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Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.

Economic Profit
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

RH, economic profit calculation

US$ in thousands

12 months ended:	Jan 28, 2023	Jan 29, 2022	Jan 30, 2021	Feb 1, 2020	Feb 2, 2019	Feb 3, 2018
Net operating profit after taxes (NOPAT)¹	544,162)	752,355)	339,002)	295,307)	242,188)	78,790)
Cost of capital²	16.05%	17.31%	21.47%	14.97%	18.30%	17.75%
Invested capital³	4,379,253)	4,553,261)	2,021,807)	1,774,870)	1,246,825)	1,226,304)

Economic profit⁴	(158,526)	(35,914)	(94,985)	29,532)	13,970)	(138,894)

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).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 544,162 – 16.05% × 4,379,253 = -158,526

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Item	Description	The company
Economic profit	Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital.	RH economic profit increased from 2021 to 2022 but then decreased significantly from 2022 to 2023.

RH, NOPAT calculation

US$ in thousands

12 months ended:	Jan 28, 2023	Jan 29, 2022	Jan 30, 2021	Feb 1, 2020	Feb 2, 2019	Feb 3, 2018
Net income	528,642)	688,546)	271,815)	220,375)	150,639)	2,180)
Deferred income tax expense (benefit)¹	(92,610)	(6,921)	(4,920)	(8,387)	(1,043)	5,684)
Increase (decrease) in allowance for expected credit losses²	(200)	300)	1,100)	300)	100)	(600)
Increase (decrease) in equity equivalents³	(92,810)	(6,621)	(3,820)	(8,087)	(943)	5,084)
Interest expense	151,730)	66,883)	70,648)	88,509)	75,908)	63,084)
Interest expense, operating lease liability⁴	23,917)	24,205)	20,632)	17,910)	42,004)	45,312)
Adjusted interest expense	175,647)	91,088)	91,280)	106,419)	117,912)	108,396)
Tax benefit of interest expense⁵	(36,886)	(19,129)	(19,169)	(22,348)	(24,762)	(36,529)
Adjusted interest expense, after taxes⁶	138,761)	71,960)	72,111)	84,071)	93,151)	71,867)
Interest income	(38,520)	(1,936)	(1,398)	(1,332)	(834)	(514)
Investment income, before taxes	(38,520)	(1,936)	(1,398)	(1,332)	(834)	(514)
Tax expense (benefit) of investment income⁷	8,089)	407)	294)	280)	175)	173)
Investment income, after taxes⁸	(30,431)	(1,529)	(1,104)	(1,052)	(659)	(341)
Net operating profit after taxes (NOPAT)	544,162)	752,355)	339,002)	295,307)	242,188)	78,790)

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).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for expected credit losses.

³ Addition of increase (decrease) in equity equivalents to net income.

⁴ 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 586,193 × 4.08% = 23,917

⁵ 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 175,647 × 21.00% = 36,886

⁶ Addition of after taxes interest expense to net income.

⁷ 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 38,520 × 21.00% = 8,089

⁸ Elimination of after taxes investment income.

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Item	Description	The company
NOPAT	Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income.	RH NOPAT increased from 2021 to 2022 but then slightly decreased from 2022 to 2023 not reaching 2021 level.

RH, cash operating taxes calculation

US$ in thousands

12 months ended:	Jan 28, 2023	Jan 29, 2022	Jan 30, 2021	Feb 1, 2020	Feb 2, 2019	Feb 3, 2018
Income tax expense (benefit)	(91,358)	133,558)	104,598)	48,807)	30,514)	27,971)
Less: Deferred income tax expense (benefit)	(92,610)	(6,921)	(4,920)	(8,387)	(1,043)	5,684)
Add: Tax savings from interest expense	36,886)	19,129)	19,169)	22,348)	24,762)	36,529)
Less: Tax imposed on investment income	8,089)	407)	294)	280)	175)	173)
Cash operating taxes	30,049)	159,201)	128,393)	79,262)	56,143)	58,643)

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).

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Item	Description	The company
Cash operating taxes	Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction.	RH cash operating taxes increased from 2021 to 2022 but then decreased significantly from 2022 to 2023.

RH, invested capital calculation (financing approach)

US$ in thousands

	Jan 28, 2023	Jan 29, 2022	Jan 30, 2021	Feb 1, 2020	Feb 2, 2019	Feb 3, 2018
Convertible senior notes due 2024, net	—)	3,600)	—)	—)	—)	—)
Convertible senior notes due 2023, net	1,696)	9,389)	2,354)	—)	—)	—)
Convertible senior notes due 2020, net	—)	—)	—)	290,532)	—)	—)
Convertible senior notes due 2019, net	—)	—)	—)	—)	343,789)	—)
Current portion of term loans	25,000)	20,000)	—)	—)	—)	—)
Current finance lease liabilities	17,007)	15,511)	14,671)	9,188)	1,074)	471)
Current portion of equipment promissory notes	1,160)	13,625)	22,747)	22,009)	892)	6,033)
Asset based credit facility	—)	—)	—)	—)	57,500)	199,970)
Term loan B, net	1,936,529)	1,953,203)	—)	—)	—)	—)
Term loan B-2, net	469,245)	—)	—)	—)	—)	—)
Term loan, net	—)	—)	—)	—)	—)	79,499)
Real estate loans	17,909)	—)	—)	—)	—)	—)
Convertible senior notes due 2024, net	41,724)	184,461)	281,454)	264,982)	—)	—)
Convertible senior notes due 2023, net	—)	59,002)	282,956)	266,658)	249,151)	—)
Convertible senior notes due 2020, net	—)	—)	—)	—)	271,157)	252,994)
Convertible senior notes due 2019, net	—)	—)	—)	—)	—)	327,731)
Non-current finance lease liabilities	653,050)	560,550)	485,481)	442,988)	7,720)	7,509)
Non-current portion of equipment promissory notes, net	—)	1,129)	14,614)	31,053)	—)	—)
Operating lease liability¹	586,193)	614,347)	519,693)	468,854)	364,304)	380,773)
Total reported debt & leases	3,749,513)	3,434,817)	1,623,970)	1,796,264)	1,295,587)	1,254,980)
Stockholders’ equity (deficit)	784,661)	1,170,277)	447,026)	18,651)	(22,962)	(7,336)
Net deferred tax (assets) liabilities²	(160,724)	(56,843)	(49,924)	(45,005)	(30,033)	(23,311)
Allowance for expected credit losses³	3,400)	3,600)	3,300)	2,200)	1,900)	1,800)
Equity equivalents⁴	(157,324)	(53,243)	(46,624)	(42,805)	(28,133)	(21,511)
Accumulated other comprehensive (income) loss, net of tax⁵	2,403)	1,410)	(2,565)	2,760)	2,333)	171)
Adjusted stockholders’ equity (deficit)	629,740)	1,118,444)	397,837)	(21,394)	(48,762)	(28,676)
Invested capital	4,379,253)	4,553,261)	2,021,807)	1,774,870)	1,246,825)	1,226,304)

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).

¹ Addition of capitalized operating leases.

² Elimination of deferred taxes from assets and liabilities. See details »

³ Addition of allowance for doubtful accounts receivable.

⁴ Addition of equity equivalents to stockholders’ equity (deficit).

⁵ Removal of accumulated other comprehensive income.

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Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	RH invested capital increased from 2021 to 2022 but then slightly decreased from 2022 to 2023.

RH, cost of capital calculations

Jan 28, 2023

	Capital (fair value)¹	Weights					Cost of capital
Equity²	5,416,784)	5,416,784)	÷	9,192,347)	=	0.59	0.59	×	23.78%	=	14.01%
Debt³	3,189,370)	3,189,370)	÷	9,192,347)	=	0.35	0.35	×	6.66% × (1 – 21.00%)	=	1.83%
Operating lease liability⁴	586,193)	586,193)	÷	9,192,347)	=	0.06	0.06	×	4.08% × (1 – 21.00%)	=	0.21%
Total:	9,192,347)					1.00					16.05%

Based on: 10-K (reporting date: 2023-01-28).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Jan 29, 2022

	Capital (fair value)¹	Weights					Cost of capital
Equity²	7,256,808)	7,256,808)	÷	10,725,914)	=	0.68	0.68	×	23.78%	=	16.09%
Debt³	2,854,759)	2,854,759)	÷	10,725,914)	=	0.27	0.27	×	4.96% × (1 – 21.00%)	=	1.04%
Operating lease liability⁴	614,347)	614,347)	÷	10,725,914)	=	0.06	0.06	×	3.94% × (1 – 21.00%)	=	0.18%
Total:	10,725,914)					1.00					17.31%

Based on: 10-K (reporting date: 2022-01-29).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Jan 30, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	12,598,090)	12,598,090)	÷	14,243,251)	=	0.88	0.88	×	23.78%	=	21.04%
Debt³	1,125,468)	1,125,468)	÷	14,243,251)	=	0.08	0.08	×	5.04% × (1 – 21.00%)	=	0.31%
Operating lease liability⁴	519,693)	519,693)	÷	14,243,251)	=	0.04	0.04	×	3.97% × (1 – 21.00%)	=	0.11%
Total:	14,243,251)					1.00					21.47%

Based on: 10-K (reporting date: 2021-01-30).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Feb 1, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	2,270,164)	2,270,164)	÷	4,068,301)	=	0.56	0.56	×	23.78%	=	13.27%
Debt³	1,329,283)	1,329,283)	÷	4,068,301)	=	0.33	0.33	×	5.25% × (1 – 21.00%)	=	1.36%
Operating lease liability⁴	468,854)	468,854)	÷	4,068,301)	=	0.12	0.12	×	3.82% × (1 – 21.00%)	=	0.35%
Total:	4,068,301)					1.00					14.97%

Based on: 10-K (reporting date: 2020-02-01).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Feb 2, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	2,108,232)	2,108,232)	÷	3,364,528)	=	0.63	0.63	×	23.78%	=	14.90%
Debt³	891,992)	891,992)	÷	3,364,528)	=	0.27	0.27	×	11.53% × (1 – 21.00%)	=	2.41%
Operating lease liability⁴	364,304)	364,304)	÷	3,364,528)	=	0.11	0.11	×	11.53% × (1 – 21.00%)	=	0.99%
Total:	3,364,528)					1.00					18.30%

Based on: 10-K (reporting date: 2019-02-02).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Feb 3, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	2,050,294)	2,050,294)	÷	3,304,429)	=	0.62	0.62	×	23.78%	=	14.76%
Debt³	873,362)	873,362)	÷	3,304,429)	=	0.26	0.26	×	11.90% × (1 – 33.70%)	=	2.09%
Operating lease liability⁴	380,773)	380,773)	÷	3,304,429)	=	0.12	0.12	×	11.90% × (1 – 33.70%)	=	0.91%
Total:	3,304,429)					1.00					17.75%

Based on: 10-K (reporting date: 2018-02-03).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

RH, economic spread ratio calculation, comparison to benchmarks

	Jan 28, 2023	Jan 29, 2022	Jan 30, 2021	Feb 1, 2020	Feb 2, 2019	Feb 3, 2018
Selected Financial Data (US$ in thousands)
Economic profit¹	(158,526)	(35,914)	(94,985)	29,532)	13,970)	(138,894)
Invested capital²	4,379,253)	4,553,261)	2,021,807)	1,774,870)	1,246,825)	1,226,304)
Performance Ratio
Economic spread ratio³	-3.62%	-0.79%	-4.70%	1.66%	1.12%	-11.33%
Benchmarks
Economic Spread Ratio, Competitors⁴
Amazon.com Inc.	-4.27%	-15.53%	4.54%	1.90%	-1.44%	—
GameStop Corp.	-15.07%	-16.85%	-8.43%	-22.25%	-30.33%	—
Home Depot Inc.	20.98%	25.48%	16.30%	23.39%	23.83%	—
Lowe’s Cos. Inc.	16.48%	24.70%	12.20%	8.30%	-1.21%	—
TJX Cos. Inc.	7.47%	7.40%	-9.53%	8.18%	7.45%	—

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).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -158,526 ÷ 4,379,253 = -3.62%

⁴ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic spread ratio	The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital.	RH economic spread ratio improved from 2021 to 2022 but then slightly deteriorated from 2022 to 2023 not reaching 2021 level.

RH, economic profit margin calculation, comparison to benchmarks

	Jan 28, 2023	Jan 29, 2022	Jan 30, 2021	Feb 1, 2020	Feb 2, 2019	Feb 3, 2018
Selected Financial Data (US$ in thousands)
Economic profit¹	(158,526)	(35,914)	(94,985)	29,532)	13,970)	(138,894)
Net revenues	3,590,477)	3,758,820)	2,848,626)	2,647,437)	2,505,653)	2,440,174)
Performance Ratio
Economic profit margin²	-4.42%	-0.96%	-3.33%	1.12%	0.56%	-5.69%
Benchmarks
Economic Profit Margin, Competitors³
Amazon.com Inc.	-2.41%	-8.11%	1.95%	0.74%	-0.65%	—
GameStop Corp.	-4.87%	-6.82%	-2.74%	-6.64%	-10.97%	—
Home Depot Inc.	7.37%	8.10%	6.13%	7.76%	7.53%	—
Lowe’s Cos. Inc.	4.21%	6.72%	3.86%	3.07%	-0.42%	—
TJX Cos. Inc.	3.05%	3.00%	-6.63%	3.66%	3.32%	—

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).

¹ Economic profit. See details »

² 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Net revenues
= 100 × -158,526 ÷ 3,590,477 = -4.42%

³ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin.	RH economic profit margin improved from 2021 to 2022 but then deteriorated significantly from 2022 to 2023.

RH (NYSE:RH)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin