0001558370-22-014287 | 10-Q | XBRL Viewer

Print Document View Excel Document

Document and Entity Information - shares	6 Months Ended
Document and Entity Information - shares	Jul. 30, 2022	Sep. 02, 2022
Document And Entity Information [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Jul. 30, 2022
Entity File Number	001-35720
Entity Registrant Name	RH
Entity Tax Identification Number	45-3052669
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	15 Koch Road
Entity Address, City or Town	Corte Madera
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	94925
City Area Code	415
Local Phone Number	924-1005
Title of 12(b) Security	Common Stock
Trading Symbol	RH
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		23,725,732
Entity Central Index Key	0001528849
Current Fiscal Year End Date	--01-28
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q2
Amendment Flag	false

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jul. 30, 2022	Jan. 29, 2022
Current assets:
Cash and cash equivalents	$ 2,085,081	$ 2,177,889
Accounts receivable-net	55,538	57,914
Merchandise inventories	859,078	734,289
Prepaid expense and other current assets	251,621	121,350
Total current assets	3,251,318	3,091,442
Property and equipment-net	1,554,880	1,227,920
Operating lease right-of-use assets	540,396	551,045
Goodwill	141,098	141,100
Tradenames, trademarks and other intangible assets	73,810	73,161
Deferred tax assets	63,257	56,843
Equity method investments	98,135	100,810
Other non-current assets	108,553	298,149
Total assets	5,831,447	5,540,470
Current liabilities:
Accounts payable and accrued expenses	376,132	442,379
Deferred revenue and customer deposits	390,710	387,933
Operating lease liabilities	75,289	73,834
Other current liabilities	115,068	146,623
Total current liabilities	958,903	1,063,758
Asset based credit facility	2,440,381	1,987,957
Non-current operating lease liabilities	527,445	540,513
Non-current finance lease liabilities	661,001	560,550
Other non-current obligations	7,770	8,706
Total liabilities	4,611,203	4,370,193
Commitments and contingencies (Note 16)
Stockholders' equity:
Preferred stock-$0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of July 30, 2022 and January 29, 2022
Common stock-$0.0001 par value per share, 180,000,000 shares authorized, 23,715,191 shares issued and outstanding as of July 30, 2022; 21,506,967 shares issued and outstanding as of January 29, 2022	2	2
Additional paid-in capital	334,054	620,577
Accumulated other comprehensive income (loss)	(7,795)	(1,410)
Retained earnings	893,983	551,108
Total stockholders' equity	1,220,244	1,170,277
Total liabilities and stockholders' equity	5,831,447	5,540,470
Term loan B
Current liabilities:
Term loan-net	1,944,870	1,953,203
Term loan B-2
Current liabilities:
Term loan-net	469,546
2023 Notes
Current liabilities:
Convertible senior notes due-net current	1,704	9,389
Convertible senior notes due-noncurrent		59,002
2024 Notes
Current liabilities:
Convertible senior notes due-net current		3,600
Convertible senior notes due-noncurrent	$ 41,668	$ 184,461

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jul. 30, 2022	Jan. 29, 2022
CONDENSED CONSOLIDATED BALANCE SHEETS
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	180,000,000	180,000,000
Common stock, shares issued	23,715,191	21,506,967
Common stock, shares outstanding	23,715,191	21,506,967

CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 30, 2022	Jul. 31, 2021	Jul. 30, 2022	Jul. 31, 2021
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Net revenues	$ 991,620	$ 988,859	$ 1,948,912	$ 1,849,651
Cost of goods sold	468,402	501,183	927,111	954,998
Gross profit	523,218	487,676	1,021,801	894,653
Selling, general and administrative expenses	288,804	238,688	582,099	457,777
Income from operations	234,414	248,988	439,702	436,876
Other expenses
Interest expense-net	26,264	13,581	47,119	26,889
Loss on extinguishment of debt	23,462	3,166	169,578	3,271
Other expense-net	3,195		2,852
Total other expenses	52,921	16,747	219,549	30,160
Income before income taxes	181,493	232,241	220,153	406,716
Income tax expense (benefit)	56,397	3,009	(107,029)	44,733
Income before equity method investments	125,096	229,232	327,182	361,983
Share of equity method investments losses	(2,821)	(2,486)	(4,196)	(4,581)
Net income	$ 122,275	$ 226,746	$ 322,986	$ 357,402
Weighted-average shares used in computing basic net income per share	24,475,373	21,166,638	23,541,955	21,084,941
Basic net income per share (Note 13)	$ 5.95	$ 10.71	$ 20.92	$ 16.95
Weighted-average shares used in computing diluted net income per share	27,142,223	31,979,098	27,834,735	31,594,555
Diluted net income per share (Note 13)	$ 5.37	$ 7.09	$ 17.70	$ 11.31

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 30, 2022	Jul. 31, 2021	Jul. 30, 2022	Jul. 31, 2021
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$ 122,275	$ 226,746	$ 322,986	$ 357,402
Net gains (losses) from foreign currency translation	(2,240)	(648)	(6,385)	700
Total comprehensive income	$ 120,035	$ 226,098	$ 316,601	$ 358,102

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 942
-SubTopic 220
-Section S99
-Paragraph 1
-Subparagraph (SX 210.9-04(22))
-URI http://asc.fasb.org/extlink&oid=120399700&loc=SL114874048-224260

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
-Subparagraph (f)
-URI http://asc.fasb.org/extlink&oid=123359005&loc=d3e8933-108599

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section 50
-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=124431687&loc=d3e22595-107794

Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 944
-SubTopic 220
-Section S99
-Paragraph 1
-Subparagraph (SX 210.7-04(18))
-URI http://asc.fasb.org/extlink&oid=120400993&loc=SL114874131-224263

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 815
-SubTopic 40
-Section 65
-Paragraph 1
-Subparagraph (f)
-URI http://asc.fasb.org/extlink&oid=123482062&loc=SL123482106-238011

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 50
-Paragraph 6
-URI http://asc.fasb.org/extlink&oid=124431353&loc=SL124452729-227067

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 10
-Section S99
-Paragraph 1B
-Subparagraph (SX 210.13-02(a)(5))
-URI http://asc.fasb.org/extlink&oid=124359900&loc=SL124442552-122756

Reference 8: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section S99
-Paragraph 2
-Subparagraph (SX 210.5-03(20))
-URI http://asc.fasb.org/extlink&oid=123367319&loc=SL114868664-224227

Reference 9: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 230
-SubTopic 10
-Section 45
-Paragraph 28
-URI http://asc.fasb.org/extlink&oid=123570139&loc=d3e3602-108585

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section 50
-Paragraph 1
-Subparagraph (b)(2)
-URI http://asc.fasb.org/extlink&oid=124431687&loc=d3e22499-107794

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 10
-Section S99
-Paragraph 1A
-Subparagraph (SX 210.13-01(a)(4)(iv))
-URI http://asc.fasb.org/extlink&oid=124359900&loc=SL124442526-122756

Reference 12: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 10
-Section S99
-Paragraph 1A
-Subparagraph (SX 210.13-01(a)(4)(iii)(A))
-URI http://asc.fasb.org/extlink&oid=124359900&loc=SL124442526-122756

Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 10
-Section S99
-Paragraph 1B
-Subparagraph (SX 210.13-02(a)(4)(i))
-URI http://asc.fasb.org/extlink&oid=124359900&loc=SL124442552-122756

Reference 14: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 10
-Section S99
-Paragraph 1A
-Subparagraph (SX 210.13-01(a)(4)(i))
-URI http://asc.fasb.org/extlink&oid=124359900&loc=SL124442526-122756

Reference 15: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section 50
-Paragraph 9
-URI http://asc.fasb.org/extlink&oid=124431687&loc=d3e22663-107794

Reference 16: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 10
-Section S99
-Paragraph 1B
-Subparagraph (SX 210.13-02(a)(4)(iv))
-URI http://asc.fasb.org/extlink&oid=124359900&loc=SL124442552-122756

Reference 17: http://www.xbrl.org/2009/role/commonPracticeRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 10
-Section S99
-Paragraph 1A
-Subparagraph (SX 210.13-01(a)(4)(ii))
-URI http://asc.fasb.org/extlink&oid=124359900&loc=SL124442526-122756

Reference 18: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 28
-Subparagraph (f)
-URI http://asc.fasb.org/extlink&oid=123596393&loc=d3e14064-108612

Reference 19: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=124431687&loc=d3e22583-107794

Reference 20: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(g)(1)(ii))
-URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690

Reference 21: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 260
-SubTopic 10
-Section 45
-Paragraph 60B
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=125511455&loc=SL5780133-109256

Reference 22: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 323
-SubTopic 10
-Section 50
-Paragraph 3
-Subparagraph (c)
-URI http://asc.fasb.org/extlink&oid=114001798&loc=d3e33918-111571

Reference 23: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section 50
-Paragraph 8
-URI http://asc.fasb.org/extlink&oid=124431687&loc=d3e22658-107794

Reference 24: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 45
-Paragraph 1A
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=124509347&loc=SL7669619-108580

Reference 25: http://www.xbrl.org/2003/role/exampleRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 31
-URI http://asc.fasb.org/extlink&oid=123359005&loc=d3e8924-108599

Reference 26: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section 50
-Paragraph 11
-Subparagraph (b)
-URI http://asc.fasb.org/extlink&oid=124431687&loc=d3e22694-107794

Reference 27: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section 50
-Paragraph 11
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=124431687&loc=d3e22694-107794

Reference 28: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 205
-SubTopic 20
-Section 50
-Paragraph 7
-URI http://asc.fasb.org/extlink&oid=109222650&loc=SL51721683-107760

Reference 29: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section 45
-Paragraph 1B
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=124509347&loc=SL7669625-108580

Reference 30: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 22
-URI http://asc.fasb.org/extlink&oid=123359005&loc=d3e8736-108599

Reference 31: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 10
-Section S99
-Paragraph 1A
-Subparagraph (SX 210.13-01(a)(5))
-URI http://asc.fasb.org/extlink&oid=124359900&loc=SL124442526-122756

Reference 32: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 10
-Section S99
-Paragraph 1B
-Subparagraph (SX 210.13-02(a)(4)(iii)(B))
-URI http://asc.fasb.org/extlink&oid=124359900&loc=SL124442552-122756

Reference 33: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 10
-Section S99
-Paragraph 1B
-Subparagraph (SX 210.13-02(a)(4)(iii)(A))
-URI http://asc.fasb.org/extlink&oid=124359900&loc=SL124442552-122756

Reference 34: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 30
-Subparagraph (b)
-URI http://asc.fasb.org/extlink&oid=123359005&loc=d3e8906-108599

Reference 35: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
-Subparagraph (c)
-URI http://asc.fasb.org/extlink&oid=123359005&loc=d3e8933-108599

+ Details

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Mezzanine Equity	Common Stock	Additional Paid-In Capital Impact of adoption, adjustment	Additional Paid-In Capital	Accumulated Other Comprehensive Income (Loss)	Retained Earnings (Accumulated Deficit) Impact of adoption, adjustment	Retained Earnings (Accumulated Deficit)	Treasury Stock	Impact of adoption, adjustment	Total
Balances at Jan. 30, 2021		$ 2		$ 581,897	$ 2,565		$ (137,438)			$ 447,026
Balances, shares at Jan. 30, 2021		20,995,387
Stock-based compensation				25,289						25,289
Issuance of restricted stock, Shares		1,260
Vested and delivered restricted stock units				(18,648)						(18,648)
Vested and delivered restricted stock units, Shares		37,698
Exercise of stock options				25,979						25,979
Exercise of stock options, Shares		373,369
Settlement of convertible senior notes				(82,135)				$ 81,245		(890)
Settlement of convertible senior notes, Shares		119,604						(119,601)
Exercise of call option under bond hedge upon settlement of convertible senior notes				81,245				$ (81,245)
Exercise of call option under bond hedge upon settlement of convertible senior notes (in shares)		(119,601)						119,601
Termination of convertible note hedge				(30,515)						(30,515)
Net income							357,402			357,402
Net losses from foreign currency translation					700					700
Balances at Jul. 31, 2021		$ 2		583,112	3,265		219,964			806,343
Balances, shares at Jul. 31, 2021		21,407,717
Increase (Decrease) in Temporary Equity [Roll Forward]
Reclassification of equity component to mezzanine equity related to early converted senior notes outstandingnet	$ 30,515
Balances at Jul. 31, 2021	30,515
Balances at May. 01, 2021		$ 2		597,329	3,913		(6,782)			594,462
Balances, shares at May. 01, 2021		21,020,538
Stock-based compensation				10,089						10,089
Issuance of restricted stock, Shares		1,260
Vested and delivered restricted stock units				(17,721)						(17,721)
Vested and delivered restricted stock units, Shares		34,891
Exercise of stock options				24,586						24,586
Exercise of stock options, Shares		351,027
Settlement of convertible senior notes				(78,621)				$ 77,965		(656)
Settlement of convertible senior notes, Shares		112,297						(112,296)
Exercise of call option under bond hedge upon settlement of convertible senior notes				77,965				$ (77,965)
Exercise of call option under bond hedge upon settlement of convertible senior notes (in shares)		(112,296)						112,296
Reclassification of equity component to mezzanine equity related to early converted senior notes outstanding	30,515			(30,515)						(30,515)
Net income							226,746			226,746
Net losses from foreign currency translation					(648)					(648)
Balances at Jul. 31, 2021		$ 2		583,112	3,265		219,964			806,343
Balances, shares at Jul. 31, 2021		21,407,717
Balances at Jul. 31, 2021	$ 30,515
Balances at Jan. 29, 2022		$ 2	$ (56,390)	620,577	(1,410)	$ 19,889	551,108		$ (36,501)	1,170,277
Balances, shares at Jan. 29, 2022		21,506,967
Stock-based compensation				23,538						23,538
Issuance of restricted stock, Shares		3,577
Vested and delivered restricted stock units				(323)						(323)
Vested and delivered restricted stock units, Shares		1,866
Exercise of stock options				152,041						152,041
Exercise of stock options, Shares		3,202,775
Repurchases of common stock								$ (254,731)		(254,731)
Repurchases of common stock, Shares		(1,000,000)						1,000,000
Retirement of treasury stock				(254,731)				$ 254,731
Retirement of treasury stock, Shares								(1,000,000)
Settlement of convertible senior notes				(14,705)				$ 14,705
Settlement of convertible senior notes, Shares		36,974						(36,968)
Exercise of call option under bond hedge upon settlement of convertible senior notes				14,705				$ (14,705)
Exercise of call option under bond hedge upon settlement of convertible senior notes (in shares)		(36,968)						36,968
Termination of common stock warrants				(386,708)						(386,708)
Termination of convertible note hedge				236,050						236,050
Net income							322,986			322,986
Net losses from foreign currency translation					(6,385)					(6,385)
Balances at Jul. 30, 2022		$ 2		334,054	(7,795)		893,983			1,220,244
Balances, shares at Jul. 30, 2022		23,715,191
Balances at Apr. 30, 2022		$ 2		575,635	(5,555)		771,708			1,341,790
Balances, shares at Apr. 30, 2022		24,661,781
Stock-based compensation				10,736						10,736
Issuance of restricted stock, Shares		3,577
Vested and delivered restricted stock units				(57)						(57)
Vested and delivered restricted stock units, Shares		457
Exercise of stock options				2,471						2,471
Exercise of stock options, Shares		49,375
Repurchases of common stock								$ (254,731)		$ (254,731)
Repurchases of common stock, Shares		(1,000,000)						1,000,000		(1,000,000)
Retirement of treasury stock				(254,731)				$ 254,731
Retirement of treasury stock, Shares								(1,000,000)		(1,000,000)
Settlement of convertible senior notes, Shares		1
Net income							122,275			$ 122,275
Net losses from foreign currency translation					(2,240)					(2,240)
Balances at Jul. 30, 2022		$ 2		$ 334,054	$ (7,795)		$ 893,983			$ 1,220,244
Balances, shares at Jul. 30, 2022		23,715,191

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jul. 30, 2022	Jul. 31, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 322,986	$ 357,402
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	51,728	46,556
Non-cash operating lease cost	37,190	35,541
Asset impairments	8,154	7,354
Amortization of debt discount		17,461
Stock-based compensation expense	23,538	25,431
Non-cash finance lease interest expense	14,962	12,757
Product recalls	560	500
Deferred income taxes	5,493	(239)
Loss on extinguishment of debt	169,578	3,271
Gain on derivative instruments-net	(1,724)
Share of equity method investments losses	4,196	4,581
Other non-cash items	3,348	(4,069)
Cash paid attributable to accretion of debt discount upon settlement of debt		(5,070)
Change in assets and liabilities:
Accounts receivable	2,332	(306)
Merchandise inventories	(124,958)	(101,641)
Prepaid expense and other assets	(153,471)	(57,919)
Landlord assets under construction-net of tenant allowances	(32,460)	(43,352)
Accounts payable and accrued expenses	(63,820)	6,930
Deferred revenue and customer deposits	2,911	116,492
Other current liabilities	(24,902)	(51,661)
Current and non-current operating lease liabilities	(38,329)	(38,933)
Other non-current obligations	(14,796)	(14,368)
Net cash provided by operating activities	192,516	316,718
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(62,558)	(82,138)
Equity method investments	(1,520)	(1,939)
Net cash used in investing activities	(64,078)	(84,077)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under term loan	500,000
Repayments under term loans	(10,000)
Repayments under promissory and equipment security notes	(12,807)	(11,446)
Repayments of convertible senior notes	(13,048)	(28,111)
Repayment under convertible senior notes repurchase obligation	(395,372)
Debt issuance costs	(27,646)	(3,634)
Principal payments under finance leases	(3,132)	(7,108)
Proceeds from termination of convertible senior note hedges	231,796
Payments for termination of common stock warrants	(390,934)
Repurchases of common stock	(254,731)
Proceeds from exercise of stock options	152,041	25,979
Tax withholdings related to issuance of stock-based awards	(323)	(18,648)
Net cash used in financing activities	(224,156)	(42,968)
Effects of foreign currency exchange rate translation	(440)	92
Net increase in cash and cash equivalents and restricted cash equivalents	(96,158)	189,765
Cash and cash equivalents and restricted cash equivalents
Beginning of period-cash and cash equivalents	2,177,889	100,446
Beginning of period-restricted cash equivalents (acquisition related escrow deposits)	3,975	6,625
Beginning of period-cash and cash equivalents	2,181,864	107,071
End of period-cash and cash equivalents	2,085,081	291,461
End of period-restricted cash equivalents (acquisition related escrow deposits)	625	5,375
End of period-cash and cash equivalents and restricted cash equivalents	2,085,706	296,836
Non-cash transactions:
Property and equipment additions in accounts payable and accrued expenses at period-end	14,431	14,696
Landlord asset additions in accounts payable and accrued expenses at period-end	10,967	32,290
Reclassification of assets from landlord assets under construction to finance lease right-of-use assets	215,749
Extinguishment of convertible senior notes related to repurchase obligation (Note 9)	(261,988)
Financing liability and embedded derivative arising from convertible senior notes repurchase (Note 9)	405,577
Shares issued on settlement of convertible senior notes	(14,705)	(82,135)
Shares received on exercise of call option under bond hedge upon settlement of convertible senior notes	$ 14,705	$ 81,245

The Company

6 Months Ended

Jul. 30, 2022

The Company

The Company

NOTE 1—THE COMPANY

Nature of Business

RH, a Delaware corporation, together with its subsidiaries (collectively, “we,” “us,” “our” or the “Company”), is a leading retailer and luxury lifestyle brand operating primarily in the home furnishings market. Our curated and fully integrated assortments are presented consistently across our sales channels, including our retail locations, websites and Source Books. We offer merchandise assortments across a number of categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, and child and teen furnishings.

As of July 30, 2022, we operated a total of 67 RH Galleries and 39 RH Outlet stores in 31 states, the District of Columbia and Canada, as well as 14 Waterworks Showrooms throughout the United States and in the U.K., and had sourcing operations in Shanghai and Hong Kong.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared from our records and, in our senior leadership team’s opinion, include all adjustments, consisting of normal recurring adjustments, necessary to fairly state our financial position as of July 30, 2022, and the results of operations for the three and six months ended July 30, 2022 and July 31, 2021. Our current fiscal year, which consists of 52 weeks, ends on January 28, 2023 (“fiscal 2022”).

Certain information and disclosures normally included in the notes to annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted for purposes of these interim condensed consolidated financial statements.

The preparation of our condensed consolidated financial statements in conformity with GAAP requires our senior leadership team to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and such differences could be material to the condensed consolidated financial statements.

We have assessed various accounting estimates and other matters, including those that require consideration of forecasted financial information, in context of the unknown future impacts of the novel coronavirus disease (“COVID-19” or “the pandemic”) using information that is reasonably available to us at this time. The accounting estimates and other matters we have assessed include, but were not limited to, sales return reserve, inventory reserve, allowance for doubtful accounts, goodwill, and intangible and other long-lived assets. Our current assessment of these estimates is included in our condensed consolidated financial statements as of and for the three and six months ended July 30, 2022. As additional information becomes available to us, our future assessment of these estimates, including our expectations at the time regarding the duration, scope and severity of the pandemic, as well as other factors, could materially and adversely impact our condensed consolidated financial statements in future reporting periods.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022 (the “2021 Form 10-K”).

The results of operations for the three and six months ended July 30, 2022 and July 31, 2021 presented herein are not necessarily indicative of the results to be expected for the full fiscal year. Our business, like the businesses of retailers generally, is subject to uncertainty surrounding the financial impact of the pandemic and other factors as discussed in Macro-Economic Factors and COVID-19 Pandemic below.

Macro-Economic Factors and COVID-19 Pandemic

There are a number of macro-economic factors and uncertainties affecting the overall business climate as well as our business, including increased inflation and rising interest rates. These factors may have a number of adverse effects on macro-economic conditions and markets in which we operate, with the potential for an economic recession and a sustained downturn in the housing market. Factors such as a slowdown in the housing market or negative trends in stock market prices could have a negative impact on demand for our products.

The COVID-19 pandemic continues to cause challenges in certain aspects of our business operations primarily related to our supply chain, including delays in our receipt of products from vendors, which have affected our ability to convert demand into revenues at normal historic rates. While our performance during the pandemic demonstrates the desirability of our exclusive products, we may see consumer spending patterns shift away from spending on the home and home-related categories toward travel and leisure and other areas.

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 macro-economic factors and the pandemic. For more information, refer to the section entitled “Risk Factors” in our 2021 Form 10-K.

Recently Issued Accounting Standards

6 Months Ended

Jul. 30, 2022

Recently Issued Accounting Standards

Recently Issued Accounting Standards

NOTE 2—RECENTLY ISSUED ACCOUNTING STANDARDS

New Accounting Standards or Updates Adopted

Convertible Instruments and Contracts in an Entity’s Own Equity

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2020-06—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Specifically, ASU 2020-06 removes the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, after adopting ASU 2020-06’s guidance, we no longer separately present in equity an embedded conversion feature of such debt. Instead, we account for a convertible debt instrument wholly as debt unless (i) a convertible instrument contains features that require bifurcation as a derivative or (ii) a convertible debt instrument was issued at a substantial premium. Additionally, ASU 2020-06 removes certain conditions for equity classification related to contracts in an entity’s own equity (e.g., warrants) and amends certain guidance related to the computation of earnings per share for convertible instruments and contracts on an entity’s own equity.

We adopted ASU 2020-06 in the first quarter of fiscal 2022 using a modified retrospective transition method. Accordingly, the cumulative effect of the adoption on our opening fiscal 2022 condensed consolidated balance sheets was as follows:


			ASU 2020-06
	JANUARY 29,		ADOPTION		JANUARY 29,
	2022		ADJUSTMENTS		2022

	(in thousands)
Assets
Property and equipment—net	$	1,227,920	$	(12,385)	$	1,215,535
Deferred tax assets		56,843		11,909		68,752
Liabilities
Convertible senior notes due 2023—net		59,002		5,684		64,686
Convertible senior notes due 2024—net		184,461		30,341		214,802
Equity
Additional paid-in capital		620,577		(56,390)		564,187
Retained earnings		551,108		19,889		570,997

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04—Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). In January 2021, the FASB issued ASU 2021-01—Reference Rate Reform (Topic 848): Scope, (“ASU 2021-01” and, together with ASU 2020-04, the “ASUs”). The ASUs provide optional expedients and exceptions, if certain criteria are met, for applying GAAP to contracts, hedging relationships, and other transactions affected by the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). These transactions include contract modifications, hedge accounting, and the sale or transfer of debt securities classified as held-to-maturity. The primary contracts for which we currently use LIBOR include our asset based credit facility and certain term loan debt arrangements. The guidance was effective upon issuance and allows entities to adopt the amendments on a prospective basis through December 31, 2022. All new arrangements are using alternative reference rates and we are evaluating the impact of adoption on our existing contracts.

- Definition

The entire disclosure for change in accounting principle. Includes, but is not limited to, nature, reason, and method of adopting amendment to accounting standards or other change in accounting principle.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 65
-Paragraph 1
-Subparagraph (g)(2)
-URI http://asc.fasb.org/extlink&oid=123338486&loc=SL49131195-203048

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-URI http://asc.fasb.org/topic&trid=2122394

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 105
-SubTopic 10
-Section 65
-Paragraph 6
-Subparagraph (f)
-URI http://asc.fasb.org/extlink&oid=124434974&loc=SL124442142-165695

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 65
-Paragraph 1
-Subparagraph (i)
-URI http://asc.fasb.org/extlink&oid=123338486&loc=SL49131195-203048

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 65
-Paragraph 8
-Subparagraph (e)(2)
-URI http://asc.fasb.org/extlink&oid=123459177&loc=SL121830611-158277

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section S99
-Paragraph 6
-URI http://asc.fasb.org/extlink&oid=122038215&loc=SL108384541-122693

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 310
-SubTopic 20
-Section 65
-Paragraph 2
-Subparagraph (d)(1)
-URI http://asc.fasb.org/extlink&oid=124402435&loc=SL124402458-218513

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 65
-Paragraph 6
-Subparagraph (e)(2)
-URI http://asc.fasb.org/extlink&oid=123597120&loc=SL121967933-165497

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 65
-Paragraph 1
-Subparagraph (i)(2)
-URI http://asc.fasb.org/extlink&oid=123338486&loc=SL49131195-203048

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 65
-Paragraph 6
-Subparagraph (e)(1)
-URI http://asc.fasb.org/extlink&oid=123597120&loc=SL121967933-165497

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 944
-SubTopic 40
-Section 65
-Paragraph 2
-Subparagraph (g)(2)(iii)
-URI http://asc.fasb.org/extlink&oid=124501264&loc=SL117420844-207641

Reference 12: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section 50
-Paragraph 1
-Subparagraph (b)(4)
-URI http://asc.fasb.org/extlink&oid=124431687&loc=d3e22499-107794

Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 944
-SubTopic 40
-Section 65
-Paragraph 2
-Subparagraph (g)(2)(ii)
-URI http://asc.fasb.org/extlink&oid=124501264&loc=SL117420844-207641

Reference 14: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 944
-SubTopic 40
-Section 65
-Paragraph 2
-Subparagraph (g)(2)(i)
-URI http://asc.fasb.org/extlink&oid=124501264&loc=SL117420844-207641

Reference 15: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 65
-Paragraph 8
-Subparagraph (e)(1)
-URI http://asc.fasb.org/extlink&oid=123459177&loc=SL121830611-158277

Reference 16: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 10
-Section 65
-Paragraph 15
-Subparagraph (g)(1)
-URI http://asc.fasb.org/extlink&oid=121322162&loc=SL121327923-165333

Reference 17: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 815
-SubTopic 40
-Section 65
-Paragraph 1
-Subparagraph (e)(1)
-URI http://asc.fasb.org/extlink&oid=123482062&loc=SL123482106-238011

Reference 18: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 310
-SubTopic 20
-Section 65
-Paragraph 2
-Subparagraph (d)(2)
-URI http://asc.fasb.org/extlink&oid=124402435&loc=SL124402458-218513

Reference 19: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 65
-Paragraph 1
-Subparagraph (j)
-URI http://asc.fasb.org/extlink&oid=123338486&loc=SL49131195-203048

Reference 20: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 944
-SubTopic 40
-Section 65
-Paragraph 2
-Subparagraph (g)(2)(iv)
-URI http://asc.fasb.org/extlink&oid=124501264&loc=SL117420844-207641

Reference 21: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 926
-SubTopic 20
-Section 65
-Paragraph 2
-Subparagraph (f)(1)
-URI http://asc.fasb.org/extlink&oid=120154821&loc=SL120154904-197079

Reference 22: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section S99
-Paragraph 5
-Subparagraph (SAB Topic 11.M.Q2)
-URI http://asc.fasb.org/extlink&oid=122038215&loc=d3e31137-122693

Reference 23: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 926
-SubTopic 20
-Section 65
-Paragraph 2
-Subparagraph (f)(2)
-URI http://asc.fasb.org/extlink&oid=120154821&loc=SL120154904-197079

Reference 24: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section 50
-Paragraph 1
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=124431687&loc=d3e22499-107794

Reference 25: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 926
-SubTopic 20
-Section 65
-Paragraph 2
-Subparagraph (f)(3)
-URI http://asc.fasb.org/extlink&oid=120154821&loc=SL120154904-197079

Reference 26: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 65
-Paragraph 6
-Subparagraph (e)(3)
-URI http://asc.fasb.org/extlink&oid=123597120&loc=SL121967933-165497

Reference 27: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 326
-SubTopic 10
-Section 65
-Paragraph 4
-Subparagraph (e)(1)
-URI http://asc.fasb.org/extlink&oid=122640432&loc=SL121648383-210437

Reference 28: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section 50
-Paragraph 1
-Subparagraph (c)(1)
-URI http://asc.fasb.org/extlink&oid=124431687&loc=d3e22499-107794

Reference 29: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 944
-SubTopic 40
-Section 65
-Paragraph 2
-Subparagraph (h)(2)
-URI http://asc.fasb.org/extlink&oid=124501264&loc=SL117420844-207641

Reference 30: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 326
-SubTopic 10
-Section 65
-Paragraph 4
-Subparagraph (e)(2)
-URI http://asc.fasb.org/extlink&oid=122640432&loc=SL121648383-210437

Reference 31: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 250
-SubTopic 10
-Section 50
-Paragraph 1
-Subparagraph (b)(1)
-URI http://asc.fasb.org/extlink&oid=124431687&loc=d3e22499-107794

Reference 32: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 848
-SubTopic 10
-Section 65
-Paragraph 1
-Subparagraph (e)(1)
-URI http://asc.fasb.org/extlink&oid=122150657&loc=SL122150809-237846

Reference 33: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 65
-Paragraph 8
-Subparagraph (e)(3)
-URI http://asc.fasb.org/extlink&oid=123459177&loc=SL121830611-158277

Reference 34: http://www.xbrl.org/2003/role/disclosureRef
-Topic 848
-SubTopic 10
-Name Accounting Standards Codification
-Section 65
-Paragraph 2
-Publisher FASB
-Subparagraph (c)

+ Details

Prepaid Expense and Other Assets

6 Months Ended

Jul. 30, 2022

Prepaid Expense and Other Assets

Prepaid Expense and Other Assets

NOTE 3—PREPAID EXPENSE AND OTHER ASSETS

Prepaid expense and other current assets consist of the following:


	JULY 30,		JANUARY 29,
	2022		2022

	(in thousands)
Federal and state tax receivable⁽¹⁾	$	118,949	$	—
Prepaid expense and other current assets		52,013		45,386
Promissory notes receivable, including interest⁽²⁾		35,276		8,401
Vendor deposits		14,237		19,610
Capitalized catalog costs		13,849		22,194
Tenant allowance receivable		10,255		15,355
Right of return asset for merchandise		6,417		6,429
Acquisition related escrow deposits		625		3,975
Total prepaid expense and other current assets	$	251,621	$	121,350

(1)	Refer to Note 12—Income Taxes.

(2)	Represents promissory notes, including principal and accrued interest, due from a related party. Refer to Note 5—Equity Method Investments.

Other non-current assets consist of the following:


	JULY 30,		JANUARY 29,
	2022		2022

	(in thousands)
Initial direct costs prior to lease commencement	$	38,430	$	57,087
Landlord assets under construction—net of tenant allowances		29,355		204,013
Capitalized cloud computing costs—net⁽¹⁾		19,561		14,910
Other deposits		6,949		6,877
Deferred financing fees		3,665		4,123
Other non-current assets		10,593		11,139
Total other non-current assets	$	108,553	$	298,149

(1)	Presented net of accumulated amortization of $7.1 million and $4.0 million as of July 30, 2022 and January 29, 2022, respectively.

Goodwill, Tradenames, Trademarks and Other Intangible Assets

6 Months Ended

Jul. 30, 2022

Goodwill, Tradenames, Trademarks and Other Intangible Assets

Goodwill, Tradenames, Trademarks and Other Intangible Assets

NOTE 4—GOODWILL, TRADENAMES, TRADEMARKS AND OTHER INTANGIBLE ASSETS

The following sets forth the goodwill, tradenames, trademarks and other intangible assets activity for the RH Segment and Waterworks (refer to Note 17—Segment Reporting) for the six months ended July 30, 2022:


					FOREIGN
	JANUARY 29,				CURRENCY		JULY 30,
	2022		ADDITIONS		TRANSLATION		2022

	(in thousands)
RH Segment
Goodwill	$	141,100	$	—	$	(2)	$	141,098
Tradenames, trademarks and other intangible assets		56,161		649		—		56,810
Waterworks⁽¹⁾
Tradename⁽²⁾		17,000		—		—		17,000

(1)	Waterworks reporting unit goodwill of $51 million recognized upon acquisition in fiscal 2016 was fully impaired as of fiscal 2018.

(2)	Presented net of an impairment charge of $35 million recognized in previous fiscal years.

Equity Method Investments

6 Months Ended

Jul. 30, 2022

Equity Method Investments.

Equity Method Investments

NOTE 5—EQUITY METHOD INVESTMENTS

Equity method investments represent our membership interests in three privately-held limited liability companies in Aspen, Colorado (each, an “Aspen LLC” and collectively, the “Aspen LLCs” or the “equity method investments”) which were formed during fiscal 2020 for the purpose of acquiring, developing, operating and selling certain real estate projects in Aspen, Colorado. We hold a 50 percent membership interest in two of the Aspen LLCs and a 70 percent interest in the third Aspen LLC. As we have the ability to exercise significant influence over the Aspen LLCs, but do not have a controlling financial interest in the Aspen LLCs, we account for these investments using the equity method of accounting.

As of July 30, 2022 and January 29, 2022, $35 million and $8.4 million, respectively, of promissory notes receivable, inclusive of accrued interest, are outstanding with the managing member or entities affiliated with the managing member for the Aspen LLCs, which promissory notes are included in prepaid expense and other current assets on the condensed consolidated balance sheets. Promissory notes related specifically to the Aspen LLCs are expected to be settled in cash and not converted into additional equity investment in the Aspen LLCs. Certain of the promissory notes outstanding as of July 30, 2022 are related to other real estate joint ventures with entities affiliated with the managing member and such promissory notes are expected to be converted in additional investments in future privately-held limited liability companies for real estate development activities related to our Gallery transformation global expansion strategies. We have made in excess of $100 million in capital contributions to the Aspen LLCs as contractually required. Our maximum exposure to loss with respect to these real estate joint ventures that are accounted for under the equity method is the carrying value of equity capital contributed to the equity method investments as of July 30, 2022.

During the three months ended July 30, 2022 and July 31, 2021, we recorded our proportionate share of equity method investments losses of $2.8 million and $2.5 million, respectively, which is included in the condensed consolidated statements of income and a corresponding decrease to the carrying value of equity method investments on the condensed consolidated balance sheets. During the six months ended July 30, 2022 and July 31, 2021, we recorded our proportionate share of equity method investments losses of $4.2 million and $4.6 million, respectively. During the three and six months ended July 30, 2022, we did not receive any distributions or have any undistributed earnings of equity method investments.

Accounts Payable, Accrued Expenses and Other Current Liabilities

6 Months Ended

Jul. 30, 2022

Accounts Payable, Accrued Expenses and Other Current Liabilities

Accounts Payable, Accrued Expenses and Other Current Liabilities

NOTE 6—ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accounts payable and accrued expenses consist of the following:


	JULY 30,		JANUARY 29,
	2022		2022

	(in thousands)
Accounts payable	$	186,319	$	242,035
Accrued compensation		72,625		96,859
Accrued occupancy		32,723		28,088
Accrued freight and duty		22,743		21,888
Accrued sales taxes		21,477		24,811
Accrued catalog costs		10,143		4,127
Accrued professional fees		9,242		5,892
Other accrued expenses		20,860		18,679
Total accounts payable and accrued expenses	$	376,132	$	442,379

Other current liabilities consist of the following:


	JULY 30,		JANUARY 29,
	2022		2022

	(in thousands)
Allowance for sales returns	$	26,186	$	25,256
Unredeemed gift card and merchandise credit liability		24,935		22,712
Current portion of term loans		23,750		20,000
Finance lease liabilities		16,248		15,511
Current portion of equipment promissory notes		2,215		13,625
Federal and state tax payable⁽¹⁾		—		31,364
Other current liabilities		21,734		18,155
Total other current liabilities	$	115,068	$	146,623

(1)	Refer to Note 12—Income Taxes.

Contract Liabilities

We defer revenue associated with merchandise delivered via the home-delivery channel. We expect that substantially all of the deferred revenue and customer deposits as of July 30, 2022 will be recognized within the next six months as the performance obligations are satisfied. Deferred revenue also includes the unrecognized portion of the annual RH Members Program fee. New membership fees are recorded as deferred revenue when collected from customers and recognized as revenue based on expected product revenues over the annual membership period, based on historical trends of sales to members. Membership renewal fees are recorded as deferred revenue when collected from customers and are recognized as revenue on a straight-line basis over the membership period, or one year.

In addition, we defer revenue when cash payments are received in advance of performance for unsatisfied obligations related to our gift cards. During the three months ended July 30, 2022 and July 31, 2021, we recognized $6.0 million and $4.9 million, respectively, of revenue related to previous deferrals related to our gift cards. During the six months ended July 30, 2022 and July 31, 2021, we recognized $11 million and $9.8 million, respectively, of revenue related to previous deferrals related to our gift cards.

We recognize breakage associated with gift cards proportional to actual gift card redemptions. Breakage of $0.4 million and $0.5 million was recorded in net revenues in the three months ended July 30, 2022 and July 31, 2021, respectively. Breakage of $1.1 million and $0.9 million was recorded in net revenues in the six months ended July 30, 2022 and July 31, 2021, respectively.

We expect that approximately 75% of the remaining gift card liabilities will be recognized when the gift cards are redeemed by customers.

Other Non-Current Obligations

6 Months Ended

Jul. 30, 2022

Other Non-Current Obligations.

Other Non-Current Obligations

NOTE 7—OTHER NON-CURRENT OBLIGATIONS

Other non-current obligations consist of the following:


	JULY 30,		JANUARY 29,
	2022		2022

	(in thousands)
Unrecognized tax benefits	$	3,516	$	3,471
Non-current portion of equipment promissory notes—net		—		1,129
Other non-current obligations		4,254		4,106
Total other non-current obligations	$	7,770	$	8,706

Leases

6 Months Ended

Jul. 30, 2022

Leases

Leases

NOTE 8—LEASES

Lease costs—net consist of the following:


	THREE MONTHS ENDED				SIX MONTHS ENDED
	JULY 30,		JULY 31,		JULY 30,		JULY 31,
	2022		2021		2022		2021

	(in thousands)
Operating lease cost⁽¹⁾	$	24,904	$	25,590	$	50,037	$	49,157
Finance lease costs
Amortization of leased assets⁽¹⁾		12,872		10,796		24,370		21,714
Interest on lease liabilities⁽²⁾		7,891		6,607		14,962		12,757
Variable lease costs⁽³⁾		7,247		7,913		16,334		16,340
Sublease income⁽⁴⁾		(1,085)		(1,136)		(2,213)		(2,318)
Total lease costs—net	$	51,829	$	49,770	$	103,490	$	97,650

(1)

Operating lease costs and amortization of finance lease right-of-use assets are included in cost of goods sold or selling, general and administrative expenses on the condensed consolidated statements of income based on our accounting policy. Refer to Note 3—Significant Accounting Policies in the 2021 Form 10-K.

(2)	Included in interest expense—net on the condensed consolidated statements of income.

(3)

Represents variable lease payments under operating and finance lease agreements, primarily associated with contingent rent based on a percentage of retail sales over contractual levels of $5.0 million and $5.6 million for the three months ended July 30, 2022 and July 31, 2021, respectively, and $12 million for each of the six months ended July 30, 2022 and July 31, 2021, and charges associated with common area maintenance of $2.2 million and $2.3 million for the three months ended July 30, 2022 and July 31, 2021, respectively, and $4.6 million and $4.4 million for the six months ended July 30, 2022 and July 31, 2021, respectively. Other variable costs, which include single lease cost related to variable lease payments based on an index or rate that were not included in the measurement of the initial lease liability and right-of-use asset, were not material in any period.

(4)	Included as an offset to selling, general and administrative expenses on the condensed consolidated statements of income.

Lease right-of-use assets and lease liabilities consist of the following:


		JULY 30,		JANUARY 29,
		2022		2022

		(in thousands)
	Balance Sheet Classification
Assets
Operating leases	Operating lease right-of-use assets	$	540,396	$	551,045
Finance leases⁽¹⁾⁽²⁾	Property and equipment—net		1,102,144		784,327
Total lease right-of-use assets		$	1,642,540	$	1,335,372
Liabilities
Current⁽³⁾
Operating leases	Operating lease liabilities	$	75,289	$	73,834
Finance leases	Other current liabilities		16,248		15,511
Total lease liabilities—current			91,537		89,345
Non-current
Operating leases	Non-current operating lease liabilities		527,445		540,513
Finance leases	Non-current finance lease liabilities		661,001		560,550
Total lease liabilities—non-current			1,188,446		1,101,063
Total lease liabilities		$	1,279,983	$	1,190,408

(1)	Finance lease right-of-use assets include capitalized amounts related to our completed construction activities to design and build leased assets, which are reclassified from other non-current assets upon lease commencement.

(2)	Finance lease right-of-use assets are recorded net of accumulated amortization of $198 million and $174 million as of July 30, 2022 and January 29, 2022, respectively.

(3)	Current portion of lease liabilities represents the reduction of the related lease liability over the next 12 months.

The maturities of lease liabilities are as follows as of July 30, 2022:


	OPERATING		FINANCE
FISCAL YEAR	LEASES		LEASES		TOTAL

	(in thousands)
Remainder of fiscal 2022	$	49,028	$	24,470	$	73,498
2023		95,117		49,485		144,602
2024		88,831		49,855		138,686
2025		86,712		51,289		138,001
2026		83,198		52,062		135,260
2027		78,689		53,245		131,934
Thereafter		241,647		963,631		1,205,278
Total lease payments⁽¹⁾⁽²⁾		723,222		1,244,037		1,967,259
Less—imputed interest⁽³⁾		(120,488)		(566,788)		(687,276)
Present value of lease liabilities	$	602,734	$	677,249	$	1,279,983

(1)

Total lease payments include future obligations for renewal options that are reasonably certain to be exercised and are included in the measurement of the lease liability. Total lease payments exclude $598 million of legally binding payments under the non-cancellable term for leases signed but not yet commenced under our accounting policy as of July 30, 2022, of which $12 million, $27 million, $36 million, $38 million, $36 million and $35 million will be paid in the remainder of fiscal 2022, fiscal 2023, fiscal 2024, fiscal 2025, fiscal 2026 and fiscal 2027, respectively, and $414 million will be paid subsequent to fiscal 2027.

(2)	Excludes an immaterial amount of future commitments under short-term lease agreements.

(3)	Calculated using the discount rate for each lease at lease commencement.

Supplemental information related to leases consists of the following:


	SIX MONTHS ENDED
	JULY 30,		JULY 31,
	2022		2021

	(in thousands)
Weighted-average remaining lease term (years)
Operating leases		8.7		9.4
Finance leases		22.3		20.0
Weighted-average discount rate
Operating leases		4.00%		3.98%
Finance leases		5.32%		5.04%

Other information related to leases consists of the following:


	SIX MONTHS ENDED
	JULY 30,		JULY 31,
	2022		2021

	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	(50,838)	$	(50,914)
Operating cash flows from finance leases		(14,962)		(12,943)
Financing cash flows from finance leases—net⁽¹⁾		(3,132)		(7,108)
Total cash outflows from leases	$	(68,932)	$	(70,965)
Lease right-of-use assets obtained in exchange for lease obligations—net of lease terminations (non-cash)
Operating leases	$	27,538	$	134,763
Finance leases		108,547		44,432

(1)	Represents the principal portion of lease payments offset by tenant allowances received subsequent to lease commencement.

Build-to-Suit Asset

During the second quarter of fiscal 2021, we opened the Dallas Design Gallery. During the construction period of this Design Gallery, we were the “deemed owner” for accounting purposes and classified the construction costs as build-to-suit asset within property & equipment—net on our condensed consolidated balance sheets. Upon construction completion and lease commencement, we performed a sale-leaseback analysis and determined that we could not derecognize the build-to-suit asset. Therefore, the asset remains classified as a build-to-suit asset within property and equipment—net and is depreciated over the term of the useful life of the asset.

Convertible Senior Notes

6 Months Ended

Jul. 30, 2022

CREDIT FACILITIES

Convertible Senior Notes

NOTE 9—CONVERTIBLE SENIOR NOTES

In June 2018, we issued in a private offering $300 million principal amount of 0.00% convertible senior notes due 2023 and issued an additional $35 million principal amount in connection with the overallotment option granted to the initial purchasers as part of the offering (collectively, the “2023 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” and, together with the 2023 Notes, the “Convertible Senior Notes” or the “Notes”). Refer to Note 12—Convertible Senior Notes in our consolidated financial statements in our 2021 Form 10-K for further information and terms of the Notes, including the accounting policies related to the Notes that were in effect through fiscal 2021. In connection with our adoption of ASU 2020-06 in the first quarter of fiscal 2022, we recombined the previously outstanding equity component, which resulted in an increase in the balance of convertible debt outstanding. Refer to Note 2—Recently Issued Accounting Standards for further discussion of the impact of our adoption of ASU 2020-06 in our condensed consolidated financial statements.

The outstanding balances under the 2023 Notes and 2024 Notes were as follows:


	JULY 30,							JANUARY 29,
	2022							2022
			UNAMORTIZED							UNAMORTIZED
			DEBT		NET					DEBT		NET
	PRINCIPAL		ISSUANCE		CARRYING			PRINCIPAL		ISSUANCE		CARRYING
	AMOUNT		COST⁽¹⁾		AMOUNT			AMOUNT		COST⁽¹⁾		AMOUNT

	(in thousands)
Convertible senior notes due 2023⁽²⁾	$	1,711	$	(7)	$	1,704	$	74,390	$	(5,999)	$	68,391
Convertible senior notes due 2024⁽³⁾		41,904		(236)		41,668		219,638		(31,577)		188,061
Total convertible senior notes	$	43,615	$	(243)	$	43,372	$	294,028	$	(37,576)	$	256,452

(1)

As of July 30, 2022, the balance includes debt issuance costs inclusive of original issuers’ discount. As of January 29, 2022, the balance includes debt issuance costs inclusive of original issuers’ discount, as well as the previously outstanding equity component that was recombined upon the adoption of ASU 2020-06 in the first quarter of fiscal 2022, which was $5.7 million for the 2023 Notes and $30 million for the 2024 Notes. Refer to Note 2—Recently Issued Accounting Standards.

(2)	As of July 30, 2022, the 2023 Notes outstanding are current liabilities and are classified as convertible senior notes due 2023—net. The 2023 Notes outstanding as of January 29, 2022 included a current portion of $9.4 million and a non-current portion of $59 million.

(3)	As of July 30, 2022, the 2024 Notes outstanding are non-current liabilities and are classified as convertible senior notes due 2024—net. The 2024 Notes outstanding as of January 29, 2022 included a current portion of $3.6 million and a non-current portion of $184 million.

2023 Notes and 2024 Notes—Bond Hedge and Warrant Terminations and Notes Repurchase

During the first quarter of fiscal 2022, we entered into agreements with certain financial institutions (collectively, the “Counterparties”) to repurchase all of the warrants issued in connection with the 2023 Notes and 2024 Notes at an aggregate purchase price of $184 million and $203 million, respectively, subject to adjustment for a settlement feature based on pricing formulations linked to the trading price of our common stock over a volume weighted-average price measurement period of two or three days. Upon entering into these agreements, the warrants were reclassified from stockholders’ equity to current liabilities on the condensed consolidated balance sheets, and accordingly, we recognized a corresponding net loss on the fair value adjustment of the warrants of $4.2 million, which is classified within other expense—net in the condensed consolidated statements of income. Upon settlement of these agreements in April 2022, we paid an aggregate of $391 million in cash to terminate the warrants.

During the first quarter of fiscal 2022, we entered into agreements with the Counterparties to terminate all of the convertible note bond hedges issued in connection with the 2023 Notes and 2024 Notes to receive an aggregate closing price of $56 million and $180 million, respectively, subject to adjustment for a settlement feature based on pricing formulations linked to the trading price of our common stock over a three day volume weighted-average price measurement period. Upon entering into these agreements, the bond hedges were reclassified from stockholders’ equity to current assets on the condensed consolidated balance sheets, and accordingly, we recognized a corresponding loss on the fair value adjustment of the settlement feature of $4.3 million, which is classified within other expense—net in the condensed consolidated statements of income. Upon settlement of these agreements in April 2022, we received an aggregate of $232 million in cash for the termination of the bond hedges.

During the first quarter of fiscal 2022, we entered into individual privately negotiated transactions with a limited number of sophisticated investors that were holders of the 2023 Notes and/or the 2024 Notes to repurchase in cash $45 million and $135 million in aggregate principal amount of the 2023 Notes and 2024 Notes, respectively (the “Notes Repurchase”). The Notes Repurchase provided for an estimated settlement cost of $325 million, subject to adjustment to the final settlement cost for an embedded feature based on pricing formulations linked to the trading price of our common stock over a five day volatility weighted-average price measurement period that ended on April 29, 2022. Upon execution of these agreements, we determined that we had modified the debt substantially and applied an extinguishment accounting model. Accordingly, we derecognized the aggregate principal amount of $180 million of the Convertible Senior Notes related to the extinguishment of such notes, and subsequently recognized a new financing liability with a fair value of $325 million. An embedded derivative related to the conversion feature was bifurcated from the new financing liability and separately recognized with an initial fair value of $278 mil