# RH: Form 10-Q for the period ended May 4, 2024

- Company: [RH](/companies/rh.md) (CIK 1528849)
- Form: 10-Q
- Filed: 2024-06-13
- Accepted by EDGAR: Jun 13, 2024, 21:05 ET
- Period: 2024-05-04
- Accession: 0001558370-24-009145
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1528849/000155837024009145/rh-20240504x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1528849/000155837024009145/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-05-04.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-02-04 to 2024-05-04 | $727.0m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2024-02-04 to 2024-05-04 | $410.9m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-02-04 to 2024-05-04 | $316.0m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-02-04 to 2024-05-04 | $261.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-02-04 to 2024-05-04 | $54.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-02-04 to 2024-05-04 | $56.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-02-04 to 2024-05-04 | −$2.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-02-04 to 2024-05-04 | −$3.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-02-04 to 2024-05-04 | −$0.20 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-02-04 to 2024-05-04 | −$0.20 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-02-04 to 2024-05-04 | 18,324,454 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-02-04 to 2024-05-04 | $56.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-02-04 to 2024-05-04 | $66.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-05-04 | $101.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-05-04 | $1.12bn | us-gaap:AssetsCurrent |
| Total assets | at 2024-05-04 | $4.19bn | us-gaap:Assets |
| Current liabilities | at 2024-05-04 | $936.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-05-04 | $4.48bn | us-gaap:Liabilities |
| Shareholders' equity | at 2024-05-04 | −$289.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 58,602 characters.

*The following discussion and analysis of our financial condition and the results of our operations should be read together with our condensed consolidated financial statements and the related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and the related notes included in our 2023 Form 10-K.*

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) contains forward-looking statements that are subject to risks and uncertainties. Refer to “Special Note Regarding Forward-Looking Statements and Market Data” below and *Item 1A—Risk Factors* in our 2023 Form 10-K for a discussion of the risks, uncertainties and assumptions associated with these statements. MD&A should be read in conjunction with our historical consolidated financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, but not limited to, those listed in our 2023 Form 10-K.

The discussion of our financial condition and changes in our results of operations, liquidity and capital resources is presented in this section for the three months ended May 4, 2024, and a comparison to the three months ended April 29, 2023. The discussion related to cash flows for the three months ended April 29, 2023, has been omitted from this Quarterly Report on Form 10-Q, but is included in *Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations* on our Form 10-Q for the quarter ended April 29, 2023, filed with the Securities and Exchange Commission (“SEC”) on May 26, 2023.

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

*Overview*. This section provides a general description of our business, including our key value-driving strategies and an overview of certain known trends and uncertainties.

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

*Liquidity and Capital Resources*. This section provides an overview of our sources and uses of cash and our financing arrangements, including our credit facilities and debt arrangements, in addition to the cash requirements for our business, such as our capital expenditures.

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

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA

This quarterly report contains forward-looking statements that are subject to risks and uncertainties. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “short-term,” “non-recurring,” “one-time,” “unusual,” “should,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.

Forward-looking statements are subject to risk and uncertainties that may cause actual results to differ materially from those that we expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors and it is impossible for us to anticipate all factors that could affect our actual results. Matters that we identify as “short term,” “non-recurring,” “unusual,” “one-time,” or other words and terms of similar meaning may, in fact, may not be short term and may recur in one or more future financial reporting periods. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the section entitled *Risk Factors* in our 2023 Form 10-K, and *Management’s Discussion and Analysis of Financial Condition and Results of Operations* in Part I of this quarterly report and in our 2023 Form 10-K. All forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements, as well as other cautionary statements. You should evaluate all forward-looking statements made in this quarterly report in the context of these risks and uncertainties.

We cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect, or that future developments affecting us will be those that we have anticipated. The forward-looking statements included in this quarterly report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

### Overview

We are a leading retailer and luxury lifestyle brand operating primarily in the home furnishings market. Our curated and fully integrated assortments are presented consistently across our sales channels, including our retail locations, websites and Sourcebooks. We offer merchandise assortments across a number of categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, and baby, child and teen furnishings. Our retail business is fully integrated across our multiple channels of distribution. 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 and Canada as well as in the United Kingdom, Germany and Belgium and have an integrated RH Hospitality experience in 17 of our Design Gallery locations, which includes restaurants and wine bars.

Additionally, we opened RH Palo Alto, the Gallery at Stanford, in May 2024 and we plan to open RH Madrid, the Gallery at Plaza del Marqués de Salamanca, in June 2024.

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 Contemporary, RH Modern, RH Outdoor, RH Baby & Child and RH TEEN. 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.

As of May 4, 2024, we operated the following number of locations:

| ​ ​ RH | ​ ​ ​ | ​ COUNT ​ |
| --- | --- | ---: |
| Design Galleries | ​ | 33 |
| Legacy Galleries | ​ | 34 |
| Modern Gallery | ​ | 1 |
| Baby & Child and TEEN Galleries | ​ | 3 |
| Total Galleries | ​ | 71 |
| Outlets | ​ | 41 |
| Guesthouse | ​ | 1 |
| Waterworks Showrooms | ​ | 14 |

#### Business Conditions

While we experienced increased demand for our products during the pandemic, recently there have been significant shifts in consumer spending away from home furnishings. 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. Our business has also been negatively affected by macroeconomic conditions, including substantially higher 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. Our expectation is that these factors, which have contributed to the slowdown in demand in our business, will moderate in the future and we believe we have positioned the business to take advantage of any improvements in macroeconomic factors.

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 more information, refer to the sections entitled *Management’s Discussion and Analysis of Financial Condition and Results of Operations* and *Risk Factors* in our 2023 Form 10-K.

#### 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. 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. 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. With the launch of the RH Interiors and RH Contemporary Sourcebooks in 2023, as well as the launch of the RH Outdoor and RH Modern Sourcebooks in 2024, we have begun the introduction of 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*. 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. We believe we can significantly increase our sales by transforming our real estate platform from our existing legacy retail footprint to a portfolio of Design Galleries sized to the potential of each market and the size of our assortment. In addition, we plan to incorporate hospitality into many of the new Design Galleries that we open in the future, which further elevates and renders our product and brand more valuable. We believe hospitality has created a unique new retail experience that cannot be replicated online, and that the addition of hospitality drives incremental sales of home furnishings in these Galleries.

*Brand Elevation*. Our strategy is to move the brand beyond curating and selling product to conceptualizing and selling spaces, by building an ecosystem of Products, Places, Services and Spaces that establishes the RH brand as a global thought leader, taste and place maker. We believe our seamlessly integrated ecosystem of immersive experiences inspires customers to dream, design, dine, travel and live in a world thoughtfully curated by RH, creating an impression and connection unlike any other brand in the world. Our hospitality efforts will continue to elevate the RH brand as we extend beyond the four walls of our Galleries into RH Guesthouses, where our goal is to create a new market for travelers seeking privacy and luxury in the $200 billion North American hotel industry. We entered this industry with the opening of the RH Guesthouse New York in September 2022, and are in the process of constructing our second RH Guesthouse in Aspen. In June 2023, we opened RH England, The Gallery at the Historic Aynho Park, a 400-year-old landmark estate representing the most inspiring and immersive physical expression of the brand to date. RH England marked the beginning of our global expansion beyond North America. 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. These immersive experiences expose new and existing customers to our evolving authority in architecture, interior design and landscape architecture.

*Global Expansion.* We believe that our luxury brand positioning and unique aesthetic have strong international appeal, and that pursuit of global expansion will provide RH with a substantial opportunity to build over time a projected $20 to $25 billion global brand in terms of annual revenues. 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 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. 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. Internally, our multiyear 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. 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. 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. 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.

### Basis of Presentation and Results of Operations

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

*(dollars in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ THREE MONTHS ENDED MAY 4, 2024 | ​ ​ ​ | ​ ​ % OF NET REVENUES | ​ ​ ​ | ​ ​ APRIL 29, 2023 | ​ ​ ​ | ​ ​ % OF NET REVENUES | ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- |
| Net revenues | ​ | $726,960 | ​ | 100.0% | ​ | $739,162 | ​ | 100.0% | ​ |
| Cost of goods sold | ​ | 410,922 | ​ | 56.5 ​ | ​ | 391,617 | ​ | 53.0 ​ | ​ |
| Gross profit | ​ | 316,038 | ​ | 43.5 ​ | ​ | 347,545 | ​ | 47.0 ​ | ​ |
| Selling, general and administrative expenses | ​ | 261,375 | ​ | 36.0 ​ | ​ | 248,305 | ​ | 33.6 ​ | ​ |
| Income from operations | ​ | 54,663 | ​ | 7.5 ​ | ​ | 99,240 | ​ | 13.4 ​ | ​ |
| Other expenses | ​ | ​ | ​ | ​ ​ | ​ | ​ | ​ | ​ ​ | ​ |
| Interest expense—net | ​ | 56,772 | ​ | 7.8 ​ | ​ | 39,816 | ​ | 5.4 ​ | ​ |
| Other (income) expense—net | ​ | ​ 1,165 | ​ | 0.2 ​ | ​ | ​ (653) | ​ | (0.1) ​ | ​ |
| Total other expenses | ​ | 57,937 | ​ | 8.0 ​ | ​ | 39,163 | ​ | 5.3 ​ | ​ |
| Income (loss) before income taxes and equity method investments | ​ | (3,274) | ​ | (0.5) ​ | ​ | 60,077 | ​ | 8.1 ​ | ​ |
| Income tax expense (benefit) | ​ | (2,091) | ​ | (0.3) ​ | ​ | 16,585 | ​ | 2.2 ​ | ​ |
| Income (loss) before equity method investments | ​ | ​ (1,183) | ​ | (0.2) ​ | ​ | ​ 43,492 | ​ | 5.9 ​ | ​ |
| Share of equity method investments loss—net | ​ | ​ 2,442 | ​ | 0.3 ​ | ​ | ​ 1,602 | ​ | 0.2 ​ | ​ |
| Net income (loss) | ​ | $(3,625) | ​ | (0.5)% | ​ | $41,890 | ​ | 5.7% | ​ |

#### Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use non-GAAP financial measures, including adjusted operating income, adjusted net income (loss), EBITDA, adjusted EBITDA, and adjusted capital expenditures (collectively, “non-GAAP financial measures”). We compute these measures by adjusting the applicable GAAP measures to remove the impact of certain recurring and non-recurring charges and gains and the tax effect of these adjustments. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe that they provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by senior leadership in its financial and operational decision-making. The non-GAAP financial measures used by us in this Quarterly Report on Form 10-Q may be different from the non-GAAP financial measures, including similarly titled measures, used by other companies.

For more information on the non-GAAP financial measures, please see the reconciliation of GAAP to non-GAAP financial measures tables outlined below. These accompanying tables include details on the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures.

*Adjusted Operating Income*. Adjusted operating income is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We define adjusted operating income as consolidated operating income, adjusted for the impact of certain non-recurring and other items that we do not consider representative of our underlying operating performance.

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

*(in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ THREE MONTHS ENDED MAY 4, 2024 | ​ ​ | ​ ​ APRIL 29, 2023 |
| --- | --- | ---: | --- | ---: |
| Net income (loss) | ​ | $(3,625) | ​ | $41,890 |
| Interest expense—net(1) | ​ | 56,772 | ​ | 39,816 |
| Other (income) expense—net(1) | ​ | ​ 1,165 | ​ | (653) |
| Income tax expense (benefit)(1) | ​ | (2,091) | ​ | 16,585 |
| Share of equity method investments loss—net(2) | ​ | ​ 2,442 | ​ | ​ 1,602 |
| Operating income | ​ | 54,663 | ​ | 99,240 |
| Legal settlements—net(3) | ​ | (9,375) | ​ | — |
| Non-cash compensation(4) | ​ | ​ 1,947 | ​ | ​ 3,531 |
| Reorganization related costs(5) | ​ | — | ​ | 7,621 |
| Adjusted operating income | ​ | $47,235 | ​ | $110,392 |

(1) Refer to discussion “Three Months Ended May 4, 2024 Compared to Three Months Ended April 29, 2023” below for a discussion of our results of operations for the three months ended May 4, 2024 and April 29, 2023.

(2) Represents our proportionate share of the net loss of our equity method investments.

(3) Represents favorable legal settlements received of $10 million, partially offset by costs incurred in connection with one of the matters.

(4) Represents the amortization of the non-cash compensation charge related to an option grant made to Mr. Friedman in October 2020.

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

*Adjusted Net Income (Loss)*. Adjusted net income (loss) is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We define adjusted net income (loss) as consolidated net income (loss), adjusted for the impact of certain non-recurring and other items that we do not consider representative of our underlying operating performance.

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

*(in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ | ​ ​ THREE MONTHS ENDED MAY 4, 2024 | ​ ​ | ​ ​ APRIL 29, 2023 |
| --- | --- | ---: | --- | ---: |
| Net income (loss) | ​ | $(3,625) | ​ | $41,890 |
| Adjustments pre-tax: | ​ |  | ​ |  |
| Legal settlements—net(1) | ​ | ​ (9,375) | ​ | ​ — |
| Non-cash compensation(1) | ​ | 1,947 | ​ | 3,531 |
| Reorganization related costs(1) | ​ | — | ​ | 7,621 |
| Subtotal adjusted items | ​ | (7,428) | ​ | 11,152 |
| Impact of income tax items(2) | ​ | ​ 1,280 | ​ | ​ (2,433) |
| Share of equity method investments loss—net(1) | ​ | 2,442 | ​ | ​ 1,602 |
| Adjusted net income (loss) | ​ | $(7,331) | ​ | $52,211 |

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

(2) We exclude the GAAP tax provision and apply a non-GAAP tax provision based upon (i) adjusted pre-tax net income (loss), (ii) the projected annual adjusted tax rate and (iii) the exclusion of material discrete tax items that are unusual or infrequent. The adjustments for the three months ended May 4, 2024 and April 29, 2023 are based on adjusted tax rates of 31.5% and 26.7%, respectively.

*EBITDA and Adjusted EBITDA*. EBITDA and adjusted EBITDA are supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We define EBITDA as consolidated net income (loss) before depreciation and amortization, interest expense—net and income tax expense (benefit). Adjusted EBITDA reflects further adjustments to EBITDA to eliminate the impact of non-cash compensation, as well as certain non-recurring and other items that we do not consider representative of our underlying operating performance.

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

*(in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ THREE MONTHS ENDED MAY 4, 2024 | ​ ​ | ​ ​ APRIL 29, 2023 |
| --- | --- | ---: | --- | ---: |
| Net income (loss) | ​ | $(3,625) | ​ | $41,890 |
| Depreciation and amortization | ​ | 30,827 | ​ | 27,770 |
| Interest expense—net | ​ | 56,772 | ​ | 39,816 |
| Income tax expense (benefit) | ​ | (2,091) | ​ | 16,585 |
| EBITDA | ​ | 81,883 | ​ | 126,061 |
| Non-cash compensation(1) | ​ | 10,544 | ​ | 10,180 |
| Capitalized cloud computing amortization(2) | ​ | ​ 2,471 | ​ | ​ 1,849 |
| Share of equity method investments loss—net(3) | ​ | 2,442 | ​ | 1,602 |
| Other (income) expense—net(3) | ​ | ​ 1,165 | ​ | ​ (653) |
| Legal settlements—net(3) | ​ | ​ (9,375) | ​ | ​ — |
| Reorganization related costs(3) | ​ | ​ — | ​ | ​ 7,621 |
| Adjusted EBITDA | ​ | $89,130 | ​ | $146,660 |

(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. Friedman in October 2020.

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

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

*Adjusted Capital Expenditures.* Adjusted capital expenditures is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. 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 during the construction period.

### Reconciliation of Adjusted Capital Expenditures

*(in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ THREE MONTHS ENDED MAY 4, 2024 | ​ ​ | ​ ​ APRIL 29, 2023 |
| --- | --- | ---: | --- | ---: |
| Capital expenditures | ​ | $66,261 | ​ | $34,190 |
| Landlord assets under construction—net of tenant allowances | ​ | ​ 8,782 | ​ | ​ 9,583 |
| Adjusted capital expenditures | ​ | $75,043 | ​ | $43,773 |

The following table presents RH Gallery and Waterworks Showroom metrics, and excludes Outlets:

*(square footage in thousands)*

| ​ ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ | ​ THREE MONTHS ENDED MAY 4, 2024 ​ ​ COUNT | ​ ​ ​ | ​ TOTAL LEASED SELLING SQUARE FOOTAGE(1) | ​ | ​ ​ ​ ​ ​ | ​ APRIL 29, 2023 ​ ​ COUNT | ​ ​ ​ | ​ TOTAL LEASED SELLING SQUARE FOOTAGE(1) | ​ |
| --- | --- | ---: | --- | --- | ---: | --- | ---: | --- | --- | ---: |
| Beginning of period | ​ | 84 |  | ​ | 1,378 |  | 81 |  | ​ | 1,286 |
| RH Design Galleries: | ​ |  |  | ​ | ​ |  |  |  | ​ |  |
| Brussels Design Gallery | ​ | 1 | ​ | ​ | 27.7 | ​ | — | ​ | ​ | — |
| Cleveland Design Gallery | ​ | 1 | ​ | ​ | 33.1 | ​ | — | ​ | ​ | — |
| Indianapolis Design Gallery | ​ | — | ​ | ​ | — | ​ | (1) | ​ | ​ | (13.0) |
| RH Legacy Galleries: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |
| Cleveland Legacy Gallery | ​ | (1) | ​ | ​ | (7.1) | ​ | — | ​ | ​ | — |
| Indianapolis temporary Gallery | ​ | — | ​ | ​ | — | ​ | 1 | ​ | ​ | 5.7 |
| End of period | ​ | 85 |  | ​ | 1,432 |  | 81 |  | ​ | 1,279 |
| Total leased square footage at end of period(2) | ​ | ​ | ​ | ​ | 1,971 | ​ | ​ | ​ | ​ | 1,733 |
| Weighted-average leased square footage(3) | ​ | ​ | ​ |  | 1,935 | ​ |  | ​ |  | 1,729 |
| Weighted-average leased selling square footage(3) | ​ | ​ | ​ | ​ | 1,404 | ​ | ​ | ​ | ​ | 1,285 |

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

Leased selling square footage includes approximately 89,000 square feet as of May 4, 2024 related to three owned retail locations.

(2) Total leased square footage includes approximately 142,000 square feet as of May 4, 2024 related to three 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.

### Three Months Ended May 4, 2024 Compared to Three Months Ended April 29, 2023

*(in thousands)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ THREE MONTHS ENDED MAY 4, 2024 RH SEGMENT | ​ | ​ ​ WATERWORKS | ​ ​ | ​ ​ TOTAL(1) | ​ ​ ​ | ​ ​ APRIL 29, 2023 RH SEGMENT | ​ | ​ ​ WATERWORKS | ​ | ​ ​ TOTAL(1) |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Net revenues | ​ | $677,066 | ​ | $49,894 | ​ | $726,960 | ​ | $690,516 | ​ | $48,646 | ​ | $739,162 |
| Cost of goods sold | ​ | 387,258 | ​ | 23,664 | ​ | 410,922 | ​ | 368,932 | ​ | 22,685 | ​ | 391,617 |
| Gross profit | ​ | 289,808 | ​ | 26,230 | ​ | 316,038 | ​ | 321,584 | ​ | 25,961 | ​ | 347,545 |
| Selling, general and administrative expenses | ​ | 244,149 | ​ | 17,226 | ​ | 261,375 | ​ | 229,015 | ​ | 19,290 | ​ | 248,305 |
| Income from operations | ​ | $45,659 | ​ | $9,004 | ​ | $54,663 | ​ | $92,569 | ​ | $6,671 | ​ | $99,240 |

(1) The results for the Real Estate segment were immaterial in both the three months ended May 4, 2024 and April 29, 2023, thus, such results are presented within the RH Segment in each period. Refer to Note 17—*Segment Reporting* in our condensed consolidated financial statements.

### Net revenues

Consolidated net revenues decreased $12 million, or 1.7%, to $727 million in the three months ended May 4, 2024 compared to $739 million in the three months ended April 29, 2023.

#### RH Segment net revenues

RH Segment net revenues decreased $13 million, or 1.9%, to $677 million in the three months ended May 4, 2024 compared to $691 million in the three months ended April 29, 2023. The below discussion highlights significant factors that impacted RH Segment net revenues, which are listed in order of magnitude.

RH Segment net revenues for the three months ended May 4, 2024 decreased primarily due to lower demand compared to the first quarter of fiscal 2023 due to sustained challenging macroeconomic conditions, including elevated interest rates and a challenging luxury housing market.

#### Waterworks net revenues

Waterworks net revenues increased $1.2 million, or 2.6%, to $50 million in the three months ended May 4, 2024 compared to $49 million in the three months ended April 29, 2023.

### Gross profit

Consolidated gross profit decreased $32 million, or 9.1%, to $316 million in the three months ended May 4, 2024 compared to $348 million in the three months ended April 29, 2023. As a percentage of net revenues, consolidated gross margin decreased 350 basis points to 43.5% of net revenues in the three months ended May 4, 2024 from 47.0% of net revenues in the three months ended April 29, 2023.

#### RH Segment gross profit

RH Segment gross profit decreased $32 million, or 9.9%, to $290 million in the three months ended May 4, 2024 from $322 million in the three months ended April 29, 2023. As a percentage of net revenues, RH Segment gross margin decreased 380 basis points to 42.8% of net revenues in the three months ended May 4, 2024 from 46.6% of net revenues in the three months ended April 29, 2023. The decrease in RH Segment gross margin was primarily attributable to a decrease in product margins in the Core business driven by price adjustments, as well as a higher mix of, and discounts on, discontinued products. The decrease in RH Segment net revenues resulted in deleverage in occupancy costs year over year, and we also experienced an increase in occupancy costs related to our Galleries and supply chain in support of the continued global expansion efforts in Europe.

#### Waterworks gross profit

Waterworks gross profit was $26 million in both the three months ended May 4, 2024 and April 29, 2023. As a percentage of net revenues, Waterworks gross margin decreased 80 basis points to 52.6% of net revenues in the three months ended May 4, 2024 from 53.4% of net revenues in the three months ended April 29, 2023.

### Selling, general and administrative expenses

Consolidated selling, general and administrative expenses increased $13 million, or 5.3%, to $261 million in the three months ended May 4, 2024 from $248 million in the three months ended April 29, 2023.

#### RH Segment selling, general and administrative expenses

RH Segment selling, general and administrative expenses increased $15 million, or 6.6%, to $244 million in the three months ended May 4, 2024 compared to $229 million in the three months ended April 29, 2023.

RH Segment selling, general and administrative expenses for the three months ended May 4, 2024 include favorable net legal settlements of $6.2 million and non-cash compensation of $1.9 million related to an option grant made to Mr. Friedman in October 2020.

RH Segment selling, general and administrative expenses for the three months ended April 29, 2023 include severance expense and other payroll related costs associated with a reorganization of $7.6 million and non-cash compensation of $3.5 million related to an option grant made to Mr. Friedman in October 2020.

RH Segment selling, general and administrative expenses were 36.7% and 31.5% of net revenues for the three months ended May 4, 2024 and April 29, 2023, respectively, excluding the costs incurred in connection with the adjustments mentioned above. The increase in selling, general and administrative expenses as a percentage of net revenues was primarily driven by incremental advertising costs of $15 million related to the increased circulation in connection with the mailing of the Spring 2024 RH Outdoor Sourcebook. Additionally, we had an increase in compensation due to new Gallery openings, as well as higher occupancy and other corporate costs year over year.

#### Waterworks selling, general and administrative expenses

Waterworks selling, general and administrative expenses decreased $2.1 million, or 10.7%, to $17 million in the three months ended May 4, 2024 compared to $19 million in the three months ended April 29, 2023.

Waterworks selling, general and administrative expenses in the three months ended May 4, 2024 include $3.2 million related to a favorable legal settlement. Excluding the adjustment for the legal settlement, Waterworks selling, general and administrative expenses would have increased 130 basis points to 41.0% of net revenues in the three months ended May 4, 2024, compared to 39.7% of net revenues for the three months ended April 29, 2023.

### Interest expense—net

Interest expense—net increased $17 million in the three months ended May 4, 2024 compared to the three months ended April 29, 2023, which consisted of the following in each period:

*(in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ THREE MONTHS ENDED MAY 4, 2024 | ​ ​ | ​ ​ APRIL 29, 2023 |
| --- | --- | ---: | --- | ---: |
| Term loan interest expense | ​ | $51,944 | ​ | $47,793 |
| Finance lease interest expense | ​ | 7,407 | ​ | 8,486 |
| Other interest expense | ​ | 1,113 | ​ | 1,216 |
| Capitalized interest for capital projects | ​ | (2,626) | ​ | (1,055) |
| Interest income | ​ | (1,066) | ​ | (16,624) |
| Total interest expense—net | ​ | $56,772 | ​ | $39,816 |

### Other (income) expense—net

We recorded other expense of $1.2 million for the three months ended May 4, 2024, which includes foreign exchange losses from unfavorable exchange rate changes affecting foreign currency denominated transactions of $1.0 million, primarily between the U.S. dollar as compared to Euro and Pound Sterling, as well as a loss from the remeasurement of intercompany loans with subsidiaries in Switzerland and the United Kingdom of $0.2 million.

We recorded net other income of $0.7 million for the three months ended April 29, 2023, which includes a foreign exchange gain from the remeasurement of intercompany loans with subsidiaries in Switzerland and the United Kingdom of $1.8 million, partially offset by foreign exchange losses related to unfavorable exchange rate changes affecting foreign currency denominated transactions of $1.1 million, primarily between the U.S. dollar as compared to Euro and Pound Sterling.

### Income tax expense (benefit)

*(dollars in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ THREE MONTHS ENDED MAY 4, 2024 | ​ | ​ ​ APRIL 29, 2023 |
| --- | --- | --- | ---: | --- | ---: |
| Income tax expense (benefit) | ​ | ​ | $(2,091) | ​ | $16,585 |
| Effective tax rate | ​ | ​ | ​ 36.6% | ​ | ​ 28.4% |

The increase in our effective tax rate is primarily attributable to the net loss in the current period, as well as higher net excess tax benefits from stock-based compensation in the three months ended May 4, 2024 as compared to the three months ended April 29, 2023.

### Liquidity and Capital Resources

### Overview

Our principal sources of liquidity are cash flows generated from operations, our current balances of cash and cash equivalents, and amounts available under our ABL Credit Agreement.

A summary of our net debt, and availability under the ABL Credit Agreement, is set forth in the following table:

*(in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ MAY 4, 2024 ​ | ​ ​ ​ | ​ ​ FEBRUARY 3, 2024 |
| --- | --- | --- | --- | --- |
| Asset based credit facility | ​ | $— | ​ | $— |
| Term loan B(1) | ​ | ​ 1,950,000 | ​ | ​ 1,955,000 |
| Term loan B-2(1) | ​ | ​ 492,500 | ​ | ​ 493,750 |
| Convertible senior notes due 2024(1) | ​ | ​ 41,904 | ​ | ​ 41,904 |
| Notes payable for share repurchases | ​ | ​ 315 | ​ | ​ 315 |
| Total debt | ​ | $2,484,719 | ​ | $2,490,969 |
| Cash and cash equivalents | ​ | ​ (101,787) | ​ | ​ (123,688) |
| Total net debt(2) | ​ | $2,382,932 | ​ | $2,367,281 |
| Availability under the asset based credit facility—net(3) | ​ | $453,588 | ​ | $447,693 |

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

(2) Net debt excludes non-recourse real estate loans of $18 million as of both May 4, 2024 and February 3, 2024 related to our consolidated variable interest entities from our joint venture activities. These real estate loans are secured by the assets of such entities and the associated creditors do not have recourse against RH’s general assets. Refer to Note 5—*Variable Interest Entities* in our condensed consolidated financial statements.

(3) The amount available for borrowing under the revolving line of credit under the ABL Credit Agreement is presented net of $46 million and $45 million in outstanding letters of credit as of May 4, 2024 and February 3, 2024, respectively.

### 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. We seek out and evaluate opportunities for effectively managing and deploying capital in ways that improve working capital and support and enhance our business initiatives and strategies. During fiscal 2023, we invested $1,253 million of cash, inclusive of excise taxes paid, in the purchase of shares of our common stock pursuant to our Share Repurchase Program. We continuously evaluate our capital allocation strategy and may engage in future investments in connection with existing or new share repurchase programs (refer to “Share Repurchase Program” below), which may include investments in derivatives or other equity linked instruments. We have in the past been, and continue to be, opportunistic in responding to favorable market conditions regarding both sources and uses of capital. Capital raised from debt financing arrangements has enabled us to pursue various investments, including our investments in joint ventures. We expect to continue to take an opportunistic approach regarding both sources and uses of capital in connection with our business.

We believe our capital structure provides us with substantial optionality regarding capital allocation. Our near-term decisions regarding the sources and uses of capital will continue to reflect and adapt to changes in market conditions and our business, including further developments with respect to macroeconomic factors affecting business conditions, such as trends in luxury housing, increases in interest rates, equity market performance and inflation. We believe our existing cash balances and operating cash flows, in conjunction with available financing arrangements, will be sufficient to repay our debt obligations as they become due, meet working capital requirements and fulfill other capital needs for more than the next 12 months.

While we do not anticipate that we will require additional debt 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. We have pursued in the past, and may pursue in the future, additional strategies to generate capital to pursue opportunities and investments, including through the strategic sale of existing assets, utilization of our credit facilities, entry into various credit agreements and other new debt financing arrangements that present attractive terms. 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.

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. Any adverse developments in the U.S. or global credit markets could affect our ability to manage our debt obligations and our ability to access future debt. In addition, agreements governing existing or new debt facilities may restrict our ability to operate our business in the manner we currently expect or to make required payments with respect to existing commitments, including the repayment of the principal amount of our convertible senior notes in cash, whether upon stated maturity, early conversion or otherwise of such convertible senior notes. To the extent we need to seek waivers from any provider of debt financing, or we fail to observe the covenants or other requirements of existing or new debt facilities, any such event could have an impact on our other commitments and obligations, including triggering cross defaults or other consequences with respect to other indebtedness. Our current level of indebtedness, and any additional indebtedness that we may incur, exposes us to certain risks with regards to interest rate increases and fluctuations. Our ability to make interest payments or to refinance any of our indebtedness to manage such interest rates may be limited or negatively affected by credit market conditions, macroeconomic trends and other risks.

### 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. 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 maturity date of the asset based credit facility is July 29, 2026.

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”). Term Loan B has a maturity date of October 20, 2028. As of May 4, 2024, we had $1,950 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.

In May 2022, we entered into an incremental term debt financing (the “Term Loan B-2”) in an aggregate principal amount equal to $500 million by means of an amendment to the Term Loan Credit Agreement with RHI as the borrower, Bank of America, N.A. as administrative agent and the various lenders parties thereto (the “Amended Term Loan Credit Agreement”). 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 May 4, 2024, we had $493 million outstanding under the Amended Term Loan Credit Agreement. We are required to make quarterly principal payments of $1.3 million with respect to Term Loan B-2.

### Convertible Senior Notes

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

As of May 4, 2024, we had $42 million remaining in aggregate principal amount of the 2024 Notes, which have a scheduled maturity in September 2024. 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.

### Capital

We have invested significant capital expenditures in developing and opening new Design Galleries, and these capital expenditures have increased in the past, and may continue to increase in future periods, as we open additional Design Galleries, which may require us to undertake upgrades to historical buildings or construction of new buildings. Our adjusted capital expenditures include capital expenditures from investing activities and cash outflows of capital related to construction activities to design and build landlord-owned leased assets, net of tenant allowances received during the construction period. During the three months ended May 4, 2024, adjusted capital expenditures were $75 million in aggregate, net of cash received related to landlord tenant allowances of $2.9 million. 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. Nevertheless, we may elect to pursue additional capital expenditures beyond those that are anticipated during any given fiscal period inasmuch as our strategy is to be opportunistic with respect to our investments and we may choose to pursue certain capital transactions based on the availability and timing of unique opportunities. 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. We may also invest in other uses of our liquidity such as share repurchases, acquisitions and growth initiatives, including through joint ventures and real estate investments.

Certain lease arrangements require the landlord to fund a portion of the construction related costs through payments directly to us. As we develop new Galleries, as well as other potential strategic initiatives in the future like our integrated hospitality experience, we are exploring other models for our real estate activities, which include different terms and conditions for real estate transactions. These transactions may involve longer lease terms or further purchases of, or joint ventures or other forms of equity ownership in, real estate interests associated with new sites and buildings that we wish to develop for new Gallery locations or other aspects of our business. These approaches might require different levels of capital investment on our part than a traditional store lease with a landlord. We have also begun executing changes in our real estate strategy to transition some projects from a leasing model to a development model, where we buy and develop real estate for our Design Galleries either directly or through joint ventures and other structures with the ultimate objective of (i) recouping a majority of the investment through a sale-leaseback arrangement and (ii) resulting in lower capital investment and lower rent. For example, we have entered into arrangements with a third-party development partner to develop real estate for future RH Design Galleries. In the event that such capital and other expenditures require us to pursue additional funding sources, we can provide no assurance that we will be successful in securing additional funding on attractive terms or at all. In addition, our capital needs and uses of capital may change in the future due to changes in our business or new opportunities that we may pursue.

### Cash Flow Analysis

A summary of operating, investing, and financing activities is set forth in the following table:

*(in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ THREE MONTHS ENDED MAY 4, 2024 | ​ ​ | ​ ​ APRIL 29, 2023 |
| --- | --- | ---: | --- | ---: |
| Net cash provided by operating activities | ​ | $56,130 | ​ | $86,738 |
| Net cash used in investing activities | ​ | (68,943) | ​ | (67,321) |
| Net cash used in financing activities | ​ | (8,916) | ​ | (10,935) |
| Net increase (decrease) in cash and cash equivalents and restricted cash | ​ | (21,901) | ​ | 8,464 |
| Cash and cash equivalents and restricted cash at end of period | ​ | 101,787 | ​ | 1,520,227 |

### Net Cash Provided by Operating Activities

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

For the three months ended May 4, 2024, net cash provided by operating activities was $56 million and consisted of an increase in non-cash items of $78 million, partially offset by a change in working capital and other activities of $18 million and a net loss of $3.6 million. The use of cash from working capital was primarily driven by a decrease in operating lease liabilities of $24 million, a decrease in other current and non-current liabilities of $18 million and an increase in prepaid expense and other assets of $15 million. These uses of cash from working capital were partially offset by a decrease in merchandise inventory of $48 million, an increase of accounts payable and accrued expenses of $41 million, an increase of deferred revenue and customer deposits of $33 million, a decrease in landlord assets under construction, net of tenant allowances, of $8.8 million, and a decrease in accounts receivable of $7.8 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.

For the three months ended May 4, 2024, net cash used in investing activities was $69 million and was comprised of investments in retail stores, information technology and systems infrastructure of $66 million and additional contributions to our equity method investments of $2.7 million.

### 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.

For the three months ended May 4, 2024, net cash used in financing activities was $8.9 million, primarily due to payments on term loans of $6.3 million and payments under finance lease agreements of $4.5 million. These cash outflows were partially offset by equity related transactions of $1.8 million.

### Non-Cash Transactions

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

### Cash Requirements from Contractual Obligations

### Leases

We lease nearly all of our retail and outlet locations, corporate headquarters, distribution centers and home delivery center locations, as well as other storage and office space. Refer to Note 8—*Leases* in our condensed 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. The table presenting the maturities of our lease liabilities included in Note 8—*Leases* in our condensed consolidated financial statements includes future obligations for renewal options that are reasonably certain to be exercised and are included in the measurement of the lease liability. 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 9—*Convertible Senior Notes* in our condensed consolidated financial statements for further information on the 2024 Notes.

### Asset Based Credit Facility

Refer to Note 10—*Credit Facilities* in our condensed 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.

### Term Loan

Refer to Note 10—*Credit Facilities* in our condensed consolidated financial statements for further information on our Term Loan.

### Real Estate Loans

Refer to Note 5—*Variable Interest Entities* in our condensed consolidated financial statements for further information on the real estate loans held as part of our joint ventures with a third-party development partner.

### 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. We believe that our share repurchase program will continue to be an excellent allocation of capital for the long-term benefit of our stockholders. We may undertake other repurchase programs in the future with respect to our securities. Starting on January 1, 2023, share repurchases under our Share Repurchase Program (as defined below) are subject to a 1% excise tax imposed under the Inflation Reduction Act.

#### 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. On June 2, 2022, the Board of Directors authorized an additional $2,000 million for the purchase of shares of our outstanding common stock, which increased the total authorized size of the share repurchase program to $2,450 million (the “Share Repurchase Program”).

We did not repurchase any shares of our common stock under the Share Repurchase Program during the three months ended May 4, 2024. As of May 4, 2024, $201 million remains available for future share repurchases under the Share Repurchase Program.

### Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires senior leadership to make estimates and assumptions that affect amounts reported in our condensed consolidated financial statements and related notes, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our accounting policies, estimates, and judgments on an on-going basis. We base our estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions and such differences could be material to our condensed consolidated financial statements.

We evaluate the development and selection of our critical accounting policies and estimates and believe that certain of our significant accounting policies involve a higher degree of judgment or complexity and are most significant to reporting our consolidated results of operations and financial position, and are therefore discussed as critical:

Merchandise Inventories—Reserves

Lease Accounting

Reasonably Certain Lease Term

Incremental Borrowing Rate

Fair Value

Stock-Based Compensation—Performance-Based Awards

Variable Interest Entities

There have been no material changes to the critical accounting policies and estimates listed above from the disclosures included in the 2023 Form 10-K. For further discussion regarding these policies, refer to *Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates* in the 2023 Form 10-K.

### Recent Accounting Pronouncements

Refer to Note 2—*Recently Issued Accounting Standards* in our condensed consolidated financial statements for a description of recently issued accounting standards that may impact our results in future reporting periods.

## Market risk

As filed, 677 characters.

There have been no significant changes in our exposures to market risk since February 3, 2024. Refer to Part II, Item 7A—*Quantitative and Qualitative Disclosures about Market Risk* in our 2023 Form 10-K for a discussion on our exposures to market risk.

### Interest Rate Risk

As described in our 2023 Form 10-K and as updated in Note 10—*Credit Facilities* of our condensed consolidated financial statements herein, our Term Loan Credit Agreement bears interest at variable rates and we are exposed to interest rate risk related to our outstanding debt. For every 100-basis point change in interest rates, our annual interest expense could change by approximately $24 million.

## Controls and procedures

As filed, 1,435 characters.

### Evaluation of Disclosure Controls and Procedures

Our senior leadership team, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a 15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of May 4, 2024, the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our senior leadership team, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting, that occurred during our most recent fiscal quarter ended May 4, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 934 characters.

We operate in a rapidly changing environment that involves a number of risks that could materially and adversely affect our business, financial condition, prospects, operating results or cash flows. For a detailed discussion of certain risks that affect our business, refer to the section entitled “Risk Factors” in our 2023 Form 10-K. There have been no material changes to the risk factors disclosed in our 2023 Form 10-K.

The risks described in our 2023 Form 10-K are not the only risks we face. We describe in *Management’s Discussion and Analysis of Financial Condition and Results of Operations* in Part I of this Quarterly Report on Form 10-Q certain known trends and uncertainties that affect our business. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business, operating results and financial condition.

Filed Jun 13, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-009145. Last ingested by Listed: Oct 24, 2026, 15:13 ET. No prices; not investment advice.