SEGMENT REPORTING

3 Months Ended

May 03, 2025

SEGMENT REPORTING

SEGMENT REPORTING

NOTE 14—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 VIEs that have operations, which 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 (loss) before interest expense—net, other (income) expense—net, income tax expense (benefit) and our share of equity method investments (income) loss—net. Segment adjusted operating income excludes (i) non-cash compensation amortization related to an option grant made to Mr. Friedman in October 2020 and (ii) legal settlements. 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 Accounting Standards Codification 606, significant segment expenses and segment adjusted operating income, by reportable segment, were as follows:

	THREE MONTHS ENDED
	MAY 3,						MAY 4,
	2025						2024
	RH SEGMENT		WATERWORKS		TOTAL(1)		RH SEGMENT		WATERWORKS		TOTAL(1)
	(in thousands)
Net revenues	$	764,998	$	48,954	$	813,952	$	677,066	$	49,894	$	726,960
Cost of goods sold		435,204		23,415		458,619		387,258		23,664		410,922
Advertising expense		48,723		655		49,378		34,333		767		35,100
Other segment expenses(2)		229,616		19,577		249,193		214,044		19,659		233,703
Segment adjusted operating income(1)		51,455		5,307		56,762		41,431		5,804		47,235
Non-cash compensation						851						1,947
Legal settlements—net						—						(9,375)
Operating income						55,911						54,663
Interest expense—net						56,603						56,772
Other (income) expense—net						(3,653)						1,165
Income (loss) before income taxes and equity method investments					$	2,961					$	(3,274)

(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 the three months ended May 3, 2025 and May 4, 2024, the Real Estate segment share of equity method investments, which is the measure of segment profitability reviewed by the CODM to evaluate performance internally for the Real Estate segment, was income of $8.3 million and loss of $2.8 million, respectively. The share of loss from equity method investments for the Waterworks segment was immaterial in both fiscal periods presented.

Depreciation and amortization for our segments was as follows:

	THREE MONTHS ENDED
	MAY 3,		MAY 4,
	2025		2024
		(in thousands)
RH Segment	$	33,861	$	29,383
Waterworks		1,375		1,444
Real Estate(1)		—		—
Total depreciation and amortization	$	35,236	$	30,827

(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:

	MAY 3,								FEBRUARY 1,
	2025								2025
	RH SEGMENT		WATERWORKS		REAL ESTATE		TOTAL		RH SEGMENT		WATERWORKS		REAL ESTATE		TOTAL
	(in thousands)
Goodwill(1)	$	141,002	$	—	$	—	$	141,002	$	140,943	$	—	$	—	$	140,943
Tradenames, trademarks and other intangible assets(2)		62,050		17,000		—		79,050		59,118		17,000		—		76,118
Equity method investments(3)		—		3,610		119,341		122,951		—		3,276		123,633		126,909
Total assets		4,327,929		166,155		156,172		4,650,256		4,228,829		165,442		160,418		4,554,689

(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, one entity in which we hold a 50 percent membership interest and another entity in which we increased our membership interest from approximately 25 percent as of February 1, 2025 to approximately 28 percent as of May 3, 2025. We are not the primary beneficiary of either of these VIEs.

We are domiciled in the United States and primarily operate our retail locations and outlets in the United States. As of May 3, 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 either fiscal period presented.