RH (NYSE:RH) Q4 2022 Earnings Call Transcript

Gary Friedman: I mean membership reflects our underlying business, and it’s a lag behind sort of sales and demand and then if you have increasing AODs, increasing AURs as we have had that factors into having fewer members for the same level of sales. So, it’s just memberships are going to be again reflective of the size. And as far as renewals go, I mean you are going to see some noise in that number here and there, but I would say it’s been plus or minus at a level that’s been consistent over the years. We haven’t disclosed that number. But to your specific question, I don’t think there is an uptick in sort of cancellations or any changes in that sort of behavior because of the economic backdrop. And if it is, again, it’s just minor. It’s not something that’s worth highlighting.

Jonathan Matuszewski: Got it. That’s helpful. And then just a quick follow-up on the organizational redesign, can you expand on the workforce reduction? It looks like 440 roles were deemed no longer essential, what kind of initiatives are being de-prioritized or delayed in connection with these roles? Thanks so much.

Gary Friedman: Yes. I think it’s just a level of detail is that terribly important to discuss on this call. So, we €“ like in any reorganization and redesign, you are going to redesign the organization around what the top priorities are. I think we are pretty clear with we have articulated our top priorities and then things that we believe are less essential and whether it’s just now or we worked pretty disciplined every few years of kind of going through an organization we rely for. So, anything that I would say is worth mentioning. That’s seems what we are focused on, right.

Jonathan Matuszewski: Great. Thanks so much. Best of luck.

Gary Friedman: Thank you.

Operator: Steve McManus with BNP, your line is open.

Steve McManus: Great. Thanks. So, I had a question on backlog relief, what’s the contribution in Q4 that largely normalized, or is there still some remainder to work through?

Gary Friedman: There is still a remainder. I remember at the beginning of last year, we had talked about $200 million of sort of over and above normal backlog. As we look out to where we stand today, we have probably got through about $100 million of that. So, relative to a normalized number pre-pandemic, again another $100 million to go. I think that roughly split out evenly throughout, as we looked at the numbers last year, call it, roughly $25 million a quarter, plus or minus, but just giving you directional number. And then as far as how it unfolds this year, it’s going to be tied to just getting transit times back to normal, which you are on their way production lead times down back to normal, which they are on their way.

So, I think it’s possible that we get through it by the end of the year. But there is also €“ we are also looking at 2019 as some snapshot of perfection and might not be, there could be some different ways that consumers are behaving €“ and yes, the size of the business is different, the backlog is going to be different. I would also say that based on the historic amount of newness, it’s going to be introduced. I would €“ we are never going to buy anything exactly right. So, my sense is, whenever you have big newness introductions, you are going to drive higher backlog, higher back orders, things like that, special orders.

Steve McManus: Okay. And then on advertising, it looks like that almost doubled this year. How should we be thinking about that and the cadence of Source Book circulation moving through this year?