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Arhaus Announces First Quarter 2024 Financial Results
Source: Nasdaq GlobeNewswire / 09 May 2024 05:30:10 America/Chicago
BOSTON HEIGHTS, Ohio, May 09, 2024 (GLOBE NEWSWIRE) -- 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 Watson
SVP, Investor Relations
(440) 439-7700 x3409
invest@arhaus.comNon-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 Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, amounts in thousands, except share and per share data)March 31,
2024December 31,
2023Assets 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)
8787 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 Subsidiaries
Condensed 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 Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, amounts in thousands)Three months ended
March 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 of
principal paid and interest on operating leases6,233 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 ended
March 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. 
