RH (NYSE:RH) Q4 2022 Earnings Call Transcript

Gary Friedman: Yes. Like probably any business, we are always trying to find what is the right cadence of investments to optimize the model. This is a business that, at one point, spent 10% a year on advertising, 10.6% and 10.4% . And then things changed, the pandemic, I think we have historically been around 4%, right, in the recent history. But we used to run it at 8%. And so I think about it from a strategic perspective. We are opening galleries that are very dominant since the presence in markets, right. And what we have been able to do over time is realize that where we have made those physical €“ have the physical expressions of our brand, in dominant ways to bring a great deal of brand awareness and require and maybe less advertising the markets that have a small store and don’t show as much of the assortment and don’t have such a physical presence.

Like you are more in here, if you entered anywhere near the parking lot, there is no way you miss us, right. So, you don’t need to be reminded about RH as much. We don’t know where we are, we kind of can perceive how much bigger we are than other people, assortment we may have, maybe eat in our restaurants and walk around and just getting to and from the restaurants going up and down the stairs, you are going to see and perceive a lot about our business where other businesses it could be a walk on buy, right. Like there is just another 50-foot storefront in a mall. So, there is a lot to think about when you think about this the physical expression of our brand that we are building and the value that, that brings to the marketing and awareness of the RH brand is how it’s perceived because of not only the size of it, but the quality and the architecture and the design of it all.

All communicate so many things that you can’t communicate in a pop-up that or even in the magazine. So, my sense is we could build advertising back up to a higher level than that. Historically, you would say advertising could easily be $120 million today, if you are looking at what it looked like historically in 2019. So, we will see, the pandemic kind of threw it all off, nobody in the home business needed to advertise at all a period of time. And so we didn’t €“ we kind of bank that money during that period. And now how do we build it up, what’s the right level €“ what’s the right level and what market. I think I would say that the marketing or advertising jobs and companies to the hardest point to figure out in today’s world with all the choices you have.

Steve McManus: It’s helpful. Thanks. Appreciate it. Best of luck.

Operator: Seth Basham with Wedbush, your line is open.

Seth Basham: Thanks a lot and good evening. My question is just in regards to the statement you made in the shareholders’ letter about this being the most difficult part of the climate luxury amount. And has it been anything that had you heard over the last year or so that made it more difficult than previously thought, obviously, putting the macro aside, and I know there are many crosscurrents?

Gary Friedman: That’s from the strategic perspective, the climb of the mountain. I mean just if you throw inflationary period and the rising interest rates and difficult to market and so on and so forth, that just makes everything harder, right. But the climate of the mountain, particularly we have always articulated why I keep that last section there. Climbing like you are not building a brand with no peer. The higher you go, the more difficult and treasures decline, decline no one has ever made before, right. So, it’s famously quoted in our company, it’s where the air gets spent and the odds become slim just because it’s never been done. It’s like tracking the highest mountains in the world. So, we know it’s difficult. It hasn’t been done.