What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-09-10 compared with 2026-06-11 · 243 added, 135 removed, 327 unchanged (54% of the section changed)

5 unchanged sentences

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 our 2025 Form 10-K.

The discussion of our financial condition and changes in our results of operations, liquidity and capital resources is presented in this section for the three months ended May 2, 2026, and a comparison to the three months ended May 3, 2025.

The discussion related to cash flows for the three months ended May 3, 2025, has been omitted from this Quarterly Report on Form 10-Q, but is included in Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations on our Form 10-Q for the quarter ended May 3, 2025, filed with the Securities and Exchange Commission (“SEC”) on June 12, 2025.

The discussion of our financial condition and changes in our results of operations, liquidity and capital resources is presented in this section for the three and six months ended August 1, 2026, and a comparison to the three and six months ended August 2, 2025.

The discussion related to cash flows for the six months ended August 2, 2025, has been omitted from this Quarterly Report on Form 10-Q, but is included in Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations on our Form 10-Q for the quarter ended August 2, 2025, filed with the Securities and Exchange Commission (“SEC”) on September 11, 2025.

MD&A is a supplement to our condensed consolidated financial statements within Part I of this Quarterly Report on Form 10-Q and is provided to enhance an understanding of our results of operations and financial condition.

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Basis of Presentation and Results of Operations .

This section provides our condensed consolidated statements of income (loss) and other financial and operating data, including a comparison of our results of operations in the current period as compared to the prior year’s comparative period, as well as non-GAAP measures we use for operational decision-making and as a means to evaluate period-to-period comparisons.

This section provides our condensed consolidated statements of income and other financial and operating data, including a comparison of our results of operations in the current period as compared to the prior year’s comparative period, as well as non-GAAP measures we use for operational decision-making and as a means to evaluate period-to-period comparisons.

FINANCIAL INFORMATION

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Liquidity and Capital Resources .

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This section discusses the accounting policies and estimates that involve a higher degree of judgment or complexity and are most significant to reporting our consolidated results of operations and financial position, including the significant estimates and judgments used in the preparation of our condensed consolidated financial statements.

FINANCIAL INFORMATION

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA

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Matters that we identify as “short term,” “non-recurring,” “unusual,” “one-time” or other words and terms of similar meaning may, in fact, not be short term and may recur in one or more future financial reporting periods.

Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the section titled Risk Factors in our 2025 Form 10-K and Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part I of this Quarterly Report and in our 2025 Form 10-K.

All forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements, as well as other cautionary statements.

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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.

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FINANCIAL INFORMATION

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As of May 2, 2026, we operated the following number of locations:

As of August 1, 2026, we operated the following number of locations:

North America

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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.

In April 2026, the IEEPA refund process was launched, and we began to receive refunds in the second quarter of fiscal 2026.

In April 2026, the IEEPA refund process was launched at which time we filed for refunds for tariffs previously paid in an aggregate amount of $69 million, of which $67 million was received in the second quarter of fiscal 2026.

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.

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FINANCIAL INFORMATION

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For more information, refer to the sections entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors in our 2025 Form 10-K.

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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 and 2025, we have introduced the most prolific collection of new products in our history, which will continue with the 2026 launch of RH Estates, featuring RH Bespoke furniture and RH Couture upholstery.

Beginning with the mailing of our RH Interiors Sourcebook in the fall of 2023 and through additional product launches and Sourcebook mailings since then, including most recently the launch of RH Estates in 2026, we have introduced the most prolific collection of new products in our history.

Gallery Transformation .

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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.

In April 2026, we opened RH Milan, The Gallery on Corso Venezia, and expect to open RH London, The Gallery in Mayfair in June 2026.

In April 2026, we opened RH Milan, The Gallery on Corso Venezia, and in June 2026, we opened RH London, The Gallery in Mayfair.

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

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FINANCIAL INFORMATION

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Digital Reimagination .

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Delays in the rate of opening new Galleries and pursuit of our international expansion have resulted in delays in the corresponding increase in revenues that we experience as new Design Galleries are introduced.

In addition, we anticipate that our net revenues, adjusted net income (loss) and other performance metrics will remain variable as our business model continues to emphasize high growth and numerous, concurrent and evolving business initiatives.

In addition, we anticipate that our net revenues, adjusted net income and other performance metrics will remain variable as our business model continues to emphasize high growth and numerous, concurrent and evolving business initiatives.

Basis of Presentation and Results of Operations

The following table sets forth the condensed consolidated statements of income (loss):

The following table sets forth the condensed consolidated statements of income:

THREE MONTHS ENDED

SIX MONTHS ENDED

(dollars in thousands)

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Interest expense—net

Other (income) expense—net

Other income—net

Total other expenses

Income (loss) before income taxes and equity method investments

Income tax expense (benefit)

Loss before equity method investments

Income before taxes and equity method investments

Income tax expense

Income before equity method investments

Share of equity method investments net (income) loss

Net income (loss)

FINANCIAL INFORMATION

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Non-GAAP Financial Measures

To supplement the condensed 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 (loss), EBITDA, adjusted EBITDA, and adjusted capital expenditures (collectively, “non-GAAP financial measures”).

To supplement the condensed 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 (collectively, “non-GAAP financial measures”).

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.

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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 .

Reconciliation of GAAP Net Income (Loss) to Operating Income and Adjusted Operating Income

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

THREE MONTHS ENDED

SIX MONTHS ENDED

(in thousands)

Net income (loss)

Interest expense—net (1)

Other (income) expense—net (1)

Income tax expense (benefit) (1)

Other income—net (1)

Income tax expense (1)

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

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Legal settlement—net (2)

Variable interest entities restructuring (3)

Asset impairments (4)

Product recall (5)

Reorganization related costs (6)

Non-cash compensation (7)

Adjusted operating income

(1) Refer to discussion “Three Months Ended May 2, 2026 Compared to Three Months Ended May 3, 2025” below for a discussion of our results of operations for the three months ended May 2, 2026 and May 3, 2025.

(1) Refer to discussion “Three Months Ended August 1, 2026 Compared to Three Months Ended August 2, 2025” and “Six Months Ended August 1, 2026 Compared to Six Months Ended August 2, 2025” below for a discussion of our results of operations for the three and six months ended August 1, 2026 and August 2, 2025.

(2) Represents a favorable legal settlement associated with credit card interchange fees, partially offset by legal costs incurred in connection with the matter.

(3) Includes an $11 million non-cash loss related to the variable interest entities restructuring as described in Note 6 — Variable Interest Entities in our condensed consolidated financial statements, as well as professional fees associated with the transaction.

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FINANCIAL INFORMATION

(4) Represents inventory impairment of $2.6 million and property and equipment impairment of $1.0 million, primarily related to Galleries under construction.

(5) Represents costs and inventory charges associated with a product recall initiated in the second quarter of fiscal 2025.

(6) Represents severance costs and related payroll taxes associated with a reorganization.

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

Friedman in October 2020, which stock-based compensation for this award was fully recognized as of the first quarter of fiscal 2025.

FINANCIAL INFORMATION

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Adjusted Net Income (Loss) .

Adjusted net income (loss) is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP.

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

Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income (Loss)

Adjusted Net Income .

Adjusted net income is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP.

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.

Reconciliation of GAAP Net Income to Adjusted Net Income

THREE MONTHS ENDED

SIX MONTHS ENDED

(in thousands)

Net income (loss)

Adjustments pre-tax:

Legal settlement—net (1)

Variable interest entities restructuring (1)

Asset impairments (1)

Product recall (1)

Reorganization related costs (1)

Non-cash compensation (1)

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

Adjusted net income (loss)

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

(2) We exclude the GAAP tax provision and apply a non-GAAP tax provision based upon (i) adjusted pre-tax net income (loss), (ii) the projected annual adjusted tax rate and (iii) the exclusion of material discrete tax items that are unusual or infrequent, such as the favorable legal settlement associated with credit card interchange fees in the first quarter of fiscal 2026.

The adjustments for the three months ended May 2, 2026 and May 3, 2025 are based on adjusted tax rates of 26.8% and 32.0%, respectively.

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) 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 favorable legal settlement associated with credit card interchange fees in the first quarter of fiscal 2026.

The adjustments for the three months ended August 1, 2026 and August 2, 2025 are based on adjusted tax rates of 26.2% and 26.7%, respectively.

The adjustments for the six months ended August 1, 2026 and August 2, 2025 are based on adjusted tax rates of 24.9% and 26.9%, respectively.

FINANCIAL INFORMATION

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EBITDA and Adjusted EBITDA .

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 (loss) before interest expense—net, income tax expense (benefit) and depreciation and amortization.

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, as well as certain non-recurring and other items that we do not consider representative of our underlying operating performance.

Reconciliation of GAAP Net Income (Loss) to EBITDA and Adjusted EBITDA

Reconciliation of GAAP Net Income to EBITDA and Adjusted EBITDA

THREE MONTHS ENDED

SIX MONTHS ENDED

(in thousands)

Net income (loss)

Depreciation and amortization

Interest expense—net

Income tax expense (benefit)

Income tax expense

Legal settlement—net (1)

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

Other income—net (1)

Stock-based compensation

Variable interest entities restructuring (1)

Capitalized cloud computing amortization (2)

Other (income) expense—net (1)

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

Asset impairments (1)

Product recall (1)

Reorganization related costs (1)

Adjusted EBITDA

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

(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 amortization associated with capitalized cloud computing costs.

Adjusted Capital Expenditures.

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 during the construction period.

Reconciliation of Adjusted Capital Expenditures

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SIX MONTHS ENDED

(in thousands)

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Adjusted capital expenditures

In addition, we also received landlord tenant allowances under finance leases subsequent to lease commencement of $1.4 million in the three months ended May 3, 2025, which are reflected as a reduction to principal payments under finance leases—net of tenant allowances within financing activities on the condensed consolidated statements of cash flows.

No such amounts were received from landlords during the three months ended May 2, 2026.

In addition, we also received landlord tenant allowances under finance leases subsequent to lease commencement of $6.2 million in the six months ended August 2, 2025, which are reflected as a reduction to principal payments under finance leases—net of tenant allowances within financing activities on the condensed consolidated statements of cash flows.

No such amounts were received from landlords during the six months ended August 1, 2026.

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FINANCIAL INFORMATION

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Our retail location square footage metrics and activity were as follows:

THREE MONTHS ENDED

SIX MONTHS ENDED

SELLING SQUARE

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RH Design Galleries

RH Outdoor Gallery

Oklahoma City

RH Legacy Gallery

Short Hills, NJ (relocation)

RH Outdoor Galleries

RH Baby & Child and Teen Gallery

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Excludes backrooms at retail locations used for storage, office space, food preparation, kitchen space or similar purpose, as well as exterior sales space located outside a retail location, such as courtyards, gardens and rooftops.

Includes approximately 130,000 square feet as of May 2, 2026 related to four owned retail locations and approximately 89,000 square feet related to three owned retail locations as of May 3, 2025.

(2) Includes approximately 198,000 square feet as of May 2, 2026 related to four owned retail locations and approximately 142,000 square feet related to three owned retail locations as of May 3, 2025.

Includes approximately 130,000 square feet as of August 1, 2026 related to four owned retail locations and approximately 89,000 square feet related to three owned retail locations as of August 2, 2025.

(2) Includes approximately 198,000 square feet as of August 1, 2026 related to four owned retail locations and approximately 142,000 square feet related to three owned retail locations as of August 2, 2025.

Weighted-average square footage and selling square footage are calculated based on the number of days a retail location was open during the period divided by the total number of days in the period, and were as follows:

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(in thousands)

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FINANCIAL INFORMATION

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Three Months Ended May 2, 2026 Compared to Three Months Ended May 3, 2025

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Three Months Ended August 1, 2026 Compared to Three Months Ended August 2, 2025

THREE MONTHS ENDED

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Operating income

(1) The results for the Real Estate segment were immaterial in the three months ended May 2, 2026 and May 3, 2025, thus, such results are presented within the RH Segment each period.

(1) The results for the Real Estate segment were immaterial in both the three months ended August 1, 2026 and August 2, 2025, thus, such results are presented within the RH Segment each period.

Refer to Note 15— Segment Reporting in the condensed consolidated financial statements.

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

(2) RH Segment net revenues include outlet revenues of $70 million and $67 million for the three months ended May 2, 2026 and May 3, 2025, respectively.

Consolidated net revenues decreased $14 million, or 1.7%, to $800 million in the three months ended May 2, 2026 compared to $814 million in the three months ended May 3, 2025.

(2) RH Segment net revenues include outlet revenues of $71 million and $72 million for the three months ended August 1, 2026 and August 2, 2025, respectively.

Consolidated net revenues increased $23 million, or 2.6%, to $922 million in the three months ended August 1, 2026 compared to $899 million in the three months ended August 2, 2025.

RH Segment net revenues

RH Segment net revenues decreased $13 million, or 1.7%, to $752 million in the three months ended May 2, 2026 compared to $765 million in the three months ended May 3, 2025, primarily due to lower revenue in our core and Contract businesses, partially offset by an increase in hospitality revenue primarily as a result of new Gallery openings.

RH Segment net revenues increased $21 million, or 2.4%, to $867 million in the three months ended August 1, 2026 compared to $847 million in the three months ended August 2, 2025, primarily due to an increase in hospitality revenue as a result of new Gallery openings as well as higher revenue in our core business driven by our continued product transformation and platform expansion.

Waterworks net revenues

Waterworks net revenues decreased $0.8 million, or 1.7%, to $48 million in the three months ended May 2, 2026 compared to $49 million in the three months ended May 3, 2025.

Consolidated gross profit decreased $24 million, or 6.8%, to $331 million in the three months ended May 2, 2026 compared to $355 million in the three months ended May 3, 2025.

As a percentage of net revenues, consolidated gross margin decreased 230 basis points to 41.4% of net revenues in the three months ended May 2, 2026 from 43.7% of net revenues in the three months ended May 3, 2025.

Waterworks net revenues increased $2.4 million, or 4.6%, to $55 million in the three months ended August 1, 2026 compared to $52 million in the three months ended August 2, 2025.

Consolidated gross profit increased $36 million, or 8.7%, to $445 million in the three months ended August 1, 2026 compared to $409 million in the three months ended August 2, 2025.

As a percentage of net revenues, consolidated gross margin increased 270 basis points to 48.2% of net revenues in the three months ended August 1, 2026 from 45.5% of net revenues in the three months ended August 2, 2025.

RH Segment gross profit

RH Segment gross profit decreased $24 million, or 7.2%, to $306 million in the three months ended May 2, 2026 from $330 million in the three months ended May 3, 2025.

As a percentage of net revenues, RH Segment gross margin decreased 240 basis points to 40.7% of net revenues in the three months ended May 2, 2026 from 43.1% of net revenues in the three months ended May 3, 2025.

The decrease in RH Segment gross margin was primarily attributable to higher occupancy costs as a result of new Gallery openings and decreased product margins in the RH outlet and core businesses.

Waterworks gross profit

Waterworks gross profit decreased $0.3 million, or 1.2%, to $25 million in the three months ended May 2, 2026 from $26 million in the three months ended May 3, 2025.

As a percentage of net revenues, Waterworks gross margin increased 20 basis points to 52.4% of net revenues in the three months ended May 2, 2026 from 52.2% of net revenues in the three months ended May 3, 2025.

RH Segment gross profit increased $30 million, or 8.0%, to $411 million in the three months ended August 1, 2026 compared to $381 million in the three months ended August 2, 2025.

As a percentage of net revenues, RH Segment gross margin increased 240 basis points to 47.4% of net revenues in the three months ended August 1, 2026 from 45.0% of net revenues in the three months ended August 2, 2025.

The increase in RH Segment gross margin was primarily attributable to tariff refunds recognized in cost of goods sold of $51 million, or 590 basis points, partially offset by decreased product margins in the RH core business as well as higher occupancy costs as a result of new Gallery openings.

RH Segment gross margin in the three months ended August 2, 2025 was negatively impacted by $2.6 million of asset impairments and $1.4 million in costs related to a product recall.

Excluding the $4.0 million of such costs, RH Segment gross margin would have been 50 basis points higher at 45.5% of net revenues for the three months ended August 2, 2025.

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FINANCIAL INFORMATION

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Waterworks gross profit

Waterworks gross profit increased $5.3 million, or 18.6%, to $34 million in the three months ended August 1, 2026 compared to $28 million in the three months ended August 2, 2025.

As a percentage of net revenues, Waterworks gross margin increased 720 basis points to 61.3% of net revenues in the three months ended August 1, 2026 from 54.1% of net revenues in the three months ended August 2, 2025.

The increase in Waterworks gross margin was primarily attributable to tariff refunds recognized in cost of goods sold of $3.7 million, or 680 basis points.

Selling, general and administrative expenses

Consolidated selling, general and administrative expenses decreased $2.4 million, or 0.8%, to $297 million in the three months ended May 2, 2026 from $299 million in the three months ended May 3, 2025.

Consolidated selling, general and administrative expenses increased $57 million, or 20.3%, to $337 million in the three months ended August 1, 2026 compared to $280 million in the three months ended August 2, 2025.

RH Segment selling, general and administrative expenses

RH Segment selling, general and administrative expenses decreased $3.8 million, or 1.4%, to $275 million in the three months ended May 2, 2026 compared to $279 million in the three months ended May 3, 2025.

RH Segment selling, general and administrative expenses were 36.6% and 36.5% of net revenues in the three months ended May 2, 2026 and May 3, 2025, respectively.

The increase in selling, general and administrative expenses as a percentage of net revenues was primarily driven by increases in compensation, as well as pre-opening and advertising costs related to new Gallery openings.

These increases were offset by a favorable legal settlement associated with credit card interchange fees of $32 million in the three months ended May 2, 2026.

RH Segment selling, general and administrative expenses for the three months ended May 3, 2025 were impacted by $0.9 million of non-cash compensation related to an option grant made to Mr.

Friedman in October 2020.

Excluding the $32 million and $0.9 million of such costs noted above for the three months ended May 2, 2026 and May 3, 2025, respectively, RH Segment selling, general and administrative expenses would have increased 440 basis points to 40.8% from 36.4% of net revenues for the three months ended May 2, 2026 and May 3, 2025, respectively.

RH Segment selling, general and administrative expenses increased $55 million, or 21.3%, to $314 million in the three months ended August 1, 2026 compared to $259 million in the three months ended August 2, 2025.

RH Segment selling, general and administrative expenses were 36.2% and 30.6% of net revenues for the three months ended August 1, 2026 and August 2, 2025, respectively.

The increase in selling, general and administrative expenses as a percentage of net revenues was driven by increases in advertising costs, primarily from the launch of RH Estates in the second quarter of fiscal 2026, as well as compensation, pre-opening and other corporate costs, primarily related to new Gallery openings.

RH Segment selling, general and administrative expenses were also negatively impacted by $14 million of expense related to the variable interest entities restructuring.

RH Segment selling, general and administrative expenses for the three months ended August 2, 2025 was negatively impacted by $1.2 million of reorganization related costs, $1.0 million of asset impairments and $0.5 million related to a product recall.

Excluding the $14 million and $2.7 million of such costs noted above for the three months ended August 1, 2026 and August 2, 2025, respectively, RH Segment selling, general and administrative expenses would have increased 430 basis points to 34.6% from 30.3% of net revenues for the three months ended August 1, 2026 and August 2, 2025, respectively.

Waterworks selling, general and administrative expenses

Waterworks selling, general and administrative expenses increased $1.4 million, or 6.9%, to $22 million in the three months ended May 2, 2026 compared to $20 million in the three months ended May 3, 2025.

Waterworks selling, general and administrative expenses increased $1.8 million, or 8.5%, to $23 million in the three months ended August 1, 2026 compared to $21 million in the three months ended August 2, 2025.

Waterworks selling, general and administrative expenses were 42.5% and 41.0% of net revenues for the three months ended August 1, 2026 and August 2, 2025, respectively.

Interest expense—net

4 unchanged sentences

Finance lease interest expense

Asset based credit facility

Other interest expense

Capitalized interest for capital projects

Asset based credit facility

Interest income

Capitalized interest for capital projects

Interest expense—net

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Other (income) expense—net

Other (income) expense—net consisted of the following:

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Other income—net

Other income—net consisted of the following:

THREE MONTHS ENDED

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Foreign exchange from remeasurement of intercompany loans (2)

Other (income) expense—net

Other income—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.

Income tax expense (benefit)

Income tax expense

THREE MONTHS ENDED

(dollars in thousands)

Income tax expense (benefit)

Income tax expense

Effective tax rate

The increase in our effective tax rate for the three months ended May 2, 2026 compared to the three months ended May 3, 2025 is primarily attributable to the net loss in the current period, as well as the discrete tax impact of the favorable legal settlement associated with credit card interchange fees and net excess tax windfalls from stock-based compensation in the three months ended May 2, 2026 as compared to net tax shortfalls in the three months ended May 3, 2025.

The increase in our effective tax rate for the three months ended August 1, 2026 compared to the three months ended August 2, 2025 is primarily attributable to reporting lower net income, as well as the impact of higher net excess tax benefits from stock-based compensation in the current period as compared to the prior period.

Share of equity method investments net (income) loss

Our share of equity method investments net loss in the three months ended May 2, 2026 was $0.4 million.

Our share of equity method investments net income of $8.2 million in the three months ended May 3, 2025 was primarily attributable to an Aspen LLC distribution of $7.9 million (refer to Note 5— Variable Interest Entities in the condensed consolidated financial statements).

Our share of equity method investments net operations was income of $18 million and a loss of $1.4 million in the three months ended August 1, 2026 and August 2, 2025, respectively.

The income in the three months ended August 1, 2026 is inclusive of income of $20 million related to the variable interest entities restructuring.

Refer to Note 6— Variable Interest Entities in the condensed consolidated financial statements.

Six Months Ended August 1, 2026 Compared to Six Months Ended August 2, 2025

SIX MONTHS ENDED

(in thousands)

Net revenues (2)

Cost of goods sold

Selling, general and administrative expenses

Operating income

(1) The results for the Real Estate segment were immaterial in both the six months ended August 1, 2026 and August 2, 2025, thus, such results are presented within the RH Segment in each period.

Refer to Note 15— Segment Reporting in the condensed consolidated financial statements.

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

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(2) RH Segment net revenues include outlet revenues of $141 million and $139 million for the six months ended August 1, 2026 and August 2, 2025, respectively.

Consolidated net revenues increased $9.4 million, or 0.5%, to $1,722 million in the six months ended August 1, 2026 compared to $1,713 million in the six months ended August 2, 2025.

RH Segment net revenues

RH Segment net revenues increased $7.8 million, or 0.5%, to $1,619 million in the six months ended August 1, 2026 compared to $1,612 million in the six months ended August 2, 2025, primarily due to an increase in hospitality revenue driven by new Gallery openings, which was partially offset by lower revenue in our core and Contract businesses.

Waterworks net revenues

Waterworks net revenues increased $1.6 million, or 1.6%, to $103 million in the six months ended August 1, 2026 compared to $101 million in the six months ended August 2, 2025.

Consolidated gross profit increased $12 million, or 1.5%, to $776 million in the six months ended August 1, 2026 compared to $765 million in the six months ended August 2, 2025.

As a percentage of net revenues, consolidated gross margin increased 50 basis points to 45.1% of net revenues in the six months ended August 1, 2026 from 44.6% of net revenues in the six months ended August 2, 2025.

RH Segment gross profit

RH Segment gross profit increased $6.5 million, or 0.9%, to $717 million in the six months ended August 1, 2026 from $711 million in the six months ended August 2, 2025.

As a percentage of net revenues, RH Segment gross margin increased 20 basis points to 44.3% of net revenues in the six months ended August 1, 2026 from 44.1% of net revenues in the six months ended August 2, 2025.

The increase in RH Segment gross margin was primarily attributable to tariff refunds recognized in cost of goods sold of $51 million, or 320 basis points, partially offset by decreased product margins in the RH core business as well as higher occupancy costs as a result of new Gallery openings.

RH Segment gross profit for the six months ended August 2, 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 44.3% of net revenues for the six months ended August 2, 2025.

Waterworks gross profit

Waterworks gross profit increased $5.0 million, or 9.2%, to $59 million in the six months ended August 1, 2026 compared to $54 million in the six months ended August 2, 2025.

As a percentage of net revenues, Waterworks gross margin increased 400 basis points to 57.2% of net revenues in the six months ended August 1, 2026 from 53.2% of net revenues in the six months ended August 2, 2025.

The increase in Waterworks gross margin was primarily attributable to tariff refunds recognized in cost of goods sold of $3.7 million, or 360 basis points.

Selling, general and administrative expenses

Consolidated selling, general and administrative expenses increased $54 million, or 9.4%, to $634 million in the six months ended August 1, 2026 compared to $580 million in the six months ended August 2, 2025.

RH Segment selling, general and administrative expenses

RH Segment selling, general and administrative expenses increased $51 million, or 9.5%, to $589 million in the six months ended August 1, 2026 compared to $538 million in the six months ended August 2, 2025.

RH Segment selling, general and administrative expenses were 36.4% and 33.4% of net revenues in the six months ended August 1, 2026 and August 2, 2025, respectively.

The increase in selling, general and administrative expenses as a percentage of net revenues was driven by increases in compensation, pre-opening and other corporate costs, primarily related to new Gallery openings, as well as higher advertising costs, primarily due to the launch of RH Estates in the second quarter of fiscal 2026.

RH Segment selling, general and administrative expenses also included $14 million of expense related to the variable interest entities restructuring.

These increases were partially offset by a favorable legal settlement associated with credit card interchange fees of $32 million.

FINANCIAL INFORMATION

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RH Segment selling, general and administrative expenses for the six months ended August 2, 2025 was negatively 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.

Excluding such $18 million net benefit and $3.6 million of costs noted above for the six months ended August 1, 2026 and August 2, 2025, respectively, RH Segment selling, general and administrative expenses would have increased 440 basis points to 37.5% from 33.1% of net revenues for the six months ended August 1, 2026 and August 2, 2025, respectively.

Waterworks selling, general and administrative expenses

Waterworks selling, general and administrative expenses increased $3.2 million, or 7.7%, to $45 million in the six months ended August 1, 2026 compared to $42 million in the six months ended August 2, 2025.

Waterworks selling, general and administrative expenses were 43.6% and 41.1% of net revenues for the six months ended August 1, 2026 and August 2, 2025, respectively.

Interest expense—net

Interest expense—net consisted of the following:

SIX MONTHS ENDED

(in thousands)

Term loan interest expense

Finance lease interest expense

Other interest expense

Asset based credit facility

Interest income

Capitalized interest for capital projects

Interest expense—net

Other income—net

Other income—net consisted of the following in each period:

SIX MONTHS ENDED

(in thousands)

Foreign exchange from transactions (1)

Foreign exchange from remeasurement of intercompany loans (2)

Other income—net

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

dollar as compared to the euro and pound sterling.

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

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FINANCIAL INFORMATION

Income tax expense

SIX MONTHS ENDED

(dollars in thousands)

Income tax expense

Effective tax rate

The decrease in our effective tax rate for the six months ended August 1, 2026 compared to the six months ended August 2, 2025 is attributable to reporting lower net income in the current period as compared to the prior period.

Share of equity method investments net income

Our share of equity method investments net income in the six months ended August 1, 2026 was $18 million, which is inclusive of income of $20 million related to the variable interest entities restructuring.

Our share of equity method investments net income in the six months ended August 2, 2025 was $6.9 million, which is inclusive of income of $7.9 million related to a capital distribution made from an Aspen LLC.

Refer to Note 6— Variable Interest Entities in the condensed consolidated financial statements.

Liquidity and Capital Resources

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

(2) Excludes a non-recourse real estate loan of $16 million as of both periods, which is secured by specific real estate assets and the associated creditor does 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 $44 million and $43 million in outstanding letters of credit as of May 2, 2026 and January 31, 2026, respectively.

(2) Excludes a non-recourse real estate loan of $15 million and $16 million as of August 1, 2026 and January 31, 2026, respectively, which is secured by specific real estate assets and the associated creditor does not have recourse against RH’s general assets.

FINANCIAL INFORMATION

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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 believe our existing cash balances and operating cash flows, in conjunction with available financing arrangements, will be sufficient to repay our debt obligations as they become due, meet working capital requirements and fulfill other capital needs for more than the next 12 months .

FINANCIAL INFORMATION

2026 FIRST QUARTER FORM 10-Q | 39

While we do not anticipate that we will require additional debt financing to fund our operations, our goal is to continue to be in a position to take advantage of the many opportunities that we identify in connection with our business and operations.

We have pursued in the past, and may pursue in the future, additional strategies to generate capital to pursue opportunities and investments, including through the strategic sale of existing assets, utilization of our credit facilities, entry into various credit agreements and other new debt financing arrangements that present attractive terms.

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.

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.

We have pursued in the past, and expect to continue to pursue, additional strategies to generate capital to pursue opportunities and investments, including through the strategic sale of existing assets, utilization of our credit facilities, entry into various credit agreements and other new debt financing arrangements that present attractive terms.

We expect to continue to use such additional sources of debt and other financing in future periods, as well as asset sales, as a source of additional capital to fund our various investments or to refinance existing indebtedness.

To the extent we choose to secure additional sources of liquidity through incremental debt and other 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.

Sales of real estate assets, including potential sale leaseback arrangements, may be dependent on market conditions.

Any adverse developments in U.S.

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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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FINANCIAL INFORMATION

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.

FINANCIAL INFORMATION

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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.

We have invested significant capital expenditures related to construction activities to design and build landlord-owned leased assets in developing and opening new Design Galleries.

We have completed some of the more significant projects regarding our new locations within the last several years, including our recent openings in Paris, Milan and London.

We have incurred increased capital expenditures and other capital related to developing and opening these and other new locations due to a variety of factors, including significant increases in construction costs since the pandemic.

We may still experience further cost and capital increases related to construction activities beyond our current expectations as we continue to open additional Design Galleries and other locations, which may require us to undertake upgrades to historical buildings or construct new buildings.

Our adjusted capital expenditures include 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 during the construction period.

During the three months ended May 2, 2026, adjusted capital expenditures were $78 million in aggregate.

During the six months ended August 1, 2026, adjusted capital expenditures were $163 million in aggregate.

We anticipate our adjusted capital expenditures to be $240 million to $260 million in fiscal 2026, primarily related to our growth and expansion, including construction of new Design Galleries and infrastructure investments.

Nevertheless, we may elect to pursue additional capital expenditures beyond those that are anticipated during any given fiscal period inasmuch as our strategy is to be opportunistic with respect to our investments and we may choose to pursue certain capital transactions based on the availability and timing of unique opportunities.

There are a number of macroeconomic factors and uncertainties affecting the overall business climate as well as our business, including increased inflation and higher interest rates and we may make adjustments to our allocation of capital in fiscal 2026 or beyond in response to these changing or other circumstances.

Nevertheless, we may elect to pursue additional capital expenditures and construction activities beyond those that are anticipated during any given fiscal period inasmuch as our strategy is to be opportunistic with respect to our investments and we may choose to pursue certain capital transactions and other projects requiring capital based on the availability and timing of unique opportunities.

There are a number of macroeconomic factors and uncertainties affecting the overall business climate as well as our business, including increased inflation and construction costs as well as higher interest rates, and we may make adjustments to our allocation of capital in fiscal 2026 or beyond in response to these changing or other circumstances.

We may also invest in other uses of our liquidity such as share repurchases, acquisitions and growth initiatives, including through joint ventures and real estate investments.

Certain lease arrangements require the landlord to fund a portion of the construction related costs through payments directly to us.

As we develop new Galleries, as well as other potential strategic initiatives in the future like our integrated hospitality experience, we are exploring other models for our real estate activities, which include different terms and conditions for real estate transactions.

These transactions may involve longer lease terms or further purchases of, or joint ventures or other forms of equity ownership in, real estate interests associated with new sites and buildings that we wish to develop for new Gallery locations or other aspects of our business.

As we develop new Galleries, as well as other potential strategic initiatives in the future like our integrated hospitality experience, we continue to explore other models for our real estate activities, which include different terms and conditions for real estate transactions.

These transactions may involve longer lease terms or further purchases of real estate interests associated with new sites and buildings that we wish to develop for new Gallery locations or other aspects of our business.

These approaches might require different levels of capital investment on our part than a traditional store lease with a landlord.

We have also begun executing changes in our real estate strategy to transition some projects from a leasing model to a development model, where we buy and develop real estate for our Design Galleries either directly or through joint ventures and other structures with the ultimate objective of (i) recouping a majority of the investment through a sale-leaseback arrangement and (ii) resulting in lower capital investment and lower rent.

For example, we have entered into arrangements with a third-party development partner to develop real estate for future RH Design Galleries.

In the event that such capital and other expenditures require us to pursue additional funding sources, we can provide no assurance that we will be successful in securing additional funding on attractive terms or at all.

In the event these or other capital expenditures require us to pursue additional funding sources, or to enter into future sale leasebacks or real estate divestiture transactions, we can provide no assurance that we will be successful in securing additional funding, or sale or lease of such real estate assets, on attractive terms or at all.

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.

We have also been executing changes in our real estate strategy over a number of years, including transitioning some projects from a leasing model to a development model, where we buy and develop real estate for certain of our locations.

As part of this strategy, we previously entered into joint ventures in order to develop real estate for future RH Design Galleries.

As described below, in May 2026, we completed a series of transactions to unwind a substantial majority of these joint venture arrangements and as a result of these transactions we became the sole owner of several fully developed Gallery locations as well as other development-stage sites.

We may elect to engage in various financing strategies with respect to some of these or other real estate assets in the future, including sales or sale leaseback transactions.

FINANCIAL INFORMATION

2026 SECOND QUARTER FORM 10-Q | 45

As part of our existing capital allocation strategy, we closed a series of transactions in May 2026 with a third-party real estate developer (affiliated with the managing member of the Aspen LLCs) and its related affiliates (collectively, the “Developer”) involving a separation of a substantial majority of assets previously owned through variable interest entities, as discussed in Note 6— Variable Interest Entities in the condensed consolidated financial statements.

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In addition, the Developer (i) became the sole owner of the undeveloped Aspen properties from the Aspen LLCs and (ii) repaid outstanding debt associated with those properties.

There is no outstanding debt on any of the properties we acquired other than the $16 million real estate loan on one completed Gallery that was previously included in our condensed consolidated balance sheets prior to the transactions.

We believe we are now in a position to pursue near-term monetization for these properties, including through sale-leasebacks and full divestitures.

The remaining properties in the Aspen LLCs consist primarily of leased projects on a number of prime retail lease locations in Aspen that we believe can also be easily sold.

FINANCIAL INFORMATION

2026 FIRST QUARTER FORM 10-Q | 41

There is no outstanding debt on any of the properties we acquired other than the $15 million remaining real estate loan on one completed Gallery that was previously included in our condensed consolidated balance sheets prior to the transactions.

We believe we are now in a position to pursue near-term monetization for the properties that are now owned by us, including through sale-leasebacks and full divestitures.

The remaining properties in the Aspen LLCs consist primarily of leased projects on a number of prime retail lease locations in Aspen that we believe can also be easily sold, thereby resulting in proceeds to us under our distribution rights in the Aspen LLCs.

Cash Flow Analysis

Cash flows from operating, investing, and financing activities were as follows:

THREE MONTHS ENDED

SIX MONTHS ENDED

(in thousands)

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Net Cash Provided by Operating Activities

Operating activities consist primarily of net income (loss) adjusted for non-cash items, including depreciation and amortization, impairments, stock-based compensation and the effect of changes in working capital and other activities.

For the three months ended May 2, 2026, net cash provided by operating activities was $53 million and consisted of an increase in non-cash items of $92 million, partially offset by a change in working capital and other activities of $26 million and a net loss of $14 million.

The use of cash from working capital was primarily driven by an increase in landlord assets under construction, net of tenant allowances, of $39 million, a decrease in operating lease liabilities of $29 million, a decrease in other current and non-current liabilities of $14 million, an increase in prepaid expense and other assets of $11 million and an increase in accounts receivable of $9.0 million.

These uses of cash from working capital were partially offset by an increase in deferred revenue and customer deposits of $44 million, an increase in accounts payable and accrued expenses of $17 million and a decrease in merchandise inventory of $15 million.

Operating activities consist primarily of net income adjusted for non-cash items, including depreciation and amortization, impairments, stock-based compensation and the effect of changes in working capital and other activities.

For the six months ended August 1, 2026, net cash provided by operating activities was $198 million and consisted of net income of $47 million and an increase in non-cash items of $190 million, partially offset by a change in working capital and other activities of $39 million.

The use of cash from working capital was primarily driven by an increase in landlord assets under construction, net of tenant allowances, of $78 million, a decrease in operating lease liabilities of $55 million, a decrease in other current and non-current liabilities of $27 million, an increase in accounts receivable of $16 million and an increase in prepaid expense and other assets of $11 million.

These uses of cash from working capital were partially offset by an increase in deferred revenue and customer deposits of $64 million, a decrease in merchandise inventory of $44 million and an increase in accounts payable and accrued expenses of $39 million.

Net Cash Used in Investing Activities

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Investing activities also include our strategic investments.

For the three months ended May 2, 2026, net cash used in investing activities was $39 million due to investments in retail stores, information technology and systems infrastructure.

For the six months ended August 1, 2026, net cash used in investing activities was $43 million and was comprised of investments in retail stores, information technology and systems infrastructure of $85 million.

These cash outflows were partially offset by cash received from a distribution of return of equity method investments of $42 million.

46 | 2026 SECOND QUARTER FORM 10-Q

FINANCIAL INFORMATION

Net Cash Used in Financing Activities

Financing activities consist primarily of borrowings and repayments related to 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 the three months ended May 3, 2025, net cash used in financing activities was $0.6 million primarily due to net payments under finance lease agreements of $7.0 million and payments under term loans of $6.3 million.

These uses of cash were partially offset by proceeds from net borrowings under the asset based credit facility of $10 million and proceeds from the exercise of stock options of $2.7 million.

For the six months ended August 1, 2026, net cash used in financing activities was $70 million, primarily due to payments under real estate loans of $32 million, net payments under the asset based credit facility of $20 million, payments under term loans of $13 million and payments under finance lease agreements of $10 million.

These uses of cash were partially offset by proceeds from the exercise of stock options of $4.0 million.

Non-Cash Transactions

Non-cash transactions consist of non-cash additions of property and equipment and landlord assets under construction included in accounts payable and accrued expenses at period-end.

Non-cash transactions consist of additions of property and equipment and landlord assets under construction included in accounts payable and accrued expenses at period-end.

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 8— Leases in our condensed consolidated financial statements.

FINANCIAL INFORMATION

2026 FIRST QUARTER FORM 10-Q | 42

Additionally, non-cash transactions include property and equipment additions and a real estate loan acquired in a variable interest entities restructuring.

Refer to Note 6— Variable Interest Entities in our condensed consolidated financial statements.

Cash Requirements from Contractual Obligations

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Asset Based Credit Facility

Refer to Note 8— Credit Facilities in our condensed 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 8— Credit Facilities in our condensed consolidated financial statements for further information on our Term Loan.

Refer to Note 9— Credit Facilities and Real Estate Loan in our condensed 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 9— Credit Facilities and Real Estate Loan in our condensed consolidated financial statements for further information on our Term Loan.

Real Estate Loan

Refer to Note 5— Variable Interest Entities in our condensed consolidated financial statements for further information on the real estate loan.

Refer to Note 9— Credit Facilities and Real Estate Loan in our condensed consolidated financial statements for further information on our real estate loan.

Share Repurchase Program

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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”).

FINANCIAL INFORMATION

2026 SECOND QUARTER FORM 10-Q | 47

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”).

As of May 2, 2026, $201 million remains available for future share repurchases under the Share Repurchase Program.

As of August 1, 2026, $201 million remains available for future share repurchases under the Share Repurchase Program.

Critical Accounting Policies and Estimates

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Actual results may differ from these estimates under different assumptions and conditions, and such differences could be material to our condensed consolidated financial statements.

FINANCIAL INFORMATION

2026 FIRST QUARTER FORM 10-Q | 43

Our senior leadership team evaluates the development and selection of our critical accounting policies and estimates and believes that certain of our significant accounting policies involve a higher degree of judgment or complexity and are most significant to reporting our consolidated results of operations and financial position and are therefore discussed as critical:

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Refer to Note 2— Recently Issued Accounting Standards in the condensed consolidated financial statements within Part I of this Quarterly Report on Form 10-Q.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes in our exposures to market risk since January 31, 2026.

Refer to Part II, Item 7A— Quantitative and Qualitative Disclosures About Market Risk in our 2025 Form 10-K for a discussion on our exposures to market risk.

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-Q

Item 2. Management’s Discussion and Analysis