Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

June 13, 2024

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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 May 4, 2024

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 June 7, 2024, 18,445,222 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 May 4, 2024 and February 3, 2024

3

Condensed Consolidated Statements of Income (Loss) (Unaudited)
for the three months ended May 4, 2024 and April 29, 2023

4

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
for the three months ended May 4, 2024 and April 29, 2023

5

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)
for the three months ended May 4, 2024 and April 29, 2023

6

Condensed Consolidated Statements of Cash Flows (Unaudited)
for the three months ended May 4, 2024 and April 29, 2023

7

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

Item 2.

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

29

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

45

Item 4.

Controls and Procedures

46

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

47

Item 1A.

Risk Factors

47

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

48

Item 3.

Defaults Upon Senior Securities

48

Item 4.

Mine Safety Disclosures

48

Item 5.

Other Information

48

Item 6.

Exhibits

49

Signatures

50

TABLE OF CONENTS

2024 FIRST QUARTER FORM 10-Q | 2

PART I

ITEM 1.     FINANCIAL STATEMENTS

RH

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

    

MAY 4,

    

FEBRUARY 3,

2024

2024

(in thousands)

ASSETS

 

  

 

  

Cash and cash equivalents

$

101,787

$

123,688

Accounts receivable—net

 

62,800

 

55,058

Merchandise inventories

 

802,209

 

754,126

Prepaid expense and other current assets

 

149,230

 

169,030

Total current assets

 

1,116,026

 

1,101,902

Property and equipment—net

 

1,693,190

 

1,685,858

Operating lease right-of-use assets

605,664

625,801

Goodwill

 

141,013

 

141,033

Tradenames, trademarks and other intangible assets

 

76,053

 

75,927

Deferred tax assets

 

143,980

 

143,986

Equity method investments

128,908

128,668

Other non-current assets

 

281,705

 

240,722

Total assets

$

4,186,539

$

4,143,897

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

  

Accounts payable and accrued expenses

$

407,494

$

366,585

Deferred revenue and customer deposits

315,647

 

282,812

Convertible senior notes due 2024—net

41,862

41,835

Operating lease liabilities

85,875

85,523

Other current liabilities

 

85,613

 

96,113

Total current liabilities

 

936,491

 

872,868

Asset based credit facility

 

 

Term loan B—net

 

1,915,703

 

1,919,885

Term loan B-2—net

 

468,531

 

468,696

Real estate loans—net

17,679

17,766

Non-current operating lease liabilities

 

555,651

 

576,166

Non-current finance lease liabilities

562,804

566,829

Deferred tax liabilities

8,419

8,442

Other non-current obligations

 

11,182

 

10,639

Total liabilities

4,476,460

4,441,291

Commitments and contingencies (Note 16)

 

 

Stockholders’ deficit:

 

 

  

Preferred stock—$0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of May 4, 2024 and February 3, 2024

 

Common stock—$0.0001 par value per share, 180,000,000 shares authorized, 18,342,797 shares issued and outstanding as of May 4, 2024; 18,315,613 shares issued and outstanding as of February 3, 2024

 

2

 

2

Additional paid-in capital

 

300,189

 

287,806

Accumulated other comprehensive loss

 

(3,223)

 

(1,938)

Accumulated deficit

 

(586,889)

 

(583,264)

Total stockholders’ deficit

(289,921)

(297,394)

Total liabilities and stockholders’ deficit

$

4,186,539

$

4,143,897

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

PART I. FINANCIAL INFORMATION

2024 FIRST QUARTER FORM 10-Q | 3

RH

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)

THREE MONTHS ENDED

MAY 4,

APRIL 29,

    

2024

    

2023 

(in thousands, except share and per share amounts)

Net revenues

$

726,960

$

739,162

Cost of goods sold

 

410,922

391,617

Gross profit

 

316,038

 

347,545

Selling, general and administrative expenses

 

261,375

248,305

Income from operations

 

54,663

 

99,240

Other expenses

Interest expense—net

56,772

39,816

Other (income) expense—net

1,165

(653)

Total other expenses

 

57,937

39,163

Income (loss) before income taxes and equity method investments

(3,274)

60,077

Income tax expense (benefit)

(2,091)

16,585

Income (loss) before equity method investments

(1,183)

43,492

Share of equity method investments loss—net

2,442

1,602

Net income (loss)

$

(3,625)

$

41,890

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

18,324,454

22,047,029

Basic net income (loss) per share

$

(0.20)

$

1.90

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

18,324,454

23,758,788

Diluted net income (loss) per share

$

(0.20)

$

1.76

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

PART I. FINANCIAL INFORMATION

2024 FIRST QUARTER FORM 10-Q | 4

RH

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

THREE MONTHS ENDED

MAY 4,

APRIL 29,

2024

    

2023 

(in thousands)

Net income (loss)

$

(3,625)

$

41,890

Net gain (loss) from foreign currency translation

(1,285)

2,295

Comprehensive income (loss)

$

(4,910)

$

44,185

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

PART I. FINANCIAL INFORMATION

2024 FIRST QUARTER FORM 10-Q | 5

RH

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

THREE MONTHS ENDED

COMMON STOCK

 

ACCUMULATED

 

RETAINED

 

ADDITIONAL

 

OTHER

 

EARNINGS

TOTAL

 

PAID-IN

 

COMPREHENSIVE

 

(ACCUMULATED

 

STOCKHOLDERS'

  

SHARES

  

AMOUNT

  

CAPITAL

  

INCOME (LOSS)

  

DEFICIT)

  

EQUITY (DEFICIT)

(in thousands, except share amounts)

Balances—February 3, 2024

18,315,613

 

$

2

 

$

287,806

 

$

(1,938)

 

$

(583,264)

 

$

(297,394)

Stock-based compensation

10,544

10,544

Issuance of restricted stock

4,000

Vested and delivered restricted stock units

817

(151)

(151)

Exercise of stock options

22,367

1,990

1,990

Net loss

(3,625)

(3,625)

Net loss from foreign currency translation

(1,285)

(1,285)

Balances—May 4, 2024

18,342,797

 

$

2

 

$

300,189

 

$

(3,223)

 

$

(586,889)

 

$

(289,921)

Balances—January 28, 2023

22,045,385

 

$

2

 

$

247,076

 

$

(2,403)

 

$

539,986

 

$

784,661

Stock-based compensation

10,180

10,180

Vested and delivered restricted stock units

847

(96)

(96)

Exercise of stock options

5,017

456

456

Settlement of convertible senior notes

2

Net income

41,890

41,890

Net gain from foreign currency translation

2,295

2,295

Balances—April 29, 2023

22,051,251

 

$

2

 

$

257,616

 

$

(108)

 

$

581,876

 

$

839,386

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

PART I. FINANCIAL INFORMATION

2024 FIRST QUARTER FORM 10-Q | 6

RH

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

THREE MONTHS ENDED

MAY 4,

APRIL 29,

2024

    

2023

(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)

$

(3,625)

$

41,890

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

Depreciation and amortization

 

30,827

27,770

Non-cash operating lease cost

23,842

19,865

Stock-based compensation expense

 

10,544

10,180

Asset impairments

575

2,475

Non-cash finance lease interest expense

7,407

8,486

Deferred income taxes

16,527

Share of equity method investments loss—net

2,442

1,602

Other non-cash items

 

2,184

2,215

Change in assets and liabilities:

 

Accounts receivable

 

(7,750)

(462)

Merchandise inventories

 

(48,324)

35,915

Prepaid expense and other assets

 

15,404

(4,311)

Landlord assets under construction—net of tenant allowances

 

(8,782)

(9,583)

Accounts payable and accrued expenses

 

40,520

(54,354)

Deferred revenue and customer deposits

 

32,873

19,160

Other current liabilities

 

(11,143)

(556)

Current and non-current operating lease liabilities

 

(24,009)

(21,543)

Other non-current obligations

 

(6,855)

(8,538)

Net cash provided by operating activities

 

56,130

 

86,738

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

Capital expenditures

 

(66,261)

(34,190)

Equity method investments

 

(2,682)

(33,131)

Net cash used in investing activities

 

(68,943)

 

(67,321)

PART I. FINANCIAL INFORMATION

2024 FIRST QUARTER FORM 10-Q | 7

Table of Contents

RH

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

THREE MONTHS ENDED

MAY 4,

APRIL 29,

2024

    

2023

(in thousands)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

  

Repayments under term loans

(6,250)

(6,250)

Repayments under real estate loans

(9)

(6)

Repayments under promissory and equipment security notes

 

(1,160)

Repayments of convertible senior notes

(2)

Principal payments under finance lease agreements

(4,496)

(3,877)

Proceeds from exercise of stock options

 

1,990

456

Tax withholdings related to issuance of stock-based awards

(151)

(96)

Net cash used in financing activities

 

(8,916)

 

(10,935)

Effects of foreign currency exchange rate translation on cash

 

(172)

(18)

Net increase (decrease) in cash and cash equivalents and restricted cash

 

(21,901)

 

8,464

Cash and cash equivalents and restricted cash

 

 

  

Beginning of period—cash and cash equivalents

 

123,688

 

1,508,101

Beginning of period—restricted cash

 

 

3,662

Beginning of period—cash and cash equivalents and restricted cash

$

123,688

$

1,511,763

End of period—cash and cash equivalents

 

101,787

 

1,516,689

End of period—restricted cash

 

 

3,538

End of period—cash and cash equivalents and restricted cash

$

101,787

$

1,520,227

Non-cash transactions:

 

 

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

$

38,504

$

20,441

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

6,434

2,564

Excise tax from share repurchases in accounts payable and accrued expenses at period-end

11,988

3,700

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

PART I. FINANCIAL INFORMATION

2024 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 Sourcebooks. We offer merchandise assortments across a number of categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, and baby, child and teen furnishings.

As of May 4, 2024, we operated a total of 71 RH Galleries and 41 RH Outlet stores, one RH Guesthouse and 14 Waterworks Showrooms throughout the United States and Canada as well as in the United Kingdom, Germany and Belgium. We also have 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 May 4, 2024, and the results of operations for the three months ended May 4, 2024 and April 29, 2023. Our current fiscal year, which consists of 52 weeks, ends on February 1, 2025 (“fiscal 2024”).

The condensed consolidated financial statements include our accounts and those of our wholly-owned subsidiaries, as well as the financial information of variable interest entities (“VIEs”) where we represent the primary beneficiary and have the power to direct the activities that most significantly impact the entity’s performance. Accordingly, all intercompany balances and transactions have been eliminated through the consolidation process.

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, 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, and 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 May 4, 2024. As additional information becomes available to us, our future assessment of these estimates, as well as other factors, could change and the results of any such change could materially and adversely impact our condensed consolidated financial statements in future reporting periods.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024 (the “2023 Form 10-K”).

The results of operations for the three months ended May 4, 2024, presented herein, are not necessarily indicative of the results to be expected for the full fiscal year.

PART I. FINANCIAL INFORMATION

2024 FIRST QUARTER FORM 10-Q | 9

NOTE 2—RECENTLY ISSUED ACCOUNTING STANDARDS

New Accounting Standards or Updates Not Yet Adopted

Segment Reporting: Improvements to Reportable Segment Disclosures

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07—Improvements to Reportable Segment Disclosures. This new guidance is designed to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. Early adoption is permitted. We are currently assessing the impact that adopting this new accounting standard will have on our condensed consolidated financial statements.

Income Taxes: Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09Improvements to Income Tax Disclosures. This new guidance is designed to enhance the transparency and decision usefulness of income tax disclosures. The amendments of this update are related to the rate reconciliation and income taxes paid, requiring consistent categories and greater disaggregation of information in the rate reconciliation as well as income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently assessing the impact that adopting this new accounting standard will have on our condensed consolidated financial statements.

NOTE 3—PREPAID EXPENSE AND OTHER ASSETS

Prepaid expense and other current assets consist of the following:

    

MAY 4,

    

FEBRUARY 3,

2024

2024 

(in thousands)

Prepaid expenses

$

38,668

$

42,089

Capitalized catalog costs

33,348

27,856

Vendor deposits

19,297

26,409

Tenant allowance receivable

8,717

8,220

Federal and state tax receivable(1)

7,901

20,441

Value added tax (VAT) receivable

7,447

6,532

Right of return asset for merchandise

 

5,432

 

5,011

Promissory notes receivable, including interest(2)

 

3,217

 

3,292

Other current assets

25,203

29,180

Total prepaid expense and other current assets

$

149,230

$

169,030

(1) Refer to Note 12—Income Taxes.
(2) Represents promissory notes, including principal and accrued interest, due from an affiliate of the managing member of the Aspen LLCs (as defined below). Refer to Note 5—Variable Interest Entities.

PART I. FINANCIAL INFORMATION

2024 FIRST QUARTER FORM 10-Q | 10

Other non-current assets consist of the following:

    

MAY 4,

    

FEBRUARY 3,

2024

2024 

(in thousands)

Landlord assets under construction—net of tenant allowances

$

154,302

$

118,897

Initial direct costs prior to lease commencement

72,061

66,333

Capitalized cloud computing costs—net(1)

23,312

22,646

Vendor deposits—non-current

 

8,554

 

8,862

Other deposits

7,729

7,913

Deferred financing fees

 

2,268

 

2,520

Other non-current assets

 

13,479

 

13,551

Total other non-current assets

$

281,705

$

240,722

(1) Presented net of accumulated amortization of $21 million and $19 million as of May 4, 2024 and February 3, 2024, respectively.

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

Goodwill, tradenames, trademarks and other intangible assets activity for the RH Segment and Waterworks consists of the following:

    

RH SEGMENT

    

WATERWORKS

TRADENAMES,

TRADENAMES,

TRADEMARKS AND

TRADEMARKS AND

OTHER INTANGIBLE

OTHER INTANGIBLE

GOODWILL

ASSETS

GOODWILL(1)

ASSETS(2)

(in thousands)

February 3, 2024

$

141,033

$

58,927

$

$

17,000

Additions

 

126

Foreign currency translation

(20)

May 4, 2024

$

141,013

$

59,053

$

$

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.

There are no goodwill, tradenames, trademarks and other intangible assets for the Real Estate segment.

PART I. FINANCIAL INFORMATION

2024 FIRST QUARTER FORM 10-Q | 11

NOTE 5—VARIABLE INTEREST ENTITIES

Consolidated Variable Interest Entities and Noncontrolling Interests

In fiscal 2022, we formed eight privately-held limited liability companies (each, a “Member LLC” and collectively, the “Member LLCs” or the “consolidated variable interest entities”) for real estate development activities related to our Gallery transformation and global expansion strategies.

The carrying amounts and classification of the Member LLCs’ assets and liabilities included in the condensed consolidated balance sheets were as follows:

    

MAY 4,

    

FEBRUARY 3,

2024

2024

(in thousands)

ASSETS

 

  

 

  

Cash and cash equivalents

$

9,324

$

8,918

Prepaid expense and other current assets

 

1,401

 

1,876

Total current assets

 

10,725

 

10,794

Property and equipment—net(1)

 

263,798

 

256,523

Other non-current assets

6

 

6

Total assets

$

274,529

$

267,323

LIABILITIES

 

  

 

  

Accounts payable and accrued expenses

$

4,950

$

8,735

Other current liabilities

232

1,041

Total current liabilities

5,182

9,776

Real estate loans—net(2)

17,679

17,766

Other non-current obligations

941

 

947

Total liabilities

$

23,802

$

28,489

(1) Includes $49 million and $77 million of construction in progress as of May 4, 2024 and February 3, 2024, respectively.
(2) Real estate loans are secured by the assets of each respective Member LLC and the associated creditors do not have recourse against RH’s general assets. Excludes $0.2 million and $0.1 million of current obligations related to such loans that are included in other current liabilities on the condensed consolidated balance sheets as of May 4, 2024 and February 3, 2024, respectively.

On August 3, 2022, a Member LLC as the borrower executed a Secured Promissory Note (the “Secured Promissory Note”) with a third-party in an aggregate principal amount equal to $2.0 million with a maturity date of August 1, 2032. The Secured Promissory Note bears interest at a fixed rate per annum equal to 6.00%.

On September 9, 2022, a Member LLC as the borrower executed a Promissory Note (the “Promissory Note”) with a third-party bank in an aggregate principal amount equal to $16 million with a maturity date of September 9, 2032. The Promissory Note bears interest at a fixed rate per annum equal to 5.37% until September 15, 2027, on which date the interest rate will reset based on the five-year treasury rate plus 2.00%, subject to a total interest rate floor of 3.00%.

Equity Method Investments

Equity method investments primarily represent our membership interests in three privately-held limited liability companies in Aspen, Colorado (each, an “Aspen LLC” and collectively, the “Aspen LLCs”) that were formed for the purpose of acquiring, developing, operating and selling certain real estate projects in Aspen, Colorado. As of May 4, 2024, we have made capital contributions of approximately $140 million to the Aspen LLCs. Additionally, Waterworks has membership interests in two European entities that are equity method investments.

PART I. FINANCIAL INFORMATION

2024 FIRST QUARTER FORM 10-Q | 12

Our maximum exposure to loss is the carrying value of each of the equity method investments as of May 4, 2024. During the three months ended May 4, 2024 and April 29, 2023, 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:

    

MAY 4,

    

FEBRUARY 3,

2024

2024 

(in thousands)

Accounts payable

$

208,608

$

192,345

Accrued compensation

 

56,039

 

43,840

Accrued sales and use tax

 

28,211

 

26,823

Accrued occupancy

 

28,010

 

29,144

Accrued freight and duty

 

17,180

 

14,333

Accrued legal settlements(1)

16,504

16,704

Excise tax payable on share repurchases

11,988

11,988

Accrued professional fees

 

6,140

 

5,754

Accrued legal contingencies(1)

2,433

2,795

Accrued interest

1,897

1,343

Other accrued expenses

 

30,484

 

21,516

Total accounts payable and accrued expenses

$

407,494

$

366,585

(1) Refer to Note 16—Commitments and Contingencies.

Reorganization

We implemented a restructuring on March 24, 2023 that included workforce and expense reductions in order to improve and simplify our organizational structure, streamline certain aspects of our business operations and better position us for further growth. The workforce reduction associated with the initiative included the elimination of numerous leadership and other positions throughout the organization, which affected approximately 440 roles. The reorganization was completed during the first quarter of fiscal 2023. During the three months ended April 29, 2023, we incurred total charges relating to the reorganization of $7.6 million consisting primarily of severance costs and related taxes. As of February 3, 2024, we had an immaterial amount accrued within accounts payable and accrued expenses on the condensed consolidated balance sheets related to the reorganization, all of which was paid during the first quarter of fiscal 2024.

PART I. FINANCIAL INFORMATION

2024 FIRST QUARTER FORM 10-Q | 13

Other current liabilities consist of the following:

    

MAY 4,

    

FEBRUARY 3,

2024

2024 

(in thousands)

Current portion of term loans

$

25,000

$

25,000

Allowance for sales returns

20,953

19,588

Unredeemed gift card and merchandise credit liability

20,588

24,720

Finance lease liabilities

15,209

14,668

Federal tax payable

5,561

Other current liabilities

 

3,863

 

6,576

Total other current liabilities

$

85,613

$

96,113

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 May 4, 2024 will be recognized within the next six months as the performance obligations are satisfied. In addition, we defer revenue when cash payments are received in advance of performance for unsatisfied obligations related to our gift cards. During both the three months ended May 4, 2024 and April 29, 2023, we recognized $6.1 million of revenue related to previous deferrals related to our gift cards. We expect that approximately 75 percent of the remaining gift card liabilities will be recognized when the gift cards are redeemed by customers.

Supplier Finance Program

We facilitate a voluntary supply chain financing program (the “Financing Program”) with a third-party financial institution (the “Bank”) to provide participating suppliers with the opportunity to receive early payment on invoices, net of a discount charged to the supplier by the Bank. As of May 4, 2024 and February 3, 2024, supplier invoices that have been confirmed as valid under the Financing Program included in accounts payable and accrued expenses on the condensed consolidated balance sheets were $41 million and $28 million, respectively.

NOTE 7—OTHER NON-CURRENT OBLIGATIONS

Other non-current obligations consist of the following:

    

MAY 4,

    

FEBRUARY 3,

2024

2024 

(in thousands)

Unrecognized tax benefits

$

3,683

$

3,633

Other non-current obligations

7,499

7,006

Total other non-current obligations

$

11,182

$

10,639

.

PART I. FINANCIAL INFORMATION

2024 FIRST QUARTER FORM 10-Q | 14

NOTE 8—LEASES

Lease costs—net consist of the following:

THREE MONTHS ENDED

MAY 4,

    

APRIL 29,

    

    

2024

    

2023

(in thousands)

Operating lease cost(1)

$

32,881

$

26,300

Finance lease costs

Amortization of leased assets(1)

12,405

13,704

Interest on lease liabilities(2)

7,407

8,486

Variable lease costs(3)

6,643

6,168

Sublease income(4)

(1,154)

(1,546)

Total lease costs—net

$

58,182

$

53,112

(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 (loss) based on our accounting policy.
(2) Included in interest expense—net on the condensed consolidated statements of income (loss).
(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 $3.9 million for both the three months ended May 4, 2024 and April 29, 2023, as well as charges associated with common area maintenance of $2.7 million and $2.3 million for the three months ended May 4, 2024 and April 29, 2023, 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 presented.
(4) Included in selling, general and administrative expenses on the condensed consolidated statements of income (loss).

PART I. FINANCIAL INFORMATION

2024 FIRST QUARTER FORM 10-Q | 15

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

MAY 4,

FEBRUARY 3,

   

2024

   

2024 

(in thousands)

Balance Sheet Classification

Assets

Operating leases

Operating lease right-of-use assets

$

605,664

$

625,801

Finance leases(1)(2)(3)

Property and equipment—net

825,191

836,814

Total lease right-of-use assets

$

1,430,855

$

1,462,615

Liabilities

Current(4)

Operating leases

Operating lease liabilities

$

85,875

$

85,523

Finance leases

Other current liabilities

15,209

14,668

Total lease liabilities—current

101,084

100,191

Non-current

Operating leases

Non-current operating lease liabilities

555,651

576,166

Finance leases

Non-current finance lease liabilities

562,804

566,829

Total lease liabilities—non-current

1,118,455

1,142,995

Total lease liabilities

$

1,219,539

$

1,243,186

(1) Includes capitalized amounts related to our completed construction activities to design and build leased assets, which are reclassified from other non-current assets upon lease commencement.
(2) Recorded net of accumulated amortization of $281 million and $268 million as of May 4, 2024 and February 3, 2024, respectively.
(3) Includes $37 million as of both May 4, 2024 and February 3, 2024 related to an RH Design Gallery lease with a landlord that is an affiliate of the managing member of the Aspen LLCs. Refer to Note 5—Variable Interest Entities.
(4) Current portion of lease liabilities represents the reduction of the related lease liability over the next 12 months.

PART I. FINANCIAL INFORMATION

2024 FIRST QUARTER FORM 10-Q | 16

The maturities of lease liabilities are as follows as of May 4, 2024:

OPERATING

FINANCE

FISCAL YEAR

   

LEASES

   

LEASES

   

TOTAL

(in thousands)

Remainder of fiscal 2024

$

84,491

$

31,390

$

115,881

2025

119,557

48,203

167,760

2026

111,737

48,971

160,708

2027

104,148

49,777

153,925

2028

70,137

48,812

118,949

2029

57,387

48,488

105,875

Thereafter

272,752

679,451

952,203

Total lease payments(1)(2)

820,209

955,092

1,775,301

Less—imputed interest(3)

(178,683)

(377,079)