Good day, everyone, and welcome to today's RH First Quarter Fiscal 2024 Earnings Q&A Call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note that this call is being recorded and I will be standing by if you need any assistance. It is now my pleasure to turn the conference over to Allison Malkin. Please go ahead.

Thank you. Good afternoon, everyone. Thank you for joining us for our first quarter fiscal 2024 earnings conference call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer; and Jack Preston, Chief Financial Officer. Before we start, I would like to remind you of our legal disclaimer that we will make certain statements today that are forward-looking within the meaning of the federal securities laws, including statements about our 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 investor relations section of our website at ir.rh.com. With that, I'll turn the call over to Gary.

Great. Thank you, Allison. Good afternoon, everyone. We're actually calling you live from New York at our guest house as we just got back from our opening at RH Madrid last night. I'm going to start with our letter to our people, partners and shareholders and then we'll open the call to your questions. To our people, partners and shareholders, we are pleased to report that our demand trends inflected positive in the first quarter and continue to build momentum despite operating in the most challenging housing market in three decades. We believe our investments in the most prolific product transformation and platform expansion in our history has positioned RH to gain significant market share in North America, while building the foundation for our long-term global expansion across the United Kingdom, Europe, Australia and the Middle East over the next several years. Our results for the first quarter largely reflected expectations with revenues of $727 million adjusted operating margin of 6.5% and adjusted EBITDA margin of 12.3%. Demand was up 3% in the quarter, slightly below our guidance as growth softened when interest rates once again exceeded 7% post the hawkish Fed commentary throughout April. While aggressively investing during a downturn has put pressure on short-term results, it also positions us to capitalize on the long-term opportunities that present themselves during times of disruption and dislocation. Those opportunities are beginning to materialize as a growing number of online furniture brands have ceased operations as the vast majority have demonstrated difficulty reaching profitability. We do expect the constantly changing outlook regarding monetary policy will continue to weigh on the housing market through the second half of 2024 and possibly into 2025. Nonetheless, we remain confident that our continued investments towards transforming our product and expanding our platform will generate significant long-term…

Thank you. [Operator Instructions] Our first question will come from Steven Forbes with Guggenheim Securities. Please go ahead.

Hey, Gary, Jack, Allison. Obviously, Gary, nice to see the business returning to growth here. So I was curious if you maybe can help us contextualize the success of the new collections as you see it today realizing it's early. But can you speak to sort of how many collections are showing signs of resonating with the consumer? And what maybe some of the early learnings are around the designs themselves as it relates to sort of product expansion opportunities or sort of broadening out the exposure right of the designs to different pieces?

Sure, Steve. As it relates to, resonate, one, we have a lot of new collections being introduced. And so we are reading and responding to all those and trying to put those into context. And we have many more coming just in the modern book alone, which is just now getting into homes and we're getting some early reach on that. I think the best news is we have a few collections that are new number one collections, big broad collections. And I tell the team here, you get a new number one collection generally once every 7 to 12 years. Something that really is a market mover that resonates broadly across the entire platform. And those things permanently move the business. The way we think about our business and think about our assortments, we talk a lot here about the thirds. We talk about the top third in assortment or the top third -- the top third in any part of our assortment, not just overall, but if you're looking in the dining business, the living room business, the bedroom business, the outdoor business, the lighting business, the rug business etcetera, etcetera. And if you think about our business or any retail business and we try to simplify it down to what's in the top third, what's in the middle third, and what's in the bottom third, and how to think about those thirds. If you can introduce newness in the top third that will lift the entire company, right? It will lift the entire category. It will lift the entire company. If you introduce newness in the middle third, you're going to mostly be neutral unless it's in the top portion of that middle third. And we also talk about the top half and the bottom half, but…

That's helpful. And then maybe just a quick follow up, right? There's so many different contributors to demand this year and the idea of sort of scaling it as we move throughout the year. I don't know if you can maybe, like, help us digest, you know, the visibility into demand scaling into the back half. Like how many sort of factors do you have a large degree of confidence around? How many are -- how many factors or what percentage of the demand scaling is still sort of a large sort of forecast? You think about like RH Modern's contributions to demand scaling like any way to sort of just shore up the confidence in the demand revenue build into the back half for investors here?

Of course. Yeah, no, really good question. First, I'd say it's -- you've got to really think about kind of like what's year-over-year or kind of season-over-season, first half versus second half, and how do you think about the lift factor. So there's seven significant lift factors that we're focused on. And those factors have kind of multiple some have multiple dimensions. So the first is that just the books year-over-year, right? So and the circulation year-over-year. So we have more than doubling of the circulation and contacts year-over-year. That's meaningful. You don't have that many times in the growth of the business. Usually you only see that at the very early stages of business development when brands are in the early stages. The way to think about it is you relate it to RH because you say, well, we're not really in the early stages of this brand, but we're in the early stages of the product transformation and the platform expansion, right? So you want to think about what's happening here. Because we were we had kind of pulled back during COVID and we had very little newness and we had little circulation in contacts. Now we're past the midpoint or at the two-thirds point of the product transformation. And you're going to see a past the halfway point is just with Modern we're kind of now past the halfway point heading to the one-third point. So we still have, yeah, you're looking into the second half here. Modern's really going to impact the second half. You also have the outdoor book right that we had 14 new collections in. That's going to be meaningful in the second half. A lot of people think about outdoor as just a first half business. Yes, it's got a peak season,…

Thank you.

Sure.

And our next question will come from Steven Zaccone with Citi. Please go ahead.

Great. Good afternoon. Thank you for taking my question. Maybe to follow up on Steve's question, I was curious for commentary on pricing. Gary, you've talked about it in the past that pricing had gotten too high and more broadly, the industry has gotten promotional. How do you feel about pricing now on the new product? Where are you seeing some customer adoption? And do you feel like some of the pricing challenges for the business are in the rearview mirror?

Yes. Hi, Steve. Good questions. We've been doing a lot of work about around value. Right? You know, the way we think about our business and the way we think about how consumers respond is, we're not in a -- in a portion of the market that consumes the first thing on the consumer's mind is price. Right? No one walks into our galleries or looks at anything in our Sourcebook that they think the design is ugly and they buy it because of price. I don't think any of our customers say, hey, I don't mind how the product looks. At that price I'll buy it. I think people come to RH because we are a design driven business. We are a curation driven business and we're an integrator of business. We sell you the end result. We sell you the whole not the drill. And so we look through a lens of design, quality and value in that order. What is, yeah, is the design great? That's what consumers are responding to. If the design is not great, nobody walks up to it or nobody gets clicks closer to its online to try to perceive the quality. Right? If they love the design and they, you know, think it's really good quality, they make an equation in their mind for this design at this quality, what price is a good value to me. Right? The consumer will then make that calculation. And so value is really the pricing is a result of design and quality. And so if the design is great and people love the design and they think the quality is at the level they expect or above the level they expect, you've got a lot of room in pricing there. Now, of course, there's price…

Okay. I appreciate all the detail. Hopefully, a quick follow-up here. But from a macro perspective, what are you most focused on here? The engagement in the category return? We've seen somewhat of an inflection in luxury priced homes turnover. I mean is that the key metric you're looking for here? Anything else you could steer on the macro would be helpful.

It's funny, I don't know what metric everybody is looking at because they vary greatly, right? There's association of retailers that have some number that luxury homes inflected up and other numbers say it was 2%. And so, I don't know whose data is right. I don't think that there's been a meaningfully a meaningful move and sustained move in the luxury home sales. It might be a little ticking up and that's because some of the pricing is starting to come down in some cases and it's starting to come down because of holding power, especially if you had a developer, someone who is building homes to sell them or if you've got a home flipper who bought something to remodel and fix up and then they go to sell it. And in a market like this where you've got high interest rates, your consumer base shrunk meaningfully and you've got a you've got a burn rate depending on how long you hold it. But I don't think that there is a meaningful sustained move in the home market. I think you've got little ticks up here and there and it's kind of bouncing around the bottom. And I think it will be until we have a meaningful move in interest rates. I think we began this year, everybody expected six interest rate cuts. I think that was the number that if you looked at how the market was betting, I think the Fed was pointing to kind of four cuts and the market priced in six cuts, because they figured that is always very conservative, right? And I think that where are we now today, the map says I think there's a 90 something percent chance based on yesterday's comments that we're going to have one interest rate…

Transitory.

Transitory and interest rates will go from four back to two in a couple of months and they went to nine. So we saw that coming, but I just think that there's a lot of noise out there right now. I think there's a lot of pressure on the Fed. I think the Fed is going to be massively data dependent, which means the Fed will be behind the curve, right? And so they were behind the curve on seeing inflation. I think they'll be behind the curve as it relates to assessing is inflation under control. And I think they'll be behind the curve as it relates to it's time to cut interest rates. So our view is probably a little bit more negative than it was a quarter ago. I think a quarter ago, we were feeling a little bit more optimistic that there'd be rate cuts to the housing market, would begin to meaningfully move in a sustained manner. I think it may not be until 25% or second quarter 25% maybe. So I think I don't think there's going to be a sustained inflection in luxury home sales at these interest rates. So, yes, not with interest rates like the balance. It's just an affordability factor. You've got home prices up 50% or more 50%, 60% in post COVID. Home prices went up 42% in the two years of COVID and then they've continued to compound the last two years. So home prices are up roughly 50%, 60%. And now you've got interest rates seven points 7% or higher when they were 2.6% to 3.3%. I mean, it's just simple affordability now. Yes, there's some silly things to buy a home at any price they can, but the other thing you can't trust by the way…

I appreciate all the color. Thank you.

Our next question comes from Simeon Gutman with Morgan Stanley. Please go ahead.

Thank you. It's Simeon Gutman. Guys, I want to ask about the gross margin outlook. And if I can segment it into two pieces, first, the new product lines and launches and then everything else. Curious if gross margins are roughly stable and then thinking about the guidance and the torque in the back half, is it simply better sales and then better expense leverage? Or is there some variability that could still happen with gross margin of the business? Thank you.

I said gross margins are relatively stable. We do have a lot of new goods coming in. You're going to be right on some. You're going to be wrong in others. And you're in one of the worst housing markets in 30 years. The worst one I've had seen in my career. And so there's always going to be just a higher promotional environment than across the industry. And you're going to have to react to some of that stuff. So you're always going to carry a higher percentage of promotional mix during market times like this, right? Because you've got to kind of keep the inventory moving. And so -- but I think we're pretty confident about what our margin mix is going to look like unless something happens. Meaningfully -- we're meaningfully wrong on demand, margins likely go down a little bit. We're meaningfully right on-demand margins go up a little. No different than buying a product that really performs well. You're going to have higher margins, then it performs poorly. So -- but I'd say I don't think we have a lot of risk in margins in the second half.

Simeon just, obviously, as you guys build your models and look at our margins, just note that there's -- we're growing variability in our quarterly revenue. So it can only remain stable to the extent the revenues are the same in a sense. I think there's a different nuance here when you're talking about product margins versus gross margins which have fixed occupancy. I know it's a firm grasp the obvious, but obviously, when a quarter is lower, for example, like Q1, again, if I'm building a model, I'm not taking Q1's gross margin saying that's flat. I don't think that's what Gary saying. We're going to have growing revenue throughout the year. You know our trends to just build your models to make sure you're looking at fixed occupancy.

Yes. That's helpful. So I guess, just related to that, and I'll include the follow-up. I guess I meant that there isn't some piece of clearance that has to occur with older legacy lines. Like we're through that part and now the normal cadence of the business app and the variability will be based on the mix of promotions with current product, but we're through the worst of whatever clearance that you were trying to do to clean up the portfolio ahead of all these new launches and then.

But we're going through the biggest product transformation in our history. We're in the middle of that. I wouldn't say -- I don't know why you think we're through the worst of it, like we're in the middle of the product transformation, we're just kind of going on the second half of it. So, yes, the clearance doesn't just go away in a business like ours as selling T-shirts and sweaters where put it on a clearance table and it flies off. The home business, when you're transforming it like we are and you're making big moves, you put things on clearance, but it's limited. People don't buy a new bed if they don't need a new bed. People will buy a new sweater if they don't need a new sweater, it's on sale. I'll have another sweater. You don't buy another bed just because it's on sale. So sale and clearance in categories like ours are very different than other categories. So it takes a longer time to move through and cycle through.

Okay. I'll leave it at there. Thank you.

Our next question will come from Max Rakhlenko with TD Cowen. Please go ahead.

Great. Thanks a lot guys. So first, just curious, how much of the assortment in galleries today comes from the new launches over the past year versus the legacy product? And then when will we get more of the Outdoor and the Modern products inside the galleries? And then just how should we think about the evolution over the years as far as the new products being shown in the galleries ?

But we're in a level of new today on about 60% new in the bigger galleries, 50% new? Yes, about 50% new in the bigger galleries and the legacy galleries probably about the same amount. So think about something like Outdoor, we're generally not buying newness to put in galleries unless we think that it is a sure winner because that's how you can really negatively impact margins, right? If you buy something upfront really big and you think you're going to buy all the display quantity and you're going to buy it to that level of volume and you're wrong, you're going to be really wrong. So we're constantly, for the most part, we're buying newness. And we may buy it bigger and anticipate they want to be somewhat heavier that if we're right, it's going to be big, we're going to move it out to the galleries more quickly than less quickly. But we're reading, I mean, Modern is just kind of getting out there, right? If the books complete. It's all in home this week, complete? Yes. So it started mailing first week of the month, and it takes a couple of weeks to get in and get out there. And then we're kind of reading it, reading the online and response to the books. And then we're probably about mix or something. We're -- we have a pretty good sense of the early reads as consumers – again with this, you got to think about a lot of our business is kind of already booked. A lot of our demand is already -- it's already kind of been decided. We've got projects that are in the pipeline that are designers are working on over three weeks to three month periods. And so they're building those orders.…

Got it. And maybe just a follow-up to that, but some of the books are being delayed or not delayed, but coming out a little bit later than you initially thought? And then 1Q was -- 1Q demand was a little bit softer than what you thought. So just given how the business does remain somewhat choppy and there's been a little bit maybe demand pushed out just given the timing of the Sourcebooks, curious to your level of confidence that you'll be able to maintain the full year demand guide? And then just separately, it doesn't look like you stop releasing the outlet revenue. So if you could share what that revenue was in the first quarter, that would be great?

Well, yes, we usually don't do one-off.

Yes, we don't do one-off

We're not reporting it like we're not generally doing one-off things like that. But let's see the books kind of booked slightly later and level of confidence. Well I think I talked a lot based on Steve's first question about how we think about the lift factors in the business, and the lift factors all look good. And the key is going to be what is the consumer response to the newness and to the additional contacts. So we've got -- we have a lot of data on that. We don't have a lot of data on the newness. But we're generally taking a kind of down the middle view of kind of what it should be. So we feel confident that the numbers we're putting out there are achievable numbers. And if we get any kind of tailwind behind us if for some reason, we see some interest rate cuts or other things that prices dropping meaningfully in the housing market and the housing market picking up, that can be some tailwind. Can we have more headwind macro wise ? I don't know, maybe. It looked a little worrisome when inflation about a couple of months ago was ticking up, would they have to raise interest rates. But right now, the latest report says no, but we feel generally confident about what we're doing. And we've been here -- we've all been here a long time, building this company and building this business. So we have a lot of experience doing it. But at the same time, I do say it's the first time we've been through a transformation this large. So it's unlike -- and it's not unlike anything else you do that's new and different and innovative and inventive. There's the greater level of reward and a greater level of risk. So this is our best view today.

Got it. That's helpful. Thanks a lot and safe travels.

Thank you.

Our next question will come from Curtis Nagle with Bank of America. Please go ahead.

Great. Thanks very much for taking the question. So maybe just changing gears slightly, Gary. Just curious if we can get an update, I guess, on the progression and the timing of the Aspen ecosystem? And then the concept more generally, I don't think that's something we've talked about on the call in a little bit.

I mean, what, Aspen ecosystem?

And more generally the concept, yes.

Yes, yes. It's going slower than we anticipated. Our development partner likes to say, probably easier to develop on the moon than it is in Aspen and things are taking more time. Aspen, it's a small town and during COVID, they had a lot of disruption and it backed up everything, and we really slowed down because of that. And then they had a lot of turnover in their whole planning group and that's kind of slowed us down a bit. But we're up and moving our Mountain House is kind of on track. Our Mountain House is that the name for the big gallery we're building there. It's on the best corner in Aspen. It will be a three-level experience and two levels of retail. And we're going to, I think, get a whole world of RH kind of concept there because you get such a global customer coming into Aspen, wealthy and affluent global customer. And we've got a great restaurant, hospitality experience. So that's on track for next year, right? So that will open next year. We're kind of a standoff at the city on the guesthouse and some arguments on if the wall that they want us to keep as historic or not historic, and we believe it's not historic and proof of that. That slowed us down versus what we want to build. And then we are getting into process of the plans on the homes and things like that. We slowed some of it down just because of the uncertainty in the market right now like do you want to build homes and put them in the market when the interest rates should decide? So but it will be progressing. It's all kind of going a lot slower than I think we thought, but…

Okay. Great to hear. And then just a quick follow-up. I just want to make sure I caught your comment correctly. It sounded like -- I think you said, Gary, that in terms of just new products alone that could grow the business, I think, 20 points or more also or maybe 2x. So just would you be able to clarify just, I guess, kind of the range or just maybe I just misheard?

You mean as far as how we think of lift factors, Curtis?

Yes, exactly.

Yes. I think when you start to take it all into account, right, we can see lift factors getting us lifting the business in the 20 point range, right? And as we move through the second half and all the circulation hits and I was just going to be a lot more people that are going to be aware of the business. And we have 48 store months versus 12 just in the second half. And we have a lot of new restaurants that they don't do zero, right? Where they may not do as much volume as the new galleries, they're not bad. And so even things that you might think are small, we're opening Waterworks, I think, what our highest volume showroom is -- L.A. New York and L.A.

New York and L.A. and Long Beach.

I think L.A. is the center point. I'm pretty sure.

In totality with Modern, yes.

Yeah, and so we're opening a kind of a Waterworks gallery within our Newport Beach Galleries. The Newport Beach Galleries is the biggest gallery we've ever built. And we're going to have 90,000 square feet. It's got like 40 collections of outdoor furniture. We've got, I think, 22,000 feet of Outdoor furniture space and probably the best Outdoor furniture market. So we have 3,500 feet of Waterworks and Waterworks doesn't have a footprint in Orange County. So it's like opening of Orange County generally for a lot of brands, you do about as much business as Los Angeles, right? And so Orange County is going to be big, but Waterworks even that if it does anywhere near what the Waterworks brand does in Los Angeles, it's a meaningful number. So they're really excited about it, and we're really excited about it. We're excited to launch everything it's going to be a good validation. But there's just a lot, right? You've got the Modern book, Interiors book, a Temporary book. The second mailing a Modern, second mailing of Interiors, there's a lot of newness when you count all that up, but there's a lot of also getting in-stock and all that stuff, the cycling, all those first round collections. We now have read it, we're reacting to. We're ordering in the newness, some might have missed and we're marking it down and cycling it out. And then we've got a doubling of circulation and 4x into new store months. And it's just -- there's a lot of lift factors. So as many as you have ever seen, as many as I've ever seen in this stage of the business like this. So it's just -- it's different. I know it looks different. It should be different. So appreciate all the questions. And none of them surprised me. You asked the same questions if I was you guys.

Okay. Thanks, Gary.

Thank you.

Our next question comes from Michael Lasser with UBS. Please go ahead.

Good evening. Thank you so much for taking my question. Gary, are you getting as much of a lift from the newness and innovation that you've been introducing as you might have in the past? And does it make sense to delay further some of the introduction in light of how challenging the market is because maybe you would not get as much credit now or recognition now from your customer given what's going on?

Let's see to make sure I get that right, Michael. Thanks for the question. Let's see here. Mike, we are getting as much of a lift from the newness as you did in the past? Yes, in fact, in some cases, we're getting better lift, like I said, you get a new -- in a business that's kind of our size and maturity, you don't get new bestsellers very often. You get a new one probably every seven or 12 years like a big furniture collection or a big upholstery collection, right? So we're getting, I think, we're getting as much right as we kind of ever have. We always get a certain amount right and a certain amount wrong. So I think we're probably similar to how we've been in the past, maybe we're a little better because when you get a new all-time number one you kind of go like that kind of changes everything. So and then does it make sense to further delay some of the new introductions, I think, was the question right, in light of the challenging market, we're not really trying to delay anything. Usually, when we -- like we pushed the Modern book by a month, which then kind of pushes the next book by a month. We didn't push Contemporary just pushed Modern and Interiors. We want to have a certain amount of spacing between those two. So we didn't overwhelm the customer with too many pages and too much product. But the reason we delayed Modern is because some dots connected while we were working on it. It's a whole new design. It's a whole new format. And we're working with an exciting graphic designer from Madrid, who spent a couple of months living with us two or three months.…

Got you. My follow up question is, it sounded like earlier in our conversation this evening that you mentioned the consumer is buying more on promotion. So a) is that right and b) is that persists, does that change how you think about the path to RH's long-term margin aspiration?

Well, I think it's yeah, I think it's massively down housing markets like this or down it's like if we're in a recession in any category or entire, right now, we're in a massive housing recession and anything that's tied to housing, right? Apparel is benefiting based on that. Like instead of people buying homes and they're saving a lot of money not buying a new home, so it's easy to go spend some money on apparel. Hey, honey, we didn't buy that new home, but heck, do you want to buy a new purse? Sure. Yes, but it's an easy trade off. But it's you always are going to have a higher degree of sale goods in a down market always. And because just demand's slower, you're going to have more markdowns. You got to keep inventory moving so on and so forth. So that's all factored into the margin guidance short-term, but it doesn't change the margin guidance long-term. It's just based on the demand environment, how strong is the demand environment. I mean, as an example, the demand environment for our category in the COVID years was unbelievable. Margins went way up. The demand environment post COVID, not so good because up against those numbers. So margins go down. Then on top of that, you compound that you're in the worst housing market in 30 years and margins are going to go down again. So it's all relative to demand, nothing more than that. I hope that makes sense.

Totally. Thank you very much.

Okay. Thanks, Michael.

Our next question will come from Jonathan Matuszewski with Jefferies. Please go ahead.

Hey, good evening, and thanks for taking my question. Gary, can we get an update on how the brand is resonating with the end consumer in Europe? I think on the last call, you mentioned satisfaction with some of the momentum with trade customers, so acknowledge a bit slower progress with the end consumer. So anything you could share in terms of maybe what your customer insights group is seen as it relates to brand awareness or intent to purchase or overall perception would be helpful? Thank you.

You're talking to the consumer insights. We're all sitting around the table. Yes, what's great is we just got back before we went to RH England, RH Madrid for the event, we were in RH England for a visit there and we sat with the team there for several hours, just trying to listen and learn and just kind of we just celebrated our one year anniversary in RH England and just identifying opportunities and we think that, look, we've never done this before, right? So we didn't know exactly, I don't know what it would look like. We could have guess at what it's going to look like, but we don't know. We're opening in new countries. We've never sold there. You couldn't even buy direct from our brand in any of those countries. So why would anybody know RH. And so we're just learning a lot about consumer awareness there, how do we build it, what are the right ways to market the brand? We always believe that the fastest way to build the brand, we think, is through a physical presence and people can see it, touch it, respond to it, be served in a way have interior design services, all kinds of things. And so I'd say after a year of being opened in RH England, we're kind of where we thought we'd be. We're trending at a level for opening a gallery in the middle of the country side that we said we're opening through a lens of conversation versus commerce. It's not where you would have started if you're trying to optimize commerce, right? London is where you start, but we knew London was going to be several years later. And we thought like let's do something inspiring and elevating and something that would…

That's really helpful. Thanks, Gary. And then just a quick follow-up. In the prepared remarks, you mentioned a growing number of online furniture brands that ceased operations. We've witnessed this trend as well. Based on our observations, it felt like disruption was more concentrated at the mid-tier price points. So are you seeing super premium online brands in your space vanishing? Or was that comment more so foreshadowing disruption that you see on the horizon for upscale competitors? Thanks.

Yes. I think there's a lot of, I think, mid-tier is kind of like, I don't know what's your definition of mid-tier. I think there's more online players that are going to, what I'd call, a higher-end market, may not be luxury market, but there's a lot of overlap. A lot of people doing a lot of look-alike things at price points that are overlapping ours that we've seen. There's some from one of the ones that is having a lot of disruption, a lot of press is a lot of it's targeted to the trade and stuff like that. So many of the ones like we are referencing what I call, higher-end brands that are targeting trade customers and higher-end consumers. But there's a lot of them like I added probably 100, I don't know, about 25% kind of 20% or probably blown up now or teetering not blowing up. But I think there's a market like this, especially when you have the compounding nature of really tough housing market with a really difficult credit market or capital market, they just can't get easy money anymore. So there's no free money to kind of just grow brand and not make money. In a market like this, you got to figure out how to get to profitability real quick because there's -- the odds that someone else gives you money is very low. And that's why I think a lot -- there's just going to be a lot kind of floating. And even in the non-online spaces, you've got furniture retailers, regional people blowing up. You've got higher end people like Mitchell Gold didn't make it through the last management changes that they went through in their business in a market like this. So it's -- and I think we're going to see more disruption. It doesn't look like that the housing market is going to snap back anytime soon. So I think there's a lot of businesses that are undercapitalized, not making money that you're going to see more and more disruption, and that's going to all the opportunity. Yes. And we've got -- we're just so much better positioned today from a value point of view, the value of our product and the disruptive nature of kind of how we're attacking the market in some cases that we're going to be able to get some of that share.

That's helpful. Thanks, Gary.

Our next question will come from Seth Basham with Wedbush Securities. Please go ahead.

Thanks a lot and good evening. Just to clarify, Gary, you've seen a little bit more negative on the macro than a quarter ago, but it didn't reduce the outlook for the year financially. Is that just because you see more benefits from some of your initiatives? Or is there something else?

Yes, I think we haven't really put a lot of factors, the macro steps can bounces around a little bit, but I don't think it's going to -- unless there's a real another step down. I don't think it's going to move us off our list factors or builds in our business. So there may be some shorter-term noise within quarters, things might move a little bit, housing market might be a little tougher or not tougher. If you look at mortgage applications and things like that, those can fluctuate a bit in there. So there's some macro noise within a year. But I just don't think that we didn't really think that the macro is going to get a lot better. And so I think we're more right than that than wrong about what the macro is going to do. And I mean even if we get one interest rate cut this year, if they go a quarter or even 50 basis points, it's not going to move the needle. And so but it's interesting. We might get a point everybody thinks we're going to get a 95% chance for one cut, I don't know. There was a 95% chance for five or six cuts, not too long ago. So we'll give you our view on the macro, but we -- and we take it into account on our business. But we're not -- when you're bouncing around the bottom like we are in the housing market today. We kind of think we're going to probably bounce around the bottom for a while. We hope the bottom doesn't go lower. I mean could it, it could. We're not really macro experts. We're kind of try to interpret what we see and look at the trends and take all the data in and use our best views on just directionally. Is it going to get worse? Is it going to get better? Right now, we don't think it's going to get worse, and we don't think it's going to get better. I think it's going to stay about the same through probably Q1 of next year.

Got it. That's helpful. And just a related clarifying question. You previously talked to peak inflection, our peak year-over-year growth first in Q2 this year. Now I'm not sure if it's back half of '24, whether you actually see the peak sometime in early 2025?

Yes. I think the -- I mean it's interesting when we're kind of seen that. We see a lot more now. And we can connect a lot more dots now. We can -- we've got some real product winners and things that are emerging, and we can see how to dimensionalize and optimize those now. So that's, yes, that's kind of when I say peak, well, let's first, let's define peak inflection. I'm talking about kind of peak inflection of RH sans the macro, right? We get the macro like when like our product peak will look like what. So I'd say I think it's likely for us looking like late '24, early '25, I think. It's -- but then again, you could say, oh, well, the peak is going to be 10 years from now because we're going to keep getting better, right? So it's not like we stop. But I'm talking about like the big moves. The big moves we're making, I'd say, yes, there's more we can see today and I'd say it looks more like kind of late '24, early '25 just because we can see more newness like we've got a big development pipeline from a new product point of view, and we've got a really, a pretty big development pipeline from a platform point of view, right? And probably in the next quarter or two, we'll give you some updates on like just new galleries and how many we can do. We're feeling more optimistic than less optimistic about what that pipeline looks like. And that will give us some more lifts and things like that. And at some point here, we'll get Paris and London, and we just got Madrid open, we'll have Milan open and we'll start I think that business will…

Helpful. Makes sense. Thanks for the color. And if I may, one last quick one for Jack. With the delay in the Modern Sourcebook, what was the impact on margin in the first quarter from lower Sourcebook mailing costs? And will there be any negative impact in the second quarter from the delay relative to your prior expectations?

Yes, we had a minimal impact.

Yes, nothing because we were going to -- it was going to start to get in the last week, I think.

In the last week of the quarter. Minimal part -- minimal of the expense would have been

Minimal, yes. It was most of the ad cost almost all of it was in Q2.

Thank you.

Okay. Any other questions?

And our final question will come from Brian Nagel with Oppenheimer. Please go ahead.

Hey, guys. Good evening. So I have a couple of really quick questions. It should be quick. So one, just -- and again, this is a follow-up, too. But Gary, you talked a lot about the tone of the business and your leverage. You mentioned the strength in Europe. Should we interpret the better trends lately is a direct reflection of the new products you have in the stores? Is that -- that's what's happening. And then the second question I have, just what explains the, I guess, the widening gap between sales growth and demand growth.

Yes. No, I think that's -- you're right. It's -- I mean, the new product is creating the inflection point, right? And whether it's a new product that's just in the books and online or it's new products that we've also now put in the stores that is creating a bigger lift. And then the other piece I'd say, not to minimize is just getting in-stock in the new product, right? You're just not going to buy it right, and you're not going to really buy it for all stores right up front. And so even if you decided to take an early bet and say, hey, I'm going to buy this one for half the galleries upfront, but your demand hits and you're selling way more than you thought, it doesn't even get to those galleries. It gets to those galleries six months later. And then it doesn't get to all galleries until six months after that. And even if -- once you get it into the galleries, your lift might be bigger and then you're out of stock again. So it takes a while in a business like this to kind of get ramped up because the factories can't move that fast against big numbers. I mean, we're a big -- we're the biggest business at the high end. So it was easier when we're smaller to move more quickly, I'd say. It's harder to move more quickly when you start to have our scale as no one makes scale. Like I said one of the collections that we did that became out of the gate, you could kind of forecast it just dimensionalize it based on the early demand trends that, wow, this is going to be our best collection. I mean the manufacturer had a triple…

That's very helpful. I appreciate it. Thank you.

Thank you. Thanks, Brian. That was our last question, right? Okay. Well, thank you, everyone, for your time and attention today. We're really excited about this transformation in our business and the evolution of the brand and the platform. We think we're doing some of the best work we've ever done and there are people that are just doing an incredible job bringing this new vision to life. And we think very soon our shareholders will feel really rewarded for this work that we're doing and we appreciate all of your support. So thank you and we will talk to you next quarter.

And this will conclude today's conference. Thank you for your participation and you may now disconnect.