RH

Hello and welcome to the RH first quarter fiscal 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star then the number one on your telephone keypad. I would now like to turn the conference over to Allison Malkin of ICR Alison, please go ahead.

Thank you. Good afternoon, everyone. Thank you for joining us for our first 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'd 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 our 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 opinions 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 the reconciliation of these non-gap-to-gap 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.

Thank you, Alison. Hello, everyone. Let me start with a reading of our letter to our people, partners, and shareholders. First quarter revenues of $800.3 million adjusted EBITDA of 7.1 percent exceeded the high end of our expectations in the first quarter despite back order and special order balances approximately 75 million higher than a year ago primarily due to tariff related resourcing as a result of our better than expected first quarter results we are raising our outlook for fiscal year 2026 and providing the following outlook for the second quarter fiscal year 2026 outlook revenue growth of 4.5 to 8%, adjusted EBITDA margin of 14.2 to 16%, adjusted free cash flow of 300 to 400 million. The above outlook includes an approximate negative 270 basis point adjusted EBITDA margin impact from pre-opening and startup costs to support our international expansion. Second quarter 2026 outlook, revenue growth of 0.5% to 2.5%, adjusted EBITDA margin of 11.5% to 13%. The above outlook includes an approximate negative 380 basis point adjusted EBITDA margin impact from pre-opening and startup costs to support our international expansion. The bridge from here to there. How, many may ask, in an economic environment like the one we are navigating through, do you get from your half one numbers to your half two numbers necessary to make the year. There are three parts that form the proverbial bridge to the other side, supporting the case for our business to accelerate from flat in half one to up 12% in half two, as we've done many times before. We've listed them below. We plan a backlog reduction that's worth 4.5 percentage points in the second half New store growth of 2.5 percentage points and new concept growth of five points for each estate. Building the foundation for a global luxury brand. Similar to structures that stand the test of time, those rewarded with historical recognition and reverence, luxury brands are designed and built in the same fashion on incredibly strong foundations. Both endeavors are considered hard and in many cases impossible. They always require more time and capital and are generally built by unrelenting and unrelatable individuals and teams. You've heard us talk over the years about climbing the luxury mountain, how it's not for the faint of heart. As the higher you climb, the air gets thin and the odds become slim. We believe the work we are about to unveil is akin to those difficult last steps and gasping for those vital breaths. We believe the openings of Arch Paris, Milan, and London Arguably the three most immersive and inspiring brand experiences anywhere in the world will form the foundation necessary to earn the respect and recognition of not only the European and UK customer, but a global one. They communicate a sense of permanence, a brand that has been dedicated to crafting their skills over decades. The last foundational piece are each estate. Mr. Gorbachev, tear down this wall. Ronald Reagan. We believe that there are those with taste and no scale and those with scale and no taste. The global design market has spent the last half century comfortable with that division. It is an industry defined by exclusion versus inclusion. For decades, the highest echelon of home design, the masterfully tailored upholstery of Dimitri & Co, the uncompromising bespoke casework of Joseph Jupe, the classical grandeur of Denison Lean, the meticulous reproductions of formations, the artisanal fixtures of waterworks, and the iconic designs of Michael Taylor, who Architectural Digest named one of the greatest interior designers of all time, has been hidden, trapped behind the metaphorical iron curtain. This curtain is the closed-door, trade-only showroom network. Unless you hold a professional license or hire a gatekeeper, You are forbidden from seeing, experiencing, or purchasing the finest expressions of human craftsmanship. The public is left outside, while some of the very best design and quality remains hidden inside. Nearly 40 years ago, standing at the Brandenburg Gate, a former American president looked out at a divided world and issued a defiant historic decree. Mr. Gorbachev, tear down this wall. Today, we look at the luxury home industry and ask the same. With the launch of RH Estates, we are removing the barriers that have segregated taste from scale. We are amplifying the work of the world's most elite designers, artisans, and manufacturers on our global platform. This is not a compromise of quality. It is a liberation of mastery. By uniting these legendary ateliers and elevating their work in architecturally significant spaces, We are providing access to some of the most beautifully designed, highest quality, classic, contemporary, and modern furniture in the world. Pieces that not only furnish a home, those that define it. But tearing down the walls means more than just opening the doors. It means eliminating the creative limitations that have historically forced designers to choose between our scale and the uncompromising specificity of trade-only showrooms. To empower the design community, we are introducing RH bespoke furniture and RH couture upholstery. With RH bespoke, we are offering a level of customization never seen before at scale. Interior designers and architects can now specify dimensions for dressers, dining tables, sideboards, and cabinets to fit the exact proportions of their architectural canvas. Simultaneously, RH Couture upholstery will redefine the boundaries by integrating custom sizing with COM, customer's own material, into the RH ecosystem. We are giving designers the creative freedom to specify custom sizes and fabrics for sofas, sectionals, chairs, ottomans, and beds. You source the fabric from anywhere in the world, we provide the atelier-level construction and craftsmanship. The scale of taste. Our critics will argue that true luxury cannot be scaled. They are wrong. They fail to understand the ability to scale taste creates higher quality and value for both the customer and the designer. It has the ability, as other innovations have, to create a larger market, enhance the way we live, and elevate humanity. By moving past the antiquated model where each piece is built in isolation, we are building these elite designs in highly disciplined batches. Scale gives us unprecedented leverage, allowing for vastly superior sourcing of raw materials, rigorous quality control, and significant manufacturing and transportation efficiencies. Make no mistake, we are not mechanizing art. The intricate hand carvings and finishes are still executed individually by the world's finest artisans. Because of this human touch, every single piece remains a one-of-a-kind masterpiece in its own right. By integrating the fragmented supply chain and presenting these products on an equally unrivaled inspiring architectural platform, consumers now have the access to a level of design and quality previously only available to a select few. A new covenant with the trade. We recognize the ultimate expression of our products requires the vision of incredible talent. To honor the design community, we are redefining how we partner with professionals. We are introducing an exclusive program for interior designers, architects, and trade members. The program ensures that professionals are compensated for the tremendous value and aesthetic clarity they create for consumers. We want to incentivize the world's best talent to build their canvases using our platform, creating a symbiotic ecosystem where design mastery is both accessible and rewarded at every level. The separation between taste and scale is over. The curtain has fallen. It's time to tear down that wall. Carpe diem, Gary. Operator will now open the call to questions.