Gary Friedman: Yeah. I think you’re probably referencing one of our suppliers that filed for bankruptcy, Mitchell Gold and Bob Williams, they are really terrific people. It’s just an unfortunate thing. I think they went through some private equity hands and there’s some — they stepped back in the business and got some wrong leadership, made some bad decisions and it kind of goofed up the company. And there is, I don’t know, probably $30 million, $40 million of demand with them. We can resource it all pretty easily. We don’t see any meaningful interruptions or anything. They’re not one of our big suppliers, so — and I think it just goes to show how hard it is to do every part of the business right. They’re — typically, they were a furniture manufacturing company, really great aesthetic, great marketing, great style.
They got into the retail business too, and that added a lot of complications. It’s hard when you try to do both. You try to be a wholesale business, a retail business, manufacturing business. You’re kind of in three kind of complex businesses right there. So I think there is always going to be some people that kind of don’t make it through different down cycles like this. Could there be more? There could. There could be more on the retail side, there probably will be, but we don’t see any real fundamental risk to our business that is going to be meaningful. Otherwise, we would have talked about it in the disclosure.
Steve McManus: Got it. Appreciate the color. Thanks, Gary. Best of luck.
Gary Friedman: Sure. Thank you.
Operator: Your next question comes from the line of Michael Lasser from UBS. Please go ahead.
Michael Lasser: Good evening. Thanks a lot for taking my question. Gary, is it right to interpret your statement that you expect the business to inflect in the first half of next year to mean that it’s going to flatten out in the first half of next year before resuming a growth trajectory in the second half of next year? And my follow-up question is, would you expect, based on everything that you know today, that your totality of investment spend independent of it’s going to be in the gross margin or in the SG&A, is going to be greater than, equal to, or less than what you’re spending this year? Thank you so much.
Gary Friedman: Sure, sure. So yeah. Let me just try to be real clear and direct that we expect the business to inflect in the second half of this year, right? Meaning — and when I talk about inflection, what does that mean? That means a meaningful move in trend, and this means to the upside, right? So we think our business will inflect and our trend will change to the upside vis-a-vis where we’ve been trending, where — how the rest of the market is performing. We think we’ll have an inflection that will make a meaningful move against all those metrics, right? We’ll inflect up against our trends. We’ll inflect up against the market trends. We’ll inflect up against the competitive trends. We think we will reach kind of a peak of that inflection of this first phase from these books, we think we will hit that in the first half of next year.
So I’d say, think about an inflection happening here over the rest of this year, we’ll inflect up. And then in the first half of next year, there’ll be another kind of inflection above whatever that run rate is, right? And that’s against our trends, against the industry’s trends, against our competitors’ trends. And then as we cycle and get into the second half of next year, I think we will build on that trend, but it may not be as big of an inflection, but it will be a building of momentum. Again, kind of disregarding any kind of meaningful thing that happens in the economy and whatever the — whatever happens in the economy, I would be surprised if it’s more dramatic than our positive inflection, right? So if the market goes down, some step-down, our inflection point will be bigger than that step-down.
Does that make sense? Is that more clear?
Michael Lasser: I think I catch your drift. If you’ve been trending down high teens, low 20% range, the inflection is, look, we’re not going to be trending down at this range. The counterargument would be, well, you’re going to be facing easier comparisons. It’s harder for us to dissect how much is due to just the market getting better.
Gary Friedman: Yeah, yeah. No, you’ve just got to think about — think about all those things I just said. What’s the industry doing? What are the key competitors doing? What are we doing? We’re going to inflect against all of that, right? So it’s not just our trend. Our trend will be one of those elements, but we’re going to inflect against the industry. We’re going to inflect against the key competitors. That’s how to think about it.
Michael Lasser: Understood. Okay. And then on the…
Gary Friedman: Just let me — let me just — which means we’ll be taking market share, right? So I think we’ve been giving market share. We will go from giving market share to taking market share.
Michael Lasser: That’s clear. And then as you think about 2024, will the magnitude of the investment that you’re making be larger than, more than, or equal to this year?
Gary Friedman: We haven’t guided to that yet. So yeah, we’re not prepared to kind of talk about that.
Michael Lasser: Okay. Thank you very much and good luck.
Gary Friedman: Great. Thank you, Michael.
Operator: Your next question comes from the line of Cristina Fernandez from Telsey Advisory Group. Please go ahead.
Cristina Fernandez: Yeah. Hi, good afternoon, everyone. I wanted to go back to the advertising spend and the shift you are making to the twice a year cycle. Like, does this mean you go back to 4% of sales spent on advertising? I know the last couple of years, it was very low or with the product introductions you’re making and the new store openings in Europe, does it make sense for that spend to be at a higher level? Just want to get a sense of directionally where that spending goes.
Gary Friedman: Don’t know yet. We’ll know a lot more when we see the inflection in the business.
Operator: And we have no further questions in the queue at this time. Gary Friedman, I’ll turn the call back over to you for closing remarks.
Gary Friedman: Great. Thank you, operator. Thank you, everyone, for your time and interest. Thank you to team RH for your leadership and efforts. Your hard work is going to pay off, and thank you to all our partners around the world who are part of this team. Your support and efforts mean the world to us. And I can tell you, all three constituencies that are all probably listening into this call, I think, share the sentiment that we shared with you today. I don’t think we’ve ever been more excited about the future. And I believe we’ll demonstrate that to the other constituencies, and that’s the shareholders that are on this call. So thank you, everyone, for your time and attention today. We look forward to the next few quarters. Thank you.
Operator: And this concludes today’s conference call. Thank you for your participation and you may now disconnect.
