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

Thank you. Good afternoon, everyone. Thank you for joining us for our fourth quarter fiscal year 2023 earnings conference call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer, and Jack Preston, Chief Financial Officer. Before we start, I would like to remind you of our legal disclaimer that we will make certain statements today that are forward-looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our press release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings as well as our press release issued today for a more detailed description of the risk factors that may affect our results. Please also note that these forward-looking statements reflect our opinion only as of the date of this call, and we undertake no obligation to revive or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Also, during this call, we may discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and the reconciliation of these non-GAAP to GAAP measures in today's financial results press release. A live broadcast of this call is also available on the industry relations section of our website at ir.rh.com. With that, I'll turn the call over to Gary.

Thank you, Allison, and good afternoon, everyone. I'm going to start with our prepared comments, which are included in our press release and shareholder letter. To our people, partners, and shareholders, fiscal 2023 was a year of diversity, innovation, and investment for Team RH as we faced the most challenging housing market in three decades while investing in the most compelling product transformation and platform expansion in our history. We have positioned the RH brand to gain significant market share in 2024 and beyond while building the foundation for a global expansion across the United Kingdom, Europe, Australia, and the Middle East over the next several years. While aggressively investing in the downturn has put pressure on short-term results, it also positioned us to capitalize on the long-term opportunities that present themselves during times of disruption and dislocation. We've demonstrated our confidence in our strategy by repurchasing 7.6 million shares of our stock during fiscal 2022 and 2023, representing approximately 35% of the shares outstanding, and believe that investment will create meaningful long-term value for our shareholders. Turning to our fourth quarter and full year results, revenue was negatively impacted by $40 million in the fourth quarter due to the severe January weather and shipping delays related to the ongoing conflict in the Red Sea. We do expect the majority of the deferred revenue will be realized in 2024 when transit times normalize. Adjusted operating margin was 9.1% and 13%, and adjusted EBITDA margin was 15.3% and 18.2% for the fourth quarter and the full year, respectively, reflecting deleverage from lower revenues, increased markdowns to support our product transformation, and investments in international expansion. Every act of creation is first an act of destruction, Pablo Picasso. We have spent the past 18 months destroying the former version of ourselves and…

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

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

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

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

It's a long question, so let me maybe take the same amount of time and process it. Look, Europe, I'd say there's a few points. If you kind of motor up and think about what we're in the very early process of doing, first stand back and say, what have we done so far? Last year, in mid-June or so, we opened an extraordinary, never seen before, multidimensional experience in the English countryside, that we opened through a lens of conversation, not commerce. And the why that we've articulated between that was we, fortunately and unfortunately, we did a package real estate deal that enabled us to get two irreplaceable locations in London and Paris, but also required us to take other locations we had to open sooner. As a result, these smaller markets are not benefiting as we first opened. We didn't think they would. From the brand awareness, Alo, the key markets would provide and will provide. So, Arch England was born out of that kind of conundrum of, hmm, not really opening in the places we'd want to open first. And there was a big expense if we didn't do that, and other lease requirements and other hurdles that would have been a little messy. So, that's what drove us. Because we weren't going to be able to open London and Paris first, that drove us to say, what can we do? What would we do? What kind of investment would we make that would introduce RH to Europe and the broader United Kingdom in an inspiring and unforgettable fashion? Why is that important? I think it's important because just about every luxury brand in the world is from Europe and the UK, except for a couple. You can argue that we have Ralph Lauren and Tiffany.…

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

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

The spread between Q1 and full year, I mean, it's just the building, again, everything, if you just read the letter carefully and I mean, those are all meaningful things we're doing, right? Those are all meaningful books that we're unveiling that were, completely remerchandised. And you have a lot of revenue, and if you just look at the contact that we're making year over year, I don't know what if every company doubled their customer contacts and circulation, I don't know what might happen. It's going to be meaningful. We don't introduce new products and get zero. We don't introduce, we don't mail sourcebooks and get zero. And, we just, I think, post-COVID, because we took a little over a year off because we're trying to catch up on backlogs. We lost our muscle in an atrophy and we tried to get restart, what I call the engineer or the machine. And the machines fluttered a bit and it took us a while to get back into our groove and with new products and sourcebooks and just all the things you've got to do. And it's probably one of the bigger mistakes I've made in my career. And but now we've rebuilt the machine. We have better muscles than we had from before, we're way more intelligent. We've went to a much deeper level and the quality of the work is just the best work we've ever done. And we've got enough internal data, right? When you see your business and how you're rebuilding it from, down mid teams to where we are and you look at the mix of business and the categories and you come out of the gate, you look at what Outdoor's doing. I mean outdoors, just, it's exceptional right now. And it's, I think…

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

And we have been doing the four sets, they're continuing. And we have one particular collection that we talked about in the last call that that's still coming in, it'll be in, in all galleries in the second quarter.

Yes.

And throughout the year, it will be reading, like the floors will continue to evolve, the galleries will continue to evolve all year. Right. And so there's a lot of news coming in, there's going to be, several cycles and adjustments that we'll make. So, there's just, we're going to have a lot of choices and a lot of optionality. That's what else I like, you know, when I look at the bigger picture and I stand back and I go, whether it's sourcebooks or advertising or contacts or four sets or in stocks or placing bets here, reacting to this dimensionalizing different parts of the business. I mean, we just have a lot of things in play and a lot of opportunities and you can mathematically take all the pieces and build it up. And we're not new at this, done this for a long time. And I'd say, I think I'd put it in context is how are you thinking about the guidance for the context of the market? We're guiding with looking at it through a lens of market neutral. The housing market doesn't get meaningfully worse or meaningfully better. Right. So we're saying neutral market, yes, there will be interest rate cuts. We're probably going to be quarter point cuts. They're going to come later in the second half of the year. A quarter point cut isn't going to massively move mortgage rates. If you look at the delta between, where people are locked in on mortgages and where they'd have to step up to, you really need two things happening. You need home prices to come down and you need interest rates to come down. And that gap, I think is going to take longer than three quarter point interest rate cuts, but hopefully those…

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

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

Sure. Sure. Good question. Yes, we said back when, I don't know if we said this publicly, but it's that, we said it internally that Waterworks was one of two businesses I had on a strategic framework map when I came here 24 years ago. Like when I walked in the door, I said, okay, here's the long-term vision. Here's where we're going. And I had two acquisitions, Waterworks and Dean & Deluca. I thought Waterworks was the best brand in the high-end, bath and kitchen, mostly baths back then now kitchen too. And I thought Dean & Deluca had a really interesting brand with more of a food focus, some hard business, but it wasn't merchandised well to make money. And I knew enough about the Williams-Sonoma model that I thought like we could create a really cool next generation kind of Williams-Sonoma with a different kind of sensibility aesthetically and taste and style and maybe integrate a little bit of fresh food focus. Although that's the reason why Dean & Deluca never could sail and make money at, too focused on fresh food and they didn't have the hard goods part. And so Dean & Deluca didn't make it, got passed around a couple of times. So we looked at buying it multiple times. We almost got it. And Waterworks came along. It was the right brand at the wrong time, but it might not come, come available again. So if you think about when we bought it, we were in the middle of membership, supply chain transformation, all kinds of things, the just launched modern. And we said, look, we may not have another chance to partner with a brand like this. We thought it was a great strategic fit. So we did that, but the business…

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

Yes, I think they're going to keep peaking because we've done more work since then, like there's more things, we can see more things. So, yes, I think that, like phase one, so what I think about that, Curt, is like kind of phases, there's multiple phases of this transformation, right, as we will be unveiling, but kind of phase one will kind of hit peak, I think, in late Q2. But then there's a whole phase two now that we've got coming that will be unfolding, right. And I think we've got phase three coming. There's just a lot of excitement, a lot of great work that's being done. And the debate around here is how do you sequence it? How should it all unfold over what period of time? And so I'd say that's peak inflection on like phase one, RH interiors, RH contemporary and outdoor and modern, right? Like, if you knew modern would be coming in, that's like the next of the big books. And I think it looks incredible. Like, I'm glad we actually delayed it a bit and took a little bit more time because it took a leapfrog. I mean, it's stunning. And I think it's so fresh and cool. And, people just see the images and, it's all laid out. You feel like, wow, okay, it's not a walk on by, I guarantee you, it's not an Aretha Franklin, walking by. So that's coming, that's going to create a big kind of move in Q2. And outdoor, it's going to be hitting peak, March, April, May, June. And you've got learnings and interiors and that's cycling through and then we've got in stocks that are going to get meaningfully better, backorder rates are going to go down, which means demand goes up…

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

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

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

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

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

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

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

Yes.

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

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

Max, can you hear us? We might be having audio issues. Max, can you hear us?

Yes. Okay, great. And then my follow-up question is, can you speak to how you're balancing the chart price points with maintaining elevated product margins? And then, just how much are your vendors stepping up and then the opportunity to expand product margins over time at the current level?

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

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

Yes. Again, I wouldn't -- we're not a price kind of focused, price first business, right? I think I spent a lot of time earlier in the call talking about design quality and value in that order. And we think about those things, from those three dimensions always. And we try to look at the bigger picture and say, what's going to be a compelling value? And we don't have vendors, we have partners, right? So, that's why my letter is addressed to our people, our partners and our shareholders. And, so we try to work with people as partners and it's not necessarily so much as, are they stepping up? It's more, are we together thinking about how to win the market, right? Like, if it's one person that wins, one person that loses, that's not a partnership, and that never works long term. So, we try to take a real strategic view with our partners. We spend a lot of time with them. We talk to them directly about how we're thinking. We try to understand their business deeply and where their leverages and opportunities are. And we try to stand back and say, hey, look, your manufacturers without stores and we're shopkeepers without factories, so how do we partner and how do we win? And so, but we have no intention in taking margins down, margins have to be looked at holistically, not just at the product level. And I think that's probably what your point is. We're going through a massive transformation, re-architecting, the assortments and positioning things. And I think as you think, see things unfold here, we believe if you're thinking about operating margins and so on and so forth, that operating margins, over the next few years can return to the 20% range…

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

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

Yes, we've never fired customers. So I don't know, maybe that's your words, not ours. Nothing I've ever said. I've said, look, you're going to like, if you think about where we started in the journey we've been on for 24 years, yes, like we shed customers and transition to other customers. Yes, of course, like, the bestselling sofa in this company used to be a 999 chenille green sofa. We don't have 999 chenille green sofas. Not even if you attach inflation to it, maybe a $2,000 chenille green sofa. We don't have those. We don't have a lot of things that we used to sell. So of course, when you're building something, when you're trying to become something that you never were, and you're, you're going to, you're going to evolve and acquire new customers. And some customers might come with you and some might not, but there's no intentional firing. But there is an awareness that, as we're heading in certain directions with certain categories, things will evolve and change. Through that journey, we're always going to get data and we're going to learn, and we're going to adjust and improvise and adapt. And always, always in a state of change, right? And we're in an evolutionary world, so the world's evolving and you're either evolving faster than the world and gaining, acquiring knowledge and capabilities and market share, however you want to think about it, or you're evolving slower and getting behind. And so, I moved to say, I think --

Are you still there, Gary?

Seth, can you hear us now?

I can hear you now. Yes. I think I got most of your answer. I appreciate that. And just a follow-up question, along the same lines, you're sharpening your value edge, as you've referenced. To ask the question differently than it's been asked before, I assume you're not taking quality out to lower price. And if not, why should merchandise margins, excluding freight, be the same or better on new products now versus the product you were selling in '22?

I'm sorry, I don't know if I get that. Give me that question again, towards the end that why would, or what would the product margins be or something, say that again.

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

Sure. Well, it's about how you buy it and the commitments you make and the long-term view you take and working in a partnership with your manufacturers and figuring things out together. But yes, it's just when you do that, well, you can have a better feel, when you have a platform as large as ours, you have the scale and you control the platform, you can be really disruptive. So, yes, we didn't just take pricing down on things we have, right. You think about it as all the new products that's coming in, the value equation that's coming in. And so there's no intention to ever take quality out, not at all, not at all, ever. So yes, that's not part of our strategy. That's nowhere in that one pager, right? In the long view and I think you've ever heard us talk about that at all in my 24 years here, it's about taking, elevating the design quality and value of the product. That's all we focus on. So, yes, but it takes, yes, it takes thinking and creativity and partnerships and being smart about what you're investing in and what you're leveraging and what you're buying. And yes, that's how we got here. So, I think my prior comments were through a period of multiple cost increases because of trying to tear us. And we had a pretty big content back then coming out of China, much smaller now. And those price increases that we needed to take, and then the price increases we needed to take through the COVID period and through the COVID period for a two-year period, I mean, everybody had leverage, right? Like meaning that there's only so much product. When you have more demand than you have supply, prices can go up and margins can go up. And when you have lower demand and supply, if you want to move your inventory, prices are going to come down. It's no different. And it's no different than, during this period, right. It's the down housing market and same thing we're doing with investments. So you're looking at gross margin. Well, inside of the gross margin, there's a lot of investments that aren't necessarily just product. Right. And so, but yes, there's no, intention here to be crystal clear about taking quality down to take price down, never been uttered in our company and get the opposite. Yes. So that's what people are thinking that they're just dead wrong. There's no value engineering.

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

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

Yes. We're not guiding to gross margins quarter-by-quarter. But yes, you can

And we no longer got gross margin on the year. So, we'll talk about it as a result of both. But the guidance is through [indiscernible]

Yes, it's all inside in the operating margin and EBITDA guidance.

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

Jarrett, how long have you been here now?

Eight weeks.

Yes. Jarrett's been here eight weeks. And so, he's a very bright guy, very creative guy, strong point of view, learning the business and we're excited and happy to have you here. And I think, why don't we all give a little bit of time to really assess the situation and the opportunities. And at some point you'll likely meet him and he can kind of share his thoughts. But I think it's going to be a big step up for us. I think he's going to prove to be the best leader we've ever had in this part of the business on multiple levels. So we're very excited about him being on the team and, yes, that's about it for now.

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

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

I don't know if I got last question. What?

One second, Michael. We're trying to kind of break down your question.

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

So, yes, that, I don't know. Is there specific people you're talking about? There's a lot of, I don't know who you're calling a peer and who you're not. If you look at people that are heavy content furniture business, I think we've performed relatively in line, some better, maybe, some were a little better, some were a little worse. But when you say we broadly underperformed peers, I don't know. But I'd say like, I don't think there's anything different that happened in the fourth quarter than what we expected, except, for the major storms that I think impacted everybody. and again, it will impact furniture people who have longer lead times and deliveries, more and people that are more exposed to sourcing. And specifically, if you think about, size of our outdoor business and the amount of that comes out of Indonesia, which is the capital T, affected us. So, I'm not, again, do you want to be more specific or like I'm not sure where you're going.

I guess if we look at some of these, competitors out there, they were down six to seven in the fourth quarter versus down 11 for RH. And that's even with a more aggressive posture on clearing out inventory, but..

What's their product mix? Are you talking about people that sell tabletop and cookware and seasonal businesses and Christmas ornaments and all kinds of things that we don't sell? Those are going to get hit less in a housing market downturn than furniture. If you want to talk about furniture related people that compare us to furniture related people, but don't compare us to Home Depot, don't compare us to Pottery Barn, don't compare us to William-Sonoma. You're talking about apples and oranges.

And compare us to people with the same fiscal year end or quarter.

Yes.

If you don't end in January, it's not even.

Yes. They didn't end in January. They didn't get hit by the canal and they didn't get hit by the ice storms. That's why I said, you want to be more specific, like I'll try to answer your question, but in a broad sense like that, it's not as relevant.

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

Yes, we're not guiding to 2025. We're guiding to 2024 and we're giving you all the data as it relates to that. I think I just said a couple of questions ago that, we feel very good about getting back to 20% operating margin over the next several years. So we're still in a challenging market with the housing that record lows, so, I don't think anybody's guiding 25 yet, are they?

No.

No. I guess I was more so asking about the persistence of the investment cycle and how long that might impact your profitability rather than looking for specific guidance for--

Is anybody guiding on that in 25 yet, because that would be guidance, right?

Yes.

I mean, yes, we're not guiding to 25 yet, we never have, but we have a long-term view, that, we can return to 20% operating margins. And, , again, we have some investment cycles that we'll have to roll through and I would say to all the people on the phone that are trying to build a model, that's beyond where our guidance is, you're going to have to connect the dots and come up with your own assumptions. I can't do your work. I mean, I'm not asking you to do my work. Don't ask me to do your work.

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

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

Look, we're pretty close to -- pretty far down the first quarter, right? So you can probably come up with some kind of demand. We did the first quarter demand, mid single digits. So yes, mid-single digits, is where we think demand is going to be in Q1.

We're not providing any quarter-to-date guidance, monthly breakdowns or anything like that.

Yes. I would say our demand trends are building, and they're going to build through the whole year. So that we expect, let me give you a couple more breadcrumbs. The outdoor business is up to extraordinary start. And it biggest part of the year is coming up, right? So we have a lot of confidence as we look at the next quarter or two. We have a lot of confidence in the whole year, but we have a lot of visibility, if you think about that, right? Like the outdoor business, you can, again, just think about when people are buying outdoor furniture, they're buying a lot less in February and they're buying a lot more in March and they're buying even more in April. And if that business is off to a great start, that's really easy to connect those dots and forecast as we've those goods have been out there now for several weeks and we've got real, real data.

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

Yes. Look the unfortunate and devastating accident that happened in Baltimore is super recent. We obviously have a big [indiscernible] center in Maryland. Fernando is here right in the room right now, and he's shaking his head, but we don't think there's any major disruptions.

And here, let me add, maybe just because -- it's Jack. But on an inbound perspective, some of our, much of our goods are actually offloaded in New York. We do the cost benefit analysis of getting the product out earlier in New York before the boat then comes down to Baltimore. For example, the boat that was in the accident had four containers on it, but that we unloaded it in New York as per our practice. So that we don't have any containers, stuck on that particular boat and other boats are getting rerouted, So minimal impact from that disruption.

Yes. And I think your second part of the question is what confidence we have in our partners ramping with our new product. We have great confidence, but it's with new product ramping. So you're never going to forecast the new product exactly right. You never sold it before. It's going to be some degree wrong. Some things you're going to be more right. And something is going to be more wrong. And the things that you're more right on and over form your expectations, there's going to be a period that's going to take, for our partners to scale that product and respond to the trends and so on and so forth. So, but yes, so far, so good. I mean, we've had very minimal issues, like it's more, it has to do with, I think that the biggest issues are it's been able to forecast the newness. But once we start getting the data, then we're improvising and adapting and let's say we get it directionally right on the orders, but we get the finishes wrong. Well, then we're reacting to and changing the finishes if they're still in the factory. And, the last phase of that is the finish. And we're shifting from one collection to another collection and as we get data and all those kinds of things. And so, and we have like we always do is have develop new partnerships and so on and so forth. And, yes, I guess sometimes some of the newer partnerships maybe they haven't worked at this scale yet. But we try to anticipate that, but every once in a while, someone new just got one of the big collections. And so, that maybe it's a new experience for them, but we have really great people inside the organization and in country that partner and help and work. And we just try to work as partners and get to the right outcome, once we have the data. So I'd say there's nothing lurking out there right now. We don't have anything other than, some kind of ramp up issues that you expect doing anything at this kind of a scale. But well, once anything unique, I don't know if there's any other, no. I mean, everybody's in the room here and team and everybody's shaking their head, like, no, no, no problem. So we're good. Nothing new came up so far today that we haven't heard.

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

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

Yes. All, responding as from our latest expectations, all, responding as we'd expect. And we have the next big book is a modern and we feel very optimistic about that. And then we have, remails of interiors and contemporary and new refreshed with new collections and new creative and better data and information, better in stocks and so on and so forth. More of the product because we've had a chance to read and react to it in the galleries, which then gives us a lift. And so we feel really good, really optimistic. And so, I don't think there's any other commentary that I've got.

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

Yes, it's kind of what we always do. There's nothing really new. It's what we generally do when we're in launch mode like this. And so we're generally marketing, print and digital with all those kind of key publications, that's where the consumer, generally, if you're talking to anybody or see anyone who's building a home or furnishing a home, remodeling a home, so on and so forth, they're, they're kind of fishing where the fish are, right? They're looking at for inspiration and home magazines and design magazines and so on and so forth. And those websites get a lot of traffic with really people with a purpose, right? So we tend to invest in that way. There's a difference in our direct mail business, and thinking about the list of customer files we've built up and how we process that and where we get new names from and so on and so forth. So I wouldn't say anything is different. I think you see a ramp up in the investment and you see that, based on our confidence of, what we've learned thus far and, it's given us indications of what the right investment cadence and contact cadence is. So, yes, I wouldn't say anything's changed.

It's not a pivot. It may have sounded like that, but I'd like to, as Gary said, it's what we do around launches.

Yes.

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

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

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