September 7, 2023 - 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 29, 2023

☐	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 1, 2023, 18,400,192 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 July 29, 2023 and January 28, 2023	3
	Condensed Consolidated Statements of Income (Unaudited) for the three and six months ended July 29, 2023 and July 30, 2022	4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended July 29, 2023 and July 30, 2022	5
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited) for the three and six months ended July 29, 2023 and July 30, 2022	6
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended July 29, 2023 and July 30, 2022	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	57
Item 4.	Controls and Procedures	58

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	61
Signatures		62


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Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	JULY 29,		JANUARY 28,
	2023		2023

	(in thousands)
ASSETS
Cash and cash equivalents	$	417,047	$	1,508,101
Restricted cash		3,538		3,662
Accounts receivable—net		54,447		59,763
Merchandise inventories		737,663		801,841
Prepaid expense and other current assets		143,831		139,297
Total current assets		1,356,526		2,512,664
Property and equipment—net		1,655,326		1,635,984
Operating lease right-of-use assets		532,090		527,246
Goodwill		141,053		141,048
Tradenames, trademarks and other intangible assets		75,472		74,633
Deferred tax assets		123,405		167,039
Equity method investments		130,211		101,468
Other non-current assets		198,748		149,207
Total assets	$	4,212,831	$	5,309,289
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Accounts payable and accrued expenses	$	357,479	$	374,949
Deferred revenue and customer deposits		331,031		325,754
Convertible senior notes due 2023		—		1,696
Operating lease liabilities		83,489		80,384
Other current liabilities		100,667		103,190
Total current liabilities		872,666		885,973
Asset based credit facility		—		—
Term loan B—net		1,928,180		1,936,529
Term loan B-2—net		468,934		469,245
Real estate loans		17,902		17,909
Convertible senior notes due 2024—net		41,779		41,724
Non-current operating lease liabilities		506,535		505,809
Non-current finance lease liabilities		646,900		653,050
Deferred tax liabilities		6,401		6,315
Other non-current obligations		8,116		8,074
Total liabilities		4,497,413		4,524,628
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 July 29, 2023 and January 28, 2023		—		—
Common stock—$0.0001 par value per share, 180,000,000 shares authorized, 18,397,853 shares issued and outstanding as of July 29, 2023; 22,045,385 shares issued and outstanding as of January 28, 2023		2		2
Additional paid-in capital		261,803		247,076
Accumulated other comprehensive income (loss)		3,272		(2,403)
Retained earnings (accumulated deficit)		(549,659)		539,986
Total stockholders’ equity (deficit)		(284,582)		784,661
Total liabilities and stockholders’ equity (deficit)	$	4,212,831	$	5,309,289

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


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Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	THREE MONTHS ENDED				SIX MONTHS ENDED
	JULY 29,		JULY 30,		JULY 29,		JULY 30,
	2023		2022		2023		2022

	(in thousands, except share and per share amounts)
Net revenues	$	800,479	$	991,620	$	1,539,641	$	1,948,912
Cost of goods sold		420,406		468,402		812,023		927,111
Gross profit		380,073		523,218		727,618		1,021,801
Selling, general and administrative expenses		228,733		288,804		477,038		582,099
Income from operations		151,340		234,414		250,580		439,702
Other expenses
Interest expense—net		44,422		26,264		84,238		47,119
Loss on extinguishment of debt		—		23,462		—		169,578
Other (income) expense—net		(186)		3,195		(839)		2,852
Total other expenses		44,236		52,921		83,399		219,549
Income before income taxes and equity method investments		107,104		181,493		167,181		220,153
Income tax expense (benefit)		27,245		56,397		43,830		(107,029)
Income before equity method investments		79,859		125,096		123,351		327,182
Share of equity method investments loss		3,382		2,821		4,984		4,196
Net income	$	76,477	$	122,275	$	118,367	$	322,986
Weighted-average shares used in computing basic net income per share		20,960,329		24,475,373		21,503,090		23,541,955
Basic net income per share	$	3.65	$	5.00	$	5.50	$	13.72
Weighted-average shares used in computing diluted net income per share		22,727,560		26,934,914		23,242,585		27,371,500
Diluted net income per share	$	3.36	$	4.54	$	5.09	$	11.80

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


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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	THREE MONTHS ENDED				SIX MONTHS ENDED
	JULY 29,		JULY 30,		JULY 29,		JULY 30,
	2023		2022		2023		2022

	(in thousands)
Net income	$	76,477	$	122,275	$	118,367	$	322,986
Net gains (losses) from foreign currency translation		3,380		(2,240)		5,675		(6,385)
Comprehensive income	$	79,857	$	120,035	$	124,042	$	316,601

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


PART I. FINANCIAL INFORMATION	2023 SECOND QUARTER FORM 10-Q \| 5

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(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 (DEFICIT)

	(in thousands, except share amounts)
Balances—April 29, 2023	22,051,251	$	2	$	257,616	$	(108)	$	581,876	—	$	—	$	839,386
Stock-based compensation	—		—		8,538		—		—	—		—		8,538
Issuance of restricted stock	2,961		—		—		—		—	—		—		—
Vested and delivered restricted stock units	—		—		—		—		—	—		—		—
Exercise of stock options	40,599		—		4,272		—		—	—		—		4,272
Settlement of convertible senior notes	1,929		—		—		—		—	—		—		—
Repurchases of common stock—including excise tax	(3,698,887)		—		—		—		—	3,698,887		(1,216,635)		(1,216,635)
Retirement of treasury stock	—		—		(8,623)		—		(1,208,012)	(3,698,887)		1,216,635		—
Net income	—		—		—		—		76,477	—		—		76,477
Net gains from foreign currency translation	—		—		—		3,380		—	—		—		3,380
Balances—July 29, 2023	18,397,853	$	2	$	261,803	$	3,272	$	(549,659)	—	$	—	$	(284,582)

Balances—April 30, 2022	24,661,781	$	2	$	575,635	$	(5,555)	$	771,708	—	$	—	$	1,341,790
Stock-based compensation	—		—		10,736		—		—	—		—		10,736
Issuance of restricted stock	3,577		—		—		—		—	—		—		—
Vested and delivered restricted stock units	457		—		(57)		—		—	—		—		(57)
Exercise of stock options	49,375		—		2,471		—		—	—		—		2,471
Settlement of convertible senior notes	1		—		—		—		—	—		—		—
Repurchases of common stock	(1,000,000)		—		—		—		—	1,000,000		(254,731)		(254,731)
Retirement of treasury stock	—		—		(254,731)		—		—	(1,000,000)		254,731		—
Net income	—		—		—		—		122,275	—		—		122,275
Net losses from foreign currency translation	—		—		—		(2,240)		—	—		—		(2,240)
Balances—July 30, 2022	23,715,191	$	2	$	334,054	$	(7,795)	$	893,983	—	$	—	$	1,220,244


6 \| 2023 SECOND QUARTER FORM 10-Q	PART I. FINANCIAL INFORMATION

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (continued)

(Unaudited)


	SIX 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 (DEFICIT)

	(in thousands, except share amounts)
Balances—January 28, 2023	22,045,385	$	2	$	247,076	$	(2,403)	$	539,986	—	$	—	$	784,661
Stock-based compensation	—		—		18,718		—		—	—		—		18,718
Issuance of restricted stock	2,961		—		—		—		—	—		—		—
Vested and delivered restricted stock units	847		—		(96)		—		—	—		—		(96)
Exercise of stock options	45,616		—		4,728		—		—	—		—		4,728
Settlement of convertible senior notes	1,931		—		—		—		—	—		—		—
Repurchase of common stock—including excise tax	(3,698,887)		—		—		—		—	3,698,887		(1,216,635)		(1,216,635)
Retirement of treasury stock	—		—		(8,623)		—		(1,208,012)	(3,698,887)		1,216,635		—
Net income	—		—		—		—		118,367	—		—		118,367
Net gains from foreign currency translation	—		—		—		5,675		—	—		—		5,675
Balances—July 29, 2023	18,397,853	$	2	$	261,803	$	3,272	$	(549,659)	—	$	—	$	(284,582)

Balances—January 29, 2022	21,506,967	$	2	$	620,577	$	(1,410)	$	551,108	—	$	—	$	1,170,277
Stock-based compensation	—		—		23,538		—		—	—		—		23,538
Issuance of restricted stock	3,577		—		—		—		—	—		—		—
Vested and delivered restricted stock units	1,866		—		(323)		—		—	—		—		(323)
Exercise of stock options	3,202,775		—		152,041		—		—	—		—		152,041
Repurchases of common stock	(1,000,000)		—		—		—		—	1,000,000		(254,731)		(254,731)
Retirement of treasury stock	—		—		(254,731)		—		—	(1,000,000)		254,731		—
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	36,974		—		(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	—		—		—		—		322,986	—		—		322,986
Net losses from foreign currency translation	—		—		—		(6,385)		—	—		—		(6,385)
Balances—July 30, 2022	23,715,191	$	2	$	334,054	$	(7,795)	$	893,983	—	$	—	$	1,220,244

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


PART I. FINANCIAL INFORMATION	2023 SECOND QUARTER FORM 10-Q \| 7

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	SIX MONTHS ENDED
	JULY 29,		JULY 30,
	2023		2022

	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	118,367	$	322,986
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		55,906		51,728
Non-cash operating lease cost		38,858		37,190
Asset impairments		2,894		8,154
Stock-based compensation expense		18,718		23,538
Non-cash finance lease interest expense		17,280		14,962
Product recalls		—		560
Deferred income taxes		43,717		5,493
Loss on extinguishment of debt		—		169,578
Gain on derivative instruments—net		—		(1,724)
Share of equity method investments loss		4,984		4,196
Other non-cash items		4,454		3,348
Change in assets and liabilities:
Accounts receivable		5,332		2,332
Merchandise inventories		64,848		(124,958)
Prepaid expense and other assets		(24,680)		(153,471)
Landlord assets under construction—net of tenant allowances		(13,959)		(32,460)
Accounts payable and accrued expenses		(32,205)		(63,820)
Deferred revenue and customer deposits		5,216		2,911
Other current liabilities		(2,315)		(24,902)
Current and non-current operating lease liabilities		(41,654)		(38,329)
Other non-current obligations		(17,406)		(14,796)
Net cash provided by operating activities		248,355		192,516
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(81,596)		(62,558)
Equity method investments		(33,727)		(1,520)
Net cash used in investing activities		(115,323)		(64,078)


8 \| 2023 SECOND QUARTER FORM 10-Q	PART I. FINANCIAL INFORMATION

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)


	SIX MONTHS ENDED
	JULY 29,		JULY 30,
	2023		2022
	(in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under term loans		—		500,000
Repayments under term loans		(12,500)		(10,000)
Repayments under real estate loans		(13)		—
Repayments under promissory and equipment security notes		(1,160)		(12,807)
Repayments of convertible senior notes		(1,696)		(13,048)
Repayment under convertible senior notes repurchase obligation		—		(395,372)
Debt issuance costs		—		(27,646)
Principal payments under finance lease agreements—net of tenant allowances		(5,454)		(3,132)
Proceeds from termination of convertible senior note hedges		—		231,796
Payments for termination of common stock warrants		—		(390,934)
Repurchases of common stock—inclusive of excise taxes paid		(1,208,290)		(254,731)
Proceeds from exercise of stock options		4,728		152,041
Tax withholdings related to issuance of stock-based awards		(96)		(323)
Net cash used in financing activities		(1,224,481)		(224,156)
Effects of foreign currency exchange rate translation		271		(440)
Net decrease in cash and cash equivalents, restricted cash and restricted cash equivalents		(1,091,178)		(96,158)
Cash and cash equivalents, restricted cash and restricted cash equivalents
Beginning of period—cash and cash equivalents		1,508,101		2,177,889
Beginning of period—restricted cash

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company