RH Reports Record Fiscal 2019 Results
RH Leadership will host a Q&A conference call at
FISCAL 2019 HIGHLIGHTS:
FY GAAP NET REVENUES INCREASED +5.7% TO
FY ADJUSTED NET REVENUES INCREASED +5.4% TO
FY GAAP OPERATING MARGIN INCREASED 330 BASIS POINTS TO 13.7% VS. 10.4% LY
FY ADJUSTED OPERATING MARGIN INCREASED 290 BASIS POINTS TO 14.3% VS. 11.4% LY
FY GAAP DILUTED EPS INCREASED +77% TO
FY ADJUSTED DILUTED EPS INCREASED +49% TO
FOURTH QUARTER 2019 HIGHLIGHTS:
Q4 GAAP NET REVENUES DECREASED -0.9% TO
Q4 ADJUSTED NET REVENUES DECREASED -1.0% TO
Q4 GAAP OPERATING MARGIN INCREASED 190 BASIS POINTS TO 15.2% VS. 13.3% LY
Q4 ADJUSTED OPERATING MARGIN INCREASED 230 BASIS POINTS TO 17.4% VS. 15.1% LY
Q4 GAAP DILUTED EPS INCREASED +151% TO
Q4 ADJUSTED DILUTED EPS INCREASED +27% TO
As of
Please see the tables below for reconciliations of all GAAP to non-GAAP measures referenced in this press release.
To Our People, Partners, and Shareholders,
Fiscal 2019 was an outstanding year for Team RH. We achieved record results across every key metric of our business while continuing to elevate the brand and create strategic separation in our industry. Adjusted revenues of
While fourth quarter revenues of
We believe the revenue shortfall in the quarter was a result of two temporal issues. One, the elimination of our Holiday assortment created unforeseen collateral damage to our core business due to the lower customer traffic in both our stores and online during the peak weeks, and two, we experienced higher than expected backorders due to inventories being down 18% year over year. While it’s hard to be precise forecasting business transitions such as the elimination of Holiday short term, long term it has proven to be the right decision, elevating the RH brand while significantly improving profitability and cash flow.
While proud of the outstanding results our team achieved in 2019, clearly everything has changed as a result of the rapid spread of COVID-19 around the world. Our hearts go out to all of those whose lives are being impacted by the virus, and we are eternally grateful for all the brave souls who are on the front lines putting their health at risk to protect ours.
Due to the significant disruption to financial markets and retail business operations, we are withdrawing all prior guidance and outlook statements that relate to the performance of our business with respect to fiscal year 2020. We anticipate providing additional information about our outlook and financial expectations at some point in the future when our business becomes more predictable. Additionally, in light of the current crisis and the concurrent financial hardships being experienced by so many at this time, the executive leadership team, including myself and our nine president level leaders have chosen to forgo our salaries until business conditions stabilize.
Like others, we will take the expected steps of deferring new business introductions and capital spending, while reducing costs to navigate through the short term challenges of this crisis. Unlike others, and due to our exceptional financial model, we believe we are well positioned to take advantage of the many opportunities that present themselves during times of dislocation. At RH, we live by Albert Einstein’s three rules of work. “Out of clutter, find simplicity. From discord, find harmony. In the middle of difficulty lies opportunity.”
It was during the depths of the Great Recession, when the word “value” drove an entire industry to lower quality and reduce prices, that we chose to move in the opposite direction, raising the quality of our offering, and positioned RH as a disruptive force in the lucrative luxury home furnishings market. Out of the clutter of the current crisis, from the discord and related drama, and in the middle of what seems like the most difficult of times, we are once again destroying our current reality to reimagine RH in a manner that will, in the words of
Our Galleries, Restaurants, and Outlets, which were originally planned to be closed from
Since the closing of our Galleries, Restaurants, and Outlets, our core RH business demand is running down approximately 40% to last year, while total Company demand, inclusive of both Restaurants and Outlets which do not have an online component, is running down approximately 43%. Prior to the dislocation of our business in March, demand in our RH core business was up 8% in February. Additionally, our Outlet business was down 50% in February as a result of cycling the accelerated liquidation of inventory due to the closure of a Distribution Center in Q4 2018. Prior to the impact of the COVID-19 crisis on our business, we were expecting the reduction of revenue year over year in the Outlet division to create a 4 point drag on the Company’s revenues in 2020, and we were expecting the higher Outlet merchandise margins to increase total Company operating margin approximately 100 basis points for the full fiscal year.
We are confident that our current capital structure, considering the actions we are taking to defer capital expenditures and reduce costs, will enable us to pay down the
While over the short term, we believe it is prudent to delay current Gallery openings in this uncertain environment, we do expect that over an extended timeframe we will return to our previously communicated long term targets of revenue growth of 8% to 12%, adjusted operating margins in the high teens to low twenties, adjusted net income growth of 15% to 20% annually, and ROIC in excess of 50%.
Looking beyond the current crisis, we continue to see a clear a path to over
I would like to thank all of our people and partners whose passion and persistence bring our vision and values to life each and every day as we pursue our quest to become one of the most admired brands in the world.
Gary
Note: Return on invested capital (ROIC): We define ROIC as adjusted operating income after-tax for the most recent twelve-month period, divided by the average of beginning and ending debt and equity less cash and equivalents as well as short and long-term investments for the most recent twelve- month period. ROIC is not a measure of financial performance under GAAP, and should be considered in addition to, and not as a substitute for other financial measures prepared in accordance with GAAP. Our method of determining ROIC may differ from other companies’ methods and therefore may not be comparable.
Q&A CONFERENCE CALL INFORMATION
RH leadership will host a live question and answer conference call and audio webcast at
ABOUT RH
RH (NYSE:RH) is a curator of design, taste and style in the luxury lifestyle market. The Company offers its collections through its retail galleries across
NON-GAAP FINANCIAL MEASURES
To supplement its condensed consolidated financial statements, which are prepared and presented in accordance with Generally Accepted Accounting Principles (“GAAP”), the Company uses the following non-GAAP financial measures: adjusted net revenue, adjusted operating income, adjusted net income or adjusted net earnings, adjusted net income margin, adjusted diluted earnings per share, normalized adjusted net income, normalized adjusted diluted net income per share, ROIC or return on invested capital, free cash flow, adjusted operating margin, adjusted gross margin, adjusted SG&A, EBITDA and adjusted EBITDA (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. The Company uses these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. The Company believes 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 management in its financial and operational decision making. The non- GAAP financial measures used by the Company in this press release 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 in this press release. 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.
FORWARD-LOOKING STATEMENTS
This release contains forward-looking statements within the meaning of the federal securities laws, including without limitation, statements regarding the elevation of our brand and creation of strategic separation in our industry; our industry best adjusted operating margins, industry leading ROIC and record results; our management of the business with a bias for earnings versus revenue growth; continued efficiencies of our new operating platform; our beliefs regarding the reasons for the revenue shortfall in the quarter including the elimination of the Holiday assortment and higher than expected backorders; the elevation of the RH brand and improvement in profitability and cash flow as a result of the elimination of Holiday; the impact to our business of the rapid development of the coronavirus (COVID-19) pandemic; our anticipation that we will be providing additional information about our outlook and expectations at some point in the future when business conditions begin to normalize; the positioning of RH as a disruptive force in the lucrative luxury home furnishings market; our expected steps of deferring new business introductions and capital spending while reducing costs to navigate through short term challenges; our belief that we are well-positioned to take advantage of the opportunities presented; the timing for the opening of our Galleries, Restaurants and Outlets; our compensation of our associates during store closings; statements relating to demand sales for our core business and Outlet business in
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. 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 include the global outbreak of the coronavirus (COVID-19) virus, which poses significant and widespread risks to our business as well as to the business environment and the markets in which we operate our business. We have already experienced significant disruption to our business as a result of the rapid development of the COVID-19 pandemic. The Company has temporarily closed its retail locations for an indeterminate period of time, and we believe changes in consumer behavior and health concerns have impacted customer demand. A large number of states and municipalities in the
RETAIL GALLERY METRICS
(Unaudited)
We operated the following number of Galleries, outlets and showrooms:
|
|
|
|
|||
|
2020 |
|
2019 |
|
||
| RH | |||||
| Design Galleries [a] |
22 |
20 |
|||
| Legacy Galleries |
40 |
43 |
|||
| Modern Galleries |
2 |
2 |
|||
| Baby & Child and Teen Galleries |
4 |
6 |
|||
| Total Galleries |
68 |
71 |
|||
| Outlets [b] |
38 |
39 |
|||
|
Waterworks Showrooms |
15 |
15 |
| __________________ | ||
|
[a] |
As of |
|
|
[b] |
Net revenues for outlet stores, which include warehouse sales, were |
|
The following tables present
|
Three Months Ended |
|||||||||||
|
|
|
|
|||||||||
|
2020 |
|
2019 |
|||||||||
|
|
|
Total Leased Selling |
|
|
|
Total Leased Selling |
|||||
|
Count |
|
Square Footage |
|
Count |
|
Square Footage |
|||||
| (in thousands) | (in thousands) | ||||||||||
| Beginning of period |
85 |
|
1,095 |
|
86 |
1,089 |
|||||
| Design Galleries: | |||||||||||
|
1 |
|
33.0 |
|
— |
— |
||||||
| Baby & Child Galleries: | |||||||||||
|
(1 |
) |
(4.7 |
) |
— |
— |
||||||
| Legacy Galleries: | |||||||||||
| Columbus legacy Gallery |
(1 |
) |
(6.2 |
) |
— |
— |
|||||
|
(1 |
) |
(5.7 |
) |
— |
— |
||||||
| End of period |
83 |
|
1,111 |
|
86 |
1,089 |
|||||
| Weighted-average leased selling square footage |
1,109 |
|
1,089 |
||||||||
| % growth vs. prior year |
2 |
|
% |
12 |
% | ||||||
|
Year Ended |
||||||||||||||
|
|
|
|
||||||||||||
|
2020 |
|
2019 |
||||||||||||
|
|
|
|
Total Leased Selling |
|
|
|
|
Total Leased Selling |
||||||
|
Count |
|
Square Footage |
|
Count |
|
Square Footage |
||||||||
| (in thousands) | (in thousands) | |||||||||||||
| Beginning of period |
86 |
|
1,089 |
|
83 |
|
981 |
|
||||||
| Design Galleries: | ||||||||||||||
|
1 |
|
32.9 |
|
— |
— |
|||||||||
|
1 |
|
33.0 |
|
— |
— |
|||||||||
|
— |
— |
1 |
|
26.0 |
|
|||||||||
|
— |
— |
1 |
|
45.6 |
|
|||||||||
|
— |
— |
1 |
|
50.5 |
|
|||||||||
|
— |
— |
1 |
|
6.7 |
|
|||||||||
| Modern Galleries: |
|
|||||||||||||
|
— |
(4.5 |
) |
— |
— |
||||||||||
|
— |
— |
1 |
|
8.2 |
|
|||||||||
| Baby & Child Galleries: | ||||||||||||||
|
(1 |
) |
(3.7 |
) |
1 |
|
3.7 |
|
|||||||
|
(1 |
) |
(4.7 |
) |
1 |
|
4.7 |
|
|||||||
| Legacy Galleries: | ||||||||||||||
|
— |
0.5 |
|
— |
— |
||||||||||
|
(1 |
) |
(13.3 |
) |
— |
— |
|||||||||
| Columbus legacy Gallery |
(1 |
) |
(6.2 |
) |
— |
— |
||||||||
|
(1 |
) |
(5.7 |
) |
— |
— |
|||||||||
|
— |
(2.6 |
) |
— |
— |
||||||||||
|
— |
(3.8 |
) |
— |
— |
||||||||||
| Portland legacy Gallery |
— |
— |
(1 |
) |
(4.7 |
) |
||||||||
|
— |
— |
(1 |
) |
(7.1 |
) |
|||||||||
|
— |
— |
(1 |
) |
(5.6 |
) |
|||||||||
|
— |
— |
(1 |
) |
(21.4 |
) |
|||||||||
| Waterworks Showrooms: | ||||||||||||||
| Waterworks Scottsdale Showroom (relocation) |
— |
— |
— |
1.1 |
|
|||||||||
| End of period |
83 |
|
1,111 |
|
86 |
|
1,089 |
|
||||||
| % growth vs. prior year |
2 |
% |
11 |
% |
||||||||||
| Weighted-average leased selling square footage |
1,088 |
|
1,047 |
|
||||||||||
| % growth vs. prior year |
4 |
% |
13 |
% |
||||||||||
See the Company’s most recent Form 10‑K and Form 10‑Q filings for square footage definitions.
Total leased square footage as of
Weighted-average leased square footage for the three months ended
Weighted-average leased square footage for the year ended
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
|
Three Months Ended |
|
Year Ended |
|||||||||||||||||||
|
|
|
% of Net |
|
|
|
% of Net |
|
|
|
% of Net |
|
|
|
% of Net |
|||||||
|
2020 |
|
Revenues |
|
2019 |
|
Revenues |
|
2020 |
|
Revenues |
|
2019 |
|
Revenues |
|||||||
| Net revenues |
$ |
664,976 |
100.0 |
% |
$ |
670,891 |
100.0 |
% |
$ |
2,647,437 |
100.0 |
% |
$ |
2,505,653 |
100.0 |
% |
|||||
| Cost of goods sold |
381,903 |
57.4 |
% |
413,012 |
61.6 |
% |
1,552,426 |
58.6 |
% |
1,520,076 |
60.7 |
% |
|||||||||
| Gross profit |
283,073 |
42.6 |
% |
257,879 |
38.4 |
% |
1,095,011 |
41.4 |
% |
985,577 |
39.3 |
% |
|||||||||
| Selling, general and administrative expenses |
182,093 |
27.4 |
% |
168,341 |
25.1 |
% |
732,180 |
27.7 |
% |
723,841 |
28.9 |
% |
|||||||||
| Income from operations |
100,980 |
15.2 |
% |
89,538 |
13.3 |
% |
362,831 |
13.7 |
% |
261,736 |
10.4 |
% |
|||||||||
| Other expenses | |||||||||||||||||||||
| Interest expense—net |
19,982 |
3.0 |
% |
19,509 |
2.8 |
% |
87,177 |
3.3 |
% |
67,769 |
2.7 |
% |
|||||||||
|
— |
— |
% |
32,086 |
4.8 |
% |
— |
— |
% |
32,086 |
1.3 |
% |
||||||||||
| Loss on extinguishment of debt—net |
569 |
0.1 |
% |
— |
— |
% |
6,472 |
0.2 |
% |
917 |
— |
% | |||||||||
| Total other expenses |
20,551 |
3.1 |
% |
51,595 |
7.6 |
% |
93,649 |
3.5 |
% |
100,772 |
4.0 |
% |
|||||||||
| Income before income taxes |
80,429 |
12.1 |
% |
37,943 |
5.7 |
% |
269,182 |
10.2 |
% |
160,964 |
6.4 |
% |
|||||||||
| Income tax expense |
11,996 |
1.8 |
% |
10,693 |
1.6 |
% |
48,807 |
1.9 |
% |
25,233 |
1.0 |
% |
|||||||||
| Net income |
$ |
68,433 |
10.3 |
% |
$ |
27,250 |
4.1 |
% |
$ |
220,375 |
8.3 |
% |
$ |
135,731 |
5.4 |
% |
|||||
| Weighted-average shares used in computing basic net income per share |
19,120,709 |
20,901,841 |
19,082,303 |
21,613,678 |
|||||||||||||||||
| Basic net income per share |
$ |
3.58 |
$ |
1.30 |
$ |
11.55 |
$ |
6.28 |
|||||||||||||
| Weighted-average shares used in computing diluted net income per share |
25,767,864 |
25,702,791 |
24,299,034 |
26,533,225 |
|||||||||||||||||
| Diluted net income per share |
$ |
2.66 |
$ |
1.06 |
$ |
9.07 |
$ |
5.12 |
|||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
|
|
|
|
||||
|
2020 |
|
2019 |
||||
| ASSETS | ||||||
| Cash and cash equivalents |
$ |
47,658 |
$ |
5,803 |
||
| Merchandise inventories |
438,696 |
531,947 |
||||
| Other current assets |
110,598 |
166,217 |
||||
| Total current assets |
596,952 |
703,967 |
||||
| Property and equipment—net |
967,599 |
952,957 |
||||
| Operating lease right-of-use assets |
410,904 |
440,504 |
||||
|
210,389 |
210,401 |
|||||
| Other non-current assets |
259,850 |
115,189 |
||||
| Total assets |
$ |
2,445,694 |
$ |
2,423,018 |
||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||
| Liabilities | ||||||
| Accounts payable and accrued expenses |
$ |
330,309 |
$ |
320,497 |
||
| Convertible senior notes due 2019—net |
— |
343,789 |
||||
| Convertible senior notes due 2020—net |
290,532 |
— |
||||
| Operating lease liabilities |
58,924 |
66,249 |
||||
| Deferred revenue, customer deposits and other current liabilities |
303,147 |
262,051 |
||||
| Total current liabilities |
982,912 |
992,586 |
||||
| Asset based credit facility |
— |
57,500 |
||||
| Equipment promissory notes—net |
31,053 |
— |
||||
| Convertible senior notes due 2020—net |
— |
271,157 |
||||
| Convertible senior notes due 2023—net |
266,658 |
249,151 |
||||
| Convertible senior notes due 2024—net |
264,982 |
— |
||||
| Non-current operating lease liabilities |
409,930 |
437,557 |
||||
| Non-current finance lease liabilities |
442,988 |
421,245 |
||||
| Other non-current obligations |
28,520 |
32,512 |
||||
| Total liabilities |
2,427,043 |
2,461,708 |
||||
| Stockholders’ equity (deficit) |
18,651 |
(38,690) |
||||
| Total liabilities and stockholders’ equity (deficit) |
$ |
2,445,694 |
$ |
2,423,018 |
||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
Year Ended |
||||||||||
|
|
|
|
||||||||
|
2020 |
|
2019 |
||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||
| Net income |
$ |
|
220,375 |
|
$ |
|
135,731 |
|
||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
| Depreciation and amortization |
100,739 |
|
91,372 |
|
||||||
| Accretion of debt discount upon settlement of debt |
(70,482 |
) |
— |
|||||||
| Other non-cash items |
169,099 |
|
205,156 |
|
||||||
| Change in assets and liabilities: | ||||||||||
| Prepaid expense and other assets |
28,404 |
|
(88,434 |
) |
||||||
| Accounts payable and accrued expenses |
7,445 |
|
10,148 |
|
||||||
| Current and non-current operating lease liability |
(77,004 |
) |
(70,875 |
) |
||||||
| Other changes in assets and liabilities |
(39,388 |
) |
(33,495 |
) |
||||||
| Net cash provided by operating activities |
339,188 |
|
249,603 |
|
||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||
| Capital expenditures |
(93,623 |
) |
(79,992 |
) |
||||||
| Deposits on asset under construction |
(53,000 |
) |
— |
|||||||
| Proceeds from sale of assets |
24,078 |
|
— |
|||||||
| Net cash used in investing activities |
(122,545 |
) |
(79,992 |
) |
||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||
| Net repayments under asset based credit facility |
(57,500 |
) |
(142,470 |
) |
||||||
| Net repayments under term loans |
(4,000 |
) |
(80,000 |
) |
||||||
| Net borrowings (repayments) under promissory and equipment security notes |
105,480 |
|
(31,974 |
) |
||||||
| Debt issuance costs |
(4,636 |
) |
— |
|||||||
| Repayments of convertible senior notes |
(278,560 |
) |
— |
|||||||
| Repurchases of common stock—including commissions |
(250,032 |
) |
(250,000 |
) |
||||||
| Proceeds from issuance of convertible senior notes |
350,000 |
|
335,000 |
|
||||||
| Proceeds from issuance of warrants |
50,225 |
|
51,021 |
|
||||||
| Purchase of convertible notes hedges |
(91,350 |
) |
(91,857 |
) |
||||||
| Debt issuance costs related to convertible senior notes |
(4,818 |
) |
(6,349 |
) |
||||||
| Other financing activities |
10,387 |
|
27,637 |
|
||||||
| Net cash used in financing activities |
(174,804 |
) |
(188,992 |
) |
||||||
| Effects of foreign currency exchange rate translation |
16 |
|
(130 |
) |
||||||
| Net increase (decrease) in cash and cash equivalents and restricted cash equivalents |
41,855 |
|
(19,511 |
) |
||||||
| Cash and cash equivalents and restricted cash equivalents | ||||||||||
| Beginning of period—cash and cash equivalents |
5,803 |
|
17,907 |
|
||||||
| Beginning of period—restricted cash equivalents (construction related deposits) |
— |
7,407 |
|
|||||||
| Beginning of period—cash and cash equivalents and restricted cash equivalents |
$ |
|
5,803 |
|
$ |
|
25,314 |
|
||
| End of period—cash and cash equivalents |
$ |
|
47,658 |
|
$ |
|
5,803 |
|
||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
Three Months Ended |
|
Year Ended |
||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||||||||
| Net cash provided by operating activities |
$ |
|
128,191 |
|
$ |
|
152,887 |
|
$ |
|
339,188 |
|
$ |
|
249,603 |
|
||||
| Accretion of debt discount upon settlement of debt |
— |
— |
70,482 |
|
— |
|||||||||||||||
| Proceeds from sale of assets |
— |
— |
24,078 |
|
— |
|||||||||||||||
| Capital expenditures |
(29,009 |
) |
(6,714 |
) |
(93,623 |
) |
(79,992 |
) |
||||||||||||
| Principal payments under finance leases |
(2,546 |
) |
(1,948 |
) |
(9,682 |
) |
(6,885 |
) |
||||||||||||
| Free cash flow [a] |
$ |
|
96,636 |
|
$ |
|
144,225 |
|
$ |
|
330,443 |
|
$ |
|
162,726 |
|
||||
| __________________ | ||
|
[a] |
Free cash flow is calculated as net cash provided by operating activities, the non-cash accretion of debt discount upon settlement of debt and proceeds from sale of assets, less capital expenditures and principal payments under finance leases. Free cash flow excludes all non-cash items. Free cash flow is included in this press release because management believes that free cash flow provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of operating results on a comparable basis with historical results. Our management uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. |
|
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED NET INCOME
(In thousands)
(Unaudited)
|
Three Months Ended |
|
Year Ended |
||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||||||||
| GAAP net income |
$ |
|
68,433 |
|
$ |
|
27,250 |
|
$ |
|
220,375 |
|
$ |
|
135,731 |
|
||||
| Adjustments (pre-tax): | ||||||||||||||||||||
| Net revenues: | ||||||||||||||||||||
| Recall accrual [a] | — |
932 |
|
(391 |
) |
4,733 |
|
|||||||||||||
| Cost of goods sold: | ||||||||||||||||||||
| Asset impairments [b] | — |
3,807 |
|
4,909 |
|
3,807 |
|
|||||||||||||
| Recall accrual [a] | — |
(2,361 |
) |
(3,372 |
) |
(4,139 |
) |
|||||||||||||
| Distribution center closures [c] | — | — | — |
1,478 |
|
|||||||||||||||
| Impact of inventory step-up [d] | — | — | — |
380 |
|
|||||||||||||||
| Selling, general and administrative expenses: | ||||||||||||||||||||
| Asset impairments and lease losses [b] |
14,847 |
|
— |
16,990 |
|
3,411 |
|
|||||||||||||
| Reorganization related costs [e] | — |
692 |
|
1,075 |
|
9,977 |
|
|||||||||||||
| Legal settlements [f] | — | — |
(1,193 |
) |
(5,289 |
) |
||||||||||||||
| Asset held for sale loss (gain) [g] | — |
8,497 |
|
(1,529 |
) |
8,497 |
|
|||||||||||||
| Recall accrual [a] | — |
380 |
|
(225 |
) |
1,025 |
|
|||||||||||||
| Distribution center closures [c] | — | — | — |
1,568 |
|
|||||||||||||||
| Other expenses: | ||||||||||||||||||||
| Amortization of debt discount [h] |
11,300 |
|
11,661 |
|
42,545 |
|
39,216 |
|
||||||||||||
| Loss on extinguishment of debt—net [i] |
569 |
|
— |
6,472 |
|
917 |
|
|||||||||||||
| — |
32,086 |
|
— |
32,086 |
|
|||||||||||||||
| Subtotal adjusted items |
26,716 |
|
55,694 |
|
65,281 |
|
97,667 |
|
||||||||||||
| Impact of income tax items [k] |
(3,969 |
) |
(8,971 |
) |
(9,359 |
) |
(29,080 |
) |
||||||||||||
| Adjusted net income [l] |
$ |
|
91,180 |
|
$ |
|
73,973 |
|
$ |
|
276,297 |
|
$ |
|
204,318 |
|
||||
| __________________ | ||
|
[a] |
Represents adjustments to net revenues, cost of goods sold and inventory charges associated with product recalls, as well as accrual adjustments, and vendor and insurance claims. |
|
|
[b] |
The adjustments to cost of goods sold for the three months ended |
|
|
[c] |
Represents disposals of inventory and property and equipment, lease related charges, inventory transfer costs and other costs associated with distribution center closures. |
|
|
[d] |
Represents the non-cash amortization of the inventory fair value adjustment recorded in connection with our acquisition of Waterworks. |
|
|
[e] |
Represents severance costs and related taxes associated with reorganizations. |
|
|
[f] |
Represents legal settlements, net of related legal expenses. |
|
|
[g] |
The adjustment in the year ended |
|
|
[h] |
Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, in accounting for GAAP purposes for the |
|
|
[i] |
The adjustment in the three months ended |
|
|
[j] |
Represents goodwill and tradename impairment related to the Waterworks reporting unit. |
|
|
[k] |
The adjustment in the three months ended |
|
|
[l] |
Adjusted net income is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We define adjusted net income as consolidated net income, adjusted for the impact of certain non-recurring and other items that we do not consider representative of our underlying operating performance. Adjusted net income is included in this press release because management believes that adjusted net income provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of operating results on a comparable basis with historical results. Our management uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. |
|
RECONCILIATION OF DILUTED NET INCOME PER SHARE TO
ADJUSTED DILUTED NET INCOME PER SHARE
(Unaudited)
|
Three Months Ended |
|
Year Ended |
||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||||||||
| Diluted net income per share |
$ |
|
2.66 |
|
$ |
|
1.06 |
|
$ |
|
9.07 |
|
$ |
|
5.12 |
|
||||
| Pro forma diluted net income per share [a] |
$ |
|
2.79 |
|
$ |
|
1.07 |
|
$ |
|
9.30 |
|
$ |
|
5.18 |
|
||||
| Per share impact of adjustments (pre-tax) [b]: | ||||||||||||||||||||
| Amortization of debt discount |
0.46 |
|
0.46 |
|
1.80 |
|
1.50 |
|
||||||||||||
| Asset impairments and lease losses |
0.61 |
|
0.14 |
|
0.92 |
|
0.27 |
|
||||||||||||
| Loss on extinguishment of debt—net |
0.02 |
|
— |
0.27 |
|
0.04 |
|
|||||||||||||
| Reorganization related costs |
— |
0.03 |
|
0.05 |
|
0.38 |
|
|||||||||||||
| Recall accrual |
— |
(0.04 |
) |
(0.17 |
) |
0.06 |
|
|||||||||||||
| Asset held for sale loss (gain) |
— |
0.34 |
|
(0.07 |
) |
0.32 |
|
|||||||||||||
| Legal settlements |
— |
— |
(0.05 |
) |
(0.20 |
) |
||||||||||||||
|
— |
1.27 |
|
— |
1.23 |
|
|||||||||||||||
| Distribution center closures |
— |
— |
— |
0.12 |
|
|||||||||||||||
| Impact of inventory step-up |
— |
— |
— |
0.01 |
|
|||||||||||||||
| Subtotal adjusted items |
1.09 |
|
2.20 |
|
2.75 |
|
3.73 |
|
||||||||||||
| Impact of income tax items [b] |
(0.16 |
) |
(0.35 |
) |
(0.39 |
) |
(1.11 |
) |
||||||||||||
| Adjusted diluted net income per share [c] |
$ |
|
3.72 |
|
$ |
|
2.92 |
|
$ |
|
11.66 |
|
$ |
|
7.80 |
|
||||
| __________________ | ||
|
[a] |
For GAAP purposes, we incur dilution above the lower strike prices of our 2019 Notes, 2020 Notes, 2023 Notes and 2024 Notes of |
|
|
[b] |
Refer to table titled “Reconciliation of GAAP Net Income to Adjusted Net Income” and the related footnotes for additional information. |
|
|
[c] |
Adjusted diluted net income per share is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We define adjusted diluted net income per share 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 divided by the Company’s pro forma share count. Adjusted diluted net income per share is included in this press release because management believes that adjusted diluted net income per share provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of operating results on a comparable basis with historical results. Our management uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. |
|
RECONCILIATION OF NET REVENUES TO ADJUSTED NET REVENUES
AND GROSS PROFIT TO ADJUSTED GROSS PROFIT
(Dollars in thousands)
(Unaudited)
|
Three Months Ended |
|
Year Ended |
|||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|||||||||||||
| Net revenues |
$ |
|
664,976 |
$ |
|
670,891 |
|
$ |
|
2,647,437 |
|
$ |
|
2,505,653 |
|||||
| Recall accrual [a] |
— |
932 |
|
(391 |
) |
4,733 |
|||||||||||||
| Adjusted net revenues [b] |
$ |
|
664,976 |
$ |
|
671,823 |
|
$ |
|
2,647,046 |
|
$ |
|
2,510,386 |
|||||
| Gross profit |
$ |
|
283,073 |
$ |
|
257,879 |
|
$ |
|
1,095,011 |
|
$ |
|
985,577 |
|||||
| Asset impairments and lease losses [a] |
— |
3,807 |
|
4,909 |
|
3,807 |
|||||||||||||
| Recall accrual [a] |
— |
(1,429 |
) |
(3,763 |
) |
594 |
|||||||||||||
| Distribution center closures [a] |
— |
— |
— |
1,478 |
|||||||||||||||
| Impact of inventory step-up [a] |
— |
— |
— |
380 |
|||||||||||||||
| Adjusted gross profit [b] |
$ |
|
283,073 |
$ |
|
260,257 |
|
$ |
|
1,096,157 |
|
$ |
|
991,836 |
|||||
| Gross margin [c] |
42.6 |
% |
38.4 |
|
% |
41.4 |
|
% |
39.3 |
% |
|||||||||
| Adjusted gross margin [c] |
42.6 |
% |
38.7 |
|
% |
41.4 |
|
% |
39.5 |
% |
|||||||||
| __________________ | ||
|
[a] |
Refer to table titled “Reconciliation of GAAP Net Income to Adjusted Net Income” and the related footnotes for additional information. |
|
|
[b] |
Adjusted net revenues and adjusted gross profit are supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We define adjusted net revenues as consolidated net revenues, adjusted for the impact of certain non-recurring and other items that we do not consider representative of our underlying operating performance. We define adjusted gross profit as consolidated gross profit, adjusted for the impact of certain non-recurring and other items that we do not consider representative of our underlying operating performance. Adjusted net revenues and adjusted gross profit are included in this press release because management believes that adjusted net revenues and adjusted gross profit provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful evaluation of operating results on a comparable basis with historical results. Our management uses these non-GAAP financial measures in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. |
|
|
[c] |
Gross margin is defined as gross profit divided by net revenues. Adjusted gross margin is defined as adjusted gross profit divided by adjusted net revenues. |
|
RECONCILIATION OF NET INCOME TO OPERATING INCOME
AND ADJUSTED OPERATING INCOME
(Dollars in thousands)
(Unaudited)
|
Three Months Ended |
|
Year Ended |
||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||||||||
| Net income |
$ |
|
68,433 |
$ |
|
27,250 |
|
$ |
|
220,375 |
|
$ |
|
135,731 |
|
|||||
| Interest expense—net |
19,982 |
19,509 |
|
87,177 |
|
67,769 |
|
|||||||||||||
|
— |
32,086 |
|
— |
32,086 |
|
|||||||||||||||
| Loss on extinguishment of debt—net |
569 |
— |
6,472 |
|
917 |
|
||||||||||||||
| Income tax expense |
11,996 |
10,693 |
|
48,807 |
|
25,233 |
|
|||||||||||||
| Operating income |
100,980 |
89,538 |
|
362,831 |
|
261,736 |
|
|||||||||||||
| Asset impairments and lease losses [a] |
14,847 |
3,807 |
|
21,899 |
|
7,218 |
|
|||||||||||||
| Reorganization related costs [a] |
— |
692 |
|
1,075 |
|
9,977 |
|
|||||||||||||
| Recall accrual [a] |
— |
(1,049 |
) |
(3,988 |
) |
1,619 |
|
|||||||||||||
| Asset held for sale loss (gain) [a] |
— |
8,497 |
|
(1,529 |
) |
8,497 |
|
|||||||||||||
| Legal settlements [a] |
— |
— |
(1,193 |
) |
(5,289 |
) |
||||||||||||||
| Distribution center closures [a] |
— |
— |
— |
3,046 |
|
|||||||||||||||
| Impact of inventory step-up [a] |
— |
— |
— |
380 |
|
|||||||||||||||
| Adjusted operating income [b] |
$ |
|
115,827 |
$ |
|
101,485 |
|
$ |
|
379,095 |
|
$ |
|
287,184 |
|
|||||
| Net revenues |
$ |
|
664,976 |
$ |
|
670,891 |
|
$ |
|
2,647,437 |
|
$ |
|
2,505,653 |
|
|||||
| Adjusted net revenues [c] |
$ |
|
664,976 |
$ |
|
671,823 |
|
$ |
|
2,647,046 |
|
$ |
|
2,510,386 |
|
|||||
| Operating margin [c] |
15.2 |
% |
13.3 |
|
% |
13.7 |
|
% |
10.4 |
|
% |
|||||||||
| Adjusted operating margin [c] |
17.4 |
% |
15.1 |
|
% |
14.3 |
|
% |
11.4 |
|
% |
|||||||||
| __________________ | ||
|
[a] |
Refer to table titled “Reconciliation of GAAP Net Income to Adjusted Net Income” and the related footnotes for additional information. |
|
|
[b] |
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. Adjusted operating income is included in this press release because management believes that adjusted operating income provides meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of operating results on a comparable basis with historical results. Our management uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. |
|
|
[c] |
Operating margin is defined as operating income divided by net revenues. Adjusted operating margin is defined as adjusted operating income divided by adjusted net revenues. Refer to table titled “Reconciliation of Net Revenues to Adjusted Net Revenues and Gross Profit to Adjusted Gross Profit” and the related footnotes for a definition and reconciliation of adjusted net revenues. |
|
RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA
(In thousands)
(Unaudited)
|
Three Months Ended |
|
Year Ended |
|||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|||||||||||||
| Net income |
$ |
|
68,433 |
$ |
|
27,250 |
|
$ |
|
220,375 |
|
$ |
|
135,731 |
|
||||
| Depreciation and amortization |
24,794 |
26,438 |
|
100,739 |
|
91,372 |
|
||||||||||||
| Interest expense—net |
19,982 |
19,509 |
|
87,177 |
|
67,769 |
|
||||||||||||
| Income tax expense |
11,996 |
10,693 |
|
48,807 |
|
25,233 |
|
||||||||||||
| EBITDA [a] |
125,205 |
83,890 |
|
457,098 |
|
320,105 |
|
||||||||||||
| Non-cash compensation [b] |
5,723 |
6,206 |
|
21,832 |
|
24,122 |
|
||||||||||||
| Asset impairments and lease losses [c] |
13,508 |
1,196 |
|
15,651 |
|
4,607 |
|
||||||||||||
| Loss on extinguishment of debt—net [c] |
569 |
— |
6,472 |
|
917 |
|
|||||||||||||
| Reorganization related costs [c] |
— |
692 |
|
1,075 |
|
9,977 |
|
||||||||||||
| Recall accrual [c] |
— |
(1,049 |
) |
(3,988 |
) |
1,619 |
|
||||||||||||
| Asset held for sale loss (gain) [c] |
— |
8,497 |
|
(1,529 |
) |
8,497 |
|
||||||||||||
| Legal settlements [c] |
— |
— |
(1,193 |
) |
(5,289 |
) |
|||||||||||||
|
— |
32,086 |
|
— |
32,086 |
|
||||||||||||||
| Distribution center closures [c] |
— |
— |
— |
3,046 |
|
||||||||||||||
| Impact of inventory step-up [c] |
— |
— |
— |
380 |
|
||||||||||||||
| Adjusted EBITDA [a] |
$ |
|
145,005 |
$ |
|
131,518 |
|
$ |
|
495,418 |
|
$ |
|
400,067 |
|
||||
| __________________ | ||
|
[a] |
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 before depreciation and amortization, interest expense—net and income tax expense. Adjusted EBITDA reflects further adjustments to EBITDA to eliminate the impact of non-cash compensation, as well as certain non-recurring and other items that we do not consider representative of our underlying operating performance. EBITDA and Adjusted EBITDA are included in this press release because management believes that these metrics provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful evaluation of operating results on a comparable basis with historical results. Our management uses these non-GAAP financial measures in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. Our measures of EBITDA and Adjusted EBITDA are not necessarily comparable to other similarly titled captions for other companies due to different methods of calculation. |
|
|
[b] |
Represents non-cash compensation related to equity awards granted to employees. |
|
|
[c] |
Refer to table titled “Reconciliation of GAAP Net Income to Adjusted Net Income” and the related footnotes for additional information. |
|
CALCULATION OF TOTAL DEBT, TOTAL NET DEBT AND
RATIO OF TOTAL NET DEBT TO TRAILING TWELVE MONTHS ADJUSTED EBITDA
(Dollars in thousands)
(Unaudited)
|
|
|
Interest |
||||||
|
2020 |
|
Rate [a] |
||||||
| Asset based credit facility |
$ |
|
— |
2.94 |
% |
|||
| Equipment promissory notes |
53,372 |
|
4.56 |
% |
||||
| Convertible senior notes due 2020 [b] |
291,110 |
|
0.00 |
% |
||||
| Convertible senior notes due 2023 [b] |
270,271 |
|
0.00 |
% |
||||
| Convertible senior notes due 2024 [b] |
268,366 |
|
0.00 |
% |
||||
| Notes payable for share repurchases |
18,741 |
|
4.97 |
% |
||||
| Total debt |
$ |
|
901,860 |
|
||||
| Cash and cash equivalents |
(47,658 |
) |
||||||
| Total net debt |
$ |
|
854,202 |
|
||||
| Trailing twelve months Adjusted EBITDA [c] |
$ |
|
495,418 |
|
||||
| Ratio of total net debt to trailing twelve months Adjusted EBITDA [c] |
1.7 |
|
||||||
| __________________ | ||
|
[a] |
The interest rates for the equipment promissory notes and notes payable for share repurchases represent the weighted-average interest rates. |
|
|
[b] |
Amounts exclude discounts upon original issuance and third party offering costs. |
|
|
[c] |
The ratio of total net debt to trailing twelve months Adjusted EBITDA is calculated by dividing total net debt by trailing twelve months Adjusted EBITDA. Refer to table titled “Reconciliation of Net Income to Trailing Twelve Months EBITDA and Trailing Twelve Months Adjusted EBITDA” and the related footnotes for definitions of EBITDA and Adjusted EBITDA and a reconciliation of trailing twelve months Adjusted EBITDA. |
|
ASC 842 IMPACT OF ADOPTION
(Dollars in thousands, except per share amounts)
(Unaudited)
We adopted Accounting Standards Update (“ASU”) 2016‑02, ASU 2018-10 and ASU 2018-11 (together, “ASC 842”), which pertain to accounting for leases, on
Condensed Consolidated Statements of Income
The following tables summarize the impact of adopting ASC 842 on our fiscal 2018 annual and quarterly condensed consolidated statements of income:
|
Year Ended |
||||||||||||||
|
As Reported |
|
Adjustment |
|
As Adjusted |
||||||||||
| Net revenues |
$ |
|
2,505,653 |
$ |
|
— |
$ |
|
2,505,653 |
|
||||
| Cost of goods sold |
1,504,806 |
15,270 |
|
[a] |
1,520,076 |
|
||||||||
| Gross profit |
1,000,847 |
(15,270 |
) |
985,577 |
|
|||||||||
| Selling, general and administrative expenses |
711,617 |
12,224 |
|
[b][c] |
723,841 |
|
||||||||
| Income from operations |
289,230 |
(27,494 |
) |
261,736 |
|
|||||||||
| Other expenses | ||||||||||||||
| Interest expense—net |
75,074 |
(7,305 |
) |
[d] |
67,769 |
|
||||||||
|
32,086 |
— |
32,086 |
|
|||||||||||
| Loss on extinguishment of debt—net |
917 |
— |
917 |
|
||||||||||
| Total other expenses |
108,077 |
(7,305 |
) |
100,772 |
|
|||||||||
| Income before income taxes |
181,153 |
(20,189 |
) |
160,964 |
|
|||||||||
| Income tax expense |
30,514 |
(5,281 |
) |
[e] |
25,233 |
|
||||||||
| Net income |
$ |
|
150,639 |
$ |
|
(14,908 |
) |
$ |
|
135,731 |
|
|||
| Weighted-average shares used in computing basic net income per share |
21,613,678 |
— |
21,613,678 |
|
||||||||||
| Basic net income per share |
$ |
|
6.97 |
$ |
|
(0.69 |
) |
$ |
|
6.28 |
|
|||
| Weighted-average shares used in computing diluted net income per share |
26,533,225 |
— |
26,533,225 |
|
||||||||||
| Diluted net income per share |
$ |
|
5.68 |
$ |
|
(0.56 |
) |
$ |
|
5.12 |
|
|||
|
Year Ended |
||||||||||||||
|
As Reported |
|
Adjustment |
|
As Adjusted |
||||||||||
| Net revenues |
$ |
|
2,440,174 |
$ |
|
— |
$ |
|
2,440,174 |
|
||||
| Cost of goods sold |
1,591,107 |
9,769 |
|
[a] |
1,600,876 |
|
||||||||
| Gross profit |
849,067 |
(9,769 |
) |
839,298 |
|
|||||||||
| Selling, general and administrative expenses |
717,766 |
4,416 |
|
[b] |
722,182 |
|
||||||||
| Income from operations |
131,301 |
(14,185 |
) |
117,116 |
|
|||||||||
| Other expenses | ||||||||||||||
| Interest expense—net |
62,570 |
(6,567 |
) |
[d] |
56,003 |
|
||||||||
|
33,700 |
— |
33,700 |
|
|||||||||||
| Loss on extinguishment of debt—net |
4,880 |
— |
4,880 |
|
||||||||||
| Total other expenses |
101,150 |
(6,567 |
) |
94,583 |
|
|||||||||
| Income before income taxes |
30,151 |
(7,618 |
) |
22,533 |
|
|||||||||
| Income tax expense |
27,971 |
(2,839 |
) |
[e] |
25,132 |
|
||||||||
| Net income (loss) |
$ |
|
2,180 |
$ |
|
(4,779 |
) |
$ |
|
(2,599 |
) |
|||
| Weighted-average shares used in computing basic net income per share |
27,053,616 |
— |
27,053,616 |
|
||||||||||
| Basic net income (loss) per share |
$ |
|
0.08 |
$ |
|
(0.18 |
) |
$ |
|
(0.10 |
) |
|||
| Weighted-average shares used in computing diluted net income per share |
29,253,208 |
(2,199,592 |
) |
27,053,616 |
|
|||||||||
| Diluted net income (loss) per share |
$ |
|
0.07 |
$ |
|
(0.17 |
) |
$ |
|
(0.10 |
) |
|||
|
Three Months Ended |
||||||||||||||
|
As Reported |
|
Adjustment |
|
As Adjusted |
||||||||||
| Net revenues |
$ |
|
557,406 |
$ |
|
— |
$ |
|
557,406 |
|
||||
| Cost of goods sold |
345,371 |
2,702 |
|
[a] |
348,073 |
|
||||||||
| Gross profit |
212,035 |
(2,702 |
) |
209,333 |
|
|||||||||
| Selling, general and administrative expenses |
158,434 |
2,752 |
|
[b] |
161,186 |
|
||||||||
| Income from operations |
53,601 |
(5,454 |
) |
48,147 |
|
|||||||||
| Interest expense—net |
17,035 |
(1,937 |
) |
[d] |
15,098 |
|
||||||||
| Income before income taxes |
36,566 |
(3,517 |
) |
33,049 |
|
|||||||||
| Income tax expense |
8,507 |
(919 |
) |
[e] |
7,588 |
|
||||||||
| Net income |
$ |
|
28,059 |
$ |
|
(2,598 |
) |
$ |
|
25,461 |
|
|||
| Weighted-average shares used in computing basic net income per share |
21,545,025 |
— |
21,545,025 |
|
||||||||||
| Basic net income per share |
$ |
|
1.30 |
$ |
|
(0.12 |
) |
$ |
|
1.18 |
|
|||
| Weighted-average shares used in computing diluted net income per share |
25,230,228 |
— |
25,230,228 |
|
||||||||||
| Diluted net income per share |
$ |
|
1.11 |
$ |
|
(0.10 |
) |
$ |
|
1.01 |
|
|||
|
Three Months Ended |
||||||||||||||
|
As Reported |
|
Adjustment |
|
As Adjusted |
||||||||||
| Net revenues |
$ |
|
640,798 |
$ |
|
— |
$ |
|
640,798 |
|
||||
| Cost of goods sold |
369,198 |
3,256 |
|
[a] |
372,454 |
|
||||||||
| Gross profit |
271,600 |
(3,256 |
) |
268,344 |
|
|||||||||
| Selling, general and administrative expenses |
186,225 |
296 |
|
[b] |
186,521 |
|
||||||||
| Income from operations |
85,375 |
(3,552 |
) |
81,823 |
|
|||||||||
| Other expenses | ||||||||||||||
| Interest expense—net |
17,480 |
(2,013 |
) |
[d] |
15,467 |
|
||||||||
| Loss on extinguishment of debt—net |
917 |
— |
917 |
|
||||||||||
| Total other expenses |
18,397 |
(2,013 |
) |
16,384 |
|
|||||||||
| Income before income taxes |
66,978 |
(1,539 |
) |
65,439 |
|
|||||||||
| Income tax expense |
2,936 |
(403 |
) |
[e] |
2,533 |
|
||||||||
| Net income |
$ |
|
64,042 |
$ |
|
(1,136 |
) |
$ |
|
62,906 |
|
|||
| Weighted-average shares used in computing basic net income per share |
21,925,702 |
— |
21,925,702 |
|
||||||||||
| Basic net income per share |
$ |
|
2.92 |
$ |
|
(0.05 |
) |
$ |
|
2.87 |
|
|||
| Weighted-average shares used in computing diluted net income per share |
27,496,561 |
— |
27,496,561 |
|
||||||||||
| Diluted net income per share |
$ |
|
2.33 |
$ |
|
(0.04 |
) |
$ |
|
2.29 |
|
|||
|
Three Months Ended |
||||||||||||||
|
As Reported |
|
Adjustment |
|
As Adjusted |
||||||||||
| Net revenues |
$ |
|
636,558 |
$ |
|
— |
$ |
|
636,558 |
|
||||
| Cost of goods sold |
382,047 |
4,490 |
|
[a] |
386,537 |
|
||||||||
| Gross profit |
254,511 |
(4,490 |
) |
250,021 |
|
|||||||||
| Selling, general and administrative expenses |
207,495 |
298 |
|
[b] |
207,793 |
|
||||||||
| Income from operations |
47,016 |
(4,788 |
) |
42,228 |
|
|||||||||
| Interest expense—net |
19,371 |
(1,676 |
) |
[d] |
17,695 |
|
||||||||
| Income before income taxes |
27,645 |
(3,112 |
) |
24,533 |
|
|||||||||
| Income tax expense |
5,234 |
(815 |
) |
[e] |
4,419 |
|
||||||||
| Net income |
$ |
|
22,411 |
$ |
|
(2,297 |
) |
$ |
|
20,114 |
|
|||
| Weighted-average shares used in computing basic net income per share |
22,082,141 |
— |
22,082,141 |
|
||||||||||
| Basic net income per share |
$ |
|
1.01 |
$ |
|
(0.10 |
) |
$ |
|
0.91 |
|
|||
| Weighted-average shares used in computing diluted net income per share |
27,703,319 |
— |
27,703,319 |
|
||||||||||
| Diluted net income per share |
$ |
|
0.81 |
$ |
|
(0.08 |
) |
$ |
|
0.73 |
|
|||
|
Three Months Ended |
||||||||||||||
|
As Reported |
|
Adjustment |
|
As Adjusted |
||||||||||
| Net revenues |
$ |
|
670,891 |
$ |
|
— |
$ |
|
670,891 |
|
||||
| Cost of goods sold |
408,190 |
4,822 |
|
[a] |
413,012 |
|
||||||||
| Gross profit |
262,701 |
(4,822 |
) |
257,879 |
|
|||||||||
| Selling, general and administrative expenses |
159,463 |
8,878 |
|
[b][c] |
168,341 |
|
||||||||
| Income from operations |
103,238 |
(13,700 |
) |
89,538 |
|
|||||||||
| Other expenses | ||||||||||||||
| Interest expense—net |
21,188 |
(1,679 |
) |
[d] |
19,509 |
|
||||||||
|
32,086 |
— |
32,086 |
|
|||||||||||
| Total other expenses |
53,274 |
(1,679 |
) |
51,595 |
|
|||||||||
| Income before income taxes |
49,964 |
(12,021 |
) |
37,943 |
|
|||||||||
| Income tax expense |
13,837 |
(3,144 |
) |
[e] |
10,693 |
|
||||||||
| Net income |
$ |
|
36,127 |
$ |
|
(8,877 |
) |
$ |
|
27,250 |
|
|||
| Weighted-average shares used in computing basic net income per share |
20,901,841 |
— |
20,901,841 |
|
||||||||||
| Basic net income per share |
$ |
|
1.73 |
$ |
|
(0.43 |
) |
$ |
|
1.30 |
|
|||
| Weighted-average shares used in computing diluted net income per share |
25,702,791 |
— |
25,702,791 |
|
||||||||||
| Diluted net income per share |
$ |
|
1.41 |
$ |
|
(0.35 |
) |
$ |
|
1.06 |
|
|||
| __________________ | ||
|
[a] |
Represents the acceleration of lease costs primarily due to reclassification of certain leases from build-to-suit arrangements to finance lease right-of-use assets upon adoption of ASC 842. |
|
|
[b] |
The year ended February 2, 2019 and three months ended May 5, 2018 include lease costs of $1.2 million associated with a location that were previously accounted for under ASC 420—Exit or Disposal Cost Obligations guidance. |
|
|
[c] |
The year ended February 2, 2019 and three months ended February 2, 2019 include an impairment of approximately $8.5 million related to an asset held for sale under a sale-leaseback transaction. |
|
|
[d] |
Represents a decrease in build-to-suit interest expense due to derecognition of build-to-suit arrangements upon adoption of ASC 842, partially offset by an increase in interest expense related to finance lease right-of-use assets. |
|
|
[e] |
Represents the tax impact of the income statement adjustments resulting from the adoption of ASC 842. |
|
Condensed Consolidated Balance Sheet
The following table summarizes the impact of adopting ASC 842 on certain line items of our fiscal 2018 condensed consolidated balance sheet:
|
February 2, 2019 |
|||||||||||||||
|
As Reported |
|
Adjustment |
|
As Adjusted |
|||||||||||
| Other current assets |
$ |
|
144,943 |
|
$ |
|
21,274 |
|
[a] |
$ |
|
166,217 |
|
||
| Property and equipment—net |
863,562 |
|
89,395 |
|
[b] |
952,957 |
|
||||||||
| Operating lease right-of-use assets |
— |
440,504 |
|
[c] |
440,504 |
|
|||||||||
| Other non-current assets |
49,378 |
|
65,811 |
|
[d] |
115,189 |
|
||||||||
| Accounts payable and accrued expenses |
320,441 |
|
56 |
|
[e] |
320,497 |
|
||||||||
| Operating lease liabilities |
— |
66,249 |
|
[c] |
66,249 |
|
|||||||||
| Deferred revenue, customer deposits and other current liabilities |
253,942 |
|
8,109 |
|
[f] |
262,051 |
|
||||||||
| Financing obligations under built-to-suit lease transactions |
228,928 |
|
(228,928 |
) |
[g] |
— |
|||||||||
| Non-current operating lease liabilities |
— |
437,557 |
|
[c] |
437,557 |
|
|||||||||
| Non-current finance lease liabilities |
— |
421,245 |
|
[f] |
421,245 |
|
|||||||||
| Other non-current obligations |
104,088 |
|
(71,576 |
) |
[h] |
32,512 |
|
||||||||
| Total stockholders’ deficit |
(22,962 |
) |
(15,728 |
) |
[i] |
(38,690 |
) |
||||||||
|
__________________ |
||
|
[a] |
Includes the recognition of asset held for sale under a sale-leaseback transaction, partially offset by the reclassification of prepaid rent to operating lease liabilities and other current liabilities (for finance leases). |
|
|
[b] |
Represents (i) recognition of finance lease right-of-use assets, partially offset by (ii) derecognition of non-Company owned properties that were capitalized under previously existing build-to-suit accounting policies, (iii) reclassification of construction in progress assets determined to be landlord assets to other non-current assets and (iv) reclassification of initial direct costs related to operating leases to operating lease right-of-use assets. |
|
|
[c] |
Represents recognition of operating lease right-of-use assets and corresponding current and non-current lease liabilities. The operating lease right-of-use asset also includes the reclassification of deferred rent and unamortized lease incentives related to operating leases and the reclassification of initial direct costs from property and equipment—net. |
|
|
[d] |
Primarily represents reclassification from property and equipment—net of construction in progress assets determined to be landlord assets for which the lease has not yet commenced, as well as the recognition of net deferred tax assets related to the adoption of ASC 842. |
|
|
[e] |
Represents a reclassification of an accrual for real estate taxes. |
|
|
[f] |
Primarily represents recognition of the current and non-current finance lease liabilities. The other current liabilities line item also includes the reclassification of current obligations associated with leases previously reported as capital leases to finance lease liabilities. |
|
|
[g] |
Represents derecognition of liabilities related to non-Company owned properties that were consolidated under previously existing build-to-suit accounting policies. |
|
|
[h] |
Includes reclassification of deferred rent and unamortized lease incentives to operating lease right-of-use assets upon adoption of ASC 842, as well as derecognition of the net lease loss liabilities as such balances were reclassified to operating lease right-of-use assets and operating current and non-current liabilities, and the reclassification of non-current obligations associated with leases previously reported as capital leases to finance lease liabilities. |
|
|
[i] |
Represents a decrease to the consolidated net income for fiscal 2017 and fiscal 2018, as well as an increase of $4.0 million to beginning fiscal 2017 retained earnings related to the adoption of ASC 842. |
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20200330005689/en/
203-682-8225
allison.malkin@icrinc.com
Source: RH