Arhaus, Inc. (NASDAQ: ARHS; “Arhaus” or the “Company”), a rapidly
growing lifestyle brand and omni-channel retailer of premium
artisan-crafted home furnishings, reported financial results for
the first quarter ended March 31, 2024.
First Quarter 2024 Highlights
- Net revenue of $295 million
- Comparable growth(1) of (9.5)%
- Net and comprehensive income of $15 million
- Adjusted EBITDA of $29 million
2024 Outlook Reaffirmed
- Net revenue of $1.33 billion to $1.37 billion
- Comparable growth(1) of (4.0)% to (2.0)%
- Net and comprehensive income of $95 million to $105
million
- Adjusted EBITDA of $185 million to $200 million
CEO Comments
John Reed, Co-Founder and Chief Executive Officer,
commented,
“I want to thank our teams for delivering a solid
start to 2024 and executing on our key priorities. We are pleased
to have exceeded our top and bottom line outlook for the quarter as
the Arhaus team executed well, and first quarter benefited from the
shift in our new warehouse management system implementation to
April from March. We are building on our track record of
industry-leading market share gains with demand comparable
growth(2) of 1.3% in the first quarter. January’s weather-impacted
high-single-digit demand comparable decline was more than offset by
demand comparable growth of mid-single-digit and high-single-digit
in February and March, respectively. We also continued our
strategic investments in systems, eCommerce capabilities and our
in-home designer and trade programs during the quarter.
“We are thrilled with client response to the new product
introductions we have made this year and are excited to be opening
several new Showrooms in the second quarter, including in new
markets, as we capitalize on our tremendous brand awareness
opportunity and remain keenly focused on strategic growth. We are
on track to deliver on our goals for the year and are reaffirming
our 2024 full year financial outlook.”
First Quarter 2024 Results
Net revenue in the first quarter was $295 million, compared to
$305 million in the first quarter of 2023. The decrease was the
result of the non-recurrence of prior year abnormal backlog
deliveries and a weather-related impact on deliveries in January,
partially offset by favorable demand versus prior year.
Comparable growth(1) was (9.5)% and demand comparable growth(2)
was 1.3% in the first quarter of 2024.
Gross margin decreased to $115 million, compared to $128 million
in the first quarter of 2023, driven primarily by lower net revenue
and higher Showroom costs as we continue to expand our
footprint.
Selling, general and administrative expenses increased 16.8% to
$97 million, compared to $83 million in the first quarter of 2023,
primarily driven by higher selling expense related to new Showrooms
and demand strength, higher corporate expense as we continue to
invest in our strategic initiatives to support and drive the growth
of the business, and increased warehouse expense as our Dallas
location continues to increase productivity.
Net and comprehensive income was $15 million compared to $34
million in the first quarter of 2023.
Adjusted EBITDA was $29 million compared to $55 million in the
first quarter of 2023. Adjusted EBITDA as a percent of net revenue
was 9.9% in the first quarter of 2024, compared to 18.0% in the
first quarter of 2023.
Balance Sheet and Cash Flow Highlights, as of March 31,
2024
Cash and cash equivalents totaled $233 million, and the Company
had no long-term debt at March 31, 2024. Net merchandise inventory
increased 5.6% to $268 million, compared to $254 million as of
December 31, 2023. Client deposits increased 16.8% to $203 million,
compared to $174 million as of December 31, 2023.
For the three months ended March 31, 2024, net cash provided by
operating activities was $37 million, compared to $11 million for
the three months ended March 31, 2023.
For the three months ended March 31, 2024, net cash used in
investing activities was approximately $26 million, which includes
landlord contributions of approximately $13 million and
company-funded capital expenditures(3) of approximately $13
million. For the three months ended March 31, 2023, net cash used
in investing activities was approximately $11 million, which
included landlord contributions of approximately $3 million and
company-funded capital expenditures(3) of approximately $8
million.
Outlook
The table below reaffirms our previously provided expectations
for selected full year 2024 financial operating results and sets
out our expectations for selected second quarter 2024 operating
results.
Full Year 2024 |
Q2 2024 |
Net revenue |
$1.33 billion to $1.37 billion |
$310 million to $320 million |
Comparable growth(1) |
(4)% to (2)% |
(9)% to (7)% |
Net income(4) |
$95 million to $105 million |
$14 million to $18 million |
Adjusted EBITDA(5) |
$185 million to $200 million |
$33 million to $38 million |
Other estimates: |
|
Company-funded capital expenditures(3) |
$80 million to $100 million |
|
Depreciation & amortization |
$45 million to $50 million |
|
Fully diluted shares |
~141 million |
|
Effective tax rate |
~ 26% |
|
In 2024, the Company plans to open nine to eleven new Showrooms,
as well as renovate, relocate and expand several locations.
(1) Comparable growth is a key
performance indicator and is defined as the year-over-year
percentage change of the dollar value of orders delivered (based on
purchase price), net of the dollar value of returns (based on
amount credited to client), from our comparable Showrooms and
eCommerce, including through our catalogs and other mailings.(2)
Demand comparable growth is a key
performance indicator and is defined as the year-over-year
percentage change of demand from our comparable Showrooms and
eCommerce, including through our catalogs and other mailings.(3)
Company-funded capital
expenditures is defined as total net cash used in
investing activities less landlord contributions.(4) U.S. GAAP net
income (loss).(5) We have not reconciled guidance for Adjusted
EBITDA to the corresponding GAAP financial measure because we do
not provide guidance for the various reconciling items. These items
include, but are not limited to, future share-based compensation
expense, income taxes, interest expense, and transaction costs. We
are unable to provide guidance for these reconciling items because
we cannot determine their probable significance, as certain items
are outside of our control and cannot be reasonably predicted due
to the fact that these items could vary significantly from period
to period. Accordingly, reconciliations to the corresponding GAAP
financial measure is not available without unreasonable effort.
Conference Call
You are invited to listen to Arhaus’ conference call to discuss
the first quarter 2024 financial results scheduled for today, May
9, 2024, at 8:30 a.m. Eastern Time. The call will be available over
the Internet on our website (http://ir.arhaus.com) or by dialing
(800) 715-9871 within the U.S., or 1 (646) 307-1963, outside the
U.S. The conference ID is: 9650241.
A recorded replay of the conference call will be available
within approximately three hours of the conclusion of the call and
can be accessed online at http://ir.arhaus.com for approximately
twelve months.
About Arhaus
Founded in 1986, Arhaus is a rapidly growing lifestyle brand and
omni-channel retailer of premium home furnishings. Through a
differentiated proprietary model that directly designs and sources
products from leading manufacturers and artisans around the world,
Arhaus offers an exclusive assortment of heirloom quality products
that are sustainably sourced, lovingly made, and built to last.
With over 90 showrooms and design center locations across the
United States, a team of interior designers providing complimentary
in-home design services, and robust online and eCommerce
capabilities, Arhaus is known for innovative design, responsible
sourcing, and client-first service. For more information, please
visit www.arhaus.com.
Investor Contact:
Wendy WatsonSVP, Investor Relations(440) 439-7700
x3409invest@arhaus.com
Non-GAAP Financial Measures
In addition to the results provided in accordance with U.S.
GAAP, this press release and related tables include adjusted EBITDA
and adjusted EBITDA as a percentage of net revenue which present
operating results on an adjusted basis.
We use non-GAAP measures to help assess the performance of our
business, identify trends affecting our business, formulate
business plans and make strategic decisions. In addition to our
results determined in accordance with U.S. GAAP, we believe that
providing these non-GAAP financial measures is useful to our
investors as they present an informative supplemental view of our
results from period to period by removing the effect of
non-recurring items. However, our inclusion of these adjusted
measures should not be construed as an indication that our future
results will be unaffected by unusual or infrequent items or that
the items for which we have made adjustments are unusual or
infrequent or will not recur. These non-
U.S. GAAP measures are not a substitute for, or superior to,
measures of financial performance prepared in accordance with U.S.
GAAP. Because not all companies use identical calculations, the
presentations of these measures may not be comparable to other
similarly titled measures of other companies and can differ
significantly from company to company. These measures should only
be read together with the corresponding U.S. GAAP measures. Please
refer to the reconciliation of adjusted EBITDA to net income, the
most directly comparable financial measure prepared in accordance
with U.S. GAAP, below.
Forward-Looking Statements
Certain statements contained herein, including statements under
the headings “Full Year 2024 Outlook Reaffirmed” and “Outlook”, are
not based on historical fact and are “forward-looking statements”
within the meaning of applicable securities laws.
Forward-looking statements can generally be identified by the
use of forward-looking terminology, including, but not limited to,
“may,” “could,” “seek,” “guidance,” “predict,” “potential,”
“likely,” “believe,” “will,” “expect,” “anticipate,” “estimate,”
“plan,” “intend,” “forecast,” or variations of these terms and
similar expressions, or the negative of these terms or similar
expressions. Past performance is not a guarantee of future results
or returns and no representation or warranty is made regarding
future performance. Such forward-looking statements involve known
and unknown risks, uncertainties and other important factors beyond
our control that could cause our actual results, performance or
achievements to be materially different from the expected results,
performance or achievements expressed or implied by such
forward-looking statements. These risks and uncertainties include,
but are not limited to: our ability to manage and maintain the
growth rate of our business; our ability to obtain quality
merchandise in sufficient quantities; disruption in our receiving
and distribution system, including delays in the integration of our
distribution centers and the possibility that we may not realize
the anticipated benefits of multiple distribution centers; the
possibility of cyberattacks and our ability to maintain adequate
cybersecurity systems and procedures; loss, corruption and
misappropriation of data and information relating to clients and
employees; changes in and compliance with applicable data privacy
rules and regulations; risks as a result of constraints in our
supply chain; a failure of our vendors to meet our quality
standards; declines in general economic conditions that affect
consumer confidence and consumer spending that could adversely
affect our revenue; our ability to anticipate changes in consumer
preferences; risks related to maintaining and increasing showroom
traffic and sales; our ability to compete in our market; our
ability to adequately protect our intellectual property; compliance
with applicable governmental regulations; effectively managing our
eCommerce business and digital marketing efforts; our reliance on
third-party transportation carriers and risks associated with
increased freight and transportation costs; and compliance with SEC
rules and regulations as a public reporting company.These factors
should not be construed as exhaustive. Further information on
potential factors that could affect the financial results of the
Company and its forward-looking statements is included in the
Company’s filings with the Securities and Exchange Commission. The
Company assumes no obligation to update any forward-looking
statement, except as may be required by law. These forward-looking
statements speak only as of the date of this release. All
forward-looking statements are qualified in their entirety by this
cautionary statement.
Arhaus, Inc. and SubsidiariesCondensed
Consolidated Balance Sheets(Unaudited, amounts in
thousands, except share and per share data) |
|
|
March 31,2024 |
|
December
31,2023 |
Assets |
|
|
|
|
|
Current
assets |
|
|
Cash and cash equivalents |
$ |
233,230 |
|
|
$ |
223,098 |
|
Restricted cash |
|
3,210 |
|
|
|
3,207 |
|
Accounts
receivable, net |
|
1,805 |
|
|
|
2,394 |
|
Merchandise inventory, net |
|
268,410 |
|
|
|
254,292 |
|
Prepaid
and other current assets |
|
33,122 |
|
|
|
26,304 |
|
Total current assets |
|
539,777 |
|
|
|
509,295 |
|
Operating right-of-use assets |
|
322,905 |
|
|
|
302,157 |
|
Financing right-of-use assets |
|
38,209 |
|
|
|
38,835 |
|
Property, furniture and equipment, net |
|
243,167 |
|
|
|
220,248 |
|
Deferred
tax assets |
|
18,953 |
|
|
|
19,127 |
|
Goodwill |
|
10,961 |
|
|
|
10,961 |
|
Other
noncurrent assets |
|
2,407 |
|
|
|
4,525 |
|
Total assets |
$ |
1,176,379 |
|
|
$ |
1,105,148 |
|
|
|
|
|
|
|
Liabilities and
Stockholders’ Equity |
|
|
Current
liabilities |
|
|
Accounts
payable |
$ |
62,135 |
|
|
$ |
63,699 |
|
Dividends payable |
|
70,628 |
|
|
|
— |
|
Accrued
taxes |
|
13,296 |
|
|
|
9,638 |
|
Accrued
wages |
|
11,156 |
|
|
|
15,185 |
|
Accrued
other expenses |
|
43,195 |
|
|
|
46,062 |
|
Client
deposits |
|
202,922 |
|
|
|
173,808 |
|
Current
portion of operating lease liabilities |
|
42,694 |
|
|
|
33,051 |
|
Current
portion of financing lease liabilities |
|
919 |
|
|
|
904 |
|
Total current liabilities |
|
446,945 |
|
|
|
342,347 |
|
Operating lease liabilities, long-term |
|
383,684 |
|
|
|
362,598 |
|
Financing lease liabilities, long-term |
|
53,658 |
|
|
|
53,870 |
|
Deferred
rent and lease incentives |
|
1,871 |
|
|
|
1,952 |
|
Other
long-term liabilities |
|
4,574 |
|
|
|
4,143 |
|
Total liabilities |
$ |
890,732 |
|
|
$ |
764,910 |
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
Stockholders’ equity |
|
|
Class A
shares, par value $0.001 per share (600,000,000 shares authorized,
53,361,983 shares issued and 53,241,316 outstanding as of March 31,
2024; 53,254,088 shares issued and 53,169,711 outstanding as of
December 31, 2023) |
|
53 |
|
|
|
52 |
|
Class B
shares, par value $0.001 per share (100,000,000 shares authorized,
87,115,600 shares issued and outstanding as of March 31, 2024;
87,115,600 shares issued and outstanding as of December 31,
2023) |
|
87 |
|
|
|
87 |
|
Retained
earnings |
|
89,206 |
|
|
|
145,292 |
|
Additional paid-in capital |
|
196,301 |
|
|
|
194,807 |
|
Total Arhaus, Inc. stockholders’ equity |
$ |
285,647 |
|
|
$ |
340,238 |
|
Total liabilities and stockholders’ equity |
$ |
1,176,379 |
|
|
$ |
1,105,148 |
|
Arhaus, Inc. and SubsidiariesCondensed
Consolidated Statements of Comprehensive Income (Unaudited, amounts
in thousands, except share and per share data) |
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
2024 |
|
|
|
2023 |
|
Net revenue |
$ |
295,162 |
|
|
$ |
304,568 |
|
Cost of
goods sold |
|
180,108 |
|
|
|
176,330 |
|
Gross margin |
|
115,054 |
|
|
|
128,238 |
|
Selling,
general and administrative expenses |
|
96,693 |
|
|
|
82,782 |
|
Income from operations |
|
18,361 |
|
|
|
45,456 |
|
Interest
expense (income), net |
|
(1,432 |
) |
|
|
(173 |
) |
Other
income |
|
(122 |
) |
|
|
(572 |
) |
Income before taxes |
|
19,915 |
|
|
|
46,201 |
|
Income
tax expense |
|
4,816 |
|
|
|
12,102 |
|
Net and comprehensive income |
$ |
15,099 |
|
|
$ |
34,099 |
|
|
|
|
Net and comprehensive income per share, basic |
|
|
Weighted-average number of common shares outstanding, basic |
|
139,816,792 |
|
|
|
139,072,756 |
|
Net and comprehensive income per share, basic |
$ |
0.11 |
|
|
$ |
0.25 |
|
Net and
comprehensive income per share, diluted |
Weighted-average number of common shares outstanding, diluted |
|
140,556,031 |
|
|
|
139,939,543 |
|
Net and comprehensive income per share, diluted |
$ |
0.11 |
|
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
Arhaus, Inc. and SubsidiariesCondensed Consolidated
Statements of Cash Flows(Unaudited, amounts in
thousands) |
|
|
Three months endedMarch 31, |
|
|
2024 |
|
|
2023 |
|
Cash flows from operating activities |
|
|
|
|
|
Net income |
$ |
15,099 |
|
|
$ |
34,099 |
|
Adjustments to reconcile net income to net cash provided by
operating activities |
|
|
Depreciation and amortization |
|
8,603 |
|
|
|
6,740 |
|
Amortization of operating lease right-of-use asset |
|
8,738 |
|
|
|
7,559 |
|
Amortization of deferred financing fees, interest on finance lease
in excess ofprincipal paid and interest on operating leases |
|
6,233 |
|
|
|
4,640 |
|
Equity based compensation |
|
2,024 |
|
|
|
1,630 |
|
Deferred tax assets |
|
174 |
|
|
|
4,599 |
|
Amortization of cloud computing arrangements |
|
310 |
|
|
|
— |
|
Amortization and write-off of lease incentives |
|
(80 |
) |
|
|
(80 |
) |
Insurance proceeds |
|
— |
|
|
|
47 |
|
Changes in operating assets and liabilities |
|
|
Accounts receivable |
|
589 |
|
|
|
(173 |
) |
Merchandise inventory |
|
(14,118 |
) |
|
|
(5,750 |
) |
Prepaid and other assets |
|
(5,758 |
) |
|
|
(1,286 |
) |
Other noncurrent liabilities |
|
18 |
|
|
|
93 |
|
Accounts payable |
|
(4,819 |
) |
|
|
(12,625 |
) |
Accrued expenses |
|
(5,092 |
) |
|
|
(13,346 |
) |
Operating lease liabilities |
|
(4,207 |
) |
|
|
(10,628 |
) |
Client deposits |
|
29,114 |
|
|
|
(4,654 |
) |
Net cash provided by operating activities |
|
36,828 |
|
|
|
10,865 |
|
Cash flows from investing activities |
|
|
Purchases of property, furniture and equipment |
|
(25,932 |
) |
|
|
(11,693 |
) |
Insurance proceeds |
|
— |
|
|
|
333 |
|
Net cash used in investing activities |
|
(25,932 |
) |
|
|
(11,360 |
) |
Cash flows from financing activities |
|
|
Principal payments under finance leases |
|
(221 |
) |
|
|
(65 |
) |
Repurchase of shares for payment of withholding taxes for equity
based compensation |
|
(540 |
) |
|
|
(347 |
) |
Net cash used in financing activities |
|
(761 |
) |
|
|
(412 |
) |
Net increase (decrease) in cash, cash equivalents and restricted
cash |
|
10,135 |
|
|
|
(907 |
) |
Cash, cash equivalents and restricted cash |
|
|
Beginning of period |
|
226,305 |
|
|
|
152,527 |
|
End of
period |
$ |
236,440 |
|
|
$ |
151,620 |
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow
information |
|
|
|
|
|
|
|
Interest
paid in cash |
$ |
840 |
|
|
$ |
1,305 |
|
Interest
received in cash |
|
2,871 |
|
|
|
1,507 |
|
Income
taxes paid in cash |
|
991 |
|
|
|
1,246 |
|
Noncash
investing activities: |
|
|
|
|
|
|
|
Purchase of property, furniture and equipment in current
liabilities |
|
15,250 |
|
|
|
8,025 |
|
Noncash
financing activities: |
|
|
|
|
|
|
|
Capital contributions: |
|
11 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
Arhaus, Inc. and Subsidiaries Reconciliation of Net Income
to Adjusted EBITDA(Unaudited, amounts in
thousands) |
|
|
|
Three months endedMarch 31, |
|
|
2024 |
|
|
|
2023 |
|
Net and
comprehensive income |
$ |
15,099 |
|
|
$ |
34,099 |
|
Interest
expense (income), net |
|
(1,432 |
) |
|
|
(173 |
) |
Income
tax expense |
|
4,816 |
|
|
|
12,102 |
|
Depreciation and amortization |
|
8,603 |
|
|
|
6,740 |
|
EBITDA |
|
27,086 |
|
|
|
52,768 |
|
Equity
based compensation |
|
2,024 |
|
|
|
1,630 |
|
Other
expenses(1) |
|
— |
|
|
|
437 |
|
Adjusted
EBITDA |
$ |
29,110 |
|
|
$ |
54,835 |
|
|
|
|
|
|
|
|
|
Net
revenue |
$ |
295,162 |
|
|
$ |
304,568 |
|
Net and
comprehensive income as a % of net revenue |
|
5.1 |
% |
|
|
11.2 |
% |
Adjusted
EBITDA as a % of net revenue |
|
9.9 |
% |
|
|
18.0 |
% |
|
|
|
|
|
|
|
|
(1) Other expenses
represent costs and investments not indicative of ongoing business
performance, such as public offering costs, severance, signing
bonuses and recruiting costs. For the three months ended March 31,
2023, these expenses consisted largely of $0.3 million of
severance, signing bonuses and recruiting costs and $0.1 million of
public offering costs. |
|
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