Arhaus Inc (ARHS) Q3 2024 Earnings Call Highlights: Navigating Challenges with Strategic Growth ...

GuruFocus.com11-08

Net Revenue: $319 million for the third quarter. Net Income: $10 million in the third quarter. Adjusted EBITDA: $23 million in the third quarter. Gross Margin: 38.6% of net revenue. Comparable Growth:...

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GuruFocus has detected 3 Warning Signs with VRNOF.\n\nRelease Date: November 07, 2024\nFor the complete transcript of the earnings call, please refer to the full earnings call transcript.\n Positive Points \n\nArhaus Inc (NASDAQ:ARHS) launched compelling new product collections, including the Astor Collection, which has been well-received for its design and craftsmanship.\nThe company set a new record for total demand in September, marking it as the biggest demand month in Arhaus history.\nArhaus Inc (NASDAQ:ARHS) is on track to meet the high end of its 2024 showroom opening goals, with 10 new showrooms opened this year and plans for further expansion.\nThe company is making strategic investments in infrastructure and technology, including a new warehouse management system and planning system, to support long-term growth.\nArhaus Inc (NASDAQ:ARHS) maintains a debt-free balance sheet, providing a competitive advantage and allowing for responsible investments in growth opportunities.\n\n Negative Points \n\nArhaus Inc (NASDAQ:ARHS) experienced a decline in demand, with a comparable growth decline of 11.3% in the third quarter.\nThe company lowered its full-year sales and earnings outlook due to a continued tempered consumer environment.\nGross margin decreased to 38.6% due to higher showroom costs, delivery and transportation costs, and deleverage on lower net revenue.\nThird-quarter net income decreased to $10 million, with adjusted EBITDA falling to $23 million from $34 million in the previous year.\nThe company anticipates a low-double-digit demand comp decline for the fourth quarter, reflecting ongoing macroeconomic pressures.\n\n Q & A Highlights \nQ: How are the new showroom cohorts from 2022, 2023, and 2024 performing relative to internal performance models, and how does this impact 2025 real estate plans? A: John Reed, CEO, stated that the new stores have opened solidly, with some exceeding expectations. The company is sticking with its plan and is working on new real estate opportunities while also relocating existing stores to better locations. An example is the Fairfax, Virginia store, which is moving to a larger, more attractive location.\nQ: Can you clarify the strategic investment spend for next year? Is it incremental to the $10 million spent in 2024? A: Dawn Phillipson, CFO, clarified that the total strategic investment spend for next year will be $15 million to $20 million, not incremental to the $10 million spent in 2024. This is a comprehensive number for modeling purposes.\nQ: Can you provide more details on the timing and components of the systems changes planned for FY25 into FY26? A: Dawn Phillipson, CFO, explained that the planning software and manufacturing ERP are expected to launch in the first half of next year. The financial platform and order management system will be initiated next year but not deployed. The total spend for these systems is included in the $15 million to $20 million budget for next year.\nQ: How did demand trends evolve throughout Q3, and what metrics are you tracking? A: Dawn Phillipson, CFO, noted that while comp traffic and transactions were down, the average order value and units per transaction increased. Orders over $5,000 and $10,000 declined year-over-year but increased in penetration relative to total orders, indicating a slower rate of deceleration among higher-value customers.\nQ: How is Arhaus addressing potential tariff increases and what is the current sourcing exposure to China? A: John Reed, CEO, stated that Arhaus has been moving production out of China for years, with significant manufacturing now in the U.S., Mexico, Vietnam, and Cambodia. The company is well-prepared for potential tariff increases, with a strategy to adjust pricing and work with partners to mitigate impacts.\nFor the complete transcript of the earnings call, please refer to the full earnings call transcript.This article first appeared on \nGuruFocus.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2481148654"}