Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the RH Fourth Quarter 2023 Q&A Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. I would now like to turn the conference over to Allison Malkin of ICR. Please go ahead.

Thank you. Good afternoon, everyone. Thank you for joining us for our fourth quarter fiscal year 2023 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 opinion 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 the 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'll turn the call over to Gary.

Thank you, Allison, and good afternoon, everyone. I'm going to start with our prepared comments, which are included in our press release and shareholder letter. To our people, partners, and shareholders, fiscal 2023 was a year of diversity, innovation, and investment for Team RH as we faced the most challenging housing market in three decades while investing in the most compelling product transformation and platform expansion in our history. We have positioned the RH brand to gain significant market share in 2024 and beyond while building the foundation for a global expansion across the United Kingdom, Europe, Australia, and the Middle East over the next several years. While aggressively investing in the downturn has put pressure on short-term results, it also positioned us to capitalize on the long-term opportunities that present themselves during times of disruption and dislocation. We've demonstrated our confidence in our strategy by repurchasing 7.6 million shares of our stock during fiscal 2022 and 2023, representing approximately 35% of the shares outstanding, and believe that investment will create meaningful long-term value for our shareholders. Turning to our fourth quarter and full year results, revenue was negatively impacted by $40 million in the fourth quarter due to the severe January weather and shipping delays related to the ongoing conflict in the Red Sea. We do expect the majority of the deferred revenue will be realized in 2024 when transit times normalize. Adjusted operating margin was 9.1% and 13%, and adjusted EBITDA margin was 15.3% and 18.2% for the fourth quarter and the full year, respectively, reflecting deleverage from lower revenues, increased markdowns to support our product transformation, and investments in international expansion. Every act of creation is first an act of destruction, Pablo Picasso. We have spent the past 18 months destroying the former version of ourselves and are in the process of unleashing what we believe is an exponentially more inspiring and disruptive RH brand, inclusive of the most prolific product transformation and platform expansion in the history of our industry. Our product transformation plans for 2024 include the launch of our new RH Outdoor Sourcebook, the most dominant and disruptive collection of luxury outdoor furniture in the market, which arrived in homes late February through mid-March with 14 new collections. The initial response has been exceptional and we expect to gain significant market share in this important category in fiscal 2024. The unveiling of our new RH Modern Sourcebook is scheduled to be in home late April through early May with 30 new collections across living, dining, bedroom, and bathroom, including original designs from the Harvey Probber Estate, one of the most influential modern designers of the past century. We expect the launch of RH Modern will further accelerate our demand trends in the second quarter and throughout the second half of 2024. The second mailing of our new RH Interiors Sourcebook is planned to be in home late May through early June with new collections and improved in-stocks, which should also provide an additional lift to demand in the second quarter and continue to build through the second half of 2024. We will be mailing an updated RH Contemporary Sourcebook in late July through early August with new collections and a compelling value proposition, which we believe will also accelerate demand trends. A second mailing of the RH Modern Sourcebook and third mailing of the RH Interiors Sourcebook are expected in the second half of 2024 with additional new collections, refreshed galleries, and improved in-stocks. These mailings will result in a doubling of our sourcebook circulation and customer contacts in 2024 versus 2023. Our data would suggest the increased number of contacts alone should provide another lift factor for our business. We are also increasing print and digital advertising across major home design publications in 2024. You will see our ads in Architectural Digest, Elle Decor, Veranda, Galerie, World of Interiors, Luxe Interiors + Design, Business of Home, the Financial Times, plus the Wall Street Journal and T Magazine design issues. As you know, we acquired Waterworks in 2016, arguably the most desired brand in the luxury bath and kitchen category. The Waterworks team has done an outstanding job over the past seven years, further elevating the brand and building a highly profitable business model that can scale. Waterworks, like most other luxury brands in the home space, generates the vast majority of their revenues from the trade market, selling to architects, designers, developers, and builders. While RH is a significant trade business, the vast majority of our revenues are generated by consumers. We believe there is a significant opportunity to amplify the Waterworks business on the RH platform by exposing the brand to a much larger audience, similar to how we've expanded other mostly trade-focused businesses and brands over the years. Our plan is to launch with a 3,500 square foot Waterworks showroom in our newest and largest design gallery in Newport Beach, California, opening in the fourth quarter of 2024. We will also be developing a Waterworks sourcebook with plans for a test mailing in 2025. Waterworks today is just shy of a $200 million business with mid- to high-teens EBITDA that we believe has the potential to become a billion-dollar level brand on our platform. Let me shift your attention to the expansion of our platform. Our plan to expand the RH brand globally, address new markets locally, and transform our North American galleries represents a multi-billion dollar opportunity. Our platform expansion plans for 2024 include the opening of five North American design galleries, including Cleveland, which opened last week, Palo Alto, Raleigh, Newport Beach, and Montecito, all with integrated RH interior design offices, restaurants, and wine bars. The opening of our first RH interior design studio in Palm Desert, California. We believe there's an opportunity to address new markets locally by opening design studios in neighborhoods, towns, and small cities where the wealthy and affluent live, visit, and vacation, as well as augmenting some of our design galleries in larger markets with additional design services in standalone design studios. We will also be opening two international galleries, one in Brussels, which opened last week, and Madrid, opening this summer. Both galleries are located in beautiful historical buildings that elevate our product and render our brand more valuable. Unfortunately, RH Paris has been delayed until Spring of '25 due to construction restrictions relating to preparations for the Olympic Games this summer. We are also pleased to announce RH Sydney, the Gallery in Double Bay, a five-story development with a rooftop restaurant and wine bar, received council approval last month with plans to open in fall of 2026 in what we believe is the most vibrant and desirable location in Australia. Now let me turn you to our outlook. While we expect business conditions to remain challenging until interest rates ease and the housing markets begin to rebound, we expect our demand trends to accelerate throughout 2024 due to the extensive transformation of our assortment. We do expect revenue to lag demand during the year by approximately four to eight points until we read and react to new collections, reduce back orders, and shorten special order lead times. Therefore, we will be guiding and reporting both demand and revenue growth each quarter during fiscal 2024 so shareholders and investors can accurately analyze the business. We believe it's also important to note that we are forecasting to end the year with an increased backlog of approximately $110 million to $130 million due to revenue lagging demand throughout 2024, which will negatively impact operating margin and adjusted EBITDA margin by approximately 140 basis points for the year. Additionally, investments and startup costs to support our international expansion are estimated to be approximately a 200 basis point drag for 2024. For fiscal 2024, we are forecasting demand growth of 12% to 14% and revenue growth of 8% to 10% on a 52 versus 52-week basis. We are forecasting adjusted operating margin in the range of 13% to 14% and adjusted EBITDA margin in the range of 18% to 19%. For the first quarter of fiscal 2024, we are forecasting demand growth of positive mid to single digit and revenues of negative low single digits. We are forecasting adjusted operating margin in the range of 6% to 7% and adjusted EBITDA margin in the range of 12% to 13%. Now let me turn you to 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 the arbiter of taste for the home has proven to be both disruptive and lucrative as we continue our quest to build the most admired brand 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 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 and selling spaces by building an ecosystem of products, places, services and spaces that establishes the RH brand as a global thought leader, tastemaker, 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 Yonceville, an integration of food, wine, art and design in the Napa Valley. RH1 and RH2 are private jets and RH3, our luxury yacht, is available for charter in the Caribbean and Mediterranean where the wealthy and affluent visit and vacation. These immersive experiences expose new and existing 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 and sell 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 on time value to discerning time-starved consumers. The entirety of our strategy comes to life digitally with The World of RH, an online portal where 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. 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. 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. Never underestimate the power of a few good people who don't know what can't be done. For the past 23 years, we've heard others tell us what can't be done and for the past 23 years, we failed to listen. We avoided bankruptcy by being accused of lunacy. While others have been shrinking and closing stores, we've been building the largest and most inspiring spaces in the world. When Wall Street didn't think our stock was worth buying, we bought 60% of it ourselves. When everyone told us we should be working from home, we were in the center of innovation working on rebuilding our new home and it's almost ready for prime time. From the largest product transformation in our history to the most inspiring retail experiences in the world, from couches to caviar, beds to bellinis, architecture to airplanes, homes to hotels, Guesthouses, from Pittsburgh to Paris, Los Angeles to London, Boston to Brussels, Miami to Munich, and San Francisco to Sydney, soon the world will be within our reach. Never underestimate the power of a few good people who don't know what can't be done, especially these people. Onward Team RH. Carpe diem. And now we'll open the call to questions.

Thank you. The floor is now open for your questions. We'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Simeon Guttman with Morgan Stanley. Your line is open.

I think the most important element of the outlook is the sales guide, because it hasn't been growing, and now we're flipping to growth. So I wanted to see if we can approach it from two sides, and I'd love to hear your perspective. First, on one side, if you end up meeting or beating this outlook that you've given us, if we look back, I mean, it clearly could be the products resonating more than you thought, or should we look at it as, you gave us more of a conservative trajectory than what even the business is implying today. And on the other side of that, if you end up falling short of it, was it either product didn't resonate, or maybe there was more pent-up demand, and you're over-reading that curve. Curious how you think about both sides of it.

I think you just covered the answer in many ways. I would say, look, we have visibility trends in our business that can help us connect the dots. I mean, if you read the letter a few times, and you look at the pieces that add up to directionally where we're going, we feel very confident in the plan we've laid out, the guidance we've laid out. And this is what we've been working on for the past 18 to almost 24 months. So it's been a lot of thought, a great attention to detail. We've been flying at the highest levels, and we've been into the lowest levels of detail inside the company and the organization to rebuild the brand from the bottom up. And I think this is the best work we've done. I think this is the best team we've ever had. And I think what we're about to do is going to create another leapfrog for our age, just as we've done every seven or eight years, if you looked at our history when we've done transformations like this. So we're highly confident. We think we have enough data and information to read. If you were in our Center of Innovation right now, you'd be looking at all the whiteboards that I'm looking at. And every category of our business laid out every month with demand this year, last year, two years ago, percentages, trends, book drops, collection units. I mean, this is built up at a very detailed level. No one has a crystal ball. I always tell the team as we buy inventory or do anything, every plan we have is some degree wrong. The question is, is it more right than wrong? And is it directionally right? And have you identified the risks in the plan and the things that maybe you haven't seen as you've been building something up from an optimistic vision perspective? And we believe we've done that. We've been here with all of the key leaders, all the key team members at every level, building this, again, for a long time, talking about how many trips to Asia, how many trips to Europe, how many... We don't have meetings in our company, we have adventures. Because we say meetings is about arranging and organizing the status quo, and adventures is about leading people somewhere they've never been, doing things they've never done, and in search of better ways and brighter days. So, we've been through countless adventures. I think we've looked at all the data that's available and created new data. So, I personally feel great. I think the team feels great. I think if you came here and you spoke to the people really doing the work, I think they'd all feel great. Our competition might not feel great over the next couple of years, but that's not really our problem.

As a follow-up, if I can ask about Europe, if you can share how much of Europe's sales is in this guide, and I guess you'll ever get comfortable sharing the Europe forecast. I don't know, every gallery may be different, and there's a wide range. And then, I guess the 200 basis points, that's, I think, the first time maybe we've gotten explicit quantification. Does that taper quickly or slowly, and is that like the peak, or call it international investment? And now that revenues build, even as you add more galleries, we don't step back from that level further. Thanks.

It's a long question, so let me maybe take the same amount of time and process it. Look, Europe, I'd say there's a few points. If you kind of motor up and think about what we're in the very early process of doing, first stand back and say, what have we done so far? Last year, in mid-June or so, we opened an extraordinary, never seen before, multidimensional experience in the English countryside, that we opened through a lens of conversation, not commerce. And the why that we've articulated between that was we, fortunately and unfortunately, we did a package real estate deal that enabled us to get two irreplaceable locations in London and Paris, but also required us to take other locations we had to open sooner. As a result, these smaller markets are not benefiting as we first opened. We didn't think they would. Also, the key markets would provide and will provide. So, Aynho Park was born out of that kind of conundrum of, hmm, not really opening in the places we'd want to open first. And there was a big expense if we didn't do that, and other lease requirements and other hurdles that would have been a little messy. So, that's what drove us. Because we weren't going to be able to open London and Paris first, that drove us to say, what can we do? What would we do? What kind of investment would we make that would introduce RH to Europe and the broader United Kingdom in an inspiring and unforgettable fashion? Why is that important? I think it's important because just about every luxury brand in the world is from Europe and the UK, except for a couple. You can argue that we have Ralph Lauren and Tiffany. Ralph isn't pure luxury, right? So, there's a bigger, broader distribution strategy there that's a big part of that business. So, if you said pure luxury, what are the pure luxury brands in the U.S. that are really top of mind internationally and have been for a long time, I'd say it's Tiffany. And the French just bought it a couple of years ago. So, I started first and foremost, I wouldn't say Americans are described internationally as tastemakers, as architectural thought leaders and so on and so forth. You look at the beautiful historical architecture across Europe and the U.K., and then you look at the U.S. and you go, okay, if you start in the East Coast, you've got some, and you start moving West and it kind of falls off a cliff pretty quickly. And so, how does an American brand that hasn't really been doing what it's been doing for very long and looks like we did 15 to 20 years ago, a kind of kitsch little shop with back scratchers, selling back scratchers and moon pies, things that, how do you want to introduce yourself if you want to earn the respect of the tastemakers, of the place makers, of the people that kind of not only set the standard, but set the direction for consumers broadly around the world? And that's how we came up with the idea for RH England and opened Aynho Park, a historic 17th century estate, 73 acres. That's why we invested in probably among the best architecture and design libraries that's not an institutional location, but a private collection in the world. That's why we have three restaurants, the third one opening this spring. We wanted to introduce ourselves in a way that no brand has introduced itself to Europe and the United Kingdom. Did we think we were going to do a lot of volume out there? No, not initially. Did we think we're going to open the market to the internet? Yes. And we'd learn from that. And we'd learn likely from how the trade profited from it. That came to us and connected with us and interacted. And we also knew that we're opening somewhere where in the winter months, in the late fall and early spring months, it gets dark as early as 3:30 out there. And it's really cold. And not a lot of people are going out there. I mean, they might have been going out there more during COVID because there's nowhere to go. The last thing you want to be is in a big city. So we did something very unusual. And that's why if you go to that gallery or if you've been there, the first thing you see when you walk into the entry is a unicorn. And it talks about how unusual and inspiring we believe the place is. And I think we've introduced ourselves in a way that's captured people's attention and imagination. And I think the conversation is the right conversation. And I think that conversation will build as we're open for full spring, summer, and we have all three restaurants open. And we'll really learn a lot more. But that's why we did that. And the next galleries we've opened have been open weeks. We opened in mid-November or something in the 20 weeks for the German galleries. So, yes, in places we've never been, and not necessarily what I'd say. Paris and London are two of the most famous cities in the world. They're two cities anchored in fashion and style and so on and so forth. There's more in Milan too because we are making, I think, something extraordinary in Milan, but those are all going to take longer. And so we're not opening in the order that we wanted to open in. But it was always our intention to open in Paris and London first in iconic locations from a brand awareness point of view. But what we've learned so far, as I tell you, there's a higher mix of trade than we anticipated or seen anywhere. And trade is exterior interior designers and more of a B2B business, hospitality, contract kind of design. So, it's a much higher mix of trade right out of the gate. And would that surprise us? Not really, because the consumer doesn't really know us yet. But if you're someone who's aware of the home, if you're aware of design, if you're an interior designer, if you're doing commercial projects or residential projects, you know RH. And you may have likely shopped from us in the U.S. or you've been to our key galleries. And so what I like about that is it's really the right people and the most influential people who are out-indexing today. We didn't anticipate that. We didn't think about that. But when I do think about that, I think I'm very, very happy about that. I think it wouldn't be good if it indexed the other way because you want to get the right people, especially if you think about where we're trying to take this brand. So the right people, the people most interested in architecture, interior design, and taste and style are coming to us at a higher mix. And that deals with building our book of business, which is an important part of this business, building the pipeline of design projects, both in our trade business and in our own internal interior design business. And so when we look at the book of business for RH England and we look at the trends now that we've been open, that business from a retail point of view, like a gallery point of view, is going to be right about where I think we thought it'd be directionally for opening in such an unusual location and thinking about what might happen. What surprised us the most, I'd say, is the direct web business is slower than expected. We thought that the web was going to be a much larger mix of the total since we were opening an entire country. And so when we stand back and reflect on that and say, okay, what didn't we think about? What did we miss in that analysis? I think it's just the overall time it might take to build the brand and ramp the brand to a consumer. And also the first gallery in the U.K., kind of not deemed by anybody. I mean, what's the population of Aynho Park? 300 people, right? Like we opened in a town of 300 people. And there's nothing really that close to 30 minutes to Oxford. So we had some major things. But it is a place that people aspire to go to spend time with, especially in the late spring, summer, early fall period. And also, we have plans once we get our feet on the ground to think about long-term doing events and other things on that property to bring the right people. And we also have some partnerships happening that actually have sourced us to do different events dealing with whether it's beautiful high-end car brands, or the racing and things that happen and a lot of the prestigious things that happen out in the English countryside. And then I think the other thing I'd say, I'm just giving you a kind of context of how we think of Europe right now, is we didn't open with the full assortment. And I think when we go back and we're analyzing that, that part of the assortment that we didn't open with is probably really important to consumers and the web business. So building awareness that opens up the internet and the web business to get that to move more quickly is going to be important. But I think a lot of it is going to take opening the key iconic galleries in London and Paris and Milan and so on and so forth. These big ones with restaurants and champagne and caviar bars and wine bars and barista bars and architectural design libraries and all the really incredible experiential things that people are going to discover the brand and say, what is this? But right now, the only one with those experiences is in a very unpopulated part of England and it's going to take longer to be discovered. But when people discover it, it is the right people and it is the right conversation. So we're super happy about that. But I say we're still so early, right? You got to let the book of business build. We've got to kind of get our feet on the ground. And I'm massively optimistic long term and I'm massively optimistic because I think there's no one like us in the market. I think we've got to open these big galleries. That's what's going to build the brand. We've got to open in the big key cities that define fashion and taste and be in that conversation. But I like that the trade business is over-indexing because those are the right people. They're the influential ones. But it's going to take a while. We're just out of the gate and we're not out of the gate in the order that we would have liked to. But nonetheless, we're out of the gates and we're learning. That's the important thing. And all of these things are going to benefit from the product transformation that we're going through and all the things we're doing that we have in the pipeline. I only listed out what we're doing in '24, what we're doing beyond that and what we have coming for '25. And there's some things I can't even put in the big long view because I don't want to be too specific and give any information to the broader industry. Like next year, I think we're going to launch something that's really big. And it's going back and forth. I don't want to put it in this letter or not. But we've got enough in this letter. When I look back and look at this letter, I go like, okay, it's kind of ridiculous. This is very exciting. We don't need to tell everybody what's in the pipeline. But we're feeling really, really great about where the brand is, where it's going. I think Europe is going to take a while, building great brands. You've got to be very, very strategic. You've got to be very smart. You've got to be patient. You don't go rushing and build one of the great brands in the world rushing to the finish line. We say fastest as slow as we go, but we also say we have to do less and think more so we can do more. So it's spent a lot of time thinking, deepen the data, really analyze things right, do the next thing, do the next thing, do the next thing. But I really like where we are. I like where we're going. I like everything that's unfolding. And I especially like how we're positioned for the other side of this kind of difficult housing market, right? The worst home sales in 30 years, that's a long time. And how we're positioned for that rebound, I think is better than anyone on multiple levels too. Like when I look at the whole assortment, whether I'm looking kind of at the level we're at, if I try to look at people above us and I look at people below us, I just think we're going to be holistically disruptive across a pretty big size of the market we're trying to hit. I think we've opened up the aperture a bit without compromising the most important tenants of what we're trying to build. So long rambling answer, hopefully gave you a few data points that were important.

Our next question comes from the line of Steven Forbes with Guggenheim Securities. Your line is open.

Gary, given the spread between the first quarter demand guidance and the full year, I was just curious if you maybe help us better think about how the business is rescaling or ramping on the back of the recent store resets. And then how should we think about the cadence of resets on a go forward basis married together with the cadence of source mailings that you talked about in the letter?

The spread between Q1 and full year, I mean, it's just the building, again, everything, if you just read the letter carefully and I mean, those are all meaningful things we're doing, right? Those are all meaningful books that we're unveiling that were completely remerchandised. And you have a lot of revenue, and if you just look at the contact that we're making year over year, I don't know what if every company doubled their customer contacts and circulation, I don't know what might happen. It's going to be meaningful. We don't introduce new products and get zero. We don't introduce, we don't mail sourcebooks and get zero. And, we just, I think, post-COVID, because we took a little over a year off because we're trying to catch up on backlogs. We lost our muscle in an atrophy and we tried to get restart, what I call the engine or the machine. And the machines fluttered a bit and it took us a while to get back into our groove and with new products and sourcebooks and just all the things you've got to do. And it's probably one of the bigger mistakes I've made in my career. But now we've rebuilt the machine. We have better muscles than we had from before, we're way more intelligent. We went to a much deeper level and the quality of the work is just the best work we've ever done. And we've got enough internal data, right? When you see your business and how you're rebuilding it from, down mid teams to where we are and you look at the mix of business and the categories and you come out of the gate, you look at what Outdoor's doing. I mean Outdoors, just, it's exceptional right now. And it's, I think that the design and quality and value equation is so unmatched in the industry, that we're going to take tremendous market share. And it's just setting up what we're going to do with Outdoor in '25, '26, '27, because when you think, when you see what we're going to do from a physical perspective with that business and how we're going to exploit it, I think we're going to own it. And like there's real numbers here in Outdoor. Outdoor is a meaningful part of our business and the work and learnings that we did in Outdoor, that's also applied to every category. You can just trace it all and see how it's going to come together. And we have enough data and numbers from the RH Interiors and the new collections and RH Contemporary and the new collections and the adjustments we've made and the adjustments we've made to the value equation perspective. And I think when you went back to, you know, just having more edge, like, the edge that it took to build this brand and business. I think is returned. And like I think I said a few calls before, I got to be careful what things I say, I think I said we were arrogant about pricing because through the period of tariffs and supply chain disruptions, you know, COVID and raw material prices escalating, that forced price increases and drove inflation. I don't think we had our value edge and hats on as we kept climbing the luxury mountain. And I think, being a great luxury brand doesn't mean that price doesn't matter, it's like everything has to have a value equation. Everything has to go through a lens of design quality value in that order. If somebody doesn't love the design, they don't even look at the quality nor the price. But if you have, you win design, then you're through door number one. And then you've got to win on quality, because then the customer will get closer to it. They'll read about it, touch it, and interact with it. And they'll make their own perceptions about quality. And you can influence that with what you say and how you communicate. But at the end of the day, the consumer is going to make the decision about how great is that design? How great is that quality? And for that design and that quality? What is the value? Like, how do we think about the price that you're asking for that? And is that a lousy value? Is that a decent value? Is that a good value? Or is that a great value? And I think we're highly focused on having a great value, a disruptive value, with clear comparisons of anything that might resemble or be like things we sell in the market. And so we're laser focused, we're into, the greatest amount of detail. And, you know, I think that the design quality value and, you know, that if you took that lens against outdoor, which you guys have visibility to, if you really take the time to go through that book, and go through the collections, and look at the quality of the extraordinary design, and the extraordinary presentation of that design. And then you do some work on the quality, whether it's the materials it's made of how it's made, where it's from all that, all the different things, and then put it through a value lens, like, try to find, any product similar, find the most similar product from other places, put them up all in a wall, and compare them to ours. And you might understand why I'm saying Outdoor is exceptional out of the gate, because it wins door number one, we win door number two, we win door number three, we really win. And because of the size of our platform and our scale, and because at the most senior levels of this company, we're in the factories, we're with our partners, we're helping to conceptualize and put the same creativity to how we source and how we buy and how we negotiate the price. And it's not really a negotiation where one person wins, one person loses, it's how do you get all the brains in the game, and think about it, and figure out how everybody wins. And that's how we're able to, I think, have extraordinary value. It's like, you can't delegate greatness. And so all of us here at the most senior levels are leading the work, we're learning together, we're listening together, and we're leading based on that. And I think the work that's coming is, I think, the best work in the history of my career, and I've been in this industry a long time. And I think it's the best work in the industry. And I think it's going to be disruptive, and it's going to create strategic separation. And I think we're going to gain a lot of market share. So guys, I don't know how to give you a more specific thing. But it's like, that's what we're doing. And so, if you want to build the ramp, like, look, you can take where Q1 is going to be, and you know what that demand looks like. And you can take like where we think we're going to end the year and build your own little graph. I give you guys all one, but everything gets too myopically focused on that, like, it's just got to be directionally right. Like, if we have it a little wrong, like, well, how, why wasn't that exactly right? Well, it's not going to be exactly right when you're building something and transforming something, you've just got to be directionally right. And we believe we're directionally right, we believe, we're going to deliver these numbers or more. And we're very confident about that.

And Steve, you asked about store resets as a piece of that, that's, as Gary's talked about, that's one piece of the puzzle, right? You have a new product from the evolution of the product, you have better availability of that product, you have sourcebook contacts, again, all things Gary has said. And store resets are another one of these factors that drives the business.

And we have been doing the store resets; they're continuing. And we have one particular collection that we talked about in the last call that's still coming in; it'll be in all galleries in the second quarter. And throughout the year, the floors will continue to evolve, the galleries will continue to evolve all year. Right. And so there's a lot of news coming in, there will be several cycles and adjustments that we'll make. So, there's just, we're going to have a lot of choices and a lot of optionality. That's what else I like, when I look at the bigger picture and I stand back and I go, whether it's sourcebooks or advertising or contacts or store resets or in-stocks or placing bets here, reacting to this, dimensionalizing different parts of the business. I mean, we just have a lot of things in play and a lot of opportunities and you can mathematically take all the pieces and build it up. And we're not new at this, we've done this for a long time. And I'd say, I think I'd put it in context of how are you thinking about the guidance in the context of the market? We're guiding with looking at it through a lens of market neutral. The housing market doesn't get meaningfully worse or meaningfully better. Right. So we're saying neutral market. Yes, there will be interest rate cuts. We're probably going to be quarter point cuts. They're going to come later in the second half of the year. A quarter point cut isn't going to massively move mortgage rates. If you look at the delta between where people are locked in on mortgages and where they'd have to step up to, you really need two things happening. You need home prices to come down and you need interest rates to come down. And that gap, I think is going to take longer than three quarter point interest rate cuts, but hopefully those happen. And you put some more interest rate cuts on the other side, in '25 and people can't hang on as long from a pricing point of view. And some of that giant inflation that filled the housing market, which really one of the biggest impacts of markets think about how home prices in America went up 42% in two years, the two years COVID, and then they've been stubbornly high because there's been no inventory. There's been no inventory because people had record low interest rates and they'd have to trade up to a higher interest rate. Like, so, the data is like, it's all super logical. Why were the freeze and where we are. The key is, what really has to happen for the thaw and for everything to get moving again and it's interest rates and housing prices. And it's a combination. We believe it's a combination of both unless interest rates go down really quickly, mortgage rates get readjusted and you get a big move down there. Then maybe housing prices hold up. My sense is that you've got a lot of people just holding on as long as they can. A lot of people have to move. They got a new job somewhere. There's going to be, and some people have what they've grown their families, had more children, they've gotten married, they need to buy a house. And so there's pent up demand. And I think that's a good thing when you look at it. And, but I still think you got to have movement. We got to have real movement in the interest rate market and we have to have some movement in the pricing market. And when those things start to converge, I think we're going to see a snapback and I think no one's going to be better positioned for that snapback than us. Like we're going to be in the absolute best position. So that's, we're super excited about it. Right now, we're looking at market neutral, not going to get meaningfully worse, not going to get meaningfully better. If it gets a little better, do we feel better about the guidance? Of course we do. Of course we do. We're going to feel a lot better. So, but I just think at all ways we look at it, it's all some form of good. Be great. And let time unfold and we'll keep doing what we're doing and playing our game.

Next question comes from the line of Curtis Nagle with Bank of America. Your line is open.

So Gary, maybe I'll just start with, it was kind of a small piece of business right now, but it sounds like it's going to be a bit bigger over time. I think it's the first time you've called out a long-term outlook at a billion dollars. So implying you would effectively quintuple. I guess just at this point, you've had it, I think since 2016, what gives you, I guess the confidence to put out a pretty bold, pretty impressive target, and I guess kind of why now? What's driving the excitement? Maybe asking more simply.

Sure. Good question. Yes, we said back when, I don't know if we said this publicly, but internally we said Waterworks was one of two businesses I had on a strategic framework map when I came here 24 years ago. When I walked in the door, I said, okay, here's the long-term vision. Here's where we're going. And I had two acquisitions, Waterworks and Dean & Deluca. I thought Waterworks was the best brand in the high-end bath and kitchen, mostly baths back then, now kitchen too. And I thought Dean & Deluca had a really interesting brand with more of a food focus, some hard business, but it wasn't merchandised well to make money. And I knew enough about the Williams-Sonoma model that I thought like we could create a really cool next generation kind of Williams-Sonoma with a different kind of sensibility aesthetically and taste and style and maybe integrate a little bit of fresh food focus. Although that's the reason why Dean & Deluca never could sail and make money at, too focused on fresh food and they didn't have the hard goods part. And I knew that Dean & Deluca didn't make it and got passed around a couple of times. We looked at buying it multiple times. We almost got it. And Waterworks came along. It was the right brand at the wrong time, but it might not come available again. So if you think about when we bought it, we were in the middle of supply chain transformation, all kinds of things. We had just launched Modern and we said, look, we may not have another chance to partner with a brand like this. We thought it was a great strategic fit. So we did that, but the business was relatively small; I think we bought it with just north of $100 million. And you had to think about when you had to learn that part of the business, we had to get strategically aligned with the team without using a lot of time, because it was the wrong time. So we spent very little time in the first few years. We had to learn that part of the business, how to build the business model and the assortment logic for the business model and a lot of things. Over the years we spent a little bit of time and got aligned and the team has done an outstanding job at almost doubling the business and more than doubling the EBITDA. And now it's a business that's positioned to grow. And I think we have a platform that it's the perfect platform to scale the business on, with direct customer components. We have a consumer part of the business that, even though they have 14 showrooms, they're not in places that consumers really shop. We have experience taking mostly trade-focused businesses and brands, over our years, and putting those brands on our platform, putting their assortments on our platform and doing multiple times the business, just because it's now the best products in front of the consumer. But let's be clear: consumers don't really go into Waterworks showrooms in large numbers. They stumble in, but they are in design districts or trade-oriented areas. They are not really set up for consumer, even though they have a showroom. There's also some third-party distribution where they don't have total control of the brand. But I think when you look at the platform we're building and the stage we're building for the best products in the most important categories, this is a perfect fit. I mean, it couldn't be more aligned and it's also a really hard business. They have deep technical expertise in faucets and fittings and plumbing fixtures. The leadership team is excellent. Peter Selleck, he's the CEO, and the team has decades of experience. So the leadership there is really smart and has a great view and grasp of the high-end market that we're benefiting from and learning from. We think we're pretty smart and we have a great view of the consumer market, but what we're trying to do is merge both of those markets. And we think that's where we think long-term the opportunity is. RH has been trying to do that for our entire journey. Waterworks is a great synergy. Sometimes when you combine two things, you get less than the sum, but here one plus one is more than two. I think we've found that with Waterworks and with other acquisitions and partnerships. Waterworks is a great fit, and I think it's going to be unbelievable. I'm really excited. I think they're excited. And I think it's going to be big.

Got it. Thanks. And then just a really quick one, Gary, just in terms of the mid-outlook, I think on the last call you said something to effect you had expected a peak or an inflection in peak demand in 2Q or spring. Any changes there? Obviously, the outlook has been strong for the year.

Yes, I think they're going to keep peaking because we've done more work since then, like there's more things, we can see more things. So, yes, I think that, like phase one, so what I think about that, Curt, is like kind of phases, there's multiple phases of this transformation, right, as we will be unveiling. Phase one will hit peak, I think, in late Q2. But then there's a whole phase two now that we've got coming that will be unfolding, right. And I think we've got phase three coming. There's just a lot of excitement, a lot of great work that's being done. And the debate around here is how do you sequence it? How should it all unfold over what period of time? So I'd say that's peak inflection on phase one: RH Interiors, RH Contemporary and Outdoor and Modern. If you knew Modern would be coming in, that's like the next of the big books. And I think it looks incredible. I'm glad we actually delayed it a bit and took a little bit more time because it took a leapfrog. I mean, it's stunning. And I think it's so fresh and cool. And people just see the images and it's all laid out. You feel like, wow, okay. Modern is coming; that's going to create a big move in Q2. Outdoor is going to hit peak in March, April, May, June. We have learnings and interiors cycling through and we've got in-stocks that are going to get meaningfully better; backorder rates are going to go down, which means demand goes up when backorder rates go down. There's all kinds of metrics here that you can just add them up and it tells you what to do. And all the adjustments we're going to make. So, yes, I think at phase one you'll get a peak inflection; how high it goes might take to Q3 or Q4, but the inflection point will angle up and we'll see that in Q2. So that hasn't changed. It just changed a little because we pushed Modern out a bit, but you're still going to get enough of a read. And then you've got phase two and phase three and things coming through the pipeline. I think it all keeps building.

Our next question comes from the line of Christopher Horvitz with J.P. Morgan. Your line is open.

So I'm just going to put my two questions out there. So my first question is, the $40 million that was deferred of January, that, why wouldn't it come back much sooner if it was a lot of domestic and we're hearing from other retailers that the Red Sea has just added weeks of delivery. And then my second question is, if you look at non-occupancy gross margin pressure, it looks like it got a little bit worse. I guess, how far is that all clearance and how long before we get through all of the clearance and do you expect to recapture all that pressure? Thanks very much.

I mean, you've got to think about like, there's a lot of people in home furnishings who might sell home goods and you have to say like, okay, what's their furniture content and what's their special order content? And when you think about those goods, and then what's coming from Asia and coming around the pipeline. Now that's kind of coming around Africa and not through the Red Sea and the canal. So we probably have the highest content, right? We have a significantly bigger outdoor business, I think, than anyone. I don't think anyone holds a candle to us in that category. And so, that's all how to travel and take a couple of extra weeks. And so that's a meaningful number. Our special orders or any of our other businesses, all our newness, all our things attached to back orders that got delayed. So you've got that delay and then you're delaying kind of everything looking out. Like when do the shipping lanes reopen? That's the question. How long, is this two-week delay built in? You're not going to catch up with it until the shipping lanes opened or it's permanently deferred for two weeks. That makes sense. And then, the piece with the weather and the ice storms that hit, yes, that piece comes back now and is coming back. So you generally have a delay with that. But it's not like it comes back tomorrow because they're maybe design projects, special orders. It's outdoor furniture that was going to be delivered. If they bought anything that has the two-week delay, that's delaying it more. So it'll all cycle back. It's just, what's the timing? If you're selling things that are cash and carry, got it. If you look at the product mix of people that had Christmas product or especially all the Christmas stuff that was on sale in December and January and stuff like it, of course, all that stuff comes back, that's no problem. If you're selling any home furnishings categories and if you're selling tabletop, food-related products, accessories, cookware, name all the categories that are attached to home, they're all cash and carry kind of businesses, or just domestically shipped, from distribution centers. We've got a very different product mix and model than anyone else. We probably have the highest furniture content of anybody that you might compare us with.

And Chris, on the gross margin side, there was the continuing impact on the product margin.

Next question comes from the line of Max Rakhlenko with TD Cowen. Your line is open.

Gary, Jack, congratulations on strong demand that you're seeing as well as the recent opening. I was curious, given all the new galleries that are coming online in the U.S., can you provide an update to the new gallery economics as you convert a legacy gallery to a design gallery? You provided color in the past, but just curious how that has evolved over time.

Markets: do they have hospitality or not? So, yes, it has been a while if I think about it. Let's pull that together in the right way and make sure we distribute it in the right way so everybody's got the same data.

Yes.

Got it. Sorry. Could you repeat that? It went blank for a little bit.

Okay. I was saying it was a good question. It has been a while, as you said that. And there's been a lot of things that have changed. We have restaurants and galleries now, hospitality aspects. It depends where they are in the cycle, how many square feet you're expanding into. There's a lot of things to consider when you look at these. And so, I think what we ought to do is update that data set and create a framework and let us distribute that next quarter in a fashion that everybody has the same information at the same time and it's all accurate.

Got it. And then my follow-up question is, can you speak to how you're balancing the target price points with maintaining elevated product margins? How much are your vendors stepping up directionally? And then the opportunity to expand product margins over time at the current level?

One second, Max. Repeat the question because we were just recognizing that the line was sounding like it had gone dead for a bit. So, repeat the question for both me and Gary, please.

Okay. Yes, no problem. Can you speak to how you're balancing the target price points with maintaining elevated product margins? How much are your vendors stepping up just directionally? And then the opportunity to expand product margins over time at current levels?

Again, we're not a price-first focused business. I spent a lot of time earlier in the call talking about design, quality and value in that order. We think about those things from those three dimensions always. We try to look at the bigger picture and say, what's going to be a compelling value? We don't have vendors, we have partners. That's why my letter is addressed to our people, our partners and our shareholders. We try to work with people as partners and it's not necessarily so much as, are they stepping up? It's more, are we together thinking about how to win the market? If one person wins and one person loses, that's not a partnership, and that never works long term. So, we take a strategic view with our partners. We spend a lot of time with them. We talk to them directly about how we're thinking. We try to understand their business deeply and where their levers and opportunities are. We try to stand back and say, hey, look, your manufacturers without stores and we're shopkeepers without factories, so how do we partner and how do we win? We have no intention in taking margins down; margins have to be looked at holistically, not just at the product level. I think that's probably what your point is. We're going through a massive transformation, re-architecting the assortments and positioning things. From a long-term perspective, we believe operating margins over the next few years can return to the 20% range and that our model is going to be a great model. But from a timing point of view, we're going through a product transformation and building an international business from scratch. There are investments and margin pressure associated with those investments. And that will create some periods of higher or lower margins. Strategically nothing has changed. We're not focused on extracting the next nickel from a vendor. We're focused on the next idea: product ideas, positioning ideas, market ideas. If you can get all the brains in the room and keep egos out, one plus one equals a lot more than two. That's how we work with everyone.

Our next question comes from the line of Seth Basham with Wedbush Securities. Your line is open.

My question is just thinking about your comment earlier about opening your aperture a bit more without compromising what you're trying to build. Can you elaborate on this, Gary? Are you trying to win back customers that you "fired during the pandemic?" And are you dipping low in terms of the customer income demographics that you're targeting?

Yes, we've never fired customers. So I don't know, maybe that's your words, not ours. Nothing I've ever said. I've said, look, if you think about where we started in the journey we've been on for 24 years, yes, we shed customers and transitioned to other customers. Yes, of course, the best-selling sofa in this company used to be a $999 chenille sofa. We don't have $999 chenille sofas anymore. We don't have a lot of things that we used to sell. So of course, when you're building something and you're trying to become something that you never were, you're going to evolve and acquire new customers. Some customers might come with you and some might not, but there's no intentional firing. There is an awareness that as we're heading in certain directions with certain categories, things will evolve and change. Through that journey, we're always going to get data and we're going to learn, and we're going to adjust and improvise and adapt. We're always in a state of change and the world's evolving. You're either evolving faster than the world and gaining knowledge and capabilities and market share, or you're evolving slower and getting behind. So I think your framing might be a bit off. We're evolving and broadening our appeal without compromising our core.

I think I got most of your answer. I appreciate that. And just a follow-up question along the same lines: you're sharpening your value edge, as you've referenced. I assume you're not taking quality out to lower price. If not, why should merchandise margins, excluding freight, be the same or better on new products now versus the product you were selling in 2022?

I'm sorry, I didn't catch the full phrasing. Say the end again about why would product margins be the same or better?

If you're not taking quality out to be sharper on price, as you sharpen your value edge, why should the merchandise margins excluding freight be the same or better on a new product relative to what you were selling and earning in 2022?

It's about how you buy it, the commitments you make, the long-term view you take and working in partnership with manufacturers. When you do that well, and when you have a platform as large as ours, you have the scale and you control the platform, you can be disruptive. We absolutely are not taking quality out to lower price; that's never part of our strategy. It takes creativity and partnerships, and that's how we get to better economics long term. During the COVID period and supply chain disruptions, costs moved a lot and pricing reflected that environment. Today we're focused on design, quality and value, and the commercial relationships we have with partners to deliver strong margins without sacrificing quality.

Our next question comes from the line of Jonathan Matuszewski with Jefferies. Your line is open.

First one was on gross margin for 2024. Imagine you may have some elevated clearance lingering early this year, but then you should have some good margins with all this newness that you mentioned. So how does that all net out for the year? And does the year-over-year trend in gross margin sequentially improve each quarter as product launches build upon each other? Thanks.

Yes. We're not guiding to gross margins quarter-by-quarter, but all of that is reflected in our operating margin and EBITDA guidance for the year. We believe the product transformation and improved in-stocks will benefit margins, but we're providing guidance at the operating and EBITDA levels.

Got it. And then, Gary, you recently hired a new Chief Real Estate Officer. How should we think about changes to the real estate approach going forward with Jarrett on board? And should we expect any changes to other development related aspects in the company, like food and beverage or anything like that? Thanks.

Jarrett has been here eight weeks. He's a very bright, creative leader with a strong point of view. He's learning the business and we're excited to have him. Give us some time to assess the situation and the opportunities. At some point you'll meet him and he can share his thoughts. We expect this to be a big step up for us and we're excited to have him on the team.

Eight weeks.

Next question comes from the line of Michael Lasser with UBS. Your line is open.

A cursory view of the communication that RH had during the fourth quarter would suggest that it was more aggressive, cleaning out inventory, messaging on price. And that was also evident from the gross margin compression that was experienced during the quarter. And yet if we just, the sales growth in the fourth quarter for a like number of weeks, your sales growth trailed behind some of the peers in the space. So, a) how much do you think you saw in terms of sales from some of the pricing actions that you took in the fourth quarter? And b) why do you think you might be losing share to some of your key competitors in the sector? Thank you.

I mean, the first part is that we underperformed some peers in the fourth quarter with being down 11% on a 52-week basis.

When you compare against peers, you have to be precise about who you're comparing to. There are many companies that sell more cash-and-carry categories—tabletop, cookware, seasonal—that are less exposed to furniture than we are. If you look at furniture-heavy peers, some did better, some did worse. Also, remember we were disproportionately impacted by the severe storms and the shipping delays related to the Red Sea and canal routes. Those events hit furniture and longer lead-time categories harder, and our outdoor business—significant and largely sourced from Southeast Asia—was particularly affected. So the comparisons depend a lot on product mix, sourcing and timing. I don't think there's anything different in the quarter than what we expected, aside from those external disruptions.

Okay. My follow-up: if we add back some of the margin drags that you highlighted this year, you would put RH on pace to have a 16% operating margin in 2025. Is that the right way to think about the basis for how we should be modeling over the next few years? Or would you expect the investment cycle that is going to happen this year is going to persist for multiple years, which will pressure profitability for an extended period of time? Thank you very much.

We're not providing guidance for 2025. We're guiding for 2024 and giving you the components that influence that year. We do have a long-term view that we can return to 20% operating margins over the next several years, but there are investment cycles we will roll through. For modeling beyond our guidance, you'll need to make assumptions and connect those dots yourselves.

Next question comes from the line of Brad Thomas with KeyBanc Capital Markets. Your line is open.

Just in light of you wanting to focus a little bit more on the demand trends this year, given some of the timing nuances, I was wondering if you could just share a little bit more with us about perhaps how demand has trended quarter to-date. You did reference this exceptional reaction to the outdoor catalog. Curious what you've been seeing of late and maybe just as we think about, the comparisons you're up against from a demand standpoint, are there any quarters that you'd call out where something had been unusual and not lining up with sales?

We're not providing quarter-to-date guidance or monthly breakdowns. For Q1 we're guiding mid single-digit demand. Outdoor is off to an extraordinary start and the biggest part of that business seasonally is upcoming. Outdoor typically ramps in March and into the spring months. We have a lot of confidence in the next quarter or two. Overall demand trends are building and we expect them to continue building through the year, driven by the product transformation, sourcebook contacts, improved in-stocks and store resets.

Got it. That's great, Gary. I appreciate the breadcrumbs. And if I could add a follow-up on supply chain and sourcing: one, are you contemplating any sort of disruptions relative to the closure of the Baltimore port right now? And then, can you talk about your confidence in your sourcing partners and suppliers ramping up with all this new product that you have this year? I presume that's partly why you're assuming you end the year with a greater degree of backlog, but just any more color on your confidence in executing with all this new product would be great. Thanks.

The Baltimore port incident is very recent and unfortunate. We have distribution practices that mitigate many disruptions. Jack and the team will comment. Generally, we've had minimal impact and have redundancy in port routing. On partner ramp-up: we have great confidence in our partners but, as with any new product, forecasting is harder. Some things you get more right; some you get more wrong. We react quickly to data and make adjustments—finishes, assortments, factory allocations. We have strong in-country teams and partners helping scale, and so far we've experienced only the normal ramp-up issues you would expect at this scale. Nothing unique has surfaced that hasn't been manageable.

To add: much of our inbound product can be offloaded at New York and then routed as appropriate. For example, the vessel involved in the Baltimore accident had a small number of containers, and our operating practices meant we had minimal exposure. Other vessels are being rerouted and overall we expect minimal impact from that particular disruption.

We do have our last question from the line of Steve McManus with BNP Paribas. Your line is open.

So clearly very upbeat about the outdoor collection. You've got the data there. Just hoping you could speak to what the customer's reception's been and how demand's ramping for the interiors and the contemporary collection versus, what you were expecting. That'd be helpful. Thanks.

All responding as we'd expect from our latest expectations. Outdoor is exceptional out of the gate. Interiors and Contemporary are responding as we expected and will continue to ramp as the remails and refreshed assortments reach customers and we improve in-stocks and reduce backorders. Modern, which is coming, is looking incredible and will be another major contributor when it rolls out. We're optimistic across categories and expect continued positive momentum as the year progresses.

Thanks. And if I could squeeze one more in on the commentary to lean into digital and print advertising, I don't think that's something you've really done in the past. What drove the pivot and piecing that together with sourcebook ramping? How do we think about the right run rate for adding under the business?

There's nothing new strategically; it's what we do around launches. When you're in launch mode, you increase marketing investment across print and digital in key design publications because that's where purposeful, design-minded consumers go for inspiration. We're increasing cadence because of the confidence we have in the creative and product we have coming. This is consistent with how we historically support major launches; it's not a pivot so much as an appropriate level of investment for a major transformation year.

It's not a pivot; it may have sounded like that, but it's what we do around major launches.

There are no further questions at this time. Mr. Friedman, I turn the call back over to you.

Okay. Well, thank you, everyone, for your participation. I'd say thank you to Team RH. Your efforts and leadership have been extraordinary. It has been a tremendous amount of work, I know, for everyone. But I think I feel so proud and excited about what this team has accomplished. Our partners and teammates across the country, especially our teams in the galleries and interior design, we're going to be handing you off the baton as all these products unfold and the teams across our supply chain distribution and everybody's hard work with support and our teams in Asia and other countries around the world. I think this is going to be our finest moment. It really is a result of your commitment and courage and your leadership. So, we just want to thank you for that. And we'll speak to everyone next quarter. Thank you.

This concludes today's conference call. You may now disconnect.