RH

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter and Fiscal Year 2021 RH Earnings Conference Call. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to turn the conference over to your speaker for today, Allison Malkin, you may begin.

Allison Malkin - Investor Relations

Thank you. Good afternoon, everyone. Thank you for joining us for our fourth quarter and fiscal year 2021 earnings 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 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 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 Gary.

Gary Friedman - Chairman and Chief Executive Officer

Great. Thank you, Allison, and thank you for joining us today. I'm going to take a few minutes and walk you through our Shareholder Letter, and then Jack and I and the rest of our leadership teams in the room will open the call - open to questions. To our people, partners and shareholders, we are pleased to report another year of record results with net revenues increasing 32% to $3.759 billion versus $2.84 billion a year ago, and up 42% versus 2019.

If you exclude money-losing online businesses, it represents one of the highest two-year growth rates in our industry. Demand versus 2019 grew 49%, which resulted in an incremental backlog at the end of the year of approximately $200 million of net revenues that we expect to fulfill over the course of 2022. RH continues to set a new standard for financial performance in the home furnishings industry and our results now reflect those of the luxury sector as adjusted operating margin reached 25.6% in 2021, up 1,130 basis points versus 2019, reflecting the strongest two-year growth in our industry.

Our performance demonstrates the desirability of our elevated and exclusive product range, the connective power of our evolving ecosystem, the profitability of our fully integrated business model and the significant strategic separation created by our inspiring physical spaces. For the quarter, net revenues increased 11%, within our guidance range despite the various - the virus variant that magnified supply chain issues in the second half of Q4. We once again exceeded our adjusted operating margin outlook in the fourth quarter reaching 25.2% versus 23.7% last year, and up 780 basis points on a two-year basis. We generated $97 million of free cash flow in the quarter and $477 million for the year, inclusive of a $191 million increase in inventory, of which approximately $60 million is due to increased transit times and the balance targeted to alleviate our unshipped demand backlog. We ended the year with $90 million of net debt and nearly $2.2 billion of cash on our balance sheet, while generating ROIC of 73% in 2021.

2022, the year of the new. As we've mentioned, many of our plans were delayed by the virus - while many of our plans were delayed by the virus, they were not disrupted by it. We used these past two years to reimagine and reinvent ourselves once again, and believe 2022 will mark the beginning of the next chapter of growth and innovation for the RH brand. 2022, the year of the new will include: the opening of RH San Francisco at the Historic Bethlehem Steel Building, our most extraordinary new Bespoke Gallery to-date; the launch of RH Contemporary, the most compelling and potentially disruptive product introduction in our history; the elevation and expansion of RH Interiors and RH Modern, inclusive of new collections and enhanced quality; the unveiling of our first RH Guesthouse in New York, a revolutionary new hospitality concept for travelers seeking privacy and luxury in the $200 billion North American hotel market; the introduction of two new culinary concepts, an elevated live-fire restaurant opening in San Francisco, England and the New York Guesthouse, plus a Champagne and Caviar Bar also opening in the New York Guesthouse this year, with plans to expand both concepts to our future Galleries in Paris, London, Milan and Aspen.

With average restaurant volumes approaching $10 million annually and a very profitable four-wall model, we are making significant investments to build a world-class hospitality organization and see endless opportunities to elevate and activate our places and spaces, creating integrated and inspiring experiences for our members and customers that cannot be replicated online. The debut of The World of RH, the first phase of our new digital portal highlighting the connective power of our evolving ecosystem of products, places, services and spaces all designed to inspire customers to dream, dine, travel and live in a world thoughtfully curated by RH, will create an emotional connection with our customers unlike any other brand in the world. The liftoff of RH1 & RH2, our customized Gulfstream G650 and G550 that will be available for charter later this year. The former has already generated press and praise as featured in the pages of Architectural Digest, the Wall Street Journal and the 20 titles of Modern Luxury.

The christening of RH3, our luxury yacht that will be available for charter in the Mediterranean and Caribbean. RH3 will be featured in the Robb Report, C Magazine and Boat International over the coming months. The continued roll-out of RH In-Your-Home, a unique and memorable delivery experience with brand ambassadors guiding every detail of the delivery and extending the selling experience into the home. The expansion of RH - the RH brand globally, beginning with the opening of RH England, The Gallery at the Historic Aynhoe Park, a magical 17th-century, 73-acre estate in the English countryside that will introduce RH to the UK in a dramatic and unforgettable fashion. Additionally, we have secured locations for Galleries in London, Paris, Munich and Dusseldorf, and are in lease or purchase negotiations for Galleries in Milan, Madrid, Brussels and France. The opening of RH Palo Alto, The Gallery at Stanford Shopping Center, which will represent the next evolution of our highly productive prototype Galleries.

Now let me move to our business outlook. While we enter 2022 with confidence that our efforts will continue to elevate and expand the RH brand for years to come, we also recognize there are several internal - external factors, such as record inflation, rising interest rates and global unrest, that create uncertainty. Although we lack the ability to protect - predict economic outcomes on a macro scale, we do have the business model, strategy and balance sheet to take advantage of opportunities that may present themselves whether it be times of economic expansion, contraction or dislocation. While first quarter sales and margin trends remain healthy due to the ongoing relief of our backlog, we have experienced softening demand in the first quarter that coincided with Russia's invasion of Ukraine in late February and the market volatility that followed.

We believe it is prudent to remain conservative until demand trends return to normal, and we are providing the following outlook for the first quarter of 2022. First quarter net revenue growth in the range of 7% to 8% versus 78% last year, with adjusted operating margin in the range of 23% to 23.5% versus 22.6% a year ago. Fiscal 2022 net revenue growth in the range of 5% to 7% versus 32% last year, with adjusted operating margin in the range of 25% to 26% versus 25.6% in 2021. Our outlook is inclusive of opening RH San Francisco in late spring, the RH Guesthouse in early summer, RH England in mid-to-late summer and RH Palo Alto in the fourth quarter.

Now let me turn to RH business vision and ecosystem, the long view. We believe there are those with taste and no scale, and those with scale and no taste, and the idea of scaling taste is large and far reaching. Our goal to position RH as the arbiter of taste for the home has proven to be both disruptive and lucrative, as we continue our quest to build the most admired brand in the world. Our brand attracts the leading designers, artisans and manufacturers, scaling and rendering their work more valuable across our integrated platform, enabling RH to curate the most compelling collection of luxury home products on the planet. Our efforts to elevate and expand our collection will continue with the introductions of RH Contemporary, RH Couture, RH Bespoke, RH Color, RH Antiques & Artifacts, RH Atelier and other new collections scheduled to launch over the next decade.

Our plan to open immersive Design Galleries in every major market will unlock the value of our vast assortment, generating revenues of $5 billion to $6 billion in North America and $20 billion to $25 billion globally. Our strategy is to move the brand beyond curating and selling product to conceptualizing and selling spaces, by building an ecosystem of products, places, services and spaces that establishes RH - the RH brand as a global thought leader, taste and place maker. Our products are elevated and rendered more valuable by our architecturally inspiring Galleries, which are further elevated and rendered more valuable by our interior design services and seamlessly integrated hospitality experience. Our hospitality efforts will continue to elevate the RH brand as we extend beyond the four walls of our Galleries into RH Guesthouses, where our goal is to create a new market for travelers seeking privacy and luxury in the $200 billion North American hotel industry.

Additionally, we are creating bespoke experiences like RH Yountville, an integration of Food, Wine, Art & Design in the Napa Valley, RH1 & RH2, our private jets, and RH3, our luxury yacht that is available for charter in the Caribbean and Mediterranean, where the wealthy and affluent visit and vacation. These immersive experiences expose new and existing customers to our evolving authority in architecture, interior design and landscape architecture. This leads to our long-term strategy of building the world's first consumer-facing architecture, interior design and landscape architecture services platform inside our Galleries, elevating the RH brand and amplifying our core business while adding new revenue streams, while disrupting and redefining multiple industries.

Our strategy comes full circle as we begin to conceptualize and sell spaces, moving beyond the $170 billion home furnishings market into the $1.7 trillion North American housing market with the launch of RH Residences, fully furnished luxury homes, condominiums and apartments with integrated services that deliver taste and time value to discerning time-starved consumers. The entirety of our strategy will come to life digitally as we launch The World of RH, an online portal where customers can explore and be inspired by the depth and dimension of our brand. Our authority as an arbiter of taste will be further amplified when we introduce RH Media, a content platform that will celebrate the most innovative and influential leaders who are shaping the world of architecture and design.

Our plan to expand the RH ecosystem globally multiplies the market opportunity to $7 trillion to $10 trillion, one of the largest and most valuable addressed by any in the - any brand in the world today. A 1% share of the global market represents a $70 billion to $100 billion opportunity. Our ecosystem of products, places, services and spaces inspires customers to dream, design, dine, travel and live in a world thoughtfully curated by RH, creating an emotional connection unlike any other brand in the world. Taste can be elusive, and we believe no one is better positioned than RH to create an ecosystem that makes taste inclusive, and by doing so, elevating and rendering our way of life more valuable.

Climbing the luxury mountain and building a brand with no peer. Every luxury brand, from Chanel to Cartier, Aston Martin to Aman, Louis Vuitton to Loro Piana, Harry Winston to Hermes, was born at the top of the luxury mountain. Never before has a brand attempted to make the climb, nor do the other brands want you to. We are not from their neighborhood, nor invited to their parties. We understand that our work has to be so extraordinary that it creates a forced reconsideration of who we are and what we are capable of, requiring those at top of the mountain to tip their hat in respect. We also appreciate that this climb is not for the faint of heart, and as we continue our ascent, the air gets thin and the odds become slim.

20 years ago, we began this journey with a vision of transforming a nearly bankrupt business with a $20 million market cap and a box of Oxydol laundry detergent on the cover of the catalog into the leading luxury home brand in the world. The lessons and learnings, the passion and persistence, the courage required and the scar tissue developed by getting knocked down 10 times and getting up 11 times [Phonetic] leads to the development of the mental and moral strength that builds character in individuals and forms cultures in organizations. Lessons that can't be learned in a classroom or by managing a business, they must be learned - earned by building one or by reaching the top of the mountain.

Onward Team RH, Carpe Diem. Now, operator, we'll open the call to questions.

Question & Answers

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Steven Zaccone with Citi. Your line is open.

Steven Zaccone - Citi - Analyst

Okay. Thanks very much. Good afternoon, everyone. First question, can you just elaborate a little bit more on the full-year revenue expectations? So the full-year guidance, right, the $200 million of backlog demand being fulfilled, despite all the newness in the business. Maybe just help us understand what you're seeing in terms of the softening that started in February and how that factors into your outlook for the balance of the year versus first quarter? Thank you.

Gary Friedman - Chairman and Chief Executive Officer

Well, the softness is and the newness is all implied in our guidance. And as we've said, we believe it's prudent to take a conservative view at this time based on kind of the disruption. But we saw our business soften since the beginning of the conflict and the market volatility followed. And I think you've got to kind of also consider the fact you've got, it's clear now to everyone that inflation isn't going back to 2%, even though Janet Yellen, not too many weeks ago, when it was 4% [Phonetic] or 5% [Phonetic], said it was going to 2% [Phonetic], and two weeks later, it went to 7.5% [Phonetic] and now it's at 7.9% [Phonetic].

And we've got Jerome Powell saying that they waited too long. And now we're going to have two years of interest rate increase - interest - rising interest rates. So you've got a lot of news and a lot of noise out there compounded by a war and invasion. And I think the invasion of Ukraine by Russia just became a kind of a reckoning point, if you will, where people had to stop and pay attention to everything. And we saw our business slow about 10 points to 12 points, and it's been relatively consistent during that period. When it returns to normal, not sure how aggressive is the Fed going to be, not sure. There are things we know and I don't mean to be a pessimist, but history would tell us four times to five times the Fed raises interest rates over a sustained period, we have a recession.

And I don't need to tell you guys that math and it's just a fact. So look, we tend to, as I like to say, pray for peace and plan for war. And so we believe we've got a great hand to going into this year. We believe we have the most exciting lineup of initiatives, product experiences in the history of our Company. We've got the best strategy, the best business model, one of the best balance sheets in our industry, the highest ROIC in our industry. So kind of game on, whatever happens happens, and we're just putting ourselves in a position to win.

Steven Zaccone - Citi - Analyst

Yeah, that's very helpful detail. Thank you for that. I had a question on just the margins for international. So I think you said in the past that Europe can be the same or higher than the margin profile for the U.S. How should we think about the profitability curve as you do some of these initial openings in the next few years? I guess another way, should we assume there is a little bit of dilution in the operating margin guidance you've given for this year, just from UK opening and then Europe next year?

Gary Friedman - Chairman and Chief Executive Officer

Yeah, that would be the right assumption, but I'd say we're all going to learn together, right. It's the first time we've done it. There is not a ton of history of a business like ours expanding globally and taking control of the brand versus licensing the brand to others which is an easier way we believe a long-term less profitable and value creating way for our shareholders. And history has demonstrated that many of the great brands that license their brand or franchise their brand spent years and a lot of money buying their brands back. So if we - we believe it will be accretive to earnings long term, that's what the math would say as you kind of study others models. But exactly what the curves going to look like, yeah, look, we're the first time we've done this. So I don't think we have any better view than anybody on this phone. We'll kind of communicate what's - as it evolves. And, but I think we - we are - we've become more confident every month, every week, as we get closer, we realize we've got greater brand awareness and greater brand affinity as we meet people, talk to people, there is a lot of excitement for RH opening in Europe, and there is a relatively high awareness of our brand with the target consumer. So we feel very confident, and long-term, we believe it's going to be accretive to our operating margins.

And I'd say if you just kind of think about where we are today, we are still not a business of complete scale in the United States, right. We're not a retailer that is closing stores, that is kind of shrinking to kind of optimize their business. We're still growing. We have lots of new Galleries to transform and have several billion dollars more, we're going to do just in the U.S. And with that scale and as our product continues to evolve, transform and go to a higher level, we can kind of see operating margins approaching 30%. And when you think about international possibly being accretive on top of that, should be accretive on top of that, we could have a model here long-term that looks like some of the best luxury models in the world.

If you kind of segment LVMH or Kering or look at the individual brands, right, because a lot of times great brands and great businesses get lost in kind of multi-branded business models. And - but Hermes has operating margins in the mid-30s. Chanel has operating margins in the mid-30s. Louis Vuitton, if you segmented out, has operating margins in the mid-30s. And Gucci has operating margins in the low-to-mid-30s. So we - and by the way, if you just stand back and think about those luxury brands, they have a lot of competition of scale.

There is – there is actually a lot of choice for a wealthy consumer to access quite a few brands from an apparel point of view. It's also a lot of brands to access from, if you think about the jewelry sector or the watch sector, if you think about luxury cars, if you stand back and think about luxury home furnishings and luxury design, if you think about, okay, who is this fully integrated brand, yeah, at the top of the luxury mountain in the world, it's a big void, it's a really big void, you've got a very fragmented kind of portfolio of kind of category, niche category brands that are relatively small, but don't have scale, that don't have control of their brand, they're franchised out, they control very little of their distribution.

I mean, if you just take the B&B Italia, for example, in North America, I think - how many points of distribution they have, call it 40, 50 points of distribution, they control four of those points of distribution. So their brand is like thrown around in a bunch of place, and they're probably the best global brand in the upholstery category, but they don't cover all the categories. And then you've got, I think it's industrial design invest, something like that, some group, it's - and everyone's had B&B Italia plus lighting, some other things.

People are trying to kind of grow stuff together and figure out what to do. And so I don't think like - I kind of think like we have like a 20-year lead in our sector, it takes a long time to build something like we're building. And we're just getting to a place where people are going to start to understand what this brand is capable of. People are just going to start to see a consistent way, the kind of physical environments and experiences that we're building for customers. The exciting hospitality concepts that are going to bring people to this physical experiences and connect with people and create greater brand awareness, greater brand affinity.

When people see what we're going to do internationally, in North America, we've had unwind a really kind of choppy crappy business in little stores and spent a great part of our journey unwinding kind of a shitty business turning it into an okay business, spending about many years of this journey, just not going bankrupt, trying to exit lots of categories, lots of businesses, trying to move from a promotional model to a membership model, and then reposition not only the product, but all the real estate and not its like [Indecipherable] not in a shy away, right. I mean we haven't taken our Galleries, which are not necessarily small when you look at other players or competitors in our market. I mean, we have 10,000 to 12,000 square foot legacy Galleries with 7,000 to 8,000 feet of selling space. It's not small, but we're not taking them and just remodeling them. We're not taking them and making them 20% bigger or 50% bigger, we're making them like 500% bigger.

And they're really the most exciting and interactive and experiential and dominant, yes, physical experiences of their kind in our industry today across any category I'd argue. So I think when you think about taking the very best of who we are and go into Europe with that and not being kind of played with our old identity, not being positioned like other people kind of have been, and you walk them where we've got a legacy store in a mall today. There is us and there is three other people or four other people depending who do you want to pick and you know the names. Those people aren't international in any meaningful way, nor are they really positioned to compete against us today, even in the U.S. And so, internationally, it's so fragmented. There is nobody of scale. Most of them don't control their distribution. And most of them were - they were kind of like where we were 20 years ago. So I just think the opportunity globally for this brand is maybe like no other brand in the world.

If you really stop and think about it, you just like, you take any other category and say, who is - who owns that at the high level, how many brands are there, who are the leading brands that control their brand, control of their product on all levels, have the platform we have, have the business model that we have, like we're not going over there with negative EBITDA trying to grow in Europe. We're not going over there with like 5% EBITDA and trying to grow in Europe. We're going over there with like close to 30% EBITDA.

So we just have - we are in such a great position, and I don't think anybody but us really get it just because we've been studying it for so long and thinking about it that long. So, and then what we're doing next from a physical point of view in Europe, it's better than anything we've ever done. And when you guys see what's coming, I would want to be in Europe competing with us, I'd tell you that. I thought if you want to be competing with us here in North America in our category, you really don't want to be competing with us in Europe. And I don't mean to say that arrogantly, it's just, I mean, just - you just got to take a close look. So there you have.

Steven Zaccone - Citi - Analyst

Yeah, that was great. Appreciate all the detail. Best of luck this year.

Operator

Thank you. Our next question comes from the line of Steven Forbes with Guggenheim Securities. Your line is open. Check to see if your line is on mute.

Steven Forbes - Guggenheim Securities - Analyst

Can you hear me?

Jack Preston - Chief Financial Officer

Yes.

Gary Friedman - Chairman and Chief Executive Officer

Yeah, we knew Steve.

Steven Forbes - Guggenheim Securities - Analyst

Sorry about that. So I wanted to focus on the new product launches. So, hey Gary, if you can, can you update us on the specific timing of the launches Contemporary in the elevated collections, in modern and interior, any also color on the breadth of the new collections as we try to conceptualize the impact? And then whether the current supply chain environment has or is anticipated to impact these launches in any way?

Gary Friedman - Chairman and Chief Executive Officer

What do you think? Of course, it's impacting the launches. I mean, everything is somewhat late and a little fragmented as it's coming together. So, look we would have liked to be out there with Contemporary in March. We would have, I mean before the varying in the fourth quarter kind of ripped through. And again, it really - I think it impacted the U.S. a lot, not that greatly. We - it just kind of went through the U.S. very quickly, but when you think about country like China, Vietnam or some of the places that we have big sourcing out of - yeah, it just all got kind of goofed up. So we - I think we're about a couple of months behind, we're - and also we want to be smart as just as we think about just the economic landscape, we're going into.

If the economic landscape is volatile, you want to be careful, especially if you've got a Source Book Catalog business like ours, you don't want to mail into a big headwind. So we're reevaluating our plans. We're - I mean we're kind of - we thought we might launch with 450 to 500 pages with Contemporary, I think it's going to be probably more like 300 to 350 pages just stuff is late. My sense is, it might even be later. I mean the supply chain, I think many of us thought it would have been - we have been caught up by now. I mean, we will be lucky to be caught up by the end of the year. And because it's just hitting everybody from all angles, all the raw materials, all the transportation issues, not just the transportation getting it to us, our vendors having to get all of their components from all over the world shipped to them. So you just have this compounding supply chain kind of puzzle happening.

So I think the key thing is just don't rush it right now, because you can probably make mistakes that you'll - you wish you didn't. I think, yes, like we say we're being a little conservative, how aggressive do we go with circulation, we'll see - we kind of pushed Modern Interiors to the second half, let Contemporary kind of take the stage in the first half, but it will be coming in May. We don't want to book to get out there before we have some goods in stock, and it's all running late. So - and that's probably also contributed to just our conservative view for the year. So - and even on the Galleries, on the projects, just we're in a world that is - it's just - I've never seen it so chaotic honestly from an execution point of view, whether it's construction, sourcing, manufacturing, shifting supply chains, freight, everything's a little out of sync in the world right now.

So, yeah, but everybody is dealing with it. So I think it's just how do you do it in the most intelligent way. And like I - like to say like quality, you kind of got to wait for quality, and we're not going to get any bonus points for rushing right now. I just don't think we are. I think there is more risk of winding up in the ditch. So we're kind of slowing things down a bit. We're trying to be more thoughtful. We're trying to make fewer bigger more important moves. And that's just our view. Yeah, and I know everybody else is approaching things, but, that's our view. We tend to spend a lot of time here thinking very deeply about a few big moves. This is a year where we got a lot of big moves because they all kind of get backed up. And so we don't want to create more chaos in our world and our customers' world. So, yeah, so, what you see in front of you right now is that in the letter is the best news I have. It's different news than my last letter, yeah. But I read the last letter, I didn't know - I didn't know how to say it, Omicron.

Jack Preston - Chief Financial Officer

Omicron.

Gary Friedman - Chairman and Chief Executive Officer

Yeah. Also in this that gets - then all of a sudden boom, we've got a war, Russia invades Ukraine, boom. Yellen says interest - the inflation is going from 4% to 2% and then it goes to 7.5%, and Powell says we're behind. I think there is still a lot of - everybody thinks supply chains are getting better. I don't think we've gotten better at all. I mean it's - it is what it is. I mean product is on the water for a long time, getting ships into port, it's taken a long time. We've got generally about five extra weeks in our supply chain right now, that's a lot of time, it's a lot of money, and that's the average. So that means some steps coming on time and some steps, 10 to 12 weeks behind.

And when you run kind of an integrated business like ours, where you need all the pieces of the puzzle that kind of paint the picture, that just makes it more complex and more difficult. But at the same time right now everything on that list the year of the new, I'd be shocked if it doesn't all happen. If you ask me what's the biggest risk, Palo Alto goes into first quarter of next year, but that's not going to make a difference to the year anyway.

Steven Forbes - Guggenheim Securities - Analyst

That's super helpful, right. Because I think as we try to contextualize the prudence of the guide, it almost appears like you're not incorporating a contribution from a lot of these year of the new factors, right. I mean any comment on how you sort of built the guide from a bottom-up standpoint or how you would define the prudence behind it? I mean, you have a great track record here. So any thoughts on just the guide in a holistic context of - on just the prudence behind it?

Gary Friedman - Chairman and Chief Executive Officer

Yeah, well, look, I mean it's probably one of the difficult guidance since 2008 and 2009. As we're right in the middle of this disruption from Ukraine and Russia, which I think - I don't think it's all Ukraine and Russia. I think its triggered a greater awareness like its like someone I think this was ringing the bell, everybody pay attention, and then also everybody started talking, yeah. I'll sends the Fed's off to the races and that creates concern. You got housing prices at all time highs. I mean is it sustainable, I don't know for how long the math - does it make sense on kind of what's happening in the housing sector and other places, you've got inflation like I've never seen.

As I was telling people when when Yellen said, we're going back to 2%. We were just signing our new freight contracts, ocean freight contracts. I just wonder if anybody the Fed is picked up the phone and call a business person and said hey, what do you think is happening with inflation. As ocean rates, how is this, how's that, I mean I think - I don't think anybody really understands what's coming from an inflation point of view because either businesses are going to make a lot less money or they're going to raise their prices. And I don't think anybody really understands how high prices are going to go everywhere in restaurants, in cars and everything. It's - and I think its going to out-run the consumer and I think we're going to be in some tricky space. So everything is kind of happening at once, and I think you got to prepare for war. I mean if you're going into a very difficult unpredictable time, you just got to be super flexible, you've got to be able to improvise, adapt, overcome and kind of be ready for anything. And I don't mean that by playing defense, I mean it by playing offense, but it's, I wouldn't call it happy days right now. I'd call it pensive days, be ready. And when we play like that we usually have our best outcome. When we get it overly optimistic, we have a higher likelihood to wind up in the ditch and get ahead of ourselves.

So, but if everything - if the war in Ukraine ends and inflation slows down, some miraculous way, I don't know everybody sign new freight contracts because I mean most of the world will sign new freight contracts. Two years ago, prices for container for us went from $2,400 to $4,800, yeah, yeah, doubled. I'm not going to tell you what it just went to, but just let's say that looked like a nice increase. So, and in fact it's everybody. So either people are going to do stupid things like take quality down to make their goods like look like it's better value or they're going to not they're going to have to take prices up and or they won't take prices up and they'll hurt their margin profile is going to change.

But it's not just us, it's everybody you know and every industry. And I just don't think it's like again, I don't want to scare everybody, but you talk about it like there's is the scene in The Big Short, where everybody is in that ballroom and the guy, I think it's a guy says someone is up there, one of the things, and he's saying how they're going to buy back $1 billion of their stock. This is not - I mean, one guy on his BlackBerry, I guess, can I ask you a question, sir. In the 20 minutes that you've been talking, your stock is down like 75% [Phonetic] and everybody ran out of the room. I just think look, we tend to just try to be transparent and honest. And look maybe our stock is going to take a big hit because of this and people are going to think Gary Friedman wasn't excited. I've never - I totally think, I've never been my 22 years here, I've never been more excited. I've also never been more uncertain, right. So, and I think you have to take a real balanced view right now.

Steven Forbes - Guggenheim Securities - Analyst

Super helpful. Thank you, Gary. Jack, best of luck.

Gary Friedman - Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Adrienne Yih with Barclays. Your line is open.

Adrienne Yih - Barclays - Analyst

Hey, Gary, hey, Jack, thanks so much for the somewhat brutal honesty, but I think we have to hear it. I guess my question is, Gary, you talked about in the past two events that tend to impact your business, market volatility, high net worth, ultra high net worth individuals, that sounds like you have baked that into the guide, and then the second would be deceleration in high-end housing, which we haven't necessarily seen yet. How much of that is potentially in the guidance? And then, Jack, on the $2 billion term loan that was taken out, what are the plans there? Thank you very much.

Gary Friedman - Chairman and Chief Executive Officer

Yeah. I think…

Adrienne Yih - Barclays - Analyst

Already San Francisco was awesome.

Gary Friedman - Chairman and Chief Executive Officer

Thank you. Thank you. Yeah, look, I wish I could - I had more to tell you. What's baked in, all our best thinking, but like I said, there's just a lot of change and there's a lot of evolving. I mean like you have to ask yourself, I mean what's - where does inflation go in the next time they report it, what's really happening today. I mean we're just trying to build a plan and a view that puts us in a position to win. So we thought about everything we can. I don't know, we can't impact nor what can we forecast big macro trends like until you see them.

I mean that the Fed can't do it. Janet Yellen can't do it. Like, I don't think anybody in this call can really do it. No one ever really gets these things, right. But you can capitalize on any environment if you're prepared, and that's all we're trying to do. We're just trying to be in a position to win, be in a position to take advantage of any opportunities that present themselves. We're going to be patient. We may look a little slow to some people, but when we like to say don't move until you see it, right. So we're going to wait until we see it and then we'll move, and when we move, we generally move aggressively. Right now, a little hard to see it.

When I'll set in your business, and it drops 10 to 12 points overnight and there's just more news and unrest in the world, just you got to change what you're doing. If you don't change things, things won't change. So we're changing things. We're adjusting and improvising as we go. We're excited to tell, but like this is - look this is a similar conversation I had with our Board. I said my opening was - in my 22 years never been more excited in my entire career, here's why all the things I read, you all happening by the way, almost everything there is happening in the next 12 weeks, most of it. It's like a few things happening in fall and Palo Alto, and stuff. But also because of all the things that rising interest rates, Runaway inflation, unrest, yes, so on and so forth.

Without - you say what's happening in the housing market is a really good thing. When things get too hot, they usually get cool. So again I don't want to scare people. I'm just trying to tell you, I mean you can see the numbers that we see. The last time houses had multiple bids like this. The last time, prices went up like this. Not - it wasn't a great other side to it. So again, but things are different. We're in economy, there is new kinds of businesses, there is new kinds of wealth creation, there is new kinds of productivity things driving the economy. So I don't know, is there enough good things whether it's in our business or other parts of the economy that motor is through and we don't have a recession, we don't have a slowdown, if Ukraine get settled sooner, I don't. I mean maybe I should be the one and we should be the one asking you guys the questions today. We - I - we spent a lot of time, wrote - I wrote everything that we know. Like if you guys know stuff and have points of view, we'd love to hear what you think.

Jack Preston - Chief Financial Officer

And Adrienne, I think that also answers the plans of the term loan question. Look we raised the capital to provide optionality whilst to be opportunistic. And I think - and Gary summarized well sort of how we're thinking about moving till we see it. So when we move you'll know.

Adrienne Yih - Barclays - Analyst

Any - but any plans to retire the converts early, what do you think?

Gary Friedman - Chairman and Chief Executive Officer

Yeah, really all kinds of things, but you also look you've windows, you can do things in our Company, you've got - I've got expiring options that's putting me in a position to have to sell roughly 1. [Phonetic] million shares of stock. All those things you can't have too many things happen at one time and have conflicts happening. It's probably not appropriate to be buying back the stock when the CEO is selling the stock, right.

Adrienne Yih - Barclays - Analyst

Sure.

Gary Friedman - Chairman and Chief Executive Officer

Yeah. So - yeah, there's just a lot of things, you got to think about, right.

Adrienne Yih - Barclays - Analyst

Yeah, yeah.

Gary Friedman - Chairman and Chief Executive Officer

So we don't have complete flexibility on all these decisions. But, look, we will make - I believe we will make great decisions for our shareholders. And if I didn't have to sell the stock, I wouldn't be selling stock. I actually thought maybe there is some way we can extend the options. I found ofut, now that's an IRS thing. The IRS doesn't let you go past 10 years. And then the option expires. So my options expiring in November of this year. I think it's better to prior to get it out of the way, so we can have more operating flexibility. So my situation actually constricted us a bit.

Adrienne Yih - Barclays - Analyst

Got it. Thank you very much for all the information. Very helpful.

Gary Friedman - Chairman and Chief Executive Officer

Sure.

Operator

Thank you. Our next question comes from the line of Curtis Nagle with Bank of America. Your line is open.

Curtis Nagle - Bank of America - Analyst

Great, thanks. Thanks very much for taking the question. So, yeah, just, thinking about a lot of noise going on. Obviously, if we kind of gone through a lot of detail here on the call volatility supply chain malaise, all sorts of stuff. I'm just trying to think about the state of the industry and thinking about the premium and luxury end of things at least in the US, it's still pretty fragmented. I guess maybe sort of cynically thinking here. Do you think you guys might have a bigger opportunity to take share. How do you think that plays out. How has that changed over the past, I don't know, a couple of years, thinking about the next two to three.

Gary Friedman - Chairman and Chief Executive Officer

I think we feel great about the next two to three years. So I think we will take share in any environment, Curtis, in any environment. Again these are all kind of temporal issues, whether it's the war, the inflation and stuff like that none of this is permanent. There's a lot of things going on at once and the supply chain everything else, you just have to navigate in the best possible way or you can kind of screw up your business model and make some strategic mistakes. It's one thing, we're all going to make a lot of mistakes and I tell everybody in the company that he only difference between their mistakes in my mistakes is my mistakes and across the company a lot more money than their mistakes. So collectively as a leadership team, we have thousands of people in this company. Their livelihood is determined on our decisions and we want to make great long-term decisions. We are not here for a short period of time. I've been here 22 years. I'm looking over it. Stef has been here, who is our Chief Gallery Officer Stefan Duban, who has been here 22 years, little longer than me I think, right. Erie has been here 15, 16 years. Jack has really been here 10 or 11, if I mean but I mean technically take 9 at RH plus 3 with - Sandy, 14 years, our Chief People Officer. I mean I go round, there is more people in the room, but a lot more people around, we've been here a long time.

We tend to be - we're going to be here a long time, so we're playing for the long term and we're trying to make really good big decisions that kind of change kind of the vector of the direction that we're going and I think we've made some really good ones. I think that's why we've got a operating model that's not a little better than the next best person. It's a lot better than the next person. And we have really big moves we're making right now that can increase that vector and accelerate our performance significantly more. We don't sit here and say, oh, we made 25% operating margin. We think this is the best we've ever done. So it's not going to get any better. We think it's going to get a lot better. We maybe see another 5 points to 10 points of operating margin quite frankly. It's just that right now I'm giving you guidance right now. We're talking about right now. Right now, it's a bit confusing. And anybody who is saying it's not, good luck. It's just I think it's the time you've got to really keep your eyes open, your intent is up and you've got to prepare for anything that might happen. I mean, again, look, the work at end things can get better, business could bounce back, but there is a lot of things that are sitting out there.

Rising interest rates is never a great thing. Now it might be three years away before rising interest rates really take a big hit out of the economy. I don't know. There is always patterns and we've looked at all the patterns, we've got all the graphs, we've laid over all the graphs of all the interest rates like with the last last 20 years in the US, the average interest rate was 2%. You go push it out 30 years, it's 3% in federal funds rate. When is the last time it's look like that. The 1950s to the 1970s. Okay, that's the last time and how old was everybody in this call in 1980 when the federal funds rate was 20%. I'm not trying to scare anybody, but almost everybody on this call, look in 1980 I was a kid, I didn't know what I was doing. I didn't have wisdom then. I just don't think there's a lot of people in business today except for Warren Buffett and Charlie Munger and I don't know George Soros and you didn't say a handful - if you had wisdom in 1980s, you kind of get into your years of wisdom in your 50s and start to get wise and I look back in my 30s, I really didn't do anything, I just like worked really hard. My 40s got better, get down and kind of see a bigger picture, in my 50s I started seeing a much bigger picture and in my late 50s and 60s I think I've kind of gained a lot of wisdom and I can see a much bigger much bigger playing field than I could.

If somebody was 50 years old in 1980, they are 90 years old today. So I just think a lot of people haven't seen this. When is the last time anybody here has seen interest rates go up two years in a row and 6 times or 7 times this year and 4 times, 5 times next year. Nobody has seen that. Nobody has seen a lot of things that are happening today. So I'm just saying, look, I'm just trying to be completely honest again. I couldn't be more excited, but I can be more uncertain and that's just the story. Other people might be banging a brighter happier drum than me. Do they have better numbers than we do. I don't think so. We will play the game the way we play the game and we have a lot of exciting things coming and if we're too conservative, it will make more money.

Curtis Nagle - Bank of America - Analyst

For sure and certainly appreciate the long-term view. Just one quick follow-up just in terms of I guess pricing that you may be including in the guidance, right, published in residual from - especially last year as you mentioned, of your costs coming in or continued cost increases. So is another round of price increase is included in the 2022 guidance or no.

Gary Friedman - Chairman and Chief Executive Officer

Yeah, we've got everything included in the guidance. And again, our business has been evolving for multiple years, right. So we are selling higher price points to fewer customers, bigger orders, like, in general, we're still evolving this model into a luxury branded model. So ours is a little different. I mean contemporary is the highest quality goods we've ever had. It's the highest price points we've ever had. When we get those right, they tend to be the best selling products we've ever had. Our most expensive is our best-selling salesmen. So we're probably better positioned to take prices up than others because we've been taking prices up for years. And so in our industry it's kind of event buying, right. It's like buying a car. You're not looking at the price of the car until you need the car, you're not looking at the price of furniture all the time until you need the furniture. So I think we're a little better positioned than other industries and other categories as it relates to price increases. We are pretty disciplined about taking price increases and so on so forth, but these are going to be bigger. I mean what's going to be the real - when you have this kind of impact from freight and raw materials and price increases from suppliers and so on and so forth, I mean you can say, oh, we're big, we can absorb it, that's kind of be what's happening in the world today, like prices are going up everywhere. And if they're not, earnings are going to go down. So the question people have to ask is, do I want a bigger lower margin business and do I want to chase sales or do I want maybe for a while a smaller higher margin business and then come out of this really positioned for the long term and that's the view we've taken not just recently, but for almost 20 years and really accelerated six, seven years ago, seven years ago when we began to move the membership six years ago and launched Modern and so on and so forth. Modern was - the prices of Modern was 50% higher on average when we launched something like that, almost 2 times in some cases. So, yeah, I know you guys are trying to figure out the model and the guidance and exactly what that's going to be. I think we can all get lost in the details right now.

It's kind of the big moves in the big picture that's important and making really smart big moves and I think all our big moves are the right big moves and if we change our mind in any of them we decide not to do something, pullback in something, we'll make the right decisions based on how things evolve, but the business just did change weeks ago. So we're probably that I don't know, like when did other people report. I mean, we reported a little later, right. So people probably hadn't seen the real trends yet. Unless we are just the only ones getting hit right now. I mean, I'd be surprised if that was happening but what I heard is there's been a broader slowdown in our industry and it's got to be probably in other places, too.

Curtis Nagle - Bank of America - Analyst

Fair enough. Much appreciate it. Thank you.

Operator

Thank you. Our next question comes from the line of Michael Lasser with UBS. Your line is open.

Michael Lasser - UBS - Analyst

Good evening. Thanks a lot for taking my question. So Gary, when you say that you see 10 points to 12 points slowdown, presumably that is on demand comps. So where are your demand comps trending over the last few weeks. They are actually down year-over-year and the counter argument would be that while there is a lot of uncertainty in the environment, your core customer came into this year in a very strong financial position and the high-end housing market is in a pretty good spot. So is it your view that these purchases are merely being deferred or is there a possibility that prices have been raised so significantly that the customers now responding to that.

Gary Friedman - Chairman and Chief Executive Officer

What do you think. I don't know, I mean it could be a little bit of everything. It could be the distraction of the war, it could be so many things, Michael. And we're not giving really - with our demand, got to hit by 10 points or 12 points. We're not actually guiding demand. We just wanted to give you color that there has been a change and there is also one of the biggest dislocations between demand and revenues. I think it's going to be that way for everybody. So we just wanted to try to be transparent and say, hey look, just because we might [Indecipherable] that's where demand is. So we're trying to be transparent with shareholders and let people know what's really happening. So want to come back next quarter and say oh yeah, our demand has been down for a whole for the last several months and we didn't tell you when we could have. So again, I mean probably I would hit our stock today, I got it, whatever. I mean we're playing for the long run, and I know everybody got clients, then there's an earn out of stocks, now these aren't easy times for all shareholders. Again just going to tell you the truth and we're going to be transparent. We didn't have to say this. I think we are the first ones talking about demand. Other people, they are talking about sales and they're seeing totals wrong. Well, our sales are going to continue relatively strong in Q1 comparatively to what we're up against better demand, it's just the truth. What the consumer has got, they have more money. Do they have it like they do, they're not acting like it right now. So that's what you got to know. Will it change in three months.

Michael Lasser - UBS - Analyst

That is super helpful. Are you seeing this consistently across the board the slowdown across categories as well or is there any pattern that you can see, and you're not the only one I mean trigger the grill company reported last week also said that the last three weeks have seen a pretty big slowdown. So this is probably a broader trend and it's right for you to pointed out as well. So I guess any flavor you can provide on what you're seeing by category geography and then the obvious question is how to what degree did you flex your feet, your P&L. If this is prolonged and gets worse, is there a downside risk to the 25% to 26% operating margin target for this year, understanding that you will have an opportunity to grow that from that base over the long run.

Gary Friedman - Chairman and Chief Executive Officer

Look, if it stays down this like this, the entire year I think everybody in the industry - we will be adjusting our numbers down. This looks temporal. When things like this happen, they usually don't stick. It all depends on are there any other shoes that drop. So we've got things that are going to counter this. We've got new goods and initiatives that are going to come into play. This is all we have for you right now. So I think next quarter, we'll have a much better view and I don't know, Jack, if you want to.

Jack Preston - Chief Financial Officer

I am going to comment on the categories and geography obviously. Michael, we don't, those kinds of items, I think generally no major headlines there. And then, I mean obviously if risks is the model that is down for extended period of time, there is a risk. The margin that's just through our P&L, but we'll update you to the extent that happens.

Michael Lasser - UBS - Analyst

Understood. Good luck. Thank you so much.

Gary Friedman - Chairman and Chief Executive Officer

Okay. Thank you, Michael.

Operator

Thank you. Our next question comes from the line of Chuck Grom with Gordon Haskett. Your line is open.

Chuck Grom - Gordon Haskett - Analyst

Great. Thanks a lot. Just to continue on this. Unfortunately, I was wondering, Gary, if you could compare and contrast some of the consumer behavior that you've seen in recent weeks to December of 2019 when your business potentially in the context of that 10% to 12% that you just said.

Gary Friedman - Chairman and Chief Executive Officer

10% to 12% decline looks like a 10% to 12% decline. So there is very different factors that contributed to that. So how those will play out is the unknown. But again, I think we're all kind of like major focused on kind of right now. And right now I think that our focus is really on a much longer horizon and the big moves we're making. And no matter what happens short-term, we're going to - when we're going to take market share, we're going to be disruptive and we've got the best model. We've got a great balance sheet, we've got an incredible strategy, we've got a global expansion that we're teeing up the best work we've ever done. So if you're doing some of those things into a headwind, whatever - we've seen headwinds. This is not the first goat rodeo we've seen. You just navigate through them and you win through them. But I'm not going to sit here and just try to act like nothing is happening right now, it would be the wrong thing to do. And so how it compares to 2018. They are both down. Different circumstances, different time. We're a different company. I don't know what was our operating margin in 2018, 11. Okay. Yeah. In 2018, we had an operating margin of 11.4, we had a different cash flow profile. A lot of things were different.

We have an operating margin opened 26 today, we've got a better real estate strategy than we've had, we've got a higher return on invested capital than we've ever had. We've got more exciting things in the pipeline than in 2018. We're all smarter and better than we were in 2018. So it worked tremendously side, again we're working our butts off here and yeah, we're super pumped. I mean it sounds like the most excited. Right now, I am being a but you guys, keep asking me the same questions to a degree about it like I'm giving you the best answers. If you want to talk to you more about Europe or more about other things, you'll probably get a little bit different tone. So I don't know Chuck, I mean it's we don't see anything specifically different in the numbers. I see something different in the environment and I mean in 2018, did we have the Fed say they're going to raise interest rates, 6 or 7 times, no. Did we have inflation at the levels we have today, no. Did we have the share of the Fed say, hey, we're way behind, no. And there's just a lot of things very different and I've seen enough cycles to know that caution is advised right now. That's what I'd say.

Chuck Grom - Gordon Haskett - Analyst

Well, I think we all agree honestly. Just maybe bigger picture on the brighter spot. You called out the $200 billion TAM for RH desktops. Just quickly, can you talk on the ramp, how quickly you can build that out over the next, say, three to five years.

Gary Friedman - Chairman and Chief Executive Officer

So I don't know. We have our first one opening like I just knocked on wood. I think it's extraordinary. I think, and one of the things we've learned is when we do extraordinary remarkable work we've always figured out how to monetize it and this is some of the best work we have ever done. We have our second one that in Austin that's coming year behind it and that's got –that's very similar in a lot of ways, they are both kind of them a micro hotel. We've got 10 rooms in New York and 9 in Austin, but they are incredible rooms, rooms that no one has ever seen, it's architected for privacy. I don't think anybody's architected a hospitality experience for privacy. We believe privacy is going to be a big market, privacy is the one thing everybody has given away on social media and its one thing the Internet has taken away because you can Google anything about everyone. So we believe privacy is going to be an important market and that market you can monetize and we're creating a concept I think is unlike anything else in the world and we're doing things that have never been done in hospitality. It's a place we would all love to stay at a different price point now.

And if we get what we think we're going to get for the rooms, we think it can really work, but we don't know. We haven't sold a room yet, we haven't opened the restaurant yet, we have the first restaurant like that we put in our Bespoke Gallery in San Francisco. It's our new live fire restaurant concept. It's tremendously exciting. I think it's got a really wide net. I think it's delicious food, we're doing it internally from scratch ourselves. We've been in there eating almost every night and fine-tuning every detail and so we think in a lot of levels guest house is going to be incredibly exciting concept for us and we'll elevate the RH brand in the world of design and taste and style and place making and stuff like that. So I think it's going to have a huge impact on our brand and how we're perceived in the world. And if it works the way we are kind of modeling it now that we're closer to it and we can see it and we can think about how to price it, it could be a real business, but that's not we're planning for right now. We're not sitting there kind of thinking, yes, we're going to go build a $1 billion hospitality business, but then again I only thought RH could be $1 billion not too long ago. So in a lot of ways, it's the best work weve ever done of any kind of work we have ever done is the best work we've ever done. So we'll see what the consumers think. And they'll kind of tell us how excited to get about it.

Chuck Grom - Gordon Haskett - Analyst

Got it. Thanks a lot.

Gary Friedman - Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our last question comes from the line of Brad Thomas with KeyBanc Capital. Your line is open.

Brad Thomas - KeyBanc Capital Markets - Analyst

Hey, good afternoon and thanks for taking the question. Gary, I was hoping to follow up on RH England and see if there is any more color you can provide on how things are shaping up from a supply chain and logistics standpoint on your [Indecipherable] here. And what should the customers over there expect initially that might be different in terms of anything like delivery time, relative price points versus what we see here in the United States.

Gary Friedman - Chairman and Chief Executive Officer

Well, Fernando just got back. I'm looking at him across the table. I mean he's updated as things look good. I think we're ready to go from a supply chain side on our end, the part of supply chain, we don't control, we'll see how that evolves. But I think so far, it looks like we'll have inventory, we will be ready, we'll be able to deliver and execute the construction like any construction today in the world of COVID is taking longer and costing a bit more. But I kind of think about RH England as a kind of a living store, it's like, it's a big 73-acre estate and not everything has to open at once, like we are going to have how many hospitality to think about that. I think we got three restaurants opening on the property. Altogether I think there's five or six hospitality experience that we have the [Indecipherable] restaurant, we've got the conservatory we've got the leisure, we got the wine room, the key room, we've got the [Indecipherable] we can picnics on the lines that are going to be happening. I mean it's going to be a fun place like, I don't think the conservatory restaurant will make it for this summer. I mean we may do, but that may come next time next season, but I think this is going to be something that is going to be a really fun interactive experience. I think if we do it well, a lot of people are going to come. It's going to be a great environment to see our product, this is beautiful beautiful state, it gives incredible live, it has incredible views. We have the biggest hurdle White Deer in all of Europe, we have a Deer Park you that deer grace on it. You sit there have a picnic and look at the beer, look at the views are the conservatory or the and they all have views and, yeah, it's going to be spectacular. We kind of call it the most unusual store in the world internally, that's not we're going to say externally. But I think it's going to get us off to a great, great start. But we're running a bit behind where like we always have all. This is a grade one listed building just to put it in perspective, that's like Buckingham Palace is a grade one listed building. When you have a grade one listed building, I don't want to say anything. I would say they get anybody in English side, but it's just not the easiest to get approval to make any changes and so on and so forth and look at the people we're working within historic England is and they've been tremendous and they've been excited about our project. But it's just a slower process and COVID slowed us down a bit, so we're kind of rushing to panic hit mid-summer may could be late summer. But whenever we get open it will be spectacular and that's really the key. You don't get a second chance to make a first impression on something like this. So whether it open, I though we're going to get June. I don't know, it's probably a long shot to get June now, but could be July, could be August.

Whenever it opens I think everybody in our organization is going to be proud of it. I think our shareholders are going to be proud of it, and I think customers are going to be really excited about it. It will be our best work and we just did our new best work. If few of you came to the opening in the San Francisco which wasn't the opening of our San Francisco, it was once they announced in the Bay Area in Northern California that masks, we didn't have to wear masks, we said okay. We haven't had a party in two years, we've opened a bunch of galleries we're having a party in our hometown. So we set the date, we mailed the invite and we had a party even though everything was exactly done, but those of you that were there it looks spectacular. It is the most extraordinary gallery we've ever built. It's got an entirely new restaurant, this is called the Palm Court, that is incredible, new wine experience there, new wine bars and incredible rooftop with views of downtown San Francisco, but England goes to another place, right.

And then when everybody sees what's coming in Paris, it's just extraordinary, and what we're doing in Mayfair in Central London, incredible. We're stringing together four buildings, incredible experience. In Paris, we're going to have a Champagne and Caviar Bar on the top floor in the roof with views of the Eiffel Tower. I mean you can't make that up, right in Paris. RH Paris is going to have a Champagne and Caviar Bar with views of the Eiffel Tower. And I think Chicago 3 Arts still has the record for the most engagements in one of our restaurants, but Parents might take that crown after few years.

And then when you see we're very close to, I guess if I can change that, because we are in negotiations, but something even wildly more spectacular in the French country side. If we do this one, I mean, its just incredible brand enhancer. So like this stuff we have coming, you just have to keep changing your perspective on what's possible and how to see our brand. I think all the people came to our party last week I think designers were blown away. They thought if you get out on the West Coast, even if it's not open, I think we'll open kind of mid-April. Got a few more things we have to get done there. But if you're anywhere near here and you want to see it, let us know, we will give you a tour because on on the main floor, we set up RH Contemporary and it's shocking, it's so good, it is that good when you see it. I mean I think people, it's just going to motivate people there, change their house, redo their house, no matter how long ago they bought furniture. It's a whole new thing, it's very, very cool and just beautiful and the quality is outstanding.

So a lot of excitement coming. We're really pumped about England and if there is no COVID and we can have a party, do not miss that one.

Brad Thomas - KeyBanc Capital Markets - Analyst

All really exciting stuff. If I could squeeze in a follow-up. Perhaps a bit more dry. You all have had kind of different capital structures over the years and depending on it, times are good or bad, just to circle back on the question of the term loan. I mean in this environment with inflation where it is, the trends you've been seeing I guess how do you think about what the capital structure should look like right now.

Jack Preston - Chief Financial Officer

I think we've consistently answer that. I'm not sure that we have a target cap structure. We think very opportunistically about our capital capital deployment, our cap structure. So that hasn't changed. I think we've been quite consistent probably for the last nine years about that. We raised the capital to provide optionality and to gives us some flexibility here going forward exactly. We accomplished that at a very attractive rates.

Brad Thomas - KeyBanc Capital Markets - Analyst

You certainly did. Great, thank you so much.

Gary Friedman - Chairman and Chief Executive Officer

Thank you, Brad.

Operator

Thank you. We have another question the come in the queue. It is from Seth Basham with Wedbush. Your line is open.

Seth Basham - Wedbush Securities - Analyst

Thanks a lot, and good afternoon. Not to belabor the point that has been brought up by some prior questions, but just in regards to thinking about the margin outlook for 2022, the more muted sales outlook, I am surprised to see operating margins expanding in your guidance. I'm wondering if you are changing anything, your cost structure materially relative to when you last talked to us in December. For example, you're cutting back on some of the source book distribution that you're planning or anything else along those lines. Thank you.

Gary Friedman - Chairman and Chief Executive Officer

No, well, like, I think if you just looked at us since what 2017, relatively modest revenue growth, we've had pretty significant operating margin expansion. So I would hope you get used to it. We don't expect not that anytime soon stop expanding margins unless we make some kind of short-term big investments that may be put weight on it. But even with opening in Europe. Even with a lot of pre-opening expense and investments and opening Europe means we've got people over there now, we're flying teams over there, people over there, living there, staying there in hotels, we will have big teams going there. We've had big teams in San Francisco to get that open. We've got big pre-opening costs for the Guest House. We're absorbing a lot of investments and it's clear to us, how important kind of the connective tissue of hospitality is in our business today and will be. Our vision for hospitality now I think is just magnified. And what we can see and what we have confidence in doing like, look, not too many years ago we didn't know anything about restaurants and it was the end of 2015 really beginning 2016, we had our first restaurant open. We didn't even have a a host because we thought no one was going to show up. There is part of it like okay, who wants to go eat in the middle of the furniture store. And so the original if you want to look at the Chicago video, I think Brendan who we partnered within the first few restaurants said, like there's going to be no host, no this, no that. We open in the first day and I think we had a line out the door and we had nobody feeding with customers hovering over tables waiting for the next person to leave.

We went from just one restaurant that wasn't really in our backyard is all the way in Chicago and it was with somebody that was not inside our company, right. And now it's six years later and we've got 13 restaurants that we totally control that entire hospitality team is, its internal it's not farmed out at all. We're developing it. We design the restaurants, we design the menus, we're architecting what this platform looks like. We've done the Guest House from scratch, nobody is out this with that, we did all the architecture internally and all these things. So I like we're really going to become a hospitality company too, but well, since you might think, well, gosh, it's just like another business, not the way we're thinking about it like everything we do we think from an integrated perspective. So it's not like we're running a hospitality business, this is really an integrated hospitality business, it's amplifying the core business and amplifying the brand and it's a new way of talking to people. It's a new way to market a brand, it is new way to connect and we just see so many more opportunities. So you are going to see us do many things like the new livewire restaurant, you're going to see us do this Champagne and Caviar Bar in New York, and it will be the first one, you're going to see the first RH bath house and spa in Austin. And you will see other things. I think this brand is going to evolve and become something that the world has never seen and in many ways it's already become in many ways depending where you are and what you're looking at, starting to become something the world's never seen, especially from a financial outcome perspective right now inside a model like this. So we're investing heavily in hospitality this year. And because we think there is such a big opportunity to commence the brand. So we're absorbing a lot of cost this year. We had almost no travel during COVID. So we're back to traveling, that's why you saw some deleverage in SG&A in Q4. One of the things was travel, we're traveling again, we're working again, we came back to work a lot earlier than everybody else. We don't have a whole, we don't have a vote here on, are we coming back to work or not. A lot of crazy things happening in the world. But I think it's going to be bad for productivity, but not going to work, I think is one of them. But anyway, what you see in our model relatively conservative sales were expanding operating margins even though we have a lot of investments and we're expanding internationally.

So it just tells you about our model, right. What's the model going to continue to look like over the next two, three, four, five years or what is going to look like over the next decade. I really think it's going to look like a handful of very best luxury brands in the world if we do it right. But you've got to build desirability and scarcity and prestige and exclusivity and a lot of things into really being a luxury brand. I'd like that to get people to really desire that brand. You've got to execute. It's actually an incredible level and we're getting there. We're getting better all the time. We've got ways to go. And so that's where we're optimistic about. We are going, look how we are doing and they haven't seen anything yet. We can see what's coming over the pipeline over the next two, three, four, five years, right. We know what's in that pipeline. Some of the pipelines are under construction or we're finalizing lease or we're doing the renderings and finishing the architectural designs on projects that I wish I could talk about them all right now, but you guys probably get scared, so like I have scared you enough for one day. Just trying to be honest about what we see.

Seth Basham - Wedbush Securities - Analyst

Thanks.

Gary Friedman - Chairman and Chief Executive Officer

We're not scared, just to be clear, we're excited. We're just cautious.

Operator

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Gary for closing remarks.

Gary Friedman - Chairman and Chief Executive Officer

Okay. Well, thank you everyone for your time. We look forward to speaking with you next quarter and do let us know if you're on the West Coast and want to see RH San Francisco or come by and see the center of innovation. Okay. You might need a pick up after this call. Thank you. Take care, everyone.

Operator

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Q4 2021

Earnings Transcript

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