Analysis of Debt
Total Debt (Carrying Amount)
RH, balance sheet: debt
US$ in thousands
Based on: 10-K (reporting date: 2023-01-28), 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03).
Total debt (carrying amount) experienced a substantial upward trajectory over the observed six-year period, increasing from $874.2 million in February 2018 to $3.16 billion by January 2023. While growth was relatively moderate between 2018 and 2021, a significant escalation occurred between January 2021 and January 2022, where total debt rose from approximately $1.1 billion to $2.82 billion, marking a fundamental shift in the company's capital structure.
- Transition in Funding Sources
- A strategic shift is observable in the composition of debt instruments. From 2018 to 2021, the debt profile was heavily characterized by various tranches of convertible senior notes. However, by January 2022, these were largely superseded by traditional bank debt, specifically the introduction of Term Loan B, which contributed approximately $1.95 billion to the total carrying amount. This trend continued into January 2023 with the addition of Term Loan B-2 totaling $469.2 million, indicating a pivot toward large-scale institutional borrowing.
- Growth in Finance Lease Obligations
- There was a marked increase in finance lease liabilities starting in February 2020. Non-current finance lease liabilities surged from approximately $7.7 million in February 2019 to $443 million in February 2020, eventually reaching $653 million by January 2023. This steady climb suggests a significant expansion in leased assets and long-term operational commitments.
- Short-Term Debt Dynamics
- Current liabilities related to debt showed a corresponding increase toward the end of the period. The current portion of term loans emerged in January 2022 at $20 million and rose to $25 million by January 2023. Similarly, current finance lease liabilities grew consistently from $471 thousand in 2018 to $17 million in 2023, reflecting the accelerating maturity of lease obligations.
- Retirement of Legacy Instruments
- The data indicates the systematic retirement of early-stage debt instruments. Asset-based credit facilities and early convertible senior notes (due 2019 and 2020) were eliminated from the balance sheet by 2021. This suggests a deliberate refinancing strategy to replace short-term or convertible obligations with larger, long-term term loans.
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Total Debt (Fair Value)
| Jan 28, 2023 | |
|---|---|
| Selected Financial Data (US$ in thousands) | |
| Convertible senior notes due 2024 | 37,351) |
| Convertible senior notes due 2023 | 1,622) |
| Convertible senior notes due 2020 | —) |
| Convertible senior notes due 2019 | —) |
| Asset based credit facility | —) |
| Term loan B | 1,961,056) |
| Term loan B-2 | 500,215) |
| Term loan | —) |
| Real estate loans | 17,909) |
| Equipment promissory notes | 1,160) |
| Finance lease liabilities | 670,057) |
| Total debt (fair value) | 3,189,370) |
| Financial Ratio | |
| Debt, fair value to carrying amount ratio | 1.01 |
Based on: 10-K (reporting date: 2023-01-28).
Weighted-average Interest Rate on Debt
Weighted-average interest rate on debt: 6.66%
| Interest rate | Debt amount1 | Interest rate × Debt amount | Weighted-average interest rate2 |
|---|---|---|---|
| 6.88% | 1,956,529) | 134,609) | |
| 7.67% | 474,245) | 36,375) | |
| 4.56% | 1,160) | 53) | |
| 5.32% | 670,057) | 35,647) | |
| Total | 3,101,991) | 206,684) | |
| 6.66% | |||
Based on: 10-K (reporting date: 2023-01-28).
1 US$ in thousands
2 Weighted-average interest rate = 100 × 206,684 ÷ 3,101,991 = 6.66%
Interest Costs Incurred
RH, interest costs incurred
US$ in thousands
Based on: 10-K (reporting date: 2023-01-28), 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03).
Total interest costs incurred exhibited a trend of moderate fluctuation between 2018 and 2022, followed by a substantial escalation in the period ending January 28, 2023. The overall trajectory indicates a period of relative stability in debt service obligations that was abruptly disrupted by a sharp rise in financing costs in the final reporting year.
- Total Interest Costs Incurred
- Aggregate costs grew from US$ 66,388 thousand in February 2018 to a peak of US$ 93,439 thousand in February 2020. After a subsequent decline to US$ 76,222 thousand in January 2021 and a marginal recovery to US$ 79,091 thousand in January 2022, the total surged to US$ 156,633 thousand by January 2023, representing an approximate 98% increase over the preceding year.
- Interest Expense Trends
- The primary component of interest costs followed a similar pattern, increasing steadily from 2018 to 2020 before experiencing a two-year contraction. Expenses decreased from US$ 88,509 thousand in 2020 to US$ 66,883 thousand in 2022. This trend reversed sharply in 2023, with interest expense reaching US$ 151,730 thousand, which accounts for the vast majority of the total interest costs incurred during that period.
- Capitalized Interest for Capital Projects
- Capitalized interest remained relatively low and stable from 2018 to 2021, ranging between US$ 3,139 thousand and US$ 5,574 thousand. A significant spike occurred in January 2022, where capitalization reached US$ 12,208 thousand, suggesting an intensification of qualifying capital expenditures during that window. This figure subsequently declined to US$ 4,903 thousand in January 2023, indicating a reduction in the volume of capitalized project costs.
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Adjusted Interest Coverage Ratio
Based on: 10-K (reporting date: 2023-01-28), 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03).
2023 Calculations
1 Interest coverage ratio (without capitalized interest) = EBIT ÷ Interest expense
= 589,014 ÷ 151,730 = 3.88
2 Adjusted interest coverage ratio (with capitalized interest) = EBIT ÷ Interest costs incurred
= 589,014 ÷ 156,633 = 3.76
The analysis of interest coverage ratios indicates a period of significant strengthening in the capacity to service debt between February 2018 and January 2022, followed by a substantial decline in January 2023. Both measured metrics exhibit a strong positive correlation, with a peak in solvency margins occurring in early 2022.
- Interest Coverage Ratio (without capitalized interest)
- This metric experienced a steady climb from 1.48 in 2018 to a peak of 13.29 in 2022. This progression suggests a substantial increase in operating earnings relative to interest obligations over a four-year period. However, a sharp contraction occurred by January 2023, with the ratio falling to 3.88, indicating a reduction in the margin of safety for debt obligations.
- Adjusted Interest Coverage Ratio (with capitalized interest)
- The adjusted ratio followed a similar trajectory, starting at 1.40 in 2018 and reaching a maximum of 11.24 in 2022. The consistency between this and the non-adjusted ratio confirms a systemic improvement in debt coverage until the 2023 downturn, where the ratio decreased to 3.76. The adjusted figures remain consistently lower than the non-adjusted figures, reflecting the additive effect of capitalized interest on the total interest burden.
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