Q1 2024 RH Earnings Call
Speaker Change: [music] 12 locations on home, we're still checking get participants for today's conference. Thank you for your patience and please continue to standby.
Operator: To all locations on hold, we're still checking in participants. Thank you for your patience.
All locations on whole, we're still checking again participants. Thank you for your patience will begin shortly.
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Yeah.
Operator: We'll begin shortly. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question and answer session, and you may register to ask a question at any time by pressing star 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2.
Speaker Change: Good day, everyone and welcome to today's RH first quarter fiscal 'twenty 'twenty four earnings Q&A call.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: Later, you will have an opportunity to ask questions. During the question and answer session and you May Register to ask a question at any time by pressing star one on your telephone keypad you may withdraw yourself from the queue by pressing star Xu. Please note that this call is being recorded and I will be standing by if you need any assistance. It is now my pleasure to turn the conference over to you.
Operator: Please note that this call is being recorded, and I will be standing by if you need any assistance. It is now my pleasure to turn the conference over to Allison Malkin. Please go ahead. Thank you. Good afternoon, everyone.
Speaker Change: Allison Malkin. Please go ahead.
Allison C. Malkin: Thank you for joining us for our first quarter Fiscal 2024 Earnings Conference Call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer, and Jack Preston, Chief Financial Officer. Before we start, I'd like to remind you of our legal disclaimer that we will make certain statements today that are forward-looking within the meaning of the federal securities laws, including statements about our outlook for our business and other matters referenced in our press release issued today.
Thank you good afternoon, everyone and thank you for joining us for our first quarter fiscal 2024 earnings Conference call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer, and Jack question, Chief Financial Officer, before we start I'd like to remind you of our legal disclaimer that we will make certain statements.
Allison C. Malkin: These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings, as well as our press release issued today, for a more detailed description of the risk factors that may affect our results. Please also note that these forward-looking statements reflect our opinion only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Also, during this call, we may discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items.
Today, there are forward looking within the meaning of the federal securities laws, including statements about our outlook of our business and other matters referenced in our press release issued today.
Speaker Change: These forward looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings as well as our press release issued today for a more detailed description of the risk factors that may affect our results. Please also note that these forward.
Speaker Change: Looking statements reflect our opinion only as of the date of this call and we undertake no obligation to revise or publicly release the results of any revision to these forward looking statements in light of new information or future events.
Gary G. Friedman: You will find additional information regarding these non-GAAP financial measures and the reconciliation of these non-GAAP to GAAP measures in today's financial results press release. A live broadcast of this call is also available on the investor relations section of our website at ir.rh.com. With that, I'll turn the call over to Gary.
Speaker Change: Also during this call we may discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items you will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in today's financial results press release.
Speaker Change: A live broadcast of this call is also available on the Investor Relations section of our website at IR Dot RH dot com with that I'll turn the call over to Gary.
Gary G. Friedman: We're actually calling you live from New York in our guest house, as we just got back from our opening at RH Madrid last night. I'm going to start with a letter to our people, partners, and shareholders, and then we'll open the call to your questions. To our people, partners, and shareholders, we are pleased to report that our demand trends inflected positive in the first quarter and continue to build momentum despite operating in the most challenging housing market in three decades.
Gary: Thank you Allison.
Gary: Good afternoon, everyone.
Speaker Change: We're actually calling you live from New York at our guesthouse as we get there.
Speaker Change: Got back from our opening in our H Madrid last night.
Gary G. Friedman: We believe our investments in the most prolific product transformation and platform expansion in our history have positioned RH to gain significant market share in North America while building the foundation for a long-term global expansion across the United Kingdom, Europe, Australia, and the Middle East over the next several years. Our results for the first quarter largely reflected expectations, with revenues of $727 million, an adjusted operating margin of 6.5%, and an adjusted EBITDA margin of 12.3%. Demand was up 3% in the quarter, slightly below our guidance, as growth softened when interest rates once again exceeded 7% post the hawkish Fed commentary throughout April.
Speaker Change: I'm going to start.
But with our letter to our people partners and shareholders and then we'll open the call to your questions.
Gary G. Friedman: While aggressively investing during a 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. Those opportunities are beginning to materialize, as a growing number of online furniture brands have ceased operations, as the vast majority have demonstrated difficulty reaching profitability. We do expect the constantly changing outlook regarding monetary policy will continue to weigh on the housing market through the second half of 2024 and possibly into 2025. Nonetheless, we remain confident that our continued investments in transforming our product and expanding our platform will generate significant long-term value for our shareholders. Every act of creation is first an act of destruction, Pablo Picasso.
Speaker Change: So our people partners and shareholders. We are pleased to report that our demand trends inflected positive in the first quarter and continue to build momentum despite operating in the most challenging housing market in three decades.
Speaker Change: We believe our investments in the most prolific product transformation and platform expansion and our history has positioned our age to gain significant market share in North America, while building a foundation for long term global expansion across the United Kingdom, Europe, Australia, and the Middle East over the next several years.
Speaker Change: Our results for the first quarter largely reflected expectations with revenues of 727 million adjusted operating margin of six 5% and adjusted EBITA margin of 12, 3%.
Speaker Change: Demand was up 3% in the quarter slightly below our guidance as growth softened when interest rates once again exceeded 7% post the hawkish fed commentary throughout April.
Speaker Change: While aggressively investing during 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.
Speaker Change: Those opportunities are beginning to materialize as a growing number of online furniture brands have ceased operations. That's the vast majority have demonstrated difficulty reaching profitability.
Speaker Change: We do expect the constantly changing the outlook regarding monetary policy will continue to weigh on the housing market through the second half of 2024 and possibly into 2025.
Speaker Change: Nonetheless, we remain confident that our continued investments towards transforming our product and expanding our platform will generate significant long term value for our shareholders.
Speaker Change: Every active creation is first inactive destruction Pablo Picasso.
Gary G. Friedman: We have worked hard to destroy the former version of ourselves and are in the process of unleashing what we believe is an exponentially more inspiring and disruptive RH brand, inclusive of 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 Switchbook. The Most Dominant Collection of Luxury Outdoor Furniture in the Market arrived in homes in the first quarter with 14 new collections.
Speaker Change: We have worked hard to destroy the former version of ourselves and are in the process of unleashing. What we believe is an exponentially more inspiring and disruptive RH brand inclusive of the most prolific product transformation and platform expansion in the history of our industry.
Speaker Change: Our product transformation plans for 2024 include the launch of our new RH outdoor sports book.
Speaker Change: The most dominant collection of luxury outdoor furniture and the market arrived in homes in the first quarter with 14 new collections.
Gary G. Friedman: Outdoor trends continue to remain strong, and we expect to gain significant market share in fiscal 2024. The unveiling of our new RH Modern sourcebook arrived in homes throughout early June with 30 new collections across living, dining, bedroom, and bathroom. We expect the launch of RH Modern will further accelerate our demand trends in the second quarter and throughout the second half of fiscal 2024. The second mailing of our new RH Interior Sourcebook is now planned to be in homes starting July with new collections and improved in-stocks, which should also provide an additional lift to demand in the third quarter and continue to build through the remainder of the year.
Speaker Change: Outdoor trends continue to remain strong and we expect to gain significant market share in fiscal 2024.
Speaker Change: The unveiling of our new RH modern source book arrived in homes throughout early June with 30, new collections across living dining bedroom and bathroom. We expect the launch of RH modern where are their accelerate our demand trends in the second quarter and throughout the second half of fiscal 2024.
Speaker Change: The second mailing of our new RH interiors source book is now planned to be in homes, starting July with new collections and improved in stocks, which should also provide an additional lift to demand in the third quarter and continue to build through the remainder of the year.
Gary G. Friedman: We will be mailing an updated RH Contemporary Sourcebook in early August with new collections and a compelling value proposition, which we believe will also accelerate demand trends. A second mailing of the RH Modern Sourcebook and third mailing of the RH Interior Sourcebook are expected in the second half of 2024 with additional new collections, refreshed galleries, and improved in stock. These mailings will result in a doubling of our source book circulation and customer contacts in 2024 compared to 2023.
Speaker Change: We will be mailing and updated RH contemporary source book in early August with new collections, and a compelling value proposition, which we believe will also accelerate demand trends.
Speaker Change: Our second mailing of the RH modern source book and third mailing of RH interiors source book Alright.
Speaker Change: As expected in the second half of 2024 with additional new collections refreshed galleries and improved in stocks.
Speaker Change: These mailings will result in a doubling of our source book circulation and customer contacts in 2024 versus 2023.
Gary G. Friedman: Our data would suggest the increased number of contacts alone should provide another lift factor for our business. As you know, we acquired Waterworks in 2016, arguably the most desired brand in the luxury bath and kitchen category. The Waterworks team has done an outstanding job over the past eight 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, generates the vast majority of its revenues from the trade market, selling to architects, designers, developers, and builders.
Speaker Change: Our data would suggest the increased number of contexts alone should provide another lift factor for our business.
Speaker Change: As you know we acquired waterworks in 2016, arguably the most desired brand in the luxury Bath and kitchen catch category. The waterworks team has done an outstanding job over the past eight years further elevating the brand and building a highly profitable business model that can scale.
Speaker Change: Waterworks like most other luxury brands in the home space generates the vast majority of their revenues from the trade market.
Speaker Change: Selling to architects designers developers and builders.
Gary G. Friedman: While RH is a meaningful trade business, the vast majority of our revenues are generated by consumers. We believe there is a significant opportunity to amplify the WaterWorks business on the RH platform by exposing the WaterWorks brand to a much larger audience, similar to how we've expanded other trade-focused businesses and brands over the years. Our plan is to launch with a 3,500 square foot waterworks showroom in our largest new 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 mailing in 2025.
Speaker Change: While our age has a meaningful trade business. The vast majority of our revenues are generated by consumers we.
Speaker Change: We believe there's a significant opportunity to amplify the waterworks business on the <unk> platform by exposing the brand to a much larger audience similar to how we've expanded other trade focused businesses and brands over the years.
Speaker Change: Our plan is to launch with a 3500 square foot waterworks showroom and our largest new design Gallery in Newport Beach, California opening in the fourth quarter of 2024.
Speaker Change: We will also be developing a waterworks source book with plans for a test mailing in 2025.
Speaker Change: Waterworks today is just shy of the $200 million business with mid to high teens EBITDA margin that we believe has the potential to become a billion dollar global brands on our platform.
Speaker Change: Let me shift your attention to the expansion of our platform.
Speaker Change: Our plan to expand the RH brand globally.
Speaker Change: Dress, new markets locally and transform our north American galleries represents a multibillion dollar opportunity.
Gary G. Friedman: Waterworks today is just shy of a 200 million dollar business with mid to high teens EBITDA margin that we believe has the potential to become a billion dollar global brand on our platform. Now, 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 multi-billion dollar opportunity. Our platform expansion plans for 2024 include the opening of five North American design galleries, including Cleveland and Palo Alto, which are now open, plus Raleigh, Newport Beach, and Montecito. All with integrated RH Interior Design Offices, Restaurants, and Wine Bars. The opening of two international galleries in Brussels, which opened in the first quarter, and in Madrid, where we hosted a well-attended opening event last night.
Speaker Change: Our platform expansion plans for 2024 include.
Speaker Change: The opening of five North American design galleries, including Cleveland in Palo Alto, which are now open plus Raleigh, Newport Beach and minus Sito.
Speaker Change: All with an integrated RH interior design offices restaurants and wine bars.
Speaker Change: The opening of two international galleries in Brussels, which opened in the first quarter and in Madrid, where we hosted a well attended opening event last night.
Speaker Change: Both galleries are located in beautiful historic buildings that elevate our product and render our brand more valuable.
Gary G. Friedman: Both galleries are located in beautiful historic buildings that elevate our product and render our brand more valuable. The opening of our first RH Interior Design Studio in Palm Desert, California. We believe there is an opportunity to address new markets locally by opening design studios in neighborhoods, towns, and small cities where the wealthy and affluent live, visit, and vacation, as we've done in East Hampton and the Napa Valley, as well as augmenting some of our design galleries in larger markets with additional design services and stand-alone design studios.
Speaker Change: The opening of our first RH interior design studio in Palm Desert, California.
Speaker Change: We believe there is an opportunity to address new markets locally by opening design studios in neighborhoods towns in small cities, where the wealthy and affluent live visit and vacation as we've done in east Hampton and the Napa Valley as well as augmenting some of our design galleries in larger markets with additional design services and <unk>.
Speaker Change: Hand alone design studios.
Speaker Change: Outlook.
Gary G. Friedman: While we expect business conditions to remain challenging until interest rates ease and the housing market begins to rebound, we expect our business trends to accelerate throughout fiscal 2024. As previously communicated, due to the extensive transformation of our assortment, we expect revenue to lack demand during the year by approximately 4 to 8 points until we read and react to the new collections, reduce back orders, and shorten special order lead times. Therefore, we will be guiding and reporting both demand and revenue growth each quarter during fiscal 2024.
Speaker Change: While we expect business conditions to remain challenging until interest rates eased in the housing market begins to rebound, we expect our business trends to accelerate throughout fiscal 2024.
Speaker Change: As previously communicated due to the extensive transformation of our assortment, we expect revenue to lack demand during the year by approximately four to eight points until we read and react to the new collections reduce back orders and shortened special order lead times.
Speaker Change: Therefore, we will be guiding or reporting both demand and revenue growth each quarter during fiscal 2024, so shareholders and investors can accurately analyze our business.
Gary G. Friedman: So shareholders and investors can accurately analyze our 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 revenue lag in demand throughout fiscal 2024, which will negatively impact operating margin and adjusted EBITDA margin by approximately 140 basis points. Additionally, investments in startup costs to support our international expansion are estimated to be an approximately 200 basis point drag for fiscal 2024.
Speaker Change: 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 revenue lagging demand throughout fiscal 2024, which will negatively impact operating margin and adjusted EBITDA margin by approximately.
Speaker Change: 140 basis points.
Speaker Change: Additionally investments in startup costs to support our international expansion are estimated to be approximately 200 basis point drag or twist for fiscal 2024.
Gary G. Friedman: We continue to expect demand growth in the range of 12-14% and revenue growth of 8-10% on a 52 vs. 52 week basis. We are forecasting Adjusted Operating Margin to be in the range of 13 to 14 percent and Adjusted EBITDA Margin in the range of 18 to 19 percent.
Speaker Change: We continue to expect demand growth in the range of 12% to 14% and revenue growth of 8% to 10% on a 52 versus 52 week basis.
Speaker Change: We are forecasting an adjusted operating margin to be in the range of 13% to 14% and adjusted EBITDA margin in the range of 18% to 19%.
Gary G. Friedman: For the second quarter of fiscal 2024, we are forecasting demand growth in the range of 9 to 10% and revenue growth of 3-4%. We are forecasting an adjusted operating margin to be in the range of 11 to 12 percent and an adjusted EBITDA margin of 17 to 18 percent. R.H. Business Vision and Ecosystem, The Long View. We believe there are those with taste and no scale and those with scale and no taste.
Speaker Change: For the second quarter of fiscal 2024, we are forecasting demand growth in the range of 9% to 10%.
Speaker Change: And revenue growth of 3% to 4%.
Speaker Change: We are forecasting an adjusted operating margin to be in the range of 11% to 12% and adjusted EBITA margin of 17% to 18%.
Speaker Change: Our each business vision and ecosystem the long view.
Speaker Change: We believe there are those with taste and those scale and those with scale and no taste.
Gary G. Friedman: And the idea of scaling taste is large and far-reaching. Our goal to position RH as an arbiter of taste for the home has proven to be both disruptive and lucrative as we continue our quest to build the most admired brand in the world. Our brand attracts leading designers, artisans, and manufacturers, scaling and rendering their work more valuable across our integrated platform, enabling RH to curate the most compelling collection of luxury home products on the planet. Our efforts to elevate and expand our collection will continue with the introductions of R.H. Couture, R.H. Bespoke, R.H. Color, and R.H. Antiques and Artifacts, R.H. Atelier, and other new collections scheduled to launch over the next decade.
And the idea of scaling taste is large and far reaching.
Speaker Change: Our goal is to position our HSA arbiter of taste for the home has proven to be both disruptive and lucrative as we continue our quest to build the most admired brands in the world.
Speaker Change: Our brand attracts leading designers artisans and manufacturers scaling and rendering their work more valuable across our integrated platform.
Speaker Change: Enabling our H to curate the most compelling collection of luxury home products on the planet.
Speaker Change: Our efforts to elevate and expand our collection will continue with the introductions of our HP sure Alright, bespoke RH color RH antiques and artifacts RH atelier and other new collection is scheduled to launch over the next decade.
Gary G. Friedman: Our plan to open immersive design galleries in every major market will unlock the value of our vast assortment, generating revenues of $5 to $6 billion in North America and $20 to $25 billion globally. Our strategy is to move the brand beyond curating and selling product to conceptualizing and selling spaces by building an ecosystem of products, places, services, and spaces that establishes the RH brand as a global thought leader, tastemaker, and place maker.
Speaker Change: Our plan to open an immersive design galleries in every major market will unlock the value of our basket assortment generating.
Speaker Change: Revenues of five to 6 billion in North America, and 20 to 25 billion and globally.
Speaker Change: Our strategy is to move the brand beyond curating and selling product to conceptualizing and selling spaces by building an ecosystem of products places services and spaces that establishes the RH brand as a global thought leader taste in place maker.
Gary G. Friedman: Our products are elevated and rendered more valuable by our architecturally inspiring galleries, which are further elevated and rendered more valuable by our interior design services and seamlessly integrated hospitality experience. Our hospitality efforts will continue to elevate the RH brand as we extend beyond the four walls of our galleries into RH guesthouses, where our goal is to create a new market for travelers seeking privacy and luxury in the $200 billion North American hotel industry.
Speaker Change: Our products are elevated and rendered more valuable by our architectural inspiring galleries, which are further elevated rendered more valuable by our interior design services and seamlessly integrated hospitality experience.
Speaker Change: Our hospitality efforts will continue to elevate the RH brand as well.
Speaker Change: We extend beyond the four walls of our galleries into RH guest houses, where our goal is to create a new market for travelers seeking privacy and luxury and the $200 billion North American hotel industry.
Gary G. Friedman: Additionally, we are creating bespoke experiences like RH Yonville, an integration of food, wine, art, and design in the Napa Valley. RH1 and RH2 are private jets, and RH3 are luxury yachts that are available for charter in the Caribbean and Mediterranean, where the wealthy and affluent visit and vacation.
Speaker Change: Additionally, we are creating bespoke experiences like RH, yountville and integration of food wine art and design in the Napa Valley.
Speaker Change: Our H, one and our H two are private jet and our H three our luxury yacht, but it's available for charter the Caribbean Mediterranean, where the wealthy and affluent visiting vacation.
Gary G. Friedman: These immersive experiences expose new and existing customers to our evolving authority in architecture, interior design, and landscape architecture. This leads to our long-term strategy of building the world's first consumer-facing architecture, interior design, and landscape architecture services platform inside our galleries. Elevating the brand and amplifying our core business while adding new revenue streams while disrupting and redefining multiple industries. Our strategy comes full circle as we begin to conceptualize and build space, moving beyond the $170 billion home furnishings market into the $1.7 trillion North American housing market with the launch of RH Residences.
Speaker Change: These immersive experiences expose new and existing customers to our evolving authority and architecture interior design and landscape architecture.
Speaker Change: 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.
Speaker Change: Elevating the brand and amplifying our core business, while adding new revenue streams, while disrupting interest and redefining multiple industries.
Speaker Change: Our strategy comes full circle as we begin to conceptualize yourself spaces, losing beyond the $170 billion of home furnishings market. It is a $1 seven trillion in North American housing market with the launch of our each residences.
Gary G. Friedman: Fully furnished luxury homes, condominiums, and apartments with integrated services that deliver taste and 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 of taste will be further amplified when we introduce RH Media, a content platform that will celebrate the most innovative and influential leaders who are shaping the world of architecture and design.
Speaker Change: We furnished luxury homes kind of mediums and apartments with integrated services that deliver taste in time value to discerning times are consumers.
Speaker Change: The entirety of our strategy comes to life digitally with the world of our age and online portal, where customers can explore and be inspired by the depth and dimension of our brand.
Speaker Change: Our authority is an arbiter tastes will be further amplified when we introduce our H media a content platform that will celebrate the most innovative and influential leaders who are shaping the world of architecture and design.
Gary G. Friedman: Our plan to expand the RH ecosystem globally multiplies the market opportunity to $7 to $10 trillion, one of the largest and most valuable opportunities addressed by any brand in the world today. A 1% share of the global market represents the $70 to $100 billion opportunity. Our ecosystem of products, places, services, and spaces inspires customers to dream, design, dine, travel, and live in a world thoughtfully curated by our age, creating an emotional connection unlike any other brand in the world. Taste can be elusive, and we believe there is no better physician than RH to create an ecosystem that makes taste inclusive, and by doing so, elevate and render our way of life more valuable.
Speaker Change: Our plan to expand the RH ecosystem globally multiplies, the upmarket opportunity to seven to 10 trillion one of the largest and most valuable addressed by any brand in the world today.
Speaker Change: A 1% share of the global market represents a $70 billion to $100 billion opportunity.
Speaker Change: Our ecosystem the ecosystem of products places services and spaces.
Speaker Change: Spires customers to Dream design Dine travel and live in a world thoughtfully curated by our H, creating an emotional connection unlike any other brand in the world.
Speaker Change: This can be elusive and we believe there is no one better positioned than our H to create an ecosystem that makes taste inclusive and by doing so.
Speaker Change: <unk> rendering our way of life more valuable.
Operator: Never underestimate the power of a few good people who don't know what can't be done. For the past 23 years, we've heard others tell us what can't be done, and for the past 23 years, we've failed to listen. We avoided bankruptcy while being accused of lunacy. Meanwhile, 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.
Speaker Change: Never underestimate the power of a few good people, who don't know what cant be done.
Speaker Change: For the past 23 years, we've heard others tell us what cant be done.
Speaker Change: And for the past 23 years, we failed to listen.
Speaker Change: We avoided bankruptcy by while being accused of lunacy, while others have been shrinking and closing stores. We've been building the largest the most inspiring spaces in the world.
Speaker Change: One 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 were in the center of innovation working on rebuilding our new home and its almost ready for prime time.
Operator: When everyone told us we should be working from home, we were in the center of innovation, working on rebuilding our new home, and it's almost ready for prime Time, from the largest product transformation in our history to the most inspiring retail experiences in the world. From couches to caviar, beds to bellinis, architecture to airplanes, homes to hotels, and guest houses. From Pittsburgh to Paris, Los Angeles to London, Boston to Brussels, Miami to Munich, and San Francisco to Sydney, soon the world will be within our reach. Never underestimate the power of a few good people who don't know what can't be done, and especially these people. Onward, Team RH, Carpe Diem.
Speaker Change: From the largest product transformation and our history to.
So the most inspiring retail experiences in the world.
Speaker Change: Couches to caviar beds to Bolinas architecture to airplanes homestead hotels, guesthouses from Pittsburgh to Paris, Los Angeles to London, Boston to Brussels, Miami to Munich, and San Francisco to Sydney soon the world will be with our within our reach.
Speaker Change: Never underestimate the power of the few people, who don't know what cant be done.
Speaker Change: Especially these people.
<unk> team RH Carpathian.
Operator: Now the operator will open up the call to questions. Thank you. And at this time, if you would like to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two.
Speaker Change: Now operator, we'll open up the call to questions.
Steven Paul Forbes: Once again, that is star number one to ask a question. Our first question will come from Steven Forbes with Guggenheim Securities. Please go ahead. Hey Gary, Jack Allison.
Speaker Change: Thank you and at this time, if you would like to ask a question. Please press star one on your telephone keypad, you may remove yourself from the queue at any time by pressing star to you. Once again that is star one to ask a question. Our first question will come from Steven Forbes with Guggenheim Securities.
Speaker Change: Please go ahead.
Speaker Change: Hey, Gary Jack Allison.
Gary G. Friedman: Obviously, Gary, nice to see the business returning to growth here. So, I was curious if you maybe can help us contextualize the success of the new collections as you see it today, realizing it's early, but can you speak to sort of how many collections are showing signs of responding with the consumer and what maybe some of the early learnings are around the designs themselves? As it relates to sort of product expansion opportunities or, or, you know, sort of broadening out the exposure, right, of designs to different pieces.
Steven Paul Forbes: Obviously very nice to see the business returning to growth here. So I was I was curious if you maybe can help us contextualize the success of the new collections as you see it today. Realizing it's early but can you speak to sort of how many collections are showing signs of resonating with the consumer.
Steven Paul Forbes: And what maybe some of the early learnings are around at the designs themselves.
Steven Paul Forbes: As it relates to sort of product expansion opportunities or or sort of broadening out the exposure writeup designs.
Two different pieces.
Gary G. Friedman: Sure Steve, as it relates to one, we have a lot of new collections being introduced, and so we are reading and responding to all those and trying to put those into context. And we have many more coming, just in the modern book alone, which is just now getting into homes, and we're getting some early reads on that. I think that the best news is we have a few collections that are new number ones, big broad collections. And, you know, I tell the team here, you get a new number one collection.
Steve: Sure Steve.
Speaker Change: As it relates to that.
Speaker Change: Right now when we have a lot of new collections being introduced.
Speaker Change: And so we are.
Speaker Change: Reading and responding to all of those and trying to put those into context.
Speaker Change: And we have many more coming just in a modern alone which is just now getting into homes.
Speaker Change: And we're getting some early reads on that I think that the best news is we have a few collections that our new number one collections big broad brush collections.
And.
Speaker Change: I tell the team here you get a new number one collection Gen.
Gary G. Friedman: Generally, once every 7 to 12 years, you know, something that really is a market mover that resonates broadly across the entire platform, and those things, you know, permanently move the business. The way we think about our business and think about our assortments, we, we, I talk a lot here about the thirds. We talk about the top third of the assortment or the top third in any part of our assortment, not just overall, but if you're looking in the dining business, the living room business, the bedroom business, the outdoor business, the lighting business, the rug business, et cetera, et cetera.
Generally once every seven to 12 years.
Speaker Change: Yes, it's something that really is a market mover that resonates broadly across the entire platform and those things.
Speaker Change: Permanently moved the business the way, we think about our business and think about our assortments we.
Speaker Change: I've talked a lot here about a third so we talk about the top third of the assortment or the top or the thought top third in any part of our assortment.
Speaker Change: Not just overall, but if youre looking in the dining business the living room business bedroom business, the outdoor business the lighting business, the rug business et cetera et cetera.
Gary G. Friedman: And if you think about our business or any retail business and if you try to simplify it down to what's in the top third, what's in the middle third, and what's in the bottom third and how to think about those thirds, if you can introduce newness in the top third, that'll lift the entire company, right? It'll lift the entire category.
Speaker Change: And.
Speaker Change: If you think about our you know our business or any retail business that'd be try to simplify it down to what is in the top third middle third and what's in the bottom third and how to think about this search.
Speaker Change: You can introduce newness in the top third.
Gary G. Friedman: It'll lift the entire If you introduce newness in the middle third, you're going to mostly be neutral unless it's in the top portion of that middle third. And, you know, we also talk about the top half and the bottom half, but the thirds is really the way we mostly focus on that. And if you introduce anything in the bottom third, you're going to likely pull down the company's business. The great news is that we have the majority of the newness, the vast majority of the newness, in the top half, and a big percentage is in the top third.
Speaker Change: That will lift the entire company right there to lift the entire category to lift the entire company.
Speaker Change: If you introduce newness in the middle third youre going to mostly be neutral unless it's in the top portion of that middle third eye and we also talk about the top half of the bottom half, but the third is really the way we mostly focus on this.
Speaker Change: And if you introduce anything in the bottom third you're going to likely pulled down the company's business. The great News is we have the majority of the newness. The vast majority is in the.
Speaker Change: Top half and a big percentages in the top third and and in some cases.
Gary G. Friedman: And in some cases, they're the top collections in the top third, and that's what's really going to pull the business forward. So we really like the early reach of the business, but you're always going to have a top third, a middle third, and a bottom third. So you've got to be disciplined.
There's the top collections in the top third and that's what's really going to pull the business forward. So.
Speaker Change: We really like the early read to the business, but you're always going to have you always can have a top third middle third of bottoms there.
Gary G. Friedman: If you have 90 new collections, 30 – well, not necessarily the way to think about it, but if you have 90 total collections, you're going to have 30, 30, and 30. So you have to kind of recalibrate and recalculate it. But our initial reads are really quite good. We're, you know, really excited about the vast majority of what we're introducing. And then as we think about how you dimensionalize... The best, you know, the best collection, the key is, like, you know, how do you, how do you optimize it?
Speaker Change: So.
Speaker Change: You've gotta be disciplined about it.
Speaker Change: Yeah.
Speaker Change: You have 90, new collections 30, yeah yeah.
Speaker Change: Not necessarily the way to think about it but if you have 90 total collection youre going to have 30, 30 and 30. So you have to kind of Recalibrating recalculated.
Speaker Change: But our initial reads are really quite good.
Speaker Change: We're really excited about a vast majority.
40 of what we're introducing and then as we as we think about how do you dimensionalize.
Speaker Change: The best the best collection, the key as you know.
Speaker Change: How do you how do you optimize it you optimize it by one moving from just the books and online into the galleries.
Gary G. Friedman: You optimize it by, one, moving from, you know, just the books and online into the galleries. That gives us the biggest lift factor. And then you look at things like, how do you dimensionalize the collection? Is it fully dimensionalized? Is it in all the finishes it can be?
Speaker Change: <unk> gives us the biggest lift factor.
Speaker Change: And then you look at things like how do you Dimensionalize. It is the collection fully dimensionalize, if it and all the finishes it could be if at all that silhouettes.
Gary G. Friedman: Is it in all the silhouettes and functions it can be? You know, are there other variations you can create within that collection? You know, or even if you have key items, it's the same kind of questions. You know, how many finishes? How many fabrics?
Speaker Change: And functions that can be.
Speaker Change: Are there other variations you can create within our.
Speaker Change: Within that collection.
Speaker Change: Or even if you have key items. It's the same kind of questions. You know how many finishes how many fabrics Howard presented and how many times when we presented it how many sizes and so on and so forth. So there's a lot of work to do.
Gary G. Friedman: How are we presenting it? How many times are we presenting it? And what sizes is it in?
Gary G. Friedman: So on and so forth. So there's, you know, a lot of work to do. The work doesn't stop with just launching a new product, actually.
Speaker Change: It doesn't stop with.
Speaker Change: Just launching new product actually.
Gary G. Friedman: One of the biggest ways to grow the business is dimensionalizing that product and optimizing that product. And so, you know, we've been going through, you know, since our new book started really meaningfully hitting the market and the new collections last year, you know, reacting to dimensionalizing and optimizing the assortment and getting the stock in those things. That's, you know, a meaningful lift back.
Speaker Change: One of the biggest ways to grow the business as dimensionalize that product and optimizing that product and so we've been going through since our new book started really meaningfully hitting the market and the new collections last year.
Speaker Change: Reacting to dimensionalize them and optimizing the assortment and getting in stock and those things that you know I.
Speaker Change: A meaningful lift factor.
Gary G. Friedman: So. You know, lots of things as you think about it, you know, so we're not, we're not here just watching it, you know, it's, it's really think about it as we're, you know, we're analyzing. And then we're re-prioritizing, and we're reacting to it from the sense of how do we dimensionalize and optimize the best work and anything in the, you know, in the top half, which will... That's helpful. And then maybe just a quick follow-up, right?
No.
Speaker Change: Lots of things as you think about it so we're not we're not here just watching it.
Really.
Speaker Change: Think about it as we're you know we're we're analyzing.
Speaker Change: And then we're re prioritizing and we're reacting to it from a sense of how do we dimensionalize and optimize.
Speaker Change: The best work and anything in there.
Speaker Change: In the top half, which will move the business.
Gary G. Friedman: There are so many different contributors to demand this year and the idea of sort of scaling it as we move throughout the year. I don't know if you can maybe help us digest the visibility into demand scaling into the back half, like how many sort of factors do you have a large degree of confidence around? How many factors or what percentage of the demand scaling is still sort of a large sort of forecast?
Speaker Change: That's helpful. And then maybe just a quick follow up right. There's so many so many different contributors to demand this year and in the idea of sort of scaling it as we move throughout the year.
Speaker Change: Don't know if you can maybe help us digest the.
Speaker Change: The visibility into demand scaling into the back half.
Like how many.
Speaker Change: How many sort of factors do you have a large degree of confidence around how many or how many factors or what percentage of the demand scaling is.
Speaker Change: It's still a sort of a large sort of forecast you think about like RH moderns contributions demand scaling like any way to sort of just shore up the confidence in the demand revenue built into the back half for for investors here.
Gary G. Friedman: What do you think about RH Modern's contribution to demand scaling, like any way to sort of just shore up the confidence in the demand revenue build into the back half for investors here? Of course. Yeah, no, really good. First, I'd say it's you've got to really think about kind of like what it is year over year, you know, you know, or kind of season over season, you know, first half versus second half. And how do you think about the lift factor?
Speaker Change: Of course, yes, no really good really good question.
Speaker Change: First I'd say, it's you've got to really think about kind of what's.
Gary G. Friedman: So there are there are seven significant lift factors that we're focused on, as factors have kind of multiple dimensions. Some have multiple dimensions. So the first is the gist of books year over year, right? And the circulation year over year. So we have a more than doubling of the circulation and contacts year over year. That's meaningful.
Speaker Change: Year over year.
Speaker Change: Yes.
Speaker Change: I had a season over season first half versus second half.
And how do you think about it.
Speaker Change: The lift factors. So theres there are seven significant lift factors.
Speaker Change: That we're focused on.
Speaker Change: And.
Speaker Change: Factors have kind of multiple some have multiple dimensions. So the first is that just the books year over year right, so and the circulation year over year. So we have a more than doubling of the circulation and contacts year over year that's meaningful.
Gary G. Friedman: You, you don't have that many times in the growth of a business. You usually only see that at the very early stages of business development when brands are in the early stages. The way to think about it is you relate it to our age because you say, well, we're not really in the early stages of this brand, but we're in the early stages of product transformation and platform expansion.
Speaker Change: You don't have that many times.
Speaker Change: And the growth of the business, usually only see that at the very early stages of business.
Speaker Change: Business development when brands are in the early stages.
Speaker Change: The way to think about it as you related to our age because you say well, we're not really in the early stages of.
Speaker Change: This brand.
Speaker Change: But we're in the early stages.
Speaker Change: The product transformation and the platform expansion.
Gary G. Friedman: Right, so you want to think about, you know, what's happening because we were, you know, we kind of pulled back during COVID. And we had, You know, very little newness, and we had, you know, little circulation in contacts.
Speaker Change: So you wanted to think about what's happening because we were Ah yeah, we had kind of pulled back during COVID-19 and we had.
Speaker Change: We had very little newness, and we had a little circulation and contacts now.
Gary G. Friedman: Now, you know, we're past the midpoint, we're at the, probably the, [inaudible] You also have the outdoor book, right, that we had 14 new collections in. You know, that's going to be meaningful in the second half. A lot of people think about outdoor as just a first half business. Yes, it's got a peak season, but we're a year-round outdoor business.
Speaker Change: We're past the midpoint, whereas private.
Speaker Change: Two thirds point.
Speaker Change: <unk> transformation and Youre going to see a.
Speaker Change: It passed the halfway point there just you know with modern work have now passed the house halfway point heading to the one third point. So we still have yeah youre looking at the second half year modern is really going to impact the second half.
Speaker Change: You also.
Speaker Change: You also have.
Speaker Change: The outdoor book right.
Speaker Change: That we had 14 new collections in.
Speaker Change: That's going to be meaningful in the second half a lot of people think about outdoor is just our first half business.
Speaker Change: Yes, it's it's got a peak season, but we're a year round outdoor business, we're very different than anybody else in the outdoor business.
Gary G. Friedman: We're very different than anybody else in the outdoor business, with 36 collections presented year-round. So we're a true destination for outdoor lovers. So for us, you have to think about the outdoor business, not as a seasonal business. You know, some companies bring out a collection or two on the floor, and then they take them off. You know, or they set up some umbrellas and folding chairs, and then they take them off.
Speaker Change: Because of our new design galleries, which have anywhere from 24 to <unk>.
Speaker Change: 36 collections presented year round. So we're a true destination for outdoor so for US you have to think about the outdoor business not as a seasonal business you know some companies they.
Speaker Change: Bring out a collection or two on the floor and then they take them off or they set up some umbrella.
Speaker Change: Folding chairs and then they take them off.
Gary G. Friedman: We're a year-round outdoor business in a good portion of our galleries, and that portion of the galleries is just growing, so you have, you know, you have the modern book, which is, you know, one of the seven significant lift factors. You've got the interiors book that's going to be mailed, a significant lift factor, you know, in newness and context, right? You've got the contemporary book in newness and context.
Speaker Change: Where we're at year round outdoor business.
Speaker Change: And a good portion of our galleries.
Speaker Change: And that portion of the galleries are growing so.
Speaker Change: You have you know you have the modern book, which as you know one of the seven seven significant lift factors you've got the interiors book, that's going to be mailed a significant lift factor.
Speaker Change: And newness and contacts right you've got the contemporary book.
Gary G. Friedman: You've got the second mailing of the modern book that will happen in the second half, and the second mailing of the interiors book that will happen in the second half. Then you've got this factor of more than doubling the circulation and context in the second half, and then you've got this. The seventh one, which is really the increase in store months in the second half versus a year ago. So we have 48 new store months in the second half of this year versus 12 new store months in the second half of last year, which is. A Forex Factor and New Store, year-over-year. So this is really unusual, right?
Speaker Change: Newness in contacts you've got the second mailing of the modern book that will happen in the second half the second mailing of the interiors book that will happen in the second half.
Speaker Change: Then you've got this factor of more than doubling the circulation and contacts in the second half.
Speaker Change: And then you've got the.
Speaker Change: The seventh line, which is really the increase in store in months.
Speaker Change: In the second half versus a year ago.
Speaker Change: So we have 48, new store months in the second half of this year versus 12, new store months in the second half of last year.
Speaker Change: Which is.
Speaker Change: Forex factor.
Speaker Change: And new store months.
Mike: Year over year. So this is really unusual right it's Mike.
Gary G. Friedman: It's like... I'd say if you went to anybody else, you know, any other furniture retailer or furniture and home furnishings retailer or home furnishings retailer, any of the mature ones, they may say, hey, we have two new collections year over year, you know, furniture collections. You know, we might have three, you know, somebody might have one. You know, we have a massive amount. I don't have that data right in front of me, but it's like 40.
Mike: I'd say, if you took anybody else any other furniture retailer or furniture and home furnishings retailer our home furnishings retailer.
Mike: He is the mature ones they may say, hey, we have.
Mike: Two new collections year over year furniture collection.
Mike: We might have three somebody might have won.
Mike: We have a massive amount I don't have that data right in front of me, but it's.
Gary G. Friedman: You know, and, and we had, you know, they're going to have a, maybe they're going to have a little bit of circulation year over year, but we're going to have a doubling of circulation in context year over year. You know, they may have, you know, guess who you are, you're, you're looking for circulation, you're looking at contacts, you're looking at circulated pages, and then the other one that I didn't mention as a significant lift factor, but it is, is really what are in-stock Eurogroups?
Mike: Like.
Mike: Board.
Mike: And.
Mike: Hi.
Mike: And we had.
They're going to have a navy theyre going to have a little bit of circulation year over year, we're going to have a doubling circulation in context year over year.
Mike: Yeah.
Speaker Change: Yes, so youre looking at.
Circulation youre looking at contacts Youre looking at circulated pages.
Speaker Change: And then and then the other the other one that I didn't mention is a significant lift factor, but it is.
Speaker Change: <unk> is really what our in stocks year over year.
Gary G. Friedman: Right, so we've had a lot of newness introduced. And, you know, I like to say, you know. Every plan we have in this company, whether it's new products, new any, you know, every plan we have is to some degree wrong, right? When you're looking into the future, it's a plan. It's your best educated and informed guess. I've never seen anybody take the dart and hit the exact middle of the dart board.
Speaker Change: Alright, So we had we've had a lot of newness introduced.
Speaker Change: And you know I like to say, yes.
Speaker Change: Every plan we have in this company, whether it's new products, new new any you know every plan. We have is some degree of wrong right when you're looking at into the future.
Speaker Change: It's our plan, it's your best educated and informed guess.
Speaker Change: I've never seen anybody take the dark and hit the exact middle of the Dart Board.
Gary G. Friedman: But the key is, are you directionally right? Are the darts in the dart board? Are they moving towards the center? And how are you, how are you optimizing it? So, you know, we just have quite a lot of collections. I mean, when, you know, just as I've told you, we have a few things that are at the very top. When you get anything in the top third, you're generally not going to have enough inventory.
Speaker Change: But the key is are you directionally right or the darts in the dark board are they moving towards the center.
Speaker Change: And how are you how are you optimizing it so so we just have.
Speaker Change: Right.
Speaker Change: Quite of a lot of collections I mean, when I told you we have a few things that are at the very top.
Speaker Change: When you get anything in the top third you're generally not going to have enough inventory I mean, you know unless you're you just take a lot of risk upfront. That's why we don't introduce a lot of newness in our galleries, because it's expensive to transform our galleries to change under galleries expensive to change out all of the product and we <unk>.
Gary G. Friedman: I mean, you know, unless you're, you just take a lot of risk up front. That's why we don't introduce a lot of newness in our galleries. Because it's expensive to transform our galleries, to change our galleries, and expensive to change out all the products. And we test everything in the books and online first. And when you get a read and something is a hit, you generally don't have enough inventory to move into the galleries right away.
Speaker Change: First everything in the books and online first and.
Speaker Change: And we did a reef and when you get a read and stuff.
Something is a hit you generally don't have enough inventory to move into the into the galleries right away or you might have.
Gary G. Friedman: Or you might have, in our case, with, you know, take the biggest collection. We have the new biggest collection in the history of the company, probably by a factor of. 40%, and it might be more than 40% or 50% because we're in the process of dimensionalizing that and optimizing that, right? So it's moving into different finishes, configurations, different materials, and so on and so forth. And then we'll ride, you know, we'll ride those things. So it's no different than, think about the cloud sofa.
Speaker Change: In our case with it takes the biggest collection wave of new biggest collection in the history of the company probably by a factor of.
Speaker Change: 40% and it might be more than 40 or 50% because we're in the process of dimensionalize that and optimizing that right. So it's moving at different big finishes configurations different materials and so on and so forth and then we're right. Yeah, we'll ride those things no different than think about the cloud sofa.
Gary G. Friedman: The Clash Showcase is by far the best-selling sofa. It's the higher end of the market, the better end of the market, by a factor of three, probably, of anything in the world, you know, and the cloud sofa will move the market. We have what we believe is likely the cloud sofa of the wood furniture business.
Speaker Change: The cloud sofa.
Is by far the best selling sofa.
Speaker Change: It is at the higher end of the market the better end of the market.
Speaker Change: By a factor of three probably if anything in the world.
Speaker Change: And the cloud so that will move the market.
Speaker Change: We have what we believe is likely the cloud sofa.
Speaker Change: The wood furniture business and the cloud Sofa, we introduced it.
Gary G. Friedman: And the Cloud Sofa, we introduced it, and we had it in one fabric, and then we had however many fabrics in special order. And then we dimensionalized the Cloud Sofa; you looked at the history of our source books once we introduced it, then we moved it, and we dimensionalized it to... Multiple sizes, we had We put it from the luxe fit to the classic fit; we did the classic fit, and we then put it in 16-inch stock fabrics, right, and moved the business greatly.
Speaker Change: And we had it in one fabric and then we had you know how her many fabrics and special order and then we dimensionalize. The cloud. So if you looked at the history of our source books. Once we introduce this then we moved it we dimensionalize it too.
Speaker Change: Multiple sizes, we had.
Speaker Change: Got it from the left to the we did the classics.
Speaker Change: We then put it in.
16, and stock fabrics right and.
Speaker Change: And.
Gary G. Friedman: We dimensionalized it into different arm configurations. You know, instead of a wide track, we did a thin track, we did a slope, so on and so forth. So all of those kinds of moves are the kind you make.
Speaker Change: Move the business greatly we dimensionalize it into different arm configurations, we did it.
Speaker Change: Instead of a wide track, we did offend track, we did a slope so on and so forth. So all of those kind of moves or moves you may.
Gary G. Friedman: And what's different and what might be hard for people to wrap their heads around is, God, this is a mature business, and how do you move a mature business in a big way? You make big moves. The only way you can do this is by making big moves, so that's really the key. I don't know anybody who's attempted a product transformation of this size and scale in a business at scale. I never have.
Speaker Change: And what's different and what might it might be hard for people to wrap their head around is God. This is a mature business and how do you move that mature business.
Speaker Change: A big way.
Speaker Change: You make big moves.
Speaker Change: The only way you can do this is making big moves so that's really the key.
I don't know anybody who's attempted a product transformation at this size and scale in a business at scale.
Gary G. Friedman: You know, I feel fortunate that I have years of experience in this category, and I've got a team that has years of experience in this category doing this. But this is, you know, it's like a new company again, and that's what we're unveiling. And so, you know, and you think it's just a little different to scale if we were if we were building this.
Speaker Change: I never have.
Speaker Change: Uh huh.
Speaker Change: We are fortunate.
Speaker Change: I have years of experience in this category and I've got a team that has years of experience in this category doing this but this is.
Speaker Change: Like a new company again and is what we're unveiling and so.
Speaker Change: When you think it's just a little different to scale. If we were if we were building this.
Gary G. Friedman: In the early, early stages, we might see a doubling of our. You know, but we're doing it at scale, so we think it's, you know, it's going to build into the, you know, into the 20-point range. And again, it could be bigger, depending on, you know, how quickly we move, how well we, you know, dimensionalize and optimize.
Speaker Change: In early early stages, we might see a doubling of our business.
Speaker Change: Yeah, but we're doing it at scale. So we think it's you know it's going to build into that.
Speaker Change: And to the end of the 20 point range and demand builds and again it could be bigger depending on you know.
Speaker Change: How quickly we move how well we are.
Speaker Change: Yeah, Dimensionalize and optimized.
Gary G. Friedman: Business and Opportunities, and then... you know, and they've put the right aggressive marketing behind it, you know, meaning store presentation, finishes we're presenting it in, where in our galleries, you know, how in our galleries, how much space we're giving it in our source books, the amount of circulation it's going to get, what's going into advertising campaigns, email campaigns, so on and so forth. That's how I think about it, you know, so this is, this is something I've never been through at scale, a move this big, and I'm sure you guys have never seen it at scale. So,
Speaker Change: The business and opportunities and and then.
Speaker Change: And then put.
Speaker Change: The REIT aggressive marketing behind it.
Speaker Change: Store presentation finishes, we're presenting it and then.
Speaker Change: We're in our galleries are you know how in our galleries, how much space, we're giving it in our source books.
Speaker Change: The amount of circulation is just going to get what's going into advertising campaigns E mail campaigns, and so on and so forth. So.
Speaker Change: That's how to think about it.
Speaker Change: This is this is something I've never been through its scale and move this big and I'm sure you guys have never seen at scale.
Speaker Change: So.
Gary G. Friedman: But when you just do the math, which we spend a lot of time doing, and I think that if you can, you know, dimensionalize the math, just like you dimensionalize the ideas, you can kind of... You know, build into these lift factors and say that business should be here. And you've got some things that are more, you know, more concrete, yeah, and the real concrete, you've got some super concrete things like store months year over year, 48 over 12 in the second half. You know, we know what happens when we take, uh, you know, Legacy Gallery to a Design Gallery. We know what happens when we open a new gallery in a market. You know, we're pretty close.
Speaker Change: But when you just do the math, which we spend a lot of time doing in U S.
Speaker Change: Dimensionalize the math just like you dimensionalize the ideas you can kind of.
Speaker Change: Build into these lift factors can say business should be here and you've had some things that are more and.
Speaker Change: More concrete yes.
Speaker Change: The real time, it's got some super concrete things like store months year over year 48 over 12 in the second half.
Speaker Change: Uh huh.
Speaker Change: We know what happens when we take a.
Speaker Change: Legacy Gallery to a design gallery, and we know what happens when we open a new gallery in a market, where we're pretty close worth end point.
Gary G. Friedman: We're within points, you know. We've got a lot of data, and we're not doing a lot of really different things there. But we also have, I would point out, all the galleries this year that are new. All have hospitality, so hospitality gives you an added layer of business also.
Speaker Change: That we've got a lot of data and we're not doing a lot of really different things there.
Speaker Change: But we also have.
Speaker Change: I would point out.
All the galleries.
Speaker Change: This year that are new.
Speaker Change: I'll have hospitality. So hospitality gives you an added layer of business also.
Speaker Change: Thank you.
Speaker Change: Sure.
Steven Emanuel Zaccone: Thank you. And our next question will come from Steven Zaccone with Citi. Please go ahead.
Speaker Change: And our next question will come from Steven <unk> with Citi.
Please go ahead.
Steven Emanuel Zaccone: Great. Thank you for taking my question. Maybe to follow up on Steve's question, I was curious about commentary on pricing. You know, Gary, you've talked about it in the past, that pricing has gotten too high. And more broadly, the industry has gotten promotional. How do you feel about pricing now on the new product? Where are you seeing some customer adoption? And do you feel like some of the pricing challenges for the business are in the rearview mirror? Yeah, Steve, good questions.
Speaker Change: Great.
Speaker Change: In keeping with your question.
Speaker Change: Maybe to follow up on <unk> question.
Speaker Change: Question I'm, just curious your commentary on pricing.
Speaker Change: Talked about it in the past that pricing had gotten too high.
Speaker Change: And more broadly the industry is not promotional.
Speaker Change: How do you feel about pricing now on the new products, what are you seeing from customer adoption.
Speaker Change: And do you feel like some of the pricing challenges for the business or are in the rearview mirror.
Gary G. Friedman: We've been doing a lot of work around, you know, value, right? The way we think about our business and the way we think about how consumers respond is that we're not in a... In a portion of the market, the first thing on the consumer's mind is price, right? But no one walks into our galleries or looks at anything in our source book and thinks the design is ugly, and they buy it because of price. I don't think any of our customers, you know, would say, hey, I don't mind how the product looks, you know, at that price, I'll buy it.
Speaker Change: Yeah, Hi, Steve Good question, we've been doing a lot of work about around.
Value right.
Speaker Change: We think about our business and the way we think about how.
Speaker Change: Our consumers respond is.
Speaker Change: We're not in it.
Speaker Change: And a portion of the market. They can see the first thing on the consumer's minus price right no one walks into our galleries or looked at anything in our source book that they.
Speaker Change: I think the design is ugly and and they buy it because of price I don't think any of our customers.
Speaker Change: Say, hey, I don't mind, how the product books.
At that price I'll buy it I think people come to our age because we are a design driven business.
Gary G. Friedman: I think people come to our age because, you know, we are a design-driven business. We are a curation-driven business, and we're an integrator of, you know, businesses. We sell you the end result. We sell you the whole, not the drill.
Speaker Change: Our curation driven business and we're an integrator of yeah.
That business, we sell you. The end result, we sell you the the whole not to drill.
Gary G. Friedman: And so, we look through the lens of design, quality, and value in that order. You know, what is it? Is the design great? That's what consumers are responding to. If the design's not great, nobody walks up to it, or nobody clicks closer to it online to try to perceive the quality, right? If they love the design and they think it's really good quality, they make an equation in their mind: for this, for this design, at this quality, what price is good value to me?
Speaker Change: And and so we look through a lens of.
Speaker Change: Design quality and value in that order.
Speaker Change: What is you know is the design rate that's what consumers are responding to if the design side right nobody walks up to it or nobody gets clicks closer to it online.
Speaker Change: Try to perceive the quality right.
Speaker Change: If they left their design and they think it's really good quality they make an equation in their mind.
Speaker Change: For this for this design.
Speaker Change: At this quality.
Speaker Change: What price is a good value to me.
Gary G. Friedman: Right, the consumer will then make that calculation. And so value is really, you know, the price is a result of design and quality. And so, you know, if the design is great, and people love the design, and they think the quality is, you know, at the level they expect or above the level they expect.
Speaker Change: Right. The consumer will then make that calculation.
Speaker Change: So value is really.
The pricing as a result of design and quality.
Speaker Change: And so.
Speaker Change: Yes, the design is great and people love the design and they think the quality as you know.
Speaker Change: Is it at the level, they expect or above the level of expect.
Gary G. Friedman: You know, you've got a lot of room in price, at you know there now, of course, there's price elasticity. If you price things, you know, lower and lower and lower, you can appeal to a bigger and bigger market, right? If the price is higher and higher and higher, you know, it might appeal to a smaller market, but you've also got a margin lever you're using there. Like, what margin, you know, where do I optimize?
Speaker Change: You've got a lot of room in pricing.
Speaker Change: They are now.
Sure.
Speaker Change: There is price elasticity. There is you know if you price things.
Speaker Change: Yeah.
Speaker Change: Lower and lower lower you can appeal to a bigger and bigger market right pricing is higher and higher and higher.
Speaker Change: We might have appeal to a smaller market, but you've also got a margin lever here at using in there like what margin where do I optimize size.
Gary G. Friedman: You know, the size of the business, the profitability of the business, and so on and so forth. So we've done a lot of work. We feel like we're in a really good place. For our design and our quality, we have really good values. And in some cases, we're at disruptive values, if you look at it. You know, you're always going to have some, you know, in today's world. I don't know if I just read, but some famous designer just not, you know, just made a dupe of his own product because he knew the product was going to get copied.
Speaker Change: Size of business profitability of the business and so on and so forth. So we've done a lot of work we feel like we're in a really good place we feel for our design and our quality, where it really good values and in some cases, where it's disruptive values if.
Speaker Change: If you look at it you're always going to have some you know today's world.
And if I just read some famous designer just not just made a deeper zone products because he knew the product that's going to get coffee you know, we're in a world where the copies happened.
Gary G. Friedman: You know, we're in a world where, you know, the copies happen so fast; almost instantly, you can look at anybody's product. I don't care, you know, what, you know, what. Excuse me. I've lost my voice from the Madrid party last night.
Speaker Change: Happened so fast almost instantly you can look at anybody's product.
Speaker Change: You know what you know.
Speaker Change: What.
Gary G. Friedman: I didn't have to talk to a lot of people, but I did talk to a lot of people. I don't know if you think I was not happy talking to them, but I talked to quite a few people. So my voice is going a little bit. The, uh, uh, you know, the key here is, uh, you know, how do you, how do you create an optimal model? Um, and, uh, and we're constantly testing those things, but the idea with the dupes we, I think it was Tom Dixon, maybe it was.
Speaker Change: Excuse me.
Speaker Change: I've lost my voice from the grid Party last night, how to talk to docs I didn't have to talk to a lot of people I did talk to a lot of people I don't know if you think I was not happy talking to them, but.
Speaker Change: Quite a few people.
Speaker Change: [laughter] semi waste is going a little bit but.
Speaker Change: Uh huh.
Speaker Change: The key here is that.
Speaker Change: How do you how do you create an optimal model.
Speaker Change: And we're.
Speaker Change: We're constantly testing those things, but the idea was to do a sweep.
Gary G. Friedman: He designed something, a light or something, and then he immediately did a dupe of his own light at a cheaper price, and he said he wasn't going to wait, but I don't care at what level the market is at, you're going to see it. If Chanel does something today, I mean, in a very short amount of time, you can go on Alibaba and see copies of almost anything in the world. You know, you can see things online. I mean, they're just so fast.
Speaker Change: Yes, I think it was Tom Dixon, maybe it was writing design something a light or something and then immediately did a duplicate this own life at a cheaper fresh and he said he was going away, but but I don't care at what level. The market is youre going to see it if chanel thats something today.
Speaker Change: Very short amount of time.
Speaker Change: Can go on Alibaba and see copies or almost anything in the world you can see things online I mean, theyre just so fast.
Gary G. Friedman: So, uh, but, but you can't always perceive the quality, you know, with the fast followers, the knockoffs and, um, uh, but, you know, we kind of look at, uh, the biggest part of the market that's most relevant. Where's our customer going? And, you know, I don't think our customer is waking up, searching the internet for the best price. I think they're, they're time is really valuable. And, you know, they're shopping at higher-end customers or shopping at places that are editing and integrating for them, that are selling them the end result.
Speaker Change: So.
Speaker Change: But but you can't always perceive the quality.
Speaker Change: The fast followers in knockoffs.
Speaker Change: But we.
Speaker Change: We kind of look at.
Speaker Change: The most of the market that is most relevant whereas our customer.
Speaker Change: I don't think our customers waking up searching the internet for the best price.
Speaker Change: I think there.
Speaker Change: Sure.
Speaker Change: Time is really valuable to them.
Speaker Change: And they're shopping at it.
Speaker Change: Higher end customers are shopping at places that are that are editing and integrating for them that are selling them. The end result.
Gary G. Friedman: You know, it's no different than... You know, just participation at restaurants, right? If you look at the wealthier people get, um... Somebody else is making their food. They're either going to really nice restaurants, or they might have a home chef, right? Because time becomes more valuable to them, you know, so they're not, unless they're really, you know, a foodie and someone who..., you know, that's their hobby is cooking for themselves, but generally, higher demographics are eating out more, and they're, you know, they're, And they might be eating at home, but it's being delivered. Or they have a chef at home, and somebody else is cooking for them.
Speaker Change: It's no different than.
Speaker Change: Participation at restaurants right.
Speaker Change: If you look at it.
Speaker Change: The wealthier people get.
Speaker Change: Somebody else is making their food, they're either going to really nice restaurants or is he might have a home chef.
Speaker Change: Right, because time becomes more valuable to them, so they're not unless they're really.
Speaker Change: A foodie and someone who.
Speaker Change: Their hobbies cooking for themselves, but generally higher demographics are eating out more and there are there.
And they might be eating at home, but it's being delivered or they have a chef at home and somebody elses cooking for them.
Gary G. Friedman: You know, I think at the higher ends of home goods and other categories, people pay more when you do more work for them, when you create time value for them. And I think that's what we do. Curators, we are integrators for the consumer, and we're selling them as close to an end product as we can, and in many ways, sometimes it's a complete end product if they engage our interior design teams.
Speaker Change: I think at the higher ends of.
Speaker Change: Apparel and.
Speaker Change: Home goods and other categories.
People pay more when you do more work for them when you when you create time value for them.
Speaker Change: And.
Speaker Change: I think that's what we do I think where we are.
Curators.
Speaker Change: And we are.
Speaker Change: Integrators for.
Speaker Change: For the consumer and we're selling them as close to an end product as you can and in many ways, sometimes it's a complete and product if theyre engaging our interior design teams.
Gary G. Friedman: We're doing their whole house in a beautifully integrated way. We're coming in, and we're organizing the installation and organizing lights being hung on ceilings. Come home to a fully furnished, detailed home, and we'll go as far as they want us to go. In some cases, we're buying antiques for them, you know, and so on and so forth. So when you're doing that kind of work, people pay for it, right?
Speaker Change: We're doing their whole house in a beautifully integrated way.
Speaker Change: Coming in and we're organizing the install and organizing lights being hunted by on ceilings and pictures for you, but you can put a walls is done and so forth.
Speaker Change: A lot of our customers.
Speaker Change: Hum home to a fully furnished detailed salmi will go as far as they want us to go.
Speaker Change: Some cases were buying antiques for them.
Speaker Change: And so on and so forth.
Speaker Change: So when youre doing that kind of work.
Speaker Change: People pay for it right but.
Gary G. Friedman: But in a general sense, I'd say... I think our pricing is in a really good spot, you know, novelty, you know, you never know. You may think this is so good, it's so unique, nobody else has it, I'm going to price it here, and you might have priced it too low, you know, and it blows out too fast, you know, and you could have got a higher margin, you might take prices up, you might have priced it a bit too You know, I wouldn't let, like, you know, I make comments about the contemporary book. I don't know, what was that, a year and a half ago?
Speaker Change: But in a general sense I would say.
Speaker Change: I think our pricing is in a really good spot newness.
Speaker Change: Newness.
Speaker Change: You never know when they think this is so good its so unique nobody else has it had been a price it here and you might've might've priced too low.
Speaker Change: Blows out too fast you can get a higher margin you might take prices that they might have priced it a bit too high and its a little under what you thought you adjust the pricing so you're always kind of.
Speaker Change: Trying to fine tune and optimize.
Speaker Change: So.
Speaker Change: I wouldn't let it may make comments about the contemporary book I don't know what was that a year and a half ago. I mean, it's quite a quite a long time ago and I thought yes, I thought we were overpriced, we just did paid close enough attention and challenge enough about.
Gary G. Friedman: It was quite a long time ago, and I thought, you know, I thought we were overpriced. We just didn't pay close enough attention to and care enough about, you know, the fabrics on the sofas, things like that. We just had some things that just kind of went to a level where it's not that the product wasn't worth it, but the product at that price created a smaller market than we would have liked.
Speaker Change: Fabrics on things like that we just had some things that were there.
Speaker Change: Just kind of went to a level where.
Speaker Change: It's not that the product wasn't worth it.
Speaker Change: Product at that price created a smaller market than we would've liked it's not that we're not going to sell.
Gary G. Friedman: It's not that we're not going to sell product at that price. It's just you want to make sure that, like, we had some sofas that were introduced in a Holland and Sherry fabric that were only available in that fabric when we launched. [inaudible] Well, you know, that made a sectional in our sourcebook $24,000. But it was made in Italy. It was of the highest quality. It's the best quality you could make in the world with Holland & Sherry fabric.
Speaker Change: Product at that price.
Speaker Change: It's just you want to not make sure thats like we had some sofas that were introduced in our Holland and Sherry fabric. They were only available in that fabric when we launched it.
Speaker Change: Stopping that fabric.
Speaker Change: You know that made it a sectional and our source of about $24000 that was made in Italy is the highest quality.
Speaker Change: Highest quality you can make it in the world with Holland and Sherry fabrics. So if you would have made that same sofa to the trade and you had made in our workshop, we would've probably been I don't know 36, $40000. We had it for $22000. It was a good value. It's just a smaller market.
Gary G. Friedman: So, if you would have made that same sofa to trade, and you would have made it in a workshop, it would probably have been, I don't know, $36,000, $40,000. We had it for $22,000. It was a good value. It was just a smaller market than we generally address. You know, so I thought we kind of, we kind of jumped too far. We still have many of those products.
Speaker Change: And then we generally address.
Speaker Change: And so.
Speaker Change: So I thought we'd kind of we kind of jumped too far.
Speaker Change: We still have many of those products.
Gary G. Friedman: You know, we may have, you know, maybe shown them in a different fabric. We may have optimized them as far as how we're buying them, you know, and have better values. Some of them we may not have gone forward with, but for the most part, I mean, when I think about it. The main things, I think we still have them all. You know, they're just...
Speaker Change: Yeah, we may have.
Speaker Change: Maybe showing them in a different fabric.
Speaker Change: Yeah, they have optimize them as.
Speaker Change: As far as how were buying them.
Speaker Change: And have better values and some of them. We may not have went forward with that but for the most part I mean, when I think about.
Speaker Change: The main things I think we still have them all.
Speaker Change: They're just smaller volume.
Gary G. Friedman: Smaller Volume, then we anticipated, and we wouldn't have made them like the very front of the source book. I, we, would have, www.youtube.com.uk really unique items and would have communicated, you know, what we're capable of as far as design and quality and, you know, yeah. In that sense, but not to drive the business. So, you know, we made some mistakes a year and a half ago. We learned from them. You know, we've now... http://TheBusinessProfessor.com If we have that data, we won't make that mistake again. Okay, I appreciate all the detail.
Speaker Change: Then than we anticipated and we Wouldnt have made them like the very front of the other source book you know like.
Speaker Change: We would've piece those things throughout presented them as you know.
Speaker Change: Really.
Speaker Change: Really unique items and communicating.
Speaker Change: What we're capable of as far as design and quality.
Speaker Change: Yeah.
Speaker Change: In that sense, but not not to drive the business. So we made some mistakes or year and a half ago, we learn from them.
Speaker Change: We've now.
Speaker Change: All of that.
Speaker Change: We have that data, we won't make that mistake again.
Steven Emanuel Zaccone: Hopefully, a quick follow-up here. But from a macro perspective, what are you most focused on here to see engagement in the category return? You know, we've seen somewhat of an inflection in luxury price home turn over. I mean, is that the key metric you're looking for here? Anything else you can share on macro would be helpful.
Speaker Change: Okay I appreciate all the detail hopefully a quick follow up here, but hello.
Speaker Change: From a macro perspective, what are you most focused on here the engagement in the category.
Speaker Change: We've seen somewhat of an inflection.
Speaker Change: Luxury homes turnover I mean is that the key metric you're looking for here anything else you can share on the macro would be helpful.
Gary G. Friedman: You know, it's funny, I don't know what metric everybody's looking at because they vary greatly, right? There's the Association of Retailers that had some number that luxury homes are inflating, and other numbers say it was 2%, you know? And so, I don't know whose data is right.
Speaker Change: It's funny I don't know what metric everybody is looking at.
Speaker Change: <unk> greatly right. There's there's a again association of retailers and some have some number that luxury homes inflected up in other numbers say it was 2% so.
Speaker Change: You know I I don't know whose data is right.
Gary G. Friedman: I don't think that there's been a meaningful move. It's starting to come down because of holding power, especially if you have a, Excuse me, especially if you have a developer, you know, someone who... [inaudible] And, uh, you know, fix it up, and then they go to sell it and, and, you know, in a market like this where you've got high interest rates, your consumer base has shrunk meaningfully, and you' I don't think that there's, you know, a meaningful, sustained move in the home market. I think you've got little ticks up here and there and kind of bouncing around the bottom.
Speaker Change: I don't think that theres been a meaningfully a meaningful move a sustained move in the luxury home sales it might be a little ticking up in that study.
Speaker Change: Some of the pricing some of the pricing is starting to come down in some cases and.
Speaker Change: It's starting to come down because of holding power.
Speaker Change: Especially if you had it.
Speaker Change: Excuse me, especially if you had a developer someone who.
Speaker Change: It's building homes to sell them or if you've got home flipper, who bought something to remodel.
Speaker Change: And fixed up and then they go to sell it and.
Speaker Change: In a market like this where you've got high interest rates your consumer base shrunk meaningfully in.
Speaker Change: And you've got it.
Speaker Change: <unk> got a burn rate.
How long do you hold it but.
Speaker Change: I don't think that there is a meaningfully a meaningful sustained move in our home market I think you've got little ticks up here and there and it's kind of bouncing around the bottom.
Gary G. Friedman: And I think it will be until we have a meaningful move in interest rates. You know, I think we began this year where everybody expected six interest rate cuts. I think that was the number that, you know, if you looked at how the market was betting, I think the Fed was pointing to kind of four cuts, and the market priced in six cuts because they figure that the Fed is always very conservative, right? And I think that... Where are we now today? The map says, I think, there's a 90-something percent chance, based on yesterday's comments, that we're going to have one interest rate cut. It's a long way off.
Speaker Change: And I think it will be.
Speaker Change: We have a meaningful move in interest rates.
Speaker Change: And I think we began this year when everybody expected six interest rate cuts I think that was the number.
Speaker Change: If you looked at how the market was betting I think the fed was pointing to kind of four cuts and in the market priced in six cuts because they figure that that is always very conservative right.
Speaker Change: And I think that.
Where are we now today in the map sets I think there is a 90 something percent chance based on yesterday's comments that.
Speaker Change: We're gonna have one interest rate cut.
Speaker Change: That's.
Gary G. Friedman: It's only, you know, a few months, like, like, not that many months, like, way off. If you think about the Fed's forecast of going from four to one, and I mean, think about last Carter. Carter, you know, Powell went on, and I think he shocked the world.
Speaker Change: It's like way off that solely.
Speaker Change: Few months.
Speaker Change: Not that many months.
Speaker Change: If you think about the fed's forecast of going from four to one and I mean think about last quarter.
Speaker Change: Paul went on and I think he's shocked the world. He said for the first time in his commentary in a while.
Gary G. Friedman: He said for the first time in his commentary in a while, I don't think we'll need to hike rates. Everybody who's listening to him talk about it is waiting for him to say how many rate cuts we would have. And he said, I don't think we'll need to hike rates. And then you got Jamie Dimon out there saying, you know, you should not be cutting interest rates. You should not be cutting interest rates. I mean, as much as the Fed is supposed to be independent, if the best banker in the world, the best bank in the world, is on TV multiple times saying...
Speaker Change: I don't think we'll need to hike rates everybody who's listening to him talk about they are waiting for them to say how many rate cuts. We would have and he said I don't think we'll need to hike rates and then you've got Jamie Diamond out there, saying you know you should not be cutting interest you should not be cutting interest rates.
Speaker Change: I mean as much as the fed is supposed to be independent if the best banker at the world as the best Bank in the World is.
Speaker Change: On television multiple times, saying you should not cut rates I think that is a little influence.
Gary G. Friedman: I think that has a little influence on what the Fed thinks. They may not listen to Gary Friedman's point of view, you know, because I put it out there when I, you know, when I told them they were behind the curve on inflation, you know, I said they should call some business people and, you know, we saw massive inflation and they thought, oh, it's, it's, what do they call it, transitory, and interest rates will go from four back to two in a couple of months, then they went to nine, you know, and so, We saw that coming.
Speaker Change: What the fed thinks they may or may not listen Gary Friedman <unk> point of view.
Speaker Change: Because I put it out there when I when I told them they were behind the curve on inflation, United said, they should call some business people and we.
Speaker Change: We saw massive inflation in they thought Oh, it's.
Speaker Change: Transitory transitory and interest rates will go from four back to two and a couple of months and then they went to nine so.
We saw that coming but you know I just think that there is a lot of noise out there right now I think there's a lot of pressure on the fed I think the fed is is.
Gary G. Friedman: But, you know, I just think that there's a lot of noise out there right now. I think there's a lot of pressure on the Fed. I think the Fed is... is going to be massively data dependent, which means the Fed will be behind the curve, right? And so they were behind the curve on seeing inflation.
Speaker Change: Is it going to is going to be massively data dependent which means the fed will be behind the curve right.
Speaker Change: And so they were behind the curve on seen inflation.
Gary G. Friedman: I think they'll be behind the curve as it relates to assessing whether inflation is under control. And I think they'll be behind the curve as it relates to, you know, when it's time to cut interest rates. Our view is probably a little bit more negative than it was a quarter ago. You know, I think a quarter ago, we were feeling a little bit more optimistic that there'd be rate cuts and the housing market would begin to meaningfully move in a sustained manner. I think it may not be until then.
Speaker Change: I think there'll be behind the curve.
Speaker Change: As it relates to assessing is inflation under control.
Speaker Change: And I think there'll be behind the curve as it relates to.
Speaker Change: Hi.
Speaker Change: Yeah, it's time to cut interest rates so.
Our view is probably a little bit more negative than it was a quarter ago.
Speaker Change: I think a quarter ago.
Speaker Change: We were feeling a little bit more optimistic that there'll be rate cuts in the housing market.
Speaker Change: Begin to begin to meaningfully move and it's in a sustained manner I think it may not be until.
Gary G. Friedman: You know, 25 or... second quarter, 25, maybe, you know, so I think, I don't think there's going to be a sustained inflection in luxury home sales at these interest rates. Yeah, so. Yeah, not with interest rates, Mike Brown.
Speaker Change: Yeah 25 or.
Speaker Change: Second quarter 25, maybe.
Speaker Change: So I I.
Speaker Change: I think.
Speaker Change: I don't think there's going to be a sustained inflection in luxury home sales at these interest rates.
Speaker Change: Yeah. So.
Matt: Yes, Matt with interest rates.
Gary G. Friedman: It's just an affordability factor. You've got home prices up 50 percent, you know, or more, 50-60 percent from post-COVID. Home prices went up 42 percent in the two years of COVID, and then they've continued to compound the last two years. Home prices are up roughly 50-60 percent, and now you've got interest rates, you know... 7.7% or higher when they were, 2.6 to 3.3. I mean, it's just simple affordability now. Yeah, there's some silly stuff going on, like, oh, like, there are more cash homebuyers, you know, there are people, wealthy, paying cash on homes. I don't care how wealthy you are; not a lot of people own their homes that don't have a mortgage on them.
It's just an affordability factor, you've got home prices up 50% or.
Matt: Or more 50%, 60% and post COVID-19.
Matt: Home prices went up 42% in the two years of Covid and then they've continued to compound the last two years, the home prices up roughly 50% 60%.
Matt: And now you've got interest rates you know.
Matt: Seven points seven.
Matt: 7% or higher when they were.
Matt: Two six to $3 three I mean, it's just it's just simple affordability Matt.
Speaker Change: Yeah, Yeah, there's facility.
Speaker Change: To buy a home at any price they can but the other thing you can't trust by the way Thats wrong and the data externally is when they talk about cash sales.
Speaker Change: Stupid number to focus on and they say oh like theirs.
Speaker Change: More cash homebuyers.
Speaker Change: People are wealthy paying cash at homes.
Speaker Change: Sir how wealthy your art.
Speaker Change: Not a lot of people own their homes that don't have a mortgage on them.
Gary G. Friedman: You know, I'm relatively wealthy. You know, the New York Times just reported that I bought a couple of homes in Malibu, and did I pay cash for them? Yes. Did I pay cash for my Beverly Hills home? Yes. Did I get mortgages put on them?
Speaker Change: I'm relatively wealthy.
Speaker Change: I mean, you know the New York Times, just reported I bought a couple of homes in Malibu.
Speaker Change: I'd pay cash for them, Yes did I pay cash for my Beverly Hills home, yes.
Speaker Change: Good morning, just put on them, yes, but does the association of retail.
Gary G. Friedman: Yes. But does the Association of Real Estate Brokers, who reports on any of this stuff, record me as a cash buyer? You know, no one's going to really pay cash. You know, you're going to have a mortgage on your homes because you think your money can generally make more money somewhere else. Right. And so, you know, that data is never right either.
Speaker Change: Real estate brokers, who reports on any of this stuff.
Speaker Change: They record me as a cash buyer.
Speaker Change: Okay.
Speaker Change: And once again, it really pay cash.
Speaker Change: You're going to you're going to have a mortgage on your home because you think your money generally make more money somewhere else right and so you know.
Speaker Change: That data is never right either so.
Gary G. Friedman: So, you know, it's going to parse out the data and say, what you know, what is real credibility? I mean, because the data we get from the Fed is... very reliable right now. You know, like, I don't know. There are some hard facts, but numbers on home sometimes, you know, you know, people are. I saw a report that Redfin said luxury homes were up 2%. Another report said they were up like 30%. I don't know which is right.
Speaker Change: Kind of parse out the data and say what what.
Speaker Change: What.
Speaker Change: What is real credibility because the data we get from the fed isn't.
Speaker Change: Very reliable right now.
Speaker Change: Like I don't know.
Speaker Change: Some art backs, but never Townhomes sometimes.
Speaker Change: People are.
Speaker Change: Yeah.
Speaker Change: No I don't.
Speaker Change: I saw reports that with Redfin said luxury homes were up 2% or something in another report said.
Speaker Change: Luxury homes.
Speaker Change: Like 30%, I don't know which ones right.
Steven Emanuel Zaccone: I appreciate all the color. Thank you. Our next question comes from Simeon Gutman with Morgan Stanley. Let's go ahead. Thank you, it's Simeon Gutman.
Speaker Change: And I appreciate all the color. Thank you.
Speaker Change: Our next question comes from Simeon Gutman with Morgan Stanley.
Speaker Change: Please go ahead.
Simeon Ari Gutman: Guys, I want to ask about the gross margin outlook and if I can segment it into two pieces. First, the new product lines and launches, and then everything else. I'm curious if gross margins are roughly stable. And then thinking about the guidance and the torque in it, in the back half, is it simply better sales and then better expense leverage, or is there some variability that could still happen with gross margin of the business? Thank you.
Thank you Simeon Gutman guys I wanted to ask about the gross margin outlook and see if I can segmented into two pieces first the new product lines and launches and then everything else I'm. Just curious if gross margins are roughly stable and then thinking about the guidance and the torque on it in the back half is it simply better.
Speaker Change: And then better expense leverage or is there some variability that could still happen with gross margin of the business. Thank you.
Gary G. Friedman: I'd say gross margins are relatively stable. We do have a lot of new goods coming in. You're going to be right on some, you're going to be wrong on others. And, you know, you're in one of the worst housing markets in 30 years, the worst one I've seen in my career.
Gross margins are relatively stable.
Speaker Change: We do have a lot of new goods.
Speaker Change: They just come in and you're going to be right on some are going to be wrong and others.
Speaker Change: And you are in it.
Speaker Change: One of the worst housing markets in 30 years in the worst one I've had seen in my career and so.
Gary G. Friedman: And, you know, so there's always going to be a higher promotional environment than, uh, you know, across the industry. And you're going to have to react to some of that stuff.
Theres always going to be just.
Speaker Change: A higher promotional environment then.
Speaker Change: Yeah.
Speaker Change: Across the industry and you're going to have to react to some of that stuff.
Gary G. Friedman: You know, so you're always going to carry a higher percentage of promotional mix, you know, during market times like Right. Because you've got to kind of keep the inventory moving, and I think we're pretty confident about what our margin mix is going to look like unless something happens meaningfully, or we're meaningfully wrong on demand, you know.
Speaker Change: You're always going to carry a higher percentage of promotional mix during market times like this right.
Speaker Change: Because you've got to kind of keep the inventory moving in.
Speaker Change: Yeah. So.
Speaker Change: But I think we're pretty confident about what our Mas.
Speaker Change: The margin mix is going to look like.
Speaker Change: Yeah, unless something happens meaningfully uplift we're meaningfully wrong.
Speaker Change: <unk>.
Gary G. Friedman: Margins will likely go down a little. But if we're meaningfully right on demand, margins will go up a little. You know, it's no different than buying a product that really performs well.
Speaker Change: Margins likely go down a little bit more meaningfully right on demand margins go up a little.
Speaker Change: No different than buying a product that's really performs well youre going to have.
Simeon Ari Gutman: You're going to have higher margins than if it performs poorly. So, uh, uh, but I think, I don't, I don't think we have a lot of risk on margin. Simeon, just, you know, obviously, as you guys build your models and look at our margins, just note that there's, you know, we have growing or variability in our quarterly revenues. So it can only remain stable to the extent that the revenues are the same in a sense.
Speaker Change: Higher margins than if it performs poorly so but I would say.
Speaker Change: I don't think we have a lot of risk in margins.
Half excuse me.
Speaker Change: Obviously as you guys build your models and look at our margins just note that there is.
Speaker Change: We are growing or a variability in our quarterly revenue. So it can only remain stable to the extent. The revenues are the same in a sense I think there is a different nuance you when you're talking about product margins were gross margins, which have fixed occupancy I know, it's a firm grasp of the obvious but obviously when when a quarter is lower.
Simeon Ari Gutman: You know, I think there's a different nuance here when you're talking about product margins versus gross margins, which have fixed occupancy. I know it's a firm grasp of the obvious, but, you know, obviously, when a quarter is lowered, you know, for example, like Q1, you know, again, if I'm building a model, I'm not taking Q1's gross margin and saying that I don't think that's necessarily what Gary was saying.
Speaker Change: It's a good point example of Q1.
Speaker Change: Again, if I'm building a model I am not taking Q1's gross margin, saying that's flat I don't think thats necessarily you're saying.
Simeon Ari Gutman: You know, we're going to have growing revenue throughout the year. You know our trends. So just build your models and make sure you're looking at fixed occupancy. Yep, that's helpful.
Speaker Change: We're going to have growing revenue through throughout the year you know our traffic build your models to make sure you are looking at fixed occupancy.
Speaker Change: Yes, that's helpful.
Gary G. Friedman: I guess just related to that, and I'll include the follow-up, I guess I meant that there isn't some piece of clearance that has to occur with older legacy lines, like we're through that part. And now the normal cadence of the business happens, and the variability will be based on, you know, the mix of promotions with current products, but we're through the worst of whatever clearance that you were trying to do to clean up the portfolio ahead of all these new launches. And then we're going through the biggest product transformation in history. We're in the middle of that. I wouldn't say what I don't know why you think we're through the worst of it.
Speaker Change: So I guess just related to that and then I'll conclude the follow up I guess I meant that there isn't some piece of clearance that has to occur with older legacy lines like we're through that part.
Now the normal cadence of the business happens in the variability will be based on.
Speaker Change: The mix of promotions with with current product, but we're through the worst of whatever clearance that you were trying to do to clean up the portfolio ahead of all these new launches.
And then we're not yes, we're.
But we're going through the biggest part of our transformation our history.
We're.
Speaker Change: In the middle of that I wouldn't say well I don't know what you think were worth it.
Gary G. Friedman: Like, we're, you know, we're in the middle of a Product Transformation. We're just kind of going on the second half of it. So, um, yeah, clearance doesn't just go away in a business like ours. This isn't selling t-shirts and sweaters where, you know, you put them on a clearance table, and they fly off.
Speaker Change: Through the worst of it like where we.
Speaker Change: We're in the middle of the product transformation, we're just kind of going on in the second half of it so.
Speaker Change: Yeah. The clearance that's just go away in a business like ours isn't selling T shirts and sweaters were.
Speaker Change: Put it onto a clearance table and it flies off.
Gary G. Friedman: You know, the home business, when you're transforming it like we are, and you're making big moves. Uh, you know, you put things on clearance, but it's limited; people don't buy a new bed if they don't need a new bed.
Speaker Change: The home business when you're when you're transforming it like we are and you're making big moves.
Speaker Change: You put things on clearance, but it's limited people don't.
Speaker Change: By a new bed, if they don't need a new bed people will buy a new sweater.
Maksim Rakhlenko: People will buy a new sweater. If they don't need a new sweater, but it's on sale, well, have another sweater. If you don't, buy another bed, just because it's on sale.
Speaker Change: I don't need a new sweater, it's on sale to have another sweater.
Speaker Change: By another bad just because it's on sale, so sale and clearance in categories like ours are very different.
Gary G. Friedman: So sale and clearance in categories like ours are very different, you know, than other categories. You know, so they take a longer time to move through and cycle through, you know. Okay, I'll leave it there. Thank you. Our next question will come from Maks Rakhlenko with TD Cowan. Please go ahead.
Speaker Change: In other categories. So it.
Speaker Change: Take a longer time to move through.
Speaker Change: And cycle through it.
Okay I'll leave it there thank you.
Speaker Change: Yes.
Speaker Change: Our next question will come from Max <unk> with TD Cowen.
Speaker Change: Please go ahead.
Maksim Rakhlenko: Great. Thanks a lot, guys. So first, just curious, how much of the assortment in galleries today comes from the new launches over the past year versus the legacy products? And then when will we get more of the outdoor and the modern products inside the galleries? And then just how should we think about the evolution over the years as far as new products being shown in the gallery? But where are we at this level of novelty today?
Great. Thanks, a lot guys. So first just curious how much of the assortment and galleries today comes from menu launches over the past year versus the legacy products and then when will we get more of the outdoor and the modern products inside.
Speaker Change: The galleries and then just how should we think about the evolution over the year as far as the new products are being shown in the galleries.
Speaker Change: But.
Speaker Change: And at the level of new today.
Maksim Rakhlenko: We've got 60% new in the bigger galleries. Yeah, about 50% new in the bigger galleries, and the legacy galleries probably about the same amount. So think about something like outdoor, you know, we're generally not buying newness to put in galleries unless we think that it is a sure winner, because that's how you can really negatively impact margins, right? If you buy something up front really big, and you think you're going to buy all the display quantity, and you're going to buy it to that level of volume... And you're wrong. You're going to be really wrong.
Speaker Change: Uh huh.
Speaker Change: You bet.
Speaker Change: 60% now.
Speaker Change: 50%.
Speaker Change: That's 50% new and the bigger galleries.
Speaker Change: And the legacy galleries, probably surprised about the same.
Same amount.
That's something like the outdoor.
Speaker Change: We're generally not buying.
Speaker Change: Newness.
Speaker Change: To put in galleries, unless we think that it is a sure winter because that's how you can really.
Speaker Change: Negatively impact margins right. If you buy something upfront really big and you think youre going to buy all the display quantity and youre going to buy it to that level of volume.
Speaker Change: And you're wrong.
Speaker Change: Youre going to be really wrong. So we're constantly for the most part we're buying newness.
Gary G. Friedman: So we're constantly, for the most part, we're buying newness. And we may buy it bigger and anticipate that they want to be somewhat heavier, that if we're right, it's going to be big. We're going to move it out to the galleries more quickly than less quickly. But, uh... We're reading, I mean, modern is just kind of getting out there, right? Complete.
Speaker Change: And we may buy it Baker.
Speaker Change: Anticipate.
Speaker Change: These somewhat heavier.
Speaker Change: If we're right and it's going to be big we're going to move it out to the galleries more quickly than less quickly.
Speaker Change: But.
Speaker Change: We're reading modern is just kind of getting out there right.
Speaker Change: Books.
Gary G. Friedman: It's all in home this week. Yeah, so it started mailing the first week of the month, and it takes a couple weeks to get in and get out there, and then we're kind of reading it, you know, reading the reviews online and response to the book. And then we're probably out; we have a pretty good sense of the early reads, and business is kind of already booked. It's already kind of decided, you know; we've got projects that are in the pipeline that our designers are working on over three to, you know, three-week to three-month periods.
Speaker Change: Complete installing home this week complete yes.
Speaker Change: Darted mailing first week.
Speaker Change: Of the month then it takes a couple of weeks to get in and get out there and then we're kind of reading it.
Speaker Change: Reading the online and response to the books.
Speaker Change: And then were.
Speaker Change: We.
Speaker Change: Mix or something or.
Speaker Change: Yeah, we have a pretty good sense of the early early reads as consumers again with it's going to think about a lot of our business is kind of R&D.
Okay.
Lot of our demand is already sorry.
Speaker Change: Kind of.
Speaker Change: And decided we've got projects that are in the pipeline that our designers are working on.
Speaker Change: Over three days.
Three weeks three months periods and so they are building those orders there they've got all those quotes.
Gary G. Friedman: And so they're building those orders; they've got all those quotes. And you may get, you know, a consumer sees the newness and says, oh, change that or change this, or, you know, our designer may say, change this or change that. For the most part, that's work that's already done, so a big part of our... demand is kind of already in the pipeline, and, you know, it takes you, you know, like about six weeks to kind of see what those early trends look like versus the early trends of other things.
Speaker Change: And you may get consumer sees the newness and says Oh change that or change this or you know our designer May say change this or change that for most part that's work that's already been so a big part of our.
Speaker Change: Of our demand is kind of already in the pipeline and.
And it takes us.
Speaker Change: About six weeks to kind of.
Speaker Change: See what those early trends look like versus the early trends of other things.
Gary G. Friedman: And then, you know, you start to kind of see it build. It usually takes us about three months, full run rate, but we're making kind of early bets probably by, Do we think that's going to sell in the galleries, and then we'll, you know, start to write new orders, and those new orders will take 4 months to 5 months to get, depending on how big we're buying, right, if it's... You know, like some of the questions that I said were just... Huge collection.
Speaker Change: And then.
Speaker Change: You start to kind of see it build it usually takes us about three months.
Speaker Change: Get it.
Speaker Change: <unk> run rate.
Speaker Change: And but we're making kind of early that's probably by week.
Speaker Change: Six to 12 do.
Speaker Change: Do we think that's going in the galleries and then will start to write new orders in those new orders will take.
Speaker Change: Four months to five months to.
Speaker Change: To get depending on how big we are buying.
Speaker Change: If it's like.
Speaker Change: Some of the collections that I said were just.
Gary G. Friedman: You know, those, the vendor, you know, the vendor's capacity may... may take a while to ramp up, you know, on the one big collection that we think is... The New Redefining Collection for us. That vendor had to open two additional buildings, two additional factories, to ramp up to meet the kind of demand that we're seeing. You know, so that takes you a much longer time.
Speaker Change: Huge collection.
Those the vendor the vendors capacity may.
Speaker Change: It may take a while to ramp up.
Speaker Change: On the one big collection that we think is.
Speaker Change: The new redefining collection for us.
Speaker Change: That vendor had to open two additional buildings two additional factories.
Speaker Change: To ramp up to make the kind of demand that.
Speaker Change: That we're seeing.
Speaker Change: So that takes much longer time.
Gary G. Friedman: There's a lot of factors to it, but, uh... We're about 50% newness on the gallery floors today, and then you're, you know, because we have so much newness coming in, you're going to have other newness that comes in that might be better than the first Nunes you put out there. So you might transition that, you know, as you go. So there's going to be a lot of data. You know, will there be something in the new modern book that displaces it?
Speaker Change: There's a lot of factors to it.
Speaker Change:
Speaker Change: So I'd say, we're about 50% newness on the gallery floors today.
Speaker Change: And then and then you are because we have so much newness coming in youre going to have other newness. It comes in it might be better than the first newness you've put out there seem quite transition that.
Speaker Change: As you are going to say, there's a lot of data will there be something in a new modern book that displaces.
Maksim Rakhlenko: Something that we just put into the galleries, maybe. Yeah, so, the map will kind of tell us what to do. Got it.
Something that we just put into the galleries, maybe yeah. So.
Speaker Change: That'll kind of tell us what to do.
Maksim Rakhlenko: And maybe just a follow-up to that, but some of the books are being delayed, or not delayed, but coming out a little bit later than you initially thought. And then 1Q was, 1Q demand was a little bit softer than you thought. So just given how the business does remain somewhat choppy, and there's been, you know, a little bit, maybe demand pushed out, just given the timing of the sourcebooks, I'm curious about your level of confidence that you will be able to maintain the full year demand guide.
Speaker Change: Got it and maybe just a follow up to that but some of the books are being delayed.
Speaker Change: But coming out a little bit later than you initially thought and then <unk> was one key demand was a little bit softer than what you thought so just given how the business does remain somewhat choppy and there has been.
Speaker Change: You know a little bit maybe demand pushed out just given the timing of the source books.
Speaker Change: Curious to your level of confidence that you'll be able to maintain the full year demand guide and then just separately. It does look like you are.
Maksim Rakhlenko: And then just separately, it does look like you stopped releasing the outlet revenue. So if you could share what that revenue was for the first quarter, that'd be great. Well, yeah, we usually don't do one-offs. Yeah, we don't do one-offs. We're not recording it, like, you know, we're not generally doing one-off things like that.
Speaker Change: Job releasing the outlet revenue. So if you could share what that revenue was in the first quarter that'd be great.
Speaker Change: Well, yeah, well, we usually don't have to do one off yes, we don't do one.
Speaker Change: We're not reporting it like we're not gender.
Speaker Change: Generally doing one off things like that but.
Gary G. Friedman: But, let's see, you talked about books slightly later and your level of confidence. You know, I think I talked a lot based on Steve's first questions about how we think about the lift factors in the business, and the lift factors all look good, and the key is going to be what the consumer response is to the newness. And to the additional contacts. So, you know, we've got a lot of data on that.
Speaker Change: Let's see that books.
Speaker Change: Kind of a it looks slightly later.
Speaker Change: The level of confidence.
Speaker Change: I think I talked.
Speaker Change: A lot based on Steves first question is about.
Speaker Change: How we think about the lift factors in the business.
Speaker Change: And the lift factors.
Speaker Change: All look good and you know the key is going to be.
What is the consumer response to the newness.
Gary G. Friedman: We don't have a lot of data on newness, but, you know, we're generally taking a kind of down the middle view of kind of what it should be. So we, you know, we feel confident that the numbers we're putting out there are achievable numbers, um, and, You know, if we get any kind of tailwind behind us, if, for some reason, we see some interest rate cuts or other things, you know, that, you know, price, price is dropping meaningfully in the housing market, and the housing market is picking up, that could be some tailwind. Can we have more headwind I don't know, maybe, you know, it looked a little worrying.
Speaker Change: <unk>.
Speaker Change: And to the additional contacts so we've got we have a lot of data on that we don't have a lot of data on the newness.
Speaker Change: But we're generally taking a.
Speaker Change: Kind of down the middle view.
Kind of what it should be so we feel confident.
Speaker Change: That the numbers, we're putting out there are achievable numbers.
And.
Speaker Change: If we get any kind of tailwind behind us if for some reason.
Speaker Change: We see some interest rate cuts or other things.
Speaker Change: That debt.
Speaker Change: Price prices dropping meaningfully in the housing market and the housing market picking up that can be some tailwind can we have more headwind macro wise I don't know.
Speaker Change: Maybe.
Speaker Change: Looked a little worrisome.
Maksim Rakhlenko: When inflation, about a couple months ago, was kicking up, you know, would they have to raise interest rates? But right now, you know, the latest report says no, but we, you know, we feel generally confident about what we're doing. And we've been here, we've all been here a long time, building this company and building this business, so we have a lot of experience doing it, but at the same time, you know, I'd just say it's the first time we've been through a transformation this large, so it's unlike, and it's not unlike anything else you do that's New and Different and Innovative and Inventive. You know, Got it. That's helpful. Thanks a lot and safe travels.
Speaker Change: When inflation, but a couple of months ago was ticking up.
Curtis Smyser Nagle: Thank you. Our next question will come from Curtis Nagel with Bank of America. Please go ahead.
Speaker Change: Would they have to raise interest rates.
Speaker Change: But right now yeah.
Speaker Change: The latest reports since no.
Speaker Change: We feel generally confident about what we're doing.
Speaker Change: And we've been here, we've all been here a long time building this company and building this business so.
Speaker Change: We have a lot of experience doing it.
Speaker Change: But at the same time I'd just say its the first time, we've been through a transformation. This large so it's unlike and it's not unlike anything else you do that's new and different and innovative and inventive.
Theres, a greater level of reward and a greater level of risk so.
Speaker Change: Yeah.
Speaker Change: But it's our best view today.
Speaker Change: Got it that's helpful. Thanks, a lot and safe travels thank.
Speaker Change: Thank you.
Speaker Change: Our next question will come from Curtis Nagle with Bank of America.
Speaker Change: Please go ahead.
Curtis Smyser Nagle: Great, thanks very much for taking the question. So yeah, just changing gears slightly, Gary, just curious if you could get an update, I guess, on the progression and the timing of the Aspen ecosystem, and then the concept more generally. I don't think that's something we talked about on the call a little bit, timing and the what of the Aspen ecosystem. And more generally, the concept. Yeah, it's going slower than we anticipated; our development partner likes to say it's probably easier to develop on the moon than it is in Aspen, and things are taking more time. You know, Aspen is a small town, and during COVID, they had a lot of disruption. And It backed up everything.
Curtis Smyser Nagle: Great. Thanks, very much for taking my question.
Curtis Smyser Nagle: So yes I.
Speaker Change: Just changing gears slightly Gary just curious if you could get an update.
Gary G. Friedman: And, you know, we got really slowed down because of that. And then they had a lot of turnover in their whole planning group, and that kind of slowed us down a bit. But we're up and moving, you know; our mountain house is kind of on track. Our mountain house is the name for the big gallery we're building there. It's on the best corner in Aspen.
Speaker Change #100: I guess on the progression and the timing of the Aspen ecosystem and then the concept more generally I don't think that's something we've talked about we'll call it a little bit.
Speaker Change #100: I mean as a web cast for the ecosystem.
Speaker Change #100: And more generally the concept.
Speaker Change #101: Yeah Yeah.
Speaker Change #102: Yes, it's going slower than we anticipated.
Speaker Change #103: Our development partner likes to say.
Speaker Change #103: Probably easier to develop on the moon than it is in Aspen and things are taking more time.
Speaker Change #103: It's a small town in during Covid, they had a lot of disruption.
And in fact up everything and we had really slowed down because of that and then.
Speaker Change #103: And then they had a lot of turnover in their whole planning group and that's kind of slowed us down a bit, but we're up and moving.
Speaker Change #103: Our mountain House is kind of on track our mountain House is the name for the Big Gallery were building there, it's not the best corner Aspen that'd be a three level experience in two levels of retail.
Gary G. Friedman: It'll be a three-level experience and two levels of retail. And we're going to... We've got a whole world of our age kind of concept there, because you get such a global customer coming into Aspen, you know, wealthy and affluent global customers, and we've got a, you know, a great restaurant. Hospitality Experience.
Speaker Change #103: And we're going to I think.
Speaker Change #103: There's a whole world of RH kind of concept there because you get such a global customer coming into Aspen.
Interfluent global customer.
Speaker Change #103: We've got a great restaurant.
Gary G. Friedman: So that's on track for next year, right? So that'll open next year. You know, kind of a stand-off with the city over the guest house. Arguments on, [inaudible],,, We believe it's not historic.
Hospitality experience. So that's on track for next year right. So that will open next year.
Speaker Change #103: We are.
Speaker Change #103: Kind of a standoff with the city on the guesthouse and some.
Speaker Change #103: Arguments on.
Speaker Change #103: If the wall that they want us to keep his historic or not historic.
Speaker Change #104: Uh huh.
Speaker Change #104: We believe it's not historic.
Gary G. Friedman: Proof of that, that slowed us down, http://www.youtube.com.au. You know, we're getting into the process of the plans for the homes and things like that. We slowed some of it down just because of the uncertainty in the market right now. You know, like, do we want to build homes and put them on the market when the interest rates are this high? So, so, but, you know, it'll be progressing. It's all kind of going a lot slower than I think we thought. COVID, you know, happened, and you're in a small town, and it's difficult to build and develop there.
Proof of that slowed us down.
Speaker Change #104:
Speaker Change #104: Versus what we want to build and then we.
Speaker Change #104: Getting into process of.
Speaker Change #104: Our plans on the homes and things like that we slowed some of it down just because of.
Speaker Change #104: Uncertainty in the market right now.
Speaker Change #104: I do want to build the homes and put them in the market when the interest rates with the Si.
Speaker Change #105: Uh huh.
Speaker Change #105: But you know he'll be progressing it's all kind of going a lot slower than I think we thought but.
Gary G. Friedman: And, you know, things are taking longer. And, and you also have, you know, an interest rate move. When you're a developer, we're now developers, so you know, your cost of capital is going to be higher and things like that for us and for our partners. And, you know, usually, it's time for us to take our time on some of the homes and things like that. We don't think that they're... You know, there's a long-term value issue with anything in Aspen.
Speaker Change #105: Hope it.
Speaker Change #105: Happened and you're in a small town in difficult to build and develop there and things are things are taking longer.
Speaker Change #105: And you also have an interest rate move you know when you are a developer we're now developers that you're.
Speaker Change #105: Cost of capital is going to be higher and things like that for us and for our partner and.
Speaker Change #105: So it's time usually.
Speaker Change #105: Some of the homes and things like that we're taking our time a little bit we don't think that there.
Speaker Change #105: As long term value issue with anything at Aspen, If anything we've had a great timing, we invested before the <unk>.
Curtis Smyser Nagle: If anything, we've had great timing. We invested before the COVID boom, you know, before anybody had clarity on that, and we believe our portfolio... and the investment we've made with the public. And I think that's about two or three times our money already. So if we wanted to liquidate our portfolio today, everything we have is worth a heck of a lot more. But we didn't just do it for that. We did it to see what we could learn about.
Bill.
Speaker Change #105: That's the kind of before anybody had clarity on that.
Speaker Change #105: We believe our portfolio.
Speaker Change #105: That's where we've made probably make.
Two or three times, our money already so if we wanted to liquidate our portfolio today everything we have is worth a heck of a lot more but we didn't just do it for that.
Speaker Change #105: We did it to see what we can learn about them.
Curtis Smyser Nagle: You know, the idea of space, it's in place. But all good, we're excited about it, we'd like it to go a little faster, but the Mountain House is taking shape and moving quickly now, finally, and we hope the Guest House will resume construction soon. Okay, great to hear.
Speaker Change #105: The idea of spaces and places.
Speaker Change #106: Yes, so on and so forth.
Speaker Change #106: But we're excited about it we'd like to go a little faster, but the mountain house has taken shape and moving moving quickly now finally.
Speaker Change #106: And we hope the guesthouse will resume construction soon.
Curtis Smyser Nagle: And then just a quick follow-up. I just want to make sure I caught your comment correctly. I think you said, Gary, that in terms of just new products alone, that could grow the business. I think two points 20 points or more.
Speaker Change #107: Okay, Great to hear and then just a quick follow up I just want to make sure I caught your comments.
Speaker Change #108: Correctly it sounded like I think you said Gary that in terms of just <unk>.
Curtis Smyser Nagle: I also heard maybe two X or two X. Would you be able to clarify just, uh, yeah, I guess kind of the range, or maybe I just misheard? You mean as far as we think it lifts factors, Curtis? Yeah, exactly. Yeah, I think when you start to, you know, take it all into account, right? We can see, you know, lift factors getting us, you know, lifting the business. And the 20-point range, right?
Speaker Change #109: New products all alone.
Speaker Change #109: That could.
Speaker Change #111: Grow the business and I think two points 20 points or more maybe too.
Speaker Change #110: Two actually.
Speaker Change #112: Would you be able to clarify just a.
Speaker Change #113: I guess kind of a range or just maybe I just misheard.
Speaker Change #114: You mean as far as how we think and live factors Curtis Yeah exactly exactly yeah yeah.
Speaker Change #114: I think when you start to take it all into account right.
Speaker Change #114: We can see.
Speaker Change #114: Factors getting us.
Speaker Change #114: But lifting the business.
Speaker Change #114: And the 20 point range right.
Gary G. Friedman: And as we move through the second half and all the circulation hits, there's just going to be a lot more people that are going to be aware of the business. And we have 48 store months versus 12, just in the second half. You know, we have a lot of new restaurants that don't do zero, right? Well, they may not do as much volume as the new galleries. They're, you know; they're not bad.
Speaker Change #114: Yes.
Speaker Change #114: Moved through the second half.
Speaker Change #114: All the circulation hits.
I was just going to be a lot more people that are going to be aware of the business and.
Speaker Change #114: And we have 48 store months versus 12, just in the second half and.
Speaker Change #114: We have a lot of new restaurants that.
Speaker Change #114: They don't do zero right, where they may not.
Speaker Change #114: Do as much volume as the new galleries, there they're not bad.
Gary G. Friedman: And so, you know, even things that you might think are small. We're opening Waterworks, I think, our highest volume showroom. That was great, L.A. New York and L.A. New York and L.A. and Palm Beach. I think LA is the number one one. I'm pretty sure. In totality with water.
Speaker Change #114: And so.
Speaker Change #114: Yeah.
Speaker Change #114: Even things that you might think are small.
Speaker Change #114: <unk>.
Speaker Change #114: We're opening.
Speaker Change #114: Waterworks I think what are our highest volume showroom is.
Speaker Change #115: Oh right right L. A.
Speaker Change #115: In New York and L. A.
Speaker Change #115: Long Beach, I think L. A is the interval and when to proceed or in totality with yes moderately Ali yeah, and so we're opening a kind of a waterworks gallery with it.
Gary G. Friedman: Yeah. In totality. Yeah. And so, you know, we're opening a kind of a waterworks gallery within New York. Our Newport Beach Gallery. The Newport Beach Gallery is the biggest gallery we've ever built.
Speaker Change #115: Our.
Speaker Change #115: Newport Beach Gallery, Newport Beach galleries.
Speaker Change #115: Gallery ever built.
Gary G. Friedman: And, you know, we're going to have 90,000 square feet. It's got... We've got like 40 collections of outdoor furniture. We've got, I think, 22,000 feet of outdoor furniture space. This is probably the biggest outdoor furniture market.
Scott: And we're gonna have 90000 square feet, it's Scott.
Scott: What do we got like 40 collections of outdoor furniture, and we've got I think 22000 feet of outdoor furniture space and probably the best outdoor furniture market.
Gary G. Friedman: We're going to have 3,500 feet of waterworks, and waterworks doesn't have a footprint in Orange County. So it's like opening up Orange County, generally, for a lot of brands, to do about as much business as Los Angeles, right? And so, Orange County can be big, but Waterworks, even that, you know, if it does anywhere near what, you know, what the Waterworks brand does in Los Angeles, it's a meaningful number.
Scott: But we have 3500 feet of waterworks and waterworks doesn't have a footprint.
Scott: In Orange County, So it's like opening of Orange County, generally for a lot of brands you do about as much business as.
Scott: At our Los Angeles, right and so.
Scott: Orange County can be big but waterworks even that.
Scott: It does anywhere near what you know what.
Scott: The Waterworks brand does in Los Angeles, a meaningful number.
Gary G. Friedman: You know, so they're really excited about it, you know, and we're really excited about it. I'm excited to launch it.
Scott: So they're really excited about it.
Scott: And we're really excited about it.
Scott: Excited to watch everything that can be good validation.
Gary G. Friedman: But there's just a lot, right? You've got the modern book, the interior book, the contemporary book, you know, the second mailing of the modern book, the second mailing of the interiors, you know, there's a lot of newness when you count all that up. But there's a lot of work also in getting in stock and all that stuff and the cycle of all this, you know, first round collection. We now have read, and we're reacting to, you know, and we're ordering into newness.
Scott: But there's just a lot right you've got the modern book and serious about it.
Scott: Temporary book.
Scott: Second mailing to moderate in the second mailing of interiors that you know there's a lot of newness when you count all of that up.
Scott: But there's a lot of also.
Scott: Getting in stock and all that stuff and the cycling all those.
First round elections.
Scott: We now have read and we're reacting to.
Scott: Ordering into newness, some might've missed and were marking it down in cycling it out.
Gary G. Friedman: Some might have missed it, and we're, you know, marking it down and cycling it out. And then we've got a doubling of circulation and, you know, 4X in new store months, and, you know, there's a lot of lift factors. You know, as many as I've ever seen, this stage of the business like this. So it's just, you know, it's different. I know it looks, you know, it looks different. But it should.
Scott: And then we've got a doubling of circulation and you know that.
Scott: Forex and new store months in.
Scott: It's just there's a lot of lift factors.
Scott: As many as <unk> ever seen as many of I S.
Scott: Ever seen and it.
Scott: This stage of the business like this so it's just it's different I know it looks you know it looks different it should be different.
Curtis Smyser Nagle: You know, so I appreciate all the questions, and, you know. None of them surprised me.
So.
Appreciate all the questions.
Scott: Yes.
Scott: Medical surprise me you asked the same question as far as you guys. So.
Speaker Change #117: Okay sure.
Speaker Change #117: Thank you.
Speaker Change #117: Yeah.
Michael Lasser: I'd be asking the same questions if I were you guys. Okay, next year. Thank you. Our next question comes from Michael Lasser with PBS. Please go ahead. Good evening, everybody.
Speaker Change #118: Our next question comes from Michael Lasser with UBS.
Michael Lasser: Please go ahead good evening good evening. Thank you so much for taking my question Gary are.
Michael Lasser: Thank you so much for taking my question. Gary, are you getting as much of a list? from the newness and innovation that you've been introducing as you might have in the past. And does it make sense to delay further some of the introductions in light of how challenging the market is? Because maybe you would not get as much credit now from or recognition now from your customers given what's going on. Let's see, Mr. Mishar. I get that right, Michael. Thanks for the question.
Gary G. Friedman: Are you getting as much of a lift.
Michael Lasser: From the newness and innovation that you've been introducing as you might have in the past and does it make sense.
Michael Lasser: To delay further some of the introductions in light of how challenging the market is because maybe you would not get as much credit now or recognition now from your customers given what's going on.
Speaker Change #121: Let's see mix to make sure I get that right Michael.
Gary G. Friedman: Let's see, are we getting as much of a lift from the newness as we did in the past? Yeah, in fact, in some cases, we're getting better lifts, right? When, like I said, you get a new, in a business of kind our size and maturity, you don't get new bestsellers very often. You get a new one probably every 7 or 12 years.
Thanks for the question, let's see and Mike we're getting as much of a lift from the newness as you did in the past.
Speaker Change #122: Yeah in fact in some cases, we're getting better lift right.
Speaker Change #122: You get a new.
Speaker Change #122: In a business, that's kind of our size and maturity.
Speaker Change #122: You don't get new best sellers very often.
Speaker Change #122: A new one probably every seven or 12 years like a big furniture collection or a big pull Street collection right. So.
Gary G. Friedman: Like a big furniture collection or a big whole street collection, right? So, uh, uh, so we're, you know, we're getting, I think, as, You know, we're getting as much right as we kind of ever have. You know, we always get a certain amount right and a certain amount wrong. So I think we are. Probably.
Speaker Change #122: So.
Speaker Change #122: We're getting I think as you know.
Speaker Change #122: We're getting as much right as we kind of ever have you know we always.
Speaker Change #122: Get a certain amount right certain amount wrong.
Speaker Change #122: So I think we're.
Speaker Change #122: Probably.
Gary G. Friedman: Similar to how we've been in the past, maybe we're a little better because, you know, when you get a new all-time number one, you kind of go, like, that kind of changes everything. And then, does it make sense to further delay some of the new introductions, I think, was the question, right, in light of the challenging market? We're not really trying to delay anything. Usually, when we, like, we push the current book by a month, which then, you know, kind of pushes the next book by a month. We didn't push contemporary, just pushed modern and interiors. We wanted to have a certain amount of space between those two, so we didn't overwhelm the customer with too many pages, too much product.
Similar to how we've been in the past, maybe we were a little better because when you get a new all time number one can you kind of go like that kind of changes everything so.
Speaker Change #123: And then does it make sense to further delay some of the new introductions I think was the question right in light of the challenging market.
Speaker Change #123: We're not really trying to delay anything usually.
Speaker Change #123: We like we pushed the modern book by a month.
Speaker Change #123: Which then.
Speaker Change #123: Kind of pushes the next book by a month, we didn't push contemporary just pushed modern interiors. We wanted to have a certain amount of spacing between those two so we didn't overwhelm the customer too many pages too much product.
Gary G. Friedman: But the reason we delayed Modern is because some dots connected while we were working on it. It's a whole new design. It's a whole new format. We're working with an exciting graphic designer from Madrid who spent a couple of months living with us. We just saw him last night at the party, but some dots connected, and we figured out how we could make it, we thought, significantly better, and we said, look, Yeah, do the math. Is it worth doing this and changing this?
Speaker Change #123: The reason we delayed modern is the key.
Speaker Change #123: Some dots connected while we're working on it's a whole new design.
Speaker Change #123: Only format and.
Speaker Change #123: We're working with an exciting graphic.
Speaker Change #123: Graphic designer from Madrid.
Speaker Change #123: Couple of months living with us two or three months.
Speaker Change #123: Some last night at the party.
Speaker Change #123: But.
Speaker Change #123: Dodge connected and we figured out how we can make it we thought significantly better and we said look.
Do the math is it worth doing this and changing this in.
Gary G. Friedman: And, you know, we're going to take a four week delay, and we believe it was worth it. And, uh, uh, and I think it's, I think it's the most exciting new book we've ever put out there, you know, in our history. I think it elevates the brand. I think it's going to attract a higher level of consumers and interior designers and, you know, merchandise beautifully; it's graphically presented beautifully. So that's why, that's why we spent more time. I mean, I don't think we usually don't like to go, oh, yeah, let's just kind of delay it. You know, like we do, we want to get our work done as quickly as we can.
Speaker Change #123: We're going to take a four week delay and we believed it was worth it and.
Speaker Change #123: And I think it's I think most excitingly book, we put out there ever in our history I think.
Speaker Change #123: Elevated CRH brand I think its going to attract a higher level.
Speaker Change #123: <unk> of consumer and interior designers.
Speaker Change #123: I think it is.
Speaker Change #123: Merchandise beautifully graphically presented beautifully.
Speaker Change #123: So that's why that's why we spent more time.
Speaker Change #123: I think like we usually do.
Speaker Change #124: Oh, yeah, let's just kind of delay it.
Speaker Change #124: We want to get our work than we can.
Gary G. Friedman: You know, I think, when you're innovating and inventing, you know, you're going to see new things all the time. You're working on new things, you've got new data, you turn and look around another corner, and you see a new opportunity, and you decide, okay, do we pursue that, do we integrate that? How important is it?
Speaker Change #124: I think.
When you're innovating and inventing.
Uh huh.
Speaker Change #124: Yes.
Speaker Change #124: See new things all the time Youre working on new things you got new data Turner and look around another corner you see a new opportunity in deciding of hey, do we pursue that we integrate that in is that how.
Speaker Change #124: Horton.
Speaker Change #124: We thought.
Gary G. Friedman: It was important enough to take four more weeks and work on the book and take it to this new level and actualize the vision we had. And that's it. I'm sure that's, you know, no different than anybody that's working on new products, you know, I don't know. You know, Apple knows exactly when the new iPhone's coming. You know, there's not usually a schedule.
Speaker Change #124: It was important enough to take four more weeks and work on work on the book and take it to this new level.
Speaker Change #124: Actualized Division we had.
Speaker Change #124: I am sure Thats no different than anybody that's working on new products I don't know.
Speaker Change #124: Apple knows exactly when the new iphones coming there's not usually a schedule.
Gary G. Friedman: We're introducing the iPhone on this date, or we're introducing this... I thought, or I think on this date, while you might think it's just a book, it's a book with a lot of newness, presented in a new and compelling way, about building and learning and making decisions. That's why, yeah, that's why we took more time. We thought, you know.
Speaker Change #124: Introducing the iPhone on this date or we're introducing.
Speaker Change #124: No.
Speaker Change #124: Part of it.
Speaker Change #124: On this date.
Speaker Change #124: Your.
Speaker Change #124: While it might think it's just a book to book with a lot of newness.
Speaker Change #124: We're trying to.
Speaker Change #124: Presented in the newest compelling way.
Speaker Change #124: You're kind of building and learning and making decisions.
Speaker Change #124: That's why you that's why we took more time with that.
Gary G. Friedman: I thought we could see a way to make it significantly better, and we said, let's keep going, let's take the time, it's going to be worth it. This is going to be how the consumer now sees it, how it's presented, what's presented, which way, you know, for the whole life of the book. So the book is four weeks later, okay. You know, does a little bit of demand move from one month and does it... forward, you know, if you thought it was worth zero, you wouldn't have done it, right? Like if you thought, hey, this is going to be X and we're going to move things around and take four more weeks and it will still be worth X. You wouldn't do that, either.
Speaker Change #124: We thought we could see a way to make it significantly better and we said, let's let's keep going let's take the time, it's going to be worth it.
Speaker Change #124: Because it's.
Speaker Change #124: It's going to be how the consumer now sees it how it's presented what's presented which way.
Speaker Change #124: For the whole life of the book So the book to tax reform later, okay.
Speaker Change #124: There's a little bit of demand move from one month and does it move.
Speaker Change #124: Forward.
Speaker Change #124: If you thought it was worth zero you wouldn't have done it right like if you thought hey, this is going to be X and we're going to move things around and take four more weeks in it's going to still be worth X you wouldn't do it but if you think it's now it's going to be worth why.
Gary G. Friedman: But if you think it's now going to be worth Y, and, you know, and over the life of that book or, you know, those collections and how they're presented that way, pick the one that you think is going to give you a better return, so that's how we make decisions like that. I mean, look, I almost, I mean, I...
Speaker Change #124: And you know and over the life of that book or.
Speaker Change #124: Those collections and how they are presented that way.
Speaker Change #124: Yes.
Speaker Change #124: You pick the one that you think is.
Speaker Change #124: Kind of give you a better return so that's that.
Speaker Change #124: It's how we make decisions like that I mean, it looks like.
Speaker Change #124: I almost I mean.
Gary G. Friedman: I love what Elon Musk is doing, and he's doing incredible things to change our world and change the carbon footprint, the energy, and you know, make this world much more sustainable going forward, and all kinds of nutty things, right? Creating places to live on Mars and, you know, ways to change the satellite network. Catalina and all those things that you know, but I was going to order that. I think one of the Roadsters came out, right? I was all excited. I wanted a Tesla Roadster.
I'd love with inland muscle is doing and doing incredible things to change our world changed.
Speaker Change #124: Carbon footprint and energy.
Speaker Change #124: It's much more sustainable going and doing all kinds of things.
Speaker Change #124: Great places to live on margin.
Ways to change the satellite networks.
Speaker Change #124: Handling all of those things, but I was going to order that.
Yeah.
Yes.
Speaker Change #125: One of the roadster came out right. It's all excited I wanted the Tesla roadster.
Gary G. Friedman: They wanted you to put, to get the founder's one, I think you had to put $250,000 down or something like that. And I almost did, you know. I thought, ah, you know, but I got to wait, like, a year, at Tester LaRochester, and now I'm happy I didn't give my money. But I'm thinking like that now. That's a real delay, you know, and I don't know why he delayed it that long.
Speaker Change #124: Right.
Speaker Change #126: Why don't you to put in to get the founders one.
Speaker Change #126: $250000 down or something like that.
And I almost did.
Speaker Change #126: You know what I'm going to wait a year.
What is it seven years, they've had the Tesla roadster.
Speaker Change #126: Happy I did give him my money.
Speaker Change #126: I'm thinking like that now that's a real delay.
No white related at that line, maybe it's going to come out of the Rockies held its going to be.
Gary G. Friedman: You know, maybe it's going to come out, be rocket propelled, and http://TheBusinessProfessor.com You know, usually we don't have massive delays in things, but, you know, You don't want to, you don't want rigidity. We get in the way of... Evolution and innovation and better ways, you know, you just want to do the math and say, Okay, you know. Like, think about this.
Speaker Change #126: Worthwhile, but that.
Speaker Change #126: Usually we don't have like massive delays on things but.
Speaker Change #126: Yeah.
Speaker Change #126: You don't want to you don't want rigidity.
Speaker Change #126: To get in the way of <unk>.
Speaker Change #127: Uh huh.
Speaker Change #127: Evolution and innovation and better ways, just wanted to do the math and say.
Speaker Change #127: Okay.
Gary G. Friedman: Let's say we have a new product, and it comes down the pike, and we're working on a book and a season, and we're gonna, uh... We're either going to launch that product, and it's not going to come in for, I don't know, three months, and... [inaudible] Wait for the next book. Yeah, wait for the next book, or you can put Bye.
Speaker Change #127: If I think about this let's say we have a new product.
Speaker Change #127: It comes down the pipe and we're working on a book in a season and we're gonna.
Speaker Change #127:
Speaker Change #127: We're either going to launch that product and it's not going to come in for <unk>.
Speaker Change #127: I don't know three months and and.
Speaker Change #127: And you say gosh.
Speaker Change #127: Cash.
Speaker Change #127: Wait for the next book.
Speaker Change #127: They wait for the next book or you can put it in that book and Newmar.
Gary G. Friedman: Consumers can see it, they can order it. It's going to get in; if the next book's a year later, it's going to get in 26 weeks early. You know, not really, http://TheBusinessProfessor.com. It's all kind of simple math, the way we look at it. So, you know, we made a decision to make the book better. It took us four weeks longer. We think it's going to be better forever, or it would have been. Not as good forever,
Speaker Change #127: The consumer can see it they can order it.
Speaker Change #127: It's getting it in the next books a year later, it's going to get in 'twenty six weeks early not.
Speaker Change #128: Not really.
Three months later or something like it.
Speaker Change #128: So I'll kind of simple math.
Speaker Change #128: The way we look at it yeah. So we made a decision to make the book better.
Speaker Change #128: It took us four weeks longer we think it's going to be better forever or would have been.
Speaker Change #128: Not as good forever.
Speaker Change #128: So.
Gary G. Friedman: [inaudible] So, that's the line. Thank you. My follow-up question... sounded like earlier in our conversation this evening that you mentioned, The Consumer is Buying More on Promotion. So, A, is that right?
Speaker Change #128: So that's the lens, we're looking through it.
Speaker Change #129: Got you.
Speaker Change #130: My follow up question.
He is it sounded like earlier in our conversation. This evening that you mentioned.
Speaker Change #130: The consumer is buying more on promotion.
Speaker Change #130: So a is that right and b is that persist does that change how you think about the past.
Gary G. Friedman: And B, if that persists, does that change how you think about the path to RH's long-term margin aspiration? Oh, I think, yeah, massively down housing markets like this, or down, you know, it's like, you know, if we're in a recession in any category, you know, or an entire, entire, right now we're in a massive housing recession and anything that's tied to Apparel is benefiting based on that, like instead of people buying homes, and they're saving a lot of money not buying a new home. So it's easy to go spend some money on apparel, you know, but you know, hey, honey, by that new home. Heck, you want to buy a new purse? Sure. Yeah, so it's an easy trade-off.
Speaker Change #130: As long term margin aspiration.
Speaker Change #131: Well I think yeah, I think massively down housing markets like this or down you know it's like.
Speaker Change #131: We are in a recession in any category or an entire higher reset right now we're in a massive.
Speaker Change #131: Housing recession in anything Thats tied to housing right.
Speaker Change #131: Apparel is benefiting based on that like instead of people buying homes in their statement a lot of money not buying a new home. So it's easy to go spend some money on apparel.
Speaker Change #132: Hey, Honey, we didn't buy that new home, but.
Speaker Change #131: You want to buy.
Speaker Change #133: I want to buy in for sure.
Speaker Change #133: So these tradeoffs.
Gary G. Friedman: But you always are going to have a higher degree of saleable goods in a down market. Always, you know, and, uh, uh, because Simeon Gutman, Allison Malkin, Christopher Horvers, Gary Friedman, Steven Forbes, Bradley Unknown Speaker, short-term, but it doesn't change the margin guidance long-term. It's just based on the demand environment, you know, how strong is the demand environment? I mean, as an example... the demand environment for our category during the COVID years. [inaudible] The margins went way up. The Demand Environment Post-COVID. Not so good because, you know, up against those numbers.
Speaker Change #133: But.
It's you always youre going to have a higher degree of sales goods in a down market.
Speaker Change #133: Louise.
Speaker Change #134: And because it just <unk>.
Speaker Change #134: Demand slower youre going to have more markdowns, you've got to keep inventory moving so on and so forth.
Speaker Change #134: So that's all factored into the.
Speaker Change #134: Into the margin guidance.
Speaker Change #134: Guidance short term, but it doesn't it doesn't change the margin guidance long term.
Speaker Change #134: It's just based on the demand environment.
Speaker Change #135: How strong is the demand environment I mean is it sample that.
Speaker Change #135: That demand environment for our category.
Speaker Change #135: In the Covid years.
Speaker Change #135: Was unbelievable.
Speaker Change #135: <unk> went way up.
Speaker Change #135: The demand environment.
Speaker Change #135: Covid.
Speaker Change #135: Not so good.
Up against those those numbers so margins go down and then on top of that you compound that you are in the worst housing market in 30 years and margins are going to go down again, so it's all relative to demand.
Gary G. Friedman: So margins go down. Then on top of that, you compound that you're in the worst housing market in 30 years, and margins are going to go down again. You know, so it's all relative to demand. Nothing more than that. I hope that makes sense. Totally. Thank you very much.
Speaker Change #135: Nothing more than that.
Speaker Change #135: I hope that makes sense.
Speaker Change #136: Totally thank you very much okay. Thank you Michael.
Gary G. Friedman: Thank you, Mike. Our next question will come from Jonathan Matuszewski with Jeffries. Please go ahead.
Speaker Change #137: Our next question will come from Jonathan Matuszewski with Jefferies. Please go ahead.
Jonathan Richard Matuszewski: Hey, good evening. And thanks for taking my questions. Gary, can we get an update on how the brand is responding with the end consumer in Europe? I think on the last call, you mentioned satisfaction with some of the momentum with, you know, trade customers, though acknowledged a bit for progress with the end consumer. So anything you could share in terms of maybe what your customer insights group is seeing as it relates to brand awareness or intent to purchase or overall perception would be helpful.
Jonathan Richard Matuszewski: Hey, good evening and thanks for taking my question.
Speaker Change #139: Gary can we get an update on how the brand is resonating with the end consumer in Europe I think on the last call you mentioned satisfaction with some of the momentum with trade.
Speaker Change #140: Trade customers.
Speaker Change #141: So acknowledged a bit for our progress at the end consumer so anything you could share in terms of maybe what your customer insights group has seen as it relates to brand awareness or intends to purchase or overall perception would be helpful. Thank you.
Jonathan Richard Matuszewski: Thank you. You're talking to the Consumer Insights group. We're all sitting around the table. What's great is we just got back before we went to RH Madrid for the event. We were in RH England for a visit there, and we sat with the team there for several hours just trying to listen and learn.
Speaker Change #142: You're talking to the consumer insights group, we're all sitting around the table.
Speaker Change #142: Yes.
Speaker Change #143: Great is we just we just got back as before he went to RH, England chat Madrid for the event were an arch England.
Speaker Change #143: For a visit there and we sat with the team there for several hours just trying.
Speaker Change #143: Trying to listen and learn.
Speaker Change #143: And.
Speaker Change #143: Just.
Gary G. Friedman: We just celebrated our one year anniversary in RH England and are just identifying opportunities. We think that, look, we've never done this before, right? So we don't, we didn't know exactly what it was. I don't know, what good looks like.
Speaker Change #143: Okay.
We just celebrated our one year anniversary.
Speaker Change #143: Our each England and.
Speaker Change #143: Identifying opportunities and we are.
Speaker Change #143: We think that look we've never done this before right. So we don't we didn't know exactly.
Speaker Change #143: What good looks like.
Gary G. Friedman: You know, we could have guessed what good looks like, but we don't know. We're opening in new countries; we've never sold there. You know, you couldn't even buy direct from our brand in any of those countries, so why would anybody know our age?
Speaker Change #143: We could have guessed it what does it look like well we don't know.
Speaker Change #143: We're opening a new countries never sold there.
Speaker Change #143: You couldn't even buy direct from our brand.
Speaker Change #143: Any of those countries. So why would anybody know our age.
Gary G. Friedman: And so, you know, we're just learning a lot about the right ways to market the brand. You know, we always believe that the fastest way to build a brand is through a physical presence, where people can see it and touch it. So I'd say after a year of being open in R.H. England
Speaker Change #143: And so we're just learning a lot about <unk>.
Speaker Change #143: Sumer awareness are how do we build it right.
Speaker Change #143: Great ways to market the brand.
Speaker Change #143: You know, we always believed that.
Speaker Change #143: Fastest way to build the brand.
Speaker Change #143: We think is through a physical presence.
Speaker Change #143: People can see it touch it.
Why do it.
Speaker Change #143: He served in.
In a way have interior design services all kinds of things.
Speaker Change #143: So I would say after a year.
Speaker Change #143: It opened in RH, England.
Gary G. Friedman: We're kind of where we thought... You know, we're trending at a level for opening a gallery. We're in the middle of the countryside that we said we were opening through a lens of conversation versus commerce. It's not where you would have started if you were trying to optimize commerce, right?
Speaker Change #143: We're kind of where we thought we'd be we're trending at a at a level for opening a gallery in the middle of the country side that we said we're opening through a lens of conversation versus commerce, it's not where you would've started if youre trying to optimize commerce right.
Gary G. Friedman: You know, London is where you'd start, but we knew London was going to be several years later. And we thought, like, let's do something inspiring, elevating, and something that would create an incredible first impression for the brand. And we decided to open on a 17th century estate on 73 acres.
Speaker Change #143: This is where you would start but we need London, who is going to be several years later and we thought like let's do something.
Speaker Change #143: Bahrain, elevating and something that would create an incredible first impression and that.
Speaker Change #143: The brand in that and we decided to open in the 17th centuries.
Speaker Change #143: Stayed on 73 acres with a deer park.
Gary G. Friedman: Dear Park, Architecture and Design Library [inaudible] Wine Lounge, and a tea salon, and a juicery, and what else do we have there, you know? Yeah, yeah, yeah, we've got, yeah, yeah, you know, Soane Exhibit, you know, Sir John Soane's exhibit, and one of the great, greatest English architects that ever lived, and, and, but there are a lot of wealthy people that go to the Cots We want to create a conversation, and we think we've created a really great first conversation. Business, you know, trends in this first year are kind of where we thought, I would say. Munich and Dusseldorf.
Speaker Change #143: Architectural design library.
Speaker Change #143: Three restaurants.
Speaker Change #143: Fine lines T Salon in Q3, and what else we have there.
Speaker Change #143: Yeah.
Speaker Change #144: Yes, yeah, so an exhibit.
Speaker Change #144: John So in exhibit one of the great greatest English architects that are live.
Speaker Change #144: But there's a lot of wealthy people that or go to the cotswolds weekends.
Speaker Change #144: Weekends out there in weeks out there, especially during the summer time.
We wanted to create conversation we think we've created a really great first conversation.
Speaker Change #144: Yeah.
Speaker Change #144: You know that.
Speaker Change #144: The business trend in this first year now is kind of where we thought I would say.
Speaker Change #144:
Speaker Change #144: Munich in Dusseldorf.
Gary G. Friedman: We're not really going to be first, you know, on our list, but we had an opportunity to get some good locations in a deal where Abercrombie was closing some of their flagships, and we thought they were good locations. And, you know, if we opened those, they wouldn't have... http://www.thevenusproject.com http://www.patreon.com like to probably be in Paris and London first, build the brand But, you know, they were convenient, and we could get into them for not a lot of money.
Speaker Change #144:
Speaker Change #144: <unk>, we're not really going to be first on our on our list that we had an opportunity to get some good locations and a deal where our Abercrombie was closing some of their flagships and we thought they were good locations.
Speaker Change #144: And.
Speaker Change #144: We opened those they wouldn't have been strategically in the quarter, we would've liked.
Like to probably be in Paris, and London.
Speaker Change #144: Build the brand awareness, but.
Speaker Change #144: They were convenient.
Speaker Change #144: We could get in into them for not a lot of investment.
Speaker Change #144: The infrastructure and stuff is done by Abercrombie and we got an open.
Those places.
Gary G. Friedman: Not knowing really what to expect, I think that for us... The real key is to get open in Paris and London, and Milan, and even Madrid. You know, Madrid's one of the biggest cities in Europe, and the biggest city in Spain.
Speaker Change #144: Not knowing really what to expect I think that for us.
Speaker Change #144: The real key is to get open in Paris and London.
Speaker Change #144: Is that an Milan and and even Madrid Madrid is one of the biggest cities and.
Speaker Change #144: Europe and the biggest city in Spain.
Gary G. Friedman: So I think, you know, we're going to learn more just from our conversations yesterday with the team. We got some great feedback and great ideas on how to build a business and get more people to the gallery and so on and so forth. And some of them, and work across the entire, not only the entire Europe but actually across the entire U.S. market, so that was really great, and an incredible investment of our time, and you know, great.
Speaker Change #144: So I think we're going to learn more just from our conversations yesterday with the team. We've got some great feedback great ideas and how to build the business and get more people to the gallery and so on and so forth and some of them. We think can work across.
Speaker Change #144: Entire not only entire Europe, but actually across the entire U S market. So that was really great and.
Speaker Change #144: An incredible investment of our time great.
Gary G. Friedman: Great insights from our people and some of the people in our, you know, design team and, And so, you know, then just even things like... Products and, you know, having the right kind of products for the right markets, right sizes, right delivery times. You know what? What are we stocking in the U.K. versus what we're stocking in the U.S. and what sizes, what shapes, what things.
Speaker Change #144: Insights from our people in some of the people in our design team and.
Speaker Change #144: And so and then just even things like.
Speaker Change #144: The products and having the right kind of products, where the right markets right sizing.
The delivery times.
What do we stocking.
Speaker Change #144: In the U K.
Versus what were stocking in the U S and what you know what sizes, which shapes with things.
Gary G. Friedman: You know, how do we shift faster on certain things, and, you know... Supply Chain Lead Times to Different Countries. So there's a lot to learn, but I'd say, you know, I feel... I feel better and better about it as we go because we're learning more and more. We've got some really great people on the team, really smart, intelligent, passionate people on the team. You know, we got a lot of great feedback yesterday. The teams in all the galleries, I think, are just outstanding.
Speaker Change #144: How do we ship faster on certain things.
Speaker Change #144: Supply chain lead times to different countries.
Speaker Change #144: So there's a lot to learn.
Speaker Change #144: But I'd say yeah.
Speaker Change #144: Neil.
Neil: I feel better and better about it as we go because we're learning more and more.
Neil: Where we've got some really great people on the team.
Speaker Change #146: <unk> really smart intelligent.
Speaker Change #146: Passionate people on the team we've got a lot of great feedback yesterday. The teams in all of the all the galleries I think are just outstanding I think.
Gary G. Friedman: I think... You know, the galleries look great. I mean, we're Dridd, and it may have been the best work we've ever done from us, from a presentation point of view and interior design. Styling and stuff like that.
Speaker Change #146: The galleries with great I mean.
Speaker Change #146: In Madrid.
Speaker Change #146: They have been the best work, we've ever done for that.
Speaker Change #146: That presentation point of view and interior design.
Speaker Change #146: Styling and stuff like that it just breathtaking and.
Gary G. Friedman: It was breathtaking, and I think Madrid set a new standard in our company and gave us a vision of where to take all the galleries and how to execute at that level everywhere. We think it will impact the whole community. So we're, you know, look, we're... We're opening. We're learning.
Speaker Change #146: And I think Madrid like set a new standard in our company and and gave US a vision of where to take all the galleries.
Speaker Change #146: How to execute at that level everywhere, and we think it'll impact the whole company.
Speaker Change #146: So.
Speaker Change #146:
Speaker Change #146: So.
Speaker Change #146: Look work.
Speaker Change #146: Hi.
Speaker Change #146: We're opening we're learning.
Gary G. Friedman: Our business is building. Every one of our galleries, you know, the design pipeline is building, and, you know, we'll, you know, we're in the process of, you know, We're in the summer period now, so we're going to start learning a lot more in England, because it's when people really start going out there again, and we're learning across the platform. I'd say all good and, hopefully, as we get Paris and London open, and Paris will open next year in the spring, and London, hopefully.
Speaker Change #146: Our business is building every one of our galleries the design pipeline is building.
Speaker Change #146: And.
Speaker Change #147: Uh huh.
Speaker Change #147: Okay.
Speaker Change #147: Spring Summer period now so.
Speaker Change #147: I'm going to start learning a lot more in England.
Speaker Change #147: Really start going out there again.
Speaker Change #147: And we're learning across the platform so.
Speaker Change #147: I'd say all good.
Speaker Change #147: And.
Speaker Change #147:
Speaker Change #147: Hopefully as we get Paris and London.
Speaker Change #147: Open.
Speaker Change #147: Paris will open next year in the spring.
Speaker Change #147: London, hopefully at the end of next year.
Gary G. Friedman: The end of next year, you know, that was a little complex; we're stringing together four buildings, different floorplates and stuff like that, but right now..., http://TheBusinessProfessor.com next year. And I think those are going to, you know, really raise the brand awareness massively for us and then Milan after that.
Speaker Change #147: Complex restrained together for building this thing.
Speaker Change #147: Different floor plates and stuff like that but right now.
Speaker Change #147: Believe it looks like.
Speaker Change #147: Next year and I think those are going to.
Speaker Change #147: Really.
Speaker Change #147: Raise the brand awareness.
Speaker Change #147: Massively for Us and then <unk>.
Speaker Change #148: Your line after that.
Jonathan Richard Matuszewski: That's really helpful. Thanks, Gary. And then just a quick follow-up. In your prepared remarks, you mentioned a growing number of online furniture brands that have ceased operations. We've witnessed this trend as well. You know, based on our observations, it felt like disruption was more concentrated at those mid-tier price points. So, are you seeing super premium online brands in your space, you know, vanishing? Or was that comment more so, you know, foreshadowing disruption that you see on the horizon for upscale competitors? Thanks.
Speaker Change #149: That's really helpful. Thanks, Gary and then just a quick follow up in the prepared remarks, you mentioned, a growing number of online furniture brands.
Speaker Change #148: Operation.
Speaker Change #150: We've witnessed this trend as well based on our observation that it felt like disruption with more concentrated at the mid tier price point.
Speaker Change #151: So are you seeing super premium online brands in your space.
Speaker Change #152: <unk> or was that comment more so foreshadowing.
Speaker Change #152: Disruption that you see on the horizon for upscale competitors.
Gary G. Friedman: Yeah, I think I think there's a lot of the I think, I know, you know, the mid-tier is kind of like, I don't know what your definition of the mid-tier is, because I think there are more online players that are going to what I call a higher-end market. It may not be a luxury market, but there's a lot of overlap, a lot of people doing... a lot of look-alike things at price points that are overlapping ours that we've seen. You know, there are some of them, one of the ones that's having a lot of disruption, you know, getting a lot of press.
Speaker Change #153: Yeah, I think I think there's a lot of I think I don't know if you know mid tier is kind of like.
Speaker Change #154: I don't know I don't know your what's your definition of mid tier.
Speaker Change #154: I think theres more online players that are going to what I call. It higher end market may not be luxury market, but.
Speaker Change #154: So there's a lot of overlap a lot of people doing.
Speaker Change #154: A lot of look alike things at.
Speaker Change #154: No price point that are overlapping ours that we've seen.
Some of them one of the ones that are having a lot of disruption a lot of press.
Gary G. Friedman: You know, a lot of it's targeted to the trade, you know, and stuff like that. So many of the ones we're referencing are what I call higher-end brands that are targeting trade customers, higher-end consumers. You know, but there are a lot of them out of the probably hundreds, you know; I don't know about them.
Speaker Change #154: Yes.
Speaker Change #154: A lot of it is targeted to the trade.
Speaker Change #154: And stuff like that.
So many of many of the ones. We're referencing are what I call higher end brands that are targeting trade customers.
Speaker Change #154: Higher end.
Speaker Change #154: Consumers.
Speaker Change #154: But theres a lot of them like added probably 100, I don't know about it.
Gary G. Friedman: Right, 25% have kind of... 20% are probably blown up now or petering on blowing up. But I think there's a market like this, especially when you have the compounding nature of a really tough housing market with a really difficult credit market or capital market. You know, like they just can't get easy money anymore, you know, so there's no free money to kind of just grow a brand and not make money. In a market like this, you've got to figure out how to get to profitability real quick. You know, the odds of someone else giving you money are very low, and that's why I think a lot; there's just going to be a lot.
Speaker Change #154: 25%.
Speaker Change #154: 20% of load up now or.
Speaker Change #154: Petering out blowing up.
Speaker Change #154: I think there is.
Speaker Change #154: Market like this.
Speaker Change #154: Especially when you have the.
Speaker Change #154: Compounding nature of it.
Speaker Change #154: Really tough housing market with a really difficult credit market or capital market.
Speaker Change #154: Just can't get.
Speaker Change #154: Z money anymore. So there's no free money to kind of just grow brand did not make money yes.
In a market like this you got to figure.
Speaker Change #154: Figure out how to get to profitability real quick answers.
Speaker Change #154: You know the odds that someone else, giving your money is very low.
Speaker Change #154: And that's why I think a lot.
Speaker Change #154: Just going to be a lot.
Gary G. Friedman: Floating, and even, you know, even in the... You've got furniture retailers, you know, regional people blowing up, of all things, didn't make it through the last management changes that they went through in their business in a market like this. You know, and I think we're going to see more disruption. It doesn't look like the housing market's going to snap back any time soon.
Speaker Change #154: And floating in and even even in the.
The non online spaces, you've got furniture retailers regional people blowing up you've got higher end people like.
Speaker Change #154: Mitchell gold.
Speaker Change #154: Didn't make it through the last management changes.
Speaker Change #154: They went through in their business in a market like this.
Speaker Change #155: Yeah. So.
Speaker Change #155: And I think we're going to see more disruption.
Speaker Change #156: It looks like that.
Speaker Change #156: Housing market's going to snap back anytime soon so.
Gary G. Friedman: So I think there are a lot of businesses that are undercapitalized and not making money, and you're going to see more and more disruption, and that's going to all be opportunity. Yeah, and we've got, We're just so much better positioned today. From a value point of view, the value of our product is the disruptive nature, kind of how we're attacking the market, in some cases, that we're going to be able to get some of that share. That's helpful.
Speaker Change #156: I think theres a lot of businesses that are under capitalized not making money.
Speaker Change #156: Youre going to see more and more disruption and that's all the opportunity.
Speaker Change #157: Yeah, and we've got.
Speaker Change #157: We're just so much better positioned today.
Speaker Change #157: From a value point of view.
Speaker Change #157: The value of our product and the disruptive nature.
Speaker Change #157: Kind of.
Speaker Change #157: How we're attacking the market in some cases that we're going to be able to get some of that share.
Speaker Change #158: That's helpful. Thanks, Gary.
Seth Mckain Basham: Thanks, Gary. Our next question will come from Seth Basham with Wedbush Securities. Please go ahead. Thanks a lot, and good evening.
Speaker Change #160: Our next question will come from Seth Basham with Wedbush.
Speaker Change #159: Wedbush Securities.
Speaker Change #161: Please go ahead.
Thanks, a lot and good evening, just to clarify Gary you seem a little bit more negative on the macro than a quarter ago like in reduced the outlook for the year financially is that just because you see more benefits from some of your initiatives or is there something else.
Gary G. Friedman: Just to clarify, Gary, you seem a little bit more negative on the macro than a quarter ago, but you didn't reduce the outlook for the year financially. Is that just because you see more benefits from some of your initiatives, or is there something else? Yeah, I think we haven't really, The macro steps can bounce us around a little bit, but I don't think it's going to, unless there's a real... I don't think it's going to move us off our... you know, off our list factors are built into our business. So, you know, there may be some.
Speaker Change #161:
Gary G. Friedman: Yeah, I think we haven't really.
Gary G. Friedman: Put a lot of factor in it.
Gary G. Friedman: The macro steps bounces around a little bit.
Gary G. Friedman: I don't think its going to unless theres a real.
Gary G. Friedman: And another step down I don't think its going to move us off our.
Gary G. Friedman: Off our lift factors are built in our business.
Gary G. Friedman: So.
Gary G. Friedman: There may be some <unk>.
Gary G. Friedman: Shorter-term noise, you know, within quarters, things might move a little bit in the housing market, might be a little tougher or not as tough, if you look at, mortgage applications and things like that, you know, those can fluctuate, uh, you know, a bit here and there. So, you know, there's some macro noise within a year. Um, but I just don't think that, uh, We didn't really think that the macro was going to get a lot better, and so...
Short term noise.
Gary G. Friedman: Within quarters things might move a little bit.
Gary G. Friedman: Housing market.
Gary G. Friedman: Might be a little tougher or not tougher if you look at.
Gary G. Friedman: Mortgage applications and things like that those can fluctuate.
Gary G. Friedman: Yeah.
Gary G. Friedman: Eric.
Speaker Change #162: Macro noise within a year.
Speaker Change #162: But I just don't think that.
Speaker Change #162: We didn't really think that the macro is going to get a lot better.
Speaker Change #162: And so.
Gary G. Friedman: I think we're more right than wrong about what the macro is going to do. You know, I mean, even if we get one interest rate cut this year, if they go a quarter or even 50 basis points, it's not going to... You know, and so. But, you know, it's interesting, you know, we might get a point that really thinks we're going to get a 95% chance for one cut. I don't know, there's... There was a 95% chance for five or six cuts, not too long.
Speaker Change #162: I think we're more right than that than wrong about what the macro is going to do.
Speaker Change #162: And.
Speaker Change #162: You know I mean, even if we get one interest rate cut this year, if they go a quarter or even 50 basis points.
Speaker Change #162: Jim.
Speaker Change #163: Move the needle.
Speaker Change #164: Yeah and so.
Speaker Change #165: But you know it's interesting we might get a point there. Thanks.
So we're going to get it.
Speaker Change #165: It's a 95% chance for one cut I don't know if there's.
Speaker Change #165: There was a 95% chance.
Speaker Change #165: For five or six cuts not too long ago.
Gary G. Friedman: So, I, you know, we'll give you our view on the macro, but... You know, we take it into account in our business. Yeah, we're not when you're bouncing around the bottom like we are. In the housing market today, we kind of think we're probably going to be bouncing around the bottom for a while. We hope the bottom doesn't go lower. [inaudible] We're not really macro experts, so we try to interpret what we see and look at the trend. Take all the data and...
Speaker Change #166: So I will give you our view on the macro but.
Speaker Change #166: And we take it into account on our business.
Speaker Change #166: But.
Speaker Change #167: Yes, we're not when you're bouncing around the bottom like we are.
Speaker Change #167: In the housing market today.
Speaker Change #167: Yeah, we think we're going to bounce around the bottom for a while.
Speaker Change #167: Hope the bottom doesn't go lower.
Speaker Change #167: You can put it.
Speaker Change #167: <unk>.
Speaker Change #168: Yeah, we're not really macro experts.
Speaker Change #168: Try and interpret what we see and look at the trends in.
Speaker Change #168: Take all the data in.
Speaker Change #168: Yeah.
Gary G. Friedman: These are our best views. We're going to have a great time. Thank you. Thank you. It's getting worse, it's getting better. Right now, we don't think...
Speaker Change #168: Use our best views right.
Speaker Change #168: But just directionally.
Speaker Change #168: Is it going to get worse as game better right now we don't think it's going to get worse, and we don't think it's going to get better.
Seth Mckain Basham: It's going to get worse, and we don't think it's going to get better. I think it's going to stay about the same, and probably Q1 of it. Got it. That's helpful. And just a related clarifying question. You previously talked about peak inflection or peak year over year growth, you know, first being Q2 this year. Now, I'm not sure if it's the back half of 24, or whether you'll actually see the peak sometime in early 2025.
Speaker Change #168: I think it's going to stay about the same through probably Q1 of next year.
Speaker Change #169: Got it that's helpful and just a related clarifying question you previously had talked to peak inflection in our peak year over year growth was first being Q2. This year now I'm not sure. If it's back half of 'twenty, four or whether you actually see that peak sometime in early 2025.
Speaker Change #170: Yeah, I think the.
Seth Mckain Basham: Yeah, I think the interesting thing is that we see a lot more now, and we can connect with a lot more dots now. We've got some real products, you know, winners and things that are emerging, and we can see how to dimensionalize and optimize this now. So, so that, yeah, that's going to... But when I say peak, well, let's first define peak inflection. I'm talking about the kind of peak inflection of RH. SANS the macro, right? Forget the macro.
I mean, it's interesting.
Speaker Change #170: I have seen that we see a lot more now than we were.
Speaker Change #170: And connect a lot more data now we can we've got some real product.
Speaker Change #170: Winners and things that are emerging and we can see how to dimensionalize and optimizes now so so that yes that is.
Speaker Change #170: But when I say, well lets first lets define inflection I'm talking about kind of peak inflection of RH.
Speaker Change #170: And the macro.
Gary G. Friedman: Like when, like our product, you know, Pete will look like, what, you know, so I'd say, I think it's... likely for us to look like, Lake 24, early 25, I think, you know, it's, but then again, I could, you could say, oh, well, the peak is going to be 10 years from now, because we're going to keep getting better, right? So it's not like we stopped. But I'm talking about, like, the big move.
Speaker Change #171: Alright forget the macro like what they like our product.
Speaker Change #171: Pete will look like what you know so so I would say.
Speaker Change #171: I think it's.
Speaker Change #171: It's <unk>.
Likely for us looking like.
Slide 24.
Speaker Change #171: Yes.
Speaker Change #171: Nearly 25, I think you know.
Speaker Change #171: But then again.
Speaker Change #171: You could say Oh, well the peak is going to be 10 years from now because we're going to keep getting better right. So it's not like we stopped but I'm talking about like the big moves.
Gary G. Friedman: You know, the big moves we're making, you know, I'd say, yeah, there's... There's more we can see today, and I'd say it looks more like, you know, kind of late 24, early 25, just because we can see more, more news. Like, we've got a big development pipeline from a new product point of view, and we've got a really, a pretty big development pipeline from a platform point of view, right? And, you know, probably in the next quarter or two, we'll give you updates on, you know, like We're feeling more optimistic, but less optimistic about what that pipeline looks like, and you know that'll give us some more lists and things You know, and at some point here, we'll get Paris and London. We've just got Madrid open; we'll have Milan open too.
Speaker Change #171: The big moves, we're making I would say, yes, there is.
Speaker Change #171: There's more we can see today and I would say it looks more like kind of late 'twenty for early 'twenty five.
Speaker Change #171: Just because we can see more and more newness like we've got a big development pipeline from a new product point of view and we've got a really.
Speaker Change #171: Pretty big development pipeline for that.
Speaker Change #171: Platform point of view right.
And the next quarter or two we'll give you some updates on that.
Speaker Change #172: Got it.
Speaker Change #172: New galleries and how many we can do.
Speaker Change #172: Feeling more optimistic than less optimistic about what that pipeline looks like and that'll that'll.
Speaker Change #172: That'll.
Speaker Change #172: Give us.
Speaker Change #172: Some more lifts and things like that.
Speaker Change #172: And at some point here, we will get.
Speaker Change #172: Paris and London.
Speaker Change #173: Yeah, we just got mature it out then we'll have a lineup.
Speaker Change #172: And.
Gary G. Friedman: You know, we'll start, I think that business will all start to reflect, you know, you'll get a, You know, there's a compounding effect of... [inaudible] You know, like, once you start to really acquire customers, customers become more customers. If you do a good job, you know, it's like... Owner Normal Owner Microsoft Office Word Microsoft, Inc. Certain amount of people coming with you.
Speaker Change #172: We will start I think that business will all start to reflect what youll get it.
Speaker Change #172: There is a compounding effect of consumer awareness that happens with the brand.
Speaker Change #172: You know, it's like once you start to really acquire customers.
Customers indicate more customers, yes, youre doing a good job.
Speaker Change #172: You open a restaurant in.
Speaker Change #172: Turned around and people can meet with you and.
Gary G. Friedman: Opening night, and the next night, and the next night, and then they tell more friends, and they tell more friends, and pretty soon, you've got a full restaurant, right? It becomes a compounding factor. And I think we're going to have a compounding factor in Europe, where, you know, our biggest, when Europe starts to inflect from that compounding factor of awareness, I think it'll grow faster than the core business, it'll grow significantly faster. No different than the compounding factor that's happening in our guest house, you know, our guest house. Yeah, we ran it, but it had a relatively lower occupancy rate.
The opening night and the next night next night and then they tell more friends. They tell more friends and pretty soon you have got a full restaurant right. It becomes a compounding factor.
Speaker Change #172: And.
Speaker Change #172: I think we're going to have a compounding factor in Europe, where our biggest Europe starts to inflect from that compounding factor.
Speaker Change #172: Wariness.
Speaker Change #172: I think.
Speaker Change #172: It will grow faster than the core business you know it will grow significantly faster.
Speaker Change #172: It's no different than kind of the compounding factor this happening in our guesthouse our guest house.
Speaker Change #172: We ran it at relatively lower occupancy rates in the beginning because we only sent out when e-mailing wanted it to be about privacy and luxury and we didn't want to.
Gary G. Friedman: We started at the beginning because we only sent out one email, and we wanted it to be about privacy and luxury, and we didn't want to... It wasn't about filling it up, it was about... Having it be full of the right people at the wrong times and at a level of..., and even accessibility to it, right? not making it too accessible.
Speaker Change #174: Yeah, western about filling it up.
Speaker Change #174: It was about <unk>.
Speaker Change #174: Having it be full of the right people wrong time level.
Speaker Change #174:
Speaker Change #174: Hi.
Speaker Change #174: So our ability to it and.
Speaker Change #174: Even accessibility to it right.
Gary G. Friedman: And now we've got, You know, we get the who's who of people staying here because... If someone stays here and tells their poor friends, you know, and then you get two of those friends who stay, and they tell more friends. You know, it just compounds, you know, pretty soon, something's doing significantly better, and I think that's an important thing about building a brand like ours. You've got to build it the right way, like the investments we're making now into the physical location, http://TheBusinessProfessor.com [inaudible] 10% Variant.
Speaker Change #174: Not making it too accessible and now we've got.
Speaker Change #174: We got to have people staying here.
Speaker Change #174: Because you get somewhat stays here and they tell for friends.
And then you get two of those friends stay and they tell more friends.
Speaker Change #174: Compounds things pretty soon.
Speaker Change #174: He is doing significantly better.
Speaker Change #174: I think that's an important thing about <unk>.
Speaker Change #174: Building a brand like ours.
You got to build it the right way like the investments, we're making now into the physical locations in Europe.
Even in the U S.
Speaker Change #174: Especially Europe because Europe.
Speaker Change #174: It's really hard to compare to Europe, because everybody knows is in every market.
Speaker Change #175: No there is no market we have.
Speaker Change #175: In the U S that we don't have customers, we have customers in every market and so when we open in a new market, we kind of know exactly what's going to happen within.
Speaker Change #175: 10% variance when you are opening a new country, where no one knows you.
Gary G. Friedman: When you're opening in a new country where no one knows you, there's... You don't know what you're going to exactly do, but that... that awareness build is going to be exponential compared to the village in the U.S. You know, once it gets going, you know, it's like that, uh..., that tipping point, you know, that people talk about it. Simon Sinek talks about it, you know, the...
Speaker Change #175: There is here.
Speaker Change #175: No exactly do but.
Speaker Change #175: That.
Speaker Change #175: That awareness build this is gonna be exponential versus.
Speaker Change #175: Versus the builds in the U S.
Speaker Change #175: Whats once it gets going.
Speaker Change #175: That does.
Speaker Change #175: That tipping point that people talk about it what is it.
Speaker Change #176: Simon incentive talks about it.
Gary G. Friedman: Transcribed by https://otter.ai, and your awareness starts to exponentially grow. So, you know, but... Directionally, that late 24, early 25 is what we see today, but I might be telling you 26, 27 because we see more and we're dimensionalizing more opportunities. (Inaudible) Helpful, makes sense. Thanks for the color.
Speaker Change #176: Conversion point as a brand starts to get X percent of our market and tips and youre awareness starts to exponentially grow.
Speaker Change #176: So.
Speaker Change #176: Yeah.
Speaker Change #176: But yeah.
Speaker Change #177: They're directionally that.
Speaker Change #177: Yeah late 'twenty four 'twenty five.
Speaker Change #177: What we see today, but.
Speaker Change #177: Might be telling you 26, 27, because we see more and where dimensional anymore opportunities in optimizing more of the things and it's worth more.
Speaker Change #177: So.
Gary G. Friedman: And if I may, one last quick one for Jack. With the delay in the modern sourcebook, what was the impact on margin in the first quarter from lower sourcebook mailing costs? And will there be any negative impact in the second quarter from the delay relative to your prior expectations? Okay, we get minimal impact. Yeah, nothing because we were going to start to get in during the last week, I think. Yeah, okay, and it was, yeah, it was dependent, it was a minimum, but we... Minimal part, minimal, minimal of the expense within the... Minimal, yeah, it was most of the ad cost, almost all of it was in...
Speaker Change #178: Helpful makes sense, thanks for the color and if I may one last quick one for Jack.
Speaker Change #179: With the delay in the modern source book, what was the impact on margin in the first quarter from lower source book mailing toss and will there be any negative impact in the second quarter on the delay relative to your prior expectations.
Jack: Again minimal impact yeah, nothing because we were getting to.
Jack: You're going to start to get in the last week I think.
Jack: Yes, we've been last week in the quarter, but minimal.
Jack: Minimal apart minimal minimal expense with minimal yeah. It was most of the AD costs almost all of it was in Q2.
Speaker Change #181: Thanks, Jamie Yeah.
Jack M. Preston: Thank you. Okay, any other questions? And our final question will come from Brian Nagel on Oppenheimer. Please go ahead.
Speaker Change #182: Okay any other questions.
Speaker Change #183: And our final question will come from Brian Nagel with Oppenheimer. Please go ahead.
Brian William Nagel: Hey guys, good evening. So I have a couple of really quick questions that should be quick. So one. Just again, this is a follow-up to, but Gary, you talked a lot about, you know, the tone of the business and your letter. You mentioned this strength in Europe. Should we interpret that better translated as a direct reflection of the new products you have in the stores? Is that that's, that's, that's what's happening?
Speaker Change #184: Good evening.
Brian William Nagel: A couple of really quick questions that should be quick.
Brian William Nagel: Quick one.
Brian William Nagel: And then the second question I have, you know, just what explains the, I guess, widening gap between sales growth and demand growth? Yeah, no, I think that's, you're, you're, you're right. You know, I mean, the new product is... You know, creating an inflection point, right, and whether it's a new product that's just... in the books and online, or it's a new product that we've also now put in the stores, that is creating a bigger lift. And then the other piece of, I'd say, not to... Minimize is just getting in stock of the new product, right? It's, you know, you're, you're just not going to buy it right.
One <unk>.
So just again just as a follow up to.
Speaker Change #186: Gary you talked a lot about.
Speaker Change #187: The business was really striking.
Speaker Change #188: Striking DRP should we interpret the better trends lately is a direct reflection of the new plants you have in the stores.
Speaker Change #189: That's the that's what's happening and then the second question I have just what explains the I guess, the widening gap between sales growth and demand growth.
Speaker Change #190: Yeah, No I think Thats your Youre right.
Speaker Change #190: I mean, the new the new product as you know.
Speaker Change #190: Creating the flex the inflection point right and whether it's new product that's just.
Speaker Change #191: In the books and online or it's new product that we have also now put in the stores that is creating a bigger lift and and then the other the other piece of I'd say not to.
Minimized is just getting in stock and the new product right.
Speaker Change #191: Youre, just not going to buy it right and you're not going to really buy it for all stores right upfront and so.
Gary G. Friedman: And you're not going to really buy it for all stores right up front. And so, um, even if you... (inaudible) you're out of stock again. You know, so it takes a while for a business like this to kind of get ramped up because, you know, the factories can't move that fast against big numbers. I mean, we're we're a big business at the high end. You know, so it was easier when we were smaller to move more quickly.
Speaker Change #191: Even if you.
Speaker Change #191: Decided to take an early bet and say, hey, I'm going to buy this one for half the galleries upfront.
Speaker Change #191: But your demand hits and it youre selling way more than you thought it doesn't even get to those galleries.
Speaker Change #191: It gets to those galleries six months later and then it doesn't get to all galleries until six months after that.
Speaker Change #191: And even if you once you get it into the gallery issue Youre lift it might be bigger and then you're out of stock again, so it takes a while.
Speaker Change #191: In a business like this to kind of get ramped up because.
Got it.
Speaker Change #191: The factories, you can't move that fast against Big numbers I mean.
Speaker Change #191: Wherever we're a big the biggest business at the high end.
Speaker Change #191: No.
Speaker Change #191: It was easier when we were smaller to move more quickly I'd say it's harder.
Gary G. Friedman: I'd say it's harder to move more quickly when you start to have our scale because no one makes scale. So I said that one of the collections that we did that became successful out of the gate, you know. You could kind of forecast it, just dimensionalize it based on the early demand trends that wow, this is going to be our best collection. I mean, the manufacturer had a Triple A, like they had opened two more buildings of the same size that they were manufacturing in. They had to go from one to three factories.
To move more quickly.
Speaker Change #191: To have our scale has no one makes scale. So you said that the one.
Speaker Change #191: One of the collections that we did that it became out of the gate.
Speaker Change #191: And you could you could kind of forecast it just dimensionalize. It based on the early demand trends that Wow. This is going to be our best collection.
Speaker Change #191: I mean the manufacturer header.
Speaker Change #191: Triple.
Speaker Change #191: The building like they they had opened two more buildings at the same size that they were that they were manufacturing and it's good for one to three factories.
Gary G. Friedman: So that, you know, that just takes a while, so you've got to really think about... in stocks, like when we look at some of our Lift factors, one of the biggest is God, when we get in stock on that, when back orders come down, our back orders are at record highs right now. And so that's really the gap between demand and sales is backorders and special order lead times and wait times. And then you've got some permanent, not permanent, but like, you know, the issues in the Red Sea that have caused, you know, that have caused us to go around the tip of Africa and put almost two weeks, you know, 10 days on the product.
Speaker Change #191: That just takes a while so you got to really think about.
In stocks like when we look at some of our.
Speaker Change #191: Lyft factors one of the biggest is guy can we get any stocking that went back orders come down our back orders are record highs right now.
Speaker Change #191: And so that's really the gap between demand and sales is back orders and special order lead times and wait times and then you've got you've got some permanent that permanent but like.
The issues in the Red sea that cost.
Speaker Change #191: Caused us to go around the tip of Africa and to put almost two weeks 10 days on the product.
Gary G. Friedman: Basically, it's two. That just creates a backlog, you know, so, you know, a lot of our goods are going that way, and so you take two weeks. It's demand that doesn't turn into revenue, and it doesn't turn into revenue.
Speaker Change #191: Basically two weeks.
Speaker Change #191: That just creates a backlog itself so.
Speaker Change #191: A lot of our goods are going that way and so you take two weeks.
Speaker Change #191: Yes, that's demand that doesn't turn into revenue and it doesn't turn into revenue.
Gary G. Friedman: You won't ever catch up on that until we can access the red tape, right? And. Uh, so it's, it's, you know, it's, the manufacturers are catching up, and uh... and uh..., and it's getting in stock, and it's shortening lead time. Shortening special order turnaround times on new product, you know. The Bulletproof Executive 2013, Big Delta, you know; it's kind of no different really than COVID, right? Like you had, a lot of demand happened, and people couldn't ramp up fast enough, and then you've got a kind of a hangover for a while.
Speaker Change #191: Ever catch up on that until we can access the red Sea again right.
Speaker Change #191: So it's yes it's.
Speaker Change #191:
Speaker Change #191: The manufacturers catching up.
Speaker Change #191: And.
Speaker Change #191: And it's getting in stock and it's shortening lead times.
Shortening special order turnaround times on new product.
Speaker Change #191:
Speaker Change #191: Yes.
Speaker Change #192: You're just going to create a yep.
Speaker Change #191: Yep Yep.
Speaker Change #191: A big Delta.
Speaker Change #191: You know, it's kind of no different.
Speaker Change #191: Really then kind of Covid right like you had.
Speaker Change #191: A lot of demand happened and people can't ramp fast enough and then you've got a kind of a hangover for awhile.
Gary G. Friedman: We're going to have some of that here until we kind of catch up and then go in a regular cadence of 15% to 20%. That's very helpful. I appreciate it. Thank you. Thank you. Thanks, Brian. That was our last question, right?
Speaker Change #191: We're going to have some of that.
Speaker Change #191: It's noise here until we kind of catch up and then go in a regular cadence of.
Speaker Change #191: 15% to 20% newness.
Speaker Change #193: That's very helpful. I appreciate it thank you.
Brian William Nagel: Okay, well, thank you, everyone, you know, for your time and attention today. We're really excited about this transformation in our business and the evolution of the brand and the platform. We think we're doing some of the best work we've ever done. And, you know, we here people are doing an incredible job bringing this new vision to life. And we think, you know, very soon, our shareholders will feel really rewarded for this work that we're doing.
Brian William Nagel: Thank you thanks, Brian.
Brian William Nagel: And we appreciate all of your support. So, thank you. And we will talk to you next quarter. And this will conclude today's conference. Thank you for your participation, and you may now disconnect.
Brian William Nagel: [music].