Thank you all for joining us, and welcome to the Q3 2021 RH Q&A Conference Call. I will now hand it over to Allison Malkin from ICR. Please proceed.

Thank you. Good afternoon, everyone. Thank you for joining us for our third quarter fiscal 2021 Q&A earnings conference call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer, and Jack Preston, Chief Financial Officer. Before we start, I would like to remind you of our legal disclaimer that we will make certain statements today that are forward-looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our press release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings as well as our press release issued today for a more detailed description of the risk factors that may affect our results. Please also note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Also, during this call, we may discuss non-GAAP financial measures, which adjust our GAAP 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. With that, I will turn the call over to Gary.

Great. Thank you. Happy holidays everyone and bonjour from Paris. Jack, I and Eri, the leadership team, are all here. We are actually on a real estate trip and have seen a couple of exciting new international galleries. So – but it’s a little late here. If we sound like we are in a different time zone, we are. We haven’t slept a lot this week. But we are excited to talk to you about our results. So let me start with the highlights from the letter that we put out on the wire. To our people, partners and shareholders, we are pleased to report yet another quarter of record results, with net revenues increasing 19% to $1.6 billion versus $844 million a year ago and up 49% versus 2019, representing the strongest 2-year growth in our industry. Our performance demonstrates both the desirability of our exclusive products and our ability to overcome the compounding supply chain challenges that led us to delay the launch of RH Contemporary, the opening of our first RH Guesthouse in several galleries and the mailing of our fall source books until spring of 2022. RH continues to set a new standard for financial performance in the home furnishings industry, and our results now reflect those in the luxury sector, as adjusted operating margin reached 27.7% versus 26.7% last year. We generated $279 million of adjusted operating income in the quarter, up 24% compared to $225 million a year ago. Adjusted net income increased 25% to $209 million, and adjusted diluted earnings per share reached $7.03 versus $6.20 in the third quarter of last year. We generated $311 million of adjusted EBITDA in the quarter and $145 million of free cash flow. The third quarter ended with total net debt of $178 million and trailing 12 months adjusted EBITDA of $1.054 billion. Raising our fiscal 2021 outlook, while we believe a conservative view of revenues in the fourth quarter is prudent due to the uncertainties posed by the new virus variant, the postponed opening of our new San Francisco gallery until the spring, and the continued shipping in port delays, the power of our operating model gives us confidence to raise our outlook for fiscal 2021 for the third time this year. We now expect fiscal 2021 revenue growth of 32% to 33% versus our prior outlook of 31% to 33% and adjusted operating margin in the range of 25.3% to 25.5% versus our prior outlook of 24.9% to 25.5%. 2022, the year of the new. While our plans for fiscal 2020 and 2021 were delayed by the virus, make no mistake, they were not disrupted by it. Quite the contrary, we refused to shelter and shrink, not allowing our culture to be shaped by stay-at-home mandates or let collaboration be replaced by Zoom calls in isolation. No leaders of team RH made their summer home their permanent home. There were no debates if we would return to work, only discussions of when we could. We wasted no time allowing ourselves to be victims of the current reality. We chose to be visionaries, destroying today’s reality to create tomorrow’s future. We used our time to reimagine and reinvent ourselves once again. We said let this be remembered as the time RH unleashed the greatest display of innovation our industry has ever seen. That’s why we referred to 2022 as the year of the new and it will include the following: the introduction of RH Contemporary, the most meaningful new product launch in our history, inclusive of a 500 plus page source book, a freestanding RH Contemporary gallery, a dedicated website and a national advertising campaign. The elevation and expansion of RH Interiors and RH Modern, inclusive of multiple new collections, enhanced quality and exciting new presentation and photography across our physical and digital platforms. The launch of our global expansion with the opening of RH England, the gallery at the historic Aynhoe Park, a magical 73-acre estate designed in 1615 by the legendary English architect, Sir John Soane that will introduce RH to the UK in a dramatic and unforgettable fashion. Additionally, we have secured locations for galleries in London, Paris, Munich and Dusseldorf and are in lease or purchase negotiations for galleries in Milan, Madrid, Brussels and France. The opening of our first RH Guesthouse in New York, a revolutionary new hospitality concept for travelers seeking privacy and luxury in the $200 billion North American hotel market, the unveiling of the world of RH, a new digital portal presenting our integrated ecosystem of products, places, services and spaces, all designed to elevate the RH brand and communicate our authority as a thought leader, taste and place maker. The liftoff of RH1 and RH2, our customized Gulfstream G650 ER and G550 that will be available for charter; the former already garnering press and praise as featured in the pages of Architectural Digest, the Wall Street Journal magazine and the 20 titles of modern luxury, including Los Angeles Confidential, Manhattan Magazine, San Francisco Magazine, Boston Common, Dallas, Palm Beach and Aspen Magazine to name a few and also including the hundreds of thousands of social media posts and reprints of all of these articles. The christening of RH3, our luxury yacht that will be available for charter in the Mediterranean and Caribbean, where the wealthy and affluent visit and vacation. The expansion of RH In Your Home, a unique and memorable delivery experience with furniture ambassadors, guiding every detail of your delivery and extending the selling experience into the home. We entered 2022 with optimism and confidence that our efforts will continue to elevate and amplify the RH brand, creating significant separation emotionally, strategically and financially. The RH Business vision and ecosystem, the long view. We believe there are those with taste and no scale and those with scale and no taste. And the idea of scaling taste is large and far-reaching. Our goal to position RH as an arbiter of taste for the home has proven to be both disruptive and lucrative as we continue our quest to build one of the most admired brands in the world. Our brand attracts the leading designers, artisans and manufacturers, scaling and rendering their work more valuable across our integrated platform, enabling RH to curate the most compelling collection of luxury home products on the planet. Our efforts to elevate and expand our collection will continue with the introductions of RH Contemporary, RH Couture, RH Bespoke, RH Color, RH Antiques & Artifacts, RH Atelier and other new collections scheduled to launch over the next decade. Our plan to open immersive design galleries in every major market will unlock the value of our vast assortment generating revenues of $5 billion to $6 billion in North America and $20 billion to $25 billion globally. Our strategy is to move the brand beyond curating and selling products to conceptualizing the selling spaces by building an ecosystem of products, places, services and spaces that establishes the RH brand as a global thought leader, taste and place maker. Our products are elevated and rendered more valuable by our architecturally inspiring galleries, which are further elevated and rendered more valuable by our interior design services and seamlessly integrated hospitality experience. Our hospitality efforts will continue to elevate the RH brand as we extend beyond the four walls of our galleries into RH Guesthouses, where our goal is to create a new market for travelers seeking privacy and luxury in the $200 billion North American hotel industry. Additionally, we are creating bespoke experiences like RH Yountville, an integration of food, wine, art and design in the Napa Valley; RH1 and RH2, our private jets; and RH3, our luxury yacht that is available for charter in the Caribbean and Mediterranean, where the wealthy and affluent visit and vacation. These immersive experiences expose existing and new customers to our evolving authority in architecture, interior design and landscape architecture. This leads to our long-term strategy of building the world’s first consumer-facing architecture, interior design and landscape architecture services platform inside our galleries, elevating the RH brand and amplifying our core business by adding new revenue streams, while disrupting and redefining multiple industries. Our strategy comes full circle as we begin to conceptualize in self-spaces, moving beyond the $170 billion home furnishings market into the $1.7 trillion North American housing market with the launch of RH Residences, fully furnished luxury homes, condominiums and apartments with integrated services that deliver taste and time value to discerning time-starved consumers. Our ecosystem of products, places, services and spaces inspires customers to dream, design, dine, travel and live in a world thoughtfully curated by RH, creating an emotional connection unlike any other brand in the world. The entirety of our strategy is designed to come to life digitally as we launch The World of RH, an online portal customers can explore and be inspired by the depth and dimension of our brand. Our authority as an arbiter of taste will be further amplified when we introduce RH Media, a content platform that will celebrate the most innovative and influential leaders who are shaping the world of architecture and design. Our plan to expand the RH ecosystem globally multiplies the market opportunity to $7 trillion to $10 trillion, one of the largest and most valuable addressed by any brand in the world today. A 1% share of the global market represents a $70 billion to $100 billion opportunity. Taste can be elusive, and we believe no one is better positioned than RH to create an ecosystem that makes taste inclusive, and by doing so, elevating and rendering our way of life more valuable. This is the time to be defined by our vision, not by a virus. As we move forward past the dark days of the pandemic, let this be a time where we once again rise up, a time we expand and shine, a time we re-imagine and reinvent ourselves once again, a time team RH unleashes the greatest display of innovation our industry has ever seen. This is the time to be defined by our vision, not by a virus. Carpe diem. And at this point, operator, we will open the call to questions.

Thank you. Our first question comes from Steven Forbes with Guggenheim Securities. Your line is open.

Good evening or I guess good night everybody. Gary, you highlighted several exciting launches that are planned for 2022 in the letter, but I was curious if you could comment on the real estate pipeline here within the states. How many leases are secured currently and should we expect the number of openings in 2022 to reaccelerate to that 5 plus level?

Yes. At this point, Steve, we are silent on that just because there is so much kind of change and chaos happening in the world of construction and development on so many levels that we are going to wait till we have a little bit more clarity as we get through the fourth quarter to talk about what we think will happen in 2022. So you will hear more about that in the – with our fourth quarter release.

Perfect. And then just a quick follow-up, it’s great to hear that RH Contemporary is still slated for launch next year, but would love to hear your current thoughts on how impactful newness could be to demand next year, maybe at a high level right as you think about the creation of the source book and just where you guys are. I would love to just hear how excited you are about it? Any sort of comments on how impactful you think it could be to brand awareness and overall demand growth?

Yes. I personally think it’s a complete game changer. I think it’s the best work we have ever done. I think it eclipses the work of RH Modern, which was huge, although Modern got off to a stumbling start from a production point of view. Modern has kind of changed the game for RH. I think this changes everything. I think when people see the taste level, the sense of style, the quality and sophistication of Contemporary, I think it opens up another entirely new market. I think it will attract some of the highest-end interior designers to our brand. I think it will have the customers of the highest-end interior designers point them to our brand. I think it is one of those undeniable things that we are going to do that you can’t ignore it. It’s going to be a big deal in our industry.

Thank you. Best of luck.

Thank you.

Thank you. Our next question comes from the line of Adrienne Yih with Barclays. Your line is open.

Thank you very much, Gary, Jack and the entire team, great navigating through very difficult times. Gary, I wanted to see if you could give some color context on the quarter with regard to supply chain, freight, inventory and the backdrop there, the exposure that you had in the current quarter and what the line of sight looks like on these items into the first quarter? And then Jack, can you – or maybe Gary, can you talk about the timing of RH England? And when you say that you have identified the secured locations for London, Paris, Munich and Dusseldorf, could we expect those to be open in the latter half of 2022? Thank you very much.

Sure. Yes. Let’s start with supply chain and everything. It’s a mess, okay. It’s the worst we’ve ever seen. So it’s – it’s a time to improvise, adapt, overcome. It’s time to collaborate more deeply than you have ever collaborated with your partners, whether it’s on the manufacturing side, the freight side, what you are doing to the parts, what we are doing with just line haul, everything, right. There are execution issues everywhere. There is cost inflation everywhere. And you have to be really smart and thoughtful, but to say everybody in our industry, we are sure in a reactionary state, but with a leadership kind of mentality, how do we lead this to where it’s the best outcome. And we like saying company vision leads the leader. It inspires and generates the energy within and leaders have to be comfortable making others uncomfortable, because you are taking people somewhere that you have never been, doing things you have never done, and this is one of them. Navigating through this period is a tough one, but it takes real leadership and it takes real thought and we have to be reactionary, but we also have to spend a lot of time thinking until it hurts, until we can see what others can’t see, so we can do what others can’t do. And I am proud of the team and how we have navigated through this thus far. I am grateful and appreciative to all of our partners around the world who have especially those in Vietnam, who have had to suffer through just a really, really difficult time from a health perspective, disabled that country worse than any others that we have worked with. Earlier, it was India who had such a challenging time. But look, I think in our results and our guidance demonstrate our ability to navigate through times like these from an operational perspective and demonstrates the strength of our brand from a revenue generation and margin expansion perspective. So despite it all, we have expanding margins against our best margins last year and we absorbed a lot of cost and a lot of chaos. So, I think that bodes well as you look forward to, hopefully, things getting better. The – I don’t know it’s Omicron – I can’t say it, right, but yes, Omicron. Who knows what the next variant is going to be, who knows how many variants we are going to have. The early data would say things are not as bad as Delta, might spread faster, but it’s – it doesn’t seem to have the same health risk. So hopefully, we will all be able to navigate through this and get to the other side. When you think about the expected timing for the opening of RH England, we believe we will open RH England in kind of early summer, late spring, and you don’t want to open in the UK too early. We don’t open out in the English countryside where it rains every day. And by the way, it rains almost every week. For sure, it rains every month in England. So, we would like to open when the weather is nice. We would like to – you don’t get a second chance to make the first impression. And so we are on track to open, I think in the late May, early June, and it could be a weather call, honestly. We are looking at the weather report and you go to your phone and you see rain every day. We are probably not going to open yet. But when we see the first few sunny days, we will be kind of ready, and we want to open on a day that everybody is smiling and everybody is happy, including our people. And – but we will be open by early summer unless we don’t see a clear day. That’s the only thing that might hold us up. So, we have confidence about that. Could we expect other international openings this year? No. If we did, we would be talking about them. You got to think about the kind of the complexity and size and dimension of the projects we are opening. They are not easy. They take years. These – what we are doing is not a quick rollout. And we like to say extraordinary takes more time, requires more people, costs more. It takes more time, costs more money, requires more people working in a more complicated manner, but it’s worth it. And so I think what we have learned in our journey here is that when you do extraordinary and remarkable work, you can always figure out how to monetize it. It’s really hard to monetize ordinary and unremarkable. And so – but extraordinary and remarkable, it takes more time. It costs more money. It requires more people doing more things in a more complicated manner. And so it’s hard to actually forecast and predict when these are going to open. But I’d say the ones we have listed will have some opening in ‘23. We will have some opening in ‘24. We will have stuff opening in ‘25 and ‘26, and I feel good about the pipeline. The way I think about it, by the way, is that we are not – it’s not like in the U.S. We are not opening markets. We are opening countries. And I can’t overemphasize that, not just to shareholders or the analyst community on the phone, but to our team and our partners around the world, we can’t look at these like one gallery. RH England opens up England, opens up the United Kingdom, right. We – if we open in Paris, it opens up France. When we open in Milan, it opens up Italy. When we open in Munich or Dusseldorf, it opens up Germany. So, these are big economies. And one by one, we are going to open up countries. And with the amount of business that is moving online and if you think about one of the long-term financial benefits of this virus is it made people a lot more comfortable shopping online and shopping online for just about anything. So, we like our timing from that point of view. We are going to learn how many galleries we need in these markets and how we penetrate them correctly. But to our consumer at the high end, we are not unknown to the high end. I think I might have mentioned on another conference call that there was an analyst report that came out and said RH has really low consumer awareness in Europe. And they ranked like Target, Walmart, IKEA and a whole bunch of people way ahead of us. But that was a real firm grasp of the obvious, right, because our customers don’t shop those places, and definitely, those customers don’t shop RH. We wouldn’t even be on the radar, right. But one of our really smart investors – and they are probably listening to this right now, you know who you are. They did research and researched interior designers in the UK. And how many – and what was the market awareness of RH in the UK, I think it was 90%, close to 90%. And what was the percent that had an intent to buy when we open in the UK, and I think it was somewhere around 80%. So, those numbers are off the charts, right. Those are off the charts. So this dynamic of opening countries when you have the kind of brand we have and when you are so unique in a market and you open the way we are going to open, we are not opening like this company started – how this company started in the United States with little legacy stores with 6,000 square feet or 7,000 square feet of selling. We are opening with our best work. So we have a running head start because we have pretty good brand awareness with the right consumer. We are opening extraordinary galleries like some of the most exciting things we have ever done, like I think almost every one of them is one of the most exciting galleries we have ever opened, incredible historical real estate that we are re-imagining. So, when I think about the business and our team thinks about the business over the next 5 years, I mean, I think it puts us in a position to outgrow anybody in our industry.

That’s extraordinarily helpful, Gary. Kudos on the execution, and the future obviously has tons of opportunity. Thanks.

Thank you.

Thank you. Our next question comes from the line of Chuck Grom with Gordon Haskett. Your line is open.

Hey, thank you. Great results. My question is on deferred revenue and customer deposits, they are up sequentially. So I am curious if you have started to make any progress on bringing down the backlog levels. I believe at one point earlier in the year, they stood at about $150 million. So, have you started to bring them down or how many quarters do you think it’s going to take for you to clear out some of that benefit?

Hey, Chuck, it’s Jack. So, we gave you that update for the $150 million at the beginning of the year. We haven’t updated it and we will do that when appropriate. One thing you have to realize, though, as we resolved some of that backlog, there is new backlog created. So that’s what you are seeing is sort of sequential if you look at our sort of sequential revenue and really the volume of revenue. And this is our highest revenue quarter of all time, obviously higher in the last quarter and higher than the prior quarter. So you are going to see a sequential build in those. And again, I think as we get – as the supply chain and everything else resolves over time, we will get through it. But right now, it sort of reflects the size of the business. And as Gary mentioned about the supply chain, we are working, we are improvising, we are adapting and it’s all going to come together I think.

Yes. And I’d say right now, our view is the backlog won’t get all the way down by next year. There is a high likelihood we will enter the following year with the backlog.

Got it. Okay. Cool. And then you also referenced the new variant in your update. Sorry for the near-term question, but I’m just curious if you’ve seen any unusual demand trends over the past couple of weeks. And then bigger picture, you talked about the supply chain still being a factor, curious if you’ve seen any changes in consumer behavior or willingness to wait for products or any uptick in the cancellation rates or maybe not?

Yes. We have a lot of people coming in and wanting to buy masks. That was a joke. I would say – now in our business, you usually don’t get immediate upticks, right? Like on furniture, things like that. Just kind of early news, but we will see how it shakes out. And I think customers have been conditioned to wait, right? And the key to how we all operate in this world is based on expectations. I’d like to use the example of you go to Disneyland. And if you want to get on the Star Wars ride or the Matterhorn or whatever, pick your ride, they have a sign that says 45 minutes from here. And you see a line of about 400 people. And do I really want to get in line with my two daughters to get on the Matterhorn today even if it says 45-minute wait? Now you think nobody in the world would get in a line that says 45 minutes from this point. But the fact is you get in that line because you’re conditioned to get in that line. And Disney because they execute so well, I’m one of those people that generally looks at my watch and then times it. And all the times I’ve gotten into the line at Disneyland, it says when it says 45 minutes, and they are always 45 minutes. That’s where they put the sign up. I haven’t been in the last 2 years because my daughter got a little older, but they actually want to go again this year. So – but you always get on the ride somewhere around 39 to 43 minutes. So they never make you wait longer than 45 minutes. And what we’re trying to do is be Disneyland. Don’t say 4 weeks if it’s going to be 5, if there is a risk of 5. If there is a risk of 5, say, 6. And if we lose a little demand that might happen, but there is nothing worse than disappointing consumers. But I would say the bigger thing is consumers – we’re all conditioned to wait. I mean, try to get anything built right now. Try to remodel your house on time right now. I think I read – actually just read a report that 50% of the people said they are waiting longer, and they are spending more money. I’d love to know their contractors, the other 50% because I know nobody who’s getting anything built on time, and I don’t know anybody who’s not spending 50% to 100% more than they thought they were going to spend on any kind of remodel. I mean, everything is costing more on every level, and that’s the world we live in today, and we’ve all been conditioned to wait. And it’s almost like a crazy surprise if you get something on time. So if the Postmates driver shows up on time with your meal or the Grubhub person shows up, you’re kind of like super excited because they are the only people who are kind of on time today.

Hey, Chuck, one thing to keep in mind too, and I think when a customer for any reason doesn’t want to wait, there is actually – there is plenty of in-stock. That’s what we talked about, one of our strategic advantages is the in-stock inventory. And including on our website, you can shop in-stock. And I was one of those design customers that, for one reason I need to – I want in-stock items fast. And I was able to get them, obviously, some items I wait for, but we have the ability to address both.

Great, thanks for the color. Gary, I think that the fast pass. It works pretty well. Good luck the rest of the year. Thank you.

Thank you. Our next question comes from the line of Anthony Chukumba with Loop Capital Markets. Your line is open.

Thank you so much for taking my question. Before I ask my question, I’m just going to preface and say I was not the analyst who wrote that report about your low European brand awareness. So I just want to clear that up. I also wanted to mention that I recently went to your new RH Oakbrook store and it was just, I mean, spectacular. I mean just absolutely positively breathtaking. But on to my question, so you talked in the – in your letter about how you’re expanding RH In-Your-Home. And I know white glove is very, very important. And obviously, you have the gross margin dollars in each transaction to afford that cost. But I was just wondering, is there any significant cost sort of increase that we should be factoring in because of the expansion of RH In-Your-Home?

There is going to be an investment we’re going to make. It’s a meaningful, significant investment. We think there is a good return on that investment. The math would say to go. I don’t know – Fernando is here. Fernando Garcia is our Chief Supply Chain Officer and President of Home Delivery. He’s kind of been the visionary behind RH In-Your-Home. And he just had his leader of RH In-Your-Home, Dana Out, and we had an inspiring presentation. And I guarantee you, if any of you on this call were in the room, you’d want to be an investor in RH In-Your-Home. So Fernando, do you want to mention anything in RH In-Your-Home?

Yes. I mean RH In-Your-Home, as Gary refers to, is a unique and memorable experience that requires an investment. However, the return of the investment is significant for the brand, not only from the demand that Gary mentioned, but from the customer experience and the desire for the brand the investment will create. And we – over the last 2 years have been able to negotiate great contracts with our partners that have allowed us to consider financial investment in RH In-Your-Home.

Got it. That’s all very helpful. Thank you so much and keep up the good work guys.

Okay, thank you, Anthony.

Thank you. Our next question comes from the line of Curtis Nagle with Bank of America. Your line is open.

Good evening. Thanks for taking the question. So a quick one on product launches. It looked like modern and incremental launch next year. I Just looking back to the last year later, I didn’t see it. And I guess just how incremental, I mean it’s obviously a big part of the brand. I don’t think it’s obviously bigger than kind of the core business. But yes, what are your expectations for Modern? And I guess, what – how is the brand I guess, sub-brand evolving in terms of the evolving the product?

Sure. Yes, Modern is a meaningful part of our business today. And we think about – the way we think about the business today, we have RH Interiors, RH Modern, RH Contemporary. So Modern is now part of core. That’s how we think about it. It’s got to sound aesthetic, but it’s not new anymore. But both Interiors and Modern will have the most amount of newness than they have had in years because we haven’t mailed the book in 2 years. And we have introduced a new collection in 2 years. So you’ve got kind of 2 years’ worth of development kind of backlogged, and we think now is the time where the supply chain is caught up enough, Curtis to where you won’t disappoint customers and create longer wait times. We hope, we knock on wood, I mean nothing changes as far as the variants and what happens. But Contemporary is going to feel massively new with lots of incremental new product that should make HR – excuse me, Contemporary will be all incremental. Well, not all incremental. Let’s put it this way, I would expect 50% to 60% incremental from Contemporary because it’s so new and differentiated. The new – there is incremental new collections in both Modern and Interiors. Interiors is our biggest book. Modern is our next biggest book and biggest part of the business. And then Contemporary, we all now – we look at it and we think Contemporary could be bigger than modern and over time, rival Interiors and just lift the whole brand. It’s just a new sweet spot is how we think about it. And in some ways, we’ve made lemonade out of lemons through the pandemic, it’s given us more time to look at it, more time to dimensionalize it, more time to be critical of it, more time to tweak it and dimensionalize the idea. And we kind of get more excited every week about it here because we’ve been able to continue to kind of innovate and expand and dimensionalize the idea. So that will be a huge piece of incremental business. And then there’ll be a percentage of both Interiors and Modern that will be incremental. Eri is sitting here. Eri, anything you want to add that I’m missing out on?

No, I would agree. I think the Contemporary point of view is absolutely fresh and exciting and very relevant right now. And like you said, I think it will rival Modern when we launch, and I think it could eventually eclipse that concept. And it’s exciting. We’ve made the concepts and collections much, much bigger and elevated the design and quality all along the way.

That sounds very exciting. Maybe just a quick modeling question for Jack. Just look, I know you guys haven’t contextualized or given detail on price increases or anything like that. I’m not asking for that. But just kind of thinking through next year and the backlogs and how long it takes for inventory to flow through. I guess, would it be fair to say that at least through maybe the first quarter or two next year, you still sort of see some uplift from price increases you’ve already taken or should we think about it differently?

Another way to ask us for ‘22 outlook with that factor way. Look, I think based on – you can look at our source books online or you can – if you follow them, we’ve made no secret of having taken some price increases this year to address the supply chain. Will there be some revenues in the first part of the year? Sure. Again, we’re not speaking in specifics, but I think that’s a good way to look at it.

Yes, I’m not even sure price changes are over yet. So yes, there is still price inflation happening. And so we’re going to continue to do what’s fair and right and – but we don’t want to do anything that kind of undercuts the margin structure that we have. So – but everywhere it’s happening. Restaurants crazy price increases and a lot of the input costs, and we’re just doing what we believe is right and fair. As our price is going up, we’re passing them through. And I think, because of the stimulus in the market and what the government is doing to kind of keep everything afloat and everything moving, it’s kind of balancing it all out, right? And in some good way that this pandemic is not isolated to any one country, and it’s a global issue, it allows every country in the world to print money and not devalue their currency in a massive way. And so it’s never happened before. We’ve never seen this. We all sit here and go, what’s going to happen? And yes, who knows like how long everybody is going to print money for, how long prices are going to go up. What’s going to happen with inflation? Hopefully, you’ve got a dovish point of view on interest rates in the Fed. I think everybody’s pretty happy. Powell is re-elected. And so, so far so good. I would have thought a lot of things would have gone wrong by now. But again, we’ve never seen this one. The world has never seen it. So I think price increases are going to probably be here for a while.

Sure. Okay, thanks very much. Appreciate the time and good luck on the rest of the year.

Thank you, Curtis.

Thank you. Our next question comes from the line of Michael Lasser with UBS. Your line is open.

Good evening. Thanks a lot for taking my question. Recognizing that there is a lot of uncertainty out there and there are some supply chain challenges, your fourth – or your implied fourth quarter guidance suggests that demand trends are slowing or at least your revenue trends are going to slow in the fourth quarter, especially on a stack basis. So do you think that the affluent consumer, which has been maybe less mobile over the last 18 months, is starting to get fatigued being at home, starting to shift spend to other categories and that might continue in the next year? And that’s a sign that you’re already starting to see in the business?

Well, yes, I think everybody just has to look at their own behavior. When you don’t have an ability to travel, but your income hasn’t changed. You’re either saving money or spending it somewhere else, right? And travel and leisure is 3x the size of the home furnishings market. And clearly, that part of the economy was shut down. And that part of the economy has opened up. If you try to get a flight these days or try to book a hotel room at many places you might want to go, it’s a lot different than it was a year ago, and it’s massively different than it was 2 years ago at the beginning part of pandemic. So the question is, I think, how has this affected the long-term view of the home, right? And how has this changed the perspective – it’s – I think there is a short-term cycle here that, yes, spending will shift back to travel and leisure and other parts of the economy. People are going to spend money on weddings. There weren’t weddings. There weren’t events. There were – so many things went to zero, right? Nobody went to concerts. Nobody went to – some of you guys like I happen to be a fan of the Golden State Warriors. The last couple of years, you didn’t really want to go to a Warriors game and be one of 2,000 people in a 20,000-seat arena. It just didn’t have a lot of energy and wasn’t a lot of fun. But now there are 20,000 people back in there, spending money on tickets, going to games, spending money in F&B. It’s expensive night out no matter where you’re sitting in that arena, and I would imagine arenas everywhere, whether it’s soccer games, whether it’s other events, whether it’s concerts that are happening now. So all travel, leisure, entertainment, so on and so forth, people are getting out. Yet you would have thought there’d be a much bigger shift out of the home. And I think what we’re learning is that this is – this may have created some kind of a permanent shift in the importance of the home, the amount of time people are going to spend at home, the way they are going to spend their time at home, the amount of entertaining at home they are going to do, the number of homes they want to have if you can afford to have that and just the threat of not only new variants, but another pandemic. You don’t ever expect anything like this. You’ve never seen anything like this. But once you’ve seen something like this, you start saying, what happens if it happens again? Hey, honey, okay, got it. We made it through this pandemic. Everybody is healthy. What do we do now? What happens if another 1 hits in 3 years and 5 years? How are we going to be ready? What does ready mean for another pandemic? Ready means having a second home. Ready means having a great backyard. Ready means making your home a place that you want to stay in. I think the pandemic caught everybody off guard, right? We all had to spend a certain amount of time at home. We all sat around and saw all the things that maybe weren’t great in our home. We all kind of said, hey, why don’t we make our home better? We’re going to be here for a while. And I think that if it wasn’t your home, there might have been a shorter term impact. But for many people, and especially upper-end consumers, it’s the most important place you go. It’s where you sleep almost every night. And it’s where you eat most of your meals. It’s where you raise your family. It’s now, for most people, if you’re working and you’re an affluent consumer, you have a home office, you have someone to work in home. You now have a habit of entertaining more at home. Anybody who tells me they haven’t cooked more than they cooked in the last 2 years – yes, you’re welcome, Williams-Sonoma, by the way. Everybody is cooking more. It’s got to be good for the home. The new habits have to be good for the home. And I think the – we’re all surprised how long like I don’t know who coined it, one of you wrote it, wrote reports and there is stronger for longer. And I think it’s been stronger for longer because it’s the home. It’s not like you just bought a new car. And you buy a new car and you don’t furnish the car. You don’t do anything to the car. Maybe you wax it and you clean it, but you kind of – you get everything you need when you buy a car. When you buy a home, you’re kind of furnishing it for years. You’re doing stuff to it for years. And now that it’s even more important, and you’re spending more time there and you predict you might be spending more time there in the future. And there might be a risk of another pandemic. I think the home might get a permanent shift here. How big? Is it going to slowdown? Sure. Like we are not going to see the same growth rates, I mean – but then again, if you saw our business plan for last year, it was a lot lower than how we performed because we thought there could be a big giveback after the lift of 2020. And we thought that we give back in 2021. Will there be a giveback in ‘22? I don’t know. It’s so far or what did Maverick say in Top Gun? Looking pretty good so far. Well, yes. I think based on – you can look at our source books online or you can – if you follow them, we’ve made no secret of having taken some price increases this year to address the supply chain. Will there be some revenues in the first part of the year? Sure. Again, we’re not speaking in specifics, but I think that’s a good way to look at it.

Yes, I’m not even sure price changes are over yet. So yes, there is still price inflation happening. And so we’re going to continue to do what’s fair and right and – but we don’t want to do anything that kind of undercuts the margin structure that we have.

Sure. Okay, thanks very much. Appreciate the time and good luck on the rest of the year.

Thank you, Curtis.

Thank you. Our next question comes from the line of Michael Lasser with UBS. Your line is open.

Good evening. Thanks a lot for taking my question. Recognizing that there is a lot of uncertainty out there and there are some supply chain challenges, your fourth – or your implied fourth quarter guidance suggests that demand trends are slowing or at least your revenue trends are going to slow in the fourth quarter, especially on a stack basis. So do you think that the affluent consumer, which has been maybe less mobile over the last 18 months, is starting to get fatigued being at home, starting to shift spend to other categories and that might continue in the next year? And that’s a sign that you’re already starting to see in the business?

Well, yes, I think everybody just has to look at their own behavior. When you don’t have an ability to travel, but your income hasn’t changed. You’re either saving money or spending it somewhere else, right? And travel and leisure is 3x the size of the home furnishings market. And clearly, that part of the economy was shut down. And that part of the economy has opened up. If you try to get a flight these days or try to book a hotel room at many places you might want to go, it’s a lot different than it was a year ago, and it’s massively different than it was 2 years ago at the beginning part of pandemic.

I think the pandemic caught everybody off guard, right? We all had to spend a certain amount of time at home. We all sat around and saw all the things that maybe weren’t great in our home. We all kind of said, hey, why don’t we make our home better? We’re going to be here for a while. And I think that if it wasn’t your home, there might have been a shorter-term impact. But for many people, and especially upper-end consumers, it’s the most important place you go. It’s where you sleep almost every night. And it’s where you eat most of your meals. It’s where you raise your family. It’s now, for most people, if you’re working and you’re an affluent consumer, you have a home office, you have someone to work in home. You now have a habit of entertaining more at home. So the new habits have to be good for the home.

That’s very helpful. My follow-up question is understanding you don’t want to provide guidance for ‘22 yet. Can you touch on two factors that will impact the model? One is the start-up cost with all the various initiatives that you have coming up in the New Year? And two, you obviously just did a big recapitalization of the balance sheet. Can you give us some indication of how that’s going to impact the model in 2022? Thank you so much.

Yes. Well, look, the recapitalization is pretty black and white, right? There is – we borrowed $2 billion. There is an interest rate on that money. That’s a one-time step-up in costs. And there is not a magic thing on the other side that makes that go away. We think it’s an investment that puts us in a position to create a great return on that $2 billion. Exactly how that plays out and when that plays out, we will see. But we wouldn’t have raised some money if we didn’t have plans for it. But we’re patient. We want to be opportunistic. We don’t know what’s going to happen in the future. So you’ll – but there is a one-time cost to that as it relates to other initiatives and things we’re doing, and Jack will add more color. Yes, we’re going to spend more money. We’re going to invest more money, and we’re going to open up countries. We’re opening up new DCs. We’re doing things like that, and there is an investment cost to that.

Another way to ask us for ‘22 outlook with that factor way. Look, I think based on – you can look at our source books online or you can – if you follow them, we’ve made no secret of having taken some price increases this year to address the supply chain. Will there be some revenues in the first part of the year? Sure. Again, we’re not speaking in specifics, but I think that’s a good way to look at it.

Yes, I’m not even sure price changes are over yet. So yes, there is still price inflation happening. And so we’re going to continue to do what’s fair and right and – but we don’t want to do anything that kind of undercuts the margin structure that we have.

Sure. Okay, thanks very much. Appreciate the time and good luck on the rest of the year.

Thank you, Curtis.

That’s very helpful. Thank you so much and happy holidays.

Operator, are we still there?

I will check in with it.

Did we lose the operator?

I am here. Our next question comes from the line of Steven Zaccone with Citi. Your line is open.

Good evening, everyone. Most of my questions have been answered, but I wanted to just circle back on supply chain. It would be helpful if you could just quantify maybe how much the supply chain challenges weigh on revenues in the third quarter, maybe how much is that impacting you in the fourth quarter. And then as we look to next year, like if supply chain continues to be this pain point for the business, talk about your ability to maybe diversify into some other areas, some other vendors, just what are the other options you can pull?

I think if you go to diversify, you got to go to another planet, think for Elon Musk. But there is – you have a pandemic, you don’t know where it’s going to hit. You don’t know what country it’s going to hit. You can move from Vietnam and that could be the worst thing you do, right, because Vietnam now it’s going to get on the other side of the pandemic, and you’re going to put yourself in some country that maybe is hit by the pandemic. So again, you can’t play short-term here. And we’re relatively diversified. Can you take a company like Nike, I think what was it 40%, 50% of the business in Vietnam? Our business is 20-something. Yes, 20-something percent in Vietnam. Vietnam has great craftsmanship. They have high quality. They have a committed labor force and a great culture, and we get some of our best products in the world out of Vietnam. We’re not going to leave Vietnam because there was a temporal issue like a pandemic. That would be a really bad business decision. The pandemic didn’t permanently damage Vietnam. It temporarily hurt Vietnam. It’d be like saying, our bedroom furniture business was down because of the pandemic. Let’s get out of bedroom furniture. Like it’s not how we think about the business nor how we should think about the business. So as it relates to the supply chain, the supply chain is going to be what it’s going to be, every kind of business in the world is impacted by the supply chain. So, you kind of ride it out, you learn from it. You react intelligently. You don’t panic and do dumb things. And so yes, we’re fine with this. This is like – there is always – in business, there is always a ship that goes wrong all the time. It’s not what happens, it’s how you react to it that matters long-term. So I wouldn’t make too much out of the supply chain. Like the news is making too much out of it. Everybody is making too much out of it. So did we lose revenue in Q3? Of course, we did. Did we lose revenue Q4? Of course, we did. Imagine what our numbers would have looked like had the supply chain not blew up in Q3. I mean if you think about it, at the beginning of Q3, Vietnam shut down the entire country, 27% of our business. By mid-Q3, it was up to 20% production. By the end of Q3, it was up to 40%. By mid-Q4, it’s up to 80%. Up to 80% doesn’t mean you’re really at 80%. It means production is at 80%. Everything that was at zero and then the 80% when you were at 20%, the 80% that didn’t get made and then the 60% that didn’t get made when you’re 40%, that’s all in the backlog. So it takes months, quarters, a year to catch up, but that’s – it is what it is. It’s okay, life goes on, business goes on. It’s not strategic. It’s temporal. So I just wouldn’t make too much about it unless your clients are short-term hedge fund traders that just want to play us week-to-week or month-to-month or quarter-to-quarter. Tell them don’t buy our stock.

Yes. Appreciate the color. Your details, though, do help to contextualize the situation. So I appreciate that. And then just to circle back on the capital raise, a follow-up on the previous question. How do we think about some of the priorities for cash now? Like as you go international, do you think having a little excess cash on the balance sheet is more prudent for the business? Just how do we think about those priorities now as you kind of go global?

I think everything we said in the press release, nothing has changed since we did the press release on the – as it relates to the $2 billion term loan. So nothing to say. We don’t need the money to go international. We don’t need the money to go global. We have a 70% plus ROIC. We turn investments into cash pretty quickly. We’re going to throw off a lot of positive cash flow this year. And if things remain in some kind of current normal directionally, we will throw up even more cash next year. And so we – you read the press release, we will tell you exactly how we’re thinking about the $2 billion.

Fair enough. Thank you. Happy holidays.

Thank you. Happy holidays, Steven.

Thank you. Our next question comes from the line of Max Rakhlenko with Cowen and Company. Your line is open.

Great. Thanks a lot. Congrats on a really nice quarter. So first, can you maybe help us sequence some of the major projects the team is working on next year, for instance, Contemporary, World of RH and some of the other concepts that you discussed in the letter, just so we can have a better cadence about growth throughout next year?

Yes. Right. Contemporary will be kind of late spring time will be the launch of Contemporary. Interiors, Modern, Eri, late spring, early summer? Yes.

Yes.

Late spring, early summer, kind of sequence. Think about – I’d say those three books and collections will all kind of happen in the first half. It will be kind of staged a bit. Contemporary will come first, and then Interiors and Modern. And then the launch of the global expansion will happen kind of late spring, early summer with England. The Guesthouse will kind of open late spring. The unveiling of The World of RH, late spring, early summer. About the time other things are happening, right, that will be coordinated with Contemporary.

Guesthouse.

Yes, Guesthouse and RH1 and RH2 and RH3 and all this stuff goes on The World of RH.

The platform.

So the platform – digital platform has to be kind of ready to go. So, when all that happened is The World of RH will happen. And then RH1 and RH2 and RH3 will be available for charter in beginning kind of the late spring time. I mean RH3 will be available some much sooner. It’s about – we are stopping to see it in Miami on the way back, and we think it’s probably just about done, right, team.

Yes.

And so I am going to take the first cruise, so I am going to christen the boat. I am not really a boat guy, I get seasick. But I thought it’s better for me and I am paying full price, everybody knows, for the charter. And so I would rather have maybe the guinea pig in case – like the boat hasn’t been out on the water for a couple of years with COVID. So, we use the time to kind of re-imagine the boat and take it to another level and tie it into the aesthetics of RH1 and RH2. And so now they all look like a family and RH3 aesthetically is aligned with that, and we have made some major enhancements. So, if you have seen the video of RH3, that was up, it looks like a whole new RH3, it’s super cool now. It was a super cool boat when we bought it, but it’s really, really cool. But we want to make sure the service is right, the food is right and all that. So, I will be the guinea pig on that over the holidays, but that will be presented on the website. And then RH in-your-home is happening. And we have such a great meeting, we kind of green-light it. As fast as the team can go, we will go on RH in-your-home. So, it’s all happening sooner than later this year.

Got it. That’s helpful. And then maybe one that’s a bigger picture, but how do you think about price elasticity for your shopper, unrelated to supply chain and the inflation-driven price increases? How do you view your ability to take pricing longer term and also continue to launch more and more higher-end products as you guys climb the luxury mountain?

Yes, that’s exactly what it’s relying on, right. It’s relying on the taste and style uniqueness and differentiation, the desirability that’s driven by that. It’s driven by our ability to present it in a really beautiful and way that drives desire and the quality, right. So, the design, the product and uniqueness of the product, the presentation of the product, the quality of the product should all – we should be on the same path we have been on the last several years. We don’t think we are at a point where you say, “You have the quality everywhere is at its very best.” We think we can continue to evolve the quality and take it higher. We will continue to trim from the bottom, so we don’t over the long-term, look like some good, better, best assortment. We want the assortment to represent the very best in the world. We think we are on that path. And we think as we continue the climb of the luxury mountain and we continue to elevate everything, right, the perception of the brand. When people – when you open or digest and you see a multipage story about this titled RH lifts off and you read about RH1 and our digest, which, by the way, the last jet they printed in the magazine was 25 years ago – 20. Yes, it was the Getty’s jet, the Jetty, which is 707 or 727 that was redone. So, when I say the brand has what our digest kind of markets as one of the best new beautiful private jets that says something about your taste and style and thought leadership and creativity. And I think when people see RH3, it’s going to do that. And I think the game changer and the dots don’t connect, it’s like most of the world has to see it to believe it. We say internally, we have to believe it to see it because it’s our vision. But it’s hard to – it’s hard for anybody who hasn’t seen what the Guesthouse is going to look like to really get it. And when the world sees the Guesthouse and understands what we have done there from a hospitality perspective and not just the rooms, the rooms extraordinary. The world has never seen rooms like this. There is things that have never been done in hospitality and not different to be different, different to be better. There’s just some incredible ways of elevating hospitality in ways that no one’s ever done. When the world kind of sees these things and those two will elevate the brand. They will change the perception of RH. It will make RH more desirable even though a Guesthouse won’t have any of our furniture. The idea of the Guesthouse, the execution of the Guesthouse will elevate the brand and position RH in consumers’ minds, we believe, as a thought leader, as a place maker and a tastemaker. And that will make our brand more desirable. No different, by the way, than our new galleries make our brand more desirable and render our product more valuable.

Sounds very exciting. Thanks so much for the color.

Thank you.

Thank you. I am showing no further questions in the queue. I would now like to turn the call back over to Mr. Gary Friedman, Chairman and CEO, for closing remarks.

Great. Well, thank you, everyone, for your interest and for your questions. I also like to just really wish everyone a happy holiday. Hopefully, everyone is going to get to spend time doing what they love with people that they love and hopefully without masks or Omicron, if I have even said it right. But we wish everyone a happy holiday, and I just want to thank our team, not just across the United States, but around the world, that supports our business for all your really efforts to help position RH as the brand it is today. And we look forward to a great fourth quarter and an exciting 2022. So, thank you.

Ladies and gentlemen, that concludes today’s conference call. Thank you for your participation. You may now disconnect.