10-Q: Quarterly report pursuant to Section 13 or 15(d)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

RH0001528849--02-012020Q2falseus-gaap:OperatingLeaseRightOfUseAssetus-gaap:PropertyPlantAndEquipmentNetus-gaap:OperatingLeaseLiabilityCurrentus-gaap:OtherLiabilitiesCurrentus-gaap:OperatingLeaseLiabilityNoncurrentus-gaap:FinanceLeaseLiabilityNoncurrent0000true19236681trueP1Ytrueus-gaap:OperatingLeaseRightOfUseAssetus-gaap:PropertyPlantAndEquipmentNetus-gaap:OperatingLeaseLiabilityCurrentus-gaap:OtherLiabilitiesCurrentus-gaap:OperatingLeaseLiabilityNoncurrentus-gaap:FinanceLeaseLiabilityNoncurrentP3Y0001528849rh:FiscalTwentyNineteenNineFiftyHundredMillionRepurchaseProgramMember2019-02-032019-08-030001528849rh:FiscalTwentyNineteenNineFiftyHundredMillionRepurchaseProgramMemberus-gaap:RetainedEarningsMember2019-05-052019-08-030001528849rh:FiscalTwentyNineteenNineFiftyHundredMillionRepurchaseProgramMemberus-gaap:AdditionalPaidInCapitalMember2019-05-052019-08-030001528849rh:FiscalTwentyNineteenNineFiftyHundredMillionRepurchaseProgramMember2019-05-052019-08-030001528849rh:FiscalTwentyEighteenSevenHundredMillionRepurchaseProgramMember2019-02-032019-08-030001528849rh:FiscalTwentyEighteenSevenHundredMillionRepurchaseProgramMember2020-08-010001528849srt:BoardOfDirectorsChairmanMemberrh:FiscalTwentyNineteenNineFiftyHundredMillionRepurchaseProgramMember2019-03-250001528849rh:FiscalTwentyNineteenNineFiftyHundredMillionRepurchaseProgramMember2019-03-250001528849srt:MaximumMembersrt:BoardOfDirectorsChairmanMemberrh:FiscalTwentyEighteenSevenHundredMillionRepurchaseProgramMember2018-10-100001528849srt:BoardOfDirectorsChairmanMemberrh:FiscalTwentyEighteenSevenHundredMillionRepurchaseProgramMember2018-02-042019-02-020001528849us-gaap:TreasuryStockMember2019-05-052019-08-030001528849us-gaap:TreasuryStockMember2019-02-032019-08-030001528849us-gaap:RetainedEarningsMember2020-08-010001528849us-gaap:AdditionalPaidInCapitalMember2020-08-010001528849us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-08-010001528849us-gaap:RetainedEarningsMember2020-05-020001528849us-gaap:AdditionalPaidInCapitalMember2020-05-020001528849us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-05-0200015288492020-05-020001528849us-gaap:RetainedEarningsMember2020-02-010001528849us-gaap:AdditionalPaidInCapitalMember2020-02-010001528849us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-02-010001528849us-gaap:RetainedEarningsMember2019-08-030001528849us-gaap:AdditionalPaidInCapitalMember2019-08-030001528849us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-08-030001528849us-gaap:RetainedEarningsMember2019-05-040001528849us-gaap:AdditionalPaidInCapitalMember2019-05-040001528849us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-05-0400015288492019-05-040001528849us-gaap:RetainedEarningsMember2019-02-020001528849us-gaap:AdditionalPaidInCapitalMember2019-02-020001528849us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-02-020001528849us-gaap:TreasuryStockMember2020-08-010001528849us-gaap:CommonStockMember2020-08-010001528849us-gaap:TreasuryStockMember2020-05-020001528849us-gaap:CommonStockMember2020-05-020001528849us-gaap:CommonStockMember2020-02-010001528849us-gaap:CommonStockMember2019-08-030001528849us-gaap:TreasuryStockMember2019-05-040001528849us-gaap:CommonStockMember2019-05-040001528849us-gaap:TreasuryStockMember2019-02-020001528849us-gaap:CommonStockMember2019-02-020001528849us-gaap:RestrictedStockUnitsRSUMemberrh:TwoThousandTwelveStockIncentiveAndOptionPlanMember2020-05-032020-08-010001528849rh:DesignInvestorsWWAcquisitionCompanyLLCMemberrh:ProfitInterestsUnitsMember2020-05-032020-08-010001528849rh:DesignInvestorsWWAcquisitionCompanyLLCMemberrh:ProfitInterestsUnitsMember2020-02-022020-08-010001528849rh:DesignInvestorsWWAcquisitionCompanyLLCMemberrh:ProfitInterestsUnitsMember2019-05-052019-08-030001528849rh:DesignInvestorsWWAcquisitionCompanyLLCMemberrh:ProfitInterestsUnitsMember2019-02-032019-08-030001528849rh:MinneapolisDesignGalleryMemberrh:OperatingLeasebackArrangementMember2020-05-032020-08-010001528849rh:NonFurnitureMember2020-05-032020-08-010001528849rh:FurnitureMember2020-05-032020-08-010001528849rh:NonFurnitureMember2020-02-022020-08-010001528849rh:FurnitureMember2020-02-022020-08-010001528849rh:NonFurnitureMember2019-05-052019-08-030001528849rh:FurnitureMember2019-05-052019-08-030001528849rh:NonFurnitureMember2019-02-032019-08-030001528849rh:FurnitureMember2019-02-032019-08-030001528849rh:SecondLienTermLoanMember2019-09-202019-09-200001528849rh:MinneapolisDesignGalleryMemberrh:SaleLeasebackTransactionMember2020-07-012020-07-310001528849rh:AssetBasedCreditFacilityMember2020-02-022020-08-010001528849rh:TermLoanFacilityMember2019-02-032019-08-030001528849rh:AssetBasedCreditFacilityMember2019-02-032019-08-030001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2018-06-012018-06-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMember2015-06-012015-06-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberrh:ConvertibleBondHedgeAndWarrantTransactionsMember2018-06-012018-06-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMemberrh:ConvertibleBondHedgeAndWarrantTransactionsMember2015-06-012015-06-300001528849us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-05-032020-08-010001528849us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-02-022020-08-010001528849us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-05-052019-08-030001528849us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-02-032019-08-030001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMember2020-08-010001528849us-gaap:OperatingSegmentsMemberrh:WaterworksSegmentMember2020-05-032020-08-010001528849us-gaap:OperatingSegmentsMemberrh:RHSegmentMember2020-05-032020-08-010001528849us-gaap:OperatingSegmentsMemberrh:WaterworksSegmentMember2020-02-022020-08-010001528849us-gaap:OperatingSegmentsMemberrh:RHSegmentMember2020-02-022020-08-010001528849us-gaap:OperatingSegmentsMemberrh:WaterworksSegmentMember2019-05-052019-08-030001528849us-gaap:OperatingSegmentsMemberrh:RHSegmentMember2019-05-052019-08-030001528849us-gaap:OperatingSegmentsMemberrh:WaterworksSegmentMember2019-02-032019-08-030001528849us-gaap:OperatingSegmentsMemberrh:RHSegmentMember2019-02-032019-08-030001528849us-gaap:RetainedEarningsMember2020-05-032020-08-010001528849us-gaap:RetainedEarningsMember2020-02-022020-08-010001528849us-gaap:RetainedEarningsMember2019-05-052019-08-030001528849us-gaap:RetainedEarningsMember2019-02-032019-08-030001528849rh:EquipmentPromissoryNotesMember2020-08-010001528849rh:EquipmentPromissoryNotesMember2020-02-010001528849us-gaap:OtherNoncurrentLiabilitiesMemberrh:EquipmentLoanFacilityMember2020-08-010001528849us-gaap:OtherCurrentLiabilitiesMemberrh:EquipmentLoanFacilityMember2020-08-010001528849rh:ConvertibleSeniorNotesDueTwoThousandNineteenMember2020-08-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMember2020-07-310001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMember2020-05-3100015288492019-03-212019-03-210001528849rh:SecondLienTermLoanMember2019-04-100001528849rh:LILOTermLoanMemberrh:CreditAgreementMember2017-06-280001528849rh:CreditAgreementMember2020-02-022020-08-010001528849us-gaap:RevolvingCreditFacilityMember2020-08-010001528849srt:MinimumMemberus-gaap:RevolvingCreditFacilityMemberrh:CreditAgreementMember2017-06-280001528849rh:MinneapolisDesignGalleryMemberrh:OperatingLeasebackArrangementMember2020-07-310001528849rh:WaterworksSegmentMember2020-05-020001528849rh:RhBabyChildGalleryAndWaterworksShowroomMemberrh:PropertyPlantAndEquipmentOtherThanLeasedAssetsMember2020-02-022020-05-020001528849rh:RhBabyChildGalleryAndWaterworksShowroomMember2020-02-022020-05-020001528849rh:LeasedAssetsMember2020-02-022020-05-020001528849rh:WaterworksSegmentMember2020-02-022020-05-0200015288492019-02-032020-05-0200015288492016-05-012020-08-0100015288492019-02-032020-02-010001528849rh:WaterworksSegmentMember2018-02-042019-02-0200015288492018-02-042019-02-020001528849rh:WaterworksSegmentMember2017-01-292018-02-030001528849us-gaap:EmployeeStockOptionMemberrh:TwoThousandTwelveStockIncentiveAndOptionPlanMember2020-08-010001528849us-gaap:RestrictedStockUnitsRSUMemberrh:TwoThousandTwelveStockIncentiveAndOptionPlanMember2020-08-010001528849us-gaap:RestrictedStockUnitsRSUMemberrh:TwoThousandTwelveStockIncentiveAndOptionPlanMember2020-02-022020-08-010001528849us-gaap:EmployeeStockOptionMemberrh:TwoThousandTwelveStockIncentiveAndOptionPlanMember2020-02-022020-08-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberrh:ConvertibleBondHedgeAndWarrantTransactionsMember2020-02-022020-08-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMemberrh:ConvertibleBondHedgeAndWarrantTransactionsMember2020-02-022020-08-010001528849rh:WaterworksSegmentMember2020-05-032020-08-010001528849rh:RHSegmentMember2020-05-032020-08-010001528849rh:WaterworksSegmentMember2020-02-022020-08-010001528849rh:RHSegmentMember2020-02-022020-08-010001528849rh:WaterworksSegmentMember2019-05-052019-08-030001528849rh:RHSegmentMember2019-05-052019-08-030001528849rh:WaterworksSegmentMember2019-02-032019-08-030001528849rh:RHSegmentMember2019-02-032019-08-030001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberrh:ConvertibleBondHedgeAndWarrantTransactionsMember2020-08-010001528849srt:MaximumMemberus-gaap:RevolvingCreditFacilityMemberrh:CreditAgreementMember2017-06-280001528849rh:RestorationHardwareCanadaIncorporationMemberus-gaap:RevolvingCreditFacilityMemberrh:CreditAgreementMember2017-06-280001528849us-gaap:OtherCurrentAssetsMemberrh:EquipmentLoanFacilityMember2020-08-010001528849us-gaap:OtherCurrentAssetsMemberrh:EquipmentLoanFacilityMember2020-02-010001528849srt:MinimumMemberrh:EquipmentLoanFacilityMember2020-02-022020-08-010001528849srt:MaximumMemberrh:EquipmentLoanFacilityMember2020-02-022020-08-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMemberus-gaap:PrivatePlacementMember2019-09-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberus-gaap:PrivatePlacementMember2018-06-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMemberus-gaap:PrivatePlacementMember2015-06-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberrh:OverAllotmentOptionInPrivatePlacementMember2018-06-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMemberrh:OverAllotmentOptionInPrivatePlacementMember2015-06-300001528849rh:SecondLienTermLoanMember2020-02-022020-08-010001528849rh:ConvertibleDebtInstrumentConversionPeriodOneMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2019-09-012019-09-300001528849rh:ConvertibleDebtInstrumentConversionPeriodTwoMember2019-09-012019-09-300001528849rh:ConvertibleDebtInstrumentConversionPeriodTwoMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2018-06-012018-06-300001528849rh:ConvertibleDebtInstrumentConversionPeriodOneMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2018-06-012018-06-300001528849rh:ConvertibleDebtInstrumentConversionPeriodTwoMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyMember2015-06-012015-06-300001528849rh:ConvertibleDebtInstrumentConversionPeriodOneMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyMember2015-06-012015-06-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberus-gaap:CommonStockMember2020-02-022020-08-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMemberus-gaap:CommonStockMember2020-02-022020-08-010001528849rh:ConvertibleDebtInstrumentConversionPeriodThreeMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2020-02-022020-08-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberus-gaap:CommonStockMember2018-06-012018-06-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMemberus-gaap:CommonStockMember2015-06-012015-06-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberus-gaap:WarrantMember2020-08-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberus-gaap:CommonStockMember2020-08-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMemberus-gaap:WarrantMember2020-08-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMemberus-gaap:CommonStockMember2020-08-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMemberus-gaap:WarrantMember2020-08-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMemberus-gaap:CommonStockMember2020-08-010001528849us-gaap:CommonStockMember2018-06-300001528849rh:EquipmentPromissoryNotesMember2020-08-010001528849rh:AssetBasedCreditFacilityMember2020-08-010001528849rh:EquipmentPromissoryNotesMember2020-02-010001528849rh:FiloTermLoanMember2019-04-040001528849rh:SecondLienTermLoanMember2019-04-102019-04-1000015288492019-09-012019-09-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberus-gaap:PrivatePlacementMember2018-06-012018-06-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMemberus-gaap:PrivatePlacementMember2015-06-012015-06-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMember2020-05-032020-05-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMember2020-05-012020-05-310001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMemberrh:ConvertibleBondHedgeAndWarrantTransactionsMember2019-09-012019-09-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2020-02-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2020-02-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMember2020-02-010001528849us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2020-05-032020-08-010001528849us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2020-02-022020-08-010001528849us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2019-05-052019-08-030001528849us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2019-02-032019-08-030001528849srt:MaximumMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMemberrh:ConvertibleBondHedgeAndWarrantTransactionsMember2019-09-300001528849srt:MaximumMemberrh:WarrantsSubjectToCertainAdjustmentMechanismsMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberrh:ConvertibleBondHedgeAndWarrantTransactionsMember2018-06-300001528849srt:MaximumMemberrh:WarrantsSubjectToCertainAdjustmentMechanismsMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyMemberrh:ConvertibleBondHedgeAndWarrantTransactionsMember2015-06-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMemberrh:ConvertibleBondHedgeAndWarrantTransactionsMember2019-09-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2019-09-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2018-06-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMember2015-06-300001528849us-gaap:AccountingStandardsUpdate201815Member2020-02-020001528849us-gaap:AccountingStandardsUpdate201613Member2020-02-0200015288492019-08-0300015288492019-02-020001528849us-gaap:SubsequentEventMember2020-08-282020-08-280001528849rh:WaterworksSegmentMember2020-08-010001528849rh:RHSegmentMember2020-08-010001528849rh:WaterworksSegmentMember2020-02-010001528849rh:RHSegmentMember2020-02-010001528849us-gaap:EmployeeStockOptionMember2020-05-032020-08-010001528849us-gaap:EmployeeStockOptionMember2020-02-022020-08-010001528849us-gaap:EmployeeStockOptionMember2019-05-052019-08-030001528849us-gaap:EmployeeStockOptionMember2019-02-032019-08-030001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMember2019-02-032019-08-030001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2020-05-032020-08-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMember2020-05-032020-08-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2020-05-032020-08-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMember2020-02-022020-08-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2019-05-052019-08-030001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMember2019-05-052019-08-030001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2019-02-032019-08-030001528849us-gaap:CommonStockMember2019-05-052019-08-030001528849us-gaap:CommonStockMember2019-02-032019-08-030001528849us-gaap:AdditionalPaidInCapitalMember2019-05-052019-08-030001528849us-gaap:AdditionalPaidInCapitalMember2019-02-032019-08-030001528849us-gaap:AdditionalPaidInCapitalMember2020-05-032020-08-010001528849us-gaap:AdditionalPaidInCapitalMember2020-02-022020-08-010001528849us-gaap:TreasuryStockMember2020-05-032020-08-010001528849us-gaap:CommonStockMember2020-05-032020-08-010001528849us-gaap:TreasuryStockMember2020-02-022020-08-010001528849us-gaap:CommonStockMember2020-02-022020-08-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMember2020-07-012020-07-310001528849us-gaap:StockAppreciationRightsSARSMemberrh:DesignInvestorsWWAcquisitionCompanyLLCMember2020-08-010001528849us-gaap:StockAppreciationRightsSARSMemberrh:DesignInvestorsWWAcquisitionCompanyLLCMember2020-02-010001528849us-gaap:StockAppreciationRightsSARSMemberrh:DesignInvestorsWWAcquisitionCompanyLLCMember2016-05-310001528849us-gaap:ScenarioPlanMemberus-gaap:RevolvingCreditFacilityMemberrh:CreditAgreementMember2017-06-282017-06-280001528849country:GB2020-08-010001528849country:CA2020-08-010001528849srt:DirectorMemberrh:ShareRepurchasesUnderEquityPlansMember2020-08-010001528849rh:ShareRepurchasesUnderEquityPlansMember2020-08-010001528849srt:DirectorMemberrh:ShareRepurchasesUnderEquityPlansMember2020-02-010001528849rh:ShareRepurchasesUnderEquityPlansMember2020-02-010001528849rh:OtherNonCurrentObligationsMemberrh:DesignInvestorsWWAcquisitionCompanyLLCMemberrh:ProfitInterestsUnitsMember2020-08-010001528849rh:OtherNonCurrentObligationsMemberrh:DesignInvestorsWWAcquisitionCompanyLLCMemberrh:ProfitInterestsUnitsMember2020-02-010001528849us-gaap:ScenarioPlanMember2020-08-010001528849rh:ShareRepurchasesUnderEquityPlansMember2020-05-032020-08-010001528849rh:ShareRepurchasesUnderEquityPlansMember2020-02-022020-08-010001528849rh:ShareRepurchasesUnderEquityPlansMember2019-05-052019-08-030001528849rh:ShareRepurchasesUnderEquityPlansMember2019-02-032019-08-030001528849rh:FiloTermLoanMember2019-04-042019-04-040001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2020-08-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2020-08-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2020-02-022020-08-0100015288492019-09-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberus-gaap:CommonStockMember2018-06-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMemberus-gaap:CommonStockMember2015-06-300001528849rh:ConvertibleDebtInstrumentConversionPeriodTwoMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyMember2015-06-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2020-02-022020-08-010001528849rh:ConvertibleDebtInstrumentConversionPeriodTwoMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2019-09-012019-09-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2019-09-012019-09-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberrh:ConvertibleBondHedgeAndWarrantTransactionsMember2018-06-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyMemberrh:ConvertibleBondHedgeAndWarrantTransactionsMember2015-06-3000015288492020-05-032020-08-0100015288492019-05-052019-08-030001528849srt:MinimumMemberus-gaap:AccountingStandardsUpdate201815Member2020-02-022020-08-010001528849us-gaap:AccountingStandardsUpdate201815Member2020-02-022020-08-0100015288492020-08-0100015288492020-02-0100015288492019-02-032019-08-030001528849rh:RestorationHardwareCanadaIncorporationMember2019-04-042019-04-0400015288492020-09-0400015288492020-02-022020-08-01rh:statexbrli:sharesiso4217:USDiso4217:USDrh:derivativexbrli:purerh:customerrh:itemrh:storeiso4217:USDxbrli:sharesrh:segment

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 1, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-35720

(Exact name of registrant as specified in its charter)


Delaware		45-3052669
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

15 Koch Road Corte Madera, CA		94925
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (415) 924-1005

Securities registered pursuant to Section 12(b) of the Act:


Common Stock, $0.0001 par value		RH	New York Stock Exchange, Inc.
(Title of each class)		(Trading symbol)	(Name of each exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of September 4, 2020, 19,514,206 shares of the registrant’s common stock were outstanding.

Table of Contents

INDEX TO FORM 10-Q


		Page

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets (Unaudited) as of August 1, 2020 and February 1, 2020	3
	Condensed Consolidated Statements of Income (Unaudited) for the three and six months ended August 1, 2020 and August 3, 2019	4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended August 1, 2020 and August 3, 2019	5
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited) for the three and six months ended August 1, 2020 and August 3, 2019	6
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended August 1, 2020 and August 3, 2019	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	58
Item 4.	Controls and Procedures	59

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	61
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3.	Defaults Upon Senior Securities	64
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	64
Item 6.	Exhibits	65
Signatures		66

Table of Contents

PART I

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)


	August 1,		February 1,
	2020		2020
ASSETS
Current assets:
Cash and cash equivalents	$	17,387	$	47,658
Accounts receivable—net		55,916		48,979
Merchandise inventories		487,639		438,696
Prepaid expense and other current assets		60,497		61,619
Total current assets		621,439		596,952
Property and equipment—net		1,053,435		967,599
Operating lease right-of-use assets		404,508		410,904
Goodwill		124,350		124,367
Tradenames, trademarks and domain names		66,863		86,022
Deferred tax assets		39,013		45,005
Other non-current assets		196,801		214,845
Total assets	$	2,506,409	$	2,445,694
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	340,266	$	330,309
Deferred revenue and customer deposits		230,089		162,433
Convertible senior notes due 2020—net		—		290,532
Operating lease liabilities		63,866		58,924
Other current liabilities		150,759		140,714
Total current liabilities		784,980		982,912
Asset based credit facility		91,600		—
Equipment promissory notes—net		26,047		31,053
Convertible senior notes due 2023—net		275,837		266,658
Convertible senior notes due 2024—net		273,100		264,982
Non-current operating lease liabilities		406,012		409,930
Non-current finance lease liabilities		492,136		442,988
Other non-current obligations		28,206		28,520
Total liabilities		2,377,918		2,427,043
Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred stock—$0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of August 1, 2020 and February 1, 2020		—		—
Common stock—$0.0001 par value per share, 180,000,000 shares authorized, 19,485,843 shares issued and 19,485,826 shares outstanding as of August 1, 2020; 19,236,681 shares issued and outstanding as of February 1, 2020		2		2
Additional paid-in capital		444,378		430,662
Accumulated other comprehensive loss		(1,842)		(2,760)
Accumulated deficit		(314,042)		(409,253)
Treasury stock—at cost, 17 shares as of August 1, 2020 and no shares as of February 1, 2020		(5)		—
Total stockholders’ equity		128,491		18,651
Total liabilities and stockholders’ equity	$	2,506,409	$	2,445,694

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended				Six Months Ended
	August 1,		August 3,		August 1,		August 3,
	2020		2019		2020		2019
Net revenues	$	709,282	$	706,514	$	1,192,177	$	1,304,935
Cost of goods sold		376,863		411,556		660,104		777,163
Gross profit		332,419		294,958		532,073		527,772
Selling, general and administrative expenses		195,851		190,977		360,052		355,158
Income from operations		136,568		103,981		172,021		172,614
Other expenses
Interest expense—net		19,418		24,513		39,047		45,631
Tradename impairment		—		—		20,459		—
Gain on extinguishment of debt		(152)		(954)		(152)		(954)
Total other expenses		19,266		23,559		59,354		44,677
Income before income taxes		117,302		80,422		112,667		127,937
Income tax expense		18,879		16,665		17,456		28,458
Net income	$	98,423	$	63,757	$	95,211	$	99,479
Weighted-average shares used in computing basic net income per share		19,386,115		18,465,876		19,314,479		19,221,367
Basic net income per share	$	5.08	$	3.45	$	4.93	$	5.18
Weighted-average shares used in computing diluted net income per share		26,564,705		22,324,112		25,383,730		23,629,050
Diluted net income per share	$	3.71	$	2.86	$	3.75	$	4.21

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended				Six Months Ended
	August 1,		August 3,		August 1,		August 3,
	2020		2019		2020		2019
Net income	$	98,423	$	63,757	$	95,211	$	99,479
Net gains (losses) from foreign currency translation		3,290		490		918		(447)
Total comprehensive income	$	101,713	$	64,247	$	96,129	$	99,032

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share amounts)

(Unaudited)


	Three Months Ended
						Accumulated		Retained					Total
				Additional		Other		Earnings					Stockholders’
	Common Stock			Paid-In		Comprehensive		(Accumulated		Treasury Stock			Equity
	Shares	Amount		Capital		Income (Loss)		Deficit)		Shares	Amount		(Deficit)
Balances—May 2, 2020	19,264,127	$	2	$	436,799	$	(5,132)	$	(412,465)	600	$	(72)	$	19,132
Stock-based compensation	—		—		6,755		—		—	—		—		6,755
Issuance of restricted stock	3,192		—		—		—		—	—		—		—
Vested and delivered restricted stock units	60,006		—		(6,437)		—		—	—		—		(6,437)
Exercise of stock options	158,518		—		7,328		—		—	—		—		7,328
Retirement of treasury stock	—		—		(72)		—		—	(600)		72		—
Settlement of convertible senior notes	1,131,645		—		(315,708)		—		—	(1,131,645)		315,708		—
Exercise of call option under bond hedge upon settlement of convertible senior notes	(1,131,662)		—		315,713		—		—	1,131,662		(315,713)		—
Net income	—		—		—		—		98,423	—		—		98,423
Net gains from foreign currency translation	—		—		—		3,290		—	—		—		3,290
Balances—August 1, 2020	19,485,826	$	2	$	444,378	$	(1,842)	$	(314,042)	17	$	(5)	$	128,491

Balances—May 4, 2019	18,357,816	$	2	$	362,986	$	(3,270)	$	(356,816)	2,170,196	$	(250,275)	$	(247,373)
Stock-based compensation	—		—		5,191		—		—	—		—		5,191
Issuance of restricted stock	7,014		—		—		—		—	—		—		—
Vested and delivered restricted stock units	80,400		—		(5,984)		—		—	—		—		(5,984)
Exercise of stock options	146,491		—		5,997		—		—	—		—		5,997
Retirement of treasury stock	—		—		(13,180)		—		(237,091)	(2,170,154)		250,271		—
Conversion of convertible senior notes	42		—		—		—		—	(42)		4		4
Net income	—		—		—		—		63,757	—		—		63,757
Net gains from foreign currency translation	—		—		—		490		—	—		—		490
Balances—August 3, 2019	18,591,763	$	2	$	355,010	$	(2,780)	$	(530,150)	—	$	—	$	(177,918)


	Six Months Ended
						Accumulated		Retained					Total
				Additional		Other		Earnings					Stockholders’
	Common Stock			Paid-In		Comprehensive		(Accumulated		Treasury Stock			Equity
	Shares	Amount		Capital		Income (Loss)		Deficit)		Shares	Amount		(Deficit)
Balances—February 1, 2020	19,236,681	$	2	$	430,662	$	(2,760)	$	(409,253)	—	$	—	$	18,651
Stock-based compensation	—		—		12,476		—		—	—		—		12,476
Issuance of restricted stock	3,192		—		—		—		—	—		—		—
Vested and delivered restricted stock units	70,292		—		(6,818)		—		—	—		—		(6,818)
Exercise of stock options	176,278		—		8,125		—		—	—		—		8,125
Repurchases of common stock	(600)		—		—		—		—	600		(72)		(72)
Retirement of treasury stock	—		—		(72)		—		—	(600)		72		—
Settlement of convertible senior notes	1,131,645		—		(315,708)		—		—	(1,131,645)		315,708		—
Exercise of call option under bond hedge upon settlement of convertible senior notes	(1,131,662)		—		315,713		—		—	1,131,662		(315,713)		—
Net income	—		—		—		—		95,211	—		—		95,211
Net gains from foreign currency translation	—		—		—		918		—	—		—		918
Balances—August 1, 2020	19,485,826	$	2	$	444,378	$	(1,842)	$	(314,042)	17	$	(5)	$	128,491

Balances—February 2, 2019	20,477,813	$	2	$	356,422	$	(2,333)	$	(392,538)	2,800	$	(243)	$	(38,690)
Stock-based compensation	—		—		10,779		—		—	—		—		10,779
Issuance of restricted stock	7,014		—		—		—		—	—		—		—
Vested and delivered restricted stock units	101,641		—		(6,234)		—		—	—		—		(6,234)
Exercise of stock options	172,649		—		7,223		—		—	—		—		7,223
Repurchases of common stock	(2,167,396)		—		—		—		—	2,167,396		(250,032)		(250,032)
Retirement of treasury stock	—		—		(13,180)		—		(237,091)	(2,170,154)		250,271		—
Conversion of convertible senior notes	42		—		—		—		—	(42)		4		4
Net income	—		—		—		—		99,479	—		—		99,479
Net losses from foreign currency translation	—		—		—		(447)		—	—		—		(447)
Balances—August 3, 2019	18,591,763	$	2	$	355,010	$	(2,780)	$	(530,150)	—	$	—	$	(177,918)

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended
	August 1,		August 3,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	95,211	$	99,479
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		50,212		52,510
Non-cash operating lease cost		31,355		33,227
Tradename impairment		20,459		—
Asset impairments		4,783		—
Loss on sale leaseback transaction		9,352		—
Amortization of debt discount		25,378		22,962
Accretion of debt discount upon settlement of debt		(84,003)		(70,482)
Stock-based compensation expense		12,689		10,993
Non-cash finance lease interest expense		11,729		11,186
Product recalls		4,780		(2,106)
Other non-cash items		2,404		1,297
Change in assets and liabilities:
Accounts receivable		(6,431)		(504)
Merchandise inventories		(48,984)		51,189
Prepaid expense and other assets		(10,307)		(2,882)
Landlord assets under construction—net of tenant allowances		(22,934)		(27,555)
Accounts payable and accrued expenses		(13,127)		(40,073)
Deferred revenue and customer deposits		67,647		12,987
Other current liabilities		8,777		3,179
Current and non-current operating lease liabilities		(18,388)		(44,513)
Other non-current obligations		(12,327)		(13,761)
Net cash provided by operating activities		128,275		97,133
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(47,531)		(25,283)
Investments in joint ventures		(3,050)		—
Proceeds from sale of assets		25,006		—
Net cash used in investing activities		(25,575)		(25,283)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under asset based credit facility		283,200		302,000
Repayments under asset based credit facility		(191,600)		(214,500)
Borrowings under term loans		—		320,000
Borrowings under promissory and equipment security notes		—		69,000
Repayments under promissory and equipment security notes		(5,408)		(4,993)
Debt issuance costs		—		(4,636)
Repayments of convertible senior notes		(215,846)		(278,560)
Principal payments under finance leases		(4,641)		(4,399)
Repurchases of common stock—including commissions		—		(250,032)
Proceeds from exercise of stock options		8,125		7,223
Tax withholdings related to issuance of stock-based awards		(6,818)		(6,234)
Payments under promissory notes related to share repurchases		—		(892)
Net cash used in financing activities		(132,988)		(66,023)
Effects of foreign currency exchange rate translation		17		(75)
Net increase (decrease) in cash and cash equivalents		(30,271)		5,752
Cash and cash equivalents
Beginning of period—cash and cash equivalents	$	47,658	$	5,803
End of period—cash and cash equivalents	$	17,387	$	11,555
Non-cash transactions:
Property and equipment additions in accounts payable and accrued expenses at period-end	$	19,978	$	10,875
Landlord asset additions in accounts payable and accrued expenses at period-end		17,515		21,055
Reclassification of assets from landlord assets under construction to finance lease right-of-use assets		68,441		—
Shares issued on settlement of convertible senior notes		(315,708)		—
Shares received on exercise of call option under bond hedge upon settlement of convertible senior notes		315,713		—

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1—THE COMPANY

Nature of Business

RH, a Delaware corporation, together with its subsidiaries (collectively, “we,” “us,” or the “Company”), is a luxury home furnishings retailer that offers a growing number of categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, and child and teen furnishings. These products are sold through our stores, catalogs and websites.

As of August 1, 2020, we operated a total of 68 RH Galleries and 38 RH outlet stores in 31 states, the District of Columbia and Canada, as well as 15 Waterworks showrooms throughout the United States and in the U.K., and had sourcing operations in Shanghai and Hong Kong.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared from our records and, in our opinion, include all adjustments, consisting of normal recurring adjustments, necessary to fairly state our financial position as of August 1, 2020, and the results of operations for the three and six months ended August 1, 2020 and August 3, 2019. Our current fiscal year, which consists of 52 weeks, ends on January 30, 2021 (“fiscal 2020”).

Certain information and disclosures normally included in the notes to annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted for purposes of these interim condensed consolidated financial statements.

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and such differences could be material to the condensed consolidated financial statements.

We have assessed various accounting estimates and other matters, including those that require consideration of forecasted financial information, in context of the unknown future impacts of the novel coronavirus disease (“COVID-19”) using information that is reasonably available to us at this time. The accounting estimates and other matters we have assessed include, but were not limited to, sales return reserve, inventory reserve, allowance for doubtful accounts, goodwill, intangible and other long-lived assets. Our current assessment of these estimates are included in our condensed consolidated financial statements as of and for the three and six months ended August 1, 2020 and August 3, 2019. As additional information becomes available to us, our future assessment of these estimates, including our expectations at the time regarding the duration, scope and severity of the pandemic, as well as other factors, could materially and adversely impact our condensed consolidated financial statements in future reporting periods.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020 (the “2019 Form 10-K”).

The results of operations for the three and six months ended August 1, 2020 and August 3, 2019 presented herein are not necessarily indicative of the results to be expected for the full fiscal year. Our business, like the businesses of retailers generally, is subject to uncertainty surrounding the financial impact of the novel coronavirus disease as discussed in Recent Developments—COVID-19 below.

Table of Contents

Recent Developments—COVID-19

The initial wave of the COVID-19 outbreak starting in March 2020 caused disruption to our business operations as we temporarily closed all of our retail locations on March 17, 2020. While our retail locations were substantially closed at the end of the first fiscal quarter on May 2, 2020, during the second fiscal quarter we have reopened substantially all of our retail locations. As of the end of the second fiscal quarter on August 1, 2020 we had reopened 66 out of 68 of our Galleries, all of our Outlets, and 8 out of 10 of our restaurants. In addition, our business has substantially recovered during the second fiscal quarter as a result of both the reopening of most of our retail locations and also due to strong consumer demand for our products.

Our global supply chain has not fully recovered from the impact of the COVID-19 dislocation. Despite the strong growth in consumer demand in our business during the second fiscal quarter, revenue growth has lagged the increase in customer orders. As manufacturing and inventory receipts catch up with this backlog, we expect this demand will convert into revenue in the next several quarters as our supply chain recalibrates to the new level of our business.

While we have continued to serve our customers and operate our business through the initial phase of the COVID-19 health crisis, and have now substantially reopened our retail locations in the U.S. and Canada, there can be no assurance that future events will not have an impact on our business, results of operations or financial condition since the extent and duration of the health crisis remains uncertain. Future adverse developments in connection with the COVID-19 crisis, including additional waves of COVID-19 outbreaks, evolving international, federal, state and local restrictions and safety regulations in response to COVID-19 risks, changes in consumer behavior and health concerns, the pace of economic activity in the wake of the COVID-19 crisis, or other similar issues could adversely affect our business, results of operations or financial condition in the future, or our financial results and business performance for the fiscal year ending January 30, 2021.

In our initial response to the COVID-19 health crisis we undertook immediate adjustments to our business operations including curtailing expenses and delaying investments. Our approach to the crisis evolved quickly as our business trends substantially improved during the second fiscal quarter. We will continue to make decisions regarding the sources and uses of capital in our business to reflect and adapt to changes in market conditions including any lasting effects of COVID-19. While we deferred some capital expenditures and other expenses in response to the initial circumstances of the COVID-19 health crisis, we are continuing both long term investments and shorter term initiatives necessary to support our business and the recent increase in consumer demand.

NOTE 2—RECENTLY ISSUED ACCOUNTING STANDARDS

Cloud Computing

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15—Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which amends Accounting Standards Update 2015-05—Customers Accounting for Fees in a Cloud Computing Agreement. The amendments in this ASU more closely align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license).

We adopted the ASU as of February 2, 2020 using a prospective method. We capitalize implementation costs related to hosted arrangements, which typically include three-year service terms with additional renewal periods generally ranging from one to three years. The related assets are recorded within other non-current assets on our condensed consolidated balance sheets, net of accumulated amortization for assets placed in service. The amortization of assets placed in service is recorded in either cost of goods sold or selling, general and administrative expenses, consistent with the costs of the hosting arrangement, on the condensed consolidated statements of income on a straight-line basis over the term of the hosting arrangement, which includes reasonably certain renewal periods. The adoption of the ASU did not have a material effect on our condensed consolidated financial statements. Refer to Note 3—Prepaid Expense and Other Assets.

Table of Contents

Current Expected Credit Losses

In June 2016, the FASB issued Accounting Standards Update 2016-13—Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments and also issued subsequent amendments to the initial guidance through ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, ASU 2020-02 and ASU 2020-03 (collectively, the “ASUs”). The ASUs amend the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology to result in more timely recognition of losses. The guidance in the ASUs applies to financial assets measured at amortized cost basis, such as receivables that result from revenue transactions.

Accounts receivable consist primarily of receivables from our credit card processors for sales transactions, receivables related to our contract business and other miscellaneous receivables. Accounts receivable is presented net of allowance for doubtful accounts as a result of the assessment of the collectability of customer accounts, which is recorded by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. The allowance for doubtful accounts was $3.0 million and $2.2 million as of August 1, 2020 and February 1, 2020, respectively.

We adopted the ASUs as of February 2, 2020 using a modified retrospective transition method, which requires a cumulative-effect adjustment, if any, to the opening balance of retained earnings. We did not recognize a cumulative-effect adjustment upon adoption as the adoption of the ASUs did not have a material effect on our condensed consolidated financial statements.

Income Taxes

In December 2019, the FASB issued Accounting Standards Update 2019-12—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU impacts various topic areas within ASC 740, including accounting for taxes under hybrid tax regimes, accounting for increases in goodwill, allocation of tax amounts to separate company financial statements within a group that files a consolidated tax return, intra period tax allocation, interim period accounting, and accounting for ownership changes in investments, among other minor codification improvements. The guidance in this ASU becomes effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. We will adopt this standard in the first quarter of fiscal 2021 and are currently evaluating the effects that the adoption of this ASU will have on our consolidated financial statements.

Convertible Instruments and Contracts in an Entity’s Own Equity

In August 2020, the FASB issued Accounting Standards Update 2020-06—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Specifically, the ASU removes the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, after adopting the ASU’s guidance, we will not separately present in equity an embedded conversion feature of such debt. Instead, we will account for a convertible debt instrument wholly as debt unless (i) a convertible instrument contains features that require bifurcation as a derivative or (ii) a convertible debt instrument was issued at a substantial premium. Additionally, the ASU removes certain conditions for equity classification related to contracts in an entity’s own equity (e.g., warrants) and amends certain guidance related to the computation of earnings per share for convertible instruments and contracts on an entity’s own equity. The guidance in this ASU can be adopted using either a full or modified retrospective approach and becomes effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. We are currently evaluating the effects that the adoption of this ASU will have on our consolidated financial statements, including the timing and adoption approach.

Table of Contents

NOTE 3—PREPAID EXPENSE AND OTHER ASSETS

Prepaid expense and other current assets consist of the following (in thousands):


	August 1,		February 1,
	2020		2020
Prepaid expense and other current assets	$	29,625	$	30,875
Capitalized catalog costs		13,128		13,740
Vendor deposits		12,518		11,258
Right of return asset for merchandise		5,226		5,746
Total prepaid expense and other current assets	$	60,497	$	61,619

Other non-current assets consist of the following (in thousands):


	August 1,		February 1,
	2020		2020
Landlord assets under construction	$	109,549	$	138,315
Deposits on asset under construction		60,000		60,000
Promissory note receivable, including interest		5,479		5,354
Other deposits		5,289		5,157
Investments in joint ventures (Note 5)		3,050		—
Deferred financing fees		2,063		2,602
Other non-current assets		11,371		3,417
Total other non-current assets	$	196,801	$	214,845

NOTE 4—GOODWILL, TRADENAMES, TRADEMARKS AND DOMAIN NAMES

The following sets forth the goodwill, tradenames, trademarks and domain names activity for the RH Segment and Waterworks (See Note 17—Segment Reporting), for the six months ended August 1, 2020 (in thousands):


							Foreign
	February 1,						Currency		August 1,
	2020		Acquisition		Impairment ⁽¹⁾		Translation		2020
RH Segment
Goodwill	$	124,367	$	—	$	—	$	(17)	$	124,350
Tradenames, trademarks and domain names		48,563		1,300		—		—		49,863

Waterworks ⁽¹⁾
Tradename ⁽²⁾		37,459		—		(20,459)		—		17,000

(1)	Waterworks reporting unit goodwill of $51.1 million recognized upon acquisition in fiscal 2016 was fully impaired as of fiscal 2018, with $17.4 million and $33.7 million of impairment recorded in fiscal 2018 and fiscal 2017, respectively.

(2)	Presented net of an impairment charge of $35.1 million, with $20.5 million recorded in the first quarter of fiscal 2020 and $14.6 million recorded in fiscal 2018.

Table of Contents

Waterworks Tradename Impairment

During the first quarter of fiscal 2020, as a result of the COVID-19 health crisis and related Showroom closures and slowdown in construction activity, management updated the long-term financial projections for the Waterworks reporting unit which resulted in a significant decrease in forecasted revenues and profitability. We performed an interim impairment test on the Waterworks tradename and the estimated future cash flows of the Waterworks reporting unit indicated the fair value of the tradename asset was below its carrying amount. We determined fair value utilizing a discounted cash flow methodology under the relief-from-royalty method. Significant assumptions under this method include forecasted net revenues and the estimated royalty rate, expressed as a percentage of revenues, in addition to the discount rate based on the weighted-average cost of capital. Based on the impairment test performed, we concluded that the Waterworks reporting unit tradename was impaired as of the first quarter of fiscal 2020.

As a result, we recognized a $20.5 million non-cash impairment charge for the Waterworks reporting unit tradename during the first quarter of fiscal 2020, and the carrying value of the Waterworks indefinite-lived tradename asset after the impairment charge was $17.0 million.

NOTE 5—INVESTMENTS IN JOINT VENTURES

During the second quarter of fiscal 2020, we entered into transactions whereby we became a 50 percent member of two privately held limited liability companies (the “JVs”) that each have the purpose of acquiring, constructing, developing and ultimately selling certain specified real estate projects. The JVs are financed by capital contributions from the members on an as-needed basis, as well as via third-party debt secured by the underlying real estate projects and guaranteed by a member other than us. The JVs are considered variable interest entities because the equity investment at risk is not sufficient to permit the JV’s to finance their activities without additional financial support. A variable interest entity is consolidated by its primary beneficiary, which is defined as the party who has a controlling financial interest in the variable interest entity. As we do not have a controlling financial interest in the JVs but have the ability to exercise significant influence over the operating and financial policies of the JVs, we recognized these investments using the equity method.

As of August 1, 2020, we had $3.1 million of investments in the JVs, which is included in other non-current assets on the condensed consolidated balance sheets.

NOTE 6—ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accounts payable and accrued expenses consist of the following (in thousands):


		August 1,			F