RH (NYSE:RH) today announced fourth quarter and fiscal year 2019
results. Chairman & Chief Executive Officer Gary Friedman
provided an update on the Company’s continued evolution and outlook
in the attached letter to Our People, Partners, and
Shareholders.
RH Leadership will host a Q&A conference call at 2pm PDT
(5pm ET) today.
FISCAL 2019 HIGHLIGHTS:
FY GAAP NET REVENUES INCREASED +5.7% TO $2.647B FY ADJUSTED NET
REVENUES INCREASED +5.4% TO $2.647B
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 $9.07 VS. $5.12 LY FY
ADJUSTED DILUTED EPS INCREASED +49% TO $11.66 VS. $7.80 LY
FOURTH QUARTER 2019 HIGHLIGHTS:
Q4 GAAP NET REVENUES DECREASED -0.9% TO $665.0M Q4 ADJUSTED NET
REVENUES DECREASED -1.0% TO $665.0M
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 $2.66 VS. $1.06 LY Q4
ADJUSTED DILUTED EPS INCREASED +27% TO $3.72 VS. $2.92 LY
As of February 3, 2019, the Company adopted Accounting Standards
Update 2016-02, Accounting Standards Update 2018-10 and Accounting
Standards Update 2018-11 (together, “ASC 842”), which pertain to
accounting for leases. The Company’s previous and current guidance
conforms to the new policy. Under the Company’s adoption method,
the Company’s financial results for prior comparative periods are
presented with adjustments to reflect the impact of ASC 842. The
Company has provided reconciliation tables that update historical
results to reflect these changes in lease accounting standards.
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 $2.647 billion increased 5.4%
over last year, adjusted operating margins reached an industry best
14.3%, and adjusted diluted earnings per share increased 49% to
$11.66. We also generated $330 million of free cash flow in 2019,
and achieved industry leading ROIC of 35.3%.
While fourth quarter revenues of $665.0 million were lower than
forecast, fourth quarter adjusted earnings per share of $3.72
exceeded expectations for the 13th consecutive quarter as we
continue to manage the business with a bias for earnings versus
revenue growth. Adjusted operating margins reached a record 17.4%
in the fourth quarter, up 230 basis points versus 15.1% last year.
The record results were driven by higher product margins, plus
lower occupancy and shipping costs due to the elimination of our
Holiday assortment and the continued efficiencies of our new
operating platform.
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 Steve Jobs, “Change everything,
again.”
Our Galleries, Restaurants, and Outlets, which were originally
planned to be closed from March 17th through March 27th, will
remain closed until further notice as multiple counties and states
have imposed shelter in place, or stay at home orders through mid
to late April. We initially communicated that we would pay our
associates who were not able to work due to the closings through
March 27th, and have also extended that date through April 3rd,
2020.
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 $300 million convertible
notes due July 15th, 2020 in cash. We are also in discussions with
several different sources of additional debt financing in order to
explore opportunities to further strengthen our balance sheet
positioning the Company to take advantage of the many opportunities
that will exist in this dislocated market.
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 $5 billion in North America revenues. We also believe
there is an opportunity to build a $20 billion global brand as we
expand internationally, and further develop the RH ecosystem moving
the brand beyond creating and selling products to conceptualizing
and selling spaces.
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.
Carpe Diem,
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 2:00 pm Pacific Time (5:00 pm Eastern
Time) on March 30, 2020. The live question and answer conference
call may be accessed by dialing (866) 394-6658 or (706) 679-9188.
The call and replay can also be accessed via audio webcast at
ir.rh.com.
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 North America, the Company’s multiple
Source Books, and online at RH.com, RHModern.com,
RHBabyandChild.com, RHTeen.com and Waterworks.com.
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 February
2020; statements regarding our expectations regarding revenue and
merchandise margins for the Outlet business for fiscal year 2020
and Company operating margin for fiscal year 2020; statements
regarding core RH business demand running down approximately 40% to
last year, while total Company demand running down approximately
43%, since the closing of our Galleries, Restaurants, and Outlets
on March 18, 2020; our plans to pay the $300 million convertible
notes due July 15, 2020 in cash, and our confidence 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 $300 million convertible notes due July 15, 2020; our
discussions with sources of additional debt financing to explore
opportunities to further strengthen our balance sheet; the delay in
current Gallery openings; our long term growth 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%; our path to over $5 billion in North
American revenues; the opportunity to build a $20 billion global
brand as we expand internationally and further develop the RH
ecosystem; our quest to become one of the most admired brands in
the world; and any statements or assumptions underlying any of the
foregoing.
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 U.S. where we operate
have implemented temporary closure requirements with respect to
non-essential business operations and the duration of these
requirements are unknown, and a number of mall operators as well as
other retailers have elected to temporarily cease operations. The
COVID-19 outbreak also may have a material adverse impact on our
supply chain including the manufacture, supply, distribution,
transportation and delivery of our products. The magnitude and
duration of the negative impact to our business from the COVID-19
pandemic cannot be predicted with certainty, but the Company
believes COVID-19 is likely to result in an adverse impact on our
business, results of operations and financial condition,
particularly if ongoing mitigation actions occur for a significant
amount of time. Other important risks and uncertainties that could
cause actual results to differ materially from our expectations
include, among others, risks related to our dependence on key
personnel and any changes in our ability to retain key personnel;
successful implementation of our growth strategy; risks related to
the number of new business initiatives we are undertaking;
successful implementation of our growth strategy including our real
estate transformation and the number of new Gallery locations that
we seek to open and the timing of openings; uncertainties in the
current performance of our business including a range of risks
related to our operations as well as external economic factors;
general economic conditions and the housing market as well as the
impact of economic conditions on consumer confidence and spending;
changes in customer demand for our products; our ability to
anticipate consumer preferences and buying trends, and maintaining
our brand promise to customers; decisions concerning the allocation
of capital; factors affecting our outstanding convertible senior
notes or other forms of our indebtedness; our ability to anticipate
consumer preferences and buying trends, and maintain our brand
promise to customers; changes in consumer spending based on weather
and other conditions beyond our control; strikes and work stoppages
affecting port workers and other industries involved in the
transportation of our products; our ability to obtain our products
in a timely fashion or in the quantities required; our ability to
employ reasonable and appropriate security measures to protect
personal information that we collect; our ability to support our
growth with appropriate information technology systems; risks
related to our sourcing and supply chain including our dependence
on imported products produced by foreign manufacturers and risks
related to importation of such products including risks related to
tariffs and other similar issues, as well as those risks and
uncertainties disclosed under the sections entitled “Risk Factors”
and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” in RH’s most recent Form 10-K and Form
10-Q filed with the Securities and Exchange Commission, and similar
disclosures in subsequent reports filed with the SEC, which are
available on our investor relations website at ir.rh.com and on the
SEC website at www.sec.gov. Any forward-looking statement made by
us in this press release speaks only as of the date on which we
make it. We undertake no obligation to publicly update any
forward-looking statement, whether as a result of new information,
future developments or otherwise, except as may be required by any
applicable securities laws.
RETAIL GALLERY METRICS (Unaudited)
We operated the following number of Galleries, outlets and
showrooms:
February 1,
February 2,
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 February 1, 2020 and February 2,
2019, eight and six of our Design Galleries included an integrated
RH Hospitality experience, respectively.
[b]
Net revenues for outlet stores, which
include warehouse sales, were $51.2 million and $50.7 million for
the three months ended February 1, 2020 and February 2, 2019,
respectively. Net revenues for outlet stores, which include
warehouse sales, were $221.4 million and $179.0 million for the
year ended February 1, 2020 and February 2, 2019, respectively.
The following tables present RH Gallery and Waterworks showroom
metrics and excludes outlets:
Three Months Ended
February 1,
February 2,
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: Columbus Design Gallery
1
33.0
—
—
Baby & Child Galleries: Portland RH Baby & Child Gallery
(1
)
(4.7
)
—
—
Legacy Galleries: Columbus legacy Gallery
(1
)
(6.2
)
—
—
Durham legacy Gallery
(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
February 1,
February 2,
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: Minneapolis Design Gallery
1
32.9
—
—
Columbus Design Gallery
1
33.0
—
—
Portland Design Gallery
—
—
1
26.0
Nashville Design Gallery
—
—
1
45.6
New York Design Gallery
—
—
1
50.5
Yountville Design Gallery
—
—
1
6.7
Modern Galleries:
Dallas RH Modern Gallery (relocation)
—
(4.5
)
—
—
Dallas RH Modern Gallery
—
—
1
8.2
Baby & Child Galleries: Dallas RH Baby & Child Gallery
(1
)
(3.7
)
1
3.7
Portland RH Baby & Child Gallery
(1
)
(4.7
)
1
4.7
Legacy Galleries: San Diego legacy Gallery (relocation)
—
0.5
—
—
Minneapolis legacy Gallery
(1
)
(13.3
)
—
—
Columbus legacy Gallery
(1
)
(6.2
)
—
—
Durham legacy Gallery
(1
)
(5.7
)
—
—
Dallas legacy Gallery (relocation)
—
(2.6
)
—
—
San Antonio legacy Gallery (relocation)
—
(3.8
)
—
—
Portland legacy Gallery
—
—
(1
)
(4.7
)
Nashville legacy Gallery
—
—
(1
)
(7.1
)
Washington DC legacy Gallery
—
—
(1
)
(5.6
)
New York legacy Gallery
—
—
(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 February 1, 2020 and February
2, 2019 was approximately 1,497,000 and 1,467,000,
respectively.
Weighted-average leased square footage for the three months
ended February 1, 2020 and February 2, 2019 was approximately
1,497,000 and 1,467,000, respectively.
Weighted-average leased square footage for the year ended
February 1, 2020 and February 2, 2019 was approximately 1,468,000
and 1,409,000, respectively.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in
thousands, except per share amounts) (Unaudited)
Three Months Ended
Year Ended
February 1,
% of Net
February 2,
% of Net
February 1,
% of Net
February 2,
% 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
%
Goodwill and tradename impairment
—
—
%
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)
February 1,
February 2,
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
Goodwill and intangible assets
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
February 1,
February 2,
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
February 1,
February 2,
February 1,
February 2,
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
February 1,
February 2,
February 1,
February 2,
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
Goodwill and tradename impairment [j] —
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 February 2, 2019 and for both the years
ended February 1, 2020 and February 2, 2019 represent acceleration
of depreciation expense due to a change in the estimated useful
lives of certain assets. The adjustment to selling, general and
administrative expenses for the three months ended February 1, 2020
includes (i) asset impairments of $8.9 million, (ii) an RH
Contemporary Art lease impairment of $4.6 million, resulting from
an update to both the timing and the amount of future estimated
lease related cash inflows, and (iii) acceleration of depreciation
expense of $1.3 million due to a change in the estimated useful
lives of certain assets. The adjustment to selling, general and
administrative expenses for the year ended February 1, 2020
includes (i) asset impairments of $9.1 million, (ii) an RH
Contemporary Art lease impairment of $4.6 million, (iii) other
lease impairments of $1.5 million due to early exit of leased
facilities, (iv) acceleration of depreciation expense of $1.3
million due to a change in the estimated useful lives of certain
assets and (v) a $0.5 million charge related to the termination of
a service agreement. The adjustment to selling, general and
administrative expenses for the year ended February 2, 2019
represents an RH Contemporary Art lease impairment.
[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 February
1, 2020 represents a gain on real estate related to asset
previously classified as held for sale and other land sales. The
adjustments for the three months and year ended February 2, 2019
represent the impairment recorded upon reclassification of an owned
Design Gallery as held for sale.
[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 $350 million aggregate principal amount of
convertible senior notes that were issued in June 2014 (the “2019
Notes”), for the $300 million aggregate principal amount of
convertible senior notes that were issued in June and July 2015
(the “2020 Notes”), for the $335 million aggregate principal amount
of convertible senior notes that were issued in June 2018 (the
“2023 Notes”), and for the $350 million aggregate principal amount
of convertible senior notes that were issued in September 2019 (the
“2024 Notes”), we separated the 2019 Notes, 2020 Notes, 2023 Notes
and 2024 Notes into liability (debt) and equity (conversion option)
components and we are amortizing as debt discount an amount equal
to the fair value of the equity components as interest expense on
the 2019 Notes, 2020 Notes, 2023 Notes and 2024 Notes over their
expected lives. The equity components represent the difference
between the proceeds from the issuance of the 2019 Notes, 2020
Notes, 2023 Notes and 2024 Notes and the fair value of the
liability components of the 2019 Notes, 2020 Notes, 2023 Notes and
2024 Notes, respectively. Amounts are presented net of interest
capitalized for capital projects of $1.4 million and $0.6 million
during the three months ended February 1, 2020 and February 2,
2019, respectively. Amounts are presented net of interest
capitalized for capital projects of $3.7 million and $2.7 million
during the year ended February 1, 2020 and February 2, 2019,
respectively. The 2019 Notes matured on June 15, 2019 and did not
impact amortization of debt discount post-maturity.
[i]
The adjustment in the three months ended
February 1, 2020 represents the loss on extinguishment of debt
related to the acceleration of debt issuance costs related to early
repayment of the FILO term loan. The adjustment in the year ended
February 1, 2020 represents the loss on extinguishment of debt
related to a second lien term loan which was repaid in full in
September 2019 and the acceleration of debt issuance costs related
to early repayment of the FILO term loan, partially offset by the
gain on extinguishment of debt upon the maturity and settlement of
the 2019 Notes in June 2019. The adjustment in the year ended
February 2, 2019 represents the loss on extinguishment of debt
related to the LILO term loan, the promissory note secured by our
aircraft and the equipment security notes, all of which were repaid
in full in June 2018.
[j]
Represents goodwill and tradename
impairment related to the Waterworks reporting unit.
[k]
The adjustment in the three months ended
February 1, 2020 represents the tax effect of the adjusted items
based on our effective tax rate of 14.9%. The adjustment in the
year ended February 1, 2020 is based on an adjusted tax rate of
17.4%, which is calculated using a 21% normalized tax rate for the
first and second quarters of the year ended February 1, 2020 and
the effective tax rates of 13.7% and 14.9% for the third and fourth
quarters of the year ended February 1, 2020, respectively. The
three months and year ended February 2, 2019 assume a normalized
tax rate of 21%.
[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
February 1,
February 2,
February 1,
February 2,
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
)
Goodwill and tradename impairment
—
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 $116.09, $118.13, $193.65 and $211.40,
respectively. However, we exclude from our adjusted diluted shares
outstanding calculation the dilutive impact of the convertible
notes between $116.09 and $171.98 for our 2019 Notes, between
$118.13 and $189.00 for our 2020 Notes, between $193.65 and $309.84
for our 2023 Notes, and between $211.40 and $338.24 for our 2024
Notes, based on the bond hedge contracts in place that will deliver
shares to offset dilution in these ranges. At stock prices in
excess of $171.98, $189.00, $309.84 and $338.24, we incur dilution
related to the 2019 Notes, 2020 Notes, 2023 Notes and 2024 Notes,
respectively, and we would have an obligation to deliver additional
shares in excess of the dilution protection provided by the bond
hedges. Pro forma diluted net income per share for the three months
ended February 1, 2020 is calculated based on GAAP net income and
pro forma diluted weighted-average shares of 24,538,122, which
excludes dilution related to the 2020 Notes of 1,229,742 shares.
Pro forma diluted net income per share for the three months ended
February 2, 2019 is calculated based on GAAP net income and pro
forma diluted weighted-average shares of 25,360,886, which excludes
dilution related to the 2019 Notes and 2020 Notes of 341,905
shares. Pro forma diluted net income per share for the year ended
February 1, 2020 is calculated based on GAAP net income and pro
forma diluted weighted-average shares of 23,697,440, which excludes
dilution related to the 2019 Notes and 2020 Notes of 601,594
shares. Pro forma diluted net income per share for the year ended
February 2, 2019 is calculated based on GAAP net income and pro
forma diluted weighted-average shares of 26,180,981, which excludes
dilution related to the 2019 Notes and 2020 Notes of 352,244
shares.
[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
February 1,
February 2,
February 1,
February 2,
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
February 1,
February 2,
February 1,
February 2,
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
Goodwill and tradename impairment
—
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
February 1,
February 2,
February 1,
February 2,
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
)
Goodwill and tradename impairment [c]
—
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)
February 1,
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 February 3, 2019, the first day of our
first fiscal quarter of 2019, using a modified retrospective
approach. Under this adoption method, the results of prior
comparative periods are revised with an adjustment to opening
retained earnings of fiscal 2017.
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 February 2,
2019
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
Goodwill and tradename impairment
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 February 3,
2018
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
Goodwill and tradename impairment
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 May 5,
2018
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 August 4,
2018
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 November 3,
2018
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 February 2,
2019
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
Goodwill and tradename impairment
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/
Allison Malkin 203-682-8225 allison.malkin@icrinc.com
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