Q4 2025 RH Earnings Call

March 31, 2026

Speaker #1: And those that define it. There are places you visit, and those you remember. There are spaces you move through, and those that move you.

Speaker #1: Welcome to The World of RH. Albert Einstein's Three Rules of Work, out of clutter, finds simplicity. From discord, find harmony. In the middle of difficulty, lies opportunity.

Speaker #1: Seem especially relevant at this moment. Where compounding clutter from terrors, global discord as a result of war, and the most dire housing market in decades, can make it difficult to separate the signal from the noise.

Speaker #1: It's important to remember necessity is the mother of invention, and our most important innovations were birthed during the most uncertain times. Transforming a nearly bankrupt restoration hardware into RH.

Speaker #1: The leading luxury home brand in North America, was not a feat for the faint of heart. While the external challenges are somewhat familiar, our internal opportunities are massively different.

Speaker #1: We're not closing stores and fighting to survive. We're building a never-seen-before brand that's positioned to thrive. Before we get into the details of our strategy, let's start with a few facts that should quiet some of the noise.

Speaker #1: In 2025, RH achieved revenue growth of 8% and two-year growth of 15%, far outpacing our furniture industry peers by 8 to 30 points. Adjusted EBITDA reached $597 million, or $17.3% of revenues versus $539 million, or $16.9% of revenues in 2024.

Speaker #1: Free cash flow of $252 million, versus negative free cash flow of $214 million in 2024. An increase of $466 million year over year. Those results were despite 2025 being our peak investment year with $289 million of adjusted CapEx to support our global expansion, plus an additional $37 million to purchase the Michael Taylor formations and Denison Lean brand to support the launch of our new concept, RH Estates.

Speaker #1: A strong performance considering the unusual circumstances. Let me shift your focus to our strategy, and how we expect our growth to accelerate over the next several years.

Speaker #1: We believe there are those with taste in no scale. And those with scale in no taste. And the idea of scaling taste is large and far-reaching.

Speaker #1: We believe our goal to position RH as the arbiter of taste for the home will prove to be both disruptive and lucrative, as we continue our quest of building one of the most admired brands in the world.

Speaker #1: We'd like to use a simple question to frame our significant opportunity. Who is the home brand for the luxury customer? The LVMH, Hermès, Cartier, or Cucinelli customer?

Speaker #1: RH has curated the most compelling collection presented in the most inspiring spaces in the world. Our brand attracts the leading designers, artisans, and manufacturers.

Speaker #1: Scaling and rendering their work more valuable across our growing global platform. Our product is both categorically and stylistically dominant, enabling RH to address the largest market of any brand of its kind.

Speaker #1: We curate across the seven major product categories, furniture, upholstery, outdoor, lighting, linens, rugs, and decor. And we integrate across the three dominant product styles, traditional, contemporary, and modern.

Speaker #1: Which we refer to as RH Estates, RH Interiors, and RH Modern. RH Estates are newest brand extension launching this spring, will address the traditional market where the RH brand is currently underpenetrated.

Speaker #1: 60% of luxury homes feature classic or traditional architecture, which influences the majority of furniture purchasing behavior. RH Estates will feature the introduction of RH Bespoke furniture, customizable collections from our recently acquired Michael Taylor, Joseph Duke, formations, and Denison Lean to the trade brands.

Speaker #1: RH Estates will also include the introduction of RH Couture upholstery by Dimitri and Co. Tailor-made sofas, sectionals, and chairs of arguably the highest quality upholstery available anywhere in the world.

Speaker #1: Designers will be able to order custom-made sizes and finishes, plus specify COM fabrics. RH Bespoke furniture and RH Couture upholstery will enable interior design firms to now specify RH for their most discerning clients in custom projects.

Speaker #1: RH Estates will also include collections from many of the most talented designers and artisans in our industry. Let's take a look at some of their work.

Speaker #1: RH Estates will premiere at the opening of RH Milan, the gallery on the courts of Venezia, a 70,000-square-foot former palace during Salone. The largest design show in the world, with an estimated 500,000 visitors descending on the city that week.

Speaker #1: The launch of RH Estates will include a dedicated source book mailing mid-May and the International advertising campaign and free standing estates , galleries in Greenwich , Connecticut , and the San Francisco Design District , opening early summer and the West Hollywood Design District opening in 2027 .

Speaker #1: We believe RH Estates will become our largest and highest margin brand extension , driving significant growth over the next several years . Let me shift your attention to our multidimensional physical first global ecosystem .

Speaker #1: The world of our age that goes far beyond a typical multichannel approach , inspiring customers to dream , design , dine , travel and live in a world thoughtfully curated by RH .

Speaker #1: Creating an emotional connection unlike any other brand in our industry . The question we often are asked is why physical first , in a digital world ?

Speaker #1: Let me explain . Furniture remains the least digitized . Large retail category with an 80 over 20 store to online split with luxury furniture estimated to be as high as 95.5 .

Speaker #1: Whitey stores still dominate comfort scale finish and quality are hard to judge online , even when customers purchase on a website . Most experienced the product in a store .

Speaker #1: We believe the physical manifestation of a brand will continue to be significantly more valuable than an invisible online one . We also believe most retail stores are archaic , windowless boxes that lack any sense of humanity .

Speaker #1: That's why we don't build retail stores . We create inspiring spaces , spaces that are reflection of human design , a study of balance and symmetry that creates harmony , spaces that blur the lines between residential and retail , indoors and outdoors .

Speaker #1: 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 .

Speaker #1: most have been closing or shrinking the size of their stores , we've been building some of the largest and most immersive spaces in the history of our industry Let's take a look at our most recent work We believe our investments in building completely unique , immersive experiences in Paris , Milan and London will set the stage for RH to become a truly global luxury brand .

Speaker #1: It's important to understand that there are several strategically significant businesses embedded in our galleries , including RH interior design , where we become the largest residential interior design firm in the world with projects from San Francisco to Sydney , Los Angeles to London , Miami to Milan and Dallas to Dubai .

Speaker #1: We offer design services including interior architecture , landscape architecture , art and antique curation , and turnkey installations . Another important business embedded in our galleries is RH to the trade , a specialized team that calls on services and supports interior design firms assisting in the design , curation , delivery and installation of many of their projects .

Speaker #1: RH hospitality operates beautifully integrated restaurants , wine and barista bars in our galleries that generate significant traffic and brand awareness . While our galleries might see several hundred customers per week .

Speaker #1: Our restaurants feed several thousand , with 26 restaurants in operation today and is scheduled to reach 40 by the end of 2027 . RH is one of only seven globally owned and operated luxury restaurant brands , with 20 or more locations worldwide .

Speaker #1: We believe our galleries create a unique , competitive advantage that will likely never be duplicated in our lifetime . As the cost of construction at the luxury level has doubled post Covid .

Speaker #1: To address that challenge , we've developed several immersive new gallery concepts that will enable us to scale in a faster and more capital efficient manner .

Speaker #1: The first and most revolutionary is what we call an RH design compound currently in development in Naples , Miami and Walnut Creek . A compound is 6 to 8 independent buildings connected by beautifully landscaped garden courtyards with a sun filled atrium , restaurant anchoring the project .

Speaker #1: Due to the absence of multiple stories that require steel structures , grand staircases , elevators , complex mechanical systems and long development timelines , we believe we can build , design , compounds significantly faster and more capital efficient than our prior design galleries Another new approach to deploying the RH brand in a faster and more capital efficient manner is what we call a design ecosystem .

Speaker #1: Currently under construction in Greenwich and Palm Desert and in the development process in West Hollywood , design District , an ecosystem is a multi-building brand presence on a street , in a neighborhood design district or shopping center .

Speaker #1: Our first ecosystem will be in Greenwich , Connecticut , and includes our gallery at the historic post office , our new outdoor gallery opened last year , and our new RH Estates gallery with the integrated restaurant opening in the former Ralph Lauren building this summer We've also developed a new single story gallery , ranging from 15 to 20,000ft² , with a dramatic courtyard restaurant targeting secondary markets .

Speaker #1: We're currently under construction in Los Gatos , California , and are in design development for galleries in Richmond and Milwaukee . We have been extremely pleased with our performance of our first freestanding RH interior Design office in Palm Desert , California , and have plans to open a second interior design office in Malibu this fall .

Speaker #1: In total , we have an opportunity to expand our presence in 27 existing markets and open one of our new design concepts in 48 new markets across North America , representing a $2 billion opportunity .

Speaker #1: Let me shift your attention to our business model and balance sheet While we believe it's prudent to . Plan conservatively this year due to uncertainties around interest rates and inflation and a planned revenue growth in the 4 to 8% range in 2026 , we do expect growth to accelerate to 10 to 12% in 2027 and reach 5.4 to 5.8 billion by 2030 , adjusted EBITDA in the 14 to 16% range for 2026 , reaching 25 to 28% by 2030 .

Speaker #1: We expect cash flow of 300 to 400 million in 2026 and 500 to 600 million in 2027 , inclusive of 200 to 250 million of asset sales each year .

Speaker #1: We expect cumulative cash flow of 3 billion by 2030 , inclusive of the asset sales , and expect to be debt free by 2029 .

Speaker #1: While one might look at the current market discord and argue that RH has been in the wrong place at the wrong time , I would argue we've used this period to position our brand to be in the perfect place at the perfect time .

Speaker #1: Let me explain why There are two important factors that will meaningfully expand the size of our market over the next ten years . One is the exponential spending of high and ultra high net worth consumers on the home .

Speaker #1: Ultra high net worth consumers with a net worth above 20 million . Own on average , 3.7 homes , billionaires own ten ultra high net worth Consumers spend 6.4 times more on home furnishings than a consumer with a single primary residence .

Speaker #1: Two is the estimated 30 to $38 trillion wealth transfer projected to take place over the next ten years , which is more than double the past ten years .

Speaker #1: Not only does the absolute dollar amount more than double its estimated that the dollars transfer from one to an average of seven people .

Speaker #1: It's possible . Over the next ten years , our market will be multiple times larger than the past ten years . When you combine that with our efforts to elevate and expand our product globally , expand our platform .

Speaker #1: Generate significant revenues and brand awareness with our immersive hospitality venues , I would argue that the RH brand is in the perfect place at the perfect time , and we will emerge from this period of cluttered discord and difficulty as one of the highest performing and most admired brands in the world

Speaker #2: 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 .

Speaker #2: Simply press star one again . We kindly ask that you limit your questions to one and one . Follow up for today's call .

Speaker #2: You may recall 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 Gutman with Morgan Stanley .

Speaker #2: Please go ahead .

Speaker #3: Hey , Gary . Hey , Jack . First question . I want to talk about demand signals from the consumer . This has been a transitional period for the company .

Speaker #3: I realized the demand is outpacing a lot of other home furnishing companies . But it's come at a pretty big cost to margin So expectations around demand improving while we see the margin of the business begin to turn .

Speaker #3: That's my first question

Speaker #4: In the margin pressures Somewhat disconnected . And unrelated from the demand . You know , the margin pressures really from kind of the investment cadence we have as far as expanding the business , you know , throughout Europe and some of the margin pressure , you know , coming from , you know , the tariffs , you know , from a transition in timing and resourcing .

Speaker #4: But , you know , you've you've , you've basically have kind of an inflection point of , you know , we're in kind of a peak investment period from a , you know , a capital and a expense and , you know , cost perspective based on the investments we're making , both from a global expansion and North American expansion point of view .

Speaker #4: And from a product point of view , with the launch of RH states , I think you have to think about the launch of RH estates in Q2 .

Speaker #4: We'll have significant cost with source book and advertising and launching costs without having much revenue until we get into the third and fourth quarter and the stapes is , you know , remember , is basically , you know , running late , you know , we our , our original plan was to have a state in the third and fourth quarter last year .

Speaker #4: So we have some timing issues . I think when you think about , you know , the , the significant investments we're making , both from a capital and expense perspective and , you know , and we're going through , you know , kind of an unpredictable time .

Speaker #4: So I think that's why it's important as you're looking at the business , you're looking at the model , you're thinking about , you know , being an investor here , you know , you have to have a longer term view than a shorter term view in periods like these .

Speaker #4: And , you know , in in many ways , you know , a lot of people are going left and we're going right .

Speaker #4: You know , as people are pulling back and , you know , trying to manage the margin side of their business , you know , we're investing in the most significant way we have in our history .

Speaker #4: And , you know , that's just going to create some timing dislocations from a , you know , from an earnings perspective

Speaker #3: And then my follow up , you know , you made a couple of executive leadership changes . One , a new president and two , a second person .

Speaker #3: And in the release , it talks about potentially helping monetize some of the real estate . So can you talk about both of those hires ?

Speaker #3: You know , what prompted them ? And then what does it speak to about the direction the business is heading in

Speaker #4: Well , I think it's explained in the press releases . I don't know if there's anything different than that . You know , we mentioned , you know , we're extremely happy to have Dave Stanczak rejoin team RH .

Speaker #4: You know , he's was has made a significant impact while he was here . Both from a North American transformation point of view and a global transformation point of view .

Speaker #4: And was involved in really setting up the structure of the real estate for European expansion . And so it's good to have Dave back and I think Dave is probably the most Experienced real estate executive on a retail point of view , because he's , you know , both , you know , not someone who's just been involved with mall leasing and , you know , which is typical when you think about most retailers , Dave's been involved in , in real estate investments , he is an investor .

Speaker #4: He's had his own shopping centers and controls real estate himself . So he comes at it from an investor perspective , a much bigger perspective .

Speaker #4: And , you know , it's the kind of transformational leader , as you think about a unique business like ours and the platform we're building , which is unlike anything anybody else is doing or has done , you know , at a level of quality and locations and so on and so forth .

Speaker #4: So , you know , there's not , you know , not anything that I didn't talk about . I think in the press release .

Speaker #4: And then with Veronica's joining our RH , we've known Veronica for a long time . You know , we've , you know , been able to observe her and her leadership and her ability to build what we think can , you know , one of the leading manufacturing businesses in North America from upholstery point of view ?

Speaker #4: But , you know , mostly what we I think , think about here is not just , you know , the upholstery part of our business , but if you think about the best luxury models in the world , whether you're looking at baton or maze or Chanel or others , one of the things that's very unique with their business models is they have a very concentrated core business .

Speaker #4: 80% of their business is in the leather goods and accessories part of the business . It's very similar to our business from a penetration point of view , 80% of our business is furniture .

Speaker #4: That's , you know , that's typical . If you look at the home furnishings business . So , you know , if you're if you're in all categories that's going to directionally be the mix .

Speaker #4: Yeah , depending on how you position those categories . And we think there's an opportunity when you look at our business from a global scale of building a unique platform , that's , that's synergistic and appropriate for the unique platform we're building from the selling side , you know , I think we built the have have built in our building the most unique physical selling platform in the world .

Speaker #4: And I think it deserves and will be , you know , positively impacted by building the most unique manufacturing and sourcing platform in the world .

Speaker #4: So , you know , eliminating , you know , when you think about the inefficiencies of manufacturing , when you don't , when you don't control your distribution , there's , there's quite a bit .

Speaker #4: So long term , we think , you know , we can build a unique manufacturing platform . And as I said in the press release , the combination of owned joint ventures and , you know , outsourced , that can be very unique and significantly accretive from a , we think both a revenue and a cost perspective and a margin perspective .

Speaker #4: So Yeah , so we're excited . We think Veronica is the best person in the industry . We've met . We think she's a unique talent and leader .

Speaker #4: She's a engineer by education and experience and has a big and very big and kind of strategic view of manufacturing and sourcing . So it's a new level of talent in the company .

Speaker #4: We've never had someone this kind of pedigree and experience and talent , and we think she's going to do some incredible things long term

Speaker #2: Your next question comes from the line of Steven Forbes with Guggenheim Securities . Please go ahead

Speaker #5: Good afternoon , Gary . Jack , Gary with Milan in London slated to open here in short order . Curious if you could give us an update on RH Paris and or just comment on the anticipated revenue contribution from the broader RH international strategy behind the 2020 2030 reference year you laid out in your prepared remarks .

Speaker #5: Obviously , just looking today for any color to help support or build conviction around those longer term outlooks you laid out today

Speaker #4: Sure , I take that question correctly .

Speaker #6: The impact of international as it relates to the 2030 targets , you know , how we think about that growth of that of that ?

Speaker #4: Yeah . Well , I think what we've articulated , you know , most recently over the last few quarters and , you know , really since I think our , our start that really the , the opening of Paris , Milan and London is kind of the , the brand foundation to build on .

Speaker #4: When you think about European expansion there , the three most important cities in Europe , we think they're important from a positioning of the brand and a brand awareness point of view and all three of those are really the .

Speaker #4: Besides , again , RH England , which is out in the countryside , which was important from a , you know , a brand impression and awareness perspective and how to kind of make an entry into the European market .

Speaker #4: But these really are where we have significant investments in the presentation of the product . The hospitality experience , which we think is going to be critical long term to building brand awareness , you know , throughout Europe .

Speaker #4: And then , you know , one of the keys here is , is really not just these key stores , because if you , as we assess the business in Europe and we have since day one , believed that the , the , the , the basic distribution and where the sales will come from will be long term , more important in suburbs and second home markets than cities that the cities are really going to be the key to brand awareness and driving the brand and positioning the brand , and will do significantly more revenues .

Speaker #4: We believe in Paris and Milan and London than we will in other cities , and if we were , you know , ranking them , you know , clearly we believe it's going to be the the biggest market for us , you know , as it should be .

Speaker #4: But , you know , our distribution of business is significantly suburbs . And second home markets in North America , 90 , 90 , 92% of our business is in suburbs and second home markets .

Speaker #4: And second home markets are kind of like a suburb , right . And about 8% of our business is in the cities . And we think that distribution is going to be similar throughout Europe .

Speaker #4: And if you look at if you look at Apple's real estate strategy and you looked at their distribution throughout Europe , which we believe was a good kind of model for us to look at as far as a higher end consumer , you know , and you looked at like Apple's North American kind distribution versus our North American distribution .

Speaker #4: They're penetration in suburbs . You know , our penetration in suburbs . You know , there's similarities there . You know , we're more highly penetrated in second home markets than they are most people , you know , have their phone with them .

Speaker #4: But , you know , one of the keys for I think Dave's joining the company too , is just to continue that leadership into into Europe .

Speaker #4: And , you know , building out into the into the suburbs and into the second home markets to cover the business . So , you know , strategically , we're setting up the business in the kind key markets that you would from a brand and awareness perspective .

Speaker #4: And not that we don't think that the business is going to have revenues there . We just think the biggest revenues are going to come long term .

Speaker #4: When you think about the longer term plan , as we expand into , you know , the the suburbs and , and , and markets where , you know , people really buy much more furniture both indoors and outdoors

Speaker #5: Thanks for that . Maybe just a quick follow up . Obviously great to hear Dave rejoining the company . You talked about . 250 .

Speaker #5: You talked about $250 million of asset sales in each of the next two years . Sort of a two part question . One can you speak to sort of the value of the non-core assets or the assets that you don't you don't plan to operate in the future versus the value of the assets ?

Speaker #5: RH is still planning to operate in the future , and then maybe any color on sort of timing for 2026 asset sales , as we think through the potential interest expense savings

Speaker #6: Okay .

Speaker #4: As far as that mix , I'd say that , you know , the majority of of the asset sales are assets that we will be operating that are kind of sale leaseback Kind of properties .

Speaker #4: And then there's some investment properties that we had in Aspen , you know , in a few other things that we've decided not to pursue for whatever reason .

Speaker #4: You know , we , we own a building in Milan , not Milan . Excuse me , Madrid and , you know , we're not going to pursue the development of that .

Speaker #4: We're fine with the location . We have today . And so it's just looking at , you know , taking a look at our balance sheet and , you know , just turning those assets into into cash , as we said , we would be doing so , you know , we've said we have , you know , about a half $1 billion of real estate assets that we could monetize .

Speaker #4: And , you know , we began , you know , we're going to begin to monetize those . You know , Dave has got tremendous experience on , you know , that end of real estate .

Speaker #4: So , you know , and he feels very confident in , you know , what we're going to be able to do . And some of these are are properties that we had purchased .

Speaker #4: And , you know , had developed over the last 2 to 3 years , I guess , you know , you got to think about a lot of our investment horizons are pretty long , you know , from a when you think about some of the galleries that we've built , you've got , you know , you've got significant time to design and develop and get through the approval process and , and then you've got a significant time building them .

Speaker #4: So , you know , you have a relatively long holding time . And I think Post Covid , you know , all of , all of the construction costs have went up , particularly at the luxury level .

Speaker #4: And those , you know , those prompted us as , as we communicated in the video to develop , you know , just other faster , more flexible ways to deploy the brand and when you think about the design compounds and think about where the first , you know , the first couple of are going in Naples , we're , we're taking what was formerly a Nordstrom's site in Walnut Creek .

Speaker #4: We're taking what was formerly a Neiman Marcus site . And then in Miami , we're developing , you know , kind of a parking lot site on a key visible area in Miami that was kind of a Bank of America .

Speaker #4: But we think about , you know , those opportunities to be significantly faster , more capital efficient that we've we've built most of our big kind of , I'd say , you know , the higher investment , higher capital side of the business , you know , we've , we've been transforming the real estate here now for 15 years .

Speaker #4: And so , you know , even even on a European and global point of view , I would say that , you know , we have Sydney coming , but that's a different model that's really being built by the developer .

Gary Friedman: One of the keys for, I think, Dave's joining the company too, is just to, you know, continue that leadership into Europe and, you know, building out into the suburbs and into the second home markets to cover the business. You know, strategically, you know, we're setting up the business in the kind of key markets that you would from a brand and awareness perspective. Not that we don't think that the business is gonna have revenues there, we just think the biggest revenues are gonna come long term when you think about the longer term plan as we expand into, you know, the suburbs and markets where, you know, people really, you know, buy much more furniture, both indoors and outdoors.

The company too is just to continue that.

Leadership in depth into Europe, and building out into the into the suburbs and into the second home markets to cover the business strategically.

Speaker #4: You know , it's not going to take much capital from RH . But yeah , we have significant assets . We're going to now monetize , turn into cash .

Strategically.

Speaker #4: And then we've got some assets . You know in in Aspen and other things like that that will monetize over time . So yeah , so , so a lot of that will come off the balance sheet .

We're setting up the business in the.

In our key markets that you would from a brand.

And awareness perspective, and not that we don't think that that business is going to have revenue share. We just think the biggest revenues are going to come long term. When you think about the longer term plan.

Speaker #4: Jack , do you have anything ?

Speaker #6: No . I think from a timing perspective , Steve , we'll just keep you posted . We're not ready to , commit . To show the cadence of 2026 .

As we.

Spanned into.

Speaker #6: And we'll just update you as things as appropriate

You know that the suburbs in secondhand and markets where people really.

Speaker #5: Thank you both

Find much more furniture.

Speaker #2: Your next question comes from the line of Max Rakhlenko with Ted Cohen . Please go ahead

Both indoors and outdoors.

Steven Zaccone: Thanks for that. Maybe just a quick follow-up. Obviously great to hear Dave rejoining the company. You talked about 250-

Thanks, Matt maybe just a quick follow up obviously, great to hear Dave regarding the company.

Speaker #7: It seems a lot for taking my question . So first , on the States , can you provide color on how you're thinking about scaling the collection ?

No.

Gary Friedman: Mm-hmm.

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Steven Zaccone: You talked about $250 million of asset sales in each of the next two years. Sort of a two-part question. One, can you speak to, you know, sort of the value of the non-core assets, or the assets, you know, that you don't plan to operate in the future versus the value of the assets RH is still planning to operate in the future? Then maybe any color on sort of timing for 2026 asset sales as we think through the potential interest expense savings.

You talked about $150 million of asset sales in each of the next two years sort of a two part question one can you.

Speaker #7: We know when the books will hit , but how are you thinking about the cadence of the product rollout into the galleries ? How are you looking to buy inventory , etc.

Speak to sort of the value of the noncore assets.

Speaker #7: ? Just if you could compare and contrast this collection versus the modern and interiors launches that you had a couple years back ?

The assets that you don't you don't want to operate in the future versus the value of the assets or if you're still planning to operate in the future.

Speaker #6: Sure , sure .

Speaker #4: So

And then maybe any color on sort of timing for 'twenty three six asset sales as we think through the potential interest expense savings.

Speaker #6: The .

Speaker #4: The books will hit . Kind of mid-May and we will , gosh , we've got a , you know , a handful of stores that will get the initial product that we'll be able to kind of test .

But as far as that mix I'd say that.

Gary Friedman: As far as that mix, I'd say you know, the majority of the asset sales are you know, assets that we will be operating that are kind of sale-leaseback kind of properties. There's some investment properties that we had in Aspen you know, and a few other things that we've decided not to pursue for you know, whatever reason. We own a building in Milan. Not Milan, excuse me, Madrid. We're not gonna pursue the development of that. We're fine with the location we have today. It's just looking at you know, taking a look at our balance sheet and you know, just turning those assets into cash as we said we would be doing.

The majority of the asset sales are.

Speaker #4: And then we , you know , and get some reads on . But we , you know , we feel very confident in this collection .

You know assets that we will be operating.

Speaker #4: So we've went out with a bigger inventory by , you know , and a lot of it based on , you know , just the data , you know , you've got 60% of luxury homes in America , you know , that , that have classic and traditional architecture .

And a sale leaseback.

Got it kind of properties and then there is some investment properties that we had in Aspen.

And a few other things that we've decided not to pursue for whatever reason.

Speaker #4: So and it is really the next big trend because as you think about how the trend cycle through , you know , this trend is , you know , a lot of the product you're going to see cycle through .

Yeah, we we own a building in Milan and Berlin Madrid.

And.

We're not going to pursue the development of that.

Speaker #4: It's why we've made some of the acquisitions that we made . Whether it's the Michael Taylor brand and the famous diamond Table and so on and so forth to , to really be able to not only have authority , but but be able to have intellectual property rights for a lot of the kind of key products that are going to come .

We're fine with the the location we have today.

And so it's just.

Looking at taking a look at our balance sheet.

Yes.

Turning those assets into cash as we said we would be doing so.

Gary Friedman: You know, we've said we have, you know, about a half a billion dollars of real estate assets that we could monetize. You know, we're gonna begin to monetize those. You know, Dave has got tremendous experience on, you know, that end of real estate, and he feels very confident in, you know, what we're gonna be able to do. Some of these are properties that we had purchased and, you know, had developed over the last 2 to 3 years, I guess. You know, you gotta think about a lot of our investment horizons are pretty long.

He said we have.

Speaker #4: And so we just think it's going to be a big building trend . But in the second half , we'll be in how many galleries do we think 30 .

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Of real estate assets.

That we could monetize and.

Yeah, we begin.

Speaker #4: About 30 , 40 galleries are top 30 , 40 galleries in the large design galleries will take over the first floor with RH Estates .

We're going to begin to monetize those.

Dave has got tremendous experience on that and real estate.

So yes.

Speaker #4: So this is a significant launch and a significant bet

And he feels very confident and.

What we're gonna be able to deal with some of these are.

Our properties that we had purchased and <unk>.

Speaker #7: Got it . That's helpful . And then just a two parter on margins . If you could just isolate how you're thinking about the impact of tariffs for 2026 , both the cadence and magnitude as I don't think you discuss that in the the letter this time around .

Developed over the last.

Two to three years I guess you know.

You got to think about a lot of our.

Investment Horizons are pretty long from.

Gary Friedman: You know, when you think about some of the galleries that we've built, you've got significant time to design, develop, and get through the approval process, and then you've got significant time building them. You know, you have a relatively long holding time. I think, you know, post-COVID, you know, all of the construction costs have went up, particularly at the luxury level. Those, you know, prompted us, as we communicated in the video, to develop, you know, just other faster, more flexible ways to deploy the brand.

When you think about some of the galleries.

Bill you've got yes.

Speaker #7: And then separately , you know , if we exclude tariffs and some of the timing , you know , shifts that you discussed earlier on the call , you know , how healthy is sort of your , how healthy are your product margins as we think about the long term targets you laid out , you know , how much higher can the product margins go as you do continue to add , you know , these new collections that , you know , I think come with much higher margins .

Uh huh.

You've got significant time to design and develop and get through.

The approval process.

And and then you've got significant time building them. So.

But that's a.

A relatively long holding time and I think yes.

Post COVID-19.

Yes.

Speaker #7: So if we just think about the core , you know , where can the business go from a product margin perspective

All of the construction cost went up particularly at the luxury level.

And those you know.

Those prompted us.

As we communicated in the video to develop.

Speaker #4: Yeah , I think , you know , I mean , we're not giving the detailed margin forecast , but you know , our margin , our product margins are relatively healthy , you know , except for some , you know , bumps , we're going through from a tariff point of view , you know , I think we've , been able to perform reasonably well .

Other faster more flexible ways to deploy the brand.

And.

Gary Friedman: When you think about the design compounds and think about where the first, you know, the first couple of are going in Naples, we're taking a what was formerly a Nordstrom site. In Walnut Creek, we're taking what was formerly a Neiman Marcus site. Then in Miami, we're developing you know, kind of a parking lot site in a in a key visible area in Miami, that is kind of a Bank of America. We think about you know, those opportunities to be significantly faster and more capital efficient. You know, we've built most of our big kind of, I'd say, you know, the higher investment, higher capital side of the business. You know, we've been transforming the real estate here now for 15 years.

When you think about the design compounds and think about where the first.

The first couple of them are going in Naples, where we're taking what was formerly a nordstrom's site.

In Walnut Creek, we are taking what was formerly a neiman Marcus site.

Speaker #4: You know , if you exclude kind of the weight that we have from , you know , this investment cycle , you know , and the drag from Europe and you kind of take a look at the business and , you know , I think one of the things we're , you know , we're doing as we think about this business , a lot of times with brands , as you go through the history of brands , you've got kind of the kind of the levels and the transformations you make to kind of get to where you want to go .

And then in <unk>.

Miami, we're developing.

Kind of a parking lot at the site.

A key visible area in Miami.

Kind of a bank of America.

We think about those opportunities to be significantly faster and more capital efficient.

We built most of our big.

Kind of I'd say.

The higher investment higher capital side of the business.

Speaker #4: And this next , cycle we're in now , you know , is a key investment cycle . You know , clearly we've spent a lot of capital .

We've been transforming the real estate here now for 15 years.

And so even though even on a European and global point of view I would say that.

Gary Friedman: You know, even on a European and global point of view, I would say that you know, we have Sydney coming, but that's a different model that's really being built by the developer. You know, it's not gonna take much capital from RH. But you know, we have significant assets we're gonna now monetize, turn into cash. And then we've got some assets, you know, in Aspen and other things like that we'll monetize over time. So, a lot of that will come off the balance sheet. I don't know, Jack, do you have anything to add?

Speaker #4: We've made big investments To kind of position the brand not only in North America , but position it in Europe for the long term .

We have <unk>.

Any coming but that's a different model thats really being built by the developer it's not going to take much capital from RH.

Speaker #4: And once you get past those cycles , you know , we're going to have great leverage . You know , opening galleries like we're opening and restaurants like we're opening are significant costs , especially when you're doing them in a different country .

But yes, we have significant assets, we're gonna now monetize turned into cash.

And then we've got some assets.

In Aspen and other things like that that will monetize over time.

So.

Yes.

Speaker #4: You know , there's just more travel , you know , more expense from , you know , hiring people and building the organizations and so on and so forth .

That will come off the balance sheet.

Jack Preston: No, I think from a timing perspective, Steven, we'll just keep you posted. We're not ready to, you know, commit as to the cadence to 2026, and we'll just update you know, as appropriate.

Jack do you have anything <unk> I think from a timing perspective, Steve We will just keep you posted we're not ready to commit to show the cadence of 2026 and we'll just.

Update you as appropriate.

Speaker #4: So , you know , from a , I just think it's not just the product margins , it's really just the overall margin structure of the business .

Steven Zaccone: Thank you both.

Thank you Bob.

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

Speaker #4: Once we go post peak here on , on this , you know , investment cycle , both from a capital and from an expense and cost point of view , the , I think the model of this business is going to going to look like one of the best models people have ever seen in our industry .

Your next question comes from the line of Max Rocklin go, but Peter Cohen. Please go ahead.

Maksim Rakhlenko: Hey, thanks a lot for taking my question. First on RH Estates, can you provide color on how you're thinking about scaling the collection? We know when the books will hit, but how are you thinking about the cadence of the product rollout into the galleries? How are you looking by inventory, etc.? Just if you could compare and contrast this collection versus the modern and interiors launches that you had a couple years back.

Maksim "Max" Rakhlenko: Hey, thanks a lot for taking my question. First on RH Estates, can you provide color on how you're thinking about scaling the collection? We know when the books will hit, but how are you thinking about the cadence of the product rollout into the galleries? How are you looking by inventory, etc.? Just if you could compare and contrast this collection versus the modern and interiors launches that you had a couple years back.

Hey, Thanks, a lot for taking my question. So first on the states can you provide color on how youre thinking about scaling a collection.

When the books will hit but how are you thinking about the cadence of the product rollout into the galleries. How are you looking to buy inventory et cetera, just if you could compare and contrast, this collection versus the modern interiors launches that you had a couple of years back.

Speaker #4: So if not the best model , I would think it's going to be the best model anyone's seen . So You know , we feel confident in that .

Speaker #4: I mean , you know , we're also , you know , just , you know , from a global perspective , you know , navigating through very uncertain times and , and we do have a , you know , a product mix that is going to be somewhat more sick , cyclical , and have more of a drag .

Gary Friedman: Sure. The books will hit kind of mid-May. Gosh, we've got a, you know, handful of stores that will get, you know, the initial product that we'll be able to kind of test and then we, you know, and get some reads on. But we, you know, we feel very confident in this collection. We've went out with a bigger inventory buy, you know. A lot of it based on, you know, just the data. You know, you've got 60% of luxury homes in America, you know, that have classic and traditional architecture. It is really the next big trend. As you think about how the trends cycle through, you know, this trend is, you know, a lot of the product you're gonna see cycle through.

Sure sure so.

The books will hit.

Kind of mid May.

And we will.

Yes, we've got a handful of stores that we will get.

The initial product that we'll be able to kind of test and then we can.

Get some reads on but we feel very confident in this collection. So we went out with the bigger inventory buy.

Speaker #4: So , you know , when you're , when you're really focused on the furniture business versus the home furnishings , you know , the broader furnishings , business accessories , business , tabletop , business , kitchen businesses , so on and so forth .

And a lot of it based on just the data get sick.

60% of luxury homes in America.

Speaker #4: You know , you're going to have , you know , you know , more weight during times like these . So , you know , that's going to , require you to fight for more business .

That have classic and traditional architecture so.

And it is really the next big trend.

As you think about how the trend cycle through.

Speaker #4: But you know , that's throughout our history , we've always fought for the business in times like these , we've always been , you know , more promotional than less promotional in times like these .

This trend is.

A lot of the product youre going to see cycled through it's why we've made some of the acquisitions that we made whether it's the Michael Taylor brand in the famous Diamond Diamond table, and so on and so forth.

Gary Friedman: It's why we made some of the acquisitions that we made, whether it's the Michael Taylor brand and the famous diamond table and so on and so forth, to really be able to not only have authority but be able to have intellectual property rights for a lot of the kind of key products that are gonna come. We just think it's gonna be a big building trend. In the H2, we'll be in how many galleries, do we think?

Speaker #4: And we think it's , it's times like these that , you know , that there's a lot of fallout , you know , and there's going to be a lot of competition that's not going to make it through these times .

To really be able to.

Not only have authority, but but.

It will to have intellectual property rights for a lot of the kind of key products that are going to come.

Speaker #4: There's been greater fallout in the furniture business , as most people know over the last few years . Then , you know , in any time in history and I think there's going to as long as the , you know , the housing market remains difficult , there's just going to be a lot , lot less competition .

And so we just think it's going to be a big building trend, but in the second half will be and how many galleries do we think.

Gary Friedman: I think at least.

Jack Preston: I think at least.

Gary Friedman: Thirty.

Gary Friedman: Yeah.

Jack Preston: Yeah.

Gary Friedman: About 30, 40 galleries. Our top 30, 40 galleries in the large design galleries will take over the first floor with RH Estates. This is a significant launch and a significant bet.

Yeah about 30 40 galleries are top 30 40 galleries in the large design galleries will take over the first floor with our intra states.

Speaker #4: And we're going to be , you know , better positioned than we've ever been for the other side of the cycle . You know , as we build out the assortment , especially in estates , you know , over the , you know , think about the estates expansion over really a five year horizon from a product point of view , I'd say , you know , over the next five years , estates assortment is going to grow .

So this is a significant launch and.

Significant bet.

Maksim Rakhlenko: Got it. That's helpful. Then just a two-parter on margins. If you could just isolate how you're thinking about the impact of tariffs for 2026, both the cadence and magnitude, as I don't think you discussed that in the letter this time around. Then separately, you know, if we exclude tariffs and some of the timing shifts that you discussed earlier on the call, you know, how healthy is sort of your or how healthy are your product margins as we think about the long-term targets you laid out? You know, how much higher can the product margins go as you do continue to add, you know, these new collections that, you know, I think come with much higher margins?

Maksim "Max" Rakhlenko: Got it. That's helpful. Then just a two-parter on margins. If you could just isolate how you're thinking about the impact of tariffs for 2026, both the cadence and magnitude, as I don't think you discussed that in the letter this time around. Then separately, you know, if we exclude tariffs and some of the timing shifts that you discussed earlier on the call, you know, how healthy is sort of your or how healthy are your product margins as we think about the long-term targets you laid out? You know, how much higher can the product margins go as you do continue to add, you know, these new collections that, you know, I think come with much higher margins?

Got it that's helpful. And then just a two parter on margins. If you could just isolate how youre thinking about the impact of tariffs for 2026, both the cadence and magnitude is I don't think you discussed that in the letter this time around and then separately you know.

Speaker #4: It's going to build , it's going to become more dominant . The trend is going to , you know , that wave is going to keep building over the next 5 to 10 years , right So , you know , I just think about the whole model of the business .

If we exclude tariffs and some of the timing.

Shifts that you discussed earlier on the call.

How healthy is sort of your or how healthier your product margins as we think about the long term targets you laid out how much higher can the product margins go as you do continue to add these new collections that I think come with much higher margin. So we just think about the core.

Speaker #4: And that's why , we're very confident in the long term model . You know , I think what confuses people is most public companies , you know , go public and they kind of manage the business , right ?

Maksim Rakhlenko: If we just think about the core, you know, where can the business go from a product margin perspective?

Maksim "Max" Rakhlenko: If we just think about the core, you know, where can the business go from a product margin perspective?

Speaker #4: And they have a simple rollout and they're going to do so many stores a year , and , you know , they , you know , the stores are all the same .

Where can a business goal from a product margin perspective.

Speaker #4: And the , you know , the , you know , everything's really predictable and , you know , most of them , you know , go through their rollout cycle of five to 7 to 10 years .

Gary Friedman: Yeah, I think, you know, I mean, we're not giving, you know, the detailed margin forecast, but, you know, our margin, our product margins are relatively healthy, you know, except for some, you know, bumps we're going through from a tariff point of view. You know, I think we've, you know, been able to perform reasonably well. You know, if you exclude kind of the weight, that we have from, you know, this investment cycle, you know, and the drag from Europe, and you kinda take a look at the business.

Yeah, I think so.

I mean, we're not giving detailed margin forecast but.

Hi.

Speaker #4: However , however , you know , what amount of time they stay relevant for and then usually , you know , becomes kind of a dated concept over time , you know , and that's why we like to say that most retail malls are graveyards for short lived ideas , you know , most retail companies don't even , you know , concepts don't live out , you know , first term or second term of their , of their leases .

Our margin.

Product margins are relatively healthy except for some.

Bumps were going through from a tariff point of view.

I think we've.

<unk> been able to perform reasonably well.

If you exclude the kind of the way.

That we have from this.

This investment cycle.

And the drag from Europe.

Speaker #4: So yeah , we're , we're going through one of those investment cycles that , you know , will leapfrog this business forward . And you're looking at kind of peak in investment cycle and kind of trough kind of economic cycle , right ?

Kind of take a look at the business and you know I think one of the things where.

Gary Friedman: You know, I think one of the things we're doing as we think about this business, you know, a lot of times with brands, as you go through the history of brands, you've got kind of the levels and the transformations you make to kinda get to where you wanna go. This cycle we're in now, you know, is a key investment cycle. You know, clearly we've spent a lot of capital. We've made big investments to kind of position the brand not only in North America, but position it in Europe for the long term. Once you get past those cycles, you know, we're gonna have great leverage.

We're doing as we think about this business.

A lot of times with brands as you go through the history of brands, you've got kind of that.

And at the levels and the transformations you make to kind of get to where you want to go in this next cycle. We're in now.

Speaker #4: So , you know , and even with those two , you know , you've still got a business here with a kind of a mid-teens EBITDA margin to high teens , EBITDA margin and once you get past this cycle .

Hum.

Key investment cycle, clearly, we've spent a lot of capital.

Made big investments.

Hi.

It kind of positioned the brand not only in North America, but our positioning.

Speaker #4: There's a lot of leverage in this model . So , you know .

Physician it in Europe for the long term.

And once you get past those cycles.

Yes.

Speaker #6: Max , I'll add on on tariffs . So in Q4 , you know , we talked about last year tariffs having an impact of 90 basis points in terms of a drag and Q4 , we had talked about 170 .

We're going to have great leverage.

Gary Friedman: You know, opening galleries like we're opening and restaurants like we're opening are significant costs, especially when you're doing them in a different country. You know, there's just more travel, you know, more expense from, you know, hiring people and building new organizations and so on and so forth. You know, from a I just think it's not just the product margins, it's really just the overall margin structure of the business. Once we go post-peak here on this, you know, investment cycle, both from a capital and from an expense and cost point of view, I think the model of this business is gonna look like one of the best models people have ever seen in our industry.

Opening.

Galleries like we're opening and restaurants like we're opening a significant cost, especially when you're doing them in a different country.

Speaker #6: We ended up at 190 in Q4 . And the way we characterized that in the last call is that that's ultimately by Q4 , your your fully baked into the sort of prior tariff regime .

More travel.

No.

More expense from.

Speaker #6: Obviously , things have changed now with the with the Supreme Court decision . And but , you know , tariffs come out in and out of turn , as you know .

Hiring people and building the organization and so on and so forth.

So from.

I just think it's not just the product margins. It's really just the overall margin structure of the business. Once we go post peak here on on this.

Speaker #6: And so while in the , you know , let's say in the first half , you might have some tailwinds from that relatively lower rate that exists under section 122 today .

Investment cycle, both from a capital and.

From an expense and cost point of view.

Speaker #6: You know , who knows what happens in the second half . There's obviously a sprint to replace all those tariffs . And potentially more .

I think the model of this business is going to look.

Speaker #6: If Trump first said under section 301 in the back half . So we're just you know , we're playing it by ear and being as you know , we're nimble and we're dynamic .

Like one of the best models.

People have ever seen in our industry.

Gary Friedman: If not the best model, I would think it's gonna be the best model anyone's seen. You know, we feel confident in that. I mean, you know, we're also, you know, just, you know, from a global perspective, you know, navigating through very uncertain times. We do have a, you know, a product mix that is gonna be somewhat more cyclical, and have more of a drag. You know, when you're really focused on the furniture business, versus the home furnishings, you know, the broader furnishings business, accessories business, tabletop business, kitchen businesses, so on and so forth, you know, you're gonna have, you know, a, you know, more weight, during times like these.

So if.

If not the best modeling I would think it's going to be the best model anyone seen so.

Speaker #6: But as far as last year's tariff impact was sort of fully baked in Q4 , it's a bit of an indicator as to how it plays out in the first half , but you know , obviously the math will tell you that there's going to be , you know , some some relief there as far as that tariff concerned .

We feel confident in that.

We're also.

Just from a global perspective navigating through.

Very uncertain times.

And and.

Speaker #6: And so we'll keep you updated if there's as things play out , obviously we're watching it like you guys are watching .

And we do have a.

The product mix that is going to be somewhat more.

Speaker #7: Got it . Thanks a lot guys . And best regards

Cyclical.

And have more of a drag so when you when you're really focused on the furniture business versus the home furnishing the broader furnishings business accessories business tabletop business.

Speaker #2: To your next question comes from the line of Steven Zaccone with Siti . Please go ahead

Speaker #8: Great . Good afternoon . Thanks for taking my question . I wanted to ask about the cadence of the year from a revenue growth perspective , because the first quarter , obviously calling for revenue to be down , but then the full year , it looks like an acceleration in the back half .

Kitchen businesses, so on and so forth youre going to have.

Yeah.

More weight.

During times like these so you know that.

Gary Friedman: you know, that's gonna require you to fight for more business. you know, Throughout our history, we've always fought for the business in times like these. We've always been, you know, more promotional than less promotional in times like these. We think it's times like these that, you know, that there's a lot of fallout, you know, and there's gonna be a lot of competition that's not gonna make it through these times. There's been greater fallout in the furniture business, as most people know, over the last few years than, you know, in any time in history. I think there's gonna

Yes.

Require.

Speaker #8: Can you just talk through the the the points of the acceleration ? I assume estates is a big piece . How much is international ?

You have to fight for more business, but.

Throughout our history, we've always fought for the business in times like these we've always.

Speaker #8: Any details you could share would be helpful

In more promotional than less promotional in times like these and we think it's.

Speaker #6: Well ,

Speaker #4: Yeah , clearly it's international . And estates . The cycling of you know , estates across the entire platform . International , you know , from , you know , opening cadence and , you know , just what we think , you know , the , you know , the growth in the first couple of years , we really , you know , RH England is kind of our best point of history .

It's times like these that.

You know that there's a lot of fallout and theres going to be a lot of competition, that's not going to make it through these times, there's been greater fallout in the furniture business. That's most people know over the last few years then.

And in any time in history.

Gary Friedman: As long as the you know housing market remains difficult, there's just gonna be a lot less competition, and we're gonna be you know better positioned than we've ever been for the other side of the cycle. You know, as we build out the assortment, especially in Estates, you know. Think about the Estates expansion over really a 5-year horizon from a product point of view. I'd say, you know, over the next 5 years, the Estates assortment's gonna grow, it's gonna build, it's gonna become more dominant. The trend is gonna you know that wave is gonna keep building over the next 5 to 10 years, right? You know, I like to think about the whole model of the business, and that's why you know we're very confident in the long-term model.

And I think there's gonna it as long as that.

The housing market remains difficult, it's just going to be a lot lot less competition.

Speaker #4: And we know how that ramped . So we expect , you know , the international stores to , you know , have a ramp to them over the first several years .

And we're going to be.

Better positioned than we've ever been.

Speaker #4: But when you think about the back half , sure , you've got , you know , openings in , in North America , you've got openings in Europe , you've got estates , you know , which will , you know , in Q3 , Q4 , you know , you'll start seeing the revenues flow from demand in Q2 and , you know , you'll see a ramp in estates .

Other side of the cycle.

Gary Friedman: You know, as we build out the assortment, especially in Estates, you know. Think about the Estates expansion over really a 5-year horizon from a product point of view. I'd say, you know, over the next 5 years, the Estates assortment's gonna grow, it's gonna build, it's gonna become more dominant. The trend is gonna you know that wave is gonna keep building over the next 5 to 10 years, right? You know, I like to think about the whole model of the business, and that's why you know we're very confident in the long-term model.

And as we build out the assortment.

Especially in the states.

Over the think about the states expansion.

Over really a five year horizon from a product point of view I'd say.

Over the next five years at stake assortment is going to grow it's going to build.

It's going to become more dominant the trend is going to.

Speaker #4: You'll have a second mailing of the book , you'll have newness in both interiors and modern . So , you know , all of those things combined , you know , we believe , you know , it's a it's a big step up in the business in the second half .

That wave is going to keep building over the next five to 10 years right.

<unk>.

So I just think about the whole model of the business and that's why we're very confident.

In the long term model.

Gary Friedman: You know, I think what confuses people is most public companies, you know, go public, and they kind of manage the business, right? They have a simple rollout, and they're gonna do so many stores a year, and, you know, they. You know, the stores are all the same, and the, you know, everything's really predictable. Most of them, you know, go through their rollout cycle of, you know, five to seven to ten years, however, you know, what amount of time they stay relevant for. Then usually, you know, becomes kind of a dated concept over time, you know. That's why we like to say that most retail malls are graveyards for short-lived ideas.

I think what confuses people as most public companies.

Speaker #4: And we would have expected more in the , you know , in the back half of last year and the first half of this year , because the states would have been part of that cadence

Go public and they kind of manage the business right. They are a simple rollout and they do so many stores a year.

The stores are all the same and the yes.

Speaker #8: Okay . Understood . And then the second question I have is just on the margin recovery of the business , right ? Because we've , we've , we've been in investment period for the business for some time .

Everything is really predictable and you know.

Most of them.

Go through their rollout cycle of five to seven to 10 years. However, however.

What amount of time, they stay relevant for.

Speaker #8: And I think you've used the term leapfrog in terms of margins in the past . You know , for the longer duration investor , when you look at the business , what do you think is the biggest factor holding back margins from improving ?

And then it usually.

Becomes kind of a data concept overtime.

We'd like to say that most.

Retail malls or graveyard for short lived ideas.

Gary Friedman: You know, most retail companies don't even, you know, concepts don't live out, you know, the first term or second term of their leases. You know, we're going through one of those investment cycles that will leapfrog this business forward. You're looking at kind of peak investment cycle and kind of trough kind of economic cycle, right? You know, even with those two, you know, you still get a business here with a kind of a mid-teen EBITDA margin to high teens EBITDA margin. Once you get past this cycle, there's a lot of leverage in this model. Yeah. Max, I'll add on tariffs. In Q4, you know, we talked about last year tariffs having an impact of 90 basis points in terms of a drag.

Retail companies don't even.

Speaker #8: Is it just the fact that some of the investments have taken a little bit longer and have been a little bit higher than expected ?

Concepts don't live out.

First term a second term.

Speaker #8: You know , has it been the top line ? You know , the macro environment ? How do we think about some of the unlocks to see that margin improvement on the other side come back stronger ?

Their leases.

So yes.

We're going through one of those investment cycles that will leapfrog this business forward.

Speaker #8: Thanks

And Youre looking at kind of peak in this.

Speaker #4: I think you've just outlined you just outlined it . Yeah . I mean , we've you know , we're in peak investment cycle and trough economic cycle , especially from a home point of view .

Mid cycle and kind of.

Kind of.

Economic cycle right. So.

And even.

With those two.

Speaker #4: So , you know , the , you know , I mean , not just trough investment cycle , you know , you've had the whole kind of chaotic tariff cycle that's caused , you know , kind of significant disruption on the business .

<unk> still got a business here with a kind of a mid teen EBITDA margin to high teens EBITDA margin.

And once you get past this cycle.

There's a lot of leverage in this model.

Speaker #4: I mean , we resourced 40% of our assortment , you know , business of our size , you know , resourcing 40% of your order , you know , core assortment , which is really , you know , 40% of the assortments , by bigger , it's a larger part of the business , you know , so , you know , it's , it's all of those things together .

So.

Yes.

Jack Preston: Max, I'll add on tariffs. In Q4, you know, we talked about last year tariffs having an impact of 90 basis points in terms of a drag.

Max I'll add on on tariffs so in Q4.

We talked about last year tariffs, having an impact of 90 basis points in terms of a drag in.

Gary Friedman: In Q4, we had talked about $170. We ended up at $190 in Q4. The way we characterize that in the last call is that that's ultimately by Q4, you're fully baked into the sort of prior tariff regime. Obviously, things have changed now with the Supreme Court decision, but you know, tariffs come out in and out on turn, as you know. While in the, you know, let's say in the H1, you might have some tailwinds from that relatively lower rate that exists under Section 232 today. You know, who knows what happens in the H2. There's obviously a sprint to replace all those tariffs and potentially more, as Trump first said, under Section 301 in the H2.

Jack Preston: In Q4, we had talked about $170. We ended up at $190 in Q4. The way we characterize that in the last call is that that's ultimately by Q4, you're fully baked into the sort of prior tariff regime. Obviously, things have changed now with the Supreme Court decision, but you know, tariffs come out in and out on turn, as you know. While in the, you know, let's say in the H1, you might have some tailwinds from that relatively lower rate that exists under Section 232 today. You know, who knows what happens in the H2. There's obviously a sprint to replace all those tariffs and potentially more, as Trump first said, under Section 301 in the H2.

Q4, we had talked about 170, we ended up at 190 in Q4.

And the way we characterize that in the last call is that Thats ultimately by Q4, youre fully baked into the sort of prior tariff regime, obviously things have changed now with.

Speaker #4: Steve . So , you know , these , this is a good time , you know , a good time to buy our stock .

With the Supreme Court decision and but tariffs come in and out of turn as you know and so.

Speaker #4: You know , this is when people create generational wealth , right ? This is no different than trough times in a real estate market .

While in the.

Let's say in the first half you might have some.

Speaker #4: Trough times in any kind of a transitional time for an industry or business . And , and , you know , it's all , you know , all businesses in our industry get hit in these times and all , all businesses that survive to the other side , get a lift in this time .

<unk>.

Tailwind from that relatively low rates that exist under section 122 today.

Who knows what happens in the second half there is obviously a spread to replace all of those tariffs and potentially more from first set under section 301 in the back half. So we're just we're playing by ear to being as you know, we're nimble and we are dynamic.

Gary Friedman: We're just, you know, playing it by ear and being, as you know, nimble and dynamic. As far as last year's tariff impact was sort of fully baked in Q4. It's a bit of an indicator as to how it plays out in H1. You know, obviously the math will tell you that there's gonna be some relief there as far as that direct tariff drag is concerned. We'll keep you updated as things play out. Obviously, we're watching it like you guys are watching. Got it. Thanks a lot, guys, and best regards.

Jack Preston: We're just, you know, playing it by ear and being, as you know, nimble and dynamic. As far as last year's tariff impact was sort of fully baked in Q4. It's a bit of an indicator as to how it plays out in H1. You know, obviously the math will tell you that there's gonna be some relief there as far as that direct tariff drag is concerned. We'll keep you updated as things play out. Obviously, we're watching it like you guys are watching.

Speaker #4: I think what's different is , you know , we've , we've historically been investors during times like this . You know , it's when we've seen the biggest opportunities .

But as far as last year's tariff impact with sort of fully baked in our Q4, a bit of an indicator as to how it plays out in the first half but.

Speaker #4: But this time is , I think , different than previous times because we're in a kind of a real peak investment cycle . You know , we're opening Europe , we're , you know , launching new , new businesses and , you know , and , you know , so , you know , the opportunity to have a leapfrog , you know , if we're more right than wrong and we don't have to be completely right , we just have to be directionally right here .

Obviously, the math will tell you that theres going to be.

Yes, so some relief there as far as that truck tariff tracks Sherman. So we'll keep you updated as things play out obviously, we're watching it like you guys are watching.

Maksim "Max" Rakhlenko: Got it. Thanks a lot, guys, and best regards.

Got it thanks, a lot guys and best regards.

Yeah.

Operator: Your next question comes from the line of Steven Zaccone with Citi. Please go ahead.

Your next question comes from the line of Stephens a county with Citi. Please go ahead.

Steven Zaccone: Great. Good afternoon. Thanks for taking my question. I wanted to ask about the cadence of the year from a revenue growth perspective, because Q1 obviously calling for revenue to be down, but then the full year looks like an acceleration in the back half. Can you just talk through the points of the acceleration? I assume Estates is a big piece. How much is international? Any details you could share would be helpful. Well, yeah, clearly it's international and Estates. The cycling of you know, Estates across the entire platform, international, you know, from you know, opening cadence and you know, just what we think you know, the you know, the growth in the first couple of years.

Great. Good afternoon, Thanks for taking my question.

I wanted to ask about the cadence of the year from a revenue growth perspective, because the first quarter, obviously, calling for revenue to be down, but then the full year. It looks like an acceleration in the back half can you just talk to the <unk>.

Speaker #4: And so , you know , we say , you know , don't let perfect be the enemy of grapes and , you know , we've got a lot of experience here in this company .

Speaker #4: We've been doing this a long time . And I think we've proven that we've been a lot more right than a lot more wrong .

Points of the acceleration I assume the states is a big piece how much is international any details you could share would be helpful.

Speaker #4: I mean , if you think about the transformation from what was Restoration Hardware before to what is RH today , if you think about the transformation of this brand , you know , over , you know , 20 plus year period and try to say , you know , name other brands that have made transformations like that , name other brands that are positioned like we are , you know , these , these are the times That businesses like ours separate ourselves even farther from the pack .

Gary Friedman: Well, yeah, clearly it's international and Estates. The cycling of you know, Estates across the entire platform, international, you know, from you know, opening cadence and you know, just what we think you know, the you know, the growth in the first couple of years.

Well, yes clearly.

International in our states.

Cycling.

As states across the entire platform.

International.

From opening cadence and.

Just what we think.

The growth in the first couple of years, we really arent, England.

Gary Friedman: We really, you know, RH England is kind of our best point of history, and we know how that ramps, so we expect, you know, the international stores to, you know, have a ramp to them over the first several years. When you think about the H2, sure, you've got, you know, openings in North America, you've got openings in Europe, you've got Estates, you know, which will, you know, in Q3, Q4, you know, you'll start seeing the revenues flow from demand in Q2. You know, you'll see a ramp in Estates. You'll have a second mailing of the book. You'll have newness in, you know, both interiors and modern.

Kind of our best point of history.

We know how that ramp should we expect the international stores too.

Speaker #4: But you know , you have to make those investments . You have to take that level of risk to be able to do that .

Have a ramp to them over the first several years.

When you think about the back half sure.

Speaker #4: So , you know , we're , you know , we're not , you know of a management culture or leadership culture . And , you know , we're constantly innovating and investing .

Openings.

In North America, you've got opening in Europe, you've got.

States.

Which will.

In Q3, Q4, Youll start seeing the revenues.

Speaker #4: But this is one of those significant cycles . And it just happens to be , you know , during a significant down cycle , especially focused on our industry .

Flow from demand in Q2.

And you'll see a ramp in our states youll have a second mailing at the book.

You'll have.

Newness in.

Speaker #4: And so , you know , but you know , we're , we're in a better position than we've ever been from a historical point of view to weather the storm .

Both interiors and modern.

So.

Gary Friedman: You know, all of those things combined, you know, we believe, you know, is a big step up in the business in the H2. We would've, you know, expected more in the, you know, in the H2 of last year and the H1 of this year 'cause RH Estates would have been part of that case.

All of those things combined.

Yeah.

We believe.

Speaker #4: And I think you have to just think about what is what is the next five years look like from an investment point of view ?

Is it is a big step up in the business in the second half.

Speaker #4: I mean , we're going to come off if you take the You know , the 37 million and the 280 , 9 million , you've got , you know , kind of a peak kind of investment year historically .

And we would have expected more than that.

In the back half of last year in the first half of this year because the states would have been part of that cadence.

Steven Zaccone: Okay. Understood. Second question I have is just on the margin recovery of the business, right? 'Cause we've been in an investment period for the business for some time, and I think you've used the term leapfrog in terms of margins in the past. You know, for the longer duration investor, when you look at the business, what do you think is the biggest factor holding back margins from improving? Is it just the fact that some of the investments have taken a little bit longer and have been a little bit higher than expected? You know, has it been the top line, you know, the macro environment? How do we think about some of the unlocks to see that margin improvement on the other side come back stronger? Thanks.

Okay understood and then.

Speaker #4: And then we come off that peak and we come into the , you know , 250 to 260 million , and then that's going to drop to 150 to 170 million a year .

The second question I have is just on the margin recovery of the business right because we've.

We've been in an investment period for the business for some time and I think you've used the term leapfrog in terms of margins in the past.

Speaker #4: So you think about the company growing the capital investment period coming down . And it's not not just the capital , right ? You know , the the investment , but it's also all the expense that's connected to that capital , you know , all the expense that's connected to bringing up those stores , training the people , building the infrastructure , building the distribution capability in the business .

For the longer duration investor.

When you look at the business. What do you think is the biggest factor holding back margins are improving is it just the fact that some of the investments I've taken a little bit longer and has been a little bit higher than expected hasnt been the top line the macro environment. How do we think about some of the unlocks to see that margin improvement on the other side.

Speaker #4: You know , all the all the marketing and advertising that supports a launch , all the time . And energy to kind of build out the assortments , develop all the products at scale , you know , to , to create a leapfrog , not , you know , not to kind of slightly outperform , but , you know , it's no different than taking , you know , a $300 million business that was losing $40 million a year , you know , that was Restoration hardware and creating RH .

Come back stronger.

Gary Friedman: I think you've just outlined it. Yeah, I mean, we're in peak investment cycle and trough economic cycle, especially from a home point of view. You know, I mean, not just trough investment cycle. You know, you've had the whole kind of chaotic tariff cycle that's caused you know, kinda significant disruption on the business. I mean, we've resourced 40% of our assortment. You know, business of our size, you know, resourced 40% of the core assortment, which is really you know, 40% of the assortment is quite big. It's a larger part of the business, you know? You know, it's all of those things together, Steven.

I think you've just outlined.

Just outlined.

Yeah.

Yes, we're in peak investment cycle in trough.

Economic cycle, especially from a home point of view.

Hi.

I mean, not just trough investment cycle you've had there.

<unk> kind of chaotic tariff cycle.

That's caused.

Kind of significant disruption on the business I mean, we resource.

Speaker #4: That's , you know , $3.5 billion business . I mean , that , you know , think about what the next cycle looks like the next cycle is .

40% of our assortment.

The business of our size.

Resourcing, 40% of your.

Speaker #4: I think even more magnified , you know , that we , we given our framework for the model and , you know , the biggest pieces of the model are the pieces we're talking about .

For core assortment, which is really 40% of the assortments bigger.

A larger part of the business.

<unk>.

Yes.

All of those things together, Steve so.

Speaker #4: If I was on the outside looking at this , I'd say , hey , what is what is the , you know , the outlook for capital investments as they , as they go forward and , and not just thinking about the capital , but what is the , what is the expense , the cost investments that are connected to that capital ?

Gary Friedman: This is a good time, kind of a good time to buy our stock. You know, this is when people create generational wealth, right? This is no different than trough times in a real estate market, trough times in any kind of a, you know, transitional time for an industry or business. If it's, you know, all businesses in our industry get hit in these times, and all businesses that survive to the other side get a lift in this time. I think what's different is, you know, we've historically been investors during times like this. You know, it's when we've seen the biggest opportunities. This time is, I think, different than previous times because we're in a kind of a real peak investment cycle.

This is a good time.

Good time to buy our stock.

This is when people create generational wealth right. This is no different than trough times in our real estate market trough times in any kind of a transitional time for an industry our business and.

Speaker #4: How does that change over the next five years ? You know , and how does it change over the next couple of years ?

Yes.

All businesses in our industry.

Speaker #4: Right . Just over the next couple of years , the investment cycle is post peak , and it's going to turn down and accelerate in a downward way , just as revenues are going to accelerate in a positive way , right .

Get hit in these times and all all businesses that survive to the.

The other side get a lift in this time I think what's different is.

We've we've historically been investors during times like this.

Yes, when we've seen the biggest opportunities.

Speaker #4: And when you have those two things going in different directions , that's when you have inflection points in return on invested capital . On , you know , margins , earnings , etcetera , etcetera .

This time, it's I think different than previous times, because we're in a kind of a.

Real peak investment cycle, we're opening Europe work.

Gary Friedman: You know, we're opening Europe. You know, we're launching new businesses and you know the opportunity to have a leapfrog, you know, if we're more right than wrong, and we don't have to be completely right, we just have to be directionally right here. You know, we say, you know, "Don't let perfect be the enemy of great." You know, we've got a lot of experience here in this company. We've been doing this a long time. I think we've proven that we've been a lot more right than a lot more wrong.

<unk>.

Launching new businesses.

Speaker #4: So , you know , the framework for the math is pretty simple . I think the strategy , because it's never been seen before , is , you know Can be , you know , suspect and could be hard to understand , you know , there can be less believers than more believers at certain times , you know ?

Hi.

And.

So the opportunity to have a leapfrog.

If we're more right than wrong and.

And we don't have to be completely right. We just have to be directionally right here.

And so we say don't let perfect be the enemy of grapes.

Speaker #4: So , look , I don't I don't blame anybody , you know , for kind of saying , hey , this is , you know , looks like an uncertain time to invest , whether it's in our stock or any stock in our category But especially , you know , you know , you've got to kind of believe in the longer term bet here .

And.

Yes, we've got a lot of experience here in this company we've been doing this a long time.

And I think we've proven that we've been a lot more right than a lot more run I mean, if you think about the transformation from what was restoration hardware.

Gary Friedman: I mean, if you think about the transformation from what was Restoration Hardware before to what is RH today, if you think about the transformation of this brand, you know, over you know a 20-plus year period and try to say, you know, name other brands that have made transformations like that, name other brands that are positioned like we are. You know, these are the times that businesses like ours separate ourselves even farther from the pack. You know, you have to make those investments. You have to take that level of risk to be able to do that. You know, you know, we're not you know kind of a management culture or leadership culture. You know, we're constantly innovating and investing, but this is one of those significant cycles.

Before to what is RH today.

You think about the transformation of this brand.

Over 20, plus year period, and try to say name other brands that have made transformations like that name other brands that are.

Speaker #4: And , you know , we think this is going to be the , you know , one of the , one of the best bets that people will make You know , as referenced by my personal investment here .

Position like we are.

These are the times.

Speaker #4: So So that's , you know , that's how we think about it .

Yes.

That businesses like ours separate ourselves even further from the pack.

But you have to make those investments you have to take that level of risk.

Speaker #8: Yeah . Thanks for all the detail . Best of luck

To be able to do that so.

Speaker #2: Your next question comes from the line of Michael Lasser with UBS . Please go ahead .

We are not.

Kind of a management culture leadership culture.

Speaker #7: Good evening . Thank you so .

Speaker #8: Much for taking my question . Gary . You laid out this ambitious and aspirational plan to take advantage of what seems like a very large and growing addressable market .

And we're constantly innovating and investing but this is one of those.

Significant cycles.

Gary Friedman: It just happens to be, you know, during a significant down cycle, especially focused on our industry. You know, but, you know, we're in a better position than we've ever been from a historical point of view to weather the storm. I think if you just think about what does the next five years look like from an investment point of view? I mean, we're gonna come off, if you take the, you know, the $37 million and the $289 million, you've got, you know, kind of a peak kind of investment year historically.

Just happens to be.

Yep.

Speaker #8: And yet the market's not really willing to give you the benefit of the doubt . And part of that is RH has been averse to and does not really look at its business on the same store basis , which is understandable .

During a significant down cycle.

Especially focused on our industry.

And so yes.

<unk>.

We're in a better position than we've ever been from a historical point of view to weather the storm.

Speaker #8: And that's long how you articulated it . But at this point , that has defaulted to the narrative where RH needs to grow concepts , extend its physical footprint in order to drive growth , and that comes with a significant cost .

And I think you just think about what is what is the next five years look like from an investment point of view I mean, we're going to come off if you take that.

Got it.

$37 million of the $289 million, you've got kind of a peak.

Speaker #8: And as a result , it may not be able to realize its aspirations , understanding that it's come a long way from its origins .

Kind of investment year, historically, and then we come off that peak and we come into the $2 $50 million to $260 million and then that's going to drop to $150 million to $170 million a year.

Gary Friedman: We come off that peak, and we come into the, you know, $250 to 260 million, and then that's gonna drop to $150 to 170 million a year. You think about the company growing, the capital investment period coming down, and it's not just the capital, right, you know, the investment, but it's also all the expense that's connected to that capital. You know, all the expense that's connected to bringing up those stores, training the people, building the infrastructure, building the distribution capability, in the business.

Speaker #8: But it's the market's relying heavily on the recent experience . So why , based on the recent experience , is the default or the market wrong

So you think about the company growing.

Okay capital investment period, coming down and it's not just the capital right.

Speaker #4: I think it's what I just said , you know , you have to think about peak investment period . You know , and what what hopefully is the , you know , a , a low point in the , in the , trough from a market perspective , if I , you know , again , I think if you , if you pull out the investments , you know , you just pull out the European drag of the investment of , of , you know , think about we're investing in Europe , the European market is worse than the American market right now .

The investment, but it's also all the expense.

Connected to that capital all the expense that's connected to bringing up those stores training the people building the infrastructure building the distribution capability.

In the business.

Gary Friedman: You know, all the marketing and advertising that supports a launch, all the time and energy to kind of build out the assortments, develop all the products at scale. You know, to create a leapfrog, not, you know, not to kind of slightly outperform. You know, it's no different than, you know, taking, you know, a $300 million business that was losing $40 million a year, you know, that was Restoration Hardware and creating RH that's, you know, a $3.5 billion business. I mean, that. You know, think about what the next cycle looks like. The next cycle is, I think, even more magnified. You know, that we've been giving you our framework for the model, and you know, the biggest pieces of the model are the pieces we're talking about.

All of that.

The marketing and advertising that supports our launch all the time and energy to kind.

Build out the Assortments develop all the products at scale.

Speaker #4: You know , that , you know , it's , it's , we're , we're investing in a , you know , at a time you likely would like to not invest , but you can't make long term real estate investments .

Two to create a leapfrog not you know not to kind of slightly outperform.

But it's no different than taking.

At $300 million business that was losing $40 million a year.

Speaker #4: And , you know , and expect to get them . All right . Right . So , you know , the , you know , the why is the simple model , Michael , of saying , I'm cycling peak investments and I'm cycling , you know , hopefully what is trough growth , right ?

That was restoration hardware and creating our H.

$3 $5 billion business.

Think about what the next cycle looks like the next cycle is I think even more magnified.

Yes.

Yeah.

Speaker #4: And we've got , you know , we've got significant , you know , significant growth opportunities as we've laid out . And , you know , and the costs are going to kind of go away .

We beat our framework for the model.

And the biggest pieces of the model are the pieces, we're talking about.

Gary Friedman: You know, if I was on the outside looking at this, I'd say, "Hey, what is the, you know, the outlook for capital investments as they go forward?" Not just thinking about the capital, but what is the expense, the cost investments that are connected to that capital? How does that change over the next five years? You know, how does it change over the next couple of years, right? Just over the next couple of years. The investment cycle is post-peak, and it's gonna turn down and accelerate in a downward way, just as revenues are gonna accelerate in a positive way, right? When you have those two things going in different directions, that's when you have inflection points in return on invested capital, you know, margins, earnings, et cetera.

If I was on the outside looking at this I would say hey, what is.

What is the outlook for capital investments.

Speaker #4: So , you know , it's , you know , I , you know , it's a lot of people thought Amazon wasn't going to make a lot of money until it did .

As they as they go forward and not just thinking about the capital, but what is the what is the expense.

Cost investments that are connected to that capital how does that change over the next five years.

Speaker #4: Right You know , that's I think it's that simple . I think about , you know , just yeah , I think the key is , you know , don't don't bank this cost , bake this cost structure into your model right now you're looking at the , you know , a peak cost structure , both from capital and an expense perspective .

How does that change over the next.

Couple of years right just over the next couple of years.

The investment cycle is post peak and it's good.

Turn down and accelerate in a downward way just as revenues are going to.

Accelerate.

A positive way right and when you have those two things going in different directions that's win.

Speaker #4: These , these galleries that we're opening are the most expensive galleries that we've opened , both from a capital and a cost point of view .

You have inflection points in return on invested capital.

Speaker #8: Got you . And putting in thinking very helpful . You know , it , put it in parlance that , you know , the investment community would think about it is essentially this is , you know , the peak of the disruption .

Margins earnings et cetera, et cetera. So.

Gary Friedman: You know, the framework for the math is pretty simple. I think the strategy, because it's never been seen before, is you know, can be suspect and could be hard to understand. You know, there can be less believers than more believers at certain times. You know, look, I don't blame anybody, you know, for kind of saying, "Hey, this is you know, looks like an uncertain time to invest," whether it's in our stock or any stock in our category. But especially, you know, you've gotta kind of believe in the longer term bet here. We think this is gonna be one of the best bets that people will make. You know, as referenced by my personal investment here.

The framework for the math is pretty simple.

I think the strategy because it's never been seen before.

Speaker #8: There will be significant stain brand growth that will lead to sizable margin expansion , especially as these investments moderate . Now , the counterpoint would be , hey , we're living in a world of high end between the geopolitical , the technological and other factors .

Yeah.

It can be suspect it could be.

It's hard to understand.

It can be less believers than more believers at certain times.

Yeah, So look I don't.

I don't blame anybody for kind of saying Hey, this is.

Speaker #8: So what would be the sensitivity to your outlook for free cash flow in the event that salesman backpackers don't materialize like you would expect ?

It looks like an uncertain time to invest whether it's in our stock or any stock in our category.

But especially.

Actually <unk>.

Speaker #8: And without asking you to show your hand , but it is important for the investment case . What options would you pursue in the event you needed more financial flexibility to execute on your strategy ?

Got it.

Believe in the longer term debt here.

And.

But we think this is going to be the.

One of the one of the best that's that people will make.

Speaker #8: Thank you very much .

As referenced.

Speaker #4: Yeah , that's I think it's a great question , Michael . You know , look , we we've got the ability to pull back investments further , right ?

By my personal investment so.

Okay.

Gary Friedman: That's, you know, that's how we think about it.

And so that that's how we think about it.

Brad Thomas: Yeah. Thanks for all the detail. Best of luck.

Speaker #4: When I , when I think about the major strategic investments that we had , we had , we had to decide to go international .

Yes, thanks for all the detail best of luck.

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

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

Speaker #4: You know , invest into Europe years ago , right ? These weren't short term decisions . These were five , six , seven , eight years ago , right ?

Michael Lasser: Good evening. Thank you so much for taking my question. Jerry, you laid out this ambitious and aspirational plan to take advantage of what seems like a very large and growing addressable market. Yet the market's not really willing to give you the benefit of the doubt. Part of that is RH has been averse to and does not really look at its business on a same-store basis, which is understandable in the long haul you've articulated it. At this point, that has defaulted to the narrative where RH needs to grow concepts, expand its physical footprint in order to drive growth. That comes with a significant cost. As a result, it may not be able to realize its aspiration, understanding that it's come a long way from its origins, but the market is relying heavily on the recent experience.

Good evening. Thank you so much for taking my question, Gary you laid out this ambitious and aspirational plan to take advantage of what seems like a very large and growing.

Speaker #4: We , you know , we're making some of these decisions and investments and , you know , the , you know , those decisions are easy .

Our addressable market and yet the market is not really willing to give you the amendment the doubt and part of that is.

Alright, just been averse to and does not really looking at business one of the things were.

Speaker #4: You know , like are not easy to pull back on , right ? So , but we're cycling those , we've got a lot of flexibility when you think about the next wave of investments , whether it's , you know , expanding in North America , whether it's expanding in Europe , you know , you're looking at much smaller investments .

Dave.

Which is understandable and that's long how you articulated it but at this point that has defaulted to the narrative where great need.

Concepts.

Its physical footprint in order to drive Roes and that comes with the significant costs.

Michael Lasser: As a result, it may not be able to realize its aspiration, understanding that it's come a long way from its origins, but the market is relying heavily on the recent experience. Why, based on the recent experience, is the default of the market wrong?

Speaker #4: You're looking at much more flexible , real estate , you know , many more choices . ET cetera . ET cetera And you're just not going to have the same kind of cost .

Oh you.

We may not be able to realize is that region understanding then hung a long way from.

<unk> is doing what the markets are relying heavily on our recent experience.

Michael Lasser: Why, based on the recent experience, is the default of the market wrong?

Why based on the recent experience.

Speaker #4: I mean , we're going to . You know , the , the cost of building some of the new concepts that we've laid out , you know , just the way we're thinking about deploying capital in North America through compounds and ecosystems and secondary market galleries that are in the 15 to 20,000 square foot range , you know , just the real estate risk , the investment risk of those , the financial participation of , you know , developers and landlords is much higher than when you're investing in major cities internationally .

Is that also the market wrong.

Gary Friedman: I think it's what I just said. You know, you have to think about peak investment period, you know, and what hopefully is a low point in the trough from a market perspective. Again, I think if you pull out the investments, you know, if you just pull out the European drag of the investment, you know. Think about we're investing in Europe. The European market is worse than the American market right now. You know, it's we're investing in a time you likely would like to not invest, but you can't make long-term real estate investments, and, you know, expect to get them all right. Right?

I think it's what I just said.

Yes, if you think about peak investment period.

And with what hopefully is that.

Hey.

At low point in the in the trough from a market perspective.

If I you know I.

Again, I think if you if you pull out.

The investments.

Yeah.

The European drag.

The investments.

Think about it we were investing in Europe, the European market is worsening of the American market right now.

Speaker #4: It's just a very different investment cadence . And we just have a lot . Yeah . And , and you don't have the same time horizon , right ?

Yes.

It's where we're investing in.

Speaker #4: So , you know , there's just a lot of a lot more flexibility and , you know , so , so when I look at , I say , you know , peak investment , peak risk right now , you know , you're looking at peak investment , peak risk and you know , who knows from day to day or hour to hour about the geopolitical and , you know , and economic environment .

And at the time, you likely would like to not invest but you can't make it long term real estate investments.

Yes, and expect to get them all right right. So.

You know that.

Gary Friedman: You know, the why is the simple model, Michael, of saying, I'm cycling peak investments and I'm cycling, you know, hopefully what is trough growth, right? We've got significant growth opportunities as we've laid out. You know, the costs are gonna kinda go away. You know, it's, you know, a lot of people thought Amazon wasn't gonna make a lot of money until it did, right? You know, that's. I think it's that simple. I think about

The why is this simple model Michael.

Stan.

Cycling peak investments.

And I am cycling.

I believe what is trough growth.

Right and we've got.

Yeah, we've got significant.

Speaker #4: Of course , this is kind of different times and , you know , there's , you know , major news headlines are made by , you know , tweets and posts today , right ?

Significant growth opportunities as we've laid out.

And.

Yeah.

And the cost they are going to kind of go away.

Speaker #4: And they happen all day long . So , you know , I just think that if you're just trying to say , okay , how do I think about the go forward ?

So.

Yes.

Yeah.

A lot of people thought.

Amazon wasn't going to make a lot of money until it did.

Right.

Speaker #4: There's just a lot less risk , you know , I , there's a lot more risk . I'd say over the last couple of years , then over the next couple of years , I mean , there's , you know , is there further risk to the housing market ?

That's I think it's that simple.

Michael Lasser: Okay. Got you.

I think about Okay got you.

Gary Friedman: Yeah, yeah. Dude, I think that the key is, you know, don't bake this cost structure into your model right now. You're looking at, you know, a peak cost structure, both from capital and an expense perspective. These galleries that we're opening are the most expensive galleries that we've opened, both from a capital and a cost point of view.

Yeah, I think the key is don't don't bank. This cockpit baked this cost structure into your model right now Youre looking at.

Speaker #4: There always could be further risk . There always could be , you know , other things . I mean , you know , I mean , could the war escalate ?

A key cost structure, both from capital and an expense perspective. These these galleries that we're opening are the most expensive galleries that we both and both from a capital.

Speaker #4: Could China try to take Taiwan ? You know , could . Yeah . There's a lot of things that can go the wrong way .

And a cost point of view.

Speaker #4: We can all kind of imagine what those look like But you know , it's no different than calculating what the federal funds rate is going to be , right ?

Michael Lasser: Got you.

Gary Friedman: Yeah.

Got you.

Michael Lasser: Thank you. Very helpful. You know, put it in parlance that, you know, the investment community would think about it is essentially this is, you know, the peak of the disruption. There will be significant same-brand growth that will lead to sizable margin expansion, especially as these investments moderate. Now, the counterpoint would be, hey, we're living in a world of high uncertainty between the geopolitical, the technological, and other factors. What would be the sensitivity to your outlook for free cash flow in the event that sales in H2 just don't materialize like you would expect? Without asking you to show your hand, but it is important to the investment case, what options would you pursue in the event you needed more financial flexibility to execute on your strategy? Thank you very much.

It was put in there.

Very helpful.

Put it in Portland snap.

Investment you would think about it is essentially this is.

Speaker #4: Like everybody's been wrong on that . And unfortunately , that's been bad for our business , right ? There's supposed to be three cuts to the federal funds rate this year .

The peak of the disruption it will be significant.

<unk> brand growth.

Will lead to.

Speaker #4: Now it looks like there's going to be no cuts and there might be hikes , you know , or , you know , does that raise some short term risk .

Sizable margin expansion, especially as these.

Investments moderate now the counterpoint would be hey, we're living in a world I am certainty between.

Speaker #4: It does is , you know , can we navigate through that . We can do we have more upside . The downside in the second half from a revenue you know , demand and revenue point of view .

Political.

<unk> and other factors.

What would be the sensitivity to your outlook for free cash flow in the event there.

Speaker #4: We do . You know but I , I kind of say , look , if I was on the outside of this today and I had the information that , you know , the outside world has that we're giving you today You know , I'd say it's , you know , you're , you know , you could , I would look , I , I , I bought this stock at what ?

Sales in the back half.

Materialise likely you would expect.

And without asking you to show your hand.

It is important to the investment case.

What options would you pursue in the event you need more financial flexibility to execute on your strategy. Thank you very much.

Gary Friedman: Yeah. I think it's a great question, Michael. You know, look, we've got the ability to pull back investments further, right? When I think about the major strategic investments that, you know, we had to decide to go international, you know, invest into Europe years ago, right? These weren't short-term decisions. These were 5, 6, 7, 8 years ago, right? We, you know, we're making some of these decisions and investments and, you know, those decisions are, like, not easy to pull back on, right? We're cycling those. We've got a lot of flexibility when you think about the next wave of investments, whether it's, you know, expanding in North America, whether it's expanding in Europe.

I think it's a great question Michael.

Speaker #4: 216 a share . I bought $10 million of the stock . I was wrong , you know , it wasn't the low point , but I don't see , you know , too much more downside risk in the model .

Look we've got the ability.

To.

Pull back investments further right when I when I think about the major strategic investments that we had.

Speaker #4: Most of the work is behind us building the galleries , getting the people trained , bringing up restaurants internationally You know , we the product side , I think is a lot less risky .

We ended aside.

To go international.

Invest into Europe.

Years ago right. These werent short term decision seats were.

5678 years ago right.

Speaker #4: You know , we're not going into some unknown aesthetic or trend . We're we're betting on , you know , what is kind of the biggest market , the traditional classic market .

We're making some of these decisions and investments and.

The.

Those decisions are easy.

Speaker #4: And it just so happens , if you look at the trend that's going to come through , that is going to be the next trend .

They're not easy to pull back on right.

Cycling those we've got a lot of flexibility.

Speaker #4: So but you know , your question , right . We have toggles . We can pull . We have assets that we can monetize , you know , and you know , we're pretty good at navigating through times like this .

When you think about the next wave of investments whether its <unk>.

Expanding in North America, whether it's expanding.

In Europe.

Gary Friedman: You know, you're looking at much smaller investments. You're looking at much more flexible real estate, you know, many more choices, et cetera. You're just not gonna have the same kind of costs. I mean, you know, the cost of building some of the new concepts that we've laid out, just the way we're thinking about deploying capital in North America through compounds, ecosystems, and secondary market galleries that are in the 15 to 20,000 sq ft range. You know, just the real estate risk, the investment risk of those, the financial participation of, you know, developers and landlords is much higher than when you're investing in major cities internationally. It's just a very different investment cadence.

Youre looking at much smaller.

Investments Youre looking at a much more flexible real estate.

Speaker #4: We've got it . Yeah , this is my 26th year here . So you know , I've seen cycles and this team seem cycles .

Many more choices et cetera et cetera.

Speaker #4: And we've navigated through , I would say somewhat similar times . It's not completely similar times .

And you're just not going to have the same.

Same kind of cost I mean, we're going to.

Yes.

Speaker #8: Got you very helpful . Thank you so much . And look forward to another 26 .

The.

Cost of building some of the new concepts that we've laid out just the way we're thinking about deploying capital in North America through compounds and ecosystem and.

Speaker #4: Thank you .

Speaker #2: Your next question comes from the line of Brad Thomas with KeyBanc Capital Markets . Please go ahead .

Secondary market galleries that are in the 15% to 20000 square foot range.

Speaker #8: Hi . Thank you Gary . First , I wanted to follow up . More about the RH Estates line and you , I believe , alluded to working more with designers and decorators in this .

The real estate risk the investment risk of those financial participation of.

Speaker #8: And so I was hoping you could talk a bit more if if the selling process or how you go to market needs to be different on this line , that seems to have so much potential for you

Developers and landlords is much higher than when you're investing in major cities internationally, it's just a very different investment cadence.

Gary Friedman: We just have a lot, yeah, and you don't have the same time horizon, right? You know, there's just a lot more flexibility. When I look at, I'd say kind of peak investment, peak risk right now. You know, you're looking at peak investment, peak risk, and who knows from day to day or hour to hour about the geopolitical and economic environment. Of course, this is you know, kind of different times. You know, major news headlines are made by you know, tweets and posts today, right? They happen all day long.

And we just have a lot.

Speaker #4: Well , we , we do a big business with design , interior designers . Today . We have , I think . I outlined in the , you know , my comments that we have , you know , multiple businesses embedded in our in our galleries .

And you don't have the same time horizon right. So there's just a lot of a lot more flexibility.

<unk>.

And.

So when I.

Speaker #4: We have a , a trade team that services interior designers and decorators . You know , that's a meaningful part of our business .

Look at it.

Peak investment peak risk right.

Right now Youre looking at peak investment peak risk.

And who knows from day to day or hour to hour.

Speaker #4: We think it will become a bigger part of our business , especially with the launch of RH bespoke furniture and RH couture upholstery , because that's going to open up the ability to have kind of more customizable product , you know , from a size Fabric finish and so on and so forth .

About the geopolitical.

And.

And economic environment of course this is.

Yes, it's kind of different times and.

There is major.

Major news headlines are made by.

Tweaks and post today right and they happen.

Speaker #4: And that will open up , I think it should open up that market pretty significantly . We have some other strategies to address that market that , you know , that you'll hear more about that , that you know , that will kind of support what we're doing .

All day long.

So.

Gary Friedman: You know, I just think that if you're just trying to say, "Okay, how do I think about the go forward?", there's just a lot less risk. You know, there's a lot more risk, I'd say, over the last couple of years than over the next couple of years. I mean, there's, you know, is there further risk to the housing market? There always could be further risk. There always could be, you know, other things. I mean, you know, could the war escalate? Could China try to take Taiwan? Yeah, there's a lot of things that can go the wrong way. We can all kind of imagine what those look like. You know, it's no different than calculating what the federal funds rate's gonna be, right?

Yeah, I just think that if you if you're just trying to say okay.

Do I think about the go forward.

Theres, just a lot less risk.

Yes.

There's a lot more risk I'd say.

Speaker #4: You know , from a marketing point of view You know , so yeah , it's , it's , I think is when you think , again , you think about kind of you go , you know , the high end part of the business that we're going to address with estates .

Over the last couple of years, then over the next couple of years.

I mean, there is you know is there.

Further risk to the housing market.

There always could be further risks there always could be.

Other things I mean.

Speaker #4: And that's just kind of the beginning . We'll also address that throughout the entire brand . But let's say , you know , estates represents the launch of RH bespoke Furniture and the launch of RH couture upholstery .

I mean could the war escalate could China try to take Taiwan.

Yes, there is a lot of things that can.

Go the wrong way, we can all imagine what those look like.

Speaker #4: And if you know , framing those , think about those across the whole business long term

But it's no different a calculating with the federal funds rates going to be.

Gary Friedman: Like, everybody's been wrong on that, and unfortunately, that's been bad for our business, right? There was supposed to be three cuts to the federal funds rate this year. Now it looks like there's gonna be no cuts, and there might be hikes. Does that create some short-term risk? It does. Can we navigate through that? We can. Do we have more upside to downside in the H2 from a revenue, demand and revenue point of view? We do. I kind of say, look, if I was on the outside of this today and I had the information that the outside world has that we're giving you today, I'd say it's, you know, you could.

Alright, thank everybody has been wrong on that and unfortunately.

Speaker #8: That's helpful . If I could ask a follow up on the 2030 margin targets , just wondering if there's any high level Framework to think about .

That's been bad for our business right they were supposed to be three.

To the federal funds rate this year now it looks like there's going to be no touch then there might be hikes.

Speaker #8: Perhaps how international fits into that . And how much mix or leverage of sale from sales factors into that . Thanks

Hi.

Sure.

Does that create some short term risk. It does is can we navigate through that we can do.

Speaker #4: Yeah . We , I mean , we have it . Yeah , we , we have some data now . We kind of know , you know , as we've opened some of these , you know , how they're evolving , how to think about how they might evolve and grow and , you know , so I think , I think we have very reasonable targets internationally , you know , mixed into this .

Do we have more upside than downside in the second half from a revenue.

Demand and revenue point of view, we do.

But.

I kind of say look if I was on the outside of this today.

And I had the information that.

The outside World has that we're giving you today.

Speaker #4: I don't think there's anything that's a , you know , a stretch perspective So when you look at , you know , you just look at the total composition of kind of the top line accelerating in the out years , 12% growth , I think the way I think about that is you've got about , you know , 4 to 5 points from the platform expansion .

Yes.

I'd say it.

Yeah.

You could look I've I bought the stock at what $2 16, a share by about $10 million of the stock I was wrong.

Gary Friedman: Look, I bought this stock at what? 216 a share. I bought $10 million of the stock. I was wrong. You know, it wasn't the low point, but I don't see, you know, too much more downside risk in the model. You know, most of the work is behind us, building the galleries, getting the people trained, bringing up restaurants internationally. You know, the product side, I think is a lot less risky. You know, we're not going into some unknown aesthetic or trend. We're betting on, you know, what is kind of the biggest market, the traditional classic market. It just so happens, if you look at the trend that's gonna come through, that is gonna be the next trend. So, but yeah, your question's right.

It was at the low point.

But I.

I don't see.

So much more downside risk.

In the model.

Yes, most of that work is behind US building the galleries getting the people trained bringing up restaurants internationally.

Speaker #4: You've got , you know , 3 to 4 points , maybe five points from the product expansion . And you've got at some point here , you know , we think there's a couple of points from the housing market coming back .

Yes.

Product side, I think there's a lot less risky.

We're not going into some <unk>.

Speaker #4: I mean , I don't think we're going to be in a in a 9 or 10 year downturn . The housing market , let's hope not .

Known aesthetic or trend.

Where we're at.

Adding on.

Is.

I mean, the biggest market of traditional classic market.

Speaker #4: But you know , if it doesn't come back , it's not like we've got a big number out there for the housing market .

And it just so happens if you look at the trend that's going to come through that is going to be the next trend.

Speaker #4: You know , we've got a , you know , kind of a 2 to 3 point hope in , you know , the out years of that plan that we'll see some lift in the housing market .

So.

But your question Frank we have toggles, we can pull we have.

Gary Friedman: We have toggles we can pull. We have assets that we can monetize. You know, we're pretty good at navigating through times like this. You know, this is my 26th year here, so you know, I've seen cycles, and this team's seen cycles, and we've navigated through, I would say, somewhat similar times. Not completely similar times.

Assets that we can monetize them.

Speaker #4: If we see a lift in the housing market , you could see , I mean , based on where it's been , I mean , you could argue there's a ten point lift from the housing market in the out years .

You know and.

We're pretty good at navigating through times like this.

We've got it yeah. This is my 26 year here.

Speaker #4: You know , and if if that happens , you don't have us growing at 10 to 12 , you have us growing at 18 to 22 .

So.

I've seen cycles and this team same cycles and we've navigated through.

I would say.

Somewhat similar times that completely similar types.

Michael Lasser: Got you. Very helpful. Thank you so much.

Speaker #8: Thanks , Gary . Looking forward to getting my estates book in a few months .

Got you very helpful. Thank you so much and look forward to another 26.

Gary Friedman: Thank you.

Michael Lasser: Look forward to another 2026.

Speaker #4: Thanks , Brad .

Gary Friedman: Thank you.

Thank you.

Speaker #2: Your final question comes from the line of Marius Morar with Zalman . Please go ahead .

Operator: Your next question comes from the line of Brad Thomas with KeyBanc Capital Markets. Please go ahead.

Your next question comes from the line of Brad Thomas with Keybanc capital markets.

Go ahead.

Speaker #9: Thank you and good afternoon . Just a quick question on the growth outlook for next year , Gary . I think on in the video you mentioned that it's a bit conservative .

Brad Thomas: Hi. Thank you. Gary, first, I wanted to follow up a bit more about the RH Estates line. You, I believe, alluded to working more with designers and decorators in this. I was hoping you could talk a bit more if the selling process or how you go to market needs to be different on this line that seems to have so much potential for you.

Hi, Thank you.

Gary first I wanted to follow up a bit.

More about the <unk> mine.

And you I believe you alluded to working more with designers and decorators in this and so I was hoping you could talk a bit more if the.

Speaker #9: I was just wondering at the low end , do you sort of embed any sort of deterioration in the housing market or maybe an increase in interest rates

Selling process or how you go to market needs to be different on this line that seems to have so much potential for ya.

Gary Friedman: Well, we do a big business with interior designers. Today we have, I think, like I outlined in my comments, that we have multiple businesses embedded in our galleries. We have a trade team that services interior designers and decorators. You know, that's a meaningful part of our business. We think it will become a bigger part of our business, especially with the launch of RH Bespoke Furniture and RH Couture Upholstery, because that's gonna open up the ability to have kind of more customizable product, you know, from a size, fabric finish, so on and so forth. That will open up. I think it should open up that market pretty significantly.

Well, we do a big business with a designer interior designers.

Speaker #4: Yeah , I think , you know , we're we're conservative , you know , throughout the second half . I mean , obviously , you know , we have embedded , you know , the growth from our platform and the new galleries and the galleries that are , you know , cycling .

Today, we have I think.

Mindedness.

My comments that we have multiple businesses embedded in our in our Dallas, we have a.

Trade team that services interior designers decorators.

Speaker #4: And we've got , you know , growth from estates and some of the , you know , newness and expansion of the assortment in interiors and modern , you know , but we , we do , we have the housing market getting worse I'd say we , we have embedded in this the current environment right now , which I believe is worse and mostly from a geopolitical point of view .

That's a meaningful part of our business.

We think it will become a bigger part of our business, especially with the launch of RH bespoke furniture and fixture upholstery, because that's going to open up the ability to have kind of more customizable product.

From a size.

Fabric finish in stone and so forth.

Speaker #4: And a perception point of view , you know , of more things can go wrong than maybe can go right . And I think that's how the markets generally risk times like these when you've got .

And that will open up.

<unk>.

I think it should open up that market pretty significantly we had some other strategies to address that market.

Gary Friedman: We have some other strategies to address that market, you know, that you'll hear more about, you know, that will kind of support what we're doing, you know, from a marketing point of view. You know, yeah, RH Estates, I think, is when you think about kind of, you know, the high-end part of the business that we're gonna address with RH Estates, and that's just kind of the beginning. We'll also address that throughout the entire brand. Let's say, you know, RH Estates represents the launch of RH Bespoke Furniture and the launch of RH Couture Upholstery, kind of, you know, framing those. Think about those across the whole business long term.

Youll hear more about.

But that.

Speaker #4: Uncertainty and you've got global tensions and war and oil issues , and , you know , the the endless amount of things that oil impacts , right ?

That will kind of support what we're doing from a marketing point of view.

So yes, its stake I think is.

When you think again, if you think about kind of go.

Speaker #4: So Yeah , I mean , but you know , did the housing market get better when interest rates came down somewhat ? Not really the housing market going to get worse if they go back .

Is it the high end part of the business that we're going to address with the states and that's just kind of at the beginning we will also address that throughout the entire brand, but let's say.

<unk> represents the launch of RH.

Furniture, and the launch of our each picture upholstery.

Speaker #4: You know , if we get 25 , 50 , 75 basis points , you get three hikes . I don't think it gets much worse .

Framing those think about those across the whole business long term.

Speaker #4: You know I think you've got to think back to history and say in 1978 we sold you know there's 4.06 million homes sold .

Brad Thomas: That's helpful. If I could ask a follow-up on the 2030 margin targets. Just wondering if there's any high-level framework to think about perhaps how international fits into that and how much mix or leverage from sales factors into that. Thanks.

That's helpful. If I can ask a follow up on the 2030 margin target.

Just wondering if there's any high level.

Framework to think about perhaps how international fits into that.

Speaker #4: And that was a low point . And in 2000 and 2003 , four and five , you had 4.06 million homes sold . You know , on average , you know , 4 to 4.06 .

How much mix or leverage of sale from sales actress into that thanks.

Gary Friedman: Yeah, I mean, we have it. Yeah, we have some data now. We kind of know, you know, as we've opened some of these, you know, how they're evolving, how to think about how they might evolve and grow. You know, so I think we have very reasonable targets internationally, you know, mixed into this. I don't think there's anything that's a, you know, a stretch perspective. You know, so when you look at, you know, you just look at the total composition of kind of the top line accelerating in the out years to 12% growth. I think the way I'd think about that is you've got about, you know, 4 to 5 points from the platform expansion. You've got, you know, 3 to 4 points, maybe 5 points from the product expansion.

Yeah, we I mean, we have yes, we have some data now we kind of know as we've opened some of these.

Speaker #4: So somewhere about 4.03 . And that's and that's with 53 . I think it's 53% more people . Right . So it's hard to believe it gets worse than this .

How they are evolving how to think about how they might evolve and grow.

So I think.

I think we have very reasonable targets internationally mixed into this.

Speaker #4: It get worse than this for a small period . I mean , none of us have seen a world war in our lifetimes , right .

I think there is anything thats the.

Stretch perspective.

Speaker #4: You know , is there a risk of World war ? I don't think so . I mean , I think cooler heads will prevail , but , you know , this is uncertain times , you know , so I think the , you know , whether the interest rates go up or down , 25% to 75 basis points , I don't think it's going to change much in the housing market .

So when you look at you just look at the total composition of kind of the top line accelerating in the out years.

12% growth I think the way Ed.

Think about that is you've got about.

Four to five points from the platform expansion you've got.

Three to four points maybe.

Speaker #4: If the if the interest rates go up 300 or 400 basis points , I think that's different . I think they go down 100 basis points with pricing coming down , which is pricing is coming down across across the market .

Maybe five points from the product expansion and you've got at some point here, we think there's a couple of points.

Gary Friedman: You've got, at some point here, you know, we think there's a couple of points from the housing market coming back. I mean, I don't think we're gonna be in a 9- or 10-year downturn with the housing market. Let's hope not. You know, if it doesn't come back, it's not like we've got a big number out there for the housing market. You know, we've got a, you know, kind of a 2- to 3-point hope in, you know, the out years of that plan that we'll see some lift in the housing market. If we see a lift in the housing market, you could see, I mean, based on where it's been, I mean, you could argue there's a 10-point lift from the housing market in the out years.

The housing market coming back.

I don't think we're gonna be in it.

In a nine or 10 year downturn in the housing market.

Speaker #4: I think you're going to see a housing market acceleration . So , you know , I'd say short term , you know , handicap it as even I think we're seeing pressure right now longer term .

Let's hope not.

But if it doesn't come back it's not like we've got a big number out there for the housing market.

Yes, we've got it.

Speaker #4: I think you have to kind of handicap it as a positive because we've never we've never seen we're now in the fourth year of the worst housing market in 40 to 50 years .

Kind of a two to three point hope.

In the out years of that plan that we'll see some lift in the housing market. If we see a lift in the housing market you could see based on where it's been.

You could argue there's a 10 point lift from the housing market in the out years.

Speaker #4: That hasn't happened in my lifetime . I've never seen two down years . I've seen one and a half down years in my career .

Gary Friedman: You know, if that happens, you don't have us growing at 10 to 12, you have us growing at 18 to 22.

And if that happens.

Speaker #4: I've never seen three down years . And I , you know , surely never seen a fourth down year . I don't think anybody has .

Don't have us growing at.

10 to 12 do you have.

Growing at 18% to 22.

Speaker #4: So , you know , does it . How long does it stay here ? I don't know , you Paul . Today the new normal and build out from here at some point .

Brad Thomas: Thanks, Gary. Looking forward to getting my RH Estates book in a few months.

Thanks, Gerry looking forward to getting my Facebook and a few months. Thanks.

Speaker #4: I think housing market comes back and I think it's more likely to come back than go down . But if the interest rates are moving 50 to 75 basis points to 100 basis points , I don't know if that moves the needle plus or minus , you know , on the minus side you're getting closer to affordability right ?

Gary Friedman: Thanks, Fred.

Thanks, Brett.

Operator: Your final question comes from the line of Marius Morar with Zelman. Please go ahead.

Yeah.

Your final question comes from the line of Marius Mora with Zelman. Please go ahead.

Marius Morar: Thank you and good afternoon. Just a quick question on the growth outlook for next year. Gary, I think in the video you mentioned that it's a bit conservative. I was just wondering at the low end, do you sort of embed any sort of deterioration in the housing market or maybe an increase in interest rates?

Thank you and good afternoon.

Just a quick question on <unk>.

The growth outlook for next year.

I think on <unk>.

In the video you mentioned that it's a bit conservative.

Speaker #4: On the upside , you could have some moderate slowing . I think that the bigger thing is , is if we have real inflation and interest rates have to rise three , 400 basis points , that's a problem

I was just wondering at the low end.

Do you sort of embed any sort of deterioration.

The housing market or maybe an increase in interest rates.

Gary Friedman: Yeah, I think, you know, we're conservative, you know, throughout the H2. I mean, obviously, you know, we have embedded, you know, the growth from our platform and the new galleries and the galleries that are, you know, cycling, and we've got, you know, growth from estates and some of the, you know, newness and expansion of the assortment, in interiors and modern. You know, do we have the housing market getting worse? I'd say we have embedded in this the current environment right now, which I believe is worse, and mostly from a geopolitical point of view and, a perception point of view, you know, of more things can go wrong than maybe can go right.

Yeah I think.

We're conservative.

Speaker #9: That's helpful . And maybe a quick follow up in the first quarter guidance . Do you also embed any drag from the backorder and special order similar to the drag you had in the fourth quarter

Throughout the second half I mean, obviously.

We have embedded.

The growth from our platform and the new galleries in the galleries that are cycling and we've got growth from states and some of the newness and expansion of the assortment.

And interiors and modern.

Speaker #6: Yeah , yeah , that's something that that's going to take probably until the second half to fully resolve itself just because because the complexities of resourcing so that is just yeah , that is that we .

But we do we have the housing market.

Getting worse.

I'd say, we have embedded in this.

Speaker #4: That drag in .

Speaker #5: Yeah .

The current environment, right, now, which I believe is worse and mostly from a geopolitical point of view and.

Speaker #9: Is that getting worse in the first quarter .

Speaker #6: There's some modest impact that that's over and above what we felt in Q4 . And then so then we'll see the resolution of that in the second half .

A perception point of view.

More things can go wrong, and maybe can go right and I think thats, how the market generally.

Speaker #9: Very helpful . Thank you .

Gary Friedman: I think that's how the markets generally risk times like these, when you've got uncertainty and you've got global tensions and war and oil issues and, you know, the endless amount of things that oil impacts, right? You know, did the housing market get better when interest rates, you know, came down somewhat? Not really. Is the housing market gonna get worse if they go back, you know, if we get 25, 50, 75 basis points and get 3 hikes? I don't think it gets much worse. You know, I think you've got to think back at history and say, in 1978, we sold, you know, there's 4.06 million homes sold, and that was a low point.

Speaker #4: It's basically from the the amount of resourcing and just the new factories being brought up in different countries , being able to ramp up fast enough .

Risk times like these when <unk> got uncertainty and you've got global tensions and war and oil issues and.

Speaker #4: And so , you know , that's , that's the biggest hit is coming from tariff related resourcing of , you know , furniture , outdoor furniture , specifically metal , outdoor furniture , lighting is a big one .

The endless amount of things that oil.

<unk>.

Impacts right so.

Yeah, I mean, but yes did that housing market gets better when interest rates.

Speaker #4: Rugs is a big one . And furniture is a big one . You know , when if you think about our business and you've got , you take the furniture part of the business , which is about 80% , and then you take , you know , lighting and rugs , which are the next biggest pieces .

It came down somewhat not really.

If the housing market.

Can it get worse, if they go back if we get $25 50, 75 basis points you get three hikes I don't think it gets much worse I think you've got to think back at history and say in 1978.

Speaker #4: Those are all being impacted . So you've got to , you know , the , by far biggest part of our business has been all impacted in a bigger way .

So yes, there is $4.

Speaker #4: Resourcing things like bedding , pillows , throws , accessories , picture frames , things like that , which are not as you know , from percentage point of view , not a very big part of our business .

6 million homes sold.

And.

That was a low point.

Gary Friedman: and 2005, you had 4.06 million homes sold, you know, on average. You know, 4 to 4.06, so some are about 4.03s. That's with 53% more people, right? It's hard to believe it gets worse than this. Could it get worse than this for a small period? I mean, none of us have seen a World War in our lifetimes, right? You know, is there risk of World War? I don't think so. I mean, I think cooler heads will prevail. You know, this is uncertain times. You know, I think the...

And in 2000.

Uh huh.

2003, four and five.

Speaker #4: Much easier to resource those things . Much easier to move picture frames . Hello . Cases , throws , table glassware , accessories , things like that .

You had 4.06 million homes sold on average.

4% to $4 six or somewhere about four <unk>.

Speaker #4: Much , much more easily . Easier . You know , when you're talking about ramping furniture , factories , lighting factories , rug factories , moving those categories , just more complex .

And Thats.

And that's with 53, I think it's 53% more people.

So it's hard to believe it gets worse in this case it get worse in this for a small period I mean, none of us have seen a world war in our lifetimes right.

Speaker #4: And so , you know , those have been , you know , just slower to scale and transition And when you think about , you know , just the , you know , being on the manufacturing side or manufacturing partners , you know , moving from one country to another , building factories , scaling them , and then all of a sudden having tariffs change and going , oh God , what do I do now ?

Is there risk of World War I don't think so I mean, I think cooler heads will prevail, but yes. This is uncertain times so.

I think the you know whether the interest rates.

Gary Friedman: You know, whether the interest rates go up or down, you know, 25 to 75 basis points, I don't think it's gonna change much in the housing market. If the, you know, if the interest rates go up 300 or 400 basis points, I think that's different. I think if they go down 100 basis points with pricing coming down, which is pricing is coming down across, you know, across the market, I think you're gonna see a housing market acceleration. You know, I'd say short term, you know, handicap it is even. I think we're seeing pressure right now. Longer term, I think you have to kind of handicap it as a positive. 'Cause we've never seen. We're now in the fourth year of the worst housing market in 40 to 50 years.

Go up or down.

Yes, 25 to 75 basis points I don't think it's going to change much in the housing market.

Speaker #4: My am I doing the right thing ? I you think about the , the rug business , you know , and , you know , we for a while there , you know , I mean , India was a big source of rugs and you get hit with a 50% tariff and you're sourcing rugs to other countries , you know , there's not that many places , you know , that have , you know , that kind of capacity to move those businesses , you know , so , same thing with lighting .

If the interest rates go up 300, or 400 basis points I think that's different.

I think they go down.

100 basis points.

With pricing coming down which is pricing is coming down cross across the market.

Hi, I think youre going to see a housing market acceleration so.

I'd say short term.

Handicap it it's even I think were seeing pressure right now.

Speaker #4: Lighting is very different than any other kind of an item . Again , the more accessories , more seasonal parts of the business , you want to resource Christmas ornaments , things like that .

Longer term I think you have to kind of handicap it as.

A positive.

And we've never we've never seen.

We're now in the fourth year of the worst housing market and 40 to 50 years.

Speaker #4: Very simple . When you're resourcing the core part of our business , much more complex

Gary Friedman: That hasn't happened in my lifetime. I've never seen two down years. I've seen 1.5 down years in my career. I've never seen three down years, and you know, surely never seen a fourth down year. I don't think anybody has. You know, how long does it stay here? I don't know. You know, flat today is the new normal and build out from here. At some point, I think housing market comes back. I think it's more likely to come back than go down. If the interest rates are moving 50 to 75 basis points to 100 basis points, I don't know if that moves the needle plus or minus. You know. On the minus side, you're getting closer to affordability, right? On the upside, yeah, you could have some moderate slowing.

That hasnt happened in my lifetime, I had never seen two down years.

One and a half down years in my career I've never seen three down years and I surely.

Speaker #2: That concludes our question and answer session . I will now turn the call back over to Gary Friedman for closing remarks .

Surely never seen a fourth down here I don't think anybody has so but you know.

Speaker #4: Thanks . Thank you . Well , thank you everyone . You know we know this is a , you know , a an uncertain time in our business .

How long does it stay here I don't know.

While today, the new normal and build out from here.

Some point I think housing market comes back.

Speaker #4: Hopefully , we've shed some light to give you more certainty and more confidence in our outlook and our strategy . We believe this is the most important period in in our history .

And I think it's more likely to come back then to go down but.

If the interest rates are moving 50 to 75 basis points to 100 basis points.

I don't know that.

Speaker #4: And we've never been more excited about the outlook and what we believe will be the outcome . So we look forward to talking to you soon .

Moves the needle plus or minus on the minus side youre getting closer to.

Affordability right on the upside.

Speaker #4: Thank you for all the leadership and partnership from our team , from our teams and our partners . All all around the world .

And you could have some moderate.

Boeing.

Gary Friedman: I think the bigger thing is if we have real inflation and interest rates have to rise 300 to 400 basis points, that's a problem.

I think the bigger thing is is if we have real inflation and interest rates have to rise, 3% 400 basis points.

Speaker #4: You know , everybody's working hard to kind of get to the next place . And so thank you

That's a problem.

Marius Morar: That's helpful. Maybe a quick follow-up. In the Q1 guidance, do you also embed any drag from the backorder and special order, similar to the drag you had in the Q4?

That's helpful and then maybe a quick follow up.

In the first quarter guidance.

Do you also embed.

Any drag from the Backorder and special order.

Similar to the drag you had in the fourth quarter.

Jack Preston: Yeah. Do you wanna take it? Yeah. Yeah, that's just something that's gonna take probably until the H2 to fully resolve itself just 'cause of the complexities of resourcing. We take that drag in, yeah.

Gary Friedman: Yeah. Do you wanna take it?

Jack Preston: Yeah. Yeah, that's just something that's gonna take probably until the H2 to fully resolve itself just 'cause of the complexities of resourcing. We take that drag in, yeah.

Yeah, Yeah yeah.

That's something that that's going to take probably until the second half to fully resolve itself just because it because the complexities of resources. So.

That is just that as supplements.

That drag in yeah.

Marius Morar: Is that getting worse in Q1?

Is that getting worse in the first quarter.

Jack Preston: There's some modest impact that's over and above what we felt in Q4. We'll see the resolution of that in H2.

There is some modest impact.

Over and above what we felt in Q4 and then so then we will see the resolution of that in the second half.

Marius Morar: Very helpful. Thank you.

Very helpful. Thank you.

Gary Friedman: It's basically from the amount of resourcing and just the new factories being brought up in different countries being able to ramp up fast enough. You know, that's the biggest hit is coming from tariff-related resourcing of, you know, furniture, outdoor furniture, specifically metal outdoor furniture. Lighting is a big one. Rugs is a big one, and furniture is a big one. If you think about our business and you take the furniture part of the business, which is about 80%, and then you take, you know, lighting and rugs, which are the next biggest pieces, those are all being impacted. You know, the by far biggest part of our business has been all impacted in a bigger way.

Basically from the amount of Resourcing and just the new factories being brought up in different countries being able to ramp up fast enough and so that.

That's the biggest is coming from.

Tariff related resourcing of furniture outdoor furniture, specifically metal outdoor furniture lighting is a big one rugs is a big one and furniture is a big one.

Yes, if you think about our business and you've got you take the furniture part of the business, which is about 80% and then you take lighting rugs, which are then the next biggest pieces.

Those are all being impacted.

You got it.

By far our biggest part of our business that's been all impacted in a bigger way resourcing things like that in pillows grows accessories picture frames and things like that which are not.

Gary Friedman: Resourcing things like bedding, pillows, throws, accessories, picture frames, things like that, which are not as a, in a, you know, from a percentage point of view, not a very big part of our business, much easier to resource those things. Much easier to move picture frames, pillowcases, throws, tabletop, glassware, accessories, things like that, much, much more easier. You know, when you talk about ramping furniture factories, lighting factories, rug factories, moving those categories, just more complex. You know, those have been just slower to scale and transition. When you think about, you know, just the

Is it.

From a percentage point of view not a very big part of our business much easier to resource those things much easier to move picture frames.

Hello cases.

Gross.

Tabletop last wear accessories things like that much much more easy easier when you're talking about ramping furniture factories lighting factories, rather factories moving those categories, just more complex and so.

Those have been.

This slower to scale and transition.

<unk>.

And when you think about just the.

Gary Friedman: You know, being on the manufacturing side, our manufacturing partners, you know, moving from one country to another, building factories, scaling them, and then all of a sudden having tariffs change and going, "Oh, God, what do I do now?" Am I doing the right thing? You know, think about the rug business, you know, and for a while there, you know, I mean, India was a big source of rugs, and you get hit with a 50% tariff, and you're, you know, sourcing rugs to other countries. You know, there's not that many places, you know, that have, you know, that kind of capacity to move those businesses. You know, so, you know, same thing with lighting. Lighting's very different than any other kind of an item.

Being on the manufacturing side, our manufacturing partners moving from one country to another building factories scaling them.

And then all of a sudden having tariffs change and going Oh God, what do I do now.

By doing the right thing.

You can be thinking about the.

The rug business.

Yes.

While there.

India was a big source of Robinson, you get hit with a 50% tariff and your <unk>.

Some rugs to other countries.

Yes.

Not that many places.

Have.

That kind of capacity to move those businesses.

Yes.

Same thing with lighting lighting very different then.

Any other kind of.

Gary Friedman: Again, the more accessories, more seasonal parts of the business, you wanna resource Christmas ornaments, things like that, very simple. When you're resourcing the core part of our business, much more complex.

And item again.

The more accessories more seasonal parts of the business you want to resorts Christmas ornaments things like that very simple.

When you Resourcing the core part of our business much more complex.

Okay.

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

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

Gary Friedman: Thanks. Thank you. Well, thank you, everyone. You know, we know this is an uncertain time in our business. Hopefully, we've shed some light to give you more certainty and more confidence in our outlook and our strategy. We believe this is the most important period in our history. We've never been more excited about the outlook and what we believe will be the outcome. We look forward to talking to you soon. Thank you for all the leadership and partnership from our teams and our partners all around the world. You know, everybody's working hard to kind of get to the next place. Thank you.

Thank you well thank you everyone.

We know this is a.

Hi.

And uncertain time in our business hopefully we've shed some light to give you more certainty and more confidence.

In our outlook and our strategy. We believe this is the most important.

Period in our history.

And we've never been more excited about the outlook.

What we believe will be the outcome. So we look forward to talking to you soon thank you for all the <unk>.

<unk> and partnership from our team from our teams and our partners all around the world.

Everybody is working hard.

To kind of get to the next place and so thank you.

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

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

Okay.

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