RH delivers a 2025 outlook with 9% revenue growth, emphasizing long-term strategies despite a challenging housing market and tariff impacts.

It's fascinating that the market chooses to reward companies that set remarkably low expectations and slightly beat them versus setting high expectations as we do and at times miss them while still meaningfully outperforming our industry. Let me turn to our outlook.. We are providing the following updated financial outlook reflecting our year to date performance and our current Trends for the fourth quarter. Revenue growth of 7 to 8% Adjusted operating margin of 12.5 to 13.5% Adjusted EBITDA margin of 18.7 to 19.6% the above outlook includes an approximate negative 200 basis point operating margin impact from investments in startup costs to support our international expansion and 170 basis point impact from tariffs net of mitigations. For fiscal year 2025, our current outlook now is revenue growth of 9 of 9% to 9.2%, adjusted operating margin of 11.6 to 11.9%, adjusted EBITDA margin of 17.6 to 18% and free cash flow of 250 to 300 million. The above outlook includes an approximately negative 210 point basis point operating margin impact from investments in startup costs to support our international expansion and a 90 basis point impact from tariffs net of mitigations. In the short run the market is a voting machine, but in the long run it is a weighing machine. Benjamin Graham we are a company that is playing the long game, historically innovating and investing during uncertain times. We also believe post this high investment cycle and historically low housing market, the weighing machine, as it has done over our 25 year history, will accurately reward us for the truly unique high performance brand we are building. On the other hand, there is no denying what an unusual time it is in our industry and we also believe it's not a time to underestimate risk. We're in the third year, the worst housing market in almost 50 years. In 1978 there were 4.09 million existing homes sold in the U.S. when the U.S. had a population of 223 million people, we were on track to average 4.07 million existing homes sold over the three years from 2023 to 2025. With a population of 341 million or 53% higher than 1978, this is a market we've never seen before. Not a time to underestimate risk. Tariffs are disrupting supply chains and driving higher prices. There have been 16 different tariff announcements over the past 10 months that have resulted in significant resourcing, product delays out of stocks and driven multiple rounds of price negotiations and increases. Despite the chaos, we continue to demonstrate our ability to gain meaningful market share while aggressively investing in strategies that we believe will create long term strategic separation. While not a time to underestimate risk, also not a time to run from it. It's important to separate the signal from the noise and remember, necessity is the mother of invention. Our most important innovations were birthed during the most challenging and uncertain times. Our strategic separation is a result of innovating and investing during those uncertain times. And this time is no different. Launching the most prolific product transformation in history of our industry and believe the launch of our new concept in the spring of next year will re accelerate our growth and create another step change in our business. We're building an iconic global selling platform that will likely never be duplicated in our lifetimes. Construction costs post Covid have doubled across the industry, making it very difficult to emulate our immersive platform. At the same time, we've created new equally immersive physical experiences that are massively more capital efficient that we plan to unveil on our next call. On our call next quarter we just opened what might be the most beautiful and talked about retail experience in the world and arguably the most important city in the world. Especially if your vision is to build a global luxury brand, you know which one I'm talking about? R.H. paris. You have to see it to believe it. Developing a global hospital. We're developing a global hospitality business that generates significant brand awareness, traffic and cash flow. We have built a powerful restaurant company that is seamlessly integrated into our core business that will generate operating income that represents on average 65% of the aggregate galleries rent. They reside in the RH Ocean Grill at RH Newport beach is our first 20 million plus restaurant that we believe will reach the mid twenties in its second full year and its cash flow next year might cover the rent for the entire 90,000 square foot gallery. We're establishing a global interior design firm that is moving the brand beyond presenting and selling products to conceptualizing and selling spaces. We opened our first freestanding RH interior design office in Palm Desert, California with no product except for two small sitting areas in front of our designers offices. There's four offices in the building and a workspace with clients. It's a real freestanding customer facing design firm which really don't exist in the world. If you think about it like finding a dentist. You move to a new area, you buy a new home, you need a dentist. What do you do? You google it. You ask a friend, where do you find an interior designer? I mean you can go online. I don't know how that's going to really help. Yeah, but if you think about it, the world of interior design is not a customer facing business. And you know, we opened our first freestanding interior design office in Palm Desert with no product. You know, it's a real freestanding customer facing design firm and it's generating a million dollars a month in design business in 3,000 square feet which with rent of 200,000 a year, you can do the math. All of which is resulting in building a brand with no peer while generating industry leading growth with high teens adjusted EBITDA margin. Imagine what our performance will look like in a robust housing market as we cycle and leverage these investments. Never underestimate the power of the few good people who don't know what can't be done. Especially these people. Carpe diem. Operator will now open the call to questions. Thank you. And everyone, if you have a question today, please press Star one on your telephone keypad. We do ask that you limit yourselves to one question and one follow up. Our first question comes from Stephen Forbes from Guggenheim Securities.

Good afternoon, Gary. Jack. Gary, you obviously mentioned RH Paris, but curious if you can maybe give us some color on how the demand book is building. Noting it's early and the reason I asked is just curious if you can maybe help inform us how RH Paris has influenced your performance expectations ahead of RH Milan and RH London. Sure. Well, you know, RH Paris is one. It's really quite different. What we did open our first gallery with hospitality. It was really we're two hours out of London at RH England. There's not a lot of traffic out there. Known how our business is developed. We kind of talked about it last quarter. But many of the other galleries as I've spoken about, we didn't open in particularly the way we believed we should open. To acquire the RH Paris and RH London, which we think are one of a kind locations, we had to take a kind of a portfolio of galleries and open some of those before we wanted to. That's why we opened London. Excuse me. To open something that kind of set a tone. I think people know in Europe, Americans aren't really known for building luxury brands. We're not really looked upon by the Europeans that have a great taste or style. And really all the luxury brands are from Paris or Italy. The UK has a couple and you can argue that we have a couple argue that Ralph Lauren's a luxury brand. A very small part of Ralph Lauren's business is luxury. The biggest part of the business is more of a department store based, higher end business and not luxury and a giant outlet business. And that's not to say anything bad about Ralph Laurent. It's an incredible company, incredible brand. It's just not a real focused luxury brand. And you can argue that the only one we really had pure luxury brand in many ways was Tiffany and now the French own it. So the road we're on, the path we're on, it's a tricky one. It's a tricky one to travel. We use the metaphor of climbing the Legsmarine mountain and Eric coined the phrase, you know, if you get higher and higher in the mountain, it's where the air gets thin and the odds get slim. You know, no one's really made this climb, you know, and from, especially from the level we started at 25 years ago. And so, you know, we're, the next few moves we're making are really important moves. You know, I heard several years ago that someone asked probably the most famous guy in the luxury world, and I didn't hear him say this, so I'm not going to say who said it, but you can imagine only a couple people have built really the best luxury platforms in the world. But I heard someone asked a question, how do you build a luxury brand in China? And the response was, you build great stores in Paris, London and New York. And I heard that years ago and I've always thought about that as thought about RH and how do we unveil this brand? And we built RH New York and we opened it in 2018 and we said that was our bridge to Europe. So we did it a little backwards. And as we think about it, for our business, it's really Paris, London, Milan and New York. Because Milan is really one of the design capitals of the world. Not only for design, but also for fashion. But it's where the biggest design show in the world is, Salone, where 500,000 people go once a year. And it's also the time we're going to open RH Milan. But Paris, we pushed ourselves to another level. And it's not a particularly large gallery, but it's very unique. And I described it on the last call and if you haven't seen it, we've, you know, we had a video. Is the video on the website or no? Yeah, you know, it's a video. We're also making a kind of a documentary video. Like we have some of our other iconic buildings and you'll see that come out probably in the next couple of weeks. But you know, it sounds like we're bragging about it, but it might be one of the most beautiful and aspirational and inspiring retail stores that was ever created. And there's a lot of natural things that we loved about it. One, it's the only building on the Champs Elysees that doesn't have an entrance on the Champs Lavet. You can't enter the building. You enter through these 22 foot gold leaf gates and you go down 195 steps to the front door. And we built a freestanding interior design office there. We're able to get a building approved. And there's so many elements of it. It's where we built the first World of rh, which is a immersive experience that brings to life all our, all the places and spaces that we've built around the world. And you know, we think it's an important part of communicating who we are connecting with consumers. We, you know, well, we only totally, I think in hot probably have about 150, 155 seats. So it's really like a normal restaurant, but it's really two because it's in two smaller spaces. One's on a terrace. It's Laserden Restaurant, you know. And we invented some very new dishes there that we're going to be rolling out in the US because they're so good. And also Le Petit, which is on the top floor on the rooftop. And the rooftop was so happy we figured out how to work with Fosters and Partners. And when we saw the building we want to the side stair ladder thing to get on the rooftop. We couldn't believe we could see the Eiffel Tower and the Grand Palais and Louvre and everything like that. Like if there anyone uses rooftop and there's no way to get to the rooftop. You said you'd have to build an elevator. But you'll never get an elevator approved because it'll block people's views of the Eiffel Tower. And Foster and Partners, why you want to work with the best people is they said, well, maybe we can design a rooftop. I could design an elevator that a hatch opens in the roof and a glass elevator pops up and then it disappears. And I said, well, you ever done that before? They said no, but we love to do things that haven't been done before. But once you see the rooftop, you couldn't unsee it. Once you're up there, you're saying we've got to figure out how to activate this. And what's interesting, we have 40 seats. I think on the rooftop. And unfortunately, right now the rooftop's closed because weather in Paris gets pretty grim in the winters, and we can't evacuate the roof if it starts to rain and pours. Not enough seats to relocate everybody to the level below. But the rooftop, when it was open, the first few months we were open, it is the highest grossing part of the restaurant operation. And the two restaurants, we're doing more there per seat than anywhere else. So just, again, learning about creating incredible spaces that has made us rethink some of the work in Milan and some of the work in London and some tweaks there. And then we found out that, you know, we're building this world of our age. And we had this space where the building terrace wrapped and we thought, like, I don't know, what if we put a bar in here and try to make it a lounge? And so we put a bar in there and then we like. Well, we found out you couldn't. You couldn't have a bar in Paris unless you had food, and you couldn't just have nuts and snacks. So we had to have, like, a small menu. So we had a small menu the day we opened. We served our first meal in a place that in our mind wasn't even a restaurant. And on opening night, you know, the place that was packed and now we actually had to kind of retrofit it and put real tables in there that were big enough. And now we're serving most of the menu. Are we, Casey? Yeah. Yeah. And it's a great offset as we've lost the seats on the roof. But there's just been so many lessons and so much we're learning about the customer and who knows us and who doesn't know us and how truly international the business in Paris is. I mean, I said the list in front of me right now of all the design jobs we have in Mallorca and Morocco, and you name it, like the Middle east. And we're like the design jobs that the team working on, like, truly a global store. And the clientele is incredible, but so many people don't know us. And the team's walking people up to the world of RH and walking people through. And people, I think, are kind of shocked by our body of work because many still don't know us. And so just the thought of, you know, how important that world of RH is and what a tool that is for our teams to kind of not just try to explain who we are, try to pull it up on the website, but walk people into A really immersive experience that, you know, brings our spaces and places to life and, you know, speaks to our authority and architecture and interior design and landscape architecture because, you know, all of our, know, buildings are representatives of those, of those kind of core competencies. And we put, at the last minute, we decided the entry with a small little entry, and we didn't think it was communicating enough about our truth. And so we, you know, I don't know, we had four weeks ago or six weeks ago, decided to build an architecture and design library, like in Arch England. And now you can't unsee it. It's so incredible. You walk in, you. You look through the main doors. If you've seen pictures of the gallery, you've seen the Vitruvian man and the artist design ethos you have to interact with. I think most people stop and read it and take pictures in front of it. And then left and right, we have these fountains, beautiful fountains. And above the fountain, we came up with this line. My wife came up with the line, I thought I wrote a really great letter to Paris. And she read it and she said, give me a day. And I said, what do you mean you don't like it? Got insecure. And then she wrote that last night, the last line, if any of you got the invite to our party, we used the letters, an invite with music and so on and so forth, and used it for the opening of our video. And it says, in Paris, the measure is eternity. This we know and have built accordingly. And you walk into that entry and you can't help but read that as you go left and right around the design ethos. And then you go into this submersive architecture and design library, yet there's no product. You don't see a. It just like, doesn't look like a furniture store at all to anybody, right? You actually see. We now own two copies of De Architectura, 10 books on architecture, where the first modern printings were in 1521. And we got one in French, and we have three iconic French architects, Delorme Houseman and Lucy III. And then we've got Vitruvius, da Vinci and Palladio, you know, displayed with bust and historic books and so on and so forth. And it's something you've never seen anywhere. Like, you know, I've never even really seen one. But we built our first one in Arch England because there was a library there. And we came up with the idea and we created something, I think really meaningful. And I remember telling the team, you know, the night before we opened, we were in the architecture Design library, said this might be the most important work we did here. And, you know, because it really communicates our truth and why we do this and what we believe in. And, you know, so now we went back and we've, we've. Now you're gonna walk into the entry of Milan, which kind of looked like a lobby of a building, looked beautiful, but we didn't know what to do. A couple couches and a couple chandeliers and, like, it didn't really like you. You might, like, interact with the first person and go, oh, excuse me, but, you know, is this a condominium building? Is this. You know, it doesn't look like stork. You walk in and you immediately look through, through this kind of loggia into a backyard. And yeah, you have to kind of go up and left, left and right. It doesn't have a grand staircase, except for that goes down underground. We did our first underground restaurant. Like, everybody's going to go, oh, well, they have a rooftop restaurant, like this place or that place. No, we have a restaurant that's underground, that's got a skylight in the middle of the park. But. But we're putting Architecture and Design library now in the entry. And all of a sudden you're going to kind of go, wait, who are these people? Like, look at this. Vitruvius and da Vinci and Palladio and Scamozzi and Alberti and all the Italian iconic architects that shaped the way that most of the world was designed and built very early on. That's going to come to life there. We're going to have a world of RH in Milan on the. In a place, in a space that we probably wouldn't have done anything with. It's kind of like a, I don't know, an attic, you know, but the team re concepted it as this incredible lounge. And I think it's going to be an iconic place that'll help people understand who we are and what we believe in. And also, these are great spaces that we can rent out and do events in that bring the right people into our galleries. And, you know, we're starting to test the event business because we've got these incredible spaces. And, you know, I've said no for, I don't know how many years now, 15, 20. My line is always, you know, our, our galleries are our homes and we don't rent our homes. You know, I turned down Oscar parties and Grammys parties, you know, like the pop artists and everything. And, and I thought we finally did an event. We did. You know, I go to a lot of warriors games, and I'm friends with Joe Lakoff and Nicole Lacop, you know, and Peter Goober, you know, the owners of the warriors. And, you know, they hosted the NBA All Stars, and they wanted to use RH San Francisco to do the owners, you know, the owner's party, the opening party for the NBA All Star Weekend. And we did it. And. And we just got tremendous response. And all the right people there made us think, like, maybe we should for the right to track the right clientele. We have such incredible spaces. So in Tara so far, right away, Chanel wanted to take the world of RH to hold a dinner. And we've been contacted now about can so and so do their fashion show here, you know, and take over your gallery for the evening. And. Yeah, and so I think, you know, we're learning about, you know, this idea of, like, we're doing these iconic spaces and ability to actually, we have these unique architectural masterpieces and the ability to bring the right people, you know, because we have the right place. And I think it's even more important. Everybody thinks, like, everything's moving online. Like, I think people are dying for experiences. They're dying for authentic connections, not only with people, but with places, you know, and with history and with beauty and with food and, you know, like, I mean, how many nights can you order doordash or grubhub? But I mean, I love the services when I had no time and I, you know, wanted to have some delivered, but I don't know about anybody else on the phone, but I'd much rather go somewhere and, you know, see people and feel like I'm somewhere and connected, you know, And I think, you know, that's why people still, you know, congregate and aggregate. And maybe they're not going to movie theater so much anymore because, you know, that experience is, you know, not as unique and differentiated and, you know, you know, maybe we don't want to be in a place where someone's coughing behind you and so on and so forth. So that one I get. But I just think the places that we're building, people like to see and they like to be there. You know, there's not a lot of places that are public like ours that you can get a meal in and experience. So, you know, what we're learning in Paris, we're having all these people coming from all the world going, seeing it, and we're thinking about, like, gosh, we have to have more people Fluent in more languages. We need to ramp the design team faster. Our design team in Paris kind of got overwhelmed. We had no idea that we'd have the traffic we had from Paris. It was just so many people that came in and we were just overwhelmed. And even finding out how early you have to hire people because people keep long tenures, they can't just give a two week notice and come to work for you. We kind of got behind in hiring for the restaurants and like we were behind. We had to fly people from America to kind of help, you know, run the restaurant and cover the shifts and you know, they didn't speak French and you know, that was important, you know, you know, there's just so, so many things we're learning, you know, especially bringing hospitality into the high volume space. So. But just a little about the builds. I did my own little math and I was trying to understand, try to isolate the hospitality business because the hospitality business lost 25% of its seats after the first couple months. Expect that to be a little off. And it's only a tiny bit off with all the seats we launched and the highest productive seats. But we're thinking we might be able to tent that rooftop and actually do events there and maybe make, bring in just as many people, if not more because you only see 44 people max there. But the, you know, just about the staffing, about design, like we're learning a ton and you know, we're way ahead of, we've done, you know, team sent some incredible recaps and you know, learnings and we're going to be so much more prepared and so much more efficient. But the builds are really interesting. So the, you know, the math I was looking at, you know, I kind of looked at the first eight weeks because, well, September was a five week month. We didn't, we lost, you know, didn't open the first week on the 5th, which is, you know, you know, kind of a day and then the next week started. But, and I kind of try to isolate just our business because when you open cold in a market like this, right, you're not shipping to anyone here. You've got no revenues happening. And it's interesting what we're learning all around, but this one with high volume, high traffic, high traffic, iconic location, international, people coming from all over the place. And the first eight weeks, I looked at the first eight weeks and so I kind of got the four weeks of September, the four weeks we were open in the four weeks of October, and then I looked at it in the next really, almost six weeks. I had to estimate the last three days just to kind of. Because we. I didn't have a business. But when you look at the demand on the core business, and we haven't seen ramps like this, the six weeks, the average per week is 62% higher than the first eight weeks. And the first eight weeks actually had more traffic as we. I think we were, you know, still the, you know, like the fall eight, and there was a lot of people in Paris and you had a lot of people coming in. We still have very good traffic, but, you know, you can tell the team starting to kind of get their feet underneath them. We, you know, people are starting to kind of figure out who we are, and, you know, can I trust them? Can I buy furniture from them? And, you know, we have some people that know us because work either lived in America or they travel internationally, and they know us from America. But I didn't expect, like, the ramp on the core goods that. Because we opened with such good traffic. But I wouldn't have thought It'd be a 60, 62, 63% ramp those weeks or the other week. So when you start to think about that and how that might build, you know, I think it's going to take a while to kind of really understand it because we, you know, we got to get our arms around the divine opportunity. There's. I mean, when you look at all the places we're doing work and you think, oh, man, our designers are going to have to fly here and fly there. And, you know, and our customers pay for that. Like, we've been flying people from America to, you know, all the major cities in the world. So many of the major cities, we've got, you know, customers flying our people to Sydney, Australia, to Melbourne to Shanghai, to, you know, all over Italy. I mean, I can't. I said it's almost every country, you know, except, yeah, Middle east, you know. Yeah, we did for the. Let's see, the Prince of Qatar, right? Four homes on its compound, you know, and like a $3 million job or something, like. But we're doing jobs like hundreds of thousands into the millions. Like, we just got a famous building in New York. I can't talk about it, to disclose it, but we're doing a $3 million design project in one of the most famous mansions in New York City and done another $1.8 million project for someone I can't talk about very famous. And that's why I think I made the point about design firm. And so there's so Much that we're learning about Europe and so much we're learning about just the potential of our brand. It's just evolving. So long. Rambling answer, but you started with a question. I could talk about Paris for a long time. Thank you, Gary. I'll actually pass it on. Thanks so much.

The next question comes from Max Raklenko from TD Cowan.

Great. Hi, everyone. So, Gary, this is the first time that you guys have taken the pretty outsized price in a while. Can you just talk about how the customer responded in Q3 and the elasticity that you're seeing from the higher price points? What are the learnings and how are you thinking about the right price points for the brand ahead? And depending on where tariffs go, could we actually see RH continue to take prices further? Max, can I just ask clarifying extract like you're saying you observed Q3 was the first time we raised prices for a while, Is that what you're saying? Not necessarily the first quarter, but you have taken prices just given where tariffs have gone. So just curious what the elasticity looks like. Know how the customer is responding. You know, we're, you know, we're learning we've taken a lot of price increases this year. We've had a lot of, you know, movement in tariffs. And tariffs are set at one level and they went up and they, you know, they're, they're moving around and, you know, it takes a while. I mean, everybody, you know, from manufacturers to product designers and everybody who's involved in, you know, the development process and yeah, it's the first time we're all trying to navigate this through the thing. So I don't know, maybe it's going to stop moving for a while, but for a while that we, yeah, we're kind of frozen. But I think so far, as long as it's fair to everyone, I think that there's, I think that there's, you know, some businesses that, that might be kind of violating the rules. Yeah, I think that there are some, you know, people that are coming in, businesses in other countries that are, you know, opening up in the US and they might be making the goods. So they know, you know, they might not be, you know, bringing them in at the right price. You know, they're, they're trying to. Yeah, I mean, there's a lot of things going on, like, especially where there's marketplaces and, you know, you might have manufacturers bringing in goods and they're figuring out how to get around tariffs, you know, and we hope that any of those kind of Things, you know, get there. If we're going to let tariffs just make it fair, you know, don't, don't let some foreign manufacturer come in here. And those are the people you're trying to stop. And there's actually loopholes, you know, they're kind of getting product in here and I think in next to nothing. And that might be an advantage for certain people for a certain amount of time. But I think that stuff's getting to the administration and hopefully it'll become a fair playing field for everybody. And then if it is, it is. And the market will kind of conform to the reality, the customer is going to have to conform. If things cost more, what happens? We've had inflation forever in this country, many times much worse than this. I think we just think about, hey, just make it a fair game. Don't let manufacturers come in and open a US entity and you know, if their price is really $1,000 for something, don't let them bring it in for $100 and pay almost no tariff because they're, you know, shipping it to themselves. Yeah, so got it. Yeah, no, that's, that's helpful. And then Gary, just any more color on the new collection that you're looking to roll out next year? Just how are you thinking about the timing and just what, what could it look like as we think about some of the building blocks for next year? Yeah, we just got back to the trip that we worked exclusively on that and I don't think we've ever been more excited about anything that we've worked on. I mean it's, I don't think we've worked any harder. Not because we had to, just because we wanted to. Like, it's like, I think Eri, Lisa, anybody who's put this on the trip that has any perspective of the big moves that we've made over the years, I think this is going to be the biggest incremental move we've ever made. And I think it's going to be like a 10 year thing. It's not only is it part of our assortment that we're way under penetrated in, it's if you look at the architecture that it's targeting and the homes is targeting, it's targeting the biggest architectural block, you know, an aesthetic block, especially at the high end. You know, I mean some of our data says, you know, 60% of homes, 5 million and above represent this kind of architecture. And it's where we used to be strong and you know, when the launch of modern and contemporary and really the you know, the modern book, you know, the modern book and Modern's modern interiors kind of became contemporary and that's why it consolidated all together. And then, you know, the kind of those, you know, the major look, you know, that saying too much and where we kind of built the company on, it's more classic. It's not only big, it's the next trend. And what we're doing is our best work and our partner's best work. And I mean, everybody is excited about it, especially after the flash trip. And so our target is to launch it at Salon in Milan, the biggest design show in the world. When we have probably the biggest opening parties that anybody's had in Salone and have the world come see it and talk about it and try to get it into as many galleries we can as quickly as we can. It's what our interior designers and teams, you know, getting the ask the most about what they're most excited about. You know, we don't really represent it very well. So. And the work we're doing is, I think, just incredible work. And I, I think we can't wait to jump back on a plane and, you know, go do some more. Like, we just. It can be so big. So I think it's like I kind of look at it and I say, I don't know, worth a few billion dollars over the next several years. You know, I know it's five years or 10 years, you know, but it's, it's good. If it could be the biggest part of the brand, it should be, especially with the trend that's going to be powering it over the next. And that Trend should go 15 to 20 years. You know, when you look at cycles and this is the first time we're going to actually kind of lead a cycle, you know, we usually, I say like, don't go too early on the wave. You're like a surfer. If you get a false negative, the wave will go underneath you. Wait until the wave breaks, let a few people ride that wave, learn from it and then go own the wave. But this one actually, the first cycle, I actually was a consumer, bought my first house. My wife was a high end material designer, which actually we did. I met her, she was an interior designer. It's the first place I ever bought a small condo in San Francisco. And you know, I was the consumer for that look in my house in Belvedere. First house I built, you know, and we did that house and that was the look. So, you know, so I kind of know this one. I Actually was like, wow, I'm old enough to live through the cycle here. So that's good and a bad thing. Right. But you know why we think we announced like, who bought. We don't need. We didn't even announce that stuff yet. No. Yeah. Okay. I gotta, I gotta get off stage. It came out. Oh, it came out of the business. Oh, okay. Yeah. So if you guys know we bought Michael Taylor, you know, Michael Taylor Designs. It was, you know, Michael Taylor was the godfather of the California look in one of the most famous interior designers at the time in the 80s and he did the Albert du Soleil. And his famous diamond table was in the lobby of the Verrack du Soleil. So we, and I have the dining table in my Belvedere house. You know, it's, you know, I've had the Michael Taylor dining chairs and, you know, the snacks. Really very cool, iconic pieces. So we bought the Michael Taylor brand. We own all the IP and, you know, you'll see a fresh only thing coming. I'm giving the competition a little heads up. I better shut up. Why? Didn't do anything on earnings calls. I'm just going to kind of do this thing. And I thought, like, no way in the world of AI everybody copy. But we bought another company besides that, and so we're well on our way. It's going to be a big deal. Awesome. Thanks a lot, guys. Best of luck.

Up next, we'll take a question from Michael Lasser, ubs.

Good evening. Thank you so much for taking my question. Gary, you wrote in the letter that the way you offer your guidance is you have very high ambitions and at times you may fall short of that. Would it make sense to slow down the pace of all the initiatives and aim for a little bit more predictability in light of this very dynamic environment? And in that case, profitability might come a little higher as a result. Or is the is your theory at this point we're going to drive top line grows at all costs and the profitability will eventually come. I guess if I, if I thought that, I would have written that, right? I don't think that's what I wrote. You know, I just think that, you know, Wall Street's a funny thing. A lot of people said to me throughout my career, hey, you know, I hate being a public company and, you know, you got to report quarterly earnings and it gets you to think small. And I said, I think that's a choice. I actually like the discipline of being a public company. I actually like that we have to report earnings once A quarter report numbers and it makes us stop and think and assess and prioritize and so on and so forth. And I like that we have, you know, quarterly board meetings. And I like that we, you know, have to, you know, go through that process and distill things down and simplify and assess everything, you know, so, you know, so I don't mind it. The thing I've learned and I've observed, I think so many people, you know, they get so focused, you know, like on quarterly results that, you know, that becomes their whole mission as a CEO, you know, or a leadership team is like, how do we make the quarter? And they do a lot of stupid things to make a quarter that aren't brand building or, you know, business model building or anything, you know, And I just, I think it's not smart way to build something great, you know. And you know, we, one of our board members, you know, grew up in Silicon Valley and she's, you know, early Facebook team member and everything. And she always says we're like a Silicon Valley startup. We're semi mature public company. And I think that's a good thing to be. It creates energy, it attracts great people. Great people don't want to come in and just like, oh, how are we going to make the next quarter? Oh, let's lower our expectations, let's make sure we make it. You know, that's like a downward spiral a lot of times. Yeah, I mean, we, you know, we, we want to do something great. We want to be the best in the world at what we do. And you know, that's not for the faint of heart, it's not for everyone, you know, but we don't need everyone to buy the stock and you know, we don't, you know, our strategy is really simple here. From a business point of view. I say we do what we love with people that we love for people that love what we do. We don't do focus groups, we don't do stuff like that. We, you know, this is very personal business to us and probably, yes, reflect the same way Shareholders, you know, we have. Some people have been with us forever and some people are out of stock and that's okay. They love us sometimes. Some of them don't love us. That's, you know, it's a free world. But I don't know, like I, I, you know, it's like sometimes, you know, like in good markets, you know, we're eating quarters and making quarters in a market like this, this is the time to, you know, make moves and take Market share and you know, create real strategic separation on the other side of it. Ready for the, for the turn. And I don't think anybody's going to be more ready than we are. I didn't like look out when the housing market comes back, you think we're creating, you look at our two year numbers, you know, like, you know, just the handful, you know, there's not that many publicly reported people. But you know, if you look at furniture based retailers and you know, a lot of those people, you know, even on the list they sell a lot of accessories and other things. You know, there's not too many that are just focused on furniture that are even, you know, that I every, they've been in stores and we said like they'll put this company there. Well, are they even in California? Like why would we think about them, you know, Editor. Like, you know, they don't sell anything like us, you know, not, they're not at our price points or anything. But you know, we, you know, we took, you know, kind of national public players and they'd have, you know, at least price 50% furniture, we're 80% furniture. And so we're going to be more cyclical because of the furniture content, but furniture is the biggest part of the business. And so, you know, should we lower our ambition? Like, no, I don't think so. I mean, my question was not on be more stable. I don't know, like, are we not stable? I don't know, like we're gonna make it seems. Ebitda. Yeah. My question wasn't on the ambitions. It was more, it was more about the pace of initiatives and slowing down to eventually speed up. And you're not going to love my follow up question in light of that. So I apologize in advance. But you know, like, I like you, Michael, you ask good questions. It makes me think. Thank you. My second question is in light of the guidance that call for the fourth quarter, that calls for a slowdown in the top line as well as some absorption of the tariffs. Is this a signal that you're running into limitations on being able to manage the tariffs with price? And we should consider that as we factor our models for next year, not only could that put a little bit of a drag on the top line, but also we should consider that you may have to absorb some more tariffs in the next year. Thank you. And take that, Jack. Yeah, I'm thinking, Michael, you know, the tariff piece, I don't, you know, we didn't materially change the impact from a basis point perspective, obviously that's just representative cost alone. You know, the other piece that's not calculated on that is the price increase. You know, Gary called out in the letter, One of the Q3 items was just the tariffs on the backorder and special order goods. Some of that was timing, right, because we experienced an increase and expected, you know, have expected an increase in tariffs. We do our mitigation efforts, we do our resourcing efforts, but we, you know, concurrently also change prices. But you're never perfect. You know, you have some delays in the effectiveness of those. But, you know, you're not going to call your customers back and say, oh, by the way, the thing you just bought, we're going to be importing it at a 20% tariff, so can you give us more money? So, you know, as we thread that needle and get all that, you know, dialed in, that was some of the, some of the things that surprised us in Q3, and it'll flow a little bit into Q4. But, you know, I don't know that we're ready to say that. You know, make a statement like you're describing, you know, it's dynamic situation, not to mention looking at competitors, what do competitors do? You know, we don't lose sight of that. So, you know, as far as what 20, 26 looks like, you know, obviously we're a little early for that. I understand the question and the desire to know. Well, we'll talk about that at the end of March. But I think, you know, I think we're proud of how we've been navigating the tariff situation, you know, with, with, with price, you know, with, with mitigation, with resourcing, with, with vendor partnerships, with, with price increases, everything, everything that you would expect us to do. So, yeah, I mean, I. Plus we probably had the most, you know, difficult situation from, based on, you know, where we were, where we were sourcing from and what we did. And you know, we, we, you know, read it wrong. We, we, you know, the President was going to like moving goods to Vietnam and Vietnam is a smart place for us to move goods into. And all of a sudden Vietnam got hit with a 47% tariff or 46% tariff. And we're like, oh, that was costly to move it to Vietnam. And it was a lot of work and a lot of effort and we're just getting ramped up and then, okay, now where are we going to put it? And then China's going from one tariff to another. And you know, and you know, there's other places we're Moving goods to and moving to the US and you know, it's a bit chaotic right now. Like, I don't know, I, again, I kind of look at it all in context and I say everything that we're investing in, you know, we're, you know, we're building a restaurant company, you know, I don't know, name somebody who's ever done restaurants of our quality integrated into a retail experience, especially a furniture store. Now you'll say, well, you know, here or something, sell meatballs or something. Right. And you know, but, and actually, you know, we're, you know, we're generating cash. We're paying for 65. It's an offset, 55% of the rent of the buildings that on average, some are higher, some are lower. And I think we're one of seven global luxury hospitality companies that own and operate their own business. A lot of people go like, who's your chef? What hospitality companies run your restaurants? We run them. We're the chefs. Obviously we have culinary leaders and chefs and we all get together and collaborate. But they're, you know, they're a reflection of, you know, what we love and what we do. And we're getting good at it. We're getting better and better. And like I have an interesting point for case when what was our, our Average ticket was $38. $38 in 19. In 2019. Yeah. So I mean, here's the interesting fact. We just had our 10 year anniversary in October. Being in the restaurant business. We opened, you know, in Chicago and that restaurant did get like, you know, the partner we've, you know, that we hit it with is a great guy, still a good friend and you know, and super successful. It's, you know, a lot of times you really want to do something, you know, someone who's full time, they're doing this. And you know, we just realized most of the chefs, you know, driven businesses that are doing hospitality for other people, it's, you know, kind of a license, the name thing, they're not there. I mean we had a deal with, with Brendan and he was, you know, we had half his time for a while, but then he, you know, he had so many other opportunities and we realized, you know, this is turning into a real thing for us. We need to make it a core competency. So we, we've invested now many years and you know, it's like, but that restaurant Chicago that we have connected 5 million its first year. I mean the estimate was going to do about a million bucks first year and it did five. It does nine or 10 million now, Case. Yeah, just shy of 10. Just shy of 10 million. And we opened a second restaurant, a second gallery, you know, in a suburb not too far from that that's doing 11 million. So you think it would been cannibalized more. And. Our team is growing and maturing and collaborating and we're getting better and better. But if someone would have said 10 years ago that, hey, how many people want to wake up in the morning and go to a furniture store for dinner or for lunch? I don't think anybody would have. So think about that one. Like, I don't know, should we not have done it? Because you could have said like, gary, that was like really hard. Why did you do that? Well, we do hard things, you know, and we do things that are unique and differentiated. And, you know, I think because we, you know, we're more ambitious than others, we think more deeply than others. And we're not just managers of something. You know, managers arrange and organize the status quo. We're leaders. And, you know, leaders are leading people somewhere they've never been doing things they've never done, you know, and leaders have to be comfortable making others uncomfortable, you know, because that's what leaders do. Because, you know, and starting with the leader, the leaders can be somewhat uncomfortable. So, you know, I'm an ally. Sorry if I'm making you uncomfortable. Just what I do, that's how I know I'm leading. That's how you know you're on the right path. But if you can build things that other people haven't built and if you can lead, you can create a lot of value. And we believe we're going to create a lot of value. Maybe not at this moment. We look really risky, I guess, because we have debt. But we said we're comfortable with paying down the debt. There's lots of things we can do, you know, Heck, we've done more zero convertible notes than anybody in history, I think, you know, we did four. I don't think anybody's done four. And then we're. Yahoo. Had done two, you know, and at some point, you know, we might tap the convert market at some point, we may refinance some of the debt at some point, you know, like, who knows? We got, we, you know, we've got a lot of real estate and we think we can monetize that over time. And. And our inventory has been high. We're turning inventory into cash and, you know, but we're. I'm pretty comfortable. Like hell. I lived on the edge of bankruptcy. My first 10 years. This is nothing. Thank you for all the insight and I wish you all a very happy holiday season. Thank you. Great. Happy holidays to you, Michael.

The next question comes from Simeon Gutman from Morgan Stanley.

Hey, Gary. Hey, Jack. Maybe one question. Maybe let's talk furniture. Can you talk about the backdrop? I know it's been a tough overall market. Can you just talk about how the quarter, you know, how the customer changed the demand for furniture, how your current lines are resonating. And then barring anything in the backdrop getting worse, can we assume that free cash flow stays positive from here on out? Thank you. You know, I don't know if this is the time to assume anything. Will, you know, be a certain way? Right. We just, we just had China and Russia flew bombers over Japan, you know, like, hello, was anybody expecting that? You know, and, you know, then we rallied bombers with Japan or fighter jets or whatever. Like, who knows what's going to happen in this world right now. I mean, there's a lot of discord and there's a lot of noise and, you know, so I mean, we expect free cash flow to remain positive, but, you know, did we expect at any time early in the year that we were going to have all the tariff announcements, you know, such a unpredictable, chaotic way and have to delay our interiors book by eight weeks? Did we think we were going to launch estates this year? Yeah, we did. And I said the name of. Okay, sorry about that. But we, you know, we, it's, it's, it's a really unusual time and you know, we're not trying to be flat or up 3 right now. Like, if we're trying to be flat or up 3, would we be more predictable? We might. I don't know. Would that be really good for the long term? I don't think so. I love what we're doing right now. I love the moves we're making right now. I think nobody even going to, I think people are going to be shocked. I think competition going to go, oh, now what? I love our strategy in Europe. Is it more expensive than we thought? Yeah, it is. We build these things during and post Covid and they're way more expensive and put pressure on short term cash flow and. Yeah, sure, but wait till you see what we invented. And again, necessity is the mother of invention. Put us into a corner, make things tough for us. We'll vent our way out of it. We've designed, I think, some of the most exciting retail concepts coming, like new versions of RH that I think are mind blowing and they cost half as much. And we have other ones that are equally creative that will take probably less than half the time, it costs less, you know, and you know, we've got design ecosystems, we have design compounds, we have, you know, you know, interior design office. We just got a lot of, a lot of things and that's, and they're all making a ton of sense. And you know, so we're, I think we're pretty responsive strategically. We just don't, we're like to get stuck in the weeds and not see the bigger picture. And you know, but we're, you know, we're really excited about where we are. We're super positive. But can you say things are going to be super predictable in what we've just seen in the last six to 12 months? I'd say it's going to be predictably unpredictable. Just what we've all had to navigate, deal with. And I mean there's still changes. Like, you know, who knows, there could be a whole new round of tariffs. I mean the Supreme Court could say, hey, this is illegal. And then all of a sudden it's going to be, you know, if you read the news, there's going to be, these things happen, these things happen, those things happen. This changes that. Like, well, you know, we'll improvise, adapt and overcome. That's what we do. Simeon on the free cash flow, just so, you know, like Talked about the 300 million of inventory coming down. So that this year is a kind of a 200 million figure we talked about. So there's still that element to come. There's, we talked about reduction in cap, cap capital spending, you know, last call a little bit here. So just there's building blocks to maintain positive cash flow going forward. But obviously, you know, there's a lot of unknowns and a lot of uncertainty. So we'll be talking a lot about that and try to drive that result as well. Thank you.

Up next, we'll take a question from Jonathan Mataszewski from Jeffries.

Oh great. Good evening and thanks for the time. I appreciate the color on market share, Gary. And it's easy for us to track the public players you outlined in the table, but less easy for us to assess the health of the fragmented design showrooms, those regional high end stores, some of the local independent boutiques. Curious if you could give us a sense of what you're seeing from a dislocation standpoint with the majority of your share gains coming from those channels. Thanks so much. Yeah, I mean, you know, harder for any of us to measure. But yeah, I mean the feedback we get from, you know, some of the people that we've acquired and you know, people that we know that, you know, believe we've been the biggest disruptive force at the high end of the business over the last, you know, 10 years, not more. And so especially with what we've done, you know, with the new galleries and with the assortment and moving up market and taking the, you know, the quality up and the level of design up and you know, so, you know, I think you could, I mean we used to track how many independent high end boutiques there were, right? There used to be 32 between Sausalito and Santa Rosa, you know, County Healdsburg and stuff in Napa. And we always said, you know, that they all exist because you know, RH had a 6,000 square foot gallery in Cord Madera and you know, most of those boutiques were, I don't know, 3,000 to 15,000 square feet. You know, all the majority of them kind of close to the size we are. And it wasn't obvious, the assortment, you know, if you didn't get our book, you know, you didn't know how big our assortment was. If you didn't go to our website, you know, you didn't know. And we always said like when we have the assortment in physical marketplace there will be a lot less. And you know, you're making me want to go do the latest math. I mean we know, you know that it went from like 32 to about 18 or 20, you know, over X number of years and go do the math again, you know, but I mean I think, you know, we went from 300 million to three and a half billion and some of its hospitality and you know, you know, contract business and we own waterworks and but we believe most of the share came from the higher end and came from like it came from the showrooms and they came from the independents and they came from the regional furniture stores and they came from the Ethan Allen and similar companies or people like that. Not to pick on Ethan Allen or anything but I mean Ethan Allen died when I that our age earlier days they were like 1.2 billion or something. And you know, we looked up to them and I think they, I don't know if they do today 5 or 600 million or 700 million, you know. So you know, there's always going to be those shifting dynamics, you know, they're sometimes hard to measure. But you know, we like how our business has been performing from a market share point of view. And there's enough data to say we're one of the leading share gainers right now at a certain size, especially furniture based. Again, there's other people that have a big tabletop business, so they have big accessories business. So they're in seasonal businesses like Halloween and Easter and this and Christmas. And we're not in any of those businesses anymore. So you got to compare us to the right kind of people. And you know, so we don't have some of those other businesses that might make us a little less cyclical. You know, there's some of the businesses I think we exited too far. Yeah, we ought to probably have some more home accessories or you know, some layer, you know, designers, you know, would like to have more things to complete a home. And so, you know, we're considering those things. We used to have a book called the Objects Curiosity and we may relaunch that at some point and you might see us. I don't know, I wouldn't even rule out would we be in the tabletop business, but just in our own way, you know. And I don't think I would be in the chase the holiday businesses, you know, but doesn't mean we can't have, you know, beautiful candles that are, you know, that are like our branded stuff, you know, we, we can't have like our maid's blanket or things like that, you know, and they're really high end and aspirational and you know, can be great gifts and you know, things you really want in your home to identify, you know, that identify your status and where you are in life. So we think we build the brand correctly. You know, there's going to be other opportunities like that. But. But yeah, you know, hard to. It's that fragmented. Right. It's like not easy to exactly know. Helpful. Thank you, Gary.

And that does conclude our question and answer session. I'll hand the conference back over to Mr. Gary Friedman for any additional or closing remarks.

Great. Thank you, operator. Thank you everyone for your interest. Want to thank our teams, you know, that bring our brand to life each and every day throughout our galleries or hospitality or distribution centers or, you know, every aspect of the company, you know, everybody in, you know, every location around the world and everybody who's all of our partners around the world that, you know, work so hard to bring these beautiful products to life. We appreciate everyone and your efforts and your collaboration and we wish everyone a wonderful holiday and we look forward to talking to you in the next year.

Thank you once again, everyone that does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.