Earnings call transcript: RH Q4 2024 reveals missed earnings, stock drops

RH reported its fourth-quarter 2024 earnings, revealing a miss in both earnings per share (EPS) and revenue forecasts. Despite a robust revenue increase of 18% on a comparable 13-week basis, the luxury home furnishings retailer’s actual EPS of $1.58 fell short of the expected $1.89. Revenue also missed expectations, coming in at $812.4 million compared to the forecasted $828.24 million. Following the earnings release, RH’s stock plummeted 25.81% in after-hours trading, closing at $185. According to InvestingPro data, RH’s stock has been particularly volatile with a beta of 2.51, significantly higher than the market average, explaining the sharp reaction to earnings misses.

Key Takeaways

• RH’s Q4 EPS and revenue both missed analyst forecasts.
• Stock price dropped 25.81% in aftermarket trading.
• The company projects fiscal year 2025 revenue growth of 10-13%.
• RH is expanding its manufacturing in North America.
• The company is navigating a challenging housing market.

Company Performance

RH demonstrated a strong revenue increase in Q4, up 18% on a comparable 13-week basis. The adjusted operating income also rose by 57%, showcasing operational efficiency despite missing earnings expectations. The company continues to outperform other home furnishings businesses, leveraging its unique gallery and design ecosystem. InvestingPro analysis shows the company maintains a healthy gross profit margin of 44.2% and a current ratio of 1.43, indicating solid operational efficiency and ability to meet short-term obligations. Want deeper insights? InvestingPro offers 10+ additional exclusive tips about RH’s financial health and market position.

Financial Highlights

• Revenue: $812.4 million, up 18% year-over-year.
• Earnings per share: $1.58, below the forecast of $1.89.
• Adjusted operating income increased by 57%.

Earnings vs. Forecast

RH’s Q4 earnings per share of $1.58 fell short of the forecasted $1.89, a miss of approximately 16.4%. Revenue also missed expectations by $15.84 million, coming in at $812.4 million versus the anticipated $828.24 million. This miss contrasts with the company’s historical trend of meeting or exceeding expectations, indicating a challenging quarter.

Market Reaction

Following the earnings announcement, RH’s stock experienced a significant decline, dropping 25.81% in after-hours trading to $185. This movement contrasts sharply with the stock’s previous close of $239.06 and is a reaction to the earnings miss and cautious market sentiment amid broader economic uncertainties.

Outlook & Guidance

RH remains optimistic about fiscal year 2025, projecting revenue growth of 10-13% and an adjusted operating margin of 14-15%. The company plans to open several new design and concept galleries and is expanding its manufacturing footprint in North America to enhance production capabilities. Based on InvestingPro’s Fair Value analysis, RH appears to be trading above its intrinsic value, with analyst price targets ranging from $240 to $530. For comprehensive valuation insights and detailed financial analysis, access the exclusive Pro Research Report, part of InvestingPro’s coverage of 1,400+ US stocks.

Executive Commentary

CEO Gary Friedman emphasized the company’s resilience, stating, "Inventory is your friend," and highlighting RH’s ability to thrive in challenging times. He also noted the company’s strategic focus on international expansion and its unique platform approach.

Risks and Challenges

• Housing Market: RH operates in a depressed housing market, with existing home sales at their lowest in decades.
• Tariffs: Potential tariff impacts on sourcing could affect pricing and margins.
• Supply Chain: Ongoing supply chain restructuring may pose risks to operational efficiency.
• Consumer Sentiment: High mortgage rates are affecting consumer behavior, potentially impacting sales.
• Market Volatility: Recent stock price volatility may affect investor confidence.

Q&A

During the earnings call, analysts inquired about the potential impacts of tariffs on sourcing and pricing strategies. RH’s leadership addressed concerns about consumer sentiment amid market challenges and outlined plans for product innovation and gallery expansion.

Full transcript - RH (RH) Q4 2025:

Conference Operator: Ladies and gentlemen, you are currently on hold for the RH fourth quarter and fiscal year twenty twenty four earnings call. At this time, we are admitting additional participants and will be underway shortly. Thank you for your patience and please continue to stand by. Good day, everyone, and welcome to the RH Fourth Quarter and Fiscal Year twenty twenty four Earnings Call. I would now like to turn the call over to Ms.

Alison Malkin. Please go ahead, ma’am.

Alison Malkin, Investor Relations, RH: Thank you. Good afternoon, everyone. Thank you for joining us for our fourth quarter and fiscal year twenty twenty four earnings conference 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. 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 financial 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 release.

A live broadcast of this is also available on the Investor Relations section of our website at ir.rh.com. With that, I’ll turn the call over to Gary.

Gary Friedman, Chairman and Chief Executive Officer, RH: Thank you, everyone. Well, welcome to the new world when we’re, at least at this moment, inventory is your friend. I I I was gonna say maybe I just shouldn’t read the letter, but, heck, let’s go through it. And, we’ll kinda improvise, adapt, and overcome as we’re reacting live time with all of you. To our people, partners, and shareholders, The important work and substantial investments we’ve made over the past two years are now resulting in meaningful share gains and significant strategic separation, positioning the RH brand to expand its leadership position across the luxury home market over the next decade.

The positive inflection of our business continued to accelerate in the fourth quarter with revenue up 18% and adjusted operating income increasing 57% in each case on a comparable thirteen week basis, outperforming other home furnishings REIT businesses by a wide margin as the most prolific product transformation and platform expansion in the history of our industry continues to unfold. Our industry leading growth in the quarter was driven by the Rh brand, where fourth quarter demand increased 21%, demonstrating the disruptive nature of our product transformation. While demand softened in mid December after mortgage rates spiked and mortgage applications fell 22%, post the Fed signaling rates would remain largely unchanged this year, the Rh brand demand stabilized at up 19% in January. While we expect a higher risk business environment this year due to the uncertainty caused by tariffs, market volatility, inflation risk, we believe it’s important to separate the signal from the noise. The fact is we’ve been operating in the worst housing market in almost fifty years.

For context, in 1978, there were 4,090,000 existing homes sold when The US had a population of 223,000,000. Contrast that to 2024 where 4,060,000 existing homes sold with a population of 341,000,000, and it illuminates just how depressed the housing market has been this past year. Despite that fact, we are performing at a level most would expect in a robust housing market. We believe it’s a result of investing with a very narrow focus and a long term view or what we like to call an inch wide and a mile deep, elevating and expanding our platform by creating the most desired products presented in the most inspiring spaces in the world with bespoke interior design services and beautiful restaurants that generate energy, engagement, and tremendous awareness of the RH brand while also serving as a profitable customer acquisition vehicle. Our intentions and attention to detail in everything we do and in every house we turn into a home.

While we ended the year with meaningful debt mostly due to our stock repurchases of $2,200,000,000 we also ended the year with incredible business momentum and meaningful assets. These assets include real estate that we believe has an estimated equity value of approximately $500,000,000 which we plan to monetize opportunistically as market conditions warrant and excess inventory of 200 to $300,000,000 of costs that we plan to turn into cash as we optimize our assortments post our product transformation. Inclusive of our plans for significant growing cash flow from operations, we remain confident in our ability to make the necessary investments to continue our industry leading growth while paying down debt and lowering interest expense. Now let’s look at, shift to our outlook. Based on our current plans and the uncertain macroeconomic environment, we are providing the following financial outlook for the full year and first quarter.

For the fiscal year 2025, we’re forecasting revenue growth of 10% to 13%, adjusted operating margin of 14% to 15%, adjusted EBITDA margin of 20% to 21%. In the first quarter, we’re forecasting revenue growth of 12.5% to 13.5%, adjusted operating margin of 6.5% to 7%, adjusted EBITDA margin of 12.5% to 13%. The above outlook includes a negative 160 to 200 basis points of operating margin impact from investments to start up costs to support our international expansion. Every act of creation is first an act of destruction, Pablo Picasso. We have worked hard to destroy the former version of ourselves and are in the process of unleashing what we believe is an exponentially more inspiring and disruptive RH brand.

We believe the important investments we are making during this depressed housing cycle are creating the level of strategic separation in our industry that rivals the most important brands in the world. Our product transformation plans for 2025 include the introduction of our new RH outdoor source book, featuring the most dominant assortment of high quality outdoor furniture in the world, arrived in homes early February with eight new furniture collections and exciting new textiles offering, plus a significantly improved in stock position to start the season versus a year ago. The introduction of our new RH and Tort interior source book arrived in homes mid February through early March, featuring 42 new collections across furniture, upholstery, lighting, rugs, and textiles, as well as an additional 15 new collections launched on rh.com. While we had planned a higher amount of new collections for this book, due to the rapidly changing economic outlook, we believed it was prudent to delay some of our introductions until later this year. The launch of the significant new brand extension in the fall of twenty twenty five that we believe will meaningfully expand the market size and share of the Rh brand.

This new brand extension will include a new source book, a significant website presence, and two freestanding galleries dedicated to the new concept. Our plan includes integrating RH Couture Upholstery by Dimitri and Co, and RH Bespoke Furniture by Joseph Jupe into this new brand extension, enabling greater exposure and market reach versus standalone concepts. We’ll be sharing more details of this exciting exciting new venture during our first quarter earnings call. As communicated last quarter, we do not expect a negative impact to results related to previously announced increased tariffs on products from China, Canada, or Mexico. As it relates to reciprocal and other tariffs that will be announced and have been announced today, as we’ve done with prior tariffs, we’ll be working with our manufacturing partners to mitigate mitigate the impact to both our margins and cost to our customers.

We believe that it’s also important to note that we have been manufacturing upholstered furniture in our own North American North Carolina factory for over ten years and have recently expanded the facility, doubling our capacity. We are currently projecting that 48% of our upholstered furniture will be produced in The US, Twenty One Percent of our upholstered furniture will be produced in Italy, and 14% of our total business will be produced in The US at the end of this year. Now let me shift your attention to the expansion of our platform. We continue to open the most inspiring and immersive physical experiences in our industry, and some would say the world. Spaces that are reflection of human design, a study of balance, symmetry, and perfect portions.

Spaces that blurred the lines between residential and retail, indoors and outdoors, home and hospitality. Spaces with garden courtyards, rooftop restaurants, wine and barista bars, spaces that activate all of the senses, and spaces that cannot be replicated online. Our plan to expand the Yaris brand globally, address new markets locally, and transform our North American galleries represents a multibillion dollar opportunity. Our platform expansion plans for 2025 include the opening of seven design galleries, two outdoor galleries, plus two new concept galleries. The seven new design galleries are RH Oklahoma City, the gallery at the Oak, and RH Montreal, the gallery at Royalmont, both opening in the first half of this year.

RH Paris, the gallery on the Champs Elysees, RH Detroit, the gallery in Birmingham, RH Manhasset, the gallery at Americana, RH San Diego, the gallery at University Town Center, and RH Palm Desert, the gallery on El Taseo, are all opening in the second half of this year. Additionally, we plan to expand our brand presence in Greenwich, Connecticut by developing a multi building RH design ecosystem, inclusive of the existing RH gallery at the historic at the historic Post Office, a freestanding RH outdoor gallery that opened last month, plus a new concept gallery in the former Ralph Lauren building on Greenwich Avenue opening in the second half of this year. We also plan to expand our brand presence in East Hampton this summer by opening a freestanding RH Outdoor gallery and are exploring plans to further enhance our design ecosystem with a new concept gallery in the near future. As previously communicated, we anticipate an inflection of our business in Europe as we begin to open in the important brand and building markets of Paris in 2025, plus London and Milan in 2026, all with dramatic and brand, building hospitality experiences. We believe post each opening, will begin to have the scale to support the necessary advertising investments to accelerate our growth in Europe.

Every moment has a lunatic fringe quite appropriate for today. Theodore Roosevelt, America’s first Nobel Prize winner, commander of the legendary Rough Riders, medal of honor recipient recipient, promoter of the conservative movement, leader of the progressive movement, noted for his exuberant personality and ranked by scholars as one of our greatest presidents. Theodore Teddy Roosevelt proclaimed in his famous speech as a subborn, it is not the critic who counts, not the man or woman who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man or woman who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errors and come up and comes up short again and again because there is no effort without error or shortcoming. But he or she who actually strives to do the deeds, who knows the great enthusiasms, the great devotions, who spends himself in a worthy cause, who had his best, knows in the end the triumph of high achievement, and who at his worst, if he fails, at least fails while daring greatly.

So his place shall not shall never be with those cold, intimate souls who know neither victory nor defeat nor defeat. While our ambitions are not political, maybe they should be, they are personal. We remain inspired by the progressive thinkers unafraid to push forward new ideas and fresh perspectives. It’s a culture of leadership versus follow ship, innovation versus duplication, enlightenment versus ego. It’s believing none of us are smarter than all of us, that we need all the brains in the game and the egos out of the room.

It’s about thinking it till it hurts, until we can see what others can’t see, so we can do what others can’t do. That’s how you transform a money losing restoration hardware store in Aventura Mall in Miami that did $2,000,000 in annual sales into an RH gallery that does 44,000,000 in the exact same space with the exact same square footage. It’s also how we’ll transform that $44,000,000 legacy gallery into a hundred million dollar plus RH design compound, a yet to be unfailed multi building design resort of sorts in the parking lot of the same shopping center. Over twenty years ago, we began this journey with a vision of transforming a nearly bankrupt business that had a 20,000,000 market cap and a box of Oxonol laundry detergent on the cover of its catalog into the leading luxury home brand in the world. The lessons and learning, the insights and intricacies, the sacrifices made, and the scar tissue developed by getting knocked down ten times and getting up 11 leads to the development of the mental and moral qualities that build character in individuals and form cultures and organizations.

Lessons that can’t be learned in a classroom or by managing a business. Lessons that must be earned by building one. Are we part of the lunatic fringe? If it means, as president Roosevelt said in his speech at the Subborn, that our place shall never be with this cold with those cold and timid souls. We know neither victory nor defeat and put us in that arena.

Onward, team r h. Operator, I’ll now open the call to questions.

Conference Operator: Thank you, sir. We’ll go first to Simeon Gutman, Morgan Stanley.

Pedro, Analyst, Morgan Stanley: Good afternoon. This is Pedro on for Simeon. Thanks for taking our question. My question is how you see the outlook for the consumer. It seems we’ve seen a slowdown in consumer sentiment year to date and the housing market is not seeing a turn yet.

Last year, we saw early signs of an inflection, but now it seems things have been delayed again. So could you give us a bit of an update on how you see things developing over the spring and the summer season? And related to that, how are legacy galleries doing? How much of demand growth is coming from the design galleries as opposed to the legacy galleries?

Gary Friedman, Chairman and Chief Executive Officer, RH: Okay. Let me break that down. So how do we see the consumer? Yeah. I mean, unfortunately, we, you know, we don’t know those individuals exactly and don’t talk to them at any kind of personal level about how they’re doing.

But I have to say, you know, look, everybody saw the recent news, you know, just as we are ready to break for this this call. And, you know, look, it’s the it’s the one of those times of uncertainty. It’s one of those times where it it’s not so much, I think, you know, what the consumer’s gonna do. I think it’s how we’re gonna react to the consumer environment and what we’re gonna do. And so I think if you you look at our history, which is this is my twenty fifth year, you know, going on twenty five years in the company, we thought we saw it all until today.

So, this is a new one. But, you know, we we have a a history of, really performing in times of crisis and thriving in those times and, you know, have the ability to improvise, adapt, and overcome. You know, we at our at our core, we are innovators. We’re not duplicators. We’re leaders.

We’re not managers. We’re visionaries, we’re not victims. So, you know, whether it’s a, you know, confused or conflicted consumer environment because of high interest rates or new tariffs or trade wars or, you know, military wars. I mean, there’s there’s always something, you know, and yeah. So, I mean, look, we we feel confident no matter what the environment looks like.

We you know, I just articulated in in the letter that we just yeah. We just anniversaried really the the worst housing market in fifty years since 1978. Having we do versus everybody else, very different. What’s our trends versus everybody else, Quite different. You know?

So maybe that’s a better question for everybody else who maybe tries to talk to consumers and see how they’re feeling. We focus on our work, you know, and try to, you know, try to create the most desirable products presented to the most inspiring spaces, whether they’re physical spaces, digital spaces, or, you know, print experiences. And I think we do that better than anybody in the world. Yep. Now the game’s changed somewhat, but I wouldn’t wanna compete with us in any environment.

So and leg legacy galleries versus, design galleries, they’re all performing well. Yeah. So, not not that much different in the comps. I mean, there’s, you know, some places that obviously might be doing better than others at different times for different reasons. But, yeah.

We’re we’re happy with all the galleries. We’re opening more galleries. We have new kinds of galleries. We have, you know, design ecosystems, design compounds. We’ve got a lot of things coming.

So, you know, tariffs are not, here we come.

Conference Operator: We’ll take the next question today from Steve Forbes, Guggenheim.

Steve Forbes, Analyst, Guggenheim: Gary, your initial comment I think was inventory is your friend. And so we’d love to sort of hear you expand on that initial thought, especially as all of us, right, sort of try to do the exposure math to Vietnam, Indonesia and India. Just sort of what should be the parting message here on sort of RH’s ability to sort of mitigate, migrate and derisk the situation that was just thrown at all retail operators?

Gary Friedman, Chairman and Chief Executive Officer, RH: Sure. Let’s start with the inventory as your friend. You know, going through the, you know, this, you know, this kind of massive product transformation we’ve been going through, You know, when when you’re making big changes in your assortment, you know, and, you know, not not normal newness. Right? And we we introduced hundreds of collections over the last couple of years.

And, you know, you you wanna create the right bridge. Right? You wanna not sell out, you know, legacy products before you understand what’s happening in new products. You wanna make sure in new product in a you know, in enough cases where you feel it’s gonna be in the top half of your assortment, you wanna have that inventory. Right?

Because furniture, you can’t respond to, you know, quickly. So, you know, we knew we were gonna make, you know, about a hundred million dollar insurance bet on inventory, you know, on front end of this. And, you know, we expected trends to be better. We are, you know, expecting our comps in the housing market to kinda come back. You know, I mean, I think I think everybody had a sense that inflation looked like it was coming under control and interest rates were easing and that ’25 would be, you know, would be the next upswing to the housing market.

You know? So, like, look, we were all wrong. I mean and even at the Fed, they’re almost always wrong. So, yep, being wrong is all part of, you know, invention and innovation and, you know, going somewhere you’ve never been and moving into the future. Right?

So so I think, you know, while, you know, today’s tariff news were was, yes, somewhat shocking. You know? Right? I think, you know, we you know, I think most of us were expecting, okay. Maybe we’ll get 25% tariffs, but, you know, it’s it’s all logical.

Right? If you’re if you’re the current administration, if you’re Trump, if you read the art of the deal, I mean, look. He knows how to use leverage, and he has leverage. And and he, you know, you don’t have to do too much work to find out, well, where did all the manufacturing move to from China? Well, you know, it moved to Vietnam, Indonesia, Cambodia, and other countries, you know.

And those manufacturers moved and made investments and built up operations and yeah. It was devastating for people that invested, you know, big time for money to, you know, relocate. But, know, there’s you know, The US has leverage today. I don’t, you know and the leverage is how you win negotiations, not blessing. So I don’t think you know, I think my view is I don’t think these tariffs are gonna completely stick.

I think, if you’re if you’re these other countries, you’re gonna start playing the few cards you have. And, you know, they’ll they might try to pull up. They might try to play a few cards. But you’re either gonna implode as an economy in these countries or you’re gonna, you know, you’re gonna balance, you know, you’re gonna balance the trade economics. And I think that’s what the administrate administration, want.

I think it’s just a little shocking because we’ve never seen an administration, you know, and a leader like Trump. I mean, it’s impressive, quite frankly. You know, usually governments, you know, move like glaciers, you know, and he’s he has quite the opposite. You know, so, you know, exactly how it’s gonna play out, I don’t know. I don’t think it’s time to overreact.

I think we all believe that China was gonna be a a long term problem and and, you know, so, you know, moving out of China was important. You know? Now it looks like moving out of China didn’t make a difference. Right? So that’s why I guess it did because there was another tariff on China.

Yeah. So, you know, look, if if Yeah. But I think I think, basically, that the game has changed, and now it’s it kinda doesn’t matter where you go. I mean, except America, right, and and The US, which, you know, we’ve been building our facility and expanding and doing other work and, you know, have other facilities in Los Angeles and things like that that we, you know, that that we we acquired through acquisitions. And, you know, and America can make furniture, and that might be part of it, and part of it might be these countries, you know, acquiesce to some of the demands, which are, by the way, all fair demands in a lot of ways.

Right? If you just look at the map and look at the numbers, it’s, you know, it’s kind of I mean, everybody else has a bad hand against, you know, not only is there leverage, but the information says, hey. You know, it’s not fair. So I I don’t you know, I’m not critical of any of it. I actually think long term, it’s gonna be great for America, quite frankly.

I think it’s just, you know, it’s cut the world off guard because no one’s ever moved at this speed. No one’s you know? I mean, we’re we’re seeing a new kind of leadership, which, again, in many ways, I think is impressive. So, yep, forget what anybody else’s, you know, personal views are on, you know, form. You know, I’d say look at the content.

The content for America the content of the decision for America is a really good thing long term. So, from that point of view, I mean, is it gonna be messy? Yeah. But it’s messy for everybody. Right?

And so these these are the times where where we thrive, you know, because I think we can outthink others. We can outsmart others. We can outcreate others. We can out innovate others. You know?

So I’m you know, I let’s see what went on. I’m gonna quite frankly you know, on the phone to Jack and, you know, I’m in my car and and, you know, he’s telling me what happened and I just started laughing. I thought, okay. Showtime. This is this is when we thrive.

We’re at our best in times like this. You know? And yeah. So yeah. So it’s it’s exciting exciting times.

Yeah. It’s you still have to compete. You know, the the playing field is the playing field. Yes. Nobody of any scale is not sourcing out of Asia except for maybe, you know, Ethan Allen.

They have a smaller percentage. Yeah. But, you know, they don’t don’t really have our platform and capabilities. So I’m not too not too worried about any of that. I mean, I’m I’m more excited to get off this phone and get to work.

You know, it’s exciting times. So

Steve Forbes, Analyst, Guggenheim: Thank you, Gary. And then and then just a quick quick follow-up for Jack. I think the the company has sort of spoke to the return of positive free cash flow in 2025. Maybe all this is influx a little bit, but any way to sort of help us frame up, the free cash flow outlook inclusive of how to think about winding down that inventory excess.

Gary Friedman, Chairman and Chief Executive Officer, RH: Yeah. I mean, we’re we’re just not gonna have a lot of receipts coming in at really high prices. Right? So start there. You’ve got a lot of inventory at really good prices.

Know, we’ve gotta kinda rethink some of the newness. You know, maybe the new concept that, you know, that I wrote wrote about might get delayed, you know, until until we have some, you know, clarity. But but also the investments get delayed and the complexity gets delayed. So I I don’t think about that at like, that’s gonna hurt the business per se. I mean, we’ll just focus in other ways.

I just I think, you know, a lot of the goods in development are coming from countries that have, you know, prohibited tariffs. So, again, it it could all change in 30. It could you know, some of these countries could go from 45% to 25%, which is very manageable. 45% is much tougher. And and the administrate administrative knows administration knows that.

So I’m actually glad if this wasn’t a death by a thousand cuts. Right? I’m I’m glad it didn’t go, uh-oh. It’s 15%. And, oh, okay.

Hey. Just kidding. It’s 25%. Hey. Now it’s 35.

Now it’s 45. And, you know, because you don’t have clarity. I I think what again, I applaud the clarity, the intention, you know, and and the logic. So I’m I’m again, I’m just excited now to you know, we’re we’re we’re sitting around here. We’re not scared.

We’re smiling. Like, we’re kinda like, okay. Let’s go. It’s, you know, it’s it’s a new world. It’s a new day.

We’re at our best in times like these. I yeah. I wouldn’t wanna compete with us in times like these. You know, no one is gonna outwork us. No one is gonna outthink us.

No one is gonna outcreate us, out innovate us. You know, it’s you know, so just in general, I’m not too worried about it. I don’t think our business is gonna process. They like, yeah, inventory is our friend. I I I get 2 to $300,000,000 of inventory from my competitors now.

They might have to do some ordering at very expensive pricing. You know? And we we, you know, we can navigate through this really well, you know, in the short term. So, you know, I yeah. I feel pretty good about this year.

I mean, I we gotta get into the details and, you know, there might be some some holes here and there. But, again, there’s, you know, there’s always another move. Right? You know, there’s there’s just always another move in in times like these. And so I’m just excited about finding the other move, you know, way before any of our competitors do.

So fun time. Thank

Steve Forbes, Analyst, Guggenheim: you, Gary. Thanks, Jack.

Gary Friedman, Chairman and Chief Executive Officer, RH: Thanks, Steve.

Conference Operator: Up next is Michael Lasser, UBS.

Michael Lasser, Analyst, UBS: Good evening. Thank you so much for taking my question. Gary, have you already started to take price in reaction to some of the tariffs that have already been levied? And when do you start to take price in reaction to what was just announced in the last couple of hours? Thank you.

Gary Friedman, Chairman and Chief Executive Officer, RH: Oh, I don’t think we’re gonna do anything right now. Like I said, we’ve we’ve got inventory. Yeah. We’re well positioned. Like, it’s not this is this these are the times when you wanna do less and think more so you can do more.

Right? This is not a time to panic, not a time to react. It’s the time to think, you know, invent, innovate, and, yeah, develop, you know, compelling vision for for times like these. But I I think it’s, again, you know, they we thought you know, we’ve seen tariffs go on, go off, go up, go down. You know, like, it’s gonna move around.

I I don’t it it is not just tariffs. Right? This is, you know, what did they say in the movie thirteen days, you know, when he was talking to, one of the advisers. You know, this is, you know, you know, the Cuban missile crisis. This is, you know, this is president Kennedy talking to Gorbachev.

Right? These these are signals. These are moves. This you know, you gotta kinda motor up and see the whole board right now. You know, you gotta kinda understand where everything might be going.

Did we anticipate this? Not at this level, but that’s okay. It you know, I have more of an edge now. I don’t like being caught off guard. You know?

So yeah. So now we’re we’re just gonna kinda take some time. You know? Don’t move until you see it. You know?

So we gotta take some time to see it, and then we’ll move. But we, you know, we’ve got a lot of inventory that we own. That’s a really good pricing. That’s a really good margin. Our business has a good business trend.

You know, is the consumer gonna stop buying tomorrow? I mean, is this gonna be, like, you know, $2,008.09 housing prices? Or yeah. It’s like, I I don’t think so because I don’t think anybody really understands what’s going on, you know, at a very deep level. I think it’s gonna take take a while to digest.

You know? So the housing market was already bad. Is it gonna get worse? I don’t know. I mean, it’s never been worse in my lifetime.

So could it get worse? It might. Is that terrible? I you know, no. I mean, it we can navigate through any situation.

We’re in re we’re in a really good position. You know? Yeah. We we gave guidance that was appropriate for the moment. Maybe we would have been even more conservative had we known, but that I don’t know if we would have because I don’t know how much impact this is gonna have on us even if it stays in place all year.

Not sure yet. You know, I wanna take some time to analyze it. So

Michael Lasser, Analyst, UBS: that’s it. Yeah. Got you. My follow-up question is on your point about guidance. You might have been a bit more conservative had you had the full benefit of insight into all the policy announcements.

With that being said, should we interpret that as a signal that we should go to the lower end of the guidance? And if that’s the case, how would you think about the need to raise capital or utilize some of the assets that you have at your disposal? Thank you very much.

Gary Friedman, Chairman and Chief Executive Officer, RH: Yeah. I mean, I wouldn’t go yeah. I don’t I don’t I don’t think I’d go below the guidance that we’ve given. Yeah. Not today.

You know, like, I yeah. I think there’s a lot of things that can be done and a lot of moves a lot of moves that are gonna be made at the government level, right, around the world. And, you know, a lot of a lot of things are gonna be made, you know, at the strategic level, you know, with with, you know, governments, countries, the strategic level, the manufacturers, and retailers, you People are gonna get really creative. That’s what they do in times like this. Yep.

Yeah. Humans, you know, we’re not the the biggest or strongest, but they were we’re the ones most adaptable to change. Right? So, you know, change is kinda right up our alley. Right?

You know, so I I mean, if I was someone who’s managing, like, some business that doesn’t innovate or invent and, you know, they’re kinda grinding the wheel and, you know, forecasting 2% for this or that and yeah. You know, like, they’re gonna have a harder time figuring this stuff out. So, I think we’re good. And we don’t we don’t need to raise any capital. We’ve got you know, we we I think we’re in good shape.

The the cash flow is gonna be strong this year. You know, and we have you know, we’ll see how the real estate market is. We we’ve got real estate assets we can turn into cash. You know? You know?

So we I mean, we just turned one of the buildings into cash. We had a a building. We had an asset that that was purchased for 10,500,000.0 or something like that. $1,010,500,000.0, we just sold for 27,000,000. Yeah.

Yeah. So yeah. And so, you know, we were gonna build a house on it, and the housing the construction cost in Aspen became prohibited. It didn’t look like a good investment. Someone buy this old house for almost three times what we paid for it.

Yeah. So, you know, our JV partner and and our side decided to monetize that. Yeah. We have 32 properties, I think, in Aspen. Thirty One now, maybe.

We have, you know, galleries that we own in in different places in The United States. You know, we have Cleveland, Detroit, you know, but many others. Yeah. Several others. RH England.

We have the guest house in New York. We’ve got Napasota property. Yeah. It was an Napasota property. We we you know, so we’re we’re fine.

We have assets that we can turn into cash if it’s appropriate, you know, but it’s not you know, we’re not in any kind of fire sale mode. You know, we’re we we have, you know, this is not like a company that’s doing, you know, five to 8% operating margin going into, you know, something like this. I mean, you know, we we have a lot of levers. We can, you know, slow down spending. I mean, I I guess I can talk about, you know, no.

Don’t say that. Never mind. You turn on. You said the the No. Don’t go there.

Okay. Alright. Scott waved off anyway, Michael. Nice talking.

Michael Lasser, Analyst, UBS: I do. Was nice talking to you. Thank you very much, and good luck.

Gary Friedman, Chairman and Chief Executive Officer, RH: Okay. Thank you.

Conference Operator: And the next question is Max Reklinko, TD Cowen.

Pedro, Analyst, Morgan Stanley: Great. Thanks a lot. So maybe just following up on the guidance question. Can you just walk us through what is embedded in your revenue and margin guidance as it’s related to tariffs? And then just any onetime costs that we should be thinking about as you reposition your supply chain?

Gary Friedman, Chairman and Chief Executive Officer, RH: Yeah. I mean, what what’s embedded is what we talked about. Right? And so, you know, the the China, Mexico, Canada tariffs, you know, we we We’ve had what we knew before. Today’s still what we knew.

I mean, you know, you know, we think our guidance is on the conservative side. But, you know, what you should be modeling to rearchitect supply chain, well, I’m actually gonna hear what he just said in the thirty minutes. Like, I said, it’s not a time to overreact. This is, yeah, this is Donald Trump talking to every other president or prime minister around the world. Right?

This is high level strategic negotiation. You gotta think about who has the leverage here. The US has been yeah. You can yeah. You look at the numbers, you say The US has been in a disadvantage, not really treated error.

You know, does it have to go to a complete balance? No. But, you know, just because of the trade imbalance, I mean, it’s like Us funding, you know, the growth of other economies. And I think that, you know, the administration saying is we wanna balance that out. You know, we don’t wanna pay for everything.

You know? We don’t wanna be the only ones investing in military and protection. You know, we wanna have more more fair and balanced, you know, trade policies. I you know, it’s it’s not it’s not this is the move he made and this is it. This is this is the first card he’s played globally.

New card. Mexico and China are neighbors. You know? Yeah. And that I’m not Mexican China.

Mexico and Canada. And, you know, in China, you know, that that has been the single place of tariffs. This is now a global negotiation. And I don’t know. I I think I would predict that there will be concessions, And this I don’t believe it’s gonna continue at this level of Nate for longer than we think, but, I mean, it can’t be good for the other side.

Right? It it’s really can’t be good. And so I think we’ve got very smart administration negotiating at a level we haven’t seen any administration, at least in our lifetimes, negotiate. So I’m I think, you you know, it’s it’s not a time you know, it’s like I say to our team, I say, don’t move until you see it. Take your time.

This is a this is a chess game, not a checker’s game.

Pedro, Analyst, Morgan Stanley: Got it. That’s helpful. And then just can you provide any color on the quarter to date demand? And just given the volatility in the stock markets, just how we should think about the impact that you might be seeing? And then just how should we think about the excess backlog and sort of the demand that’s been quite strong that we’ve seen over the past couple quarters flowing into revenues here?

Gary Friedman, Chairman and Chief Executive Officer, RH: Well, we we said we were gonna only give demand for last year. You know, I wrote that pretty clearly in the, you know, the earnings letter at this time last year because of the product transformation and the dislocation between demand and revenues. So we’ve now anniversaried that. And so I gave you kind of a, you know, a look at January. Right?

And, you know, from a from a demand point of view, because that was still last year. But looking forward, we’re not we’re we’re no longer gonna give demand. We’ll give revenue guidance, which, you know, is generally directionally in line with demand. You know? So might change from quarter to quarter.

You might have, you know, some things that ship, you know, cross quarters somewhat differently, but it’s usually not a big disconnect. So And, Max, I would add as

Jack Preston, Chief Financial Officer, RH: an example that in q four, the the gap narrows. So with q four, revenues on a comparable thirteen week basis up 18 and q four total demand growth up 17. So, you know, that that that, in essence, normalizes the backlog piece that we were talking about and and supports the the point that Gary just made.

Gary Friedman, Chairman and Chief Executive Officer, RH: Yeah. Thank you, Jack.

Pedro, Analyst, Morgan Stanley: Awesome. Thanks a lot, guys. Best regards.

Gary Friedman, Chairman and Chief Executive Officer, RH: Thanks, Max.

Conference Operator: We’ll go to Andrew Carter, Stifel.

Andrew Carter, Analyst, Stifel: Hey, thank you for taking my question. Good evening. So quick question on kind of looking at the controllable cost outlook here. You’ve got I think by my math here, you’ve got I mean you’ve got You’ve got revenue growth of 10 to 13%.

Is are product margins still inflecting? So is that going to be a majority in gross margin? Or are we going to see a lot in SG and A because you’ve lapped the investments? And then the second question around the timing, there’s more of a disconnect on cost growth in one q. Is there anything related to that?

Is that timing around the advertising investments or something like that or, you know, delivery? Just anything. I’ll stop there.

Gary Friedman, Chairman and Chief Executive Officer, RH: I’ll I’ll I’ll I’ll comment, and I’ll turn it over If he wants to level the detail you’re looking for, I want you to come work on our f c n a team. And so you could help us with all the modeling. But I’ll let me let me I can talk about ad cost and, you know, some of the Yeah. Some of the changes.

Jack Preston, Chief Financial Officer, RH: I mean, I think as Gary pointed out, we’ve we’ve mailed two books in q one. So between the outdoor book and the interiors book, you you you have an expense there.

Gary Friedman, Chairman and Chief Executive Officer, RH: Yeah. Incremental over a year ago. Incremental over

Jack Preston, Chief Financial Officer, RH: a year ago where you just sort of had the outdoor. So so that that’s you know, we always say that the quarter to quarter differences, you know, there’s a lot of that variability that’s driven by the ad costs. So you’re seeing that. And then and then as far as whether it’s happening in gross margin and s g and a, look, the guide speaks for itself at the operating income level, and I think, you know, we don’t guide those pieces, but there’s obviously, you know, positive factors in both lines. I just can’t we can’t speak to the to the magnitude just based on, you know, how we’re how we’re guiding in our approach.

Andrew Carter, Analyst, Stifel: Fair enough. Just thinking about more of a high level, you kinda said it today, but, do these tariff announcements against, your competitors, where you’re going premium really create anybody that has an advantage? I know you mentioned Ethan Allen earlier that has some domestics. But if you consider like your true competitors like people and you have a lot of people coming out of Europe, you have some niche here. Are they really at any kind of cost advantage here today that you you have or just any kind of kind of help with that?

Thanks.

Gary Friedman, Chairman and Chief Executive Officer, RH: No. I don’t think anybody’s at a cost advantage from us. I mean, we we’re buying at the biggest scale at this quality in the world. And and we can do that because we have the biggest platform. So when you think about a lot of the, you know, higher end people in the business, I mean, they’re relatively small because they don’t have a platform.

Right? And many of them are, you know, selling wholesale. They don’t control the platform. They may have a few stores. But, you know, no one’s got a platform like ours, so no one has the buying power that we do or think, you know, can take the risk that we can and negotiate the prices that we can.

And, so yeah. Again, the the playing field is is pretty level. Right? At least in North America. You know?

And and for people that are, you know, European based coming to America, that’s that’s not good. Right? If they’re especially if they’re manufacturing based business because they’re a % tariff. So, you know, we we can just there’s a lot of moves we can make. Right?

We can move more upholstery. We could look at bringing up, you know, you know, wood furniture operations. I you know, I think the most difficult one today is, you know, is peak furniture out of Indonesia. You know, Indonesia is the capital of premium peak, you know, sustainably harvest peak in the world. And, you know, other countries, it’s a little dicey, and and it’s definitely not the same quality.

So that’s why, you know, I mean, forever that I’ve you know, all my life in this business, the best quality, the biggest key key resource in the world is in Indonesia. You know, that’s that’s a harder one to kinda navigate out of. And, but then again, we’re kinda the biggest and the best. So if you want realty furniture and you don’t want, you know, to deliver, like, doing mahogany. Mahogany is not gonna last outside.

You know, it’s like much cheaper wood. You know, they’re doing acacia wood. They’re doing, you know, rubber wood, Niata wood. Eucalyptus wood. I mean, all nice trees.

Don’t get me wrong. Just not great wood for outdoor furniture. If you want it for, you know, three years or, you know, you know, maybe five years in a nice climate, three years in a rough climate, Yeah. That’s great. You’re just gonna keep buying new outdoor furniture.

It’s look like crap after a few years. So, that’s why we don’t sell any of that stuff. You know? But, again, you know, that’s and I I can’t see anybody doing anything that’s gonna hurt our position in the market. I mean, you know, it just may mean the furniture is a little bit more expensive, but it’s it’s what what was the Indonesian number?

The tariff? Yeah. 30 yeah.

Steve Forbes, Analyst, Guggenheim: 32%. I mean,

Gary Friedman, Chairman and Chief Executive Officer, RH: we we dealt with, yeah, those kind of tariffs out of China. I mean, you know, you figure out how to be more efficient. You figure out how to work better. You know, humans I like to say humans without deadlines are useless. Right?

We’re no good without deadlines. We’re not good without pressure. You know, it’s why the great athletes perform in the in the playoffs, not necessarily their best in the regular season. Although Steph Curry did have 12 threes and 52 points last night, I was happy about that, but it’s getting close to the playoffs and it was against one of their their rivals. Right?

So, you know, you see, like, you know, we’re kinda one of those teams. Like, we’re great in the playoffs. We’re great under pressure. And humans generally are better under pressure, you know, but you could you’re you’re gonna see who’s really good in times like these. So we’re excited.

This is like a exciting time. I mean, I I’m not worried about, god, are we gonna be okay? Do we have to raise money? Do it now? Like, we’re good.

You know? I mean, I do not think this is gonna be, you know, like, gonna bring the whole economy down. I I think, you know, there’s gonna be pain. I, you know, told everybody I know, and I think that, you know, when you you kinda saw where this was going that that look. There may be pain for the next twelve to eighteen months or, twenty four months.

And, but I think the the second half of this administration’s tenure here is could be a booming American economy. So, you know, I think the key is how do you position yourself for the other side of that? How do you, you know, how do you navigate correctly now? How do you optimize your, you know, your business, and your sourcing structure, you know, just all all aspects of the business. And if there there will be better times and better days, so there always are.

Pedro, Analyst, Morgan Stanley: Thanks. I’ll pass on.

Conference Operator: Take the next question today from Thomas Bradley, KeyBanc Capital Markets.

Brad Thomas, Analyst, KeyBanc Capital Markets: Hi. Thanks. It’s Brad Thomas. Gary,

Gary Friedman, Chairman and Chief Executive Officer, RH: I wanted

Seth Basham, Analyst, Wedbush Securities: to ask just about the international side of

Brad Thomas, Analyst, KeyBanc Capital Markets: the business and wondering what you’re seeing in terms of trends there. Wonder the degree to which you worry about any backlash about, American perceived brands and how you think about, you know, the openings you have this year and what risk, if any,

Seth Basham, Analyst, Wedbush Securities: there might be inside delays on?

Gary Friedman, Chairman and Chief Executive Officer, RH: Thanks. Yeah. Those are all really good questions. I mean yeah. I was just talking to my wife last night, like, hey.

If this really goes sideways or you know, I mean, if he he had solved Europe, sure we were gonna get it. It’ll lead this summer. You know, I’d expect no. But it’s you know, if there’s gonna be some kind of weird backlash, I we were all thinking the same things, like, okay. Or I mean I mean, look what’s happening to Tesla.

Like, you know, it’s, like, it’s crazy. Right? I mean, you have a a world that’s alive on the Internet. Right? And, like, tweets and messaging and social media and news and, you know, I’m sure that it’s gonna create create noise.

I I don’t know. You know, I it’s I I think it’s it’s communication is really key right now. You know, messaging is really key right now. I thought it was interesting, you know, how Trump was holding up the big sign with you know, this is how much we’re getting tariffs. Right?

And, you know, we’re just trying to balance this thing out. I, you know, I think, hopefully, that, you know, that image and that time will get to people in other countries, and they’ll also put some pressure on their governments to kind of, you know, level the playing field. I you know, we can we you know, I’m just thinking out loud with you. You know, give you a like, we’ve we’ve been thinking about this. I don’t think I think we underestimated the size of this move, but I’d rather have this happen than, you know, you know, four moves to get there and a long drawn out thing.

I think this is gonna get us to a conclusion much faster, a much clearer conclusion. There’s there is now kind of a it’s a global negotiation. It’s not this country now and what’s the next country and where are we going next. It’s all laid out there. Right?

It’s completely laid out there for everyone to see. So everyone in every country I I don’t think they were making up those numbers. I don’t think the administration got a bunch of, you know, numbers that aren’t true. I mean, I hope not. I mean, that would be a whole different issue.

Right? Like, holy cow. Yeah. Like so but I I think I think it’s I think the move is a well played move. It’s the information is out there.

The logic is out there. You know, the, you know, the the intention, the desire is clear. It’s not that this administration wants tariffs. They want trade balance. I don’t even think they’re trying to get complete balance.

It’s just way out of whack. So, you know, will there be some backlash? I’m sure we’re gonna read about stuff in American businesses with ticketers or somebody throws a fire bomb through a window somewhere. I don’t know. That’s just the world we live in today.

But as it relates to us, construction delays, things like that, I I I will they be any different than building the kind of buildings we have? We always have construction delays. So yeah. I I I don’t know. But but that none of that is gonna make a big deal.

But if those are all on the on the fringe on the edges, I I don’t think the backlash is gonna be a big deal. We’re we’re not doing that much volume out of Europe today anyway. You know, I hope things you know, I hope things kind of get, yeah, more more clear and, you know, the world’s a kind of a more balanced place from trade and from, you know, conflict and by the time we opened Paris, you know, because we’re all planning to open during Caissendre of J, which is one of the biggest home shows in the world. We’ll be you know, all the most influential designers and other people will be there. Yeah, it’s time when everybody goes for all the, antique markets and flea markets, and we were gonna, you know, open in Paris that week until the world could see, you know, the design world could see RH Paris.

And I hope there’s not pictures up front there, and I hope by saying that that I didn’t all of a sudden create pictures up front there. It’s a long way off. It’s not, you know, it’s not happening in the next couple of weeks. So but now, you know, like, we yeah. We’re giving you our best insights here.

Right? This is I I have no script in front of me, and it’s probably a firm grasp to be obvious.

Brad Thomas, Analyst, KeyBanc Capital Markets: That’s very helpful, Gary. And if I could just ask a follow-up on on the topic of clearance activity. You know, that’s been something going on as you’ve been transitioning the assortments. How should we think about clearance activity going forward here?

Gary Friedman, Chairman and Chief Executive Officer, RH: Yeah. I think, you know, I think about clearance in in relationship to the economy. Right? In in in good market, you’re gonna see less clearance. In bad housing markets, you’re gonna see more clearance.

Not just here, everywhere. And then we’ve got, you know, another layer that will what just relates to, you know, the the amount of, new products that we’re bringing in. You know, we talk about the, you know, product in thirds. Right? Top third, middle third, bottom third.

You know, that’s how we, yes, we communicate here with each other. You know, is this collection gonna be in the top third? If in the top third, it’ll pull the whole company up. Right? If it’s gonna be in the middle third, yeah, if it’s in top and middle third, it’ll pull you up a little bit.

Bottom middle third might pull you down a little bit. It’s in the bottom third, it’s gonna pull you down. And so, if you bring in, know, a hundred new collections, can you yeah. They’re gonna be in thirds. Right?

There’s gonna be top third, middle third, bottom third. Bottom third, you know, you’re gonna, you know, rank against all, you know, all the other assortments, not just against all the newness. And, you know, if you lift the whole if you lift the whole thing up, if everything lifts, you know, then there’s gonna be some of those things you would keep versus markdown. But you’re also just gonna keep I I would have thought we would have been transitioning through more of our sales collection sooner, but I thought the housing market was gonna get better too. And so the housing market, actually got kinda worse, you know, for a period there.

Right? When interest rates spiked and mortgage rates mortgage application fell point percent. And I think that, you know, it’s probably a, yeah, a good chance the housing market slows a little bit from here, you know, as people digest this information. I you know, be interesting. I don’t what kind of day we’re having today.

We can give you a live read of our business now. I’m getting thumbs up. It’s a good day. Okay. That that’s not demand guidance, by the way.

But it’s a thumbs up. You got a thumbs up. My team give us a thumbs up on the live read. So so yeah. Like, we’re just really well positioned right now.

I think that’s the headline. Like, if you’re gonna bet that bet on somebody in this race, and I don’t like, I don’t have sports or stock now. I mean, I guess I guess, you know, the the the stock went down, you know, based on some of the numbers we reported, and then it got killed because of Oh, really? Oh, shit. Okay.

Uh-huh. I just looked I just looked at the screen. I hadn’t looked at it. You know, it got hit when I think the tariffs came out. And, you know, everybody can see in our 10 k where we’re sourcing from, so it’s not a secret.

And we’re not trying to disguise it by putting everything in a in an Asia bucket. You know? So you can kinda figure it out to do the math. But I I I can tell you that anybody else that has scale in the home business I don’t know. Who be again, put put someone like Ethan Allen or, you know, some of the domestic, like, smaller players, you know, like Bassett or something like that.

You know? I put some of those people aside if they own, you know, more of the manufacturing. But not really, you know, I’d say that big of a competitor with us any you know? Anyway, so, but any anybody of scale in the home business has a high percentage of their content coming out of Asia. Anybody says they don’t, like, that just shocked me because I looked at everybody’s, you know, reporting thing.

Yeah. I know most of these businesses pretty well have been studying them and watching them and hiring people from them. So we’re on the same boat. Right? We might be going at, you know, different percentages out of different countries.

People move different places. Know, I think that I think the people really that I feel worse for right now is all the manufacturers in China or, you know, people who invested there, you know, like that, you know, moved manufacturing, moved their lives, you know, did things, you know, moved out of China into other places and spent a lot of capital, had a lot of disruption, you know, cost you know, it cost them a lot of time and capital. And now the Fed is like, woah. I you know, I’m not really gonna be better off, you know, because they might have been better off in China with the higher higher tariffs and more efficiency and less capital. So I think this move is is quite stunning.

Right? It’s gonna force everyone to just play a different game. Yeah. Like, rather than sequential hit, like, let me hit Vietnam, and then I’m gonna hit this one, and then I’m gonna go here, and I’m gonna put more tariffs in China or might be tariffs here. I might, you know, do Europe.

I mean, we we have a long term sourcing strategy that that we think is a really good one. We haven’t announced it. You know, it’s big and bold and, you know, it it probably seems like it might be the right thing for the rest of world, but I I don’t really know where that where this whole negotiation is gonna end up. It might end up, you know, in a much better place than it appears to be today. But it’s still the the long term sourcing strategy that, you know, vision that we have, I think, is is like a leapfrog.

You know, we don’t wanna talk about it because we’re, you know, trying to figure it out with how you do it. And we we believe it’s doable, and we believe it’s as big as the leapfrog as anything else we do, you know, Yeah. Well, we focus on it. So but, you know, we’re yes. We’re just gonna play our game.

You know? We’re gonna keep narrowing our focus and, you know, as I said, you know, like, around here, we talk about being an inch wide and a mile deep. Right? Like, you know, the in time times like this, this is you know, you might wanna take the inch and turn it into a half an inch and go a mile and a half feet. Like, just be really, really clear.

Be really intentional and allocate human and financial capital with great precision.

Pedro, Analyst, Morgan Stanley: Thank you, Eric.

Gary Friedman, Chairman and Chief Executive Officer, RH: Thanks, Brad.

Conference Operator: The next your next question comes from Jonathan Matuszewski, Jefferies.

Alison Malkin, Investor Relations, RH0: Good evening and thanks for all the perspective this evening. My first question was a follow-up on the clearance activity topic and was just hoping to better understand maybe how those markdowns have been fueling maybe the acquisition of new customers, for RH, versus incremental spend from existing customers. It

Andrew Carter, Analyst, Stifel: looks like in

Alison Malkin, Investor Relations, RH0: the 10 ks, the year ended with 265,000 members. They’re down a bit versus the prior year. So just trying to kind of understand that relative to the increase in revenue. Thanks.

Gary Friedman, Chairman and Chief Executive Officer, RH: Member count was down. Yeah. I again, I I just think that, you know, at a at a high level, at a macro level, you’re just gonna have mark more markdowns in a down market. And you you know, not just because less people are buying because you should have them or your sales will be lower. It’s just kind of simple.

People buy less things in a bad market, and they they will buy more things on sale. It’s really simple. You know, in 02/1989, you know, the the Great Recession, yeah, everybody in our category sales went down 35 to 40%. You know, we promoted, you know, that more in promotion and as we should. And we were able to stabilize the business to down 15, and, you can go back and look at this, you know, because Ethan Allen used to be, I think, 1,200,000,000.0, and they decided not to promote and were regular priced, and they went down 40 comp.

You know, their business shrunk to somewhere, I think, slightly below 600,000,000 or somewhere around 600,000,000. They they lost some of half the business or or, you know, over, like, a two year period. And that was how many years ago? You know, eighteen years ago? Seventeen years ago?

They’ve never recovered. Never recovered. Eighteen years later, they’re not a billion dollar company anymore. So you gotta really be careful and not be arrogant, you know, and think like, oh, I I I think you’re a a luxury fashion brand. Yeah.

That’s not how the furniture market works. So that as far as the member count year over year, I mean, I I not, you know, not a big variance in anything. You know, it’s not yeah. I mean, you know, things generally track, you know, with our with our business, right, with our demand and revenue. So, you know, again, I again, when you zoom out here and you look at where we’re performing and where we’re guiding versus everybody else, I like what we’re doing better than anybody else.

Alison Malkin, Investor Relations, RH0: Yeah. That’s really helpful, Gary. Thank you. And and just a quick follow-up question. In terms of the the sourcing diversification, it sounds like you’re looking to bring half of your sourcing, near half of your sourcing to The U.

S. By the end of the year, probably could drive some improvement in the consumer experience in terms of maybe delivery speed and maybe some other factors. Could could you just kinda comment on that in terms of ancillary benefits for for the consumer from from what you’re doing from a sourcing perspective?

Gary Friedman, Chairman and Chief Executive Officer, RH: Yeah. That’s the upholstery category. That’s not our entire business. Right? So that says our upholstered furniture business, which is one of our biggest categories.

Yeah. And that and that we’re do yeah. That we’re doing.

Conference Operator: Next up, we’ll take a question from Seth Basham, Wedbush Securities.

Seth Basham, Analyst, Wedbush Securities: Thanks, and good evening. I’m just yeah. I’m taking a quick step backwards looking at the fourth quarter, if you could give us some perspective on the margins in the quarter relative to your expectations that came in a bit light, whereas sales were still at the low end of your guided range. Any perspective on what happened from a margin standpoint in the quarter would be great.

Jack Preston, Chief Financial Officer, RH: You mean our operating margin coming in relative to

Gary Friedman, Chairman and Chief Executive Officer, RH: the guidance?

Seth Basham, Analyst, Wedbush Securities: Correct.

Gary Friedman, Chairman and Chief Executive Officer, RH: Any details you wanna give? Yeah. No.

Jack Preston, Chief Financial Officer, RH: Yeah. I mean, look. We’re still I’d say product margin’s still up year over year, in the quarter, and, you know, some expenses came in higher than expected. But but, you know, other than what’s called that in the MD and A, Seth, we can, you know, we can look at

Gary Friedman, Chairman and Chief Executive Officer, RH: that later. I don’t I

Jack Preston, Chief Financial Officer, RH: don’t have any specific color at this time.

Seth Basham, Analyst, Wedbush Securities: Okay. And just thinking about the timing of costs in 2025. You talked about higher advertising costs year over year in the first quarter with an extra source book. When we think about advertising for the balance of the year, we be thinking about it being down relative to last three quarters of last year or any other, transitory costs that you would call out as we think about the quarterly cadence?

Gary Friedman, Chairman and Chief Executive Officer, RH: Yeah. You know, we’re not guiding advertising, but I, you know, I think I just look at, you know, the the operating margin for the year and, you know, the adjusted operating margin, what that looks like, you know, that incorporates our, you know, our views of advertising. So, I think first quarter is, you know, obviously, the I think the highest quarter in in from an ad hoc point of view.

Seth Basham, Analyst, Wedbush Securities: Fair enough. Alright. Thank you, guys.

Gary Friedman, Chairman and Chief Executive Officer, RH: Yep.

Conference Operator: The next question is Brian Nagel, Oppenheimer.

Gary Friedman, Chairman and Chief Executive Officer, RH: Hi. Good evening.

Alison Malkin, Investor Relations, RH1: So, look, maybe just a simple question to start. I can also be discussed. Have you did you talk at all about just the trend in your business through the fourth quarter and then maybe into Q1 here?

Gary Friedman, Chairman and Chief Executive Officer, RH: Yes. We said we were only giving kind of demand guidance for last year. So we’re, you know, we’re not giving it this year, Brian. But

Jack Preston, Chief Financial Officer, RH: And Gary, in the third paragraph of his letter did talk about the trends in the inside the fourth quarter. Inside the fourth quarter. So Yeah. With with, you know, demand ending up in the core business set 21, and he gave you some color because you had it from the December call where we were heading into the call and where, you know, where it stabilized in January at 19. So, you know, you can kinda read some of those trends in the quarter, but we’re not giving any further demand guidance as it relates to this quarter going forward.

Alison Malkin, Investor Relations, RH1: Okay. That’s fair. Then I guess my follow-up question, bigger picture, and I I know we’ve been discussing, obviously, tariffs a lot, but but I get and recognizing, I mean, this is an extraordinarily fluid environment. Okay? Again, I think you may be the first company addressing this after the announcement, you know, from the White House.

But I guess, the philosophical as you look at this and with sourcing costs is presumably going somewhat higher, how do you say where do you kind of shake out? Is it more you think you have more going to kind of adjust prices here in The United States or or, you know, do something on the sourcing side, either negotiate with your vendors or or or move to sourcing around?

Gary Friedman, Chairman and Chief Executive Officer, RH: It’s all of the above. It’s it’s no different than navigating through the, you know, China tariffs and and so on and so forth. And, everybody’s in the same boat. If no one is, you know, not exposed to this, You know, will there, you know, will there be impact to the consumer? Of course, there will.

Yeah. I mean, you know, but but there will be, you know, there’ll be concessions on the manufacturing side. There’ll be some concessions on our end. You know, we’ll look for efficiency in our in our business. We may consolidate, you know, consolidate to fewer vendors to get more leverage and costing, you know, all kinds of things that that you you do in these kind of situations to optimize.

Right? And, you know, so, you know, it’s it’s this is not again, there’s no one’s gonna escape this. That’s what I like. So it’s not like, oh, we hit this place and, you know, now people move to that one and then then they hit that one and then, you know, like, it’s, you know, it’s it’s crystal clear. It’s that’s what I love.

There’s real clarity right now. Now is it gonna change in the next week or two or three because there’s gonna be concessions? Think so. There’s gonna be ongoing things like that for several months or, you know, we might be in a, you know, three month negotiation period, six months. What I’m feel good about being us is the inventory investment we made and the heavy inventory we have is at a good price.

For the first time in my career, extra inventory is my friend. So, you know, I I think we might be the only one positioned the way we we are because of the product transformation we are going through. You know? So I you know, we I mean, we’re gonna have to, you know, work with our partners. There’s things that are in flight that are being produced, and we’ll have to take some inventory, you know, with tariffs and but, yeah, I I I would say as a percentage of other people, it’s gonna be much smaller.

And so I I think we we start with an advantage. I like that. And, you know, and it you know, we’ve been doing this. I don’t think there’s anybody that may no. There is there is yes.

Guys from Ethan Allen might have been doing this longer than I have. You know, it’s like you know, so but, you know, we have a lot of experience around the table here. We’ve been doing this a long time, you know, and some of us have multiple companies, you know, similar to this one. And so, we know the game as well as anybody. We know the countries as well as anybody.

We have unbelievable partners around the world, you know, and we’re all, you know, we’re all get we’re on the same team. Right? It’s it’s yes. This is a time of, you know, thought, reflection, collaboration, and, you know, note I don’t know what else to say. I mean, it’s it’s it’s it’s a good time to be our age even though it looks like a bad time.

That would be the midst of you. Looking to other times of crisis, you know, and who’s come out the other side really well, I think we have. You know? And and and we have when we had a lot less less resources and a way less dynamic strategy than we have today. So yep.

But, yeah, it’s also time to decide what’s nice to do and need to do. You know? And you really wanna focus on the need to do and, and be super disciplined in, you know, about time and capital. You You know, time’s the most important thing we allocate. So just thinking about where we’re gonna focus in light of this new situation and understanding that the situation is gonna change.

We can’t see it yet, but it’s a big clear move. That’s the best thing. So it’s crystal clear with what the administration is trying to do. Crystal clear. And I thank them for that.

Yeah. I thank them for not, like, you know, kind of, you know, playing a hodgepodge game all over the place and being really unfocused. This is their really clear and focused move. They’ve thought about this deeply and for a long time. I mean, that’s what it looks like.

I don’t know anybody inside there. You know, you know, I’m not gonna tell you which way I voted. Yeah. I was like, it’s a dangerous thing to do in this world today. Oh, it’s dangerous to drive in a test like just getting Jack.

Uh-huh. But but we you know, we’re we’re good at what we do here, and, we’re getting better all the time. This is just just another one of those opportunities to learn and grow and, you know, invent and innovate and leapfrog to another better place that we can’t even see yet. Thank you. I appreciate the color.

Sure.

Conference Operator: Your next question is from Christina Fernandez, Telsey Advisory Group.

Alison Malkin, Investor Relations, RH2: Hi. Good afternoon. I wanted to ask a question about product newness. As you look at what’s coming in, for 2025 to drive demand, where do you see the most incrementality? I’m thinking, you know, the interior source book that was mailed this year seem like it have a lot of units, but I know you also have some things planned for the back half.

So can you share some thoughts and and where do you think will be the most significant ones?

Gary Friedman, Chairman and Chief Executive Officer, RH: Yeah. I look. I I think just start with what we have right now. We’re nowhere near optimizing the assortment we have right now. Right?

Like, again, you everything that any retailer buys, they buy it a % wrong. Nobody buys it a % right. I mean, there’s some degree of wrong that you have with every buy. So, you know, nobody knows exactly what the best seller is gonna be and how much to buy of it and so on and so forth. So we have so much newness that we’re optimizing, you know, so much opportunity to, you know, get those products into our galleries presented right.

We have so much opportunity to, you know, look at how we’re presenting things and marketing things throughout the company, on and on and on. You know? So it’s, you know, I would say just at a global level, at at a macro level in our industry, you know, at our competitive set, you’re gonna see a lot less newness this year or it’s gonna be really expensive newness. Yeah. We have so that’s why, you know, I’d say, you know, I I’m really happy about the inventory position we’re in because I think we can really cut back on receipts until we have clarity.

We may yeah. We’ll probably still work from a development point of view because it’s not gonna be clear where the tariffs will really land long term. So it’s not like you wanna just stop everything. I think there’s some level of investment you still wanna make from a product development point of view and be prepared. But, you know, I think I you know, I just think that there’s yeah.

You know, every business that’s being affected by this is gotta think differently. This is yeah. This is forced change. This isn’t, elective change. This isn’t like, hey.

Work from home if you feel like it. You know, there’s no escaping what just happened. It’s gonna be you know, the the the best people are gonna are the ones who are gonna win in the environments like these. So, you know, like, newness is just one aspect. Yeah.

Optimizing what we have, you know, looking at other levers and what we’re doing, and, you know, we’ve we’ve got a lot of new galleries and new things coming, you know, to say, you know, is there is there a risk we push out the new concept? Maybe. Yeah. You know, if there’s you know, but but there’s also a good chance that things resolve themselves in four to eight weeks and go, oh, nothing really changed that much except for the, you know, the, framework of the global trading policies. So I don’t know.

Wish I had a crystal ball, but it’s more fun when you do.

Alison Malkin, Investor Relations, RH2: Got it. And then, my second question, the the London store, it’s being delayed to 2026. Can you talk about, I guess, what what the reason for that is? And does that would imply that some of the investments get pushed out to to 2026?

Gary Friedman, Chairman and Chief Executive Officer, RH: Yeah. It’s yeah. Yeah. Doing big complex. You know, it yeah.

Yeah. Things don’t that means, like, if anybody here if you’ve ever remodeled a home, you know, nothing really goes right. Nothing’s really on time. Everybody says, you know, if you build a house, it’s twice as long and twice as much. Then there’s people tell you three times as long, three times as much.

Imagine, you know, stringing together four buildings in London and creating one harmonious shopping experience and, you know, doing these things at the level that we do right in the heart of Mayfair. There’s just complexities. There’s just things that don’t go exactly the schedule no matter, you know, how hard you push and what you do. So, yeah, just kinda you know, some things get done a little faster, some things come online faster, some things take longer. You know?

And, you know, could we really rush and spend more money and try to get it open in December? I mean, could. I just don’t think the best time to open, you know, in in mid to late December. So we’ll probably, yeah, open it sometime early spring or something like that. But, you know, we’ll we’ll, you know, we’ll keep you posted.

I I you know, we’re not we’re not, you know, stamping out mall stores where you just fill the store front, you know, and kind of fill up, you know, fill up a windowless box with some fixtures. You know, like, that’s easy to do. You know, when I was at, you know, my former company and, you know, we were we could stamp out a store in twelve to eighteen weeks. It’s really simple. You know, that storefront is 40 feet wide and, you know, 50 feet wide and a hundred feet deep, 5,000 feet, you know, or maybe you’re doing 10,000 feet.

I mean, these are really big complex kind of investments in leapfrogs for the company. No one will ever build a I don’t believe anybody will build a platform anywhere comparable to what we’re building. For sure, not in my lifetime. But I I you might not see something like this for another hundred years if then. You know, the the complexity, the cost, the investment, you know, you gotta be able to perform in spaces like these.

You know? And, you know, we’ve proven as we’ve kept expanding and dimensionalizing our physical platform and incorporating hospitality and incorporating interior design services and offices and, yeah, all kinds of sport, you know, indoor, outdoor space, rooftops, gardens, courtyard, and all the things we do. No one built anything like that. No one in the world built anything close to what we we do. So it’s it’s more complex, and, yeah, and plus we’re constantly innovating.

So, you know, there’s, you know, it’s just less stamping things out. That’s what happened. But I haven’t seen anybody’s ever been on time with a kitchen remodel. And so

Seth Basham, Analyst, Wedbush Securities: Thank you.

Conference Operator: And everyone, at this time, there are no further questions. I’d like to hand the call back to mister Gary Friedman for any additional or closing remarks.

Gary Friedman, Chairman and Chief Executive Officer, RH: Great. Well, you know, thank you everyone for your time. You know, it’s so I said at the beginning, welcome to to to a new world. And, you know, my the quote I used from Theodore Roosevelt every moment, movement has a lunatic fringe, I think, quite appropriate, but let’s not let that just characterize what’s happening in the the external environment. It really is what’s happening in the internal environment here that, you know, we are the men and women in the arena, and we are the ones who will do the good deeds.

And and we will, you know, air and come up short, you know, from time to time, but we will also do some extraordinary, remarkable, and amazing things. And that’s what we believe we’re on the planet to do, and and we believe we’ll create one of the most admired brands in the world, if not the most admired. So but it’s it’s long term thinking, and it’s being an inch wide and a mile deep. And you’ll see us get even more focused and more intentional in times like these. So I wanna thank our our team members around the world, our partners around the world, you know, all of our team members here, you know, at the center of innovation in our, you know, our campus in Puerto Madera, California.

I think the work we’ve done, you know, this past year in 2024 is extraordinary. The strategic separation we’ve created is unlike anyone else, in our marketplace, and, you know, our stock is gonna go up and down. I’ve been here twenty five years. I was here when it was 50¢ a share and adjusted for the number of shares we have. It was that was probably a nickel a share.

And so, yeah, when you think about it as a long term, you think about it like you’re an owner and you own a % of the company, you make the kind of decisions that allow you to do the kind of work we’re doing for for twenty five years of your life. And I feel privileged to to be here to be doing that, and I feel privileged and proud to be doing it with the, you know, the people and partners of team r h. So, as I like to say, you know, never underestimate a few good people who don’t know what can’t be done, especially these people. So carpe diem, everyone.

Conference Operator: And once again, everyone, that does conclude today’s conference. We would like to thank you all for your participation today. You may now disconnect.

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