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RH Announces Completion of $700 Million Share Repurchase Program

CORTE MADERA, Calif.--(BUSINESS WIRE)--RH (NYSE:RH) announced today that the Company has completed its $700 million share repurchase program, purchasing 12.37 million shares during the second quarter of fiscal 2017. Combined with the $300 million repurchase of 7.85 million shares completed in the first quarter, the Company has purchased 20.22 million shares representing approximately one-half (49.6%) of the shares outstanding at the beginning of the first quarter of 2017. As a result, the actual number of shares outstanding after completion of the two repurchase programs is approximately 21.12 million. The repurchase programs were completed pursuant to open market purchases under Rule 10b-18.

The Company is also confirming its previous second quarter guidance of revenue in the range of $595 million to $610 million and adjusted net income in the range of $13 million to $15 million.

Post reduction in the number of shares outstanding from the share repurchase, second quarter adjusted diluted earnings per share is expected to be in the range of $0.43 to $0.50, assuming a weighted average diluted share count of approximately 30.0 million for the second quarter.

Chairman and Chief Executive Officer, Gary Friedman, provided an update on the Company’s capital structure and continuing evolution:

We are delighted to announce the completion of our $700 million share repurchase plan. Combined with our previously announced $300 million share repurchase completed in the first quarter, we have invested $1 billion toward the repurchase of 20.22 million shares of our common stock, which we believe will generate meaningful returns for our shareholders.

As we previously discussed, 2017 is a year of execution, architecture, and cash at RH. Our efforts are focused on executing our new business model, architecting a new operating platform, and maximizing cash flow. To that point, we are focused on optimizing our balance sheet to realize the benefits of improved capital allocation through the share repurchase programs. We have used three primary sources of capital to finance the repurchases—existing cash from our balance sheet; cash flow from operations; and proceeds from debt financings that we have recently completed at extremely favorable terms. In aggregate, we expect to achieve a 1.9% blended pretax cost of debt and a 1.1% blended after tax cost of debt.

We expect to generate significant free cash flow during the remainder of fiscal 2017, which should allow the Company to pay down the most expensive debt balances prior to the end of the fiscal year assuming that business conditions remain in line with current trends. Specifically, the Company expects to repay in full the second lien term loan (as described below) prior to the end of fiscal 2017.

We remain confident in our ability to drive long-term sustainable growth, industry leading returns on capital, and significant value for our shareholders.

The incremental indebtedness incurred by the Company to finance the remainder of the repurchase program included the previously announced amendment and restatement of the Company’s $600 million asset based credit facility, including a $200M accordion feature (the “ABL Revolving Credit Agreement”) together with an $80 million LILO Term Loan, each of which has a stated maturity date of five years from the date of the facility, and the previously announced $100 million Second Lien Term Loan which has a stated maturity date of 5.5 years from the date of the loan, and an early retirement feature. The terms of these credit arrangements have limited covenant restrictions and allow the Company considerable flexibility including the right to repay the obligations prior to maturity at the option of the Company. In addition, the interest rates for these debt arrangements are favorable given the Company’s strong asset base to support borrowings.

The primary indebtedness incurred by the Company upon completion of the repurchase programs is summarized below:

Summary of Principal Indebtedness

Principal Current Cash

Amount (1)

Interest Rate (2)

(in millions) (annualized)
Convertible Senior Notes $ 650 0.00%
ABL Revolving Credit Agreement (3) 323 2.73%
LILO Term Loan 80 3.98%
Second Lien Term Loan 100 9.48%
Total (2) $ 1,153 1.89%...

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