany and the rest of the finance luxury brands and the World. We're all born on the top of the luxury mountain.

Never has a brand started at the base as we have and made the claim to the peak.

We believe RH can be the first to make.

And the clients.

Knowing very well those at the top don't necessarily want us to.

The truth is we're not from their neighborhood and were invited to their parties.

To make the climb we understand our work has to be so extraordinary that creates a forced reconsideration of our brand.

Requiring dose at the top of the mountain to tip.

Tip their hat and respect.

It is not a claim for the faint apart.

Requiring imagination innovation and a great deal of persistence and perspiration.

We have to be willing to endure a shortcut and quite short term pain to drive long term gain as we did moving from a promotional to a membership model elevate.

Elevating our product transforming our stores redesigning our operating platform are managing the business with a bias for earnings versus revenues as we built our financial model to support long term high quality growth.

We also understand the strategies, we are pursuing opening the largest specialty retail experiences and our industry.

While most of shrinking the size of their retail footprint or closing stores.

Moving from a promotional to a membership model, while others are positioning their brands around price versus product.

And to mail inspiring source books, while many are eliminating catalogs and refusing to follow the herd and self promotion on social.

Media, instead, allowing our brands to be defined by the design and quality of the products and experiences we are creating.

Our all in direct conflict with conventional wisdom and the plans being pursued by pursued by many in our industry.

We believe when you step back and consider 1 we're building a brand with no peer.

2 we are creating a customer experience that cannot be replicated online and 3 we have total control of our brand from concept to customer you realize what we're building is extremely rare in today's retail landscape and we would argue will also prove to be equally valuable.

I want to thank the.

People have team RH live our values and fight for a cause and.

A team that is building a culture of leadership versus followership and.

<unk> strives to innovate versus duplicate.

A team of people with the courage to continue decline, even as the <unk> spin and the odds gift Flynn.

The team of people willing to get knocked down 10 times and.

Get back up 11, as they strive to plant the RH flag at the very peak of the luxury mountain.

<unk>.

We'll now open the call for questions.

As a reminder to ask a question touched on.

1 on your telephone keypad.

To withdraw your question.

Press the pound key.

Standby, while we compile the Q&A roster.

Your first question comes from the line of Chuck Grom with Gordon Haskett.

Hey, Thank you good.

Good evening incredible results.

Gary is there any way to size up and.

The degree to which our categories such as outdoor.

Supporting total sales growth maybe.

But the penetration of the category and in 2018 versus where you think 'twenty, 1 and up and are there any other categories that you believe you're seeing outsized growth today.

This exceptional results.

Yes, I think if you look at our demand trends everything is way up right. So but outdoor is 1 of our best performing categories were.

Were the most dominant outdoor brand at the high end and the world today and have the biggest business and the world that I and for outdoor bye Bye mulch.

<unk> so.

You would expect that we dominate that category, even even though theres really long lead times and we've been sold out for a good part of the past year.

Great and is there any other categories and you would.

Highlight besides outdoors.

Yes.

And again.

If you take the car business at 109% demand growth and Q1 day, they're all way up so.

This is strong across all categories.

Great and then and your shareholder letter last week.

We have to be willing to endure a short term plan to drive long term gain and you referred back to a lot of the other growing pains and the business over the past few years, but I was just curious if theres something down the road that you were referring to in terms of the future outlook.

No. It's just it's the mindset of investing with our long.

Term view to build.

And when is the most admired brands and the world and it's not a path to most people take yes.

<unk> got most of the world is focused on debt duplication and moving a lot of small rocks and we tend to focus on big rocks that create big value and those sometimes take multiple years to.

Hi.

To move and to bring.

Bring to life and and so.

Look I think if you look at our guidance.

It would indicate we don't see anything in the near future.

That could be disruptive to our to.

And to our to our results and.

Today as we.

About the investment horizon over the next several years.

Whether it's international or.

Digital re imagination of product elevation or any any of the big moves, we're making there all implied in our outlook and our guidance.

But from time to time.

There may be a significant investment we have to make.

We think it's going to.

Leapfrogged the business further into the future right now.

That's the way, we have and operating margin.

And almost twice the next best person in our and our.

On category.

Great.

Good day.

Make that.

Everyone and limit yourself to 1 question and 1 follow up question.

Next up we have Adrian day.

Barclays.

Good afternoon, and let me add my congratulations eloquent and always Gary.

Gary I guess my question is about.

Sam opportunity or actually.

On the $5 billion to $6 billion.

Sales target and North America, and the 20 to 25 billion you talked about it being in the company's current format. So can you talk about.

And the number of galleries that support to North America, but more importantly, the number of calories that supports globally.

And is it just focusing on the home furnishings and district with no hospitality and <unk> et cetera.

Wanted to get some more color there and my follow up will actually be linear opening the stores internationally all the different cities different countries and is there anything that youre doing from a product market research on customization for each marketplace.

And should we assume that each of those stores and delivers the same sales dollar or is everyone and thank.

Thank you.

Okay.

Hi, Adrian and so that was a lot of questions and 1 question.

And I'm going to cash.

Where do you want me to start.

And let's see like that that the opportunity as it relates to <unk> 6.

<unk> 6 billion and in North America and <unk>.

$1.25 billion and the current format and how many how many galleries and North America and how many galleries internationally.

It's an interesting question because in North America.

And I think we've always said about 60 to 70 galleries, and North America and kind of penetrate.

North America, and you kind of think about the fact that we built America and we built North America, while we've transformed.

The brand and transform the business right. So.

We had a.

Pretty logical footprint that was and all the major markets and all the major suburbs, so on and so forth and we basically consolidated and <unk> and.

And transformed and.

And our opening.

<unk> design galleries, and replacing the former footprints.

And the question.

Yes.

Do you need as many galleries.

Internationally as the world continues to evolve and change right.

<unk>.

Consumers continue.

To be comfortable shopping online and not seen products.

Yes.

Somewhat unknown I think to us if there is.

No indications today that we should have less galleries and North America.

And we wouldn't penetrate the markets the way, we penetrate the markets today with with less calories as we do the math so even though there is there is kind of on migration online.

And you really got to be careful and.

Today's world.

Not to look at the channels independently I really would caution any retailer who is doing that I think it's a foolish way to look at a business.

Because.

We live and if where physical beings living and a physical world and being able to see brands and no brands and.

And a physical manner being able to understand how big they are with their assortment and is what they stand for with the qualities like with the taste and style. It's.

Like is I think critical.

And.

And so.

My sense is as we're going globally might we be able to build a few less.

Less galleries I don't know.

I don't think so I think that.

Replacing physical stores with digital advertising is a bad move.

I don't know why anybody would want to sign up for a variable cost.

On a variable cost structure that could change.

<unk> daily.

Marketed brand right and so physical stores are basically.

Big brand building statements that are 3 dimensional that customers can interact with they can touch the goods they can interact with the brand.

They can see the size and scale of things that can understand that the taste and quality and.

And style and all kinds of levels.

And I think thats impossible to replace that with some kind of digital advertising or other advertising format, especially when it's not a fixed cost format.

So our view, while there is migration online and stuff like that.

There's just natural migration online.

Right.

And if you have a physical gallery.

And that doesn't mean and it's just means once the customer knows your brand and the <unk>.

Shopping from you.

And they might go home and make a transaction after they've seen it and a physical store.

So people, who believe they can close a lot of stores and have the same market share I think are naive.

So.

When we when we look at this we think our our footprint will be similar to North America. That's how we look at it today we're studying.

I think I mentioned on the last conference call, our businesses basically breaks down and 80% suburbs right.

8%.

At 12% and second homes, and 8% kind of.

City.

Urban locations and.

And I believe that'll be similar internationally and I think.

<unk>.

We wouldn't be wise, if we said Oh, all we need is a store in.

The major cities in Europe.

I don't think we capture the market share, we would and North America.

It's no different than when you when you're in a country.

And it and the city, you're kind of no debt the business better like for instance, if you came to coordinate our California and.

And.

And you were at our center of innovation.

4 blocks down the street is RH Murray.

Village of Corte Madera.

Theres no luxury stores and that mall today, not 1 nordstroms, if you want to call. It a luxury store I don't call and luxury store is.

And our highest branch store and and if you want to call.

Apple luxury you can call out there as an Apple store, there, but there's not another luxury store and that entire mall.

We opened up.

1 of our big New galleries are got a restaurant and and.

Yes.

It's going to be massively successful.

And if we probably werent here and didn't have a.

What legacy store and the mall, we wouldnt have understood the potential and Marine County.

And we would have been a lot smaller I am sure other luxury brands now that we've built our big gallery are going to follow that I heard Tiffany has taken a location now and.

Now that <unk> and Stephanie I think we're going to we're going to see that change but.

So I think.

We're going to be pretty similar as it relates to the products.

I think the world is getting smaller and smaller a lot of people say to me Oh, the houses are smaller and Europe.

Not really yeah are they are the store.

<unk> homes, so much smaller yes, the city homes are somewhat smaller and the urban demographics of North America also.

And everything we carry comes in all sizes, we saw sofas from what 6 feet.

Whatever however, many feet you want right you want and 5 feet will make it 5 foot sofa.

So our products come and all kinds of sizes I think we've got the assortments debt will be appropriate for the world.

And I think the world once RH, there's nothing like us out there.

There and.

I think our brand is going to translate very well.

So I tried to answer all those questions and I don't know finance.

And you did.

Yes, you did thank you so much.

Alright, Thanks Andrea.

Your next question comes from the line of Steven Forbes with Guggenheim.

Benign and security.

Good evening, Hey, Gary given your comments and in the letter about.

You're maintaining a 20% EBIT margin in any scenario you can envision here.

Because I think we're all living and the scenario land, but curious if you can provide some color on how youre thinking about the potential paths and demand growth.

We head.

Into the back half.

And if you can contextualize sort of.

Yeah.

Downside scenario right that you've tested and the model. So we better understand the flexibility that you see or that sort of inherent right to the model that you have.

Sure sure so.

Look.

And I think anybody that's not David things that debt go up generally that you have no control over don't necessarily stay up there.

The question is how long do they stay up what does it look like.

And when things evolve and return to some kind of normal, but this isn't a new normal and I.

Thank.

And it's naive to not really look at all the models and.

And look if you're if you were talking to me a month ago.

A lot more pessimistic and I am today I'm a lot more optimistic on.

On a month later, because I have more data and.

And the organization, we have we can see more trends and we can see what's happening and then.

And not just data internally and how our demand trends look and as we.

Look ahead, and what's happened and what we think will happen, but just what's happening in the and the housing market, what's happened and stock market whats happening and that remodel world the pent up demand that exists.

And if you think about.

People that are building.

At home the homes are taking longer to build you can't get the trades people cant get people to remodel their homes.

All of that means that they haven't bought their furniture yet.

Right, we're kind of on the last stop on debt on the journey.

So there's this kind of pent up demand.

And backup.

On a lot of things that that indicate to us when we think about our pipeline and look at our pipeline that look very good as we look out.

And to the rest of the year.

And.

And possibly into next year and when we get into next year, we've got some step.

Ups right, we're going to introduce a record amount of kind of new product.

Beginning in the later part of the second half this year that will mostly accelerate revenues in 2022, right. We will ship some of it this year, but not not a lot of it.

And so as we look at it we kind.

Look at the current trends, we will get something on the <unk>.

And have for new stores that we just opened new stores we are openings.

And we'll get some for new products, but really does will set up 22. So we have all of that momentum going into 2022, and then we start opening internationally and internationally is.

It's very different than opening a new gallery, and North America, because most of our galleries and North America are replacement galleries. There's just a couple that are like Jacksonville and you can argue that's it.

New marketers and expanding the Florida market.

Yeah, we've only got a couple of ahead of us.

We're not we're not in Hawaii and were not.

Montreal.

Rial I can't even remember if there's anything else, we're not Naples and aprils. Yeah, you can argue naples, probably could be incremental but theyre, not probably 100% incremental sense were somewhere.

In those countries already but we're not in the United Kingdom right, we're not in.

France, we're not in Germany.

We're not in the Netherlands were not in Spain.

Yeah, I mean on and on and on and so we're going to be opening countries, which is a very different dynamic right and we're not only openings countries with a handful of galleries are opening countries with.

A multi.

And multi dimensional digital portal.

On that debt.

And that people are going to have an entire countries can have access to the brand.

And then we'll probably figure out like how do we think about selling and cross borders until we establish a presence there and delivery and stuff like that we may be able to.

Hey.

We may build reach more of the continent, and I'm sure there's going to be customers. They don't want us to ship to Russia, and the middle East and so on and so forth and we will figure out how to do those things. We wont officially opened up the continental Europe. When we opened the first handful of galleries system a bit complex from an operational point of view and would create too much upfront costs.

So we'll kind of learn as we as we go there, but that gives us a step up so when you think about.

On the downside model, which is important to look at right and like we have.

Had it ever since we've been.

Everyone. Since we saw this uptick.

And then we said look it's the.

How is this going on how is this going to play out.

And so today, it's my view is.

The rest of this year looks pretty good based on everything I can see and know right now right.

Stock market fall apart I don't know if could.

Because the housing market slowdown and I don't know like Youre guess is as good as mine, but I can and my data is.

It's probably as good as yours and vice versa. So we're all we're all kind of spur.

And speculating into the future and every plan we have some degree of wrong. It's the question is are we more right than wrong and today I believe we're more right than wrong about the outlook. We gave you right and we tend to be relatively conservative and our outlook.

I'd give ourselves some room to navigate.

But.

I think about it this way as we built our model and we went back and said what would normal have looked like.

What would.

2000, 22021, and 2022 and our long term outlook for the company look like it would have looked like.

And a 10% growth and 2020 not 8 because we couldn't ship things right. So we didn't really benefit from.

From Covid last year.

And Thats the point I tried to make on only 8% revenue growth, we hit operating margin to 21, 8%.

And so not really a COVID-19 leverage like most other.

Other retailers, we had no cash and carry product right.

We don't.

What do we sell 110th of 1% of our sales walk on a store I don't think we have anything that walks out of a store and a bag unless somebody really needs a towel that day.

No.

So we have a really a direct to customer platform, it's all delivered to customer.

Customers' homes, a lot of its special order has longer lead times things like that and if nothing is it also and you can turn on a dime and say Hey, we're up 40 and the manufacturers can.

Start delivering at that level. So we had this big backlog that that's flopping over and will that backlog continues at about the same amount about $150 million.

And as we look forward.

Will it all catch up this year, we don't know it depends on how the trends look probably not all of it will flop and this year, because we will as we ship those goods will create new backlog. So we're not exactly sure when will it will all kind of normalized.

But if you looked at our longer.

On a term plan, we would have said hey, normal look like up 10 up 10% up 13% to 14 in 2022 as we opened internationally right and we would have a bigger uptick then.

So we kind of look at it and say, okay. We are update instead of up 10.

B.

This year.

The guide.

And then we kind of look at it and say.

In 2022.

If we were if.

And we landed where our normal.

Business would be what would that look like roughly right and so.

And.

And then and then at that level, we're saying now let's give back any of the Covid lifts. So we've got math around what did we get that we shouldn't it.

And we take that out which as you know.

Some number you can do the math.

And then we said what if like we are and the longest.

Economic.

Expansion in the history of the U S right without a recession, so at some point something's going to happen.

And B naive and foolish thing it'll never happen. So you got to be ready for it. So we said, okay, let's say theirs.

Economic downturn of 20% in 2022, and you take that and that's.

A big 1 right because that looks like 2008.2009.

Where we were down about 15 or so so so take 20% out.

And so it's taken out of Covid lift that's taken out 20% and we're still.

Yeah at 20% operating margin slightly above.

So what.

What I feel I feel good about is that's how good our model is.

Alright, that's how good our model is and what I feel comfortable and confident about when people people asked me.

Hey should I buy your stock.

People the same thing and look if you are.

Your trader.

And your short term.

We'll focus on short term and episodic moves don't buy our stock if youre, an investor and you have a long term view and you're going to hold the stock for 5 years and more.

You're going to make a lot of money here and just as people did.

And we IPO and.

And you guys have seen the numbers on that and so.

Yes.

There is a.

A lot of upside and the story there is a.

And by far the best model and our industry No..1 has got anything close.

It's all a little maps, because some people have a lot of COVID-19 lift right now and it looks like.

Business is better and the margins are better and are.

And theyre not promotional and no one's promotional.

<unk> right now that Jesus like for God's sake, how can it be promotional with the kind of demand trends and you can't even get the inventories so.

The good news is it doesn't affect us because we're never promotional right. So so our margins on our margins right. So you can count on our margins being and our margins what I count on.

Everybody else's margins being their margin not at all.

There's no way when the world returns to some kind of normal in the home industry.

The people that used to promote or going to have to promote again.

And it's very foolish to think Theyre not.

I'm just happy we made that move from a promotional model to a.

Membership model.

Long time ago because.

We don't have to change anything.

So our margin structure as our margin structure, the only thing youre seeing and our margin structure that might be giving us a little lift and.

And through this period as we have lost less advertising expenses.

So we cut back advertising, we couldnt get the goods.

But.

If we would've had the advertising expenses would've.

Dunmore.

More volume, but theres no sense spending the advertising and mailing books when you can't get the inventories.

And that would've been like just burning money light and a matching for and the money. So we decided not to you know.

Not to launch new products not not to average.

Advertisers like it and so my sense is when when the advertising investment returns.

We will have the inventory and we will get and incremental lifts in and our.

And the top line and that's another thing that shouldn't read about that and in the.

And the letter and how they think about it in fact as you know we got.

We've pulled back on advertising and so when we start mainly books again.

That's also going to create momentum and the business. So that's why we feel today.

Yes, Steve.

Confident about how we think about.

The rest of this year and what it looks like next year and we feel extremely confident.

And that if the world changed and the home industry gave back any COVID-19 lift and you pop on top of that and you know.

And a recession and you get back and another 20% of the business.

We're going to fee and the 20% range and we're going to be able to play offense and take a lot of market share.

And do a lot of smart things that I don't believe other people are going to be able to do.

And that was Super helpful. Gary I really appreciate that and then just as a quick follow up.

And of hard not to get excited here about RH international So just curious.

And what are we left and a year away right you know what what else needs to be.

Done to ensure a smooth and seamless launch.

As you as you sort of prepare for this this grand opening here.

Sure you know all the things that you would expect I mean, we've got it.

We've got to build the operational platform from a.

<unk> and <unk>.

Logistics and home delivery perspective, which we're working on and building.

We've got to make the inventory investments and be able to get the inventory, which we're working on and.

And we Couldnt have launched this year would've had no inventory right. So we had to delay everything by a year and thank God, we get we did cause.

Yeah.

And I don't have any goods to sell so we have to abbvie inventories so to build the inventory and and.

You'll you'll start to see that being reflected in our balance sheet as we build inventory for international.

And then we've got to continue building the team and the good news is and what's the latest poll how many people from.

Our organization and want to work for us internationally come on.

Yes, we have several hundred people that are already volunteered from America to go work in Europe. So we've got and some of them are from Europe. So we've got a lot of enthusiasm about people who want to go help us open internationally, but plus we've got a team that's in it and we got a leader on.

On international and and we're building that team and if you came here and Youre and our center of innovation we have.

And <unk> are each international room, with maps, and dots and cities and numbers and volumes and populations and yeah.

And things, we have to do and where we have to go and where.

Or do we hope and home delivery, where do we opened this not so yeah, we're working on and all the things you'd have to do I mean, the good news is they are all the things that we do here.

So it's not like there's anything really new.

And I was just you know and.

And some cases from the most part everybody speaking English and it's not like 50 years ago and.

And there is slightly different.

Currency things like that and then and the question is how do you price the goods and.

I think that the good news is as we we study it and we look at how other brands are price their goods are probably.

Hum.

My bigger margin opportunity than we thought.

So we feel.

And <unk>.

You know.

More positive and less positive that RH international as we begin to scale it will actually be margin accretive not margin dilutive.

Thank you Gary.

Okay.

Your next.

Next question comes from the line of Tami Zakaria with JP Morgan.

Hi, This is Jeremy and thanks for taking my question so.

So my first question is and on.

International openings, I think and your share.

Shareholder letter you mentioned.

It doesn't help and 10 locations and total over the next to the T V.

It's probably the case and I'm guessing as to see international openings per year.

Over the next 2.3 and so does.

Does that mean.

Do you plan on opening.

Opening an equal number of U S.

And international locations over the next couple of years, so basically what I'm trying to understand is what what is the gallery opening cadence over the next 2 years.

And how is the split between international and domestic.

For sure.

Thanks for the question Tami and by the way, you're you're kind of Ah yes.

You had a crystal ball I saw your note right before we announced and your projections are pretty pretty close to our projections. So good job on your models.

But the big the.

And the gallery opening cadence.

And in North America will remain somewhere around I'd say 3 to 5.

So.

Maybe 4 to 6.

And on how.

How these deals come together.

And then.

International.

Would look at it and say we've got.

2 and the first year as long as <unk>.

France opens and we can get get work down there so.

Paris will either open and the.

The fall of next year and if for some reason we continue to have COVID-19 delays and we can't.

And and do the work we need to do it could go into the spring of the following year, but beyond that we have.

Hi.

Other locations some of them are much easier to open and others there are less complex.

These first few are relatively complex and then London is relatively complex. Some of them are less complex, where some are not quite as bigger footprints and.

Where are we.

We have and ability to kind of.

And of test if you will and have some flexibility we don't want to be locked in everywhere and a bunch of countries where.

We made a mistake, we have a permanent mistake.

We don't.

Net net on on Idaho, and England that'll be a relative.

Relatively low net capital deal as we bought the property investing some money, we will do a sale lease back.

We will have more capital and in Paris, That's a long term lease and then we will have more capital and more pregnant. If you will in London and May fare, where we're kind of stringing together.

4 buildings to make spectacular gallery.

But some of the other locations, we have shorter leases on and we're making a much smaller capital investment.

So we can understand the markets and understand the country is still spectacular real.

Real estate and buildings and the great thing about.

About Europe as you have all these spectacular buildings I mean, you know the United States.

North America, if you search for <unk>.

Building, the stature and taste and style and great architecture Europe is filled with them. So we love that we love the ability and if we love the real estate we're taking.

We believe they're the right locations, but.

We don't know for sure. So we want to learn and so we've got some with shortage from leases that give us flexibility, we're going to and Thats whats capital we're.

We're not going to open restaurants everywhere, because that's a bigger capital investment.

And and we will.

And kind of test and learn and then we'll have kind of flexibility.

And mobility to kind of.

Make a bigger investment once we know those markets better so, but you know to debt to the consumer side. They are all going to be spectacular.

Look at it there are slightly smaller.

Not all going to have.

The restaurant investment, but we have a lot of galleries and.

And on <unk>.

North America that are old legacy galleries that do big volume are highly productive and these are much bigger than the seizure I say some of them are more like are kind of.

1 point out design galleries, like Houston, or even Boston, where <unk> got 2015 to 25000 square feet as.

As opposed to.

And 50 to 60000 square feet.

And it's all I had Jack.

[laughter]. Your next question comes from the line of Michael Lasser with UBS.

Yes.

Good evening. Thanks for thanks, a lot for taking my question, Gary It seems like what you're suggesting.

Alright, just spent the last 20 years or so building unique luxury brand that hasn't existed and home furnishing.

It now has pricing power and should match.

And <unk>.

<unk> margin, which we've seen you realize in the last several years and Covid has allowed you to accelerate that process by raising prices and getting to the margin level that's appropriate for the.

Befitting a luxury brand and this market.

Is there a case, where you haven't gotten and great sense of elasticity and your core customer segment, because the or the size of your core customer segment because of these unique conditions and that could change on the other side of this.

So that's the first part of my question is and then the second.

Second part is who has been a demographic that you've seen come and buying 1 of them, even coming to buy and the last couple of months to drive this level of growth. Thank you.

Alright, I'll start with net debt second question what is it.

It's really it's kind of a core RH customer.

Customer nothing different and the demographics, that's fine from us.

More activity more and more movement more people moving more people moving from city, the suburbs second homes and things like that.

And then more people just refurnishing.

Their current homes, just because we've been spending so much time and their home.

Couldn't really travel so.

So people doing their share.

Our outdoor spaces and stuff like that and.

That's all continued to be strong.

And as it relates to Covid.

Speedy and anything up it really hasnt speeded anything up.

Not for US I mean, this year, it's going to give us a lift but if again if you just go.

Go back to last year, and say on 8% revenue growth 7.7% revenue growth, we had 21, 8% adjusted operating margins right. So that's that.

And that was lower than we thought where we thought we were going to debt.

10% to 11% growth.

And so.

And our model is pretty clean if you look at it through 2020.

And then this year you've got you have some lift obviously and we're gonna be up 25% to 30, and so the way the way I'd look at it and this is model. This out over 3 if you're if you model. This debt kind of 10, 10, and 13, you'd kind of be directionally, right, plus or minus a point or so.

And then.

And you know the question is what is 'twenty 'twenty 2.

2022.

I'll get back here.

Flat year, because you know that.

The COVID-19 cycle and the focus on the home goes back I mean could could be.

And here.

We've got things that should make it a better year than that because of the.

The fact that we have and introduce new products and how long has it been out 18 months and months and will be.

Okay. It will be 2 years, okay and fall.

Where we haven't introduced new products think about that 2 years no new product.

<unk>.

So we've got quite a backup that will be introduced this fall next spring.

You know that.

On the product pipeline.

The next 18 to 24 months is really dynamic.

Our pipeline and.

New products.

And every.

And our.

RH interiors, RH modern and not just RH contemporary but interiors modern day.

Child Teen Beach House Ski House, a lot of new product coming on as well as.

Alright fit your upholstery orange bespoke furniture, RH color lots of things we've been working on.

So.

Everything right, that's a big plus to US and then we're opening up internationally and that's a big plus right, that's 100% incremental right. It's not like just transforming the gallery, where.

It's a market that is already doing $15 million and it's going to go to $30 million.

$25 million market is going to be a 50.

And that's.

So this is.

Not incremental markets and incremental countries and then thinking about it more as an incremental continent, because at some point, we will open enough galleries, and Europe, and we will have our infrastructure and home delivery figure. It out and then we will open up the whole continent, whether we have galleries.

<unk>, who are not we'll be able to figure that out but the big thing is why you can't rush to just open up the continent is you have to figure out the reverse logistics right and figure out what am I can do with the returns.

Because what you don't want to do is all of a sudden like open up the country too soon and you've got a bunch of returns and.

These every Russia or <unk>.

Copenhagen, or places, where you've got no infrastructure no outlet infrastructure and you've got no way to handle the goods and you'll just lose a lot of money all day long.

So we're just trying to be prudent about how we open up these countries at what point do we have the infrastructure in place and figure.

And figured out how to handle returns had on.

Handle the back end logistics and.

And how to wire that.

And to change like what a lot of people don't know.

The closest but on public nursing staff and we.

We made in our reverse logistics outlet business.

And we've made a it's about a $200 million business, we've got $100 million difference and profitability in that business over the last 4 years.

$100 million, Okay, we know what it what it looks like when you don't run that business well.

And we know what it looks like when you run that business, well and you've figured it out and all the handling.

And transportation costs and everything that goes wrong there.

So we just want to kind of build a really great business and a really great model. There. So we'll go a little slower, but when you think about our model and the Covid piece.

This year, it's going to have a little COVID-19 lifts.

But if you look at the growth that will come next.

Underling, and whether it slows down or not.

And where we're at this year.

It is.

Yes.

A good place.

Because we have other things that will balance it out so.

But.

But the good news is like and by the way, we didn't really take any price changes.

Next year increases because of Covid.

So we just took our normal kind of price increases because that's.

And that's what we do.

As we and and because we have pricing power, where luxury brand. We can we can pass through price increases and other parts of our business and.

On.

And that's that's 1 of the advantage.

And you have on your plan and the luxury market and you have exclusive product and you control the distribution right. So.

But I wouldn't say our business is that COVID-19 affected except for the leverage were to get with the big and with <unk>.

Lot of the revenue that's going to hit this year.

Vantages and next question comes from the line of Steven column.

<unk> research.

Great. Thanks, very much congrats on the strong results, maybe shifting to the margin side.

You know given such strong performance here and the first quarter is there any real change and thinking.

On the drivers of gross margin versus SG&A on a full year basis versus the initial guidance you provided back in March and then I guess specific to the second half of the year given the momentum and gross margin is there opportunity for gross margin and continued to expand.

Jack you want to take that.

And I don't think anything has changed with respect to what we said.

And last quarter.

If you look at historically, what's driven our.

Operating income margin increases.

And I kind of view it as sort of 3 quarters of it roughly coming up and gross margin quarter on SG&A and.

The gross margin the bulk of that call it 3 quarters coming from product margin and the moves we talked about earlier.

And design quality.

Taking the margin of the goods up so that's been pretty consistent as we look at the model you know index for 5 years and.

Gary was talking about the evolution. This year, we will have a little bit on.

And harrisons because of the way 2020 played out so obviously with Q1 down 20, 19% last year Q2, being flat and so that and the growth rates, we have now youre going to see a little bit.

Swings and sort of the I guess.

Margin Delta versus last year..1 thing we were just looking at her that I like to look at it and the same way.

<unk> looked at 2 year growth rate I would look at margin changes on a 2 year basis as well.

<unk>, <unk> 19, and that that sort of formula that debt.

I alluded to earlier holds.

On.

Ongoing and I would expect that going forward.

And the people and then I think the opportunity.

Gross margin to expand just to address that I mean, there is always that opportunity I think our our you know.

And our position on how we communicate our guidance and our outlook numbers.

To you and how and how our internal models are position, but but it's something that we.

What we do well we continue to elevate.

And the quality on the luxury mountain and I think <unk> seen the benefits of that and I think that will continue to accrue to us.

Great very helpful. Thank you.

Your next question comes from the line of Anthony to comeback.

Capital markets.

Thank you so much for taking my question.

The designs on the strong start to the year.

So Gary I mean, you guys are doing a lot of different things right now a lot of and very exciting initiatives.

And particularly the international expansion, but all the product newness and some of these new concepts and I guess my question is how are you personally al.

Locating your time, because I know.

And I'd have to imagine that youre very very intimately involved and a lot of this particularly the international expansion.

And so we're just I would just love to get a better sense for that thank you.

Good question.

Say inside our company with you.

We really do too.

Things, we allocate human capital and financial capital and the.

The most important 1 is human capital and how we allocate our time. So we don't work on any things and this company that the cross functional leadership team can't work collaboratively on so well.

Whether if you look at the kind of the big product any.

Initiatives and thinking about the product initiatives.

Happen over years right so that.

And that by the time Youre seeing contemporary coming we've been working on contemporary for a long time, we've been looking at working on color for years. We just is it just been other things more important that we and we've launched so colored keeps getting kicked to the back of the bus because.

We don't we don't think it's as incremental and some of the other things.

And that we're doing sooner or maybe not as important to elevate.

Product Brent but.

And all the big initiatives.

Take kind of the cross functional collaboration of the entire leadership team to move the big rocks, because they're all big rocks are and whether it's a product.

Product elevation was the gallery transformation.

Brand elevation and the things that we're doing there.

And to elevate the product and elevate the brand.

Things, we're doing to digitally re imagine the business not just the website, but digitally re imagine.

The way, we move information and day.

Peter and.

And amplifies can amplify that.

The productivity of the teams and the decision making to the teams.

And then and then global expansion.

They're all they're all things that we as a leadership team.

And we allocate our time, we ranked everything and this company through a lens.

What's the emotional value.

What's the strategic value and what's the financial value in that order right. Because you do really great work, you've really got a deeply believe in it and you've got to be able to you have to be so excited that.

And you'd rather be doing that and something else.

Does it do extraordinarily.

And aerie remarkable and amazing work.

Not for the faint heart, it's not easy to do being the best and the World and what you do is not easy to do it takes on a tremendous amount of effort and and youre not going to put and that kind of effort you are not going to have that level of commitment unless there is real.

Emotional value around and initiatives and our strategy. So we only focus on things that were deeply passionate.

About that were really aligned about the entire leadership team.

And as passionate about because we've got to work on that and a collaborative way and we've got to put and a tremendous effort.

And then the second thing we look at is what is the strategic value of an idea.

How does this idea.

Render the brand or business more valuable and is this idea of create.

Strategic separation between us and others and our industry and and the idea is to have to have high strategic value and then third is financial value and and.

And a lot of companies I think work on at exactly the opposite way and Thats why they don't do great work because someone comes up with an idea that this is a $1 billion ideas and nobody's really.

Passionate about it and nobody works at hard on it.

Body.

They get knocked down 2 times and they don't get up and third time, when Youre really passionate and you believe deeply and what youre doing to get knocked down 10 time to get up 11 times.

Just keep going as you care so much about what youre doing so those financial ideas that people articulate that theres not high emotional value.

And generally don't Pan out and they become out of that.

What happened on a $1 billion idea, yes, we wound up we drove into the debt and we couldnt get out and it never happened so.

And and.

But the things you really care about they tend to be worth more over time, we might have something that is really high emotional value really high strategic value.

And it looks like moderate financial value, but what we've learned is over the course of time.

People seemed they are working so they're so passionate and working so hard and they tend to uncover more opportunities and see more of the work is better than you could imagine and the financial value goes up over time. So what you thought might have been a 500.

The idea of turns into a $2 billion idea because it works that damn good.

And so but we spend a vast majority of our time.

Debating and.

Deciding how to allocate our human capital how to allocate our time and Thats. The most important thing we do.

I can always go figure out how to raise more money, we can go get more money.

And I haven't figured out yet and how to get more time. So we spend spend our time figuring out how we're going to allocate our time because that is by far the most valuable resource and the company and when you think of these.

It seems like there's a lot here Anthony and there is we've.

We've been working on this stuff for years.

And for years.

Like this is these are not like new Ids or just <unk>.

Now we're talking to you about them.

And so somebody.

Somebody asked me how long have you been.

Working on the guest guest house.

And working on and guest house for 'twenty.

5 years.

For as long as I've been traveling and frustrated about the experiences and.

Why does the day, but it is weather and anybody that design the room for the guest house like 25 years ago.

And so you'll you'll see it's way better by the way and pretty passionate about it and does the organization and by the way. If you asked me 2 or.

And 3 years ago, even 3 years ago.

How do you feel about the guesthouse and.

How big of an idea is going to be I would say, yes, I think it is going be great. It's going to be a very good idea.

Now I'd tell you I think it is a redefining idea I think it's going to it's going to define and entirely new market for privacy and luxury I think it's so damn good it's going to shock people and the <unk>.

Industry.

But that's just because we're really passionate about it tends to become really great work no different than RH contemporary and we're really passionate about it there is a team and here last night last couple of nights until 2 in the morning.

And get them out of here because they are so damn excited about what they're doing.

I know, it's going to breakthrough and it's going to.

And a change everything so.

So it seems like we're doing a lot but by the way that's our nature, we do a lot, but we're also highly focused we know how to edit we know how to say no to a 1000 and things.

And you're seeing the handful of things we decided to focus.

Focus on and.

And we have the capacity to focus on.

And you don't really know the whole team here you don't know the depth and breadth of the organization. We built we've got a very deep.

<unk> team and a lot of talent and this organization so.

And you don't want to you don't want to lose people because youre not youre not working on and that the extraordinary.

And we think they'll.

And they'll go somewhere and they can go work on something extraordinary so if you're on.

And to have the best talent, you better be working on the most exciting things and the world otherwise they'll go work for somebody else.

So I wouldn't worry that we're doing too much and people have been saying that about it forever.

Got it. Thank you so much and I look forward to have and.

Champagne and caviar at Orange, England next year.

Okay.

Right.

And.

Your next question comes from the line of Nagle with Bank of America.

Good evening, thanks very much.

Maybe just turning back to international.

Maybe a little too early to ask growth assessments, but just on.

Gary how do you think about cash.

I guess, the baselines or.

So the comps would be for some of these early markets Youre doing London, and Paris, where you've got these.

Spaces.

Recognition of the brand, but certainly.

Peter.

And this number of people and those cities they are new markets.

The benchmark I don't know.

Perhaps new York, maybe Thats aggressive and La San Fran how do you think about that and then just as a.

Quick model question.

Could you comment on kind of what demand trends are doing now they're sort of proportionately similar to what.

What you saw on <unk> in terms of how they are balanced relative to sell through.

Sure Yeah as far as far as international.

But we think about London like New York.

And if you look at the population demographic profile of this.

Broader New York market.

Broader lender market.

<unk> pretty close if you look think about from UK, we think about the U K a little bit like we think California.

68 million.

On the U K and there's 39 million people in California. So it should be bigger if you look at that debt.

The profile of kind of.

High net worth and ultra high net worth people.

California's skews a little higher per capita.

So if we look at California say, California is probably long term.

$800 million to $1 billion market, so blended should be somewhere around $1 billion market.

And.

We've got to have the penetration of galleries and the brand recognition to get there.

But but but the upside is we're opening and some pretty spectacular places.

We're opening with a brand that.

<unk> got kind.

Kind of worldwide recognition.

With our.

Core customer.

And I like people don't know the brand at all unless they don't travel to America or are there and have any friends and America right and if they if they travel to America and they are wealthy friends and America, where on their radar.

And.

So.

The <unk>.

Question is just like housing and how.

How quickly does it scale, we don't know what we'll know more and we open them.

We're going to do a great job I think we're passionate about it.

The work, we're doing is going to be extraordinary and it's going to be remarkable and I'd like to say that.

When you do extraordinary remarkable work you can usually figure out how to monetize it.

But it's very hard to monetize.

Ordinary around remarkable so we feel better.

Okay.

And a better than worse, we feel excited about that this very passionate and.

As it relates to demand trends, we gave your demand trends through last year, because it was and it kind of such an odd year.

Yes.

We don't want to get and the habit that were given demand trends for the rest of our lives here and within within a quarter.

But you can back into all that stuff with the numbers. We gave you a pretty fulsome guidance. So we gave you a relatively normal guidance that we would have given before right. So we're not fear and not giving you guidance. We gave you guidance.

For Q2, we gave you guidance for the full year.

You can back into those and you can kind of kind.

And kind of figure out what the demand demand trends might've been no differently than you would have.

Through our historical guidance.

But we just don't want to sit here and.

And while we're going to do is attract a bunch of it.

Short term hedged for hedge funds and day traders.

We're talking about like Hey, you know through last week, we're here.

Yes.

We want people, who are more long term base, but you can figure that out we I think we've given the most fulsome guidance I've seen anybody.

So far this year.

For sure the numbers speak for themselves.

Sure. Thanks, Gary.

Great. Thank you thanks, Chris.

Your next question comes from the line of Max <unk> with Cowen and company.

Great. Thanks, a lot and congrats on a really nice quarter. So just staying on Europe, just curious on the.

And the margin side, what do you think profitability could look like versus the U S and I think earlier on the call you said that margins might actually be accretive. So just curious how youre thinking about GM versus SG&A and then just leverage on the overall business.

And I don't think we're ready to talk about that level of detail I think.

And I think about it directionally and strategically.

We believe that.

We think it can be accretive to margins long term.

And pull our model up.

And as opposed to.

Be dilutive.

To our model.

And a half to get some scale, we're obviously going on at <unk>.

Open distribution facilities and capabilities and make investments in inventory and AR.

Other other.

And the infrastructure that we've got to be able to open the business too so.

And depending on how quickly.

Lease, we ramp and how quickly the business ramps.

And we will determine.

How how the model evolves and so.

When we're talking about it I'm talking about more long term like I look at a study now a lot of People's businesses a lot of models what people are charging what they're charging there for similar goods.

And.

And we look like.

Tremendous value and and.

Our view is it can be a higher margin business.

And.

And the U S and also the reason it can be somewhat higher margin as you just don't you are not.

We're not like traditionally a lot of a lot of people.

American retailers that would open in Europe, they duplicate all kinds of jobs they duplicate.

By and teams and duplicate.

Corporate overhead and infrastructure and things like that and you had.

A lot of levels of duplication and we don't believe we need to do that we're going to rent.

And more.

Look at the World is kind of 1 place and.

And we will we will have very few.

Duplicative infrastructures.

Obviously, you have to have some.

Yes.

Human resources and.

People leaders and.

People running stores and.

And oversight and stuff like that but.

Not going to duplicate many of the things that other.

And the business as a brand and have done I mean, the good news is we don't need a big inventory management teams and thinking about most retailers most retailers are filling a store with with products that they're selling to out of all the time and the replenishing all the time, we don't do that.

We set up a gallery and nothing moves for a long time.

Like nothing moves we make sure that the.

Seem to beds and we.

And we straighten it up but nothing is moving and our galleries right. So we don't you think about the complexity of inventory management and a normal retail store other home furnishings.

And as retailers that are selling stuff off tabletops and this and that that are and the cash and carry business, we're not and the cash and carry business much simpler model much simpler model. So they would have to build big inventory management teams and duplicative teams in different countries right they'd have to think about all these different profiles and which sell through rates.

Rates and all that and we don't have to do that we keep a DC and stock.

Right and and everything pulls from there so it's much much simpler model.

And those who.

A lot of those reasons is why we.

Or why we think it's going to be accretive to operating margin. We just don't have a lot of duplication.

Got it that's very helpful and and then just as a quick follow up on the RH contemporary with the continued supply chain disruptions. Just how are you guys thinking about fulfilling what will probably be really strong demand and you guys are able to bring anything and ahead of time or is that not really feasible given that the business is really a customer.

Driven just curious how the team is approaching these challenges as you are side you have a lot of our new newness over the coming quarters. Thank you.

Yes. Good question, it's not that it's it's all it's all.

The special order and it will probably have a slightly higher special order.

<unk> to start.

But we will we will stock a good portion of the product and the real key is.

The supply chain catching up and what the demand trends are and.

What's the level of.

Kind of in stock rates can we be at and that will determine.

And we will probably go all the way to the wire to figure out how many books, we mail how big we get behind this.

We don't drive.

And another giant level of back orders and long wait times. So so.

And so we've got a.

We get a few months here to see how the supply chain.

It's happening and how people.

And are catching up.

The current demand trends are going to be.

And and it will yes, we will figure that out as we go but there is there is a bit of a supply chain constraints and.

And.

And Thats, why we Havent launched anything and a long time so so.

But right right.

Right now and we feel pretty good debt kind of.

Kind of middle to later I'd say late September early October we looked like we can launch contemporary.

And we will launch the business, but our business people get a book they don't start ordering that much in.

And the first few days.

About a month to digest it and the designs is that work and my house and.

And so on and so forth. So by the time people really start ordering and contemporary we should have pretty good and stock rates.

But it'll keep getting better and better and better as we move through.

At the end of the year.

But we think will be and.

And a good enough shape if for some reason.

The demand trends are bigger than we think and.

As we move into true.

Through the quarters.

We may have to just launch contemporary and a smaller way.

And so.

But look it's all a good problem to have.

Right, it's not like.

Nothing selling here.

You don't really want the demand trends to go down and so you can watch contemporary on time right.

Like that would be bad to wish for.

I'd like to demand trends to stay up.

Good outcome would be hey, guys, we've pushed contemporary.

To 2022, because our demand so damn strong.

Right now some people would say that's really bad.

Think that should really get that means our business is continued stronger than we thought so it's not really exactly when we launched contemporary.

It's going to happen is depending on demand trends and and debt.

And the ability to ramp production.

So high class.

Yes.

Your next question I think we've set out yes.

Okay.

Your next question comes from the line of David Bellinger with.

Wolfe research.

Hi, Thanks for taking the question and congrats on the results here. So just looking at all the success over the past few quarters through the membership model how much of your senior customer base grow over the past call. It 12 to 18 months and more importantly, where can that number go over time.

Time, and as you build towards the $5 million to $6 million sales target from North America, and a much larger opportunity on the international side.

And we don't really give that day.

David I might say our membership count is disclosed you can look at it and our 10-K so last.

Last year.

On as Gary talked about 8% revenue growth from membership went up by 4.6%. So we went from 400 for 2000 members to 434000 and Thats, 1.1 proxy clearly sales and.

General and tend to outpace increased average order values on the things we've talked about they tend to outpace the growth.

<unk> of our customers.

Got it Okay and then just just.

And you think about the trends here and it's incredibly strong throughout Q1 are there any regions of the country that youre seeing within that strength and are either outperforming or being held back in some way and.

Did you see any moderation trend and some of the areas and that the country with closer to normal.

Or is this more of a just a broad based strengthening throughout the entire business.

It's pretty broad based.

Yes.

And that you had through this pandemic, obviously that the core dense cities, where you had more of an exit and so people.

Those were those were softer the second home market.

<unk> were explosive the sufferers, who are explosive and and now you've got the cities that people are coming back and we're getting close to the unmasking of America debt.

And the cities or the.

Energy is coming back the business is coming back.

And they'll probably have a stronger kind of later surge is how do we think about it.

Got it.

Fair enough. Thank you and best of luck.

Thank you.

And next stop is Cristina Fernandez with Telsey advisory.

Thank you and good afternoon I wanted to ask a follow up question on contemporary key do you think that.

Mine, and we're bringing new customer.

2 the business like margin.

And like modern did a few years ago.

And how are you thinking about.

Resenting and stores the price points, maybe can you compare that to Q2 the launch of modern and how this is going to be similar or different that'd be helpful. Thank you.

And we think it's going to be a lot like modern we think it'll bring and new customer into the business at higher price points like modern was.

Versus versus the interiors business.

So it's a higher level of quality all the new product kind of reflects the elevation of the product and the brand right. So.

Youll see higher quality higher price product kind of flowing in over the next several years as we take the brand up the luxury mountain Youll see the quality gets better everywhere you will see the design get better everywhere youll see the designers and people we work with.

And more.

More people will be more.

More aware of them designers that a lot of people said and will probably never designed for our age now.

Now coming onto the platform.

And so.

Youll see that product continue to elevate.

And that that should have yeah.

Positive impact on average order average ticket.

And a lot of good things that help the model of the business I think that's the thing that you got to think about long term with our business. As you are kind of taken going up and luxury mountain, you're taking quality out of your debt taken design and quality up and you're also taking price points up you have more pricing power there all of the leverage.

Flow.

<unk> through right I tell people all the time imagine if you're selling it to.

$2000, so for $10000 to open and Thats mentioned at $10000. So that's our best selling sofa.

So the cost you roughly 2 and $200.2.

Deliver that $10000 sofa.

It's a free.

<unk>.

From a shipping cost point of view as it is to deliver a $2000 sofa right.

And 2%.

First is 10% to 10%.

So yes of course, you want and fixed and that's why you can get such better margins here. So when you think about margin growth long term you got to understand.

And stand.

We're still climbing and the luxury mountain from a product point of view I kind of look at it and say where we're slightly.

Slightly above halfway maybe where 60% up the mountain and 65% up the mountain and the.

Product quality of the product design.

Design.

The taste.

And style. The brand is is going to continue to go up and we're going to continue to be disruptive at the highest and of the market.

Right, that's where we think that the most opportunity is.

On the kind of independent showrooms and.

Yes.

And a small boutique high and.

And stores and retailers.

So that's.

And that's all going to be very accretive to our model and that's why.

And I think I mentioned before I don't know if it was 1 or 2 quarters ago kind of a couple of quarters ago, I talked about kind of a correlation to <unk> and not that.

Net debt.

We put ourselves and our mazes.

Got it kind of it.

And play surveys and the world from a from a <unk>.

Brand point of view, but we aspire to things like that and it remains has I think 34% operating margin and.

And so there's a.

A lot of good things happening during this climb it's hard to make this client and no one's ever made this climb everybody who's up there is born at the top so we're kind of in uncharted waters here as we climb.

But it's all good stuff the leverage debt that customer acquisition cost.

And every everything here.

Is margin accretive the path, we're on and I think a lot of people overlook that because they're so used to building models for it.

No and inspired Theres, not an analyst or investor this ever built a model like this for our home business.

We've got no people ask us all the.

And where are you more like she is like look at home depot should I look at this are you like this or do you like that and nowhere like nobody.

And go look at other category.

Other categories, there's people like us and other places there's no model like us.

Why theres no results like us.

So.

Everything.

We're doing that is going to be accretive to margins.

And that's very helpful. And then my second question.

Last year and this year.

Sourcebook strategy change.

On the mail 1 do you think you go back to 2.2 like spring and fall like how you're thinking about just broader about.

Advertising and source books and its business normalizes.

In 2022.

We used to be we used to be at 11 or 12, a year right and then we went from 11 and 12 and we went to I think 3 then we went to 2 and we went to 1 and we went back to 2 now were at zero.

Yeah.

So we.

We will go back to at least 1.

And then we will keep testing the world's changing right all the time we.

When we opened these big Guy and 1 of the things to study to think about when you take RH again, if it is.

Great because we and this point of reference here.

Right next to us.

And it and I encourage anybody who hasnt. If you haven't been to a center of innovation product leadership, you ought to come out here and kind of see not only what we're doing but how we do it and you'll understand how unique and different we are and.

And then.

We will take it a lunch at RH, we're in and we'll walk you through but if you just like walk the mall and look at.

Oh, there was our in line store in the mall and then you see us as a third anchor and the center that you can't Miss when you come driving up to this place.

And you got to think about that.

Like how many source books do we have to mail and Marin when everybody and Marin.

Lewis.

And as a potential customer of ours is going on at least come have lunch or dinner with us.

Once a month.

And it maybe maybe a little less frequently but most likely and every time. They go to the malls and they go to nordstrom's and they go to Apple to get US they've got a drive by our magnificent Gallagher and gallery with how many.

100 year old olive trees surround it like it doesn't even look like and belongs in the park and less but it's this magnificent thing and if you just look at it and then you look at you just walk them all and you look at all these other stat retail stores you go well no wonder they might have to spend a lot on advertising you know, they're all like 30% to 50 foot store fronts with like a little.

And kind of crappy storefront and they have no windows and separate little glass and storefront and you walk into a kind of a windowless box and everybody looks the same and.

And if someone standing behind the register its all kind of.

I'll kind of the same.

And so when you build the galleries that we build.

And you did the volumes, we do and.

And you've got the hospitality component driving lots of traffic.

I got to believe we're going to spend a fraction of the AD costs, if everybody else too.

And to optimize the market.

No and everybody looks at the net negative investment into a retail store and nobody does a positive I tell people all the.

Time.

B and interesting world if we could all just go peak and it would be a world that only had online retail.

That's like and think about it the last couple of hundred years, you could only buy things and stores.

If I and things online and there was no stores and then all of a send somebody.

And then at a store and they did a bunch of volume and then all of a sudden everybody started opening stores and there was a shift to retail stores and also and you go <expletive> everybody now excuse my language.

Yes, you go heck everybody start closing their websites because stores is where it's at.

And nobody ever.

Kind of shifts the perspective and looked at it differently.

We're in a we're in a follow the herd mentality humans are followers for the most part.

And we don't like change and so everybody is just like following the herd and they think Oh everything can go online.

In my lifetime, we will not see yet.

And obviously.

More volume.

And in online and then we are going to see and retail stores and our category, it's just not going to happen and.

Less everybody closes their stores and they forced it to happen and that's really good I hope everybody, who sells our goods closes their stores and be the best thing and it happened for us.

And <unk>.

Our operating margins might be 40%.

If they do that I hope they do.

But if you look right now and let them all follow each other and let us build the only inspiring magnificent physical spaces and the world.

The fact will be.

Kind of a market and once so with Apple and so as Tesla.

So it's all the great companies are generally markets and 1 because they don't follow everybody else.

You got me excited on that 1.

Yeah.

Uh huh.

But imagine that world.

Your next I'd like a gold rush to open retail stores.

Yes.

And your next question comes from the line of Brad Thomas with Keybanc capital.

Hi, Thanks, so much on and exciting things to talk about.

Gary You mentioned, an interesting point and the letter about the RH Dallas restaurant being booked through August and was hoping you could just.

Just give us an update on where the overall raw strength isn't stands and its reopening and recovery and.

How that flow through is is is translating over to the extent you can tell at the restaurants that have opened sooner than others. Thanks.

I think it broke up a little bit was the question.

Around F&B and the overall F&B business, whereas the F&B business is coming and running back and what it looks like 1 of the things we weighted we took the opportunity.

And while everybody sheltering in place as we re imagined our our our hospitality business, we redesigned our.

On our menus are pricing and structure, our turn times our service standards.

Got a tremendous leadership team and.

And we believe we're going to make a huge impact once we can go back to kind of full service a huge impact and our F&B.

Business, both from a revenue and a.

Okay.

Our margin perspective so.

Yeah, and many many of the the restaurants debt.

Maybe it would have been 5 or $6 million, we think they'll now be 8 or 9 million, maybe up to $10 million just by the enhancements. We've made we used to have on.

Our our pantries as it used to be more of a coffee bar and now.

And so it's really a wine bar and we have 40 wines by the glass.

We found out that hey.

You have 82 points of margin on average when you wind by the glass and that's a really good business to be and way better than coffee and.

And they look coffee is not a bad business right and you wouldn't mind me and Howard Schultz and Starbucks, but debt.

But.

And we'd like the wine business.

It's a really good fit.

And when you when you are paying somebody to kind of go carry something to a table if they're carrying a $4.50.

Coffee to a table versus a $24 glass of wine to the table you know think about what that looks like on their payroll as a percentage of sales again.

Again, just keeps everything we're doing keep thinking moving up the luxury mountain.

And a higher price points more leverage and a more volume.

Serving actually kind of fewer customers and you make a lot more money. So F&B were kind of done the same thing with the elevated the menu elevate a lot of things get back most.

Most of the menu elevation, we're doing right here right now.

And marine and we'll be rolling that out I think that'll be a significant impact, but I think we're going to have it.

I think we have 1 of the great hospitality businesses and the world right now.

Our volumes are incredible and our model looks incredible.

<unk>.

Most of our restaurants are packed all the time and.

We can't wait until we can get to a 100% seating.

And.

And just out of the gate Dallas, It looks like it's going to be it.

$10 million plus restaurants.

And.

With the new 1.

Wine margin structure, which is really good and <unk>.

They are drinking a lot of wine and.

Dallas.

And so we feel good about it like it's going to be and it's going to be a good good part of the model and when you think about how much traffic to drive store galleries, and what that does and and then what that traffic does to offset advertising costs.

And other things.

It all looks incremental to us.

Great. Thanks, so much Gary.

And your next question comes from the line of Scott Awesome with Wedbush.

Yeah.

Thanks, a lot and my question if you can hear me.

Around the design services business and you mentioned it being the largest and North America wondering by what metric you're measuring it and then secondly could you give us an idea of what you've learned from that business over the last 2 years, how you might translate into Europe.

Sure Yeah. If you just look at the volume or our interior.

And your design business generates and the volume of our trade business, which is really part of our design services generate sports the external interior designers and I mean, we're really.

If you look at design firms residential design firms.

And I don't know if anybody that's larger than us or close to larger than us. So.

Yes, it's been a big big enhancement to our business that it's moved us from.

And just selling products to selling spaces.

And moved us from products to projects.

And so it's.

A huge huge strategic.

On a strength of ours and.

And we've created great strategic.

TG separation and we continue to invest and that business I mean, it's an important business for us and printed translates to Europe, we think it's going to be very successful and Europe.

People like if you just stand back and think.

How many how many times and People's lifetimes do they get to.

And a furnish and entire home.

Very few times, therefore, why would there be any good at it right that you can't be good at something you only do a couple of times and your life and that's why if you look at I would say look at Zillow or look at redfin or looking at anything and just go through the most expensive houses the lease expensive houses you generally see bad architecture and bad interior design and so we think we.

And make a big impact and the way people live and to live with Gist.

Not just more beautiful environments and spaces, but massively more functional and logical.

People just.

I don't know how to do it why would you be any good and if you'd like and walking into a tennis courts first.

Simon.

And you've only been a bowl or something like that and why you know why would you be good incentives like.

So.

People like I mean, I think it's interesting a lot of people say Oh I want my home to really reflect me well that's great.

But if youre and if you're not feeling good and interior design. Your house will reflect you and it's not going to be any good.

And so I think they are.

Service now that it's out there and the great thing about our design service and why and why.

Why we're so successful at it and why it's so much more impactful than other people is the galleries right the galleries and the source books and the way we present good we don't we don't build retail store.

And most people selling furniture and home furnishing and you walk in and it looks like a retail store.

Dining tables piled up with all kinds of seasonal crap on them you got stuff all over you've got shelves full of pillows and candle sticks and.

Charge ease and all kinds of stuff I mean, it looks like a mess.

It doesn't look like a home it looks like a store you walk into 1 of our galleries it looks like the home not just.

It doesn't look like any home on redfin and Zillow, it looks like better than any of them on the Reds and the Dallas Philip So it's a very inspiring physical manifestation of our brand and people want their home to look like that and so you haven't seen anything that looks back right.

And then therefore that gives our design teams credibility because the marketing their day.

They're servicing the customer within the example of the work right. That's why we have credibility if you walk into kind of any of the other people that people might go buy from it's a bunch of crap all over.

It doesn't look like you wanted to live with like a dining table with a bunch of charge ski.

Halloween or Christmas stuff piled on it or.

Pillows, Oliver shelves everywhere and candlesticks everywhere and yeah.

Yes.

And most retail stores and walk them all your work and at home stores home furnishing stores, they're like debt.

Mess.

We look like a beautiful.

Beautiful inspirational.

Space.

So that's why that's why it works and that's why it'll translate.

But you can't just say Oh, we have design services right. If your stores look like <expletive> nobody cares.

Your next question comes from the line of Sac and Needham with Wells Fargo.

Hey, Gary 2 questions on guest House, you said a lot of exciting things here. So first I'm curious if there's anything you can share on the revenue model and then second maybe you could walk us through the food and Bev.

Or experience offerings versus the typical boutique hotel.

Yes.

Well, we're not we're not building and a hotel.

And I had a comparison.

[laughter] yeah.

And the guest house revenue.

<unk> model and you'll you'll learn more about it once we opened it.

Yes, we're gonna have.

Fairly.

Expensive rooms, and we were building and experience that the world's never seen so it's not going to be cheap, it's actually that and think about it. This way. The guest house is the flag gets planted immediately at the top.

Top of the luxury mountain.

So.

Every other luxury hotel on the world.

And I think theres going to be forced to tip their hat.

And theyre going to say like Wow, we've never done that well how do they figure that out, but we're just going to do a lot of things that have never been seen and we're doing it at the very top and the market. So it's gonna be and incredible.

Yeah incredible aspirational.

Fire and experience and it's all designed about privacy and luxury.

And I think we're gonna command.

Very high rates and the and we don't have to sell a lot of rooms.

Because we don't have a lot of rooms, and and so but most of them take hotels are all.

Credible trying to you know, they're all trying to be hip and cool and they're trying to have lobbies with a bunch of people sitting in them and you know like.

If you go to with this 1.

And I forget now.

And I'm blanking, but the when you go yes, the ace hotels or anything like that which I think are cool broke the market theyre going after but you walk in and the original and W and yeah. The original.

All about and there's things like that but you know there's all kinds of people sitting in the lobbies and they have their you know their apple we see a bunch of little Apple lit up logos everybody's working.

Unemployed people working on their laptop simple in the lobby and that's exactly the opposite of what we're going to have.

This is about privacy and luxury like yes.

And <unk> been entrances wished up to your room, you don't have to walk by a bunch of people and the lobby there's no people and the lobby that can like get up the elevator to your room. You know this is like a whole different game and then the F&B and experiences Super elevated Butte.

Beautiful beautiful restaurant with an incredible 5 fire life fire.

Try to it I mean, there's no restaurant like it and the world that I've ever seen.

And we're really excited about the the restaurant concept. We're really excited about you know New York and open with us with our first Champagne and caviar seller.

Can it be and incredible I think it's going to be the best experienced anybody's seen around caviar.

Component.

And it and it's yeah, it's targeted for.

Very wealthy and affluent and discerning clientele.

And it's and it's you know the idea is it's going to elevate our brand and it's going to position us as a thought leader as a as a tastemaker and a place maker and the world.

And.

And beyond and Aspen will do the same and Aspen will have our per store each bathhouse and spa.

And you know that we will have a membership component to it because we only have 9 rooms, and ASP and so you can't run a bathhouses Bob with 9 rooms.

But aspen is going to be a really good model for us with having a membership to a bathhouses bothered.

And I did and I spy, you can go to and all of Aspen.

So yes.

And you'll you'll get it when you see it it's really hard.

This is the kind of stuff, we do sometimes seen is believing.

No different than RH, modern and we first launching that likely like what what's going to be and you know and then.

And that'll get we launched it now it's the huge part of our business and same thing with contemporary same thing with guest houses.

Same thing with everything we do is they just haven't been done before and so.

It's basically we try to anywhere we can create new markets right. So we don't say Oh, let's do it like this person.

Just a little better we try.

And kind of conceptualize something that is significantly better and more unique and desirable and anything that's in the market and we think our our guest house is going to be that.

This concludes today's <unk> portion of the Q&A call.

I will now turn the call back over to Gary Friedman for closing remarks.

Great well, thank you everyone for your interest.

And our brand and I want to thank our team for everything they do to bring our brand to life and.

And we're all excited about the and at the Unmasking of America and moving past. This pandemic we think.

Fixed and exciting time.

And we'd have.

Tremendous amount of.

Hi.

Innovation and our pipeline and we look forward to talking to you next quarter. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect.

It's going to be.

And.

Okay.

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Okay.

And.

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[music].

Ladies and gentlemen, thank you for standing by and welcome to the R. H first quarter fiscal 'twenty.

'twenty 1 earnings call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

To ask a question. During this session you will need to press star 1 on your telephone please.

Please be advised that today's conference.

20th being recorded.

If you require any further assistance please press star zero.

I would now like to hand, the conference over to your speaker today, Ms. Allison Malkin of ICR. Thank you.

Please go ahead ma'am.

Thank you good afternoon, everyone. Thank you for joining us for our first.

And if whatever fiscal 2021 conference call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer, and Jack Preston Chief Financial Officer, before we start I would like to remind you of our legal disclaimer that we will make certain statements today that are forward looking within the meaning of the federal securities laws.

First call, including statements about the outlook for our business and other matters referenced in our press release issued today. These forward looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to it and SEC filings as well as our press release issued today for a more detailed description.

A lot of the risk factors that may affect our results. Please also note that these forward looking statements reflect our opinions only as of the date of this call and we undertake no obligation to revise or publicly release the results of any revision to these forward looking statements in light of new information.

<unk> and future events.

Also during this call we may discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items you will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in todays.

<unk> actual results press release, a live broadcast of this call is also available on the Investor Relations section of our website at IR Dot RH dot com with that I'll turn the call over to Gary.

Great. Thank you everyone.

We're going to start with an overview of our shareholder letter with tight.

Finance highlights our results and outlook and then we'll open the call to questions.

So our people partners and shareholders.

2021 is off to a strong start with revenues up 78% and the first quarter versus.

Firstly is down 19% a year ago.

Total company demand increased 101%.

What you won and RH core demand increased 109% the strongest demand trends and our industry.

We continue to set a new standard for financial performance among home furnishings retailers with adjusted operating margin, increasing 260 basis points and first quarter to 22, 6% versus 10% a year ago.

And to your adjusted net income increased 375% and adjusted diluted earnings per share increased 285% to 4 at $4.89.

Per share repurchase of $1.27 last year.

We generated $228 million of adjusted EBITDA, and the quarter and 136.

And our free cash flow.

And Q1 ended with total net debt of $382 million and trailing 12 months adjusted EBITDA of $869.896 million.

Our expectation is to be net debt free by the end of this fiscal year.

Increase in fiscal 2020.

6 million outlook.

Based on our current business trends, we are raising our outlook for revenue growth in fiscal 2021 to a range of 25% to 30% versus our prior outlook of 15% to 20%.

We now expect adjusted operating margin and the range of $23.5 to 24, 3%.

And increase of 170 to 250 basis points versus our prior outlook of 100 to 200 basis points with ROIC in excess of 60%.

As it relates to the second quarter, we expect revenue growth and the range of 35% to 37% and.

And adjusted.

Percentage operating margin and the range of $25.9 to 26, 1%.

While fiscal 2021 will surely be a tale of 2 halves.

And many data points that lead us to feel optimistic that our strong performance will continue through the second half of 2021 with growth accelerating and fiscal 2022.

Adjusted Island.

These include a strong housing and renovation market.

With pent up demand and a long tail.

A record stock market.

Low interest rates and the reopening of several large parts of our economy.

Additionally, the unmasking of the general public could lead to a Rory and <unk>.

Type of consumer exuberance.

Town and country captured the feeling perfectly on the recent covered their magazine titled Remember fun get ready for that comeback.

Combine that with the largest new product introduction cycle and our history beginning this fall and the launch of RH International next year and find it.

And B.

You should also rest assured that we have pressure tested our business assumptions and risks and are confident and our ability to maintain and adjusted operating margin in excess of 20% and just about any economic downside scenario, we can envision.

The emergence of RH as a luxury brand.

Could be and luxury margins.

We've spent decades building our brand and business model that generates industry, leading profitability and return on invested capital and believe like Bernard Arnault luxury goods are the only area. It is possible to make luxury margins.

With 21, 8% adjusted operating margin and physical.

General and and 'twenty RH has eclipsed the operating margin and <unk> and we now have a clear line of sight to 25% plus adjusted operating margin over the next several years.

As it relates to our business model what is often overlooked is the simplicity and low risk nature of what we have built.

I thought.

This will be helpful to highlight some of the key attributes.

No seasonal inventory.

We don't offer seasonal categories like Valentine's day, Easter Halloween Thanksgiving and Christmas.

Nor do we carry collections or color pallets tied to spring summer fall and winter like many home furnishings and our home.

It would be and retailers.

We spent years, eliminating those categories to avoid seasonal markdowns, enabling us to have a significantly higher margin business.

Limited fashion risk.

Our business is not driven by the fashion cycles founding retail models that require frequent discounting.

The major.

And improvement drive our business are tied to architecture and the debt on.

Architectural trends tend to change over decades not years.

And as an example, many point to the $19.97 openings at the Guggenheim Museum, and Buildout, Spain by legendary architect Frank Gary.

At the beginning of the recent modern movement.

Trends and we launched RH modern almost 2 decades later in the fall of 2015, when a critical mass of modern homes and condominiums was reached establishing a sizable new market.

As it relates to the debt generations pass away and their belongings moved through a state sales, which feed the antique markets, which helped drive the high end.

Sure design market, which influences the high and reproduction market and the trends continue to flow downstream. If you wanted to know where the mid century modern trend came from do the math or visit a cemetery.

Membership.

Moving from a promotional to a membership model as we did in 2016 simple.

And and tiered and streamlined our business, eliminating the chaos and costs associated with the constantly changing customer proposition.

Membership also deepened our relationship with our customers and the majority of used our interior designers to furnish their homes.

This evolved our business from selling products to selling spaces.

Driving higher average.

<unk> and lower customer acquisition costs as RH is become their top of mind choice for luxury home furnishings.

Luxury positioning.

Luxury brands have proven to be less susceptible to economic downturns as their customers may temporarily paused their spending, but not but do not lose the ability to spend.

Average ordinarily investing and the home grows exponentially as customers and accumulate well acquiring more homes, which drives higher sales, resulting in lower advertising costs and a more profitable operating model.

Our compelling a compelling vision for the future.

We entered this decade with a compelling vision.

<unk> a team passionate about bringing that vision to life and the strongest brand and business model and our industry.

We plan to launch and unimaginable amount of new innovative strategies designed to further elevate and expand the RH brand.

As I did in my recent annual shareholders letter.

Outline the strategic separation we've created.

And for the strategies, we are pursuing as we continue our quest to become 1 of the most admired brands and the world.

Product elevation.

We have built the most comprehensive and compelling and collection of luxury luxury home furnishings under 1 brand and the world.

Our products are presented across multiple collections categories.

And Mr and channels that we control and their desirability and exclusivity has enabled us to achieve industry, leading revenues and margins are.

Our customers know them as RH interiors, RH modern RH Beach House RH Ski house.

Sorry to outdoor RH rugs, RH lighting RH linens.

And baby and child, RH teen and waterworks.

Our strategy to elevate the design and quality of our product will continue as we introduced RH contemporary and 2021 with a 400 page source book dedicated website.

National AD campaign, and a freestanding RH contemporary gallery, and the San Francisco design.

And our interest here.

We also have plans to introduce RH put your upholstery, RH bespoke furniture and RH color over the next several years.

Gallery transformation.

Our ability to transform our legacy stores into multi day dimensional design galleries that double our retail revenue.

Designed to stability and every market will enable the RH brand to reach $5 to $6 billion and revenues with mid Twenty's on adjusted operating margin and North America.

These inspiring and disruptive physical experiences render our products more valuable, while creating strategic separation and unmatched brand awareness.

And property and us to gain significant market share at lower advertising costs.

This presents the conundrum for our competition, we're closing or downsizing their stores, while we build the largest specialty stores and the history of our industry.

We believe our galleries are proving to be a huge competitive advantage, enabling RH to acquire customers.

Enablers and fixed cost versus variable digital advertising costs that can change daily for store lists or store closing brands.

All you need to do is walk them all to noticed most retail stores are archaic windowless boxes that lack any sense of humanity.

There's generally no fresh air and natural light.

At low die and most retail stores and they can't be a good environment for humans either.

And that's why we don't build retail stores.

We create inspiring spaces that blurred the lines between residential and retail indoors and outdoors home and hospitality space.

Basis that are filled with fresh air and natural light with garden courtyard.

Plants with top parks restaurants, and wine bars spaces that activate all of defenses and spaces that cannot be replicated online.

Our H Dallas, which opened in May of this year is off to a tremendous start with our rooftop restaurant and booked until August.

Our plan is to open 3 additional design galleries and 2000.

When including RH San Francisco.

Alright, <unk> alright Jacksonville.

A freestanding RH contemporary gallery, opening and San Francisco plus.

Plus our first RH guest house opening in New York This fall.

Brand elevation.

We are beginning to evolve the brand beyond Curating.

1000, <unk> product to conceptualizing and selling spaces by building an ecosystem of products and services places and spaces designed to elevate and render our products more valuable while establishing the RH brand as a thought leader taste and place maker.

Our products are the core of our ecosystem.

And conclude RH interiors RH contemporary art modern RH Beach House, our ski house RH outdoor RH rugs, RH lighting, RH, Lindon, RH baby and child, RH teen and waterworks.

Our services RH interior design are each contract RH trade.

And in your home render our product more valuable while extending the brand into adjacent businesses that amplify the court.

As an example.

Alright, and your debt.

An example, we believe that RH interior design has become the largest residential design firm and North America and has facilitated.

And alright transition from selling products to selling spaces.

Alright, and trade service external interior designers and design firms partnering on projects and acting as a support organization managing the logistics of large complex designs.

H contract serves the hospitality and commercial markets.

And our training and logistics support for large scale volume projects.

Our Asia and your home elevates, the customer experience with furniture ambassadors and each and every detail of your delivery extending the selling experience into the home, while creating memorable and lastly and impression.

We're also exploring the opportunity.

With this expand our services to include RH architecture, and launch RH landscape architecture, as we receive constant inquiries regarding the design of our galleries garden courtyard and rooftop parks.

Our places include RH galleries, designed to elevate and render our product and brand more valuable RH restaurants.

And to further elevate the customer experience, while driving high quality incremental traffic to our galleries.

Alright, guesthouses, where our goal is to create a new market for travelers seeking privacy and luxury and the $200 billion hotel industry and.

And our each residences.

Fully furnished luxury homes condominiums and apartments with integrate.

Which furnaces that will deliver taste and time value to wealthy and a fluid time start customers.

Our spaces conceptualize to inspire and elevate the brand will initially include plain and yacht design and charter where customers can access our design experience you are.

Your line and charter RH, 1 and RH to our private planes and our <unk> III, our luxury yacht, which is available and the Mediterranean and Caribbean, where the wealthy and affluent visit and vacation.

We will also be unveiling, our first RH fab house and Spa as part of our Aspen guesthouse scheduled to open and the second half of 2020.

Work on as.

And as well as other existing exciting spaces, we will be revealing over the next several years.

We believe are seamlessly integrated ecosystem of immersive experiences and inspires customers to dream design, Dine and travel and live and a world thoughtfully curated by our H.

2 rating and impression and connection unlike any other brand and the world.

Digital re imagination.

Our strategy is to digitally re imagine the RH brand and business model, both internally and externally.

Internally regarding how we innovate curate and integrate all the dynamic aspects of our brand.

And externally as we introduce our customers to the world of RH and new digital portal, presenting our products and services places and spaces.

This multiyear effort began internally last year with the re imagination of our center of innovation and product leadership, which will incorporate digitally integrated visuals and decision data.

And to amplify the creative process from product ideation and product presentation.

Our external efforts will begin this fall with the launch of phase 1 of our new digital portal the world of RH, which will include rich immersive content with simplified navigation and search functionality on.

All designed to enhance.

And just the shopping experience and render our product and brand more valuable.

We believe and opportunity exists to create similar strategic separation online as we have with our galleries offline.

Re conceptualizing, what a website can and should be.

Global expansion.

Hence that you believe that RH and the potential to become a 20% to $25 billion global brand and its current form and possibly larger if aspects of our ecosystem become meaningful revenue streams.

Our view is competitive environment. Our view is the competitive environment globally is more fragmented and primed for disruption and the North American market.

And there is no direct competitor at scale, but possesses the products operational platform our brand of RH.

Our global expansion and begins in spring of 2022 with the opening of RH, England. The gallery at Idaho part a 73 acre historic estate designed and 16.15 by Sir John.

Arguably 1 of the most respected and celebrated architects of this time RH.

England will feature the Idaho architectural library, the Idaho organic gardens.

And the RH restaurant neuron injury, and the RH Champagne and caviar seller among other unique experiences.

Pending reopening plans for France.

So our goal is to open RH Paris, the gallery on the Shan <unk> day in the fall of 2022.

Customers will arrive through magnificent 18 foot gapes and walk down and decompose granted path line with Majestic hedges that lead to a garden courtyard, where you encounter 18 foot grass stores and opened.

And that opened to a 6 foot atrium connected by traversing <unk> breast staircases and a glass elevator.

Our each Paris will include a restaurant overlooking the gardens inspired by the Grand Palais.

A sparkling champagne and caviar bar on the top floor.

And a remote romantic rooftop garden, where you can flip.

A fellini, while enjoying views of the Eiffel tower.

In total we have secured 5 locations in Europe, including London, Munich, and Dusseldorf, and our and final lease negotiations for an additional 5 locations, which will open over the next 2 to 3 years.

Finally in the luxury mountain while.

And our <unk> brand with no peer.

Remains Chanel, Louis Vuitton, Gucci, Cartier, Tiffany and the rest of the finance luxury brands and the World. We're all born on the top of the luxury mountain.

Never has a brand started at the base as we have and made the claim to the peak.

We believe RH can be the first to make.

Bill.

Knowing very well those at the top don't necessarily want us to.

The truth is we're not from their neighborhood and were invited to their parties.

To make the climb we understand our work has to be so extraordinary that creates a forced reconsideration of our brand.

Requiring those at the top of the mountain to tip.

And the collapse and respect.

It is not a claim for the faint apart.

Requiring imagination innovation and a great deal of persistence and perspiration.

We have to be willing to endure shortly and quite short term pain to drive long term gain as we did moving from a promotional to a membership model elevate.

Tip their hair products transforming our stores redesigning our operating platform are managing the business with a bias for earnings versus revenues as we built our financial model to support long term high quality growth.

We also understand the strategies, we are pursuing opening the largest specialty retail experiences and our industry.

Elevating muster shrinking the size of their retail footprint or closing stores.

Moving from a promotional to a membership model, while others are positioning their brands around price versus product.

And to mail inspiring source books, while many are eliminating catalogs and refusing to follow the herd and self promotion on social.

Well, instead, allowing our brands to be defined by the design and quality of the products and experiences we are creating.

Our all indirect conflict with conventional wisdom and the plan is being perceived by pursued by many in our industry.

We believe when you step back and consider 1 we're building a brand with no peer.

<unk>, we are creating a customer experience that cannot be replicated online and 3 we have total control of our brand from concept to customer you realize what we're building is extremely rare in today's retail landscape and we would argue will also prove to be equally valuable.

I want to thank the.

The team RH live our values and fight for a cause and.

A team that is building a culture of leadership versus followership, This drive to innovate versus duplicate.

A team of people with the courage to continue decline, even as the <unk> spin and the odd gift Flynn.

The team of people willing to get knocked down 10 times and.

People look up 11, as they strive to plant the RH flag at the very peak of the luxury mountain.

<unk>.

I'll now open the call for questions.

As a reminder to ask a question on star.

1 on your telephone keypad.

To withdraw your question.

Get back on the pound key.

Standby, while we compile the Q&A roster.

Your first question comes from the line of Chuck Grom with Gordon Haskett.

Hey, Thank you good.

Good evening incredible results to the team.

Gary is there any way to size up the.

The degree to which our categories such as outdoor.

Supporting total sales growth maybe.

But the penetration of the category and in 2018 versus where you think 'twenty, 1 and will end up and are there any other categories that you believe you're seeing outsized growth today.

This exceptional results.

Yes, I think if you look at our demand trends everything is way up right. So but outdoor is 1 of our best performing categories were.

Were the most dominant outdoor brand at the high end and the world today and have the biggest business and the world that I and for outdoor bye Bye mulch.

So.

You would expect that we dominate that category, even even though theres really long lead times and we've been sold out for a good part of the past year.

Great and is there any other.

And you would.

Highlights.

<unk>.

And again.

If you take the car business and 109% demand growth and Q1, there, they're all way up so.

Yes. This is strong across all categories.

Great and then and your shareholder letter last week.

Yes, we have to be willing to endure short term pull to drive long term gain and you referred back to a lot of the other growing pains and the business over the past few years, but I was just curious if theres something down the road that you were referring to in terms of debt.

What's your outlook.

No. It's just it's the mindset of investing with our long.

We have to build.

1 of the most admired brands and the world and it's not a path to most people take yes.

<unk> got most of the world is focused on debt duplication and moving a lot of small rocks and we tend to focus on big rocks that create big value and those sometimes take multiple years to.

Hi.

Term deals and too.

Bring to life and and so.

Look I think if you look at our guidance.

It would indicate.

Don't see anything in the near future debt.

Could be disruptive to our.

To our to our results and.

Today as we.

To move out debt investment horizon over the next several years, whether it's international or.

Digital re imagination of product elevation or any any of the big moves, we're making there all implied in our outlook and our guidance.

But from time to time, there may be a significant investment we have to make.

We thank him for Gannett.

Leapfrogged the business further into the future right now.

That's the way, we have and operating margin.

And almost twice the next best person and are.

On category.

Great.

Good day.

Make debt that everyone and limit yourselves to 1 question and 1 follow up question.

Next up we have Adrian.

With Barclays.

Good afternoon, and let me add my congratulations eloquent and always Gary.

And Gary I guess my question is about.

Yes opportunity or actually the.

And the $5 billion to $6 billion.

Sales target and North America, and the 20 to 25 billion you talked about it being in the company's current format. So can you talk about.

And the number of galleries that support from North America, but more importantly, the number of galleries that supports globally.

And just focusing on the home furnishings and distribute with no hospitality <unk> et cetera. So just wanted to get some more color there and my follow up will actually be when youre opening the stores internationally all of the different cities different countries and is there anything that youre doing from a product market research or customization for each marketplace.

And it should we assume that each of those stores and delivers the same sales dollar or is everyone and thank.

Thank you.

Okay.

Hi, Adrian and so that was a lot of questions and 1 question.

And I'm going to.

And where do you want me to start.

And let's see that debt the opportunity as it relates to the <unk>.

<unk> 6 billion and in North America and <unk>.

<unk> 25 billion and the current format, how many how many galleries and North America and how many galleries internationally.

It's an interesting question because in North America.

And we've always said about 60% to 70 galleries and North America to kind of penetrate.

North America, and you've got to think about the fact that we built America and we built North America, while we've transformed.

The brand and transform the business right. So we had a.

And it's logical footprint that was and all of the major markets and all the major suburb so on and so forth and we basically consolidated and and.

And transformed and.

And are opening large.

Design galleries, and replacing the former footprints.

And the question.

Yes.

Creating a need as many galleries.

Internationally as the world continues to evolve and change right.

Yes.

Consumers continue.

To be comfortable shopping online and not seen products.

Yes.

Somewhat unknown I think to us if there is.

Dedications today that we should have less galleries and North America.

And we wouldn't penetrate the markets the way, we penetrate the markets today with with less galleries as we do the math.

So even though there is there is kind of a migration online.

You've really got to be careful and.

No index World.

Not to look at the channels independently I really would caution any retailer who is doing that I think it's a foolish way to look at our business.

Because.

We live and if where physical beings living and a physical world and being able to see brands and no brands.

Today's will manner being able to understand how big they are what their assortment is what they stand for what the quality is like with the taste and style. It's.

<unk> is I think critical.

And.

Yes so.

My sense is is worth going globally might we be able to build a few.

And <unk> I don't know.

I don't think so I think we're.

Replacing physical stores with digital advertising is a bad move.

I don't know why anybody would want to sign up for a variable cost.

Variable cost structure that could change.

Escalate to marketed brand right and so physical stores are basically.

Big brand building statements better 3 dimensional that customers can interact with they can touch the goods they can interact with the brand.

They can see the size and scale of things that can understand that the taste and quality.

And Dale style and all kinds of levels.

And I think thats impossible to replace that with some kind of digital advertising or other advertising format, especially when it's not a fixed cost format.

Yes, our view, while there is migration online and stuff like that.

There's just natural migration online.

And even if you have a physical gallery.

And that doesn't mean, it's just means once the customer knows your brand and the <unk>.

<unk> from you.

Might go home and make a transaction after they've seen it in a physical store.

On the people, who believe they can close a lot of stores and have the same market share I think are naive.

And so.

When we when we look at this we think our our footprint will be similar to North America. That's how we look at it today. We're studying yes, I think I mentioned on the last conference call. Our business is basically breaks down and 80% suburbs right.

Percent.

At 12% and second homes, and 8% kind of.

City.

Urban locations and.

And I believe that will be similar internationally I think we.

<unk>.

We wouldn't be wise, if we said Oh, all we need is a store in.

The major cities in Europe.

I don't think we capture the market share, we would and North America.

It's no different than when you when you're in a country.

And the city, you're kind of no debt the business better like for instance, if you came to coordinate our California.

And.

And Europe at Art Center of innovation.

And 4 blocks down the street is RH Murray.

Thanks.

Village of Corte Madera.

There is no luxury stores and that mall today, not 1 nordstroms, if you want to call. It a luxury store I don't call and luxury store is.

And the highest brand store and and if you want to call.

And the luxury you can call out there as an Apple store, there, but there's not another luxury store and that entire mall.

We opened up.

1 of our big New galleries, Eric because you've got a restaurant and and.

Yes.

And it's going to be massively successful.

And if we probably werent here and didn't have a.

Apple what legacy store and the mall, we wouldnt have understood the potential and Marion County.

And we would have been a lot smaller I am sure other luxury brands now that we've built our big galleries are going to follow I heard Tiffany has taken a location now and.

Now that <unk> and Stephanie I think we're going to we're going to see that change but.

Hi.

And I.

And you'll be pretty similar as it relates to the products.

Yes, I think the world is getting smaller and smaller a lot of people say to me Oh, the houses are smaller and Europe.

Not really.

City homes somewhat smaller yes, the city homes are somewhat smaller and the urban demographics of North America also.

I think we're going to and everything we carry comes in all sizes, we sell sofas from what 6 speak to it.

Whatever however, many feet you want right you want and 5 feet will make it 5 foot sofa.

So our products come and all kinds of sizes I think we've got the assortments debt will be appropriate for the world.

And I think the world once RH, there's nothing like us out.

Hi.

Our brand is going to translate very well.

So I tried to answer all those questions and I don't know if I missed it.

And you did.

Yes, you did thank you so much.

Alright, Thanks Andrea.

Your next question comes from the line of Steven Forbes with Guggenheim Securities.

There and good evening, Hey, Gary given your comments and in the letter about.

You're maintaining a 20% EBIT margin in any scenario you can envision here.

Because I think we're all living and the scenario land, but curious if you can provide some color on how youre thinking about the potential paths of demand growth as.

As we head.

Okay and.

And if you can contextualize sort of.

Yes.

The downside scenario right that you've tested and the model. So we better understand the flexibility that you see or that sort of inherent right to the model that you have.

Sure sure so.

Look.

And so by anybody that's not David things that go up generally that you have no control over don't necessarily stay up.

The question is how long do this day up what does it look like.

And when things evolve and return to some kind of normal, but this isn't a new normal and I.

Thank.

I think it's naive to not really look at all the models.

And look if you were talking to me a month ago.

A lot more pessimistic and I am today I'm a lot more optimistic on.

On a month later, because I have more data and.

The organization, we have we can see more trends and we can see what's happening and.

And it's data internally and how our demand trends look and as we.

Look ahead, and what's happened and what we think will happen, but just what's happening and the housing market, what's happened and stock market whats happening and that remodel world the pent up demand that exists.

And if you think about.

People that are building.

And not to homes and the homes are taking longer to build you can't get the trades people cant get people to remodel their homes.

All of that means that they haven't bought their furniture yet.

Right.

And the last stop.

On the on the journey.

So there is this kind of pent up demand.

Building back up.

A lot of things that debt indicate to us when we think about our pipeline and look at our pipeline that look very good as we look out.

And to the rest of the year.

And.

And possibly into next year and when we get into next year, we've got some step.

And we're going to introduce a record amount of kind of new products.

Beginning in the later part of the second half this year that will mostly accelerate revenues in 2022, right will shift some of it this year, but not not a lot of it so as we look at it we kind.

Ups and the current trends, we will get something on the <unk>.

Second half for new stores that we just opened new stores, we are openings.

We'll get some for new products, but really those will set up 22. So we have all of that momentum going into 2022, and then we start opening internationally and internationally.

And look very different than opening a new gallery, and North America, because most of our galleries and North America are replacement galleries. There's just a couple that are like Jacksonville, you can argue that the.

New marketers and expanding the Florida market.

Yes, we've only got a couple of ahead of US we're not we're not in Hawaii and were not in Montreal.

Montreal I can't even remember if there's anything else, we're not Naples and aprils, yes, you can argue Naples, probably could be incremental but they are not probably a 100% incremental sales were somewhere in.

And those countries already but we're not in the United Kingdom right, we're not in.

France, we're not in Germany.

And we're not in the Netherlands were not in Spain.

Yes, I mean on.

On and on and on and so we're going to be opening countries, which is a very different dynamic right and we're not only openings countries with a handful of galleries were opening countries with.

A.

And dimensional digital portal.

Yes that debt.

People are going to have an entire countries can have access to the brand.

And then we'll probably figure out like how do we think about selling cross borders until we establish a presence there and delivery and stuff like that we may be able to.

And it may.

Multiple enabled reach more of the content and I'm sure there's going to be customer as they don't want us to ship to Russia, and the middle East and so on and so forth and we will figure out how to do those things. We wont officially opened up the continental Europe. When we opened the first handful of galleries.

<unk> complex from an operational point of view and would create too much upfront costs.

<unk>.

We'll kind of learn as we as we go there, but that gives us a step up so when you think about the.

The downside model, which is important to look at right and like.

Ever since we have been.

Everyone. Since we saw this uptick.

And then we said look it's the.

How is this going and how is this going to play out.

So today if you if my view is.

The rest of this year looks pretty good based on everything I can see and know right now right.

Stock market fall apart I don't know if could.

And because the housing market slowdown and I don't know like Youre guess is as good as mine and my data is.

Please get as yours and vice versa. So we're all we're all kind of speculating.

Speculating into the future and every every plan we have some degree of wrong. It's the question is are we more right than wrong and today I believe we're more right than wrong about the outlook. We gave you right and we tend to be relatively conservative and our outlets and.

I'd give ourselves some room to navigate.

It's <unk>.

I think about it this way as we built our model and we went back and said what would normal have looked like.

What would.

2000, 22021, and 2022 and our long term outlook for the company look like it would have looked like.

And a 10% growth and 2020 not 8 because we couldn't ship things right. So we didn't really benefit from.

From Covid last year.

And that's the point I tried to make on only 8% revenue growth, we hit to operating margin to 21, 8%.

Not really a COVID-19 leverage like most other.

So we have no cash and carry product right.

What do we sell 110th of 1% of our sales walk in a store and anything we have anything that walks out of a store and a bag unless somebody really needs the towel that day.

So we have a really a direct to customer platform.

All delivered to customers.

<unk> a lot of its special order has longer lead times things like that and it's not things that also and you can turn on a dime and say Hey, we're up 40 and the manufacturers.

Start delivering at that level. So we had this big backlog that that's flopping over will that backlog continues at about the same amount about $150 million.

Customers as we as we look forward.

Will it all catch up this year, we don't know it depends on how the trends look probably not all of it will flop and this year because as we ship those goods will create new backlog. So we're not exactly sure when will it will all kind of normalized.

But if you looked at our longer.

And we would have said hey, normal look like up 10 up 10% up 13% to 14 in 2022 as we opened internationally right and we would have a bigger uptick then.

So we kind of look at it and say, okay. We are update instead of up 10.

On a term fee.

This year.

The guide.

And then we kind of look at it and say.

In 2022, if we were.

If we'd landed where our normal.

Business would be what would that look like roughly right and so.

And.

And then at that level, we are seeing now let's give back any of the COVID-19 lift. So we've got math around what did we get that we shouldn't it.

And we take that out which as you know.

Some number you can do the math.

And then we said what if like were and the longest.

Economic.

And then engine and the history of the U S right without a recession. So at some point something's going to happen.

And B naive and foolish thing it'll never happen. So you got to be ready for it. So we say, okay, let's say theirs.

Economic downturn of 20% in 2022, and you take that and that's.

Extending right because that looks like 2008.2009.

Where we were down about 15 or so so so take 20% out.

And so it's taken out of Covid lift that's taken out 20% and we're still.

At 20% operating margin slightly above.

A big and what.

And what I feel I feel good about is that's how good our model is.

Alright, Thats, how good our model is and what it does.

Comfortable and confident about when people people asked me.

Hey should I buy your stock.

People the same thing they looked at.

Your trader.

So and <unk>.

Short term just on <unk>.

And on short term and episodic moves don't buy our stock if youre, an investor and you have a long term view and you're going to hold the stock for 5 years and Marc Yes, youre going to make a lot of money here and just as people did.

And we IPO and.

And you guys have seen the numbers on that and so.

Yes.

There is.

A lot of upside and the story there is a.

It's by far the best model and our industry No..1 has got anything close it's all little maps, because some people have a lot of COVID-19 lift right now and it looks like.

Business is better and their margins are better and are theyre, not promotional and no one's promote.

Right now it's like for God's sake, I think it'd be promotional with the kind of demand trends and you can't even get the inventories so.

The good news is it doesn't affect us because we're never promotional right. So so our margins or our margins right. So you can count on our margins being and our margins what I count on.

<unk> very else's margins being their margin not at all.

There is no way when the world returns to some kind of normal in the home industry.

The people that used to promote or going to have to promote again.

And it's very foolish to think they are not.

I'm just happy we made that move from a promotional model to a.

Every day model.

Long time ago.

We don't have to change anything.

So our margin structure as our margin structure, the only thing youre seeing and our margin structure that might be given us a little lift and through this period as we have less advertising expenses.

So we cut back advertising, we couldnt get the goods.

Right.

Membership, we would've had the advertising expense would've probably been more more volume, but theres no sense spending the advertising and mailing books. When you can't get the inventory right that would have been like just burning money lightened matching and the money. So we decided not to.

Not to launch new products not not to average.

And like and so my sense is when when the advertising investment returns.

We will have the inventory and we will get and incremental lift and the.

And the top line and that's another thing that shouldn't read about that and.

On the latter and how they think about it in fact is we got.

Average lease pullback on advertising, so we start mailing books again.

That's also going to create momentum and the business. So that's why we feel today.

Yes, Steve.

Confident about how we think about.

The rest of this year and what it looks like next year and we feel extremely confident.

And if the world changed and the home industry gave back any COVID-19 lift and you pop on top of that.

And a recession and you get back and another 20% of the business.

We're going to see in the 20% range and we're going to be able to play offense and take a lot of market share.

A lot of smart things that I don't believe other people are going to be able to do.

That was super helpful. Gary I really appreciate that and then just as a quick follow up.

Hard not to get excited here about RH International's so just curious.

And what are we left and a year away right what else needs to be.

And to ensure a smooth and seamless launch.

As you as you sort of prepare for this this grand opening here.

Sure you know all the things that you would expect I mean, we've got it.

We've got to build the operational platform from a.

Distribution and.

Don and <unk> and home delivery perspective, which we're working on and building.

We've got to make the inventory investments and be able to get the inventory, which we're working on and.

And we couldn't have launched this year, we had no inventory right. So we had to delay everything by year. Thank God, we get we did because.

We didn't have any goods to sell.

That the inventories.

<unk> inventory and.

Youll start to see that being reflected in our balance sheet as we build the inventory for international.

And then we've got to continue building the team and the good news is on what's the latest Paul how many people from.

Our organization and want to work for US internationally, because yes, we have several hundred people that have already volunteered from America to go work in Europe. So we've got and some of them are from Europe. So we've got a lot of enthusiasm about people who want to go help us open internationally, but plus we've got a team that's.

And we've got a leader on.

And internationally and we're building that team and if you came here and your and our center of innovation we have.

Giant RH international room, with maps, and dots and cities and numbers and volumes and.

Populations and.

Things, we have to do and where we have to go and where.

And home delivery, where do we opened this not so yes, we're working on and all the things you'd have to do I mean, the good news is they are all the things that we do here.

So it's not like there's anything really new.

And I was just and.

Some cases from the most part everybody speaking English and it's not like 50 years ago and.

And there is slightly different.

Or do we you'll see things like that and then and the question is how do you price the goods and.

I think that the good news is as we we study it and we looked at how other brand to price their goods and there's probably.

Hum.

And that bigger margin opportunity than we thought.

So we feel.

Current.

More positive than less positive that RH international as we begin to scale it will actually be margin accretive not margin dilutive.

Thank you Gary.

Your next.

<unk> comes from the line of Tami Zakaria with JP Morgan.

Hi, This is Jeremy and thanks for taking my question.

So from my first question is and.

And on international openings, I think and your share.

Next on the letter you mentioned you.

And there is and opened 10 locations and total over the next to the <unk>.

It's probably the cave and I'm guessing as to see and international open Hi, Yes.

Over the next 2 years so.

Does that mean.

You plan on.

Showing an equal number of U S.

And international locations over the next couple of years, so basically what I'm trying to understand is what what is the gallery opening cadence over the next 2 years.

And how is the split between international and domestic.

Openings for sure.

Thanks for the question Tami and by the way you're kind of Ah.

You had a crystal ball I saw your note right before we announced and your projections are pretty pretty close to our projections, though.

Good job on your models.

But.

On the gallery opening cadence.

In North America will remain somewhere around I'd say 3 to 5.

So.

Maybe 4 to 6.

And on how.

How these deals come together.

And then.

International.

And would look at and say we've got.

And the first year as long as <unk>.

France openings and we can get get work down there so.

Paris will either open and the.

The fall of next year and if for some reason we continue to have COVID-19 delays and we can't.

Get in and do the work we need to do it could go into the spring of the following year, but beyond that we have.

Hi.

Other location and some of them are much easier to open than others. There are less complex.

These first few are relatively complex and then London is relatively complex. Some of them are less complex, where some are not quite as bigger footprints and.

And where are we.

And I have an ability to kind of.

And the test if you will and have some flexibility we didn't want to be locked in everywhere and a bunch of countries where.

We made a mistake, we have a permanent mistake.

We don't.

Net net on on Idaho, and England that'll be a relative.

Italy, low net capital deal as we bought the property investing some money and we'll do a sale lease back.

We will have more capital and in Paris, That's a long term lease and then we will have more capital and.

And more pregnant if you will in London and May fare, where we're kind of stringing together.

Relative buildings to make spectacular gallery.

But some of the other locations, we have shorter leases on and we're making a much smaller capital investment just so we can understand the markets and understand the country is still spectacular real estate and buildings and the great thing.

For Europe is you have all these spectacular buildings I mean in the United States.

North America, you just search for building, the stature and taste and style and great architecture Europe is filled with them. So we love that we love the buildings, we love the real estate, we're taking.

We believe they're the right locations, but.

About we don't know for sure.

We want to learn and so we've got some with shortage from leases that give us flexibility, we're going to invest less capital.

Not going to open restaurants everywhere, because that's a bigger capital investment.

And and we will.

Kind of test and learn and then we will have kind of flexibility.

The mobility that kind of.

Make a bigger investment once we know those markets better so but.

To the to the consumers either all going to be spectacular.

Look at it there are slightly smaller.

All going to have the <unk>.

Restaurant investment, but we have a lot of galleries and north.

<unk> and Arca.

And our old legacy galleries that do big volume are highly productive and these are much bigger than those these are I would say some of them are more like are kind of 1 point O design galleries, like Houston, or even Boston, where you've got 2015 to 25000 square feet.

North America too.

50 to 60000 square feet.

And it's all I had Jack.

[laughter]. Your next question comes from the line of Michael Lasser with UBS.

And as oppose.

Good evening, Thanks, Kurt.

And a lot for taking my question, Gary It seems like what youre, suggesting.

Alright, just spent the last 20 years is still building unique luxury brand that hasn't existed and home furnishing.

It now has pricing power and should match.

And.

<unk> margin, which we've seen you realize in the last several years and Covid has allowed you to accelerate that process by raising prices and getting to the margin level that's appropriate for the.

Befitting a luxury brand and this market.

And is there a case, where you haven't gotten and great sense of elasticity and your core customer segment, because the or the size of your core customer segment because of these unique conditions and that could change on the other side of this.

And so that's the first part of my question is and then the second.

<unk> R is who has been a demographic that you've seen come and buying 1 of them, even coming to buy and the last couple of months to drive this level of growth. Thank you.

Sure I'll start with debt that second question.

Well, it's really it's it's kind of a core RH customer.

Second testing different and the demographics, that's fine from us.

More activity more and more movement more people moving more people moving from city to suburbs second homes and things like that.

And then more people just refurnishing.

Their current homes, just because <unk> been spending so much time and their home.

Couldnt really travel so.

Customer neo people doing their share.

And our outdoor spaces and stuff like that and.

That's all continued to be strong.

And as it relates to Covid.

Speedy and anything up it really hasnt speed at anything up.

Not for US I mean, this year, it's going to give us a lift but if again if you just go.

So last year and say on 8% revenue growth 7.7% revenue growth, we had 21, 8% adjusted operating margins right. So that's.

That was lower than we thought which we thought were going to.

And <unk>, 10% to 11% growth.

And so.

And our model is pretty clean if you look at it through 2020.

Go back and then this year you've got you know you have some lift obviously going to be up 25% to 30, and so the way the way I'd look at it and this is.

Model this out over 3 if you're if you model this debt.

On a 10.10, and 13, you would kind of be directionally, right, plus or minus a point or so.

Sure.

And then.

The question is what is 2022.

2022.

Ill get back here.

Flat year because.

The COVID-19 cycle and focus on the home goes back I mean could could be.

And here.

We've got things that should make it a better year than that because of the fact that we have and introduce new products. How long has it been out 18 months and months and it will be.

Okay. It will be 2 years, okay and fall.

Where we have and introduce new products think about that 2 years no new product.

<unk>.

So we've got quite a backup that will be introduced this fall next spring.

Yes.

On the product pipeline.

And the next 18 to 24 months is really dynamic.

Our pipeline and.

New products.

And every.

And then.

RH interiors RH.

Modern not just RH contemporary but interiors modern day.

<unk> child Teen Beach House Ski House, there's a lot of new product coming on as well all.

Alright fits your upholstery orange bespoke furniture, RH color lots of things we've been working on so.

Everything right, that's a big plus to US and then we're opening up internationally and Thats, a big plus right, that's 100% incremental right. It's not like just transforming the gallery, where.

It's a market that is already doing $15 million and it's going to go to $30 million or $25 million market is going to go <unk>.

So this is.

And incremental markets and incremental countries and then thinking about it more as an incremental continent, because at some point, we will open enough galleries, and Europe, and we will have our infrastructure and home delivery figure. It out and then we will open up the whole continent, whether we have galleries.

<unk>, who are not we'll be able to figure that out but the big thing is why you can't rush to just open up the continent is you have to figure out the reverse logistics right, yes, and figure out what are we going to do with the returns.

Because what you don't want to do is all of a sudden.

Open up the country too soon and you've got a bunch of returns and.

<unk> every Russia or <unk>.

Copenhagen, or places, where you've got no infrastructure no outlet infrastructure and you've got no way to handle the goods and you'll just lose a lot of money all day long.

And so so we're just trying to be prudent about how we open up these countries at what point do we have the infrastructure in place and figure.

And figured out how to handle returns had a kind of handle the back end logistics and.

And how to wire that.

CNS to change a lot of people don't know.

Explosive, but on public nursing staff and we made in our reverse logistics outlet business.

And we've made a it's about a $200 million business, we've got $100 million difference and profitability in that business over the last 4 years.

$100 million, Okay, we know what it what it looks like when you don't run that business well.

And we know it looks like when you run that business, well and you've figured it out and all the handling.

And transportation costs and everything that goes wrong there.

We just want to kind of build a really great business and a really great model. There. So we'll go a little slower, but when you think about our model and the Covid piece.

This year, it's going to have a little COVID-19 lift.

But if you look at the growth that will come next.

Underling, and whether it slows down or not.

And where we're at this year.

It is.

Yes.

A good place.

Because we have other things that will balance it out so.

But.

But the good news is like and by the way, we didn't really take any price changes.

Next year increases because of Covid.

So we just took our normal kind of price increases because that's.

And that's what we do.

And.

And because we have pricing power, where luxury brand. We can we can pass through price increases and other parts of our business and.

And that's 1 of the advantage.

And do you have on your plan and the luxury market and you have exclusive product and you control the distribution right. So.

But I wouldn't say our business is that COVID-19 affected except for the leverage were to get with the big and with <unk>.

Sort of the revenue that's going to hit this year.

Vantages and next question comes from the line of Steven Zaccone with Citi Research.

Great. Thanks, very much congrats on the strong results, maybe shifting to the margin side.

Given such strong performance here and the first quarter is there any real change and thinking.

On the drivers of gross margin versus SG&A on a full year basis versus the initial guidance you provided back in March and then I guess specific to the second half of the year given the momentum and gross margin is there opportunity for gross margin and continued to expand.

Jack you want to take that.

And I don't think anything has changed with respect to what we said.

And last quarter.

If you look at historically, what's driven our.

Operating income margin increases.

I kind of view it as sort of 3 quarters of it roughly coming up and gross margin quarter on SG&A and.

The gross margin the bulk of that call it 3 quarters coming from product margin and the moves we talked about elevated design quality.

Taking the margin of the goods. So that's been pretty consistent as we look at the model and <unk> 4 or 5 years and.

Gary was talking about the evolution. This year, we'll have a little bit on.

And harrisons because of the way 2020 played out so obviously with Q1 down 20, 19% last year Q2, being flat and so that and the growth rates, we have now youre going to see a little bit.

Swings and sort of the I guess.

Margin Delta versus last year, 1 thing we were just looking at our debt I'd like to look at it and the same way.

<unk> looked at 2 year growth rate I would look at margin changes on a 2 year basis as well.

<unk>, <unk> 19, and that that sort of formula that debt.

And I alluded to earlier holds.

<unk>.

Ongoing and I would expect that going forward.

And the people and then I think the opportunity for gross margin. The gross margin to expand just to address that I mean, there is always that opportunity I think our our you know.

And our position on how we communicate our guidance and our outlook numbers.

To you and how and how our internal models are position, but but it's something that we.

What we do well we continue to elevate.

And the quality and the luxury mountain and I think <unk> seen the benefits of that and I think that will continue to accrue to us.

Great very helpful. Thank you.

Your next question comes from the line of Anthony to comeback.

Capital markets.

Thank you so much for taking my question.

The design from a strong start to the year.

Gary I mean, you guys are doing a lot of different things right now a lot of and very exciting initiatives.

And international expansion, but all the product newness and so on these new concepts and I guess my question is how are you personally allocated.

And congrats your time, because I know.

And I'd have to imagine that youre very very intimately involved and on MLR vis, particularly the international expansion.

And so we're just we're just love to get a better sense for that thank you.

Good question and that's we.

Say inside our company with you.

We really do too.

Locating we allocate human capital and financial capital and the.

The most important 1 is human capital and how we allocate our time. So we don't work on any things and this company that the cross functional leadership team can't work collaboratively on so well.

Whether if you look at the kind of the big product.

Things and thinking about the product initiatives.

Happen over years right so that.

Debt by the time Youre seeing contemporary coming we've been working on contemporary for a long time, we've been looking and working on color for years. We just is it just and other things more important that we and we've launched so colored keeps getting kicked to the back of the bus because.

Initiatives, we don't think its as incremental and some of the other things that we are.

And that we're doing.

<unk> or maybe not as important to elevate the product brand but.

All of the big initiatives.

Take kind of the cross functional collaboration of the entire leadership team to move the big rocks, because they're all big rocks are and whether it's product.

We don't innovation, whether it's the gallery transformation.

Brand elevation and the things that we're doing there.

And to elevate the product and elevate the brand.

Things, we're doing to digitally re imagine the business not just the website, but digitally re imagine.

The way, we move information and data and.

Product Elli amplifies can amplify that.

On the productivity of the teams and the decision making to the teams.

And then and then global expansion.

All they are all things that we as a leadership team.

And we allocate our time, we ranked everything and this company through a lens.

And how that emotional value.

What's the strategic value and what's the financial value in that order right. Because you do really great work, you've really got a deeply believe in it and you've got to be able to be so excited that.

You'd rather be doing that and something else.

Does it do extraordinary remarkable and amazing work.

What's not for the faint heart, it's not easy to do B and divest and the world and what you do is not easy to do it takes on a tremendous amount of effort and and youre not going to put and that kind of effort. You are not going to have that level of commitment and lessors real by emotional value around it initiatives and our strategy. So we only focus on things that were deeply passionate.

About there were really aligned about that the entire leadership team.

And as passionate about because we've got to work on that and a collaborative way and we've got a put and a tremendous effort.

And then the second thing we look at is what is the strategic value of an idea.

How does this idea.

Render the brand or business more valuable and is this idea creates.

<unk> separation between us and others and our industry and and the ideas have to have high strategic value and then third is financial value and and.

And a lot of companies I think work on at exactly the opposite way and Thats why they don't do great work because someone comes up with the idea that this is a $1 billion idea and nobody's really.

Strategic Nevada, and nobody works at hard on it.

Body.

They get knocked down 2 times and they don't get up and third time, when youre really passionate and believed deeply and what youre doing to get knocked down 10 time to get up 11 times.

Just keep going as you care so much about what youre doing so those financial ideas that people articulate that theres not high emotional value.

<unk> generally don't Pan out.

What happened on a $1 billion idea, yes, we wound up we drove into the debt and we couldnt get out and it never happened so.

And and.

But the things you really care about they tend to be worth more over time, we might have something that is really high emotional value really high strategic value.

And it looks like moderate financial value, but what we've learned is over the course of time.

People seem they are working so they're so passionate that work and so hard and they tend to uncover more opportunities and see more of that work is better than you could imagine and the financial value goes up over time. So what you thought might have been a 500.

Our idea turns into a $2 billion idea because the work that day I'm good.

And so but we spend a vast majority of our time.

Debating and.

Deciding how to allocate our human capital how to allocate our time because that's the most important thing we do.

<unk> always go figure out how to raise more money, we can go get more money.

And I haven't figured out yet and how to get more time. So we spend spend our time figuring out how we're going to allocate our time because that is by far the most valuable resource and the company and when you think of these it seems like there's a lot here Anthony and there is we.

I can work on this stuff for years.

And for years.

Like this is these are not like new Ids or just <unk>.

And now we're talking to you about them.

And and so somebody.

Somebody asked me how long have you been.

Working on the guest guest house.

And working on and guest that's for 'twenty.

We have been worse.

For as long as I've been traveling and frustrated about the experiences and.

Why does today, but it is weather and anybody that design the room for the guesthouse like 25 years ago.

And so youll youll see its way better by the way and pretty passionate about it and does your organization and by the way. If you asked me 2 or.

And 3 years and like even 3 years ago.

How do you feel about the guesthouse and.

And how big of an idea is going and I would say, yes, because I think it can be great. It's going to be a very good idea.

Now I would tell you I think it's a redefining idea I think it's going to it's going to define and entirely new market for privacy and luxury I think it's so damn good it's going to shock people and the industry.

Industry.

But thats just because we're really passionate about it and so it tends to become really great work no different than RH contemporary and we're really passionate about it there is a team and here last night last couple nights until 2 in the morning.

And get them out of here because they are so damn excited about what they are doing.

I know, it's going to breakthrough and it's going to.

And a change everything so.

So it seems like we're doing a lot but by the way that's our nature, we do a lot, but we're also highly focused we know how to edit we know how to say no to 1000 and things.

You've seen the handful of things we decided to focus.

And that we have the capacity to focus on.

And you don't really know the whole team here you don't know the depth and breadth of the organization. We built we've got a very yes.

<unk> team and a lot of talent and this organization so.

You don't want to you don't want to lose people because youre not youre not working on and Thats extraordinary.

Focus on those of us.

And where they can go work on something extraordinary. So if you want to have the best talent you better be working on the most exciting things and the world otherwise they'll go work for somebody else.

I wouldn't worry that we're doing too much and people have been saying that about it forever.

Got it. Thank you so much and I look forward to have in.

And and caviar at Orange, England next year.

Okay.

Net.

Your next question comes from the line of Curtis Nagle with Bank of America.

And good evening, thanks very much.

Maybe just turning back to international.

Maybe a little too early to ask growth assessments, but just I don't know Gary how do you think about.

And I like what the I guess, the baselines or.

So the comps would be for some of these early markets Youre doing London, and Paris, where you've got these <unk>.

Spaces.

Recognition of the brand by certainly.

And this number of people on those cities, but they are new markets.

As a benchmark I don't know.

Perhaps new York, maybe that's aggressive and L. A San Fran how do you think about that and then just as a.

Quick model question.

Could you comment on kind of what demand trends are doing now are they sort of proportionately similar to what.

What you saw on <unk> in terms of how they are balanced relative to sell through.

Sure, yes, as far as far as international.

But we we think about and London like New York.

And if you look at the population demographic profile of it.

Broader New York market.

Broader lender market.

Pretty close if you look and think about from UK, we think about the U K a little bit like we think California.

$68 million.

On the U K and there's 39 million people in California. So it should be bigger if you look at that the debt profile of kind of.

But our high net worth and ultra high net worth people cash.

California's skews a little higher per capita.

So if we look at California, and say, California is probably long term.

$800 million to $1 billion market, so blended should be somewhere around $1 billion market.

And we've got to have the penetration of galleries and the brand recognition to get there.

But but but the upside is where we're opening and some pretty spectacular places.

We're opening with a brand that you know.

And it's got kind of worldwide recognition.

With our core.

Core customer.

And I think people don't know the brand at all unless they don't travel to America or they don't have any friends and America right and if they if they traveled to America and they are wealthy friends and America, where on their radar.

And.

So the.

Question is just like how is it how.

How quickly does it scale, we don't know, but we'll know more when we open them.

And what we're gonna do a great job I think we're passionate about it.

The work, we're doing is going to be extraordinary and it's gonna be remarkable and I like to say that.

When you do extraordinary remarkable work you can usually figure out how to monetize it.

But it's very hard to monetize.

Ordinary around remarkable so we feel better.

And a better than worse, we feel excited about at this very passionate and.

As it relates to demand trends, we gave your demand trends through last year, because it was and it kind of such an odd year.

Sure.

You know, we don't want to get and the habit that we're giving to demand trends for the rest of our life here and we don't.

Within within a quarter.

And you can back into all of that stuff with the numbers. We gave you a pretty fulsome guidance that we gave you a relatively normal guidance that we would have given before right. So we're not fear and not giving you guidance. We gave you guidance.

For Q2, we gave you guidance for the full year.

You can back into those and you can kind of kind.

And figure out what the demand demand trends might've been no differently than you would have.

Through our historical guidance, but.

But we just don't want to sit here and.

And it's what we're gonna do attract a bunch of it.

Short term hedge for hedge funds and day traders.

And we're talking about like Hey, you know through last week were here.

And we want people, who are more long term basis, but you can figure that out we I think we've given the most fulsome guidance I've seen anybody yet.

So far this year.

Sure on the numbers speak for themselves.

Sure. Thanks, Gary.

Great. Thank you thanks, Chris.

Your next question comes from the lineup and Max Laughlin call with Cowen and company.

Great. Thanks, a lot and congrats on a really nice quarter. So just staying on Europe, just curious on the.

The margin side, what do you think profitability could look like versus the U S and I think earlier on the call you said that margins might actually be accretive. So just curious how youre thinking about GM versus SG&A.