Q2 2026 RH Earnings Call

Speaker #1: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the RH Q2 2026 Earnings Call.

Allison Malkin: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the RH Q2 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. I would now like to turn the call over to Alison Malkin, ICR. Please go ahead.

Speaker #1: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star and then the number one on your telephone keypad.

Speaker #1: I would now like to turn the call over to Allison Malkin, ICR. Please go ahead.

Speaker #3: Thank you. Good afternoon, everyone. Thank you for joining us for our second quarter Fiscal 2025 earnings call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer, and Jack Preston, Chief Financial Officer.

Maksim Rakhlenko: Thank you. Good afternoon, everyone. Thank you for joining us for our second quarter fiscal 2025 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 disclaimer that we will make certain statements today that are forward-looking within the meaning of the Federal Securities Law, including statements about the outlook of our business and other matters referenced in our press release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results in different material ways. 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.

Speaker #3: Before we start, I would like to remind you of our legal disclaimer that we will make certain statements today. There are forward-looking statements within the meaning of the Federal Securities Laws, including statements about the outlook of our business and other matters referenced in our press release issued today.

Maksim Rakhlenko: Please also note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Also, during this call, we may discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items. 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. A live broadcast of this call is also available on the investor relations section of our website at ir.rh.com. I would like to turn the call over to Gary.

Gary Friedman: Thank you, Alison. Good afternoon, everyone. I'll start with our letter, and then we'll open the call up with all the questions. To our people, partners, and shareholders, RH continued to generate industry-leading growth in the second quarter, as revenues increased 8.4% and demand increased 13.7%, despite the polarizing impact of tariff uncertainty and the worst housing market in almost 50 years. On a two-year basis, revenues increased 12% and demand increased 21%, resulting in significant share gains and strategic separation. As a reminder, we expect the approximate 5.4-point variance between demand and revenues due to tariff disruptions will shift from the second quarter and be realized as revenues over the second half of 2025. Adjusted operating margin of 15.1% and adjusted EBITDA of 20.6% both increased 340 basis points versus last year, inclusive of an approximately 170 basis point drag from investments to support our long-term European expansion.

That may affect our results. Please also note that these forward-looking statements reflect our opinions only, as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Also, during this call, we may discuss non-GAAP financial measures which adjust our GAAP results to eliminate the impact of certain items. 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. A live broadcast of this call is also available on the investor relations section of our website at irs.org.com. And now, I would like to turn the call over to Gary.

Thank you, Alex, and good afternoon, everyone.

All right, I'll start with our letter, and then we'll open the call to questions.

To our People Partners and shareholders, RH continued to generate industry-leading growth in the second quarter as revenue increased 8.4% and demand increased 13.7%. Despite the polarizing impact of tariff uncertainty and the worst housing market in almost 50 years.

On a 2-year basis, revenues increased 12% in demand and increased 21%, resulting in significant share gains in strategic separation.

As a reminder, we expect the approximate 5.4-point variance between demand and revenues due to Terrace. Disruptions will shift from the second quarter and be realized as revenues over the second half of 2025.

Gary Friedman: Net income increased 79%, and we generated $81 million of free cash flow in the quarter. We continue to be pleased with the second-year demand trends at RH England, with gallery demand up 76% in the second quarter and online demand up 34%. Current demand trends indicate the gallery is expected to reach approximately $37 million to $39 million of demand in 2025, its second full fiscal year, with online demand reaching approximately $8 million. To put those results in 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 a 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 believe exponentially more.

Adjusted operating margin of 15.1% and adjusted EBITDA of 20.6%, both increased 340 basis points versus last year. This includes approximately a 100 to 170 basis point drag from investments to support our long-term European expansion.

Net income increased 79%, and we generated $81 million of free cash flow in the quarter.

We continue to be pleased with the second-year demand trends at RH. In England with Gallery, demand was up 76% in the second quarter, and online demand was up 34%.

Current demand trends indicate that the gallery is expected to reach approximately $37 to $39 million in demand by 2025, the second full fiscal year, with online demand reaching approximately $8 million.

To put those results in perspective, if an RH Gallery in the English countryside, with an estimated population of 100,000 in a 10-mile radius, 2 hours outside of London, can generate $46 million of total demand in its second full fiscal year.

Gary Friedman: While many question 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 extraordinary that breaks through the clutter and creates a conversation. 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. We've also learned that it's hard to monetize ordinary and unremarkable. The most important news regarding our European expansion was the September 5 opening of RH Paris, our most innovative and immersive brand experience to date. Located on the Champs-Élysées, just off the Avenue Montaigne, RH Paris stands at the epicenter of fashion and luxury.

What can a 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 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 extraordinary that breaks through the clutter and creates the conversation.

We've learned during our journey, at our age, 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.

The most important news regarding our European expansion is the September 5th opening of H Paris.

Our most innovative and immersive brand experience today.

Gary Friedman: Pass through the majestic gold leaf gates and a crushed limestone path to a secret garden where ivy-covered walls and sculpted trees frame the 18-foot cast medallion doors marking the entrance. Juxtaposing the entry is a freestanding RH Interior Design Studio. The two-story glass structure is home to what has become one of the largest residential interior design firms in the world, with projects on every major continent. A contemporary inlaid brass and white onyx mosaic frames a three-dimensional image of Leonardo da Vinci's Vitruvian Man and the RH design ethos. The image and eight ethos not only mirror the entrance to RH Paris, but are also reflected in every building we inhabit and every house we turn into a home. Step through the threshold and enter the architecture and design bibliotheque. Discover rare books from the foundational masters Da Vinci, Palladio, Rondell, and Haussmann.

Located on the Sha, just off the Avenue, Montana stands at the epicenter of fashion and luxury.

Pass through the Majestic Gold Leaf Gates down a crushed limestone path to a secret garden where ivy-covered walls and sculpted trees frame the 18-foot cast medallion doors marking the entrance.

Jeff deposing, the entry is a free-standing RH interior design studio. The two-story glass structure is home to what has become one of the largest residential interior design firms in the world, with projects on every major continent.

A contemporary inlaid brass and white onyx mosaic frames a three-dimensional image of Leonardo da Vinci's Vitruvian Man and the RH design of this.

The image in ethos not only mirrors the entrance to our Paris.

but are also reflected in every building we inhabit and every house we turn into a home.

Step through the threshold and enter the architecture and Design bibliotech.

Gary Friedman: Commanding the center of the bibliotheque is one of the first modern printings, circa 1521, of De Architectura, the 10 books on architecture by first-century BC architect Marcus Vitruvius. His description of a man outstretched within a circle in a square inspired Da Vinci's famous drawing, The Vitruvian Man, some 1,500 years after his death. The gallery, spanning seven levels, is connected by a soaring atrium of floating glass medallion stairs and a glass elevator that magically appears, then disappears from an invisible shaft atop the rooftop garden. A cast bronze chariot head, circa 1870 by renowned French sculptor Louis-Philippe Chabad, whose work is on display at the Louvre, graces the center of the atrium. Beyond their structural role, chariot heads symbolize strength, grace, and ingenuity, a harmony between art and engineering.

Or, the Bibliotech is one of the first modern printing, circa 1521, of De Architectura, the ten books on architecture by first century BC architect Marcus Vitruvius.

His description of a man outstretched within a circle in a square inspired Da Vinci's famous drawing, the Vitruvian Man, some 1,500 years after his death.

The gallery spanning seven levels is connected by a soaring atrium of floating glass Medallion stairs and a glass elevator that magically appears then disappears from an invisible shaft at the top. The rooftop garden.

A cast bronze chariot, dated circa 1870, by renowned French artist Lewis Felix Shabad.

Whose work is on display at the Louvre races the center of the atrium beyond their structural role.

Gary Friedman: We place this specific chariot head in the center of the grand atrium as a symbol of not only our desire to connect and create harmony between the architecture, art, history, and hospitality offerings of RH Paris, but also our desire to create harmony between RH and the people of Paris. On the lower level, ground and first floors, immerse yourself in artistic installations of furniture, antiques, artifacts, and art in a gallery setting. Each level features full-floor exhibits by a singular artist and carefully curated pieces not only chosen to furnish your home, but also define it. Dine under a spectacular curved glass and steel structure inspired by the Grand Palais while enjoying a curated menu of American and Mediterranean classics at Les Jardins RH, located on the second-floor terrace.

Carried, symbolized strength, grace, and ingenuity—a harmony between art and engineering. We place this specific period in the center of the brand atrium, as a symbol of not only our desire to connect and create harmony between the architecture, art history, and hospitality offerings of our sheriffs.

But also our desire to create harmony between our age and the people of Paris.

On the lower level, grounded. First floors, immerse yourself in artistic installations of furniture, antique artifacts, and art in a gallery setting. Each level features full-floor exhibits by a singular artist and carefully curated pieces, not only chosen to furnish your home but also to define it.

Gary Friedman: Marvel at the stone mastery as every surface, from the bar to the bathrooms, is clad in rare white onyx slabs. On the third floor, discover the world of RH Bar and Lounge, a physical and digital immersion into the places and spaces that define the RH brand while enjoying light bites and a craft cocktail by legendary bartender Colin Field. Step into a jewel box of champagne lacquered walls with a sparkling ceiling of over 7,000 individually hand-blown glass polyhedrons at Le Petit RH, with 360-degree views including the Eiffel Tower, Grand Palais, and the Louvre. The Le Petit rooftop is one of the most spectacular dining destinations in all of Paris, featuring a creative menu, caviar of specialties, small plates, signature salads, and seafood towers. While RH Paris may not sound like a retail store, it's not meant to be.

Seen under a spectacular, curved glass and steel structure inspired by the Grand Palace, while enjoying a curated menu of American and Mediterranean classics at Leisure Den, RH is located on the second floor terrace.

Marvel at the stone mastery. Every surface, from the bar to the bathrooms, is clad in rare white onyx slabs.

On the third floor, discover the world of our Age Bar and Lounge, a physical and digital immersion into the places and spaces that define the RH brand while enjoying light bites and a craft cocktail by legendary bartender Colon Field.

Step into a jewel box of champagne-lacquered walls with a sparkling ceiling of over 7,000 individually hand-blown glass polyhedrons at Liete RH, featuring 360-degree views including the Eiffel Tower, Grand Palais, and the Louvre.

The left petite rooftop.

It's one of the most spectacular dining destinations in all of Paris, featuring a creative menu with caviar specialties, small plates, signature salads, and seafood towers.

Gary Friedman: It's an authentic expression of the RH vision and design ethos. It is a global destination designed to manifest dreams, generate desire, and inspire an elevated and elegant way to live. I was asked by a journalist prior to opening, "You're introducing multiple hospitality concepts at RH Paris. Have you considered that Parisians have very strong opinions about their hospitality?" I thought for a moment, and my answer was this. Parisians have very strong opinions about a lot more than their hospitality. Parisians have strong opinions about art, architecture, antiques, people, politics, fashion design, food, and wine. Paris is a place you come to do your very best work. It is where you have the most to gain and the most to lose. In Paris, the measure is eternity. This we know and have built accordingly.

Well, our H Paris may not sound like a retail store; it's not meant to be. It's an authentic expression of the RH vision and design ethos. It is a global destination designed to manifest dreams, generate desire, and inspire an elevated and elegant way to live.

I was asked by a journalist prior to opening.

You're introducing multiple hospitality concepts at our age Paris.

Have you considered the Parisians? They have very strong opinions about their hospitality.

I thought for a moment, and my answer was this.

Parisians have very strong opinions about a lot more than their hospitality.

Parisians have strong opinions about art, architecture, politics, fashion, design, food, and wine.

Paris is a place you come to do your very best work.

It is where you have the most to gain and the most to lose in Paris.

The measure is eternity.

Gary Friedman: I'm also pleased to report that RH Paris is off to a very strong start. Traffic in the gallery has exceeded RH New York day by day, and the design pipeline in the first six days is greater than the design pipeline of our first five European galleries combined in their first six days. I didn't know what to put for this next headline, so I just kept it simple. Tariffs, tariffs, and the possibility for more tariffs. Just when you might have thought the tariff conversation was complete, the announcement of a new furniture investigation and the possibility for additional furniture tariffs on top of existing furniture tariffs and incremental steel and aluminum tariffs were introduced with the goal of returning furniture manufacturing back to America.

This we know and have built accordingly.

I'm also pleased to report that RH Ferris is off to a very strong start. Traffic in the galleries has exceeded RH New York day by day, and the design pipeline in the first 6 days is greater than the design pipeline of our first 5 European galleries combined in their first 6 days.

I didn't know what to put for this next headline, so I just kept it simple: tariffs, tariffs, and the possibility for more tariffs.

Just when you might have thought that the tariff conversation was complete.

The announcement of a new furniture investigation and the possibility of additional furniture tariffs on top of existing furniture tariffs, as well as incremental steel and aluminum tariffs, were introduced with the goal of returning furniture manufacturing back to America.

Gary Friedman: We believe most in our industry hope that this investigation surfaces the difficulty of that task, as current manufacturing for high-quality wood or metal furniture does not exist at scale in America. It would require years of investments in building the facilities and workforce that most in this industry cannot afford to make. Not to mention the significant inflation that we believe will start to become evident in the second half of this year and accelerate into 2026 and beyond. While strong brands like ours will benefit from the likely dislocation and consolidation more tariffs will have on our industry, many smaller companies will have difficulty surviving these levels of tariffs. Additionally, more tariffs on furniture could also result in U.S. manufacturers moving production from the U.S. to countries closer to their international clients, avoiding freight costs and the likelihood of counter tariffs.

We believe most in our industry hope that this investigation surfaces the difficulty of that task, as current manufacturing, for high-quality wood or metal.

Investments in building the facilities and workforce that most in this industry cannot afford to make.

Not to mention the significant inflation that we believe will start to become evident in the second half of this year and accelerate into 2026 and beyond.

Well, strong brands like ours will benefit from the likely dislocation and consolidation. More tariffs will have an impact on our industry. Many smaller companies will have difficulty surviving these levels of tariffs.

Gary Friedman: Our hope is that the investigation will seek out the perspective of a cross-section of leaders in our industry as we drive towards the best outcome for our country. As previously communicated, we've 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. Additionally, we are aggressively responding to the recent 50% tariffs imposed on India, which impact 7% of our business. Almost entirely hand-knotted rugs. While the hand-knotted rugs category is highly specialized and not manufactured in America, I think for 100 years, we have begun the process of identifying alternative countries. We have also resourced a significant portion of our upholstered furniture to our own North Carolina factory, where we have been manufacturing for 10 years and plan to continue doing so.

Additionally, more tariffs on furniture could also result in U.S. manufacturers moving production from the U.S. to countries closer to their international clients, avoiding fraud costs and the likelihood of counter tariffs.

Our Hope.

The investigation will seek out the perspective of a cross-section of leaders in our industry as we drive towards the best outcome for our country.

As previously, communicated.

We've 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.

Additionally, we are aggressively responding to the recent 50% tariffs imposed on India, which impact 7% of our business.

Almost entirely hand knotted rugs.

Well, the hand rug, not a rug category, is highly specialized.

And not manufactured in America, I think, for 100 years.

We have begun the process of identifying alternative countries.

Gary Friedman: We are now projecting that 52% of our upholstered furniture will be produced in the United States, 21% in Italy, and approximately 12% in Mexico by the end of fiscal 2025. We also expect the percentage made in the United States will continue to increase throughout 2026. While there remains uncertainty until tariff investigations are complete, we have proven we are well-positioned to compete favorably in any market condition. Outlook. Due to the dislocation and continued uncertainty related to tariffs, we believe it is prudent to revise our guidance for fiscal 2025 due to the following factors. While we continue negotiations with our manufacturing partners, our updated outlook reflects a $30 million cost of incremental tariffs net of mitigation in the second half.

We have also resourced a significant portion of our upholstered furniture to our own North Carolina factory, where we have been manufacturing for 10 years and plan to continue doing so.

We are now projecting that 52% of our posted furniture will be produced in the United States, 21% in Italy, and approximately 12% in Mexico by the end of fiscal 2025.

We also expect the percentage made in the United States will continue to increase throughout 2026.

While there remains uncertainty until tariff investigations are complete, we have proven we are well positioned to compete favorably in any market condition.

Outlook.

Due to the dislocation and continued uncertainty related to tariffs, we believe it is prudent to revise our guidance for fiscal 2025 due to the following factors.

Gary Friedman: As communicated, due to the uncertainty related to tariffs, we delayed the launch of the new brand extension that was planned for the second half of 2025 to the spring of 2026. We've also delayed the introduction of our fall interior source book by eight weeks as we awaited tariff announcements needed to finalize pricing. Last year, 100% of the fall interior source books were in-home by the first week of August. This year, the fall interior source book will be 100% in-home by the last week of September, with only 28% in-home as of the end of last week. We now expect approximately $40 million in revenues to shift out of Q3 and into Q4 and Q1 2026 because of that shift. Our outlook does not include any new tariffs as a result of the recently announced furniture investigation. Fiscal year 2025 outlook.

Well, we continue negotiations with our manufacturing partners. Our updated Outlet Outlook reflects a $30 million cost of incremental tariffs, net of mitigation, in the second half.

As communicated, due to the uncertainty related to tariffs, we delayed the launch of the new brand extension that was planned for the second half of 2025 to the spring of 2026.

We've also delayed the introduction of our Fall Interior Source Book by 8 weeks, as we have waited for tariff announcements needed to finalize pricing.

Last year, 100% of the Fall interior source books were in home by the first week of August.

This year, the fall interior source book will be 100% in-home by the last week of September.

With only 28% in-home as of the end of last week.

We now expect approximately $40 million in revenues to shift out of Q3 and into Q4 and Q1 due to that shift.

Our outlook does not include any new tariffs as a result of the recently announced furniture investigation.

Gary Friedman: Revenue growth of 9% to 11%, adjusted operating margin of 13% to 14%, adjusted EBITDA margin of 19% to 20%, free cash flow of $250 to $300 million. The above outlook includes an approximately negative 200 basis point operating margin impact from investments and startup costs to support our international expansion and a 90 basis point impact from tariffs net of mitigations. Third quarter 2025. Revenue growth of 8% to 10%, adjusted operating margin of 12% to 13%, adjusted EBITDA margin of 18% to 19%. The above outlook includes an approximately negative 270 basis point operating margin impact from investments and startup costs to support our international expansion and the opening of RH Paris and 120 basis point impact from tariffs net of mitigations. Platform expansion, elevation, and expansion plans for 2025.

This school year, 2025 Outlook.

Revenue growth of 9% to 11%, adjusted operating margin of 13% to 14%, and adjusted EVA margin of 19% to 20%.

Free cash flow of $250 to $300 million.

The above outlook includes an approximately -200 basis point operating margin impact from investments in startup costs to support our international expansion, and a 90 basis point impact from tariffs, net of mitigations.

Third quarter, 2025.

Revenue growth of 8% to 10%, adjusted operating margin of 12% to 13%, adjusted EVA margin of 18% to 19%. The above outlook includes an approximately -270 basis point operating margin impact from investments in startup costs this quarter, in addition to international expansion and the opening of our RH Paris, and a 120 basis point impact from targeted nets of mitigations.

Gary Friedman: 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. Our platform elevation and expansion plans for the remainder of 2025 include the opening of four additional design galleries in Manhasset, San Diego, Detroit, and Palm Desert.

Platform expansion, elevation, and expansion plans for 2025.

And some would say, the world.

Spaces that are a reflection of human design, a study of balanced symmetry in perfect proportions—spaces that blur the lines between residential and retail, indoors and outdoors, home and hospitality.

Spaces with garden courtyards, rooftops, restaurants, wine, and barista bars 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 represent a multi-billion dollar opportunity.

Gary Friedman: As previously communicated, we anticipate an inflection in our business across Europe as we begin to open in the important brand-building markets of Paris in 2025, plus London and Milan in the spring of 2026, all with dramatic brand-building hospitality experiences. We believe post-opening, we will begin to have the scale to support the necessary advertising investments to accelerate our growth in Europe. If the early reads coming out of RH Paris are an indication of what's to come, RH Europe and the Middle East should enable us to double the size of RH over the next five to seven years.

Our platform elevation and expansion plans for the remainder of 2025 include the opening of four additional design galleries in Manhasset, San Diego, Detroit, and Palm Desert.

As previously communicated, we anticipate an inflection in our business across Europe as we begin to open in the important brand-building markets of Paris in 2025, plus London and Milan in the spring of 2026, all with our dramatic brand-building hospitality experiences.

We believe that post-opening, we will begin to have the scale necessary to support and invest in advertising investments to accelerate our growth in Europe.

Gary Friedman: Looking forward, we plan to accelerate our expansion strategy to include the opening of seven to nine new galleries per year, plus two to three design studios, outdoor galleries, or new concept galleries per year that increase our current presence in underpenetrated markets and open new markets to the RH brand. Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. Warren Buffett. While we expect a higher risk business environment 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 three straight years. For context, in 1978, there were 4.09 million existing homes sold when the U.S. had a population of 223 million.

At the early reach, coming out of RH, Paris, there are indications of what's to come. RH Europe and the Middle East should enable us to double the size of our age over the next 5 to 7 years.

Looking forward, we plan to accelerate our expansion strategy to include the opening of 79 new galleries per year, plus 2 to 3 Design, Studios outdoor galleries or new concept galleries per year. That increases our current presence in under-penetrated markets and opens new markets to the RH brand.

Every decade or so, dark clouds will fill the economic skies and they will briefly rain gold.

Warren Buffett.

While we expect a higher-risk business environment 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 three straight years, for context in 1978.

Gary Friedman: Contrast that to 2024, where 4.06 million existing homes sold with a population of 340 million. 50% more people and less homes sold. It illuminates just how depressed the housing market has been this past year to three years. 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. Elevating and expanding our platform by creating the most desired products, presenting in the most inspiring spaces in the world, with bespoke interior design services and beautiful restaurants that generate energy, engagement, and tremendous awareness of the RH brand.

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 340 million.

Fifty percent more people and fewer homes sold, and it eliminates just how depressed the housing market has been this past year to three years.

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."

Gary Friedman: While 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, 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 duplicated in our lifetimes. We are building a global hospitality company with multiple concepts across multiple continents. We are creating a global bespoke interior design business that completes million-dollar plus full home installations. We are building a global contract and hospitality business where our products are featured in some of the finest hotels and residential projects in the world. We are creating the most desirable and distinguished brand in our industry, all while forecasting an EBITDA margin of approximately 20%.

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 the RH brand.

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

We're building a Global hospitality company with multiple Concepts across multiple continents.

We are creating a global bespoke interior design business that completes million-dollar-plus full home installations.

We are building a Global Contract in Hospitality business, where our products are featured in some of the finest hotels and residential projects in the world.

Gary Friedman: Imagine what our margins and cash flow might look like in a robust housing market as we begin to cycle and leverage those investments. While we begin 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. 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 $300 million in cost 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 $300 million in cash flow in 2025. Our plans call for significant and growing cash flow from operations over the next several years if we cycle this aggressive investment period.

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

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

While we begin 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. The assets include real estate that we believe has an estimated equity value of approximately $500 million that we plan to monetize opportunistically as marketing to conditioned warrant.

And excess inventory of $300 million. It costs that we plan to turn into cash over the next 12 to 18 months as we optimize our store assortments post our product transformation.

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 expense. 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's imperative that we rush outdoors carrying wash tubs

250 to 300 million dollars of cash flow in 2025, and our plans call for significant and growing cash flow from operations over the next several years. If we cycle this aggressive investment period,

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 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 rates.

As Warren Buffett wrote in his 2016 letter to Berkshire Hathaway shareholders, every decade or so dark clouds will fill the economic skies, and it will briefly rain gold when downpours of that. At that sort of curve, it's imperative that we rush outdoors during wash tubs, not peace, please.

Our debt is reflective of a washtub bet on ourselves.

We repurchased 60% of our outstanding shares, which greatly benefited our long-term shareholders post Mr. B, uh, post the publishing of Mr. Bucket's letter in 2016 and 2017.

And repurchase 30% of our outstanding shares during this housing downturn in 2022 and 2023.

While the sky intersector has been darkened by inflation, interest rates, tariffs, and global politics,

Those clouds will soon pass, and it will not only be clear skies.

but also clear that it was a good time to be a shareholder of our age, Carpe Diem.

Allison Malkin: At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, simply press star one again. We kindly ask that questions are limited to one and one follow-up for today's call and that you re-queue for any additional. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Simeon Ari Gutman with Morgan Stanley. Please go ahead.

Operator will now open the call to questions.

At this time, if you would like to ask a question, press star, then the number 1 on your telephone keypad.

To withdraw your question, simply press *1 again.

We kindly ask that questions be limited to one, and one follow-up for today's call. For any additional questions, we will pause for just a moment to compile the Q&A roster.

Simeon Ari Gutman: Hey everyone, thanks for the question. My first question is the free cash flow is starting to sequentially improve, and you generated a decent amount this quarter. If you generate $250 to $300 million for the full year, and presumably even more through 2026, is real estate monetization still something you would or even need to pursue?

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

Hey everyone. Um, thanks for the question. So my first question is, the free cash flow is starting to sequentially improve, and you generated a decent amount this quarter. If you generate $250 to $300 million for the full year?

And presumably even more through $26.

Is real estate monetization still something you would or even need to pursue?

Gary Friedman: You know, I don't know if we need to pursue it. We're opportunistic. We're not really real estate owners, right? We're real estate developers, and we have a sale leaseback model, and we generally hold real estate for relatively short periods of time. We saw an opportunity when we were doing our deals in Aspen that the local developer there who had acquired really an outstanding portfolio of assets, we had an opportunity to invest in that portfolio at what we thought was a really attractive price. We had a vision of possibly, in a very small, I call Aspen probably the most influential organized small luxury town in the world. I don't know if I've ever seen anything like it. In about six square blocks, you have unbelievable retail.

You know, I don't know if we need this.

Pursue it. Um,

You know, we're opportunistic. We're not.

You know, we're not really.

Real estate owners, right? We're real estate developers, and you know we have a sale-leaseback model. We generally hold real estate for relatively short periods of time.

Uh, we saw an opportunity when we were, you know, doing our deals and Aspen uh, that uh, you know, the local developer there, who would acquired uh, really an outstanding portfolio of, uh, of assets.

Uh, you know, uh, we had an opportunity to invest in that portfolio at what we thought was a really attractive price.

Uh, and we had a vision of possibly, you know, in a very small...

I... I call Aspen, probably B.

The most influential, organized, small.

Luxury town in the world. I don't know if I've ever seen anything like it. Like in about 6 square blocks.

Gary Friedman: You have wealth all around that all comes and shops there, all comes and eats in the restaurants there, and all skies a couple blocks from there. You just walk to Ajax and so forth. If I got to know Aspen and was looking at our opportunities, we thought, geez, what could we do here that could, maybe in this six square block, eight square block focused little town with a high, I think, what is there, 86 billionaires that live there now? I mean, there's really, I've never seen anything like it. It's more unique than Saint-Tropez, it's more unique than Courchevel, it's more unique than any place I've seen from the aggregation of wealth and influence. Your ability to, we had an ability to build two brand new buildings, right, which is on two of the best corners in town.

You have unbelievable retail.

Uh, you know, you have wealth all around, you know, that all comes and shops. They all come in each dinner, in the, uh, restaurants there, uh, and all skis, you know, a couple blocks from there, you know, just walked in Jacksonville, and so forth. And if, if I, if I um.

Got to know Aspen, uh, and it was looking at our opportunities.

You know, we thought, geez.

What could we do here that could

You know, maybe in this, you know, six blocks, six square blocks, eight square blocks.

Focused little town with a high... I think what is there? 86 billionaires that live there now. I mean, you know, there's really... I've never seen anything like it, you know? I mean, it's...

It's more unique than Sandra Pay; it's more than anything, of course. It's going to be more than any place I've seen, given the aggregation of wealth and influence.

Gary Friedman: Our gallery on Galena and the cross street is the best corner in Aspen, catty-corner to Ralph Lauren, across from Casa Tua, across from Loro Piana, right next door is Brunello Cucinelli, and every luxury brand marching up the street. Our guest house is on East Hyman where the cross street is where they're building Lift One. A block and a half, two blocks down, they're building the second big gondola, right? The Aman Resorts going in there, and everybody's going to be driving by that corner, and everybody's going to be walking by and driving by our other corner. These were the two best, I thought, buildings that you could get. As our partner calls it, forever real estate, right? It's never going to go down. It's always going to go up.

Um, and your ability to, you know, we had an ability to build two brand new buildings, right? Which is on two of the best corners in town. I mean our.

You know on Um Galena, and the cross street is the best corner in Aspen. Caddy corner to Ralph Lauren, crossing Casa Tua, across from Norr Piana, right? Next door is Brunella, Cucinelli, and every luxury brand marching up the upper street.

And our guest house is, uh, you know, an East time where the cross street is where they're building Lift 1. So, it's a block and a half, two blocks down. They're building the second big gondola, right? And the Aman Resorts going in there, and, uh, everybody's going to be driving by that corner, and everybody's going to be walking by and driving by our other corners. So, these were the two best I thought.

Got buildings you that you could get. I mean, you know, they just, you know, it's our partner calls that forever real estate, right? It's...

Gary Friedman: We had the opportunity to become the landlord for Chanel, the landlord for Gucci, the landlord for Lululemon. What else in our portfolio?

It's never going to go down. You know it; it's always going to go up.

Uh, and so we had the opportunity to come to the landlord for Chanel, the landlord for Gucci, the landlord for Lululemon. What else is in our portfolio?

Simeon Ari Gutman: Golden Goose.

Gary Friedman: Golden Goose.

Simeon Ari Gutman: Koreen Hildebrand.

Gary Friedman: Koreen Hildebrand.

Simeon Ari Gutman: We've got restaurants.

Gary Friedman: Yeah, we've got Rest, we've got Stan Ambrose, we've got, I can't remember, we've got Pat's Steak. We're the landlord, we're the kind of key retail landlord in the core of Aspen. We thought we could learn about real estate, we could learn the landlord side of it, we can understand how the other people negotiate, what's important to them. We would just get smart, and then there were opportunities to do residential, a few other things that we've talked about in the past, do RH Residences at the Boomerang Lodge and build our first Bauhaus and Spa, and so on and so forth. We thought this would be a terrific place to build our brand image and have a global billboard. Unfortunately, we had the fastest rise of interest rates in history, I think, in the U.S., right?

Restaurants. Yeah, we've got restaurants. We've got Stan Ambrose. We've got...

Um, I can't remember. We got catch steak, you know, we're the landlord. We're the kind of key retail landlord in the, uh,

You know, in the core of Aspen.

So we thought we could learn about real estate; we could learn the landlord side of it. We can understand how the other people negotiate, what's important to them. And we would just get smart. And then there were opportunities to do residential.

Uh, do you know a few other things? So we've talked about in the past, you know, do RH residences at the Boomerang Lodge and, uh, uh, build our first, the bath house was bought and so on and so forth.

And so, you know, we thought this would be a terrific place to build.

Our brand image, you know, and have a global billboard.

And then, you know, look, unfortunately,

Gary Friedman: That's not really good for developers, whether you're our partner or you're us, you're going to be developing at a much higher cost of capital. That kind of slowed us down. Also compounded by, our partner likes to say that building in Aspen is harder than building on the moon. It's not the easiest place to develop, let's just say. We kind of had to slow things down, but we're very close to getting our mountain house open and very close to getting our guest house open. Those are two of the key trophy properties in our portfolio. We're less interested. We've been a landlord now for a while. We've learned what we needed to learn. Is that the place to tie up our capital? No, not really. We've learned a lot. Is it at the cost of capital today and the cost of construction in Aspen today?

We had the fastest rise of interest rates in history, I think, in the United States, right? And, uh, that's not really good for developers. You know, whether you're our partner or you're us, you know, you're going to be developing at a much higher cost of capital. And so that kind of slowed us down, uh, and also compounded by...

You know, our partner likes to say that building an Aspen is harder than building on the Moon.

So, it's not the most, it's not the easiest place to develop, let's just say. So, um.

You know, so we, you know, we kind of had to slow things down and, um,

But, you know, we're very close to getting our Mountain House open, and very close to getting our guest house open. Those are two of the key trophy properties in our portfolio.

Gary Friedman: Does it look as attractive to build there with a really long-term view? Again, I don't know if it's necessary for us. We're open. It's not a time we really want to sell right now. I mean, if they keep inflation in check, which is questionable with the tariffs, and they can lower interest rates, cap rates will be more attractive. There might be some people that want to make, that have a long-term view and want to make a fair offer on a portfolio like this. Otherwise, we're in no rush. We're patient. If the right opportunity came and somebody who really had a long-term view and they want to own forever real estate like Aspen, it's an incredible asset. Simeon, I just add, when we communicate the value of the real estate, I think you asked if we need to do it.

You know, we're less interested. We've been a landlord now for a while; we've learned what we needed to learn. You know, is that the place to tie up our capital? No, not really. Um, you know, we've learned a lot, and, uh, you know, is it at the cost of capital today? And the cost of construction in Aspen today is...

That, you know, does it look as...

attractive, uh, to build their

You know, with the really long-term view. But again, I don't know if it's necessary for us, so,

You know, we're open. It's it's not a it's not a time. You really want to sell right now. I mean I, you know, if you know if they keep

Inflation is in check, which is questionable with the tariffs.

Um, and they can lower interest rates. Uh, cap rates will be more attractive and.

You know, there might be some people that want to make, you know, that have a long-term view and want to make.

You know, a fair offer on a portfolio like this. Um,

Gary Friedman: Our intention was never to communicate a need or a plan. It was, as Gary said, opportunistic. It's an opportunity to make sure that folks understand the value of that real estate on our balance sheet, especially as it relates to the debt that we have. We've had other things besides that in the $500 million, right? We own RH England. We own RH Detroit. We own a property we're going to develop, RH New Jersey. We own a property in Madrid right now, but we love our current gallery. We think we can monetize that one. We actually have it on the market today. It's an incredible old palace. We don't believe we need two stores in Madrid. We really love what we're doing there.

But otherwise, we're we're in a rush, you know? But, you know, we're we're patient. Uh, uh, but you know, if the right opportunity came and somebody who was really had a long-term View and they want to, you know, own forever, real estate like Aspen. Um, it's incredible asset. So and Simeon. I just, I just add you know, when we communicate the value of the real estate. I think you asked if we need to do it, Our intention towards never to communicate a need or a plan. It was as Gary said, it's opportunistic. It's a, it's an opportunity to make sure that folks understand the value of that real estate on our balance sheet, as, especially as it relates to the debt that we have. Yeah.

Right. We own our home in England, we own our property in Detroit, and we're going to develop our RH short. Our average is New Jersey. We own a property in Madrid right now, but we love our current gallery.

So, you know, we think we can monetize that. We actually have it in the market today. It's incredible. Old Palace.

Gary Friedman: We're going to put a small pool, La Petite RH, in there now that we developed this new pool concept that doesn't need a big kitchen that's in Paris, which everybody ought to go to, by the way. If you missed our parties, you should have never missed that party. Everybody's got to go see Paris because it is not another gallery. It is a leapfrog. It is another kind of inflection point that helps us see a whole other opportunity here. When you see the world of RH and when you see La Petite RH and Les Jardins RH and you see what we've done hospitality-wise, when you see what we've done design-wise, when you see the architecture and design library. It's our second one we've done, the Bibliothèque. We did one in RH England because there was a big library that had been there for 400 years.

Uh, but we don't really, we don't believe we need two stores in Madrid. We love, we really love what we're doing there, and we're going to put a small pool, Le Petite RH, in there. Now that we developed this new pool concept that doesn't need a big kitchen, that's in Paris. Uh, which you should—everybody ought to go to, by the way. If you missed our party, I mean, you should have never missed that party. Um, like, everybody's got to go see Paris because it is not another gallery. It is a leap frog.

You know, it is.

it is another kind of

kind of inflection point that

You know, that helps us see a whole, another a whole another opportunity here like when you see the world of our age. And when you see the petites our age and later, then our age. And you see what we've done in Hospitality was when you see what we've done to design was when you see the architecture and uh you know, design library for our second 1, we've done the bibliotech. You know, we did 1 in in our H England, because

Gary Friedman: We made it a library, the architect design, but you see the cool one you walk through. It's so much that I think we've done that takes us to another level. I doubt that there's a luxury retailer in that city at the highest end that doesn't believe we just built the best store in the world. I think everybody should go see it because it's unlike anything you've seen. The traffic, when you think about it, it's, I don't know, a third of the size of New York. It has had more traffic than RH New York every single day that we opened. Not RH New York in its first five days, RH New York today, the highest volume gallery in the company. RH New York today. It's unreal what's happening there. It's the people that are coming. Anyway.

There was a big library, you know, that had been there for 400 years. So, you know, we made it a library Arctic design, but you see that the cool... when you walk through, and I mean, there's just so much.

That I think we've done takes us to another level. I doubt that there's a luxury.

Retailer.

In that City.

You know, at the highest end that doesn't believe, we just built the best store in the world.

And, you know, I think everybody should go see it because it's unlike anything you've seen. The traffic, when you think about it, it's... I don't know.

A third of the size of New York.

And it's had more traffic than New York every single day that we opened—not New York in its first 5 days—New York today, the highest volume gallery in the company.

Okay, New York today.

Um, it's unreal what's happening there. It's that, you know, the people that are coming so, uh,

Simeon Ari Gutman: If I can ask a follow-up, by the way, I'll be there next week for the after-party. My follow-up, it's maybe paraphrasing something you said, Gary. You said the clouds could be clearing soon. You've gotten through a lot of things over the last couple of years between rates and housing. Now embedded in your financials is investment with Europe. You have all this newness, and you're growing the revenue, and you're generating cash now. It feels like you're knocking on the door of that period. You mentioned soon, I don't know if you were giving a financial forecast or a weather forecast, but it's soon. What's wrong with that? What's wrong with that logic that the business is on the cusp of this growth period that you've been engineering for the last several years?

Anyway.

So, if I can ask a follow-up, and by the way, I'll be there next week for the after-party, all right? It's the, um,

my my follow-up, it's it's maybe paraphrasing something, you said, Gary, you said, you know, the clouds could be clearing soon and, you know, you've gotten through a lot of things over the last couple years between rates and housing and now embedded in your

financials is investment.

With Europe, you have all this newness, and you're growing the revenue and you're generating cash. Now,

So it feels like you're not knocking on the door.

Of that period you mentioned soon. I don't know if you were.

You know, giving a financial forecast or a weather forecast, but it's soon. So what, what's wrong with that? What's wrong with that logic that the business is on the cusp of this?

Gary Friedman: Yeah, I think that the business is ready. We're going to be kind of going post-peak on the investment cycle. One thing we've all had to deal with, and anybody who's building anything of high quality, construction costs post-COVID are up like 100%. For some people I've talked to at the luxury level, they're up 150%. We've been able to develop new concepts. We talked to you about that at Design Ecosystem, at Design Compound, and other things that we're taking that bigger multi-store box and breaking it into pieces and trying to create a significantly better capital efficiency, and putting our creativity to work that way. You'll see, I think, once we get there, it's hard to make a call today, right? We're likely going to get an interest rate cut. We got one last year, and everybody thought there was going to be like four or five more.

You know this growth period that you've been engineering for the last several years.

Yeah, I think that the business is ready. Um, you know, we're going to be.

You know, kind of going post peak on the investment cycle.

Uh, you know, one thing we've all had to deal with, and anybody who's building anything of high quality, um, you know, construction costs plus COO are up like 100% for some people I've talked to at the luxury level; they're up 150%. Um, you know, we've been able to develop new concepts. We talked to you about that. It's Divine Ecosystem, Design Compound, and other things that, you know, we're taking the bigger multi-store box and breaking it into pieces and, you know,

trying to create, you know,

A significantly better capital efficiency, you know, and putting our creativity to work that way.

Uh, you know, so you'll see it. I think, you know, once you.

Once we get there, I, you know, it's hard to make a call today, right? Like,

You know, we're likely going to get an interest rate cut.

We got one last year, and everybody thought there was going to be like four or five more.

Gary Friedman: I took my house in Beverly Hills off the market because I thought I was going to get a much better price. I should have took the offer I had back then because the housing market in LA is not great. I don't know what's going to happen. Look, I think the biggest thing for everybody to worry about is don't let the 1970s happen. If you zoom in on the chart of what happened with federal funds rates over that 10-year period, it was arguably the 10 worst years of the U.S. economy. I remember I was 18 years old and I bought a $125 waterbed, a waterbed world at 28% interest, and I don't know how many years it took me to pay it off. I think it was $12 a month or something like that.

I took my house in Beverly Hills off the market because I thought I was going to get a much better price. I should have taken the offer I had back then because the housing market in L.A. is not great.

Don't let the 1970s happen if you zoom in on the chart. What happened with the federal funds rate?

Over that 10 year period.

Yeah, it was arguably, you know, the 10.

Gary Friedman: I was alive long enough to remember when the federal funds rate peaked at 21%. We think interest rates are high now, lose control of inflation, and you can have payoffs. What do I worry the most about? Just kill inflation. I'm more motivated about killing inflation than getting an interest rate cut right now. We had an interest rate cut, and the tariffs create more inflation than anybody thinks. It's not going to all come at one time in blitz. The inventory is going to flow in over the course of a year, and you're going to have to cycle through inventories, you're going to have new tariffs. God forbid they throw another tariff on furniture. I mean, I think they've got to, like, someone has got to come talk to us. Talk to me, call me. I run the biggest luxury home brand in the world.

Worst. Worst years, is it the U.S. economy? Now I remember, I was 18 years old, and I bought a $125 water bed. A water bed world at 28% interest. I don’t know how many years it took me to pay it off, you know, $12 a month or something like that.

But you know, I was alive long enough to remember, you know what, you know what, the federal funds rate peaked at 21%.

You know, we think interest rates are high now. Lose control of inflation, and you can have chaos. So what do I worry the most about?

just fill inflation.

I'm more motivated about killing inflation than getting an interest rate cut right now.

Because we had an interest rate cut.

And the terrorists create more inflation than anybody thinks.

And, you know, it's not going to all come at once, time and blitz.

The inventory is going to flow in over the course of a year.

You know, and you, you know, you're going to have to cycle through inventories, you're going to have new tariffs. Uh, you know, God forbid, they throw another tariff on furniture. I mean, I I think they've got to like someone

Gary Friedman: Somebody call me and ask me what I think. Because it's not really us. I worry about, I don't want to win because 50% of our competitors, who are really good hardworking people, get wiped out. You lose 15% of the people that are presenting at High Point Market or Las Vegas Market. Those markets will shut down. They'll be bankrupt. I really don't think anybody is thinking about the map. There's no one that's making wood furniture of scale, metal furniture of scale. If there was another round of tariffs on furniture, I mean, long term, it'll be good for us. It's really bad for a lot of people in High Point. Whoever in High Point or North Carolina is advocating for it has got to have a really narrow myopic view because it makes no sense for the U.S. economy long term.

You know, he's got to come talk to us. Talk to me. Call me. I run the biggest luxury home brand in the world. Somebody call me.

And asked me what I think.

Because it's not really us, I worry about it. I don't want to win because...

50% of our competitors, who are really good hardworking people, get wiped out.

You know, you lose 15% of the people that are presenting at High Point Market or Las Vegas Market.

Those markets will shut down. They'll be bankrupt.

I really don't think anybody is thinking about the map. There's no one that's making wood furniture scale, you know, metal furniture scale.

If there are another round of tariffs on furniture,

I mean, long-term, it'll be good for us.

Gary Friedman: We will blow up people and there will be massive job losses. I think people need to understand that at all levels of the administration. I've been a fan of a lot that's been going on. I think directionally they're doing a lot of right things, but yeah, I don't know. I run the biggest luxury home brand in the world. No one's talking to me. I've got a point of view, and so I'm making that known now. We're on the cusp of going too far here. That's what I worry about.

It's really bad for a lot of people in High Point. So whoever in High Point or North Carolina is advocating for it has got to have a really narrow, myopic view because it makes no sense for the U.S. economy. Long term, we will blow up people, and there will be massive job losses.

And I think people need to understand that at all levels.

Of the administration.

You know, and I'm, let's... I’ve been a fan of a lot that's been going on. I think directionally they're doing a lot of the right things, but...

You know, I don't know. I run the biggest luxury home brand in the world.

No one's talking to me. I've got a point of view, and so I'm making that known now.

We're on the cuts for going too far here.

That's what I worry about.

Simeon Ari Gutman: Okay, thanks. Good luck.

Good luck.

Allison Malkin: Your next question comes from the line of Steven Paul Forbes with Guggenheim Securities LLC. Please go ahead.

Simeon Ari Gutman: Good evening, Gary, Jack. Gary, maybe shifting the focus to inventory, sort of a two-part question here. The first, given the change in the average tariff rate and the sort of excess inventory that you guys are winding down, any help on coaching or framing how much room there is for a continued reduction in net inventory on the balance sheet? The second point is, given everything you just said, you know, how much visibility is there into the planned launch of the new brand extension in spring? Or is there still some risk around, you know, that extension launching?

Your next question comes from the line of Steve Forbes with Guggenheim. Please go ahead.

Good evening, Gary Jack.

Gary, maybe, uh, shifting the focus to inventory, sort of a two-part question here. The first, given the change in the average tariff rate,

and um,

And you know, this sort of excess inventory that you guys are winding down, and any help on sort of coaching or framing.

Uh, how much room there is, sort of $48, a continued reduction in inventory on the balance sheet.

And and then the second, you know, point is there is is, you know, given everything, you everything, you just said.

Yeah, how much visibility is there into the planned launch of the new brand extension in Spring?

Or is there still some risk around, you know, that extension launching?

Gary Friedman: Yeah, I don't think there's risk around that extension launching unless we get some really silly tariff thing on this investigation. I really hope this investigation includes speaking to industry leaders, and it's not an investigation into a small little segment of the business. We will sell more upholstered furniture made in America than almost anybody making furniture in North Carolina, like just our upholstery business. You've got brands that are 130-year-old U.S. brands, and they don't make wood furniture or metal furniture in America anymore. They don't. You've got to be really careful. Upholstered furniture, we can make in America.

Yeah, I don't think there's risk around that extension launching, unless.

Unless we get some really silly tariff thing on this investigation,

You know, I really hope this investigation includes speaking to industry leaders.

and it's not an investigation into, you know,

a small little segment of the business.

you know, we

We will, we will sell more upholstered furniture made in America.

Than almost anybody making furniture.

In North Carolina.

Like just our upholstery business.

You know, there are brands that are.

That are.

Gary Friedman: can do that. We can be competitive because you've got advantages. It's special orders, and it's feed the market and so on and so forth. There's just not the workforce to make the other stuff. There's not people there. The next generation doesn't want the jobs. You talk to people. Again, our volume in our factory and what we're going to make is as big as some of the biggest people at the high end. I mean, don't compare us to Ashley or someone who does $10 billion at the low end, and I think has, what, 65% of their business in America, 35% of their business offshore. I was just saying, the high-end furniture market, it's not coming back for years.

You know, so you've got to be really careful with the pulse of furniture we can make in America. We can do that; we can be competitive because you've got advantages with special orders and feeding the market, and so on and so forth. But there's just not the workforce to make the other stuff, and there are not people there. The next generation doesn't want the jobs. Talking, if you talk to people again...

You know, our volume in our factory and what we're going to make.

is as big as some of the biggest people, like the high end. I mean, don't compare us to Ashley or somebody who does $10 billion at the low end.

You know, and I think has what, 65% of their business in America. You know, 35% of their business offshore.

um,

I'm just saying, you know, the high-end.

Furniture Market.

It's not coming back.

Gary Friedman: All it's going to mean is people are going to, there's a lot of people who are going to close, and a lot of jobs are going to be lost. I think people have to consider that. When you think about the risk of extension launching, no, no risk at all. Things might be more expensive, but they're going to be more expensive for everyone. We have the advantages. We buy more than anybody in our market by probably three times at our quality, the next closest person. We have tremendous, tremendous leverage here. I wouldn't want to be competing with us, but I don't like winning this way. It's not going to be pretty. I think, hopefully we're done with furniture tariffs and ring the register in the tariff banks. Let's not completely disrupt an industry.

For years.

And all that's going to mean is, people are going to... There's a lot of people who are going to close.

And you know, a lot of jobs are going to be lost.

And I think people have to consider that.

Um, so, you know, but when you think about like,

It's the risk of extension, a lot to know, no risk at all.

Um, things might be more expensive.

But they're going to be more expensive for everyone, right? So we have advantages; we buy more than anybody in our market by probably three times at our quality than the next closest person.

So we have tremendous, tremendous leverage here.

Um,

You know, I wouldn't want to be competing with us, but I don't like winning this way.

It's not going to be pretty.

So, you know, I think, you know, hopefully we're done with furniture tariffs.

and um,

You know, ring the register, you know, in the, in the.

You know, in the Tariff Bank, uh,

But let's not.

Gary Friedman: See High Point close, see major furniture stores close, family, long-time businesses, they'll be dead. That's the most important thing. Inventory reduction, everything else we're doing fine. Again, if you're thinking, do I buy our stock or not? Buy our stock either way, we will win. We've spent billions building a platform here. We have the most dominant, inspiring, high-end platform for luxury furniture in the world. We know how to source it. We have leverage buying it. We know how to market it. What do you do if you're a wholesaler and all your customers go bankrupt? They can't afford it. The customers can't afford it. What do you do then? I don't know. I think the tariffs dry up. You slow down the furniture business, you're going to slow down the tariffs.

Completely disrupt an industry. See High Point, close C, major furniture stores. Cool. Yeah. Furniture storage, clothes, family longtime businesses—they'll be dead.

So that's the most important thing: inventory reduction. Everything else we're doing fine.

And again.

You know, if you're thinking, do I buy your stock or not?

Buy our stock. Either way, we will win.

You know, we've spent billions building a platform here.

yeah, we have

you know, the

Yeah, most dominant, inspiring, high-end platform for luxury furniture in the world.

We know at a source we have leveraged buying it.

Uh, we know how to market it.

Um, what if you do, if you're a wholesaler?

And all your customers go bankrupt.

They can't afford it, you know. The customers can't afford it.

Like, what do you do with that? I don't like, I think the tariffs dry up.

You slow down the furniture business.

Gary Friedman: That is why I think someone's got to sit down from the industry with the administration and go through the math. This is just simple math. Do not let it be emotional. Let it be intellectual and rational and data-driven. We've got all the math here. I know a lot of people in the industry that would love to sit down and debate this.

You're going to slow down the tariffs.

And that's why I think.

Someone's got to sit down with the administration from the industry.

And go through the math. This is just simple math.

Don't let it be emotional.

Let It Be intellectual and rational.

And data driven.

We've got all the math here.

And I know a lot of people in the industry that would love to sit down and debate this.

Jack Preston: Steve, the framework for inventory reduction, one of the things we think about is just what is our turn, I mean, at the most simple levels, what's our turn rate? Turn's been in the past. Obviously, we've turned the inventory on an external basis into the high twos, low threes. If you even just think about Gary's mentioning a letter that $200 million to $300 million of inventory reduction, where that gets us, hypothetically at the end of the year, you're starting to see a run rate of a turn closer to the mid twos. Is there room beyond that? We do believe that.

Gary Friedman: In 2018 and 2019, we were running like three, 3.2. Yeah. Yeah. We can run a much faster turn. You're seeing the slower turns we're running today is the massive product transformation, right? You're buying a lot of inventory. You're getting, you know, you're getting a lot wrong, right? You're getting some wrong. It's inefficient to do what we just did. That ended up selling is a big investment. We're on the other side of that. I mean, we do have a whole new concept coming. It's probably the biggest idea and the lowest risk we've ever taken on a brand extension. I think it's the biggest, you know, I mean, how quickly did Modern go to a billion? Three years. Yeah. I mean, this is probably a, you know, this is a $2 billion idea. It could go really quickly.

Hey, Steve, the the, uh, framework for, you know, inventory reduction, you know, just 1 of 1 of the things we think about is just what is, what is our turn. I mean, the most simple levels. What's our turn rate turns been in the past? So obviously we've turned the inventory on external basis, you know, into the high twos low 3s. So, you know, if you even just think about the the, in the, you know, Gary's mentioning a letter that 2 to 300 million of inventory reduction, you know, where that gets us, you know? Hypothetically, the end of the year you're you're starting to see a run rate of a turn, you know, into the closer to the mid twos. So is there room beyond that? We we do. We do believe that we in 18 and 19. We were running like 3, 3, 3 points? Yeah. Yeah. Yeah.

So we can run a a much faster, turn you're you're you're seeing the the slow returns. We're running today is the the massive product transformation, right? You're buying a lot of inventory. You're getting, you know you're getting a light front, right? You're getting something wrong. Um, and you know so it's it's inefficient to do what we just did. You know, if that ended up itself is a big investment,

But we're on the other side of that. I mean, we do have a whole new concept coming. It's probably the biggest idea and the lowest risk we've ever taken on a brand extension.

Modern go to a billion, 3 years.

Yeah, I mean this is probably a it's, you know, this is a 2 billion dollar idea.

Gary Friedman: We think we're going to hit the trend dead on. The product we have in development is like nothing else at the market. It's going to be massively disruptive, exciting. We're confident enough that we're going to open, you know, three galleries to launch it with. We're going to do more if we can. We'll have the Ralph Lauren, the ex-Ralph Lauren store in Greenwich, Connecticut. We've got an incredible location in West Hollywood that we'll be announcing more about soon. We've got our original gallery in San Francisco that we own in the design, right in the middle of the design district where we kind of relaunched the whole brand in 2010, right? Yeah. Nine, 2009. It's just going to be an incredible gallery for this new concept. We've been working on this one for about four years. We'll be ready to go.

And it could go really quickly.

We think we're going to hit the trend that on.

The product we have in development.

Is like nothing else at the market.

It's going to be massively.

Disruptive exciting. Um,

You know, and we work confident enough that we're going to open, you know, 3 galleries to launch it with.

Uh, and you know, we're going to do more if we can. Yeah, we'll have.

The Ralph Lauren, the X Ralph Lauren store in Greta, Connecticut. We've got an incredible location.

Uh, in West Hollywood, uh, and that will be announcing more about soon. And then we've got.

Our original Gallery in San Francisco that we own in the design, right in the middle of the Design District, where we kind of relaunched the whole brand in 2010, right? Yeah, 9 9 209.

And you know, she's going to be an incredible gallery for this new concept. Um,

But we've been working on this one for about four years, so, you know,

We'll be ready to go.

Jack Preston: Maybe just to confirm as a quick follow-up, those three galleries are launching in conjunction or opening in conjunction with the launch of the brand extension in the spring?

Gary Friedman: Yeah, the ones in Greenwich and San Francisco for sure. The one in West Hollywood, we've got to still get our permits and get through just some approvals and things like that. Hopefully it'll be pretty simple. It's going to be a two-stage piece where we're going to kind of remodel a location that we now own. Then phase two of that, once we open with the new concept, we are building a restaurant, a beautiful, it might be the most beautiful restaurant in all of Los Angeles. We're building this incredible courtyard restaurant that we think is going to be tremendous. It's going to add a restaurant in Los Angeles, which we don't have in a major market. In Los Angeles, we're building like an ecosystem, right? We have our Melrose Gallery that we built like 12 years ago that's fantastic, in a great corner, beautiful rooftop.

Maybe just just to confirm as a quick follow-up. So so those those 3 goller are launching in conjunction or opening in conjunction with the launch of the brand extension in the spring.

Yeah. The 1 is the ones in, uh, Greenwich in San Francisco for sure the.

Uh, the one in West Hollywood. Uh, we've got to, you know, still get our permits and...

You know, get through, uh, you know, yeah, just some approvals and things like that. And

Hopefully, it'll be pretty simple. Uh, we're going to

It's going to be a 2-stage, uh, piece where we're going to, uh, kind of remodel, uh, a location.

uh, that we, uh,

That we now own.

Uh, and uh, and then Phase 2 of that. Once we open with the new concept, we are building a restaurant. A beautiful one. It might be the most beautiful restaurant in all of Los Angeles. We're building this incredible courtyard restaurant. Um,

Gary Friedman: We've got our Modern Gallery a couple blocks away from that. We'll have this new concept gallery that's a couple of blocks away from Melrose. We're in the process of closing another deal for an outdoor gallery on the same street. LA will have this really expansive RH ecosystem. I think our business in LA could go up 40% or more. It's a big, big, big market for us.

That we think is going to be tremendous. It's going to add a restaurant in Los Angeles, which we don't have in a major market. Um, in Los Angeles, we're building like an ecosystem, right? We have our Melrose Gallery that we built like 12 years ago that, you know, is fantastic, got on a great corner, beautiful rooftop. Uh, we've got our modern gallery a couple blocks away from that.

Um, we'll have this New Concept Gallery that's a couple of blocks away from Melrose.

Uh, and we're in the process of closing another deal for an outdoor gallery on the same street. So, LA will have this really expansive RH ecosystem.

And, uh, you know, I think, uh,

You know, our business in LA could go up 40% or more. You know, it's a big, big, big market for us.

Jack Preston: That's great to hear. I'll pass it on. Thanks.

Gary Friedman: Thank you.

That's great to hear about passing on, thanks.

Allison Malkin: Your next question comes from the line of Maksim Rakhlenko with TD Cowen. Please go ahead.

Thank you.

Your next question comes from the line of Max Rachlin with TD Cohen. Please go ahead.

Maksim Rakhlenko: Great, thanks a lot. First, just on Europe, it's early, but with improvements in England and the strong start to Paris, can you share what you think those galleries can actually do?

Gary Friedman: We can't hear you quite well. I don't know if you're close enough to the speaker, but it's hard to hear what you're saying.

Jack Preston: Speak up, please.

Gary Friedman: Hey, apologies. Europe, starting to scale, England, that gallery is improving, and Paris obviously off to a strong start. How should we think about the revenues per market or per gallery over the medium term? With that, how are you thinking about the four-wall economics in Europe compared to U.S. galleries as we just think about that 200 basis point headwind easing over the medium term? I'd say, one, we'll update periodically as things evolve here with Paris and as we get closer to London and Milan. I mean, it's going to be very quick here, right? We'll have two more big, really incredible galleries, all with multiple hospitality concepts and so on and so forth. Think about this as how we would have liked to launch, but to get Paris and London, there were other locations we had to take and had to open.

Great, thanks a lot. So first, just on Europe. It's early, but with improvements in England and the strong start to Paris, can you share what you think that those galleries can actually... We can't hear you quite well. I don't know if you're close enough to the speaker, but it's hard to hear what you're saying. Please speak up.

Hey, apologies. But, uh, you're starting to scale in England, and, uh, galleries are improving in Paris. Obviously, off to a strong start. You know, how should we think about the revenues per market or per gallery over the medium term? And then, with that, how are you thinking about the four-wall economics in Europe compared to U.S. galleries? As we just think about that 200 basis point headwind easing over the medium term.

Yeah like say um 1 will you know, we'll update you periodically as as things evolved here with with Paris and, you know as we get closer to London and Milan, I mean, it's going to be very quick here, right? Because we'll have 2 more big, big, really incredible galleries, uh, you know, all with multiple Hospitality Concepts and so on and so forth. So,

I mean, think about this as

Gary Friedman: We faced lawsuits from landlords if we didn't open them. Hence why we wanted our first impression to be something kind of inspiring and unforgettable. That's why we did RH England, really for conversation, not so much for commerce, but you look at the numbers now, you go, hey, looks like it might be pretty good. We'll see what happens to that location when we open London. London may actually amplify that location, as opposed to cannibalize that location. Don't know. The greater London market is just a huge market. The UK market is a huge market. If Paris is any indication of, I mean, we have way bigger brand awareness in London than we do Paris. In Paris, what we're seeing, Steph, what was it? 50% of the people know the RH brand in Paris?

And open them. So, um, you know, hence why we wanted our first impression to be something.

You know, it's kind of inspiring and, um,

You know, "Unforgettable." That's why we did RH England. Really, for conversation, not so much for commerce, but...

You look at the numbers. Now you go, "Hey, um, looks like it might be pretty good and, you know, we'll see what happens to that location. When we open London, London may actually amplify that location."

As opposed to cannibalizing, allocation, I don’t know. I mean, I mean the Greater London Market.

It's just a huge market. The UK market is a huge market and so, um,

You know, Paris is any indication of. I mean, we have way bigger brand awareness in London than we do in Paris. But in Paris, what we're seeing, Steph, what was it? 50% of the people.

Jack Preston: 50%.

Gary Friedman: Shocking for us. We didn't know that. Lots of people familiar, lots of people waiting for us to come, and we're in a location that you can't miss us versus some of the other places. I don't know, we're building a brand in the other ones. Even Madrid, which is a pretty high populated city that's pretty hot now, just not, the people aren't used to kind of a retailer even like us. A really funny quick story is, Jen Kelly, one of our curators and designers, really great curator and designer, has been with us for years and freelances with us and comes back to work for us. She's kind of, I don't know what she's exactly, her title is now, but she finds the coolest stuff for in various things.

Know, the RH brand in Paris—50% shocking for us. Yeah, we didn't know that.

Um,

you know, so lots, lots of people familiar, lots of people waiting for us to to, to come, you know, and we're in a, you know, we're in a location that you can't miss us.

uh, versus you know, some of the other places and I don't know, you know, building a brand in in uh.

In the other ones, and uh, even.

Madrid, which is a, you know, pretty high-populated city that's in a pretty hot, now. Um, you know, just...

You know, not you know, the people aren't used to kind of a retailer even like us. Um, I mean it's a really funny, quick story is uh, Jen Kelly 1 of our, you know, curators and designers really great.

Curator designer, you know, it's been with us for years and.

Gary Friedman: Jen has a godson that is finishing up his master's in somewhere in New York and his girlfriend finishing up her master's is from Madrid. They were out in California, and the godson said, I hope Jen's okay that I tell the story, but the godson says, oh, you've got to meet my godmother. She's actually into interior design. This young lady who's 29 years old, I think, said, oh my God, you have to come to Madrid. The most amazing home store in the world opened in Madrid and everybody's talking about it. Jen goes, really? Where is it? She didn't even connect the dots initially. She gives her the address where it is, and she goes, oh, I worked on that store. That's our brand. That's RH. This girl had no idea who we were. There's not really the brand awareness as much, I think, in Madrid.

Freelancers with us and comes back to work for us. If you kind of, you know, I don't know. You know what, she's exactly your your title is now but she finds the coolest stuff for in Gary Spain. Uh, in Jen, uh, has a has a, uh, God's son. Uh, that is finishing up, uh, his Masters in in um, you know, somewhere in New York and is, and his girlfriend finishing up her Masters

Uh, I am from Madrid. And so they were out in California and, um,

I got time. I hope Jen's okay that I tell the story, but you got the gods have said, uh, oh, you've got to meet my godmother, you know, she's actually in, you know, into interior design and this young lady who's 29 years old, I think said, oh my God.

You have to come to Madrid.

The most amazing home store in the world opened in Madrid, and everybody's talking about it.

And Jen goes really well. Where is it? She didn't even connect the dots, and they actually...

She gives her the address where it is, and she goes. Oh,

Gary Friedman: It'll take us longer there, but we're really happy. When you look at the economics on the four-wall margins, some of these were not real big rents like Madrid and Brussels. The one that economics are a little more challenging is Munich. We had to take that. We didn't extend those leases because we weren't sure what the volumes would look like. I'd say a lot of them, or we know directionally kind of what we can do. What does it look like in 14,000 square feet? What does it look like in 20,000 square feet? You know, where might we do hospitality? We were going to do a restaurant in Madrid on the top floor, but it was kind of a smaller store. Then we chickened out at the last minute and put it in. Now the team's like clamoring for it. You know, it's like our brand awareness.

Well, I worked on that store. That's our brand, that's our H, and the squirrel had no idea who we were, right? So, I mean, there's not really the brand awareness as much. You know, I think in Madrid, it'll take us longer there, but we're really happy when you look at the economics.

On the 4-wheel margins.

You know, I mean, some of these were not, you know, real big rents like Madrid and, and uh, uh, Madrid and Brussels. Uh,

Uh, you know that the one that economics or a little more challenging is Munich. Um,

You know, we had to take that we didn't, you know, we didn't extend those leases because we weren't sure what the volumes would look like. But I'd say,

You know, a lot of them—or we—know directionally kind of what we can do. You know, what does it look like in 14,000 square feet? What does it look like in 20,000 square feet? You know, where might we do hospitality? We were going to do a restaurant in Madrid on the top floor, but it was kind of a smaller store, and then we chickened out at the last minute and didn't put it in.

Gary Friedman: They're saying like everybody will come. You know, they love our space. It was an old palace, about 14,000 square feet. We can put a cool little kind of, kind of le petit, you know, I guess we don't call it le petit because it's a French kind of thing, but the same menu. It's a perfectly cool menu, and I think they'll flip out. Our team's super excited about it. We're going to put a restaurant in that one. We have the ability to put a restaurant in Brussels long term. We've got the space there to do that. We may do that. We have to watch how Germany kind of scales here. I'd say we have the lowest brand awareness in Germany. It may take longer. Maybe we just don't have the right location in Munich. Don't know, but we've got flexibility there.

Now, the teams like clamoring for it, you know, like our brand awareness or saying like everybody will come, you know, they love our space, you know, it's just a, it was, it was an old Palace about about 14,000 square feet. And, you know, we can put a cool little kind of kind of length of teeth. You know, who I guess, you know, call because it's a French kind of thing, but the same menu, it's, it's the perfect place for menu. Um, and and I think they'll flip out and our team is super excited about it. So we're going to put a restaurant in that 1.

Gary Friedman: I think the four walls, when you project them out, they kind of look like the U.S. If Paris does anything directionally like we think it's going to do, it's going to be fantastic. We got a little bit more operating costs and stuff like that. We got to have guards out at the gates and things like that. You have to walk down 195 feet to get to the front door. We have to figure out how all that works, especially when the weather gets tougher. I think it's now starting to, the dots are starting to connect. We have enough data. We're seeing how things are ramping, and we're just learning, we're just starting to execute. I mean, what would you give us on execution from the backend, having the right goods and the right fat? There are so many rules and things we had to get around.

But we've got flexibility there.

Uh, but I, I think the 4.

You know, so like if Paris...

I mean if Paris does anything directly like we think it’s going to do.

I mean, it's going to be fantastic.

I mean, we got a little bit more operating, uh, you know, costs and stuff like that. We got to have guards out at the gates and things like that. And, you know, you got to walk down 10,095 ft, you know, to get to the front door, and we got to figure out how all that works. And, you know, especially when the weather gets tougher, but, um,

but I think it's

You know, it's now starting to... the dots are starting to connect. We have enough data, we're seeing how things are ramping, and we're just learning. We're just starting to execute.

Gary Friedman: What fabrics can you use? What foams? What lighting? It's like, we're kind of bumbling around. I'd say, give us a C today. What do you guys think? C plus. Yeah, maybe a C plus. It might be a D plus. Our team, I'd say D plus. Our team's probably saying D plus, but we had a great session, a couple of sessions with them. The last few times we were there, just had another great session with them. Like they, we know what we need to do. We loaded up both planes. We took all our merchants there. We brought in, you know, all the leaders from all the galleries, all our best designers. We listened, we learned. If we just go from like a D plus C minus to a B in execution, it's probably worth 25 points.

I mean, what would you give us in terms of execution from the back end, having the right goods and the right... like there are so many rules and things we had to get around. What fabrics can you use? What phones? What lighting? What this like?

We were kind of bumbling around, you know like I'd say give us a c today. What do you guys think C? Plus, maybe a C+ that mean you know, it might be a d plus I mean so you know our teams like our team is probably a d plus but we had a great session, couple of sessions with them the last few times where they're just at another great session with them like they

We know what we need to do. We loaded up both planes and took all our merchants there. We brought in all the leaders from all the galleries, all our best designers. You know, we listened, we learned, and uh,

Gary Friedman: If we go to an A, it's probably worth 50 points. We'll get there. It's a little hard when you only have a few small stores and you need to kind of take people's attention off certain things to be able to execute. Now, the great thing is Paris now creates massive visibility and urgency. That's why we took everybody over there. We were there for eight days, seven days, many nights. We were going home when the sun came up. We were working with the teams, everybody's alongside each other, bringing this thing to life. It was a great, great experience for bringing our headquarter leaders together with our field leaders and building a great team. Got it. That's super helpful. In the 10Q, you discussed how the primary driver of the gross margin increase was due to increased margins in the core brand.

Like if we just go from like a D plus C minus to a B in execution, it's probably worth 25 points. You know? If we go to an A, it's probably worth 50 points.

You know, so, and we'll get there. You know, it's just...

You know, it's a little hard when you only have a few small stores, and you need to kind of, you know, take people's attention off certain things to be able to execute. But now, you know, I mean, the great thing is, Parish, now.

Creates massive visibility in urgency, you know. And that's why we took everybody over there. You know we were there for 8 days, 7 days.

Many nights we were going home when the sun came up. You know, we were working with the teams. Everybody was alongside each other, bringing this thing to life. And, uh, it was a great, great experience for bringing our headquarters leaders together with our field leaders and building a great team.

Gary Friedman: Just any more color on what drove that? Is the takeaway that we should consider is that promotions should continue to normalize ahead and that tariffs are just the major headwind? How should we take the learnings as we think about the rest of the year?

Got it, that's super helpful. And then in the 10 Queensway that we should consider, is that promotions should continue to normalize ahead. And that tariffs are just the major headwind, or how should we take the learnings as we think about the rest of the year.

Jack Preston: I'm not sure. Yeah, the margin expansion, I mean, it's a reflection of what we were doing last year and the position of the product margin and the activity last year as some of the market activity last year. Yeah, the year over year, we saw margin expansion.

Gary Friedman: Yeah, and we absorb a hit on tariffs. Smaller. I mean, if the tariffs really start hitting in Q3 and Q4 and into next year, fingers crossed, there's not another layer coming, but, you know, as Darwin said, the strongest in species that survives is the one most adaptable to change. We got to be the most adaptable in innovation and invention, I think, in our industry. We'll figure it out no matter what happens. There's going to be gross margin headwinds from tariffs coming. You just can't raise prices fast enough. You can't, you know, there's only so much room our manufacturing partners have. You don't want to blow them up. Right. You got to walk a tightrope. It's very different than China. I think that maybe that's the other thing that maybe is misunderstood. China was kind of funded.

I'm not sure. Yeah, the margin expansion. I mean, it's it's a reflection of where what we were doing last year and, and the position of, of the product margin and and, and the, uh, you know, activity last year, as some of the markdown activity last year. So yeah, the year-over-year. We saw March expansion. Yeah. And we absorb a hit on tariffs, much smaller. I mean, it's the terrorists really start hitting

In Q3 and Q4, and in the next year.

And again, fingers crossed, there's not another layer coming. But, um,

You know.

As Darwin said, you know, they’re not the strongest of species that survive; it’s the one most adaptable to change. And

We got to be the most adaptable in innovation and invention, I think, in our industry. And, uh, so we'll figure it out, no matter what happens. But, uh,

You know there's going to be gross margin headwinds from tariffs coming. You just can't raise prices fast enough, and you can't, you know, there's only so much room. Our manufacturing partners have...

Gary Friedman: I think some of China's factories got some help from the government to deal with the tariffs. That's not really happening in Vietnam. It's not happening in Indonesia. They're not China. They're not big, strong, well-developed countries like China. That's, it's going to hurt people. There's just, you know, there's going to be challenges there. It is what it is. Improvise, adapt, and overcome. Got it. Thanks a lot, guys. Best of luck and speak soon.

You know, you don't want to blow them up, right? So you got to you got to walk a tight rope, it's very different than China. I think that maybe that's the other thing that maybe it's misunderstood, I mean China was kind of funded, I think some of China's uh, factories, you know, got some help from the government.

To deal with the tariffs, that's not really happening in Vietnam. It's not happening in Indonesia, you know. They're not trying to, they're not.

Big, strong, well-developed countries like China.

you know, so

Like, you know, there are just, you know, there going to be challenges there.

um,

but,

You know, it is what it is. So,

improvised adapt and overcome.

Jack Preston: Thanks, Max.

Got it. Thanks a lot, guys. Best of luck, and speak soon.

Allison Malkin: Your next question comes from the line of Michael Lasser with UBS. Please go ahead.

Thanks Max.

Maksim Rakhlenko: Good evening. Thank you so much for taking my question. Gary, the investment community is very focused on the degree to which there's discounting and promotions in your messaging. The results in the quarter suggest that you've been able to overcome it with your profitability. With that being said, is it driving incremental sales? Is the thesis that you will be able to pull back on some of this discounting-oriented messaging as the housing market improves and the natural rate of demand simply increases and offsets what's being done right now?

Your next question comes from the line of Michael Lasser with UBS. Please go ahead.

Good evening. Thank you so much for taking my question. So, Gary,

You mentioned community is very focused on the degree to which there's discounting and promotions.

Gary Friedman: Sure. You should start, Michael, with in this world of furniture at the luxury end, it's all on sale. At the highest end in the top design showrooms, interior designers, architects, all get 30% or 40% off. Our model of a membership model was a model to kind of smooth that out and be competitive. This is not like Chanel, Hermès, where they burn the markdowns or throw them out or whatever they do, right? Because they have such ridiculous margins. This is not fashion. If people confuse it with fashion, they're going to miss the whole game here. We're also in the third year of the worst housing market I've seen in my 38 years in this industry. Thirty-eight years, I've never seen a third year like this, and I've never seen one like this. You could decide to not promote.

In your messaging, the results in the quarter suggest that you've been able to overcome it with your profitability. But with that being said, is the driving incremental sales and is the thesis that you will be able to pull back on some of this discounting-oriented messaging as the housing market improves and the natural rate of demand simply increases and offsets what is being done right now?

Sure, well, just start, Michael, with, in this world of furniture at the luxury end.

It's all on sale.

Okay, at the highest end in the top design, showrooms, interior designers, architects, you know, all get.

30 or 40% off.

So, our model of a membership model.

Was a model to kind of smooth that out.

And be competitive, you know? So this is not like Chanel or Hermès, you know, where they burn the markdowns, you know, we're throwing them out or whatever they do, right? Because they have such ridiculous margins. This is not fashion, and the people who confuse it with fashion are going to miss the whole game here.

Okay, we're also in the third year of the worst housing markets I've seen in my 38 years in this industry.

38 years. I've never seen a third year like this, and I've never seen one like this.

Gary Friedman: Some people are telling you they're not promoting, and they are promoting. I don't even know how anybody publishes press on who they are. Like, oh, they're not promoting. Look at their emails. They're promoting every week, and it's disguising it as not store-wide. Whatever. It's got to be the highest percentage of their business is being done on promotion. If you're selling furniture, you get away with some of the other categories like frames and other stuff like that. Those are bigger for other people's businesses if they're a home furnishings kind of driven business and have a lower furniture mix. We're 80% furniture with the highest probably mix of furniture of anybody we can compete with. We eliminated Christmas. We eliminated holidays. We don't sell Halloween plates and all that stuff that renders the furniture less valuable.

So you could decide not to promote. I mean some people are telling you they're not promoting, and they are promoting. So I don't even know how anybody publishes, you know, press on, you know, who they are. Like, oh, they're not promoting! Like, look at their...

Emails are promoting a three-week event. You know, and you know it's disguising it as not storewide. Okay, whatever, you know, it's...

Gotta be the highest percentage of their business is being done.

On promotion, you know, it's just if you're selling furniture, you get away with, you know, some of the other categories like frames and other stuff like that. And those are bigger, you know, for other people's businesses if they're a home furnishings kind of driven business.

You know, and have a lower furniture mix.

Gary Friedman: Furniture is an industry that at the highest level does not sell at full price. It doesn't. People just get over it. You don't understand the furniture industry at the luxury level. Unless you just want to fucking go bankrupt, excuse my language, in a market like this, or stand there and be righteous and say, I'm not promoting, good luck. Good luck. Go for it. Tell me who's not doing it, Michael. Who's not promoting?

You know, we're, you know, we're 80% furniture with the highest probably, makes the furniture of anybody we can fit compete with. We eliminate Christmas, we eliminated holidays, you know, we don't sell Halloween plates, spend, you know, all that, you know, stuff that renders the furniture less valuable.

So um, but furniture.

Is an industry that, at the highest level, does not sell at full price.

It doesn't.

So people just get over it. You don't understand the furniture industry at the luxury level.

And unless you just want to f***ing go bankrupt—excuse my language—in a market like this.

You know, and stand there and be righteous and say, and I'm not promoting good luck.

Good luck.

Go for it. Um, tell me just not doing it, Michael.

Maksim Rakhlenko: It's hard to name names right now, Gary, but that's a great segue into my second question, which is there is some skepticism around the margin outlook in the back half of the year. You're guiding below what was expected for the third quarter and well above for the fourth quarter. Can you give us more detail on what underlies those margin expectations and build the market's confidence that those are realistic? Thank you very much.

Gary Friedman: Jack, you want to take that?

It's hard to name name names right now Gary but that's a that's a that's a great. Um, segue into my um second question which is there, there is some skepticism around the margin Outlook in the back half of the year. You're you're guiding um, below what was expected for the third quarter and well above for the fourth quarter. Can you give us more detail on what underlies? Those margin expectations and build the Market's confidence that those are realistic. Thank you very much.

Gary Friedman: Michael, we gave a back like an H2 guidance. We didn't give out any quarterly guidance. If you're referring to how the analyst community is clear.

You want to take that?

Maksim Rakhlenko: No, I meant he's saying, I mean, what I heard, Michael, maybe clarify is how it changed versus the prior guidance. Is that what you asked for?

Gary Friedman: I'm just asking for what drives those or underlies those, Jack. If you could give us a sense for what you're expecting, is it that tariffs are going to be a headwind in Q3, but you'll take price by the time you get to Q4, such that you'll see a significant amount of leverage in the fourth quarter?

Jack Preston: I think that's margins.

Speak to you, but you'll take price by the time. You get to Q4 so that you'll see a significant amount of leverage in the fourth quarter.

Gary Friedman: We broach margin or we guide it operating. Yeah, Michael, you're talking about operating income?

Maksim Rakhlenko: Yes, sir.

I think I think the best margins be f******. Well, we both margin or we guided offering. Yeah. Michael, you're talking about operating income.

Gary Friedman: Okay. Just as a reminder, we have seasonality in our business as it relates to advertising expense and the books that get expensed when there's our mailings. That's one factor that I'd point out. We're not here to point out pricing actions or timing of those and those kinds of offsets. That's all embedded in our guidance. We're not commentary. We're here to make.

Yes, sir.

Okay. Yeah, look. Just as a reminder, we have seasonality in our business as it relates to advertising expense and, and, and, and, and, you know, the books that get expensed when, when there's a are emailing,

Uh, so that's that's 1, that's 1 factor that I that I point out, I don't, you know, we're not here to point out, you know, pricing actions or timing of those and and, and those kind of offsets, you know, that's all embedded in our guidance, but but we, you know, we're not, we're not as, uh, you know, that's not commentary. We're we're we're, we're here to make

Maksim Rakhlenko: Okay. Thank you very much and good luck.

Gary Friedman: Thanks, Michael.

Okay, thank you very much and good luck.

Thanks Michael.

Allison Malkin: Your next question comes from the line of Steven Zaconi with Citi. Please go ahead.

Simeon Ari Gutman: Great. Good afternoon. Thanks very much for taking my question. I wanted to go on to that pricing comment and just kind of understand, because you, Gary, you mentioned about pricing in the industry because of tariffs. What's your assessment of pricing, you know, from an industry perspective? Does it get worse as we get into the back half of the year in terms of increases because of these tariffs? Do you think the second half is when we see the peak, or does that kind of carry into 2026?

Your next question comes from the line of Steven Zakone with City. Please go ahead.

Gary Friedman: Yeah, you know, look, I listen to everybody's conference calls, right? You know, that's in our industry. I don't think anybody's really addressed the tariffs with transparency. I think they're all dancing around it. No one's got, if it's waiting for somebody to tell the truth, then maybe we're the first ones telling the truth. I don't think anybody's getting better pricing than we do. I don't think anybody's mitigating more than we are. No one's got the same leverage we do, you know, for a single brand. I think everybody's got to take price in the second half. I think there's going to be big furniture inflation in the second half everywhere. I don't know how anybody gets around it unless you're some little tiny person making all your stuff in America.

Great, good afternoon. Thanks very much for taking my question. I wanted to go out to that pricing comment and just kind of understand because, Gary, you mentioned pricing in the industry because of tariffs. What's your assessment of pricing, you know, from an industry perspective? Is it going to get worse as we get into the back half of the year in terms of pricing because of these tariffs? And do you think the second half is when we see the peak, or is that kind of carrying it to 2026?

Yeah, you know, look, I listen to everybody's conference calls, right? You know, that's in our industry, and I don't think anybody's really addressed the tariffs with transparency. I think they're all dancing around it and, you know, no one's... everybody's waiting for somebody to.

Tell the truth, and maybe we're the first ones telling the truth. I don't think anybody's getting better pricing than we do. I don't think anybody's mitigating more than we are. You know, no one's got the same leverage that we do.

You know, you know, for a single brand and so.

I think everybody's got to take price in the second half. I think there's going to be.

Gary Friedman: I, you know, but then again, they're going to get hit because all the parts are coming for, you know, all kinds of the pieces and parts are coming from places, like fabrics coming out of Asia for a lot of those people. You know, and like other people that might be saying they're making furniture in America. Hopefully this is what the investigation is about, is people that are having all the wood made and finished in Asia and then kind of shipped in a flat pack to America. They're actually screwing it together, and they're saying assembled in America or something like that. They think they're going to, you know, not get tariffed. I mean, there might be some, I was trying to think like what triggered this next investigation in the tariffs. The only thing I can think about is something like that. That does go on.

Big furniture inflation in the second half everywhere. I don't know how anybody gets around it, unless you're some little tiny person making all your stuff in America.

I, you know, but then again, they're going to get hit because all the parts are coming from, you know, all kinds of pieces and parts are coming from places like.

Fabrics are coming out of Asia for a lot of those people, and, you know,

Okay, you know, and like other people that might be saying they’re making furniture in America, and hopefully, this is what the investigation is about, is people that are...

Having.

All the wood, you know, made and finished in Asia, and then kind of shifted in a flat pack to America. They're actually screwing it together and they're saying "Assembled in America" or something like that.

Gary Friedman: There's probably people out there that are trying to avoid tariffs some way, bringing it in unassembled or doing something. It's parts from other places, and maybe that's where you're going to see other new tariffs coming. I think everybody's got to take pricing. There's just no way. I mean, your margins are going to get killed.

And they think they're going to, you know, not get tariffs. I mean, there might be some. I was trying to think like, what triggered this next investigation in the tariffs. The only thing I can think about is something like that, you know, that does go on, uh, and you know, so there's probably people out there that are.

You know, trying to avoid terrorists, some way, bringing it in, you know, unassembled or doing something.

you know, so it's, you know, it's parts from from other places and maybe that's, you know, we're, you know, you're going to see other new tariffs coming but, uh,

um,

You know, I think everybody's got to take pricing; there's just no way. I mean, your margins are going to get killed.

Simeon Ari Gutman: I understood. Follow up on the international margin question that Max had. If we think about the 200 basis points drag this year, does that ease next year or should we be thinking London opening and Milan are still going to have some pretty heavy startup costs?

Yeah, understood. Then, um, follow up on the international margin question that Max had. So, if we think about the 200 basis points drag this year,

Gary Friedman: Still has heavy startup costs. Yeah, I mean, we, you know, it'll all depend where the ramp in Paris goes, which will inform the ramp in London, which should be meaningfully higher than Paris. Milan, I don't know where Milan actually is going to fall, probably a little less than Paris, but it's bigger, so it might do more. I mean, it is a big market. We'll see. During Salone, which is the biggest design show in the world, 500,000 people go to Milan for Salone. The world of design goes there for a week, and we're opening on that week. Any of these next two parties, you don't want to miss these openings.

Does that ease next year, or should we be thinking London, opening, and Milan are still going to have some pretty heavy startup costs?

Don't have heavy startup costs.

Yeah. I mean, we, you know, it, it'll all depend on where the ramp in Periscope, which will inform the ramp in London, which should be meaningfully higher than Paris and Milan.

I don't know where Milan actually is going to fall; you know, probably a little less in Paris.

But it's bigger, you know, so it might, yeah, do more. I mean, you know, it is a big market.

So we'll see. I mean, we're during Salon, which is the biggest design show in the world.

You know, 500,000 people go to Milan for Salone, and it's the world of design that goes there, you know, for a week. And we're opening that week.

Simeon Ari Gutman: I'll be there. Thank you.

You know, any of these next two parties, you don't want to miss these openings.

Gary Friedman: Great event.

Great events.

Allison Malkin: Your final question comes from the line of Brian William Nagel with Oppenheimer & Co. Inc. Please go ahead.

Brian William Nagel: Good evening. Thanks for slipping me in here. A couple of questions. First off, I want to make sure I understand the dynamic correctly. If you look at, you know, an inventory growth perspective, it seems like you're managing inventories much better here. We've seen growth moderate significantly in the second quarter. I guess that dynamic would help to drive cash. Again, I just want to make sure I've seen that correctly. The question I have is, as you think about managing inventories better, does that potentially become a headwind to sales? If your inventories are tighter, you know, through the back half of the year or whatever?

Your final question comes from the line of Brian Nodule with Oppenheimer. Please go ahead.

Hey, good evening.

Thanks for slipping me in here.

So, a couple questions. Um, first, I want to make sure I understand this, the dynamic correctly. So if you look at, you know, in inventory growth perspective, it seems like you're you know, you're managing inventory is much better here. We've seen growth moderate, uh, significantly in the second quarter and that I guess you know that Dynamic would help to drive cache. But again I just want to make sure I seen that correctly, but the question I have is, you know, is you think about managing inventories that are does that?

Potentially, this could become a headwind for sales. You know, if your inventory is tighter through the back half of the year or whatever.

Gary Friedman: Yeah, it looks like everything is worth something, right? It all depends where the housing market goes, what offsets you're going to have, how much our new concept is going to be worth. I think this is the biggest new thing we've ever done. I think it's going to be bigger than modern significantly, it deals with the biggest part of the market. We've got new galleries and things happening. We've got big galleries happening in London and in Milan. We've got outdoor galleries coming and new concept galleries coming, and we've got compounds coming. There's just a lot that we've invested into, time and capital to set the company up for the next 10 years. That's how we think about this next move. If we do really well, I can tell you Paris, we're getting a lot of inbounds on, hey, do you want to open in Abu Dhabi?

Um, yeah, it looks like everything is worth something, right? So, you know, it all depends.

You know where the housing market goes; you know what offsets you're going to have, how much like our new concepts are going to be worse. I think this is the biggest new thing we've ever done. I think it's going to be bigger than modern.

Uh, significantly, uh, you know, it deals with the biggest part of the market. Um,

yeah, we've got

Yeah, we've got new galleries and things happening. We've got big galleries happening in London and in Milan. I mean, we've got outdoor galleries coming at New Concept, galleries coming, and we've got times coming. I mean, there's just a lot that we've invested into, you know, time and capital.

To set the company up for the next 10 years.

You know, that's how we think about this next move. If we...

If we do really well.

Gary Friedman: Do you want to open in Dubai? Can we partner with you? Can we license your brand? Can we do this? When you see something like Paris that you've never seen anywhere in the world by anybody at any level, there are buyers of that, meaning whether it's developers or whether it's someone that wants to run the brand for us there. Maybe in the Middle East, we do a low capital kind of deal, and we take some percentage off the top and we sell the rights for a big chunk of money for the next 20 years, or we run it ourselves and we want the sales growth and so on and so forth. We're willing to put in the capital, we are creating optionality.

And you know what I mean? Like, I can tell you, it's Paris. You know, we're getting a lot of inbounds on, 'Hey, you know, do you want to open in Abu Dhabi? Do you want to open in Dubai? Can we partner with you? Can we license your brand? Can we do this?' When you see something like Paris that you've never seen anywhere in the world by anybody at any level, there are buyers of that. Meaning, whether it's developers or whether it's someone that wants to...

Gary Friedman: The key is breakthrough, breakthrough and become one of the most admired brands in the world in this next period by doing what we're doing in Europe. It creates all kinds of options. When we go to Asia, what are we going to do? We've had people trying to get us to come to the Middle East for 12, 15 years, come to Asia for the last 10 years. We wanted to do it in the right order. Somewhere along the line, I heard someone say that Bernard Arnault was asked, how do you build a brand in China? His answer was, you build great stores in Paris, London, and New York. We did it a little backwards, right? Because we come from America. We said the first thing we had to do is build the bridge to Europe. We built RH New York.

You know, run the brand for us there and, you know, maybe in the Middle East, we do a low capital kind of deal, and we take some percentage off the top and we sell the rights for a big chunk of money, you know, for the next 20 years. Or we run it ourselves and we want the sales growth and, you know, so on and so forth. And we're willing to put in the cap; you know, there's—we are creating optionality.

uh, the key is

break through.

Break through and become.

1 of the most admired brands in the world in this next period.

By doing what we're doing in Europe, it creates all kinds of options when we go to Asia. What are we going to do? Like, we've had people trying to get us to come to the Middle East.

For 12, 15 years.

Come to Asia for the last 10 years.

Uh, you know, it's like we wanted to do it in the right order.

and uh,

Yeah, somewhere along the line, I heard someone say that Bernardo was asked, how do you build a brand in China? And his answer was, you build great stores in Paris, London, and New York.

Gary Friedman: We got a lot of visibility there and a lot of European clients coming over and they know us. We wanted to do Paris and London next, but to get Paris and London, we had opened things in a different order. Now that Paris and London are coming and then Milan's coming, we're going to know a lot more. I think the brand heat is going to exponentially build. I think the quality of work that we're doing, I really, if you want to, I said this when we first built, like I think it was Atlanta or something. I said, put down your spreadsheet and go to Atlanta. If you want to know us, go and see us, right? We all have six senses, but our sight is our dominant sense and it drives 80% of our behavior, our perception, and our education.

So we did a little backwards, right? Because we come from America. So we said the first thing we had to do is build the bridge to Europe. And we built our H New York, and we got a lot of visibility there and a lot of European clients, you know, coming over, and they know us.

and,

You know, we wanted to do Paris and London next, but to get Paris linen, we had to open things in a different order.

But now that Paris and London are coming, and then Milan’s coming.

Gary Friedman: If you really want to know where RH is going, get on a plane and go see Paris and then give us a call or just fly right back to the center of innovation and you'll really come to see what we're doing. What we're about to do next is the greatest work in the history of this company, and it might be some of the greatest work in the history of any part of the retail industry. I'm not trying to boast, at the end of the day, it's not what we say or think, as Jane Austen would say, it's what we do that defines us. Go see the work. That's what's going to define us. You'll understand it. Max, you're surprised still. Steve, you were there. A few other people were there. I think everybody was there. It was like, holy cow.

We're going to know a lot more. I mean, I think the brand Heap is going to exponentially build. You know, I think the quality of work that we're doing. I mean, I really—if you want to—I said this when we first built, you know, like I think it was a planner or something. I said, 'Put down your spreadsheets and go to Atlanta. If you want to know us, go and see us.' Right? We all have six senses, but our sight is our dominant sense, and it drives 80% of our behavior, our perception and our education.

If you really want to know where RH is going, get on a plane and go see Paris.

And then, give us a call.

Or just fly right back to the center of innovation and you'll really, you know, come see what we're doing.

Am I trying to boast? You know, you know it's at the end of the day it's not what we say or think is Jane Austen say it's what we do that defines us. So go see the work. That's what's going to Define us. You'll understand it. I mean Max you're still priced still on Steve, you were there. Um,

You know, a few other people were there. I mean, I think everybody was there, is like...

Gary Friedman: I had no idea what was coming. When you see the world of RH and what we did there to communicate to the world who we are, to see our body of work around the world and all of our places presented in this incredible, sexy salon style with a bar, you can order food, you can take client meetings there, and people walking through, you can see RH New York, RH Boston, RH Chicago, all the great work we've done everywhere, presented beautifully and beautiful velvet draped walls with picture lighting. Then you've got these giant French art easels with, I don't know how big the TVs are, like six feet, giant TVs and beautiful giant gold frames with videos that you can watch. You can watch them, the making of RH Boston, the making of RH New York. You can watch videos on the designers, on the artisans.

holy cow.

I had no idea what was coming.

And when you see the world of our age and you know what we did there to communicate to the world who we are, to see our body of work around the world and all of our places presented in this incredible, sexy salon style with a bar, you can order food, you can take client meetings there, and people walking through can see.

Our H New York, our age, you know, Boston or Chicago or, you know, all the great work we’ve done everywhere, you know, presented beautifully.

These beautiful, deep velvet drapes adorn the walls with picture lighting, and then you've got these giant...

Gary Friedman: You know, it's the physical and digital immersion into the brand. It's so cool. I mean, I think it's worrying people are going to go, what is this? And no one would be there. The night of the party, it was passionate in that room. We had our first diner out of our two restaurants, and that's kind of a semi-third. We don't, you know, to have a bar, we have to serve food there. We've got a menu. The first meal we served was in the bar, you know, the world of RH. Everybody who's seen it is like, oh my God, like, you know, especially people who don't know us, like we had no idea. It's just we have a body of work that no one else has in the world from an architecture, interior design, landscape architecture point of view.

You know French art diesels with. I don't know how big the TVs are, like 6 feet. You know, giant TVs and beautiful giant gold frames with videos that you can watch. You can watch them, you know, the making of RH Boston, the making of RH New York. You can watch videos on the designers, on the artisans. Uh, you know, it's a physical and digital immersion into the brand.

It's so cool. I mean, my biggest worry is people are going to go, 'What is this?' and no one would be there. The night of the party, it was packed in that room. We had our first dinner out of our.

Gary Friedman: It gives us great credibility in our interior design business, which is now, you know, morphing into an interior architecture business and a landscape architecture business, right? In our bespoke part of that business, which is one of the fastest growing parts of the business, is doing these super high-end premium complete redos. We had already, before we even got to Paris, done an incredible complete metamorphosis of an apartment in Paris for a U.S. customer, transformed it completely, complete new interior architecture, fireplaces, everything. That's the other thing to really understand what we're doing in interior design. We are the biggest interior design, residential interior design platform in the world today. We're investing in it in a meaningful way. It's Paris, it is a freestanding building on our property that we built. RH Interior Design has its own building, its own entry, and it's taxing.

2 restaurants. And that's kind of a semi third. We had a, you know, to to have a bar, we have that that serve food there. So we've got a menu and the first meal meal we serve is in the bar, you know, the the world of our age and everybody's seen it is like oh my God like you know, especially people who don't know us like we have no idea you know it's just we have a body of work that no 1 else has in the world from an architecture, interior design landscape architecture, point of view, it gives us great credibility in our interior design business.

which is now, you know, morphing into an interior architecture business and a landscape architecture business. Right in our bespoke part of that business, which is one of the fastest-growing parts of the business, is, you know, doing these...

You know, super high-end premium complete regions.

And we had already, but, you know, before we even got to Paris, we had done an incredible complete metamorphosis of a, you know, apartment in Paris for a U.S. customer, you know, and transformed it completely—complete new interior architecture, fireplaces, everything.

So, you know, that's the other thing to really understand what we're doing: interior design.

Like we are the biggest interior design residential interior design platform in the world today.

And we're investing in a meaningful way.

Gary Friedman: It might be the best interior design office anywhere in the world. It says to people that we want on the team, we're prepared to invest to get the best people in the world. We're not just a retailer. We're something that hasn't been done before. When it all comes together, I think it's going to make a lot of sense.

Like if, if Paris, it is a freestanding building on our property that we built. So our H Interior Design has its own building, its own entry, and it's tacking.

Like it might be the best interior design office anywhere in the world.

Um, and it, you know, it says to people that we want on the team: like, we're prepared to invest to get the best people in the world.

We're not just a retailer; we're something.

That hasn't been done before.

And when it all comes together, I think it's going to make a lot of sense.

Brian William Nagel: Thanks, Gary. Can I maybe ask just a quick follow-up, and maybe it's for Jack, but just with regard to tariffs. Should we be expecting RH is putting mitigation efforts, particularly price increases as the tariffs hit, or are you able to, in some instances, start adjusting prices maybe before the actual tariff is hitting you?

Thanks, Gary. Can I maybe you asked just a quick follow up and maybe I think maybe before Jack

But just with regard to tariffs,

So, should we expect that RH is supporting mitigation efforts, particularly price increases, as the tariffs hit? Or were you able to, in some instances, start adjusting prices maybe before the actual tariffs hit you?

Gary Friedman: Tariffs are a little wacky.

Simeon Ari Gutman: Yeah, we also did the membership thing.

Brian William Nagel: Yeah.

Simeon Ari Gutman: You know.

Brian William Nagel: I think it's a bit of both, to be honest. I mean, it's obviously, you know, we want to be very judicious about price increases and not, and as Gary talked about, you know, on the one hand, you're protecting margin, but on the other hand, you know, you want to also be thoughtful about, you know, the revenue of the business and the impact of that. We're very strategic and thoughtful, and we've been doing this ever since we had to deal with the 2018 tariffs or the 2017 or 2018 tariffs and initial ones in China. We'll keep doing, keep running our playbook. Yeah.

Turkey's a little wacky. Yeah. We also did the membership thing. Yeah. And you know I I think it's it's a bit of both, to be honest. I mean it it it's, it's obviously, you know, we want to be very judicious about price increases and not and as Gary talked about, you know, on the 1s, be thoughtful about, you know, the the revenue in the business and the impact of that. So,

Gary Friedman: I appreciate it. Thank you.

Uh, I, you know, we're very strategic and thoughtful, and we've been doing this, you know, ever since we had to deal with the 2018 tariffs or, you know, the 2017 or 2018 tariffs in the initial ones in China. So we'll keep doing, keep writing our playbook.

Yeah, I appreciate it. Thank you.

Allison Malkin: That concludes our question and answer session. I will now turn the call back over to Gary Friedman for closing remarks.

Simeon Ari Gutman: Great. Thank you everyone for your interest. It is interesting times in our industry, but even more interesting times for our company. I just want to congratulate everybody throughout our organization. Even though you might not be in Paris or you weren't in Paris, everybody had a hand in it. Everybody has worked hard to put this company in a position to open what we believe is the most exciting, immersive retail experience at any level in the world today. We couldn't be more proud. I told the team, I said, if only for a moment, we kind of broke through and poked our head up at the top of the luxury mountain. Now it sucks for us to just plant a flag up there, right? There's a lot more work to do. They know the people at the top.

That concludes our question and answer session. I will now turn the call back over to Gary Friedman for closing remarks.

Great. Well, thank you everyone for your interest. You know, it is interesting times in our industry, but even more interesting times ahead.

You know, for our company, and I just want to congratulate everybody for our organization. Even though you might not be in Paris, or you weren't in Paris, everybody had a hand in it. Everybody has.

Worked hard to put this company in a position to open.

What we believe is the most exciting and immersive retail experience at any level in the world today, and we couldn't be more proud. I told the team, I said, if only for a moment.

we, we

Kind of broke through and poked our head up at the top of the luxury mountain. Now it's up to us.

To just plant a flag up there, right? And there's a lot more work to do.

But they know.

Simeon Ari Gutman: I think they now know the potential that we have, the work that we've demonstrated that we can do. I think we've earned their respect and they expect us to come. We've got a lot of work to do to really plant that flag and to build one of the most admired brands in the world. The momentum we have, the kind of ceiling we broke through, it peaked up and it was a proud moment for this company. I want to just thank everybody on every level for the effort that everybody's putting through in these three difficult years that we've had. The clouds will break, as Warren Buffett says, and the sun will come out again. When it does, we'll be there. Thank you everyone for your interest. Thank you, Team RH, for your leadership and your hard work and for living and breathing our values.

The people at the top.

I think they now know you know the potential.

That we have the work that we've demonstrated that we can do. Uh, and I think.

We've earned the respect, and they expect us to come.

Uh, so we've got a lot of work to do, you know, to really plant that flag and to build one of the most admired brands in the world. But the momentum we have.

You know, the kind of the

Kind of the stealing we broke through.

You know, peaked up and, uh, you know, your deal was a proud moment for this company. And, you know, I want to just thank everybody on every level, uh, for the just the effort that everybody's putting, you know, putting through in these three difficult years that we've had.

You know the the the clouds will break as Warren. Buffett says you know, and the sun will come out again and when it does, you know, we'll we'll be there.

Simeon Ari Gutman: Yes, our time has come. Thank you.

So, uh, thank you everyone for your interest. Thank you, TMR, for your leadership and your hard work and for living and breathing our values. Uh,

If, uh, our time has come.

So, thank you.

Allison Malkin: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

ladies and gentlemen, this

Today's call.