Q4 2024 RH Earnings Call

March 27, 2024

[music].

Okay.

Ladies and gentlemen, thank you for standing by my name is desert Ray and I will be your conference operator today at this time I would like to welcome everyone to the R. H what quarter its twenty-twenty sheets Q&A call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Sir.

<unk>.

If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

If you would like to withdraw your question again press the star one.

I would now like to turn the conference over to Allison Malkin of ICR. Please go ahead.

Thank you good afternoon, everyone. Thank you for joining us for our fourth quarter fiscal year 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.

And we will make certain statements today that are forward looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our press release issued today. These forward looking statements involve a number of risks and uncertainties that could cause actual results to differ materially.

Lee.

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.

Levi or publicly release the results of any revision to these forward looking statements in light of new information or future events.

Also during this call we may discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of NATO you.

You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in todays financial results press release.

Live broadcast of this call is also available on the Investor Relations section of our web site at IR Dot Orange Dot com with that I'll turn the call over to Gary. Thank.

Thank you Alison and good afternoon, everyone.

I'm going to start with our prepared comments, which are included in our press release.

And shareholder letter to our people partners and shareholders.

Fiscal 2023 with the Euro diversity.

That's it for <unk> as we face the most challenging housing market in three decades, while investing in the most compelling product transformation and platform expansion in our history.

We are positioning the RH brand to gain significant market share in 2024 and beyond while building the foundation for global expansion across the United Kingdom, Europe, Australia, and the Middle East over the next several years.

While aggressively investing in the downturn has put pressure on short term results.

It also positions us to capitalize on the long term opportunities that present themselves during times of disruption and dislocation.

We demonstrated our confidence in our strategy by repurchasing seven 6 million shares for our stock during fiscal 2022, and 2023, representing approximately 35.

Percent of the shares outstanding.

We believe that investment will create meaningful long term value for our shareholders.

Turning to our fourth quarter and full year results.

Revenue was negatively impacted by $40 million in the fourth quarter due to the severe January weather and shipping delays related to the ongoing conflict in the Red Sea.

We do expect the majority of the deferred revenue will be realized in 2024 when transit times normalized.

Adjusted operating margin was nine 1% and 13% and adjusted EBITDA margin was 15, 3% and 18, 2% for the fourth quarter and full year, respectively, reflecting deleverage from lower revenues increased markdowns to support our product transformation and investments in international expansion.

Sure.

Every act of creation is first Phoenix destruction Pablo Picasso.

We have spent the past 18 months, destroying the former version of ourselves and are in the process of at least in what we believe is an exponentially more inspiring and disruptive for each brand.

But the most prolific product transformation and platform expansion in the history of our industry.

Our product transformation plans for 2024 include.

The launch of our new RH outdoor sports slipped the most dominant in disruptive collection of luxury outdoor furniture and the market horizon homes late February through mid March with 14, new collections.

The initial response has been exceptional and we expect to gain significant market share in this important category in fiscal 2024.

The unveiling of our new RH modern source book is scheduled to be in late April early may with 30, new collections across living dining bedroom and bathroom, including original design from the Harvey appropriate state one of the most influential modern designers of the past century.

We expect the launch of RH modern will further accelerate our demand trends in the second quarter and throughout the second half of 2024.

The second mailing of our new RH interiors source book is planned to be at home late may through early June with new collections and improved in stocks, which should also provide an additional lift to the <unk>.

In the second quarter and continue to build through the second half of 2024.

We will be mailing and updated RH contemporary source book in late July through early August with collections.

With new collections, and a compelling value proposition, which we believe will also accelerate demand trends.

Our second mailing the RH modern source book and third mainly the RH interiors source book.

In the second half of 2024 with additional new collections refresh galleries and improved in stocks.

These mailings will result in a doubling of our source book circulation and customer contracts in 2024 versus 2023.

Our data would suggest the increased number of context alone should provide another lift factor for our business.

We are also increasing print and digital advertising across major home design publications. In 2024, you will see our ads and architectural Digest Albacore Miranda Gallery world of interiors lets the interiors and design business at home the financial times.

Wall Street Journal and T magazine design issues.

As you know we acquired waterworks in 2016, arguably the most desired brand in the luxury Bath and kitchen category.

Waterworks team has done an outstanding job over the past seven years further elevating the brand and building a highly profitable business model that can scale.

Waterworks like most other luxury brands in the home space generate the vast majority of their revenues from the trademark selling to architects designers developers and builders.

While our <unk> is significant and training business. The vast majority of our revenues are generated by consumers.

We believe there is a significant opportunity to amplify the water business on the R&D platform.

The brand to a much larger audience similar to how we've expanded.

They're mostly trade.

And brands over the years.

Our plan is to launch with a 3500 square foot waterworks showroom and our newest and largest design gallery in Newport Beach, California opening in the fourth quarter of 2024.

We will also be developing a waterworks source book with plans for a test mainly in 2025.

Waterworks today is just shy of a $200 million business with mid to high teens EBITDA that we believe has the potential to become a $1 billion global brand on our platform.

Let me shift your attention to the expansion of our platform.

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

Our platform expansion plans for 2024, including the opening of five North American design galleries, including Cleveland, which opened last week, Palo Alto Raleigh, Newport Beach, and Montecito, all with integrated our interior design offices restaurants and wine bars.

The opening of our first our <unk> period design studio in Palm Desert, California.

We will also be opening two international galleries, one in Brussels, which opened last week and Madrid opening this summer both galleries are located in beautiful historical buildings.

Our product and render our brand more valuable.

Unfortunately, our H Paris has been delayed until spring of 'twenty five due to construction restrictions relating to preparations for the Olympic games. This summer.

We're also pleased to announce our HCP the gallery in double Bay, a five story development with the rooftop restaurant and wine Bar received council approval last month with plans to open in fall of 2026, and what we believe is the most vibrant and desirable location in Australia.

And let me turn you to our outlet.

While we expect business conditions to remain challenging until interest rates eased in the housing market begins to rebound.

We expect our demand trends to accelerate throughout 2024.

Due to the extensive transformation of our assortment, we do expect revenue to lack demand during the year by approximately 4% to eight points until we read and react to new collections reduce back orders and shortened spectral orderly guidance.

Therefore, we will be guiding and reporting both demand and revenue growth each quarter during fiscal 2024, so shareholders and investors can accurately analyze the business.

We believe it's also important to note that we are forecasting to end the year with an increased backlog of approximately 110 to 130 million due to the revenue due to revenue lagging demand throughout 2024, which will negatively impact operating margin adjusted EBITDA margin by approximately 140 basis points for the year.

Additionally, and divestments and startup costs to support our international expansion are estimated to be at approximately 200 basis point drag for 2024.

For fiscal 2024, we are forecasting demand growth of 12% to 14% and revenue growth of 8% to 10% on a 52 versus 52 week basis.

We are forecasting an adjusted operating margin in the range of 13% to 14% and adjusted EBITDA margin in the range of 18% to 19%.

For the first quarter of fiscal 2024, we are forecasting demand growth a positive mid single digits and revenues of negative low single digits.

We are forecasting adjusted operating margin in the range of 6% to 7% and adjusted EBITDA margin in the range of 12% to 13%.

Now, let me turn to the RH business vision and ecosystem the long view.

We believe there are those with pace and the scale and those with scale and no taste.

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

Our goal to position our HSE arbiter of taste that is proven to be both disruptive and lucrative as we continue our quest to build domestic mired brand in the world.

Our brand attracts the leading designers artisans and different manufacturers.

Aliens and rendering network more valuable across our integrated platform, enabling our H T.

The most compelling collection of luxury home products on the planet.

Our efforts to elevate and expand our collection, we will continue with the introductions of our mature our experts spoke alright color, alright, antiques and artifacts alright to telia.

<unk> and other new collection is scheduled to launch over the next decade.

Our plan to open immersive design galleries in every 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, it's selling product to conceptualizing and selling spaces by building an ecosystem of products places services and spaces that establishes the RH brand as a global thought leader taste in place maker.

Our products are elevated and rendered more valuable by our architecturally inspiring galleries, which are further elevated 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 RH guesthouses or our goal is to create a new market for travelers seeking privacy and luxury and the $200 billion North American hotel industry.

Additionally, we are creating bespoke experiences like or if you're on Phil and integration of food wide art and design in the Napa Valley.

Our H, one and our HQ, our private jets and our <unk>, our luxury yacht that its available for charter in the Caribbean, Mediterranean, where the wealthy and affluent visiting vacation.

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

This leads to our long term strategy of building the world's first consumer facing architecture interior design and landscape architecture services platform inside our galleries.

Elevating the RH brand and amplifying our core business by adding new revenue streams, while disrupted and redefining multiple industries.

Our strategy comes full circle, as we begin to conceptualize and sell spaces moving.

Moving beyond the 170 billion home furnishings market into the $1 seven trillion in North American housing market with the launch of RH residences.

We furnished luxury homes condominiums and apartments with integrated services that delivered case, given time value to discerning time starved consumers.

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.

Our authority as an arbiter case will be further amplified when we introduced our <unk> when we introduce our rich media content platform that will celebrate the most innovative and influential leaders who are shaping the world of architecture and design.

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

A 1% share of the global market represents a 70 $200 billion opportunity.

Our ecosystem of products places services and spaces.

Buyers customers to dream design done.

Travel and living in a world thoughtfully curated by our H, creating an emotional connection unlike any other brand in the world.

<unk> can be elusive and we believe no one is better positioned than our H to create an ecosystem that makes taste inclusive and by doing so elevating and rendering our way of life for valuable.

Never underestimate the power of a few good people, who don't know what cant be done.

For the past 23 years, we've heard others tell us what cant be done.

And for the past 23 years, we failed to listen.

We avoided bankruptcies by being accused of lunacy.

While others have been shrinking and closing stores, we've been building the largest and most inspiring spaces in the world.

When wall Street didn't think our stock was worth buying we bought 60% of it ourselves.

When everyone told us we should be working from home. We are in the center of innovation working on rebuilding our new home and.

And it's almost ready for prime time.

From the largest product transformation in our history. The most inspiring retail experiences in the world from calculus to caviar readiness to believe architecture to airplanes homestead hotels guesthouses from Pittsburgh to Paris, Los Angeles to London, Boston <unk> Miami.

Unit in San Francisco to Sydney.

And then the world will be within our reach.

Never underestimate the power of a few good people, who don't know what cant be done.

Especially these people onward team RH ERP Dan.

And now we will open the call to questions.

Thank you.

<unk> is now open for your questions to ask a question. This time. Please press star followed by the number one on your telephone keypad.

You'll be provided the opportunity to ask one question and one follow up question.

Pause for just a woman to compile the Q&A roster.

Our first question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open.

Hey, good afternoon, Gary Jack.

The most important element of that.

The outlook is the sales guide because.

Hasn't been growing and now we're flipping to growth. So I wanted to see if we can approach it from two sides and I'd love to hear your perspective first.

First on one side of if you end up meeting or beating this outlook that you've given us if we look back.

It clearly could be the products resonating more than you thought or should we look at it is you gave us more of a conservative trajectory than what even the business is implying today.

Other side of that if you end up falling short of it.

Was it either.

Product didn't resonate or maybe there was more pent up demand in Europe over reading that Curt curious, how you think about both sides of it.

I think you just covered the answer.

In many ways I would say look weak.

We have visibility to trends in our business.

Is that and help us connect the dots.

And if you read the letter a few times.

And you look at the.

Got it pieces that will.

Hi.

Does that add up to Directionally, where we're going.

We feel very confident and.

The plan, we've laid out the guidance we've laid out.

And this is what we've been working on for the past 18 months 24 months. So.

It's been a lot of thought.

Great attention to detail.

We've been flat.

And at the highest levels and we've been in today.

Yes.

The lowest levels of detail inside the company and the organization.

Rebuild the brand from the bottom up and.

I think this is the best work we've done I think.

This is the best team we've ever had.

And I think we're about to do.

Another leapfrog.

<unk> has as well.

Done every seven or eight years, if you looked at our history when we've done transformation like this.

So yes.

We're highly confident.

Do you have enough.

Data and information to read you were in our center of innovation right now you'd be looking at all the whiteboards that I'm looking at.

Every category every category of our business laid out every month with demand this year last year.

Two years ago.

Percentages trend.

Both drops collection.

This is built up at a very detailed level.

No one has a crystal ball, we're going to.

I always tell the team as we buy inventory or do anything every plan. We have some degree of wrong. The question is.

Is it more right than wrong and is it directionally right.

And have you identified the risk and the plan and the things.

Maybe you haven't seen as <unk> been building something up from a.

But optimistic vision perspective.

And we believe we've done that.

We've been here with.

All of the key leaders all of the key team members at every level.

Building this.

Again.

Hi, Tom.

Looking at that.

Yes.

Many trips to.

Asia Europe harmony.

And we don't have meetings at our company, we have adventures we say.

We say meetings about arranging organizing the status quo.

<unk> is about.

Yes.

People somewhere they've never been anything.

And in search of better ways and brighter days, so we've been through countless adventures.

Yes, I think we've.

Looked at all the all the data that's available and and created new data.

So I personally feel great I think the team feels great.

If you came here.

Spoke to that.

If people really doing the work.

I think Dave I'll feel great.

Our competition might not feel great.

The next couple of years.

That's not really our problem.

Yes.

As a follow up if I can ask about Europe.

<unk>.

If you can share how much of Europe sales as in this guide.

I guess, you'll ever get comfortable sharing.

The Europe forecasts I don't know every gallery may be different and there is a wide range.

And then I guess, the 200 basis points, that's I think the first time.

We've got an explicit quantification to does that taper quickly or slowly and is that like the peak.

Or call it international investment to know that.

Revenues build even as you add more galleries, we don't step backs from that level further.

Thanks.

It's a long question. So let me maybe take the same amount of time and process.

Europe.

I would say.

Viewpoints, if you kind of motor.

About.

Yes, we're in the very early process.

Yes, first stand that back and say what is what are we done so far.

Last year.

Mid June or so.

Yes.

Okay.

Opened.

Hey extraordinary.

<unk> ever seen before.

Multi dimensional experience in the English countryside.

We opened through a lens of conversation not commerce and the way that we've articulated between that was.

Sure.

We.

Fortunately and unfortunately.

We did a package real estate deal that enabled us to get to irreplaceable locations in London and Paris.

But also required us to take other locations, we had to open sooner.

As a result, these smaller markets.

Not benefiting as weak first half and we didn't think they would for the brand awareness Halo that key markets would provide right.

And we will provide.

So England.

Born out of that.

Hum.

Matt really opening.

Places, we'd want to open first and.

The big expense, if we didn't do that and other lease requirements and other hurdles that we.

That would've been a little messy.

So let's wait.

Drove us.

Because we werent going to be able to open London, and Paris first that drove us to say what can we do.

What would we do what kind of investment we make.

Yes.

Introduce.

Europe, and the broader United Kingdom, and an inspiring and unforgettable fashion and and why is that important I think it's important because.

Just about every luxury brand in the world.

It's from Europe, and the UK, except for a couple you can argue that we have.

Ralph Lauren Tiffany.

Ralph This is pure luxury right. So there's a bigger broader distribution strategy there thats a big part of that business. So if you said pure luxury what are the <unk> luxury brands in the U S that are really top of mind internationally.

And have been for a long time.

It's Tiffany.

And the French gift products.

It looks like a couple of years ago.

That was first and foremost.

I wouldn't say Americans are this.

Thrived internationally.

Pacemakers.

Hi.

As.

Architectural thought leaders and so on and so forth you look at the beautiful historical architecture.

Across Europe, and the U K and then you look at the US and you go. Okay. You can start on the East Coast <unk> got it.

You start moving west and it kind of falls off a cliff pretty quickly.

And so <unk> and.

An American brand that Hasnt really been doing what it's been doing for very long.

And <unk>.

It looks like we did.

Yes, 15% to 20 years ago.

On a charge a little shocked with backscratcher selling Baxter after the Moon pies.

Yes.

How do you want to introduce yourself.

If you want to.

Earned the respect.

Okay.

The pacemakers, placing acres.

People that.

Hey, Matt.

Not only set the standard set the direction for consumers broadly around the world.

And that's how we came up with the idea for.

Alright, England alright.

It opened in Idaho par.

Historic 17th century estate 73 acres.

That's why we invested in probably.

Among the best architecture, and design library, Thats not institutional location.

Private collection in the World.

That's why we have three restaurants, the third one opening.

Spring.

We wanted to introduce ourselves in a way that.

No no brand has introduced itself to Europe, and the United Kingdom.

Steve We think we're going to do a lot of volume out there now not initially did we think we're going to open.

Market to the Internet.

Yes, and we've learned from that and we've learned.

Slightly from.

How the design trade profited from that came to Watson.

Active with action.

Interacted.

And we also knew that we are opening somewhere aware.

Yes.

Kind of winter.

Hi.

Late fall and early spring months.

Stark as early as $3 30 up there and it's really cold and not a lot of people are going out there.

Beyond that there more during COVID-19, there's nowhere to go the last thing you wanted to be as many big Big City.

So we did something.

Very unusual and Thats why if you.

You go to that gallery, where if you've been there. The first thing you see when you walk into the entry as a unicorn and it talks about how.

Yes, unusual and inspiring we believe the places.

I think we've we've introduced ourselves in a way that is captured people's attention and imagination.

And I think the conversation is the right conversation and I think that conversation will build as we are open for both spring summer and we have all three restaurants open.

And Andrew will really learn a lot more.

Alright.

That's why we did that right.

Next galleries.

Hi.

Okay.

The weeks, we opened in November mid November or something that 18 to 20 weeks.

German rules.

Yeah, Okay. So yes.

Yes.

And so.

In places we've never been.

And not necessarily what I would say, it's like Paris, and London are two of the most famous cities in the World series.

<unk> is anchored in fashion.

Dial in and so forth I'd throw Milan and there too we also have.

We're making I think you guys have been extraordinary Milan, but thats all were going to take longer.

And so we're not opening in the in the order that we wanted to open end.

Yes.

It's our intention to open in Paris and landed first in iconic locations from a brand awareness point of view.

But what we've learned so far.

There is a higher mix of trade.

Than we anticipated or have seen anywhere and trade is exterior interior designers and more of a <unk> business.

Fatality at Tropicana designs so.

It's a much higher mix of trade right out of the gate.

And.

What is that a surprise, it's not really a concern.

Silver doesn't really know us yet, but if you're someone who is aware of the home if youre aware of design if youre an interior designer.

If youre doing commercial projects residential projects.

And it may likely shop from us in the U S or you have been to our T galleries.

And so.

What I like about that.

It's really the right people and the most influential people.

We're out indexing today.

Sure.

Yeah.

We didn't anticipate that.

Think about that but what I do think about that I think I'm very very happy about that I think it is.

It wouldn't be good if it index the other way.

Yes.

You want to get the right people, especially.

If you think about where we're trying to take this brand.

The right people the people most interested in.

Yeah architecture interior design.

Hasting style are coming to us higher mix.

That deals with building our book of business, which is an important part of this business building the pipeline of design projects.

And our trade business and in our own internal.

Terry design business and so when we look at the.

The book of business for RH, England, and we looked at the trend is now that we've been open.

That business from a retail point of view.

Alright.

Gallery point of view.

Unusual location and thinking about what might happen.

What surprised us the most I would say is the direct web business is slower than expected, we thought that the web what's going to be a much larger mix of the total since we are opening an entire country.

And so when we stand back and reflect on that.

Okay.

What do we think about what did we miss in that analysis I think it's just the overall time.

Take to build the brand and ramp the brand to the consumer.

And also the first gallery in the U K.

Not being by anybody.

Right.

Population of IHOP Park, 100 people or 300 people like we opened in a town of 300 people and there is nothing really that posted net.

30 minutes to Oxford.

We had some major things were.

And a few other a few other places, but it is a place that people aspire to go to spend time with especially in that.

But late spring summer early fall period.

And also we have plans and once we get our feet on the ground to think about long term doing events and other things on that property to bringing the right people and we're also have some partnerships happening that actually.

So our steps to do different events dealing with whether it's beautiful handcar brands or.

The racing and things that happen in the latter part.

<unk> just things that happen.

And the English countryside.

So.

None: And then I think the other thing I would say.

Thank you.

The.

Context of how we think of Europe right now.

We didn't open with the full assortment.

None: And.

None: And I think when we go back and we're analyzing that we can do that.

Yes.

That part of the assortment that we didn't open width.

Probably really important to consumers and the web.

Building awareness.

Opens up the internet.

And the web business to get that to move more quickly is going to be important, but I think a lot of it is going to.

Going to take opening the key iconic galleries in London, and Paris and.

And so on and so forth these big wins with restaurants.

Campaign, and caviar Bartizan wine bars in brief the bars.

Yes.

Architectural design libraries and all the.

All of the really incredible experiential things that people are going to discover the brand is what is this but right now the only one with those experiences very unpopulated part of England.

And then just going to take longer to be discovered but when people discover it has the right people and it is the right conversation. So we're super happy about that but I'd say were still.

So early right.

Let the book of business billed.

We got it.

And get our feet under grounded.

Okay.

Massively optimistic long term.

Naturally optimistic because I think there is no one like us in the market.

I think.

We've got an opening to these big galleries, that's what's going to build the brand.

And we've got an opening the big key cities that.

Defined fashion and taste and style.

And.

In that conversation.

None: And.

But I like the trade business is over indexing is those are the right people.

They are the influential ones.

But if you can take a while.

Just out of the gate and we're not out of the gate with.

And the order that we would have liked to but nonetheless, we're out of the gate and we're learning and Thats the important thing so and.

And all of these things are going to benefit from the product transformation.

That we're going through and all the things we were doing that we have in the pipeline look I believe I only lifted at what we're doing in 'twenty four like what we're doing beyond that and when we get time for 25 and there are some things that any of it I can't even put it in the in.

And the big one view, because I don't want to be too specific.

Any information yet to.

To the broader industry additives.

Next year, I think we're going to launch that.

Really big.

None: Yes.

And going back and forth and put it into flight or not but.

We've got enough in this letter I look back and look with flatter.

Hey.

Kind of ridiculous.

We're excited.

Everybody, what's in the pipeline, but work.

We're feeling really really great about where the brand is where it's going and I think.

Yes in Europe.

And it takes a while like.

Building great brands.

Yes.

You've got it got it.

The very very strategic you have got to be very smart <unk> got to be patient.

Yes.

So rushing.

It was one of the great brands in the world and are rushing to the finish line.

<unk>.

We say fastest as slow as we go but we also say we have to.

Do less and think more so we can do more so than a lot of time thinking.

Deep in the data.

Really analyze things right is the next thing to the next thing to the next thing.

But I really like where we are I like where we're going I like everything in this unfolding.

And I, especially like how we're positioned.

For the other side of it.

Sure.

This kind of.

Difficult housing market right.

Yes, there were some sales in 30 years.

A long time, yes.

How we are positioned for that rebound I think is better than anyone.

On multiple levels to like when I look at the whole assortment, whether I am looking at it.

If it's a level we're at if I try to look at people above us and I look at people below us I just think we are.

Can it be holistically disruptive across trading.

Size of the market, we're trying to strike.

I think we've.

<unk> opened up the aperture a bit without compromising.

Compromising the most important tenants what we're trying to build.

The long rambling answer hopefully I gave you the year to.

Data points that were important.

Yes. Thank you good luck.

It looks for rabbits.

Our next question comes from the line of Steven Forbes with Guggenheim Securities. Your line is open.

Good evening, Gary Jacks.

Gary you've been given the spread between the first quarter demand guidance and the full year.

Just curious if you can maybe help us better think about how the business is re scaling of ramping on the back of the recent store resets.

And then how should we think about the cadence of resets on a go forward basis, Yes, you're married together with the cadence of sources mailings that you talked about in the letter.

The spread between Q1 and full year.

The building again everything if you just.

Read the letter carefully.

Those are all meaningful things, we're doing right those are all meaningful books that we're at.

Alien that were completely remerchandised.

You have a lot of.

A lot of revenue.

And if you just look at the contact.

We're making year over year.

I don't know what.

If every if every.

Company <unk>.

Double their customer contacts in circulation.

I don't know what might happen.

It's going to be.

It can be meaningful.

Yes.

Yes, we don't introduce new product in <unk>.

We introduced <unk>.

Mail storage flips and get zero.

We just I think.

Post COVID-19.

Because we.

Since a little over a year off because we're trying to catch catch up on backlog.

We lost our muscle atrophy, and we've tried to restart.

What I would call the engine here or the chain and.

She sputtered a bit.

As a while to get back into our group.

With new products.

Yes source books.

Just all the things you've got to do.

And one of the bigger mistakes Ive made in my career.

And now <unk>.

Rebuilt the machines.

We have better muscles that we had from before.

We're way more intelligent, we went to a much deeper level and the quality of the work is the best work we've ever done so and we've got an internal data right. When you see your business and how you are rebuilding it from down mid teens.

Where we are and you look at the mix of business in the categories.

Come out of the gate you look at.

What our doors doing I mean.

Yes.

Exceptional.

Right now and.

Thanks, Ed.

The design and quality and value equation.

None: So unmatched in the industry.

We're going to take tremendous market share.

And it's just set it up what we're organically without door in 'twenty five 'twenty six 'twenty seven.

When you see what we're going to do from a physical perspective with that business and how we're gonna exploited I think we're going to.

And.

Yes so.

Yes.

But there is real numbers here and outdoor outdoor is a meaningful part of our business.

And that work and learnings that we did in outdoor that's also applied to every correct.

Laurie.

And this trace at all.

See how it's going to come together and we have enough data and numbers from.

RH interiors and the new collection is in.

Our <unk> contemporary.

The new collection and the adjustments we've made the adjustments we've made the extended value equation.

Yes, I think we will get back to.

Yes.

Having more edge and the edge.

That it took to build build this brand and business.

Yes.

I think it has returned.

<unk> had a few calls before I don't know is widely quoted thanks I've got to be careful what things I'd say I think I said, we were arrogant about pricing because of thought through that period of tariffs and supply chain disruptions.

Great.

Raw material price.

Rice's escalating.

That force pricing pretty soon.

Drove inflation.

Yes.

Yes, I don't think we had our.

<unk> edge and hats on.

Yes.

Climate, the luxury mountain anti thanks Curt.

Great luxury brand does it mean.

Price doesn't matter like everything at the asset value of operation and everything has to go through Atlanta.

Design quality and value in that order.

If somebody doesn't love the design they don't even look at the quality nor the price.

But if you have.

When our design.

Through Senate door number one and then <unk> got a winner.

Quality and then the customer will get closer to it now read about it touch it and interact with it and they will make their own perceptions about quality and you can influence that with what you say, how you communicate but at the end of the day that the consumer is going to.

It makes it a decision about how great is that design.

How great is that quality and for that design and quality.

What is the value like how do we think about the price that you are asking for that and is that.

Allows the value is that a decent.

Value is at a good value or is that a great value.

And.

Yes, I think we are highly focused on.

Having a great value a disruptive value.

With clear comparison.

Sure.

Anything that might resemble or be like.

And the market.

So yes, we are laser focused we're into.

No.

The greatest amount of detail and.

Ah.

And I think that the design quality valued and.

If you took that land is again.

Outdoor which you guys have visibility to really take the time to go through that book and go through the collection is and then look at the quality of the extraordinary.

Scenario design and the again, an extraordinary presentation of that design.

And then you yep.

Do some work on the quality, whether it's materials is made of how it's made.

Where it's front of all the other different things.

Then put it through a value lens.

Try to find.

Any products similar find the most similar product from other places.

Put them up all in all.

And compare them to ours.

And you might understand.

Why are you, saying outdoor is exceptional out of the gate.

It wins.

Yes sure.

So our number one we went and door number two we went and door number three.

We really win.

And.

Yes, because of our size of our platform and our scale.

And because it's the most senior levels.

This company.

Yes, we're in the factories or with our partners.

We're helping to conceptualize when put the same productivity.

We source and how we buy and how we.

Scale, we have in.

And negotiating the price.

It's not really a negotiation where one person when one person losers and how do you get all the brains in the game and think about it and figure out how everybody wins.

And that's how we're able to I think have extraordinary value. It's like you can't delegate greatness.

And so all of US here at the most senior levels are.

Leaving any.

The work we're learning together.

Together, we're listening together, we're learning together and we are leading.

Based on that and I think the work that's happening.

Is.

The best work.

And in this industry a long time.

And I think it's the best work in the industry.

And I think it's going to be disruptive and disconnect rates strategic separation.

And.

I think we're going to gain a lot of market share.

Okay.

I don't know how to give you a more specific.

Just like.

That's what we're doing and so if you want to build the ramp.

Like look you can take.

You know, where Q1 JV with that demand looks like and you can take.

No.

Where we think we're going to end the year to build your own little graph.

I can't Thank you guys all one but.

Yes.

Everybody gets too myopically focused on that it's just got to be Directionally right. Yes, we have it a little wrong like while our wireless and that exactly right.

Not going to be exactly right, when you're building something and transform itself.

That would be Directionally right.

We believe we're directionally right we believe.

Yes.

We're going to deliver these numbers are more and.

And we're very confident about that.

You asked about four sets of the pizza, that's as Gary has talked about that's one piece of the puzzle right you have the new product from the from the evolution of the products you have better availability of that product yet sourcebook context, again, often as Gary said and for.

Another one of these factors that drive the business and we are in the stock.

Yes, we've been doing the <unk> engineering, and we have what.

Collection that we talked about in the last call that that's still coming in Albion and all galleries.

Yes.

In the second quarter and throughout the year it will be reading.

The Florida will continue to evolve the galleries will continue to evolve all year and so there's a lot of newness coming in there's going to be.

No.

Several cycles and adjustments that will make it so.

Yes.

We're going to have a lot of choices and a lot of optionality.

That's what I will say like it looks like when I look at the bigger picture and I stand back and again, whether it's.

Whether its source books or advertising or contact center.

Floor sets and in stocks are.

Placing bets here reacting to this dimensionalize in different parts of the business.

I mean, we just we just have a lot of things in play and a lot of opportunities and you can mathematically take all the pieces and build it up and and we're not.

Newest this.

Does this for a long time and.

And I would say I think I'd put it in context is.

Yes, hi.

Are we thinking about the guidance in the context of the market.

We're we're guiding with it.

Looking at it through a lens.

Market neutral the housing market doesn't get meaningfully worse are meaningfully better right. So we're saying neutral market, yes, there will be interest rate hedge that we're probably going to be quarter point theyre going to come later in the second half of the year in a quarter point is it going to massively move.

Good rates, if you look at the Delta between.

Where people are locked in on mortgages and where they'd have to.

Stepped up to you really need two things happening.

Some prices to come down the <unk> interest.

Interest rates came down and that gap I think is going to take longer than three quarter point interest rate patch, but hopefully those happen.

And you put some more interest rate cuts on the other side.

Five then.

And people.

People can't hanging on his long from a pricing point of view and some of that giant inflation that build the housing market, which really was one of the biggest impacted markets, but home prices in America went up 42% two years to two years ago, but and then they bid separately hi, yes, theres been no inventory, what's been done with inventory as people had record.

Low interest rates and today and they'd have to trade up to higher interest rates.

The data like evolve Super logical why we're in this brief and where we are.

Key is what really has to happen for the thought.

For everything to get moving again.

Interest rates and housing prices and yes.

And then.

It's a combination we believe it's a combination of both vote unless interest rates go down really quickly mortgage rates get readjusted and you get a big move down there than maybe housing prices hold up.

You said, you've got a lot of people holding on as long as they can.

People have to move they got a new job somewhere sandy.

Yes.

But let me broaden their families that more children, they've gotten married they need to buy a house and.

There is pent up demand.

And I think that that's a good thing when you look at it but I still think you've got to have movement. We got to have real movement in the interest rate market and we have to add some movement in the pricing market.

And one of the things start to converge I think we're going to see a snapback and I think no one is going to be better positioned for that snapback than us like we're going to be in the absolute best position.

That's where we're super excited about it right now.

We're looking at.

Market neutral.

That can get meaningfully worse, not going to get meaningfully better if it gets a little better.

Do we feel better about the guidance of course, we did.

Of course, we do we're going to feel a lot better so.

Just think at all ways, we look at it.

All some form of guarantee.

Great and.

Yes, Hi, windfall.

And.

We will keep doing what we're doing and playing our game.

Thanks for that I'll pass it over.

Next question comes from the line of Curtis Nagle with Bank of America. Your line is open.

So Gary maybe I'll just start with.

Kind of a small piece of business right now but.

Looks like it's getting a bit bigger over time.

Waterworks I think it's the first time, you called out a long term.

Our outlook at $1 billion.

Applying that would potentially could quintuple.

I guess just at this point.

Since 2016.

What gives you the confidence.

To put out.

Pretty pretty bold pretty impressive.

None: <unk>.

And I guess kind of why now what's driving excitement maybe ask it more simply.

Sure sure good question.

Yes.

We said back when I don't know if we said this publicly.

We've said it internally.

Waterworks was one of the two businesses I had on our strategic framework Mac map. When I came here 24 years ago, when I walked in the door I said, okay here.

Long term vision here as we're going and I had two acquisitions.

Waterworks and Dean and Deluca.

Waterworks with the best brand in the high end.

At Bath and kitchen.

Mostly backpack now kitchen too.

And I thought Dean and Deluca.

Really interesting brand with more of a food focused some hard business, but it wasn't merchandize well to make money and I knew enough about the way the model that I thought like we could create a really cool next generation kind of Williams Sonoma with a different kind of.

Sensibility of statically and taste and style and maybe intergroup integrator.

Little bit of a fresh food focused on thats so much.

The reason why Dana Deluca never get scaling.

And make money.

Two focus on fresh food and they didn't have the hard goods part.

So.

Dean and deluca he didn't make it.

<unk> had a couple of times. So we looked at it multiple times fleet got it and.

And and Waterworks came along it was the right brand at the wrong time.

But it might not have available again.

If you think about when we bought it.

Weird little membership supply chain transformation.

All kinds of things.

That just launched modern.

And we said look.

So we may not have another chance to.

Hi.

The partner with a brand like this we thought it was a great strategic fit.

Yes.

So we did that and.

Hi.

But the business with relatively small write offs I think we bought it.

It's north of $100 million.

And you have to think about when you haven't learned that part of the business, we had to build the relationships with the team.

Yes, yes, strategically aligned and without using a lot of time at the wrong time, So we spend very little time in the first few years.

And and how do you kind of fill.

<unk>.

Is this model.

And the assortment logic to support the business model and a lot of things.

Through the years, we've spent a little bit of time and that aligned and the team has done an outstanding job I think.

Unless definitely in the business.

More than doubling the EBITDA and.

And now I think.

Business is positioned.

To grow and I think we have a platform that is the perfect platform to scale the business side.

Hi.

Direct customer component, we have consumer part of the business that even though they have 14 showrooms, they're not places that consumers really shop.

And we have experience, taking A&D, mostly trade focused businesses and brands.

Over our years and.

None: Putting those brands on our platform, putting their assortments on our platform and.

Doing multiple times the business right just because it's now the best products in front of the consumer but most of these projects not in front of the consumer consumers don't really go into water of chevron's stumble, but they are in design district, Sir to the trade are set up for business to business and that's really sad.

For consumer even though they have a showroom.

No different than.

Any of the.

Furniture brands like that so on and so forth and then there's some distribution in.

Third party distribution and there with other brands and where they.

Don't have total control of the brand, but I think.

When you look at that.

The stage, we're building for the best.

Best products is the most important categories.

This is a perfect fit.

It couldn't be more aligned and it's also really hard business.

Been in the business, we sell water delivery processes that even without that.

Hardware and stuff like that but we're not experts laminate 45 years or that experience.

Yes, Peter.

And as the CEO and leave it there.

Most of his life and some other kind of at the business and Rob Bennett has been CEO for 15 years.

Yes.

The leadership team there.

Really smart.

That's a great view graphs for that.

High end market.

That's worked in F&B in front of it and learning from and.

We think we're pretty smart and we have a great view of the consumer market, but we're trying to do is merge both of those markets.

And we think thats.

We think long term the world is only going to be more transparent.

Yes.

The best products not facing the consumer.

And these categories and Thats, what <unk> been trying to do for our entire journey since I've been here as slow going at the beginning we were on the edge of bankruptcy bankruptcy.

Thats My first 10 years.

So we've made it through that and now we're doing what we've always wanted to do and we're getting smarter and better at Waterworks is just.

Yes, great synergies, yes, no different then.

Yes, Youll hear us talk at some point.

Later, if that okay.

Dmitry.

Okay picture upholstery brand, we bought it.

Joseph Zhou.

Furniture Brandon.

Having these people and the talent inside our organization learning in front of them, then leading us to higher quality better pace.

How to think about the trade market.

So just so much synergies.

A lot of time to take one plus one.

You get less than one fragrance.

Weinstein said, the only way to battle complexity is through simplicity, but.

Once in a while you got one plus one equals more than two.

And and I think we found that with waterworks, we found that with Dmitry, we found that with Joseph Zhou.

Yes.

Internet of things that we're doing.

Maybe not.

It's not necessarily an acquisition.

It's a deep partnership and relationship.

And I think Thats, what were really good at Waterworks again, Mike.

Really funny pull out.

Powerpoints from 24 years ago.

Waterworks and this little grid also amateur hour when I look at it back then.

The safety data.

Yes.

It's always been on our radar.

This is a great fit in.

<unk> restoration hardware it had hardware it had about I mean, it didn't have pockets of things when I came here I added that but Ed towel bars, and a few things like that.

And then when I added phosphorus in Philippines.

The bottle was looking at Waterworks is best.

Obviously inspired by them.

But we're never going to be waterworks right.

Yeah.

Much better.

Partnering with and.

It's going to be I think it has to be unbelievable I really do.

It's Brian I think of the other benefits.

And it bring the highest.

Polity trade customers.

Our H that maybe not a frequent frequently need us yet and you get into the business at an early point in the design stage Lisa.

Interact with the vehicle.

Silver at a much later stage the homeless done they are ready to furnish it so on and so forth.

Interactive waterworks consumer ear at the front end you are at the architectural point.

So plugging point in all this other stuff.

The other opportunity that access to that customer integrate that customer.

The building the design Holistically.

While the categories that we're in and the categories. It will continue to expand into and become more dominant in.

I think it's.

I mean, it's really like if you can ever say, there's a match made in heaven.

About Canadian habits.

It was supposed to be so we're really excited I think they are really excited.

It's going to be big.

Got it thanks, and then just.

None: Quick one Gary just in terms of the yard.

No the outlook I think on the last call you said something.

Youre expecting a peak.

Great reflection peak demand or something like that in.

<unk> spring.

Any changes there obviously your outlook is strong for the year, but yet I think.

Key, peaking because we've got more work since then like Theres more things, we can see more things. So yes I think.

Phase one.

Let me think about that.

There's multiple phases of this transformation right.

And we will be unveiling, but kind of phase one.

We'll kind of peak.

None: Peak I think in late Q2.

Then theres a whole phase two now that we've got coming that will be unfolding right and.

Hi.

I think <unk> got a phase III.

There's a lot of a lot of excitement.

A lot of great work that's been done.

And you know.

Yes.

The debate around here.

How do you see fit.

How should it all in our fold over what period of time.

And.

So I'd say.

Okay.

Inflection unlike phase one.

None: Our interiors are H <unk>.

Temporary and.

Outdoor and modern right.

Because we need a modern would be coming in thats like.

The next big books.

And I think it looks incredible like Anthony glad we actually delayed a bit and took a little bit more time because it is.

It took a leap frog I mean, it is steady.

Hi, Ann.

I think its so fresh and cool and.

People see the images, it's all laid out.

Wow Okay.

It's not a walk on by I guarantee you.

Pat.

And then reap the Franklin walk on by.

Hi.

Yes.

I mean, that's kind of that's going to create a big kind of move in Q2 and.

And outdoor is going to be.

Any peak.

Yes March April May June.

And you guys know that.

The learnings and interiors that cycling through in.

And then we got in stocks that are going to get meaningfully better back order rates are going to go down which means demand goes up went back order rates go down.

There's all kinds of metrics here that you can.

And just to add in my opinion.

Tells me what to do.

And all the adjustments from Ikea, Yes, I think I'd phase one yeah.

Youll kind of get an inflection.

Mike Peak, a little later than that but youre going to kind of know yeah. Like I said the arrow like when I talk about inflection it doesn't mean that the outcome right.

Like the.

The curve the line will be weighted in that direction.

How high it is ago that might take two Q3 Q4, but like the inflection point will.

Angola, right and that we will see that in Q2, so that hasnt changed.

They've just changed a little because we pushed modern out a little bit you're still modern is going to get in there in Q2, Youll get enough of a read youll see where that's going.

And then you guys.

Mike.

Phase two and phase III and things that are coming through the pipeline.

And I think it gives all key building so.

Yeah.

Directionally, Yes, Directionally correct.

Sorry to give you a little bit more color there hopefully it's helpful.

Yes very helpful. Thanks sure.

Yes.

Next question comes from the line of Christopher <unk> with Jpmorgan. Your line is open.

So I'm just going to put my two questions out there so.

So my first question is.

The $40 million that was deferred in January thats, why wouldn't come back much sooner. If it was a lot of domestic and we're hearing from other retailers at the Red Sea is just adding weeks of delivery.

And then my second question is if you look at non occupancy.

Gross margin pressure it looks like it got a little bit worse, I guess, how far is that oil clearance and how long before we get through all of the clearance and you expect to recapture all of that pressure. Thank you very much.

Yeah.

It looked at.

For Wayne.

We are at.

You got to think about it.

There's a lot of people in the home furnishings or myself home goods and you have to say like okay, what's their furniture content and what's their special order content.

Yes.

And when you think about this is Gary.

Whats coming from.

Asia and Kevin around the pipeline now.

Going around Africa, and not through the Red Sea in the canal.

So we probably have the highest continent, alright, we have at a significantly bigger outdoor business.

I think anyone I don't think anyone.

Hold the candle to us in that category.

So that's that's all had a travel and take a couple of extra weeks and so that's a meaningful number.

Our special order business.

Or any of our other businesses at all our newness.

All are seeing is attached the back orders rates that got delayed so you've got that delay and and.

And then youre delaying kind of everything looking out like when does.

One.

One of the shipping lanes reopened that's the question how long.

Just a two week delay.

And youre not going to catch up with it.

Until the shipping lanes opened or.

Permanently deferred for two weeks that makes sense.

And then.

The piece with the weather and.

The ice storms that hit that.

That piece, having this back now.

<unk>.

It's coming back.

Yes, so you generally have a delay.

With that.

Hi.

It's not like it comes back tomorrow.

Designed and priced to design a project sits.

Special orders.

They're doing this outdoor furniture that we're going to buy Anthony bought anything that has the two week delay that.

But more so.

Yes, it'll it'll all.

So back.

Whats the timing like if you're selling things that are cash-and-carry got it yeah. If you look at the product mix of people that.

Had christmas product or especially all the Christmas stuff that was on sale.

In December.

In January.

January and stuff like that.

Of course, all of that stuff.

No no problem.

If you are selling.

Home furnishings categories.

If you are selling.

<unk> top food related products accessories.

Cookware name all the categories that are attached to the home.

<unk>.

Yes.

Oh cash and carry kind of businesses or yes.

Domestically shift from a DC.

We've got a very different product connection model than anyone else that we probably have the highest furniture content.

All right.

Is there anybody that you might compare us with.

And Chris on the gross margin side, there was the continued impact on the product margin.

Next question comes from the line of Matt <unk> with Cowen Your line is open.

Gary Jack Congratulations on strong demand that youre seeing as well as the recent openings.

Was curious given all the new galleries that are coming online in the U S. Can you provide an update to the new Gallery economics as you convert a legacy gallery to a design gallery you provided color in the past, but just curious how that has evolved over time.

Okay.

Okay, It's do they have heart failure or not.

Yes, it has been a while.

Think about it so.

Great.

All that together is the right way to make sure we distributed in the right way. So everybody's got the same data.

Got it sorry could you repeat that.

Yes, it went blank for a little bit.

Okay.

I would say I'd say, it's a good question.

It has been a while and as you said.

There's been a lot of things that have changed we have.

Restaurants, the galleries now hospitality aspects.

Yeah.

It depends where they are in the cycle, how many square feet youre expanding into there's a lot of things to consider when.

When you look at these.

And so I think what we ought to do.

Is is update.

That data set and create a framework and let us distributed distribute that next quarter in a fashion that everybody has the same information at the same time that is all accurate.

Okay.

Can you hear us we might be having audio issues I'm asking you here.

<unk> Center, please wait for the next available operator.

Yes, okay.

Okay, Great and then.

My follow up question is can you speak up.

[music].

Are you seeing a sharp price points.

Hi, Thank you for holding me I have the name of your conference.

With maintaining elevated product margins and then just how how mature your vendors stepping up and and the opportunity to expand product margins over time from current levels.

Restoration hardware me I also have your fresher last name.

One second.

Pete a question because we're just we're just recognizing that the line was sounded like it had gone dead for a bit so repeat the question for both me and Gary Please.

With a euro Chinese.

China you know thank you.

Okay. Yeah, no problem I'm, just can you speak to how you're balancing the sharp price points with maintaining elevated product margins.

Okay. Yeah, no problem just can you speak to how you are balancing the sharp price points with maintaining elevated product margins how much of your vendors stepping up just directionally and then the opportunity to expand product margins over time to the current levels.

Much of your vendors stepping up just directionally and then the opportunity to expand product margins over time to the current levels.

Yeah.

Yes.

Again.

I wouldn't we're not a price.

I wouldn't we're not.

Not a price.

Focus price first business right I think I spent a lot of time earlier in the call talking about design quality and value in that order and we think about those things.

Focus price first business Alright, I think I spent a lot of time earlier in the call talking about design quality and value in that order.

And we think about those things.

Those three dimension as always and we try to look at the bigger picture and say, what's going to be a compelling value and we had vendors. We have partners right. So that's why my letters addressed to our people our partners and our shareholders.

From those three dimension as always and we try to look at the bigger picture.

It's going to be a compelling value and we had.

Had vendors we have partners right. So that's why in my letter is addressed to our people our partners and our shareholders.

<unk>.

And.

And so we try to work with people as partners and it's not necessarily so much it is.

Are they stepping up.

Are they stepping up its more are we together thinking about how to win when the market right now.

Or are we together thinking about how to win when the market right.

Thank you.

And if it's one person wins of one person it loses that's another partnership and that never works long term. So we try to take a real strategic view with our partners. We spent a lot of time with them. We talk directly about how we're thinking and we try to understand their business deeply and where theyre leverages in.

It's one person wins of one person it loses thats not a partnership.

Never works long term, so we try to take a real strategic view with our partners. We spent a lot of time with them. We talk directly about how we're thinking we try to understand their business deeply and where theyre leverages.

None: Opportunities are.

The opportunities are.

We try to stand back and say Hey look.

Yeah.

Yes.

Your manufacturers.

Yes.

Without stores it more shopkeepers without factories, so how do we partner.

With that store is it more shopkeepers without factories, so how do we partner.

And how do we win.

So.

We have no intention in taking margins down.

Margin has to be looked at holistically not just at the product level and I think thats, probably what your point is.

We're going through a massive transformation.

We architected.

Re architected.

The assortments and positioning thing.

The assortments and positioning.

Uh huh.

Yeah.

I think as you think see things unfold here.

We believe.

If youre thinking about operating margins and so forth that operating margins.

If youre thinking about operating margins. So far is that operating margin is.

Over the next few years, so can return to the 20% range and.

Over the next few years, so can return to the 20% range.

You know that our model is.

You know that our model is it.

It'd be a great model, but from a timing point of view, we're going through a product transformation.

It'd be a great model, but from a timing point of view, we're going through a product transformation work.

Yep.

Yes.

Building an international business.

From scratch in centers investments than theirs.

From scratch and said there is investments in <unk>.

Margin pressure and based on investments, we're making on both of those pieces.

<unk> margin pressure and based on the investments, we're making on both of those pieces.

You know that.

Hi.

Yes, great yes.

Yes, it will create.

Yes.

Periods of <unk>.

Higher lower margins or not.

But I wouldn't say, there's anything different strategically at all.

I think.

It's how we've built the company.

How we built the company.

Yes.

Yeah.

Yes, Keith.

On that path, but it's not about like hey.

On that path.

It's not about like Hey.

Getting the next nickel adequate vendor I mean, maybe people that have vendors do that.

Getting the next nickel out of a vendor I mean, maybe people that have vendors do that.

To us it's about the next idea whats, let's get the next big idea, whether it's product idea positioning idea market ideas and if you can get all of the brain for the game and he goes out of the room if.

To us it's about the next idea, let's get the next big idea, whether it's product idea positioning idea market ideas and if you can get all of the brain for the game and then you guys have in the room.

If you truly believe that none of us are smarter than all of us.

Youre going to work in a partnership and one plus one is going to equal a lot more of the two if you do it that way that's how we work with everyone.

Youre going to work in a partnership and one plus one is going to equal a lot more of the two if you do it that way and Thats, how we work with everyone.

We just try to.

Sure all the best information and perspective, when we try to listen to them and we try to really think about how do we win in the market.

Sir all the best information and perspective, when we try to listen to them and we try to really think about how do we win in the market.

That's it.

And so I wouldn't say hey, long term do we think that has lower margins than our age now.

Not at all.

Super helpful. Thanks, a lot guys speak soon.

Sure. Thank you.

Okay.

Our next question comes from the line of Seth Basham with Wedbush Securities. Your line is open.

Our next question comes from the line of Seth <unk> with Wedbush Securities. Your line is open.

Thanks, a lot and good evening. My question is just thinking about your comment earlier about opening your aperture a bit more without compromising what you're trying to build can you elaborate on this Gary are you trying to win back customers that you clinical fire during the pandemic and are you getting lower in terms of the customer income demographics that you're targeting.

Thanks, a lot and good evening. My question is just thinking about your comment earlier about opening your aperture a bit more without compromising what you're trying to build can you elaborate on this Gary are you trying to win back customers that your clinical fire during the pandemic and are you getting lower in terms of the customer income demographics that you talk.

Got it.

Yes, we've never fired customers. So I don't know if maybe there are your words from that or nothing I've ever said.

Yes, we've never fired customers. So I don't know if maybe there are your words from that or nothing either said.

I've said look you're going to like if you think about where we started the journey we've been on for 24 years.

I've said look you're going to like.

If you think about where we started the journey we've been on for 24 years.

Yeah, so as we shed and customers with the transition that other customers, yes of course like yeah.

Yes.

<unk> has tremendously to transition that other customers, yes of course like.

Yes, best selling yourself in this company used to be a 999 Chanel Green sofa.

Best selling sofa this company used to be at 999, Chenille Green Sofa.

We don't have 90 99 chenille agreements opens.

We don't have 90, 99, chenille Greens opens.

Even a few test inflation to it maybe in $2000 Chenille range, though we don't have those.

With a few attached inflation to it maybe in $2000 Chanel range, though we don't have those.

We don't have a lot of things that we used to sell so of course, when you're building something when youre trying to become something that you never were.

We don't have a lot of things that we used to sell so of course, when you're building something when youre trying to be kind of a same thing.

None: That you would never work.

And here you are going to do.

Youre going to youre going to evolve and acquire new customers.

Youre going to evolve and acquire new customers and that's where it is Mike.

Mike and with you and Tom might not but theres no intentional irate, but there is an awareness that in.

As Mike and with you and Tom might not but there is no intentional buyer.

But there is an awareness that.

And as.

As we're heading in certain directions with certain categories things will evolve and change.

Through that journey, we're always going to get data and we're going to learn and we're going to adjust and it provides an adapted.

Always always in a state of change right.

Always always been a state of change right.

And we're in it evolutionary world the world's evolving in your either evolving faster than the world and gaining acquiring knowledge and capabilities.

And we're in it evolutionary world the world is evolving and you're either evolving faster than the world and gaining acquiring knowledge and capabilities.

Market share. However, you want to think about it earlier revolving slower in getting behind it so.

Market share. However, you want to think about it or your revolving slower in getting behind and so.

Hi.

So I would just.

So I would just say.

I think.

Okay.

Yeah.

Okay.

None: Okay.

Are you still there Gary.

Okay.

Yes, I'm getting canceled.

Yes.

Taxane is saying we're out here.

Taxane, you're saying here.

Yes.

That's where I got it.

Okay. Okay.

Okay can somebody call separately the conference call operator.

Okay somebody call separately the conference call operator.

Jeff can you hear US now Rebecca I can hear you now, yes, I think I think I got most of your answer.

Jeff can you hear US now Rebecca I can hear you now, yes, I think I think I got most of the year.

I appreciate that and just okay follow up question on.

I appreciate that and just one quick follow up question on.

Along the same lines now you're sharpening your value edge as you've referenced.

Along the same lines, you're sharpening your value edge as you've referenced.

To ask the question differently that its been asked before I assume you're not taking quality out to lower price and if not why should merchandize margins excluding freight.

To ask the question differently that its been asked before I assume you're not taking quality out to lower price and if not why should merchandize margins, excluding freight and it'll be the same or better on new product now versus the product Youre shine.

The same or better on new product now versus the prior year of shine.

And 'twenty two.

'twenty two.

I'm, sorry, if I get that but let me say give me that question again towards the end that why would or the.

I'm, sorry, I didn't know if I got that give me that question again towards the end that Wildwood.

The product margins being or something.

The product margin fee or something.

Say that again.

Okay.

Yes, if youre not taking quality out of that to be more sharp on price as you sharpen your value edge as you call. It Ah why should the merchandize margins, excluding freight be the same or better on a new product relative to what you are selling in and earning in 2022.

Yes, if youre not taking quality out there to be more sharp on price as you sharpen your value edge as you call. It Ah why should the merchandize margins, excluding freight be the same or better on a new product relative to what you are selling and earning in 2022.

Sure well, it's about how you buy it and the commitments, we make and the long term view you take in.

Sure.

It's about how you buy it you may.

And the long term view you take in.

And working in a partnership.

And working in partnership.

With with your manufacturers.

None: With your manufacturers.

Yeah.

Figuring things out together.

Things out together.

So it's.

Yeah. So it's.

Yeah, It's just what.

Yes.

When you do that well you can have a better but when you have a platform as large as ours you have the scale and you control the platform.

When you do that well.

Have a better but when you have a platform as large as ours.

Have the scale and you control the platform.

You can be really disruptive.

It can be.

He really disruptive.

So.

No.

Yes.

Yeah. It's.

Yes.

So we didn't take pricing down on things, we have Brian <unk>.

We didn't take pricing down on things, we have Brian when you think about it is all the new product is having and the value equation is coming in and.

Think about it is all the new product is having and the value equation that is coming in and.

Since there is no intention ever taking quality out not at all.

Since there is no intention to ever take quality out not at all.

Not at all ever.

Ever.

So yes, that's not part of our strategy Thats nowhere in that one pager right the long view.

So yes, that's not part of our strategy Thats nowhere in that one pager right.

And I think you've ever heard us talk about that at all.

I think you've ever heard us talk about that at all.

In my 24 years here, it's about taking the.

My 24 years here, it's about taking.

Elevating the design quality and value of the product that's all we focus on.

So.

No.

But it takes.

Yes.

It takes.

Thanks.

Hey, David.

Thank you Ian.

Creativity and partnerships.

In smart about what you're investing in and what you're leveraging.

Smart about what you're investing in and leveraging and you are buying yes.

We're buying at.

That's how we got here so.

Yes.

None: Okay.

Bill My prior comments were through.

My prior comments were through a period of volatile.

Period of volatile.

Cost increases because of China tariffs and we had a pretty big content back then coming out of China much smaller now.

Yes cost increases because of China tariffs and we had a pretty big content back then coming out of China much smaller now.

And those price increases that we needed to take and then the price increases we needed to take through the Covid period and through the Covid period for a two year period.

And those price increases that we needed to take and then that pricing pretty soon is we needed to take through the COVID-19 period and through the Covid period for two year period.

You know that.

Yes.

I mean, all everybody had leverage right like meaning that there is only so much product.

Everybody had leverage right, meaning that there is only so much product when you have more demand than you have supply prices can go up and margins could go up but when you have.

When you have more demand than you have supply prices can go up and margins can go out but when you have left.

Lower demand.

No.

Supply if you want to move your inventory prices are going to come down it's no different.

If you want to move your inventory prices are going to come down it's no different.

No different than.

Yes.

This this period right.

This period right.

Yes, it's down housing market and.

Yes.

Housing market.

Yeah. So.

Yes so.

And we're saying the same thing we're doing with investments so youre looking at.

Gross margin well inside of the gross margin, there's a lot of investments that arent necessarily just product right and.

None: Gross margin well inside of the gross margin, there's a lot of investments that arent.

Arent necessarily just product right and.

So but.

Yes, there's no there's no intention here to be crystal clear about taking quality down to take price down.

There's no intention here to be crystal clear about taking quality down to take price down.

Never been.

<unk> never been.

Uttered in our company.

And just the opposite yes so.

And just the opposite yes.

So thats what people are thinking that they are just dead wrong.

Theres no par value engineering.

There is no value engineering.

Okay. Okay.

Okay.

Thanks, Gary.

Thank you.

Our next question comes from the line of Jonathan Matuszewski with Jefferies. Your line is open.

Hey, good evening and thanks for taking my questions first one was on gross margin for 2020 for.

Hey, good evening and thanks for taking my questions first one was on the gross margin for 2024.

Imagine you you may have some elevated clearance the link green early this year, but then you should have some good margins with all this newness that you mentioned.

Imagine you may have some elevated clearance link green early this year, but then you should have some good margins with all this newness that you mentioned.

So how does that all net out for the year.

And does the year over year trend in gross margin.

When shall we improve each quarter as product launches and build upon each other thanks.

Essentially improve each quarter as product launches and build upon each other thanks.

Yeah, we're not guiding that.

Yes, we're not guiding that.

Gross margins quarter by quarter, but yes, you can and were not great. If we don't we no longer guide gross margin on the year. So we will talk about it it is.

Gross margins quarter by quarter.

Yes, you can.

And we're not we don't we no longer guide gross margin on the year. So we'll talk about it is.

Resolve a pool, but the guidance is.

But the guidance is.

That's helpful.

Operator.

Yep.

Okay.

Yes, all implied in the operating margin and EBITDA guidance.

Yes, it's all implied in the operating margin and EBITDA guidance.

Got it and then Gary you recently hired a new Chief Real estate officer, how should we think about changes to the real estate approach going forward with Jared on board and and should we expect any changes to other development related aspects in the company like food and.

Got it and then Gary you recently hired a new Chief Real estate officer, how should we think about changes to the real estate approach going forward with Jared onboard.

And should we expect any changes to other development related aspects in the company like food and beverage or anything like anything like that thanks.

Beverage or anything like anything like that thanks.

And Jared houses how long you've been here now.

And Jared houses how long you've been here now a weeks, yes sure it's been here eight weeks and so.

Yes, sure it's been here eight weeks and so.

Yes, very bright guy very creative Guy strong point of view.

Yes.

We break Guy very creative Guy strong point of view.

<unk> learned in the business and.

Learning the business and.

We're excited happy to have a hearing I think one of wildly I'll give a little bit of time.

We're excited and happy to have the hearing.

Why don't we I'll give a little bit of time.

You know really assess the situation and the opportunities and at some point you'll.

Really assess the situation and the opportunities at some point you'd likely meet them.

You'd likely meet them and.

Maybe you can just kind of curious thoughts.

Maybe you can just kind of share your thoughts.

But I think it's going to be a.

But I think it's going to be.

Big step up for Us I think he's going.

Step up for Us I.

I think he is.

Youre going to prove to be.

Going to prove to be.

The best leader, we've ever had in this part of the business.

On multiple levels. So we're very excited about and being on the team.

On multiple levels. So we're very excited about the team.

Yeah.

Yes, that's about it for NASA.

Yes, that's about it for now.

Okay.

Best of luck.

Next question comes from the line of.

Next question comes from the line of Michael Lasser with UBS. Your line is open.

Good evening. Thank you so much for taking my question.

Good evening. Thank you so much for taking my question a cursory view of the communication that RH had during the fourth quarter would suggest that it was more aggressive.

Cursory view of the communication that RH add during the fourth quarter would suggest that it was more aggressive.

Cleaning out inventory messaging on price and that was also evident from the gross margin compression that was experienced during the quarter and yet if we adjust.

Cleaning out inventory messaging on price and that was all.

Also evident from the gross margin compression that was experienced during the quarter and yet if we just.

The sales growth in.

The sales growth.

In the fourth quarter for a like number of weeks your sales growth trailed.

In the fourth quarter for a like number of weeks your sales growth.

Trailed behind some of the peers in this space. So how much do you think you saw from in terms of sales from.

L behind some of the peers in the space.

So how much do you think you saw from.

In terms of sales from.

Some of the pricing actions that you took in the fourth quarter in and B. Why do you think you might be losing share to some of your key competitors in the sector.

Some of the pricing actions that you took in the fourth quarter.

And B why do you think you might be losing share to some of your key competitors in the sector.

I don't know if I got that question what.

I don't know if I got that question.

Okay.

Right.

Sure.

When you think of Michael we're trying to kind of break down. Your question first part is that we underperformed peers in the fourth quarter with it being down 11 on a 52 week basis. So.

When you take a Michael we're trying to kind of break down your question.

B: First part is that we underperformed peers in the fourth quarter with it being down 11 on a 52 week basis. So.

Yes.

Yes, I don't know.

No.

Thanks.

Is there a specific people you're talking about there's a lot of I don't know, who youre, calling appeared who youre not if you look at people that are heavy.

Is there a specific people youre talking about there is a lot of I don't know, who youre, calling your peer and who youre not if you look at people that are heavy.

Content furniture business I think we've performed.

Furniture business I think we've performed.

Relatively inline them better maybe.

B: Relatively in line then better maybe.

Yeah.

Some were a little better some were a little worse, but ah.

Some were a little better some were a little worse.

So when you say, we broadly underperformed peers.

When you say, we broadly underperformed peers.

Uh huh.

I don't know if right.

I don't know if Greg.

Yes.

Hi.

I would say like I don't think there is.

I would say.

Don't think there is.

Anything different that happened in the fourth quarter than what we expected except.

For the.

Major storms that.

Major storms.

Impacted everybody if it will get it will impact furniture people, who have longer lead times and deliveries more and.

It impacted everybody.

Again, we will impact furniture people, who have longer lead times and deliveries.

And.

And that.

You have people that are more exposed to.

People that are more exposed to.

Yes.

Yes, as far as seeing and specifically if you think about it.

Specifically, if you think about the size of our outdoor business in the amount of that comes out of Indonesia, which is the capital T.

Size of our outdoor business.

The amount of that comes out of Indonesia, which is the capital T.

Yes.

In fact it is so.

So.

Alright.

Sure.

Again, if you want to be more specific for Sun.

Again, if you want to be more specific.

Hi.

Brian.

Right sure.

Sure.

Where youre going.

What are your gallon.

Relocate some of the.

We look at some of the.

Competitors out there they were down six seven in the fourth quarter versus down 11 for RH.

Competitors out there they were down six seven in the fourth quarter were down 11 for RH.

And that's even with a more aggressive posture on clearing out inventory right.

Like what's the.

Right.

Eric.

What's their product mix.

Are you talking about people that sell tabletop and cookware.

Our seasonal businesses and Christmas ornaments, and all kinds of things that we don't fail.

Seasonal businesses and Christmas ornaments, and all kinds of things that we don't fail.

It says that theyre going to get hit less in a housing market downturn than furniture.

Yes.

Get hit less in a housing market downturn than furniture.

Okay. If you want to talk about furniture related people comparison furniture related people, but actually also perished of home depot don't compare to pottery barn does the parents the Williams Sonoma.

Okay. If you want to talk about furniture related people, Okay comparison furniture related people, but as <unk> home depot dose appears to pottery barn, because the parents to Williams Sonoma.

Is it youre talking about apples and oranges.

And compares people were the same.

In comparison people with the same.

Fiscal year at a quarter, yes, and yes.

Fiscal year end quarter, yes, yes.

Yes, if you don't if you don't.

Yes.

You don't have them in January its not even though I think.

And in January it's not even though.

And then in January they didn't get hit by the canal and they didn't get hit by the ice storms.

And then in January they didn't get hit by the Canal and then get hit by the ice storms.

So that's why I said, you want to be more specific.

So that's why I said you wanted to be more specific.

Like I will try to answer your question, but.

I'll try to answer your question, but.

Internet broad sense like that like Tonight.

<unk> broad fence like that.

They're not as relevant.

Okay.

My follow up question is if we add back some of the <unk>.

Follow up question is if we add back some of the margin drags that you highlighted this year.

Margin drags that you highlighted this year.

Cool.

Good.

For each plant on pace to have a 16%.

For each line on pace to have a 16% operating margin in 2025.

Operating margin in two.

25 is that the right way to think about the basis for how we should be modeling over the next few years or would you expect the investment cycle.

That the right way to think about the basis for how we should be modeling over the next few years or would you expect the investment cycle.

It's going to pop and this year is going to persist for.

And this year is going to persist for multiple years, which we'll press release.

Multiple years, which will pressure.

The ability for an extended period of time, Thank you very much.

<unk> for an extended period of time, thank you very much.

Yeah, we're not guiding to 2025.

Yes.

Guiding to 2025.

We're guiding to 2024, and we're giving you all of the data as it relates to that.

We're guiding to 2024, and we're giving you all the data as it relates to that.

You know like I think I just said.

I think I said, a couple of questions ago that.

Had a couple questions ago that.

Yeah, we feel very good about.

We feel very good about it.

Getting back to 20% operating margin over the next several years so.

Going back to 20% operating margins over the next several years so.

We're still in.

Challenging market.

The housing market that record lows so.

The housing market record lows so.

I don't think anybody's guiding 25, yet are they.

I don't think anybody is guiding 25, yet are they.

No no no.

I guess I would more so asking about the persistence of the investment cycle and how long.

Yes.

So asking about the persistence of the investment cycle and how long.

Might impact your profitability rather than looking for specific guidance.

B: Impact your profitability rather than looking for specific guidance.

Yeah.

Yes.

Is there anybody guide you know that in the 25, yet because that would be guidance.

Is there anybody guide that in the 25, yes, because that would be guidance.

Yes.

Great.

Yes.

Yeah. So we're not guiding the 25, yet you know we never have.

Yes, sorry.

We're not guiding the 25 yet.

Never have.

But we have a long term view.

Ed.

We can return to 20% operating margins then yes.

B: We can return to 20% operating margins then yes.

Yes, we have some investment cycles that will have to roll through in.

And I would say to all the people who thought they were trying to build a model that.

And I would say all the people on the phone they are trying to build a model that.

Thats beyond where our guidance is youre going to have to connect the dots and come up with your own assumptions I can't do your work.

Thats beyond where our guidance is youre going to have to connect the dots and come up with your own assumptions I can't see your work.

Yeah.

Yes.

I'm not asking you to do my work don't ask me to do your work.

Understood. Thank you very much and good luck.

Youre welcome.

Next question comes from the line of Brad Thomas with Keybanc capital markets. Your line is open.

Hi, Good afternoon, Gary Jack Thanks for taking the question.

Hi, Good afternoon, Gary and Jack Thanks for taking the question.

Just in light of you wanted to focus a little bit more on the demand trends. This year given some of the timing nuances I was wondering if you could just share a little bit more with us about perhaps how demand has trended quarter to date you did referenced this exceptional reaction to the outdoor catalog.

Just in light of you wanted to focus a little more on the demand trends. This year given some of the timing nuances I was wondering if you can just share a little bit more with us about perhaps how demand has trended quarter to date you did referenced this exceptional reaction to the outdoor catalog curious what you've been seeing.

Or is what you've been seeing of late.

Great.

And maybe just as we think about on the comparisons youre up against from a demand standpoint are there any quarters that you'd call out where something had been an unusual and not lining up with sales.

And maybe just as we think about on the comparison you're up against from a demand standpoint are there any quarters that you would call out where something had been unusual and not lining up with sales.

Okay.

We're pretty close.

Ed.

Yes, pretty far down the first quarter right. So you can probably come out with some kind of it.

Yes, pretty far down the first quarter right. So you could probably come up with some kind of it.

Okay.

Yes demand.

Given first quarter demand yeah. So mid single digits mid single digits is.

First quarter demand, yes, so mid single digits mid single digits.

Where we think demand is going to be in Q1.

We're not providing any quarterly guidance or yes monthly breakdowns right.

We're not providing any quarterly guidance yes.

B: Yes monthly breakout right.

Yeah, I would say our.

Yes, I would say our.

Yeah Man.

Demand.

Trends are building and theyre going to build through the whole year. So.

Trends are building and theyre going to build through the whole year.

Yes.

That we expect.

Right.

Yes, let me give you a couple more bread crumbs.

Let me give you a couple more bread crumbs.

Yeah.

Okay.

Hey.

The outdoor business.

It's off to extraordinarily.

Yes.

Strawberry start.

Larry start.

And.

Yes.

The biggest part of the year is that right.

I guess part of the year.

Right.

So we have a lot of confidence.

As we look at the next.

Quarter two.

We have a lot of confidence in the whole year, but we have a lot of visibility.

If you think about that.

If you think about that right.

Right.

The the outdoor business.

The outdoor business.

You know you can again.

Again.

Think about when people are buying outdoor furniture.

They are buying a lot less in February.

And they're buying a lot more in march than they were buying even more in April.

And they are buying a lot more in march than ever by an even more in April.

Yeah.

None: Yeah, so that business is off to a great start.

That business is off to a great start.

That's really easy to connect those dots and forecast as we've.

That's really easy to connect those dots and forecast.

Yes.

As good as it's been out there now for several weeks and we've got real real data.

<unk> been out there now for several weeks and we've got real real data.

Got it that's great Gary I appreciate the bread crumbs, Anthony if I can add a follow up on on supply chain and sourcing I guess.

Okay. That's great I appreciate the bread crumbs, and if I can add a follow up one on supply chain and sourcing I guess.

Yes.

For one.

Are you contemplating any sort of disruptions relative to the.

Closure of the Baltimore Port right now and then.

Closure of the Baltimore Port right now.

And then.

Can you talk about.

Kind of your confidence in your.

Kind of your confidence and your.

Sourcing partners your suppliers ramping up with all this new product we didn't have this year.

Sourcing partners your suppliers ramping up with all this new product that you didn't have this year.

And I presume, that's partly why you're assuming you end the year with a greater degree of backlog, but just any more color on your confidence in executing with Hudson product would be great. Thanks.

And I presume, that's partly why you're assuming you end the year with a greater degree of backlog, but just any more color on your kind of confidence in executing with all this new product will be great. Thanks.

Yeah, the look visits.

Yes.

And fortunate and devastating.

Fortunately devastating.

Yes, hi.

Okay.

Yeah no.

No accident that happened in Baltimore is Super recent.

That happened in the Baltimore is Super recently.

We obviously have.

The big at that facility in centre in Maryland.

Yes.

At that facility in centre in Maryland.

Fernando is here right in the room right now and he's shaking his head, but we don't think theres any major disruptions.

Fernandez is here in the room right now and is shaking his head, but we don't think theres any major disruptions.

And MTR, let me add maybe just because of its Jack but on an inbound perspective.

And let me, maybe just because it's Jack but on an inbound perspective.

Some of our much of our goods are actually offloaded in in New York.

Some of our much of our goods are actually Offloaded in New York.

You know, we do we do the cost benefit analysis of getting the product out earlier in New York before the boat then comes down to ballpark. For example, the boat that was in the accident had four work had four containers on it but that we unloaded in New York as per our practice. So that we don't have any containers.

We do we do the cost benefit analysis of getting the product out earlier in New York before the both then comes down to Baltimore for example, the boat that was in the accident had <unk> had four containers on it but we unloaded in New York.

As per our practice, so that we don't have any containers.

Stuck on that particular boat and other boats would be now are getting to reroute it so minimal impact.

Stuck on that particular boat and other boats are getting to reroute it so minimal impact.

But from a construction.

Prevent disruption.

Yeah, and I think your second part of the question is what confidence we have in our partners ramping with our new product.

Yes, and I think your second part of the question is what confidence we have in our partners ramping with our.

New product.

We have great confidence, but it's a.

We have great confidence Si, but it's.

Yeah.

Yes.

With new products ramping Sarnia youre never going to forecast, the new product exactly right and Erik folded before going to be some degree of wrong, something if you're going to be more right and something is going to be more wrong and the things that you're more right on and you know over form your expectations or if you're going to be.

With new product ramping sorry, youre never going to forecast the new product exactly right and Erik followed before going to be some degree of wrong, some things youre going to be.

Right and something is going to be more wrong than right.

The things that you are more right on and over perform.

Form your expectations, there just going to be.

Period that can pay.

Curious if you can say.

As for our partners to build that product and respond to the trends.

For our partners to scale that product and respond to the trends and so on and so forth. So.

So on and so forth so.

But yes, so far so good I mean, we've had.

Very minimal.

Initiatives like this it's more.

It's more.

It has to do with I think the biggest issues or just being able to forecast the newness and.

As to deal with I think the biggest issues or just being able to forecast the newness and.

And.

And so but once we start getting the data then we're improvising adapting and let's say we.

So, but once we start getting the data you know then we're improvising adapting and let's say we go.

You got the direction kind of Directionally right on the orders that we get the finishes wrong well.

We've got the direction kind of Directionally right on the orders, but we get the finishes wrong well.

We're reacting to new and changing the finishes if theyre still in the factory and you know the last phase of that is in.

We're reacting to and changing the finishes if theyre still in the factory.

Phase of that is.

The finish and were.

The finish and yes, we are.

<unk> from.

Shifting from.

One collection to another collection and then you know as we get data in and all those kind of things.

One collection to another collection and then as we get data in and all those kind of things.

So yes.

And we have you know like we always do is have.

And we have like we always do we always have.

Develop new partnerships and so on and so forth then.

Develop new partnerships and so on and so forth then yes.

Sometimes some of the newer partnerships habit.

Sometimes some of the newer partnerships haven't.

Maybe they haven't worked at this scale, yet, but you know we try to anticipate that but every once in a while someone new fits that.

Maybe they haven't worked at this scale yet.

We try to anticipate that but every once in a while so we knew that.

One of the big collections and so.

Yes.

That maybe is a new experience for them, but we have really great people.

Maybe it's a new experience for them, but we have really great people.

Hi.

Yes inside the organization in the country the partner in health and where can we just.

Yes inside the organization and an in country partner in health been working we just.

Try to work as partners.

Hi.

You get to the right outcome.

Get to the right outcome.

We have the data so I would say there's no there's.

We have the data so I would say there is no.

Theres nothing lurking out there right now we don't have any thing other than yes.

Other than some.

You know kind of ramp up issues that you expect doing anything at this kind of a scale.

Kind of ramp up issues that you expect doing anything at this kind of scale.

But.

Oh, yes.

Yes.

You guys have any other.

Yeah.

Yes.

Okay.

Again, I mean, everybody in the room here the team and everybody is shaking their head no no problem.

Everybody in the room here the team and everybody is shaking their head like no no no problem says we're getting.

Yes.

Nothing new came up so far today that would have occurred.

Good to hear very helpful. Thanks, so much J&J.

Okay. Thank you.

And we do have our last question comes from the line of Steve Mcmanus with BNP Paribas. Your line is open.

And we do have our last question comes from the line of Steve Mcmanus.

Your line is open.

Great. Thanks, So so clearly very upbeat about the outdoor collection, you've got the data there.

Hoping you can speak to what the.

Hoping you can speak to what the customers' reception has been and how demand ramping for the interiors and a contemporary collection versus what you were expecting that'd be helpful. Thanks.

Customers' reception in Spain, and how demand ramping for the interiors and a contemporary collection versus what you were expecting that'd be helpful. Thanks.

Yes al.

And are responding to as from Martin latest expectations all right.

Finally, and as you know from Martin latest expectations, all right fine.

As we would expect then we have but.

Finding out as we would expect and we have.

The next bill.

The next.

Big book is.

Modern and we feel very optimistic about that than we are.

Modern and we feel very optimistic about that.

Yes.

You know <unk> of interiors in.

<unk> of interiors and <unk>.

Contemporary new refreshed with new collections in.

New creative and better data and information and better in stocks and so on and so forth.

More of the product because we've had a chance to read and react to it in the galleries, which then.

None: Yes more of the product because we've had a chance to read and react to it in the galleries, which then.

It gives us a lift in.

It gives us a lift.

So yes.

So okay.

So feel really good really optimistic.

Really good really optimistic.

<unk>.

And so.

I don't think there's any other commentary to that.

I don't think there's any other commentary that.

But I've got.

Alright, thanks, and if I could squeeze one more in on the on the commentary to lean into like digital and print advertising and I don't think <unk> really done the past like what drove that pivot and piecing that together, but sourcebook wrapping is how do we think about the right run rate for the business.

Alright, thanks, and if I could squeeze one more in on the on the commentary to lean into like digital and print advertising I don't think guys have really done that has like what drove that pivot and piecing that together with sourcebook ramping is how do we think about the right run rate for the business.

Yes, that's kind of what we always do there's nothing really new.

Yes, it is kind of what we always do theres nothing really new.

It's what with what we generally do when were in.

Hi.

What we generally do when we're.

In launch mode like this in.

So we're generally.

Marketing.

Print and digital with all those.

Print and digital with all of those.

It kind of key publication as well.

I kind of key publication.

For the consumer generally fear.

Where the consumer generally fear.

Talk to anybody or see anyone who is building a home or furnishing home remodeling homes on and so forth.

Talk to anybody youre seeing anyone who's building Homer furnishing home remodeling homes, so on and so forth that there yes.

They're yes, they're kind of fishing, where the fish are right, they're looking at for inspiration and home magazines and.

Yes.

Fishing, where the fish are right, they're looking at for inspiration and home magazines and.

Yes.

And design.

And <unk>.

Design magazines in front and so forth.

Design magazines and so forth.

There's websites.

Those websites.

And I get a lot of traffic with really.

People with a purpose right so.

We tend to invest in that way.

There are different in our.

They're different in our.

Direct mail business.

And thinking about art.

That's where files, we built up and how we process and where we get new names from and.

That's where files, we built up and how we process, where we get new names from the and so forth. So I wouldn't say anything is different I think you see.

And some of the Salesforce. So I wouldn't say anything is different I think you see it.

Our ramp up in investment.

Our ramp up in the investment.

And you see that.

And you'll see that based on our confidence.

Based on our confidence.

Hi.

And what we've learned thus far in <unk>.

And what we've learned thus far.

That's given us indications.

That's good.

Even us indications of.

With the right investment cadence.

With the right investment cadence investment cadence.

<unk> cadence.

In contact cadences so.

Cadences so.

Yes, I wouldn't say anything has changed it's not a pivot amidst it may have sounded like that but we'd like to as Gary said, it's what we do around launches.

Yes.

Hey, anything has changed it's not a pivot it may have sounded like that but we'd like to as Gary said, it's what we do around launches.

Sure.

Yes.

All right. That's helpful. Helpful context, Thanks, guys I appreciate it.

Alright Thats helpful help apologize thanks, guys I appreciate it.

Sure.

None: There are no further operator at this time, Mr. Friedman I'll turn the call back over to you.

There are no further operators and cycle time, Mr. Friedman I'll turn the call back over to you.

Allison C. Malkin: Okay well. Thanks, Thank you everyone for your participation.

Okay well. Thanks, Thank you everyone for your participation.

None: Thank you too.

Thank you to the team.

None: <unk> your efforts and leadership have been extraordinary.

<unk> your efforts and leadership have been extraordinary.

None: There's been a tremendous amount of work.

It's.

<unk> been a tremendous amount of work.

None: Now for everyone, but.

No for everyone, but.

Yes.

None: Uh huh.

Okay.

None: Feel so proud and excited about with this team.

Feel so proud and excited about with this team.

None: Has accomplished.

<unk> has accomplished.

None: And I think our partners and teammates all through the country.

And I think our partners and teammates all through the country.

None: Especially our teams in the galleries and interior design, Yeah, we're gonna be handing you off the baton.

Especially our teams in the galleries and interior design, yes, we're going to be handing you off the baton.

None: Yeah, It's all of these products and fold in.

Yes, it's all of these products and fold in.

None: The teams across our supply.

The teams across our.

None: Supply chain and distribution and everybody's health work with support our teams.

Supply chain distribution and everybody's health work with support our teams.

None: In Asia and other countries around the world.

In Asia and other countries around the world.

None: I think this is going to be.

I think this is going to be.

None: Our finest moment and.

Our finest moment and.

None: And it really is a result of <unk>.

And it really is a result of your commitment and courage.

None: Your commitment and courage.

Sure.

None: And your leadership so we just want to thank you for that.

And your leadership so we just want to thank you for that.

None: And we'll speak to everyone next quarter. Thank you.

And we'll speak to everyone next quarter. Thank you.

None: This concludes today's conference call you may now disconnect.

This concludes today's conference call you may now disconnect.

None: [music].

Yeah.

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