I would now like to turn the conference over to Allison Malkin of ICR. You may begin.

Thank you. Good afternoon, everyone. Thank you for joining us for our first 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 secu- rities 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 1 GAAP measures in today’s financial results press release. A live broadcast of this call is also available on the Investor Relations section of our website at ir.rh.com. With that, I would now like to turn the call over to Gary.

Great. Thank you, Allison. Good afternoon, everyone. Let’s see if maybe we can get off to a better start than last quarter. I should ask who was the person that asked [ the setup call ] that got my response that echoed around the world. I can’t remember, but I’m going to put you up in the queue this time. I think that’s cool. Anyway, thank you, and thanks for joining us. Let me take you through the highlights of our letter, and we will open the call to questions. To our people, partners and shareholders, our industry-leading growth continued into fiscal 2025 as revenue increased 12% in the first quarter despite the polarizing impact of tariff uncertainty and the worst housing market in almost 50 years. Both adjusted operating margin of 7% and adjusted EBITDA of 13.1% were at the high end of our expectations, and we achieved positive free cash flow of $34 million in the quarter. The substantial investments to elevate and expand our product and platform have resulted in significant share gains and strategic separation, positioning the RH brand for continued growth over the next decade. We continue to be pleased with the second year demand trends at RH England, with the gallery up 47% in the first quarter, and online demand at 44%. Current demand trends indicate the gallery will now reach approximately $37 million to $39 million of demand in 2025, its second full fiscal year, with the online demand reaching approximately $8 million. 2 To put those results into 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 an RH Gallery in the center of Mayfair, the most exclusive shopping district in London with a population of 9.7 million due 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 some- thing so extraordinary and remarkable that it breaks through the clutter and creates a conversation that is authentic and uniquely our own. 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. We’re also pleased to report that our business in Europe continues to accelerate, with demand growth of 60% in the first quarter across 2 comparable galleries, RH Munich and RH Dusseldorf. We are also pleased with the continued demand acceleration in our noncomparable galleries, RH Brussels and RH Madrid. Last week, our leadership traveled to RH England, RH Madrid and the soon-to-open RH Paris. While there, we met with our teams from all 5 galleries, listening and learning as they identified opportunities that we both believe could double our current business over the next couple of years. We believe RH Paris, the gallery on the Champs Élysées, will be our most elegant and inspiring gallery yet. Located on the famous Parisian boulevard, just off the Avenue Montaigne, it is at the epicenter of fashion and luxury. You will pass through 20-foot gold- gilded gates that lead you down a hedge-lined decomposed granite pathway into a beautifully landscaped garden where we have built a freestanding RH Interior Design Studio. 3 Opposite the Studio, you enter the gallery through 18-foot bronze and brass stores flanked by trickling fountains, and encounter a dramatic atrium with ornate railings, scissor stairs, and a magnificent glass elevator connecting the 6 floors and 2 restaurants. While enjoying lunch or dinner from our curated menu of American classics at Le Jardin RH, located on the second floor terrace overlooking the garden, you will be seated under a soaring curved glass atrium inspired by the Grand Palais, with a bar sculpted from and floating above a floor of rare white onyx. Le Petit RH will occupy the top floor and the rooftop where you can take in the majestic views of the Eiffel Tower and Grand Palais while enjoying a creative menu of small bites, special caviar dishes and seafood towers while sipping a perfectly crafted cocktail or glass of champagne. Our plan is to open RH Paris in early September to coincide with Maison et Objet, the premier interior design show in Europe that attracts design professionals from around the world. When we assess the current business momentum across our galleries, the upcoming openings of RH Paris, London and Milan, all in iconic locations over the next 12 months, I can honestly say we have never been more excited or confident about the desirability of the RH brand globally. Another topic we could not be more excited about is welcoming Lisa Chi back to Team RH as President, Co-Chief Merchandising and Creative Officer. Lisa is a proven creative and merchandising force in our industry as witnessed by the product transformation and brand elevation she led over the past 4 years at Arhaus in her role as Chief Merchandising Officer and prior as a consultant to the company. Lisa will co-lead all merchandising and creative efforts with Eri Chaya, President and Co-Chief Merchandising and Creative Officer, and a member of the RH Board of Directors. "Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold," Warren Buffett. 4 While we expect a higher risk business environment this year 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 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 were 4.06 million existing homes sold with a population of 341 million, and it illuminates just how depressed the housing market has been this year. Despite that fact, we are performing at the level most would expect in a robust housing market. We believe it’s a 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 presented 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 also serving as a profitable customer acquisition vehicle. Our intentions and attention to detail are reflected in everything we do and in every house we turn into a home. 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 replicated in our lifetimes. We are building a global hospitality company with multiple concepts across multiple countries. We are creating a global bespoke interior design business that regularly does million dollar-plus full installations. We are building a global contract and hospitality business where our products are 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 adjusted EBITDA margin of north of 20%. Imagine what our margins and cash flow might look like in a robust 5 housing market once 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 $200 million to $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 $350 million of free cash flow in 2025, and our plans also call for significant and growing cash flow from operations and lower capital requirements over the next several years as 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 Buffett 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 2017 and repurchased 30% of the outstanding shares during this housing downturn in 2022 and 2023. In addition, we believe another washtub bet is to play offense in the current environment by increasing our membership discount from 25% to 30%. This incremental incentive will position us to capture increased mar6 ket share and drive additional membership, which will serve us extremely well when the housing market recovers. 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 be clear that it was a good time to be a shareholder of RH. Reciprocal tariffs. We have 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. We have also resourced a significant portion of our upholstered furniture to our own North Caroline factory where we’ve been operating 10 years. We are now projecting that 52% of our upholstered furniture will be produced in the United States and 21% will be produced in Italy by the end of 2025. While there remains uncertainty until the reciprocal tariff negotiations are complete, we have proven we are well positioned to compete favorably in any market conditions. Let’s look at our outlook. Despite the speculative and uncertain outcome related to tariffs and the macroeconomic environment, we are maintaining our current guidance for fiscal 2025, assuming the existing tariffs remain unchanged. To mitigate risk, we are delaying the launch of the new concept that was planned for the second half of 2025 to the spring of 2026 when there is more certainty regarding tariffs and price of product. Additionally, due to the significant and unexpected Liberation Day tariffs announced on April 2, shipments and sourcing efforts were disrupted globally. We believe the disruption will negatively impact revenues by approximately 6 points in the second quarter and will be recovered in the second half, which is reflected in our outlook below. For fiscal 2025, we are forecasting revenue growth of 10% to 13%, adjusted operating margin of 14% to 15%, adjusted EBITDA margin of 20% to 21%, and free cash flow of $250 million to $350 million. Second quarter 2025 guidance includes revenue growth of 8% to 10%, adjusted operating margin of 15% to 16%, and adjusted EBITDA margin of 20.5% to 7 21.5%. The above outlook includes an approximately negative 180 basis point operating margin impact from investments and start-up costs to support our international expansion. "Every active creation is first an act of destruction," Pablo Picasso. We have worked hard to destroy the former version of ourselves and are in the process of unleashing what we believe is an exponentially more inspiring and disruptive RH brand. We believe the important investments we are making to elevate and expand our product and platform during this depressed housing cycle are creating a level of strategic separation in our industry that rivals the most important brands in the world. Our product elevation and expansion plans for 2025 include our 2025 RH Outdoor Sourcebook, arrived in homes in early February with 8 new furniture collections, an exciting new textiles offering, plus a significantly improved in-stock position to start the season versus a year ago. While the business started strong, we experienced a slowdown following the reciprocal tariffs. Due to the compressed peak selling season and the market becoming highly promotional, we responded by increasing our RH membership discount to 35% for a limited time to maximize market share in this important category. The introduction of our new RH Interior Sourcebook arrived in homes mid-February. We’ve been pleased with the early response to the new collections despite what has been a volatile period post the tariff announcements. Our RH Modern Sourcebook is in home this week with 18 new collections across furniture, upholstery, lighting, rugs and textiles. We are introducing a new design aesthetic, Japandi, harmonizing elements of Japanese serenity and Scandinavian simplicity. As mentioned, we are delaying the launch of the significant new brand extension previously planned for the fall of 2025 to the spring of 2026 that we believe will meaningfully 8 expand market size and share of the RH brand. This new brand extension will include a Sourcebook and 3 freestanding galleries in San Francisco, West Hollywood, and Greenwich, Connecticut. We’ll be sharing more details of this exciting new venture later this year. Our platform 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 balanced, 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 2025 include the opening of 7 Design galleries, with Oklahoma City and Montreal in the second quarter, plus Paris, Detroit, Manhasset, San Diego and Palm Desert in the second half. We also plan to expand our brand presence in East Hampton this week by opening a freestanding RH outdoor gallery just a couple of doors down from our current gallery and are exploring plans to further enhance our Design Ecosystem with a new concept gallery in the near future. As previously communicated, we anticipate an inflection of our business in Europe as we begin to open in the important brand-building markets of Paris in 2025, plus London and Milan in 2026, all with dramatic and brand-building hospitality experiences. We believe post each opening, we will begin to have the scale to support the necessary advertising investments to accelerate our growth in Europe. Looking forward, we plan to accelerate our platform expansion strategy to include the 9 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 under-penetrated markets or open new markets to the RH brand. "Every movement has a lunatic fringe," Theodore Roosevelt, America’s first Nobel Prize winner, Commander of the legendary Rough Riders, Medal of Honor recipient, promoter of the Conservation Movement, leader of the Progressive Movement, noted for his exuberant personality and ranked by scholars as one of the greatest presidents. Theodore "Teddy" Roosevelt proclaimed in his famous speech at the Sorbonne in Paris, "It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat." While our ambitions are not political, they are personal. We remain inspired by the progressive thinkers, unafraid to push forward new ideas and fresh perspectives. It’s a cul- ture of leadership versus follow-ship, innovation versus duplication, enlightenment versus ego. It’s believing none of us are smarter than all of us, that we need all the brains in the game and the egos out of the room. It’s about thinking until it hurts, until we can see what others can’t see, so we can do what others can’t do. That’s how you transform a money-losing Restoration Hardware store at Aventura Mall in Miami that did $2 million in annual sales into an RH Gallery that does $44 million in the exact same space with the 10 exact same square footage. It’s also how we will transform that $44 million legacy gallery into a $100 million-plus RH Design Compound, a yet to be unveiled multi-building design resort of sorts, in the parking lot of the same shopping center. We began this journey over 20 years ago with the vision of transforming a nearly bankrupt business that has $20 million market cap and a box of Oxydol laundry detergent on the cover of its catalog into the leading luxury home brand in the world. The lessons and learnings, the insights and intricacies, the sacrifices made and the scar tissue developed by getting knocked down 10 times and getting up 11 leads to the development of the mental and moral qualities that build character in individuals and form 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. Are we a part of the lunatic fringe? If it means, as President Roosevelt said in his speech at Sorbonne that, "our place shall never be with those cold and timid souls who know neither victory nor defeat," then put us in that arena. Onward Team RH. Carpe diem. Operator, we’ll now open the call to questions.

— Operator Instructions — Your first question comes from the line of Steven Forbes with Guggenheim.

Gary, you started the letter this time focusing on Europe. And it may be too early and not sure if you want to repeat maybe what you’ve done in the past. But given how demand has ramped at RH England, would love to hear your sort of high-level thoughts or initial thoughts on how your demand planning and forecasting for Paris, London and Madrid 11 have evolved as many of us sort of try to think about where the business looks in Europe 12 or 24 months from now, especially as you have advertising investments behind them.

Sure. I think what we’ve learned in this first couple of years, and again, not all the galleries have been open during this time, is that I think that the headline is that when you really look at the patterns, you look at it closely, you look at what you’re doing right, you look at what you’re doing wrong, is that the RH brand as it is today, we believe we kind of have enough data to say it can be as disruptive and productive in Europe as it can be in America. And that’s what the early trends look like and the early trends are littered with what I’d call just choppy execution, right? A company in America trying to open a company in Europe, we’re not experts there. Our brand has never been anywhere there. We’ve got excellent people in all of our galleries and leading the teams. But you listen to people and everybody tells you, "Oh, you need much smaller furniture," or "You need color," or "You need this," or "You need picture frames and candles and more accessories," and all these things and you find out – you start to find out if you’re in this business area, you start to get real data on what other people do, what their volumes are. And we’re just able to connect the dots and see the patterns and say, wow, once we fix like 3 things, 3 headline things, that we got – we’re in a conference room until 4 in the morning taking questions from our team. They would have kept going, we would have kicked them out. But they’re so excited. And if we can improve 3 pieces of this, being in stock, having the right fabrics because with flammability issues in the U.S., we couldn’t have the right fabrics. We stocked this DC over there a year before we opened, right, RH England because we had all the COVID issues of trying to stop and start and build and so on and so forth. We kept having delays. Nobody wanted to come out and do a check on the property or 12 permit sign-off. I mean it’s kind of funny when you build out in a remote area like that. But we opened, and we really didn’t have the right product in the distribution center. We just went through the biggest merchandising transformation in our history and I’m sure in the history of this industry by multiples. And so not having – you’re going through a product transformation, our business, the core of the business is here, so you’re testing many new collections. We need the goods here. So when you’re figuring out what the bestsellers are and so on and so forth, well, those just aren’t making it to Europe on the first go round or 2. We’re trying to optimize the business here, and we’re fighting through the worst housing market any of us have ever been in. I’ve been doing this for 40 years now. I’ve never been in a third year of a down housing market. I think every one of them has been 12 to 18 months. So you’ve got to stay really focused in markets like these and maximize market share and so on and so forth. So just the execution on just being in stock, looking at the time of special orders because many of our vendors couldn’t make the products with the flame retardant and the orders weren’t that big. So they weren’t on the front burner. And if we just do kind of 3 big things, our team believes our business can double. That’s how many customers we’re turning away. We’ve got 5-month lead times on special orders. So I sit here and go, wait a minute, we can see the trends across all of these galleries, some better than others as they’re going to be. But the most part, they’re going to trend, I believe, over the next couple of years to levels that will drive four-wall profitability, fourwall cash contributions as good or better than the U.S. That’s what it’s starting to look like. And if we really kind of fix some of these things, you just start to get really excited of what this model can look like. So I would say we’re just so excited in Europe. We couldn’t sleep. We’re just listening and learning and we’re looking at the trends building and we’re realizing that there’s so much more opportunity. 13 So we feel enlightened and energized and really good about the potential. Yes, we’re going to get some things wrong, but we made a big bet, right? We took multiple locations at one time from Abercrombie, get then Paris and London locations, which could have taken us 20 years to find locations like that. Those were critical, critical to the brand. And I mean, like my wife, Bella, is at a best friend’s wedding in London and she was out last night with a huge group of people. And if anybody’s been in London, go walk by our Mayfair site because it’s the biggest Vitruvian man you’ve ever seen with our designings on the front of the building and people are taking pictures of it and posting it on Instagram and other places. And she was shocked. She told me, "Honey, you cannot believe the buzz you have here in London." I mean I think we are going to rock when we opened Paris and London and Milan, I think. I think we are going to change things. And we talk about it for hours, Steve. So I better let the next question come.

I appreciate that, Gary. And then just a quick follow-up. The $500 million of real estate value that you noted, is there any way you could sort of break that down into 2 buckets, sort of nonoperational assets or operational assets, as we think about sort of transactions that would be sale leaseback-oriented or transactions that would literally just be the monetization of assets?

Yes. We have quite a few galleries that are opening, with some that have already opened that we own that we’ll do sale leasebacks on. Not exactly the best time to do a sale leaseback, but you got to balance that with what the interest costs are long term, short term. Short term, you can say, "Hey, let’s do a sale leaseback now." You’re doing a sale leaseback at a different cap rate, right? And the sale is going to – we’ll determine the rent and we’ll determine how much cash we’ll take out of it and what our long-term rent 14 stream and profitability stream would be. So we’re trying to be a little patient. We don’t like paying so much interest right now. So there’s good intention there. But yes, right now, we’ve got about 6 or so sale leasebacks. And then we have quite a big portfolio in Aspen. We’re a 50-50 joint venture partner. I mean people can pull out the press release from 2020 when we made the initial investment. I think we have in the high20s, low-30s properties, somewhere around it, call it, about 30 properties with many – we invested not only because we were going to build – we’re building an ecosystem with, we call it, a gallery that we call the RH Mountain House, which is on absolutely the best corner in Aspen, and it’s going to be a 3-level experience. It’s probably the only building of its kind in Aspen. I mean it’s incredible. It’s got a 3-story atrium going up through the middle, with a restaurant on the rooftop with views of Ajax Mountain, all-day fun. And the furnace must be a couple of hundred feet that wraps around that corner. And we have an incredible guesthouse location. It’s right on the street where [ List 1 ] is opening. So it will be a main thoroughfare, and we’re on a great corner. It’s going to be a tremendous guesthouse. You guys have probably followed some of the news. Our partner in Aspen likes to say building in Aspen is harder than building on the moon. It’s a little political there, sometimes it’s a little difficult, but we finally got approved and we’re getting ready to go. The last couple of permits we’re waiting on, and then we’ll finish out the guesthouse and it will be open. And I would say just based on the kind of incredible clientele we have at our current guesthouse that has just been built by word-of-mouth, I think Aspen is going to – it will be the best hospitality experience in Aspen. There’s nothing like it. And it’s got its own unique flavor versus New York. It’s kind of like a contemporary ski lodge but a lot of the core ideas around it being built around privacy and luxury. And we like to say privacy is the one thing everybody has given away with social media, and it’s one thing that the 15 Internet has taken away because you can do anything about anyone. And so the whole guesthouse has privacy. And that’s a really unique thing. Well, it’s a small town of Aspen. We’re kind of in the center of town, in a great area, but you walk through and you’re transported into this world of privacy and luxury, and we think it’s going to be tremendous. And we’ve got a great restaurant and mini caviar bar. And we may or may not open exactly when we opened with the Bath House & Spa. We may first get the guesthouse open and open that later. It’s a more membership-driven business, and it’s a new business. It’s not like the first thing we want to allocate capital to right now. We want to get the guesthouse open, get the branding open, and we’ll probably follow that up at some point with our Bath House & Spa. It’s all framed – the concrete framing is all there for a beautiful experience. It’s underground. And then we’ve got just incredible tenants in our JV from some of the best luxury brands in the world, and we get to learn what it’s like being a landlord with real estate kind of valuations, and things can happen. So we have a lot of value in Aspen. We have a lot of value in multiple sale leasebacks. We still own some other properties. And we have an option on a second building in Madrid. Madrid has one of the biggest buildings in all of Europe. We’ve opened our first Madrid gallery, and it is ramping nicely. And it’s small and it’s beautiful, and we’re going to put a little cafe on the top floor, kind of like RH Montecito, and we think that will bring even more energy to it. But we bought a building to have an optionality to have 2 buildings, kind of like we do in Los Angeles. We have a freestanding 30,000 square foot gallery in Melrose. We have a 15,000, if you count the outdoor space, probably 20,000 square feet modern gallery, and we may expand our ecosystem further there. So we’ve got an option that we could do something or we could monetize assets. So we have a lot of flexibility. It’s not the easiest 16 time to be in real estate development business with interest rates where they are, but you don’t get it all right, the timing. Do I wish I waited another year or 2 to buy our stock? Did I think the housing downturn was going to be 3 years? Yes, I wish I waited to buy the stock. Did I know the housing downturn is going to be 3 years? No. But then again, when we look back at the assets we have and what we can monetize and look at the momentum of the business that we have, we look at the cash flow potential of the business, when you think about cycling this time, we spent a lot of capital and it’s expensive to build today. I made a comment in the letter that I don’t think we’ll ever see someone build the kind of retail experiences we’ve built over the last 15, 20 years. They just won’t be able to afford to. Post-COVID, the cost of building one of our galleries is almost twice as much. And we’ve been – you’ll hear more about how we’re going to be really creative with capital. We’ve designed – I call it, out of necessity is the mother of invention, right? And we had some great opportunities for new galleries. But building one of our typical galleries with a restaurant on the top with 3 stories and a grand staircase and 2 elevators and all the equipment and so on and so forth is expensive and complex, and COVID has made it almost twice expensive. And so that economic model is not as attractive. So we developed a concept that we call the compound, the design compound. And what we did is we took a gallery and we’ve broken it into 6 to 9 separate buildings. And we’re getting department store pads in Walnut Creek. We’ve got the Neiman Marcus pad on the best corner in the East Bay of the entire San Francisco Bay Area. In Naples, we got this incredible site when Nordstrom got closed. And we’ve got Aventura in Miami and Bank of America on the street. It’s in the Aventura shopping center parking lot. And we’re going to build with 3 compounds. And I think we’re hoping that we’ve got another opportunity with one of our partners, that we’re doing one of the first ones with development 17 partners. But we think we can disaggregate a gallery, build it for half the cost. And you have all these buildings connected by gardens, you’re walking indoors, outdoors under a little down pathways. You’ve got outdoor furniture all around. You’ve got a restaurant in the middle. I think it might be the most exciting thing we’ve ever done. And we can do it for half the capital. But it’s good to have – I’d like to say humans without deadlines are useless. Like, we need deadlines or we don’t get our work done. We need crisis to kind of figure out our potential. And so I love the fact – we always say here, necessity is the mother of invention, and it’s when we do our best work. So some of the things we come up with, whether it’s the design compounds, the design ecosystems, we said, "Hey, there’s another way to break up the thing. Do we have to build the whole thing?" In Greenwich, Connecticut, you’re going to see we’ve got our – I think you’ve been out New York, but we have the galleries in-store close to office, center town, the best location in all of Greenwich, best building for retail and especially what we did to it. The next best building was the Ralph Lauren building that got built a little after us, right, or right before us, maybe, right before us. And Ralph’s been downsizing, I think, 3, 4, 5 years ago when they closed some of their stores. No one was able to really operationalize that building very well. We were able to get in and get that building. And so we tied up a lease on that building. That will be a building to support a new concept that we’re opening. We also transformed our Baby & Child Gallery into an RH Outdoor Gallery because outdoor is a very important business to us long term strategically. And so we will have 3 in- credible locations, and we call that a design ecosystem. You’ll see another design ecosystem in Palm Desert. And some of these – what it allows us to do is move much more quickly with less capital, right? Because we’re taking buildings and modifying them a bit. 18 I think we’re going to have a restaurant in the Ralph Lauren building there, right, it’s called the Ralph Lauren. I can’t call it with what our concept is because I haven’t told you. Or I’d call it the RH building. You have a vision like what would you put in a building that looks like that? Anyway, Eri is shaking her head, I can’t do it. But we’re going to have an RH all-day cafe in there. It’s going to be super cool. And I think, what are we going to spend there? $2.5 million of capital, draft it like a free store. And so we’ve just got lots of creative ways to grow an opportunity. I mean, just like in Europe, we’ve got some very expensive real estate we built in Europe. And by next year, that capital kind of gets behind us and starting to create cash flow. But we also have things – the other galleries that we picked up, we didn’t spend that much capital in. We’re very creative with it. And so it’s one of the things, as you think about just the model and the cash flow, just how we can deploy the brand into markets. I think I mentioned about Palm Desert. We opened our first RH freestanding Interior Design Studio. It’s really an office. It has 2 sitting rooms like outside of the offices where we got the same sofa twice, that’s like the little kind of pull-out sofa. It doesn’t even have our coffee table, right? It’s got this cool antique, like reproduction cool thing with the highest level of design. And we find things like that, that we can actually aspire to [ sell ] those, get the other people to ask about them. But it’s just a design office with a little room in the front. Can I say how much it is doing? I can say how much, right? It’s doing $1 million. It’s 3,000 feet, it’s doing $1 million a month. And the design clients we’re getting there because it’s just a beautiful space. We replaced lululemon there, right? I don’t think lululemon is doing $12 million a year with 3,000 feet. And that’s just weeks, warming up. So we’ve just got a lot of ways to access markets. We’ve got, as I said, the design compounds, the design ecosystem, the design studios. We have the design concept stores where we can, again, go into an existing building, build 19 an RH that’s anywhere from 14,000 to 30,000 feet with a lot less capital. And we have a lot of those in the pipeline that’s allowing us to access markets much more quickly. And that’s what we communicated in the letter that we’re going to accelerate our openings to 7 to 9 a year. And so we feel good, and we think we can do it in a very capital-efficient way.

Your next question comes from Simeon Gutman with Morgan Stanley.

So Gary, a bunch of tactical pivots, all sound pretty good. I wanted to ask about the sale. I saw you said it was limited time. Can you assess anything about the underlying newness with the sale? Meaning, have you seen demand spike up? Is there still a way to assess what the underlying strength of this newness is doing to the business even with the sale? And then how do you kind of ease off of it?

Yes. Well, we just increased the value to our members, right, for how many weeks, 4 or 5 weeks, something like that, yes. And then really, we’ve been thinking about taking membership from 25% to 30%, I don’t know, for 5 years. It’s not a new idea for us. It’s a long-term strategic move because we live in a really promotional world, and we’re a market leader and other people try to do things. I wanted to start with nobody sells furniture at granular price anywhere in the world. All furniture is on sale basically. And it’s just a sale industry. It’s just – it even starts at the highest end with interior designers. Every interior designer gets 20% to 40% off. Most of them get 30% to 40% off the design showrooms. And then more of the other people in our industry try to figure out like, "What can we do?" One time we had a competitor that put their entire assortment on sale, it’s 30% off 20 and they were running their business that way until I think they found out the government kind of let you do that. But they were just trying to say, hey, you don’t have to – you can buy something similar here because you get – take RH, $200 for membership, then here, we’ll give you 30% off. And it wasn’t really 30% off. They just mark up the goods. But we just always thought at the trade level, the discount is more 30% to 40%. And we just think that will open up the market. It feels more compelling. So I don’t really – and look, we did it during a difficult market like this. If we’re going to do something like this, we might as well do it now because people are really sensitive. We made a move on outdoor furniture for x number of weeks and picked up significant business. And it was important, and it’s more important there, like when we went to 35%, outdoor has a peak and it’s a short peak. We sell outdoor all year round, but you have a massive peak in the outdoor business in the March, April, May, June period. And we wanted to just capture more market share during that time. And that business got a little rocked, like everywhere got rocked from kind of the reciprocal tariff announcements. And when the market went down, our business went down, you had to pull forward, give back. It’s like a noisy, noisy time right now to run your business. It’s not a simple time. I don’t know how anybody keeps up with the news of what’s happening with tariffs, what’s happening with Israel or this or that. Like, there’s just noise all over the place. And I think it’s – and you’re sitting with a down housing market for the third year. I don’t know. Anybody even knows – if you go back in history, when was the last time that’s happened? It’s never happened. It hasn’t happened in my career as long as – in my 40 years in this industry, I haven’t seen it. So this isn’t a normal time. But the 25% to 30% is a strategic thing. We’ve been thinking about it for 5 years, debating it back and forth. And we said, "Hey, look, we ought to do it now. So why not take the market share now?" And outdoor is kind of a onetime thing. 21 Will we anniversary that next year? I don’t know. Maybe, maybe not.

And as a quick follow-up, the path back to the 20%-plus for EBITDA margins, does this compromise do you think, I know it’s – it sounds like you’re confident that it won’t. But how do you get confident in that, that you’re not harming the brand in any way by offering this type of discount even for a short period of time?

You mean the 35% off for like 5 weeks in outdoor or less?

3.5 weeks.

3.5 weeks. Just so you know, Simeon, the 30% is a strategic move. It’s not temporary. And our cash in our guidance...

The 30% off membership is forever.

And our guidance is 20% to 21%.

The next question comes from Steven Zaccone with Citi.

This is Ariana Warden on for Steve. So my first question is, what gives you the confidence in the second half sales improvement? Is it just a function of timing of deliveries between second and third quarter? Or is there some risk that demand shifts out to 2026? 22

What’s the question?

What gives us the confidence for the second half implied sales plan?

I don’t know, this is what we do for a living. We’re generally more right than wrong. I mean it’s a lot of factors. It would take me too long to explain all of it. But I mean, our current performance, what we have in the pipeline, the number of new galleries we’re opening, I mean there’s a whole built-up model of pieces that says this is what it looks like. But we are in the most unpredictable market I’ve ever seen. So we’re more confident than less confident.

Got it. And my follow-up is, how did product margin perform in the quarter? The last few quarters, you spoke to sequential improvement. So what’s your updated view on product margin for the full year?

So our core business product margins were up year-over-year. Some of the other businesses were down slightly year-over-year, and you can see that just mentioned in our MD&A. But I think the most important part of the story is our core...

Yes, core business margin...

Year-over-year. 23

Yes, year-over-year. And we expect it to be up year-over-year, the rest of the year.

We don’t comment on the quarter-over-quarter margin trend, but I think it’s important to look at the commentary about the year-over-year.

Your next question comes from Michael Lasser with UBS.

So you came into the year with the EBITDA margin guidance in the 20% to 21%. It sounds like the decision to increase the discount for members was made more recently. So what is the offset that is allowing you to offer a greater discount and yet still keep the same profitability for the rest of the year, even as it does seem like sales have proven to be a bit more volatile than what you had originally expected?

Yes. Michael, like I said, we’ve been thinking about this for 5 years. So we decided to do it now because it seemed like a strategically good time to do it. And we always have a lot of optionality and a lot of things we’re thinking about strategically based on the market, the competitive market, what’s happening, so yes. So we thought it was a good time to do it for all the reasons I kind of said to take market share. If you read the letter, it does kind of play offense, right, and take market share. And we have the margin structure to be able to do things. So we’re always tweaking our model and looking at ways to build a better brand, build a better business model and so on and so forth. So this should work well.

24 I guess my question, Gary, was, have you taken up some pricing to compensate or offset for the increased discounts such that your profitability is where you thought it would be?

Yes. Well, we generally will take a price change at the beginning of the year every year. And I don’t think there’s many times that we haven’t. And then we’re reacting to tariffs appropriately, but we are coming out with some pretty big margin flexibility, just if you look at kind of our more recent trends as we’re coming into this year, where the new product was – margins were, where we’ve negotiated bigger bets and better pricing and so on and so forth. And so we’ve – and we think our offer is really distinctive. And the environment that we sell the goods is distinctive. The brand is – and I think everything that we do, the galleries, the restaurants, the design services, all these elements render the product much more valuable. Our sourcebooks render the product more valuable. And as you build a brand and the brand becomes more desired and more distinctive, you have more flexibility. I mean people will pay more for better things. And so I mean, we’ve been doing this like the whole time, right? Like, we’re selling many less categories, much higher quality product at higher prices, and we have fewer customers doing more volume, and we have much more leverage in that model. And so we’ve been building and tweaking this model for 25 years.

It’s was [ my cue ]. I got you. My quick follow-up question is on the 6 point deferral of revenue from the second quarter into the back half of the year. Is that demand that’s already been realized and you simply will deliver the product later on? Okay. I mean given that, can you give us a sense for how demand has trended? Yes, you go.

For that to happen, Michael, the demand was much higher than the revenues. Okay? But 25 what happened when the reciprocal tariffs hit, we stopped shipments. People stopped producing. Just manufacturers thought like – I mean, it created disruption for several weeks in the supply chain, and when you try to ramp back up quickly in a chaotic time like that, things are just – things are late. Things get backed up. You stop the factory for a week or 2. It gets backed up, and you got to catch up. And so you’re just going to have a deferral – kind of a lag of shipments and a deferral so that, yes, this is a big one. You won’t usually only have things like this that demand is really up there like 30% or 20% like when we were running some really high numbers earlier, and we said, hey, we’re going to have a 4 to, I think, 8 point lag during a certain period. But this was a disruption lag. I wouldn’t be surprised if other people – because people haven’t reported that period yet, have they, other retailers? Are we the first to report?

Q1, we’re the last. Q2, obviously, what we’re guiding, some of that’s in there. Yes.

Yes. Yes. So I think you’re going to see this in a lot of places that sold furniture and stuff because when all a sudden, you get 45% tariffs, 35% tariffs, 100-something percent tariffs, you don’t just go, "Oh, yes, business is normal. Business as usual. Keep on shipping." I mean we’re like, hey, stop the shipment. The manufacturers don’t know what to do. They’re like, "Hey, can I ship this? It’s going to cost a lot more." That was a shocking thing that happened, liberation day for business. Yes. I mean, we’re lucky we’re a big business. I mean it’s devastating for small businesses in that they don’t have flexibility. So yes, yes. So you’re going to have things like this. I mean I’d be surprised if other people in the furniture business that have like special order, things like that, that that’s all going to get hung up and some of your other goods, you’re going to get hung up, right, — indiscernible — back orders and so forth. 26

Your next question comes from Max Rakhlenko with TD Cowen.

So first, how much of the excess inventory did you work through in 1Q? And given that your 1Q free cash flow generation was sort of in the mid-$30 million range, can you just help us bridge the gap to the full year guide?

Well, I don’t think – inventory wasn’t down year-over-year, was it?

But I think importantly, Max, sequentially, inventory was down just slightly from $1.20 billion to $1.08 billion, so down $12 million. So making a little bit of progress, but really, that’s implied.

Yes. Yes, and that’s – the bigger move will be in the second half of the year as we keep going, yes, so that ability to meaningfully reduce inventory this year and next year.

Got it. Okay. And then switching gears. You guys have an incremental – it looks in the 10-Q to be about $308 million available on the ABL. So just given this level and your goal to generate free cash flow, can you discuss whether or not you think you may need to raise capital or opportunistically look to raise capital to shore up the balance sheet?

No. But I mean would we raise capital opportunistically, maybe. Not at this stock price. I mean we’re kind of famous for doing 0 coupon convertibles. I mean probably missed the window at [ 450 ]. We should have done one. And I mean the great thing is we’ve got a 27 highly volatile stock, so we can monetize the volatility and raise capital in the convertible markets pretty easily but not at – where the stock is today. If it goes up to a much higher price, would we think about it? Of course, we would and because it would lower interest rates than – yes, so – but there’s nothing we’re not doing that we want to do right now. I mean if you look at what we’re doing and the amount of activity that’s happening here, yes, we’re opening maybe the most beautiful and magnificent retail stores that have ever been – ever opened anywhere in the world. Like there’s nothing like them in Europe. There’s nothing like them in the States. But the big investments, the whole Europe piece, we’re – yes, we’ve made big real estate moves here, opened really important galleries here. We’ve got a pipeline full of galleries here. We’re launching new concepts that we’re opening with 3 physical locations. That kind of means we’re excited about that concept and we’re – I think we just went through the biggest product transformation anywhere. We built a restaurant company. I don’t think anybody realizes that. Like how many restaurants do we have now?

22.

22 restaurants. And we’re opening how many? What do we have in the pipeline this year? [ City count ] – we’ve got 2 in Paris. We’ve got 2 – I think we’re going to have 30 restaurants very soon here. I mean a restaurant company, how many retailers have a restaurant company that have – that really actually people go to and they do volume? Yes. I don’t know if anybody saw it, but we just got named restaurant in the year in Orange County, the RH Ocean Grill. I mean we built Newport Beach, for God’s sake. That wasn’t cheap. But no one will ever build anything like that. Again, we have a 270-seat restaurant 28 that is trending right now at $22 million, and we’re not feeding the whole thing quite yet as we’re building up the capability and team. So that gallery is trending – the gallery and restaurant would be our second $100 million gallery. I mean we just opened it. So I mean like we’re doing everything we want to do.

Your next question comes from Andrew Carter with Stifel.

First question is on the disruption. Of course, liberation day was in the last month of your quarter. Was there any headwind in the quarter? And then kind of a second question, if you’ve got 6 points coming out of 2Q, then that means demand should be 14 to 16. And if it’s 3 points, therefore, coming in the back – overall, that comes back. That means demand slows to 7 to 12. Can you give us anything on the exit rate in June or why you have that kind of slowing in the second half here?

Yes, that’s not what our numbers look like. I don’t know...

Yes, Andrew, I mean you’re asking a lot of detail actually on a monthly level, and I think you know us well enough to know that we don’t get into those kind of details unless there’s a purpose to do that. I think our guidance speaks for itself and our confidence in the business. And there’s obviously a level of – as we’ve said before, there’s naturally a level of – there’s our internal plan and then there’s what we communicate externally, and those aren’t – there’s still [ something ] between us.

I don’t know. I had to try. I guess second question I’d ask is then kind of in this environment 29 right now, are you seeing a lot of like incremental traction on the To The Trade business? I mean the To The Trade guy – or the trade guys out there, things are being canceled. The start – the policies really don’t help. It’s starting and stopping. Are you seeing like a lot of incremental traction or not really?

We have a very strong To The Trade business. We have trade teams in every gallery. We have interior design teams, and we have trade teams that are – trade team service, the exterior – the external interior designers. And our business is strong.

Your next question comes from Marius Morar with Zelman.

Just a quick one on Outdoor. You mentioned some slowdown. I was just curious. It seems like it was pronounced in some of the other product categories. And I was just wondering why that is. Is there something about Outdoor or something else that might have driven it?

I think it’s the timing. The outdoor season is relatively a short season. If you miss that season, the peak of that season, that’s hard to make up. And so that – during the disruption and around the tariffs and all that noise that was disrupting a business that you only got so many weeks, right, to – you can’t make up the peak months in the out months. So again, we just thought it was the right thing to do. It was an unusual situation that happened with the tariffs and everything else. And we’re an unusual world, so you – in an unusual world, you should do some unusual things because if you try to do the usual things in an unusual world, it’s how you fall behind. So – I 30 mean, we think very deeply about what we do, but we think really hard about what we do and we usually make decisions that are very strategic and long term in nature. But there’s times like in an outdoor season, where you’re going to make a tactical decision because the math says it’s a much better thing to have those sales at a slightly lower margin, so yes, just day-to-day business goals. If we’re in a messy time, very unpredictable time, things – you’ve got to be flexible in times like this if you want to win and take share and position yourself for the other side. I mean there’s a lot of people going bankrupt. A lot of the ankle-biter businesses, the little online things, they don’t have that – they can’t raise capital. Their business are – a lot of them are blowing up. They’re going away. Yes, I think the businesses that I think don’t make it through the rest of this year, they don’t have the scale to deal with the tariffs. They don’t have the leverage. They don’t have the strategic flexibility. So you want to position yourself for the other side. The other side’s where all the upside is. So if you’re in a position like we have been and get – it’s not free. We’re paying interest on the debt and that wasn’t by choice. I mean we knew we were going to pay some interest. We didn’t know interest rates were going to rise the fastest in history. Got it. We’re not – we don’t have a crystal ball. We can’t see things like that. Neither can anybody else. But I wouldn’t get too hung up on – we took outdoor to 35% per X number of weeks during a extraordinary political and product turmoil around the world. Like do you think Apple is doing anything different? Apple’s flying jets of iPhones to the U.S., the tariffs. Apple’s opening factories in India. Like everybody’s got problems right now. Tesla has got problems not just because of Elon being involved with the government. It’s a different world. Lots of things are changing. You have to improvise, adapt and overcome. 31 So changes aren’t always bad. I read a lot of analyst reports like, "Oh, God, they did this." I’m like, holy cow, get out of the weeds. Look at the big picture. And are we heading in the right direction? Are we more right than wrong? Is anybody building a platform like us? Does anybody have the product assortment that we do? Does anybody have a restaurant concept that drives the kind of energy and engagement that we do that is a profit center driving traffic? Anybody have our interior design business? I think we’re the largest residential interior design firm in the world today. We’ve built really important foundational things here that I just don’t think anybody sees it yet what’s going to happen over the next 10 years. They don’t – can’t – because the investments don’t look like anybody else. No one’s ever done it. So I think people are afraid of it sometimes. Oh God, look what they’re building. Oh man, they’re spending a lot of money. Well, I – okay. We are. We’re also making a lot of money in a s***** housing market. I’m going to go national in that, too. I said that word again. I could say, oh, this, but I didn’t. [ Didn’t mean that ]...

On the Contract and Hospitality business, you called out in the letter. Just curious, internationally, how is the adoption there? And is that something that’s in line with the design business or the general retail business? Or is it following it? Is it leading it? Any insight there would be helpful.

We’ve been in that business for 20 years.

No, internationally, I mean, in Europe.

32 Well, Contract, too, we’ve been selling internationally – in the Contract division for many years.

Yes, I think, 15 or 20 years.

Yes, probably. Yes. I mean those were our first international customers before the consumers. So I’m not sure we’d fit, but yes, we don’t comment specifically on the trends in that particular business. But it follows the strength of our core business given the product transformation.

Your next question comes from Jonathan Matuszewski with Jefferies.

Gary and Jack, I had one question, and it was on Waterworks. Didn’t catch any comments on that business in the prepared remarks. So maybe just give us an update on your efforts to elevate the brand there. I think you’ve been working to integrate that business more with RH. So where are you finding success? What’s the updated pacing for working that product into RH Galleries and maybe what still needs to be refined?

Yes. Well, Waterworks has done, I think I’ve commented not too long ago, an incredible job building the brand, the assortment, the positioning in the market, the offshore sourcing. I think Peter, Ralph and the leadership team have been tremendous partners for us. And we’ve learned a lot from them about the industry, about the business and the dynamics. And there’s – it’s – there’s a retail kind of – the world’s been set up historically as retail and trade. And you have architects, interior designers and everything interfacing 33 at the trade level and consumers more interfacing at the retail level. And we think that, that – that the trade platform is a dated platform because it’s not a transparent platform nor is it an accessible platform. So it really limits the business. And I think, Peter and Ralph see that and understand that, and that’s why they wanted to partner with us. And – but they’ve spent the time with us building a really great base. The business is double the size. The EBITDA went from, I don’t know, 2% to 16% this year or something like that. I mean, we don’t disclose that but to let you know. I mean it’s turning into a really good, strong business, and it’s a bad housing market still. And we think that there – we always wanted to partner with them and integrate the 2 businesses because we thought it completes the home. And we were already in the business but nowhere near at the level they were. And it is the best brand, I think, in the bath and kitchen area in the world. Any great house, it’s – most of them, it’s the jewelry of the house. So we love the association. We’re starting to test integration efforts. We put in a Waterworks kind of shop in Newport Beach. We’ve been open, I don’t know, 5, 6 months now – 6 months. We’re learning. We’re seeing how it’s going. The customer – what happens to the customer, they’re not expecting to find it there. And so we’re testing and we’re learning and we’re growing. And I think we’ll – over the next couple of years, we’ll connect some dots and figure out a big move. So – but it’s a great brand. I think it renders us more valuable. I think we can long term also render Waterworks more valuable and helping expose one of the great brands in the world to a much bigger audience. And especially now – I mean they were global before us. They were in Europe before we were, but we’re going to, I believe, over the next 10 years, have kind of a global assault almost, right, and a good combination of us doing it all ourselves. We could do some licensing and franchise deals to go faster and more capital 34 efficient. I think RH and Waterworks are 2 brands that should be global. I think the world would want those 2 brands. I think they’ll be very successful 2 brands. And so we’ll do a combination of some integration and stand-alone because you still have an important business there. So – but all good. Their business is strong despite the housing market, and so we’re really proud to be associated with them.

Your next question comes from Cristina Fernández with Telsey Advisory Group.

I just have one. I wanted to see if you can expand on the tariff mitigation efforts. The product that’s moving out of China outside of upholstery, where is it going? And you also mentioned on the letter that vendors were absorbing a significant portion of the cost. So the portion that RH is absorbing, what savings or what areas are you finding offsets to offset that cost?

Yes. I don’t know if I want to educate our competitors [ about ] how we’re doing, what we’re doing and what specifically we’re doing. But our – we have tremendous partners that we’ve been working with for years. In a lot of ways, we operate like one company, and so there’s just incredible collaboration and big-picture thinking and how do we win together. And so I mean, it’s not new. What it is right now is it’s kind of chaotic and unpredictable. You don’t know what the tariffs are going to really be. You don’t know how long they’re going to be. You don’t know what countries are going to be what exactly. And there’s a lot of smart people that I know that have government connections in multi35 ple places in the world that believe that where the tariffs are now is kind of where they’re going to be, except China is an outlier. And the other ones will be minor changes that is that right or not. I’m just telling you what I’m hearing. And I think – I don’t think we’re going to see the U.S. all of a sudden swing the pendulum back and to kind of the initial – I mean, the initial moves on the tariffs, right, we’re – I think they’re well-articulated. I think there’s a lot of logic to them, and here’s the imbalance, and therefore, here’s the reciprocal. I think that was the start of a negotiation. And I think that it’s not just about tariffs. We’re all seeing now. It’s also about the materials for AI chips, what do they call them?

No, no. The...

Rare minerals.

Yes, the rare minerals. Thank you. Rare minerals, there’s – I mean, there’s lots of things that are – I think the current administration is trying to kind of have – rebalance trade but also rebalance other strategic things at the same time. And so it’s probably a bigger negotiation than any of us really understand, and so we’re not privy to those details. So it actually seems more chaotic when you can’t anticipate something. And so I – but I think what I hear from behind the scenes of people who I think are relatively well connected is things are going to get resolved over the next few months. And the world will kind of go back to a more predictable operating outlook, and it should be better for the U.S. So 36 we’ll see. I mean, I – everything we said – we wanted to say, it’s kind of in the letter about tariffs. We don’t need to kind of disclose things that we can teach to, whatever, 10 competitors that were listening in on our call, who don’t have our experience or our relationships.

And your next question comes from the line of Brian Nagel of Oppenheimer.

Appreciate you sneaking me in here. I know the call’s running long, so I’ll just ask one question. Look, a lot of talk on the balance sheet and cash flow. Is there – as you look at the business now and particularly with the shifting tariff dynamic, is there – are you working towards or you think about some kind of a target debt metrics or coverage metrics for the balance sheet or income statement that you guys really want to gear towards?

Yes. I’d look at history, what we’ve done. This is a little unusual. Again, we got $2.2 billion of debt. And we got caught, like everybody else did, with the fastest rise of interest rates in the history of America. And so yes, do we like the debt ratio we have today? No. But do we like paying $230 million or $240 million of interest a year? Of course not. Are we profitable in spite of that? Can we drive free cash flow despite that? Yes, of course. We’re a real company. As I said, – we’re in a crappy housing market. We’re going to – we’re guiding to north of 20% adjusted EBITDA. I don’t know...

I mean we don’t – I mean, we’ve said this before, Brian, but we don’t have specific targets. We don’t also have any covenants that require us. I mean, obviously, I – or what Gary – that do we wish the ratio was better. Sure. But if you also look, we peaked last year at 37 5x. We’re at 4.6x, naturally delevering from the growth in EBITDA. So – and I think our guidance speaks for itself, so you can do the math of where that’s going. And like, again, just to reiterate, no specific targets.

This concludes the question-and-answer session. I’ll turn the call to Gary Friedman for closing remarks.

Great. Thank you, operator. Thank you, everyone, on the call. Thank you, team, team RH, for fighting the good fight, living and breathing our values, and moving us closer and closer to the top of that mountain and becoming one of the most admired brands in the world. So onward. Thank you.

This concludes today’s conference call. Thank you for joining. You may now disconnect. Copyright © 2025, S&P Global Market Intelligence. All rights reserved 38