SEGMENT REPORTING

9 Months Ended

Nov. 02, 2024

SEGMENT REPORTING

SEGMENT REPORTING

NOTE 17—SEGMENT REPORTING

We define reportable and operating segments on the same basis that we use to evaluate our performance internally by the chief operating decision maker (“CODM”), which we have determined is our Chief Executive Officer. We have three operating segments: RH Segment, Waterworks and Real Estate. The RH Segment and Waterworks operating segments (the “retail operating segments”) include all sales channels accessed by our customers, including sales through retail locations and outlets, including hospitality, websites, Sourcebooks, and the Trade and Contract channels. The Real Estate segment represents operations associated with certain of our equity method investments and consolidated variable interest entities that are non-wholly-owned subsidiaries and have operations that are not directly related to RH’s operations.

The retail operating segments are strategic business units that offer products for the home furnishings customer. While RH Segment and Waterworks have a shared senior leadership team and customer base, we have determined that their results cannot be aggregated as they do not share similar economic characteristics, as well as due to other quantitative factors.

Segment Information

We use operating income to evaluate segment profitability for the retail operating segments and to allocate resources. Operating income is defined as net income (loss) before interest expense—net, other expense—net, income tax expense (benefit) and our share of equity method investments loss—net. Segment operating income excludes (i) asset impairments, (ii) legal settlements, (iii) non-cash compensation amortization related to an option grant made to Mr. Friedman in October 2020, (iv) severance costs associated with a reorganization and (v) costs associated with product recalls. These items are excluded from segment operating income in order to provide better transparency of segment operating results. Accordingly, these items are not presented by segment because they are excluded from the segment profitability measure that the CODM and our senior leadership team review.

The following table presents segment operating income and a reconciliation to income from operations and income (loss) before income taxes and equity method investments:

	THREE MONTHS ENDED				NINE MONTHS ENDED
	NOVEMBER 2,		OCTOBER 28,		NOVEMBER 2,		OCTOBER 28,
	2024		2023		2024		2023
	(in thousands)
Operating income:
RH Segment	$	118,790	$	50,200	$	250,748	$	307,590
Waterworks		3,084		4,963		15,349		19,329
Total segment operating income		121,874		55,163		266,097		326,919
Asset impairments		(19,545)		(3,531)		(19,545)		(3,531)
Non-cash compensation		(861)		(1,972)		(3,669)		(7,527)
Legal settlements—net		—		—		9,375		(8,000)
Reorganization related costs		—		—		—		(7,621)
Recall accrual		—		1,576		—		1,576
Income from operations		101,468		51,236		252,258		301,816
Interest expense—net		57,590		54,640		173,624		138,878
Other expense—net		27		5,305		529		4,466
Income (loss) before income taxes and equity method investments	$	43,851	$	(8,709)	$	78,105	$	158,472

The following tables present selected statements of income metrics for our segments, including disaggregated net revenues:

	THREE MONTHS ENDED
	NOVEMBER 2,						OCTOBER 28,
	2024						2023
	RH SEGMENT		WATERWORKS		TOTAL		RH SEGMENT		WATERWORKS		TOTAL
	(in thousands)
Net revenues	$	768,063	$	43,669	$	811,732	$	705,061	$	46,164	$	751,225
Gross profit		338,942		22,398		361,340		315,980		24,470		340,450
Depreciation and amortization		31,428		1,570		32,998		27,533		921		28,454

	NINE MONTHS ENDED
	NOVEMBER 2,						OCTOBER 28,
	2024						2023
	RH SEGMENT		WATERWORKS		TOTAL		RH SEGMENT		WATERWORKS		TOTAL
	(in thousands)
Net revenues	$	2,226,054	$	142,293	$	2,368,347	$	2,146,192	$	144,674	$	2,290,866
Gross profit		977,374		74,761		1,052,135		990,490		77,578		1,068,068
Depreciation and amortization		91,429		4,653		96,082		80,786		3,574		84,360

In the three months ended November 2, 2024 and October 28, 2023, the Real Estate segment share of equity method investments loss was $1.8 million and $2.7 million, respectively. In the nine months ended November 2, 2024 and October 28, 2023, the Real Estate segment share of equity method investments loss was $8.5 million and $7.7 million, respectively.

The Waterworks segment share of equity method investments loss—net was immaterial in all fiscal periods presented.

The following table presents selected balance sheet metrics for our segments:

	NOVEMBER 2,								FEBRUARY 3,
	2024								2024
	RH SEGMENT		WATERWORKS		REAL ESTATE		TOTAL		RH SEGMENT		WATERWORKS		REAL ESTATE		TOTAL
	(in thousands)
Goodwill(1)	$	140,990	$	—	$	—	$	140,990	$	141,033	$	—	$	—	$	141,033
Tradenames, trademarks and other intangible assets(2)		59,473		17,000		—		76,473		58,927		17,000		—		75,927
Equity method investments(3)		—		3,383		126,178		129,561		—		3,609		125,059		128,668
Total assets		4,110,666		190,577		162,979		4,464,222		3,798,572		183,804		161,521		4,143,897

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

(2) The Waterworks reporting unit tradename is presented net of an impairment charge of $35 million recognized in prior fiscal years.

(3) The Waterworks segment balance represents membership interests in two European entities, whereby we hold a 50 percent membership interest in one entity and an approximately 25 percent membership interest in the other, and we are not the primary beneficiary of these VIEs.

We sell furniture and non-furniture products. Furniture includes both indoor and outdoor furniture. Non-furniture includes lighting, textiles, fittings, fixtures, surfaces, accessories and home décor, as well as our hospitality operations. Net revenues in each category were as follows:

	THREE MONTHS ENDED				NINE MONTHS ENDED
	NOVEMBER 2,		OCTOBER 28,		NOVEMBER 2,		OCTOBER 28,
	2024		2023		2024		2023
	(in thousands)
Furniture	$	579,553	$	518,923	$	1,678,638	$	1,575,916
Non-furniture		232,179		232,302		689,709		714,950
Total net revenues	$	811,732	$	751,225	$	2,368,347	$	2,290,866

We are domiciled in the United States and primarily operate our retail locations and outlets in the United States. As of November 2, 2024, we operated four retail locations in Canada, two retail locations and one outlet in the United Kingdom, two retail locations in Germany, one retail location in Belgium and one retail location in Spain. Geographic revenues generated outside of the United States were not material in any fiscal period presented.