Ladies and gentlemen, thank you for standing by, and welcome to the RH Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that this conference is being recorded. [Operator Instructions] I would now like to hand the conference over to Ms. Allison Malkin. Thank you. Please go ahead.

Thank you. Good afternoon, everyone. Thank you for joining us for our second quarter 2020 Q&A conference 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 our outlook for our business and other matters referenced in our press release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings, as well as our press release issued today for a more detailed description of the risk factors that may affect our results. Please also note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Also, during this call, we may discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and 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. With that, I'll turn the call over to the operator to begin our Q&A session. Operator, we are ready for questions.

[Operator Instructions] Your first question comes from the line of Steven Forbes with Guggenheim Securities. You may now ask your question.

Good evening. So, Gary, you spoke in the letter, right, about the expectation for revenue growth to lag demand by, I think it was 5% to 10% in the third quarter. So, I want to start there, right just as we contextualize the build for the back half here given the current trends. So I don’t know if you can talk about, how much of the closure between this expectation and the 16% 2Q spread is due to demand being fulfilled, right, versus sort of a more natural closure in the spread between demand comp and revenue comp. Because I think you did mention, right, that you expect to fulfill the majority of that demand over the next three quarters. So, any, like sort of color that could help us walk or build that out over the three quarters as we think about fulfilling this unfulfilled demand over the next three quarters will be helpful.

Sure. Thanks for the question, Steve and I’ll try to add some color and maybe Jack can fill in some pieces. But if you kind of start back when we spoke to you last quarter, we expected revenue to kind of lag demand comps by about 10 to 12 points and what happened, recently the gap got bigger and it got to 16 points in the second half of the quarter, our demand really accelerated. And kind of ran away from our trends and our inventory flow. So it built up a much bigger gap as you think about, we are responding as quickly as I can. As you look at the, kind of demand build month-over-month as we laid out in the letter, it’s hard to plan for something like that. It started with a big picture and say, the pandemic hit in mid-March, mid to late March and our revenues dropped by just about 40 points. And in a three month period, little over three months, our demand went from 40 down to 40 up, right, roughly, just directionally. So it’s an 80 point swing and we responded very quickly to the down draft and based on our analysis, we didn’t know how longer our galleries were going to be closed and what the impact was going to be, but we wanted to react quickly and we did we were able to cut receipts and push out inventory. And then, as demand builds, we thought, Jesus, it looked good coming back from down 40 to down 20 to down 10 to up 7 and then it just took off. So, if you start there, we are behind. And then you compound that with the fact that the pandemic hit everybody, right. It hit every country in the world.…

Go ahead, Jack.

No, no, I think that was great.

Oh, yes. Well, maybe one for you, or either Jack or Gary, if I think about 2Q gross margins, right, this was clearly a focal point for us and investors heading into the quarter, and as we think about raising the long-term guidance here, right the 25% EBIT margins from 20% versus the 22%, you delivered, what’s the right gross margin profile for this business? I mean, is there still a lot of opportunity as we think about whether it’s delivery, right, damages, or diverse engineering, the whole supply chain, where is the right margin profile for that long-term target as it stands today?

I don’t know if we caught the right margin profile or what, we think about what’s possible. And I don’t think anybody would have – I don’t think there is an analyst on the street that has a 20% operating margins in the next five years. So, when you say what’s right, it’s this, there is – we saw a path to 20%. How quickly was it going to unfold, a lot of it comes down to the desirability of your product when it relates to margins, right. So, we are seeing now as we have transitioned and – transitioned from a single source rug relationship to direct sourcing model in rugs. We got a very different business and it’s very different margin profile that’s lifting the business. We’ve talked to you guys about kind of annualizing the accelerated clearance of products through our outlet division. A year ago that dragged margins, that’s now washed through and we are seeing, what I would call more normalized margins there. I’d start with, if you think about the 21.8 or the 47.5 we hit in margins, we did that on – even thinking about it from a gross margin point of view or operating margin point of view, we did that in flat revenues, right. So, what we are doing is, when I wrote in the letter that we now expect that we will reach 20% operating margins in 2020 with 5% revenue growth, what I was trying to do is give you a floor, right, a floor for this year. I don’t think there is any way we will go under 5% revenue growth, but I don’t know all the stores shutdown again, who the hell knows, what can happen with this pandemic. I mean, it seems like things are kind…

Thank you, guys.

Your next question comes from the line of Curtis Nagle with Bank of America. You may now ask your question.

Good afternoon, guys. Thanks very much for taking the questions. Just a quick one on, Gary, in the letter you cited evidence of some of your clients moving out urban centers, buying second homes – second or maybe even third homes, hard to imagine a company that’s probably better positioned for that maybe over the next few years. I guess, could you extrapolate a little more in terms of how much demand that’s driving, maybe hard to know, but how sustainable that growth could be?

Yes. We try to articulate it in the letter and it’s – your guess is as good as ours, but that we like the data we see. I think that because this pandemic is lasting as long as it has, I just asked my doctor few weeks ago, I said how long do you think we are going to be wearing masks and he said, at least two more years. I said, really two more years? He said, yes, you got to think about the math. He said, it’s going to take, when he said 270 million people that have the antibodies or the vaccines to get to herd immunity, right. And most likely the vaccine is not going to come until the spring of 2021. It’s going to take at least 18 months to move really fast to get 270 people to herd immunity. So he said, we’ve got a new behavior shift, he thinks that’s going to last for a while. I don’t think any of us could conceptualize that early on and now it starts to make sense, right and the data and the shifts, I think, I am surprised how quickly people responded to this pandemic from the activity in the home market, how quickly people moved to buy second homes to get out of cities and so on and so forth. And that I won’t say, all out of city, just get second homes to have somewhere to go to. They still – many of them still have their city home. And then, people that are moving to suburbs, in fact, there was kind of new suburbs being formed. I mean, I was talking to some people that there is a whole new view in how they think about suburbs in Silicon Valley. So many…

Got it. No, understood and thoughtful answer. Thank you. And maybe just a quick one in terms of the capital structure. So, you paid down the converts. You guys, I don’t know, I think are wanting at 1, 3 leverage, something like that. How do we think about that going forward? Do you remain underleveraged? What does the capital structure look like in the explosion in margins?

Yes, we are just going to have – we’re going to generate a lot of cash. So, the capital structure is going to look really good and – but as we said in the letter, we’ll remain opportunistic as it relates to sources and uses of capital and just there is always going to be some kind of opportunities and dislocate in markets like this and whether they are short-term or more medium-term. We like to maintain optionality. So, but we’ll see. Again, like we’ll see how long these rates last. Our model just from an investment perspective, even though we are doing Europe, we’ve got surprisingly the first several galleries are not going to be capital-intensive but one. Just central one and where we are kind of screening together four buildings and making them into one and that will be a bit more of a capital investment kind of like New York. But Paris is not as heavy capital investment. RH England is not as heavy capital investment. The ones that follow that, we got two more deals done and signed are not heavy capital investments so. And then in the U.S., we are – you’ll see us start to ramp up. There will be more prototypes which we’ve got that model now kind of fine tuned and we’ll have a less capital investment approach there. And then, if you think about the last couple of years, we have some heavy capital-intensive stores. We had RH New York, we had just the development of first new prototypes, right. Those – because we are working on them for a long time and making a lot of changes just like developing a new iPhone or something, right. That store is really like an R&D project. So, there is a lot of…

Thanks very much guys. Appreciate it.

Yes.

Your next question comes from the line of Chuck Grom with Gordon Haskett. You may now ask your question.

Hey, thanks. I was just curious when you talk about sustaining that 20% operating margin goal, which is impressive. Just wanting if you can contextualize that for us longer term in the light that you go down the path of building out RH residence and obviously you are going down the path of RH guesthouses. Just how do we think about the margin structure over time as you continue down those avenues? Or do you view those channels as accretive, dilutive? Do you think you can sustain the operating margin structure? Thanks.

Yes. I think we think about it from a couple of perspectives. One is, we think that they will elevate and render the RH brand more valuable. So, how do you build those high-end luxury brands? I tell the team, all the great brands mostly were born at the top of the luxury mountain, LDMH and Gucci and Canoe and just to name luxury brands come top of mind. They have always been a luxury brand. We didn’t start anywhere close to a luxury brand. We had Oxydol laundry detergent on the cover of our catalog 595, right. And so we have to scale this luxury now, I mean, you have to do things that create a four, three consideration of the brand that elevate the brand in the right consumers’ mind. And so, whether it’s doing a – we think an extraordinary experience that a guesthouse that’s going to create entirely new market for customers seeking privacy and luxury, or having RH3 luxury yacht that you can charter in the Mediterranean and Caribbean and I mean, not a lot of people can use that. But I guarantee when we did the portal of RH, and you see it on our website and you see our guesthouses and you see the other things we are doing, the branding of that, right. The – we don’t have a marketing department in our company, because we say marketing lot of times putting lipstick on the pig, right. People try to take an ordinary thing and dress it up and make it like clean better than it is. And we say it’s not what we say it’s what we do that defines us. So, we build our brand through our work, right. We don’t really run many ads and like to ad or…

That’s helpful. And just as a follow-up, just thinking about the factors that have driven the demand improvement over the past several months, probably – but just curious if you can give us a sense for how much of that’s coming from some of the deurbanization movement versus the shifts in the second home markets versus just the overall housing market than better the last buck will be just the pandemic and people just being more hunkered down. I am just wondering, if you can think about like the different drivers of the recent strength.

Yes. I think it’s all of the above. Yes, it’s all those things together. I mean, again, we were – that’s eight or something before this pandemic. Yes, so we are running it up eight before the pandemic and then we went down 40 and now we are up 44 something in the core business or something, but 47 in August, up 44 for month to-date in September. I mean, yes, I mean, there is a big shift here. The question is, how much of it is systemic and how much of it is temporal. And the key is I think you’ve got to play it with the expectation that it could be temporal otherwise you can kind of goof up your model. So, we are okay, not trying to optimize everything in this market. Right, this thing is temporal. You can like, change your model and try to run after every sale and optimize it and put your head down in the weeds and maybe you’ll crank out another 3% to 5% of sales and – but all of a sudden, you are focusing on the little rocks and you just screwed up your model, right, and then all of sudden things the air comes out of the balloon and you are like, oh, now what, you got to disarchitect your business and stop your cost structure. So, we are okay. We are not chasing any sales. We didn’t put one thing on promotions. We are letting some demand get away. We know we are losing demand with the backwater race we are running. You are right there so. But that’s okay. This is, I don’t want to be famous for like, hey, they did really great during that pandemic, didn’t they. Did you - do you remember them,…

Great. Good luck. Thank you.

Thank you.

Your next question comes from the line of Brad Thomas with KeyBanc Capital Markets. You may now ask your question.

Hi. Thanks for taking my question. Congrats on all the momentum in the business and the bright outlook here. My question was, if you could share any color on how to think about some of the expenses and SG&A in the back half of this year. On the one hand, I would presume there is perhaps more sales coming from in ecommerce or web order rose than in the stores and that may benefit cost. You are also not mailing the source book, on the other hand, of course, knock on wood. The sales book is pretty good. How should we think about expenses to the balance of the year? Thank you.

Yes. We will have obviously some savings in ad cost. And we are not going to try to chase and optimize the revenue over the short-term here. We think we’ve got enough and we are already chasing it from a supply point of view. So we think we are going to making the right decision to – it’s not like we are not mailing the book and not doing anything. We are not mailing the book and we are going to invest our time and energy and resources and make investments in other areas that we think will have real long-term benefit to the business versus mailing into this, doing a lot of work and maybe getting a little extra bump or no bump, mailing into it just not having the goods or the customer already optimized. So, and by the way the other thing that we want to learn is, I don’t maybe the books aren’t as productive anymore, as we think. So let’s take this time and test our way kind of add it and back into it and we’ll get some new fresh data that says, maybe when we launch the portal and maybe because we are building all these big new stores. We can mail less books. And so, there is lots of motivation about kind of testing and learning for the long-term. So, but, we are making a lot of investments in the long-term growth. Making lot of investments in the international, making a lot of investments to elevate and expand the product. You’ve probably read, if haven’t read, we made a small acquisition of a business that we disclosed. So we are not saying much about it for competitive reasons. But that we think is going to elevate us and the talent and the…

And Brad, it’s Jack. I’ll just add quickly. Gary was talking about with – if we think about the 20% model, at the floor, it implies sort of 5% revenue creep. You can do the math also on what that implies for H2 op income and that’s 22.2% with 700 basis points, right. Again, that’s just the implied math of the forward guiding. We are not telling you how that’s split between gross margin and SG&A, obviously we are not guiding, but naturally as you alluded to the sourcebooks that benefit would naturally I am going to see inside come more in Q3 than it would in Q4 given that’s when the mailing would occur. So I just want to...

That’s a good point, yes

Add that from a timing perspective when you think about the quarters.

Great. Very helpful. Thank you, Gary. Thanks Jack.

Yes. Thank you.

Your next question comes from the line of Adrienne Yih with Barclays. You may now ask your question.

Great. Thank you. Great content and color. Gary, as you were talking about sort of brand building, some of these were high-end brands, when you look at many brands, global brands, they have a line that’s called demand creation. And so, when you think about your catalogs as being sort of 3.5%, 4% to sales, you only have the luxury of having another 600 basis points or so in all of these different areas like RH3 and guesthouse and hospitality, right, to build that. And so, I guess, my question is, is that the right way to think about it? How much could you bring that demand creation up to as a percent of sales, because now you have luxury of this extra margin? And then, to your point on the catalogs, could the catalogs ever turn from content-only product only and be a physical manifestation of sort of the world of our age and sort of the Lifestyle Content Magazine. So those are couple of my questions. Thanks.

Yes, you got some work here. Our whole leadership team is in the room by the way. Yes, it was like, yes, okay, you think like we think. So, yes, it’s correct on all of it. Yes, so, exactly how we think about it.

Okay. And then, so if that’s we get, one quick very small thing, I have actually two quick housekeeping then. I know it’s a small initiative and you have so many bigger initiatives now. But where are we with RH Color? And then, secondarily, what percent of transactions that you are running currently have interior decorating services attached to them? Thanks so much.

Yes, we don’t give the interior design percentage.

We have given it. But we don’t.

Yes. Yes. Just a big part of our business. But we are not giving it just for competitive reasons right now. And then, like, whereas color, color is probably, ask me that question next quarter. We have a series of off sites and time we are spending just to evaluate all of our kind of key value driving strategies and initiatives. And we have a pretty long list of opportunities and it’s how many can we do at one time. How do we sequence them. What’s the emotional strategic and financial value of each one of them and that’s how we kind of allocate our time and human capital and financial capital. So, we are excited. I mean, I actually – it’s kind of a gift to say like, you know what this, don’t mail the book right now. Don’t do all that work like this have everybody stopped and let’s take all our talent in this organization and kind of really see the board – really put things in the right order and really focus on kind of these – kind of the next few big rocks that can kind of change everything again. I really believe that if we use our time wisely over the next six months that we can really step change the core business from a – just a comparable sales point of view. Like, if it’s you need – you really need to get all the leadership to focus including me, right. So, and we got so many things to work on so many opportunities and we’ve also brought in a lot of new talent and we have a lot more kind of capacity to do more. But it takes everybody together and to really focus to move the big rocks. Otherwise, people are…

Thanks.

Like that will peak into the future, 90 days and ask me in every conference calls, like, yes, RH – is coming, when is RH Illumination is coming, when is this coming, when is that coming. But there is going to be a lot coming over the next five, ten years, like we are not going to run out of ideas here.

Thanks, so much. Congrats to the whole leadership team. I mean, what you are creating is really remarkable. I had to say that.

Thank you. Thank you.

Yes.

Your next question comes from the line of Michael Lasser with UBS. You may now ask your question.

Good evening. Thanks a lot for taking my question. It’s two quick ones and maybe for Jack. Number one, can you provide an explicit breakdown of where the gross margin expansion came from in the second quarter? And then I have a quick follow-up.

Well, beyond what Gary already mentioned in the letter, we did talk about 490 basis points of product margin and so the rest would be shipping expense and occupancy expenses which we got a little leverage on each of those. And we are not going to go into much more detail than that.

Did that just come from fewer promotions and discounting that occurred in the second quarter?

Yes, partly that, I mean, but, partly higher quality product that commanding higher margins and all the things that we’ve talked about, cycling of the outlet, definitely the cycling of the rug transition.

So, and that’s about, those two were about a little over a third of it, right, little less than half.

That’s right.

And the rest is just higher margins across the business, right, across all the categories.

That’s helpful. And my follow-up is, you are on the path to 20 – mid-20s margin over time. Is there, is this an area where you would take – your margin would take a step back if you accelerated some these investments or do you think from here you can continue to see margin expansion year-over-year, even while you do make these investments?

We think we can do it even while we are making those investments, because we keep doing it while we are making – we’ve been making investments and I think the key is, I mean, maybe there is a time we say, look, we’ve got so many really good ideas now. We are going to invest even more and we are going to have a flat year. We might have a year that’s a little down, I don’t know, it maybe. We’ll tell you when we get there. I mean, we will make really good long-term decisions, we like, we are not going to all of a sudden become a company that gets to the 20% operating margin and starts managing quarter-by-quarter and go into the downwards spiral that a lot of companies do because they start “protecting their brand” right, instead of building their brand. And they – what I call the death curve. They are really smart and inventive and innovative, while they are building their brand and then they built something that’s valuable and then they start to protect and everybody start to playing defense instead of offense and that’s when you just go into the death curve. And you start shrinking because you start playing massive – you play more defense than you do offense. Look, if it’s right for us to run flat margins or slightly down margins to make an investment to kind of leapfrog the company by hundreds of basis points, of course, we’ll do that. Like, that could be short-term thinker. I am like – I am not trying to get out of this company or sell this company. It’s like, none of us are. We are – this is our life. It’s not just our job. So we are going to…

Understood. Thank you very much.

Yes.

Your next question comes from the line of Cristina Fernandez with Telsey Advisory. You may now ask your question.

Yes. Hi, good afternoon. I wanted to ask about the demand trends you are seeing and then it seems like it’s a very good opportunity to attract new customers to RH. Can you talk about whether you are seeing an increase in your customers or is lot of the demand coming from existing members or reactivated customers that perhaps shop before but not recently?

Yes, and we said, the numbers would indicate, we are seeing a lot of new customers, right. This is an acceleration in new customers. This acceleration in existing customers, but you can’t run up 40 demand 47 demand without new customers, so. After these people that all that within the home is become more of a focus, it’s more important as more and more people buying second homes, moving – uptick in the homebuilding market. And hopefully this means it, again it sets a new level of importance on the home, possibly indefinitely.

That’s helpful. And then my follow-up, can you talk about the performance of the two new stores that you opened this quarter? And then on your letter you mentioned you couldn’t provide opening guidance for galleries should given all the changes, but maybe update on what’s going on there and when do you think you could resume some of the store openings in 2021?

Yes, we show and rendered our – we are really happy with both – really pretty extraordinary. Marine, it’s not performing as well as Charlotte because the restaurants we opened and the restaurant is open for three days and we have closed the restaurants. The restaurant has been closed about for a month and a half, two months, something like that. It’s really great for everybody that’s – we haven’t open for our associates. So we are feeding our people and so we keep our team engaged and a lot of people get to eat there. But our customers can’t and that drives a lot of extra traffic and extra revenues. But in spite of that Marine is really performing well. Charlotte is kind of off the hook, right, like and what we are finding in some of these – I don’t know if you take Charlotte is a secondary market. Yes, I mean, some of these markets like Charlotte and Columbus like extraordinary lifts. I mean, lifts like way better than we have expected and I think that we are even more differentiated and unique in markets like that, because even the great brands, if you look at the luxury brands, my sense is they probably under invest in those call it markets, because they don’t understand them. And there is – I think there is a lot of wealth in many of the markets and my sense is that, brands tend to under invest. And so, we built our prototype in both Charlotte and Marine. But you think about Charlotte and Columbus, the lifts are extraordinary. I mean, way beyond our expectations, not a little beyond, way beyond. So, it really just making us rethink the – this is the focus and investments on some of these markets,…

Your next question comes from the line of Oliver Chen with Cowen and Company. You may now ask your question.

Hey guys. Thanks, a lot. It’s Max on for Oliver. Can you provide any updates on timing in Europe? Where are you in the process of just planning where the DCs are going to be and then the new gallery openings? It seems like maybe it’s also been pushed out a little bit. So, any color there would be great. And then we have a follow-up.

Yes, nothing is pushed out in Europe right now. The initial gallery that we plan to open RH England which we plan to launch with – we still believe we can open it tentatively in the kind of early summer end of 2021. And that’s anticipating – we are to be able to travel over there soon. But and the team is identifying distribution and logistics solutions and where we are going to be and whether the DC is going to be in Belgium or it’s going to be in Netherlands or it’s going to – do we open one in the UK. We got all the optionality heat up and team has done a very good job of creating the options and doing the math and thinking about it short-term, long-term as we think about the investments and we’ve got a kind of ramp up being able to – we’ve got to place the orders and we’ve got to get goods and they’ve got to be there by April, May. So we can open in June is kind of our target, maybe we can open as early as May, but I think it’s going to be more like June. But a lot of it’s going to depend on the virus and what is travel look like and what is local restrictions look like as far as gatherings and shopping and are we going to have a second wave of the viruses or things going to slowdown, shutdown or anything, we just don’t know. So, we said tentatively 2021 that’s when we are always going to open that first gallery. We are targeting, I think 2022, we would have Paris ready to go and maybe another one. And then, my sense is Central London is just a more complex job that might take longer, it might be 2023. But we’ll see. It all depends like just getting the approvals right now and things like that are the difficult thing and understanding construction timelines and stuff. So, but – so far there is no real change. The only questionable one was, can we get RH England open in 2021. There is still some questions because we just can’t travel right now and there is things we can’t do.

Got it. That’s very helpful. And then, on the new opening pipeline, obviously, no guidance, we just discussed that, but can you remind us how many of those galleries are planned to be capital light? And then, with that in mind, just any sort of framework we should think about longer-term CapEx, where it could be versus, let’s say the last several years? Thank you.

I don’t know for – one I think you are going to see more capital light, than less capital light. We don’t have that many bespoke projects on the dock to do it. Right now.

New Jersey.

New Jersey, bespoke – New Jersey is basically capital light. It’s a development deal. So, we – New Jersey, yes we are finding…

New Jersey is a development deal where we are going to be doing a sale leaseback.

Yes. We’ll do sale leaseback. We’ll get a 100% of our capital back out of New Jersey. So, I think about those as capital light and we have a little bit of a capital we are putting upfront there taking construction loans and we’ll get all of our capital back immediately after we sell it. So, but I am just trying to think- with most of our big capital jobs, I mean, the one on the horizon I am thinking about is London. Depending on what we do in Orange County, that will probably be a little heavy – more capital heavy because it’s going to be at kind of new gallery.

Miami could be.

Miami, yes, Miami, if we have an opportunity to do a deal, we’ve been trying to do for seven or eight years and now it’s been coming – most likely it might be coming back which would be extraordinary. But even there, I think it’s going to – you’ve got some of these things that might look capital heavy, but they are like New York, right, they are going to payback in two years. So, but going forward, I would say that if you think about the real estate pipeline, it will have a better return on invested capital in the next five years than it had in the last five years.

Got it. Thank you so much.

Yes.

Your next question comes from the line of Tami Zakaria with JPMorgan. You may now ask your question.

Hi. Thank you so much for taking my question. I have two quick modeling ones. So you mentioned COVID-19 related costs were about 40 basis points of drag in the second quarter. So, any guidance on what we should expect for the rest of the year related to that? And then, could you remind us how much was the annualized savings from the headcount reduction you did back in April?

Hey, Tami, I’ll take that. Look, from a COVID perspective, clearly, with the reopening activity in Q2 there is probably the bigger hit is going to be then with the 40 basis points and so as I think about the rest of the year, it’s some amount less than that. And then as far as the headcount savings, look, we – as Gary talked about, we went from demand being down 40 to demand being up 40. An eight point swing in our business and so, in some ways those savings and we are making investments from here. So, the bulk of those savings are sort of minus in Q1 and some in Q2. But we are in investment mode given the trajectory of the business.

Got it. That’s super helpful. And then lastly, another quick one regarding the World of RH, when do you expect that to be up and running?

I think it’s probably more like spring of 2021, somewhere around there.

Got it. Great. Thank you so much.

Thank you.

Thanks, Tami.

Your last question comes from the line of Seth Basham with Redbush Securities. You may now ask your question.

Hi. Good evening. It’s Seth Basham with Redbush. My question is really around the sequencing of all these – that you are paying …

You got a really bad connection. Yes. You’ve got a really bad connection. We can’t understand you on this end.

Like exacerbated almost.

Yes, no, you’ve got a really bad connection.

Okay.

So, you are talking about the sequencing of the investments we are making?

Yes. [Indiscernible] more dollar and how you are managing execution risk associated with that, that would be excellent.

So, how we manage execution risk with the investments we are making?

Yes, again, we spend a lot of time deeply thinking about where we allocate our human and financial capital and we think about investing in things that have much greater asymmetrical risk to the upside. So, I don’t see any massively elevated level of risk in the investments we are making. The one where we obviously have the less – the least amount of experience in data is, in the international expansion. So, but well, I think we’ve got that appropriately handicapped and we are moving at a good pace that’s going to allow us to kind of learn and provide and adapt and overcome. So, but I don’t – the level of capital that we are putting into the European expansion is, if you would ask me three years ago, what I would have said we are probably going to be putting in two or three times more capital than we are. So that brings the risk level down quite a bit. And the fact that we were able to get a handful of these deals that were ex Abercrombie and Fitch flagship locations, where they’ve put in a massive amount of capital rebuilding the buildings, putting in the HVAC and the electrical and all the kind of infrastructure and they’ve built beautiful. I mean anybody who have seen some of this Abercrombie and Fitch locations, they are unbelievable. So, we’ve got a handful of those that are going to put us in a more of a capital light perspective because we can just take out the fixtures and do some interior architecture. The outside of the buildings are spectacular and then we’ve got some capital building restaurants, either on the roof top or terrace or things like that that are not significant capital. So, that’s what’s giving us a pretty high level of confidence in – that we’ve mitigated a lot of risk.

Thank you.

Alright. I will now hand the call back to Gary Friedman, Chairman and CEO for any closing remarks.

Great. Well, thank you everyone for your time and interest in the organization. I do want to thank our people and partners of RH in the U.S. and all around the world, just your extraordinary efforts to just improvise through this period and adapt and overcome the challenges and bring our brand to life in new and innovative ways and connects with our customers in new and innovative ways and connecting with each other in new and innovative ways. I think it’s been extraordinary to watch and it’s making us – made us all so proud. And say, look the next ten years for this organization, the opportunities ahead of us are just extraordinary. And if anybody takes a look at what we did in the last 20 years, with no capital and basically to trying to dig ourselves out of the grave, you think about what this organization is going to do with the knowledge we’ve acquired, the capital structure we have, the experience and the passion we have and the love we have for what we do, we couldn’t be more excited about what’s next. So, thank you everyone. We appreciate your leadership and we appreciate your partnership. Thank you.

Thank you, ladies and gentlemen for joining RH Second Quarter 2020 Earnings Conference Call. Have a great day. You may now disconnect.