Q1 2026 RH Earnings Call

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Operator: Ladies and gentlemen, thank you for standing by. Today's conference will begin momentarily. Until that time, your lines will again be placed on music hold. Thank you for your patience.

Ladies and gentlemen, thank you for standing by today's conference will begin momentarily until that time your lines will again be placed on music hold thank you for your patience.

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Operator: Hello and welcome to the RH first quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise.

Speaker Change: Hello, and welcome to the RH first quarter 'twenty twenty-five earnings call all lifes been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session and if you'd like to ask a question. During this time. Please press star one on your telephone keypad.

Operator: After the speaker's remarks, there will be a question and answer session, and if you would like to ask a question during this time, please press star 1 on your telephone keypad.

Allison Malkin: I would now like to turn the conference over to Allison Malkin of ICR. You may begin. Thank you.

Speaker Change: I would now like to turn the conference over to Allison Malkin of ICR you may begin.

Allison Malkin: Thank you and good afternoon, everyone. Thank you for joining us for our first quarter fiscal 'twenty 25 earnings call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer, and Jack Preston Chief Financial Officer, before we start I would like to remind you of our legal dispute.

Allison Malkin: Good afternoon, everyone. Thank you for joining us for our first quarter fiscal 2025 earnings call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer, and Jack Preston, Chief Financial Officer.

Allison Malkin: Before we start, I would like to remind you of our legal disclaimer that we will make certain statements today that are forward looking within the meaning of the outlook of our business and other matters referenced in our press release issue today. These forward looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings as well as our press release issue today for a more detailed description of the risk factors that may affect our results. Please also note that these forward looking statements reflect our opinion only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward looking statements in light of new information or future events.

Speaker Change: Remember that we will make certain statements today that are forward looking within the meaning of the federal securities laws, including statements about the outlook for that 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.

Speaker Change: 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.

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.

Allison Malkin: Also, during this call, we may discuss non-GAAP financial measures, which adjusts our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in today's financial results press release.

Also during this call we may discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items you will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures.

In today's financial results press release.

Allison Malkin: A live broadcast of this call is also available on the investor relations section of our website at IR.RH.com.

Live broadcast of this call is also available on the Investor Relations section of our website at IR that are H dot com with that I would now like to turn the call over to Gary Great. Thank you Alison Hi, good afternoon, everyone.

Gary Friedman: With that, I would now like to turn the call over to Gary. Great. Thank you, Allison. Good afternoon, everyone. Let's see if maybe we can get off to a better start than last quarter. I should ask, who was the person that asked the setup call that got my response that echoed around the world? I can't remember, but I'm going to put you last in the queues. Anyway, thank you. And thanks for joining us.

Yeah.

Speaker Change: Let's see if we can get off to a better start than last quarter I should ask who is the person that asked us to ask Paul Thanks, Scott and my response is good around the world.

Speaker Change: I can't remember.

Speaker Change: Thank you last in the queue.

Speaker Change: Andrew.

Thank you and thanks for joining us.

Gary Friedman: Let me take you through the highlights of our letter, and we'll open the call to questions. To our people, partners, and shareholders, our industry-leading growth continued into fiscal 2025 as revenue increased 12% in the first quarter, despite the polarizing impact of tariff uncertainty and the worst housing market in almost 50 years. Both adjusted operating margin of 7% and adjusted EBITDA of 13.1% were at the high end of our expectations, and we achieved positive free cash flow of $34 million in the quarter. The substantial investments to elevate and expand our product and platform have resulted in significant share gains and strategic separation, positioning the RH brand for continued growth over the next decade.

Speaker Change: Take you through the highlights of our letter and we will open the call to questions.

Two our people partners and shareholders are industry, leading growth continued in fiscal 2025 as revenue increased 12% in the first quarter. Despite the polarizing impact of tariff uncertainty and the worst housing market and almost 50 years, both adjusted operating margin of 7% and adjusted.

EBITDA of 13, 1%, whereas the high end of our expectations and we achieved positive free cash flow of 34 million in the quarter.

The substantial investments to elevate and expand our product and platform have resulted in significant share gains in strategic separation positioning our brands for continued growth over the next decade.

Gary Friedman: We continue to be pleased with the second year demand trends at RH England. With the gallery up 47% in the first quarter and online demand at 44%, current demand trends indicate the gallery will now reach approximately 37 to 39 million of demand in 2025. second full fiscal year, with the online demand reaching approximately 8 million. To put those results into perspective, if an RH gallery in the English countryside with an estimated population of 100,000 in a 10-mile radius, two hours outside of London, can generate 46 million of total demand in its second full fiscal year, what can an RH gallery in the center of Mayfair, the most exclusive shopping district in London, with a population of 9.7 million do in its second full fiscal year?

We continue to be pleased with the second year demand trends at our age England.

Speaker Change: With the gallery up 47% in the first quarter and online demand at 44% current demand trends indicate the gallery will now reach approximately 37 to 39 million demand in 2025.

Second full fiscal year with the online demand, reaching approximately $8 million.

Speaker Change: To put those results in perspective.

Speaker Change: Perspective, if in RH gallery in the English countryside, with an estimated population of 100000, and a 10 mile radius two hours outside of London and generated $46 million of total demand in its second full fiscal year, what can and RH gallery at the center of Mayfair The Moe.

Exclusive shopping district in London, with a population of $9 7 million in its second full fiscal year, we believe exponentially more.

Gary Friedman: We believe exponentially more. While many questioned the decision to open our first RH Gallery in such a remote location, believing it would fail, what they failed to understand is the value of doing something so extraordinary and remarkable that it breaks through the clutter and creates a conversation that is authentic and uniquely our own. We've learned during our journey at RH that when we've done extraordinary and remarkable work, we've always figured out a way to monetize it. And we've also learned that it's hard to monetize ordinary and unremarkable. We're also pleased to report our business in Europe continues to accelerate, with demand growth of 60% in the first quarter across two comparable galleries, RH Munich and RH Dusseldorf.

Speaker Change: Well many question the decision to open our first RH gallery et cetera, remote location, believing it would fail, but they fail to understand is the value of doing something so extraordinary and remarkable that it breaks through the clutter and create the conversation.

And uniquely umbrella.

Speaker Change: We have learned during our journey at our age that when we've done.

Speaker Change: Extraordinary and remarkable work, we've always figured out a way to monetize it.

Speaker Change: And we've also learned is that it's hard to monetize ordinary and then remarkable.

We're also pleased to report our business in Europe continues to accelerate with demand growth of 60% in the first quarter across two comparable galleries are each Munich and our <unk>.

Gary Friedman: We're also pleased with the continued demand acceleration in our non-comparable galleries, RH Brussels and RH Madrid. Last week, our leadership team traveled to RH England, RH Madrid, and the soon-to-open RH Paris. While there, we met with our teams from all five galleries, listening and learning as they identified opportunities that we both believe could double our current business over the next couple of years. We believe R.H. Paris, the gallery in the Champs-Élysées, will be our most elegant and inspiring gallery yet. Located on the famous Parisian boulevard just off the Avenue Montaigne, it is at the epicenter of fashion and luxury.

We're also pleased with the continued demand acceleration in our non comparable galleries are each Brussels and RH Madrid.

Speaker Change: Last week, our leadership team traveled to RH, England, RH Madrid, and it seemed to open RH Paris.

Speaker Change: While we while we while there we met with our teams from all sides galleries listening and learning as they identified opportunities that we both believe to double our current business over the next couple of years.

Speaker Change: We believe our Paris, the gallery and the Cheyenne until this day.

Our most elegant and aspiring gallery.

Speaker Change: Located on the statements Parisian Boulevard just off the Avenue Montaigne. It is at the epicenter of fashion and luxury.

Gary Friedman: You will pass through 20-foot gold-gilded gates that lead you down a hedge-lined, decomposed granite pathway into a beautifully landscaped garden where we built a freestanding RH Interior Design Studio. Opposite the studio, you enter the gallery through 18-foot bronze and brass doors, flanked by trickling fountains, and encounter the dramatic atrium with ornate railings, scissor stairs, and a magnificent glass elevator connecting the six floors and two restaurants. While enjoying lunch or dinner from our curated menu of American Classics at Les Jardins RH, located on the second floor terrace overlooking the garden, you'll be seated under a soaring curved glass atrium inspired by the Grand Palais, with a bar sculpted from and floating above a floor of rare white onyx.

Speaker Change: You will pass through 20 foot goldfield engaged that lead you down a hedge line decompose Brandon pathway into a beautifully landscaped garden, where we will have built where we build a freestanding RH interior design studio.

Speaker Change: Opposite the studio you entered the gallery through 18 foot bronze and brass doors by trickling fountains and encountered the dramatic atrium with ornate railing scissors stairs and a magnificent glass elevator connecting the six floors and two restaurants.

Speaker Change: While enjoying lunch or dinner from our curated menu of American classics at leisure or Dan or H located on the second floor terrace overlooking the garden.

Speaker Change: Youll be seeded underscoring curved glass atrium inspired by the Grand Pele with a barge sculpted from floating above a floor of rare white onyx.

Gary Friedman: Le Petit RH will occupy the top floor and the rooftop, where you can take in majestic views of the Eiffel Tower and Grand Palais, while enjoying a creative menu of small bites, special caviar dishes, and seafood towers, while sipping a perfectly crafted cocktail or glass of champagne. Our plan is to open RH Paris in early September to coincide with Maison DFJ, the premier interior design show in Europe that attracts design professionals from around the world. When we assess the current business momentum across our galleries, the upcoming openings of RH Paris, London, and Milan, all in iconic locations over the next 12 months, I can honestly say we have never been more excited or confident about the desirability of the RH brand globally.

Let me repeat our H well occupied the top floor and the roof top where you can take in majestic used at the Eiffel tower and Grand Pele, while enjoying and creative menu with small bites special caviar dishes and seafood towers slipping a perfectly crafted cocktails or glass of champagne.

Speaker Change: Our plan is to open our each Paris in early September to coincide with Nissan Doj The Premier interior design shell in Europe that attracts design professionals from around the world.

When we assess the current business momentum across our galleries, the upcoming openings of our aged Paris, London and Milan.

And like iconic locations over the next 12 months I can honestly say, we have never been more excited or confident about the desirability of the RH brand globally.

Gary Friedman: Another topic we could not be more excited about is welcoming Lisa Chee back to Team RH as President and Co-Chief Merchandising and Creative Officer. Lisa is a proven creative and merchandising force in our industry, as witnessed by the product transformation and brand elevation she led over the past four years at our house in her role as Chief Merchandising Officer and prior as a consultant to the company. Lisa will co-lead all merchandising and creative efforts with Eric Chia, President and Co-Chief Merchandising and Creative Officer and a member of the RH Board of Directors.

Speaker Change: Another topic, we could not be more excited about is welcoming Lisa Chi back the team RH as president and co chief merchandising and creative officer.

Speaker Change: Lisa is a proven creative and merchandising force in our industry as witnessed by the product transformation and brand elevation. She led over the past four years at our house in her role as Chief merchandising officer and prior as a consultant to the company.

It will co lead all merchandising and creative efforts with Aerie Chai, President and co Chief merchandising officer.

Speaker Change: Chief merchandising and creative officer, and a member of the RH Board of directors.

Gary Friedman: Every decade or so, dark clouds will fill the economic skies, and it will briefly rain gold. Warren Buffett While we expect a higher-risk business environment this year due to the uncertainty caused by tariffs, market volatility, inflation risk, and an increasing level of global discord, We believe it's important to separate the signal from the noise. The fact is, we've been operating in the worst housing market in almost 50 years. For context, in 1978, there were 4.09 million existing homes sold when the U.S. had a population of 223 million. Contrast that to 2024, where 4.06 million existing homes sold with a population of 341 million.

Speaker Change: Every decade, or so dark clouds will fill the economics, guys and they will briefly Randgold Warren Buffett.

Speaker Change: While we expect a higher risk business environment. This year due to the uncertainty caused by tariffs market volatility inflation risk and an increasing level of global dysport.

We believe it's important to separate the signals from the noise. The fact is we've been operating in the worst housing market and almost 50 years for context and 1978, there were $4 9 million existing homes sold when the U S had a population of $223 million con.

Contrast that to 2024 were $4 6 million existing homes sold with a population of $341 million and in Duluth <unk>, just how depressed the heart housing market has been this year.

Gary Friedman: And it illuminates just how depressed the housing market has been this year. Despite that fact, we are performing at a level most would expect in a robust housing market. We believe it's the result of investing with a very narrow focus and a long-term view, or what we like to call an inch wide and a mile deep. Elevating and expanding our platform by creating the most desired products presented in the most inspiring spaces in the world. With bespoke interior design services and beautiful restaurants that generate energy, engagement, and tremendous awareness of DRH brand, while also serving as a profitable customer acquisition vehicle.

Speaker Change: Despite that fact, we are performing at a level most would expect in a robust housing market. We believe it's a result of investing with a very narrow focus and a long term view or what we like to call an inch wide and a mile deep <unk>.

Speaker Change: Elevating and expanding our platform by creating the most desired products presented to the most inspiring spaces in the world with bespoke interior design services, and beautiful restaurants that generate energy engagement and tremendous awareness the RH brand.

Also serving as a profitable customer acquisition vehicle.

Gary Friedman: Our intentions and attention to detail are reflected in everything we do and in every house we turn into a home. Well, our business has been strong. It has been so due to action versus inaction, innovating versus duplicating, investing versus divesting, and aggressively taking market share during this downturn. So we're positioned to create long-term strategic separation on the other side of it. We're investing in the most iconic global locations in retail that will likely never be replicated in our lifetime. We are building a global hospitality company with multiple concepts across multiple continents…countries…we're…we're in continents. We are creating a global bespoke interior design business that regularly does million-dollar-plus full installations.

Our intentions and attention to detail are reflected in everything we do and in every house, we turned into a home.

Speaker Change: While our business has been strong.

Speaker Change: It has been so due to action versus inaction innovating versus duplicating investing versus divesting and aggressively taking market share. During this downturn. So we are positioned to create long term strategic separation on the other side of it.

We are investing in the most iconic global locations in retail that will likely never be replicated in our lifetimes.

Speaker Change: We are building a global hospitality company with multiple concepts across multiple content continent countries.

Speaker Change: We are in content, we are creating a global bespoke interior design business that regularly <unk> million dollar plus full installations.

Gary Friedman: We are building a global contract and hospitality business where our products are featured in some of the finest hotels and residential products in the world, and we are creating the most desirable and distinguished brand in our industry, all while forecasting an adjusted EBITDA margin north of 20%. Imagine what our margins and cash flow might look like in a robust housing market once we begin to cycle and leverage those investments. While we began the year with meaningful debt, almost entirely due to our stock repurchases of $2.2 billion, we also began the year with incredible business momentum and meaningful assets.

Speaker Change: We are building a global contract and hospitality business, where our products are featured in some of the finest hotels and residential products in the world.

Speaker Change: And we are creating the most desirable and distinguished brand in our industry, all while forecasting an adjusted EBITDA margin north of 20%.

Speaker Change: Imagine what our margins and cash flow might look like in a robust housing market. Once we begin to cycle and leverage those investments.

Speaker Change: While we began the year with meaningful debt almost entirely due to our stock repurchases of $2 2 billion. We also began the year with incredible business momentum and meaningful assets.

Gary Friedman: The assets include real estate that we believe has an estimated equity value of approximately $500 million that we plan to monetize opportunistically as market conditions warrant and excess inventory of $200 to $300 million in costs that we plan to turn into cash over the next 12 to 18 months as we optimize our assortments post our product transformation. We are forecasting to generate $250 to $350 million of free cash flow in 2025. And our plans also call for a significant and growing cash flow from operations and lower capital requirements over the next several years as we cycle this aggressive investment period.

Speaker Change: The assets include real estate that we believe has an estimated equity value of approximately $500 million that we plan to monetize opportunistically as market conditions warrant an excess inventory of $200 million to $300 million of costs that we plan to turn into cash over the next 12 to 18 months as we optimize.

Speaker Change: Our assortments.

Speaker Change: Our transformation.

Speaker Change: We are forecasting to generate $250 million to $350 million of free cash flow in 2025.

Speaker Change: And our plans also called for a significant and growing cash flow from operations and lower capital requirements over the next several years as we cycle this aggressive investment period.

Gary Friedman: We estimate that our adjusted capital expenditures will decrease to a range of $200 to $250 million in 2026, and $150 to $200 million in 2027 and beyond. We remain confident in our ability to make the necessary investments to continue our industry-leading growth, while significantly reducing debt and lowering interest expenses.

Speaker Change: We estimate that our adjusted capital expenditures will decrease to a range of $200 million to $250 million in 2026, and $150 million to $200 million in 2007 and beyond.

Speaker Change: We remain confident in our ability to make the necessary investments to continue our industry, leading growth, while significantly reducing debt and lowering interest expense.

Gary Friedman: As Warren Buffett wrote in his 2016 letter to Berkshire Hathaway shareholders, every decade or so, dark clouds will fill the economic skies and they will briefly rain gold. When downpours of that sort occur, it is imperative that we rush outdoors, turn wash tubs, not teaspoons. Our debt is reflective of a rush-cut bet on ourselves. We purchased 60% of our outstanding shares that greatly benefited our long-term shareholders post the publishing of Mr. Buffett's letter in 2016 to 2017. and recently repurchased 30% of the outstanding shares during this housing downturn in 2022 and 2023. In addition, we believe another washed up bet is to play offense in the current environment by increasing our membership discount from 25% to 30%.

Speaker Change: As Warren Buffett wrote in its 2016 letter to Berkshire Hathaway shareholders ever.

Speaker Change: Every decade, or so dark clouds will fill the economics, guys and they will briefly rain cold when downpours that that sort of occur. It is imperative that we rush outdoors train watch tabs not teaspoons.

Speaker Change: Our debt is reflective of our rock cut bet on ourselves, we purchased 60% of our outstanding shares that greatly benefited our long term shareholders post the publishing of Mr. Buffett's letter in 2016 and 2017.

Speaker Change: And reached and recently repurchased 30% of the outstanding shares during this housing downturn in 2022 and 2023.

Speaker Change: In addition, we believe another washed a bet.

Speaker Change: Is to play offense in the current environment by increasing our membership discount from 25% to 30%. This incremental incentives will position us to capture market share increased market share and drive additional membership, which all serve us extremely well when the housing market recovers.

Gary Friedman: This incremental incentive will position us to capture market share, increase market share and drive additional membership, which all serve us extremely well when the housing market recovers. While the sky in our sector has been darkened by inflation, interest rates, tariffs and global politics, those clouds will soon too pass, and it will not only be clear skies, but also clear that it was a good time to be a shareholder of RH.

Speaker Change: While the sky in our sector has been darkened by inflation interest rates tariffs and global politics, those cloud will soon to pass and it will not only be clear skies, but also clear that it was a good time to be a shareholder of RH.

Gary Friedman: Reciprocal Tariffs. We have continued to shift sourcing out of China and expect receipts to decrease from 16% in Q1 to 2% in Q4, with a meaningful portion of the tariff absorbed by our vendor partners. We've also resourced a significant portion of our upholstered furniture to our own North Carolina factory, where we've been operating 10 years. We're now projecting that 52% of our upholstered furniture will be produced in the United States, and 21% will be produced in Italy by the end of 2025. While there remains uncertainty until the reciprocal tariff negotiations are complete, we have proven we are well positioned to compete favorably in any market condition.

Speaker Change: Reciprocal tariffs.

Speaker Change: We have continued to shift sourcing out of China, and expect receipts to decrease from 16% in Q1 to 2% in Q4 with a meaningful portion of the tariff absorbed by our vendor partners.

Speaker Change: We are also resource a significant portion of our upholstered furniture to our own North Carolina.

Speaker Change: <unk> factory, where we've been operating in 10 years, we're not now projected at 52% of our upholstered furniture produced in the United States and 21% will be produced in Italy by the end of 2025.

Speaker Change: While there remains uncertainty until they're receptive to precipitate tariff negotiations are complete we have proven we are well positioned to compete favorably in any market conditions.

Gary Friedman: Let's look at our outlook. Despite the speculative and uncertain outcome related to tariffs and the macroeconomic environment, we are maintaining our current guidance for fiscal 2025, assuming the existing tariffs remain unchanged. To mitigate risks, we are delaying the launch of the new concept that was planned for the second half of 2025 to the spring of 2026, when there is more certainty regarding tariffs and price of products. Additionally, due to significant and unexpected Liberation Day tariffs announced on April 2nd, shipments and sourcing efforts were disrupted globally. We believe the disruption will negatively impact revenues by approximately six points in the second quarter and will be recovered in the second half, which is reflected in our outlook below.

Speaker Change: Let's look at our outlook.

Speaker Change: Despite the speculators and uncertain outcome related to tariffs and the macroeconomic environment. We are maintaining our current guidance for fiscal 2025, assuming the existing tariffs remain unchanged.

Speaker Change: To mitigate risks we are delaying the launch of the new concept that was planned for the second half 2025 to the spring of 2026, when there is more certainty regarding tariffs and price the product.

Speaker Change: Additionally, due to the significant and unexpected liberation day tariffs announced on April 2nd shipment and sourcing efforts were disrupted globally. We believe the disruption will negatively impact revenues by approximately six points in the second quarter and will be recovered in the second half which is reflected in our outlook.

Speaker Change: Hello.

Gary Friedman: For fiscal 2025, we are forecasting revenue growth of 10 to 13 percent, adjusted operating margin of 14 to 15 percent. adjusted EBITDA margin of 20-21% and free cash flow of $250-350 million. Second quarter 2025 guidance includes revenue growth of 8 to 10 percent, adjusted operating margin of 15 percent to 16 percent, and adjusted EBITDA margin of 20.5 percent to 21.5 percent. The above outlook includes an approximately negative 180 basis point operating margin impact from investments and startup costs to support our international expansion.

Speaker Change: For fiscal 2025, we're forecasting revenue growth of 10% to 13%.

Speaker Change: Adjusted operating margin of 14% to 15%.

Speaker Change: Adjusted EBITDA margin of 20% to 21%.

Speaker Change: And free cash flow of $250 million to $350 million.

Speaker Change: Second quarter 2025 guidance includes revenue growth of 8% to 10%.

Speaker Change: Adjusted operating margin of 15%, 16% and adjusted EBITDA margin of 25% to 21, 5%.

Speaker Change: The above outlook includes an approximately negative 180 basis point operating margin impact from investments and startup costs to support our international expansion.

Gary Friedman: Every act of creation is first an act of destruction. Pablo Picasso. 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. We believe the important investments we are making to elevate and expand our product and platform during this depressed housing cycle are creating a level of strategic separation in our industry that rivals the most important brands in the world. Our product elevation and extension plans for 2025 include our 2025 RH Outdoor Sourcebook arrived in homes February with aging furniture collections and exciting new textiles offering, plus a significantly improved in-stock position to start the season versus a year ago.

Speaker Change: Every active creation is first enacted destruction Pablo Picasso.

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 exponentially more inspiring and disruptive RH brand.

Speaker Change: We believe the important investments, we're making to elevate and expand our product and platform. During this depressed housing cycle are creating a level of strategic separation in our industry that rivals the most important brands in the world.

Speaker Change: Our product elevation and expansion plans for 2025 include our.

Speaker Change: Our 2025 RH outdoor sports book arrived in homes February with eight new furniture collections, and Excitingly textiles, offering plus has significantly improved in stock position to start the season versus a year ago. While the business started strong we experienced a slowdown following the reciprocal tariffs due to the due to the <unk>.

Gary Friedman: While the business started strong, we experienced a slowdown following the reciprocal tariffs due to the compressed peak selling season and the market becoming highly promotional. We responded by increasing our RH membership discount to 35% for a limited time to maximize market share in this important category. The introduction of our new RH Interior Sourcebook arrived in homes mid-February. We've been pleased with the early response to the new collections, despite what has been a volatile period post the tariff announcement. Our RH Modern Sourcebook is in home this week with 18 new collections across furniture, upholsteries, lighting, rugs, and textiles.

Speaker Change: Peak selling season, and the market, becoming highly promotional we responded by increasing our RH membership discount to 35% for a limited time to maximize market share in this important category.

Speaker Change: The introduction of our new RH interiors source book arrived and homes mid February we've been pleased with the early response to the new collections. Despite what has been a volatile period post the tariff announcements.

Speaker Change: Our RH modern source book is in home. This week with 18, new collections across furniture upholstery is lighting rugs and textiles, we are introducing a new design aesthetic chip handy harmonizing elements of Japanese serenity and Scandinavian simplicity.

Gary Friedman: We are introducing a new design aesthetic, Japandi, harmonizing elements of Japanese serenity and Scandinavian simplicity.

Gary Friedman: As mentioned, we are delaying the launch of the significant new brand extension previously planned for the fall of 2025 to the spring of 2026 that we believe will meaningfully expand market size and share of the RH brand. This new brand extension will include a source book and three free scanning galleries in San Francisco, West Hollywood, and Greenwich, Connecticut. We'll be sharing more details of the exciting new venture later this year.

Speaker Change: As mentioned, we are delaying the launch of a significant new brand extension previously planned for the fall 2025 through the spring of 2026 that we believe will meaningfully expand meaningfully expand market size and share of the RH brand.

Speaker Change: This new brand extension will include a source book and three freestanding galleries in San Francisco with Hollywood and Greenwich, Connecticut.

Speaker Change: We'll be sharing more details of this exciting new venture later this year.

Gary Friedman: Our Platform Elevation and Expansion Plans for 2025. We continue to open the most inspiring and immersive physical experiences in our industry, and some would say the world. Spaces that are a reflection of human design, a study of balance, symmetry, and perfect proportions. Spaces that blur the lines between residential and retail, indoors and outdoors, home and hospitality. Spaces with garden courtyards, rooftop restaurants, wine and barista bars. Spaces that activate all of the senses, and spaces that cannot be replicated online. Our plan to expand the RH brand globally, address new markets locally, and transform our North American galleries represents a multi-billion dollar opportunity.

Speaker Change: Our platform elevation and expansion plans for 2025.

Speaker Change: We continue to open the most inspiring immersive physical experiences in our industry and some would say the world.

Speaker Change: Spaces that are a reflection of human design steady a balanced cemetery and perfect proportions basis have blurred the lines between residential and retail indoors and outdoors home and hospitality.

Speaker Change: Places, where gardner courtyards rooftop restaurant wine and barista bars basis that activate all of defenses and spaces that cannot be replicated online.

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

Gary Friedman: Our platform elevation and expansion plans for 2025 include the opening of seven design galleries. in Oklahoma City and Montreal in the second quarter, plus Paris, Detroit, Manhasset, San Diego, and Palm Desert in the second half. We also plan to expand our brand presence in East Hampton this week by opening a freestanding RH outdoor gallery just a couple of doors down from our current gallery, and are exploring plans to further enhance our design ecosystem with a new concept gallery in the near future. as previously communicated. We anticipate an inflection of our business in Europe as we begin to open in the important brand-building markets of Paris in 2025, plus London and Milan in 2026, all with dramatic and brand-building hospitality experiences.

Speaker Change: Our platform elevation and expansion plans for 2025 include the opening of seven design galleries.

Speaker Change: In Oklahoma City in Montreal in the second quarter, plus Paris, Detroit Manhasset, San Diego in Palm Desert and the second half.

Speaker Change: We also plan to expand our brand presence in east Hampton. This week by opening a freestanding arch outdoor gallery, just down just a couple of doors down from our current gallery and are exploring plans to further enhance our design ecosystem with a new concept gallery in the near future.

Speaker Change: As previously communicated.

Speaker Change: We anticipate an inflection of our business in Europe as we begin to open in the important brand building markets that Paris in 2025, plus London and Milan in 2026, all with dramatic and brand building hospitality experiences. We believe post each opening we will begin.

Gary Friedman: We believe post each opening, we will begin to have the scale to support the necessary advertising investments to accelerate our growth in Europe. Looking forward, we plan to accelerate our platform expansion strategy to include the opening of seven to nine new galleries per year, plus two to three design studios slash outdoor galleries or new concept galleries per year that increase our current presence in underpenetrated markets or open new markets to the RH brand.

Speaker Change: To have the scale to support the necessary advertising investments to accelerate our growth in Europe.

Speaker Change: Looking forward, we plan to accelerate our platform expansion strategy to include the opening of seven to nine new galleries per year, plus two to three design studios slash outdoor galleries or new concept galleries per year that increased our current presence in underpenetrated markets.

Speaker Change: Or open new markets to the RH brand.

Gary Friedman: Every movement has a lunatic fringe, Theodore Roosevelt. America's first Nobel Prize winner, commander of the legendary Rough Riders, Medal of Honor recipient, promoter of the conservative movement, conservation movement, leader of the progressive movement, noted for his exuberant personality and ranked by scholars as one of the greatest presidents. Theodore Teddy Roosevelt proclaimed in a famous speech of the so-born in Paris, it is not the critics who count. Not the man or woman who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man or woman who is actually in the arena.

Speaker Change: Every movement has a lunatic fringe Theodore Roosevelt.

Speaker Change: America's first Nobel Prize winner commander of the legendary rough riders medal of honor recipient promoter of the Conservative movement Conservation movement leader of the progress.

Speaker Change: <unk> noted for as exuberant personality and ranked by scholars that's one of the greatest President's Theodore Teddy reservoir.

Speaker Change: Claimed and is famous speech so born in Paris. It is not the critical tasks not the man or women, who pointed out had a strong man stumbles or where the doer beads could have done better.

Speaker Change: The credit belongs to the manor women, who is actually in the arena.

Gary Friedman: whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming. But he or she who actually strives to do the deeds, who knows the great enthusiasms, the great devotions, who spends themselves in a worthy cause. who at its best knows in the end the triumph of high achievement and who at its worst, if he fails, at least fails while daring greatly. So his place shall never be with those cold and timid souls who know neither victory nor defeat.

Speaker Change: Space is marred by desk and sweat and blood.

Speaker Change: <unk> valiantly to errors and comes up short again and again, because there is no effort without error or short term.

Speaker Change: But he or she who actually strives to do the DS who knows the great enthusiasm the great devotions with Spanish himself in a worthy worthy Cogs.

Speaker Change: Who added Durst knows Indiana.

Speaker Change: The triumph of high achievement, and who had its worst if he fails at least fails while daring greatly.

Speaker Change: So its place shall never be with those cold and timid souls, who know neither victory nor defeat.

Gary Friedman: While our ambitions are not political, they are personal. We remain inspired by the progressive thinkers, unafraid to push forward new ideas and fresh perspectives. It's a culture of leadership versus followership, innovation versus duplication, enlightenment versus ego. It's believing none of us are smarter than all of us, that we need all the brains in the game and the egos out of the room. It's about thinking until it hurts, until we can see what others can't see, so we can do what others can't do. That's how you transform a money-losing restoration hardware store at Aventura Mall in Miami that did $2 million in annual sales into an RH gallery that does $44 million in the exact same space with the exact same square footage.

Speaker Change: While our ambitions are not political they are personal.

Speaker Change: We remain inspired by the progressive thinkers unafraid to push forward, new ideas and fresh perspectives, it's a culture of leadership versus followership innovation versus deep location Enlightenment versus Ito.

Speaker Change: It's believing none of us are smarter than all of us that we need all the brains in the game and the egos out of the room, it's about thinking until it hurts until we can see what others can't see so we can do what others can't do.

Speaker Change: That's how you transform a money losing restoration hardware store at Aventura mall in Miami, It did $2 million in annual sales into an RH gallery that does $44 million in the exact same space with the exact same square footage.

Gary Friedman: It's also how we will transform that $44 million legacy gallery into a $100 million plus RH design compound, a yet-to-be-unveiled multi-building design resort of sorts in the parking lot of the same shopping center. We began this journey over 20 years ago with a vision of transforming a nearly bankrupt business that had a $20 million market cap and a box of oxalol laundry detergent on the cover of its catalog into the leading luxury home brand in the world. The lessons and learnings, the insights and intricacies, the sacrifices made and the scar tissues developed by getting knocked down 10 times and giving up 11, leads to the development of the mental and moral qualities that build character in individuals and form cultures in organizations.

Speaker Change: It's also how we will transform net $44 million legacy gallery into our $100 million plus our H design compounds are.

Speaker Change: And yet to be unveiled multi building design resort of sorts in the parking lot of the same shopping center.

Speaker Change: We began this journey over 20 years ago with a vision of transforming and nearly bankrupt business set at $20 million market cap in a box to OXXO laundry detergent on the cover.

Speaker Change: Its catalog internal bleeding luxury home brand in the world the.

Speaker Change: <unk> and learnings the insights and intricacies the sacrifices made in the scar tissue developed by getting knocked down 10 times and giving up 11 leads to the development of the mental and moral qualities that build character in individuals and form cultures and organizations lessons that can be learned in the classroom.

Gary Friedman: Lessons that can't be learned in a classroom or by managing a business. Lessons that must be earned by building one.

Speaker Change: Or by managing the business lessons that must be earned by building one.

Gary Friedman: Are we a part of the lunatic fringe? If it means, as President Roosevelt said in his speech at the Sibourne, that our place shall never be with those cold and timid souls who know neither victory nor defeat, then put us in that arena.

Speaker Change: Are we a part of the lunatic fringe.

Speaker Change: It means as President Roosevelt said in his speech at the support that our place shall never be with those cold and timid souls window, neither victory nor defeat.

Speaker Change: Then put us in that arena.

Gary Friedman: Onward Team RH!

Speaker Change: Onward team RH Carpe diem.

Gary Friedman: Carpe Diem!

Operator: Operator, we'll now open the call to questions. Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Please ensure that your phone is not on mute when called upon.

Speaker Change: Operator, we will now open the call to questions.

Speaker Change: Thank you if you would like to ask a question. Please press star one on your telephone keypad. If you would like to withdraw your question simply press Star. One again, please ensure that your phone is not on mute when called upon.

Operator: We ask that you please limit yourself to one question and one follow-up and rejoin the queue if necessary.

Speaker Change: We ask that you please limit yourself to one question and one follow up and rejoin the queue if necessary.

Steven Forbes: Your first question comes from the line of Steven Forbes with Guggenheim. Your line is open. Good afternoon, Jack, and Gary and team.

Speaker Change: Your first question comes from the line of Steven Forbes with Guggenheim. Your line is open.

Speaker Change: Good afternoon, Jack and Gary and team.

Gary Friedman: Gary, you started the letter this time focusing on Europe, and it may be too early, and not sure if you want to repeat maybe what you had done in the past, but given how demand has ramped up in England, we'd love to hear your sort of high level thoughts or initial thoughts on how your demand planning forecasting for Paris, London, and Madrid have evolved, as many of us sort of try to think about, you know, where the business looks in Europe 12 or 24 months from now, especially as you have advertising investments behind them. Sure, I think...

Speaker Change: Gary you started the letter this time focusing on Europe, and it may be too early and not sure. If you want to repeat maybe what you've done in the past, but given given how demand has rapid ramp at RH, England would love to hear sort of high level thoughts our initial thoughts on how youre demand planning forecasting for Paris slug.

Speaker Change: <unk> <unk>.

Speaker Change: Have evolved.

Speaker Change: Many of us sort of try to think about where the business.

Speaker Change: It looks in Europe, 12 to 24 months from now, especially as you have advertising investments behind them.

Speaker Change: Sure I think.

Gary Friedman: You know what we've learned in this Yeah, first couple of years. And again, not all the galleries have been open during this time is that I think that the headline is that when you really look at the patterns, you look at it closely, you look at what you're doing right, you look at what you're doing wrong. Is that the... The RH brand as it is today. We believe we've kind of have enough data to say it can be as disruptive. and productive. in Europe as it can be in America. you know, and that's what the early trends look like.

Speaker Change: What we've learned in this.

Speaker Change: Yes first couple of years.

Speaker Change: Again, not all of the galleries have been open. During this time is that I think the headline is.

Speaker Change: That when you really look at the pattern. If you look at it closely you look at what Youre doing right and look at what you're doing wrong.

Speaker Change: Is that the.

Speaker Change: The RH brand as it is today.

Speaker Change: We believe we.

Speaker Change: I have enough data to say it can be as disruptive.

Speaker Change: And productive.

Speaker Change: In Europe as it can be in America.

Speaker Change: And that's with the early trends look like and the early trends are.

Gary Friedman: And the early trends are Litter. with what I'd call, you know, just choppy execution, right? A company in America trying to open a company in Europe, you know, we're not experts there. You know, our brand's never been anywhere there. You know, we've got an excellent people, you know, in, in, in all of our galleries and, you know, leading the teams. You know, you listen to people and everybody tells you, oh, you need much smaller furniture, or you need color, or you need this, or you need... you know, picture frames and candles and more accessories and all these things and you know when you find out you start to find out if you're in this you know you're in business area you start to get real data on what other people do what their volumes are uh and you know we're just able to connect the dots and see the patterns and say Wow.

Speaker Change: Litter.

Speaker Change: What I would call.

Speaker Change: Just choppy execution.

Speaker Change: Company in America trying to open a company in Europe.

Speaker Change: We're not experts there.

Speaker Change: Our brand has never been anywhere there.

Speaker Change: Got it.

Speaker Change: Excellent people.

Speaker Change: Yes.

Speaker Change: And all of our galleries.

Speaker Change: Leading the teams.

Speaker Change: But.

Speaker Change: And as you listen to people and everybody tells me.

Speaker Change: Good.

Speaker Change: You need much smaller furniture or unique color or do you need this or indeed.

Speaker Change: Picture frames, and candles and more accessories and all these things.

Speaker Change: And you find out you start to find out if youre in this bid.

Speaker Change: <unk> you start to get real data on what other people do what their volumes are.

Speaker Change: And we're just able to connect the dots and see the patterns in say.

Speaker Change: Wow once we.

Gary Friedman: Once we. three things, three headline things that we got. We were in a conference room until four in the morning taking questions from our team. You know, they were, they would have kept going. We had to kick them out. But, you know, they're so excited. And if we can improve three. pieces of this, you know. being in stock, having the right fabrics, because with flammability issues in the US, we couldn't have the right fabrics, we couldn't, you know, we, we stocked this, the D.C. over there, a year before we opened, right? R.H. England, because we had all the COVID issues of trying to, you know, stop and start and build and so on and so forth, and we kept having delays, nobody wanted to come out and, you know, do a check on the property or permit sign off.

Speaker Change: Next slide.

Speaker Change: Re phase three headline things that we got we were we are in a conference room until <unk> or in the morning, taking questions from our team.

Speaker Change: They were bad.

Speaker Change: What it kept going.

Speaker Change: But.

Speaker Change: They are so excited and if we can improve three.

Speaker Change: Pieces of this yes.

Speaker Change: Ian and start having the right fabrics, because with planned mobility issues in the U S. We've put the right fabrics we couldn't.

Speaker Change: We stopped this.

Speaker Change: Yeah.

Speaker Change: D C over there a year before you opened right RH, England.

Speaker Change: The COVID-19 issues of trying to stop and start to build.

Speaker Change: And so on and so forth, we kept having delays nobody wanted to come out.

Speaker Change: Check down the property year permit finance and it.

Gary Friedman: I mean, it's kind of funny, you know, when you build out in a remote area like that. But we opened, and we really didn't have the right product in the distribution center. We just went through the biggest merchandising transformation in our history, and I'm sure in the history of this industry, you know, by multiples. And so, you know, not having, you know, you're going through a product transformation. You know, our business, the core of the business is here. So we need, you know, you're testing many new collections. We need the goods here. You know, so when, you know, you're figuring out what the best sellers are and so on and so forth, well, those just aren't making it to Europe on the first go-round or two.

Speaker Change: Yes.

Speaker Change: When you build out in a remote area like that.

Speaker Change: But we opened and we really didn't have the right product in the distribution center. We just went through the biggest merchandising transformation in our history and I am sure in the history of this industry by multiples.

Speaker Change: And so <unk>.

Speaker Change: Not having.

Speaker Change: Youre going through a product transformation.

Speaker Change: Yes.

Speaker Change: Our business the core of the business is here so we need to.

Speaker Change: Many new collections, we need the good here.

Speaker Change: When.

Speaker Change: Youre figuring out what the best sellers are and so on and so forth well those just aren't making it to Europe on the first go round or.

Gary Friedman: You know, we're trying to optimize the business here, and we're fighting through the worst healthy market any of us have ever been in. I've, you know, I've been doing this for 40 years now. I've never been in a third year of a down housing market. I think every one of them has been 12 to 18 months. You know, so, you know, you've got to stay really focused in markets like these and, you know, maximize market share and so on and so forth. You know, just the execution on just being in stock, looking at the time of special orders, because many of our vendors couldn't make it.

Speaker Change: We're trying to optimize the business here by going through the worst housing market any of us have ever been.

Speaker Change: <unk> been doing this for 40 years now I've never been in that third year, but down the housing market I think every one of them had been 12 to 18 months.

Speaker Change: Yes, so yes, you've got to stay really focused in markets like these.

Speaker Change: And.

Speaker Change: Maximize market share and so on and so forth.

Speaker Change: The execution on just being in stock looking at the time, the special orders because many of our vendors Clinton Mick.

Gary Friedman: You know, the products with the flame retardant and, you know, the orders weren't that big. So they weren't on the front burner. If we just do kind of three big things, our team believes our business can double. That's how many customers, you know, we're turning away, you know, and we've got five month lead times on special orders. So I sit here and go, wait a minute. You know, we can see the trends across all of these galleries and, you know, some better than others is, you know, they're going to be and and, you know, but the most part.

Speaker Change: The products with that flame retardant 10.

Speaker Change: The orders weren't that big so they werent on the front burner.

Speaker Change: If we just do kind of three big things our team believes our business can double that how many customers were turning away.

Speaker Change: We've got five months lead times and special orders, so I sit here and say wait a minute.

Speaker Change: Yes, we can see the trends across all of these galleries.

Speaker Change: Some better than others.

Speaker Change: They're going to be in but.

Speaker Change: Most part.

Speaker Change: Hi.

Gary Friedman: You know, they're, they're going to trend, I believe, over the next couple of years to levels that will drive four wall profitability, you know, four wall cash contributions. as good or better than the U.S. Uh, you know, that's what it's starting to look like, and, uh... Yeah, and if we if we really I'm going to fix some of these things. You just start to get really excited what this model can look like. Yeah, I would say, you know, we're just We're so excited in Europe, we couldn't sleep. Like, when we're just listening and learning, and we're looking at the trends building, and we're realizing that there's so much more opportunity.

Speaker Change: There they are again a trend I believe over the next couple of years to levels that will drive four wall profitability four wall cash contributions.

Speaker Change: As good or better than the U S.

Speaker Change: That's what it's starting to look like and.

Speaker Change: And if we if we re leased.

Speaker Change: Kind of fix some of these things.

Speaker Change: Okay.

Speaker Change: You just start to get really excited what this model can look like.

Speaker Change: So.

Speaker Change: Yes, I would say.

Speaker Change: Yes.

Speaker Change: Yeah. We are so excited in Europe, we couldn't sleep.

Speaker Change: Yes.

Speaker Change: We're just listening and learning and we're looking at the trends building and we're realizing that there is so much more opportunity.

Speaker Change: So, yes, we feel enlightened and energized and.

Gary Friedman: So, yeah, we feel enlightened and energized and really good about the potential. Yeah, we're going to get some things wrong. And, you know, but, you know, we made, we made a big bet, right? We took multiple locations at one time from Abercrombie, you know, to get. The Paris and London locations, which could have taken us 20 years to find locations like that. You know, those were critical, critical to the brand. And, I mean, it's funny, my wife, Bella, is at a best friend's wedding in London, and she was out last night with a huge group of people.

Speaker Change: Really good.

Speaker Change: About the potential.

Speaker Change: Yes, we're going to get some things wrong.

Speaker Change: Yes, we made we made a big bet right. We took multiple let coast's locations at one time from Abercrombie to get.

Speaker Change: The Paris, and London locations, which could have taken US 20 years to find locations like that those were critical critical to the brand.

Speaker Change: And I mean.

Speaker Change: My wife Bella is at best friend's wedding, it in London, and shoes out last night with a huge group of people and if anybody's been in London Gil walked by our May fare.

Gary Friedman: And if anybody's been in London, go walk by our Mayfair site, because it's, you know, it's the biggest Vitruvian man you've ever seen, with our design ethos on the building, and people are taking pictures of it, you know, posting it on Instagram and other places. And she was shocked. She told me, honey, you cannot believe the buzz you have here in London. You know, I mean, I think it's I, I think it we are going to rock when we open Paris and London and Milan. I think I think We are, you know. We are going to change things.

Speaker Change: Good.

Speaker Change: Biggest vitruvius man you've ever seen with our design as it is on the building.

Speaker Change: People are taking pictures.

Speaker Change: Yes.

Speaker Change: DRAM in other places.

Speaker Change: She she was shocked she told me Honey you cannot believe the Buzz you have here in London.

Speaker Change: I mean I think it's.

Speaker Change: I think we are in a rock.

Speaker Change: When we open Paris, and London, and Milan, I think I think.

Speaker Change: Yes.

Speaker Change: We are going to change things and.

Gary Friedman: And yeah, we're just, we can talk about it for hours, Steve.

Speaker Change: Yes.

Speaker Change: We can talk about it for hours, Steve So I better let the next question Ken.

Gary Friedman: So I better let the next question come. I appreciate that, Gary.

Speaker Change: <unk>.

Ken: I appreciate that Gary and then just a quick follow up the $500 million of real estate value that you noted is there any way you could sort of break that down into two buckets sort of.

Steven Forbes: And then just a quick follow up, the $500 million, the real estate value that you noted, is there any way you could sort of break that down into two buckets sort of, you know, non operational assets or operational assets, as we think about, you know, sort of, you know, transactions that would be at least back oriented or transactions that would literally just be the monetization of assets? Yeah, we have, you know, quite a few galleries that are opening with some that have already opened that we own that, you know, we'll do sale leasebacks on. You know, not exactly the best time to do a sale leaseback, but you know, you got to balance that with what the interest costs are and long, you know, long term, short term, you know, short term, you know, you can say, hey, let's do a sale leaseback now, you know, but You're doing a tail leap back at a...

Ken: Non operational assets are operational assets as we think about sort of.

Speaker Change: Transactions that would be sale leaseback oriented or transactions that would literally just be the monetization of assets.

Speaker Change: Yes.

Speaker Change: Quite a few galleries that are opening.

Speaker Change: Some that are already open that we own that.

Speaker Change: We will do sale leasebacks on.

Speaker Change: Not exactly the best time to do a sale leaseback, but you've got to balance that with what the interest costs are long long term short term short term.

Speaker Change: You can say, hey, let's say.

Speaker Change: Leaseback now but.

Speaker Change: Youre doing a sale leaseback.

Gary Friedman: You know, at a different cap rate, right? And then the sale, you know, is gonna, you know, we'll, we'll determine the rent, and we'll determine, you know, how much tax we'll take out of it. And, and what our, you know, what our long term rent stream and profitability stream be. So, yeah, we're trying to be a little patient. We don't like paying so much interest right now. But you know, so there's, you know, a bit of tension there. So But yeah, we have many, right now we've got about six or so sale leasebacks. And then, you know, we have quite a big portfolio in Aspen, where, you know, 50-50 joint venture partner, I mean, people can pull out, you know, the press release from 2020, you know, made the initial investment.

Speaker Change: Ed.

Speaker Change: Different cap rate right.

Speaker Change: And the sale.

Speaker Change: Well, we'll determine the rent and will determine how much cash we'll take out of it.

Speaker Change: And what are.

Speaker Change: What our long term rent stream and profitability stream. So we're trying to be a little patient we.

Speaker Change: We don't like paying so much interest right now.

Speaker Change: So there is a bit of attention there so.

Speaker Change: Yes, we have me right now we've got about six or so sale leaseback.

Speaker Change: And then yes, we have quite a big portfolio in Aspen.

Speaker Change: 50, 50 joint venture partner.

Speaker Change: People can pull out.

Speaker Change: The press release from 2020 made the initial investment.

Gary Friedman: I think we have, you know, in the high 20s, low 30s properties somewhere around there, call it about 30 properties with You know, many, you know, we invested, not only because we were going to build an ecosystem, you know, we're building an ecosystem with a, what we call a gallery that we call the R.H. Mountain House, which is on absolutely the best corner in Aspen, and it's going to be a three-level experience. You know, it's probably the only building of its kind in Aspen. I mean, it's incredible. There's got a three-story atrium going up through the middle with a restaurant on the, on the rooftop with views of Ajax Mountain with all-day sun, and I don't know, the frontage must be a couple hundred feet, you know, that wraps around that corner.

Speaker Change: I think we have the.

Speaker Change: Hi April of 30 properties somewhere around call it about 30 properties with.

Speaker Change: Many.

Speaker Change: We invested not only because we are going to build an ethos, yet we're building an ecosystem with that.

Speaker Change: We call it a gallery that we call the RH Mountain House, which is an absolutely the best corner in Aspen, and it's going to be a three level experience.

Speaker Change: Yes.

Speaker Change: Probably the only building of its kind in Aspen.

Speaker Change: It's incredible that it's got a three story.

Speaker Change: Atrium going up the middle with the restaurant on the on the rooftop with views of Ajax Mountain with all based on.

Speaker Change: And I know the <unk> must be a couple of hundred feet that wraps around the corner and.

Gary Friedman: And we have an incredible guesthouse location. It's right on the street where Lift 1 is opening, you know, so it will be a main thoroughfare, and we're on a great corner. It's going to be a tremendous guesthouse. You guys have probably followed some of the news, you know, with, you know, our partner in Aspen likes to say, building in Aspen is harder than building on the moon. You know, it's a little political there sometimes and a little difficult, but we finally got... and the last couple of permits we're waiting on and then we'll finish out the guest house and we'll be open and I would say just based on the You know, the kind of incredible clientele we have at our current guest house that has just been built by word of mouth, I think Aspen is going to It'll be the best hospitality experience in Aspen.

Speaker Change: And we have an incredible guest house location.

Speaker Change: Right on the street were lift one is.

Speaker Change: Opening so it will be a main thoroughfare and we're on a great corner.

Speaker Change: It's going to be a tremendous guest house you guys have probably followed some of the news.

Speaker Change: Our partner <unk> likes to say they'll lean in Aspen is harder than building on the moon.

Speaker Change: So a little political there's sometimes a little difficult, but we finally got our.

Speaker Change: The order approved.

Speaker Change: Maybe Brian maybe last couple the permits we're waiting on.

Speaker Change: And then we will finish out the guest ashwin will be up in stages.

Speaker Change: Based on this.

Speaker Change: The kind of incredible clientele, we have at our current guest house that has just been built by word of mouth I think Aspen is Canada.

Speaker Change: It'll be it'll be the best hospitality experience and as things nothing like it and it's got its own unique flavor versus New York.

Gary Friedman: It's nothing like it, and it's got its own unique flavor versus New York. You know, it's kind of like a contemporary ski lodge, but, you know, a lot of the core ideas around it being built around privacy and luxury, and, you know, we like to say privacy is the one thing everybody's given away with social media, and it's one thing that the internet's taken away because you can Google anything about anyone, and so, you know, the whole guest house is built around privacy. And that's a really unique thing. And it was a small town of Aspen, you know, we're kind of in the center of town, you know, you know, great area, but you know, you're, you walk through and you're transported into, you know, into this world of privacy and luxury.

Speaker Change: Kind of like a contemporary ski lodge at but a lot of the core ideas around has been built around privacy and luxury and we'd like to say private season. One thing everybody has given away with social media and one thing that the Internet has taken way because you can go anything about anyone and so the whole gets built.

Speaker Change: At this stage.

Speaker Change: And that's a really unique thing and it was a small town of Aspen, where kind of the center.

Speaker Change: Center of town.

Speaker Change: Great area, but.

Speaker Change: You walked through and you're transported into this.

Speaker Change: This world of privacy and luxury and we think it's going to be tremendous and we've got a great restaurant at dinner campaign and caviar bar and.

Gary Friedman: And we think it's going to be tremendous. And we've got a great restaurant and a campaign and caviar bar. And, you know, we may or may not open exactly, you know, when we open with the bathhouse and spa, you know, we may first get the guest house open and open that later. That's a, it's a more membership driven business, and it's a new business. So it's not. that like, you know, the first thing we want to allocate capital to right now, we want to get the guest house open, get the branding open. And we'll probably probably follow that up.

Speaker Change: We may or May not open exactly when we open with that.

Speaker Change: Hudson Spa, we made sure to get the guest house open and open that later.

Speaker Change: It's a more membership driven business and it's a new business that there is not.

Speaker Change: Like.

Speaker Change: The first thing we want to allocate capital to right now we want to get the guest house. So I think it's a branding open.

Speaker Change: Quite follow that.

Gary Friedman: You know, at some point with our bathhouse and spa, it's all framed it, you know, the concrete framing is all there, you know, for the beautiful, beautiful experience underground. And then we've got, you know, just incredible tenants. You know, some You know, we have an option on a second building in Madrid. You know, Madrid's one of the biggest buildings in all of Europe. We've opened our first Madrid gallery, and it is, you know, ramping nicely, and it's small, and it's beautiful. And we're going to put a little cafe on the top floor, you know, kind of like RH Montecito, and we think that'll bring even more energy to it.

Brian: At some point with our Bathhouses, Bob It's all Brian.

Speaker Change: The concrete framing is all there.

Brian: Beautiful.

Brian: Beautiful experience underground.

Brian: And then we've got incredible tenants.

Brian: And our JV from some of the best luxury brands in the World.

Brian: Get to learn what it's like being a landlord.

Brian: Real estate.

Brian: And evaluations and things can happen.

Speaker Change: Yes, we have a lot of a lot of value in Aspen, we have a lot of value in multiple sale leasebacks.

Speaker Change: Yes, we saw some other properties.

Speaker Change: And.

Speaker Change: Yes.

Speaker Change: We have an option on a second building in Madrid Madrid is one of the biggest buildings in all of Europe.

Speaker Change: Opened our first major Madrid gallery, and it is ramping nicely and it's small and it's beautiful and we're going to put a little cafe on the top floor.

Speaker Change: Kind of like our H Montecito, and we think that will bring even more energy to it but we.

Gary Friedman: But, you know, we bought a building to have an optionality to have two buildings, kind of like we do in Los Angeles. We have a, you know, freestanding 30,000-square-foot gallery in Melrose. We have a 15,000, if you count the outdoor space, probably 20,000-square-feet modern gallery, you know, and we may expand our ecosystem further there. So we've got an option, you know, that we could do something, or we could, you know, monetize. assets. So we have a lot of flexibility. Yeah, it's not the easiest time to be a real estate development business, you know, with interest rates where they are, but you know, you don't get it all right.

Speaker Change: We bought a building to have an optionality to have two buildings kind of like we do in Los Angeles, We have a freestanding 30000 square foot gallery in Melrose we have.

Speaker Change: 15000, if you count the outdoor space by 20000 square feet.

Speaker Change: Modern gallery.

Speaker Change: And we May may expand expand our ecosystem further there.

Speaker Change: So we've got an option.

Speaker Change: We could do something or we could monetize.

Speaker Change: Asset so.

Speaker Change: We have a lot of flexibility.

Speaker Change: Yes, it's not the easiest time to be real estate development business with interest rates, where they are but you don't get it all right.

Gary Friedman: You know, you know, the timing, you know, do I wish I waited another year or two to fire stock? You know, did I think the housing downturn was going to be three years? Yeah, I wish I'd waited to buy the stock. And I know the house is down to be three years. None of this did. But then again, when we look back at. The assets we have and what we can monetize, we look at the momentum of the business that we have, we look at the cash flow potential of the business when you think about cycling this you know, this time that we, you know, we spent a lot of capital, and it's expensive to build today, you know, and I made a comment in the letter that I don't think we'll ever see someone build the kind of retail experiences we've built over the last, you know, 15, 20 years.

Speaker Change: Is it timing.

Speaker Change: Do I wish I waited another year or two to buy our stock I think that housing downturn, there's going to be three years.

Speaker Change: <unk>, which has equated to buy the stock.

Speaker Change: There are no that hasnt downturn.

Speaker Change: Three years, none of this debt.

Speaker Change: But then again.

Speaker Change: When we.

Speaker Change: Look back.

Speaker Change: The assets, we have and what we can monetize if we look at the momentum of the business that we have we look at the cash flow potential of the business. So when you think about cycling this.

Speaker Change: This time that we yes, we spent a lot of capital and it's expensive to build today I made a comment in the letter that I don't think we'll ever see someone build the kind of retail experiences we built over the last.

Speaker Change: <unk> 15 20 years.

Gary Friedman: They just won't be able to afford to, you know, post COVID, the cost of building one of our galleries is Yeah, almost twice as much.

Speaker Change: They just won't be able to afford to post COVID-19 the cost of building one of our galleries is.

Speaker Change: Yes, almost twice as much and we've been Youll hear more about how we're going to be really creative with capital we've designed.

Gary Friedman: And we've been you'll hear more about how we're going to be really creative with capital we've designed Thank you all. in one of our typical galleries with the restaurant on the top with. You know, three stories and a grand staircase and two elevators and all the equipment and so on and so forth. expensive and complex, and COVID made it almost twice expensive. And so, you know, that economic model is not as attractive. So we developed a concept that we call the compound, the design compound. And what we did is we took a gallery and we've broken into 6-9 separate buildings and we're getting department store pads in Walnut Creek, we've got the Neiman Marcus pad on the best corner in the East Bay of the entire San Francisco Bay Area.

Speaker Change: And call it out of necessity is the mother of invention right and we had some great opportunities for new galleries.

Speaker Change: Building it.

Speaker Change: One of our typical galleries with the restaurant at the top with yes.

Speaker Change: Three stories in a grand staircase and two elevators and all the equipment and so on and so forth.

Speaker Change: Expensive and complex and Covid has made it almost twice expensive and so.

Speaker Change: That economic model is not as attractive.

Speaker Change: So we developed a concept that we call the compound the design compound.

Speaker Change: And what we did is we took a gallery we broken into.

Speaker Change: Six to nine separate buildings and yes, we're getting department store pad in Walnut Creek, we have.

Speaker Change: Got.

Speaker Change: The Neiman Marcus pad on the best corner in the East.

Speaker Change: The entire San Francisco Bay area.

Gary Friedman: In Naples, we've got this incredible site that's in Nordstrom that closed and we've got Aventura in Miami, Bank of America on the street, it's in the Aventura shopping center parking lot. and you know we're going to build with three compounds and I think we have you know we're hoping that we've got another opportunity with one of our partners that we're doing one of the first ones with development partners but we think we can disaggregate a gallery. build it for half the cost. And, you know, you have all these buildings connected by gardens, you're walking indoors, outdoors, you know, under little, you know, down pathways, you've got outdoor furniture all around, you've got a restaurant in the middle.

Speaker Change: Naples, we get this incredible science and Nordstrom to close.

Speaker Change: And we've got Aventura and Miami.

Speaker Change: And at the Bank of America on the Street.

Speaker Change: It's kind of in this shop inventory shopping center parking lot.

Speaker Change: And we're going to build we have three compounds and I think we have hit.

Speaker Change: Hoping that we've got another opportunity with one of our partners that we're dealing with the first one is with.

Speaker Change: And the partners, but we think we can disaggregate a gallery.

Speaker Change: Build it for half the cost.

Speaker Change: And.

Speaker Change: You have all these buildings connected by gardens, Youre walking indoors outdoors under little down pathways, you've got outdoor furniture, all around you've got a restaurant in the middle.

Gary Friedman: I think it might be the most exciting thing we've ever done. And, and we can do it for half the capital. But, you know, it's good to have, you know, I like to say humans without deadlines are useless. Like we need deadlines or we don't get our work done. We need, you know, we need crises to kind of figure out our potential. And so, you know, I love the fact, you know, we always say here, you know, necessity is the mother of invention and it's when we do our best work. So some of the things we come up with, whether it's the design compounds, the design ecosystems, we said, hey, there's another way to break up the thing.

Speaker Change: It might be the most exciting thing we've ever done and and we can do at FERC or tap the capital, but yes, it's good to have.

Speaker Change: Okay, I'd like to take humans without deadlines are useless like we need deadlines or we don't get our work done we need.

Speaker Change: Prices to kind of figure out our potential and so I love. The fact that we always say here, yes necessity is the mother of invention and this one we do our best work so.

Speaker Change: Some of the things you can come up with whether it's the design compounds. The design ecosystems. We said hey, there is another way to breakup. The thing do we have to build the whole thing in Greenwich, Connecticut, Youre going to see we've got.

Gary Friedman: Do we have to build the whole thing? Or in Greenwich, Connecticut, you're going to see we've got, you know, I think you've been out to our, we have the galleries, historic post office, center town, the best location in all of Greenwich. The best building for retail and especially what we did to it. The next best building. was the Ralph Lauren building that got built, you know, a little after us, right? Or right before us, maybe. Right before us. And, you know, and Ralph Stein downsizing, I think, three, four, five years ago when they closed some of their stores.

Speaker Change: I think <unk> been out to our debt.

Speaker Change: The gallery at the Historic Post Office Center Pan the best location in Olive branch.

Speaker Change: That's building.

Speaker Change: For retail and especially what we did to it.

Speaker Change: The next best building.

Speaker Change: With the Ralph Lauren building that got built a.

Speaker Change: A little after us for either Greg before us maybe right before us.

Speaker Change: And.

Speaker Change: And Ralph Stein downsizing I think three four or five years ago, when they closed some of their stores.

Gary Friedman: You know, no one was able to really operationalize that building very well. We were able to get in, you know, and get that building. And so we, you know, tied up a lease on that building. That will be a building to support the new concept that we're opening. We also transformed our baby and child gallery into an outdoor gallery because, you know, outdoors is a very important business to us long-term strategically. And so we will have three incredible locations. And we call that a design ecosystem. You'll see another design ecosystem in Palm Desert. And some of these, what it allows us to do is move much more quickly with less capital, right?

Speaker Change: No one was able to really operationalize that building very well, we were able to get in.

Speaker Change: And get that building.

Speaker Change: And so we tied up a lease on that building that will be ability to support a new concept that we're opening.

Speaker Change: We also.

Speaker Change: <unk> transformed our baby and child gallery into an RH outdoor gallery.

Speaker Change: <unk>.

Speaker Change: Very important business to us long term strategically and so we will have three incredible locations.

Speaker Change: And we call that a design ecosystem youll see another design ecosystem in Palm Desert and some of these what it allows us to do is move much more quickly with less capital right, because we're taking buildings and <unk>.

Gary Friedman: Because we're taking buildings and, you know, modifying them a bit. You know, I think. We're going to have a restaurant in the Ralph Lauren building there, right? I can't call it what our concept is because I haven't told you what our concept is. Or I call it the RH this building. You have a vision, like what would you put in a building that looks like that? Anyway, Ari's shaking her head like I shouldn't do this. But we're going to have an RH all-day cafe in there. It's going to be super cool. And I think we're going to spend like $2.5 million of capital.

Speaker Change: <unk> is a bit I think.

Speaker Change: We're going to have a restaurant in the rustler in building their right spot.

Speaker Change: Ralph I can't call. It what our concept is to them and told the warehouses.

Speaker Change: I call it.

Speaker Change: Our H this building.

Speaker Change: Right.

Speaker Change: Do you have a vision like what would you put in a building that looks like that anyway. They are shaking their heads I shouldn't do this.

Speaker Change: Thanks.

Speaker Change: In fact, we're going to we're going to have at RH All day cafe in there it can be super cool and I think.

Speaker Change: Spend like.

Speaker Change: 5 million of capital.

Gary Friedman: like two and a half million of capital, like for us, it's like a free store. And, you know, we've just got lots of creative ways to grow in opportunities. I mean, you know, just like in Europe, we've got some very expensive real estate where we built in Europe. And, you know, by next year, you know, that capital kind of gets behind us. and, you know, start throwing a lot of great cash flow up, but we've also things, you know, the other galleries that we picked up, we didn't spend that much capital in, you know, we were very creative with it.

Speaker Change: <unk> 5 million of capital.

Speaker Change: That's like a freestor.

Speaker Change: Yes.

Speaker Change: We've just got lots of creative ways to grow and opportunities I mean, yes.

Speaker Change: Just like in Europe, we've got some very expensive real estate.

Speaker Change: We built in Europe.

Speaker Change: And by.

Speaker Change: By next year.

Speaker Change: Capital kind of gets behind us.

Speaker Change: Hi.

Speaker Change: And start doing a lot of great cash flow, but we are also things.

Speaker Change: Other galleries that we picked up we didn't spend that much capital.

Speaker Change: Very creative with it and so.

Gary Friedman: And so You know, it's one of the things is you think about just the model and the cash flow. You know, just how we can deploy the brand into markets. I think I mentioned about Palm Desert. We opened our first RH freestanding interior design studio. It's really an office. It has two sitting rooms like outside of the offices where we got the same sofa twice that's like a little kind of pool sofa. It doesn't even have our coffee table, right? It's got a cool antique, you know, like reproduction pool thing that's, you know, at the highest level of design.

Speaker Change: It's one of the things as you think about the model and the cash flow.

Speaker Change: Just how we can deploy the brand into markets.

Speaker Change: Great and then I mentioned about Palm Desert, we opened.

Speaker Change: Our first RH freestanding interior design studio, it's really an office.

Speaker Change: He has to sit in rooms like outside of the offices, where we got the same sofa twice that flagged a little tenant pool sofa. It doesn't even have our coffee tea right. It's got a school and T <unk>.

Speaker Change: Reproduction pool thing, but.

Speaker Change: At the highest level is behind us.

Gary Friedman: And, you know, we buy things like that so we can actually aspire to sell those if, you know, people ask about them. But it's just a design office with a, you know, little room in the front and it Can I say how much it's doing? I can say how much it's doing, right? It's doing a million, it's 3,000 feet, it's doing a million dollars a month. and the design clients we're getting there because it's just a beautiful space. And, you know, I didn't replace Lululemon up there, I don't think Lululemon is doing 12 million a year and 3000 feet, you know, you know, so, and that's just we, you know, warming up and stuff.

Speaker Change: Yes.

Speaker Change: Yes, if I could.

Speaker Change: So we can actually expired.

Speaker Change: If you have any people asked about but it's a design office with a little room in the front end.

Speaker Change: Can I say, how much is doing.

Speaker Change: Alright, it's doing that.

Speaker Change: 3000 feet, assuming a $1 million a month.

Speaker Change: And the design clients, we're getting there because it's a beautiful space.

Speaker Change: And.

Speaker Change: I didn't replace Lulu lemon.

Speaker Change: I don't think Louisville lemons doing.

Speaker Change: $12 million a year in 3000 feet.

Speaker Change: And that's this week.

Speaker Change: Warming up and stuff. So we've just got a lot of ways to access markets. We've got.

Gary Friedman: So we've just got a lot of ways to access markets, we've got You know, as I said, the divine compounds, the divine ecosystem, the divine studios. We have the design concept stores where, you know, it's kind of a where we can, again, go into an existing building, do an RH that's anywhere from 14 to you know, 30,000 feet, but a lot less capital. And we have a lot of those in the pipeline that's allowing us to access markets much more quickly. And that's what, you know, we communicated in the letter that we're going to accelerate our openings to seven to nine, you know, a year and So you'll be.

Speaker Change: Yes.

Speaker Change: The design compounds to design ecosystem the design studios.

Speaker Change: We have the design concept stores were.

Speaker Change: That's kind of where we can again go into an existing building do NIH that anywhere from 2014.

Speaker Change: 30000 feet.

Speaker Change: A lot less capital and.

Speaker Change: We have a lot of those in the pipeline, that's allowing us to access market much more quickly and.

Speaker Change: And that's what we communicated in the letter that we're going to.

Speaker Change: Accelerate our openings to seven to nine.

Speaker Change: At year end.

Speaker Change: So yes.

Gary Friedman: feel good and we think we can do it in a very capital efficient way. Thank you, Gary.

Speaker Change: Feel good and we think we can do and it's very capital efficient way.

Gary: Thank you Gary.

Speaker Change: Yep.

Simeon Gutman: Your next question comes from Simeon Gutman with Morgan Stanley. Your line is open. Hey, Gary, Jack. So, Gary, a bunch of tactical pivots all sound pretty good. I wanted to ask about the sale. I saw you said it was limited time. Can you assess anything about the underlying newness with the sale? Meaning, have you seen demand spike up? Is there still a way to assess what the underlying strength of these newness is doing to the business, even with the sale? And then how do you kind of ease off of it? Thank you. Yeah, well, we just increased the value to our members, right, for how many weeks?

Speaker Change: Your next question comes from Simeon Gutman with Morgan Stanley. Your line is open.

Simeon Gutman: Hey, Gary Jack So Gary a bunch of tactical Tim It's all sound pretty good I wanted to ask about the sale I saw you said it was limited time can you assess anything about the underlying newness with the sale, meaning have you seen demand spike up or is there still a way to assess what's the underlying strength of these newness is doing to the biz.

Simeon Gutman: Even with the sale and then how do you kind of ease off of it. Thank you.

Simeon Gutman: Yes.

Simeon Gutman: Yes.

Simeon Gutman: We just increased the value to our members.

Simeon Gutman: Many weeks.

Gary Friedman: six or five weeks. I'm an outdoor outdoor. Yeah. And then and then really what we we've been. We've been thinking about taking membership from 25% to 30%. I don't know, for five years. You know, it's not a new idea for us. You know, it's a long term strategic move because You know, we live in a really promotional world, and, um... You know, we're a market market leader and other people, you know, try to do things. Yet, but for one, start with nobody sells furniture at regular price anywhere in the world. You know, all furniture is on sale basically.

Simeon Gutman: Four five weeks.

Simeon Gutman: Total crowd to outdoor.

Simeon Gutman: And then really what we've been.

Simeon Gutman: We've been thinking about taking membership from 25% to 30%.

Simeon Gutman: I don't know for five years.

Simeon Gutman: Not a new idea for us it's a long term strategic move because.

Simeon Gutman: We live in a really promotional world and.

Simeon Gutman: We're a market market leader and other people.

Simeon Gutman: Try to do things.

Simeon Gutman: Ill start with nobody sells furniture at regular price.

Simeon Gutman: Anywhere in the world.

Simeon Gutman: All furniture's on sales basically and it's just a fail industry. It's just it even starts at the highest end with interior designers every interior designer, it's 20% to 40% off most of them, yet 30% to 40% off with design showrooms.

Gary Friedman: And it's just a fail industry. It's just it even starts at the highest end with interior designers. Every interior designer gets 20 to 40 percent off. You know, most of them get 30 to 40 percent off the design showrooms. So, you know, and then, you know, more of the other, you know, other people in our industry, you know, try to figure out like, what can we do, you know, one time we had a competitor that put their entire assortment on sale at 30% off and they were running their business that way until I think, you know, they found out the government doesn't let you do that.

Simeon Gutman: So.

Simeon Gutman: And then more of the other people in our industry.

Simeon Gutman: Trying to figure out like what can we do one time, we had a competitor that.

Simeon Gutman: Put their entire assortment on sale, it's 30 off and they were running their business that way until I think.

Simeon Gutman: They found that the government doesn't let you do that.

Simeon Gutman: And.

Gary Friedman: And you know, so, but they were just trying to say, hey, you don't have to, you can sell, buy something similar here because, you know, you have to, you know, get, pay RH $200 for a membership and here we'll give you 30% off. And it wasn't really 30% off, you know, just mark up the goods. And, you know, so, but we, we just always thought at the trade level, the. The discount is more $30 to $40. And we just think that'll open up the market. It feels more compelling. You know, so. I don't really, you know, look, if we did it during a difficult market like this, if you're going to do something like this, you might as well do it now, you know, because people are really sensitive.

Simeon Gutman: So, but they are just trying to say hey, you don't have to you can tell us by something similar here because.

Simeon Gutman: Yes.

Simeon Gutman: Our H $200 per membership and here, we will give you 30% off and it wasn't really 30% mark up the goods.

Simeon Gutman: Yes.

Simeon Gutman: I always thought at the trade level.

Simeon Gutman: The discounts more 30% to 40 and.

Simeon Gutman: And we just think that will open up the market.

Simeon Gutman: Feels more compelling.

Simeon Gutman: So.

Simeon Gutman: I don't really.

Simeon Gutman: We did it during a difficult market like this we're going to do something like this you might as well do it now.

Simeon Gutman: Because people are really sensitive.

Gary Friedman: You know, you, you know, we made a move on outdoor furniture for X number of weeks and you know, picked up significant. And it was important that it's more important there, you know, like, you know, when we went to 35 is outdoor has a peak. And it's a, you know, it's a short peak, it's an all all, you know, we sell outdoor all year round, but you have a massive peak in the outdoor business, you know, the March, April, May, June period. And We wanted to just capture more market share during that time and that business got a little rocked, like everywhere got rocked from kind of the reciprocal tariff announcements, when the market went down, our business went down, you had to pull forward, you had to give back.

Simeon Gutman: <unk>.

Simeon Gutman: Yes.

Simeon Gutman: Made a move on outdoor furniture for X number of weeks and.

Simeon Gutman: <unk> picked up significant business.

Simeon Gutman: And it was important there is more important there.

Simeon Gutman: When we went to <unk> 35 is outdoor as a key and.

Simeon Gutman: It's a shorter peak if at all this fell after all year round, but you have a massive fee in the outdoor business. The March April May June period.

Simeon Gutman: We wanted to.

Simeon Gutman: To capture more market share during that time.

Simeon Gutman: And and and that business got a little rock.

Simeon Gutman: Everywhere got Ross from Stifel.

Simeon Gutman: Cyclical tariff announcements.

Simeon Gutman: The market went down our business went down.

Speaker Change: Yes, you had a pull forward yet to give back.

Gary Friedman: It's like a noisy, noisy time right now to run your business, it's not a simple time. You know, there's, I don't know. How anybody keeps up with the news of, you know, what's happening with tariffs, what's happening with you know, Israel or this or that, you know, there's like, there's this noise all over the place. And, uh, You know, I think it's in effect and and you're sitting there with a down housing market for the third year. I don't know. If anybody even knows, to go back in history, when's the last time that's happened, if it's ever happened?

Simeon Gutman: Noisy noisy time right now to run your business.

Simeon Gutman: Not a simple thought.

Simeon Gutman: I don't know how.

Simeon Gutman: Now anybody keeps up with the news.

Simeon Gutman: What's happening with tariffs what's happening with.

Simeon Gutman: Israel or this or that it looks like this.

Simeon Gutman: This is noise all over the place and.

Simeon Gutman: Thank you.

Scott: It's Scott.

Scott: You're sitting here with the down housing market for the third year I don't know.

Scott: Anybody that knows the go back in history when for last time that's happened.

Scott: If it's ever happened it hasnt happened in my career with.

Gary Friedman: It hasn't happened in my career, as long as I've... you know, 40 years in this industry. I haven't seen it. So, you know, so this isn't a normal time. But the 25 to 30 is a strategic thing. We've been thinking about it for five years, debating it back and forth. And we say, hey, look, we've We ought to do it now.

Speaker Change: The following guidance.

Speaker Change: Yes, 40 years in this industry I.

Speaker Change: I haven't seen it so.

Speaker Change: So a decision in a normal time.

Speaker Change: Right.

Speaker Change: That 25% to 30 to strategic planning, we've been thinking about it for five years debating it back and forth and we say hey look weak.

Speaker Change: We ought to do it now.

Gary Friedman: like why not take the market share now and you know outdoors is kind of a one-time thing will we anniversary that next year don't know maybe maybe not And as a quick follow up, the path back to the 20% plus or EBITDA margins, does this compromise do you think I know it's, you know, you sound like you're confident that it won't. But how do you get confident in that, you know, that you're not harming the brand in any way by offering this type of discount, even for a short period of time? Give me the 35% off for like five weeks in outdoor, or less?

Speaker Change: Why not take some market share now.

Speaker Change: And.

Simeon Gutman: Outdoor is kind of a onetime thing where we anniversary that next year.

Simeon Gutman: Maybe maybe not.

Simeon Gutman: And as a quick follow up the path back to the 20% plus or EBITDA margins does this compromise do you think I know you're it sounds like you're confident that it won't.

Simeon Gutman: But how do you get confident in that that youre not harming the brand in any way by offering this type of discount even for a short period of time.

Simeon Gutman: You mean, the 35% off for like five weeks in outdoor or less.

Gary Friedman: Three and a half weeks. Just so you know, Steven, the 30% is a strategic move, it's not temporary. The 30% off membership is forever. And our guidance is 20 to 21. and you have some good friends. Oh, sorry. Yeah. Okay. Thanks for the clarification.

Simeon Gutman: For the three and a half three five weeks.

Simeon Gutman: Just so you know assuming the 30% is a strategic move it's not it's not temporary.

Simeon Gutman: Tempur.

Simeon Gutman: And our cash.

Simeon Gutman: 30% off membership is forever.

Simeon Gutman: And our guidance is $220 to 21.

Simeon Gutman: Yes.

Simeon Gutman: Okay.

Simeon Gutman: Oh, sorry, yes, okay. Thanks for the clarification.

Simeon Gutman: Yes.

Ariana Worden: The next question comes from Steven Zaccone with Citi. Your line is open.

Speaker Change: The next question comes from Steven Zaccone with Citi. Your line is open.

Gary Friedman: Hi, this is Ariana Worden on for Steve. Thank you for taking our questions. So our first question is, what gives you the confidence in the second half sales improvement? Is it just a function of timing of deliveries, between second and third quarter? Or is there some risk that demand shifts out to 2020?

Speaker Change: Hi, This is I onboarding on for Steve.

Speaker Change: Thank you for taking our questions.

Simeon Gutman: So my first question is what gives you the confidence in the second half sales improvement.

Simeon Gutman: Is it just a function of timing of deliveries between second and third quarter or is there some risk high demand shifts out to 2026.

Jack Preston: What's the question? It would give us the confidence for the second half of the applied sales plan. I don't know, this is what we do for a living. You know, we're generally more right than wrong. I mean, it's a lot of factors, you know, it takes me too long to explain all of it, but I mean, our current performance, you know, what we have in the pipeline, the number of new galleries we're opening. I mean, so there's a whole. You know, this whole built up model of pieces that says this is what it looks like, but we are in the most unpredictable market I've ever seen.

Speaker Change: But what's the question.

Speaker Change: And what gives us the confidence for the second half.

Speaker Change: Slide sales plan.

Speaker Change: So I don't know if this is what we do for a living.

Speaker Change: We're generating more right than wrong.

Speaker Change: And there's a lot of factors.

Speaker Change: It takes me too long to explain all of it but I mean, our current performance.

Speaker Change: What we have in the pipeline the number of new galleries were opening.

Speaker Change: So there is a whole.

Simeon Gutman: This whole built up model of pieces that says this is what it looks like but we are in thick.

Simeon Gutman: Unpredictable market I've ever seen.

Simeon Gutman: No.

Jack Preston: You know, we're more confident than less confident. Got it.

Simeon Gutman: Yes.

Simeon Gutman: We're more confident than less confident.

Simeon Gutman: Got it. Thank you and my follow up is how that product margin performing recorded.

Jack Preston: Thank you.

Jack Preston: And my follow up is how did product margin perform in the quarter? The last few quarters you spoke to sequential improvement. So what's your updated view on product margin for the full year? So our core business product margins were up year over year. Some of the other businesses were down slightly year over year, and you can see that just mentioned in our MD&A, but I think the most important part of the story is our core business margins year over year. and we expect it to be up year over year. the rest of the year. We don't comment on the quarter over quarter market trend, but I think it's important to look at, you know, the commentary about the year over year.

Simeon Gutman: The last few quarters, you saw sequential improvement.

Simeon Gutman: What's your updated view on product margin for the full year.

Simeon Gutman: Okay.

Simeon Gutman: So our core business product margins were up year over year.

Simeon Gutman: Some of the other businesses were down slightly year over year and you can see that just mentioned in our MD&A, but I think the.

Simeon Gutman: Most of them so far this.

Simeon Gutman: So as far as our core more core business margins year over year year over year.

Simeon Gutman: And we expect it to be up year over year.

Simeon Gutman: The rest of the year.

Simeon Gutman: Comment on the quarter.

Simeon Gutman: Over a quarter of Rguest trend, but I think it's important to look at.

Simeon Gutman: The commentary about the year over year.

Jack Preston: Great, thank you so much.

Simeon Gutman: Great. Thank you so much.

Michael Lasser: Your next question comes from Michael Lasser with UBS. Your line is open. Good evening. Thank you so much for taking my question. You came into the year with EBITDA margin guidance in the 20 to 21 percent. It sounds like the decision to increase the discount for members was made more recently.

Michael Lasser: Your next question comes from Michael Lasser with UBS. Your line is open.

Michael Lasser: Good evening. Thank you so much for taking my question. So you came into the year with.

Michael Lasser: The EBITDA margin guidance in the 20% to 21%.

Simeon Gutman: It sounds like the decision to increase the discount for members was made more recently.

Gary Friedman: So what is the offset that is allowing you to offer a greater discount and yet still keep the same profitability for the rest of the year, even as it does seem like sales have proven to be a bit more volatile than what you would originally expect? Yeah, like Michael, like I said, we've been thinking about this for five years, you know, so You know, we decided to do it now because it seemed like a strategically good time to do it. And. You know, we... We always have a lot of optionality, you know, and a lot of things we're thinking about strategically, you know, based on.

Simeon Gutman: So what is the offset that is allowing us to offer a greater discount and yet still keep the same problem profitability for the rest of the year, even as it does seem like field proven to be a bit more volatile than what you had originally expected.

Simeon Gutman: Yes, Michael I think that we've been thinking about this for five years.

Simeon Gutman: No.

Simeon Gutman: Yes, we decided to do it now because it seemed like a strategically good time to do it.

Simeon Gutman: Ed.

Simeon Gutman: And.

Simeon Gutman: We.

Simeon Gutman: We always have a lot of optionality and a lot of things we're thinking about strategically.

Simeon Gutman: Based on.

Jack Preston: you know, the market, the competitive market what's happening, you know, like, so Bye. Yeah, so, you know, just We thought it was a good time to do it. For all the reasons I've kind of said, to take market share, you know, if you read the letter, to kind of play offense, right, and take market share, yeah, and you have the margin structure, you know, to be able to do things, you know, so, yeah, we're always tweaking our market, you know, our, our model, and, you know, looking at ways to build a better brand, build a better business model, and so on and so forth.

Simeon Gutman: Yes, the market the competitive market what's happening.

Simeon Gutman: Sure.

Simeon Gutman: Yes.

Simeon Gutman: Yeah.

Simeon Gutman: We thought it was a good time to do it.

Simeon Gutman: For all the reasons I've kind of said to take market share. So I read the letter.

Simeon Gutman: Play offence, right and take market share, yes, and half the margin structure.

Simeon Gutman: To be able to do so.

Simeon Gutman: Yes, we're always tweaking our mark.

Simeon Gutman: Our model and.

Simeon Gutman: Looking at ways to build a better brand.

Simeon Gutman: <unk> build a better business model.

Jack Preston: So . . Yeah, all right. Thank you. You know that this should work well. Yeah.

Simeon Gutman: So.

Simeon Gutman: Yes, Dave.

Simeon Gutman: Okay.

Simeon Gutman: You know that.

Simeon Gutman: This should.

Simeon Gutman: Worked well.

Simeon Gutman: Yes.

Jack Preston: I guess my question, Gary, was, have you taken up some prices to compensate or offset for the increased discount such that your profitability is where you thought it would be? Yeah, well, we generally will take a price change, you know, at the beginning of the year, every year. And I don't think there's many times that we haven't. And then, you know, we were reacting to tariffs, you know, appropriately, but You know, we are coming out with some pretty big margin flexibility, you know, just if you look at kind of our more recent trends as we're coming into this year, where the new product was, margins were, you know, where we've negotiated bigger bets and better pricing and so on and so forth.

Simeon Gutman: I guess my question. Gary was are you have you take it up some pricing to compensate or offset for the increased discounts, let's hit your profitability.

Simeon Gutman: Is where you thought it would be.

Simeon Gutman: Yes.

Simeon Gutman: We generally will take the price change at the beginning of the year every year.

Simeon Gutman: I don't think there is many times that we haven't.

Simeon Gutman: And then.

Simeon Gutman: We're reacting to tariffs appropriately but.

Simeon Gutman: We are coming out with some pretty big margin flexibility.

Simeon Gutman: If you look at kind of our more recent trends as we're coming into this year, where the new product was margins were.

Simeon Gutman: Where we've negotiated bigger bev, some better pricing and so on and so forth.

Simeon Gutman: Sure.

Gary Friedman: And so we've, you know, and we, you know, we think our Our offer is, you know, it's really distinctive and You know, the, you know, the environment that we sell the goods are in is distinctive, the brand is. And I think that I think everything that we do, the galleries, the restaurants, the design services, all these elements render the product much more valuable. Our source books render the product more valuable. And as you build a brand and the brand becomes and more distinctive. more flexibility. I mean, people will pay more for better things. Yeah, and so, I mean, we've been doing this, like the whole time, right, like You know, we're selling many less categories, much higher quality product at, you know, higher prices, and we have fewer customers doing more volume, and we have much more leverage in that model.

Simeon Gutman: And so we.

Simeon Gutman: We think our.

Simeon Gutman: Our offer is yes.

Simeon Gutman: Distinctive and.

Simeon Gutman: Yes.

Simeon Gutman: The environment that we sell the goods are in.

Simeon Gutman: I think the brand is.

Simeon Gutman: I think that.

Simeon Gutman: I think everything that we do.

Simeon Gutman: The galleries.

Simeon Gutman: Sure.

Speaker Change: Restaurants that design services all of these elements render the product much more valuable our source books render the products more valuable and as you build the brand and the brand becomes.

Simeon Gutman: More desired and more distinctive you have.

Simeon Gutman: More flexibility I mean people will pay more for better things.

Simeon Gutman: And so.

Simeon Gutman: I mean, we've been doing this the whole time right.

Simeon Gutman: We're selling many less categories much higher quality product.

Simeon Gutman: Higher prices then.

Simeon Gutman: We have fewer customers doing more volume and we have much more leverage in that model and so.

Jack Preston: And so. Yeah, we've been building and tweaking this model for 25 years. Thank you very much for that.

Simeon Gutman: Yes.

Simeon Gutman: Building and tweaking this model for 25 years.

Speaker Change: We kind of just want to be very much for that Mike.

Speaker Change: Hi, guys Q&A.

Jack Preston: My quick follow-up question is on the six-point deferral revenue from the 2nd quarter into the back half of the year. Is that demand that's already been realized and you simply will deliver the products later on? Ok, I mean given that can you give us a sense for How demand has trended. For that to happen, Michael, the demand was much higher than the revenues, okay, but what happened when the reciprocal tariffs hit... We stopped shipments. You know, people stopped producing them. You know, manufacturers thought, yeah, like, I mean, it created disruption. you know, for several weeks in the supply chain.

Speaker Change: My quick follow up question is on the six point.

Simeon Gutman: Deferral of revenue from the second quarter and into the back half of the year is that demand is.

Simeon Gutman: Already been realized and you simply will duly further product later on okay.

Simeon Gutman: Given that can you give us sense for.

Simeon Gutman: And has trended.

Simeon Gutman: Yes.

Simeon Gutman: For that to happen Michael the demand was much higher than the revenues, okay, but what happened when the reciprocal tariffs hit.

Simeon Gutman: We stopped shipments.

Simeon Gutman: People stopped producing.

Simeon Gutman: Yes manufacturers thought yet right.

Simeon Gutman: It created disruption.

Simeon Gutman: For several weeks in the supply chain and when you try to ramp back up quickly in a chaotic time like that things are good.

Jack Preston: And when you try to ramp back up quickly in a chaotic time like that, things are just, you know, things are late, things get backed up. You know, when you stop the factory, you know, for a week or two. It gets backed up. And then you got to catch up. And so, you know, so you're just going to have a deferral, you know, kind of a lag of shipments. and a deferral. So that, yeah, this is a big one. Yeah, you won't usually, you know, only have things like this, if the demand is, you know, really up there, like 30%, or 20%.

Simeon Gutman: Things are late things get back debt.

Simeon Gutman: Stop the factory for a week or two.

Simeon Gutman: And then you've got to catch up.

Simeon Gutman: So youre just going to have.

Simeon Gutman: Ed.

Simeon Gutman: Deferral kind of a lag of shipments and a deferral. So that yes. This is the big one.

Simeon Gutman: Usually.

Simeon Gutman: I only have things like this.

Simeon Gutman: Demand is really up there like 30% or 20% like when we were running some really high numbers earlier, and we said hey, we're going to have a Florida I think.

Jack Preston: Like when we were running some really high numbers earlier, and we said, hey, we're gonna have a four to I think a point, you know, lag during during a certain period. But this was a disruption lag. You know, I wouldn't be surprised if other people, because people haven't reported that period yet, have they? Other retailers? Are we the first to report? Well, Q1 or the last, Q2, obviously, what we're guiding some of that's in there. Yeah. Yeah, so I think you're going to see this in a lot of places that sold furniture and stuff because when all of a sudden you get...

Simeon Gutman: <unk> labs.

Simeon Gutman: Certain period.

Simeon Gutman: But this was a disruption lagged.

Speaker Change: I wouldn't be surprised if other people as people have reported that period, yet Heather other.

Simeon Gutman: Other retailers are we the first to report.

Simeon Gutman: Q1 over the last Q2, obviously, what we're guiding.

Simeon Gutman: Yes, yes.

Simeon Gutman: Yes, yes, so I think I think I think youre going to see this in a lot of places that fold furniture and stuff because.

Simeon Gutman: When all set and you get.

Jack Preston: you know, 45% tariff, 35% tariff, 100 something percent tariff. You don't just go, oh, yes, business as normal, you know, business as usual, keep on shipping. I mean, we're like, hey, stop shipping. You know, the manufacturers don't know what to do. They're like, hey, can I ship this? It's gonna cost a lot more. You know, that was a shocking thing that happened. You know, Liberation Day for business. Yeah, I mean, we're lucky we're a big business. I mean, it's devastating for small business. You know, that don't have flexibility. So. Yeah, yeah, so you're gonna have things like this.

Simeon Gutman: 45% tariffs.

Simeon Gutman: 35% tariffs 100 something percent Paris.

Simeon Gutman: <unk>, Oh, yes business as normal business as usual he bond shipping I mean, we're like hey stop shipment.

Simeon Gutman: Right.

Simeon Gutman: Okay.

Simeon Gutman: The manufacturers don't know what to do there.

Simeon Gutman: Hey can I ship this it's going to cost a lot more.

Simeon Gutman: That was a shocking thing that happened liberation day for business, Yes, I mean, we're lucky we're thickness devastating for small businesses.

Simeon Gutman: Don't have flexibility.

Simeon Gutman: Yes.

Speaker Change: Yes, yes, so you're going to have things like this.

Jack Preston: I mean, I'd be surprised if other people in the furniture business, you know, that have like special order, things like that, that, you know, that's all going to get hung up. And some of your other goods, you're gonna get hung up, right? Back orders and so forth. Thank you very much and good luck. Thank you, Michael.

Speaker Change: Be surprised if other people in the furniture business.

Simeon Gutman: Debt to have like special order things like that that that's all going to get hung up and some of your other goods youre going to get hung up right back orders on silver.

Speaker Change: Thank you very much and good luck.

Michael Lasser: Thank you Michael.

Maks Rakhlenko: Your next question comes from Maks Rakhlenko with TD Cowan. Your line is open. Hey guys, thanks a lot for taking my question. So first, how much of the Unix's inventory did you work through in 1Q? And given that your 1Q free cash flow generation was sort of in the mid 30 million range, can you just help us bridge the gap to the full year guide? Well, I don't think inventory wasn't down year over year, was it? Well, not and I think importantly, max sequentially inventory, you know, was down just slightly from yeah, you know, a billion 20 to a billion eight, so down 12 million.

Speaker Change: Your next question comes from Max <unk> with TD Cowen Your line is open.

Max: Hey, guys. Thanks, a lot for taking my question. So first how much of the excess inventory work through an <unk>.

Speaker Change: And given that your free cash flow generation was sort of in the mid $30 million range can you just help us bridge the gap to the full year guide. Thanks.

Michael Lasser: Well I don't think inventory within down year over year with it will not but I think importantly, matching sequentially inventory was down just slightly from yes.

Michael Lasser: $1 $20 billion to $1 billion, so down $12 million yeah. So.

Jack Preston: Yeah. So making, you know, making a little bit of progress, but yeah, clearly that's implied. And that's not the bigger moves will be in the second half of the year. As we keep going, yeah, so we... that ability to meaningfully, you know, reduce inventory this year and next year. Got it. Okay. And then switching gears, you guys have an incremental, it looks in the 10Q to be about 308 million available on the ABL. So just given this level and your goal to generate free cash flow, can you discuss whether or not you think you may need to raise capital or opportunistically look to raise capital to shore up the balance sheet?

Michael Lasser: Making a little bit of progress, but clearly thats in place.

Michael Lasser: Yes.

Michael Lasser: The bigger moves will be in the second half of.

Michael Lasser: Yes.

Michael Lasser: As we keep going.

Michael Lasser: <unk> ability to meaningfully.

Michael Lasser: Reduce inventory this year and next year.

Speaker Change: Got it Okay, and then switching gears you guys have an incremental 10.

Speaker Change: <unk> about $308 million available on the ABL. So just given this level and your goal is to generate free cash flow can you discuss whether or not you think.

Speaker Change: You may need to raise capital or Opportunistically ambulatory capital sure up the balance sheet.

Gary Friedman: No, but I mean, you know, if would we raise capital opportunistically? Maybe not this stock price. I mean, I mean, we're kind of famous for doing zero coupon convertibles. I mean, you know. probably missed the window at 450 we should have done one and you know I mean the great thing is we've got a highly volatile stock so we can monetize the volatility and you know, raise capital in the convertible market. pretty easily, but not at where the stock is today. If it goes up to a much higher price, would we think about it? Of course we would, because it would lower interest rates.

Speaker Change: No, but I mean.

Speaker Change: Yes would we raise capital Opportunistically, maybe not at this stock price.

Speaker Change: I mean, we're kind of famous for doing zero coupon convertibles.

Speaker Change: I mean, yes.

Speaker Change: Yes.

Speaker Change: Probably missed the window at $4 50, we should've done one in the.

Speaker Change: Great thing is we've got a highly volatile stock. So we can monetize the volatility.

Speaker Change: And.

Speaker Change: Raised capital in the convertible markets.

Speaker Change: Easily.

Speaker Change: Where the stock is.

Speaker Change: Today.

Speaker Change: Yes.

Speaker Change: It goes up to them.

Speaker Change: Much higher price should we think about it of course.

Speaker Change: And with lower interest rates then.

Jack Preston: Yeah, so but there's nothing there's nothing we're not doing that we want to do. right now.

Speaker Change: Yes.

Speaker Change: Theres nothing Theres nothing were not doing that we want to do.

Speaker Change: Right now I mean.

Gary Friedman: I mean, if you look at what we're doing, and the amount of activity that's happening here, yeah, we're opening, we're opening maybe the most beautiful and magnificent retail stores. that have ever been. ever opened anywhere in the world. There's nothing like them in Europe. There's nothing like them in the States. You know, but they're big investments. The whole Europe piece, we're, yeah, we've made big real estate moves here, opened really important galleries here, we've got a pipeline full of galleries here. We're launching new concepts that we're opening with three physical locations. That's that kind of means we're excited about that concept.

Speaker Change: If you look at what we're doing.

Speaker Change: Non of activity that's happening here, yes, we are opening.

Speaker Change: We are opening may be the most beautiful and magnificent retail stores.

Speaker Change: Ever than ever.

Speaker Change: Ever opened anywhere in the world.

Speaker Change: There is nothing like him in Europe, there is nothing like the station.

Speaker Change: Yes.

Speaker Change: The big investments the whole Europe, where we've made big real estate.

Speaker Change: State moves here isn't really important gatherings here, we've got a pipeline full of galleries here for.

Speaker Change: Launching new concepts that we're opening with reef.

Speaker Change: <unk> physical locations.

Speaker Change: That kind of means we're excited about that kind of stuff.

Gary Friedman: And, you know, we're I think, you know, we just we just went through the biggest product transformation anywhere. We built a restaurant company. I don't think anybody realizes that. How many restaurants do that now? Twenty-two restaurants and we're opening, how many, what do we have in the pipelines here on the street count? You know, we've got two in Paris, we've got two, you know, like, Yeah, we're going to have 30 restaurants very soon here. I mean, a restaurant company, how many retailers have a restaurant company that have, that really actually people go to and they do volume?

Speaker Change: Hi.

Speaker Change: I think.

Speaker Change: We just went through the biggest product transformation anywhere we built a restaurant company I don't think anybody realize that how many restaurants do we have that.

Speaker Change: 22 restaurants, we're opening how many we have in the pipeline this year.

Speaker Change: Yes, we've got two and prior to that.

Speaker Change: We're going to have 30 restaurants very soon here.

Speaker Change: A restaurant company.

Speaker Change: Retailers have a restaurant company that has that really actually people go to and they do volume, yes, I don't know if anybody saw it but we just we just got named.

Gary Friedman: Yeah, I don't know if anybody saw it, but we just, we just got named restaurant in the year in Orange County, the RH Ocean Grill. I mean, we just built Newport Beach, for God's sake. That wasn't cheap. But, you know, no one will ever build anything like that. Again, we have a 270 seat restaurant that is trending right now at $22 million. And we're not feeding the whole thing quite yet as we're building up the capability and team, but that gallery is trending, you know, with the gallery and restaurant, it'll be our second $100 million.

Speaker Change: Restaurant in the year in Orange County, the <unk> growth.

Speaker Change: I mean, we just built Newport Beach forget that was achieved.

Speaker Change: But no one will ever build anything like that again, we have a 270 seat restaurant that is trending right now at $22 million and we're not speeding the whole thing quite yet as we're building up the capability of the team that galleries training.

Speaker Change: The gallery in restaurants.

Speaker Change: $100 million.

Gary Friedman: You know, gallery. I mean, we just opened it. You know, so, I mean... You know, like, we're doing everything we want to do. Awesome. Thanks a lot, guys. Best regards.

Speaker Change: Gallery.

Speaker Change: We just opened it.

Speaker Change: <unk> said.

Speaker Change: I mean.

Speaker Change: Yes.

Speaker Change: We're doing everything we want to do.

Speaker Change: Awesome. Thanks, a lot guys.

Speaker Change: Regards.

Andrew Carter: Your next question comes from Andrew Carter with Stiefel. Your line is open. Thank you. Good evening. First question is on the disruption. Of course, Liberation Day was in the last month of your quarter. Was there any headwind in the quarter? And then kind of a second question, if you've got six points coming out of 2Q, then that means demand should be 14 to 16. And if it's three points, therefore, coming in the back, or overall that comes back, that means demand slows to 7 to 12.

Andrew Carter: Your next question comes from Andrew Carter with Stifel. Your line is open.

Speaker Change: Thank you. Good evening first question is on the on the disruption of course Liberation day was in the last month of our quarter was there any headwind in the quarter and then kind of a second question. He's got six point coming out of <unk> and that means demand should be 14 to 16 and if its three points therefore coming in the back.

Speaker Change: Overall that comes back that means demand close to 712 can you give us anything on the exit rate in June or why you have that kind of slowing in the second half here. Thanks.

Gary Friedman: Can you give us anything on the exit rate in June or why you have that kind of slowing in the second half here? Thanks. Yeah, that's not what our numbers look like. You know, you know, I don't Yeah, Andrew, I mean, you're asking a lot of details actually at a monthly level. And I think you know us well enough to know that we don't, we don't get into those kind of details unless there's a there's a purpose to do that. I think our guidance speaks for itself and our confidence in the business. And, and there's obviously a level of, you know, as we've said before, there's, you know, naturally level of, you know, there's our internal plan.

Speaker Change: Yes, that's not what our numbers look like.

Speaker Change: Hello.

Speaker Change: Correct.

Speaker Change: No.

Speaker Change: Yes, Andrew I mean, you're asking a lot of detailed monthly level and I think you know us well enough to know that we don't we don't get into those kind of details unless there is a purpose to do that I think our guidance speaks for itself and our confidence in the business.

Speaker Change: And.

Speaker Change: There's obviously a level of as we've said before there is naturally level.

Speaker Change: There is our internal plan and then there is what we communicate externally and those are.

Jack Preston: And then there's what we communicate externally. And those aren't, you know, there's, there's, there's, there's some development between us.

Speaker Change: <unk>.

Speaker Change: There is some.

Speaker Change: Between us.

Gary Friedman: I guess the second question I'd ask is, in this environment right now, are you seeing a lot of incremental traction on the to-the-trade business? I mean, the to-the-trade guys out there, things are being canceled, the pauses really don't help, it's starting and stopping. Are you seeing a lot of incremental traction or not really? And we have very strong to the trade business, you know, we have trade teams in every gallery, we have interior design teams, and we have trade teams there, the trade team service, the exterior, you know, the external interior designers. And, you know, our business is strong.

Speaker Change: I guess second question I'd ask is then kind of in this environment right. Now are you seeing a lot of like incremental traction on the key the trade business I mean, the key the trade the trade guys out there things are being canceled starting to apologize really don't help it's starting and stopping or you're seeing like a lot of anchor mall traction or not.

Speaker Change: <unk>.

Speaker Change: Okay.

Speaker Change: And we have very strong to the trade business. Yes, we have trade teams in every gallery, we have interior design teams and we have trade teams or <unk> teams service the exterior.

Speaker Change: External interior designers.

Speaker Change: And in our business is strong.

Marius Moorer: Fair enough, pass it on.

Speaker Change: Fair enough pass it on.

Operator: Okay.

Speaker Change: Okay.

Gary Friedman: Your next question comes from Marius Moorer with Zellman. Your line is open. Good evening. Thank you for taking my question. Just a quick one on outdoor, you mentioned some slowdown. I was just curious, it seems like it was more pronounced than in some of the other product categories. And I was just wondering why that is. Is there something about outdoor or something else that might have driven?

Speaker Change: Your next question comes from Marius Tomorrow with Zelman Your line is open.

Speaker Change: Good evening.

Marius Tomorrow: Thank you for taking my question.

Marius Tomorrow: Just a quick one on our store you mentioned some slowdown I was just curious it seems like it was.

Marius Tomorrow: Pronounced and in some of the other product categories and I was just wondering.

Speaker Change: Why that is is there something about outdoor or something else that might have proven it.

Gary Friedman: I think it's the timing, you know, the the outdoor season is relatively short season if you miss that season you know the peak of that season that's hard to make up And so, you know, that, you know, During the disruption and around the terrorist and all that noise that was disrupting a business that you only got so many weeks right to you can't make you can't make up the peak months in the out months. So And we just thought it was the right thing to do. It was unusual. Yeah, situation that happened with the with the tariffs and everything else.

Speaker Change: I think it's the timing.

Speaker Change: The outdoor season is relatively.

Speaker Change: Short season, if you Miss that season, the peak of that season Thats hard to make up.

Speaker Change: So that yes.

Speaker Change: During the disruption.

Speaker Change: Around the tariffs and all that noise it was.

Speaker Change: Disrupting.

Speaker Change: Business that you only have so many weeks right you can't make you can't make up the peak mine.

Speaker Change: In the.

Speaker Change: The out months.

Speaker Change: So yes.

Speaker Change: And we just thought it was the right thing to do it was an unusual.

Speaker Change: Yes situation that happened with the with the tariffs and everything else.

Gary Friedman: And, you know, We're an unusual world, so... you in an unusual world you should do some unusual things. Because if you try to do the usual things in an unusual world, that's how you fall behind. I mean... We think very deeply about what we do. You know, we think really hard about what we do and we usually make decisions that are very strategic and long-term in nature, but there's times. like in an outdoor season where you know you're going to make a tactical decision because the math says it's a much better thing to have those fails at a slightly lower margin.

Speaker Change: We're an unusual world.

Speaker Change: Yeah.

Speaker Change: In an unusual world you should do some unusual things because if you try to do the usual thing unusual world that.

Speaker Change: Fall behind.

Speaker Change: So.

Speaker Change: I mean.

Speaker Change: We think very deeply about what we do.

Speaker Change: We think really hard about what we do and we usually make.

Speaker Change: Decisions that are very strategic and long term in nature.

Speaker Change: But there is times.

Speaker Change: Like in an outdoor season.

Speaker Change: Where youre going to make a tactical decision because the math says it's a much better thing to have those sales that are slightly lower margin.

Speaker Change: Sure.

Gary Friedman: So, yeah. It's just day-to-day business calls, you know, we're in a. We're in a messy time. Very unpredictable time. Yeah, things, you know, you've got to be flexible in times like this, if you want to, if you want to win and take share and position yourself for the other side, I mean, there's a lot of people going bankrupt, you know, a lot of the ankle biter businesses, the little online things they know that they can't raise capital, their business, or a lot of them are blowing up, they're going away. Yeah, the other businesses that I think don't make it through.

Gary Friedman: So yes.

Speaker Change: This day to day business calls.

Speaker Change: Yes.

Speaker Change: We're in a messy time.

Speaker Change: Very unpredictable time.

Speaker Change: Yes things.

Speaker Change: You've got to be flexible in times like this if you want to.

Speaker Change: If you want to win and take share and position yourself for the other side.

Speaker Change: There's a lot of people going bankrupt lie to the ankle biter businesses, the little online things that they can't raise capital their business.

Speaker Change: A lot of them are blowing up theyre going away.

Speaker Change: Yes in the other businesses I think don't make it through.

Gary Friedman: the rest of this year. You know, they don't have the scale to deal with the tariffs. They don't have the leverage. You know, they don't have the strategic flexibility, you know, so. You want to position yourself. for the other side, the other side where all the upside is. So if you're in a position like we have been, you know, again, it's not free, you know, we're paying interest on the debt. And, you know, and that wasn't by choice. I mean, we knew we were gonna pay some interest, we didn't know interest rates were going to rise the fastest in history.

Speaker Change: The rest of this year.

Speaker Change: They don't have the scale to deal with the tariffs they don't have the leverage.

Speaker Change: They don't have the strategic flexibility.

Speaker Change: So.

Speaker Change: You want to position yourself.

Speaker Change: For the other side the other side, where all the upside is so if youre in a position.

Speaker Change: Like we have been and yet it's not free.

Speaker Change: Were paying interest on the debt.

Speaker Change: That wasn't by choice I mean, we knew we're going to pay some interest.

Speaker Change: Interest rates were going to rise the fastest.

Speaker Change: In history.

Gary Friedman: You know, got it. You know, we're not We don't have a crystal ball. We can't see things like that, and neither can anybody else. But, uh... I wouldn't get too hung up on... We took out door to 35% for X number of weeks during a You know, extraordinary. political, you know, and product turmoil around the world.

Speaker Change: Got it.

Speaker Change: We don't have a crystal ball, we can't see things like that and neither can anybody else.

Speaker Change: Yes.

Speaker Change: But.

Speaker Change: I wouldn't get too hung up on.

Speaker Change: We took out door to 35% for X number of weeks during a.

Speaker Change: Extraordinary.

Speaker Change: Political.

Speaker Change: Yes.

Speaker Change: Dan product foreign currency.

Speaker Change: Turmoil around the world.

Gary Friedman: Like, do you think Apple's doing anything different? You know, Apple is flying jets. you know of iPhones to the U.S. you know the tariff. Apple's opening factories in India you know like Yeah, everybody's got problems right now. Tesla's got problems, not just because of you know, Elon being involved in the government. It's a different world. Lots of things are changing. You have to improvise, adapt, and overcome. Changes aren't always bad. You know, I read a lot of analyst reports like, oh God, they did this. So it's got, you know, I'm like, holy cow, get out of the weeds.

Speaker Change: Like do you think apples to doing anything different Apple explained jets.

Speaker Change: Of iphones to the U S.

Speaker Change: The tariff apples opening factories in India.

Speaker Change: Everybody has got problems right now.

Speaker Change: Tesla has got problems not just because of.

Speaker Change: Elon being involved in the government.

Speaker Change: It's a different world what things are changing.

Speaker Change: You have to improvise adapt and overcome so.

Speaker Change: Changes arent always bad I read a lot of analyst reports like Oh God. They did this <unk>.

Speaker Change: Holy Cow get out of the weeds.

Gary Friedman: You know, look at the big picture. And you know, Are we heading in the right direction? Are we more right than wrong? Is anybody building a platform like us? Does anybody have the product assortment that we do? Does anybody have a restaurant concept, you know, that drives the kind of energy and engagement that we do, you know, that is a profit center, you know, that drive in traffic? Anybody have our interior design business? I think we're the largest residential interior design firm in the world today.

Speaker Change: Look at the Big picture.

Speaker Change: Okay.

Speaker Change: Are we heading in the right direction are we more right than wrong as anybody building a platform like us if anybody has the product assortment that we do anybody have a restaurant concept.

Speaker Change: It drives the kind of energy and engagement that we do that.

Speaker Change: As a profit center.

Speaker Change: Driving traffic.

Speaker Change: Anybody have our interior design business I think we're the largest residential interior design firm in the world today.

Gary Friedman: And, you know, we've built really important foundational things here that I just don't think anybody sees it yet what's going to happen over the next 10 years. Donators can't because the investments don't look like anybody else. No one's ever done it. So I think people are afraid of it sometimes. Oh, God, look what they're building. Oh, man, they're spending a lot of money. Well, okay, we are. We're also making a lot of money in a shitty housing market. Oh, I'm going to go, you know, I'm going to go national on that too. I said that word again.

Speaker Change: We've built really important foundational things here that I, just don't think anybody sees it yet what's going to happen over the next 10 years.

Speaker Change: Don I can't catch the investments don't look like anybody else's.

Speaker Change: No one's ever done it. So I think people are afraid of it sometimes a little guide with what they're building and.

Speaker Change: They're spending a lot of money, but okay. We are we're still making a lot of money and it's shitty housing market I'm going to go I'm going to go national in that two I said that word again.

Gary Friedman: I could say, oh, this, but I didn't. Give me another minute. There we go. Yeah, thank you.

Speaker Change: I can say Oh this.

Speaker Change: I do.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Given the anatomy helpful. Thank you.

Speaker Change: Yes. Thank you.

Speaker Change: Yes.

Gary Friedman: on the contract and hospitality business. You called it out in the letter. Just curious internationally, how's the adoption there? And is that something that's in line with the design business or the general retail business? Or is it sort of following it? Is it living it? Any insight there would be? We've been in that business for 20 years. No, internationally, I mean, in Europe. Well, we'll contract too. We've been selling internationally in the contract division for many years. Yeah, I think 15 or 20 years. Yeah, probably. Yeah. I mean, those were our first international customers, before the consumers.

Speaker Change: On the contract and hospitality business you called it out in the latter just curious internationally.

Speaker Change: How has the adoption there and is that something thats in line with the design be seen as the general retail business or is it.

Speaker Change: Following Gators Libyan get any insight there would be helpful.

Speaker Change: <unk> been in that business for 20 years.

Speaker Change: Now internationally in Europe.

Speaker Change: And we'll contract for you and we've been selling internationally and the contract division for many years.

Speaker Change: But I think 15 or 20 years ago, Robert Yes, I mean, those are our first international customers.

Speaker Change: Yes before before the consumers.

Gary Friedman: So. I'm not sure what to say, we don't comment specifically on the trends in that particular business. But yeah. It follows the strength of our core business given the product transformation. Thank you.

Speaker Change: So.

Speaker Change: I'm not sure it affected.

Speaker Change: We don't comment specifically on the trends in that particular business.

Paul: Paul It follows the strength of our core business given the product transformation.

Paul: Thank you.

Paul: Okay.

Jonathan Matuszewski: Your next question comes from Jonathan Matuszewski with Jeffries. Your line is open. Great. Good evening, Gary and Jack. I had one question and it was on Waterworks. Didn't catch any comments on that business in the prepared remarks. So maybe just give us an update on your efforts to elevate the brand there. I think you've been working to integrate that business more with RH. So, you know, where are you finding success? What's the updated pacing for working that product into RH galleries and maybe what still needs to be refined? Thanks so much. Yeah, well Waterworks has done, I think I've commented not too long ago, an incredible job building the brand, the assortment, the positioning in the market, the offshore sourcing.

Speaker Change: Your next question comes from Jonathan <unk> with Jefferies. Your line is open.

Jonathan <unk>: Great Good evening, Gary and Jack.

Speaker Change: I had one question and it was all in our waterworks didn't catch any comments on that business in the prepared remarks. So maybe just give us an update on your efforts to elevate the brand. There I think he has been working to integrate that business more with RH. So where are you finding success, what's the updated pea theme for.

Speaker Change: Working that product into RH galleries, and maybe what's still needs to be refined. Thanks. So much.

Paul: Yes.

Paul: Since then I think I've commented not too long ago, an incredible job building the brand the assortment the positioning in the market.

Paul: The offshore sourcing.

Gary Friedman: You know, I think Peter Rouse and the leadership team have been tremendous partners of ours and we've learned a lot from them about the industry, about the business and the dynamics and you know, there's, it's, there's You know, there's a retail kind of the world's been set up historically as retail and trade, you know, and you have architects, interior designers and everything interfacing at the trade level and consumers more interfacing at the retail level. And we think that the trade platform is a dated platform because it's not a transparent platform, nor is it an accessible platform.

Speaker Change: I think Peter Ralph and the leadership team that.

Paul: There have been tremendous partners of ours, and we've learned a lot from them about the industry about the business and the dynamics in theirs.

Paul: There is.

Paul: There is a retail kind of the worlds been setup historically as retail and trade.

Paul: Architects interior designers and everything interfacing at the trade level and consumers more interfacing at the retail level.

Paul: And we think that that that the trade platform is is it David platform, because it's not a transparent platform nor is it an accessible platform. So it really limits the business.

Gary Friedman: So it really limits the business. And I think Peter Rauch. see that and understand that. And that's why they wanted to partner with us. And, you know, but, you know, they've spent You know, the time with us building a really great base. You know, the businesses double the size, the EBITDAs went from, I don't know, two to 16% this year or something like that. I mean, we don't disclose that, but, you know, it's turning into a really good, strong business and it's in a bad housing market still. And we think that we always wanted to partner with them and integrate the two businesses because we thought it completes the home.

Speaker Change: And I think Peter Rabbit.

Speaker Change: See that and understand that and Thats why they wanted to partner with us.

Speaker Change: But yes.

Speaker Change: Ben.

Speaker Change: And at the time with US building, a really great base.

Paul: And in the business is double the size.

Paul: EBITDA went from two to <unk>.

Paul: 16% this year something like that I mean, we don't disclose that but yes.

Paul: Turning into a really good strong business and it's had bad housing market. So.

Speaker Change: And we think that there.

Speaker Change: We've always wanted to partner with them.

Speaker Change: Great to see businesses, because we thought it completes the home.

Gary Friedman: And we were already in the business, but nowhere near the level they were. And it is the best brand, I think. in in the in the bathroom kitchen area, you know, in the world, you know, any great house, you know, if it's, you know, most of them, it's the jewelry of the house. So we love the association.

Paul: And we were already in the business, but nowhere near.

Paul: At the level they were in.

Paul: It is the best brand I think.

Paul: And in the.

Paul: In the Bath and kitchen area in the World.

Paul: Any greathouse.

Paul: Most of them, it's the jewelry of the house.

Paul: So we love the association, we're starting to.

Gary Friedman: We're starting to, you know, test integration efforts. We put in a waterworks kind of shop in Newport Beach. You know, we've been open, I don't know, five, six months now, six months, you know, we're learning, we're seeing how it's going, the customer, you know, you know, what happens to the customer, they're not expecting to find it there, you know, and so, you know, we're testing and we're learning and growing. And I think we'll The next couple of years we'll connect some dots and figure out. you know, a big move. Yeah, so But, you know, it's a great brand.

Paul: Test integration efforts, we put in our waterworks kind of shop in Newport Beach.

Paul: We've been open five six months now six months, we're learning we're seeing how it's going.

Speaker Change: The customer.

Speaker Change: What happens to the customer they are not expecting to find it there.

Paul: So we're testing and we're learning and growing and I think we will.

Paul: Over the next couple of years will connect some dots then figure out.

Paul: Big move so.

Paul: But it's a great brand I think it renders us more valuable I think.

Gary Friedman: I think it renders us more valuable. I think, you know, we can long term also render waterworks more valuable in, you know, helping expose one of the great brands in the world to a much bigger audience. And especially now, I mean, they were global before us, you know, they were in Europe before we were. But, you know, we're gonna You know, I believe over the next 10 years to have kind of a global assault almost, right? And, you know, a good combination of us. You know, doing it all ourselves, we could. you know, do some licensing of franchise deals to go faster and more capital efficient.

Paul: We can long term also render waterworks more valuable.

Paul: Yet, helping expose one of the great brands in the world to a much bigger audience.

Paul: And especially now as they are global before us.

Paul: Europe before we work, but we're going to.

Paul: I believe over the next 10 years have kind of a global assault almost right.

Speaker Change: It could combination of us.

Speaker Change: Doing it all ourselves we could.

Paul: Do some license and franchise deals to go faster and more capital efficient I think.

Gary Friedman: I think I think RH and Waterworks are two brands that should be global. I think the world... would want those two brands. I think they'll be very successful two brands. And so we'll do a combination of, you know, some integration, some standalone, because you still have an important business there. So, but all good, you know, their business is strong, despite the housing market. And so, you know, we're really proud to be associated with them.

Paul: I think RH and waterworks, our two brands that should be global.

Paul: So I think the world.

Paul: Once those two brands I think will be very.

Paul: <unk> successful two brands.

Paul: And so we will do a combination of some integration some standalone because you still.

Paul: Important business there so.

Gary Friedman: But I'll get.

Paul: Their business is strong.

Paul: Despite the housing market and so we're really proud to be associated with them.

Cristina Fernandez: Thanks for that update. Best of luck. Thank you.

Paul: Thanks for that update best of luck.

Paul: Thank you.

Gary Friedman: Your next question comes from Cristina Fernandez with Telsey Advisory Group. Your line is open. Good afternoon and thanks for taking my question. I just have one. I wanted to see if you can expand on the tariff mitigation efforts. The product that's moving out of China outside of upholstery, where is it going? And you also mentioned on the letter that vendors were absorbing a significant portion of the cost. So the portion that RH is absorbing, what What savings or what areas are you finding offsets to offset that cost?

Speaker Change: Your next question comes from Cristina Fernandez with Telsey Advisory Group. Your line is open.

Cristina Fernandez: Hey, good afternoon, and thanks for taking my question.

Cristina Fernandez: I just have one I wanted to see if you can expand on the tariff mitigation efforts the.

Cristina Fernandez: Product, that's moving out of China outside of upholstery.

Cristina Fernandez: Where is it going and you also mention on the ladder dead vendors, we're absorbing a significant portion of the costs. So the portion that RH is absorbing what.

Cristina Fernandez: What savings or what what areas are you finding offsets too.

Cristina Fernandez: Yes.

Cristina Fernandez: Yes.

Cristina Fernandez: Offset that cost.

Gary Friedman: Yeah, I don't know if I want to educate our competitors, you know, how we're doing what we're doing, and you know, what specifically we're doing. But, you know, we have tremendous partners that we've been working with for years. You know, in a lot of ways, we operate like one company. And so there's just incredible collaboration and big picture thinking and how do we win together. And so, you know, I mean, I love that. And it's not, it's not new that you know, what it's what it what it is right now is, it's kind of chaotic and unpredictable.

Cristina Fernandez: Yes, I don't know if I want to educate our competitors.

Cristina Fernandez: Yes, yes.

Cristina Fernandez: How we're doing what we're doing and what specifically were doing that.

Cristina Fernandez: Yes.

Cristina Fernandez: We have tremendous partners that we've been working with for years.

Cristina Fernandez: A lot of ways, we operate like one company and so there is just incredible collaboration.

Cristina Fernandez: Big picture thinking how do we win together and so yes I mean.

Scott: Yes, it's Scott.

Cristina Fernandez: Not new.

Cristina Fernandez: It is what it is right now as its 10-K.

Gary Friedman: You don't know what the tariffs are going to really be, you don't know how long they're going to be, you don't know, you know, what countries are going to be what exactly. You know, there's a lot of smart people that I know that, you know. that government connections in multiple places in the world that believe that where the tariffs are now is kind of where they're going to be except China is an outlier and the other ones will be minor changes that Is that right or not? I'm just telling you what I'm hearing. And I think, I don't think we're going to see the U.S.

Cristina Fernandez: Chaotic and unpredictable.

Cristina Fernandez: You don't know what the tariffs are going to really be internet, how long theyre going to be what.

Speaker Change: Countries are going to be what exactly.

Cristina Fernandez: And.

Cristina Fernandez: There's a lot of smart people that I know that.

Cristina Fernandez: Yes.

Cristina Fernandez: Yes government connections.

Gary Friedman: Multiple places in the world that believe that.

Cristina Fernandez: Where the tariffs are now is kind of where theyre going to be except China is an outlier and the other ones will be minor changes that.

Cristina Fernandez: Is that right or not I'm, just telling you what im hearing.

Cristina Fernandez: And I think.

Cristina Fernandez: I don't think were going to see the U S. <unk> swinging the pendulum back then.

Gary Friedman: all of a sudden swing the pendulum back and, you know, to kind of the initial, I mean the initial moves on the tariffs, right, were, I think they're well articulated. I think there was a lot of logic to them and here's the imbalance and therefore here's the reciprocal. I think that was the start of a negotiation, and I think that it's not just about tariffs. We're all seeing now it's also about the materials for, you know, AI chips, what do they call them? NVIDIA? What? No, no. The rare minerals. Yeah, the rare minerals. Thank you.

Cristina Fernandez: To kind of the initial.

Cristina Fernandez: Initial moves on the tariffs right.

Cristina Fernandez: I think they are well our tech articulated I think there was a lot of logic Tillman here's the imbalanced and therefore, here's the reciprocal.

Cristina Fernandez: Sure.

Cristina Fernandez: I think that was the start of a negotiation and.

Cristina Fernandez: I think that it's not just about tariffs.

Cristina Fernandez: We're all seeing now its also about.

Cristina Fernandez: <unk>.

Scott: Materials for AI.

Scott: What do they call them.

Scott: <unk> no no.

Scott: Yes, the rare mineral here sorry.

Gary Friedman: I'm sorry. Rare minerals. There's, I mean, there's lots of things that are. You know, I think the current administration is trying to kind of. kind of rebalance trade, but also rebalance other strategic things at the same time. And so It's probably a bigger negotiation than any of us really understand. And so, you know, we're not privy to those details. So it actually seems more chaotic when, you know, you can't anticipate something. And so I you know, but I, I think what I what I hear from behind the scenes of people who I think are relatively well connected.

Speaker Change: Our minerals, there's I mean, there's lots of things that are.

Speaker Change: I think the current administration is trying to kind of.

Speaker Change: Rebalanced trade, but also rebalance other strategic things at the same time themselves.

Scott: It's probably a bigger negotiation than any of us really understand and so.

Scott: We're not privy to those details.

Scott: It actually seems more chaotic.

Scott: You can anticipate something.

Scott: And so.

Scott: I think so.

Speaker Change: What I hear from behind the scenes as people, who I think Bert.

Speaker Change: Relatively well connected.

Brian Nagel: things are going to get resolved over the next few months and the world will kind of go back to a more predictable. Operating Outlook. and it should be better. for the U.S. So, we'll see. I mean, you know. But yeah, everything we said, you know, we wanted to say is kind of in the letter about tariffs, you know. We don't need to kind of disclose things that, you know, that we can teach to whatever ten competitors that are listening and on our call. We don't have our experience or our relationship. Your next question comes from the line of Brian Nagel of Oppenheimer.

Speaker Change: Things are going to get resolved over the next few months.

Speaker Change: The World will kind of go back to a more predictable.

Speaker Change: Operating outlook.

Scott: And it should be better.

Scott: For the U S.

Scott: So we'll.

Scott: We will see.

Scott: I mean, you're right.

Scott: But yes, if everything we said we wanted to say, it's kind of in the letter about tariffs.

Scott: We don't need to kind of disclose things that.

Scott: Each to whatever 10 competitors that are listening in on our call.

Scott: We don't have our experienced our relationships.

Speaker Change: Thank you and next question comes from the line of Brian Nagel of Oppenheimer. Your line is open.

Jack Preston: Your line is open. A good evening. Appreciate you sneaking me in here. I know the calls went long. So I'll just ask one question. You look a lot talking about cash flow. Is there if you're looking at the business now, and you're particularly with the shifting tariff dynamic? Is there is, is there are you working towards or you think about some kind of a target, you know, debt metrics or coverage metrics for the balance sheet or income statement that you guys really want to gear towards? Yeah, I'd look at history and what we've done. You know, this is a little unusual.

Brian Nagel: Hi, good evening.

Speaker Change: I appreciate you sneaking me in here I know the call's, where as long as also ask one question.

Scott: Look a lot of talk on the balance sheet cash flow.

Scott: Is there as youre looking at the business now and particularly with the shifting tariff dynamic.

Scott: Is there.

Scott: Is there are you working towards or are you thinking about some kind of a target debt metrics our coverage metrics for the balance sheet or income statement.

Scott: Really wanted geared towards.

Scott: Yes.

Scott: History, and what we've done.

Scott: Yes, it seems a little unusual again.

Jack Preston: Again, you know, we got $202.2 billion in debt and you know, we got caught like everybody else did with the fastest rise of interest rates in the history of America. And so yeah, Do we like the debt ratio we have today? No. But do we like paying $230 or $240 million of interest a year? Of course not. Are we profitable in spite of that? Can we drive free cash flow despite that? Yeah, of course. You know, we're We're a real company. Like I said, we're in a crappy housing market and we're guiding to north of 20% adjusted EBITDA.

Speaker Change: Hey, guys.

Speaker Change: $2 2 billion of debt.

Speaker Change: We got caught like everybody else did with the fastest rise of interest rates in the history of America.

Speaker Change: So.

Speaker Change: Yes.

Speaker Change: Do we like the debt ratio, we have today now why do we like and $230 million to $40 million of interest here or it's not.

Speaker Change: Are we profitably in spite of that can we drive free cash flow despite that get horse.

Speaker Change: Where.

Speaker Change: We're a real company.

Speaker Change: Thanks Edward.

Speaker Change: We're in a crappy housing market and we're going to work.

Speaker Change: We're guiding to north of 20% adjusted EBITDA.

Speaker Change: Okay.

Jack Preston: I mean, we've said this before, Brian, but we don't have specific targets. We don't also have any covenants that require us. I mean, obviously, I concur with Gary that we wish the ratio was better, sure. But if you also look, we peaked last year at 5 times, we're at 4.6 times nationally delivering from the growth in EBITDA. So I think our guidance speaks for itself, so you can do the math of where that's going. And, you know, again, just to reiterate, no specific targets. All right, guys. I appreciate it. Thanks. Thank you, Brian.

Brian Nagel: No. We don't I mean, we've said this before Brian, but we don't.

Brian Nagel: We have specific targets. We don't also have any covenants that require us amounts yet.

Gary: Correct Gary.

Brian Nagel: Do we wish the ratio was better sure, but if you also look we peaked last year at <unk>.

Brian Nagel: Five times, we're at four six times naturally delevering from the growth in EBITDA. So I think our guidance speaks for itself. So you can do the math of where that's going.

Brian Nagel: And.

Brian Nagel: But.

Brian Nagel: Again, just to reiterate no specific targets.

Brian Nagel: Okay.

Brian Nagel: All right guys I appreciate it thanks. Thank.

Brian Nagel: Thank you Brian.

Gary Friedman: This concludes the question and answer session. I'll turn the call to Gary Friedman for closing remarks. Great. Thank you, operator. Thank you, everyone on the call. Thank you, Team RH, for fighting the good fight, living and breathing our values, and, you know, moving us closer and closer to the top of that mountain and becoming one of the most admired brands in the world. So, onward. Thank you. This concludes today's conference call. Thank you for joining. You may now disconnect.

Brian Nagel: This concludes the question and answer session I'll turn the call to Gary Friedman for closing remarks.

Gary Friedman: Great. Thank you operator, and thank you everyone on the call. Thank you team CRH.

Brian Nagel: For fighting the good fight living and breathing our values.

Brian Nagel: And moving us.

Brian Nagel: Closer and closer to the top of that mountain and becoming one of the most admired brands in the world.

Brian Nagel: So onward.

Brian Nagel: Thank you.

Brian Nagel: This concludes today's conference call. Thank you for joining you may now disconnect.

Brian Nagel: [music].

Brian Nagel: Yes.

Brian Nagel: [music].

Brian Nagel: Okay.

Brian Nagel: [music].

Brian Nagel: Sure.