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If these initiatives are not successful, they may have a negative impact on our results of operations.
−Removed: 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 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Such new business opportunities may not achieve market acceptance or may only achieve market acceptance in limited geographic areas or at certain Design Galleries.
−Removed: In addition, developing and testing new and multiple business opportunities and strategies often requires knowledge in areas of expertise that may be new to our organization and may require significant time from our senior leadership team as well as substantial resources.
−Removed: We can provide no assurances that we will be successful in expanding our operations into any new businesses and product lines.
−Removed: Any new businesses we enter may also expose us to additional laws, regulations and risks, including the risk that we may incur ongoing operating expenses in such businesses in excess of revenues, which could harm our financial condition and results of operations.
−Removed: 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 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.
−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 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.
−Removed: and which may negatively impact the luxury market or our plans to operate in the U.K.
−Removed: We may be unsuccessful in adapting our operations to address such risks.
−Removed: We also may be unsuccessful in accurately selecting which international markets would support demand for our products or sizing our Gallery openings to such markets.
−Removed: We may determine to curtail and/or slow our international expansion initiative as part of our efforts to manage liquidity in response to overall market conditions and to address priorities in the different capital requirements of our business.
−Removed: Expanding our business internationally will also require that we develop operational expertise in new markets and regulatory regimes, and an inability to adapt our business quickly and efficiently to support our international expansion could materially adversely affect our financial condition and results of operations.
−Removed: FORM 10-K | 11
+Added: We are undertaking a large number of new business initiatives at the same time, including efforts to expand our business through (i) international expansion, (ii) enhancement of our merchandise assortment and improvements to the quality of our products and services, and (iii) launching new business initiatives, including real estate development and the expansion of RH Hospitality.
+Added: We have introduced a number of new product categories such as RH Modern and RH Contemporary, expanded the RH Hospitality offering which includes integrated Restaurants and Wine Bars in a number of our Galleries, standalone restaurants and guesthouses, as well as introduced 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 business acquisitions and investment in joint ventures such as a number of real estate development projects.
+Added: We can provide no assurances that customers will respond favorably to or that we will successfully execute on such business initiatives or that we will be successful in expanding our operations into any new businesses and product lines.
+Added: Any new businesses we enter or expansion of our existing business into new markets may expose us to additional operational risks such as risks related to currency fluctuation, supply chain and product sourcing, new regulatory regimes applicable to our products, Galleries and employees, and the consequences of international economic or political.
+Added: We may be unsuccessful in adapting our operations to address such risks and we may determine to curtail and/or slow our international expansion initiative.
As of January 28, 2023, we have an integrated RH Hospitality experience in 14 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.
−Removed: 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.
+Added: In addition, we have one standalone RH Guesthouse location as of January 28, 2023.
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.
−Removed: 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: 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.
−Removed: 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.
−Removed: In addition, we are continuing a number of new initiatives to improve the operations of our business, including ongoing refinements to our organizational structure.
−Removed: 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.
+Added: We often have incurred, and may in the future incur, substantial upfront costs for new business initiatives before we realize any corresponding revenue with respect to such initiatives.
+Added: For example, as we continue to develop and invest in new business initiatives, such as the introduction of guesthouses and the redevelopment of historical buildings into larger format Design Galleries in select major metropolitan markets, we may devote significant financial resources to a particular location before it opens to customers and generates revenue.
+Added: Additionally, the amount of lead time and cost involved in the development of such initiatives may be greater than anticipated.
+Added: If our future business initiatives do not achieve expected customer acceptance or generate sufficient revenues upon opening, we may not be able to recover the costs of our investment.
+Added: FORM 10-K | 11
+Added: In addition, we continue to pursue several new initiatives to improve our business, including refining our organizational structure, changing how we source and deliver products to our customers, and streamlining and realigning the senior leadership and personnel structure in our home office operations.
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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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 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.
−Removed: We have experienced significant fluctuations in the growth rate of our business and high levels of growth may not be achieved in future periods.
−Removed: We have experienced significant fluctuations in the growth rate of our business.
+Added: We have focused on introducing new products and optimizing our merchandise assortment including through 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.
+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 succeed in executing these initiatives.
+Added: 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, any of which could have a material adverse effect on our financial condition or results of operations.
+Added: We have experienced significant fluctuations in the growth of our business and high levels of growth may not be achieved in future periods.
+Added: We have experienced significant fluctuations in the growth of our business since the occurrence of the COVID-19 pandemic.
We may continue to experience wide fluctuations in our quarterly performance.
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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.
−Removed: Unique factors in any given quarter may affect period-to-period comparisons in our revenue growth, including:
−Removed: 12 | FORM 10-K
−Removed: 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;
−Removed: the availability of our products and the impact of delays or disruption in our supply chain;
−Removed: consumer preferences and demand;
−Removed: other factors affecting the retail business sector including issues related to the COVID-19 pandemic,
−Removed: 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: the number, size and location of stores we open, close, remodel or expand in any period;
−Removed: changes in Source Book circulation, and the number of pages in our Source Books and timing of mailing;
−Removed: our ability to efficiently source and distribute products;
−Removed: changes in our product offerings and the introduction, and timing thereof, of introduction of new products and new product categories;
−Removed: our competitors introducing similar products or merchandise formats;
−Removed: the timing of various holidays, including holidays with potentially heavy retail impact;
−Removed: the success of our marketing programs and any promotional efforts.
−Removed: 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.
+Added: Unique factors in any given quarter may affect period-to-period comparisons in our revenue growth, including the overall economic and general retail sales environment as well as factors affecting the housing market such as rising interest rates, housing prices, the pace of housing construction, secondary market transactions in the housing market and other activities in the housing sector.
+Added: Due to these kinds of factors, our results for any quarter are not necessarily indicative of the results that we may achieve for a full fiscal year.
Our results of operations may also vary relative to corresponding periods in prior years.
−Removed: 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.
+Added: 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.
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.
−Removed: 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.
−Removed: 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.
−Removed: and globally, and on financial and consumer markets.
−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 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.
−Removed: 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.
−Removed: 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 with respect to the global supply chain as a result of the pandemic.
−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 closures.
+Added: We have identified a material weakness in our internal control over financial reporting and such weakness led to a conclusion that our internal control over financial reporting and disclosure controls and procedures were not effective.
+Added: If we are unable to remediate the deficiencies in our internal control over financial reporting and disclosure controls and procedures and maintain effective controls in the future, the accuracy and timeliness of our financial reporting and disclosures may be adversely affected.
+Added: We are subject to Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), which requires us to maintain internal control over financial reporting and to report any material weaknesses in such internal control.
+Added: In addition, our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting.
12 | FORM 10-K
−Removed: 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.
−Removed: 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 and demand levels from the higher-end customer demographic.
−Removed: In addition, not all macroeconomic factors are highly correlated in their impact on lower end housing versus the higher-end customer.
−Removed: 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., 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.
−Removed: The stock market recently has experienced periods of significant volatility and there have been declines in some asset prices.
−Removed: Increases in interest rates may affect asset valuations and may dampen growth in and consumer optimism about the U.S.
−Removed: housing market and could depress home buying and/or prices in the higher-end of the housing market.
−Removed: 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.
−Removed: Previous declines in the stock market and periods of high equity market volatility have correlated with a reduction in consumer demand for our products.
−Removed: 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.
−Removed: These factors may make it difficult for us to accurately predict our operating and financial results for future periods and some of these factors could contribute to a material adverse effect on our business and results of operations.
+Added: On February 1, 2023, the Audit Committee of the Board of Directors, after discussion with our senior leadership and independent registered public accountants, determined that the unaudited financial statements for the three months ended April 30, 2022, the three and six months ended July 30, 2022, and the three and nine months ended October 29, 2022 should no longer be relied upon due to material unintentional errors in certain of these financial periods with respect to our calculation of basic and diluted net income per share, and that the Restatement (as defined below) would be required to correct these errors.
+Added: The unaudited condensed consolidated financial statements for the three months ended April 30, 2022, July 30, 2022 and October 29, 2022 were restated in our Quarterly Reports on Form 10-Q/A for the fiscal quarters ended April 30, 2022, July 30, 2022, and October 29, 2022 (the “Restatement”).
+Added: Our senior leadership team, with the participation of our Chief Executive Officer and Chief Financial Officer, re-evaluated the effectiveness of our disclosure controls and procedures and internal control over financial reporting.
+Added: As a result of the errors that gave rise to the need for the Restatement, our senior leadership team has concluded that our internal control over financial reporting and our disclosure controls and procedures (i) were not effective as of April 30, 2022, July 30, 2022, and October 29, 2022, and (ii) remained ineffective as of January 28, 2023.
+Added: Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in its reports filed with the SEC is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
+Added: Our senior leadership team has identified a material weakness in our internal control over financial reporting.
+Added: A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
+Added: The measures we take to remediate the material weakness in our internal control over financial reporting and to implement and maintain effective disclosure controls and procedures in the future may not be sufficient to satisfy our obligations as a public company and produce reliable financial reports, which may result in additional material misstatements of our consolidated financial statements and adverse impacts on our business, financial condition, and results of operations.
+Added: Our reporting obligations as a public company place significant requirements on our senior leadership team and we are required to devote substantial operational and financial resources and systems in order to meet those obligations and will continue to do so for the foreseeable future.
+Added: In addition, we have experienced changes in personnel who are involved in our financial reporting.
+Added: Changes in personnel, systems or procedures, as well as other events may have an adverse impact on our internal controls and our disclosure controls and procedures.
+Added: A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.
+Added: Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within a company have been detected.
+Added: These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
+Added: Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.
+Added: Therefore, our internal control over financial reporting and disclosure controls and procedures may not prevent or detect misstatements because of their inherent limitations, including the possibility of human error, the circumvention or overriding of controls or fraud.
+Added: There can be no assurance that our reporting infrastructure and personnel involved in financial reporting and disclosure controls and procedures have in the past complied, or will continue in the future to comply, with all of our applicable reporting obligations.
+Added: If we fail to timely achieve and maintain the adequacy of our internal control over financial reporting and effective disclosure controls and procedures, we may not be able to produce reliable financial or SEC reports.
+Added: Our failure to maintain the adequacy and effectiveness of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed, and we could fail to meet our financial and other reporting obligations.
+Added: FORM 10-K | 13
+Added: Changes in consumer spending and factors that influence spending of the specific categories of consumers that purchase from us may significantly impact our revenue and results of operations.
+Added: Our business depends on consumer demand for our products and we target consumers of high-end home furnishings.
+Added: As a result, we believe that our sales are sensitive to a number of factors that influence consumer spending generally, such as general economic conditions and the health and volatility of the stock market, but that our sales are particularly affected by the financial health of and demand levels from higher-end consumers.
+Added: While the overall market for home furnishings may be influenced by factors such as employment levels, interest rates, new household formation and the affordability of homes for first-time home buyers, the higher-end of the housing market may be disproportionately influenced by other factors, including the number of foreign buyers in higher-end U.S.
+Added: real estate markets, foreign currency volatility, the number of second and third homes being bought and sold, stock market prices, global economic uncertainty, inflation, decreased availability of income tax deductions for mortgage interest and state income and property taxes, and perceived capital appreciation prospects in higher-end real estate.
+Added: In the past, many of these factors have adversely affected the high-end home furnishings market and consequently our business.
+Added: We believe these economic factors could have a material adverse effect on our business and results of operations in future periods.
If we fail to successfully and timely deliver merchandise to our customers and manage our supply chain commensurate with demand, our results of operations may be adversely affected.
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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.
−Removed: 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 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: Various business conditions and operational initiatives such as the launch of new products and changes in the global supply chain require us to establish new vendor relationships and supply chain operations, which may expose us to new counterparty, regulatory, market or other risks.
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.
−Removed: 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.
−Removed: 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.
−Removed: For example, increases in costs for shipping merchandise from China to the United States could increase our costs.
−Removed: In addition, the seasonal nature of some of our products requires us to carry a significant amount of inventory prior to certain selling seasons.
−Removed: 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 and we may experience increased costs for merchandise.
−Removed: For these reasons, our results of operations in any given quarterly period may be adversely affected.
+Added: If we are unable to accurately predict and track demand for our products, 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.
We expect these factors to continue from time to time as we add new product assortments and new merchandise categories into our business.
−Removed: 14 | FORM 10-K
Merchandise purchased from our vendors that is defective or otherwise does not meet our product quality standards could damage our reputation and brand image and harm our business, and we may not have adequate remedies against our vendors for such merchandise.
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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.
−Removed: 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.
−Removed: 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: 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 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, exchanges or customer litigation (including class-action lawsuits), increasing routine and non-routine litigation costs.
In addition, social media may magnify any harm to our business, reputation and brand image.
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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.
+Added: 14 | FORM 10-K
Our business depends on the strength of our brand and continuing investments in our brand will be an important requirement for our future success.
−Removed: 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 our brand image has contributed significantly to the success of our business to date.
−Removed: 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 the implementation of our strategies for expansion.
−Removed: This will require us to continue making investments in areas that support the strength of our brand.
+Added: Our business depends in part on a strong brand image, and we continue to invest in brand development and marketing.
+Added: Our increased focus on elevating RH as a luxury brand and plans for international expansion further increase the importance of our brand image, position and reputation.
Our brand image may be diminished if new products, services or other businesses fail to maintain or enhance our distinctive brand image.
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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.
−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, 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.
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We continue to adjust and refine our strategy based on a variety of factors, including the success of the various changes that we adopt.
−Removed: During fiscal 2021, we increased our investment in certain digital initiatives and we expect to continue these initiatives.
Expenditures on our catalog strategy have historically represented a substantial portion of our expense in marketing and promoting our business.
−Removed: We are adjusting our strategies with respect to the use of Source Books.
−Removed: 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.
−Removed: 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.
+Added: We are adjusting our strategies with respect to the use of Source Books, including the frequency and scope 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.
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: 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.
−Removed: FORM 10-K | 15
+Added: There can be no assurance that we will be successful as we make changes in order to optimize our Source Book strategy.
Competition in the home furnishings sector may adversely affect our future financial performance.
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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.
−Removed: 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.
+Added: We also compete with a number of other home furnishing retailers, including national and regional businesses as well as new market participants.
+Added: We 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.
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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.
−Removed: Increased competition also has resulted, and may in the future result, in potential or actual litigation between us and our competitors related to a variety of activities, including hiring practices.
−Removed: If we are not successful in such litigation, our business could be harmed.
+Added: Many of our competitors seek to compete with us by offering products that are similar to our merchandise at lower price points.
+Added: To the extent that we do not engage in discounting of our merchandise, we may lose market share to our competitors as a result of price competition which could have a negative impact on our business.
We are subject to risks associated with our dependence on foreign manufacturing and imports for our merchandise.
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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: 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.
+Added: FORM 10-K | 15
+Added: Many of our imported products are subject to existing duties, tariffs 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., Canada and Europe.
+Added: We typically seek to reduce our exposures to any anti-dumping duties by minimizing our sourcing of products from countries where anti-dumping duties apply, however, such duties may be applied by certain countries in some cases in the future, which in turn may cause us to reconsider sourcing certain targeted product groupings.
In addition, substantial regulatory uncertainty exists regarding international trade relations and trade policy.
−Removed: 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.
−Removed: and Canada, whether actual, pending or threatened, may have a negative impact on our results of operations.
+Added: 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., Canada and Europe, whether actual, pending or threatened, may have a negative impact on our results of operations.
Significant uncertainty exists as to whether and when tariffs may be reduced or imposed, and what countries may be implicated.
4 unchanged sentences
from China and could propose additional tariffs.
−Removed: A significant subset of our products sourced from China has been affected by increased tariffs imposed in 2018 and 2019.
+Added: A significant subset of our products, such as furniture and lighting, sourced from China has been affected by increased tariffs imposed in 2018 and 2019 and continues to be affected by a 25 percent tariff as assigned by the U.S.
+Added: Trade Representative.
In January 2020, the U.S.
and China signed a “Phase One” trade agreement pursuant to which, among other things, the U.S.
−Removed: will modify its Section 301 tariff actions and which suspended the tariff on this additional set of goods.
+Added: will modify its Section 301 tariff actions, and which suspended the tariff on certain other specified consumer goods.
Further, as of February 14, 2020, the 15 percent tariff implemented on September 1, 2019 was reduced to 7.5 percent.
2 unchanged sentences
In addition, the U.S.
−Removed: 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: Government has imposed import restrictions under the Withhold Release Orders and under the Uyghur Forced Labor Prevention Act for goods such as cotton, aluminum, polysilicon, and other targeted input products originating from the Xinjiang Uyghur Autonomous Region which may induce greater supply chain compliance costs and delays to us and to our vendors.
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.
1 unchanged sentence
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: 16 | FORM 10-K
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.
−Removed: 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.
−Removed: 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.
−Removed: In addition, due to countermeasures (“countersanctions”) imposed by the Russian government, the sourcing of certain products that use Russian wood may be affected.
−Removed: 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.
−Removed: We are continually monitoring the evolving sanctions and regularly review our sourcing practices for compliance purposes.
+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 or transacting with specific countries such as China, Russia and the ongoing conflict in Ukraine, Venezuela, other various trade sanctions and other restrictions resulting from geopolitical tensions.
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.
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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.
+Added: 16 | FORM 10-K
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.
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Therefore, we may be dependent on particular vendors that produce popular items, and any vendor could discontinue selling to us at any time.
−Removed: In addition, the expansion of our business into new U.S.
−Removed: or international markets or new product categories could put pressure on our ability to source sufficient quantities of our products from such vendors.
+Added: In addition, the expansion of our business into new markets or new product categories could put pressure on our ability to source sufficient quantities of our products from such vendors.
In the event that one or more of our vendors is unable or unwilling to meet the quantity or quality of our product requirements, we may not be able to develop relationships with new vendors in a manner that is sufficient to supply the shortfall.
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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: 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.
However, many of our key products are produced by artisans, specialty vendors and other vendors that are small, undercapitalized or that may have limited production capacity, and we have from time to time in prior periods experienced supply constraints that have affected our ability to supply high demand items or new products due to such capacity and other limits in our vendor base.
−Removed: A number of our vendors, particularly our artisan vendors, may have limited financial or other resources and operating histories and may receive various forms of credit from us, including with respect to payment terms or other arrangements.
−Removed: 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: These advance payments are normally unsecured.
−Removed: 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.
+Added: A number of our vendors, particularly our artisan vendors, may have limited financial or other resources and operating histories and may receive various forms of credit from us, including with respect to payment terms or other arrangements such as unsecured advance payments from us for orders.
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.
−Removed: 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.
+Added: Such competitors may also purchase products in significantly greater volume than we do, which may enable them to sell the products at reduced cost or flood the market with similar products.
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.
1 unchanged sentence
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.
−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 including in part as a result of the COVID-19 pandemic.
+Added: For example, in recent periods the cost of sourcing our products has come under pressure from increased prices for raw materials and shipping and other costs.
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.
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general economic conditions;
+Added: rising interest rates;
significant political events;
+Added: natural disasters, including as a result of climate change;
duties and tariffs and other similar factors.
−Removed: 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.
+Added: 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 such as increased costs of operation or lower demand for our products.
Changes in the value of the U.S.
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If we are unable to pass such cost increases on to our customers or the higher cost of the products results in decreased demand for our products, our results of operations could be harmed.
+Added: FORM 10-K | 17
We are subject to risks associated with occupying substantial amounts of space, including future increases in occupancy costs.
4 unchanged sentences
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.
−Removed: 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.
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(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) various joint venture approaches, where we share the upside of the development with third parties including the developer/landlord.
−Removed: In fiscal 2020, we entered into equity method investments in connection with real estate development initiatives in Aspen, Colorado.
+Added: and (3) various joint venture approaches, where we share the upside of the development with third parties such as the developer/landlord.
+Added: In fiscal 2020, we entered into equity method investments in connection with real estate development initiatives in Aspen, Colorado with a third party real estate development partner (the “Aspen Development Partner”).
The investments include properties that will be developed into retail locations, hospitality concepts, residential developments and workforce housing projects.
1 unchanged sentence
We plan to operate the RH branded businesses and be a real estate investor and partner for the remaining properties.
−Removed: 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 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.
+Added: In fiscal 2022, we entered into additional real estate joint venture transactions with entities affiliated with our Aspen Development Partner with respect to various properties that we expect will ultimately be developed and may in numerous instances be leased in whole or in part by RH now or in the future for new RH Galleries or other RH business concepts.
+Added: 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.
+Added: Risks we may experience in connection with this new development model include increased demands on our leadership team related to the operational complexity of engaging in real estate and construction development activities which are not within our traditional areas of operational expertise as well as 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.
+Added: Pursuing multiple different paths for addressing our real estate needs may create various other risks including (i) conflicting financial incentives and objectives of third parties involved in our real estate development projects, including our joint venture partner, (ii) increased complexity of concurrently pursuing multiple different models for Gallery development, and (iii) 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.
2 unchanged sentences
We have not historically operated directly in all phases of real estate development, including managing all aspects of construction of large-scale real estate projects.
−Removed: With respect to projects such as the future Gallery and Guesthouse in Aspen, we are broadly undertaking increased development risk with respect to our real estate investments and these risks could increase our financial exposure to development cost overruns or other negative factors stemming from these real estate development efforts.
−Removed: Although our strategy in assuming greater risk and responsibility for real estate development in certain projects such as the Aspen project is designed to achieve greater financial returns and a higher overall return on investment, we could face increased downside risks if we encounter difficulties in implementing these strategies such as cost overruns or delays in construction.
−Removed: If we decide to close an existing or future store, we may nonetheless have continuing obligations with respect to that property pursuant to the applicable lease or ownership arrangements, including, among other things, paying the base rent for the balance of the lease term.
−Removed: Our ability to re-negotiate favorable terms on an expiring lease, to arrange for the sale of an owned property or to negotiate favorable terms for a suitable alternate location could depend on conditions in the real estate market, competition for desirable properties, our relationships with current and prospective landlords and other factors that are not within our control.
−Removed: 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: With respect to a number of our Gallery development projects, we are broadly undertaking increased development risk with respect to our real estate investments and these risks could increase our financial exposure to development cost overruns, construction delays and other negative factors which exposes us to increased downside risks if we encounter difficulties in implementing these strategies such as operational and financial challenges related to later than expected openings of new Gallery projects as well as substantial increases in our costs.
18 | FORM 10-K
−Removed: 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.
+Added: Our ability to renegotiate favorable terms on an expiring lease, to arrange for the sale of an owned property or to negotiate favorable terms for a suitable alternate location could depend on conditions in the real estate market, competition for desirable properties, our relationships with current and prospective landlords and other factors that are not within our control.
+Added: 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: A number of factors that affect our ability to successfully open new stores within the time frames or cost parameters that 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.
We are focused on sizing our assortments and our stores to the potential of the market by adjusting the square footage and number of stores on a geographic market-by-market basis.
We plan to optimize our real estate by continuing to open larger square footage Galleries in key markets and relocating or closing selected stores in these or adjacent markets.
−Removed: In addition, we have developed prototype Design Galler ies that are suited to many smaller North American markets , we intend to continue to open indigenous Bespoke Galleries in the second home markets such as our initiative in Aspen, Colorado, and we intend to open larger Bespoke Design Galleries in the top international markets.
+Added: In addition, we have developed alternative Design Gallery formats with varying sizes that are suited to many smaller and mid-sized North American markets, and we are testing this approach as we open new Galleries in different new locations.
+Added: We intend to continue to open indigenous Bespoke Galleries in important second home markets such as our initiative in Aspen, Colorado, and we intend to open larger Bespoke Design Galleries in top international markets.
+Added: We also are exploring the introduction of smaller Design Studios in some new markets.
When we address the introduction of new stores in a particular market or changes to, or closure of, existing stores, we must make a series of decisions regarding the size and location of new stores (or the existing stores slated to undergo changes or closure) and the impact on our other existing stores in the area or being without presence or “out of the market.”
−Removed: Our ability to maximize the productivity of our retail store base, depends on many factors, including, among others, our ability to:
−Removed: identify suitable locations, the availability of which is largely outside of our control;
−Removed: size the store locations to the market opportunity;
−Removed: retain customers in a certain geographic market when we close stores in such market or an adjacent market;
−Removed: negotiate acceptable new lease terms or lease renewals, modifications or terminations;
−Removed: efficiently build and equip new stores or remodel existing locations;
−Removed: source sufficient levels of inventory to meet the needs of changes in our store footprint in a timely manner;
−Removed: successfully integrate changes in our store base into our existing operations and information technology systems;
−Removed: obtain or maintain adequate capital resources on acceptable terms;
−Removed: avoid construction or local permit delays, construction accidents and injuries and cost overruns in connection with the opening of new stores or the expansion or remodeling of existing stores;
−Removed: maintain adequate distribution facilities, information systems and other operational systems to serve our new stores and remodeled stores;
−Removed: address competitive, merchandising, marketing, distribution and other challenges encountered in connection with expansion into new geographic areas and markets.
We have experienced delays in opening some new stores and may experience further delays in the future.
We also have incurred higher levels of capital and other expenditures associated with the opening of some of our new Gallery locations.
−Removed: In addition, construction costs and the price of building materials related to construction have experienced substantial price increases in recent years.
−Removed: 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: In addition, construction costs and the price of construction materials have increased substantially 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 or have the effects that we anticipate.
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.
3 unchanged sentences
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: 20 | FORM 10-K
−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 adversely affect our sales.
−Removed: 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.
−Removed: Sales at stores located in malls are derived, in part, from the volume of traffic in those malls.
−Removed: These stores benefit from the ability of the malls to generate consumer traffic in the vicinity of our stores and the continuing popularity of the malls as shopping destinations and positive experiences.
−Removed: However, in recent years there has been a shift in consumer preferences to purchasing certain products online rather than in stores.
−Removed: 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.
−Removed: A continuation of adverse trends affecting mall operations could have a negative impact on the sales generated by our stores currently located in shopping malls.
If we are unable to successfully optimize and operate our distribution centers, furniture home delivery centers and other aspects of our supply chain and customer delivery network, or if we are not able to fulfill orders and deliver our merchandise to our customers in an effective manner, our business and results of operations will be harmed.
−Removed: Our business depends upon the successful operation of our distribution centers, furniture home delivery centers and other aspects of our supply chain and customer delivery network, as well as upon our order management and fulfillment services and the re-stocking of certain inventories within our stores.
+Added: Our business depends upon the successful operation of our distribution centers, furniture home delivery centers and other aspects of our supply chain and customer delivery network, as well as upon our order management and fulfillment services.
The efficient flow of our merchandise requires that our facilities have adequate capacity to support our current level of operations and any anticipated increased levels that may follow from any growth of our business.
3 unchanged sentences
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: 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.
−Removed: For example, we have consolidated our distribution center network and we are in the process of opening new outlet and home delivery center locations and reconfiguring our furniture home delivery centers and outlets in order to streamline our operations.
−Removed: While we believe that optimizing and consolidating our distribution centers and other aspects of our supply chain and customer delivery network will allow us to more efficiently manage our inventory and optimize our uses of capital, in the short term such strategy may result in additional costs, including increased freight costs and lease early termination fees.
−Removed: Furthermore, in the past, during periods of significant customer growth and demand, we have found that our distribution centers often run at capacity.
−Removed: If we fail to accurately anticipate the future capacity requirements of our distribution centers, we may experience delays and difficulties in fulfilling orders and delivering merchandise to customers in a timely manner.
−Removed: Furthermore, we may be unable to remedy such issues quickly as opening additional distribution and home delivery facilities can face operational difficulties, such as disruptions in transitioning fulfillment orders to the new distribution facilities, competition for distribution facility space and problems associated with operating new facilities or reducing the size and changing functions of existing facilities.
−Removed: These difficulties can result in a negative experience for our customers.
−Removed: Any delays in fulfilling orders and delivering merchandise to customers, or related negative experience of our customers, could harm our results of operations.
FORM 10-K | 19
+Added: We also are engaged in initiatives to introduce new products and to optimize our merchandise assortment including through lower inventories and reduced working capital, and in order to realize the anticipated benefits of such initiatives, we have focused on optimizing the use of our distribution centers, furniture home delivery centers and outlets.
+Added: For example, we have consolidated our distribution center network and we are in the process of reconfiguring our furniture home delivery centers in order to streamline our operations.
+Added: Not all of these initiatives have worked in the manner that we originally anticipated and in some instances the investments we have made in changes to our home delivery have not returned corresponding benefits commensurate with the costs to us.
+Added: While we believe that these efforts will allow us to more efficiently manage our inventory and optimize our uses of capital, in the short term such strategies may result in additional costs, including increased freight costs and lease early termination fees.
+Added: Furthermore, in the past, during periods of significant customer growth and demand, our distribution centers often run at capacity.
+Added: If we fail to accurately anticipate the future capacity requirements of our distribution centers, we may experience delays and difficulties in fulfilling orders and delivering merchandise to customers in a timely manner.
+Added: We also may be unable to remedy such issues quickly due to operational difficulties, such as disruptions in transitioning fulfillment orders to the new distribution facilities, competition for distribution facility space and problems associated with operating new facilities or reducing the size and changing functions of existing facilities.
+Added: These difficulties can result in a negative experience for our customers and could harm our results of operations.
We currently rely upon independent third-party transportation providers for the majority of our product shipments, which subjects us to certain risks.
We currently rely upon independent third-party transportation providers for product shipments from our vendors to our stores and to our customers outside of certain areas.
−Removed: Our utilization of third-party delivery services for shipments is subject to risks, including increases in fuel prices, which would increase our shipping costs, as well as strikes, work stoppages and inclement weather, which may impact shipping companies’ abilities to provide delivery services that adequately meet our shipping needs.
+Added: Our utilization of third-party delivery services for shipments is subject to risks, including increases in rates and fuel prices, which would increase our shipping costs, as well as strikes, work stoppages and inclement weather, which may impact shipping companies’ abilities to provide delivery services that adequately meet our shipping needs.
For example, strikes or even threat of strikes involving longshoreman and clerical workers at ports in the past have completely shut down such ports for periods of time, impacting retail and other industries.
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Our operations have significant liquidity and capital requirements and depend on the availability of adequate financing and sources of capital on reasonable terms.
−Removed: 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 elected to raise substantial amounts of capital through debt which exposes our business to risks related to obligations of indebtedness, including the variable interest rate of such indebtedness as well as the other terms and conditions of our debt financing and the need to manage our financial resources in order to repay such debt in accordance with its terms .
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 ($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 completed four convertible debt financings from fiscal 2014 through fiscal 2019.
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.
−Removed: 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: 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 or to sell these convertible notes back to the Company in connection with privately negotiated repurchase transactions.
We had $44 million remaining in aggregate principal amount of these remaining two series of convertible notes outstanding as of January 28, 2023.
−Removed: 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: Based upon the strength in our common stock price, we expect that many of the holders of the remaining outstanding convertible notes from these two series may elect early conversion of such notes in advanced of the scheduled maturity dates.
+Added: 20 | FORM 10-K
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.
−Removed: 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:
−Removed: making it more difficult for us to meet our payments and other obligations;
+Added: On May 13, 2022, RHI entered into an Amended Term Loan Credit Agreement (the “Term Loan Credit Agreement”) with respect to incremental term loans in an aggregate principal amount equal to $ 500 million with a maturity date of October 20, 2028 (collectively, with the initial $2.0 billion raised pursuant to the Term Loan Credit Agreement, the “Term Debt”).
+Added: Our existing indebtedness, including the Term Debt and any other indebtedness we may incur in the future, could have significant consequences on our future operations and financial results, including:
+Added: making it more difficult for us to meet our obligations;
reducing the availability of our cash flows to fund working capital, capital expenditures, acquisitions or strategic investments and other general corporate requirements, and limiting our ability to obtain additional financing for these or other purposes;
−Removed: subjecting us to increased interest expense related to any indebtedness we may incur with variable interest rates;
+Added: subjecting us to increased interest expense related to the variable interest rate terms of our ABL Credit Agreement and Term Debt as well as the terms of any other indebtedness we may incur with variable interest rates in the event that we do not hedge the associated interest rate risk of such variable interest rate indebtedness and we experience increased interest rates;
limiting our flexibility in planning for, or reacting to (and increasing our vulnerability to), changes in our business, the industry in which we operate and the general economy;
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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.
−Removed: 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.
1 unchanged sentence
We have invested significant capital expenditures in remodeling and opening new Galleries, and these capital expenditures have increased in the past and may continue to increase in future periods as we open additional Design Galleries, which may require us to undertake upgrades to historical buildings or construction of new buildings.
−Removed: During fiscal 2021, our adjusted capital expenditures were $254 million, inclusive of cash received related to landlord tenant allowances of $22 million.
−Removed: 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.
+Added: During fiscal 2022, our adjusted capital expenditures were $225 million in aggregate, net of cash received related to landlord tenant allowances of $13 million.
+Added: In addition, we also received landlord tenant allowances after construction completion of $4.7 million, which are reflected as a reduction to principal payments under finance leases within financing activities on the consolidated statements of cash flows.
+Added: We expect our capital expenditures to increase in fiscal 2023, but the exact scope of our capital plans in future fiscal years, including fiscal 2023, will depend on a variety of factors such as 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.
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: FORM 10-K | 21
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.
−Removed: 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: 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 $2.50 billion of Term Debt that we raised in October 2021 and May 2022 in connection with our Term Loan Credit Agreement.
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.
17 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: FORM 10-K | 23
Competition for qualified employees and personnel is intense, particularly in the retail and hospitality industry.
−Removed: 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: In addition, in the San Francisco Bay Area, where our headquarters are located, there is a high cost of living and vigorous competition for qualified personnel.
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.
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Changes in our organizational structure may also have an impact on retention of personnel.
+Added: 22 | FORM 10-K
Inasmuch as our success depends in part upon our ability to attract, motivate and retain a sufficient number of store and other employees who understand and appreciate our corporate culture and customers.
13 unchanged sentences
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: 24 | FORM 10-K
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.
1 unchanged sentence
Various jurisdictions 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.
+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, and the California Privacy Rights Act, which took effect starting January 1, 2023, 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.
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.
2 unchanged sentences
Investigations, lawsuits, or adverse publicity relating to our methods of handling personal data could result in increased costs and negative market reaction.
+Added: We expect that new laws, regulations and industry standards will continue to be proposed and enacted relating to privacy, data protection, marketing, advertising, consumer communications and information security in the U.S., the European Union and other jurisdictions, and we cannot determine the impact such future laws, regulations and standards may have on our business.
+Added: FORM 10-K | 23
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.
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In addition, insurance coverage may be insufficient or may not cover certain cybersecurity losses and liability.
−Removed: 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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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.
+Added: 24 | FORM 10-K
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.
2 unchanged sentences
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, 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.
−Removed: 26 | FORM 10-K
+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) international and domestic trade and business practices, including import laws, 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.
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.
−Removed: and in other jurisdictions where we operate such as, among others, the Equal Employment Opportunity Commission, the CPSC, the Federal Trade Commission, the Department of Labor, the SEC, FINRA, the NYSE, the Department of Justice and numerous state and local governmental authorities including state attorney generals and state agencies.
+Added: and in other jurisdictions where we operate such as, among others, the Equal Employment Opportunity Commission, the CPSC, the Federal Trade Commission, U.S.
+Added: Customs and Border Protection, the U.S.
+Added: Department of the Treasury’s Office of Foreign Assets Control the Department of Labor, the SEC, FINRA, the NYSE, the Department of Justice and numerous state and local governmental authorities, including state attorney generals and state agencies.
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: 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.
−Removed: 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.
−Removed: 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.
−Removed: The settlement involved certain non-monetary terms as well as payment of the plaintiffs’ attorneys’ legal fees, which payment was funded entirely by our insurance carriers.
−Removed: On October 6, 2020, the Court held a final settlement hearing.
−Removed: On December 18, 2020, the court granted final approval of the settlement and entered a final judgment dismissing the action.
+Added: In the past we have faced certain securities litigation matters, including securities class action cases that were consolidated by the court and certain related legal proceedings and various governmental investigations, including with respect to trading in our securities.
+Added: Currently we face a number of legal proceedings in connection with our business, including numerous cases for which plaintiffs are seeking class action status in areas such as wage and hour and employment practices.
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.
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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.
−Removed: 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.
+Added: FORM 10-K | 25
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 or using some of our trademarks in certain geographic markets.
−Removed: 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 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.
−Removed: 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.
+Added: We believe that our trademarks, copyrights (including in photographs, Source Books and our website), and other proprietary rights are important to identifying and differentiating our brand and certain of our products from those of our competitors.
+Added: We have from time to time encountered third parties selling products substantially similar to our products or misrepresenting that the products such retailers were selling were our products.
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.
−Removed: 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.
−Removed: 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.
−Removed: FORM 10-K | 27
+Added: In the event that we are unable to assert and maintain intellectual property protection with respect to our products and services, the value of our brand could be diminished, and our competitive position could suffer.
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, intellectual property 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, sanctions, 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.
We may need to continually reassess our compliance procedures, personnel levels and regulatory framework in order to keep pace with the numerous business initiatives that we are pursuing, and there can be no assurance that we will be successful in doing so.
−Removed: If the regulations applicable to our business operations were to change or were violated by us or our vendors or buying agents, the costs of certain goods could increase, or we could experience delays in shipments of our goods, be subject to fines or penalties, or suffer reputational harm, which could reduce demand for our products and harm our business and results of operations.
+Added: If the regulations applicable to our business operations were to change or were violated by us or our vendors or buying agents, the costs of certain goods could increase, or we could experience delays in shipments of our goods, detentions, be subject to fines or penalties, or suffer reputational harm, which could reduce demand for our products and harm our business and results of operations.
In addition to increased regulatory compliance requirements, changes in laws could make ordinary conduct of our business more expensive or require us to change the way we do business.
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Such violations, or allegations of such violations, could disrupt our business and result in a material adverse effect on our financial condition, results of operations and cash flows.
−Removed: Labor organizing and other activities could negatively impact us.
−Removed: Currently, none of our employees are represented by a union.
−Removed: However, our employees have the right at any time to form or affiliate with a union, and union organizational activities have occurred from time to time.
−Removed: We cannot predict the negative effects that any future organizing activities will have on our business and operations.
−Removed: If we were to become subject to work stoppages, we could experience disruption in our operations and increases in our labor costs, either of which could materially adversely affect our business, financial condition or results of operations.
−Removed: In addition, one of our key value-driving strategies involves the development and introduction of new Gallery locations.
−Removed: We pursue a range of different real estate development models for these projects.
−Removed: In a number of these projects, we perform a significant role in various aspects of the design and construction of the Gallery location.
−Removed: Both we and third party contractors that we use in these construction projects may be subject to efforts and activities by organized labor to drive the hiring of union labor on these projects.
−Removed: To the extent that union workers are not involved in these projects, we and our third party contractors may be subject to picketing and other labor actions that could affect our business including protests in front of our Gallery locations in order to discourage our customers from entering our stores, which could adversely affect our business at those locations and our results of operations, including our same-store sales metrics.
−Removed: 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.
26 | FORM 10-K
−Removed: 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.
−Removed: We are subject to income taxes in the U.S.
−Removed: and certain foreign jurisdictions.
−Removed: We record income tax expense based on our estimates of future payments, which include reserves for uncertain tax positions in multiple tax jurisdictions, and valuation allowances related to certain net deferred tax assets, including net operating loss carryforwards.
−Removed: At any one time, many tax years are subject to audit by various taxing jurisdictions.
−Removed: The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues.
−Removed: We expect that throughout the year there could be ongoing variability in our quarterly tax rates as events occur and exposures are evaluated.
−Removed: 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.
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 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 2020-06— Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity in the first quarter of fiscal 2022, the adoption of which materially impacted our consolidated financial statements since we no longer separately present in equity an embedded conversion feature of our convertible senior notes and are required to determine our net income per share under the if-converted method.
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.
1 unchanged sentence
As part of exploring growth opportunities, we may from time to time seek to acquire value-creating, add-on businesses that we believe will broaden our existing position and market reach and have completed several different acquisitions in recent years.
−Removed: For example, in fiscal 2016, we acquired a controlling interest in Waterworks.
−Removed: In the fourth quarters of fiscal 2018 and fiscal 2017, we recorded goodwill impairment charges of $17 million and $34 million, respectively, with respect to Waterworks due to indicators identified in the fourth quarters of fiscal 2018 and fiscal 2017 that there could be an impairment of the Waterworks reporting unit.
−Removed: In addition, in the first quarter of fiscal 2020 and fourth quarter of fiscal 2018, we recorded tradename impairment charges of $20 million and $15 million, respectively, with respect to Waterworks due to indicators identified in the first quarter of fiscal 2020 and fourth quarter of fiscal 2018 that there could be an impairment of the Waterworks reporting unit.
−Removed: Refer to Note 3— Significant Accounting Policies in our consolidated financial statements within Part II of this Annual Report on Form 10-K.
−Removed: There can be no assurance that the Waterworks business will meet its future operating or financial objectives and if its results do not improve we may recognize additional charges related to this business and our financial results of operation may be adversely affected.
−Removed: Furthermore, there can be no assurance that in the future we will be able to find suitable businesses to purchase if we choose to acquire additional businesses, that we will be able to acquire such businesses on acceptable terms, that we will be successful in realizing the benefits of any acquisition we pursue or that any of the businesses which we acquire will meet our objectives.
+Added: If we choose to acquire businesses in the future, there can be no assurance that we will be able to find suitable businesses to purchase, acquire such businesses on acceptable terms, or realize the benefits of any acquisition we pursue or that any of the businesses which we acquire will meet our objectives.
If we are unsuccessful in any such acquisition efforts, then our ability to continue to grow at rates we anticipate could be adversely affected.
The success of any completed acquisition will depend on our ability to effectively manage the business after the acquisition.
−Removed: FORM 10-K | 29
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.
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Refer to “Impairment” within Note 3— Significant Accounting Policies in our consolidated financial statements within Part II of this Annual Report on Form 10 K.
−Removed: If we are unable to implement and maintain effective internal control over financial reporting in the future, the accuracy and timeliness of our financial reporting may be adversely affected.
−Removed: We are subject to Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), which requires us to maintain internal control over financial reporting and to report any material weaknesses in such internal control.
−Removed: We have in the past periodically experienced deficiencies in our internal controls that have been identified during the audit process or at other times.
−Removed: If we identify in the future one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective.
−Removed: In addition, our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting.
−Removed: Therefore, even if our senior leadership team concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may issue a report that is qualified if they are not satisfied with our controls or the level at which our controls are documented, designed, operated, or reviewed.
−Removed: Material weaknesses and significant deficiencies may be identified during the audit process or at other times.
−Removed: Our reporting obligations as a public company place a significant strain on our senior leadership team and our operational and financial resources and systems and will continue to do so for the foreseeable future.
−Removed: In addition, we have experienced changes in personnel who are involved in our financial reporting.
−Removed: Although we believe that we have invested adequate resources in developing and maintaining the procedures, personnel and systems necessary to support our reporting obligations, there can be no assurance that these efforts have been or will be successful.
−Removed: Changes in personnel, systems or procedures, as well as other events might have an adverse impact on our internal controls.
−Removed: Deficiencies in our internal controls or other challenges in the financial reporting aspects of our business may have an adverse impact on our ability to provide financial statements in accordance with generally accepted accounting procedures and may give rise to errors in our financial statement.
−Removed: There can be no assurance that our internal controls and financial reporting infrastructure and personnel have in the past complied, or will continue in the future to comply, with our financial reporting obligations.
−Removed: If we fail to timely achieve and maintain the adequacy of our internal control over financial reporting, we may not be able to produce reliable financial reports.
−Removed: Our failure to achieve and maintain effective internal control over financial reporting could prevent us from filing our periodic reports on a timely basis, which could result in the loss of investor confidence in the reliability of our financial statements, harm our business, and negatively impact the trading price of our common stock.
−Removed: 30 | FORM 10-K
−Removed: Our operations are subject to risks of natural or man-made disasters, acts of war, terrorism or widespread illness, any one of which could result in a business stoppage and negatively affect our results of operations.
−Removed: Our business operations depend on our ability to maintain and protect our facilities, computer systems and personnel.
−Removed: Our operations and consumer spending may be affected by natural or man-made disasters or other similar events, including floods, hurricanes, earthquakes, widespread illness, fires, loss of power, interruption of other utilities, industrial accidents, social unrest and riots.
−Removed: In particular, our corporate headquarters is located in Northern California and other parts of our operations are located in Northern and Southern California, each of which is vulnerable to the effects of disasters, including fires and earthquakes that could disrupt our operations and affect our results of operations, and there is evidence that extreme weather, extended drought and shifting climate patterns have intensified the frequency and severity of wildfires in California.
−Removed: 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, economic conditions, global trade or overall business conditions may adversely affect our business.
−Removed: Terrorist attacks, armed conflict such as what has been occurring in Ukraine, 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 such events and circumstances, could again result in reduced levels of consumer spending or other adverse effects on business conditions.
−Removed: Any of these occurrences could have a significant impact on our results of operations, revenue and costs.
−Removed: If in the future we encounter difficulties associated with any of our facilities, such as the disruptions we experienced related to the COVID-19 pandemic, or if any of our facilities were to shut down for any reason, including as a result of a natural disaster, we could face shortages of inventory resulting in backorders, significantly higher costs and longer lead times associated with distributing our products to both our stores and online customers and the inability to process orders in a timely manner or ship goods to our customers.
−Removed: Further, any significant interruption in the operation of our customer service centers could also reduce our ability to receive and process orders and provide products and services to our stores and customers, which could result in lost sales, cancelled sales and a loss of loyalty to our brand and have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Ownership of Our Common Stock
3 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 including inflation and factors affecting the housing market;
+Added: macroeconomic conditions, including inflation, rising interest rates 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;
+Added: FORM 10-K | 27
size of our public float and the price per share of our common stock;
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downgrades in our credit ratings or the credit ratings of our competitors;
−Removed: natural or man-made disasters or other similar events including health issues such as COVID-19;
−Removed: FORM 10-K | 31
+Added: natural or man-made disasters or other similar events, including global health emergencies;
issuances or expected issuances of capital stock;
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These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.
+Added: 28 | FORM 10-K
We do not expect to pay any cash dividends for the foreseeable future.
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Investors seeking cash dividends in the foreseeable future should not purchase our common stock.
−Removed: 32 | FORM 10-K
We face various risks in connection with our share repurchase program.
We have previously allocated a substantial amount of capital to the repurchase of shares of our common stock in open market stock repurchases.
−Removed: 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: During fiscal 2022, the Board of Directors authorized an additional $2.0 billion for the purchase of shares of our outstanding common stock, increasing the total authorized size of the share repurchase program to $2.45 billion.
+Added: We repurchased approximately 3.7 million shares of our common stock during fiscal 2022 pursuant to our share repurchase program at an average price of approximately $269 per share, for an aggregate repurchase amount of approximately $1.0 billion leaving a remaining amount of $1.45 billion outstanding and available under our share repurchase program at the end of fiscal 2022.
+Added: During fiscal 2022, we also repurchased $237 million of principal value of convertible senior notes in privately negotiated transactions and terminated all of the outstanding convertible note bond hedges and repurchased all of the outstanding warrants that had been previously issued in connection with the final two series of convertible senior notes.
+Added: Although we believe that our previous decisions regarding the allocation of capital to repurchase common stock has been very beneficial to our investors, there can be no assurance that any 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 or that we will receive the benefits from these repurchases that we anticipate.
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.
−Removed: 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.
−Removed: 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.
+Added: The amount, timing and execution of our share repurchase program and other repurchases of equity linked instruments 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 allocation activities.
Expectations of our company relating to environmental, social and governance factors may impose additional costs and expose us to new risks.
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If we fail to satisfy the expectations of investors and other key stakeholders or our initiatives are not executed as planned, our reputation and financial results could be materially and adversely affected.
−Removed: We expect that our common stock may experience increased trading volatility in connection with our Convertible Notes Financings.
−Removed: In September 2019, we issued $350 million of 0.00% convertible senior notes due 2024 (the “2024 Notes”).
−Removed: In June 2018, we issued $300 million of 0.00% convertible senior notes due 2023 and, on June 26, 2018, we issued an additional $35 million pursuant to the exercise of an overallotment option granted to the initial purchasers as part of the June 2018 offering (the “2023 Notes” and, together with the 2024 Notes, the “Notes”).
−Removed: In connection with each offering of the Notes, we entered into convertible note hedge transactions with certain counterparties (the “Bond Hedge”) and warrant transactions (the “Warrants” and together with the Notes and the Bond Hedge, the “Convertible Notes Financings”) with the same counterparties (the “hedge counterparties”).
−Removed: 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.
FORM 10-K | 29
−Removed: 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 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.
−Removed: 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.
−Removed: Further, investors in the Notes may periodically modify their arbitrage strategies with respect to the Notes or modify their hedge positions with respect to the Notes from time to time.
−Removed: The hedge counterparties and/or their respective affiliates also may periodically modify their hedge positions from time to time (and are likely to do so during the conversion period relating to any conversion of the Notes or following any repurchase of Notes by us on any fundamental repurchase date or otherwise).
−Removed: Such modifications may be implemented by entering into or unwinding various derivatives with respect to our common stock, and/or by purchasing or selling shares of our common stock or other securities of the Company in secondary market transactions and/or open market transactions.
−Removed: 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: 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.
−Removed: These activities could increase (or reduce the size of any decrease in) the market price of our common stock or the Notes.
−Removed: 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).
−Removed: Such rules and actions include Rule 201 of SEC Regulation SHO, the adoption by the Financial Industry Regulatory Authority, Inc.
−Removed: and the national securities exchanges of a “Limit Up-Limit Down” program, the imposition of market-wide circuit breakers that halt trading of securities for certain periods following specific market declines, and the implementation of certain regulatory reforms required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
−Removed: Any changes in government regulations or other factors that affect the manner in which third parties can engage in hedging strategies, including entering into short sales or swaps on our common stock, could adversely affect the trading prices and the liquidity of the Notes and/or our common stock.
−Removed: Taken together, the Bond Hedge and Warrants are intended, but not guaranteed, to offset any actual earnings dilution that could occur upon delivery of shares of common stock to satisfy to our conversion obligation under the Notes until our stock price exceeds the strike price of the Warrants.
−Removed: For the 2024 Notes, the corresponding Bond Hedge and Warrants are intended to limit the earnings dilution that our stockholders would experience until the Company’s common stock is above approximately $338.24 per share, the strike price of the 2024 Notes warrant transactions, which represented a 100% premium over the closing price of our common stock at the time we entered into the Bond Hedge and Warrants related to the 2024 Notes.
−Removed: For the 2023 Notes, the corresponding Bond Hedge and Warrants are intended to limit the earnings dilution that our stockholders would experience until the Company’s common stock is above approximately $309.84 per share, the strike price of the 2023 Notes warrant transactions, which represented a 100% premium over the closing price of our common stock at the time we entered into the Bond Hedge and Warrants related to the 2023 Notes.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: In addition, we do not make any representation that the counterparties to those transactions will engage in these transactions or activities or that these transactions and activities, once commenced, will not be discontinued without notice;
−Removed: 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: The terms of our outstanding indebtedness may delay or hinder an otherwise beneficial takeover attempt of us.
+Added: The terms of our outstanding indebtedness, including our outstanding Term Debt and the indebtedness under our ABL Credit Agreement, provide that we may be required to repay all of such outstanding indebtedness in connection with certain change in control transactions.
+Added: These features of our outstanding indebtedness, 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, and are likely to require us to pay a portion of the consideration available in such a transaction to holders of our outstanding indebtedness.
+Added: General Risks
+Added: Labor organizing and other activities could negatively impact us.
+Added: Currently, none of our employees are represented by a union.
+Added: However, our employees have the right at any time to form or affiliate with a union, and union organizational activities have occurred from time to time.
+Added: We cannot predict the negative effects that any future organizing activities will have on our business and operations.
+Added: If we were to become subject to work stoppages, we could experience disruption in our operations and increases in our labor costs, either of which could materially adversely affect our business, financial condition or results of operations.
+Added: In addition, one of our key value-driving strategies involves the development and introduction of new Gallery locations.
+Added: We pursue a range of different real estate development models for these projects.
+Added: In a number of these projects, we perform a significant role in various aspects of the design and construction of the Gallery location.
+Added: Both we and third-party contractors that we use in these construction projects may be subject to efforts and activities by organized labor to drive the hiring of union labor on these projects.
+Added: To the extent that union workers are not involved in these projects, we and our third-party contractors may be subject to picketing and other labor actions that could affect our business, including protests in front of our Gallery locations in order to discourage our customers from entering our stores, which could adversely affect our business at those locations and our results of operations, including our same-store sales metrics.
+Added: 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 such as union organizing efforts.
+Added: 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.
+Added: We are subject to income taxes in the U.S.
+Added: and certain foreign jurisdictions.
+Added: We record income tax expense based on our estimates of future payments, which include reserves for uncertain tax positions in multiple tax jurisdictions, and valuation allowances related to certain net deferred tax assets, including net operating loss carryforwards.
+Added: At any one time, many tax years are subject to audit by various taxing jurisdictions.
+Added: The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues.
+Added: We expect that throughout the year there could be ongoing variability in our quarterly tax rates as events occur and exposures are evaluated.
+Added: 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.
30 | FORM 10-K
−Removed: 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.
−Removed: We are not restricted from issuing additional shares of our common stock or other instruments convertible into, or exchangeable or exercisable for, shares of our common stock during the life of each of the Notes.
−Removed: If we issue additional shares of our common stock or instruments convertible into shares of our common stock, it may materially and adversely affect the market price of our common stock and, in turn, the trading prices of the Notes.
−Removed: In addition, the conversion of some or all of the Notes may dilute the ownership interests of existing holders of our common stock, and any sales in the public market of any shares of our common stock issuable upon such conversion of the Notes could adversely affect prevailing market prices of our common stock.
−Removed: In addition, the anticipated conversion of the Notes could depress the market price of our common stock.
−Removed: 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.
−Removed: 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 the Notes to require us to purchase all or a portion of their Notes upon the occurrence of a fundamental change.
−Removed: 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.
−Removed: Additionally, upon certain change of control transactions, the offsetting Bond Hedge and Warrants that we entered into at the time we issued the Notes may be exercised and/or terminated early.
−Removed: 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: 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.
+Added: Our operations are subject to risks of natural or man-made disasters, acts of war, terrorism or widespread illness, any one of which could result in a business stoppage and negatively affect our results of operations.
+Added: Our business operations depend on our ability to maintain and protect our facilities, computer systems and personnel.
+Added: Our operations and consumer spending may be affected by natural or man-made disasters or other similar events, including as a result of climate change, including floods, hurricanes, earthquakes, widespread illness, fires, loss of power, interruption of other utilities, industrial accidents, social unrest and riots.
+Added: In particular, our corporate headquarters is located in Northern California and other parts of our operations are located in Northern and Southern California, each of which is vulnerable to the effects of disasters, including fires and earthquakes that could disrupt our operations and affect our results of operations, and there is evidence that extreme weather, extended drought and shifting climate patterns have intensified the frequency and severity of wildfires in California.
+Added: Many of our vendors are also located in areas that may be affected by such events.
+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.
+Added: Any of these occurrences could have a significant impact on our results of operations, revenue and costs.
+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: 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.
+Added: If in the future we encounter difficulties associated with any of our facilities, such as the disruptions we experienced related to the COVID-19 pandemic, or if any of our facilities were to shut down for any reason, including as a result of a natural disaster, we could face shortages of inventory resulting in backorders, significantly higher costs and longer lead times associated with distributing our products to both our stores and online customers and the inability to process orders in a timely manner or ship goods to our customers.
+Added: Further, any significant interruption in the operation of our customer service centers could also reduce our ability to receive and process orders and provide products and services to our stores and customers, which could result in lost sales, cancelled sales and a loss of loyalty to our brand and have a material adverse effect on our business, financial condition and results of operations.
UNRESOLVED STAFF COMMENTS
−Removed: 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.