Rh Q4 FY2024 Earnings Call

Good day, everyone, and welcome to the RH Fourth Quarter and Fiscal Year 2024 Earnings Call. I would now like to turn the call over to Ms. Allison Malkin. Please go ahead, ma'am.

Thank you. Good afternoon, everyone. Thank you for joining us for our fourth quarter and fiscal year 2024 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 financial results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in today's financial results release. A live broadcast of this 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, everyone. Well, welcome to the new world, one where, at least at this moment, inventory is your friend. I was going to say maybe I just shouldn't read the letter, but heck, let's go through it. And we'll kind of improvise, adapt and overcome, as we're reacting in real time with all of you. To our people, partners, and shareholders, the important work and substantial investments we've made over the past two years are now resulting in meaningful share gains and significant strategic separation, positioning the RH brand to expand its leadership position across the luxury home market over the next decade. The positive inflection of our business continued to accelerate in the fourth quarter with revenue up 18% and adjusted operating income increasing 57% in each case on a comparable 13-week basis. Outperforming other home furnishings businesses by a wide margin as the most prolific product transformation and platform expansion in the history of our industry continues to unfold. Our industry-leading growth in the quarter was driven by the RH brand, where fourth quarter demand increased 21%, demonstrating the disruptive nature of our product transformation. While demand softened in mid-December after mortgage rates spiked and mortgage applications fell 22% post the Fed signaling rates would remain largely unchanged this year, RH brand demand stabilized at up 19% in January. While we expect a higher risk business environment this year due to the uncertainty caused by tariffs, market volatility, and inflation risk, we believe it's important to separate the signal from the noise. The fact is, we've been operating in the worst housing market in almost 50 years. For context, in 1978, there were 4.09 million existing homes sold, when the U.S. had a population of 223 million. Contrast that to 2024, where 4.06 million existing homes sold with a population of 341 million, and it illuminates just how depressed the housing market has been this past year. Despite that fact, we are performing at a level most would expect in a robust housing market. We believe it's a result of investing with a very narrow focus and a long-term view, or what we like to call an inch wide and a mile deep. Elevating and expanding our platform by creating the most desired products presented in the most inspiring spaces in the world, with bespoke interior design services and beautiful restaurants that generate energy, engagement, and tremendous awareness of the RH brand, while also serving as a profitable customer acquisition vehicle. Our intentions and attention to detail in everything we do and in every house we turn into a home. While we ended the year with meaningful debt, mostly due to our stock repurchases of $2.2 billion, we also ended the year with incredible business momentum and meaningful assets. These assets include real estate that we believe has an estimated equity value of approximately $500 million, which we plan to monetize opportunistically as market conditions warrant and excess inventory of $200 million to $300 million at costs that we plan to turn into cash as we optimize our assortments post our product transformation. Inclusive of our plans for significant and growing cash flow from operations, we remain confident in our ability to make the necessary investments to continue our industry-leading growth, while paying down debt and lowering interest expense. Now let's shift to our outlook. Based on our current plans and the uncertain macroeconomic environment, we are providing the following financial outlook for the full year and first quarter. For the fiscal year 2025, we're forecasting revenue growth of 10% to 13%, adjusted operating margin of 14% to 15%, adjusted EBITDA margin of 20% to 21%. In the first quarter, we're forecasting revenue growth of 12.5% to 13.5%, adjusted operating margin of 6.5% to 7%, adjusted EBITDA margin of 12.5% to 13%. The above outlook includes a negative 160 basis points to 200 basis points of operating margin impact from investments in start-up costs to support our international expansion. Every act of creation is first an act of destruction: Pablo Picasso. We have worked hard to destroy the former version of ourselves and are in the process of unleashing what we believe is an exponentially more inspiring and disruptive RH brand. We believe the important investments we are making during this depressed housing cycle are creating a level of strategic separation in our industry that rivals the most important brands in the world. Our product transformation plans for 2025 include the introduction of our new RH Outdoor Sourcebook, featuring the most dominant assortment of high quality outdoor furniture in the world, which arrived in homes early February with eight new furniture collections, an exciting new textiles offering, plus a significantly improved in-stock position to start the season versus a year ago. The introduction of our new RH Interiors Sourcebook arrived in homes mid-February through early March, featuring 42 new collections across furniture, upholstery, lighting, rugs and textiles, as well as an additional 15 new collections launched on RH.com. While we had planned a higher amount of new collections for this book, due to the rapidly changing economic outlook, we believed it was prudent to delay some of our introductions until later this year. The launch of a significant new brand extension in the fall of 2025 that we believe will meaningfully expand the market size and share of the RH brand. This new brand extension will include a new Sourcebook, a significant website presence, and two freestanding Galleries dedicated to the New Concept. Our plan includes integrating RH Couture Upholstery by Dmitriy & Co. and RH Bespoke Furniture by Joseph Jeup into this new brand extension, enabling greater exposure and market reach versus standalone concepts. We will be sharing more details of this exciting new venture during our first quarter earnings call. As communicated last quarter, we do not expect a negative impact to results related to previously announced increased tariffs on products from China, Canada or Mexico. As it relates to reciprocal and other tariffs that will be announced and have been announced today, as we've done with prior tariffs, we will be working with our manufacturing partners to mitigate the impact to both our margins and costs to our customers. We believe it is also important to note that we have been manufacturing upholstered furniture in our own North Carolina factory for over 10 years, and have recently expanded the facility, doubling our capacity. We are currently projecting that 48% of our upholstered furniture will be produced in the U.S., 21% of our upholstered furniture will be produced in Italy, and 14% of our total business will be produced in the U.S. at the end of this year. Now let me shift your attention to the expansion of our platform. We continue to open the most inspiring and immersive physical experiences in our industry and some would say the world. Spaces that are a reflection of human design, a study of balance, symmetry, and perfect proportions. Spaces that blur the lines between residential and retail, indoors and outdoors, home and hospitality. Spaces with garden courtyards, rooftop restaurants, wine and barista bars. Spaces that activate all of the senses, and spaces that cannot be replicated online. Our plan to expand the RH brand globally, address new markets locally and transform our North American Galleries represents a multi-billion dollar opportunity. Our Platform Expansion Plans for 2025 include: the opening of seven Design Galleries, two Outdoor Galleries, plus two New Concept Galleries. The seven new Design Galleries are RH Oklahoma City, The Gallery at the Oak and RH Montreal, The Gallery at Royalmount, both opening in the first half of this year. RH Paris, The Gallery on the Champs-Elysees, RH Detroit, The Gallery in Birmingham, RH Manhasset, The Gallery at the Americana, RH San Diego, The Gallery at University Town Center, and RH Palm Desert, The Gallery on El Paseo, are all opening in the second half of this year. Additionally, we plan to expand our brand presence in Greenwich, Connecticut, by developing a multi-building RH Design Ecosystem inclusive of the existing RH Gallery at the Historic Post Office, a freestanding RH Outdoor Gallery that opened last month, plus a New Concept Gallery in the former Ralph Lauren building on Greenwich Avenue, opening in the second half of this year. We also plan to expand our brand presence in East Hampton this summer by opening a freestanding RH Outdoor Gallery and are exploring plans to further enhance our design ecosystem with a new Concept Gallery in the near future. As previously communicated, we anticipate an inflection of our business in Europe as we begin to open in the important brand-building markets of Paris in 2025, plus London and Milan in 2026, all with dramatic and brand building hospitality experiences. We believe post each opening, we will begin to have the scale to support the necessary advertising investments to accelerate our growth in Europe. Every moment has a lunatic fringe. Quite appropriate for today: Theodore Roosevelt, America's first Nobel Prize winner. Commander of the legendary Rough Riders. Medal of Honor recipient. Promoter of the Conservation Movement. Leader of the Progressive Movement. Noted for his exuberant personality and ranked by scholars as one of our greatest presidents. Theodore Teddy Roosevelt proclaimed in his famous speech at the Sorbonne, "It is not the critic who counts, not the man or woman who points out how the strong man stumbles, or where the doer of deeds could have done better. The credit belongs to the man or woman who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again because there is no effort without error or shortcoming. But he or she who actually strives to do the deeds, who knows the great enthusiasms, the great devotions, who spends himself in a worthy cause, who at his best, knows in the end, the triumph of high achievement, and who at his worst, if he fails, at least fails while daring greatly. So his place shall never be with those cold and timid souls who neither know victory nor defeat." While our ambitions are not political, maybe they should be, they are personal. We remain inspired by the progressive thinkers, unafraid to push forward new ideas and fresh perspectives. It's a culture of leadership versus follow-ship, innovation versus duplication, enlightenment versus ego. It's believing none of us are smarter than all of us, that we need all the brains in the game and the egos out of the room. It's about thinking until it hurts, until we can see what others can't see, so we can do what others can't do. That's how you transform a money-losing Restoration Hardware store at Aventura Mall in Miami that did $2 million in annual sales into an RH Gallery that does $44 million in the exact same space with the exact same square footage. It's also how we will transform that $44 million legacy Gallery into a $100 million plus RH Design Compound, a yet to be unveiled multi-building design resort of sorts, in the parking lot of the same shopping center. Over 20 years ago, we began this journey with a vision of transforming a nearly bankrupt business that had a $20 million market cap and a box of Oxydol laundry detergent on the cover of its catalog into the leading luxury home brand in the world. The lessons and learnings, the insights and intricacies, the sacrifices made and scar tissue developed by getting knocked down 10 times and getting up 11 leads to the development of the mental and moral qualities that build character in individuals and form cultures in organizations. Lessons that can't be learned in a classroom, or by managing a business. Lessons that must be earned by building one. Are we a part of the lunatic fringe? If it means, as President Roosevelt said in his speech at the Sorbonne, that our place shall never be with those cold and timid souls who neither know victory nor defeat, then put us in that arena. Onward Team RH. Carpe Diem. Operator, I'll now open the call to questions.

Thank you, sir. We'll go first to Simeon Gutman, Morgan Stanley.

Good afternoon. This is Pedro on for Simeon. Thanks for taking our question. My question is how you see the outlook for the consumer. It seems we've seen a slowdown in consumer sentiment year-to-date and the housing market is not seeing a turn yet. Last year, we saw early signs of an inflection, but now it seems things have been delayed again. So could you give us a bit of an update on how you see things developing over the spring and the summer season? And related to that, how are legacy galleries doing? How much of demand growth is coming from the design galleries as opposed to the legacy galleries?

Okay. Let me break that down. So how do we see the consumer? Unfortunately, we don't know those individuals exactly and don't talk to them at any personal level about how they're doing. But I'd say, look, everybody, I saw the recent news just as we were ready to break for this call and it's one of those times of uncertainty. It's one of those times where it's not so much what the consumer is going to do, I think it's how we're going to react to the consumer environment and what we're going to do. If you look at our history, which is my 25th year at the company, we thought we saw it all until today. This is a new one. But we have a history of really performing in times of crisis, thriving in those times, and having the ability to improvise, adapt, and overcome. At our core, we are innovators. We're not duplicators. We're leaders, not followers. Whether it's a confused or conflicted consumer environment because of high interest rates, new tariffs, trade wars, or geopolitical conflicts, there's always something. We feel confident no matter what the environment looks like. I articulated in the letter that we just anniversaried really the worst housing market in 50 years since 1978. How did we do versus everybody else? Very different. What's our trends versus everybody else? Quite different. Maybe that's a better question for others who try to talk to consumers and see how they're feeling. We focus on our work and try to create the most desirable products presented in the most inspiring spaces, whether physical spaces, digital spaces, or print experiences, and I think we do that better than anybody in the world. The game changes somewhat across environments. I wouldn't want to compete with us in any environment. Legacy galleries and design galleries are all performing well. There's some places that might do better than others at different times for different reasons, but we're happy with all the galleries. We're opening more galleries. We have new kinds of galleries. We have design ecosystems, design compounds. We've got a lot of things coming. Tariffs are not going to stop us. Here we come.

We'll take the next question today from Steve Forbes, Guggenheim.

Good evening, Gary, Jack. Gary, your initial comment, I think was "inventory is your friend." We'd love to hear you expand on that initial thought, especially as all of us try to do the exposure math to Vietnam, Indonesia, and India. Just what should be the parting message on RH's ability to mitigate, migrate, and de-risk the situation that was just thrown at all retail operators?

Sure. Let's start with "inventories are your friend." Going through this product transformation we've been executing, when you're making big changes in your assortment—real newness—and you introduce hundreds of collections, you want to create the right bridge. You don't want to sell out legacy products before you understand what's happening with new products. You want to ensure new products have sufficient inventory in cases where you believe they will be in the top half of your assortment. Furniture cannot be responded to quickly, so you need that inventory. We knew we were going to make about a $100 million insurance bet on inventory at the front end of this and, yes, we expected trends to be better. We thought inflation would come under control and interest rates would ease and that the housing market would recover. We were all wrong about timing. Being wrong is part of intention and innovation and going somewhere you've never been. Today's tariff news was somewhat shocking. Many expected a lower or more gradual approach, but we have to consider leverage and negotiation in geopolitics. I don't think these tariffs will completely stick at this level. Other countries will play their cards; they may acquiesce or balance trade economics. The U.S. has leverage, and long term I think this can be positive for American manufacturing. It will be messy for everyone, but these are the times when companies that think and innovate can outcompete others. I'm on the phone with Jack and I started laughing because this is when we thrive. We have a lot of inventory at favorable prices. We're positioned to navigate this. We have capabilities in the U.S. and other facilities acquired through acquisitions. I'm not too worried. It's exciting times and we will get to work.

Yeah.

Look, the game has changed and it doesn't matter as much where you go, except America. We've been building our facility and expanding, and America can make furniture. Some of these countries may adjust. I think the administration's intent is to balance trade. I don't criticize the move; I think long-term it can be good for the U.S. The speed is surprising, but I believe clarity and leverage are useful. It's a new kind of leadership. Exactly how it plays out, I don't know. I don't think it's time to overreact. We were surprised but we're not panicking. We'll analyze and adapt. We have scale and capabilities. I'm excited to get back to work.

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

Yeah. We're not going to have a lot of receipts coming in at really high prices, so start there. We have a lot of inventory at good prices and we can rethink some of the newness and delay some introductions until we have clarity. The timing and costs could change if tariffs remain at higher levels, but it could change in 30 days as negotiations progress. I think our cash flow will be strong this year. We also have real estate assets we can monetize. We've sold assets opportunistically—for example, an Aspen property we sold for a substantial gain. We have 31 or 32 properties, including galleries we own. We're fine. We have assets that we can turn into cash if appropriate. We're not in fire-sale mode. This is not a company operating on very thin margins. We have many levers: we can slow spending, optimize receipts, and take other actions. I'm excited about the opportunities to find additional moves before competitors do. Fun time.

Okay. Thank you, Gary. Thanks, Jack.

Thanks, Steve.

And the next question is Michael Lasser, UBS.

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

I don't think we're going to do anything right now. We've got inventory and we're well-positioned. This is not a time to panic or react immediately; it's a time to think, invent, and plan. Tariffs have moved up and down previously. This is a strategic negotiation at a global level and we want to see the full board before making changes. We need time to analyze. We have a lot of inventory that we own at good margins. I don't believe the consumer will stop buying tomorrow, nor do I believe this will be a repeat of the 2008–2009 housing crisis. There will be a digestion period. We gave guidance that matched our view at the time; it might have been different had we known the full extent of the policy announcements, but we are analyzing the impact. For now, we will be measured in our response.

Got you. My follow-up question is on your point about guidance; you might have been a bit more conservative had you had the full benefit of insight into all the policy announcements. With that being said, should we interpret that as a signal to go to the lower end of the guidance? And if that's the case, how would you think about the need to raise capital or utilize some of the assets that you have at your disposal? Thank you very much.

I wouldn't go below the guidance we've given, not today. There are many actions we can take at both the government and strategic level to adapt, and companies will get creative during times like these. We're not the biggest or strongest, but we are among the most adaptable. We don't want to raise capital; we think we're in good shape. Cash flow will be strong this year, and we have real estate assets we can monetize as needed. We recently sold an Aspen property at a meaningful gain. We have properties and galleries we own. We're not in any urgent need to raise capital. We can slow spending if necessary, and we have many levers to pull.

I do like talking to you. Thank you very much and good luck.

Okay. Thank you.

And the next question is Max Rakhlenko, TD Cowen.

Great. Thanks a lot. So maybe just following up on the guidance question. Can you just walk us through what is embedded in your revenue and margin guidance as it relates to tariffs? And then just any one-time costs that we should be thinking about as you reposition your supply chain?

What's embedded is what we talked about with respect to China, Mexico, and Canada tariffs that we had previously disclosed. Our guidance is on the conservative side. As a general principle, I would advise not to overreact. This is a high-level strategic negotiation and the U.S. has leverage in many respects. We expect there will be concessions and negotiations. This is a chess game, not checkers. Don't move until you see it unfold. We will analyze and adapt as it becomes clearer.

Got it. That's helpful. And then just can you provide any color on the quarter-to-date demand? And given volatility in the stock markets, how should we think about the impact you might be seeing? And how should we think about the excess backlog and demand flow into revenues from the strong demand in past quarters?

We have said we will provide demand measures for last year only due to product transformation and the historical dislocation between demand and revenues. We have anniversaried that, and I provided a look at January demand in the letter because it fell within the prior year. Moving forward, we will provide revenue guidance, which is generally directionally in line with demand. Quarter-to-quarter, shipments and timing may create some variation, but usually there is not a large disconnect.

And Max, I would add that in Q4 the gap narrows. Q4 revenues on a comparable 13-week basis were up 18% and Q4 total demand growth was up 17%. That essentially normalizes the backlog piece and supports Gary's point.

Yeah. Thank you, Jack.

Awesome. Thanks a lot, guys. Best regards.

Thanks, Max.

We'll go to Andrew Carter, Stifel.

Hey, thank you for taking my question. Good evening. Quick question on the controllable cost outlook: you have revenue growth of 10% to 13% and cost growth that looks to be up about 7% to 8% in my math. Are product margins expected to inflect so the majority of improvement is in gross margin, or will we see much of it in SG&A because you've lapped investments? Second, there's a timing disconnect on cost growth in Q1. Is that timing around advertising investments or delivery or anything else we should consider?

I'll comment and then turn it over to Jack. If you want to level the detail you're looking for, you can work with our SG&A team and help with modeling. But Jack will discuss ad costs and changes.

As Gary pointed out, we've mailed two books in Q1—the outdoor book and the interiors book—so you'll see an expense there. A year ago, you only had the outdoor. The quarter-to-quarter variability is largely driven by ad costs. Regarding gross margin versus SG&A, the guide speaks for itself at the operating income level. We don't guide each piece, but there are positive factors in both lines. We can't provide precise magnitudes beyond the guidance.

Fair enough. One more high-level: do the tariff announcements create any cost advantage for competitors who have more domestic manufacturing? You mentioned Ethan Allen earlier. Considering true competitors, those coming from Europe, any cost advantage there?

No, I don't think anybody creates a cost advantage over us. We're buying at the biggest scale at this quality in the world and have the buying power because of our platform. Many higher-end players are relatively small or sell wholesale and don't control their platform. No one has a platform like ours or the buying power and risk tolerance we have. European brands coming to America may face tariffs. We can move more upholstery to domestic production and consider other operational shifts. Teak furniture from Indonesia is more difficult to source elsewhere due to quality—Indonesia is the capital of premium teak. The Indonesia tariff number is 32%. We've dealt with tariffs from China before and you figure out efficiency and leverage. Humans generally perform under pressure; we're at our best in these times. I'm not worried about our ability to compete. We can outwork and out-innovate competitors. It's an exciting time.

Thanks. I'll pass it on.

We'll take the next question today from Thomas Bradley, KeyBanc Capital Markets.

Hi. Thanks. It's Brad Thomas. Gary, I wanted to ask about the international side of the business. What are you seeing in terms of trends there? To what degree do you worry about backlash against American perceived brands? And how do you think about the openings you have this year and the risk if you delay some?

Those are good questions. If things go sideways and it impacts Europe, we'll still go to Italy this summer. There could be some noise and backlash driven by social media and public opinion, but communication and messaging will be key. The move appears to be a global negotiation and, while we may have underestimated the size of the initial action, I'd rather see clarity today than a long, drawn-out sequence of smaller moves. We plan to open during Maison & Objet in Paris, which is a major design week; that's still some time away and I hope trade issues are clearer by then. We don't do high volume out of Europe today. We'll monitor the situation, but I don't expect a major long-term backlash that threatens our European expansion plans. Construction delays are always possible; we have experience with complex projects and will adapt as needed.

That's very helpful, Gary. A follow-up on clearance activity: as you've been transitioning the assortment, how should we think about clearance activity going forward?

Think about clearance in relation to the economy. In good markets you'll see less clearance; in weak housing markets you'll see more clearance. There's also the layer of new product introductions. I think about products in thirds—top, middle, bottom. If new collections are in the top third, they lift the company; if they're bottom third, they drag. If you bring in 100 new collections, they'll naturally spread across thirds. We expected to transition more of our previous sales collections sooner, but the housing market weakened and interest rates spiked, which affected demand. We gave a live read and my team gave a thumbs up for today, but that's not demand guidance. Our inventory and product transformation position us well. People may do the math based on our 10-K where sourcing is disclosed, but our position is strong. Manufacturers who moved out of China made investments and faced disruption; now tariffs may change the economics again. We have a long-term sourcing strategy that may be a leapfrog, but we will focus on being inch-wide and mile-deep, allocating time and capital with precision.

Thank you, Gary.

Thanks, Brad.

The next question comes from Jonathan Matuszewski, Jefferies.

Good evening, and thanks for all the perspective this evening. First, a follow-up on clearance activity: how have markdowns been fueling acquisition of new customers versus incremental spend from existing customers? In the 10-K, year-end members were 265,000, down a bit year-over-year. How should we interpret that relative to the increase in revenue?

Member count was down.

At a macro level, you'll see more markdowns in a down market as sales decline and customers become more price-sensitive. In 2008–2009, the category declined 35% to 40% and retailers promoted more; some who didn't promote lost significant share. You need to be careful and responsive. Member count tracked broadly with our business; there's no major variance. When you look at our performance and guidance versus peers, I like where we're positioned.

That's helpful. Quick follow-up: on sourcing diversification, you indicated bringing nearly half of upholstery sourcing to the U.S. by year-end. Could you comment on ancillary benefits to consumers, like delivery speed or other improvements?

Yes, that refers to our upholstered furniture category, one of our largest categories. Increasing domestic production for upholstery can improve lead times, availability, and control over quality, which benefits the consumer experience, though it doesn't apply to the entirety of our business.

Next up, we'll take a question from Seth Basham, Wedbush Securities.

Thanks and good evening. Taking a step back to Q4: can you give perspective on margins in the quarter relative to expectations? They came in a bit light while sales were still at the low end of the guided range. Any perspective on the margin drivers would be great.

You mean our operating margin relative to guidance? Product margin was still up year-over-year in the quarter, but some expenses came in higher than expected. Other than what's called out in the MD&A, we can look at details later. I don't have further specific color at this time.

Thanks. On timing of costs in 2025, you mentioned higher advertising costs in Q1 due to an extra sourcebook. For the balance of the year, should we expect advertising to be down relative to the last three quarters of last year, or any other transitory costs impacting quarterly cadence?

We don't guide advertising line-by-line, but the adjusted operating margin for the year incorporates our view of advertising. Q1 is likely the highest ad quarter due to the additional book mailings.

Fair enough. All right. Thank you, guys.

Yeah.

The next question is Brian Nagel, Oppenheimer.

Hi. Good evening. A simple question: did you discuss the trend in the business through the fourth quarter and into Q1?

We provided demand measures for last year only and gave some color on Q4 and January since that was part of the prior year. We are not providing demand metrics for this year; we will provide revenue guidance instead.

And Gary, in the third paragraph of your letter you did talk about trends inside the fourth quarter.

Yes. We provided color on how demand trended during Q4 and how it stabilized in January; the Q4 numbers help normalize the backlog discussion.

Sure.

Okay. Fair. My follow-up is philosophical: given tariffs and likely higher sourcing cost, how do you balance raising prices versus negotiating with vendors or moving sourcing? Where do you think the mix will be?

It's all of the above. We'll seek concessions from manufacturing partners, pursue efficiency, consolidate vendors for leverage, and look for other optimization opportunities. Everyone is in the same boat. Our inventory reinvestment and position from the product transformation give us an advantage. We have experience, global partners, and a strategy to navigate this. We will focus on what is necessary and be disciplined with time and capital. This is a moment to be intentional and precise.

Thank you. I appreciate all the color.

Sure.

Your next question is from Cristina Fernandez, Telsey Advisory Group.

Hi. Good afternoon. Question on product newness: as you look at what's coming in for 2025 to drive demand, where do you see the most incrementality? The interior sourcebook that mailed this year seemed to have a lot of newness, but you also have things planned for the back half. What will be most significant?

Start with what we have. We're nowhere near optimizing our current assortment. Retailers never buy perfectly; there's always some degree of miss in buys. We have tremendous newness to optimize, and many opportunities to present products better in galleries and digitally. At a macro level, the industry will likely see less newness this year or newness that is more expensive due to sourcing issues, so I'm happy with our inventory position which allows us to be selective and conserve receipts until clarity emerges. We will continue product development at a measured pace to be prepared. We may delay some brand extensions if appropriate. The bigger point: optimize what we have, refine presentation, and focus on levers beyond just newness.

And my second question: the London store is delayed to 2026. What is the reason and does that imply investments may be pushed to 2026?

It's a complex development. Complex projects often take longer than expected—construction and coordination across multiple buildings and a high level of design complexity. Some things move faster, some slower. We could rush and spend more to meet specific dates, but we prefer to open when timing and conditions make sense. This is not a simple storefront; it's a large, unique, and highly curated build. We will keep you posted on timing and investment cadence.

Thank you.

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

Great. Well, thank you, everyone, for your time. As I said at the beginning, welcome to a new world. The Theodore Roosevelt quote about the lunatic fringe is appropriate, but let's focus on what matters: we are the people in the arena. We will sometimes come up short, but we'll also do extraordinary and remarkable things. We're working to create one of the most admired brands in the world through long-term thinking and being inch-wide and mile-deep. You'll see us get even more focused and intentional in times like these. I want to thank our team members and partners around the world, and our team at our innovation campus in Corte Madera, California. The work we've done in 2024 is extraordinary. The strategic separation we've achieved is unlike anyone else in our marketplace. Our stock will go up and down; I've been here 25 years, including when the stock was a fraction of today's price. Think long-term as an owner. I feel privileged to do this work with Team RH. Never underestimate a few good people who don't know what can't be done. Carpe diem, everyone.

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