RH | RH | earnings call 2026-09-10
Verbatim transcript (source: faster-whisper-small.en)

We're doing 95% to about $1.1 million to sign jobs. So I think this is, I think you asked me about incrementality or what was it? Really, you mentioned new customers, yeah. Our people in the galleries will tell you it's almost entirely a new customer. And I think that makes sense. It's, like I said, I think we turned the company over the last eight years or so, too modern, too contemporary, too one dimensional. But we're quick learners here and, as we mature and understand the industry and the consumer even more, I think if you watch the earnings video, I think it did two quarters ago. I tried to outline how we think about our age and the opportunity and how we see kind of three major kind of design vernaculars, you know, kind of traditional classic, which we call estates, contemporary, which we call interiors, and modern, which we call modern. We kind of think about ourselves now as kind of a juggler, if you will. But there's three balls and then there's always one ball in the air, and the ball that's in the air is generally the ball that's the major trend. For anywhere in our industry, a short trend might be seven to 10 years. The major trends are more 15 to anywhere, 15 to as long as 25 or 30 years. And people have asked me before, they'll ask me, where did the trends come from? And I think I've said it on conference calls, did the trends come from the dead? Generations pass away, the long ones go into estate sales. The estate sales feed the high-end antique markets, the high-end antique markets feed and inform the high-end interior design market, the high-end interior design market then informs the high-end reproduction market, and then it kind of trickles down. And so the next trends I outlined, I talk about pretty fulsomely in the letter to try to help people see why we're so excited about estates because it's almost a magnifying opportunity. So one, we're not addressing the traditional classic market today very well at all. I'd say hardly at all. I think we're dominant in contemporary and modern. So, you know, if you have 60% of the luxury homes in America that are classic and traditional, we're probably not addressing that customer. Maybe we're getting 5% of them, aren't we? We're getting 10, you know, with a few older collections. So, you know, the math would tell you that this could and should be half our business or more than half our business. And the data, you know, all the data we look at, you know, once we start digging and think about it, I mean, we've been working on this now, God, I know, seven years. You know, it's been conceptualizing this opportunity, and, you know, we're getting smarter and smarter and seeing a bigger and bigger market, and we think this is, you know, as incremental or more incremental than when we did RH Modern. Yeah, and we did RH Modern, no one was waking up in the morning saying, hey, honey, we need some modern furniture. We just got a modern condo or new house that was modern. Nobody was thinking about going to RH for modern furniture, you know, in 2012, 13, or 14 until we launched RH Modern in 2015. And RH Modern was highly incremental, but in those incremental things, we've done it very quickly, you know, went from zero to a billion dollars, and we think this is, as incremental, might be more incremental. And we were in Greenwich last night for our opening party, and, you know, I mean, I don't know how, like, we had to take some back roads for coming to the airport, and, you know, you go through the neighborhoods and you realize, like, you could drive around here for hours in my RC Modern, yeah. And some of the homes might have been remodeled, you know, some contemporary interiors, and that, you know, might play, but when you really look at the bones of the houses, look at the exterior of the houses, my sense is the market of Greenwich, Connecticut, West Court, New Canaan, you know, that whole area, I kind of believe it's like 90, 10, 85, 15, somewhere like that. And by the way, we have, I'm gonna, we don't talk about our store, but I'll let our competitors know this one. Like, we do like 47 million in Greenwich, right? We have 14,000 interior selling in the post office, and we have about 4,500 in the outdoor gallery today, right? And it's all contemporary. And so I think if we're doing $47 million in Greenwich, Connecticut, 14,000 feet of interior selling space, what could a stage do? We have, I think, 12,000 feet of interior selling in the new, you know, former Ralph Lauren building, which is a perfect building for a stage, like by the way, thank you, Ralph. So we didn't have to build that one. So it's highly capital efficient, for those of you who are gonna ask me that question. So this is a big deal. You know, it's a big deal. We've been working on this for a long time. We've never made so many acquisitions to set ourselves up, you know, for a business. You know, Michael, like, if you saw my projects that I did early on, whether it's my condo in San Francisco, or the home I still have in Belvedere, that has Michael Taylor finding a diamond table in the kitchen. I let the team reproduce the 17th century antique monastery table I have. In the dining room, that, it's almost identical. I mean, somebody could switch, my daughter saw it in our center of innovation. You know, they grew up at that dining table and they're like, dad, what is our dining table here at the center of innovation? I go, it's not our dining table. I go, yeah, this is our dining table. I mean, they didn't know, like, but it's a very expensive antique. I mean, taste like you said, you know, it's that, I bought it 27 years ago for $58,000. You know, statement dining table, built a nice house in Belvedere, never spent that much on any piece of furniture or anything. And I'm not saying that to show off. I put it into context. It's an 11 foot table that has two extensions, extends I think to 14, 15 feet. You know, it can seat up to 16 people because it's, I think almost 50 inches wide. You can sit two people at the end. So it's really great if you're, you know, if you entertain and get a, give a big family. And I don't think anybody addresses that business very well. You know, those are the kind of businesses that we're addressing with the states. We said, you know, initial goal launching, we wanna dominate the primary bedroom, the primary living room, the primary dining room. That's where we'll start. And then we'll continue to expand and dimensionalize the assortment. But that table today, if you take that $58,000 dining table and you just did natural inflation over 27 years, I think it's about $140,000 dining table today, somewhere like that. And if you look down first, you know, you looked at dining tables, like they go up to about 250 to $300,000. That table would probably get somewhere between 100 to 200,000 if it was on first today. So we've got that. We would finally land, we were going back and forth. So that was $14,995. And that's for the 12 to one, for the 11 to one. Fine, it's like, you know, and you know, it's an incredible value. I mean, I think a lot of people, again, are we talking about a hiring customer? Of course we are. Should that scare anybody? No. We've moved this brand up over 27 years, right? The way we built this brand is we went into selling knickknacks and chot keys and had an average order value of $125, an average order value, you know, somewhere around 10,000. And so, and that's with our order split. You know, if you really look at, because we split a lot of design orders, we deliver them, so, you know, true average order is much higher than that. So we, you know, we've moved, we've kept elevating the brand. We've kept shedding lower value customers, acquiring higher value customers. And yeah, we'll continue to do so until we, and say we've hit the right spot. That doesn't mean we won't sell bedroom furniture that's appropriate for second, third, fourth bedrooms, you know, in houses and second homes and things like that. But we think we're gonna be like alone in the market for a while here. I mean, I challenge anybody take the RH States book, go scan the internet, tell me who's gonna compete with this. And then look at this second drop, which is really kind of like the first drop, you know, because it's going to, oh, it's basically the same book with about 30%, 30% more items in it and product in it. But it's, we're just going to an increased number of customers or not mailing the same people. We're just broadening, you know, broadening the contacts, which will significantly lift the business. And when we do that, you know, we're gonna do that in concert with the product will be unveiled in the galleries. It'll take over the first floor in all of our big galleries. It'll be the main thing. It'll be well represented. It'll be in stock. So November's, you know, transition time, like, you know, early mid November, we'll have galleries transition that are somewhere between 75 and 85% of the business. And then it'll continue to go to the rest of the galleries. And I think all galleries break December, right? Yeah, so the last 15 to 20% of, you know, our volume. So that's when it's really meaningful, right? And I think these products will get an even bigger lift when the customer sees as the finishes are so intricate and the detail and the qualities, I think important to see. And data would say that, you know, like 90, when you look at the furniture industry today, about 80% of furniture is done in retail stores. When you look at the luxury furniture industry, it's like 95, five. And that's just because the customer's more concerning, they're spending more money, it's more of an investment. And, you know, has everything to do with comfort, sit, finish, color, scale, and all the things, you know. But you don't wanna get wrong. Like it's one thing if you're an internet shopper today, you know, you order five things and you return three, or, you know, some people order 10 things and they keep one or send all 10 back. You really can't do that with the furniture business. You'll bankrupt, you know, people. And those people charge for restocking fees. We haven't yet, we're gonna probably change that. Because we do think some people take advantage of like, ordering stuff and then just go, oh, well, this, you know, this is what we'll keep, let's go and send that. But it's very expensive to make mistakes in the furniture, you know, when you're buying furniture. Okay, thanks for all about detail, appreciate it. The follow-up I had is just international. It was helpful to get the context of where you see the drag going in 2027. Can you talk a little about the assumptions there? You'll be cycling flagship openings, right? And I guess we haven't really gotten the revenue, but curious when you think about, you know, the UK versus continental Europe, are we at the point where the UK can be, you know, much larger from a revenue perspective and that's really helping from a profitability perspective. Thanks very much. Yeah, one of the biggest things is just the cost to opening Europe, right? We, you know, the number of people that we have to have fly from America, put up in America, you know, for months, you know, you're trading, the three global flagships were the first hospitality experiences. Yeah, in orange England we did, but you know, there's not a very high volume hospitality experience out in the countryside. These were real complex hospitality experience. So you have, you know, a typical gallery for us. We might employ 30 to 40 people on the gallery side and we'll employ 120 to 130 people on that. And so when you're opening restaurants and hospitality, it's longer training, it's, you know, more complex, more people and, you know, just the support that, you know, Europe needed from America, you know, we had a lot of people on the road for a long time, you know, making sure we're opening these right. You know, you don't get a second chance to make a first impression. And, you know, we're not the most popular people or continent right now, right? You know, so you wanna open correctly, you wanna be respectful, you know, a lot of things that are important. But assumptions wise, Steve, I guess it's, you know, obviously the drag of the opening class that Gary just mentioned, you gotta build up the revenue, you have no more here. So, you know, that literally is the building blocks and there's kind of self-evident, but just point them out. Okay, thanks for all that detail. That's a lot. Thank you. As a reminder, we kindly ask to limit yourself to one question and return to the queue for any additional follow-ups. Your next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open, please go ahead. Hi guys, hi everyone. I guess maybe more of a math question. So if you look at the progression within your back half guide, it looks like there is a bit of a stair step to the third quarter in terms of the underlying stacks, and then another step up into the fourth quarter. Is that explicitly estates or, and can you speak to the momentum you're seeing within that brand? And then what else is it if it's not just estates? Yes Simeon, it's listed right there. So you have it in front of you, the press release. Like if you look at it. Yes. Inclusive of backlog reduction is 6.5 points. Our each estates at eight points. And new galleries, you know, another at four points. And that was Q4, obviously you have three there as well. So you've got that in, you see the quarter increases. Okay, I guess if I may restate, I guess what gives you confidence and I get the backlog reductions, but you know, can we talk about the confidence in that acceleration? Yeah, I mean, that's what we do, right? That's how we built this company, is expanding product and mailing books and setting products and galleries. And we have a lot of math around this and it's the big important launch we think is meaningful. And we've done meaningful things a lot. I mean, even if we, if you look back at, you know, the product transformation we went and accelerated into, after we kind of stumbled on the first contemporary, you know, round, we doubled down and we were able to move business 15 to 20 points, right? So, you know, this could be conservative. I mean, if you look at our history, like if you think about modern health, modern move to business, when you think about, you know, when we, you know, accelerated product transformation in contemporary, I mean, we moved, you know, looked at, you know, the prior two and a half years, you know, I don't think this is that aggressive. Okay, thanks guys, good luck. Your next question comes from the line of Steven Forbes with Guggenheim Securities. Your line is open, please go ahead. Hey, Gary and team. So Gary, maybe just following up on RH Estates as all of us try to gauge your conviction here and the 8% net revenue growth contribution in the fourth quarter. Can you confirm whether that's based on source book only demand, you know, and or maybe just comment on how much footage you're dedicating to the collection in the fall? And we'd love to just hear how weekly demand scaling, you know, at the collection level is telling you where that 8% can go over a relatively short period of time versus that 50% sort of five year target. We have data right now, you know, with the Estates building just in the mail and just, you know, on the website with, you know, long lead times and, you know, not in stock. So, you know, we know what, you know, if something has the four week wait, a six week wait and a week wait, if something's running backwards of XYZ, there's math around all of that that we can forecast demand, right, based on what we're seeing. Then there's, you know, so there's in stocks, there's wait times, then there's, then the big move is when the product goes into the galleries. You know, and I think we've said publicly, list factors, like, no, maybe not, maybe we don't want our competitors to know all that. Okay, I can't remember. I've been doing this a long time. Yeah, so I'm thinking better. You know, the list factor for putting some amount of wealth. Yeah, yeah. Yeah, 50 to 100%, you know, and it can go as high as 100. So, you know, so we have that. And then the other thing, like when we say other and stuff like that, just think about we're gonna make a big transformation. Like think of our big galleries that are mostly two floor galleries. Yeah, so when we do a flip and we're bringing units onto the main floor, one, not everything that's on the main floor leaves. What we do is we look at what are the best sellers, everything's ranked, and we take the bottom stuff off the floor, right? So you take the least productive goods on the floor and you're better, and hopefully, again, this is why we don't put it on the floor right away. We generally like to look at things for three to six months here because we believe it's so incremental and we have data of classic things we've sold and still sell. Things that we didn't realize we couldn't kill it, right? So we just know the market's still there. I mean, we've been selling St. James for since 2008. We still have St. James. Can't stop selling St. James. Or some of our other just classic things like that. And we realize that we transitioned to business too far. And if you look at most specialty brands, most specialty brands are built around an aesthetic point of view, whatever category apparel or this or that. It's got a stylistic point of view and you usually stay within the stylistic point of view and I think you saw about the furniture business. Most of us here started in apparel. And so Armani looks like Armani, Ross Lorenz looks like Ross Lorenz. Yeah, it's got their point of view. American Eagle's got theirs or Navi, whoever you're looking at, right? And Chanel's got their point of view. Rach got a point of view. So most of us come from that and the longer we're in, the more we learn. And as I say, again, if you go back and look at the video, I think I outlined it very clearly about what we wanna do is own the seven major product categories and the three major aesthetics. And we think that we do that really well. We can have, we can be relevant to all the customers at that level in the market across all the architectural vernaculars and major stylistic points of view. There might be some stuff like, I'm likely not gonna let the brand go after Grandma Chic. Right, it's a little trend. I mean, Kendall Jenner, Sonark Digest, we did a tour of her new cabins. And Kendall Jenner, great for a brand, right? She had this and that and took people to her home then. And I don't know, maybe it's just because it's me and I'm like a lot of ourselves and stuff like that. But so you do have to kind of keep your brand a little disciplined. So we're gonna let everybody else have Grandma Chic or things like that. And I don't know what some of the other weird trends that we're seeing right now that we're not, we don't have to own everything. And to this day, people think that we're gonna go bankrupt because we don't sell enough color. Yeah, those are the same people that haven't really looked at that many homes. Like just going Zillow or Redson and go look at 100 homes instead of a Red Soap. But you'll realize like not a lot of people in the world have Red Soap. So if you wanna be in the Red Soap business, go right ahead. Wanna be in the flower Grandma Chic, printed Soap of business, go for it. Like I'm happy for it. Usually that's not gonna see us in those things. So fun. But I think when you think about just the revenue for states and you're gonna see the big ramp happened when the goods get in the galleries, be in stocks, got it, start to peak. And we expand the circulation meaningfully. Right, so yeah, we have a lot of customers lined up right now just waiting. When can I see this in the gallery? When can I see this in the gallery? So there's pent up demand. People waiting just wanna know when they can see it in person. Because again, the data will tell you that the luxury of the market is like 90, 10 or 95, five people wanna see the goods. Thank you, I'll pass it on. Your next question comes from the line of Max Rauclenco with TD Cowan. Your line is open, please go ahead. Hey guys, thanks a lot. So first question, when we think about the 4Q contribution from the states, that's on a delivered basis. So just curious how we should think about how much higher the demand could be. And then given how your demand builds and sort of some of the color that you've given us in the past couple questions, 4Q's obviously just a jumping off point for 1H27. So curious if you could just provide a little bit more color and how we should think about how big a states can get into next year. I don't know Max, I was gonna ask you, how do you like the pizza or any of the pasta because last night, you saw you in the restaurant. How do you think the demand relative? I mean, clearly Max, demand is in excess of the revenue as this business is building and ramping and you're leading us to the same conclusion. It's all that's evident that in Q1, that that continues especially with the presentation of product in the gallons and you and us that Gary talked about 30% and whatnot. So we don't talk about demand growth, at least at the moment we don't. There's ties and positions we do, but today we don't. And so this is a growing business. And so it's clearly paying growth rates in stocks as we've talked about, etc. Gary's talked about are some level higher than this. When we think about how to have two looks, Max, maybe when we're leaning into H1 2027, how does that, you know, that check, you know, so we might have no good range right now, but clearly there's a stepping stone elevated to the growth. Yeah, I would say, you know, there's, I mean, a good five years of building here, like a, you know, it's gonna be like a new business and a growing business. I think the most similar thing is our each modern, right? I mean, we weren't known for modern, we didn't have that aesthetic. No one was coming to us, you know, they were going to Dine with the Ridge or going somewhere else, I mean. But we hopped on it because we saw an explosion of modern architecture happening around the world. We saw the verticalization of cities, we saw the influence of technology, influencing customers that have important modern for you, we're all walking around, you know, iPhones, you know, the big commercial architectural trend for all modern. And if you look back at in the 1950s at mid-century modern, look, it wasn't really that big. I mean, you had the bird streets in LA, you had different places, Miami, Florida, places like that, you know, but you probably didn't have too much mid-century modern, you know, Boston, New York, Philadelphia, you know, places like probably down in Greenwich, maybe there's a collector too, you know, like, but. And then you saw a lot of places being remodeled, all the, you know, a big boom in LA, that's why we opened the first, our each modern, I guess the first and the only freestanding our each modern. We're building the big, yeah, I wanna tell you. Oh yeah, we had Dallas for a little while. So, yeah, I probably wanted to open Greenwich, right? To really get a sense for, okay, here's a market, we do a lot of volume, 14,000 support with main gallery with a four or five thousand support without four galleries. It was 47, the right number. 46, 46 something, so okay. Yeah, and like, I don't know, like, could we do another, I mean, could we comp up 50 or 70 in a market like that? I don't think that the customer who's looking and buying contemporary or modern is all of a sudden jumping up and down at that stage. And I think people buying a stage are, you know, they're looking for something like that. And then right now that something like that doesn't exist. And there's a lot of classic traditional, like really, you know, not good looking furniture out there. Yes, it's not like there's a lot, I mean, you go, look at a lot of the classic furniture stores that, you know, have looked the same for 40 years or something. And there's a lot of them out there, you know. So the market share, I mean, the people doing business, I mean, go to High Point, North Carolina, something a lot, classic furniture. Go to the furniture market in Nebraska, because they purchase half the weight. They do like seven, gotta be 85% of the ratio. So it's there, you know, I think, and I think in a lot of ways we'll create a new high-end market, you know, for the aesthetic, the way we're gonna build it out. And, you know, and the whole point of view and the aesthetic point of view will evolve and change. We will shape part of it. We're going earlier than we normally go on a trend. You know, so I usually like to let the weight break and see who's writing it and how we can exploit it because of the fact that because we've, you know, this is, I mean, good and bad for me, right? I lived through this trend. I was consumer. So first trend I participated in in consumer. That's really good news. I've got a, I mean, yeah, I have the Michael Taylor diamond tables. I have a lot of the things and stuff, you know. So I've got a point of reference. Yeah, that's good and bad too, by the way, you know, because it's never, the trends never come through exactly. They always, you know, get shaped, you know, by designers. And, you know, it always comes through fresh yet familiar, but it has to be fresh and it has to be familiar. And so, but I think, you know, I think we can help shape this one, but we're, you know, we're gonna evolve it. We're gonna be inspired by other people. They're gonna be inspired by us, you know, other small furniture, businesses that are run by, you know, highly static people will do some really great things. And, you know, the market will evolve and we'll hopefully get a very good share of this, you know, evolving new trend and, you know, and be a permanent player in classic tradition. Got it. That's helpful. And then just quickly, I appreciate the color in the compounds and the design galleries. Can you just compare and contrast how unit economics could look compared to the legacy gallery formats that you've opened for the past decade? Should revenues and margins be pretty similar or could the margin profile actually be a little bit stronger, given maybe less SG&A associated with the new format compared to what we've seen previously? Yeah. Like we think, so it happened. We're building our multi-level design galleries with a restaurant and a group, pre-COVID, anywhere from, you know, a lower cost market. I think we hit a low of like 27 million, you know, in Charlotte. Yeah. Yeah. Yeah. Yeah. So some of the lower costs, 27 to 30, more expensive market to build might have cost us 35. And, you know, the cost of those, you know, went to 40 to 60. You know, I mean, with just all the inflation costs that happening, construction, especially better quality to start hiring construction. So that, you know, necessity is the mother of invention, right? We, you know, we were already pregnant with a lot of real estate we had to build. We were committed, you know, under construction or too far down the pipelines or change course. But, you know, we've invented a new concept. We said, look, if you say, what's really good about one of our multi-level galleries with a restaurant and, you know, that whole breed, there's really a lot of good things about it. What are the bad things about it? Multiple floors require grand staircases. They require elevators, generally two. They require two sets of exit stairs. Those are not cheap to build. You know, so you've got multiple stairways that, by the way, do zero dollars per square foot. You know, there's no transactions happening in the elevators or the stairways or the grand stairwells. There's a lot of square footage. And then when you take that and start, you know, compounding floors, then you put a furniture on the roof and also you've got a whole different coating. You need different footings and foundations and steel gets upsized and, you know, with all the inflation and steel, that was a big problem for us. And, you know, those doses became very expensive. And then everything you do on a multi-floor building, right? You've got cranes and pickers. You've got guys trying to put metal awnings on windows on the second floor or the third floor. And, you know, you've got cranes and everything all around. You know, you're trying to plaster the whole building in multiple floors. So if you think about a compound, we disaggregated one of those big galleries and we said, okay, what can we get rid of? And, you know, you know, there's some fortunate real estate opportunities because of, you know, I think Saks went bankrupt first, right? And then Saks came out of bankruptcy and then Nordstrom went bankrupt. You know, then Saks bought Nordstrom. I mean, even the new ones. I mean, even the new ones, yeah. I mean, even the one back to it. So, you know, different opportunities were coming up for real estate. We think more will come up, you know, high end. Also to think about what's happening with transportation and driverless cars, you know, even Uber and driverless. There's going to be a lot of parking lots in very good shopping centers that have way too much parking. Very, very soon, right? And it's already happening now. And zoning laws are changing. So, you know, we said, how could we be opportunistic with, which we think is the reduction of real estate, like if Saks, if they didn't come out of bankruptcy. Saks did. Yeah, they did. Oh, they did, okay. Yeah, but I gotta think they're not gonna keep the same footprint. So there's gonna be opportunities with luxury, department stores kind of closing. We took, one of them were taking just a parking lot space in Alpenterra and the Naples was a Nordstroms enclosed. And, you know, and so they're relatively big paths. And what we did is we said, hey, what, you know, we build this really interesting and design is really interesting. And we said, well, what if we, you know, build multiple small buildings connected with beautiful garden courtyards and pathways and fountains, fire pits, and we put a restaurant in the middle and, you know, it's beautifully landscaped. And so we have a fraction of the square footage under roof where you really look at all, we have individual buildings that don't have to have connected mechanical systems. So much less complex, you know, mostly the buildings are four to 5,000, 5,500 square feet. It could be a one, two, three, four, five, six, kind of seven connected, seven, you know, independent structures. Naples and, you know, and they, and they're designed in a way that it's designed for outdoor furniture, outdoor, and designed the rooms are designed, you know, very efficient ways. We actually get more product per square foot, but I think it's gonna feel just as elegant and brand. You know, we don't take any cranes, doesn't take any stairways, doesn't take any exit stairs, doesn't take any elevators, doesn't take the footings, or this, that, in fact most of mine, even in, I think in Naples, right, saltwood, no steel, yeah, 100% wood. Some of these we believe we can prefab, build the walls and just tilt them up, you know, a lot through the outsides. We designed them so they only have a couple of kind of windows because we could, you know, manufacture the windows and do a lot of things. So, you know, they're gonna cost us, we were hoping the price was gonna be half and it's half, you know, so, and we get more product density. And I think they're gonna be more exciting to shop. I mean, you're really walking, it's like a resort, I call it like a design resort. Walking through, there's, depending on where you are in the US, you know, in Florida, you're gonna have palm trees, banana ponds, all kinds of, you know, tropical foliage and stuff like trees and other things. And they're gonna be cool, they're gonna be very interesting, and restaurants are gonna be beautiful. It's like a glass box in the middle of, you know, a matron, indoor-outdoor, indoor seating, outdoor seating. So we're super excited about it. Everybody who's kind of seen them, you know, Dave, he's got that, Naples, right, like walk through. It's like, feels good. Like, even though it's construction sites still, you know, you get the feeling of, like, it's nothing, nobody has anything like it. And what else is, you know, Dave and I were talking about, it was good about it, because of the like, you know, they'll take more risks on these and I think participate more financially because we're building all these smaller buildings. So, you know, they're always worried like, oh, what if something goes wrong with our age, I'm stuck with this three-story building with the restaurant on top, like who's gonna lease that front if you've got a lot of people. But, you know, you sell them on, hey, look, we built you a little village. You know, you could put eight retailers in here. You know, beautiful, they all connect it. It's just an extension of, you know, your shopping experience. So, I think we have a good selling point. You know, I think we're gonna, you know, be really good partners for developers. So, we're excited. And the single floor galleries that we're doing that are anywhere from 18 to 20, right, 22,000, 24 plus four feet with, you know, beautiful courtyard restaurants in the middle. We have our new Italian concept that we just opened in Greenwich. Sheena Angelina, it's named in honor of my Italian mother, yeah, some of you are gonna ask for my Italian cook and she wasn't, right. And as an Indian, I can't honor, right. She did like to eat, but my uncle Gino was the cook of the family. So, I also talk about him, you can see the menu and stuff like that. But some of these compounds we're doing is really fine, you can see a big pizza oven. And, you know, we think we have the best pizzas in America. It's like, if any of us here, like, you know, really wanted to take a flyer, you know, I think you could take our pizzas on the road and you might have the best pizza concept in America. I wouldn't wanna be, you know, any of those Papa John's or anything, he against our pizzas. Like, they're so good. We have this pizza expert that works for us in Europe, Matteo, who's, he's perfected the crust. He's, you had, you had a pizza last night, Max, no. I did not, no. You eat last night, I saw you, or you just, no, you're just, you're trying to get the information on the gallery. But no, like, anyway, these compounds are gonna be great and I think the returns are gonna be as good or better than anything we've ever done. And I think single floor galleries will be as good and better than anything we've done. And so I think, you know, you're gonna see a capital spending go down, returns go up. And I think you very quickly see our return on investment capital and return to where it was, you know, at our peak. That's great. I appreciate all the color. Good luck to the entire team in the second half. Speak soon. Great, thank you. Your next question comes from the line of Chris Nardone with Bank of America. Your line is open, please go ahead. Great, thanks guys, good evening. Can you guys elaborate on the health of your core inventory and can you talk about whether you first see the need to step up promotional activity to help clear way for the Estates rollout as we look into 2027? It's not really clearing way for Estates. Estates is gonna be incremental to the assortment. So we're not really clearing out Estates. I mean, we're gonna get some of the things that are in the galleries today will come out of the galleries. And, you know, we've got a pretty good outlet network and ability to, you know, rotate through that. But Estates isn't gonna cost, it's not gonna cost mark next. I mean, the environment in our category is very promotional right now and has been, right? So there's, I mean, there's a lot of data out there. You know, people are, I mean, down to the, you know, by week, how many, you know, how promotional, how many, you know, skews does our HR versus pottery barn versus this, you know, like, I mean, everybody, you know, when you're in the home business like this and you get a down to housing market, you know, four million homes for four straight years, unless you wanna lose market share, you gotta be competitive. So it's been somewhat of a promotional environment, you know, march and circle, they have fines, you know. And I mean, if you just take our model and extract, you know, a lot of these drags, our underlying model is a really good model. It's a really good model. We didn't have the drags from international. And, you know, I don't know, like right up there with anybody, right? So, you know, we're, you know, cycle through here, a stage is gonna be incremental. You know, like a, like a, think of a stage like a new category, you know, it's like when you've got a new aesthetic like that, it's really like a new category, it's like a new business almost. But we get, you know, we get to sell it on our platform. So it becomes very incremental and it's very leverageable. I mean, this is it, things like this are the biggest drivers of profitability, right? They're like, you know, we spent some capital here, you know, we bought some businesses, you know, things like that to build this, but you don't have to do that one time. And, you know, built a freestanding state store here, we bought, we bought formations, we also bought the formations real estate, formations in Dansiline. And we're gonna transform that property to an RH estate gallery, which scientists have done, you know, West Hollywood on Melrose Avenue. So, you know, Melrose Avenue, we will have the RH Interior Gallery, the RH Estate Gallery, and then we three doors now from the Arctic State footprint, which is a 195 feet in frontage, right, on Melrose and our current galleries. And then we took another smaller location for RH Outdoors, so a freestanding RH Outdoors. And then on Beverly Boulevard, a couple blocks away, we have an RH Modern freestanding. So, you know, the question is, do we need to keep modern, is modern consolidating into the, you know, the kind of core building that's had some modern income? You know, we may keep the whole footprint, we may consolidate some of it, but I think you'll see, you know, you'll see this test, I think we've talked about the past about RH ecosystems where one of the casual efficient ways to deploy the brand, especially if we've got a presence, like in Greenwich, we don't want to leave the historic post office for the best location in Greenwich. We were able to get the second best location in Greenwich, the Ralph Lauren Building. And so we call that an ecosystem. So we'll have, you know, the historic post office will have Irish contemporary and Irish modern states will be in the former Ralph Lauren building, and then we've got a gallery, you know, that's where it's very important business to us. And so a lot of the key markets, we might have a freestanding after our presence, but instead of trying to get rid of our real estate that we're in, and going out and having to build a big new thing, or, you know, we never find a big, big enough location on Greenwich Ave, we have to go back, and I don't know if you want to there. Yeah, so we call that an ecosystem. We've got an ecosystem in Palm Desert. We're doing one of the most Hollywood that they just described. And it's just a much more capital efficient way to continue to deploy the brand into Greenwich. All right, thanks Gary, good luck. Thank you. Your next question comes from the line of Christina Fernandez with Telsey Advisory Group. Your line is opening, please go ahead. Great, thanks for taking my question. I wanted to see if you can expand more into the trends you're seeing in Europe. It looks like London's up to a very good start. Are you seeing, you know, the end consumer shop more there, or is it more geared towards the trade, like what you're seeing at the other European locations, maybe an update on how Paris and Milan are ramping up. Thank you. Yeah, and you know, you're asking at a funny time, right? In August, it's not usually the best month, you know, everybody's on vacation. So there, people are just getting back, especially Milan, like, you know, we fire a cannon up down the streets and you know, most cities in Italy. Yeah, but same thing with Paris. I mean, everybody in Europe is on vacation in August. Everybody starts getting back in September and you know, business, you know, will ramp. Yeah, our focus is how to build the brand in each of those countries. I think they're all different. It's interesting. Each one's culturally somewhat different than shopping behaviors different. I mean, obviously the languages are different. I think that surprises a bit just how unique they are. So, you know, how do we market? How do we build awareness? How do you build the business with the trade? We have a lot of learnings. We're flying early tomorrow morning in Paris. And so we'll be in Paris tomorrow night and Saturday and Saturday evening we fly to London. You know, we'll be in London Saturday evening and Sunday. You know, we'll be in Europe a lot this year. Yeah, connecting with our teams, listening, learning, finding out what we're doing smart, finding out what we're doing down. Yeah, no different than, you know, building businesses and kind of new markets. These are very different, right? I mean, London, you know, it's got a, London had a running head start. Start for multiple reasons. One, it really speaks English as primary language. Two, it has the most, and we have the most, we ship, London's the number one place. We don't ship to other countries, but customers can buy from us and we help them get their goods containerized, right? And they take control of the shipping. But London, we have the most shipping too. And then we've had three years and, you know, Orange, England kind of ramped up by demand. So you see an awareness that's been built up there over three years. Yes, that's why we expected London. You know, we wanted to open London first. It's just that was the most complex of the deals and was gonna take the longest and so on and so forth. And that's why we did Orange, England. To kind of get positioned in the marketplace. So, you know, but don't, like, we're happy. We're learning about the business and lots and lots of opportunity. And the key is, you know, you can't be an absentee kind of leadership team. Like, you can't leave everybody on an island in these individual, you know, geographic. So, you know, if we're ever gonna be on the East Coast, likely we're gonna hop over to Europe. And then we're gonna go to Europe at least, you know, at least four times a year just to go to Europe. You know, spend, you know, half a week or a solid week. Yeah, really spend time with their teams. You know, going to say inside our company and the smartest people in the company, there's people closest to the customer and those of us that have gotten promoted, you know, generally get farther and farther away from the customer and we get dumber and downward, right? So, the only way you can lead is if you, you know, first listen, second learn, and then you can effectively lead. So, we're listening and learning about, but we have to do a lot of listening, you know, but spend a lot of time. You know, and our people, you know, they've been very helpful. So, you know, we've got to get in stocks. We've got to deal with the different, you know, you have different raw material issues and different blindability issues, you know, upholstery, lighting, things like that. It's been a little bit more complicated for us. And so, we're, you know, we're working through our supply chains to be more responsive and compete better. But, you know, I like the direction we're going, you know, and I think we're gonna get better and better and better, you know, the strategy is gonna go away. And so, and London's, yeah, very exciting. I mean, like, we had our fingers crossed so that one was the cunt. You know, what should this be? What could it be? And I mean, to see the first eight week grant there, it was really exciting for us. And we've got a great team. We've got a great leader. You know, building a great design team there. And I've never seen customers like, I don't think it's eight or something, like nine days or something. I was in the gallery quite a bit and I'd never seen a level of cushion. These are really important big projects. So, I mean, I would say it wouldn't surprise me in two years, maybe by year three, that London's not the number one, you know, unless we opened the Middle East, you know, sometime before then. The more we're learning about the Middle East, yeah, a lot of people believe that will be our number one gallery, you know, Dubai. Your next question comes from the line of Marius Morer with Zelman. Your line is open. Please go ahead. Good evening. I'm just curious, Gary, you mentioned that most of the states is protected by IP. And obviously, you know, the furniture industry is notorious for knockoffs. And there's a long key story going back probably 150 years of mixed success in defending designs in court. So I was just curious, I wanted to ask if you could give us maybe a bit more insights into what you think will make states easier to defend? Is it maybe, you know, that the finishes are more intricate and just easier to defend and contemporary, or is there something else? Well, yeah, so there's a lot of levels to it. So in cases where we bought the brands, you know, brands have IP, and, you know, it's pretty strong that we think is good. A lot of the businesses we bought, we're, you know, we dimensionalize our assortment. So we use our design teams to dimensionalize things and so on and so forth. So those have become original RH designs. And so we've filed for design patents on almost everything. And, you know, we're pretty big in our industry. I think if you get a letter from us, and they've got a design, my people screw up and we've been influenced by something. We get a letter here, I usually hold the tent. Like, why do I want to work and spend a lot of money? It doesn't happen to us often, but I, you know, I tell people like, let's not waste our time. Like, we don't want to spend time with that. But we think, you know, the work we've done with the states is very defendable. We have, yeah, I don't think the government invested this much into design patents. So, you know, we'll see. Maybe no one's ever invested in protecting, you know, intellectual property in this industry that well. I mean, I go try to knock off a Giacometti table. There's a reason we haven't. They will take your ass to court. So unless you want to go spend millions of dollars fighting over it, like we don't have any Giacometti influenced coffee tables. Even though I'd like to, I think they'd sell great. A lot of it is, I just don't think, the furniture business hasn't really been a sophisticated industry, hasn't been well capitalized. You know, a lot of mom and pop stores. You know, so nobody really had, you know, the legal department. We've got our new chief counsel sitting next to me when we're running, and yeah, he's gonna help. Yeah, it's all teed up. And that's play defense, play offense. So, yeah, that's why we're, you know, we're moving like that and it's used by our age. Thank you. Your next question comes from the line of Brian Nagel with Oppenheimer. Your line is open, please go ahead. Jason McKenzie on behalf of Brian Nagel. You mentioned tariff refunds will help offset the 50 million of unplanned supply chain costs across the full year. Do you think that amount is still ramping as fuel costs remain increasingly volatile? What do you think? Fuel costs persist into the next year. How do you think about possible mitigation efforts as we lap next year's oil price spikes in the absence of refunds? I think everybody's mitigating where you can mitigate today. Yeah, okay, so you're 109. Like, I mean, oil is 63. Like, beginning of the war. Like, you're not gonna be able to mitigate that. You know, there's, I mean, costs are going up, inflation's gonna go up. You know, there's a reason why the administration said that the war, you know, was ending and we're gonna have a deal in a day or two, 38 times. There was an urgency to end this war and end this conflict because it's likely not good for the election. You know, now it might be too late. You know, so now the administration, what I saw offered voters $5,000 to every American. You know, votes for the president and the administration. That's interesting. You know, so, yeah, we're in it. We're in it. We're in it being a time of inflation. You know, I don't think they're gonna be able to keep the lid on interest rates. Yeah, so, you know, I keep thinking, gosh, my entire career, and I've been doing this a long time. I think the market, you know, that was down longer than 18 months, so it looks like where you go in a year to five. So I like the game we're playing. I mean, we're playing offense. We're gonna build our own bigger market. So I think we'll be able to grow, you know, pretty well through any kind of market that we look forward. But there's gonna be costs, you know, so, I mean, Walmart had $2 billion tariff refund engine. It's all going to increase costs and some lower prices, Home Depot, like 700, all going to increase costs. Yeah, there's massive increase costs. Nobody's got a magic wand. Nobody's gonna get that much better price than somebody else. You know, if you have leverage, you'll use your leverage, and, you know, but you can't make your, you know, your partners go bankrupt, right, or you have no partners. So it's gonna, we're gonna be in a higher cost world for probably at least the next six to 12 months. I mean, even tomorrow, they end the war. I, you know, there's too much inflation in the pipeline. I mean, all the raw materials are going up everywhere on everything, everything is in power, you know, so, you know, that's why, you know, I mean, you're seeing crazy things, right? We're trying to manipulate currencies, buying back things like this. It's a crazy time. Your next question comes from the line of Jonathan Matuszewski with Jeffries. Your line is open, please go ahead. Oh, great, good evening, and thanks for taking my question. Gary, it was on the recent revamp of your trade program. I was curious if you could speak to any indications of early success, how the trade community is embracing it and relatedly, are you doing anything to activate the interior design community with the Estates launch that's perhaps maybe different from how you've sought to build awareness for prior brand launches in the past? Thanks so much. It's a really good question. Yeah, the, you know, our teams, our trade teams are over the moon that, you know, we launched a new program, I think designers are, you know, happy firms are reengaging us. We've seen an acceleration of our business, a meaningful acceleration that we're already at a level that offsets the discount, you know, so we've hit the volume levels we needed to kind of offset the discount. So, and the pipeline's building, so it's been fantastic. And our teams are working on different engagement methodologies. You know, we're looking at doing, you know, more events in our galleries. We have very nice spaces, so we're, again, even smaller events, designers wanna come and do things that they ever, we're gonna be a lot more open on multiple levels, you know, with the trade. So, and I think the trade's very happy that we're doing a bespoke couture, right? That we're doing COM, we're doing bespoke furniture, and, you know, custom sizes that can specify. So that's a big deal. And I even met a gentleman in his family last night that, you know, talked for about 30 minutes, and we've done three homes for him, and they were building a big new contemporary home, and he didn't think that we were gonna be able to do it. And then he said, like, I thought it was great that you guys just launched this bespoke thing because now you're gonna get the fourth home. I thought that was very good, is that, yeah, it makes them a big home. And so, and they're huge fans. Talking to the family, and last night, I was like, I mean, just right there. I mean, you know, you don't wanna lose customers like that that, you know, building their fourth home and might not have been able to do it the best. So, yeah, so we're, again, we're learning, you know, we've gotta stay close to our trade teams and our leaders, and, you know, there's more we can do. And, you know, but I think, I don't think that anybody offers the trade more supportive services than we do. Right, we support them with, you know, doing floor plans, doing renderings, doing, you know, we work as like a back office, not just, you know, supporting them with products, but supporting them with designs, supporting them with installation. You know, when you think about the, the hard part of competing with us in the design world is that we've got such a broad assortment and we've got such good experience and tenure in our interior design business and the services we offer, and just the logistical ease of working with us, getting a home design, getting it all delivered at one time, getting it installed, you know, we have a lot of resources supporting that part of our business. And I think, you know, as far as someone who also, you know, is a furniture retail business, you know, at our core, I think we're, I think we have real strategic separation from the next best person here. There are no further questions at this time. I will now turn the call back to Gary Friedman for closing remarks. Thank you everyone. I appreciate your participation and all the questions and we look forward to talking to you next quarter. Thank you. This concludes today's call. Thank you for attending. You may now disconnect.