What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-09-11 compared with 2025-06-12 · 233 added, 124 removed, 334 unchanged (52% of the section changed)

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The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, but not limited to, those listed in our 2024 Form 10-K.

The discussion of our financial condition and changes in our results of operations, liquidity and capital resources is presented in this section for the three months ended May 3, 2025, and a comparison to the three months ended May 4, 2024.

The discussion related to cash flows for the three months ended May 4, 2024, has been omitted from this Quarterly Report on Form 10-Q, but is included in Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations on our Form 10-Q for the quarter ended May 4, 2024, filed with the Securities and Exchange Commission (“SEC”) on June 13, 2024.

The discussion of our financial condition and changes in our results of operations, liquidity and capital resources is presented in this section for the three and six months ended August 2, 2025, and a comparison to the three and six months ended August 3, 2024.

The discussion related to cash flows for the six months ended August 3, 2024, has been omitted from this Quarterly Report on Form 10-Q, but is included in Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations on our Form 10-Q for the quarter ended August 3, 2024, filed with the Securities and Exchange Commission (“SEC”) on September 12, 2024.

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

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Basis of Presentation and Results of Operations .

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

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

Liquidity and Capital Resources .

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

FINANCIAL INFORMATION

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA

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These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “short-term,” “non-recurring,” “one-time,” “unusual,” “should,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.

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Forward-looking statements are subject to risk and uncertainties that may cause actual results to differ materially from those that we expected.

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

Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the section entitled Risk Factors in our 2024 Form 10-K, and Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part I of this quarterly report and in our 2024 Form 10-K.

Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the section entitled Risk Factors in our 2024 Form 10-K and Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part I of this quarterly report, in our Quarterly Report on Form 10-Q for the quarterly period ended May 3, 2025 and in our 2024 Form 10-K.

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

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These new collections reflect a level of design and quality inaccessible in our current market and a value proposition that we believe will be disruptive across multiple markets.

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FINANCIAL INFORMATION

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As of May 3, 2025, we operated the following number of locations:

As of August 2, 2025, we operated the following number of locations:

North America

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Legacy Galleries

Outdoor Gallery

Outdoor Galleries

Modern Gallery

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Strategic Initiatives

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

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

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

For more information, refer to the sections entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors in our 2024 Form 10-K.

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Our strategy is to continue to elevate the design and quality of our product.

Beginning with the mailing of our RH Interiors Sourcebook in the fall of 2023 and with additional Sourcebook mailings throughout 2024 and the beginning of 2025, we have introduced the most prolific collection of new products in our history.

Beginning with the mailing of our RH Interiors Sourcebook in the fall of 2023 and with additional Sourcebook mailings throughout 2024 and in the beginning of 2025, we have introduced the most prolific collection of new products in our history.

In addition, over the next few years, we plan to introduce RH Couture, RH Bespoke and RH Color.

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Additionally, we offer bespoke experiences like RH Yountville, an integration of Food, Wine, Art & Design in the Napa Valley;

RH1 & RH2, our private jets;

and RH3, our luxury yacht that is available for charter in the Caribbean and Mediterranean, where the wealthy and affluent visit and vacation.

RH One & RH Two, our private jets;

and RH Three, our luxury yacht that is available for charter in the Caribbean and Mediterranean, where the wealthy and affluent visit and vacation.

These immersive experiences expose both new and existing customers to our evolving authority in architecture, interior design and landscape architecture.

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FINANCIAL INFORMATION

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Global Expansion .

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Our view is that the competitive environment globally is more fragmented and primed for disruption than the North American market, and there is no direct competitor of scale that possesses the product, operational platform and brand strength of RH.

As such, we are actively pursuing the expansion of the RH brand globally, which began with the opening of RH England, RH Munich and RH Düsseldorf in 2023, followed by the opening of RH Brussels in March 2024 and RH Madrid in June 2024.

We are also under construction in Paris, London and Milan in inspiring spaces that will celebrate the heritage of the historic structures and will integrate full expressions of our hospitality experiences.

In September 2025, we opened RH Paris, The Gallery on the Champs Élysées, located just off the Avenue Montaigne, which stands at the global epicenter of fashion and luxury.

The Gallery, spanning seven levels connected by a soaring atrium of floating cast medallion stairs, features a freestanding RH Interior Design Studio opposite the spectacular six-meter cast medallion bronze doors marking the entrance, and two restaurants.

At Le Jardin RH, located on the second-floor terrace, dine under a spectacular curved glass and steel structure inspired by the Grand Palais.

At Le Petit RH, dine in a jewel box of champagne lacquered walls with a sparkling ceiling of over 7,000 handblown glass polyhedrons, or atop one of the most spectacular garden rooftops in all of Paris with views of the Eiffel Tower, Grand Palais and the Louvre.

We believe the opening of RH Paris marks a major step forward in the European expansion of our business.

We are also under construction in London and Milan in inspiring spaces that will celebrate the heritage of the historic structures and will integrate full expressions of our hospitality experiences.

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

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We are making meaningful investments to elevate and differentiate our online experience with plans to upgrade our website throughout 2025.

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Basis of Presentation and Results of Operations

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

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

THREE MONTHS ENDED

SIX MONTHS ENDED

(dollars in thousands)

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Total other expenses

Income (loss) before income taxes and equity method investments

Income tax expense (benefit)

Loss before equity method investments

Income before taxes and equity method investments

Income tax expense

Income before equity method investments

Share of equity method investments (income) loss—net

Net income (loss)

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How We Assess the Performance of Our Business

Demand is an operating metric that we use in reference to the dollar value of orders placed (orders convert to net revenue upon a customer obtaining control of the merchandise) and excludes exchanges, shipping fees and cancellations.

Demand represents the demand generated from all of our businesses including RH Interiors, RH Modern, RH Contemporary, RH Outdoor, RH Baby & Child, RH TEEN, RH Contract, Membership, Dmitriy & Co, Joseph Jeup and Waterworks, as well as sales from RH Hospitality and RH Outlet.

Non-GAAP Financial Measures

To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use non-GAAP financial measures, including adjusted operating income, adjusted net income (loss), EBITDA, adjusted EBITDA, and adjusted capital expenditures (collectively, “non-GAAP financial measures”).

To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use non-GAAP financial measures, including adjusted operating income, adjusted net income, EBITDA, adjusted EBITDA, and adjusted capital expenditures (collectively, “non-GAAP financial measures”).

We compute these measures by adjusting the applicable GAAP measures to remove the impact of certain recurring and non-recurring charges and gains and the tax effect of these adjustments.

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These accompanying tables include details on the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures.

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FINANCIAL INFORMATION

Adjusted Operating Income .

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

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

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

THREE MONTHS ENDED

SIX MONTHS ENDED

(in thousands)

Net income (loss)

Interest expense—net (1)

Other (income) expense—net (1)

Income tax expense (benefit) (1)

Income tax expense (1)

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

Operating income

Asset impairments (2)

Product recall (3)

Reorganization related costs (4)

Non-cash compensation (5)

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Adjusted operating income

(1) Refer to discussion “Three Months Ended May 3, 2025 Compared to Three Months Ended May 4, 2024” below for a discussion of our results of operations for the three months ended May 3, 2025 and May 4, 2024.

(1) Refer to discussion “Three Months Ended August 2, 2025 Compared to Three Months Ended August 3, 2024” and “Six Months Ended August 2, 2025 Compared to Six Months Ended August 3, 2024” below for a discussion of our results of operations for the three and six months ended August 2, 2025 and August 3, 2024.

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

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

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

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

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Adjusted Net Income (Loss) .

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

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

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

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Adjusted Net Income .

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

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

Reconciliation of GAAP Net Income to Adjusted Net Income

THREE MONTHS ENDED

SIX MONTHS ENDED

(in thousands)

Net income (loss)

Adjustments pre-tax:

Asset impairments (1)

Product recall (1)

Reorganization related costs (1)

Non-cash compensation (1)

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

Adjusted net income (loss)

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

(2) We exclude the GAAP tax provision and apply a non-GAAP tax provision based upon (i) adjusted pre-tax net income (loss), (ii) the projected annual adjusted tax rate and (iii) the exclusion of material discrete tax items that are unusual or infrequent.

The adjustments for the three months ended May 3, 2025 and May 4, 2024 are based on adjusted tax rates of 32.0% and 31.5%, respectively.

Adjusted net income

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

(2) We exclude the GAAP tax provision and apply a non-GAAP tax provision based upon (i) adjusted pre-tax net income, (ii) the projected annual adjusted tax rate and (iii) the exclusion of material discrete tax items that are unusual or infrequent.

The adjustments for the three months ended August 2, 2025 and August 3, 2024 are based on adjusted tax rates of 26.7% and 12.8%, respectively.

The adjustments for the six months ended August 2, 2025 and August 3, 2024 are based on adjusted tax rates of 26.9% and 5.6%, respectively.

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FINANCIAL INFORMATION

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EBITDA and Adjusted EBITDA .

EBITDA and Adjusted EBITDA are supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP.

We define EBITDA as consolidated net income (loss) before depreciation and amortization, interest expense—net and income tax expense (benefit).

We define EBITDA as consolidated net income before depreciation and amortization, interest expense—net and income tax expense.

Adjusted EBITDA reflects further adjustments to EBITDA to eliminate the impact of non-cash compensation, as well as certain non-recurring and other items that we do not consider representative of our underlying operating performance.

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

Reconciliation of GAAP Net Income to EBITDA and Adjusted EBITDA

THREE MONTHS ENDED

SIX MONTHS ENDED

(in thousands)

Net income (loss)

Depreciation and amortization

Interest expense—net

Income tax expense (benefit)

Income tax expense

Non-cash compensation (1)

Capitalized cloud computing amortization (2)

Asset impairments (3)

Product recall (3)

Reorganization related costs (3)

Share of equity method investments (income) loss—net (3)

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(2) Represents amortization associated with capitalized cloud computing costs.

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

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

Adjusted Capital Expenditures.

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Reconciliation of Adjusted Capital Expenditures

THREE MONTHS ENDED

SIX MONTHS ENDED

(in thousands)

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Adjusted capital expenditures

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

No such payments were received in the three months ended May 4, 2024.

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

We did not receive any such tenant allowances in the six months ended August 3, 2024.

Retail Metrics

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

THREE MONTHS ENDED

SIX MONTHS ENDED

SELLING SQUARE

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RH Design Galleries

RH Legacy Gallery

RH Outdoor Gallery

Oklahoma City

RH Legacy Galleries

RH Outdoor Galleries

RH Baby & Child and TEEN Gallery

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

Includes approximately 89,000 square feet related to three owned retail locations as of both May 3, 2025 and May 4, 2024.

(2) Includes approximately 142,000 square feet related to three owned retail locations as of both May 3, 2025 and May 4, 2024.

Includes approximately 89,000 square feet related to three owned retail locations as of both August 2, 2025 and August 3, 2024,

(2) Includes approximately 142,000 square feet related to three owned retail locations as of both August 2, 2025 and August 3, 2024.

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FINANCIAL INFORMATION

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

THREE MONTHS ENDED

SIX MONTHS ENDED

(in thousands)

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Weighted-average selling square footage

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Three Months Ended May 3, 2025 Compared to Three Months Ended May 4, 2024

Three Months Ended August 2, 2025 Compared to Three Months Ended August 3, 2024

THREE MONTHS ENDED

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Operating income

(1) The results for the Real Estate segment were immaterial in the three months ended May 3, 2025 and May 4, 2024, thus, such results are presented within the RH Segment each period.

(1) The results for the Real Estate segment were immaterial in the three months ended August 2, 2025 and August 3, 2024, thus, such results are presented within the RH Segment each period.

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

Additionally, all intercompany transactions are immaterial and have been eliminated.

(2) RH Segment net revenues include outlet revenues of $67 million and $62 million for the three months ended May 3, 2025 and May 4, 2024, respectively.

Consolidated net revenues increased $87 million, or 12.0%, to $814 million in the three months ended May 3, 2025 compared to $727 million in the three months ended May 4, 2024.

(2) RH Segment net revenues include outlet revenues of $72 million and $64 million for the three months ended August 2, 2025 and August 3, 2024, respectively.

Consolidated net revenues increased $69 million, or 8.4%, to $899 million in the three months ended August 2, 2025 compared to $830 million in the three months ended August 3, 2024.

RH Segment net revenues

RH Segment net revenues increased $88 million, or 13.0%, to $765 million in the three months ended May 3, 2025 compared to $677 million in the three months ended May 4, 2024.

RH Segment net revenues increased $66 million, or 8.4%, to $847 million in the three months ended August 2, 2025 compared to $781 million in the three months ended August 3, 2024.

The below discussion highlights the primary factors that impacted RH Segment net revenues, which are listed in order of magnitude.

RH Segment net revenues for the three months ended May 3, 2025 increased primarily due to higher revenue in our core business driven by our continued product transformation and platform expansion.

RH Segment net revenues for the three months ended August 2, 2025 increased primarily due to higher revenue in our core business driven by our continued product transformation and platform expansion.

In addition, hospitality revenue increased as a result of new Gallery openings and we had higher outlet revenue.

Waterworks net revenues

Waterworks net revenues decreased $0.9 million, or 1.9%, to $49 million in the three months ended May 3, 2025 compared to $50 million in the three months ended May 4, 2024.

Consolidated gross profit increased $39 million, or 12.4%, to $355 million in the three months ended May 3, 2025 compared to $316 million in the three months ended May 4, 2024.

As a percentage of net revenues, consolidated gross margin increased 20 basis points to 43.7% of net revenues in the three months ended May 3, 2025 from 43.5% of net revenues in the three months ended May 4, 2024.

Waterworks net revenues increased $3.7 million, or 7.6%, to $52 million in the three months ended August 2, 2025 compared to $49 million in the three months ended August 3, 2024.

Consolidated gross profit increased $35 million, or 9.2%, to $409 million in the three months ended August 2, 2025 compared to $375 million in the three months ended August 3, 2024.

As a percentage of net revenues, consolidated gross margin increased 30 basis points to 45.5% of net revenues in the three months ended August 2, 2025 from 45.2% of net revenues in the three months ended August 3, 2024.

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RH Segment gross profit

RH Segment gross profit increased $40 million, or 13.8%, to $330 million in the three months ended May 3, 2025 from $290 million in the three months ended May 4, 2024.

As a percentage of net revenues, RH Segment gross margin increased 30 basis points to 43.1% of net revenues in the three months ended May 3, 2025 from 42.8% of net revenues in the three months ended May 4, 2024.

RH Segment gross profit increased $32 million, or 9.3%, to $381 million in the three months ended August 2, 2025 compared to $349 million in the three months ended August 3, 2024.

As a percentage of net revenues, RH Segment gross margin increased 40 basis points to 45.0% of net revenues in the three months ended August 2, 2025 from 44.6% of net revenues in the three months ended August 3, 2024.

The increase in RH Segment gross margin was primarily attributable to increased margins in the RH core business year over year as well as leverage in shipping costs and occupancy costs.

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

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

Waterworks gross profit

Waterworks gross profit increased $2.2 million, or 8.5%, to $28 million in the three months ended August 2, 2025 compared to $26 million in the three months ended August 3, 2024.

As a percentage of net revenues, Waterworks gross margin increased 50 basis points to 54.1% of net revenues in the three months ended August 2, 2025 from 53.6% of net revenues in the three months ended August 3, 2024.

Selling, general and administrative expenses

Consolidated selling, general and administrative expenses increased $1.8 million, or 0.6%, to $280 million in the three months ended August 2, 2025 compared to $279 million in the three months ended August 3, 2024.

RH Segment selling, general and administrative expenses

RH Segment selling, general and administrative expenses was $259 million in both the three months ended August 2, 2025 and August 3, 2024.

RH Segment selling, general and administrative expenses were 30.6% and 33.2% of net revenues for the three months ended August 2, 2025 and August 3, 2024, respectively.

The decrease in selling, general and administrative expenses as a percentage of net revenues was primarily driven by a decrease in advertising costs due to the timing of the 2025 RH Interiors Sourcebook circulation as well as reduction in our 2025 RH Modern Sourcebook costs.

In addition, leverage in our occupancy costs year over year also contributed to the decrease.

This decrease was partially offset by an increase in compensation costs, as well as pre-opening costs and other corporate costs.

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

RH Segment selling, general and administrative expenses for the three months ended August 3, 2024 included non-cash compensation of $0.9 million related to an option grant made to Mr.

Friedman in October 2020.

Excluding the $2.7 million and $0.9 million of such costs, RH Segment selling, general and administrative expenses would have decreased 270 basis points to 30.3% from 33.0% of net revenues for the three months ended August 2, 2025 and August 3, 2024, respectively.

Waterworks selling, general and administrative expenses

Waterworks selling, general and administrative expenses increased $1.8 million, or 9.2%, to $21 million in the three months ended August 2, 2025 compared to $20 million in the three months ended August 3, 2024.

Waterworks selling, general and administrative expenses were 41.0% and 40.4% of net revenues for the three months ended August 2, 2025 and August 3, 2024, respectively.

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FINANCIAL INFORMATION

Interest expense—net

Interest expense—net consisted of the following:

THREE MONTHS ENDED

(in thousands)

Term loan interest expense

Finance lease interest expense

Asset based credit facility

Other interest expense

Capitalized interest for capital projects

Interest income

Interest expense—net

Other (income) expense—net

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

THREE MONTHS ENDED

(in thousands)

Foreign exchange from transactions (1)

Foreign exchange from remeasurement of intercompany loans (2)

Other (income) expense—net

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

dollar as compared to the euro and pound sterling.

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

Income tax expense

THREE MONTHS ENDED

(dollars in thousands)

Income tax expense

Effective tax rate

The increase in our effective tax rate for the three months ended August 2, 2025 compared to the three months ended August 3, 2024 is primarily attributable to reporting higher net income in the current year and the impact of higher net excess tax benefits from stock-based compensation in fiscal 2024.

Share of equity method investments loss—net

Our share of equity method investments loss was $1.4 million and $4.9 million in the three months ended August 2, 2025 and August 3, 2024, respectively.

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Six Months Ended August 2, 2025 Compared to Six Months Ended August 3, 2024

SIX MONTHS ENDED

(in thousands)

Net revenues (2)

Cost of goods sold

Selling, general and administrative expenses

Operating income

(1) The results for the Real Estate segment were immaterial in both the six months ended August 2, 2025 and August 3, 2024, thus, such results are presented within the RH Segment in each period.

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

(2) RH Segment net revenues include outlet revenues of $139 million and $126 million for the six months ended August 2, 2025 and August 3, 2024, respectively.

Consolidated net revenues increased $156 million, or 10.1%, to $1,713 million in the six months ended August 2, 2025 compared to $1,557 million in the six months ended August 3, 2024.

RH Segment net revenues

RH Segment net revenues increased $154 million, or 10.5%, to $1,612 million in the six months ended August 2, 2025 compared to $1,458 million in the six months ended August 3, 2024.

The below discussion highlights several significant factors that impacted RH Segment net revenues, which are listed in order of magnitude.

RH Segment net revenues for the six months ended August 2, 2025 increased primarily due to higher revenue in our core business driven by our continued product transformation and platform expansion.

In addition, hospitality revenue increased as a result of new Gallery openings and we had higher outlet revenue.

Waterworks net revenues

Waterworks net revenues increased $2.8 million, or 2.8%, to $101 million in the six months ended August 2, 2025 compared to $99 million in the six months ended August 3, 2024.

Consolidated gross profit increased $74 million, or 10.7%, to $765 million in the six months ended August 2, 2025 compared to $691 million in the six months ended August 3, 2024.

As a percentage of net revenues, consolidated gross margin increased 20 basis points to 44.6% of net revenues in the six months ended August 2, 2025 from 44.4% of net revenues in the six months ended August 3, 2024.

RH Segment gross profit

RH Segment gross profit increased $72 million, or 11.3%, to $711 million in the six months ended August 2, 2025 from $638 million in the six months ended August 3, 2024.

As a percentage of net revenues, RH Segment gross margin increased 30 basis points to 44.1% of net revenues in the six months ended August 2, 2025 from 43.8% of net revenues in the six months ended August 3, 2024.

The increase in RH Segment gross margin was primarily attributable to leverage in occupancy costs and shipping costs as well as increased margins in the RH core business year over year.

This increase in gross margin was partially offset by an increase in other product costs.

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

Excluding the $4.0 million of such costs, RH Segment gross margin would have been 20 basis points higher at 44.3% of net revenues for the six months ended August 2, 2025.

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FINANCIAL INFORMATION

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Waterworks gross profit

Waterworks gross profit was $26 million in both the three months ended May 3, 2025 and May 4, 2024.

As a percentage of net revenues, Waterworks gross margin decreased 40 basis points to 52.2% of net revenues in the three months ended May 3, 2025 from 52.6% of net revenues in the three months ended May 4, 2024.

Waterworks gross profit increased $1.5 million, or 2.9%, to $54 million in the six months ended August 2, 2025 compared to $52 million in the six months ended August 3, 2024.

As a percentage of net revenues, Waterworks gross margin increased 10 basis points to 53.2% of net revenues in the six months ended August 2, 2025 from 53.1% of net revenues in the six months ended August 3, 2024.

Selling, general and administrative expenses

Consolidated selling, general and administrative expenses increased $38 million, or 14.6%, to $299 million in the three months ended May 3, 2025 from $261 million in the three months ended May 4, 2024.

Consolidated selling, general and administrative expenses increased $40 million, or 7.4%, to $580 million in the six months ended August 2, 2025 compared to $540 million in the six months ended August 3, 2024.

RH Segment selling, general and administrative expenses

RH Segment selling, general and administrative expenses increased $35 million, or 14.4%, to $279 million in the three months ended May 3, 2025 compared to $244 million in the three months ended May 4, 2024.

RH Segment selling, general and administrative expenses for the three months ended May 3, 2025 and May 4, 2024 included non-cash compensation of $0.9 million and $1.9 million, respectively, related to an option grant made to Mr.

Friedman in October 2020.

In addition, RH Segment selling, general and administrative expenses for the three months ended May 4, 2024 included favorable net legal settlements of $6.2 million.

RH Segment selling, general and administrative expenses were 36.4% and 36.7% of net revenues for the three months ended May 3, 2025 and May 4, 2024, respectively, excluding the adjustments mentioned above.

The decrease in selling, general and administrative expenses as a percentage of net revenues was primarily driven by leverage in pre-opening and travel, occupancy and compensation costs year over year.

We also recognized an increase in advertising costs primarily due to the circulation of the Spring 2025 RH Interiors Sourcebook with no comparable mailing in the prior year, which was partially offset by a decrease in costs for the RH Outdoor Sourcebook in 2025 as compared to 2024.

RH Segment selling, general and administrative expenses increased $35 million, or 7.0%, to $538 million in the six months ended August 2, 2025 compared to $503 million in the six months ended August 3, 2024.

RH Segment selling, general and administrative expenses were 33.4% and 34.5% of net revenues for the six months ended August 2, 2025 and August 3, 2024, respectively.

The decrease in selling, general and administrative expenses as a percentage of net revenues was primarily driven by a decrease in advertising costs due to reduced Sourcebook circulation, as well as leverage in occupancy and corporate costs year over year.

This decrease was partially offset by an increase in compensation costs.

RH Segment selling, general and administrative expenses for the six months ended August 2, 2025 was negatively impacted by $1.2 million of reorganization related costs, $1.0 million of asset impairments, $0.9 million of non-cash compensation related to an option grant made to Mr.

Friedman in October 2020 and $0.5 million related to a product recall.

RH Segment selling, general and administrative expenses for the six months ended August 3, 2024 included favorable net legal settlements of $6.2 million and non-cash compensation of $2.8 million related to Mr.

Friedman’s 2020 option grant.

Excluding the $3.6 million and $9.0 million of such costs, RH Segment selling, general and administrative expenses would have decreased 160 basis points to 33.1% from 34.7% of net revenues for the six months ended August 2, 2025 and August 3, 2024, respectively.

Waterworks selling, general and administrative expenses

Waterworks selling, general and administrative expenses increased $3.0 million, or 17.5%, to $20 million in the three months ended May 3, 2025 compared to $17 million in the three months ended May 4, 2024.

Waterworks selling, general and administrative expenses in the three months ended May 4, 2024 included $3.2 million related to a favorable legal settlement.

Excluding the adjustment for the legal settlement, Waterworks selling, general and administrative expenses would have increased 40 basis points to 41.4% of net revenues in the three months ended May 3, 2025, compared to 41.0% of net revenues for the three months ended May 4, 2024.

Waterworks selling, general and administrative expenses increased $4.8 million, or 13.1%, to $42 million in the six months ended August 2, 2025 compared to $37 million in the six months ended August 3, 2024.

Waterworks selling, general and administrative expenses were 41.1% and 37.4% of net revenues for the six months ended August 2, 2025 and August 3, 2024, respectively.

Waterworks selling, general and administrative expenses in the six months ended August 3, 2024 included $3.2 million related to a favorable legal settlement.

Excluding the $3.2 million of such costs, Waterworks selling, general and administrative expenses would have been 330 basis points higher at 40.7% of net revenues for the six months ended August 3, 2024.

Interest expense—net

Interest expense—net consisted of the following:

THREE MONTHS ENDED

SIX MONTHS ENDED

(in thousands)

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Other (income) expense—net

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

THREE MONTHS ENDED

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

SIX MONTHS ENDED

(in thousands)

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

Income tax expense (benefit)

THREE MONTHS ENDED

Income tax expense

SIX MONTHS ENDED

(dollars in thousands)

Income tax expense (benefit)

Income tax expense

Effective tax rate

The decrease in our effective tax rate for the three months ended May 3, 2025 compared to the three months ended May 4, 2024 is primarily attributable to pre-tax net income in the current fiscal period compared to pre-tax net loss in the prior fiscal period.

The three months ended May 3, 2025 was also impacted by a net tax shortfall from stock-based compensation as compared to a net tax benefit in the three months ended May 4, 2024.

The increase in our effective tax rate for the six months ended August 2, 2025 compared to the six months ended August 3, 2024 is primarily attributable to reporting higher net income in the current year and the impact of higher net excess tax benefits from stock-based compensation in fiscal 2024.

Share of equity method investments (income) loss—net

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

Our share of equity method investments loss in the three months ended May 4, 2024 was $2.4 million.

Our share of equity method investments income of $6.9 million in the six months ended August 2, 2025 was primarily attributable to an Aspen LLC distribution in the first quarter of fiscal 2025 of $7.9 million (refer to Note 6— Variable Interest Entities in the condensed consolidated financial statements).

Our share of equity method investments loss in the six months ended August 3, 2024 was $7.3 million.

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Liquidity and Capital Resources

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

(2) Net debt as of May 3, 2025 and February 1, 2025 excludes non-recourse real estate loans of $18 million as of both periods.

(2) Net debt as of August 2, 2025 and February 1, 2025 excludes non-recourse real estate loans of $18 million as of both periods.

These loans are secured by specific real estate assets and the associated creditors do not have recourse against RH’s general assets.

(3) The amount available for borrowing under the revolving line of credit under the ABL Credit Agreement is presented net of $47 million and $45 million in outstanding letters of credit as of May 3, 2025 and February 1, 2025, respectively.

As a result of the FCCR Covenant that limits the last 10% of borrowing availability, actual incremental borrowing available under the revolving line of credit would be $308 million as of May 3, 2025.

Refer to Note 8— Credit Facilities in the condensed consolidated financial statements for further information on our ABL Credit Agreement.

The primary cash needs of our business have historically been for merchandise inventories, payroll, rent for our retail and outlet locations, capital expenditures associated with opening new locations and related real estate investments, updating existing locations, as well as the development of our infrastructure and information technology, and Sourcebooks.

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

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

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We expect to continue to use additional sources of debt financing in future periods as a source of additional capital to fund our various investments .

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To the extent we choose to secure additional sources of liquidity through incremental debt financing, there can be no assurances that we will be able to raise such financing on favorable terms, if at all, or that future financing requirements will not require us to raise money through an equity financing or by other means that could be dilutive to holders of our capital stock.

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Credit Facilities and Debt Arrangements

We amended and restated the ABL Credit Agreement in July 2021, which provides an asset based credit facility with an 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.

We amended and restated the ABL Credit Agreement in July 2025, which provides an asset based credit facility with an initial availability of up to $600 million, of which (i) $10 million is available to the RH subsidiary Restoration Hardware Canada, Inc.

and (ii) $100 million is available to the RH subsidiary, RH Geneva Sàrl.

The ABL Credit Agreement includes a $300 million accordion feature under which the revolving line of credit may be expanded by agreement of the parties to the ABL Credit Agreement 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 accordion feature may be added as a first-in, last-out term loan facility.

The ABL Credit Agreement further provides 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 asset based credit facility is July 29, 2026.

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 the earlier of (a) July 31, 2030 and (b) the date which is 91 days prior to the final stated maturity of the Term Loan Credit Agreement and any refinancing thereof .

We entered into a $2,000 million term debt financing in October 2021 (the “Term Loan B”) by means of a Term Loan Credit Agreement through RHI as the borrower, Bank of America, N.A.

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We are required to make quarterly principal payments of $1.3 million with respect to Term Loan B-2.

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We have invested significant capital expenditures in developing and opening new Design Galleries, and these capital expenditures have increased in the past, and may continue to increase in future periods, as we open additional Design Galleries, which may require us to undertake upgrades to historical buildings or construction of new buildings.

Our adjusted capital expenditures include capital expenditures from investing activities and cash outflows of capital related to construction activities to design and build landlord-owned leased assets, net of tenant allowances received during the construction period.

During the three months ended May 3, 2025, adjusted capital expenditures were $70 million in aggregate, net of cash received related to landlord tenant allowances of $4.1 million.

In addition, we also received landlord tenant allowances under finance leases subsequent to lease commencement of $1.4 million during the three months ended May 3, 2025.

During the six months ended August 2, 2025, adjusted capital expenditures were $156 million in aggregate, net of cash received related to landlord tenant allowances of $4.1 million.

In addition, we also received landlord tenant allowances under finance leases subsequent to lease commencement of $6.2 million during the six months ended August 2, 2025.

We anticipate our adjusted capital expenditures to be $275 million to $325 million in fiscal 2025, primarily related to our growth and expansion, including construction of new Design Galleries and infrastructure investments.

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

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

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

THREE MONTHS ENDED

SIX MONTHS ENDED

(in thousands)

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Net cash used in investing activities

Net cash used in financing activities

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

1 unchanged sentence

Net Cash Provided by Operating Activities

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

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For the three months ended May 3, 2025, net cash provided by operating activities was $87 million and consisted of net income of $8.0 million and an increase in non-cash items of $81 million, partially offset by a change in working capital and other activities of $2.0 million.

The use of cash from working capital was primarily driven by a decrease in operating lease liabilities of $35 million, an increase in landlord assets under construction, net of tenant allowances, of $18 million, a decrease in other current and non-current liabilities of $12 million and a decrease in accounts payable and accrued expenses of $10 million.

These uses of cash from working capital were partially offset by an increase in deferred revenue and customer deposits of $54 million and a decrease in merchandise inventory of $18 million.

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

For the six months ended August 2, 2025, net cash provided by operating activities was $224 million and consisted of net income of $60 million and an increase in non-cash items of $169 million, partially offset by a change in working capital and other activities of $4.3 million.

The use of cash from working capital was primarily driven by a decrease in operating lease liabilities of $50 million, an increase in landlord assets under construction, net of tenant allowances, of $46 million, a decrease in accounts payable and accrued expenses of $22 million, an increase in prepaid expense and other assets of $13 million and a decrease in other current and non-current liabilities of $2.9 million.

These uses of cash from working capital were partially offset by a decrease in merchandise inventory of $74 million, an increase in deferred revenue and customer deposits of $55 million and a decrease in accounts receivable of $2.4 million.

Net Cash Used in Investing Activities

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Investing activities also include our strategic investments.

For the three months ended May 3, 2025, net cash used in investing activities was $45 million and was comprised of investments in retail stores, information technology and systems infrastructure of $53 million and an acquisition of an intangible asset of $2.8 million.

For the six months ended August 2, 2025, net cash used in investing activities was $134 million and was comprised of investments in retail stores, information technology and systems infrastructure of $110 million, a business acquisition of $32 million and an acquisition of an intangible asset of $3.0 million.

These cash outflows were partially offset by cash received from a distribution of return of equity method investments of $7.9 million and receipt of a promissory note repaid by our equity method investee of $1.8 million.

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Net Cash Used in Financing Activities

Financing activities consist primarily of borrowings and repayments related to credit facilities, convertible senior notes and other financing arrangements, and cash used in connection with such financing activities include investments in our share repurchase program, repayment of indebtedness, including principal payments under finance lease agreements and other equity related transactions.

For the three months ended May 3, 2025, net cash used in financing activities was $27 million primarily due to net repayments under the asset based credit facility of $15 million, net payments under finance lease agreements of $6.5 million and payments under term loans of $6.3 million.

Financing activities consist primarily of borrowings and repayments related to convertible senior notes and other financing arrangements, and cash used in connection with such financing activities include investments in our share repurchase program, repayment of indebtedness, including principal payments under finance lease agreements and other equity related transactions.

For the six months ended August 2, 2025, net cash used in financing activities was $87 million, primarily due to net repayments under the asset based credit facility of $65 million, payments under term loans of $13 million, net payments under finance lease agreements of $8.0 million and debt issuance costs of $2.8 million associated with the ABL Credit Agreement amendment.

Non-Cash Transactions

Non-cash transactions consist of non-cash additions of property and equipment and landlord assets under construction, as well as excise tax from share repurchases, included in accounts payable and accrued expenses at period-end.

Non-cash transactions consist of non-cash additions of property and equipment and landlord assets under construction and reclassification of assets from landlord assets under construction to finance lease right-of-use assets, as well as excise tax from share repurchases, included in accounts payable and accrued expenses at period-end.

Cash Requirements from Contractual Obligations

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

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Real Estate Loans

Refer to Note 6— Variable Interest Entities in the condensed consolidated financial statements for further information on the real estate loan held as part of our joint ventures with a third-party development partner.

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Share Repurchase Program

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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, which increased 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 3, 2025.

As of May 3, 2025, $201 million remains available for future share repurchases under the Share Repurchase Program.

We did not repurchase any shares of our common stock under the Share Repurchase Program during the six months ended August 2, 2025.

As of August 2, 2025, $201 million remains available for future share repurchases under the Share Repurchase Program.

We regularly review share repurchase activity and consider various factors in determining whether and when to execute investments in connection with our share repurchase program, including, among others, current cash needs, capacity for leverage, cost of borrowings, results of operations and the market price of our common stock.

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For further discussion regarding these policies, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates in the 2024 Form 10-K.

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Recently Issued Accounting Pronouncements

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

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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 2. Management’s Discussion and Analysis