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Document and Entity Information - shares	6 Months Ended
Document and Entity Information - shares	Aug. 03, 2019	Sep. 06, 2019
Document And Entity Information [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Aug. 03, 2019
Entity File Number	001-35720
Entity Registrant Name	RH
Entity Tax Identification Number	45-3052669
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	15 Koch Road, Suite K
Entity Address, City or Town	Corte Madera
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	94925
City Area Code	415
Local Phone Number	924-1005
Title of 12(b) Security	Common Stock
Trading Symbol	RH
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		18,676,038
Entity Central Index Key	0001528849
Current Fiscal Year End Date	--02-01
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Amendment Flag	false

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Aug. 03, 2019	Feb. 02, 2019
Current assets:
Cash and cash equivalents	$ 11,555	$ 5,803
Accounts receivable-net	44,287	40,224
Merchandise inventories	480,688	531,947
Asset held for sale	21,795	21,795
Prepaid expense and other current assets	99,297	104,198
Total current assets	657,622	703,967
Property and equipment-net	950,594	952,957
Operating lease right-of-use assets	421,001	440,504
Goodwill	124,370	124,379
Tradenames, trademarks and domain names	86,022	86,022
Deferred tax assets	35,946	35,603
Other non-current assets	112,253	79,586
Total assets	2,387,808	2,423,018
Current liabilities:
Accounts payable and accrued expenses	289,713	320,497
Deferred revenue and customer deposits	165,511	152,595
Operating lease liabilities	57,162	66,249
Other current liabilities	131,883	109,456
Total current liabilities	924,957	992,586
Asset based credit facility	524,975	57,500
Non-current operating lease liabilities	415,803	437,557
Non-current finance lease liabilities	433,591	421,245
Other non-current obligations	30,148	32,512
Total liabilities	2,565,726	2,461,708
Commitments and contingencies (Note 15)
Stockholders' deficit:
Preferred stock, $0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of August 3, 2019 and February 2, 2019
Common stock, $0.0001 par value per share, 180,000,000 shares authorized, 18,591,763 shares issued and outstanding as of August 3, 2019; 20,480,613 shares issued and 20,477,813 shares outstanding as of February 2, 2019	2	2
Additional paid-in capital	355,010	356,422
Accumulated other comprehensive loss	(2,780)	(2,333)
Accumulated deficit	(530,150)	(392,538)
Treasury stock-at cost, no shares as of August 3, 2019 and 2,800 shares as of February 2, 2019		(243)
Total stockholders' deficit	(177,918)	(38,690)
Total liabilities and stockholders' deficit	2,387,808	2,423,018
Asset based credit facility
Current liabilities:
Asset based credit facility	145,000	57,500
Convertible senior notes due 2019
Current liabilities:
Convertible senior notes due-net		343,789
FILO term loan
Current liabilities:
Term loan-net	119,086
Second lien term loan
Current liabilities:
Term loan-net	197,262
Equipment promissory notes
Current liabilities:
Term loan-net	42,113
Convertible senior notes due 2020
Current liabilities:
Convertible senior notes due-net	280,688
Convertible senior notes due-net		271,157
Convertible senior notes due 2023
Current liabilities:
Convertible senior notes due-net	$ 257,766	$ 249,151

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Aug. 03, 2019	Feb. 02, 2019
Statement Of Financial Position [Abstract]
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	180,000,000	180,000,000
Common stock, shares issued	18,591,763	20,480,613
Common stock, shares outstanding	18,591,763	20,477,813
Treasury stock, shares	0	2,800

Condensed Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 03, 2019	Aug. 04, 2018	Aug. 03, 2019	Aug. 04, 2018
Income Statement [Abstract]
Net revenues	$ 706,514	$ 640,798	$ 1,304,935	$ 1,198,204
Cost of goods sold	411,556	372,454	777,163	720,527
Gross profit	294,958	268,344	527,772	477,677
Selling, general and administrative expenses	190,977	186,521	355,158	347,707
Income from operations	103,981	81,823	172,614	129,970
Other expenses
Interest expense-net	24,513	15,467	45,631	30,565
(Gain) loss on extinguishment of debt	(954)	917	(954)	917
Total other expenses	23,559	16,384	44,677	31,482
Income before income taxes	80,422	65,439	127,937	98,488
Income tax expense	16,665	2,533	28,458	10,121
Net income	$ 63,757	$ 62,906	$ 99,479	$ 88,367
Weighted-average shares used in computing basic net income per share	18,465,876	21,925,702	19,221,367	21,735,364
Basic net income per share	$ 3.45	$ 2.87	$ 5.18	$ 4.07
Weighted-average shares used in computing diluted net income per share	22,324,112	27,496,561	23,629,050	26,363,395
Diluted net income per share	$ 2.86	$ 2.29	$ 4.21	$ 3.35

Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 03, 2019	Aug. 04, 2018	Aug. 03, 2019	Aug. 04, 2018
Statement Of Income And Comprehensive Income [Abstract]
Net income	$ 63,757	$ 62,906	$ 99,479	$ 88,367
Net gains (losses) from foreign currency translation	490	(482)	(447)	(1,746)
Total comprehensive income	$ 64,247	$ 62,424	$ 99,032	$ 86,621

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References + Details

Condensed Consolidated Statements of Stockholders Equity (Deficit) - USD ($) $ in Thousands	Common Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Income (Loss)	Retained Earnings (Accumulated Deficit)	Treasury Stock	Total
Balances at Feb. 03, 2018	$ 2	$ 840,765	$ (171)	$ 151,575	$ (1,000,326)	$ (8,155)
Balances, shares at Feb. 03, 2018	21,517,338				20,220,132
Stock-based compensation		13,879				13,879
Issuance of restricted stock, Shares	6,405
Vested and delivered restricted stock units		(7,863)				(7,863)
Vested and delivered restricted stock units, Shares	103,016
Exercise of stock options		29,209				29,209
Exercise of stock options, Shares	605,480
Repurchases of common stock					$ (243)	(243)
Repurchases of common stock, Shares	(2,800)				2,800
Equity component value of convertible note issuance-net		89,933				89,933
Sale of common stock warrant		51,021				51,021
Purchase of convertible note hedge		(91,857)				(91,857)
Impact of Topic 606 adoption				(21,036)		(21,036)
Net income				88,367		88,367
Net gains (losses) from foreign currency translation			(1,746)			(1,746)
Balances at Aug. 04, 2018	$ 2	925,087	(1,917)	218,906	$ (1,000,569)	141,509
Balances, shares at Aug. 04, 2018	22,229,439				20,222,932
Balances at May. 05, 2018	$ 2	851,228	(1,435)	156,000	$ (1,000,569)	5,226
Balances, shares at May. 05, 2018	21,612,197				20,222,932
Stock-based compensation		5,988				5,988
Issuance of restricted stock, Shares	6,405
Vested and delivered restricted stock units		(7,512)				(7,512)
Vested and delivered restricted stock units, Shares	82,906
Exercise of stock options		26,286				26,286
Exercise of stock options, Shares	527,931
Equity component value of convertible note issuance-net		89,933				89,933
Sale of common stock warrant		51,021				51,021
Purchase of convertible note hedge		(91,857)				(91,857)
Net income				62,906		62,906
Net gains (losses) from foreign currency translation			(482)			(482)
Balances at Aug. 04, 2018	$ 2	925,087	(1,917)	218,906	$ (1,000,569)	141,509
Balances, shares at Aug. 04, 2018	22,229,439				20,222,932
Balances at Feb. 02, 2019	$ 2	356,422	(2,333)	(392,538)	$ (243)	$ (38,690)
Balances, shares at Feb. 02, 2019	20,477,813				2,800	20,477,813
Balances at May. 04, 2019	$ 2	362,986	(3,270)	(356,816)	$ (250,275)	$ (247,373)
Balances, shares at May. 04, 2019	18,357,816				2,170,196
Balances at Feb. 02, 2019	$ 2	356,422	(2,333)	(392,538)	$ (243)	$ (38,690)
Balances, shares at Feb. 02, 2019	20,477,813				2,800	20,477,813
Stock-based compensation		10,779				$ 10,779
Issuance of restricted stock, Shares	7,014
Vested and delivered restricted stock units		(6,234)				(6,234)
Vested and delivered restricted stock units, Shares	101,641
Exercise of stock options		7,223				7,223
Exercise of stock options, Shares	172,649
Repurchases of common stock					$ (250,032)	(250,032)
Repurchases of common stock, Shares	(2,167,396)				2,167,396
Retirement of treasury stock		(13,180)		(237,091)	$ 250,271
Retirement of treasury stock, Shares					(2,170,154)
Net income				99,479		99,479
Net gains (losses) from foreign currency translation			(447)			(447)
Conversion of convertible senior notes					$ 4	4
Conversion of convertible senior notes, Shares	42				(42)
Balances at Aug. 03, 2019	$ 2	355,010	(2,780)	(530,150)		$ (177,918)
Balances, shares at Aug. 03, 2019	18,591,763					18,591,763
Balances at May. 04, 2019	$ 2	362,986	(3,270)	(356,816)	$ (250,275)	$ (247,373)
Balances, shares at May. 04, 2019	18,357,816				2,170,196
Stock-based compensation		5,191				5,191
Issuance of restricted stock, Shares	7,014
Vested and delivered restricted stock units		(5,984)				(5,984)
Vested and delivered restricted stock units, Shares	80,400
Exercise of stock options		5,997				5,997
Exercise of stock options, Shares	146,491
Retirement of treasury stock		(13,180)		(237,091)	$ 250,271
Retirement of treasury stock, Shares					(2,170,154)
Net income				63,757		63,757
Net gains (losses) from foreign currency translation			490			490
Conversion of convertible senior notes					$ 4	4
Conversion of convertible senior notes, Shares	42				(42)
Balances at Aug. 03, 2019	$ 2	$ 355,010	$ (2,780)	$ (530,150)		$ (177,918)
Balances, shares at Aug. 03, 2019	18,591,763					18,591,763

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended			6 Months Ended		12 Months Ended
	Aug. 03, 2019	May 04, 2019	Aug. 04, 2018	Aug. 03, 2019	Aug. 04, 2018	Feb. 02, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income				$ 99,479	$ 88,367
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		$ 25,321	$ 21,354	52,510	41,939
Non-cash operating lease cost				33,227	34,118
Amortization of debt discount				22,962	17,645
Accretion of debt discount upon settlement of debt				(70,482)
Stock-based compensation expense	$ 5,300		6,100	10,993	14,092
Non-cash finance lease interest expense	5,672		3,319	11,186	6,411
Product recalls				(2,106)
Net non-cash charges resulting from inventory step-up					380
(Gain) loss on extinguishment of debt	(954)		917	(954)	917
Other non-cash interest expense				2,251	1,276
Change in assets and liabilities:
Accounts receivable				(504)	(9,050)
Merchandise inventories				51,189	(24,995)
Prepaid expense and other assets				(2,882)	(40,646)
Landlord assets under construction				(27,555)	(27,645)
Accounts payable and accrued expenses				(40,073)	(31,707)
Deferred revenue and customer deposits				12,987	20,800
Other current liabilities				3,179	8,179
Current and non-current operating lease liability				(44,513)	(43,025)
Other non-current obligations				(13,761)	(8,036)
Net cash provided by operating activities				97,133	49,020
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures				(25,283)	(42,916)
Net cash used in investing activities				(25,283)	(42,916)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing under equipment security notes				69,000
Repayments under promissory and equipment security notes				(4,993)	(31,974)
Debt issuance costs				(4,636)
Principal payments under finance leases				(4,399)	(3,567)
Repurchases of common stock-including commissions				(250,032)
Proceeds from issuance of warrants					51,021
Purchase of convertible note hedges					(91,857)
Proceeds from exercise of stock options				7,223	29,209
Tax withholdings related to issuance of stock-based awards				(6,234)	(7,863)
Payments under promissory notes related to share repurchases				(892)
Net cash used in financing activities				(66,023)	(6,350)
Effects of foreign currency exchange rate translation				(75)	(124)
Net increase (decrease) in cash and cash equivalents and restricted cash equivalents				5,752	(370)
Cash and cash equivalents and restricted cash equivalents
Beginning of period-cash and cash equivalents		5,803		5,803	17,907	$ 17,907
Beginning of period-restricted cash equivalents (construction related deposits)					7,407	7,407
Beginning of period-cash and cash equivalents and restricted cash equivalents		$ 5,803		5,803	25,314	25,314
End of period-cash and cash equivalents	11,555		22,199	11,555	22,199	5,803
End of period-restricted cash equivalents (construction related deposits)			2,745		2,745
End of period-cash and cash equivalents and restricted cash equivalents	$ 11,555		$ 24,944	11,555	24,944	$ 5,803
Non-cash transactions:
Property and equipment additions in accounts payable and accrued expenses at period-end				10,875	7,713
Landlord asset additions in accounts payable and accrued expenses at period-end				21,055	17,183
Landlord asset additions from unpaid construction related deposits				195	517
Reclassification of assets from landlord assets under construction to finance lease right-of-use assets					31,131
Issuance of non-current notes payable related to share repurchases from former employees					243
Senior notes.
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issuance costs					(6,349)
Repayments of convertible senior notes				(278,560)
Proceeds from issuance of convertible senior notes					335,000
Asset based credit facility
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing				302,000	510,000
Repayments				(214,500)	(709,970)
Term Loan
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing				$ 320,000
Repayments					$ (80,000)

The Company

6 Months Ended

Aug. 03, 2019

Accounting Policies [Abstract]

The Company

NOTE 1—THE COMPANY

Nature of Business

RH, a Delaware corporation, together with its subsidiaries (collectively, the “Company”), is a luxury home furnishings retailer that offers a growing number of categories including furniture, lighting, textiles, bathware, décor, outdoor and garden, and child and teen furnishings. These products are sold through the Company’s stores, catalogs and websites.

As of August 3, 2019, the Company operated a total of 70 RH Galleries and 40 RH outlet stores in 32 states, the District of Columbia and Canada, as well as 15 Waterworks showrooms throughout the United States and in the U.K., and had sourcing operations in Shanghai and Hong Kong.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared from the Company’s records and, in management’s opinion, include all adjustments, consisting of normal recurring adjustments, and revisions due to the adoption of the new lease accounting standard described in Note 2—Recently Issued Accounting Standards, necessary to fairly state the Company’s financial position as of August 3, 2019, and the results of operations for the three and six months ended August 3, 2019 and August 4, 2018. The Company’s current fiscal year, which consists of 52 weeks, ends on February 1, 2020 (“fiscal 2019”).

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.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2019 (the “2018 Form 10-K”). Certain prior year amounts have been adjusted to conform to the current period presentation due to the adoption of the new lease accounting standard. Refer to Note 2—Recently Issued Accounting Standards.

The results of operations for the three and six months ended August 3, 2019 presented herein are not necessarily indicative of the results to be expected for the full fiscal year.

Revisions

As previously disclosed in our Annual Report on Form 10-K as of and for the year ended February 2, 2019, during the third quarter of fiscal 2018, management determined that the Company had incorrectly reported the impact during the fiscal year ended February 3, 2018 of retiring its common stock in accordance with Accounting Standards Codification (“ASC”) 505—Equity, which resulted in the Company revising its previously issued financial statements as of and for the year ended February 3, 2018. The common stock being retired was related to shares repurchased under the Company’s equity plans. This error resulted in an overstatement of additional paid-in capital of $19.5 million, from $944.6 million as reported to $925.1 million as revised, and an overstatement of treasury stock of $19.5 million, from $1,020.1 million as reported to $1,000.6 million as revised, on the condensed consolidated balance sheet as of August 4, 2018. There was no impact on the condensed consolidated statements of income or condensed cash flows related to this misstatement. Although this error was not considered to be material to any of the previously issued financial statements, the Company has revised the accompanying unaudited interim financial statements to reflect the correction of this error.

During the adoption process of the new lease accounting standard (refer to Note 2—Recently Issued Accounting Standards), the Company identified a lease agreement that was incorrectly accounted for as an impaired lease under ASC 420—Exit or Disposal Cost Obligations in fiscal 2017 and the first quarter of fiscal 2018. This error resulted in an overstatement of net income of $1.4 million and $0.9 million for the year ended February 3, 2018 and the six months ended August 4, 2018, respectively. This error also resulted in an overstatement of retained earnings as of February 3, 2018 of $1.4 million, from $152.4 million as reported to $151.0 million as revised, and as of August 4, 2018 of $2.3 million, from $223.5 million as reported to $221.2 million as revised, prior to the impact of the modified retrospective application of the new lease accounting standard as further discussed in Note 2. In addition, as of February 2, 2019, this error resulted in an understatement of other non-current obligations of $3.3 million, an overstatement of other current liabilities of $1.0 million and understatement of accumulated deficit of $2.3 million, from $376.8 million as reported to $379.1 million as revised. Although these errors are not considered to be material to any of the previously issued financial statements, the Company has revised the accompanying unaudited interim financial statements to reflect the correction of these errors.

In addition, during the adoption process of the new lease accounting standard, the Company identified an error in its previously reported consolidated statement of cash flows for the quarterly and annual periods in fiscal 2018. This error resulted in an understatement of $9.2 million of net cash provided by operating activities and an understatement of $9.2 million of net cash used in investing activities for each reporting period in fiscal 2018. There was no impact on the condensed consolidated balance sheets, condensed consolidated statements of income or the condensed consolidated statement of stockholders’ equity (deficit) related to this error. Although these errors are not considered to be material to any of the previously issued financial statements, the Company has revised the accompanying unaudited interim financial statements to reflect the correction of these errors.

The following are selected line items from the Company’s condensed consolidated statements of cash flows illustrating the effect of the corrections, prior to the adoption of the modified retrospective application of the new lease accounting standard (in thousands):


	Six Months Ended August 4, 2018
	As Reported		Adjustment		As Revised
Cash flows from operating activities:
Change in accounts payable and accrued expenses	$	(42,717)	$	9,201	$	(33,516)
Net cash provided by operating activities		70,229		9,201		79,430
Cash flows from investing activities:
Capital expenditures		(61,212)		(9,201)		(70,413)
Net cash used in investing activities		(61,212)		(9,201)		(70,413)


	Nine Months Ended November 3, 2018
	As Reported		Adjustment		As Revised
Cash flows from operating activities:
Change in accounts payable and accrued expenses	$	(23,601)	$	9,201	$	(14,400)
Net cash provided by operating activities		127,592		9,201		136,793
Cash flows from investing activities:
Capital expenditures		(104,403)		(9,201)		(113,604)
Net cash used in investing activities		(104,403)		(9,201)		(113,604)


	Fiscal Year Ended February 2, 2019
	As Reported		Adjustment		As Revised
Cash flows from operating activities:
Change in accounts payable and accrued expenses	$	(452)	$	9,201	$	8,749
Net cash provided by operating activities		300,556		9,201		309,757
Cash flows from investing activities:
Capital expenditures		(136,736)		(9,201)		(145,937)
Net cash used in investing activities		(136,736)		(9,201)		(145,937)

Recently Issued Accounting Standards

6 Months Ended

Aug. 03, 2019

Accounting Changes And Error Corrections [Abstract]

Recently Issued Accounting Standards

NOTE 2—RECENTLY ISSUED ACCOUNTING STANDARDS

Accounting for Leases

In February 2016, the FASB issued Accounting Standards Update 2016-02—Leases, which requires a lessee to distinguish all leases as operating leases or finance leases and recognize all leases on the balance sheet as a right-of-use asset with a corresponding lease liability representing the present value of lease payments. The standard also requires a lessee to recognize a single lease cost for operating leases, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. The lease cost for finance leases includes both principal and interest components, and is higher than the corresponding cash payment at the beginning of the lease term and declines over the lease term as the liability is reduced. In July 2018, the FASB issued Accounting Standards Update 2018-10—Codification Improvements to Topic 842 (Leases), and Accounting Standards Update 2018-11—Leases (Topic 842)—Targeted Improvements, which (i) narrows amendments to clarify how to apply certain aspects of the new lease standard, (ii) provides entities with an additional transition method to adopt the new standard, and (iii) provides lessors with a practical expedient for separating components of a contract. Accounting Standards Update 2016-02, Accounting Standards Update 2018-10 and Accounting Standards Update 2018-11 are collectively referred to as the “ASUs.”

The Company adopted the ASUs as of February 3, 2019 using a modified retrospective approach. Under this adoption method, the results of prior comparative periods are presented with an adjustment to opening retained earnings of the earliest comparative period presented. In addition, the Company elected to adopt the package of transition practical expedients, which permitted the Company not to reassess its prior conclusions regarding lease identification, lease classification and initial direct costs. The Company adopted the policy election to not separate lease and non-lease components for certain asset classes (such as real estate leases), as well as the short-term lease policy election offered under the ASUs whereby the Company does not recognize right of use assets and lease liabilities for leases with terms of 12 months or less. The Company did not apply the hindsight practical expedient upon adoption.

As a result of the adoption of the ASUs, the Company recorded an increase to the fiscal 2017 (earliest comparative period) opening retained earnings balance of $4.0 million, inclusive of the tax impact.

The following table presents the impact of adopting the ASUs, as well as the correction of an immaterial error as discussed in Note 1—The Company, on the Company’s consolidated balance sheet (in thousands):


	February 2, 2019
	As Reported		Adjustments and Other⁽¹⁾			As Adjusted and Revised
ASSETS
Current assets:
Cash and cash equivalents	$	5,803	$	—		$	5,803
Accounts receivable—net		40,224		—			40,224
Merchandise inventories		531,947		—			531,947
Asset held for sale		—		21,795	⁽²⁾		21,795
Prepaid expense and other current assets		104,719		(521)	⁽³⁾		104,198
Total current assets		682,693		21,274			703,967
Property and equipment—net		863,562		89,395	⁽⁴⁾		952,957
Operating lease right-of-use assets		—		440,504	⁽⁵⁾		440,504
Goodwill		124,379		—			124,379
Tradenames, trademarks and domain names		86,022		—			86,022
Deferred tax assets		30,033		5,570	⁽⁶⁾		35,603
Other non-current assets		19,345		60,241	⁽⁷⁾		79,586
Total assets	$	1,806,034	$	616,984		$	2,423,018
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	320,441	$	56	⁽⁸⁾	$	320,497
Deferred revenue and customer deposits		152,595		—			152,595
Convertible senior notes due 2019—net		343,789		—			343,789
Operating lease liabilities		—		66,249	⁽⁵⁾		66,249
Other current liabilities		101,347		8,109	⁽¹⁾⁽⁹⁾		109,456
Total current liabilities		918,172		74,414			992,586
Asset based credit facility		57,500		—			57,500
Convertible senior notes due 2020—net		271,157		—			271,157
Convertible senior notes due 2023—net		249,151		—			249,151
Financing obligations under build-to-suit lease transactions		228,928		(228,928)	⁽¹⁰⁾		—
Deferred rent and lease incentives		53,742		(53,742)	⁽¹⁰⁾		—
Non-current operating lease liabilities		—		437,557	⁽⁵⁾		437,557
Non-current finance lease liabilities		—		421,245	⁽⁹⁾		421,245
Other non-current obligations		50,346		(17,834)	^(1)(11)		32,512
Total liabilities		1,828,996		632,712			2,461,708
Stockholders’ deficit:
Preferred stock		—		—			—
Common stock		2		—			2
Additional paid-in capital		356,422		—			356,422
Accumulated other comprehensive loss		(2,333)		—			(2,333)
Accumulated deficit		(376,810)		(15,728)	^(1)(12)		(392,538)
Treasury stock		(243)		—			(243)
Total stockholders’ deficit		(22,962)		(15,728)			(38,690)
Total liabilities and stockholders’ deficit	$	1,806,034	$	616,984		$	2,423,018

(1)	During the adoption process of the ASUs, the Company identified a lease agreement that was incorrectly accounted for as an impaired lease under ASC 420—Exit or Disposal Cost Obligations in fiscal 2017 and the first quarter of fiscal 2018. Refer to “Revisions” within Note 1—The Company.

(2)	Represents recognition of asset held for sale under a sale-leaseback transaction.

(3)	Represents reclassification of prepaid rent to operating lease liabilities and other current liabilities (for finance leases).

(4)

Represents (i) recognition of finance lease right-of-use assets, partially offset by (ii) derecognition of non-Company owned properties that were capitalized under previously existing build-to-suit accounting policies, (iii) reclassification of construction in progress assets determined to be landlord assets to other non-current assets and (iv) reclassification of initial direct costs related to operating leases to operating lease right-of-use assets.

(5)

Represents recognition of operating lease right-of-use assets and corresponding current and non-current lease liabilities. The operating lease right-of-use asset also includes the reclassification of deferred rent and unamortized lease incentives related to operating leases and the reclassification of initial direct costs from property and equipment—net.

(6)	Represents recognition of net deferred tax assets related to the adoption of the ASUs.

(7)	Primarily represents reclassification from property and equipment—net of construction in progress assets determined to be landlord assets for which the lease has not yet commenced.

(8)	Represents a reclassification of an accrual for real estate taxes.

(9)	Represents recognition of the current and non-current finance lease liabilities. The other current liabilities line item also includes the reclassification of current obligations associated with leases previously reported as capital leases to finance lease liabilities.

(10)

Represents (i) derecognition of liabilities related to non-Company owned properties that were consolidated under previously existing build-to-suit accounting policies and (ii) reclassification of deferred rent and unamortized lease incentives to operating lease right-of-use assets upon adoption of the ASUs.

(11)

Represents (i) derecognition of the net lease loss liabilities as such balances were reclassified to operating lease right-of-use assets and operating current and non-current liabilities and (ii) the reclassification of non-current obligations associated with leases previously reported as capital leases to finance lease liabilities.

(12)	Represents a decrease to the consolidated net income for fiscal 2017 and fiscal 2018, as well as an increase of $4.0 million to beginning fiscal 2017 retained earnings related to the adoption of the ASUs.

Refer to Note 7—Leases for discussion of the Company’s revised accounting policy for leases.

Cloud Computing

In August 2018, the FASB issued Accounting Standards Update 2018-15—Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which amends Accounting Standards Update 2015-05—Customers Accounting for Fees in a Cloud Computing Agreement. The amendments in this ASU more closely align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effects that the adoption of this new accounting standard will have on its consolidated financial statements.

Prepaid Expense and Other Assets

6 Months Ended

Aug. 03, 2019

Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]

Prepaid Expense and Other Assets

NOTE 3—PREPAID EXPENSE AND OTHER ASSETS

Prepaid expense and other current assets consist of the following (in thousands):


	August 3,		February 2,
	2019		2019
Insurance recovery receivable ⁽¹⁾	$	50,171	$	50,000
Capitalized catalog costs		12,378		16,178
Vendor deposits		11,407		11,836
Right of return asset for merchandise		6,645		5,883
Federal and state tax receivable		1,036		4,862
Prepaid expense and other current assets		17,660		15,439
Total prepaid expense and other current assets	$	99,297	$	104,198

(1)	Refer to Note 15—Commitments and Contingencies.

Other non-current assets consist of the following (in thousands):


	August 3,		February 2,
	2019		2019
Landlord assets under construction	$	94,710	$	63,159
Promissory note receivable, including interest		5,229		5,104
Deferred financing fees		3,722		3,415
Other deposits		5,559		5,068
Other non-current assets		3,033		2,840
Total other non-current assets	$	112,253	$	79,586

Goodwill, Tradenames, Trademarks and Domain Names

6 Months Ended

Aug. 03, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill, Tradenames, Trademarks and Domain Names

NOTE 4—GOODWILL, TRADENAMES, TRADEMARKS AND DOMAIN NAMES

The following sets forth the goodwill, tradenames, trademarks and domain names activity for the RH Segment and Waterworks for the six months ended August 3, 2019 (in thousands):


			Foreign
	February 2,		Currency		August 3,
	2019		Translation		2019
RH Segment
Goodwill	$	124,379	$	(9)	$	124,370
Tradenames, trademarks and domain names		48,563		—		48,563

Waterworks⁽¹⁾
Tradename ⁽²⁾		37,459		—		37,459

(1)	Waterworks reporting unit goodwill of $51.1 million recognized upon acquisition in fiscal 2016 was fully impaired as of February 2, 2019, with $17.4 million and $33.7 million impairment recorded in fiscal 2018 and fiscal 2017, respectively.

(2)	The Waterworks reporting unit tradename is presented net of an impairment charge of $14.6 million recorded in fiscal 2018.

Accounts Payable, Accrued Expenses and Other Current Liabilities

6 Months Ended

Aug. 03, 2019

Payables And Accruals [Abstract]

Accounts Payable, Accrued Expenses and Other Current Liabilities

NOTE 5—ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accounts payable and accrued expenses consist of the following (in thousands):


	August 3,		February 2,
	2019		2019
Accounts payable	$	145,583	$	183,039
Accrued compensation		47,979		64,192
Accrued freight and duty		24,115		20,787
Accrued sales taxes		18,743		18,354
Accrued catalog costs		14,490		10,276
Accrued occupancy		11,528		10,839
Accrued professional fees		3,442		2,050
Other accrued expenses		23,833		10,960
Total accounts payable and accrued expenses	$	289,713	$	320,497

Other current liabilities consist of the following (in thousands):


	August 3,		February 2,
	2019		2019
Provision for legal settlement ⁽¹⁾	$	50,171	$	50,000
Allowance for sales returns		22,380		19,821
Current portion of debt		21,514		892
Unredeemed gift card and merchandise credit liability		17,177		17,192
Finance lease liabilities		8,127		9,184
Product recall reserve		4,647		7,767
Federal tax payable		2,413		719
Other current liabilities		5,454		3,881
Total other current liabilities	$	131,883	$	109,456

(1)	Refer to Note 15—Commitments and Contingencies.

Contract Liabilities

The Company defers revenue associated with merchandise delivered via the home-delivery channel. The Company expects that substantially all of the deferred revenue, customer deposits and deferred membership fees as of August 3, 2019 will be recognized within the next six months as the performance obligations are satisfied.

In addition, the Company defers revenue when cash payments are received in advance of performance for unsatisfied obligations related to its gift cards and merchandise credits. During the three months ended August 3, 2019 and August 4, 2018, the Company recognized $4.6 million and $4.8 million, respectively, of revenue related to previous deferrals related to its gift cards and merchandise credits. During the six months ended August 3, 2019 and August 4, 2018, the Company recognized $9.3 million and $9.7 million, respectively, of revenue related to previous deferrals related to its gift cards and merchandise credits. During both the three months ended August 3, 2019 and August 4, 2018, the Company recorded gift card breakage of $0.4 million. During both the six months ended August 3, 2019 and August 4, 2018, the Company recorded gift card breakage of $0.8 million. The Company expects that approximately 70% of the remaining gift card and merchandise credit liabilities as of August 3, 2019 will be recognized within the next twelve months as the gift cards are redeemed by customers.

Other Non-Current Obligations

6 Months Ended

Aug. 03, 2019

Other Liabilities Disclosure [Abstract]

Other Non-Current Obligations

NOTE 6—OTHER NON-CURRENT OBLIGATIONS

Other non-current obligations consist of the following (in thousands):


	August 3,		February 2,
	2019		2019
Notes payable for share repurchases	$	18,741	$	18,741
Unrecognized tax benefits		3,222		2,992
Rollover units and profit interests ⁽¹⁾		2,850		2,637
Deferred contract incentive ⁽²⁾		1,786		2,976
Other non-current obligations		3,549		5,166
Total other non-current obligations	$	30,148	$	32,512

(1)	Represents rollover units and profit interests associated with the acquisition of Waterworks. Refer to Note 14—Stock-Based Compensation.

(2)	Represents the non-current portion of an incentive payment received in relation to a 5-year service agreement, which is amortized over the term of the agreement.

Leases

6 Months Ended

Aug. 03, 2019

Leases [Abstract]

Leases

NOTE 7—LEASES

Accounting Policy

The Company leases nearly all of its retail and outlet store locations, corporate headquarters, distribution and home delivery facilities, as well as other storage and office space. The initial lease terms of the Company’s real estate leases generally range from ten to fifteen years, and certain leases contain renewal options for up to an additional 25 years, the exercise of which is at the Company’s sole discretion. In recognizing the lease right-of-use assets and lease liabilities, the Company utilizes the lease term for which it is reasonably certain to use the underlying asset, including consideration of options to extend or terminate the lease. The Company also leases certain equipment with lease terms generally ranging from three to seven years. The Company’s lease agreements generally do not contain any material residual value guarantees or material restrictions or covenants.

Leases, or lease extensions, with a term of twelve months or less are not recorded on the condensed consolidated balance sheets, and the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

The Company accounts for lease and non-lease components as a single lease component for real estate leases, and for all other asset classes the Company accounts for the components separately. The Company determines the lease classification and begins to recognize lease and any related financing expenses upon the lease’s commencement, which for real estate leases is generally upon store opening or, to a lesser extent, when the Company takes possession or control of the asset.

As most of the Company’s leases do not include an implicit interest rate, the Company determines the discount rate for each lease based upon the incremental borrowing rate (“IBR”) in order to calculate the present value of lease payments at the commencement date. The IBR is computed as the rate of interest that the Company would have to pay to (i) borrow on a collateralized basis (ii) over a similar term (iii) an amount equal to the total lease payments and (iv) in a similar economic environment. The Company utilizes its asset based credit facility as the basis for determining the applicable IBR for each lease.

Certain of the Company’s lease agreements include rental payments based on a percentage of retail sales over contractual levels. Due to the variable and unpredictable nature of such payments, the Company does not recognize a lease right-of-use asset and lease liability related to such payments. Estimated variable rental payments are included in accounts payable and accrued expenses on the condensed consolidated balance sheets.

The Company has a small group of leases that include rental payments periodically adjusted for inflation (e.g., based on the consumer price index). The Company includes these variable payments in the initial measurement of the lease right-of-use asset and lease liability if such increases have a minimum rent escalation (e.g., floor). However, the Company excludes these variable payments from the initial measurement of the lease right-of-use asset and lease liability in the case of lease arrangements that do not specify a minimum rent escalation.

The Company rents or subleases certain real estate to third parties under operating leases and recognizes rental income received on a straight-line basis over the lease term, which is recorded as an offset to selling, general and administrative expenses on the condensed consolidated statements of income.

Lease arrangements may require the landlord to provide tenant allowances directly to the Company. Standard tenant allowances received from landlords, typically those received under operating lease agreements, are recorded as cash and cash equivalents with an offset recorded in lease right-of-use assets on the condensed consolidated balance sheets. In certain instances tenant allowances are provided for the Company to design and build the leased asset. Tenant allowances received from landlords during the construction phase of a leased asset and prior to lease commencement are recorded as cash and cash equivalents with an offset recorded in other non-current assets (to the extent the Company has incurred related capital expenditure for construction costs) or in other current liabilities (to the extent that payments are received prior to capital construction expenditures by the Company) on the condensed consolidated balance sheets. After the leased asset is constructed and the lease commences, the Company reclassifies the tenant allowance from other non-current assets or other current liabilities to lease right-of-use assets on the condensed consolidated balance sheets.

Lease Classification

Certain of the Company’s real estate and property and equipment are held under finance leases. Lease related assets are included in finance lease right-of-use assets within property and equipment—net on the condensed consolidated balance sheets.

Leases that do not meet the definition of a finance lease are considered operating leases. Lease related assets are included in operating lease right-of-use assets on the condensed consolidated balance sheets.

Construction Related Activities

The Company is sometimes involved in the construction of leased stores for certain of its newer Design Galleries. Prior to construction commencement, the Company evaluates whether or not it, as lessee, controls the asset being constructed and, depending on the extent to which it is involved, the Company may be the “deemed owner” of the leased asset for accounting purposes during the construction period.

If the Company is not the “deemed owner” for accounting purposes during the construction period, such lease is classified as either an operating or finance lease upon lease commencement. During the construction period and prior to lease commencement, any capital amounts contributed by the Company toward the construction of the leased asset (excluding normal leasehold improvements, which are recorded within property and equipment—net) are recorded as “Landlord assets under construction” within other non-current assets on the condensed consolidated balance sheets (refer to Note 3—Prepaid Expense and Other Assets). Upon completion of the construction project, and upon lease commencement, the Company reclassifies amounts of the construction project determined to be the landlord asset to lease right-of-use assets on the condensed consolidated balance sheets. The construction costs determined not to be part of the leased asset are classified as property and equipment—net on the condensed consolidated balance sheets.

If the Company is the “deemed owner” for accounting purposes, upon commencement of the construction project, it is required to capitalize (i) costs incurred by the Company and (ii) the cash and non-cash assets contributed by the landlord for construction as property and equipment on its condensed consolidated balance sheets as build-to-suit assets, with an offsetting financing obligation under build-to-suit lease transactions. The contributions by the landlord toward construction, including the building, existing site improvements at construction commencement and any amounts paid by the landlord to those responsible for construction, are included as property and equipment additions due to build-to-suit lease transactions within the non-cash section of the consolidated statements of cash flows. Over the lease term, these non-cash additions to property and equipment do not impact the Company’s cash outflows, nor do they impact net income within the consolidated statements of income.

Upon completion of the construction project, the Company performs a sale-leaseback analysis to determine if it can derecognize the build-to-suit asset and corresponding financing obligation. If the asset and liability cannot be derecognized, the Company accounts for the agreement as a debt-like arrangement.

Lease Disclosures

Lease costs—net consist of the following (in thousands):


	Three Months Ended				Six Months Ended
	August 3,		August 4,		August 3,		August 4,
	2019		2018		2019		2018
Operating lease cost⁽¹⁾⁽²⁾	$	23,259	$	22,743	$	42,376	$	44,089

Finance lease costs
Amortization of leased assets⁽¹⁾		9,235		6,441		18,087		12,340
Interest on lease liabilities⁽³⁾		5,672		3,319		11,186		6,411

Sublease income⁽⁴⁾		(1,507)		(2,261)		(4,789)		(3,271)
Total lease costs—net	$	36,659	$	30,242	$	66,860	$	59,569

(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 based on the Company’s policy. Refer to Note 3—Significant Accounting Policies in the 2018 Form 10-K.

(2)	Includes short-term leases and variable lease costs.

(3)	Included in interest expense—net on the condensed consolidated statements of income.

(4)	Included in selling, general and administrative expenses on the condensed consolidated statements of income.

Lease right-of-use assets and lease liabilities consist of the following (in thousands):


		August 3,		February 2,
		2019		2019
	Balance Sheet Classification
Assets
Operating leases	Operating lease right-of-use assets	$	421,001	$	440,504
Finance leases ⁽¹⁾⁽²⁾	Property and equipment—net		650,699		646,875
Total lease right-of-use assets			1,071,700		1,087,379

Liabilities
Current
Operating leases	Operating lease liabilities	$	57,162	$	66,249
Finance leases	Other current liabilities		8,127		9,184
Total lease liabilities—current			65,289		75,433

Non-current
Operating leases	Non-current operating lease liabilities	$	415,803	$	437,557
Finance leases	Non-current finance lease liabilities		433,591		421,245
Total lease liabilities—non-current			849,394		858,802
Total lease liabilities		$	914,683	$	934,235

(1)	Finance lease right-of-use assets include capitalized amounts related to the Company’s construction activities to design and build leased assets, as well as rent payments made to landlords for which the respective Galleries are not yet opened.

(2)	Finance lease right-of-use assets are recorded net of accumulated amortization of $73.3 million and $55.5 million as of August 3, 2019 and February 2, 2019, respectively.

The maturities of lease liabilities are as follows as of August 3, 2019 (in thousands):


Fiscal year	Operating Leases		Finance Leases		Total
Remainder of fiscal 2019	$	33,456	$	14,014	$	47,470
2020		78,990		33,456		112,446
2021		65,068		33,908		98,976
2022		57,226		34,385		91,611
2023		53,867		35,153		89,020
2024		49,901		35,689		85,590
Thereafter		228,093		548,302		776,395
Total lease payments⁽¹⁾		566,601		734,907		1,301,508
Less—imputed interest ⁽²⁾		(93,636)		(293,189)		(386,825)
Present value of lease liabilities⁽³⁾	$	472,965	$	441,718	$	914,683

(1)	Total lease payments exclude $369.1 million of legally binding payments for leases signed but not yet commenced as of August 3, 2019.

(2)	Calculated using the incremental borrowing rate for each lease at lease commencement.

(3)	Excludes future commitments under short-term lease agreements of $1.4 million as of August 3, 2019.

Supplemental information related to leases consists of the following:


	Six Months Ended
	August 3,		August 4,
	2019		2018
Weighted-average remaining lease term (years)
Operating leases		8.9	9.6
Finance leases		18.9	18.4

Weighted-average discount rate
Operating leases		3.81%	3.74%
Finance leases		5.26%	4.95%

Other information related to leases consists of the following (in thousands):


	Six Months Ended
	August 3,			August 4,
	2019			2018
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	(53,670)	$	(54,287)
Operating cash flows from finance leases		(11,186)		(6,411)
Financing cash flows from finance leases		(4,399)		(3,567)
Total cash outflows from leases	$	(69,255)	$	(64,265)

Lease right-of-use assets obtained in exchange for lease obligations (non-cash)
Finance leases	$	17,997	$	27,874
Operating leases		13,839		15,024

Convertible Senior Notes

6 Months Ended

Aug. 03, 2019

Debt Disclosure [Abstract]

Convertible Senior Notes

NOTE 8—CONVERTIBLE SENIOR NOTES

0.00% Convertible Senior Notes due 2023

In June 2018, the Company issued in a private offering $300 million principal amount of 0.00% convertible senior notes due 2023 and issued an additional $35 million principal amount in connection with the overallotment option granted to the initial purchasers as part of the offering (collectively, the “2023 Notes”). The 2023 Notes are governed by the terms of an indenture between the Company and U.S. Bank National Association, as the Trustee. The 2023 Notes will mature on June 15, 2023, unless earlier purchased by the Company or converted. The 2023 Notes will not bear interest, except that the 2023 Notes will be subject to “special interest” in certain limited circumstances in the event of the failure of the Company to perform certain of its obligations under the indenture governing the 2023 Notes. The 2023 Notes are unsecured obligations and do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company or any of its subsidiaries. Certain events are also considered “events of default” under the 2023 Notes, which may result in the acceleration of the maturity of the 2023 Notes, as described in the indenture governing the 2023 Notes.

The initial conversion rate applicable to the 2023 Notes is 5.1640 shares of common stock per $1,000 principal amount of 2023 Notes, which is equivalent to an initial conversion price of approximately $193.65 per share. The conversion rate will be subject to adjustment upon the occurrence of certain specified events, but will not be adjusted for any accrued and unpaid special interest. In addition, upon the occurrence of a “make-whole fundamental change” as defined in the indenture, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its 2023 Notes in connection with such make-whole fundamental change.

Prior to March 15, 2023, the 2023 Notes will be convertible only under the following circumstances: (1) during any calendar quarter commencing after September 30, 2018, if, for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on the last trading day of the immediately preceding calendar quarter, the last reported sale price of the Company’s common stock on such trading day is greater than or equal to 130% of the applicable conversion price on such trading day; (2) during the five consecutive business day period after any ten consecutive trading day period in which, for each day of that period, the trading price per $1,000 principal amount of 2023 Notes for such trading day was less than 98% of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on such trading day; or (3) upon the occurrence of specified corporate transactions. As of August 3, 2019, none of these conditions have occurred and, as a result, the 2023 Notes were not convertible as of August 3, 2019. On and after March 15, 2023, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or a portion of their 2023 Notes at any time, regardless of the foregoing circumstances. Upon conversion, the 2023 Notes will be settled, at the Company’s election, in cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock. If the Company has not delivered a notice of its election of settlement method prior to the final conversion period it will be deemed to have elected combination settlement with a dollar amount per note to be received upon conversion of $1,000.

The Company may not redeem the 2023 Notes; however, upon the occurrence of a fundamental change (as defined in the indenture governing the notes), holders may require the Company to purchase all or a portion of their 2023 Notes for cash at a price equal to 100% of the principal amount of the 2023 Notes to be purchased plus any accrued and unpaid special interest to, but excluding, the fundamental change purchase date.

Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, in accounting for the issuance of the 2023 Notes, the Company separated the 2023 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component, which is recognized as a debt discount, represents the difference between the proceeds from the issuance of the 2023 Notes and the fair value of the liability component of the 2023 Notes. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) will be amortized to interest expense using an effective interest rate of 6.35% over the expected life of the 2023 Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

In accounting for the debt issuance costs related to the issuance of the 2023 Notes, the Company allocated the total amount incurred to the liability and equity components based on their relative values. Debt issuance costs attributable to the liability component are amortized to interest expense using the effective interest method over the expected life of the 2023 Notes, and debt issuance costs attributable to the equity component are netted with the equity component in stockholders’ equity (deficit).

Debt issuance costs related to the 2023 Notes were comprised of discounts upon original issuance of $1.7 million and third party offering costs of $4.6 million. Discounts and third party offering costs attributable to the liability component are recorded as a contra-liability and are presented net against the convertible senior notes due 2023 balance on the condensed consolidated balance sheets. During the three months ended August 3, 2019 and August 4, 2018, the Company recorded $0.3 million and $0.1 million, respectively, related to the amortization of debt issuance costs. During the six months ended August 3, 2019 and August 4, 2018, the Company recorded $0.5 million and $0.1 million related to the amortization of debt issuance costs, respectively.

The carrying values of the 2023 Notes, excluding the discounts upon original issuance and third party offering costs, are as follows (in thousands):


	August 3,		February 2,
	2019		2019
Liability component
Principal	$	335,000	$	335,000
Less: Debt discount		(73,152)		(81,311)
Net carrying amount	$	261,848	$	253,689
Equity component ⁽¹⁾	$	90,990	$	90,990

(1)	Included in additional paid-in capital on the condensed consolidated balance sheets.

The Company recorded interest expense of $4.1 million and $1.8 million for the amortization of the debt discount related to the 2023 Notes during the three months ended August 3, 2019 and August 4, 2018, respectively. The Company recorded interest expense of $8.2 million and $1.8 million for the amortization of the debt discount related to the 2023 Notes during the six months ended August 3, 2019 and August 4, 2018, respectively.

2023 Notes—Convertible Bond Hedge and Warrant Transactions

In connection with the offering of the 2023 Notes and exercise of the overallotment option in June 2018, the Company entered into convertible note hedge transactions whereby the Company has the option to purchase a total of approximately 1.7 million shares of its common stock at a price of approximately $193.65 per share. The total cost of the convertible note hedge transactions was $91.9 million. In addition, the Company sold warrants whereby the holders of the warrants have the option to purchase a total of approximately 1.7 million shares of the Company’s common stock at a price of $309.84 per share. The warrants contain certain adjustment mechanisms whereby the total number of shares to be purchased under such warrants may be increased up to a cap of 3.5 million shares of common stock (which cap may also be subject to adjustment). The Company received $51.0 million in cash proceeds from the sale of these warrants. Taken together, the purchase of the convertible note hedges and sale of the warrants are intended to offset any actual earnings dilution from the conversion of the 2023 Notes until the Company’s common stock is above approximately $309.84 per share. As these transactions meet certain accounting criteria, the convertible note hedges and warrants are recorded in stockholders’ equity, are not accounted for as derivatives and are not remeasured each reporting period. The net costs incurred in connection with the convertible note hedge and warrant transactions were recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets.

The Company recorded a deferred tax liability of $22.3 million in connection with the debt discount associated with the 2023 Notes and recorded a deferred tax asset of $22.5 million in connection with the convertible note hedge transactions. The deferred tax liability and deferred tax asset are recorded in deferred tax assets on the condensed consolidated balance sheets.

0.00% Convertible Senior Notes due 2020

In June 2015, the Company issued in a private offering $250 million principal amount of 0.00% convertible senior notes due 2020 and, in July 2015, the Company issued an additional $50 million principal amount pursuant to the exercise of the overallotment option granted to the initial purchasers as part of its June 2015 offering (collectively, the “2020 Notes”). The 2020 Notes are governed by the terms of an indenture between the Company and U.S. Bank National Association, as the Trustee. The 2020 Notes will mature on July 15, 2020, unless earlier purchased by the Company or converted. The 2020 Notes will not bear interest, except that the 2020 Notes will be subject to “special interest” in certain limited circumstances in the event of the failure of the Company to perform certain of its obligations under the indenture governing the 2020 Notes. The 2020 Notes are unsecured obligations and do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company or any of its subsidiaries. Certain events are also considered “events of default” under the 2020 Notes, which may result in the acceleration of the maturity of the 2020 Notes, as described in the indenture governing the 2020 Notes. The 2020 Notes are guaranteed by the Company’s primary operating subsidiary, Restoration Hardware, Inc., as Guarantor. The guarantee is the unsecured obligation of the Guarantor and is subordinated to the Guarantor’s obligations from time to time with respect to its credit agreement and ranks equal in right of payment with respect to Guarantor’s other obligations.

The initial conversion rate applicable to the 2020 Notes is 8.4656 shares of common stock per $1,000 principal amount of 2020 Notes, which is equivalent to an initial conversion price of approximately $118.13 per share. The conversion rate will be subject to adjustment upon the occurrence of certain specified events, but will not be adjusted for any accrued and unpaid special interest. In addition, upon the occurrence of a “make-whole fundamental change” as defined in the indenture, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its 2020 Notes in connection with such make-whole fundamental change.

Prior to March 15, 2020, the 2020 Notes will be convertible only under the following circumstances: (1) during any calendar quarter commencing after September 30, 2015, if, for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on the last trading day of the immediately preceding calendar quarter, the last reported sale price of the Company’s common stock on such trading day is greater than or equal to 130% of the applicable conversion price on such trading day; (2) during the five consecutive business day period after any ten consecutive trading day period in which, for each day of that period, the trading price per $1,000 principal amount of 2020 Notes for such trading day was less than 98% of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on such trading day; or (3) upon the occurrence of specified corporate transactions. As of August 3, 2019, none of these conditions have occurred and, as a result, the 2020 Notes were not convertible as of August 3, 2019. On and after March 15, 2020, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or a portion of their 2020 Notes at any time, regardless of the foregoing circumstances. Upon conversion, the 2020 Notes will be settled, at the Company’s election, in cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock. If the Company has not delivered a notice of its election of settlement method prior to the final conversion period it will be deemed to have elected combination settlement with a dollar amount per note to be received upon conversion of $1,000.

The Company may not redeem the 2020 Notes; however, upon the occurrence of a fundamental change (as defined in the indenture governing the notes), holders may require the Company to purchase all or a portion of their 2020 Notes for cash at a price equal to 100% of the principal amount of the 2020 Notes to be purchased plus any accrued and unpaid special interest to, but excluding, the fundamental change purchase date.

Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, in accounting for the issuance of the 2020 Notes, the Company separated the 2020 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component, which is recognized as a debt discount, represents the difference between the proceeds from the issuance of the 2020 Notes and the fair value of the liability component of the 2020 Notes. The debt discount will be amortized to interest expense using an effective interest rate of 6.47% over the expected life of the 2020 Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

In accounting for the debt issuance costs related to the issuance of the 2020 Notes, the Company allocated the total amount incurred to the liability and equity components based on their relative values. Debt issuance costs attributable to the liability component are amortized to interest expense using the effective interest method over the expected life of the 2020 Notes, and debt issuance costs attributable to the equity component are netted with the equity component in stockholders’ equity (deficit).

Debt issuance costs related to the 2020 Notes were comprised of discounts upon original issuance of $3.8 million and third party offering costs of $2.3 million. Discounts and third party offering costs attributable to the liability component are recorded as a contra-liability and are presented net against the convertible senior notes due 2020 balance on the condensed consolidated balance sheets. During both the three months ended August 3, 2019 and August 4, 2018, the Company recorded $0.3 million related to the amortization of debt issuance costs. During the six months ended August 3, 2019 and August 4, 2018, the Company recorded $0.6 million and $0.5 million related to the amortization of debt issuance costs, respectively.

The carrying values of the 2020 Notes, excluding the discounts upon original issuance and third party offering costs, are as follows (in thousands):


	August 3,		February 2,
	2019		2019
Liability component
Principal	$	300,000	$	300,000
Less: Debt discount		(18,132)		(27,081)
Net carrying amount	$	281,868	$	272,919
Equity component ⁽¹⁾	$	84,003	$	84,003

(1)	Included in additional paid-in capital on the condensed consolidated balance sheets.

The Company recorded interest expense of $4.5 million and $4.2 million for the amortization of the debt discount related to the 2020 Notes during the three months ended August 3, 2019 and August 4, 2018, respectively. The Company recorded interest expense of $8.9 million and $8.4 million for the amortization of the debt discount related to the 2020 Notes during the six months ended August 3, 2019 and August 4, 2018, respectively.

2020 Notes—Convertible Bond Hedge and Warrant Transactions

In connection with the offering of the 2020 Notes in June 2015 and the exercise in full of the overallotment option in July 2015, the Company entered into convertible note hedge transactions whereby the Company has the option to purchase a total of approximately 2.5 million shares of its common stock at a price of approximately $118.13 per share. The total cost of the convertible note hedge transactions was $68.3 million. In addition, the Company sold warrants whereby the holders of the warrants have the option to purchase a total of approximately 2.5 million shares of the Company’s common stock at a price of $189.00 per share. The warrants contain certain adjustment mechanisms whereby the total number of shares to be purchased under such warrants may be increased up to a cap of 5.1 million shares of common stock (which cap may also be subject to adjustment). The Company received $30.4 million in cash proceeds from the sale of these warrants. Taken together, the purchase of the convertible note hedges and sale of the warrants are intended to offset any actual earnings dilution from the conversion of the 2020 Notes until the Company’s common stock is above approximately $189.00 per share. As these transactions meet certain accounting criteria, the convertible note hedges and warrants are recorded in stockholders’ equity, are not accounted for as derivatives and are not remeasured each reporting period. The net costs incurred in connection with the convertible note hedge and warrant transactions were recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets.

The Company recorded a deferred tax liability of $32.8 million in connection with the debt discount associated with the 2020 Notes and recorded a deferred tax asset of $26.6 million in connection with the convertible note hedge transactions. The deferred tax liability and deferred tax asset are recorded in deferred tax assets on the condensed consolidated balance sheets.

0.00% Convertible Senior Notes due 2019

In June 2014, the Company issued $350 million principal amount of 0.00% convertible senior notes due 2019 (the “2019 Notes”) in a private offering. The 2019 Notes were governed by the terms of an indenture between the Company and U.S. Bank National Association, as the Trustee. The 2019 Notes did not bear interest, except that the 2019 Notes were subject to “special interest” in certain limited circumstances in the event of the failure of the Company to perform certain of its obligations under the indenture governing the 2019 Notes. The 2019 Notes were unsecured obligations and did not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company or any of its subsidiaries. Certain events were also considered “events of default” under the 2019 Notes, which could result in the acceleration of the maturity of the 2019 Notes, as described in the indenture governing the 2019 Notes. The 2019 Notes matured on June 15, 2019.

The initial conversion rate applicable to the 2019 Notes was 8.6143 shares of common stock per $1,000 principal amount of 2019 Notes, which was equivalent to an initial conversion price of approximately $116.09 per share. The conversion rate was subject to adjustment upon the occurrence of certain specified events, but was not adjusted for any accrued and unpaid special interest. In addition, upon the occurrence of a “make-whole fundamental change,” the Company would, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elected to convert its 2019 Notes in connection with such make-whole fundamental change.

Prior to March 15, 2019, the 2019 Notes were convertible only under the following circumstances: (1) during any calendar quarter commencing after September 30, 2014, if, for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on the last trading day of the immediately preceding calendar quarter, the last reported sale price of the Company’s common stock on such trading day is greater than or equal to 130% of the applicable conversion price on such trading day; (2) during the five consecutive business day period after any ten consecutive trading day period in which, for each day of that period, the trading price per $1,000 principal amount of 2019 Notes for such trading day was less than 98% of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on such trading day; or (3) upon the occurrence of specified corporate transactions. On and after March 15, 2019, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders could have converted all or a portion of their 2019 Notes at any time, regardless of the foregoing circumstances.

Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, in accounting for the issuance of the 2019 Notes, the Company separated the 2019 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component, which is recognized as a debt discount, represents the difference between the proceeds from the issuance of the 2019 Notes and the fair value of the liability component of the 2019 Notes. The debt discount was amortized to interest expense using an effective interest rate of 4.51% over the expected life of the 2019 Notes. The equity component was not remeasured as long as it continued to meet the conditions for equity classification.

In accounting for the debt issuance costs related to the issuance of the 2019 Notes, the Company allocated the total amount incurred to the liability and equity components based on their relative values. Debt issuance costs attributable to the liability component were amortized to interest expense using the effective interest method over the expected life of the 2019 Notes, and debt issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity (deficit).

Debt issuance costs related to the 2019 Notes were comprised of discounts and commissions payable to the initial purchasers of $4.4 million and third party offering costs of $1.0 million. Discounts, commissions payable to the initial purchasers and third party offering costs attributable to the liability component were recorded as a contra-liability and were presented net against the convertible senior notes due 2019 balance on the condensed consolidated balance sheets. During the three months ended August 3, 2019 and August 4, 2018, the Company recorded $0.2 million and $0.3 million, respectively, related to the amortization of debt issuance costs. During the six months ended August 3, 2019 and August 4, 2018, the Company recorded $0.4 million and $0.5 million, respectively, related to the amortization of debt issuance costs.

In June 2019, upon the maturity of the 2019 Notes, $350.0 million in aggregate principal amount of the 2019 Notes were settled for $349.0 million in cash and 42 shares of common stock. As a result, the Company recognized a gain on extinguishment of debt of $1.0 million.

As of August 3, 2019, the 2019 Notes are no longer outstanding. As of February 2, 2019, the carrying value of the 2019 Notes, excluding the discounts and commissions payable to the initial purchasers and third party offering costs, was as follows (in thousands):


	February 2,
	2019
Liability component
Principal	$	350,000
Less: Debt discount		(5,854)
Net carrying amount	$	344,146
Equity component ⁽¹⁾	$	70,482

(1)	Included in additional paid-in capital on the condensed consolidated balance sheets.

The Company recorded interest expense of $2.0 million and $3.8 million for the amortization of the debt discount related to the 2019 Notes during the three months ended August 3, 2019 and August 4, 2018, respectively. The Company recorded interest expense of $5.9 million and $7.5 million for the amortization of the debt discount related to the 2019 Notes during the six months ended August 3, 2019 and August 4, 2018, respectively.

2019 Notes—Convertible Bond Hedge and Warrant Transactions

In connection with the offering of the 2019 Notes, the Company entered into convertible note hedge transactions whereby the Company had the option to purchase a total of approximately 3.0 million shares of its common stock at a price of approximately $116.09 per share. The total cost of the convertible note hedge transactions was $73.3 million. The convertible note hedge terminated upon the maturity date of the 2019 Notes. In addition, the Company sold warrants whereby the holders of the warrants have the option to purchase a total of approximately 3.0 million shares of the Company’s common stock at a price of $171.98 per share. The warrants contain certain adjustment mechanisms

whereby the total number of shares to be purchased under such warrants may be increased up to a cap of 6.0 million shares of common stock (which cap may also be subject to adjustment). The warrants will expire through December 2019. The Company received $40.4 million in cash proceeds from the sale of these warrants. Taken together, the purchase of the convertible note hedges and sale of the warrants are intended to offset any actual dilution from the conversion of the 2019 Notes and to effectively increase the overall conversion price from $116.09 per share to $171.98 per share. As these transactions met certain accounting criteria, the convertible note hedges were, and warrants are, recorded in stockholders’ equity, are not accounted for as derivatives and are not remeasured each reporting period. The net costs incurred in connection with the convertible note hedge and warrant transactions were recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets.

The Company recorded a deferred tax liability of $27.5 million in connection with the debt discount associated with the 2019 Notes and recorded a deferred tax asset of $28.6 million in connection with the convertible note hedge transactions. The deferred tax liability and deferred tax assets were included in deferred tax assets on the condensed consolidated balance sheets. There is no deferred tax asset or liability remaining as of August 3, 2019 due to the maturity of the 2019 Notes.

Credit Facilities

6 Months Ended

Aug. 03, 2019

Debt Disclosure [Abstract]

Credit Facilities

NOTE 9—CREDIT FACILITIES

The outstanding balances under the Company’s credit facilities were as follows (in thousands):