What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-04-01 compared with 2025-04-02 · 192 added, 213 removed, 379 unchanged (52% of the section changed)

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The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those listed in Item 1A — Risk Factors and included elsewhere in this Annual Report.

The discussion of our financial condition and changes in our results of operations, liquidity and capital resources are presented in this section for fiscal 2024 and a comparison to fiscal 2023.

The discussion for fiscal 2023 and fiscal 2022 has been omitted from this Annual Report, but is included in Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024, filed with the Securities and Exchange Commission (“SEC”) on March 28, 2024.

The discussion of our financial condition and changes in our results of operations, liquidity and capital resources is presented in this section for fiscal 2025 and a comparison to fiscal 2024.

The discussion for fiscal 2024 and a comparison to fiscal 2023 has been omitted from this Annual Report, but is included in Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended February 1, 2025, filed with the Securities and Exchange Commission (“SEC”) on April 2, 2025.

MD&A is a supplement to our consolidated financial statements within Part II of this Annual Report and is provided to enhance an understanding of our results of operations and financial condition.

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We position our Galleries as showrooms for our brand, while our websites and Sourcebooks act as virtual and print extensions of our physical spaces, respectively.

We operate our retail locations throughout the United States and Canada as well as in the United Kingdom, Germany, Belgium and Spain and have an integrated RH Hospitality experience in 21 of our Design Gallery locations, which includes restaurants and wine bars.

We operate our retail locations throughout the United States, Canada and Europe, and we have an integrated RH Hospitality experience in 25 of our Design Gallery locations, which includes restaurants and wine bars.

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PART II — FINANCIAL STATEMENTS

We have recently undertaken efforts to introduce the most prolific collection of new products in our history, with a substantial number of new furniture and upholstery collections across RH Interiors, RH Modern, RH Contemporary, RH Outdoor, RH Baby & Child and RH TEEN.

These new collections reflect a level of design and quality inaccessible in our current market, and a value proposition that we believe will be disruptive across multiple markets.

As of February 1, 2025, we operated the following number of locations:

We have recently undertaken efforts to introduce the most prolific collection of new products in our history, with a substantial number of new furniture and upholstery collections across RH Interiors, RH Modern, RH Outdoor, RH Baby & Child and RH Teen and the introduction of RH Estates in 2026, featuring RH Bespoke furniture and RH Couture upholstery.

We believe these new collections reflect a level of design and quality inaccessible in our current market, and a value proposition that we believe will be disruptive across multiple markets.

As of January 31, 2026, we operated the following number of locations:

North America

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Legacy Galleries

Outdoor Galleries

Modern Gallery

Baby & Child and TEEN Galleries

Interior Design Office

Baby & Child Gallery

Interior Design Studio

Total RH retail locations—North America

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In recent years, our business has been negatively affected and limited by macroeconomic conditions, including high interest rates and mortgage rates, volatility in the global financial markets and the slowdown in the luxury home market as well as other negative factors related to the effects of lingering higher inflation and increased costs, including higher construction expenses.

Since the majority of our product assortment is imported from vendors outside the U.S., we also face uncertainty and risks related to tariffs and other trade policies, which may increase the costs of securing products from our vendors.

Since the majority of our product assortment is imported from vendors outside the United States, we also face uncertainty and risks related to tariffs and other trade policies, which may increase the costs of securing products from our vendors.

Tariffs and other non-tariff trade practices and policies may adversely affect our business in other ways beyond increased costs for our products.

We have taken steps to move our supply chain away from countries with higher tariff rates in favor of other jurisdictions, but these countermeasures may prove to be ineffective and the ability to predict tariff rates in different countries may be difficult as policies may change on short notice.

Uncertainty about trade policy, tariff rates, and other changes in practices affecting international trade might have an adverse effect on our business and results of operation and we may face challenges in implementing the optimal responses to changing trade conditions.

In addition, there is meaningful uncertainty related to the confluence of different macroeconomic factors that could influence business conditions in the U.S.

While our expectation is that these different factors will moderate in the future, the timing and precise outlook for these improvements is uncertain.

For example, on February 20, 2026, the U.S.

Supreme Court issued a ruling striking down certain tariffs previously imposed under the IEEPA.

Following the U.S.

Supreme Court’s decision, the U.S.

presidential administration announced its intention to invoke other laws to collect tariffs and announced new tariffs on imports from all countries, in addition to any existing non-IEEPA tariffs.

There remains substantial uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels and whether further additional tariffs or other retaliatory actions may be imposed, modified or suspended.

Uncertainty about trade policy, tariff rates and other changes in practices affecting international trade might have an adverse effect on our business and results of operations, and we may face challenges in implementing the optimal responses to changing trade conditions.

PART II — FINANCIAL STATEMENTS

FORM 10-K | 43

In addition, there is meaningful uncertainty related to the confluence of different macroeconomic factors that could influence business conditions in the United States.

While our expectation is that these different factors will moderate in the future, the timing and precise outlook for these improvements are uncertain.

We also believe we have positioned the business to take advantage of any favorable progression in macroeconomic conditions.

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In order to achieve our long-term strategies of product transformation, platform expansion and cash generation as well as drive growth across our business, we are focused on the following key strategies and business initiatives:

PART II — FINANCIAL STATEMENTS

FORM 10-K | 43

Product Elevation .

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Our products are presented across multiple collections, categories and channels that we control, and we believe their desirability and exclusivity have enabled us to achieve strong revenues and margins.

Our customers know our brand concepts as RH Interiors, RH Modern, RH Contemporary, RH Outdoor, RH Beach House, RH Ski House, RH Baby & Child, RH TEEN and Waterworks.

Our customers know our brand concepts as RH Interiors, RH Modern, RH Outdoor, RH Beach House, RH Ski House, RH Baby & Child, RH Teen and Waterworks.

Our strategy is to continue to elevate the design and quality of our product.

Beginning with the mailing of our RH Interiors Sourcebook in the fall of 2023 and with additional Sourcebook mailings throughout 2024, we have introduced the most prolific collection of new products in our history.

In addition, over the next few years, we plan to introduce RH Couture, RH Bespoke and RH Color.

Beginning with the mailing of our RH Interiors Sourcebook in the fall of 2023 and with additional Sourcebook mailings throughout 2024 and 2025, we have introduced the most prolific collection of new products in our history, which will continue with the spring 2026 launch of RH Estates, featuring RH Bespoke furniture and RH Couture upholstery.

Gallery Transformation .

Our products are elevated and rendered more valuable by our architecturally inspiring Galleries.

We believe our strategy to open new Design Galleries in every major market in North America will unlock the value of our vast assortment, generating an expected annual revenue opportunity for our business of $5 to $6 billion.

We believe we can significantly increase our sales by transforming our real estate platform from our existing legacy retail footprint to a portfolio of Design Galleries sized to the potential of each market and the size of our assortment.

In addition, we plan to incorporate hospitality into many of the new Design Galleries that we open in the future, which further elevates and renders our product and brand more valuable.

We believe our strategy to open new Design Galleries in every major market in the United States and Canada will unlock the value of our vast assortment, generating an expected total annual revenue opportunity of $5 to $6 billion.

We believe we can increase our sales by continuing to transform our real estate platform from our existing legacy retail footprint to a portfolio of Design Galleries sized to the potential of each market and the size of our assortment.

In addition, we plan to incorporate hospitality into many of the new Design Galleries that we open in the future, which we believe further elevates and renders our product and brand more valuable.

We believe hospitality has created a unique new retail experience that cannot be replicated online and that the addition of hospitality drives incremental sales of home furnishings in these Galleries.

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We entered this industry with the opening of the RH Guesthouse New York in September 2022 and are in the process of constructing our second RH Guesthouse in Aspen.

In June 2023, we opened RH England, The Gallery at the Historic Aynho Park, a 400-year-old landmark estate representing the most inspiring and immersive physical expression of the brand to date.

In June 2023, we opened RH England, The Gallery at the Historic Aynho Park, a 400-year-old landmark estate representing one of the most inspiring and immersive physical expressions of the brand.

RH England marked the beginning of our global expansion beyond North America.

Additionally, we offer bespoke experiences like RH Yountville, an integration of Food, Wine, Art & Design in the Napa Valley;

RH1 & RH2, our private jets;

and RH3, our luxury yacht that is available for charter in the Caribbean and Mediterranean, where the wealthy and affluent visit and vacation.

RH One & RH Two, our private jets;

and RH Three, our luxury yacht that is available for charter in the Caribbean and Mediterranean, where the wealthy and affluent visit and vacation.

These immersive experiences expose both new and existing customers to our evolving authority in architecture, interior design and landscape architecture.

Global Expansion.

We believe that our luxury brand positioning and unique aesthetic have strong international appeal, and that pursuit of global expansion will provide RH with a substantial opportunity to build over time a projected $20 to $25 billion global brand in terms of annual revenues.

Our view is that the competitive environment globally is more fragmented and primed for disruption than the North American market, and there is no direct competitor of scale that possesses the product, operational platform, and brand strength of RH.

As such, we are actively pursuing the expansion of the RH brand globally, which began with the opening of RH England, RH Munich and RH Düsseldorf in 2023, followed by the opening of RH Brussels in March 2024 and RH Madrid in June 2024.

We are also under construction in Paris, London and Milan in inspiring spaces that will celebrate the heritage of the historic structures and will integrate full expressions of our hospitality experiences.

We believe that our luxury brand positioning and unique aesthetic have strong international appeal and that global expansion will provide RH with a substantial opportunity to build a projected $20 to $25 billion global brand in terms of annual revenues.

Our view is that the competitive global environment is more fragmented and primed for disruption than the North American market, and there is no direct competitor of scale that possesses the product, operational platform and brand strength of RH.

In September 2025, we opened RH Paris, The Gallery on the Champs-Élysées, located just off the Avenue Montaigne, which stands at the global epicenter of fashion and luxury.

We believe the opening of RH Paris marks a major step forward in the European expansion of our business.

In 2026, we expect to open RH Milan, The Gallery on Corso Venezia, and RH London, The Gallery in Mayfair, which we believe will be inspiring spaces that celebrate the heritage of the historic structures and integrate full expressions of our hospitality experiences.

In addition, we plan to open RH Sydney, The Gallery in Double Bay, in Australia in the coming years.

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PART II — FINANCIAL STATEMENTS

Digital Reimagination .

Our strategy is to digitally reimagine the RH brand and business model both internally and externally.

Internally, our multiyear effort began with the reimagination of our Center of Innovation to incorporate digitally integrated visuals and decision data designed to amplify the creative process from product ideation to product presentation.

Internally, our multiyear effort began with the reimagination of our RH Center of Innovation to incorporate digitally integrated visuals and decision data designed to amplify the creative process from product ideation to product presentation.

Externally, our strategy comes to life digitally through The World of RH, an online portal where customers can explore and be inspired by the depth and dimension of our brand.

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We believe an opportunity exists to create similar strategic separation online as we have with our Galleries offline, reconceptualizing what a website can and should be.

We are making meaningful investments to elevate and differentiate our online experience with plans to upgrade our website throughout 2025.

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PART II — FINANCIAL STATEMENTS

We have made meaningful investments to elevate and differentiate our online experience in 2025, and we expect to continue investing in these initiatives in 2026.

Factors Affecting Our Results of Operations

We have experienced significant changes in our business from fiscal 2022 through fiscal 2024, including the impact of macroeconomic factors such as the pandemic, high interest and mortgage rates, increased inflation and volatility in the global financial markets and the slowdown in the housing market.

We believe that the pandemic and the resulting trends in housing markets drove increased demand in our business during a substantial portion of the pandemic.

However, the demand for home furnishings has decreased since the reopening of the economy after the peak of the pandemic and consumption patterns have shifted into other areas such as travel and leisure.

We rely upon vendors outside the U.S.

for the majority of our product assortment and we face resulting uncertainty and risks related to tariffs and other trade policies which may increase the costs of securing products from our vendors.

Tariffs and other non-tariff trade practices and policies may adversely affect our business in other ways beyond increased costs for our products.

Apart from the impact of macroeconomic factors on our business operations and on general economic conditions, below are certain factors that affect our results of operations.

Various factors have affected, and may continue to affect, our results of operations.

While each of these factors presents opportunities for our business, they also pose risks that we must successfully address in order to achieve our long-term strategies.

Our Strategic Initiatives .

We are in the process of implementing a number of significant business initiatives that have had, and will continue to have, an impact on our results of operations.

As a result of the number of current business initiatives we are pursuing, we have experienced in the past, and may experience in the future, significant period-to-period variability in our financial performance and results of operations.

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Our net revenues and gross profit are affected by our ability to purchase our merchandise in sufficient quantities at competitive prices.

Our current and anticipated demand and our level of net revenues have been adversely affected in prior periods by constraints in our supply chain, including the inability of our vendors to produce sufficient quantities of some merchandise to match market demand from our customers, leading to higher levels of customer back orders and lost sales.

For example, a number of our vendors experienced delays in production and shipment of merchandise orders related to direct and indirect effects of the pandemic, as well as other geopolitical conflicts that have occurred in recent years.

In addition, as we introduce new products and expand our merchandise assortments into new categories, we expect to experience delays in the production of some new offerings, as we have had similar experiences during prior periods when we adopted substantial newness in our business.

During the first half of fiscal 2022 we experienced increased net revenues due to fulfillment of orders generated in prior quarters as elements of our supply chain continued to catch up with customer demand.

However, throughout fiscal 2023 and fiscal 2024 we experienced softening demand trends as compared to fiscal 2022.

While we believe the majority of the supply chain dislocation has now been resolved, there can be no assurance as to the exact course that our supply chain will take and a number of factors could contribute to further complications in our supply chain, including increases in raw material costs related to inflation and other macroeconomic factors, including negative effects in countries where our vendors produce merchandise and the potential effect of tariffs imposed by the U.S.

In addition, we have undertaken a number of substantial shifts in our approach to merchandise sourcing in response to tariffs, including shifting a significant portion of our vendor base away from China to other countries such as Vietnam that we have chosen with the objective of reducing the financial impact of increased tariff rates.

As we introduce new products and expand our merchandise assortments into new categories, we may experience delays in the introduction and production of some new offerings, as we have had similar experiences during prior periods when we adopted substantial newness in our business.

Changes in tariffs imposed by government agencies, raw material costs related to inflation and other macroeconomic factors, including negative effects in countries where our vendors produce merchandise, could contribute to further complications in our supply chain.

We partner with vendors to optimize our supply chain across geographies to mitigate the impact of these items.

Based on total dollar volume of purchases for fiscal 2025, 69% of our products were sourced from Asia, including 39% from Vietnam, 13% from China and the remainder predominantly from Indonesia and India, 21% from North America, including 13% from the United States, as well as 10% from Europe and other countries.

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We have successfully introduced a large number of new products in past and current periods, which we believe has been a contributing factor in our sales growth and results of operations.

If we misjudge the market for our products or the product lines that we acquire, we may be faced with excess inventories for some products and may be required to become more promotional in our selling activities, which would impact our net revenues and gross profit.

PART II — FINANCIAL STATEMENTS

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Overall Economic Trends .

The industry in which we operate is cyclical, and consequently our net revenues are affected by general economic conditions, including conditions that affect the housing market.

For example, substantially higher interest and mortgage rates and higher cost of consumer credit may reduce demand for our products.

The industry in which we operate is cyclical, and consequently our net revenues are affected by general economic conditions, including primarily by conditions that affect the housing market.

For example, higher interest and mortgage rates, as well as higher cost of consumer credit may reduce demand for our products.

We have determined that our customer purchasing patterns are influenced by economic factors, including the health and volatility of the stock market.

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We target consumers of high-end home furnishings.

As a result, we believe that our sales are sensitive to a number of macroeconomic factors that influence consumer spending generally, but that our sales are particularly affected by the health of the higher-end customer and demand levels from that customer demographic.

While the overall home furnishings market may be influenced by factors, such as employment levels, interest rates, demographics of new household formation and the affordability of homes for first-time home buyers, the higher-end of the housing market may be disproportionately influenced by other factors, including stock market prices, disruption in financial markets, the number of second and third homes being bought and sold, the number of foreign buyers in higher-end real estate markets, foreign currency volatility, inflation, tax policies and interest rates, and the perceived prospect for capital appreciation in higher-end real estate.

As a result, we believe that our sales are sensitive to a number of macroeconomic factors that influence consumer spending generally, but that our sales are particularly affected by the financial health of higher-end customers and demand levels from that customer demographic.

While the overall home furnishings market may be influenced by factors, such as employment levels, interest rates, demographics of new household formation and the affordability of homes for first-time home buyers, the higher-end of the housing market may be disproportionately influenced by other factors, including stock market prices, disruption in financial markets, the number of second and third homes being bought and sold, the number of foreign buyers in higher-end real estate markets, foreign currency volatility, inflation, tax policies, interest rates and the perceived prospect for capital appreciation in higher-end real estate.

Shifts in consumption patterns may also have an impact on consumer spending in the high-end housing market.

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We expect the impact of such macroeconomic factors on our business may continue in future quarters.

For more information, refer to Item 1A—Risk Factors — Changes in consumer spending and factors that influence spending of the specific categories of consumers that purchase from us may significantly impact our revenue and results of operations.

Fluctuation in Quarterly Results .

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Revenues are recognized when a customer obtains control of the merchandise.

We collect annual membership fees related to the RH Members Program, which are recorded as deferred revenue when collected from customers and recognized as revenue based on expected product revenues over the annual membership period.

We also track “demand” in our business, which is an operating metric linked to the level of customer orders.

Demand is an operating metric that we use in reference to the dollar value of orders placed (orders convert to net revenue upon a customer obtaining control of the merchandise) and excludes exchanges and shipping fees.

We collect annual membership fees related to the RH Members Program, which are recorded as deferred revenue when collected from customers and recognized as revenue based on expected merchandise revenues over the annual membership period.

Demand is an operating metric that we use in reference to the dollar value of orders placed from all of our businesses and excludes exchanges, shipping fees and cancellations.

Orders convert to net revenue upon a customer obtaining control of the merchandise.

Demand also includes Membership and sales from RH Hospitality and RH Outlet.

Gross Profit and Gross Margin .

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inbound freight;

all freight costs to get merchandise to our retail locations and outlets;

all freight costs to get merchandise to our retail and outlet locations;

design, buying and allocation costs;

occupancy costs related to retail and outlet operations and our supply chain, such as rent and common area maintenance for our leases;

depreciation and amortization of leasehold improvements, equipment and other assets in our retail locations, outlets and distribution centers.

occupancy costs related to retail, outlet and our supply chain operations, such as rent and common area maintenance for our leases;

depreciation and amortization of leasehold improvements, equipment and other assets in our retail, outlet and supply chain locations.

In addition, cost of goods sold includes all logistics costs associated with shipping product to our customers, which are partially offset by shipping income collected from customers (recorded in net revenues on the consolidated statements of income).

Our gross profit and gross margin can be favorably impacted by sales volume increases, as occupancy and certain other costs that are largely fixed do not necessarily increase proportionally with sales volume increases.

Changes in the mix of our products may also impact our gross profit and gross margin.

Changes in the mix of our products may also affect our gross profit and gross margin.

We review our inventory levels on an ongoing basis in order to identify slow-moving merchandise and use product markdowns and our outlets to efficiently sell these products.

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The primary drivers of our product cost of individual goods are raw materials costs, which fluctuate based on a number of factors beyond our control, including commodity prices, changes in supply and demand, general economic conditions, competition, import duties, tariffs and government regulation and labor costs in the countries where we source our merchandise.

In addition, our gross profit is also impacted by logistics costs, which may increase in the event of, for example, expansions of or interruptions in the operation of our distribution centers, furniture home delivery centers and customer service center or damage or interruption to our information systems.

We place orders with merchandise vendors primarily in United States dollars and, as a result, are not currently exposed to significant foreign currency exchange risk.

However, our exposure may increase in connection with our global expansion strategy as we expect to have more operations related to currencies other than the United States dollar.

In recent periods we have experienced higher cost of goods sold primarily related to our increased costs of merchandise and inbound freight.

Our strategy is to address cost factors as they occur, where possible, including through strategic pricing and efficiency in our operations.

In addition, our gross profit is also impacted by logistics costs, which may increase in the event of, for example, expansions of or interruptions in the operation of our distribution centers, furniture home delivery centers and customer service centers or damage or interruption to our information systems.

We place orders with merchandise vendors primarily in U.S.

dollars and, as a result, are not currently exposed to significant foreign currency exchange risk.

However, our exposure may increase in connection with our global expansion strategy as we expect to have more operations related to currencies other than the U.S.

In recent periods, we have experienced higher cost of goods sold primarily related to changes in trade policy and increased tariffs.

Our strategy is to address cost factors as they occur, where possible, including through tariff mitigation strategies via partnership with key vendors, strategic pricing and efficiency in our operations.

Our gross profit and gross margin may not be comparable to other specialty retailers, as some companies may not include all or a portion of the costs related to their distribution network and store occupancy in calculating gross profit and gross margin as we and many other retailers do, but instead may include them in selling, general and administrative expenses.

In addition, certain of our retail leases are accounted for as finance leases, which result in our recording a portion of the expense related to these agreements in interest expense—net on the consolidated statements of income.

In addition, certain of our retail leases are accounted for as finance leases, which result in a portion of the expense related to these agreements included in interest expense—net on the consolidated statements of income.

Selling, General and Administrative Expenses .

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Selling, general and administrative expenses as a percentage of net revenues are usually higher in lower-volume quarters and lower in higher-volume quarters because a significant portion of the costs are relatively fixed.

In addition, in recent periods we have experienced increased selling, general and administrative expenses, including asset impairments, non-cash compensation expense, reorganizations, legal settlements, product recalls, employer payroll taxes on CEO option exercises, professional fees associated with debt transactions and compensation settlement arrangements, as discussed in “Basis of Presentation and Results of Operations” below.

In addition, in recent periods we have experienced increased selling, general and administrative expenses, including asset impairments, product recalls, reorganizations, non-cash compensation expense and legal settlements, as discussed in “Basis of Presentation and Results of Operations” below.

Non-GAAP Financial Measures .

To supplement our consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States (“GAAP”), we use non-GAAP financial measures, including adjusted operating income, adjusted net income, EBITDA, adjusted EBITDA, and adjusted capital expenditures (collectively, “non-GAAP financial measures”).

We believe that adjusted operating income, adjusted net income and adjusted EBITDA are useful measures of operating performance, as the adjustments eliminate non-recurring and other items that are not reflective of underlying business performance, facilitate a comparison of our operating performance on a consistent basis from period-to-period and provide for a more complete understanding of factors and trends affecting our business.

We also use these adjusted measures as methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis our actual results against such expectations.

We define adjusted operating income as consolidated operating income, adjusted for the impact of certain non-recurring and other items that we do not consider representative of our underlying operating performance.

We define adjusted net income as consolidated net income, adjusted for the impact of certain non-recurring and other items that we do not consider representative of our underlying operating performance.

We define EBITDA as consolidated net income before depreciation and amortization, interest expense—net and income tax expense (benefit).

Adjusted EBITDA reflects further adjustments to EBITDA to eliminate the impact of non-cash compensation, as well as certain non-recurring and other items that we do not consider representative of our underlying operating performance.

We define adjusted capital expenditures as capital expenditures from investing activities and cash outflows of capital related to construction activities to design and build landlord-owned leased assets, net of tenant allowances received.

We compute these measures by adjusting the applicable GAAP measures to remove the impact of certain recurring and non-recurring charges and gains that are not reflective of underlying business performance and to adjust for the impact of income tax items related to such adjustments to our GAAP financial statements.

Refer to “Non-GAAP Financial Measures” below for further information.

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Selling, general and administrative expenses

Income from operations

Operating income

Other expenses

Interest expense—net

Loss on extinguishment of debt

Other expense—net

Other (income) expense—net

Total other expenses

Income before taxes and equity method investments

Income tax expense (benefit)

Income tax expense

Income before equity method investments

Share of equity method investments loss—net

Share of equity method investments net (income) loss

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use non-GAAP financial measures, including adjusted operating income, adjusted net income, EBITDA, adjusted EBITDA, and adjusted capital expenditures.

We compute these measures by adjusting the applicable GAAP measures to remove the impact of certain recurring and non-recurring charges and gains and the tax effect of these adjustments.

The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons.

We believe that they provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by senior leadership in its financial and operational decision-making.

The tables presented below include details on the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures.

These non-GAAP measures are not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

The non-GAAP financial measures used by us in this Annual Report may be different from the non-GAAP financial measures, including similarly titled measures, used by other companies.

For more information on the non-GAAP financial measures, please see the reconciliation of GAAP to non-GAAP financial measures tables outlined below.

These accompanying tables include details on the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures.

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PART II — FINANCIAL STATEMENTS

Adjusted Operating Income .

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PART II — FINANCIAL STATEMENTS

We believe that adjusted operating income provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of operating results on a comparable basis with historical results.

Our senior leadership team uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from period to period.

Reconciliation of GAAP Net Income to Operating Income and Adjusted Operating Income

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Interest expense—net (1)

Loss on extinguishment of debt (1)

Other expense—net (1)

Income tax expense (benefit) (1)

Share of equity method investments loss—net (1)

Other (income) expense—net (1)

Income tax expense (1)

Share of equity method investments net (income) loss (1)

Operating income

Asset impairments (2)

Non-cash compensation (3)

Product recall (3)

Reorganization related costs (4)

Non-cash compensation (5)

Contract termination settlement—net (6)

Legal settlements—net (7)

Recall accrual (6)

Employer payroll taxes on option exercises (7)

Professional fees (8)

Non-cash compensation related to consolidated VIEs (9)

Compensation settlements (10)

Gain on sale of building and land (11)

Adjusted operating income

(1) Refer to discussion “Fiscal 2024 Compared to Fiscal 2023” below for a discussion of our results of operations for the year ended February 1, 2025 and February 3, 2024.

Information on the year ended January 28, 2023 (fiscal 2022) is included in Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations on our Form 10-K for the fiscal year ended February 3, 2024, filed with the SEC on March 28, 2024.

(1) Refer to discussion “Fiscal 2025 Compared to Fiscal 2024” below for a discussion of our results of operations for the year ended January 31, 2026 and February 1, 2025.

Information on the year ended February 3, 2024 (fiscal 2023) is included in Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations on our Form 10-K for the fiscal year ended February 1, 2025, filed with the SEC on April 2, 2025.

(2) The adjustment in fiscal 2025 includes inventory impairment of $2.6 million and property and equipment impairment of $1.0 million, primarily related to Galleries under construction.

The adjustment in fiscal 2024 includes $19 million of long-lived asset impairment for our two Design Galleries in Germany (refer to “Impairment—Long-Lived Assets” within Note 3— Significant Accounting Policies in our consolidated financial statements), $17 million for property and equipment of Galleries under construction, as well as impairment of pre-acquisition costs related to an unsuccessful joint venture arrangement of $1.0 million.

The adjustment in fiscal 2023 includes impairment of property and equipment of $2.2 million related to the interior refresh of our Design Galleries, as well as impairment of a loan receivable of $1.3 million.

The adjustment in fiscal 2022 represents inventory impairment of $11 million to cost of goods sold and asset impairment of $12 million to selling, general and administrative expenses related to property and equipment of Galleries under construction, as well as lease impairment of $1.0 million due to the early exit of a leased facility to selling, general and administrative expenses .

(3) The adjustment in fiscal 2025 represents costs and inventory charges associated with a product recall initiated in fiscal 2025.

The adjustment in fiscal 2023 represents accrual adjustments related to product recall charges.

(4) Represents severance costs and related payroll taxes associated with reorganizations.

(5) Represents the amortization of the non-cash compensation charge related to an option grant made to Mr.

Friedman in October 2020.

(4) Represents severance costs and related payroll taxes associated with reorganizations.

(6) Represents favorable contract termination settlement of $3.8 million, partially offset by costs related to the early termination.

(7) The adjustment in fiscal 2024 represents favorable legal settlements received of $10 million, partially offset by costs incurred in connection with one of the matters.

The adjustment in fiscal 2023 represents certain legal settlements associated with class action litigation matters (refer to Note 18— Commitments and Contingencies in our consolidated financial statements).

The adjustment in fiscal 2022 represents a favorable legal settlement associated with a lease agreement.

(6) The adjustment in fiscal 2023 represents accrual adjustments related to product recall charges.

The adjustment in fiscal 2022 represents charges associated with product recalls.

(7) Represents employer payroll tax expense related to the option exercises by Mr.

Friedman in fiscal 2022.

(8) Represents professional fees contingent upon the completion of certain transactions related to the 2023 Notes and 2024 Notes, including bond hedge terminations and warrant and convertible senior notes repurchase (refer to Note 11— Convertible Senior Notes in our consolidated financial statements).

PART II — FINANCIAL STATEMENTS

FORM 10-K | 49

(9) Represents non-cash compensation attributed to the noncontrolling interest holder of our consolidated real estate joint ventures in fiscal 2022 based on the fair value of the noncontrolling interests upon the closing of such joint venture transactions (refer to “Consolidated Variable Interest Entities and Noncontrolling Interests” within Note 3— Significant Accounting Policies in our consolidated financial statements).

(10) Represents compensation settlements related to the Rollover Units and Profit Interest Units in the Waterworks subsidiary.

(11) Represents gain on sale of building and land.

Adjusted Net Income .

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We believe that adjusted net income provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of operating results on a comparable basis with historical results.

Our senior leadership team uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from period to period.

Reconciliation of GAAP Net Income to Adjusted Net Income

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Asset impairments (1)

Non-cash compensation (1)

Product recall (1)

Reorganization related costs (1)

Non-cash compensation (1)

Contract termination settlement—net (1)

Legal settlements—net (1)

Recall accrual (1)

Loss on extinguishment of debt (1)

Employer payroll taxes on option exercises (1)

Professional fees (1)

Non-cash compensation related to consolidated VIEs (1)

Compensation settlements (1)

Gain on derivative instruments—net (2)

Gain on sale of building and land (1)

Subtotal adjusted items

Impact of income tax items (2)

Share of equity method investments loss—net (1)

Share of equity method investments net (income) loss (1)

Adjusted net income

(1) Refer to table titled “Reconciliation of GAAP Net Income to Operating Income and Adjusted Operating Income” and the related footnotes for additional information.

(2) Represents net gain on derivative instruments resulting from certain transactions related to the 2023 Notes and 2024 Notes, including bond hedge terminations and warrant and convertible senior notes repurchase (refer to Note 11— Convertible Senior Notes in our consolidated financial statements).

(2) We exclude the GAAP tax provision and apply a non-GAAP tax provision based upon (i) adjusted pre-tax net income, (ii) the projected annual adjusted tax rate and (iii) the exclusion of material discrete tax items that are unusual or infrequent, such as the Federal Rehabilitation Tax Credit related to the San Francisco Design Gallery in fiscal 2023.

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EBITDA and Adjusted EBITDA are supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP.

We define EBITDA as consolidated net income before depreciation and amortization, interest expense—net and income tax expense (benefit).

We define EBITDA as consolidated net income before interest expense—net, income tax expense and depreciation and amortization.

Adjusted EBITDA reflects further adjustments to EBITDA to eliminate the impact of non-cash compensation, capitalized cloud computing amortization, our share of equity method investments net (income) loss and other (income) expense—net, as well as certain non-recurring and other items that we do not consider representative of our underlying operating performance.

We believe that EBITDA and adjusted EBITDA provide meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of operating results on a comparable basis with historical results.

Our senior leadership team uses these non-GAAP financial measures in order to have comparable financial results to analyze changes in our underlying business from period to period.

Reconciliation of GAAP Net Income to EBITDA and Adjusted EBITDA

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Interest expense—net

Income tax expense (benefit)

Income tax expense

Non-cash compensation (1)

Asset impairments (2)

Share of equity method investments loss—net (2)

Capitalized cloud computing amortization (2)

Asset impairments (3)

Product recall (3)

Reorganization related costs (3)

Other expense—net (2)

Other (income) expense—net (3)

Share of equity method investments net (income) loss (3)

Contract termination settlement—net (3)

Legal settlements—net (3)

Recall accrual (2)

Loss on extinguishment of debt (2)

Employer payroll taxes on option exercises (2)

Professional fees (2)

Non-cash compensation related to consolidated VIEs (2)

Compensation settlements (2)

Gain on sale of building and land (2)

Adjusted EBITDA

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Friedman in October 2020.

(2) Refer to table titled “Reconciliation of GAAP Net Income to Operating Income and Adjusted Operating Income” and the related footnotes for additional information.

(2) Represents amortization associated with capitalized cloud computing costs.

(3) Refer to table titled “Reconciliation of GAAP Net Income to Operating Income and Adjusted Operating Income” and the related footnotes for additional information.

PART II — FINANCIAL STATEMENTS

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Adjusted Capital Expenditures .

We believe that adjusted capital expenditures provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of operating results on a comparable basis with historical results.

Our senior leadership team uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from period to period.

Reconciliation of Adjusted Capital Expenditures

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Fiscal 2025 Compared to Fiscal 2024

The results for fiscal 2024 and fiscal 2023 included fifty-two weeks and fifty-three weeks, respectively.

(in thousands)

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Selling, general and administrative expenses

Income from operations

Operating income

(1) The results for the Real Estate segment were immaterial in fiscal 2025 and fiscal 2024, thus, such results are presented within the RH Segment each period.

Refer to Note 19— Segment Reporting in our consolidated financial statements.

Additionally, all intercompany transactions are immaterial and have been eliminated.

Additionally, all intercompany transactions are not material and have been eliminated.

(2) RH Segment net revenues include outlet revenues of $290 million and $258 million in fiscal 2025 and fiscal 2024, respectively.

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The below discussion highlights several factors that resulted in an increase in RH Segment net revenues, which are listed in order of magnitude.

RH Segment net revenues for fiscal 2024 increased primarily due to higher revenue in our core business, driven by the introduction of new collections, and the nearly doubling of our Sourcebook circulation, as well as higher hospitality revenue as a result of new Gallery openings.

We also recognized higher outlet revenue.

Fiscal 2023 included fifty-three weeks of results and the fifty-third week contributed approximately $50 million of net revenues, whereas fiscal 2024 included fifty-two weeks of results.

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PART II — FINANCIAL STATEMENTS

RH Segment net revenues for fiscal 2025 increased primarily due to higher revenue in our core business driven by our continued product transformation and platform expansion.

In addition, hospitality revenue increased primarily as a result of new Gallery openings and we had higher outlet revenue.

Waterworks net revenues

Waterworks net revenues decreased $0.6 million, or 0.3%, to $193 million in fiscal 2024 compared to $194 million in fiscal 2023.

Waterworks net revenues increased $5.2 million, or 2.7%, to $198 million in fiscal 2025 compared to $193 million in fiscal 2024.

Consolidated gross profit increased $101 million, or 7.1%, to $1,516 million in fiscal 2025 compared to $1,415 million in fiscal 2024.

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As a percentage of net revenues, RH Segment gross margin decreased 50 basis points to 43.5% of net revenues in fiscal 2025 compared to 44.0% of net revenues in fiscal 2024.

The decrease in RH Segment gross margin was partially due to deleverage in occupancy costs year over year due to higher expense related to our Galleries and supply chain in support of continued global expansion.

Additionally, we experienced a decrease in product margin in the core and outlet business primarily driven by price adjustments and a higher mix of discontinued products.

The decrease in RH Segment gross margin was primarily attributable to decreased margins in the RH core business and increased occupancy costs, partially offset by leverage in shipping costs year over year.

RH Segment gross profit for fiscal 2025 was negatively impacted by $2.6 million of asset impairments and $1.4 million of costs related to a product recall.

Excluding the $4.0 million of such costs, RH Segment gross margin would have been 20 basis points higher at 43.7% of net revenues for fiscal 2025.

Waterworks gross profit

Waterworks gross profit decreased $1.2 million, or 1.1%, to $102 million in fiscal 2024 compared to $103 million in fiscal 2023.

As a percentage of net revenues, Waterworks gross margin decreased 50 basis points to 52.7% of net revenues in fiscal 2024 compared to 53.2% of net revenues in fiscal 2023.

Waterworks gross profit increased $3.1 million, or 3.0%, to $105 million in fiscal 2025 compared to $102 million in fiscal 2024.

As a percentage of net revenues, Waterworks gross margin increased 20 basis points to 52.9% of net revenues in fiscal 2025 compared to 52.7% of net revenues in fiscal 2024.

Selling, general and administrative expenses

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RH Segment selling, general and administrative expenses were 32.3% and 34.0% of net revenues in fiscal 2025 and fiscal 2024, respectively.

RH Segment selling, general and administrative expenses for fiscal 2024 included asset impairments of $19 million related to two Design Galleries in Germany, $17 million for property and equipment of Galleries under construction and $1.0 million related to pre-acquisition costs for an unsuccessful joint venture arrangement.

In addition, in fiscal 2024 we had favorable net legal settlements of $6.2 million, non-cash compensation of $4.5 million related to an option grant made to Mr.

Friedman in October 2020, as well as severance expense and other payroll related costs associated with a reorganization of $4.4 million.

RH Segment selling, general and administrative expenses for fiscal 2023 included amortization of non-cash compensation of $9.6 million related to an option grant made to Mr.

Friedman in October 2020, legal settlements of $8.5 million, severance expense and other payroll related costs associated with a reorganization of $7.6 million and asset impairments of $2.2 million and $1.3 million related to the interior refresh of our Design Galleries and a loan receivable, respectively, offset by accrual adjustments related to product recall charges of $1.6 million.

RH Segment selling, general and administrative expenses would have been 32.7% and 32.3% of net revenues for fiscal 2024 and fiscal 2023, respectively, when excluding the adjustments to RH Segment selling, general and administrative expenses mentioned above.

The increase in selling, general and administrative expenses as a percentage of net revenues was primarily driven by higher compensation costs, higher opening costs driven by new Gallery openings, most of which include hospitality, and additional advertising costs due to increased Sourcebook circulation year over year, partially offset by lower professional fees and other corporate costs.

Waterworks selling, general and administrative expenses

Waterworks selling, general and administrative expenses decreased $2.1 million, or 2.6%, to $77 in fiscal 2024 compared to $79 million in fiscal 2023.

Waterworks selling, general and administrative expenses for fiscal 2024 included $3.2 million related to a favorable legal settlement.

Excluding the favorable legal settlement, Waterworks selling, general and administrative expenses would have increased 70 basis points to 41.3% of net revenues in fiscal 2024 compared to 40.6% of net revenues in fiscal 2023.

The decrease in selling, general and administrative expenses as a percentage of net revenues was primarily driven by asset impairments related to two Design Galleries in Germany and property and equipment of Galleries under construction in fiscal 2024.

In addition, decreases in advertising and occupancy costs were partially offset by increases in compensation costs and other corporate costs year over year.

RH Segment selling, general and administrative expenses for fiscal 2025 were impacted by $1.2 million of reorganization related costs, $1.0 million of asset impairments, $0.9 million of non-cash compensation related to an option grant made to Mr.

Friedman in October 2020 and $0.5 million related to a product recall, as well as a favorable net contract termination settlement of $3.4 million.

RH Segment selling, general and administrative expenses for fiscal 2024 were impacted by asset impairments of $19 million related to two Design Galleries in Germany, $17 million for property and equipment of Galleries under construction and $1.0 million related to pre-acquisition costs for an unsuccessful joint venture arrangement, non-cash compensation of $4.5 million related to an option grant made to Mr.

Friedman in October 2020, severance expense and other payroll-related costs associated with a reorganization of $4.4 million, as well as favorable net legal settlements of $6.2 million.

Excluding the $0.2 million and $39 million of such costs noted above for fiscal 2025 and fiscal 2024, respectively, RH Segment selling, general and administrative expenses would have decreased 40 basis points to 32.3% from 32.7% of net revenues for fiscal 2025 and fiscal 2024, respectively.

PART II — FINANCIAL STATEMENTS

FORM 10-K | 53

Waterworks selling, general and administrative expenses

Waterworks selling, general and administrative expenses increased $6.4 million, or 8.4%, to $83 million in fiscal 2025 compared to $77 million in fiscal 2024.

Waterworks selling, general and administrative expenses were 41.8% and 39.7% of net revenues for fiscal 2025 and fiscal 2024, respectively.

Waterworks selling, general and administrative expenses for fiscal 2024 included $3.2 million related to a favorable legal settlement.

Excluding the favorable legal settlement, Waterworks selling, general and administrative expenses would have been 160 basis points higher at 41.3% of net revenues in fiscal 2024.

Interest expense—net

Interest expense—net increased $32 million, or 16.3%, in fiscal 2024 compared in fiscal 2023, which consisted of the following:

Interest expense—net consisted of the following:

(in thousands)

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Foreign exchange from remeasurement of intercompany loans (2)

Other expense—net

Other (income) expense—net

(1) Represents net foreign exchange gains and losses related to exchange rate changes affecting foreign currency denominated transactions, primarily between the U.S.

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(2) Represents remeasurement of intercompany loans with subsidiaries in Switzerland and the United Kingdom.

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PART II — FINANCIAL STATEMENTS

Income tax expense

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Effective tax rate

The decrease in our effective tax rate for the year ended February 1, 2025 compared to the year ended February 3, 2024 is primarily attributable to reporting lower net income in the current year and the impact of higher net excess tax benefits from stock-based compensation in fiscal 2024.

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PART II — FINANCIAL STATEMENTS

The increase in our effective tax rate for fiscal 2025 compared to fiscal 2024 is primarily attributable to reporting higher net income in the current year and the impact of higher net excess tax benefits from stock-based compensation in fiscal 2024.

Share of equity method investments net (income) loss

Our share of equity method investments net income of $5.0 million in fiscal 2025 was primarily attributable to an Aspen LLC distribution in the first quarter of $7.9 million (refer to Note 8— Variable Interest Entities in the consolidated financial statements).

Our share of equity method investments net loss in fiscal 2024 was $11 million.

Liquidity and Capital Resources

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Term loan B-2 (1)

Convertible senior notes due 2024 (1)

Notes payable for share repurchases

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Availability under the asset based credit facility—net (3)

(1) Amounts exclude discounts upon original issuance and third-party offering and debt issuance costs.

(2) Net debt as of February 1, 2025 and February 3, 2024 excludes non-recourse real estate loans of $18 million as of both periods, which are secured by specific real estate assets and the associated creditors do not have recourse against RH’s general assets.

(3) The amount available for borrowing under the revolving line of credit under the ABL Credit Agreement is presented net of $45 million in outstanding letters of credit as of both periods.

(1) Amounts exclude third-party offering and debt issuance costs.

(2) Net debt excludes non-recourse real estate loans of $16 million and $18 million as of January 31, 2026 and February 1, 2025, respectively, which are secured by specific real estate assets and the associated creditors do not have recourse against RH’s general assets.

(3) The amount available for borrowing under the revolving line of credit under the ABL Credit Agreement is presented net of $43 million and $45 million in outstanding letters of credit as of January 31, 2026 and February 1, 2025, respectively.

PART II — FINANCIAL STATEMENTS

FORM 10-K | 55

The primary cash needs of our business have historically been for merchandise inventories, payroll, rent for our retail and outlet locations, capital expenditures associated with opening new locations and related real estate investments, updating existing locations, as well as the development of our infrastructure and information technology, and Sourcebooks.

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We expect to continue to use additional sources of debt financing in future periods as a source of additional capital to fund our various investments.

PART II — FINANCIAL STATEMENTS

FORM 10-K | 55

To the extent we choose to secure additional sources of liquidity through incremental debt financing, there can be no assurances that we will be able to raise such financing on favorable terms, if at all, or that future financing requirements will not require us to raise money through an equity financing or by other means that could be dilutive to holders of our capital stock.

Any adverse developments in the U.S.

Any adverse developments in U.S.

or global credit markets could affect our ability to manage our debt obligations and our ability to access future debt.

In addition, agreements governing existing or new debt facilities may restrict our ability to operate our business in the manner we currently expect or to make required payments with respect to existing commitments, including the repayment of the principal amount of our convertible senior notes in cash, whether upon stated maturity, early conversion or otherwise of such convertible senior notes.

To the extent we need to seek waivers from any provider of debt financing, or we fail to observe the covenants or other requirements of existing or new debt facilities, any such event could have an impact on our other commitments and obligations, including triggering cross defaults or other consequences with respect to other indebtedness.

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Credit Facilities and Debt Arrangements

We amended and restated the ABL Credit Agreement in July 2021, which provides an asset based credit facility with an initial availability of up to $600 million, of which $10 million is available to Restoration Hardware Canada, Inc., and includes a $300 million accordion feature under which the revolving line of credit may be expanded by agreement of the parties from $600 million to up to $900 million if and to the extent the lenders revise their credit commitments to encompass a larger facility.

We amended and restated the ABL Credit Agreement in July 2025, which provides an asset based credit facility with an initial availability of up to $600 million, of which (i) $10 million is available to the RH subsidiary Restoration Hardware Canada, Inc.

and (ii) $100 million is available to the RH subsidiary, RH Geneva Sàrl.

The ABL Credit Agreement includes a $300 million accordion feature under which the revolving line of credit may be expanded by agreement of the parties to the ABL Credit Agreement from $600 million to up to $900 million if and to the extent the lenders revise their credit commitments to encompass a larger facility.

The accordion feature may be added as a first-in, last-out term loan facility.

The ABL Credit Agreement further provides the borrowers may request a European sub-credit facility under the revolving line of credit or under the accordion feature for borrowing by certain European subsidiaries of RH if certain conditions set out in the ABL Credit Agreement are met.

The maturity date of the asset based credit facility is July 29, 2026.

The ABL Credit Agreement further provides that the borrowers may request a European sub-credit facility under the revolving line of credit or under the accordion feature for borrowing by certain European subsidiaries of RH if certain conditions set out in the ABL Credit Agreement are met.

The maturity date of the ABL Credit Agreement is the earlier of (a) July 31, 2030 and (b) the date which is 91 days prior to the final stated maturity of the Term Loan Credit Agreement and any refinancing thereof.

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PART II — FINANCIAL STATEMENTS

We entered into a $2,000 million term debt financing in October 2021 (the “Term Loan B”) by means of a Term Loan Credit Agreement through RHI as the borrower, Bank of America, N.A.

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We are required to make quarterly principal payments of $1.3 million with respect to Term Loan B-2.

56 | FORM 10-K

PART II — FINANCIAL STATEMENTS

We have invested significant capital expenditures in developing and opening new Design Galleries, and these capital expenditures have increased in the past, and may continue to increase in future periods, as we open additional Design Galleries, which may require us to undertake upgrades to historical buildings or construction of new buildings.

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In addition, our capital needs and uses of capital may change in the future due to changes in our business or new opportunities that we may pursue.

PART II — FINANCIAL STATEMENTS

FORM 10-K | 57

Cash Flow Analysis

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Net cash provided by (used in) financing activities

Net decrease in cash and cash equivalents, restricted cash and restricted cash equivalents

Cash and cash equivalents, restricted cash and restricted cash equivalents at end of period

PART II — FINANCIAL STATEMENTS

FORM 10-K | 57

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at end of period

Net Cash Provided by Operating Activities

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For fiscal 2025, net cash provided by operating activities was $452 million and consisted of net income of $125 million and an increase in non-cash items of $377 million, partially offset by a change in working capital and other activities of $49 million.

The use of cash from working capital was primarily driven by an increase in merchandise inventory of $269 million, a decrease in operating lease liabilities of $90 million, an increase in landlord assets under construction, net of tenant allowances, of $52 million, a decrease in other current and non-current liabilities of $33 million, an increase in prepaid expense and other assets of $19 million and an increase in accounts receivable of $8.5 million.

These uses of cash from working capital were partially offset by an increase in accounts payable and accrued expenses of $47 million and an increase in deferred revenue and customer deposits of $9.4 million.

The use of cash from working capital was primarily driven by a decrease in operating lease liabilities of $105 million, an increase in landlord assets under construction, net of tenant allowances, of $89 million, an increase in prepaid expense and other assets of $54 million, a decrease in other current and non-current liabilities of $43 million and a decrease in accounts payable and accrued expenses of $14 million.

These uses of cash from working capital were partially offset by a decrease in merchandise inventory of $214 million and an increase in deferred revenue and customer deposits of $41 million.

Net Cash Used in Investing Activities

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Investing activities also include our strategic investments.

For fiscal 2024, net cash used in investing activities was $240 million and was comprised of investments in retail stores, information technology and systems infrastructure of $231 million and additional contributions to our equity method investments of $9.6 million.

Net Cash Provided by (Used in) Financing Activities

Financing activities consist primarily of borrowings and repayments related to convertible senior notes, credit facilities and other financing arrangements, and cash used in connection with such financing activities include investments in our share repurchase program, repayment of indebtedness, including principal payments under finance lease agreements and other equity related transactions.

For fiscal 2024, net cash provided by financing activities was $131 million primarily due to net borrowings under the asset based credit facility of $200 million and proceeds from the exercise of stock options of $31 million.

These cash inflows were partially offset by the settlement of the 2024 Notes of $42 million, payments under term loans of $25 million and net payments under finance lease agreements of $21 million.

In addition, during the year ended February 1, 2025, we paid $12 million of excise taxes related to share repurchases made in fiscal 2023.

For fiscal 2025, net cash used in investing activities was $224 million and was comprised of investments in retail stores, information technology and systems infrastructure of $200 million, a business acquisition of $32 million and an acquisition of an intangible asset of $3.1 million.

These cash outflows were partially offset by cash received from a distribution of return of equity method investments of $7.9 million, proceeds from insurance recoveries of $2.1 million and receipt of a promissory note repaid by our equity method investee of $1.8 million.

Net Cash Used in Financing Activities

Financing activities consist primarily of borrowings and repayments related to credit facilities, convertible senior notes and other financing arrangements, and cash used in connection with such financing activities include investments in our share repurchase program, repayment of indebtedness, including principal payments under finance lease agreements, and other equity related transactions.

For fiscal 2025, net cash used in financing activities was $219 million, primarily due to net repayments under the asset based credit facility of $180 million, payments under term loans of $25 million, net payments under finance lease agreements of $13 million and debt issuance costs of $3.3 million associated with the ABL Credit Agreement amendment.

These cash outflows were partially offset by proceeds from the exercise of stock options of $4.4 million.

Non-Cash Transactions

Non-cash transactions consist of non-cash additions of property and equipment and landlord assets under construction, as well as excise tax from share repurchases, included in accounts payable and accrued expenses at period-end.

In addition, non-cash transactions consist of shares issued and received related to convertible senior note transactions, including in aggregate 39,121 and 1,931 shares of common stock issued in fiscal 2024 and fiscal 2023, respectively (refer to Note 11— Convertible Senior Notes in our consolidated financial statements).

Non-cash transactions also include the recognition of lease right-of-use assets obtained in exchange for lease liabilities, net of lease terminations, as well as the reclassification of assets from other non-current assets to finance and operating lease right-of-use assets.

Refer to Note 10— Leases in our consolidated financial statements.

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PART II — FINANCIAL STATEMENTS

Cash Requirements from Contractual Obligations

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The table presenting the maturities of our lease liabilities included in Note 10— Leases in our consolidated financial statements includes future obligations for renewal options that are reasonably certain to be exercised and are included in the measurement of the lease liability.

Amounts presented therein do not include future lease payments under leases that have not commenced or estimated contingent rent due under operating and finance leases.

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PART II — FINANCIAL STATEMENTS

Amounts presented therein do not include future lease payments under leases that have not commenced or estimated contingent rent due under operating and finance leases, as well as immaterial short-term lease commitments.

Asset Based Credit Facility

Refer to Note 12— Credit Facilities in our consolidated financial statements for further information on our asset based credit facility, including the amount available for borrowing under the revolving line of credit, net of outstanding letters of credit.

Refer to Note 12— Credit Facilities in our consolidated financial statements for further information on our Term Loan.

Refer to Note 11— Credit Facilities and Convertible Senior Notes in our consolidated financial statements for further information on our asset based credit facility, including the amount available for borrowing under the revolving line of credit, net of outstanding letters of credit.

Refer to Note 11— Credit Facilities and Convertible Senior Notes in our consolidated financial statements for further information on our Term Loan.

Real Estate Loans

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We may undertake other repurchase programs in the future with respect to our securities.

Beginning January 1, 2023, share repurchases under our Share Repurchase Program (as defined below) are subject to a 1% excise tax imposed under the Inflation Reduction Act, H.R 5376.

Beginning January 1, 2023, share repurchases under our Share Repurchase Program (as defined below) are subject to a 1% excise tax imposed under the Inflation Reduction Act, H.R.5376 (the “IR Act”).

In 2018, our Board of Directors authorized a share repurchase program through open market purchases, privately negotiated transactions or other means, including through Rule 10b-18 open market repurchases, Rule 10b5-1 trading plans or through the use of other techniques such as the acquisition of other equity linked instruments, accelerated share repurchases, including through privately negotiated arrangements in which a portion of the share repurchase program is committed in advance through a financial intermediary and/or in transactions involving hedging or derivatives.

On June 2, 2022, the Board of Directors authorized an additional $2,000 million for the purchase of shares of our outstanding common stock, which increased the total authorized size of the share repurchase program to $2,450 million (the “Share Repurchase Program”).

Refer to Note 16— Share Repurchase and Share Retirements in our consolidated financial statements.

As of February 1, 2025, $201 million remains available for future share repurchases under the Share Repurchase Program.

Refer to Note 15— Share Repurchase Program and Share Retirement in our consolidated financial statements.

As of January 31, 2026, $201 million remains available for future share repurchases under the Share Repurchase Program.

Other Commitments

We enter into various commitments related to the procurement of merchandise inventory.

As of February 1, 2025, these merchandise inventory purchase commitments were $462 million.

We are not able to reasonably estimate when cash payments for the unrecognized tax benefits associated with uncertain tax positions of $4.0 million as of February 1, 2025 will occur or the amount by which the liability for uncertain tax positions will increase or decrease over time.

Refer to Note 14— Income Taxes in our consolidated financial statements.

As of January 31, 2026, these merchandise inventory purchase commitments were $361 million.

PART II — FINANCIAL STATEMENTS

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Critical Accounting Policies and Estimates

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The following critical accounting policies reflect the significant estimates and judgments used in the preparation of our consolidated financial statements.

PART II — FINANCIAL STATEMENTS

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Merchandise Inventories—Reserves

Our merchandise inventories are comprised of finished goods and are carried at the lower of cost or net realizable value, with cost determined on a weighted-average cost method and net realizable value adjusted periodically for current market conditions.

Our merchandise inventories are primarily comprised of finished goods and are carried at the lower of cost or net realizable value, with cost determined on a weighted-average cost method and net realizable value adjusted periodically for current market conditions.

Net realizable value requires judgments that may significantly affect the ending inventory valuation, as well as gross margin.

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If the sum of the estimated undiscounted future cash flows over the remaining life of the primary asset is less than the carrying value, we recognize a loss equal to the difference between the carrying value and the fair value, usually determined by the estimated discounted cash flow analysis of the asset or asset group.

The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets, which for our stores is generally the individual Gallery level.

The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets, which for our Galleries and Showrooms is generally the individual retail location level.

Since there is typically no active market for our long-lived assets, we estimate fair values based on the expected future cash flows of the asset or asset group, using a discount rate commensurate with the related risk.

The estimate of fair value requires management judgments that may significantly affect the ending asset valuation.

Future cash flows are estimated considering the highest and best use of the assets, which may be based on a number of factors, including gallery-level historical results, current trends, operating cash flow projections or market-based rental rates.

Future cash flows are estimated considering the highest and best use of the assets, which may be based on a number of factors, including location level historical results, current trends, operating cash flow projections or market-based rental rates.

Our estimates are subject to uncertainty and may be affected by a number of factors outside our control, including general economic conditions and the competitive environment.

While we believe our estimates and judgments about future cash flows are reasonable, future impairment charges may be required if the expected cash flow estimates, as projected, do not occur or if events change requiring us to revise our estimates.

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PART II — FINANCIAL STATEMENTS

Lease Accounting—Determination of the Classification of New Real Estate Lease Contracts

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The determination of the reasonably certain lease term affects the inclusion of rental payments utilized in the incremental borrowing rate calculations, the results of the lease classification test, and our consideration of certain assets held for sale or planned for sale-leaseback.

The reasonably certain lease term may materially impact our financial position related to certain Design Galleries or distribution center facilities which typically have greater lease payments.

The reasonably certain lease term may materially affect our financial position related to certain Design Galleries or significant distribution center facilities, which typically have greater lease payments.

Although the above factors are considered in our analysis, the assessment involves subjectivity considering our strategy, expected future events and market conditions.

While we believe our estimates and judgments in determining the lease term are reasonable, future events may occur that may require us to reassess this determination.

60 | FORM 10-K

PART II — FINANCIAL STATEMENTS

Incremental Borrowing Rate

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We determine the fair value of the underlying asset, and the lease components such as land and building, for purposes of determining the lease classification and allocating our contractual rental payments to the lease components.

The fair value of the underlying asset and lease components also impact our assets held for sale and sale-leaseback transactions.

The fair value assessments may materially impact our financial position related to certain Design Galleries or distribution center facilities which typically have greater fair values.

The fair value of the underlying asset and lease components also affect our assets held for sale and sale-leaseback transactions.

The fair value assessments may materially affect our financial position related to certain Design Galleries or significant distribution center facilities, which typically have greater fair values.

The determination of fair value requires subjectivity and estimates, including the use of multiple valuation techniques and uncertain inputs, such as market price per square foot and assumed capitalization rates or the replacement cost of the assets, where applicable.

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This determination includes an assessment of whether we have the power to direct the activities that most significantly impact economic performance of the VIE, which requires judgement and evaluation of numerous factors.

These include the purpose of the VIE, rights and obligations of the variable interest holders, mechanisms for the resolution of disputes among the variable interest holders and other agreements with the legal entity and its variable interest holders.

These include, among other factors, the purpose of the VIE, rights and obligations of the variable interest holders, mechanisms for the resolution of disputes among the variable interest holders and other agreements with the legal entity and its variable interest holders.

We consolidate a VIE if our involvement indicates that we are the primary beneficiary.

We account for investments in VIEs where we are not the primary beneficiary using the equity method of accounting.

PART II — FINANCIAL STATEMENTS

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In certain instances, we are required to recognize non-cash compensation expense related to equity interests given to the noncontrolling interest holder of consolidated VIEs in connection with real estate development initiatives.

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Refer to “Recently Issued Accounting Standards” within Note 3— Significant Accounting Policies in our consolidated financial statements within Part II of this Annual Report.

PART II — FINANCIAL STATEMENTS

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis