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


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PART I

ITEM 1. FINANCIAL STATEMENTS

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.


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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.


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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.


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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)


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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.


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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)


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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.


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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 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.


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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 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	$	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.


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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	$	—	$

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company