December 8, 2022 - 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 October 29, 2022

☐	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 December 2, 2022, 23,612,501 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 October 29, 2022 and January 29, 2022	3
	Condensed Consolidated Statements of Income (Unaudited) for the three and nine months ended October 29, 2022 and October 30, 2021	4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended October 29, 2022 and October 30, 2021	5
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three and nine months ended October 29, 2022 and October 30, 2021	6
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended October 29, 2022 and October 30, 2021	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	58
Item 4.	Controls and Procedures	60

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	62
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits	63
Signatures		64


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Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	OCTOBER 29,		JANUARY 29,
	2022		2022

	(in thousands)
ASSETS
Cash and cash equivalents	$	2,150,466	$	2,177,889
Restricted cash (Note 5)		3,882		—
Accounts receivable—net		58,563		57,914
Merchandise inventories		819,299		734,289
Prepaid expense and other current assets		234,247		121,350
Total current assets		3,266,457		3,091,442
Property and equipment—net		1,577,900		1,227,920
Operating lease right-of-use assets		536,452		551,045
Goodwill		141,021		141,100
Tradenames, trademarks and other intangible assets		74,269		73,161
Deferred tax assets		63,105		56,843
Equity method investments		97,005		100,810
Other non-current assets		127,506		298,149
Total assets	$	5,883,715	$	5,540,470
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued expenses	$	389,965	$	442,379
Deferred revenue and customer deposits		361,113		387,933
Convertible senior notes due 2023—net		1,702		9,389
Convertible senior notes due 2024		—		3,600
Operating lease liabilities		77,858		73,834
Other current liabilities		104,538		146,623
Total current liabilities		935,176		1,063,758
Asset based credit facility		—		—
Term loan B—net		1,940,701		1,953,203
Term loan B-2—net		469,396		—
Real estate loans (Note 5)		17,912		—
Convertible senior notes due 2023—net		—		59,002
Convertible senior notes due 2024—net		41,696		184,461
Non-current operating lease liabilities		521,093		540,513
Non-current finance lease liabilities		656,643		560,550
Other non-current obligations		7,151		8,706
Total liabilities		4,589,768		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 October 29, 2022 and January 29, 2022		—		—
Common stock—$0.0001 par value per share, 180,000,000 shares authorized, 23,609,536 shares issued and outstanding as of October 29, 2022; 21,506,967 shares issued and outstanding as of January 29, 2022		2		2
Additional paid-in capital		313,887		620,577
Accumulated other comprehensive loss		(12,685)		(1,410)
Retained earnings		992,743		551,108
Total stockholders’ equity		1,293,947		1,170,277
Total liabilities and stockholders’ equity	$	5,883,715	$	5,540,470

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


PART I. FINANCIAL INFORMATION	2022 THIRD QUARTER FORM 10-Q \| 3

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	THREE MONTHS ENDED				NINE MONTHS ENDED
	OCTOBER 29,		OCTOBER 30,		OCTOBER 29,		OCTOBER 30,
	2022		2021		2022		2021

	(in thousands, except share and per share amounts)
Net revenues	$	869,066	$	1,006,428	$	2,817,978	$	2,856,079
Cost of goods sold		448,288		501,174		1,375,399		1,456,172
Gross profit		420,778		505,254		1,442,579		1,399,907
Selling, general and administrative expenses		250,528		232,715		832,627		690,492
Income from operations		170,250		272,539		609,952		709,415
Other expenses
Interest expense—net		31,417		13,223		78,536		40,112
Loss on extinguishment of debt		—		18,513		169,578		21,784
Other expense—net		1,989		—		4,841		—
Total other expenses		33,406		31,736		252,955		61,896
Income before income taxes		136,844		240,803		356,997		647,519
Income tax expense (benefit)		36,162		54,391		(70,867)		99,124
Income before equity method investments		100,682		186,412		427,864		548,395
Share of equity method investments losses		(1,922)		(2,313)		(6,118)		(6,894)
Net income	$	98,760	$	184,099	$	421,746	$	541,501
Weighted-average shares used in computing basic net income per share		23,681,482		21,430,557		23,588,464		21,200,146
Basic net income per share (Note 13)	$	4.17	$	8.59	$	25.07	$	25.54
Weighted-average shares used in computing diluted net income per share		26,098,265		31,291,079		27,255,911		31,493,396
Diluted net income per share (Note 13)	$	3.78	$	5.88	$	21.70	$	17.19

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


4 \| 2022 THIRD QUARTER FORM 10-Q	PART I. FINANCIAL INFORMATION

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	THREE MONTHS ENDED				NINE MONTHS ENDED
	OCTOBER 29,		OCTOBER 30,		OCTOBER 29,		OCTOBER 30,
	2022		2021		2022		2021

	(in thousands)
Net income	$	98,760	$	184,099	$	421,746	$	541,501
Net losses from foreign currency translation		(4,890)		(2,097)		(11,275)		(1,397)
Comprehensive income	$	93,870	$	182,002	$	410,471	$	540,104

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


PART I. FINANCIAL INFORMATION	2022 THIRD QUARTER FORM 10-Q \| 5

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


	THREE MONTHS ENDED
			COMMON STOCK									TREASURY STOCK
								ACCUMULATED
						ADDITIONAL		OTHER							TOTAL
	MEZZANINE					PAID-IN		COMPREHENSIVE		RETAINED					STOCKHOLDERS'
	EQUITY		SHARES	AMOUNT		CAPITAL		INCOME (LOSS)		EARNINGS		SHARES	AMOUNT		EQUITY

			(in thousands, except share amounts)
Balances—July 30, 2022	$	—	23,715,191	$	2	$	334,054	$	(7,795)	$	893,983	—	$	—	$	1,220,244
Stock-based compensation		—	—		—		10,187		—		—	—		—		10,187
Vested and delivered restricted stock units		—	1,119		—		(171)		—		—	—		—		(171)
Exercise of stock options		—	20,777		—		1,527		—		—	—		—		1,527
Repurchases of common stock		—	(127,557)		—		—		—		—	127,557		(31,710)		(31,710)
Retirement of treasury stock		—	—		—		(31,710)		—		—	(127,557)		31,710		—
Settlement of convertible senior notes		—	6		—		—		—		—	—		—		—
Net income		—	—		—		—		—		98,760	—		—		98,760
Net losses from foreign currency translation		—	—		—		—		(4,890)		—	—		—		(4,890)
Balances—October 29, 2022	$	—	23,609,536	$	2	$	313,887	$	(12,685)	$	992,743	—	$	—	$	1,293,947

Balances—July 31, 2021	$	30,515	21,407,717	$	2	$	583,112	$	3,265	$	219,964	—	$	—	$	806,343
Stock-based compensation		—	—		—		11,995		—		—	—		—		11,995
Vested and delivered restricted stock units		—	1,981		—		(706)		—		—	—		—		(706)
Exercise of stock options		—	55,419		—		4,101		—		—	—		—		4,101
Settlement of convertible senior notes		—	864,090		—		(592,414)		—		—	(864,074)		579,539		(12,875)
Exercise of call option under bond hedge upon settlement of convertible senior notes		—	(864,074)		—		579,539		—		—	864,074		(579,539)		—
Reclassification of equity component to mezzanine equity related to early converted senior notes outstanding—net		(16,944)	—		—		16,944		—		—	—		—		16,944
Net income		—	—		—		—		—		184,099	—		—		184,099
Net losses from foreign currency translation		—	—		—		—		(2,097)		—	—		—		(2,097)
Balances—October 30, 2021	$	13,571	21,465,133	$	2	$	602,571	$	1,168	$	404,063	—	$	—	$	1,007,804


6 \| 2022 THIRD QUARTER FORM 10-Q	PART I. FINANCIAL INFORMATION

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(Unaudited)


	NINE MONTHS ENDED
			COMMON STOCK									TREASURY STOCK
								ACCUMULATED
						ADDITIONAL		OTHER							TOTAL
	MEZZANINE					PAID-IN		COMPREHENSIVE		RETAINED					STOCKHOLDERS'
	EQUITY		SHARES	AMOUNT		CAPITAL		INCOME (LOSS)		EARNINGS		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		—	—		—		33,725		—		—	—		—		33,725
Issuance of restricted stock		—	3,577		—		—		—		—	—		—		—
Vested and delivered restricted stock units		—	2,985		—		(494)		—		—	—		—		(494)
Exercise of stock options		—	3,223,552		—		153,568		—		—	—		—		153,568
Repurchases of common stock		—	(1,127,557)		—		—		—		—	1,127,557		(286,441)		(286,441)
Retirement of treasury stock		—	—		—		(286,441)		—		—	(1,127,557)		286,441		—
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		—	36,980		—		(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		—	—		—		—		—		421,746	—		—		421,746
Net losses from foreign currency translation		—	—		—		—		(11,275)		—	—		—		(11,275)
Balances—October 29, 2022	$	—	23,609,536	$	2	$	313,887	$	(12,685)	$	992,743	—	$	—	$	1,293,947

Balances—January 30, 2021	$	—	20,995,387	$	2		581,897	$	2,565	$	(137,438)	—	$	—	$	447,026
Stock-based compensation		—	—		—		37,284		—		—	—		—		37,284
Issuance of restricted stock		—	1,260		—		—		—		—	—		—		—
Vested and delivered restricted stock units		—	39,679		—		(19,354)		—		—	—		—		(19,354)
Exercise of stock options		—	428,788		—		30,080		—		—	—		—		30,080
Settlement of convertible senior notes		—	983,694		—		(674,549)		—		—	(983,675)		660,784		(13,765)
Exercise of call option under bond hedge upon settlement of convertible senior notes		—	(983,675)		—		660,784		—		—	983,675		(660,784)		—
Reclassification of equity component to mezzanine equity related to early converted senior notes outstanding—net		13,571	—		—		(13,571)		—		—	—		—		(13,571)
Net income		—	—		—		—		—		541,501	—		—		541,501
Net gains from foreign currency translation		—	—		—		—		(1,397)		—	—		—		(1,397)
Balances—October 30, 2021	$	13,571	21,465,133	$	2	$	602,571	$	1,168	$	404,063	—	$	—	$	1,007,804

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


PART I. FINANCIAL INFORMATION	2022 THIRD QUARTER FORM 10-Q \| 7

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	NINE MONTHS ENDED
	OCTOBER 29,		OCTOBER 30,
	2022		2021

	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	421,746	$	541,501
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		79,760		71,375
Non-cash operating lease cost		55,912		54,084
Asset impairments		19,080		7,354
Gain on sale of building and land		(775)		—
Amortization of debt discount		—		24,236
Stock-based compensation expense		33,725		37,426
Non-cash finance lease interest expense		23,526		19,468
Product recalls		560		840
Deferred income taxes		5,627		(122)
Loss on extinguishment of debt		169,578		21,784
Gain on derivative instruments—net		(1,724)		—
Share of equity method investments losses		6,118		6,894
Other non-cash items		5,542		(6,030)
Cash paid attributable to accretion of debt discount upon settlement of debt		—		(39,078)
Change in assets and liabilities:
Accounts receivable		(675)		(1,131)
Merchandise inventories		(96,598)		(89,225)
Prepaid expense and other assets		(152,892)		(39,168)
Landlord assets under construction—net of tenant allowances		(43,380)		(50,351)
Accounts payable and accrued expenses		(44,999)		(17,980)
Deferred revenue and customer deposits		(26,604)		104,419
Other current liabilities		(36,596)		(28,106)
Current and non-current operating lease liabilities		(56,936)		(59,194)
Other non-current obligations		(23,974)		(

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company