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DATE

Thursday, Sept. 10, 2026 at 5:00 p.m. ET

CALL PARTICIPANTS

• Chairman and Chief Executive Officer - Gary Friedman
• Chief Financial Officer - Jack Preston

TAKEAWAYS

• GAAP Net Revenues -- $922.2 million, representing 2.6% growth year over year and exceeding the high end of management's guidance due to accelerating momentum from new growth strategies.
• Normalized Adjusted EBITDA Margin -- 13.4%, surpassing the high end of the company's guidance range as momentum built from recent brand extensions.
• Cash Generation -- $72.3 million in the quarter, reflecting free cash flow and a $42 million distribution from the company's Aspen joint venture.
• Tariff Benefit -- $55.1 million recognized in the second quarter, with an additional $13.9 million expected in the second half of the year to offset rising supply chain costs.
• Unplanned Supply Chain Costs -- $50 million, resulting from a sustained spike in oil prices due to the continued conflict in the Middle East.
• Fiscal 2026 Revenue Guidance -- 5.5% to 7% growth, driven by the expansion of the RH Estates assortment and building brand recognition internationally.
• Fiscal 2026 Margin Guidance -- 15% to 16.2% adjusted EBITDA margin, which includes a negative 340 basis point impact from preopening and startup costs for international expansion.
• Q4 Revenue Growth Outlook -- 16.1% to 21.2% growth, supported by an 8 percentage point contribution from RH Estates and a 6.5 percentage point benefit from backlog reduction.
• RH Estates Price Premium -- 45% higher than the existing assortment on average, intended to drive cost leverage and margin accretion across the operating model.
• International Margin Drag -- 450 basis points in the first half of the year, projected to narrow to 250 basis points in the second half as flagship investment cycles peak.
• Annual Capital Expenditures -- $240 million to $260 million in 2026, forecast to decline to $175 million to $200 million in 2027.
• New Gallery Opening Costs -- $48 million in 2026, expected to drop to $18 million in 2027 as the company cycles through its current real estate pipeline.
• RH London Design Pipeline -- $7 million in its first 8 weeks, a level of demand that rivals the company's high-performing New York gallery.
• Greenwich Gallery Revenue -- approximately $47 million annually from 14,000 square feet of interior selling space, demonstrating the productivity of the brand's gallery footprint.
• Gallery Investment Payback -- 12 to 18 months for the new RH Compound and single-story Design Gallery formats, significantly improving return on invested capital.
• RH Estates Long-Term Target -- 50% of the total brand offering within 5 years, reflecting a strategic shift toward classic and traditional architectural styles.
• Hospitality Revenue Contribution -- 65% of aggregate gallery rent on average is generated by integrated restaurants, which drive traffic and brand awareness.
• Q4 Backlog Reduction Contribution -- 6.5 percentage points to fourth quarter revenue growth, representing the anticipated fulfillment of accumulated customer orders.
• Q3 Revenue Guidance -- 5% to 6% growth, supported by a 2 percentage point contribution from the initial rollout of RH Estates.
• Q3 Adjusted EBITDA Margin Guidance -- 12.5% to 13.5%, reflecting seasonal preopening and startup costs associated with global flagships.

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RISKS

• Friedman stated, "we plan to use to offset $50 million of unplanned cost increases across our supply chain due to significant and sustained spike in oil prices as a result of the continued conflict in the Middle East," regarding immediate margin pressures.
• Friedman noted that while the company has been "running through the mud for the past 4 years of the worst housing market in 4 decades," results have been pressured by the prolonged industry downturn.

SUMMARY

RH (RH +0.04%) reported second quarter results that exceeded its guidance for both revenue and adjusted EBITDA margin. Management indicated that the launch of the RH Estates brand extension is designed to address the 60% of luxury homes featuring classic or traditional architecture, which has the potential to double the brand's total addressable market. The company is transitioning its real estate strategy toward RH Compounds and single-story Design Galleries to reduce construction complexity and improve capital returns. International operations remain a significant margin drag but are expected to see a reduced impact in fiscal 2027 as the initial flagship investment cycle in Paris, Milan, and London concludes.

• Management plans to transition 80% of its volume-producing galleries to feature the RH Estates collection on the main floor by mid-November.
• The company is pivoting its retail strategy toward single-story galleries and compounds to avoid the high costs of cranes, elevators, and complex foundations required for multi-story buildings.
• CEO Friedman stated, "we've also made some amazing investments, done remarkable work, and expect extraordinary results over the next several quarters and years," regarding the company's performance outlook.
• RH London is projected to become the brand's highest-volume location globally within 3 years, potentially rivaled only by a future gallery in Dubai.
• The company reported a meaningful acceleration in its trade program following a revamp that introduced custom sizing, bespoke options, and enhanced design support services.
• Friedman noted that the "smartest people in the company are those people closest to the customer, and those of us that have gotten promoted generally get farther and farther away from the customer, and we get dumber and dumber," emphasizing a commitment to field-level feedback.

INDUSTRY GLOSSARY

• RH Estates: A brand extension focused on furniture styles designed to complement traditional and classic luxury home architecture.
• Sourcebook: The company's large-format physical product catalogs used for high-impact marketing and design inspiration.
• RH Compounds: A retail format consisting of multiple independent buildings and garden courtyards connected by a central atrium restaurant.
• TAM: Total Addressable Market, representing the overall revenue opportunity available for a product or service.
• Bespoke: Custom-designed products tailored to specific customer dimensions or requirements, often used to support the interior design trade.
• Cucina Angelina: The company's new Italian restaurant concept integrated within its retail gallery ecosystem.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to the RH Second Quarter Fiscal 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Allison Malkin of ICR. Allison, please go ahead.

Allison Malkin: Thank you. Good afternoon, everyone. Thank you for joining us for our second quarter fiscal 2026 earnings call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer; and Jack Preston, Chief Financial Officer. Before we start, I would like to remind you of our legal disclaimer that we will make certain statements today that are forward-looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our press release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially.

Please refer to our SEC filings as well as our press release issued today for a more detailed description of the risk factors that may affect our results. Please also note that these forward-looking statements reflect our opinion only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Also, during this call, we may discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in today's financial results press release.

A live broadcast of this call is also available on the Investor Relations section of our website at ir.rh.com. And now I'd like to turn the call over to Gary.

Gary Friedman: Good afternoon, everyone. We're coming live from New York City today. We got in last night for the opening of our first RH Estates gallery in Greenwich, Connecticut. So I know I saw some of you there last night and those who haven't seen it, I would encourage everyone to get there, our newest, latest, greatest work. So let me start with the letter to our people, partners and shareholders. GAAP net revenues of $922.2 million exceeded the high end of our guidance, increasing 2.6% versus last year and accelerating 4.2 points over the first quarter as our momentum begins to build from the significant growth strategies we've recently put into motion.

Normalized adjusted EBITDA margin of 13.4% also exceeded the high end of our guidance for adjusted EBITDA margin, and we generated $72.3 million of cash in the quarter, inclusive of free cash flow and a $42 million distribution from our Aspen joint ventures, excluding tariff refunds of $69.2 million. We recognized a tariff benefit of $55.1 million in the second quarter and expect to recognize an additional $13.9 million tariff benefit in the second half of the year, which we plan to use to offset $50 million of unplanned cost increases across our supply chain due to significant and sustained spike in oil prices as a result of the continued conflict in the Middle East.

The remaining $19 million of tariff proceeds will benefit earnings and is included in our updated adjusted EBITDA margin outlook for fiscal 2026. Updated fiscal year 2026 outlook. Revenue growth of 5.5% to 7%, adjusted EBITDA margin of 15% to 16.2%. Free cash flow, asset sales and distribution of equity method investments of $300 million to $400 million. The above outlook includes an approximate negative 340 basis point adjusted EBITDA margin impact from preopening and start-up costs to support our international expansion. Third quarter 2026 outlook. Revenue growth of 5% to 6%, inclusive of backlog reduction of 2.5 points, RH Estates of 2 points, New Galleries and other, 1 point. Adjusted EBITDA margin of 12.5% to 13.5%.

The above outlook includes an approximate negative 310 basis point adjusted EBITDA margin impact from preopening and start-up costs to support our international expansion. Fourth quarter 2026 outlook. Revenue growth of 16.1% to 21.2%, inclusive of backlog reduction of 6.5 points, RH Estates growth of 8 points, new Galleries and other of 4 points. Adjusted EBITDA margin of 19.7% to 22.9%. The above outlook includes an approximately negative 190 basis points of adjusted EBITDA margin impact from pre-opening and start-up costs to support our international expansion. Expanding the brand and doubling the TAM.

We believe the introduction of RH Estates, our latest brand extension introduced with a 268-page Sourcebook that arrived in homes late June through mid-July, has the potential to double the total addressable market of the RH brand. Over 60% of luxury homes across North America have traditional or classic architecture with a higher concentration in Europe. A home's architectural vernacular is generally the driving factor influencing stylistic direction for both interior designers and consumers.

Additionally, we believe traditional and classic furniture will anchor the next major style trend across the industry over the next 20-plus years, as the dominant trends from the 1980s through 2010, such as the Eclecticism based on classic design and antiques highlighted with contemporary modern pieces and the California look pioneered by Michael Taylor, who Architectural Digest called one of the 20 Greatest Designers of All Time, and who twisted Eclecticism towards a most rustic yet refined point of view, blurring the lines between indoors and outdoors.

Michael Taylor's California look was amplified and refined by Richard Hallberg, Daniel Cuevas and Barbara Wiseley, designers who together launched Formations, one of the most admired and respected design firms and to-the-trade luxury furniture showrooms in the United States, recognized and respected globally. The 3 later acquired Dennis & Leen, giving them authority in its authentic, classical European furniture and antiques, blending them masterfully and creating a stylistic vocabulary that was layered and looked to have been collected over time. Their flagship showrooms on Melrose Avenue and West Hollywood Design District have been the first stop for many of the best interior designers and collectors from around the world.

Our acquisitions over the past 6 years of Michael Taylor Designs, Formations, Dennis & Leen, Joseph Jeup and Dmitriy, plus our decades-long relationship with many of the world's distinguished antique collectors such as Ed Hardy in San Francisco, Ludovic Messager, who set the tone and trends at the world famous Paris Flea Market and Rebecca Hill of London and Mougins who now leads product curation for RH Upholstery, plus designers such as Anouska Hempel, the inventor of Blakes, the first and most famous boutique hotel in the world, who also designed The World of RH Bar & Lounge and The Perch Restaurant at London, RH London, plus the many designers, artisans and manufacturers who are all part of the intricate and inspiring RH Ecosystem of Design have come together to lead, form and ride this next wave with the launch of RH Estates.

This is a collective effort with a level of talent, experience and scale unseen before in our industry. While we launched RH Estates with a conservative initial mailing, our plan is to aggressively expand the assortment in circulation in November when we will have Estates on the main floor of our Galleries that represent 80% of our business and in-stocks will be at an adequate level to meet and fill demand, hence the fourth quarter acceleration in our outlook. You can expect us to continue to rapidly expand the assortment over the next 5 years, and we predict it will represent 50% of our offering at that time. We also believe RH Estates will be margin accretive on multiple levels.

One, we believe the quality, design and exclusivity of the offering will command higher margins; and two, the average price point is currently 45% higher than our existing assortment, thus creating cost leverage and margin accretion throughout our operating model. It's also important to note that we will be aggressive -- we will aggressively protect the exclusivity of our products and the integrity of our brand. Almost the entirety of the RH Estates Collection is currently protected by trade dress or have design patents pending due to the acquisitions of Michael Taylor, Formations, Dennis & Leen and Dmitriy as well as pieces developed with internal and external designers.

You will note on the back of the Sourcebook, it reads, RH vigorously protects and pursues appropriate legal remedies against unauthorized copying, imitation or misuse worldwide of its product designs, photographs and collection names through intellectual property rights, including design patents, unregistered design rights, trade dress, trademarks, copyrights and pending applications. Extraordinary takes more time, costs more money, involves more people, doing more things, in a more complicated manner. But it's worth it. Over the entrance of our RH Center of Innovation it reads, RH, the home of the extraordinary, the remarkable and the amazing. I'm sure there are people who visit or come in for an interview and think the above is some corporate nonsense.

I'm here to tell you it's not. It's logic, experience, and I would argue common sense. What we've learned on our 26-year journey of transforming Restoration Hardware, a nearly bankrupt company with a $20 million market cap and a box of Oxydol laundry detergent on the cover of its catalog, into RH, the leading luxury home brand in the world with almost $4 billion in annual revenues, is that we always figured out how to monetize extraordinary and remarkable work, and we found it very hard to monetize ordinary and unremarkable. And yes, it has taken more time, cost more money, involved more people, doing more things, in a more complicated manner. And yes, it has always been worth it.

And this time will be no different. If you're a long-term shareholder and owner like I am, thank you for the belief and patience. While we've been running through the mud for the past 4 years of the worst housing market in 4 decades, we've also made some amazing investments, done remarkable work, and expect extraordinary results over the next several quarters and years. Let me take you through a few of them. RH International. We expect the drag from International to decrease from 450 basis points in half 1 of this year to 250 basis points in half 2 or 340 basis points for the year.

We further expect the drag from International to decrease from 340 basis points in 2026 to 150 basis points in 2027 as we cycle the significant investments of opening our 3 global flagships in Paris, Milan and London over a 10-month period from September 2025 to July 2026. On June 27, we opened what I believe is our most innovative and extraordinary brand experience yet, RH London, The Gallery in Mayfair. If you want to see our very best work, and maybe the best work in the world of retail, it's at 7 Burlington Gardens in the heart of Mayfair.

I'm happy to report the design pipeline reached almost $7 million in the first 8 weeks, rivaling the design pipelines for RH Newport and RH New York. It will take several months to turn these high-caliber complex design jobs, some in the million-dollar range into demand and revenue. But the response to RH London has been nothing short of spectacular. As I mentioned on our last call, I believe RH London will be the amplifier of the RH brand recognition across Europe and the Middle East. Our record investment cycle is now post peak, which will result in lower capital spending and higher returns on invested capital.

We expect adjusted capital expenditures to decrease from $240 million to $260 million in 2026 to $175 million to $200 million in 2027. We expect gallery opening costs to decrease from -- new gallery opening costs decrease from $48 million in 2026 to $18 million in 2027. We have cycled through our real estate pipeline that included 3 global flagships and several multi-story galleries with rooftop restaurants where construction costs doubled post COVID. We have one multi-story gallery left to complete in Houston in 2027.

Our new real estate strategy includes RH Compounds, a multi-building shopping experience with connecting garden courtyards and a central atrium restaurant under construction in Naples, Florida, scheduled to open at the end of '26 or the beginning of 2027. and another RH Compound that should be under construction soon in Aventura, Florida, opening in 2027. Both projects are projected to have a payback in the 12- to 18-month range with return on capital metrics we were accustomed to prior to the pandemic.

Additionally, as previously mentioned, we have developed a single-story RH Design Gallery with integrated restaurants with restaurants with similar expected 12- to 18-month payback ranges, and we are confident that our multiple go-to-market retail strategies of RH Compounds, RH Ecosystems, RH Design Galleries with a single story and RH Interior Design Offices will significantly increase our return on invested capital and decrease construction time lines. Our long-term success and strategic separation is the result of innovating and investing during uncertain times, and this time is no different. Launching RH Estates, the most compelling collection in the history of our industry that has the potential to expand the brand and double the TAM.

Opening 3 most innovative global flagships that will likely never be duplicated in our lifetimes. Developing a global hospitality brand with restaurants that drive significant traffic, brand awareness and generate on average 65% of the aggregate galleries rent they reside in, building the world's largest residential interior design firm that is moving our brand beyond presenting and selling products, conceptualizing and selling spaces, all during the darkest days and most prolonged housing downturn in 4 decades is not for the faint of heart. Never underestimate the power of a team of people who don't know what can't be done, especially these people. Onward Team RH, Carpe Diem, Gary. Operator, we'll now open the call to questions.

Operator: [Operator Instructions] Your first question comes from the line of Steven Zaccone with Citigroup.

Steven Zaccone: Congrats on the opening. Maybe we could start there. Gary, could you talk a little about the early demand trends for Estates? Are you seeing new customers? Maybe how this launch has played out relative to ones in the past? And then -- the price point premium of 45%, that seems sizable. There was a point in the past you talked about pricing being a bit too high. Why is the Estates different in terms of pricing?

Gary Friedman: Sure. Thank you, Steven. Thanks for coming to our opening last night. Let's -- I'll kind of try to take the questions backwards. Why is 45% reasonable? And why is this different? Well, one, the product is completely different. To start there. If you think about the kind of pricing miscues we did with contemporary, that was more of a simple modern aesthetic and contemporary aesthetic that was product that was simpler to make. And I don't think there's anything like RH Estates in the market today, at least nowhere we can find. If you try to do a Google search on any of our product, you're not going to find it.

You might find a foreign website that try to pick up some of our pictures and pop them on a no name kind of location. So it has to do with a lot with the exclusivity and the quality and the desirability of the product. These products were being sold for to 2 to 3x our retail. I don't know anybody selling this level of quality, these kind of finishes.

If you look at the Estates book and what we did with the product, you open and you see the pictures of the photos are very close tight shots showing that level of detailing and carvings and the hardware details, the finish details, you see 2 full pages of finishes up close the size of real-life finishes. No one's ever done anything like that in this industry because no one's ever had finishes like this in this industry. It's available to a consumer, right? That was in a design showroom only available to the trade and long lead times and special order finishes and where you might have to wait 4 to 6 months or longer.

My first wife is a high-end interior designer and that's why I understand this industry. I was her client on 2 projects and then her silent business partner for 11 years and saw the inefficiencies in the industry. And that really framed the opportunity, I think, for RH as we see it today, that experience. So when you've got -- when you're only one with the level of design and quality in a marketplace, you can command a premium like the price is too high. I think they're incredible value. You can't find this kind of product at these kind of prices. So we don't think about price so much as we think about value, right?

We think about design, quality and value in that order, right? If nobody likes the design, nobody cares about the price. At first, you have to -- with the consumer, you have to love the design. If they love design, they'll look closer. They'll either click on the website or they'll walk up to the product. And then the second thing a consumer generally does is they perceive the quality, right? They'll walk up to it in a gallery in a store, they'll zoom in on a website, look closer at a page if t's a Sourcebook or catalog and they'll make a perception about quality. And then they'll look at the price.

And at that point, the consumer will make a decision about that design at that quality, is that price a good value, right? So it's not a one-dimensional price discussion ever. It's always a design, quality, value discussion. We don't care about the price of anything if we don't love the design, right, neither does the customer. And so I think you got to start with where -- when -- if you're a consumer, what do you think about the design? How do you think about the quality, walk up to it, touch it, open a drawer, look at the details, look at the hardware, look at the finishes. And then look at the price.

And I think that's the hierarchy everybody should look at any product with. So this design, this quality, we believe it is a tremendous value. And we -- I should probably read it, but maybe the next call, I'll read some of the letters we're getting about RH Estates because they're incredible. We have people that weren't -- that never bought from us, were never a customer. And all of a sudden, they stumbled into Estates, they got the book or they walked into an RH. And now we've got a large design job.

We just recently had someone in RH London who their interior designer was going to augment $1 million-plus design job with probably about 50,000 to 80,000 of RH and brought their clients into RH London. And now we're doing 95% to about $1.1 million design jobs. And so I think this is -- I think you asked me about incrementality or was it? Early entrants. New customers. Yes. Our people in the galleries will tell you is almost entirely a new customer. And I think that makes sense. It -- like I said, I think we turned the company over the last 8 years or so, too modern, too contemporary, too one-dimensional. But we're quick learners here.

And as we mature and understand the industry and the consumer even more, I think if you watch the earnings video, I think I did 2 quarters ago, I tried to outline how we think about RH and the opportunity and how we see kind of 3 major kind of design vernaculars, call it, kind of traditional classic, which we call Estates. Contemporary, which we call interiors and modern, which we call modern. We kind of think about ourselves now as kind of a juggler, if you will. There's 3 balls and then there's always one ball in the air. And the ball that's in the air is generally the ball that the major trend.

For anywhere in our industry, a short trend might be 7 to 10 years. The major trends are more anywhere -- 15 to 25 or 30 years. And people have asked me before they'll ask me where do the trends come from? And I think I said in our conference calls that the trends come from the dead, right? Generations pass away. Their belongings go into estate sales. The Estates sales feed the high-end antique markets feed and inform the high-end interior design market. The high-end interior market then informs the high-end reproduction market and then it kind of trickles down.

And so the next trends I outlined, I talked about pretty fulsomely in the letter to try to help people see why we're so excited about Estates because it's almost a magnifying opportunity. So one, we're not addressing the traditional classic market today very well at all. I would say hardly at all. I think we're dominant in contemporary modern. So we have 60% of the home -- luxury homes in America that are classic and traditional, we're probably not addressing that customer. We might -- maybe we're getting 5% of that market. Maybe we're getting 10%. We have a few older collections.

So the math would tell you that this could and should be half our business or more than half of our business. And the data -- all the data we look at, once we start digging and think about it, I mean we've been working on this, God, I don't know, 7 years. We've been conceptualizing this opportunity. And we're getting smarter and smarter and seeing a bigger and bigger market. And we think this is as incremental or more incremental than when we did RH Modern. When we did RH Modern, no one was waking up in the morning saying, "Hey, honey, we need modern furniture.

We just got a modern condo or a new house that modern." Nobody was thinking about going to RH for modern furniture in 2012, '13 or '14 until we launched RH Modern in 2015. And RH Modern was highly incremental. It was one most incremental things we've done, and it very quickly went from $0 to $1 billion. And we think this is as incremental, might be more incremental. And we were in Greenwich last night for our opening party. And that is -- I mean, I don't know how it takes some back roads.

We were coming from the airport and you go through the neighborhoods and you realize like you could drive around here for hours and might not see modern home. And some of the homes might have been remodeled with some contemporized interiors and that might play. But when you really look at the bones of the houses and look at exteriors houses, my sense is the market of Greenwich, Connecticut, Westport, New Canaan, that whole area, I kind of believe it's like 90-10 to 85-15, somewhere like that. And by the way, we have -- I'm going to talk about our store launch. I'll let our competitors know this one, like, we do like $47 million in Greenwich, right?

We have 14,000 interior selling in the Post Office, and we have about 4,500 in the outdoor gallery today, right? And it's all contemporary. And so I think we're doing $47 million in Greenwich, Connecticut with 14,000 square feet of interior selling space. What could Estates do? We have 12,000 square feet of interior selling in the new former Ralph Lauren building, which is a perfect building for Estates, by the way. Thank you, Ralph. We didn't have to build that one. And so highly capital efficient for those of you going to ask me that question. So this is a big deal. This is a big deal. We've been working on this for a long time.

We've never made so many acquisitions to set ourselves up for a business. Michael -- if you saw my -- the projects that I did early on, whether it's my condo in San Francisco or the home I still have in Belvedere that has Michael Taylor Diamond table in the kitchen. I let the team reproduced the 17th century antique monestary table I have in the dining room that it's almost identical.

I mean, somebody just switch -- my daughter saw it in a Center of Innovation, and they grew up at that dining table and they're like, "Dad, why is our dining table here at the Center of Innovation." I go, "that is not our dining table" They go, "Yes, this is our dining table. I mean, it's very expensive antique. I mean, I guess I could say it. I bought it 27 years ago for $58,000. Estates new dining table, built a nice house in Belvedere, never spent that much on any piece of furniture or anything. And I'm not saying that's show off. I put it into context.

It's an 11-foot table that has 2 extensions, extends, I think, to 14, 15 feet. It can seat up to 16 people because it's, I think, almost 50 inches wide, you can fit 2 people at the end. So it's really great if you're -- if you entertain and if you have a big family. And I don't think anybody addresses that business very well. Those are the kind of businesses that we're addressing with the Estates. We said our initial goal when we're launching, we want to dominate the primary bedroom, the primary living room and the primary dining room. That's where we'll start. And then we'll continue to expand and dimensionalize the assortment.

But that table today, if you take that $58,000 dining table and you just did natural inflation over 27 years. I think it's about $140,000 dining table today, somewhere like that. And if you look on 1stdibs, when you look at dining tables, like they go up to about $250,000 to $300,000. And that table would probably get somewhere between $100,000 to $200,000 if it was on 1stdibs today. So we've got that we'll start -- we would finally land. We were going back and forth. That one is $14,995, and that's for the 12-foot 1 -- 11-foot 1, which is fine. And it's an incredible value.

I mean, I think a lot of people -- again, it's -- are we talking about a higher-end customer? Of course, we are. Should that scare anybody? No. We've moved this brand up over 27 years, right? The way we built this brand is selling knick-knacks and tchotchkes and had an average order value of $125 with an average order value of around $10,000. And so -- and that's with our order split. If you really look because we split a lot of design orders we deliver, so our true average order is much higher than that. But we moved -- we kept elevating the brand. kept shedding lower-value customers, acquiring higher-value customers.

And we'll continue to do so until we kind of say we hit the right spot. That doesn't mean we won't sell bedroom furniture that's appropriate for second, third, fourth bedrooms in houses and second homes and things like that. And -- but we think we're going to be like alone in the market for a while here. I mean, I challenge anybody to take the RH Estates book, go scan the Internet, tell me who's going to compete with us. And then look at the second drop, which is really kind of like the first drop because it's going to -- it's basically the same book with about 30% more items in it and product in it.

But it's -- we're just going to an increased number of customers. So we're not mailing the same people. We're just broadening the contacts, which will significantly lift the business. And when we do that, we're going to do that in concert with the product will be unveiled in the galleries. It will take over the first floor in all of our big galleries. It will be the main thing. It will be well represented. It will be in stock. So November is a transition time, really mid-November, we'll have galleries transition that are somewhere between 75% and 85% of the business.

And then it will continue to go the rest of the galleries, and I think all galleries by December, right? Yes, the last 15% to 20% of our volume. So that's when it's really meaningful, right? And I think these products will get an even bigger lift when the customer sees the finishes are so intricate in the detail and the quality, I think, important to see. And data would say that -- when you look at the furniture industry today, about 80% of furniture is done in retail stores. When you look at the luxury furniture industry, it's like 95-5. And that's just because the customer is more discerning, they're spending more money.

It's more of an investment and has everything to do with comfort, finish, sit, color, scale and all the things. But you don't want to get wrong. Like -- it's one thing if you're an Internet shopper today, you order 5 things and you returned 3 or some people order 10 things and they keep 1 or send all 10 back. You really can't do that with the furniture business. You'll bankrupt people and most people charge for restocking fees. We haven't yet. We're going to probably change that because we do think some people take advantage of like ordering stuff and then they go, this is what we keep, let's go send back.

But it's very expensive to make mistakes in the furniture when you're buying furniture.

Steven Zaccone: Okay. The follow-up I had is just international. It was helpful to get the context of where you see the drag going in 2027. Can you talk a little bit about the assumptions there because you'll be cycling flagship openings, right? And I guess we haven't really gotten the revenue. But curious when you think about the U.K. versus Continental Europe, are we at the point where the U.K. can be much larger from a revenue perspective, and that's really helping from a profitability perspective?

Gary Friedman: One of the biggest things is just the cost to open in Europe, right? The number of people that we have to have fly from America, put up in America for months, get trained. The 3 global flagships were the first hospitality experiences, RH England, we did, but that's not a very high-volume hospitality experience countryside. These were real complex hospitality experience. So you have a typical gallery for us, we might employ 30 to 40 people on the gallery side and we'll employ 120 to 130 people on the hospitality side. And so when you're opening restaurants and hospitality, it's longer training, it's more complex, more people. And just to support that Europe needed from America.

We have a lot of people on the road for a long time, making sure we're opening these right. You don't get a second chance to make a first impression. And we're not the most popular people or continent right now, right? And so we want to open correctly. We want to be respectful, a lot of things that are important.

Jack Preston: But assumptions-wise, Steve, again, obviously, the drag of the opening cost that Gary just mentioned, buildup revenue that's helping to reduce the drag. Obviously, the absence of these large costs, we have no more European openings in '27. So those are the building blocks and they kind of self-evident, but just pointing them out.

Operator: [Operator Instructions] Your next question comes from the line of Simeon Gutman with Morgan Stanley.

Simeon Gutman: I guess maybe more of a math question. So if you look at the progression within your back half guide, it looks like there is a bit of a stair step to the third quarter in terms of the underlying stacks and then another step up into the fourth quarter. Is that explicitly Estates? Or -- and can you speak to the momentum you're seeing within that brand? And then what else is it if it's not just Estates?

Gary Friedman: Simeon, it's listed right there. So you have it in front of you, the press release. If you look at it inclusive of backlog reduction of 6.5 points. RH Estates at 8 points and new Galleries other at 4 points.

Jack Preston: And that was Q4. Obviously, we have Q3 there as well. So you see the quarter-over-quarter increases in this.

Simeon Gutman: Okay. I guess if I may restate, I guess, what gives you confidence? And I get the backlog reductions, but can we talk about the confidence in that acceleration?

Gary Friedman: Yes. I mean that's what we do, right? That's how we built this company is expanding product and mailing books and sending products from galleries. And we have a lot of math around this the big important launch, we think it's meaningful, and we've done meaningful things a lot. I mean even if we -- if you look back at the product transformation we went and accelerated into -- after we kind of stumbled on the first contemporary round, we doubled down and we were able to move business 15 to 20 points, right? So this could be conservative.

And if you look at our history, like if you think about modern, modern move the business, when we think about when we accelerated product transformation in contemporary. I mean, we looked at the prior 2.5 years, I don't think this is that aggressive.

Operator: Your next question comes from the line of Steven Forbes with Guggenheim Securities.

Steven Forbes: So Gary, maybe just following up on RH Estates as all of us try to gauge your conviction here in the 8% net revenue growth contribution in the fourth quarter. Can you confirm whether that's based on Sourcebook-only demand and/or maybe just comment on how much footage you're dedicating to the collection in the fall? And would love to just hear how weekly demand scaling at the collection level is telling you where that 8% can go over a relatively short period of time versus that 50% sort of 5-year target?

Gary Friedman: We have data right now. With the Estates building just in the mail and just on the website with long lead times and not in stock. So we know what -- if something has a 4-week wait, a 6-week wait and 8-week wait, if something is running backorders of XYZ, there's math around all of that, that we can forecast demand, right? Based on what we're seeing, then there's -- so there's in stocks, there's wait times, then there's -- then the big move is when the product goes into the galleries. And I think we've said publicly these factors like no, maybe not. Our competitors know all that. Okay. I can't remember.

I have been doing this a long time.

Steven Forbes: You know the list factor for putting something on the floor. You said it.

Gary Friedman: Yes, 50% to 100%. It can go as high as 150%. So, we have that. The other thing, when we say other and stuff like that, just think about we're going to make a big transformation. Think of our big galleries that are mostly 2-floor galleries. When we do a flip and we're bringing newness onto the main floor, one, not everything that's on the main floor leaves. What we do is we look at what are the best sellers, everything's ranked, and we take the bottom stuff off the floor. So you take the least productive goods on the floor, and hopefully, again, this is why we don't put it on the floor right away.

We generally like to look at things for three to six months here because we believe it's so incremental, and we have data of classic things we've sold and still sell, things that we didn't realize we couldn't kill it. So we just know the market's still there. We've been selling St. James since 2008. We still have St. James. Can't stop selling St. James. Some of our other just classic things like that. We realized that we transitioned the business too far.

If you look at most specialty brands, most specialty brands are built around an aesthetic point of view, the whatever category, apparel or this or that, and it's got a stylistic point of view, and you usually stay within the stylist's point of view. I think when you decide about the furniture business, most of us here started in apparel. Armani looks like Armani, Ralph Lauren looks like Ralph Lauren. Gap's got their point of view, American Eagle's got theirs, or Abercrombie, whoever you're looking at. Chanel's got their point of view. Hermès has got a point of view. So most of us come from that, and the longer we're in this, the more we learn.

As I said, again, if you go back and look at the video, I think I outlined it very clearly about what we want to do is own the kind of seven major product categories and the three major aesthetics. We think that if we do that really well, we can be relevant to all the customers at that level in the market across all the architectural vernaculars and major stylistic points of view. There might be some stuff, like I'm likely not going to let the brand go after grandma chic. Right? It's a little trend. Kendall Jenner, so in our digest, we did a tour of her new cabin. Kendall Jenner, it was great for our brand, right?

She had the cloud, and this and that, and took people through her home. I don't know. Maybe it's just because it's me, and I don't like flower sofas and stuff like that. You do have to kind of keep your brand a little disciplined. We're going to let everybody else have grandma chic or things like that. I don't know what some of the other weird trends that we're seeing right now. We don't have to own everything. To this day, people think that we're going to go bankrupt because we don't sell enough color. Those are the same people that haven't really looked at that many homes.

If you just go on Zillow or Redfin and go look at 100 homes and find out how many have a red sofa, you'll realize, not a lot of people in the world have red sofas. So if you want to be in the red sofa business, go right ahead. Want to be in the flower grandma chic printed sofa business, go for it. I'm happy for you. You're just not going to see us in those things, so go on. I think when you think about just the Revenue for estates, you're going to see the big ramp happen when the goods get in the galleries, the in-stocks start to peak, and we expand the circulation meaningfully. Right?

We have a lot of customers lined up right now just waiting, "When can I see this in the gallery?" So there's pent-up demand. People waiting, just want to know when they can see it in person. Because, again, the data will tell you at the luxury end of the market, it's like 90-10 or 95-5, people want to see the goods.

Operator: Your next question comes from the line of Maksim Rakhlenko with TD Cowen. Your line is open. Please go ahead.

Maksim Rakhlenko: First question, when we think about the 4Q contribution from estates, that is on a delivered basis, so just curious how we should think about how much higher the demand could be. Then given how your demand builds and some of the color that you have given us in the past couple questions, 4Q is obviously just a jumping-off point for 1H 2027. So curious if you could just provide a little bit more color on how we should think about how big estates can get into next year.

Gary Friedman: I do not know, Max. I was going to ask you how you liked the pizza or any of the pastas last night, because I saw you in the restaurant. How do we think about demand relatives?

Jack Preston: Clearly, Max, demand is in excess of the revenue growth as this business is building and ramping, and you're leading us to the same conclusion. It's obvious, evident that in Q1 that continues, especially with the investment, presentation of the product in the galleries, and noticed that Gary talked about 30% on the book and whatnot. We don't talk about demand growth, at least at the moment, we don't.

Gary Friedman: Yes, we do during that transition period.

Jack Preston: There are times, transitions we do, but today we don't. This is a growing business. It's clearly demand growth rates as we build in-stocks, as we present product, et cetera, everything Gary's talked about, are some level higher than this.

Gary Friedman: When you think about how half one versus half 2 looks, Max, maybe.....

Jack Preston: Well, leading into H1 2027, how does that check having a growth of 8 points growth from estates, how that continues. We're not going to guide to 2027, but clearly, they're a stepping stone for elevated growth.

Gary Friedman: Yes. I would say there's a good 5 years of building here of a new business and a growing business. I think the most similar thing is RH Modern. We weren't known for modern. We didn't have that aesthetic. No one was coming to us. They were going to find within RH or going somewhere else. But we hopped on it because we saw an explosion of modern architecture happening around the world. We saw the verticalization of cities. We saw the influence of technology influencing customers to have a more modern point of view. We're all walking around with iPhones. The big commercial architectural trend for all modern.

If you look back in the 1950s at mid-century modern, it wasn't really that big. You had the Bird Streets in L.A. You had different places, Miami, Florida, places like that. But you probably didn't have too much mid-century modern in Boston, New York, Philadelphia, probably none in Greenwich. Maybe there was a collector or two. Then you saw a lot of places being remodeled, a big boom in L.A. That's why we opened the first RH Modern, I guess the first and the only freestanding RH Modern. Because we were building the big.....

Jack Preston: There was one in Dallas briefly, remember?

Gary Friedman: Yes. We had Dallas for a little while. That's why we wanted to open in Greenwich, right? To really get a sense for, okay, here's a market. We do a lot of volume in Greenwich for 14,000 square foot main gallery with a 4,000 or 5,000 square foot outdoor gallery. Was 47 the right number?

Jack Preston: Yes. 46.

Gary Friedman: 46 something. So close. Yes, and I don't know. Could we do another Could we comp a 50 or 70 in a market like that? I don't think that the customer who's looking and buying contemporary or modern is all of a sudden jumping up and down about RH Estates. And I think the people buying RH Estates, they're looking for something like that. And then right now, something like that doesn't exist. There's a lot of classic, traditional, really, I would say, not good-looking furniture out there. It's not like there's not, there's a lot.

You go look at a lot of the classic furniture stores that have looked the same for 40 years or something, and there's a lot of them out there. So the market share, there's people doing business. Go to High Point, North Carolina. It's a lot of classic furniture. Go to the Furniture Mart in Nebraska, the big Berkshire Hathaway thing. They do, like, $700 million out here. It has to be 85% classic, traditional. It is there. I think in a lot of ways, we will create a new high-end market for the aesthetic, the way we are going to build it out. The whole point of view and the aesthetic point of view will evolve and change.

We will shape part of it. We are going earlier than we normally go on a trend. I should let the wave break and kind of see who is riding it and how we can exploit it, I think, because of the platform we have and because we have. This is good and bad for me. I lived through this trend. I was a consumer. It is the first trend I actually participated in as a consumer. That is really good news. I have the Michael Taylor diamond tables.

I have a lot of the things and stuff, so I have got a point of reference on all this stuff, and that is good and bad, too, by the way, because the trends never come through exactly the same. They always get shaped by designers, and it always comes through fresh, yet familiar. It has to be fresh, and it has to be familiar. I think we can help shape this one, but we are going to evolve it. We are going to be inspired by other people. They are going to be inspired by us.

Other small furniture businesses that are run by highly aesthetic people will do some really great things, and the market will evolve, and we will hopefully get a very good share of this evolving new trend and be a permanent player in classic traditional.

Maksim Rakhlenko: Got it. That is helpful. Just quickly, I appreciate the color in the compounds and the design galleries. Can you just compare and contrast how unit economics could look compared to the legacy gallery formats that you have opened for the past decade? Should revenues and margins be pretty similar, or could the margin profile actually be a little bit stronger given maybe less SG&A associated with the new format compared to what we have seen previously?

Gary Friedman: Yes. We were building our multilevel design galleries with a restaurant on the roof pre-COVID. Anywhere from a lower-cost market, I think we hit a low of, like, $27 million in a couple of them.

Jack Preston: Charlotte and....

Gary Friedman: Yes. So some of the lower cost $27 million to $30 million more expensive market to build might have cost us $35 million. And the cost of those went to $40 million to $60 million. with just all the inflation costs that happened in construction, especially better quality, higher-end construction. Necessity is the mother of invention. We were already pregnant with a lot of real estate we had to build. We were committed, under construction, or too far down the pipeline to change course. We invented a new concept.

We said, "Look, if you say what's really good about one of our multilevel galleries with a restaurant and that whole breed, there's really a lot of good things about it." What are the bad things about it? Multiple floors require grand staircases. They require elevators, generally 2. They require 2 sets of exit stairs. Those are not cheap to build. You've got multiple stairways that, by the way, do $0 per square foot. There's no transactions happening in the elevators or the stairways or the grand stairwells. There's a lot of square footage. When you take that and start compounding floors, then you put furniture on the roofs, and all of a sudden, you've got a whole different coding.

You need different footings and foundations, and steel gets upsized. With all the inflation in steel, that was a big problem for us. Those just became very expensive. Everything you do on a multi-floor building, you've got cranes and pickers. You've got guys trying to put metal awnings on windows on the second floor or the third floor, and you got cranes and everything all around, and you're trying to plaster the whole building, multiple floors. If you think about a compound, we disaggregated one of those, the big galleries, and we said, "Okay, what can we get rid of?" There's some fortunate real estate opportunities because I think Saks went bankrupt first, right?

Saks came out of bankruptcy, and then Nordstrom went bankrupt. Saks bought Nordstrom's, and....

Jack Preston: You mean Neiman?

Gary Friedman: Neiman. Neiman's went back too. Different opportunities were coming up for real estate. We think more will come up, high-end tabs. Also, think about what's happening with transportation and driverless cars, even Uber and driverless cars. There's going to be a lot of parking lots in very good shopping centers that have way too much parking, very soon. It's already happening now because zoning laws are changing. We said, how could we be opportunistic with, which we think is the reduction of real estate, like Saks. They didn't come out of bankruptcy yet, did they?

Jack Preston: Saks did, Yes.

Gary Friedman: Yes, they did. Oh, they did? Okay. Yes, but I think they're not going to keep the same footprint, so there's going to be opportunities with luxury department stores kind of closing. One of them we're taking just a parking lot space in Aventura, and then Naples was a Neiman's that closed. They're relatively big pads.

What we did is we said, "Hey, what if we build this really interesting and design this really interesting?" We said, "Well, what if we build multiple small buildings connected with beautiful garden courtyards and pathways and fountains and fire pits, and we put a restaurant in the middle, and it's beautifully landscaped?" We have a fraction of the square footage under roof, when you really look at all under roof. We have individual buildings that don't have to have connected mechanical systems, so much less complex. Mostly the buildings are 4,000 to 5,000, 5,500 square foot. I think we have one, two, three, four, five, six, kind of seven independent structures in Naples.

They are designed in a way that it is designed for outdoor furniture, outdoor. The rooms are designed in very efficient ways. We actually get more product per square foot, but I think it is going to feel just as elegant and grand. It does not take any cranes, it does not take any stairways, it does not take any exit stairs, it does not take any elevators, it does not take big footings, or this that. In fact, most of our, even in, I think in Naples, right? It is all wood. No steel. Yes, 100% wood. Some of these, we believe we can prefab, build the walls, and just tilt them up, plaster the outsides.

We designed them so they only have a couple of windows because we thought we could manufacture the windows and do a lot of things. They are going to cost us. We were hoping the price was going to be half, and it is half. We get more product density. I think they are going to be more exciting to shop. You really walk in, it is like a resort. I call it like a design resort. Walking through, depending on where you are in the U.S., in Florida, you are going to have palm trees and banana palms, all kinds of tropical foliage and stuff. In California, you will have olive trees and other things.

They are going to be cool. They are going to be very entertaining. I think the restaurants are going to be beautiful. It is like a glass box in the middle of an atrium, indoor-outdoor, indoor seating, outdoor seating. We are super excited about it. Everybody who is kind of seen them, Dave, you just got back from Naples, right? Walked through. It feels good. Even though it is a construction site still, you get the feeling of like, it is nothing, nobody has anything like it.

What else Dave and I were talking about what is good about it for the landlords, they will take more risks on these and I think participate more financially because we are building all these smaller buildings. They are always worried like, "Oh, what if something goes wrong with our AG, I am stuck with this three-story building with a restaurant on top. Who is going to lease that from me?" Right? Not a lot of people. You sell them on, "Hey, look, we built you a little village. You could put eight retailers in here." Beautiful. They are all connected. It is just an extension of your shopping experience.

I think we have a good selling point, and I think we are going to be really good partners for developers. We are excited. The single floor galleries that we are doing that are anywhere from 18 to 20, right? 22,000 or 24,000 square foot with beautiful courtyard restaurants in the middle. We have our new Italian concept that we just opened in Greenwich, Cucina Angelina. It is named in honor of my Italian mother. Some of you are going to ask if my mom was a good Italian cook, and she was not. It does not mean I cannot honor her, right?

She did like to eat, but my Uncle Gino was the cook of the family, so I also talk about him if you see the menu and stuff like that. Some of these compounds we're doing really fine. You're going to see big pizza oven. We think we have the best pizzas in America. If any of us here really wanted to take a flyer, I think you could take our pizzas on the road, and we might have the best pizza concept in America. I wouldn't want to be any of those Papa Johns or anything against our pizzas. They're so good. We have this pizza expert that works for us in Europe, Matteo, he's perfected the crust.

Didn't you have pizza last night, Max?

Maksim Rakhlenko: I did not, no.

Gary Friedman: You ate last night. I saw you. Or you just you're trying to get information on the gallery. No, like, anyway, these compounds are going to be great and I think the returns are going to be as good or better than anything we've ever done. I think single floor galleries will be as good or better than anything we've done. So I think you're going to see capital spending go down, returns go up. I think you'll very quickly see our return on invested capital kind of return to where it was at our peak.

Maksim Rakhlenko: Good luck to the entire team this second half.

Operator: Your next question comes from the line of Chris Nardone with Bank of America. Your line is open. Please go ahead.

Christopher Nardone: Can you guys elaborate on the health of your core inventory? Can you talk about whether you foresee a need to step up promotional activity to help clear way for the Estates rollout as we look into 2027?

Gary Friedman: It is not really clearing way for Estates. Estates, it is going to be incremental to the assortment. So we are not really clearing out Estates. Some of the things that are in the galleries today will come out of the galleries, and we have got a pretty good outlet network and ability to rotate through that. But Estates, it is not going to cause markdowns. The environment in our category is very promotional right now and has been. There is a lot of data out there. People are down to the by week how promotional, how many SKUs does RH have versus Pottery Barn, versus Arhaus versus this.

When you are in the home business like this and you get a down housing market, 4 million homes, four straight years, unless you want to lose market share, you have got to be competitive. So it has been somewhat of a promotional environment. Our margins are holding up fine. And if you just take our model and extract a lot of these drags, our underlying model on RH is a really good model. It is a really good model. If we did not have the drags from international, I do not know, it is right up there with anybody's. So, we are happy to cycle through here. Estates is going to be incremental.

Think of Estates like a new category. It is like when you have got a new aesthetic like that, it is really like a new category. It is like a new business almost. But we get to sell it on our platform, so it becomes very incremental and it is very leverageable. Things like this are the biggest drivers of profitability. We have spent some capital here. We bought some businesses and things like that to build this, but you only have to do that one time and built a freestanding Estates store here.

When we bought Formations, we also bought the Formations real estate, Formations in Lugano, and we are going to transform that property into an RH Estates gallery in the Design District on West Hollywood on Melrose Avenue. On Melrose Avenue, we will have the RH interior gallery, we will have the RH Estates gallery, and then 3 doors down from the RH Estates footprint, which is at almost 195 feet of frontage right on Melrose, and our current gallery is 145 feet. Then we took another smaller location for RH Outdoor, so a freestanding RH Outdoor. Then on Beverly Boulevard, a couple blocks away, we have an RH Modern freestanding. The question is, do we need to keep Modern?

Does Modern consolidate into the kind of core building that has had some Modern and Contemporary in it? We may keep the whole footprint. We may consolidate some of it. But, I think you will see us test that. I think we have talked about in the past about RH Ecosystems, where one of the capital efficient ways to deploy the brand, especially if we got a presence like in Greenwich. We do not want to leave this historic post office, probably the best location in Greenwich. We were able to get the second-best location in Greenwich, the Ralph Lauren building. So we call that an ecosystem. The historic post office will have RH Contemporary and RH Modern.

Estates will be in the former Ralph Lauren building. Then we have got a 5,000 square foot, 4,000 square foot RH Outdoor gallery. Outdoor is a very important business to us, and so a lot of the key markets, we might have a freestanding outdoor presence. But instead of trying to get rid of our real estate that we are in and going out and having to build a big new thing, or we would never find a big enough location on Greenwich Avenue. We would have to go off the beaten track, and I do not know if we want to there. Yes, so we call that an ecosystem. We have got an ecosystem in Palm Desert.

We are doing one in West Hollywood, as I just described. It is just a much more capital efficient way to continue to deploy the brand and dimensionalize the brand.

Operator: Your next question comes from the line of Cristina Fernandez with Telsey Advisory Group.

Cristina Fernandez: wanted to see if you can expand more into the trends you are seeing in Europe. It looks like London's off to a very good start. Are you seeing the end consumer shop more there, or is it more geared towards the trade, like what you are seeing at the other European locations? Maybe an update on how Paris and Milan are ramping up. Thank you.

Gary Friedman: Yes. You are asking at a funny time, right? August is not usually the best month. Everybody is on vacation, so people are just getting back. Yes, especially Milan, like you fire cannon down the streets in most cities in Italy. Same thing with Paris. Everybody in Europe is on vacation in August, and everybody starts getting back in September, and business will ramp. Yes. Our focus is how to build the brand in each of those countries. I think they are all different. It is interesting. Each one is culturally somewhat different, and shopping behavior is different. Obviously, the languages are different. I think that surprised us a bit, just how unique they are. How do we market?

How do we build awareness? How do you build the business with the trade? We have a lot of learnings. We are flying early tomorrow morning to Paris. We will be in Paris tomorrow night and Saturday. Then Saturday evening, we fly to London. We will be in London Saturday evening and Sunday. We will be in Europe a lot this year. Connecting with our teams, listening, learning, finding out what we are doing smart, finding out what we are doing dumb. No different than building businesses in new markets. These are very different, right? London had a running head start for multiple reasons. One, the country speaks English, right? As primary language.

Two, it has the most expats, and we have the most customers over there. So we ship London is the number one place. We do not ship to other countries, but customers can buy from us, and we help them get their goods containerized, right? They take control of the shipping. But London, we have the most shipping to. Then we have had RH England open for three years, right? RH England kind of ramped up by around $38 million in demand. So you see awareness has been built up there over three years. That is why we expected London. We wanted to open London first.

It is just that was the most complex of the deals, and was going to take the longest, and so on and so forth. That is why we did RH England, to kind of get positioned in the marketplace. But look, we are happy. We are learning about the business, and there is lots of opportunity, and the key is you cannot be an absentee kind of leadership team. You cannot leave everybody on an island in these individual geographics.

If we are ever going to be on the East Coast, likely we are going to hop over to Europe, and then we are going to go to Europe at least four times a year just to go to Europe, spend half a week or a solid week, and really spend time with our teams. The saying inside our company, the smartest people in the company are those people closest to the customer, and those of us that have gotten promoted generally get farther and farther away from the customer, and we get dumber and dumber, right? The only way you can lead is if you first listen, and second learn, and then you can effectively lead.

So we are in listening and learning mode, and trying to be better leaders of our business. But we have to do a lot of listening. We have to spend a lot of time, and our people, they have been very helpful. We have learned a lot. We have got to get in stock. We have got to deal with the different raw material issues and different liability issues, upholstery, lighting, things like that. They have been a little bit more complicated for us. We are working through our supply chains to be more responsive and compete better.

But I like the direction we are going, and I think we are going to get better and better and better and those drags are going to go away. London is very exciting. We had our fingers crossed on that one, saying, "Come on. What should this be? What could it be?" To see the first 8-week ramp there, it was really exciting for us. We have got a great team, we have got a great leader, building a great design team there. I have never seen customers like that. I do not know how many days I was there, like 9 days or something like that. So I was in the gallery quite a bit at the opening.

I had never seen a level of customer and a level of wealth like that in our galleries. These are really important, big projects. So, I would say it would not surprise me in 2 years, maybe by year 3, that London is not the number one RH in the world. Unless we open in the Middle East sometime before then, because the more we are learning about the Middle East, a lot of people believe that will be our number one gallery, in Dubai.

Operator: Your next question comes from the line of Marius Morar with Zelman. Your line is open. Please go ahead.

Marius Morar: I am just curious, Gary, you mentioned that most of Estate is protected by IP, and obviously, the furniture industry is notorious for knock-offs. There is a long history going back probably 150 years of mixed success in defending designs in court. So I wanted to ask if you could give us maybe a bit more insights into what you think will make Estate easier to defend. Is it maybe that the finishes are more intricate and just easier to defend than contemporary, or is there something else?

Gary Friedman: Well, there's a lot of levels to it. In cases where we bought the brands have IP, and that's pretty strong, that we think is good. A lot of the businesses we bought were more item-focused. We dimensionalize our assortments and so use our design teams to dimensionalize things and so on and so forth. So those become original RH designs. We've filed for design patents on almost everything. We're pretty big in our industry. I think if you get a letter from us that we're patent pending on a design, I don't know if you want to go to court with us. I don't like to go to court with people.

Like, my people screw up and we've been influenced by something, and we get a letter here, I usually fold the tent. Why do I want to fight in court and spend a lot of money? It doesn't happen to us often, but I tell people, "Let's not waste our time." We don't want to spend time with that. But we think the work we've done with Estate is very defendable. I don't think we've ever invested this much into design patents. We'll see. Maybe no one's ever invested in protecting intellectual property in this industry that well. Look, go try to knock off a Diego table. There's a reason we haven't. They will take your ass to court.

So unless you want to go spend millions of dollars fighting over it, we don't have any Diego-influenced coffee tables. Even though I'd like to, I think they'd sell great. A lot of it is I just don't think the furniture business hasn't really been a sophisticated industry, hasn't been well-capitalized. A lot of mom-and-pop stores. Nobody really had the legal department. We've got our new Chief Counsel sitting next to me here, Ryan, and he's going to help get us all teed up and not to play defense, to play offense. That's why we're moving like that, and I don't think people want to get sued by RH.

Operator: Your next question comes from the line of Brian Nagel with Oppenheimer. Your line is open. Please go ahead.

Casey McKenzie: This is Casey McKenzie on behalf of Brian Nagel. You mentioned tariff refunds will help offset the $50 million of unplanned supply chain costs across the full year. Do you think that amount is still ramping as fuel costs remain increasingly.....

Gary Friedman: What do you think?

Casey McKenzie: If fuel costs persist into the next year, how do you think about possible mitigation efforts as we lap next year's oil price spikes in the absence of refunds?

Gary Friedman: Yes, I think, look, everybody's mitigating where you can mitigate. Look, where's oil today?

Jack Preston: It broke 109. You're at 109. Oil was 63 at the beginning of the war. You're not going to be able to mitigate that. Costs are going up, inflation's going to go up. There's a reason why the administration said that the war was ending, and we're going to have a deal in a day or two 38x. There was an urgency to end this war and end this conflict because it's likely not good for the election. Now it might be too late. Now the administration, from what I saw, offered voters $5,000 to every American who votes for the president and the administration, and that's interesting. Yes. I think we're in a time of conflict.

We're going to be in a time of inflation. I don't think they're going to be able to keep a lid on interest rates.

Gary Friedman: I keep thinking, gosh, it is like my entire career, and I have been doing this a long time, I never saw a housing market that was down longer than 18 months. It looks like we are going to go into year five. I like the game we are playing. I think we are playing offense. We are going to build our own bigger market. I think we will be able to grow pretty well through any kind of market as we look forward. There is going to be costs. I think, what was it, Walmart had a $2 billion tariff refund, and it is all going to increase costs and some lower prices. The Home Depot.....

Jack Preston: $700.

Gary Friedman: $700-something million, all going to increased costs. There is a massive increased cost. Nobody has got a magic wand. Nobody is going to get that much of a better price than somebody else. If you have leverage, you will use your leverage, but you cannot make your partners go bankrupt, or you have no partners. We are going to be in a higher cost world for probably at least the next six to 12 months. Even if tomorrow they end the war, there is too much inflation in the pipeline. All the raw materials are going up everywhere, on everything. Everything is impacted by oil. That is why you are seeing crazy things.

We are trying to manipulate currencies, buying back things. It is a crazy time.

Operator: Your next question comes from the line of Jonathan Matuszewski with Jefferies. Your line is open. Please go ahead.

Jonathan Matuszewski: Gary, it was on the recent revamp of your trade program. I was curious if you could speak to any indications of early success, how the trade community is embracing it, and relatedly, are you doing anything to activate the interior design community with the Estates launch that's perhaps different from how you've sought to build awareness for prior brand launches in the past? Thanks so much.

Gary Friedman: You're a really good question. Our trade teams are over the moon that we launched the new program. I think designers are happy. Firms are re-engaging us. We've seen an acceleration of our business, a meaningful acceleration, that we're already at a level that offsets the discount. So we've hit the volume levels we needed to kind of offset the discount. The pipeline's building, so it's been fantastic. Our teams are working on different engagement methodologies. We're looking at doing more events in our galleries. We have very nice spaces, so we're at even smaller events that designers want to come and do things. We're going to be a lot more open on multiple levels with the trade.

I think the trade's very happy that we're doing bespoke and couture, right? That we're doing COM, we're doing bespoke furniture in custom sizes they can specify. That's a big deal. I even met a gentleman and his family last night that we talked for about 30 minutes, and we've done three homes for him. They were building a big, new contemporary home, and he didn't think that we were going to be able to do it. Then he said, "I thought it was great that you guys launched this bespoke thing because now you're going to get the fourth home." I thought that was very good. He said, "Yes, it's a big home." They're huge fans.

Talking to the family last night, I was like, "I mean, just right there." You don't want to lose customers like that are building their fourth home and might not have been able to do it with us. Again, we're learning, we've got to stay close to our trade teams and our leaders and there's more we can do. But I don't think that anybody offers the trade more support and services than we do, right? We support them with doing floor plans, doing renderings. We work as light a back office, not just supporting them with products, but supporting them with design, supporting them with installation.

When you think about the hard part of competing with us in the design world, is that we've got such a broad assortment, and we've got such good experience and tenure in our interior design business and the services we offer. Just the logistical ease of working with us, getting a home design, getting it all delivered at one time, getting it installed. We have a lot of resources supporting that part of our business that I think as far as someone who also is a furniture retail business at our core, I think we have real strategic separation from the next best person here.

Operator: There are no further questions at this time. I will now turn the call back to Gary Friedman for closing remarks.

Gary Friedman: Great. Thank you everyone. Appreciate your participation and all the questions, and we look forward to talking to you next quarter. Thank you.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.