RH - Earnings call transcript Q2 2019

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Operator

Good afternoon. My name is Chantelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the RH Second Quarter 2019 Q&A Conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer. Instructions] [Operator

Malkin may Allison your ICR, of you. begin you conference. Thank

Allison Malkin

you Good XXXX us afternoon, you. for Q&A everyone. call. fiscal Thank quarter Thank joining second for conference RH's

Officer; Gary and today Financial Friedman, me Preston, Chief are Chief Joining Executive and Jack Officer. Chairman

would the I remind to other federal statements issued laws, meaning that of start, legal today that about you certain including for and will the matters make we our statements our our the are disclaimer press like Before today. of we in forward-looking business outlook within referenced securities release

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

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

we call measures, items. during impact certain which to eliminate may GAAP today, discuss the of non-GAAP this adjust Also, our financial results

additional reconciliation press GAAP information Investor ir.rh.com. section non-GAAP You will also on broadcast is non-GAAP available at A and measures of website the the of Relations these find live measures of in financial release. today's regarding our results to these financial this call

to the the we’re our over to turn for session. I'll ready call that, With Chantelle, operator Q&A questions. begin

Operator

Tami with question from comes [Operator first Zakaria Instructions] Your JPMorgan.

open. is line Your

Tami Zakaria

taking for questions. my thanks Hi,

in was expected part XQ step down forward pull And guide? XQ there After would any comment sequential that's to over growth you revenue X%? could So, the the revenue revenue on X% deceleration? of first-half, to X% into why

Jack Preston

Hi Jack. Tami, it's

of in revenue exit recall drags you sense have we decisions to items. we self-inflicted a certain the made the sort So, may that

being so the the so are quarter. impact And that – the drag X%, different. those to that there's And – of X%

I saw sales things you you're saying other we the think outlet our one in release. is, – outlet all an press of the see

about And we XXX,XXX the square last talked so of there, the foot quarter. center distribution closure

most And so, of out. we've that inventory cycled

not points worth and also And on QX, to gross that it benefit X a about you're going benefit, see was in big that was and so, drag that, margins.

Tami Zakaria

it. Got

my is, $XX guided this from the million to delivery savings question So, follow-up initiative. earlier year, to you’ve additional million home $XX

that initiative? still this does seeing savings or could So, hold, you come are incremental that from

Jack Preston

Tami. Sure,

holding next this benefits $XX third the better I think two and $XX million, thirds at looking forward that this year was holding guided time we year. that to to optimistic timing. I are benefit the this million At for the time, even what and moment, in we with to mean, of is we're we're But in that. there. to

Tami Zakaria

much. you Thank Got so it.

Operator

question Steve Securities. next Your comes Guggenheim Forbes with from

is open. Your line

Steve Forbes

Good on of the afternoon. gross but another the question Maybe XQ sort margin on guide, this one really outlook.

looks The little the looks third and I modeling stronger. than were we sort little a of, quarter quarter weaker guess, fourth a

seen in the sort any know about, just as move sort of Can idiosyncratic you expenses anything sort have the dynamic margin and of you there's that’s model? impacting don't I out, So, because call P&L. of shift there's you of the to if down sort if both talk

Gary Friedman

is advertising The only thing is swinging yes. around,

Jack Preston

happens the of you guideposts unfortunately, we think didn't times I sort you what provide is, Nothing we – the one a Yes. asking doesn't me give get it we – of It's flow, where don't idiosyncratic, to go. the – to lot Steve. don't right I quarterly always think if and

XX.X, year up basis that’s basis first and we so, points points. half, we're And at XXX the on last XXX when versus the did it half, I what XX.X, versus look in up guiding

look at to think way I that's So, one it.

Steve Forbes

Right.

you, us expansion years Gary, discuss about for can transition opportunity? opportunity the infrastructure right, So, fully then conceptualizing nothing comments update But business quarter, us the And and you for timeline to of the don't on last over yet. we of the you the next around markets the right, international idiosyncratic – you if sort don't as more think release if or I needs get the I Can think whole didn’t I the start maybe one into the successful help few I maybe international preannouncement, know international digest call there? out. during

Gary Friedman

Yes.

the not to is it. and you're back go I because confusion to first how question, has and confusion business landscape your there think paying Let's if attention that year-over-year sometimes to been about

we the now, year-over-year And we of we when and catalogs thing books. on based book and the our to it So, mail advertise curve is, our advertising catalogs. advertising biggest used book to the

so, business, if you're see. to And model could surprised you kind of trying the be to

of expense the the We XX%? advertising is have – for third our like much how second quarter, it’s half in

Jack Preston

That's right.

Gary Friedman

hitting costs of third quarter timing XX% quarter. are advertising because books, only of the XX% the and hitting our in is our the Yes. in fourth of

a at numbers So, I I you've second got little make the can that that kind think half, of believe took numbers we if meaningfully. above but look second funny, you sometimes half pretty the landscaping the everybody's just look

and to policies what like forth. changes landscapes by on be So, county so it affected sometimes how going – so exactly and is different

don't for kind dominantly a at it level. about complete void know relates to excited to is things back Sunday more I a a got really the at and you, idea ever There any micro couple macro if of in opportunity. overseas for and becomes and tell think another anything, market the been a like concept night look ours and of business. I've And locations. and from you trip it actually I just as assorted at We a As end kind home look just to opportunities a closer -- or clear international, get I higher opportunity can positioned any of

developed all more especially Europe. – in a And lot in uniquely the of U.S., retail is in

be our opportunity greater exponentially Europe is fragmentation fragmentation shows the attendees the several Milan. than are significant. store. a public see it in in us marketplace the like commercial just pop-up – it the It we to America. we And open So, by generally months as North BXB act in would The so went Salone ago. that and really attended hit almost and in Show attendees We

year a America, we it be any And be stood would – with popped looked kind “Wow, XXX,XXX at get it it I like, And came. to way no kind of environment. XXX,XXX but typical kind is said, There's a retail a kind and show.” RH people give up a back whole I in a it market, didn't not commercial a here York it really you're to there's of of environment, and going and stores was a in business New a daily kind of store would interesting. with business not shopping consumer and in It big of once interfacing the to this just opened the City business you have comparison, – people was

about, and got it We yes always in no was really and say we ones got the eyes the from we've which Europe to which be again have multiple. our ones – so, going options to to. and hard good and to many to part from opened through is got were it locations, just again, too say it dealing back with And trip actual and potential – another we just

ugly more don't it yet was say of I'd – in I that the to ways, I – people – hate to think – with say But And have is North many kind thing is is, we to other forward two our past us. have things in America, we ugly. what realize drag for

up in kind an with where show If my of bag I to – XX-page of picked people you of picked like around anybody box a came up – a carry that detergent we laundry from. catalog box

past have don't to We drag the forward.

do so or you have say, I XX interesting in Hardware do? us say, many do years Restoration go.” years haven't oh, What who XX and they We and they this you And for knickknack “Where shopped from there, bought America and people whatnot. work?

there new don't make reconsideration And a today, completely the most we markets, going still get Hardware. if mean, a so, a I to And to expression brand. major have new a you where Area, our Restoration most of about people no market, impression just Bay Francisco not new we our In of San brand. live is force there into create of thought in impression. is We

an old That's from ago, have right? years We store the legacy of XX the brand. impression

I Oh, I in in mean, is I do some RH.” Corte people here square store flagship “Oh, for so, your been Area your seen gosh! X,XXX work And Francisco Madera, store to will do? Bay San feet. in I’ve or in Our “Hey, the I've store say, and Francisco.” flagship you San meet what here

And feet. it's square is really no, Our not store to flagship our X,XXX Corte in go Madera have store. – no, like I

me, go ask work oh, people then, I do at I the I go one work there. no, those maybe no But -- no of but don't so still flagship and there you now America, really in two some things. store? And And

don't they’d visual really an them can't foremost America, because they right? right? people or like markets begin like a If they we're about a helped should intellectual or to appealing business, see, in and to not whether right? and what step. what another even me And there's see and many things not business. It's People like is just people they it to kind are walk so take up Retail first understand it One, where that of is to intellectualize business. don't this start they don't assortment, see doing, don't think not, it whether buy visual our visually

they source So, unless of to years go but in XX, today, online, to that's ago. see, they if we're go or happen our you online, many somehow what America in even one And books, get so it's a happen experience. one-dimensional to visually trapped only XX be markets people

through can website to the and many get times click of the and the too to understand depth have of breadth it assortment we and of services You it experiences and see offer. the that level kind

and “Oh sitting all top she's I, opened I I'd an as Eri, Europe. were get jaw-dropping. we're and you we thinking right to because man!, we're it's going which DP – we to I sitting piece, at Jack mean, see do sitting the world, we these like we -- rest of do when big think, we we York we New what incredible impression. first there Eri, and I like how around like, looking and and when team am locations finally we're – do, make In in we us and now the in Dave say, to going And of and me are choose, this?” of next what a there smiling that's want seriously a were So, to and

did you've fish we kids, XXX we they wow, they're the I’ve how figures a tries they We bag and Nemo, Now good to times. still and watch watched ago a tank now fish each then a get opened But get into go look New movie year York plastic like, what, of what the and but kids, – the -- get into we and the what. plastic anybody he other ever Finding it do but right? dock and ocean, when out still my out in now like the and If bag with do to jump at on know, Finding the out job when with seen Nemo your kids, now? here, City, I you has it's

and we going just Europe And New I that we had and news York back got those like seriously, one yesterday's moments, make some look are from of incredible. mean what to saw now things

old to like opportunity creating In some make trying disrupting this new the ways, make – to been disrupt trying today market. think So, it. to been impression the We've market, presences market to market disrupting crazy a the that's of you with new the and about disrupt and market kind as a in market. first create America. We've we're the physical

did now able XX the I it presence. company does joined We when years company, so, Madera a try had old and $X.X I kind you, the $XXX get $XX what here million these When judged now $X.X And million, million, million tracking looking do, hard joined the then something at reconsider York physical million, right? to right, of one $XXX thing show already like it's to up that, you. that’s store ago, did been Madera. a create We're to of kind and people Corte to they've do really way We've Corte New to new when to and market.

mean, think kind And of first of We forward retailers have reconsider we’re in internationally, the success an been we to time, world, a there dragging at didn't can miss retailers lot, to then lot most, – for I rest of lot new a But the of not us. you has people have history them I look the get long that they with if a other have kind of entirely don't that us. headlines impression. a of internationally. make past going

people and out not in most turned the look the rest get today, they massively it's underdeveloped that Even when roll the sometimes just at the and get generally because of and and underdeveloped It's returns go internationally in in retail. They're deleveraged they world is cost categories. retail certain down.

like and like concept. there's at international, someone's someone Depot Home go If Depot you Home you're done like

ties But for us They commodities stores that is have someone's a potential they've a versus proprietary massively business discount got don't other you're into internationally. point kinds nothing internationally. ours that selling like got when you're or different. a discount the they've like of If internationally, product business the businesses. is, all There's selling

too there's positioning of evolving XX% American United XX% and the we're the their States. to when business is brand fully outside many their LDMH [indiscernible], business right? States, our kind outside not all the of So, of luxury brands, where penetrated like, be United where retailers, right, the States, United carrying they're is in

bath by of sales home at So, looking aren't to if advertising the – digital market, really like it, looking of affected look look you kind are at, dimensionalize sell saying, was of Why like, that's or not buying all home $XXX,XXX and to our too opportunity, $XXX,XXX how-to ago, why $XXX,XXX, you total and correctly the customer. that the to mass at long like couch right someone have not totally roadmap kinds homes It's you about that look to word the you $XXX,XXX are aren't or It's units you'll word to trying and think miss right? sofa? buying at the sales me hardware? like not

world – the And so, store of putting was like my city hardware, when you a do of people times the at be more wealthy couch And people goods, that, my businesses, it so, massively a afford of people can't people populated bath multiple – home. you exponentially wouldn't of or right? look sofa, of with has lot the spend afford it'd a in middle my there's that my bad of can XX% wealthy the pattern that be, that my luxury and kind lot the in

And thinking long-term, that talking the so, now we mean, countries people it a in this, think a I at looking really talking at walking on boots it about getting deeply the that of time level view, the streets, into we've and customer's to shop. right, stores, point to from and being, detailed walking spent customers in cities, ground,

North three Yes, do opportunity the in be we I think probably x, is internationally could to what America. four

to night back this just catch from doing a been opportunity huge. that's you happen We long So, Sunday really but is and just think about the on recaps me we've landed we a how trip. I'm and is that we this sorry, answer, think it. coming

get we a a a other direct business today, business. the kind opportunity, retail lift legacy gallery a to transform got of the store opportunity market then side thing new to growth And design is, from go the and the in gallery, from the double a an it's we've level to at of in if a

to that's then it. to you lifted can go get how other million, right, XX%, if gallery, another think you about take and So, it take $X million the million, million can market million $X so $XX $XX in you to $XX a you the and XX%

was that XX%, doubles and at retail So, you like to direct, the to XX% doing at the XX% retail, by market XX% lifts and direct XX%. take a

So, lifts by $X.X million to $X million.

you both the ends. upside say get on So,

and $XX picking You're $XX million, million, $XX you to the picking that, up million. million from you're to goes right, direct million million. But really $XX $XX at you and of go $XX real $X piece from million go up retail,

have you right, pickup, a $XX million an $XX really So, pickup. not million

you with example, kind the and Kingdom, data million look into And look XX then about and you profile say, looks United demographic with right? the and Kingdom in like at numbers, a the that not and if here California. people a going That's kind United wealth different too if of profile, of for there's just I'd there, you at think just profile the democratic

a London looks York. lot And like New

not little So, and you next secondary of fragmented not people. kind – one big California demographic a million it's a And pretty have than million right? that's profile. bit it’s only in people, – it's or could Southern California XX has million the store, similar kind Francisco. new with do San we But XX piece. of full really more $XXX We California even store,

it's to each So, expand know when to the we when when a, don't California be and galleries $XXX three I years the maturity, assortment. transform is like market, of in California, the we real estate – million full open that going $XXX million

like XX So, like like, million XX than you that with people million more is $XXX California that is that. people, something XX% what say is million will

be that go ever. with market laundry million occidental the the of you XX%, have market XXX opportunities a opportunity So, times, the to We're go take market overnight. like Like, our $XXX we into going billion galleries, fresh, and kind $X.X million, do billion work then best into and opportunity. it’s open potentially into that demographic, million and million, like, us the have could don't in America. can UK you North not XXX in and detergent go like $X.X with Like, finest XXX or a and drag a [Aquatrol] it

today. North lot. $X another have landscape the on doubled to and And North you've we – We get don't billion think at the lift go with company there's not the of now and we're $XX billion saying, the potential to a piece that kind America and growth looking we So, got. you're it's get. But kind in getting America already of

You're entirely new market. going an after

So, old chain in with technology, thinking from to best bad opportunity we our it's go opportunity. a our old habits, go legacy not we with huge not all dragging all any not dragging any and A dragging, get to get infrastructures, dragging thinking, in work. not supply best stores, huge old

excited So, super it. about we're

long answer. Sorry for the

Steve Forbes

Thank you, Gary.

Gary Friedman

Okay. There's other questions. for no time

Sorry.

Steve Forbes

Thank you, Gary.

Operator

comes UBS. next Michael from question Your with Lasser

open. Your line is

Michael Lasser

questions taking for two lot a on implying Thanks evening. the quarter. my question. There's Good fourth what's

that the increases second in RH we outlets the the of from in the increases store. quarter So, York half the came New growth assume and in

So, is there the the to quarter year-ago recognizing the that significant with the quarter, X% York nuances are in fourth growth what period, lapping basically, but and difference the fourth X% from second difference experienced that sales growth outlets won't from you the as growth between a the is XX% in New between the the XX% sales you in implying the contribution that you two some and growth for that sources quarter? the those get are you're

Gary Friedman

months. with really, XXX,XXX the But for part good the XX the been on mean What we I got about, Yes. foot closed XX outlet. math. inventory. very square talked you've of – was is reverse sitting the think, I are logistics, We've through burning last center we You months, that distribution

business We are that logistics kind outlet the and was don't reverse hold part close outlet of facility. and inventory of redesigning whole

out a quality is liabilities, markdowns. do lot I thing goods, not through retailers are second retailers lot or there do store to a like – last with moving sitting want inventory of and of The

bad our They mean, And tomatoes sit be on almost make with so, lifetime. goods, to because time. just like don't turn antiques just at company don't grocery our it really into in we better I the to they store. impossible don't. They in they're get quality wanted

months – words burned So, we inventory, goods. a outlet us – that more our down those those goods we with are point. inventories Outlet those have something facility. That closed goes ago about That XX% a today – down. are point, burning like that. versus little We XX gave than

Well, – is were cleaned. first-half so people to We've yes, swallowed margin, like, mean, are massive now the the margin dragging a wow, there of in really I that And more mean, is of outlets I year. lot channel we here? the expand that

a based got those earnings we've point that expansion. stuff So, view, lots center we was inventory me few the growth, only and that earnings for lapping margin that got that the about at people of of From and be might bunch on I distribution rid outlet growth of need. opportunity holding mean, down others. care opportunity of a burn But that and we didn't the

So, …

Michael Lasser

Yes.

Gary Friedman

we of of year, opened the piece York, then And kind and York. this different the new the stores then the we we timing New of come year this the versus right, then recycling of a us you will, – new what like And trough, temporal And little opening that's really …so stores last dynamic. kind if had it. timing gives New a until of got the on. stores big is, were year

to We year, not to later were on in and open XXXX the have this little only have of they're top XXXX. first second-half that openings, of no the to quarter that stores coming that the open second on going right? to going in And now we going we in thought going stores open are but we're open a we

openings, do in the have we first-half year, many the next had Correct. we in we like… openings this So, have of think right? Where we no How first-half year?

Jack Preston

Three.

Gary Friedman

three these, on opening So, kind opening openings, …three are right? are you've of, got you've top. that later, got three then that

QX and year-over-year, you to of start kick And the have eight a have next see up on And and to going And spike is year, in where comparatively periods revenues to a stores two going we back – see like see and trough, our then, you're can kind when up we so, kick then new up. of little year, seven, some some have start we to really you to you're kick top get up next get you'll of just back of first-half right? you grow. QX in when we kind

go have now, right if QX, look QX kicks bit and kind and trough then So, early it at little in of we back into a as we timing, up. right you it of

So, hedge maybe that to helps fund.

Michael Lasser

more a that fourth lot. quarter. outlets. now those the that because in the One class RH you had RH why have I openings profile the get that. in returns sometime. Tampa, to you've That's mean, galleries a as time the Two a the Atlanta, are question us Thank expected and for with the for or from on won't – RH of thinking inflict from how margins contribution, a is are such give on Can other that contribution to types Helps gross for is, Denver, meaningful the – questions you sense as just market growth growth quick sharply line of many been you. years And those quite shape initial of the trending? later? of

Gary Friedman

our of And And than how – and yes, are them, there's more of a based growing right, Yes. whole but have galleries bigger of fantastic. market-to-market with our stores all those returns are are first- economies layer on smaller markets The some another kind have stores. doing. opportunity of But housing hospitality. don't different also second-generation faster localized, generally, of regionalized kind you they dynamics if

looking at the Taubman Billy in might to going phone. for to I'm the restaurant. Bobby tenant on guys, the and Yes, restaurant be build So, to you allowance ask rooftop Taubman Denver, we're adding

Denver rooftop But and want you and restaurants. these restaurants. both can have – Tampa, So

up throw happy. galleries that We’re one All we're galleries massive and right? you've design cash, those our all massively mentioned of

our return thought, think We extremely lifts that a and the right? it of only revenue can – that all galleries, don't return And profiles mistake. adds was revenue, that the with, gallery. happy on of we're cash we add earnings a we hospitality, big have look, profiles overall not Oh, which hospitality we now But the one

to opportunity Atlanta, an restaurants it, the I for Greenwich, already for or few think, maybe we And a have ones got go have back to actually of others. Tampa, – mentioned, all all designs the smaller But galleries. fit of in the Denver. Houston first-generation Connecticut, you conceptual and ones, can't them, the we’ve a So, lot except almost

and going like those businesses. you RH. to be if looks we've opened place are Denver, And to growth take retail those to markets. mean, It's long go one, competitor yes, going whole see bet. no a see Atlanta, – to another a we look, anybody that best going I Tampa, that so, that layer got in a time kind positioned going back the and anybody's but, of know to to make before can But of get There's

to in take anywhere share. you – those I home, these have remodeled relatively continue of refurnishing mind customers of cycle market to new top their just continue market from them, is disruptive more either as as When the into time bought five and a people market to and home time kind be XX it's cycle think So, because their home, to galleries and going of will time it's years. take buying cycle to go shop find their can of share physical to over around or presence their a presences, which we're a

don't bet. finesse the the And of look place the assortment, have have doesn't it. don't I conceptualization that. in going bet, like kind make to like develop the or and don't do, buildings and anybody that so. we Massachusetts, see They coming of stores sure I that's mean, I don't design merchandising kind Wayfair have creative haven't seen that experiences opened to the the

Jack Preston

certainly impact. plan holiday we margin you to question, it business. has recall, exit the And an outlet And, gross Michael, to as your may then relates

a business margin in that has overall So, QX. lower

pickup not QX. That's of the another sales. So, having those benefit low-margin get we for will

Gary Friedman

Yes.

QX everyone is kind think what just guidance in original And What other the remind I guidance to about There's of – all happened? was this and and pattern. – the right? be think might what there in would guidance, original ton thing of questions a of I is what QX, was happened? our our our based on

Michael Lasser

helpful. very you much. Thank That's

Operator

from with Oliver comes Cowen. question Chen next Your

Your line is open.

Oliver Chen

working made you. And and nice of in there. what's of are home and progress on looks capital versus progress manage your vertical Thank then about, management, next multi-year you. versus nice terms fulfillment. with what concepts your the thoughts And and and of made think What are inventory also increasing thoughts on you it you you've integration in depth there? there? a as really Inventory as you've Would inning terms you breadth delivery your Hi. Thank management love multi-year basis? basis, newer just surprise to like the and you satisfaction customer delight a some on the look

Gary Friedman

Yes. of breadth, of and all, dimensional lot lot call integrated a That but focus. depth a what very is a we a question, fully good, first of multi

elevate But think diluting it build worse So, it? have just it, a without kind a it's you lot brand? thinking dimensionalize any How about just expand do of good business, when we one, versus what versus exactly this it expand right, any gets you could you it Because of while. you something about generally, take like, How elevating. a times, right? do one

are try very usually people When dilutive. generally people with be that's When businesses. do they true to trying to less and more, mostly they're do additive,

everything we rather So, render the is absolute disciplined everything that, we through filters do of we overall you super right here less have more else filters. mean, to than do arching these that and we valuable. that use just really I say go to the one has

built integrated, unless concise and start it's brands such adding of and with LDMH. new distractions times of filters built hard, when you're creates use It fully of, Bernardo it other do clear and wasn't of things you've right? like; is, brands honestly, question a asked Most really kind time, it kind things, of was a you other people valuable. of multi-dimensional, the kind just it's and hard, – it's like, out less a And renders platform and beautiful those lot branching yet it kind when actually really like to knows methodology –

and still of luxury, it’s simple, me, and hotels and apparel, he's such brand people from But many and and integrated but made one businesses got alcohol, like so so of and thought it forth. way integrated different forth. such to in different great mean, brand he's trains on with that's right, yes, hardest the on dimension yet an Belmont ones, around brands, about to beautifully watches, harmony dimensional so – to and together beautifully just different kind in look I because isolated so so cultures, woven and countries,

And brands. – – is and of start lots fragmentation. different has businesses to the cells, you atom fragmentation, technically different and become pressure to completely split what leads that completely you all can't businesses or the that and and the atoms but and We're on time, doing an is, you of but can scientifically. made isolation most problem And you But in split growth the the up. people bigger people have can't you trying happens of get isolation downfall usually

can't to human. You respond try a break if that do won't well very down They with you their cells.

have only much organization. talent an you So, so in

do elevate so The You how their talent. dilute amplify and truly distract those people. only and efforts their key and is have you and many gifted people not

to versus so, be about right? really, your building way, way integrated isolated ideas And you and thoughts completely have in an really disciplined a

because not the working all When it's people they're things, wrong work all lot in and the the they that they're they information isolation wrong you on of – have flow and discord really hard harmony. working have just in they're versus and you people a things, don't just isolation, of in the lot think a get

one it’s don't we when, Elm of great the a and five right, a the platform a model, when had William-Sonoma for launched has ideas before made, and and great with great kind I really three separate and think we a great brand, and leverage. years, built got of I I worked and path and right, William-Sonoma, on lot what completely of were breakthroughs business, on it West following left a I we one was working for, best old an brand. I think So, from did know, is of I years

think The And of is, brands, kind business they with differently kind got is integration. every different. really And have gap there’s multi-dimension think wants and the you And right, apart, of break a, like isolation I all ramped than to the and was No of not limited than built harmony. and in pretty you that I problem diluted. of multi-brands, but no discord which don't right? differently now kind gap have up, kind then

Same you true business focus situations, in like like here. so, thing have And can't that.

about wish come wants But could hit could or all we're set $XX million capital, build to I it. anybody it in market. and – we up. We and time five had allocate We and brand, set we of I thought I could to whole we’ve – talked another about RH $XX going We team we had samples. our kind it's honestly, brand up spent we whole go room. we another for We know, here had it years. right, everything, And that, time. we used then a allocation, not don’t human had building a go talked another sell kind of a to, a million still business, can how underneath

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Oliver Chen

that's Gary, really helpful.

thoughts think might follow-up. very effect, just thinking do I'm a about as for Awareness and your be about also the Belgian about earlier the was, sequencing how you is chain? comments, of brands, global product and a about merchandise globally as network that supply flywheel that curious are your And U.S. as final will as about question aesthetic? translate and you what our the in can growth build you Just the how of your difficult and lot historically, Linen think DNA approach well know matrix?

Gary Friedman

country-by-country. think we you have I it at – Yes. of to look Yes, kind when

And brands, doing. world friends think what and are what smaller, getting the it's XX, I but And react through they've for the girls connections to not at doing. that's That's yes, ability bigger, it's had my their right. met. is never now networks and they've if internet look that media trends in now and to social know years countries is But things see completely multiple about and different. technology – they – I turned curate and

clues future in past the in the right? past. don't exist So, dots There's the the do, ideas think, don't I the of

so consulting going we future, with world good company of of And look we, Internet not are think less necessarily in with look, valuable, world feeble, bad mean, platform, right? as part, can that choices, going is think and have of the of tomorrow, in brands the world valuable, I this can information, how like most the a the we right. around where about but and reference and with you about to think kind for the because really joked is to the where be really is more where evolve called cluttered been. visuals, it's You going brands kind not that forward it's I really

up if tell don't yourself, no honey, for else So, one me, stand like you my used always mom to will.

that because a environments, Internet. people because of that – it's don't at retail really the It's not evolve it's we done decay is the haven't fact say about yes, to anything So, take retail the retail us, of people stores. we lot the Internet, about potshots in we not believe

humanity, in I the believe lot online. We've There's and and in of got But kind going that think relevant years the we're one back really, $X a XX look of of billion stories be are XX the how this world, kind brand, in years build – businesses over really to going doing what to that to right? people reengineering of of direction, is retailing, a physically then you then then have Someone have omni-channel or in consulting it, successor, then following was it and kind the building used direction be to got some success. whether retailing, and heads a everybody starts thesis about it's it companies around talking this everybody followership same and was then and everything a And then that you've else. of multi-channel

everything brand, unless that’s that. what you're lead customer customer always selling groups, are the we you and Well, want they don't we to trying know great brands, or like, not a usually, or focus because groups. And chase focus go say, like and centricity brands, who the around customers. food, And chase customer. ones middle, in the customer put customers living create the But right? brands doesn't dining the to you're if stuff and the it's brands, use good using the all say, better build interesting dog Now, be way that's the Customers backwards. great

going when clear, going it, we though how more brand doing, product we're what a integrate great exponentially more have to it's richer, right? but it it is it'll won't to rich even have powerful, and harmony, be more dimension discord, will – and got more focused, more be our that think about building look to about assortment, how international, what think we're with think we we forward beautifully think and we're we're I and and doing and we And about brand. And the it's

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You're That's adding creating yet time, but complexity, hard. the super clarity. same at you're

got over of and I Europe out going We've years, kind I sequence first So, and when baby We're of debating. how the into think still and next look few couple the wherever we'll take of to about this. is ideas. of second figure lot steps to we're forward kind first

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I to home, the going and it redesign in. way about never in a to were decided their there's for the to There's that galleries of maybe we think thinking the they kind every even such people thinking about displayed, day inspired. into maybe I how inspirational their and home, think it. But home – that's see or maybe they walk people to beautiful they built single our they they aren't product see would walk space mean, about a people become get shop homes that business. that we're

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to – you're right? it's build awareness selling think, really is So, when I brands U.S. for difficult commodities,

in or discounter, lumber Europe, There's now to If sell or and at going pet to you're those got you're good come going fifth come or, there tools you're in TVs, the us in you're But more approach, half there. got or here U.S. other a sell sell furniture, that – it. They going people and in you're a store think out people furnishings they bad. there's There's We massively that of don't differentiated are kind we're that anybody like aren't here. in that the closer business lifestyle internationally. in have to our businesses home all people

there's homes going for I answers more Over the can't we're going markets it's way be of compare counting brand, consumer units right? XXX,XXX more counting right? subtleties, there, but retailer the the market, the new less I lot – and Again, but as us And There's the and the these Like, that and it's a differentiation above. homes units, businesses. kind just are mom-and-pop. a housing are so, then gong a other point entering we're that think to it enter entering uniqueness to a like of that, below enter new million of dollars, super a retail you versus lot – view, I with do and country the from like a versus the be very market, of it's mean, different there's or X think and a history world. to it'd

mean, next it, the how It's XX is closest people going not there's every Those that I home our it? think York RH the closest now introduces much differentiation be different. Does next then people, different New kind in I is to one's how no sense? that that ever to in RH We’ll of take take to close? York goods us, How them out differentiation exist different internationally. our that York, how it is then like so. category business of other closest sense XX don't seen, exponentially City? different next makes of than and make people New New

Oliver Chen

Yes, very helpful.

Gary Friedman

Yes.

Oliver Chen

regards. Best balance. It you. sounds Thank also like and complexity

Gary Friedman

Yes.

Operator

Your comes Fargo. Fadem Wells with Zach from next question

open. line Your is

Zach Fadem

time? things delivery opportunities you Hi, that you going is you we is logistics? near-term and What's on target you compared you approach attribute mid-teens levers could much what over one operating those home track to it bridge reverse margin year. through that further for the looks on basis to about reconcile improvement this going those, the talk to gap you're forward? if leverage? maybe good may more as Gary, operating afternoon. points now like could initiatives, of be And and Curious Would opportunities view like XXX here, as How out? two-year or higher sales

Gary Friedman

you got basis XXX we were think line if up to think key – look and press between I from a operating And And high-teens the last to did. prepare I of clear I kind that I margin. I we've today. we at yes, I we last of don't thing really this to release somewhere of points XXX more listed letter click at it operating we great kind but mid can think wrote, five can mid-teens as points the low today, up I know pick [indiscernible], look margins. sight mean, I

out, look I think, out us penetrated. Look, margins. to we we're XX-plus from XX we're a long-term. start to think roll with it's design doable Again, very over operating one-third about, as the gallery

we put new the of So, market, have have a going They're rest galleries galleries two-thirds these to structures. design the the the next about Think $X disruptive to billion. going rent lift take sales of better of are generation depreciation. the design capital. to of to of take the fraction fraction and a market going They're the

for the of lot opportunity occupancy pieces has So, of business a whole leverage.

at those to add right, about support level build just to teams today, big wouldn't galleries investments make all new at bigger person to have We need don't the stores, overhead think in We – in to you the don't if need, more if level. make corporately. teams, teams run But person level. local we we and a one out need so today, at like had think gallery so need businesses. market to on the I could headquarters forth just adding we really hospitality the inventory to investments Like, and don't or We right? merchandising or

like, those it of capital we just different return right? like depreciation take pretty XX% rent, what plan, about and five-year what looks five-year like, that's galleries excess SG&A as have – So from structure $X like, it's like, we billion put on advertising be have that plan ROIC, and we looks it's conservative invested new or $X.X perspective, and from can if a from a a and that it, shows a out like – looks billion didn't dream, occupancy to think from our company take completely perspective, what in

then like we've be big and moves, supply cash machine, we made the like to model the simplified thing chain, building in structure going right? is We've that this This some today that years and you look the have a been system what at focus And to built. we if turns million we inventory – had inventory in we and right, we four three more or just it years would able ago, comparatively, – had it's ago, had three our today. we're $XXX

years, that company. inventory you'll that. like just years, the don't got under talent Like something the have out hood. million simple. into $XXX was I sound – So, taken think things more say, systems we things lots opportunity, amplify, our we say always with hear of company right? we're to like looking But three-and-a-half that there's systems. ways it We've we're attracted about simplify, – coming. of in I want And some three as to new that technology But what the inside amplify basically that doing and of make we of systems lots we've don't

simplify. People

to platform go system and faster. bad bad make going it a on that just You put you're take platform, a can

can lot bad, And They're amplify like systems flywheel not the go going in make make you're outcome, You're cases. faster. going a to to of flywheel right? a the

first and You the methodology architect you the can right, it. process have then design to it, amplify and business and

then so, process to architected simplification going and what of architected. creating we're complexity, be in we're opportunities and And that exponential of think we harmony. through right, things, the and amplifying clarity and to we've removing there's And all

started. we've gotten and And or…. incredible like, leader, So, can ETFs, new I started, talk home just about an we’ve delivery, gotten just got

Jack Preston

can. You

Gary Friedman

your I can, or everything's good. deal set,

Okay.

your compared four might today. talk man Fernando whole as of with your young and – pocket and that joined and job was Delivery. but – in is deliver take was me, the questions Fernando about America to But opportunity furniture. with Home President Kmart, to a right, first in a Furniture came can with like his them. call us Garcia job a got has I cleaning, decided, And Operations to So, first the It $X dream an conference

very make truck we that that the a and XX of built bought our that And the wanted we companies states dent one vision XXX furniture, America the save through and of opportunity And a one off how drivers, built trucks one to and were out And much money, enough to back just controlled deliver Fernando to best got company in spanned truck. logistics figured we and – the universe. a both providers. aligned we who's and to what we in and chance wanted meet found of our and do in values our to

everybody Fernando completed working which our else's part I time has I “Look, it.” he a his you guys his joining of just looks and company full-time. – and think said, part can full-time and like be Fernando been has And been company with And, us part, help selling

help what how take can like. it a he can't up. he looks the sees, he's ground to So, built his it and complexity business he like the knows simplify and But actually model he And of us the I knows, learnings. don't and and take full-time from intellect imagine to that his because what opportunities do drive and the the desire

handled products, distribution whether a you see actually right, center. all with and contact customer and design the back of the whether home of even what or you're distribution way a at that point the whether way should packaging and issues the the our through those to really a factories, it it's it's whether center, go when the the it's in architect engineer in of see being products, And

when we like, first I've three I you know you met. what to think designed. he look is reverse you things “You need.” designed. those I is the with entire meet He in at What I I how told all logistics. because the – you handle What the How came How a for with network. are couldn't transportation cab been that you, meeting trying know, How mean, truck get but me, years, opportunities?

we the I in and numbers. their were they And in And think said, somebody at a of Fernando I “Well, you what numbers meeting call And I doing I those nobody know, “Well, we didn’t “Well, And worked metrics. some And said, and and didn't numbers. numbers.” now? “Oh, Can really somebody?” the know can Fernando get tongue, will I even numbers I We know the said, room tip got us.” the know.” here questions I for company's said, was the the to those asking Look, had on knew right

they guy a conference Fernando like, gets So, I'm said, output. bang, we're metric, every on of I he this the on XX% I probably a write okay. then called then should he on I'm, I go. bang I works And write should And room, hold Fernando. him. that of paper, is on We they “You He detail, one go, the the FTO. promote go, we a the I every he providers.” that’s write worked, then said, owns owns the input every company, note paper, bang, He's room, our in and – they and he they're of – him. And piece like, piece like they whispering, And for he's back. another oh, room, And I and know, up in company. of hire and call,

But opportunities to we book to and soon. that. shit, a write sell company as I'm didn't his had American maybe thinking, have his quite They'll company”. “Oh, well Fernando dream. like, buy I'm we should do and did

down, sat the about solve. we think next “Well, And one-on-one with had – problems the – we're he reading to really together come when but out and just get and week and spend to he you?” guy. days trying us And a through actually I this flew be to offered a out And I few help you motivates him. You'll said, what

the and for And to you talking trying ideas. because got he three said, years been and door, able isn't you get I've with meeting guys, to I've some because just a “Well, it being in I’ve here get to been

what a like And pursuing. us we know exactly you'd here presentation to to need. like pursue, think a we sounded got complete PowerPoint and be get beautifully you out if see.” I whole, a was that strategy to I'll what ought laid that I pulls go, on little out okay, I he to

I to well, and said, signing so, And got think million, can opportunity I've here said we is company. we company make $XX And he when tell, your $XX or like I and million mean, million join think difference days, XX million? his we to I an can huge he $XX $XX first to sell I of said, in And “Look, together.” it's my a

Jack Preston

to million $XX $XX million.

Gary Friedman

than I which was the Yes, and $XX months, means, million, going So it all three here that. you the finding to he's to to in opportunities think couple massive of know million first $XX just right? And come in two and to months, first – we he he simplify it's tell always find but huge didn't I savings. more you, guarantee

we And So, whatever I so take seven mean, we're do and whatever think or we many think and there's up years, the opportunity again, on here five opportunities and doing then levels. for next warmed here looks of and that's might the global here huge getting just what you kind exit, we're over like.

opportunity of that. We that we this the dimension RH ecosystem, the – can, I of entire unveiled mean, when like XXx you global

wants the guidance and the quarter business, kind and short-term information, we And of we've and everybody And to that form so – future. excited all and there's look, that's relevant more of than key. And we into recognition important about so pattern on it’s some so, that's know, forth. get – and ever I next and the the weeds been just we're know

there's massive that's at. in exponential We right? but here creation $XX – there's And LDMH tell that XX stock I ahead the years opportunities was should pattern years ago, hit – at there's later, to us share, a going future. come. recognition And And $XXX. you point look XX out, but of it value people,

whatever share. a share, look a I XX could now, share. trading $XXX today, people its a at the years think are going at, $X,XXX stock $XXX years ago, from XX to RH be was

and And we stuff that. like have lines sighs of

next to Did in happened Think QX? going we're too up QX? in there going What get really guide QX? don’t caught guide No. and not we're like, we go of or this the a What aggressive in QX to in quarter guide happened QX? know. Did sudden, aggressive QX? and guide So, aggressive we all or did we aggressive? on out too I guide in

Zach Fadem

Thanks Welcome aboard, – for time Gary. I Fernando. guys. and that, welcome appreciate the

Gary Friedman

Yes.

everybody. You to say hi can Fernando.

Fernando Garcia

Thank you. guys. Hi,

Gary Friedman

Just know I was here. you're I But making case thought you in out. you

Operator

comes question next Brad Capital. with Your Thomas KeyBanc from

Your line is open.

Brad Thomas

Hi, thanks question. for taking the

of that may And the and the end into bit the many of outlet some two opportunity how at side. delivery three fit what about a of year? Could have strategy? that'll talk And reverse little of you you business on about off think more over dovetail logistics how like the the you'll years? to Just or that look And model?

Gary Friedman

spin. we Yes. that isn't planning. – we actually three, really some chart at looking damaged be know, were have a joke I Not outlet the flip we four now ago, The we our stuff this like over. of it was right? three, clean of have that, a or years where I'm that the We details gets level And kind a I there we and exactly did or going we last or simple inventories were night, as ought what returned and think thing nicked, that made don’t mapping out – ago, to mind, the – just in years – a And moving. through super the kind same and flywheel, actually four place

is if that outlet, the where the “Hi, which flip the said, like, was look, famous realized there's there in a we turning like And we And was meeting, slowly chart. the inventory company of of handled company, it's quickly. rots should really because multiple part out inventory box, believe, the right? to the be a and That hard turning that times.” And fastest gets it

responsive driven we it. is, okay we've the So, returns improvements that's to be the outlet to – an outlet, is will the of that, to – future the business whole a be to off rate, outlet, outlet and going the make that changes right, We've should is being simplified is damages Exactly, place. – triggered responsive strategy or happening. the the the or business be got meaning the versus by to – dynamics it create of entire what's

your delivery is packaging, And your your off customer experience. triggered your quality, all experience, of that

all of product whole that kind to actually to all And play way weave that pieces of see beautifully and And integrated integrate customer. ideation from and so, kind things the there's the concept all all all are these absolutely presentation piece not from to got them together whack-a-mole. you've understand completely that and together

and created makes it in collaborative goes renders takes you a really of integrated certain how an in and What somebody And deeply isolated happens more else kind that somewhere that valuable. and where over the else here. much backwards. look to then they to do really people do improvement here of over And I the a a company build a work ways, way methodology, organizations whole saved X.X culture cost certain everything times kind work you everything when money

we think everything. structure, as and and view just and brand, operating about approach take of And we think right, piece about kind the the capital platform it. our of – every business, It's thinking same deep the about we

we where know. then There's lead you learn, lot lot that many to learn say we we think So, and that of outlet kind we is there of lots right? they how our more have really and listen, like company be, to a a stores opportunity exactly exactly – order, more in that inside have can should before

details, organization so dumber opportunities to me get the to understand close of customer. lead able to by the And us close dumbest customer and company We So, farther get have really farther people say the those be get us more then listening, of to and and smartest closest lot the a to dumber, inside learn the the get the do makes learn to to continue close in the the problems, all that and and and from the guy people the which in get way. are company away company, usually that our those forward.

actually way And learn. my I And culture. spend to then and those can do job lead, not And only if do listening things, the here, right? I time leadership well, two management we I is can have culture a a

can of organizations smart what listen, listening to and just today a status Leaders do. so want lot because to to then But And got if The listen lead to understand reality what get lead you do the therefore try you're you manage do really is a arranging really people, and do quo. and do better and to have need what lead. will organizing insights. you tell don't a and kind kind key to of of of we we got we've lot You the to outcome, to learn they learning the and people dumb.

the out a So, build never way, you're culture when you we by lead. really stop, never that like find And you you can done.

the financial more And bigger, will get anything just The to This the faster and better value get that exponentially would we value and view York, done. us a took never and view. than thought the like more dots our of years from strategic see just say, valuable better point, and from an hell how point be faster you a from New bigger and you you something faster. You're to RH we.” and hell And and “How year, done – view, point from of this. point opportunities ever you've within a value this like XX bigger like, do of exciting and and life of could emotional connect when something a

Brad Thomas

book important could That's great. the to how the book on that bit if line here And you you grow about you're could follow-up little get the continuing of year, source in the business? a talk have the modern a launchings back-half for and I new that

Gary Friedman

way Show the see bigger of the first it’s how continuing and in from the – modern for Yes. and Show the We think that the the team in And can – able when We way. new it's big focus. were we Paris is that And much new a big be our [indiscernible] takeaway lot we're to flea whole of modern we the Milan, modern markets. was evolve. week. in got a back a just there. about We mean, stages, [indiscernible], was headline to to a the Salon kind We in in time – last think were and how really early for I spent whole and been – for market went time

markets. like happens estate what a go is estate of from? where around so, usually the And Their people them trends lot pass dead, me, times our I in the right? generations the business markets belongings sales, feed, sales, And joke into did And tell away. flea of for broader antique come I ask the are the the markets, for flea and broader the reproduction gets And become trends, right? inspiration markets markets The the then reproduction inspirations markets next The markets. into markets, mass markets. home and that's antique higher-end level, of and evolution the kind it

anywhere aged the So, here. all kind to from this mid-century But were people out had the the died, that you've of of home things right? that you've years XXs you've reason and buying ages modern amplifiers couple you've products XX either develop, or like in seen all a had are XX of these XXs and all old had at were kind

and depending belongings market, right? reproduction their flea design up so the They they valuable and so, antique markets forth, get the And interior so markets picked on and by they market, and into the sales. and went feed they how into went then then then and estate on were, the

kind The antiques that's it my products And feed maybe a where to gave you years that of education the take kind of to competitors, of tomorrow. all I how figure out. an but of of today, lot one’s just goes, the

that's why here. lot got to I'm So, flea if to happens. go of That's and lot stores you're you of markets go – it's out a like, like, oh, a to to how figure it

But have that other – this happened you've and think so time. the a amplifiers kind the to and is I that got we lot of at things I these when launched talked then about modern that, same

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that, So, we're we think for a in upward trend long modern.

go God, Now, decades away. that go, some my classic make oh, people is going to

Now, of home too. not and to buying because kind aesthetics going really, that's happen, architecture drives

we had in great at Dave, Modern start. Modern, looking Dave this a looking real we Modern right? that, was at and we going Modern launched I the and remember there. because RH gallery, Barbara, epiphany, off we’re it's must And town, when team. the like So, our we we and are go we're in – end and that, of like day, to down to Santa were and estate whole And like to all right? everybody be have designers, the people this many early like so They we evening, had we heard launched

scheduling We realized who's first doing here. if I like like God, the

until P.M. to the have we we people in were up and each And meeting up about of gallery And then kind at them had walked for no we store. just dozen And hours, and the at we said in doing? launch three walked of with looked getting like of a us the and stores, one hours, said a everybody and winded anything. they at We there's they And ready X:XX close. and Modern looked the that in other two town showed launched how Dave so, knew We Modern. only I customers they kind is realized

do forth. Barbara. architecture and for Barbara? modern been Spanish times. I have to so on Santa and all there's of yes, here a really, we're And they said, And so colonial Santa either quite gallery you in of said, here. And So, new classic and so lot gallery we've and beautiful yes, been big a few of It's space looking not kind

really saying people like in know in it are how great. so, coming yes, But And fit I home. this, looks don't this my

architecture Barbara. to does vernacular, not beautiful fact really of drive inside a Montecito have straightedge modern to And you're design probably home that see Santa you respect right? goods the hard in going kind So,

there's You have discard guys, – harmony, you'll right? otherwise, discord and – not

as just going generally world but look are at rises into that So trend. – the look and cities of and these at modern, changing, movements, is And verticalization and so drive right? you and that's you the back these if a high the being developed, to cities almost architectural all the they're condos movement

where and more transitional are, can But data the look are look remodel and view, condo homes can create you you it classic bulldoze take – how to environment. doesn't around if And is at contemporary the be you at architecture the because and and you the and how of homes trend classic change going looks And many point it data overnight. like know, home to of the and there modern going is here but we – you're not But world. in it's many look like outdated all in and, forever, give like classic classic not going. traditional a we'd that it's also a a kind and

is a So because tell start probably leaving of piece say, it's when Think I architecture Think behind, couple And think every in what business and that is built possibilities think and and about about our have they're what marketplace. the business. around is, what's a about trend happening. design going vernacular the our – who's but and there you of team, a influence that then on an about in existing existing potential everything and markets, that's trend. about going to look in to our been dying Think things. is the

kind there R&D that's a launched like, when we’ll costs, had be. Modern we oh, to We is though our massive Modern continue significantly of that we man, were launch modern, of We and like – we than position. we the with Even just, success. big the like it people million. plan when $XX gate, businesses we in that us So, of launched that's bigger it, got got out not way. our cost out than some The we five-year hiccups

own our vernacular we can And we any and classic. We like positioning our and Modern. positioning we of about point unique think like positioning view environments and So, bring around creating just like to contemporary. lives create aesthetic We elevate design our harmony. our by around around people's beautiful

us. a potential there's of And so, we just lot of that see ahead

Brad Thomas

helpful. you, Gary. Very Thank

Operator

Your Nagel Brian Oppenheimer. next comes with question from

open. Your is line

Brian Nagel

Thank Hi, taking good question. evening. for you my

just move spent conversation in talking a we but their about So, running time Gary, overseas. early short, of with I’ll potential are here, out you of it because keep time lot

markets. parameters So, How the there guess, the question yet? question. of I initial have another is, And follow-up that are any we I think then about on, timing should

in shown upon even overseas some to have way late EBIT nice a near-term? progress the capital margins. move or You Would the in expenses extent,

Gary Friedman

Yes. went We're how you give just integrated the estate flushing market and a merchandising saw all we But the markets, some me think that out. to had got to about it of the back trip. reality. Well, We flea trip, let and was timing? real an Amazon we then We kind on Sunday. that

the team and opportunities. back kind plane, So, are of Sunday I cross multiple team Monday? or that a whole going, was saw And we when multiple functional on a locations, Dave are

David Stanchak

To be determined.

Gary Friedman

be determined. To

And a we going locations we've the project. back and probably that. So, to Sunday. see functional cross we're like leave And got home, going things got advance We're Sunday. team, of architects, whole to designers,

So, with building inside fixtures. timing projects filling then mall projects, empty storefront wise, that box a little some – are an not right? we think not We're in and a a our

at pretty – inhabit. are adapt far that They're projects Their pretty and are spaces we but ground take along. we're up the then not spaces would builds. have inspiring projects, are development over real We that we nonetheless, looking and

move you we same the think time, move quickly, really we can here. at but thoughtfully So, to want

the complexity run carry and As of capital, We infrastructure platform far really a cash don't to right? now what's our like a lot as really big in whole showroom there's X%? direct-to-customer right? and We – than I less business, it, don't a gallery design think

David Stanchak

X%.

Gary Friedman

Yes.

of about business out I of be the X%. goods in zero. X% mean, think might the a model, our less store less is you pretty like than bag, soon if So, it walking than it

just point don't efficient. we business so, really our model the with of and showrooms, I We to think And so direct all carry and why also that's same cash complexity from is have over really We don't view. the the have these we a to we And inspiring spread less inventory a like inventory business we floor in most have models have really it the place. markdowns, display. fill the behind architect run well, can And then efficient on way. way We the demand. because that

this sell used like saying, screwed like, six-week and shitty is and had up. to sell whole when two We're holiday. and God like crap were and We're We're lifespan, four-week and of crap. crap vendor we structure in sell of Easter those all a that we of finally used last or late shifted talking oh, now last marked yes, And margin getting weeks rid businesses, it seasonal used to Valentine's on XX% all down we getting like Halloween these the your businesses remember, trip. remember, to the we forbid,

oh, less tables all don't a And of your sell you on empty massively render put a stuff. extra and top valuable, less that Like, That's valuable. you our you businesses, up have not we they'll things. and of put you that table dining dining crap people in that beautiful piled immediately right? always crap render it sell these that, bunch dining only table all should Halloween the polluting on you're things why stores, have all all can core like, are And can

And is in executing the other well. all, ways, all the so, is, of lot right? our of point complex and really through saying really people's efficient business and We're capital it's our model. business business think a but what ways things really simplification, I'm more those much then simpler it fewer what lot – things a of well. We're we're And doing than – in have a creating I

We less have right? complexity, less less waste, clutter, waste, less

drag very that thinking I and can We today, have supply make six like a have, that a been thinking capital as like the and many for thinking how it's a business DCs sense make best it don't investment. and have how into our of like market built in. have Like, didn't future. We used buildings? we completely the through minimal take we that advance chain do so, was to five or the to into we're can we a have, disarchitect think And We past stores. again, we for to, don't different like, business international

Jack Preston

furniture. Four. Well, yes Yes. five

Gary Friedman

simpler, to whether like, taking it are infrastructures, was image, redo way have it's like Yes, is brand, it, kind and what really think actually what's Yes. complex it's going like processes and systems we we're stuff, one-and-a-half right? we redesign had, been and of hard be – architected old real like about, it, changing and poorly it, all estate, and this disarchitect stores today

a less you going like, lot kind their to that – wrong. when membership – supply going And make took like going between for go one and money like changed promotional This we to transition a is oh, we year to that's my They're from explain things. time, booked be our think timing you There's revenue to how like of went a god, when model had we expensive. we whole chain, model when We less to go redesigning membership guys they're P&L. really really everybody. to a it

Our What earnings is buy are we've We've moving right? got pretty wouldn't But that to big believed be taking kind all higher what's people, earnings, down. these big smart doing in build today. to the capital. and of be. our things going go same XX Stock some we're higher happy margins, enough massive costs moves. This really were are will XX. is, happen. company We're rocks, going us. train really in went Why got the got to to Nobody startup The international? It it's to that less changing culture. we've people

developing or it new. are No. to in will. these walls, every got Yes. galleries And the furniture Do we you've That's Like you concrete and right? better? tilt floors And do we course, things. hard got, build in DC? build? building and It's not Will Yes. DCs to Of not people delivering then world? the entirely skylights like up the country Are galleries. their

seven like don't looks more of of some change And ways in we well, apartments. anything and And feel have like three the how big stores. don't me, Europe oh, they sizes, they like, homes so, Well, a are France have lot to and kind People about depths. just and international lanes in sofas brand. why as smaller our many that's our in come not

of a by Yes, okay, version classic version of a petite that. by that,

feet, that, pink got got You get the We we feet, version home. We’ll only X a build Wayfair. XX we've to into of feet, – new here. X a bigger XX you country, it like how feet. yes. assortment. don't on oh, like go it's you Buy sofas, deluxe can Not like not – got Like in market. one, have, pass that we’ll we they assortment give That

me little sorry telling not Wayfair saw Are up I'm you a worried? business. new I'm picking store. is you the getting take worried. store. look bit, the the Everybody guys retail at a into was Go

Brian Nagel

it. color. for appreciate Thanks I the

Gary Friedman

Thank you.

Operator

from Oliver ISI. next is from Your Evercore Wintermantel question

Your is open. line

Unidentified Analyst

[indiscernible] is for this Hi, Oliver.

delve Just couple sourcing guidance just efforts, conversation into of the with rate you changed update you tax tariff Any you. year? for could quick And vendors? that ones, if Jack, on Thank Gary. for the

Gary Friedman

with certain of But the Yes. where things look, have But said, a shouldn't we're big happen and episodic there's I there's doing to going. necessarily sourcing that, going are Like, there of It's are not I distractions. what of are strategic of they're and rocks more we're off focus some take kind tariffs distraction they that and that kind shifts our strategic, tariffs. and right? what are implications think would

a It's distractive. rock. little of are kind tariffs The

mean, to here head, And little picture. dropped And one, You in the tree, like, can't falling look at Somebody and another orchard, get I'm comes rock a kind a the well, thinking, tariff. you your like I up see it's another got oh, bigger it's under there's little of on but our standing apples and head. right? got to having you

U.S.? the what China The needs would the And what there's you tell and out? degree the U.S. China? needs numbers does so, than long-term, all China needs and To more U.S. degree needs The U.S. say, the the look, need China the China it U.S. China. numbers shake that U.S. where does need does

public read that and you’ve of negotiates the deal relevant, negotiating. in if you Therefore, the of he mindset and have in like a of like that book you you what's kind understand, use leverage, wrote and negotiates guy when you're the should he art if leverage, how whether you on just not that Twitter, get understand

getting The China's people uncomfortable. because our U.S. through point letter very important outcomes has – U.S. has is others leverage have they've where U.S. uncomfortable. think achieved in to of have view Read that's source – recent I comfortable seen, book, uncomfortable, be that long-term, before. to you're is never with wrote the places we're from going making never I had that leaders leading And been tariff strategically. a to China.

it for comfortable Balancing country is understand understand don't economics long-term. can people perfectly a I'm And think really our really be thing. power. good and tariffs, don't about being China I good trade that world math because with uncomfortable and that

to like, I like called is going went long-term. So, convert convert It's nature day, the and economy in something that Do as Is a distraction? points it. It's Trump stock States to up I our I'm and Strategic strategic to Yes, worry not got – country's of and do It's strategic. more was our a is that. have and a a about XX distraction. it or United it tweeted inconvenient. relates tariffs we one the Oh, shit, about okay.

you difference in happen been different our look, I we what And things relating No. launched? have it's these a press business, actually tariffs specifically? or or business when so, has mean, mean, anybody our our Nothing out we our all releases than tell and put performance how like, since seen to I report. these profitability,

needs than not So, we – needs not it's different the keep the issue. telling U.S. U.S. you no problem, China don't It's and an a China

without have. stores. deep of we either and We're isolation, be what to not us, and have that factories We I we products like have manufacturers go, the that's We're look, good to together people relationships, linked one they produce be and to you’re in and right? really say to integrated have our should partners our without yes, partnerships integrated. completely and shopkeepers and we

relationships And good you’ve in you really have you are partners. and got over real China. we and and long playing have and the So, for relationships world partnerships when long-term all deep the

abandon That's don’t not you of your trouble, partner right? You when in times flee.

just okay We've just So, like, we're China. got like, not great partners leave uproot in and China. let's hey,

We have manufacturing partners. great

great China. China. product out great quality have in of – of We relationships We're great out getting great China,

manufacturing is And together how We difficult places probably And, where so moved production, create how to the we've we the good get were that But so and – in the like math. key. quality partners. good capability to, as do a what a really production we not quality the make complex like wasn't times? in that said, wasn't it. done. are yes, business said relationship and or I we've that's get work through outcome we're wasn't sense. I And investment moved and we companies out only as a figure to ours through I think, going as We the long-term we've do is a the [indiscernible] We – going like little where good,

things chaos try for and and ready chaos with uproot take and complexity that. to the countries to up going and get ramp the You're that just problems to production, other and comes

I'd might It's do underestimate math not through and China. changes with Missile going think going – a master Trump I like deal might this. Cuban happen thing the Crisis don't all – and an of what we and we're of what embargo but the – don’t and like, he have here. make the point – Don't think he's we'll negotiator embargo we're view. on rather some to get not have moves it's from And to see negotiating I

– it's not I got negotiation. to China When to I going work a of really some in to has well. we've get you all through countries be the what going to back think given ships. matter it’s U.S. the up time. cards position have or to in want – has going it's for negotiation. versus a wouldn't of long-term It's an out and leveraged, just and be China's in There's we're to embargo the this little have And And the going get both cards

everybody So time But time, and it's for outcome – short a panics it. but Yes, through a distraction. a to a we'll that it. be was country. good And now. think going really be a our years in look we've deal of will We're if really from period not period worried few back big that escalates get it I been of the for of to short able about and

Unidentified Analyst

Thanks, it. guys. Got

Jack Preston

So, John, of stock taxes, employee changing rate as think is one the and the the I drivers vesting restricted stock it of the of relates of an to tax – options exercise units.

and depending in last to share And our that so, variability year, that that. through saw we price employees there's benefit that a certain a on distinct the us. amount activity exercise, changes flows and change some benefit particular, the can And in quarter-to-quarter

X.X%. had QX, We was and a of effective last year XX.X% it in rate tax

earnings for that project I there's comparisons to tax year that activity that rate your quarters guess, of talked outlook couple in just, growth our we of preparing a quarter-by-quarter this what ago of were as and terms about employee we looking and it in noise at So, the help just year-over-year. trying the versus low doesn't activity, and

this is is year… in pronounced, our get in a essence though, we quarters activity, picking continue a ago, normalized this are what some Now, problem two XXXX which rate rate, and tax and but that XX%, is And one. There The think that so we address that marginal of effectively to do. I by picked there we with this benefit. statutory activity economically, that, we was tax quarter or in

Gary Friedman

It's a real benefit.

Jack Preston

of in if EPS, by earnings being choice real that cash that tax is which XX%. our XX%. that rate guidance, that's this benefit, real our …the and you terms – is And power our terms year, about in think the for so, outlook amount the math of benefit, of was understated just $X.XX, of material

we're want business view to make So, that the investors what – of earnings you of have just and the just most sure we the is. accurate power

we again, we're year. just And the last four of I going that, that quarters. – think with little out confusion normal were a normalized for all that so, the variability seeing takes And XX%, rate with tax the

Gary Friedman

it. you now numbers $X.XX, understate We're sense shareholders? is the create mean, if or I about you I of health comparability evaluate want so, are to multiple, overstate to I, worse take multiple intake and our – do to that we're mean, to it's tax if Why share. the it. the growth makes to the a which We rule multiple simple for be XX want our all to XX Yes. just trying take times present business. would But don't a We we $XX changed. don't has

got of these some activities You've happening.

and for all. so, comparison ourselves, for investors our to for the shareholders, that's we're just create And our best trying

Operator

no There are further questions.

turn back for to like the Gary closing I'd call over remarks. So, to any

Gary Friedman

quarter to and the just Great. have world really our competitor all [LX] and who the people we're best around models the hard in like just and with vision results, life extraordinary Well, people be I more our I bringing of know and and I we closest who our is, the the ranking in thank don't space everyone. our thank want But you, so to couldn't proud, that. these worked our partners XX.X%. operating on just passionately ended want really one generating do a warming industry next margins got of up. we've maybe to

world, in world, company. company, not just inside the this people the we've outside best I in think but best got this the team

around partners the we with. that are world incredible work Our

build problems and in that had partnerships one in future through to And and and greater and We're of it's to We're going tell them, innovative or seen. view and I a whether passionately the we've are inspiring vision. most the going ever we're we're world never of pursue And a has with think inspiring more and future the it's can a in brands inspired vision the we're whether proud about passion to vision. today greater work about China. Europe, you, I

a interested being our talking be wanting for like like of – you thank story, part in we'd journey and the to So, we it. about

next we'll So, talk you. Thank to quarter. you

Operator

Thank call. joining. conference today's everyone, for you, concludes This

may You now disconnect.

RH (RH) 11 Sep 192019 Q2 Earnings call transcript