Q2 2023 RH Earnings Call

[music].

Speaker 1: Good afternoon. My name is Krista and I'll be your conference operator today. At this time, I would like to welcome everyone to the second quarter 2023 RH Q&A conference call.

Good afternoon, My name is Krista and I'll be your conference operator today at this time I would like to welcome everyone to the second quarter 'twenty twenty-three, our H Q&A conference call.

Speaker 1: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. We also ask that you limit yourself to one question and please re-queue. Thank you. I will now turn the conference over to Alison Malcolm of ICR. You may begin your conference.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad. If you like to withdraw your question press. The pound key we also ask that you limit yourself to one question. Please re queue. Thank you.

I will now turn the conference over to Allison Malkin of ICR you May begin your conference. Thank.

Speaker 2: Thank you. Good afternoon, everyone. Thank you for joining us for our second quarter fiscal 2023 earnings conference call.

Thank you good afternoon, everyone and thank you for joining us for a second quarter fiscal 2023 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 statement.

Speaker 2: Joining me today are Gary Friedman, Chairman and Chief Executive Officer, and Jack Preston, Chief Financial Officer. Before we start, I would like to remind you of our legal disclaimer that we will make certain statements today that are forward looking within the meaning of the federal securities laws, including statements about our outcomes.

Today that are forward looking within the meaning of the federal securities laws, including statements about our outlook of our business and other matters referenced in our press release issued today.

Speaker 2: of our business and other matters referenced in our press release issue today.

Speaker 2: These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially.

These forward looking statements involve a number of risks and uncertainties that could cause actual results to differ materially.

Speaker 2: Please refer to our SEC filing, as well as our press release issue 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 for future events.

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.

Speaker 2: 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.

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.

Speaker 2: A live broadcast of this call is also available on the Invest Relations section of our website at ir.rh.com. With that, I'll turn the call over to Gary.

A live broadcast of this call is also available on the Investor Relations section of our website at IR RH Dot com with that I'll turn the call over to Gary.

Speaker 3: Thank you. Let me begin with our letter to our people, partners, and shareholders.

Thank you let.

Let me begin with our letter to our people partners and shareholders.

Speaker 3: Revenues of $800 million and adjusted operating margin of 22.2% exceeded our guidance for the second quarter due to a $25 million revenue benefit from faster than expected deliveries and a shift of approximately $40 million of advertising costs from Q2 to Q3, reflecting the later mailing of our RH Interiors sourcebook.

Revenues of $800 million and adjusted operating margin of 22, 2% exceeded our guidance for the second quarter due to a $25 million revenue benefit from faster than expected deliveries and he.

We shifted approximately $40 million of advertising costs from Q2 to Q3, reflecting the later mailing of our RH interiors source book.

Speaker 3: We are raising the low end of our revenue guidance for the year and now expect revenue in the range of 3.04 billion to 3.1 billion versus our prior outlook of 3 billion to 3.1 billion. And our maintaining our outlook for adjusted operating margin of 14.5 to 15.5%.

We are raising the low end of our revenue guidance for the year and now expect revenue in the range of 3.04 billion to $3 1 billion versus our prior outlook of $3 billion to $3 1 billion Intermune.

And are maintaining our outlook for adjusted operating margin of 14, five to 15, 5%.

Speaker 3: We continue to expect the luxury housing market and broader economy to remain challenging throughout fiscal 2023 and into next year as mortgage rates continue to trend at 20-year highs and the current outlook for rates to remain unchanged until the second quarter of 2024.

We.

And you'd expect the luxury housing market and broader economy to remain challenging throughout fiscal 2023 and into next year as mortgage rates continue to trend at 20 year highs and the current outlook for rates to remain unchanged until the second quarter of 2024.

Speaker 3: The company repurchased 3.7 million shares in the second quarter at an average price of 325.65, representing approximately 17% of the total shares outstanding at the beginning of the second quarter.

The company repurchased three 7 million shares in the second quarter at an average price of 325 65, representing approximately 17% of the total shares outstanding at the beginning of the second quarter.

Product elevation.

Speaker 3: We recently emailed our new 604 page our H Interior source book, and while it's too early to read the response with only 40% of the mailing in the home this week.

We recently mailed our new 604 page our H interior source book and while it's too early to read the response with only 40% of the mailing in home this week.

Speaker 3: The early indications do look promising. We continue to expect our business trends to inflect in the second half of this year, with the mailing of our RH Contemporary Source Book in late October and our RH Modern Source Book in early January , as well as the refresh of our galleries over the next several quarters.

The early indications do look promising.

Continue to expect our business trends to inflect in the second half of this year with the mailing of our RH contemporary source book in late October and our RH modern source book in early January .

As well as the refresh of our galleries over the next several quarters.

Speaker 3: We begin, we believe our inflection point will peak in the first half of 2024 as our new collections fully ramped and we begin another cycle of source book mailings completely transforming and refreshing the assortment across the entire brand over 12 month period.

We began we believe our inflection point will peak in the first half of 2024 as our new collections FERC fully ramp and we began another cycle of source book mailing completely transforming and refreshing the assortment across the entire brand over a 12 month period.

Speaker 3: We believe the new collections reflect a level of design and quality, inaccessible in our current market, and a value proposition that will be disruptive across multiple markets. Positioning our age to gain market share throughout fiscal 2024.

We believe the new collections reflect a level of design and quality and accessible in our current market.

And a value proposition that will be disruptive across multiple markets positioning RH to gain market share throughout fiscal 2024.

Speaker 3: While a product transformation of this magnitude will be margin delutive in the short term, as we cycle out of waning collections, we believe it will once again become margin-accretive as selling rates stabilized and allow our supply chain and sourcing, allow for supply chain and sourcing efficiencies.

While the product while a product transformation of this magnitude will be margin dilutive in the short term as we cycle out of waning collections. We believe it will 11 again become margin accretive as selling rates stabilized and allow our supply chain and sourcing allow for supply chain and sourcing efficiencies.

Platform expansion.

Speaker 3: Our plan to expand the RH brand globally, address new markets locally, and transform our North American galleries to represent the multi-billion dollar opportunity.

Our plan to expand the RH brand globally address new markets locally and transform our north American galleries represents a multibillion dollar opportunity.

Speaker 3: This summer, we introduced RH to the United Kingdom in a dramatic and unforgettable fashion, with the opening of RH England, the gallery at this historic Einhoek Park, a 17th century, 73 acre estate, that is a celebration of history, design, food and wine. We had a spectacular turnout for our opening event in early June , and the National and Global Press coverage, the brand received, was multiple times greater than any gallery we've ever opened.

This summer we introduced our age to the United Kingdom, and a dramatic and unforgettable fashion with the opening of RH, England. The gallery at the Historic Idaho Park.

17th century, 73 acre estate that is a celebration of history design food and wine, we had a spectacular turnout for opening event in early June and.

In the National and Global press coverage the brand received with multiple times greater than any gallery, we've ever opened.

Speaker 3: Due to our H. England's countryside location, we expect the majority of revenues to be driven by our interior design and trade businesses, which are dependent on building books of business, books of business with high value, repeat clients like interior design firms and hospitality projects.

Due to our H, England countryside location, we expect the majority of revenues to be driven by our interior design and trade businesses, which are dependent on building books of business books of business with high value repeat clients like interior design firms and hospitality projects.

Speaker 3: The quote books are building and we'll soon mail our first source book in the United Kingdom. While pleased with the early response, there is still much to learn about the seasonality of the business in the English countryside, especially in the winter season.

Books are building and we will soon be alert for source book in the United Kingdom.

While pleased with the early response, there is still much to learn about the seasonality of the business and the English countryside, especially in the winter season.

Speaker 3: We'll know more once we start mailing source books and experience a couple of teas.

We'll know more 11, we start mainly source books and experienced a couple of seasons.

Speaker 3: Our global expansion also includes opening of opening in Dusseldorf and Munich later this year with Paris Brussels and Madrid scheduled for 2024 and London, Milan and Sydney for 2025.

Our global expansion also includes opening is opening in dusseldorf in Munich later, this year with Paris, Brussels, and Madrid scheduled for 2024, and London and Milan in Sydney for 2025.

Speaker 3: regarding our North American transformation. We continue to plan opening RH Indianapolis and RH Cleveland in the second half of this year, while RH Palo Alto and RH Manicito will now open in early 24.

Regarding our North American transformation, we continue to plan opening RH Indianapolis in our H Cleveland in the second half of this year, well, our H Palo Alto and our age minus Sito will now open in early 'twenty four.

Speaker 3: Additionally, we have 12 North American galleries in the development pipeline scheduled to open over the next several years.

Additionally, we had 12 north American galleries in the development pipeline scheduled to open over the next several years.

Speaker 3: We also believe there's an opportunity to address new markets locally by opening design studios in neighborhoods, towns, and small cities where the wealthy and affluent live, visit, and vacation.

We also believe there's an opportunity to address new markets locally by opening design studios in neighborhoods towns in small cities, where the wealthy and affluent live visit and vacation.

Speaker 3: We have several existing locations that have validated the strategy in East Hampton, Yantville, Los Gatos, Pasadena, and our former San Francisco Gallery in the divine district, where we have generated annual revenues in the range of 5 to 20 million in 2000 to 5,000 square feet.

We have several existing locations that have validated this strategy in east Hampton Yountville, Los Gatos, Pasadena, and our former San Francisco Gallery in the design District, where we have generated annual revenues in the range of $5 million to $20 million in 2000 to 5000 square feet.

Speaker 3: We have just secured our first new location for Design Studio and Palm Desert, which you'd open in the first half of 2024.

Have just secured our first new location for design studio and Palm Desert, which should open in the first half of 2024.

Speaker 3: We have identified over 40 locations that are incremental to our previous plans in North America and believe the results of these design studios will provide data that could lead to opening larger galleries in those markets.

We have identified over 40 locations that are incremental to our previous plans in North America I believe the results of these design studios will provide data that could lead to opening larger galleries in those markets.

Speaker 3: Outlook. As mentioned, we are raising the low end of our revenue guidance for the year to a range of 3.04 billion to 3.1 billion and maintaining our outlook for adjusted operating margin in the range of 14.5% to 15.5%.

Outlook as.

As mentioned, we are raising the low end of our revenue guidance for the year to a range of $3 4 billion to $3 1 billion and maintaining our outlook for adjusted operating margin in the range of 14, 5% to 15, 5%.

Speaker 3: We estimate the 53rd week will result in revenues of approximately $60 million.

We estimate the 50 <unk> week will result in revenues of approximately $60 million.

Speaker 3: For the third quarter of fiscal 2023, we are forecasting revenues of $740 million to $760 million and adjusted operating margin in the range of 8% to 10%.

For the third quarter of fiscal 2023, we are forecasting revenues of $740 million to $760 million and adjusted operating margin in the range of 8% to 10%.

Speaker 3: We expect to have increased advertising costs of approximately 50 million versus Q2 2023, reflecting the shifting of the RH Interior Source Book from Q2 to Q3, the mailing of our Arch Contemporary Source Book and the mailing of our first source book into the United Kingdom.

We expect to have increased advertising costs of approximately $50 million versus Q2, 2023, reflecting the shifting of the RH interiors source book from Q2 to Q3, the mailing of our edge contemporary source book and the mailing of our first source book into the United Kingdom.

Speaker 3: For the fourth quarter of fiscal 2023, we are forecasting revenues of $760 to $800 million and adjusted operating margin in the range of $14.4 to $16.6 percent with incremental advertising costs of $5 million versus a fourth quarter of last year.

For the fourth quarter of fiscal 2023, we are forecasting revenues of $760 million to $800 million and adjusted operating margin in the range of $14 four to 14 to 16, 6% with incremental advertising costs $5 million versus the fourth quarter of last year.

Speaker 3: RH Business Vision and ECO system, the long view. We believe there are those with taste in no scale and those with scale in no taste. And the idea of scaling taste is...

Our each business vision and ecosystem. The long view, we believe there are those with taste and no scale and those with scale and no taste.

And the idea of scaling taste is large and far reaching.

Speaker 3: Our goal to position our H as the Arveter taste 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 goal to position our age is the arbiter of taste 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.

Speaker 3: Our brand attracts the leading designers, artisans, and manufacturers. Scaling and rendering their work more valuable across our integrated platform.

Our brand attracts the leading designers artisans and manufacturers scaling and rendering their work more valuable across our integrated platform.

Speaker 3: enabling our H to curate the most compelling collection of luxury home products on the planet.

Enabling our age to curate the most compelling collection of luxury home products on the planet.

Speaker 3: Our efforts to elevate and expand our collection will continue with the introductions of our H. Pature, our H. Bespoke, our H. Color, our H. N. T. Sonartifax, our H. Utiliy A, and other new collections scheduled to launch over the next decade.

Our efforts to elevate and expand our collection will continue with the introductions of our age pitcher RH bespoke RH color RH antiques and artifacts or <unk> and other new collection is scheduled to launch over the next decade.

Speaker 3: 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 plan to open an immersive design galleries in every major market will unlock the that the value of our vast assortment.

Generating revenues of $5 6 billion in North America, and 20% to 25 billion globally.

Speaker 3: Our strategy is to move the brand beyond curating and 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, and place mix.

Our strategy is to move the brand beyond curating and selling product to conceptualizing and selling spaces.

In an ecosystem of products places services and spaces that establishes the RH brand as a global thought leader taste in place make or.

Speaker 3: Our products are elevated and rendered more valuable by our architecturally inspiring galleries, which are further elevated and rendered more valuable by our interior design services, and seamlessly integrated hospitality experience.

Our products are elevated and rendered more valuable by architectural inspiring galleries, which are further elevated and rendered more valuable by our interior design services and seamlessly integrated hospitality experience.

Speaker 3: Our hospitality efforts will continue to elevate the RH brand as we extend beyond the four walls of our galleries into RH guesthouse.

Our hospitality efforts, we 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 luxury and privacy in the $200 billion North American hotel industry.

Speaker 3: Where our goal is to create a new market for travelers seeking luxury and privacy in the $200 billion North American hotel and

Speaker 3: Additionally, we are creating bespoke experiences like RH-Yanfield, an integration of food, wine, art, and design in the Napa Valley. RH-1 and RH-2 are private jets. And RH-3 are a luxury yacht that is available for charter in the Caribbean and Mediterranean, where the wealthy and affluent visit invocation.

Additionally, we are creating bespoke experiences like our <unk> and.

And the integration of food wine art and design in the Napa Valley are each one in our H two are private jets and our H three our luxury yacht that is available for charter in the Caribbean Mediterranean, where the wealthy and affluent visiting vacation.

Speaker 3: These immersive experiences expose new and existing customers to our evolving authority and architecture, interior design, and landscape architecture.

These immersive experiences expose new and existing customers to our evolving authority and architecture interior design and landscape architecture.

Speaker 3: 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 brand and amplifying our core business while adding new revenue streams while disrupting and redefining multiple industries.

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 brand and amplifying their core business, while adding new revenue streams, while disrupting redefining multiple industries.

Speaker 3: Our strategy comes full circle as we begin to conceptualize and self space.

Our strategy comes full circle as we begin to conceptualize himself spaces.

Speaker 3: moving beyond the $170 billion furnishings market into the 1.7 trillion North American housing market with a launch of R.A. President's fully furnished luxury homes, condominiums and apartments with integrated services that deliver taste and time value to discerning time-starved consumers.

Moving beyond the $170 billion furnishings market.

Into the $1 seven trillion 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.

Speaker 3: The entirety of our strategy comes to life digitally with The World of RH, an online portal where customers can explore and be inspired by the depth and dimension of our brand.

The entirety of our strategy comes to life digitally with the world of our age and online portal, where customers can explore and be inspired by the depth and dimension of our brand.

Speaker 3: Our authority as an arbiter of taste will be further amplified when we introduce RH Media, a content platform that will celebrate the most innovative and influential leaders who are shaping the world of architecture and design.

Our authority as an arbiter of taste will be further amplified when we introduce our H media content platform that will celebrate the most innovative and influential leaders, we're shaping the world of architecture and design.

Speaker 3: Our plan to expand the R.H. ecosystem globally multiplies a market opportunity to $7.10 trillion, one of the largest and most valuable addressed by any brand in the world today. One percent share of the global market represents a $70 to $100 billion opportunity.

Our plan to expand the RH ecosystem globally multiplies the market opportunity to 70, <unk> 10 trillion, one of the largest and most valuable addressed by any brand in the world today.

1% percent share of the global market represents a $70 billion to $100 billion opportunity.

Speaker 3: Our ecosystem of products places services and 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.

Our ecosystem approach.

Ecosystem of products places services 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.

Speaker 3: Taste can be elusive and we believe no one is better positioned than our age to create an ecosystem that makes taste inclusive. And by doing so, elevating and rendering our way of life more valuable.

Tastes can be elusive and we believe no one is better positioned than our age to create an ecosystem that makes taste inclusive and by doing so elevating and rendering our way of life more valuable.

The end of Covid confusion at the beginning of the next evolution.

Speaker 3: We've spent far too much time or the past four years debating if this was going to be the decade of home or the death of retail. If inflation was transitory or fiscal tightening was mandatory.

We spent far too much time over the past four years debating. If this was going to be the decade of home or the death of retail.

If inflation was transistor transitory or fiscal tightening was mandatory.

Speaker 3: Home sales and price was shooting up like a rocket and now falling to earth like a rock.

Home sales and prices shooting up like a rocket and now falling to Earth like Iraq.

Speaker 3: For the first time in my career, retailers were comparing their growth rates to anyone of the past four years in any given month.

For the first time in my career retailers, we're comparing their growth rates to anyone of the past four years in any given month.

At any given year.

Fact is where directionally in the same spot we were four years ago worrying about at the financial recession in the poll, saying, we might have a presidential regression.

Speaker 3: If there is ever a time the world needed a compass, this might be it.

If there was ever a time the world needed a compass this might be at the.

The people of TMR H, our campuses, our vision values beliefs, and culture, those things that drive us and unite us.

Speaker 3: Those things we live for would fight for and die for.

Those things, we live for would fight for and die for.

Speaker 3: After several years of being a part during the COVID, we finally returned to the Palace of Fine Arts Theatre in San Francisco for what used to be our annual leadership conference. And we talked about those things.

After several years of being a part during the Covid. We finally returned to the pallets of Fine Arts Theatre in San Francisco, what used to be our annual leadership conference and we talked about those things.

Speaker 3: For the first time in the past four years, everything came into focus.

For the first time in the past four years everything came into focus.

Speaker 3: clear, replaced fear and connections were personal and not virtual. It felt different.

Clear replaced fear and connections where personal and not virtual.

It felt different because it was different.

Speaker 3: There is a different level of accountability when someone is standing in front of you, looking straight into your eyes, and making a suggestion or request versus blankly into a screen, not knowing if those on the other end have you on mute or just aren't very interest.

There's a different level of accountability when someone is standing in front of you looking straight into your eyes, and making a suggestion or request versus blankly into our screen not knowing if those in the other side are there and have you on mute or just arent very interested.

Speaker 3: It's time to break the bad habits of COVID. It's time to get off the screens, get out of our home office and reconnect in our team office. Or as we...

Time to break the bad habits of Covid, it's time to get off the screens get out of our home office and reconnect and our team office or.

As we did at the palace.

Speaker 3: It just felt different because it was different. And I'm sure it's going to lead to an outcome that's different.

It just felt different because it was different and I'm sure it's going to lead to an outcome that's different.

Speaker 3: Yet it also felt familiar, like finding our way back home.

Yet it also felt familiar like finding our way back home.

Speaker 3: Back with our people, where none of us are smarter than all of us, getting all the brains in the game and the egos out of the room, listening and learning, discussing and debating, elevating and aligning. It felt like the beginning of our next evolution, and it felt like we were beginners again.

Back with it with our people where none of us are smarter than all of us getting all the brains in the game and the egos out of the room.

And even in learning discussing and debating elevating and aligning it felt like the beginning of our next evolution and it felt like we were beginners again.

Speaker 3: Never underestimate the power of a few good people who don't know what can't be done, especially these people. Onward Team RH, Happy DM.

Never underestimate the power of a few good people, who don't know what cant be done, especially these people onward TMR H R. P M.

At this time, we'll open the call to questions.

Speaker 1: If you would like to ask a question, please press star one on your telephone keypad. And as a reminder, please ask one question and then re-cute. Your first question comes from the line of Stephen Forbes from Google Hymne Securities. Please go ahead.

If you would like to ask a question. Please press star one on your telephone keypad and as a reminder, please ask one question and then re queue. Your first question comes from the line of Steven Forbes from Guggenheim Securities. Please go ahead.

Good afternoon, Gary Jack.

Speaker 3: Gary, I was hoping you could maybe just expand on what's driving your confidence and seeing it inflection in the business during the back half. And what the early indications from the origin period are books. And I guess our agenda as well, inform me about what the potential re-acceleration in demand could look like as we think about the 24 in beyond.

Gary.

I was hoping you could maybe just expand on what's driving your confidence in seeing an inflection in that business.

During the back half and what the early indications from the <unk> interior book and.

And I guess, how RH, England as well inform you about what the potential reacceleration in demand could look like.

We think out to 'twenty four and beyond.

Speaker 3: Sure, I think there's a couple of dynamics happening. I think you've got to kind of a...

Sure I think that's it.

A couple of dynamics happening I think you're you've got excited about it.

Speaker 3: cycling of the backside of COVID and you've got a cycling of the

Cycling of the.

Backside of Covid, and you've got a cycling of the.

Speaker 3: You know, the dramatic rise in interest rates and the, you know, and the fall off of the highs of a, of a, what I call a coven to and a zero, you know, federal funds rate driven home market.

The dramatic rise in interest rates and the.

The falloff of the hives.

What I would call it COVID-19 it in at zero.

Federal funds rate driven home market.

Speaker 3: So, from our view, I think that cycling happens at the end of the year. And the question is.

So from our view I think that's cycling.

Happens at the end of this year and the question is.

Speaker 3: You know, the question is, is there a longer down draft in the, you know, in the, in the home cycle? I think that the other answered questions really deal with, you know, if you say, what's the problem with the housing market today?

You know this is a question is there is there a longer downdraft in the you know.

In the home cycle, I think that the internet answered questions really deal with it you know if you say, what's what's the problem with the housing market today.

Speaker 3: You've got this real delta in interest rates between people who bought a home or the last several years at dramatically low interest rates that are sitting there with 2.7 to call it 3.4% interest rates. 90% of the market is fixed. So you've got 90% of the market owning homes with really low interest rates. And you've got a...

You've got this real delta and in interest rates between people, who bought a home or the last several years.

Dramatically low interest rates that are sitting there with two 7% call. It three point.

4% our interest.

Interest rates, 90% of the market is is fixed I saw.

So you've got 90% of market owning owning homes with really low interest rates and you've got a.

Speaker 3: You know, interest rate gap, kind of current 30 year mortgages are going for

Interest rate gap.

30 year mortgages are going for.

Speaker 3: 7% that somewhere between 6.8 to 7.4. You know, it's kind of the range depending on credit.

7%.

Somewhere between six eight to seven for us.

Kind of the range depending on credit.

Speaker 3: So you've got a huge spread there. And what's compounding that huge spread is you haven't had home prices drop enough yet, right? Offset.

So you've got a huge spread there.

And what's with compounding that huge spread as you haven't had home prices dropped enough yet to offset.

Speaker 3: that margin spread, you know, if home rates drop.

That margin spread.

If home rates dropped.

Speaker 3: Home prices went up 42% in the two years, in the two years post the COVID, through the COVID boom, once COVID hit. And there was a, you know, it's just again.

Yeah.

You know home prices went up 42% in the two years you know in the two years post the COVID-19 through.

Through the Covid boom 11, Covid hit and there was a.

Speaker 3: Everybody's stuck at home and focused on exiting cities. Yeah, the biggest migration from cities to suburbs and history and biggest migration to second homes in history.

You know everybody, who stuck at home and focused on exiting cities yeah. The biggest migration from cities to suburbs in history and biggest migration to second homes in history.

Speaker 3: So you got a lot of people that moved at a record rate. You got a lot of people locked into really low interest rates. Now you've got really high interest rates, and you have no inventory in the market. You have no inventory in the market because people can't afford to buy a new home once they sell their home because they're going to trade a 2.7% to 3.4% interest rate for, call it a 7%, 7.2% interest rate, maybe at the midpoint.

So you got a lot of people that move at a record rate you've got a lot of people locked into really low interest rates.

Now you've got really high interest rates.

And you have no inventory in the market and you have no inventory in the market because people can't afford to buy a new home 11, they sell their home because they're going to trade it.

But two seven to three by three 4% interest rate for you know call. It a 772% interest rate it maybe at the midpoint.

Speaker 3: And so you've got a lock on that. Well, we're gonna be into cycle this. So if the Fed has...

And so you've got a lock on that well work, we're going to be end of cycle. This so if if there if if the fed has <unk>.

Speaker 3: CPI, if they have inflation or control, and we don't, you know, there doesn't have to continue to be kind of tightening.

CPI you know if if if if if they have inflation under control and we don't you know that doesn't have to continue to be kind of tightening.

Speaker 3: The question is when do home prices come down enough for people to step up and pay the higher rate or when do rates come down and close that gap? Either housing prices have to come down or interest rates have to come down or the gap doesn't close. So you may kind of wallow at the bottom or there could be a further down draft if there's a more broader economic issue in the economy or if anything is happening with...

You know the question is when do home prices come down enough for people to step up and pay the higher rate or when do rates come down.

And close that gap either housing prices have to come down or interest rates have to come down or.

The GAAP doesn't close right. So you may kind of wallet with the bottom or there could be you know further downdraft, if theres a more broader.

Economic issue in the economy or if anything is happening with.

Speaker 3: The commercial market with offices is not a good market. Our view is not all that negative news is kind of unveiled itself. So there's, but we're from our view, we're kind of at the end of the worst of it. It's, is there going to be a bounce? I mean, you know.

The you know the.

The commercial market with with offices, you know, it's not a good market.

And our view is not all that negative news is kind of you know unveiled.

Unveiled itself, so say theirs.

But where we're from our view, we're kind of at the end of the worst of it. It's it's you know is there going to be a bounce.

I mean, yeah.

Speaker 3: If you look forward at the market to saying that we should expect interest rate cuts.

If you look forward at the market is saying that we should expect interest rate cuts.

Speaker 3: You know, starting next year in Q2, Q3, you know, on a Q4, maybe 100, you know, basis points. You know, it's 100 basis points of interest rate cuts, move the housing market much, maybe it moves it a little.

Starting next year in Q2, Q3, Q4, and maybe 100 basis points, it's 100 basis points of interest rate cuts moved the housing market much like maybe it moves it a little.

Speaker 3: But I think there's going to be a bigger, you got to close this gap. You know, it's a gap that I've never seen. I don't think anybody on the phone has ever seen.

But I think there's going to be a bigger you've got to close this gap a gap that I've never seen I don't think anybody on the phone has ever seen.

Speaker 3: that's created kind of a conundrum in the housing market. And then you've got, look, the news in the press is, oh, new houses are up 20%. Well, new houses.

That's created kind of a conundrum in the housing market and then you've got yeah look the news in the press says Oh, new houses are up 20%, while new houses or only 10% of the market.

Operator: Good afternoon, my name is Christa, and I'll be your conference operator today. At this time, I would like to welcome everyone to the second quarter, 2023, our H-Q&A conference call. All lines have been placed on mute to prevent any background noise. After the speakers remark, there will be a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, press the pound key. We also ask that you limit yourself to one question, and please re-Q. Thank you.

Speaker 3: or only 10% of the market. The existing home sales is 90% of the market. So until you get existing home sales and this market's stabilized and not a downdraft, that's going to be critical. So we expect stabilization, we think, next year.

<unk> home sales is 90% of the market. So until you get existing home sales and this market has stabilized.

A downdraft.

That's going to be critical so we expect stabilization, we think next year.

Speaker 3: We don't think there's going to be acceleration until there's interest rate cuts or pricing comes down. Home prices come down to kind of close that gap.

We don't think there's going to be acceleration until there's interest rate cuts or or pricing comes down home prices come down to kind of close that gap.

Speaker 3: So let's put that off to the side. That's one issue. Then you've got what we're doing, which is a complete...

So, let's put that off to the side that's one issue.

Allison Malkin: I will now turn the conference over to Allison Malkin of ICR.

Then you've got what we're doing which is a complete.

Allison Malkin: You may begin your conference. Thank you. Good afternoon, everyone. Thank you for joining us for our second quarter, fiscal 2023, earnings conference call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer, and Jack Preston, Chief Financial Officer.

Speaker 3: transformation, reimagination, refresh of the brand that we've been working on now for several years. It's gonna be unveiled here over the next several quarters. So.

Transformation and re imagination refresh of the brand.

That we've been working on now for several years its going to be unveiled here over the next several quarters. So.

Speaker 3: the early indications on the books. And again, we're hitting 40% of the books in home, by the end of this week.

The early indications on the books and again, we're hitting 40% of the books in home.

Allison Malkin: Before we start, I would like to remind you of our legal disclaimer that we will make certain states that are forward-looking within the meaning of the federal securities laws, including statements about our outlook of our business and other matters referenced in our press release issue today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filing, as well as our press release issue today, for a more detailed description of the risk factors that may affect our results.

By the end of this week look really good you know the early early indications now you've got to be careful and you know how.

Speaker 3: look really good. You know, the early, early indications. Now you gotta be careful and, you know, how you extrapolate that, because you have to extrapolate it on, okay, what does this look like when all the books get in home, what does this look like when, you know, the Instox reach the best their optimum levels, what does this look like when you start, you know, refreshing the galleries and the stores, what does, there's all lift factors, all of that.

How do you extrapolate that gives you have to extrapolate it on okay. What does this look like when all of the books get in home what does this look like when.

You know the in stocks reach their desk their optimum levels. What does this look like when you start you know.

Refreshing the galleries in the stores with those are resolved lift factors to all of that.

Speaker 3: So when we look at this and we extrapolate this we we think there's going to be a real inflection

Allison Malkin: 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 for future events.

So when we look at this and we extrapolate this we think theres going to be a real inflection point you know how.

Speaker 3: You know, how big is that impression point? Yeah, it's, to us, it looks like a...

How big is that inflection point.

Yeah, it's it's.

To us it looks like a meaningful inflection point.

Speaker 3: And then there is, you know, part of our decision to kind of push the mailing into Q3 was to kind of take a longer-term view of what should be our contact strategy.

And then there is a.

Allison Malkin: Also, during this call, we may discuss non-gap financial measures, which adjust our gap results to eliminate the impact of certain items. You will find additional information regarding these non-gap financial measures and a reconciliation of these non-gap to gap measures in today's financial results press release. A live broadcast of this call is also available on the Invest Relations section of our website at ir.rh.com.

Part of our decision to kind of.

Pushed the the mailing into Q3 was to kind of take a longer term view of what should be our contact strategy.

Speaker 3: As we've now, we are going through this brand refresh and reimagination and repositioning.

As we've now are going through this brand refresh and re imagination and repositioning.

Speaker 3: And our view is, you know, we've through history, we went through cycles where we contact the customer twice a year, you know, with each book and periods where, you know, years where we contact the customer once a year, you know, one kind of big cycle of mailing.

And our view is you know we've through history, we went through cycles, where we contact the customer twice a year.

With each book in periods, where yours, where we contact the customer 11, a year, one kind of big cycle of mailings.

Allison Malkin: With that, I'll turn the call over to Gary. Thank you.

Gary Friedman: Let me begin with our letter to our people, partners, and shareholders. Revenues of 800 million and adjusted operating margin of 22.2% exceeded our guidance for the second quarter due to a $25 million revenue benefit from faster than expected deliveries, and a shift of approximately 40 million of advertising costs from Q2 to Q3, reflecting the later mailing of our R.H, and Tearious source book. We are raising the low end of our revenue guidance for the year, and now expect revenue in the range of 3.04 billion to 3.1 billion versus our prior outlook of 3 billion to 3.1 billion, and our maintaining our outlook for adjusted operating margin of 14.5 to 15.5%.

Speaker 3: And our view is, I think we better re-acclimate the consumer to, you know, the RH brand, to, you know, the newness, the excitement that's in the brand and everything we're doing. And our view is to set up a two-contact strategy.

And our view is I think we've got a re acclimate the consumer to the.

The RH brand to the newness the excitement that's in the brand and everything we're doing in our view is to set up eight to contact strap.

Strategy.

So so the timing of those contracts contacts we should that we believe should be a full contact.

Speaker 3: So the timing those contacts we believe should be a fall contact, you know, fall contact in the spring contact. How I'd frame it.

Yeah Yeah.

Yeah, Paul contact into spring contact.

That's how I'd frame it.

Speaker 3: The fall being kind of a mid to late August contact that gets in home by end of September , our books. In our special, our interior book is 604 books. Nobody does a 604 book page book than other than us. And getting that printed and bound and through the system takes longer than it will on our other two books that will be more in the 300 page range.

Ball being kind of the mid.

Mid to late August contact that gets in home.

By the end of September our books, especially Iron Terry books. Our interior book is 604 books Nobody does at 604 book Beige book there.

Gary Friedman: We continue to expect the luxury housing market and broader economy to remain challenging throughout fiscal 2023, and in the next year, as mortgage rates continue to trend at 20-year highs, and the current outlook for rates to remain unchanged until the second quarter of 2024. The company repurchased 3.7 million shares in the second quarter at an average price of 325, 65, representing approximately 17% of the total shares outstanding at the beginning of the second quarter.

Other than us and getting that printed and bound and through you know through the system takes longer than it will on our on our other two books that will be more in the 300 page range.

Speaker 3: I so you know we've got this first contact that'll get all in home kind of call it end of September 1st, week of October

So you know we've got this first contact that it'll get all in home kind of call. It end of September 1st week of October .

Speaker 3: And then we're going to come out with the contemporary book, kind of mid-October through late-October, and then we'll come with the January book, with the contemporary book in the October period, and then the modern book in early January , when people get back from holidays and so on and so forth, and everything reopens again.

And then.

We're gonna come out with the contemporary book.

Mid October through late October and then we will come with the January book with.

Gary Friedman: Product elevation. We recently emailed our new 604 page, our H Interior Source book, and while it's too early to read the response with only 40% of the mailing in the home this week. The early indications do look promising. We continue to expect our business trends to inflect in the second half of this year with the mailing of our R.H. Contemporary Source book in late October and our R.H. Modern Source book in early January, as well as the refresh of our galleries over the next several quarters.

With the contemporary book and the October period, and then the modern book in early January when people get back from yeah from holidays, and so on and so forth and everything reopens again.

Speaker 3: Then we'll cycle back around and we'll hit everyone with this next contact. You know, if you'll get over 12 months period.

Then we will cycle back around and we'll hit everyone. This this next contact if you'll get over 12 month period.

Speaker 3: And that will be kind of a March, April , May, June contact. And so the three books we'll hit again, we'll have another meaningful round of nooness coming. And by the end of that contact, we will be kind of

And that will be kind of as you know.

March April May June contact.

Gary Friedman: We begin, we believe our inflection point will peak in the first half of 2024 as our new collections for fully ramp and we begin another cycle of source book mailings completely transforming and refreshing the assortment across the entire brand over 12 month period. We believe the new collections reflect a level of design and quality inaccessible in our current market and a value proposition that will be disruptive across multiple markets, positioning our H to gain market share throughout fiscal 2024.

And so the three books will hit again.

We'll have another.

Meaningful round of newness coming.

And by the end of that contact we will be kind of.

Speaker 3: fully transitioned doesn't mean we won't have new product in the next contact when you think about the next fall. But the percentage in units will be more in the 15 to 20% range where this is basically an 80% refresh of the brand. It's massive. It's the biggest product move I've ever made in the history of my career and I've made some pretty big products.

Fully transition doesn't mean, we won't have new product in the next contact when you think about the next fall.

But the percentage of newness will be more in the 15% to 20% range, where this is basically you know in the 80% refresh of the brand it's massive.

The biggest product move I've ever made in the history of my career and I've made some pretty big product lives.

Gary Friedman: While a product transformation of this magnitude will be margin dilutive in the short term as we cycle out of waning collections, we believe it will once again become margin accretive as selling rates stabilized and allow our supply chain and sourcing allow for supply chain and sourcing efficiencies.

Speaker 3: So you've got to kind of think about how you're spreading it out, you know, how much consumer digest at a time. You know, how you're going to read it correctly and how you're going to have the contacts, you know, not overwhelm them and the news not overwhelm them. So as we kind of took, you know, a bigger view at it instead of, you know, this kind of one view and looked at it more, you know, how do we think about it strategically, maybe call it over the next three years. We think this is the right contact strategy.

So you got to kind of think about how you spread it out how much can the consumer digest at a time, you know how you're going to read it correctly and how you're going to have the contacts.

You know not overwhelmed him and the new news not overwhelm them. So as we kind of took a.

Gary Friedman: Platform expansion. Our plan to expand the R.H, brand globally address new markets locally and transform our North American galleries represents a multi billion dollar opportunity. This summer, we introduced R.H, to the United Kingdom in a dramatic and unforgettable fashion with the opening of R.H. England, the gallery at this historic Einhope Park. At 17th century, 73 acres state that is a celebration of history, design, food and wine. We had a spectacular turnout for our opening event in early June and the national and global press coverage the brand received was multiple times greater than any gallery we've ever opened.

Bigger view at it instead as you know this is kind of one view and looked at it more you know how do we think about it strategically maybe call. It over the next three years. We think this is the right contact strategy.

Speaker 3: and we'll create by the peak of the inflection, I think it will be really meaningful. I think we will gain.

And we.

We will will create.

By the by the peak of the inflection I think it will be really meaningful I think we will gain.

Speaker 3: significant market share, you know significant market share versus anybody else in our category.

Significant market share significant market share versus anybody else in our category.

Speaker 3: And I think the other thing that put into context is just, you know, how we think about disruptive pricing.

And I think the other thing to put into context is just you know how we think about disruptive pricing.

Speaker 3: from a circular point of view. Which I think, you know, we've, you know, in our effort to elevate the brand, you know, I think we, you know, we weren't as kind of critical-minded looking at price.

From a circular point of view.

Gary Friedman: Due to our H. England's countryside location, we expect the majority of revenues to be driven by our interior design and trade businesses, which are dependent on building books of business, books of business with high value, repeat clients like interior design firms and hospitality projects. The quote books are building and we'll soon mail our first source book in the United Kingdom. While pleased with the early response, there is still much to learn about the seasonality of the business in the English countryside, especially in the winter season.

Which I think you know we've.

In our efforts to elevate the brand.

You know I think we.

We werent as kind of critical minded looking at price.

Speaker 3: I mentioned Flash Conference calls. I thought we probably were a bit arrogant looking back.

I mentioned last conference call.

I thought we probably were a bit arrogant looking you know looking back.

Speaker 3: And now I think we're laser focused and laser sharp. So we're going to be very aggressive. We're going to use the size and strength of our platform and the leverage it gives us to be disruptive from a pricing point of view. And I think that's going to make a meaningful impact. I think if you look at the new book.

And now I think we're laser focused in laser sharp, so where we're going to be very aggressive.

Can you use the size and.

Gary Friedman: We will know more once we start mailing source books and experience a couple of seasons. Our global expansion also includes opening of openings in Dusseldorf and Munich later this year with Paris, Brussels and Madrid scheduled for 2024 and London, Milan and Sydney for 2025. Regarding our North American transformation, we continue to plan opening R.H. Indianapolis and R.H. Cleveland in the second half of this year, while R.H. Palo Alto and R.H. Montecito will now open in early 24.

Strength of our platform and leverage it gives us to be disruptive from a pricing point of view and so and I think that's going to make a meaningful impact I think if you look at the new book I, you know and you look at the messaging and then you look at the key items and you look at the key collections.

Speaker 3: You know, and you look at the messaging and you look at the key items and you look at the key collections You know and you look at the quality of the product, you know the design The quality design and the quality the make of the product and you look at the

You look at the quality of the product design, the quality design and the quality of the make of the product and you look at that.

Speaker 3: value that the price value of that product, I think it's going to disrupt a lot of people.

Value the price value of that product I think it's going to disrupt a lot of people.

Gary Friedman: Additionally, we have 12 North American galleries in the development pipeline scheduled to open over the next several years. We also believe there's an opportunity to address new markets locally by opening design studios in neighborhoods, towns, and small cities where the wealthy and affluent live visit invocation. We have several existing locations that have validated the strategy in East Hampton, Gantville, Las Gatos, Pasadena, and our former San Francisco gallery in the design district, where we have generated annual revenues in the range of 5 to 20 million in 2000 to 5,000 square feet.

And so.

Speaker 3: I think we're, you know, worst confident as we've ever been. I think, you know, that's the timing. And then the unknown is, what does the housing market do? Is it flat? Does it go down another 5 or 10 percent? Or do we get a bounce? You know, regardless of whatever happens with the housing market, we're going to have a meaningful inflection point with the business and the brand.

I think where we're as confident as we've ever been I think that's the timing and then the unknown is what does the housing market do is it flat. It does it go down another five or 10% or do we get a bounce.

Regardless of whatever happens with the housing market, we're going to have a meaningful inflection point with the business and the brand.

Speaker 3: And that's why we deployed the capital. That's why we bought the back 17% of the shares, 3.7 million shares. And so we...

And.

That's why we deployed the capital that's why we bought back 17% of the shares $3 7 million shared chairs.

Gary Friedman: We have just secured our first new location for design studio and palm desert, which should open in the first half of 2024. We have identified over 40 locations that are incremental to our previous plans in North America and believe the results of these design studios will provide data that could lead to opening larger galleries in those markets.

Sure.

And.

Yes so.

We like we like what.

What we see early with the books here.

Speaker 3: We like, you know, our strategy. I think we're laser focused on this.

We like our strategy.

I think we are laser focused on this.

Speaker 3: And, you know, I think we're gonna come out looking really good. So...

And.

I think we're going to come out.

Gary Friedman: Outlook. As mentioned, we are raising the low end of our revenue guidance for the year to a range of 3.04 billion to 3.1 billion and maintaining our outlook for adjusted operating margin in the range of 14.5% to 15.5%. We estimate the 53rd week will result in revenues of approximately 60 million. For the 3rd quarter of fiscal 2023, we are forecasting revenues of 740 million to 760 million and adjusted operating margin in the range of 8% to 10%.

Looking really good.

<unk>.

That's how we see it.

Thank you Gary.

Speaker 1: Your next question comes from the line of Issymian Gutemann from Morgan Stanley . Please go ahead.

Your next question comes from the line of Simeon Gutman from Morgan Stanley . Please go ahead.

Speaker 4: Hey Gary, hey Jack. My question, one question, maybe two parts, is you mentioned product transformation and margin delusion. Is that all contained to 23 or to some of it move into 24? And then Gary, to your point, if this market wallows a little and we do have another down draft.

Hey, Hey, Gary Hey, Jack Mike My question. One question, maybe two parts as you mentioned product transformation and margin dilution.

Is that all contained to 'twenty three or just some of it move into 'twenty four and then and then Gary to your point, if this market Wallows, a little and we do have another downdraft.

Gary Friedman: We expect to have increased advertising costs of approximately 50 million versus Q2 2023, reflecting the shifting of the RH Interior Source Book from Q2 to Q3, the mailing of our our contemporary source book and the mailing of our first source book into the United Kingdom. For the 4th quarter of fiscal 2023, we are forecasting revenues of 760 to 800 million and adjusted operating margin in the range of 14.4% to 16.6% with incremental advertising costs of 5 million versus the 4th quarter of last year.

Speaker 4: Given that you have leverage, or the business has leverage now, or a little more than it, it's normally used to, do you operate anything differently if the macro just takes longer to come out and then maybe the curve is steeper in later years, but it's flatter in the medium term. Yeah, I think by this first half of next year, the inflection is going to be much more significant than the macro. I don't think it changes anything for us.

Given that you have leverage or the business has leveraged now or a little more than it's normally used to do you operate anything differently. If the macro just takes longer to come out and then maybe the curve is steeper in later years, but it's flatter than in the medium term yeah, I think I think by the first half.

Next year. The inflection is is going to be much more significant than the macro.

So I don't think it changes anything for us.

On the margin dilution Simeon.

Speaker 5: Look, I think about it also just where the margin or the discounting activity and clearance of that inventory will be in Q1 of 24 versus Q1 of 23. So yeah, there's going to be still some of that in the first part of the year, but there's going to be, I think about it. Yeah, that's two things, right? You've got margin delusion.

Look I think I'll I think about it also just relative where the margin.

Gary Friedman: RH Business Vision and EcoSystem, the long view. We believe there are those with taste and no scale and those with scale and no taste. And the idea of scaling taste is large and far reaching. Our goal to position our H as the arbiter of taste 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, scaling and rendering their work more valuable across our integrated platform, enabling RH to curate the most compelling collection of luxury home products on the planet.

Or the discounting activity and clearance of that inventory will be in Q1 of 24 versus Q1 of 'twenty three so yes, theres going to be still some of that.

In the first part of the year, but but there's going to be I think about it there's two things right you've got margin dilution.

Speaker 3: From a product margin point of view is we're transitioning the assortment. But you're going to have leverage and margin accretion throughout the model based on what we believe will happen with our top line.

From a product margin point of views, where is where trends transition in the assortment and.

But youre going to have leverage.

And margin accretion.

With throughout the model based on what we believe what will happen with our top line.

Gary Friedman: Our efforts to elevate and expand our collection will continue with the introductions of RH picture, RH bespoke, RH color, RH antiques and artifacts, RH atelier, and other new collections 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 curating and 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 and place make.

So.

Speaker 3: Yeah, I think 24 is going to be a very good year unless there is some kind of crazy crisis.

Yeah, I just I I think 24 is going to be a very good year.

Unless there is some kind of crazy crisis.

Speaker 3: that you know we don't believe is on the horizon. You know, I think that

That.

We don't believe is on the horizon.

I think that Ah I think.

Speaker 3: you know, the history would tell us if, if, yeah.

You know the history would tell us if it yeah.

Speaker 3: Things really got worse that the Fed is going to ease, you know, like if I look back at the last 20 years, I mean, the Fed's been very consistent. We've lived in a very long period of really low interest rates with just a few slight blips, you know, that are high. And I think the Fed.

Things really got worst at the fed is going to ease.

No.

Look back at the last 20 years I mean, that's been very consistent we've lived in a in a very long period of really low on interest rates with just a few slight blips that are high and I think the fed.

Speaker 3: you know, we'll act in a way that will stimulate the economy again. So, and then housing will, at some point, housing will take off. Right? You've got a lot of...

Gary Friedman: Cooper, Our products are elevated and rendered more valuable by our architecturally 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 into our guest houses where our goal is to create a new market for travelers seeking luxury and privacy in the $200 billion dollars North American hotel industry.

Yeah. It will act in a way that will stimulate the economy again so.

And then housing will at some point housing will take off right you've got you've got a lot of.

Speaker 3: pent up demand. It's just that, you know, the demand can be super pent up, but if the gap doesn't change, right? If either pricing doesn't come down or interest rate gap doesn't change, interest rates have to come down. One of the two things happened, they both happened, prices come down, and the Fed uses, you know, you can get it. I think we can get a really good bounce in the housing market, but, you know, we just can't control that. We have a point of view on it. You know, share a point of view. We, you know, look at a lot of things. We just can't control that.

Pent up demand.

Yes, it did.

The demand can be super pent up, but if the gap doesn't change right either pricing doesn't come down or interest rate gap doesn't change interest rates have come down and one of the two things happened if they both happened prices come down and the fed eases.

Gary Friedman: Additionally, we are creating bespoke experiences like R.H. Yantville, an integration of food, wine, art, and design in the Napa Valley, R.H.1 and R.H.2 are private jets, and R.H.3 are luxury yachts that is available for charter in the Caribbean and Mediterranean, where the wealthy and affluent visit invocation. 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 brand and amplifying our core business, while adding new revenue streams, while disrupting and redefining multiple industries.

You can get or I think we can get a really good jobs and the housing market but.

We just can't control that we have a point of view on it yeah sure a point of view, we look at a lot of things.

Speaker 3: You know, we've got a lot of data that we study. The key for us is, you know, if you're, we think about the balance sheet which we do. I mean, you know, we, you know, deployed a lot of capital with a lot of confidence in the model. You know, we're in the middle of a transformation. It's not, you know, this is not.

It's got a lot of data that we study them.

The key for us as you know.

If we think about the balance sheet, which we do.

We deployed a lot of capital that we have a lot of confidence in the model.

You know we're in the middle of a transformation. It's not you know this is not.

Speaker 3: By any means, the first time we've done it, it's the biggest thing we've ever done.

By any means the first time, we've done it it's the biggest thing we've ever done.

Speaker 3: But, you know, our experience in making moves like this is deeper than anyone in this industry.

But you know are experiencing in making moves like this is is deeper than anyone in this industry.

Speaker 3: and you know and we're laser focused on it and you know we understand

And you know and we're laser focused on it and yeah, we understand.

Speaker 3: You know, we understand our balance sheet really well and, you know, what our cash flow is going to be like and, you know, the timing of capital and, you know, outflows and, you know, and projected inflows and we, you know, all kinds of downside models and know how to operate in any kind of environment, you know, any kind of difficult environment.

Gary Friedman: Our strategy comes full circle as we begin to conceptualize and sell spaces, moving beyond the hundreds hundred and seventy billion dollar furnishings market into the 1.7 trillion North American housing market with the launch of R.H. Residences, relief furnished luxury homes, condominiums, and apartments with integrated services that deliver taste and time value to discerning time-starved consumers.

You know, we understand our balance sheet really well.

Our cash flow is going to be like and you know the timing of capital and outflows.

And projected inflows and we have all kinds of downside models and know how to operate in any kind of environment, you know any kind of a difficult environment.

So.

Speaker 3: Yeah, we don't fear the leverage and we've had a lot more leverage on this business and people have seen us navigate through those situations.

Yeah, we don't we don't.

Fear the leverage and we've had a lot more leverage on this business and people have seen us navigate through those situations.

Gary Friedman: The entirety of our strategy comes to life digitally with the world of R.H. An online portal where customers can explore and be inspired by the depth and dimension of our brand. Our authority as an arbiter of taste will be further amplified when we introduce R.H. Media, a content platform that will celebrate the most innovative and influential leaders who are shaping the world of architecture and design.

Speaker 3: and it's relatively uninterrupted. Uninterrupted way except for the real depth of 2008-19 or something like that.

In a relatively interrupted uninterrupted way except for the you know the real depths of 2008, nine or something like that.

Speaker 3: So we feel great, but I think the key headline I'd say, you know, I just would be really, you would be shocking if we don't outperform whatever macro.

So we feel great and you know, but I think the key headline I'd say you know I I just would be really it would be.

Be shocking if we don't outperform whatever macro.

Gary Friedman: Our plan to expand the R.H, ecosystem globally multiplies a market opportunity to 70-10 trillion, one of the largest and most valuable addressed by any brand in the world today. One percent share of the global market represents a 70-100 billion dollar opportunity. Our ecosystem of products places services and spaces inspires customers to dream, design, travel and live in a world thoughtfully curated by R.H. Creating an emotional connection unlike any other brand in the world. Taste can be elusive and we believe no one is better positioned than our age to create an ecosystem that makes taste inclusive and by doing so, elevating and rendering our way of life more valuable.

Speaker 3: might happen in the first half of next year, unless it is so severe, you know, that it becomes some kind of crippling thing across the economy. And I just don't think that's gonna happen. I think that, you know, the Fed's gonna do the things that the Fed, you know, usually does.

Might happen in the first half of next year unless it is so severe.

It becomes some kind of a crippling thing across the economy and I. Just don't think that's going to happen I think the fed's going to do the things that the fed yeah, usually does.

Speaker 3: And if we get any kind of stabilization or uptick in the market, like we'll have an incredible.

And if we get any kind of stabilization or uptick in the market.

Like we will have an incredible year.

Speaker 3: I think we're set up better than we've ever been set up in the history of the business. And I think we'll have, you know, the biggest thing.

I think we're set up better than we've ever been setup in the history of the business.

And I think we will have.

The biggest inflection point.

Speaker 3: we've ever had is my view by, you know, by Q2 of next.

We've ever had is my view bye bye bye by Q2 of next year.

Speaker 3: You know, it'll be an inflection point before that. But I think we'll peak when I... You know, it'll be an inflection point before that.

It'll it'll there'll be an inflection point before that but I think we will peak when I look at all yeah.

Gary Friedman: The end of COVID confusion, the beginning of the next evolution. We've spent far too much time or the past four years debating if this was going to be the decade of home or the death of retail. If inflation was transitory or fiscal tightening was mandatory. Home sales and prices shooting up like a rocket and now falling to Earth like a rock. For the first time in my career, repealers were comparing their growth rates to anyone of the past four years in any given month of any given year.

Speaker 3: you know, all the lines and, you know, I think about production and in stocks and floor sets and all that, you know, all the transition moves we have to make. I think that, you know, and the second cycle of the books, I think, you know, it will start to peak then and then I think we're going to have an incredible run.

All the lines.

I think about production and in stocks and floor sets and all that you know all the transition moves we have to make I think that you know in the second cycle of the books I think.

It will start to peak then and then I think we're going to have an incredible Brian .

Yes.

Speaker 1: Your next question comes from the line of Stephen Zakone from City. Please go ahead.

Your next question comes from the line of Stephens <unk>, calling from Citi. Please go ahead.

Speaker 6: That's a minute. Thanks for taking my question. So I wanted to shift to the R.A. JINGLE and opening. It sounds like it's a good successful opening event, but it'll take some time to maturity. Do you expect the rest of your international openings to resemble this maturity curve? Or is this the longest one since it's kind of your first?

Gary Friedman: The fact is, we're directionally in the same spot we were four years ago. We're in about a financial recession, and the polls saying we might have a presidential regression. If there was ever a time the world needed a compass, this might be it. The people of Team RH are compasses, our vision, values, beliefs, and culture, those things that drive us and unite us. Those things we live for would fight for and die for.

Good afternoon. Thanks for taking my question. So I wanted to shift to be RH, England opening it sounds like it's good successful opening event, but it will take some time to maturity do you expect the rest of your international openings to resemble this maturity curve or is this the longest one census kind of your first and then similarly the.

Speaker 6: And then similarly, the letter confirmed nine international openings by 2025. Can you talk a bit more about the pace of annual openings for international going forward? Is three kind of the right number? Thanks.

The letter confirmed nine international openings by 2025 can you talk a bit more about the pace of annual openings for international going forward is three kind of the right number. Thanks.

Gary Friedman: After several years of being a part during COVID, we finally returned to the Palace of Fine Arts Theatre in San Francisco, for what used to be our annual leadership conference, and we talked about those things. For the first time in the past four years, everything came into focus. Clear replaced fear and connections were personal and not virtual. It felt different because it was different. There is a different level of accountability when someone is standing in front of you, looking straight into your eyes and making a suggestion or a request versus blankly into a screen, not knowing if those on the other end have you on mute or just aren't very interested.

Speaker 3: Yeah, let's start first of all. What one, are you chingling, send like anything we've ever opened? Not just because of an international perspective, but really the kind of location and our view of how we wanted to introduce the brand, and when we wanted to introduce the brand. When we wanted to introduce the brand in a very unique and unforgettable fashion, just because that...

Yes, let's start with your first of all what wasn't RH England's unlike anything we've ever opened not just because of an international perspective, but really the kind of location and our view of how we wanted to introduce the brand and when we wanted to introduce the brand when we wanted to introduce the brand in a in a very.

<unk> unique and unforgettable fashion.

Just because that.

Speaker 3: The US isn't really seen.

The U S isn't.

Isn't really seen from a European perspective, when you think about design taste and style luxury market and so forth.

Speaker 3: from a European perspective, when you think about design, taste, and style, luxury markets, so on and so forth, that's not really the game we play really well. I think I made the comment before, the only true luxury brand

Gary Friedman: It's time to break the bad habits of COVID. It's time to get off the screens, get out of our home office and reconnect in our team office. As we did at the Palace, it just felt different because it was different and I'm sure it's going to lead to an outcome that's different. Yet it also felt familiar, like finding our way back home, back with our people where none of us are smarter than all of us, getting all the brains in the game and the egos out of the room, listening and learning, discussing and debating, elevating and aligning. It felt like the beginning of our next evolution and it felt like we were beginners again. Never underestimate the power of a few good people who don't know what can't be done, especially these people.

That's not really the game, we play really well I think I've made the comment before that.

The only true.

Luxury brand.

Speaker 3: you know we've had I think the United States, you know, it's Tiffany and now the French owner, right? And all the luxury brands are from Europe .

We've had I think in the United States.

As Tiffany and now the French one it right and all the legacy brands or from Europe . So how are we going to go into that world and introduce ourselves we thought that was really important and so.

Speaker 3: So how are we going to go into that world and introduce ourselves? We thought that was really important. And so, and we also thought the timing, like how do we...

And we also thought the timing like how do we kind of.

Speaker 3: kind of get the name known and establish ourselves in a unique way.

Get the name known and establish ourselves in a in a unique way.

Speaker 3: And we could have waited and opened Paris first, or we could have waited and opened London first. We would have had a wait longer and we came across this opportunity at this property and we thought this could be something remarkable. It could be a really great introduction for the brand. And I've always said that we've made the decision on R.H. England because of its location. It's an hour and 45 minutes outside of London. It's in the Cox World. The

And we could have waited and opened Paris first or we could have waited and opened London first we would have had to wait longer and we came across this opportunity at this property and we thought this could be something remarkable it could be a really great introduction for the brand and you know I've always said that we've made.

Gary Friedman: Onward PMRH, happy day.

Operator: At this time, we'll open the call to questioning. If you would like to ask a question, please press star one on your telephone keypad. And as a reminder, please ask one question and then req.

The decision on RH, England because of its location you know, it's an hour and 45 minutes outside of London, and it's in the Cotswolds.

Speaker 3: You know, it's around, you know, wealthy and a full of people, but it's not around density. You don't have anybody kind of walking by this.

Yeah, it's around wealthy and affluent people, but it's not around density you don't have anybody kind of walking by this gallery you know like it's not it's it is a true destination.

Steven Forbes: Your first question comes from the line of Stephen Forbes from Google Hymne Securities. Please go ahead. Good afternoon, Gary Jack. Gary, I was hoping you could maybe just expand on what's driving your confidence and seeing a reflection in the business during the back half. And what the early education from the origin, period, or books. And I guess our agenda as well inform you about what the potential re acceleration in demand could look like as we think out the 24 in beyond.

Speaker 3: gallery, you know, like it's not, it's, it is a true destination. And it's, you kind of got to go out of your way, you know.

And it's and it.

Kind of got to go out of your way.

Speaker 3: but you're going to something that's spectacular that you've never seen before. So the impression of it is like nothing else. And I don't want to make the wrong comparison here, but if you just think about kind of...

But youre going to something Thats spectacular that you've never seen before so the impression of it.

Is like nothing else and and you know I don't want to make the wrong comparison here, but if you just think about kind of.

Speaker 3: Things that have went into the, you know, what I call the middle and nowhere and changed everything. You know, you think about Disneyland. Disneyland opened in the middle and nowhere. If you went back, did, when they opened that, the middle of an orange orchard, and there was no one around. You know, no one, there was no population density anywhere near it.

Things that have went into the you know what I call the middle of nowhere and changed everything.

Gary Friedman: Sure. I think there's a couple of dynamics happening. I think you've got kind of a cycling of the, you know, backside of COVID. And you've got a cycling of the. You know, the dramatic rise and interest rates and the, you know, and the fall off of the highs of what I call a COVID and a zero, you know, federal fund rate driven home market. So, you know, from our view, I think that cycling happens at the end of this year.

You think about Disneyland Disneyland opened in the middle of nowhere. If you went back to when they open that's the middle of an Orange Orchard and there was no one around.

No there was no population density anywhere near it.

Speaker 3: And it changed everything if you think about, you know, lost Vegas.

And it changed everything if you think about you know.

Las Vegas.

Speaker 3: you know, lots of agus didn't exist. You know, it was created. And I'm not trying to make a correlation that's exactly right. And I'm not trying to make a correlation that's exactly right.

Las Vegas Didnt exist.

It was created and I don't I'm not trying to make a correlation that's exactly right what I'm trying to say is.

Speaker 3: We're trying to create a brand, you know, at a level of the market that hasn't been created before.

We're trying to create a brand you know are you know.

Gary Friedman: And the question is, you know, the question is, is there a longer down draft in the, you know, in the home cycle? I think that the answer answered questions really deal with, you know, if you say, what's the problem with the housing market today? You've got this real delta in interest rates between people who bought a home or the last several years at dramatically low interest rates that are sitting there with 2.7 to call it 3.4% interest rates, 90% of the market is fixed.

The level of the market that hasn't been created before year end.

Speaker 3: And our view was that this was a decision that was more to drive a conversation than it was to drive commerce. We never thought this was going to be a high volume gallery.

And our view was that this was a decision that was that was more to drive a conversation than it was to drive commerce. We never thought this was going to be a high volume gallery.

Speaker 3: But we didn't think it'd be no volume. I think it's going to be fine. I think it would take much longer. If you took anything like this and put it in London, I mean, it's going to do multiple times, immediately multiple times faster. It's a little inconvenient, but it's extraordinary. And a lot of really extraordinary things in the world started to be...

But but we didn't think it would be no volume you know I think it's going to be fine I think it would take much like if you took anything like this and put it in London I mean, it's gonna do multiple times immediately multiple times faster you know, it's a little inconvenient, but.

Gary Friedman: So, you've got 90% of the market owning homes with really low interest rates. And you've got an interest rate gap, you know, current 30-year mortgages are going for 7%, somewhere between 6.8 to 7.4. You know, it's kind of the range depending on credit. So, you've got a huge spread there. And what's compounding that huge spread is you haven't had home prices drop enough yet, right, to offset that margin spread. You know, if home rates dropped, you know, home prices went up 42% in the two years, you know, in the two years post the COVID, you know, through the COVID boom, you know, once COVID hit.

But it's extraordinary and and a lot of really extraordinary things in the world.

Started this has been inconvenient.

Speaker 3: Right. It was inconvenient to get an iPhone. Inconvenient to get a test.

Right. It was inconvenient to get an iPhone inconvenient to get a Tesla.

Speaker 3: you know, how long did people wait to get a Tesla? How long did people wait? Yeah, how long did they wait to get the new roaster or the cyber truck, you know? So, you know, you've got to kind of...

Now how long did people wait to get a Tesla how long people wait yeah.

How long are they waited to get the new roadster or the or the cyber truck.

So it's you've.

You've got to kind of.

Speaker 3: Think about what are the long term things you're trying to do. You know, we're trying to...

Think about what are the long term things you are trying to do we're trying to.

Shape.

Speaker 3: the brand in a way that, you know, brand has never been shaped before. Introduce the brand to Europe where the luxury brands are and create the right conversation with the right people and create that right halo for this whole thing to then

The brand in a way that's brand has never been shapes before introduce.

Gary Friedman: And there was a, you know, everybody was stuck at home and, you know, focused on exiting cities. Yeah, the biggest migration from cities to suburbs and history and biggest migration to second homes in history. So, you've got a lot of people that move, you know, to record rate. You've got a lot of people locked into really low interest rates. Now you've got really high interest rates. And you have no inventory in the market.

Introduce the brand to Europe , where the luxury brands are and create the right conversation with the right people.

And create that right highest halo for this whole thing too then.

As you.

Speaker 3: Introduce it in the other places. There's an excitement about it. They've heard about it. It's coming. They've seen They've seen it posted. They've seen it written about. I mean the press we've got on it was is just incredible It's multiple times Higher than any gallery we've ever opened because it's something nobody's seen before and it's given the reason given the world Something to talk about and we have really interesting and high-profile people showing up

Introduce it in the other places there's an excitement about it they've heard about it it's coming they have seen they've seen it posted they've seen it written about I mean, the press we've got on it which is just incredible it's multiple times.

Gary Friedman: And you have no inventory in the market because people can't afford to buy a new home once they sell their home because they're going to trade a, you know, 2.7 to 3.4% interest rate for, you know, call it a 7.2% interest rate. Maybe at the midpoint. And so you've got a lock on that. Well, we're going to be into cycle this. So if they're, if the Fed has CPI, you know, if they have inflation under control.

Higher than any gallery, we've ever opened because it's something nobody has seen before and it's given the reason given the world something to talk about.

Really interesting and high profile people.

Showing up there.

Setting up appointments there.

Speaker 3: and wanting to do collaborations with some of the highest and car brands in the world want to do car shows on our property and things like that. I think it's just going to open up all kinds of new opportunities and new conversations and new perceptions and possibilities for the RH brand. It's not the gallery I would use to kind of say, oh, let me extrapolate what happens here.

No.

And wanting to do collaborations with some of the highest end car brands in the world want to do car shows on our property and things like that I mean, it's so you know I think it's just going to open up all kinds of new opportunities and new conversations and new perceptions and possibilities for the RH brand.

Gary Friedman: And we don't, you know, there doesn't have to continue to be kind of tightening. I mean, you know, the question is when do home prices come down enough for people to step up and pay the higher rate or when do rates come down and, you know, close that gap. You know, either housing prices have to come down or interest rates have to come down or the gap doesn't close. Right. So you, you may kind of wallow at the bottom where there could be, you know, further down draft.

But it's not it's not the gallery I would use to kind of say Oh, let me extrapolate what happens here.

Speaker 3: We don't have anything like this in America.

We don't have anything like this in America.

Speaker 3: Yeah, we don't have any kind of location like this, it's similar to this at all. Yeah, so.

Yeah, we don't have any kind of location like this is similar to this at all.

Gary Friedman: If there's a more broader, you know, economic issue in the economy or if anything is happening with the, you know, the commercial market with offices, you know, it's not a good market. You know, you know, our view is not all that negative news is kind of, you know, unveiled itself. So there's, you know, but we're from our view. We're kind of at the end of the worst of it. It's, it's, you know, is there going to be a bounce?

So.

Speaker 3: And that's why I think it's getting so much conversation, but it's not the most convenient place to shop. We knew that going in. Yeah, so this is really to kind of introduce the brand, create the right conversation, let it build, let's go through a winner, let's go through a cycle, let's see what we have to do and remember, we haven't mailed the book.

And that's why I think it's it's getting so much conversation, but it's not the most convenient place to shop we.

We knew that going in.

So this is really to kind of introduce the brand create the right conversation.

Let it build let's go through a winter, let's go through a cycle, let's see what we have to do and remember we haven't mailed the book yet.

Speaker 3: in the UK. So, we've got very little advertise. We've got all the press that everybody's written about, and then we've run a few ads and some magazines and stuff like that.

In the U K.

So we've got very little advertising, we've got all the press that everyone's written about and then we've run a few ads in magazines and stuff like that and.

Gary Friedman: You know, I mean, yeah. You know, if you look forward at the market to saying that we should expect interest rate cuts, you know, starting next year in Q2, Q3, you know, on a Q4, maybe a hundred, you know, basis points, you know, there's a hundred basis points of interest rate cuts move the housing market much. I maybe it moved a little. But I think there's going to be a bigger, you got to close this gap, you know, it's a gap that I've never seen.

Speaker 3: So I think all the other locations were opening or...

So.

I think it all the other locations we're opening are.

Speaker 3: highly visible in the major markets, lots of traffic and around them, more what I call.

Highly visible.

In the major markets lots of traffic on around them.

More what I call.

Speaker 3: from a location point of view.

Typical from a.

Gary Friedman: I don't think anybody on the phones ever seen, you know, that that's created kind of a conundrum, you know, in the housing market. And then you've got you know, look, the news in the press is, oh, new houses are up, you know, 20% will new houses, only 10% of the market, you know, existing home sales is 90% of the market. So until you get existing home sales and this market stabilized, you know, not a down draft, that's going to be critical.

A location point of view.

Not typical.

Speaker 3: from a competitive or market point of view, they're gonna be extraordinary galleries. If some more extraordinary than others, some of the markets are more important. In some locations we took...

From a competitive or market point of view theyre going to be extraordinary galleries, yes, some more extraordinary than others. Some of the markets are more important in some locations we took.

Speaker 3: You know, we took some of the Avacron B locations that we might not have taken to get London and Paris because they were such incredible.

We took some of the abercrombie locations that we might not have taken to get London, and Paris, because there are such incredible locations and so you know there are some things that are smaller that we're not investing much capital too, but you know we're going to open and we're going to learn.

Gary Friedman: So we expect stabilization. We think next year, we don't think there's going to be acceleration until there's interest rate cuts or pricing comes down. Home prices come down to kind of close that gap. So let's put that off to the side. That's one issue.

Speaker 3: locations and so you know there's some things that are smaller that we're not investing much capital to but you know We're gonna open them and we're gonna learn you know but

But.

Speaker 3: Yeah, but I say, you know, you can't use this as a proxy. It's not dirty.

But I would say you can't use this as a proxy it's not there.

Gary Friedman: Then you've got what we're doing, which is a complete transformation, reimagination, refresh of the brand that we've been working on now for several years. It's going to, you know, be unveiled here over the next several quarters. So the early indications on the books, and again, we're hitting 40% of the books in home, you know, by the end of this week, look really good. You know, the early, early indications. Now, you got to be careful and, you know, how you extrapolate that because you have to extrapolate it on OK, what does this look like when all the books get in home, what does this look like when, you know, the Instox reach the best their optimum levels.

Speaker 3: I don't know if we'll ever build something like this again. We may, but it's not what anybody would typically do, but that's why everybody's so interested in it, and that's why they're writing about it, and that's why they're talking about it, and that's why the quality of people that are going there are people who just...

I don't know if we'll ever build something like this again we may.

Right.

But it's not what anybody would typically do but that's why everybody is so interested in it and that's why they are writing about it and that's why they're talking about it and that's why the quality of people that are going there are people you just.

Speaker 3: probably wouldn't, you might not have had them come as you open something ordinary, but they're coming because it's extraordinary.

Probably wouldn't you might not have.

Hum and you open something.

Ordinary.

But they're coming because it's extraordinary.

And.

Speaker 3: Yeah, but it's just, it's just one small piece of a much bigger.

Yeah, but it's just it's just one small piece of a much bigger.

Speaker 3: You know, much bigger composition and puzzle we're putting together to, you know, build the RH into a, you know,

Much bigger composition and puzzle, we're putting together to to build.

Build the RH and too into it.

Gary Friedman: What does this look like? When you start, you know, refreshing the galleries and the stores with those, there's all lift factors, all of that. So when we look at this and we extrapolate this, we, we think there's going to be a real inflection point. You know, how big is that inflection point? You know, it's, it's to us, it looks like a meaningful inflection point. And then there is, you know, part of our decision to kind of push the, the mailing into Q3 was to kind of take a longer term view of what should be our context strategy.

Truly <unk>.

Speaker 3: truly, you know, dominant, successful luxury design brand. Thanks for your ??.

Almond is successful.

Luxury design brand.

Second part of the international opening cadence.

Speaker 3: I think this is a start from the opening cadence. I like our start. I think it's moderately aggressive, I think. We've got planting a lot of flags in important places and really dominant, fantastic real estate. And we're super excited about it. So I think we're going to learn a lot in the next three years.

Yeah I think this is a start from the opening cadence I you know I like our start I think yeah.

Moderately aggressive I think.

We've got.

Planting a lot of flags and important places.

Really dominates fantastic real estate and we're super excited about it so.

But and I think we're going to learn a lot in the next three years.

Thank you very much sure.

Gary Friedman: As we've now, you know, are going through this brand refresh and reimagination and repositioning. And our view is, you know, we've, we've through history, we've went through cycles where we contact the customer twice a year, you know, with each book and periods where, you know, years where we contact the customer once a year, you know, one kind of big cycle of mailings. And our view is, I think we've got to reacclimate the consumer to, you know, the RH brand to, you know, the newness, the excitement that's in the brand and everything we're doing.

Speaker 1: Your next question comes from the line of Brian Nagel from Oppenheimer. Please go ahead.

Your next question comes from the line of Brian Nagel from Oppenheimer. Please go ahead.

Hi, good afternoon.

Speaker 7: Hi, Brian . So my question with regard to the buyback, you know, so you clearly stepped up the buybacks nippily here in the quarter. So the question I have is, I mean, how should we be thinking about this? Was this a, you know, more or less a kind of a one time adjustment, or should we expect buyback, you know, the buyback to stay aggressive here, you know, going into future quarters?

Hi, Brian . So my question My question with regard to the buyback.

Clearly stepped up buyback significantly here in the quarter. So the question I have is how should we be thinking about this was this.

Youre more or less where you kind of a one time adjustment or is it and should we expect buyback the.

Buyback to stay aggressive here.

When we go into future quarters.

You know what.

We had.

Gary Friedman: And our view is to set up a two contact strategy. So, so the timing those contracts, contacts we should, we believe should be a fall contact, you know, in a, you know, kind of fall contact in the spring contact. It's how I'd frame it. So, the fall being kind of a mid to late August contact that gets in home, you know, by, you know, end of September. Our books, you know, especially our interior books, our interior book is 604 books.

Speaker 3: You know, we communicate our intentions, you know, with every kind of.

You know we communicate our intentions.

With every kind of.

Yep.

Speaker 3: buyback we still have open a buy on the buyback I think a few hundred million several hundred million and so I think we made a relatively aggressive move here and it's and you know we think we bought the you know we bought

<unk>, we still have open to buy on the buyback I think a few hundred million $700 million.

And so yeah.

I think we made a relatively aggressive move here.

And it's and we.

We think.

We bought that we bought the.

17% of the business at a really attractive price.

Speaker 3: And I think our shareholders are going to benefit from that. And if we're right with our view of the next couple of years,

I think our you know our shareholders are going to benefit from that and.

Gary Friedman: Nobody does a 604 book page book than, you know, other than us. And getting that printed and bound and through, you know, through the system takes longer than it will on our, on our other two books that will be more in the 300 page range. [inaudible] So, you know, we've got this first contact that'll get all in home kind of call it end of September 1st, week of October. And then we're going to come out with the contemporary book, kind of mid October through late October, and then we'll come with the January book with the contemporary book in the October period.

And if we're right with our view of.

The next couple of years.

It's going to look like a really great investment.

Speaker 3: You know how aggressive will be in future quarters. I don't you know, I I think you've you know, you've looked at us historically You know, we're kind of optimist. I am opportunist

How aggressive will be in future quarters either.

I think if you've looked at us historically.

We're kind of optimistic.

Opportunistic.

Speaker 3: We're not like a big corporation that sets up a regular buyback every quarter and stuff like that. I mean, I...

We're not like a big Corporation et cetera.

Regular buyback every quarter and stuff like that I mean.

Speaker 3: you know if that was so smart to do Warren Buffett would do it right you know Warren Buffett is a very opportunistic you know repurchase for their stock you know and you know we're try to be opportunistic

You know if that was a smart to do Warren Buffett would do it right.

Warren Buffett has a very opportunistic repurchase of are there their stock.

Yes.

Try to be opportunistic.

Speaker 3: investors, whether it's in our stock, whether it's in anything that we do, so we think this was a great time to deploy capital and buy back a meaningful position in our company.

Investors, whether it's in our stock whether it's in anything that we do so.

Gary Friedman: It's really January when people get back from, you know, from holidays and so on and so forth and everything reopens again. Then we'll cycle back around, and we'll hit everyone with this next contact, you know, if you look it over 12 month period, and that will be kind of a, you know, March, April, May, June contact. And so the three books we'll hit again will have another, you know, meaningful round of newness coming.

So we think this was a great time to deploy capital and buyback a meaningful position in our company.

And.

Speaker 3: It depends what the market does, depends on what we see and how we feel, what we'll do in the future.

It depends what the market does depends on what we see and how we feel.

What we'll do in the future.

I appreciate it thanks sure. Thank you Brian .

Speaker 1: Your next question comes from the line of Curtis Nagel from Bank of America. Please go ahead.

Your next question comes from the line of Curtis Nagle from Bank of America. Please go ahead.

Gary Friedman: And by the end of that contact, we will be kind of fully transitioned. Doesn't mean we won't have new product in the next contact when you think about the next fall. But the percentage in units will be more in the, you know, 15 to 20% range where this is basically, you know, an 80% refresh at the brand. It's massive. It's the biggest product move I've ever made in the history of my career and I've made some pretty big product moves.

Speaker 8: Great. Hey, Gary. How you doing? Thanks for taking the question. I just wanted to go back on the point.

Hi, Kurt Great Hey, Gary.

Thanks for taking the question.

So I just wanted to go back on the point.

Speaker 8: You mentioned the shareholder letter just about some of these early signals that we're reading pretty positive from the source book.

You mentioned in the shareholder letter just about some of these early signals that we're reading pretty positive from a source book.

Speaker 8: launch, right, like you said, still early. But I'm curious if you could just elaborate just a little bit in terms of, you know, what you meant. You know, are we seeing more people come back to the brand? Are we seeing conversion rates go up in a larger order size? We'd just love to, you know, hear a little bit more about, yeah, some of those findings and details.

Launch right like you said still early but curious if you could just elaborate just a little bit in terms of what Youre Mad.

Gary Friedman: So you've got to kind of think about how you're spreading it out, you know, how much kind of consumer digest at a time, you know, how you're going to read it correctly and how you're going to have the contacts, you know, not overwhelm them and the news news not overwhelm them. So as we kind of took, you know, a bigger view at it instead of just kind of one view and looked at it more, you know, how do we think about a strategically maybe call it over the next three years.

More people come back into the brand are we seeing conversion rates go up.

Order size would just love to hear a little bit more about.

Yes, some of our findings in detail with you Kurt.

Speaker 3: Yeah, well, we, you know, look, the new collections that we think are the meaningful collections are acting like they're going to be meaningful collections. And, you know, the markets that, you know, the books are getting into.

Yeah, well, we looked at the new the new collections that we think are the meaningful collections or <unk>.

<unk> like theyre going to be a meaningful collections and.

You know the markets that are you know the books are getting into.

Gary Friedman: We think this is the right contact strategy. And, you know, we'll create, you know, by the peak of the inflection, I think it will be really meaningful. I think we will gain significant market share, you know, significant market share versus anybody else in our category.

Yeah.

Speaker 3: look good. You know, the responses look good. And so, you know, you just got to see it over a period of time. You know, our business isn't, our business is a, you know, it's, it's driven mostly by events.

Looked at the responses look good and so you just got to see it over a period of time, you know our business isn't.

Our business is at.

Yeah, it's driven mostly by events.

Driven by people buying a new home.

Speaker 3: Remodeling a home or deciding to redecorate a home all of all of which don't happen very often, right? So it's a You know, it's a very high transaction value kind of business So if you look at our customers over a period of several years and take their peak day they spend roughly, you know, 80 to 85 percent of what they spend with us in a

Gary Friedman: And I think the other thing that to put into context is just, you know, how we think about disruptive pricing, you know, from a circular point of view. Which I think, you know, we've, you know, in our efforts to elevate the brand, you know, I think we, you know, we weren't as kind of critical minded looking at price. You know, I mentioned last conference calls, you know, I thought we probably were a bit arrogant looking, you know, looking back.

The remodeling a home or deciding to redecorate at home all of which happened very often right. So it's a.

Yeah, it's a very high transaction value kind of business. If you look at our customers over a period of several years. They can take their peak day, it's been roughly 80% to 85% of what they spend with us.

Speaker 3: Kind of a 90 day period, right? And then they spend very little if you look out the next couple of years on the end So you know, you've got to kind of get them When they're buying and that's why you know the business will get if impacted

Kind of a 90 day period right and then they spend very little if you look out. The next couple of years on the end. So you know it.

You got to kind of get them.

When they are buying and that's why the business will get impacted.

Gary Friedman: And now I think we're laser focused and laser sharp, you know, so we're, we're going to be very aggressive, you know, we're going to use the size and strength of our platform and the leverage it gives us to, you know, be disruptive from a pricing point of view. And so, and I think that's going to make a meaningful impact. I think if you look at the new book, you know, and you look at the messaging and you look at the key items and you look at the key collections, you know, and you look at the quality of the product, you know, the design, the quality design and the quality of the make of the product.

Speaker 3: More than others during a you know a cyclical down market like this and and look we we know when we exited

More than others.

You know a cyclical down market like this and look we know when we exited.

The holiday businesses and all the weather was the Halloween business in that.

Speaker 3: you know the Christmas business and the accessories business you know we're not very dominant in those businesses we used to be and you know in a down cycle we wouldn't take as big of a hit because people are still buying the small things you know we don't sell really much small things and we don't

You know the Christmas business in the accessories business you know, we're not very dominant in those businesses, we used to be and in a down cycle, we wouldn't take as big of a hit because people are still buying the small things we do.

Don't sell really much in small things and we don't see.

Speaker 3: sell any kind of seasonal holiday stuff. So we'll take bigger hits than other people in these down cycles, but we'll have bigger ups.

Well any any kind of seasonal holiday stuff right. So so we'll take bigger hips and other people in these down cycles, but we will have bigger ups in.

Gary Friedman: And you look at the. I think it's going to disrupt a lot of people. And so I think we're, you know, worst confident as we've ever been, I think, you know, that's the timing. And then the unknown is, what does the housing market do? Is it flat? Does it go down another 5% or 10% or do we get a bounce? You know, regardless of whatever happens with the housing market, we're going to have a meaningful inflection.

Speaker 3: in the up cycles and you know because of the mix and stuff like that, so

In the up cycles and.

Because of the mix and stuff like that so.

Speaker 3: But you're not going to see people, you know, right away, you know, like the books won't hit and you're not going to see the full potential. You need to let these books kind of get in and, you know, usually we get ramped in a book by three months, you know, we hit kind of ramp rate.

But youre not going to see people you know.

Right away.

The books wont hit and you're not going to see the full potential you need to let these books kind of get in and.

Usually we get ramped in a book by three months, we hit it kind of ramp rate.

Gary Friedman: And point with the business and the brand. And, you know, that's why we deployed the capital. That's why we bought the back 17% of the shares, 3.7 million shares. And, you know, so we like, you know, we like what we see early with the books here, we like, you know, our strategy. I think we're laser focused on this. And, you know, I think we're going to come out looking really good. So, that's how we see it. Thank you, Gary.

Speaker 3: And that's that then stocks happen well and some of the so forth and things build and some of the so forth will. But we like everything we see. I mean, we really do. I mean, the early signals are good.

And that's a bin stocks happen, well and so on and so forth and things build and so forth.

But we like everything we see I mean, we really do I mean, the early signals are good.

Speaker 3: And we just want more time and we want to, you know, transition and set a few stores with some of the new goods we want in stocks to build.

And.

Which one more time and we want to.

Transition and set a few stores with some of the new goods, we want in stocks to build.

Speaker 3: You know, we've got a lot of new things that, you know, some look like they're gonna be runaways, and so, you know, you gotta say, okay, how do I get in front of that, and how do you reallocate production time, and so on and so forth. And you got some things that are, you know, you're always gonna have things that are outperformed what you think, and underperformed what you think. So, you know, you take all the pluses, minuses, and aggregate those, but then focus your efforts to optimize.

We got a lot of new things that.

Look like they're gonna be runaways, and so you know you're going to say, okay. How do I get in front of that and how do you reallocate production time, and so on and so forth and you have some things that are you know you're always going to have a things that outperformance you think an underperformance of things. So you take all the pluses and minuses in aggregate those but then focus your efforts to optimize.

Simeon Gutman: Your next question comes from the line of see me in Gootman from Morgan Stanley. Please go ahead. Hey, Gary. Hey, Jack. My question, one question, maybe two parts is you mentioned product transformation and margin delusion. Is that all contained to 23 or to some of it move into 24? And then, and then Gary, to your point, if this market wallows a little and we do have another down draft. Given that you have leverage or the business has leverage now or a little more than it, it's normally used to. Do you operate anything differently if the macro just takes longer to come out and then maybe the curve is steeper in later years, but it's flatter in the medium term.

Speaker 3: You know, you're real winners and you know, but but everything

You know Youre real winners and.

But but everything.

Speaker 3: Real early everything looks I'd say real good for only 40%. So just keep that into context.

Real early everything looks I'd say real good for only 40% so just keep that into context.

Speaker 3: I'll have a lot more to say next quarter. And if something really is meaningful enough, maybe we talk to everybody or do something sooner. You know, we'll see. I mean, this is, yeah, we're very early and we're very positive, but we're still in it. You know, not so positive.

We have a lot more to say next quarter and if something really is meaningful enough, maybe we talked to everybody or do something sooner. We will see you know I mean this is yes, we're very early.

And yes.

Jack Preston: Yeah, I think I think by this, this first half of next year, the inflection is going to be much more significant than the macro. I don't think it changes anything for us. On the margin delusion, Simion, look, I think I think about it also just where the margin or the discounting activity and clearance of that inventory will be in Q1 of 24 versus Q1 of 23. So, yeah, there's going to be still some of that in the in the first part of the year, but.

Positive, but we're still in it.

Not so positive.

Speaker 3: housing market and environment. So it's going to be a conservative tone to a degree, but we'll be a lot smarter in another eight weeks. And then.

Housing market and environment So yes.

He is going to be a.

Conservative tone to a degree, but it will be a lot smarter.

In another eight weeks and then.

Yes, it will.

Speaker 3: Yeah, well, but enough information to make moves to kind of...

Yes.

The information to make moves to kind of.

Think about.

Speaker 3: investments in the first half of next year from a mailing perspective.

Investments in the first half of next year from our mailings perspective in <unk>.

Jack Preston: But there's going to be, I think of that, you know, that's two things, right? You've got margin delusion from a product margin point of view is where as we're transition in the assortment. But you're going to have leverage and margin accretion with throughout the model based on what we believe will happen with our top line. So, yeah, I think 24 is going to be a very good year unless there is some kind of crazy crisis that, you know, we don't believe is on the horizon.

Speaker 3: you know, how big, how deep do we go, how bright are we, and how big do we go?

How big how deep do we go how right are we.

And how big do we go but we're going to be some degree of right. Here. This is not this is not going to be a swing and a miss I meant I don't want to jinx anything, but like we've been doing this a long time.

Speaker 3: But we're going to be some degree of right here. This is not going to be a swing and a miss. I mean, I don't want to jinx anything, but we've been doing this long time, and we're going to read in the data. So I think it's to the, you know, what degree of really good degree.

We're good at reading the data.

So it's just I think it's too.

What degree of.

Really good to great is the outcome.

Speaker 3: And then what's understores as a reset and then, you know, and then how do you compound on kind of that reset?

And then just worse as a reset and then and then how do you compound on kind of that reset.

Jack Preston: You know, I think that, you know, the history would tell us if, you know, things really got worse that the Fed is going to ease. You know, I look back at the last 20 years, I mean, the Fed's been very consistent. We've lived in a very long period of really low on interest rates with just a few slight blips that are high. And I think the Fed, and then we'll act in a way that will stimulate the economy again.

Speaker 8: Got it, I made just a follow up international so you got.

Got it okay, if I may.

Just a follow up.

International So you got.

Speaker 8: You can do store coming up right I think you know technically women for months just you know we can't be

And your stores coming up right.

Within four months just looking at the <unk>.

Speaker 8: Use letter. Are you feeling about those openings? I guess you're curious what why we need with those two cities? Yeah, smaller ones. Yeah, smaller ones that don't have a lot of capital, you know, like, you know, the nor hospitality, nor hospitality or anything. Right? So those are, you know, some locations that we thought, you know, the locations were decent. It'll give us some, you know, without putting it on a capital in, just give us some feedback at the brand out there. I mean.

His letter.

Are you feeling about those openings I guess, Mr. Curious, what why read with those two cities.

Yes, it does.

11, yeah, smaller wins, who don't have a lot of capital.

Ignore hospitality, nor hospitality or anything right. So those are some locations that we thought the locations were decent it'll give us. Some you know without putting a lot of capital and just give us some feedback at the brand out there I mean look I mean, abercrombie didn't have any bad locations. These were just yet.

Jack Preston: And then housing will, at some point, housing will take off. You've got a lot of pent-up demand. It's just that the demand can be super pent-up, but if the gap doesn't change, if either pricing doesn't come down or interest rate gap doesn't change, interest rates have to come down. One of the two things happen, they both happen. The prices come down and the Fed uses, I think we can get a really good bounce in the housing market, but we just can't control that.

Speaker 3: Look, I mean, Abercrombie didn't have any bad locations. These were just, you know.

Speaker 3: You know, we think we're going to get, we're going to learn and get information, right? And then we'll decide, you know, how long might we stay in these locations, you know, because we've acquired some leases. And, you know, are there bigger, better places to go? And, you know, what do we do? But I think one of the key things is just kind of get the brand out there. And...

Yes.

We think we're going to get we're going to get we're going to learn and get information right and then we'll decide how long might we stay in these locations because we acquired some leases.

Are there bigger better places to go and what do we do but I think one of the key things is just kind of get the brand out there.

Jack Preston: We have a point of view on it, share a point of view. We look at a lot of things and we've got a lot of data that we study. The key for us is, if we think about the balance sheet which we do, we've deployed a lot of capital, we have a lot of confidence in the model. We're in the middle of a transformation. This is not by any means the first time we've done it, it's the biggest thing we've ever done.

Speaker 3: You know, in a good way, but, you know, the real key was what, what did we do first, you know, how, you know, when people met us or heard about us, what did they hear? What did they get pointed to? How did they think, you know, so, so now.

Yeah.

And a good way.

But.

The real key was what did we do first.

Well you know when people notice or heard about us what did they hear what did they get pointed to how do they think.

So now we've kind of done that.

Speaker 3: We've kind of done that. You know, I don't think people will think Munich and do some dorf aren't.

Yeah, I don't think people will think Munich in Dusseldorf art Beautiful gallery, so, they're just not going to be at the level of London, and Paris and Milan.

Speaker 3: beautiful galleries, they're just not going to be at the level of London and Paris and Milan and, some of the other ones we're doing.

Jack Preston: But our experience in making moves like this is deeper than anyone in this industry. We're laser focused on it and we understand our balance sheet really well and what our cash flow is going to be like and the timing of capital and outflows and projected inflows. We have all kinds of downside models and know how to operate in any kind of environment, any kind of difficult environment. We don't fear the leverage and we've had a lot more leverage on this business and people have seen us navigate through those situations in a relatively uninterrupted way, except for the real depths of 2008 and 2009 or something like that.

Yes, some of the other ones we're doing so.

But.

Like.

Speaker 3: You know, there are locations that we were required to take to get some of the really key locations that we really wanted, and that was central London and the Paris location.

There are locations that were we were required to take to get some of the really key locations that we really want it and that with central London and <unk>.

And the Paris location.

Speaker 3: So we think these are fine, you know, kind of let's get going. Let's learn, let's see how the business builds. Let's quickly learn how to operate in these different countries at a relatively low investment and much, much lower effort than doing the really big ones with a lot of work that take multiple years that. right there.

So we.

We think these are fine let's get going.

Let's learn let's see how the business builds.

But quickly.

Quickly learned how to operate in these different countries.

At a relatively low investment and more.

Much much lower effort and doing the really big ones with a lot of work that take multiple years that.

Speaker 3: and that have hospitality and other levels of complexity. So... Colin?

And that have hospitality and other yeah.

Jack Preston: We feel great. I think the key headline I'd say, I just would be shocking if we don't outperform whatever macro might happen in the first half of next year, unless it is so severe that it becomes some kind of crippling thing across the economy. I just don't think that's going to happen. I think the Fed is going to do the things that the Fed usually does. If we get any kind of stabilization or uptick in the market, we'll have an incredible year.

Other.

Levels of complexity so.

Okay.

Got it alright, thanks, Brian I appreciate that one sure.

Speaker 1: Your next question comes from the line of Seth Basham from Web Bush Securities. Please go ahead.

Your next question comes from the line of Seth Basham from Wedbush Securities. Please go ahead.

Speaker 9: Thanks a lot and good afternoon. My question is around margins. How should we think about the product margins on the new product line with your plan to be much sharper on pricing? Should we be thinking about, you know, a consolidate gross margins in the mid 40% on a run rate basis going forward?

Thanks, a lot and good afternoon, my question's around margins, how should we think about the product margins on the new product line that you plan to be much sharper on pricing should we be thinking about our consolidated gross margins in the mid 40% on a run rate basis going forward.

Jack Preston: I think we're set up better than we've ever been set up in the history of the business. I think we'll have the biggest inflection point we've ever had is my view by Q2 of next year. There'll be an inflection point before that, but I think we'll peak when I look at all the lines and I think about production and in stocks and floor sets and all the transition moves we have to make. I think that, in the second cycle of the books, I think it will start to peak then and then I think we're going to have an incredible run.

Speaker 3: Um, I think we'll, you know, we'll have more to say. I think we, we believe long-term emergence can, you know, can be at our, you know, historical highs. Um, I think we've got to, you know, we've got to kind of win some share, you know, uh, some share here and, uh, we got to play a little.

I think we.

We will have more to say I think we believe long term emergence can.

Can be at our historical highs.

I think we've got it.

Got to kind of win some share.

Some share here and.

We got to play a little offense and just you know.

Speaker 3: you know, be sharper. And so, you know, there's some, you know, there's a few points of investment we're making there. But,

These sharper and so.

So yes, there's some.

There's a few points of investment were making there but.

Speaker 3: You know, we also have places where, you know, we're playing aggressively, but our margins are...

We also have places where we.

We're playing aggressively but our margins are.

Speaker 3: That historical highs, you know, so it all tends like

At historical highs, so it'll tend to like.

Speaker 3: you know, what we're targeting, how we're targeting, you know, certain categories.

You know, what we're targeting our targeting certain categories.

Steven Zaccone: You are next. Question comes from the line of Steven Zaccone from City. Please go ahead.

Gary Friedman: Good afternoon. Thanks for taking my question. So I wanted to shift to the R.A. Jingle and opening. It sounds like it's, you know, good successful opening event, but it'll take some time to maturity. Can you expect the rest of your international openings to resemble this maturity curve? Or is this the longest one since it's kind of your first? And then similarly the letter confirmed nine international openings by 2025. Can you talk a bit more about the pace of annual openings for international going forward is three kind of the right number.

Yeah.

Speaker 3: Yeah, so we got more to say. Yeah, let's see how these books do when they get in. Let's see what's performing. Let's see what we're responding to. There's going to be private places where we've taken pricing in this really sharp, there may be places we're going to take pricing up. Right? We've already got one collection that.

Yes got it.

I wanted to say.

Let's see how these books do when they get in let's see what's performing let's see what what.

What we're responding to.

There's going to probably be places where.

Where we.

We've taken pricing in this really sharp places, we're going to take pricing up.

We've already got one collection, that's you know kind of through the roof. It looks like our best collection ever.

Speaker 3: You know, kind of through the roof. Looks like our best collection ever. And then we're gonna probably take prices up this week.

And we're going to probably take prices up this week.

Speaker 3: So, you know, just, you guys we've got so much demand and we think we can, you know, the product is still gonna be positioned at a, at a disrupt the value. We've probably just swung the pendulum a little too far, you know, on some, but, you know, it's, you know, this is, you know, the business we're in.

Just because we've got so much demand and we think we can price the product is still going to be positioned at a disruptive value, we'd probably just swung the pendulum a little too far.

Gary Friedman: Thanks. Yeah, let's start first of all. What one R.A. Jingle and send like anything we've we've ever opened not just because of an international perspective, but really, you know, the kind of location and our view of how we wanted to introduce the brand, you know, and when we wanted to introduce the brand, you know, when we wanted to introduce the brand in a very unique and unforgettable fashion. You know, just because the, you know, the US, you know, isn't really seen from a European perspective, when you think about design, taste and style, luxury markets, so and so forth, you know, that's not really the game we play really well.

Right.

This is in the.

The business. We're in it's yeah, It's day to day week to week Youre learning, you're getting data you're rethinking things.

Speaker 3: You know, day to day, week to week, you're learning, you're getting data, you're, you know, rethinking things, you're, you know,

Yeah.

Speaker 3: Everything you do when you buy a new product is speculative.

Everything you do when you buy you know new product is speculative.

Speaker 3: based on backwards looking data. So you're never, everything we buy is, is.

Based on backward looking data so you're never you know everything we buy is is.

Gary Friedman: I think I made the comment before the, you know, the only true, you know, luxury brand. And, you know, we've had I think the United States, you know, it's Tiffany and now the French own it, right, and all the luxury brands are from Europe. So how are we going to go into that world and introduce ourselves? We thought that was really important. And so, and we also thought the timing, like how do we kind of get the name known and establish ourselves in a unique way.

Speaker 3: 100% wrong, you know, we've never bought anything and we go that's exactly how it's selling That's exactly right, you know, so you're you're early suggesting right you're getting real data real information And and then you're learning from that and you're you're strappulating that and you're making the next best decisions so

100% wrong, we've never bought anything and we go that's exactly how it's selling [laughter].

That's exactly right.

Youre always suggesting right you're getting real data real information.

And then you are learning from that and extrapolating that and Youre, making the next best decision. So.

Speaker 3: Um, you know, I wouldn't jump to any conclusions just because of our, you know, what I'd call it more short term view of, you know, just trying to transition, you know, the, you know, from the, uh, from the current kind of products to the, you know, the, the new, you know,

You know I wouldn't jump to any conclusions just because of our what I call. It more short term.

Gary Friedman: And, you know, we could have waited and opened, you know, Paris first or we could have waited and opened London first. We would have had a wait longer and we came across this opportunity at this property. And we thought this could be something remarkable. It could be a really great introduction for the brand. And, you know, I've always said that we've made the decision on R.H. England because of its location. You know, it's an hour and 45 minutes outside of London.

You of.

Just trying to transition.

Sure.

From the from the current kind of products today.

The new you know.

Speaker 3: the next generation products and playing offense from a disruptive perspective.

The next generation products.

And.

And in playing offense from a disruptive.

Speaker 3: value equation point of view, it's how we got here. You know, I just think, you know, probably we should have kept that edge the way we did. But, you know, you go through a period where you're in COVID and your businesses run at a 40 percent and, you know, your prices are going up and you know, you've got, we went through multiple rounds of paraffin increases and pricing increases and supply chain increases and, you know, COVID increases and ocean rate increases and, you know, and...

Value equation point of view, how we got here I just think it's probably we should have.

Gary Friedman: It's in the Cox World. It's, you know, it's around, you know, wealthy and a full of people, but it's not around density. You don't have anybody kind of walking by this gallery, you know, like it's not, it's, it is a true destination. And it's, you know, you kind of got to go out of your way, you know, but you're going to something that's spectacular that you've never seen before. So the impression of it is like nothing else.

That edge the way we did in <unk>, but you go through a period.

You're in Covid and your business is running at a 40% in <unk>.

The prices are going up and you know you've got you went through we went through multiple rounds of tariff increases and price increases in supply chain increases in.

Covid increases in ocean freight increases.

Yeah and.

Speaker 3: You know, and I think, uh...

You know and I think.

Gary Friedman: And, you know, I don't want to make the wrong comparison here, but if you just think about kind of things that have went into the, you know, what I call the middle and nowhere and changed everything, you know, you think about Disneyland. Disneyland opened in the middle and nowhere. If you went back to, when they opened that, the middle of an orange orchard, and there was no one around, you know, no one, there was no population density anywhere near it.

Speaker 3: You know, that's why I made the comments I did at the end of my letter, you know, like, I think we're finally at the point of everything that.

You know it.

That's why I made the comments I did at the end of <unk> and in my letter.

I think we're finally at the point of everything that.

Speaker 3: Like, make it, make everything go up. With COVID, it's one of the kind of the back side of the cycle of everything going down and everybody, everything washing through. And I think if you just like,

Like make it made everything go up with Covid. It's one that's kind of the back side of the cycle of everything going down and everybody everything Washington through and I think if you dislike.

Speaker 3: Kind of take those years and say, okay, what are the best things I learned? Now get them out of the way, and you got to kind of rethink about your business. But

Kind of take those years and say, okay. What are the best thing as I learned to now get them out of the way and you've got to kind of rethink about your business, but.

Gary Friedman: And it changed everything. If you think about, you know, Las Vegas, you know, Las Vegas didn't exist. You know, it was created. And I don't, I'm not trying to make a correlation that That's exactly right. What I'm trying to say is we're trying to create a brand at a level of the market that hasn't been created before. Our view was that this was a decision that was more to drive a conversation than it was to drive commerce.

Yeah.

I think.

Speaker 3: I just wouldn't make any long-term assumptions based on anything that's happening.

Yes.

It wouldn't make any long term assumptions based on anything that's happening.

Speaker 3: you know, on a short-term basis right now, you know, in this transition period, I think you'll see us return to a really good model. If we get the, you know, the inflection that we believe is going to happen in the top line, especially, you know, where we think it'll take, because we get into kind of the first half of next year, you'll see our whole business model snapback.

On a short term basis right now you know in this transition period I think.

I think youll see us.

Return to.

A really good model, if we get the.

The inflection that we believe it's going to happen in the top line, especially where we think it'll peak as we get into kind of the.

The first half of next year.

Gary Friedman: We never thought this was going to be a high volume gallery. But we didn't think it'd be no volume. I think it's going to be fine. I think it would take much longer. If you took anything like this and put it in London, I mean, it's going to do multiple times, immediately, multiple times faster. It's a little inconvenient, but it's extraordinary. A lot of really extraordinary things in the world started as being inconvenience.

You'll see our whole business model snapback.

Speaker 9: Right, but just to be clear, Gary, so the margins, the product margins on the new product that you guys are launching are the next say six to nine months. It's going to be lower by a few points and what you are earning on products during the pandemic. And then the real benefits that gross margins could be from volume improved volumes.

Right, but just to be clear Gary so the margin of the product margins on the new product that you guys are launching over the next say six to nine months is going to be lower by a few points and what you are earning on products. During the pandemic and then the real benefit that gross margins could be from volume improved.

Volumes.

Speaker 3: That's not necessarily, you know, so we weren't that specific. Yeah, we don't guide our gross margin as, you know, we don't disclose product margins. So we're trying to tell you just a directional flavor, I think just to recap a little what Gary said, you know, some products are going to be higher, some products are going to be lower. We're not making a general statement, you know, I'll just, you know, you can roll back the tape on what Gary said as far as the investment we're going to make. That's that's right.

That's not necessarily you know so we werent that's right yes.

Gary Friedman: It was inconvenient to get an iPhone, inconvenient to get a Tesla. How long did people wait to get a Tesla? How long did people wait? How long did they wait to get the new roaster or the cyber truck? You've got to kind of think about what are the long-term things you're trying to do. We're trying to shape the brand in a way that brand has never been shaped before. Introduce the brand to Europe where the luxury brands are and create the right conversation with the right people and create that right halo for this whole thing.

We don't guide gross margin as you know, we don't disclose product margins. So we're trying to tell you just a directional flavor and I think just to recap let of what Gary said some products can be higher some products can be lower we're not making a general statement.

I'll just.

You can roll back the tape on what Gary said as far as the investment we're going to make that.

That's right, but as far as like what the future's going to look like let's just let's just let that play out and we're going to make.

Speaker 5: But as far as like what the future's gonna look like, let's just let that play out and, you know, we're gonna make...

Speaker 5: margin commentary, especially gross margin commentary, after each quarter's results, because again, we don't guide that particular line.

Margin commentary specialty gross margin commentary after each quarter's results because again, we don't guide to that particular line.

Understood. Thank you guys.

Thank you Sir.

Speaker 1: Your next question comes from the line of Max Relinco from TD Cowan. Please go ahead.

Your next question comes from the line of Max <unk> from TD Cowen. Please go ahead.

Gary Friedman: As you introduce it in the other places, there's an excitement about it. They've heard about it. It's coming. They've seen it posted. They've seen it written about. I mean, the press we've got on it is just incredible. It's multiple times higher than any gallery we've ever opened because it's something nobody's seen before. It's given the world something to talk about. We have really interesting and high-profile people showing up there, setting up appointments there, and wanting to do collaborations with some of the highest-end car brands in the world want to do car shows on our property and things like that.

Speaker 10: Great, thanks a lot. So if we were to bucket your initiatives over the next 12 months into US gallery openings, European openings, and then new product introductions, how would you rank order their magnitude? And then just for a clarification, how much of a repress inside the gallery should we expect both over the next 22 quarters? And then a year from now, both in terms of new products, as well as the number of galleries that the new products will hit. Thanks a lot.

Great. Thanks, a lot. So if we are to bucket your initiatives over the next 12 months to use gallery openings European openings, and then new product introductions, how would you rank order of magnitude and then just for clarification.

How much will refresh inside the gallery should we expect both over the next 22 quarters and then a year from now both in terms of new products as well as a number of galleries that new products will hit thanks a lot.

Speaker 3: Sure, you know, like take the product and the product is by far the most important thing we're doing, right?

Sure.

Take take the product and the product is by far the most important thing we're doing right.

Speaker 3: And the new openings and building out the platform, those are, it's the platform for the product. So what we're doing is the product is gonna make the most meaningful impact over the next several years.?

Yes.

And yes, the new openings and building out the platform.

Gary Friedman: I think it's just going to open up all kinds of new opportunities and new conversations and new perceptions and possibilities for the RH brand. But it's not the gallery I would use to kind of say, oh, let me extrapolate what happens here. We don't have anything like this in America. We don't have any kind of location like this. It's similar to this at all. And that's why I think it's getting so much conversation.

It's the platform for the product. So what we're doing is the product is going to make the most meaningful impact.

Over the next several years.

So.

Yeah, when you think about the.

Speaker 3: The investment in gallery floor sets, we just began setting.

In investment and gallery floor sets.

We just began setting.

Speaker 3: RH Marin next to our headquarters and you know we will all see it you know for the next you know it gets fine-tuned over the next couple weeks. It's kind of a phase one move of it. We have kind of right now phase one and phase two and then we'll have a phase three. I think you'll see the majority of the galleries reset.

H Marende next-door headquarters.

And.

We will all see it.

Gary Friedman: But it's not the most convenient place to shop. We knew that going in. So this is really to kind of introduce the brand to create the right conversation. Let it build. Let's go through a winner. Let's go through a cycle. Let's see what we have to do and remember we haven't mailed the book. Yeah, in the UK. You know, so, you know, we've got very little advertise we've got all the press everybody's written about and then we've run a few ads and, you know, and some magazines and stuff like that.

Over the next yes gets fine tuned over the next couple of weeks.

It's kind of a phase one move of it we have kind of.

Now phase one and phase two.

And then we'll have a phase III I think you'll see.

The majority of the galleries reset.

Speaker 3: by Q1, you know, of next year and, you know, as we, all the galleries, yeah, yeah, all the galleries, yeah, you know, reset. And then, you know, you'll have some winners and some losers in kind of the product mix and as we mail the, you know, the modern books going in in January . I mean.

By Q1.

No.

Next year and as we altogether, yeah, yeah, all the galleries yet.

Reset and then.

Gary Friedman: And, uh, so, um, I think all the other locations we're opening are highly visible in, you know, in the major markets, lots of traffic and around them, you know, more what I call. Typical from a. A location point of view, not typical from, you know, a competitive or market point of view, they're going to be extraordinary galleries, if some more extraordinary than others, some of the markets are more important in some locations we took, um, you know, we took some of the Avocron B locations that we might not have taken to get landed in Paris because there were such incredible locations.

You'll have some winners and some losers in Canada product mix and as we know.

Mailed.

The modern books going in in January I mean.

Speaker 3: you're going to find out there's some things in modern that are probably really good and better than some things we might have just rolled out into the galleries and you'll make some adjustments. But I'd say we'll be...

Youre going to find out there's some things in modern that are probably really good and better.

Better than some things, we might've risk rolled out into the galleries and youll make some adjustments.

But I'd say, we'll be.

Speaker 3: you know, by Q2 of next year, we'll be really educated.

By Q2 of next year will be.

Really.

<unk>.

Right.

Speaker 3: You know, especially by the late Q2, we'll have had two cycles of drops. We'll have a lot of newness. We'll have kind of the first phase, major phase, second phase, still, you know, not as major as the first phase, but still more meaningful than normal. And, you know, we'll, we'll have had a.

Especially by the late Q2, we will have had two cycles of drops we will have a lot of newness will have kind of the.

First phase major phase second phase still.

Not as majors, the first phase, but but still meet more meaningful than normal.

Gary Friedman: And so, you know, there's some things that are smaller that we're not investing much capital to, but, you know, we're going to open them and we're going to learn. Uh, you know, but, um, you know, but I say, you know, you can't use this as a proxy. It's not there, you know, I don't know if we'll ever build something like this again. We may, you know, but, but it's not what anybody would typically do.

And will.

We will have had a good.

Speaker 3: good period of time to measure and have seen phase one of the product transformation and you know first drops and then you know we'll have some data on this second cycle and we'll be

Good period of time to measure an obscene phase one.

Product transformation and first drops and then we'll have some data on the second cycle.

And what will be.

Gary Friedman: But that's why everybody's so interested in it, and that's why they're writing about it, and that's why they're talking about it, and that's why the quality of people that are going there are people you just probably wouldn't, you might not have had them come. Had you opened something ordinary, you know, but they're coming because it's extraordinary. And yeah, but it's just, it's just one small piece of a much bigger, you know, much bigger composition and puzzle we're putting together to, you know, build the RH into, you know, truly, you know, dominant, successful luxury design brand.

Speaker 3: fully ready for the second half of next year, but to kind of keep optimizing it, right? Because we're gonna just get a lot of data, a lot of information, you're making a lot of adjustments.

Fully ready for the second half of next year, but.

Yes.

Keep optimizing it right because we're getting we're going to just get a lot of data a lot of information, you're making a lot of adjustments.

Speaker 3: And we'll keep doing things that kind of, what I'd say, build the trend. When you go through a big move like this, it's

And you know.

We will keep doing things that kind of what.

What I'd say build the trend when you go through a big move like this.

Speaker 3: Yeah, you're going to get some of it really right, and you're going to get some of it wrong, and, you know,

Yeah, you're going to get some of it really right and it sounds it wrong and.

Yeah.

It's as long as you are.

Speaker 3: you know, throwing more things above the line than below the line, you know, then you're gonna learn and then you're gonna make adjustments. And those adjustments.

Throwing more things above the line and below the line then youre going to learn and then youre going to make adjustments and those adjustments.

Speaker 3: will move the business higher. Right, so I'd say, you know, we'll hit max inflection in Q2. Doesn't mean we'll hit max run rate.

We'll move the business higher right. So I'd say, we'll hit Max inflection in Q2 doesn't mean, we'll kick Max run rate.

Gary Friedman: Oh, the international opening cadence, um, you know, I think this is a start from the opening cadence. I, you know, I like our start. I think, you know, it's moderately aggressive, I think. We've got, you know, we're planting a lot of flags and important places and, you know, really dominant and fantastic real estate, and we're super excited about it. You know, so, um, but I, and I think we're going to learn a lot in the next three years.

Unknown Executive: Thank you very much.

Speaker 3: When I talk about the inflection, I talk about the early inflection. Then we'll build on that.

Can you talk about the inflection I talked with the early inflection then we'll build on that right.

Speaker 3: Right. So, you know, I would, I would assume that the.

Alright so.

I would assume that the.

Speaker 3: the first half of next year will be...

The first half of next year will be <unk>.

Speaker 3: very good, and the second half of next year will be better than the first half.

Very good and the second half of next year will be better than the first half.

Brian Nagel: Sure. Your next question comes from the line of Brian Nagel from Oppenheimer. Please go ahead. Hi, good afternoon. Hi, Brian. So my question, uh, with regard to the buyback, you know, so you, you, you know, clearly stepped up the buyback significantly here in the quarter. So the question I have is, how should we be thinking about this?

Okay.

Speaker 1: Your next question comes from the line of Brad Thomas from Keybank Capital Markets. Please go ahead.

Your next question comes from the line of Brad Thomas from Keybanc Capital markets. Please go ahead.

Speaker 11: Hi, good afternoon. I was hoping to follow up on the topic of operating margins and just hoping we could maybe frame up some of the puts and takes, obviously the full year implies kind of this mid-teens level for the operating margin. Can you help us think about maybe your latest thoughts on structurally what the operating margins look like in this world where you're opening up stores internationally in this world where you have your product coming out. There's more source books.

Hi, good afternoon.

I was hoping to follow up on the topic of operating margins.

Gary Friedman: Was this a more or less a kind of one time adjustment or is it usually we expect the buyback, you know, the buyback stay aggressive here, you know, going, going to future quarters. Um, you know, we, we, you know, we communicate our intentions, you know, with every kind of, you know, buyback, we still have open a buy on the buyback. I think a few hundred million, several hundred million. And so, uh, I think we, we made a relatively aggressive move here, and we thought the 17% of the business had a really attractive price, and I think our shareholders are going to benefit from that, and if we're right with our view of the next couple of years, it's going to look like a really great investment. How aggressive will be in future quarters, I think you've looked at us historically, we're kind of optimistic.

Just hoping we can maybe frame up.

Some of the puts and takes obviously the full year implies kind of a mid teens level for the operating margin.

Can you help us think about maybe your latest thoughts on structurally what the operating margins look like.

This world, where you're opening up stores internationally in this world where.

You have new product coming out Theres more source books.

Speaker 7: you know, what do you think sort of normalized margins start looking like as you get back to revenue growth again?

What do you think sort of normalized margin start looking like as you get back to revenue growth again. Thanks.

Yeah.

Yeah.

Speaker 5: You know, I don't think Brad, we're ready to talk about that. I think, you know, we're talking about some short-term changes, near-term impact to the margin.

I don't think Brad we're ready to talk about that you know I think we.

We're talking about some short term changes.

Near term impacts to the margin.

Speaker 5: and especially moves related to making some investments due to competitive reasons, as Gary had talked about.

And you know and especially moves related to you know.

Making some investments due to competitive reasons, Gary you talked about so.

You know what the other side of that looks like.

Speaker 5: You know, we have our discussion with you about each year's guidance.

We have our discussion with you about each year's guidance.

Speaker 5: in March, so we'll do that and give you a better look then. But as far as we sit here at the end of Q2 and the many sort of changes and levers, we're.

In March so we'll do that.

And give you a better look then but as far as we sit here at the end of Q2 and.

And then any sort of changes in levers. We're plowing forward with we don't have that visibility or the ability to tell you what the what the study looks steady state looks like other than.

Speaker 5: plan forward with. We just don't have that visibility or that ability to tell you what the study state looks like.

Curtis Nagle: We're not like a big corporation that sets up a regular buyback every quarter and stuff like that. If that was so smart to do, Warren Buffett would do it. Warren Buffett is a very opportunistic, repurchase of their stock, and we're trying to be opportunistic investors, whether it's in our stock, whether in anything that we do, so we think this was a great time to deploy capital and buy back a meaningful position in our company. And it depends what the market does, it depends on what we see and how we feel, what we'll do in the future. We appreciate it, thanks, Derek. Sure, thank you, Brian.

Speaker 5: you know, as revenue grows and we get leverage in the business.

As revenue grew.

Rose and we get leverage in the business, we expect margin to increase from here.

Where that baseline level is.

Okay.

Yeah.

Speaker 5: I'll let Gary chime in here, but no, I think that's correct. You know, I mean, I think, you know, we're...

I'll, let Gary chime in here, but.

No I think Thats correct I think.

Speaker 3: For the most part, we're giving you color today. Maybe slightly more different angle on the color than what's written in the letter. But we don't want to kind of...

But for the most part where we're giving you color today.

Well you know maybe slightly more different there are different angle on the color than than what's written in the letter but.

We don't want to kind of.

Speaker 3: talk about things that we don't, that we haven't really released, right? And, you know, we're not really releasing... you very're pretty sweet.

Talk about things that we don't that we Havent really released right and.

We're not really releasing.

Gary Friedman: Here next question comes from the line of Curtis Nagel from Bank of America, please go ahead. Great. Hey, Gary, how are you doing? Thanks for taking the question. I just wanted to go back on the point, you mentioned the shareholder letters about some of these early signals that we're reading pretty positive in the source book launch, right? Like you said, still early, but can you just elaborate just a little bit in terms of what you met?

Kind of that far out but.

Yeah.

Speaker 3: All of us on this call are going to know a lot more next quarter and the next quarter and and

All of US on this call we're going to know a lot more next quarter and the next quarter end.

Speaker 3: Yeah, we're either going to be, you know, more right or more wrong. We think we're going to be more right than wrong. And we'll, you know, everything that we said, we believe in. And it's, you know, it's, you know,

We're either going to be.

More right or more wrong, we think we're going to be more right than wrong and.

Everything that we said we believe in them.

And it's it's.

Yeah.

Speaker 3: You know, there's some level of speculation, of course, but there's, you know, there's a lot of data, you know, that we have based on.

Is there some level of speculation of course, but there is.

Gary Friedman: Are we seeing more people come back in the brand, are we seeing conversion rates go up? The larger order size would just like to hear a little bit more about some of those findings and detail if you could. Yeah, well, we look at the new collections that we think are the meaningful collections are acting like they're going to be meaningful collections. And the markets that the books are getting into look good, the responses look good.

Theres a lot of data that we have based on.

Speaker 3: doing what we're doing, introducing newness, mailing source books, resetting floors. We know all the lift factors and what will happen if we do this.

Doing what were doing introducing newness.

Mainly source books.

Resetting floors, we know all the lift factors than.

What will happen if we do this that.

Speaker 3: We're, we're directly usually right on those things. You know, and so we've, you know, we've been rusty. We've been somewhat out of the game. And we're going to come back into the game in a very impactful way. So, we're looking forward to kind of, yeah.

We're we're directionally usually right on those things.

So we've you know we've been Rusty we've been somewhat out of the game.

We're going to come back into the game in a very impactful way.

So.

Gary Friedman: And so you just got to see it over a period of time. Our business is driven mostly by events. It's driven by people buying a new home, remodeling a home, or deciding to redecorate a home. All of which don't happen very often, right? So it's a very high transaction value kind of business. If you look at our customers over a period of several years and take their peak day, they spend roughly 80 to 85% of what they spend with us in a kind of a 90 day period.

Yes, we're looking forward to kind of.

Gary Friedman: And then they spend very little, if you look out the next couple of years on the end. And so, you know, you've got to kind of get them when they're buying. And that's why, you know, the business will get if impacted more than others during a, you know, a cyclical down market like this. And look, we know when we exit it, and the holiday businesses, you know, and all the, you know, whether it's a Halloween business and the, you know, the Christmas business and the accessories business, you know, we're not very dominant in those businesses, and we used to be, and, you know, in a down cycle, we wouldn't take as big of a hit, because people are still buying the small things, you know, we don't sell really much in small things and we don't sell any, any kind of seasonal holiday stuff, right?

Getting the data but the.

The good news is the.

The early data.

Speaker 3: Doesn't look bad. It looks good.

Doesn't look bad.

It looks good.

Speaker 3: So, so far so good. That's as much as we know right now.

So.

So far so good that's as much as we know right now.

Speaker 11: Gary, maybe if I could ask you another way, when you did some significant share of purchase back and I think it was 2017, you later describe that time as a period where you'd kind of take in the racetrack off the car off the racetrack and done a lot of surgery on it. Does it feel like it's that significant of a time for you as you think about how you're positioning the company? Yeah, big bigger than that.

Well, Gary maybe if I could ask you another way when you did some significant share repurchase back in I think it was 2017 you later describe that time as a period, where you had kind of taken the racetrack. After after a car off the racetrack and done a lot of surgery on it does it feel like it's that significant of a time for you.

As you think about how you're positioning the company yes.

Yeah big bigger than that.

Speaker 3: We've, we've redesigned the whole fleet of cars. So it's, it's really the biggest repositioning of the business we've ever went through. And.

We've we've redesigned the whole fleet of cars.

It's really the biggest repositioning of the business we've ever went through.

And yes.

Speaker 3: Yeah, I think the best work we've ever done, you know, so it's a, it's, it's, it's much bigger. I think it's gonna be much more significant than that.

Yes, I think the best work we've ever done so.

It's much bigger it I think it's going to be much more significant than that.

Speaker 3: And look, we just bought back a lot of stock. We put our money where our mouth is, right? We took a really big position in the stock.

And look we we've.

We just bought back a lot of stock. We've played it we put our money where our mouth is right. We took a really big position in the stock.

Speaker 3: And, you know, we've allocated a couple of billion dollars. That's twice as big, I think, as the buyback back, you know, then, you know, so. So we wouldn't have done that if we weren't confident.

And we've allocated a couple of billion dollars.

That's twice as big I think it's the that's the buyback back then so.

Gary Friedman: So, so, you know, we'll take, it's bigger hits than other people in these down cycles, but we'll have bigger ups in the up cycles. And, you know, because of the mix and stuff like that. So, but, but you're not going to see people, you know, right away, you know, like the books won't hit and you're not going to see the full potential. You need to let these books kind of get in and, you know, usually we get ramped in a book by three months.

So we wouldn't have done that if we werent confident.

And our board wouldn't have let us do that.

Speaker 3: Unless they were confident, right? So this is a fully informed.

Unless they werent unless they were confident right. So this.

Fully informed.

Speaker 3: kind of position we're taking from an investment perspective on inventory, on share repurchases.

Kind of position, we're taking from a you know.

An investment perspective on.

Inventory on share repurchases.

<unk>.

Speaker 3: But, you know, we're not a new team, it's an experienced team, it's an experienced board. Like you said, we've done this at just a smaller magnitude. We were a smaller company too, so we're a bigger company, we're placing a bigger bet.

But we're not a new team, yes, it's an experienced team.

Gary Friedman: You know, we hit, hit kind of ramp rate, and that's the bin stocks, you know, happen well and so on and so forth and things, you know, build and so on and so forth will, but we like everything we see, you know, I mean, we really do. I mean, the early signals are good, and we just want more time and we want to, you know, transition and set a few stores with some of the new goods.

<unk> Board.

Like you said we've done this.

Just.

A smaller magnitude were smaller company too so we're a bigger company.

Placing a bigger burden.

Speaker 3: Um, so, you know, you know, I kind of like where things are. I think, look, there's everybody's speculating, right? Like, if you just like, just look at what's happened in this quarter. Yeah. We are stuck.

So yes.

I kind of like where things are I think look there's.

Everybody is speculating right like if you dislike.

Look at what's happened in this quarter.

Gary Friedman: We want in stocks to build. You know, we've got a lot of new things that, you know, some look like they're going to be runaways. And so, you know, you got to say, okay, how do I get in front of that? And how do you reallocate production time and so on and so forth. And you got some things that are, you know, you're always going to have things that outperform what you think and underperform what you think.

Our stock started this quarter.

Speaker 3: but you know the day after earnings $274 a share. It's $247. Yeah, $247 a share. You know it.

The day after earnings $274 a share.

247, $347 a share.

At the end of Q2.

Speaker 3: You know, ended today at 369. It peaked at 402. You know, you went up 49% and it peaked at 63% up within a quarter.

Ended today at $3 69. It peaked at 402 went up 49.

Gary Friedman: So, you know, you take all the pluses, minuses and aggregate those, but then focus your efforts to optimize, you know, your real winners. And, you know, but but everything. Real early everything looks, I'd say, real good for only 40%. So just keep that into context. I'll have a lot more to say next quarter. And if something really is meaningful enough, maybe, you know, we talk to everybody or do something sooner. You know, we'll see, you know, I mean, this is, you know, we're very early.

<unk> percent and it peaked at 63% up within a quarter.

Speaker 3: with the only information and disclosures was we bought back 17% of the shares. So everybody could do the math about how many shares we bought back.

With the only information and disclosures was we bought back 17% of the shares so everybody can do the math.

How many shares we bought back.

Speaker 3: And because there's new disclosures that have to be made every time my ownership goes up by one point, you know, there's a lot of disclosures It's a lot of a lot of lot of filings. And so, you know, you thought hey, you know

And because there's new disclosures.

I would have to be made every time my ownership goes up by one point you know theres a lot of discussion disclosures it was flooded.

Filings.

And so your thought hey, Internet.

Speaker 3: They're buying back, you know, to stop, to stop up 17% to go up 20, to go up 14%. I mean, it went all the way up 63%. You know, and, you know, at the end of today, it was at 49.

They are buying back.

To stop stopped up 17% does go up 20% is about 14%.

Gary Friedman: And, you know, we're very positive, but we're still in a, you know, not so positive housing market and environment. So, you know, it's going to be a conservative tone to degree, but we'll be a lot smarter, you know, in another eight weeks. And then, you know, we'll, we'll, you know, we'll have enough information to make, make moves to kind of you know, think about, you know, investments in the first half of next year from a mailing perspective and, you know, how big, how deep do we go, how right are we?

I mean, it went all the way up 63%.

And.

At the end of today was up 49.

Speaker 3: And after hours, you know, it's still up 36, even though it's down, I don't know, 28, what's it now, 28 points down, something like that, you know, they just flashed it, you know, over here a second ago, so.

And after hours, it's still up 36, even though it's down I don't know 28, what's the now 28 points down something like that you know they just flashed it.

Gary Friedman: And how big do we go? But we're going to be some degree of right here. This is not, you're, this is not going to be a swing and a miss. I mean, I don't want to jinx anything, but like we've been doing this long time. And, you know, we're, we're going to read in the data. So, it's just, I think it's to the, you know, what degree of is a really good, great, is the outcome.

A second ago so yeah.

Speaker 3: You know, and you know, and you know, and you know, people like, wow, you know, like, wow, we said a bad day now. We're in a bad day. I don't know. We've had a million good days and a million bad days within a quarter. You're not a million, but you know, like so many so much volatility in the market. Because so many people are guessing, you know, like what's next? What's this? When when's the Fed going to ease? What other buy-and-back stock? What does this mean? You know, and I would just say,

Yes people like Wow.

Well, we set a bad day now it wasn't a bad day I don't know we've had a $1 million of data familiar bad days within a quarter here and I had a million dollars, but like so many so much volatility in the market because so many people are guessing.

What's next what's this 111, the fed going to ease what they are buying back stock what does this mean.

And.

I I would just say.

Well stay focused on what we write.

Speaker 3: You know, you don't want to know what you mean, re-read the letter, you know, that's why I write these letters, you know, so it's on there, you know, it's not random, you know, comments from a conference call that can sometimes be less focused and, you know.

You don't want to know what you mean re read the letter that's why write these letters.

So it's on there.

Not random.

Comments from our conference call that can sometimes be less focused in.

Gary Friedman: And then what's worse as a reset, and then, you know, and then how do you compound on kind of that reset? Got it. And it may just follow up international. So you've got, you know, and your store of coming up, right? I think, you know, technically within the four months, just, you know, looking at the newsletter. Are you feeling about those openings? I guess, if you're curious, what, why lead with those two cities?

Yeah.

Speaker 3: I spent a lot of time writing those letters, and the team and I spent a lot of time together crafting what we believe is the best version of the truth and what we believe is going to happen with the business. We're not going to always be right, but we have a pretty good track record over a long time.

Yes.

I spent a lot of time right and those letters and.

Team.

Been a lot of time, together, saying like crafting.

What we believe is the best version of the truth in what we believe is going to happen with the business, we're not going to always be right, but yes, we have a pretty good track record over a long time.

And so.

Gary Friedman: Yeah, smaller ones. Yeah, smaller ones that don't have a lot of capital, you know, like, you know, the nor hospitality, nor hospitality or anything. Right. So those are, you know, some locations that we thought, you know, the locations were decent. It'll give us some, you know, without putting a lot of capital in, just give us some feedback. Get the brand out there. I mean, look, I mean, average probably didn't have any bad locations.

Speaker 3: But it's just a lot of volatility. It's a time of speculation, right? Are the Feds going to ease, or are they going to tighten? The housing market bottoming, is the pent-up demand, is there going to be more inventory, as it relates to our market? And is RH's new books going to work, or the goods going to be? Is the customer going to accept the goods? Where are the margins going to be at? All kinds of stuff. So we just.

But just to let you know there's a lot of volatility at the time of speculation right.

Is that going to ease or are they going to tighten as the housing market bottoming.

With the pent up demand, if theyre going to be more inventories.

As it relates to you know to our market.

<unk>.

<unk> new books than at work or the goods is going to be.

Gary Friedman: These were just, you know, you know, the, you know,[inaudible] We got to play a little offense and just, you know, be sharper. And so, you know, there's some, you know, there's a few points of investment we're making there that, you know, we also have places where, you know, we're playing aggressively but our margins are at historical highs, you know, so it all depends, like, you know, what we're targeting, how we're targeting, you know, certain things.

Customers can accept the goods, where the margin is going to be at okay and stuff.

We just.

Put out a release today.

Speaker 3: that confirmed the year's numbers, confirm them.

Is that confirmed the year's numbers confirm them.

And the stock's down 30 Bucks in after hours.

Speaker 3: I don't think any of it made sense going up. I don't think it makes sense right now going down, but maybe it does just to kind of say, hey, where should it be? But we're all kind of... I don't think it makes sense right now going down, but maybe it does just to kind of say, hey, where should it be?

I don't think any of it made sense going up I don't think it makes sense right now is going down, but maybe maybe it does just to kind of say, hey, where should it be.

But.

We have but we're all kind of.

Looking at the same information.

Speaker 3: I mean, that's the funny thing. You know, so I'd say... Here.

I mean, that's the funny thing.

So I'd say, yes.

Got it.

It's like one of the things you learn.

Speaker 3: If you really study Warren Buffett, there's a real long-term consistent view about how they operate and what they do.

If you really study Warren Buffett, there's a real long term consistent view about how they operate and what they do and.

Speaker 3: We try to learn from people like that or Bernard Arnault and how he's built LVMH and how people have built things. Even if you look at, a lot of people think that there's so much inconsistency with Elon Musk. See, I see consistency.

Yeah, when we try to learn from people like that or Bernard our know how.

How he has built <unk> hao.

How people that build things and even if you look at like a lot of people think that there is so much inconsistency with Elon musk CIC consistency.

Speaker 3: consistently innovates, he consistently keeps innovating and so has he ever hit a

Consistently innovates, he consistently keeps innovating and so as he ever hit it.

Speaker 3: You know, launch target on anything or an intro target. No, he consistently doesn't because

Launch target on anything or an interim target that we consistently doesn't because.

Speaker 3: He doesn't manage the business, he leads the business and he innovates consistently. And so there's always going to be kind of more flushing.

He doesn't manage the business. He leads the business any innovates consistently and so theres always going to be.

Kind of a more fluctuation short term.

But long term.

He is building one of the most incredible businesses the world's ever seen.

Speaker 3: He's building one of the most incredible businesses the world's ever.

Speaker 3: And so I always just kind of stand back and look at the long term. I hear people snipe at Elon Musk, oh, he bought Twitter and that's stupid. He turned it into X, like whatever. Those are little sideshows.

And so I was just kind of stand back and look at the long term I hear people sniping, Elon musk OE, but Twitter and that stupid. He turned it into acts like what whatever those are little sideshows.

Speaker 3: The guy's building one of the great companies in the world, you know, like, you know, people say, oh, he lost his head of HR, or he lost this, like, now, if you look at it, over a number of years, he's building one of the best things in the world. And anybody that's bet against him has lost a lot of money.

The guys building one of the great companies in the World.

Yes, you can say Oh, we lost as head of HR or lost this like.

Now if you look at it.

Over a number of years is building one of the best things in the world and anybody Thats bet against them has lost a lot of money.

Speaker 3: And I think you know we're just trying to build one of those great things and so we you know this

And I think.

We're just trying to build one of those great things and so you know this.

Yeah.

Speaker 3: you know, we just try to stay focused on the long-term, learn from all the short-term data, you know, but don't overreact. We know we made some mistakes, you know, and we know we were arrogant in pricing and we know we kind of, you know, our muscle atrophied a bit in new product introductions and, you know, and trying to ramp back up, you know, wasn't our, you know, wasn't our best work.

We just try to stay focused on the long term learned from all of the short term data.

But don't Overreact, we know we made some mistakes.

We know we are arrogant and pricing and we know we tend to.

Our muscle atrophy to bit in new product introductions and <unk>.

Trying to ramp back up.

Wasn't yet.

It wasn't our best work.

Speaker 3: you know, we learned from that. We're gonna snap back from that. And you will see us, not only snap back, you'll see us back.

We learned from that we're going to snap back from that and you will see us not only snapback, you'll see us.

Better than you've ever seen us.

Speaker 3: Uh, and, and I feel real confident, like, uh, and so we'll see how it plays out. We'll see how, how right we are.

And and I feel real confident like.

And so we'll see how it plays out we'll see how how right we are.

Gary Friedman: So, we're going to say, yeah, let's, you know, let's see how these books do when they get in. Let's see what's performing. Let's see what, you know, what we're responding to, you know, there's going to probably be places where, you know, we're, you know, we've taken pricing that's really sharp. There may be places we're going to take pricing up. Right. But we've already got one collection that's, you know, kind of through the roof.

Your next question comes from the line of Jonathan Matthew Jetski from Jefferies. Please go ahead.

Speaker 1: Your next question comes from the line of Jonathan Matuszewski from Jeffreys. Please go ahead.

Speaker 12: Great, good evening, Gary Jack, and thanks for taking my question. It's on the contemporary business in the past. You referenced a billion dollar milestone over three years.

Great Good evening, Gary Jack and Thanks for taking my question. It's on the contemporary business in the past you referenced a billion dollar milestone over three years, just hoping to see if we could get an update on how that business is looking today at more product has been rolled out across the galleries.

Speaker 12: just hoping to see if we could get an update on how that business is looking today as more product has been rolled out across the galleries and how we should maybe think about the run rate of that business, maybe by the time of early next year, which would be a couple of months after the October source book mailing. Thanks so much. Yeah, I think about the totality of what we're doing here. I wouldn't just isolate contemporary, right? Contemporary is a new book.

Gary Friedman: It looks like our best collection ever. And we're going to probably take prices up this week. So, you know, just, guys, we've got so much demand and we think we can, you know, the product is still going to be positioned at a, at a disruptive value. We've probably just swung the pendulum a little too far on some, but, you know, it's, you know, this is, you know, the business we're in, you know, it's.

And how we should maybe think about the run rate of that business, maybe by the time of.

Early next year, which would be a couple of months. After the October source book mailing. Thanks, so much.

Yeah.

Think about that.

<unk> of what we're doing here I wouldn't just isolate contemporary contemporary temporaries that.

It's a new book.

Speaker 3: Do we think it's going to be a billion dollars? Yes, we do, but you've just got to look at this whole thing in concert. The biggest book is our interior's book.

Gary Friedman: You know, it's day to day week to week. You're learning, you're getting data. You're, you know, rethinking things. So, you're, you know, you know, you know, everything you do when you bite, you know, new product is speculative. You know, based on backwards looking data. You know, so you're never, you know, everything we buy, you know, is 100% wrong. You know, we've never bought anything and we go, that's exactly how it's selling.

Do we think it's going to be it.

$1 billion, yes, we do.

But you've really got to you've just got to look at this whole thing and in concert right.

Biggest book as our interiors book.

Speaker 3: it will continue to be contemporary, modern.

He will continue to be contemporary modern.

Speaker 3: Speed number two, contemporary number three, temporary might ramp bigger than modern. We may make decisions like, a lot of times, what exactly goes in contemporary versus what goes in modern versus what goes in interiors can be somewhat subjective.

Number two.

Contemporary number three temporary might ramp bigger the modern.

We make may make decisions like you know a lot of times.

Gary Friedman: That's exactly right. You know, so you're, you're always suggesting, right? You're getting real data, real information. And, and then you're learning from that and, and you're, you're extrapolating that and you're making the next best decisions. So, you know, I wouldn't jump to any conclusions just because of our, you know, what I call more short term view of, you know, just trying to transition. You know, the, you know, from the, from the current kind of products to the, you know, the new, you know, the next generation products and, and, you know, and playing offense from a disruptive value equation point of view.

What exactly goes in contemporary versus what goes in modern versus what goes in interiors can be somewhat subjective.

Speaker 3: You know, like there's sometimes some, you know, some blurred lines that are going to be there. Uh, you know, I I'd say, you know, I, I wouldn't go kind of micro like that right now. I think you'll miss the bigger.

There is sometimes some you know some blurred lines that are going to be there.

I would say you know I wouldn't go kind of micro like that right now I think youll Miss the bigger.

Speaker 3: The bigger idea, the bigger idea is the totality of the product transformation we're making. And I think about.

Bigger idea the bigger ideas that totality of the product transformation, we're making.

And I think about it is.

Speaker 3: You know, we're going to mail about 12 to 1300 pages of product and across that.

We're gonna mail about 12 to 1300 pages of product and across that.

Gary Friedman: It's how we got here. You know, I just think, you know, it's probably, we should have kept that edge the way we did. And, and, but, you know, you go through a period where you're in COVID and, you know, your business is running up 40% and, you know, your prices are going up and, you know, you, you've got, you went through, we went through multiple rounds of paraffing creases and pricing creases and apply chain increases and, you know, COVID increases and ocean freight increases and, you know, and I think, you know, that's why, you know, I made the comments I did at the end of my letter, you know, like, I think we're finally at the point of everything that kind of, and like make it, make everything go up.

70% to 80% newness.

Speaker 3: I think the next biggest book that competes with us is 228 pages. We haven't mailed anywhere near those number of pages.

I think the next biggest books that competes with US is 228 pages.

We haven't mailed.

Anywhere near those number of pages.

In a long time.

And we've never had this much.

New product.

Speaker 3: hit a market like this at the, you know, the design quality, you know, the quality of the make and the, what we believe the value equation.

He had a market like this.

<unk>.

The design quality.

Yeah.

The quality of the make and what we believe the value equation.

Speaker 3: And anytime we've done anything like this.

And anytime.

Anytime we've done anything like this we've moved the business meaningfully.

Speaker 3: we've moved the business meaningfully. You know, and so this is the biggest thing we've done. I think it will be the biggest, the most meaningful thing that we've ever done strategically.

Gary Friedman: With COVID, it's one of the kind of the backside of the cycle of everything going down and everything washing through. And I think if you just like, kind of take those years and say, okay, what are the best things I learned to now get them out of the way, and you got to kind of rethink about your business. But, you know, I think, I wouldn't make any long-term assumptions based on anything that's happening on a short-term basis right now.

And so this is the biggest thing we've done I think it will be the biggest.

Biggest the most meaningful thing that we've ever done strategically.

Speaker 3: It will reset the company for the next five years.

It will reset the company for the next five years.

Appreciate the color and best of luck.

Thank you.

Speaker 1: Your next question comes from the line of Steve McManus from BMP Parabas. Please go ahead.

Your next question comes from the line of Steve Mcmanus from BNP Paribas. Please go ahead.

Gary Friedman: You know, in this transition period, I think you'll see us return to a really good model. If we get the, you know, the inflection that we believe it's going to happen in the top line, especially, you know, where we think it'll take as we get into kind of the first half of next year, you'll see our whole business model snapback. Right, but just to be clear, Gary, so the margin is the product margins on the new product that you guys are launching are the next say six to nine months.

Speaker 13: Hey, afternoon, thanks for taking the question question on on suppliers. We're seeing more and more suppliers go out of business here. Pretty big 1. On the high end side last week, so just curious what you're seeing. You know, with respect to the financial health of some of your key suppliers, any, any challenges that you're facing right now, it's worth calling out.

Hey, good afternoon, thanks for taking the question.

So I had a question on <unk>.

Buyers, we're seeing more and more suppliers go out of business here, a pretty big one on the high inside last week. So just curious what you're seeing with respect to the financial health of some of your key supplier of any any challenges that you're facing right now it's worth calling out.

Speaker 3: Yeah, I mean, you're probably referencing one of our suppliers that, you know, filed for bankruptcy, Mitchell Gold and Bob Williams, really terrific people. It's just an unfortunate thing. I think, yeah, they're

Yeah, I mean, you're probably referencing one of our suppliers that filed for bankruptcy Mitchell Golden Barb Williams said really terrific people its just.

Unfortunate thing I think.

Speaker 3: you know, went through some private equity hands and yeah, there's some, yeah, they stepped back from the business and.

Gary Friedman: It's going to be lower by a few points and what you are earning on products during the pandemic. And then the real benefits that gross margins could be from volume improved volumes. That's not necessarily, you know, so we weren't that specific. Yeah, we don't guide our gross margin is, you know, we don't disclose product margins. So we're trying to tell you just a directional flavor, and I think just to recap little what Gary said, you know, some products are going to be higher, some products are going to be lower.

You know went through some private equity hands and yeah. There is some.

They stepped back from the business.

Yeah, that's some wrong leadership, it's bad decisions that it kind of Goofed up the company.

Speaker 3: had some wrong leadership, it's bad decisions, and it kind of goofed up the company. And, you know, there's, some wrong leadership.

There is.

There is.

Yeah.

Speaker 3: I don't know, probably 30, 40 million, 40 million of demand with them. We can resource it all pretty easily. We don't see any meaningful interruptions or anything. You know, they're not one of our big suppliers.

I don't know probably.

30, $40 million $40 million of demand with them, we can resource it all pretty easily we don't we don't see any meaningful interruptions or anything.

They're not one of our.

Gary Friedman: We're not making a general statement, you know, I'll just, you know, you can roll back the tape on what Gary said as far as the investment we're going to make that that that's that's right. But as far as like what the future is going to look like, let's just let that play out. And you know, we're going to make margin commentary, especially gross margin commentary after each quarter's results because again, we don't guide that particular line. Under the thank you guys. Thank you, sir.

Big suppliers so.

Speaker 3: You know, and I think it just goes to show, you know, how hard it is to do every part of the business right when, you know, they're typically they were a furniture manufacturing company, they, you know, really great aesthetic great marketing, great style.

And I think it just goes to show how hard it is to do every part of the business right.

They're typically they were.

Furniture manufacturing company.

Really greatest static great marketing great style.

They got into the retail business to end.

Speaker 3: retail business too and you know that added a lot of complications you know it's it's hard when you try to do try to do both you try to be a host cell business a retail business you know manufacturing business uh yeah you're you're kind of in

That added a lot of complications.

It's.

Maksim Rakhlenko: Your next question comes from the line of max relinco from TD Cowan. Please go ahead. Great. Thanks a lot.

It's hard when you try to do try to do both to try to be a wholesale business, our retail business manufacturing business.

You're kind of in.

Gary Friedman: So if we were to bucket your initiatives over the next 12 months into US gallery openings, European openings and then new product introductions, how would you rank order their magnitude. And then just for a clarification, how much of repress inside the gallery should we expect both over the next 22 quarters. And then a year from now, both in terms of new products, as well as the number of galleries that the new products will hit. Thanks a lot. Sure.

Yes, three kind of complex businesses right there so.

Speaker 3: three kind of complex businesses right there. So,

So I think.

Speaker 3: Yeah, there's always going to be some people that.

Yes, there's always going to be some people that.

Speaker 3: you know, that kind of don't make it through different down cycles like this.

You know that kind of don't make it through different down cycles like this.

Speaker 3: Could there be more, there could, there could be more on the retail side that probably will be?

Could there be more there could there could be more on the retail side, there probably will be.

But.

Speaker 3: Yeah, we don't see any real fundamental, fundamental risk to our business that is going to be meaningful. Shall be??

Yeah, we don't see any real fundamental fundamentals risk to our business that that is going to be meaningful.

Gary Friedman: I, you know, like I take the product and the product is by far the most important thing we're doing. Right. And yeah, the new openings and building out the platform, those are, it's the platform for the product. So what we're doing is the product is going to make the most meaningful impact, you know, over the next several years. So, you know, when you think about the investment and gallery floor sets, we just begin setting.

Otherwise, we would it talked about it in the disclosure.

Speaker 13: Got it. Appreciate the color. Thanks, Gary. Best of luck. Sure. Thank you.

Got it appreciate the color. Thanks, Gerry best of luck. Thank you.

Speaker 1: Your next question comes from the line of Michael Lasser. From UBS, please go ahead.

Your next question comes from the line of Michael Lasser.

From UBS. Please go ahead.

Speaker 11: Good evening. Thanks a lot for taking my question. Gary, is it right to interpret your statement that you expect the business to inflect?

Good evening. Thanks, a lot for taking my question Gary is it right to interpret your statement that you expect the business to inflect in the first half of next year to mean that it's going to flatten out net in the first half of next year before resuming a group.

Gary Friedman: R.H. Marin, next to her headquarters. And, you know, we will all see it, you know, for the next, you know, it gets fine tuned over the next couple of weeks. It's kind of a phase one move of it. We have kind of right now phase one and phase two, and then we'll have a phase three. I think you'll see, you know, the majority of the galleries reset by Q1. Again, you know, of next year and, you know, as we call the gallery, yeah, yeah, all the galleries, yeah, reset.

Speaker 11: in the first half of next year, to me now it's going to flatten out. In the first half of next year, before resuming a growth trajectory in the second half of next year.

<unk> trajectory in the second half of next year and my follow up question is would you expect based on everything that you know today, you're totality of investment spend independent if it's going to be in the gross margin more in the SG&A is going to be greater than <unk>.

Speaker 11: And my follow question is, would you expect based on everything that you know today, that your totality of investment spend?

Speaker 11: independent of it's going to be in the gross margin or in the S-T-L-A is going to be greater than equal to or less than what you're spending this year. Thank you so much. Sure, sure, so.

<unk>, two or less than what you're spending this year. Thank you so much.

Sure sure so.

Gary Friedman: And then, you know, you'll have some winners and some losers and kind of the product mix and as we mailed the, you know, the modern books going in in January, I mean, you're going to find out there's some things in modern that are probably really good. And you better than some things we might have just rolled out into the gallery, then you'll make some adjustments. But I'd say we'll be, you know, by Q2 of next year, we'll be really educated.

Speaker 3: Yeah, let me, you know, just try to be real clear and direct that we expect the business to reflect.

Yes.

Yeah, Let me just try.

Try to be real clear and direct that.

We expect the business to inflect.

In this.

Second half of this year right.

Speaker 3: Meaning, and when I talk about inflection, what does that mean? That means a meaningful move in trend, and this means to the upside.

And when I talk about inflection what does that mean that means a meaningful move in.

Trend and this means to the upside.

Speaker 3: Right, so we think our business will reflect and our trend will change to the upside. These are these.

Right. So we think our business will inflect and our trend will change to the upside.

Vis vis where we've been trending.

Gary Friedman: You know, you know, especially by the late Q2, we'll have had two cycles of drops. We'll have a lot of newness. We'll have kind of the first phase, the major phase, second phase, still, you know, not as major as the first phase, but still more meaningful than normal. And, you know, we'll, we'll have had a good period of time to measure and have seen phase one of the product transformation and, you know, first drops and then, you know, we'll have some data on the second cycle.

Speaker 3: where how the rest of the market's performing, we think we'll have an inflection that will make a meaningful move against all those metrics, right? We'll inflect that against our trends, we'll inflect that against the market trends, we'll inflect that against the competitive trends. We think we will.

Where how the rest of the markets performing we think we'll have an inflection that will make a meaningful move against all those metrics right will inflect up against our trends will inflect up against the market trends.

Next up against the competitive trends.

We think we will reach kind of a.

Peak.

Speaker 3: of that inflection of this first phase from these books, we think we will hit that in the first half.

Oh that inflection.

This first phase.

From these books, we think we will hit that in the first half of.

Gary Friedman: And we'll be fully ready for the second half of next year. But, you know, to kind of keep optimizing it, right, because we're going to just get a lot of data, a lot of information, you're making a lot of adjustments. And, you know, we'll keep doing things that kind of, what I'd say build the trend. When you go through a big move like this, it's, you know, you're going to get some really right and you're going to get some bit wrong.

Speaker 3: of next year. So I'd say think about an inflection happening here, you know, over the rest of this year, we'll inflect that.

Of next year, So I'd say think about an inflection happening here over.

The rest of this year will inflect up.

Speaker 3: And then in the first half of next year, there'll be another...

And then in the first half of next year there'll be a another.

Speaker 3: kind of inflection above whatever that run rate is, right? And that's against our trends, against the industries trends, against our competitors.

Kind of inflection above whatever that run rate is right and thats against our trends against the industry's trends against our competitors' trends.

Gary Friedman: And, you know, you know, it's, as long as you're, you know, throwing more things above the line than below the line, you know, then you're going to learn and then you, you're going to make adjustments. And those adjustments will move the business higher, right. So I'd say, you know, we'll hit max inflection in Q2, doesn't mean we'll hit max run rate. When I talk about the inflection, I talk about the early inflection, then we'll build on that, right. So, you know, I would, I would assume that the second, you know, the first half of next year will be very good. And the second half of next year will be better than the first half.

Speaker 3: And then as we cycle and get into the second half of next year.

And then as we cycle and get into the second half of next year.

Speaker 3: I think we will build on that trend.

I think we will build on that trend, but it may not be as big of an inflection, but it will be a building of momentum again kind of disregarding any kind of meaningful meaningful thing that happens in the economy and in whatever the whatever.

Speaker 3: But it may not be as big of an inflection, but it will be a building of momentum. Again, kind of disregarding any kind of meaningful thing that happens in the economy and whatever happens in the economy, I would be surprised if it's.

Having seen the economy I would be surprised if it's if it's more dramatic than our positive inflection right. So if the market goes down some step down or inflection point will be bigger than that step down.

Speaker 3: If it's more dramatic than our positive inflection.

Speaker 3: Right, so if the market goes down, some step down, our inflection point will be bigger than that step down. Is that make-

If that makes sense is that more clear.

Speaker 11: I think I'd catch your drift if you've been trending down high teens, low 20% range.

I think I hit your drift if you've been training.

Bradley Thomas: Your next question comes from the line of Brad Thomas from Keybank Capital Markets. Please go ahead. Hi, good afternoon. I was hoping to follow up on the topic of operating margins and just hoping we could maybe frame up, you know, some of the puts and takes, you know, obviously the full year implies kind of this mid teens level for the operating margin. Can you help us think about maybe your latest thoughts on structurally what the operating margins look like in this world where you're opening up stores internationally in this world where, you know, you have your product coming out. There's more source books. You know, what do you think sort of normalize margin start looking like as you get back to revenue growth again?

High teens low 20% range.

Speaker 11: The inflection is, look, we're not going to be trending down at this range. The counter-argument would be, well, you know, you're going to be facing easier comparisons. It's harder for us to...

The inflection is look we're not going to be turning down in this range.

The counter argument would be one.

Youre going to be facing easier comparisons it is harder for us.

Speaker 11: dissect how much is due to which is the market getting better you go yeah yeah no you just got to think about things that all those things I just said what's the industry doing what are the key competitors doing what are we doing

Dissect how much is due to just the market getting better yugo yeah. Yeah. No you just got to think of I think that all those things I just said, what's the industry doing what are the key competitors doing what are we doing.

Speaker 3: We're going to reflect against all of that, right? So it's not just our trend. Our trend will be one of those elements, but we're going to reflect against the industry. We're going to reflect against the key competitors. That's.

We're gonna inflect against all of that right. So it's not just our trend our trend will be one of the elements, but we're going to inflect against the industry, we're going to inflect against key competitors.

That's that's how to think about.

Speaker 11: Okay, and then on the, let me just say that, which means we'll be taking market share, right? So.

Okay.

Then on the well.

David.

Jack Preston: You know, I don't think Brad, we're ready to talk about that. You know, I think, you know, we're talking about some, you know, short-term changes near-term impact to the margin. And, you know, and especially moves related to, you know, and making some investments due to competitive reasons, you know, as Gary talked about. So, you know, what the other side of that looks like, you know, we have a discussion with you about each year's guidance. And March, so we'll do that.

Which means we will be taking market share right. So.

Speaker 3: Right. So I think we've been giving market share. We will go from giving market share to taking market.

Right. So I think we've been giving market share we will go from giving market share to taking market share.

Speaker 11: That's clear. And then as you think about 2024, will the magnitude of the investment that you're making be larger than, more than or equal to this year?

That's clear.

And then as you think about 2024 will the magnitude of the investments that youre, making be larger than more than or equal to this year.

Okay.

Speaker 3: We haven't guided to that yet. So yeah, we're not we're not prepared to kind of talk about that

Yeah.

We havent guided to that yet so we're not we're not prepared to kind of talk about that.

Jack Preston: And give you a better look then. But as far as, as we sit here at the end of Q2, and, you know, in the many sort of changes and levers, we're, we're, we're, we're plan forward with, we don't have that visibility or that ability to tell you what, what the, what the study looks, study state looks like. Other than, you know, as revenue grows, and we get leverage in the business, we expect margin to increase from here.

Speaker 11: Thank you very much, you're good luck. Great, thank you, Michael.

Okay. Thank you very much and good luck.

Thank you Michael Michael.

Speaker 1: Your next question comes from the line of Christina Fernandez from TESLI Advisory Group. Please go ahead.

Your next question comes from the line of Cristina Fernandez from Pets Tousley Advisory Group. Please go ahead yeah.

Speaker 14: Yeah, hi, good afternoon, everyone. I wanted to go back to the advertising spend and the shift you're making to the

Hi, Good afternoon, everyone I wanted to go.

I'll go back to the advertising spend and the <unk>.

If youre, making to the cause it twice a year cycle like.

Jack Preston: I mean, you know, where that baseline level is, you know, I, I'll, I'll let Gary chime in here. But, no, I think that's correct. You know, I mean, I think, you know, we're, you know, for the most part, we're, we're giving you color today. You know, maybe slightly more different, or a different angle on the color than what's written in the letter. But, you know, we don't want to kind of talk about things that we don't, that we have. We haven't really released, right? And, you know, we're not really releasing kind of that far out.

Speaker 14: to the twice a year cycle. Like, does this mean you go back to, you know, 4% of sales spent an advertising, I know, you know, the last couple of years, which very low, or with the product introductions you're making, and then you start opening some Europe , but if it makes sense for that spend to be, you know, to be at a higher level, just wanna get a sense of directionally, where that, you know.

This means you go back to 4% of sales.

<unk> spent on advertising I know you know the last couple of years with very low or with the product introductions, youre, making and new store openings in Europe . It does it makes sense for that spend to be to be at a higher level just wanted to get a sense of directionally where.

Yeah.

Speaker 3: I don't know yet, but we'll know a lot more when we see the inflection in the visit.

Thank God.

Don't know yet what we will know a lot more when we see the inflection in the business.

Hmm.

Gary Friedman: But, you know, all of us on this call are going to, you know, know a lot more next quarter and the next quarter. And, and, you know, we're either going to be, you know, more right or more wrong. We think we're going to be more right than wrong. And we'll, you know, everything that we said we believe in. And it's, you know, it's, you know, there's some level of speculation, of course, but there's, you know, there's a lot of data, you know, that we have based on doing what we're doing, you know, introducing newness, mailing, you know, mailing sourcebooks, resetting floors.

Speaker 1: And we have no further questions in the queue at this time. Gary Friedman, I'll turn the call back over to you for closing remarks. Great, thank you operator. Thank you everyone for your time and interest. Thank you to Team RH for your leadership and efforts. Your hard work is gonna pay off. And thank you to all our partners around the world who are part of this team. Your support and efforts mean the world to us. And I am going to start all day long, of bringing you up to this list.

And we have no further questions in the queue at this time, Gary Friedman I will turn the call back over to you for closing remarks, great. Thank you operator. Thank you everyone for your time and interest.

Thank you to TMR H for your.

Leadership and efforts.

Your hard work is going to pay off and thank you to all our partners around the world who are you know.

Part of this team Youre support efforts in the world to us.

And.

Speaker 3: and I can tell you all three constituent fees.

And I can tell you all three constituencies.

Speaker 3: that are all probably listening into this call. I think share the sentiment that we shared with you today. I don't think we've ever been more excited about the future. And I believe we'll demonstrate that to the other constituencies and that's the shareholders that are on this call. So thank you everyone for your time and attention today. We look forward to the next few quarters.

Is that are all probably listening into this call.

Sure the sentiment that we shared with you today I don't think we've ever been more excited about the future and I believe will demonstrate that.

Gary Friedman: We know all the list factors and what will happen if we do this, that and we're, we're directly usually right on those things. You know, and so we've, you know, we've been rusty. We've been somewhat out of the game and we're going to come back into the game in a very impactful way. So, you know, we're looking forward to kind of, you know, get into data, but the good news is the early data doesn't look bad. It looks good.

The other constituencies and that the shareholders that are on this call. So thank you everyone for your time and attention today, we look forward to the next few quarters.

Gary Friedman: So, so far so good.

Gary Friedman: That's as much as we know right now.

Speaker 1: This concludes today's conference call. Thank you for your participation, and you may now disconnect.

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

[music].

Michael Lasser: Gary, maybe if I could ask you another way, when you did some significant share of purchase back and I think it was 2017, you later describe that time as a period where, you know, you've kind of taken the racetrack off the car off the racetrack and done a lot of surgery on it. Does it feel like it's that significant of a time for you as you think about how you're positioning the company.

Yeah.

Yes.

Sure.

[music].

Yeah.

Michael Lasser: Yeah, bigger than that. We've redesigned the whole fleet of cars. It's literally the biggest reposition in the business we've ever went through. I think the best work we've ever done. It's much bigger, I think it's going to be much more significant than that. Look, we've just bought back a lot of stock. We put our money where our mouth is. We took a really big position in the stock and we've allocated a couple billion dollars.

Yes.

[music].

Okay.

Okay.

[music].

Michael Lasser: That's twice as big, I think, as a buyback back event. We wouldn't have done that if we weren't confident. And our board wouldn't have let us do that unless they weren't confident. This is a fully informed position we're taking from an investment perspective on inventory, on share free purchases, but we're not a new team. It's an experienced team, it's an experienced board. Like you said, we've done this at just a smaller magnitude.

Michael Lasser: We're a smaller company too, so we're bigger companies that take place in a bigger bed. I kind of like where things are. I think there's everybody speculating. If you just look at what's happened in this quarter, our stock started this quarter the day after earnings $274 a share. Yeah, $247. Yeah, $247 share. You know, at the end of Q2, it ended today at $369. It peaked at 402. You know, you went up 49% and it peaked at 63% up within a quarter with the only information and disclosures was we bought back 17% of the shares.

Michael Lasser: So everybody could do the math, you know, about how many shares we bought back. And because there's new disclosures that have to be made every time my ownership goes up by one point, you know, there's a lot of disclosures. There's a lot of, a lot of, a lot of filings. And you know, you thought, hey, you know, they're buying back, you know, to stop stock up 17% this go up 20, this go up 14%.

Michael Lasser: I mean, it went all the way up 63%. You know, and you know, at the end of today was up 49. And after hours, you know, it's still up 36, even though it's down, I don't know, 28, what's it now 28 points down? Some like that, you know, they just flashed it, you know, over a second ago. So, you know, and, you know, and, you know, people like, wow, you know, like, wow, is it a bad day now?

Michael Lasser: Listen to bad day. I don't know. We've had a million good days, a million bad days within a quarter here, not a million, but, you know, like so many, so much volatility in the market, because so many people are guessing, you know, like what's next, what's this? I would just say, stay focused on what we write.

Gary Friedman: You don't want to know what we mean, reread the letter. That's why I write these letters. So it's on there. It's not random comments from a conference call that can sometimes be less focused and just, everything, I spent a lot of time writing those letters. The team and I spent a lot of time together saying, crafting, what we believe is the best version of the truth and what we believe is going to happen with the business.

Gary Friedman: We're not going to always be right, but we have a pretty good track record over a long time. But there's a lot of volatility. It's a time of speculation, right? Or is this Fed going to ease? Or are they going to tighten? The housing market bottoming is with the pent up demand. They're going to be more inventory as it relates to our market. RH's new books are going to work, the goods are going to be, the customers are going to accept the goods, where the margins are going to be at.

Gary Friedman: We just put out a release today that confirmed the year's numbers. Confirmed them. And it stocks down 30 bucks an after hours. I don't think any of it made sense going up. I don't think it makes sense right now going down, but maybe it does just to say, hey, where should it be? But we're all kind of looking at the same information. I mean, that's the funny thing.

Jonathan Matuszewski: I'd say it's like one of the things you learn, if you really study Warren Buffett, there's a real long-term consistent view about how they operate and what they do. And when we try to learn from people like that, or Bernard Erno, and how he's built LVMH, and how people have built things. And even if you look at a lot of people think that there's so much inconsistency with Elon Musk, the IC consistency, he consistently innovates.

Jonathan Matuszewski: He consistently keeps innovating. And so, as you ever hit a launch target on anything or an intro target, no, he consistently doesn't because he doesn't manage the business. He leads the business and he innovates consistently. And so there's always going to be kind of more fluctuation, short-term. But long-term, he's building one of the most incredible businesses the world's ever seen. And so I always just kind of stand back and look at the long-term.

Jonathan Matuszewski: I hear people snipe at Elon Musk. Oh, he bought Twitter and that's stupid. He turned it into acts like whatever. Those are little side shows. The guy is building one of the great companies in the world. He lost his head of a char or he lost this. Now, if you look at it over a number of years, he's building one of the best things in the world. And anybody that's fed against him has lost a lot of money.

Jonathan Matuszewski: Money. And I think, you know, we're just trying to build one of those great things. And so, you know, we, you know, we just try to stay focused on the long term, learn from all the short term data, you know, but don't overreact. We know we made some mistakes, you know, and we know we are arrogant and pricing and we know we kind of, you know, our muscle atrophy to bit in new product and introductions and, you know, and trying to ramp back back back up, you know, wasn't our, yeah, it wasn't our best work. You know, we learn from that, we're going to snap back from that and you will see us, not only snap back, you'll see us better than you've ever seen us.

Gary Friedman: And, and I'm real real confident, like, and so we'll see how it plays out, we'll see how, how right we are.

Steve McManus: Your next question comes from the line of Jonathan Matuchiski from Jeffries. Please go ahead. Great.

Gary Friedman: Good evening, Gary Jack. And thanks for taking my question. It's on the contemporary business. In the past, you referenced a billion dollar milestone over three years. Just hoping to see if we could get an update on how that business is looking today as more product has been rolled out across the galleries. And how we should maybe think about the run rate of that business, maybe about the time of, you know, early next year, which would be a couple of months after the October sourcebook mailing.

Gary Friedman: Thanks so much. Yeah, I think about the totality of what we're doing here. I wouldn't just isolate contemporary contemporary. It's a new book. Do we think it's going to be a billion dollars? Yes, we do. But you've really got to, you know, you've just got to look at this whole thing in concert, right? The, you know, the biggest book is our interior book. You will continue to be contemporary modern. Read number two, contemporary number three, temperate might ramp bigger than modern.

Gary Friedman: You know, we make, may make decisions like, you know, a lot of times, you know, what exactly goes in contemporary versus what goes in modern versus what goes in interiors can be somewhat subjective. You know, like there's sometimes some, you know, some blurred lines that are going to be there. You know, I'd say, you know, I wouldn't go kind of micro like that right now. I think you'll miss the bigger, the bigger idea, the bigger ideas, the totality of the product transformation we're making.

Gary Friedman: And I think about it is, you know, we're going to mail about 12 to 1300 pages of product and across that 70 to 80% newness. I think the next biggest book that competes with us is 228 pages. We haven't mailed anywhere near those number of pages in a long time and we've never had this much, and such new product. Get a market like this at the, you know, the design quality, you know, the, you know, the quality of the make and the, what we believe, the value equation.

Gary Friedman: And anytime we've done anything like this, we've moved the business meaningfully. You know, and so this is the biggest thing we've done. I think it will be the biggest, the most meaningful thing that we've ever done strategically. It will reset the company for the next five years.

Gary Friedman: Appreciate the color and best of luck. Thank you.

Christina Fernandez: Your next question comes from the line of Steve McManus from BMP Parabas. Please go ahead. Hey, afternoon. Thanks for taking the question. Some question on, on suppliers. We're seeing more and more suppliers go out of business here. Pretty big one on the high inside last week. So, just curious what you're seeing. You know, with respect to the financial health of some of your key suppliers, any, any challenges that you're facing right now.

Christina Fernandez: That's worth calling out. Yeah, I mean, you're probably referencing one of our suppliers that, you know, filed for bankruptcy, Mitchell, Golden Bob Williams, really terrific people. It's an unfortunate thing. I think, you know, they went through some private equity hands and yeah, there's some, you know, they stepped back from the business and, you know, had some wrong leadership. It's bad decisions and it kind of goofed up the company. And, you know, there's, you know, there's, I don't know, probably 30, 40 million, 40 million of, you know, demand with them.

Christina Fernandez: We can resource it all pretty easily. We don't, we don't see any meaningful interruptions or anything. You know, they're, they're not one of our big suppliers. So, you know, and I think it just goes to show, you know, how hard it is to do every part of the business, right? When, you know, they're typically, they were a furniture manufacturing company. They, you know, really great aesthetic, great marketing, great style. They got into the retail business too.

Christina Fernandez: And, you know, that added a lot of complications. You know, it's hard when you try to do, try to do both. You try to be a host cell business, a retail business, you know, manufacturing business. Yeah, you're, you're kind of in, you know, three kind of complex businesses right there. So, you know, so I think, you know, there's always going to be some people that, you know, they kind of don't make it through different down cycles like this.

Christina Fernandez: I, you know, could there be more, there could, there could be more on the retail side, there probably will be. But, you know, we, we don't see any real fundamental, fundamental risk to our business that, that is going to be meaningful. Otherwise, we would have talked about an explosion. Got it. Appreciate the color. Thanks, Gary. That's luck. Thank you. Your next question comes from the line of Michael Lasser from UBS. Please go ahead.

Christina Fernandez: Good evening. Thanks a lot for taking my question. Gary, is it right to interpret your statements that you expect the business to reflect in the first half of next year? To me, that it's going to flatten out. In the first half of next year before resuming a growth trajectory in the second half of next year. And my follow question is, would you expect based on everything that you know today that your totality of investment spend independent of it's going to be in the gross margin or in the SNA is going to be greater than equal to or less than what you're spending this year. Thank you so much. Sure, sure.

Jack Preston: So yeah, let me just try to be real clear and direct that we expect the business to reflect in the second half of this year. Meaning, and when I talk about inflection, what does that mean? That means a meaningful move in trend. And this means to the upside. Right. So we think our business will reflect and our trend will change to the upside. But these are these where we've been trending, where how the rest of the markets performing, we think we'll have an inflection that will make a meaningful move against all those metrics.

Jack Preston: Right. We'll inflict up against our trends. We'll inflict up against the market trends. We'll inflict up against the competitive trends. We think we will reach kind of a peak of that inflection of this first phase from these books. We think we will hit that in the first half of next year. So I'd say think about an inflection happening here, you know, over the rest of this year, we'll inflict up. And then in the first half of next year, there'll be another kind of inflection above whatever that run rate is.

Jack Preston: Right. And that's against our trends against the industries trends against our competitors trends. And then as we cycle and get into the second half of next year, I think we will build on that trend, but it may not be as big of an inflection, but it will be a building of momentum. Again, kind of disregarding any kind of meaningful, you know, meaningful thing that happens in the economy and whatever the eat whatever happens in the economy, I would be surprised if it's if it's more dramatic than our positive inflection.

Jack Preston: Right. So if the market goes down, some step down, our inflection point will be bigger than that step. I think I catch your drift. If you've been trending down, high teens, low 20% range, the inflection is, look, we're not going to be trending down at this range. The counter argument would be, well, you know, you're going to be facing easier comparison to talk. It's harder for us to dissect how much is due to the market getting better.

Jack Preston: You go. Yeah, yeah, I think it's going to be good. No, you just got to think about things about all those things. I just said, what's the industry doing? What are the key competitors doing? What are we doing? We're going to reflect against all that, right? So it's not just our trend. Our trend will be one of those elements, but we're going to reflect against the industry. We're going to reflect against the key competitors.

Jack Preston: That's how to think about it. Okay. And then on the, which means we'll be taking market share. Right. So, I think we've been giving market share, we will go from giving market share to taking market share. That's clear.

Jack Preston: And then as you think about 2024, will the magnitude of the investments that you're making be larger than more than or equal to this year. We haven't guided to that yet. So yeah, we're not, we're not prepared to kind of talk about that. Okay. Thank you very much. You're good luck. Great. Thank you, Michael. Your next question comes from the line of Christina Fernandez from Tessley Advisory Group. Please go ahead. Yeah, hi, good afternoon, everyone.

Jack Preston: I wanted to go back to the advertising span and the shift you're making to the, you know, twice a year cycle. Like this means you go back to, you know, 4% of sales spent on advertising. I know, you know, the last couple of years, which very low. Or with the product introductions you're making and then you start openings in Europe. It doesn't make sense for that spend to be, you know, to be at a higher level. Just want to get a sense of directionally where, where that spending goes. I don't know yet, but we'll know a lot more when we see the inflection in the business.

Operator: And we have no further questions in the queue at this time. Gary Friedman, I'll turn the call back over to you for closing remarks. Great. Thank you, operator. Thank you, everyone, for your time and interest. You know, thank you to Team RH for your leadership and efforts. Your hard work is going to pay off and thank you to all our partners around the world who are, you know, part of this team, your support and efforts mean the world to us.

Operator: And I can tell you all all three constituencies that are all probably listening into this call, I think share the sentiment that we shared with you today. I don't think we've ever been more excited about the future. And I believe we'll demonstrate that to the other constituencies and that's the shareholders that are on this call. So thank you everyone for your time and attention today.

Gary Friedman: We look forward to the next few quarters.

Operator: Thank you.

Operator: And this concludes today's conference call.

Operator: Thank you for your participation and you may now disconnect.