Thank you. Good afternoon, everyone.

Thank you for joining us for our first quarter 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'd 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 our 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 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. Now, I'd like to turn the call over to Gary.

Thank you, Allison. Hello, everyone.

Let me start with a reading of our letter to our people, partners, and shareholders. First quarter revenues of $800.3 million and adjusted EBITDA of 7.1% exceeded the high end of our expectations in the first quarter, despite backorder and special order balances approximately $75 million higher than a year ago, primarily due to tariff-related resourcing.

As a result of our better than expected first quarter results, we are raising our outlook for fiscal year 2026 and providing the following outlook for the second quarter: Fiscal year 2026 outlook: revenue growth of 4.5% to 8%, adjusted EBITDA margin of 14.2% to 16%, adjusted free cash flow of $300 to $400 million. The above outlook includes an approximate -270 basis point adjusted EBITDA margin impact from pre-opening and startup costs to support our international expansion.

Second quarter 2026 outlook: revenue growth of 0.5% to 2.5%, adjusted EBITDA margin of 11.5% to 13%. The above outlook includes an approximate -380 basis point adjusted EBITDA margin impact from pre-opening and startup costs to support our international expansion.

The bridge from here to there: How, many may ask, in an economic environment like the one we are navigating through, do you get from your half one numbers to your half two numbers necessary to make the year? There are three parts that form the proverbial bridge to the other side, supporting the case for our business to accelerate from flat in half one to up 12% in half two, as we've done many times before.

We've listed them below. We plan a backlog reduction that's worth 4.5 percentage points in the second half, new store growth of 2.5 percentage points, and new concept growth of 5 points for RH Estates.

Building the foundation for a global luxury brand: Similar to structures that stand the test of time, those rewarded with historical recognition and reverence, luxury brands are designed and built in the same fashion, on incredibly strong foundations. Both endeavors are considered hard and in many cases impossible.

They always require more time and capital and are generally built by unrelenting and unrelatable individuals and teams. You've heard us talk over the years about climbing the luxury mountain, how it's not for the faint of heart.

As the higher you climb, the air gets thin and the odds become slim. We believe the work we're about to unveil is akin to those difficult last steps and gasping for those vital breaths.

We believe the openings of RH Paris, Milan, and London, arguably the three most immersive and inspiring brand experiences anywhere in the world, will form the foundation necessary to earn the respect and recognition of not only the European and UK customer, but a global one. They communicate a sense of permanence, a brand that has been dedicated to crafting their skills over decades.

The last foundational piece: RH Estates. Mr.

Gorbachev, tear down this wall. Ronald Reagan.

We believe that there are those with taste and no scale, and those with scale and no taste. The global design market has spent the last half century comfortable with that division.

It is an industry defined by exclusion versus inclusion. For decades, the highest echelon of home design, the masterfully tailored upholstery of Dimitri and Co., the uncompromising bespoke casework of Joseph Jeup, the classical grandeur of Dennis & Leen, the meticulous reproductions of Formations, the artisanal fixtures of Waterworks, and the iconic designs of Michael Taylor, who Architectural Digest named one of the greatest interior designers of all time, has been hidden, trapped behind the metaphorical iron curtain.

This curtain is the closed-door, trade-only showroom network. Unless you hold a professional license or hire a gatekeeper, you are forbidden from seeing, experiencing, or purchasing the finest expressions of human craftsmanship.

The public is left outside, while some of the very best design and quality remains hidden inside. Nearly 40 years ago, standing at the Brandenburg Gate, a former American president looked out at a divided world and issued a defiant, historic decree: Mr.

Gorbachev, tear down this wall. Today, we look at the luxury home industry and ask the same.

With the launch of RH Estates, we are removing the barriers that have segregated taste from scale. We are amplifying the work of the world's most elite designers, artisans, and manufacturers on our global platform.

This is not a compromise of quality. It is a liberation of mastery.

By uniting these legendary ateliers and elevating their work in architecturally significant spaces, we're providing access to some of the most beautifully designed, highest quality, classic, contemporary, and modern furniture in the world. Pieces that not only furnish a home, those that define it.

Tearing down the wall means more than just opening the doors. It means eliminating the creative limitations that have historically forced designers to choose between our scale and the uncompromising specificity of trade-only showrooms.

To empower the design community, we are introducing RH Bespoke furniture and RH Couture upholstery. With RH Bespoke, we are offering a level of customization never seen before at scale.

Interior designers and architects can now specify dimensions for dressers, dining tables, sideboards, and cabinets to fit the exact proportions of their architectural canvas. Simultaneously, RH Couture upholstery will redefine the boundaries by integrating custom sizing with COM, customer's own material, into the RH ecosystem.

We are giving designers the creative freedom to specify custom sizes and fabrics for sofas, sectionals, chairs, ottomans, and beds. You source the fabric from anywhere in the world, we provide the atelier-level construction and craftsmanship.

The scale of taste: Our critics will argue that true luxury cannot be scaled. They're wrong.

They fail to understand the ability to scale taste creates higher quality and value for both the customer and the designer. It has the ability, as other innovations have, to create a larger market, enhance the way we live, and elevate humanity.

By moving past the antiquated model where each piece is built in isolation, we are building these elite designs in highly disciplined batches. Scale gives us unprecedented leverage, allowing for vastly superior sourcing of raw materials, rigorous quality control, and significant manufacturing and transportation efficiencies.

Make no mistake: we are not mechanizing art. The intricate hand carvings and finishes are still executed individually by the world's finest artisans.

Because of this human touch, every single piece remains a one-of-a-kind masterpiece in its own right. However, by integrating the fragmented supply chain and presenting these products on an equally unrivaled, inspiring architectural platform, consumers now have the access to a level of design and quality previously only available to a select few.

A new covenant with the trade: We recognize the ultimate expression of our products requires the vision of incredible talent. To honor the design community, we are redefining how we partner with professionals.

We're introducing an exclusive program for interior designers, architects, and trade members. The program ensures that professionals are compensated for the tremendous value and aesthetic clarity they create for consumers.

We want to incentivize the world's best talent to build their canvases using our platform, creating a symbiotic ecosystem where design mastery is both accessible and rewarded at every level. The separation between taste and scale is over.

The curtain has fallen. It's time to tear down that wall.

Carpe diem. Gary.

Operator will now open the call to questions.

Good afternoon, Gary, Jack. Gary, given the commentary around customization within the shareholder letter that you just went through, curious if you can maybe just give us a high-level view on what you think this really means for the brand's reach in addressable TAM, especially once you layer in that new trade program.

How much of the market really gets opened up? I don't know if there's a way to contextualize it for us on how you're thinking about it today.

It really opens up on multiple levels.

One is I mentioned on the video last quarter, that the traditional and classic market represents about 60% of the luxury home market. Today, we're just vastly underpenetrated in that market.

If you look back, if you looked at an RH sourcebook from, 2014, I think it was 704 pages, and it was it was all classic, all traditionally based. If you look at our business today, because of the evolution and the expansion of Modern, then the evolution into Contemporary as the trend hit, our brand, like many brands, and, many of us grew up in the fashion industry, I grew up at the Gap, and so, learning to to build a specialty brand, you're you're generally keeping it in a very focused kind of limited point of view so it'll break through the market.

I think one of the things that I feel that kind of recognize, is if you think about the bigger picture of the home industry, is that the trends kind of, kind of lift kind of aesthetics during cycles, but they but that but the other things don't really stop selling. They just sell kind of less.

Because the architecture is really the driving force in the market. So, as we've went back and just kind of studied, our history and said, look, what were the smartest things we've done?

What are the things we or you think we missed? What could we have done better?

Our view is that we could build, as I as, again, as I outlined in the video, build our business around the three major aesthetic kind of pieces. That's traditional, contemporary, and modern, and, we'll refer to it as Estates, Interiors, and Modern.

This is I would say I don't know, there's maybe a chance that we might have given away over the last 12, 10, 12 years a billion dollars. Maybe more.

As we assess the market and try to go back and just do the math and try to extrapolate things. That's that's one piece.

Then then I'd say every time you do something new, not a it's not 100% incremental. There's going to be some level of cannibalization as you expand, a market, whether it's you're expanding product or expanding physically, in penetration.

There's going to generally be some level of incrementality, and there's going to be a level of cannibalization. Our view here, this this is one of the most incremental things I think we've ever done.

Modern was very incremental, but it was a very small market, when we launched RH Modern. The amount of modern architecture in the world, while it was trending and the world was moving in that direction, still it was it's a fragment of the size of this market.

That's how I'd think of the about the the first piece. The second piece is looking at it not just from an aesthetic point of view, but really a market point of view, a design and quality point of view.

RH Estates is from our view the first step up to the top of the luxury mountain, if you use that metaphor. It is the highest level of quality and design that exists in the world, unless you're really buying rare antiques.

If you think about the brands with that that we've aggregated over the last five years and what we've learned over that time, and what we're bringing to market with Estates, which you guys have only seen just a little teaser. That's such a little teaser.

It's this is just a a level of design and quality that is not available to the consumer. We own these showrooms, and and, one of our very best ones, or two of them, the door is not open to the public.

There's a doorbell. Even if you're a consumer and you're walking down the street and you want to go in, you ring the doorbell, and you may not be able to get in if you don't have an appointment, and if you're not, you're not a member of the trade or and you don't have an appointment.

The the design and quality, and then you've got the accessibility. When whenever we develop any product, we always do searches on the products.

We'll do all kinds of visual searches across all platforms, right, to see who might have something like this. Cuz you know the world is looking at different things and seeing different things and understanding different trends and then trying to scale things.

I can tell you we've never had such a low hit rate of versus what we're bringing to the market. Now you you can take a negative view and go, well, maybe nobody wants that.

That's why you're not seeing it. No, you're not seeing it because nobody I don't believe anybody else can really sell it because they don't have the platform, and they don't have the brand, and and they don't have the the ability to source it at a at a value equation that we can.

I have, I've I've been lucky, and and this one this is, I'd say lucky, not so lucky. I joked with the team, this is the first trend that I, I'm old enough that I was the customer of, when you think about the next thing that's coming, the age of eclecticism, the California look with Michael Taylor.

There's a few different kind of names they give it, and they all come through somewhat differently, but, the foundational elements to these giant trends that come through. This is one of the biggest ones ever.

This is this one was bigger and longer than Modern or any trend we've addressed in my history of RH, right? I was the customer.

I joined RH as as I was moving into my house in Belvedere, which is the first house I ever lived in in my life, the only house I built in my life. My my first wife was a luxury interior designer, and I was her client for a condominium in San Francisco.

I had the round Michael Taylor dining table in that house. I had the reproduction of the Coco Chanel sofa.

I had a lot of these different kind of products that are trends. Now, I probably shouldn't say this, some of this stuff.

I got to be careful cuz all of my competitors are on these calls, and they're, kind of waiting for me to slip up and let them let them hear or see something. This I lived through this trend.

In at my house in Belvedere, how many things do I have from Formations that I bought? Six or seven items from Formations that I bought years ago.

I have the Michael Taylor rectangle dining table in in my house. I bought two of them.

I had the round one in in the condo, the first first job we did together, and the rectangle one. I know how much I paid for those 27 26, 27 years ago.

I know what they've they've been selling for recently, because we we own those businesses. The value equation, the quality we're going to bring to the market, and the value equation we're going to bring to the market has never been seen before.

I don't say that lightly. I'd usually never, go out on a limb like this, but never been seen before.

You you try to do a visual search online, it is not out there unless you want to go on 1stDibs and buy an antique. Which is fine.

We can't stop you from buying an antique. I ought to read everybody what what we have on the back of our catalog, right?

Because if anybody tries to come after any of these goods, it's going to be a bad day. Because we own the intellectual property on the vast majority of what we're bringing to the market.

We could we we have patent pendings on, what did we say, what percent of this book? 80?

65 to

80% of the book. We should go down and and we should go back and just actually add it all up.

There there's just so many things we're doing we've never done before. The way we're addressing the market and the way we're sourcing these goods.

The the the people that are making these goods grew up making these goods. The the manufacturers that are making these, they they were part of this that industry, making for the highest end showrooms before we met them and started to scale with them.

They're all so excited to be able to make this quality again, because they're the market is is so fragmented. It so so this this the design and quality, aspect of this is is huge.

Then the next piece you have is, we're going to open the market up to what do we call them, super buyers of furniture. We we have a very big trade business.

We provide excellent service to the trade and to high-end interior designers and design firms. Our teams act as a back office.

We'll do designs and renderings and presentations for them, we'll support them in any way we can in many times in delivery and installation. At the same time, there there is an aspect of just recognition and compensation that, we haven't done.

The team jokes around, cuz every time I go to High Point, someone comes up to me and says, like, "I love your brand. Oh, my god."

"Please, please, help us make money. Let let us make money on your brand."

We haven't offered and incentivized the design trade. I and I look back, and and I think, when because I came from a, family situation that that had interior designer, and I had I had the insight of looking at, just how complex and difficult that was.

It was also, it was it was, not only was it not transparent, it was just not accessible. You couldn't couldn't see it, couldn't buy it, you know.

I I just thought, over time, just making high quality goods available would that that the consumers would drive designers to our brand, and and I think they have. At the same time, there's really great interior designers that, they're running a different model.

Even, the mother of my girls, who was here consulting us what, 10 days ago, two weeks ago, just give us the inside of a, high-end designer, she runs a design firm, and she said she said, "Listen, do I buy RH? Of course, I buy RH.

Do I want to spec that first? No."

A lot of times, my clients will say, "Hey, look, okay, do your designs, in the in the primary living room, in the primary bedroom, in the primary dining room, but but like do RH for the family room and the media room and all the rest of the bedrooms." She was saying like just like, "Okay, I will."

She said, "But I'm thinking to myself, I can't make any money." Like they're, interior designers have a markup model, right, and and a an hourly model.

They kind of need both to make the business work. I think we've, we've we've just haven't we haven't been an open platform like that, and I think that I think we were just overlooking kind of a super customer.

They're they buy furniture all day long. That's that's what they do for a living.

It kind of doesn't make sense if we're not doing it, when you really look at it critically. I think it really makes sense here, too, the timing of this, because not only are we going to have this design and quality that is at the very highest level of the market, we're going to also empower the designers and consumers, for that matter, and all of our designers with the ability to customize and the ability to do COM and customer's own, material, and the ability to do all the things that they need or want to do to do truly custom work at the highest end.

I would say this is just the beginning, right? It's not and it's not the only thing we'll do.

Someone asked me the other day, "Hey, are your prices going to be higher?" They're going to be higher.

The the quality is mass massively higher. If it's such a a tremendous value, and the the price should be higher.

This is not just, kind of smooth wood with a sprayed-on finish, or, a contemporary piece with curved edges. This is hand-patinated, hand-carved, hand-distressed, so many details to get it right.

Every piece is a one of a kind, because of the handwork and and how it's made. Someone said, "Oh, well, how do you know you're not going to make a mistake like Contemporary?"

Contemporary wasn't didn't have the handwork, didn't have that level of detail, didn't have those things. We just, we were a bit arrogant at that point in time.

So, but but because, we're out here with a unique product also, I think that we're we're offering such an incredible value, but I think that there's also an opportunity because of how long we've been thinking about this, working on it. I think it's the most intelligent, deep thinking launch of a brand we've done.

We we've really started investing in this in 2000. Here we are, 2026.

We acquired Dimitri and Joseph Jeup in 2000 --

2020?

Huh?

2020.

2020, not 2000. Thank you.

2020, yeah, thank you. Not that long ago.

It's just been a long-term investment. This this, on so many levels, think about the opening of the high-end design market on this, and, there's nothing that we're doing to value-engineer the product.

It we are making a a the the identical quality. The dining table is made with the identical molds of Michael Taylor, but, the tops and everything are the same quality.

The the finishes, that we're offering, the rare finishes is at a whole different level. You're going to see when you see this book, and it's beginning to hit homes next week, what are we saying, end of next week, early the following week?

Early the following

week. Early the following week.

We kept tweaking it and tweaking it, and we had a lot of last-minute ideas to kind of make it better as we were working on it. It was also it, taken us a little longer because it required, a different little level of thought and discipline and, compositions and presentation to do it at the level that it deserved to be presented at.

A few weeks late to us, it's not the big deal. I know I read a couple of analysts' reports going, "Oh, my god, it's late."

Like, I don't know, like was Tesla ever on time? It changed the whole car industry.

It's not about like, hey, I'm I'm rushing to mediocrity here. We're trying to make big moves that are that are industry-redefining, and I think this is one of them.

I think this is, it's the biggest move we've ever made. It's it's fundamentally, different on so many levels and opens up so many dimensions of a market, but it also opens up the learning, right, that can be applied to Modern and to Interiors and so on and so forth, and thinking about how how big is our market, you know.

Like when you think about what I just said about, my daughter's mother, and she said, yeah, customers will say, "Okay, do the primary rooms, and then, use RH for these other rooms." What's what's really interesting about that, our whole focus with this, the initial lens, the key part of the lens, was cuz we we knew that, by the way.

We said let's win the primary rooms. Let's make sure we get the primary bedroom.

If we get the primary bedroom, we have the assortment to get the other rooms. Let's get the primary dining room.

When you see some of the dining tables we have, like you I if you go on 1stDibs and start at $250,000 with the most expensive dining table and go all the way through it down to the prices we have it at, you won't find anything of our quality, or design. We've went through all of it.

We know every dining table on 1stDibs, at at at every, competitor at the highest ends to, down. We we spent a lot of time studying this market.

The the goal is, the dining room, the primary living room, the primary bedroom. These goods can also eclectically be presented, in in a in a very cool way.

This it's And you'll see it when it's when it's all presented. It's It looks It looks different than RH today, but it does look like RH today.

I think you'll see a very big move. You're just going to see like, "Whoa."

I think the design community is going to go, "Whoa, I didn't know they have this in them." I know that's a long ramble, but, like I'm so excited.

I If you guys want to talk for the next 5 hours about Estates, you're going to have my attention.

Thanks, Gary. Maybe a very quick follow-up for Jack.

Given the tariff refund commentary in the Q, maybe just help us reconfirm whether or not any refunds are included within the guidance. No,

no further refunds. The refunds started coming, but they've been kind of paused.

You might be following some of that activity as far as the DOJ and how those are playing out in the courts. The free cash flow specifically does not reflect any further tariff refunds.

Thank you, both.

Good evening. Thank you so much for taking my question.

I wanted to dig in on the 500 basis points of contribution that you are expecting from RH Estates in the back half of the year. That's just under $100 million.

What is the basis for that expectation? You've already alluded to a need to evolve some of the elements of the model, or the way you interact with core customers like the trade.

Do you think you need to make further changes to your customer acquisition engine beyond the legacy model of just simply mailing out a book and then expecting that the consumer will come, especially in this age where your competitors are going hard after social media and other forms of manners they're reaching the consumer? Thank you.

I don't know, they've been doing that for the last three years, and we've outperformed all of them. I think when you say we're mailing a book and expecting people to come, we've built the greatest physical platform on the planet Earth for our kind of products, right?

Don't overlook the physical platform. Michael, if you look at that video I did last quarter, I outlined that furniture is the least digitized business.

It's 80% done in stores, it's 20% done online. At the luxury level, it's 95 to 5.

This is a business you need to see, touch, sit in, comfort, scale, all those kind of things. The book is just a small way.

We use it to integrate the whole thing. People look forward to getting our books.

It's a physical thing. We have a digital book, too.

I'm just not a believer in following the trends of a lot of people that are following other people. We just think it's massively inauthentic to pay some influencer to go talk about our goods, and they know nothing about us, they know nothing about the product, they're not an expert in the field, and I think that's a lot of noise.

Maybe it's good for building beauty brands to teenagers or other stuff like that. It doesn't affect what I buy, and I have a lot of homes.

I don't think it affects our customer, or we wouldn't be the biggest brand of our kind. We wouldn't have outperformed everybody.

If you look at this last quarter we have, and you look at us over a 2-year basis or 3-year basis, over a 2-year basis, only West Elm has performed as well as us. On a 3-year basis, we're better than everybody.

West Elm just had a great quarter, and I think they're doing a great job, but if you look at anybody buying furniture, I tell people, when you go out there and bang pots and pans and try to get attention doing inauthentic things, you're just creating noise. You're creating your own noise, and you wind up chasing things and thinking that they're relevant when they're not.

We've tried and tested different things, and we have a lot of data behind what we've done and why we're doing what we do, and nobody thought we were smart to build the stores we did and the galleries we did, and those turned out pretty well. Everybody stopped mailing books, and we're still mailing books.

The only difference right now in a point in time, you can put our model against anybody, put it against today's very best customer. Back out our investments in international expansion, back out our investment in building Estates, which is not some little introduction of a 80-page book that 5 or 7 years later, you wind up with one store.

We're making serious investments to build a platform unlike anybody else. In a down market like this, is our model not going to look as good?

Okay. You're looking at people that aren't even investing.

They're not building anything. They're trying to be great cost controllers.

Just wait till the other side of the cycle for us. I think we're going to have a cash generation machine that this industry's never seen.

Understood. My follow-up question is about the margin profile of RH Estates.

Is it sufficiently higher than the legacy business in order to fund the investments that you're doing, provide the incentives to the trade community, as well as anything else you might have on the horizon, and still drive the margin expansion that you've embedded in the back half, or do you see other building blocks to arrive at the margin expansion that you're expecting? Thank you very much.

Yeah. Look, Estates Estates has got its margin profile based on the quality and exclusivity and desirability of those goods, right?

If If If, if if you've got a level of design and quality and scarcity, and build desire, who knows what the margins will be? I I think we we determine our margins based on a competitive nature.

If there's others selling something in the market, okay, is there a quality differentiation? How big is it?

How different is the design, on and so forth. What access do they have to the market?

Do they have a big enough platform to to matter? All kinds of things.

Like, we're not really doing margin building to pay for something like, of a incentive for the trade. The incentive for the trade, it's a simple model.

Like we give X, and we need an X, and we need a lift of Y. It's so minor, on a model like ours, because we have such leverage and flow-through.

Just you have to think about our model like, even think think about Estates on a, our whole business has a different model than everyone else just because kind of the price points of our product, right, versus most people selling furniture. We have significantly more leverage, just handling goods, shipping goods, delivering goods, on and so forth.

We have tremendous leverage in our interior design business because, we're selling, high average orders, and and, yes, there's an investment to do that work, but we, we have such leverage on incremental sales. Again, it's a little masked today cuz, cuz of the investments we're making, in international and, and and things like Estates and and so on and so forth, but, yeah, I we we've got plenty of margin to to cover what we're doing.

We'll have plenty of margin growth going forward. Like like I said, we're, we're we're looking at our, what we believe, the cash generation model of this business is going to look like because we think that's the most important metric.

I think as we move past the peak investment cycle, this year and our, we believe our, our top line is going to inflect up kind of irrelevant of what the external market does, unless it really, look, if we get into a war that's massively impacts, the economy, the inflation, on and so forth, that's going to, it's going to put pressure on everyone. We're, those things happen, but we we don't need a big move in the housing market to grow.

We don't even need a move in the housing market. I'm not counting on that on the, the the guidance we just gave everyone.

I'm I'm not I'm not counting on the market getting any better. The market could get worse, and I, I'd be surprised if we don't beat those numbers.

A 5% incremental move on on Estates is really conservative.

Thank you very much, and good luck.

Thank you.

Hi Gary, hey Jack. I want to follow up on two items.

First, Estates and top-line trajectory, and then my follow-up will be on the balance sheet. First on Estates, can you give us a sense of sequencing?

How much of the collection is being launched, I assume it'll be continuous? What percentage of items on floors and galleries will be Estates?

When should we expect that fully ramped? Then should we be seeing the customer deposits line pick up a bit, not just from these backorders, but from Estates?

Then I'll wait for the follow-up.

How many questions did you just ask there? Great track.

That was good. I just saw you in Milan, but I thought you asked me all the questions you might have had.

You probably have a yeah maybe everybody on the phone should ask you questions about Estates. You're one of the few people that saw it, that have been in Milan.

The sequencing of the products coming into stores, we will be kind of terracing in stores. When do we get to 60% of the sales, 65%?

What was that? End of September.

End of September? End of September, we'll be in the galleries that represent roughly 60 to 65% of business, roughly two-thirds of the business.

Then what's the next wave that hits? You said?

Pretty much every month. Every month.

Every month December. kind of have So December will be all galleries?

Yes. Our second mailing of Estates will be the early part of November.

That will be a pretty meaningful expansion of the assortment. You'll see us building this assortment over the next couple of years.

Then, oh, yeah.

Yeah. There, they said should we expect deposits to tick up?

They follow our business. As revenues grow, demand is driven, the customer deposits tick up.

Yeah. Then

I'll put the follow-up. It's two parts in the follow-up.

Should the deposits already be ticking up as these backorders exist, or no, that was already in deposits? Then just thinking about balance sheet, the business improves and inflects, as you said Gary, there's a lot of leverage in it, the balance sheet cash flow stuff should resolve itself.

Can you remind us this path to getting debt-free by '29? Is there an update?

What other steps are you taking to get to that? How much of a priority is it versus just letting the business now let the Estates collection speak for itself and then drive the natural deleverage of the business?

I think we were pretty clear it's a big priority, and, we outlined asset sales of what, $200 to $250 a year over the next 2 years. We just completed a transaction inside our Aspen real estate where, we sold some properties to our partner and, sold a property to us, and we now have more independent control across a, a lot of properties that we can monetize more quickly than less quickly.

How many properties did we take control of again, eight or?

Eight Eight in total.

Eight in total. We have 100% control now, so, we don't have to work through, JV and a partnership to kind of monetize things, and Dave Stanchak is back, and Dave knows how to get deals done, buying or selling.

We're, holding also have real estate outside of the JV. There's that, and there's, the business performance, there's the spending, inflection down, deflation, I guess, call it, or, there's multiple Jack, I don't know if you want to jump in with anything, but, it's just really that, the spending comes down, the sales are going to go up, the we'll have asset sales, and

free cash flow will build. Through that time period.

Again, I think it's just reiterate what Gary said, which is it remains a priority. The exact timing of being debt-free, again, that's our target.

It's our goal. I think, importantly, just making progress on those initiatives.

That's what we're focused on.

I think we have a history of being relatively creative with capital markets. We've had a lot of good timing before this 4-year downturn of the housing market.

Our buyback wasn't as well-timed as maybe our other buybacks, and in our capital approach to it. I wish we would have locked it in, but we didn't, and many big banks that you guys work for told us, "Oh, no, don't lock it in, interest rates aren't going up.

Oh, no, it's just one little move." All of a sudden, we have the fastest rise of interest rates in the history of our lifetimes.

You don't always get these things right. When our stock gets to the right levels, would we exercise convertible options to take down debt and move that?

We have so many ways to work the balance sheet to do things, you don't want to do any convertible debt at this level. We don't think our stock's going to be at this level very long, and we think it's going to move with our business, and as we execute, and, again, we're kind of on the side of the cycle.

We just were in our most prolific spending period of all time, and, unfortunately, it was post-COVID, and we're building some of the most important things we've ever built, and it all cost a hell of a lot more than we would have built it pre-COVID. Unfortunate timing, but, nonetheless, all kind of short-term things to navigate around.

Once you spend the money, the money's behind you, right? I look at it and I say, yeah, there's some people that want to focus on operating margin, and we're going to carry a lot more depreciation, but for investors who want to focus on that line, all right, focus on that line.

Maybe some people are going to be a few hundred basis points better than us. We're going to be focused on EBITDA and cash flow.

I think smartest investor is going to be focused on that line. That's where we're going to be able to create, I think, the best returns in this industry.

Thanks, guys. Product looks great.

Good luck.

Great. Thanks, Simeon.

Great. Hey, thanks a lot.

Hey,

really great first name there, Max.

Appreciate it. Thanks for taking my question.

As a follow-up, as you guys exit the investment cycle following the opening of London and the roll out of Estates, how should we think about what that margin inflection could look like over the medium term? You've obviously provided a second half outlook, but how should we think about the medium-term margin power as you do start to benefit from the investments that you've made over the past few years?

I think we gave you a longer-term outlook and we believe that's the right outlook and the right timeline. Refer to the video, yeah.

We've kind of laid all that out. We believe there's, again, we believe there's meaningful margin expansion as whether or not the housing market gets any better, just because of the cycle coming around and the growth that we expect from these investments, and Europe is and the UK is in even worse shape than the US, right?

It's even getting hit more than the US from the war and stuff like that. You're talking about we didn't exactly open at the most optimal time from a housing point of view and from an economic point of view.

The good news is I've never seen an economy that stayed down forever. Now, I used to say I never saw housing market that stayed down longer than 18 months in my career, but now we're going into, we'll definitely probably yeah, I don't think it's going to recover this year.

We'll see 48 months. Will it go into a fifth year?

It may. It all depends on inflation and interest rates.

We I think we're going to see a lot of leverage in this model either way. We're just really excited.

It's one thing to talk about and conceptualize Estates and work on it and work on it and work on it, and tweak it and tweak it, and then when you see it all comes together, and you go through this accelerated learning at the end of a development of a new business like this, and it's just I don't think any of us have ever worked harder. Because we're doing some of the most important galleries and opening the most important markets in the world, and doing some of our best work from a platform and physical point of view, and we're doing our best work from a product point of view and presentation point of view.

I don't think there's ever been a higher level of excitement here for we have a lot of people here that have been a long time, 10 to 20 years, and, man, like, I don't think I think everybody sees it very clearly, just how unique the product is, just how unique the positioning of the brand is. We're excited to see our efforts and work pay off and monetize for our shareholders, and we're all shareholders here, right?

Everybody's got skin in the game, and everybody's got upside in this effort. Yeah.

Got it. That's helpful.

Then, Gary, as you guys scale and begin to open galleries in the US with the new prototype, how do you think about the unit economics there? Do you think that you can generate similar revenues as the boxes that you've opened over the past decade?

Then should we assume that the new galleries, because they are going to cost less, should get you higher unit margins as well? Thank you.

We do. Yeah.

I think we're going to have a great return on investment. We laid out for you guys in the video the compound and the logic behind the compound, right, is kind of yeah disaggregating a multi-level, three-level gallery and saying, what can you take out, what don't you need?

You don't need elevators, you don't need a grand staircase, you don't need exit stairwells. I don't think a lot of people know in all these big buildings there's two exit stairwells, they're all concrete going up.

There's a giant grand staircase. There's generally two elevators.

There's all kinds of levels. Where there's a restaurant on a rooftop, that takes extra steel and bigger foundations to carry the load, and takes complex mechanical systems to operate a building like that.

We spent several years here dissecting that when we started seeing post-COVID that the cost became meaningfully more, two to two and a half times two and a half times more in some cases. We broke it down and said, "Hey, how can we have an experience that's no less inspiring and beautiful?"

We came up with a compound. I think people are going to think it's the newest, greatest physical experience out there.

In some ways, it's going to look to people like we may have spent more money, right, because they've never seen anything like it. It's going to look like these beautiful gardens you're walking through, but all that area doesn't need to be air-conditioned.

You've got minimal lighting, garden lighting and stuff like that. We're aggregating all the bathrooms and toilets in one place.

We're building a lot of these buildings, they have electric in a small pipe with sprinkler heads. Imagine building a house without bathrooms and kitchens and all the things that are really expensive, and you just aggregate everything in the center where the restaurant is.

I think these things are really smart, and it'd be really exciting, we're excited to unveil them. Then I think our secondary market galleries, we expect everything to be as productive, if not more productive.

I would think all the new things we're going to open are going to be more productive because we've got a bigger assortment, and we've got Estates, and If you think about how we've grown through product expansion primarily in the early years cuz we had no capital, and then platform expansion when we presented those goods at a physical level, and the kind of lifts that we've talked about historically. All of that we're so excited about, like I said, talk about going post-peak from a spending point of view, the things that were going under construction on, we still have a couple of leftover ones that are some cleanup that are a little bit more than we wanted to spend just we couldn't redesign them.

I think the whole model is going to look different. Their return on invested capital is going to get back, I think, to the levels we were at in our peak, and I think we were what, we hit like 75%?

Yeah. 76% return on invested capital, and

Yeah, and

I think we'll be at that kind of level, and yeah. The good news is we're just so much smarter, and have so much more experience, and that'll all be reflected in the outcome, in the economics, and but we got a little stuck.

We're building in some expensive places and expensive cities, and It's not like we could unwind those things. Go, "Whoops, let's not build in the most expensive cities in the world with some of the most complex projects at exactly the most expensive time."

The good news is what doesn't kill you makes you stronger, right? We're still here.

That's great. Appreciate all the color, and certainly look forward to London.

Great. Look forward to seeing you, Max.

Hi, good evening. I appreciate you taking my question.

I'll keep it short, But I guess the question I want to ask is just on the guidance, and you've already discussed this a bit, but the ramp in sales growth that's expected the second half of this year. I've talked a lot about Estates.

I guess the way I want to frame the question is as you look at the business today, the piece of business today, how much of a ramp do you have to have in that existing business in order, with the components you talked about these new pieces, to achieve that guidance for the second half of the year?

If you really look at the build of the backorders and special orders, right, our business is better than kind of reflected in the revenue, right? We've got pretty big balances.

Balances are being created now, but we're not shipping those revenues. We're not shipping that demand yet because we still have transitional things and impacts from major resourcing.

People are still catching up, and so we'll just see that cuz you have to kind of look at it and say, okay, what does that look like? Where are we really?

What is it building to? You have to think about that flop that's kind of coming across, and when you think about that, Brian, there's a pretty big number that we don't have to drive demand to hit it.

We've already driven that demand, right? You've got a big chunk of business that's going to just flop over to the second half.

Does that make sense?

No, yeah, conceptually it makes sense. I apologize, but have you quantified that piece of this, you just used your term, Gary, the piece of business that will flop over to the second half that's already there?

Have you quantified that?

It's in the little table

in the letter. It's the $75 million or 4.5%

of

growth.

That's in the demand now. Okay.

No, that's in the demand now. We're not reporting demand, but we're reporting revenues, but yeah, all that that's $75 million is on our books and will ship.

Again, that backorders and special orders over and above normal, right? We always have backorders and special orders in our business.

This is elevated because of unnatural things happening or things are taking more effort, like resourcing, transportation impacts, whatnot. That piece, that elevated piece over sort of normal, quote, unquote, is what Gary and I are talking about for the second half.

That's 4.5%.

Yeah.

That's helpful. I appreciate that.

Thank you.

Yeah. Thank you, Brian.

Zach, are you on?

Hey. Yes.

Sorry about that. Good afternoon.

First question on the initial response from Milan and your expectations for year one in the market, and now that you have galleries open in both Milan and Paris with London around the corner, any revised thoughts on sales trajectory from the three, and if you think New York is a good benchmark for what those markets could look like?

Look, I think they'll all be great markets over time, and we've got to build the brand and build the customer base, build our design business, continue to build the pipeline. I think I've used before with the ramp, the first one was RH England, and that's been open the longest, and what that's ramped to in a not a great economy for the home business in the UK, but in a store that's two hours outside of London with not a lot of people around.

That gives us high hopes. We have greater brand awareness in London for two reasons: there's a lot more expats, there's a lot more people that have lived in New York and gone back and forth, there's a lot more people that know the brand, everybody speaks the same language, on and so forth, meaningfully higher brand awareness.

We've been open out in the Cotswolds, the English countryside now for 3 years. Then we're kind of just getting started in Paris, and we're just kind of open in Milan, and we like what we see, we like the responses that we're seeing, and the key for us is build the design books and get the ramps, and so as these mature and grow, I think we're going to like the outcome.

I think London, I was just talking to the team about this, London is kind of the accelerator for all of it, right? Because everybody goes to London.

It is the financial hub and just if you were going to be in one place, you'd be in London, and if you were going to be in two, you'd be in London and Paris, or London, Milan. They're pretty close, but for slightly different reason.

Milan is the center of the universe for the home design business because of Salone and Design Week, and the eyeballs you can get, not just from designers, but from true customers that come, that fly in with their architects and their interior designers, and they're shopping from all the brands at the shows. I think these three are the core of the platform.

These are the three key things. This is the foundation of building a global brand outside of the United States of America, right?

I like to say someone told me once they heard Bernard Arnault was asked the question, "How do you build a brand in China?" and apparently his response is, "You build great stores in Paris, London, and New York."

We've just done it backwards, and we threw Milan in there because it's so important for our industry, right? It's really once we get London going, I think the whole thing is like game on.

I think London will create the biggest echo, it's where we're known the most, it's where we should ramp the fastest, do the most volume, and because everybody travels into London for so many different reasons, you've got a huge Middle East customer there that lives between London and in the Middle East, and and the US, for that matter, that I think knows our brand and it's going to respond to our brand. I just think the echo of London is going to amplify Milan and Paris and every other gallery that we've opened.

Thanks for that, Gary. Just quick one for Jack.

I think the opening costs in Q1, you said would be about 420 basis points if that ended up being the case. For Q2, you're guiding, I think, 380 basis points for London.

Could you just help us out on which of those costs should we consider transitory and come out in the second half of the year versus costs that are now in the base and will persist?

Q1 ended up 450, right there with the 420. We're not guiding specifically the quarters, you got the year at 270.

I guess you can back into some math as to 450 and a 380 and how they average out to a 270 on the year. Be one way to approach it.

That delta being transitory, but it's, let's call it, mid-100s in the back half, and the delta between that and the numbers for Q1 and Q2 are the transitory, sort of pre-opening driven, related to the openings.

Got it. Thanks for the time.

Got it.

Oh, great. Good evening.

Thanks for squeezing me in. Just one question here.

Gary, could you share some context on why now is the right time to pursue a loyalty program that compensates your trade clients? Presumably, you've maybe considered this pivot in the past.

What makes now the right time to roll this out? If you could discuss maybe just the overall growth trend in your trade business in recent years relative to the end consumer business, that would be helpful: whether trade has been outperforming consumer, and this is the playbook to supercharge it, or has trade been underperforming, and this is a way to improve the trend?

Thanks so much.

For those competitors that report trade, I think we've been overperforming the last 3 years. I we've got a very strong trade business.

We have great leadership, great teams, very high-quality people that live and breathe our values and that have built great organizations. It becomes a supercharge.

Look, I'm the guy that we used to have a trade incentive program, and I took it out, against a lot of people's debate. When we were making the move to membership, was it the right call or not?

I don't know. Probably not, now that I reflect on it with the wisdom I have today versus what I thought and felt in was that 2016, right?

Yeah. Yeah, 10 years ago.

I don't think I was thinking about it correctly, and why is now the right time is because of Estates. Because Estates opens up the very top of the market for this brand.

No other brand has goods at this level of design and quality, no one at the retail level. They may tell you they do, like they've probably never been into these businesses that we bought, and so we've taken what we do really well and amplified those assortments.

You're going to see things you've never seen before, dimensionalized in a way and presented in a way just doesn't exist. Why wouldn't you want to open up the best interior designers in the world to what we're doing today?

We're just smarter, honestly. Like, I look back and if I said today if I knew what I know today, would I have made the same decisions?

No, I would not have made the same decision. I'm smarter today.

I know more today. I have more knowledge.

It's funny cuz I was married to an interior designer. Kendall and I were together for 11 years, and I knew her business pretty well.

It helped me conceptualize what to do at RH, quite frankly. It's like that helped me see the opportunity, but I don't think I really understood the market correctly.

It's changed, too, there's more and more people that you've growth in wealth, right? There's more and more people that have the financial ability to use interior designers.

People are more exposed to design and quality, more people are, better houses and better design everywhere. Anyway, but yeah, we're happy to be advocates and partners and open up our platform and support them in a greater way.

I think, look, with today's it's a big part of our business today. Our trade business is a big part of our business.

No, it's not a little part, but we think it could be meaningfully bigger. People say, "Oh, you're going to incentivize them."

The lift we have to get is very small on incremental business. We have massive flow-through on this model.

Thanks, and best of luck.

Thank you.

Great. Thank you, everyone, for your time and your questions, and for the conversation today.

Just want to say to our team, teams across the country, across the world, across our campus here, I think everybody knows what we're working on, everybody knows what we're aspiring to do. I think this is one of the most important times in the history of RH, and I couldn't be more proud of the work everyone's doing, and the organization that's been built here, based on our values and beliefs, and our work is going to a new level.

I think our performance is going to a new level, and it's all because of the team members who have built this thing over the last 25 years that I've been here. I just want to thank everyone.

Everybody's effort is important and contributes to this cause, and I think we're going to feel very proud here, very soon, even prouder than we've ever felt. Can't wait to share it with you.

Thank you.