Arhaus : 1Q25 Earnings Call Transcript

Published: 2025-05-08 20:08:43 ET ARHS

Published on 05/08/2025 at 20:08

Arhaus, Inc.

First Quarter 2025 Earnings Conference Call May 8, 2025

C O R P O R A T E P A R T I C I P A N T S

C O N F E R E N C E C A L L P A R T I C I P A N T S

P R E S E N T A T I O N

Good morning and welcome to the Arhaus First Quarter 2025 Earnings Conference Call. Please note that this call is being recorded and the reproduction of any part of this call is not permitted without written authorization from the Company.

I will now turn the call over to your host, Tara Atwood, Vice President of Investor Relations. Please go ahead.

Good morning and thank you for joining us for the Arhaus' First Quarter 2025 Earnings Call.

Joining me on today's call are John Reed, our Founder, Chairman and Chief Executive Officer; Jennifer Porter, our Chief Marketing and eCommerce Officer; and Ryan Brody, our Senior Vice President of Finance. After our prepared remarks, we will open the line up for a Q&A session. During Q&A, please limit to one question and one follow-up.

We issued our earnings press release and 10-Q for the quarter ended March 31, 2025 before the market opened today. Those documents are available on our Investor Relations website at ir.arhaus.com. A replay of the call will be available on our website within 24 hours.

I would like to remind everyone that our remarks today concerning future expectations, events, objectives, strategies, trends or results constitute forward-looking statements. Actual results or events may differ materially due to a number of risks and uncertainties. For a summary of these risk factors, and additional information, please refer to this morning's press release and the cautionary statements and risk factors described in our most recent Annual Report on Form 10-K and subsequent 10-Q as such factors may be updated from time to time in our filings with the SEC. The forward-looking statements are made as of today's date and, except as may be required by the law, the Company undertakes no obligation to update or revise these statements.

We will also refer to certain non-GAAP financial measures, and this morning's press release includes the relevant non-GAAP reconciliations.

Now, I will turn the call over to John.

Good morning everyone and thank you for joining us today.

We're pleased with our performance this quarter, delivering first quarter results in line with our expectations, supported by Showroom growth, healthy client engagement across our retail and eCommerce channels, and continued disciplined execution of our operating model.

Net revenue grew a healthy 5.5%, and demand comparable growth was up an impressive 4.1%. We ended the quarter with $214 million in cash and cash equivalents, and remain debt-free. Our strong financial position provides us the flexibility to invest in strategic growth opportunities and create value for shareholders.

With the huge uncertainty shock the last couple of months, we're focused on what we can control -executing with discipline, investing strategically, and growing our Showroom footprint to support long-term, profitable growth. We believe our differentiated model built on artisan-crafted, high-quality design and a premium client experience continues to be a distinct competitive advantage.

Now, let me walk you through seven proof points that give us confidence in the road ahead, starting with our people.

We're building Arhaus for the long term, and that begins with talent. I'm incredibly proud of our deep bench of experienced leaders across the Company, individuals whose creativity, passion, and discipline continue to drive our success. We're also excited to welcome Michael Lee as our new Chief Financial Officer, starting May 12. Mike brings extensive experience and financial leadership that will be instrumental. And across our Showrooms, our team remains our secret sauce. Their expertise and connection with our clients are a key competitive advantage, one that consistently sets Arhaus apart. The strength of our people is reflected in our ability to execute, especially through the agility of our sourcing and supply chain operations.

Which brings me to my second proof point, our supply chain and sourcing agility.

Today, our sourcing footprint is diversified across North America, Europe, and Southeast Asia, enabling us to adapt quickly to global dynamics while upholding the exceptional quality standards that define Arhaus. It's important to emphasize that our diversification strategy has been in place for many years, long before the current headlines, and reflects our commitment to sourcing from a broad range of trusted global vendors. At Arhaus, product development isn't about sourcing diversification as a starting point; it's about going around the world to find the best of the best. That commitment to exceptional craftsmanship, authentic materials and trusted relationships naturally leads to a sourcing model that is diverse, balanced, and resilient.

In April, United States represented approximately 36% of our total receipts, including our internal manufacturing operation. We continue to invest in U.S. manufacturing, particularly in our domestic upholstery business. Over 70% of our upholstery business comes from the United States with the largest portion coming from our own North Carolina facility, supporting proprietary design, cost control, and our premium positioning.

We also recognize the heightened focus on China sourcing amid evolving tariff dynamics. In April, China represented approximately 13% of our total product receipts. We expect this to decline to approximately 5% or less in the third quarter, and we believe we can reach approximately 1% in the fourth quarter. Our sourcing evolution underscores the agility of our operating model and the successful execution of our teams.

Of course, the strength of our supply chain wouldn't be possible without our vendor relationships, my third proof point. These relationships enable us to maximize agility, minimize financial risk, and move with speed and confidence during times of uncertainty. They are not simply transactional; they are built on mutual trust, shared values, and a long-standing commitment to delivering exceptional quality.

My deep-rooted passion for sourcing keeps me closely connected to this work, from scouring hidden gem, artisan markets to building direct relationships with vendors and artisans around the world. Over the past month, I've had the opportunity to meet face-to-face with many of our global vendors alongside members of our leadership team. These visits reaffirm what we've long known: when it matters most, our vendors show up as an extension of our team. Our success is mutually beneficial, and many vendors and artisans have scaled with us, in some cases for decades. Whether it's helping to offset cost pressures, prioritizing resources and production, or adapting quickly to a dynamic environment, our vendors consistently help us navigate. Together with our vendors, we continue to deliver exceptional value without ever compromising the quality our clients expect and love.

Which brings me to my fourth proof point, our resilient, high-end client base. We believe we are meaningfully overindexed to an affluent consumer who has historically been less reactive to macro volatility. Importantly, this client has consistently been the last to pull back and the first to return when conditions stabilize. And while stock market volatility may be weighing on consumer sentiment more broadly, overall demand was healthy in the first quarter. Our clients remain deeply invested in their homes and consistently prioritize quality, craftsmanship, and long-term value in their purchase decisions.

Proof point five: consistent strategic execution. We remain focused on executing our long-term strategy by continuing to invest in what matters most: best-in-class product quality, thoughtful innovation, and newness that resonates with our clients. We're expanding our physical footprint while deepening client engagement through a multi-touchpoint model, including our catalogs, which remain among our most powerful storytelling tools.

At the same time, we're making strategic investments in technology and eCommerce to further elevate the client experience and strengthen our omnichannel capabilities. This disciplined execution is a key reason we gained market share and recovered faster than many peers coming out of the pandemic, and why we remain confident in our approach going forward.

Proof point number six: Showroom growth and investment. In 2024, we opened 11 new Showrooms which are performing well, while relocations enhance brand visibility and deepened client engagement. Looking ahead, we have 28 total Showroom projects in the pipeline through the end of 2027, with even more opportunities likely. This momentum reflects our disciplined focus on scaling thoughtfully, elevating the Showroom experience, expanding market share, and supporting long-term revenue growth.

Underpinning all of this is my seventh and final proof point, our financial strength. We continue to operate from a position of discipline: debt-free with ample liquidity and a healthy balance sheet. We believe this strong financial foundation allows us to invest confidently in long-term growth, navigate near-term uncertainty, and deliver long-term value for our shareholders.

In short, Arhaus is well-positioned for the future, powered by the strength of our brand, the passion of our people, and the disciplined execution of our strategy.

Now let's take a closer look at our performance in the quarter, beginning with our Showrooms. In the first quarter, we completed five total Showroom projects: one new Traditional Showroom and four strategic relocations. The highlights include Winter Park, Florida, a new Traditional Showroom opened in Winter Park Village, in an upscale lifestyle center; Sarasota, Florida, a relocated Showroom opened in Center Point at Waterside, a key Florida market; and, Burlingame, California. We relocated a Showroom in downtown Burlingame tailored to the local clientele.

Looking ahead, I am pleased to share that we are raising our outlook on this front and now expect to complete approximately 12 to 15 total Showroom projects in 2025. This includes four to six new Showrooms, up from the prior three to five, and eight to nine strategic relocation, remodels, and expansions. Our long-term remains an average of five to seven new Traditional Showrooms annually. Importantly, our timing is driven by readiness, not just the calendar. We open locations when we believe they are prepared to deliver the experience our clients expect.

We encourage you to view our footprint growth through the lens of total Showroom project activity where every project, whether a new opening, relocation, remodel, or expansion is evaluated through the same disciplined return-on-investment approach.

Our Showroom strategy is clear: target premier locations with strong foot traffic, complementary co-tenancies, and opportunities to enhance brand visibility and grow market share. Every decision is made with a focus on sustainable high-quality growth, and attractive expected returns on our investment.

Turning to our product, design is the core to who we are. This season, clients are responding to warmer products, softer silhouettes, eclectic use of color and pattern. Highlights include our outdoor collection featuring premium teak, all-weather wicker, and our first Italian upholstered collection. Upholstery remains a hallmark, handcrafted by skilled artisans. Across collections, rich textures, warm woods, and unexpected materials create a fresh yet familiar look and feel. Looking ahead to 2025, we'll continue to innovate in materials, silhouettes, and personalization, keeping us at the forefront of design, comfort, and quality.

Turning to demand, as I shared earlier, we delivered impressive demand comparable growth of 4.1% in the first quarter. However, demand comparable growth was not linear through the quarter with strong performance in January, up approximately 10%, and March, up approximately 7%, partially offset by softer

Disclaimer

Arhaus Inc. published this content on May 08, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 08, 2025 at 22:39 UTC.