As a Result of Paying Down Interest-Bearing Debt, the Company
Increases Fiscal 2018 Earnings Outlook
CORTE MADERA, Calif.--(BUSINESS WIRE)--Jun. 28, 2018--
RH (NYSE: RH) today announced the closing of the sale of an additional
$35 million of 0% coupon convertible notes due 2023 pursuant to the
partial exercise of the over-allotment option granted in the original
$300 million notes offering. The terms of the newly issued notes are
identical to those previously issued and have an initial conversion
price of approximately $193.65 per share representing a 25% conversion
premium to the stock price of $154.92 as of the time of the pricing of
the notes offering. The notes will not bear interest and will mature on
June 15, 2023, unless earlier purchased by the Company or converted. The
notes will be convertible into cash, shares of RH’s common stock, or a
combination thereof, at RH’s election.
In conjunction with the partial exercise of the over-allotment option,
the Company has entered into additional convertible note hedge and
warrant transactions on terms that have the effect of limiting earnings
dilution as a result of the additional notes issuance up to a 100%
premium to the $154.92 stock price. Under the terms of these
transactions, the Company’s shareholders are not expected to experience
earnings dilution until the Company’s stock price is above approximately
$309.84.
As previously announced, proceeds from the $335 million convertible
notes offering will be used to pay the net cost of the convertible note
hedge transactions and to pay down the outstanding borrowings under the
Company’s credit facility and other interest-bearing debt on the balance
sheet.
Paying down the credit facility and other interest-bearing debt is
expected to reduce the Company’s interest expense by approximately $1.1
million in the second quarter of fiscal 2018, representing a $0.03
increase to the midpoint of the Company’s second quarter fiscal 2018
adjusted diluted earnings per share guidance. Due to the significant
increase in the Company’s stock price during the quarter, the Company is
now estimating fully diluted shares outstanding of approximately 27.1
million for the second quarter of fiscal 2018 compared to its prior
outlook of 26.5 million shares. This increase in diluted shares
outstanding is expected to have a $0.03 negative impact on the midpoint
of the Company’s second quarter fiscal 2018 adjusted diluted earnings
per share guidance – effectively offsetting the interest expense savings
during the quarter.
For fiscal 2018, the Company expects a $6.8 million reduction in
interest expense, representing a $0.19 increase to the midpoint of the
Company’s fiscal 2018 adjusted diluted earnings per share guidance. The
Company is now estimating fiscal 2018 fully diluted shares outstanding
of approximately 26.9 million compared to its prior outlook of 26.5
million shares. This increase in diluted shares outstanding is expected
to have a $0.10 negative impact on the midpoint of the Company’s fiscal
2018 adjusted diluted earnings per share guidance. Inclusive of the
interest expense savings and higher shares outstanding outlook, the
Company expects a net $0.09 increase to the midpoint of its fiscal 2018
adjusted diluted earnings per share outlook.
Please see the table titled “Anticipated Impact of Stock Price on
Adjusted Diluted Shares Outstanding” in the Company’s first quarter
fiscal 2018 earnings release on June 11, 2018 for further background on
the impact of stock price on diluted shares outstanding.
This press release does not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of these
securities in any state or jurisdiction in which such offer,
solicitation, or sale would be unlawful prior to registration or
qualification under the securities laws of any such state or
jurisdiction. The notes and the shares of common stock issuable upon
conversion of the notes, if any, will not be registered under the
Securities Act of 1933, as amended (the “Act”) or any state securities
laws, and unless so registered, may not be offered or sold in the United
States except pursuant to an exemption from the registration
requirements of the Act and applicable state laws.
About RH
RH (NYSE: RH) is a curator of design, taste and style in the luxury
lifestyle market. The Company offers collections through its retail
galleries, Source Books, and online at RH.com, RHModern.com, and
Waterworks.com.
Forward-Looking Statements
Some of the statements in this press release are “forward-looking” and
are made pursuant to the safe harbor provision of the Private Securities
Litigation Reform Act of 1995. These “forward-looking” statements relate
to, among other matters: the expected use of proceeds from our sale of
convertible notes; expectations regarding the reduction in interest
expense and changes in adjusted diluted earnings per share in the second
quarter of 2018 and fiscal 2018 as a result of paying down the credit
facility and other interest-bearing debt; our future financial and
business outlook and guidance for the second quarter of fiscal 2018 and
for the fiscal year 2018 including our guidance and outlook with respect
to adjusted diluted earnings per share; the Company’s estimates of fully
diluted shares outstanding for the second quarter of fiscal 2018 and
fiscal 2018, and the anticipated impact of an increase in fully diluted
shares outstanding for the second quarter of fiscal 2018 and fiscal 2018
on the related adjusted diluted earnings per share guidance; statements
and references to the anticipated impact of our stock price on adjusted
diluted shares outstanding; any implications regarding the possible
future price of the Company’s common stock; the anticipated impact of
the convertible notes and the convertible note hedge and warrant
transactions on the Company’s earnings per share and shares outstanding
including the expectation the convertible note hedge and warrant
transactions will have the effect of limiting earnings dilution as a
result of the additional notes issuance up to a 100% premium to the
$154.92 stock price at the time of the original pricing of the
convertible notes offering and the expectation that the Company’s
shareholders are not expected to experience earnings dilution until the
Company’s stock price is above approximately $309.84; and any statements
or assumptions underlying any of the foregoing. 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,” “should,” “likely” and other words and terms
of similar meaning in connection with any discussion of the timing or
nature of future events. These statements involve risks and
uncertainties that may cause results to differ materially from the
statements set forth in this press release. Given these circumstances,
you should not place undue reliance on these forward-looking statements.
We cannot assure you that future developments affecting us will be those
that we have anticipated. Important risks and uncertainties that could
cause actual results to differ materially from our expectations or the
assumptions set forth in this release include, among others, our ability
to retain key personnel; successful implementation of our growth
strategy; our plan to make ongoing investments in RH Hospitality and to
open new Galleries in Nashville and New York in 2018; our ability to
leverage Waterworks; uncertainties in the current performance of our
business including a range of risks related to our operations as well as
external economic factors; general economic conditions and the impact on
consumer confidence and spending; changes in customer demand for our
products; our decisions concerning the allocation of capital; decisions
concerning the allocation of capital including the extent to which we
repurchase additional shares of our common stock which will affect
shares outstanding and EPS; factors affecting our outstanding
convertible senior notes or other forms of our indebtedness; our ability
to anticipate consumer preferences and buying trends, and maintaining
our brand promise to customers; changes in consumer spending based on
weather and other conditions beyond our control; risks related to the
number of new business initiatives we are undertaking; strikes and work
stoppages affecting port workers and other industries involved in the
transportation of our products; our ability to obtain our products in a
timely fashion or in the quantities required; our ability to employ
reasonable and appropriate security measures to protect personal
information that we collect; our ability to support our growth with
appropriate information technology systems; risks related to “conflict
minerals” compliance and its impact on sourcing, if any, as well as
those risks and uncertainties disclosed under the sections entitled
“Risk Factors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in RH’s most recent Form 10-K and
Form 10-Q filed with the Securities and Exchange Commission, and similar
disclosures in subsequent reports filed with the SEC, which are
available on our investor relations website at ir.rh.com and on the SEC
website at www.sec.gov.
Any forward-looking statement made by us in this press release speaks
only as of the date on which we make it. The forward-looking statements
in this press release speak only as of the date of this press release
and are subject to uncertainty and changes. RH expressly disclaims any
obligation or undertaking to release publicly any updates or revisions
to such statements to reflect any change in its expectations with regard
thereto or any changes in the events, conditions or circumstances on
which any such statement is based.

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Source: RH
RH
Cammeron McLaughlin, 415-945-4998
SVP, Investor Relations &
Strategy
cmclaughlin@rh.com