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Risks Related to Our Business
−Removed: We are undertaking a large number of business initiatives at the same time, including exploring opportunities to expand into new categories and complementary businesses.
+Added: We are undertaking a large number of business initiatives at the same time, including international expansion and exploring opportunities to expand into new categories and complementary businesses.
If these initiatives are not successful, they may have a negative impact on our results of operations.
We are undertaking a large number of new business initiatives at the same time in order to support our future growth.
−Removed: We have multiple growth initiatives and innovation in our development pipeline, including expanded merchandise assortments and new collections, additional galleries and guesthouses, new concepts and businesses, including through investment in joint ventures and acquisitions.
−Removed: We have developed and continue to refine and enhance our Design Gallery format, which involves larger store square footage.
−Removed: We also continue to add new product categories and to expand product assortments.
−Removed: For example, in fiscal 2019 we launched RH Beach House and RH Ski House.
−Removed: We will be introducing RH Contemporary, a new collection that bridges the gap between RH Interiors and RH Modern, while elevating our brand and expanding our market.
−Removed: We recently made various investments in real estate development projects that will support the first RH Ecosystem in Aspen, Colorado, which will include retail locations, hospitality concepts, residential properties, and workforce housing projects.
+Added: We have multiple growth initiatives and innovation in our development pipeline, including efforts to expand our business through (i) international expansion of our business, (ii) enhancement of our merchandise assortment including improvements to quality of our products and services, (iii) launching new business initiatives including real estate development and an expanded scope of RH Hospitality as well as other new categories of products and services.
+Added: We have introduced a number of new product categories such as RH Modern and are in the process of launching other major new offerings such as RH Contemporary, a new collection that bridges the gap between RH Interiors and RH Modern.
+Added: We are continuing to pursue a substantial expansion of the RH Hospitality offering which includes integrated Restaurants and wine bars in a number of our Galleries and will also incorporate standalone restaurants and guesthouses as well as other innovations such as our private jets RH1 and RH2, and our luxury yacht RH3.
+Added: We are also investing in other new business initiatives including through business acquisitions and investment in joint ventures such as a number of real estate development projects such as the RH Ecosystem in Aspen, Colorado, which will include retail locations, hospitality concepts, residential properties, and workforce housing projects.
We can provide no assurances that customers will respond favorably to our new product offerings, Galleries or complementary businesses or that we will successfully execute on such business initiatives.
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The financial profile of any such new businesses may be different than our current financial profile, which could affect our financial performance and the market price for our common stock.
−Removed: We have recently commenced an effort to expand our business internationally by establishing a new retail presence in global markets including Europe and the U.K.
−Removed: International expansion will expose us to new risks related to operating internationally, including, but not limited to, risks related to currency fluctuation, supply chain and product sourcing, new regulatory regimes applicable to our products, Galleries and employees, global health emergencies such as that related to the outbreak of COVID-19, and the consequences of international economic or political events including but not limited to the U.K.’s withdrawal from the European Union in January 2020, commonly referred to as “Brexit,” which has resulted in considerable change in the regulatory framework governing business in the U.K.
+Added: We are undertaking a substantial effort to expand our business internationally by establishing a new retail presence in global markets including Europe and the U.K.
+Added: International expansion will expose us to new risks related to operating internationally, including, but not limited to, risks related to currency fluctuation, supply chain and product sourcing, new regulatory regimes applicable to our products, Galleries and employees, global health emergencies such as the coronavirus disease (“COVID-19”) pandemic, and the consequences of international economic or political events including but not limited to the U.K.’s withdrawal from the European Union in January 2020, commonly referred to as “Brexit,” which has resulted in considerable change in the regulatory framework governing business in the U.K.
and which may negatively impact the luxury market or our plans to operate in the U.K.
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FORM 10-K | 11
−Removed: In fiscal 2015 we began to introduce an integrated hospitality experience, including Restaurants and wine bars, into a number of our new Gallery locations.
−Removed: As of January 30, 2021, ten of our Design Galleries included an integrated RH Hospitality experience and, based on the success of our hospitality offering to date, we plan to incorporate an integrated RH Hospitality offering, including Restaurants and wine bars, in many of the new Galleries that we open in the future.
+Added: As of January 29, 2022, we have an integrated RH Hospitality experience in 13 of our locations, including Restaurants and Wine Bars, and based on the success of our hospitality offering to date, we plan to incorporate an integrated RH Hospitality offering in many of the new Galleries that we open in the future.
We continue to refine and develop the RH Hospitality model as we seek to optimize this part of our business and its integration with the operation of our Gallery locations.
−Removed: RH Hospitality is different from our traditional home furnishings business and involves evolving strategies that are untested and unproven and may expose us to a number of risks including risks related to the execution of food and hospitality operations in various locations where we operate retail locations.
−Removed: Although we have experienced a number of positive business outcomes from the RH Hospitality operations including the incremental revenue that we believe is driven in galleries with a hospitality offering, there can be no assurance that these benefits will be sustained or that we will avoid operational or other complications from the hospitality business.
−Removed: There can be no assurance that we will successfully scale RH Hospitality, that we will optimally balance the resources and square footage allocated to our hospitality offerings versus our product offerings at our Galleries, or that our hospitality offerings will be attractive to consumers in our market over a sustained period of time.
+Added: Although we have experienced a number of positive business outcomes from the RH Hospitality operations, there can be no assurance that these benefits will be sustained, that we will avoid operational or other complications from the hospitality business or that new aspects of our hospitality offering such as the launch of guesthouses will be successful.
We often have in the past, and may in the future, incur significant costs for any new initiative before we realize any corresponding revenue with respect to such initiative.
−Removed: In addition, we may incur costs as we revise, restructure or discontinue existing product categories or business offerings in favor of pursuing new initiatives or retail concepts.
−Removed: For example, as we continue to open larger format Design Galleries in select major metropolitan markets, we expect to close a number of legacy Galleries and replace them with our Design Gallery format.
−Removed: The introduction of an integrated hospitality experience, including roll out of an integrated food and beverage experience at a new Gallery location often requires significant investments by us before the location is open to customers and able to generate revenues, and we anticipate that a number of Galleries to be opened during the next several years will continue to require this form of upfront investment before they generate revenue from the food and beverage offerings.
−Removed: To the extent that these new business opportunities do not generate sufficient revenue to recoup the cost of developing and operating such new concepts, our results of operations could be materially adversely affected.
+Added: For example, as we continue to develop and invest in new business formats and initiatives such as the redevelopment of existing historical buildings into our larger format Design Galleries in select major metropolitan markets and the introduction of guesthouses, we may incur substantial investments before the location is open to customers and is able to generate revenue, and we anticipate that a number of Galleries to be opened during the next several years will continue to require this form of significant upfront investment before they generate revenue from the food and beverage offerings.
+Added: Some of these projects have taken substantially more time and investment in contrast to our initial expectations and as a result may have difficulty recouping our costs and investment in some of these developments or our payback on investment could take much longer than we had initially targeted.
In addition, we are continuing a number of new initiatives to improve the operations of our business, including ongoing refinements to our organizational structure.
Some of the improvements we are pursuing include changing the ways we source and deliver our products to our customers, as well as streamlining and realigning the senior leadership and personnel structure in our home office operations.
−Removed: We have also focused on elevating the customer experience, which includes improving our distribution and delivery of products to our customers and architecting a new fully integrated back-end operating platform, inclusive of the supply chain network, the home delivery experience as well as a new metric-driven quality system and company-wide decision data.
+Added: We have also focused on elevating the customer experience, which includes improving our distribution and delivery of products and architecting a new fully integrated back-end operating platform, inclusive of the supply chain network, the home delivery experience as well as a new metric-driven quality system and company-wide decision data.
We have focused on rationalizing our SKU count and optimizing inventory, which includes selling slower moving, discontinued and other inventory through markdowns and our outlet channel, as well as enhancing and optimizing our product sourcing capabilities and adding new management information systems.
If we are not successful in managing the large number of new initiatives that are underway, we might experience an adverse impact on our financial condition and results of operations.
−Removed: Given the large number of organizational initiatives we are pursuing, as well as the complexity and untested nature of many of these efforts, there can be no certainty that we will be successful in executing on these initiatives including changes to our organizational structure.
+Added: Given the large number of organizational initiatives we are pursuing, as well as the complexity and untested nature of many of these efforts, there can be no certainty that we will be successful in executing on these initiatives.
We may not experience the operational or financial benefits we expect these improvements to generate and we may face unanticipated costs related to pursuing these initiatives such as personnel turnover, senior leadership distraction, or compliance and quality control risks, any of which could have a material adverse effect on our financial condition or results of operations.
All of the foregoing risks may be compounded due to various factors including the rapidly changing macroeconomic conditions as a result of the COVID-19 pandemic or any economic downturn.
−Removed: If we fail to achieve the intended results of our current business initiatives, or if the implementation of these initiatives is delayed or abandoned, diverts our leadership team’s attention or resources from other aspects of our business or costs more than anticipated (including, as a result of personnel turnover or compliance and control risks), we may experience inadequate return on investment for some or all such business initiatives, which could have a material adverse effect on our financial condition or results of operations.
−Removed: FORM 10-K | 13
−Removed: We have experienced significant fluctuations in the growth rate of our business during the last several years, and high levels of growth may not be achieved in future periods and may not generate a corresponding improvement in our results of operations.
−Removed: We have experienced significant fluctuations in the growth rate of our business during the last several years including within the quarters during fiscal 2020.
−Removed: We may continue to experience wide fluctuations in our quarterly revenue and financial performance.
−Removed: Our quarterly results during fiscal 2020 were affected by a variety of factors related to the overall operating environment including the impact of the pandemic on various parts of our operations.
−Removed: We are currently engaged in a number of initiatives to support the growth and transformation of our business, including investments to elevate our brand and make a number of improvements to our products and the customer experience, inclusive of architecting a new fully integrated back-end operating platform, improving our supply chain network, enhancing our home delivery experience and developing a metric-driven quality system and enhanced integration of data to drive our business operations.
−Removed: While we anticipate that these initiatives will support the growth of our business as well as improvements to our financial results, the costs and timing issues associated with pursuing these initiatives can negatively affect our gross margins in the short term and may amplify fluctuations in our growth rate from quarter to quarter depending on the timing and extent of our realization of the costs and benefits of these and other initiatives.
+Added: If we fail to achieve the intended results of our current business initiatives, or if the implementation of these initiatives is delayed or abandoned, diverts our senior leadership team’s attention or resources from other aspects of our business or costs more than anticipated (including, as a result of personnel turnover or compliance and control risks), we may experience inadequate return on investment for some of these business initiatives, which could have a material adverse effect on our financial condition or results of operations.
+Added: We have experienced significant fluctuations in the growth rate of our business and high levels of growth may not be achieved in future periods.
+Added: We have experienced significant fluctuations in the growth rate of our business.
+Added: We may continue to experience wide fluctuations in our quarterly performance.
+Added: We are currently engaged in a number of growth initiatives, including investments to elevate our brand and improvements to our products and customer experience.
There can be no assurance that these efforts will be successful or that we will not encounter other operational difficulties that may have a material negative impact on growth and profitability.
In addition, these initiatives may have near-term material negative impacts on growth and profitability as we incur costs or pursue strategies that may not contribute to our profits and margins until future periods, if at all.
−Removed: In fiscal 2020, our efforts to respond to the COVID-19 pandemic drove a number of changes in our quarterly revenue and financial performance.
−Removed: Although global economic conditions appear to be returning to normal with the widespread availability of the vaccine in the United States, there remain substantial disruptions in the global supply chain that are likely to take time to resolve and these may result in a continuation of delays in the availability of merchandise and longer than normal lead times for fulfillment of customer orders.
−Removed: In addition, the return of consumer spending patterns in place prior to the pandemic may result in a shift in consumer spending away from home furnishings toward the consumption of services including entertainment and travel.
−Removed: Any of these factors may directly or indirectly affect our quarterly results during fiscal 2021 or over a longer timeframe.
−Removed: Some factors affecting our business, including macroeconomic conditions and policies and changes in legislation, are not within our control.
−Removed: In prior periods, our results of operations have been adversely affected by weakness in the overall economic environment such as the initial periods of significant economic uncertainty and reduced economic activity as a result of the COVID-19 pandemic as well as slowdowns in the housing market.
−Removed: Our business depends on consumer demand for our products and, consequently, is sensitive to a number of factors that influence consumer spending, including, among other things, the general state of the economy, capital and credit markets, consumer confidence, general business conditions, the availability and cost of consumer credit, the level of consumer debt, interest rates, level of taxes affecting consumers, housing prices, new construction and other activity in the housing sector and the state of the mortgage industry and other aspects of consumer credit tied to housing, including the availability and pricing of mortgage refinancing and home equity lines of credit.
−Removed: In particular, our business performance is linked to the overall strength of luxury consumer spending in markets in which we operate.
−Removed: Economic conditions affecting selected markets in which we operate are expected to have an impact on the strength of our business in those local markets , including with respect to the volatility in consumer demand and sentiment as the COVID-19 pandemic continues to evolve .
−Removed: Our business trends are frequently correlated closely with conditions in financial markets including the stock market.
−Removed: The global economic environment is currently in a period of widespread uncertainty as governments and central banks continue to respond to the impact of COVID-19 on business conditions.
−Removed: In the event that equity and credit markets experience volatility and disruption, customer demand for our product and our results of operations may be adversely affected.
−Removed: 14 | FORM 10-K
−Removed: In addition, our rates of revenue growth have sharply fluctuated from quarter to quarter over the last three years and we expect volatility in the rates of our growth to continue in future quarterly periods.
+Added: Some factors affecting our business, including macroeconomic conditions and government policies are not within our control.
+Added: In prior periods, our results of operations have been adversely affected by weakness in the global economic environment such as slowdowns in the housing market.
+Added: In addition, our rates of revenue growth have sharply fluctuated from quarter to quarter and we expect volatility in the rates of our growth to continue in future quarterly periods.
Unique factors in any given quarter may affect period-to-period comparisons in our revenue growth, including:
−Removed: the overall economic and general retail sales environment, including the effects of uncertainty relating to the COVID-19 pandemic or its related impacts on consumer spending;
+Added: 12 | FORM 10-K
+Added: the overall economic and general retail sales environment including factors affecting the housing market such as housing prices, the pace of housing construction and secondary market transactions in the housing market as well as other activities in the housing sector;
the availability of our products and the impact of delays or disruption in our supply chain;
consumer preferences and demand;
+Added: other factors affecting the retail business sector including issues related to the COVID-19 pandemic,
+Added: the state of the mortgage industry and other aspects of consumer credit tied to housing, including the availability and pricing of mortgage refinancing and home equity lines of credit;
the number, size and location of stores we open, close, remodel or expand in any period;
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changes in our product offerings and the introduction, and timing thereof, of introduction of new products and new product categories;
−Removed: promotional events;
our competitors introducing similar products or merchandise formats;
the timing of various holidays, including holidays with potentially heavy retail impact;
−Removed: the success of our marketing programs.
+Added: the success of our marketing programs and any promotional efforts.
Due to these factors, our results for any quarter are not necessarily indicative of the results that we may achieve for a full fiscal year.
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We may take certain pricing, merchandising or marketing actions that could have a disproportionate effect on our business, financial condition and results of operations in a particular quarter or selling season, and as a result we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and cannot be relied upon as indicators of future performance.
−Removed: Other future developments in our business could also result in material changes in our operating costs, including increased merchandise inventory costs and costs for paper and postage associated with the mailing and shipping of Source Books.
−Removed: For example, in recent periods, we have experienced increased shipping costs and raw material costs for our products.
−Removed: We cannot assure you that we will succeed in offsetting any such expenses with increased efficiency or that cost increases associated with our business will not have an adverse effect on our financial results.
−Removed: The COVID-19 pandemic poses significant and widespread risks to our business as well as to the business environment and the markets in which we operate.
−Removed: The global outbreak of the novel coronavirus disease (“COVID-19”) and resulting health crisis continues to have a widespread impact on our customers, our business environment, the economic climate in the U.S.
−Removed: and globally, and financial and consumer markets.
−Removed: The COVID-19 outbreak in the first fiscal quarter of 2020 caused disruption to our business operations, as we temporarily closed all of our retail locations and restaurants.
−Removed: As of March 24, 2021 we had reopened all of our Galleries and Outlets, and nine out of ten of our Restaurants.
−Removed: During the fourth quarter of fiscal 2020 and continuing into the first quarter of 2021, there have been continuous changes in operational restrictions with respect to our Galleries and hospitality locations based upon local conditions, and we have experienced further closings, reopenings and new or re-imposed restrictions on our operating activities.
−Removed: Depending on the future course of the pandemic, including potential further outbreaks with new strains or variants of the virus, we may experience further restrictions on and closures of our physical operations with respect to Galleries, Outlets and Restaurants.
−Removed: For example, various parts of both the U.S.
−Removed: and Canada experienced an increase in reported COVID-19 cases in the fourth quarter of 2020.
−Removed: Although we have experienced strong demand for our products in connection with prior closure requirements earlier in calendar year 2020, our overall demand in specific markets correlates favorably with our customers’ ability to access our Galleries and Outlets.
−Removed: The changing state and federal requirements have required and may in the future require further changes in our business practices in order to remain compliant.
−Removed: Accordingly, we do anticipate some ongoing negative impact to overall demand in connection the restrictions on our physical locations and the duration and extent of these operational limits cannot be predicted with certainty.
−Removed: FORM 10-K | 15
−Removed: While we have continued to serve our customers and operate our business through the ongoing COVID-19 health crisis, there can be no assurance that future events will not have an impact on our business, results of operations or financial condition since the extent and duration of the health crisis remains uncertain.
−Removed: Future adverse developments in connection with the COVID-19 crisis, including additional waves or resurgences of COVID-19 outbreaks, including with regard to new strains or variants of the virus, evolving international, federal, state and local restrictions and safety regulations in response to COVID-19 risks, changes in consumer behavior and health concerns, the pace of economic activity in the wake of the COVID-19 crisis, or other similar issues could adversely affect our business, results of operations or financial condition in the future, or our financial results and business performance in future periods.
−Removed: Although the increasing availability of vaccines and various treatments with respect to COVID-19 can be expected to have an overall positive impact on business conditions in the aggregate over time, there remain uncertainties as to the logistics of distribution and the overall efficacy of any vaccine program, including with regard to new strains or variants of the virus, and there can be no assurances regarding the exact timing of these positive developments or the related impact on the economic recovery.
−Removed: Volatility in consumer demand and sentiment as the COVID-19 pandemic continues to evolve can also expose us to risks in our operations.
−Removed: In our immediate response to COVID-19, we aggressively scaled back some inventory orders while we assessed the status of our business.
−Removed: While our business strengthened during the second, third and fourth quarters of fiscal 2020, the lag in manufacturing and inventory receipts together with dislocations in our supply chain has resulted in some delays in our ability to convert business demand into revenues and we anticipate that our supply chain may not catch up to demand until the second half of fiscal 2021.
−Removed: In addition, our near term decisions regarding the sources and uses of capital in our business will continue to reflect and adapt to changes in market conditions and our business related to the impact of the COVID-19 pandemic.
−Removed: The global scale and scope of the pandemic remains unknown and the duration and extent of future business disruption is uncertain.
−Removed: The extent to which the COVID-19 pandemic continues to impact our business will depend on future developments that are highly uncertain, including developing information concerning the severity of COVID-19 and the actions taken by governments and private businesses to attempt to contain COVID-19.
−Removed: We may face operational restrictions with respect to some or all of our physical locations for prolonged periods of time due to, among other factors, evolving international, federal, state and local restrictions, standards and safety regulations.
−Removed: Public health officials and other governmental authorities have adopted numerous mitigation measures to address the spread of the virus, and in particular to discourage people from congregating in public, commercial or private spaces.
−Removed: During the course of the pandemic, federal, state and local authorities in the U.S.
−Removed: and Canada have implemented a number of different directives that may require changes in our business practices.
−Removed: The scope and duration of these directives is evolving and not entirely clear.
−Removed: In response to current or future COVID-19 outbreaks or other concerns, states and municipalities in the U.S.
−Removed: where we operate may implement or reinstate temporary closure requirements with respect to non-essential business operations and the duration of these requirements is unknown.
−Removed: For example, in most of our retail locations that had reopened at the end of the third fiscal quarter of 2020, the substantial operational restrictions related to COVID-19 health and safety considerations, such as limits to seating capacity, that were imposed on our hospitality business by various governmental authorities remained in place during the fourth fiscal quarter of 2020 and the first fiscal quarter of 2021.
−Removed: Many of our Galleries are located in malls or otherwise located in proximity to a number of other retail stores.
−Removed: Mall operators and other retailers have imposed, and may continue to impose, additional health and safety practices and procedures and may in the future elect to temporarily cease operations in response to renewed or localized outbreaks.
−Removed: In addition, new regulation or requirements that governmental authorities may impose with respect to the compensation of our employees or the manner or location in which our employees may work, could also have an adverse effect on our business.
−Removed: At various times since the beginning of the pandemic, substantially all of our personnel, including those in our corporate office in Corte Madera, California, have been subject to state and local shelter-in-place requirements, which have varied over time and which have resulted in most of our team being required to work remotely.
−Removed: These working arrangements as well as other related restrictions including severe limitations on travel may have an impact on our operations and the ability of our executives to lead our teams.
−Removed: Although we have technology and other resources to support these new work requirements, there can be no assurance that we will not suffer material risks to our business, operations, productivity and results of operations as a result of these restrictions.
−Removed: If a significant percentage of our workforce is unable to work, including because of illness or travel or government restrictions in connection with COVID-19, our operations may be negatively impacted, potentially materially adversely affecting our business, liquidity, financial condition or results of operations.
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+Added: We cannot assure you that we will succeed in offsetting any increases in our expenses with improved efficiency or price increases for our products and services or that cost increases associated with our business will not have an adverse effect on our financial results.
+Added: The COVID-19 pandemic has posed significant and widespread risks to our business as well as to the business environment and the markets in which we operate.
+Added: The COVID-19 pandemic has had a widespread impact on our customers and on our merchandise supply chain, on the overall business climate in the U.S.
+Added: and globally, and on financial and consumer markets.
+Added: Depending on the future course of the pandemic, including potential further outbreaks with new strains or variants of the virus, we may experience further impact to our product supply chain including delays in inventory receipts and backorders as well as restrictions on and closures of our physical operations with respect to Galleries, Outlets and Restaurants.
+Added: Future adverse developments in connection with the COVID-19 crisis, including new strains or variants of the virus, evolving international, federal, state and local restrictions and safety regulations in response to COVID-19 risks, changes in consumer behavior and health concerns, the pace of economic activity, or other similar issues could adversely affect our business, results of operations or financial condition in future periods.
The evolution of the COVID-19 pandemic around the world may continue to have an adverse impact on elements of our supply chain including the manufacture, supply, distribution, transportation and delivery of our products and our inventory levels.
−Removed: There have been substantial disruptions that have already occurred with respect to the global supply chain as a result of the pandemic.
−Removed: Our business depends on the successful operation of a global supply chain.
−Removed: Based on total dollar volume of purchases for fiscal 2020, approximately 72% of our products were sourced from Asia, with 35% sourced from China, 15% from the U.S.
−Removed: and the remainder from other countries and source regions.
−Removed: The presence of the virus and the response to the health crisis in various countries is likely to have a continuing impact on our supply chain, for example by affecting the speed at which the factories that manufacture our products are able to resume normal operations and production levels after initial or subsequent waves of closures, and the extent that the health crisis may abate in particular countries is uncertain.
−Removed: Since the second fiscal quarter of 2020, we have resumed many investments and previously deferred expenditures, but we anticipate that our decisions regarding these matters will continue to evolve in response to changing business circumstances including further developments with respect to the pandemic .
−Removed: For example, real estate development counterparties with respect to some of our Gallery development projects have withdrawn from these projects as a result of capital or liquidity constraints due to COVID-19 related difficulties, and these and other similar factors may impact the timing or scope of some of our new Galleries .
−Removed: We have recently commenced an effort to expand our business internationally by establishing a new retail presence in global markets including the United Kingdom and various locations in continental Europe.
−Removed: The ongoing global impact of COVID-19, including travel restrictions imposed by various countries, may continue to affect certain aspects of our planned international expansion and has been a major factor in our decision to delay the timing of our previous plans to open a number of our international locations.
−Removed: In addition, we are in the process of developing a number of new Gallery locations in the U.S.
−Removed: and we are modifying a number of these plans based upon the right real estate development strategy including the selection of appropriate counterparties in markets where our prior strategy or plans are no longer applicable.
−Removed: Adverse developments with counterparties for some of our Gallery development projects may impact the timing or scope of some of our development projects.
−Removed: In addition, our RH Guesthouse initiative may be negatively impacted by the disease outbreak as international, federal, state and local governments have restricted travel, conferences, events and gatherings.
−Removed: Any of these negative developments could cause us to decide to curtail and/or further postpone business investments including those related to opening new Galleries in the U.S.
−Removed: as well as other initiatives including our international expansion.
−Removed: Our business also depends on a number of third parties including vendors, landlords, lenders and other suppliers.
−Removed: One or more of these third parties may experience financial distress, staffing shortages or liquidity challenges, file for bankruptcy protection, go out of business, or suffer disruptions in their business due to the COVID-19 pandemic.
−Removed: The pandemic and resulting macroeconomic conditions could have a material adverse effect on the financial condition of third parties that are essential to our business operations and we may incur losses and other negative impacts for difficulties experienced by our vendors and other third parties.
+Added: There have been substantial disruptions with respect to the global supply chain as a result of the pandemic.
+Added: The presence of the virus and the response to the health crisis in various countries is likely to have a continuing impact on our supply chain, for example by affecting the speed at which the factories that manufacture our products are able to resume normal operations and production levels after closures.
+Added: FORM 10-K | 13
Changes in consumer spending and factors that influence spending of the specific categories of consumers that purchase from us, including the health of the high-end housing market, may significantly impact our revenue and results of operations.
We target consumers of high-end home furnishings as customers for our products.
−Removed: As a result, we believe that our sales are sensitive to a number of factors that influence consumer spending generally, but are particularly affected by the financial health of the higher end customer and demand levels from that customer demographic.
+Added: As a result, we believe that our sales are sensitive to a number of factors that influence consumer spending generally, but are particularly affected by the financial health of and demand levels from the higher-end customer demographic.
In addition, not all macroeconomic factors are highly correlated in their impact on lower end housing versus the higher-end customer.
Demand for lower priced homes and first-time home buying may be influenced by factors such as employment levels, interest rates, demographics of new household formation and the affordability of homes for the first-time home buyer.
−Removed: The higher end of the housing market may be disproportionately influenced by other factors including the number of foreign buyers in higher end real estate markets in the U.S., the number of second and third homes being sold, stock market volatility and illiquid market conditions, global economic uncertainty, decreased availability of income tax deductions for mortgage interest and state income and property taxes, and the perceived prospect for capital appreciation in higher end real estate.
−Removed: Shifts in consumption patterns linked to the reopening of businesses in light of improvements relating to the COVID-19 pandemic may also have an impact on consumer spending in the high-end housing market.
−Removed: Further, in recent periods the stock market has experienced significant volatility as well as periods of significant decline, and rising house prices have dampened and increases in interest rates may dampen growth in the U.S.
−Removed: housing market and may depress consumer optimism about the U.S.
−Removed: housing market and home buying in the higher end of the housing market.
−Removed: We have determined that our customer purchasing patterns are influenced by economic factors including the health and volatility of the stock market.
−Removed: We have seen that previous declines in the stock market and periods of high volatility have been correlated with a reduction in consumer demands for our products.
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−Removed: There can be no assurance that some of the other macroeconomic factors described above will not adversely affect the higher end consumer that we believe makes up the bulk of our customer demand.
+Added: The higher-end of the housing market may be disproportionately influenced by other factors including the number of foreign buyers in higher-end real estate markets in the U.S., activity in luxury and second home markets, the number of second and third homes being built and sold, stock market valuation and overall equity market conditions, global economic uncertainty, inflation, decreased availability of income tax deductions for mortgage interest and state income and property taxes, and the perceived prospect for capital appreciation in higher-end real estate.
+Added: The stock market recently has experienced periods of significant volatility and there have been declines in some asset prices.
+Added: Increases in interest rates may affect asset valuations and may dampen growth in and consumer optimism about the U.S.
+Added: housing market and could depress home buying and/or prices in the higher-end of the housing market.
+Added: We believe that the purchasing patterns of our customers are influenced by a number of factors much more than the overall housing market including activity in the high-end and secondary housing segment as well as the health and volatility of the stock market.
+Added: Previous declines in the stock market and periods of high equity market volatility have correlated with a reduction in consumer demand for our products.
We believe that a number of these factors have in the past had, and may in the future have, an adverse impact on the high-end retail home furnishings sector and affect our business and results.
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We must successfully manage our supply chain and vendors in order to produce sufficient quantities of products that our customers wish to purchase in a timely manner.
−Removed: We must manage our supply chain and inventory levels, including predicting the appropriate levels and type of inventory to stock within each of our distribution centers, such that our “in stock” position in merchandise correlate well to consumer demand and expected delivery times.
−Removed: Because much of our merchandise requires that we provide vendors with significant ordering lead times, frequently before market factors are known, we may not be able to source sufficient inventory to meet demand if our products prove more popular than anticipated.
+Added: We must manage our inventory levels, including predicting the appropriate levels and type of inventory to stock within each of our distribution centers, such that our “in stock” position in merchandise correlates well to consumer demand and expected delivery times.
+Added: Because much of our merchandise requires that we provide vendors with significant ordering lead times, often before market factors are known, we may not be able to source sufficient inventory to meet demand if our products prove more popular than anticipated.
In addition, our current initiatives to streamline and optimize our inventory levels may not be successful and implementing such initiatives may complicate our efforts to manage our supply chain.
−Removed: To the extent our business initiatives result in new product lines, new product or service offerings or further expand into new markets in the U.S.
−Removed: or abroad, we may need to establish new vendor relationships or new supply chain operations, which may expose us to new counterparty, regulatory, market or other risks and which may not be successful.
−Removed: We have experienced periods in which some of our vendors were not able to meet customer demand levels for certain products resulting in significant back orders for goods, higher rates of cancellation on orders in process and, in some instances, the loss of customer sales when orders could not be completed in a timely manner.
−Removed: During fiscal 2020, we experienced substantial increases in delays in customer orders as a result of disruption in the global supply chain as a result of the COVID-19 pandemic.
−Removed: These conditions are likely to persist to some extent during fiscal 2021 and there can be no assurance how long it will take for conditions to return to normal.
−Removed: In addition, vulnerabilities in the information systems of our vendors could make our vendors the targets of cybersecurity breaches or cyber fraud, which could result in disruptions in our supply chain and product sourcing.
−Removed: Further, the seasonal nature of some of our products requires us to carry a significant amount of inventory prior to certain selling seasons.
+Added: To the extent our business initiatives result in new product lines or service offerings or further expansion into new markets, we may need to establish new vendor relationships or supply chain operations, which may expose us to new counterparty, regulatory, market or other risks and which may not be successful.
+Added: We have experienced periods in which some of our vendors were not able to meet customer demand for certain products resulting in significant back orders for goods, higher rates of cancellation on orders in process and, in some instances, loss of customer sales when orders could not be completed in a timely manner.
+Added: During the COVID-19 pandemic and continuing in fiscal 2021, disruptions in the global supply chain have adversely affected our business including leading to substantial back orders and deferred sales.
+Added: There can be no assurance as to how long such conditions in the supply chain will persist or exactly how they may continue to affect our business during fiscal 2022 and beyond.
+Added: For example, increases in costs for shipping merchandise from China to the United States could increase our costs.
+Added: In addition, the seasonal nature of some of our products requires us to carry a significant amount of inventory prior to certain selling seasons.
If we are unable to accurately predict and track demand, we may be required to mark down the price of certain products in order to sell excess inventory or we may be required to sell such inventory through our outlet stores or warehouse sales.
−Removed: If the dislocations in our supply chain do not recover as quickly as we anticipate, we may be delayed in our ability to convert business demand into revenues.
+Added: If the dislocations in our supply chain do not recover as quickly as we anticipate, we may be delayed in our ability to convert business demand into revenues and we may experience increased costs for merchandise.
For these reasons, our results of operations in any given quarterly period may be adversely affected.
3 unchanged sentences
Some of our merchandise has failed to meet our expectations and objectives concerning quality.
−Removed: Our emphasis in merchandise quality is increasing as we strive to elevate our brand.
−Removed: We have in recent periods, and may in the future, recalled products from the market due to quality or other issues.
−Removed: Despite our ongoing efforts to improve customers’ satisfaction with their experience at RH, we may fail to maintain the necessary level of quality for some of our products in order to satisfy our customers.
−Removed: For example, our vendors may not be able to continuously adhere to our quality control standards, and we might not identify a quality deficiency before merchandise ships to our stores or customers.
−Removed: Our failure to supply high quality merchandise in a timely and effective manner to our customers, our announcement of additional product recalls, or any perception that we are not adequately maintaining our sourcing and quality control processes in order to anticipate product quality issues could damage our reputation and brand image, and could lead to an increase in product returns or exchanges or customer litigation against us and a corresponding increase in our routine and non-routine litigation costs.
−Removed: Further, any merchandise that does not meet our quality standards or applicable government requirements could trigger high rates of customer complaints or returns, become subject to a product recall and/or attract negative publicity, which could in turn damage our reputation and brand image, result in consumer litigation (including class-action lawsuits), and harm our business.
−Removed: With the growth in importance and the impact of social media, the magnitude of such harm to our business, reputation and brand image may be significantly amplified.
−Removed: We are making changes in many aspects of our business processes that affect our customers, including improvements in product quality and enhancements in sourcing, product availability, which are expected to include increasingly significant operational and other changes in the near term, may complicate our supply chain and quality control process, and any inability to invest sufficient resources in quality control and compliance processes or significant turnover in the personnel dedicated to such function may result in quality control issues or product recalls.
−Removed: Even if we detect that merchandise is defective or otherwise not in compliance with our product quality standards before such merchandise is shipped to our customers, we may not be able to return such products to the vendor, obtain a refund of our purchase price from the vendor or obtain other indemnification from the vendor.
+Added: Our emphasis on merchandise quality is increasing as we strive to elevate our brand.
+Added: In recent periods we have recalled products due to quality or other issues and may recall others in the future.
+Added: Despite our ongoing efforts to improve customer satisfaction, we may fail to maintain the level of quality for some of our products that is necessary to satisfy our customers.
+Added: For example, our vendors may not adhere to our quality control standards, and we may not identify a quality deficiency before merchandise ships to our stores or customers.
+Added: Failure to supply our customers with high-quality merchandise in a timely and effective manner, additional product recalls, or any perception that we are not maintaining adequate sourcing and quality control processes could damage our reputation and brand image and lead to an increase in product returns or exchanges or in customer litigation (including class-action lawsuits), increasing routine and non-routine litigation costs.
+Added: In addition, social media may magnify any harm to our business, reputation and brand image.
+Added: We are changing many aspects of our business processes, including improving product quality and enhancing sourcing and product availability, which may complicate our supply chain and quality control processes and result in quality issues or product recalls.
+Added: Even if we detect that merchandise is defective or otherwise not in compliance with our product quality standards, we may not be able to return such products to the vendor or obtain a refund or other indemnification from the vendor.
The limited capacities of certain of our vendors may constrain the ability of such vendors to replace any defective merchandise in a timely manner.
Similarly, the limited capitalization and liquidity of certain of our vendors and their lack of insurance coverage for product recall claims may result in such vendors being unable to refund our purchase price or pay applicable penalties or damages associated with any such defects or resulting product recalls.
−Removed: If we are unable to maintain and enhance our brand or market our product offerings, we may be unable to attract a sufficient number of customers or sell sufficient quantities of our products.
+Added: Our business depends on the strength of our brand and continuing investments in our brand will be an important requirement for our future success.
Our business depends in part on a strong brand image, and we continue to invest in the development of our brand and the marketing of our business.
−Removed: We believe that the brand image we have developed, and the lifestyle image associated with our brand, have contributed significantly to the success of our business to date.
+Added: We believe that our brand image has contributed significantly to the success of our business to date.
Our increased focus on elevating RH as a luxury brand further increases the importance of our brand image, position and reputation.
−Removed: We also believe that maintaining and enhancing our brand is integral to the future of our business and to the implementation of our strategies for expanding our business.
−Removed: This will require us to continue to make investments in areas such as marketing and advertising, as well as the day-to-day investments required for store operations, Source Book mailings, website operations and employee training.
+Added: We also believe that maintaining and enhancing our brand is integral to the future of our business and the implementation of our strategies for expansion.
+Added: This will require us to continue making investments in areas that support the strength of our brand.
Our brand image may be diminished if new products, services or other businesses fail to maintain or enhance our distinctive brand image.
Additionally, our reputation could be jeopardized if we fail to maintain high standards for merchandise and service quality.
−Removed: With the growth in importance and the impact of social media, any negative publicity from product defects, recalls or failures in service may be magnified and reach a large portion of our customer base in a very short period of time, which could harm the value of our brand and, consequently, our financial performance could suffer.
−Removed: We may also suffer reputational harm if we fail to maintain high ethical, social and environmental standards for all of our operations and activities, if we fail to comply with local laws and regulations or if we experience other negative events that affect our image or reputation.
+Added: With the growth in importance and the impact of social media, any negative publicity from product defects, recalls or service failures may be magnified and reach a large portion of our customer base in a short period of time, which could harm the value of our brand and, consequently, our financial performance.
+Added: We may also suffer reputational harm if we fail to maintain high ethical, social and environmental standards for all of our operations and activities, if we fail to comply with local laws and regulations, if we fail to deliver high-quality merchandise, or if we experience other negative events that affect our image.
Any failure to maintain a strong brand image could have an adverse effect on our sales and results of operations.
−Removed: FORM 10-K | 19
−Removed: Our failure to successfully manage the strategy and costs of promoting our brand and products could have a negative impact on our business.
As a luxury brand, we rely on a number of initiatives to sustain our image and to promote our products in the marketplace.
Our physical retailing presence, primarily in the form of our galleries, is one of the most important initiatives that we use to display our product offering.
−Removed: We also our website and other digital efforts, as well as our Source Books, to showcase a larger portion of our assortment.
−Removed: We continue to adjust and refine our strategy, including our digital initiatives and mailings, based on a variety of factors, including the success of the various changes that we adopt.
−Removed: During fiscal 2020, we increased our investment in certain digital initiatives and we expect to continue some of these investments.
−Removed: We can provide no assurances as to the success of any strategy we pursue as we seek to communicate with consumers, including by increased investment in digital initiatives.
−Removed: Expenditures on our catalog strategy may result in the production of too many Source Books, which could negatively affect our operating margins.
−Removed: Reducing expenditures on our catalog strategy, however, could overly restrict catalog circulation and have a negative effect on our revenues.
−Removed: Our efforts to optimize our Source Books and strategies for use of the Source Books to market our business may encounter difficulties.
−Removed: There can be no assurance that we will be successful as we make changes to our Source Book strategy including with respect to the cadence and timing of mailings, the format of the Source Books, the team we staff for optimizing our Source Book format and mailings, and the use of the Source Books as a marketing and promotional tool including with respect to prospecting for new customers.
+Added: We also use our website and other digital efforts, as well as our Source Books, to showcase a larger portion of our assortment.
+Added: We continue to adjust and refine our strategy based on a variety of factors, including the success of the various changes that we adopt.
+Added: During fiscal 2021, we increased our investment in certain digital initiatives and we expect to continue these initiatives.
+Added: Expenditures on our catalog strategy have historically represented a substantial portion of our expense in marketing and promoting our business.
+Added: We are adjusting our strategies with respect to the use of Source Books.
+Added: There can be no assurance that we will be successful as we make changes in order to optimize our Source Book strategy including with respect to the cadence and timing of mailings, the format of the Source Books and the use of the Source Books as a marketing and promotional tool including with respect to prospecting for new customers.
If we fail to adequately adjust our catalog strategy to meet our goals, or if our catalog strategy is unsuccessful, our results of operations could be negatively impacted.
−Removed: We also rely on customary discounts from the basic shipping rate structure that are available for our catalog mailings, which could be changed or discontinued at any time, and we are subject to fluctuations in the market price for paper, which has historically fluctuated significantly and may continue to fluctuate in the future.
Future increases in shipping rates, paper costs or printing costs would have a negative impact on our results of operations to the extent that we are unable to offset such increases through increased sales or by raising prices, by implementing more efficient printing, mailing, delivery and order fulfillment systems, or by using alternative direct-mail formats.
−Removed: We have historically experienced fluctuations in customer response to our Source Books.
−Removed: Customer response depends substantially on product assortment, product availability and creative presentation, the selection of customers to whom the catalogs are mailed, changes in mailing strategies, page size, page count, frequency and timing of delivery of catalogs, as well as the general retail sales environment and current domestic and global economic conditions.
−Removed: The failure to effectively produce or distribute our catalogs could affect the timing of catalog delivery.
−Removed: The timing of catalog delivery has in the past been, and in the future can be, affected by shipping service delays.
−Removed: Any delays in the timing of catalog delivery could cause customers to forgo or defer purchases.
If the performance of our catalogs declines, if we misjudge the correlation between our catalog circulation and net revenues, or if our catalog circulation optimization strategy is not successful, our results of operations could be negatively impacted.
+Added: FORM 10-K | 15
Competition in the home furnishings sector may adversely affect our future financial performance.
The home furnishings sector is highly competitive.
−Removed: We compete with the interior design trade and specialty stores, as well as antique dealers and other merchants that provide unique items and custom-designed product offerings at higher price points.
−Removed: We also compete with national and regional home furnishing retailers and department stores.
+Added: We compete with the interior design trade and specialty stores, as well as antique dealers and other merchants that provide unique items and custom-designed products at higher price points.
+Added: We also compete with national and regional home furnishing retailers and department stores and will face new competitors as we expand our business into new geographic markets.
In addition, we compete with mail order catalogs and online retailers focused on home furnishings.
−Removed: There are an increasing number of online and digital centric business models in the home furnishings sector and the impact of these competitors on other home furnishing businesses is uncertain although some of these digital offerings have gained market share primarily in areas outside the luxury end of the market.
−Removed: 20 | FORM 10-K
−Removed: We compete generally with these other retailers for customers, suitable retail locations, vendors, qualified employees and senior leadership personnel.
−Removed: As we have traditionally been a leader in the home furnishings sector, some of our competitors have also attempted to imitate our product offerings and business initiatives from time to time in the past.
−Removed: In addition, many of our competitors have significantly greater financial, marketing and other resources than we do and therefore may be able to devote greater resources to the marketing and sale of their products, generate greater national brand recognition or adopt more aggressive pricing policies than we can.
−Removed: Such competitors may also be able to adapt to changes in customer preferences more quickly than we can due to their greater financial or marketing resources, through new product launches or by adapting their business models and operations to new customer trends, which may in turn change how our customers acquire products or view our business and brand.
−Removed: Further, increased catalog mailings by our competitors may adversely affect response rates to our own Source Book mailings.
+Added: There are an increasing number of online and digital centric business models in the home furnishings sector and the impact of these competitors on other home furnishing businesses is uncertain.
There can be no assurance that such competitors will not be more successful than us, based on imitation or otherwise, or that we will be able to continue to maintain a leadership position in style and innovation in the future.
1 unchanged sentence
If we are not successful in such litigation, our business could be harmed.
−Removed: If we fail to successfully anticipate consumer preferences and demand our results of operations may be adversely affected.
−Removed: We are vulnerable to customer preferences and demand.
−Removed: Our success depends in large part on our ability to originate and define home product trends, as well as to anticipate, gauge and react to changing consumer demands in a timely manner.
−Removed: Our products must appeal to a range of consumers whose preferences cannot always be predicted with certainty.
−Removed: We cannot assure you that we will be able to continue to develop products that customers positively respond to or that we will successfully meet consumer demands in the future.
−Removed: Any failure on our part to anticipate, identify or respond effectively to consumer preferences and demand could adversely affect sales of our products, which could have a material adverse effect on our financial condition and results of operations.
We are subject to risks associated with our dependence on foreign manufacturing and imports for our merchandise.
−Removed: Based on total dollar volume of purchases for fiscal 2020, approximately 72% of our products were sourced from Asia, 15% from the U.S.
−Removed: and the remainder from other countries and regions.
−Removed: For fiscal 2020, approximately 35% of our products were sourced from China.
+Added: Based on total dollar volume of purchases for fiscal 2021, 69% of our products were sourced from Asia, with 34% sourced from China, 15% from the U.S.
+Added: and the remainder from other countries and source regions.
We expect the amount of products that we source from China will be lower in fiscal 2022 compared to fiscal 2021, but the exact product mix in terms of vendor factory locations is subject to a range of different factors and is inherently difficult to predict with accuracy.
2 unchanged sentences
As a result, our business highly depends on global trade, as well as any trade and or other factors that impact the specific countries where our vendors’ production facilities are located.
−Removed: Our future success will depend in large part upon our ability to maintain our existing foreign vendor relationships and to develop new ones based on the requirements of our business and any changes in trade dynamics that might dictate changes in the locations for sourcing of products.
−Removed: In addition, we face risks related to the ability of our vendors to scale their operations whether in connection with new products we introduce or new production manufacturing locations that may be added to our supply chain, which in some cases would require substantial ongoing investments to support additional capacity.
+Added: Our future success will depend in large part upon our ability to maintain our existing foreign vendor relationships and to develop new ones and any changes in trade dynamics that might dictate changes in the locations for sourcing of products.
+Added: In addition, we face risks related to the ability of our vendors to scale their operations whether in connection with new products we introduce or new production manufacturing locations added to our supply chain, which in some cases would require substantial ongoing investments to support additional capacity.
In addition, we have previously encountered difficulties in the ability of our vendors to scale production commensurate with demand from our customers.
While we rely on long-term relationships with many of our vendors, we do not rely on long-term contracts with our vendors and generally transact business with them on an order-by-order basis.
−Removed: FORM 10-K | 21
Many of our imported products are subject to existing duties, tariffs, anti-dumping duties and other similar trade restrictions that may limit the quantity or affect the price of some types of goods that we import into the U.S.
−Removed: In addition, substantial regulatory uncertainty exists regarding international trade relations and trade policy, both in the U.S.
+Added: In addition, substantial regulatory uncertainty exists regarding international trade relations and trade policy.
An introduction of new duties, tariffs, quotas or other similar trade restrictions, or increases in existing duties or tariff rates, on products imported into the U.S.
and Canada, whether actual, pending or threatened, may have a negative impact on our results of operations.
−Removed: Significant uncertainty exists as to whether and when tariffs may be imposed, and what countries may be implicated.
−Removed: For example, proposed tariffs on goods imported from Mexico have been introduced and subsequently withdrawn by the U.S.
−Removed: government has also launched an investigation into currency manipulation and timber trade practices in Vietnam that may result in increased tariffs in imports to the United States from Vietnam.
−Removed: Additionally, the Canadian Border Services Agency has initiated an investigation into alleged injurious dumping and subsidizing of certain upholstered domestic seating originating in or exported from China and Vietnam and imported into Canada.
+Added: Significant uncertainty exists as to whether and when tariffs may be reduced or imposed, and what countries may be implicated.
Given that we cannot reasonably predict the timing or outcomes of trade actions by the U.S.
1 unchanged sentence
Additionally, such uncertainties, even if not directly applicable to our imported products, may have a negative influence on the domestic and international economy generally and indirectly reduce market demand for our products.
−Removed: A significant subset of our products sourced from China has been affected by increased levels of tariffs that were imposed in 2018 and 2019.
−Removed: The initial round of these increased tariffs became effective on certain products that we source from China including furniture and lighting initially as a 10 percent ad valorem duty on September 24, 2018, which amount increased to 25 percent on May 10, 2019, and were slated to increase further to 30 percent on October 1, 2019 before an interim deal was reached between the U.S.
−Removed: On August 1, 2019, a new 10 percent ad valorem duty on additional categories of goods imported from China was announced, which amount was then increased to 15 percent on August 23, 2019.
−Removed: The new tariff at the rate of 15 percent became effective September 1, 2019 with respect to certain categories of goods and had been expected to become effective for additional categories of goods on December 15, 2019.
+Added: has imposed tariffs on certain products imported into the U.S.
+Added: from China and could propose additional tariffs.
+Added: A significant subset of our products sourced from China has been affected by increased tariffs imposed in 2018 and 2019.
In January 2020, the U.S.
1 unchanged sentence
will modify its Section 301 tariff actions and which suspended the tariff on this additional set of goods.
−Removed: Further, as of February 14, 2020, the 15 percent tariff which was implemented on September 1, 2019 was reduced to 7.5 percent.
+Added: Further, as of February 14, 2020, the 15 percent tariff implemented on September 1, 2019 was reduced to 7.5 percent.
While the trade deal remains effective, there is no guarantee that the agreement will be honored by either party, and it could be subject to further revision or renegotiation.
−Removed: While we have been working with our vendor partners on mitigation strategies to seek to address the impact of the tariffs on goods imported from China, such efforts may not be fully sufficient to remediate the impact of the existing ad valorem duty on certain products imported from China or the future ad valorem duties to be imposed on products from China.
−Removed: In addition, such mitigation efforts may not be successful with respect to other pending or future increases in tariffs.
−Removed: While the Biden Administration has indicated that it will not take immediate action to modify these existing tariffs, there is substantial uncertainty regarding the possible application of additional tariffs with respect to China and the possible imposition of tariffs on trade with additional countries other than China.
−Removed: We may not be able to anticipate the exact contours of tariffs and other burdens on global trade that may become applicable and our efforts to respond to these circumstances may be inadequate.
+Added: The Biden Administration has indicated that it will not take immediate action to modify these existing tariffs, there is substantial uncertainty regarding the possible application of additional tariffs with respect to China and other countries as well as potential retroactive liabilities for additional duties.
+Added: In addition, the U.S.
+Added: Government has imposed import restrictions under the Withhold Release Orders for goods such as cotton products from the Xinjiang Uyghur Autonomous Region (“XUAR”) and under the Uyghur Forced Labor Prevention Act which may induce greater supply chain compliance costs and delays to us and to our vendors.
+Added: We may not be able to anticipate the exact contours of tariffs and other burdens on global trade that become applicable and our efforts to respond to these circumstances may be inadequate.
In particular, we may not be able to receive or sustain adequate pricing concessions from our vendors with respect to applicable tariffs and any applicable pricing increases that we seek to pass through to our customers may not be successful in achieving our objectives.
Our sales may fall in response to any price increases and our vendors may not be able to support the level of pricing concessions that we seek.
−Removed: In addition, we are undertaking ongoing efforts to examine our sourcing strategy in a comprehensive way in order to achieve the best possible outcomes for our business.
−Removed: Such efforts include addressing among other factors the country of origin and the current and potential future imposition of tariffs with respect to particular countries of origin.
−Removed: These efforts to optimize our supply chain may not be successful and we may encounter various obstacles to these and other related initiatives.
−Removed: Although we have moved some of our merchandise sourcing away from China to other countries, these efforts may not achieve the desired outcomes.
−Removed: For example, we may not be able to move sufficient quantities of our product manufacturing to new locations outside of China and the quality of products manufactured in new factories may not meet the requirements of our business.
−Removed: In addition, we may encounter logistics and other challenges in moving manufacturing to new jurisdictions including the potential imposition of new tariffs on products sourced from such other jurisdictions.
−Removed: In addition, there can be no assurance that tariffs that are imposed or proposed will not become effective on a longer term basis.
−Removed: In the event that any tariffs applicable to our business become applicable on a longer term basis, there can be no assurance that our efforts to mitigate the impact of such longer term tariffs will be successful.
16 | FORM 10-K
−Removed: There can be no assurance that we will not experience disruption in our business related to tariffs or other changes in trade practices and applicable rules or as a result of our efforts to respond to these matters.
−Removed: Tariffs and other similar trade actions are inherently unpredictable and can change quickly based on political or economic pressures or policy changes.
−Removed: Any changes to tariffs or other rules and practices related to cross border trade, including the possible implementation of additional tariffs, could materially increase our cost of goods sold with respect to merchandise that we purchase from vendors who manufacture products in China or other countries outside the U.S., which could in turn require us to increase our prices and, in the event consumer demand declines as a result, negatively impact our financial performance.
−Removed: While we may seek to adopt mitigation measures and changes to our business practices to seek to counteract the effect of such tariffs on our business and results of operations, due to multiple factors that can occur in the context of trade disputes and the inherent unpredictability of how customers and market participants may respond, any mitigation measures we adopt may be not achieve their intended purpose.
−Removed: Certain of our competitors may be better positioned than us to withstand or react to these kinds of changes including border taxes, tariffs or other restrictions on global trade and as a result we may lose market share to such competitors.
−Removed: In addition, to the extent that our competitors, our vendors or companies in other industries that manufacture products in China respond to the tariffs imposed to date or the possibility of future tariffs by shifting production to other countries in Asia or to other regions, the costs of production in such countries may increase, which may increase our costs or otherwise have an adverse impact on our product supply chain.
−Removed: Similarly, to the extent that we or our vendors respond to the tariffs imposed to date or the possibility of future tariffs by shifting merchandise purchases or production to other countries in Asia or to other regions, we may face delays or costs associated with developing new vendor relationships and our vendors may face delays or costs associated with bringing online new manufacturing facilities, which may increase the cost of our products or cause delays in the shipment of our merchandise that result in the cancellation of orders by our customers.
−Removed: An interruption or delay in supply from our foreign sources, or the imposition of additional duties, taxes or other charges on these imports, could have a material adverse effect on our business, financial condition and results of operations unless and until alternative supply arrangements are secured.
−Removed: Due to broad uncertainty regarding the timing, content and extent of any regulatory changes in the U.S.
−Removed: or abroad, we cannot predict the impact, if any, that these changes could have to our business, financial condition and results of operations.
−Removed: Our dependence on foreign imports also makes us vulnerable to risks associated with products manufactured abroad, including, among other things, risks of damage, destruction or confiscation of products while in transit to our distribution centers located in the U.S., product quality control charges on or assessment of additional import duties, tariffs, anti-dumping duties and quotas, loss of “most favored nation” trading status by our foreign trading partners with the U.S., work stoppages, including without limitation as a result of events such as longshoremen strikes, transportation and other delays in shipments, including without limitation as a result of heightened security screening and inspection processes or other port-of-entry limitations or restrictions in the U.S., freight cost increases, political unrest, economic uncertainties, including inflation, foreign government regulations, trade restrictions, increased labor costs and other similar factors that might affect the operations of our vendors in specific countries such as China.
+Added: Our dependence on foreign imports makes us vulnerable to other risks associated with products manufactured abroad, including, among other things, risks of damage, destruction or confiscation of products while in transit to our U.S.
+Added: distribution centers, product quality control charges on or assessment of additional import duties, tariffs, anti-dumping duties and quotas, loss of “most favored nation” trading status by our foreign trading partners with the U.S., work stoppages, including without limitation as a result of events such as longshoremen strikes, transportation and other delays in shipments, including without limitation as a result of heightened security screening and inspection processes or other port-of-entry limitations or restrictions in the U.S., freight cost increases, political unrest, economic uncertainties, including inflation, foreign government regulations, trade restrictions, increased labor costs and other similar factors that might affect the operations of our vendors in specific countries such as China or related to Russia.
+Added: Due to the recent developments in Ukraine and the ensuing sanctions imposed on certain regions of Ukraine and on Russia, Russian entities, and Russian financial institutions, our supply chain may be impacted by applicable restrictions and the scope of such restrictions is subject to ongoing change in response to the conflict in Ukraine.
+Added: In addition, due to countermeasures (“countersanctions”) imposed by the Russian government, the sourcing of certain products that use Russian wood may be affected.
+Added: While we do not directly source wood from Russia, the global impact of the unprecedented trade restrictions on Russia and by Russia could require us to change our practices and impose greater compliance measures to protect us from sanctions or countersanctions.
+Added: We are continually monitoring the evolving sanctions and regularly review our sourcing practices for compliance purposes.
In addition, there is a risk of compliance violations by our vendors, which could lead to adverse consequences related to the failure of our vendors to adhere to applicable manufacturing requirements or other applicable rules or regulations.
1 unchanged sentence
Any failure by our vendors outside the U.S.
−Removed: to adhere to applicable legal requirements or our global compliance standards such as fair labor standards, prohibitions on child labor and other product safety or manufacturing safety standards could give rise to a range of adverse consequences including the disruption of our supply chain as well as potential liability to us and harm our reputation and brand and could subject us to other adverse consequences including boycotts by our consumer or special interest groups including activists, any of which actions could negatively affect our business and results of operations.
−Removed: FORM 10-K | 23
+Added: to adhere to applicable legal requirements or our global compliance standards, such as fair labor standards and prohibitions on forced labor and child labor, could give rise to a range of adverse consequences, including supply chain disruption, potential liability, harm to our reputation and brand, and boycotts by consumers or special interest groups, any of which could negatively affect our business and results of operations.
Our growth strategy and performance depend on our ability to purchase quality merchandise in sufficient quantities at competitive prices, including products that are produced by artisans and specialty vendors.
7 unchanged sentences
We also may be required to develop such new vendor relationships in response to changes in our supply chain.
−Removed: For example, the Biden Administration has indicated that it will retain existing tariffs imposed on China’s exports in the near-term if not longer, and may impose additional trade measures involving China and other countries that could adversely affect the cost of our products sourced from our vendors in China or such other locations.
Even if we do identify such new vendors, we may experience product shortages and customer backorders as we transition our product requirements to incorporate alternative suppliers.
−Removed: Our relationship with any new vendor would be subject to the same or similar risks as those of our existing suppliers.
+Added: FORM 10-K | 17
Furthermore, our growth strategy includes expanding our product assortment, and our performance depends on our ability to purchase our merchandise in sufficient quantities at competitive prices.
2 unchanged sentences
In some cases, we have advanced payments to vendors in order to assist a vendor in funding additional merchandise production to meet our orders.
−Removed: We may advance a portion of the payments to be made to some vendors under our purchase orders prior to the delivery of the ordered products.
These advance payments are normally unsecured.
Vendors may become insolvent and their failure to repay our advances, and any failure to deliver products to us, could have a material adverse impact on our results of operations.
−Removed: There can be no assurance that the capacity of any particular vendor will continue to be able to meet our supply requirements in the future, as our vendors may be susceptible to production difficulties or other factors that negatively affect the quantity or quality of their production during future periods.
−Removed: A disruption in the ability of our significant vendors to access liquidity could also cause serious disruptions or an overall deterioration of their businesses, which could lead to a significant reduction in their ability to manufacture or ship products to us.
−Removed: Any difficulties that we experience in our ability to obtain products in sufficient quality and quantity from our vendors could have a material adverse effect on our business.
−Removed: Our vendors may sell similar or identical products to our competitors or on their own, which could harm our business.
−Removed: Because the arrangements with our vendors are generally not exclusive, many of our vendors might be able to sell similar or identical products to our competitors.
+Added: Because the arrangements with our vendors are generally not exclusive, many of our vendors might be able to sell similar or identical products to our competitors or directly to consumers.
Our competitors may enter into arrangements with suppliers that could impair our ability to sell those suppliers’ products, including by requiring suppliers to enter into exclusive arrangements, which could limit our ability to enter into arrangements with such suppliers or otherwise access their products.
Such competitors may also purchase products in significantly greater volume that we do, which may enable them to sell the products at reduced cost or flood the market with similar products.
−Removed: Our vendors could also initiate or expand sales of their products through vendor-owned stores or through the Internet to the retail market and therefore directly compete with us or sell their products through outlet centers or discount stores, increasing the competitive pricing pressure we face.
−Removed: Any of the above factors could negatively affect our business and results of operations.
−Removed: 24 | FORM 10-K
−Removed: Our results may be adversely affected by fluctuations in raw materials, energy costs and currency exchange rates.
−Removed: Increases in the prices of the components and raw materials used in our products could negatively affect the sales of our merchandise and our product margins.
−Removed: For example, in recent periods the cost of our products have come under pressure from increased prices for raw materials and shipping and other costs in connection with the COVID-19 pandemic.
+Added: Any difficulties that we experience in our ability to obtain products in sufficient quality and quantity from our vendors could have a material adverse effect on our business.
+Added: Our results may be adversely affected by fluctuations in raw materials, energy and transportation costs and currency exchange rates.
+Added: Increases in the prices of the components and raw materials used in our products and other costs such as transportation could negatively affect the sales of our merchandise and our product margins.
+Added: For example, in recent periods the cost of our products have come under pressure from increased prices for raw materials and shipping and other costs including in part as a result of the COVID-19 pandemic.
Our business may also be affected by changes in currency exchange rates and as we expand our business internationally, we may be increasingly exposed to risks related to currency values.
−Removed: Changes in prices for raw materials and fluctuations in exchange rates are dependent on a number of factors beyond our control, including macroeconomic factors that may affect commodity prices (including prices for oil, lumber and cotton);
+Added: Changes in prices for raw materials, energy and transportation and fluctuations in exchange rates are dependent on a number of factors beyond our control, including macroeconomic factors that may affect commodity prices (including prices for oil, lumber and cotton);
changes in supply and demand;
1 unchanged sentence
significant political events;
−Removed: import duties, tariffs, anti-dumping duties and other similar costs;
−Removed: currency exchange rates and government regulation;
−Removed: and events such as natural disasters and widespread outbreaks of infectious diseases (such as the ongoing COVID-19 pandemic).
−Removed: In addition, energy costs have fluctuated dramatically in the past and, in recent periods, energy prices have been declining and could experience significant volatility in the near term.
+Added: duties and tariffs and other similar factors.
Depending on the nature of changes in these different factors that affect our business, we may experience an adverse impact on our business for different reasons including increased costs of operation or lower demand for our products.
−Removed: We may experience slower demand from customers in markets that depend upon energy prices for a portion of their economic activity.
Changes in the value of the U.S.
3 unchanged sentences
We are pursuing various alternatives to traditional leasing of our Gallery locations that may subject us to a range of risks related to real estate development including risks related to construction and development of locations, risks related to the financing of commercial real estate and the market for commercial real estate.
−Removed: We lease nearly all of our retail store locations and we also lease our outlet stores, our corporate headquarters and other storage and office space, and our distribution and home delivery facilities.
+Added: We lease nearly all of our retail store locations, our outlet stores, our corporate headquarters, other storage and office space, and our distribution and home delivery facilities.
The initial lease term of our retail locations generally ranges from ten to fifteen years, and certain leases contain renewal options for anywhere from ten to twenty-five years.
−Removed: The initial lease term for one of our future Design Galleries is forty-one years, and contains a renewal option for five years.
+Added: The initial lease term for one of our future Design Galleries is forty-six years and contains a renewal option for five years.
Most leases for our retail locations provide for a minimum rent, typically including escalating rent amounts, plus a percentage rent based upon sales after certain minimum thresholds are achieved, as well as common area maintenance charges, real property insurance and real estate taxes.
+Added: 18 | FORM 10-K
We are currently pursuing several other models for the transformation of our real estate beyond a traditional leasing approach including a real estate development model, a joint venture model and a capital light model.
3 unchanged sentences
(2) our real estate development model where we expect either to do a sale-leaseback transaction or to pre-sell the property and structure the transaction such that the capital to build the project is advanced by the buyer during construction;
−Removed: and (3) our joint venture projects, where we share the upside of the development with the developer/landlord.
−Removed: We recently made various investments in real estate development projects that will support the first RH Ecosystem in Aspen, Colorado, which will include retail locations, hospitality concepts, residential developments, and workforce housing projects.
+Added: and (3) various joint venture approaches, where we share the upside of the development with third parties including the developer/landlord.
+Added: In fiscal 2020, we entered into equity method investments in connection with real estate development initiatives in Aspen, Colorado.
+Added: The investments include properties that will be developed into retail locations, hospitality concepts, residential developments and workforce housing projects.
+Added: We have also selected Aspen as the location to develop the first RH Ecosystem inclusive of an RH Bespoke Gallery, RH Guesthouse, RH Bath House & Spa, RH Restaurants and our first RH Residences.
+Added: We plan to operate the RH branded businesses and be a real estate investor and partner for the remaining properties.
These new approaches might cause us to pursue complicated real estate transactions and may require additional capital investment and could present different risks related to the ownership and developments of real estate compared to those risks associated with a traditional store lease with a landlord, including greater financial exposure if our plans for the relevant real estate are not as successful as we originally anticipate or if the value of the real estate we acquire or invest in subsequently decreases.
−Removed: Pursuing multiple different paths for addressing our real estate needs may create various risks including increased complexity and risks related to the time and costs of real estate development as well as the need for additional capital and risks related to resale of real estate projects.
+Added: Pursuing multiple different paths for addressing our real estate needs may create various other risks including increased complexity and challenges related to the time and costs of real estate development and construction as well as the need for additional capital and risks related to resale of real estate projects.
These risks could distract our senior leadership team’s focus, strain our operational resources and personnel, or expose us to new regulatory or tax regimes in which we must develop expertise.
−Removed: FORM 10-K | 25
Several of our new real estate development strategies expose us to additional risks related to operating in commercial real estate from a development perspective.
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Our inability to enter into new leases or renew existing leases on terms acceptable to us or be released from our obligations under leases or other obligations for stores that we close could materially adversely affect our business and results of operations.
+Added: FORM 10-K | 19
A number of factors that affect our ability to successfully open new stores within the time frames we initially target or optimize our store footprint are beyond our control, and these factors may harm our ability to execute our strategy to transform our real estate, which may negatively affect our results of operations.
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address competitive, merchandising, marketing, distribution and other challenges encountered in connection with expansion into new geographic areas and markets.
−Removed: 26 | FORM 10-K
−Removed: We have experienced delays in opening some new stores within the time frames we initially targeted, and may experience such delays again in the future.
−Removed: We have also incurred higher levels of capital and other expenditures associated with the opening of some of our new Gallery locations.
−Removed: While we are investing in strategies to address these challenges in the future, we may not be successful in deploying such strategies or they may not have the effect that we anticipate.
−Removed: Any of the above challenges or other similar challenges could delay or prevent us from completing store openings or the additional remodeling of existing stores or hinder the operations of stores we open or remodel.
−Removed: If any of these challenges delays the opening of a store, our results of operations will be negatively affected as we will incur various costs during the delay without associated store revenue at such location and our overall return on investment and profit goals for some locations could be adversely affected.
+Added: We have experienced delays in opening some new stores and may experience further delays in the future.
+Added: We also have incurred higher levels of capital and other expenditures associated with the opening of some of our new Gallery locations.
+Added: In addition, construction costs and the price of building materials related to construction have experienced substantial price increases in recent years.
+Added: While we are adopting various measures to improve the efficiency and effectiveness of our real estate development efforts with respect to opening new Galleries, the strategies may not be effective and may not have the effects that we anticipate.
+Added: Any of the above challenges or other similar impediments could delay or prevent us from completing store openings and adversely affect the return on investment that we target from these initiatives.
+Added: To the extent that we experience delays in the opening of a store or cost overruns, our results of operations will be negatively affected as we could incur various costs during a delay without associated store revenue at such location and such delays and increased costs could impact our overall return on investment and profit goals for some locations.
Unfavorable economic and business conditions and other events could also interfere with our plans to expand or modify store footprints.
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Our failure to effectively address challenges such as those listed above could adversely affect our ability to successfully open new stores or change our store footprint in a timely and cost-effective manner and could have a material adverse effect on our business, results of operations and financial condition.
−Removed: Reductions in the volume of mall and other in-store traffic or the closing of shopping malls as a result of changing demographic patterns could significantly reduce our sales.
+Added: 20 | FORM 10-K
+Added: Reductions in the volume of mall and other in-store traffic or the closing of shopping malls as a result of changing demographic patterns could adversely affect our sales.
Although many of our most recently opened Design Galleries are developed outside of the shopping mall setting, a significant portion of our existing footprint of legacy Galleries is currently located in shopping malls.
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However, in recent years there has been a shift in consumer preferences to purchasing certain products online rather than in stores.
−Removed: This shift, particularly when coupled with past unfavorable economic conditions in certain regions, has adversely affected mall traffic in some regions and has threatened the viability of certain commercial real estate firms that operate major shopping malls.
−Removed: Further, the COVID-19 pandemic has adversely impacted mall traffic due to social distancing measures and other restrictions applicable to mall operations, which have had our customers’ ability and desire to travel to shopping malls in which some of our legacy Galleries are located.
The decline in shopping malls may in turn adversely affect the financial health of other retailers and mall operators leading to store closures and a decline in the productivity of mall shopping environments due to the network effect of mall operations.
4 unchanged sentences
We are currently engaged in efforts to improve the quality of our customer experience, which includes making changes to the way in which we operate our distributions centers, furniture home delivery centers and other aspects of our supply chain and customer delivery network.
−Removed: Additionally, we plan to invest significant time architecting a new fully integrated back-end operating platform, inclusive of the supply chain network, the home delivery experience as well as a new metric driven quality system and company-wide decision data.
+Added: Additionally, we are in the process of architecting and implementing a new fully integrated back-end operating platform, inclusive of the supply chain network, the home delivery experience as well as a new metric driven quality system and enhanced corporate decision data.
Some of these efforts may require us to make significant expenditures in periods in the near term, which may also have a negative effect on our results of operations if there is no associated increase in revenues or decrease in returns or if any such effect is less than anticipated.
There can be no assurance however that any of these efforts will be successful or that we will not encounter additional difficulties in achieving higher levels of customer satisfaction.
−Removed: FORM 10-K | 27
We are also engaged in initiatives to rationalize our SKU count, and in order to realize the anticipated benefits of such initiatives, including through lower inventories and reduced working capital, we have focused on optimizing the use of our distribution centers, furniture home delivery centers and outlets.
6 unchanged sentences
Any delays in fulfilling orders and delivering merchandise to customers, or related negative experience of our customers, could harm our results of operations.
+Added: FORM 10-K | 21
We currently rely upon independent third-party transportation providers for the majority of our product shipments, which subjects us to certain risks.
5 unchanged sentences
Our operations have significant liquidity and capital requirements and depend on the availability of adequate financing and sources of capital on reasonable terms.
−Removed: If we fail to use our financial resources effectively, or if we are unable to obtain sufficient capital when needed, it could have a significant negative effect on our ability to grow our business.
−Removed: We have historically relied on the availability of debt financing as one primary source of capital in order to fund our operations, including borrowings under our revolving line of credit.
+Added: We have elected to raise substantial amounts of capital through debt which exposes our business to risks related to obligations of indebtedness including the terms and conditions of debt financing and the need to manage our financial resources in order to repay such debt in accordance with its terms .
+Added: We have historically relied on the availability of debt financing as one primary source of capital in order to fund our operations, including borrowings under our revolving line of credit under our ABL Credit Agreement.
We have also incurred indebtedness to finance other strategic initiatives, including our share repurchase programs, and we may continue to incur indebtedness to support such initiatives in future time periods.
−Removed: We completed convertible debt financings in fiscal 2014, fiscal 2015, fiscal 2018 and fiscal 2019.
−Removed: Following repayment of the first two of these convertible note issuances at maturity, $685 million in aggregate principal amount remains outstanding as of January 30, 2021.
−Removed: As of January 30, 2021, we had no outstanding borrowings and $271.9 million of availability under our revolving line of credit facility, net of $15.4 million in outstanding letters of credit.
+Added: We completed convertible debt financings in fiscal 2014 ($350 million), fiscal 2015 ($300 million), fiscal 2018 ($335 million) and fiscal 2019 ($350 million) for an aggregate principal amount of $1,335 million.
+Added: We have completed repayment of the first two of these convertible notes financings in connection with their final maturity in an aggregate principal amount of $650 million.
+Added: In addition, holders of a substantial portion of the remaining two series of convertible notes have elected to exercise the early conversion option applicable with respect to these convertible notes.
+Added: We had $294 million remaining in aggregate principal amount of these remaining two series of convertible notes outstanding as of January 29, 2022.
+Added: Based upon the strength in our common stock price, we expect that holders of these remaining two series of convertible notes may continue to elect early conversion of such notes in advanced of the scheduled maturity dates.
+Added: On October 20, 2021, RHI entered into a Term Loan Credit Agreement with respect to an initial term loan in an aggregate principal amount equal to $2.0 billion with a maturity date of October 20, 2028.
Our existing indebtedness and any other indebtedness we may incur in the future could have significant consequences on our future operations and financial results, including:
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placing us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged.
−Removed: 28 | FORM 10-K
Any of the foregoing factors could have an adverse effect on our business, financial condition, results of operations, or ability to meet our payment obligations.
−Removed: Our revolving line of credit contains various restrictive covenants, including, among others, limitations on the ability to incur liens, make loans or other investments, incur additional debt, issue additional equity, merge or consolidate with or into another person, sell assets, pay dividends or make other distributions, or enter into transactions with affiliates.
−Removed: These restrictive covenants may limit the amount of borrowings available to us under our line of credit and our operational and financial flexibility.
+Added: Our ABL Credit Agreement and Term Loan Credit Agreement contain various restrictive covenants, including, among others, limitations on the ability to incur liens, make loans or other investments, incur additional debt, issue additional equity, merge or consolidate with or into another person, sell assets, pay dividends or make other distributions, or enter into transactions with affiliates.
+Added: These restrictive covenants may limit the amount of borrowings available to us under our ABL Credit Agreement and our operational and financial flexibility.
We may face financial and contractual consequences to the extent we are not able to maintain our compliance with such covenants, which could have a materially adverse effect on our business, financial condition and results of operations.
+Added: 22 | FORM 10-K
We will have significant capital requirements for the operation of our business in the near term if we are to continue to pursue all of our current business initiatives.
3 unchanged sentences
The exact scope of our capital plans in future fiscal years, including fiscal 2022, will depend on a variety of factors including the level of gross capital expenditures that we undertake in our business, the amount of any proceeds from the sale of assets, including sales of real estate, and the way that our business performs.
−Removed: Our current real estate strategy involves opening Design Galleries in select major metropolitan markets, developing new RH model Design Galleries and Galleries tailored to secondary markets, and opening indigenous Bespoke Galleries in the second home markets, as well as pursuing category extensions of our brand and exploring new business areas.
−Removed: Although we principally relied upon leases with landlords for most of our Gallery locations historically, in recent years we have begun to pursue a real estate development model strategy for some of our new Gallery developments in which we invest in the ownership of real estate or take on greater risk with respect to the cost of development of the new Gallery.
−Removed: Upon completion of the development of a new Gallery, we may sell the property to a third party such as we did in fiscal 2019 through the sale-leaseback transaction for the Yountville Design Gallery and in July 2020 through the sale-leaseback transaction for the Minneapolis Design Gallery.
−Removed: The real estate development model may require us to pursue additional capital expenditures beyond what is required under a traditional leasing model.
−Removed: While we may be able to recoup substantial amounts of capital and may also achieve gains on our capital investments if we are successful with this model and are able to sell the real estate interests on favorable terms to a real estate investor in a sale-leaseback transaction, we will be assuming greater risks with this model.
−Removed: At the same time, we may not recoup our costs in such transactions as we will incur substantial real estate development risk in the construction of Galleries under this model and as a result could incur losses from such efforts.
−Removed: As we develop new Galleries, as well as potentially other strategic initiatives in the future like our integrated hospitality experience, we may explore other models for our real estate, which could include 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 including the development of adjacent real estate beyond the Gallery location.
−Removed: In the case of our recent investments in real estate development in Aspen, Colorado, we are undertaking real estate development risk with respect to other locations beyond our planned Gallery and Guesthouse.
−Removed: Although some of the other locations will be devoted to other aspects of our RH Ecosystem concept, we will also own interests in properties where we are essentially in a real estate ownership and development model and where we will derive returns from income due to leasing and capital appreciation of real estate interests.
−Removed: These approaches might require greater capital investment than a traditional store lease with a landlord.
−Removed: In the event that such capital and other expenditures require us to pursue additional funding sources, we can provide no assurances that we will be successful in securing additional funding on attractive terms or at all.
−Removed: While our general approach has been to target capital toward investments that we believe will achieve favorable returns for our shareholders, these decisions involve a significant amount of judgment regarding the availability of capital and the anticipated growth of the business in both revenue and earnings in future periods.
−Removed: FORM 10-K | 29
−Removed: We take an opportunistic approach to both sources and uses of capital in our business and our allocation of capital in connection with our business may be driven by the chance to achieve favorable returns on using debt financings in order to fund our capital investments.
−Removed: We may elect to incur additional debt to fund future capital investments including our share repurchase programs.
−Removed: We can provide no assurances of the exact financial and operational impact of previous or future investments in our share repurchase programs on our business and results of operation and the resulting incurrence of debt may have an impact on our future liquidity position and capital available for other aspects of our business.
−Removed: Although our share repurchase programs are intended to enhance long-term shareholder value, depending on the exact financial and operational impact of these investments on our business, as well as variability in the prices of our common stock and other instruments linked to the price of our common stock, there can be no assurance that share repurchases will have the benefits that we expect.
−Removed: When we have purchased shares in the market as part of our share repurchase programs, we have generally undertaken such transactions out of a belief that the shares represent a good investment and that the market price for the shares may be undervalued.
−Removed: There can be no assurance that these decisions will prove to be correct as valuation of common stock is subject to a range of factors and is subject to inherent degrees of uncertainty.
−Removed: Over time it may turn out that the value of our common stock will be substantially higher or lower than some of the prices that we pay to undertake repurchase transactions.
−Removed: For example, the market price of our common stock may subsequently decline below the levels at which repurchases were made or it may appreciate to prices substantially above the amounts we pay for the buyback.
−Removed: If we access capital through sales of our common stock or other securities linked to the price of our common stock, our investors may experience dilution from such capital transactions as has occurred with respect to the sale of our prior convertible notes offerings and there can be no assurance that such financing will be incurred at prices that are higher for shares of our common stock than the prices at which we engaged in share repurchases.
−Removed: Pursuit of investments in connection with our share repurchase programs may expose us to other risks in connection with our business including legal and financial constraints, risks related to capital allocation, the level of indebtedness that we carry, increases costs for borrowing, risks related to legal claims and litigation and increased dependency on capital markets and sources of financing to fund the requirements of our business including the costs of any share repurchases.
−Removed: To the extent that we incur indebtedness in connection with our business in connection with or as a result of our share repurchases, the requirements of such debt may include terms and conditions that could have an adverse effect upon our business including as a result of restrictive financial or operational covenants, burdensome rates of interest, cross defaults and other terms that may reduce our operational or financial flexibility or cause us to incur substantial costs including restructuring or refinancing such indebtedness.
−Removed: In addition, while we anticipate that we should be able to repay our debt maturities as they come due, there can be no assurance that we will have sufficient financial resources at the maturity of any specific indebtedness, whether upon its state maturity or otherwise.
−Removed: In particular, we may need to incur additional debt or refinance existing debt in order to achieve repayment of existing debt.
−Removed: If the Company is not able to arrange financing to repay its debt obligations, or to extend the maturities of existing debt or otherwise refinance the Company’s obligations as needed, we may experience a material adverse effect on our business and operations.
−Removed: For example, in certain circumstances, we may be required to repay the two series of convertible senior notes that we issued in fiscal 2018 and fiscal 2019 with cash payments.
−Removed: See Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Senior Notes .
−Removed: At the time the notes become due, and prior to maturity to the extent holders exercise their conversion right, the trading price of our common stock may be such that we may find it necessary to settle the notes in cash.
−Removed: There can be no assurance that we will be able to pay the amount of cash due if holders surrender their notes for conversion.
−Removed: In addition, agreements governing any debt may restrict our ability to make each of the required cash payments even if we have sufficient funds to make them.
−Removed: Furthermore, our ability to purchase the notes or to pay cash upon the conversion of the notes may be limited by law or regulatory authority.
−Removed: In addition, if we fail to purchase the notes, to pay special interest, if any, due on the notes, or to pay the amount of cash due upon conversion, we will be in default under the respective indentures governing the notes, which in turn may result in the acceleration of other indebtedness we may then have.
−Removed: If the repayment of the other indebtedness were to be accelerated, we may not have sufficient funds to repay that indebtedness and to purchase the notes or to pay the amount of cash due upon conversion.
−Removed: The need to service and repay our convertible senior notes or other debt obligations could cause us to incur additional borrowings or issue additional debt to investors and lenders.
−Removed: We may also experience cash flow shortfalls in the future, we may need to refinance or restructure our debt, and we may otherwise require additional external funding, or we may need to raise funds to take advantage of unanticipated opportunities, to make acquisitions of other businesses or companies or to respond to changing business conditions or unanticipated competitive pressures.
−Removed: 30 | FORM 10-K
−Removed: During fiscal 2017, we increased the aggregate level of our indebtedness through various forms of debt financing and our net debt to trailing twelve months adjusted EBITDA reached a level in excess of 5X during this time period.
−Removed: Our business has performed very well since that time and we have increased earnings, generated substantial cash flow, paid down debt and reduced this leverage ratio to a level of 0.7X at the end of fiscal 2020.
−Removed: At the same time, we may elect to incur additional debt and increase the level of indebtedness in our leverage ratio in the future.
−Removed: Any increase in debt and the level of indebtedness in our leverage ratio could expose us to greater risks in the event of a financial or operational downturn or other events including unanticipated adverse developments that affect our financial performance or the ability to access financial markets.
+Added: 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.
+Added: At various times we have elected to incur substantial levels of aggregate indebtedness in connection with our business including in connection with our share repurchase program.
+Added: Although we have previously been successful in reducing such indebtedness due in part to the strong cash flow of our business, we may in the future elect to incur further debt in addition to the $2.0 billion of debt that we raised in October 2021 in connection with our Term Loan Credit Agreement.
+Added: Existing and future increases in debt and in the aggregate level of our indebtedness could expose us to greater risks in the event of a financial or operational downturn or other events including unanticipated adverse developments that affect our financial performance or the ability to access financial markets.
To the extent we pursue additional debt as a source of liquidity, our capitalization profile may change and may include significant leverage, and as a result we may be required to use future liquidity to repay such indebtedness and may be subject to additional terms and restrictions which affect our operations and future uses of capital.
2 unchanged sentences
We may also be required to delay or abandon some of our planned future expenditures or aspects of our current operations.
+Added: In addition, while we anticipate that we should be able to repay our debt maturities as they come due, there can be no assurance that we will have sufficient financial resources at the maturity of any specific indebtedness, whether upon its stated maturity or otherwise.
+Added: In particular, we may need to incur additional debt or refinance existing debt in order to achieve repayment of existing debt.
+Added: If the Company is not able to arrange financing to repay its debt obligations, or to extend the maturities of existing debt or otherwise refinance the Company’s obligations as needed, we may experience a material adverse effect on our business and operations.
Our business is dependent on certain key personnel;
if we lose key personnel or are unable to hire additional qualified personnel, our business may be harmed.
−Removed: The success of our business depends upon our ability to retain continued service of certain key personnel, particularly our Chairman and Chief Executive Officer, Gary Friedman, and to attract and retain additional qualified key personnel in the future.
−Removed: We face risks related to loss of any key personnel and we also face risks related to any changes that may occur in key senior leadership positions.
+Added: The success of our business depends upon our ability to retain continued service of certain key personnel, particularly our Chairman and Chief Executive Officer, Gary Friedman, and our ability to attract and retain additional qualified key personnel in the future.
+Added: We have experienced a number of changes in our senior leadership in recent years and face risks related to losses of key personnel and to any such changes that occur in key senior leadership positions.
Any disruption in the services of our key personnel could make it more difficult to successfully operate our business and achieve our business goals and could adversely affect our results of operation and financial condition.
5 unchanged sentences
As a result, we may not be able to cover the financial loss we may incur in losing the services of any of our key personnel.
−Removed: Competition for qualified employees and personnel in the retail industry is intense, particularly in the San Francisco Bay Area where our headquarters are located, and we may be unable to retain personnel that are important to our business or hire additional qualified personnel.
−Removed: The process of identifying personnel with the combination of skills and attributes required to carry out our goals is often lengthy.
+Added: FORM 10-K | 23
+Added: Competition for qualified employees and personnel is intense, particularly in the retail and hospitality industry.
+Added: In addition, the San Francisco Bay Area, where our headquarters are located, is a high cost of living location in which there is vigorous competition for qualified personnel.
+Added: The process of identifying personnel with the combination of skills and attributes required to carry out our goals is often lengthy and the cost of securing the right talent can be substantial.
Our success depends to a significant degree upon our ability to attract, retain and motivate qualified senior leadership, marketing and sales personnel, and store managers, and upon the continued contributions of these people.
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If we are unable to hire and retain store and other personnel capable of consistently providing a high level of customer service, our ability to open new stores, service the needs of our customers and expand our food and beverage business may be impaired, the performance of our existing and new stores and operations could be materially adversely affected and our brand image may be negatively impacted.
−Removed: FORM 10-K | 31
−Removed: Material damage to, or interruptions in, our information systems as a result of external factors, staffing shortages, cybersecurity breaches or cyber fraud, or difficulties in updating our existing software or developing or implementing new software could have a material adverse effect on our business or results of operations, and we may be exposed to risks and costs associated with protecting the integrity and security of our customers’ information.
+Added: Material damage to, or interruptions in, information systems as a result of external factors, staffing shortages, cybersecurity breaches or cyber fraud, or difficulties in updating our existing software or developing or implementing new software could have a material adverse effect on our business or results of operations, and we may be exposed to risks and costs associated with protecting the integrity and security of our customers’ information.
We depend largely upon our information technology systems in the conduct of all aspects of our operations, many of which we have only adopted and implemented within the past several years or are in the midst of implementing.
These systems can be complex to develop, maintain, upgrade and protect against emerging threats, and we may fail to adequately hire or retain adequate personnel to manage our information systems, we may fail to accurately gauge the level of financial and managerial resources to invest in our information systems, or we may fail to realize the anticipated benefits of resources invested in our information systems particularly as our business changes as a result of the many initiatives that we are pursuing.
−Removed: Such systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches and natural disasters.
−Removed: In addition, damage or interruption can also occur as a result of non-technical issues, including vandalism, catastrophic events, and human error.
−Removed: Damage or interruption to our information systems may require a significant investment to fix or replace the affected system, and we may suffer interruptions in our operations in the interim.
−Removed: Third parties that we share data with also face risks relating to cybersecurity and we do not directly control any of such parties’ information security or privacy operations.
Any material interruptions or failures in our systems or the products or systems of our third party vendors or other third parties that we share data with may have a material adverse effect on our business or results of operations.
−Removed: Over the last several years, there has been a substantial increase in the scope of cybersecurity attacks reported in the U.S.
+Added: Over the last several years, there has been a substantial increase in the scope of reported cybersecurity attacks.
During this time, we have experienced numerous cybersecurity attacks and have had to expend increasing amounts of human and financial capital to address this issue.
2 unchanged sentences
Any failure to address vulnerabilities in a timely and comprehensive matter, including shortcomings in our efforts to timely replace and upgrade network equipment, servers, or other technology assets, could result in a successful breach of our systems.
−Removed: There can be no assurance that our efforts to ensure the integrity of our information technology systems will be fully successful.
−Removed: We may not be able to anticipate, detect or implement adequate preventive measures against all cyber threats because techniques used to obtain unauthorized access or to sabotage systems change frequently and often are not recognized until launched against a target.
−Removed: Our operations are also dependent on the information technology systems and cybersecurity measures of our third party vendors.
−Removed: Attempted cyber intrusions into our information systems through compromised vendor networks or products, if successful, could compromise our information systems.
+Added: Our operations are also dependent on the information technology systems and cybersecurity measures of third parties including our vendors, a number of whom have experienced cybersecurity attacks.
In addition, our information systems can face risks to the extent we acquire new businesses but are not able to quickly or comprehensively integrate such acquired businesses into our policies and procedures for addressing cybersecurity risks or identify and address weaknesses in such acquired entity’s information systems, which risks may be compounded to the extent the information systems of an acquired entity are integrated with ours, thus providing access to a broader set of sensitive customer information through a compromised network at the acquired entity level.
−Removed: If a computer hacker or other third party is able to circumvent our security measures, he or she could destroy or steal valuable information or disrupt our operations.
−Removed: Any successful breaches or attempted intrusions could result in increased information systems costs and potential reputational damage, which could materially adversely affect our business and results of operations.
−Removed: Additionally, in order for our business to function successfully, we and other market participants must be able to handle and transmit confidential and personal information securely, including in customer orders placed through our website.
+Added: 24 | FORM 10-K
+Added: In addition, for our business to function successfully, we and other market participants must be able to handle and transmit confidential and personal information securely, including in customer orders placed through our website.
That information includes data about our customers, including personally identifiable information and credit card information, as well as sensitive information about our vendors and workforce, including social security numbers and bank account information.
−Removed: If our systems are damaged, interrupted or subject to unauthorized access, information about our customers, vendors or workforce could be stolen or misused.
+Added: Various jurisdictions have enacted additional laws and regulations to protect consumers against identity theft, including laws governing treatment of personally identifiable information.
+Added: For example, the EU General Data Protection Regulation (“GDPR”), which took effect in May 2018, and the California Consumer Privacy Act, which took effect in January 2020, impose stringent requirements on how we and third parties with whom we contract collect and process personal information, and provide for significant penalties for noncompliance.
+Added: These laws have increased the costs of doing business and, if we fail to implement appropriate safeguards or we fail to detect and provide prompt notice of unauthorized access as required by some of these laws, we could be subject to potential claims for damages and other remedies.
+Added: If we were required to pay any significant amount in satisfaction of claims under these laws, or if we were forced to cease our business operations for any length of time as a result of our inability to comply fully with any such law, our business, results of operations and financial condition could be adversely affected.
+Added: We may also incur legal costs if we are required to defend our methods of collection, processing and storage of personal data.
+Added: Investigations, lawsuits, or adverse publicity relating to our methods of handling personal data could result in increased costs and negative market reaction.
+Added: If our systems, or those of third parties on whom are business depends, are damaged, interrupted or subject to unauthorized access, information about our customers, vendors or workforce could be stolen or misused.
Any security breach could expose us to risks of data loss, fines, litigation and liability and could seriously disrupt our operations and harm our reputation, any of which could adversely affect our business.
2 unchanged sentences
Any breach could also cause consumers to lose confidence in the security of our website and information technology systems and choose not to purchase from us.
−Removed: 32 | FORM 10-K
We are also subject to payment card association rules and network operating rules, including data security rules, certification requirements and rules governing electronic funds transfers, which could change over time.
1 unchanged sentence
In addition, if our internal systems are breached or compromised, we may be liable for card re-issuance costs, subject to fines and higher transaction fees and lose our ability to accept credit and/or debit card payments from our members, and our business and operating results could be adversely affected.
−Removed: States and the federal government have enacted additional laws and regulations to protect consumers against identity theft, including laws governing treatment of personally identifiable information.
−Removed: For example, the EU General Data Protection Regulation (“GDPR”), which took effect in May 2018, and the California Consumer Privacy Act, which took effect in January 2020, impose stringent requirements on how we and third parties with whom we contract collect and process personal information, and provide for significant penalties for noncompliance.
−Removed: These laws have increased the costs of doing business and, if we fail to implement appropriate safeguards or we fail to detect and provide prompt notice of unauthorized access as required by some of these laws, we could be subject to potential claims for damages and other remedies.
−Removed: If we were required to pay any significant amount in satisfaction of claims under these laws, or if we were forced to cease our business operations for any length of time as a result of our inability to comply fully with any such law, our business, results of operations and financial condition could be adversely affected.
−Removed: We may also incur legal costs if we are required to defend our methods of collection, processing and storage of personal data.
−Removed: Investigations, lawsuits, or adverse publicity relating to our methods of handling personal data could result in increased costs and negative market reaction.
−Removed: Furthermore, data security breaches suffered by well-known companies and institutions have attracted a substantial amount of media attention, prompting additional state and federal proposals addressing data privacy and security.
−Removed: As the data privacy and security laws and regulations evolve, we may be subject to more extensive requirements to protect the customer information that we process in connection with the purchases of our products.
−Removed: Our failure to successfully respond to these risks and uncertainties could reduce website sales and have a material adverse effect on our business or results of operations.
We currently maintain insurance to protect against cybersecurity risks and incidents.
1 unchanged sentence
In addition, insurance coverage may be insufficient or may not cover certain cybersecurity losses and liability.
+Added: FORM 10-K | 25
We face product liability risks and certain of our products may be subject to recalls or other actions by regulatory authorities, and any such recalls or similar actions could have a material adverse effect on our business and reputation.
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If we experience negative publicity, regardless of any factual basis, customer complaints or litigation alleging illness or injury, related to our products, or if there are allegations of failure to comply with applicable regulations, our brand reputation would be harmed.
−Removed: FORM 10-K | 33
We maintain a product safety and compliance program to help ensure our products are safe, legal and made consistently in compliance with our values.
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We and our product vendors may be unable to obtain such insurance or the insurance may be prohibitively expensive and any coverage that is available may be inadequate to cover costs we incur in connection with product recalls.
−Removed: Federal, state, provincial and local legislators and regulators in the U.S., Canada and the U.K., where our products are sold, continue to adopt new product laws and regulations.
−Removed: These new laws and regulations have increased or likely will significantly increase the regulatory requirements governing the manufacture and sale of certain of our products as well as the potential penalties for noncompliance with applicable regulations.
+Added: Legislators and regulators in the U.S., Canada and the U.K., where our products are sold, continue to adopt new product laws and regulations.
+Added: These new laws and regulations have increased or likely will increase the regulatory requirements governing the manufacture and sale of certain of our products as well as the potential penalties for noncompliance.
In addition, product recalls, removal of products, product compliance enforcement actions and defending product liability claims can result in, among other things, lost sales, diverted resources, potential harm to our reputation and increased customer service costs, any of which could have a material adverse effect on our business and results of operations.
We are involved in legal and regulatory proceedings from time to time that may affect our Company and/or our senior leadership including litigation, claims, investigations and regulatory and other proceedings, which could distract senior leadership from our business activities and result in significant liability.
−Removed: From time to time, we and/or members of our senior leadership team are involved in legal and regulatory proceedings including litigation, claims, investigations and regulatory and other proceedings related to a range of matters in connection with the conduct of our business, including (i) privacy and data security, (ii) our labor and employment practices including laws related to discrimination, wages and benefits, ERISA and disability claims, (iii) intellectual property issues with respect to copyright, trademarks, patents and trade dress, (iv) trade and business practices including unfair competition and unfair business practices, (v) consumer class action claims relating to our consumer practices including the collection of zip code or other information from customers, (vi) product safety and compliance including products liability, product recalls personal injury, (vii) advertising and promotion of products and services, (viii) compliance with securities laws including class actions related to allegations of securities fraud, (ix) taxation, (x) contractual disputes, and (xi) health and safety regulations.
−Removed: Claims and legal proceedings may involve arbitration, mediation, private litigation, class action matters, derivative claims, investigations and enforcement matters.
+Added: From time to time, we and/or members of our senior leadership team are involved in legal and regulatory proceedings including litigation, claims, investigations and regulatory and other proceedings related to a range of matters in connection with the conduct of our business, including (i) privacy and data security, (ii) our labor and employment practices, including laws related to discrimination, wages and benefits, ERISA and disability claims, (iii) intellectual property issues with respect to copyright, trademarks, patents and trade dress, (iv) trade and business practices including unfair competition and unfair business practices, (v) consumer class action claims relating to our consumer practices including the collection of zip code or other information from customers, (vi) product safety and compliance including products liability, product recalls personal injury, (vii) advertising and promotion of products and services, including class actions and regulatory actions related to advertising, (viii) compliance with securities laws including class actions related to allegations of securities fraud, (ix) taxation, (x) contractual disputes, and (xi) health and safety regulations.
+Added: 26 | FORM 10-K
+Added: Claims and legal proceedings may involve arbitration, mediation, private litigation, class action matters, derivative claims, internal and governmental investigations and enforcement matters.
We are subject to regulatory oversight and legal enforcement by a range of government and self-regulatory organizations including federal, state and local governmental bodies both within the U.S.
1 unchanged sentence
Litigation against us, depending on the outcome of such claims, could lead to further claims and proceedings including on new and otherwise unrelated matters, for example by attracting the attention of plaintiff’s firms or of regulators.
−Removed: We have recently faced certain securities litigations, including securities class action cases that were consolidated by the court (the “Class Action Case”) and certain related legal proceedings (collectively, the “Derivative Case”).
−Removed: We are also currently responding to several governmental investigations regarding trading in our securities.
−Removed: We have settled the Class Action Case, and the court granted final approval of the Class Action Case settlement on October 25, 2019 and entered a final judgment dismissing the action, and such settlement has been funded entirely by our insurance carriers.
+Added: In the past we have faced certain securities litigation matters, including securities class action cases that were consolidated by the court (the “Class Action Case”) and certain related legal proceedings (collectively, the “Derivative Case”)and various governmental investigations including with respect to trading in our securities.
+Added: We settled the Class Action Case, and the court granted final approval of the Class Action Case settlement on October 25, 2019 and entered a final judgment dismissing the action, and such settlement has been funded entirely by our insurance carriers.
On March 24, 2020, we reached an agreement in principle to settle the Derivative Case and subsequently entered into a stipulation of settlement that was preliminarily approved by the Court on August 3, 2020.
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On December 18, 2020, the court granted final approval of the settlement and entered a final judgment dismissing the action.
−Removed: 34 | FORM 10-K
−Removed: Legal proceedings often involve complex factual and legal issues, which are subject to risks and uncertainties and which could require significant leadership time that could otherwise be focused on our operations.
−Removed: Furthermore, legal proceedings where the related claims involve members of our leadership team could distract our senior leadership from the operation of our business, damage the reputation of our leadership team and otherwise materially adversely affect our operations and leadership morale.
−Removed: Litigation and other claims and regulatory proceedings against members of our senior leadership team or us could result in unexpected expenses and liability and could also materially adversely affect our operations and our reputation.
+Added: Legal proceedings and investigations often involve complex factual, legal and other issues, which are subject to risks and uncertainties and which could require significant leadership time that could otherwise be focused on our operations.
+Added: Furthermore, legal proceedings and investigations where the related matters under review involve members of our leadership team could distract our senior leadership from the operation of our business, damage the reputation of our leadership team and otherwise materially adversely affect our operations and leadership morale.
+Added: Litigation, investigation and other claims and regulatory proceedings against or involving members of our senior leadership team or us could result in unexpected expenses and liability and could also materially adversely affect our operations and our reputation.
We maintain insurance for legal proceedings but there can be no assurance that such insurance will be available for the payment of all or any portion of the costs associated with any particular investigation, legal proceedings or other claims against us, or that coverage under any such insurance will be adequate to fund the full cost of any such legal proceedings including the costs of investigation, defense and resolution of any such legal proceedings.
Intellectual property claims by third parties or our failure or inability to protect our intellectual property rights could diminish the value of our brand and weaken our competitive position.
−Removed: Third parties have in the past asserted, and may in the future assert, intellectual property claims against us, particularly as we expand our business to include new products and product categories and move into other geographic markets.
+Added: Third parties have in the past asserted, and may in the future assert, intellectual property claims against us, particularly as we expand our business to include new products and product categories, and expand in new geographic markets, where intellectual property laws and rights differ.
Our defense of any claim, regardless of its merit, could be expensive and time consuming and could divert senior leadership resources.
−Removed: Successful infringement claims against us could result in significant monetary liability and prevent us from selling some of our products.
−Removed: In addition, resolution of claims may require us to redesign our products, license rights from third parties or cease using those rights altogether, which could have a material adverse impact on our business, financial condition or results of operations.
+Added: Successful infringement claims against us could result in significant monetary liability and prevent us from selling some of our products or using some of our trademarks in certain geographic markets.
+Added: In addition, resolution of claims may require us to redesign some of our products, license rights from third parties or stop selling some of our products altogether, or to cease using some of our trademarks, which could have a material adverse impact on our business, financial condition or results of operations.
We currently rely on a combination of copyright, trademark, patent, trade dress and unfair competition laws, as well as confidentiality procedures and licensing arrangements, to establish and protect our intellectual property rights.
−Removed: We believe that our photographs, trademarks and other proprietary rights have significant value and are important to identifying and differentiating certain of our products and brand from those of our competitors and creating and sustaining demand for certain of our products.
+Added: We believe that our trademarks, copyrights (including in photographs, Source Books and our website), and other proprietary rights have significant value and are important to identifying and differentiating our brand and certain of our products from those of our competitors and creating and sustaining demand for certain of our products.
We have from time to time encountered other retailers selling products substantially similar to our products or misrepresenting that the products such retailers were selling were our products.
−Removed: We cannot assure you that the steps taken by us to protect our intellectual property rights will be adequate to prevent infringement of our rights by others (especially with respect to infringement by non-U.S.
−Removed: entities with no physical U.S.
−Removed: presence), including imitation of our products and misappropriation of our images and brand.
+Added: We cannot assure you that the steps taken by us to protect our intellectual property rights will be adequate to prevent infringement of our rights by others, including imitation of our products and misappropriation of our images and brand, particularly in jurisdictions that do not have strong intellectual property protection or in which we do not have strong rights.
The costs of defending and enforcing our intellectual property assets may incur significant time and legal expense, and we may not be entirely successful in protecting our assets, enforcing our rights or collecting on judgments as a prevailing party.
If we are unable to protect and maintain our intellectual property rights, the value of our brand could be diminished and our competitive position could suffer.
+Added: FORM 10-K | 27
Compliance with laws, including laws relating to our business activities outside of the U.S., may be costly, and changes in laws could make conducting our business more expensive or otherwise change the way we do business.
−Removed: We are subject to numerous regulations, including labor and employment, customs, truth-in-advertising, consumer protection, e-commerce, privacy, health and safety, real estate, environmental and zoning and occupancy laws, and other laws and regulations that regulate retailers, food and beverage providers or otherwise govern our business.
+Added: We are subject to numerous regulations, including labor and employment, customs, truth-in-advertising, consumer protection, e-commerce, privacy, health and safety, real estate, environmental and zoning and occupancy laws, intellectual property laws and other laws and regulations that regulate retailers, food and beverage providers or otherwise govern our business.
In addition, to the extent we expand our operations as a result of engaging in new business initiatives or product lines, pursuing our multi-tier real estate strategy or expanding into new international markets, we may become subject to new regulations and regulatory regimes.
5 unchanged sentences
health care laws, or potential global and domestic greenhouse gas emission requirements and other environmental legislation and regulations, could result in increased direct compliance costs for us (or may cause our vendors to raise the prices they charge us in order to maintain profitable operations because of increased compliance costs), increased transportation costs or reduced availability of raw materials.
−Removed: FORM 10-K | 35
−Removed: In fiscal 2020, we sourced 85% of our products from outside the United States based on the dollar volume of purchases.
The foreign and U.S.
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In addition, to the extent that we become more directly involved in additional aspects of the construction work at our Gallery locations, we could be subject to additional pressure from organized labor including union organizing efforts.
+Added: 28 | FORM 10-K
Fluctuations in our tax obligations and effective tax rate and realization of our deferred tax assets, including net operating loss carryforwards, may result in volatility of our results of operations.
6 unchanged sentences
In addition, our effective tax rate in a given financial statement period may be materially impacted by changes in the mix and level of earnings, timing of the utilization of net operating loss carryforwards, changes in the valuation allowance for deferred taxes or by changes to existing accounting rules or regulations.
−Removed: 36 | FORM 10-K
Changes to accounting rules or regulations may adversely affect our results of operations.
2 unchanged sentences
A change in accounting rules or regulations may even affect our reporting of transactions completed before the change is effective and future changes to accounting rules or regulations or the questioning of current accounting practices may adversely affect our results of operations.
−Removed: For example, we adopted Accounting Standards Update 2014-09— Revenue from Contracts with Customers (Topic 606) in the first quarter of fiscal 2018, the adoption of which materially impacted the timing of recognizing advertising expense related to direct response advertising, including costs associated with our Source Books.
−Removed: In addition, we adopted Accounting Standards Update 2016-02— Leases (Topic 842) in the first quarter of fiscal 2019, the adoption of which materially impacted our financial statements including (i) our consolidated balance sheets due to the initial recognition of right of use assets and lease liabilities for our operating and finance lease arrangements, (ii) our consolidated statements of income, specifically cost of goods sold and interest expense—net, primarily due to the change from the build-to-suit lease transactions under the previous accounting guidance to the new finance lease classification treatment, and (iii) our cash flows due to amortization and interest expense for our operating and finance lease arrangements and classification of landlord assets under construction.
+Added: For example, we adopted Accounting Standards Update 2016-02— Leases (Topic 842) in the first quarter of fiscal 2019, the adoption of which materially impacted our financial statements including (i) our consolidated balance sheets due to the initial recognition of right of use assets and lease liabilities for our operating and finance lease arrangements, (ii) our consolidated statements of income, specifically cost of goods sold and interest expense—net, primarily due to the change from the build-to-suit lease transactions under the previous accounting guidance to the new finance lease classification treatment, and (iii) our cash flows due to amortization and interest expense for our operating and finance lease arrangements and classification of landlord assets under construction.
For information regarding recently issued accounting pronouncements, refer to “Recently Issued Accounting Standards” within Note 3— Significant Accounting Policies in our consolidated financial statements within Part II of this Annual Report on Form 10-K.
8 unchanged sentences
If we are unsuccessful in any such acquisition efforts, then our ability to continue to grow at rates we anticipate could be adversely affected.
−Removed: In addition, we face the risk that an acquired business may not be successful on the RH platform and may underperform relative to expectations.
−Removed: We may be unable to achieve synergies originally anticipated, we may be exposed to unexpected liabilities or we may be unable to sufficiently integrate completed acquisitions into our current business model and platform.
The success of any completed acquisition will depend on our ability to effectively manage the business after the acquisition.
−Removed: The process of maintaining the right incentives for senior leadership of acquired businesses and integrating the acquired businesses may involve unforeseen difficulties and may require a disproportionate amount of our managerial and financial resources.
−Removed: Our failure to incorporate acquired businesses into our existing operations successfully or to minimize any unforeseen operational difficulties could have a material adverse effect on our financial condition and results of operations.
−Removed: Further, if we fail to allocate our capital appropriately, in respect of either our acquisitions or organic growth in our operations, we could be overexposed in certain markets and geographies and unable to expand into adjacent products or markets.
FORM 10-K | 29
−Removed: Any efforts that we undertake to improve the operations of an acquired business or to improve the integration of such business with our larger business operations may not be successful and may create additional operational challenges, in particular at a time when we are also engaged in numerous initiatives with regard to both our existing businesses and operations as well as to launching new business initiatives.
−Removed: To the extent we are unsuccessful in such efforts, and an acquired business does not perform in line with our expectations or does not contribute to the overall performance of our business, our gross margins, results of operations and business could be materially adversely affected.
−Removed: Our total assets include intangible assets with an indefinite life, goodwill, tradename and trademarks, and substantial amounts of long-lived assets, principally property and equipment and lease right-of-use assets.
+Added: Our total assets include intangible assets with an indefinite life, goodwill, tradename, trademarks, and other intellectual property, and substantial amounts of long-lived assets, principally property and equipment and lease right-of-use assets.
Changes to estimates or projections used to assess the fair value of these assets, or results of operations that are lower than our current estimates at certain store locations, may cause us to incur impairment charges that could adversely affect our results of operations.
−Removed: Our total assets include intangible assets with an indefinite life, goodwill, tradename, trademarks and domain names, and substantial amounts of property and equipment and lease right-of-use assets.
+Added: Our total assets include intangible assets with an indefinite life, goodwill, tradename, trademarks and domain names, patents, copyrights, trade secrets, and substantial amounts of property and equipment and lease right-of-use assets.
We evaluate these long-lived assets for possible impairment annually or earlier if impairment indicators exist and make certain estimates and projections in connection with the impairment analyses for these long-lived assets.
26 unchanged sentences
Many of our vendors are also located in areas that may be affected by such events.
−Removed: Moreover, geopolitical or public safety conditions which affect consumer behavior and spending may impact our business.
−Removed: Terrorist attacks or other hostilities, or threats thereof, in the U.S.
−Removed: or in other countries around the world, as well as future events occurring in response to or in connection with them, could again result in reduced levels of consumer spending.
+Added: Moreover, geopolitical or public safety conditions which affect consumer behavior and spending, economic conditions, global trade or overall business conditions may adversely affect our business.
+Added: Terrorist attacks, armed conflict such as what has been occurring in Ukraine, or other hostilities, or threats thereof, in the U.S.
+Added: or in other countries around the world, as well as future events occurring in response to or in connection with such events and circumstances, could again result in reduced levels of consumer spending or other adverse effects on business conditions.
Any of these occurrences could have a significant impact on our results of operations, revenue and costs.
6 unchanged sentences
In addition, the market price of our common stock may fluctuate significantly in response to a number of other factors, including those described elsewhere in this “Risk Factors” section, as well as the following:
−Removed: macroeconomic conditions resulting from the COVID-19 pandemic;
+Added: macroeconomic conditions including inflation and factors affecting the housing market;
quarterly variations in our results of operations compared to market expectations;
1 unchanged sentence
announcements of new products or significant price reductions by us or our competitors;
−Removed: size of our public float;
+Added: size of our public float and the price per share of our common stock;
stock price performance of our competitors;
6 unchanged sentences
downgrades in our credit ratings or the credit ratings of our competitors;
−Removed: natural or man-made disasters or other similar events;
+Added: natural or man-made disasters or other similar events including health issues such as COVID-19;
+Added: FORM 10-K | 31
issuances or expected issuances of capital stock;
global economic, legal and regulatory changes unrelated to our performance.
−Removed: FORM 10-K | 39
In the future, we may issue our securities in connection with financings or acquisitions.
The amount of shares of our common stock issued in connection with financings or acquisitions could result in dilution to our shares of common stock.
−Removed: Sales of substantial amounts of our common stock, or the perception that these sales could occur, could adversely affect the price of our common stock and could affect our share price and impair our ability to use common stock or other instruments linked to our common stock as a means of obtaining future financing.
+Added: Sales of substantial amounts of our common stock, or the perception that these sales could occur, could adversely affect the price of our common stock and impair our ability to use common stock or other instruments linked to our common stock as a means of obtaining future financing.
In addition, stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many retail companies.
19 unchanged sentences
32 | FORM 10-K
+Added: We face various risks in connection with our share repurchase program.
+Added: We have previously allocated a substantial amount of capital to the repurchase of shares of our common stock in open market stock repurchases.
+Added: Although we believe that such allocation of capital has been very beneficial to our investors, there can be no assurance that future decisions to allocate capital to the repurchase of our shares of common stock or other equity linked instruments will be a beneficial long-term decision for investors in our common stock.
+Added: We may face a variety of risks associated with allocation of capital to repurchase of our securities including the incurrence of substantial indebtedness to fund such repurchases, the possibility that prices at which we purchase securities will not represent a good investment for our remaining securities holders or the possibility that we allocate capital to such repurchases would mean that adequate investments are not available for other aspects of our business.
+Added: The amount, timing and execution of our share repurchase program from time to time may fluctuate based on our priorities for the use of cash for other purposes such as operational spending, capital spending, acquisitions or repayment of debt.
+Added: Changes in our business operations and financial results, regulatory and other legal developments including potential changes in tax laws could also impact our share repurchase program and other capital activities.
Expectations of our company relating to environmental, social and governance factors may impose additional costs and expose us to new risks.
There is an increasing focus from certain investors, customers and other key stakeholders concerning corporate responsibility, specifically related to environmental, social and governance (“ESG”) factors.
−Removed: We expect that an increased focus on ESG considerations will affect some aspects of our operations.
+Added: We expect that an increased focus on ESG considerations will affect some aspects of our operations, particularly as we expand into new geographic markets.
There are a number of constituencies that are involved in a range of ESG issues including investors, special interest groups, public and consumer interest groups and third party service providers.
As a result, there is an increased emphasis on corporate responsibility ratings and a number of third parties provide reports on companies in order to measure and assess corporate responsibility performance.
−Removed: In addition, the ESG factors by which companies’ corporate responsibility practices are assessed may change, which could result in greater expectations of us and cause us to undertake costly initiatives to satisfy such new criteria.
+Added: In addition, the ESG factors by which companies’ corporate responsibility practices are assessed may change in the U.S.
+Added: and differ in our new geographic markets, which could result in greater expectations of us and cause us to undertake costly initiatives to satisfy such new criteria.
Alternatively, if we are unable to satisfy such new criteria, investors may conclude that our policies with respect to corporate responsibility are inadequate.
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We have been advised that, in connection with establishing their initial hedge positions with respect to the Bond Hedge and Warrants, the hedge counterparties and/or their affiliates would likely purchase shares of our common stock or enter into various derivative transactions with respect to our common stock concurrently with, or shortly after, the pricing of the Notes, including with certain investors in the Notes.
−Removed: These hedging activities could increase (or reduce the size of any decrease in) the market price of our common stock or the Notes.
+Added: FORM 10-K | 33
In addition, we expect that many investors in, including future purchasers of, the Notes may employ, or seek to employ, a convertible arbitrage strategy with respect to the Notes.
−Removed: Investors would typically implement such a strategy by selling short the common stock underlying the Notes and dynamically adjusting their short position while continuing to hold the Notes.
+Added: Investors could implement such a strategy by selling short the common stock underlying the Notes and dynamically adjusting their short position while continuing to hold the Notes.
Investors may also implement this type of strategy by entering into swaps on our common stock in lieu of or in addition to short selling the common stock.
3 unchanged sentences
The effect, if any, of these transactions and activities on the market price of our common stock or the trading prices of the Notes (which could affect a noteholder’s ability to convert the Notes or the amount and value of the consideration received upon conversion of the Notes) will depend in part on market conditions and cannot be ascertained at this time.
−Removed: Any of these activities, however, could adversely affect the market price of our common stock.
−Removed: FORM 10-K | 41
−Removed: It is not possible to predict the effect that these hedging or arbitrage strategies adopted by holders of the Notes or counterparties to the Bond Hedge and Warrants will have on the market price of our common stock.
−Removed: For example, the SEC and other regulatory and self-regulatory authorities have implemented various rules and taken certain actions, and may in the future adopt additional rules and take other actions, that may impact those engaging in short selling activity involving equity securities (including our common stock).
+Added: It is not possible to predict the exact effect that these hedging or arbitrage strategies adopted by holders of the Notes or counterparties to the Bond Hedge and Warrants as well as other market participants will have on the market price of our common stock.
+Added: These activities could increase (or reduce the size of any decrease in) the market price of our common stock or the Notes.
+Added: The SEC and other regulatory and self-regulatory authorities have implemented various rules and taken certain actions, and may in the future adopt additional rules and take other actions, that may impact those engaging in short selling activity involving equity securities (including our common stock).
Such rules and actions include Rule 201 of SEC Regulation SHO, the adoption by the Financial Industry Regulatory Authority, Inc.
5 unchanged sentences
To the extent that the share price for our common stock continues to trade above the applicable exercise price of each series of Warrants related to each series of Notes, these instruments will have a dilutive effect with respect to our common stock.
+Added: A large amount of holders of the 2023 Notes and 2024 Notes have elected early conversion into shares of our common stock due to market conditions in which our common stock has traded at prices well in excess of the applicable conversion prices for such notes.
+Added: Upon conversion of such notes, the applicable Bond Hedge with respect to such notes will be terminated while the corresponding Warrants will remain outstanding in accordance with the terms of the Warrants.
We do not make any representation or prediction as to the future direction or magnitude of any potential effect that the transactions described above may have on the price of our common stock.
1 unchanged sentence
the counterparties or their affiliates may choose to engage in, or discontinue engaging in, any of these transactions or activities with or without notice at any time, and their decisions will be in their sole discretion and not within our control.
+Added: 34 | FORM 10-K
We may issue additional shares of our common stock or instruments convertible into shares of our common stock, including in connection with the conversion of the Notes, and thereby materially and adversely affect the market price of our common stock and the trading prices of the Notes.
3 unchanged sentences
In addition, the anticipated conversion of the Notes could depress the market price of our common stock.
−Removed: For example, we issued a substantial number of shares of common stock in settlement of the Warrants related to the $300 million of 0.00% convertible senior notes that were issued in June and July 2015.
+Added: For example, in fiscal 2020 we issued a substantial number of shares of common stock in settlement of the Warrants related to the $300 million of 0.00% convertible senior notes that were issued in June and July 2015.
The fundamental change provisions of the Notes and the terms of the Bond Hedge and Warrants may delay or hinder an otherwise beneficial takeover attempt of us.
−Removed: The fundamental change purchase rights allow holders of Notes to require us to purchase all or a portion of their Notes upon the occurrence of a fundamental change.
+Added: The fundamental change purchase rights allow holders of the Notes to require us to purchase all or a portion of their Notes upon the occurrence of a fundamental change.
The provisions of the indenture governing the Notes requiring an increase to the conversion rate for conversions in connection with a make-whole fundamental change, including certain corporate transactions such as a change in control, may result in a change in the value of the Notes.
1 unchanged sentence
As a result of these provisions, we may be required to make payments to, or renegotiate terms with, holders of the Notes and/or the hedge counterparties.
−Removed: 42 | FORM 10-K
−Removed: These features of the Notes and the Bond Hedge and Warrants, including the financial implications of any renegotiation of the above-mentioned provisions, could have the effect of delaying or preventing a change of control, whether or not it is desired by, or beneficial to, our stockholders, and may result in the acquisition of us being on terms less favorable to our stockholders than it would otherwise be, or could require us to pay a portion of the consideration available in such a transaction to holders of the Notes or Warrants or the counterparties to the Bond Hedge.
+Added: These features of the Notes and the Bond Hedge and Warrants, including the financial implications of any renegotiation of the above-mentioned provisions, could delay or prevent a change of control, whether or not it is desired by, or beneficial to, our stockholders, and may result in the acquisition of us being on terms less favorable to our stockholders than it would otherwise be, or could require us to pay a portion of the consideration available in such a transaction to holders of the Notes or Warrants or the counterparties to the Bond Hedge.
UNRESOLVED STAFF COMMENTS
+Added: FORM 10-K | 35
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.