What changed in this filing

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Item 1. Financial Statements

2024-12-12 compared with 2024-09-12 · 168 added, 155 removed, 561 unchanged (37% of the section changed)

31 unchanged sentences

Stockholders’ deficit:

Preferred stock—$ 0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of August 3, 2024 and February 3, 2024

Common stock— $ 0.0001 par value per share, 180,000,000 shares authorized, 18,482,697 shares issued and outstanding as of August 3, 2024;

Preferred stock—$ 0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of November 2, 2024 and February 3, 2024

Common stock— $ 0.0001 par value per share, 180,000,000 shares authorized, 18,600,291 shares issued and outstanding as of November 2, 2024;

18,315,613 shares issued and outstanding as of February 3, 2024

6 unchanged sentences

FINANCIAL INFORMATION

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

THREE MONTHS ENDED

SIX MONTHS ENDED

NINE MONTHS ENDED

(in thousands, except share and per share amounts)

4 unchanged sentences

Interest expense—net

Other (income) expense—net

Other expense—net

Total other expenses

Income before taxes and equity method investments

Income tax expense

Income (loss) before income taxes and equity method investments

Income tax expense (benefit)

Income before equity method investments

Share of equity method investments loss—net

Weighted-average shares used in computing basic net income per share

Basic net income per share

Weighted-average shares used in computing diluted net income per share

Diluted net income per share

Net income (loss)

Weighted-average shares used in computing basic net income (loss) per share

Basic net income (loss) per share

Weighted-average shares used in computing diluted net income (loss) per share

Diluted net income (loss) per share

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

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FINANCIAL INFORMATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

THREE MONTHS ENDED

SIX MONTHS ENDED

NINE MONTHS ENDED

(in thousands)

Net gain from foreign currency translation

Comprehensive income

Net income (loss)

Net gain (loss) from foreign currency translation

Comprehensive income (loss)

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

FINANCIAL INFORMATION

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

6 unchanged sentences

(in thousands, except share amounts)

Balances—May 4, 2024

Stock-based compensation

Issuance of restricted stock

Exercise of stock options

Comprehensive income

Balances—August 3, 2024

Balances—April 29, 2023

Stock-based compensation

Issuance of restricted stock

Vested and delivered restricted stock units

Exercise of stock options

Settlement of convertible senior notes

Comprehensive loss

Balances—November 2, 2024

Balances—July 29, 2023

Stock-based compensation

Vested and delivered restricted stock units

Exercise of stock options

Repurchase of common stock—including excise tax

( 3,698,887 )

( 1,216,635 )

Retirement of treasury stock

( 1,208,012 )

( 3,698,887 )

( 1,216,635 )

Comprehensive income

Balances—July 29, 2023

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Comprehensive loss

Balances—October 28, 2023

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FINANCIAL INFORMATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (continued)

SIX MONTHS ENDED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

NINE MONTHS ENDED

TREASURY STOCK

9 unchanged sentences

Exercise of stock options

Settlement of convertible senior notes

Comprehensive income

Balances—August 3, 2024

Balances—November 2, 2024

Balances—January 28, 2023

11 unchanged sentences

( 3,887,965 )

Comprehensive income

Balances—July 29, 2023

Comprehensive loss

Balances—October 28, 2023

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

FINANCIAL INFORMATION

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED

NINE MONTHS ENDED

(in thousands)

24 unchanged sentences

Net cash used in investing activities

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FINANCIAL INFORMATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

SIX MONTHS ENDED

NINE MONTHS ENDED

(in thousands)

28 unchanged sentences

FINANCIAL INFORMATION

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4 unchanged sentences

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 August 3, 2024, we operated a total of 72 RH Galleries and 39 RH Outlet stores, one RH Guesthouse and 14 Waterworks Showrooms throughout the United States and Canada as well as in the United Kingdom, Germany, Belgium and Spain.

As of November 2, 2024, we operated a total of 71 RH Galleries and 38 RH Outlet stores, one RH Guesthouse and 14 Waterworks Showrooms throughout the United States and Canada as well as in the United Kingdom, Germany, Belgium and Spain.

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 August 3, 2024, and the results of operations for the three and six months ended August 3, 2024 and July 29, 2023.

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 November 2, 2024, and the results of operations for the three and nine months ended November 2, 2024 and October 28, 2023.

Our current fiscal year, which consists of 52 weeks, ends on February 1, 2025 (“fiscal 2024”).

6 unchanged sentences

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 and six months ended August 3, 2024.

Our current assessment of these estimates is included in our condensed consolidated financial statements as of and for the three and nine months ended November 2, 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 and six months ended August 3, 2024, presented herein, are not necessarily indicative of the results to be expected for the full fiscal year.

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The results of operations for the three and nine months ended November 2, 2024, presented herein, are not necessarily indicative of the results to be expected for the full fiscal year.

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FINANCIAL INFORMATION

16 unchanged sentences

We are currently assessing the impact that adopting this ASU will have on our condensed consolidated financial statements.

Income Statement:

Disaggregation of Income Statement Expenses

In November 2024, the FASB issued ASU 2024-03—Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40).

This new guidance is designed to improve financial reporting by requiring public business entities to disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods, including amounts and qualitative descriptions of inventory purchases, employee compensation, depreciation and intangible asset amortization, among other requirements.

ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim reporting periods beginning after December 15, 2027, on a prospective basis.

Early adoption is permitted.

We are currently assessing the impact that adopting this ASU will have on our condensed consolidated financial statements .

NOTE 3—PREPAID EXPENSE AND OTHER ASSETS

1 unchanged sentence

(in thousands)

Vendor deposits

Prepaid expenses

Capitalized catalog costs

Vendor deposits

Federal and state tax receivable

Value added tax (VAT) receivable

Tenant allowance receivable

Value added tax (VAT) receivable

Right of return asset for merchandise

5 unchanged sentences

FINANCIAL INFORMATION

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Other non-current assets consist of the following:

8 unchanged sentences

Total other non-current assets

(1) Presented net of accumulated amortization of $ 24 million and $ 19 million as of August 3, 2024 and February 3, 2024, respectively.

(1) Presented net of accumulated amortization of $ 27 million and $ 19 million as of November 2, 2024 and February 3, 2024, respectively.

NOTE 4—GOODWILL, TRADENAMES, TRADEMARKS AND OTHER INTANGIBLE ASSETS

7 unchanged sentences

Foreign currency translation

August 3, 2024

November 2, 2024

(1) Waterworks reporting unit goodwill of $ 51 million recognized upon acquisition in fiscal 2016 was fully impaired as of fiscal 2018.

1 unchanged sentence

There are no goodwill, tradenames, trademarks and other intangible assets for the Real Estate segment.

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FINANCIAL INFORMATION

15 unchanged sentences

Total liabilities

(1) Includes $ 53 million and $ 77 million of construction in progress as of August 3, 2024 and February 3, 2024, respectively.

(1) Includes $ 59 million and $ 77 million of construction in progress as of November 2, 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 $ 0.3 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 August 3, 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.

4 unchanged sentences

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 August 3, 2024, we have made capital contributions of approximately $ 146 million to the Aspen LLCs.

As of November 2, 2024, we have made capital contributions of approximately $ 146 million to the Aspen LLCs.

Additionally, Waterworks has membership interests in two European entities that are equity method investments.

FINANCIAL INFORMATION

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Our maximum exposure to loss is the carrying value of each of the equity method investments as of August 3, 2024.

During the three and six months ended August 3, 2024 and July 29, 2023, we did no t receive any distributions or have any undistributed earnings of equity method investments.

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Our maximum exposure to loss is the carrying value of each of the equity method investments as of November 2, 2024.

During the three and nine months ended November 2, 2024 and October 28, 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

7 unchanged sentences

Accrued legal settlements (1)

Excise tax payable on share repurchases

Accrued professional fees

Accrued legal contingencies (1)

Excise tax payable on share repurchases

Other accrued expenses

5 unchanged sentences

The reorganization was completed during the first quarter of fiscal 2023.

During the six months ended July 29, 2023, we incurred total charges relating to the reorganization of $ 7.6 million consisting primarily of severance costs and related taxes.

During the nine months ended October 28, 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.

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FINANCIAL INFORMATION

9 unchanged sentences

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 August 3, 2024 will be recognized within the next six months as the performance obligations are satisfied.

We expect that substantially all of the deferred revenue and customer deposits as of November 2, 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 the three months ended August 3, 2024 and July 29, 2023, we recognized $ 4.3 million and $ 5.3 million, respectively, of revenue related to previous deferrals related to our gift cards .

During the six months ended August 3, 2024 and July 29, 2023, we recognized $ 10 million and $ 11 million, respectively, of revenue related to previous deferrals related to our gift cards .

During the three months ended November 2, 2024 and October 28, 2023, we recognized $ 4.6 million and $ 7.5 million, respectively, of revenue related to previous deferrals related to our gift cards .

During the nine months ended November 2, 2024 and October 28, 2023, we recognized $ 15 million and $ 19 million, respectively, 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.

1 unchanged sentence

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 August 3, 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 $ 49 million and $ 28 million, respectively.

As of November 2, 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 $ 34 million and $ 28 million, respectively.

NOTE 7—OTHER NON-CURRENT OBLIGATIONS

5 unchanged sentences

FINANCIAL INFORMATION

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NOTE 8—LEASES

1 unchanged sentence

THREE MONTHS ENDED

SIX MONTHS ENDED

NINE MONTHS ENDED

(in thousands)

6 unchanged sentences

Total lease costs—net

(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 based on our accounting policy.

(2) Included in interest expense—net on the condensed consolidated statements of income.

(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 $ 3.6 million and $ 3.7 million for the three months ended August 3, 2024 and July 29, 2023, respectively, and $ 7.5 million and $ 7.6 million for the six months ended August 3, 2024 and July 29, 2023, respectively, as well as charges associated with common area maintenance of $ 2.9 million and $ 2.3 million for the three months ended August 3, 2024 and July 29, 2023, respectively, and $ 5.6 million and $ 4.6 million for the six months ended August 3, 2024 and July 29, 2023, respectively.

(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 that is based on a percentage of retail sales over contractual levels of $ 2.2 million and $ 3.2 million for the three months ended November 2, 2024 and October 28, 2023, respectively, and $ 9.7 million and $ 11 million for the nine months ended November 2, 2024 and October 28, 2023, respectively, as well as charges associated with common area maintenance of $ 2.6 million and $ 2.2 million for the three months ended November 2, 2024 and October 28, 2023, respectively, and $ 8.2 million and $ 6.8 million for the nine months ended November 2, 2024 and October 28, 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 any period presented.

(4) Included in selling, general and administrative expenses on the condensed consolidated statements of income .

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(4) Included in selling, general and administrative expenses on the condensed consolidated statements of income (loss).

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FINANCIAL INFORMATION

19 unchanged sentences

(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 $ 293 million and $ 268 million as of August 3, 2024 and February 3, 2024, respectively.

(3) Includes $ 36 million and $ 37 million as of August 3, 2024 and February 3, 2024, respectively, related to an RH Design Gallery lease with a landlord that is an affiliate of the managing member of the Aspen LLCs.

(2) Recorded net of accumulated amortization of $ 307 million and $ 268 million as of November 2, 2024 and February 3, 2024, respectively.

(3) Includes $ 36 million and $ 37 million as of November 2, 2024 and February 3, 2024, respectively, 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 .

1 unchanged sentence

FINANCIAL INFORMATION

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The maturities of lease liabilities are as follows as of August 3, 2024:

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The maturities of lease liabilities are as follows as of November 2, 2024:

(in thousands)

4 unchanged sentences

(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 $ 727 million of legally binding payments under the non-cancellable term for leases signed but not yet commenced under our accounting policy as of August 3, 2024, of which $ 14 million, $ 40 million, $ 38 million, $ 40 million, $ 41 million and $ 44 million will be paid in the remainder of fiscal 2024, fiscal 2025, fiscal 2026, fiscal 2027, fiscal 2028 and fiscal 2029, respectively, and $ 510 million will be paid subsequent to fiscal 2029.

Total lease payments exclude $ 816 million of legally binding payments under the non-cancellable term for leases signed but not yet commenced under our accounting policy as of November 2, 2024, of which $ 6.9 million, $ 40 million, $ 43 million, $ 46 million, $ 47 million and $ 50 million will be paid in the remainder of fiscal 2024, fiscal 2025, fiscal 2026, fiscal 2027, fiscal 2028 and fiscal 2029, respectively, and $ 583 million will be paid subsequent to fiscal 2029.

(2) Excludes an immaterial amount of future commitments under short-term lease agreements.

1 unchanged sentence

Supplemental information related to leases consists of the following:

SIX MONTHS ENDED

NINE MONTHS ENDED

Weighted-average remaining lease term (years)

4 unchanged sentences

Finance leases

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FINANCIAL INFORMATION

Other information related to leases consists of the following:

SIX MONTHS ENDED

NINE MONTHS ENDED

(in thousands)

9 unchanged sentences

Reclassification from other non-current assets to finance lease right-of-use assets

(1) Represents the principal portion of lease payments, partially offset by tenant allowances received subsequent to lease commencement of $ 2.4 million for the six months ended July 29, 2023.

No such amounts were received from landlords during the six months ended August 3, 2024.

(1) Represents the principal portion of lease payments, partially offset by tenant allowances received subsequent to lease commencement of $ 2.4 million for the nine months ended October 28, 2023.

No such amounts were received from landlords during the nine months ended November 2, 2024.

Long-Lived Asset Impairment

During the three months ended November 2, 2024, we recognized long-lived asset impairment charges of $ 19 million for our two Design Galleries in Germany due to the asset carrying value of each location exceeding the estimated fair market value of the long-lived assets over their respective remaining lease terms, both of which end in 2027.

These impairment charges were comprised of lease right-of-use asset impairment of $ 13 million and property and equipment impairment of $ 5.6 million.

Refer to the long-lived assets accounting policy in Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.

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:

(in thousands)

Convertible senior notes due 2024

$ 350 million 0.00 % Convertible Senior Notes due 2024

Prior to June 15, 2024 , the 2024 Notes are convertible only under the following circumstances:

In September 2019, we issued in a private offering $ 350 million principal amount of 0.00 % convertible senior notes due 2024 (the “2024 Notes”).

As of February 3, 2024, we had $ 42 million of 2024 Notes outstanding, which were classified as convertible senior notes due 2024—net within current liabilities.

Prior to June 15, 2024 , the 2024 Notes were 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;

4 unchanged sentences

This condition was not met for the calendar quarters ended December 31, 2023 or 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.

There have been no conversions as of August 3, 2024.

On and after June 15, 2024 , until the close of business on the second scheduled trading day immediately preceding the maturity date, holders were able to convert all or a portion of their 2024 Notes at any time, regardless of the foregoing circumstances.

FINANCIAL INFORMATION

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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 .

The remaining liability for the 2024 Notes is classified as a current obligation on our condensed consolidated balance sheets as of August 3, 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.

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In September 2024, upon the maturity of the 2024 Notes, the $ 42 million in aggregate principal amount of the 2024 Notes settled for $ 42 million in cash and are no longer outstanding as of November 2, 2024.

During the nine months ended November 2, 2024, we issued in aggregate 39,121 shares of common stock at a par value of $ 0.0001 per share and, as a result, recognized $ 0 in additional paid-in capital on the condensed consolidated statements of shareholders’ equity (deficit) upon settlement of the 2024 Notes.

NOTE 10—CREDIT FACILITIES

5 unchanged sentences

Total credit facilities

(1) Deferred financing fees associated with the asset based credit facility as of August 3, 2024 and February 3, 2024 were $ 2.0 million and $ 2.5 million, respectively, and are included in other non-current assets on the condensed consolidated balance sheets.

(1) Deferred financing fees associated with the asset based credit facility as of November 2, 2024 and February 3, 2024 were $ 1.8 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.

(2) Represents the Term Loan Credit Agreement (defined below), of which outstanding amounts of $ 1,925 million and $ 1,935 million were included in term loan—net on the condensed consolidated balance sheets as of August 3, 2024 and February 3, 2024, respectively, and $ 20 million was included in other current liabilities on the condensed consolidated balance sheets as of both August 3, 2024 and February 3, 2024.

(3) Represents the outstanding balance of the Term Loan B-2 (defined below) under the Term Loan Credit Agreement, of which outstanding amounts of $ 486 million and $ 489 million were included in term loan B-2—net on the condensed consolidated balance sheets as of August 3, 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 August 3, 2024 and February 3, 2024.

(2) Represents the Term Loan Credit Agreement (defined below), of which outstanding amounts of $ 1,920 million and $ 1,935 million were included in term loan—net on the condensed consolidated balance sheets as of November 2, 2024 and February 3, 2024, respectively, and $ 20 million was included in other current liabilities on the condensed consolidated balance sheets as of both November 2, 2024 and February 3, 2024.

(3) Represents the outstanding balance of the Term Loan B-2 (defined below) under the Term Loan Credit Agreement, of which outstanding amounts of $ 485 million and $ 489 million were included in term loan B-2—net on the condensed consolidated balance sheets as of November 2, 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 November 2, 2024 and February 3, 2024.

Asset Based Credit Facility

2 unchanged sentences

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.

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FINANCIAL INFORMATION

14 unchanged sentences

The FCCR Covenant ratio is set at 1.0 and measured on a trailing twelve-month basis.

As of August 3, 2024, RHI was in compliance with the FCCR Covenant.

As of November 2, 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 August 3, 2024, RHI had $ 25 million in outstanding borrowings and $ 499 million of availability under the revolving line of credit, net of $ 45 million in outstanding letters of credit.

As a result of the FCCR Covenant that limits the last 10 % of borrowing availability, actual incremental borrowing available to RHI and the other affiliated parties under the revolving line of credit would be $ 439 million as of August 3, 2024.

As of November 2, 2024, RHI had $ 190 million in outstanding borrowings and $ 364 million of availability under the revolving line of credit, net of $ 46 million in outstanding letters of credit.

FINANCIAL INFORMATION

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2024 THIRD QUARTER FORM 10-Q | 21

Term Loan Credit Agreement

19 unchanged sentences

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.

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FINANCIAL INFORMATION

12 unchanged sentences

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 August 3, 2024, the fair values of the Term Loan B and Term Loan B-2 were derived from observable bid prices (Level 1).

As of November 2, 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).

1 unchanged sentence

NOTE 12—INCOME TAXES

Our income tax expense and effective tax rates were as follows:

Our income tax expense (benefit) and effective tax rates were as follows:

THREE MONTHS ENDED

SIX MONTHS ENDED

NINE MONTHS ENDED

(dollars in thousands)

Income tax expense

Income tax expense (benefit)

Effective tax rate

The decrease in our effective tax rates for the three and six months ended August 3, 2024 compared to the three and six months ended July 29, 2023 is primarily attributable to higher net excess tax benefits from stock-based compensation year over year.

As of August 3, 2024, we had $ 3.2 million of unrecognized tax benefits, of which $ 2.6 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 August 3, 2024, we had $ 0.2 million of exposures related to unrecognized tax benefits that are expected to decrease in the next 12 months.

The decrease in our effective tax rates for the three and nine months ended November 2, 2024 compared to the three and nine months ended October 28, 2023 is primarily attributable to reporting net income in the current year and the impact of higher net excess tax benefits from stock-based compensation in fiscal 2024.

The effective tax rate for the three months ended October 28, 2023 was impacted by reporting a net loss in the period, as well as tax benefits from the Federal Rehabilitation Tax Credit related to the San Francisco Design Gallery.

The effective tax rate for the nine months ended October 28, 2023 was also impacted by lower net excess tax benefits from stock-based compensation.

FINANCIAL INFORMATION

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As of November 2, 2024, we had $ 3.1 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 November 2, 2024, we had $ 0.4 million of exposures related to unrecognized tax benefits that are expected to decrease in the next 12 months.

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.

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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 and six months ended August 3, 2024.

We will continue to evaluate the impact of these tax law changes in future reporting periods.

NOTE 13—NET INCOME PER SHARE

The weighted-average shares used for net income per share are presented in the table below.

NOTE 13—NET INCOME (LOSS) PER SHARE

The weighted-average shares used for net income (loss) per share are presented in the table below.

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Weighted-average shares—basic

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Weighted-average shares—diluted

The following number of options and restricted stock units, as well as shares issuable under convertible senior notes, were excluded from the calculation of diluted net income per share because their inclusion would have been anti-dilutive:

(1) As we reported a net loss for the three months ended October 28, 2023, the weighted-average shares outstanding for basic and diluted are the same for the corresponding period.

(2) The dilutive effect of the 2023 Notes and 2024 Notes is calculated under the if-converted method, which assumes share settlement of the entire convertible debt instrument.

The 2023 Notes and 2024 Notes matured in June 2023 and September 2024, respectively, and did not have an impact on our diluted share count post-maturity.

Refer to Note 9— Convertible Senior Notes .

The following number of options and restricted stock units, as well as shares issuable under convertible senior notes, were excluded from the calculation of diluted net income (loss) per share because their inclusion would have been anti-dilutive:

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Restricted stock units

Convertible senior notes

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FINANCIAL INFORMATION

NOTE 14—SHARE REPURCHASE PROGRAM AND SHARE RETIREMENT

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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 or six months ended August 3, 2024.

As of August 3, 2024, $ 201 million remains available for future share repurchases under this program.

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FINANCIAL INFORMATION

In the three and six months ended July 29, 2023, we repurchased 3,698,887 shares of our common stock under the Share Repurchase Program at an average price of $ 325.65 per share, for an aggregate repurchase amount of approximately $ 1,205 million.

In addition, we recorded $ 12 million of excise taxes payable related to the share repurchase activity during the three and six months ended July 29, 2023, which is recorded in accounts payable and accrued expenses on the condensed consolidated balance sheets.

We had $ 12 million of excise taxes payable as of both August 3, 2024 and February 3, 2024.

We did no t repurchase any shares of our common stock under the Share Repurchase Program during the three or nine months ended November 2, 2024.

As of November 2, 2024, $ 201 million remains available for future share repurchases under this program.

In the nine months ended October 28, 2023, we repurchased 3,887,965 shares of our common stock under the Share Repurchase Program at an average price of $ 321.28 per share, for an aggregate repurchase amount of approximately $ 1,261 million, inclusive of $ 12 million of excise taxes.

The excise tax liability of $ 12 million, which was included in accounts payable and accrued expenses on the condensed consolidated balance sheets as of February 3, 2024, was paid in October 2024 and is no longer outstanding as of November 2, 2024.

Share Retirement

In the three and six months ended July 29, 2023, we retired 3,698,887 shares of common stock related to shares we repurchased under the Share Repurchase Program.

As a result of this retirement, we reclassified a total of $ 8.6 million and $ 1,208 million from treasury stock to additional paid-in capital and retained earnings (accumulated deficit) , respectively, on the condensed consolidated statements of stockholders’ equity (deficit) as of and for the three and six months ended July 29, 2023.

In the nine months ended October 28, 2023, we retired 3,887,965 shares of common stock related to shares we repurchased under the Share Repurchase Program.

As a result of this retirement, we reclassified a total of $ 10 million and $ 1,251 million from treasury stock to additional paid-in capital and retained earnings (accumulated deficit) , respectively, on the condensed consolidated balance sheets and condensed consolidated statements of stockholders’ equity (deficit) as of and for the nine months ended October 28, 2023.

Refer to the condensed consolidated statements of stockholders’ equity (deficit) for shares repurchased and subsequently retired in the nine months ended October 28, 2023.

NOTE 15—STOCK-BASED COMPENSATION

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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 August 3, 2024, there were a total of 2,206,463 shares issuable under the 2023 Stock Incentive Plan.

As of November 2, 2024, there were a total of 2,180,601 shares issuable under the 2023 Stock Incentive Plan.

Awards under the 2023 Stock Incentive Plan reduce the number of shares available for future issuance.

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Stock Options Under the Plans

A summary of options outstanding, vested or expected to vest, and exercisable as of August 3, 2024 was as follows:

A summary of options outstanding, vested or expected to vest, and exercisable as of November 2, 2024 was as follows:

REMAINING TERM

(in thousands)

(in millions)

Options outstanding

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FINANCIAL INFORMATION

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Stock-based compensation expense, which is included in selling, general and administrative expenses on the condensed consolidated statements of income, was as follows:

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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

SIX MONTHS ENDED

NINE MONTHS ENDED

(in thousands)

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The option will result in aggregate non-cash stock compensation expense of $ 174 million.

Amounts presented include $ 0.9 million and $ 2.0 million in the three months ended August 3, 2024 and July 29, 2023, respectively, and $ 2.8 million and $ 5.6 million in the six months ended August 3, 2024 and July 29, 2023, respectively, related to Mr.

Amounts presented include $ 0.9 million and $ 2.0 million in the three months ended November 2, 2024 and October 28, 2023, respectively, and $ 3.7 million and $ 7.5 million in the nine months ended November 2, 2024 and October 28, 2023, respectively, related to Mr.

Friedman’s option.

No stock-based compensation cost has been capitalized in the accompanying condensed consolidated financial statements.

As of August 3, 2024, the total unrecognized compensation expense and weighted average remaining term was as follows:

As of November 2, 2024, the total unrecognized compensation expense and weighted average remaining term was as follows:

REMAINING TERM

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NOTE 16—COMMITMENTS AND CONTINGENCIES

We had no material off balance sheet commitments as of August 3, 2024.

We had no material off balance sheet commitments as of November 2, 2024.

Contingencies

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Accordingly, the ultimate costs to resolve litigation, including class action cases, may be substantially higher or lower than our estimates.

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FINANCIAL INFORMATION

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We use operating income to evaluate segment profitability for the retail operating segments and to allocate resources.

Operating income is defined as net income before interest expense—net, other (income) expense—net, income tax expense and our share of equity method investments loss—net.

Segment operating income excludes (i) 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.

Operating income is defined as net income (loss) before interest expense—net, other expense—net, income tax expense (benefit) and our share of equity method investments loss—net.

Segment operating income excludes (i) asset impairments, (ii) legal settlements, (iii) non-cash compensation amortization related to an option grant made to Mr.

Friedman in October 2020, (iv) severance costs associated with a reorganization and (v) costs associated with product recalls.

These items are excluded from segment operating income in order to provide better transparency of segment operating results.

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FINANCIAL INFORMATION

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The following table presents segment operating income and a reconciliation to income from operations and income before income taxes and equity method investments :

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The following table presents segment operating income and a reconciliation to income from operations and income (loss) before income taxes and equity method investments :

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(in thousands)

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Total segment operating income

Legal settlements—net

Asset impairments

Non-cash compensation

Legal settlements—net

Reorganization related costs

Recall accrual

Income from operations

Interest expense—net

Other (income) expense—net

Income before taxes and equity method investments

Other expense—net

Income (loss) before income taxes and equity method investments

The following tables present selected statements of income metrics for our segments, including disaggregated net revenues:

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Depreciation and amortization

SIX MONTHS ENDED

NINE MONTHS ENDED

(in thousands)

Depreciation and amortization

In the three months ended August 3, 2024 and July 29, 2023, the Real Estate segment share of equity method investments loss was $ 3.9 million and $ 3.4 million, respectively.

In the six months ended August 3, 2024 and July 29, 2023, the Real Estate segment share of equity method investments loss was $ 6.7 million and $ 5.0 million, respectively.

Our share of income from equity method investments for the Waterworks segment was immaterial in all fiscal periods presented.

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In the three months ended November 2, 2024 and October 28, 2023, the Real Estate segment share of equity method investments loss was $ 1.8 million and $ 2.7 million, respectively.

In the nine months ended November 2, 2024 and October 28, 2023, the Real Estate segment share of equity method investments loss was $ 8.5 million and $ 7.7 million, respectively.

The Waterworks segment share of equity method investments loss—net was immaterial in all fiscal periods presented.

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FINANCIAL INFORMATION

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THREE MONTHS ENDED

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(in thousands)

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We are domiciled in the United States and primarily operate our retail locations and outlets in the United States.

As of August 3, 2024, we operated four retail locations in Canada, two retail locations and one outlet in the United Kingdom, two retail locations in Germany, one retail location in Belgium and one retail location in Spain.

As of November 2, 2024, we operated four retail locations in Canada, two retail locations and one outlet in the United Kingdom, two retail locations in Germany, one retail location in Belgium and one retail location in Spain.

Geographic revenues generated outside of the United States were not material in any fiscal period presented.

FINANCIAL INFORMATION

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

What changed 10-Q

Item 1. Financial Statements