SEGMENT REPORTING

12 Months Ended

Feb. 01, 2025

SEGMENT REPORTING

SEGMENT REPORTING

NOTE 20—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 and have operations that are not directly related to the activities of the retail operating segments.

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

The CODM uses segment adjusted operating income to evaluate segment profitability for the retail operating segments and to allocate resources and analyze variances of actual performance to our forecasts when making decisions. Operating income is defined as net income before interest expense—net, other expense—net, income tax expense (benefit) and our share of equity method investments loss—net. Segment adjusted operating income excludes (i) certain 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, (v) costs associated with product recalls, (vi) employer payroll tax expense related to option exercises by Mr. Friedman, (vii) professional fees related to the 2023 Notes and 2024 Notes transactions (refer to Note 11—Convertible Senior Notes), (viii) non-cash compensation attributed to the noncontrolling interests holder of our consolidated variable interest entities (refer to Note 7—Variable Interest Entities), (ix) compensation settlements related to the Rollover Units and Profit Interest Units in the Waterworks subsidiary and (x) gain on sale of building and land. These items are excluded from segment adjusted 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.

Segment net revenues, which represent our disaggregated net revenues in accordance with ASC 606, significant segment expenses and segment adjusted operating income, by reportable segment, were as follows:

	YEAR ENDED
	FEBRUARY 1,						FEBRUARY 3,						JANUARY 28,
	2025						2024						2023
	RH SEGMENT		WATERWORKS		TOTAL(1)		RH SEGMENT		WATERWORKS		TOTAL		RH SEGMENT		WATERWORKS		TOTAL
	(in thousands)
Net revenues	$	2,987,818		192,935		3,180,753	$	2,835,617		193,509		3,029,126	$	3,398,638		191,839		3,590,477
Cost of goods sold		1,674,644		91,177		1,765,821		1,549,510		90,597		1,640,107		1,690,194		88,298		1,778,492
Advertising expense		119,238		3,243		122,481		103,690		3,210		106,900		68,143		2,860		71,003
Other segment expenses(2)		857,742		76,471		934,213		812,959		75,373		888,332		878,757		72,399		951,156
Segment adjusted operating income(1)		336,194		22,044		358,238		369,458		24,329		393,787		761,544		28,282		789,826
Asset impairments						36,071						3,531						24,186
Non-cash compensation						4,532						9,640						18,072
Reorganization related costs						4,423						7,621						—
Legal settlements—net						(9,375)						8,500						(4,188)
Recall accrual						—						(1,576)						560
Employer payroll taxes on option exercises						—						—						14,392
Professional fees						—						—						7,469
Non-cash compensation related to consolidated VIEs						—						—						4,470
Compensation settlements						—						—						3,483
Gain on sale of building and land						—						—						(775)
Income from operations						322,587						366,071						722,157
Interest expense—net						230,601						198,296						113,210
Loss on extinguishment of debt						—						—						169,578
Other expense—net						3,395						1,078						30
Income before taxes and equity method investments					$	88,591					$	166,697					$	439,339

(1) All intercompany transactions are immaterial and have been eliminated.

(2) Other segment expenses primarily include compensation and occupancy costs classified as selling, general and administrative expenses, and other general and administrative expenses.

In fiscal 2024, fiscal 2023 and fiscal 2022, the Real Estate segment share of equity method investments loss, which is the measure of segment profitability reviewed by the CODM to evaluate performance internally for the Real Estate segment, was $11 million, $11 million and $2.1 million, respectively. The share of loss from equity method investments for the Waterworks segment was immaterial in all fiscal periods presented.

Depreciation and amortization for our segments was as follows:

	YEAR ENDED
	FEBRUARY 1,		FEBRUARY 3,		JANUARY 28,
	2025		2024		2023
	(in thousands)
RH Segment	$	124,156	$	113,695	$	103,221
Waterworks		6,035		5,294		5,367
Real Estate(1)		—		—		—
Total depreciation and amortization	$	130,191	$	118,989	$	108,588

(1) There is no expense for the Real Estate segment since all assets represent construction in progress.

Balance sheet information for our segments consisted of the following:

	FEBRUARY 1,								FEBRUARY 3,
	2025								2024
	RH SEGMENT		WATERWORKS		REAL ESTATE		TOTAL		RH SEGMENT		WATERWORKS		REAL ESTATE		TOTAL
	(in thousands)
Goodwill(1)	$	140,943	$	—	$	—	$	140,943	$	141,033	$	—	$	—	$	141,033
Tradenames, trademarks and other intangible assets(2)		59,118		17,000		—		76,118		58,927		17,000		—		75,927
Equity method investments(3)		—		3,276		123,633		126,909		—		3,609		125,059		128,668
Total assets		4,228,829		165,442		160,418		4,554,689		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. Refer to Note 7—Variable Interest Entities related to the Real Estate segment equity method investments.

We are domiciled in the United States and primarily operate our retail locations and outlets in the United States. As of February 1, 2025, we operated the following number of retail locations and outlets outside the United States:

	COUNT
Canada	4
United Kingdom	3
Germany	2
Belgium	1
Spain	1
Total(1)	11

(1) Geographic revenues generated outside of the United States did not exceed 10% of total consolidated net revenues in any fiscal period presented.

Long-lived assets by geographic location were as follows:

	FEBRUARY 1,		FEBRUARY 3,
	2025		2024
	(in thousands)
North America	$	2,514,275	$	2,359,839
All other countries		365,678		313,134
Total long-lived assets	$	2,879,953	$	2,672,973