Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the RH 2Q '25 Earnings Call. [Operator Instructions] I would now like to turn the call over to Allison Malkin, ICR. Please go ahead. Allison

Thank you. Good afternoon, everyone. Thank you for joining us for our second quarter fiscal 2025 earnings call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer; and Jack Preston, Chief Financial Officer. Before we start, I would like to remind you of our legal disclaimer that we will make certain statements today that are forward-looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our press release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings as well as our press release issued today for a more detailed description of the risk factors that may affect our results. Please also note that these forward-looking statements reflect our 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 suggests our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in today's financial results press release. A live broadcast of this call is also available on the Investor Relations section of our website at ir.rh.com. And now I would like to turn the call over to Gary.

Thank you, Alex, and good afternoon, everyone. I'll start with our letter, and then we'll open the call up to questions. To our people, partners and shareholders, RH continued to generate industry-leading growth in the second quarter as revenue increased 8.4% and demand increased 13.7% despite the polarizing impact of tariff uncertainty and the worst housing market in almost 50 years. On a 2-year basis, revenues increased 12% and demand increased 21%, resulting in significant share gains and strategic separation. As a reminder, we expect the approximate 5.4 point variance between demand and revenues due to tariff disruptions will shift from the second quarter and be realized as revenues over the second half of 2025. Adjusted operating margin of 15.1% and adjusted EBITDA of 20.6% both increased 340 basis points versus last year, inclusive of an approximately 170 basis point drag from investments to support our long-term European expansion. Net income increased 79%, and we generated $81 million of free cash flow in the quarter. We continue to be pleased with the second year demand trends at RH England, with gallery demand up 76% in the second quarter and online demand up 34%. Current demand trends indicate that gallery is expected to reach approximately $37 million to $39 million of demand in 2025, its second full fiscal year with online demand reaching approximately $8 million. To put those results in perspective, if an RH Gallery in the English countryside with an estimated population of 100,000 in a 10-mile radius 2 hours outside of London can generate $46 million of total demand in its second full fiscal year, what can a gallery in the center of Mayfair, the most exclusive shopping district in London, with a population of 9.7 million do in its second full fiscal year? We believe exponentially more. While many questioned the decision to open our first RH Gallery in such a remote location believing it would fail, what they failed to understand is the value of doing something extraordinary that breaks through the clutter and creates the conversation. We've learned during our journey at RH that when we've done extraordinary and remarkable work, we've always figured out a way to monetize it. And we've also learned that it's hard to monetize ordinary and unremarkable. The most important news regarding our European expansion was the September 5 opening of RH Paris, our most innovative and immersive brand experience to date. Located on the Champs-Élysées, just off the Avenue Montaigne, RH Paris stands at the epicenter of fashion and luxury. Pass through the majestic gold leaf gate down a crushed limestone path to a secret garden where ivy-covered walls and sculpted trees frame the 18-foot cast medallion doors marking the entrance. Juxtaposing the entry is a freestanding RH Interior Design Studio. The 2-story glass structure is home to what has become 1 of the largest residential interior design firms in the world with projects on every major continent. A contemporary inlaid brass and white onyx mosaic frames a 3-dimensional image of Leonardo Da Vinci's the Vitruvian Man and the RH Design Ethos. The image and ethos not only mirror the entrance to RH Paris but are also reflected in every building we inhabit and every house we turn into a home. Step through the threshold and enter the Architecture & Design Bibliothèque. Discover rare books from the foundational Masters, Da Vinci, Palladio, Blondel, and Haussmann. Commanding the center of the Bibliothèque is 1 of the first modern printings, circa 1521 of De Architectura, The Ten Books on Architecture by first century BC architect Marcus Vitruvius. His description of a man outstretched within a circle and a square inspired Da Vinci's famous drawing, The Vitruvian Man, some 1,500 years after his death. The gallery, spanning 7 levels, is connected by a soaring atrium of floating glass medallion stairs and a glass elevator that magically appears, then disappears from an invisible shaft atop the rooftop garden. A cast bronze caryatid, circa 1870, by renowned French sculptor, Louis-Felix Chabaud, whose work is on display at the Louvre, graces the center of the atrium. Beyond their structural role, caryatids symbolize strength, grace and ingenuity, a harmony between art and engineering. We placed this specific caryatid in the center of the grand atrium as a symbol of not only our desire to connect and create harmony between the architecture, art, history and hospitality offerings of RH Paris but also our desire to create harmony between RH and the people of Paris. On the lower level, ground and first floors immerse yourself in artistic installations of furniture, antiques, artifacts and art in a gallery setting. Each level features full floor exhibits by a singular artist and carefully curated pieces not only chosen to furnish your home but also define it. Dine under a spectacular curved glass and steel structure inspired by the Grand Palais while enjoying a curated menu of American and Mediterranean classics at Le Jardin RH, located on the second floor terrace. Marvel at the stone mastery as every surface from the bar to the bathrooms is clad in rare white onyx slabs. On the third floor discover The World of RH Bar & Lounge, a physical and digital immersion into the places and spaces that define the RH brand while enjoying lite bites and a craft cocktail by legendary bartender Colin Field. Step into a jewel box of champagne-lacquered walls with a sparkling ceiling of over 7,000 individually handblown glass polyhedrons at Le Petit RH. With 30-degree views, including the Eiffel Tower, Grand Palais and the Louvre, the Le Petit rooftop is one of the most spectacular dining destinations in all of Paris, featuring a creative menu of caviar specialties, small plates, signature salads and seafood towers. While RH Paris may not sound like a retail store, it's not meant to be. It is an authentic expression of the RH vision and design ethos. It is a global destination designed to manifest dreams, generate desire and inspire an elevated and elegant way to live. I was asked by a journalist prior to opening, "You're introducing multiple hospitality concepts at RH Paris. Have you considered that Parisians have very strong opinions about their hospitality?" I thought for a moment and my answer was this. Parisians have very strong opinions about a lot more than their hospitality. Parisians have strong opinions about art, architecture, antiques, people, politics, fashion, design, food and wine. Paris is a place you come to do your very best work. It is where you have the most to gain and the most to lose. In Paris, the measure is eternity. This we know and have built accordingly. I'm also pleased to report that RH Paris is off to a very strong start. Traffic in the gallery has exceeded RH New York day by day, and the design pipeline in the first 6 days is greater than the design pipeline of our first 5 European galleries combined in their first 6 days. I didn't know what to put for this next headline, so I just kept it simple, tariffs, tariffs and the possibility for more tariffs. Just when you might have thought the tariff conversation was complete, the announcement of a new furniture investigation and the possibility for additional furniture tariffs on top of existing furniture tariffs and incremental steel and aluminum tariffs were introduced with the goal of returning furniture manufacturing back to America. We believe most in our industry hope that this investigation surfaces the difficulty of that task as current manufacturing for high-quality wood or metal furniture does not exist at scale in America. It would require years of investments in building the facilities and workforce that most in this industry cannot afford to make. Not to mention the significant inflation that we believe will start to become evident in the second half of this year and accelerate into 2026 and beyond. While strong brands like ours will benefit from the likely dislocation and consolidation more tariffs will have on our industry, many smaller companies will have difficulty surviving these levels of tariffs. Additionally, more tariffs on furniture could also result in U.S. manufacturers moving production from the U.S. to countries closer to their international clients, avoiding freight costs and the likelihood of counter tariffs. Our hope is that the investigation will seek out the perspective of a cross-section of leaders in our industry as we drive towards the best outcome for our country. As previously communicated, we've continued to shift sourcing out of China and expect receipts to decrease from 16% in Q1 to 2% in Q4, with a meaningful portion of the tariff absorbed by our vendor partners. Additionally, we are aggressively responding to the recent 50% tariffs imposed on India, which impacts 7% of our business, almost entirely hand knotted rugs. While the hand knotted rugs category is highly specialized and not manufactured in America, I think, for 100 years, we have begun the process of identifying alternative countries. We have also resourced a significant portion of our upholstered furniture to our own North Carolina factory, where we have been manufacturing for 10 years and plan to continue doing so. We are now projecting that 52% of our upholstered furniture will be produced in the United States, 21% in Italy and approximately 12% in Mexico by the end of fiscal 2025. We also expect the percentage made in the United States will continue to increase throughout 2026. While there remains uncertainty until tariff investigations are complete, we have proven we are well positioned to compete favorably in any market condition. Outlook. Due to the dislocation and continued uncertainty related to tariffs, we believe it is prudent to revise our guidance for fiscal 2025 due to the following factors: while we continue negotiations with our manufacturing partners, our updated outlook reflects a $30 million cost of incremental tariffs, net of mitigation in the second half. As communicated, due to the uncertainty related to tariffs, we delayed the launch of the new brand extension that was planned for the second half of 2025 to the spring of 2026. We've also delayed the introduction of our Fall Interiors Sourcebook by 8 weeks, as we awaited tariff announcements needed to finalize pricing. Last year, 100% of the Fall Interiors Sourcebook were in home by the first week of August. This year, the Fall Interiors Sourcebook will be 100% in home by the last week of September, with only 28% in home as of the end of last week. We now expect approximately $40 million in revenues to shift out of Q3 and into Q4 and Q1 '26 because of that shift. Our outlook does not include any new tariffs as a result of the recently announced furniture investigation. Fiscal year 2025 outlook: revenue growth of 9% to 11%, adjusted operating margin of 13% to 14%, adjusted EBITDA margin of 19% to 20%, free cash flow of $250 million to $300 million. The above outlook includes an approximately negative 200 basis point operating margin impact from investments and start-up costs to support our international expansion and a 90 basis point impact from tariffs net of mitigations. Third quarter 2025. Revenue growth of 8% to 10%, adjusted operating margin of 12% to 13%, adjusted EBITDA margin of 18% to 19%, the above outlook includes an approximately negative 270 basis point operating impact -- operating margin impact from investments to start across this quarter in international expansion and the opening of RH Paris and a 120 point -- basis point impact from tariffs net of mitigations. Platform expansion -- elevation and expansion plans for 2025. We continue to open the most inspiring and immersive physical experiences in our industry and some would say the world, spaces that are a reflection of human design, a study of balance, symmetry and perfect proportions; spaces that blur the lines between residential and retail, indoors and outdoors, home and hospitality; spaces with garden courtyards, rooftop restaurants, wine and barista bars; spaces that activate all of the senses; and spaces that cannot be replicated online. Our plan to expand the RH brand globally, address new markets locally and transform our North American galleries represents a multibillion-dollar opportunity. Our platform elevation and expansion plans for the remainder of 2025 include the opening of 4 additional design galleries in Manhasset, San Diego, Detroit and Palm Desert. As previously communicated, we anticipate an inflection in our business across Europe as we begin to open in the important brand building markets of Paris in 2025 plus London and Milan in the spring of 2026, all with dramatic brand building hospitality experiences. We believe post-opening, we will begin to have the scale to support the necessary advertising investments to accelerate our growth in Europe. If the early reads coming out of RH Paris are an indication of what's to come, RH Europe and the Middle East should enable us to double the size of RH over the next 5 to 7 years. Looking forward, we plan to accelerate our expansion strategy to include the opening of 7 to 9 new galleries per year, plus 2 to 3 design studios, outdoor galleries or new concept galleries per year that increase our current presence in underpenetrated markets and open new markets to the RH brand. "Every decade or so, dark clouds will fill the economic skies and they will briefly rain gold," Warren Buffett. While we expect a higher risk business environment due to the uncertainty caused by tariffs, market volatility, inflation risk and an increasing level of global discord, we believe it's important to separate the signal from the noise. The fact is we've been operating in the worst housing market in almost 50 years for 3 straight years. For context, in 1978, there were 4.09 million existing homes sold when the U.S. had a population of 223 million. Contrast that to 2024 where 4.06 million existing homes sold with a population of 340 million, 50% more people and less homes sold. And it illuminates just how depressed the housing market has been this past year to 3 years. Despite that fact, we are performing at a level most would expect in a robust housing market. We believe it's the result of investing with a very narrow focus and a long-term view or what we like to call an inch wide and a mile deep, elevating and expanding our platform by creating the most desired products presenting in the most inspiring spaces in the world with bespoke interior design services and beautiful restaurants that generate energy, engagement and tremendous awareness of the RH brand. While our business has been strong, it has been so due to action versus inaction, innovating versus duplicating, investing versus divesting and aggressively taking market share during this downturn, so we are positioned to create long-term strategic separation on the other side of it. We are investing in the most iconic global locations in retail that will likely never be duplicated in our lifetimes. We are building a global hospitality company with multiple concepts across multiple continents. We are creating a global bespoke interior design business that completes million-dollar-plus full home installations. We are building a global contract and hospitality business where our products were featured in some of the finest hotels and residential projects in the world. And we are creating the most desirable and distinguished brand in our industry, all while forecasting an EBITDA margin of approximately 20%. Imagine what our margins and cash flow might look like in a robust housing market as we begin to cycle and leverage those investments. While we began the year with meaningful debt, almost entirely due to our stock repurchases of $2.2 billion, we also began the year with incredible business momentum and meaningful assets. The assets include real estate that we believe has an estimated equity value of approximately $500 million that we plan to monetize opportunistically as market conditions warrant and excess inventory of $300 million at cost that we plan to turn into cash over the next 12 to 18 months as we optimize our assortments post our product transformation. We are forecasting to generate $250 million to $300 million of cash flow in 2025, and our plans call for significant and growing cash flow from operations over the next several years if we cycle this aggressive investment period. We estimate that our adjusted capital expenditures will decrease to a range of $200 million to $250 million in 2026 and $150 million to $200 million in 2027 and beyond. We remain confident in our ability to make the necessary investments to continue our industry-leading growth while significantly reducing debt and lowering interest expense. As Warren Buffet wrote in his 2016 letter to Berkshire Hathaway shareholders, "Every decade or so, dark clouds will fill the economic skies and they will briefly rain gold. When downpours of that sort occur, it's imperative that we rush outdoors carrying washtubs, not teaspoons." Our debt is reflective of a washtub bet on ourselves. We repurchased 60% of our outstanding shares that greatly benefited our long-term shareholders post the publishing of Mr. Buffett's letter in 2016 and '17 and repurchased 30% of our outstanding shares during this housing downturn in 2022 and 2023. While the sky in our sector has been darkened by inflation, interest rates, tariffs and global politics, those clouds will soon pass, and it will not only be clear skies but also clear that it was a good time to be a shareholder of RH. Carpe diem. Operator, we'll now open the call to questions.

[Operator Instructions] Your first question comes from the line of Simeon Gutman with Morgan Stanley.

So my first question is the free cash flow is starting to sequentially improve, and you generated a decent amount this quarter. If you generate $250 million to $300 million for the full year and presumably even more through '26, is real estate monetization still something you would or even need to pursue?

I don't know if we need to pursue it. We're opportunistic. We're not really real estate owners, right? We're real estate developers, and we have a sale leaseback model, and we generally hold real estate for relatively short periods of time. We saw an opportunity when we were doing our deals in Aspen that the local developer there who had acquired really an outstanding portfolio of assets, we had an opportunity to invest in that portfolio at a -- what we thought was a really attractive price. And we had a vision of possibly in a very small -- I call Aspen probably be the most influential organized small luxury town in the world. I don't know if I've ever seen anything like it. Like in about 6 square blocks, you have unbelievable retail. You have wealth all around that all comes and shops there. All comes and eats in the restaurants there. And all skis a couple of blocks from there. Just walk to Ajax and so on and so forth. And as I got to know Aspen and was looking at our opportunities, we thought, geez, what could we do here that could -- maybe in this 6 block -- 6 square block, 8 square block focused little town with a high, I think -- what is there -- 86 billionaires that live there now. I mean there's really -- I've never seen anything like it. I mean it's more unique than Saint-Tropez. It's more unique than [indiscernible]. It's more unique than any place I've seen from the aggregation of wealth and influence and your ability to -- we had an ability to build 2 brand-new buildings, right, which is on 2 of the best corners in town. I mean our galleries on Galena and the cross street is the best corner in Aspen, [ caddy corner ] to Ralph Lauren across from Casa Tua, across from Loro Piana. Right next door is Brunello Cucinelli and every luxury brand marching up the street. And our Guesthouse is in East Hyman where the cross street is where they're building Lift 1. So 1.5 blocks, 2 blocks down, they're building the second big gondola, right, and the Aman Resorts going in there. And everybody is going to be driving by that corner, and everybody is going to be walking by and driving by our other corner. So these were the 2 best, I thought, buildings that you could get. It's just, as our partner calls it, forever real estate, right? It's never going to go down. It's always going to go up. And so -- and we have the opportunity to become the landlord for CHANEL, the landlord for Gucci, the landlord, lululemon. What else in our portfolio?

Golden Goose, Carina Hildebrandt. I mean we got restaurants.

Golden Goose, Carina Hildebrandt. Yes, we've got Sant Ambroeus. We've got -- I can't remember -- we got Catch Steak. We're the landlord. We're kind of key retail landlord in the core of Aspen. So we thought we could learn about real estate. We could learn the landlord side of it. We can understand how the other people negotiate, what's important to them, and we would just -- we get smart and then there was opportunities to do residential, a few other things that we've talked about in the past, few RH Residences at the Boomerang Lodge and build our first the Bath House & Spa and so on and so forth. And so we thought this would be a terrific place to build our brand image and have a global billboard. And then, look, unfortunately, we had the fastest rise of interest rates in the history, I think of the United States, right? And that's not really good for developers. Whether you're our partner or you're us, you're going to be developing at a much higher cost of capital. And so that kind of slowed us down and also compounded by -- our partner likes to say that building in Aspen is harder than building on the moon. So it's not the most -- not the easiest place to develop, let's just say. So we kind of have to slow things down and -- but we're very close to getting our mountain house open and very close to getting our Guesthouse open, and those are 2 of the key trophy properties in our portfolio. We're less interested -- we've been a landlord now for a while. We've learned what we needed to learn. Is that the place to tie up our capital? No, not really. We've learned a lot. And is it -- at the cost of capital today and the cost of construction in Aspen today, is it -- does it look as attractive to build there? With a really long-term view but again, I don't know it's necessary for us. So we're open. It's not a time you really want to sell right now. I mean if they keep inflation in check, which is questionable with the tariffs, and they can lower interest rates, cap rates will be more attractive, and there might be some people that want to make -- that have a long-term view and want to make a fair offer on a portfolio like this. But otherwise, we're in no rush. We're patient. But if the right opportunity came and somebody who has -- really had a long-term view and they want to own forever real estate like Aspen, it's an incredible asset. So...

And Simeon, I'd just add, when we communicated the value of the real estate, I think you asked if we need to do it. Our intention was never to communicate a need or a plan. It was, as Gary said, opportunistic. It's an opportunity to make sure that folks understand the value of that real estate on our balance sheet, especially as it relates to the debt that we have.

Yes. And we've got other things besides that, I mean, the $500 million, right? We own RH England. We own RH Detroit. We own a property -- we're going to develop RH Shores -- RH New Jersey. We own a property in Madrid right now, but we love our current gallery. So we think we can monetize that one. We have -- actually have it in the market today. It's an incredible old palace. But we don't really -- we don't believe we need 2 stores in Madrid. We love -- we really love what we're doing there. We're going to put a small pool, Le Petit RH in there now that we developed this new pool concept that doesn't need a big kitchen. That's in Paris, which everybody ought to go to by the way. If you missed our party, I mean, you should have never missed that party. Like everybody's got to go see Paris because it is not another gallery. It is a leapfrog. It is another kind of inflection point that helps us see a whole nother opportunity here, like when you see The World of RH and when you see Le Petit RH and Le Jardin RH and you see what we've done hospitality-wise, when you see what we've done design-wise, when you see the Architecture & Design library to our second one we've done, the Bibliothèque. We did one in RH England because there was a big library that had been there for 400 years. So we made it a library. [indiscernible] you see the cool when you walk through and I mean, it's just so much that I think we've done that takes us to another level. I doubt that there's a luxury retailer in that city at the highest end that doesn't believe we just built the best store in the world. And I think everybody should go see it because it's unlike anything you've seen. The traffic, when you think about it, it's, I don't know, 1/3 of the size of New York. And it had more traffic than New York every single day that we opened. Not New York in its first 5 days, New York today, the highest volume gallery in the company, okay, New York today. It's unreal what's happening there, the people that are coming. So anyway, next.

If I can ask a follow-up -- and by the way, I'll be there next week, so -- for the Aspen party. The -- my follow-up, it's maybe paraphrasing something you said, Gary. You said the clouds could be clearing soon. And you've gotten through a lot of things over the last couple of years between rates and housing. And now embedded in your financials is investment with Europe. You have all this newness. And you're growing the revenue, and you're generating cash now. So it feels like you're knocking on the door of that period. You mentioned soon. I don't know if you were giving a financial forecast or a weather forecast, but it's soon. So what's wrong with that logic that the business is on the cusp of this growth period that you've been engineering for the last several years?

Yes. I think that the business is ready. We're going to be kind of going post peak on the investment cycle. One thing we've all had to deal with and anybody who's building anything of high quality, construction costs post COVID are up like 100%. For some people I've talked to at the luxury level, they're up 150%. We've been able to develop new concepts. We talked to you about that design ecosystem, the designed compound and other things that we're taking the bigger multi-store box and breaking it into pieces and trying to create significantly better capital efficiency and putting our creativity to work that way. So you'll see it -- I think once we get there -- it's hard to make a call today, right? We're likely going to get an interest rate cut. We got 1 last year and everybody thought there was going to be like 4 or 5 more. I took my house in Beverly Hills off the market because I thought I was going to get a much better price. I should have took the offer I had back then. The housing market in L.A. is not great. And so I don't know what's going to happen. Look, I think the biggest thing for everybody to worry about is don't let the 1970s happen. If you zoom in on the chart of what happened with federal funds rate over that 10-year period, yes, it was arguably the 10 worst years in the U.S. economy. Now I remember I was 18 years old when I bought a $125 waterbed at Waterbed World at 28% interest. And I don't know how many years it kept me to pay it off at $12 a month or something like that. But I was alive long enough to remember what -- the federal funds rate peaked at 21%. We think interest rates are high now. Lose control of inflation, and you can have chaos. So what do I worry the most about? Just kill inflation. I'm more motivated about killing inflation than getting an interest rate cut right now. Because we had an interest rate cut and the tariffs create more inflation than anybody thinks. And it's not going to all come at one time in blips. The inventory is going to flow in over the course of the year. And you're going to have to cycle through inventories. You're going to have new tariffs. God forbid, they throw another tariff on furniture. I mean I think they've got it, but someone has got to come talk to us, talk to me, call me I run the biggest luxury home brand in the world. Somebody call me and ask me what I think. Because it's not really us. I worry about -- I don't want to win because 50% of our competitors who are really good, hard-working people get wiped out. You lose 15% of the people that are presenting at High Point Market or Las Vegas Market. Those markets will shut down. They'll be bankrupt. I really don't think anybody is thinking about the math. There's no one that's making wood furniture at scale, metal furniture at scale. If there is another round of tariffs in furniture, I mean, long term, it will be good for us. It's really bad for a lot of people in High Point. So whoever in High Point or North Carolina is advocating for, he's got to have a really narrow myopic view because this makes no sense for the U.S. economy long term. We will blow up people, and there will be massive job losses. And I think people need to understand that at all levels of the administration. And I'm -- look, I've been a fan of a lot that's been going on. I think, directionally, they're doing a lot of right things. But yes, I don't know, I run the biggest luxury home brand in the world. No one's talking to me. I've got a point of view, and so I'm making that known now. We're in the cusps of going too far there. That's what I worry about.

Your next question comes from the line of Steve Forbes with Guggenheim.

Gary, maybe shifting the focus to inventory, sort of a two-part question here. The first, given the change in the average tariff rate and the sort of excess inventory that you guys are winding down, any help on sort of coaching or framing how much room there is or for a continued reduction in net inventory on the balance sheet? And then the second point is there is -- given everything you just said, how much visibility is there into the planned launch of the new brand extension in spring? Or is there still some risk around that extension launching?

Yes. I don't think there's risk around that extension launching unless we get some really silly tariffs on this investigation. I mean I really hope this investigation includes speaking to industry leaders. And it's not an investigation into a small little segment of the business. We will sell more upholstered furniture made in America than almost anybody making furniture in North Carolina, like just our upholstery business. You've got brands that are 130-year-old U.S. brands, and they don't make wood furniture or metal furniture in America anymore. They don't. So you've got to be really careful. Upholstered furniture, we can make in America. We can do that. We can be competitive because you've got advantages. It's special orders and speed to market and so on and so forth. But there's just not the workforce to make the other stuff. And there's not people there. The next generation doesn't want the jobs. You talk to people -- again, our volume in our factory and what we're going to make is as big as some of the biggest people at the high end. I mean they'll compare us to Ashley or somebody that's $10 billion at the low end. And I think that, what, 65% of their business in America, 35% of their business offshore. I'm just saying the high-end furniture market, it's not coming back for years. And all that's going to mean is people are going to -- there's a lot of people who are going to close and a lot of jobs are going to be lost. And I think people have to consider that. So -- but when you think about like it's the risk of extension launching, no, no risk at all. Things might be more expensive, but they're going to be more expensive for everyone, right? So we have advantages. We buy more than anybody in our market by probably 3x at our quality, the next closest person. So we have tremendous, tremendous leverage here. I wouldn't want to be competing with us, but I don't like winning this way. It's not going to be pretty. So I think, hopefully, we're done with furniture tariffs. And ring the register in the tariff bank, but let's not completely disrupt an industry, see High Point close, the major furniture stores close. Family, long-time businesses, they'll be dead. So that's the most important thing. Inventory reduction, everything else we're doing, fine. And again, if you're thinking do I buy our stock or not, buy our stock either way. We will win. We've spent billions building a platform here. We have most dominant, inspiring high-end platform for luxury furniture in the world. We know how to source it. We have leverage buying it. We know how to market it. What if you do -- if you're a wholesaler and all your customers go bankrupt? They can't afford it. The customers can't afford it. Like what do you do then? I think the tariffs dry up. You slow down the furniture business. You're going to slow down the tariffs. And that's why I think someone's got to sit down from the industry with the administration and go through the math. This is just simple math. Don't let it be emotional. Let it be intellectual and rational and data-driven. We've got all the math here. And I know a lot of people in the industry that would love to sit down and debate this.

Steve, the framework for inventory reduction, yes, one of the things to think about is just what is our -- I mean at the most simple level, what's our turn rate, turns have been in the past. Obviously, we've turned the inventory on an external basis into the high 2s, low 3s. So to even just think about the -- Gary mentioning in the letter the $200 million to $300 million of inventory reduction, where that gets us hypothetically at the end of the year. You're starting to see a run rate of a turn into the -- closer to the mid-2s. So is there room beyond that? We do believe that.

In '18 and '19, we were running like 3, 3.2. Yes.

Yes.

So we can run a much faster turn. You're seeing the slow returns we're running today, the massive product transformation, right? You're buying a lot of inventory. You're getting like right. You're getting some wrong. And so it's inefficient to do what we just did. That in and of itself is a big investment. But we're on the other side of that. I mean we do have a whole new concept coming. It's probably the biggest idea and the lowest risk we've ever taken on a brand extension. I think it's the biggest -- I mean, how quickly did Modern go to $1 billion? [ 3 years ]? Yes. I mean this is probably -- this is a $2 billion idea, and it could go really quickly. We think we're going to hit the trend dead on. The product we have in development is like nothing else at the market. It's going to be massively disruptive, exciting. And we were confident enough that we're going to open 3 galleries to launch it with. And we're going to do more if we can. We'll have the Ralph Lauren store in Greenwich, Connecticut. We've got an incredible location in West Hollywood and that we'll be announcing more about soon. And then we've got our original gallery in San Francisco that we own in the design -- right in the middle of the Design District, where we kind of relaunched the whole brand in 2010, right? Yes.

2009.

2009. And it is going to be an incredible gallery to this new concept. But we've been working on this 1 for about 4 years. So we'll be ready to go.

And maybe just to confirm as a quick follow-up. So those 3 galleries are launching in conjunction or opening in conjunction with the launch of the brand extension in the spring?

Yes. The ones in Greenwich in San Francisco, for sure. The one in West Hollywood, we've got to still get our permits and get through system approvals and things like that. And hopefully, it will be pretty simple. We're going to -- it's going to be a 2-stage piece where we're going to kind of remodel a location that we now own. And then Phase 2 of that once we open with the new concept, we are building a restaurant, a beautiful -- it might be the most beautiful restaurant in all of Los Angeles. We're building an incredible courtyard restaurant that we think is going to be tremendous. It's going to add a restaurant in Los Angeles, which we don't have in a major market. And in Los Angeles, we're building like an ecosystem, right? We have our Melrose gallery that we built like 12 years ago that's fantastic and on a great corner, beautiful rooftop. We've got a Modern gallery, a couple of blocks away from that. We'll have this new concept galleries that's a couple of blocks away from Melrose, and we're in the process of closing another deal for an outdoor gallery on the same street. So L.A. will have this really expansive RH ecosystem. And I think our business in L.A. should go up 40% or more. It's a big, big, big market for us.

Your next question comes from the line of Max Rakhlenko with TD Cowen.

Great. So first, just on Europe. It's early, but with improvements in England and the strong start to Paris, can you share what you think those galleries can actually...

Max, we can't hear you quite well. I don't know if you're close enough to the speaker, but it's hard to hear what you're saying.

Speak up please.

Apologies. But Europe starting to scale. England, that gallery's improving and Paris, obviously off to a strong start. How should we think about the revenues per market or per gallery over the medium term? And then with that, how are you thinking about the four-wall economics in Europe compared to U.S. galleries as we just think about that 200 basis point headwind easing over the medium term?

Yes, I'd say, one, we'll update you periodically as things evolve here with Paris and as we get closer to London and Milan. I mean, it's going to be very quick here, right, because we'll have 2 more big really incredible galleries, all with multiple hospitality concepts and so on and so forth. So I mean, this is -- think about this as how we would have liked to launch, but to get Paris and London, there was other locations we had to take and had to open. We faced lawsuits from landlords if we didn't open them. So hence why we wanted our first impression to be something kind of inspiring and unforgettable. That's why we did RH England, really for conversation, not so much for commerce. But if you look at the numbers now, you go, hey, it looks like it might be pretty good. And we'll see what happens to that location when we open London. London may actually amplify that location as opposed to cannibalize that location. Don't know. I mean the Greater London market, it's just a huge market. The U.K. market is a huge market. And so Paris is any indication of -- I mean, we have way bigger brand awareness in London than we do Paris. But in Paris, what we're seeing -- Stef, what was it? 50% of the people know the RH brand in Paris.

50%.

Shocking for us. We didn't know that. So lots of people familiar, lots of people waiting for us to come. And we're in a location that you can't miss us versus some of the other places. I don't know, we're building a brand in the other ones. And even Madrid, which is a pretty high populated city that's pretty hot now, just not -- people aren't used to kind of a retailer even like us. I mean it's a really funny quick story, is Jen Kelly, one of our curators and designers, really great curator, designer and has been with us for years and freelances with us, then comes back to work for us, if you kind of -- I don't know what she's exactly, her title is now, but she finds the cool stuff for [indiscernible] Spain. And Jen has a godson that is finishing up his master's in -- somewhere in New York and his girlfriend finishing up her master's is from Madrid. And so they were out in California. And the godson -- I hope Jen's okay that I tell the story. But the godson said, "Oh, you've got to meet my godmother. She's actually into interior design." And this young lady, 29 years old, I think, said, "Oh my God, you have to come to Madrid. The most amazing home store in the world open in Madrid and everybody is talking about it." And Jen goes, "Really? Well, where is it?" She didn't even connect the dots initially, and she gives her the address, where it is. Then she goes, "Oh, well, I worked on that store. That's our brand. That's RH." And this girl had no idea who we were, right? So I mean, it's not really the brand awareness as much, I think, in Madrid. It will take us longer there, but we're really happy. When you look at the economics on the four-wall margins, I mean, some of these were not real big rents like Madrid and -- Madrid and Brussels. The one that economics are a little more challenging is Munich. We had to take that. We didn't extend those leases because we weren't sure what the volumes would look like. But I'd say a lot of them -- we know directionally kind of what we can do, what does it look like in 14,000 square feet, what does it look like 20,000 square feet, where might we do hospitality. We were going to do a restaurant in Madrid on the top floor, but it was kind of a smaller store. And then we chickened out at the last minute, didn't put it in. Now the team's like clamoring for it. Like our brand awareness is saying like everybody will come. They love our space. It was an old palace, about 14,000 square feet. And we can put a cool little kind of Le Petit. I guess, we don't call it Le Petit because it's a French kind of thing. But the same menu. It's a perfectly cool menu. And I think they'll flip out, and our team is super excited about it. So we're going to put a restaurant on that one. We have the ability to put a restaurant in Brussels long term. We've got the space there to do that. We may do that. And then we've got to watch how Germany kind of scales here. I think we have the lowest brand awareness in Germany. They take longer. Maybe we just don't have the right location in Munich. Don't know. But we've got flexibility there. But I think the four walls, when you kind of project them out, they kind of look like the U.S. So like if Paris -- I mean, if Paris does anything directionally like we think it's going to do, I mean, it's going to be fantastic. I mean we had a little bit more operating costs and something like that. We got to have guards out at the gates and things like that. You've got to walk down 195 feet to get to the front door, and you got to figure out how all that works and especially when the weather gets tougher. But I think it's now starting to -- the dots are starting to connect. We have enough data. We're seeing how things are ramping. And we're just starting to execute. I mean what would you give an execution from like the back end, having the right goods and the right -- like there are so many rules and things we had to get around. What fabrics are -- can you use what foams, what lighting? What does like -- we're kind of bumbling around. Like I'd say, give it a C today. What do you guys think? C plus?

[indiscernible]

Maybe a C plus. It might be a D plus. I mean so -- our teams like to...

Our teams would probably say D plus.

Our teams would probably say D plus, but we had a great session, a couple of sessions with them the last few times we were there. Just had another great session with them. Like they -- we know what we need to do. We loaded up both planes. We took all our merchants there. We brought in all the leaders from all the galleries, all our best designers. We listened. We learned. And like if we just go from like a B plus, C minus to a B in execution, it's probably worth 25 points. If we go to an A, it's probably worth 50 points. So -- and we'll get there. It's just it's a little hard when you only have a few small stores and you need to kind of take people's attention off certain things to be able to execute. But now I mean, the great thing is Paris now creates massive visibility and urgency. And that's why we took everybody over there. We were there for 8 days, 7 days. Many nights, we were going home when the sun came up. We were working with the teams. Everybody is alongside each other, bringing this thing to life, and it was a great, great experience for bringing our headquarter leaders together with our field leaders and building a great team.

Got it. That's super helpful. And then in the 10-Q, you discussed how the primary driver of the gross margin increase was due to increased margins in the core brand. Just any more color on what drove that? And then is the takeaway that we should consider is that promotions should continue to normalize ahead and that tariffs are just the major headwind? Or how should we take the learnings as we think about the rest of the year?

Yes, the margin expansion, I mean, it's a reflection of what we were doing last year and the position of the product margin and the activity last year as some of the markdown activity last year. So the year-over-year, we saw margin expansion.

Yes. And we absorbed a hit on tariffs. It's much smaller. I mean if the tariffs really start hitting in Q3 and Q4 and into next year -- and again, fingers crossed, there's not another layer coming, but as Darwin said, we're not the strongest of species that survived. Just one most adaptable to change. And we got to be the most adaptable in innovation and invention, I think, in our industry. And so we'll figure it out no matter what happens. But there's going to be gross margin headwinds from tariffs coming. You just can't raise prices fast enough and you can't -- there's only so much room our manufacturing partners have. You don't want to blow them up, right? So you've got to walk a tight rope. It's very different than China. I think that maybe that's the other thing that maybe is misunderstood. I mean China was kind of funded -- I think some of China's factories got some help from the government to deal with the tariffs. That's not really happening in Vietnam. It's not happening in Indonesia. It's -- they're not China. They're not big, strong, well-developed countries like China. So that's -- it's going to hurt people. Like there's just -- there's going to be challenges there, but it is what it is, so improvise, adapt and overcome.

Your next question comes from the line of Michael Lasser with UBS.

So Gary, the investment community is very focused on the degree to which there's discounting and promotions. In your messaging, the results in the quarter suggest that you've been able to overcome it with your profitability. But with that being said, is it driving incremental sales? And is the thesis that you will be able to pull back on some of this discounting-oriented messaging as the housing market improves and the natural rate of demand simply increases and offset we're seeing done right now?

Sure. Well, just start, Michael, with, in this world of furniture, at the luxury end, it's all in sale. Okay? At the highest end in the top design showrooms, interior designers, architects, all get 30% or 40% off. So our model of a membership model was a model to kind of smooth that out and be competitive. So this is not like CHANEL, Hermes, where they burn the markdowns or throw them out or whatever they do, right, because they have such ridiculous margins. This is not fashion. And if people confuse it with fashion, they're going to miss the whole game here. Okay. We're also in the third year of the worst housing market I've seen in my 38 years in this industry. 38 years, I've never seen a third year like this, and I've never seen 1 like this. So you could decide to not promote. I mean, some people are telling you they're not promoting and they are promoting. So I don't even know how anybody publishes press, and you know who they are, like, oh, they're not promoting. Like look at their emails. They're promoting every week. And it's disguising it is like not storewide. Okay. Whatever. It's got to be the highest percentage of their business is being done on promotion. It's just -- if you're selling furniture, you get away with some of the other categories like frames and other stuff like that. And those are bigger -- for other people's businesses, if they're a home furnishings kind of driven business and have a lower furniture mix -- we're 80% furniture. We have the highest probably mix of furniture of anybody we compete with. We eliminated Christmas. We eliminated holidays. We don't sell Halloween plates and all that stuff that renders the furniture less value. So -- but furniture is an industry that, at the highest level, does not sell at full price. It doesn't. So people just get over it. You don't understand the furniture industry at the luxury level. And unless you just want to f****** go bankrupt, excuse my language, in a market like this and stand there and be righteous and saying I'm not promoting, good luck. Good luck. Go for it. Tell me who's not doing it, Michael. Who's not promoting?

It's hard to name names right now, Gary. But it's a great segue into my second question, which is there is some skepticism around the margin outlook in the back half of the year. You're guiding below what was expected for the third quarter and well above for the fourth quarter. Can you give us more detail on what underlies those margin expectations and build the market confidence that those are realistic?

Jack, do you want to take that?

Well, Michael, we didn't -- we gave a back -- the H2 guidance, we didn't give out any quarterly guidance. So if you're referring to how the analyst community is [indiscernible] but I meant he's saying, what I heard Michael, maybe to clarify is how it changed versus the prior guidance. Is that what you asked or did I mishear you?

I'm just asking for what drives those or underlies those, Jack. So if you could give us a sense for what you're expecting, is it that tariffs are going to be a headwind in 3Q, but you'll take price by the time you get to 4Q? Let's say, you'll see a significant amount of leverage in the fourth quarter.

I think gross margins [ will be coming ]. Gross margin or operating margin.

Yes, Michael, you're talking about operating income?

Yes, sir.

Okay. Yes. Look, just as a reminder, we have seasonality in our business as it relates to advertising expense and the books that get expensed when there's our mailings. So that's one factor that I'd point out. I don't -- we're not here to point out pricing actions or timing of those and those kind of offsets. That's all embedded in our guidance. But we're not as -- that commentary we're going to be making.

Your next question comes from the line of Steven Zaccone with Citi.

Great. I wanted to go over that pricing comment and just kind of understand, could you -- Gary, you mentioned about pricing in the industry because of tariffs. What's your assessment of pricing from an industry perspective? Does it get worse as we get into the back half of the year in terms of increases because of these tariffs? And do you think the second half is when we see the peak? Or does that kind of carry it to 2026?

Yes. Look, I listen to everybody's conference calls, right, that's in our industry. And I don't think anybody has really addressed the tariffs with transparency. I think they're all dancing around it, and everybody's waiting for somebody to tell the truth. And maybe we're the first ones telling the truth. I don't think anybody is getting better pricing than we do. I don't think anybody is mitigating more than we are. No one's got the same leverage we do for a single brand. And so I think everybody has got to take price in the second half. I think there's going to be big furniture inflation in the second half everywhere. I don't know how anybody gets around it unless you're some little, tiny person making all your stuff in America. But then again, they're going to get hit because all the parts are coming for -- all kinds of the pieces and parts are coming from places, like fabrics coming out of Asia for a lot of those people. And like other people that might be saying they're making furniture in America -- and hopefully, this is what the investigation is about, is people that are having all the wood made and finished in Asia and then kind of shipped in a flat pack to America and they're actually screwing it together, and they're saying assembled in America or something like that. And they think they're going to not get tariffed. I mean there might be some -- I was trying to think like what triggered this next investigation of the tariffs. And the only thing I can think about is something like that. That does go on. And so there's probably people out there that are trying to avoid tariffs some way, bringing it in unassembled. They're doing something. So it's parts from other places. And maybe that's where you're going to see new tariffs coming. But I think everybody's got to take pricing. There's just no way. I mean your margins are going to get killed.

Yes, understood. Then a follow-up on the international margin question that Max had. So if we think about the 200 basis points drag this year -- does that ease next year? Or should we be thinking London, opening in Milan are still going to have some pretty heavy start-up costs?

Still have heavy start-up costs. Yes. I mean, we -- it will all depend where the ramp in Paris goes, which will inform the ramp in London, which should be meaningfully higher than Paris. And Milan, I don't know where Milan actually is going to fall, probably little less in Paris. But it's bigger, so it might do more. I mean, it is a big market. So we'll see. I mean, we're opening Salone, which is the biggest design show in the world. 500,000 people go to Milan for Salone. It is -- the world of design goes there for a week. And we're opening on that week. Any of these next 2 parties, you don't want to miss, these openings.

Your final question comes from the line of Brian Nagel with Oppenheimer.

So a couple of questions. First, I want to make sure I understand this -- the dynamic correctly. So if you look at an inventory growth perspective, it seems like you're managing inventory is much better here. We've seen growth moderate significantly in the second quarter. And then I guess that dynamic would help to drive cash. But again, I just want to make sure I've seen that correctly. But the question I have is, as you think about managed inventories better, does that potentially become a headwind to sales if your inventories are tighter through the back half of the year or whatever?

Yes. Look, there's -- everything is worth something, right? So it all depends where the housing market goes, what offsets you're going to have, how much like our new concept is going to be worse. I think this is the biggest new thing we've ever done. I think it's going to be bigger than Modern significantly. It deals with the biggest part of the market. We've got new galleries and things happening. We've got big galleries happening in London and Milan. I mean we got outdoor galleries coming, new concept galleries coming, and we got compounds coming. I mean there's just a lot that we've invested into, time and capital to set the company up for the next 10 years. That's how we think about this next move. If we do really well -- and I mean like I can tell you, Paris, we're getting a lot of inbounds on, "Hey, do you want to open in Abu Dhabi? Do you want to open in Dubai? Can we partner [indiscernible], license your brand? Can we do this, that?" When you see something like Paris that you've never seen anywhere in the world by anybody at any level, there are buyers of that, meaning whether it's developers, whether it's someone that wants to run the brand for us there, and maybe in the Middle East, we do a low capital kind of deal. And we take some percentage off the top, and we sell the rights for a big chunk of money for the next 20 years, or we run it ourselves. And we want the sales growth and so on and so forth. And we're willing to put in the cap -- we are creating optionality. The key is breakthrough, breakthrough and become one of the most admired brands in the world in this next period by doing what we're doing in Europe. And it creates all kinds of options. When we go to Asia, what are we going to do? Like we've had people try to get us to come to the Middle East for 12, 15 years, come to Asia for the last 10 years. It's like we wanted to do it in the right order. And somewhere along the line, I heard someone say that Bernard Arnault was asked how do you build a brand in China, and his answer was you build great stores in Paris, London and New York. So we did a little backwards, right, because we come from Americas. So we said the first thing we had to do is build the bridge to Europe, and we built RH New York. And we got a lot of visibility there and a lot of European clients coming over and they know us. And we wanted to do Paris and London next. But to get Paris and London, we had opened things in a different order. But now that Paris and London are coming and then Milan is coming, we're going to know a lot more. I mean I think the brand heat is going to exponentially build. I think the quality of work that we're doing, I mean I really -- if you want to -- I said this when we first built like I think it was Atlanta or something. I said put down your spreadsheet and go to Atlanta. If you want to know us, go and see us, right? We all have 6 senses, but our sight is our dominant sense, and it drives 80% of our behavior, our perception and our education. If you really want to go know where RH is going, get on a plane and go see Paris, and then give us a call, or just fly right back to the Center of Innovation and really come see what we're doing because what we're about to do next is the greatest work in the history of this company, and it might be some of the greatest work in the history of any part of the retail industry. I'm not trying to boast. At the end of the day, it's not what we say or think is Jane Austen say, "It's what we do that defines us." So go see the work. That's what's going to define us. You'll understand it. I mean, Max, [indiscernible]. Steve, you were there. A few other people were there. I mean I think everybody was there is like, holy cow, I had no idea what was coming. When you see The World of RH and what we did there to communicate to the world who we are, to see our body of work around the world and all of our places presented in this incredible sexy salon style with a bar, you can order food, you can take client meetings there and people walking freely. You see RH New York, RH Boston, RH Chicago, all the great work we've done everywhere presented beautifully and beautiful velvet draped walls with picture lighting and then you've got these giant French art easels with, I don't know how big the TVs are, like 6 feet, giant TVs and beautiful giant gold frames with videos that you watch, watch the making of RH Boston, the making of RH New York. You can watch videos on the designers, on the artisans. It's a physical and digital immersion into the brand. It's so cool. I mean my biggest worry, people are going to go what is this and no one would be there. At night, in the party, it was packed in that room. We had our first diner at our 2 restaurants, and that's kind of a semi third to have a bar. We have to serve food there. So we've got a menu. Then the first meal we serve is in bar, The World of RH. And everybody who's seen it is like, oh my God -- like essentially people don't know us like, "We had no idea." It's just we have the body of work that no one else has in the world from an architecture, interior design and landscape architecture point of view. It gives us great credibility in our interior design business, which is now morphing into an interior architecture business and a landscape architecture business, right, in our bespoke part of that business, which is one of the fastest-growing parts of the business, is doing these super high-end premium, complete redo. And we had already -- before we even got to Paris, we had done an incredible complete metamorphosis of an apartment in Paris for a U.S. customer, transformed it completely, complete new interior architecture, fireplaces, everything. So that's the other thing to really understand what we're doing interior design. Like we are the biggest interior design -- residential interior design platform in the world today, and we're investing in it in a meaningful way. In Paris, it is a freestanding building on our property that we've built. So our RH Interior Design has its own building, its own entry and its [ character ]. Like it might be the best interior design office anywhere in the world. And it sends to people that we want on the team -- like we're prepared to invest to get the best people in the world. We're not just a retailer. We're something that hasn't been done before. And when it all comes together, I think it's going to make a lot of sense.

Great. I maybe ask just a quick follow-up and I think maybe for Jack. But just with regard to tariffs. So should we expect that RH is putting in mitigation efforts, particularly price increases as the tariff hit? Or you were able to, in some instances, start adjusting prices before the actual tariff is hitting you?

Turkey is a little wacky. We also did the membership thing.

Yes. I think it's a bit of both to be honest. I mean it's -- obviously, we want to be very judicious about price increases. And as Gary talked about, on the one hand, you're protecting margin, but on the other hand, you can't -- you want to also be thoughtful about the revenue of the business and the impact of that. So I -- we're very strategic and thoughtful, and we've been doing this ever since we had to deal with the 2018 tariffs -- or 2017 or 2018 tariffs, initial ones in China. So we'll keep doing -- keep running our playbook.

That concludes our question-and-answer session. I will now turn the call back over to Gary Friedman for closing remarks.

Great. Well, thank you, everyone, for your interest. It is interesting times in our industry but even more interesting times for our company. And I just want to congratulate everybody throughout our organization. Even though you might not be in Paris or you weren't in Paris, everybody had a hand at it. Everybody has worked hard to put this company in a position to open what we believe is the most exciting immersive retail experience at any level in the world today. And we couldn't be more proud. I told the team -- I said, if only for a moment, we kind of broke through and poked our head up at the top of the luxury mountain. Now it's up to us to just plant a flag up there, right? And there's a lot more work to do. But they know -- the people at the top, I think they now know the potential that we have, the work that we've demonstrated that we can do. And I think we've earned their respect and they expect us to come. So we've got a lot of work to do to really plant that flag and to build one of the most admired brands in the world. But the momentum we have, kind of the ceiling we broke through, it peaked up. And it was a proud moment for this company. And I want to just thank everybody on every level for the -- just the effort that everybody is putting through in these 3 difficult years that we've had. The clouds will break as Warren Buffet said and the sun will come out again, and when it does, we'll be there. So thank you, everyone, for your interest. Thank you, team RH, for your leadership and your hard work and for living and breathing our values. Our time has come, so thank you.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.