There are pieces that furnish the home. And those who define it. There are places you visit. And those you remember. There are spaces you move through. And those have moved you. Welcome to the world of RH. Albert Einstein's Three Rules of Work: Out of clutter, find simplicity; from discord, find harmony; in the middle of difficulty lies opportunity. Seem especially relevant at this moment. We're compounding clutter from tariffs, global discord as a result of war, and the most dire housing market in decades can make it difficult to separate the signal from the noise. It's important to remember necessity is the mother of invention. And our most important innovations were birthed during the most uncertain times. Transforming a nearly bankrupt Restoration Hardware into RH, the leading luxury home brand in North America was not a feat for the faint of heart. While the external challenges are somewhat familiar, our internal opportunities are massively different. We're not closing stores and fighting to survive. We're building a never seen before brand that's positioned to thrive. Before we get into the details of our strategy, let's start with a few facts that should quiet some of the noise. In 2025, RH achieved revenue growth of 8% and 2-year growth of 15%, far outpacing our furniture industry peers by 8 to 30 points. Adjusted EBITDA reached $597 million, or 17.3% of revenues versus $539 million or 16.9% of revenues in 2024. Free cash flow of $252 million versus negative free cash flow of $214 million in 2024, an increase of $466 million year-over-year. Those results were despite 2025 being our peak investment year with $289 million of adjusted CapEx to support our global expansion plus an additional $37 million to purchase the Michael Taylor, Formations and Dennis & Leen brands to support the launch of our new concept, RH Estates, a strong performance considering the unusual circumstances. Let me shift your focus to our strategy and how we expect our growth to accelerate over the next several years. 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. We believe our goal to position RH as the arbiter of taste for the home will prove to be both disruptive and lucrative as we continue our quest at building one of the most admired brands in the world. We like to use a simple question to frame our significant opportunity. Who is the home brand for the luxury customer? The LVMH, Hermes, Cartier or Cucinelli customer. RH has curated the most compelling collection presented in the most inspiring spaces in the world. Our brand attracts the leading designers, artisans and manufacturers, scaling and rendering their work more valuable across our growing global platform. Our product is both categorically and stylistically dominant, enabling RH to address the largest market of any brand of its kind. We curate across the 7 major product categories: furniture, upholstery, outdoor, lighting, linens, rugs and decor, and we integrate across the 3 dominant product styles, traditional, contemporary and modern, which we refer to as RH Estates, RH Interiors, and RH Modern. RH Estates, our newest brand extension, launching this spring, will address the traditional market where the RH brand is currently underpenetrated. 60% of luxury homes feature classic or traditional architecture, which influences the majority of furniture purchasing behavior. RH Estates will feature the introduction of RH Bespoke Furniture, customizable collections from our recently acquired Michael Taylor, Joseph Jeup, Formations and Dennis & Leen to the trade brands. RH Estates will also include the introduction of RH Couture Upholstery by Dmitriy & Co., tailor-made sofas, sectionals and chairs of arguably the highest quality upholstery available anywhere in the world. Designers will be able to order custom-made sizes and finishes plus specified COM fabrics. RH Bespoke Furniture and RH Couture Upholstery will enable interior design firms to now specify RH for their most discerning clients and custom projects. RH Estates will also include collections from many of the most talented designers and artisans in our industry. Let's take a look at some of their work. RH Estates will premiere at the opening of RH Milan, the gallery on the Corso Venezia, a 70,000 square foot former palace, during Salone, the largest design show in the world with an estimated 500,000 visitors descending on the city that week. The launch of RH Estates will include a dedicated source book, mainly mid-May, and international advertising campaign and freestanding Estates Galleries in Greenwich, Connecticut and the San Francisco Design District opening early summer. And the West Hollywood Design District opening in 2027. We believe RH Estates will become our largest and highest margin brand extension, driving significant growth over the next several years. Let me shift your attention to our multidimensional physical-first global ecosystem, the world of RH. That goes far beyond a typical multichannel approach, inspiring customers to dream, design, dine, travel, and live in a world thoughtfully curated by RH, creating an emotional connection unlike any other brand in our industry. The question we often are asked is why physical-first in a digital world? Let me explain. Furniture remains the least digitized large retail category with an 80-20 store to online split, with luxury furniture estimated to be as high as 95-5. Why do stores still dominate? Comfort, scale, finish and quality are hard to judge online. Even when customers purchase on a website, most experienced the product in a store; we believe the physical manifestation of a brand will continue to be significantly more valuable than an invisible online way. We also believe most retail stores are archaic windowless boxes that lack any sense of humanity. That's why we don't build retail stores. We create inspiring spaces. Spaces that are a reflection of human design, a study of balanced symmetry that creates harmony. 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. While most have been closing or shrinking the size of their stores, we've been building some of the largest and most immersive spaces in the history of our industry. Let's take a look at our most recent work. We believe our investments in building completely unique, immersive experiences in Paris, Milan and London will set the stage for RH to become a truly global luxury brand. It's important to understand that there are several strategically significant businesses embedded in our galleries, including RH Interior Design, where we become the largest residential interior design firm in the world, with projects from San Francisco to Sydney, Los Angeles to London, Miami to Milan, and Dallas to Dubai. We offer design services, including interior architecture, landscape architecture, art and antique curation and turnkey installations. Another important business embedded in our galleries is RH to the Trade, a specialized team that calls on services and supports interior design firms assisting in the design, curation, delivery and installation of many of their projects. RH Hospitality operates beautifully integrated restaurants, wine and barista bars in our galleries that generate significant traffic and brand awareness. While our galleries might see several hundred customers per week, our restaurants feed several thousand. With 26 restaurants in operation today and scheduled to reach 40 by the end of 2027, RH is one of only seven globally owned and operated luxury restaurant brands with 20 or more locations worldwide. We believe our galleries create a unique competitive advantage that will likely never be duplicated in our lifetime as the cost of construction at the luxury level has doubled post-COVID. To address that challenge, we've developed several immersive new gallery concepts that will enable us to scale in a faster and more capital-efficient manner. The first, the most revolutionary, is what we call an RH design compound, currently in development in Naples, Miami and Walnut Creek. A compound is 6 to 8 independent buildings connected by beautifully landscaped garden courtyards with a sun-filled atrium restaurant anchoring the project. Due to the absence of multiple stories that require steel structures, grand staircases, elevators, complex mechanical systems and long development timelines, we believe we can build design compounds significantly faster and more capital efficient than our prior design galleries. Another new approach to deploying the RH brand in a faster and more capital-efficient manner is what we call a design ecosystem, currently under construction in Greenwich and Palm Desert and in the development process in West Hollywood Design District. An ecosystem is a multi-building brand presence on a street, in a neighborhood, design district or shopping center. Our first ecosystem will be in Greenwich, Connecticut, and includes our gallery at the Historic Post Office, our new outdoor gallery opened last year, and our new RH Estates Gallery with an integrated restaurant opening in the former Ralph Lauren building this summer. We've also developed a new single-story gallery, ranging from 15,000 to 20,000 square feet with a dramatic courtyard restaurant targeting secondary markets. We're currently under construction in Los Gatos, California and are in design development for galleries in Richmond and Milwaukee. We have been extremely pleased with our performance of our first freestanding RH Interior Design office in Palm Desert, California and have plans to open a second interior design office in Malibu this fall. In total, we have an opportunity to expand our presence in 27 existing markets, and open one of our new design concepts in 48 new markets across North America, representing a $2 billion opportunity. Let me shift your attention to our business model and balance sheet. While we believe it's prudent to plan conservatively this year due to uncertainties around interest rates and inflation, and have planned revenue growth in the 4% to 8% range in 2026. We do expect growth to accelerate to 10% to 12% in 2027, and reach $5.4 billion to $5.8 billion by 2030. Adjusted EBITDA in the 14% to 16% range for 2026, reaching 25% to 28% by 2030. We expect cash flow of $300 million to $400 million in 2026, and $500 million to $600 million in 2027, inclusive of $200 million to $250 million of asset sales each year. We expect cumulative cash flow of $3 billion by 2030, inclusive of the asset sales and expect to be debt-free by 2029. While one might look at the current market discord and argue that RH has been in the wrong place at the wrong time. I would argue we've used this period to position our brand to be in the perfect place at the perfect time. Let me explain why. There are two important factors that will meaningfully expand the size of our market over the next 10 years. One is the exponential spending of high and ultra-high net worth consumers on the home. Ultra-high net worth consumers with a net worth above $20 million, own on average 3.7 homes; billionaires own 10. Ultra-high net worth consumers spend 6.4x more on home furnishings than a consumer with a single primary residence. Two, is the estimated $30 trillion to $38 trillion wealth transfer projected to take place over the next 10 years, which is more than double the past 10 years. Not only does the absolute dollar amount more than double, it's estimated that the dollars transfer from one to an average of seven people. It's possible over the next 10 years our market will be multiple times larger than the past 10 years. When you combine that with our efforts to elevate and expand our product, globally expand our platform, generate significant revenues and brand awareness with our immersive hospitality venues, I would argue that the RH brand is in the perfect place at the perfect time. And we will emerge from this period of clutter, discord and difficulty as one of the highest performing and most admired brands in the world.

Your first question comes from Simeon Gutman with Morgan Stanley.

First question, I want to talk about demand signals from the consumer. This has been a transitional period for the company. I realize the demand is outpacing a lot of other home furnishing companies, but it's come at a pretty big cost to margin. So expectations around demand improving while we see the margin of the business begin to turn. That's my first question.

Simeon, the margin pressures are somewhat disconnected and unrelated from the demand. The margin pressures are really from the investment cadence we have as far as expanding the business throughout Europe and some of the margin pressure coming from the tariffs, from transition timing and resourcing. But you basically have an inflection point where we're in a peak investment period from a capital and an expense and cost perspective based on the investments we're making, both from a global expansion and North American expansion point of view and from a product point of view with the launch of RH Estates. I think you have to think about the launch of RH Estates in Q2; we'll have significant costs with sourcebook and advertising and launching costs, without having much revenue until we get into the third and fourth quarter. And Estates is, remember, basically running late. Our original plan was to have Estates in the third and fourth quarter last year. So we have some timing issues. I think when you think about the significant investments we're making, both from a capital and expense perspective, and we're going through an unpredictable time. So I think that's why it's important as you're looking at the business, you're looking at the model, if you're thinking about being an investor here, you have to have a longer-term view than a shorter-term view in periods like these. In many ways a lot of people are going less than we're going. Right as people are pulling back and trying to manage the margin side of their business, we're investing in the most significant way we have in our history, and that's just going to create some timing dislocations from an earnings perspective.

And then my follow-up, you made a couple of executive leadership changes, one, a new President and two, a second person. And in the release you talked about potentially helping monetize some of the real estate. So can you talk about both of those hires, what prompted them? And then what does it speak to about the direction of the business you are heading in?

Well, I think it's explained in the press releases. We're extremely happy to have Dave Stanchak rejoin Team RH. He made a significant impact while he was here, both from a North American transformation point of view and a global transformation point of view and was involved in really setting up the structure of the real estate for European expansion. He's probably the most experienced real estate executive on a retail point of view because he's not someone who's just been involved with mall leasing. Dave's been involved in real estate investments. He is an investor: he's had his own shopping centers and controls real estate himself. So he comes out from an investor perspective, a much bigger perspective and is a transformational leader as you think about a unique business like ours and the platform we're building, which is unlike anything anybody else is doing or has done at a level of quality and locations and so on and so forth. So there's not anything different than what we talked about in the press release. And then with Veronica joining RH, we've known Veronica for a long time. We've been able to observe her leadership and her ability to build what we think is one of the leading manufacturing businesses in North America for upholstery. But mostly what we think about here is not just the upholstery part of our business. If you think about the best luxury models in the world, whether you're looking at Louis Vuitton or Hermes, or Chanel or others, one of the things that's very unique with their business models is they have a very concentrated core business; 80% of their business is in leather goods and accessories. It's similar to our business from a penetration point of view: 80% of our business is furniture, which is typical if you look at the home furnishings business. So if you're in all categories, that's going to directionally be the mix depending on how you position those categories. We think there's an opportunity when you look at our business from a global scale and building a unique platform that's synergistic and appropriate for the unique platform we're building from the selling side. I think we've built and are building the most unique physical selling platform in the world. And I think it deserves and will be positively impacted by building the most unique manufacturing and sourcing platform in the world. Eliminating inefficiencies of manufacturing when you don't control your distribution creates quite a bit of waste. Long term we think we can build a unique manufacturing platform, a combination of owned, joint venture and outsourced that can be very unique and significantly accretive from a revenue, cost and margin perspective. We're excited. We think Veronica is the best person in the industry we've met. She's a unique talent and leader. She's an engineer by education and experience, and has a big strategic view of manufacturing and sourcing. This is a new level of talent in the company. We've never had someone of this pedigree and experience, and we think she's going to do incredible things long term.

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

Gary, with Milan and London slated to open here in short order, curious if you could give us an update on RH Paris and/or just comment on the anticipated revenue contribution from the broader RH International strategy behind the 2030 reference year you laid out in your prepared remarks. Obviously, just looking today, any color to help support or build conviction around those longer-term outlooks you laid out today?

Not sure if I get that question correctly.

The impact of international as it relates to the 2030 targets, how we think about that growth of that.

Well, I think what we've articulated most recently over the last few quarters is that the opening of Paris, Milan and London is kind of the brand foundation to build on when you think about European expansion. They are the three most important cities in Europe for positioning the brand and driving brand awareness. All three are important from a presentation of product and hospitality experience perspective, which we think will be critical long term to building brand awareness throughout Europe. One of the keys is that the cities will drive brand awareness, but the basic distribution and where the sales will come from long term will be the suburbs and second-home markets more than cities. In North America, about 90% to 92% of our business is in suburbs and second-home markets, and roughly 8% is in the cities. We believe distribution will be similar throughout Europe. If you look at Apple's real estate strategy as a useful model for a higher-end consumer brand, there are similarities in distribution. We're more highly penetrated into second-home markets than they are. One of the keys to Dave joining the company is continuing that leadership into Europe and building out into the suburbs and second-home markets to cover the business. Strategically, we're setting up the business in key markets for brand awareness and positioning. We expect the biggest revenues long term to come when we expand into suburbs and second-home markets where people really buy much more furniture, both indoors and outdoors.

Maybe just a quick follow-up. Obviously, great to hear Dave rejoining the company. You talked about $250 million of asset sales in each of the next two years. This is sort of a two-part question. One, can you speak to sort of the value of the non-core assets or the assets that you don't plan to operate in the future versus the value of the assets RH is still planning to operate in the future. And then maybe any color on sort of timing for 2026 asset sales as we think through the potential interest expense savings.

As far as that mix, I'd say the majority of the asset sales are assets that we will be operating but in sale-leaseback properties, and then there's some investment properties that we had in Aspen and a few other things that we've decided not to pursue for whatever reason. We own a building in Madrid that we're not going to pursue the development of; we're fine with the location we have today. We're taking a look at our balance sheet and turning those assets into cash, as we said we would be doing. We've said we have about $0.5 billion of real estate assets that we could monetize, and we're going to begin to monetize those. Dave has tremendous experience in that end of real estate and feels very confident in what we're going to be able to do. Some of these are properties that we purchased and developed over the last two to three years, and you have to think about a lot of our investment horizons being pretty long given the design, approvals and construction timelines. Post-COVID the construction costs have gone up, particularly at the luxury level. That prompted us to develop other faster, more flexible ways to deploy the brand, such as design compounds and ecosystems. For example, we're taking what was formerly a Nordstrom site in Walnut Creek, a Neiman Marcus site, and a key visible area in Miami that was formerly a bank site. We've built the larger, higher-investment galleries over the last 15 years and are now transforming the approach to be faster and more capital efficient. On the European and global point of view, Sydney is coming but it's a different model built by the developer and won't take much capital from RH. We have significant assets to monetize and will do so over time.

From a timing perspective, Steve, we'll keep you posted. We're not ready to commit to a specific cadence for 2026, and we'll update you as appropriate.

Your next question comes from the line of Max Rakhlenko with TD Cowen.

So first on Estates, can you provide color on how you're thinking about scaling the collection? We know when the books will hit, but how are you thinking about the cadence of the product rollout into the galleries? How are you looking at inventory, etc.? Just if you could compare and contrast this collection versus the Modern and Interiors launches that you had a couple of years back.

Sure. The books will hit mid-May, and we will have a handful of stores that will get the initial product so we can test and get reads. We feel very confident in the selection. We went out with a larger inventory based on data — 60% of luxury homes in America have classic and traditional architecture. This is a big building trend. It's why we've made some of the acquisitions we made, like Michael Taylor, to have authority and intellectual property for key products. In the second half we'll see the rollout more broadly. About our top 30 to 40 large design galleries will take over the first floor with RH Estates. So this is a significant launch and a significant bet.

I think — yes.

Got it. That's helpful. And then just a two-parter on margins. If you could just isolate how you're thinking about the impact of tariffs for 2026, both the cadence and magnitude as I don't think you discussed that in the letter this time around. And then separately, if we exclude tariffs and some of the timing shifts that you discussed earlier on the call, how healthy are your product margins as we think about the long-term targets you laid out? How much higher can the product margins go as you continue to add these new collections that come with much higher margin. So if we just think about the core, where can the business go from a product margin perspective?

We're not giving detailed margin forecasts, but our product margins are relatively healthy, except for bumps we're going through from a tariff point of view. We've performed reasonably well. If you exclude the weight from this investment cycle and the drag from Europe and look at the business, one of the things we're doing is investing to position the brand not only in North America but in Europe for the long term. Once you get past these cycles we'll have great leverage. Opening galleries and restaurants, especially in different countries, has significant costs: travel, hiring, building new organizations. This is not just product margins; it's the overall margin structure once we go post-peak on this investment cycle, both from capital and from expense. The model of this business will be one of the best models anyone has seen in our industry. We're navigating uncertain times and have a product mix that is somewhat more cyclical, which can be a drag. As Estates assortment grows over the next five years, it will build and become more dominant. The trend should keep building over the next five to ten years. We're confident in the long-term model. Right now we're in a peak investment cycle combined with a trough economic cycle. Even with these factors, you get a business with mid- to high-teens EBITDA margins. Once past this cycle, there's a lot of leverage in the model.

On tariffs: in Q4 last year we talked about tariffs having an impact of 90 basis points as a drag, and we had talked about $170 million; we ended up at $190 million in Q4. By Q4 you were fully baked into that prior tariff regime. Things have changed with the Supreme Court decision and Section 122. Tariffs can come in and out of turn. In the first half, you might have some tailwinds from the relatively lower rate that exists under Section 122 today. Who knows what happens in the second half — there could be a sprint to replace those tariffs and potentially more under Section 301. We're being nimble and dynamic. Last year's tariff impact was fully baked in at Q4 and is a bit of an indicator for the first half, but the math shows some relief in the near term. We'll keep you updated as things play out.

Your next question comes from the line of Steven Zaccone with Citi.

I wanted to ask about the cadence of the year from a revenue growth perspective because the first quarter, obviously calling for revenue to be down, but in the full year, it looks like an acceleration in the back half. Can you just talk through the points of the acceleration? I assume Estates is a big piece? How much is International? Any details you could share would be helpful.

Clearly, International and Estates are key contributors. Estates will cycle across the entire platform, and International stores have a ramp as they open. RH England is our best point of history for ramp behavior. In the back half you'll see openings in North America and Europe, Estates revenue flow from Q2 demand and a ramp in Q3 and Q4. You'll also see a second mailing of the book and newness in both Interiors and Modern. All of those things combined should produce a big step up in the business in the second half. We would have expected more in the back half of last year and the first half of this year had Estates been on the original cadence.

Okay. Understood. And then the second question I have is just on the margin recovery of the business, right, because we've been in an investment period for the business for some time, and I think you've used the term leapfrog in terms of margins in the past. For the longer-duration investor, when you look at the business, what do you think is the biggest factor holding back margins for improving? Is it just the fact that some of the investments have taken a little bit longer and have been a little bit higher than expected? Has it been the top line, the macro environment? How do we think about some of the unlocks to see that margin improvement on the other side come back stronger?

You've outlined it correctly. We're in a peak investment cycle during a trough economic cycle for our industry. There's the tariff cycle that caused disruption, and we've resourced 40% of our core assortment which is a large part of the business. We're investing in Europe, launching new businesses and making major investments now that will drive a leapfrog later. This is a time when companies that invest can create generational value, similar to other downturn-led opportunities. Historically we've been investors during times like this and seen big opportunities. This cycle may be different because it's a real peak investment cycle — opening Europe, launching new offerings. The opportunity for a leapfrog exists if we're directionally right. Don't bake the peak cost structure into your long-term model. The galleries we're opening now are the most expensive we've opened, from both capital and operating perspectives. Over the next few years, capital and operating investments will fall from peak levels, while top-line growth accelerates, creating inflection points in returns, margins and earnings. The framework for the math is simple; the strategy is unique and can be hard to understand in the near term.

Your next question comes from the line of Michael Lasser with UBS.

Gary, you've laid out this ambitious and aspirational plan to take advantage of what seems like a very large and growing addressable market, and yet the market is not really willing to give you the benefit of the doubt. Part of that is RH has been averse to and does not really look at its business on a same-store basis, which is understandable, and that's long how you've articulated it. But at this point, that has defaulted to the narrative where RH needs to grow concepts and its physical footprint in order to drive growth, and that comes with a significant cost. And as a result you may not be able to realize its aspiration, understanding that it's come a long way from its origin, but the market is relying heavily on the recent experience. So why based on the recent experience is the default of the market wrong?

I think it's what I just said: you have to think about a peak investment period and what hopefully is a low point in the trough from a market perspective. If you pull out the investments and the European drag, think about where we're investing in Europe at a time when the European market is worse than the American market. You're investing when many would pull back, but long-term real estate investments require making those long-term decisions. The simple model is that we're cycling peak investments while hopefully cycling a trough in growth. Costs will come down. Many great companies made similar calculations about investing through tough times and were rewarded later. Don't bake the peak cost structure into your long-term model.

Very helpful. So put it in parlance that the investment community would think about it: essentially this is the peak of the disruption, there will be significant same-brand growth that will lead to sizable margin expansion, especially as the investments moderate. Now the counterpoint would be, we're living in a world of high uncertainty between geopolitical, technological and other factors. So what would be the sensitivity to your outlook for free cash flow in the event that sales in the back half just don't materialize like you would expect? And without asking you to show your hand, but it is important to the investment case, what options would you pursue in the event you needed more financial flexibility to execute on your strategy?

Great question. We have the ability to pull back investments if needed. Major strategic investments like international expansion are not easy to pull back from, but we're cycling those now. Future waves of investments will be smaller and more flexible, with more participation from developers and landlords, and much higher options for capital-efficient deployment. The new concepts — compounds, ecosystems and smaller single-story galleries — carry much less real estate and investment risk. We also have assets we can monetize and toggles we can pull to increase flexibility. I've been through many cycles in my tenure here. Peak investment and peak risk are now; there's more flexibility going forward. Of course, geopolitical and macro risks exist, but we have options: pull back projects, monetize assets, reduce near-term capital spend, and lean into the more capital-efficient concepts. We believe much of the most intense investment is behind us and that produces less downside risk going forward.

Your next question comes from the line of Brad Thomas with KeyBanc Capital Markets.

Gary, first, I wanted to follow up a bit more about the RH Estates line. And you, I believe, alluded to working more with designers and decorators in this. I was hoping you could talk a bit more if the selling process or how you go to market needs to be different on this line that seems to have so much potential for you?

We do a significant business with interior designers today. We have multiple businesses embedded in our galleries, including a trade team that services interior designers and decorators. That's a meaningful part of our business and we expect it to grow, especially with the launch of RH Bespoke Furniture and RH Couture Upholstery, which will open up more customizable product options — sizes, fabrics, finishes — and should significantly expand our trade business. We have other strategies to address that market that you'll hear more about which will support our marketing efforts. Estates will be the launch of RH Bespoke Furniture and RH Couture Upholstery, and we will think about these across the whole business long term.

That's helpful. If I could ask a follow-up on the 2030 margin targets. Just wondering if there's any high-level framework to think about perhaps how International fits into that, and how much mix or leverage of sales factors into that?

We have some data from openings that informs how international ramps. Our targets are reasonable; nothing is a stretch from our perspective. When you look at the total composition of top-line acceleration to 12% growth, think of it roughly as: about 4 to 5 points from platform expansion, 3 to 5 points from product expansion, and maybe a couple points from housing market improvement. If housing were to come back more strongly, those upside figures could be materially higher — conceivably adding many points to growth depending on the housing recovery.

Your final question comes from the line of Marius Morar with Zelman.

Just a quick question on the growth outlook for next year. Gary, I think on — in the video, you mentioned that it's a bit conservative. I was just wondering at the low end, do you sort of embed any sort of deterioration in the housing market or maybe an increase in interest rates?

I think we're conservative across the board. We've embedded growth from our platform and new galleries that are cycling, with growth from Estates and assortment expansion in Interiors and Modern. We have embedded the current environment which I believe is worse, mostly due to geopolitical uncertainty and perception that more things can go wrong than right. Did the housing market improve when interest rates came down somewhat? Not really. If interest rates go up modestly by 25 to 75 basis points, I don't think it changes the housing market dramatically. If rates moved 300 or 400 basis points that's a different story. Pricing across the market is coming down, and if rates fall 100 basis points with pricing coming down, you'll see acceleration in the housing market. Short term I would handicap it as even; longer term I think the market is more likely to come back than go down given how deep the downturn has been. We're in the fourth year of a very weak housing market, which is historically unusual, so a rebound is more likely over time.

That's helpful. And maybe a quick follow-up. In the first quarter guidance, do you also embed any drag from the back order and special order similar to the drag you had in the fourth quarter?

Jack, do you want to take that?

Yes. That's something that's going to take probably until the second half to fully resolve itself just because of the complexities of resourcing. So yes, there's an impact and it should resolve into the second half.

We take that drag into our guidance, yes.

Is it getting worse in the first quarter?

There's some modest impact that's over and above what we felt in Q4, and then we'll see resolution of that in the second half.

It's basically from the amount of resourcing and bringing up new factories in different countries and ramping them quickly. The biggest hit is coming from tariff-related resourcing of furniture — specifically metal outdoor furniture — lighting, rugs, and furniture generally. Bedding, pillows, throws, accessories and picture frames are easier to resource and move; they're not a very large percent of our business. Ramping furniture factories, lighting factories and rug factories is much more complex. These categories are slower to scale and transition. When manufacturers move production, build factories and then tariffs change, it creates disruption. For example, India was a big source of rugs and when hit with a 50% tariff you have to reshore or move production, and there are limited places with that capacity. Lighting is also complex. In contrast, accessories and more seasonal parts of the business are easier to source and move.

That concludes our question-and-answer session. I will now turn the call back over to Gary Friedman for closing remarks.

Thank you. Well, thank you, everyone. We know this is an uncertain time in our business. Hopefully we've shed some light to give you more certainty and more confidence in our outlook and our strategy. We believe this is the most important period in our history, and we've never been more excited about the outlook and what we believe will be the outcome. We look forward to talking to you soon. Thank you for all the leadership and partnership from our teams and our partners all around the world. Everybody is working hard to get to the next place. Thank you.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.