Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

June 3, 2022

RH0001528849--01-282022Q1falsehttp://fasb.org/us-gaap/2021-01-31#OperatingLeaseRightOfUseAssethttp://fasb.org/us-gaap/2021-01-31#PropertyPlantAndEquipmentNethttp://fasb.org/us-gaap/2021-01-31#OperatingLeaseLiabilityCurrenthttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitiesCurrenthttp://fasb.org/us-gaap/2021-01-31#OperatingLeaseLiabilityNoncurrenthttp://fasb.org/us-gaap/2021-01-31#FinanceLeaseLiabilityNoncurrent0020000000200000002466178121506967http://fasb.org/us-gaap/2021-01-31#OperatingLeaseRightOfUseAssethttp://fasb.org/us-gaap/2021-01-31#PropertyPlantAndEquipmentNethttp://fasb.org/us-gaap/2021-01-31#OperatingLeaseLiabilityCurrenthttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitiesCurrenthttp://fasb.org/us-gaap/2021-01-31#OperatingLeaseLiabilityNoncurrenthttp://fasb.org/us-gaap/2021-01-31#FinanceLeaseLiabilityNoncurrentP2DP3Y0001528849rh:FiscalTwentyNineteenNineFiftyHundredMillionRepurchaseProgramMember2019-02-032020-02-010001528849rh:FiscalTwentyEighteenSevenHundredMillionRepurchaseProgramMember2018-02-042019-02-020001528849us-gaap:SubsequentEventMember2022-06-020001528849rh:FiscalTwentyNineteenNineFiftyHundredMillionRepurchaseProgramMember2022-04-300001528849us-gaap:RetainedEarningsMember2022-04-300001528849us-gaap:AdditionalPaidInCapitalMember2022-04-300001528849us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-04-300001528849srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2022-01-290001528849srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AdditionalPaidInCapitalMember2022-01-290001528849us-gaap:RetainedEarningsMember2022-01-290001528849us-gaap:AdditionalPaidInCapitalMember2022-01-290001528849us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-290001528849srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2022-01-290001528849us-gaap:RetainedEarningsMember2021-05-010001528849us-gaap:AdditionalPaidInCapitalMember2021-05-010001528849us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-05-010001528849us-gaap:RetainedEarningsMember2021-01-300001528849us-gaap:AdditionalPaidInCapitalMember2021-01-300001528849us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-300001528849us-gaap:CommonStockMember2022-04-300001528849us-gaap:CommonStockMember2022-01-290001528849us-gaap:CommonStockMember2021-05-010001528849us-gaap:CommonStockMember2021-01-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberus-gaap:WarrantMember2022-04-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberus-gaap:CommonStockMember2022-04-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMemberus-gaap:WarrantMember2022-04-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMemberus-gaap:CommonStockMember2022-04-300001528849us-gaap:EmployeeStockOptionMemberrh:ExercisePriceRangeTwoMember2022-01-302022-04-300001528849us-gaap:EmployeeStockOptionMemberrh:ExercisePriceRangeThreeMember2022-01-302022-04-300001528849us-gaap:EmployeeStockOptionMemberrh:ExercisePriceRangeSixMember2022-01-302022-04-300001528849us-gaap:EmployeeStockOptionMemberrh:ExercisePriceRangeSevenMember2022-01-302022-04-300001528849us-gaap:EmployeeStockOptionMemberrh:ExercisePriceRangeOneMember2022-01-302022-04-300001528849us-gaap:EmployeeStockOptionMemberrh:ExercisePriceRangeFourMember2022-01-302022-04-300001528849us-gaap:EmployeeStockOptionMemberrh:ExercisePriceRangeFiveMember2022-01-302022-04-300001528849us-gaap:EmployeeStockOptionMemberrh:ExercisePriceRangeTwoMember2022-04-300001528849us-gaap:EmployeeStockOptionMemberrh:ExercisePriceRangeThreeMember2022-04-300001528849us-gaap:EmployeeStockOptionMemberrh:ExercisePriceRangeSixMember2022-04-300001528849us-gaap:EmployeeStockOptionMemberrh:ExercisePriceRangeSevenMember2022-04-300001528849us-gaap:EmployeeStockOptionMemberrh:ExercisePriceRangeOneMember2022-04-300001528849us-gaap:EmployeeStockOptionMemberrh:ExercisePriceRangeFourMember2022-04-300001528849us-gaap:EmployeeStockOptionMemberrh:ExercisePriceRangeFiveMember2022-04-300001528849us-gaap:EmployeeStockOptionMember2022-04-300001528849srt:ChiefExecutiveOfficerMemberus-gaap:EmployeeStockOptionMember2020-10-182020-10-180001528849srt:ChiefExecutiveOfficerMember2022-01-302022-04-300001528849rh:NonFurnitureMember2022-01-302022-04-300001528849rh:FurnitureMember2022-01-302022-04-300001528849rh:NonFurnitureMember2021-01-312021-05-010001528849rh:FurnitureMember2021-01-312021-05-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMemberrh:ConvertibleBondHedgeAndWarrantTransactionsMember2022-01-302022-04-300001528849us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-302022-04-300001528849us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-312021-05-010001528849us-gaap:OperatingSegmentsMemberrh:WaterworksSegmentMember2022-01-302022-04-300001528849us-gaap:OperatingSegmentsMemberrh:RHSegmentMember2022-01-302022-04-300001528849us-gaap:OperatingSegmentsMemberrh:WaterworksSegmentMember2021-01-312021-05-010001528849us-gaap:OperatingSegmentsMemberrh:RHSegmentMember2021-01-312021-05-010001528849us-gaap:RetainedEarningsMember2022-01-302022-04-300001528849us-gaap:RetainedEarningsMember2021-01-312021-05-010001528849rh:RestorationHardwareCanadaIncorporationMemberus-gaap:RevolvingCreditFacilityMemberrh:TwelfthAmendmentMember2021-07-290001528849us-gaap:RevolvingCreditFacilityMemberrh:TwelfthAmendmentMember2022-04-300001528849us-gaap:LetterOfCreditMemberrh:TwelfthAmendmentMember2022-04-300001528849us-gaap:TradeNamesMemberrh:WaterworksSegmentMember2022-04-300001528849rh:TradenamesTrademarksAndOtherIntangibleAssetsMemberrh:RHSegmentMember2022-04-300001528849us-gaap:TradeNamesMemberrh:WaterworksSegmentMember2022-01-290001528849rh:TradenamesTrademarksAndOtherIntangibleAssetsMemberrh:RHSegmentMember2022-01-290001528849rh:TradenamesTrademarksAndOtherIntangibleAssetsMemberrh:RHSegmentMember2022-01-302022-04-300001528849rh:RealEstateInvestmentSegmentMember2022-01-302022-04-300001528849rh:AspenLlcSMember2022-01-302022-04-300001528849rh:AspenLlcSMember2021-01-312022-01-290001528849rh:RealEstateDevelopmentSegmentMember2021-01-312021-05-010001528849rh:WaterworksSegmentMember2016-01-312017-01-280001528849rh:WarrantsSubjectToCertainAdjustmentMechanismsMemberrh:ConvertibleSeniorNotesDue2023And2024Member2022-01-302022-04-300001528849us-gaap:NotesReceivableMemberus-gaap:PrepaidExpensesAndOtherCurrentAssetsMemberrh:AspenLlcSMember2022-04-300001528849us-gaap:NotesReceivableMemberus-gaap:PrepaidExpensesAndOtherCurrentAssetsMemberrh:AspenLlcSMember2022-01-290001528849us-gaap:EmployeeStockOptionMemberrh:TwoThousandTwelveStockIncentiveAndOptionPlanMember2022-04-300001528849srt:ChiefExecutiveOfficerMemberus-gaap:EmployeeStockOptionMemberrh:TwoThousandTwelveStockIncentiveAndOptionPlanMember2020-10-310001528849us-gaap:RestrictedStockUnitsRSUMemberrh:TwoThousandTwelveStockIncentiveAndOptionPlanMember2022-04-300001528849us-gaap:RestrictedStockUnitsRSUMemberrh:TwoThousandTwelveStockIncentiveAndOptionPlanMember2022-01-302022-04-300001528849us-gaap:EmployeeStockOptionMemberrh:TwoThousandTwelveStockIncentiveAndOptionPlanMember2022-01-302022-04-300001528849rh:WaterworksSegmentMember2022-01-302022-04-300001528849rh:RHSegmentMember2022-01-302022-04-300001528849rh:WaterworksSegmentMember2021-01-312021-05-010001528849rh:RHSegmentMember2021-01-312021-05-010001528849rh:EquipmentLoanFacilityMember2017-09-050001528849us-gaap:RevolvingCreditFacilityMember2022-04-300001528849us-gaap:RevolvingCreditFacilityMember2022-01-290001528849srt:MinimumMemberrh:EquipmentLoanFacilityMember2017-09-052017-09-050001528849srt:MaximumMemberrh:EquipmentLoanFacilityMember2017-09-052017-09-050001528849rh:WarrantsSubjectToCertainAdjustmentMechanismsMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2022-04-300001528849rh:WarrantsSubjectToCertainAdjustmentMechanismsMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2022-04-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMemberus-gaap:PrivatePlacementMember2022-04-300001528849us-gaap:RevolvingCreditFacilityMemberrh:TwelfthAmendmentMemberus-gaap:LondonInterbankOfferedRateLIBORMember2021-07-290001528849us-gaap:SecuredDebtMemberrh:IncrementalAmendmentWithBankOfAmericaN.a.Memberus-gaap:SubsequentEventMember2022-05-130001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberus-gaap:PrivatePlacementMember2022-04-300001528849us-gaap:SecuredDebtMember2021-10-200001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMemberus-gaap:PrivatePlacementMember2019-09-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2019-09-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberus-gaap:PrivatePlacementMember2018-06-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberus-gaap:OverAllotmentOptionMember2018-06-300001528849rh:ConvertibleDebtInstrumentConversionPeriodTwoMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2022-01-302022-04-300001528849rh:ConvertibleDebtInstrumentConversionPeriodTwoMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2022-01-302022-04-300001528849rh:ConvertibleDebtInstrumentConversionPeriodOneMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2022-01-302022-04-300001528849rh:ConvertibleDebtInstrumentConversionPeriodOneMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2022-01-302022-04-300001528849us-gaap:SecuredDebtMemberrh:CreditFacilitiesMember2022-04-300001528849us-gaap:OtherCurrentLiabilitiesMemberus-gaap:SecuredDebtMember2022-04-300001528849rh:TermLoanNetMemberus-gaap:SecuredDebtMember2022-04-300001528849rh:EquipmentPromissoryNotesMemberrh:CreditFacilitiesMember2022-04-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberus-gaap:ConvertibleDebtMember2022-04-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMemberus-gaap:ConvertibleDebtMember2022-04-300001528849us-gaap:SecuredDebtMember2022-04-300001528849us-gaap:ConvertibleDebtMember2022-04-300001528849rh:CreditFacilitiesMember2022-04-300001528849us-gaap:SecuredDebtMemberrh:CreditFacilitiesMember2022-01-290001528849us-gaap:OtherCurrentLiabilitiesMemberus-gaap:SecuredDebtMember2022-01-290001528849rh:TermLoanNetMemberus-gaap:SecuredDebtMember2022-01-290001528849rh:EquipmentPromissoryNotesMemberrh:CreditFacilitiesMember2022-01-290001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberus-gaap:ConvertibleDebtMember2022-01-290001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMemberus-gaap:ConvertibleDebtMember2022-01-290001528849us-gaap:SecuredDebtMember2022-01-290001528849us-gaap:ConvertibleDebtMember2022-01-290001528849rh:CreditFacilitiesMember2022-01-290001528849us-gaap:SecuredDebtMemberus-gaap:LondonInterbankOfferedRateLIBORMember2021-10-202021-10-200001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2022-01-302022-04-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2022-01-302022-04-300001528849srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AccountingStandardsUpdate202006Memberrh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2022-01-300001528849srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AccountingStandardsUpdate202006Memberrh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2022-01-300001528849srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate202006Memberrh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2022-01-290001528849srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate202006Memberrh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2022-01-290001528849us-gaap:AccountingStandardsUpdate202006Memberrh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2022-01-290001528849us-gaap:AccountingStandardsUpdate202006Memberrh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2022-01-290001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2022-04-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2022-04-300001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2022-01-290001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2022-01-290001528849rh:GiftCardAndMerchandiseCreditMember2021-01-312021-05-0100015288492021-05-0100015288492021-01-3000015288492021-01-312022-01-290001528849rh:WaterworksSegmentMember2022-04-300001528849rh:RHSegmentMember2022-04-300001528849rh:RealEstateDevelopmentSegmentMember2022-04-300001528849rh:WaterworksSegmentMember2022-01-290001528849rh:RHSegmentMember2022-01-290001528849rh:RealEstateDevelopmentSegmentMember2022-01-290001528849us-gaap:RestrictedStockMember2022-01-302022-04-300001528849us-gaap:EmployeeStockOptionMember2022-01-302022-04-300001528849us-gaap:EmployeeStockOptionMember2021-01-312021-05-010001528849srt:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AccountingStandardsUpdate202006Member2022-01-300001528849srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate202006Member2022-01-290001528849us-gaap:AccountingStandardsUpdate202006Member2022-01-290001528849us-gaap:AdditionalPaidInCapitalMember2022-01-302022-04-300001528849us-gaap:AdditionalPaidInCapitalMember2021-01-312021-05-010001528849us-gaap:TreasuryStockMember2022-01-302022-04-300001528849us-gaap:CommonStockMember2022-01-302022-04-300001528849us-gaap:TreasuryStockMember2021-01-312021-05-010001528849us-gaap:CommonStockMember2021-01-312021-05-010001528849rh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMemberrh:ConvertibleBondHedgeAndWarrantTransactionsMember2022-01-302022-04-300001528849srt:ChiefExecutiveOfficerMemberrh:TimeBasedRestrictionsAndPerformanceBasedRestrictionsMember2022-01-302022-04-300001528849rh:GiftCardAndMerchandiseCreditMember2022-01-302022-04-300001528849us-gaap:RevolvingCreditFacilityMemberrh:TwelfthAmendmentMember2021-07-292021-07-290001528849country:GB2022-04-300001528849rh:AspenLlcSMember2022-04-300001528849country:CA2022-04-300001528849rh:NotesRepurchaseMemberus-gaap:PrivatePlacementMember2022-04-300001528849rh:AssetBasedCreditFacilityMemberrh:TwelfthAmendedAndRestatedCreditAgreementMember2021-07-290001528849rh:NotesRepurchaseMemberus-gaap:PrivatePlacementMember2022-01-302022-04-300001528849rh:ConvertibleSeniorNotesDue2023And2024Memberus-gaap:PrivatePlacementMember2022-01-302022-04-300001528849srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate202006Memberrh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2022-01-302022-04-300001528849srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccountingStandardsUpdate202006Memberrh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2022-01-302022-04-3000015288492021-10-202021-10-200001528849us-gaap:SecuredDebtMember2021-10-202021-10-200001528849us-gaap:SecuredDebtMemberrh:IncrementalAmendmentWithBankOfAmericaN.a.Memberus-gaap:SubsequentEventMember2022-05-132022-05-130001528849rh:ConvertibleDebtInstrumentConversionPeriodTwoMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2022-04-300001528849rh:ConvertibleDebtInstrumentConversionPeriodTwoMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2022-04-300001528849rh:ConvertibleDebtInstrumentConversionPeriodThreeMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyThreeMember2022-04-300001528849rh:ConvertibleDebtInstrumentConversionPeriodThreeMemberrh:ConvertibleSeniorNotesDueTwoThousandTwentyFourMember2022-04-300001528849rh:NotesRepurchaseMemberus-gaap:CommonStockMemberus-gaap:PrivatePlacementMember2022-01-302022-04-300001528849srt:MinimumMemberus-gaap:CommonStockMember2022-01-302022-04-300001528849srt:MaximumMemberus-gaap:CommonStockMember2022-01-302022-04-300001528849rh:ConvertibleSeniorNotesDue2023And2024Memberrh:ConvertibleBondHedgeAndWarrantTransactionsMember2022-01-302022-04-300001528849us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2022-01-302022-04-300001528849us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2021-01-312021-05-010001528849us-gaap:RevolvingCreditFacilityMemberrh:TwelfthAmendmentMember2021-07-2900015288492022-04-3000015288492022-01-2900015288492021-01-312021-05-0100015288492022-05-2700015288492022-01-302022-04-30xbrli:sharesiso4217:USDxbrli:purerh:customerrh:itemrh:storeiso4217:USDxbrli:sharesrh:segmentrh:state

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 April 30, 2022

or

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

Graphic

(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: (415924-1005

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.

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

Emerging growth company

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 May 27, 2022, 24,681,191 shares of the registrant’s common stock were outstanding.

RH

INDEX TO FORM 10-Q

    

    

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

3

Condensed Consolidated Balance Sheets (Unaudited)
as of April 30, 2022 and January 29, 2022

3

Condensed Consolidated Statements of Income (Unaudited)
for the three months ended April 30, 2022 and May 1, 2021

4

Condensed Consolidated Statements of Comprehensive Income (Unaudited)
for the three months ended April 30, 2022 and May 1, 2021

5

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
for the three months ended April 30, 2022 and May 1, 2021

6

Condensed Consolidated Statements of Cash Flows (Unaudited)
for the three months ended April 30, 2022 and May 1, 2021

7

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

47

Item 4.

Controls and Procedures

49

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

50

Item 1A.

Risk Factors

50

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

Item 3.

Defaults Upon Senior Securities

51

Item 4.

Mine Safety Disclosures

51

Item 5.

Other Information

51

Item 6.

Exhibits

52

Signatures

53

TABLE OF CONENTS

2022 QUARTERLY REPORT | 2

PART I

ITEM 1.     FINANCIAL STATEMENTS

RH

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

c

    

APRIL 30,

    

JANUARY 29,

2022

2022

(in thousands)

ASSETS

 

  

 

  

Cash and cash equivalents

$

2,243,255

$

2,177,889

Accounts receivable—net

 

65,602

 

57,914

Merchandise inventories

 

817,327

 

734,289

Prepaid expense and other current assets

 

272,877

 

121,350

Total current assets

 

3,399,061

 

3,091,442

Property and equipment—net

 

1,357,064

 

1,227,920

Operating lease right-of-use assets

544,797

551,045

Goodwill

 

141,092

 

141,100

Tradenames, trademarks and other intangible assets

 

73,488

 

73,161

Deferred tax assets

 

63,256

 

56,843

Equity method investments

100,550

100,810

Other non-current assets

 

208,629

 

298,149

Total assets

$

5,887,937

$

5,540,470

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Accounts payable and accrued expenses

$

428,949

$

442,379

Deferred revenue and customer deposits

436,765

 

387,933

Convertible senior notes due 2023

9,389

Convertible senior notes due 2024

3,600

Convertible senior notes repurchase obligation (Note 9)

313,706

Operating lease liabilities

74,309

73,834

Other current liabilities

 

107,801

 

146,623

Total current liabilities

 

1,361,530

 

1,063,758

Asset based credit facility

 

 

Term loan—net

 

1,949,038

 

1,953,203

Convertible senior notes due 2023—net

 

19,658

 

59,002

Convertible senior notes due 2024—net

80,388

184,461

Non-current operating lease liabilities

 

533,074

 

540,513

Non-current finance lease liabilities

594,728

560,550

Other non-current obligations

 

7,731

 

8,706

Total liabilities

 

4,546,147

 

4,370,193

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 April 30, 2022 and January 29, 2022

 

Common stock—$0.0001 par value per share, 180,000,000 shares authorized, 24,661,781 shares issued and outstanding as of April 30, 2022; 21,506,967 shares issued and outstanding as of January 29, 2022

 

2

 

2

Additional paid-in capital

 

575,635

 

620,577

Accumulated other comprehensive income (loss)

 

(5,555)

 

(1,410)

Retained earnings

 

771,708

 

551,108

Total stockholders’ equity

 

1,341,790

 

1,170,277

Total liabilities and stockholders’ equity

$

5,887,937

$

5,540,470

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

PART I. FINANCIAL INFORMATION

2022 FIRST QUARTER FORM 10-Q | 3

RH

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

THREE MONTHS ENDED

APRIL 30,

MAY 1,

    

2022

    

2021 

(in thousands, except share and per share amounts)

Net revenues

$

957,292

$

860,792

Cost of goods sold

 

458,709

 

453,815

Gross profit

 

498,583

 

406,977

Selling, general and administrative expenses

293,295

 

219,089

Income from operations

 

205,288

 

187,888

Other expenses

 

Interest expense—net

20,855

 

13,308

Loss on extinguishment of debt

 

146,116

 

105

Other income—net

(343)

Total other expenses

 

166,628

 

13,413

Income before income taxes

 

38,660

 

174,475

Income tax expense (benefit)

 

(163,426)

 

41,724

Income before equity method investments

202,086

132,751

Share of equity method investments losses

(1,375)

(2,095)

Net income

$

200,711

$

130,656

Weighted-average shares used in computing basic net income per share

 

22,608,537

 

21,003,244

Basic net income per share (Note 13)

$

15.34

$

6.22

Weighted-average shares used in computing diluted net income per share

 

28,527,246

 

31,210,011

Diluted net income per share (Note 13)

$

12.16

$

4.19

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

PART I. FINANCIAL INFORMATION

2022 FIRST QUARTER FORM 10-Q | 4

RH

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

THREE MONTHS ENDED

APRIL 30,

MAY 1,

    

2022

    

2021 

(in thousands)

Net income

$

200,711

$

130,656

Net gains (losses) from foreign currency translation

 

(4,145)

 

1,348

Total comprehensive income

$

196,566

$

132,004

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

PART I. FINANCIAL INFORMATION

2022 FIRST QUARTER FORM 10-Q | 5

RH

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

THREE MONTHS ENDED

COMMON STOCK

TREASURY STOCK

 

ACCUMULATED

 

RETAINED

 

 

ADDITIONAL

 

OTHER

 

EARNINGS

 

TOTAL

 

PAID-IN

 

COMPREHENSIVE

 

(ACCUMULATED

 

 

STOCKHOLDERS'

SHARES

  

AMOUNT

  

CAPITAL

  

INCOME (LOSS)

  

DEFICIT)

  

SHARES

  

AMOUNT

  

EQUITY

(in thousands, except share amounts)

Balances—January 29, 2022

21,506,967

 

$

2

 

$

620,577

 

$

(1,410)

 

$

551,108

 

 

$

 

$

1,170,277

Stock-based compensation

12,802

 

12,802

Vested and delivered restricted stock units

1,409

(266)

 

(266)

Exercise of stock options

3,153,400

149,570

 

149,570

Exercise of call option under bond hedge upon settlement of convertible senior notes

(36,968)

14,705

36,968

(14,705)

Settlement of convertible senior notes

36,973

(14,705)

(36,968)

14,705

Termination of common stock warrants

(386,708)

 

(386,708)

Termination of convertible note hedge

236,050

 

236,050

Impact of ASU 2020-06 adoption

(56,390)

19,889

 

(36,501)

Net income

200,711

 

200,711

Net losses from foreign currency translation

(4,145)

 

(4,145)

Balances—April 30, 2022

24,661,781

 

$

2

 

$

575,635

 

$

(5,555)

 

$

771,708

 

 

$

 

$

1,341,790

Balances—January 30, 2021

20,995,387

 

$

2

 

$

581,897

 

$

2,565

 

$

(137,438)

 

 

$

 

$

447,026

Stock-based compensation

15,200

 

15,200

Vested and delivered restricted stock units

2,807

(927)

 

(927)

Exercise of stock options

22,342

1,393

 

1,393

Exercise of call option under bond hedge upon settlement of convertible senior notes

(7,305)

3,280

7,305

(3,280)

Settlement of convertible senior notes

7,307

(3,514)

(7,305)

3,280

(234)

Net income

130,656

 

130,656

Net losses from foreign currency translation

1,348

 

1,348

Balances—May 1, 2021

21,020,538

 

$

2

 

$

597,329

 

$

3,913

 

$

(6,782)

 

 

$

 

$

594,462

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

PART I. FINANCIAL INFORMATION

2022 FIRST QUARTER FORM 10-Q | 6

RH

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

THREE MONTHS ENDED

APRIL 30,

MAY 1,

2022

    

2021

(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

200,711

$

130,656

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Depreciation and amortization

 

24,758

23,886

Non-cash operating lease cost

18,391

16,603

Asset impairments

5,923

Amortization of debt discount

 

8,670

Stock-based compensation expense

 

12,802

15,307

Non-cash finance lease interest expense

7,071

6,150

Product recalls

560

500

Deferred income taxes

5,493

Loss on extinguishment of debt

146,116

105

Gain on derivative instruments—net

(3,177)

Share of equity method investments losses

1,375

2,095

Other non-cash items

 

1,269

(1,944)

Cash paid attributable to accretion of debt discount upon settlement of debt

(319)

Change in assets and liabilities:

 

Accounts receivable

 

(7,715)

(722)

Merchandise inventories

 

(83,115)

(49,540)

Prepaid expense and other assets

 

(160,116)

(12,575)

Landlord assets under construction—net of tenant allowances

 

(12,148)

(13,578)

Accounts payable and accrued expenses

 

(14,778)

(32,250)

Deferred revenue and customer deposits

 

48,909

82,744

Other current liabilities

 

(30,057)

41,981

Current and non-current operating lease liabilities

 

(19,379)

(19,379)

Other non-current obligations

 

(6,944)

(7,515)

Net cash provided by operating activities

 

135,949

 

190,875

PART I. FINANCIAL INFORMATION

2020 FIRST QUARTER FORM 10-Q | 7

Table of Contents

RH

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

THREE MONTHS ENDED

APRIL 30,

MAY 1,

2022

    

2021

(in thousands)

CASH FLOWS FROM INVESTING ACTIVITIES

 

  

 

Capital expenditures

 

(29,364)

(50,251)

Equity method investments

 

(1,115)

(1,172)

Net cash used in investing activities

 

(30,479)

 

(51,423)

CASH FLOWS FROM FINANCING ACTIVITIES

 

  

 

  

Repayments under term loans

(5,000)

Repayments under promissory and equipment security notes

 

(10,910)

(5,792)

Repayments of convertible senior notes

(13,048)

(2,035)

Principal payments under finance leases

(3,559)

(3,671)

Proceeds from termination of convertible senior note hedges

231,796

Payments for termination of common stock warrants

(390,934)

Proceeds from exercise of stock options

 

149,570

1,393

Tax withholdings related to issuance of stock-based awards

(266)

(927)

Net cash used in financing activities

 

(42,351)

 

(11,032)

Effects of foreign currency exchange rate translation

 

(278)

36

Net increase in cash and cash equivalents and restricted cash equivalents

 

62,841

 

128,456

Cash and cash equivalents and restricted cash equivalents

 

 

  

Beginning of period—cash and cash equivalents

 

2,177,889

 

100,446

Beginning of period—restricted cash equivalents (acquisition related escrow deposits)

 

3,975

6,625

Beginning of period—cash and cash equivalents

$

2,181,864

$

107,071

End of period—cash and cash equivalents

 

2,243,255

 

229,527

End of period—restricted cash equivalents (acquisition related escrow deposits)

 

1,450

 

6,000

End of period—cash and cash equivalents and restricted cash equivalents

$

2,244,705

$

235,527

Non-cash transactions:

 

 

Property and equipment additions in accounts payable and accrued expenses at period-end

$

12,248

$

14,463

Landlord asset additions in accounts payable and accrued expenses at period-end

16,823

33,568

Reclassification of assets from landlord assets under construction to finance lease right-of-use assets

109,677

Extinguishment of convertible senior notes related to repurchase obligation (Note 9)

(180,322)

Financing liability and embedded derivative arising from convertible senior notes repurchase (Note 9)

325,363

Shares issued on settlement of convertible senior notes

(14,705)

(3,280)

Shares received on exercise of call option under bond hedge upon settlement of convertible senior notes

14,705

3,280

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

PART I. FINANCIAL INFORMATION

2022 FIRST QUARTER FORM 10-Q | 8

RH

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,” “our” or the “Company”), is a leading retailer and luxury lifestyle brand operating primarily in the home furnishings market. Our curated and fully integrated assortments are presented consistently across our sales channels, including our retail locations, websites and Source Books. We offer merchandise assortments across a number of categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, and child and teen furnishings.

As of April 30, 2022, we operated a total of 67 RH Galleries and 39 RH Outlet stores in 31 states, the District of Columbia and Canada, as well as 14 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 senior leadership team’s opinion, include all adjustments, consisting of normal recurring adjustments, necessary to fairly state our financial position as of April 30, 2022, and the results of operations for the three months ended April 30, 2022, and May 1, 2021. Our current fiscal year, which consists of 52 weeks, ends on January 28, 2023 (“fiscal 2022”).

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 our senior leadership team 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” or “the pandemic”) 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 is included in our condensed consolidated financial statements as of and for the three months ended April 30, 2022. 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 January 29, 2022 (the “2021 Form 10-K”).

The results of operations for the three months ended April 30, 2022, 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 pandemic and other factors as discussed in COVID-19 Pandemic and Macro-Economic Factors below.

PART I. FINANCIAL INFORMATION

2022 FIRST QUARTER FORM 10-Q | 9

COVID-19 Pandemic and Macro-Economic Factors

The COVID-19 pandemic continues to cause challenges in certain aspects of our business operations primarily related to our supply chain, including delays in our receipt of products from vendors, which have affected our ability to convert demand into revenues at normal historic rates. While our performance during the pandemic demonstrates the desirability of our exclusive products, we may see consumer spending patterns shift away from spending on the home and home-related categories as customers return to pre-COVID consumption trends, such as spending on travel and leisure, and other activities.

There are a number of macro-economic factors and uncertainties affecting the overall business climate as well as our business including increased inflation and rising interest rates. These factors may have a number of adverse effects on overall economic conditions and markets in which we operate. A slowdown in the housing market or continued negative trends in stock market prices could have a negative impact on our customers and demand for our products.

Our decisions regarding the sources and uses of capital will continue to reflect and adapt to changes in market conditions and our business including further developments with respect to the pandemic. For more information, refer to the section entitled “Risk Factors” in our 2021 Form 10-K.

NOTE 2—RECENTLY ISSUED ACCOUNTING STANDARDS

New Accounting Standards or Updates Adopted

Convertible Instruments and Contracts in an Entity’s Own Equity

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2020-06—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 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, ASU 2020-06 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 ASU 2020-06’s guidance, we no longer 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, ASU 2020-06 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.

We adopted ASU 2020-06 in the first quarter of fiscal 2022 using a modified retrospective transition method. Accordingly, the cumulative effect of the adoption on our opening fiscal 2022 condensed consolidated balance sheets was as follows:

    

    

ASU 2020-06

    

JANUARY 29,

ADOPTION

JANUARY 29,

2022 

ADJUSTMENTS

2022 

(in thousands)

Assets

 

  

 

  

 

  

Property and equipment—net

$

1,227,920

$

(12,385)

$

1,215,535

Deferred tax assets

56,843

11,909

68,752

Liabilities

 

  

 

  

 

  

Convertible senior notes due 2023—net

59,002

5,684

64,686

Convertible senior notes due 2024—net

184,461

30,341

214,802

Equity

 

  

 

 

  

Additional paid-in capital

620,577

(56,390)

564,187

Retained earnings

551,108

19,889

570,997

PART I. FINANCIAL INFORMATION

2022 FIRST QUARTER FORM 10-Q | 10

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). In January 2021, the FASB issued ASU 2021-01—Reference Rate Reform (Topic 848): Scope, (“ASU 2021-01” and, together with ASU 2020-04, the “ASUs”). The ASUs provide optional expedients and exceptions, if certain criteria are met, for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). These transactions include contract modifications, hedge accounting, and the sale or transfer of debt securities classified as held-to-maturity. The primary contracts for which we currently use LIBOR include our asset based credit facility and certain term loan debt arrangements. The guidance was effective upon issuance and allows entities to adopt the amendments on a prospective basis through December 31, 2022. All new arrangements are using alternative reference rates and we are evaluating the impact of adoption on our existing contracts.

NOTE 3—PREPAID EXPENSE AND OTHER ASSETS

Prepaid expense and other current assets consist of the following:

    

APRIL 30,

    

JANUARY 29,

2022

2022 

(in thousands)

Federal and state tax receivable(1)

$

139,080

$

Prepaid expense and other current assets

52,713

45,386

Vendor deposits

24,343

19,610

Capitalized catalog costs

 

21,859

 

22,194

Tenant allowance receivable

17,761

15,355

Promissory notes receivable, including interest(2)

 

9,601

 

8,401

Right of return asset for merchandise

 

6,070

 

6,429

Acquisition related escrow deposits

1,450

3,975

Total prepaid expense and other current assets

$

272,877

$

121,350

(1) Refer to Note 12—Income Taxes.
(2) Represents promissory notes, including principal and accrued interest, due from a related party. Refer to Note 5—Equity Method Investments.

PART I. FINANCIAL INFORMATION

2022 FIRST QUARTER FORM 10-Q | 11

Other non-current assets consist of the following:

    

APRIL 30,

    

JANUARY 29,

2022

2022 

(in thousands)

Landlord assets under construction—net of tenant allowances

$

115,977

$

204,013

Initial direct costs prior to lease commencement

50,361

 

57,087

Capitalized cloud computing costs—net(1)

17,991

14,910

Other deposits

 

6,872

 

6,877

Deferred financing fees

 

5,192

 

4,123

Other non-current assets

 

12,236

 

11,139

Total other non-current assets

$

208,629

$

298,149

(1) Presented net of accumulated amortization of $5.4 million and $4.0 million as of April 30, 2022 and January 29, 2022, respectively.

NOTE 4—GOODWILL, TRADENAMES, TRADEMARKS AND OTHER INTANGIBLE ASSETS

The following sets forth the goodwill, tradenames, trademarks and other intangible assets activity for the RH Segment and Waterworks (Refer to Note 17—Segment Reporting), for the three months ended April 30, 2022:

    

    

    

FOREIGN

    

JANUARY 29,

CURRENCY

APRIL 30,

2022

ADDITIONS

TRANSLATION

2022 

(in thousands)

RH Segment

 

  

 

  

 

  

 

  

Goodwill

$

141,100

$

$

(8)

$

141,092

Tradenames, trademarks and other intangible assets

 

56,161

 

327

 

 

56,488

Waterworks(1)

 

 

  

 

  

 

Tradename(2)

 

17,000

 

 

 

17,000

(1) Waterworks reporting unit goodwill of $51 million recognized upon acquisition in fiscal 2016 was fully impaired as of fiscal 2018.
(2) Presented net of an impairment charge of $35 million recognized in previous fiscal years.

NOTE 5—EQUITY METHOD INVESTMENTS

Equity method investments represent our 50 percent membership interests in three privately-held limited liability companies in Aspen, Colorado (each, an “Aspen LLC” and collectively, the “Aspen LLCs” or the “equity method investments”) which were formed during fiscal 2020 for the purpose of acquiring, developing, operating and selling certain real estate projects in Aspen, Colorado. As we do not have a controlling financial interest in the Aspen LLCs but have the ability to exercise significant influence over the Aspen LLCs, we account for these investments using the equity method of accounting.

As of April 30, 2022 and January 29, 2022, $9.6 million and $8.4 million, respectively, of promissory notes receivable, inclusive of accrued interest, are outstanding with the managing member, which are included in prepaid expense and other current assets on the condensed consolidated balance sheets. These promissory notes are expected to be settled in cash and not converted into additional equity investment in the Aspen LLCs. We have made $105 million in capital contributions to the Aspen LLCs as contractually required and no further capital contributions are required other than payments made under a management services arrangement. Our maximum exposure to loss is the carrying value of our capital contributed to the equity method investments as of April 30, 2022.

PART I. FINANCIAL INFORMATION

2022 FIRST QUARTER FORM 10-Q | 12

During the three months ended April 30, 2022 and January 29, 2022, we recorded our proportionate share of equity method investments losses of $1.4 million and $2.1 million, respectively, which is included in the condensed consolidated statements of income and a corresponding decrease to the carrying value of equity method investments on the condensed consolidated balance sheets as of April 30, 2022. During the three months ended April 30, 2022, we did not receive any distributions or have any undistributed earnings of equity method investments.

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

Accounts payable and accrued expenses consist of the following:

    

APRIL 30,

    

JANUARY 29,

2022

2022 

(in thousands)

Accounts payable

$

254,537

$

242,035

Accrued compensation

 

54,471

 

96,859

Accrued freight and duty

 

27,339

 

21,888

Accrued sales taxes

 

26,732

 

24,811

Accrued occupancy

 

26,208

 

28,088

Accrued professional fees

 

17,134

 

5,892

Accrued catalog costs

 

7,946

 

4,127

Other accrued expenses

 

14,582

 

18,679

Total accounts payable and accrued expenses

$

428,949

$

442,379

Other current liabilities consist of the following:

    

APRIL 30,

    

JANUARY 29,

2022

2022 

(in thousands)

Unredeemed gift card and merchandise credit liability

$

25,237

$

22,712

Allowance for sales returns

24,709

25,256

Current portion of term loan

20,000

20,000

Finance lease liabilities

15,982

15,511

Current portion of equipment promissory notes

3,875

13,625

Federal and state tax payable(1)

31,364

Other current liabilities

 

17,998

 

18,155

Total other current liabilities

$

107,801

$

146,623

(1) Refer to Note 12—Income Taxes.

Contract Liabilities

We defer revenue associated with merchandise delivered via the home-delivery channel. We expect that substantially all of the deferred revenue and customer deposits as of April 30, 2022 will be recognized within the next six months as the performance obligations are satisfied. Deferred revenue also includes the unrecognized portion of the annual RH Members Program fee. New membership fees are recorded as deferred revenue when collected from customers and recognized as revenue based on expected product revenues over the annual membership period, based on historical trends of sales to members. Membership renewal fees are recorded as deferred revenue when collected from customers and are recognized as revenue on a straight-line basis over the membership period, or one year.

PART I. FINANCIAL INFORMATION

2022 FIRST QUARTER FORM 10-Q | 13

In addition, we defer revenue when cash payments are received in advance of performance for unsatisfied obligations related to our gift cards. During the three months ended April 30, 2022 and May 1, 2021, we recognized $4.7 million and $4.9 million, respectively, of revenue related to previous deferrals related to our gift cards.

We recognize breakage associated with gift cards proportional to actual gift card redemptions. Breakage of $0.7 million and $0.4 million was recorded in net revenues in the three months ended April 30, 2022 and May 1, 2021, respectively.

We expect that approximately 75% of the remaining gift card liabilities will be recognized when the gift cards are redeemed by customers.

NOTE 7—OTHER NON-CURRENT OBLIGATIONS

Other non-current obligations consist of the following:

    

APRIL 30,

    

JANUARY 29,

2022

2022 

(in thousands)

Unrecognized tax benefits

$

3,491

$

3,471

Non-current portion of equipment promissory notes—net

1,129

Other non-current obligations

 

4,240

 

4,106

Total other non-current obligations

$

7,731

$

8,706

.

NOTE 8—LEASES

Lease costs—net consist of the following:

THREE MONTHS ENDED

APRIL 30,

    

MAY 1,

2022

    

2021

(in thousands)

Operating lease cost(1)

 

$

25,133

$

23,567

Finance lease costs

Amortization of leased assets(1)

11,498

10,918

Interest on lease liabilities(2)

7,071

6,150

Variable lease costs(3)

9,087

8,427

Sublease income(4)

(1,128)

(1,182)

Total lease costs—net

$

51,661

$

47,880

(1) Operating lease costs and amortization of finance lease right-of-use assets are included in cost of goods sold or selling, general and administrative expenses on the condensed consolidated statements of income based on our accounting policy. Refer to Note 3—Significant Accounting Policies in the 2021 Form 10-K.
(2) Included in interest expense—net on the condensed consolidated statements of income.
(3) Represents variable lease payments under operating and finance lease agreements, primarily associated with contingent rent based on a percentage of retail sales over contractual levels of $6.7 million and $6.3 million for the three months ended April 30, 2022 and May 1, 2021, respectively, and charges associated with common area maintenance of $2.4 million and $2.1 million for the three months ended April 30, 2022 and May 1, 2021, respectively. Other variable costs, which include single lease cost related to variable lease payments based on an index or rate that were not included in the measurement of the initial lease liability and right-of-use asset, were not material in either period.
(4) Included as an offset to selling, general and administrative expenses on the condensed consolidated statements of income.

PART I. FINANCIAL INFORMATION

2022 FIRST QUARTER FORM 10-Q | 14

Lease right-of-use assets and lease liabilities consist of the following:

APRIL 30,

JANUARY 29,

   

2022

   

2022 

(in thousands)

Balance Sheet Classification

Assets

Operating leases

Operating lease right-of-use assets

$

544,797

$

551,045

Finance leases(1)(2)

Property and equipment—net

918,605

784,327

Total lease right-of-use assets

$

1,463,402

$

1,335,372

Liabilities

Current(3)

Operating leases

Operating lease liabilities

$

74,309

$

73,834

Finance leases

Other current liabilities

15,982

15,511

Total lease liabilities—current

90,291

89,345

Non-current