Ladies and gentlemen, thank you for standing by, and welcome to the RH Third Quarter Fiscal 2022 Earnings Conference Call. I would now like to turn the call over to Allison Malkin of ICR. Allison Malkin, please go ahead.

Thank you. Good afternoon, everyone. Thank you for joining us for our third quarter earnings conference call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer; and Jack Preston, Chief Financial Officer. Before we start, I would like to remind you of our legal disclaimer that we will make certain statements today that are forward-looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our press release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings as well as our press release issued today or a more detailed description of the risk factors that may affect our results. Please also note that these forward-looking statements reflect our opinion only as of the date of this call. And we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Also, during this call, we may discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in today's financial results press release. A live broadcast of this call is also available on the Investor Relations section of our website at ir.rh.com. With that, I'll turn the call over to Gary.

Great. Thank you, Allison, and thank you, everyone, for joining us today. I will start with our prepared remarks from our shareholder letter to our people, partners and shareholders. We're pleased to report better-than-expected results for the third quarter with net revenues of $869 million versus $1.006 billion a year ago and up 28% versus third quarter 2019 net revenues of $678 million. Gross margin contracted 50 basis points in the third quarter, primarily due to fixed occupancy deleverage, partially offset by an increase in product margins as we continue to resist promoting the business. As previously mentioned, widespread discounting continues across our industry. And while it's been almost two years since we've deployed a promotional e-mail, we've been receiving two sale e-mails per day for many home furnishings retailers. Although the stark contrast in strategy may lead to a short-term risk of market share loss, we believe there is certain long-term risk of brand erosion and model destruction for those who choose the promotional path. It’s that discipline and long-term thinking that has enabled us to set new standards for financial performance in the home furnishings industry and our results now reflect those of luxury brands as we delivered 20.8% adjusted operating margin in the third quarter, also exceeding our outlook despite the dramatic slowdown in the housing market. Our results are inclusive of investments related to the launch of RH Contemporary, the opening of our first RH Guesthouse, the development of RH International and the rollout of RH In-Your-Home, which led to approximately 200 of the 640 basis points of adjusted SG&A deleverage in the quarter. Additionally, we experienced adjusted SG&A deleverage due to lower revenues versus a year ago. Our business generated $102 million of adjusted free cash flow in Q3, ending the quarter with $12.5 billion…

Ready for questions.

The floor is now open for your questions. [Operator Instructions] Our first question comes from the line of Simeon Gutman from Morgan Stanley. Please proceed.

Hey, good afternoon, everyone. I wanted to ask a question about written orders in the third quarter. I don't know if you'll comment, but if you use that run rate as a proxy for the business, does that get worse? And then my question is that we now -- since you beat in the third quarter, we have a slightly steeper slope to the fourth quarter. Is that less backlog? Is it more macro risk? What's changing from third down to fourth?

Maybe starting with the second part, Simeon. Look, in the beat in Q3, I think most of that I would characterize as just timing of sales from Q4 to Q3 not necessarily -- some of that is obviously relieving backlog faster than expected, but we had expected to relieve that backlog and continue to do so throughout the year. So look, I think on the year, we're still talking about $3.6 billion in sales. I don't think our sort of numbers changed materially in terms of that outlook, slightly steeper sure, but it's not kind of rounding error in a sense with all due respect. But I think it's pretty consistent with what we talked about before and simply just Q3 had some pull forward of sales from Q4 and a little bit of faster backlog belief.

Okay. And then as a follow-up, maybe more for Gary, knowing that you're going to continue to invest for the future and still be somewhat responsible here for the near-term. Question is what -- are you looking at prioritizing things differently? Does anything get sacrificed, love to hear how you think about this, especially as the year keeps evolving with the Fed still tightening?

Yes. How do you define responsible?

Yes, I don't know, if I can answer…

I'm just trying to understand the question. So I think…

…cut back on that…

Yes, we're communicating what we're doing. We believe everything we do is responsible. So I don't quite know how to answer that.

Well, maybe this as the second part, which is, is anything getting sacrificed meaning or some of your longer-term investments putting on pause or no, and that's maybe that's just the right way to look at it.

We're not putting any longer-term investments on pause. I mean, we're playing for the long-term. So we're not doing irresponsible things that other people are doing like promoting their business and selling. Sending, I don't know, 30 e-mails to a customer a week with sales time. So that, I think, might be irresponsible. But I guess it depends on your strategy. If your strategy is to stand for price, then maybe that's an okay strategy. Our strategy is to stand for design and quality and innovation. So it's positioned the company around product, not price. So I think we've been really consistent with our strategy. And as you think about priorities, we reprioritize all the time here. We like to say, you've kind of got to get going, get to know are we strategically right? Are we directionally right? We believe we're strategically and directionally right. We believe as we make the right long-term investments and build this business for the long-term, we'll become one of the few brands in the world that exist over a long-term period of time. So that's unusual in our industry. Most people build a concept and then they roll out 300 or 500 stores. And at the end of 10 years, it's an old concept. So we would like not to get old, and we like to continue to reinvent the business. And whatever the cycles are, if you look at it for us, if you look back at history, since I joined in 2001, there was a recession at that time, and we elevated the product and kind of transformed the brand. We did the same thing in 2008 and 2009, the financial crisis. We went through another cycle again in 2015, 2016, 2017, when we made the move to membership and rearchitect…

Okay. Thank you very much. Happy Holidays.

Thank you. Happy Holidays to you.

Our next question comes from the line of Steven Zaccone from Citi. Please proceed.

Great. Good afternoon. Thanks for taking my question. I wanted to focus on RH Guesthouse. The last time you're on the call, you talked about some of the initial interest. How has that performed the first three months that it's been open? What are some of the early learnings for the hotel? And do you see opportunity to open more of these concepts going forward?

Yes. I mean we just opened. We think it's extraordinary. The feedback we're getting from our guests is incredible. The feedback we're getting on the restaurant has been incredible. And so we're just in early learning period. We're not -- I missed the first time we've ever done this. So far, we're really excited. We're going to be opening our Champagne & Caviar Bar soon. We've got our feet underneath on our new live-fire restaurant. And so we couldn't be more excited about it. I mean, the feedback from our guests is -- a lot of people are saying, gosh, how am I going to be able to get in long-term because it's just not that many rooms. But we're excited -- it's going to be learnings here that will help us evolve and make ad spend better and yes, so on and so forth. So, this is just very early, big test. It's kind of a small thing in a very big organization that if it becomes a big thing long-term, great. But right now, it's really positioned to be something that helps redefine the brand and have people look at us differently. So, I think it demonstrates the kind of creativity and passion and attention to detail to do something extraordinary. People from the hospitality industry have come and seen it and toured it. Luxury CEOs that have come and toured it, said they haven't seen anything like it anywhere in the world. So, we just let it kind of unfold here.

Okay, great. Very helpful. The other question I had was on gross margin. So, the first quarter of the business has seen a decline, obviously, on occupancy deleverage. But as we look forward is that the likelihood that you probably see gross margin decline again in the fourth quarter? How should we think about the trajectory from here?

Yes, I think, look, when you look at the sequential just change in our absolute sales. So, when we went from revenue in Q2 of $992 million and gross margin of 52.8% million and going to $869 million in Q3 and 49.7%. As Gary mentioned, a lot of that is occupancy deleverage. So, -- and if you think about Q4, there's a further sequential decline, right? Q4 is a smaller quarter for us. So, at the midpoint of the guide, we're at $789 million. So, if you do -- if you just -- we were not guiding gross margin, but if you do sort of like similar sort of math and transposition of numbers going from Q3 to Q4, as you did from Q2 to Q3, you'd naturally see a gross margin decline built into that because, again, the absolute sales are lower than Q3. So, it's just math. I mean, directionally, probably 100 basis points-ish, but again, we're not officially guiding gross margin. It's just a correctional number.

Yes, I would just say, look, if you look at the housing industry and track the housing industry and if you track the performance of home furnishings retailers against past housing downturns, that would tell you things are going to get worse before they get better here. The housing industry is in a free fall. I think the National Association of Realtors just reported that housing demand was down 37% in October. We've never -- at least in my lifetime, I've never seen interest rates rise so quickly. I don't think anybody on the phone has either and the impact on the housing market, especially when you look at it versus the housing market that was overinflated and run up by COVID, you're going to have some wild swings here. And it's happening first to the luxury market. If you look at the numbers and if you track the last, yes, nine months or the reporting on Redfin, I think it started -- the luxury housing market started going down in the Q4 last year. And the luxury housing market went up faster and higher, and the luxury housing market is going to go down faster and lower. And that's just an outcome. And so the question is, there's going to be people that rode it up and they're going to try to stay up and they're going to promote their business, and I think they're going to break their models. And next thing you know, you got to send out 1,000 e-mails to let next year, too, and you're just going to what I call the downward spiral. We're in the dish. And so we've kind of expected from the beginning that this COVID lift wasn't anything that we manufactured. And generally, when that happens, those kind of things…

Duly noted. Thank you. Happy holidays.

Happy holidays.

Our next question comes from the line of Max Rakhlenko from Cowen. Please proceed.

Great. Thanks a lot. So the way that you're seeing your margins play out over the past couple of quarters with upside, both 2Q and 3Q, does that give you more confidence in keeping at least 20% EBIT margins next year if the environment remains challenging? And then just more broadly, how are you thinking about the durability and margin power of the business today given some of the moves that you've made recently?

It depends on our -- that always going to depend on your investment and your investment timing. Our underlying core business -- if we wanted to, yeah, we can crank it all back and stay at 20%. I'm not sure that's a long-term priority. I don't know how bad this market is going to get. And we don't want to promote the business over the short-term to try to create some short-term outcome that's going to be a relevant two quarters after that. So there's going to be a lot of decisions to make, really difficult environment for those of us in the home industry. And especially if you're at the higher end, it's more challenging. And for some people, it's not intuitive. But you've got to think about it. With the greatest migration of people moving from cities to suburbs in the history of America during COVID and to second home markets. The people that did that could afford to do that. The people that move the most and bought the most homes were the luxury customers that have the capability to do that. That's why the luxury market went up so high and the housing market, the luxury housing market benefited the most, and we're going to have a flip side here. So look, we didn't -- all that extra money we made during COVID, we didn't waste it. And on the flip side, if we have a bigger give back, that's okay. If you look at every home furnishings retailer and look at where their operating margins were in 2019 when they entered COVID and where they exited in 2021, we had the highest operating margins going into COVID, amongst all of the furnishings retailers, and we exited with even higher margins than anybody else. We picked…

Got it. It's really helpful. And then can you just separately speak to the customer reception to Contemporary. How is that going compared to your expectations? And then just any updates on the time line of the rollout to other galleries?

Yes. We're very happy with the initial response. We wish we could get more product faster. It's two things, a lot of it got impacted by the supply chain backup, which are now just kind of all coming unlock. But also almost all of the new products is really new product that has never been made at scale before. So one of the things that is going to happen to us during cycles. This happened to us in 2008, 2009 when we kind of transformed the assortment in the business. It happened us in 2015, 2016 when we moved the Modern, and it's happened to us now. When we make these big moves and they're generally every seven or eight years because those are kind of the big cycles in our business. I mean trends can last 10 to 15, but there's generally -- I think every -- every brand needs a major refresh every seven or eight years. And so our just having to be timed to economic downturns. And a lot of that coincidental, quite frankly. In 2015, 2016, it wasn't really an economic downturn. We created somewhat of a downturn when we moved to membership because that was a kind of a year transition to do that. But when you bring in this much new product that the world hasn't seen before that no one's ever scaled Travertine furniture or Burl wood at scale, you can see pieces out there. Antique stores or some retailers have a piece or two, a couple of pieces. They don't have collections with 130 SKUs. And no one's out there making that stuff at scale. So we are going to constantly for the rest of time have to continue to build the supply chain capability that enables us to invent. I…

Awesome. Thanks a lot Gary, Jack, Allison. Happy Holidays everyone. Speak soon.

Happy Holidays Max.

Our next question comes from the line of Curtis Nagle from Bank of America. Please proceed.

Great. Thanks very much for taking. So, maybe kind of one longer term question then a quick model one. So, first, Gary, I'd love to talk about the acquisitions and kind of how much the step-up you're high in trade and interior design business for us kind of a little less than a no and how big an opportunity from a revenue perspective, you could see? And then just as a follow-up, I just wanted to clarify that comment, kind of loosely made about 20% margin next year if you pull back investments, maybe I misheard, but just if you could clarify what you were talking about there?

Yes, I think -- yes, as you think about the high-end design and trade, how big is the revenue opportunity. The people at the very top of the mountain own the most homes, not only do they own the most homes, the homes are more expensive. On average, someone spends about 10% of the home costs on furnishings, decor and art, right? So when they buy nicer homes, they buy nicer furniture. They furnished the whole house. They have multiple houses. And so that's the most lucrative part of the business. It will be the most profitable part of the business. It has the most leverage. You make the most money there. So we think it's really important strategically. And we went out and met who we believed had the best reputation and quality and design in upholstery and the same in kind of case goods and furniture. And they're big believers of trying to scale this level of quality and design. And so we're really excited about it. It's going to take a while. We've got to get it up and going and test it and see how it goes. We've got to figure out exactly how it's integrated. But the long term -- yes, I would just say probably today right now, there's a bunch of people in the high-end trade industry that just kind of said, WTF. And then like now what is going to happen. And this is a big move for us strategically. But we've got to build capability. There could be other acquisitions to build capability here. And you think about the investments we're making, building a media platform and a content editorial platform that will position the brand as an authority in the industry. I'm not speaking about ourselves, speaking about the people…

Yeah, for sure, some really impressive resumes there. And then just going to the follow-up question, Gary, just a comment you made about could have 20% margins if you pulled back or something like that, I may have misheard, but I just wanted to clarify that?

Yeah, the underlying model, I think we've already said it can withstand a 20% down and probably hold the margins around 20%. So that doesn't necessarily mean that's what we're going to do, that we're going to pull back investments when we should be investing. So right now, again, I don't think the idea here -- I don't think it's strategic to go, hey, let's have 20% operating margins in 2023. I don't think a lot of people get up in the morning and go to work and fight for 20% operating margins. They get up and they go fight to do incredible inspiring work that they think is going to create great long-term opportunity. And if we didn't have a whole lot of things to do, we didn't have a lot of great ideas that we're pursuing right now. Yeah, am I say, hey, you know what we don't have anything that's really that big worth investing in. So like let's, here we go, let's hit 20% operating margin. Let's make that the goal, but we have some incredible stuff what we're working on. The most exciting stuff we've ever worked on by far. And the kind of stuff that you're so excited, you don't -- you can't sleep, you can't even go home, you're just so excited. And we have groups of people that are here have been through all kinds of hours, like figuring stuff out because the work is really that special. So we're investing in that work as we think that work will change the vector and will change everything and will create massive strategic separation. So we're not really looking at. I wouldn't say if you said, hey, Gary, is your focus on financial outcome in 2023? Not really. Our focus is on creating a leapfrog in 2023 and 2024 that when we come out of this cycle, that people look around and go, where did they go? That we've just made such a leapfrog that we're so much farther ahead of everybody else on every level. And that will create big returns. And we know how to create big returns. We built the best model in the industry. So we're going to do things that make the model better. But you can't do that by not investing and go, okay, we're 20, let's hang on, let's do less. That's the downward spiral. That's the long-term death spiral. And that's not the game we play.

Understood. Thanks very much and happy holidays.

Our next question comes from the line of Jonathan Matuszewski from Jefferies. Please proceed.

Great. Good afternoon and thanks for taking my question. Gary, you mentioned 2023 will mark the largest introduction of new products in company history. So how should we be thinking about your Source Book strategy next year? How are you thinking about mailings relative to maybe this past year, given all the new product launching? And should we be planning for elevated Source Book costs, that's my first question. Thanks.

Yes, you should. And probably a big advertising campaign that I think it's the best work we've ever done. So we're going to shout from the rooftops.

Got you. And then my follow-up question on supply chain. Can you help us understand the cadence of how supply chain cost tailwinds may flow into gross margin next year? The reason I ask is, I think 70% of your cost of goods sold is sourced from Asia. So how should we be thinking about the timing once we're on the other side of elevated inbound container rates next year? Any color there would be helpful. Thanks.

Hi, Jon, so we're kind of getting some of that already. If you think about the ocean-freight contracts, they reset roughly June 1. So that's where we saw the initial burden of those much higher rates, as we've talked about in various calls. But I would say every month since then, we have actualized a number lower than contracted. And the way you achieve that, obviously, you're not always going to contract at the spot rates lower. So you're going out in the spot market, and those rates have been coming down, there is excess availability, especially along certain Asia Pacific routes. And so while we initially saw margin pressure from the higher rates in, I would say, the first four, five months, we're at a point now where we -- like this last month, we're lower than we were for the sort of contracted rates for the prior year. So and if you think about our turn, call it, two, three times depending on the product category and a lot of our business is special order so there's an immediate impact on that. But the part of stock, I mean, we felt pressure and we're kind of now getting into the -- some of the initial tailwinds and that's reflected in our guidance obviously. But that we expect, honestly, as we look at it and we think about what's happening with the supply chain, I think there's probably more to come there, more opportunities. And so those are starting, and we'll continue to see that in the next year, we believe.

That's helpful. Best to look for the rest of the year.

Thank you.

Thank you.

Our final question comes from the line of Michael Lasser from UBS. Please proceed.

Good evening. This is Atul Maheshwari on for Michael Lasser. Thanks a lot for taking our questions. Gary, your stock buybacks slowed quite a bit this quarter. The question is, why did you go slow on buybacks so much? Was it because of the M&A or has anything fundamentally changed about how you view buybacks in the current landscape given you still have over $2 billion of cash in the balance sheet?

Yes. Look, I think that -- the housing market has collapsed. And it's went down pretty viciously as interest rates have went up. And so I think Simeon's first question was about being responsible. So, we're not going to necessarily change the world through a buyback strategy. And when you're going into kind of a storm that you haven't seen before, you don't want to sail -- or let's say, you're not in a sailboat, but you're in a boat -- you don't want to spend all your fuel before you can see the shore and run out and be floating around out there. So, there's lots of examples of people who went out and spent a lot of money on buybacks and went bankrupt. And Bed Bath & Beyond will probably be the next one that does. They're pretty famous for how much stock they bought back. So, I don't know exactly how this housing market is going to play out. I don't know if the housing market is going to -- almost always, the housing market is in a recession. I mean if somebody doesn't think that, I'd love to just to zoom and put our numbers up for you. But the luxury housing market has trailed down since last September, right, it is down 8%, down 16%, down 17%, down 16%, down 12% in January, down 13% in February, down 15% in March, down 18% in April, down 18% again in May, down 21% in June, down 24% in July, down 28% in August. And the new numbers will come out for the next quarter, and we'll never know how far it's go down. But the odds are it could be down 35%, it could be down 40%. So, when we start seeing trends like that, I…

Got it. That's fair, Gary. Thank you for that. And as a related follow-up, at this point, how much visibility do you have on some of the planned gallery openings in Europe and even the US over the next 12 to 18 months? And if the macro does turn further worse, would you look to maybe delay some of the openings until when the macro stabilizes so as to get the most customer attention to some of the great work that you and your team have been doing.

Yes. It's a little tough to do that, because when you're in construction, if you stop, you're just going to make a gallery cost twice as much. And you're still paying rents. And you're still have cost. So I mean, I don't think we've ever opened a gallery that doesn't make money. So our new galleries, I anticipate will do well. I mean, business goes down 30%, 70% of the people still buy. All our galleries are really productive in the company today. So again, so we opened a little slower and then it just means when we come out of this, those galleries have big comps. So we don't try to time things like that. I mean we're not -- if we were a company that had like 5% to 8% operating margin or even 10% or 12% operating margin, and you hit a downturn like this, that could be sustainable and it pulls you down and you might have a cash flow problem, yeah, then you're going to make decisions like that. We're not going to have a cash flow problem. So why would we stop building stores that we know are strategic and they're going to make a lot of money. So that doesn't make sense to me. Maybe other people have to do it because they have the cash flow problem. We're not going to let ourselves have a cash flow problem. That's why we haven't deployed $2 billion buying our stock back yet, because I don't know. Does Powell and his team knows to do? Are they just tinkering around? They haven't seen this before? And is someone going to make some calls here and we go into a ditch? It's not going to be a sub-prime thing, but it could be something else. Nobody…

That sounds ominous. So thanks for that Gary and happy holidays.

Thank you.

Thank you.

And we do have one final question from Seth Basham from Wedbush Securities. Please proceed.

Thanks for taking my question. First, Gary, I'm sorry, I jumped on late but if you already addressed this. But we noticed in some of your work that you're partially rolling back some price increases on select products. We've also seen a higher level of clearance on your website. Can you characterize that relative to your pricing and brand strategy?

Sure, sure. Well, the -- as Jack mentioned, freight costs are coming down. Raw material costs are coming down. Pricing is coming down. And we're not going to not want to have a good value in the marketplace. So of course, we'll adjust pricing as our pricing comes down. And sales are down. So did we plan for sales to be down this far. No. Did we think that housing market was going to collapse this fast? No. Did we think interest rates are going to go up this fast? No. So do we have more inventory than we'd like? Yes. Should we be accelerating the things that we don't want to have in our assortment long-term that we're clearing out because we have new product coming in? Of course. Will we have more than normal? Of course, we will. That shouldn't surprise anyone. It's the retail business. You have new products coming in, you've got to get rid of old products. So you mark it down. If your sales are down, you've got more old products. So you're going to mark it down a little faster. Otherwise, your DC can't process it. So yes, that's all that's happening. And if prices go up, raw materials go up, shipping goes up like everything that happens in COVID. You're going to take your pricing up. The customer -- consumers going to understand it. It's well now, but they're also going to understand when things come down. And so our whole business, you look at everything through a lens of design, quality and value in that order. If the design is not beautiful and inspiring, nobody buys it. if the design is great, then they get closer to the product and they assess the quality. If they love the design and they believe it's really good quality, it's great quality then they look at the price. And then the consumer makes the decision for that design and that quality. Is this a good value and do I buy it? We try to guess where that best point is. Sometimes we're right, sometimes we're wrong. So we adjust pricing all the time. We're never going to price anything exactly –and we're never going to buy it exactly right.

As it relates to your clearance strategy, Gary, is the primary channel of clearance through your full-price stores and website as opposed to your outlets?

Yes. Yes. You want -- like we've got way more galleries with way more people coming into them, right? And so -- and we have a website, our full-price website is where we have the most traffic. So you don't want to move product out of that channel right away. Like we have -- yes, we would -- you just back up inventory really fast. I mean this isn't the luxury apparel business where they just throw it in a dumpster and burn it. This is furniture. We're never going to run it exactly like the luxury apparel people or the luxury jewelry people and stuff like that. I mean, our business, we can't throw away the product, and it's just got a different thing. We're going to have a different kind of outlet clearance model all the time. Something comes back as a return, you can't take it back at the store, can't put it back on the shelf. I mean once it goes on a truck and it's out of the box, you got to take it somewhere, so you have outlets because customer doesn't like it or it's got a tiny scratch or that you can't fix or something is wrong, you've got to figure out what to do with it. But when you have plans to say, okay, here's the collections, there's things that are going to be going out that you're going to be marking down and your demand falls pretty rapidly. That's going to change your pricing strategy. It has to because you've got inventory that's on order that's coming in. Bulky goods like ours, you better keep that inventory moving because Fernando is sitting here, if we don't move the inventory, he will figure out -- he'll have to figure out where to put it, and we might not like what he does with it.

Okay. Lastly, if I may, a point of clarification. Did you say earlier that you could do 20% operating margins next year if you pulled back on a lot of investments? So, with this tough macro environment, should we think of 20% as sort of the high watermark for next year?

Well, I think it all depends where demand goes, what happens to the housing market. What's going to happen with interest rates, inflation in the housing market? And are we in -- how long of a downturn are we in? Is this downturn get worse? If housing falls off at a greater rate, just demand is going to go down. Our business is tied to the housing market because if you look at our business, it's tied to events. Someone bought a new home, they're remodeling a home or they are redecorating their home. The core of our business is not like the person that goes, yes, I need some new bedding. That's -- our business is tied to those three things. So, if people are not buying homes, if people are not remodeling home. And by the way, when people remodel a home, they're generally buying a home to live in, our customer is while they're remodeling. So, that's actually kind of good for our business. But if the real estate activity stops, it hurts our business. So, if you have a 20% downfall in the housing market, two out of 10 people didn't buy a home. If it's 30%, three out of 10 people didn't buy a home. And then -- or didn't move or are not remodeling it. Activities -- I mean what is it, mortgage applications were down 47% in October. That's just the number. I'm not the doomsday guy. That's just the number. And we look at these numbers. So, mortgage applications down 47%. Isn't good for the outlook of our industry. It's the highest print yet. So next year, it's like a month and a half away. That slowdown -- like that -- they don't buy a house and they buy the furniture the next day. So, there's a whole tale to all this stuff. And so how it cycles through, I just don't know where it's going yet. I don't think anybody does. I think anybody tells you they think know where the housing market is going. I don't know who's been right yet. This is not -- by the way, for the housing point of view, there is no soft landing. We're way beyond the soft landing. This is a really hard landing or a crash landing, and it's looking more like a crash landing in the housing market. It's looking like 2008, 2009. And that sounds like whatever Eri [ph] said like I'm a pessimist or whatever.

Ominous.

Yes, ominous or whatever. Okay. Okay. Maybe I'm a truth teller, and I'm not a BSer. But sometimes the truth isn't what everybody wants to hear. But it's just the truth, the fact. You guys can read out, yes, so.

Understood. Thank you for your candour, and happy holidays.

Happy holidays.

That does conclude today's questions. I would now like to turn the call over to Gary Friedman for closing remarks.

Great. Thank you, everyone. Well, as we said in our letter, we really want to thank all the people and partners, all the world that contribute to our cause, our shareholders for believing in us. And we just wish everybody, happy, happy holiday, and we look forward to speaking with you in the New Year. Thank you.

Thank you, ladies and gentlemen. This does conclude today's call. Thank you for your participation. You may now disconnect.

Goodbye.