Gary Friedman: The spread between Q1 and full year, I mean, it’s just the building, again, everything, if you just read the letter carefully and I mean, those are all meaningful things we’re doing, right? Those are all meaningful books that we’re unveiling that were, completely remerchandised. And you have a lot of revenue, and if you just look at the contact that we’re making year over year, I don’t know what if every company doubled their customer contacts and circulation, I don’t know what might happen. It’s going to be meaningful. We don’t introduce new products and get zero. We don’t introduce, we don’t mail sourcebooks and get zero. And, we just, I think, post-COVID, because we took a little over a year off because we’re trying to catch up on backlogs.
We lost our muscle in an atrophy and we tried to get restart, what I call the engineer or the machine. And the machines fluttered a bit and it took us a while to get back into our groove and with new products and sourcebooks and just all the things you’ve got to do. And it’s probably one of the bigger mistakes I’ve made in my career. And but now we’ve rebuilt the machine. We have better muscles than we had from before, we’re way more intelligent. We’ve went to a much deeper level and the quality of the work is just the best work we’ve ever done. And we’ve got enough internal data, right? When you see your business and how you’re rebuilding it from, down mid teams to where we are and you look at the mix of business and the categories and you come out of the gate, you look at what Outdoor’s doing.
I mean outdoors, just, it’s exceptional right now. And it’s, I think that the design and quality and value equation is so unmatched in the industry, that we’re going to take tremendous market share. And it’s just setting up what we’re going to do with Outdoor in 25, 26, 27, because when you think, when you see what we’re going to do from a physical perspective with that business and how we’re going to exploit it, I think we’re going to own it. And like there’s real numbers here in Outdoor. Outdoor is a meaningful part of our business and the work and learnings that we did in Outdoor, that’s also applied to every kind of category. You can just trace it all and see how it’s going to come together. And we have enough data and numbers from, the RH Interiors and the new collections and RH contemporary and the new collections and the adjustments we’ve made and the adjustments we’ve made to the value equation perspective.
And I think when we went back to, you know, just having more edge, like, the edge that it took to build this brand and business. I think is returned. And like I think I said a few calls before, I widely quoted, I got to be careful what things I say, I think I said we were arrogant about pricing because of all through the period of tariffs and supply chain disruptions, you know, COVID and raw material prices escalating, that forced price increases and drove inflation. I don’t think we had our value edge and hats on as we kept climbing the luxury mountain. And I think, being a great luxury brand doesn’t mean that price doesn’t matter, it’s like everything has to have a value equation. Everything has to go through a lens of design quality value in that order.
If somebody doesn’t love the design, they don’t even look at the quality nor the price. But if you have, you win a design, then you’re through kind of door number one. And then you’ve got to win on quality, because then the customer will get closer to it. They’ll read about it, touch it, and interact with it. And they’ll make their own perceptions about quality. And you can influence that with what you say and how you communicate. But at the end of the day, that the consumer is going to make the decision about how great is that design? How great is that quality? And for that design and that quality? What is the value? Like, how do we think about the price that you’re asking for that? And is that a lousy value? Is that a decent value? Is that a good value?
Or is that a great value? And I think we’re highly focused on having a great value, a disruptive value, with clear comparisons of anything that might resemble or be like things we sell in the market. And so we’re laser focused, we’re into, the greatest amount of detail. And, you know, I think that the design quality value and, you know, that if you took that lens against outdoor, which you guys have visibility to, if you really take the time to go through that book, and go through the collections, and look at the quality of the — just the extraordinary design, and the extraordinary presentation of that design. And then you do some work on the quality, whether it’s the materials it’s made of how it’s made, where it’s from all that, all the different things, and then put it through a value lens, like, try to find, any product similar, find the most similar product from other places, put them up all in a wall, and compare them to ours.
And you might understand why I’m saying Outdoor is exceptional out of the gate, because it wins, door number one, we win door number two, we win and door number three, we really win. And because of our size of our platform and our scale, and because, at the most senior levels of, this company, we’re in the factories, we’re with our partners, we’re helping to conceptualize and put the same creativity to how we source and how we buy and how we — the scale we have and negotiating the price. And it’s not really a negotiation where one person wins, one person loses, it’s how do you get all the brains in the game, and think about it, and figure out how everybody wins. And that’s how we’re able to, I think, have extraordinary value, it’s like, you can’t delegate greatness.
And so all of us here at the most senior levels are at leading the work, we’re learning together, we’re listening together, we’re learning together, and we’re leading based on that. And I think the work that’s coming is, I think, the best work in the history of my career, and I’ve been in this industry a long time. And I think it’s the best work in the industry. And I think it’s going to be disruptive, and it’s going to create strategic separation. And I think we’re going to gain a lot of market share. So guys, I don’t know how to give you a more specific thing. But it’s like, that’s what we’re doing. And so, if you want to build the ramp, like, look, you can take where Q1 is going to be, and you know what that demand looks like. And you can take like where we think we’re going to end the year and build your own little graph.
I give you guys all one, but everything gets too myopically focused on that, like, it’s just got to be directionally right. Like, if we have it a little wrong, like, well, how, why wasn’t that exactly right? Well, it’s not going to be exactly right when you’re building something and transforming something, you’ve just got to be directionally right. And we believe we’re directionally right, we believe, we’re going to deliver these numbers or more. And we’re very confident about that.
Jack Preston: And Steve, you asked about four sets as a piece of that, that’s, as Gary’s talked about, that’s one piece of the puzzle, right? You have a new product from the evolution of the product, you have better availability of that product, you have sourceful contacts, again, all things Gary has said. And four sets, another, one of these factors that, that drives the business.
Gary Friedman: And we have been doing the four sets, they’re continuing. And we have one particular collection that we talked about in the last call that that’s still coming in, it’ll be in, in all galleries in the second quarter.
Jack Preston: Yes.
Gary Friedman: And throughout the year, it will be reading, like the floors will continue to evolve, the galleries will continue to evolve all year. Right. And so there’s a lot of news coming in, there’s going to be, several cycles and adjustments that we’ll make. So, there’s just, we’re going to have a lot of choices and a lot of optionality. That’s what else I like, you know, when I look at the bigger picture and I stand back and I go, whether it’s sourcebooks or advertising or contacts or four sets or in stocks or placing bets here, reacting to this dimensionalizing different parts of the business. I mean, we just have a lot of things in play and a lot of opportunities and you can mathematically take all the pieces and build it up.
And we’re not new at this, done this for a long time. And I’d say, I think I’d put it in context is how are you thinking about the guidance for the context of the market? We’re guiding with looking at it through a lens of market neutral. The housing market doesn’t get meaningfully worse or meaningfully better. Right. So we’re saying neutral market, yes, there will be interest rate cuts. We’re probably going to be quarter point cuts. They’re going to come later in the second half of the year. A quarter point cut isn’t going to massively move mortgage rates. If you look at the delta between, where people are locked in on mortgages and where they’d have to step up to, you really need two things happening. You need home prices to come down and you need interest rates to come down.
And that gap, I think is going to take longer than three quarter point interest rate cuts, but hopefully those happen. And you put some more interest rate cuts on the other side, in ’25 and people can’t hang on as long from a pricing point of view. And some of that giant inflation that filled the housing market, which really one of the biggest impacts of markets think about how home prices in America went up 42% in two years, the two years COVID, and then they’ve been stubbornly high because there’s been no inventory. There’s been no inventory because people had record low interest rates and they’d have to trade up to a higher interest rate. Like, so, the data is like, it’s all super logical. Why were the freeze and where we are. The key is, what really has to happen for the thaw and for everything to get moving again and it’s interest rates and housing prices.
And it’s a combination. We believe it’s a combination of both unless interest rates go down really quickly, mortgage rates get readjusted and you get a big move down there. Then maybe housing prices hold up. My sense is that you’ve got a lot of people just holding on as long as they can. A lot of people have to move. They got a new job somewhere. There’s going to be, and some people have what they’ve grown their families, had more children, they’ve gotten married, they need to buy a house. And so there’s pent up demand. And I think that’s a good thing when you look at it. And, but, but I still think you got to have movement. We got to have real movement in the interest rate market and we have to have some movement in the pricing market. And when those things start to converge, I think we’re going to see a snapback and I think no one’s going to be better positioned for that snapback than us.
Like we’re going to be in the absolute best position. So that’s, we’re super excited about like right now, we’re looking at market neutral, not going to get meaningfully worse, not going to get meaningfully better. If it gets a little better, do we feel better about the guidance? Of course we do. Of course we do. We’re going to feel a lot better. So, but I just think at all ways we look at it, it’s all some form of good, be great. And let time unfold and we’ll keep doing what we’re doing and playing our game.
Operator: Next question comes from the line of Curtis Nagle with Bank of America. Your line is open.
Curtis Nagle: So Gary, maybe I’ll just start with, it was kind of a small piece of business right now, but it sounds like it’s going to be a bit bigger over time. I think it’s the first time you’ve called out a long-term outlook at a billion dollars. So implying you would effectively quintuple. I guess just at this point, you’ve had it, I think since 2016, what gives you, I guess the confidence to put out a pretty bold, pretty impressive target, and I guess kind of why now? What’s driving the excitement? Maybe asking more simply.
Gary Friedman: Sure. Sure. Good question. Yes, we said back when, I don’t know if we said this publicly, but it’s that, we said it internally that Waterworks was one of two businesses I had on a strategic framework map when I came here 24 years ago. Like when I walked in the door, I said, okay, here’s the long-term vision. Here’s where we’re going. And I had two acquisitions, Waterworks and Dean & Deluca. I thought Waterworks was the best brand in the high-end, bath and kitchen, mostly baths back then now kitchen too. And I thought Dean & Deluca had a really interesting brand with more of a food focus, some hard business, but it wasn’t merchandised well to make money. And I knew enough about the Williams-Sonoma model that I thought like we could create a really cool next generation kind of Williams-Sonoma with a different kind of sensibility aesthetically and taste and style and maybe integrate a little bit of fresh food focus.
Although that’s the reason why Dean & Deluca never could sail and make money at, too focused on fresh food and they didn’t have the hard goods part. And so Dean & Deluca didn’t make it, got passed around a couple of times. So we looked at buying it multiple times. We almost got it. And Waterworks came along. It was the right brand at the wrong time, but it might not come, come available again. So if you think about when we bought it, we were in the middle of membership, supply chain transformation, all kinds of things, the just launched modern. And we said, look, we may not have another chance to partner with a brand like this. We thought it was a great strategic fit. So we did that, but the business was only relatively small, right. It was, I think we bought it with just north of $100 million.
