RH 2026财年第二季度业绩电话会议：RH Estates推动上调业绩预期

核心要点

• RH公布2026财年第二季度GAAP净营收为9.222亿美元，同比增长2.6%，较第一季度加速4.2个百分点。
• 标准化调整后EBITDA利润率为13.4%。RH产生7230万美元现金（不含关税退款），包括自由现金流以及来自其阿斯彭（Aspen）合资企业的4200万美元收益分配。
• 管理层将2026财年业绩指引更新为：营收增长5.5%–7.0%，调整后EBITDA利润率为15.0%–16.2%，且通过自由现金流、资产出售和权益法投资收益分配产生3.00亿–4.00亿美元现金。
• RH预计，随着分销渠道扩大、库存供应改善以及该系列进入展厅主展区，RH Estates将为第三季度营收增长拉动2个百分点，并为第四季度增长拉动8个百分点。
• 管理层认为，RH Estates可能会使该品牌的潜在市场总额翻倍，并在五年内占RH产品供应的50%。其目前平均售价比RH现有的产品组合高出45%。
• 国际扩张仍对盈利构成重大拖累，但管理层预计，随着RH消化旗舰店开业成本，该影响将从2026财年的340个基点降至2027财年的150个基点。

核心财务数据

RH计划从预期的6920万美元关税收益中使用5000万美元来抵消计划外供应链成本。其余1900万美元预计将增厚利润，并已包含在2026财年调整后EBITDA利润率指引中。

业务与经营业绩

RH Estates推动增长计划

RH Estates是公司下半年业绩加速的核心驱动力。管理层表示，北美超过60%的豪宅采用传统或古典建筑风格，而在欧洲这一比例更高。RH认为其先前的产品组合过于侧重当代和现代风格。

公司最初通过6月下旬至7月中旬分发的268页特刊图册（Sourcebook）推出了RH Estates。计划在11月进行更广泛的邮寄投递，同时增加约30%的产品。预计该系列将在11月进入贡献75%–85%营收的展厅，并在12月前覆盖所有展厅。

管理层表示，该系列正在吸引此前未在RH购买过产品的客户。公司预计，展厅陈列、更好的现货库存以及更短的交付周期将显著提高需求转化率。

RH还预计该系列将有助于提升利润率。管理层提到了其较高的定价、产品独特性和经营杠杆。据公司称，该组合中的大部分产品受商业外观保护或正在申请设计专利。

国际扩张跨越投资高峰期

RH伦敦店于6月27日开业。在前八周，其室内设计潜在项目储备已接近700万美元，其中包括接近100万美元的单体项目。管理层提醒道，复杂的设计项目可能需要数月时间才能转化为需求和营收。

RH英格兰店在运营三年后，需求规模已达到约3800万美元。管理层表示，伦敦受益于现有的品牌知名度、英语环境的便利性以及更庞大的RH客户和外籍人士群体。

巴黎和米兰仍处于早期开发阶段。RH指出了欧洲各个市场在语言、购物行为、行业关系和供应链要求方面的差异。公司计划在2027财年不再在欧洲开设新店。

低成本展厅模式旨在打造更高回报

RH表示，其主要的房地产投资周期现已过了高峰期。调整后资本支出预计将从2026财年的2.40亿–2.60亿美元下降至2027财年的1.75亿–2.00亿美元。同期新展厅开业成本预计将从4800万美元降至1800万美元。

公司正在转向RH Compounds（复合展厅）和单层RH设计展厅模式。这些形式消除了与电梯、大型楼梯、屋顶结构和复杂多层建筑相关的大部分成本。管理层预计，那不勒斯（Naples）和阿文图拉（Aventura）复合展厅以及带有集成餐厅的单层展厅的投资回收期为12–18个月。

管理层业绩指引

管理层还预计，2026财年通过自由现金流、资产出售和权益法投资收益分配将产生3.00亿–4.00亿美元的现金。

RH未提供2027财年的营收指引。然而，管理层将第四季度描述为实现更高增长的基石，因为RH Estates的库存、展厅陈列和产品丰富度正在持续扩大。

风险与关注事项

• 管理层预计，油价波动和中东冲突将推高供应链和原材料成本。管理层表示，这种高成本环境将至少持续未来的6至12个月。
• RH表示，在管理层所称的四十年来最疲软的房地产市场环境下，家居装饰类别仍保持着高度的促销力度。
• RH Estates目前面临交付周期较长和现货库存不全的问题。第四季度的业绩加速部分取决于库存供应情况、特刊图册发行量的扩大以及展厅的布展进度。
• 由于各国在语言、消费者行为、产品合规和供应链要求方面存在差异，欧洲业务的执行仍然复杂。
• 大型室内设计项目（尤其是在伦敦）可能需要数月时间才能从储备项目转化为已确认营收。

分析师问答亮点

为什么RH Estates能够支撑45%的溢价？管理层表示，该系列提供的设计、饰面和工艺在同等价格区间内难以获得。RH通过“设计-质量-价值”框架来看待定价，并认为与仅向行业内部销售的奢华家具相比，该组合仍具有极高性价比。

预计第四季度8个百分点的营收贡献有何支撑？RH列举了目前来自特刊图册和网站的需求、预计库存供应的改善、11月更广泛的投递发行，以及该系列迁至展厅显眼位置。管理层表示，将产品陈列在展厅中可将需求提升50%–100%，具体视产品而定。

RH Estates的规模能达到多大？管理层将这一机遇与RH Modern进行了对比，后者从零增长至约10亿美元。RH预计Estates将在至少五年内逐步发展，并最终占其产品供应的一半，不过公司未提供2027财年的营收预测。

推出该系列是否需要更大的打折力度？管理层表示，RH Estates是对现有产品组合的增量补充，预计不会引发打折促销。从展厅撤下的效率较低的产品可以通过RH的奥特莱斯（Outlet）网络进行清理。

修订后的行业合作计划（Trade Program）表现如何？RH表示，业务增长已足以抵消该计划带来的额外折扣，同时项目储备仍在持续增加。公司强调，定制家具、自定义尺寸、客户自备材料、设计支持和安装服务是该计划的关键亮点。

业绩电话会议完整文字记录

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完整财报电话会议逐字稿

管理层陈述

Operator

Hello everyone, thank you for joining us and welcome to the RH Second Quarter Fiscal 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. [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 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 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. I know I saw some of you there last night, and those who haven't seen it, I would encourage everyone to get there. It's 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 received the tariff benefit, $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 with a 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 pre-opening and startup 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 outlook includes an approximate negative 310-basis-point adjusted EBITDA margin impact from pre-opening and startup costs to support our international expansion.

Fourth quarter 2026 outlook. Revenue growth of 16.1% to 21.2%, inclusive of backlog reductions 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 startup 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 2000, 2010, such as 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 more 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 Wisley, designers who together launched Formations, one of the most admired and respected design firms to the trade of luxury furniture showrooms in the United States, recognized and respected globally. The three later acquired Dennis & Leen, giving them authority in 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 in 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 of San Francisco, Ludovic Messager, who set the tone and trends at the world-famous Paris Flea Market, and [ Rebecca Hill ] of London, and Eugene, 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 and lounge and the perch restaurant at RH London, plus the many designers, artisans, and manufacturers who are all part with 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 and circulation in November, where we will have Estates on the main floor of our galleries that represent 80% of our business. In-stocks will be at an adequate level to meet and fill demand. Hence the fourth quarter acceleration in our outlook. You can expect this 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. 1, we believe the quality, design, and exclusivity of the offering will command higher margins. And 2, the average price point is currently 45% higher than our existing assortment, creating cost leverage and margin accretion throughout our operating model. It's also important to note that 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 matter, but it's worth it. Over the entrance of 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 all 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 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 H1 of this year to 250 basis points in H2, 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 Seven Burlington Gardens in the heart of [ NACA ]. I'm happy to report the design pipeline reached almost $7 million in the first 8 weeks, rivaling the design pipelines of RH Newport and RH New York. It will take several months to turn these high-caliber complex design jobs, some in the $1 million 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.

A 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 new gallery opening costs to 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 1 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 2026 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 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 timelines. 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 gallery's 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. It's 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 will now open the call to questions.

Operator

We will now begin the question and answer session. [Operator Instructions] Please stand by while we compile the Q&A roster. Your first question comes from the line of Steven Zaccone with Citigroup. Please go ahead.

分析师问答

Steven Zaccone

Fun party last night in Greenwich. 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? 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 Estates different in terms of pricing?

Gary Friedman

Sure, thank you, Stephen. 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, 1, the product's completely different. So start there. If you think about the kind of pricing miscues we made with contemporary, that was more of a simple modern aesthetic and contemporary aesthetic. That was, you know, 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 reverse Google search on any of our product, you're not going to find it. You might find a, you know, a foreign website that tried to pick up some of our pictures and, you know, pop them on a no-name kind of location. So it has to do a lot with the exclusivity and the quality and the desirability of the product.

These products were being sold for 2 to 3 times 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, the carvings and the hardware details, the finished details you see. Pages of finishes up close, the size of, you know, real life finishes. I mean, 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 wasn't a design showroom, only available to the trade and with long lead times and special order finishes and where you might have to wait 4 to 6 months or longer.

You know, 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 business partner for 11 years, and saw the inefficiencies in the industry. That really framed the opportunity, I think, for RH. We see it today, that experience. So, when you're the only one with the level of design and quality in a marketplace, you can command a premium. Like, are the prices 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. If nobody likes the design, nobody cares about the price. So first you have to, with a consumer, you have to love the design.

They love the design, though, 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? So they'll walk up to it in a gallery, in a store, they'll zoom in on a website, you know, look closer at a page, if it's a sourcebook or catalog. And they'll make a perception. 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, or 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? And neither does the customer. So I think you've got to start with where can, you know, 1, you know.

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. You know, and I think that's the hierarchy everybody should look at any product with. So for this design, this quality, we believe this is a tremendous value. I should probably read it, 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 have 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 a $1 million plus design job with probably about $50,000 to $80,000 of RH and brought their client into RH London and now we're doing 95% to about $1.1 million design jobs. So I think this is, I think you asked me about incrementality or what was it? Really, new customers, yes. Our people in the galleries will tell you it's almost entirely a new customer.

And I think that makes sense. You know, it's, like I said, you know, I think we turned the company over the last 8 years or so too modern, too contemporary, too one-dimensional. You know, 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 3 major design vernacular, call it kind of traditional classic, which we call Estates, contemporary, which we call Interiors, and modern, which we call RH. We kind of think about ourselves now as kind of a juggler, if you will. There's 3 balls, and then there's always 1 ball in the air. And the ball that's in the air is generally the ball that's the major trend.

You know, for anywhere in our industry, a short trend might be 7 to 10 years, that the major trends are more 15 to anywhere 15 to as long as 25 or 30 years. And people have asked me before, they'll ask me, where did the trends come from? And I think I've said it on conference calls, that the trends come from the dead. Generations passed away, they're going to go into estate sales. The estate sales feed the high-end antique markets. The high-end antique markets feed and inform the high-end interior design market. The high-end interior design market informs the high-end reproduction market and then it kind of trickles down. And so the next trends I outline, I talk about them 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 1, we're not addressing the traditional classic market today very well at all, I think hardly at all. I think we're dominant in contemporary modern. So, you know, if you've got 60% of the 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. They we're getting 10, we have a few older collections. So, you know, the math would tell you that this could and should be half our business or more than half 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 now, God, I don't know, 7 years. Yeah, it was been conceptualizing this opportunity and we're getting smarter and smarter and seeing a bigger and bigger market.

And we think this is, you know, and we think for metal or more incremental than when we did RH Modern. You know, when we did RH Modern, no one was waking up in the morning saying, hey honey, we need some modern furniture. We just got a modern condo or new house and it was modern. Nobody was thinking about going to RH for modern furniture in 2012, '13, or '14 until we launched RH Modern in 2015 and our RH Modern is highly incremental. 1 of the most incremental things we've done and very quickly, you know, 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 open party and I mean, I don't know how, like, we'd take some back roads, we're coming from the airport, and you go through the neighborhoods and you realize, like, you could drive around here for hours and you might not see modern homes, you know, and some of the homes might have remodeled with some contemporized interiors.

And that, you know, might play, but when you really look at the bones of the houses, the exterior of the houses, my sense is the whole of Greenwich, Connecticut, Westport, New Canaan, you know, that whole area, I kind of believe it's like 90-10, 85-15, somewhere like that. And by the way, we have, I mean I, we don't talk about our store, but I'll let you know. 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 if we're doing $47 million in Greenwich, Connecticut, 14,000 feet of interior selling space, what could Estates do? You know, we have, I think, 12,000 feet of interior selling in the new, um, you know, the former Ralph Lauren building, which is a perfect building for Estates, by the way. Thank you, Ralph.

Um, you know, so we didn't have to build that one. So it's highly capitalized, efficient for those of you going to ask me that question. So this is a big deal. It's 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 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 dining diamond table in the kitchen, I let the team reproduce the 17th century antique monastery table I have in the dining room. That it's almost identical. I mean somebody could switch, my daughter saw it and our Center of Innovation, you know, 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, it's not our dining table. But Dad, this is our dining table. I mean they didn't know, like, but it's a very expensive antique.

I mean I guess I could say it. I bought it 27 years ago for $58,000. You know, statement 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 to show off. I put it into context. It's an 11-foot table that has 2 extensions, 14, 15 feet, you know, can seat up to 16 people because it's, uh, I think almost 50 inches wide. You can sit 2 people at the end. So it's really great if you're, you know, you can entertain and give 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 Estates. We said our initial goal when we're launching, we want to dominate the primary bedroom, the primary living room, the primary dining room. That's where we'll start. And then we'll continue expanding, 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 down 1stDibs, you know, when you looked at dining tables, they go up to about $250,000 to $300,000. That table would probably get somewhere between $100,000 to $200,000 if it was on 1stDibs today. So we got that, we would finally land, we were going back and forth. So that was $14,995 and that's for the 12 to 1, for the, you're Level 4, which is fine. It's like, you know, and it's an incredible value. I mean, I think a lot of people, again, it's, 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 we went from selling knickknacks and tchotchkes and had an average order value of $125, an average order value of $10,000. You know, from around $10,000. And so, and that's with our order split, you know, if you really look to get, we split a lot of design orders, we deliver them, so our true average order is much higher than that. But we kept elevating the brand, we kept shedding lower value customers, acquiring higher value customers, and we'll continue to do so until we kind of say we've 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. But we think we're going to be like alone in the market for a while here. I mean, I challenge anybody, take the RH Estates book, go scan the internet, tell me who's going to compete with us.

And then, then look at the second drop, which is really kind of like the first drop, you know, because it's going to, oh, it's basically the same book with about 30% more items in it and product in it. But we're just going to an increased number of customers. So we're not mailing the same people. We're just broadening, you know, 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'll take over the first floor in all of our big galleries. It'll be the main thing. It'll be well represented, it'll be in stock. So November's, you know, transition time, like, you know, early mid-November, we'll galleries transition that are somewhere between 75% and 85% of the business. And then it'll continue to go to the rest of the galleries, and I think all galleries by December, right? Yes, so 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 them. The finishes are so intricate and the detail and the quality is, I think, important to see. And data today would say that, you know, like 90, 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's more discerning, they're spending more money, it's more of an investment, and, you know, has everything to do with comfort, you know, sit, a finish, color scale, and all the things. But you don't want to get wrong. It's 1 thing if you're an internet shopper today, you order 5 things and you return 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, probably change that because we do think some people take advantage of like ordering stuff and then just go, we'll just, you know, this is what we keep, this what we send back. But it's very expensive to make mistakes in the furniture, when you're buying furniture.

Steven Zaccone

Okay, thanks for all that detail, appreciate it. 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 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 in 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? Thanks very much.

Gary Friedman

1 of the biggest things is just the cost to open in Europe. The number of people that we have to have fly from America, put up in America for much, you're training, the 3 global flagships were the first hospitality experiences. Yes, in RH England we did, but you know, there's not a very high volume hospitality experience that's out in the countryside. These were real complex hospitality experiences. So you have, you know, 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 that you're needed from America.

We had 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. You know, we're not the most popular people or continent right now. So we want to open correctly, we want to be able to do things, be respectful, you know, a lot of things that are important.

Jack Preston

But assumptions wise, Steve, again, it's obviously the drag of the opening plastic here as you mentioned. Yeah, build up the revenue that's helping to reduce the drag, obviously the absence of these large costs. We have no more European openings in 2027. So those are the building blocks and they're just kind of self-evident, just pointing.

Steven Zaccone

Okay, thanks for all that detail. Best of luck. Thank you.

Operator

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

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 stats 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

Yes, 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 is 6.5 points. RH Estates at 8 points and new galleries, you know, another at 4 points.

Jack Preston

And that was Q4. I'll just do Q3 there as well. So you've got that in, 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

Yeah, I mean, that's what we do, right? That's how we built this company, is expanding product, mailing books and setting products and galleries and you know, we have a lot of math around this and you know, the big important launch we think is meaningful. And we've done meaningful things a lot. I mean, even if we, if you look back at, you know, 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. So, yeah, this could be conservative. I mean, if you look at our history, like if you think about Modern, how Modern moved the business, when you think about, again, when we accelerated product transformation in contemporary, I mean, we moved the business, you know, looked at the prior 2 and a half years. Yes. I don't think this is that aggressive.

Simeon Gutman

Okay, thanks guys, good luck.

Operator

Your next question comes from the line of Stephen Forbes with Guggenheim Securities. Please go ahead.

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 Q4. Can you confirm whether that's based on sourcebook only demand, you know, and or maybe just comment on how much footage you're dedicating to the collection in the fall? And we'd love to just hear how weekly demand scaling, you know, at the collection level is telling you where that 8% can go over a relatively short period of time versus that 50% you sort of 5-year target.

Gary Friedman

We have data right now with the Estates building just in the mail and just, you know, on the website with, um, you know, long lead times and, you know, not in stock. So, you know, we know what, you know, when it, if something has a 4-week wait, a 6-week wait, an 8-week wait, if something's running backwards of X, Y, Z, there's math around all of that that we can use forecast demand, right? Based on what we're seeing. Then there's, you know, so there's in-stocks, there's wait times, then the big move is when the product goes into the galleries. You know, and I think we've said publicly, list factors, like, you know, maybe not, you know, our competitors know all that. Okay. I can't remember, I've been doing this a long time. Yes, something like that. You know the list factor for putting something on the wall? Yes. Who said it? We've said it. Yeah, 50% to 100%, you know, and it can go as high as 100, but not yet.

So, we have that. And then the other thing, like when we say other and stuff like that, just think about, we're going to make a big transformation. Like think of our big galleries that are mostly 2-floor galleries. Yes, so when we do a flip and we're bringing newness onto the main floor, 1, not everything that's on the main floor leaves. What we do is we look at what's, what are the best sellers, everything's ranked, and we take the bottom stuff off the floor, right? 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 3 to 6 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, right? So we just know the market's still there. I mean, we've been selling St. James since 2008. We still have St. James, can't stop selling St. James. You know, or some of our other, you know, just classic things like that.

And we realized that we, you know, we transitioned the business too far. And, you know, if you look at most specialty brands, most specialty brands are built around an aesthetic point of view, you know, whatever category, apparel or this or that, you know, it's got a stylistic point of view and you usually stay within the stylistic point of view and I think we saw it about the furniture business. Most of us here started in apparel. And so Armani looks like Armani, Ralph Lauren looks like Ralph Lauren. Yes, it'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. Armani's got a point of view. So most of us come from that and the longer we're in this, the more we learn. And 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 this kind of 7 major product categories and 3 major aesthetics and we think that we do that really well, um, we can have, we can be relevant to all the customers at that level in the market across, you know, all the architectural vernaculars and major, you know, major stylistic points of view.

And there might be some stuff like, you know, I'm likely not going to let the brand go after grandma chic, right? It's a little trend. I mean, you know, Kendall Jenner. So in Architectural Digest, we did a tour of her new cabin. And you know, Kendall Jenner, like, great for a brand, right? She had the clout and, you know, this and that and took people to her home then. And I don't know, maybe it's just because it's me, and I don't like flower sofas and stuff like that. So you do have to kind of keep your brand a little disciplined. So we're going to let everybody else have grandma chic or things like that, and I don't know what some of the other weird trends that we're seeing right now. We're not, we don't have to own everything, you know, and to this day people think that, you know, 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.

You know, go in Zillow or Redfin, you know, go look at 100 homes and stuff, find out how many have a red sofa. But you'll realize, like, 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. Why don't you be in the flower grandma chic, you know, printed sofa business, go for it. Like I'm happy for you. You're not going to see us in those things, so. But I think when you think about just the contribution of revenue for Estates and it's, you're going to see the big ramps happen when the goods get in the galleries, the in-stocks, you know, got to start to peak. And we expand the circulation meaningfully, right? So we have a lot of customers lined up right now just waiting, when can I see this in the gallery? 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 90-20. People want to see the goods. Thank you.

Operator

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

Maksim Rakhlenko

So first question, when we think about the Q4 contribution from Estates, that's on a delivered basis. So just curious how we should think about how much higher the demand could be. And then given how your demand builds and sort of some of the color that you've given us in the past couple questions, Q4 is obviously just a jumping off point for when H1 '27. 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 don't know, Max, I was going to ask you how you like the pizza or any of the past because they saw you in the restaurant. How do you think that the menu wrote? He clearly maxed out.

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 evident that in Q1 that that continues, especially with the investment, but you know, presentation product in the galleries. And newness that Gary talked about, 30% of the book and whatnot. So we don't talk about demand growth, at least at the moment we don't. There's times and conditions we do, but today we don't. And so this is a growing business, so clearly demand growth rates, yes, we just did during that transition.

Gary Friedman

As we build in-stocks, as we present the product, et cetera, that Gary's talked about, are some level higher than this. When you think about how H1 versus H2 looks, Max, maybe, well, we're just leaning into H1 2027, how does that, you know, that trip? I mean, across the 8 points growth Estates how that pertains. We're not guiding here in 2027, but clearly there's a stepping stone for elevated growth. Yes. I would say there's... I mean a good 5 years of building here, like a, you know, it's going to be like a new business, a growing business. I think the most similar thing is RH Modern. Right, I mean, we weren't known for modern, we didn't have that aesthetic, um, no one was coming to us, you know, they're going to find within reach or going somewhere else. I mean, uh, 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, where all walk around with iPhones. The big commercial architectural trends were all modern.

And if you look back in the 1950s at mid-century modern, it wasn't really that big. I mean, you had the Bird Streets in LA, you had different places, you know, Miami, Florida, places like that, but you probably didn't have too much mid-century modern, you know, Boston, New York, Philadelphia, places like that. Like probably none in Greenwich, maybe there's a collector too, you know, but, and then you saw a lot of places being remodeled. All of a big boom in LA, that's why we opened the first RH Modern. It's the first and the only standing RH. They were building the big, it was 1 in Dallas, briefly. I want to tell you briefly, remember, yeah, we're Dallas for a little while. Yes, 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 for 14,000 square foot main gallery with a 4,000 or 5,000 square foot outdoor gallery. It was 47, the right number, I suppose. Yes, yes, yes. 46 something. So, okay. Yeah, and I don't know. Could we do another, I mean, could we comp up 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 at Estates. I think people buying Estates are looking for something like that. And then right now that something like that doesn't exist. I mean there's a lot of classic traditional, like really, you know, I mean like, let's see, not good looking furniture out there. It's not like there's not, there's a lot of, I mean, you go look at a lot of the classic furniture stores that have looked the same for 40 years or something. There's a lot of them out there. So the market share, I mean, the people doing business, I mean, go to High Point, North Carolina, it's a lot of furniture. Go to the furniture market in Nebraska and get a big Berkshire Hathaway thing. I do like $700 million now here. Like, gotta be 85% classic, traditional. So it's there, you know, I think and I think in a lot of ways we'll create a new high-end market for the aesthetic, the way we're going to build it out.

And the whole point of view and the aesthetic point of view will evolve and change. We will shape part of it. We're going earlier than we normally go on a trend. So I usually like to let the wave break and kind of see who's riding it and how we could exploit it. I think because of the platform we have, because we've, yes, this is I mean good and bad for me, right? I lived through this trend. I was a consumer, so first trend I actually participated in consumer, that's really good news. I've got it. I mean yes I have the Michael Taylor diamond tables. I have a lot of the things and stuff. Yes. I've got a point of reference so and on all this stuff and you know, that's good and bad too, by the way, because the trend never come through exactly the same. Always, you know, get shaped, you know, by designers and yes. It always comes through fresh yet familiar. But it has to be fresh and it has to be familiar. And so, but I think, you know, I think we can help shape this one. We're going to evolve it. We're going to be inspired by other people. They're going to be inspired by us. Other small furniture businesses that are run by highly aesthetic people will do some really great things. And then the market will evolve and we'll hopefully get a very good share of this evolving new trend, and be a permanent player in classic traditional.

Maksim Rakhlenko

Got it. That's helpful. And then 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've 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've seen previously?

Gary Friedman

Yes, like we think, so it happened. We were building our multi-level design galleries with a restaurant and roof pre-COVID, anywhere from a lower cost market, I think we hit a low of like $27 million in a couple of them. Yes, yes, yes. So some of the lower costs, 27 to 30. More expensive market builds might have cost us 35. And the cost of those went to 40 to 60. I mean, with all the inflation costs that happened in construction, especially better quality and construction, so that, you know, necessity is the mother of invention, right? We, you know, 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. But, uh, you know, we've invented a new concept. We said, look, if you say what's really good about 1 of our multi-level galleries with the restaurant and, you know, that whole breed, there's really a lot of good things about it. What are the bad things about it?

You know, multiple floors require grand staircases, they require elevators, generally 2. They require 2 sets of exit stairs, are not cheap to build. So you've got multiple stairways that, by the way, do $0 per square foot. No transactions happening in the elevators, the stairways, the grand stairwells. There's a lot of square footage. And then when you take that and start compounding floors, then you put a penthouse on the roof, then all of a sudden you've got a whole different code. You need different footings and foundations and steel gets upsized and with all the inflation in steel, that was a big problem for us. And those just became very expensive. And then everything you do on a multi-floor building, right, you've got cranes and pickers, you've got guys trying to put metal awnings on windows on the second floor, the third floor, and you've got cranes and everything all around, and you're trying to plug the whole building multiple floors.

So if you think about a compound, we disaggregated 1 of those big galleries and we said okay what can we get rid of and you know, you know, there's some fortunate real estate opportunities because of, I think Saks went bankrupt first, right? And then Saks came out of bankruptcy. And then Nordstrom went bankrupt, then Saks bought Nordstrom's. You mean Neiman's? Neiman's, yes, Neiman's went bankrupt too. So different opportunities were coming up for real estate. We think more will come up, high-end pads. Also, you 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, right? And it's already happening now, the zoning laws are changing. So, we said how could we be opportunistic with, which we think is the reduction of real estate, like, you know, Saks and things like that.

Unknown Executive

Come out of there. The staff did. Yes, they did. Oh, they did. Okay. Yes, but again, 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.

Gary Friedman

1 of them we're taking just a parking lot space in Alpharetta and the Naples was a Nordstrom's enclosed. And, you know, and so they're relatively big pads. And what we did is we said, hey, what, you know, if we build this really interesting and design this really interesting. And we said, well, what if we, yeah, 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. And so 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 to 5,000, 5,500 square feet. Have 1, 2, 3, 4, 5, 6, kind of 7 connected, uh, 7, you know, independent structures in Naples.

And they're designed in a way that it's designed for outdoor furniture, outdoor, and the rooms for design, you know, very efficient ways we actually get more product per foot, but I think it's going to feel just as elegant and brand. You know, it doesn't take any cranes, doesn't take any stairways, doesn't take any exit stairs, doesn't take any elevators, doesn't take the footings, or does that, in fact, most of them, even in, I think in Naples, right, it's all wood, no steel, yes, 100% wood. Some of these we believe we can prefab, build the walls, and just tilt them up, you know, plaster the outsides. We designed them so they only have a couple of kind of windows because we thought we could, you know, manufacture the windows and do a lot of things. So, you know, they're going to cost us, um, we were hoping the price was going to be half and it's half. And we get more product density. And I think they're going to be more exciting to shop.

I mean, you're really walking, it's like a resort. I call it like a design resort. Walking through, depending on where you are in the U.S., in Florida you're going to have palm trees, banana palms, all kinds of tropical foliage and stuff, where you have all the trees and other things, and they're going to be cool. They're going to be very interesting. And the restaurants are going to be beautiful. It's like a glass box in the middle of an atrium, indoor, outdoor, indoor seating, outdoor seating. So we're super excited about it. Everybody who's kind of seen them, Dave, you just got back from Naples, right? Like walked through, it's like, feels good. Like even though it's a construction site still, you get the feeling like it's nothing, nobody has anything like it. And what else is, you know, Dave and I were talking about, it was a bit about it for the landlords. They'll take more risk on these and I think participate more financially because we're building all these smaller buildings. So they're always worried like, oh, what if something goes wrong with RH, I'm stuck with this 3-story building with a restaurant on top, like, who's going to lease that from you, right? Not a lot of people. But, you know, you sell them on, hey look, I built you a little village. You know, you could put 8 retailers in there.

Unknown Executive

It's beautiful, we all connected. It's just an extension of your shopping experience. So I think we have a good selling point. I think we're going to be really good partners for developers.

Gary Friedman

So we're excited and the single floor galleries that we're doing that are anywhere from 18 to 20, right, 23,000, 24,000 square feet with beautiful courtyard restaurants in the middle. We have our new Italian concept that we just opened in Greenwich. Cucina Angelina, so it's named in honor of my Italian mother. Now some of you are going to ask if my mom was a good Italian cook, and she wasn't. But, and that doesn't mean I can't honor it, right? She did like to eat, but my uncle Gino was the cook of the family. So I also talk about him, the menu and stuff like that. But, um, but some of these concepts we're doing, it's really fine, you're going to see big pizza oven and you know, we think we have the best pizzas in there. Okay, like if...

Unknown Executive

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 competing against our pizzas. They're so good. We have this pizza expert that works for us in Europe.

Gary Friedman

Who's perfected the crust. You had pizza last night. Max next, no? I did not, no. You eat last night, I saw you, or you just. He's trying to get information on the gallery. But 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. And I think single floor galleries will be as good or better than anything we've done. And so I think you're going to see capital spending go down, returns go up, and I think you'll very quickly see our return on investment capital return to where it was at our peak.

Maksim Rakhlenko

That's great. I appreciate all the color. Good luck to the entire team in the second half.

Operator

Your next question comes from the line of Christopher Nardone with Bank of America. Please go ahead.

Christopher Nardone

Can you guys elaborate on the health of your core inventory and 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's not really clearing way for Estates, right? Estates is going to be incremental to the assortment. Not really clearing out Estates, I mean, we're going to get some of the things that are in the galleries today will come out of the galleries and you know, we've got a pretty good outlet network and ability to, you know, rotate through that. But Estates isn't going to cause, it's not going to cause markdowns. I mean, the environment in our category is very promotional right now and has been, right? So there's, I mean, there's a lot of data out there. You know, people are, I mean, down to the, you know, by week how many, you know, how promotional, how many, you know, SKUs does our average have versus a Pottery Barn versus our house versus this. I mean, everybody, when you're in the home business like this and you get a down housing market, 4 million homes in 4 straight years, unless you want to lose market share, you've got to be competitive.

So it's been somewhat of a promotional challenge environment, you know, margins are holding up fine, you know, and I mean, if you just take our model and extract a lot of these drags, our underlying model on RH is a really good model. It's a really good model. We weren't, we didn't have the drags from international and you know, I don't know, like right up there with anybody, right? So we're happy to cycle through here. Our stage is going to be incremental. Think of a stage like a new category. It's like when you've got a new aesthetic like that, it's really like a new category. But we get to sell it on our platform, so it becomes very incremental and it's very leverageable. I mean, this is it. Things like this are the biggest drivers of profitability, right?

Yeah, we've spent some capital here, yes, we bought some businesses, you know, things like that to, to build this, but you only have to do that 1 time and built a freestanding Estates store here. We bought Formations. We also bought the Formations real estate, Formations and Dennis & Leen. And we're going to transform that property to an RH Estates Gallery with a design district on West Hollywood on Melrose Avenue. So on Melrose Avenue, we will have the RH Interior Gallery, we'll have the RH Estates Gallery, and then we 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. And then we took another smaller location for RH Outdoors, so a freestanding RH Outdoors. And then on Beverly Boulevard, a couple blocks away, we have an RH Modern freestanding.

So, the question is, do we need to keep Modern, is Modern consolidated into the kind of core, had some modern and contemporary that we may keep the whole footprint, we may consolidate some of it. But I think you'll see us test, I think we've talked about it in the past about our ecosystems where 1 of the capital efficient ways to deploy the brand, especially if we've got, we don't want to leave the historic post office, probably the best location in Greenwich, um, we were able to get the second best location in Greenwich, the Ralph Lauren building. Um, and so we call that an ecosystem. So we'll have the historic post office will have RH Contemporary and RH Modern space. We'll be in the, a former Ralph Lauren building and then we've got a 5,000 square foot, 4,000 square foot large outdoor gallery.

Outdoors 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're in and going out and having to build a big new thing, we, so being at the location, I'm Brent Chaf. We have to go off the beaten track. And I don't know if you want to there. And so we call that an ecosystem. We've got an ecosystem in Palm Desert. We're doing 1 in West Hollywood that I just described. And so just a much more capital efficient, uh, way to continue to deploy the brand and to rationalize the brand.

Unknown Executive

All right. Thanks, Gary. Good luck. All right. Thank you.

Operator

Your next question comes from the line of Cristina Fernández with Telsey Advisory Group. Please go ahead.

Cristina Fernandez

I wanted to see if you can expand more into the trends you're 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're seeing at the other European locations? Maybe an update on how Paris and Milan are ramping up, thank you.

Gary Friedman

Yeah, you're asking at a funny time, right? In August, it's not usually the best month. They're just on vacation, so people are just getting back. Especially in Milan, like, you know, we fire cannon down the streets in most cities in Italy. Yes, but same thing with Paris. I mean, everybody in Europe is on vacation in August and everybody starts getting back in September, you have business, you know, we'll ramp. Yes, our focus is, you know, how to build the brand in each of those countries. I think they're all different. It's interesting. Each 1's culturally somewhat different. Shopping behavior's different. I mean, obviously the languages are different. I think that surprised us a bit, just how unique they are. So, you know, 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're flying early tomorrow morning to Paris. And so we'll be in Paris tomorrow night and Saturday and then Saturday, uh, evening we fly to London, we'll be in London Saturday evening and Sunday. Yes, we'll be in Europe a lot this year. And, you know, connecting with our teams, listening, learning, finding out what we're doing smart, finding out what we're doing dumb. Yes, no different than, you know, building businesses and kind of new markets. These are very different, right? I mean, London had a running head start for multiple reasons. 1, the country speaks English, right? His primary language. 2, it has the most expats and we have the most customers over there. So we ship, London's the #1 place. We don't ship to other countries, but customers can buy from us and we help them get their goods containerized, right, and they take control of the shipping. But London, we have the most shipping to.

And then we've had RH England open for 3 years. And RH England kind of ramped up by around $38 million demand. So you see an awareness that's been built up there over 3 years. And yes, that's why we expected London to open London first, it's just that was the most complex of the deals and was going to take the longest and so on and so forth and that's why we did our RH England get positioned in the marketplace. So, we're happy, we're learning, you know, about the business and lots of opportunity and the key is you can't be an absentee kind of leadership team. Like, we can't leave everybody on an island in these individual, you know, geographic. So if we're ever going to be on the East Coast, likely we're going to hop over to Europe. Then we're going to go to Europe at least, yeah, at least 4 times a year just to go to Europe, you know, spend, you know, half a week or a solid week and really spend time with their teams.

Going to stay inside our company, the smartest people in the company, those people closest to the customer, and those of us that have gotten promoting, you know, generally get farther and farther away from the customer and we get dumber and dumber, right? So the only way you can lead is if you, you know, first listen, second learn, and then you can effectively lead. So we're in listening and learning mode and trying to be better leaders of our business. But we have to do a lot of listening, spend a lot of time. And our people, they've been very helpful. We've learned a lot. So, you know, we've got to get in-stocks, we've got to deal with the different, you have different raw material issues and different plantability issues, you know, upholstery, lighting, things like that, it's been a little bit more complicated for us. Uh, and so we're, you know, we're working through a supply chain to be more responsive and compete better.

But, you know, I like the direction we're going, you know, and I think, uh, I think we're going to get better and better and better and, you know, drags are going to go away and so, and London's, yes, very exciting. I mean, we had our fingers crossed that I wasn't a come on. I mean, what should this be, what could it be? And I mean, to see the first 8-week ramp there, it was really, we've got a great team, we've got a great leader, building a great design team there. And I've never seen customers like that. I don't think it's 8 days, it's like 9 days or something like that. So I was in the gallery quite a bit at the opening. And I've never seen a level of customer and a level of wealth like that and in our galleries. These are really important, big projects. So I would say it wouldn't surprise me in 2 years, maybe by year 3, that London's not the #1 RH in the world, you know, unless we open the Middle East, you know, sometime before then, because the more we're learning about the Middle East, we...

Unknown Executive

A lot of people believe that would be our #1 gallery. See you on Dubai.

Operator

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

Marius Morar

I'm just curious, Gary, you mentioned that most of Estates is protected by IP. And obviously, you know, the furniture industry is notorious for knockoffs. And there's a long history going back probably 150 years of mixed success in defending designs in court. So I was just curious, I wanted to ask if you could give us maybe a bit more insights into what you think will make Estates easier to defend. Is it maybe, you know, that the finishes are more intricate and just easier to defend in contemporary or is there something else?

Gary Friedman

Well, there's a lot of levels to it. So in cases where we bought the brands, the brands have IP and you know that's pretty strong that we think is good but a lot of the businesses we bought were, uh, more item focused, you know, we, um, dimensionalize our assortments and so yes, use our design teams to dimensionalize things and so forth. So those become original RH designs. So we filed 9 patents on almost everything. And, you know, 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 this. I don't like to go to court with people. My people screw up and we've been maybe too much spice at the end. We get a letter here, I usually hold the tent. Like why do I want to fight in court and spend a lot of money? So, 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, you know, you know, the work is very defendable. We have yet. I don't think the government invested this much into design patents and, so, we'll see, maybe no one's ever invested in protecting intellectual property in this industry that well. I mean, look, go try to knock off a Giacometti 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 Giacometti influenced coffee tables. Even though I'd like to, I think they sell great.

So a lot of it is, I just don't think, your business hasn't really been a sophisticated industry, hasn't been well capitalized, you know, a lot of mom-and-pop stores, you know, so nobody really had, you know, the legal department. We've got our new chief counsel sitting next to you here, Ryan, and yeah, yeah, he's going to help get us all teed up and, uh, not to play defense, to play offense. Um, so, you know, that's why we're, you know, we're moving like that and, um, you, I don't think people want to get sued by RH.

Operator

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

Brian Nagel

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 volatile?

Unknown Executive

What do you think, I think look, everybody's mitigating where you can mitigate, um.

Brian Nagel

If the costs persists 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?

Unknown Executive

I mean, we're oil today. I broke 109. Yes, okay, so you're at 109. I mean, oil is 63 like beginning of the war, like you're not going to be able to mitigate that. You know, there's, I mean, costs are going up, inflation is going to go up. You know, there's a reason why the administration said that the war was ending and we were going to have a deal in 1 day or 2, 38 times. 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. So now the administration, what I saw offered voters $5,000 to every American votes for the president and the administration. That's interesting.

Gary Friedman

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 the lid on interest rates. Yes, so I keep thinking, gosh, it's like my entire career, and I've been doing this a long time, I never saw a housing market that was down longer than 18 months. So it looks like we're going to go to year 5. Yes. So I like the game we're playing. I think we're playing offense. We're going to build our own bigger market. So I think we'll be able to grow pretty well through any kind of market as we look forward. But there's going to be costs. So I think, I don't know, like what was it, Walmart had a $2 billion tariff refund and it's all going to increase costs in some lower prices. Home Depot, like $700 something million. All going to increase costs. Yeah, there's massive increase costs. Nobody's got a magic wand. Nobody's going to get that much better price than somebody else, you know, if you have leverage you use your leverage and you know, but you can't make your partners go bankrupt, right? Or you have no partners.

So it's going to be in a higher cost world for probably at least the next 6 to 12 months. I mean unless and I mean, even if tomorrow they end the war, there's too much inflation in the pipeline. I mean all the raw materials are going up everywhere and everything is impacted by oil. And so, that's why, I mean, you're seeing crazy things, right? Trying to manipulate currencies, buying back things like this. It's a crazy time.

Operator

Your next question comes from the line of Jonathan Matuszewski with Jefferies. 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 maybe different from how you've sought to build awareness for prior brand launches in the past? Thanks so much.

Gary Friedman

Really good question. Yes, our teams, our trade teams are over the moon that you know, we launched a new program, I think designers are, you know, happy firms are reengaging us. We've seen an acceleration of our business, a meaningful acceleration that we're already at a level that offsets the discount, you know, so we've hit the volume levels we needed to kind of offset the discount. And the pipeline is building, so it's been fantastic. And 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 getting even smaller events if designers want do things that, you know, we're, we're going to be a lot more open on multiple levels, you know, with the trade. So, and I think the trade is very happy that we're doing bespoke couture, right? That we're doing COM, we're doing bespoke furniture, you know, custom sizes they can specify.

So that's the big deal and I even, I a gentleman and his family last night that we talked for about 30 minutes and we've done 3 homes for him and they were building a big new a contemporary home and he didn't think that we were going to be able to do it. And then he said, I thought it was great that you guys just launched this bespoke thing because now you're going to get the fourth home from me. I thought that was great, because it's a big home. And they're huge fans. Talking to the family last night, I was like, I mean, just right there. I mean, you don't want to lose customers like that that are building their fourth home and might not have been able to do it the best. So, yeah. So again, we're learning, you know, we've got to stay close to our trade teams and our leaders and, you know, there's more we can do. And, yes. But I don't think that anybody offers the trade more support and services than we do, right? We support them with, you know, doing floor plans, doing renderings, doing, you know, we work as like a back office, not just, you know, sort supporting them with products, but supporting them with designs, supporting them with installation.

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. And just the design, getting it all delivered at 1 time, getting it installed, you know, we, we have a lot of resources supporting that part of our business that I think, you know, as far as someone who also, you know, furniture retail business, you know, at our core, I think we're, 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

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.