Q2 2026 RH Earnings Call

September 10, 2026

Operator 3: Hello, everyone. Thank you for joining us and welcome to the RH Q2 fiscal 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Allison Malkin of ICR. Allison, please go ahead.

Operator: Hello, everyone. Thank you for joining us and welcome to the RH Q2 Fiscal 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Allison Malkin of ICR. Allison, please go ahead.

Speaker #1: If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. I will now hand the conference over to Allison Malkin of ICR.

Speaker #1: Allison, please go ahead.

Allison Malkin: Thank you. Good afternoon, everyone. Thank you for joining us for our Q2 fiscal 2026 earnings call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer, and Jack Preston, Chief Financial Officer. Before we start, I would like to remind you of our legal disclaimer that we will make certain statements today that are forward-looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our press release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings as well as our press release issued today for a more detailed description of the risk factors that may affect our results.

Allison Malkin: Thank you. Good afternoon, everyone. Thank you for joining us for our Q2 Fiscal 2026 Earnings Call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer, and Jack Preston, Chief Financial Officer. Before we start, I would like to remind you of our legal disclaimer that we will make certain statements today that are forward-looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our press release issued today.

Speaker #2: Thank you. Good afternoon, everyone. Thank you for joining us for our second quarter fiscal 2026 earnings call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer, and Jack Preston, Chief Financial Officer.

Speaker #2: Before we start, I would like to remind you of our legal disclaimer, that we will make certain statements today that are forward-looking within the meaning of the Federal Securities Laws, including statements about the outlook of our business and other matters referenced in our press release issued today.

Allison Malkin: These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings as well as our press release issued today for a more detailed description of the risk factors that may affect our results.

Speaker #2: These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please be sure to review our SEC filings, as well as our press release issued today, for a more detailed description of the risk factors that may affect our results.

Speaker #2: Please also note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events.

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

Speaker #2: Also, during this call, we may discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures, and a reconciliation of these non-GAAP to GAAP measures, in today's financial results press release.

Allison Malkin: You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in today's financial results press release. A live broadcast of this call is also available on the investor relations section of our website at ir.rh.com. I would like to turn the call over to Gary.

Speaker #2: A live broadcast of this call is also available on the investor relations section of our website at ir.rh.com. And now, I'd like to turn the call over to Gary.

Speaker #3: Good afternoon, everyone. We're coming live from New York City today. We got in last night for the opening of our first RH Stage Gallery in Greenwich, Connecticut.

Gary Friedman: Good afternoon, everyone. We are coming live from New York City today. We got in last night for the opening of our first RH Stage Gallery in Greenwich, Connecticut. I know I saw some of you there last night and those who have not seen it, I would encourage everyone to get there. Our newest, latest, greatest work. Let me start with a letter to our people, partners, and shareholders. GAAP net revenues of $922.2 million exceeded the high end of our guidance, increasing 2.6% versus last year and accelerating 4.2 points over the Q1 as our momentum begins to build from the significant growth strategies we have recently put into motion. Normalized adjusted EBITDA margin of 13.4% also exceeded the high end of our guidance for adjusted EBITDA margin.

Speaker #3: So, I know I saw some of you there last night, and for those who haven't seen it, I would encourage everyone to get there. Our newest, latest, greatest work.

Speaker #3: Let me start with the letter to our people, partners, and shareholders. GAAP net revenues of $922.2 million exceeded the high end of our guidance, increasing 2.6% versus last year, and accelerating 4.2 points over the first quarter as our momentum begins to build from the significant growth strategies we have recently put into motion.

Gary Friedman: GAAP net revenues of $922.2 million exceeded the high end of our guidance, increasing 2.6% versus last year and accelerating 4.2 points over the Q1 as our momentum begins to build from the significant growth strategies we have recently put into motion. Normalized adjusted EBITDA margin of 13.4% also exceeded the high end of our guidance for adjusted EBITDA margin.

Speaker #3: Normalized adjusted EBITDA margin of 13.4% also exceeded the high end of our guidance for adjusted EBITDA margin. And we generated $72.3 million of cash in the quarter, inclusive of free cash flows and a $42 million distribution from our Aspen joint ventures, excluding tariff refunds of $69.2 million.

Gary Friedman: We generated $72.3 million of cash in the quarter, inclusive of a free cash flow and a $42 million distribution from our Aspen joint ventures, excluding tariff refunds of $69.2 million. We recognized the tariff benefit of $55.1 million in the Q2, and expect to recognize an additional $13.9 million tariff benefit in the H2 of the year, which we plan to use to offset $50 million of unplanned cost increases across our supply chain due to significant and sustained spikes in oil prices as a result of the continued conflict in the Middle East. The remaining $19 million of tariff proceeds will benefit earnings and is included in our updated adjusted EBITDA margin outlook for fiscal 2026. Updated fiscal year 2026 outlook. Revenue growth of 5.5% to 7%. Adjusted EBITDA margin of 15% to 16.2%.

Speaker #3: We recognized a tariff benefit of $55.1 million in the second quarter and expect to recognize an additional $13.9 million tariff benefit in the second half of the year.

Speaker #3: Which we plan to use to offset $50 million of unplanned cost increases across our supply chain, due to significant and sustained spikes in oil prices as a result of the continued conflict in the Middle East.

Speaker #3: The remaining $19 million of tariff proceeds will benefit earnings, and it's included in our updated adjusted EBITDA margin outlook for fiscal 2026. Updated fiscal year 2026 outlook.

Speaker #3: Revenue growth of 5.5% to 7%. Adjusted EBITDA margin of 15% to 16.2%. Free cash flow, asset sales, and distribution of equity method investment of $300 million to $400 million.

Gary Friedman: Free cash flow, asset sales, and distribution of equity method investments of $300 million to $400 million. The above outlook includes an approximate -340 basis point adjusted EBITDA margin impact from pre-opening and start-up costs to support our international expansion. Q3 2026 outlook. Revenue growth of 5% to 6%, inclusive of backlog reduction of 2.5 points, RH Estates of 2 points, new galleries and other 1 point. Adjusted EBITDA margin of 12.5% to 13.5%. The above outlook includes an approximate -310 basis point adjusted EBITDA margin impact from pre-opening and start-up costs to support our international expansion. Q4 2026 outlook. Revenue growth of 16.1% to 21.2%, inclusive of backlog reduction of 6.5 points, RH Estates growth of 8 points, new galleries and other of 4 points. Adjusted EBITDA margin of 19.7% to 22.9%.

Speaker #3: The above outlook includes an approximate negative 340 basis point adjusted EBITDA margin impact from pre-opening and startup costs to support our international expansion. This is for the third quarter 2026 outlook.

Speaker #3: Revenue growth of 5 to 6 percent, inclusive of backlog reduction of 2.5 points, RHS states of 2 points, new galleries and other, 1 point. Adjusted EBITDA margin of 12.5 to 13.5 percent.

Speaker #3: The above outlook includes an approximate negative 310 basis point adjusted EBITDA margin impact from pre-opening and startup costs to support our international expansion. Fourth quarter 2026 outlook.

Speaker #3: Revenue growth of 16.1% to 21.2%, inclusive of backlog reduction of 6.5 points. RHS states growth of 8 points. New galleries and other of 4 points.

Speaker #3: Adjusted EBITDA margin of 19.7% to 22.9%. The above outlook includes an approximately negative 190 basis points of adjusted EBITDA margin impact from pre-opening and startup costs to support our international expansion.

Gary Friedman: The above outlook includes an approximately -190 basis points of adjusted EBITDA margin impact from pre-opening and start-up costs to support our international expansion. Expanding the brand and doubling the TAM, we believe the introduction of RH Estates, our latest brand extension, introduced with a 268-page source book that arrived in homes late June through mid-July, has the potential to double the total addressable market of the RH brand. Over 60% of luxury homes across North America have traditional or classic architecture with a higher concentration in Europe. A home's architectural vernacular is generally the driving factor influencing stylistic direction for both interior designers and consumers.

Speaker #3: Expanding the brand and doubling the TAM. We believe the introduction of RHS, our latest brand extension, introduced with a 268-page source book that arrived in homes late June through mid-July, has the potential to double the total addressable market of the RH brand.

Speaker #3: Over 60% of luxury homes across North America have traditional or classic architecture, with a higher concentration in Europe. A home's architectural vernacular is generally the driving factor influencing stylistic direction for both interior designers and consumers.

Speaker #3: Additionally, we believe traditional and classic furniture will anchor the next major style trend across the industry over the next 20-plus 1980s through 2010, such as eclecticism based on classic design and antiques, highlighted with contemporary and modern pieces, and the California look, pioneered by Michael Taylor, who architectural digest called one of the 20 greatest designers of all time.

Gary Friedman: Additionally, we believe traditional and classic furniture will anchor the next major style trend across the industry over the next 20 plus years as the dominant trends from the 1980s through 2010, such as eclecticism based on classic design and antiques highlighted with contemporary modern pieces, and the California look pioneered by Michael Taylor, who Architectural Digest called one of the 20 greatest designers of all time, and who twisted eclecticism towards a more rustic yet refined point of view, blurring the lines between indoors and outdoors. Michael Taylor's California look was amplified and refined by Richard Hallberg, Daniel Cuevas, and Barbara Wiseley, designers who together launched Formations, one of the most admired and respected design firms and to-the-trade luxury furniture showrooms in the United States, recognized and respected globally.

Speaker #3: And who twisted eclecticism towards a more rustic yet refined point of view, learning alignments between indoors and outdoors. Michael Taylor's California look was amplified and refined by Richard Hallberg, Daniel Cuevas, and Barbara Wiseley, designers who together launched Formations.

Speaker #3: One of the most admired and respected design firms and to-the-trade luxury furniture showrooms in the United States, recognized and respected globally. The three later acquired Denison Lean, giving them authority in its authentic classical European furniture and antiques, blending them masterfully and creating a stylistic vocabulary that was layered and looked to have been collected over time.

Gary Friedman: The three later acquired Dennis & Leen, giving them authority in authentic classical European furniture and antiques, blending them masterfully and creating a stylistic vocabulary that was layered and looked to have been collected over time. Their flagship showrooms on Melrose Avenue in West Hollywood Design District have been the first stop for many of the best interior designers and collectors from around the world.

Speaker #3: Their flagship showrooms, on Melrose

Speaker #4: Avenue in West Hollywood's Design District has been the first stop for many of the best interior designers and collectors from around the world. Our acquisitions over the past six years of Michael Taylor Designs, Formations, Dennison Lean, Joseph Juke, and Dimitri, plus our decades-long relationship with many of the world's distinguished antique collectors such as Ed Hardy in San Francisco, Ludovic Messinger, who set the tone and trends at the world-famous Paris flea market, and Rebecca Hill of London and Beijing.

Gary Friedman: Our acquisitions over the past 6 years of Michael Taylor Designs, Formations, Dennis & Leen, Joseph Jeup, and Dmitriy & Co, plus our decades long relationship with many of the world's distinguished antique collectors such as Ed Hardy in San Francisco, Ludovic Messager, who set the tone and trends at the world-famous Paris Flea Market, and Rebecca Hill of London and Lu Xin, who now leads product curation for RH Upholstery, plus designers such as Anouska Hempel, the inventor of Blakes, the first and most famous boutique hotel in the world, who also designed the RH Bar and Lounge and The Perch restaurant at RH London. Plus, the many designers, artisans, and manufacturers who are all part of the intricate and inspiring RH Ecosystems of design have come together to lead, form, and ride this next wave with the launch of RH Estates.

Speaker #4: who now leads product curation for RH Upholstery, plus designers such as Anouska Hempel, the inventor of Blake's—the first and most famous boutique hotel in the world—who also designed the Worlds of RH Bar and Lounge and the Perch Restaurant at RH London, plus the many designers, artisans, and manufacturers who are all part of the intricate and inspiring RH ecosystem of design, have come together to lead, form, and ride this next wave with the launch of RH Estates.

Speaker #4: This is a collective effort with a level of talent, experience, and scale unseen before in our industry. While we launched RH Estates with a conservative initial mailing, our plan is to aggressively expand the assortment and circulation in November, where we will have a space on the main floor of our galleries that represents 80% of our business.

Gary Friedman: This is a collective effort with a level of talent, experience, and scale unseen before in our industry. While we launched RH Estates with a conservative initial mailing, our plan is to aggressively expand the assortment and circulation in November, where we will have RH Estates on the main floor of our galleries that represent 80% of our business, and in-stocks will be at an adequate level to meet and fill demand, hence the Q4 acceleration in our outlook. You can expect us to continue to rapidly expand the assortment over the next 5 years, and we predict it will represent 50% of our offering at that time. We also believe RH Estates will be margin accretive on multiple levels. One, we believe the quality, design, and exclusivity of the offering will command higher margins.

Speaker #4: And in-stocks will be at an adequate level to meet and fill demand, hence the fourth quarter acceleration in our outlook. You can expect us to continue to rapidly expand the assortment over the next five years, and we predict it will represent 50% of our offering at that time.

Speaker #4: We also believe RH Estates will be margin accretive on multiple levels. One, we believe the quality, design, and exclusivity of the offering will command higher margins.

Gary Friedman: Two, the average price point is currently 45% higher than our existing assortment, thus creating cost leverage and margin accretion throughout our operating model. It is also important to note that we will aggressively protect the exclusivity of our products and the integrity of our brand. Almost the entirety of the RH Estates collection is currently protected by trade dress or has design patents pending due to the acquisitions of Michael Taylor, Formations, Dennis & Leen, and Dmitriy & Co, as well as pieces developed with internal and external designers.

Speaker #4: And two, the average price point is currently 45% higher than our existing assortment, thus creating cost leverage and margin expansion, margin accretion throughout our operating model.

Speaker #4: It's also important to note that we will aggressively protect the exclusivity of our products and the integrity of our brands. Almost the entirety of the RH Estates collection is currently protected by trade dress or has design patents pending due to the acquisitions of Michael Taylor, Formations, Dennis & Leen, and Dimitri, as well as pieces developed with internal and external designers.

Gary Friedman: You will note on the back of the source book, it reads, "RH vigorously protects and pursues appropriate legal remedies against unauthorized copying, imitation, or misuse worldwide of its product designs, photographs, and collection names through intellectual property rights, including design patents, unregistered design rights, trade dress, trademarks, copyrights, and pending applications." Extraordinary takes more time, costs more money, involves more people doing more things in a more complicated manner, but it is worth it. Over the entrance of RH's Center of Innovation, it reads, "RH, the home of the extraordinary, the remarkable, and the amazing." I am sure there are people who visit or come in for an interview and think the above is some corporate nonsense. I am here to tell you it is not. It is logic, experience, and I would argue, common sense.

Speaker #4: You will note on the back of the, of the source book, it reads: RH vigorously protects and pursues appropriate legal remedies against unauthorized copying, imitation, or misuse worldwide of its product designs.

Speaker #4: Rights in pending applications. Extraordinary takes more time, costs more money, and involves more people doing more things in a more complicated manner.

Speaker #5: But it's worth it.

Speaker #4: Over the entrance of our Center of Innovation at Reiss, RH, is the phrase: "The home of the extraordinary, the remarkable, and the amazing." I'm sure there are people who visit or come in for an interview and think the above is some corporate nonsense.

Speaker #4: I'm here to tell you it's not. It's logic, experience, and, I would argue, common sense.

Speaker #1: What we've learned on our 26-year journey of transforming Restoration Hardware—a nearly bankrupt company with a $20 million market cap and a box of OxiDoll laundry detergent on the cover of

Gary Friedman: What we have learned on our 26-year journey of transforming Restoration Hardware, a nearly bankrupt company with a $20 million market cap and a box of Oxydol laundry detergent on the cover of its catalog, into RH, the leading luxury home brand in the world with almost $4 billion in annual revenues, is that we always figured out how to monetize extraordinary and remarkable work. We found it very hard to monetize ordinary and unremarkable. Yes, it has taken more time, cost more money, involved more people doing more things in a more complicated manner. Yes, it has always been worth it, and this time will be no different. If you are a long-term shareholder and owner like I am, thank you for your belief and patience.

Speaker #4: their catalog into RH, the leading luxury home brand in the world, with almost $4 billion in annual revenues. It's that we always figured out how to monetize extraordinary and remarkable work.

Speaker #4: And we found it very hard to monetize ordinary and unremarkable. And yes, it has taken more time, cost more money, involved more people doing more things in a more complicated manner.

Speaker #4: And yes, it has always been worth it, and this time will be no different. If you're a long-term shareholder and owner like I am, thank you for your belief and patience.

Speaker #4: While we've been running through the mud for the past four years of the worst housing market in four decades, we've also made some amazing investments and done remarkable work.

Gary Friedman: While we have been running through the mud for the past four years of the worst housing market in four decades, we have also made some amazing investments, done remarkable work, and expect extraordinary results over the next several quarters and years. Let me take you through a few of them. RH International. We expect the drag from international to decrease from 450 basis points in H1 of this year to 250 basis points in H2, or 340 basis points for the year. We further expect the drag from international to decrease from 340 basis points in 2026 to 150 basis points in 2027 as we cycle the significant investments of opening our three global flagships in Paris, Milan, and London over a 10-month period from September 2025 to July 2026.

Speaker #4: And expect extraordinary results over the next several quarters and years. Let me take you through a few of them.

Speaker #5: RH International.

Speaker #4: We expect the drag from international to decrease from 450 basis points in the first half of this year to 250 basis points in the second half.

Speaker #4: or 340 basis points for the year. We further expect the drag from international to decrease from 340 basis points in 2026 to 150 basis points in 2027.

Speaker #4: As we cycle the significant investment of opening our three global flagships in Paris, Milan, and London over a 10-month period from September 2025 to March 2026.

Speaker #5: to July 2026.

Speaker #4: On June 27th, we opened what I believe is our most innovative and extraordinary brand experience yet: RH London, the Gallery Mayfair. If you want to see our very best work—and maybe the best work in the world of retail—it's at 7 Burlington Gardens, in the heart of Mayfair.

Gary Friedman: On 27 June, we opened what I believe is our most innovative and extraordinary brand experience yet, RH London, the gallery in Mayfair. If you want to see our very best work, and maybe the best work in the world of retail, it is at 7 Burlington Gardens in the heart of Mayfair. I am happy to report the design pipeline reached almost $7 million in the first eight weeks, rivaling the design pipelines of RH Newport and RH New York. It will take several months to turn these high-caliber, complex design jobs, some in the million-dollar range, into demand and revenue. But the response to RH London has been nothing short of spectacular. As I mentioned on our last call, I believe RH London will be the amplifier of the RH brand recognition across Europe and the Middle East.

Speaker #4: I'm happy to report the design pipeline reached almost $7 million in the first eight weeks, rivaling the design pipelines of RH Newport and RH New York.

Speaker #4: It will take several months to turn these high-caliber, complex design jobs—some in the million-dollar range—into demand and revenue, but the response to RH London has been nothing short of spectacular.

Speaker #4: As I mentioned on our last call, I believe RH London will be the amplifier of the RH brand recognition across Europe and the Middle East.

Gary Friedman: Our record investment cycle is now post-peak, which will result in lower capital spending and higher returns on invested capital. We expect adjusted capital expenditures to decrease from $240 to $260 million in 2026 to $175 to $200 million in 2027. We expect new gallery opening costs to decrease from $48 million in 2026 to $18 million in 2027. We have cycled through our real estate pipeline that included three global flagships and several multi-story galleries with rooftop restaurants where construction costs doubled post-COVID. We have one multi-story gallery left to complete in Houston in 2027. Our new real estate strategy includes RH Compounds, a multi-building shopping experience with connecting garden courtyards and a central atrium restaurant under construction in Naples, Florida, scheduled to open at the end of 2026 or the beginning of 2027.

Speaker #4: Our record investment cycle is now post-peak, which will result in lower capital spending and higher returns on invested capital. We expect adjusted capital expenditures to decrease from $240 to $260 million in 2026 to $175 to $200 million.

Speaker #5: in 2027.

Speaker #4: We expect gallery opening costs to decrease from— new gallery opening costs to decrease from $48 million in 2026 to $18 million in 2027.

Speaker #5: million in 2027.

Speaker #4: We have cycled through our real estate pipeline, which included three global flagships and several multi-story galleries with rooftop restaurants, where construction costs fell.

Speaker #5: post-COVID.

Speaker #4: We have one multi-story Gallery left to complete in Houston in 2027. Our new real estate strategy includes RH Compounds, a multi-building shopping experience with connecting garden courtyards and a central atrium restaurant under construction.

Speaker #4: Construction in Naples, Florida, is scheduled to open at the end of 2026 or the beginning of 2027. And another RH Compound should be under construction soon in Aventura, Florida, opening in 2027.

Gary Friedman: Another RH Compound that should be under construction soon in Aventura, Florida, opening in 2027. Both projects are projected to have a payback in the 12 to 18 month range, with return on capital metrics we were accustomed to prior to the pandemic. Additionally, as previously mentioned, we have developed a single story RH Design Gallery with integrated restaurants with similar expected 12 to 18 month payback ranges, and we are confident that our multiple go-to-markets retail strategies of RH Compounds, RH Ecosystems, RH Design Galleries with a single story, and RH Interior Design Offices will significantly increase our return on invested capital and decrease construction timelines. Our long-term success and strategic separation is the result of innovating and investing during uncertain times, and this time is no different.

Speaker #4: Both projects are projected to have a payback in the 12- to 18-month range—return on capital metrics we were accustomed to prior to the pandemic.

Speaker #4: Additionally, as previously mentioned, we have developed a single-story RH Design Gallery with integrated restaurants with similar expected 12 to 18 month payback ranges. And we are confident that our multiple, multiple go-to-market retail strategies of RH Compounds, RH Ecosystems, RH Design, galleries with a single story and RH Interior Design offices will significantly increase our return on invested capital and decrease construction timelines.

Speaker #4: Our long-term success and strategic separation are the result of innovating and investing during uncertain times, and this time is no different. We are launching RH Estates, the most compelling collection in the history of our industry, which has the potential to expand the brand and double the TAM.

Gary Friedman: Launching RH Estates, the most compelling collection in the history of our industry that has the potential to expand the brand and double the TAM. Opening three most innovative global flagships that will likely never be duplicated in our lifetimes. Developing a global hospitality brand with restaurants that drive significant traffic, brand awareness, and generate on average 65% of the aggregate galleries rent they reside in. Building the world's largest residential interior design firm that is moving our brand beyond presenting and selling product, to conceptualizing and selling spaces. All during the darkest days and most prolonged housing downturn in four decades is not for the faint of heart. Never underestimate the power of a team of people who don't know what can't be done, especially these people. Onward, Team RH. Carpe diem, Gary. Operator will now open the call to questions.

Speaker #4: Opening three of the most innovative global flagships that will likely never be duplicated in our lifetimes. Developing a global hospitality brand with restaurants that drive significant traffic, brand awareness, and generate, on average, 65% of the aggregate gallery's rent.

Speaker #5: they reside in.

Speaker #4: Building the world's largest residential interior design firm that is moving our brand beyond presenting and selling products to conceptualizing and selling spaces, all during the darkest days and most prolonged housing downturn in four decades.

Speaker #4: It's not for the faint of heart. Never underestimate the power of a team of people who don’t know what can’t be done — especially these people.

Speaker #5: Onward, team RH. Carpe diem, Gary.

Speaker #4: Operator will now open the call to questions.

Speaker #6: We will now begin the question-and-answer session. We kindly ask that you limit yourself to one question and return to the queue for any additional questions.

Operator 3: We will now begin the question and answer session. We kindly ask that you limit yourself to one question and return to the queue for any additional. If you would like to ask a question, please press star one to raise your hand, and to withdraw your question, press star one again. We ask that you pick up your handset when asking a question for optimum sound quality, and if muted locally, please unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Steven Zaccone with Citigroup. Your line is currently opening. Please go ahead.

Operator: We will now begin the question and answer session. We kindly ask that you limit yourself to one question and return to the queue for any additional. If you would like to ask a question, please press star one to raise your hand, and to withdraw your question, press star one again. We ask that you pick up your handset when asking a question for optimum sound quality, and if muted locally, please unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Steven Zaccone with Citigroup. Your line is currently opening. Please go ahead.

Speaker #6: If you would like to ask a question, please press star 1 to raise your hand, and to withdraw your question, press star 1 again.

Speaker #6: We ask that you pick up your handset when asking a question for optimum sound quality, and if muted locally, please unmute your device.

Speaker #6: Please stand by while we compile the Q&A roster. Your first question comes from the line of Steven Zaccone with Citigroup. Your line is currently open.

Speaker #6: Please go ahead.

Speaker #7: Great. Good afternoon. Thanks so much for taking my question. Fun party last night in Greenwich—congrats on the opening. Maybe we could start there.

Steven Zaccone: Great. Good afternoon. Thanks so much for taking my question. Fun party last night in Greenwich. Congrats on the opening. Maybe we could start there. Gary, could you talk a little about the early demand trends for Estates? Are you seeing new customers? Maybe how this launch has played out relative to ones in the past. The price point premium of 45%, that seems sizable. There was a point in the past you talked about pricing being a bit too high. Why is Estates different in terms of pricing?

Speaker #7: Gary, could you talk a little about the early demand trends for Estates? Are you seeing new customers? Maybe, how has this launch played out relative to ones in the past?

Speaker #7: And then, the price point premium of 45%—that seems sizable. There was a point in the past when you talked about pricing being a bit too high.

Speaker #7: Why is Estates different, in terms of pricing?

Gary Friedman: Sure. Thank you, Steven. Thanks for coming to our opening last night. I'll kind of try to take the questions backwards. Why is 45% reasonable? Why is this different? Well, one, the product's completely different. Start there. If you think about the kind of pricing miscues we made with contemporary, that was more of a simple modern aesthetic and a contemporary aesthetic that was a product that was simpler to make. I don't think there's anything like RH Estates in the market today. At least nowhere we can find. If you try to do a Google search on any of our products, you're not going to find it. You might find a foreign website that tried to pick up some of our pictures and pop them on a no-name kind of location.

Speaker #4: Sure. Thank you, Steven. Thanks for coming to our opening last night. Let's—I'll kind of try to take the questions backwards. Why is 45% reasonable, and why is this different?

Speaker #4: Well, one, the product is completely different, so start there. If you think about the kind of pricing miscues we've made with Contemporary, that was more of a simple, modern aesthetic—a contemporary aesthetic. That was a product that was simpler to make.

Speaker #4: And I—I don't think there's anything like RH Estates in the market today. At least, nowhere we can find. If you try to do a reverse Google search on any of our products, you're not going to find it.

Speaker #4: You might find it, you know, a foreign website that tried to pick up some of our pictures and pop them on a, you know, no-name, no-name kind of location.

Speaker #4: So it has a lot to do with the exclusivity, the quality, and the desirability of the product. These products were being sold for two to three times our retail.

Gary Friedman: It has to do a lot with the exclusivity and the quality, and the desirability of the product. These products were being sold for 2 to 3 times our retail. I do not know anybody selling this level of quality, these kind of finishes. If you look at the Estates book and what we did with the product, you open it and you see the pictures of the photos are very close, tight shots showing that level of detailing and carvings and the hardware details, the finish details. You see 2 full pages of finishes up close the size of real life finishes. No one has ever done anything like that in this industry because no one has ever had finishes like this in this industry. It is available to a consumer, right?

Speaker #4: I don't know anybody selling this level of quality, these kinds of finishes. If you look at the Estates book and what we did with the product—you open it and you see the pictures, and the photos are very close, tight shots showing that level of detailing.

Speaker #4: ...and carvings, and the hardware details, the finish details you see. Two full pages of finishes up close—the size of real-life finishes.

Speaker #4: No one's ever done anything like that in this industry because no one's ever had finishes like this in this industry. It's available to the consumer, right?

Gary Friedman: That was in a design showroom, only available to the trade and with long lead times and special order finishes and where you might have to wait 4 to 6 months or longer. My first wife is a high-end interior designer, and that is why I understand this industry. I was her client on 2 projects and then her business partner for 11 years and saw the inefficiencies in the industry. That really framed the opportunity, I think, for RH as we see it today is that experience. When you are the only one with the level of design and quality in a marketplace, you can command a premium. Are the prices too high? I think they are incredible value. You cannot find this kind of product at these kind of prices. We do not think about price so much as we think about value, right?

Speaker #4: That wasn’t a design showroom only available to the trade. You know, long lead times and special order finishes, and, you know, where you might have to wait, you know, four to six months or longer.

Speaker #4: You know, my first wife is a high-end interior designer, and that's why I understand this industry. I was her client on two projects, and then if you're someone's business partner, you know, for 11 years and saw the inefficiencies in the industry—and, you know, that really framed the opportunity, I think, for RH as we see it today, that experience.

Speaker #4: So, you know, when you've got—when you're the only one with the level of design and quality in a marketplace, you know, you can command a premium. Like, are the prices too high?

Speaker #4: I think they're incredible value. You can't find this kind of product at these kinds of prices. So, we don't think about price so much as we think about value, right?

Gary Friedman: We think about design, quality, and value in that order, right? If nobody likes the design, nobody cares about the price. First, with a consumer, you have to love the design. If they love design, they will look closer. They will either click on the website or they will walk up to the product. The second thing a consumer generally does is they perceive the quality, right? They will walk up to it in a gallery, in a store. They will zoom in on a website, look closer at a page if it is a source book or catalog, and they will make a perception about quality. Then they will look at the price, and at that point, the consumer will make a decision about that design at that quality. Is that price a good value, right? It is not a one-dimensional price discussion ever. It is always a design, quality, value discussion.

Speaker #4: We think about design, quality, and value in that order. If nobody likes the design, nobody cares about the price. So first you have to, with a consumer—you have to love the design.

Speaker #4: Design, though—you know, they'll look closer. They'll either click on the website or they'll walk up to the product. And then the second thing a consumer generally does is perceive the quality.

Speaker #4: Right? So they'll walk up to it in a gallery, in a store, they'll zoom in on a website, look closer at a page if they're— you know, if it's a source book or catalog.

Speaker #4: And they'll form a perception about quality. Then they'll look at the price, and at that point, you know, the consumer will make a decision.

Speaker #4: A decision about, you know, that design at that quality—Is that price a good value? So it's not a one-dimensional price discussion ever.

Speaker #4: It's always a design, quality, value discussion. We don't care about the price of anything if we don't love the design, and neither does the customer.

Gary Friedman: We do not care about the price of anything if we do not love the design, right? Neither does the customer. I think you have got to start with, if you were a consumer, what do you think about design? How do you think about the quality? Walk up to it, touch it, open a drawer, look at the details, look at the hardware, look at the finishes, and then look at the price. I think that is the hierarchy everybody should look at any product with. For this design, this quality, we believe this is a tremendous value. I should probably read it. Maybe the next call, I will read some of the letters we are getting about RH Estates, because they are incredible. We have people that have never bought from us, were never a customer, and all of a sudden, they have stumbled into Estates.

Speaker #4: So I think you've got to start with, where can one—you know, if you're a consumer, what do you think about this sign? How do you think about the quality?

Speaker #4: You know, walk up to it, touch it, open a drawer, look at the details, look at the hardware, look at the finishes, and then look at the price.

Speaker #4: And I think that's the hierarchy everybody should look at any product with. So, you know, for this design, this quality, we believe this is a tremendous value.

Speaker #4: And we—you know, I should probably read it. Maybe on the next call I'll read some of the letters we're getting about RH Estates, 'cause they're incredible.

Speaker #4: Yeah, we have people that weren't—have never bought from us, were never a customer. And all of a sudden, they stumbled into Estates, they got the book, or they walked into an RH, and now we've got a large design job.

Gary Friedman: They got the book, or they walked into an RH, and now we have a large design job. We just recently had someone in RH London whose interior designer was going to augment a million-plus design job with probably about $50,000 to $80,000 of RH and broader client into RH London, and now we are doing 95% of a $1.1 million design job. I think you asked me about incrementality or what was it? Early entrants. New customers. Our people in the galleries will tell you it is almost entirely a new customer, and I think that makes sense. Like I said, I think we turned the company, over the last eight years or so, too modern, too contemporary, too one-dimensional. We are quick learners here.

Speaker #4: Recently, as someone in RH London, who their interior designer was going to augment, you know, a million-plus design job with probably about 50 to 80.

Speaker #4: $80,000 of RH and brought her client into RH London, and now we're doing 95% of a $1.1 million job—a $1 million design job. So I think this is—I think you asked me about incrementality, or what was it?

Speaker #4: New customers. Yeah, our people in the galleries will tell you it's almost entirely a new customer. And I think that makes sense. Like I said, you know, I think we've turned the company over the last—

Speaker #4: Eight years or so. Too modern, too contemporary, too one-dimensional. You know, but we're quick learners here, and, you know, it's—as we mature and understand the industry and the consumer even more, I think if you watch the earnings video I think I did two quarters ago, I tried to outline.

Gary Friedman: As we mature and understand the industry and the consumer even more, I think if you watch the earnings video I think I did two quarters ago, I tried to outline how we think about RH and the opportunity and how we see three major design vernaculars. Call it traditional classic, which we call Estates, contemporary, which we call interiors, and modern, which we call RH Modern. We think about ourselves now as a juggler, if you will. There are three balls, and then there is always one ball in the air. The ball that is in the air is generally the ball that is the major trend. For anywhere in our industry, a short trend might be 7 to 10 years. The major trends are more 15 to as long as 25 or 30 years.

Speaker #4: How we think about RH and the opportunity, and how we see kind of three major design vernaculars. You know, call it kind of traditional classic, which we call Estates; contemporary, which we call Interiors; and modern, which we call Modern.

Speaker #4: We kind of think about ourselves now as kind of a juggler, if you will. There are three balls, and then there's always one ball in the air, and the ball that's in the air.

Speaker #4: It's generally the ball that's the major trend, you know. Anywhere in our industry, a short trend might be 7 to 10 years. The major trends are more 15 to, anywhere, 15 to as long as 25 years.

Speaker #4: 25 or 30 years. And, you know, people have asked me before—yeah, they'll ask me, where do the trends come from? And I think I've said it on conference calls, but the trends come from the dead, right?

Gary Friedman: People have asked me before, they will ask me, "Where do the trends come from?" I think I have said it on conference calls, I say, "The trends come from the dead." Generations pass away. They are gone. We sell into estate sales. The estate sales feed the high-end antique markets. The high-end antique markets feed and inform the high-end interior design market. The high-end interior design market then informs the high-end reproduction market, and then it trickles down. The next trends I outline, I talk about them pretty fulsomely in the letter to try to help people see why we are so excited about Estates, because it is almost a magnifying opportunity. One, we are not addressing the traditional classic market today very well at all. Estates, hardly at all. I think we are dominant in contemporary modern.

Speaker #4: Generations pass away, and their belongings go into estate sales. Estate sales feed the high-end antique market. The high-end antique market feeds and informs the high-end interior design market.

Speaker #4: The high-end interior design market then informs the high-end reproduction market, and then it kind of trickles down. And so, the next trends I outline, I talk about, Kim.

Speaker #4: Fulsomely in the letter, try to help people see why we're so excited about States, because it's tight. You know, like almost a magnifying opportunity.

Speaker #4: So, one, we're not addressing the traditional classic market today very well at all—I’d say hardly at all. I think we're dominant in contemporary and modern.

Speaker #4: So, you know, if you've got 60% of the luxury homes in America that are classic and traditional, we're probably not addressing that customer base.

Gary Friedman: If you have 60% of the luxury homes in America that are Classic and traditional, we are probably not addressing that customer. Maybe we are getting 5% of that market. Maybe we are getting 10% with a few older collections. The math would tell you that this could and should be half our business or more than half our business. All the data we look at, once you start digging and think about it, and we have been working on this now, God, I do not know, seven years, we have been conceptualizing this opportunity, and we are getting smarter and smarter and seeing a bigger and bigger market. We think this is as incremental or more incremental than when we did RH Modern. When we did RH Modern, no one was waking up in the morning saying, "Hey, honey, we need some modern furniture.

Speaker #4: We might—maybe we're getting 5% of that market. Maybe we're getting 10%. You know, we have a few older collections. So, you know, the math would tell you that this could, could and should be half our business, or more than half our business.

Speaker #4: And the data, you know, all the data we look at, you know, once we start digging and thinking about it—I mean, we've been working on this now, God, I don't know, seven years.

Speaker #4: We've been conceptualizing this opportunity and we're getting smarter and smarter, and seeing a bigger and bigger market. We think this is, you know, as incremental or more incremental than when we did RH Modern.

Speaker #4: You know, when we did RH Modern, no one was waking up in the morning saying, "Hey honey, we need some modern furniture, we just got a modern condo or new house and it was modern."

Gary Friedman: We just got a modern condo or a new house, and it was modern. Nobody was thinking about going to RH for modern furniture in 2012, 2013, or 2014 until we launched RH Modern in 2015. RH Modern was highly incremental, one of the most incremental things we've done, and it very quickly went from zero to $1 billion. We think this is as incremental, it might be more incremental. We were in Greenwich last night for our OC party, and we took some back roads. We were coming from the airport, and you go through the neighborhoods, and you realize, you could drive around here for hours and might not see a modern home. Some of the homes might have been remodeled with some contemporized interiors, and that might play.

Speaker #4: Nobody was thinking about going to RH for modern furniture, you know, in 2012, '13, or '14, until we launched RH Modern in 2015. RH Modern was highly incremental.

Speaker #4: One of the most incremental things we've done, and it very quickly, you know, went from $0 to $1 billion. And we think this is as incremental—might be more incremental.

Speaker #4: And we were in Greenwich last night for our opening party. And, you know, but it's—I mean, I don't know how—we had to take some back roads.

Speaker #4: We're coming from the airport, and you go through the neighborhoods, and you realize you could drive around here for hours and might not see much.

Speaker #4: Modern homes, yeah. And some of the homes might have been remodeled with some contemporized interiors, and that might play. But when you really look at the bones of the houses and look at the exterior of the houses—

Gary Friedman: When you really look at the bones of the houses and look at the exteriors of the houses, my sense is the market of Greenwich, Connecticut, Westport, New Canaan, that whole area, I believe it's like 90/10, 85/15, somewhere like that. By the way, we don't talk about our store launch, so I'll let our competitors know this one. We do like $47 million in Greenwich. We have 14,000 interior selling in the post office, and we have about 4,500 in the outdoor gallery today. It's all contemporary. I'm thinking if we're doing $47 million in Greenwich, Connecticut, with 14,000 feet of interior selling space, what could an Estates do? We have, I think, 12,000 feet of interior selling in the new former Ralph Lauren building, which is a perfect building for an Estates, by the way. Thank you, Ralph.

Speaker #4: My sense is, the market of Greenwich, Connecticut, Westport, New Canaan, you know, that whole area—I gotta believe it's like 90/10, 85/15, somewhere like that.

Speaker #4: And I, and by the week we have it, I'm going to have a better store of lines out above. Let our competitors know this one.

Speaker #4: Like, we do, like, $47 million in Greenwich, right? We have 14,000 interior selling in the Post Office, and we have about 4,500 in the outdoor gallery today, right?

Speaker #4: And it's all contemporary. And so I think if we're doing $47 million in Greenwich, Connecticut, with 14,000 feet of interior selling space, what could a stage do?

Speaker #4: You know, we have, I think it was 12,000 feet of interior selling in the new, you know, former Ralph Lauren building, which is a perfect building for a stage, by the way.

Speaker #4: Thank you, Ralph. So we didn't have to build that one, and so it's highly capital efficient for those of you who are going to ask me that question.

Gary Friedman: Because we didn't have to build that one, it's highly capital efficient for those of you going to ask me that question. This is a big deal. This is a big deal. We've been working on this for a long time. We've never made so many acquisitions to set ourselves up for a business. If you saw the projects that I did early on, whether it's my condo in San Francisco or the home I still have in Belvedere that has Michael Taylor diamond tables in the kitchen. I let the team reproduce the 17th century antique monastery table I have in the dining room that is almost identical.

Speaker #4: So this is a big deal. You know, it's a big deal. We've been working on this for a long time. We've never made so many acquisitions to set ourselves up for a business.

Speaker #4: Michael, if you saw my project that I did early on, whether it's my condo in San Francisco or the home I still have in Belvedere, that has Michael Taylor dining at a diamond table in the kitchen.

Speaker #4: Kitchen. I let the team reproduce the 17th-century antique monastery table I have in the dining room, and it's almost identical. I mean, somebody could switch.

Gary Friedman: My daughter saw it at our Center of Innovation, and they grew up at that dining table, and they're like, "Dad, why is our dining table here at the Center of Innovation?" I go, "It's not our dining table." They go, "Yeah, this is our dining table." They didn't know. It's a very expensive antique. I guess I can say it. I bought it 27 years ago for $58,000. Statement dining table, built a nice house in Belvedere. Never spent that much on any piece of furniture or anything, and I'm not saying that to show off. I put it into context. It's an 11-foot table that has two extensions, extends, I think, to 14, 15 feet. It can seat up to 16 people because it's, I think, almost 50 inches wide. You can fit two people at the end.

Speaker #4: My daughter saw it in our Center of Innovation. You know, they grew up at that dining room table. And they're like, "Dad, why is our dining table here at the Center of Innovation?"

Speaker #4: I go, "It's not our dining table." He goes, "Yeah, this is our dining table." I mean, they didn't know, but it's a very expensive antique.

Speaker #4: I mean, it's like you said—yeah, I bought it 27 years ago for $58,000. You know, statement dining table, built a nice house in Belvedere, never spent that much on any piece of furniture.

Speaker #4: Or anything, and I'm not saying that to show off. I'm trying to put it into context. It's an 11-foot table that has two extensions, extends, I think, to 14 or 15 feet.

Speaker #4: Sixteen people because it's, I think, almost 50 inches wide. You can fit two people at the end. So it's really great if you entertain and, yeah, if you have a big family.

Gary Friedman: It is really great if you entertain and if you have a big family. I do not think anybody addresses that business very well. Those are the kind of businesses that we are addressing with Estates. We said our initial goal when we are launching, we want to dominate the primary bedroom, the primary living room, and the primary dining room. That is where we will start, and then we will continue to expand and dimensionalize the assortment. That table today, if you take that $58,000 dining table and you just did natural inflation over 27 years, I think it is about a $140,000 dining table today, somewhere like that. If you look on 1stDibs, when you look at dining tables, they go up to about $250,000 to $300,000. That table would probably get somewhere between $100,000 to $200,000 if it was on 1stDibs today. We have got that.

Speaker #4: And I don't think anybody addresses that business very well. You know, those are the kinds of businesses that we're addressing with the States. We said, you know, initial goal launching, we want to dominate the primary bedroom, the primary living room, and the primary dining room.

Speaker #4: That's where we'll start, and then we'll continue to expand and dimensionalize the assortment. That table today—if you take that $58,000 dining table and you just did natural inflation over 27 years, I think it's about $100,000.

Speaker #4: $240,000 dining table today, somewhere around there. And if you looked on 1stDibs, you know, you looked at dining tables—they go up to about $250,000 to $300,000.

Speaker #4: I think we would probably get somewhere between $100,000 to $200,000 if it was on 1stDibs today. So, we got that. We'll start—we finally land. We were going back and forth.

Gary Friedman: Where we finally land, we were going back and forth. That one is $14,995, and that is for the 12 of one, or the 11 of one, which is fine. It is an incredible value. I think a lot of people, again, are we talking about a higher-end customer? Of course, we are. Should that scare anybody? No. We have moved this brand up over 27 years. The way we have built this brand is we went from selling knick-knacks and tchotchkes and had an average order value of $125, to an average order value of around $10,000. That is with our orders split. If you really look at it, because we split a lot of divine orders we deliver, our true average order is much higher than that. We kept elevating the brand. We kept shedding lower value customers, acquiring higher value customers.

Speaker #4: That one's $14,995, and that's for the 12th of the month. The 11th of the month, which, by the way, I think it is, and, you know, it's an incredible value.

Speaker #4: I mean, I think a lot of people, again, it's—are we talking about a higher-end customer? Of course we are. Should that scare anybody?

Speaker #4: No.

Speaker #5: We've moved this brand

Speaker #4: Up over 27 years, right? The way we built this brand is we went from selling knick-knacks and tchotchkes and had an average order value of $125.

Speaker #4: And we're going to have shorter value, you know, around $10,000. And that's with our order split, you know, if you really look at it. Because we split a lot of design orders, we deliver them.

Speaker #4: So, our true average order is much higher than that. But we've moved — we've kept elevating the brand, kept shedding lower-value customers, acquiring higher-value customers, and, yeah, we'll continue to do so until we kind of say we.

Gary Friedman: We will continue to do so until we hit the right spot. That does not mean we will not sell bedroom furniture that is appropriate for second, third, fourth bedrooms in houses and second homes and things like that. We think we are going to be alone in the market for a while here. I challenge anybody to take the RH Estates book, go scan the internet, tell me who is going to compete with it. Then look at this second drop, which is really like the first drop, because it is basically the same book with about 30% more items in it and product in it. We are just going to an increased number of customers. We are not mailing the same people. We are just broadening the contacts, which will significantly lift the business.

Speaker #4: hit the right spot. That doesn't mean we won't sell Bedroom furniture that's appropriate for second, third, fourth bedrooms, you know, in, in houses and second homes and things like that.

Speaker #4: But we think we're going to be alone in the market for a while here. I mean, I challenge anybody, take the RH States book, go scanning, go scan the Internet.

Speaker #4: Tell me, who's going to compete with us?

Speaker #5: And then

Speaker #4: Then look at the second drop, which is really kind of like the first drop, you know, because it's going to—oh, it's basically the same book with about 30.

Speaker #5: percent. That.

Speaker #4: There are 30% more items and products in it, but we're just going to an increased number of customers. We're not mailing the same people.

Speaker #4: We're just

Speaker #5: writing yet.

Speaker #4: Broadening the contacts, which will significantly lift the business. And when we do that, we're going to do that in concert with...

Gary Friedman: When we do that, we are going to do that in concert with the products will be unveiled in the galleries. It will take over the first floor in all of our big galleries. It will be the main thing. It will be well represented. It will be in stock. November is our transition time. Early, mid-November, we will have gallery transitions that are somewhere between 75% and 85% of the business. Then it will continue to go to the rest of the galleries, and I think all galleries by September. That is the last 15% to 20% of our volume. That is when it is really meaningful. I think these products will get an even bigger lift when the customer sees them, as the finishes are so intricate, and the detail and the quality is, I think, important to see.

Speaker #5: the product.

Speaker #4: Will be unveiled in the galleries. It'll take over the first floor in all of our big galleries. It'll be the main thing. It'll be well represented.

Speaker #4: It'll be in stock. So November's, you know, our transition time—like, you know, early to mid-November we'll have galleries transitioned that are somewhere between 75% and 85% of the business.

Speaker #4: And then it'll continue to go to the rest of the galleries, and I think all galleries by December, right? Yes, it's a little less—15% to 20% of volume.

Speaker #4: So that's when it's really meaningful, right? And I think these products will get an even bigger lift when the customer sees them, as the finishes are so intricate and the details and the quality, I think, are important to see.

Gary Friedman: Data would say that when you look at the furniture industry today, about 80% of furniture is done in retail stores. When you look at the luxury furniture industry, it is like 95/5. That is just because the customer is more discerning, they are spending more money, it is more of an investment, and has everything to do with comfort, sit, finish, color scale, and all the things that you do not want to get wrong. It is one thing if you are an internet shopper today. You order five things and you return three, or some people order 10 things and they keep one or send all 10 back. You really cannot do that with furniture business. You will bankrupt people, and most people charge for restocking fees. We have not yet.

Speaker #4: And data would say that, you know, like when you look at the furniture industry today, about 80% of furniture is sold in retail stores.

Speaker #4: When you look at the luxury furniture industry, it's like 95/5. And that's just because the customer's more discerning, they're spending more money, it's more of an investment.

Speaker #4: And, you know, it has everything to do with comfort—you know, fit, finish, color scale, and all the things, you know, that you don't want to...

Speaker #5: get wrong. Like, it's

Speaker #4: It's one thing if you're an internet shopper today—you know, you order five things and you return three, or, you know, some people order ten things and they keep one, or, you know, seven things and they keep one.

Speaker #4: I'll send back. You really can't do that with the furniture business. You'll bankrupt people, you know. And most people charge for restocking fees. We haven't yet.

Speaker #4: We're probably going to change that, because we do think some people take advantage of, like, ordering stuff and then just go, "Oh, we'll just... this is what we keep, this is what we send back."

Gary Friedman: We are going to probably change that, because we do think some people take advantage of ordering stuff and then just go, "Oh, this is what we will keep. Let us go and send back." But it is very expensive to make mistakes when you are buying furniture.

Speaker #4: But it's very expensive to make mistakes in the furniture, you know, when you're buying furniture.

Steven Zaccone: Okay. Thanks for all that detail. Appreciate it. The follow up I had is just international. It was helpful to get the context of where you see the drag going in 2027. Can you talk a little about the assumptions there? Because you will be cycling flagship openings. I guess we have not really gotten the revenue, but curious when you think about the UK versus continental Europe, are we at the point where the UK can be much larger from a revenue perspective, and that is really helping from a profitability perspective? Thanks very much.

Speaker #7: Okay, thanks for all that detail. I appreciate it. The follow-up I had is just on international. It was helpful to get the context of where you see the drag going in 2020.

Speaker #7: 2027. Can you talk a little about the assumptions there? Because you’ll be cycling flagship openings, right? And I guess we haven’t really gotten to the revenue, but curious when you think about the UK versus continental Europe.

Speaker #7: Are we at the point where the UK can be much larger from a revenue perspective, and that’s really helping from a profitability perspective? Thanks very much.

Gary Friedman: One of the biggest things is just the cost to open in Europe. The number of people that we have to have fly from America, put up in America for months. You are training. The three global flagships were the first hospitality experiences. RH England we did, but that is not a very high volume hospitality experience out in the countryside. These were real complex hospitality experiences. So a typical gallery for us, we might employ 30 to 40 people on the gallery side, and we will employ 120 to 130 people on the hospitality side. So when you are opening restaurants and hospitality, it is longer training, it is more complex, more people. Just the support that Europe needed from America. We had a lot of people on the road for a long time, making sure we are opening these right. You do not get a second chance to make a first impression.

Jack Preston: One of the biggest things is just the cost to open in Europe. The number of people that we have to have fly from America, put up in America for months. You are training. The three global flagships were the first hospitality experiences. RH England we did, but that is not a very high volume hospitality experience out in the countryside. These were real complex hospitality experiences. So a typical gallery for us, we might employ 30 to 40 people on the gallery side, and we will employ 120 to 130 people on the hospitality side. So when you are opening restaurants and hospitality, it is longer training, it is more complex, more people. Just the support that Europe needed from America. We had a lot of people on the road for a long time, making sure we are opening these right. You do not get a second chance to make a first impression.

Speaker #4: Yeah, one of the biggest things is just the cost to open in Europe, right? We've, you know, the number of people that we have to have fly from America, put up in Europe, you know, for months, you know, you're training.

Speaker #4: The three global flagships were the first hospitality experiences. Yeah, RH England we did, but, you know, that's not a very high-volume hospitality experience out in the countryside.

Speaker #4: These were real complex hospitality experiences. So, you know, in a typical gallery approach, we might employ 30 to 40 people on the gallery side, and we'll employ 120 to 130 people on the hospitality side.

Speaker #4: And so, when you're opening restaurants and hospitality, it's longer training, it's more complex, more people. And just to support that, you know, you're needed from America. You know, we had a lot of people on the road for a long time.

Speaker #4: Making sure we're opening these right. You don't get a second chance to make a first impression. You know, we're not the most popular people or continent right now, right?

Jack Preston: We are not the most popular people or content right now. We want to open correctly, we want to be respectful. A lot of things that are important. Assumptions-wise, Steve, again, obviously the drag of the opening costs that Gary just mentioned. You have to build up the revenue that is helping to reduce the drag. Obviously, the absence of these large costs. We have no more European openings things in 2027. Those are the building blocks, and they are kind of self-evident, but just pointing them out.

Speaker #4: You know, so you want to open correctly, you want to be respectful. You know, a lot of things that are important. But assumptions-wise, Steve, again, it's, you know, obviously the drag of the opening costs that Gary just mentioned.

Speaker #4: You have to build up the revenue that's helping to reduce, obviously, the absence of these large costs. We have no more European openings in '27.

Speaker #4: So, you know, those are the building blocks, and they're just kind of self-evident, but just pointing it out.

Speaker #7: Okay, thanks for all that detail. Best of luck. Thank you.

Steven Zaccone: Okay, thanks for all that detail. Best of luck.

Gary Friedman: Sure. Thank you.

Operator 3: As a reminder, we kindly ask to limit yourself to one question and return to the queue for any additional follow-ups. Your next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open. Please go ahead.

Operator: As a reminder, we kindly ask to limit yourself to one question and return to the queue for any additional follow-ups. Your next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open. Please go ahead.

Speaker #6: As a reminder, we kindly ask that you limit yourself to one question and return to the queue for any additional follow-ups. Your next question comes from the line of Cindy.

Speaker #4: Damien Gutmann with Morgan Stanley, your line is open. Please go ahead.

Speaker #8: Hi, guys. Hi, everyone. I guess maybe more of a math question. So if you look at the progression within your back-half guide, it looks like there is a bit of a step there—a step to the third quarter in terms of the underlying stacks, and then another step up into the fourth quarter.

Simeon Gutman: Hi, guys. Hi, everyone. I guess maybe more of a math question. If you look at the progression within your H2 guide, it looks like there is a bit of a stairstep to Q3 in terms of the underlying stacks, then another step up into Q4. Is that explicitly RH Estates, and can you speak to the momentum you are seeing within that brand? What else is it, if it is not just RH Estates?

Speaker #8: Is that explicitly Estates? And can you speak to the momentum you're seeing within that brand? And then what else is it, if it's not just Estates?

Speaker #4: Yes, to me, and it's listed right there. So you have it in front of you—the press release? Like, if you look at it, right, as inclusive of backlog reduction, it's 6.5 points.

Gary Friedman: Yeah, Simeon, it is listed right there. You have it in front of you, the press release? If you look at it-

Simeon Gutman: Yes

Gary Friedman: Right, inclusive of backlog reduction is 6.5 points. RH Estates at 8 points, and new galleries, another at 4 points.

Speaker #4: Or is it just states at 8 points? And new galleries, you know, another at 4 points.

Jack Preston: That was Q4. Obviously, we have Q3 there as well. You have got-

Speaker #9: And now Q4—obviously we have Q3 there as well—so you've got that in. You see the quarter-over-quarter increases in this.

Jack Preston: That was Q4. Obviously, we have Q3 there as well. You have got-

Gary Friedman: Yes

Jack Preston: you see these quarter-over-quarter increases in those.

Simeon Gutman: Okay. I guess if I may restate, what gives you confidence, and I get the backlog reductions, but can we talk about the confidence in that acceleration?

Speaker #8: Okay. I guess if I may restate, I guess what gives you confidence and I get the backlog reductions, but, you know, can we talk about the confidence in, you know, in

Speaker #4: In that acceleration? Yeah, I mean, that's what we do, right? That's how we built this company—expanding product and mailing books and setting products in galleries.

Gary Friedman: Yeah, that is what we do. That is how we built this company is expanding product and mailing books and setting products in galleries. We have a lot of math around this. The big important launch, we think it is meaningful, and we have done meaningful things a lot. Even if you look back at product transformation, we went and accelerated into, after we kind of stumbled on the first contemporary round, we doubled down, and we were able to move the business 15 to 20 points, right? This could be conservative. If you look at our history, if you think about how Modern moved the business, when you think about when we accelerated product transformation in contemporary. If we looked at the prior 2 and a half years, I do not think this is that aggressive.

Speaker #4: And, you know, we have a lot of math around this, and—

Speaker #7: Yes.

Speaker #4: The big, important launch—we think it's meaningful, and we've done meaningful things a lot. I mean, even if you—if you look back at, you know, product transformation, we went and accelerated into... After we kind of stumbled on the first contemporary round, we doubled down and, you know, we were able to move business 15 to 20 points.

Speaker #4: So, you know, this could be conservative. I mean, if you look at our history, like if you think about Modern Health, Modern Move to Business, when you think about—yeah, when we accelerated product transformation in Contemporary.

Speaker #4: I mean, we moved, you know, what we did in the prior two and a half years. Yeah. I don't think this is that aggressive.

Simeon Gutman: Okay. Thanks, guys. Good luck.

Speaker #8: Okay, thanks guys, good luck.

Speaker #6: Your next question comes from the line of Stephen Forbes with Guggenheim Securities. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Steven Forbes with Guggenheim Securities. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Steven Forbes with Guggenheim Securities. Your line is open. Please go ahead.

Steven Forbes: Hey, Gary and team. Gary, maybe just following up on RH Estates as all of us try to gauge your conviction here and the 8% net revenue growth contribution in Q4. Can you confirm whether that is based on source book-only demand? Or maybe just comment on how much footage you are dedicating to the collection in the fall, and would love to just hear how weekly demand scaling at the collection level is telling you where that 8% can go over a relatively short period of time versus that 50% sort of 5-year target.

Speaker #4: Hey, Gary and team. So, Gary, maybe just following up on RH Estates, as all of us try to gauge your conviction here in the 8% net revenue growth contribution in the fourth quarter.

Speaker #4: Can you confirm whether that's based on Sourcebook-only demand? And/or maybe just comment on how much footage you're dedicating to the collection in the fall.

Speaker #4: And we'd love to just hear how weekly demand scaling at the collection level is telling you where that 8% can go over a relatively short period of time versus that 50%, you know, sort of 5-year target?

Gary Friedman: Sure. We have data right now with the Estates building just in the mail and just on the website with long lead times and not in stock. We know if something has a 4-week wait, a 6-week wait, an 8-week wait, if something is running backwards with XYZ, there is math around all of that that we can forecast demand based on what we are seeing. So there are in-stocks, there are wait times. Then the big move is when the product goes into the galleries. I think we have said that publicly. List factors, maybe not. Our competitors know all that. I cannot remember. I have been doing this a long time.

Speaker #4: Sure, well, we have data right now. Yeah, with the Estates building, just in the mail and just, you know, on the website with, you know, long lead times and, you know, not in stock.

Speaker #4: So, you know, we know what— you know, when it— if something has a four-week wait, a six-week wait, an eight-week wait, if something's running backwards of XYZ, there's math around it.

Speaker #4: All of that, that we can forecast demand, right? Based on what we're seeing. Then there's, you know, so there's in-stocks, there's... wait.

Speaker #4: Then there's—then the big move is when the product goes into the galleries, you know. And I think we've said publicly this factors like no, maybe not.

Speaker #4: Maybe our competitors know all that. Okay, I can't remember—I've been doing this a long time. Yeah. Do you know the list factor for putting them on the book?

Jack Preston: You know the list factor for putting them on the floor.

Speaker #4: Yeah. Yeah, we're done. Yeah, 50% to 100%, you know, and it can go as high as 150%. So it's—yeah, so we have that.

Gary Friedman: Yeah.

Jack Preston: We've said it.

Gary Friedman: We've said it.

Jack Preston: 50.

Gary Friedman: Yeah, 50% to 100%. It can go as high as 100%.

Jack Preston: Yeah.

Gary Friedman: We have that. The other thing, when we say other and stuff like that, just think about we're going to make a big transformation. Think of our big galleries that are mostly two-floor galleries. When we do a flip and we're bringing newness onto the main floor, one, not everything that's on the main floor leaves. What we do is we look at what are the best sellers, everything's ranked, and we take the bottom stuff off the floor, right? You take the least productive goods on the floor and you're better. Hopefully, again, this is why we don't put it on the floor right away. We generally like to look at things for three to six months here because we believe it's so incremental, and we have data of classic things we've sold and still sell.

Speaker #4: And then, and then the other thing, like when we say "other" and stuff like that, just think about—we're going to make a big transformation.

Speaker #4: Like, think of our big galleries that are mostly two-floor galleries. Yeah, so when we do a flip and we're bringing newness onto the main floor,

Speaker #4: Uh, one, not everything that's on the main floor leaves. What we do is, we look at what are the best sellers—everything's ranked—and we take the bottom stuff off the floor, right?

Speaker #4: So you take the least productive goods on the floor, and you're better, and hopefully, again, this is—you know why we don't put it on the floor right away.

Speaker #4: We generally like to look at things for three to six months here because we believe it's so incremental, and we have data of classic things we've sold and still sell, things that we—

Gary Friedman: Things that we didn't realize we couldn't kill it, right? We just know the market's still there. We've been selling St. James since 2008. We still have St. James. Can't stop selling St. James. Some of our other just classic things like that. We realized that we transitioned the business too far. If you look at most specialty brands, most specialty brands are built around an aesthetic point of view. Whatever category, apparel or this or that, it's got a stylistic point of view, and you usually stay within that stylistic point of view. I think if you thought about the furniture business, most of us here started in apparel. Armani looks like Armani, Ralph Lauren looks like Ralph Lauren. Gap's got their point of view, American Eagle's got theirs, or Abercrombie, whoever you're looking at.

Speaker #4: We didn’t realize we couldn’t kill it, right? So we just know the market’s still there. I mean, we’ve been selling St. James since 2008.

Speaker #4: You know, we still have St. James. Can't stop selling St. James. You know, some of our other, you know, just classic things like that, and we...

Speaker #4: Realize that we—we transitioned the business too far, and you know, if you look at most specialty brands, most specialty brands are built around an aesthetic point.

Speaker #4: Of view, you know. Whatever category—apparel, or this or that—you know, it's got a stylistic point of view, and you usually stay within the stylistic point of view.

Speaker #4: And I think we just thought about the furniture business. You know, like most of us here started in apparel, you know, and so, you know, Armani looks like Armani.

Speaker #4: Ralph Lauren looks like Ralph Lauren. You know, Gap's got their point of view. American Eagle's got theirs, or whoever you're looking at, right? And Chanel's got their point of view.

Gary Friedman: Chanel's got their point of view. Maje's got a point of view. Most of us come from that, and the longer we're in it, the more we learn. As I say, again, if you go back and look at the video, I think I outlined it very clearly about what we want to do is own the 7 major product categories and the 3 major aesthetics. We think that if we do that really well, we can be relevant to all the customers at that level in the market across all the architectural vernaculars and major stylistic points of view. There might be some stuff like, I'm likely not going to let the brand go after Grandma Chic. It's a little trend. Kendall Jenner, when Architectural Digest did a tour of her new cabin, Kendall Jenner was great for our brand.

Speaker #4: Rage's got a point of view. So most of us come from that, and you know, the longer we're in this, the more we learn, and—

Speaker #4: Yeah, and if I—again, if you go back and look at the video, I think I outlined it very clearly about what we want to do, is own the— and it's seven major product categories and three major aesthetics.

Speaker #4: And we think that if we do that really well, we can be relevant to all the customers at that level in the market, across all the architectural vernaculars and major stylistic points of view.

Speaker #4: There might be some stuff like, you know, I'm likely not going to let the brand go after grandma chic, right? It's a little trend.

Speaker #4: I mean, you know, Kendall Jenner. You know, on Architectural Digest, she did a tour of her new cabin. And, you know, Kendall Jenner, like, great for our brand, right?

Gary Friedman: She has the cloud and this and that, and took people through her home then. I don't know, maybe it's just because it's me and I don't like flower sofas and stuff like that. You do have to kind of keep your brand a little disciplined. We're going to let everybody else have Grandma Chic or things like that, and I don't know what some of the other weird trends that we're seeing right now, but we don't have to own everything. To this day, people think that we're going to go bankrupt because we don't sell enough color. Those are the same people that haven't really looked at that many homes. Just go on Zillow or Redfin and go look at 100 homes and find out how many have a red sofa.

Speaker #4: She's the cloud, and, you know, this and that, took people to her home then. You know, I don't know, maybe it's just because it's me, and I'm like, I don't like flower sofas and stuff like that.

Speaker #4: But, you know, you do have to kind of keep your brand a little disciplined. You know, so we're going to let everybody else have 'grandma chic' or things like that.

Speaker #4: And I don't know what some of the other weird trends that we're seeing right now that we're not—you know, like, we don't have to own everything, you know? And I mean, to this day, people think that, you know, we're going to go bankrupt because we don't sell enough color.

Speaker #4: Yeah, it's—those are the same people that, you know, haven't really looked at that many homes. Like, if you, you know, go on Zillow or Redfin and go look at 100 homes and find out how many have a red sofa, you'll realize, like, not a lot of people in the world have red sofas.

Gary Friedman: You'll realize not a lot of people in the world have red sofas. If you want to be in the red sofa business, go right ahead. You want to be in the flower Grandma Chic printed sofa business, go for it. I'm happy for you. You're just not going to see us in those things. Fine. I think when you think about just the revenue for Estates, you're going to see the big ramp happened when the goods get in the galleries, the in-stocks start to peak, and we expand the circulation meaningfully. We have a lot of customers lined up right now just waiting, "When can I see this in the gallery? When can I see this in the gallery?" There's pent-up demand. People waiting, just want to know when they can see it in person.

Speaker #4: So if you want to be in the red sofa business, go right ahead. You want to be in the floral grandma-sheets-printed sofa business, go for it.

Speaker #4: Like, I'm happy for you. You're not going to see us in those things, so go ahead. But I think when you think about just the revenue for states, you're going to see the...

Speaker #5: the big ramp.

Speaker #10: Happened when the goods get in the galleries—the in-stocks.

Speaker #4: Yeah, start to peak. And, um, we expand the circulation meaningfully.

Speaker #10: Right. So

Gary Friedman: We have a lot of customers lined up right now just waiting, "When can I see this in the gallery? When can I see this in the gallery?" There's pent-up demand. People waiting, just want to know when they can see it in person. Because again, the data will tell you at the luxury end of the market, it is like 90/10 or 95/5, people want to see the goods.

Speaker #4: Yeah, we have a lot of customers lined up right now, just waiting. When can I see this in the gallery? When can I see this in the gallery?

Speaker #4: So there's pent-up demand. People are just waiting and want to know when they can see it in person. Because again, the data will tell you, at the luxury end of the market, it's like 90/10.

Gary Friedman: Because again, the data will tell you at the luxury end of the market, it is like 90/10 or 95/5, people want to see the goods.

Speaker #4: Or 95/5. People want to see the goods. Thank you. I'll pass it on.

David Brown: Thank you. I will pass it on.

Operator: Thank you. I will pass it on.

Speaker #6: Your next question comes from the line of Max Raklanko with TD Cowen. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Max Rakhlenko with TD Cowen. Your line is open. Please go ahead.

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

Speaker #7: Hey guys, thanks a lot. So, first question: When we think about the Q4 contribution from estates, that's on a delivered basis. So, just curious how we should think about how much higher the demand could be?

Max Rakhlenko: Hey, guys. Thanks a lot. So first question, when we think about the Q4 contribution from Estates, that is on a delivered basis. Just curious how we should think about how much higher the demand could be. Then given how your demand builds and some of the color that you have given us in the past couple questions, Q4 is obviously just a jumping-off point for H1 2027. So curious if you could just provide a little bit more color on how we should think about how big Estates can get into next year.

Speaker #7: And then, given how your demand builds and some of the color you've given us in the past couple of questions, Q4 is obviously just a jumping-off point for when age 27.

Speaker #7: So, curious if you could just provide a little bit more color on how we should think about how big estates can get in general.

Speaker #7: to next year.

Speaker #4: I don't know, Max. I was going to ask you how you liked the pizza or any of the pastas last night, because I saw you in the restaurant.

Gary Friedman: I do not know, Max. I was going to ask you how you liked the pizza or any of the pastas last night. Because I saw you in the restaurant. How do we think that demand growth

Speaker #4: Yeah, how do we think that demand builds? I mean, clearly, Max, demand is in excess of the revenue growth as this business is building and ramping, and, you know, you're—

Jack Preston: I mean, clearly, Max, demand is in excess of the revenue growth.

Gary Friedman: Yeah

Jack Preston: as this business is building and ramping, and you are leading us to the same conclusion. You know, if it is obvious evidence that in Q1 that continues, especially with the investment, but presentation of product in the gallery, and newness that Gary talked about, 30% books and whatnot. We do not talk about demand growth, at least at the moment, we do not.

Speaker #9: Leading us to the same conclusion. There's evidence that in Q1, that continues, especially with the best presentation of product in the gallery and newness that Gary talked about—30%, uh, books and whatnot.

Speaker #9: So, we don't talk about demand growth. At least at the moment, we don't. Yeah, we did during that transition. Yeah, acquisitions we do, but today we don't.

Gary Friedman: Yeah. We did during that transition time. Yeah.

Jack Preston: During those transitions we do, but today we don't. This is a growing business. It's clearly paying growth rates as we build in stock, as we present product, et cetera, everything Gary's talked about, are some level higher.

Speaker #9: And so, you know, this is a growing business. As we build in-stock, as we present product, etc.—everything Gary's talked about.

Speaker #4: Are some levels higher than—when you ask about, when you think about how half 1 versus half 2 looks, Max, maybe leading into H1 2027.

Gary Friedman: When you think about how H1 versus H2 looks, Max, maybe leading into H1 2027, how does that check? I think growth is 8 points growth based on that.

Speaker #9: And how does that, you know, that check—you know, it was 8 points from PayPal activity. We're not guiding here in '27, but clearly there are stepping stones for elevated growth.

Jack Preston: Oh, we're not going to be guiding in 2027, but clearly there's a stepping stone or elevated growth.

Gary Friedman: Yeah. I would say, there's a good 5 years of building here of a new business and a growing business. I think the most similar thing is RH Modern, right? We weren't known for modern. We didn't have that aesthetic. No one was coming to us. They were going to Design Within Reach or going somewhere else. But we hopped on it because we saw an explosion of modern architecture happening around the world. We saw the verticalization of cities. We saw the influence of technology influencing customers to have them work from a modern point of view. We're all walking around with iPhones. The big commercial architectural trends were all modern. If you look back in the 1950s at mid-century modern, it wasn't really that big. You had the Bird Streets in LA. You had different places, Miami, Florida, places like that.

Speaker #9: Yeah, I would say,

Speaker #4: You know, there's, I mean, a good five years of building here. Like, you know, it'd be like a new business, a growing business.

Speaker #4: I think the most similar thing is REIT Modern. I mean, we weren't known for Modern. We didn't have that aesthetic. No one was coming to us.

Speaker #4: You know, they were going to Vineyard and Reach or going somewhere else. I mean, but we hopped on it because we saw an explosion of modern architecture happening around the world.

Speaker #4: We saw the verticalization of cities. We saw the influence of technology, which led customers to have a more modern point of view.

Speaker #9: People are walking around with iPhones.

Speaker #4: Yeah. The big commercial architectural trends were all modern. And, uh, if you look back in the 1950s at mid-century modernism, it wasn't really that big.

Speaker #4: I mean, you had the Bird Streets in L.A., you had different places—Miami, Florida—places like that. But you probably didn't have too much mid-century modern in Boston, New York, Philadelphia, places like probably Nunning Branch.

Gary Friedman: But you probably didn't have too much mid-century modern in Boston, New York, Philadelphia. Places like probably nothing Greenwich. Maybe there's a collector or two. Then you just saw a lot of places being remodeled, all the big boom in LA. That's why we opened the first RH Modern. I guess the first and the only freestanding RH Modern, because we're building the bigger one in Dallas.

Speaker #4: Maybe there's a collector or two.

Speaker #9: You know, like, but, um,

Speaker #4: And then you saw a lot of places being remodeled, all the, you know, a big boom in LA. That's why we opened the first Artisan Modern.

Speaker #4: I guess the first and the only freestanding Artisan Modern. It's worth building the bigger one in Dallas, briefly. Oh yeah, then we had—yeah, we had Dallas for a little while.

Jack Preston: It was quite a crazy, remember?

Gary Friedman: Oh, yeah. We had Dallas for a little while. So yeah, that's why we wanted to open in Greenwich, right? To really get a sense for, okay, here's a market. We do a lot of volume at 14,000 square foot main gallery with a 4,000 or 5,000 square foot outdoor gallery. Was 47 the right number?

Speaker #4: So, yeah, that's why we wanted to open in Greenwich, right? You really get a sense for, okay, here's a market. We do a lot of volume for a 14,000-square-foot main gallery.

Speaker #9: With a, you know, 4,000 or 5,000-square-foot outdoor gallery. Was 4,700 the right number?

Jack Preston: Yeah. 46.

Gary Friedman: 46 something. Okay. Yeah. I don't know, could we do another, I mean, could we comp a 50 or 70 in a market like that? I don't think that the customer who is looking and buying contemporary or modern is all of a sudden jumping up and down about a space. I think people buying a space, they are looking for something like that. Right now, something like that does not exist. There is a lot of classic, traditional, really, how do I say, not good-looking furniture out there. It is not like there is not, there is a lot. You go look at a lot of the classic furniture stores that have looked the same for 40 years. There is a lot of them out there. So the market share, I mean, there are people doing business. Go to High Point, North Carolina. A lot of classic furniture.

Speaker #4: Okay, yeah, and like, I don't know, like, could we do another— I mean, could we comp up 50 or 70 in a market like that?

Speaker #4: I don't think that the customer who's looking to buy contemporary or modern is all of a sudden jumping up and down about a stage.

Speaker #4: And I think people buying estates are, you know, they're looking for something like that. And then right now, that—something like that—doesn't exist.

Speaker #4: I mean, there's a lot of classic, traditional—like, really. Yeah, I mean, like I would say, you know, not good-looking furniture out there. It's not like there's not—there's a lot.

Speaker #4: I mean, you go look at a lot of the classic furniture stores that, you know, have looked the same for 40 years. There’s a lot of them out there, you know, so the market share—I mean, people doing business—I mean, go to High Point, North Carolina.

Speaker #4: A lot. Classic furniture. Go to the Furniture Mart in Nebraska, you know, the Furniture Hathaway thing.

Gary Friedman: Go to the Furniture Mart in Nebraska in a big Berkshire Hathaway. They do, like, $700 million out here. That would be 85% classic, traditional. So it is there. I think in a lot of ways, we will create a new high-end market for the aesthetic, the way we are going to build it out. The whole point of view and the aesthetic point of view will evolve and change. We will shape part of it. We are going earlier than we normally go on a trend. I usually like to let the wave break and kind of see who is riding it and how we can exploit it. I think because of the platform we have and because we have, this is good and bad for me. I lived through this trend. I was a consumer. The first trend I actually participated in as a consumer. That is really good news.

Speaker #9: I do like $700 million out here. Um, thank you. To be 85% positive.

Speaker #4: So it's there, you know, I think, and I think in a lot of ways we'll create a new high-end market for, you know, for the aesthetic, the way we're going to build it out.

Speaker #4: And, you know, the whole point of view and the aesthetic point of view will evolve and change. We will shape part of it.

Speaker #4: We're going earlier than we normally go on a trend, you know, so I usually like to let the wave break and kind of—

Speaker #9: see who's riding it and how we can exploit it. I think, because of the platform we have and because we've

Speaker #4: You know, this is—I mean, it's good and bad for me, right? I lived through this trend. I was a consumer. So, the first trend I actually participated in as a consumer—that's really good news.

Speaker #4: I've got a— I mean, I have the Michael Taylor diamond tables. I have a lot of the things and stuff, so I've got a point of reference.

Gary Friedman: I have the Michael S. Taylor diamond tables. I have a lot of the things and stuff, so I have got a point of reference on all this stuff. That is good and bad, too, by the way, because the trends never come through exactly the same. They always get shaped by designers and it always comes through fresh, yet familiar. But it has to be fresh and it has to be familiar. I think we can help shape this one, but we are going to evolve it. We are going to be inspired by other people. They are going to be inspired by us. Other small furniture businesses that are run by highly aesthetic people will do some really great things, and the market will evolve, and we will hopefully get a very good share of this evolving new trend and be a permanent player in classic traditional.

Speaker #9: Like, and on all this stuff, and

Speaker #4: You know, that's good and bad too, by the way, you know, because it never—the trends never come through exactly the same. They always, you know, get shaped by designers and...

Speaker #4: And it always comes through fresh, yet familiar. But it has to be fresh, and it has to be familiar. And so, um, but I think, you know, I think we can help shape this one.

Speaker #4: But we're going to evolve it. We're going to be inspired by other people, and they're going to be inspired by us.

Speaker #9: Yeah. Other small furniture.

Speaker #4: Businesses that are run by highly aesthetic people will do some really great things. And yeah, and then, you know, the market will evolve and we’ll, you know, we’ll hopefully get a very good share of this, you know, evolving new trend.

Speaker #4: And be a permanent player in classic tradition.

Max Rakhlenko: Got it. That is helpful. Then just quickly, I appreciate the color in the compounds and the Design Galleries. Can you just compare and contrast how unit economics could look compared to the legacy gallery formats that you have opened for the past decade? Should revenues and margins be pretty similar, or could the margin profile actually be a little bit stronger given maybe less SG&A associated with the new format compared to what we have seen previously?

Speaker #7: Got it, that's helpful. And then just quickly, I appreciate the color on the compounds and the Design Galleries. Can you just compare and contrast how unit economics could look compared to the legacy gallery formats that you've opened for the past decade? Should revenues and margins be pretty similar, or could the margin profile actually be a little different?

Speaker #7: A bit stronger, given maybe less SG&A associated with the new format compared to what we've seen previously.

Gary Friedman: Yeah. We were building our multi-level design galleries with a restaurant and roof pre-COVID, anywhere from a lower cost market, I think we hit a low of $27 million.

Speaker #4: Yeah, like we think—you know what happened? We were building our multi-level design galleries with a restaurant on the roof. Pre-COVID, anywhere from, you know, a lower-cost market.

Speaker #4: I think we hit a low of like $27 million. Yeah, we did. A couple of them—Charlotte and—yeah, yeah, yeah. So, some of the lower-cost ones were $27 to $30 million. More expensive, marketed builds might have cost us $35 million.

Max Rakhlenko: A couple of them. Charlotte and.

Gary Friedman: Yeah. Some of the lower costs, 27 to 30. A more expensive market to build might have cost us 35. The cost of those went to 40 to 60 with all the inflation costs that happened in construction, especially better quality, higher rent construction. Necessity is the mother of invention, right? We were already pregnant with a lot of real estate we had to build. We were committed, under construction, or too far down the pipeline to change course. But we invented a new concept. We said, "Look, if you say what's really good about one of our multi-level galleries with the restaurant and that whole breed, there's really a lot of good things about it. What are the bad things about it? Multiple floors require grand staircases. They require elevators, generally two. They require two sets of exit stairs. Those are not cheap to build.

Speaker #4: And, you know, the cost of those—yeah, it went to $40 to $60. I mean, with just all the inflation costs that happen in construction, especially better quality, higher-end construction.

Speaker #4: So that's, you know, necessity is the mother of invention, right? We, you know, we were already pregnant with a lot of real estate we had to build.

Speaker #4: We were committed, you know, under construction or too far down the pipeline to change course. But, you know, we invented a new concept. We said, look, if you say what's really good about one of our multi-level galleries with the restaurants and...

Speaker #9: You know, that whole breed.

Speaker #4: There's really a lot of good things about it. What are the bad things about it? Multiple floors require grand staircases. They require elevators, generally two.

Speaker #4: They require two sets of exit stairs. Those are not cheap to build. So you’ve got multiple stairways that, by the way, do $0 per square foot.

Gary Friedman: So you've got multiple stairways that, by the way, do $0 per square foot. There's no transactions happening in the elevators or the stairways or the grand stairwell. There's a lot of square footage. Then when you take that and start compounding floors, then you put a furniture on the roof, and all of a sudden you've got a whole different coding. You need different footings and foundations, and steel gets upsized and with all the inflation steel, that was a big problem for us. Those just became very expensive. Then everything you do on a multi-floor building, right, you've got cranes and pickers. You've got guys trying to put metal awnings on windows on the second floor, the third floor, and you got cranes and everything all around, and you're trying to plaster the whole building, multiple floors.

Speaker #9: Yeah.

Speaker #4: There are no transactions happening in the elevator, to the stairways, to the grand stairwells. There's a lot of square footage. And then, when you take that and start compounding floors, then you put furniture on the roof—then all of a sudden, you've got a whole different coating.

Speaker #4: You need different footings and foundations, and steel gets upsized. And, you know, with all the inflation—steel, that was a big problem for us.

Speaker #4: And, you know, those just became very expensive. And then everything you do on a multi-floor building, right? You've got cranes and pickers, you've got guys trying to put metal awnings on windows on the second floor, the third floor, and, you know, you've got cranes and everything all around, and you're trying to plaster the whole building multiple times.

Speaker #4: So if you think about a compound, we disaggregated...

Gary Friedman: So if you think about a compound, we disaggregated one of those big galleries, and we said, "Okay, what can we get rid of?" There are some fortunate real estate opportunities because I think Saks went bankrupt first, right? Then Saks came out of bankruptcy, and then Nordstrom went bankrupt. Saks again, and then Saks bought Nordstrom.

Speaker #9: one of those big galleries, and we said, okay, what can

Speaker #4: What can we get rid of? And, you know, there are some fortunate real estate opportunities because of— you know, I think Saks went bankrupt first, right?

Speaker #4: And then Saks came out of bankruptcy, and then Nordstrom went bankrupt. Yeah, then Saks bought Nordstrom. Neiman Marcus went back too. So, you know, different opportunities were coming up as far as real estate.

Max Rakhlenko: You mean Neiman?

Gary Friedman: Neiman.

Max Rakhlenko: Yeah.

Gary Friedman: Yeah, Neiman went back to it. So, different opportunities were coming up for real estate. We think more will come up, high-end tabs. Also think about what is happening with transportation and driverless cars, even Uber and driverless cars. There is going to be a lot of parking lots in very good shopping centers that have way too much parking very, very soon, right? That is already happening now because zoning laws are changing. So, we said, "How could we be opportunistic with" which we think is the reduction of real estate, like Saks, they did not come out of bankruptcy yet, did they?

Speaker #4: We think more will come up. High-end pads. Also, think about what's happening with transportation and driverless cars. You know, even Uber and driverless cars.

Speaker #4: There's going to be a lot of parking lots.

Speaker #9: In very good shopping centers that have way too much parking, very, very soon, right? And it's already happening now. The zoning laws are changing.

Speaker #4: So, you know, we said, how could we be opportunistic with what we think is the reduction of real estate, like Saks and Nordstrom? Did they come out of bankruptcy yet?

Max Rakhlenko: Saks did, yeah.

Speaker #4: Yeah, they did. Oh, they did. Okay. Yeah, but I gotta think they're not going to keep the same footprint, so there's going to be opportunities with luxury to—

Gary Friedman: Yeah, they did. Oh, they did? Yeah, but again, I think they are not going to keep the same footprint. There is going to be opportunities with luxury department stores kind of closing. One of them we are taking just a parking lot space in Aventura, and then Naples was a Nordstrom to close. They are relatively big tabs. What we did is we said, "Hey, what can we build that is really interesting and divine, that is really interesting?" We said, "Well, what if we build multiple small buildings connected with beautiful garden courtyards with pathways and fountains and fire pits, and we put a restaurant in the middle and it is beautifully landscaped." We have a fraction of the square footage under roof when you really look at all under roof. We have individual buildings that do not have to have connected mechanical systems, so much less complex.

Speaker #9: pharma storage kind of play the game. We took

Speaker #4: One of them, we're taking just a parking lot space in Aventura, and then Naples was a Nordstrom's that closed. And, um, you know, and so they're relatively big pads.

Speaker #4: And what we did is we said, hey, what, you know, what can we build that's really interesting and divine, that's really interesting? And we said, well, what if we build multiple small buildings connected with beautiful garden courtyards and pathways and fountains and fire pits and put a restaurant in the middle and, you know, beautifully landscaped.

Speaker #4: And so, we have a fraction of the square footage under roof, when you really look at all under roof. We have individual buildings that don't have to have connected mechanical systems, so much less complex.

Speaker #4: You know, most of the buildings are poured at 5,000, 5,500 square feet. I think we have one, two, three, four, five, six, kind of seven connected—seven independent structures in Naples. And, you know, they’re designed in a way that’s for outdoor furniture, outdoor spaces, and the rooms are designed in very efficient ways.

Gary Friedman: Mostly the buildings are 4,000 to 5,000, 5,500 square feet. I think we have 1, 2, 3, 4, 5, 6, 7 connected, 7 independent structures in Naples. They are designed in a way that it is designed for our RH Outdoor furniture, and the rooms are designed in very efficient ways. We actually get more product per square foot, but I think it is going to feel just as elegant and grand. It does not take any cranes, does not take any stairways, does not take any extra stairs, does not take any elevators, does not take big footings or this, that. In fact, most of them, even in, I think in Naples, right, it is all wood. No steel.

Speaker #4: We actually get more product per square foot, but I think it's going to feel just as elegant and grand. You know, it doesn't take any cranes, doesn't take any stairways, doesn't take any exit stairs, doesn't take any elevators, doesn't take big footings.

Speaker #9: Most of mine, even in—I think Naples, right?—it's all wood, no steel. Yeah, 100% wood. Some of these, we believe we can...

Max Rakhlenko: Yeah.

Gary Friedman: 100% wood. Some of these we believe we can prefab build the walls and just tilt them up, and plaster the outside. We designed them so they only have a couple of windows because that we could manufacture the windows and do a lot of things. So, they are going to cost us. We were hoping the price was going to be half, and it is half. We get more product density. I think they are going to be more exciting to shop. You are really walking, it is like a resort. I call it like a design resort. Walking through, depending where you are in the US, in Florida, you are going to have palm trees and banana palms, all kinds of tropical foliage and stuff, and California, you are going to have olive trees and other things. They are going to be cool. They are going to be very interesting.

Speaker #4: Prefab build the walls and just tilt them up, you know, plaster the outside. We designed them so they only have a couple of kinds of windows because we thought we could manufacture the windows.

Speaker #4: and do a lot of things. So, you know, they're gonna cost us. I mean, we were hoping the price was gonna be half, and it's half.

Speaker #4: And we get more product density, and I think they're going to be more exciting to shop. I mean, you're really walking it—it's like a resort.

Speaker #4: I call it like a design resort. Walking through, depending on where you are in the US—in Florida, you're going to have palm trees and banana palms and all kinds of...

Speaker #9: You've got tropical foliage and stuff, and

Speaker #4: California, you'll have olive trees and other things, and they're going to be cool. They're going to be very interesting. And the restaurants are going to be beautiful.

Gary Friedman: The restaurants are going to be beautiful. It is like a glass box in the middle of an atrium, indoor/outdoor, indoor seating, outdoor seating. We are super excited about it. Everybody who has kind of seen them, Dave, he just got back from Naples, right? Like walked through. It feels good. Even though it is a construction site still, you get the feeling of like, nobody has anything like it. What else Dave and I were talking about what is good about it for the landlords, they will take more risks on these and I think participate more financially because we are building all these smaller buildings. So, they are always worried like, "Oh, what if something goes wrong with our RH, I am stuck with this three-story building with a restaurant on top. Who is going to lease that from me?" Not a lot of people.

Speaker #4: It's like a glass box in the middle of an atrium—indoor-outdoor, indoor seating, outdoor seating.

Speaker #9: So we're super excited about it. Everybody who's kind of seen them—you know, Dave, you just got back from Naples, right? Like, walking through, it feels good.

Speaker #9: Like even though it's a construction site, construction site still, um, you get the feeling of like, it's nothing—nobody has anything like it. And what else is, you know, Dave and I were talking about what's good about it—the landlord.

Speaker #4: You know, they'll take more risk on these, and I think participate more financially, because we're building all these smaller buildings. So, you know, they're always worried, like, oh, what if something goes wrong with RH—I'm stuck with this three-story building with the restaurant on top.

Speaker #4: Like, who's gonna lease that from me, right? Not a lot of people, but it's an extension of your shopping experience. So I think we have a good selling point, and I think we're gonna be really good partners for developers.

Gary Friedman: You sell them on, "Hey, look, we've built you a little village. You could put eight retailers in here." Beautiful. They're all connected. It's just an extension of your shopping experience. I think we have a good selling point, and I think we're going to be really good partners for developers. We're excited. The single-floor galleries that we're doing that are anywhere from 18 to 20, right, 22,000, 24,000 square feet with beautiful courtyard restaurants in the middle. We have our new Italian concept that we just opened in Greenwich, Cucina Angelina. It's named in honor of my Italian mother. Some of you are going to ask if my mom was a good Italian cook, and she wasn't. That doesn't mean I can't honor her, right? She did like to eat, but my Uncle Gino was the cook of the family.

Speaker #4: So we're excited, and the single-floor galleries that we're doing are anywhere from 18,000 to 20,000—right?—23,000 or 24,000 square feet, with, you know, beautiful courtyard restaurants in the middle.

Speaker #4: We have our new Italian concept that we just opened in, in Brennan's Cucina Angelina. So it's named in honor of my Italian mother. Now, some of you are going to ask, is my mom a good Italian cook?

Speaker #4: And she wasn't, but that doesn't mean I can't honor her, right? She did like to eat, but my Uncle Gino was the cook of the family.

Gary Friedman: I also talk about him if you see the menu and stuff like that. Some of these compounds we're doing, it's really fun. You're going to see big pizza oven and we think we have the best pizzas in America. If any of us here really wanted to take a flyer, I think you could take our pizzas on the road and we might have the best pizza concept in America. I wouldn't want to be any of this Papa John's or anything compete against our pizzas. They're so good. We have this pizza expert that works for us in Europe, Matteo, who's, he's perfected the crust. Didn't you have pizza last night, Max?

Speaker #4: Pizza oven. And, you know, we think we have the best pizzas in America. It's like, if any of us here, you know, really want to take a flyer, I think you could take our pizzas on the road and you might have the best pizza concept in America.

Speaker #4: I wouldn't want to be, you know, any of those Papa John's or anything, to be against our pizzas.

Speaker #9: We have this pizza expert that works for us in Europe, Matteo, who's perfected the crust.

Speaker #4: Did you— you had pizza last night? Matt? Matt? No?

Max Rakhlenko: I did not, no.

Speaker #9: I did not, no.

Speaker #4: Did you eat last night? I saw you. Or you just—yeah, you just—you're trying to get information on the gallery. But no, like, anyway, these compounds are going to be great, and I think the returns are going to be—

Gary Friedman: You eat last night. I saw you. Or you just, you're trying to get information on the gallery. No, anyway, these compounds are going to be great, and I think the returns are going to be as good or better than anything we've ever done. I think single-floor galleries will be as good or better than anything we've done. I think you're going to see capital spending go down, returns go up. I think you're very quickly see our return on invested capital kind of return to where it was at our peak.

Speaker #9: as good or better than anything we've ever done. And I think single-floor galleries will be as good or better than anything we've done. And, uh, and so I think, you know, you're gonna see—

Speaker #4: Capital spending goes down, returns go up. And I think you'll very quickly see our return on invested capital kind of return to where it was at our peak.

Speaker #7: That's great. Appreciate all the color. Good luck to the entire team in the second half. Speak soon. Great. Thank you.

Max Rakhlenko: That is great. Appreciate all the color. Good luck to the entire team in H2. Speak soon.

Gary Friedman: Great. Thank you.

Speaker #6: Your next question comes from the line of Chris Nardone with Bank of America. Your line is open. Please go ahead. Great, thanks, guys. Good evening.

Operator 3: Your next question comes from the line of Chris Nardone with Bank of America. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Chris Nardone with Bank of America. Your line is open. Please go ahead.

Chris Nardone: Great. Thanks, guys. Good evening. Can you guys elaborate on the health of your core inventory? Can you talk about whether you foresee a need to step up promotional activity to help clear way for the Estates rollout as we look into 2027?

Speaker #6: Can you guys elaborate on the health of your core inventory? And can you talk about whether you foresee a need to step up promotional activity to help?

Speaker #8: clear way for the estate's rollout as we look into 2027?

Speaker #4: It's not really clearing way for Estates, right? Estates is going to be incremental to the assortment, so we're not really clearing out Estates. I mean, we're going to—some of the things that are in the galleries today will come out of the galleries.

Gary Friedman: It's not really clearing way for Estates. Estates is going to be incremental to the assortment. We're not really clearing out Estates. Some of the things that are in the galleries today will come out of the galleries, and we've got a pretty good outlet network and ability to rotate through that. The Estates isn't going to cause, it's not going to cause a markdown. The environment in our category is very promotional right now and has been, right? There's a lot of data out there. People are, down to the by week, how promotional, how many SKUs does RH have versus Pottery Barn, versus Arhaus, versus this. When you're in the home business like this and you get a down housing market, 4 million homes, four straight years, unless you want to lose market share, you've got to be competitive.

Speaker #4: And we've got a pretty good allocation of the network and ability to, you know, rotate through that. But estates isn't going to cause— it's not going to cause markdowns.

Speaker #4: I mean, the environment in our category is very promotional right now, and has been, right? So there's—I mean, there's a lot of data out there.

Speaker #4: You know, people are—I mean, down to the, by week, how many, how promotional, how many SKUs does RH have versus Q4, Pottery Barn versus Arhaus, versus this.

Speaker #4: You know, like, I mean, everybody—when you're in the home business like this and you get a down housing market, you know, 4 million homes, four straight years.

Speaker #4: Unless you want to lose market share, you, you know, you've got to be competitive. So it's been somewhat of a promotional environment. Yeah, our margins are holding up fine, you know, and I mean, if you just take our model and extract, you know, a lot of these drags.

Gary Friedman: It's been somewhat of a promotional environment. Our margins are holding up fine. If you just take our model and extract a lot of these drags, our underlying model on RH is a really good model, a really good model. If we didn't have the drags from international, I don't know, it's right up there with anybody's, right? We're happy to cycle through here. The Estates is going to be incremental. Think of it, Estates, like a new category. When you've got a new aesthetic like that, it's really like a new category, it's like a new business almost. But we get to sell it on our platform, so it becomes very incremental and it's very leverageable. Things like this are the biggest drivers of profitability, right? We've spent some capital here. We bought some businesses, some things like that to build this.

Speaker #4: Our underlying model on RH is a really good model. A really good model. Like, we weren't— we didn't have the drags from international and—

Speaker #9: Yes. I know, like

Speaker #4: Right up there with anybody's, right? So that's the word. Yeah, we're happy to, you know, we're cycling through here. The stage is going to be incremental.

Speaker #4: You know, like—think of a stage like a new category. You know, it's like when you've got a new aesthetic like that, it's really like a new category—like a new business, almost.

Speaker #4: But we get, you know, we get to sell it on our platform, so it becomes very incremental and it's very leverageable. I mean, these are the things like this.

Speaker #9: Are the biggest drivers of profitability, right? They're like—yeah, we spent some capital here, yeah, we bought some businesses, you know, things like that to build this, but you only have to do that one time.

Gary Friedman: But you only have to do that one time and built a freestanding Estates store here. When we bought Formations, we also bought the Formations real estate, Formations in Dallas. We're going to transform that property to an RH Estates gallery with signage that's on West Hollywood on Melrose Avenue. On Melrose Avenue, we will have the RH Curio gallery, we'll have the RH Estates gallery, and then we three doors down from the RH Estates footprint, which is at 195 feet of frontage right on Melrose, and our current gallery is 145 feet. Then we took another smaller location for RH Outdoor, so a freestanding RH Outdoor. Then on Beverly Boulevard, a couple blocks away, we have an RH Modern freestanding. The question is: do we need to keep Modern?

Speaker #4: And, you know, built a freestanding stage door here. We bought—um, we bought Formations. We also bought the Formations real estate. Formations in Daphne.

Speaker #9: And we're going to transform that property into an RH Estates gallery in the Design District on West Hollywood, on Melrose Avenue. So, you know, Melrose Avenue—we will have the RH Interior Gallery, which will have...

Speaker #4: the RH Estates Gallery, and then we, three doors down from the RH Estates footprint, which is 195 feet of frontage, right, on Melrose, and our current gallery is 145 feet.

Speaker #4: And then we took another, smaller location for RH Outdoor—a freestanding RH Outdoor. And then, on Beverly Boulevard, a couple of blocks away, we have another RH Modern freestanding.

Speaker #9: So, you know, the question is, do we need to keep Modern? Does Modern consolidate into the, you know, the kind of core building that's had modifications?

Gary Friedman: Does Modern consolidate into the kind of core building that had some modern and contemporary in it? We may keep the whole footprint. We may consolidate some of it. But I think you'll see the test. I think we've talked about it in the past, that RH Ecosystems were one of the capital-efficient ways to deploy the brand. Especially if we got a presence like in Greenwich. We don't want to leave the historic post office, probably the best location in Greenwich. We were able to get the second-best location in Greenwich, the Ralph Lauren building. We call that an ecosystem. We'll have the historic post office. We'll have RH Contemporary and RH Modern. Estates will be in the former Ralph Lauren building. Then we've got a 5,000 square foot, 4,000 square foot RH Outdoor gallery. Outdoor is a very important business to us.

Speaker #4: We have had some modern and contemporary that...

Speaker #9: You know, we may keep the whole footprint; we may consolidate some of it. But I think you'll see—you know, you'll see us test that.

Speaker #9: Like, I think we've talked in the past about our—

Speaker #4: RH ecosystems were one of the capital-efficient ways to deploy the brand, especially if we've got a presence like in Greenwich,

Speaker #9: We don't want to leave this historic post office, probably the best location in Greenwich. We were able to get the second-best location in Greenwich—the Ralph Lauren building.

Speaker #4: And so we call that an ecosystem. So we'll have, you know, the Historic Post Office, we'll have Arch Contemporary, and Arch Modern space will be in the former Ralph Lauren building. And then we've got a 5,000-square-foot, 4,000-square-foot Arch outdoor gallery.

Speaker #4: You know, outdoor is very important business to us, and so in a lot of the key markets, we might have a 3-story, getting outdoor presence.

Gary Friedman: A lot of the key markets, we might have a freestanding outdoor presence. But instead of trying to get rid of our real estate that we are in and going out and having to build a big new thing, or we would never find a big enough location on Greenwich Avenue, we would have to go off the beaten track, and I do not know if we want to there. We call that an ecosystem. We have got an ecosystem in Palm Desert. We are doing one in West Hollywood, as I just described. It is just a much more capital-efficient way to continue to deploy the brand and dimensionalize the brand.

Speaker #4: But instead of trying to get rid of our real estate that we're in and going out and having to build a big new thing, or, you know, we'd never find—

Speaker #9: A big enough location on Greenwich Ave. We'd have to go kind of off the beaten track, and I don't know if we want to go there.

Speaker #9: We call that an ecosystem. Palm Desert. We're doing one in West Hollywood, as I just described. And it's just a much more capital-efficient way to continue to develop.

Speaker #4: deploy the brand and commercialize the brand.

Speaker #7: All right, thanks, Gary. Good luck. Thank you.

Chris Nardone: All right. Thanks, Gary. Good luck.

Gary Friedman: Mm-hmm. Thank you.

Speaker #6: Your next question comes from the line of Christina Fernandez with Kelsey Advisory Group. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Cristina Fernández with Telsey Advisory Group. Your line is opening. Please go ahead.

Operator: Your next question comes from the line of Cristina Fernández with Telsey Advisory Group. Your line is opening. Please go ahead.

Cristina Fernández: Great. Thanks for taking my question. I wanted to see if you can expand more into the trends you are seeing in Europe. It looks like London is off to a very good start. Are you seeing the end consumer shop more there, or is it more geared towards the trade, like what you are seeing at the other European locations? Maybe an update on how Paris and Milan are ramping up. Thank you.

Speaker #11: Great, thanks for taking my question. I wanted to see if you can expand more on the trends you're seeing in Europe. It looks like London is off to a very good start.

Speaker #11: Are you seeing, you know, the end consumer shop more there, or is it more geared towards the trade, like what you're seeing at the other European locations? And maybe an update on how Paris and Milan are ramping up.

Speaker #11: Thank you.

Speaker #9: Yeah, I mean, you know, you're asking at a funny time, right? August is not usually the best month. You know, everybody's on vacation, so people are just getting back, especially in Milan.

Gary Friedman: Yeah. You are asking at a funny time, right? August is not usually the best month. Everybody is on vacation, so people are just getting back, especially in Milan. You fire a cannon down the streets in most cities in Italy. Same thing with Paris. Everybody in Europe is on vacation in August. Everybody starts getting back in September, and business will ramp. Yeah. Our focus is how to build the brand in each of those countries. I think they are all different. It is interesting. Each one is culturally somewhat different, and shopping behavior is different. Obviously, the languages are different. I think that surprised us a bit, just how unique they are. So yeah, how do we market? How do we build awareness? How do you build the business with the trade? We have a lot of learning. We are flying early tomorrow morning to Paris.

Speaker #9: Like, you know, we fire cannons down the streets in most cities in Italy. Yeah, but same thing with Paris. I mean, everybody in Europe is on vacation in August.

Speaker #9: And everybody starts getting back in September, and business will ramp. Yeah, our focus is…

Speaker #4: It's how to build the brand in each of those countries. I think they're all different. It's interesting—each one is culturally somewhat different, and shopping behavior is different.

Speaker #4: I mean, obviously, the languages are different. I think that surprised us a bit, just how unique they are. So, yeah, how do we market?

Speaker #4: How do we build awareness? How do you build the business with the trade? We have a lot of learning that we're flying early tomorrow morning to Paris, and so we'll be in Paris.

Gary Friedman: We will be in Paris tomorrow night and Saturday. Saturday evening, we fly to London. We will be in London Saturday evening and Sunday. We will be in Europe a lot this year. Connecting with our teams, listening, learning, finding out what we are doing smart, finding out what we are doing dumb. Yeah, no different than building businesses in new markets. These are very different, right? London had a running head start for multiple reasons. One, the country speaks English, right, as a primary language. Two, it has the most expats, and we have the most customers over there. So we ship. London is the number one place. We do not ship to other countries, but customers can buy from us, and we help them get their goods containerized, right? They take control of the shipping. London, we have the most shipping to.

Speaker #4: Tomorrow night and Saturday—and Saturday evening—we fly to London. You know, we'll be in London Saturday evening and Sunday. Yeah, we'll be in Europe a lot this year.

Speaker #4: And, you know, connecting with our teams, listening, learning, finding out what we're doing smart, finding out what we're doing dumb. You know, building businesses in kind of new markets.

Speaker #4: These are very different, right? Like, I mean, London had a running head start for multiple reasons. One, the country speaks English, right, as the primary language.

Speaker #4: Two, it has the most expats and we have the most customers over there, so we ship London—it's the number one place. We don't ship to other countries, but customers can buy from us and we help them.

Speaker #9: ...get their goods containerized, right? And they take control of the shipping.

Speaker #4: But London, we have the most, you know, shipping too. And then we've had RH England open for 3 years, right? And RH England kind of ramped up by around $38 million in demand.

Gary Friedman: We have had RH England open for three years, right? RH England ramped up by around $38 million in demand. You see its awareness has been built up there over three years. That is why we expected London. We wanted to open London first. It is just that was the most complex of the deals, and was going to take the longest and so on and so forth. That is why we did RH England, to get positioned in the marketplace. But yeah, we are happy. We are learning about the business and lots of opportunity. The key is you cannot be an absentee kind of leadership team. You cannot leave everybody on an island in these individual geographics. Wherever we are on the East Coast, likely we are going to hop over to Europe.

Speaker #4: So you see, awareness has been built up there over three years. And yes, that's why we expected London.

Speaker #9: We wanted to open London first. It's just that it was the most complex.

Speaker #4: of the deals, and was going to take the longest, and so on and so forth. And that's why we did RH England.

Speaker #9: Kind of get, you know, get positioned in the marketplace.

Speaker #4: So, yeah, but we're happy. We're learning, you know, about the business, and there's lots and lots of opportunity. The key is, you know, you can't be an absentee kind of leadership team.

Speaker #4: Like, you can't leave everybody on an island in these individual, you know, geographics. So yeah, wherever I'm gonna be on the East Coast, like...

Speaker #9: We're going to hop over to Europe, and then we're going to go to Europe at least—at least four times a year, just to go to Europe, you know, spend, you know, half a week or a solid week, and really spend time with our team.

Gary Friedman: We are going to go to Europe at least four times a year just to go to Europe, spend half a week or a solid week, really spend time with our teams. Going to stay inside our company, the smartest people in the company are those people closest to the customer, and those of us that have gotten promoted generally get farther and farther away from the customer, and we get dumber and dumber, right. So the only way you can lead is if you first listen and second learn, then you can effectively lead. So we are in listening and learning mode and trying to be better leaders of our business. We have to do a lot of listening. We have to spend a lot of time, and our people, they have been very helpful. We have learned a lot. So we have got to get into stocks.

Speaker #4: You know, we like to say inside our company that the smartest people in the company are those closest to the customer. And those of us that get promoted generally get farther and farther away from the customer, and we get dumber and dumber, right?

Speaker #4: So the only way you can lead is if you...

Speaker #9: You first listen, then you learn, and then you can affect the disease. So, uh,

Speaker #4: So we're in listening and learning mode, and, you know, trying to be better leaders of our business.

Speaker #9: But we have to do a lot of listening—you know, spend a lot of time and...

Speaker #4: You know, and our people—yeah, they've been very helpful. We've learned a lot. So, um, we've got to get in stock. We've got to deal with the different raw material issues and different landability issues.

Gary Friedman: We have got to deal with the different raw material issues and different liability issues, upholstery, lighting, things like that. It has been a little bit more complicated for us. So we are working through our supply chains to be more responsive and compete better. I like the direction we are going, and I think we are going to get better and better and better, and the drags are going to go away. London is very exciting. We had our fingers crossed for that one. We think, "Come on, what should this be? What could it be?" To see the first 8-week ramp there, it was really exciting for us. We have got a great team. We have got a great leader, building a great design team there. I have never seen customers like that. I do not think they stay there, like 9 days or something like that.

Speaker #9: You know, upholstery, lighting, things like that have been a little bit more complicated for us. And so we're, you know, we're working through our supply chains to be more responsive.

Speaker #9: and compete better.

Speaker #4: But, you know, I like the direction we're going, you know, and I think we're gonna get better and better and better. You know, this drag's gonna go away.

Speaker #9: Yep. Go away.

Speaker #4: And London, yeah, very exciting. I mean, like, we were, you know, we had our fingers crossed on that one. I think, come on, you know, I mean, what, what should this be?

Speaker #4: What could it be?

Speaker #9: I mean, to see the first eight-week ramp there, it was really exciting for us. And we've got a great team, we've got a great leader, you know, building a great team.

Speaker #4: Great design team there, and I've never seen customers like that. Yeah, I don't think they're right there.

Speaker #9: Like 90 days or something like that. So I was in the gallery quite a bit at the opening. And I'd never seen a level of customer and a level of wealth like that.

Gary Friedman: I was in the gallery quite a bit at the opening. I had never seen a level of customer and a level of wealth like that in our galleries. These are really important, big projects. So I would say it would not surprise me in 2 years, maybe by year 3, that London is not the number one RH in the world. Unless we open the Middle East sometime before then, because the more we are learning about the Middle East, a lot of people believe that will be our number one gallery in Dubai.

Speaker #4: You know, and in our galleries, I mean,

Speaker #9: These are really important, big projects. So, I would say it wouldn't surprise me.

Speaker #4: Two years, maybe by year three, that London is not the number one.

Speaker #9: RH in the world, you know, unless we open the Middle East, you know, sometime before then. The more we're learning about the Middle East, a lot of people believe that will be our number one gallery.

Speaker #9: You know, Dubai.

Speaker #6: Your next question comes from the line of Marius Moraes with Zelman. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Marius Morar with Zelman. Your line is open. Please go ahead.

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

Speaker #4: Good evening.

Marius Morar: Good evening. I am just curious, Gary, you mentioned that most of Estates is protected by IP, and obviously, the furniture industry is notorious for knock-offs, and there is a long history going back probably 150 years of mixed success in defending designs in court. I wanted to ask if you could give us maybe a bit more insights into what you think will make Estates easier to defend. Is it maybe that the finishes are more intricate and just easier to defend than contemporary, or is there something else?

Speaker #11: I'm just curious, Gary—you mentioned that most of the estate is protected by IP, and obviously, you know, the furniture industry is notorious for knockoffs.

Speaker #7: And there's a long history going back probably 150 years of mixed success in defending designs in court. So I was just curious, I wanted to ask if you could give us maybe a bit more insight into what you think will make estates easier to defend.

Speaker #7: Is it maybe, you know, that the finishes are—

Speaker #11: Is it more intricate and just easier to defend than contemporary, or is there something else?

Speaker #4: Well, yeah, so there's a lot of levels to it. So in cases where we bought the brand—you know, brands have IP and...

Gary Friedman: Well, there is a lot of levels to it. In cases where we bought the brand, because brands have IP, and that is pretty strong, that we think is good. A lot of the businesses we bought were more item-focused. We dimensionalize our assortments and use our design teams to dimensionalize things and so forth. Those become original RH designs. We file for design patents on almost everything. We are pretty big in our industry. I think if you get a letter from us that we are patent pending on a design, I do not know if you want to go to court with us. I do not like to go to court with people. My people screw up and we have been influenced by something, and we get a letter here, I usually hold the tent.

Speaker #9: You know, that's pretty strong, that we think is good. But a lot of the businesses we bought were—

Speaker #4: more item-focused. You know, we dimensionalized their assortments, and so they used our design teams to dimensionalize things, and so on and so forth.

Speaker #4: So they're—those become original RH designs.

Speaker #9: And so we, you know, filed for design patents on almost everything. And, um, you know, I—

Speaker #4: We're pretty big in our industry. I think if you get a letter from us that we've got a pending design, I don't know if you want to go to court with us.

Speaker #9: I don't like to go to court with people. Like, my people screw up and we've been influenced by something. We get a letter here.

Speaker #4: I usually fold the tent. Like, why do I want to fight in court and spend a lot of money? So we don't—it doesn't happen to us often, but I tell people, like, don't waste our time.

Gary Friedman: Why do I want to fight in court and spend a lot of money? It does not happen to us often, but I tell people, "Let's not waste our time." We do not want to spend time with that. We think the work we have done with Estates is very defendable. I do not think we have ever invested this much into design patents. We will see. Maybe no one has ever invested in protecting intellectual property in this industry that well. Go try to knock off an Alberto table. There is a reason we have not. They will take your ass to court. Unless you want to go spend millions of dollars fighting over it, we do not have any Alberto influence copy tables, even though I would like to. I think they would sell great. I kind of think the furniture business has not really been a sophisticated industry, has not been well-capitalized.

Speaker #4: Like, we don't spend time with that, but we're—we think, you know, the work we've done with the states is very defendable. We have yet—I don't think we've ever invested this much into design patents.

Speaker #4: So, you know, we'll see. Maybe no one's ever invested in protecting, you know, intellectual property in this industry that well. I mean, look, go try to knock off the Giacometti table.

Speaker #4: There's a reason we haven't. They say they will take your ass to court. So unless you want to go spend millions of dollars fighting over it… like, we don't have any. Giacometti is good.

Speaker #4: Copy tables. Even though I'd like to, I think they sell great. So, you know, a lot of it is, I just don't think, you know, the furniture business hasn't really been a sophisticated industry and hasn't been well capitalized.

Speaker #4: You know, a lot of mom-and-pop stores. So, nobody really had, you know, the legal department. We've got our new Chief Counsel sitting next to me here, Ryan.

Gary Friedman: A lot of mom-and-pop stores. Nobody really had the legal department. We have got our new chief counsel sitting next to me here, Ryan, and he is going to get us all teed up and not to play defense, to play offense. That is why we are moving like that, and I do not think people want to get sued by RH.

Speaker #4: Yeah, he's gonna help get us all teed up and not to play defense, play offense.

Speaker #9: So that's why we're, you know, we're moving like that.

Speaker #4: I don't think people want to get sued by RH. Thank you.

Marius Morar: Thank you.

Speaker #6: Your next question comes from the line of Brian Nagel with Oppenheimer. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Brian Nagel with Oppenheimer. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Brian Nagel with Oppenheimer. Your line is open. Please go ahead.

Speaker #11: Hi, this is Casey McKenzie on behalf of Brian Nagel. You mentioned tariff refunds will help offset the $50 million of unplanned supply chain costs across the full year.

Casey McKenzie: Hi, this is Casey McKenzie on behalf of Brian Nagel. You mentioned tariff refunds will help offset the $50 million of unplanned supply chain costs across the full year. Do you think that amount is still ramping as fuel costs remain increasingly volatile?

Speaker #11: Do you think that amount is still ramping as fuel costs remain increasingly volatile? What do you think? If fuel costs persist into next year, how do you think about possible mitigation efforts as we lap next year's numbers?

Gary Friedman: What do you think?

Casey McKenzie: If fuel costs persist into the next year, how do you think about possible mitigation efforts as we lap next year's oil price spikes in the absence of refunds? Thanks.

Speaker #4: Oil price spikes in the absence of refunds? Thanks. Yeah, I think—look, everybody's mitigating where you can mitigate. World. It broke $109. Yeah. Okay.

Gary Friedman: Look, everybody's mitigating where you can mitigate. Where's oil today?

Marius Morar: It broke 109.

Casey McKenzie: It broke 109.

Gary Friedman: Yeah. Okay.

Marius Morar: Yeah.

Casey McKenzie: Yeah.

Marius Morar: You are at 109. Oil is 63, the beginning of the war. You are not going to be able to mitigate that. Costs are going up. Inflation is going to go up. There are reasons why the administration said that the war was ending and we are going to have a deal in a day or two, 38 times. There was an urgency to end this war and end this conflict because it is likely not good for the election. Now it might be too late. Now the administration, what, offered voters $5,000 to every American who votes for the president and the administration. That is interesting. I think we are in a time of conflict. We are going to be in a time of inflation. I do not think they are going to be able to keep a lid on interest rates. I keep thinking, gosh, my entire career in this business. Product.

Gary Friedman: You are at 109. Oil is 63, the beginning of the war. You are not going to be able to mitigate that. Costs are going up. Inflation is going to go up. There are reasons why the administration said that the war was ending and we are going to have a deal in a day or two, 38 times. There was an urgency to end this war and end this conflict because it is likely not good for the election. Now it might be too late. Now the administration, what, offered voters $5,000 to every American who votes for the president and the administration. That is interesting. I think we are in a time of conflict. We are going to be in a time of inflation. I do not think they are going to be able to keep a lid on interest rates. I keep thinking, gosh, my entire career in this business. Product.

Speaker #4: So, yeah, you're at $109. Like, I mean, oil is $63.

Speaker #9: Like, beginning of the war, like,

Speaker #4: You're not going to be able to mitigate that. You know, there's— I mean, costs are going up, inflation is going to go up. You know, there's There's, there's a reason why the administration said that the war, you know, was ending and we were going to have a deal in a day or 2, 38 times.

Speaker #4: There was an urgency to end this war and end this conflict because it's likely not good for the election.

Speaker #9: Yep. Now it might be too late. So now, the administration—what I saw it offered,

Speaker #4: Voters, $5,000 to every American.

Speaker #9: Votes for the President and the administration. That's interesting. Yeah, so...

Speaker #4: Yeah, I think—yeah, we're in it. We're in it, a time of conflict. We're going to be in a time of deflation. I don't think they're going to be able to keep a lid on interest rates.

Speaker #4: Yeah, so I keep thinking, gosh, my entire career—and I've been doing this a long time—I never saw a housing market that was down longer than 18 months.

Gary Friedman: Housing market that was down longer than 18 months, so it looks like we are going to go to year five. I like the game we are playing. I think we are playing offense. We are going to build our own bigger market. I think we will be able to grow pretty well through any kind of market as we look forward. There is going to be costs. What was it? Walmart had a $2 billion tariff refund, and it is all going to increased costs and some lower prices. The Home Depot, like.

Speaker #4: So it looks like we're going to go to year five. I like the game we're playing. I mean, we're playing offense—we're going to build our own bigger market.

Speaker #4: So I think we'll be able to grow.

Speaker #9: pretty well through any kind of market as we look forward. But there's going to be costs, you know, so—

Speaker #4: I don't know, like, what was it—Walmart? Walmart had a $2 billion tariff refund. It's all going to increase costs and lower some prices.

Speaker #9: Home Depot, like $700-something billion, like all going to increase costs. But yeah, there's massive increased costs. Nobody's got a magic wand. Nobody's gonna get that much better price than somebody else.

Jack Preston: 700

Gary Friedman: $700-something million all going to increased costs. There are massive increased costs. Nobody has got a magic wand. Nobody is going to get that much of a better price than somebody else. If you have leverage, you will use your leverage, but you cannot make your partners go bankrupt, right? Or you have no partners. We are going to be in a higher cost world for probably at least the next six to 12 months. Even if tomorrow they end the war, there is too much inflation in the pipeline. All the raw materials are going up everywhere, on everything. Everything is impacted by oil. That is why you are seeing crazy things, right? We are trying to manipulate currencies, buying back things. It is a crazy time.

Speaker #4: You know, if you have leverage, you'll use your leverage and, you know, but You know, you can't make your, you know, your partners go bankrupt, right?

Speaker #4: Or you have no partners. So we're gonna be in a higher cost world for—

Speaker #9: probably at least the next 6 to 12 months. I mean, let's

Speaker #4: I mean, even if tomorrow they end the war, there’s too much inflation in the pipeline. I mean, all the raw materials are going up everywhere, on everything.

Speaker #4: Everything is impacted by oil.

Speaker #9: You know, so, um,

Speaker #4: Yeah, that's why... yeah, I mean, you're seeing crazy things, right? We're trying to manipulate currencies, buying back things. Like, it's a crazy time. Thank you.

Casey McKenzie: Thank you.

Operator 3: Your next question comes from the line of Jonathan Matuszewski with Jefferies. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Jonathan Matuszewski with Jefferies. Your line is open. Please go ahead.

Speaker #6: Your next question comes from the line of Jonathan Matyzewski with Jefferies. Your line is open. Please go ahead.

Speaker #7: Oh, great. Good evening, and thanks for taking my question. Gary, it was on the recent revamp of your trade program. I was curious if you could speak to any indications of early success, how the trade community is embracing it, and, relatedly, are you doing anything to activate the interior design community with the Estates launch that’s perhaps maybe different from how you’ve sought to build awareness for prior brand launches in the past?

Jonathan Matuszewski: Oh, great. Good evening, and thanks for taking my question. Gary, it was on the recent revamp of your trade program. I was curious if you could speak to any indications of early success, how the trade community is embracing it, and relatedly, are you doing anything to activate the interior design community with the Estates launch that's perhaps maybe different from how you've sought to build awareness for prior brand launches in the past? Thanks so much.

Speaker #7: Thanks so much. Really good question.

Gary Friedman: Thank you for a really good question. Yeah, our trade teams are over the moon that we launched the new program. I think designers are happy. Firms are reengaging us. We've seen an acceleration of our business, a meaningful acceleration, that we're already at a level that offsets the discount. We've hit the volume levels we needed to offset the discount. The pipeline's building, so it's been fantastic and our teams are working on different engagement methodologies. We're looking at doing more events in our galleries. We have very nice spaces, so we're looking at even smaller events that designers want to come and do things. We're going to be a lot more open on multiple levels with the trade. I think the trade's very happy that we're doing bespoke and couture, right? That we're doing COM, we're doing bespoke furniture in custom sizes they can specify.

Speaker #4: Yeah, you know, our teams, our trade teams are over the moon that, you know, we launched a new program, and I think designers are, you know, happy firms are re-engaging us.

Speaker #4: We've seen an acceleration of our business, a meaningful acceleration—that we're already at a level that offsets the...

Speaker #9: Discount, you know, so we've hit the volume levels we needed to kind of offset the discount. So, and it's, and...

Speaker #4: The pipeline is building, so it's been fantastic. And our teams are working on different engagement methodologies. We're looking at doing more events in our galleries.

Speaker #4: We have very nice spaces, so we're getting even smaller events if designers want to come and do things.

Speaker #9: We're going to be a lot more open on multiple levels with the trade, so.

Speaker #4: And I think the trade's very happy that we're doing bespoke and couture, right? That we're doing POM, we're doing bespoke furniture, custom sizes.

Speaker #9: They can specify, so that's a big deal. And I even met

Gary Friedman: That's a big deal. I even met a gentleman and his family last night that we talked for about 30 minutes, and we've done three homes for him. They were building a big, new contemporary home, and he didn't think that we were going to be able to do it. Then he said, "I thought it was great that you guys just launched this bespoke thing because now you're going to get the fourth home from me." I thought that was very good because it's a big home. They're huge fans. I'm talking to the family, and last night I was like, it's right there. You don't want to lose customers like that are building their fourth home and might not have been able to do it with us. Again, we're learning.

Speaker #4: A gentleman and his family last night that I talked to for about 30 minutes, and we've done three homes for him, and they were building a big new

Speaker #9: contemporary home, and he didn't think that we were going to be able to do it. And then he said, like, I thought it was great that you guys just launched this bespoke thing, but now you're going to get the fourth home from me.

Speaker #9: I thought that was very good. I think it's a big home, and they're huge fans. Talking to the family, I was like, I mean, it's right there.

Speaker #9: I mean, you don't want to lose customers like that—someone building their fourth home who might not have been able to do it. So, um,

Speaker #4: Yeah, so we're, again, we're learning. You know, we've got to stay close to our trade teams and our leaders, and, you know, there's more we can do. But I think—I don't think that anybody offers the trade more support and services than we do.

Gary Friedman: We've got to stay close to our trade teams and our leaders, and there's more we can do. I don't think that anybody offers the trade more support and services than we do, right? We support them with doing floor plans, doing renderings. We work as light as back office, not just supporting them with products, but supporting them with design, supporting them with installation. When you think about the hard part of competing with us in the design world is that we've got such a broad assortment, and we've got such good experience and tenure in our interior design business and the services we offer. Just the logistical ease of working with us, getting a home designed, getting it all delivered at one time, getting it installed.

Speaker #9: We support them with

Speaker #4: Yep. Doing floor plans, doing renderings, doing—you know, we work like a back office, not just supporting them with products, but supporting them with...

Speaker #9: design, supporting them with installation. You know, when you think about the, you know, the hard part is, competing with us in the design world is that we've got such a broad assortment and we've got such good experience.

Speaker #4: ...and tenure in our interior design business and the services we offer. And just the logistical ease of working with us—getting a home designed, getting it all delivered at one time, getting it installed.

Speaker #4: You know, we have a lot of resources supporting that part of our business, and I think, you know, as far as someone who also—

Gary Friedman: We have a lot of resources supporting that part of our business, and I think as far as someone who also is a furniture retail business at our core, I think we have real strategic separation from the next best person here.

Speaker #4: You know, as a furniture retail business, you know, at our core, I think we're. I think we have real strategic separation from the next best person here.

Jack Preston: Please. Yeah.

Operator 3: There are no further questions at this time. I will now turn the call back to Gary Friedman for closing remarks.

Operator: There are no further questions at this time. I will now turn the call back to Gary Friedman for closing remarks.

Speaker #6: There are no further questions at this time. I will now turn the call back to Gary Friedman for closing remarks. Thank you, everyone. Appreciate it.

Gary Friedman: Great. Thank you, everyone. Appreciate the participation and all the questions, and we look forward to talking to you next quarter. Thank you.

Speaker #4: Thank you for your participation and all the questions. We look forward to talking to you next quarter. Thank you.

Operator 3: This concludes today's call. Thank you for attending. You may now disconnect. This event has now concluded. Thank you for joining RH Q2 Fiscal 2026 Results. The line will disconnect automatically.

Operator: This concludes today's call. Thank you for attending. You may now disconnect. This event has now concluded. Thank you for joining RH Q2 Fiscal 2026 Results. The line will disconnect automatically.