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Segment Reporting
 12 Months Ended
Jan. 28, 2023
Segment Reporting  
Segment Reporting

NOTE 21—SEGMENT REPORTING

We define reportable and operating segments on the same basis that we use to evaluate our performance internally by the chief operating decision maker (“CODM”), which we have determined is our Chief Executive Officer. We have three operating segments: RH Segment, Waterworks and Real Estate. The RH Segment and Waterworks operating segments (the “retail operating segments”) include all sales channels accessed by our customers, including sales through retail locations and outlets, including hospitality, websites, Source Books, and the Trade and Contract channels. The Real Estate segment represents operations associated with our equity method investments and certain of our consolidated variable interest entities that are non-wholly owned subsidiaries and have operations that are not directly related to RH’s operations (refer to Note 8—Variable Interest Entities).

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

Segment Information

We use operating income to evaluate segment profitability for the retail operating segments and to allocate resources. Operating income is defined as net income before interest expense—net, loss on extinguishment of debt, other expense—net, income tax expense (benefit) and our share of equity method investments losses. Segment operating income excludes (i) asset impairments, (ii) the amortization of the non-cash compensation charge related to the fully vested option grant made to Mr. Friedman in October 2020, (iii) employer payroll tax expense related to the option exercises by Mr. Friedman, (iv) professional fees related to the 2023 Notes and 2024 Notes transactions (refer to Note 12—Convertible Senior Notes), (v) non-cash compensation attributed to the noncontrolling interests holder of our consolidated variable interest entities (refer to Note 8—Variable Interest Entities), (vi) compensation settlements related to the Rollover Units and Profit Interest Units in the Waterworks subsidiary, (vii) product recalls, (viii) favorable legal settlement, (ix) gain on sale of building and land, (x) loss on sale leaseback transaction and (xi) severance costs associated with reorganizations. These items are excluded from segment operating income in order to provide better transparency of segment operating results. Accordingly, these items are not presented by segment because they are excluded from the segment profitability measure that the CODM and our senior leadership team reviews.

The following table presents segment operating income and income before income taxes and equity method investments:

​

​

​

​

​

​

​

​

​

​

​

​

​

YEAR ENDED

​

​

JANUARY 28,

​

JANUARY 29,

​

JANUARY 30, 

​

    

2023

    

2022

    

2021 

​

​

(in thousands)

Operating income:

​

​

​

​

​

​

​

​

​

RH Segment

​

$

761,544

​

$

944,881

​

$

616,523

Waterworks

​

 

28,282

​

 

17,747

​

 

4,019

Asset impairments

​

 

(24,186)

​

 

(9,630)

​

 

(12,851)

Non-cash compensation

​

​

(18,072)

​

​

(23,428)

​

​

(117,084)

Employer payroll taxes on option exercises

​

​

(14,392)

​

​

—

​

​

—

Professional fees

​

 

(7,469)

​

 

—

​

 

—

Non-cash compensation related to consolidated VIEs

​

​

(4,470)

​

 

—

​

 

—

Compensation settlements

​

 

(3,483)

​

 

—

​

 

—

Recall accrual

​

 

(560)

​

 

(1,940)

​

 

(7,370)

Legal settlement

​

​

4,188

​

​

—

​

​

—

Gain on sale of building and land

​

​

775

​

​

—

​

​

—

Loss on sale leaseback transaction

​

​

—

​

​

—

​

​

(9,352)

Reorganization related costs

​

​

—

​

​

(449)

​

​

(7,027)

Income from operations

​

 

722,157

​

 

927,181

​

 

466,858

Interest expense—net

​

 

113,210

​

 

64,947

​

 

69,250

(Gain) loss on extinguishment of debt

​

 

169,578

​

 

29,138

​

 

(152)

Other expense—net

​

​

30

​

​

2,778

​

​

20,459

Income before income taxes and equity method investments

​

$

439,339

​

$

830,318

​

$

377,301

​

The following table presents the statements of income metrics reviewed by the CODM to evaluate performance internally or as required under ASC 280—Segment Reporting:

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​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

YEAR ENDED

​

​

JANUARY 28,

​

JANUARY 29,

​

JANUARY 30,

​

​

2023

​

2022

​

2021

​

​

RH SEGMENT

​

WATERWORKS

​

TOTAL

    

RH SEGMENT

​

WATERWORKS

​

TOTAL

    

RH SEGMENT

​

WATERWORKS

​

TOTAL

​

​

(in thousands)

Net revenues

​

$

3,398,638

$

191,839

$

3,590,477

​

$

3,593,842

$

164,978

$

3,758,820

​

$

2,729,422

$

119,204

$

2,848,626

Gross profit

​

 

1,708,444

 

103,541

 

1,811,985

​

 

1,772,668

 

82,743

 

1,855,411

​

 

1,274,148

 

51,383

 

1,325,531

Depreciation and amortization

​

 

103,221

 

5,367

 

108,588

​

 

91,252

 

4,770

 

96,022

​

 

95,071

 

4,969

 

100,040

​

In fiscal 2022, fiscal 2021 and fiscal 2020, the Real Estate segment share of equity method investments losses were $2.1 million, $8.2 million and $0.9 million, respectively. Our share of income from equity method investments for the Waterworks segment was immaterial.

The following table presents the balance sheet metrics as required under ASC 280—Segment Reporting:

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​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

JANUARY 28,

​

JANUARY 29,

​

​

2023

​

2022

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

RH SEGMENT

    

WATERWORKS

    

REAL ESTATE

    

TOTAL

    

RH SEGMENT

    

WATERWORKS

    

REAL ESTATE

    

TOTAL

​

​

(in thousands)

Goodwill(1)

​

$

141,048

​

$

—

​

$

—

​

$

141,048

​

$

141,100

​

$

—

​

$

—

​

$

141,100

Tradenames, trademarks and other intangible assets(2)

​

 

57,633

​

 

17,000

​

 

—

​

 

74,633

​

 

56,161

​

 

17,000

​

 

—

​

 

73,161

Equity method investments

​

​

—

​

​

623

​

​

100,845

​

​

101,468

​

​

—

​

​

—

​

​

100,810

​

​

100,810

Total assets

​

 

4,953,610

​

 

217,228

​

 

138,451

​

 

5,309,289

​

 

5,259,719

​

 

179,941

​

 

100,810

​

 

5,540,470

(1)The Waterworks reporting unit goodwill of $51 million recognized upon acquisition in fiscal 2016 was fully impaired as of fiscal 2018.
(2)The Waterworks reporting unit tradename is presented net of an impairment charge of $35 million.

​

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

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​

​

​

​

​

​

​

​

​

​

​

​

YEAR ENDED

​

​

JANUARY 28,

​

JANUARY 29,

​

JANUARY 30, 

​

    

2023

    

2022

    

2021 

​

​

(in thousands)

Furniture

​

$

2,492,514

​

$

2,599,540

​

$

1,940,658

Non-furniture

​

 

1,097,963

​

 

1,159,280

​

 

907,968

Total net revenues

​

$

3,590,477

​

$

3,758,820

​

$

2,848,626

​

We are domiciled in the United States and primarily operate our retail locations and outlets in the United States. As of January 28, 2023 we operated 4 retail locations and 2 outlets in Canada, and 1 retail location in the U.K. Geographic revenues in Canada and the U.K. are based upon revenues recognized at the retail locations in the respective country and were not material in any fiscal period presented.

No single customer accounted for more than 10% of our revenues in fiscal 2022, fiscal 2021 or fiscal 2020.

​

The following table presents our long-lived assets by geographic information:

​

​

​

​

​

​

​

​

​

JANUARY 28,

​

​

​

2023

​

​

​

(in thousands)

North America

​

​

$

2,261,615

All other countries

​

​

 

184,414

Total long-lived assets

​

​

$

2,446,029

​

Long-lived assets held internationally were not material as of January 29, 2022.

​