Sales Guidance and Outlook
Q: Why the spread between Q1 and full-year guidance?
A: Gary Friedman explained that the business expects demand trends to build throughout the year, with initial growth driven by the exceptional performance of the outdoor category. The spread reflects the timing of new product launches, sourcebook mailings, and gallery updates, which are anticipated to contribute to increased sales as the year progresses. They remain confident in meeting or exceeding the full-year guidance, assuming a neutral housing market.

Europe Expansion
Q: How will Europe contribute to sales and margins?
A: The company is in the early stages of its European expansion, having opened galleries in locations like RH England. While initial sales are modest due to lower brand awareness and less populated areas, they are encouraged by the higher mix of trade customers. As they open iconic galleries in major cities like London and Paris, they expect Europe to become a significant growth driver over time. Investments in Europe are impacting margins by approximately 200 basis points, but they view this as a long-term strategic move.

Margin Outlook
Q: What's impacting gross margins and when will they improve?
A: Gross margin pressure is due to increased clearance activity and investments in new product transformations. The company anticipates margins will improve as new products are launched, inventories are optimized, and the housing market stabilizes. They are confident in returning to 20% operating margins over the next few years, viewing current pressures as part of their transformational investments.

Waterworks Outlook
Q: Why is Waterworks expected to quintuple to $1 billion?
A: Gary Friedman expressed strong confidence in Waterworks' growth potential, citing its perfect alignment with RH's brand and platform. Since acquiring Waterworks, they have built relationships and aligned strategies. By leveraging their platform to introduce Waterworks products to consumers and integrating operations, they believe the business can grow to $1 billion in revenue, contributing significantly to future growth.

Pricing and Value Proposition
Q: Are you lowering prices or quality to sharpen value?
A: The company is enhancing its design, quality, and value without compromising on quality. They are not reducing quality to lower prices but are working closely with partners to offer compelling value propositions. Their focus is on delivering great value through superior design and quality, aiming to disrupt the market and gain share without eroding product margins.

Supply Chain Issues
Q: How are supply chain disruptions affecting you?
A: Supply chain issues like the Red Sea closure and the Baltimore port accident have caused delays, particularly impacting their furniture and outdoor categories, which have longer lead times and rely on specific regions like Indonesia. While these events have deferred some revenues, they are managing the delays and do not foresee significant long-term disruptions. Their diverse sourcing strategies and partnership approach help mitigate these challenges.

Store Resets and Sourcebooks
Q: How will store resets and sourcebook mailings impact growth?
A: Store resets and increased sourcebook circulation are strategic initiatives to drive demand and enhance customer experience. By updating galleries with new products and expanding customer contacts, they expect these efforts to contribute meaningfully to sales growth throughout the year. The cadence of resets and mailings is designed to align with product launches and peak selling periods.

Customer Demographics
Q: Are you targeting different customer income levels?
A: The company is not shifting its target demographics but is broadening its appeal by enhancing product offerings without compromising the brand's luxury positioning. They focus on winning in design, quality, and value to attract a wider audience. The aim is to evolve the brand and acquire new customers organically rather than changing their core customer base.