September 9, 2021 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

Form: 10-Q

Documents

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 July 31, 2021

☐	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 3, 2021, 21,413,557 shares of the registrant’s common stock were outstanding.

Table of Contents

INDEX TO FORM 10-Q

July 31, 2021
		Page

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets (Unaudited) as of July 31, 2021 and January 30, 2021	3
	Condensed Consolidated Statements of Income (Unaudited) for the three and six months ended July 31, 2021 and August 1, 2020	4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended July 31, 2021 and August 1, 2020	5
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three and six months ended July 31, 2021 and August 1, 2020	6
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended July 31, 2021 and August 1, 2020	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	55
Item 4.	Controls and Procedures	57

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 3.	Defaults Upon Senior Securities	59
Item 4.	Mine Safety Disclosures	59
Item 5.	Other Information	59
Item 6.	Exhibits	60
Signatures		61


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PART I

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts) (Unaudited)


	JULY 31,		JANUARY 30,
	2021		2021
ASSETS
Current assets:
Cash and cash equivalents	$	291,461	$	100,446
Accounts receivable—net		59,798		59,474
Merchandise inventories		645,987		544,227
Prepaid expense and other current assets		140,570		97,337
Total current assets		1,137,816		801,484
Property and equipment—net		1,131,501		1,077,198
Operating lease right-of-use assets		553,834		456,164
Goodwill		141,132		141,100
Tradenames, trademarks and other intangible assets		72,584		71,663
Deferred tax assets		50,047		49,924
Equity method investments		97,412		100,603
Other non-current assets		282,826		200,177
Total assets	$	3,467,152	$	2,898,313
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	426,785	$	424,422
Deferred revenue and customer deposits		397,161		280,641
Convertible senior notes due 2023—net		172,141		2,354
Convertible senior notes due 2024—net		66,503		—
Operating lease liabilities		74,074		71,524
Other current liabilities		92,336		142,691
Total current liabilities		1,229,000		921,632
Asset based credit facility		—		—
Equipment promissory notes—net		2,115		14,614
Convertible senior notes due 2023—net		93,867		282,956
Convertible senior notes due 2024—net		223,547		281,454
Non-current operating lease liabilities		542,510		448,169
Non-current finance lease liabilities		523,797		485,481
Other non-current obligations		15,458		16,981
Total liabilities		2,630,294		2,451,287
Commitments and contingencies (Note 16)
Mezzanine equity—convertible senior notes (Note 9)		30,515		—
Stockholders’ equity:
Preferred stock—$0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of July 31, 2021 and January 30, 2021		—		—
Common stock—$0.0001 par value per share, 180,000,000 shares authorized, 21,407,717 shares issued and outstanding as of July 31, 2021; 20,995,387 shares issued and outstanding as of January 30, 2021		2		2
Additional paid-in capital		583,112		581,897
Accumulated other comprehensive income		3,265		2,565
Retained earnings (accumulated deficit)		219,964		(137,438)
Total stockholders’ equity		806,343		447,026
Total liabilities, mezzanine equity and stockholders’ equity	$	3,467,152	$	2,898,313

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


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CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share amounts) (Unaudited)


	THREE MONTHS ENDED				SIX MONTHS ENDED
	JULY 31,		AUGUST 1,		JULY 31,		AUGUST 1,
	2021		2020		2021		2020
Net revenues	$	988,859	$	709,282	$	1,849,651	$	1,192,177
Cost of goods sold		501,183		376,863		954,998		660,104
Gross profit		487,676		332,419		894,653		532,073
Selling, general and administrative expenses		238,688		195,851		457,777		360,052
Income from operations		248,988		136,568		436,876		172,021
Other expenses
Interest expense—net		13,581		19,418		26,889		39,047
Tradename impairment		—		—		—		20,459
(Gain) loss on extinguishment of debt		3,166		(152)		3,271		(152)
Total other expenses		16,747		19,266		30,160		59,354
Income before income taxes		232,241		117,302		406,716		112,667
Income tax expense		3,009		18,879		44,733		17,456
Income before equity method investments		229,232		98,423		361,983		95,211
Share of equity method investments losses		(2,486)		—		(4,581)		—
Net income	$	226,746	$	98,423	$	357,402	$	95,211
Weighted-average shares used in computing basic net income per share		21,166,638		19,386,115		21,084,941		19,314,479
Basic net income per share	$	10.71	$	5.08	$	16.95	$	4.93
Weighted-average shares used in computing diluted net income per share		31,979,098		26,564,705		31,594,555		25,383,730
Diluted net income per share	$	7.09	$	3.71	$	11.31	$	3.75

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


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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands) (Unaudited)


	THREE MONTHS ENDED				SIX MONTHS ENDED
	JULY 31,		AUGUST 1,		JULY 31,		AUGUST 1,
	2021		2020		2021		2020
Net income	$	226,746	$	98,423	$	357,402	$	95,211
Net gains (losses) from foreign currency translation		(648)		3,290		700		918
Total comprehensive income	$	226,098	$	101,713	$	358,102	$	96,129

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


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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts) (Unaudited)


	THREE MONTHS ENDED
			COMMON STOCK									TREASURY STOCK
								ACCUMULATED		RETAINED
						ADDITIONAL		OTHER		EARNINGS					TOTAL
	MEZZANINE					PAID-IN		COMPREHENSIVE		(ACCUMULATED					STOCKHOLDERS'
	EQUITY		SHARES	AMOUNT		CAPITAL		INCOME (LOSS)		DEFICIT)		SHARES	AMOUNT		EQUITY
Balances—May 1, 2021	$	—	21,020,538	$	2	$	597,329	$	3,913	$	(6,782)	—	$	—	$	594,462
Stock-based compensation		—	—		—		10,089		—		—	—		—		10,089
Issuance of restricted stock		—	1,260		—		—		—		—	—		—		—
Vested and delivered restricted stock units		—	34,891		—		(17,721)		—		—	—		—		(17,721)
Exercise of stock options		—	351,027		—		24,586		—		—	—		—		24,586
Settlement of convertible senior notes		—	112,297		—		(78,621)		—		—	(112,296)		77,965		(656)
Exercise of call option under bond hedge upon settlement of convertible senior notes		—	(112,296)		—		77,965		—		—	112,296		(77,965)		—
Reclassification of equity component related to early converted senior notes outstanding		30,515	—		—		(30,515)		—		—	—		—		(30,515)
Net income		—	—		—		—		—		226,746	—		—		226,746
Net losses from foreign currency translation		—	—		—		—		(648)		—	—		—		(648)
Balances—July 31, 2021	$	30,515	21,407,717	$	2	$	583,112	$	3,265	$	219,964	—	$	—	$	806,343

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


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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(In thousands) (Unaudited)


	SIX MONTHS ENDED
			COMMON STOCK									TREASURY STOCK
								ACCUMULATED		RETAINED
						ADDITIONAL		OTHER		EARNINGS					TOTAL
	MEZZANINE					PAID-IN		COMPREHENSIVE		(ACCUMULATED					STOCKHOLDERS'
	EQUITY		SHARES	AMOUNT		CAPITAL		INCOME (LOSS)		DEFICIT)		SHARES	AMOUNT		EQUITY
Balances—January 30, 2021	$	—	20,995,387	$	2		581,897	$	2,565	$	(137,438)	—	$	—	$	447,026
Stock-based compensation		—	—		—		25,289		—		—	—		—		25,289
Issuance of restricted stock		—	1,260		—		—		—		—	—		—		—
Vested and delivered restricted stock units		—	37,698		—		(18,648)		—		—	—		—		(18,648)
Exercise of stock options		—	373,369		—		25,979		—		—	—		—		25,979
Settlement of convertible senior notes		—	119,604		—		(82,135)		—		—	(119,601)		81,245		(890)
Exercise of call option under bond hedge upon settlement of convertible senior notes		—	(119,601)		—		81,245		—		—	119,601		(81,245)		—
Reclassification of equity component related to early converted senior notes outstanding		30,515	—		—		(30,515)		—		—	—		—		(30,515)
Net income		—	—		—		—		—		357,402	—		—		357,402
Net gains from foreign currency translation		—	—		—		—		700		—	—		—		700
Balances—July 31, 2021	$	30,515	21,407,717	$	2	$	583,112	$	3,265	$	219,964	—	$	—	$	806,343

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

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


PART I. FINANCIAL INFORMATION	2021 SECOND QUARTER FORM 10-Q \| 7

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)


	SIX MONTHS ENDED
	JULY 31,		AUGUST 1,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	357,402	$	95,211
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		46,556		50,212
Non-cash operating lease cost		35,541		31,355
Tradename impairment		—		20,459
Asset impairments		7,354		4,783
Loss on sale leaseback transaction		—		9,352
Amortization of debt discount		17,461		25,378
Accretion of debt discount upon settlement of debt		(5,070)		(84,003)
Stock-based compensation expense		25,431		12,689
Non-cash finance lease interest expense		12,757		11,729
Product recalls		500		4,780
Deferred income taxes		(239)		—
Loss on extinguishment of debt		3,271		—
Share of equity method investments losses		4,581		—
Other non-cash items		(4,069)		2,404
Change in assets and liabilities:
Accounts receivable		(306)		(6,431)
Merchandise inventories		(101,641)		(48,984)
Prepaid expense and other assets		(57,919)		(10,307)
Landlord assets under construction—net of tenant allowances		(43,352)		(22,934)
Accounts payable and accrued expenses		6,930		(13,127)
Deferred revenue and customer deposits		116,492		67,647
Other current liabilities		(51,661)		8,777
Current and non-current operating lease liabilities		(38,933)		(18,388)
Other non-current obligations		(14,368)		(12,327)
Net cash provided by operating activities		316,718		128,275


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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(In thousands) (Unaudited)


	SIX MONTHS ENDED
	JULY 31,		AUGUST 1,
	2021		2020
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(82,138)		(47,531)
Equity method investments		(1,939)		(3,050)
Proceeds from sale of assets		—		25,006
Net cash used in investing activities		(84,077)		(25,575)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under asset based credit facility		—		283,200
Repayments under asset based credit facility		—		(191,600)
Repayments under promissory and equipment security notes		(11,446)		(5,408)
Debt issuance costs		(3,634)		—
Repayments of convertible senior notes		(28,111)		(215,846)
Principal payments under finance leases		(7,108)		(4,641)
Proceeds from exercise of stock options		25,979		8,125
Tax withholdings related to issuance of stock-based awards		(18,648)		(6,818)
Net cash used in financing activities		(42,968)		(132,988)
Effects of foreign currency exchange rate translation		92

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company