RH Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Michael Lasser - UBS - Analyst : Good morning -- good afternoon. Thank you so much for taking my question. Your outperformance relative to the industry has obviously been very wide. So how are you thinking about taking advantage of this, such that would you further accelerate some of the investments that you're making in 2025? And if that were the case, would you be willing to trade some margins, so suppress margins, even if it meant that you were still accelerating your sales? Thank you so much.

Question: Michael Lasser - UBS - Analyst : Thank you. Very helpful. And my follow-up question is, as we look out over the next couple of years, A, should we think -- is your baseline assumption that as the housing market does improve, it will lead to an acceleration in the recent trajectory of the business that you've seen? So we should think about that as we start to model next year and beyond? And B, given the pacing of margin decline that RH has experienced over the last couple of years as sales have been under pressure, is that the right frame of reference to think about how margins will recover that the same degree of sharpness as the pace of sales growth maintain is like you've seen it recently? Thank you.

Question: Michael Lasser - UBS - Analyst : Thank you very much and have a good holiday.

Question: Christopher Horvers - J.P. Morgan - Analyst : Thanks, good evening, everybody. So I'll keep my question to a two-parter. The first question is, is your guiding the fourth quarter below what you're seeing quarter to date? Is that just caution on your behalf? Is there some sort of seasonality of the business to think about pursuing into the quarter? And then the second part is you've put a lot of clearance in the past few years to introduce all this newness, 80% newness this year. Is it your expectation that over time that you can get that clearance margin back? Thanks very much.

Question: Christopher Horvers - J.P. Morgan - Analyst : Thank you so much. Have a great holiday.

Question: Steven Zaccone - Citigroup Inc - Analyst : All right, good afternoon. Thanks for taking my question. Congrats on the accelerating momentum. I was curious, Gary, if you could just help us understand the drivers of really the acceleration in the business? What's really changed with the product? How do you feel about your competitive positioning? Why do you think you're outperforming the industry by such a wide margin? And then if the industry comes back stronger in '25, do you think you're well positioned to scale and fulfill that higher demand?

Question: Steven Zaccone - Citigroup Inc - Analyst : Understood. The follow-up I had is just on gross margin. When you reported the last quarter, you talked about august seeing a positive inflection in product margin. How did that play out over the balance of the quarter? And maybe how should we think about product margin in the fourth quarter? Thanks very much.

Question: Steven Zaccone - Citigroup Inc - Analyst : And elevated costs of moving the product and elevating inventory transfer costs?

Question: Steven Zaccone - Citigroup Inc - Analyst : Okay, very helpful. Thanks, guys.

Question: Steven Forbes - Guggenheim Securities - Analyst : Good evening, Gary, Jack. Gary, maybe just a two-part question on real estate, given sort of the planned sheer number of openings right planned over the next couple years here. So to start, can you speak to maybe the performance payback periods and store level ROISCs that you're sort of expecting in these classes of galleries, maybe relative to what you've spoken to in the past? And then how have the discussions with landlords and developers evolved over the past couple years? Maybe you have seen cost pressures normalize in the uniqueness of your model and just the pipeline itself. How has the conversation with landlords and developers evolved?

Question: Steven Forbes - Guggenheim Securities - Analyst : I'll keep that in mind. And then just thinking about some of your comments previously about harvesting process down the road, I mean, on the investments that you're making or you've made in the past. How are you just thinking about the magnitude and where margins can go a couple of years from now?

Question: Steven Forbes - Guggenheim Securities - Analyst : Great, thanks a lot. Appreciate it, and enjoy my month's CTO.

Question: Curtis Nagle - Bank of America Securities - Analyst : Great, thanks very much for taking it. Just a couple ones. One, in terms of just thinking about demand and the revenue trends, when should these equalize or when should the gap narrow? And maybe more specifically looking at the first half of '25, should we hold it something similar to what we're seeing in 4Q? Is that roughly the right math and follow up after that?

Question: Curtis Nagle - Bank of America Securities - Analyst : [That would be, I guess, a high-class problem if that does happen]. Second one, I guess, Gary, for you. Just trying to think through very early stages here, but potential demand synergies for the core product in the trade business with this acceleration and expansion of the Waterworks business, which I think as you said, it has a strong core B2B customer base.

Question: Curtis Nagle - Bank of America Securities - Analyst : No, that's very clear and I appreciate it, Gary. Happy holidays. Thank you.

Question: Seth Basham - Wedbush Securities Inc - Analyst : Thanks a lot, and good afternoon. My question is just regarding the product transformation, and what you've characterized it for as inflection? You previously talked about peak inflection points, sometime in early 2025. Well, this upward spiral that you're seeing right now, would you think that peak inflection is extended outward?

Question: Seth Basham - Wedbush Securities Inc - Analyst : And previously you talked about deconflexion being sort of the strongest year-over-year growth. I assume you're not thinking the strongest year-over-year growth is going to be a few years out, but you think that you'll see strong growth for the next few years, in other words.

Question: Seth Basham - Wedbush Securities Inc - Analyst : Wonderful. And just last follow-up. So I know you'll provide more information next year, but this significant brand extension that you think could be worth over a billion dollars, is it within furniture or is it more adjacent beyond furniture?

Question: Seth Basham - Wedbush Securities Inc - Analyst : Can't wait. Thanks a lot, Gary.

Question: Andrew Carter - Stifel Financial Corp - Analyst : Hey, thank you. Good evening. Just wanted to ask about the inventory kind of going up. Again, this quarter, the purchase is up 30%. Could you talk through kind of what kind of inefficiencies are in there? Is there some planning around there? I know that you're exiting China. Is there any safety stock in there for that? Already contemplating that, and you're exiting Mexico. And on those two points, correct me if I'm wrong, China was 22% of your purchase dollars last year. I don't know if you ever disclosed Mexico. Where's that going in turn now? Thanks.

Question: Andrew Carter - Stifel Financial Corp - Analyst : Yeah, yeah, exactly. Why? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 12, 2024 / 10:00PM, RH.N - Q3 2024 RH Earnings Call

Question: Andrew Carter - Stifel Financial Corp - Analyst : Fair enough. And then kind of switching gears a little bit. You talked about going into a massive cashflow mode. How are you thinking about that in terms of the external investments you funded? I know you talked a little bit about prioritization. Last call, I don't know if those are being de-emphasized as they're off the table, but in terms of the guest house, the real estate JV. Do you go lean into those more heavily, or is it just more of a prioritization on the core business?

Question: Andrew Carter - Stifel Financial Corp - Analyst : Thanks, I'll pass it on. Happy holidays.

Question: Brian Nagel - Oppenheimer & Co - Analyst : Hi, good afternoon. Congrats on the improving momentum within the business. So my question, and it's probably going to be a bit of a follow-up here, but just looking at the business. And Gary, you talk a lot about, you had to talk a lot about the last several quarters about the macro environment we discussed here on the call tonight, but you're looking at the business and the improving demand trajectory you're seeing. Are you -- do you think -- clearly the new product is helping or driving this, but do you think you're also starting to see maybe the early signs of some, say, let up in the US housing market?

Question: Brian Nagel - Oppenheimer & Co - Analyst : Helpful. Then this on that, my follow-up question. So with regard to the product transformation, like you just said very significant product transformation. So going forward, I think I was someone asked a question before I think what any we're in, I think someone said 6 or something. But I guess the question I'm asking is, should we as we think about RH over the next few years? I mean, is it going to be a more aggressive more consistent product introductions than we had over the last couple years or was this really one big step up?

Question: Jonathan Matuszewski - Jefferies Group LLC - Analyst : Great, good evening and thanks for taking my questions. The first one's on pricing. Gary, you shared some helpful color related to clearance activity for discontinued product. I was hoping you could just comment on the pricing strategy for some of the new collections, s when you talk about maybe peak year-over-year sales growth, one to two years out, is that going to be driven by higher prices from the new collections or greater unit velocity? Thanks.