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What changed in RH's 10-K — 2025 vs 2026

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Paragraph-level year-over-year comparison of RH's 2025 and 2026 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 2026 report.

+389 added−418 removedSource: 10-K (2025-04-02) vs 10-K (2024-03-28)

Top changes in RH's 2026 10-K

389 paragraphs added · 418 removed · 327 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

72 edited+9 added−17 removed30 unchanged
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.
Biggest changeThis global expansion aligns with our broader vision of establishing RH as a leading luxury lifestyle brand worldwide. ​ ​ ​ 4 | FORM 10-K PART I ​ Table of Contents Our retail location square footage metrics and activity were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ FEBRUARY 1, ​ FEBRUARY 3, ​ ​ 2025 ​ 2024 ​ ​ ​ TOTAL ​ TOTAL ​ ​ ​ ​ SELLING SQUARE ​ ​ ​ SELLING SQUARE ​ ​ COUNT ​ FOOTAGE (1) ​ COUNT ​ FOOTAGE (1) ​ ​ (square footage in thousands) Beginning of period ​ 84 ​ 1,378 81 ​ 1,286 RH Design Galleries ​ ​ ​ ​ Newport Beach ​ 1 ​ ​ 60.1 ​ — ​ ​ — Raleigh ​ 1 ​ ​ 37.6 ​ — ​ ​ — Cleveland ​ 1 ​ ​ 33.1 ​ — ​ ​ — Palo Alto ​ 1 ​ ​ 32.5 ​ — ​ ​ — Brussels ​ 1 ​ ​ 27.7 ​ — ​ ​ — Madrid ​ 1 ​ ​ 8.3 ​ — ​ ​ — Montecito ​ 1 ​ ​ 4.8 ​ — ​ ​ — England ​ — ​ ​ — ​ 1 ​ ​ 35.1 Munich ​ — ​ ​ — ​ 1 ​ ​ 26.4 Düsseldorf ​ — ​ ​ — ​ 1 ​ ​ 19.6 Indianapolis (relocation) ​ — ​ ​ — ​ — ​ ​ 7.6 RH Legacy Galleries ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Plano ​ (1) ​ ​ (9.6) ​ — ​ ​ — Costa Mesa ​ (1) ​ ​ (7.9) ​ — ​ ​ — Cleveland ​ (1) ​ ​ (7.1) ​ — ​ ​ — Newport Beach ​ (1) ​ ​ (7.0) ​ — ​ ​ — Mission Viejo ​ (1) ​ ​ (6.9) ​ — ​ ​ — Santa Barbara ​ (1) ​ ​ (6.9) ​ — ​ ​ — Palo Alto ​ (1) ​ ​ (6.1) ​ — ​ ​ — Raleigh ​ (1) ​ ​ (4.7) ​ — ​ ​ — Detroit (relocation) ​ — ​ ​ — ​ — ​ ​ 1.5 Short Hills (relocation) ​ — ​ ​ — ​ — ​ ​ 0.1 RH Baby & Child and TEEN Gallery ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corte Madera ​ (1) ​ ​ (1.8) ​ — ​ ​ — RH Interior Design Office ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Palm Desert ​ 1 ​ ​ 3.0 ​ — ​ ​ — Waterworks Showroom ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Atlanta (relocation) ​ — ​ ​ — ​ — ​ ​ 2.0 End of period ​ 83 ​ 1,527 84 ​ 1,378 Total square footage at end of period (2) ​ ​ ​ ​ 2,097 ​ ​ ​ ​ 1,901 ​ ​ ​ PART I FORM 10-K | 5 ​ Table of Contents (1) Represents 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 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.
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 Contract business supplies products to large-scale, luxury hospitality, commercial and residential development projects globally, working directly with hotel ownership groups and brands, commercial property owners, single-family and multi-family builders and developers and their ecosystem of architecture, interior design and purchasing business partners. These channels enable us to reach new business customers and the consumers they influence.
Our Contract channel supplies products to large-scale, luxury hospitality, commercial and residential development projects globally, working directly with hotel ownership groups and brands, commercial property owners, single-family and multi-family builders and developers and their ecosystem of architecture, interior design and purchasing business partners. These channels enable us to reach new business customers and the consumers they influence.
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 .
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 continue to expand our business globally, we will face new competitors .
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.
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 we believe their desirability and exclusivity have enabled us to achieve strong revenues and margins.
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 transformation, 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 .
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.
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.
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.
These immersive experiences expose both 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.
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 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.
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.
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 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 have revolutionized the customer experience by showcasing products in a sophisticated lifestyle setting, consistent with the imagery and product presentation featured within our websites and Sourcebooks. Products in our Galleries are presented in fully appointed rooms, emphasizing collections over individual pieces.
(2) We have an integrated RH Hospitality experience in 16 of our Design Galleries and in our one RH Guesthouse. ​ Our Galleries reinforce our luxury brand aesthetic and are highly differentiated from other home furnishings retailers.
(2) We have an integrated RH Hospitality experience in 21 of our Design Galleries and in our one RH Guesthouse. ​ Our Galleries reinforce our luxury brand aesthetic and are highly differentiated from other home furnishings retailers.
We believe we are in material compliance with laws applicable to our business. Where You Can Find More Information We are required to file or furnish annual, quarterly and current reports, proxy statements and other information as required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with the SEC.
We believe we are in material compliance with laws applicable to our business. Where You Can Find More Information We are required to file or furnish annual, quarterly and current reports, proxy statements and other information as required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with the Securities and Exchange Commission (the “SEC”).
Additionally, we are creating bespoke experiences like RH Yountville, an integration of Food, Wine, Art & Design in the Napa Valley; RH1 & RH2, our private jets; and RH3, our luxury yacht that is available for charter in the Caribbean and Mediterranean, where the wealthy and affluent visit and vacation.
Additionally, we offer bespoke experiences like RH Yountville, an integration of Food, Wine, Art & Design in the Napa Valley; RH1 & RH2, our private jets; and RH3, our luxury yacht that is available for charter in the Caribbean and Mediterranean, where the wealthy and affluent visit and vacation.
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 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 retail location square footage, as well as Sourcebook circulation, to capitalize on each market’s sales potential and increase our return on invested capital.
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.
Our products are 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.
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.
The following list shows the number of retail locations in each U.S. state and foreign country where we operate as of February 1, 2025: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ LOCATION COUNT LOCATION COUNT LOCATION COUNT Alabama 1 Michigan 1 Utah 1 Arizona 2 Minnesota 1 Virginia 2 California 17 Missouri 1 Washington 1 Colorado 2 Nevada 1 District of Columbia 1 Connecticut 3 New Jersey 2 Belgium ​ 1 Florida 6 New York 4 Canada 4 Georgia 2 North Carolina 2 Germany ​ 2 Illinois 3 Ohio 3 Spain ​ 1 Indiana 1 Oklahoma 1 United Kingdom (1) 2 Kansas 1 Oregon 1 ​ ​ ​ Louisiana 1 Pennsylvania 2 ​ ​ ​ Maryland 1 Tennessee 1 ​ ​ ​ ​ Massachusetts 2 Texas 6 Total 83 (1) The United Kingdom retail locations include an RH Design Gallery and a Waterworks Showroom.
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.
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. We compete with a number of home furnishings retailers, including national and regional businesses, as well as new market participants that operate predominantly online.
For an annual fee, the RH Members Program provides a set discount every day across the RH brand, excluding RH Hospitality and Waterworks, in addition to other benefits, including complimentary design services through the RH Interior Design program and eligibility for preferred financing plans on the RH Credit Card.
For an annual fee, the RH Members Program provides a set discount every day on products available on the RH platform, in addition to other benefits, including complimentary design services through the RH Interior Design program and eligibility for preferred financing plans on the RH Credit Card.
The charters for our Board of Directors’ Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee, as well as our Code of Business Conduct, our Corporate Governance Guidelines and Code of Ethics governing our chief executive and senior financial officers and other related materials are available on our websites.
The charters for our Board of Directors’ Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee, as well as our Code of Business Conduct, our Corporate Governance Guidelines and Code of Ethics for Chief Executive Officer and Senior Financial Officers and other related materials, including press releases and other information about financial performance, are available on our websites.
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.
Our view is that the competitive environment globally is more fragmented and primed for disruption than the North American market, and there is no direct competitor of scale that possesses the product, operational platform, and brand strength of RH.
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 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 . ​ ​ ​ 10 | FORM 10-K PART I ​ Table of Contents 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.
We believe that we compete primarily on the basis of the design, style and quality of our products, the breadth of our assortment of high-quality merchandise and the luxury positioning of our brand.
Competition The home furnishings sector is highly competitive. We believe that we compete primarily on the basis of the design, style and quality of our products, the breadth of our assortment of high-quality merchandise and the luxury positioning of our brand.
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.
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 1, 2025, our retail locations comprise RH Galleries, RH Interior Design Office and Waterworks Showrooms: ​ ​ ​ ​ ​ ​ ​ ​ ​ AVERAGE SELLING ​ COUNT SQUARE FOOTAGE (1) RH ​ ​ ​ ​ North America ​ ​ ​ ​ Design Galleries (2) ​ 33 ​ 34,100 Legacy Galleries ​ 27 ​ 7,500 Modern Gallery ​ 1 ​ 12,800 Baby & Child and TEEN Galleries ​ 2 ​ 3,300 Interior Design Office ​ 1 ​ 3,000 Total RH retail locations—North America ​ 64 ​ ​ Europe Design Galleries ​ 5 ​ 23,400 Total RH retail locations ​ 69 ​ ​ Waterworks Showrooms ​ 14 ​ 4,300 Total retail locations ​ 83 ​ ​ (1) Calculated based on total selling square footage divided by total locations.
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.
In fiscal 2024, we sourced 77% of our purchase dollar volume from 28 vendors, and one vendor accounted for 16% of our purchase dollar volume.
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.
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 swatches and view merchandise displayed with different color, finish and material options.
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.
All creative work on our Sourcebooks is coordinated in-house in our RH Center of Innovation, providing us greater control over the brand image presented to our customers, while also reducing our Sourcebook production costs. We distribute our Sourcebooks throughout countries in which we operate.
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.
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.
We are also under construction in London, Paris and Milan in inspiring spaces that will celebrate the heritage of the historic structures and will integrate full expressions of our hospitality experiences. In addition, we have received local approvals for the development of RH Sydney, The Gallery in Double Bay.
We are also under construction in Paris, London and Milan in inspiring spaces that will celebrate the heritage of the historic structures and will integrate full expressions of our hospitality experiences. In addition, we plan to open RH Sydney, The Gallery in Double Bay, in Australia in the coming years. ​ Digital Reimagination .
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.
These design patents are generally valid for 15 years from their date of issuance. We own copyrights, including copyright registrations or pending applications, for our websites and our Sourcebooks. We believe that our trademarks, domain names, design patents, and copyrights have significant value, and we vigorously protect them against infringement.
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 found that merchandise assortments displayed in our Sourcebooks contribute to increased sales of those products across all of our channels. 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.
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.
Based on total dollar volume of purchases for fiscal 2024, 72% of our products were sourced from Asia, including 35% from Vietnam, 23% from China and the remainder predominantly from Indonesia and India, 18% from North America, including 10% from the United States, as well as 10% from Europe and other countries.
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
Our Investor Relations Department can be contacted at RH, 15 Koch Road, Corte Madera, California 94925, Attention: Investor Relations; telephone: 415-924-1005; e-mail: investorrelations@rh.com. ​ ​ ​ PART I FORM 10-K | 11 ​ Table of Contents
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 position our Galleries as showrooms for our brand, while our websites and Sourcebooks act as virtual and print extensions of our physical spaces, respectively.
Internally, our multi-year effort began with the reimagination of our Center of Innovation & Product Leadership to incorporate digitally integrated visuals and decision data designed to amplify the creative process from product ideation to product presentation.
Our strategy is to digitally reimagine the RH brand and business model both internally and externally. Internally, our multiyear effort began with the reimagination of our Center of Innovation to incorporate digitally integrated visuals and decision data designed to amplify the creative process from product ideation to product presentation.
Externally, our strategy comes to life digitally through The World of RH, an online portal where customers can explore and be inspired by the depth and dimension of our brand.
Externally, our strategy comes to life digitally through The World of RH, an online portal where customers can explore and be inspired by the depth and dimension of our brand. We expect to continue to elevate the customer experience on The World of RH with further enhancements to content, navigation and search functionality.
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.
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.
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.
Further details regarding our ESG programs can be found on the Investor Relations section of our website, located at ir.rh.com under “Governance—Environmental, Social & Governance.” 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.
(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.
(2) Includes approximately 142,000 square feet as of fiscal 2024 related to three owned retail locations and approximately 100,000 square feet as of fiscal 2023 related to two owned retail locations. ​ Weighted-average square footage and selling square footage are calculated based on the number of days a retail location was opened during the period divided by the total number of days in the period, and were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ FEBRUARY 1, FEBRUARY 3, ​ ​ ​ 2025 ​ 2024 ​ ​ (in thousands) Weighted-average square footage ​ ​ ​ 2,007 ​ 1,796 Weighted-average selling square footage ​ ​ ​ 1,458 ​ ​ 1,318 In addition to the retail locations, we operate one RH Guesthouse with approximately 13,800 selling square feet.
We collaborate with our global network of specialty vendors and manufacturers to produce artisanal pieces of high quality and value on a large scale, including both distinctive original designs and reinterpretations of antiques.
We collaborate with our global network of specialty vendors and manufacturers to produce artisanal pieces of high quality and value on a large scale, including both distinctive original designs and reinterpretations of antiques. Facility —We have built the RH Center of Innovation, a facility that supports the entire product development process from ideation to presentation across all channels.
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 .
Beginning with the mailing of our RH Interiors Sourcebook in the fall of 2023 and with additional Sourcebook mailings throughout 2024, we have introduced the most prolific collection of new products in our history. In addition, over the next few years, we plan to introduce RH Couture, RH Bespoke and RH Color. ​ Gallery Transformation .
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.
Waterworks products are sold online through the waterworks.com and rh.com websites. ​ ​ ​ 6 | FORM 10-K PART I ​ Table of Contents 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.
Each of our trademark registrations is perpetually renewable provided that we use or continue to use the trademarks in commerce in the particular geographic market and for the goods or services covered by the registration. In addition, we own many domain names, including “rh.com,” “restorationhardware.com,” “rhmodern.com,” “rhbabyandchild.com,” “rhteen.com,” “rhbeachouse.com,” “rhskihouse.com,” “rhguesthouse.com,” “waterworks.com” and others that include our trademarks.
Each of our trademark registrations is perpetually renewable provided that we use or continue to use the trademarks in commerce in the particular geographic market and for the goods or services covered by the registration.
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.
These campaigns include media coverage in design, lifestyle, culture/society and specialty publications, as well as in-Gallery events related to new Gallery openings. 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.
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.
In addition, we operate a manufacturing facility in North Carolina that produces a number of our upholstery collections. Distribution and Delivery We manage the distribution and delivery of our products through our distribution centers. We currently operate four fulfillment centers servicing RH products, which are located strategically in markets throughout the United States.
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.
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, Contract and Outlets. We believe the level of integration among all of our channels and our approach to the market distinguish us from other retailers.
Process —For many of our products, we work closely with our network of artisan partners who possess specialized product development and manufacturing capabilities and who we consider an extension of our product development team.
Our product teams are focused on maximizing the sales potential of each product category across all channels, which eliminates channel conflicts and functional redundancies. Process —For many of our products, we work closely with our network of artisan partners who possess specialized product development and manufacturing capabilities and who we consider an extension of our product development team.
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 also hold our vendors to these same principles, requiring adherence to our Product Partner Code of Conduct, which can be found on the Investor Relations section of our website at ir.rh.com under “Governance—Environmental, Social & Governance.” ​ Certain headcount data was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ FEBRUARY 1, ​ FEBRUARY 3, ​ JANUARY 28, ​ 2025 2024 2023 ​ ​ (approximate) Total team members (1) ​ 6,340 ​ 5,960 ​ 6,180 Retail and Outlet team members ​ 2,290 ​ 2,210 ​ 2,090 Hospitality team members ​ 1,880 ​ 1,520 ​ 1,580 Part-time team members ​ 650 ​ 630 ​ 720 (1) None of our team members are represented by a union, and we have had no labor-related work stoppages . ​ ​ ​ PART I FORM 10-K | 9 ​ Table of Contents 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.
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.
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 merchants of luxury home furnishings, and our products embody our design aesthetic and reflect inspiration from across the centuries and around the globe. We have developed a proprietary product development platform that is fully integrated from ideation to presentation.
Products and Product Development We have positioned RH as a lifestyle brand and design authority by offering expansive merchandise assortments. We are merchants of luxury home furnishings, and our products embody our design aesthetic and reflect inspiration from across the centuries and around the globe.
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.
The RH Members Program excludes purchases through Outlets, Trade, Contract and Hospitality, as well as directly from Waterworks. 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.
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 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 strategically designed our Design Galleries as innovative and adaptable formats, allowing us to accelerate the introduction of our disruptive product assortments and immersive retail experiences into the market.
We strongly believe our performance is enhanced by a workforce composed of individuals with diverse backgrounds, skills and experience that align with the needs of our business, culture and values.
We believe that a workforce that reflects a range of skills, experiences and backgrounds aligned with our culture, values and business needs, enhances our performance.
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.
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. These include targeted Sourcebook circulation, email communications, promotional mailings, print advertisements, and public relations activities and events.
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.
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. We are making meaningful investments to elevate and differentiate our online experience with plans to upgrade our website throughout 2025.
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.
Our success and future growth rely on our dedication to these values, which shape every facet of our organization. ​ RH is an equal-opportunity employer committed to meritocratic hiring. Our goal is to ensure the right person is in every role across our organization.
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.
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 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.
Additionally, we operate certain brand-elevating assets that also serve as advertising vehicles for the RH brand, including RH Guesthouse New York; RH England, The Gallery at the Historic Aynho Park; and RH3, our luxury yacht that is available for charter. ​ ​ ​ 6 | FORM 10-K PART I ​ Table of Contents The highly differentiated design aesthetic and environment of our Galleries drives customer traffic not only to our physical spaces but also to our websites.
Additionally, we operate certain brand-elevating assets that also serve as advertising vehicles for the RH brand, including RH Guesthouse New York; RH England, The Gallery at the Historic Aynho Park; RH Yountville, an integration of Food, Wine, Art & Design in the Napa Valley; RH1 & RH2, our private jets available for charter; and RH3, our luxury yacht available for charter.
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.
We have one fulfillment center in the United States servicing Waterworks products. 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 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.
We operate our retail locations throughout the United States and Canada as well as in the United Kingdom, Germany, Belgium and Spain and we have an integrated RH Hospitality experience in 21 of our Design Gallery locations, which includes restaurants and wine bars.
Key aspects of our product development platform are: Organization —We have established a collaborative, cross-functional organization leading our product development, sourcing, merchandising, inventory and creative teams. Our product teams are focused on maximizing the sales potential of each product category across all channels, which eliminates channel conflicts and functional redundancies.
We have developed a proprietary product development platform that is fully integrated from ideation to presentation. Key aspects of our product development platform are: Organization —We have established a collaborative, cross-functional organization leading our product development, sourcing, merchandising, inventory and creative teams.
We believe our supply chain and fulfillment operations allow us to manage customer orders and distribute merchandise to our customers in an efficient and cost-effective manner, and we continue to identify opportunities to improve the delivery of our products. Competition The home furnishings sector is highly competitive.
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. ​ ​ ​ 8 | FORM 10-K PART I ​ Table of Contents We believe our supply chain and fulfillment operations allow us to manage customer orders and distribute merchandise to our customers in an efficient and cost-effective manner, and we continue to identify opportunities to improve the delivery of our products.
We plan to continue 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 United Kingdom, France, Spain, Italy and Australia.
The pace of our Gallery openings is influenced by multiple factors, including market conditions and strategic priorities. We also continue to extend our international footprint, with agreements in place for Design Galleries in select markets outside of North America, including France, the United Kingdom, Italy and Australia.
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.
Sourcebooks We produce a series of catalogs, which we refer to as Sourcebooks, to showcase our merchandise assortment. Our Sourcebooks include RH Interiors, RH Contemporary, RH Modern, RH Outdoor, and RH Baby & Child and TEEN. Our Sourcebooks are one of our primary branding and advertising vehicles.
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 operate portions of our home delivery services in 27 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 smaller items to the location of our customers’ choice.
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.
These Galleries also house interior design offices and presentation rooms where our designers collaborate with clients to bring their projects to life. 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 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.
In addition, we own many domain names, including rh.com , restorationhardware.com , rhmodern.rh.com , rhbabyandchild.rh.com , rhteen.rh.com , rhbeachouse.com , rhskihouse.com , rhguesthouse.com , waterworks.com and others that include our trademarks. 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.
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.
Our People RH is guided by our vision, values and beliefs, which shape our culture, inform our decisions and drive our long-term strategy. As a vision-led organization, we are committed to our core values—People, Quality, Service, and Innovation. Our unique culture is embodied by our team members and reflected in everything we do.
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.
During fiscal 2024, our members drove approximately 98% of sales in our core RH business, and we had approximately 265,000 members at year-end. We believe our membership model enhances the customer experience, renders our brand more valuable, improves operational execution and reduces costs.
Facility —We have built the RH Center of Innovation & Product Leadership, a facility that supports the entire product development process from product ideation to presentation across all channels. Our proprietary organization, process and facility enhance our ability to introduce more new products with each collection.
Our proprietary organization, process and facility enhance our ability to introduce more new products with each collection. In addition, our product development platform, sourcing capabilities and significant scale enable us to reduce our product costs.
RH Members Program The RH Members Program reimagines and simplifies the shopping experience.
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.
Our plans include launching a number of international locations in the United Kingdom and Europe, which began with the opening of RH England, The Gallery at the Historic Aynho Park, in June 2023; followed by the November 2023 openings of RH Munich, The Gallery on Sendlinger Strasse, and RH Düsseldorf, The Gallery on the Königsallee; as well as RH Brussels, The Gallery on Boulevard de Waterloo, in March 2024.
As such, we are actively pursuing the expansion of the RH brand globally, which began with the opening of RH England, RH Munich and RH Düsseldorf in 2023, followed by the opening of RH Brussels in March 2024 and RH Madrid in June 2024.
Removed
We have secured a number of locations in various markets in the United Kingdom, continental Europe and Australia, including in Madrid, Paris, London, Milan and Sydney. ​ Digital Reimagination . Our strategy is to digitally reimagine the RH brand and business model both internally and externally.
Added
We will continue to refine and evolve these formats based on key insights from recent openings, such as RH Palo Alto and RH Newport Beach. Most Design Galleries encompass approximately 30,000 to 50,000 square feet of selling space, seamlessly integrating our hospitality offerings while showcasing our product collections across multiple categories.
Removed
Launched in the spring of 2022, The World of RH includes rich, immersive content with simplified navigation and search functionality, all designed to enhance the shopping experience and render our product and brand more valuable. We expect to continue to elevate the customer experience on The World of RH with further enhancements to content, navigation and search functionality.
Added
These iconic locations reinforce our long-term competitive advantage and establish a market presence that we believe is difficult to replicate. We opened our first bespoke international location, RH England, The Gallery at the Historic Aynho Park, in June 2023, and we plan to further expand this concept across the U.S. and Europe.
Removed
We believe the level of integration among all of our channels and our approach to the market distinguish us from other retailers.
Added
Upcoming bespoke locations include RH Paris, The Gallery on the Champs-Élysées and RH London, the Gallery in Mayfair. Third, we will continue to open smaller scale Design Galleries and bespoke Design Galleries in neighborhoods, towns and small cities where the wealthy and affluent live, visit and vacation.
Removed
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.
Added
These locations are thoughtfully tailored to reflect the local culture and are proportionate to each market’s potential. Examples include RH Yountville and RH Montecito, along with forthcoming openings in Aspen and Manhasset. Additionally, we debuted our first Interior Design Office in Palm Desert, California, in December 2024.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWith 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.
Biggest changeWith respect to a number of our Gallery development projects, we are broadly undertaking increased development risk with respect to our real estate investments and have experienced development cost overruns, construction delays and other negative factors which could expose us to increased downside risks as we continue to pursue these strategies, such as operational and financial challenges related to later than expected openings of new Galleries as well as substantial increases in our costs.
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.
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 Sourcebooks as an advertising and promotional tool, including with respect to prospecting for new customers.
Our strategies include (1) our “capital light” leasing deals, where a substantial portion of the capital requirement would be funded by the landlord; (2) our real estate development model where we expect either to do a sale-leaseback transaction or to pre-sell the property and structure the transaction such that the capital to build the project is advanced by the buyer during construction; and (3) various joint venture approaches, where we share the upside of the development with third parties such as the developer/landlord.
Our strategies include, (1) our real estate development model where we expect either to do a sale-leaseback transaction or to pre-sell the property and structure the transaction such that the capital to build the project is advanced by the buyer during construction, (2) various joint venture approaches, where we share the upside of the development with third parties such as the developer/landlord and (3) our “capital light” leasing deals, where a substantial portion of the capital requirement would be funded by the landlord.
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.
A number of factors that 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.
We also may be unable to remedy such issues quickly due to operational difficulties, such as disruptions in transitioning fulfillment orders to the new distribution facilities, competition for distribution facility space and problems associated with operating new facilities or reducing the size and changing functions of existing facilities.
We also may be unable to remedy such issues quickly due to operational difficulties, such as disruptions in transitioning fulfillment orders to the new fulfillment facilities, competition for distribution facility space and problems associated with operating new facilities or reducing the size and changing functions of existing facilities.
Because techniques used to obtain unauthorized access to networks, or to sabotage systems, are constantly evolving and generally are not recognized until launched against a target, we may be unable to anticipate applicable threats or vulnerabilities in our systems and processes and we may fail to implement adequate preventative measures.
Because techniques used to obtain unauthorized access to networks, or to sabotage systems, are constantly evolving and generally are not recognized until launched against a target, we may be unable to anticipate applicable threats or vulnerabilities in our systems and processes and may fail to implement adequate preventative measures.
If our systems, or those of third parties on whom are business depends, are damaged, interrupted or subject to unauthorized access, information about our customers, vendors or workforce could be stolen or misused.
If our systems, or those of third parties on whom our business depends, are damaged, interrupted or subject to unauthorized access, information about our customers, vendors or workforce could be stolen or misused.
Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.
Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.
In 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.
In 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 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.
Although we have experienced a number of positive business outcomes from the RH Hospitality operations, there can be no assurance that these benefits will be sustained, that we will avoid operational or other complications from the hospitality business or that new aspects of our hospitality offering such as the launch of Guesthouses will be successful. ​ ​ ​ 10 | FORM 10-K PART I ​ Table of Contents We often have incurred, and may in the future incur, substantial upfront costs for new business initiatives before we realize any corresponding revenue with respect to such initiatives.
Although we have experienced a number of positive business outcomes from the RH Hospitality operations, there can be no assurance that these benefits will be sustained, that we will avoid operational or other complications from the hospitality business or that new aspects of our hospitality offering such as the launch of Guesthouses will be successful. ​ ​ ​ 12 | FORM 10-K PART I ​ Table of Contents We often have incurred, and may in the future incur, substantial upfront costs for new business initiatives before we realize any corresponding revenue with respect to such initiatives.
Future large-scale crises, whether involving public health or other issues, may result in similar adverse effects or additional challenges that we may not be able to anticipate, including changes in consumer behavior, the pace of economic activity, or other similar issues which could negatively affect our business, results of operations or financial condition in future periods.
Future large-scale crises, whether involving public health or other issues, may result in similar adverse effects or additional challenges that we may not be able to anticipate, including changes in consumer behavior, the pace of economic activity, or other similar issues which could negatively affect our business, results of operations or financial condition.
For example, as we continue to develop and invest in new business initiatives, such as the introduction of guesthouses and the redevelopment of historical buildings into larger format Design Galleries in select major metropolitan markets, we may devote significant financial resources to a particular location before it opens to customers and generates revenue.
For example, as we continue to develop and invest in new business initiatives, such as the introduction of Guesthouses and the redevelopment of historical buildings into larger format bespoke Design Galleries in select major metropolitan markets, we may devote significant financial resources to a particular location before it opens to customers and generates revenue.
We expect that new laws, regulations and industry standards will continue to be proposed and enacted relating to privacy, data protection, marketing, advertising, consumer communications and information security in the U.S., the European Union and other jurisdictions, and we cannot determine the impact such future laws, regulations and standards may have on our business.
We expect that new laws, regulations and industry standards will continue to be proposed and enacted relating to privacy, data protection, marketing, advertising, consumer communications and information security in the U.S., the U.K, the European Union and other jurisdictions, and we cannot determine the impact such future laws, regulations and standards may have on our business.
Our b Bylaws further provide that any person or entity holding, owning or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to the exclusive forum provision. Investors also cannot waive compliance with the federal securities laws and the rules and regulations thereunder .
Our Bylaws further provide that any person or entity holding, owning or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to the exclusive forum provision. Investors also cannot waive compliance with the federal securities laws and the rules and regulations thereunder .
That information includes data about our customers, including personally identifiable information and credit card information, as well as sensitive information about our vendors and workforce, including social security numbers and bank account information. Various jurisdictions have enacted additional laws and regulations to protect consumers against identity theft, including laws governing treatment of personally identifiable information.
That information includes data about our customers, including personally identifiable information and credit card information, as well as sensitive information about our vendors and workforce, including social security numbers and bank account information. Various jurisdictions have enacted additional laws and regulations to protect consumers against identity theft, including laws governing the treatment of personally identifiable information.
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.
We have introduced a number of new product categories such as RH Modern, 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.
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.
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 changes to existing accounting rules or regulations. ​ ​ ​ 34 | 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.
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.
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 a 100% success rate in thwarting attacks.
As a result, we may not be able to cover the financial loss we may incur in losing the services of any of our key personnel. Competition for qualified employees and personnel is intense, particularly in the retail and hospitality industry.
As a result, we may not be able to cover the financial loss we may incur by losing the services of any of our key personnel. Competition for qualified employees and personnel is intense, particularly in the retail and hospitality industry.
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.
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. ​ ​ ​ 16 | 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., United Kingdom, Canada and Europe.
We are pursuing various alternatives to traditional leasing of our Gallery locations that may subject us to a range of risks related to real estate development, including risks related to construction and development of locations, risks related to the financing of commercial real estate and the market for commercial real estate.
We are pursuing various alternatives to traditional leasing arrangements of our Gallery locations that may subject us to a range of risks related to real estate development, including risks related to construction and development of locations, risks related to the financing of commercial real estate and the market for commercial real estate.
We have also selected Aspen as the location to develop the first RH Ecosystem inclusive of an RH Bespoke Gallery, RH Guesthouse, RH Bath House & Spa, RH Restaurants and our first RH Residences. We are currently constructing our RH Guesthouse in Aspen.
We have also selected Aspen as the location to develop the first RH Ecosystem inclusive of an RH bespoke Design Gallery, RH Guesthouse, RH Bath House & Spa, RH Restaurants and our first RH Residences. We are currently constructing our RH Guesthouse in Aspen.
If we change shipping companies, or are forced to reroute our shipments, we could face logistical difficulties that could adversely affect deliveries and we would incur costs and expend resources in connection with such change.
If we change shipping companies, or are forced to reroute our shipments, we could face logistical difficulties that could adversely affect deliveries and we would incur costs and expend resources in connection with such changes.
We cannot assure you that we will succeed in offsetting any increases in our expenses with improved efficiency or price increases for our products and services or that cost increases associated with our business will not have a material adverse effect on our financial condition or results of operations. ​ ​ ​ PART I FORM 10-K | 11 ​ Table of Contents We previously identified a material weakness in our internal controls over financial reporting and related weakness in our disclosure controls and procedures.
We cannot assure you that we will succeed in offsetting any increases in our expenses with improved efficiency or price increases for our products and services or that cost increases associated with our business will not have a material adverse effect on our financial condition or results of operations. ​ ​ ​ PART I FORM 10-K | 13 ​ Table of Contents We previously identified a material weakness in our internal controls over financial reporting and related weakness in our disclosure controls and procedures.
These factors may make it difficult for us to accurately predict our operating and financial results for future periods, and we believe these factors could have a material adverse effect on our business and results of operations in future periods. ​ ​ ​ 12 | FORM 10-K PART I ​ Table of Contents If we fail to successfully and timely deliver merchandise to our customers and manage our supply chain commensurate with demand, our results of operations may be adversely affected.
These factors may make it difficult for us to accurately predict our operating and financial results for future periods, and we believe these factors could have a material adverse effect on our business and results of operations in future periods. ​ ​ ​ 14 | FORM 10-K PART I ​ Table of Contents If we fail to successfully and timely deliver merchandise to our customers and manage our supply chain commensurate with demand, our results of operations may be adversely affected.
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.
We believe that our trademarks, copyrights (including in photographs in our Sourcebooks and on our website), and other proprietary rights are important to identifying and differentiating our brand and certain of our products from those of our competitors.
For example, we adopted Accounting Standards Update 2020-06— Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity in the first quarter of fiscal 2022, the adoption of which materially impacted our consolidated financial statements since we no longer separately present in equity an embedded conversion feature of our convertible senior notes and are required to determine our net income per share under the if-converted method.
For example, we adopted Accounting Standards Update 2020-06— Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity in fiscal 2022, the adoption of which materially impacted our consolidated financial statements since we no longer separately present in equity an embedded conversion feature of our convertible senior notes and are required to determine our net income per share under the if-converted method.
Our business depends upon the successful operation of our distribution centers, furniture home delivery centers and other aspects of our supply chain and customer delivery network, as well as upon our order management and fulfillment services.
Our business depends upon the successful operation of our fulfillment centers, furniture home delivery centers and other aspects of our supply chain and customer delivery network, as well as upon our order management and fulfillment services.
While we believe that these efforts will allow us to more efficiently manage our inventory and optimize our uses of capital, in the short term, such strategies may result in additional costs, including increased freight costs and lease early termination fees. Furthermore, in the past, during periods of significant customer growth and demand, our distribution centers often run at capacity.
While we believe that these efforts will allow us to more efficiently manage our inventory and optimize our uses of capital, in the short term, such strategies may result in additional costs, including increased freight costs and lease early termination fees. Furthermore, in the past, during periods of significant customer growth and demand, our fulfillment centers often run at capacity.
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.
We expect to continue to incur significant capital expenditures in respect of new Galleries and other initiatives in fiscal 2025, but the exact scope of our capital plans in future fiscal years, including fiscal 2025, 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.
For information regarding recently issued accounting pronouncements, refer to “Recently Issued Accounting Standards” within Note 3— Significant Accounting Policies in our consolidated financial statements within Part II of this Annual Report. ​ ​ ​ 30 | FORM 10-K PART I ​ Table of Contents Expectations of our company relating to environmental, social and governance factors may impose additional costs and expose us to new risks.
For information regarding recently issued accounting pronouncements, refer to “Recently Issued Accounting Standards” within Note 3— Significant Accounting Policies in our consolidated financial statements within Part II of this Annual Report. ​ ​ ​ PART I FORM 10-K | 33 ​ Table of Contents Expectations of our Company relating to environmental, social and governance factors may impose additional costs and expose us to new risks.
For example, in California, the California Consumer Privacy Act (the “CCPA”), which went into effect on January 1, 2020, imposes similar requirements on companies handling data of California residents.
For example, in California, the California Consumer Privacy Act (the “CCPA”), which went into effect on January 1, 2020, imposes requirements on companies handling data of California residents.
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.
Terrorist attacks, armed conflict such as what has occurred 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.
In particular, our corporate headquarters is located in Northern California and other parts of our operations are located in Northern and Southern California, each of which is vulnerable to the effects of disasters, including fires and earthquakes that could disrupt our operations and affect our results of operations, and there is evidence that extreme weather, extended drought and shifting climate patterns have intensified the frequency and severity of wildfires in California.
In particular, our corporate headquarters is located in Northern California and other parts of our operations are located in Northern and Southern California, each of which is vulnerable to the effects of disasters, including fires and earthquakes that could disrupt our operations and affect our results of operations, and there is evidence that extreme weather, extended droughts and shifting climate patterns have intensified the frequency and severity of wildfires in California.
While these alternative models are designed to achieve superior financial returns to traditional real estate lease structures for a retail business, some of these new ways of operation will expose us to a range of different risks. Various aspects of our multi-tier real estate strategy may expose us to new forms of risk versus our traditional leasing model.
While these alternative models are designed to achieve superior financial returns to traditional real estate lease structures for a retail business, some of these new ways of operating will expose us to a range of different risks. Various aspects of our multi-tier real estate strategy may expose us to new forms of risk versus our traditional leasing model.
The initial lease term for one of our future Design Galleries is forty-six years and contains a renewal option for five years.
The initial lease term for one of our Design Galleries is forty-six years and contains a renewal option for five years.
For example, we believe that the COVID-19 pandemic and the resulting trends in housing and consumption patterns drove increased demand in our business during a substantial portion of the pandemic, while the demand for home furnishings has since decreased as consumer demand has shifted into other areas such as travel and leisure.
For example, we believe that the pandemic and the resulting trends in housing and consumption patterns drove increased demand in our business during a substantial portion of the pandemic, while the demand for home furnishings has since decreased as consumer demand has shifted into other areas such as travel and leisure.
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.
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 | 15 ​ 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.
If we are unable to successfully optimize and operate our distribution centers, furniture home delivery centers and other aspects of our supply chain and customer delivery network, or if we are not able to fulfill orders and deliver our merchandise to our customers in an effective manner, our business and results of operations will be harmed.
If we are unable to successfully optimize and operate our fulfillment centers, furniture home delivery centers and other aspects of our supply chain and customer delivery network, or if we are not able to fulfill orders and deliver our merchandise to our customers in an effective manner, our business and results of operations will be harmed.
Changes in our business operations and financial results, regulatory and other legal developments, including potential changes in tax laws could also impact our share repurchase program and other capital allocation activities. ​ The terms of our outstanding indebtedness may delay or hinder an otherwise beneficial takeover attempt of us.
Changes in our business operations and financial results, regulatory and other legal developments, including potential changes in tax laws, could also impact our share repurchase program and other capital allocation activities. ​ The terms of our outstanding indebtedness may delay or hinder an otherwise beneficial takeover attempt of our Company.
We may pursue growth opportunities by acquiring value-creating, add-on businesses, solutions or technologies through strategic acquisitions, investments or partnerships that we believe will broaden our existing position and market reach and have completed several different acquisitions in recent years.
We may pursue growth opportunities by acquiring value-creating, add-on businesses, solutions or technologies through strategic acquisitions, investments or partnerships that we believe will broaden our existing position and market reach. We have completed several such acquisitions in recent years.
These features of our outstanding indebtedness, including the financial implications of any renegotiation of the above-mentioned provisions, could delay or prevent a change of control, whether or not it is desired by, or beneficial to, our stockholders, and may result in the acquisition of us being on terms less favorable to our stockholders than it would otherwise be, and are likely to require us to pay a portion of the consideration available in such a transaction to holders of our outstanding indebtedness.
These features of our outstanding indebtedness, including the financial implications of any renegotiation of the above-mentioned terms, could delay or prevent a change of control, whether or not it is desired by, or beneficial to, our stockholders, may result in the acquisition of our Company on terms less favorable to our stockholders than it would otherwise be, and are likely to require us to pay a portion of the consideration available to us in such a transaction to holders of our outstanding indebtedness.
In addition, we also received 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.
In addition, we also received tenant allowances under finance leases subsequent to lease commencement of $4.8 million, which are reflected as a reduction to principal payments under finance leases within financing activities on the consolidated statements of cash flows.
Any failure to address vulnerabilities or breaches in a timely and comprehensive matter, including shortcomings in our efforts to timely replace and upgrade network equipment, servers, or other technology assets, could result in a serious adverse event with respect to our systems and business operations.
Any failure to address vulnerabilities or breaches in a timely and comprehensive matter, including shortcomings in our efforts to timely replace and upgrade network equipment, servers, or other technological assets, could result in a serious adverse event with respect to our systems and business operations.
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.
Any of these occurrences could have a significant impact on our results of operations, revenue and costs. The 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.
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.
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 borrowed.
In addition, we have one RH Guesthouse location in New York, and are constructing our second RH Guesthouse in Aspen.
In addition, we have one RH Guesthouse in New York and are constructing our second RH Guesthouse in Aspen.
We also have incurred higher levels of capital and other expenditures associated with the opening of some of our new Gallery locations. In addition, construction costs and the price of construction materials have increased substantially in recent years.
We also have incurred higher than expected levels of capital and other expenditures associated with the opening of some of our new Gallery locations. In addition, construction costs and the price of construction materials have increased substantially in recent years.
We adopted this exclusive forum provisions in our Bylaws in order to avoid having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations.
We adopted these exclusive forum provisions in our Bylaws in order to avoid having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations.
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.
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 hospitality 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.
Foreign Corrupt Practices Act, and other similar laws and regulations, generally prohibit companies and their intermediaries from making improper payments to foreign governmental officials for the purpose of obtaining or retaining business.
The U.S. Foreign Corrupt Practices Act, and other similar laws and regulations, generally prohibit companies and their intermediaries from making improper payments to foreign governmental officials for the purpose of obtaining or retaining business.
Our success depends to a significant degree upon our ability to attract, retain and motivate qualified senior leadership, marketing and sales personnel, and store managers, and upon the continued contributions of these people. In addition, our complex operations require the services of qualified and experienced senior leadership personnel, with expertise in the areas, including information technology and supply chain management.
Our success depends to a significant degree upon our ability to attract, retain and motivate qualified senior leadership, marketing and sales personnel, and store managers, and upon the continued contributions of these people. In addition, our complex operations require the services of qualified and experienced senior leadership personnel with expertise in areas that include information technology and supply chain management.
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.
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 and hospitality providers or otherwise govern our business.
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.
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 high 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.
If we fail to accurately anticipate the future capacity requirements of our distribution centers, we may experience delays and difficulties in fulfilling orders and delivering merchandise to customers in a timely manner.
If we fail to accurately anticipate the future capacity requirements of our fulfillment centers, we may experience delays and difficulties in fulfilling orders and delivering merchandise to customers in a timely manner.
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.
We currently rely upon independent third-party transportation providers for product shipments from our vendors to our fulfillment centers, home delivery centers and retail locations and to our customers outside of certain areas.
The success of our business depends upon our ability to retain continued service of certain key personnel, particularly our Chairman and Chief Executive Officer, Gary Friedman, and our ability to attract and retain additional qualified key personnel in the future.
The success of our business depends upon our ability to retain certain key personnel, particularly our Chairman and Chief Executive Officer, Gary Friedman, and our ability to attract and retain additional qualified key personnel in the future.
Any security breach could expose us to risks of data loss, fines, litigation and liability and could seriously disrupt our operations and harm our reputation, any of which could adversely affect our business.
Any security breach could expose us to risk of data loss, fines, litigation and liability and could seriously disrupt our operations and harm our reputation, any of which could adversely affect our business.
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.
These provisions: establish a classified board of directors so that not all members of our board of directors are elected at one time; ​ ​ ​ 30 | FORM 10-K PART I ​ Table of Contents 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.
For example, we have consolidated our distribution center network and reconfigured our furniture home delivery centers in order to streamline our operations.
For example, we have consolidated our fulfillment center network and reconfigured our furniture home delivery centers in order to streamline our operations.
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 ).
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 under the section entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations ).
In addition, if our internal systems are breached or compromised, we may be liable for card re-issuance costs, subject to fines and higher transaction fees and lose our ability to accept credit and/or debit card payments from our members, and our business and operating results could be adversely affected. We currently maintain insurance to protect against cybersecurity risks and incidents.
In addition, if our internal systems are breached or compromised, we may be liable for card reissuance costs, subject to fines and higher transaction fees and lose our ability to accept credit and/or debit card payments from our customers, and our business and operating results could be adversely affected. We currently maintain insurance to protect against cybersecurity risks and incidents.
Our Certificate of Incorporation provides that, unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery in the State of Delaware) is the sole and exclusive forum for any stockholder (including a beneficial owner) to bring : ​ any derivative action or proceeding brought on our behalf; any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; any action asserting a claim against us, our directors, officers or employees arising pursuant to any provision of the Delaware General Corporation Law, our Certificate of Incorporation or our Bylaws; or ​ ​ ​ 28 | FORM 10-K PART I ​ Table of Contents any action asserting a claim against us or any of our directors, officers or employees that is governed by the internal affairs doctrine, except, in each case, any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction.
Our Certificate of Incorporation provides that, unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (the “Court of Chancery”) is the sole and exclusive forum for any stockholder (including a beneficial owner) to bring : ​ any derivative action or proceeding brought on our behalf; any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; any action asserting a claim against us, our directors, officers or employees arising pursuant to any provision of the Delaware General Corporation Law, our Certificate of Incorporation or our Bylaws; or any action asserting a claim against us or any of our directors, officers or employees that is governed by the internal affairs doctrine, except, in each case, any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction.
We may face a variety of risks associated with allocation of capital to repurchase of our securities, including the incurrence of substantial indebtedness to fund such repurchases, the possibility that prices at which we purchase securities will not represent a good investment for our remaining securities holders or the possibility that we allocate capital to such repurchases would mean that adequate investments are not available for other aspects of our business.
We may face a variety of risks associated with allocation of capital to the repurchase of our securities, including the incurrence of substantial indebtedness to fund such repurchases, the possibility that prices at which we purchase securities will not represent a good investment for our remaining securities holders or the possibility that the capital allocated to such repurchases may mean that adequate funds are not available for other aspects of our business.
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.
We are currently engaged in a number of growth initiatives, including investments to elevate our brand, transform our products, expand our platform and improve our 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.
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.
If in the future we encounter difficulties associated with any of our facilities 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.
Currently, we face a number of legal proceedings in connection with our business, including numerous cases for which plaintiffs are seeking class action status in areas such as wage and hour and employment practices.
Currently, we face a number of legal proceedings in connection with our business, including numerous cases for which plaintiffs are seeking class action status in areas such as wage and hour and employment practices. We may face similar legal proceedings and claims in the future.
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”).
On May 13, 2022, RHI entered into the 2022 Incremental Amendment (as defined under the section entitled 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 $2,000 million raised pursuant to the Term Loan Credit Agreement, the “Term Debt”).
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.
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.
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.
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, selling, general and administrative expenses, as well as our other expenses.
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.
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; negative publicity, including short seller reports; 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.
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.
As of February 1, 2025, we have an integrated RH Hospitality experience in 21 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.
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.
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. ​ ​ ​ 24 | FORM 10-K PART I ​ Table of Contents Over the last several years, there has been a substantial increase in the scope of reported cybersecurity threats and attacks.
During fiscal 2022, the Board of Directors authorized an additional $2.0 billion for the purchase of shares of our outstanding common stock, increasing the total authorized size of the share repurchase program to $2.45 billion. ​ ​ ​ PART I FORM 10-K | 29 ​ Table of Contents 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.
During fiscal 2022, the Board of Directors authorized an additional $2.0 billion for the purchase of shares of our outstanding common stock, increasing the total authorized size of the share repurchase program to $2.45 billion. ​ 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.
The California Privacy Rights Act, which became effective January 1, 2023, amends and expands the CCPA, including by expanding consumer’s rights in their personal information and creating a new governmental agency to interpret and enforce the statute. ​ ​ ​ 22 | FORM 10-K PART I ​ Table of Contents Foreign laws and regulations relating to privacy, data protection, information security, and consumer protection often are more restrictive than those in the U.S.
The California Privacy Rights Act, which became effective January 1, 2023, amends and expands the CCPA, including by expanding consumer’s rights in their personal information and creating a new governmental agency to interpret and enforce the statute. Foreign laws and regulations relating to privacy, data protection, information security, and consumer protection often are more restrictive than those in the U.S.
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.
These difficulties can result in a negative experience for our customers and could have a material adverse effect on our results of operations. ​ ​ ​ PART I FORM 10-K | 21 ​ Table of Contents We currently rely upon independent third-party transportation providers for the majority of our product shipments, which subjects us to certain risks.
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.
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. We are subject to risks associated with occupying substantial amounts of space, including future increases in occupancy costs.
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.
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., United Kingdom, Canada and Europe, whether actual, pending or threatened, may have a negative impact on our results of operations.
(“RHI”), a wholly owned subsidiary of RH, entered into the Term Loan Credit Agreement (as defined in Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations ) with respect to an initial term loan in an aggregate principal amount equal to $2.0 billion with a maturity date of October 20, 2028.
(“RHI”), a wholly owned subsidiary of RH, entered into the Term Loan Credit Agreement (as defined under the section entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations ) with respect to an initial term loan in an aggregate principal amount equal to $2,000 million with a maturity date of October 20, 2028.
We have experienced a number of changes in our senior leadership in recent years and face risks related to losses of key personnel and to any such changes that occur in key senior leadership positions.
We have experienced a number of changes in our senior leadership in recent years and face risks related to losses of key personnel, particularly in key senior leadership positions.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeWe use a number of different methodologies in our regular assessment of cybersecurity risks with respect to our information systems, including vulnerability testing, security enhancement and evaluation of external threats, including in connection with potential data breach, ransomware and other forms of unauthorized access. ​ ​ ​ 32 | FORM 10-K PART I ​ Table of Contents As part of our overall cybersecurity protection program, we have created a cross-functional cybersecurity team consisting of senior members of information technology, legal, accounting, internal audit and compliance teams (the “Incident Response Team”) that contributes to various aspects of our approach to managing cybersecurity risks.
Biggest changeWe use the Center for Internet Security’s Critical Security Controls framework in our regular assessment of cybersecurity risks with respect to our information systems, including vulnerability management, access controls, infrastructure hardening, employee training and evaluation of external threats, including in connection with potential data breaches, ransomware and other forms of unauthorized access. ​ ​ ​ PART I FORM 10-K | 35 ​ Table of Contents As part of our overall cybersecurity protection program, we have created a cross-functional cybersecurity team consisting of senior members of information technology, legal, accounting, internal audit and compliance teams (the “Incident Response Team”) that contributes to various aspects of our approach to managing cybersecurity risks.
For further discussion of our risks related to cybersecurity, refer to Item 1A—Risk Factors— Material damage to, or interruptions in, information systems as a result of external factors, staffing shortages, cybersecurity breaches or cyber fraud, or difficulties in updating our existing software or developing or implementing new software could have a material adverse effect on our business or results of operations, and we may be exposed to risks and costs associated with protecting the integrity and security of our customers’ information . ​ ​ ​ PART I FORM 10-K | 33 ​ Table of Contents
For further discussion of our risks related to cybersecurity, refer to Item 1A—Risk Factors— Material damage to, or interruptions in, information systems as a result of external factors, staffing shortages, cybersecurity breaches or cyber fraud, or difficulties in updating our existing software or developing or implementing new software could have a material adverse effect on our business or results of operations, and we may be exposed to risks and costs associated with protecting the integrity and security of our customers’ information . ​ ​ ​ 36 | FORM 10-K PART I ​ Table of Contents

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe 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.
Biggest changeFor 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.
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.
Eight locations represent current or future RH locations and are included in the RH Segment, three of which are operational as of February 1, 2025. Two locations represent properties for the purpose of use by RH or others related to developing, operating and selling such properties, and are part of the Real Estate segment.
In 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.
In addition to the above, we have one third-party fulfillment center and five third-party home delivery center locations in Europe. ​ ​ ​ PART I FORM 10-K | 37 ​ Table of Contents Owned Property We own ten properties, seven of which are owned through our consolidated variable interest entities.
(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.
(2) Includes total approximate leased square footage for 21 separate home delivery center locations. (3) Location of RH Headquarters and certain customer service operations. Also includes approximately 10,000 square feet of warehouse space. (4) Represents warehouse space. (5) Location of Waterworks Headquarters.
(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.
(2) Excludes location count and leased gross square footage for owned properties. ​ Our leased fulfillment centers, home delivery center locations and corporate facilities occupied as of February 1, 2025 were as follows: ​ ​ ​ ​ LEASED SQUARE FOOTAGE LOCATION ​ (approximate, in thousands) RH Fulfillment Centers Patterson, California 1,501 Baltimore, Maryland 1,788 Ontario, California ​ 1,001 West Jefferson, Ohio (1) 1,224 Home Delivery Center Locations (2) 1,317 Waterworks Fulfillment Center Brookfield, Connecticut 160 Corporate Facilities Corte Madera, California (3) 263 Pinole, California (4) 200 Danbury, Connecticut (5) 40 Other (6) 355 (1) Customer service center and home delivery operations are also performed at this location.
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.
PROPERTIES Leased Properties Gross square footage of our leased properties as of February 1, 2025 was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ LEASED GROSS ​ ​ ​ ​ SQUARE FOOTAGE ​ COUNT (approximate, in thousands) Retail locations (1)(2) ​ 80 ​ 2,321 Outlets ​ 40 ​ 1,274 (1) Retail locations include the Design Galleries, Legacy Galleries, Modern Gallery, Baby & Child and TEEN Galleries, Interior Design Office and Waterworks Showrooms.
Added
(6) Includes a number of other operational facilities, including primarily manufacturing operations, as well as customer service operations and storage. 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.

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 19— Commitments and Contingencies in our consolidated financial statements within Part II of this Annual Report. ITEM 4.
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, refer to Note 19— Commitments and Contingencies in our consolidated financial statements within Part II of this Annual Report. ITEM 4.
MINE SAFETY DISCLOSURES Not applicable. ​ ​ ​ ​ ​ ​ PART I FORM 10-K | 35 ​ Table of Contents PART II
MINE SAFETY DISCLOSURES Not applicable. ​ ​ ​ ​ ​ ​ 38 | FORM 10-K PART I ​ 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 ​ 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
Biggest changeItem 4. ​ Mine Safety Disclosures ​ 38 ​ ​ ​ ​ ​ ​ ​ PART II. ​ ​ Item 5. ​ Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ​ 39 Item 6. ​ [ Reserved ] ​ 41 Item 7. ​ Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ 42 Item 7A. ​ Quantitative and Qualitative Disclosures About Market Risk ​ 62 Item 8. ​ Financial Statements and Supplementary Data ​ 64

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 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.
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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ JANUARY 31, 2020 JANUARY 29, 2021 JANUARY 28, 2022 JANUARY 27, 2023 FEBRUARY 2, 2024 JANUARY 31, 2025 RH 100.00 227.72 ​ 187.75 ​ 148.81 ​ 122.65 ​ 200.77 NYSE Composite Index 100.00 105.75 ​ 120.45 ​ 117.25 ​ 125.62 ​ 146.90 S&P Retailing Select Index 100.00 204.65 ​ 185.13 ​ 163.03 ​ 167.48 ​ 191.01 ​ ​ ​ ​ 40 | FORM 10-K PART II — FINANCIAL STATEMENTS ​ Table of Contents Repurchases of Common Stock During the three months ended February 1, 2025, 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) November 3, 2024 to November 30, 2024 — ​ $ — ​ — ​ $ 201 December 1, 2024 to January 4, 2025 4,237 ​ $ 406.23 ​ — ​ $ 201 January 5, 2025 to February 1, 2025 42 ​ $ 413.95 ​ — ​ $ 201 Total 4,279 ​ ​ ​ ​ — ​ ​ (1) Represents shares withheld from delivery to satisfy exercise price and tax withholding obligations of employee recipients that occur upon the exercise of stock options and 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. ​ ​ ​ ​ 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.
We do not currently anticipate that we will pay any cash dividends on our common stock in the foreseeable future. ​ ​ ​ PART II — FINANCIAL STATEMENTS FORM 10-K | 39 ​ 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 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.
The following graph and table compare the cumulative total stockholder return for our common stock during the five-year period ended February 1, 2025 in comparison to the NYSE Composite Index and the S&P Retailing Select Index, our peer group index.
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.
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 1, 2025 was 12.
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.
The graph and the table below assume that $100 was invested at the market close on January 31, 2020 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 7. Management's Discussion & Analysis

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

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Biggest changeRefer 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.
Biggest changeRefer to “Non-GAAP Financial Measures” below for further information. ​ ​ PART II — FINANCIAL STATEMENTS FORM 10-K | 47 ​ Table of Contents Basis of Presentation and Results of Operations Our consolidated statements of income were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ ​ FEBRUARY 1, ​ % OF NET ​ FEBRUARY 3, ​ % OF NET ​ JANUARY 28, ​ % OF NET ​ ​ ​ ​ 2025 REVENUES 2024 REVENUES 2023 REVENUES ​ ​ ​ ​ (dollars in thousands) Net revenues ​ ​ $ 3,180,753 ​ 100.0 % ​ $ 3,029,126 ​ 100.0 % ​ $ 3,590,477 ​ 100.0 % ​ Cost of goods sold ​ ​ 1,765,821 ​ 55.5 ​ ​ 1,640,107 ​ 54.1 ​ ​ 1,778,492 ​ 49.5 ​ ​ Gross profit ​ ​ 1,414,932 ​ 44.5 ​ ​ 1,389,019 ​ 45.9 ​ ​ 1,811,985 ​ 50.5 ​ ​ Selling, general and administrative expenses ​ ​ 1,092,345 ​ 34.4 ​ ​ 1,022,948 ​ 33.8 ​ ​ 1,089,828 ​ 30.4 ​ ​ Income from operations ​ ​ 322,587 ​ 10.1 ​ ​ 366,071 ​ 12.1 ​ ​ 722,157 ​ 20.1 ​ ​ Other expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense—net ​ ​ 230,601 ​ 7.2 ​ ​ 198,296 ​ 6.6 ​ ​ 113,210 ​ 3.2 ​ ​ Loss on extinguishment of debt ​ ​ — ​ — ​ ​ — ​ — ​ ​ 169,578 ​ 4.7 ​ ​ Other expense—net ​ ​ ​ 3,395 ​ 0.1 ​ ​ ​ 1,078 ​ — ​ ​ ​ 30 ​ — ​ ​ Total other expenses ​ ​ 233,996 ​ 7.3 ​ ​ 199,374 ​ 6.6 ​ ​ 282,818 ​ 7.9 ​ ​ Income before taxes and equity method investments ​ ​ 88,591 ​ 2.8 ​ ​ 166,697 ​ 5.5 ​ ​ 439,339 ​ 12.2 ​ ​ Income tax expense (benefit) ​ ​ 4,799 ​ 0.2 ​ ​ 28,261 ​ 0.9 ​ ​ (91,358) ​ (2.6) ​ ​ Income before equity method investments ​ ​ ​ 83,792 ​ 2.6 ​ ​ ​ 138,436 ​ 4.6 ​ ​ ​ 530,697 ​ 14.8 ​ ​ Share of equity method investments loss—net ​ ​ ​ 11,380 ​ 0.3 ​ ​ ​ 10,875 ​ 0.4 ​ ​ ​ 2,055 ​ 0.1 ​ ​ Net income ​ ​ $ 72,412 ​ 2.3 % ​ $ 127,561 ​ 4.2 % ​ $ 528,642 ​ 14.7 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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.
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 discusses financial and operating measures that affect our results of operations, including net revenues, 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 demand, EBITDA and adjusted EBITDA. Basis of Presentation and Results of Operations .
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.
In addition, in recent periods we have experienced increased selling, general and administrative expenses, including asset impairments, non-cash compensation expense, reorganizations, legal settlements, 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.
We define adjusted capital expenditures as 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.
We define adjusted capital expenditures as 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.
Share Repurchase Program In 2018, our Board of Directors authorized a share repurchase program through open market purchases, privately negotiated transactions or other means, including through Rule 10b-18 open market repurchases, Rule 10b5-1 trading plans or through the use of other techniques such as the acquisition of other equity linked instruments, accelerated share repurchases, including through privately negotiated arrangements in which a portion of the share repurchase program is committed in advance through a financial intermediary and/or in transactions involving hedging or derivatives.
In 2018, our Board of Directors authorized a share repurchase program through open market purchases, privately negotiated transactions or other means, including through Rule 10b-18 open market repurchases, Rule 10b5-1 trading plans or through the use of other techniques such as the acquisition of other equity linked instruments, accelerated share repurchases, including through privately negotiated arrangements in which a portion of the share repurchase program is committed in advance through a financial intermediary and/or in transactions involving hedging or derivatives.
Share Repurchase Program and Share Retirement We regularly review share repurchase activity and consider various factors in determining whether and when to execute investments in connection with our share repurchase program, including, among others, current cash needs, capacity for leverage, cost of borrowings, results of operations and the market price of our common stock.
Share Repurchase Program We regularly review share repurchase activity and consider various factors in determining whether and when to execute investments in connection with our share repurchase program, including, among others, current cash needs, capacity for leverage, cost of borrowings, results of operations and the market price of our common stock.
(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).
(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). ​ ​ PART II — FINANCIAL STATEMENTS FORM 10-K | 49 ​ 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).
Factors considered include, but are not limited to, (i) the contractual terms compared to estimated market rates, (ii) the uniqueness or importance of the asset or its location, (iii) the potential costs of obtaining an alternative asset, (iv) the potential costs of relocating or ceasing use of the asset, including the consideration of leasehold improvements and other invested capital, and (v) any potential tax consequences.
Factors considered include, but are not limited to, (i) the contractual terms, including renewal periods compared to estimated market rates, (ii) the uniqueness or importance of the asset or its location, (iii) the potential costs of obtaining an alternative asset, (iv) the potential costs of relocating or ceasing use of the asset, including the consideration of leasehold improvements and other invested capital, and (v) any potential tax consequences.
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.
We believe that the pandemic 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.
We also track “demand” in our business, which is a non-GAAP metric linked to the level of customer orders. Demand is an operating metric that we use in reference to the dollar value of orders placed (orders convert to net revenue upon a customer obtaining control of the merchandise) and excludes exchanges and shipping fees. Gross Profit and Gross Margin.
We also track “demand” in our business, which is an operating metric linked to the level of customer orders. Demand is an operating metric that we use in reference to the dollar value of orders placed (orders convert to net revenue upon a customer obtaining control of the merchandise) and excludes exchanges and shipping fees. Gross Profit and Gross Margin.
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.
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.
The accordion feature may be added as a first-in, last-out term loan facility. The ABL Credit Agreement further provides the borrowers may request a European sub-credit facility under the revolving line of credit or under the accordion feature for borrowing by certain European subsidiaries of RH if certain conditions set out in the asset based credit facility are met.
The accordion feature may be added as a first-in, last-out term loan facility. The ABL Credit Agreement further provides the borrowers may request a European sub-credit facility under the revolving line of credit or under the accordion feature for borrowing by certain European subsidiaries of RH if certain conditions set out in the ABL Credit Agreement are met.
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.
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 2025 or beyond in response to these changing or other circumstances.
These immersive experiences expose new and existing customers to our evolving authority in architecture, interior design and landscape architecture. Global Expansion.
These immersive experiences expose both new and existing customers to our evolving authority in architecture, interior design and landscape architecture. ​ Global Expansion.
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.
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 and fiscal 2024 we experienced softening demand trends as compared to fiscal 2022.
Information on all of our significant accounting policies can be found in Note 3— Significant Accounting Policies in our audited consolidated financial statements.
Information on all of our significant accounting policies can be found in Note 3— Significant Accounting Policies in our consolidated financial statements.
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.
For example, a number of our vendors experienced delays in production and shipment of merchandise orders related to direct and indirect effects of the pandemic, as well as other geopolitical conflicts that have occurred in recent years.
Additionally, we are creating bespoke experiences like RH Yountville, an integration of Food, Wine, Art & Design in the Napa Valley; RH1 & RH2, our private jets; and RH3, our luxury yacht that is available for charter in the Caribbean and Mediterranean, where the wealthy and affluent visit and vacation.
Additionally, we offer bespoke experiences like RH Yountville, an integration of Food, Wine, Art & Design in the Napa Valley; RH1 & RH2, our private jets; and RH3, our luxury yacht that is available for charter in the Caribbean and Mediterranean, where the wealthy and affluent visit and vacation.
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.
The discussion of our financial condition and changes in our results of operations, liquidity and capital resources are presented in this section for fiscal 2024 and a comparison to fiscal 2023.
Credit Facilities and Debt Arrangements We amended and restated our asset based credit facility in July 2021, which has an initial availability of up to $600 million, of which $10 million is available to Restoration Hardware Canada, Inc., and includes a $300 million accordion feature under which the revolving line of credit may be expanded by agreement of the parties from $600 million to up to $900 million if and to the extent the lenders revise their credit commitments to encompass a larger facility.
Credit Facilities and Debt Arrangements We amended and restated the ABL Credit Agreement in July 2021, which provides an asset based credit facility with an initial availability of up to $600 million, of which $10 million is available to Restoration Hardware Canada, Inc., and includes a $300 million accordion feature under which the revolving line of credit may be expanded by agreement of the parties from $600 million to up to $900 million if and to the extent the lenders revise their credit commitments to encompass a larger facility.
We 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.
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.
Friedman in October 2020. (2) Refer to table titled “Reconciliation of GAAP Net Income to Operating Income and Adjusted Operating Income” and the related footnotes for additional information. (3) Represents amortization associated with capitalized cloud computing costs. ​ ​ ​ PART II FORM 10-K | 49 ​ Table of Contents Adjusted Capital Expenditures.
Friedman in October 2020. (2) Refer to table titled “Reconciliation of GAAP Net Income to Operating Income and Adjusted Operating Income” and the related footnotes for additional information. (3) Represents amortization associated with capitalized cloud computing costs. ​ ​ PART II — FINANCIAL STATEMENTS FORM 10-K | 51 ​ Table of Contents Adjusted Capital Expenditures.
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.
While we believe our estimates and judgments in determining the lease term are reasonable, future events may occur that may require us to reassess this determination. ​ ​ ​ 60 | FORM 10-K PART II — FINANCIAL STATEMENTS ​ 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.
General The primary cash needs of our business have historically been for merchandise inventories, payroll, rent for our retail and outlet locations, capital expenditures associated with opening new locations, updating existing locations, as well as the development of our infrastructure and information technology, and Sourcebooks.
General The primary cash needs of our business have historically been for merchandise inventories, payroll, rent for our retail and outlet locations, capital expenditures associated with opening new locations and related real estate investments, updating existing locations, as well as the development of our infrastructure and information technology, and Sourcebooks.
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.
While we do not anticipate that we will require additional debt financing to fund our operations, our goal is to continue to be in a position to take advantage of the many opportunities that we identify in connection with our business and operations.
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 discussion for fiscal 2023 and fiscal 2022 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 February 3, 2024, filed with the Securities and Exchange Commission (“SEC”) on March 28, 2024.
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.
Information on the year ended January 28, 2023 (fiscal 2022) 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 February 3, 2024, filed with the SEC on March 28, 2024.
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.
The following critical accounting policies reflect the significant estimates and judgments used in the preparation of our consolidated financial statements. ​ ​ PART II — FINANCIAL STATEMENTS FORM 10-K | 59 ​ Table of Contents 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.
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.
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. Most lease arrangements provide us with the option to renew the leases at defined terms.
(5) The adjustment to selling, general and administrative expenses in fiscal 2023 includes impairment of property and equipment of $2.2 million related to the interior refresh of our Design Galleries, as well as impairment of a loan receivable of $1.3 million.
The adjustment in fiscal 2023 includes impairment of property and equipment of $2.2 million related to the interior refresh of our Design Galleries, as well as impairment of a loan receivable of $1.3 million.
RH Segment selling, general and administrative expenses would have been 32.3% and 28.2% of net revenues for fiscal 2023 and fiscal 2022, respectively, when excluding the adjustments to RH Segment selling, general and administrative expenses mentioned above.
RH Segment selling, general and administrative expenses would have been 32.7% and 32.3% of net revenues for fiscal 2024 and fiscal 2023, respectively, when excluding the adjustments to RH Segment selling, general and administrative expenses mentioned above.
While we believe the majority of the supply chain dislocation has now been resolved, there can be no assurance as to the exact course that our supply chain will take and a number of factors could contribute to further complications in our supply chain, including increased in raw material costs related to inflation and other macroeconomic factors, including negative effects in countries where our vendors produce merchandise.
While we believe the majority of the supply chain dislocation has now been resolved, there can be no assurance as to the exact course that our supply chain will take and a number of factors could contribute to further complications in our supply chain, including increases in raw material costs related to inflation and other macroeconomic factors, including negative effects in countries where our vendors produce merchandise and the potential effect of tariffs imposed by the U.S. government.
The below discussion highlights several factors that resulted in a decrease in RH Segment net revenues, which are listed in order of magnitude.
The below discussion highlights several factors that resulted in an increase in RH Segment net revenues, which are listed in order of magnitude.
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.
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 2024, adjusted capital expenditures were $282 million in aggregate, net of cash received related to landlord tenant allowances of $28 million.
Lease Accounting Reasonably Certain Lease Term In recognizing the lease right-of-use assets and lease liabilities, we utilize the lease term for which we are reasonably certain to use the underlying asset, including consideration of options to extend or terminate the lease.
Lease Accounting—Determination of the Classification of New Real Estate Lease Contracts Reasonably Certain Lease Term In recognizing the lease right-of-use assets and lease liabilities, we utilize the lease term for which we are reasonably certain to use the underlying asset, including consideration of options to extend or terminate the lease.
We operate our retail locations throughout the United States, Canada, the United Kingdom and Germany, and have an integrated RH Hospitality experience in 16 of our Design Gallery locations, which includes restaurants and wine bars. ​ ​ ​ PART II FORM 10-K | 39 ​ Table of Contents We have recently undertaken substantial efforts to introduce the most prolific collection of new products in our history, with over 70 new furniture and upholstery collections across RH Interiors, RH Contemporary, RH Modern, RH Outdoor, RH Baby & Child and RH TEEN.
We operate our retail locations throughout the United States and Canada as well as in the United Kingdom, Germany, Belgium and Spain and have an integrated RH Hospitality experience in 21 of our Design Gallery locations, which includes restaurants and wine bars. ​ ​ ​ 42 | FORM 10-K PART II — FINANCIAL STATEMENTS ​ Table of Contents We have recently undertaken efforts to introduce the most prolific collection of new products in our history, with a substantial number of new furniture and upholstery collections across RH Interiors, RH Modern, RH Contemporary, RH Outdoor, RH Baby & Child and RH TEEN.
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.
Our view is that the competitive environment globally is more fragmented and primed for disruption than the North American market, and there is no direct competitor of scale that possesses the product, operational platform, and brand strength of RH.
If we misjudge the market for our products or the product lines that we acquire, we may be faced with excess inventories for some products and may be required to become more promotional in our selling activities, which would impact our net revenues and gross profit. Overall Economic Trends .
If we misjudge the market for our products or the product lines that we acquire, we may be faced with excess inventories for some products and may be required to become more promotional in our selling activities, which would impact our net revenues and gross profit. ​ ​ PART II — FINANCIAL STATEMENTS FORM 10-K | 45 ​ Table of Contents Overall Economic Trends .
We define adjusted net income as consolidated net income, adjusted for the impact of certain non-recurring and other items that we do not consider representative of our underlying operating performance. ​ Reconciliation of GAAP Net Income to Adjusted Net Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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.
We define adjusted net income as consolidated net income, adjusted for the impact of certain non-recurring and other items that we do not consider representative of our underlying operating performance. ​ Reconciliation of GAAP Net Income to Adjusted Net Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ FEBRUARY 1, ​ FEBRUARY 3, ​ JANUARY 28, ​ 2025 2024 2023 ​ (in thousands) Net income ​ $ 72,412 ​ $ 127,561 ​ $ 528,642 Adjustments pre-tax: ​ ​ ​ ​ ​ ​ Asset impairments (1) ​ ​ 36,071 ​ ​ 3,531 ​ ​ 24,186 Non-cash compensation (1) ​ 4,532 ​ ​ 9,640 ​ ​ 18,072 Reorganization related costs (1) ​ 4,423 ​ ​ 7,621 ​ ​ — Legal settlements—net (1) ​ ​ (9,375) ​ ​ 8,500 ​ ​ (4,188) Recall accrual (1) ​ — ​ ​ (1,576) ​ ​ 560 Loss on extinguishment of debt (1) ​ — ​ ​ — ​ ​ 169,578 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) Subtotal adjusted items ​ 35,651 ​ 27,716 ​ 235,523 Impact of income tax items (3) ​ (12,222) ​ ​ (18,787) ​ ​ (237,683) Share of equity method investments loss—net (1) ​ 11,380 ​ 10,875 ​ 2,055 Adjusted net income ​ $ 107,221 ​ $ 147,365 ​ $ 528,537 (1) Refer to table titled “Reconciliation of GAAP Net Income to Operating Income and Adjusted Operating Income” and the related footnotes for additional information.
Our business has also been negatively affected by macroeconomic conditions including higher interest rates, the slowdown in the luxury home market as well as other negative factors related to the effects of lingering higher inflation and increased costs including higher construction expenses.
Business Conditions In recent years, our business has been negatively affected and limited by macroeconomic conditions, including high interest rates and mortgage rates, volatility in the global financial markets and the slowdown in the luxury home market as well as other negative factors related to the effects of lingering higher inflation and increased costs, including higher construction expenses.
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.
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. ​ ​ ​ ​ ​ 48 | FORM 10-K PART II — FINANCIAL STATEMENTS ​ Table of Contents Reconciliation of GAAP Net Income to Operating Income and Adjusted Operating Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ FEBRUARY 1, FEBRUARY 3, ​ JANUARY 28, ​ ​ 2025 ​ 2024 ​ 2023 ​ ​ (in thousands) Net income ​ $ 72,412 ​ $ 127,561 ​ $ 528,642 Interest expense—net (1) ​ ​ 230,601 ​ ​ 198,296 ​ 113,210 Loss on extinguishment of debt (1) ​ ​ — ​ ​ — ​ 169,578 Other expense—net (1) ​ ​ 3,395 ​ ​ 1,078 ​ 30 Income tax expense (benefit) (1) ​ ​ 4,799 ​ ​ 28,261 ​ (91,358) Share of equity method investments loss—net (1) ​ ​ 11,380 ​ ​ 10,875 ​ ​ 2,055 Operating income ​ ​ 322,587 ​ ​ 366,071 ​ 722,157 Asset impairments (2) ​ ​ 36,071 ​ ​ 3,531 ​ 24,186 Non-cash compensation (3) ​ ​ 4,532 ​ ​ 9,640 ​ ​ 18,072 Reorganization related costs (4) ​ ​ 4,423 ​ ​ 7,621 ​ — Legal settlements—net (5) ​ ​ (9,375) ​ ​ 8,500 ​ (4,188) Recall accrual (6) ​ ​ — ​ ​ (1,576) ​ 560 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 ​ $ 358,238 ​ $ 393,787 ​ $ 789,826 (1) Refer to discussion “Fiscal 2024 Compared to Fiscal 2023” below for a discussion of our results of operations for the year ended February 1, 2025 and February 3, 2024.
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 products are 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.
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. ​ ​ ​ ​ 48 | FORM 10-K PART II ​ Table of Contents Reconciliation of GAAP Net Income to EBITDA and Adjusted EBITDA ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ FEBRUARY 3, ​ JANUARY 28, ​ JANUARY 29, ​ 2024 2023 2022 ​ ​ (in thousands) Net income ​ $ 127,561 ​ $ 528,642 ​ $ 688,546 Depreciation and amortization ​ 118,989 ​ 108,588 ​ 96,022 Interest expense—net ​ 198,296 ​ 113,210 ​ 64,947 Income tax expense (benefit) ​ 28,261 ​ (91,358) ​ 133,558 EBITDA ​ 473,107 ​ 659,082 ​ 983,073 Non-cash compensation (1) ​ 39,382 ​ 43,544 ​ ​ 48,478 Share of equity method investments loss (2) ​ ​ 10,875 ​ ​ 2,055 ​ ​ 8,214 Legal settlements (2) ​ ​ 8,500 ​ ​ (4,188) ​ ​ — Capitalized cloud computing amortization (3) ​ ​ 8,400 ​ ​ 6,566 ​ ​ 3,565 Reorganization related costs (2) ​ ​ 7,621 ​ ​ — ​ ​ 449 Asset impairments (2) ​ 3,531 ​ 24,186 ​ ​ 9,630 Other expense—net (2) ​ ​ 1,078 ​ ​ 30 ​ ​ 2,778 Recall accrual (2) ​ (1,576) ​ 560 ​ ​ 1,940 Loss on extinguishment of debt (2) ​ ​ — ​ ​ 169,578 ​ ​ 29,138 Employer payroll taxes on option exercises (2) ​ ​ — ​ ​ 14,392 ​ ​ — Professional fees (2) ​ ​ — ​ ​ 7,469 ​ ​ — Non-cash compensation related to consolidated VIEs (2) ​ ​ — ​ ​ 4,470 ​ ​ — Compensation settlements (2) ​ ​ — ​ ​ 3,483 ​ ​ — Gain on sale of building and land (2) ​ ​ — ​ ​ (775) ​ ​ — Adjusted EBITDA ​ $ 550,918 ​ $ 930,452 ​ $ 1,087,265 (1) Represents non-cash compensation related to equity awards granted to employees, including the amortization of the non-cash compensation charge related to an option grant made to Mr.
Adjusted EBITDA reflects further adjustments to EBITDA to eliminate the impact of non-cash compensation, as well as certain non-recurring and other items that we do not consider representative of our underlying operating performance. ​ Reconciliation of GAAP Net Income to EBITDA and Adjusted EBITDA ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ FEBRUARY 1, ​ FEBRUARY 3, ​ JANUARY 28, ​ 2025 2024 2023 ​ ​ (in thousands) Net income ​ $ 72,412 ​ $ 127,561 ​ $ 528,642 Depreciation and amortization ​ 130,191 ​ 118,989 ​ 108,588 Interest expense—net ​ 230,601 ​ 198,296 ​ 113,210 Income tax expense (benefit) ​ 4,799 ​ 28,261 ​ (91,358) EBITDA ​ 438,003 ​ 473,107 ​ 659,082 Non-cash compensation (1) ​ 44,185 ​ 39,382 ​ ​ 43,544 Asset impairments (2) ​ 36,071 ​ 3,531 ​ ​ 24,186 Share of equity method investments loss—net (2) ​ ​ 11,380 ​ ​ 10,875 ​ ​ 2,055 Capitalized cloud computing amortization (3) ​ ​ 11,017 ​ ​ 8,400 ​ ​ 6,566 Reorganization related costs (2) ​ ​ 4,423 ​ ​ 7,621 ​ ​ — Other expense—net (2) ​ ​ 3,395 ​ ​ 1,078 ​ ​ 30 Legal settlements—net (2) ​ ​ (9,375) ​ ​ 8,500 ​ ​ (4,188) Recall accrual (2) ​ — ​ (1,576) ​ ​ 560 Loss on extinguishment of debt (2) ​ ​ — ​ ​ — ​ ​ 169,578 Employer payroll taxes on option exercises (2) ​ ​ — ​ ​ — ​ ​ 14,392 Professional fees (2) ​ ​ — ​ ​ — ​ ​ 7,469 Non-cash compensation related to consolidated VIEs (2) ​ ​ — ​ ​ — ​ ​ 4,470 Compensation settlements (2) ​ ​ — ​ ​ — ​ ​ 3,483 Gain on sale of building and land (2) ​ ​ — ​ ​ — ​ ​ (775) Adjusted EBITDA ​ $ 539,099 ​ $ 550,918 ​ $ 930,452 (1) Represents non-cash compensation related to equity awards granted to employees, including the amortization of the non-cash compensation charge related to an option grant made to Mr.
For fiscal 2023, net cash used in investing activities was $307 million and was comprised of investments in retail stores, information technology and systems infrastructure of $269 million and additional contributions to our equity method investments of $38 million.
For fiscal 2024, net cash used in investing activities was $240 million and was comprised of investments in retail stores, information technology and systems infrastructure of $231 million and additional contributions to our equity method investments of $9.6 million.
Our 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.
We also believe we have positioned the business to take advantage of any favorable progression in macroeconomic conditions. Our 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.
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.
For fiscal 2024, net cash provided by operating activities was $17 million and consisted of net income of $72 million and an increase in non-cash items of $359 million, partially offset by a change in working capital and other activities of $415 million.
We review our inventory levels on an ongoing basis in order to identify slow-moving merchandise and use product markdowns and our outlets to efficiently sell these products. The timing and extent of markdowns are driven primarily by customer acceptance of our merchandise.
We review our inventory levels on an ongoing basis in order to identify slow-moving merchandise and use product markdowns and our outlets to efficiently sell these products.
The primary drivers of our product cost of individual goods are raw materials costs, which fluctuate based on a number of factors beyond our control, including commodity prices, changes in supply and demand, general economic conditions, competition, import duties, tariffs and government regulation and labor costs in the countries where we source our merchandise.
The timing and extent of markdowns are driven primarily by customer acceptance of our merchandise. ​ ​ ​ 46 | FORM 10-K PART II — FINANCIAL STATEMENTS ​ Table of Contents The primary drivers of our product cost of individual goods are raw materials costs, which fluctuate based on a number of factors beyond our control, including commodity prices, changes in supply and demand, general economic conditions, competition, import duties, tariffs and government regulation and labor costs in the countries where we source our merchandise.
On June 2, 2022, the Board of Directors authorized an additional $2.0 billion for the purchase of shares of our outstanding common stock, which increased the total authorized size of the share repurchase program to $2,450 million (the “Share Repurchase Program”).
On June 2, 2022, the Board of Directors authorized an additional $2,000 million for the purchase of shares of our outstanding common stock, which increased the total authorized size of the share repurchase program to $2,450 million (the “Share Repurchase Program”). Refer to Note 16— Share Repurchase and Share Retirements in our consolidated financial statements.
To the extent we choose to secure additional sources of liquidity through incremental debt financing, there can be no assurances that we will be able to raise such financing on favorable terms, if at all, or that future financing requirements will not require us to raise money through an equity financing or by other means that could be dilutive to holders of our capital stock.
We expect to continue to use additional sources of debt financing in future periods as a source of additional capital to fund our various investments. ​ ​ PART II — FINANCIAL STATEMENTS FORM 10-K | 55 ​ Table of Contents To the extent we choose to secure additional sources of liquidity through incremental debt financing, there can be no assurances that we will be able to raise such financing on favorable terms, if at all, or that future financing requirements will not require us to raise money through an equity financing or by other means that could be dilutive to holders of our capital stock.
We are in the process of implementing a number of significant business initiatives that have had, and will continue to have, an impact on our results of operations.
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. We are in the process of implementing a number of significant business initiatives that have had, and will continue to have, an impact on our results of operations.
RH Segment selling, general and administrative expenses RH Segment selling, general and administrative expenses decreased $67 million, or 6.6%, to $944 million in fiscal 2023 compared to $1,011 million in fiscal 2022. RH Segment selling, general and administrative expenses were 33.3% and 29.7% of net revenues in fiscal 2023 and fiscal 2022, respectively.
RH Segment selling, general and administrative expenses RH Segment selling, general and administrative expenses increased $71 million, or 7.6%, to $1,016 million in fiscal 2024 compared to $944 million in fiscal 2023. RH Segment selling, general and administrative expenses were 34.0% and 33.3% of net revenues in fiscal 2024 and fiscal 2023, respectively.
(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.
(3) 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 the Federal Rehabilitation Tax Credit related to the San Francisco Design Gallery in fiscal 2023.
The maturity date of the asset based credit facility is July 29, 2026. ​ ​ ​ 54 | FORM 10-K PART II ​ Table of Contents We entered into a $2,000 million term debt financing in October 2021 (the “Term Loan B”) by means of a Term Loan Credit Agreement through RHI as the borrower, Bank of America, N.A. as administrative agent and collateral agent, and the various lenders party thereto (the “Term Loan Credit Agreement”).
We entered into a $2,000 million term debt financing in October 2021 (the “Term Loan B”) by means of a Term Loan Credit Agreement through RHI as the borrower, Bank of America, N.A. as administrative agent and collateral agent, and the various lenders party thereto (the “Term Loan Credit Agreement”).
Based on total dollar volume of purchases for fiscal 2023, 66% of our products were sourced from Asia, including 30% from Vietnam and 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 and regions. Consumer Preferences and Demand .
Based on total dollar volume of purchases for fiscal 2024, 72% of our products were sourced from Asia, including 35% from Vietnam, 23% from China and the remainder predominantly from Indonesia and India, 18% from North America, including 10% from the United States, as well as 10% from Europe and other countries. Consumer Preferences and Demand .
As a percentage of net revenues, Waterworks gross margin decreased 80 basis points to 53.2% of net revenues in fiscal 2023 compared to 54.0% of net revenues in fiscal 2022. Selling, general and administrative expenses Consolidated selling, general and administrative expenses decreased $67 million, or 6.1%, to $1,023 million in fiscal 2023 compared to $1,090 million in fiscal 2022.
As a percentage of net revenues, Waterworks gross margin decreased 50 basis points to 52.7% of net revenues in fiscal 2024 compared to 53.2% of net revenues in fiscal 2023. Selling, general and administrative expenses Consolidated selling, general and administrative expenses increased $69 million, or 6.8%, to $1,092 million in fiscal 2024 compared to $1,023 million in fiscal 2023.
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.
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.
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.
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.
Internally, our multi-year effort began with the reimagination of our Center of Innovation & Product Leadership to incorporate digitally integrated visuals and decision data designed to amplify the creative process from product ideation to product presentation.
Our strategy is to digitally reimagine the RH brand and business model both internally and externally. Internally, our multiyear effort began with the reimagination of our Center of Innovation to incorporate digitally integrated visuals and decision data designed to amplify the creative process from product ideation to product presentation.
Term Loan B has a maturity date of October 20, 2028. As of February 3, 2024, we had $1,955 million outstanding under the Term Loan Credit Agreement. We are required to make quarterly principal payments of $5.0 million with respect to Term Loan B.
Term Loan B has a maturity date of October 20, 2028. We are required to make quarterly principal payments of $5.0 million with respect to Term Loan B.
Reconciliation of Adjusted Capital Expenditures ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ FEBRUARY 3, JANUARY 28, JANUARY 29, ​ ​ 2024 2023 2022 ​ (in thousands) Capital expenditures ​ $ 269,356 ​ $ 173,642 ​ $ 185,383 Landlord assets under construction—net of tenant allowances ​ ​ 25,368 ​ ​ 51,369 ​ ​ 68,454 Adjusted capital expenditures ​ $ 294,724 ​ $ 225,011 ​ $ 253,837 ​ In addition, we also received landlord tenant allowances under finance leases subsequent to lease commencement of $2.4 million and $4.7 million for fiscal 2023 and 2022, respectively, which are reflected as a reduction to principal payments under finance leases within financing activities on the consolidated statements of cash flows. ​ ​ ​ ​ ​ ​ Fiscal 2023 Compared to Fiscal 2022 The results for fiscal 2023 and fiscal 2022 included fifty-three weeks and fifty-two weeks, respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ FEBRUARY 3, ​ JANUARY 28, ​ ​ 2024 ​ 2023 ​ ​ RH SEGMENT WATERWORKS ​ TOTAL (1) RH SEGMENT WATERWORKS TOTAL (1) ​ ​ (in thousands) Net revenues ​ $ 2,835,617 ​ $ 193,509 ​ $ 3,029,126 ​ $ 3,398,638 ​ $ 191,839 ​ $ 3,590,477 Cost of goods sold ​ 1,549,510 ​ 90,597 ​ 1,640,107 ​ 1,690,194 ​ 88,298 ​ 1,778,492 Gross profit ​ ​ 1,286,107 ​ ​ 102,912 ​ ​ 1,389,019 ​ ​ 1,708,444 ​ 103,541 ​ 1,811,985 Selling, general and administrative expenses ​ 944,365 ​ 78,583 ​ 1,022,948 ​ 1,010,893 ​ 78,935 ​ 1,089,828 Income from operations ​ $ 341,742 ​ $ 24,329 ​ $ 366,071 ​ $ 697,551 ​ $ 24,606 ​ $ 722,157 (1) The results for the Real Estate segment were immaterial in fiscal 2023 and fiscal 2022, thus, such results are presented within the RH Segment each period.
Reconciliation of Adjusted Capital Expenditures ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ FEBRUARY 1, FEBRUARY 3, JANUARY 28, ​ ​ 2025 2024 2023 ​ (in thousands) Capital expenditures ​ $ 230,788 ​ $ 269,356 ​ $ 173,642 Landlord assets under construction—net of tenant allowances ​ ​ 51,538 ​ ​ 25,368 ​ ​ 51,369 Adjusted capital expenditures ​ ​ 282,326 ​ ​ 294,724 ​ $ 225,011 ​ In addition, we also received landlord tenant allowances under finance leases subsequent to lease commencement of $4.8 million, $2.4 million and $4.7 million in fiscal 2024, fiscal 2023 and fiscal 2022, respectively, which are reflected as a reduction to principal payments under finance leases within financing activities on the consolidated statements of cash flows. ​ ​ ​ ​ ​ ​ Fiscal 2024 Compared to Fiscal 2023 The results for fiscal 2024 and fiscal 2023 included fifty-two weeks and fifty-three weeks, respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ FEBRUARY 1, ​ FEBRUARY 3, ​ ​ 2025 ​ 2024 ​ ​ RH SEGMENT WATERWORKS ​ TOTAL (1) RH SEGMENT WATERWORKS TOTAL (1) ​ ​ (in thousands) Net revenues (2) ​ $ 2,987,818 ​ $ 192,935 ​ $ 3,180,753 ​ $ 2,835,617 ​ $ 193,509 ​ $ 3,029,126 Cost of goods sold ​ 1,674,644 ​ 91,177 ​ 1,765,821 ​ 1,549,510 ​ 90,597 ​ 1,640,107 Gross profit ​ ​ 1,313,174 ​ ​ 101,758 ​ ​ 1,414,932 ​ ​ 1,286,107 ​ 102,912 ​ 1,389,019 Selling, general and administrative expenses ​ 1,015,831 ​ 76,514 ​ 1,092,345 ​ 944,365 ​ 78,583 ​ 1,022,948 Income from operations ​ $ 297,343 ​ $ 25,244 ​ $ 322,587 ​ $ 341,742 ​ $ 24,329 ​ $ 366,071 (1) The results for the Real Estate segment were immaterial in fiscal 2024 and fiscal 2023, thus, such results are presented within the RH Segment each period.
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.
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.
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 .
As of February 1, 2025, we operated the following number of locations: ​ ​ ​ ​ ​ COUNT RH ​ ​ North America ​ ​ Design Galleries ​ 33 Legacy Galleries ​ 27 Modern Gallery ​ 1 Baby & Child and TEEN Galleries ​ 2 Interior Design Office ​ 1 Total RH retail locations—North America ​ 64 Europe Design Galleries ​ 5 Total RH retail locations ​ 69 Outlets ​ 40 Guesthouse ​ 1 Waterworks Showrooms ​ 14 For more information on our Company and operations, refer to Item 1—Business .
Externally, our strategy comes to life digitally through The World of RH, an online portal where customers can explore and be inspired by the depth and dimension of our brand.
Externally, our strategy comes to life digitally through The World of RH, an online portal where customers can explore and be inspired by the depth and dimension of our brand. We expect to continue to elevate the customer experience on The World of RH with further enhancements to content, navigation and search functionality.
Term Loan Refer to Note 12— Credit Facilities in our consolidated financial statements for further information on our Term Loan. Real Estate Loans Refer to Note 7— Variable Interest Entities in our consolidated financial statements for further information on the real estate loans held as part of our joint ventures with a third-party development partner.
Term Loan Refer to Note 12— Credit Facilities in our consolidated financial statements for further information on our Term Loan. Real Estate Loans Refer to Note 7— Variable Interest Entities in our consolidated financial statements for further information on our real estate loans.
We determined these assumptions based on entity specific considerations of (i) the primary expected future cash flows of property rents and expected debt and debt service payments, (ii) discount rates appropriate for the economic environment and anticipated future interest rates and (iii) expected volatility based on historical observed stock prices of publicly traded peer companies, including those involved in real estate development. ​ ​ ​ 60 | FORM 10-K PART II ​ Table of Contents Recently Issued Accounting Pronouncements Refer to “Recently Issued Accounting Standards” within Note 3— Significant Accounting Policies in our consolidated financial statements within Part II of this Annual Report.
We determined these assumptions based on entity specific considerations of (i) the primary expected future cash flows of property rents and expected debt and debt service payments, (ii) discount rates appropriate for the economic environment and anticipated future interest rates and (iii) expected volatility based on historical observed stock prices of publicly traded peer companies, including those involved in real estate development.
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.
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, foreign currency volatility, inflation, tax policies and interest rates, and the perceived prospect for capital appreciation in higher-end real estate.
In addition, certain of our retail leases are accounted for as finance leases, which result in our recording a portion of the expense related to these agreements in interest expense—net on the consolidated statements of income. In recent periods we have experienced higher cost of goods sold primarily related to our increased costs of merchandise and inbound freight.
In addition, certain of our retail leases are accounted for as finance leases, which result in our recording a portion of the expense related to these agreements in interest expense—net on the consolidated statements of income. Selling, General and Administrative Expenses. Selling, general and administrative expenses include all operating costs not included in cost of goods sold.
However, our exposure may increase in connection with our global expansion strategy as we expect to have more operations related to currencies other than the United States dollar. ​ ​ ​ PART II FORM 10-K | 43 ​ Table of Contents Our gross profit and gross margin may not be comparable to other specialty retailers, as some companies may not include all or a portion of the costs related to their distribution network and store occupancy in calculating gross profit and gross margin as we and many other retailers do, but instead may include them in selling, general and administrative expenses.
Our gross profit and gross margin may not be comparable to other specialty retailers, as some companies may not include all or a portion of the costs related to their distribution network and store occupancy in calculating gross profit and gross margin as we and many other retailers do, but instead may include them in selling, general and administrative expenses.
RH Segment gross profit RH Segment gross profit decreased $422 million, or 24.7%, to $1,286 million in fiscal 2023 compared to $1,708 million in fiscal 2022. As a percentage of net revenues, RH Segment gross margin decreased 490 basis points to 45.4% of net revenues in fiscal 2023 compared to 50.3% of net revenues in fiscal 2022.
RH Segment gross profit RH Segment gross profit increased $27 million, or 2.1%, to $1,313 million in fiscal 2024 compared to $1,286 million in fiscal 2023. As a percentage of net revenues, RH Segment gross margin decreased 140 basis points to 44.0% of net revenues in fiscal 2024 compared to 45.4% of net revenues in fiscal 2023.
A summary of our net debt, and availability under the ABL Credit Agreement, is set forth in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ FEBRUARY 3, ​ JANUARY 28, ​ ​ 2024 ​ 2023 ​ ​ ​ (in thousands) Asset based credit facility ​ $ — ​ $ — Term loan B (1) ​ ​ 1,955,000 ​ ​ 1,975,000 Term loan B-2 (1) ​ ​ 493,750 ​ ​ 498,750 Equipment promissory note (1) ​ ​ — ​ ​ 1,160 Convertible senior notes due 2023 (1) ​ ​ — ​ ​ 1,696 Convertible senior notes due 2024 (1) ​ ​ 41,904 ​ ​ 41,904 Notes payable for share repurchases ​ ​ 315 ​ ​ — Total debt ​ $ 2,490,969 ​ $ 2,518,510 Cash and cash equivalents ​ ​ (123,688) ​ ​ (1,508,101) Total net debt (2) ​ $ 2,367,281 ​ $ 1,010,409 Availability under the asset based credit facility—net (3) ​ $ 447,693 ​ $ 533,482 (1) Amounts exclude discounts upon original issuance and third-party offering and debt issuance costs.
Net debt and availability under the ABL Credit Agreement were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ FEBRUARY 1, ​ FEBRUARY 3, ​ ​ 2025 ​ 2024 ​ ​ ​ (in thousands) Asset based credit facility (1) ​ $ 200,000 ​ $ — Term loan B (1) ​ ​ 1,935,000 ​ ​ 1,955,000 Term loan B-2 (1) ​ ​ 488,750 ​ ​ 493,750 Convertible senior notes due 2024 (1) ​ ​ — ​ ​ 41,904 Notes payable for share repurchases ​ ​ 315 ​ ​ 315 Total debt ​ $ 2,624,065 ​ $ 2,490,969 Cash and cash equivalents ​ ​ (30,413) ​ ​ (123,688) Total net debt (2) ​ $ 2,593,652 ​ $ 2,367,281 Availability under the asset based credit facility—net (3) ​ $ 355,260 ​ $ 447,693 (1) Amounts exclude discounts upon original issuance and third-party offering and debt issuance costs.
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.
Cash Flow Analysis Cash flows from operating, investing, and financing activities were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ FEBRUARY 1, ​ FEBRUARY 3, ​ JANUARY 28, ​ 2025 2024 2023 ​ ​ (in thousands) Net cash provided by operating activities ​ $ 17,095 ​ $ 202,214 ​ $ 403,687 Net cash used in investing activities ​ (240,409) ​ (307,431) ​ (171,068) Net cash provided by (used in) financing activities ​ ​ 130,586 ​ ​ (1,283,031) ​ (902,477) Net decrease in cash and cash equivalents, restricted cash and restricted cash equivalents ​ ​ (93,275) ​ ​ (1,388,075) ​ (670,101) Cash and cash equivalents, restricted cash and restricted cash equivalents at end of period ​ ​ 30,413 ​ ​ 123,688 ​ 1,511,763 ​ ​ PART II — FINANCIAL STATEMENTS FORM 10-K | 57 ​ 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 and the effect of changes in working capital and other activities.
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.
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 as we expect to have more operations related to currencies other than the United States dollar.
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.
Key Value-Driving Strategies In order to achieve our long-term strategies of product transformation, platform expansion and cash generation as well as drive growth across our business, we are focused on the following key strategies and business initiatives: ​ ​ PART II — FINANCIAL STATEMENTS FORM 10-K | 43 ​ Table of Contents Product Elevation .
These new collections reflect a level of design and quality inaccessible in our current market, and a value proposition that will be disruptive across multiple markets. In fiscal 2023, our investment in Sourcebooks has increased in connection with introducing these new products, which we expect to continue over the next several quarters.
These new collections reflect a level of design and quality inaccessible in our current market, and a value proposition that we believe will be disruptive across multiple markets.
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.
We are required to make quarterly principal payments of $1.3 million with respect to Term Loan B-2. ​ ​ ​ 56 | FORM 10-K PART II — FINANCIAL STATEMENTS ​ 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 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.
In addition, we also received landlord tenant allowances under finance leases subsequent to lease commencement of $4.8 million. We anticipate our adjusted capital expenditures to be $275 million to $325 million in fiscal 2025, primarily related to our growth and expansion, including construction of new Design Galleries and infrastructure investments.
Our strategy is to address cost factors as they occur, where possible, including through strategic pricing and efficiency in our operations. Selling, General and Administrative Expenses. Selling, general and administrative expenses include all operating costs not included in cost of goods sold.
In recent periods we have experienced higher cost of goods sold primarily related to our increased costs of merchandise and inbound freight. Our strategy is to address cost factors as they occur, where possible, including through strategic pricing and efficiency in our operations.
The use of cash from working capital was primarily driven by a decrease in operating lease liabilities of $96 million primarily due to payments made under the related lease agreements, an increase in prepaid expense and other assets of $66 million, a decrease in deferred revenue and customer deposits of $43 million, a decrease in accounts payable and accrued expenses of $41 million, a decrease in other non-current obligations of $31 million and an increase in landlord assets under construction, net of tenant allowances, of $25 million.
The use of cash from working capital was primarily driven by an increase in merchandise inventory of $269 million, a decrease in operating lease liabilities of $90 million, an increase in landlord assets under construction, net of tenant allowances, of $52 million, a decrease in other current and non-current liabilities of $33 million, an increase in prepaid expense and other assets of $19 million and an increase in accounts receivable of $8.5 million.
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.
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. ​ ​ ​ 58 | FORM 10-K PART II — FINANCIAL STATEMENTS ​ Table of Contents 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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

12 edited+0 added−2 removed8 unchanged
Biggest changeThe 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.
Biggest changeInterest rate increases 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. As of February 1, 2025, we had $200 million of outstanding borrowings under the revolving line of credit and $2,424 million outstanding under the Term Loan Credit Agreement.
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.
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 team members as well as higher prices for construction and materials used in our Gallery development.
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.
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 2024, 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 $26 million.
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.
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. Impact of Inflation Our results of operations and financial condition are presented based on historical cost.
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.
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 1, 2025 was $355 million, net of $45 million in outstanding letters of credit.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISKS Interest Rate Risk We currently do not engage in any interest rate hedging activity.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk We currently do not engage in any interest rate hedging activity.
Foreign Currency Risk Our revenues are predominately denominated in U.S. dollars, and accordingly, our net revenues are not currently subject to significant foreign currency risk. However, as we are currently expanding our operations into select European markets, fluctuations in foreign currency exchange rates are beginning to impact our results of operations.
However, as we are currently expanding our operations into select European markets, fluctuations in foreign currency exchange rates are beginning to impact our results of operations.
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.
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. ​ ​ ​ 62 | FORM 10-K PART II — FINANCIAL STATEMENTS ​ Table of Contents On August 16, 2022, the Inflation Reduction Act, H.R. 5376 (the “IR Act”) was signed into law.
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.
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 were effective in taxable years beginning after December 31, 2022.
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.
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.
Refer to Note 16 —Share Repurchase Program and Share Retirement . ​ ​ ​ ​ ​ ​ 62 | FORM 10-K PART II ​ Table of Contents
The CAMT provision did not have a material impact on our consolidated financial statements in fiscal 2024. Refer to Note 16 —Share Repurchase Program and Share Retirement . ​ ​ PART II — FINANCIAL STATEMENTS FORM 10-K | 63 ​ Table of Contents
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.
In fiscal 2023, the Term Loan Credit Agreement transitioned to reference SOFR, which is published by the Federal Reserve Bank of New York to replace LIBOR. Foreign Currency Risk Our revenues are predominately denominated in U.S. dollars, and accordingly, our net revenues are not currently subject to significant foreign currency risk.
Removed
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.
Removed
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.

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