June 13, 2024 - 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 May 4, 2024

☐	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 June 7, 2024, 18,445,222 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 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


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PART I

ITEM 1. FINANCIAL STATEMENTS

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.


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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.


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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.


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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.


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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)


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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.


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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.


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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 2023-09—Improvements 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.


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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.


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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.


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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.


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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


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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).


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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.


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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)

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Emerging growth company