RH 10-Q

ITEM 1. FINANCIAL STATEMENTS RH CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ MAY 4, FEBRUARY 3, ​ ​ 2024 ​ 2024 ​ ​ (in thousands) ASSETS ​ ​ Cash and cash equivalents ​ $ 101,787 ​ $ 123,688 Accounts receivable—net ​ 62,800 ​ 55,058 Merchandise inventories ​ 802,209 ​ 754,126 Prepaid expense and other current assets ​ 149,230 ​ 169,030 Total current assets ​ 1,116,026 ​ 1,101,902 Property and equipment—net ​ 1,693,190 ​ 1,685,858 Operating lease right-of-use assets ​ ​ 605,664 ​ ​ 625,801 Goodwill ​ 141,013 ​ 141,033 Tradenames, trademarks and other intangible assets ​ 76,053 ​ 75,927 Deferred tax assets ​ 143,980 ​ 143,986 Equity method investments ​ ​ 128,908 ​ ​ 128,668 Other non-current assets ​ 281,705 ​ 240,722 Total assets ​ $ 4,186,539 ​ $ 4,143,897 LIABILITIES AND STOCKHOLDERS’ DEFICIT ​ ​ ​ Accounts payable and accrued expenses ​ $ 407,494 ​ $ 366,585 Deferred revenue and customer deposits ​ ​ 315,647 ​ 282,812 Convertible senior notes due 2024—net ​ ​ 41,862 ​ ​ 41,835 Operating lease liabilities ​ ​ 85,875 ​ ​ 85,523 Other current liabilities ​ 85,613 ​ 96,113 Total current liabilities ​ 936,491 ​ 872,868 Asset based credit facility ​ — ​ — Term loan B—net ​ 1,915,703 ​ 1,919,885 Term loan B-2—net ​ 468,531 ​ 468,696 Real estate loans—net ​ ​ 17,679 ​ ​ 17,766 Non-current operating lease liabilities ​ 555,651 ​ 576,166 Non-current finance lease liabilities ​ ​ 562,804 ​ ​ 566,829 Deferred tax liabilities ​ ​ 8,419 ​ ​ 8,442 Other non-current obligations ​ 11,182 ​ 10,639 Total liabilities ​ ​ 4,476,460 ​ ​ 4,441,291 Commitments and contingencies (Note 16) ​ ​ ​ ​ Stockholders’ deficit: ​ ​ ​ Preferred stock—$ 0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of May 4, 2024 and February 3, 2024 ​ — ​ ​ — Common stock— $ 0.0001 par value per share, 180,000,000 shares authorized, 18,342,797 shares issued and outstanding as of May 4, 2024; 18,315,613 shares issued and outstanding as of February 3, 2024 ​ 2 ​ 2 Additional paid-in capital ​ 300,189 ​ 287,806 Accumulated other comprehensive loss ​ ( 3,223 ) ​ ( 1,938 ) Accumulated deficit ​ ( 586,889 ) ​ ( 583,264 ) Total stockholders’ deficit ​ ​ ( 289,921 ) ​ ​ ( 297,394 ) Total liabilities and stockholders’ deficit ​ $ 4,186,539 ​ $ 4,143,897 ​ The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 3 ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ MAY 4, ​ APRIL 29, ​ 2024 2023 ​ ​ (in thousands, except share and per share amounts) Net revenues ​ $ 726,960 ​ $ 739,162 Cost of goods sold ​ 410,922 ​ ​ 391,617 Gross profit ​ 316,038 ​ 347,545 Selling, general and administrative expenses ​ 261,375 ​ ​ 248,305 Income from operations ​ 54,663 ​ 99,240 Other expenses ​ ​ ​ ​ ​ ​ Interest expense—net ​ ​ 56,772 ​ ​ 39,816 Other (income) expense—net ​ ​ 1,165 ​ ​ ( 653 ) Total other expenses ​ 57,937 ​ ​ 39,163 Income (loss) before income taxes and equity method investments ​ ​ ( 3,274 ) ​ ​ 60,077 Income tax expense (benefit) ​ ​ ( 2,091 ) ​ ​ 16,585 Income (loss) before equity method investments ​ ​ ( 1,183 ) ​ ​ 43,492 Share of equity method investments loss—net ​ ​ 2,442 ​ ​ 1,602 Net income (loss) ​ $ ( 3,625 ) ​ $ 41,890 Weighted-average shares used in computing basic net income (loss) per share ​ ​ 18,324,454 ​ ​ 22,047,029 Basic net income (loss) per share ​ $ ( 0.20 ) ​ $ 1.90 Weighted-average shares used in computing diluted net income (loss) per share ​ ​ 18,324,454 ​ ​ 23,758,788 Diluted net income (loss) per share ​ $ ( 0.20 ) ​ $ 1.76 ​ The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 4 ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ MAY 4, ​ APRIL 29, ​ ​ 2024 2023 ​ ​ (in thousands) Net income (loss) ​ $ ( 3,625 ) ​ $ 41,890 Net gain (loss) from foreign currency translation ​ ​ ( 1,285 ) ​ ​ 2,295 Comprehensive income (loss) ​ $ ( 4,910 ) ​ $ 44,185 ​ The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 5 ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ COMMON STOCK ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ACCUMULATED RETAINED ​ ​ ​ ​ ​ ​ ​ ​ ADDITIONAL OTHER EARNINGS ​ TOTAL ​ ​ ​ PAID-IN COMPREHENSIVE (ACCUMULATED STOCKHOLDERS' ​ SHARES AMOUNT CAPITAL INCOME (LOSS) DEFICIT) EQUITY (DEFICIT) ​ ​ (in thousands, except share amounts) Balances—February 3, 2024 ​ 18,315,613 $ 2 $ 287,806 $ ( 1,938 ) $ ( 583,264 ) $ ( 297,394 ) Stock-based compensation ​ — ​ ​ — ​ ​ 10,544 ​ ​ — ​ ​ — ​ ​ 10,544 Issuance of restricted stock ​ 4,000 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Vested and delivered restricted stock units ​ 817 ​ ​ — ​ ​ ( 151 ) ​ ​ — ​ ​ — ​ ​ ( 151 ) Exercise of stock options ​ 22,367 ​ ​ — ​ ​ 1,990 ​ ​ — ​ ​ — ​ ​ 1,990 Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 3,625 ) ​ ​ ( 3,625 ) Net loss from foreign currency translation ​ — ​ ​ — ​ ​ — ​ ​ ( 1,285 ) ​ ​ — ​ ​ ( 1,285 ) Balances—May 4, 2024 ​ 18,342,797 $ 2 $ 300,189 $ ( 3,223 ) $ ( 586,889 ) $ ( 289,921 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances—January 28, 2023 ​ 22,045,385 $ 2 $ 247,076 $ ( 2,403 ) $ 539,986 $ 784,661 Stock-based compensation ​ — ​ ​ — ​ ​ 10,180 ​ ​ — ​ ​ — ​ ​ 10,180 Vested and delivered restricted stock units ​ 847 ​ ​ — ​ ​ ( 96 ) ​ ​ — ​ ​ — ​ ​ ( 96 ) Exercise of stock options ​ 5,017 ​ ​ — ​ ​ 456 ​ ​ — ​ ​ — ​ ​ 456 Settlement of convertible senior notes ​ 2 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Net income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 41,890 ​ ​ 41,890 Net gain from foreign currency translation ​ — ​ ​ — ​ ​ — ​ ​ 2,295 ​ ​ — ​ ​ 2,295 Balances—April 29, 2023 ​ 22,051,251 $ 2 $ 257,616 $ ( 108 ) $ 581,876 $ 839,386 ​ The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 6 ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ MAY 4, ​ APRIL 29, ​ ​ 2024 2023 ​ ​ (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ ( 3,625 ) ​ $ 41,890 Adjustments to reconcile net income (loss) to net cash provided by operating activities: ​ ​ ​ ​ Depreciation and amortization ​ 30,827 ​ ​ 27,770 Non-cash operating lease cost ​ ​ 23,842 ​ ​ 19,865 Stock-based compensation expense ​ 10,544 ​ ​ 10,180 Asset impairments ​ ​ 575 ​ ​ 2,475 Non-cash finance lease interest expense ​ ​ 7,407 ​ ​ 8,486 Deferred income taxes ​ ​ — ​ ​ 16,527 Share of equity method investments loss—net ​ ​ 2,442 ​ ​ 1,602 Other non-cash items ​ 2,184 ​ ​ 2,215 Change in assets and liabilities: ​ ​ ​ ​ ​ Accounts receivable ​ ( 7,750 ) ​ ​ ( 462 ) Merchandise inventories ​ ( 48,324 ) ​ ​ 35,915 Prepaid expense and other assets ​ 15,404 ​ ​ ( 4,311 ) Landlord assets under construction—net of tenant allowances ​ ( 8,782 ) ​ ​ ( 9,583 ) Accounts payable and accrued expenses ​ 40,520 ​ ​ ( 54,354 ) Deferred revenue and customer deposits ​ 32,873 ​ ​ 19,160 Other current liabilities ​ ( 11,143 ) ​ ​ ( 556 ) Current and non-current operating lease liabilities ​ ( 24,009 ) ​ ​ ( 21,543 ) Other non-current obligations ​ ( 6,855 ) ​ ​ ( 8,538 ) Net cash provided by operating activities ​ 56,130 ​ 86,738 CASH FLOWS FROM INVESTING ACTIVITIES ​ ​ ​ ​ Capital expenditures ​ ( 66,261 ) ​ ​ ( 34,190 ) Equity method investments ​ ( 2,682 ) ​ ​ ( 33,131 ) Net cash used in investing activities ​ ( 68,943 ) ​ ( 67,321 ) ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 7 ​ Table of Contents RH CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ MAY 4, ​ APRIL 29, ​ ​ 2024 2023 ​ ​ (in thousands) CASH FLOWS FROM FINANCING ACTIVITIES ​ ​ ​ Repayments under term loans ​ ​ ( 6,250 ) ​ ​ ( 6,250 ) Repayments under real estate loans ​ ​ ( 9 ) ​ ​ ( 6 ) Repayments under promissory and equipment security notes ​ — ​ ​ ( 1,160 ) Repayments of convertible senior notes ​ ​ — ​ ​ ( 2 ) Principal payments under finance lease agreements ​ ​ ( 4,496 ) ​ ​ ( 3,877 ) Proceeds from exercise of stock options ​ 1,990 ​ ​ 456 Tax withholdings related to issuance of stock-based awards ​ ​ ( 151 ) ​ ​ ( 96 ) Net cash used in financing activities ​ ( 8,916 ) ​ ( 10,935 ) Effects of foreign currency exchange rate translation on cash ​ ( 172 ) ​ ​ ( 18 ) Net increase (decrease) in cash and cash equivalents and restricted cash ​ ( 21,901 ) ​ 8,464 Cash and cash equivalents and restricted cash ​ ​ ​ Beginning of period—cash and cash equivalents ​ 123,688 ​ 1,508,101 Beginning of period—restricted cash ​ — ​ 3,662 Beginning of period—cash and cash equivalents and restricted cash ​ $ 123,688 ​ $ 1,511,763 End of period—cash and cash equivalents ​ 101,787 ​ 1,516,689 End of period—restricted cash ​ — ​ 3,538 End of period—cash and cash equivalents and restricted cash ​ $ 101,787 ​ $ 1,520,227 Non-cash transactions: ​ ​ ​ ​ Property and equipment additions in accounts payable and accrued expenses at period-end ​ $ 38,504 ​ $ 20,441 Landlord asset additions in accounts payable and accrued expenses at period-end ​ ​ 6,434 ​ ​ 2,564 Excise tax from share repurchases in accounts payable and accrued expenses at period-end ​ ​ 11,988 ​ ​ 3,700 ​ The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements. ​ ​ ​ ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 8 ​ Table of Contents RH NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1—THE COMPANY Nature of Business RH, a Delaware corporation, together with its subsidiaries (collectively, “we,” “us,” “our” or the “Company”), is a leading retailer and luxury lifestyle brand operating primarily in the home furnishings market. Our curated and fully integrated assortments are presented consistently across our sales channels, including our retail locations, websites and Sourcebooks. We offer merchandise assortments across a number of categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, and baby, child and teen furnishings. As of May 4, 2024, we operated a total of 71 RH Galleries and 41 RH Outlet stores, one RH Guesthouse and 14 Waterworks Showrooms throughout the United States and Canada as well as in the United Kingdom, Germany and Belgium. We also have sourcing operations in Shanghai and Hong Kong. Basis of Presentation The accompanying unaudited interim condensed consolidated financial statements have been prepared from our records and, in our senior leadership team’s opinion, include all adjustments, consisting of normal recurring adjustments, necessary to fairly state our financial position as of May 4, 2024, and the results of operations for the three months ended May 4, 2024 and April 29, 2023. Our current fiscal year, which consists of 52 weeks, ends on February 1, 2025 (“fiscal 2024”). The condensed consolidated financial statements include our accounts and those of our wholly-owned subsidiaries, as well as the financial information of variable interest entities (“VIEs”) where we represent the primary beneficiary and have the power to direct the activities that most significantly impact the entity’s performance. Accordingly, all intercompany balances and transactions have been eliminated through the consolidation process. Certain information and disclosures normally included in the notes to annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted for purposes of these interim condensed consolidated financial statements. The preparation of our condensed consolidated financial statements, in conformity with GAAP, requires our senior leadership team to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and such differences could be material to the condensed consolidated financial statements. We have assessed various accounting estimates and other matters, including those that require consideration of forecasted financial information, using information that is reasonably available to us at this time. The accounting estimates and other matters we have assessed include, but were not limited to, sales return reserve, inventory reserve, allowance for doubtful accounts, goodwill, and intangible and other long-lived assets. Our current assessment of these estimates is included in our condensed consolidated financial statements as of and for the three months ended May 4, 2024. As additional information becomes available to us, our future assessment of these estimates, as well as other factors, could change and the results of any such change could materially and adversely impact our condensed consolidated financial statements in future reporting periods. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024 (the “2023 Form 10-K”). The results of operations for the three months ended May 4, 2024, presented herein, are not necessarily indicative of the results to be expected for the full fiscal year. ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 9 ​ Table of Contents NOTE 2—RECENTLY ISSUED ACCOUNTING STANDARDS New Accounting Standards or Updates Not Yet Adopted Segment Reporting: Improvements to Reportable Segment Disclosures In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ ASU”) 2023-07—Improvements to Reportable Segment Disclosures . This new guidance is designed to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. Early adoption is permitted. We are currently assessing the impact that adopting this new accounting standard will have on our condensed consolidated financial statements. ​ Income Taxes: Improvements to Income Tax Disclosures In December 2023, the FASB issued ASU 2023-09 — Improvements to Income Tax Disclosures . This new guidance is designed to enhance the transparency and decision usefulness of income tax disclosures. The amendments of this update are related to the rate reconciliation and income taxes paid, requiring consistent categories and greater disaggregation of information in the rate reconciliation as well as income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently assessing the impact that adopting this new accounting standard will have on our condensed consolidated financial statements . NOTE 3—PREPAID EXPENSE AND OTHER ASSETS Prepaid expense and other current assets consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ MAY 4, FEBRUARY 3, ​ ​ 2024 ​ 2024 ​ ​ (in thousands) Prepaid expenses ​ $ 38,668 ​ $ 42,089 Capitalized catalog costs ​ ​ 33,348 ​ ​ 27,856 Vendor deposits ​ ​ 19,297 ​ ​ 26,409 Tenant allowance receivable ​ ​ 8,717 ​ ​ 8,220 Federal and state tax receivable (1) ​ ​ 7,901 ​ ​ 20,441 Value added tax (VAT) receivable ​ ​ 7,447 ​ ​ 6,532 Right of return asset for merchandise ​ 5,432 ​ 5,011 Promissory notes receivable, including interest (2) ​ 3,217 ​ 3,292 Other current assets ​ ​ 25,203 ​ ​ 29,180 Total prepaid expense and other current assets ​ $ 149,230 ​ $ 169,030 ​ (1) Refer to Note 12— Income Taxes. (2) Represents promissory notes, including principal and accrued interest, due from an affiliate of the managing member of the Aspen LLCs (as defined below). Refer to Note 5— Variable Interest Entities . ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 10 ​ Table of Contents Other non-current assets consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ MAY 4, FEBRUARY 3, ​ ​ 2024 ​ 2024 ​ ​ (in thousands) Landlord assets under construction—net of tenant allowances ​ $ 154,302 ​ $ 118,897 Initial direct costs prior to lease commencement ​ ​ 72,061 ​ ​ 66,333 Capitalized cloud computing costs—net (1) ​ ​ 23,312 ​ ​ 22,646 Vendor deposits—non-current ​ 8,554 ​ 8,862 Other deposits ​ ​ 7,729 ​ ​ 7,913 Deferred financing fees ​ 2,268 ​ 2,520 Other non-current assets ​ 13,479 ​ 13,551 Total other non-current assets ​ $ 281,705 ​ $ 240,722 (1) Presented net of accumulated amortization of $ 21 million and $ 19 million as of May 4, 2024 and February 3, 2024, respectively. ​ NOTE 4—GOODWILL, TRADENAMES, TRADEMARKS AND OTHER INTANGIBLE ASSETS Goodwill, tradenames, trademarks and other intangible assets activity for the RH Segment and Waterworks consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ RH SEGMENT WATERWORKS ​ ​ ​ ​ TRADENAMES, ​ ​ ​ TRADENAMES, ​ ​ ​ ​ ​ TRADEMARKS AND ​ ​ ​ ​ TRADEMARKS AND ​ ​ ​ ​ ​ OTHER INTANGIBLE ​ ​ ​ ​ OTHER INTANGIBLE ​ ​ GOODWILL ​ ASSETS ​ GOODWILL (1) ​ ASSETS (2) ​ ​ (in thousands) February 3, 2024 ​ $ 141,033 ​ $ 58,927 ​ $ — ​ $ 17,000 Additions ​ — ​ ​ 126 ​ ​ — ​ ​ — Foreign currency translation ​ ​ ( 20 ) ​ ​ — ​ ​ — ​ ​ — May 4, 2024 ​ $ 141,013 ​ $ 59,053 ​ $ — ​ $ 17,000 (1) Waterworks reporting unit goodwill of $ 51 million recognized upon acquisition in fiscal 2016 was fully impaired as of fiscal 2018. (2) Presented net of an impairment charge of $ 35 million recognized in previous fiscal years. There are no goodwill, tradenames, trademarks and other intangible assets for the Real Estate segment. ​ ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 11 ​ Table of Contents NOTE 5—VARIABLE INTEREST ENTITIES Consolidated Variable Interest Entities and Noncontrolling Interests In fiscal 2022, we formed eight privately-held limited liability companies (each, a “Member LLC” and collectively, the “Member LLCs” or the “consolidated variable interest entities”) for real estate development activities related to our Gallery transformation and global expansion strategies. The carrying amounts and classification of the Member LLCs’ assets and liabilities included in the condensed consolidated balance sheets were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ MAY 4, FEBRUARY 3, ​ ​ 2024 ​ 2024 ​ ​ (in thousands) ASSETS ​ ​ Cash and cash equivalents ​ $ 9,324 ​ $ 8,918 Prepaid expense and other current assets ​ 1,401 ​ 1,876 Total current assets ​ 10,725 ​ 10,794 Property and equipment—net (1) ​ 263,798 ​ 256,523 Other non-current assets ​ ​ 6 ​ 6 Total assets ​ $ 274,529 ​ $ 267,323 LIABILITIES ​ ​ Accounts payable and accrued expenses ​ $ 4,950 ​ $ 8,735 Other current liabilities ​ ​ 232 ​ ​ 1,041 Total current liabilities ​ ​ 5,182 ​ ​ 9,776 Real estate loans—net (2) ​ ​ 17,679 ​ ​ 17,766 Other non-current obligations ​ ​ 941 ​ 947 Total liabilities ​ $ 23,802 ​ $ 28,489 (1) Includes $ 49 million and $ 77 million of construction in progress as of May 4, 2024 and February 3, 2024, respectively. (2) Real estate loans are secured by the assets of each respective Member LLC and the associated creditors do not have recourse against RH’s general assets. Excludes $ 0.2 million and $ 0.1 million of current obligations related to such loans that are included in other current liabilities on the condensed consolidated balance sheets as of May 4, 2024 and February 3, 2024, respectively. On August 3, 2022, a Member LLC as the borrower executed a Secured Promissory Note (the “Secured Promissory Note”) with a third-party in an aggregate principal amount equal to $ 2.0 million with a maturity date of August 1, 2032. The Secured Promissory Note bears interest at a fixed rate per annum equal to 6.00 % . On September 9, 2022, a Member LLC as the borrower executed a Promissory Note (the “Promissory Note”) with a third-party bank in an aggregate principal amount equal to $ 16 million with a maturity date of September 9, 2032. The Promissory Note bears interest at a fixed rate per annum equal to 5.37 % until September 15, 2027, on which date the interest rate will reset based on the five-year treasury rate plus 2.00 % , subject to a total interest rate floor of 3.00 % . Equity Method Investments Equity method investments primarily represent our membership interests in three privately-held limited liability companies in Aspen, Colorado (each, an “Aspen LLC” and collectively, the “Aspen LLCs”) that were formed for the purpose of acquiring, developing, operating and selling certain real estate projects in Aspen, Colorado. As of May 4, 2024, we have made capital contributions of approximately $ 140 million to the Aspen LLCs. Additionally, Waterworks has membership interests in two European entities that are equity method investments. ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 12 ​ Table of Contents Our maximum exposure to loss is the carrying value of each of the equity method investments as of May 4, 2024. During the three months ended May 4, 2024 and April 29, 2023, we did no t receive any distributions or have any undistributed earnings of equity method investments. NOTE 6—ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accounts payable and accrued expenses consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ MAY 4, FEBRUARY 3, ​ ​ 2024 ​ 2024 ​ ​ (in thousands) Accounts payable ​ $ 208,608 ​ $ 192,345 Accrued compensation ​ 56,039 ​ 43,840 Accrued sales and use tax ​ 28,211 ​ 26,823 Accrued occupancy ​ 28,010 ​ 29,144 Accrued freight and duty ​ 17,180 ​ 14,333 Accrued legal settlements (1) ​ ​ 16,504 ​ ​ 16,704 Excise tax payable on share repurchases ​ ​ 11,988 ​ ​ 11,988 Accrued professional fees ​ 6,140 ​ 5,754 Accrued legal contingencies (1) ​ ​ 2,433 ​ ​ 2,795 Accrued interest ​ ​ 1,897 ​ ​ 1,343 Other accrued expenses ​ 30,484 ​ 21,516 Total accounts payable and accrued expenses ​ $ 407,494 ​ $ 366,585 (1) Refer to Note 16— Commitments and Contingencies. Reorganization We implemented a restructuring on March 24, 2023 that included workforce and expense reductions in order to improve and simplify our organizational structure, streamline certain aspects of our business operations and better position us for further growth. The workforce reduction associated with the initiative included the elimination of numerous leadership and other positions throughout the organization, which affected approximately 440 roles. The reorganization was completed during the first quarter of fiscal 2023. During the three months ended April 29, 2023, we incurred total charges relating to the reorganization of $ 7.6 million consisting primarily of severance costs and related taxes. As of February 3, 2024, we had an immaterial amount accrued within accounts payable and accrued expenses on the condensed consolidated balance sheets related to the reorganization, all of which was paid during the first quarter of fiscal 2024. ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 13 ​ Table of Contents Other current liabilities consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ MAY 4, FEBRUARY 3, ​ ​ 2024 ​ 2024 ​ ​ (in thousands) Current portion of term loans ​ $ 25,000 ​ $ 25,000 Allowance for sales returns ​ ​ 20,953 ​ ​ 19,588 Unredeemed gift card and merchandise credit liability ​ ​ 20,588 ​ ​ 24,720 Finance lease liabilities ​ ​ 15,209 ​ ​ 14,668 Federal tax payable ​ ​ — ​ ​ 5,561 Other current liabilities ​ 3,863 ​ 6,576 Total other current liabilities ​ $ 85,613 ​ $ 96,113 ​ Contract Liabilities We defer revenue associated with merchandise delivered via the home-delivery channel. We expect that substantially all of the deferred revenue and customer deposits as of May 4, 2024 will be recognized within the next six months as the performance obligations are satisfied. In addition, we defer revenue when cash payments are received in advance of performance for unsatisfied obligations related to our gift cards. During both the three months ended May 4, 2024 and April 29, 2023, we recognized $ 6.1 million of revenue related to previous deferrals related to our gift cards . We expect that approximately 75 percent of the remaining gift card liabilities will be recognized when the gift cards are redeemed by customers. Supplier Finance Program We facilitate a voluntary supply chain financing program (the “Financing Program”) with a third-party financial institution (the “Bank”) to provide participating suppliers with the opportunity to receive early payment on invoices, net of a discount charged to the supplier by the Bank. As of May 4, 2024 and February 3, 2024, supplier invoices that have been confirmed as valid under the Financing Program included in accounts payable and accrued expenses on the condensed consolidated balance sheets were $ 41 million and $ 28 million, respectively. NOTE 7—OTHER NON-CURRENT OBLIGATIONS Other non-current obligations consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ MAY 4, FEBRUARY 3, ​ ​ 2024 ​ 2024 ​ ​ (in thousands) Unrecognized tax benefits ​ $ 3,683 ​ $ 3,633 Other non-current obligations ​ ​ 7,499 ​ ​ 7,006 Total other non-current obligations ​ $ 11,182 ​ $ 10,639 ​ ​ ​ ​ ​ ​ ​ . ​ ​ ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 14 ​ Table of Contents NOTE 8—LEASES Lease costs—net consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ ​ MAY 4, APRIL 29, ​ 2024 2023 ​ ​ ​ (in thousands) Operating lease cost (1) ​ ​ $ 32,881 ​ $ 26,300 Finance lease costs ​ ​ ​ ​ ​ ​ ​ Amortization of leased assets (1) ​ ​ ​ 12,405 ​ ​ 13,704 Interest on lease liabilities (2) ​ ​ ​ 7,407 ​ ​ 8,486 Variable lease costs (3) ​ ​ ​ 6,643 ​ ​ 6,168 Sublease income (4) ​ ​ ​ ( 1,154 ) ​ ​ ( 1,546 ) Total lease costs—net ​ ​ $ 58,182 ​ $ 53,112 (1) Operating lease costs and amortization of finance lease right-of-use assets are included in cost of goods sold or selling, general and administrative expenses on the condensed consolidated statements of income (loss) based on our accounting policy. (2) Included in interest expense—net on the condensed consolidated statements of income (loss). (3) Represents variable lease payments under operating and finance lease agreements, primarily associated with contingent rent based on a percentage of retail sales over contractual levels of $ 3.9 million for both the three months ended May 4, 2024 and April 29, 2023, as well as charges associated with common area maintenance of $ 2.7 million and $ 2.3 million for the three months ended May 4, 2024 and April 29, 2023, respectively. Other variable costs, which include single lease cost related to variable lease payments based on an index or rate that were not included in the measurement of the initial lease liability and right-of-use asset, were not material in either period presented. (4) Included in selling, general and administrative expenses on the condensed consolidated statements of income (loss). ​ ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 15 ​ Table of Contents Lease right-of-use assets and lease liabilities consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ MAY 4, ​ FEBRUARY 3, ​ ​ ​ 2024 2024 ​ ​ ​ ​ (in thousands) ​ ​ Balance Sheet Classification ​ ​ ​ ​ ​ ​ Assets ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ Operating lease right-of-use assets ​ $ 605,664 ​ $ 625,801 Finance leases (1)(2)(3) ​ Property and equipment—net ​ ​ 825,191 ​ ​ 836,814 Total lease right-of-use assets ​ ​ ​ $ 1,430,855 ​ $ 1,462,615 Liabilities ​ ​ ​ ​ ​ ​ ​ ​ Current (4) ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ Operating lease liabilities ​ $ 85,875 ​ $ 85,523 Finance leases ​ Other current liabilities ​ ​ 15,209 ​ ​ 14,668 Total lease liabilities—current ​ ​ ​ ​ 101,084 ​ ​ 100,191 Non-current ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ Non-current operating lease liabilities ​ ​ 555,651 ​ ​ 576,166 Finance leases ​ Non-current finance lease liabilities ​ ​ 562,804 ​ ​ 566,829 Total lease liabilities—non-current ​ ​ ​ ​ 1,118,455 ​ ​ 1,142,995 Total lease liabilities ​ ​ ​ $ 1,219,539 ​ $ 1,243,186 (1) Includes capitalized amounts related to our completed construction activities to design and build leased assets, which are reclassified from other non-current assets upon lease commencement. (2) Recorded net of accumulated amortization of $ 281 million and $ 268 million as of May 4, 2024 and February 3, 2024, respectively. (3) Includes $ 37 million as of both May 4, 2024 and February 3, 2024 related to an RH Design Gallery lease with a landlord that is an affiliate of the managing member of the Aspen LLCs. Refer to Note 5— Variable Interest Entities . (4) Current portion of lease liabilities represents the reduction of the related lease liability over the next 12 months. ​ ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 16 ​ Table of Contents The maturities of lease liabilities are as follows as of May 4, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OPERATING ​ FINANCE ​ ​ FISCAL YEAR ​ ​ LEASES LEASES TOTAL ​ ​ ​ ​ (in thousands) Remainder of fiscal 2024 ​ ​ ​ $ 84,491 ​ $ 31,390 ​ $ 115,881 2025 ​ ​ ​ ​ 119,557 ​ ​ 48,203 ​ ​ 167,760 2026 ​ ​ ​ ​ 111,737 ​ ​ 48,971 ​ ​ 160,708 2027 ​ ​ ​ ​ 104,148 ​ ​ 49,777 ​ ​ 153,925 2028 ​ ​ ​ ​ 70,137 ​ ​ 48,812 ​ ​ 118,949 2029 ​ ​ ​ ​ 57,387 ​ ​ 48,488 ​ ​ 105,875 Thereafter ​ ​ ​ ​ 272,752 ​ ​ 679,451 ​ ​ 952,203 Total lease payments (1)(2) ​ ​ ​ ​ 820,209 ​ ​ 955,092 ​ ​ 1,775,301 Less—imputed interest (3) ​ ​ ​ ​ ( 178,683 ) ​ ​ ( 377,079 ) ​ ​ ( 555,762 ) Present value of lease liabilities ​ ​ ​ $ 641,526 ​ $ 578,013 ​ $ 1,219,539 (1) Total lease payments include future obligations for renewal options that are reasonably certain to be exercised and are included in the measurement of the lease liability. Total lease payments exclude $ 681 million of legally binding payments under the non-cancellable term for leases signed but not yet commenced under our accounting policy as of May 4, 2024, of which $ 21 million, $ 41 million, $ 38 million, $ 40 million, $ 41 million and $ 41 million will be paid in the remainder of fiscal 2024, fiscal 2025, fiscal 2026, fiscal 2027, fiscal 2028 and fiscal 2029, respectively, and $ 459 million will be paid subsequent to fiscal 2029. (2) Excludes an immaterial amount of future commitments under short-term lease agreements. (3) Calculated using the discount rate for each lease at lease commencement. Supplemental information related to leases consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ ​ MAY 4, ​ APRIL 29, ​ ​ ​ 2024 ​ 2023 Weighted-average remaining lease term (years) ​ ​ ​ ​ ​ ​ ​ Operating leases ​ ​ ​ 8.5 ​ ​ 8.2 Finance leases ​ ​ ​ 19.4 ​ ​ 21.7 Weighted-average discount rate ​ ​ ​ ​ ​ ​ ​ Operating leases ​ ​ ​ 5.2 % ​ ​ 4.2 % Finance leases ​ ​ ​ 5.1 % ​ ​ 5.3 % ​ ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 17 ​ Table of Contents Other information related to leases consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ ​ MAY 4, ​ APRIL 29, ​ ​ ​ 2024 ​ 2023 ​ ​ ​ (in thousands) Cash paid for amounts included in the measurement of lease liabilities ​ ​ ​ ​ ​ ​ ​ Operating cash flows from operating leases ​ ​ $ ( 31,920 ) ​ $ ( 27,612 ) Operating cash flows from finance leases ​ ​ ​ ( 7,407 ) ​ ​ ( 8,615 ) Financing cash flows from finance leases ​ ​ ​ ( 4,496 ) ​ ​ ( 3,877 ) Total cash outflows from leases ​ ​ $ ( 43,823 ) ​ $ ( 40,104 ) Non-cash transactions: ​ ​ ​ ​ ​ ​ ​ Lease right-of-use assets obtained in exchange for lease obligations—net of lease terminations ​ ​ ​ ​ ​ ​ ​ Operating leases ​ ​ $ 3,915 ​ $ 20,861 Finance leases ​ ​ ​ 2,446 ​ ​ — ​ NOTE 9—CONVERTIBLE SENIOR NOTES In September 2019, we issued in a private offering $ 350 million principal amount of 0.00 % convertible senior notes due 2024 (the “2024 Notes”, the “Convertible Senior Notes” or the “Notes”). The outstanding balances under the 2024 Notes were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ MAY 4, ​ ​ FEBRUARY 3, ​ ​ 2024 ​ ​ 2024 ​ ​ ​ ​ UNAMORTIZED ​ ​ ​ ​ ​ ​ ​ UNAMORTIZED ​ ​ ​ ​ ​ ​ DEBT ​ NET ​ ​ ​ ​ DEBT ​ NET ​ ​ PRINCIPAL ​ ISSUANCE ​ CARRYING ​ ​ PRINCIPAL ​ ISSUANCE ​ CARRYING ​ ​ AMOUNT COST AMOUNT ​ AMOUNT COST ​ AMOUNT ​ ​ (in thousands) Convertible senior notes due 2024 ​ $ 41,904 ​ $ ( 42 ) ​ $ 41,862 ​ $ 41,904 ​ $ ( 69 ) ​ $ 41,835 ​ ​ $ 350 million 0.00 % Convertible Senior Notes due 2024 Prior to June 15, 2024 , the 2024 Notes are convertible only under the following circumstances: (1) during any calendar quarter commencing after December 31, 2019, if, for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on the last trading day of the immediately preceding calendar quarter, the last reported sale price of our common stock on such trading day is greater than or equal to 130 % of the applicable conversion price on such trading day; (2) during the five consecutive business day period after any ten consecutive trading day period in which, for each day of that period, the trading price per $ 1,000 principal amount of 2024 Notes for such trading day was less than 98 % of the product of the last reported sale price of our common stock and the applicable conversion rate on such trading day; or (3) upon the occurrence of specified corporate transactions. The first condition was satisfied from the calendar quarter ended September 30, 2020 through the calendar quarter ended March 31, 2022. However, this condition was not met for the calendar quarter ended June 30, 2022 through the calendar quarter ended June 30, 2023, but was met for the calendar quarter ended September 30, 2023. This condition was not met for the calendar quarters ended December 31, 2023 or March 31, 2024 and, as a result, the 2024 Notes were not convertible as of March 31, 2024. On and after June 15, 2024 , until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or a portion of their 2024 Notes at any time, regardless of the foregoing circumstances. Upon conversion, the 2024 Notes will be settled, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock. If the Company has not delivered a notice of its election of settlement method prior to the final conversion period, it will be deemed to have elected combination settlement with a dollar amount per note to be received upon conversion of $ 1,000 . ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 18 ​ Table of Contents The remaining liability for the 2024 Notes is classified as a current obligation on our condensed consolidated balance sheets as of May 4, 2024 since the settlement date of the outstanding 2024 Notes is in September 2024. The settlement of the outstanding 2024 Notes will be made, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock upon settlement. NOTE 10—CREDIT FACILITIES The outstanding balances under our credit facilities were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ MAY 4, ​ FEBRUARY 3, ​ ​ 2024 ​ 2024 ​ ​ ​ ​ ​ ​ UNAMORTIZED ​ ​ ​ ​ ​ UNAMORTIZED ​ ​ ​ ​ ​ ​ ​ ​ ​ DEBT ​ NET ​ ​ ​ ​ DEBT ​ NET ​ ​ INTEREST ​ OUTSTANDING ​ ISSUANCE ​ CARRYING ​ OUTSTANDING ​ ISSUANCE ​ CARRYING ​ ​ RATE (1) AMOUNT COSTS AMOUNT AMOUNT COSTS AMOUNT ​ ​ (dollars in thousands) Asset based credit facility (2) ​ 6.67 % ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — Term loan B (3) ​ 7.93 % ​ ​ 1,950,000 ​ ​ ( 14,297 ) ​ ​ 1,935,703 ​ ​ 1,955,000 ​ ​ ( 15,115 ) ​ ​ 1,939,885 Term loan B-2 (4) ​ 8.67 % ​ ​ 492,500 ​ ​ ( 18,969 ) ​ ​ 473,531 ​ ​ 493,750 ​ ​ ( 20,054 ) ​ ​ 473,696 Total credit facilities ​ ​ ​ $ 2,442,500 ​ $ ( 33,266 ) ​ $ 2,409,234 ​ $ 2,448,750 ​ $ ( 35,169 ) ​ $ 2,413,581 (1) Represents the weighted-average interest rates as of May 4, 2024. (2) Deferred financing fees associated with the asset based credit facility as of May 4, 2024 and February 3, 2024 were $ 2.3 million and $ 2.5 million, respectively, and are included in other non-current assets on the condensed consolidated balance sheets. The deferred financing fees are amortized on a straight-line basis over the life of the revolving line of credit. (3) Represents the Term Loan Credit Agreement (defined below), of which outstanding amounts of $ 1,930 million and $ 1,935 million were included in term loan—net on the condensed consolidated balance sheets as of May 4, 2024 and February 3, 2024, respectively, and $ 20 million was included in other current liabilities on the condensed consolidated balance sheets as of both May 4, 2024 and February 3, 2024. (4) Represents the outstanding balance of the Term Loan B-2 (defined below) under the Term Loan Credit Agreement, of which outstanding amounts of $ 488 million and $ 489 million were included in term loan B-2—net on the condensed consolidated balance sheets as of May 4, 2024 and February 3, 2024, respectively, and $ 5.0 million was included in other current liabilities on the condensed consolidated balance sheets as of both May 4, 2024 and February 3, 2024. Asset Based Credit Facility & Term Loan Facilities On August 3, 2011, Restoration Hardware, Inc. (“RHI”), a wholly-owned subsidiary of RH, along with its Canadian subsidiary, Restoration Hardware Canada, Inc., entered into the Ninth Amended and Restated Credit Agreement (as amended prior to June 28, 2017, the “Original Credit Agreement”) by and among RHI, Restoration Hardware Canada, Inc., certain other subsidiaries of RH named therein as borrowers or guarantors, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent (the “ABL Agent”). On June 28, 2017, RHI entered into the Eleventh Amended and Restated Credit Agreement (as amended prior to July 29, 2021, the “11 th A&R Credit Agreement”) by and among RHI, Restoration Hardware Canada, Inc., certain other subsidiaries of RH named therein as borrowers or guarantors, the lenders party thereto and the ABL Agent, which amended and restated the Original Credit Agreement. ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 19 ​ Table of Contents On July 29, 2021, RHI entered into the Twelfth Amended and Restated Credit Agreement (as amended, the “ABL Credit Agreement”) by and among RHI, Restoration Hardware Canada, Inc., certain other subsidiaries of RH named therein as borrowers or guarantors, the lenders party thereto and the ABL Agent, which amended and restated the 11 th A&R Credit Agreement. The ABL Credit Agreement has a revolving line of credit with initial availability of up to $ 600 million, of which $ 10 million is available to Restoration Hardware Canada, Inc., and includes a $ 300 million accordion feature under which the revolving line of credit may be expanded by agreement of the parties from $ 600 million to up to $ 900 million if and to the extent the lenders revise their credit commitments to encompass a larger facility. The ABL Credit Agreement provides that the $ 300 million accordion, or a portion thereof, may be added as a first-in, last-out term loan facility if and to the extent the lenders revise their credit commitments for such facility. The ABL Credit Agreement further provides that the borrowers may request a European sub-credit facility under the revolving line of credit or under the accordion feature for borrowing by certain European subsidiaries of RH if certain conditions set out in the ABL Credit Agreement are met. The maturity date of the ABL Credit Agreement is July 29, 2026. The availability of credit at any given time under the ABL Credit Agreement will be constrained by the terms and conditions of the ABL Credit Agreement, including the amount of collateral available, a borrowing base formula based upon numerous factors, including the value of eligible inventory and eligible accounts receivable, and other restrictions contained in the ABL Credit Agreement. All obligations under the ABL Credit Agreement are secured by substantial assets of the loan parties, including inventory, receivables and certain types of intellectual property. As a result, actual borrowing availability under the revolving line of credit could be less than the stated amount of the revolving line of credit (as reduced by the actual borrowings and outstanding letters of credit under the revolving line of credit). Borrowings under the revolving line of credit (other than swing line loans, which are subject to interest at the base rate) bear interest, at the borrower’s option, at either the base rate or LIBOR subject to a 0.00 % LIBOR floor (or, in the case of the Canadian borrowings, the “BA Rate” or the “Canadian Prime Rate”, as such terms are defined in the ABL Credit Agreement, for the Canadian borrowings denominated in Canadian dollars, or the “U.S. Index Rate”, as such term is defined in the ABL Credit Agreement, or LIBOR for Canadian borrowings denominated in United States dollars) plus an applicable interest rate margin, in each case. The ABL Credit Agreement was amended in December 2022 to transition from LIBOR to the Secured Overnight Financing Rate (“SOFR”). The ABL Credit Agreement contains various restrictive and affirmative covenants, including required financial reporting, limitations on granting certain liens, limitations on making certain loans or investments, limitations on incurring additional debt, restricted payment limitations limiting the payment of dividends and certain other transactions and distributions, limitations on transactions with affiliates, along with other restrictions and limitations similar to those frequently found in credit agreements of a similar type and size. The ABL Credit Agreement does not contain any significant financial ratio covenants or coverage ratio covenants other than a consolidated fixed charge coverage ratio (“FCCR”) covenant based on the ratio of (i) consolidated EBITDA to the amount of (ii) debt service costs plus certain other amounts, including dividends and distributions and prepayments of debt as defined in the ABL Credit Agreement (the “FCCR Covenant”). The FCCR Covenant only applies in certain limited circumstances, including when the unused availability under the ABL Credit Agreement drops below the greater of (A) $ 40 million and (B) an amount based on 10 % of the total borrowing availability at the time. The FCCR Covenant ratio is set at 1.0 and measured on a trailing twelve-month basis. As of May 4, 2024, RHI was in compliance with the FCCR Covenant. The ABL Credit Agreement requires a daily sweep of all cash receipts and collections to prepay the loans under the agreement while (i) an event of default exists or (ii) when the unused availability under the ABL Credit Agreement drops below the greater of (A) $ 40 million and (B) an amount based on 10 % of the total borrowing availability at the time. The ABL Credit Agreement contains customary representations and warranties, events of default and other customary terms and conditions for an asset based credit facility. As of May 4, 2024, the amount available for borrowing under the revolving line of credit under the ABL Credit Agreement was $ 454 million, net of $ 46 million in outstanding letters of credit. ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 20 ​ Table of Contents Term Loan Credit Agreement On October 20, 2021, RHI entered into a Term Loan Credit Agreement (the “Term Loan Credit Agreement”) by and among RHI as the borrower, the lenders party thereto and Bank of America, N.A. as administrative agent and collateral agent (in such capacities, the “Term Agent”) with respect to an initial term loan (the “Term Loan B”) in an aggregate principal amount equal to $ 2,000 million with a maturity date of October 20, 2028. Through July 31, 2023, the Term Loan B bore interest at an annual rate based on LIBOR subject to a 0.50 % LIBOR floor plus an interest rate margin of 2.50 % (with a stepdown of the interest rate margin if RHI achieves a specified public corporate family rating). LIBOR is a floating interest rate that reset periodically during the life of the Term Loan B. At the date of borrowing, the interest rate was set at the LIBOR floor of 0.50 % plus 2.50 % and the Term Loan B was issued at a discount of 0.50 % to face value. Effective August 1, 2023, the Term Loan B bears interest at an annual rate based on SOFR subject to a 0.50 % SOFR floor plus an interest rate margin of 2.50 % plus a credit spread adjustment. On May 13, 2022, RHI entered into a 2022 Incremental Amendment (the “2022 Incremental Amendment”) with Bank of America, N.A., as administrative agent, amending the Term Loan Credit Agreement (the Term Loan Credit Agreement as amended by the 2022 Incremental Amendment, the “Amended Term Loan Credit Agreement”). Pursuant to the terms of the 2022 Incremental Amendment, RHI incurred incremental term loans (the “Term Loan B-2”) in an aggregate principal amount equal to $ 500 million with a maturity date of October 20, 2028. The Term Loan B-2 constitutes a separate class from the Term Loan B under the Term Loan Credit Agreement. The Term Loan B-2 bears interest at an annual rate based on SOFR subject to a 0.50 % SOFR floor plus an interest rate margin of 3.25 % plus a credit spread adjustment of 0.10 %. Other than the terms relating to the Term Loan B-2, the terms of the Amended Term Loan Credit Agreement remain substantially the same as the terms of the existing Term Loan Credit Agreement, including representations and warranties, covenants and events of default. All obligations under the Term Loan B are guaranteed by certain domestic subsidiaries of RHI. Further, RHI and such subsidiaries have granted a security interest in substantially all of their assets (subject to customary and other exceptions) to secure the Term Loan B. Substantially all of the collateral securing the Term Loan B also secures the loans and other credit extensions under the ABL Credit Agreement. On October 20, 2021, in connection with the Term Loan Credit Agreement, RHI and certain other subsidiaries of RH party to the Term Loan Credit Agreement and the ABL Credit Agreement, as the case may be, entered into an Intercreditor Agreement (the “Intercreditor Agreement”) with the Term Agent and the ABL Agent. The Intercreditor Agreement establishes various customary inter-lender terms, including, without limitation, with respect to priority of liens, permitted actions by each party, application of proceeds, exercise of remedies in case of default, releases of liens and certain limitations on the amendment of the ABL Credit Agreement and the Term Loan Credit Agreement without the consent of the other parties. The borrowings under the Term Loan Credit Agreement may be prepaid in whole or in part at any time, subject to a prepayment premium of 1.0 % in connection with any repricing transaction within the six months following the closing date of the Term Loan Credit Agreement. The Term Loan Credit Agreement contains various restrictive and affirmative covenants, including required financial reporting, limitations on granting certain liens, limitations on making certain loans or investments, limitations on incurring additional debt, restricted payment limitations limiting the payment of dividends and certain other transactions and distributions, limitations on transactions with affiliates, along with other restrictions and limitations similar to those frequently found in credit agreements of a similar type and size, but provides for unlimited exceptions in the case of incurring indebtedness, granting of liens and making investments, dividend payments, and payments of material junior indebtedness, subject to satisfying specified leverage ratio tests. The Term Loan Credit Agreement does not contain a financial maintenance covenant. The Term Loan Credit Agreement contains customary representations and warranties, events of default and other customary terms and conditions for a term loan credit agreement. ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 21 ​ Table of Contents NOTE 11—FAIR VALUE MEASUREMENTS Fair Value Measurements—Recurring Amounts reported as cash and equivalents, receivables, and accounts payable and accrued expenses approximate fair value due to the short-term nature of activity within these accounts. The estimated fair value of the asset based credit facility approximates cost as the interest rate associated with the facility is variable and resets frequently (Level 2). The estimated fair value and carrying value of the 2024 Notes, the Term Loan Credit Agreement and the real estate loans were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ MAY 4, ​ FEBRUARY 3, ​ ​ 2024 ​ 2024 ​ ​ PRINCIPAL ​ PRINCIPAL ​ ​ FAIR ​ CARRYING ​ FAIR ​ CARRYING ​ ​ VALUE ​ VALUE (1) ​ VALUE ​ VALUE (1) ​ ​ (in thousands) Convertible senior notes due 2024 ​ $ 40,706 ​ $ 41,904 ​ $ 39,879 ​ $ 41,904 Term loan B ​ ​ 1,908,563 ​ ​ 1,950,000 ​ ​ 1,917,715 ​ ​ 1,955,000 Term loan B-2 ​ 485,728 ​ ​ 492,500 ​ 490,545 ​ 493,750 Real estate loans ​ ​ 16,967 ​ ​ 17,957 ​ ​ 17,425 ​ ​ 17,966 (1) The principal carrying value of the 2024 Notes excludes the discounts upon original issuance, discounts and commissions payable to the initial purchasers and third-party offering costs, as applicable. The principal carrying values of the Term Loan B and Term Loan B-2 represent the outstanding amount under each class and exclude discounts upon original issuance and third-party offering costs. The real estate loans represent the outstanding principal balance and exclude debt issuance costs. The fair value of the 2024 Notes was determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including the trading price of our convertible notes, when available, our stock price and interest rates based on similar debt issued by parties with credit ratings similar to ours (Level 2). As of May 4, 2024, the fair values of the Term Loan B and Term Loan B-2 were derived from observable bid prices (Level 1). As of February 3, 2024, the fair values of the Term Loan B and Term Loan B-2 were derived from discounted cash flows using risk-adjusted rates (Level 2). The fair values of the real estate loans were derived from discounted cash flows using risk-adjusted rates (Level 2). NOTE 12—INCOME TAXES Our income tax expense (benefit) and effective tax rates were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ ​ MAY 4, APRIL 29, ​ 2024 2023 ​ ​ ​ (dollars in thousands) Income tax expense (benefit) ​ ​ $ ( 2,091 ) ​ $ 16,585 Effective tax rate ​ ​ ​ 36.6 % ​ ​ 28.4 % ​ The increase in our effective tax rate for the three months ended May 4, 2024 compared to the three months ended April 29, 2023 is primarily attributable to the net loss in the current period, as well as higher net excess tax benefits from stock-based compensation in the three months ended May 4, 2024 as compared to the three months ended April 29, 2023. ​ As of May 4, 2024, we had $ 3.2 million of unrecognized tax benefits, of which $ 2.5 million would reduce income tax expense and the effective tax rate, if recognized. The remaining unrecognized tax benefits would offset other deferred tax assets, if recognized. As of May 4, 2024, we had $ 0.2 million of exposures related to unrecognized tax benefits that are expected to decrease in the next 12 months. ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 22 ​ Table of Contents In October 2017, we filed an amended federal tax return claiming a $ 5.4 million refund, however, no income tax benefit was recorded at the time due to the technical nature and amount of the refund claim. As of May 4, 2024, we are no longer appealing this refund claim and have reversed the receivable and related reserve. The Organization for Economic Cooperation and Development (“OECD”) proposed model rules to ensure a minimal level of taxation (commonly referred to as Pillar II) and the European Union member states have agreed to implement Pillar II’s proposed global corporate minimum tax rate of 15%. Many countries are actively considering, have proposed or have enacted, changes to their tax laws based upon the Pillar II proposals, which could increase our tax obligations in countries where we do business or cause us to change the way we operate our business. To mitigate the administrative burden for multinational enterprises in complying with the OECD Global Anti-Base Erosion rules during the initial years of implementation, the OECD developed the temporary “Transitional Country-by-Country Safe Harbor.” We considered the applicable tax law changes from Pillar II implementation in the relevant countries in which we operate, and there is no material impact to our tax provision for the three months ended May 4, 2024. We will continue to evaluate the impact of these tax law changes in future reporting periods. NOTE 13—NET INCOME (LOSS) PER SHARE The weighted-average shares used for net income (loss) per share are presented in the table below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ MAY 4, ​ ​ APRIL 29, ​ 2024 (1) ​ 2023 Weighted-average shares—basic ​ ​ 18,324,454 ​ ​ 22,047,029 Effect of dilutive stock-based awards ​ — ​ 1,504,784 Effect of dilutive convertible senior notes ​ — ​ 206,975 Weighted-average shares—diluted ​ 18,324,454 ​ 23,758,788 (1) As we reported a net loss for the three months ended May 4, 2024, the weighted-average shares outstanding for basic and diluted are the same for the corresponding period. The following number of options and restricted stock units, as well as shares issuable under convertible senior notes prior to extinguishment, were excluded from the calculation of diluted net income (loss) per share because their inclusion would have been anti-dilutive: ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ ​ MAY 4, ​ APRIL 29, ​ 2024 2023 Options ​ ​ 3,018,757 ​ 1,109,768 Restricted stock units 13,162 ​ 16,694 Convertible senior notes ​ ​ 198,223 ​ — ​ ​ ​ ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 23 ​ Table of Contents NOTE 14—SHARE REPURCHASE PROGRAM In 2018, our Board of Directors authorized a share repurchase program. On June 2, 2022, the Board of Directors authorized an additional $ 2,000 million for the purchase of shares of our outstanding common stock, increasing the total authorized size of the share repurchase program to $ 2,450 million (the “Share Repurchase Program”). We did not repurchase any shares of our common stock under the Share Repurchase Program during the three months ended May 4, 2024. As of May 4, 2024, $ 201 million remains available for future share repurchases under this program. NOTE 15—STOCK-BASED COMPENSATION The Restoration Hardware 2012 Stock Incentive Plan (the “Stock Incentive Plan”) was adopted on November 1, 2012. The Stock Incentive Plan provided for the grant of incentive stock options to our employees, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, cash-based awards and any combination thereof to our employees, directors and consultants and our parent and subsidiary corporations’ employees, directors and consultants. The Restoration Hardware 2012 Stock Option Plan (the “Option Plan”) was adopted on November 1, 2012. On November 1, 2022, both the Stock Incentive Plan and Option Plan expired. The RH 2023 Stock Incentive Plan (the “2023 Stock Incentive Plan”, together with the Stock Incentive Plan and Option Plan, “the Plans”) was approved by stockholders on April 4, 2023. The 2023 Stock Incentive Plan provides for the grant of incentive stock options to our employees and the grant of non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights and any combination thereof to our employees, directors and consultants and our parent and subsidiary corporations’ employees, directors and consultants. As of May 4, 2024, there were a total of 2,200,469 shares issuable under the 2023 Stock Incentive Plan. Awards under the 2023 Stock Incentive Plan reduce the number of shares available for future issuance. Cancellations and forfeitures of awards previously granted under the Plans increase the number of shares available for future issuance. Shares issued as a result of award exercises under the 2023 Stock Incentive Plan will be funded with the issuance of new shares. Stock Options Under the Plans A summary of options outstanding, vested or expected to vest, and exercisable as of May 4, 2024 was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ WEIGHTED ​ WEIGHTED ​ AGGREGATE ​ ​ ​ ​ AVERAGE ​ AVERAGE ​ INTRINSIC ​ ​ ​ ​ EXERCISE ​ REMAINING TERM ​ VALUE ​ ​ ​ SHARES PRICE (in years) (in thousands) Options outstanding ​ ​ 4,027,464 ​ $ 202.04 ​ ​ 5.7 ​ $ 418 Options vested or expected to vest ​ ​ 3,622,750 ​ ​ 194.67 ​ ​ 5.3 ​ ​ 408 Options exercisable ​ ​ 2,570,209 ​ ​ 166.10 ​ ​ 4.2 ​ ​ 369 ​ Stock-based compensation expense, which is included in selling, general and administrative expenses on the condensed consolidated statements of income (loss), was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ MAY 4, ​ APRIL 29, ​ 2024 2023 ​ ​ (in thousands) Stock-based compensation expense (1) ​ $ 10,544 ​ $ 10,180 (1) On October 18, 2020, our Board of Directors granted Mr. Friedman an option to purchase 700,000 shares of our common stock with an exercise price equal to $ 385.30 per share under the Stock Incentive Plan. The option will result in aggregate non-cash stock compensation expense of $ 174 million, of which $ 1.9 million and $ 3.5 million was recognized during the three months ended May 4, 2024 and April 29, 2023, respectively. ​ No stock-based compensation cost has been capitalized in the accompanying condensed consolidated financial statements. ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 24 ​ Table of Contents As of May 4, 2024, the total unrecognized compensation expense and weighted average remaining term was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ UNRECOGNIZED ​ WEIGHTED ​ ​ STOCK BASED ​ AVERAGE ​ ​ COMPENSATION ​ REMAINING TERM ​ ​ (in thousands) ​ (in years) Unvested options (1) ​ $ 147,683 ​ ​ 5.2 Unvested restricted stock and restricted stock units ​ ​ 5,923 ​ ​ 2.8 Total ​ $ 153,606 ​ ​ ​ (1) Excludes the remaining unrecognized compensation expense of $ 3.4 million related to the fully vested option grant made to Mr. Friedman in October 2020, which will be recognized on an accelerated basis through May 2025. ​ NOTE 16—COMMITMENTS AND CONTINGENCIES Commitments We had no material off-balance sheet commitments as of May 4, 2024. Contingencies We are subject to contingencies, including in connection with lawsuits, claims, investigations and other legal proceedings incident to the ordinary course of our business. These disputes are increasing in number as we expand our business and provide new product and service offerings, such as restaurants and hospitality, and as we enter new markets and legal jurisdictions and face increased complexity related to compliance and regulatory requirements. In addition, we are subject to governmental and regulatory examinations, information requests, and investigations from time to time at the state and federal levels. Certain legal proceedings that we currently face involve various class-action allegations, including cases related to our employment practices, the application of state wage-and-hour laws and other causes of action. We have faced similar litigation in the past, including class action cases. Due to the inherent difficulty of predicting the course of legal actions related to complex legal matters, including class-action allegations, such as the eventual scope, duration or outcome, we may be unable to estimate the amount or range of any potential loss that could result from an unfavorable outcome arising from such matters. Our assessment of these legal proceedings, as well as other lawsuits, could change based upon the discovery of facts that are not presently known or developments during the course of the litigation. We have settled certain class action cases but continue to defend a variety of legal actions and our estimates of our exposure in such cases may evolve over time. Accordingly, the ultimate costs to resolve litigation, including class action cases, may be substantially higher or lower than our estimates. With respect to such contingencies, we review the need for any loss contingency reserves and establish reserves when, in the opinion of our senior leadership team, it is probable that a matter would result in liability, and the amount of loss, if any, can be reasonably estimated. Loss contingencies determined to be probable and estimable are recorded in accounts payable and accrued expenses on the condensed consolidated balance sheets (refer to Note 6— Accounts Payable, Accrued Expenses and Other Current Liabilities ). These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to each matter. In view of the inherent difficulty of predicting the outcome of certain matters, particularly in cases in which claimants seek substantial or indeterminate damages, it may not be possible to determine whether a liability has been incurred or to reasonably estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case no reserve is established until that time. When and to the extent that we do establish a reserve, there can be no assurance that any such recorded liability for estimated losses will be for the appropriate amount, and actual losses could be higher or lower than what we accrue from time to time. Although we believe that the ultimate resolution of our current legal proceedings will not have a material adverse effect on the condensed consolidated financial statements, the outcome of legal matters is subject to inherent uncertainty. ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 25 ​ Table of Contents Although we are self-insured or maintain deductibles in the United States for workers’ compensation, general liability and product liability up to predetermined amounts, above which third-party insurance applies, depending on the facts and circumstances of the underlying claims, coverage under our insurance policies may not be available. Even if we believe coverage does apply under our insurance programs, our insurance carriers may dispute coverage based on the underlying facts and circumstances. As a result, the outcome of any matters in which we are involved could result in unexpected expenses and liability that could adversely affect our operations. In addition, any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of our senior leadership team’s time, result in the diversion of significant operational resources, and require changes to our business operations, policies and practices. Legal costs related to such claims are expensed as incurred. NOTE 17—SEGMENT REPORTING We define reportable and operating segments on the same basis that we use to evaluate our performance internally by the chief operating decision maker (“CODM”), which we have determined is our Chief Executive Officer. We have three operating segments: RH Segment, Waterworks and Real Estate. The RH Segment and Waterworks operating segments (the “retail operating segments”) include all sales channels accessed by our customers, including sales through retail locations and outlets, including hospitality, websites, Sourcebooks, and the Trade and Contract channels. The Real Estate segment represents operations associated with certain of our equity method investments and consolidated variable interest entities that are non-wholly-owned subsidiaries and have operations that are not directly related to RH’s operations. The retail operating segments are strategic business units that offer products for the home furnishings customer. While RH Segment and Waterworks have a shared senior leadership team and customer base, we have determined that their results cannot be aggregated as they do not share similar economic characteristics, as well as due to other quantitative factors. Segment Information We use operating income to evaluate segment profitability for the retail operating segments and to allocate resources. Operating income is defined as net income (loss) before interest expense—net, other income—net, income tax expense (benefit) and our share of equity method investments loss—net. Segment operating income excludes (i) favorable legal settlements, (ii) non-cash compensation amortization related to an option grant made to Mr. Friedman in October 2020 and (iii) severance costs associated with a reorganization. These items are excluded from segment operating income in order to provide better transparency of segment operating results. Accordingly, these items are not presented by segment because they are excluded from the segment profitability measure that the CODM and our senior leadership team review. ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 26 ​ Table of Contents The following table presents segment operating income and a reconciliation to income from operations and income (loss) before income taxes and equity method investments : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ MAY 4, ​ APRIL 29, ​ 2024 2023 ​ ​ (in thousands) Operating income: ​ ​ ​ ​ ​ ​ RH Segment ​ $ 41,431 ​ $ 103,721 Waterworks ​ 5,804 ​ 6,671 Total segment operating income ​ ​ 47,235 ​ ​ 110,392 Legal settlements—net ​ ​ 9,375 ​ — Non-cash compensation ​ ​ ( 1,947 ) ​ ( 3,531 ) Reorganization related costs ​ ​ — ​ ( 7,621 ) Income from operations ​ 54,663 ​ 99,240 Interest expense—net ​ 56,772 ​ 39,816 Other (income) expense—net ​ ​ 1,165 ​ ( 653 ) Income (loss) before income taxes and equity method investments ​ $ ( 3,274 ) ​ $ 60,077 ​ The following table presents selected statements of income (loss) metrics for our segments, including disaggregated net revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ MAY 4, ​ APRIL 29, ​ ​ 2024 ​ 2023 ​ RH SEGMENT WATERWORKS TOTAL RH SEGMENT WATERWORKS TOTAL ​ ​ (in thousands) Net revenues ​ $ 677,066 ​ $ 49,894 ​ $ 726,960 ​ $ 690,516 ​ $ 48,646 ​ $ 739,162 Gross profit ​ 289,808 ​ 26,230 ​ 316,038 ​ 321,584 ​ 25,961 ​ 347,545 Depreciation and amortization ​ 29,383 ​ ​ 1,444 ​ 30,827 ​ 26,425 ​ ​ 1,345 ​ 27,770 ​ In the three months ended May 4, 2024 and April 29, 2023, the Real Estate segment share of equity method investments loss were $ 2.8 million and $ 1.6 million, respectively. Our share of income from equity method investments for the Waterworks segment were immaterial in both fiscal periods presented. ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 27 ​ Table of Contents ​ The following table presents selected balance sheet metrics for our segments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ MAY 4, ​ FEBRUARY 3, ​ ​ 2024 ​ 2024 ​ RH SEGMENT WATERWORKS REAL ESTATE TOTAL RH SEGMENT WATERWORKS REAL ESTATE TOTAL ​ ​ (in thousands) Goodwill (1) ​ $ 141,013 ​ $ — ​ $ — ​ $ 141,013 ​ $ 141,033 ​ $ — ​ $ — ​ $ 141,033 Tradenames, trademarks and other intangible assets (2) ​ 59,053 ​ 17,000 ​ — ​ 76,053 ​ 58,927 ​ 17,000 ​ — ​ 75,927 Equity method investments (3) ​ ​ — ​ ​ 4,008 ​ ​ 124,900 ​ ​ 128,908 ​ ​ — ​ ​ 3,609 ​ ​ 125,059 ​ ​ 128,668 Total assets ​ 3,836,347 ​ ​ 188,213 ​ ​ 161,979 ​ 4,186,539 ​ 3,798,572 ​ 183,804 ​ 161,521 ​ 4,143,897 (1) The Waterworks reporting unit goodwill of $ 51 million recognized upon acquisition in fiscal 2016 was fully impaired as of fiscal 2018. (2) The Waterworks reporting unit tradename is presented net of an impairment charge of $ 35 million recognized in prior fiscal years. (3) The Waterworks segment balance represents membership interests in two European entities, whereby we hold a 50 percent membership interest in one entity and an approximately 25 percent membership interest in the other, and we are not the primary beneficiary of these VIEs. We sell furniture and non-furniture products. Furniture includes both indoor and outdoor furniture. Non-furniture includes lighting, textiles, fittings, fixtures, surfaces, accessories and home décor, as well as our hospitality operations. Net revenues in each category were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ THREE MONTHS ENDED ​ ​ MAY 4, ​ APRIL 29, ​ 2024 2023 ​ ​ (in thousands) Furniture ​ $ 505,271 ​ $ 496,391 Non-furniture ​ 221,689 ​ 242,771 Total net revenues ​ $ 726,960 ​ $ 739,162 ​ We are domiciled in the United States and primarily operate our retail locations and outlets in the United States. As of May 4, 2024, we operated four retail locations and one outlet in Canada, two retail locations and one outlet in the United Kingdom, two retail locations in Germany and one retail location in Belgium. Geographic revenues in Canada, the United Kingdom, Germany and Belgium are based upon revenues recognized at the retail locations in the respective country and were not material in either fiscal period presented. ​ PART I. FINANCIAL INFORMATION 2024 FIRST QUARTER FORM 10-Q | 28 ​ Table of Contents