A Beat Against a Low Bar; the Whole Year Now Rests on a Second-Half Bridge

Results vs. Consensus

Quality of Beat/Miss

• Revenue: A real beat against a guide management set three months ago at negative 2-4%. Revenue of $800.3M was reduced by roughly $45M from backorder and special order balances running about $75M above the prior year, so adjusting for that the underlying business grew. That adjustment is management's own and is not audited, but the mechanism is documented across six consecutive quarters and the balance sits on the balance sheet.
• Margins: Poor by any measure except the guide. Gross margin of 41.4% is the weakest of the four quarters we have covered and fell 230bps year over year. Adjusted SG&A deleveraged 428bps on a smaller revenue base. Adjusted EBITDA margin fell 600bps to 7.1% from 13.1%, with management disclosing that international pre-opening costs came in at 450bps against 420bps guided.
• EPS: The adjusted number is the honest one and it is worse than GAAP, which is unusual and important. GAAP net loss of $13.7M includes a $31.7M favorable legal settlement on credit card interchange fees. Strip it out and the adjusted net loss is $37.2M against adjusted net income of $2.6M a year ago. The beat against consensus is real; the year-over-year deterioration is severe.

Year-over-Year Comparison

Assessment: Depreciation and amortization rose 10.0% year over year to $38.7M, which is the first visible instalment of the fiscal 2025 capital program landing in the P&L. It is also precisely the line that disappears from view when a company guides on EBITDA rather than operating margin. Adjusted operating margin of 0.3% against 7.0% is the measure of what actually happened; the GAAP 4.3% carries the settlement credit.

Sequential Comparison

Assessment: Q1 is seasonally the weakest quarter and the sequential margin decline overstates the deterioration. What does not is the balance sheet: total borrowings rose $5.5M in the quarter, the revolver was drawn $10M rather than repaid, and equity declined. After five consecutive quarters of deleveraging progress, the direction reversed. Inventory fell only 2.0% sequentially, confirming that the working-capital source which funded fiscal 2025 is largely exhausted.

Business Performance

RH does not report segment financials. The disclosed operating detail is the shareholder letter's growth bridge, the backorder quantification, and the RH Estates rollout schedule given on the call.

RH Estates

The launch is the entire fiscal year. Management detailed the schedule for the first time: the first Sourcebook mailed ahead of the call, product terraces into galleries representing roughly 60-65% of the business by end September, reaches all galleries by December, and a second, substantially expanded mailing follows in early November. Management framed the concept as targeting the traditional and classic aesthetic that represents about 60% of the luxury home market, with patent pendings claimed on 65-80% of the book, and confirmed prices will be higher than the core assortment.

"End of September, we'll be in the galleries that represent roughly 60%-65% of the business, roughly two-thirds of the business. December will be all galleries. Our second mailing of estates will be the early part of November." — Gary Friedman, Chairman and CEO

Assessment: The schedule is the problem, not the product. Estates is asked to deliver 5 points of second-half growth, and it will not be in even two thirds of galleries until the last week of the third quarter. That compresses essentially the entire contribution into the fourth quarter, which is also the quarter in which the second mailing and the full gallery rollout coincide. The plan has no slack.

Trade program

RH is reinstating an incentive program for interior designers, reversing a decision management took in 2016 when it moved to the membership model. Management was unusually direct in calling that decision a mistake, and framed the reversal as opening the brand to a customer that buys furniture professionally.

"I'm the guy that we used to have a trade incentive program. I took it out... Probably not now that I reflect on it with the wisdom I have today, versus what I saw and felt in 2016" — Gary Friedman, Chairman and CEO

Assessment: Strategically sound and economically dilutive at the margin, which management acknowledged in general terms without quantifying the incentive rate or the expected volume. Paying the trade to specify RH is how the rest of the high-end industry works and it should raise the ceiling on Estates. It also arrives in the same year as the international drag and the Estates launch cost, with no sizing.

Europe

Milan opened during Salone and London is the next flagship. Management framed London as the accelerator for the whole European program, citing higher brand awareness from expatriates and travellers, and continued to use RH England's three-year ramp as the reference for how the new markets build. International pre-opening drag was 450bps in Q1 against 420bps guided, is guided at 380bps in Q2, and 270bps for the full year, which implies roughly mid-100bps in the second half.

Assessment: The drag arithmetic is the most checkable forward disclosure in the release, and it embeds a sharp second-half improvement of roughly 250bps from the Q1 level. That is transitory pre-opening cost coming out, which is credible. It also means the second half needs both the European cost to fall and Estates to deliver, simultaneously, for the full-year guide to hold.

Key Topics & Management Commentary

Overall Management Tone: The most enthusiastic call of the four we have covered, and the least quantitative. The prepared letter and the opening answer were given over almost entirely to RH Estates, with one answer running several pages and including an invitation to discuss the collection for five hours. Analyst questions were more focused than the answers, and the two most consequential disclosures of the quarter, the second-half bridge composition and the international drag arithmetic, both came from the CFO in short replies rather than from the prepared remarks.

The Second-Half Bridge, Made Explicit

The shareholder letter did something the prior four did not: it published the arithmetic of the required acceleration. The company must go from flat in the first half to up 12% in the second, built from backlog reduction of 4.5 points, new store growth of 2.5 points, and RH Estates at 5.0 points.

"Backlog reduction: +4.5 points New store growth: +2.5 points New concept growth: +5.0 points" — RH First Quarter 2026 shareholder letter

The backlog component is the most defensible of the three. Management said the associated demand is already written and on the books, and the CFO tied it directly to the $75M of elevated balances.

"that $75 million is on our books and will ship." — Gary Friedman, Chairman and CEO

Assessment: Publishing the bridge is a genuine improvement in disclosure and it is also an admission of concentration. Backlog release is close to arithmetic. New stores are contractually committed. Estates, the largest single component at 5 points or roughly $85-90M of incremental second-half revenue, is a product that has never been sold. If Estates delivers half of what is assumed, the full year lands at or below the bottom of the guided range.

The Backorder Drag Widened

The mechanism that has now shaped six consecutive quarters got worse before it gets better. Balances ran roughly $75M above the prior year, costing about $45M of Q1 revenue against roughly $30M in Q4, and management guides a similar elevated balance in Q2 with normalization only by the end of fiscal 2026.

Assessment: This is the specific condition we set in April for returning to a Hold, and it was not met. The offsetting point is real: deferred revenue that is written and shipping is worth more than demand that never existed, and it is the one part of the second-half bridge with an auditable balance behind it. But six quarters is no longer a disruption; it is the operating environment, and the revenue keeps arriving at a gross margin that keeps falling.

Management Answered the Operating Margin Question Directly

The disclosure change we flagged in April, the withdrawal of adjusted operating margin guidance in favour of adjusted EBITDA margin, was addressed on this call without being asked about directly.

"there's some people that want to focus on operating margin, and we're going to carry a lot more depreciation. For investors who want to focus on that line, all right, focus on that line. Maybe some people are going to be a few hundred basis points better than us. We're going to be focused on EBITDA and cash flow." — Gary Friedman, Chairman and CEO

Assessment: Credit where due: this is a straight answer, and it confirms the read rather than denying it. Management is telling investors that operating margin will be structurally worse because the capital program converts to depreciation, and that it would prefer to be measured before that line. That is an internally coherent position for a business whose thesis is cash generation. It is also a request that shareholders ignore the cost of the assets that produce the cash, and it should be priced accordingly.

Deleveraging Paused

After five quarters of steady progress, the first quarter of fiscal 2026 went the other way. Total borrowings rose $5.5M to $2.394B, the revolver was drawn from $20M to $30M, inventory declined only 2.0% sequentially, and stockholders' equity fell to $56.9M. Free cash flow of $13.3M compares to $34.1M a year ago.

Management restated the path: $200-250M of annual asset sales for two years, a restructured Aspen joint venture giving RH full control of properties it can now monetize independently, and a debt-free target for 2029 that the CFO characterized as a goal rather than a commitment.

"The exact timing of being debt-free, again, it's our target, it's our goal. I think importantly, just that making progress on those initiatives, that's what we're focused on." — Jack Preston, CFO

Assessment: The Aspen restructuring is a concrete step and it is the first evidence that the asset sale program is more than an intention. The CFO's careful downgrade of "debt-free by 2029" from a plan to a goal, ten weeks after it was introduced as a headline target, is the more telling detail.

The Convertible Question, Answered on Price

Asked about the balance sheet path, management addressed the convertible market it had floated in December and set an explicit price condition.

"when our stock gets to the right levels, would we exercise convertible options to take down debt and move debt? We have so many ways to work the balance sheet to do things. You don't want to do any convertible debt at this level." — Gary Friedman, Chairman and CEO

Assessment: Useful and reassuring in the near term: management will not issue equity-linked paper at $153. It also confirms that the option is live at a higher price, which caps some of the upside from any re-rating, because a share price recovery becomes the trigger for dilution rather than purely a return.

Customer Acquisition Under Challenge

The sharpest exchange of the call questioned whether the Sourcebook-and-gallery model can deliver the Estates contribution in an era when competitors reach customers through social channels. Management rejected the premise firmly, citing furniture's 80/20 store-to-online split and a 95/5 split at the luxury level.

"We just think it's massively unauthentic to pay some stranger, some influencer, to go talk about our goods, and they know nothing about us." — Gary Friedman, Chairman and CEO

Assessment: The physical-first argument is well-supported by the category data and has been vindicated by RH's own history. The question asked, however, was narrower: whether the existing acquisition engine can produce $85-90M of incremental second-half revenue from a new collection. That question was not answered.

Capital-Efficient Formats and Return on Invested Capital

Management gave the fullest description yet of the design compound: a single-storey format that eliminates elevators, grand staircases, exit stairwells, rooftop structural steel and complex mechanical systems, with bathrooms aggregated centrally and garden space that requires no air conditioning. Post-COVID construction cost was described as two to two and a half times higher in some cases, and management expects returns on invested capital to return toward prior peak levels.

Assessment: The engineering logic is sound and specific, which is more than can be said for most of the long-term targets. None of these formats has opened, so the cost saving remains an estimate, and the fiscal 2027 capital expenditure guide of $150-170M depends on it.

Tariff Refunds Excluded

The CFO confirmed that tariff refunds, which had begun and then paused amid litigation, are not included in the guidance.

"No further refunds. The refunds started coming, but they've been kind of paused... As far as the guidance reflects, does not reflect the free cash flow specifically, does not reflect any further tariff refunds." — Jack Preston, CFO

Assessment: Appropriately conservative and a genuine source of upside to the cash flow guide if the litigation resolves favourably. It is also unquantified, so it cannot be modelled.

The Housing Market, Fifth Year

Management no longer expects a recovery to contribute this year, allowing that the downturn may run into a fifth year and stating that the guidance assumes no improvement.

"I'm not counting on the guidance we just gave everyone. I'm not counting on the market getting any better." — Gary Friedman, Chairman and CEO

Assessment: The right construction for the guide and a meaningful change in framing from the 2030 targets introduced in April, which embedded 2 to 3 points of housing recovery in the out-years. Removing macro help from the near-term plan makes the fiscal 2026 outcome purely a function of execution, which is where the risk now sits entirely.

Guidance & Outlook

The raise is a narrowing rather than an increase: the low end of each range moved up while the high end did not move at all. Adjusted operating margin remains unguided for a second consecutive quarter, and adjusted free cash flow retains the definition that includes $200-250M of asset sale proceeds, so the operating component of the $300-400M target is still roughly $50-200M.

Implied Q-over-Q ramp: On the fiscal 2025 base of $3,439.5M, the 4.5-8.0% guide implies $3,594M to $3,715M. Q1 delivered $800.3M and Q2 is guided to $903.6M to $921.6M, so the first half lands near $1,704M to $1,722M against $1,713.1M a year ago, which is management's "flat" first half. The second half must then deliver roughly $1,890M to $2,011M against $1,726.4M, or 9.5% to 16.5% growth, with the midpoint near 12.5%. That matches the published bridge and it concentrates the year in two quarters that have not started.

Street at: Consensus stood at a loss of $2.09 per share and $792.6M of revenue against a $1.97 loss and $800.3M. Post-print sell-side reaction was mixed, with at least one firm reiterating a Buy and another raising its price target, against a pre-print note flagging that the full Estates launch would come later than planned.

Guidance style: Conservative on the quarter just guided and unchanged on the year. Management said explicitly that it is not counting on housing improvement and would be surprised not to beat the numbers, and described the 5-point Estates assumption as conservative. That is the fourth consecutive quarter in which management has characterized its own plan as conservative; in three of them the plan was subsequently missed.

Analyst Q&A Highlights

What customization and the trade program do to the addressable market

The opening question asked management to size what the Estates customization capability and the new trade program open up. The answer ran at length through product provenance, intellectual property and personal history, and produced one quantified claim: that the historical under-penetration of the traditional aesthetic may have cost RH a billion dollars or more of revenue over a decade.

Q: "curious if you can maybe just give us a high-level view on what you think this really means for the brand's reach and addressable TAM, especially once you layer in that new trade program. How much of the market really gets opened up?"
— Steven Forbes, Guggenheim Securities

A: "This is, I would say, I don't know, there's maybe a chance that we might have given away over the last 10, 12 years, $1 billion, maybe more."
— Gary Friedman, Chairman and CEO

Assessment: A retrospective estimate of a foregone opportunity is not a forward sizing of the new one, which is what was asked. The most useful content in the answer was the claim of patent pendings on 65-80% of the book, which if accurate is a real barrier and the first defensible moat argument made for Estates.

The basis for the 5-point Estates contribution

The most important question of the call asked what supports an assumption worth just under $100M of second-half revenue from an unlaunched collection, and whether the customer acquisition model needs to change to deliver it. Management defended the physical-first model at length and did not address the derivation of the number.

Q: "I wanted to dig in on the 500 basis points of contribution that you were expecting from RH Estates in the back half of the year. That's just under $100 million. What is the basis for that expectation?"
— Michael Lasser, UBS

A: "I don't know. They've been doing that for the last three years, and we've outperformed all of them. I think, when you say we're mailing a book and expecting people to come, we've built the greatest physical platform on the planet Earth for our kind of products. Right? Don't overlook the physical platform."
— Gary Friedman, Chairman and CEO

Assessment: The single largest assumption in the fiscal 2026 plan was asserted rather than derived. Management's confidence is genuine and it is not evidence. The first data point that could support or refute it is the Sourcebook response, which will not be visible to investors until September.

Whether Estates margin funds its own launch and the trade incentive

A follow-up asked whether the Estates margin profile is high enough to fund the trade incentives and the launch investment while still delivering the second-half margin expansion. Management said the margin will be set competitively rather than by cost, and characterized the trade incentive as immaterial against the model's operating leverage.

Q: "Is it sufficiently higher than the legacy business in order to fund the investments that you're doing, provide the incentives to the trade community, as well as anything else you might have on the horizon, and still drive the margin expansion that you've embedded in the back half?"
— Michael Lasser, UBS

A: "Yeah, we've got plenty of margin to cover what we're doing. We'll have plenty of margin growth going forward."
— Gary Friedman, Chairman and CEO

Assessment: An assertion in place of a number, on the question that determines whether a second-half revenue beat would even convert to a margin beat. Gross margin has now declined year over year for three consecutive quarters, so the burden of proof sits with management here, not with the questioner.

Estates rollout sequencing and the deposits line

A question sought the mechanics of the rollout and whether customer deposits should already be signalling the ramp. Management gave the clearest schedule of the call and the CFO gave a non-committal answer on deposits.

Q: "can you give us a sense of sequencing, how much of the collection is being launched? I assume it'll be continuous. What percentage of items on floors and galleries will be Estates? When should we expect that fully ramped?"
— Simeon Gutman, Morgan Stanley

A: "End of September, we'll be in the galleries that represent roughly 60%-65% of the business, roughly two-thirds of the business. December will be all galleries."
— Gary Friedman, Chairman and CEO

Assessment: The most decision-relevant disclosure in the release. Full gallery penetration in December means the fourth quarter carries nearly all of the Estates contribution, so the second-half acceleration is really a fourth-quarter event with a third-quarter option on the Sourcebook response.

The path to debt-free by 2029

A follow-up asked for an update on the debt-free target and how it ranks against simply letting the business deleverage naturally. Management listed the asset sales, the Aspen restructuring and the spending decline; the CFO then reframed the target's status.

Q: "Can you remind us, this path to getting debt-free by 2029, is there an update? What other steps are you taking to get to that? How much of a priority is it versus just letting the business now let the RH Estates collection speak for itself and then drive the natural deleverage of the business?"
— Simeon Gutman, Morgan Stanley

A: "Free cash flow will build through that time period. Again, I think it's just reiterate what Gary said, which is it remains a priority. The exact timing of being debt-free, again, it's our target, it's our goal."
— Jack Preston, CFO

Assessment: A target introduced ten weeks earlier as a headline commitment is now described as a goal whose exact timing is not the focus. That is a soft walk-back, and it came in the same quarter in which total borrowings rose for the first time in five quarters.

How much of the second-half ramp is already in hand

A question tried to separate the portion of the second-half acceleration that requires new demand from the portion already written. Management confirmed the backlog element is demand already captured and the CFO pointed to the published figure.

Q: "how much of a ramp do you have to have in that existing business in order to achieve, with the capacity to talk about these new pieces, to achieve that guidance for the second half of the year?"
— Brian Nagel, Oppenheimer

A: "It's the $75 million or 4.5%. The backlog."
— Jack Preston, CFO

Assessment: The cleanest exchange of the call. Of the 12 points of second-half growth required, 4.5 are demand already booked, 2.5 are contracted store openings, and 5.0 are speculative. That is the risk decomposition in one line, and it is the reason a Q1 beat does not change our rating.

How much of the international drag is transitory

A question asked which portion of the 450bps Q1 and 380bps Q2 international costs comes out of the base in the second half. The CFO declined quarterly guidance but supplied the arithmetic to derive it.

Q: "for Q2, you're guiding, I think, 380 basis points for London. Could you just help us out on which of those costs should we consider transitory and come out in the second half of the year versus costs there that are now in the base and will persist?"
— Zach Fadem, Wells Fargo

A: "Let's call it mid-100s in the back half, and the delta between that and the numbers for Q1 and Q2 are the transitory sort of pre-opening driven related to the openings."
— Jack Preston, CFO

Assessment: The most useful margin disclosure of the quarter and the one component of the second-half improvement that is close to mechanical. Roughly 250-300bps of pre-opening cost falls away after Q2. It is also a reminder that even after the transitory costs clear, Europe still carries a persistent mid-100bps drag with no disclosed revenue offset.

Why reinstate a trade incentive now

The closing question asked why the trade incentive program is right now, given it was deliberately removed a decade ago, and how the trade business has been trending. Management called the 2016 removal a mistake and tied the reinstatement directly to Estates.

Q: "could you share some context on why now is the right time to pursue a loyalty program that compensates your trade clients? Presumably, you've maybe considered this pivot in the past. What makes now the right time to roll this out?"
— Jonathan Matuszewski, Jefferies

A: "Why is now the right time is because of estates. Estates opens up the very top of the market for this brand."
— Gary Friedman, Chairman and CEO

Assessment: A coherent answer and an unquantified one. Reinstating trade compensation should widen distribution for a collection whose buyers are professionals. Neither the incentive rate nor the size of the trade business was disclosed, so the revenue lift and the margin cost are both unmodellable.

What They're NOT Saying

1. The 5-point Estates assumption has no stated derivation: Asked directly for the basis of just under $100M of second-half revenue from an unlaunched collection, management asserted the number was conservative and moved to a defence of the marketing model.
2. Adjusted operating margin is still not guided: Second consecutive quarter. Management now explicitly says it prefers investors focus on EBITDA and cash flow because depreciation is rising, which is a reason to disclose the line, not to withhold it.
3. No demand or comparable metric, third quarter running: Management said on this call "we're not reporting demand, we're reporting revenues." Demand growth was the headline metric as recently as Q2 fiscal 2025.
4. The trade incentive is unsized: Neither the incentive rate, the current size of the trade business, nor the expected margin cost was given.
5. No European revenue disclosure, fifth quarter running: Paris, Milan and London have now all opened or are imminent, and the only European number that exists is a cost drag.
6. Estates inventory commitment is undisclosed: Management said last quarter that it had bought ahead on Estates inventory, and it has still not stated how much working capital is committed ahead of the first read.
7. Tariff refunds are excluded but unquantified: Real upside to the cash flow guide, mentioned but never sized.
8. Asset sale cadence still not committed: Second consecutive quarter in which $200-250M of the cash flow guide has no schedule, now alongside a debt-free target reframed as a goal.

Market Reaction

• Pre-print setup: RH closed at $159.32 on June 11, down 11.1% year to date against the S&P 500's +8.0%, down 11.0% over the trailing twelve months, and up 21.3% over the trailing thirty days from $131.29. The pre-print 52-week closing range was $112.85 to $251.00, so the stock entered the print 41% above its own low.
• Next-day session: Shares opened unchanged at $159.32, traded a $147.00 to $163.56 range, and closed at $153.04, down 3.9% or $6.28. The S&P 500 rose 0.5%.
• Volume: 2.0M shares against a 0.9M share thirty-day average, 2.3 times normal, the lightest participation of the four sessions we have covered.

A stock that beats its guidance on both metrics, raises its full-year outlook and then falls 3.9% is telling you the print was not the variable. The setup was. RH entered the day up 21.3% in thirty days and 41% above its April low, so a beat against a guide management had set deliberately low was already in the price. The intraday low of $147.00, 7.7% below the prior close, marks where the selling was, and the recovery into the close suggests the sellers were positioning rather than thesis.

What the tape appears to have read is the composition rather than the headline. The quarter beat, and the year did not change: the high end of both guided ranges was left untouched, and the second half now carries an explicitly published 12-point acceleration of which 5 points depend on a collection that has not shipped. Against a stock that had already recovered 41% from the low, that is not a combination that supports further multiple expansion. The light volume is consistent with a market that has already decided this is a September and December story.

Street Perspective

Debate: Does RH Estates deliver its 5 points?

Bull view: Estates addresses 60% of the luxury home market where RH is under-penetrated, is built on five acquired heritage ateliers with patent pendings claimed on most of the book, launches with a trade incentive program designed to pull professional specification, and takes the first floor of the highest-volume galleries. Management calls 5 points conservative.

Bear view: It is not in two thirds of galleries until end September and not in all until December, prices are higher into a fifth year of depressed housing, the collection was already late, and the entire second-half acceleration rests on it. No revenue assumption of this size in RH's history has been supported by so little disclosed derivation.

Our take: The product looks genuinely differentiated and the timing is genuinely bad. Our issue is not whether Estates works over three years, which we think it probably does; it is that fiscal 2026 requires it to work within six months, in the calendar quarters when the housing market is weakest.

Debate: Is EBITDA the right lens, or the convenient one?

Bull view: RH is finishing a capital cycle whose depreciation is non-cash and whose assets are long-lived. Cash generation and EBITDA are the correct measures of a business whose spending is behind it, and management said so plainly rather than obscuring it.

Bear view: Depreciation rose 10% year over year in Q1 and will keep rising, the assets carry permanent rent and maintenance obligations, and the metric was withdrawn from guidance in exactly the year it turns against the company. Adjusted operating margin of 0.3% against 7.0% is what actually happened.

Our take: Both measures are legitimate and the sequencing of the change is what matters. A company that guided on operating margin for years and stopped in the year it deteriorates has told you which way the line is going. We will keep scoring the operating line.

Debate: Has the balance sheet story stalled or paused?

Bull view: Q1 is seasonally the weakest cash quarter, free cash flow was still positive at $13.3M, the Aspen joint venture restructuring unlocks properties for independent sale, and $200-250M of asset sales plus a capex step-down still fund the plan.

Bear view: Borrowings rose for the first time in five quarters, the revolver was drawn rather than repaid, inventory release has essentially stopped at a 2.0% sequential decline, equity fell, and the debt-free target was reframed from a commitment to a goal.

Our take: A pause, most likely, but on a materially lower-quality funding source than the one that carried fiscal 2025. Working capital paid for last year's deleveraging and it is spent. Asset sales at unspecified timing are now the mechanism, and they are as much a market-timing decision as an operating one.

Model Update Needed

Valuation impact: At the $153.04 close on the 19.79M fully diluted share count reported for fiscal 2025, equity value is roughly $3.03B and enterprise value approximately $5.37B against $2.34B of net debt, before finance leases. On the midpoint of the raised adjusted EBITDA margin guide applied to the revenue guide midpoint, implied adjusted EBITDA is approximately $552M, putting the stock near 9.7 times with net leverage around 4.2 times. That is a full point of multiple above where the stock traded after the April print, on a plan whose largest growth component has not shipped. The re-rating has happened; the execution has not.

Thesis Scorecard Post-Earnings

Overall: Marginally improved and not enough to change the rating. Bull 2 and Bull 3 both move from Broken back to At Risk on the guide beat and the quantified international cost roll-off. Bull 4 moves from On Track to At Risk because deleveraging paused and its funding source is now asset sales at unspecified timing. Bear 1 moves from Emerging back to Materializing, and Bear 3 stays Materializing in its sixth quarter. The net position is a business whose margin trough may be behind it and whose fiscal year outcome is now concentrated in a single untested product launch, at a share price 41% above its April low.

Action: Maintaining Underperform. Of the two conditions we set in April for returning to Hold, the guided-range condition was met and the backorder condition explicitly was not. We would move to Hold on a Q2 print that holds the top half of its guided range with backorder balances visibly declining, or on any credible early read on the Estates Sourcebook response. We would move to Outperform on Estates delivering at or near its 5-point assumption in Q3, on adjusted operating margin guidance being restored, or on an asset sale that materially reduces borrowings on a disclosed schedule.