Q1 2022 RH Earnings Call
Good day, and thank you for standing by and welcome to the <unk> first quarter 2022 results conference call at this time.
Perfect.
After the speaker presentation do a question and answer session.
Quick question. During this session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I Wonder I like to hand, the conference over to your Speaker today Allison Malkin. Please go ahead.
Thank you and good afternoon, everyone. Thank you for joining us for our first quarter 2022 earnings 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.
<unk> today that are quite lucky within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our press release.
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 issued today for a more detailed description of the risk factors that may affect our results. Please also note.
These forward looking statements reflect our opinions only as of the date of this call and we.
No obligation to revise or publicly.
Any revision to these forward looking statements in light of new information or future events.
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 non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in todays financial results press release.
A live webcast of this call available on the Investor Relations section of our website at IR Dot Dot com.
That I will turn the call over to Dan.
Great. Thank you Alison and good afternoon, everyone. Thank you for joining us.
As we do we'll start with the shareholder letter.
Our people partners and shareholders. We are pleased to report another record another quarter of record results as revenue increased 11% to $957 million versus $861 million, a year ago and up 98% versus 2020, representing one of the highest two year growth rates in our industry.
Gross margin expanded 480 basis points in the first quarter, driven by 390 basis points increase in product margins and our resistance to promote the business if demand trends began to flow.
While there has been a widespread returned to discounting across our industry as evidenced by the variety of sale E mail filling our inboxes and there may be short term risks of market share loss by choosing not to promote we believe there is certain long term risk of brand erosion and model destruction. Once you begin down that path.
It's that discipline and long term thinking that has enabled us to set new standards for financial performance in the home furnishings industry.
In our results now reflect those of the leading luxury brands as first quarter adjusted operating margin reached $24 seven versus $22 six a year ago.
Our results are inclusive of investments related to the opening of our San Francisco.
And the RH guesthouse the development of our <unk> International and the rollout of our atria in your home, which led to approximately 200 of the 270 basis points of SG&A deleverage in the quarter.
We are now forecasting SG&A as a percentage of revenue to peak in the second quarter second and third quarters as we return to mailing source books after a two year hiatus.
By the fourth quarter, we expect SG&A as a percentage of revenue to be in line with last year.
We generated $107 million of free cash flow in Q1, ending the quarter with net debt of $166 million.
224 billion of cash on our balance sheet.
Trailing 12 month, adjusted EBITDA of $1 3 billion.
We spent $481 million in cash to repurchase $180 million of our outstanding convertible notes.
All of the $3 4 million outstanding warrants and unwind the remaining bond hedges.
Following these transactions, we have $101 million of convertible notes outstanding.
Fiscal 2022 outlet.
Despite our record financial performance in the first quarter, we've experienced softening demand trends, which began at the time of the Russian invasion of Ukraine, and a further slow during market disruption over the past several months.
Based on our current trends and the uncertain macro environment, we are providing the following revised outlook for the second quarter and fiscal 2022.
Second quarter net revenue in the range of minus one to minus three.
This is up 39% last year.
With adjusted operating margin in the range of 23% to 23, 5% versus 26, 6% a year ago.
Fiscal 2022 net revenue growth in the range of zero to 2%.
Versus the up 32% last year with adjusted operating margin in the range of 23% to 24% versus 25, 6% a year ago.
Well, we what we expect the next several quarters to pose a short term challenge as we cycle the extraordinary growth from the Covid driven spending shifts.
Had less valuable market share as we continue to raise our quality.
And navigate through that multiple macro headwinds, we believe our long term investments will enable us to continue driving industry leading performance.
2022, a year than you.
As we've mentioned while many of our plans were delayed by the virus they were not disrupted by it.
We believe 2020 to Mark the beginning of the next chapter of growth and innovation for the RH brand 2020 to the euro or the new include EMEA opening of our San Francisco.
Calorie at the historic Bethlehem Steel building, our most extraordinary new could spoke gallery to date.
The launch of RH contemporary the most compelling and potentially disruptive product introduction in our history.
The elevation of RH interiors, and RH modern inclusive of new collection and an enhanced quality.
Producing this fall.
The unveiling of our first RH guesthouse in New York a revolutionary.
Revolutionary New hospitality concept for travelers seeking privacy and luxury and the 200 billion North American hotel market the.
The introduction of an elevated new life by a restaurant at our San Francisco with plans to open an RH, England and the New York Guesthouse.
Debut of a champagne and caviar concept opening in the New York Guesthouse with plans to expand our future galleries in Paris, London and Milan in Aspen.
The premier of the World of our age which launched today, if you haven't been online yet on our website.
So an incredible visual experience that takes you into the products places in spaces of our brand.
The lift off of our each one in our HQ, our customized G 650, and <unk> hundred 50 that will be available for charter later this year.
Chris <unk> of our <unk> III, our luxury yacht that will be available for charter in the Mediterranean Caribbean, where the wealthy and affluent visiting vacation.
The rollout of our aging your home are unique and memorable experience with brand ambassadors guiding every detail of the delivery and because of that.
The selling experience into the home.
The expansion of the RH brand globally.
Beginning with the opening of our each England. The gallery at the that the historic Idaho Park, a magical 17th century 73 acre estate in English country side that will introduce <unk> to the U K and a dramatic and unforgettable fashion.
The opening of our H Palo Alto the gallery at Stanford Shopping center, which will represent the next evolution of our highly productive prototype galleries.
CRH business vision and ecosystem the long view.
We believe there are those with taste and no scale and those with scale and the pace and the idea of scaling pace is large and far reaching our.
Our goal is to position <unk> as the arbiter of case for the hub 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 scaling and rendering their work more valuable across our integrated platform.
Labeling RH deteriorate, the most compelling collection of luxury home products on the planet.
Our efforts to elevate and expand our collection will continue with the introduction of RH contemporary art mature, alright, bespoke RH color or AT&T and artifacts or <unk> and other new collection is scheduled to launch over the next decade.
Our plan to open immersive design galleries in every major market, we will unlock the value of our vast assortment generating revenues of $5 6 billion and in North America, and 20% to 25 billion globally.
Our strategy is to move the brand beyond curating, the selling product to conceptualizing and selling spaces by building an ecosystem of products places services and spaces that establishes the RH brand as a global thought leader taste in place maker.
Our products are elevated and render more valuable by our architectural inspiring galleries, which are further elevated and rendered more valuable by our interior design services and seamlessly integrated hospitality experience.
Our hospitality efforts will continue to elevate the RH brand as we extend beyond the four walls of our galleries.
Desktop for our goal is to create a new market for travelers seeking privacy and luxury and the $200 billion North American Hotel industries.
Additionally, we are creating bespoke experiences like our <unk> and integration of food wine art and design in the Napa Valley are each one in our HDD, where private jets and our <unk> III or luxury yacht that is available for charter the Caribbean Mediterranean, where the wealthy and affluent visiting vacation.
These immersive experiences expose new and existing customers, who are both 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 by adding new revenue streams, while disrupting and redefining multiple industries.
Our strategy comes full circle as we begin to conceptualize themselves spaces, moving beyond the $170 billion of home furnishings market into the $1 seven trillion North American housing market with the launch of our each residences fully furnished luxury homes condominiums and apartments with integrated services that deliver taste in time.
Q2, just earnings and starved consumers.
The entirety of our strategy will come to life digitally as we launched the world of RH, an online portal, where customers can explore and be inspired by the depth and dimension of our brand.
Our authority as an arbiter tasteful will be further amplified when we introduce our H media a content platform that will celebrate the most innovative and influential leaders, we're shaping the world of architecture and design.
Our plan to expand the Arctic our ecosystem globally multiplies, the market opportunity to 7% to 10 Trillium.
One of the largest and most valuable addressed by any brand in the world today.
A 1% share of the global market represents the $70 billion to $100 billion opportunity.
Our ecosystem of products places services and spaces inspires customers to dream design Dine travel and live in a world thoughtfully curated by RH, creating an emotional connection unlike any other brand in the world.
This can be elusive and we believe no one is better positioned than our H to create an ecosystem that makes case inclusive and by doing so elevating and rendering our way of life more valuable.
Finally in the luxury mountain and building a brand with no peer every luxury brand from Chanel to cardiac Aston Martin to Aman Lewis I believe the time to learn very one standard to AMR.
<unk> was born at the top of the luxury mountain.
Never before has a brand attempted to make the climb to the top.
Nor do the other brands why aren't you too.
We are not from their neighborhood nor invited to their parties.
We do 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 time is not for definitive heart.
And as we continue our ascent, Dr Gibson and the odds become slim.
20 years ago, we began this journey with the vision of transforming a nearly bankrupt business with a $20 million market cap and a box to box at all laundry detergent on the cover of the catalog into the leading luxury home brand in the world the lessons and learnings the passion and persistence.
<unk> required in the scar tissue developed by getting knocked down 10 times and giving up 11 leads to the development of the mental and moral strength that builds character in individuals and forms cultures and organizations.
Since that can't be learned in a classroom or by managing the business. They must be earned by building one or by reaching the top of the mountain onward Pemrich Carpathia.
So at this point operator, we'll open the call to questions.
Thank you.
A reminder to ask a question you will need to press star one on your telephone.
Toward draw your question press the pound key please limit yourself to one question and one follow up in the interest of time. Please.
<unk> will become part of the Q&A roster.
Our first one comes from the line of Simon Gutman from Morgan Stanley You may begin.
Hi, everyone its Simeon gutman.
Gary My first question is on.
Promotional environment and the discipline that you spoke to can.
Can you give us I guess I'm a newbie to this can you give me maybe a sense too.
Tolerance, you'll take in terms of market share loss is it steadfast.
You adapt to the market if you have to if it continued along a more promotional path that was my first question.
I think.
I understand how you define a few packages.
So I.
I think we are really well positioned with the best operating model in our industry by far.
But really strong balance sheet.
And lots of optionality to create and capitalize on opportunities and kind of any environment. So.
I think the last thing you want to do when you're when you're trying to build a brand like ours.
Trying to scale as we say the luxury mountain is you have to remain disciplined.
Brand perception desirability.
And you just can't fall into discounting.
Now if for some.
Cataclysmic reason the world was ending and we made it needed to stay liquid.
We make decisions to move inventory and turned into cash. Unfortunately, we're not going to let somebody go bankrupt.
Yes.
The path we're on the reservoir on as is.
Is a long road right it is a.
Very long journey, it's not a short journey, it's not a.
Year to year quarter to quarter journey.
A decade decade journey and trying to build a brand with no clear and trying to build something thats truly sustainable in this world.
<unk>.
And there's not a lot of brands that have done that.
It's way less than 1% of the retail businesses that ever get introduced.
Yes, Joe around sometimes when I say, a retail mall is like a graveyard for short lived ideas because most retail brands don't live the life of their lease and if you went back 10 years and walk the mall you'd be surprised how much is that they are generally 65% to 70% of our retail shopping center turns over and then Theres a hand.
For our businesses that continue on.
And that's what we're trying to build here so yes.
We're prepared to make the decisions for the long run.
Served us well, thus far and I believe it will serve us well in the future.
Thanks for that and the follow up.
The buyback question, you've been pretty exact or exacting in terms of your timing and the SaaS.
Is there anything you can share on how we should think about using the cash to your advantage.
Yes.
Raised the capital to have Optionality.
And there is there is a lot of different choices, we can make.
During uncertain times, and there's going to be a lot of.
A lot of opportunities to see things in a new light.
They will look much more valuable than they may have looked in the past.
So whether that means our.
Returning capital to our shareholders through.
Share repurchases to create value whether it means there's opportune times to do real estate deals and B and capitalize on what is certain to be I think difficult real real estate market over the next year or two.
Or acquisitions or other forms of accretive decisions that we can make that will create long term value for our shareholders.
So.
As Warren Buffett says.
Others agree DP fearful and others.
Our fearful be greedy.
So we're trying to prepare ourselves to have the optionality to make.
Decisions that will put the company.
In a place to to benefit long term so.
Thank you and our next question comes from the line of Steven Forbes from Guggenheim. Your line is open.
Good afternoon, Gary Jack.
Yeah, Gary I was curious if you could just.
Some color around the assumed contributions of RH contemporary and Orange, England during the remainder of the year.
And any thoughts or updated thoughts on the potential year, one sales of our Orange, England as we approach the opening.
Sure that's a good question.
The way, we think about contemporary.
While it is clearly the best work, we've ever done and I think the most.
Dramatic evolution of our brand.
Towards where we want to go.
Whether you're looking at.
All made in Italy sofas and.
The highest quality fabrics in the world with the introduction of pollen and Sherry.
The travertine collection.
You've seen this.
These are all bespoke collections bespoke furniture.
The designers in our company that have had an early look in the ones that especially you got to travel to our San Francisco itself helps set up the gallery.
They've never been more excited.
And they believe are consumers kind of just love this.
We're going to also open up an entirely new market and Thats really the feedback we've gotten to from other really high end interior designers people, we've had through our San Francisco and given a tour and shown them even the broader collection.
So we couldnt be more excited about contemporary but remember our business is.
To optimize our business, it's really dependent on.
The goods being seen at retail there's only so much business you can you can do in an online business.
It's interesting over the last I don't know what is it.
<unk> been eight or 10 years, where everybody thought we were crazy ones because.
We are opening retail stores.
People had been shrinking.
Shrinking stores closing stores and we've been building the biggest specialty stores, probably the history of our industry for sure at the history of the World.
And if all industries and retail.
And that has proven very beneficial and very accretive to our to our business growth and to our operating model.
As people are finding out.
It's probably the lowest cost of customer acquisition.
Any form you can take and that's why we see a record opening retail stores.
Any temporary into retail will be critical to understand the potential of contemporary we'll get early reads. We obviously have all the math and we can extrapolate out something does.
Dented online and in our source books.
And translating that into what it will be worth and so we actually like launching goods.
In our source book and online because we then do a much better job of projecting inventory and placing bets.
But this is one we'll move pretty quickly we've already got inventory.
Kind of an order.
And of course.
Thats been difficult over the last several months, but we've got an inventory on order too.
Get the goods into right now they are in our San Francisco, but to get the goods into New York into Chicago.
West Palm some of our biggest most.
Most important our galleries and markets.
Because a lot of times, our customers will travel regionally right Bill.
Be working with the designer and.
Greenwich, Connecticut, New Jersey or somewhere.
Places, where he might have a legacy store and planned day trips and take consumers to see the goods in person so getting the goods out there regionally and see where getting the goods into all the galleries I think it is going to be transformational so.
You have to kind of stand back and say, what's the bigger picture.
Actually as it relates to whereas our demand versus others, how are we performing and so on and so forth.
What does the external markets look like you have to remember that we made some.
Critical choices at the beginning of Covid.
And we believe Covid was going to be temporal I had people tell me the decade of home, it's going to be it's going to be always like this.
Yeah.
I've been in this industry, a long time, nothing always liked to anything.
Everything is always changing.
<unk>.
And our view is the Covid lifts was going to probably last a year and it got extended by another year.
Because of all the variants.
In and out of office is store growth, meaning closing restaurants.
We're closed and then they were 25% and 50% occupancy.
We've had a very chaotic couple of years and what we did was very different I think than many other people, we decided not to try to optimize.
The period of Covid, we decided not to chase revenues.
Chase demand during that period, we said look there is already more demand than we could.
Then we could fulfill.
Why don't we use this time.
And much more strategic way.
And focus on moving some really big rocks that will set up the next decade of growth at RH and Thats. What we did we focused all our energy on kind of taking contemporary to another level, we actually didn't mail a source book over the last two years and had no newness over the <unk>.
For the year, so I think about that.
Basically no marketing and no newness.
Yet we outperformed everybody in our sector.
Right, we had 42% two year growth over Covid.
Besides way fair that it's not exactly a similar business model right wafer with selling all kinds of things that were related to the pandemic.
All kinds of categories.
Lately benefited no different than Etsy are people you know if you're selling masks are selling well.
A lot of things that people needed during a pandemic you're going to probably outperform.
But if you look at the home furnishings retailers any any of those brands we outperformed anybody.
With no newness.
And notebooks.
So what did that.
Mi it meant we probably less demand on the table because if we would've had newness during that period, we would have had from what incremental demand incremental revenue, but we might have built up a bigger backlog.
Assume that.
But what we what we did instead.
As we took contemporary to a place.
We couldn't even imagine.
We re architected.
The way, we did product internally, we re architected.
Parts of our center of innovation to work and collaborate in a new way to integrate the product in a new way and I think we created.
I would say yes.
RH contemporary it's like all of them.
The new company within the company. If you look at the assortment. If you go online and you page through the source book.
Can you tell me, Okay think of all the home brands that might've launch.
In the last five or 10 years. All these you know there's all kinds of once that started online they have a catalog they might have a couple of stores and you take a look at that assortment and you compare it with contemporary which by the way it's only 70%.
Of the collection because the vendors just we didn't want to put things in the book and online that weren't going to be shipped for six months because as the supply chain is still somewhat backed up.
But we believe contemporary it's like almost a new company within the company, we think it's going to be bigger than modern modern today is roughly a $1 billion business alright.
Alright.
You think about that we introduced modern and two at the end of 2015.
And if you really attribute all the correct sales of modern right. When you take parts of art textiles assortment, our rug assortment and things like that not just the furniture and the lighting and Steve.
Even some of the lighting.
Modern really moved the business massively.
It kind of change the game for our H and opened up the aperture of the aperture of the market for us.
Consumer sauce entirely different I think contemporary will have a bigger impact on this company that monitor and I think you know and.
And.
Yes, that's it from a design point of view, but from a quality point of view.
<unk> taken digs on us over the years.
They believe product made in China is not as good as <unk>.
<unk> made in America, which is not true by the way.
The iphones made in China.
Piece of technology in the World a lot of great things are made in China, they're very industrious and.
Hard working people and you know, but you can make a lot of cheap <expletive>. There if you want to excuse my language, but that's not we do.
And yes, where people will think that says it is made in Vietnam or some of the best furniture manufacturers and artists in the world out of the UK and Europe went to Vietnam years ago to make Super High end furniture is their chief furniture made in Vietnam I'm sure. There is theres also keep furniture made in the United States by the way.
And there is cheap things made everywhere.
The key is to know where to go and where to make high quality things, but but.
When all of a sudden you take a category like we have with upholstery and say hey, we're going to make it all in Italy.
The Italians.
Have a sense of design in detail that is probably better than anyone in the world.
The homeland.
Da Vinci.
Michelangelo and so many people that have done some of the most extraordinary architectural work artwork in the world design in the world So on and so forth. So.
I think that communicate something entirely new when you I think it's I don't know.
Fourth swipe for the source book and it says made in Italy, and you've got two two families two companies Italian families generation.
Making the highest quality products sitting on our satisfaction with an article about about them.
Thank you communicate something new when.
When you when you swipe, a little farther and you get to.
The spreads.
Yep.
The article.
All in it's sharing and it says the novo fiber established breath when.
When you see you would see that fabric on.
On a suite form <unk> being made where the highest quality suits are in the world. This is arguably the best fabric house in the world.
It is Steve.
Favor favorite fabric house and fabric and the highest stand of interior design.
The very best designers I think a lot of a lot of people.
Is there going to go wide open when they swipe through either online or.
Our in our source book and see that we're carrying in Holland and Sherry fabrics.
Different than what it was 10 years ago now when we started carrying perennials right and they change their what's interesting what happened to perennial.
People thought we were going to scale the business to the trade it actually group.
Can we became.
A massive part of that business I think the same thing is going to happen in pilot sure.
But.
That's a whole new standard now.
How does that rollout into.
Yes into demand.
They'll only be so much demand, we can do online and in our source books.
Although I would tell you I've never seen our designers and our teams in our galleries such huge advocates if anything done so we've got an incredible incredible.
We don't we don't have a marketing department of the company, we have a truth group, but so we've got an incredible.
Route the truth advocates that are going to talk about our work right and what we're doing.
And so I think we'll get a pretty good response, but the goods also have to kind of keep tripling theres still.
Take a month or two for all of which should be in stock, but our business generally ramps over the course of a few months and months III.
You start to really understand the trends.
Yes, because consumers are working on projects not just buying products.
And then by fall area. When do we think we'll be in a position to start to roll. It out in September we should think about yes, its probably September .
We're not only going to rollout and temporary to the company and it will probably become I'd say the first third of every galleries, so whether it's the legacy galleries.
6000 square feet, the first 2000 square feet or more will be temporary.
If it's.
Our new design galleries, the entire first floor I'd say, we'll flip the contestant.
We are in.
In this product line.
And by Q3, you're really going to understand the demand. The other thing we're gonna do you remember.
Is that <unk> 10, 11, when we remodel the stores we've done it several times, but you remember winter all our galleries went to great right. We've got all the pictures on the wall.
Yeah, we got rid of the Silversea agent White paint, we stay in the Florida, and we made everything with new again, well youre going to see us evolve in a very dramatic way.
Even our legacy galleries, I mean, it's going to look like an entirely new company in Q3 and even.
Some of our newest galleries are going to transform pretty dramatically.
Dramatically, even New York right now with where one has been repainted and no problem yeah.
That's about it.
So by end of June you'll see contemporary on the first floor of New York.
Yes, I think you've already answered the first one in New York.
Yes, we can kind of little strategy inside the company to kind of get into breakout, but not entirely disagree but.
You don't see a lot of brand contemporary Greg.
This is this is kind of like to me.
2009, 2010, 2011, when we really transformed the entire company and the entire business.
It is it is like one of those.
Massively transformational times.
So you're just going to see the brand.
Not evolve, but it'll be it'll be kind of a.
You know a huge evolution revolution.
By the second half of the year.
And so I'd say Q3.
Three you'll really understand the demand Q4 contemporary will start to impact our revenues because as we ramp and when we're shipping you know it'll be smaller truck that'll start to impact Q4, and by next year contemporary will be a force in our industry not just in our age in our industry a transformational force.
And then turning to RH, England.
And it won't be as long with with English, but it is.
Yes.
You can tell it might be a little excited about contemporary but [laughter] RH, England.
Is it I think about it is way more than a galleries right, it's really opening a country and in many ways the continent.
And you know.
I think the way we're opening.
And it's truly inspiring magical way I mean, no one ever opened a retail store in it.
17th century, 73, eight for the state and the English countryside.
And while some people will say well gosh I didn't know what'll work I I don't know we have a pretty good history with these things that have never been done before so you know.
And yeah, if anybody's on the West Coast go see our San Francisco, because nobody thought we should have done that one either.
You know in a part of San Francisco, nobody ever ventured into and we've I.
I think we did.
Again, the transformation of the entire waterfront and we signed that lease before chase.
Chase Stadium was ever anybody knew who is going to be built and we just knew that we thought we could redefine that part of San Francisco do something extraordinary and that people would come and and I would say are in San Francisco today is the most extraordinary gallery, we have in the company.
Most inspiring women and an.
An incredible new hospitality concept, our new life by a restaurant.
We love it I mean like.
And so far I think the reviews on it or when will you have $4 five to $4 eight on yelp and other things.
It's a whole new level for the brand from a hospitality point of view.
New wine bars, so on and so forth.
But England is is like nothing the world's ever seen and it's a multi dimensional experience we have three full hospitality concepts.
Two minor hospitality experiences on the property.
Of the three major ones.
Two will open when we opened the third restaurant it takes a little longer when youre dealing with this building because it's built from $16 15.
And so it's an important building it seemed a grade one.
Heritage building.
England and just to put into perspective, our Buckingham Palace is a grade one listed building.
When you try to do anything in a grade one listed building you almost need the queen to sign off on it.
Jeff.
So it's been going a little slower than normal and also because there is COVID-19.
Nobody was working or everybody wanted to do things on zoom and by the way the companies that want to run their business on zoom into future. Good luck with that I. Thank God Elon musk scent that no doubt.
Yeah, you're just going to fold it in.
Anybody who thinks the world worked better over the last two years.
You know those are people that just don't want to work you know those are the kind of people that you are paying to breathe in your company.
Yeah. So you know.
No.
We're excited that the world's going to get back she is going to help us get things done.
So, but our each England when we opened it I think it's going to create a huge conversation.
What will the.
You know the demand be like right away.
I don't know.
We were excited about it intense things we tend to get excited about other people get excited about.
No a lot of people in England, and in London or talking about it.
We think now we just got the approvals for the last things we wanted to do.
We think we'll.
Got it.
Wrapped up now.
Late August and then we need about two to three weeks to kind of about three weeks to kind of set a gallery like that maybe a little longer because of the two hospitality concepts, but yeah, we will have.
Full restaurant at the garage or you will open the lows you will open which is a more casual we have a third restaurant that we opened up.
And the next frame probably get opening in the winter, but probably not a good time to open out there, but it'll be like unlike anything else in the world and I think you'll.
We will get a lot of excitement.
We'll get some demand but.
You know hard to promise anything at this point.
But yeah.
It could be a wide range. So it's hard to say what will year, one sales of RH, England B.
I wish we could we were better at guessing that things like that.
Just a hard one for us.
So we'll.
We'll see how it goes.
Yes.
We like to say inside our company every plan we have is some degree of wrong.
Question is are we strategically right are we directionally right and if were Directionally right strategically right, we kind of get going and we moved pretty quickly and then we get feedback we get real feedback in real data and then we kind of improvise adapt overcome judged and try to make things extraordinary.
Yeah, but we're excited.
Cited about it.
I think it's going to be the full story that's ever opened in the world.
And that's hard to say after you just opened already to San Francisco.
Thank you Gary.
Yes.
Thank you.
Our next question comes from the line of Stephens a cone from Citi. Your line is open.
Great. Thanks for taking my question and I appreciate the shout out for the Italian lineage on the call. So I wanted to ask about the guidance change for the year. So could you just comment a bit more on maybe the softening of demand <unk> seen as of late you gave such great color. The last time you reported so what are you really seeing in the business to guide Q2.
<unk> revenue would be flattish and then take the second half of the year down I guess I'm curious how much of it is a reduction in demand versus maybe a delay in some of these new initiatives.
Yeah.
How much more color I have I mean.
<unk> slowed at the beginning of the word softened further.
As the next couple of months.
Most of the narrative I think is out there.
I think we've.
Yeah.
Guiding it as we see it today.
<unk>.
How do we get.
How does this all unfold I don't think anybody really knows right now.
First time anybody has seen inflation like this in.
42 years right. So.
I don't know if.
How many people.
How many people on this call we're adults 42 years ago.
Not a lot right.
Not.
Not adults had had a lot of wisdom.
At least but I like to say you know so the people that really had wisdom 42 years ago.
Our 80, 90 or 100 years old. So there's just not a lot of those people still highly active.
In decision, making rules I guess like we have a president.
He he might've been old enough to kind of know what's going on but it doesn't seem like they know what to do.
Janet Yellen finally did come out and say I was wrong I mean.
I mean everybody's giving are all of those credits.
Copa like what took so long.
Our clear did it have to be to kind of admit you were wrong right.
How long ago did inflation goes from two.
2% to 4%, 4% to seven 4% and then eight 5%.
And if you have to ask yourself like where is inflation really today.
I've had a chance to interact.
At dinner down in Woodside with some.
Really interesting small group of people from.
Mostly in North America, but also someone who runs one of the biggest companies in the world out of China and.
And as you know one of the biggest venture capitalists.
But crypto currency experts.
Fourth.
And.
We all get to asked several questions at the end of the night before wrapping up I asked okay, no one's getting out here without saying, what's going on right now.
What do you think is happening what's going on with the economy and I My sense is and it was the same way.
Lucky enough to attend the winter conference that Jeffrey Katzenberg put on.
Not too long ago that had 150 people from around the world that are.
A lot of people.
Don't know exactly where we're at.
Think that.
You know if you if you look at what's happening as you say we've got.
We've got really high inflation is it going to come down.
Is it done.
If you ask me to tell you what the consensus of the people I talked to.
Leaders and people, who run big portfolios of businesses and so on and so forth whether the venture capitals are not they say inflations running much higher than the stated numbers.
And we would concur with that.
We know that.
The fed has to raise interest rates, we know when interest rates rise.
It usually leads to a recession it surely is not good for the housing market.
Anybody thinks that rising interest rates.
He is a good thing for the housing market hasn't.
It hasnt been alive long enough.
And so.
You know you've got rising interest rates you have the government.
Now starting to they've been doing quantitative easing that we're gonna tightened.
That's not good.
For the for the debt markets, but you know the cost of money, it's just going to go way up everywhere right. So.
And there's a lot of.
Things about did we have.
Multiple contractions and.
Somewhat of an earnings recession based off the highs.
Where does it go from here, so that none of us know none of us have a crystal ball.
We can just look at the best data that that we can.
When we get our hands on and try to make the.
You know the best predictions and forecasts that we can.
But it's a time to remain high at least I believe highly flexible.
And it's like we'd like to stay inside the company that pray for peace of a plan for war and you know how do you how do you prepare yourself for almost anything.
And everything that could happen in a market like this and you know part of our strategy was to.
Raise capital.
Be prepared to have our balance sheet prepared.
Hi.
We wanted to be able to protect the business model, we want to be able to capitalize in an environment that might get volatile.
Look if all of a sudden for some reason miraculously they figure out how to fix inflation without rising raising interest rates to high end.
There is some magic bullets in the economy.
Change things.
So we paid a little bit of interest expense all of that.
The term loan that we have is repayable.
We don't spend the money.
Yeah David.
Then any money we've got the money, we're paying for Optionality right now.
So.
We think our guidance is our best view of the future today.
But it's a very uncertain future today.
Very uncertain future and I'd say definitely uncertain for anybody in the at home business because we're on the other side of Covid, we're up against big numbers like everybody else.
You've got yes.
Yes.
Rising interest rates, you know you've got you're coming off a super Hot.
No.
I had a couple of years and in home prices and home sales and even though there's low inventory it doesn't matter if theres low inventory if you have low demand.
So a lot of people moved over the last few years.
I don't think that theres going to be anywhere near the amount of movement in America than there was when we went through a historic amount of movement, especially the migration from cities to suburbs, which.
Which was very good for our business in our industry right yet people, maybe moving from a 500 square foot apartment to a 3000 square foot home for thousands of work at home.
Needs a lot more furniture.
Are they moving back I mean, they might be or the.
And a final new furniture again, I don't know I mean, but I don't think a lot of people are necessarily moving back I don't think there's a whole lot of people movie I know theres been people who have site.
Cited report that we're on Google and stuff, that's a lending tree reporting that was from January 11th by the way not very fresh data.
I want to put your you know your competition in.
And reports from January 11th that are posted on Google by lending tree.
Good luck.
I don't think theres going to be a lot of movement and I don't think there's going to be as much activity. So what do you have to do in a market like that.
Have to be really fresh and new and that's what we are I mean, we are going to be the most exciting thing and maybe the most uncertain market that we've seen in tenor.
10, or 15 years so.
I like how we're positioned no matter what happens.
You know I hate to say I'm indifferent, but at a big picture level ones indifferent, our long term strategy is unbelievable.
What we're going to do.
But the next several years.
If the world has never seen before and we're doing it with the best model in our industry by roughly 50%.
So.
For people that have a long term view there is not a better place to park your money.
For people that are generally around the short term like I don't know.
Got it don't invest in our sector, there's a lot.
Yeah.
Again, it's going to be very uncertain.
Or at least throughout this year and at least until the government figures out what to do with inflation and how high do interest rates have to go.
Yeah, if you look back in the Seventy's and Eighty's.
I I remember my team a crack up I'm going to say this is actually I remember buying a water bed.
When I was in.
In college and pain.
125 dollar water bed and obtained 26% interest.
Credit cards had like 48, or 32% interest I think by the time they pay it off that water bed. It was like a $1000 right three years later.
So our interest rates you know.
The federal funds rate is going to go back to 20% I don't think so.
Is it going to do.
Hey, under four five I don't think so.
So I think we've got a long ways to go and raise in interest rates to fight inflation.
<unk>.
I think you just have to be prepared for anything right now.
Great. Thanks for all the detail.
Yeah.
Thank you. Our next question will come from Chuck Grom from Gordon Haskett. Your line is open.
Hey, thanks.
Thanks, very much one for Jack on the guide.
Gave us something of an important building block sales comes from Australia covered by quarter, which is helpful.
But it doesn't it doesn't seem like you're anticipating much gross margin degradation on throughout the year. Obviously once he was great I'm curious what gives you that comfort level given the recent change in demand and current inventory levels.
Yeah everything I just said you know if we have incredible new project product coming in that I think.
Transform our yeah our market.
You know I think we're gonna be the most exciting game in town.
And you know.
I think that is.
It's a really good time to have a membership model like we have right now.
Yeah. So.
Yeah, we have a model that allows people to you know.
Really great value get a discount if.
If they become a member of our age and.
Alright, I think thats, a competitive advantage right now.
And so if there is.
But first you got to Jack if you want to check.
So if you're asking again, we've addressed the promotional point that truly is.
A risk factor for anyone that gets into the promotional game.
So I think Gary has addressed that fully and then it's a question of what else what else could be happening for margin.
Whether it's shipping expense or occupancy cost ranges other pieces.
Could there be just on the guide could there be some modest occupancy.
Deleverage, maybe but you just have what the moves we've made this with product margin.
And we have visibility into those persisting and wrapping bill so.
And I think that's just a function of the model we built.
Okay, Great just wanted to clarify and then just looking back on the first quarter you exceeded your plan by a pretty wide margin up 11. The plan I think it was seven or eight I'm curious how much of that was fulfilling backlog from them versus current demand trends throughout the quarter and how do we think about backlog.
<unk> currently and over the next couple of quarters. Thanks.
Yeah.
Yes, I think theres certainly some of the backlog release that occurred in Q1 backlog to beat that helped us.
When you think about that $200 million of backlog.
Again is it 2030 got.
Got addressed in Q1, and we still have.
A big amount of that left but certainly I think part of the beat as Gary just mentioned the biggest part of the beat is related to the backlog.
But still more to come on that.
Yeah, but it wasn't demand.
And an increase in demand that helped us.
Yes, it was things shift.
Faster.
Thank you and our next question comes from the line of Curtis Nagle from Bank of America. Your line is open.
Alright, great. Thanks, Thanks, very much for taking the question.
So.
I guess as much as you kind of parse out just thinking about the pull back you've seen or we don't need to get the numbers or anything like that but just kind of curious I guess, how how broad based it's been across your customer base.
I've got my graphics by income levels, you know anything in terms of regional differences and I was just kind of curious.
Parsed out or or just how broad based in terms of the.
Changes in demand <unk> seen.
Well, yes, I mean, theres some theres some small regional differences you know you've got to always are by early start and so.
But Curtis this is not a business where you know.
We have the winter coats.
And whether it's awesome.
Regional differences that are always occurring and it's not it's not somehow.
There might be differences, but it doesn't need you mentioned.
Manager media businesses.
People in Texas.
Places like that are going to be really happy right now the price of oil is pretty good.
You're going to have some you know some tailwind there.
We're helping some businesses.
Florida, obviously, because all the migration in Texas.
We still have a lot of people settling in and I think that.
<unk> will be better and they are affected by oil well it really effects.
South America, South America effects.
Our Florida business massively and also positively affect.
Our business in Texas.
Canada will be will be benefited from higher oil prices.
So there's always going to be some some movement.
Demographically.
I think well.
Well the high ends like people there.
People reach out to us say, Oh, well luxury is doing really well.
No.
Arent you luxury like.
Don't confuse the apparel industry with the home industry I mean, they're completely different they're completely different I mean, how many people bought new clothes over the last few years, when you werent going anywhere.
Anybody.
By anybody go to a wedding the last couple of years.
Anybody go to any event the last couple of years.
Dinner parties.
Now like we you know we had a pass on many store opening events. We finally opened at an event in San Francisco.
Yes.
<unk> sales should risks.
Stores were closed no everybody staying at home I mean people were buying Lulu lemon and stuff like that that was like the national wardrobe.
High end.
But now of course, you know the law.
<unk> brands are going to do well I mean, yeah, they might have issues and shutdowns in China and things like that but.
Travel is going to rip.
Luxury hotels, they're going to do really well luxury apparel is going to do really well.
Okay.
Luxury home home, it's a completely different industry.
So.
Yeah Yeah.
Yeah, you have to kind of look at it.
Very specific way to understand it but I'm surprised at how many people think well gosh, you know are amazing Louis Vuitton.
<unk> had really good numbers right now why are your socks.
You know I I direct you know, sometimes like you know.
I just wanted to hang up the phone and such a bad question.
So you know I.
I mean, you know things are what they are like.
This is <unk>.
Yes.
The data.
It's in the market is.
He is really clear.
It's not really good.
For our industry right now.
Yeah, Yeah I do.
Maybe it's our demand is going to look softer than others over a period of time, Yeah again, we introduced known these products for two years.
In the first quarter.
That became a three years of no new product.
Until now contemporary launch.
So.
Yeah, maybe we're you know, we're giving up some share because we've had no newness I know, we're giving up some share because we're not promoting.
And.
It's.
So having the people that are saying Oh, you know, we're not going back to site wide promotions I don't know okay.
Got it but you're still sent me 34 sale emails plasma.
You know sometimes multiple today.
So the.
It's like I think you can see who's going to promote who's not from a based on the gross margin line.
Yeah.
I have never seen a long term strategy that works very well where are you you are trying to promote your business and then you know you might be able to cover the incremental cost with the extra volume.
You can't do that forever, it usually becomes a downward spiral.
Nobody's.
Loaded themselves to greatness, except for discounters.
If you're trying to build great long term brands.
Decisions you know a great long term high end brands, but let alone a luxury brand again, we're on a path no one's ever tried to take.
So we just tried to climb this mountain before some of our strategies are going to be all different than everybody else, we're going to make decisions that are different than everybody else I don't really care. If we are softer than everybody else in Q1.
Part of Q2 I got it it had three new three years of no new no newness newness per year generally.
Like five points to our business may be more.
So you can argue well in the first quarter.
Over you know if you compound it at 15% to 20 points.
Right. So we havent had any newness in three years.
That changes.
Right now.
Understood Thanks for that.
Extrapolation of that.
Really quick one for you Gary I, just want to make sure I.
I've got what kind of run rate in terms of the Arnaud.
Park opening.
It sounds like that's going to be small I wasn't quite sure what you're expecting there.
Is that correct.
Yeah.
Our construction teams spend based on the fact that we just.
Last week got her final approvals like I mean, it's been unbelievable trying to get simple approvals, but then again its 16th century grade one heritage building out an English countryside.
Not a lot of people didn't want to make it make a site visit.
And so that's the key for our team.
I feel bad.
Beyond them pretty tough.
Okay I got it.
But I understand what they are dealing with so it looks like we.
We'll be done with the project.
Late August and will need about three weeks.
Put it all together so I'd say.
Early mid September .
We will probably Stefan Stephan is here and he is nodding his head.
Okay.
I don't necessarily track that either.
[laughter].
But no I think what we should we will definitely be open in September I think sometime in September .
You don't try to be there.
So hopefully the time it works out in terms of weather.
Any way to say that again.
Okay.
Temporary is usually a greater time on in terms of weather.
So hopefully that lines up for you.
Yes.
Okay. Thanks for the question, yes, we're going to <unk>.
Schein, we're opening spin Sheila.
Thank you.
Our next question will come from the line of Max <unk> from Cowen Your line is open.
Great. Thanks, a lot guys. So as you continue to climb the luxury mountain I guess, how do you think about who your core shopper is today, whether it's the household income or net worth just because it does seem like your shopper may be evolving.
Real time here, especially.
Once you get going with contemporary so that's the first one.
We don't think about them any differently than we've been thinking about them as we are.
As we climbed the luxury mountain I say.
I would tell everyone can tell everyone. Maybe I haven't said this publicly in a call. But we are we are both a share give or right now and we're sure paper. If you think about our client right. So as we find the mountains.
Giving share because people below us.
We're moving this brand up so we're constantly raising the level of quality raising the level of design.
And building a more.
A more desirable luxury product and experience.
And by the way that's no different than the.
The last 20 years.
So we've been a share giver.
Like when you know when I got here two years ago, the best selling styles over the 999 Chanel sofa.
Yeah.
What is called the was that Green Ugly Chanel Sofa, that's selling one in the country.
So we don't we don't have a chanel stuff any sofa, there's 90 99 anymore right.
But.
You know again it's.
So we're constantly.
<unk> share, leaving share behind and what we're doing is we're taking share at the higher end of the market.
And the key is.
Is the arbitrage a positive arbitrage.
Right.
A lot of times. It is sometimes you might be a little wrong sometimes.
It may not take as much share as you gave us.
But you'll have to be committed to decline.
Right, it's like trying to climb Everest you might.
Get to a spot where you get stuck right. The weather is not good you made a bad decision.
You went to a park has slipped down a bit and you went down the road when you got to kind of go back up.
It's not a it's not a stroll in the park trying to do what we're doing this.
This is not a stroll in the park is a climb up a mountain that nobody has made before nobody's, taking a business like ours.
What we are selling I mean I think.
The number one item in the company when I joined with a little cardboard piece of cardboard sold for $2 and it was called auto bingo. Okay. What are the next best selling items with the backs fraction okay.
Item after that with the foot to do that.
Remember the foot device, we used to have mountains on them right. We had to sell them back then because they did not go bankrupt.
Like we can go on and on you want a pocket and warmer.
I've got to go somewhere else.
We don't sell them anymore.
I go on and on and on demand dog toy soon and so forth. So.
We'll be we'll be speaking the same way about some of the goods we sell today I'd say.
A third to half of our assortment won't be here in the next three to five years.
So and probably the bottom third of the assortment.
It will evolve excuse me.
We will evolve over the next 24 months I'd say 2024 to 36 months.
So all of that and you say well what happens.
Yes.
All the customers that could afford that level of quality and design.
And they all aboard the next level of quality design of course not.
Of course not.
But we're taking share at the high end and the people at the high end spend exponentially more on the home.
They have multiple homes.
Send more than the furnishings for those homes and it's a completely different market.
Yeah. So.
The way to think about our market. If you thought about a pyramid like people usually look at our pyramid to say our marketing okay. The 1% up here and this and that there's not as many people there there's more people down here in the middle.
The thing about the spending as you have to kind of turn that pyramid upside down and layer over the typical pyramid. So if you look at the top.
1% the top 5% the higher up you go the spending is exponential in the home.
So that line is the widest is at the very top.
So yeah.
We're going to go to the top and you know how much.
Gets left behind.
I'll figure it out as we go.
We'll figure out how to optimize it.
But.
It's worked for other luxury brands in other categories. It just hasnt been done in our category.
I mean, there's people have.
<unk> Italian luxury sofas.
So anything else, that's a couple of licensing, but theres no real.
Dominant global luxury brand is doing what we're doing and no. One has started where we started and tried to get there.
It's kind of been seen before so yes.
But then again, we like to say leaders have to make.
Uncomfortable that's what we do so we're gonna make you guys comfortable we're going to make ourselves comfortable where it makes some of our customers are comfortable unfortunately, yeah.
Right.
We're gonna excite a lot of people and we're going to.
We're going to create a lot of extraordinary things that we believe we're going to create extraordinary value.
Got it that's very helpful. And then Gary I think previously when you were talking about the conversion of a legacy galleries and should design gallery.
You used to say that within 12 months to 18 months horizon.
The store revenues double and then E com sees a little bit of a lift as well. So just curious is that still the framework that we should think about or I think about it I don't know six months or a year ago. You said that the restaurants are going to do better. So just curious how we should think about the long term growth.
Rhythm.
As far as the store openings go.
Yeah, I would say directionally, it's about the same.
The base gets bigger so the double gets harder right when you're on a higher volume.
About it when we when we started this journey our average.
Our average store volume in the company I think it was $2 1 million.
And our old galleries and.
Hi, Mike.
For instance, in let's just take them or in some of you've been out here the center space and you've seen we're in with our.
Our legacy Marine Gallery, when I when I got here was $2 5 million.
When we close it it was what 18 20 somewhere around there doing it was doing about $20 million.
So if you think when we started doing these big stores. Our average volumes were probably 10 eight to 10.
Then they went to 12.
Maybe eight our average legacy galleries today is probably 15 and so the base has gotten bigger it said that you know the double gets harder actually when we started in our average volume was seven right now, but we have in our average.
Legacy galleries with an average volume of 15, but everywhere, we opened a new galleries, especially now that we have the restaurant.
And the incremental traffic that brings us down and so forth.
We're doubling so if we have a $15 million gallery, it's generally turns into a $30 million galleries $20 million gallery turns into a $40 million galleries.
Roughly so and like.
Marin I think is like what do we like trailing 12.
Trying to $50 million something like that so you know marine went from 20% to 50 with the restaurant with restaurant, Yeah, Yeah, I'm talking all inclusive.
Our next question comes from the line of Jonathan Matuszewski from Jefferies. Your line is open.
Great. Thanks for taking my question first one Gary you've mentioned in the past RH modern price points at launch we're.
Significantly above the levels of existing Assortments at the time, we can flip to the source book page by page, but can you help frame aggregate RH contemporary pricing relative to some of your other assortments today. Thanks, so much.
Sure sure Yeah, when we launched modern it was.
On average, 50% higher price points than interiors.
And contemporary use about 30% to 35% higher.
Then the current assortment.
Direct and some things.
Okay, some things might be 50% higher some things might be 20% higher.
On an average we're about 35% higher.
That's helpful. And then just a quick follow up on the last call you indicated the Palo Alto Gallery may get pushed to one Q of next year is that looking more likely these days.
That kind of the you know.
And out of the new annual guide for revenue or just any clarification there.
Yes.
We haven't we still believe it'll it'll be open in the fourth quarter, but we are using that.
To kind of evolve the prototypes right. So we're we're going to have a new look and feel.
And there's some new things that we're doing there so.
You know it means it would open up a quarter later.
But today, we feel pretty good about Q4, but we'll keep you updated.
Thanks, So much best of luck.
Thank you.
Our next question comes from the line of Brad Thomas from Keybanc Capital. Your line is open.
Hi, good afternoon, Thanks for taking my question.
I was hoping to just talk a little bit more about it.
Our source books, and just advertising and promotions in general and and Gary I know that you all don't do marketing or advertising in a traditional way, but I guess I was just curious your thinking as you get the source books out how you are thinking about page count and doing big books like you always do versus maybe supplementing with some small.
All her books.
Particularly with the new contemporary product.
<unk> out and then perhaps if you're considering doing more with digital advertising.
The team contemporary line and with the.
World of RH website overhaul. Thanks.
Yeah.
We're considering all of the above so everything you're talking about so.
You start too.
You know ramp back up.
Whether it's the size of the book the depth of the mailing I would say we.
We were so excited about contemporary we expanded the mailing more aggressively.
The you know when it relates to size of books generally just directionally.
When you add more pages to a book your cost Leverages a lot. It's a lot less for incremental pages and generally larger books are more productive than smaller books, you're throwing out a wider net.
So until that math says differently.
We'd like to be in the range of.
Three to 500 pages.
Some of our books have gotten up to 700 pages.
They become a little difficult.
To get into all the mailboxes and stuff, but the numbers still kind of tell us what to do that right. We've got a lot of data.
But it's clear as the world keeps evolving and we get better devices and.
We have more mobility with devices.
You know print will become less and less important over time, and you know things will evolve to become.
No more digitally.
Intuitive.
That's why.
When you look at the World of RH website like the first part of the launch is just kind of what I.
The first layer right of what you see and how you how you might explore our brand and what our brand is all about.
And what is it mid July we launch the part two of the world of our age.
So mid to end of July .
The next transformative part the whole back end changes and so all of the product pages. The way you shop the way.
All the functionality and customer experience changes massively I think together when you see these two parts of the world of our H all come together, it's transformative if it's like it's like no other web site in the world.
<unk>.
And so right now you're just seeing kind of the.
For better words marketing layer of the brand and.
Just before you go to our brand and you might just see a light fixture on the front page you need things like weather or are they a lighting company or.
Who knows what it's like when you go to web.
When you go to the web and companies are still promotional and it says warehouse sale or you know betting sale. You know you think that's all the cell sites.
The web.
This spring.
You can see on the screen. So it's very different when you have a three dimensional store you can see the size of the store you can tell this storage bigger must have more than another store.
You can walk in the store.
Seconds and minutes, you can figure out what they do and what they sell website, it's very different yeah. Like it was so important for us to get this first part of the world of our H done before we launch internationally.
Because we didn't want people to just like.
Who are they go on our website and you'll see some product page on that front, whatever we're showing a lighting collection itself. A collection whatnot now you get a sense for a much bigger idea a much bigger kind of business a much bigger kind of brand.
Yes.
And if you looked at it again, if you click on it.
The Dream design travel time and experience the world of RH, and and then you see the product placement services and spaces click through any of those direct spaces replaces click through our products.
But through our services you get a sense of really what we do very quickly and who we are very quickly but.
It's the engine of this website changes in the customer experience the changes as you get into it massively.
You know mid to end of July .
So I and I think that's going to it's going to make a big big difference just as customers discover us what they get to know.
But what you'll see.
We're experimenting with some digital advertising, we're experimenting with some places we think as the world keeps changing.
We're watching consumer behavior.
We're looking at.
Where we might invest where you know where we're at.
He's trying things.
So.
You'll see us continue to kind of evolve our approach.
Getting what we say getting our troops out there getting our work out into the world for the right people to see it.
So.
Mike.
Do a Twitter account everybody tells me I got a tweak.
A lot of followers.
Yeah, I don't want to do that I don't want to have to kind of respond to everybody I don't know, how eli must be stuck with it for forgot to say that it's incredible.
I think I don't sleep, a lot I think he might never sleep.
This is truly a truly incredible but.
But we believe you know even though we said this before even though we don't you know.
We don't have an Instagram account and we don't have it yet.
Pinterest account Twitter account were still the most and brand of our kind of in the world and instead.
Instagram brand of our kind of the world and Tweedy brand of our kind of the world. So.
And we are because we do really incredible work and we built a really incredible experiences on this planet for people to go to an experience.
About to see and well you know, we don't sit there and say Oh, let's create an Instagram space, let's like this will be great for Instagram, we just do incredible design and architecture and the world's not full of that yeah.
They don't build things like they used to do anymore, and you know theres not a lot of great buildings. There, it's not a light lighter really extraordinary design that's open to the public and we are and therefore people are excited to take their picture there they're excited.
Read about it to Instagram about it.
They are excited about our product I wouldn't be surprised if you know.
The reaction on Pinterest.
Number of pins, we're gonna get and contemporary it's going to go like wildfire.
There's really nothing like it.
Very helpful. Thanks, Gary.
Thank you Brad.
Our next question comes from the line of Seth Basham from Wedbush. Your line is open.
Thanks, a lot and good afternoon, Gary if you're successful in climbing the luxury now in your business and your customer profile will be a lot different in five years than it is today, but if the arbitrage between taking share at the highest end and shedding chant below U is increasingly negative for the next 12 months, even as you elevate your assortment.
And continue to raise prices, what's the contingency plan and what's the plan B.
You know I don't I don't know, if that's not going to happen.
For 12 months, so again, we're not making 12 months decisions.
12 months strategy so I.
I think we've learned a lot we will adjust and so on and so forth but.
There's going to be years, we take more.
And yours that maybe we take less.
So you look back at the transformation, we've made over the course of our history here.
You know sometimes there are some short term pain for long term gain.
You don't know exactly what that looks like until you get there, but you get there and you work through it.
Don't go backwards.
Yeah.
You don't start going down the mountain when your goal is to go up the mountain.
Figure out.
How to get there.
And otherwise.
Otherwise you never get there.
So we.
Yeah.
Yes.
This company is not what we say, it's what we do that defines us so we will get to the top of the mountain.
Yes.
Believe me, we will get there we know.
We can see what it looks like we have enough data there is enough evidence to say.
Is that if we get there we will create enormous value.
And this will be a very very large company.
No.
Over the next 12 months.
I don't know like the cost is five points or 10 points higher.
I'm not selling my stock.
So.
Yeah.
There's a plan a.
That's helpful and a plan that pans out.
And that's inclusive plan a Nike guy.
Thank you.
[laughter].
Thank you were ready for the next question.
I think you probably take wonder.
Our next question will come from the line of Chris <unk> from JP Morgan Your line is open.
Thanks, and good evening. So a couple of follow up questions first on Chucks question earlier on the on the 1% to 3% revenue down guide for the second quarter are you expecting a similar backlog drain or could it be better if the supply chain is opening up a bit and does that suggest you're on a demand side here.
We're expecting mid single digit decline.
If supply change better I suppose there is an opportunity to have a better revenue outcome and this is our latest view of what we're seeing in supply chain lead times.
Continued delays, but also the improvement in Dallas.
Okay.
And Jamie there, but that's what we see.
Got it and then following up on the advertising question.
A couple of Youre not telling you.
The demand pick up.
We're not commenting on the outside.
At that point.
Okay.
And then any tie up on the advertising question. So you know last year, you spent $40 million of advertising a few years ago. You spent 100 can can you maybe bracket, how you're thinking about that.
To any extent quantitatively, but just maybe even in terms of like how many books, you think youll spend send out across the different brands.
Okay.
The $40 million reflected.
Essentially no mailing, but an outdoor book and some reprints and so.
Peak I think two years ago, we spent $108 million that reflected an outdoor book spring and fall books.
Reprints. So this year is more like that.
And again, we're not guiding advertising I don't think it's back to that level, frankly, but but it's certainly.
On the higher end of the spectrum just based on our current source book distribution point.
Yeah, it's a meaningful increase it.
We're more than doubling to $40 million friend yeah.
And that's in our guidance section yeah, that's in our guidance.
Thank you. Our next question comes from the line of Michael Lasser from UBS. Your line is open.
Good evening, Thanks, a lot for taking my question Gary.
Do you think the market that you're going after is in the United States, If we say.
Total home furnishings is $200 billion.
The higher end of the markets top 10 top 20% that's $20 billion to $40 billion market are you going after the top 1% to up 2%.
That's the first part of the question.
And the second part is if we assume that you're treating some sales for for margin right. Now is there a duration or a level of seals. If it were to fall to that you would have to reconsider.
<unk>.
That strategy and start to engage.
In additional demand creation activities.
Well first youre, saying the top 10% is.
It's $20 to $40 billion, because you're you're just running a straight line there right. So you're not you're not asleep.
Yeah, well, that's not the way the whole market is memory I. Just gave an example, you'd have to kind of take that pyramid and flip it upside down.
Spending on the home at the high end of the market is exponential.
It's no different than the distribution of wealth.
Right. So you don't have you don't have 10% of the people don't have 10%.
Of the wealth in the world right.
Yes.
The only items in it.
Maybe looking at it.
Look at the other the wealth distribution think about how that affects the whole market think about how many homes that people at the top half.
Think about how much those homes costs think about how big they are thinking about how much they'll spend for a sofa versus someone you know.
And 20% lower.
So the numbers are massively different than what you're thinking now.
Massively different.
So.
Yeah, So I'd start there.
The the top of the mountain is like it's like thinking about where is the gold in the mountain.
It's the the really.
All the gold.
It's kind of concentrated at the top.
So that's why we're trying to get to the top of the mountain. That's just say we had a nice decline.
That's where the rewards are.
And so it'll be worth whatever kind of short term pain, we've got to take to get there and it's no different than the path we've been on.
We've been doing this for a long time now.
It gets a little harder as you get higher.
The decision, making in the Criterias all kind of the same.
Every several years, you're going to make big.
Big moves and so.
Toby created that opportunity for us to kind of look at things again and.
Make different investments.
But.
Or is there a sales decline that would.
Reconsider additional demand creation.
No not within a certain period right like if we make some decisions.
We think.
We.
We ran up this part of the mountain men.
It's slippery up here, there's too much is we've got a slowdown.
We've got to get some different gear.
We need more ropes or whatnot.
Obviously make.
Small modifications as we go but nothing is going to get us to reconsider where we're going nothing and we're smart enough to figure it out we may not make all the right decision in the moment.
But we are really fast.
To improvise and change our mind.
So we're not wedded to anything, but our vision and values and beliefs here.
So yes.
But we believe this is the.
The right strategy the right vision to have for the company.
And we can figure it out we figured out how to get to where we are today. The hardest is the hardest part of what we've done is.
I mean, it's in the past.
Like trying not to go bankrupt when you have no capital not making any money got to get rid of all this crap you know don't.
Barely can pay your rent like.
Mike.
Yes.
What is it 1.13 billion of trailing 12 months EBITDA.
I used to have $40 million to $50 million negative.
Yeah, very big people to lend us money now people want to lend us yet.
$5 billion.
Like we have all.
You know, we're way better resource, but that doesn't mean.
Or any less determined that we're any more lazy, it's not like we're not having a conversation for this company on or are we going to return to work.
You know like.
Oh, you know people are going to do a better job working at home.
Yeah, it's not the culture, we have here.
Kind of people they would still be at the bottom of the mountain maybe they'd get up to the first third and have a little bit of a view and then they camp out there.
So yeah, we're going to try to do something.
That the world's never seen that no one's ever done that.
We say we have to think until it hurts until if we can see what others can't see so we can do what others can't do.
We don't have it all figured out but I believe were directionally right. We are strategically right and you know and.
And we're going to create massive value and we're just.
Not easy, though so there are no straight lines in business.
Unless you decided you know less falloff.
The edge.
Go straight down but.
When you're trying to climb and build something.
Eight lines, we're going to get some things right, we're going to get some things wrong.
To improvise adapt and overcome.
It's just who we are kind of what.
What we do.
Thank you very much and good luck.
Thank you.
Thank you and that's all the time, we have for Q&A today, I will turn the call over to Gary Friedman for any closing remarks.
Great well. Thank you everyone for your time and we want to bank.
TMR H are doing such an extraordinary job not only over these past few years with pandemic.
But the work that is that as you know now bearing fruit and coming out of this pandemic I think is transformational and I just couldn't be more proud of.
Yeah, all the leaders on this leadership team and.
And all of the people here.
Alright.
Our center of innovation headquarters across the country throughout our supply chain.
The level of kind of invention and innovation in this company and it's an all time high.
Our culture continues to get stronger.
And.
And I just could not be more proud of the work we're doing.
No matter, what everybody to anybody that is toward share price short term.
Yes, we will reach the top of the mountain make no mistake about that so thank you everyone.
And this concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
Mhm.
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