10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on September 12, 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
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(I.R.S. Employer |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
(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.
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).
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.
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☐ |
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Smaller reporting company |
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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
As of September 6, 2024,
RH
INDEX TO FORM 10-Q
PART I
ITEM 1. FINANCIAL STATEMENTS
RH
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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AUGUST 3, |
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FEBRUARY 3, |
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2024 |
2024 |
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(in thousands) |
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ASSETS |
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Cash and cash equivalents |
$ |
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$ |
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Accounts receivable—net |
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Merchandise inventories |
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Prepaid expense and other current assets |
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Total current assets |
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Property and equipment—net |
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Operating lease right-of-use assets |
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Goodwill |
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Tradenames, trademarks and other intangible assets |
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Deferred tax assets |
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Equity method investments |
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Other non-current assets |
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Total assets |
$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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Accounts payable and accrued expenses |
$ |
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$ |
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Deferred revenue and customer deposits |
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Convertible senior notes due 2024—net |
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Operating lease liabilities |
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Other current liabilities |
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Total current liabilities |
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Asset based credit facility |
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— |
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Term loan B—net |
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Term loan B-2—net |
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Real estate loans—net |
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Non-current operating lease liabilities |
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Non-current finance lease liabilities |
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Deferred tax liabilities |
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Other non-current obligations |
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Total liabilities |
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Commitments and contingencies (Note 16) |
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Stockholders’ deficit: |
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Preferred stock—$ |
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Common stock—$ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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( |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ deficit |
( |
( |
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Total liabilities and stockholders’ deficit |
$ |
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$ |
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The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
RH
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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THREE MONTHS ENDED |
SIX MONTHS ENDED |
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AUGUST 3, |
JULY 29, |
AUGUST 3, |
JULY 29, |
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2024 |
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2023 |
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2024 |
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2023 |
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(in thousands, except share and per share amounts) |
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Net revenues |
$ |
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$ |
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$ |
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$ |
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Cost of goods sold |
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Gross profit |
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Selling, general and administrative expenses |
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Income from operations |
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Other expenses |
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Interest expense—net |
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Other (income) expense—net |
( |
( |
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( |
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Total other expenses |
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Income before taxes and equity method investments |
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Income tax expense |
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Income before equity method investments |
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Share of equity method investments loss—net |
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Net income |
$ |
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$ |
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$ |
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$ |
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Weighted-average shares used in computing basic net income per share |
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Basic net income per share |
$ |
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$ |
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$ |
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$ |
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Weighted-average shares used in computing diluted net income per share |
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Diluted net income per share |
$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
RH
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
THREE MONTHS ENDED |
SIX MONTHS ENDED |
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AUGUST 3, |
JULY 29, |
AUGUST 3, |
JULY 29, |
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2024 |
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2023 |
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2024 |
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2023 |
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(in thousands) |
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Net income |
$ |
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$ |
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$ |
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$ |
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Net gain from foreign currency translation |
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Comprehensive income |
$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
PART I. FINANCIAL INFORMATION |
2024 SECOND QUARTER FORM 10-Q | 5 |
RH
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
THREE MONTHS ENDED |
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COMMON STOCK |
TREASURY STOCK |
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ACCUMULATED |
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RETAINED |
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ADDITIONAL |
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OTHER |
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EARNINGS |
TOTAL |
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PAID-IN |
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COMPREHENSIVE |
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(ACCUMULATED |
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STOCKHOLDERS' |
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SHARES |
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AMOUNT |
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CAPITAL |
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INCOME (LOSS) |
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DEFICIT) |
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SHARES |
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AMOUNT |
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EQUITY (DEFICIT) |
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(in thousands, except share amounts) |
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Balances—May 4, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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— |
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$ |
— |
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$ |
( |
||
Stock-based compensation |
— |
— |
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— |
— |
— |
— |
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||||||||||||||
Issuance of restricted stock |
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— |
— |
— |
— |
— |
— |
— |
||||||||||||||
Exercise of stock options |
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— |
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— |
— |
— |
— |
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||||||||||||||
Net income |
— |
— |
— |
— |
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— |
— |
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||||||||||||||
Comprehensive income |
— |
— |
— |
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— |
— |
— |
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Balances—August 3, 2024 |
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|
$ |
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$ |
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$ |
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$ |
( |
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— |
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$ |
— |
|
$ |
( |
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Balances—April 29, 2023 |
|
$ |
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|
$ |
|
|
$ |
( |
|
$ |
|
|
— |
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$ |
— |
|
$ |
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||
Stock-based compensation |
— |
— |
|
— |
— |
— |
— |
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||||||||||||||
Issuance of restricted stock |
|
— |
— |
— |
— |
— |
— |
— |
||||||||||||||
Exercise of stock options |
|
— |
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— |
— |
— |
— |
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||||||||||||||
Settlement of convertible senior notes |
|
— |
— |
— |
— |
— |
— |
— |
||||||||||||||
Repurchase of common stock—including excise tax |
( |
— |
— |
— |
— |
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|
( |
||||||||||||||
Retirement of treasury stock |
— |
— |
( |
— |
( |
( |
( |
— |
||||||||||||||
Net income |
— |
— |
— |
— |
|
— |
— |
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||||||||||||||
Comprehensive income |
— |
— |
— |
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— |
— |
— |
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Balances—July 29, 2023 |
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|
$ |
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$ |
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$ |
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$ |
( |
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— |
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$ |
— |
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$ |
( |
RH
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
(Unaudited)
SIX MONTHS ENDED |
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COMMON STOCK |
TREASURY STOCK |
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ACCUMULATED |
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RETAINED |
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ADDITIONAL |
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OTHER |
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EARNINGS |
TOTAL |
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PAID-IN |
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COMPREHENSIVE |
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(ACCUMULATED |
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STOCKHOLDERS' |
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SHARES |
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AMOUNT |
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CAPITAL |
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INCOME (LOSS) |
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DEFICIT) |
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SHARES |
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AMOUNT |
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EQUITY (DEFICIT) |
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(in thousands, except share amounts) |
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Balances—February 3, 2024 |
|
$ |
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$ |
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$ |
( |
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$ |
( |
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— |
|
$ |
— |
|
$ |
( |
||||
Stock-based compensation |
— |
— |
— |
— |
— |
— |
||||||||||||||||
Issuance of restricted stock |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||
Vested and delivered restricted stock units |
— |
( |
— |
— |
— |
— |
( |
|||||||||||||||
Exercise of stock options |
— |
— |
— |
— |
— |
|||||||||||||||||
Net income |
— |
— |
— |
— |
— |
— |
||||||||||||||||
Comprehensive income |
— |
— |
— |
— |
— |
— |
||||||||||||||||
Balances—August 3, 2024 |
|
$ |
|
$ |
|
$ |
|
$ |
( |
|
— |
|
$ |
— |
|
$ |
( |
|||||
Balances—January 28, 2023 |
|
$ |
|
$ |
|
$ |
( |
|
$ |
|
— |
|
$ |
— |
|
$ |
||||||
Stock-based compensation |
— |
— |
— |
— |
— |
— |
||||||||||||||||
Issuance of restricted stock |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||
Vested and delivered restricted stock units |
— |
( |
— |
— |
— |
— |
( |
|||||||||||||||
Exercise of stock options |
— |
— |
— |
— |
— |
|||||||||||||||||
Settlement of convertible senior notes |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||
Repurchase of common stock—including excise tax |
( |
— |
— |
— |
— |
( |
( |
|||||||||||||||
Retirement of treasury stock |
— |
— |
( |
— |
( |
( |
— |
|||||||||||||||
Net income |
— |
|
— |
|
— |
|
— |
|
|
— |
|
— |
|
|||||||||
Comprehensive income |
— |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
|||||||||
Balances—July 29, 2023 |
|
$ |
|
$ |
|
$ |
|
$ |
( |
|
— |
|
$ |
— |
|
$ |
( |
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
RH
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
SIX MONTHS ENDED |
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---|---|---|---|---|---|---|
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AUGUST 3, |
JULY 29, |
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2024 |
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2023 |
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(in thousands) |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income |
$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Non-cash operating lease cost |
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Stock-based compensation expense |
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Asset impairments |
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Non-cash finance lease interest expense |
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Deferred income taxes |
— |
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Share of equity method investments loss—net |
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Other non-cash items |
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Change in assets and liabilities: |
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Accounts receivable |
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( |
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Merchandise inventories |
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( |
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|||
Prepaid expense and other assets |
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( |
|||
Landlord assets under construction—net of tenant allowances |
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( |
( |
|||
Accounts payable and accrued expenses |
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( |
|||
Deferred revenue and customer deposits |
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|||
Other current liabilities |
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( |
( |
|||
Current and non-current operating lease liabilities |
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( |
( |
|||
Other non-current obligations |
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( |
( |
|||
Net cash provided by operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Capital expenditures |
|
( |
( |
|||
Equity method investments |
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( |
( |
|||
Net cash used in investing activities |
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( |
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( |
|
SIX MONTHS ENDED |
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---|---|---|---|---|---|---|
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AUGUST 3, |
JULY 29, |
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2024 |
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2023 |
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(in thousands) |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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|||
Borrowings under asset based credit facility |
|
— |
||||
Repayments under term loans |
( |
( |
||||
Repayments under real estate loans |
( |
( |
||||
Repayments under promissory and equipment security notes |
|
— |
( |
|||
Repayments of convertible senior notes |
— |
( |
||||
Principal payments under finance lease agreements—net of tenant allowances |
( |
( |
||||
Repurchases of common stock—inclusive of excise taxes paid |
— |
( |
||||
Proceeds from exercise of stock options |
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|||
Tax withholdings related to issuance of stock-based awards |
( |
( |
||||
Net cash provided by (used in) financing activities |
|
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( |
||
Effects of foreign currency exchange rate translation on cash |
|
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|
|||
Net decrease in cash and cash equivalents and restricted cash |
|
( |
|
( |
||
Cash and cash equivalents and restricted cash |
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|||
Beginning of period—cash and cash equivalents |
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Beginning of period—restricted cash |
|
— |
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||
Beginning of period—cash and cash equivalents and restricted cash |
$ |
|
$ |
|
||
End of period—cash and cash equivalents |
|
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End of period—restricted cash |
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— |
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||
End of period—cash and cash equivalents and restricted cash |
$ |
|
$ |
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||
Non-cash transactions: |
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||||
Property and equipment additions in accounts payable and accrued expenses at period-end |
$ |
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$ |
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Landlord asset additions in accounts payable and accrued expenses at period-end |
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||||
Excise tax from share repurchases in accounts payable and accrued expenses at period-end |
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The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
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 August 3, 2024, we operated a total of
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 August 3, 2024, and the results of operations for the three and six months ended August 3, 2024 and July 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 and six months ended August 3, 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 and six months ended August 3, 2024, presented herein, are not necessarily indicative of the results to be expected for the full fiscal year.
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 ASU 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 ASU 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:
|
|
AUGUST 3, |
|
FEBRUARY 3, |
||
|
2024 |
2024 |
||||
(in thousands) |
||||||
Vendor deposits |
$ |
|
$ |
|
||
Prepaid expenses |
|
|
||||
Capitalized catalog costs |
|
|
||||
Federal and state tax receivable |
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||||
Value added tax (VAT) receivable |
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||||
Tenant allowance receivable |
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||||
Right of return asset for merchandise |
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|
||
Promissory notes receivable, including interest(1) |
|
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|
||
Other current assets |
|
|
||||
Total prepaid expense and other current assets |
$ |
|
$ |
|
(1) | 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 SECOND QUARTER FORM 10-Q | 11 |
Other non-current assets consist of the following:
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|
AUGUST 3, |
|
FEBRUARY 3, |
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|
2024 |
2024 |
||||
(in thousands) |
||||||
Landlord assets under construction—net of tenant allowances |
$ |
|
$ |
|
||
Initial direct costs prior to lease commencement |
|
|
||||
Capitalized cloud computing costs—net(1) |
|
|
||||
Other deposits |
|
|
||||
Vendor deposits—non-current |
|
|
|
|
||
Deferred financing fees |
|
|
|
|
||
Other non-current assets |
|
|
|
|
||
Total other non-current assets |
$ |
|
$ |
|
(1) |
Presented net of accumulated amortization of $ |
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:
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RH SEGMENT |
|
WATERWORKS |
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|
TRADENAMES, |
TRADENAMES, |
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TRADEMARKS AND |
TRADEMARKS AND |
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OTHER INTANGIBLE |
OTHER INTANGIBLE |
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|
GOODWILL |
ASSETS |
GOODWILL(1) |
ASSETS(2) |
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(in thousands) |
||||||||||||
February 3, 2024 |
$ |
|
$ |
|
$ |
— |
$ |
|
||||
Additions |
|
— |
|
— |
— |
|||||||
Foreign currency translation |
( |
— |
— |
— |
||||||||
August 3, 2024 |
$ |
|
$ |
|
$ |
— |
$ |