Jack Preston: That’s not necessarily. So we weren’t that specific. We don’t guide gross margin, as you know. We don’t disclose product margins. So we’re trying to tell you just a directional flavor. And I think just to recap a little what Gary said, some products are going to be higher, some products are going to be lower. We’re not making a general statement that I’ll just — you can roll back the tape on what Gary said as far as the investment we’re going to make. That’s right. But as far as like what the future is going to look like, let’s just let that play out, and we’re going to make margin commentary, especially gross margin commentary after each quarter’s results because, again, we don’t guide that particular line.
Seth Basham: Understood. Thank you, guys.
Gary Friedman: Thank you, Seth.
Operator: Your next question comes from the line of Max Rakhlenko from TD Cowen. Please go ahead.
Max Rakhlenko: Great. Thanks a lot. So if we were to bucket your initiatives over the next 12 months into US gallery openings, European openings, and then new product introductions, how would you rank-order their magnitude? And then just for clarification, how much of a refresh inside the gallery should we expect both over the next one to two quarters and then a year from now, both in terms of new products as well as the number of galleries that the new products will hit? Thanks a lot.
Gary Friedman: Sure. I — take the product, and the product is by far the most important thing we’re doing, right? And the new openings and building out the platform, those are — it’s the platform for the product. So what we’re doing with the product is going to make the most meaningful impact over the next several years. So when you think about the investment in gallery floor sets, we just began setting RH Marin next to our headquarters and we will all see it over the next — it gets fine-tuned over the next couple of weeks. It’s kind of a Phase 1 move of it. We have kind of right now, Phase 1 and Phase 2, and then we’ll have a Phase 3. I think you’ll see the majority of the galleries reset by Q1 next year and as we —
Max Rakhlenko: All the galleries.
Gary Friedman: Yeah. Yeah, all the galleries, yeah, reset. And then you’ll have some winners and some losers in kind of the product mix. And as we mail the modern books going in in January, I mean, you’re going to find out there are some things in modern that are probably really good and better than some things we might have just rolled out into the galleries, and you’ll make some adjustments. But I’d say we’ll be — by Q2 of next year, we’ll be really educated. Especially by the late Q2, we’ll have had two cycles of drops. We will have a lot of newness; we’ll have kind of the first phase, the major phase, second phase, still not as major as the first phase, but still more meaningful than normal. And we’ll have had a good period of time to measure and have seen Phase 1 of the product transformation and first drops.
And then we’ll have some data on this second cycle and we’ll be fully ready for the second half of next year, but to kind of keep optimizing it, right, because we’re going to just get a lot of data, a lot of information, be making a lot of adjustments. And we’ll keep doing things that kind of, what I’d say, build the trend. When you go through a big move like this, it’s you’re going to get some of it really right and you’re going to get some of it wrong. As long as you’re throwing more things above the line and below the line, then you’re going to learn and then you’re going to make adjustments. And those adjustments will move the business higher right? So I’d say we’ll hit max inflection in Q2 doesn’t mean we’ll pick max run rate. When I talk about the inflection, I talked about the early inflection, then we’ll build on that.
right? So I would assume that the first half of next year will be very good and the second half of next year will be better than the first half.
Max Rakhlenko: Got it.
Operator: Your next question comes from the line of Brad Thomas from KeyBanc Capital Markets. Please go ahead.
Brad Thomas: Hi, good afternoon. I was hoping to follow up on the topic of operating margins. And I’m just hoping we could maybe frame up some of the puts and takes. Obviously, the full year implies kind of the mid-teens level for the operating margin. Can you help us think about maybe your latest thoughts on structurally what the operating margins look like in this world where you’re opening up stores internationally in this world where you have a new product coming out, there’s more Sourcebooks. What do you think sort of normalized margins start looking like as you get back to revenue growth again. Thanks.
Jack Preston: I don’t think — Brad, we’re ready to talk about that. I think we’re talking about some short-term changes, near-term impacts to the margin and especially moves related to — and making some investments due to competitive reasons, as Gary had talked about. So what the other side of that looks like? We have our discussion with you about each year’s guidance in March, so we’ll do that and give you a better look then. But as far as we sit here at the end of Q2 and the many sort of changes in levers we’re plowing forward with, we just don’t have that visibility or that ability to tell you what the steady state looks like other than as revenue grows and we get leverage in the business, we expect margin to increase from here. Where that baseline level is — I’ll let Gary chime in here.
Gary Friedman: No, I think that’s correct. I mean, I think we’re — for the most part, we’re giving you color today maybe slightly more different or a different angle on the color than what’s written in the letter. But we don’t want to kind of talk about things that we don’t — that we haven’t really released, right? And we’re not really releasing kind of that far out. But yeah, all of us on this call are going to know a lot more next quarter and the next quarter. And we’re either going to be more right or more wrong. We think we’re going to be more right than wrong. And everything that we said we believe in. And it’s — there’s some level of speculation, of course, but there’s a lot of data that we have based on doing what we’re doing, introducing newness, mailing Sourcebooks, resetting floors.
We know all the lift factors and what will happen if we do this, that. And we’re directionally usually right on those things. And so we’ve been rusty. We’ve been somewhat out of the game, and we’re going to come back into the game in a very impactful way. So yeah, we’re looking forward to kind of get into data. But look, the good news is the early data shouldn’t look at that. It looks good. So, so far, so good. That’s as much as we know right now.
Brad Thomas: Gary, maybe if I could ask you another way, when you did some significant share repurchase back, and I think it was in 2017. You later described that time as a period where you’ve kind of taken the racetrack of — car off the racetrack and done a lot of surgery on it. Does it feel like it’s that significant of a time for you as you think about how you’re positioned in the company?
Gary Friedman: Yeah, bigger than that. We’ve redesigned the whole fleet of cars. It’s really the biggest repositioning of the business we’ve ever went through. And, yeah, I think the best work we’ve ever done. So it’s much bigger. I think it’s going to be much more significant than that. And look, we just bought back a lot of stock. We played — we put our money where our mouth is, right? We took a really big position in the stock, and we’ve allocated a couple of billion dollars that’s twice as big, I think, it’s the buyback back then. So we wouldn’t have done that if we weren’t confident and our Board wouldn’t have let us do that unless they — unless they were confident, right? So this is a fully informed kind of position we’re taking from an investment perspective on inventory, on share repurchases, but we’re not a new team.
