Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

September 12, 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 August 3, 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 September 6, 2024, 18,482,697 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 August 3, 2024 and February 3, 2024

3

Condensed Consolidated Statements of Income (Unaudited)
for the three and six months ended August 3, 2024 and July 29, 2023

4

Condensed Consolidated Statements of Comprehensive Income (Unaudited)
for the three and six months ended August 3, 2024 and July 29, 2023

5

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)
for the three and six months ended August 3, 2024 and July 29, 2023

6

Condensed Consolidated Statements of Cash Flows (Unaudited)
for the six months ended August 3, 2024 and July 29, 2023

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

10

Item 2.

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

30

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

49

Item 4.

Controls and Procedures

50

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

51

Item 1A.

Risk Factors

51

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

52

Item 3.

Defaults Upon Senior Securities

52

Item 4.

Mine Safety Disclosures

52

Item 5.

Other Information

52

Item 6.

Exhibits

53

Signatures

54

2 | 2024 SECOND QUARTER FORM 10-Q

TABLE OF CONTENTS

PART I

ITEM 1.     FINANCIAL STATEMENTS

RH

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

    

AUGUST 3,

    

FEBRUARY 3,

2024

2024

(in thousands)

ASSETS

 

  

 

  

Cash and cash equivalents

$

78,333

$

123,688

Accounts receivable—net

 

66,644

 

55,058

Merchandise inventories

 

917,331

 

754,126

Prepaid expense and other current assets

 

156,975

 

169,030

Total current assets

 

1,219,283

 

1,101,902

Property and equipment—net

 

1,753,727

 

1,685,858

Operating lease right-of-use assets

624,641

625,801

Goodwill

 

140,997

 

141,033

Tradenames, trademarks and other intangible assets

 

76,243

 

75,927

Deferred tax assets

 

143,975

 

143,986

Equity method investments

130,790

128,668

Other non-current assets

 

286,740

 

240,722

Total assets

$

4,376,396

$

4,143,897

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

  

Accounts payable and accrued expenses

$

495,961

$

366,585

Deferred revenue and customer deposits

302,526

 

282,812

Convertible senior notes due 2024—net

41,890

41,835

Operating lease liabilities

86,106

85,523

Other current liabilities

 

84,071

 

96,113

Total current liabilities

 

1,010,554

 

872,868

Asset based credit facility

 

25,000

 

Term loan B—net

 

1,911,519

 

1,919,885

Term loan B-2—net

 

468,363

 

468,696

Real estate loans—net

17,596

17,766

Non-current operating lease liabilities

 

573,204

 

576,166

Non-current finance lease liabilities

584,677

566,829

Deferred tax liabilities

8,540

8,442

Other non-current obligations

 

11,660

 

10,639

Total liabilities

4,611,113

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 August 3, 2024 and February 3, 2024

 

Common stock—$0.0001 par value per share, 180,000,000 shares authorized, 18,482,697 shares issued and outstanding as of August 3, 2024; 18,315,613 shares issued and outstanding as of February 3, 2024

 

2

 

2

Additional paid-in capital

 

321,214

 

287,806

Accumulated other comprehensive income (loss)

 

2,004

 

(1,938)

Accumulated deficit

 

(557,937)

 

(583,264)

Total stockholders’ deficit

(234,717)

(297,394)

Total liabilities and stockholders’ deficit

$

4,376,396

$

4,143,897

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

PART I. FINANCIAL INFORMATION

2024 SECOND QUARTER FORM 10-Q | 3

RH

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

THREE MONTHS ENDED

SIX MONTHS ENDED

AUGUST 3,

JULY 29,

AUGUST 3,

JULY 29,

    

2024

    

2023 

    

2024

    

2023 

(in thousands, except share and per share amounts)

Net revenues

$

829,655

$

800,479

$

1,556,615

$

1,539,641

Cost of goods sold

 

454,898

420,406

 

865,820

812,023

Gross profit

 

374,757

 

380,073

 

690,795

 

727,618

Selling, general and administrative expenses

 

278,630

228,733

540,005

477,038

Income from operations

 

96,127

 

151,340

 

150,790

 

250,580

Other expenses

 

Interest expense—net

59,262

44,422

116,034

84,238

Other (income) expense—net

(663)

(186)

502

(839)

Total other expenses

 

58,599

44,236

 

116,536

83,399

Income before taxes and equity method investments

37,528

107,104

 

34,254

167,181

Income tax expense

3,717

27,245

 

1,626

43,830

Income before equity method investments

33,811

79,859

32,628

123,351

Share of equity method investments loss—net

4,859

3,382

7,301

4,984

Net income

$

28,952

$

76,477

$

25,327

$

118,367

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

18,458,207

20,960,329

 

18,391,331

 

21,503,090

Basic net income per share

$

1.57

$

3.65

$

1.38

$

5.50

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

19,961,610

22,727,560

 

19,949,657

 

23,242,585

Diluted net income per share

$

1.45

$

3.36

$

1.27

$

5.09

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

4 | 2024 SECOND QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

RH

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

THREE MONTHS ENDED

SIX MONTHS ENDED

AUGUST 3,

JULY 29,

AUGUST 3,

JULY 29,

2024

    

2023 

    

2024

    

2023 

(in thousands)

Net income

$

28,952

$

76,477

$

25,327

$

118,367

Net gain from foreign currency translation

5,227

3,380

 

3,942

 

5,675

Comprehensive income

$

34,179

$

79,857

$

29,269

$

124,042

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

COMMON STOCK

TREASURY STOCK

 

ACCUMULATED

 

RETAINED

 

ADDITIONAL

 

OTHER

 

EARNINGS

TOTAL

 

PAID-IN

 

COMPREHENSIVE

 

(ACCUMULATED

 

 

STOCKHOLDERS'

  

SHARES

  

AMOUNT

  

CAPITAL

  

INCOME (LOSS)

  

DEFICIT)

  

SHARES

  

AMOUNT

  

EQUITY (DEFICIT)

(in thousands, except share amounts)

Balances—May 4, 2024

18,342,797

 

$

2

 

$

300,189

 

$

(3,223)

 

$

(586,889)

 

 

$

 

$

(289,921)

Stock-based compensation

11,529

11,529

Issuance of restricted stock

3,829

Exercise of stock options

136,071

9,496

9,496

Net income

28,952

28,952

Comprehensive income

5,227

5,227

Balances—August 3, 2024

18,482,697

 

$

2

 

$

321,214

 

$

2,004

 

$

(557,937)

 

 

$

 

$

(234,717)

Balances—April 29, 2023

22,051,251

 

$

2

 

$

257,616

 

$

(108)

 

$

581,876

 

 

$

 

$

839,386

Stock-based compensation

8,538

8,538

Issuance of restricted stock

2,961

Exercise of stock options

40,599

4,272

4,272

Settlement of convertible senior notes

1,929

Repurchase of common stock—including excise tax

(3,698,887)

3,698,887

1,216,635

(1,216,635)

Retirement of treasury stock

(8,623)

(1,208,012)

(3,698,887)

(1,216,635)

Net income

76,477

76,477

Comprehensive income

3,380

3,380

Balances—July 29, 2023

18,397,853

 

$

2

 

$

261,803

 

$

3,272

 

$

(549,659)

 

 

$

 

$

(284,582)

6 | 2024 SECOND QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

Table of Contents

RH

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

(Unaudited)

SIX MONTHS ENDED

COMMON STOCK

TREASURY STOCK

 

ACCUMULATED

 

RETAINED

 

ADDITIONAL

 

OTHER

 

EARNINGS

TOTAL

 

PAID-IN

 

COMPREHENSIVE

 

(ACCUMULATED

 

 

STOCKHOLDERS'

  

SHARES

  

AMOUNT

  

CAPITAL

  

INCOME (LOSS)

  

DEFICIT)

  

SHARES

  

AMOUNT

  

EQUITY (DEFICIT)

(in thousands, except share amounts)

Balances—February 3, 2024

18,315,613

 

$

2

 

$

287,806

 

$

(1,938)

 

$

(583,264)

 

 

$

 

$

(297,394)

Stock-based compensation

22,073

22,073

Issuance of restricted stock

7,829

Vested and delivered restricted stock units

817

(151)

(151)

Exercise of stock options

158,438

11,486

11,486

Net income

25,327

25,327

Comprehensive income

3,942

3,942

Balances—August 3, 2024

18,482,697

 

$

2

 

$

321,214

 

$

2,004

 

$

(557,937)

 

 

$

 

$

(234,717)

Balances—January 28, 2023

22,045,385

 

$

2

 

$

247,076

 

$

(2,403)

 

$

539,986

 

 

$

 

$

784,661

Stock-based compensation

18,718

18,718

Issuance of restricted stock

2,961

Vested and delivered restricted stock units

847

(96)

(96)

Exercise of stock options

45,616

4,728

4,728

Settlement of convertible senior notes

1,931

Repurchase of common stock—including excise tax

(3,698,887)

3,698,887

(1,216,635)

(1,216,635)

Retirement of treasury stock

(8,623)

(1,208,012)

(3,698,887)

1,216,635

Net income

 

 

 

 

118,367

 

 

 

118,367

Comprehensive income

 

 

 

5,675

 

 

 

 

5,675

Balances—July 29, 2023

18,397,853

 

$

2

 

$

261,803

 

$

3,272

 

$

(549,659)

 

 

$

 

$

(284,582)

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

PART I. FINANCIAL INFORMATION

2024 SECOND QUARTER FORM 10-Q | 7

RH

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

SIX MONTHS ENDED

AUGUST 3,

JULY 29,

2024

    

2023

(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

25,327

$

118,367

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Depreciation and amortization

 

63,084

55,906

Non-cash operating lease cost

48,358

38,858

Stock-based compensation expense

 

22,073

18,718

Asset impairments

776

2,894

Non-cash finance lease interest expense

15,329

17,280

Deferred income taxes

43,717

Share of equity method investments loss—net

7,301

4,984

Other non-cash items

 

4,366

4,454

Change in assets and liabilities:

 

Accounts receivable

 

(11,563)

5,332

Merchandise inventories

 

(162,577)

64,848

Prepaid expense and other assets

 

6,219

(24,680)

Landlord assets under construction—net of tenant allowances

 

(17,461)

(13,959)

Accounts payable and accrued expenses

 

122,657

(32,205)

Deferred revenue and customer deposits

 

19,632

5,216

Other current liabilities

 

(13,509)

(2,315)

Current and non-current operating lease liabilities

 

(48,383)

(41,654)

Other non-current obligations

 

(14,323)

(17,406)

Net cash provided by operating activities

 

67,306

 

248,355

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

Capital expenditures

 

(115,340)

(81,596)

Equity method investments

 

(9,423)

(33,727)

Net cash used in investing activities

 

(124,763)

 

(115,323)

8 | 2024 SECOND QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

Table of Contents

RH

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

SIX MONTHS ENDED

AUGUST 3,

JULY 29,

2024

    

2023

(in thousands)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

  

Borrowings under asset based credit facility

25,000

Repayments under term loans

(12,500)

(12,500)

Repayments under real estate loans

(16)

(13)

Repayments under promissory and equipment security notes

 

(1,160)

Repayments of convertible senior notes

(1,696)

Principal payments under finance lease agreements—net of tenant allowances

(11,957)

(5,454)

Repurchases of common stock—inclusive of excise taxes paid

(1,208,290)

Proceeds from exercise of stock options

 

11,486

4,728

Tax withholdings related to issuance of stock-based awards

(151)

(96)

Net cash provided by (used in) financing activities

 

11,862

 

(1,224,481)

Effects of foreign currency exchange rate translation on cash

 

240

271

Net decrease in cash and cash equivalents and restricted cash

 

(45,355)

 

(1,091,178)

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

 

78,333

 

417,047

End of period—restricted cash

 

 

3,538

End of period—cash and cash equivalents and restricted cash

$

78,333

$

420,585

Non-cash transactions:

 

 

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

$

38,654

$

25,140

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

12,530

2,863

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

11,988

12,045

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

PART I. FINANCIAL INFORMATION

2024 SECOND QUARTER FORM 10-Q | 9

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 72 RH Galleries and 39 RH Outlet stores, one RH Guesthouse and 14 Waterworks Showrooms throughout the United States and Canada as well as in the United Kingdom, Germany, Belgium and Spain. 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 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.

10 | 2024 SECOND QUARTER FORM 10-Q

PART I. FINANCIAL INFORMATION

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 2023-09Improvements 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 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

$

28,196

$

26,409

Prepaid expenses

27,318

42,089

Capitalized catalog costs

25,866

27,856

Federal and state tax receivable

18,075

20,441

Value added tax (VAT) receivable

7,748

6,532

Tenant allowance receivable

7,701

8,220

Right of return asset for merchandise

 

5,750

 

5,011

Promissory notes receivable, including interest(1)

 

3,261

 

3,292

Other current assets

33,060

29,180

Total prepaid expense and other current assets

$

156,975

$

169,030

(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:

    

AUGUST 3,

    

FEBRUARY 3,

2024

2024 

(in thousands)

Landlord assets under construction—net of tenant allowances

$

160,690

$

118,897

Initial direct costs prior to lease commencement

72,705

66,333

Capitalized cloud computing costs—net(1)

24,693

22,646

Other deposits

7,502

7,913

Vendor deposits—non-current

 

5,388

 

8,862

Deferred financing fees

 

2,016

 

2,520

Other non-current assets

 

13,746

 

13,551

Total other non-current assets

$

286,740

$

240,722

(1) Presented net of accumulated amortization of $24 million and $19 million as of August 3, 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

 

316

Foreign currency translation

(36)

August 3, 2024

$

140,997

$

59,243

$

$