Rh · NYSE:RH
Rh — Investor Day (November 2017)
120 slides from Rh's investor day presentation, Nov 17, 2017
Slide 1: Investor Day
Exhibit 99.1 INVESTOR DAY NOVEMBER 16, 2017
Slide 2: Safe Harbor Statement
SAFE HARBOR STATEMENT This pr it looking statements that are subject to risks and inties. Forward-looking stat its give the Companys current expectations and projections relating to fir ial sults. tions, plans, objectives, future performance and business. You can identi lookir fact that they do not
Slide 3: Safe Harbor Statement
SAFE HARBOR STATEMENT The Company derives many ae its forward- |-looking statements from its operating budgets and forecasts, which are based upon many detailed apes Whit the Company believes that its that it is very difficult to predict the impact of known factors, and it is i the Compar ite all fa
Slide 4: Team RH
TEAM RH KAREN BOONE CO-PRESIDENT, CHIEF FINANCIAL & ADMINISTRATIVE OFFICER ERI CHAYA CO-PRESIDENT, CHIEF CREATIVE & MERCHANDISING OFFICER DEMONTY PRICE CO-PRESIDENT, CHIEF OPERATING, SERVICE & VALUES OFFICER DAVE STANCHAK CHIEF REAL ESTATE & DEVELOPMENT OFFICER SANDRA STANGL PRESIDENT, NEW BUSINESS
Slide 5: Agenda
AGENDA OUR VIEW THE RETAIL INDUSTRY OUR STRATEGY WHY IT WILL PROVE TO BE WORTH THE RIDE OUR NEW MODEL BACK ON THE RACE TRACK WITH AN ENTIRELY NEW & SUPERIOR VEHICLE
Slide 6: Our View
OUR VIEW
Slide 7: No one ever made a difference being like everyone else
"NO ONE EVER MADE A DIFFERENCE BEING LIKE EVERYONE ELSE.” —P.T. BARNUM
Slide 8: Retailers have become more like everyone else
RETAILERS HAVE SPENT THE PAST 20 YEARS BECOMING MORE, RATHER THAN LESS LIKE EVERYONE ELSE
Slide 9: The Age of Amazon & the Death of the Department Stores
THE AGE OF AMAZON & THE DEATH OF THE DEPARTMENT STORES AMAZON IS FALSELY ACCUSED DYING FROM OLD AGE AND LACK OF INNOVATION
Slide 10: Darwin quote on adaptability to change
“IVS NOT THE STRONGEST OF THE SPECIES THAT SURVIVES, NOR THE MOST INTELLIGENT, IT’S THE ONE MOST ADAPTABLE TO CHANGE.” — CHARLES DARWIN
Slide 11: Robert F. Kennedy quote on change
“PROGRESS IS A NICE WORD, BUT CHANGE IS ITS MOTIVATOR, AND CHANGE HAS ITS ENEMIES.” — ROBERT F. KENNEDY
Slide 12: Taste and no scale, scale and no taste
THERE ARE THOSE WITH TASTE AND NO SCALE, AND THOSE WITH SCALE AND NO TASTE WE BELIEVE THE IDEA OF SCALING TASTE IS LARGE AND FAR REACHING
Slide 13: Steve Jobs quote on taste
“ULTIMATELY, IT COMES DOWN TO TASTE.” — STEVE JOBS
Slide 14: It's about physical with digital
IT’S NOT ABOUT PHYSICAL VERSUS DIGITAL, IT’S ABOUT PHYSICAL WITH DIGITAL IT'S ABOUT THE SEAMLESS INTEGRATION OF A BRAND ACROSS ALL CHANNELS
Slide 15: The web is the most democratic channel
THE WEB /S THE MOST DEMOCRATIC CHANNEL MOST DIFFICULT TO DIFFERENTIATE HOLLY'S HOME STORE LOOKS AS BIG AS RH ONLINE
Slide 16: The web is not the most profitable channel
THE WEB /S NOT THE MOST PROFITABLE CHANNEL MOST RETAILERS WHO HAVE INCREASED ONLINE SALES HAVE DECREASED OPERATING MARGINS NAME AN ONLINE-ONLY RETAIL BRAND THAT HAS REACHED A BILLION DOLLARS PROFITABLY
Slide 17: Physical manifestation of a brand will prove more important
THE PHYSICAL MANIFESTATION OF A BRAND WILL PROVE TO BE MORE RATHER THAN LESS IMPORTANT ESPECIALLY FOR BRANDS NOT SELLING COMMODITIES MOST CAPITAL-EFFICIENT WAY TO SCALE IN A PHYSICAL WORLD
Slide 18: A world of complexity and clutter
WE LIVE INAWORLD OF COMPLEXITY AND CLUTTER BOMBARDED WITH INFORMATION AND CHOICES
Slide 19: Great brands can be a silver bullet
GREAT BRANDS CAN BE A SILVER BULLET BREAKING THROUGH THE CHAOS AND SIMPLIFYING OUR LIVES BY DELIVERING A PREDICTABLE PROMISE
Slide 20: Time is the ultimate luxury
TIME IS THE ULTIMATE LUXURY BUSINESSES OR BRANDS THAT DON'T DELIVER TIME VALUE WILL BECOME LESS VALUABLE
Slide 21: Brands with more control will become more valuable
BRANDS WITH MORE CONTROL WILL BECOME MORE VALUABLE BIGGEST ISSUE BRANDS FACE TODAY IS THE DANGER IMBEDDED IN THEIR DISTRIBUTION CHANNELS WE BELIEVE THOSE WITH CONTROL FROM CONCEPT TO CUSTOMER WILL BE REWARDED
Slide 22: It's not about marketing, it's about truth
IT’S NOT ABOUT MARKETING, IT’S ABOUT TRUTH IT'S NOT WHAT WE SAY, IT'S WHAT WE DO THAT DEFINES US
Slide 23: Creating the conversation
IF WE WANT TO BE PART OF THE CONVERSATION, WE HAVE TO CREATE THE CONVERSATION OUR PRODUCTS, SOURCEBOOKS AND GALLERIES HAVE LED RH TO BECOME THE MOST PINNED, INSTAGRAMMED AND TWEETED BRAND IN OUR SPACE
Slide 24: Great brands don't chase customers
GREAT BRANDS DON'T CHASE CUSTOMERS, CUSTOMERS CHASE GREAT BRANDS GREAT BRANDS ARE VISION, NOT CUSTOMER LED THE iPHONE®, TESLA, INSTAGRAM OR DISNEYLAND DID NOT COME FROM A FOCUS GROUP
Slide 25: Henry Ford quote on faster horse
“IF [ASKED MY CUSTOMERS WHAT THEY WANTED, THEY WOULD HAVE TOLD ME A FASTER HORSE.” — HENRY FORD
Slide 26: Our Strategy
OUR STRATEGY
Slide 27: Our journey begins with a question
OUR JOURNEY BEGINS WITH A QUESTION...
Slide 28: Who is the home brand for the luxury customer?
WHO IS THE HOME BRAND FOR THE LUXURY CUSTOMER? THIS QUESTION FRAMES OUR OPPORTUNITY
Slide 29: Most comprehensive collection of luxury home furnishings
Ba preege RH HAS CREATED THE MOST COMPREHENSIVE COLLECTION OF LUXURY HOME FURNISHINGS PRESENTED IN THE MOST INSPIRING SPACES IN THE WORLD RH BOSTON THE GALLERY AT THE HISTORIC MUSEUM OF NATURAL HISTORY
Slide 30: We began as a retailer with a $20M market cap
We Began as a retailer of nostalgic discovery items with a $20M market cap
Slide 31: Transformed into a $2.5B luxury design platform
TRANSFORMED INTO A $2.5B Luxury DESIGN PLATFORM
Slide 32: Furniture of this quality never made in these quantities
FURNITURE OF THIS QUALITY HAS NEVER BEEN MADE IN THESE QUANTITIES WE ARE BUILDING THE FIRST LUXURY HOME FURNISHINGS RAILROAD THAT WILL BE VERY HARD TO REPLICATE
Slide 33: Powerful product platform
WE'VE BUILT A POWERFUL PRODUCT PLATFORM THAT ATTRACTS AND AMPLIFIES THE BEST DESIGN AND MANUFACTURING TALENT IN THE WORLD,
Slide 34: Design level once behind the iron curtain of design centers
THIS LEVEL OF DESIGN WAS ONLY AVAILABLE BEHIND THE IRON CURTAIN OF TO-THE-TRADE DESIGN CENTERS HIGHLY FRAGMENTED MARKET WITH LACK OF ACCESSIBILITY, TRANSPARENCY AND SCALE
Slide 35: Waterworks added to the platform
WE'VE ADDED THE MOST PRESTIGIOUS BATH & KITCHEN BRAND IN THE WORLD TO OUR PLATFORM — WATERWORKS POSITIONS RH AS AN AUTHORITY IN TWO OF THE MOST IMPORTANT ROOMS OF THE HOME - BATH & KITCHEN
Slide 36: RH Modern
WE'VE LAUNCHED ONE OF THE MOST EXCITING NEW CONCEPTS IN RETAIL — RH MODERN POISED TO BECOME A BILLION- DOLLAR PLUS BRAND OUR FIRST FREESTANDING RH MODERN GALLERY IN LOS ANGELES
Slide 37: Interior Design
INTERIOR DESIGN WE'RE BUILDING AN INTERIOR DESIGN BUSINESS THAT MOVES THE BRAND BEYOND CREATING AND SELLING PRODUCTS TO CONCEPTUALIZING AND SELLING SPACES QUICKLY BECOMING THE LEADING LUXURY INTERIOR DESIGN FIRM IN THE COUNTRY
Slide 38: Slide 38
Slide 39: : L i
: L i
Slide 40: The Members Program
the MEMBERS PROGRAM WE MADE THE BRAVE MOVE FROM A PROMOTIONAL TO A MEMBERSHIP MODEL THAT HAS ENHANCED OUR BRAND, STREAMLINED OUR BUSINESS AND DRAMATICALLY IMPROVED THE CUSTOMER EXPERIENCE
Slide 41: Transformation of our real estate
THE TRANSFORMATION OF OUR REAL ESTATE HAS THE POTENTIAL TO DOUBLE OUR RETAIL SALES IN EVERY MARKET WHILE LIFTING OUR DIRECT REVENUES LESS THAN 10% OF OUR ASSORTMENT IS PRESENTED IN OUR LEGACY GALLERIES THE KEY TO UNLOCKING THE VALUE OF OUR ASSORTMENT IS TO TRANSFORM OUR RETAIL PLATFORM
Slide 42: It's not about the internet
IT’S NOT ABOUT THE INTERNET ONLY 12% OF RETAIL SALES ARE DONE ONLINE
Slide 43: It's about the lack of imagination at retail
IT’S ABOUT THE LACK OF IMAGINATION AT RETAIL MOST RETAIL STORES ARE ARCHAIC WINDOWLESS BOXES THAT LACK ANY SENSE OF HUMANITY NO NATURAL LIGHT OR FRESH AIR (THE FORMER SAKS IN DENVER, CHERRY CREEK)
Slide 44: Denver: The Gallery at Cherry Creek
DENVER THE GALLERY AT CHERRY CREEK WE'RE BUILDING INSPIRING SPACES THAT BLUR THE LINES BETWEEN RESIDENTIAL AND RETAIL, THAT ARE MORE HOME THAN STORE SPACES THAT ARE FLOODED WITH NATUAL LIGHT AND FRESH AIR, WITH GARDEN COURTYARDS AND ROOFTOP PARKS
Slide 45: Seattle: The Gallery at University Village
REI SEATTLE itis THE GALLERY AT a Oe UNIVERSITY VILLAGE
Slide 46: Los Angeles: The Gallery on Melrose Avenue
LOS ANGELES THE GALLERY ON MELROSE AVENUE
Slide 47: The Gallery at The Domain
THE GALLERY AT THE DOMAIN Zz — n =) < . anit i ~ i) i a q
Slide 48: Las Vegas: The Gallery at Tivoli Village
LAS VEGAS THE GALLERY AT CASA Nee x a = TIVOLI VILLAGE ily Rel sca
Slide 49: Atlanta: The Gallery at The Estate in Buckhead
RE] ATLANTA THE GALLERY AT THE ESTATE IN BUCKHEAD
Slide 50: Chicago: The Gallery at The Three Arts Club
CHICAGO THE GALLERY AT THE THREE ARTS CLUB THE NEXT LOGICAL STEP WAS. TO BLUR THE LINES BETWEEN HOME AND HOSPITALITY BY SEAMLESSLY INTEGRATING A RESTAURANT, WINE VAULT AND COFFEE BAR REVOLUTIONARY NEW RETAIL EXPERIENCE THAT NNOT BE REPLICATED NE
Slide 51: RH Chicago Video
RH CHICAGO VIDEO
Slide 52: Chicago: The Gallery at The Three Arts Club
Rl] CHICAGO THE GALLERY AT THE THREE ARTS CLUB THE LINE EVERY WEEKEND TO GET A TABLE FOR BRUNCH NAME ANOTHER RETAIL STORE THAT HAS A LINE EVERY WEEKEND BEFORE IT OPENS
Slide 53: Majority of new galleries will include hospitality
THE MAJORITY OF OUR NEW GALLERIES GOING FORWARD WILL INCLUDE HOSPITALITY INCLUDING NEW GALLERIES THIS YEAR IN TORONTO AND PALM BEACH
Slide 54: Toronto: The Gallery in Yorkdale
RI] TORONTO THE GALLERY IN YORKDALE ANCHORING A NEW WING IN THE HIGHEST VOLUME MALL. IN CANADA
Slide 55: Toronto: The Gallery in Yorkdale
J TORONTO THE GALLERY IN YORKDALE INTERIOR ELEVATION WITH DRAMATIC 140-FOOT SKYLIGHT ILLUMINATING THE COURTYARD RESTAURANT ACROSS THE STOREFRONT, WHERE YOU WILL DINE UNDER BEAUTIFUL OLIVE TREES AND HEAR THE SOUND OF TRICKLING FOUNTAINS
Slide 56: West Palm: The Gallery on Okeechobee
WEST PALM THE GALLERY ON OKEECHOBEE DRAMATIC GARDEN COURTYARD, ROOFTOP RESTAURANT, WINE VAULT, PANTRY AND COFFEE BAR
Slide 57: West Palm: Rooftop Restaurant
WEST PALM THE GALLERY ON OKEECHOBEE ROOFTOP RESTAURANT a) —
Slide 58: West Palm: Wine Vault
THE GALLERY ON OKEECHOBEE WINE VAULT — > é (YW 2 =
Slide 59: West Palm: Pantry and Barista Bar
WEST PALM THE GALLERY ON OKEECHOBEE PANTRY AND BARISTA BAR dele cPrdhdabat uh ll dl a seme 0 60 oo i ee jeg Oca ehek —s
Slide 60: New York: The Gallery in the Historic Meatpacking District
wai GML rit NEW YORK THE GALLERY IN THE HISTORIC MEATPACKING DISTRICT QUICKLY BECOMING ONE OF THE ICONIC CORNERS IN NEW YORK, ANCHORED BY THE ENTRANCE TO THE HIGH LINE AND THE NEW WHITNEY MUSEUM
Slide 61: New York: The Gallery in the Historic Meatpacking District
|. >) \ \ 7 r | é \ \ \ NEW YORK i j THE GALLERY IN THE HISTORIC - 4 Sea A MEATPACKING DISTRICT SIX FLOORS THAT SEAMLESSLY INTEGRATE OUR MULTIPLE BUSINESSES AND HOSPITALITY OFFERING = = iy «| | ‘a ' i <i | | tea ._
Slide 62: New York: Rooftop park and atrium restaurant
2 oa ° rE a cS w ES = — z Ss a wi a =] =< o w = = ROOFTOP PARK WITHA BEAUTIFUL INDOOR / OUTDOOR SkyY-LIT ATRIUM RESTAURANT MEATPACKING DISTRICT NEW YORK
Slide 63: New York: The Gallery in the Historic Meatpacking District
IKI NEW YORK THE GALLERY IN THE HISTORIC MEATPACKING DISTRICT
Slide 64: Early innings of our transformation
WITH ONLY 15 NEW GALLERIES, WE ARE IN THE EARLY INNINGS OF OUR TRANSFORMATION POTENTIAL FOR 60 TO 70 IN NORTH AMERICA
Slide 65: Long-term goal of $4 to $5 billion in North American revenues
WE REMAIN CONFIDENT INOQUR LONG-TERM GOAL OF REACHING $4 TO $5 BILLION IN NORTH AMERICAN REVENUES WITH INDUSTRY-LEADING OPERATING MARGINS AND RETURN ON INVESTED CAPITAL BELIEVE WE CAN GROW REVENUES 8% TO 12%, EARNINGS 15% TO 20% FOR THE NEXT 10 YEARS
Slide 66: Long-term opportunity for international expansion
LONG-TERM OPPORTUNITY FOR INTERNATIONAL EXPANSION, AS WE BELIEVE RH HAS THE POTENTIAL TO BE A GLOBAL BRAND EXPLORING LOCATIONS TO OPEN OUR FIRST GALLERY IN LONDON
Slide 67: When you step back and consider...
WHEN YOU STEP BACK AND CONSIDER... ONE, WE ARE BUILDING A BRAND WITH NO PEER TWO, WE ARE CREATING A CUSTOMER EXPERIENCE THAT CANNOT BE REPLICATED ONLINE THREE, WE HAVE TOTAL CONTROL OF OUR BRAND FROM CONCEPT TO CUSTOMER
Slide 68: What we are building is very rare
YOU REALIZE WHAT WE ARE BUILDING IS VERY RARE IN TODAY'S RETAIL LANDSCAPE AND WE WOULD ARGUE, WILL ALSO PROVE TO BE VERY VALUABLE
Slide 69: Break
BREAK
Slide 70: Our New Model
OUR NEW MODEL
Slide 71: Architecting an entirely new operating platform
WE ARE ARCHITECTING AN ENTIRELY NEW OPERATING PLATFORM NEW MEMBERSHIP MODEL NEW OPERATING MODEL NEW REAL ESTATE MODEL
Slide 72: New Membership Model
NEW MEMBERSHIP MODEL
Slide 73: New Membership Model
NEW MEMBERSHIP MODEL TWO OBJECTIVES: SIMPLIFY AND STREAMLINE OUR BUSINESS DEVELOP DEEPER CONNECTION WITH OUR CUSTOMERS
Slide 74: Membership eliminated frantic buying patterns
WE BELIEVE THAT MEMBERSHIP HAS ELIMINATED THE FRANTIC BUYING PATTERNS AND ASSOCIATED RETURNS, EXCHANGES, AND CANCELED ORDERS THAT ARE THE RESULT OF A CHAOTIC PROMOTIONAL MODEL BEFORE MEMBERSHIP AFTER MEMBERSHIP eae Ne et
Slide 75: New Membership Model
NEW MEMBERSHIP MODEL DRAMATICALLY SIMPLIFIES SALES FORECASTING AND IMPROVES INVENTORY ACCURACY CREATES MANUFACTURING EFFICIENCIES AND LOWER COSTS IMPROVES EXECUTION AND PRODUCTIVITY THROUGHOUT OUR SUPPLY CHAIN AND GALLERY NETWORK
Slide 76: New Membership Model: deeper connection with customers
NEW MEMBERSHIP MODEL WE ARE DEVELOPING A DEEPER CONNECTION WITH OUR CUSTOMERS 65% OF OUR RETAIL BUSINESS IS DRIVEN BY MEMBERS WHO USE RH INTERIOR DESIGN WE CURRENTLY HAVE 380K MEMBERS THAT DRIVE 95% OF OUR CORE RH BUSINESS MEMBERSHIP FEE INCOME IS UP 37% YTD
Slide 77: New Operating Model
NEW OPERATING MODEL
Slide 78: New Operating Model
NEW OPERATING MODEL THREE KEY AREAS OF FOCUS: DISTRIBUTION NETWORK REDESIGN REVERSE LOGISTICS AND OUTLET REDESIGN HOME DELIVERY
Slide 79: Distribution Network Design
DISTRIBUTION NETWORK DESIGN 16 MONTHS AGO WE PEAKED AT 1.1M FURNITURE UNITS ACROSS 4 FURNITURE DC’S, 2 FURNITURE STORAGE DC’S, AND 1,000 STORAGE TRAILERS 16 MONTHS LATER WE ARE ON TRACK TO END THE YEAR WITH 535K FURNITURE UNITS WITH PLANS TO CLOSE 2 FURNITURE DC’S BY YEAR END, AND WE HAVE ELIMINATED
Slide 80: Distribution Network Design
DISTRIBUTION NETWORK DESIGN OUR PLAN IS TO RUN THE BUSINESS WITH TWO COASTAL DISTRIBUTION CENTERS WE EXPECT IN-STOCKS TO IMPROVE AND INVENTORY TURNS TO SIGNIFICANTLY INCREASE TOTAL PROJECTED ANNUAL EXPENSE SAVINGS OF APPROXIMATELY $15M TOTAL PROJECTED INVENTORY SAVINGS OF APPROXIMATELY $400M VERSUS
Slide 81: Reverse Logistics & Outlet Business Redesign
REVERSE LOGISTICS & OUTLET BUSINESS REDESIGN WE ARE NOW LIQUIDATING 90% OF RETURNS IN MARKET, ELIMINATING THE NEED TO TRANSPORT PRODUCT BACK TO OUR DISTRIBUTION CENTERS WE EXPECT THIS WILL RESULT IN COST SAVINGS AND MARGIN ENHANCEMENT OF APPROXIMATELY $15-20M ANNUALLY
Slide 82: Home Delivery
HOME DELIVERY OUR EVALUATION OF THE HOME DELIVERY NETWORK HAS LED US TO SEVERAL CONCLUSIONS: THE CURRENT PROVIDER NETWORKS ARE NOT DESIGNED TO DELIVER A LUXURY CUSTOMER EXPERIENCE — MOST ARE LOW-COST, COMMODITY MODELS OUR SCALE CREATES THE OPPORTUNITY TO INSOURCE AND/OR BUILD EXCLUSIVE PARTNERSHIPS
Slide 83: Home Delivery
Slide 84: New Real Estate Model
Slide 85: New Real Estate Model
Slide 86: Two key learnings from our Chicago Design Gallery
Slide 87: We have retained Eastdil Secured
Slide 88: Key benefits of a development model
Slide 89: RH Minneapolis
Slide 90: Southdale Center site
Slide 91: Development and lease model comparison
Slide 92: Model comparison - Minneapolis
Slide 93: In closing...
Slide 94: It's not about Amazon
Slide 95: It's not about big data
Slide 96: It's about imagination
Slide 97: Imagination is more important than knowledge
Slide 98: It's about imagining...
Slide 99: In the dismal days of brick & mortar retailing...
Slide 100: Imagining a new and revolutionary retail experience
Slide 101: Imagine...
Slide 102: Now try to imagine that online
Slide 103: P. T. Barnum imagining the greatest show on earth
Slide 104: You can never make a difference by being like everyone else
Slide 105: The Greatest Showman clip
Slide 106: Tour the greatest store on earth
Slide 107: Q&A
Slide 108: Balance Sheet
Slide 109: Debt Summary
Slide 110: Cash flow generation to retire converts
Slide 111: Financing alternatives
Slide 112: Convertible debt primer
Slide 113: Build to suit leases
Slide 114: Bridge
Slide 115: 2018 Preliminary Outlook
Slide 116: Bridge to 2018 Operating Margin
Slide 117: Third Quarter Highlights
Slide 118: Q3 2017 Highlights
Slide 119: Q3 2017 Highlights
Slide 120: RH Investor Day