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What changed in RH's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of RH's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+477 added−491 removedSource: 10-K (2024-03-28) vs 10-K (2023-03-29)

Top changes in RH's 2024 10-K

477 paragraphs added · 491 removed · 380 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

75 edited+17 added−22 removed27 unchanged
Biggest changeWe plan to expand our product sales to additional international markets and have signed agreements for Design Galleries in several locations outside of North America, including the U.K., France, Germany, Spain, Italy and Belgium. ​ ​ ​ 4 | FORM 10-K PART I ​ Table of Contents The following tables present our retail location metrics: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ JANUARY 28, ​ JANUARY 29, ​ ​ 2023 ​ 2022 ​ ​ TOTAL LEASED ​ TOTAL LEASED ​ ​ ​ ​ SELLING SQUARE ​ ​ ​ SELLING SQUARE ​ ​ COUNT ​ FOOTAGE (1) ​ COUNT ​ FOOTAGE (1) ​ ​ (square footage in thousands) Beginning of period 81 ​ 1,254 82 ​ 1,162 RH Design Galleries: ​ ​ San Francisco Design Gallery ​ 1 ​ ​ 42.1 ​ — ​ ​ — Dallas Design Gallery ​ — ​ ​ — ​ 1 ​ ​ 38.0 Oak Brook Design Gallery ​ — ​ ​ — ​ 1 ​ ​ 37.7 Jacksonville Design Gallery ​ — ​ ​ — ​ 1 ​ ​ 37.7 RH Modern Galleries: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dallas RH Modern Gallery ​ — ​ ​ — ​ (1) ​ ​ (3.9) RH Baby & Child and TEEN Galleries: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Santa Monica Baby & Child and TEEN Gallery ​ — ​ ​ — ​ (1) ​ ​ (7.3) RH Legacy Galleries: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ San Francisco legacy Gallery ​ (1) ​ ​ (4.8) ​ — ​ ​ — Troy legacy Gallery (relocation) ​ — ​ ​ (5.3) ​ — ​ ​ — Dallas legacy Gallery ​ — ​ ​ — ​ (1) ​ ​ (8.4) Oak Brook legacy Gallery ​ — ​ ​ — ​ (1) ​ ​ (10.0) Tysons legacy Gallery (relocation) ​ — ​ ​ — ​ — ​ ​ 8.5 End of period 81 ​ 1,286 81 ​ 1,254 Total leased square footage at end of period (2) ​ ​ ​ ​ 1,729 ​ ​ ​ ​ 1,672 Weighted-average leased square footage (3) ​ ​ 1,719 ​ ​ 1,602 Weighted-average leased selling square footage (3) ​ ​ ​ ​ 1,281 ​ ​ ​ ​ 1,197 (1) Leased selling square footage is retail space at our retail locations used to sell our products, as well as space for our Restaurants.
Biggest changeThe following tables present our retail location metrics: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ FEBRUARY 3, ​ JANUARY 28, ​ ​ 2024 ​ 2023 ​ ​ ​ TOTAL LEASED ​ TOTAL LEASED ​ ​ ​ ​ SELLING SQUARE ​ ​ ​ SELLING SQUARE ​ ​ COUNT ​ FOOTAGE (1) ​ COUNT ​ FOOTAGE (1) ​ (square footage in thousands) Beginning of period ​ 81 ​ 1,286 81 ​ 1,254 RH Design Galleries: ​ ​ ​ England Design Gallery ​ 1 ​ ​ 35.1 ​ — ​ ​ — Munich Design Gallery ​ 1 ​ ​ 26.4 ​ — ​ ​ — Düsseldorf Design Gallery ​ 1 ​ ​ 19.6 ​ — ​ ​ — Indianapolis Design Gallery (relocation) ​ — ​ ​ 7.6 ​ — ​ ​ — San Francisco Design Gallery ​ — ​ ​ — ​ 1 ​ ​ 42.1 RH Legacy Galleries: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Detroit Legacy Gallery (relocation) ​ — ​ ​ 1.5 ​ — ​ ​ — Short Hills Legacy Gallery (relocation) ​ — ​ ​ 0.1 ​ — ​ ​ — San Francisco Legacy Gallery ​ — ​ ​ — ​ (1) ​ ​ (4.8) Troy Legacy Gallery (relocation) ​ — ​ ​ — ​ — ​ ​ (5.3) Waterworks Showrooms: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Atlanta Showroom (relocation) ​ — ​ ​ 2.0 ​ — ​ ​ — End of period ​ 84 ​ 1,378 81 ​ 1,286 Total leased square footage at end of period (2) ​ ​ ​ ​ 1,901 ​ ​ ​ ​ 1,729 Weighted-average leased square footage (3) ​ ​ ​ 1,796 ​ ​ 1,719 Weighted-average leased selling square footage (3) ​ ​ ​ ​ 1,318 ​ ​ ​ ​ 1,281 (1) Leased selling square footage is retail space at our retail locations used to sell our products, as well as space for our restaurants and wine bars.
Our customers know our brand concepts as RH Interiors, RH Modern, RH Contemporary, RH Outdoor, RH Beach House, RH Ski House, RH Baby & Child, RH TEEN and Waterworks. Our strategy is to continue to elevate the design and quality of our product.
Our customers know our brand concepts as RH Interiors, RH Contemporary, RH Modern, RH Outdoor, RH Beach House, RH Ski House, RH Baby & Child, RH TEEN and Waterworks. Our strategy is to continue to elevate the design and quality of our product.
We maintain public internet sites at www.rh.com and www.restorationhardware.com and make available, free of charge, through these sites our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and Forms 3, 4 and 5 filed on behalf of directors and executive officers, as well as any amendments to those reports filed or furnished pursuant to the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
We maintain public internet sites at rh.com and restorationhardware.com and make available, free of charge, through these sites our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and Forms 3, 4 and 5 filed on behalf of directors and executive officers, as well as any amendments to those reports filed or furnished pursuant to the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
The information on our websites is not part of this annual report. Our Investor Relations Department can be contacted at RH, 15 Koch Road, Corte Madera, California 94925, Attention: Investor Relations; telephone: 415-945-3500; e-mail: investorrelations@rh.com. ​ ​ ​ 10 | FORM 10-K PART I ​ Table of Contents
The information on our websites is not part of this Annual Report. Our Investor Relations Department can be contacted at RH, 15 Koch Road, Corte Madera, California 94925, Attention: Investor Relations; telephone: 415-945-3500; e-mail: investorrelations@rh.com. ​ ​ ​ PART I FORM 10-K | 9 ​ Table of Contents
We believe that our luxury brand positioning and unique aesthetic have strong international appeal, and that pursuit of global expansion will provide RH a substantial opportunity to build over time a projected $20 to $25 billion global brand in terms of annual revenues.
We believe that our luxury brand positioning and unique aesthetic have strong international appeal, and that pursuit of global expansion will provide RH with a substantial opportunity to build over time a projected $20 to $25 billion global brand in terms of annual revenues.
We continually analyze opportunities to selectively consolidate retail locations in connection with openings of our Design Galleries or close retail locations that have been under-performing or are no longer consistent with our brand positioning. In many cases, we continue to operate a retail location until our lease has expired in order to effect the closure in a cost-efficient manner.
We continually analyze opportunities to selectively consolidate retail locations in connection with openings of our Design Galleries or close retail locations that have been under-performing or are no longer consistent with our brand positioning. In many cases, we continue to operate a retail location until our lease has expired in order to affect the closure in a cost-efficient manner.
We believe our integrated RH hospitality experience, which includes Restaurants and Wine Bars, has created a unique new retail experience that cannot be replicated online, and that the addition of hospitality drives incremental sales of home furnishings in these Galleries. We plan to incorporate hospitality into most of the new Galleries that we open in the future.
We believe our integrated RH hospitality experience, which includes restaurants and wine bars, has created a unique retail experience that cannot be replicated online, and that the addition of hospitality drives incremental sales of home furnishings in these Galleries. We plan to incorporate hospitality into many of the new Galleries that we open in the future.
ITEM 1. BUSINESS Overview RH (collectively, “we,” “us,” or the “Company”) is a leading retailer and luxury lifestyle brand operating primarily in the home furnishings market. Our curated and fully integrated assortments are presented consistently across our sales channels, including our retail locations, websites and Source Books.
ITEM 1. BUSINESS Overview RH (collectively, “we,” “us,” or the “Company”) is a leading retailer and luxury lifestyle brand operating primarily in the home furnishings market. Our curated and fully integrated assortments are presented consistently across our sales channels, including our retail locations, websites and Sourcebooks.
We believe we have built the most comprehensive and compelling collection of luxury home furnishings under one brand in the world. Our products are presented across multiple collections, categories and channels that we control, and their desirability and exclusivity has enabled us to achieve industry-leading revenues and margins.
We believe we have built the most comprehensive and compelling collection of luxury home furnishings under one brand in the world. Our products are presented across multiple collections, categories and channels that we control, and their desirability and exclusivity has enabled us to achieve strong revenues and margins.
In addition, we plan to incorporate hospitality into most of the new Design Galleries that we open in the future, which further elevates and renders our product and brand more valuable.
In addition, we plan to incorporate hospitality into many of the new Design Galleries that we open in the future, which further elevates and renders our product and brand more valuable.
These include targeted Source Book circulation, email communications, promotional mailings, print advertisements, and public relations activities and events. We use our customer database to tailor our programs and increase the efficiency of our marketing and promotional initiatives. We leverage our marketing and advertising expenses across all our channels as we seek to optimize the efficiency of our investment.
These include targeted Sourcebook circulation, email communications, promotional mailings, print advertisements, and public relations activities and events. We use our customer database to tailor our programs and increase the efficiency of our marketing and promotional initiatives. We leverage our marketing and advertising expenses across all our channels as we seek to optimize the efficiency of our investment.
Fluctuation in Quarterly Results Our quarterly results vary depending upon a variety of factors, including changes in our product offerings and the introduction of new merchandise assortments and categories, changes in retail locations, the timing of Source Book releases, and the extent of our realization of the costs and benefits of our numerous strategic initiatives, among other things.
Fluctuation in Quarterly Results Our quarterly results vary depending upon a variety of factors, including changes in our product offerings and the introduction of new merchandise assortments and categories, changes in retail locations, the timing of Sourcebook releases, and the extent of our realization of the costs and benefits of our numerous strategic initiatives, among other things.
The RH Members Program allows our customers to shop for what they want, when they want, and receive the greatest value, which has resulted in orders and sales being more evenly distributed throughout the year. During fiscal 2022, our members drove approximately 97% of sales in our core RH business, and we had approximately 351,000 members at year end.
The RH Members Program allows our customers to shop for what they want, when they want, and receive the greatest value, which has resulted in orders and sales being more evenly distributed throughout the year. During fiscal 2023, our members drove approximately 97% of sales in our core RH business, and we had approximately 281,000 members at year end.
We segment our customer files based on multiple variables, and we tailor our Source Book mailings and emails in response to the purchasing patterns and product needs of our customers. We continue to improve the segmentation of customer files and the expansion of our customer database.
We segment our customer files based on multiple variables, and we tailor our Sourcebook mailings and emails in response to the purchasing patterns and product needs of our customers. We continue to improve the segmentation of customer files and the expansion of our customer database.
Leased selling square footage is retail space at our retail locations used to sell our products, as well as space for our restaurants.
Leased selling square footage is retail space at our retail locations used to sell our products, as well as space for our restaurants and wine bars.
We pursue a market-based sales strategy, whereby we assess each market’s overall sales potential and how best to approach the market across all of our channels. We customize square footage, as well as Source Book circulation, to maximize each market’s sales potential and increase our return on invested capital.
We pursue a market-based sales strategy whereby we assess each market’s overall sales potential and how best to approach the market across all of our channels. We maximize our gallery square footage, as well as Sourcebook circulation, to capitalize on each market’s sales potential and increase our return on invested capital.
We require our vendors to adhere to our Vendor Code of Conduct, which can be found on the Investor Relations section of our website, located at ir.rh.com under “Governance / Environmental, Social & Governance.” Certain headcount data is set forth in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ JANUARY 28, ​ JANUARY 29, ​ JANUARY 30, ​ 2023 2022 2021 ​ ​ (approximate) Total associates (1) ​ 6,180 ​ 6,470 ​ 5,200 Retail and Outlet associates ​ 2,090 ​ 2,300 ​ 2,200 Hospitality associates ​ 1,580 ​ 1,320 ​ 660 Part-time associates ​ 720 ​ 850 ​ 510 (1) None of our associates are represented by a union, and we have had no labor-related work stoppages .
We require our vendors to adhere to our Vendor Code of Conduct, which can be found on the Investor Relations section of our website, located at ir.rh.com under “Governance — Environmental, Social & Governance.” ​ Certain headcount data is set forth in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ FEBRUARY 3, ​ JANUARY 28, ​ JANUARY 29, ​ 2024 2023 2022 ​ ​ (approximate) Total team members (1) ​ 5,960 ​ 6,180 ​ 6,470 Retail and Outlet team members ​ 2,210 ​ 2,090 ​ 2,300 Hospitality team members ​ 1,520 ​ 1,580 ​ 1,320 Part-time team members ​ 630 ​ 720 ​ 850 (1) None of our team members are represented by a union, and we have had no labor-related work stoppages .
We currently operate three furniture fulfillment centers and one small-parcel fulfillment center servicing RH products, which are located strategically in four markets throughout the United States. We have one fulfillment center in the United States servicing Waterworks products.
Distribution and Delivery We manage the distribution and delivery of our products through our distribution centers. We currently operate three furniture fulfillment centers and one small-parcel fulfillment center servicing RH products, which are located strategically in four markets throughout the United States. We have one fulfillment center in the United States servicing Waterworks products.
The SEC maintains a website that contains reports, proxy statements and other information about issuers, like us, who file electronically with the SEC. The address of that website is www.sec.gov .
The SEC maintains a website that contains reports, proxy statements and other information about issuers, like us, who file electronically with the SEC at sec.gov .
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 of RH.
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 of RH. As such, we are actively pursuing the expansion of the RH brand globally.
Certain of our competitors are larger and have greater financial, marketing and other resources than us. However, many smaller specialty retailers may lack the financial resources, infrastructure, scale and national brand identity necessary to compete effectively with us .
Certain of our competitors are larger and have greater financial, marketing and other resources than us. However, many smaller specialty retailers may lack the financial resources, infrastructure, scale and national brand identity necessary to compete effectively with us. As we expand our business globally, we will face new competitors .
(2) Total leased square footage includes approximately 5,400 square feet as of fiscal 2021 related to one owned retail location. (3) Weighted-average leased square footage and leased 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.
(2) Total leased square footage includes approximately 100,000 square feet as of fiscal 2023 related to two owned retail locations. (3) Weighted-average leased square footage and leased 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.
We believe hospitality has created a unique new retail experience that cannot be replicated online, and that the addition of hospitality drives incremental sales of home furnishings in these Galleries. ​ ​ ​ ​ PART I FORM 10-K | 1 ​ Table of Contents Brand Elevation .
We believe hospitality has created a unique new retail experience that cannot be replicated online, and that the addition of hospitality drives incremental sales of home furnishings in these Galleries. ​ Brand Elevation .
We believe our strategy to open new Design Galleries in every major market in North America will unlock the value of our vast assortment, generating an expected annual revenue opportunity for our business of $5 to $6 billion.
Our product is elevated and rendered more valuable by our architecturally inspiring Galleries. We believe our strategy to open new Design Galleries in every major market in North America will unlock the value of our vast assortment, generating an expected annual revenue opportunity for our business of $5 to $6 billion.
As of January 28, 2023, we operated 37 outlet stores. Marketing and Advertising Our Galleries, websites and Source Books are the primary branding and advertising vehicles for the RH brand. In addition, we employ a variety of marketing and advertising techniques to drive customer traffic across all our channels, strengthen and reinforce our brand image and acquire new customers.
Marketing and Advertising Our Galleries, websites and Sourcebooks are the primary branding and advertising vehicles for the RH brand. In addition, we employ a variety of marketing and advertising techniques to drive customer traffic across all our channels, strengthen and reinforce our brand image and acquire new customers.
Customers can search the websites for products by size or color, browse through our extensive product categories and see detailed information about each item and collection, such as dimensions, materials and care instructions. Additionally, customers can select color swatches and view merchandise displayed with different color and fabric options.
Customers can search the websites for products by size or color, browse through our extensive product categories and see detailed information about each item and collection, such as dimensions, materials and care instructions.
The database, which is maintained in accordance with our privacy policy disclosed on our website, supports our ability to analyze our customers’ buying behaviors across sales channels, facilitates the development of targeted marketing strategies, and supports prospecting new customers.
We mail our Sourcebooks to addresses within this database and to addresses provided to us by third parties. The database, which is maintained in accordance with our privacy policy disclosed on our website, supports our ability to analyze our customers’ buying behaviors across sales channels, facilitates the development of targeted marketing strategies, and supports prospecting new customers.
In addition, our product development platform, sourcing capabilities and significant scale enable us to reduce our product costs. ​ ​ ​ 2 | FORM 10-K PART I ​ Table of Contents Sales Channels We distribute our products through a fully integrated sales platform comprising our retail locations, including RH Galleries and Waterworks Showrooms, in addition to our websites, Source Books, Trade and Contract, and Outlets.
In addition, our product development platform, sourcing capabilities and significant scale enable us to reduce our product costs. Sales Channels We distribute our products through a fully integrated sales platform comprising our retail locations, including RH Galleries and Waterworks Showrooms, in addition to our websites, Sourcebooks, Trade and Contract, and Outlets.
Leased selling square footage 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. Leased selling square footage includes approximately 4,800 square feet as of fiscal 2021 related to one owned retail location.
Leased selling square footage 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. ​ ​ ​ 4 | FORM 10-K PART I ​ Table of Contents Leased selling square footage includes approximately 56,000 square feet as of fiscal 2023 related to two owned retail locations.
Products in our Galleries are presented in fully appointed rooms, emphasizing collections over individual pieces. This presentation inspires our customers to consider purchasing a full collection of products to replicate the design aesthetic experienced in our Galleries. In addition, our associates use iPads and other devices to allow customers to shop our entire merchandise assortment while in a retail location.
This presentation inspires our customers to consider purchasing a full collection of products to replicate the design aesthetic experienced in our Galleries. In addition, our employees use iPads and other devices to allow customers to shop our entire merchandise assortment while in a retail location.
Our most common Design Galleries have approximately 30,000 to 40,000 leased selling square feet, inclusive of our integrated hospitality experience, and present our product assortments across our businesses and contain interior design offices and presentation rooms where design professionals work with clients on their projects. These designs are capital efficient and accelerate the development process.
Most of our Design Galleries have approximately 30,000 to 40,000 leased selling square feet, inclusive of our integrated hospitality experience, presenting our product assortments across our businesses, and containing interior design offices and presentation rooms where design professionals work with clients on their projects.
Leased selling square footage 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. (2) We have an integrated RH Hospitality experience in fourteen of our Design Galleries.
Leased selling square footage 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.
We are committed to operating our environments with the highest safety standards to ensure the health and well-being of our guests and team members.
We believe that our commitment to diversity is demonstrated by the composition of our workforce. ​ We are committed to operating our environments with the highest standards that ensure the safety, health and well-being of our team members and guests.
For more information, refer to Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview. Key Value-Driving Strategies In order to achieve our long-term strategies of Product Elevation, Platform Expansion and Cash Generation as well as drive growth across our business, we are focused on the following key strategies and business initiatives: Product Elevation .
Key Value-Driving Strategies In order to achieve our long-term strategies of Product Elevation, Platform Expansion and Cash Generation as well as drive growth across our business, we are focused on the following key strategies and business initiatives: Product Elevation .
We have a policy that prohibits us from discriminating against any applicant or associate and this policy governs all aspects of employment, including recruitment, hiring, training, promotion, compensation, discipline, job assignments, benefits, transfer and discharge. We believe that our commitment to diversity is demonstrated by the composition of our workforce.
We have a policy that prohibits us from discriminating against any applicant or team member and this policy governs all aspects of employment, including recruitment, hiring, training, promotion, compensation, discipline, job assignments, benefits, transfer and discharge.
The RH websites also offer room-based navigation, which allows the customer to envision and shop items by room or by product, expanding on the richness of the online experience.
We update our websites regularly to reflect new products, product availability and occasional special offers. The RH websites also offer room-based navigation, which allows the customer to envision and shop items by room or by product, expanding on the richness of the online experience.
We work closely with vendors and manufacturers to ensure that our high standards of quality and timely delivery of merchandise are met. We seek to ensure the consistent quality of our manufacturers’ products by selectively inspecting pre-production samples, conducting periodic site visits to certain of our vendors’ production facilities and selectively inspecting inbound shipments at our distribution facilities.
We seek to ensure the consistent quality of our manufacturers’ products by selectively inspecting pre-production samples, conducting periodic site visits to certain of our vendors’ production facilities and selectively inspecting inbound shipments at our distribution facilities.
We have several existing locations that validate this strategy in East Hampton, Yountville, Los Gatos, Pasadena and our former San Francisco Gallery in the Design District, where we have approximately 2,000 to 5,000 square feet and are able to generate substantial annual revenues. The cadence of our Gallery openings depends upon a number of factors.
We have several existing locations that validate this strategy in East Hampton, Los Gatos, Pasadena and our former San Francisco Gallery in the Design District, where we have generated annual revenues in the range of $5 to $20 million in 2,000 to 5,000 square feet.
In fiscal 2022, we sourced approximately 75% of our purchase dollar volume from approximately 25 vendors. In fiscal 2022, one vendor accounted for 13% of our purchase dollar volume.
In fiscal 2023, we sourced 75% of our purchase dollar volume from 28 vendors, and one vendor accounted for 14% of our purchase dollar volume.
These domain names are perpetually renewable. We own design patents or pending design patent applications to protect the ornamental appearance of several of our products. These design patents are valid for 15 years from their date of issuance. We own copyrights, including copyright registrations or pending applications, for our website and our Source Books.
These domain names are perpetually renewable. ​ ​ ​ 8 | FORM 10-K PART I ​ Table of Contents We own design patents or pending design patent applications to protect the ornamental appearance of several of our products. These design patents are valid for 15 years from their date of issuance.
Our core RH business reflects the product categories that the membership discount can be applied to, and, as a result, sales generated via Outlet, Contract, Hospitality or Waterworks are excluded.
Our core RH business reflects the product categories that the membership discount can be applied to, and, as a result, sales generated via Outlet, Contract, Hospitality or Waterworks are excluded. We believe our membership model enhances the customer experience, renders our brand more valuable, improves operational execution and reduces costs.
We believe that our trademarks, domain names, design patents, and copyrights have significant value and we vigorously protect them against infringement.
We own copyrights, including copyright registrations or pending applications, for our website and our Sourcebooks. We believe that our trademarks, domain names, design patents, and copyrights have significant value, and we vigorously protect them against infringement.
Finally, we believe there is an opportunity to address new markets locally by opening new Design Studios in neighborhoods, towns and small cities where the wealthy and affluent live, visit and vacation.
Examples of current Bespoke Galleries include our location in Yountville, California, as well as our Galleries under development in Montecito, California and Aspen, Colorado. Finally, we believe there is an opportunity to address new markets locally by opening Design Studios in neighborhoods, towns and small cities where the wealthy and affluent live, visit and vacation.
We are evolving the brand beyond curating and selling product to conceptualizing and selling spaces by building an ecosystem of Products, Places, Services and Spaces designed to elevate and render our product more valuable while establishing the RH brand as a thought leader, taste and place maker.
Our strategy is to move the brand beyond curating and selling product to conceptualizing and selling spaces, by building an ecosystem of Products, Places, Services and Spaces that establishes the RH brand as a global thought leader, taste and place maker.
We believe an opportunity exists to create similar strategic separation online as we have with our Galleries offline, reconceptualizing what a website can and should be. ​ Global Expansion.
We believe an opportunity exists to create similar strategic separation online as we have with our Galleries offline, reconceptualizing what a website can and should be. Products and Product Development We have positioned RH as a lifestyle brand and design authority by offering expansive merchandise assortments.
Outlet Stores Our outlet stores are branded as RH Outlet or Restoration Hardware Outlet and are typically located in outlet malls. Our outlet stores serve as a key part of our reverse logistics platform and provide an efficient means to sell primarily returned merchandise and, to a lesser extent, discontinued and overstock merchandise outside of our core sales channels.
Our outlet stores serve as a key part of our reverse logistics platform and provide an efficient means to sell primarily returned merchandise and, to a lesser extent, discontinued and overstock merchandise outside of our core sales channels. As of February 3, 2024, we operated 42 outlet stores, including one outlet location in the United Kingdom.
In addition to the retail locations, in fiscal 2022 we opened our RH Guesthouse with approximately 13,800 leased selling square footage. ​ ​ ​ PART I FORM 10-K | 5 ​ Table of Contents The following list shows the number of retail locations in each U.S. state, each Canadian province and in the U.K. where we operate as of January 28, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ LOCATION COUNT LOCATION COUNT LOCATION COUNT Alabama 1 Massachusetts 2 Tennessee 1 Arizona 2 Michigan 1 Texas 7 California 19 Minnesota 1 Utah 1 Colorado 2 Missouri 1 Virginia 2 Connecticut 3 Nevada 1 Washington 1 Florida 6 New Jersey 2 District of Columbia 1 Georgia 2 New York 4 Alberta 2 Illinois 3 North Carolina 2 British Columbia 1 Indiana 1 Ohio 3 Ontario 1 Kansas 1 Oklahoma 1 London (1) 1 Louisiana 1 Oregon 1 Maryland 1 Pennsylvania 2 Total 81 (1) The London retail location is a Waterworks Showroom.
The following list shows the number of retail locations in each U.S. state and foreign country where we operate as of February 3, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ LOCATION COUNT LOCATION COUNT LOCATION COUNT Alabama 1 Massachusetts 2 Tennessee 1 Arizona 2 Michigan 1 Texas 7 California 19 Minnesota 1 Utah 1 Colorado 2 Missouri 1 Virginia 2 Connecticut 3 Nevada 1 Washington 1 Florida 6 New Jersey 2 District of Columbia 1 Georgia 2 New York 4 Canada 4 Illinois 3 North Carolina 2 United Kingdom (1) 2 Indiana 1 Ohio 3 Germany ​ 2 Kansas 1 Oklahoma 1 ​ ​ ​ Louisiana 1 Oregon 1 ​ ​ ​ Maryland 1 Pennsylvania 2 Total 84 (1) The United Kingdom retail locations include an RH Design Gallery and a Waterworks Showroom.
Environmental, Social and Governance Our environmental , social and certain other governance efforts are implemented through our environmental, social and governance (“ESG”) programs, which are designed to align our approach to ESG issues with the interests of our people, customers and shareholders and their respective ESG concerns. ​ ​ ​ PART I FORM 10-K | 9 ​ Table of Contents Intellectual Property The “RH,” “Restoration Hardware,” “RH Interiors,” “RH Contemporary,” “RH Modern,” “RH Outdoor,” “RH Baby & Child,” “RH TEEN,” “RH Beach House,” “RH Ski House,” “RH Guesthouse,” “RH Rugs,” “The World of RH” and “Waterworks,” trademarks, among others, are registered or are the subject of pending trademark applications with the United States Patent and Trademark Office and with the trademark registries of several foreign countries.
Intellectual Property The “RH,” “Restoration Hardware,” “RH Interiors,” “RH Contemporary,” “RH Modern,” “RH Outdoor,” “RH Baby & Child,” “RH TEEN,” “RH Beach House,” “RH Ski House,” “RH Rugs,” “RH Guesthouse,” “The World of RH” and “Waterworks,” trademarks, among others, are registered or are the subject of pending trademark applications with the United States Patent and Trademark Office and with the trademark registries of several foreign countries.
Our customers respond to the Source Books across all of our channels, with sales trends closely correlating to the assortments that we emphasize and feature prominently in our Source Books, websites and Galleries.
Our customers respond to the Sourcebooks across all of our channels, with sales trends closely correlating to the assortments that we emphasize and feature prominently in our Sourcebooks, Galleries and websites. Our Sourcebooks, in concert with our websites, are a cost-effective means to test new products, and allow us to launch categories in a disciplined, expeditious and cost-effective manner.
These iconic locations are highly profitable statements for our brand, and we believe they create a long-term competitive advantage that will be difficult to duplicate.
Second, we will continue to develop and open larger Bespoke Design Galleries in the top metropolitan markets, similar to those we opened in New York, Chicago and San Francisco. These iconic locations are highly profitable statements for our brand, and we believe they create a long-term competitive advantage that will be difficult to duplicate.
We position our Galleries as showrooms for our brand, while our websites and Source Books act as virtual and print extensions of our physical spaces, respectively. We operate our retail locations throughout the United States, Canada, and the U.K., and have an integrated RH Hospitality experience in 14 of our Design Gallery locations, which includes Restaurants and Wine Bars.
We position our Galleries as showrooms for our brand, while our websites and Sourcebooks act as virtual and print extensions of our physical spaces, respectively. We operate our retail locations throughout the United States, Canada, the United Kingdom and Germany.
We believe situating our Galleries in desirable locations, such as iconic buildings and luxury retail shopping centers, is critical to the success of our business.
We believe situating our Galleries in desirable locations, such as iconic buildings and luxury retail shopping centers, is critical to the success of our business. New sites are identified based on a variety of store-specific factors, including unique architecture, geographic location, demographics, and proximity to affluent consumers.
We believe the level of integration among all of our channels and our approach to the market distinguish us from other retailers. We encourage our customers to shop across our channels, which complement one another, and have aligned our business and internal organization to be channel agnostic.
We believe the level of integration among all of our channels and our approach to the market distinguish us from other retailers.
Websites Our primary RH websites, www.rh.com , www.rhmodern.com, www.rhbabyandchild.com and www.rhteen.com , provide our customers with the ability to purchase our merchandise online. We sell Waterworks products online through www.waterworks.com .
Websites Our primary RH websites, rh.com, rhbabyandchild.com and rhteen.com , provide our customers with the ability to purchase our merchandise online. We sell Waterworks products online through waterworks.com . Our websites allow our customers to experience the unique lifestyle settings reflected in our Sourcebooks and throughout our Galleries and Showrooms, and to shop all of our current product assortment.
Our Source Books also feature profiles of select artisan vendors and other compelling editorial content regarding home décor.
As in our Galleries, our Sourcebooks present our merchandise in lifestyle settings that reflect our unique design aesthetic. Our Sourcebooks also feature profiles of select artisan vendors and other compelling editorial content regarding home décor.
We have identified key learnings from our real estate transformation that have supported the development of a multi-tier market approach described below that we believe will optimize both market share and return on invested capital. ​ ​ ​ PART I FORM 10-K | 3 ​ Table of Contents First, we have architected Design Galleries to be innovative and flexible formats that will enable us to more quickly place our disruptive product assortment and immersive retail experience into the market.
We have identified key learnings from our real estate transformation that have supported the development of a multi-tier market approach described below that we believe will optimize both market share and return on invested capital.
We compete with the interior design trade and specialty stores, as well as antique dealers and other merchants that provide unique items and custom-designed products at higher price points. We also compete with a number of other home furnishing retailers, including national and regional businesses as well as new market participants.
We also compete with the interior design trade and specialty stores, as well as antiques dealers and other merchants that provide unique items and custom-designed products at higher price points. Many of our competitors seek to compete with us by offering products that are similar to our merchandise at lower price points.
Retail Locations As of January 28, 2023, our retail locations comprise RH Galleries and Waterworks Showrooms: ​ ​ ​ ​ ​ ​ ​ ​ ​ AVERAGE LEASED SELLING ​ COUNT SQUARE FOOTAGE (1) RH ​ ​ ​ ​ Design Galleries (2) ​ 28 ​ 33,800 Legacy Galleries ​ 35 ​ 7,400 Modern Galleries ​ 1 ​ 12,800 Baby & Child and TEEN Galleries ​ 3 ​ 2,800 Total Galleries ​ 67 ​ ​ Waterworks Showrooms ​ 14 ​ 4,100 Total retail locations ​ 81 ​ ​ (1) Average leased selling square footage is calculated based on total leased selling square footage divided by total locations.
We encourage our customers to shop across our channels, which complement one another, and have aligned our business and internal organization to be channel agnostic. ​ ​ ​ 2 | FORM 10-K PART I ​ Table of Contents Retail Locations As of February 3, 2024, our retail locations comprise RH Galleries and Waterworks Showrooms: ​ ​ ​ ​ ​ ​ ​ ​ ​ AVERAGE LEASED SELLING ​ COUNT SQUARE FOOTAGE (1) RH ​ ​ ​ ​ Design Galleries (2) ​ 31 ​ 33,400 Legacy Galleries ​ 35 ​ 7,400 Modern Gallery ​ 1 ​ 12,800 Baby & Child and TEEN Galleries ​ 3 ​ 2,800 Total Galleries ​ 70 ​ ​ Waterworks Showrooms ​ 14 ​ 4,300 Total retail locations ​ 84 ​ ​ (1) Average leased selling square footage is calculated based on total leased selling square footage divided by total locations.
Our Source Books are one of our primary branding and advertising vehicles. We have found that merchandise assortments displayed in our Source Books contribute to increased sales of those products across all of our channels. As in our Galleries, our Source Books present our merchandise in lifestyle settings that reflect our unique design aesthetic.
Our Sourcebooks include RH Interiors, RH Contemporary, RH Modern, RH Outdoor, RH Beach House, RH Ski House, RH Baby & Child, RH TEEN and RH Rugs. Our Sourcebooks are one of our primary branding and advertising vehicles. We have found that merchandise assortments displayed in our Sourcebooks contribute to increased sales of those products across all of our channels.
We operate portions of our home delivery services in 21 key markets to leverage operating costs and improve our customers’ delivery experience, while reducing returns and damage to our products. We offer a white glove home delivery service for our larger merchandise and furniture categories, where third-party personnel deliver fully assembled items to the location of our customers’ choice.
We offer a white glove home delivery service for our larger merchandise and furniture categories, where third-party personnel deliver fully assembled items to the location of our customers’ choice. We believe we have dramatically enhanced the customer experience while reducing return rates, damages and deliveries per order by enhancing the quality of our delivery providers through metric-based accountability standards.
We also have RH Hospitality in our one RH Guesthouse. ​ Our Galleries reinforce our luxury brand aesthetic and are highly differentiated from other home furnishings retailers. We have revolutionized the customer experience by showcasing products in a sophisticated lifestyle setting, consistent with the imagery and product presentation featured on our websites and in our Source Books.
We have revolutionized the customer experience by showcasing products in a sophisticated lifestyle setting, consistent with the imagery and product presentation featured on our websites and in our Sourcebooks. Products in our Galleries are presented in fully appointed rooms, emphasizing collections over individual pieces.
We entered this industry with the opening of our RH Guesthouse in New York in September 2022, and are in the process of constructing our second RH Guesthouse in Aspen.
We entered this industry with the opening of the RH Guesthouse New York in September 2022, and are in the process of constructing our second RH Guesthouse in Aspen. In June 2023, we opened RH England, The Gallery at the Historic Aynho Park, a 400-year-old landmark estate representing the most inspiring and immersive physical expression of the brand to date.
Magazine, Business of Home, Luxe Interiors + Designs, C Magazine and others. We believe that these efforts drive increased brand awareness, leading to higher sales over time. RH Members Program The RH Members Program reimagines and simplifies the shopping experience.
In addition, we engage in print advertising in brand-relevant publications such as Architectural Digest, Elle Decor, T: The New York Times Style Magazine, WSJ. Magazine, Business of Home, Luxe Interiors + Design, C Magazine and others. We believe that these efforts drive increased brand awareness, leading to higher sales over time.
The highly differentiated design aesthetic and environment of our Galleries drives customer traffic not only to our physical spaces but also to our websites. Our Source Books and targeted emails further reinforce the RH brand image and drive sales across all of our channels. We also participate in a wide range of other marketing, promotional and public relations activities.
Our Sourcebooks and targeted emails further reinforce the RH brand image and drive sales across all of our channels. We also participate in a wide range of other marketing, promotional and public relations activities. These campaigns include media coverage in design, lifestyle, culture/society and specialty publications, as well as in-Gallery events related to new Gallery openings and product launches.
We also believe that our success depends in substantial part on our ability to originate and define product trends, as well as to timely anticipate, gauge and react to changing consumer demands. Many of our competitors seek to compete with us by offering products that are similar to our merchandise at lower price points.
We also believe that our success depends in substantial part on our ability to originate and define product trends, as well as to timely anticipate, gauge and react to changing consumer demands. ​ ​ ​ PART I FORM 10-K | 7 ​ Table of Contents We compete with a number of home furnishings retailers, including national and regional businesses, as well as new market participants that operate predominantly online.
All creative work on our Source Books is coordinated in-house in our RH Center of Innovation & Product Leadership , providing us greater control over the brand image presented to our customers, while also reducing our Source Book production costs. ​ ​ ​ 6 | FORM 10-K PART I ​ Table of Contents Our Source Book mailings serve as a key driver of sales through both our retail locations and websites.
All creative work on our Sourcebooks is coordinated in-house in our RH Center of Innovation & Product Leadership, providing us greater control over the brand image presented to our customers, while also reducing our Sourcebook production costs. We distribute our Sourcebooks throughout the U.S. and Canada, in the United Kingdom, and in countries where we operate within the European Union.
Our compensation programs are designed to align the interests of our officers and associates with our Vision, Values and objectives, as well as our business strategy. RH is an equal opportunity employer, and we believe in meritocratic hiring. Our goal is to have the right person in every position throughout our organization.
Our success and future growth depend upon the continued commitment to our values and culture, which can be seen and felt across all parts of our organization. ​ RH is an equal opportunity employer, and we believe in meritocratic hiring. Our goal is to have the right person in every position throughout our organization.
We believe we have dramatically enhanced the customer experience while reducing return rates, damages and deliveries per order by enhancing the quality of our delivery providers through metric-based accountability standards. In addition, we have one third-party distribution center in Europe and continue to develop our supply chain strategy in connection with our global expansion.
In addition, we have one third-party distribution center in Europe and continue to develop our supply chain strategy in connection with our global expansion. We operate portions of our home delivery services in 25 key markets to leverage operating costs and improve our customers’ delivery experience, while reducing returns and damage to our products.
Our customer database includes sales patterns, detailed purchasing information and certain demographic information, as well as mailing and email addresses. We mail our Source Books to addresses within this database and to addresses provided to us by third parties.
We continue to evaluate and optimize our Sourcebook strategy based on our experience. We maintain a database of customer information, including information from our RH Members Program. Our customer database includes sales patterns, detailed purchasing information and certain demographic information, as well as mailing and email addresses.
These immersive experiences expose new and existing customers to our evolving authority in architecture, interior design and landscape architecture. ​ Digital Reimagination . Our strategy is to digitally reimagine the RH brand and business model both internally and externally.
These immersive experiences expose new and existing customers to our evolving authority in architecture, interior design and landscape architecture. ​ ​ ​ ​ PART I FORM 10-K | 1 ​ Table of Contents Global Expansion.
Our People We are a vision-led organization with a strong culture, led by our Chairman and Chief Executive Officer, Gary Friedman, in partnership with our senior leadership team. Together, they instill a company-wide commitment to our Vision, Values and Beliefs. Our Values – People, Quality, Service, and Innovation – are brought to life by our associates across the organization.
Our People We are a vision-led organization with a company-wide commitment to our core values of People, Quality, Service and Innovation. Our values are brought to life by our employees, whom we refer to as our team members. We believe that our culture is unique and attracts highly talented individuals aligned with our core values.
We opened our Bespoke Design Gallery, RH San Francisco, The Gallery at the Historic Bethlehem Steel Building, in May 2022 and expect to open additional Bespoke locations in the coming years, including RH England, The Gallery at the Historic Aynho Park, RH New Jersey, The Gallery at the Historic Alnwick Hall and other locations in the U.S. and Europe.
We opened our Bespoke Design Gallery, RH England, The Gallery at the Historic Aynho Park, in June 2023 and plan to open additional Bespoke locations across the U.S. and Europe in the coming years, including RH New Jersey, The Gallery at the Historic Alnwick Hall and RH Paris, The Gallery on the Champs-Élysées. ​ ​ ​ PART I FORM 10-K | 3 ​ Table of Contents Third, we will continue to open Bespoke Galleries in the best second-home markets where our Galleries are tailored to reflect the local culture and are sized to the potential of each market.
Based on total dollar volume of purchases for fiscal 2022, 71% of our products were sourced from Asia, with 29% sourced from China, 12% from the United States and the remainder from other countries and regions. We have a limited number of long-term merchandise supply contracts, but we believe that we generally have strong relationships with our product vendors.
Based on total dollar volume of purchases for fiscal 2023, 66% of our products were sourced from Asia, including 30% from Vietnam, 22% from China and the remainder predominantly from India and Indonesia, as well as 14% from the United States and the remainder from other countries.
We believe our membership model enhances the customer experience, renders our brand more valuable, improves operational execution and reduces costs. ​ ​ ​ PART I FORM 10-K | 7 ​ Table of Contents Sourcing Our sourcing strategy focuses on identifying and using vendors that can provide the quality materials and fine craftsmanship that our customers expect of our brand.
Sourcing Our sourcing strategy focuses on identifying and using vendors that can provide the quality materials and fine craftsmanship that our customers expect of our brand. We work closely with vendors and manufacturers to ensure that our high standards of quality and timely delivery of merchandise are met.
We will continue to utilize these designs and innovate based on key learnings from more recent Design Gallery openings.
First, we have architected Design Galleries to be innovative and flexible formats that enable us to more quickly place our disruptive product assortment and immersive retail experience into the market. We will continue to innovate based on key learnings from more recent Design Gallery openings.
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In addition, we opened our first RH Guesthouse in New York in September 2022, a first-of-its-kind hospitality experience for travelers seeking privacy and luxury. The property features six guest rooms, three guest suites and a private residence, as well as The Dining Room & Terrace.
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We have an integrated RH Hospitality experience in 16 of our Design Gallery locations, which includes restaurants and wine bars, and we operate both a restaurant and a Champagne & Caviar Bar at the RH Guesthouse New York.
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Macroeconomic Factors There are a number of macroeconomic factors and uncertainties affecting the overall business climate as well as our business, including increased inflation, rising interest and mortgage rates, and uncertainties in the global financial markets related to the foregoing as well as, among other things, the war in Ukraine and recent failures of several financial institutions, including Silicon Valley Bank and others.
Added
With the recent launch of the fall RH Interiors and RH Contemporary Sourcebooks, we have begun the introduction of the most prolific collection of new products in our history, which will continue into next year. In addition, over the next few years, we plan to introduce RH Couture, RH Bespoke and RH Color. ​ Gallery Transformation .
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These and other macroeconomic factors may have a number of adverse effects on economic conditions and markets in which we operate, including the housing market, with the potential for an economic recession and a sustained downturn in the housing market.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAny new businesses we enter or expansion of our existing business into new markets may expose us to additional operational risks such as risks related to currency fluctuation, supply chain and product sourcing, new regulatory regimes applicable to our products, Galleries and employees, and the consequences of international economic or political.
Biggest changeIn particular, any new businesses we enter or expansion of our existing business into new markets, both domestically and internationally, may expose us to additional operational risks, such as risks related to political, social and economic instability and disruptions, government import and export controls, economic sanctions, embargoes or trade restrictions, the imposition of duties and tariffs and other trade barriers and retaliatory countermeasures, risk to theft of proprietary information and/or intellectual property, currency fluctuation, supply chain and product sourcing, new regulatory regimes applicable to our products and increased compliance costs, including costs associated with compliance and disclosure operational requirements and costs related to operating in new jurisdictions, difficulties in staffing and managing multi-national operations, including our store locations and employees, limitations on our ability to enforce legal rights and remedies, potentially adverse tax consequences, and access to, or control of, networks and confidential information due to local government controls and vulnerability of local networks to cyber risks.
We are currently engaged in a number of growth initiatives, including investments to elevate our brand and improvements to our products and customer experience. There can be no assurance that these efforts will be successful or that we will not encounter other operational difficulties that may have a material negative impact on growth and profitability.
We are currently engaged in a number of growth initiatives, including investments to elevate our brand and improvements to our products and customer experience. There can be no assurance that these efforts will be successful or that we will not encounter other operational difficulties that may have a material negative impact on our growth and profitability.
In addition, these initiatives may have near-term material negative impacts on growth and profitability as we incur costs or pursue strategies that may not contribute to our profits and margins until future periods, if at all. Some factors affecting our business, including macroeconomic conditions and government policies are not within our control.
In addition, these initiatives may have near-term material negative impacts on our growth and profitability as we incur costs or pursue strategies that may not contribute to our profits and margins until future periods, if at all. Some factors affecting our business, including macroeconomic conditions and government policies, are not within our control.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of controls.
In addition, some of the merchandise we purchase from vendors in the U.S. also depends, in whole or in part, on vendors located outside the U.S. As a result, our business highly depends on global trade, as well as any trade and or other factors that impact the specific countries where our vendors’ production facilities are located.
In addition, some of the merchandise we purchase from vendors in the U.S. also depends, in whole or in part, on vendors located outside the U.S. As a result, our business highly depends on global trade, as well as any trade and other factors that impact the specific countries where our vendors’ production facilities are located.
In addition to increased regulatory compliance requirements, changes in laws could make ordinary conduct of our business more expensive or require us to change the way we do business.
In addition to increased regulatory compliance requirements, changes in laws could make the ordinary conduct of our business more expensive or require us to change the way we do business.
Changes in prices for raw materials, energy and transportation and fluctuations in exchange rates are dependent on a number of factors beyond our control, including macroeconomic factors that may affect commodity prices (including prices for oil, lumber and cotton); changes in supply and demand; general economic conditions; rising interest rates; inflation; significant political events; labor costs; natural disasters, including as a result of climate change; duties and tariffs and other similar factors.
Changes in prices for raw materials, energy and transportation and fluctuations in currency exchange rates are dependent on a number of factors beyond our control, including macroeconomic factors that may affect commodity prices (including prices for oil, lumber and cotton); changes in supply and demand; general economic conditions; rising interest rates; inflation; significant political events; labor costs; natural disasters, including as a result of climate change; duties and tariffs and other similar factors.
With respect to a number of our Gallery development projects, we are broadly undertaking increased development risk with respect to our real estate investments and these risks could increase our financial exposure to development cost overruns, construction delays and other negative factors which exposes us to increased downside risks if we encounter difficulties in implementing these strategies such as operational and financial challenges related to later than expected openings of new Gallery projects as well as substantial increases in our costs. ​ ​ ​ 18 | FORM 10-K PART I ​ Table of Contents Our ability to renegotiate favorable terms on an expiring lease, to arrange for the sale of an owned property or to negotiate favorable terms for a suitable alternate location could depend on conditions in the real estate market, competition for desirable properties, our relationships with current and prospective landlords and other factors that are not within our control.
With respect to a number of our Gallery development projects, we are broadly undertaking increased development risk with respect to our real estate investments and these risks could increase our financial exposure to development cost overruns, construction delays and other negative factors which exposes us to increased downside risks if we encounter difficulties in implementing these strategies, such as operational and financial challenges related to later than expected openings of new Gallery projects as well as substantial increases in our costs. ​ ​ ​ PART I FORM 10-K | 17 ​ Table of Contents Our ability to renegotiate favorable terms on an expiring lease, to arrange for the sale of an owned property or to negotiate favorable terms for a suitable alternate location could depend on conditions in the real estate market, competition for desirable properties, our relationships with current and prospective landlords and other factors that are not within our control.
Any failure by our vendors outside the U.S. to adhere to applicable legal requirements or our global compliance standards, such as fair labor standards and prohibitions on forced labor and child labor, could give rise to a range of adverse consequences, including supply chain disruption, potential liability, harm to our reputation and brand, and boycotts by consumers or special interest groups, any of which could negatively affect our business and results of operations. ​ ​ ​ 16 | FORM 10-K PART I ​ Table of Contents Our growth strategy and performance depend on our ability to purchase quality merchandise in sufficient quantities at competitive prices, including products that are produced by artisans and specialty vendors.
Any failure by our vendors outside the U.S. to adhere to applicable legal requirements or our global compliance standards, such as fair labor standards and prohibitions on forced labor and child labor, could give rise to a range of adverse consequences, including supply chain disruption, potential liability, harm to our reputation and brand, and boycotts by consumers or special interest groups, any of which could negatively affect our business and results of operations. ​ ​ ​ PART I FORM 10-K | 15 ​ Table of Contents Our growth strategy and performance depend on our ability to purchase quality merchandise in sufficient quantities at competitive prices, including products that are produced by artisans and specialty vendors.
Merchandise purchased from our vendors that is defective or otherwise does not meet our product quality standards could damage our reputation and brand image and harm our business, and we may not have adequate remedies against our vendors for such merchandise. Some of our merchandise has failed to meet our expectations and objectives concerning quality.
Merchandise purchased from our vendors that is defective or otherwise does not meet our product quality standards could damage our reputation and brand image and harm our business, and we may not have adequate remedies against our vendors for such merchandise. From time to time, some of our merchandise has failed to meet our expectations and objectives concerning quality.
We lease nearly all of our retail store locations, our outlet stores, our corporate headquarters, other storage and office space, and our distribution and home delivery facilities. The initial lease term of our retail locations generally ranges from ten to fifteen years, and certain leases contain renewal options for anywhere from ten to twenty-five years.
We lease nearly all of our retail locations, our outlet stores, our corporate headquarters, other storage and office space, and our distribution and home delivery facilities. The initial lease term of our retail locations generally ranges from ten to fifteen years, and certain leases contain renewal options for anywhere from ten to twenty-five years.
For example, some of our products are subject to the Consumer Product Safety Act, as amended by the Consumer Product Safety Improvement Act of 2008 (the “CPSIA”) and the Federal Hazardous Substances Act, which empower the Consumer Product Safety Commission (the “CPSC”) to establish product bans, substance bans, substance limits, performance requirements, test methods and other compliance verification processes.
For example, some of our products are subject to the Consumer Product Safety Act, as amended by the Consumer Product Safety Improvement Act of 2008 and the Federal Hazardous Substances Act, which empower the Consumer Product Safety Commission (the “CPSC”) to establish product bans, substance bans, substance limits, performance requirements, test methods and other compliance verification processes.
As a result, we believe that our sales are sensitive to a number of factors that influence consumer spending generally, such as general economic conditions and the health and volatility of the stock market, but that our sales are particularly affected by the financial health of and demand levels from higher-end consumers.
As a result, we believe that our sales are sensitive to a number of factors that influence consumer spending generally, such as general economic conditions and the health and volatility of the stock market, and that our sales are particularly affected by the financial health of, and demand levels from, higher-end consumers.
In addition, social media may magnify any harm to our business, reputation and brand image. We are changing many aspects of our business processes, including improving product quality and enhancing sourcing and product availability, which may complicate our supply chain and quality control processes and result in quality issues or product recalls.
In addition, social media may magnify any harm to our business, reputation and brand image. We are continually changing many aspects of our business processes, including improving product quality and enhancing sourcing and product availability, which may complicate our supply chain and quality control processes and result in quality issues or product recalls.
We are focused on sizing our assortments and our stores to the potential of the market by adjusting the square footage and number of stores on a geographic market-by-market basis. We plan to optimize our real estate by continuing to open larger square footage Galleries in key markets and relocating or closing selected stores in these or adjacent markets.
We are focused on sizing our assortments and our Galleries to the potential of the market by adjusting the square footage and number of Galleries on a geographic market-by-market basis. We plan to optimize our real estate by continuing to open larger square footage Galleries in key markets and relocating or closing selected Galleries in these or adjacent markets.
In addition, our effective tax rate in a given financial statement period may be materially impacted by changes in the mix and level of earnings, timing of the utilization of net operating loss carryforwards, changes in the valuation allowance for deferred taxes or by changes to existing accounting rules or regulations. ​ ​ ​ 30 | FORM 10-K PART I ​ Table of Contents Our operations are subject to risks of natural or man-made disasters, acts of war, terrorism or widespread illness, any one of which could result in a business stoppage and negatively affect our results of operations.
In addition, our effective tax rate in a given financial statement period may be materially impacted by changes in the mix and level of earnings, timing of the utilization of net operating loss carryforwards, changes in the valuation allowance for deferred taxes or by changes to existing accounting rules or regulations. ​ ​ ​ PART I FORM 10-K | 31 ​ Table of Contents Our operations are subject to risks of natural or man-made disasters, acts of war, terrorism or widespread illness, any one of which could result in a business stoppage and negatively affect our results of operations.
There can be no assurance however that any of these efforts will be successful or that we will not encounter additional difficulties in achieving higher levels of customer satisfaction. ​ ​ ​ PART I FORM 10-K | 19 ​ Table of Contents We also are engaged in initiatives to introduce new products and to optimize our merchandise assortment including through lower inventories and reduced working capital, and in order to realize the anticipated benefits of such initiatives, we have focused on optimizing the use of our distribution centers, furniture home delivery centers and outlets.
There can be no assurance, however, that any of these efforts will be successful or that we will not encounter additional difficulties in achieving higher levels of customer satisfaction. ​ ​ ​ 18 | FORM 10-K PART I ​ Table of Contents We also are engaged in initiatives to introduce new products and to optimize our merchandise assortment, including through lower inventories and reduced working capital, and in order to realize the anticipated benefits of such initiatives we have focused on optimizing the use of our distribution centers, furniture home delivery centers and outlets.
We may elect to pursue additional capital expenditures beyond those that are anticipated during any given fiscal period inasmuch as our strategy is to be opportunistic with respect to our investments and we may choose to pursue certain capital transactions based on the availability and timing of unique opportunities. ​ ​ ​ PART I FORM 10-K | 21 ​ Table of Contents At various times we have elected to incur substantial levels of aggregate indebtedness in connection with our business, including in connection with our share repurchase program.
We may elect to pursue additional capital expenditures beyond those that are anticipated during any given fiscal period inasmuch as our strategy is to be opportunistic with respect to our investments and we may choose to pursue certain capital transactions based on the availability and timing of unique opportunities. ​ ​ ​ 20 | FORM 10-K PART I ​ Table of Contents At various times we have elected to incur substantial levels of aggregate indebtedness in connection with our business, including in connection with our share repurchase program.
We can provide no assurances that customers will respond favorably to or that we will successfully execute on such business initiatives or that we will be successful in expanding our operations into any new businesses and product lines.
We can provide no assurances that customers will respond favorably to, or that we will successfully execute on, such business initiatives or that we will be successful in expanding our operations into any new geographies, businesses and product lines.
Likewise, many of our products are subject to the regulations of the California Air Resources Board (the “CARB”) and the Environmental Protection Agency regarding formaldehyde emissions from composite wood products (e.g., plywood and medium density fiberboard).
Likewise, many of our products are subject to the regulations of the California Air Resources Board and the Environmental Protection Agency regarding formaldehyde emissions from composite wood products (e.g., plywood and medium density fiberboard).
Risks we may experience in connection with this new development model include increased demands on our leadership team related to the operational complexity of engaging in real estate and construction development activities which are not within our traditional areas of operational expertise as well as greater financial exposure if our plans for the relevant real estate are not as successful as we originally anticipate or if the value of the real estate we acquire or invest in subsequently decreases.
Risks we may experience in connection with this new development model include increased demands on our leadership team related to the operational complexity of engaging in real estate and construction development activities that are not within our traditional areas of operational expertise as well as greater financial exposure if our plans for the relevant real estate are not as successful as we originally anticipate or if the value of the real estate we acquire or invest in subsequently decreases.
We face various risks in connection with our share repurchase program. ​ We have previously allocated a substantial amount of capital to the repurchase of shares of our common stock in open market stock repurchases.
We face various risks in connection with our share repurchase program. ​ We have allocated a substantial amount of capital to the repurchase of shares of our common stock in open market stock repurchases.
In addition, substantial regulatory uncertainty exists regarding international trade relations and trade policy. An introduction of new duties, tariffs, quotas or other similar trade restrictions, or increases in existing duties or tariff rates, on products imported into the U.S., Canada and Europe, whether actual, pending or threatened, may have a negative impact on our results of operations.
In addition, substantial regulatory uncertainty exists regarding international trade relations and trade policy. An introduction of new duties, tariffs, quotas or other similar trade restrictions, or increases in existing duties or tariff rates, on products imported into the U.S., Canada, the United Kingdom and Europe, whether actual, pending or threatened, may have a negative impact on our results of operations.
If we are unable to pass such cost increases on to our customers or the higher cost of the products results in decreased demand for our products, our results of operations could be harmed. ​ ​ ​ PART I FORM 10-K | 17 ​ Table of Contents We are subject to risks associated with occupying substantial amounts of space, including future increases in occupancy costs.
If we are unable to pass such cost increases on to our customers or the higher cost of the products results in decreased demand for our products, our results of operations could be harmed. ​ ​ ​ 16 | FORM 10-K PART I ​ Table of Contents We are subject to risks associated with occupying substantial amounts of space, including future increases in occupancy costs.
When we address the introduction of new stores in a particular market or changes to, or closure of, existing stores, we must make a series of decisions regarding the size and location of new stores (or the existing stores slated to undergo changes or closure) and the impact on our other existing stores in the area or being without presence or “out of the market.” We have experienced delays in opening some new stores and may experience further delays in the future.
When we address the introduction of new Galleries in a particular market or changes to, or closure of, existing Galleries, we must make a series of decisions regarding the size and location of new Galleries (or the existing Galleries slated to undergo changes or closure) and the impact on our other existing Galleries in the area or being without presence or “out of the market.” We have experienced delays in opening some new Galleries and may experience further delays in the future.
If we are unable to hire and retain store and other personnel capable of consistently providing a high level of customer service, our ability to open new stores, service the needs of our customers and expand our food and beverage business may be impaired, the performance of our existing and new stores and operations could be materially adversely affected and our brand image may be negatively impacted.
If we are unable to hire and retain store and other personnel capable of consistently providing a high level of customer service, our ability to open new Galleries, service the needs of our customers and expand our food and beverage business may be impaired, the performance of our existing and new Galleries and operations could be materially adversely affected and our brand image may be negatively impacted.
Terrorist attacks, armed conflict such as what has been occurring in Ukraine, or other hostilities, or threats thereof, in the U.S. or in other countries around the world, as well as future events occurring in response to or in connection with such events and circumstances, could again result in reduced levels of consumer spending or other adverse effects on business conditions.
Terrorist attacks, armed conflict such as what has been occurring in Ukraine and the Middle East, or other hostilities, or threats thereof, in the U.S. or in other countries around the world, as well as future events occurring in response to or in connection with such events and circumstances, could again result in reduced levels of consumer spending or other adverse effects on business conditions.
While the overall market for home furnishings may be influenced by factors such as employment levels, interest rates, new household formation and the affordability of homes for first-time home buyers, the higher-end of the housing market may be disproportionately influenced by other factors, including the number of foreign buyers in higher-end U.S. real estate markets, foreign currency volatility, the number of second and third homes being bought and sold, stock market prices, global economic uncertainty, inflation, decreased availability of income tax deductions for mortgage interest and state income and property taxes, and perceived capital appreciation prospects in higher-end real estate.
While the overall market for home furnishings may be influenced by factors such as employment levels, interest rates, new household formation and the affordability of homes for first-time home buyers, the higher-end of the housing market may be disproportionately influenced by other factors, including the number of foreign buyers in higher-end U.S. real estate markets, foreign currency volatility, the number of second and third homes being bought and sold, stock market volatility and illiquid market conditions, global economic uncertainty, inflation, decreased availability of income tax deductions for mortgage interest and state income and property taxes, and perceived capital appreciation prospects in higher-end real estate.
Our dependence on foreign imports makes us vulnerable to other risks associated with products manufactured abroad, including, among other things, risks of damage, destruction or confiscation of products while in transit to our U.S. distribution centers, product quality control charges on or assessment of additional import duties, tariffs, anti-dumping duties and quotas, loss of “most favored nation” trading status by our foreign trading partners with the U.S., work stoppages, including without limitation as a result of events such as longshoremen strikes, transportation and other delays in shipments, including without limitation as a result of heightened security screening and inspection processes or other port-of-entry limitations or restrictions in the U.S., freight cost increases, political unrest, economic uncertainties, including inflation, foreign government regulations, trade restrictions, increased labor costs and other similar factors that might affect the operations of our vendors in or transacting with specific countries such as China, Russia and the ongoing conflict in Ukraine, Venezuela, other various trade sanctions and other restrictions resulting from geopolitical tensions.
Our dependence on foreign imports makes us vulnerable to other risks associated with products manufactured abroad, including, among other things, risks of damage, destruction or confiscation of products while in transit to our U.S. distribution centers, product quality control charges on or assessment of additional import duties, tariffs, anti-dumping duties and quotas, loss of “most favored nation” trading status by our foreign trading partners with the U.S., work stoppages, including without limitation as a result of events such as longshoremen strikes, transportation and other delays in shipments, including without limitation as a result of heightened security screening and inspection processes or other port-of-entry limitations or restrictions in the U.S., freight cost increases, political unrest, economic uncertainties, including inflation, foreign government regulations, trade restrictions, increased labor costs and other similar factors that might affect the operations of our vendors in or transacting with specific countries such as China, Russia and the ongoing conflicts in Ukraine and the Middle East, other various trade sanctions and other restrictions resulting from geopolitical tensions.
These restrictive covenants may limit the amount of borrowings available to us under our ABL Credit Agreement and our operational and financial flexibility. We may face financial and contractual consequences to the extent we are not able to maintain our compliance with such covenants, which could have a materially adverse effect on our business, financial condition and results of operations.
These restrictive covenants may limit the amount of borrowings available to us under our ABL Credit Agreement and our operational and financial flexibility. We may face financial and contractual consequences to the extent we are not able to maintain our compliance with such covenants, which could have a material adverse effect on our business, financial condition and results of operations.
Further, any significant interruption in the operation of our customer service centers could also reduce our ability to receive and process orders and provide products and services to our stores and customers, which could result in lost sales, cancelled sales and a loss of loyalty to our brand and have a material adverse effect on our business, financial condition and results of operations.
Further, any significant interruption in the operation of our customer service centers could also reduce our ability to receive and process orders and provide products and services to our Galleries and customers, which could result in lost sales, cancelled sales and a loss of loyalty to our brand and have a material adverse effect on our business, financial condition and results of operations.
Any material interruptions or failures in our systems or the products or systems of our third-party vendors or other third parties that we share data with may have a material adverse effect on our business or results of operations. Over the last several years, there has been a substantial increase in the scope of reported cybersecurity attacks.
Any material interruptions or failures in our systems or the products or systems of our third-party vendors or other third parties that we share data with may have a material adverse effect on our business or results of operations. Over the last several years, there has been a substantial increase in the scope of reported cybersecurity threats and attacks.
We are subject to numerous regulations, including labor and employment, customs, sanctions, truth-in-advertising, consumer protection, e-commerce, privacy, health and safety, real estate, environmental and zoning and occupancy laws, intellectual property laws and other laws and regulations that regulate retailers, food and beverage providers or otherwise govern our business.
We are subject to numerous federal and state laws and regulations, including labor and employment, customs, sanctions, truth-in-advertising, consumer protection, e-commerce, privacy, health and safety, real estate, environmental and zoning and occupancy laws, intellectual property laws and other laws and regulations that regulate retailers, food and beverage providers or otherwise govern our business.
A number of factors that affect our ability to successfully open new stores within the time frames or cost parameters that we initially target or optimize our store footprint are beyond our control, and these factors may harm our ability to execute our strategy to transform our real estate, which may negatively affect our results of operations.
A number of factors affect our ability to successfully open new Galleries within the time frames or cost parameters that we initially target or optimize our store footprint are beyond our control, and these factors may harm our ability to execute our strategy to transform our real estate, which may negatively affect our results of operations.
Our failure to effectively address challenges such as those listed above could adversely affect our ability to successfully open new stores or change our store footprint in a timely and cost-effective manner and could have a material adverse effect on our business, results of operations and financial condition.
Our failure to effectively address challenges such as those listed above could adversely affect our ability to successfully open new Galleries or change our store footprint in a timely and cost-effective manner and could have a material adverse effect on our business, results of operations and financial condition.
If in the future we encounter difficulties associated with any of our facilities, such as the disruptions we experienced related to the COVID-19 pandemic, or if any of our facilities were to shut down for any reason, including as a result of a natural disaster, we could face shortages of inventory resulting in backorders, significantly higher costs and longer lead times associated with distributing our products to both our stores and online customers and the inability to process orders in a timely manner or ship goods to our customers.
If in the future we encounter difficulties associated with any of our facilities, such as the disruptions we experienced related to the COVID-19 pandemic, or if any of our facilities were to shut down for any reason, including as a result of a natural disaster, we could face shortages of inventory resulting in backorders, significantly higher costs and longer lead times associated with distributing our products and the inability to process orders in a timely manner or ship goods to our customers.
Our certificate of incorporation also contains a provision that provides us with protections similar to Section 203 of the Delaware General Corporation Law (“DGCL”), and prevents us from engaging in a business combination with a person who acquires at least 15% of our common stock for a period of three years from the date such person acquired such common stock unless board or stockholder approval is obtained prior to the acquisition, subject to certain exceptions.
Our Certificate of Incorporation also contains a provision that provides us with protections similar to Section 203 of the Delaware General Corporation Law, which prevents us from engaging in a business combination with a person who acquires at least 15% of our common stock for a period of three years from the date such person acquired such common stock unless board or stockholder approval is obtained prior to the acquisition, subject to certain exceptions.
These new approaches might cause us to pursue complicated real estate transactions and may require additional capital investment and could present different risks related to the ownership and developments of real estate compared to those risks associated with a traditional store lease with a landlord.
These new approaches might cause us to pursue complicated real estate transactions and may require additional capital investment and could present different risks related to the ownership and development of real estate compared to those risks associated with a traditional store lease with a landlord.
We have also incurred indebtedness to finance other strategic initiatives, including our share repurchase programs, and we may continue to incur indebtedness to support such initiatives in future time periods. We completed four convertible debt financings from fiscal 2014 through fiscal 2019.
We have also incurred indebtedness to finance other strategic initiatives, including our share repurchase programs, and we may continue to incur indebtedness to support such initiatives in future time periods. We completed four convertible note financings from fiscal 2014 through fiscal 2019.
Our business depends in part on a strong brand image, and we continue to invest in brand development and marketing. Our increased focus on elevating RH as a luxury brand and plans for international expansion further increase the importance of our brand image, position and reputation.
Our business depends in part on a strong brand image, and we continue to invest in brand development and advertising. Our increased focus on elevating RH as a luxury brand and plans for further international expansion further increase the importance of our brand image, position and reputation.
Our inability to enter into new leases or renew existing leases on terms acceptable to us or be released from our obligations under leases or other obligations for stores that we close could materially adversely affect our business and results of operations.
Our inability to enter into new leases or renew existing leases on terms acceptable to us or be released from our obligations under leases or other obligations for locations that we close could materially adversely affect our business and results of operations.
While we aim to remediate known vulnerabilities on a timely basis, and to adopt countermeasures to address risks, we do not expect that our efforts will eliminate these risks or result in 100% success in thwarting attacks.
While we aim to remediate known vulnerabilities and identified breaches on a timely basis, and to adopt countermeasures to address risks, we do not expect that our efforts will eliminate these risks or result in 100% success in thwarting attacks.
These provisions: establish a classified board of directors so that not all members of our board of directors are elected at one time; authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend or other rights or preferences superior to the rights of the holders of common stock; prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; provide that our board of directors is expressly authorized to make, alter or repeal our bylaws; and establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
These provisions: establish a classified board of directors so that not all members of our board of directors are elected at one time; authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend or other rights or preferences superior to the rights of the holders of common stock; prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; provide that our board of directors is expressly authorized to make, alter or repeal our bylaws; and establish advance notice, disclosure and other procedural requirements for stockholder nominations for elections to our board of directors or for stockholder proposals regarding matters that can be acted upon by stockholders at stockholder meetings.
While we rely on long-term relationships with many of our vendors, we do not rely on long-term contracts with our vendors and generally transact business with them on an order-by-order basis. ​ ​ ​ PART I FORM 10-K | 15 ​ Table of Contents Many of our imported products are subject to existing duties, tariffs and other similar trade restrictions that may limit the quantity or affect the price of some types of goods that we import into the U.S., Canada and Europe.
While we rely on long-term relationships with many of our vendors, we do not rely on long-term contracts with our vendors and generally transact business with them on an order-by-order basis. ​ ​ ​ 14 | FORM 10-K PART I ​ Table of Contents Many of our imported products are subject to existing duties, tariffs and other similar trade restrictions that may limit the quantity or affect the price of some types of goods that we import into the U.S., Canada, the United Kingdom and Europe.
Changes in the value of the U.S. dollar relative to foreign currencies, including the Chinese Yuan, may increase our vendors’ cost of business and ultimately our cost of goods sold and our selling, general and administrative costs.
Changes in the value of the U.S. dollar relative to foreign currencies, including the Vietnamese dong and Chinese Yuan, may increase our vendors’ cost of business and ultimately our cost of goods sold and our selling, general and administrative costs.
ITEM 1A. RISK FACTORS Certain factors may have a material adverse effect on our business, financial condition, and results of operations. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes.
ITEM 1A. RISK FACTORS Certain factors may have a material adverse effect on our business, financial condition, and results of operations. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report, including our consolidated financial statements and related notes.
Litigation, investigation and other claims and regulatory proceedings against or involving members of our senior leadership team or us could result in unexpected expenses and liability and could also materially adversely affect our operations and our reputation.
Litigation, investigations and other claims and regulatory proceedings against or involving members of our senior leadership team or us could result in unexpected expenses and liability and could also materially adversely affect our operations and our reputation.
We have never declared or paid any cash dividends on shares of our common stock and do not anticipate that we will pay any such cash dividends for the foreseeable future.
We do not expect to pay any cash dividends for the foreseeable future. We have never declared or paid any cash dividends on shares of our common stock and do not anticipate that we will pay any such cash dividends for the foreseeable future.
We have introduced a number of new product categories such as RH Modern and RH Contemporary, expanded the RH Hospitality offering which includes integrated Restaurants and Wine Bars in a number of our Galleries, standalone restaurants and guesthouses, as well as introduced other innovations such as our private jets RH1 and RH2, and our luxury yacht RH3.
We have introduced a number of new product categories such as RH Modern and RH Contemporary, expanded the RH Hospitality offering which includes integrated restaurants and wine bars in a number of our Galleries and in our Guesthouse, as well as other innovations such as our private jets, RH1 and RH2, and our luxury yacht, RH3.
A significant subset of our products, such as furniture and lighting, sourced from China has been affected by increased tariffs imposed in 2018 and 2019 and continues to be affected by a 25 percent tariff as assigned by the U.S. Trade Representative.
A significant subset of our products sourced from China has been affected by increased tariffs imposed in 2018 and 2019 and continues to be affected by a 25 percent tariff as assigned by the U.S. Trade Representative.
Our utilization of third-party delivery services for shipments is subject to risks, including increases in rates and fuel prices, which would increase our shipping costs, as well as strikes, work stoppages and inclement weather, which may impact shipping companies’ abilities to provide delivery services that adequately meet our shipping needs.
Our utilization of third-party delivery services for shipments is subject to risks, including increases in rates and fuel prices, which would increase our shipping costs, as well as strikes, work stoppages, port closures, disruption to shipping routes and inclement weather, which may impact shipping companies’ abilities to provide delivery services that adequately meet our shipping needs.
Unique factors in any given quarter may affect period-to-period comparisons in our revenue growth, including the overall economic and general retail sales environment as well as factors affecting the housing market such as rising interest rates, housing prices, the pace of housing construction, secondary market transactions in the housing market and other activities in the housing sector.
Unique factors in any given quarter may affect period-to-period comparisons in our revenue growth, including the overall economic and general retail sales environment as well as factors affecting the housing market, such as substantially higher interest rates and mortgage rates, housing prices, the pace of housing construction, secondary market transactions in the housing market and other activities in the housing sector.
In addition, the market price of our common stock may fluctuate significantly in response to a number of other factors, including those described elsewhere in this “Risk Factors” section, as well as the following: macroeconomic conditions, including inflation, rising interest rates and factors affecting the housing market; quarterly variations in our results of operations compared to market expectations; changes in preferences of our customers; announcements of new products or significant price reductions by us or our competitors; ​ ​ ​ PART I FORM 10-K | 27 ​ Table of Contents size of our public float and the price per share of our common stock; stock price performance of our competitors; fluctuations in stock market prices and volumes; default on our indebtedness; actions by competitors or other shopping center tenants; changes in senior leadership or key personnel; changes in financial estimates by securities analysts or failure to meet their expectations; actual or anticipated negative earnings or other announcements by us or other retail companies; downgrades in our credit ratings or the credit ratings of our competitors; natural or man-made disasters or other similar events, including global health emergencies; issuances or expected issuances of capital stock; and global economic, legal and regulatory changes unrelated to our performance.
In addition, the market price of our common stock may fluctuate significantly in response to a number of other factors, including those described elsewhere in this “Risk Factors” section, as well as the following: macroeconomic conditions, including inflation, high interest rates and mortgage rates and other factors affecting the housing market; quarterly variations in our results of operations compared to market expectations; changes in preferences of our customers; announcements of new products or significant price reductions by us or our competitors; size of our public float and the price per share of our common stock; stock price performance of our competitors; fluctuations in stock market prices and volumes; default on our indebtedness; actions by competitors or other shopping center tenants; changes in senior leadership or key personnel; changes in financial estimates by securities analysts or failure to meet their expectations; actual or anticipated negative earnings or other announcements by us or other retail companies; downgrades in our credit ratings or the credit ratings of our competitors; natural or man-made disasters or other similar events, including global health emergencies and the impact of climate events; issuances or expected issuances of capital stock; and global economic, legal and regulatory changes unrelated to our performance. ​ ​ ​ PART I FORM 10-K | 27 ​ Table of Contents In the future, we may issue our securities in connection with financings or acquisitions.
We believe that our trademarks, copyrights (including in photographs, Source Books and our website), and other proprietary rights are important to identifying and differentiating our brand and certain of our products from those of our competitors.
We believe that our trademarks, copyrights (including in photographs, Sourcebooks and our website), and other proprietary rights are important to identifying and differentiating our brand and certain of our products from those of our competitors.
Any of the foregoing factors could have an adverse effect on our business, financial condition, results of operations, or ability to meet our payment obligations.
Any of the foregoing factors could have a material adverse effect on our business, financial condition, results of operations, or ability to meet our payment obligations.
Our physical retailing presence, primarily in the form of our galleries, is one of the most important initiatives that we use to display our product offering. We also use our website and other digital efforts, as well as our Source Books, to showcase a larger portion of our assortment.
Our physical retailing presence, primarily in the form of our Galleries, is one of the most important initiatives that we use to display our product offerings. We also use our website and other digital efforts, as well as our Sourcebooks, to showcase a larger portion of our assortment.
We are undertaking a large number of new business initiatives at the same time, including efforts to expand our business through (i) international expansion, (ii) enhancement of our merchandise assortment and improvements to the quality of our products and services, and (iii) launching new business initiatives, including real estate development and the expansion of RH Hospitality.
We are undertaking a large number of new business initiatives at the same time, including efforts to expand our business through (i) international expansion, (ii) enhancement of our merchandise assortment and improvements to the quality of our products and services, and (iii) launching new business initiatives, including real estate development and the expansion of RH Hospitality, including by constructing our second RH Guesthouse in Aspen.
If the Company is not able to arrange financing to repay its debt obligations, or to extend the maturities of existing debt or otherwise refinance the Company’s obligations as needed, we may experience a material adverse effect on our business and operations.
If we are not able to arrange financing to repay our debt obligations, or to extend the maturities of existing debt or otherwise refinance our obligations as needed, we may experience a material adverse effect on our business and operations.
From time to time, we and/or members of our senior leadership team are involved in legal and regulatory proceedings, including litigation, claims, investigations and regulatory and other proceedings related to a range of matters in connection with the conduct of our business, including (i) privacy and data security, (ii) our labor and employment practices, including laws related to discrimination, wages and benefits, ERISA and disability claims, (iii) intellectual property issues with respect to copyright, trademarks, patents and trade dress, (iv) international and domestic trade and business practices, including import laws, unfair competition and unfair business practices, (v) consumer class action claims relating to our consumer practices, including the collection of zip code or other information from customers, (vi) product safety and compliance, including products liability, product recalls personal injury, (vii) advertising and promotion of products and services, including class actions and regulatory actions related to advertising, (viii) compliance with securities laws, including class actions related to allegations of securities fraud, (ix) taxation, (x) contractual disputes, and (xi) health and safety regulations.
From time to time, we and/or members of our senior leadership team are involved in legal and regulatory proceedings, including litigation, claims, investigations and regulatory and other proceedings related to a range of matters in connection with the conduct of our business, including (i) privacy and data security, (ii) our labor and employment practices, including laws related to discrimination, wages and benefits, ERISA and disability claims, (iii) intellectual property issues with respect to copyright, trademarks, patents and trade dress, (iv) international and domestic trade and business practices, including import laws, unfair competition and unfair business practices, (v) consumer class action claims relating to our consumer practices, including the collection of zip code or other information from customers, (vi) product safety and compliance, including products liability, product recalls and personal injury, (vii) advertising and promotion of products and services, including class actions and regulatory actions related to advertising, (viii) compliance with securities laws, including class actions related to allegations of securities fraud, (ix) taxation, (x) contractual disputes, and (xi) health and safety regulations. ​ ​ ​ 24 | FORM 10-K PART I ​ Table of Contents Claims and legal proceedings may involve arbitration, mediation, private litigation, class action matters, derivative claims, internal and governmental investigations and enforcement matters.
In addition, holders of a substantial portion of the remaining two series of convertible notes have elected to exercise the early conversion option applicable with respect to these convertible notes or to sell these convertible notes back to the Company in connection with privately negotiated repurchase transactions.
In addition, holders of a substantial portion of the fourth series of convertible notes have elected to exercise the early conversion option applicable with respect to these convertible notes or to sell these convertible notes back to RH in connection with privately negotiated repurchase transactions.
These difficulties can result in a negative experience for our customers and could harm our results of operations. We currently rely upon independent third-party transportation providers for the majority of our product shipments, which subjects us to certain risks.
These difficulties can result in a negative experience for our customers and could have a material adverse effect on our results of operations. We currently rely upon independent third-party transportation providers for the majority of our product shipments, which subjects us to certain risks.
To the extent that union workers are not involved in these projects, we and our third-party contractors may be subject to picketing and other labor actions that could affect our business, including protests in front of our Gallery locations in order to discourage our customers from entering our stores, which could adversely affect our business at those locations and our results of operations, including our same-store sales metrics.
To the extent that union workers are not involved in these projects, we and our third-party contractors may be subject to picketing and other labor actions that could affect our business, including protests in front of our retail locations in order to discourage our customers from entering our Galleries, which protests could adversely affect our business at those locations and our results of operations.
Any of these occurrences could have a significant impact on our results of operations, revenue and costs. The COVID-19 pandemic has had a widespread impact on our customers and on our merchandise supply chain, on the overall business climate in the U.S. and globally, and on financial and consumer markets.
Any of these occurrences could have a significant impact on our results of operations, revenue and costs. The COVID-19 pandemic had a widespread impact on our customers and on our merchandise supply chain as well as the overall business climate in the U.S. and globally.
We continue to adjust and refine our strategy based on a variety of factors, including the success of the various changes that we adopt. Expenditures on our catalog strategy have historically represented a substantial portion of our expense in marketing and promoting our business.
We continue to adjust and refine our strategy based on a variety of factors, including the success of the various initiatives that we adopt. Expenditures on our Sourcebook strategy have historically represented a substantial portion of our expense in advertising and promoting our business.
We have experienced significant fluctuations in the growth of our business and high levels of growth may not be achieved in future periods. We have experienced significant fluctuations in the growth of our business since the occurrence of the COVID-19 pandemic. We may continue to experience wide fluctuations in our quarterly performance.
We have experienced significant fluctuations in the growth of our business and we may not experience high rates of growth in future periods. We have experienced significant fluctuations in the growth of our business in the past, including since the occurrence of the COVID-19 pandemic, and may continue to experience wide fluctuations in our quarterly performance.
Changes in our organizational structure may also have an impact on retention of personnel. ​ ​ ​ 22 | FORM 10-K PART I ​ Table of Contents Inasmuch as our success depends in part upon our ability to attract, motivate and retain a sufficient number of store and other employees who understand and appreciate our corporate culture and customers.
Changes in our organizational structure may also have an impact on retention of personnel. ​ ​ ​ PART I FORM 10-K | 21 ​ Table of Contents Inasmuch as our success depends in part upon our ability to attract, motivate and retain a sufficient number of store and other employees who understand and appreciate our corporate culture and customers, turnover in the retail industry and food and beverage industry is generally high.
Our certificate of incorporation and bylaws contain provisions that may make the acquisition of our Company more difficult without the approval of our board of directors.
Our restated certificate of incorporation (“Certificate of Incorporation”) and our amended and restated bylaws (“Bylaws”) contain provisions that may make the acquisition of our Company more difficult without the approval of our board of directors.
We repurchased approximately 3.7 million shares of our common stock during fiscal 2022 pursuant to our share repurchase program at an average price of approximately $269 per share, for an aggregate repurchase amount of approximately $1.0 billion leaving a remaining amount of $1.45 billion outstanding and available under our share repurchase program at the end of fiscal 2022.
We repurchased approximately 3.9 million shares of our common stock during fiscal 2023 pursuant to our share repurchase program at an average price of approximately $321 per share, for an aggregate repurchase amount of approximately $1.3 billion, leaving a remaining amount of $201 million outstanding and available under our share repurchase program at the end of fiscal 2023.
We expect our capital expenditures to increase in fiscal 2023, but the exact scope of our capital plans in future fiscal years, including fiscal 2023, will depend on a variety of factors such as the level of gross capital expenditures that we undertake in our business, the amount of any proceeds from the sale of assets, including sales of real estate, and the way that our business performs.
We expect to continue to incur significant capital expenditures in respect of new Galleries and other initiatives in fiscal 2024, but the exact scope of our capital plans in future fiscal years, including fiscal 2024, will depend on a variety of factors such as the level of gross capital expenditures that we undertake in our business, the amount of any proceeds from the sale of assets, including sales of real estate, and the way that our business performs.
In addition, we have developed alternative Design Gallery formats with varying sizes that are suited to many smaller and mid-sized North American markets, and we are testing this approach as we open new Galleries in different new locations.
In addition, we have developed alternative Design Gallery formats with varying sizes that are suited to many smaller and mid-sized North American markets, and we are testing this approach as we open new Galleries in different new locations. We intend to continue to open Bespoke Galleries in important second home markets and larger Bespoke Design Galleries in top international markets.
In the future, we may issue our securities in connection with financings or acquisitions. The amount of shares of our common stock issued in connection with financings or acquisitions could result in dilution to our shares of common stock.
The amount of shares of our common stock issued in connection with financings or acquisitions could result in dilution to our shares of common stock.
As of January 28, 2023, we have an integrated RH Hospitality experience in 14 of our locations, including Restaurants and Wine Bars, and based on the success of our hospitality offering to date, we plan to incorporate an integrated RH Hospitality offering in many of the new Galleries that we open in the future.
As of February 3, 2024, we have an integrated RH Hospitality experience in 16 of our Gallery locations, including restaurants and wine bars, and based on the success of our hospitality offering to date, we plan to incorporate an integrated RH Hospitality offering in many of the new Galleries that we open in the future.
We are adjusting our strategies with respect to the use of Source Books, including the frequency and scope of mailings, the format of the Source Books and the use of the Source Books as a marketing and promotional tool, including with respect to prospecting for new customers.
We are adjusting our strategies with respect to the use of Sourcebooks, including the frequency and scope of mailings, the format of the Sourcebooks and the use of the Sourcebooks as an advertising and promotional tool, including with respect to prospecting for new customers.
There can be no assurance that such competitors will not be more successful than us, based on imitation or otherwise, or that we will be able to continue to maintain a leadership position in style and innovation in the future.
There can be no assurance that such competitors will not be more successful than us, based on imitation of our products or strategies or through other competitive initiatives, or that we will be able to continue to maintain a leadership position in style and innovation or product position in the future.
For example, we have consolidated our distribution center network and we are in the process of reconfiguring our furniture home delivery centers in order to streamline our operations.
For example, we have consolidated our distribution center network and reconfigured our furniture home delivery centers in order to streamline our operations.
We currently rely upon independent third-party transportation providers for product shipments from our vendors to our stores and to our customers outside of certain areas.
We currently rely upon independent third-party transportation providers for product shipments from our vendors to our distribution centers, home delivery centers and retail locations and to our customers outside of certain areas.
Any failure to maintain a strong brand image could have an adverse effect on our sales and results of operations. As a luxury brand, we rely on a number of initiatives to sustain our image and to promote our products in the marketplace.
Any failure to maintain a strong brand image could have a material adverse effect on our sales and results of operations. ​ ​ ​ PART I FORM 10-K | 13 ​ Table of Contents As a luxury brand, we rely on a number of initiatives to sustain our image and to promote our products in the marketplace.
Although we have previously been successful in reducing such indebtedness due in part to the strong cash flow of our business, we may in the future elect to incur further debt in addition to the $2.50 billion of Term Debt that we raised in October 2021 and May 2022 in connection with our Term Loan Credit Agreement.
Although we have previously been successful in reducing such indebtedness due in part to the strong cash flow of our business, we may in the future elect to incur further debt in addition to the $2.5 billion of Term Debt that we raised.
We have historically relied on the availability of debt financing as one primary source of capital in order to fund our operations, including borrowings under our revolving line of credit under our ABL Credit Agreement.
We have historically relied on the availability of debt financing as one primary source of capital in order to fund our operations, including borrowings under our revolving line of credit under our ABL Credit Agreement (as defined in Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations ).
On May 13, 2022, RHI entered into an Amended Term Loan Credit Agreement (the “Term Loan Credit Agreement”) with respect to incremental term loans in an aggregate principal amount equal to $ 500 million with a maturity date of October 20, 2028 (collectively, with the initial $2.0 billion raised pursuant to the Term Loan Credit Agreement, the “Term Debt”).
On May 13, 2022, RHI entered into the 2022 Incremental Amendment (as defined in Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations ) with respect to incremental term loans in an aggregate principal amount equal to $500 million with a maturity date of October 20, 2028 (collectively, with the initial $2.0 billion raised pursuant to the Term Loan Credit Agreement, the “Term Debt”).

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOwned Property As of January 28, 2023, we own nine properties, eight of which are owned through our consolidated variable interest entities. Seven locations represent current and future RH locations, and are part of the RH Segment.
Biggest changeIn addition to the above, we have one third-party fulfillment center and three third-party home delivery center locations in Europe. ​ ​ ​ 34 | FORM 10-K PART I ​ Table of Contents Owned Property We own ten properties, eight of which are owned through our consolidated variable interest entities.
(2) Includes total approximate leased square footage for 20 separate home delivery center locations. (3) Location of RH Headquarters. Includes approximately 10,000 square feet of warehouse space. (4) Represents warehouse space. (5) Location of Waterworks Headquarters.
(2) Includes total approximate leased square footage for 21 separate home delivery center locations. (3) Location of RH Headquarters. Includes approximately 10,000 square feet of warehouse space. (4) Represents warehouse space. (5) Location of Waterworks Headquarters.
Two locations represent properties for the purpose of use by RH or others related to developing, operating and selling such real estate, and are part of the Real Estate segment.
Eight locations represent current and future RH locations and are included in the RH Segment, two of which are operational as of February 3, 2024. Two locations represent properties for the purpose of use by RH or others related to developing, operating and selling such real estate, and are part of the Real Estate segment.
PROPERTIES Leased Properties The following table summarizes the total leased gross square footage of our leased properties as of January 28, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ LEASED GROSS SQUARE FOOTAGE ​ COUNT (approximate, in thousands) Retail locations (1) ​ 81 ​ 2,034 Outlets ​ 37 ​ 1,171 Guesthouse ​ 1 ​ 27 (1) Retail locations include the Design Galleries, legacy Galleries, Modern Gallery, Baby & Child and TEEN Galleries and Waterworks Showrooms.
PROPERTIES Leased Properties The following table summarizes the total leased gross square footage of our leased properties as of February 3, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ LEASED GROSS SQUARE FOOTAGE ​ COUNT (approximate, in thousands) Retail locations (1)(2) ​ 82 ​ 2,115 Outlets ​ 42 ​ 1,289 (1) Retail locations include the Design Galleries, Legacy Galleries, Modern Gallery, Baby & Child and TEEN Galleries and Waterworks Showrooms.
Refer to “Retail Locations” within Item 1 — Business . ​ ​ ​ PART I FORM 10-K | 31 ​ Table of Contents The following table summarizes the location and size of our leased fulfillment centers, home delivery center locations and corporate facilities occupied as of January 28, 2023: ​ ​ ​ ​ LEASED SQUARE FOOTAGE LOCATION ​ (approximate, in thousands) RH Furniture Fulfillment Centers Patterson, California 1,501 Baltimore (North East), Maryland 1,195 Ontario, California ​ 1,001 RH Small-Parcel Fulfillment Center West Jefferson, Ohio (1) 1,224 Home Delivery Center Locations (2) 1,252 Waterworks Fulfillment Center Brookfield, Connecticut 160 Corporate Facilities Corte Madera, California (1)(3) 263 Pinole, California (4) 200 Danbury, Connecticut (5) 26 Other 240 (1) Customer service center and home delivery operations are also performed at this location.
(2) Excludes location count and leased gross square footage for owned properties. ​ The following table summarizes the location and size of our leased fulfillment centers, home delivery center locations and corporate facilities occupied as of February 3, 2024: ​ ​ ​ ​ LEASED SQUARE FOOTAGE LOCATION ​ (approximate, in thousands) RH Furniture Fulfillment Centers Patterson, California 1,501 Baltimore, Maryland 1,788 Ontario, California ​ 1,001 RH Small-Parcel Fulfillment Center West Jefferson, Ohio (1) 1,224 Home Delivery Center Locations (2) 1,294 Waterworks Fulfillment Center Brookfield, Connecticut 160 Corporate Facilities Corte Madera, California (1)(3) 263 Pinole, California (4) 200 Danbury, Connecticut (5) 26 Other 355 (1) Customer service center and home delivery operations are also performed at this location.
Refer to Note 8— Variable Interest Entities in our consolidated financial statements within Part II of this Annual Report on Form 10-K. ​ ​ ​ 32 | FORM 10-K PART I ​ Table of Contents
Refer to Note 7— Variable Interest Entities in our consolidated financial statements within Part II of this Annual Report.
We believe that our current offices and facilities are in good condition, are being used productively and are adequate to meet our requirements for the foreseeable future.
We believe that our current offices and facilities are in good condition, are being used productively and are adequate to meet our requirements for the foreseeable future. For additional information regarding leases, refer to “Lease Accounting” within Note 3— Significant Accounting Policies and Note 10— Leases in our consolidated financial statements within Part II of this Annual Report.
Removed
For additional information regarding leases, refer to “Lease Accounting” within Note 3— Significant Accounting Policies and Note 11— Leases in our consolidated financial statements within Part II of this Annual Report on Form 10-K. In addition to the above, we also have a third-party service agreement for a shared distribution center facility in Belgium.
Added
Refer to “Retail Locations” within Item 1 — Business .

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeLitigation and other claims and regulatory proceedings against us could result in unexpected expenses and liability and could also materially adversely affect our operations and our reputation. For additional information regarding legal proceedings, including certain securities litigation, refer to Note 20— Commitments and Contingencies in our consolidated financial statements within Part II of this Annual Report on Form 10-K.
Biggest changeLitigation and other claims and regulatory proceedings against us could result in unexpected expenses and liability and could also materially adversely affect our operations and our reputation. For additional information regarding legal proceedings, including certain securities litigation, refer to Note 19— Commitments and Contingencies in our consolidated financial statements within Part II of this Annual Report. ITEM 4.
In addition, from time to time, we are subject to product liability and personal injury claims for the products that we sell and the stores we operate.
In addition, from time to time, we are subject to product liability and personal injury claims for the products that we sell and the Galleries we operate.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. ​ ​ ​ ​ ​ ​ PART I FORM 10-K | 33 ​ Table of Contents PART II
MINE SAFETY DISCLOSURES Not applicable. ​ ​ ​ ​ ​ ​ PART I FORM 10-K | 35 ​ Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. ​ Mine Safety Disclosures ​ 33 ​ ​ ​ ​ ​ ​ ​ PART II. ​ ​ Item 5. ​ Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ​ 34 Item 6. ​ [ Reserved ] ​ 36 Item 7. ​ Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ 37 Item 7A. ​ Quantitative and Qualitative Disclosures About Market Risk ​ 60 Item 8. ​ Financial Statements and Supplementary Data ​ 63
Biggest changeItem 4. ​ Mine Safety Disclosures ​ 35 ​ ​ ​ ​ ​ ​ ​ PART II. ​ ​ Item 5. ​ Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ​ 36 Item 6. ​ [ Reserved ] ​ 38 Item 7. ​ Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ 39 Item 7A. ​ Quantitative and Qualitative Disclosures About Market Risk ​ 61 Item 8. ​ Financial Statements and Supplementary Data ​ 63

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe comparisons in the graph and table are required by the SEC and are not intended to be indicative of possible future performance of our common stock. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FEBRUARY 2, 2018 FEBRUARY 1, 2019 JANUARY 31, 2020 JANUARY 29, 2021 JANUARY 28, 2022 JANUARY 27, 2023 RH 100.00 145.20 226.80 516.47 ​ 425.81 ​ 337.52 NYSE Composite Index 100.00 94.23 104.04 110.03 ​ 125.31 ​ 121.99 S&P Retailing Select Index 100.00 96.33 94.40 193.19 ​ 174.77 ​ 153.90 ​ ​ ​ ​ PART II FORM 10-K | 35 ​ Table of Contents Repurchases of Common Stock During the three months ended January 28, 2023, we repurchased the following shares of our common stock: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TOTAL NUMBER OF ​ APPROXIMATE DOLLAR ​ ​ ​ ​ AVERAGE ​ SHARES REPURCHASED ​ VALUE OF SHARES THAT ​ ​ ​ ​ PURCHASE ​ AS PART OF PUBLICLY ​ MAY YET BE ​ ​ NUMBER OF ​ PRICE PER ​ ANNOUNCED PLANS ​ PURCHASED UNDER THE ​ ​ SHARES (1) ​ SHARE ​ OR PROGRAMS (2) ​ PLANS OR PROGRAMS (2) ​ ​ ​ ​ ​ ​ ​ ​ ​ (in millions) October 30, 2022 to November 26, 2022 — ​ $ — ​ — ​ $ 2,164 November 27, 2022 to December 31, 2022 1,330,327 ​ $ 258.43 ​ 1,329,559 ​ $ 1,820 January 1, 2023 to January 28, 2023 (3) 1,262,837 ​ $ 293.08 ​ 1,262,434 ​ $ 1,450 Total 2,593,164 ​ ​ ​ ​ 2,591,993 ​ ​ (1) Includes shares withheld from delivery to satisfy exercise price and tax withholding obligations of employee recipients that occur upon the vesting of restricted stock units granted under our 2012 Stock Incentive Plan.
Biggest changeThe comparisons in the graph and table are required by the SEC and are not intended to be indicative of possible future performance of our common stock. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FEBRUARY 1, 2019 JANUARY 31, 2020 JANUARY 29, 2021 JANUARY 28, 2022 JANUARY 27, 2023 FEBRUARY 2, 2024 RH 100.00 156.20 355.70 ​ 293.27 ​ 232.45 ​ 191.58 NYSE Composite Index 100.00 110.42 116.77 ​ 132.99 ​ 129.46 ​ 138.71 S&P Retailing Select Index 100.00 98.00 200.55 ​ 181.42 ​ 159.76 ​ 164.12 ​ ​ ​ ​ PART II FORM 10-K | 37 ​ Table of Contents Repurchases of Common Stock During the three months ended February 3, 2024, we repurchased the following shares of our common stock: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TOTAL NUMBER OF ​ APPROXIMATE DOLLAR ​ ​ ​ ​ AVERAGE ​ SHARES REPURCHASED ​ VALUE OF SHARES THAT ​ ​ ​ ​ PURCHASE ​ AS PART OF PUBLICLY ​ MAY YET BE ​ ​ NUMBER OF ​ PRICE PER ​ ANNOUNCED PLANS ​ PURCHASED UNDER THE ​ ​ SHARES (1) ​ SHARE ​ OR PROGRAMS ​ PLANS OR PROGRAMS (2) ​ ​ ​ ​ ​ ​ ​ ​ ​ (in millions) October 29, 2023 to November 25, 2023 — ​ $ — ​ — ​ $ 201 November 26, 2023 to December 30, 2023 795 ​ $ 308.62 ​ — ​ $ 201 December 31, 2023 to February 3, 2024 103 ​ $ 280.78 ​ — ​ $ 201 Total 898 ​ ​ ​ ​ — ​ ​ (1) Includes shares withheld from delivery to satisfy exercise price and tax withholding obligations of employee recipients that occur upon the vesting of restricted stock units granted under our 2012 Stock Incentive Plan.
We do not currently anticipate that we will pay any cash dividends on our common stock in the foreseeable future. ​ ​ ​ ​ 34 | FORM 10-K PART II ​ Table of Contents Stock Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of RH under the Securities Act of 1933, as amended, or the Exchange Act.
We do not currently anticipate that we will pay any cash dividends on our common stock in the foreseeable future. ​ ​ ​ ​ 36 | FORM 10-K PART II ​ Table of Contents Stock Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of RH under the Securities Act of 1933, as amended, or the Exchange Act.
The graph and the table below assume that $100 was invested at the market close on February 2, 2018 in the common stock of RH, the NYSE Composite Index and the S&P Retailing Select Index. Data for the NYSE Composite Index and the S&P Retailing Select Index assumes reinvestments of dividends.
The graph and the table below assume that $100 was invested at the market close on February 1, 2019 in the common stock of RH, the NYSE Composite Index and the S&P Retailing Select Index. Data for the NYSE Composite Index and the S&P Retailing Select Index assumes reinvestments of dividends.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information and Dividend Policy Our common stock trades under the symbol “RH” on the NYSE. The number of stockholders of record of our common stock as of January 28, 2023 was 15.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information and Dividend Policy Our common stock trades under the symbol “RH” on the NYSE. The number of stockholders of record of our common stock as of February 3, 2024 was 15.
The following graph and table compare the cumulative total stockholder return for our common stock during the five-year period ended January 28, 2023 in comparison to the NYSE Composite Index and the S&P Retailing Select Index, our peer group index.
The following graph and table compare the cumulative total stockholder return for our common stock during the five-year period ended February 3, 2024 in comparison to the NYSE Composite Index and the S&P Retailing Select Index, our peer group index.
(2) Reflects the dollar value of shares that may yet be repurchased under the Share Repurchase Program (as defined below) authorized by the Board of Directors on October 10, 2018, and replenished on March 25, 2019 and June 2, 2022.
(2) Reflects the dollar value of shares that may yet be repurchased under the Share Repurchase Program (as defined in Note 16— Share Repurchase Program and Share Retirement in our consolidated financial statements within Part II of this Annual Report) authorized by the Board of Directors on October 10, 2018, and replenished on March 25, 2019 and June 2, 2022. ​
Removed
(3) Starting on January 1, 2023, share repurchases under our Share Repurchase Program are subject to a 1% excise tax imposed under the Inflation Reduction Act (“IRA”). ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWe 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 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ ​ JANUARY 28, ​ JANUARY 29, ​ JANUARY 30, ​ ​ 2023 2022 2021 ​ ​ (in thousands) ​ Net income ​ $ 528,642 ​ $ 688,546 ​ $ 271,815 ​ Adjustments pre-tax: ​ ​ ​ ​ ​ ​ ​ (Gain) loss on extinguishment of debt (1) ​ 169,578 ​ 29,138 ​ (152) ​ Asset impairments (1) ​ ​ 24,186 ​ ​ 9,630 ​ ​ 12,851 ​ Non-cash compensation (1) ​ 18,072 ​ 23,428 ​ 117,084 ​ Employer payroll taxes on option exercises (1) ​ 14,392 ​ — ​ — ​ Professional fees (1) ​ 7,469 ​ — ​ — ​ Non-cash compensation related to consolidated VIEs (1) ​ ​ 4,470 ​ — ​ — ​ Compensation settlements (1) ​ ​ 3,483 ​ ​ — ​ ​ — ​ Recall accrual (1) ​ 560 ​ 1,940 ​ 7,370 ​ Legal settlements (1) ​ ​ (4,188) ​ ​ — ​ ​ — ​ Gain on derivative instruments—net (2) ​ ​ (1,724) ​ ​ — ​ ​ — ​ Gain on sale of building and land (1) ​ ​ (775) ​ ​ — ​ ​ — ​ Amortization of debt discount (3) ​ — ​ 18,477 ​ 37,055 ​ Tradename impairment (1) ​ ​ — ​ ​ — ​ ​ 20,459 ​ Loss on sale leaseback transaction (1) ​ ​ — ​ ​ — ​ ​ 9,352 ​ Reorganization related costs (1) ​ — ​ 449 ​ 7,027 ​ Subtotal adjusted items ​ 235,523 ​ 83,062 ​ 211,046 ​ Impact of income tax items (4) ​ (237,683) ​ (13,317) ​ (20,845) ​ Share of equity method investments losses (1) ​ 2,055 ​ 8,214 ​ 888 ​ Adjusted net income ​ $ 528,537 ​ $ 766,505 ​ $ 462,904 ​ (1) Refer to table titled “Reconciliation of GAAP Net Income to Operating Income and Adjusted Operating Income” and the related footnotes for additional information. ​ ​ ​ PART II FORM 10-K | 45 ​ Table of Contents (2) Represents net gain on derivative instruments resulting from certain transactions related to the 2023 Notes and 2024 Notes, including bond hedge terminations and warrant and convertible senior notes repurchases (refer to Note 12— Convertible Senior Notes in our consolidated financial statements).
Biggest changeWe 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 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ FEBRUARY 3, ​ JANUARY 28, ​ JANUARY 29, ​ 2024 2023 2022 ​ (in thousands) Net income ​ $ 127,561 ​ $ 528,642 ​ $ 688,546 Adjustments pre-tax: ​ ​ ​ ​ ​ ​ Non-cash compensation (1) ​ 9,640 ​ ​ 18,072 ​ ​ 23,428 Legal settlements (1) ​ ​ 8,500 ​ ​ (4,188) ​ ​ — Reorganization related costs (1) ​ 7,621 ​ ​ — ​ ​ 449 Asset impairments (1) ​ ​ 3,531 ​ ​ 24,186 ​ ​ 9,630 Recall accrual (1) ​ (1,576) ​ ​ 560 ​ ​ 1,940 Loss on extinguishment of debt (1) ​ — ​ ​ 169,578 ​ ​ 29,138 Employer payroll taxes on option exercises (1) ​ — ​ ​ 14,392 ​ ​ — Professional fees (1) ​ — ​ ​ 7,469 ​ ​ — Non-cash compensation related to consolidated VIEs (1) ​ ​ — ​ ​ 4,470 ​ ​ — Compensation settlements (1) ​ ​ — ​ ​ 3,483 ​ ​ — Gain on derivative instruments—net (2) ​ ​ — ​ ​ (1,724) ​ ​ — Gain on sale of building and land (1) ​ ​ — ​ ​ (775) ​ ​ — Amortization of debt discount (3) ​ ​ — ​ ​ — ​ ​ 18,477 Subtotal adjusted items ​ 27,716 ​ 235,523 ​ 83,062 Impact of income tax items (4) ​ (18,787) ​ ​ (237,683) ​ ​ (13,317) Share of equity method investments loss (1) ​ 10,875 ​ 2,055 ​ 8,214 Adjusted net income ​ $ 147,365 ​ $ 528,537 ​ $ 766,505 (1) Refer to table titled “Reconciliation of GAAP Net Income to Operating Income and Adjusted Operating Income” and the related footnotes for additional information.
This section discusses financial and operating measures that affect our results of operations, including net revenues and demand, gross profit and gross margin, selling general and administrative expenses, operating income and operating margin, and net income and the related non-GAAP financial measures, in addition to adjusted EBITDA. Basis of Presentation and Results of Operations .
This section discusses financial and operating measures that affect our results of operations, including net revenues and demand, gross profit and gross margin, selling general and administrative expenses, operating income and operating margin, and net income and the related non-GAAP measures, in addition to adjusted EBITDA. Basis of Presentation and Results of Operations .
This section provides our 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 financial measures we use for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Liquidity and Capital Resources .
This section provides our 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 operational decision-making and as a means to evaluate period-to-period comparisons. Liquidity and Capital Resources .
(2) The adjustment in fiscal 2022 represents inventory impairment of $11 million to cost of goods sold and asset impairment of $12 million to selling, general and administrative expenses related to property and equipment of Galleries under construction, as well as lease impairment of $1.0 million due to the early exit of a leased facility.
The adjustment in fiscal 2022 represents inventory impairment of $11 million to cost of goods sold and asset impairment of $12 million to selling, general and administrative expenses related to property and equipment of Galleries under construction, as well as lease impairment of $1.0 million due to the early exit of a leased facility to selling, general and administrative expenses .
We believe that our luxury brand positioning and unique aesthetic have strong international appeal, and that pursuit of global expansion will provide RH a substantial opportunity to build over time a projected $20 to $25 billion global brand in terms of annual revenues.
We believe that our luxury brand positioning and unique aesthetic have strong international appeal, and that pursuit of global expansion will provide RH with a substantial opportunity to build over time a projected $20 to $25 billion global brand in terms of annual revenues.
Friedman’s stock option exercises during the fiscal 2022, $13 million of asset impairment, $7.5 million of professional fees which were contingent upon the completion of our debt transactions related to the 2023 Notes and 2024 Notes, $4.5 million of non-cash compensation attributed to the noncontrolling interests holder of our consolidated variable interest entities, and $0.6 million related to product recalls, partially offset by a $4.2 million legal settlement received and a $0.8 million gain on sale of building and land.
Friedman’s stock option exercises during fiscal 2022, $13 million of asset impairment, $7.5 million of professional fees that were contingent upon the completion of our debt transactions related to the 2023 Notes and 2024 Notes, $4.5 million of non-cash compensation attributed to the noncontrolling interests holder of our consolidated variable interest entities, and $0.6 million related to product recalls, partially offset by a $4.2 million legal settlement received and a $0.8 million gain on sale of building and land.
While we believe our estimates and judgments in determining the lease term are reasonable, future events may occur which may require us to reassess this determination. ​ ​ ​ 58 | FORM 10-K PART II ​ Table of Contents Incremental Borrowing Rate As most of our leases do not include an implicit interest rate, we determine the discount rate for each lease based upon the incremental borrowing rate (“IBR”) in order to calculate the present value of the lease liability at the commencement date.
While we believe our estimates and judgments in determining the lease term are reasonable, future events may occur which may require us to reassess this determination. ​ ​ ​ PART II FORM 10-K | 59 ​ Table of Contents Incremental Borrowing Rate As most of our leases do not include an implicit interest rate, we determine the discount rate for each lease based upon the incremental borrowing rate (“IBR”) in order to calculate the present value of the lease liability at the commencement date.
During fiscal 2020 and 2021, the lag in manufacturing and inventory receipts related to the COVID-19 pandemic, together with dislocations in our supply chain, resulted in some delays in our ability to convert demand into revenues.
During fiscal 2021, the lag in manufacturing and inventory receipts related to the COVID-19 pandemic, together with dislocations in our supply chain, resulted in some delays in our ability to convert demand into revenues.
No amortization of the debt discounts were recognized during fiscal 2022, as we recombined the previously outstanding equity component of the 2023 Notes and 2024 Notes upon the adoption of ASU 2020-06 .
No amortization of the debt discounts were recognized during fiscal 2023 or fiscal 2022, as we recombined the previously outstanding equity component of the 2023 Notes and 2024 Notes upon the adoption of ASU 2020-06 .
Additionally, we have entered into arrangements with a third-party development partner to develop real estate for future RH Design Galleries. In the event that such capital and other expenditures require us to pursue additional funding sources, we can provide no assurance that we will be successful in securing additional funding on attractive terms or at all.
For example, we have entered into arrangements with a third-party development partner to develop real estate for future RH Design Galleries. In the event that such capital and other expenditures require us to pursue additional funding sources, we can provide no assurance that we will be successful in securing additional funding on attractive terms or at all.
Net Cash Provided By (Used In) Financing Activities Financing activities consist primarily of borrowings and repayments related to convertible senior notes, credit facilities 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.
Net Cash Used in Financing Activities Financing activities consist primarily of borrowings and repayments related to convertible senior notes, credit facilities 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.
We are required to make quarterly principal payments of $1.3 million with respect to the Term Loan B-2 from December 2022. Certain Transactions Related to Convertible Senior Notes In the first and second quarters of fiscal 2022, we entered into certain transactions in connection with the 2023 Notes and 2024 Notes.
We are required to make quarterly principal payments of $1.3 million with respect to Term Loan B-2. Certain Transactions Related to Convertible Senior Notes In the first and second quarters of fiscal 2022, we entered into certain transactions in connection with the 2023 Notes and 2024 Notes.
During the first half of fiscal 2022 we experienced increased net revenues due to fulfillment of orders generated in prior quarters as elements of our supply chain continued to catch up with customer demand. However, throughout fiscal 2022 we experience softening demand trends as compared to fiscal 2022.
During the first half of fiscal 2022 we experienced increased net revenues due to fulfillment of orders generated in prior quarters as elements of our supply chain continued to catch up with customer demand. However, throughout fiscal 2023 we experienced softening demand trends as compared to fiscal 2022.
The table presenting the maturities of our lease liabilities included in Note 11— Leases in our consolidated financial statements includes future obligations for renewal options that are reasonably certain to be exercised and are included in the measurement of the lease liability.
The table presenting the maturities of our lease liabilities included in Note 10— Leases in our consolidated financial statements includes future obligations for renewal options that are reasonably certain to be exercised and are included in the measurement of the lease liability.
(4) For fiscal 2022, 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) and the exclusion of material discrete tax items that are unusual or infrequent, such as tax benefits related to the option exercises by Mr. Friedman in fiscal 2022.
(4) For fiscal 2023 and fiscal 2022, 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, such as tax benefits related to the option exercises by Mr.
While we do not require additional debt to fund our operations, our goal continues to be in a position to take advantage of the many opportunities that we identify in connection with our business and operations.
While we do not anticipate that we will require additional debt to fund our operations, our goal continues to be in a position to take advantage of the many opportunities that we identify in connection with our business and operations.
Asset Based Credit Facility Refer to Note 13— Credit Facilities in our consolidated financial statements for further information on our asset based credit facility, including the amount available for borrowing under the revolving line of credit, net of outstanding letters of credit.
Asset Based Credit Facility Refer to Note 12— Credit Facilities in our consolidated financial statements for further information on our asset based credit facility, including the amount available for borrowing under the revolving line of credit, net of outstanding letters of credit.
In addition, we plan to incorporate hospitality into most of the new Design Galleries that we open in the future, which further elevates and renders our product and brand more valuable.
In addition, we plan to incorporate hospitality into many of the new Design Galleries that we open in the future, which further elevates and renders our product and brand more valuable.
We believe an opportunity exists to create similar strategic separation online as we have with our Galleries offline, reconceptualizing what a website can and should be. ​ Global Expansion.
We believe an opportunity exists to create similar strategic separation online as we have with our Galleries offline, reconceptualizing what a website can and should be.
The discussion of our financial condition and changes in our results of operations, liquidity and capital resources are presented in this section for fiscal 2022 and a comparison to fiscal 2021.
The discussion of our financial condition and changes in our results of operations, liquidity and capital resources are presented in this section for fiscal 2023 and a comparison to fiscal 2022.
Our quarterly results vary depending upon a variety of factors, including changes in our product offerings and the introduction of new merchandise assortments and categories, changes in retail locations, the timing of Source Book releases, and the extent of our realization of the costs and benefits of our numerous strategic initiatives, among other things.
Our quarterly results vary depending upon a variety of factors, including changes in our product offerings and the introduction of new merchandise assortments and categories, changes in retail locations, the timing of Sourcebook releases, and the extent of our realization of the costs and benefits of our numerous strategic initiatives, among other things.
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 Item 1A — Risk Factors and included elsewhere in this Annual Report on Form 10-K.
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 Item 1A — Risk Factors and included elsewhere in this Annual Report.
These expenses include payroll and payroll-related expenses, retail related expenses other than occupancy, and expenses related to the operations at our corporate headquarters, including rent, utilities, depreciation and amortization, credit card fees and marketing expense, which primarily includes Source Book production, mailing and print advertising costs.
These expenses include payroll and payroll-related expenses, retail related expenses other than occupancy, and expenses related to the operations at our corporate headquarters, including rent, utilities, depreciation and amortization, credit card fees and marketing expense, which primarily includes Sourcebook production, mailing and print advertising costs.
Adjusted Operating Income, Adjusted Net Income and Adjusted EBITDA. To supplement our consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles (“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”).
To supplement our consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States (“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 have in the past been, and continue to be, opportunistic in responding to favorable market conditions regarding both sources and uses of capital. Capital raised from debt financings has enabled us to pursue various investments, including our investments in joint ventures.
We have in the past been, and continue to be, opportunistic in responding to favorable market conditions regarding both sources and uses of capital. Capital raised from debt financing arrangements has enabled us to pursue various investments, including our investments in joint ventures.
We believe that COVID-19 and the resulting trends in housing markets drove increased demand in our business during a substantial portion of the pandemic. At the same time, the demand for home furnishings has decreased since the reopening of the economy after the peak of the pandemic and consumption patterns have shifted into other areas such as travel and leisure.
We believe that COVID-19 and the resulting trends in housing markets drove increased demand in our business during a substantial portion of the pandemic. However, the demand for home furnishings has decreased since the reopening of the economy after the peak of the pandemic and consumption patterns have shifted into other areas such as travel and leisure.
The non-GAAP financial measures used by us in this Annual Report on Form 10-K may be different from the non-GAAP financial measures, including similarly titled measures, used by other companies. For more information on the non-GAAP financial measures, please see the reconciliation of GAAP to non-GAAP financial measures tables outlined below.
The non-GAAP financial measures used by us in this Annual Report may be different from the non-GAAP financial measures, including similarly titled measures, used by other companies. For more information on the non-GAAP financial measures, please see the reconciliation of GAAP to non-GAAP financial measures tables outlined below.
The discussion for fiscal 2021 and fiscal 2020 has been omitted from this Annual Report on Form 10-K, but is included in Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations on our Form 10-K for the fiscal year ended January 29, 2022, filed with the Securities and Exchange Commission (“SEC”) on March 30, 2022.
The discussion for fiscal 2022 and fiscal 2021 has been omitted from this Annual Report but is included in Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023, filed with the Securities and Exchange Commission (“SEC”) on March 29, 2023.
The equity components represented the difference between the proceeds from the issuance of the 2023 Notes and 2024 Notes and the fair value of the liability components of the 2023 Notes and 2024 Notes, respectively. Amounts were presented net of interest capitalized for capital projects of $10 million and $5.3 million during fiscal 2021 and fiscal 2020 , respectively.
The equity components represented the difference between the proceeds from the issuance of the 2023 Notes and 2024 Notes and the fair value of the liability components of the 2023 Notes and 2024 Notes, respectively. Amounts were presented net of interest capitalized for capital projects of $10 million during fiscal 2021 .
We continuously evaluate our capital allocation strategy and may engage in future investments in connection with existing or new share repurchase programs (refer to “Share Repurchase Program” below), which may include investments in derivatives or other equity linked instruments.
We continuously evaluate our capital allocation strategy and may engage in future investments in connection with existing or new share repurchase programs (refer to “Share Repurchase Program and Share Retirement” below), which may include investments in derivatives or other equity linked instruments.
Amounts presented therein do not include future lease payments under leases that have not commenced or estimated contingent rent due under operating and finance leases. Convertible Senior Notes Refer to Note 12— Convertible Senior Notes in our consolidated financial statements for further information on the 2023 Notes and 2024 Notes.
Amounts presented therein do not include future lease payments under leases that have not commenced or estimated contingent rent due under operating and finance leases. Convertible Senior Notes Refer to Note 11— Convertible Senior Notes in our consolidated financial statements for further information on the 2023 Notes and 2024 Notes. The 2023 Notes matured in June 2023.
There are a number of macroeconomic factors and uncertainties affecting the overall business climate as well as our business, including increased inflation and rising interest rates and we may make adjustments to our allocation of capital in fiscal 2022 or beyond in response to these changing or other circumstances.
There are a number of macroeconomic factors and uncertainties affecting the overall business climate as well as our business, including increased inflation and higher interest rates and we may make adjustments to our allocation of capital in fiscal 2024 or beyond in response to these changing or other circumstances.
Over the next few years, we plan to introduce RH Couture, RH Bespoke and RH Color. ​ ​ ​ 38 | FORM 10-K PART II ​ Table of Contents Gallery Transformation . Our product is elevated and rendered more valuable by our architecturally inspiring Galleries.
In addition, over the next few years, we plan to introduce RH Couture, RH Bespoke and RH Color. ​ ​ ​ 40 | FORM 10-K PART II ​ Table of Contents Gallery Transformation. Our product is elevated and rendered more valuable by our architecturally inspiring Galleries.
Refer to Note 15— Income Taxes in our consolidated financial statements for further information on our uncertain tax positions.
Refer to Note 14— Income Taxes in our consolidated financial statements for further information on our uncertain tax positions.
Information on the year ended January 30, 2021 (fiscal 2020) is included in Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations on our Form 10-K for the fiscal year ended January 29, 2022, filed with the SEC on March 30, 2022.
Information on the year ended January 29, 2022 (fiscal 2021) is included in Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations on our Form 10-K for the fiscal year ended January 28, 2023, filed with the SEC on March 29, 2023.
Shifts in consumption patterns may also have an impact on consumer spending in the high-end housing market. We have in the past experienced volatility in our sales trends related to many of these factors and believe our sales may be impacted by these economic factors in future periods. These headwinds tied to macroeconomic factors may continue in future quarters.
Shifts in consumption patterns may also have an impact on consumer spending in the high-end housing market. We have in the past experienced volatility in our sales trends related to many of these factors and believe our sales may be impacted by these economic factors in future periods.
Equity method investments losses Equity method investments losses consists of our proportionate share of the losses of our equity method investments by applying the hypothetical liquidation at book value methodology, which resulted in a $2.1 million and $8.2 million loss in fiscal 2022 and fiscal 2021, respectively. ​ Liquidity and Capital Resources Overview Our principal sources of liquidity are cash flows generated from operations, our current balances of cash and cash equivalents, and amounts available under our ABL Credit Agreement.
Equity method investments losses Equity method investments losses consists of our proportionate share of the losses of our equity method investments by applying the hypothetical liquidation at book value methodology, which resulted in a $11 million and $2.1 million loss in fiscal 2023 and fiscal 2022, respectively. ​ Liquidity and Capital Resources Overview Our principal sources of liquidity are cash flows generated from operations, our current balances of cash and cash equivalents, and amounts available under our ABL Credit Agreement (as defined below).
MD&A is a supplement to our consolidated financial statements within Part II of this Annual Report on Form 10-K and is provided to enhance an understanding of our results of operations and financial condition. Our MD&A includes these primary sections: Overview .
MD&A is a supplement to our consolidated financial statements within Part II of this Annual Report and is provided to enhance an understanding of our results of operations and financial condition. Our MD&A includes these primary sections: Overview .
(5) Represents professional fees contingent upon the completion of certain transactions related to the 2023 Notes and 2024 Notes, including bond hedge terminations and warrant and convertible senior notes repurchases (refer to Note 12— Convertible Senior Notes in our consolidated financial statements). ​ ​ ​ 44 | FORM 10-K PART II ​ Table of Contents (6) Represents non-cash compensation attributed to the noncontrolling interest holder of our consolidated real estate joint ventures in fiscal 2022 based on the fair value of the noncontrolling interests upon the closing of such joint venture transactions (refer to “Consolidated Variable Interest Entities and Noncontrolling Interests” within Note 3— Significant Accounting Policies in our consolidated financial statements).
(8) Represents professional fees contingent upon the completion of certain transactions related to the 2023 Notes and 2024 Notes, including bond hedge terminations and warrant and convertible senior notes repurchase (refer to Note 11— Convertible Senior Notes in our consolidated financial statements). ​ ​ ​ 46 | FORM 10-K PART II ​ Table of Contents (9) Represents non-cash compensation attributed to the noncontrolling interest holder of our consolidated real estate joint ventures in fiscal 2022 based on the fair value of the noncontrolling interests upon the closing of such joint venture transactions (refer to “Consolidated Variable Interest Entities and Noncontrolling Interests” within Note 3— Significant Accounting Policies in our consolidated financial statements).
The following critical accounting policies reflect the significant estimates and judgments used in the preparation of our consolidated financial statements. Merchandise Inventories—Reserves Our merchandise inventories are comprised of finished goods and are carried at the lower of cost or net realizable value, with cost determined on a weighted-average cost method.
The following critical accounting policies reflect the significant estimates and judgments used in the preparation of our consolidated financial statements. Merchandise Inventories—Reserves Our merchandise inventories are comprised of finished goods and are carried at the lower of cost or net realizable value, with cost determined on a weighted-average cost method and net realizable value adjusted periodically for current market conditions.
Cost of goods sold includes the direct cost of purchased merchandise; inventory shrinkage, inventory adjustments due to obsolescence, including excess and slow-moving inventory and lower of cost or net realizable value reserves; inbound freight; all freight costs to get merchandise to our retail locations and outlets; design, buying and allocation costs; occupancy costs related to retail and outlet operations and our supply chain, such as rent and common area maintenance for our leases; depreciation and amortization of leasehold improvements, equipment and other assets in our retail locations, outlets and distribution centers.
Cost of goods sold includes the direct cost of purchased merchandise; inventory shrinkage, inventory reserves and write-downs and lower of cost or net realizable value reserves; inbound freight; all freight costs to get merchandise to our retail locations and outlets; design, buying and allocation costs; occupancy costs related to retail and outlet operations and our supply chain, such as rent and common area maintenance for our leases; depreciation and amortization of leasehold improvements, equipment and other assets in our retail locations, outlets and distribution centers.
We utilize our outstanding debt facilities, including our asset based credit facility or our Term Loan Credit Agreement issued in October 2021, as the basis for determining the applicable IBR for each lease.
We utilize our outstanding debt facilities, including our asset based credit facility or our Term Loan Credit Agreement, as the basis for determining the applicable IBR for each lease.
In addition, as we introduce new products and expand our merchandise assortments into new categories, we expect to experience delays in the production of some new offerings, as we have had similar experiences during prior periods when we adopted substantial newness in our business such as with the introduction of RH Modern in 2015.
In addition, as we introduce new products and expand our merchandise assortments into new categories, we expect to experience delays in the production of some new offerings, as we have had similar experiences during prior periods when we adopted substantial newness in our business.
In addition, in recent periods we have experienced increased selling, general and administrative expenses, including asset impairments, non-cash compensation expenses, employer payroll taxes on CEO option exercises, professional fees associated with debt transactions, compensation settlement arrangements, product recalls, sale leaseback transactions and reorganizations, as discussed in “Basis of Presentation and Results of Operations” below.
In addition, in recent periods we have experienced increased selling, general and administrative expenses, including non-cash compensation expense, legal settlements, reorganizations, asset impairments, product recalls, employer payroll taxes on CEO option exercises, professional fees associated with debt transactions and compensation settlement arrangements, as discussed in “Basis of Presentation and Results of Operations” below. Non-GAAP Financial Measures.
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 fiscal 2022, adjusted capital expenditures were $225 million in aggregate, net of cash received related to landlord tenant allowances of $13 million.
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 fiscal 2023, adjusted capital expenditures were $295 million in aggregate, net of cash received related to landlord tenant allowances of $2.5 million.
We anticipate having ample cash available in order to repay the principal amount of our convertible notes in cash with respect to any convertible notes for which the holders elect early conversion, as well as upon maturity in June 2023 and September 2024, in each case in order to minimize dilution. ​ ​ ​ PART II FORM 10-K | 53 ​ Table of Contents Capital 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.
We anticipate having sufficient cash available to repay the principal amount of the 2024 Notes in cash with respect to any convertible notes for which the holders elect early conversion (if applicable), as well as upon maturity of the 2024 Notes in September 2024. ​ ​ ​ PART II FORM 10-K | 55 ​ Table of Contents Capital 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 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 of RH.
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 of RH. As such, we are actively pursuing the expansion of the RH brand globally.
As a result of the bond hedge termination agreements, all convertible note hedges entered into in connection with the issuance of the 2023 Notes and 2024 Notes have been terminated, including convertible note hedges with respect to any 2023 Notes and 2024 Notes that remain outstanding.
As a result of the bond hedge termination agreements, all convertible note hedges entered into in connection with the issuance of the 2023 Notes and 2024 Notes were terminated in fiscal 2022, including convertible note hedges with respect to any 2023 Notes and 2024 Notes that remained outstanding.
Our near-term decisions regarding the sources and uses of capital will continue to reflect and adapt to changes in market conditions and our business, including further developments with respect to macroeconomic factors affecting business conditions, such as the pandemic, inflation and rising interest rates.
Our near-term decisions regarding the sources and uses of capital will continue to reflect and adapt to changes in market conditions and our business, including further developments with respect to macroeconomic factors affecting business conditions, such as trends in luxury housing, increases in interest rates, equity market performance and inflation.
Refer to “Leases” within Note 3— Significant Accounting Policies and Note 11— Leases in our consolidated financial statements for further information on our lease arrangements, including the maturities of our operating and finance lease liabilities. Most lease arrangements provide us with the option to renew the leases at defined terms.
Refer to “Leases” within Note 3— Significant Accounting Policies and Note 10— Leases in our consolidated financial statements for further information on our lease arrangements, including the maturities of our operating and finance lease liabilities. ​ ​ ​ PART II FORM 10-K | 57 ​ Table of Contents Most lease arrangements provide us with the option to renew the leases at defined terms.
Factors Affecting Our Results of Operations We have experienced significant changes in our business from fiscal 2020 through fiscal 2022, including the impact of macroeconomic factors such as the COVID-19 pandemic, increased inflation, rising interest and mortgage rates, uncertainties in the global financial markets and the slowdown in the housing market.
Factors Affecting Our Results of Operations We have experienced significant changes in our business from fiscal 2021 through fiscal 2023, including the impact of macroeconomic factors such as the COVID-19 pandemic, substantially higher interest and mortgage rates, increased inflation and volatility in the global financial markets and the slowdown in the housing market.
We anticipate our adjusted capital expenditures to be $275 million to $325 million in fiscal 2023, primarily related to our growth and expansion, including construction of new Design Galleries and infrastructure investments.
We anticipate our adjusted capital expenditures to be $250 million to $300 million in fiscal 2024, primarily related to our growth and expansion, including construction of new Design Galleries and infrastructure investments.
As a result of the warrant termination agreements, all warrants entered into in connection with the issuance of the 2023 Notes and 2024 Notes have been terminated, including warrants with respect to any 2023 Notes and 2024 Notes that remain outstanding.
As a result of the warrant termination agreements, all warrants entered into in connection with the issuance of the 2023 Notes and 2024 Notes were terminated in fiscal 2022, including warrants with respect to any 2023 Notes and 2024 Notes that remained outstanding.
Cash Flow Analysis A summary of operating, investing, and financing activities is set forth in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ JANUARY 28, ​ JANUARY 29, ​ JANUARY 30, ​ 2023 2022 2021 ​ ​ (in thousands) Net cash provided by operating activities ​ $ 403,687 ​ $ 662,114 ​ $ 500,770 Net cash used in investing activities ​ (171,068) ​ (194,353) ​ (197,600) Net cash provided by (used in) financing activities ​ (902,477) ​ 1,607,127 ​ (243,914) Net increase (decrease) in cash and cash equivalents, restricted cash and restricted cash equivalents ​ (670,101) ​ 2,074,793 ​ 59,413 Cash and cash equivalents, restricted cash and restricted cash equivalents at end of period ​ 1,511,763 ​ 2,181,864 ​ 107,071 ​ ​ ​ 54 | FORM 10-K PART II ​ Table of Contents Net Cash Provided By Operating Activities Operating activities consist primarily of net income adjusted for non-cash items, including depreciation and amortization, impairments, stock-based compensation, loss on extinguishment of debt, cash paid attributable to accretion of debt discount upon settlement of debt (prior to the adoption of ASU 2020-06 in fiscal 2022) and the effect of changes in working capital and other activities.
Cash Flow Analysis A summary of operating, investing, and financing activities is set forth in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ FEBRUARY 3, ​ JANUARY 28, ​ JANUARY 29, ​ 2024 2023 2022 ​ ​ (in thousands) Net cash provided by operating activities ​ $ 202,214 ​ $ 403,687 ​ $ 662,114 Net cash used in investing activities ​ (307,431) ​ (171,068) ​ (194,353) Net cash provided by (used in) financing activities ​ (1,283,031) ​ (902,477) ​ 1,607,127 Net increase (decrease) in cash and cash equivalents, restricted cash and restricted cash equivalents ​ (1,388,075) ​ (670,101) ​ 2,074,793 Cash and cash equivalents, restricted cash and restricted cash equivalents at end of period ​ 123,688 ​ 1,511,763 ​ 2,181,864 ​ ​ ​ 56 | FORM 10-K PART II ​ Table of Contents Net Cash Provided by Operating Activities Operating activities consist primarily of net income adjusted for non-cash items, including depreciation and amortization, impairments, stock-based compensation, loss on extinguishment of debt, cash paid attributable to accretion of debt discount upon settlement of debt (prior to the adoption of ASU 2020-06 in fiscal 2022) and the effect of changes in working capital and other activities.
We define EBITDA as consolidated net income before depreciation and amortization, interest expense—net and income tax expense (benefit). 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.
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. We define EBITDA as consolidated net income before depreciation and amortization, interest expense—net and income tax expense (benefit).
Our curated and fully integrated assortments are presented consistently across our sales channels, including our retail locations, websites and Source Books. We offer merchandise assortments across a number of categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, and baby, child and teen furnishings. Our retail business is fully integrated across our multiple channels of distribution.
We offer merchandise assortments across a number of categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, and baby, child and teen furnishings. Our retail business is fully integrated across our multiple channels of distribution.
As of January 28, 2023, we operated the following number of locations: ​ ​ ​ ​ ​ COUNT RH ​ ​ Design Galleries ​ 28 Legacy Galleries ​ 35 Modern Galleries ​ 1 Baby & Child and TEEN Galleries ​ 3 Total Galleries ​ 67 Outlets ​ 37 Guesthouse ​ 1 Waterworks Showrooms ​ 14 For more information on our company and operations, refer to Item 1—Business .
As of February 3, 2024, we operated the following number of locations: ​ ​ ​ ​ ​ COUNT RH ​ ​ Design Galleries ​ 31 Legacy Galleries ​ 35 Modern Gallery ​ 1 Baby & Child and TEEN Galleries ​ 3 Total Galleries ​ 70 Outlets ​ 42 Guesthouse ​ 1 Waterworks Showrooms ​ 14 ​ For more information on our Company and operations, refer to Item 1—Business .
In addition, we received landlord tenant allowances after construction completion of $4.7 million, which are reflected as a reduction to principal payments under finance leases within financing activities on the consolidated statements of cash flows.
In addition, we also received landlord tenant allowances under finance leases subsequent to lease commencement of $2.4 million, which are reflected as a reduction to principal payments under finance leases within financing activities on the consolidated statements of cash flows.
The Term Loan B-2 has a maturity date of October 20, 2028. The Term Loan B-2 constitutes a separate class from the existing Term Loan B under the Term Loan Credit Agreement. As of January 28, 2023, we had $499 million outstanding under the Amended Term Loan Credit Agreement.
Term Loan B-2 has a maturity date of October 20, 2028. Term Loan B-2 constitutes a separate class from the existing Term Loan B under the Term Loan Credit Agreement. As of February 3, 2024, we had $494 million outstanding under the Amended Term Loan Credit Agreement.
Variable Interest Entities We make investments in privately-held limited liability companies in connection with real estate development initiatives. When we have a variable interest in another legal entity, we evaluate whether that legal entity is within the scope of the variable interest entity (“VIE”) model and, if so, whether we are the primary beneficiary of the VIE.
Variable Interest Entities We occasionally make investments in privately-held limited liability companies in connection with real estate development initiatives. As described in our significant accounting policy, we evaluate whether that legal entity is within the scope of the variable interest entity (“VIE”) model and, if so, whether we are the primary beneficiary of the VIE.
Any adverse developments in the U.S. or global credit markets as a result of the pandemic or any other reason could affect our ability to manage our debt obligations and our ability to access future debt.
Any adverse developments in the U.S. or global credit markets could affect our ability to manage our debt obligations and our ability to access future debt.
Waterworks selling, general and administrative expenses Waterworks selling, general and administrative expenses increased $13 million, or 18.8%, to $79 million in fiscal 2022 compared to $66 million in fiscal 2021. Waterworks selling, general and administrative expenses for fiscal 2022 included $3.5 million in compensation settlements related to the Rollover Units and Profit Interest Units and a $0.2 million asset impairment.
Waterworks selling, general and administrative expenses for fiscal 2022 included $3.5 million in compensation settlements related to the Rollover Units and Profit Interest Units and a $0.2 million asset impairment.
Apart from the impact of macroeconomic factors on our business operations and on general economic conditions, below are certain factors that affect our results of operations. Our Strategic Initiatives.
Apart from the impact of macroeconomic factors on our business operations and on general economic conditions, below are certain factors that affect our results of operations. ​ ​ ​ PART II FORM 10-K | 41 ​ Table of Contents Our Strategic Initiatives.
We have successfully introduced a large number of new products in past periods, which we believe has been a contributing factor in our sales growth and results of operations. Periods in which our products have achieved strong customer acceptance generally have had more favorable results.
We have successfully introduced a large number of new products in past and current periods, which we believe has been a contributing factor in our sales growth and results of operations.
We place orders with merchandise vendors primarily in United States dollars and, as a result, are not currently exposed to significant foreign currency exchange risk. However, our exposure may increase in connection with our global expansion strategy.
We place orders with merchandise vendors primarily in United States dollars and, as a result, are not currently exposed to significant foreign currency exchange risk.
Selling, general and administrative expenses as a percentage of net revenues are usually higher in lower-volume quarters and lower in higher-volume quarters because a significant portion of the costs are relatively fixed.
Additionally, our selling, general and administrative expenses as a percentage of net revenues can be impacted by the timing of our Sourcebook distributions. Selling, general and administrative expenses as a percentage of net revenues are usually higher in lower-volume quarters and lower in higher-volume quarters because a significant portion of the costs are relatively fixed.
For fiscal 2022, net cash provided by operating activities was $404 million and consisted of net income of $529 million and an increase in non-cash items of $373 million, partially offset by a change in working capital and other activities of $498 million.
For fiscal 2023, net cash provided by operating activities was $202 million and consisted of net income of $128 million and an increase in non-cash items of $331 million, partially offset by a change in working capital and other activities of $257 million.
Refer to “Non-GAAP Financial Measures” below for further information. ​ ​ ​ 42 | FORM 10-K PART II ​ Table of Contents Basis of Presentation and Results of Operations The following table sets forth our consolidated statements of income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ JANUARY 28, % OF NET JANUARY 29, % OF NET JANUARY 30, % OF NET ​ ​ ​ 2023 REVENUE 2022 REVENUES 2021 REVENUE ​ ​ ​ (dollars in thousands) Net revenues ​ $ 3,590,477 100.0 % $ 3,758,820 100.0 % $ 2,848,626 100.0 % ​ Cost of goods sold ​ 1,778,492 49.5 ​ 1,903,409 50.6 ​ 1,523,095 53.5 ​ ​ Gross profit ​ 1,811,985 50.5 ​ 1,855,411 49.4 ​ 1,325,531 46.5 ​ ​ Selling, general and administrative expenses ​ 1,089,828 30.4 ​ 928,230 24.7 ​ 858,673 30.1 ​ ​ Income from operations ​ 722,157 20.1 ​ 927,181 24.7 ​ 466,858 16.4 ​ ​ Other expenses ​ ​ ​ ​ ​ ​ ​ ​ Interest expense—net ​ 113,210 3.2 ​ 64,947 1.7 ​ 69,250 2.5 ​ ​ (Gain) loss on extinguishment of debt ​ 169,578 4.7 ​ 29,138 0.8 ​ (152) — ​ ​ Tradename impairment ​ ​ — — ​ ​ — — ​ ​ 20,459 0.7 ​ ​ Other expense—net ​ ​ 30 — ​ ​ 2,778 0.1 ​ ​ — — ​ ​ Total other expenses ​ 282,818 7.9 ​ 96,863 2.6 ​ 89,557 3.2 ​ ​ Income before income taxes and equity method investments ​ 439,339 12.2 ​ 830,318 22.1 ​ 377,301 13.2 ​ ​ Income tax expense (benefit) ​ (91,358) (2.6) ​ 133,558 3.6 ​ 104,598 3.6 ​ ​ Income before equity method investments ​ ​ 530,697 14.8 ​ ​ 696,760 18.5 ​ ​ 272,703 9.6 ​ ​ Share of equity method investments losses ​ ​ 2,055 0.1 ​ ​ 8,214 0.2 ​ ​ 888 0.1 ​ ​ Net income ​ $ 528,642 14.7 % $ 688,546 18.3 % $ 271,815 9.5 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-GAAP Financial Measures To supplement our 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.
Refer to “Non-GAAP Financial Measures” below for further information. ​ ​ ​ 44 | FORM 10-K PART II ​ Table of Contents Basis of Presentation and Results of Operations The following table sets forth our consolidated statements of income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ ​ FEBRUARY 3, % OF NET JANUARY 28, % OF NET ​ JANUARY 29, % OF NET ​ ​ ​ ​ 2024 REVENUES 2023 REVENUES ​ 2022 REVENUE ​ ​ ​ ​ (dollars in thousands) Net revenues ​ ​ $ 3,029,126 100.0 % $ 3,590,477 100.0 % ​ $ 3,758,820 100.0 % ​ Cost of goods sold ​ ​ 1,640,107 54.1 ​ 1,778,492 49.5 ​ ​ 1,903,409 50.6 ​ ​ Gross profit ​ ​ 1,389,019 45.9 ​ 1,811,985 50.5 ​ ​ 1,855,411 49.4 ​ ​ Selling, general and administrative expenses ​ ​ 1,022,948 33.8 ​ 1,089,828 30.4 ​ ​ 928,230 24.7 ​ ​ Income from operations ​ ​ 366,071 12.1 ​ 722,157 20.1 ​ ​ 927,181 24.7 ​ ​ Other expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense—net ​ ​ 198,296 6.6 ​ 113,210 3.2 ​ ​ 64,947 1.7 ​ ​ Loss on extinguishment of debt ​ ​ — — ​ 169,578 4.7 ​ ​ 29,138 0.8 ​ ​ Other expense—net ​ ​ ​ 1,078 — ​ ​ 30 — ​ ​ ​ 2,778 0.1 ​ ​ Total other expenses ​ ​ 199,374 6.6 ​ 282,818 7.9 ​ ​ 96,863 2.6 ​ ​ Income before taxes and equity method investments ​ ​ 166,697 5.5 ​ 439,339 12.2 ​ ​ 830,318 22.1 ​ ​ Income tax expense (benefit) ​ ​ 28,261 0.9 ​ (91,358) (2.6) ​ ​ 133,558 3.6 ​ ​ Income before equity method investments ​ ​ ​ 138,436 4.6 ​ ​ 530,697 14.8 ​ ​ ​ 696,760 18.5 ​ ​ Share of equity method investments loss ​ ​ ​ 10,875 0.4 ​ ​ 2,055 0.1 ​ ​ ​ 8,214 0.2 ​ ​ Net income ​ ​ $ 127,561 4.2 % $ 528,642 14.7 % ​ $ 688,546 18.3 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-GAAP Financial Measures To supplement our 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.
We are required to make quarterly principal payments of $5.0 million with respect to the Term Loan B. ​ ​ ​ 52 | FORM 10-K PART II ​ Table of Contents In May 2022, we entered into an incremental term debt financing (the “ Term Loan B-2”) in an aggregate principal amount equal to $500 million by means of an amendment to the Term Loan Credit Agreement with RHI as the borrower, Bank of America, N.A. as administrative agent and the various lenders parties thereto (the “Amended Term Loan Credit Agreement”).
In May 2022, we entered into an incremental term debt financing (the “Term Loan B-2”) in an aggregate principal amount equal to $500 million by means of an amendment to the Term Loan Credit Agreement with RHI as the borrower, Bank of America, N.A. as administrative agent and the various lenders parties thereto (the “Amended Term Loan Credit Agreement”).
RH Segment selling, general and administrative expenses for fiscal 2021 included amortization of non-cash compensation of $24 million related to a fully vested option grant made to Mr.
RH Segment selling, general and administrative expenses for fiscal 2023 included amortization of non-cash compensation of $9.6 million related to an option grant made to Mr.
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 to Operating Income and Adjusted Operating Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ JANUARY 28, JANUARY 29, JANUARY 30, ​ ​ 2023 ​ 2022 ​ 2021 ​ ​ (in thousands) Net income ​ ​ 528,642 ​ ​ 688,546 ​ ​ 271,815 Interest expense—net (1) ​ 113,210 ​ 64,947 ​ 69,250 (Gain) loss on extinguishment of debt (1) ​ 169,578 ​ 29,138 ​ (152) Tradename impairment (1) ​ ​ — ​ ​ — ​ ​ 20,459 Other expense—net (1) ​ ​ 30 ​ 2,778 ​ — Income tax expense (benefit) (1) ​ (91,358) ​ 133,558 ​ 104,598 Share of equity method investments losses (1) ​ ​ 2,055 ​ ​ 8,214 ​ ​ 888 Operating income ​ 722,157 ​ 927,181 ​ 466,858 Asset impairments (2) ​ 24,186 ​ 9,630 ​ 12,851 Non-cash compensation (3) ​ ​ 18,072 ​ ​ 23,428 ​ ​ 117,084 Employer payroll taxes on option exercises (4) ​ ​ 14,392 ​ ​ — ​ ​ — Professional fees (5) ​ 7,469 ​ — ​ — Non-cash compensation related to consolidated VIEs (6) ​ ​ 4,470 ​ ​ — ​ ​ — Compensation settlements (7) ​ ​ 3,483 ​ ​ — ​ ​ — Recall accrual (8) ​ 560 ​ 1,940 ​ 7,370 Legal settlements (9) ​ (4,188) ​ — ​ — Gain on sale of building and land (10) ​ (775) ​ — ​ — Loss on sale leaseback transaction (11) ​ ​ — ​ ​ — ​ ​ 9,352 Reorganizational related costs (12) ​ — ​ 449 ​ 7,027 Adjusted operating income ​ $ 789,826 ​ $ 962,628 ​ $ 620,542 (1) Refer to discussion “Fiscal 2022 Compared to Fiscal 2021” below for a discussion of our results of operations for the year ended January 28, 2023 and January 29, 2022.
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. ​ ​ ​ ​ ​ PART II FORM 10-K | 45 ​ Table of Contents Reconciliation of GAAP Net Income to Operating Income and Adjusted Operating Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ FEBRUARY 3, JANUARY 28, ​ JANUARY 29, ​ ​ 2024 ​ 2023 ​ 2022 ​ ​ (in thousands) Net income ​ $ 127,561 ​ $ 528,642 ​ $ 688,546 Interest expense—net (1) ​ ​ 198,296 ​ ​ 113,210 ​ 64,947 Loss on extinguishment of debt (1) ​ ​ — ​ ​ 169,578 ​ 29,138 Other expense—net (1) ​ ​ 1,078 ​ ​ 30 ​ 2,778 Income tax expense (benefit) (1) ​ ​ 28,261 ​ ​ (91,358) ​ 133,558 Share of equity method investments loss (1) ​ ​ 10,875 ​ ​ 2,055 ​ ​ 8,214 Operating income ​ ​ 366,071 ​ ​ 722,157 ​ 927,181 Non-cash compensation (2) ​ ​ 9,640 ​ ​ 18,072 ​ ​ 23,428 Legal settlements (3) ​ ​ 8,500 ​ ​ (4,188) ​ — Reorganization related costs (4) ​ ​ 7,621 ​ ​ — ​ 449 Asset impairments (5) ​ ​ 3,531 ​ ​ 24,186 ​ 9,630 Recall accrual (6) ​ ​ (1,576) ​ ​ 560 ​ 1,940 Employer payroll taxes on option exercises (7) ​ ​ — ​ ​ 14,392 ​ ​ — Professional fees (8) ​ ​ — ​ ​ 7,469 ​ — Non-cash compensation related to consolidated VIEs (9) ​ ​ — ​ ​ 4,470 ​ ​ — Compensation settlements (10) ​ ​ — ​ ​ 3,483 ​ ​ — Gain on sale of building and land (11) ​ ​ — ​ ​ (775) ​ — Adjusted operating income ​ $ 393,787 ​ $ 789,826 ​ $ 962,628 (1) Refer to discussion “Fiscal 2023 Compared to Fiscal 2022” below for a discussion of our results of operations for the year ended February 3, 2024 and January 28, 2023.
For example, a number of our vendors experienced delays in production and shipment of merchandise orders related to direct and indirect effects of the COVID-19 pandemic.
For example, a number of our vendors experienced delays in production and shipment of merchandise orders related to direct and indirect effects of the COVID-19 pandemic, as well as other geopolitical conflicts that have occurred in recent years.
As of January 28, 2023, these merchandise inventory purchase commitments were $303 million. We are not able to reasonably estimate when cash payments for the unrecognized tax benefits associated with uncertain tax positions of $3.0 million as of January 28, 2023 will occur or the amount by which the liability for uncertain tax positions will increase or decrease over time.
As of February 3, 2024, these merchandise inventory purchase commitments were $465 million. ​ ​ ​ 58 | FORM 10-K PART II ​ Table of Contents We are not able to reasonably estimate when cash payments for the unrecognized tax benefits associated with uncertain tax positions of $3.6 million as of February 3, 2024 will occur or the amount by which the liability for uncertain tax positions will increase or decrease over time.
Key Value-Driving Strategies In order to achieve our long-term strategies of Product Elevation, Platform Expansion and Cash Generation as well as drive growth across our business, we are focused on the following key strategies and business initiatives: Product Elevation .
Key Value-Driving Strategies In order to achieve our long-term strategies of Product Elevation, Platform Expansion and Cash Generation as well as drive growth across our business, we are focused on the following key strategies and business initiatives: Product Elevation. We believe we have built the most comprehensive and compelling collection of luxury home furnishings under one brand in the world.
Other expense—net Other expense—net was $0.1 million and $2.8 million in fiscal 2022 and 2021, respectively, which included losses of $1.8 million and $2.8 million, respectively, due to unfavorable exchange rate changes affecting foreign currency denominated transactions, primarily between the U.S. dollar as compared to Pound Sterling and Euro, in addition to a foreign exchange loss from the remeasurement of intercompany loans with our U.K. and Switzerland subsidiaries in fiscal 2022 and an intercompany loan with our U.K. subsidiary in fiscal 2021, respectively.
Other expense—net was $0.1 million in fiscal 2022, which primarily represents a foreign exchange loss of $2.2 million from the remeasurement of intercompany loans with subsidiaries in Switzerland and the United Kingdom, partially offset by a net gain due to favorable exchange rate changes affecting foreign currency denominated transactions of $0.4 million, primarily between the U.S. dollar as compared to Euro and Pound Sterling.
If actual results change from our prior estimates, we adjust our inventory reserves accordingly throughout the period. We have not made any material changes to our assumptions included in the calculations of the lower of cost or net realizable value reserves during the periods presented.
We have not made any material changes to our assumptions included in the calculations of the lower of cost or net realizable value reserves during the periods presented.
Net Cash Used In Investing Activities Investing activities consist primarily of investments in capital expenditures related to investments in retail stores, information technology and systems infrastructure, as well as supply chain investments. Investing activities also include our strategic investments.
These uses of cash from working capital were partially offset by a decrease in merchandise inventory of $47 million. Net Cash Used in Investing Activities Investing activities consist primarily of investments in capital expenditures related to investments in retail stores, information technology and systems infrastructure, as well as supply chain investments. Investing activities also include our strategic investments.
Interest expense—net Interest expense—net decreased $48 million in fiscal 2022 compared in fiscal 2021, which consisted of the following in each fiscal year: ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ JANUARY 28, ​ JANUARY 29, ​ 2023 2022 ​ ​ (in thousands) Term loan interest expense ​ $ 120,387 ​ $ 17,938 Finance lease interest expense ​ 32,051 ​ 26,412 Other interest expense ​ 4,195 ​ 5,925 Amortization of convertible senior notes debt discount ​ ​ — ​ ​ 28,816 Interest income ​ (38,520) ​ (1,936) Capitalized interest for capital projects ​ (4,903) ​ (12,208) Total interest expense—net ​ $ 113,210 ​ $ 64,947 Loss on extinguishment of debt During fiscal 2022, we recognized a loss on extinguishment of debt of $170 million related to the repurchase of $237 million of principal value of convertible senior notes, inclusive of the acceleration of amortization of debt issuance costs of $1.3 million.
Interest expense—net Interest expense—net increased $85 million, or 75.2%, in fiscal 2023 compared in fiscal 2022, which consisted of the following in each fiscal year: ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ FEBRUARY 3, ​ JANUARY 28, ​ ​ 2024 2023 ​ ​ (in thousands) Term loan interest expense ​ $ 205,760 ​ $ 120,387 Finance lease interest expense ​ 33,822 ​ 32,051 Interest income ​ (39,603) ​ (38,520) Capitalized interest for capital projects ​ (5,628) ​ (4,903) Other interest expense ​ 3,945 ​ 4,195 Total interest expense—net ​ $ 198,296 ​ $ 113,210 Loss on extinguishment of debt During fiscal 2022, we recognized a loss on extinguishment of debt of $170 million related to the repurchase of $237 million of principal value of convertible senior notes, inclusive of the acceleration of amortization of debt issuance costs of $1.3 million.
Starting on January 1, 2023, share repurchases under our Share Repurchase Program (as defined below) are subject to a 1% excise tax imposed under the IRA.
Beginning January 1, 2023, share repurchases under our Share Repurchase Program (as defined below) are subject to a 1% excise tax imposed under the Inflation Reduction Act, H.R 5376.
While the overall home furnishings market may be influenced by factors such as employment levels, interest rates, demographics of new household formation and the affordability of homes for first-time home buyers, the higher-end of the housing market may be disproportionately influenced by other factors, including stock market prices, disruption in financial markets, the number of second and third homes being bought and sold, the number of foreign buyers in higher-end real estate markets in the U.S., foreign currency volatility, inflation, tax policies and interest rates, and the perceived prospect for capital appreciation in higher-end real estate.
As a result, we believe that our sales are sensitive to a number of macroeconomic factors that influence consumer spending generally, but that our sales are particularly affected by the health of the higher-end customer and demand levels from that customer demographic. ​ ​ ​ 42 | FORM 10-K PART II ​ Table of Contents While the overall home furnishings market may be influenced by factors such as employment levels, interest rates, demographics of new household formation and the affordability of homes for first-time home buyers, the higher-end of the housing market may be disproportionately influenced by other factors, including stock market prices, disruption in financial markets, the number of second and third homes being bought and sold, the number of foreign buyers in higher-end real estate markets in the U.S., foreign currency volatility, inflation, tax policies and interest rates, and the perceived prospect for capital appreciation in higher-end real estate.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeImpact of Inflation Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the historical impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our consolidated results of operations and financial condition have been immaterial to date.
Biggest changeWhile it is difficult to accurately measure the historical impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation on our consolidated results of operations and financial condition have been primarily transitory to date as we have been able to adjust our costs of operation as well as our merchandise pricing in response to increased prices for services and other inputs, including the costs to purchase merchandise from our vendors.
However, there can be no assurance that our results of operations and financial condition will not be materially impacted by inflation in the future, including by the heightened levels of inflation experienced globally during 2022 and 2023. We may be unable to overcome these issues through measures such as price increases for our products.
There can be no assurance that our results of operations and financial condition will not be materially impacted by inflation in the future, including by the lingering effects of heightened levels of inflation experienced globally since 2022. We may be unable to overcome these issues through measures such as price increases for our products.
Under the terms of such provisions, the amount under the revolving line of credit borrowing base that could be available pursuant to the ABL Credit Agreement as of January 28, 2023 was $533 million, net of $27 million in outstanding letters of credit.
Under the terms of such provisions, the amount under the revolving line of credit borrowing base that could be available pursuant to the ABL Credit Agreement as of February 3, 2024 was $448 million, net of $45 million in outstanding letters of credit.
As of January 28, 2023, we had $42 million principal amount of 0.00% convertible senior notes due 2024 outstanding (the “2024 Notes”). As this instrument does not bear interest, we do not have interest rate risk exposure related to this debt.
The Term Loan Credit Agreement transitioned to reference SOFR in fiscal 2023. As of February 3, 2024, we had $42 million principal amount of 0.00% convertible senior notes due 2024 outstanding (the “2024 Notes”). As this instrument does not bear interest, we do not have interest rate risk exposure related to this debt.
Risks related to inflation could include increased costs for many products and services that are necessary for the operation of our business as well as the impact of interest rate increases, which could have, among other consequences, a negative effect on the housing market and consumer demand for our products. ​ ​ ​ PART II FORM 10-K | 61 ​ Table of Contents On August 16, 2022, the Inflation Reduction Act, H.R. 5376 (the “IR Act”) was signed into law.
Risks related to inflation could include increased costs for many products and services that are necessary for the operation of our business as well as the impact of interest rate increases, which could have, among other consequences, a negative effect on the housing market and consumer demand for our products.
The IR Act introduces a 15% corporate alternative minimum tax (“CAMT”) for corporations whose average annual adjusted financial statement income for any consecutive three-tax-year period preceding the applicable tax year exceeds $1 billion and a 1% excise tax on certain stock repurchases The CAMT and the excise tax are effective in taxable years beginning after December 31, 2022.
On August 16, 2022, the Inflation Reduction Act, H.R. 5376 (the “IR Act”) was signed into law. The IR Act introduces a 15% corporate alternative minimum tax (“CAMT”) for corporations whose average annual adjusted financial statement income for any consecutive three-tax-year period preceding the applicable tax year exceeds $1 billion and a 1% excise tax on certain stock repurchases.
To date, we have not engaged in foreign currency hedging transactions because our foreign currency transaction gains and losses have not been material to our consolidated financial statements, but we may begin foreign currency risk management strategies in the future.
To date, we have not engaged in foreign currency hedging transactions because our foreign currency transaction gains and losses have not been material to our consolidated financial statements, but we may begin foreign currency risk management strategies in the future. ​ ​ ​ PART II FORM 10-K | 61 ​ Table of Contents Impact of Inflation Our results of operations and financial condition are presented based on historical cost.
The ABL Credit Agreement provides for a borrowing amount based on the value of eligible collateral and a formula linked to certain borrowing percentages based on certain categories of collateral.
As of February 3, 2024, we had no outstanding borrowings under the revolving line of credit and $2,449 million outstanding under the Term Loan Credit Agreement. The ABL Credit Agreement provides for a borrowing amount based on the value of eligible collateral and a formula linked to certain borrowing percentages based on certain categories of collateral.
SOFR, which is currently published by the Federal Reserve Bank of New York based on overnight U.S.
SOFR, which is currently published by the Federal Reserve Bank of New York based on overnight U.S. Treasury repurchase agreement transactions, has been recommended as the alternative to LIBOR by the Alternative Reference Rates Committee convened by the Federal Reserve Board and the Federal Reserve Bank of New York.
Based on the average interest rate on the revolving line of credit under the ABL Credit Agreement and the Term Loan B and Term Loan B-2 under the Term Loan Credit Agreement during fiscal 2022, and to the extent that borrowings were outstanding under any facility, we do not believe that a 10% change in the interest rate would have a material effect on our consolidated results of operations or financial condition.
Based on the average interest rate on the revolving line of credit under the ABL Credit Agreement and the Term Loan B and Term Loan B-2 under the Term Loan Credit Agreement during fiscal 2023, and to the extent that borrowings were outstanding under any facility, for every 100-basis point change in interest rates, our annual interest expense could change by approximately $24 million.
Such interest rate increases, if they continue, may increase the interest rate applicable to our borrowings that have rates that are subject to adjustment pursuant to floating rate indices such as LIBOR and SOFR. As of January 28, 2023, we had no outstanding borrowings under the revolving line of credit and $2,474 million outstanding under the Term Loan Credit Agreement.
The Federal Reserve continued increasing short-term interest rates in fiscal 2023 compared to the historically low levels in fiscal 2021. Such interest rate increases, if they continue, may increase the interest rate applicable to our borrowings that have rates that are subject to adjustment pursuant to floating rate indices such as SOFR.
We are evaluating the provisions of the new law and its potential impact. ​ ​ ​ ​ ​ ​ 62 | FORM 10-K PART II ​ Table of Contents
Refer to Note 16 —Share Repurchase Program and Share Retirement . ​ ​ ​ ​ ​ ​ 62 | FORM 10-K PART II ​ Table of Contents
Removed
The Federal Reserve continued increasing short-term interest rates in fiscal 2022 compared to the historically low levels in fiscal 2021 and there is widespread expectation in the market for rate increases to continue into the first half of 2023.
Added
On the other hand, some increased costs related to higher levels of inflation may have longer duration impact on our operations, including increased costs of compensation for our associates as well as higher prices for construction and materials used in our Gallery development.
Removed
Following announcements by the United Kingdom’s Financial Conduct Authority (the “FCA”), which regulates LIBOR, and the Intercontinental Exchange Benchmark Administration, the administrator of LIBOR, publication of 1-week and 2-month U.S. Dollar LIBOR settings and all tenors for other currencies ceased after December 31, 2021. While publication of the remaining U.S.
Added
The CAMT and the excise tax were effective in taxable years beginning after December 31, 2022. The CAMT provision did not have a material impact on our consolidated financial statements in fiscal 2023. During fiscal 2023, we incurred excise tax related to our share repurchase activity.
Removed
Dollar settings (overnight and 1, 3, 6 and 12 month U.S. Dollar LIBOR) is expected to cease after June 30, 2023, U.S. banking and other global financial services regulators have directed regulated institutions to cease entering into new LIBOR-based contracts as soon as practicable and in any event by the end of 2021.
Removed
Treasury repurchase agreement transactions, has been recommended as the alternative to LIBOR by the Alternative Reference Rates Committee convened by the Federal Reserve Board and the Federal Reserve Bank of New York and is provided as an alternative rate for our current debt facilities having an interest rate tied to LIBOR. ​ ​ ​ 60 | FORM 10-K PART II ​ Table of Contents The ABL Credit Agreement was amended in December 2022 to transition from LIBOR to SOFR.
Removed
We anticipate the Term Loan Credit Agreement will transition to reference SOFR in fiscal 2023.
Removed
However, SOFR or any other alternative rates may result in interest payments that are higher than expected or that do not otherwise correlate over time with the payments that would have been made on such indebtedness for the interest periods if the applicable LIBOR rate was available in its current form.
Removed
We intend to continue to evaluate and monitor the risks associated with the LIBOR transition which include identifying and monitoring our exposure to LIBOR and ensuring operational processes are updated to accommodate alternative rates. Due to uncertainty surrounding alternative rates, we are unable to predict the overall impact of this change at this time.
Removed
As of January 28, 2023, we had $1.7 million principal amount of 0.00% convertible senior notes due 2023 outstanding (the “2023 Notes”). As this instrument does not bear interest, we do not have interest rate risk exposure related to this debt.
Removed
Market Price Sensitive Instruments Convertible Senior Notes In connection with the issuance of the 2023 Notes and 2024 Notes, we entered into privately negotiated convertible note hedge transactions with certain counterparties.
Removed
We also entered into separate warrant transactions with the same group of counterparties initially relating to the number of shares of our common stock underlying the convertible note hedge transactions, subject to customary anti-dilution adjustments.
Removed
In the first and second quarter of fiscal 2022, we entered into agreements to repurchase $237 million in aggregate principal amount of convertible senior notes consisting of approximately $63 million and $174 million in aggregate principal amount of the 2023 Notes and 2024 Notes, respectively.
Removed
In addition to such convertible senior notes repurchases, in the first quarter of fiscal 2022 we also terminated all of the remaining bond hedges as well as all of the outstanding warrants originally issued in conjunction with the 2023 Notes and the 2024 Notes . Refer to Note 12— Convertible Senior Notes in our consolidated financial statements.

Other RH 10-K year-over-year comparisons