Q4 2021 RH Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter and fiscal year 2021 R. H earnings Conference 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 one on your telephone please.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to turn the conference over to your speaker for today Allison Malkin you may begin.
Thank you good afternoon, everyone. Thank you for joining us for our fourth quarter and fiscal year 2021 earnings Conference call.
<unk> 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.
Our business and other matters referenced in our press release issued today.
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 issued 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 opinion 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 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-GAAP to GAAP measures in today's financial results press release.
Live broadcast of this call is also available on the Investor Relations section of our website at IR Dot our H dot com with that I'll turn the call over it again.
Great. Thank you Allison.
For joining us today I'm going to take a few minutes and walk you through our shareholder letter and then Jack and I and the rest of our leadership team who's in the room, we'll open the call up to questions.
Two our people partners and shareholders.
We are pleased to report another year of record results with net revenues, increasing 32% to $3 $75 9 billion.
284 billion, a year ago and up 42% versus 2019.
If you exclude money, losing online businesses. It represents one of the highest two year growth rates in our industry.
Demand versus 2019 grew 49%.
Which resulted in incremental backlog at the end of the year of approximately $200 million of net revenues that we expect to fulfill over the course of 2022.
Our <unk> continues to set a new standard for financial performance in the home furnishings industry and our results now reflect those of the luxury sector as adjusted operating margin reached 25, 6% in 2021 up 1100 30 basis points versus 2019, reflecting the strongest two year.
In our industry.
Our performance demonstrates the desirability of our elevated and exclusive product range.
The connecting power of our evolving ecosystem.
The profitability of our fully integrated business model.
And the significant strategic separation created by our inspiring physical spaces.
For the quarter net revenues increased 11% within our guidance range. Despite the various the virus variant that magnified supply chain issues in the second half of Q4.
We once again exceeded our adjusted operating margin outlook in the fourth quarter, reaching 25, 2% versus 23, 7% last year and up 780 basis points on a two year basis.
We generated $97 million of free cash flow in the quarter and $477 million for the year inclusive of $191 million increase in inventory of which approximately $60 million is due to increased transit times and the balance targeted to alleviate our N ship demand backlog.
We ended the year with $90 million of net debt.
And nearly $2 2 billion of cash on our balance sheet, while generating ROIC of 73% in 2021.
2022, the Europe anew.
As we've mentioned many of our plans were delayed by the virus, while while many of our plans were delayed by the virus they were not disrupted by it.
We use these past two years to Reimagine and reinvent ourselves once again.
And believe 2022 will mark the beginning of the next chapter of growth and innovation for the RH brand.
2022, the year of the new will include the opening of our San Francisco at the historic Bethlehem Steel building.
Extraordinary new bespoke gallery to date.
The launch of RH contemporary the most compelling and potentially disruptive product introduction in our history.
The elevation and expansion of RH interiors in RH, modern inclusive of new collections and enhance quality.
The unveiling of our first RH guest house in New York, a revolutionary new hospitality concept for travelers seeking privacy and luxury and the $200 billion North American hotel market.
The introduction of two new culinary concepts and.
An elevated live fire restaurant opening in San Francisco, England, and the New York Guesthouse Leslie.
Let the Champagne and caviar bar also opening a new in the New York Guesthouse. This year with plans to expand both concepts to our future galleries in Paris, London, Milan and asking.
With average restaurant volumes approaching $10 million annually and are very profitable for well four wall model.
We are making significant investments to build a world class hospitality organization and see endless opportunities to elevate and activate our places in spaces, creating integrated and inspiring experiences for our members and customers that cannot be replicated online.
The debut of the World of our age the first phase of our new digital portal highlighting the connected power about our evolving ecosystem of product placement services and spaces, all designed to inspire customers to dream Dine travel and live in a world thoughtfully curated by our age will create an emotional connection.
With our customers unlike any other brand in the world.
The lift off of our H, one and <unk> two are customized Gulfstream <unk> hundred 50, <unk> 550 that will be available for charter later this year.
The former has already generated press and praised is featured in the pages of architectural Digest, The Wall Street Journal and the 'twenty titles of modern luxury.
The christening of our aged III, our luxury yacht that will be available for charter in the Mediterranean Caribbean are.
<unk> III will be featured in the Robb report C magazine in both international over the coming months.
The continued rollout of RH in your home are unique and memorable delivery experience with Brandon passengers getting every detail of the delivery and extending the selling experience into the home.
The expansion of our age the RH brand globally.
Getting with the opening of our age England. The gallery at the Historic Idaho Park.
Magical 17th century, 73 acre estate in English Patrick side that will introduce <unk> to the U K and a dramatic and then forgettable fashion.
Additionally, we have secured locations for galleries in London, Paris, Munich, and Dusseldorf and are in lease or purchase negotiations for galleries in Milan, Madrid, and Brussels in France.
The opening of our age Palo Alto the gallery at Stanford Shopping center, which will represent the next evolution of our highly productive prototype galleries.
Now, let me move to our business outlook.
While we entered 2022 with confidence that our efforts will continue to elevate and expand the orange brand for years to come.
We also recognize there are several internal and external factors such as record inflation rising interest rates and global unrest that create uncertainty.
Although we lack the ability to protect predict economic outcomes on a macro scale. We do have the business model strategy and balance sheet to take advantage of opportunities that may present themselves, whether it be times of economic expansion contraction or dislocation.
While first quarter sales and margin trends remained healthy due to the ongoing relief of our backlog we have experienced softening demand in the first quarter that coincided with Russia's invasion of Ukraine in late February and the market volatility that followed.
We believe it is prudent to remain conservative until demand trends returned to normal.
And we are providing the following outlet for the first quarter of 2022.
First quarter net revenue growth in the range of 7% to 8% versus 78% last year with adjusted operating margin in the range of 23% to 23, 5% versus 22, 6% a year ago.
Fiscal 2022 net revenue growth in the range of 5% to 7% versus 32% last year with adjusted operating margin in the range of 25% to 26% versus 25, 6% in 2021.
Our outlook is inclusive of opening our each San Francisco in late spring, the RH guesthouse and early summer.
England in mid to late summer and our H Palo Alto in the fourth quarter.
Now, let me turn to our each business vision and ecosystem.
The long view.
We believe there are those with pace no scale and those with scale and no taste and the idea is scaling taste is large and far reaching.
Our goal is to position our HSE arbiter case for the home has proven to be both disruptive and lucrative as we continue our quest to build the most admired brand in the world.
Our brand attracts the leading designers artisans and manufacturers.
Mailing and rendering their work more valuable across our integrated platform, enabling our H to curate the most compelling collection of luxury home products on the planet.
Our efforts to elevate and expand our collection, we will continue with the introductions of RH contemporary art secure RH bespoke.
Each color RH antiques, and artifacts RH atelier and another and other new collection is scheduled to launch over the next decade.
Our plan to open immersive design galleries in every major market will unlock the value of our vast assortment generating revenues of $5 to $6 billion in North America, and 20% to 25 billion globally.
Our strategy is to move the brand beyond creating and selling products to conceptualizing and selling spaces by building an ecosystem of products places services and spaces that establishes our age they're each brand is a global thought leader taste in place maker.
Our products are elevated and rendered more valuable by our architectural inspiring galleries, which are further elevated and rendered more valuable by your interior design services and seamlessly integrated hospitality experience.
Fatality efforts will continue to elevate the RH brand as we extend beyond the four walls of our galleries into RH guest houses, where our goal is to create a new market for travelers seeking privacy and luxury and the $200 billion North American hotel industry.
Additionally, we are creating bespoke experiences like RH yountville and integration of food wine art and design is in Napa Valley are each one in our H two are private jets, and our <unk> III or luxury yacht that its available for charter in the Caribbean Mediterranean, where the wealthy and affluent visiting vacation.
These immersive experiences expose new and existing customers to our evolving authority and architecture interior design and landscape architecture.
This leads to our long term strategy of building the world's first consumer facing architecture interior design and landscape architecture services platform inside our galleries elevating the RH brand and amplifying our core business, while adding new revenue streams.
Disrupting and redefining multiple industries.
Our strategy comes full circle as we begin to conceptualize himself spaces moving.
Moving beyond the $170 billion home furnishings market into the $1 seven trillion in North American housing market with the launch of RH residences fully furnished luxury homes condominiums and apartments with integrated services that deliver taste and time value to discerning time starved consumers.
The entirety of our strategy will come to life digitally as we launched the world of our age and online portal, where customers can explore and be inspired by the depth and dimension of our brand.
Our authority as an arbiter taste will be further amplified when we introduced our each media a content platform that will celebrate the most innovative and influential leaders who are shaping the world of architecture and design.
Our plan to expand the RH ecosystem globally multi.
Multiplies the offer from the market opportunity to 7% to 10 trillion.
One of the largest and most valuable addressed by any of the any brand in the world today.
1% share of the global market represents a $70 billion to $100 billion opportunity.
Our ecosystem of products places services since Bayer spaces inspires customers to dream design Dine travel and live in a world thoughtfully curated by our age creating an emotional connection unlike any other brand in the world.
Case can be elusive and we believe no one is better positioned than <unk> to create an ecosystem that makes taste inclusive and by doing so elevating and rendering our way of life more valuable.
Finally in the luxury mountain building a brand with no peer.
Every luxury brand from Chanel de Cartier Aston Martin demand Louie Baton to Lori piano, Harry Winston to our maze was born at the top of the luxury mountain.
Before it has a brand attempted to make the climb.
Nor do the other brands want you to.
We are not from their neighborhood nor invited to their parties we.
We understand that our work has to be so extraordinary that it creates a forced reconsideration of who we are and what we are capable of.
Requiring those at the top of the mountain to tip their hat and respect.
We also appreciate that this claim is not for the faint apart.
And as we continue our ascent Dr gets then in the odd become slim.
20 years ago, we began this journey with the vision of transforming and nearly bankrupt business with a $20 million market cap and a box of Occidental laundry detergent on the cover of the catalog into the leading luxury home brand in the world.
The lessons and learning the passion and persistence the courage required in the scar tissue developed by getting knocked down 10 times and getting up 11.
Leading to the development of the mental and moral strength that builds character in individuals and forms culture as an organization.
Since they can't be learned in the classroom.
Or by managing our business they must be learned earned by building one.
Or by reaching the top of the mountain.
Onward team RH Carpathian.
Now operator, we'll open the call to questions.
Thank you.
Ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.
We ask that you limit yourself to one question and one follow up.
Again, Thats star one to ask the question to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Stephens economy with Citi. Your line is open.
Alright, thanks, very much good afternoon, everyone first.
First question can you just elaborate a little bit more on the full year revenue expectations for the full year guidance.
Oh, great that $200 million of backlog of demand being for sale. Despite all the newness in the business, maybe just help us understand what youre seeing in terms of the softening that started in February and how that accurate sense of your outlook for the balance of the year versus first quarter. Thank you.
While the softness and the newness is all implied in our guidance.
And as we've said we believe it's prudent to take a conservative view at this time.
Based on kind of the disruption.
But we saw our business.
Soften since the beginning of that.
The conflict and the market volatility that followed.
And and I think you've got to kind of also consider the fact that you've got it's clear now to everyone that.
Inflation isn't going back to 2%, even though Janet yellen, yeah, not too many weeks ago when it was.
Four of five said it was going to two in two weeks later it went to seven five announced at seven 9%.
We've got yes.
One Paul saying that.
They waited too long and now we're gonna have yet.
Two years of interest rate increase at.
Rising interest rates.
So you've got a lot of new news and a lot of noise out there.
Compounded by a warrant invasion.
I think that.
All right.
The invasion of Ukraine by Russia.
Just became a eight.
Kind of a.
Our reckoning point, if you will where people had to stop and pay attention to everything.
And we saw our business slow about 10 to 12 points.
<unk>.
And it's been relatively consistent during that period.
When it returns to normal.
Not sure.
How aggressive is the fed going to be not sure.
There are things, we know and I don't mean to be a pessimist, but history.
History would tell its four to five times the fed raises interest rates over a sustained period, we have a recession and I don't need to tell you guys that math, that's just a fact.
Yes, so look we tend to as I like to say.
For peace and plan for war and so.
We believe we've got a great hand going into this year. We believe we have the most exciting lineup of initiatives product.
<unk> is in the history of our company.
We've got the best strategy, the best business model.
One of the best balance sheets in our industry the highest ROIC in our industry.
So kind of game on.
Whatever happens happens.
And we're just putting ourselves in a position to win.
Yeah. That's that's very helpful detail. Thank you for that.
I had a question on just the margins for International I think you said in the past that Europe . Some of the same or higher than the margin profile for the U S. How should we think about the profitability curve as you do some of these initial openings for the next few years I guess said another way should we assume there's a little bit of dilution in the operating margin guidance.
You've given for this year, just from Nikkei opening and that in Europe . This year.
Yeah that would be the right assumption, but I'd say, we're all going to learn together right. It's the first time we've done it.
There's not a there's not a ton of history of the business like ours.
Expanding globally and taking control of the brand versus.
Licensing the brand to either switches and easier way and we believe a.
Long term.
Less profitable and value, creating wafer for shareholders.
And history is.
<unk> demonstrated that many of the great brands that.
License their brand or franchise their brand spent years and a lot of money buying their branch back so.
Yes.
We believe it will be accretive to earnings long term, that's what the math would say as you kind of.
Steady others models.
<unk>.
But exactly what the curves are going to look like.
Yeah. So first time, we've done this so I don't think we have any better view than anybody on this phone.
Well, we'll kind of communicate whats <expletive> .
Yes.
As it evolves.
But I think we we're we've become more confident.
Every month every week as we get closer.
We realize we've got greater brand awareness and greater brand affinity.
Meet people got talked to people.
Yeah.
A lot of excitement for our H opening in Europe .
And there's a relatively high awareness of our brand.
With.
Okay.
Target consumer.
So.
We feel very confident in long term.
We believe it's going to be accretive to our operating margins I would say if you just kind of think about where we are today.
Uh huh.
We are still not our business.
<unk> scale in the United States right, we're not a retailer that is closing stores that is shrinking.
Shrinking.
Kind of optimize their business were.
Still growing we have lots of new galleries to transform.
And you now have.
Several billion dollars more we're going to do just in the U S and with that scale.
And as our our product continues to evolve transform.
And go to a higher level.
Yeah, we can kind of see operating margins.
Approaching 30% and when you think about.
International, possibly being accretive on top of that should be accretive on top of that yes.
Yeah, we can.
Could have a model here long term.
Looks like some of the best luxury models in the world.
If you.
Kind of segment, <unk> kirin or <unk>.
Look at the individual brands right.
Lot of times, great brands, and great businesses get lost in kind of multi branded business models and.
But <unk> has operating margins in the mid Thirty's Chanel has operating margins in the mid Thirty's Louie Baton if you segmented out his operating margins in the mid Thirty's.
<unk>.
Gucci has operating margins in the low to mid 30 so.
Yes.
And by the way if you just stand back and think about those luxury brands.
They have a lot of competition, but scale.
There's actually a lot of choice.
For a wealthy consumer.
To access quite a few brands from an apparel point of view.
No.
A lot of brands to access.
If you think about the jewelry sector of the watch sector. If you think about luxury cars.
If you stand back and think about luxury home furnishings and luxury design, if you think about okay.
Fully integrated brand.
At the top of the luxury mountain.
In the world.
It's.
It's a big void, it's the really big boy, you've got a very fragmented.
Kind of portfolio.
And a category.
Which category brands.
A relatively small but don't have scale that don't have control of their brand their franchise out.
Yes.
Control very little of their distribution I mean, if you just take the <unk> Italian for example in North America I think.
How many points of distribution they have call. It 40 to 50 points of distribution they control four of those points of distribution.
So their brand is like thrown around in a bunch of places and they're probably the best global brand in the upholstery category, but they don't cover all the categories.
And then you've got I think its industrial design invest something like that some group thats.
The ones that <unk> Italia plus lighting.
Other things you know people are trying to.
Gross stuff together and figure out what to do.
And so I look at it I kind of say like when you have like a 20 year lead.
In our sector. It takes a long time to build something like we're building.
And we're just kidding.
To a place where people are going to start to understand.
What this brand is capable of people are just going to start to see in person.
Insistent way the kind of physical environments.
And experiences that we're building for our customers the exciting hospitality concepts that.
We're going to be bringing people to talk to this physical experiences and connect with people and.
Create greater brand awareness greater.
Rand affinity.
When people see what we're going to do internationally.
Yes.
North America, we've had unwind.
Really kind of charge a crappy business.
And little stores and spend a great part of our journey.
Unwinding.
Kind of a shitty business turning it into.
And okay business spanning many years of this journey just not going bankrupt.
Trying to exit.
The category has lots of businesses.
Trying to move from a.
From a promotional model to a membership model.
And then reposition not only the product, but all of the real estate and not.
You know, it's like Frank symmetric Frank Sinatra's, there's not an a shy away right.
We haven't taken our galleries.
You know, which are not necessarily small when you look at it.
Other players or competitors in our market I mean, we have 10 to 12000 square foot.
Yeah.
I guess the galleries with seven days 8000 feet of selling space.
It's not small.
But we're not taking them and just remodeling and were not taken them and making them, 20% bigger 50% bigger we're making them.
500%.
And it.
They're really the most exciting.
<unk>.
Interactive experiential and dominant.
Yes, physical experiences of their kind in our industry today across any category outdoor I'd argue so.
Yeah, I think when you think about taking the very best of who we are.
And go into Europe , with that and not being kind of plagued with with our old identity not being positioned like other people kind of had been.
Walk the malls, where we've got a legacy store in them all today.
And there is three or three other people or for other people, depending who you know do you want to pick.
The names.
Most people aren't.
International in any meaningful way nor are they really positioned to compete against us today, even in the U S.
Hi.
And so internationally, it's so fragmented.
There is nobody of scale.
Most of them don't control their distribution.
And.
Yeah, and most of them are.
They are kind of like where we were 20 years ago. So I just think.
The opportunity globally for this brand.
It may be like no other brand in the world.
If you really stop and think about it.
You take any other category and say who's.
Who owns it at the high level, how many brands are there who are the leading brands that have control of their brand control of their product.
On all levels.
We have the platform we have how have the.
The business model that we have we're not going over there with negative EBITDA trying to grow in Europe , we're not going over there with life.
5% to EBITDA and trying to grow in Europe .
We're going over there was like close to 30% EBITDA.
We just have.
Yes, we have we are in such a great position.
And I don't think.
I don't think anybody, but us really get just because we've been studying it for so long and thinking about it that long.
So.
Yeah.
And then what we're doing next door physical point of view in Europe .
It's better than anything we've ever done.
And when do you guys see what's coming.
Yes.
We want to be in Europe , competing with US I would tell you that.
Yeah.
I thought I didn't want to be competing with us here in North America in our category you really don't want to be competing with us in Europe , and I didn't mean to say that they are generally.
I mean, just you just got it.
Take a closer look.
So there you have it.
Yes that was that was great I appreciate all the detail best of luck this year.
Thank you.
Our next question comes from the line of Steven Forbes with Guggenheim Securities. Your line is open.
You have to see if your line is on mute.
Yeah.
Can you hear me.
Yes, yes, we can hear Steve.
Sorry about that so I wanted to focus on the new product launches so.
Gary If you can can you update us on the specific timing of the launches contemporary and the elevated collections.
And modern and interior inferior any any offer color on the breadth of the new collections as we try to conceptualize the impact.
And then whether the current supply chain environment has or is anticipated to impact.
These launches in any way.
What do you think.
Of course, it's impacting the launches I mean everything is somewhat late.
And a little fragmented as it's coming together. So look we would have liked to be out there with contemporary in March.
Yes.
I mean before.
The variance in the fourth quarter kind of rip through and again it really.
I think it impacted the U S a lot.
Not that greatly.
It just kind of went through the U S very quickly, but when you think about Andrew like China, or Vietnam or some of the.
Some of the places that we.
Hi.
Yes.
Big sourcing.
Out of.
It just all got kind of Goofed up so we I think we're about a couple of months behind.
And also we want to be smart.
And as is just as we think about just the economic landscape we're going into.
If the economic landscape is.
It's volatile.
You want to be careful.
Especially if you've got.
Sourcebook catalog business like ours, you don't want to mail into a big headwind so.
We are reevaluating their plans were I mean, we're kind of we thought we might launch with 450 to 500 pages and contemporary I think it's going to be probably more like $3 to 350 pages just stuff is late.
We will get a sense is it might even be later.
The supply chain.
I think many of us thought it would've been.
We have been caught up by now.
We will be lucky to be caught up by the end of the year.
And because.
Because it's just hitting everybody from all angles, all the raw materials, all the transportation issues.
The transportation getting it to us or vendors.
I get.
All of their components from all over the world shipped to them. So you just have this compounding supply chain.
I kind of puzzle happening.
So I think the key thing is.
Just don't rush it right now because you can probably make mistakes that yield.
You wish you didn't.
I think it's like we said, we're being a little conservative how aggressive where do we go with circulation we'll see.
We kind of pushed modern interiors to the second half.
Contemporary kind of.
Kind of take the stage in the first half, but it will be coming in may.
May.
We don't want to book to get out there.
We have some goods in stock and it's and it's all running late so.
Yeah, and that's probably.
Also contributed to just our conservative view for the year.
So.
And even on the.
On the galleries on the projects.
We're in a world that.
Is it just.
I've never seen it so chaotic honestly from an execution point of view, whether it's construction yeah sourcing manufacturing.
Shipping.
Supply chain.
Great.
Yeah, Everything's a little out of sync in the world right now so.
But but everybody's dealing with it so I think it's.
It's just kind of how do you how do you do it in the most intelligent way.
So like I like to say.
A slight quality.
Kind of got to wait for quality and and and.
And again, we're not going to get any bonus points for.
Rushing right now I just don't think we are I think there is more risk.
Winding up in the ditch.
So we're kind of slowing things down a bit.
We're trying to be more thoughtful.
We're trying to make fewer bigger more important moves.
Yes.
Yes, yes.
That's just our view.
No everybody else's approaching things, but but that's our view.
And to spend.
I spent a lot of time here thinking very deeply about a few big moves. This is a year, where we got a lot of big moves because they all kind of got backed up and so.
We don't want to create more chaos in in our world and our customers World.
So guess what.
What you see in front of you right now is.
In the letter is the best news I have it.
It's different news than my last letter.
Brent the last letter I didn't know.
In the United States Army Con Omnicom.
All of a sudden boom.
That.
And then all of a sudden boom.
Boom, we got a war.
Your rush invasive crane boom.
Yellen says interest.
Inflation's going from four to two.
And then it goes to seven five and Paul says we're.
We're behind.
Yeah.
There's a lot of yes.
Everybody thinks the supply chains are getting better.
I think we've gotten better at all.
It's <unk>.
It is what it is I mean, the product is on the water for a long time getting ships into port it's taken a long time, we've got.
Generally about five extra weeks in our supply chain right now.
By the time, it's a lot of money.
That's the average.
So that means some steps coming on time and some steps.
10% to 12 weeks behind and when you run it kind of an integrated business like ours, where you need all the pieces of the puzzle to kind of paint the picture.
Just makes it more complex and more difficult.
But.
At the same time.
Right now everything on that list.
The year of the new.
Hi.
Be shocked if it doesn't all happen if you asked me what's the biggest risk.
Palo Alto goes into first quarter of next year, but that's neither is going to make a difference to the to the year anyway.
Gary It's Super helpful right, because I think.
As we try to contextualize the prudence of the guide it almost appears like.
You're not incorporating a contribution from a lot of these you are the new factors right I mean.
Any any comment on on how you sort of built the guide from a bottom up standpoint or.
How you would define the programs behind it and do you have do you have a great track record here so.
Any thoughts on just.
The guy to in a holistic context on just the prudency behind it.
Yeah, well look I mean, it's.
Probably one of the most difficult guidance.
Since 2008 and nine.
<unk>.
We're.
Right in the middle of this disruption.
From Ukraine, and Russia, which I think I don't think it's all Ukraine, and Russia, I think its triggered a greater awareness like it's like someone.
I think this was ringing the bell everybody pay attention and then also and everybody started talking all of a sudden the feds.
After the races.
That creates concern.
You've got housing prices at all time highs.
Is it sustainable.
I don't know for how long the math.
Yes, that's it makes sense.
What's happening in the housing sector and other places.
You've got inflation like I've never seen.
I was telling people.
When when Yellen said, we're going back to 2%.
We were just signing our new freight contracts ocean freight contracts.
[laughter].
I just wonder if anybody the fed is picked up the phone and called a business person and said Hey, what do you think's happening with inflation.
As ocean rates, how does this how does that I mean.
I think I.
I don't think anybody really understands what's coming from an inflation point of view because either businesses are going to make a lot less money or theyre going to raise their prices.
And I don't think anybody really understand.
How high prices are going to go ever.
Everywhere.
In restaurants in car.
Lars and everything.
And I you know I think it is going to out run the consumer and I think.
We're going to be some some tricky space so yes.
Everything is kind of happening at once and I think you got it.
You got to prepare for war I mean, if you're going into a very difficult unpredictable.
Unpredictable time.
You just got to be Super flexible, you've got to be able to improvise adapt and overcome.
And kind of be ready for anything.
And I don't mean that by playing defense I mean, it's by.
Playing offense, but it's.
I wouldn't call it a happy days right now.
Yes.
Paul ill call it pensive days be ready.
And when we play like that.
Yeah.
We usually have our best outcomes.
When we get overly optimistic.
We have a higher likelihood to wind up in the ditch and get ahead of ourselves so.
Sure.
But if everything if if.
Crane Ensign.
Hum.
Inflation slows down some miraculous way I don't know if everybody can sign new freight contracts I mean, most of the world All signed new freight contracts two years ago.
Price of the container.
For US went from 2400 4800.
Yeah, Yeah, they had doubled.
Hi, I'm not going to tell you what it just went too but just let's say that look.
Like a nice increase.
So and it's not just for everybody.
You know either people are going to do stupid things like take quality down to.
Make their goods like look like it's better value.
Or they're going to.
They're going to have to take prices up and.
Where are they won't take prices up and they'll hurt.
Their margin profile is going to change.
But it's not just us it's everybody I know in every industry.
I just don't think it's like the it's like again I don't want to scare everybody.
You talked about seemed like theirs is the scene in the big short where you know.
Everybody's in that ballroom and the Guy I think it's the guy from bearish furniture someone's up there and one of the things and he's saying, how theyre going to buyback $1 billion of their stock. This is Matt.
One guy who is.
Is Blackberry I guess.
Question, Sir and the 20 minutes that you've been talking your stock's down like like.
The 5% and everybody ran out of the room.
I just think.
Look we tend to just try to be transparent and honest look maybe our stock is going to take a big hit because of this and people are I think Gary Friedman with and excited I am.
Never told me I've never been in my 22 years here I've never been more excited.
I've also never been more uncertain.
So and I think you have to take a real balanced view right now.
Super helpful. Thank you Gerry best of luck.
Okay.
Thank you.
Our next question comes from the line of Adrienne <unk> with Barclays. Your line is open.
Hey, Gerry Hey, Jack Thanks, so much for the somewhat brutal honesty, but I think we'd have to hear it.
Yes.
Yes My question is.
And again, you've talked about in the past two events that.
And to impact your business market volatility high net worth ultra high net worth individuals that sounds like you have baked that into the guide and then the second would be deceleration in high end housing, which we haven't necessarily seen yet how much of that is potentially in the guidance and then Jack on the $2 billion term loan.
That was taken out what are the plans there. Thank you very much.
Yeah.
They still have bought them.
Alright. Thank you. Thank you.
Yeah like I wish I had more to tell you.
What's baked in all our best thinking.
Like I said, there's just a lot of change and Theres a lot evolving I mean.
Like you have to ask yourself whats.
Whereas inflation going the next time they reported.
Whats really happening today I mean, we're just trying to.
Yes Bill.
Build a plan and a view that.
It's us in a position to win so.
Yes, we thought about everything we can.
I don't know.
We can't impact.
Impact nor can we forecast.
Big macro trends like until you see them I mean that the fed can't do it Janet Yellen can't do it.
<unk>.
Yes, I don't think anybody in this call can really do no one ever really get these things right but.
But you can capitalize on any environment. If you are prepared.
And that's all we're trying to do.
We're just trying to be in a position to win be in a position.
To take advantage of any opportunities that present themselves.
We're going to be patient.
We may look a little slow to some people.
But when we like to say don't move until you see it.
Alright so.
Going to wait until we see it and then we'll move and when we move we generally move aggressively right now little hard to see it.
Also in your business and the drops 10 to 12 points.
Overnight.
And.
There's just.
More news and unrest in the world.
You've got to change what Youre doing.
If you don't change things things won't change so we're changing things, we're adjusting and improvising as we go.
We're excited as Hell.
But yes. This is it looks similar conversation I had with our board.
My opening was eight.
In my 22 years never been more excited.
In my entire career, here's why all the things I read you all happening by the way.
Almost everything that is happening in the next.
12 weeks most of it.
A few things happening that fall in Palo Alto and stuff and.
But also because of all the things that you know.
Rising interest rates runaway inflation.
Yes.
Unrest.
Yes, so on and so forth.
And you say what's happening in the housing market is a really good thing.
When things get too hot they usually get cool.
So again I don't want to scare people.
I'm trying to tell you.
Yeah.
You can see the numbers that we see.
The last time houses had multiple bids like this last time.
Prices went up like this.
It wasn't a great other side to it so but but things are different.
For an economy.
Yes, there is new kinds of businesses.
New kinds of wealth creation, theres, new kinds of productivity things driving the economy.
I don't know is there enough good things, whether it's in our business or other parts of the economy that.
Motor is through and we don't have a recession, we don't have a slowdown.
This does Ukraine.
Settled sooner.
I don't know.
I mean, maybe I should be the one and we should be the one asking you guys for the questions today.
We spent a lot of time I read everything that we know.
For you guys.
Net Steph and half point of view, we'd love to hear what you're saying.
And Adrian I think that also answers the fans of the term loan question look we raised the capital to provide optionality for us to be opportunistic and I think Gary summarized well sort of how we're thinking about.
Moving till we see it so when we move Youll know.
But any plans to retire the converts.
Yes.
Yes, it really is all kinds of things, but you also look.
Windows that you can do things in our company you've got.
I've got expiring options.
Put them in a position to have to yeah.
Roughly 1 million shares of stock.
All those things you can't have too many things happened and what time and have conflicts happening.
Yes.
<unk>.
Probably not appropriate to be buying back the stock when the CEO selling the stock.
Right.
So yes, there's just a lot of things you got to think about right yeah.
So we.
No we don't have complete flexibility on all of those decisions.
Yeah and so.
Look we'll make I believe we will make great decisions for our shareholders.
Okay. If I didn't have to sell the stock I wouldn't be selling stock I actually thought maybe there's some way we can extend the options and I found out now that's an IRS thing the IRS, let you go past 10 years.
And then you know the option expires so.
My options expiring in November of this year.
I think it's better to.
Try to get it out of the way. So we can have more operating flexibility.
No.
My situation actually.
Constricts us a bit.
Got it.
Thank you very much.
All the information that's very helpful.
Sure. Thank you.
Our next question comes from the line of Curtis Nagle with Bank of America. Your line is open.
Alright, great. Thanks, Thanks, very much for taking the question.
So just Gary I guess thinking about it.
A lot of noise going on obviously.
<unk> gone through it.
A lot of detail here on the call volatility supply chain malaise.
All sorts of stuff.
Just trying to thinking about the state of the industry and thinking about.
The premium and luxury end of things at least in the U S. It's still pretty fragmented.
I guess.
Maybe sort of cynically thinking here or do you think you guys might have a bigger opportunity to take share.
How do you think that plays out how has that changed over the past I don't know a couple of years.
Thinking about the next I don't know.
Two to three.
I think we feel great about the next two to three years.
So I think it will take.
I think we'll take share in any environment Curtis.
Any environment.
Aye.
Again, it's.
These are all kind of yes.
Temporal issues.
Whether it's.
The war today.
The inflation and stuff like that none of this is permanent.
There's a lot of things going on at once and.
Yes.
Supply chain everything else you just have to <unk>.
Now the gig.
And the best possible way or you can kind of screw up your business model and make some stress.
Strategic mistakes, it's one thing that we're all going to make a lot of mistakes.
Everybody in the company.
The only difference, particularly in their mistakes in mind mistakes as my mistakes and it cost the company a lot more money than their mistakes.
But collectively as a leadership team.
You know we have thousands of people in this company.
Yes, their livelihood is determined on our decisions and we want to make great long term decisions were not here for.
A short period of time.
In here 22 years, and I'm looking over at depth.
Yes, it's Ben here, who is our Chief Gallery Officer Stefan Dubai.
2022 years longer than me I think right now.
Aerie has been here at <unk>.
16 years, Jack it's really been here 10 or 11.
I mean technically if he was with Bofa take nine at our H plus three with Pat.
Sandeep Sandeep.
Sandy.
14 years, our chief people officer.
I mean I'd go round, there's more people in the room, but more people around.
We've been here a long time.
We tend to be we're going to be here a long time. So we're playing for the long term and we're trying to make really good big decisions that kind of changed kind of that.
Victor.
The direction that we're going and I think we've made some really good ones I think that's why we've got it.
Operating model.
Not a little better than the next best person, it's a lot better than the next best person and we have.
Really big moves, we're making right now that can increase that vector and.
Accelerate our performance.
Significantly more we don't sit here and say Oh, we made 25% operating margin. We think this is the best we've ever done so it's not going to get any better.
We think it's going to get a lot better.
<unk>.
Maybe see another.
Five to 10 points of operating margin quite nicely.
It's just that right now I'm, giving you guidance right now we're talking about right now.
Right now is a bit confusing.
And anybody who's saying its not.
Yeah.
Alright, good luck.
Yes.
I think it's the time that you've got it.
You know really keep your eyes open your antennas up and you've got it.
You've got to prepare for anything that might happen.
Again.
The work at <unk>.
Things could get better our business get bounce back.
But there is a lot of things that are sitting out there.
Rising interest rates.
Is never a great thing now.
It might be three years away.
Before rising interest rates really.
Take a big hit out of the economy I don't know.
Yeah.
No.
Theres always.
Patterns and we've looked at all the patterns, we've got all the graphs we've laid over.
All the grass.
All of the interest rates like we looked at the last the last 20 years in the U S. The average interest rate was 2% you got pushed it out 30 years, it's 3% federal funds rate.
When's the last time.
It looked like that.
The 19 fifties to the 19 seventies.
Okay. That's the last time.
How old was everybody in this call.
In 1980.
When the federal funds rate was 20% I'm not trying to scare anybody but.
Almost everybody on this call.
In 1980 like others.
I was a kid.
I didn't know what I was doing.
I didn't have wisdom then.
I just don't think there's a lot of people in business today, except for Warren Buffett, and Charlie Munger, and I don't know George Soros entered a handful.
You know if you had wisdom and 1980.
Get.
Get into your years of wisdom in your Fifty's.
You start to get wise.
I look back I go my 30 is that really didn't do anything I dislike worked really hard in my 40.
<unk> got better to get shut down and kind of see a bigger picture in my fifties. They started seeing a much bigger picture.
My late fifties or sixties, I think I've kind of gained a lot of wisdom and I can see a much bigger.
Much bigger playing field than I could.
If somebody.
Somebody with.
50 years old and 1980 or 90 years old today.
So I just think a lot of people haven't seen this when is the last time anybody here has seen interest rates go up two years in a row.
And they have six or seven times this year in four or five times next year nobody has seen that.
Nobody has seen a lot of things that are happening today. So I'm, just saying like I am just trying to be completely honest again.
Yes.
Yes.
I couldnt be more excited but I couldnt be more uncertain and that's just the story now.
Other people might be banging at a brighter happier drum.
Do they have better numbers than we do I don't think so.
We'll play the game the way we play the game.
And.
We have a lot of exciting things coming in and it's flipped.
Were too conservative.
So just make more money.
For sure certainly appreciate it.
Long term view just one quick follow up just in terms of.
It was pricing that you're maybe including in the guidance right, probably some residual from fresh taking last year as you mentioned Mark Watson your costs coming in or.
Continued cost increases so.
Our.
Another round of price increases included in the 22 guide or no.
Yeah, We've got everything included in the guidance and again, our business has been evolving for multiple years right. So we are selling.
We are selling.
Higher price points to fewer customers bigger orders.
In general we're still.
Evolving this model and into a luxury branded model.
Ours is a little different I mean.
Contemporary has the highest quality goods, we've ever had it's the highest price points we've ever had.
Yes.
When we get those right they tend to be the best selling products, we've ever had our most expensive sofa, it's our best selling styles.
So.
When.
So.
We're probably better positioned to take prices up than others, because we've been taking prices up for years.
So.
So in and in our in our industry.
<unk>.
It's kind of event buying right, it's like buying a car you're not looking at the price of the car until you need. The car you are not looking at the price of furniture, all the time until you need the furniture. So I think were a little better positioned than other industries in other categories as it relates to price increases.
We are pretty disciplined about taking pricing increases and so on and so forth.
But these are going to be bigger.
No.
I mean.
Whats going to be the real when you have this kind of.
<unk>.
Impact from freight and raw materials.
Price increases from suppliers and so on and so forth.
I mean, you can say Oh, we're a big word.
We can absorb it.
BS when what's happening in the world today like prices are going up everywhere.
And if theyre not earnings are going to go down instead of the question.
People have to ask is do I want a bigger lower margin business.
And do I want to chase sales or do I want maybe for a while a smaller higher margin business and then come out of this really positioned for the long term and that's the deal we've taken not just recently.
Great.
For almost 20 years, and really accelerated yet six seven years ago seven years ago when we.
Began the move to membership six years ago, and launched modern and so on and so forth modern was when the prices of modern was 50% higher on average.
When we launch something like that almost two times in some cases.
So.
Yes, because it's all I mean, I know you guys are trying to figure out the model in that guidance and exactly what that's going to be.
Okay.
Aye.
I think we can all get lost in the details right now.
It's kind of the big moves in the Big picture Thats important and.
Yes, making really smart big moves.
Thank all of our big moves or the right big moves and if we change our mind in any of them and we've decided not to do something pull back and something we will make the right decisions based on how things evolve.
But yeah.
Business just did change.
Weeks ago.
So.
We're probably that.
Yes.
I don't know like.
When did other people report.
We reported a little later right so people probably hadn't seen the real trends yet.
Unless we're just the only one getting hit right now.
Price if that was happening.
But.
What I've heard is there is there has been a broader slowdown in our industry and it's got to be probably in other places too.
Fair enough appreciate it Gary.
Thank you.
Our next question comes from the line of Michael Lasser with UBS. Your line is open.
Good evening. Thanks, a lot for taking my question, so Gary when you see that demand.
You've seen a 10 to 12 point slowdown.
Presumably that's on demand comps where are your demand comps trending over the last few weeks, so they actually down year over year.
And the counter argument would be that Wow. There is a lot of uncertainty in the environment. Your core customer came into this year.
We're in a very strong financial position and the high end housing market is in a pretty good spot.
Is it your view that.
These purchases are immediately being deferred or is there a possibility that prices had been raised so significantly that the customers now responding to that.
Why do you think I don't know I mean, we.
It could be a little bit of everything it could be the distraction of the war it could it could be so many things Michael.
And we're not giving really.
We.
Our demand.
I've got hit by 10 to 12 points.
We're not.
Actually guiding demand I just wanted to give you color that there has been a change.
And there is also one of the biggest dislocation between.
And revenues I think its going to be that way for everybody.
So we just wanted to try to be transparent and say hey look.
Just because we might.
Yeah.
Yes.
Eight.
It doesn't mean.
That's where demand is.
So we're trying to be transparent with shareholders.
And let people know what's really happening.
You don't want to come back next quarter and say Oh.
Yes, it will.
Demand has been down for a whole separate yes.
Yes, the last several months and.
Yeah, we didn't tell you when we could've, yes. So.
Again, I mean, probably even hit our stock today I got it.
Whatever I mean.
We're playing for the long run and I know everybody's got clients in and out of stocks.
Darn easy times for all shareholders.
Hi.
We're just going to leave the truth, and we're going to be transparent.
We didn't have to say this I think we are the first one is talking about demand.
Yes, there are people they are talking about they're talking about sales and they are saying.
Strong well our sales are going to continue relatively strong in Q1 comparatively to what we're up against.
But our demand.
So that's just the truth.
We don't we can't you know what the consumers got to they have more money.
They do they are not acting like it right now.
That's what you got to know.
Will it change it in three months.
Super Super helpful.
<unk> seen this.
It consistently across the board the slowdown.
Any across categories as well or is there any patterns that you can see and you're not the only one that trigger the grill company reported last week also said that the last three weeks have seen a pretty big slowdown. So this this is probably a broader trend and it's right for you to pointed out as well.
So I guess.
Lever you can provide on what youre seeing by category geography, and then yeah.
Question is how to what degree did you Flex Europe Europe .
Your your P&L.
If this is prolonged and get get worse.
Their downside risk to that 25% to 26% operating margin target for this year understanding that you.
We'll have an opportunity to grow that from that base over the long run.
Look if it stays down this like this the entire year.
I think everybody in the industry, we will be adjusting our numbers down.
We don't you know this.
Temporal.
When things like this happen usually don't stick it all depends on.
Are there any other shoes that drop.
So.
We've got things that are going to counter this we've got new goods and initiatives that are going to.
Come into play so.
Right.
Hi.
I mean this is this is that.
This is all we have for you right now.
So.
I think next quarter, we'll have a much better view and I don't know Jack do you want to yes.
Ben.
The categories and geography, obviously, Michael we don't.
Those kind of items I think generally the.
No major headlines there.
And then.
I mean, obviously, if there's risks if the model stays down for an extended period of time is at risk the margin well. That's just that's just wrong.
So, but we'll update you.
So to the extent that happens.
Understood. Good luck. Thank you so much.
Okay. Thank you Michael.
Thank you.
Question comes from the line of Chuck Grom with Gordon Haskett.
Your line is open.
Thanks, a lot.
Unfortunately, I was wondering Gary if you could compare and contrast.
The consumer behavior that you've seen in recent weeks.
December of 2019, when your business off the books.
Essentially in the context of that technical percent decline, but you just cited.
Well, you know, 10% to 12% decline it looks like a 10% to 12% decline.
Different very different factors.
That contributed to that so.
You know how those will play out.
Is the unknown.
But again.
You know I like where we're all kind of like major focused on.
And right now I think that.
Our focus is.
It's really on a much longer horizon and the big moves we're making so.
Yes, no matter what happens short term.
We're going to win we're going to take market share, we're going to be disruptive.
Yes, we've got the best model, we've got a great balance sheet, we've got incredible strategy.
We.
Got a global expansion that we're teeing up that.
No.
The best work we've ever done.
So.
If youre doing some of those things into a headwind.
Ever we've seen headwinds you know this is yes.
Not the first goat rodeo we've seen.
Excuses.
You just navigate through them and you went through them.
Got it.
I'm not going to sit here and.
It did.
And try to act like nothing is happening right now it would be the wrong thing to do.
And so.
But and how it compares to 2018.
They were both down.
Yes different circumstances.
Different time, we're a different company I don't know what was our operating margin in 2018.
11.
Yeah in 2008.
We had an operating margin of 11, four we had a different cash flow profile a lot of things were different.
We have an operating margin opened 26 today.
We've got a better real estate strategy than we've had we've got a.
Higher return on invested capital than we've ever had we've got more exciting things in the pipeline than in 2018.
We're all smarter and better than we were in 2018.
So we're tremendously excited again, we're working our butts off here.
And.
Yeah, we're super pumps.
It sounds like.
The most excited right now I am but you guys keep asking me the same question to a degree about.
Blake.
I'm, giving you the best answers.
Yeah.
You want to talk to me more about Europe or more about other things that youll, probably get a little bit of a different tone.
So it.
I don't know I mean, it's we don't see anything.
Specifically different than the numbers I see something different in the environment.
Uh huh.
Yes.
And <unk> did we have the fed say theyre going to raise interest rates six or seven times.
No.
Did we have inflation.
At the levels, we have today no did.
Did we have.
Sure the fed say, hey, we're way behind.
No.
Theres, just a lot of things very different.
And I've.
I've seen enough cycles to know that.
Yeah caution is advised right now.
Yes, that's what I would say.
Well I think we all appreciate the honesty.
Maybe bigger picture on a brighter spot you called out the 200 million a 200.
Tam for our desktop just quickly.
Can you talk on the ramp how quickly you can build that out over the next say three to five years.
Oh I don't know, yes, we have our first one opening like.
I just knocked on wood I think it's extraordinary I think.
One of the things we've learned is when we do extraordinary remarkable work, we've always figured out how to monetize and this is.
Some of the best work we've ever done.
We have our second one.
And ask them that's come in Europe .
Hind it and that Scott.
It's very similar in a lot of ways or both.
Kind of.
Our micro hotel, we we've got.
10 rooms in New York, and nine in Aspen, but their incredible rooms or rooms that no one's ever seen its architected for privacy I don't think anybody's architected a hospitality experience for privacy. We believe privacy is going to be a big market privacy. It's the one thing everybody has given away on social media and its one thing the internet to take.
In a way because you can Google anything about everyone. So we believe privacy is going to be an important market and a market you can monetize and we're creating a.
The concept I think thats, unlike anything else in the world.
And we're doing things that have never been done in hospitality. Its a place we would all love to stay.
At a different price point now and if we get what we think we're going to get for the rooms.
It's.
We think it can really works, but we don't know we havent sold the room yet.
We have an open the restaurant yet.
We have the first.
Kind of restaurant like that that we put in our bespoke gallery in San Francisco, It's our new live fire restaurant concept that's that.
<unk> really exciting I think it is.
Got a really wide net I think it's delicious food.
We're doing it internally from scratch ourselves.
Ben and Theyre eating almost every night and fine tuning every detail.
And so we think.
Lot of levels, the guesthouse can be incredibly exciting concept for us.
And we will elevate the RH brand in the world of design and taste and style.
Place, making and stuff like that so I think it's going to have a huge impact on our brand and how we're perceived in the world.
And and if it works the way.
We are kind of modeling it now that we're closer to it and we can see it and we can think about how to price it.
Yeah, it could be a real business, but that's not we're planning for right now we're not sitting there.
Yes.
Kind of saying, yes, we're going to go build a billion dollar hospitality business.
Then again.
I only thought RH could be $1 billion not too long ago.
So it's.
Yes.
I mean this is it's in a lot of ways. It's the best work we've ever done.
Any kind of work we've ever done this the best work we've ever done so we'll see what the consumer thinks.
And they will kind of tell us.
How excited to get about it.
Got it thanks a lot.
Thank you.
Thank you.
Our last question comes from the line of Brad Thomas with Keybanc Capital. Your line is open.
Hey, good afternoon, thanks for taking the question.
Gary I was hoping to follow up on RH, England.
And see if there was any more color you can provide on how things are shaping up from a supply chain and logistics standpoint.
I went into a continent here.
And what should the customers over there expect initially that might be different in terms of anything like delivery time of relative price points versus what we see here in the United States.
Well.
Fernando just got back I'm looking at them across the table.
Updated as.
Things look good yeah, absolutely, yes, we're I think we're ready to go from a supply chain side on our end.
The part of the supply chain, we don't control, we will see how that evolves, but I think so far it looks like.
We'll have the inventory will be ready, we will be able to deliver.
No.
And and execute the construction like any construction today in the world of Covid is <unk>.
Taking longer and.
Costing a bit more.
But.
I kind of think about RH, England.
Kind of a living store.
Big Seventy-three for state and not everything has to open at once like we are going to have.
How many hospitality just trying to think about that it's like we got three restaurants opening on the property.
Altogether, I think theres five or six hospitality experience that we have we.
We have the.
The Iranian Shari restaurant, we've got the Conservatory, we've got the Lowe's yet we've got the yeah.
We've got the wind room, the tea room, we've got the juice here what else it's Ted.
Perhaps kind of attack yeah, we got weekend picnics on the lines that are going to be happening I mean, it's going to be a fine place like I don't think the Conservatory restaurant will make it for this summer I mean, we made.
But that might come next time, we will.
Next season, but I think this is going to be something that's going to be a really fun.
Our active experience I think if we do it well a lot of people are going to come.
It's going to be a great environment to see our product.
Beautiful beautiful state because incredible light it has incredible views we have the biggest heard white deer in all of Europe , we have a deer park.
<unk> raised on it.
Sit there have a picnic and look at the beer sitting around re look at the views are the conservatory or the low here they all have views.
Yeah, it's going to be spectacular.
We kind of call it the most unusual store in the world internally, that's not we're gonna say externally but.
And I think it's going to get us off to a great great start.
Yes, we're running a bit behind.
You always have all this is a grade one listed building just to put into perspective.
That's the Buckingham Palace is a grade one listed building when you have a grade one listed building.
I don't want to say anything, but all of a sudden I get anybody in English.
It's just not the easiest.
To get approvals to make any changes and so on and so forth and look with the people. We're working with an historic England as they have been tremendous and they've been excited about our projects.
Yeah, it's a slower process than COVID-19 slowed us down a bit so.
We're kind of rushing to kind of hit mid summer it may could be late summer, but that well.
Whenever we get opened it it'll be spectacular and.
That's really the key you don't get a second chance to make a first impression on something like this.
Okay.
It opened sites that we're gonna get June I don't know.
Probably a long shot to get June now, but.
It could be July it could be August whenever it opened.
I think everybody in our organization is going to be proud of it I think our shareholders are going to be proud of it and I think I think customers are going to be really excited about it.
It'll be our best work.
And we just did our new best work if any of you who are you know a few of.
You came to the opening of our San Francisco, which wasn't the opening of our San Francisco It was.
Once they once they announced in the Bay area in Northern California that masks, we didn't have to wear masks. We said, okay. We havent had a party in two years, we've opened a bunch of galleries know parts, we're having a party in our hometown. So we set the date, we mailed the invite and we had a party even though everything wasn't exactly done but those of you there.
Or were there you know it looks spectacular.
It is.
The most.
It's the most extraordinary galleries, we've ever built.
It's got it entirely in the restaurant.
Called the Palm Court this incredible.
<unk>.
New this new wine experienced areas new wine bars.
Incredible rooftop with views of downtown San Francisco.
But England.
It goes to another place right and then.
When everybody sees what's coming in Paris, It's just extraordinary in what we're doing in Mayfair in Central London incredible incredible we're stringing together four buildings.
Incredible experiencing in Paris.
Paris, we're gonna have champagne and caviar bar.
On the top floor and the roof with views of the Eiffel Tower I mean, you can't make that up right in Paris.
Our H Harris, who is going to have a champagne and caviar bar with views of the Eiffel tower.
And we used it I think I think.
Chicago three arts still has the record for the most engagement in it.
One of our restaurants, but Paris might.
Take that crown after.
After a few years.
And then when you see.
Close to I guess I can sit and say you know because we're in negotiations, but something even wildly more spectacular in the French countryside.
If we do this one I mean, it's just incredible brand enhancer.
So the stuff we have coming.
You just got to keep changing your perspective on.
What's possible and how to see our brand I think all of the people who came to our party.
Last week.
I think designers were blown away. They thought if you could get out on the west coast.
Even if it's not open yet I think we'll open kind of mid April .
Few more things we had to get done there.
But if youre, if youre anywhere near here and you want to see it let US know, we'll give you a tour because.
On the main floor, we've set up RH contemporary and it's shocking it's so good.
It's that.
That good when you see it.
I think people.
Going to motivate people change their house redo their house no matter, how long ago, they bought furniture.
Whole new thing, it's it's very very.
Cool and.
Beautiful and the quality is outstanding so.
So a lot of excitement coming.
Really pumped about England.
And if there is no COVID-19 and we can have a party do not miss that one.
Yes.
All really exciting stuff.
If I could squeeze in a follow up perhaps a bit more dry.
You all have had kind of different capital structures over the years and depending on it.
They're good or bad.
Just to circle back on that question of the term loan.
In this environment with inflation, where it is and the trends you've been seeing I guess, how you think about what the capital structure should look like right now.
I think we've consistently answered that that I'm not sure that we have a target cap structure, we think very opportunistically about our capital our capital deployment our cap structure. So.
That hasnt changed I think we've been quite consistent.
Probably for the last nine years about that.
We raised the capital for to provide.
Synalloy and give us give us some flexibility here going forward and it's exactly.
<unk> had a very attractive rate so.
You certainly did great. Thank you so much.
Thank you Brad.
Thank you.
We had another question to come in the queue is from Seth Basham with Wedbush. Your line is open.
Thanks, a lot and good afternoon not to belabor the point that's been brought up by some prior questions, but just in regards to thinking about the margin outlook for 2022, the more muted sales outlook and surprised to see operating margins expanding in your guidance I'm wondering if you are changing anything in your cost structure materially relative to when you lie.
Talk to us in December for example, Youre cutting back in from a source book distribution that you are planning or anything else along those lines.
Thank you.
Like I think it just looked at us since what 2017.
Yes.
Relatively.
Modest.
Revenue growth we've had pretty.
Pretty significant operating margin expansion so.
Hi.
I would hope you would get used to it.
Because we don't expect that.
Yeah anytime.
Anytime soon stop expanding margins unless we make.
And a short term big investments that maybe put weight on it but even with opening in Europe , even with a lot of preopening expense and investments in.
Opening Europe means we've got people over there now we're flying teams over there are people over there living they're staying there in hotels.
We'll have big teams go in there we've had big teams in San Francisco.
To get get that opened we've got big Preopening costs for the guesthouse, we're absorbing a lot of investments and it's clear to us how.
Important.
Kind of the connective tissue of hospitality.
And our business today and will be in.
And our vision for hospitality now I think is just magnified and what we can see and what we have confidence in doing like look not too many years ago.
We didn't know anything about restaurants and.
It was the end of 2015 really begin in 2016, we had our first restaurants.
We didn't even have a.
Our host because we thought no one who is going to show up.
There was part of it like Okay, who wants to go eat in the middle of a furniture store and.
So the original if you look at the Chicago video I think Brendan who we partnered with in the first few restaurants you said.
There's going to be no host this no doubt.
We opened the first day and all of sudden we had a line out the door and we add nobody feeding anybody with customers hovering over tables waiting for the next person leave but yeah. We went from just one.
Strong.
That wasn't really in our backyard and it's all the way in Chicago and it was with <unk>.
With somebody.
That was not inside our company right.
And now it's.
So six years later and we've got 13 restaurants that we totally control.
The entire hospitality team is.
Internal it's not farmed out at all.
We're developing it we've designed redesigned the restaurants, we designed the menu is where are protecting.
This platform looks like we've done the guesthouse from scratch nobody helped us with that.
Did all the architecture internally and all these things so.
Yeah.
Yeah, Mike, we're really going to be kind of a hospitality company too.
Sure.
Well some people might think well gosh, it's like another business not the way we're thinking about it like everything we do we think from an integrated perspective. So it's not like we're running the hospitality business. This is really an integrated hospitality business is amplifying the core business and amplifying the brand and its.
New way of talking to people, it's a new way to market a brand new way to connect.
And we just see so many more opportunities so you're going to see us do any things like the new life, our restaurant, you're going to see us.
Yeah, He is champagne and caviar.
Bar in New York.
It will be the first one you're going to see the first are each bathhouse, an spa and Aspen.
Yes, and you'll see other things. So I think this is this brand is going to evolve and become something that the world's never seen and in many ways. It's already become in many ways, depending where you are and what youre looking at it's already become something the world's never seen.
Especially from a financial outcome perspective, right now one set a model like this.
So we are going to you know, we're investing heavily in hospitality this year and.
Because we think there's such a big opportunity to enhance the brand. So we're absorbing a lot of costs this year.
We had almost no travel during COVID-19 .
We're back to traveling that's why you saw some day.
Deleverage in SG&A in Q4.
One of the things was travel we're traveling again were working again.
Came back to work a lot earlier than everybody else, we don't have a hole.
We don't we don't have a vote here or are we coming back to work or not.
No.
I mean, a lot of crazy things happening in the world that I think is going to be bad for productivity.
But it's not going to work I think is one of them.
Type debt.
Anyway.
You see in our model.
Right.
Were relatively conservative sales, we're expanding operating margins.
Even though we have a lot of investments and <unk>.
We're expanding internationally.
So it just tells you about our model.
What's the model going to continue to look like over the next.
2345 years or what is going to look like over the next decade, I really think it's going to look like.
Yes, the handful of very best luxury brands in the World. If we do it right I mean, but you've got to build it.
Desirability and scarcity in.
Prestige and exclusivity in a lot of things into really being a luxury brand.
To give people.
Really desire.
Brand, you've got to execute it that you're an incredible level.
And we're getting there we're getting better all the time.
We've got a ways to go and so that's where we're optimistic about we go look how would you like shoot look how we're doing.
This is they haven't seen anything yet.
We can see what's coming over the pipeline over the next 2345 years right and we know what's in that pipeline work some of that pipeline vendor construction or we are finalizing a lease or.
We are.
Doing the renderings and finishing the architectural designs on projects that.
I wish I could talk about them all right now, but you guys probably get scared.
So like if I pray scared you enough for one day [laughter], just trying to be honest about what we see.
Thank you so much.
We're not scared just to be clear we're excited we're just cautious.
Thank you.
I'm showing no further questions in the queue I would now like to turn the call back over to Gary for closing remarks.
Okay, well. Thank you everyone for your time.
We look forward to speaking with you next quarter end.
Do let us know if you're on the West West Coast and wanted to see are a San Francisco or come by and see the center of innovation.
Okay, you might you might be to pick up after this call. Thank you.
Take care, everyone and gentlemen.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
[music].