Form 8-K RH For: Jun 02

Exhibit 99.1

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RH REPORTS RECORD FIRST QUARTER 2022 RESULTS

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CORTE MADERA, Calif.--(BUSINESS WIRE)—June 2, 2022--RH (NYSE: RH) has released its financial results for the first quarter ended April 30, 2022, in a shareholder letter from Chairman and Chief Executive Officer Gary Friedman, available on the Investor Relations section of its website at ir.rh.com.

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As previously announced, RH leadership will host a live conference call and audio webcast at 2:00 pm Pacific Time (5:00 pm Eastern Time) today. The conference call may be accessed by dialing 866.940.6255 or 270.215.9567 for international callers. The call and replay can also be accessed via audio webcast at ir.rh.com.

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ABOUT RH

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RH (NYSE: RH) is a curator of design, taste and style in the luxury lifestyle market. The Company offers collections through its retail galleries, source books, and online at RH.com, RHModern.com, RHBabyandChild.com, RHTEEN.com and Waterworks.com.

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CONTACTS

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PRESS CONTACT

[email protected]

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INVESTOR RELATIONS CONTACT

Allison Malkin, 203.682.8225, [email protected]

Exhibit 99.2

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A LETTER FROM OUR CHAIRMAN AND CEO

RH REPORTS RECORD FIRST QUARTER RESULTS

FIRST QUARTER 2022 HIGHLIGHTS

Q1 GAAP NET REVENUES INCREASED 11% TO $957M VS. $861M LY
Q1 ADJUSTED NET REVENUES INCREASED 11% TO $957M VS. $861M LY

Q1 GAAP GROSS MARGIN INCREASED 480 BASIS POINTS TO 52.1% VS. 47.3% LY
Q1 ADJUSTED GROSS MARGIN INCREASED 480 BASIS POINTS TO 52.1% VS. 47.3% LY

Q1 GAAP OPERATING MARGIN DECREASED 40 BASIS POINTS TO 21.4% VS. 21.8% LY

Q1 ADJUSTED OPERATING MARGIN INCREASED 210 BASIS POINTS TO 24.7% VS. 22.6% LY

Q1 GAAP NET INCOME INCREASED 54% TO $201M VS. $131M LY
Q1 ADJUSTED NET INCOME INCREASED 50% TO $213M VS. $142M LY ⁽¹⁾

Q1 GAAP DILUTED EPS INCREASED 190% TO $12.16 VS. $4.19 LY
Q1 ADJUSTED DILUTED EPS INCREASED 59% TO $7.78 VS. $4.89 LY ⁽¹⁾

Please see the tables below for reconciliations of all GAAP to non-GAAP measures referenced in this press release.

(1) Adjusted net income reflects a tax rate of 0%, representing our expected cash tax liability for fiscal 2022 results. We do not expect to pay taxes for fiscal 2022 earnings due to the $198M tax benefit from Mr. Friedman’s option exercise in the first quarter. If the tax rate in the first quarter was equal to last year, adjusted net income would have been $162M, an increase of 14% versus $142M last year, and adjusted diluted earnings per share would have been $5.92, an increase of 21% versus $4.89 last year.

TO OUR PEOPLE, PARTNERS AND SHAREHOLDERS,

We are pleased to report another quarter of record results as revenue increased 11% to $957 million versus $861 million a year ago, and up 98% versus 2020, representing one of the highest two-year growth rates in our industry.

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Gross margin expanded 480 basis points in the first quarter driven by a 390 basis point increase in product margins and our resistance to promote the business as demand trends began to slow.  

While there has been a widespread return to discounting across our industry as evidenced by the barrage of sale emails filling our inboxes, and there may be short-term risk of market share loss by choosing not to promote, we believe there is certain long-term risk of brand erosion and model destruction once you begin down that path.

It’s that discipline and long-term thinking that has enabled us to set new standards for financial performance in the home furnishings industry and our results now reflect those of the leading luxury brands as first quarter adjusted operating margin reached 24.7% versus 22.6% a year ago.  

Our results are inclusive of investments related to the opening of RH San Francisco and the RH Guesthouse, the development of RH International and the rollout of RH In-Your-Home, which led to approximately 200 of the 270 basis points of SG&A deleverage in the quarter. We are forecasting SG&A as a percentage of revenue to peak in the second and third quarters as we return to mailing Source Books after a two-year hiatus. By the fourth quarter we expect SG&A as a percentage of revenue to be in-line with last year.

We generated $107 million of free cash flow in Q1, ending the quarter with net debt of $166 million, $2.24 billion of cash on our balance sheet, and trailing twelve months adjusted EBITDA of $1.13 billion.

We spent $481 million in cash to repurchase $180 million of our outstanding convertible notes, terminate all of the 3.4 million outstanding warrants and unwind the remaining bond hedges. Following these transactions, we have $101 million of convertible notes outstanding.

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FISCAL 2022 OUTLOOK

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Despite our record financial performance in the first quarter, we have experienced softening demand trends which began at the time of the Russian invasion of Ukraine and have further slowed during the market disruption over the past several months.  

Based on our current trends and the uncertain macro-economic environment we are providing the following revised outlook for the second quarter and fiscal 2022:

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Second quarter net revenue in the range of (1%) to (3%), versus up 39% last year, with adjusted operating margin in the range of 23.0% to 23.5%, versus 26.6% a year ago.

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Fiscal 2022 net revenue growth in the range of 0% to 2%, versus up 32% last year, with adjusted operating margin in the range of

23.0% to 24.0%, versus 25.6% a year ago.

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While we expect the next several quarters to pose a short-term challenge as we cycle the extraordinary growth from the COVID-driven spending shift, shed less valuable market share as we continue to raise our quality and navigate through the multiple macro headwinds, we believe our long-term investments will enable us to continue driving industry-leading performance.  

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2022: THE YEAR OF THE NEW

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As we’ve mentioned, while many of our plans were delayed by the virus, they were not disrupted by it. We believe 2022 will mark the beginning of the next chapter of growth and innovation for the RH brand. 2022, The Year of The New includes:

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The May opening of RH San Francisco, The Gallery at the Historic Bethlehem Steel Building, our most extraordinary new Bespoke Gallery to date.

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The launch of RH Contemporary, the most compelling and potentially disruptive product introduction in our history.

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The elevation of RH Interiors and RH Modern, inclusive of new collections and enhanced quality.

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The unveiling of our first RH Guesthouse in New York, a revolutionary new hospitality concept for travelers seeking privacy and luxury in the $200 billion North American hotel market.

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The introduction of an elevated new live-fire restaurant at RH San Francisco, with plans to open in RH England and the New York Guesthouse.

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The debut of a Champagne and Caviar concept opening in the New York Guesthouse, with plans to expand to our future Galleries in Paris, London, Milan and Aspen.

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The premier of The World of RH, our new digital portal highlighting the connective power of our evolving ecosystem.

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The lift-off of RH1 and RH2, our customized Gulfstream G650 and G550 that will be available for charter later this year.

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The christening of RH3, our luxury yacht that will be available for charter in the Mediterranean and Caribbean where the wealthy and affluent visit and vacation.

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The rollout of RH In-Your-Home, a unique and memorable experience with Brand Ambassadors guiding every detail of the delivery and extending the selling experience into the home.

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The expansion of the RH brand globally, beginning with the opening of RH England, The Gallery at the Historic Aynho Park, a magical 17th-century, 73-acre estate in the English countryside that will introduce RH to the UK in a dramatic and unforgettable fashion.

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The opening of RH Palo Alto, The Gallery at Stanford Shopping Center, which will represent the next evolution of our highly productive prototype Galleries.

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RH BUSINESS VISION & ECOSYSTEM − THE LONG VIEW

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We believe, “There are those with taste and no scale, and those with scale and no taste,” and the idea of scaling taste is large and far reaching.

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Our goal to position RH as the arbiter of taste for the home, has proven to be both disruptive and lucrative, as we continue our quest to build the most admired brand in the world.

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Our brand attracts the leading designers, artisans and manufacturers, scaling and rendering their work more valuable across our integrated platform, enabling RH to curate the most compelling collection of luxury home products on the planet.

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Our efforts to elevate and expand our collection will continue with the introductions of RH Contemporary, RH Couture, RH Bespoke, RH Color, RH Antiques & Artifacts, RH Atelier and other new collections scheduled to launch over the next decade.

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Our plan to open immersive Design Galleries in every major market will unlock the value of our vast assortment, generating revenues of $5 to $6 billion in North America, and $20 to $25 billion globally.

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Our strategy is to move the brand beyond curating and selling product to conceptualizing and selling spaces, by building an ecosystem of Products, Places, Services and Spaces that establishes the RH brand as a global thought leader, taste and place maker.

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Our products are elevated and rendered more valuable by our architecturally inspiring Galleries, which are further elevated and rendered more valuable by our interior design services and seamlessly integrated hospitality experience.

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Our hospitality efforts will continue to elevate the RH brand as we extend beyond the four walls of our Galleries into RH Guesthouses, where our goal is to create a new market for travelers seeking privacy and luxury in the $200 billion North American hotel industry. Additionally, we are creating bespoke experiences like RH Yountville, an integration of Food, Wine, Art & Design in the Napa Valley, RH1 and RH2, our private jets, and RH3, our luxury yacht that is available for charter in the Caribbean and Mediterranean where the wealthy and affluent visit and vacation. These immersive experiences expose new and existing customers to our evolving authority in architecture, interior design and landscape architecture.

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This leads to our long-term strategy of building the world’s first consumer-facing architecture, interior design and landscape architecture services platform inside our Galleries, elevating the RH brand and amplifying our core business by adding new revenue streams while disrupting and redefining multiple industries.

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Our strategy comes full circle as we begin to conceptualize and sell spaces, moving beyond the $170 billion home furnishings market into the $1.7 trillion North American housing market with the launch of RH Residences − fully furnished luxury homes, condominiums and apartments with integrated services, that deliver taste and time value to discerning time-starved consumers.

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The entirety of our strategy will come to life digitally as we launch The World of RH, an online portal where customers can explore and be inspired by the depth and dimension of our brand.

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Our authority as an arbiter of taste will be further amplified when we introduce RH Media, a content platform that will celebrate the most innovative and influential leaders who are shaping the world of architecture and design.

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Our plan to expand the RH ecosystem globally multiplies the market opportunity to $7 to $10 trillion, one of the largest and most valuable addressed by any brand in the world today. A one percent share of the global market represents a $70 to $100 billion opportunity.

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Our ecosystem of Products, Places, Services and Spaces inspires customers to dream, design, dine, travel and live in a world thoughtfully curated by RH, creating an emotional connection unlike any other brand in the world.

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Taste can be elusive, and we believe no one is better positioned than RH to create an ecosystem that makes taste inclusive, and by doing so, elevating and rendering our way of life more valuable.

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CLIMBING THE LUXURY MOUNTAIN AND BUILDING A BRAND WITH NO PEER

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Every luxury brand, from Chanel to Cartier, Aston Martin to Aman, Louis Vuitton to Loro Piana, Harry Winston to Hermès, was born at the top of the luxury mountain. Never before has a brand attempted to make the climb to the top, nor do the other brands want you to. We are not from their neighborhood, nor invited to their parties. We do understand that our work has to be so extraordinary that it creates a forced reconsideration of who we are and what we are capable of, requiring those at the top of the mountain to tip their hat in respect. We also appreciate that this climb is not for the faint of heart, and as we continue our ascent the air gets thin and the odds become slim.

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Twenty years ago we began this journey with a vision of transforming a nearly bankrupt business with a $20 million market cap and a box of Oxydol laundry detergent on the cover of the catalog into the leading luxury home brand in the world. The lessons and learnings, the passion and persistence, the courage required, and the scar tissue developed by getting knocked down ten times and getting up eleven leads to the development of the mental and moral strength that builds character in individuals and forms cultures in organizations. Lessons that can’t be learned in a classroom, or by managing a business, they must be earned by building one. Or, by reaching the top of the mountain.

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Onward Team RH.

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Carpe Diem,

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We define “free cash flow” as net cash provided by operating activities less capital expenditures. Free cash flow is a liquidity measure and 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. Free cash flow is not necessarily representative of residual cash flows from the business since free cash flow as reported is reduced by certain cash payments made in settlement of our convertible debt upon conversion or maturity, as well as other obligations or payments made for business acquisitions.

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For additional information on free cash flow, please see the Reconciliation of GAAP to non-GAAP Financial Measures tables in this press release, which include details on the GAAP financial measures that are most directly comparable to free cash flow.

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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 diluted earnings per share, adjusted diluted net income per share, ROIC or return on invested capital, free cash flow, adjusted operating margin, adjusted gross margin, adjusted gross profit, adjusted SG&A, EBITDA, adjusted EBITDA, EBITDA margin and adjusted EBITDA margin (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 senior leadership in its financial and operational decision making. The non-GAAP financial measures used by the Company in this 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 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.

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FORWARD-LOOKING STATEMENTS

This release contains forward-looking statements within the meaning of the federal securities laws, including without limitation, statements regarding the short-term risk of market share loss by choosing not to promote; our belief regarding the long-term risks of promotion; our forecast that SG&A as a percentage of revenue will peak in the second and third quarters as we return to mailing Source Books and will be in-line with last year by the fourth quarter; our outlook for the second quarter and fiscal 2022, including with respect to net revenue growth and adjusted operating margin; the next several quarters posing a short-term challenge and our plans to shed less valuable market share and raise our quality; our belief that our long-term investments will enable us to continue driving industry-leading performance; 2022 will mark the beginning of the next chapter of growth and innovation for the RH brand and will include the openings of new locations including RH San Francisco, the New York Guesthouse, RH England and RH Palo Alto, the launch of RH Contemporary as the most compelling and potentially disruptive production introduction in our history, the elevation of RH Interiors and RH Modern including new collections and enhanced quality, the introduction of an elevated live-fire restaurant at RH San Francisco and a Champagne and Caviar concept in the New York Guesthouse, the premier of The World of RH, the lift-off of RH1 and RH2 which will be available for charter later this year, the christening of our luxury yacht RH3 which will be available for charter in the Mediterranean and Caribbean, the rollout of RH In-Your-Home, and the global expansion of the RH brand; our expectations regarding location openings, including RH San Francisco as our most extraordinary new Bespoke Gallery to date, the New York Guesthouse as a revolutionary new hospitality concept for travelers and seeking privacy and luxury, RH England introducing RH to the UK in a dramatic and unforgettable fashion, and RH Palo Alto representing the next evolution of our highly productive prototype Galleries; our plans to open live-fire restaurants in RH England and the New York Guesthouse and Champagne and Caviar concepts in future Galleries in Paris, London, Milan and Aspen; The World of RH highlighting our evolving ecosystem’s connective power; our belief that RH In-Your-Home is a unique and memorable experience with Brand Ambassadors guiding every delivery detail; the idea of scaling taste as large and far reaching; our goal to position RH as the arbiter for taste for the home proving disruptive and lucrative; our continued quest to build the most admired brand in the world; our ability to attract leading designers, artisans and manufacturers and scale and render their work more valuable, enabling RH to curate the most compelling collection of luxury home products on the planet; our continued efforts to evaluate and expand our collection, including with RH Contemporary, RH Couture, RH Bespoke, RH Color, RH Antiques & Artifacts, RH Atelier and other new collections scheduled to launch in the next decade; our plan to open immersive Design Galleries in every major market, unlocking the value of our vast assortment and generating revenues of $5 to $6 billion in North America, and $20 to $25 billion globally; our strategy to move the brand beyond curating and selling product to conceptualizing and selling spaces, by building an ecosystem of Products, Places, Services and Spaces that establishes the RH brand as a global thought leader, taste and place maker; our products are elevated and rendered more valuable by our architecturally inspiring Galleries, interior design services and seamlessly integrated hospitality experience; our hospitality efforts will continue to elevate the RH brand; our creation of bespoke and immersive experiences such as RH Yountville which expose new and existing customers to our evolving authority in architecture, interior design and landscape architecture; our long-term strategy of building the world’s first consumer-facing architecture, interior design and landscape architecture services platform inside our Galleries, elevating the RH brand and amplifying our core business by adding new revenue streams while disrupting and redefining multiple industries; the launch of RH Residences, fully furnished luxury homes, condominiums and apartments with integrated services, which deliver taste and time value to discerning time-starved consumers; the entirety of our strategy coming to life digitally as we launch The World of RH; the introduction of RH Media further amplifying our authority as an arbiter of taste; our plan to expand the RH ecosystem globally, multiplying the market opportunity to $7 to $10 trillion, one of the largest and most valuable addressed by any brand in the world today; our ecosystem of Products, Places, Services and Spaces inspiring customers to dream, design, dine, travel and live in a world thoughtfully curated by RH, creating an emotional connection unlike any other brand in the world; our belief that no one is better positioned than RH to create an ecosystem that makes taste inclusive, elevating and rendering our way of life more valuable; building a brand with no peer; our vision of transforming RH into the leading luxury home brand in the world; and any statements or assumptions underlying any of the foregoing.

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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. All discussions of new developments are subject to inherent uncertainty as to timing and the manner in which a new development may ultimately be launched including that certain new concepts may be canceled prior to introduction. 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 key personnel; successful implementation of our growth strategy; uncertainties in the current and long-term performance of our business including a range of risks related to our operations as well as external economic factors; general economic conditions and the impact on consumer confidence and spending; changes in customer demand for our products; decisions concerning the allocation of capital including the extent to which we repurchase additional shares of our common stock which will affect shares outstanding and EPS; factors affecting our outstanding 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; risks related to the number of new business initiatives we are undertaking including international expansion, our real estate and Gallery development strategy and our expansion into new business areas such as hospitality; 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; risks related to our sourcing and supply chain

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including our dependence on imported products produced by foreign manufacturers and risks related to importation of such products, risks related to the operations of our vendors, risks related to tariffs and risks related to the impact of COVID on our business;  and those other 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 Annual Report on Form 10-K most recently 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. You should not place undue reliance on these forward-looking statements. Any forward-looking statement made by us in this release speaks only as of the date on which we make it. RH expressly disclaims any obligation or undertaking to release publicly any updates or revisions to such statements to reflect any change in its expectations with regard thereto or any changes in the events, conditions or circumstances on which any such statement is based.

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RETAIL GALLERY METRICS

(Unaudited)

We operated the following number of Galleries, Outlets and Showrooms:

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The following table presents RH Gallery and Waterworks Showroom metrics, and excludes Outlets:

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See the Company’s most recent Form 10-K and Form 10-Q filings for square footage definitions.

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Total leased square footage as of April 30, 2022 and May 1, 2021 was approximately 1,672,000 and 1,559,000, respectively.

Weighted-average leased square footage for the three months ended April 30, 2022 and May 1, 2021 was approximately 1,672,000 and 1,559,000, respectively.

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ESTIMATED DILUTED SHARES OUTSTANDING

(Shares outstanding in millions)

Note: The table above is intended to demonstrate the impact stock prices could have on our adjusted diluted shares outstanding due to 1) additional in-the-money options, 2) the higher cost of acquired shares under the treasury stock method and 3) dilution resulting from the outstanding convertible senior notes.

For adjusted dilution purposes, we will incur dilution above the strike prices of the 2023 Notes and 2024 Notes of $193.65 and $211.40, respectively.

The calculation also includes assumptions around the timing and number of options exercises. Actual diluted shares outstanding may differ if actual exercises differ from estimates. The stock option awards outstanding for RH’s Chairman and CEO are included in all of the adjusted diluted shares outstanding scenarios above based on the exercise prices of $75.43, $50.00 and $385.30 for the July 2013, May 2017 and October 2020 grants, respectively.

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

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CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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CALCULATION OF FREE CASH FLOW

(Unaudited)

Free cash flow is a non-GAAP financial measure and is included in this press release because we believe that this measure provides useful information to our senior leadership team and investors in understanding the strength of our liquidity and our ability to generate additional cash from our business operations. Free cash flow should not be considered in isolation or as an alternative to cash flows from operations calculated in accordance with GAAP, and should be considered alongside our other liquidity performance measures that are calculated in accordance with GAAP, such as net cash provided by operating activities and our other GAAP financial results. Our senior leadership team uses this non-GAAP financial measure in order to have comparable financial results for the purpose of analyzing changes in our underlying business from quarter to quarter. Our measure of free cash flow is not necessarily comparable to other similarly titled measures for other companies due to different methods of calculation.

CALCULATION OF ADJUSTED CAPITAL EXPENDITURES

(Unaudited)

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RECONCILIATION OF GAAP NET INCOME TO ADJUSTED NET INCOME

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RECONCILIATION OF DILUTED NET INCOME PER SHARE TO
ADJUSTED DILUTED NET INCOME PER SHARE

(Unaudited)

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RECONCILIATION OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES TO
ADJUSTED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

(Unaudited)

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RECONCILIATION OF NET INCOME TO OPERATING INCOME
AND ADJUSTED OPERATING INCOME

(Unaudited)

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RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA

(Unaudited)