Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Arhaus Inc (ARHS, Financial) delivered a net revenue of $310 million, net income of $22 million, and adjusted EBITDA of $40 million in the second quarter.
- The company opened eight new showrooms in six states this year, reaching a milestone of 100 locations, which is expected to drive brand awareness and long-term growth.
- Arhaus Inc (ARHS) continues to see solid growth in new customers and transactions, with orders over $5,000 and $10,000 growing nicely.
- The company is making strategic investments in infrastructure, technology, and processes to support long-term growth, including a new warehouse management system and upcoming planning system.
- Arhaus Inc (ARHS) maintains a strong and debt-free balance sheet, allowing it to continue executing strategic growth plans even during economic softening.
Negative Points
- Demand comparable growth softened to a decline of 3% in the second quarter, with July experiencing a high 10s decline.
- The company lowered its full-year outlook due to recent demand trends and macroeconomic challenges.
- Gross margin decreased to 40.1% due to higher showroom costs, lower product margin from promotional activity, and increased delivery and transportation costs.
- Second quarter SG&A expenses increased by $9 million, driven by higher selling expenses related to new showrooms and increased corporate expenses.
- Arhaus Inc (ARHS) experienced softening demand comps starting in May, with the negative trend accelerating into July, reflecting a pullback by home furnishing consumers.
Q & A Highlights
Q: Can you clarify the revenue headwind from the warehouse management system implementation that went in April?
A: There was a little bit of an impact, which we had talked about on prior calls, just from a timing perspective. So about one week of revenue was shifted into a different time period. - Dawn Phillipson, CFO
Q: Given the investments you're making in stores and systems, what level of revenue growth would be required to hold your EBITDA margins flattish?
A: We firmly believe in continuing to invest in showroom expansion, new product introductions, and marketing campaigns, even in a downcycle. Near-term investments are expected to drive longer-term margin expansion. The incremental flow-through of revenue to adjusted EBITDA is between 30% and 40%. - Dawn Phillipson, CFO
Q: How long do these cycles typically last on the high end, and what categories typically inflect first as we look for signs of improvement?
A: Every cycle is different, and it's hard to predict. We stay focused on executing our plan well, and we come out of these cycles stronger, gaining more market share each time. - John Reed, CEO
Q: How nimble are you with dealing with changing competition in the marketplace, especially if peers start to make changes on price?
A: We watch the competition closely, but we don't compromise on quality. Our product quality and design are unmatched, and we focus on maintaining that standard rather than engaging in price wars. - John Reed, CEO
Q: Can you talk about the progress on internal system investments and the benefits expected from the new system launches?
A: Our warehouse management system launched in April, and we are refining it for operational efficiencies. The planning software will improve demand forecasting and labor efficiencies. The manufacturing ERP will enhance margin visibility and production capabilities. - Dawn Phillipson, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
