RH Q4 2024 Earnings Call Summary

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

Question: Steven Forbes - Guggenheim Securities LLC - Analyst : Gary, your initial comment, I think, was inventory is your friend. And so I would love to sort of hear you expand on that initial thought especially as all of us, right, sort of try to do the exposure math to Vietnam, Indonesia and India. Just sort of what should be the parting message here on sort of RH's ability to sort of mitigate, migrate, and derisk the situation that was just grown at all retail operators?

Question: Steven Forbes - Guggenheim Securities LLC - Analyst : And then just a quick follow-up for Jack. I think the company has sort of spoke to the return of positive free cash flow in 2025, maybe all this is in flux a little bit, but any way to sort of help us frame up the free cash flow outlook inclusive of how to think about winding down that inventory excess?

Question: Michael Lasser - UBS Securities LLC - Analyst : Gary, have you already started to take price in reaction to some of the tariffs that have already been levied? And when do you start to take price reaction to what was just announced in the last couple of hours? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 02, 2025 / 9:00PM, RH.N - Q4 2024 RH Earnings Call

Question: Michael Lasser - UBS Securities LLC - Analyst : Got you. My follow-up question is on your point about guidance, you might have been a bit more conservative. Have you had you had the full benefit of insight into all the policy announcements. With that being said, should we interpret that as a signal that we should go to the lower end of the guidance? And if that's the case, how would you think about the need to raise capital or utilize some of the assets that you have at your disposal?

Question: Max Rakhlenko - TD Cowen - Analyst : So maybe just following up on the guidance question. Can you just walk us through what is embedded in your revenue and margin guidance as it's related to tariffs? And then just any onetime costs that we should be thinking about as you reposition your supply chain?

Question: Max Rakhlenko - TD Cowen - Analyst : Got it. That's helpful. And then just can you provide any color on the quarter-to-date demand? And just given the volatility in the stock markets, just how we should think about the impact that you might be seeing? And then just how should we think about the REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 02, 2025 / 9:00PM, RH.N - Q4 2024 RH Earnings Call excess backlog and sort of the demand that's been quite strong that we've seen over the past couple of quarters flowing into revenues here?

Question: Andrew Carter - Stifel Financial Corp. - Analyst : So a quick question on kind of looking at the controllable cost outlook here. You've got, I think, about my math here, you got -- I mean, you got 7% to 8%, you've got revenue growth of 10% to 13%. Is -- are product margins still inflecting, so is that going to be a majority in gross margin? Or are we going to see a lot in SG&A because you've lapped the investments? And then the second question around the timing. There's more of a disconnect on cost growth in 1Q. Is there anything related to that? Is that timing around the advertising investments or something like that or delivery? Just anything I'll stop there.

Question: Andrew Carter - Stifel Financial Corp. - Analyst : Fair enough. Just thinking about more of a high level, you kind of said it today, but like do these tariff announcements against like your competitors where you're going premium really create anybody that has an advantage? I know you mentioned Ethan Allen earlier that had some domestic. But if you consider like your true competitors like people -- and you have a lot of people coming out of Europe, you have some niche here. Are they really at any kind of cost advantage here today that you have? Or just any kind of help with that?

Question: Bradley Thomas - KeyBanc Capital Markets, Inc. - Analyst : It's Brad Thomas. Gary, I wanted to ask just about the international side of the business. And I'm wondering what you're seeing in terms of trends there. wonder the degree to which you worry about any backlash about American perceived brands and how you think about the openings that you have this year? And what risk, if any, there might be inside delays? --

Question: Bradley Thomas - KeyBanc Capital Markets, Inc. - Analyst : That's very helpful, Gary. And if I could just ask a follow-up on the topic of clearance activity. That's been something going on as you've been transitioning the assortment. How should we think about clearance activity going forward here?

Question: Jonathan Matuszewski - Jefferies - Analyst : My first question was a follow-up on the clearance activity topic. And was just hoping to better understand maybe how those markdowns have been fueling maybe the acquisition of new customers for RH versus incremental spend from existing customers. It looks like in the 10-K, the year ended with 265,000 members to down a bit versus the prior year. So just trying to kind of understand that relative to the increase in revenue.

Question: Jonathan Matuszewski - Jefferies - Analyst : Yes. That's really helpful, Gary. And just a quick follow-up question. In terms of the sourcing diversification, it sounds like you're looking to bring half of your sourcing near half of your sourcing to the US by the end of the year, probably could drive some improvement in the consumer experience in terms of maybe delivery speed and maybe some other factors. Could you just kind of comment on that in terms of ancillary benefits for the consumer from what you're doing from a sourcing perspective?

Question: Seth Basham - Wedbush Securities, Inc. - Analyst : I'm just taking a quick step backwards looking at the fourth quarter, if you could give us some perspective on the margins in the quarter relative to your expectations that came in a bit light, where sales were still at the low end of your guided range. Any perspective on what happened from a margin standpoint in the quarter would be great.

Question: Bradley Thomas - KeyBanc Capital Markets, Inc. - Analyst : Correct. Any details you want to get -- .

Question: Seth Basham - Wedbush Securities, Inc. - Analyst : Okay. And just thinking about the timing of costs in 2025. You talked about higher advertising costs year-over-year in the first quarter with an extra source book. When we think about advertising for the balance of the year, should we be thinking about it being down relative to the last three quarters of last year or any other transitory costs that you would call out as we think about the quarterly cadence?

Question: Brian Nagel - Oppenheimer & Co. - Analyst : So maybe just a simple question to start. I can be discussing. Could you talk at all about just the trend in your business through the fourth quarter and then maybe into Q1 here? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 02, 2025 / 9:00PM, RH.N - Q4 2024 RH Earnings Call

Question: Brian Nagel - Oppenheimer & Co. - Analyst : Okay. That's fair. Then just my follow-up question, bigger picture. I know we've been discussing obviously tariffs a lot, but recognizing, I mean it is an extraordinarily fluid environment, okay? And I think you made the first company addressing this after the announcement from the White House. But I guess the philosophic as you look at this and with sourcing cost is presumably going somewhat higher, how do you -- where do you kind of shake out? Is it more -- do you think you have more going to kind of adjust prices here in the United States? Or do something on the sourcing side, either negotiate with your vendors or move and source en route rate?

Question: Cristina Fernandez - Telsey Advisory Group - Analyst : I wanted to ask a question about product units. As you look at what's coming in for 2025 to drive demand? Where do you see the most incrementality? I'm thinking the interior sourcebook that was mailed this year seemed like you have a lot of newness, but I know you also have some things planned for the back half. So can you share some thoughts on where do you think will be the most significant ones?

Question: Cristina Fernandez - Telsey Advisory Group - Analyst : Got it. And then my second question, the London store is being delayed to 2026. Can you talk about, I guess, what the reason for that is? And that would imply that some of the investments get pushed out to 2026?