Hello, my name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to the Restoration Hardware second quarter 2022 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press Star, then the number one on your telephone keypad. If you would like to withdraw your question, press Star one again. Thank you. I would now like to turn the call over to Ms. Allison Malkin of ICR. Please go ahead.
Thank you. Good afternoon, everyone. Thank you for joining us for our second quarter 2022 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 that are forward-looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our press release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings as well as our press release issued today for a more detailed description of the risk factors that may affect our results.
Please also note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Also, during this call, we may discuss non-GAAP financial measures which adjust our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in today's financial results press release. A live broadcast of this call is also a vailable on the investor relations section of our website at ir.rh.com. With that, I'll turn the call over to Gary.
Great. Hi, everyone. We are live from RH New York at the RH Guesthouse in New York. For those of you in town, hopefully you'll come by over the next few days and come say hi. I'll be here through next week. It is a place you should come by and see. We have the best breakfast, by the way, in New York City. Anybody looking for a good place for breakfast, lunch or dinner, but particularly you usually can't find good breakfast in this town. At least that's what I believe. I'm gonna start with our letter as I always do.
To our people, partners and shareholders, we are pleased to report better than expected results as revenue increased $992 million versus $989 million a year ago, and up 40% on a two-year basis from revenues of $709 million. Results exceeded our revised guidance due to faster backlog release despite a deteriorating macro environment. Gross margin expanded 350 basis points in the second quarter, primarily due to increase in product margins as we continue to resist promoting the business as demand trends continue to slow.
As we've mentioned, there continues to be widespread discounting across our industry, and while there may be short-term risk of market share loss as a result of our choice not to promote, we believe there are certain long-term risks of brand erosion and model destruction once you begin down that path. It's that discipline and long-term thinking that has enabled us to set new standards for financial performance in the home furnishings industry. Our results continue to reflect those of the leading luxury brands as we delivered 24.7% adjusted operating margin in the second quarter, also exceeding our outlook.
Our results are inclusive of investments related to the launch of RH Contemporary, the openings of RH San Francisco and RH Guesthouse, the development of RH International, and the rollout of RH In Your Home, which led to approximately 400 of the 530 basis points of SG&A deleverage in the quarter. Our business generated $23 million of free cash flow in Q2, ending the quarter with $2.1 billion of cash on our balance sheet, total net debt of $446 million, and trailing twelve months adjusted EBITDA of $1.1 billion. We purchased 1 million shares of our common stock in the second quarter at an average price per share of approximately $255.
We also spent $82 million in cash to repurchase $18 million and $39 million of the 2023 and 2024 outstanding convertible notes in privately negotiated transactions. Following these transactions, there remains $44 million of convertible notes outstanding as of July 30, 2022. Let me move to our fiscal 2022 outlook. As noted in our updated outlook provided on June 29, 2022, our expectation is for continued softening in our business trends during the remainder of fiscal 2022 as a result of ongoing weakness in the housing market over the next several quarters and possibly longer, due to the Federal Reserve's anticipated interest rate increases and the cycling of record COVID-driven sales levels in 2021. Additionally, due to the construction and approval delays, we are pushing the opening of RH England to the spring of 2023.
While disappointed to miss the peak summer/fall season in the English countryside, we believe waiting until we can open with a full expression of our brand is the right long-term decision. Additionally, RH Palo Alto, which we plan to open in the fourth quarter of 2022, is shifting to the first quarter of 2023. Based on our current trends, the uncertain macro environment, and the shift of RH England to spring of 2023, we are providing the following outlook for the third quarter and fiscal 2022. Third quarter net revenue in the range of down 15% to down 18%, with adjusted operating margin in the range of 18.5%-19%.
Fiscal 2022 net revenue growth in the range of down 3.5% to down 5.5%, with adjusted operating margin in the range of 21%-21.5%. While we expect the next several quarters to pose a short-term challenge as we cycle the extraordinary growth from the COVID-driven spending shift and shed less valuable market share as we continue to raise our quality and navigate through the multiple macro headwinds, we believe our long-term investments will enable us to continue driving long-term industry-leading performance. 2022, the year of the new. As we've mentioned, while many of our plans have been delayed by the virus, they were not disrupted by it.
We continue to believe the important investments and introductions we are making in 2022 will mark the beginning of the next chapter of long-term growth and innovation for the RH brand. 2022, the year of the new, includes the May opening of RH San Francisco, the gallery at the historic Bethlehem Steel building, our most extraordinary new bespoke gallery to date. The launch of RH Contemporary, the most compelling and potentially disruptive product introduction in our history. RH Contemporary has been recently expanded to RH New York, and the initial results look promising. We plan to expand RH Contemporary into more galleries as our inventory levels improve in the first half of 2023. The elevation of RH Interiors and RH Modern includes the veneer collections and enhanced quality.
The September unveiling of our first RH Guesthouse in New York, a revolutionary new hospitality concept for travelers seeking privacy and luxury in the $200 billion North American hotel market. We began accepting inquiries for a stay at the RH Guesthouse yesterday as our website, rhguesthouse.com went live and the dining room at RH Guesthouse, New York, our new Live Fire restaurant, is now open for breakfast, lunch, and dinner. We plan to unveil the Champagne and Caviar Bar at the RH Guesthouse, New York next week. The introduction of an elevated new Live Fire restaurant at RH San Francisco and the RH Guesthouse in New York.
Since opening our new Live Fire concept in San Francisco is significantly outperforming our original gallery restaurants, and we are now planning to expand the concept to our new bespoke galleries in North America and Europe. With the September debut of our first Champagne and Caviar concept in the RH Guesthouse, New York, we now plan to expand this offering to future galleries in Paris, London, Milan, and Aspen. We will have more to report on this exciting new concept by next quarter. The premiere of The World of RH, our new digital portal highlighting the connective power of our evolving ecosystem, which we believe will begin to properly shape and position the brand in the minds of our website visitors, especially as we launch the brand globally.
The liftoff of RH One and RH Two, our customized Gulfstream G650 and G550 jets that will be available for charter later this year. The christening of RH Three, our luxury yacht that is available for charter in the Mediterranean and Caribbean, where the wealthy and affluent visit and vacation. The rollout of RH In Your Home, a unique and memorable experience with brand ambassadors guiding every detail of the delivery and extending the selling experience into the home. We move to our RH business vision and ecosystem, kind of our long view. We believe there are those with taste and no scale and those with scale and no taste, and the idea of scaling taste is large and far-reaching.
Our goal to position RH as the arbiter of taste for the home has proven to be both disruptive and lucrative as we continue our quest to build the most admired brand in the world. Our brand attracts the leading designers, artisans, and manufacturers, scaling and rendering their work more valuable across our integrated platform, enabling RH to curate the most compelling collection of luxury home products on the planet. Our efforts to elevate and expand our collection will continue with the introductions of RH Contemporary, RH Couture, RH Bespoke, RH Color, RH Antiques & Artifacts, RH Atelier, and other new collections scheduled to launch over the next decade. Our plan to open immersive design galleries in every major market will unlock the value of our vast assortment, generating revenues of $5-$6 billion in North America and $20-$25 billion globally.
Our strategy is to move the brand beyond curating and selling product to conceptualizing and selling spaces by building an ecosystem of products, places, services, and spaces that establishes the RH brand as a global thought leader, taste, and placemaker. Our products are elevated and rendered more valuable by our architecturally inspiring galleries, which are further elevated and rendered more valuable by our interior design services and seamlessly integrated hospitality experience. Our hospitality efforts will continue to elevate the RH brand as we extend beyond the four walls of our galleries into RH Guest Houses, where our goal is to create a new market for travelers seeking privacy and luxury in the $200 billion North American hotel industry. Additionally, we are creating bespoke experiences like RH Yountville, an integration of food, wine, art, and design in the Napa Valley.
RH One and RH Two are private jets, and RH Three are a luxury yacht that is available for charter in the Caribbean and Mediterranean, where the wealthy and affluent visit and vacation. These immersive experiences expose new and existing customers to our evolving authority in architecture, interior design, and landscape architecture. This leads to our long-term strategy of building the world's first consumer-facing architecture, interior design, and landscape architecture services platform inside our galleries, elevating the RH brand and amplifying our core business while adding new revenue streams and disrupting and redefining multiple industries.
Our strategy comes full circle as we begin to conceptualize and sell spaces, moving beyond the $170 billion home furnishings market into the $1.7 trillion North American housing market with the launch of RH Residences, fully furnished luxury homes, condominiums, and apartments with integrated services that deliver taste and time value to discerning time-starved customers. The entirety of our strategy comes to life digitally with The World of RH, an online portal where customers can explore and be inspired by the depth and dimension of our brand. Our authority as an arbiter of taste will be further amplified when we introduce RH Media, a content platform that will celebrate the most innovative and influential leaders who are shaping the world of architecture and design.
Our plan to expand the RH ecosystem globally multiplies the market opportunity to $7-10 trillion, one of the largest and most valuable addressed by any brand in the world today. A 1% share of the global market represents a $70-$100 billion opportunity. Our ecosystem of products, places, services, and spaces inspires customers to dream, design, dine, travel, and live in a world thoughtfully curated by RH, creating an emotional connection unlike any other brand in the world. Taste can be elusive, and we believe no one is better positioned than RH to create an ecosystem that makes taste inclusive, and by doing so, elevating and rendering our way of life more valuable. Climbing the luxury mountain and building a brand with no peer.
Every luxury brand from Chanel to Cartier, Louis Vuitton to Loro Piana, Harry Winston to Hermès, was born at the top of the luxury mountain. Never before has a brand attempted to make the climb to the top, nor do the other brands want you to. We are not from their neighborhood nor invited to their parties. We have a deep understanding that our work has to be so extraordinary that it creates a forced reconsideration of who we are and what we are capable of, requiring those at the top of the mountain to tip their hat in respect. We also appreciate that this climb is not for the faint of heart, and as we continue our ascent, the air gets thin and the odds become slim.
We believe the level of work we have introduced this year, inclusive of RH Contemporary, RH San Francisco, RH One, Two, and Three, plus the opening of the RH Guesthouse New York, begins to demonstrate the imagination, determination, creativity, and courage of this team and our relentless pursuit of our dream. 20 years ago, we began this journey with a vision of transforming a nearly bankrupt business with a $20 million market cap and a box-to-box detergent laundry detergent on the cover of the catalog into the leading luxury home brand in the world. The lessons and learnings, the passion and persistence, the courage required, and the scar tissue developed by getting knocked down 10 times and getting up 11 leads to the development of the mental and moral strength that builds character in individuals and forms cultures in organizations.
Lessons that can't be learned in a classroom or by managing a business. Lessons that must be earned by building one or by reaching the top of the mountain. Onward, team RH. Carpe diem. I will now open the call to questions.
At this time, I would like to remind everyone if you would like to ask a question, please press star then the number one on your telephone keypad. Your first question comes from the line of Steven Forbes with Guggenheim.
I guess, good evening. Not afternoon, right? Gary, just wanted to start really with your high-level thoughts around the value, as you perceive it, of the real estate pipeline, given the delays today. Really, can you talk through the anticipated 2023, 2024 opening cadence? I mean, can you speak about any of the projects in a little more detail and any sort of a timeframe on when we should expect you to get back to a more normalized opening cadence?
Yeah. I don't know what's going to be exactly normal, based on the kind of projects and experiences that we're building. You know, I mean, I know it's you want more normal, but we don't build normal, right? We don't really, you know, roll out a 10- or 20,000-square-foot store that you can open in a mall. We don't, you know, open kind of windowless stores that have a, you know, maybe a glass door front, you know, in a shopping center that, you know, you can stamp out.
Every one of our projects is a development project, you know, and it's complex and it's, you know, hard to do and it's hard to get approved and, you know, it takes longer and, you know, more human capital and more financial capital and, you know, more imagination, more determination. That's why they're so much more valuable than other things, you know, and, you know, that others might build and, you know, they might be able to be more consistent. You know, we rarely build many stores that are exactly alike. I t's funny, we used the word prototype here on and off for a little while in the last few years.
I finally said, "You know, let's just take that out of our vocabulary," because honestly. Every retailer I know that develops a prototype and starts to roll it out wakes up about five years later with a bunch of old stores. And in today's world where things are, you know, things are evolving so much faster, information is flowing so much faster, the world is so much more visual based on, you know, social media platforms and, you know, the just the, you know, immediate movement of images and photography across the world instantaneously, that, you know, I just think that, you know, having a prototype and trying to be more predictable is a dangerous strategy because we're in a world that innovation is going to only speed up, and I think duplication is going to be something that puts brands at risk.
I just don't know if that's necessarily our goal, Steve. You know, our goal is to do really extraordinary and remarkable work. What we've learned, you know, if you came to the center of innovation and walked through the portal, you know, we've got a new sign above, and it says, "RH, the home of the extraordinary, the remarkable, and the amazing." What we've learned in our journey is that when we do extraordinary and remarkable work, we've always figured out how to monetize it, and we found it hard to monetize ordinary and unremarkable. I think that, you know, you could just look at our numbers and the math would tell you that. You know, if you looked at our productivity per sq ft versus anybody else's, you know, in our space.
If you look at how much we do per store versus anybody else in our space, you know, that's not. It's reflective of the effort and the amount of work and the amount of imagination and determination and creativity and courage it takes to do work that nobody's seen before. You know, if you want to have results that have never been achieved before, you know, you have to do things that have never been done before. I appreciate your comment, you know, but I just tell you, like we sat here and said, "Hey, can we rush and get England open?" We could. It'd be probably extraordinary based on everybody else's standards. You know, we would. They can't imagine the kind of work we're doing.
It would be less than we can see in our imagination. I think, you know what I like to tell the team here is, you know, you just can't rush quality and, you know, you just can't rush greatness. I don't know, you tell me, how many times has Elon Musk been on time with a product launch? I just thank God I didn't put the $250,000 down on the Roadster, what, like five years ago, six years ago? Like, you know. I just think that what we're trying to do, you know, and, you know, we're trying to be the most admired brand in the world, and we can.
We used to say one of the most, and now we believe we can be the most admired brand in the world. We think we can do work that's so extraordinary, it really inspires people across all industries. It just takes more time. It takes more effort. I don't know how you put invention and innovation on a time clock. You know, it reminds me of the quote from Thomas Edison. You know, a journalist was asking him, "Mr. Edison, you've tried and failed 10,000 ways making a light bulb, how do you feel?" He said, "You're exactly wrong. I've learned 10,000 ways how not to make a light bulb." That's, you know, the journey of invention and innovation is not a journey of duplication.
The results of the journey of invention and innovation, you know, is extraordinary and drives the kind of results that I think, you know, have, you know, that we've now been able to begin to show. You know, you know, we have, you know, a massive strategic difference between RH and anybody else. Even though, you know, some of the businesses, people ask me about this one or that one, how do you feel? Are they taking your market share? You know, we started at such a lower level. I f you look at anybody versus us from 2019 to 2022, you know, take their estimates, take our estimates. Yeah, they might have had a higher percentage increase, but did they capture more dollars than us? No. Did they expand their operating margins farther than us? No.
Did they maybe look like they got more sales because they're picking up our crumbs as we're shedding less valuable, you know, less valuable sales? Yeah. Yeah. I mean, there's going to be people that pick up our crumbs, and they're going to feel really good for a while until they wake up and just realize they have an average business and an average brand. You know, that's just not what we're trying to do. You know, we're really trying to build the most admired brand and business in the world. It's, you know, sometimes, like, we're going to open. Let me give you a little color in England. RH England is going to have six hospitality experiences. Six. Three full restaurants. Right? Three secondary, you know, hospitality experience, b ut we have The Orangery Live Fire restaurant.
We have The Conservatory, you know, more casual American bistro kind of restaurant. We've got, you know, The Loggia, you know. We're going to call it the Terrace of The Loggia. We're going back and forth. But it's a beautiful kind of outdoor space, partially covered, incredible views, you know, with live fire pizzas and beautiful charcuterie and, you know, other dishes and wine, you know. They're all restaurants, quite frankly, that no one in retail has anything like, you know. Every one of them has a view of, you know, beautiful landscape. We've got on the property the largest herd of white deer in all of Europe, you know.
We've got secondary hospitality experiences like the wine room, the tea room. We're gonna serve high tea service in a way that, you know, contemporary way that people haven't seen. You know, the wine room would be seen, you know, the wine kind of impact and experience we started to create in RH San Francisco, where, you know, just, you know, the wine selection and curation. If you come to RH New York for dinner, I mean, you're just gonna see a completely different wine list. If you come next week when we open the Champagne and Caviar Bar, I think you're gonna see the most unbelievable champagne and caviar bar in the world, right? Not just even in New York, like in the world.
I think our restaurant we're opening in New York is I think it's one of the best restaurants in the world. I really do. I think the food's that good and the room in, you know, the RH Guesthouse New York is maybe the most beautiful room in the world. You know, dining room in the world. We have the probably the most beautiful exterior, you know, terrace ever built in New York. You know, it's the first elevated outdoor sidewalk terrace that New York's ever approved. You know, those things take longer. You gotta, you know, get knocked down 10 times, you get up 11. You gotta keep going back and be nicer and smarter. And practice the art of wearing them down, you know, to do really extraordinary work.
The things that are coming, like when you see the next iteration of our design galleries with the first one, where will it be? I don't know. That one. It'll be in Houston, it'll be in Naples, it'll be. Like, the next version, like we've already destroyed. You know, if you've seen RH Marin, you've seen. Like that's why it's not even a prototype. It's already dead. Like, we're never building another one. I mean, unfortunately, Palo Alto was too far in construction. We couldn't modify it. When you see like the next generation design gallery, it's like a sculpture. I mean, it's like maybe one of the most beautiful buildings you've ever seen. A gain, it's gonna just communicate what this brand's capable of and where we're going.
I think it will inspire others and, you know, create a movement around this brand. That's what you have to do to, you know, to try to make the climb we're trying to make. You know, we say, "Look, leaders have to be comfortable making others uncomfortable." Sometimes we're gonna make you guys uncomfortable 'cause, you know, it's just not gonna fit into the spreadsheet very well. What great invention and innovation has ever fit into a spreadsheet? Who's been able to forecast the greatest things that have happened in this world?
I appreciate that, Gary.
Definitely not. Yeah. Anyway, sorry for that, but I'm pretty inspired. You gotta come see this guest house 'cause Yeah, you know, I was worried. I thought, you know, I've always been a fan of the Aman Resorts and, you know, when I was really young. In the last 25 years I've traveled to a lot of them. It's where I learned a lot of architecture. I studied, you know, countless Aman Resorts, and especially the ones that Ed Tuttle did, who was one of the great architects in the world. I was really worried that, "Oh my God, what timing.
The Aman is opening, you know, in New York about the same time we're opening. I say, I think we've built something way better. We stayed there a few weeks ago. This is significantly better. By the way, that's why we priced our starting room rates higher than the Aman in New York. By the way, we've already got, what? 50 inquiries. No, now how much? It's going up by the minute.
70. 76.
76 inquiries to stay here, okay. With, I mean, it's picking their room, picking their dates, knowing how much it costs with guest rooms starting at $3,500 a night and guest suites starting at $7,500 a night. The Aman's starting at $3,400. Huh? What's that?
No problem.
Ari's saying. We don't even have photos of the room on our website. We're the only ones that didn't put photos because this is about privacy and security. You know, private entrance, you know, high security entrance. No one, you know, no one's gonna get in here but the people staying in here. Because we don't allow photos, and we don't allow you to post on social media, you know, I mean, we didn't print photos of the rooms. That's why the, you know, Wall Street Journal magazine was, you know, doing this article and when I told our team, you know, they can't take a photo of the room, they say like, "Well, you know, we can't run the story." I said, "That's okay.
You know, this is about privacy. T hey really wanted a photo of me somewhere in the Guesthouse, and I said, "Okay, I'll give them a photo." You know, so I sat in the bathtub. You probably saw that picture. But I didn't show them the whole room. I gave them a little peek in like how magnificent the bathrooms are here.
You know, if you zoom in on the photo, you know, not only do you see this all vein-matched Italian travertine slabs, which you'll never find anywhere, you may find in a few of the best homes in the world. Tell me if you've ever seen a home or a commercial environment, if you zoom into the ceiling, that not only has done a full travertine slab ceiling, but had the crown moldings carved out of travertine in Italy. You know, where we're going is just not comparable.
Thanks, Gary.
What does normalized pipeline look like? I'll tell you what it'll be, normalized. Great, extraordinary, and remarkable work will be normal here.
Just a quick follow-up. It's been 18 months since the JV investment. Ju st curious if you could give some high-level thoughts on how the partnership with Mark is going and, you know, if it's evolved at all, you know, whether in line or just how it's helping the process, right? The whole real estate process.
Yeah. It's just really been, you know, completely additive and again, a whole another level of innovation because I think our partner is incredibly creative and intelligent and resourceful. T he ability to source real estate that we probably would have never found has been massively incremental. Yeah, we just got one of the last, what, like palaces in Madrid, you know, that's gonna be just incredible. When you see, you know, what we're doing in Indianapolis, I mean, it's nuts. We have a 178-acre estate in Indianapolis next to Butler University with this incredible home on a lake, you know, behind this wall. Like, you think, like, what is back there? The wall goes for miles, right? Like, you drive along.
I mean, I think we're just seeing so many more creative things. We just closed on. I guess we haven't even announced that yet. No. I guess I can talk about that, right?
Sure.
Yeah.
Yeah.
Yeah. We own it, right?
You own it.
Yeah, we own it. We closed on 856 acres in the Napa Valley, probably the most beautiful piece of property in all of Napa. It was the site of the historic Soda Springs Resort from the 1800s. Still has the ruins, where we'll build a guest house and residences and a winery. We have some of the best soil in all of the Napa Valley. Organic farms. We're building an experience that the world's never seen. We're close to closing. Are we? Have we talked about? I'm wishing.
No.
I can't talk about that yet? No. Okay. There's like an incredible property somewhere in Europe that you'll hear about soon. I can't talk about that one yet. Yeah. A lot of these things that we're doing with the JV, we're just seeing things that we've never seen before. I mean, different guest house opportunities. Now I would just tell you, like, being here in this guest house, there's no way this thing isn't gonna be incredible. I mean, there's nothing like it in the world, and the world needs this, I think. You know, they're just you know, all the great hotel brands have just marginalized themselves, you know, because they all have this nobody has control. You've got a developer controlling the development. You've got a hotel flag that's trying to design it.
You've got conflicts on, you know, what they're gonna design, how much it's gonna cost to build, so on and so forth. Nobody's really doing extraordinary work, you know? I actually think now, like, this thing is. I mean, it could define an entirely new market that doesn't exist. Yeah. There's just a lot of stuff that, you know. I mean, we've got a lot of, you know, a lot more optionality, a lot more opportunity. W e continue to, you know, strengthen our internal team on, you know, on more what I'd call more typical deals.
You know, the joint venture platform is gonna continue to allow us to do extraordinary things in a capital-light way, and give us, you know, control our destiny more and actually, you know, extract value for the value we've created to the developer, so in a low capital way. W e'll have real estate value that we'll monetize now and then. We may refinance properties, pull capital out. You know, I think because we're building such unique things and, you know, and we're not, you know, we're not building, like, strip center retail stuff. You know, these are really bespoke properties.
I think as our brand continues to do well and, you know, at our level of performance, it makes the real estate even more valuable. You know, it's just a lot of optionality that we're gonna have long term, a lot of flexibility. The most important thing is just the creativity and deal sourcing. I mean, you know, I really think, you know, Mark's organization, you know, that he has is incredibly creative and resourceful. I mean, and they're just fun to work with, you know, because they're also highly creative. Lots of good stuff.
Thank you.
Your next question comes from the line of Max Rakhlenko with TD Cowen.
Great. Thanks a lot, guys. First, can you provide just any more color on contemporary demand in New York and San Francisco? Any early reads or anything to call out? With the supply chain pressure easing, is there an opportunity to get it into maybe some more of your galleries faster? Because I think the timeline has actually been pushed out a little bit from what you noted last quarter. I guess given all this is 1Q 2023 or maybe even 2Q of 2023, the first few quarters where contemporary is gonna have a meaningful impact to your top line.
Yeah, sure. Well, one, we're really happy with how Contemporary is performing. I mean, both in San Francisco and in New York. Yes, San Francisco we've been really, really pleased. In New York, it actually meaningfully has changed the direction of the business. That one was a little bit easier to measure, right? Because in San Francisco, we went from this little tiny store to a big store with a restaurant. In New York, you've got kind of an apples-to-apples comparison. New York's not completely done. It's not completely set up. When will it be all done? Probably another month or so, a few weeks. We're redoing every floor of New York.
By the way, probably at the end of the year in January, we might redo the restaurant to just freshen it up and, you know, tie it into kind of the whole new aesthetic and color palette. You know, so to keep you know keep that restaurant really relevant and exciting. Then as it relates to you know supply chain ramping, because these are all new goods, you know, you just can't ramp too fast. The big headline is, you know, when our product is in our retail stores, it sells in a significantly higher than it does when it's only online, you know, or in a source book. That's the big opportunity. I mean, the big.
The great thing is right now we're getting, you know, some early reads, you know, what are the best sellers, what things are, you know, what categories, what aesthetics and finishes and things like that are our clients responding to. You know, what are our design teams excited about? What are they spec'ing? What are external interior designers, you know, excited about and spec'ing? And then how are we adjusting, you know, our assortments to present those things in our galleries and expand and dimensionalize those ideas further, you know, throughout the collection. You know, lots of exciting things happening. If you've been into RH New York, you know, I mean, it looks. We kind of got it in here a few weeks ago.
I mean, the team's been in here, though, this past week, really kind of, you know, polishing it up and making it look great. I was just in a couple of days ago, and I think it's you know, the gallery looks significantly different. We repainted the walls on floor one to kind of a, you know, kind of a buff white, kind of like RH San Francisco. It's just a better canvas for this new collection versus the gray paint. You know, we're gonna redo every floor. Then we'll, you know, plan a complete transformation across all the galleries.
The great news is about not rushing. This is when we make the changes across all the galleries. They'll be really intelligent, you know, decisions based on real data. You know, when you have a launch this big and this much newness all at one time, I mean, every plan we have is gonna be some degree wrong, right? The question is, are we directionally right and strategically right? We are. Now it's just, you know, fine-tuning, getting the data, you know, adjusting the manufacturing and the on orders, dimensionalizing the big ideas, and directions, and then optimizing the opportunity, you know, sometime. Let's say, you know, first half next year.
Depending on how big you know how big we decide to go on the transformation of the galleries. You know, are we just painting the insides? Are we doing more than that? You know, we'll keep you posted. We're really excited. I mean, yeah, I've never been more excited. I mean, you know, it's so funny because we're. I mean, people keep saying, "Are we gonna be in a recession?" We're in a recession. Anybody who thinks we're not in a recession is crazy. You know, the housing market's in a recession, and it's just getting started. You know, it's probably gonna be a difficult 12-18 months in our industry. These are the times where you can really capitalize.
What I love is, you know, the big moves we've made are all directionally right and strategically right. You know, whether it's contemporary, whether it's what we have in the pipeline that we're working on, whether it's the investments in RH In Your Home, whether it's, you know, what we're doing in Europe, which I think, again, is gonna be extraordinary. What we've just done with the Guesthouse. You know, all these things that are, like, big, you know, big kind of vector movers, you know, that really put us on a different long-term trajectory. There'll be more opportunities, you know, over the next, I think, 12-18 months as we ride out, you know, what it's gonna be.
I think it's gonna be a more difficult time than a less difficult time, and that's versus how I felt a quarter or two ago. I think things in the world and, you know, you know, I think the Fed finally really understands what they have to do. You know, it's not gonna be pretty, you know, when interest rates go up the way they are. I mean, we can all look at history and, the key is, are you prepared for times like this? Are you prepared to capitalize on times like this? I think, you know, we put ourselves in a position to play offense when possibly everybody's playing defense.
What's funny. During COVID, we didn't really play offense from a small-rock point of view. I think our competitors ran around and tried to collect all the little rocks, you know, or like what I call the apple catchers, right? Like the, you know, the apples are falling from the tree and, you know, they're picking them up from the ground. Well, you know, while everybody was like running around trying to pick up the apples on the ground, you know, we figured out how to, you know, build, you know, an apple harvesting company, if you will, you know? You know, I think we just feel really good right now.
I mean, feel really clear, really passionate, but there's a level of kind of calmness. Like, you know, we've been through storms before. We've been through recessions before. We've, you know, been through the Great Recession before. You know, we know what to do. We know how to play this game, and we think there's, you know, a lot of other people are gonna stumble and fall. They're not gonna know what to do. You know, there's a lot of newly public companies that are, you know, they're gonna, you know, have pressure, you know, feel the Wall Street pressure to grow, and they're gonna do so right at the wrong time, you know, with the wrong balance sheet. You know, I like where we are. I mean, just look what happened.
I mean, you know, what happened to Wayfair, like, this morning, right? Like, doing a convertible notes and it's $40 a share. Like, their stock was $300 a share for almost a year, you know, b ut they were playing a small game, you know, so they couldn't even pay attention. Like, if there's any time you're gonna do a convertible note raise is when you could've done it at $300 and hedged it up 100% to $600 and paid zero coupon. There's no zero coupons today, you know.
You know, doing convertible notes at $40-something a share, I mean, if they make it through the next big difficult time, I mean, the amount of massive dilution if the company does well, it's just gonna be incredible, you know, from that. I just look at the, you know, like how people are playing the game, what people are doing, what's. You know, I just go like, I like where we're at. I like the path we're on. I like the strategy we're pursuing, you know, I think we're gonna have a lot of fun. Again, look, it's. You know, Powell said we're gonna have some pain. It only hurts if you're not prepared.
Got it. That's very helpful. Then just going back to 2Q, quickly, how much of that top line was supported by working through the backlog? Then just where does it stand today, and how long do you think it'll take you to get back to a more normalized level? Thanks a lot.
Hey, Max, it's Jack. You know, obviously, when we relieve a backlog, we're generally also building it at the same time. I'd say, you know, if you think about even just the revenue beat versus our expectations, Gary noted that was backlog relief. I think through the first half of the year, you know, we'll call it probably, you know, $50-$75 million through it. Relative to that $200 million we originally noted at the beginning of the year, you know, we still have that work left ahead of us. You know, while supply chain constraints and other things are easing, you know, they're still not back to.
If there's a level of normal, if we all believe 2019 pre-pandemic's normal, they're still not there, and there's still you know a number of factors that are continuing to have that backlog you know persist. We'll see. I think there's a chance to get through it by the end of the year and if not, you know, we'll just continue to chip at it, and at some point it'll normalize, especially you know with the macroeconomic environment in the shape that it's in.
Got it. Thanks a lot, guys.
Your next question comes from the line of Adrienne Yih with Barclays.
Good afternoon, everybody. Gary, I kinda wanna stay on the topic of how the brand is shifting. It seems like the DNA of the brand is actually the piece of it that's shifting, and I'm just wondering if that's the right way to think about it. Is the company still rooted and founded, the foundation being home furnishings? It seems like future CapEx are hotels and real estate and property and these physical assets. While, yes, you're still opening the stores, they're more experiential. I'm just wondering how you think about sort of the root DNA of the company. Jack, just really quickly, next year as we think about 1H 2023 SG&A dollar growth, because a couple of the Palo Alto and England are opening then, how should we think about that dollar growth? Thank you.
Sure. Well, let me take the first part, Adrienne. I just tell you, if you have our shareholder letter in front of you, and if you just go to the RH business vision and ecosystem, the long view, and if you read it carefully, what it will communicate is that everything that we're doing is designed to elevate and render the core business more valuable. Everything. Right? Everything we're doing. If you just read it really carefully, you'll pick up everything here. O ur products are elevated and rendered more valuable by our architecturally inspiring galleries, which are further elevated and rendered more valuable by our interior design services and seamlessly integrated hospitality experience, right? Our hospitality efforts will continue to elevate the RH brand as we extend beyond the four walls of our galleries at RH Guesthouse.
You know, where goals spread new markets, all designed to elevate and render the core business more valuable. If you go to architecture, interior design, and landscape architecture, all designed to elevate and render the RH brand more valuable, right? Doing homes that are fully furnished, you know, all designed to elevate and render the core brand more valuable. I t's just a different way to communicate and build the brand than anybody else has done. That's okay. I mean, Elon Musk has taken a completely different approach. He uses Twitter. Never does an ad. Like this. Yeah, we just believe what we're doing is gonna position our brand, you know, correctly, you know, elevate it and render it more valuable, and you know, that it all.
That's why we call it an ecosystem. You know, there's nothing here that is dilutive to the brand, right? It's just a different way to communicate than a, you know, free shipping or, you know, Labor Day sale or, you know, financing sale or, you know, paying out, you know, buy now, pay later. You know, all the different ways that people are communicating with their customer. We're just communicating differently.
Yep. That's helpful.
Adrienne, on the SG&A dollar growth, look, you know, there's variable components in there. There are six components. I think maybe you're asking sort of like what's the fixed investment that we're making, 'cause clearly, you know, it'll flex on the variable side as it has as our business has grown, b ut, we're making investments international. We're talking about that. Some of those are in the base this year. You know, we've got pre-opening of something that we've called out, you know, San Francisco and Guest House this year. Those won't repeat. Obviously, there'll be other elements of pre-opening next year. You know, it's different every year, whether it's a new level or higher or lower.
We haven't really guided, but just to kind of give you some perspective into, you know, some moving pieces there. Again, there's gonna be pieces that are variable, pieces that are fixed. From an investment cycle, you kind of know what we're doing and you know, and Gary called out in his letter the pieces that we're investing into this year. Some of those, again, that are in the base, we'll, you know, cycle those. You know, if there's more investments to be made, we'll be talking about that.
Okay. Thank you very much. Best of luck.
Thank you.
Your next question comes from the line of Curtis Nagle with Bank of America.
Good afternoon. Thanks very much for taking the question. I guess the first one I wanted to go to was just coming back to contemporary. Great to hear, you know, off to a really good and promising start. Yeah, just kind of thinking about this brand, kind of further out. Like I think, Gary, you said, you know, this is potentially the next billion-dollar brand, right? Presuming that still stands. What do you think the timeline is in terms of, like, how that ramps, what that does to other brands? Is it additive? Is it cannibalistic? You know, on what level do you think it gets to the mature level? Does it take two, three years? Yeah. How do we think about the ramp of that brand?
Yeah. I mean, it'll take about three years to ramp or so. You know, we'll keep expanding it and dimensionalizing the brand, you know, that part of the business. Everything you do is somewhat cannibalistic. I t's hard to tell at this early stage what that looks like. You know, 'cause some customers will just trade up. For the most part, I think it's gonna be more incremental than not. It'll open up more of a new market, especially at the high-end of the high-end where people have bigger homes, more homes, spend more on the home.
You know, it'll open up the market to high-end interior designers, as will even more so RH Bespoke Furniture and RH Couture Upholstery. Yeah, I mean, I think if—I mean, we look, the way we kind of encapsulate ideas allows those ideas to break through the market, right? And penetrate and as to be seen and known for things. I mean, in a lot of ways, it's just an expansion and evolution of the brand. It's just we choose to do it our own way and intend to. Instead of, like, letting things kind of dribble out there and, you know, get a lot of impact or you don't get noticed.
We tend to kind of pull back, build an idea, build a big idea, and then try to break through the clutter. Then it can really move the needle, you know, like RH Modern did. You know, the biggest debate inside our company in 2014, 2015 was, you know, do we integrate RH Modern? Is it just integrate into the, you know, into the RH, you know, brand, the core book, or do we isolate it and we try to break through? We went back and forth. Last minute, we said we're going to isolate it, you know, because we're just not known for Modern, and it'll have a better chance to break through the clutter. That's what we do sometimes.
It's just how we approach it. You know, it's not really a. I don't even know if it's the right thing to call it a brand. You know, it's a collection. It's an evolution of our business that will be, we believe, really incremental and will move us up and open up the market for us at a higher end. So it'll attract more, you know, more valuable customers, b ut at the same time, you know, there's some cannibalistic nature to it. At the same time, we're shedding business at the bottom, right? Like, we're letting go of, you know, things that hold the brand back, that might have once been important to the brand, you know, but now actually render the brand less valuable.
We're constantly having that discussion inside our company. It's just, you know, is this additive or is it dilutive? Is it helpful? Is it hurtful? Does it render us more valuable? Does it render us less valuable? As you're trying to craft, you know, a brand and a business model like we are, you know, all those discussions are really, really important, and those decisions are really, really important. You know, it's not like we all say, "Go, oh, contemporary, let's just do this," you know, and start throwing goods out there. You know, we try to think really deeply about these ideas, and we say we have to think until it hurts, until we can see what other people can't see, so we can do what others can't do.
Yeah. Our ideas generally, our big ideas generally are strategically and directionally right. Then we get going, and we get real data, and then we can, you know, we can evolve from there. Yeah, so who's that? Laurie, is that with it?
I think that's Adrienne.
Okay.
Curtis. I'm sorry. That's Curtis, I think.
Yeah. Okay. Anyway, yeah. That answers your question, hopefully.
No, it does. Holistic, you know, for sure, enhancing the brand, all that. No, it makes total sense. I just gotta ask a question on the buyback. I think this is the first time you've been in the market, I think, in like 12 quarters, right? Just kind of why now? You've had cash on the books, a lot of cash on the books for a while. Yeah, I guess what triggered that? I mean, what do you see in the business? Is it the valuation, the certainty in the long-term growth? Should we expect you to remain in the market? Yeah, just very curious about that.
Yeah. Well, first, we only have very small windows when we can be in the market, right? I think sometimes not everybody's aware of that. You know, we have, what, generally how many weeks in the market?
It's through the second week of the final month of a quarter. By the time we announce, like five or six weeks.
We generally, once we announce, we have a 5- or 6-week open window. Most of the quarter we can't buy our stock, right? So I think there's a lot of people, I read different reports, and people think, like, we're out there buying. Well, we can't buy. We're looking at multiple things. We're looking at valuation. We're looking at what the environment looks like, where we think things are gonna be. I mean, it's not like we have a lot of capital on our balance sheet right now that we raised, and there's a lot of optionality we have. In a market like we're going into, you know, there may be businesses we wanna acquire. There's real estate we may wanna acquire.
There's, you know, other things we may wanna do. There's, you know, our stock we may wanna buy. I don't know. Maybe we wanna buy stock of someone that we wanna buy, you know, like Bernard Arnault does. I don't know. You know, like, there's a lot of things you can do when you're in the position we're in, and you've got optionality, and you've got a really good business model that, you know, you can, you know, capitalize in any kind of a market, especially if we're heading into a recession. We're just constantly looking at all of our options and saying, "Okay, based on what we know right now, what's our best use of capital?" Sometimes it's just, you know, we want more data. You know, we don't just mindlessly buy.
I mean, look what happened to Bed Bath & Beyond, for God's sake. You know, spent $12 billion buying their own stock back, and look where they are today. I'm sure some of the people there thought it was a good time to buy. You know, they probably wish they had that $12 billion. You know, so you sort of got-
That's sort of the point of my question, right? 'Cause you guys have been so thoughtful and which is discipline, right? It just you know first time in a while, so I just I felt that was worth highlighting 'cause you you are you know restrained, disciplined, right? Have the balance sheet. I just thought it was an interesting point.
Yeah. I mean, like, especially right now, I don't know exactly how this is gonna play out. You know, just like, you know, all the investors you interact with, right? How are they deploying capital? Who are they buying based on what information's in the market, and what's the right time to buy what? You know, look, this is kind of like optionality capital in times like this. Yeah, we're not. It's not the most important thing we do, right? It's the most important thing we do is really, you know, all the big efforts here to build one, you know, build the most admired brand in the world, s o that's where most of our time is. Then we, you know, we spend some time thinking about, we're looking at data, and we have capital.
Is it a good time to buy our stock based on the data and where we think things are going? Or is it better to hold off and see. You know, get more clarity on what the market's gonna look like, and, you know, what our business is gonna look like in that market. You know, is there other opportunities? Is there, you know, businesses that look like things that we wanna strategically do and that we may be able to acquire at a fraction of the price and maybe get a five-year head start on something that if we were to try to do it internally, you know, might go faster. I mean, nothing. I'll just say this. You know, 'cause I want to talk about things like that.
Then the press will say, "Oh, Gary Friedman talked about, like, buying businesses," and it becomes, like, our big strategy. That's not our big strategy. There are things that we're working on and doing, and even things that we've articulated, that we wanna do that they're things that other people are doing, and they've been doing a long time. Maybe they just don't have the scale we have or the platform we have or the infrastructure we have. You know, they're too small of a business to be a good public business or even a good private business. Yet you could maybe take businesses like that, put it in our platform and, you know, and it could do much better. I mean, you know, in long term, it becomes a big opportunity for us. You know, it's just.
Yeah, we're just always looking at a lot of things, and we get people to bring us a lot of options and look at things. There's things we've been looking at for a long time. Like we, you know, we knew we wanted to have Waterworks as part of the portfolio the whole 22 years I've been here. It, when it was finally the right time, we bought Waterworks, and, you know, it was a little bit of a rocky start in the beginning. Now, you know, Waterworks is performing really well, you know. Record EBITDA, really good model. T here's gonna be a, you know, bigger opportunity to synergize, you know, what Waterworks is doing with RH on our platform.
I think our brand is now, you know, starting to catch up with their brand, and the brands will come into harmony, and it'll be the right time to have a much bigger play. You know, you just gotta like, with all those kind of things, you're really taking a long-term view. You know, it's not I mean, there may be a really good time to buy and, you know, but you tend to make more mistakes when you just buy things on price, right? You know, that's why I kind of say the thing, you know, like on Bed Bath & Beyond or something.
You know, somebody just didn't think deeply enough or know the business deeply enough, because I'm sure in retrospect they look back and go, "That was the worst allocation of $12 billion, maybe one of the worst in history in retail, you know, companies that size." But somebody thought that was a good idea. I would say they probably just didn't think deeply enough. They didn't think about the risks, they didn't think about other opportunities. They didn't know their business well enough. W e spent a lot of time thinking here, a lot of time debating. You know, we try to get all the brains in the game and the egos out of the room.
You know, we say none of us are smarter than all of us, and you know, and that usually gets us to better decisions than most people are making. Yeah. We're, you know, in no rush. You know? I mean, I don't know. Like, I mean, if we go into a really bad recession, where will they price our stock? You know, you tell me. Probably lower than it is today.
All right. Thanks very much for the
Sure.
Your next question comes from the line of Simeon Gutman with Morgan Stanley.
Good afternoon, guys. A little bit of near-term questions. Pardon these. First, when you lowered the guidance, it was June, and it sounds like that might have been the low point for a lot of retail. Realize you're catering to different clientele and customers in a different end market, but curious if anything picked up. Then the bigger question is, I guess, how much are you willing to sacrifice in terms of market share? You know, the down 15%-18%, I don't know if that's a representative run rate beyond, but I guess when do you step in with price, and is that a 2023 decision, or it could be an end of 2022 decision?
Yeah. Like, I think I said last time, it's not really a plan B as it relates to that. I don't think we're gonna need to do that. I mean, it doesn't mean that we're not cycling through inventory. You know, we're always gonna be cycling through inventory, right? There's always gonna be, I think, you know, a level of inventory that we're cycling through. If the market gets really bad, we might cycle through the bottom part of our inventory more quickly. W e may, you know, burn a couple hundred basis points of margin to not lose market share, but we're not gonna promote across the brand. Like, I don't see that as needing to take place.
I don't think that other people are going to take that market share because they don't have our product, and they don't have our positioning and our experience and our brand, right? Like, you know, like a lot of people say, "Oh, this is your competitor. That's your competitor." I go, "Really? Go to their store. You really think that's your competitor?" Like, we, you know, we do three times per sq ft than they do. They're not really our competitor. We do three times per sq ft, like, versus some of the next best players, you know. I don't mean to sound arrogant at all, you know, or dismissive, but, you know, like, the world would just have to really fall apart for us to deviate at all, you know. Could that happen? Maybe.
There's, I can't see anything in the future that would say, "Oh my god, this happened, and that's gonna force us to screw up the model." I just really don't. You know, we don't sell any seasonal goods. We don't even sell Christmas stuff. We have no seasonal inventory. We have no summer inventory. You know, we buy no winter goods. Nothing like that. We're very different than everybody else. Like, who else do you know in retail that didn't have a Labor Day sale? Only the luxury brands. Did you see us mail a Labor Day sale email? You think if I would've mailed a Labor Day sale email, we might have done more business? Sure we would have.
Like, you know, somebody asked me the other day, somebody said, "Arhaus was on a call, and they said they're taking market share from RH." When's the last time anybody checked Arhaus's website? The whole business is on sale. The whole business is 25%-35% off, every item on the website. Do you think that's sustainable? Ask me about Arhaus in two to three years. You know? You know, I was like, "Okay, Arhaus is up 50% in revenue, but their operating margin is not going up." I don't wanna play that game. If we hit the promotional button here, our sales would go up 50 times easily. Just not the game we're playing. Ask Hermès or ask, you know, Chanel or ask Ferrari or ask everybody else.
You know, ask the luxury brands what they're gonna do. We're gonna do what they're gonna do.
Oh.
You know. Yeah, that's, you know, it's just the path we're on.
Yep. As a quick follow-up for international, I forget, was there anything embedded in sales guidance for contribution and how much I guess gets pushed if there was?
In fiscal 2022. Yeah. Yeah. You'll notice we took a bit out of revenue, about a point. You can view that as, you know, a combination of international and Palo Alto coming out of the forecast essentially, you know.
We took down.
Plus or minus.
The high end of the operating margin by 50 basis points, right?
Yeah. That's right. Mm-hmm.
Yeah. Okay.
Does that help, Simeon?
Thanks very much. Good luck.
Thank you, Simeon.
Okay.
Your next question comes from the line of Anthony Chukumba with Loop Capital Markets.
Thank you so much for taking my question and thanks for all the helpful information. I guess my question was on RH Guesthouse, which, I mean, just sounds spectacular. I mean, how do you think about the potential financial implications, you know, and just like how does that kind of work through the model? I mean, I know it's mainly about, you know, advertising for the RH brand, which makes perfect sense to me, but I was just wondering if, you know, how we should be thinking through the financial implications, particularly given those room rates. Thank you.
Yeah. Check with us next quarter.
Mm-hmm.
Let's see what the demand's like, what the restaurant does. I mean, the San Francisco restaurant is just. It's doing incredible. This is, you know, the same. But thank God we prac you know, we decided to put it in San Francisco at the last minute and practice there. We fine-tuned it. But I think our, you know, our restaurant could. I mean, the restaurant, the guest house, you know, if you combine it with the Champagne and Caviar Bar, which is 32 seats, kind of in a cellar underground, I mean, between those two things, I think it's gonna definitely be by far the highest volume, just food and beverage kind of restaurant experience we've ever done. I think it's gonna be significantly higher volume.
That's a, you know, just a different model, right? Most hotels, you know, they're really good at rooms, and they suck at F&B. Their whole model is just a room model. Our model is a slightly different model. We're a street front F&B business. I think we have 115 feet of street front here, you know, for a restaurant. We have a very discreet entrance, you know, private entrance for the guest house. It's like a restaurant with sleeping rooms on top, right? If you're, you know, a good restaurant operator, got a good model, you're already starting way ahead.
You've got the rooms, which, you know, everybody told me for so long, "You can't make money in a hotel under 100 rooms." You know, I would always say, "Well, I'm not opening a hotel." They say, "What are you doing?" I say, "A guest house." They say, "What's that?" You know, trying to create a new market for privacy and luxury, and then you know, they say, "Oh, I get it. It's gonna be a showroom for your furniture." I say, "No." Why would we do that? We have a 90,000 sq ft showroom, you know, I think 47 steps away.
You know, then I say the thing that usually twists their head, and I say, "Well, in fact, it's not gonna have any of our furniture." Then they go. They give the trout look, you know, like, "What?" So it's not about the furniture, it's about, you know, elevating. You know, it's about elevating RH as a, you know, thought leader, placemaker, and tastemaker in the world. You know, so it doesn't have any of our furniture here. You know, so. But I think because it's so unique and so extraordinary that, I don't know, you know, let's say typical persons getting. I mean, the high, you know, the higher end hotels like The Mark and The Carlyle and other people, you know, they have a starting room rate of probably about $1,300-$1,600.
You know, the rooms are 350-450 sq ft. You know, I was taking the team through it and said, like, "Look at the rooms. Like, what do you see?" We looked at the pictures of the rooms and say, "Well, we see painted sheetrock walls, you know, funny and little piece of crown molding," maybe if they have it. I said, like, "See any down lights in the ceiling?" No, not a down light in one of the ceilings. "See any up lights anywhere?" No up lights. Where do you sit if you wanna have breakfast? You know, where do you sit? Let's look at this, that. What. You know, let's look at the bathroom. Let's look at this and that. You know, I think what. You know, if you find.
If you just go look at the best hotels in New York City and even the new Arhaus, you know, if you go in there and, you know, ask for a tour of the room, they'll probably give it to you because I don't think, you know, they opened and it's, you know, not the quality level I would've expected. I think we just have a level of design and quality the world's never seen. I think it will demand a price that maybe no one's seen in New York, and it would create a level of exclusivity and scarcity, you know, that kind of like a luxury brand. You know, it's kinda like our Birkin bag, so to speak.
I think in a quarter we're gonna probably have a good sense of, okay, what do the restaurant revenues look like? What do the room rates look like? I mean, the great thing in this business, like most hoteliers will tell you that, you know, that they have 80% margin on the rooms. Well, they have 80% margin on the rooms if the rooms are, you know, $400 a night. You know, the rooms are $1,200 a night, it's a lot different. The rooms are $1,800 a night, it's different. If the rooms are starting at $3,500 a night, you know, you can imagine what the margin might be like in the rooms.
It might be, you know, 97% margin, 98% margin, 'cause you're not particularly spending that much more for housekeeping and other things. We aren't making investments into security and safety. You know, we've got, you know, some of the best security and safety experts, you know, that protect the wealthiest people in the world that have, you know, designed our systems and security here. This is gonna be a very safe place, you know, for wealthy and affluent people to stay. Very private place, and a very luxurious place. I think that we're just gonna be able. We have something nobody else has.
If we get with the room rates that we think we'll get, and we do the hospitality, the hospitality model works the way we think it's gonna work, this thing's gonna make a lot of money. Then if it does, then we have another kind of profitable kind of, you know, communication device about who we are. You know, call it marketing if you want, except we don't have a marketing department. We have a truth group, so we don't use the word marketing that much. You know, yes, we like to say, "It's not what we say, it's what we do that defines us." You know, we do great work like this and if it makes money, no different than our restaurants, right? You know, most people in retail have a restaurant, they don't make any money. They lose money.
Our restaurants make money. They do, you know, close to $10 million an average restaurant today. This becomes another way to speak to our customer that's an accretive customer acquisition vehicle. It's not just, you sit there and go, "Well, Gary, we only have 9 rooms in a residence." That's true, but we have a restaurant that's gonna probably feed 5,000-6,000 people a week. People, even if you haven't stayed here, you're gonna hear about it and you're gonna understand the aesthetic and the attention to detail and, you know, just the thought leadership when you're in the restaurant or when you... You'll be blown away by the Champagne and Caviar Bar.
Yes, the conversation is gonna get created, but then you gotta think about, you know, the 40 million unique visitors who go to our website that might read about and look at the Guesthouse and then that becomes maybe a 100 million people globally, you know, when you count Europe. You know, no different than it's not about, it's not about the 6-12 people that are gonna charter RH Three a year. It's about, you know, the 50-100 million people, you know, 3-4 years from now that are gonna see it on the website. You know, same thing with RH One and RH Two. You know, and the handful of people that are gonna reach out to us about designing their plane or designing their yacht, which we have now.
Another great thing that I think people may not realize about a project like this Guesthouse is what we learn by doing work like this. How much better we are by solving the problems we solved here. How much higher our taste level is, you know. How much more we understand the high end of design because we've just done work nobody else has done. You know, I mean, we're so much better at our core business because of projects like this. We're so much better at our core business by designing the galleries that we design, you know? Just doing the design work and putting ourselves in a position to really understand how you win at the highest end of the market.
You know, I mean, it's an investment in the education of the leadership and the team that you might not get anywhere else or ever in your life.
Got it. That's very helpful. Keep up the good work.
Thank you, Anthony.
Your next question comes from the line of Steven Zaccone with Citi.
Good evening. This is Avanti Cheruvallath on for Steve. Thanks so much for taking our question. How do we think about pricing in the back half and into 2023? Do you still see opportunity to take price increases even though demand has weakened?
What was the first question? Sorry, you cut out there for a second, Ivanti. Apologies.
Sorry about that. How do we think about pricing in the back half and into 2023?
I mean, we're always thinking about pricing. Yeah. What are the inputs and outputs? Yeah. I mean, you've got, you know, you've got freight rates kind of coming down, you know, and, you know, raw materials are stabilizing, although everything's still high, right? Freight rates are down, but they're still higher than they were historically. Inputs are still high. I mean, they're starting to come down, but most things are higher than they were historically. We're, you know, constantly thinking about it. You know, as we make decisions, we'll let you know or we won't say anything, and, you know, you might notice it in the pricing. I think we've got way more flexibility than other people, just because, you know, we have a higher average price point.
People don't shop for home furnishings and furniture every day, you know? It's not like you're constantly looking at it and you notice like, oh, they went up, you know, 3% or 5%. Yeah, I think we've been able to demonstrate that we could, you know, continue to do what we need to do to have the kind of model that we have. Yeah, there'll be more. I don't know, Jack, if you have anything else to add or.
Look, we continue to have you know pricing power given the brand and you know. We'll continue to approach our thoughts that way. Then you know we're gonna watch the supply chain costs like Gary said. I mean good news is they're coming down. If they stay elevated or if they go back up or there's other cost pressures then clearly we'll have prices levered to maintain our margin or you know enhance it even.
Absolutely. Thanks so much. We also wanted to ask on operating margin. In the past, you've cited a 20% as the floor for the business. Do you still see that as a floor if the macro picture continues on the current path? Are there certain macro factors you're monitoring that would put that 20% floor at risk?
Yeah. Look, I think what we talked about is if revenues were down 20%, we believe that margin, operating margin will be above 20%. That's.
Yeah. At or above. Yeah.
At or above. T hat's the gist of it. You know, in the way a year plays out, you know, how we get to a 20%, like, you think about it, you make that decision at the point you know the revenue would be down 20%. You know, you're gonna have things like we have reopening costs. You have other things that could impact that. The earnings power of the business, let's say revenues were down 20%, are absolutely at 20% or above. I think that's the takeaway. Again, is it ± a little bit, you know, because of some one-time thing. What?
You're opening the JT.
Yeah.
You're doing some different things. Yeah.
That's not the critical message.
Great. Thanks so much.
Your next question comes from the line of Michael Lasser with UBS.
Good evening. Thanks a lot for taking my question. Given the third quarter guidance, should we think about demand comp trending down in the 20% range? You ended last year with around 460,000 members. That should provide a good leading indicator on the trajectory of the business and the movement to higher price points, which may result in a little bit of market share loss, but being able to capture more share per customer. What is the recent trend of membership? Thank you.
I think I'd start with you know, there's. You got a couple of things going on, and I think you have to really separate people that are in the home business or selling furniture from, you know, what else is happening. You know, because sometimes people say, oh, luxury people or, you know, Hermès or Chanel are doing this or that. COVID hit different businesses very differently. Our business went way up in COVID. A lot of other people's business went down in COVID. Now then some people are looking up, but coming up against, you know, lower numbers and they're catching back up. There's businesses like ours that are gonna give business back, you know, because COVID was really a big pull forward.
Trending down to 20%, you know, what exactly is going to be a pullback? We're up against, I mean, if you look at the Redfin data, you know, from July, I think it came out, right?
Mm-hmm.
June or July.
June for the first quarter.
The entire housing market I think was down 5%, and the luxury home market was down 18. Why was the luxury home market down 18? I'd argue we're really the only one in the luxury home market. Some people, again, are trying to put other people in there because they're not selling really low-end goods, but they're not at our level, you know. The luxury home market was down 18. Why was it down 18? Why was it down so much more? Because it was up against 80. Up 80, right? Why was the luxury home market up 80? Because all the people that had the money to move during COVID moved, and a lot of the other people didn't have the money to move. Just take New York.
People moved to the Hamptons, they moved to Miami, they moved to Palm Beach, they moved to Aspen, they moved to Naples. They, you know, moved almost everywhere but New York. You know, at one point, New York was the hotbed for COVID, y ou know, all the people with the money and wherewithal and the ability to move to second homes or buy second homes moved. It drove second home prices in the Hamptons and Aspen and all these other places through the roof. Well, a lot of those markets are coming down, right? You know, when something goes up 80%, it doesn't grow from there and it doesn't stabilize there, it goes down. Our customer is the one that moved. That was where all the activity was, right?
It drove a significant amount of business. The high end is gonna come down. So you say, like, when's the Redfin data come out again? I think 6 weeks or something. We're a week behind the data. We all know that the housing market that was down 5 or 6 in the first quarter was down 20. I mean, existing homes, which is 90% of the market, right? Existing homes were down 20. Well, they were only down 5. Existing homes went down 20. Luxury homes, which is defined by the top 5% of the homes in every market, you know, highest priced, top 5% of homes in every market.
If that was already down 18%, do you think it got better or do you think it got worse? My bet is it got worse. Again, I think, you know, it's, you gotta kinda understand the market each of us is playing in. They're very, very different. You know, we know our market really well. You know, and a lot of times we disagree with what markets other people, you know, try to bucket us in. You know, they're, it's, you know, it can be lazy analysis, honestly. Yo u know, we feel relatively calm even with the numbers that we're giving you because we kind of. When you don't feel calm, it's when you kind of can't see the board and you can't see the game and you can't see the next several moves. You can't anticipate.
There's nothing in our business that's happening right now that's surprising to us that we didn't see a long time ago. You know, I think I don't know what it was like, you know, in February or March when I spoke about what I thought was gonna happen and that, you know, four out of five times the Federal Reserve raises interest rates, we have a recession. That's just the math. It's not my opinion. Four out of five times the Federal Reserve raises interest rates, the U.S. goes into a recession. Everybody called me doomsday forecaster, you know, and I became a meme for a while there. You know, everybody thought, like, I was Mr. Negative. I'm like Mr. Positive. Anybody who knows me well knows I'm probably, you know, I'm just, like, you know, wildly optimistic.
I'm also wildly realistic about things that you can know. You know, there's just data and trends and, you know, we sat there and said. I said to myself, "Okay, let me look at all the data." One, I don't know, one Sunday I pulled up the last 62 years of the federal funds rate. You can pull it up. It actually comes up. If you want, I'll send you the thing I pulled up. I think I sent it to the team January 29th. Right? January 29th, I sent the team. I said, "This doesn't look good." You know, and I circled, you know, the last twenty years, the average, you know, federal funds rate was 2%. If you looked at it over the last 30 years, I think it's 3%. Average three percent.
If you look at the last time we had real inflation, you know, most of the people that are managing a lot of money on Wall Street or in, you know, important positions, you know, were kids. You know, and I thought, like, nobody's seen what's happening right now. Nobody's seen inflation like this in their lifetimes. The only people that did, if you did the math, if you said like, you know, if you were in 1980, you know, if you were 40 or 50 years old, and I say usually, you know, 50 years old you start to gain wisdom. Well, if you're 50 years old in 1980, you're 90 years old in 2020. Now, so we're in 2022, and Warren Buffett is what? 92, 93.
Yeah. Right, something like that or close to that. You've got like Warren Buffett who had wisdom in 1980, and you've got, you know, a handful of other people, George Soros, you know, few people that are still active. Most of the people managing big funds right now, they might have been 5 years old in 1980. They've, you know, and you know, anywhere around the 1980s, never seen anything like this. Never seen interest rates. Never seen the, you know, inflation like this. Never seen interest rates like this. T hat's why Powell was so wrong in the beginning. That's why Janet Yellen was, like, massively blind and wrong. You know, I mean, Fed moved too slow, quite frankly.
You know, now because they moved too slow, we're gonna see higher interest rates than we would've if they would've moved faster. I'd say the interest rate is gonna go higher. It's gonna hit the housing market first, and the housing market's the biggest part of the U.S. economy, and it's gonna drag down everything. If I'm wrong, that's okay. The data is there. You know? Like, nobody should be surprised about what's gonna happen here. I mean, yeah, do we look at our members and stuff like that? It's all kind of irrelevant, right? What's really relevant is we're in unseen before inflation. We're in unseen before, for most of the people in business today that are not eighty years old plus, interest rate. You know, interest rates are rising.
I mean, like, where it's gonna go. I think that's why Powell said, like, "Okay, now we got it. We have to move because otherwise I'm gonna sit here and have a mess like Volcker." You know, I mean, I just think that, you know, we just don't wanna get lost in the weeds. You know, you get lost in the weeds at these times, you know, just make a lot of dumb decisions. You know, that's why we're not aggressively buying back our stock. That's why we have raised $2 billion when we did, you know, $2.5 billion when we did. Why did we raise it? Because that's what we thought. That we'd be in a good position, and we'd have flexibility and optionality.
Am I really focused on membership declines right now? No, of course, they're gonna decline right now. Luxury housing was down 18% last quarter. Housing got worse, not got better. I'd be shocked if luxury housing is better than down 18%. It's gotta be worse than down 18%. Am I surprised that, you know, our business is gonna be down 20 or whatever? No. It went up 40-something for no reason except the fact that we had a pandemic, and our customer and other people like, you know, you couldn't shop in stores, people couldn't go anywhere, you couldn't travel, you know. People sat at home, so they bought a bunch of furniture. Was it a pull-forward? Yeah, most of it's pull-forward.
I mean, I don't think anybody should be surprised about what's going on.
Under-understood.
Hey.
My.
Michael, just to clarify. You know, obviously, we don't guide demand. The 20% comment was yours. You know, the guidance is that we're down 12%-16% at the midpoint.
Yeah.
You know, that implied 2, 3.
Yeah.
Just to clarify.
Okay.
Yeah, I mean.
Understood. You go.
Go ahead.
Yeah, my quick follow-up question is, was the gross margin expansion in this past quarter and what presumably you expect for the next few driven by you exercising your pricing power? Is there a point at which you might have to start to restrict supply of your products in order to further exercise pricing power, much in the way that luxury goods are able to command the margins that they're able to command by the scarcity associated with the value of their products?
I'd say it's more implied scarcity. Somehow they figure out how to grow. You say, "Well, how scarce is it?" I mean, there's a level of scarcity, meaning you just can't be everywhere and having fewer, more extraordinary, you know, galleries or stores, you know. Like, really positioning yourself well. You know, being where you should be and not where you shouldn't be. All those things make you more scarce and just being smart about it, right? I mean, there's also a level of scarcity because a lot of them threw away or burned their product instead of selling markdowns. Right? So, you know, just all kinds of things, you know, that drive that. You know, we'll figure out all that stuff as we go.
You know, I just know. I mean, good questions. I just don't know if we know all the answers, 'cause we're going somewhere we've never gone before. We've been more right than wrong. We've been directionally right on our path and on our strategy. You know, we keep getting smarter, and we keep learning more, and we keep doing better and better work, and all that should lead to more trust in our brand, you know, more admiration of our brand, and a higher premium people will pay for our product and to be part of this brand. You know, it's just a different model. I think a lot of times because, you know, it's a
You know, just if you said, like, I mean, there's really no one has tried to do what we're doing in home, right? There's like these little. There's a whole bunch of little guys, you know, selling either sofas or lighting or this thing or that thing. There's a bunch of custom people, yeah, but no one's kind of like become the luxury brand of home. Like, there is Chanel and Hermès and Louis Vuitton and, you know, Ferrari or Audemars Piguet and, you know, like, all these other kind of categories. I think it's gonna be hard for people to figure us out for a while, you know. You know, like most new things, like, think how long. I mean, you know, like all of a sudden, you know, everybody's.
Remember that guy, not Lee Iacocca, but there was a guy that was always like.
Oh, Bob Lutz?
Bob Lutz, yeah. The guy was on CNBC all the time saying like, "Tesla will never make money. They're just terrible." You know.
They're going bankrupt.
Yeah, going bankrupt. Incredible guy. I mean, like, he was on CNBC like every two weeks, like taking Tesla down. All of a sudden, boom, you know, Tesla hit the inflection point, and people realized, oh my God, they've just changed the industry. I think, you know, ours is gonna be a little different 'cause it's not as broad reaching. You know, we're not gonna have a Model 3 and stuff like that. But I think, you know, people are starting to get where we're going. I think in three to five years it's gonna be undeniable. Then people are gonna go, "Whoa, this is a whole different. I never thought this could happen.
I mean, where they've gone to, what their model looks like, where the brand is, I couldn't even see it. That's okay. You shouldn't be able to see it. If you could see it means our imagination isn't good enough. Our creativity isn't good enough, you know. You know, just like people didn't see Apple all of a sudden, you know, completely turning the cell phone industry upside down. I mean, like, who didn't have a Motorola or Nokia? What happened to Motorola and Nokia? Now they're gone. Like all of a sudden, Tesla's become the most valuable car company in the world, you know. When you are on a different path, it always makes you harder to be understood because nobody's seen it before.
I think we're on one of those paths, and I think people are gonna wake up 3-5 years from now, and they're gonna see what we've done in Europe, and they're gonna see where we're going next, and they're gonna see the path ahead, and they're gonna see the strength of the model, and they're gonna go, "Oh my God." Like, I mean, how many people actually thought on this phone 5 years ago RH would have a 20% operating margin? I don't think anybody on this phone ever thought that. Here we are, and we think that's kind of the baseline. Like, if even if we have a recession, you know, could it be 18% 1 year because we're investing or that? Yeah, like, but it doesn't. That's not the relevant point, you know, unless. I got it.
Look, a lot of you guys, like, your customer are hedge funds that are, you know, like renters, not buyers. They're traders, not investors. You've got to kinda make your customer happy and, you know, look at kind of the small moves, you know, in the quarter to quarter, you know, year to year moves. Like that's just not, you know, how we are. W e just have a long-term view. If you have customers that are long-term oriented, talk to them about us. If you got short-term oriented people, tell them not to bug us, you know. You know, because it's, you know, you know, we're just, you know, we're probably not gonna make them happy, and they're not gonna make us happy.
Yep. Understood. Thank you so much.
Thank you, Michael.
Your next question comes from the line of Brad Thomas with KeyBanc Capital Markets.
Hi. Thanks for taking my question as well. A follow-up on the guest house. Gary, can you just remind us at this point in time, how many locations you think might be candidates in the United States and globally for guest houses? I know you're gonna know a lot more in another quarter, but just wondering initially what your thoughts might be and then maybe what metrics you're looking at most closely to figure out if it could be at maybe the more bullish end of the range, a nd then just a quick one for Jack.
Wondering if you could give us a little more flavor for 2023 and with some of these openings shifting and you seeing how this year's source books are performing, any insights that we should think about in terms of what margins may look like for next year? Is that an investment year, or do you start to get some back next year? Thanks.
I think you gotta really give us till the next quarter or so. You know, then the data's gonna tell us, you know, what happens. I'm just so happy though that we had the courage to do the first one in New York, you know, because guys. Some people tell me, "Oh, you gotta do the first one in Nashville or Birmingham, Alabama, or somewhere where there's not gonna be all the critics, and you can learn." Yeah, like, we like to go on the main stage because we believe it brings out our best work, not our, you know, not our average work. I'm just so happy that we came to New York, and we've done something so extraordinary because every time we do, we've figured out how to monetize the idea.
Look, we already have a second one teed up in Aspen. I mean, the first one, you know, it's always, it's like creating the first iPhone, right? It's like the R&D that it takes and the investment it takes to create something like this, both human capital and financial capital. It's always, you know, it's always greater than the next one, you know, because we've learned so much here, and we can dimensionalize and, you know, use those learnings to go much faster and be really efficient as we go forward. If it works, you know, one like people go like, "Is it gonna only be nine rooms?" This one's only, you know, six rooms, three suites and a residence, and I think we've got. You know, how we call those rooms. Like, those are pretty big rooms.
Those are like 1,200 sq ft with two full fireplaces and all this other stuff. The ones in Aspen are pretty nuts. I mean, these are nuts too, but the size and scale of the Aspen ones with these rooftop pool suites that have, you know, you have an 800 sq ft room with two fireplaces and, you know, sleeping area, living area, two bathrooms, and then you've got an 800 sq ft rooftop terrace with, you know, your own fire pit, four chairs, two daybeds, two trees, and your own, you know, your own pool. H ow do you price that in Aspen? You know, I don't know. I know Aspen used to have 70 billionaires, and now it's 100 billionaires.
A lot have their own home there, but it's the people that go to Aspen are I think it's about as affluent of a small town target market in the world, so we learn a lot in Aspen. My sense is the good thing about New York is if it works in New York, it means it'll probably work in other cities. If it works in Aspen, it will work in other kind of vacation destinations, you know, like state parks or Saint-Tropez or the Hamptons or Miami. Yes, New York will give us a sense for what cities it might work in, you know, whether it's Paris or London, places like that.
If it works here, yeah, and if it works with like 9 rooms, like it'll really work with 20 rooms, you know, or 30 rooms. The question is, at what point is it not as private? Is there something really special about this? I mean, there's only 3 keys per floor. Like, you may never see anybody walking. You'll never hear anybody walk by your room if you have the suite here. If you have the center room, only one person, the person that has the suite will walk by your room. If you have the first room off to the right when you get off the elevator, it's like you're the only one who walks in front of your room. You know, there's just a level of privacy that you never see.
When you know, when you see the rooftop and if you watch the little video, if you click on rhguesthouse.com, you know, you can take a screenshot of that rooftop, and you can see part of it. There's I think the Journal published it. Boston Journal magazine published a shot where it shows the private dining terrace. It's. There's only, you know, 9 rooms in a residence, and there's 8 daybeds that are like 8-10 feet apart with hedges and trees and, you know, private dining terrace with 4 tables. You know, how many people when they come to New York are gonna actually be on that roof terrace? You might be the only one. That might be your. Like how much would you pay per day to have that roof terrace?
You know, that would help us, you know, price the rooms. Like, I just think we're building something so unique and different. If it works here, I think it'll work in other places. You know, you may not get the same room rates. I mean, it would be different room rates. If you have 20 rooms or 40 rooms, you know, if this one makes money, the other ones will only make more money. Maybe if it works, there's 20-50. Yeah, could be $600 million to, you know, over $1 billion. Something like that.
That's great.
Brad, we don't guide 2023, at least not at this time. I think if you're, you know, building a model, I mean, just don't forget everything we've been talking about in terms of, you know, not promoting, in terms of, you know, climbing a legendary mountain. If you're looking at components of margin and, you know, product margin, again, that's if you're building a model, that's something that, you know, as we look at it, you know, that's not something that we have any plans to break. Other components, you know, you're. We'll see where revenue shakes out, and we'll guide revenue when it's appropriate. But clearly you have other fixed components in COGS and also in SG&A.
Look, I think the outlook is as uncertain as you know as you've heard us talk about, and so we'll provide more guidance later. I think just don't forget that as far as sort of as you build up the product margin piece of our gross margin, that
You know how we're looking at that.
Thank you very much.
Your next question comes from the line of Jonathan Matuszewski with Jefferies.
Hey, great. Thanks for squeezing me in. I'll leave it to one in the interest of time. Gary, a lot of investor questions on this concept of shedding lower value customers. Is there a way to help us understand the spending patterns of maybe the top 10 or 20% of your member base versus the bottom 10 or 20%? Presumably something like that could help us better understand the opportunity ahead in terms of serving more households in that top, you know, 0.1% of the population versus, say, the top 3, 4, or 5%. Any perspective would be helpful. Thank you.
I just think it's gonna be like other luxury brands. You know, you're gonna have a fewer number of customers spending a lot of money, and then you're gonna have, you know, very aspirational customers that are reaching up to your brand now and then, you know. I mean, Eri Chaya, you know, our President, Chief Creative and Merchandising Officer, tells a story of when she saved up her money when she was younger in her career to buy a B&B Italia sofa because it was such an iconic thing. Or, you know, saving up to buy her first Hermès bag. You know, Hermès Birkin bag, right? And it was, you know, such a kind of milestone in her life. And now she is, you know, she is one of the customers.
She's got a home. She's redoing the home. You know, she's gonna do an incredible house and, you know, she's gonna be one of those customers. Hopefully, she buys from us. Well, she has a very high-end interior designer working on her in the whole redo of her house, you know, because there's interior architecture and everything she's doing, a nd I would say the best thing about it, she's learning a lot, and she's gonna go into that process. She's gonna be even better at what she does here because she's actually going through an exercise that, you know, our best customers go through in building an incredible home.
It's gonna be incredibly designed and furnished and, you know, and she's gonna be a lot smarter and have, you know, have an even better perspective than she has today.
Jonathan Matuszewski, I might just add on your question. You know, look, you know, you're familiar with the 80/20 rule, Pareto principle that applies in many, many things in life. You know, again, we're not. You know, just directionally, if you think about the top 20% of our customers driving 80% of our volume, that kind of relationship tends to hold in business. A gain, you do it that way if you want, right? Like, if you're cutting the bottom, they're not spending as much. It's just by definition, that's just whether it's SKUs, whether it's merchandise, whether it's customers, it's just how we
The most important thing for everyone to realize is we've been doing this for 22 years.
Yeah.
This is nothing new. We've shed way more customers than, you know, lower value customers than we're going to shed in the future. Way more.
Yeah.
You know, now we're gonna shed less, you know, but it's still gonna have to do that if we're gonna get to the top of the mountain. You know, if we're really gonna become one of the, you know, one of the great luxury brands. We'll see. I mean, the good news is, if we don't make it, nobody's gonna lose a lot of money here. You know, like this is. If I sit here and think about this as an investor, oh, God, they didn't make it. You're not falling to the bottom. It's a really good model. We're in a really good place to take a shot at making the next third of the climb, you know, the final third, I kind of call it.
You know, kind of go, "Okay, what's the downside?" Boom, we're kind of where we are today, and we become global, and it's still a very big company with a really good model, and everybody's gonna make a lot of money. You know, if I just look at it financially.
That's helpful. Thank you.
At this time, there are no further questions. I would like to turn the call back over to Gary Friedman for closing remarks.
Great. Well, thank you, everyone. Thanks for your time and your interest, and you know, especially in these kind of uncertain times. J ust wanna thank our team and who continues to drive us up this mountain and make the climb. To everyone you know out there, our team internally, external partners and shareholders, you know, if you get a chance to be in New York, come take a peek. You'll ping us, and we'll get you seated in the restaurant. Come quickly because the place is filling up, so I might not be able to give you a tour because it's of the property because it is about privacy. We have clients here.
We're not gonna be walking people through the hallways or through the building. R ight now for kind of this week and maybe part of next week. I mean, next week we may have. I guess we have inquiries for as soon as next week. There may be a few guests here. If you are in New York, you know, we're here through next week, or at least I'm here through next week. Not everybody's here through next week. You wanna try to get a quick look-see, you know, we'll kinda take you through and show you a room, show you a suite, and show you the rooftop. Can't take any photos here. If you do, you know, we'll have to take your phone.
It is, you know, I'd say for our team and our partners and, you know, our shareholders. I think this is really an example of the kind of work that we're capable of and the kind of work that will, you know, that will demonstrate and prove that we can make it to the top of the mountain and build one of the most admired brands in the world. Thank you for your time, and thank you everyone on our team for your, you know, for your hard work and support and, you know, your persistence and determination. Thank you.
This concludes today's conference. You may now disconnect.