Core Viewpoint - Arhaus, Inc. (ARHS) is anticipated to report a year-over-year decline in earnings due to lower revenues, with the earnings report expected on March 7, 2024, potentially impacting stock price based on actual results compared to estimates [1][2]. Group 1: Earnings Estimates - The consensus estimate for quarterly earnings is $0.17 per share, reflecting a 50% decrease year-over-year [2]. - Revenues are projected to be $336.73 million, which is a 5.5% decline from the same quarter last year [2]. Group 2: Estimate Revisions - The consensus EPS estimate has remained unchanged over the last 30 days, indicating stability in analysts' assessments [3]. - The Most Accurate Estimate for Arhaus is higher than the Zacks Consensus Estimate, resulting in an Earnings ESP of +8.62%, suggesting a bullish outlook from analysts [6]. Group 3: Earnings Surprise Prediction - A positive Earnings ESP is a strong indicator of an earnings beat, especially when combined with a Zacks Rank of 1, 2, or 3 [5]. - Arhaus has a Zacks Rank of 3, indicating a likelihood of beating the consensus EPS estimate [6]. Group 4: Historical Performance - In the last reported quarter, Arhaus was expected to post earnings of $0.11 per share but exceeded expectations with earnings of $0.14, resulting in a surprise of +27.27% [7]. - The company has successfully beaten consensus EPS estimates in the last four quarters [7]. Group 5: Market Reaction Considerations - An earnings beat or miss may not solely dictate stock movement, as other factors can influence investor sentiment [8]. - Despite the potential for an earnings beat, it is essential to consider additional factors before making investment decisions regarding Arhaus [8].

Group 1 - Arhaus, Inc. has a strong track record of exceeding earnings estimates, with an average surprise of 19.41% over the last two quarters [1] - In the most recent quarter, Arhaus reported earnings of $0.14 per share, surpassing the expected $0.11 per share by 27.27% [1] - For the previous quarter, the company reported $0.29 per share against an estimate of $0.26 per share, resulting in a surprise of 11.54% [1] Group 2 - Earnings estimates for Arhaus have been trending higher, supported by its history of earnings surprises [2] - The stock has a positive Zacks Earnings ESP of +8.62%, indicating recent bullish sentiment among analysts regarding the company's earnings prospects [3] - The combination of a positive Earnings ESP and a Zacks Rank of 3 (Hold) suggests a high likelihood of another earnings beat [3] Group 3 - The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate, reflecting the latest analyst revisions [3] - A negative Earnings ESP does not necessarily indicate an earnings miss, as many companies can still beat consensus estimates [4] - Utilizing the Earnings ESP metric can enhance the chances of identifying successful investment opportunities prior to earnings releases [4]

Industry Overview - The Retail – Miscellaneous industry is at a critical point as stimulus-driven spending decreases and interest rates remain high, leading consumers to adopt more cautious spending habits [1][3] - The industry includes a variety of retailers, such as those selling sporting goods, beauty products, and specialty items, with profitability reliant on effective pricing, supply chain management, and merchandising strategies [2] Key Industry Trends - The industry faces challenges due to a cautious consumer environment influenced by high inflation, elevated interest rates, and geopolitical tensions, which are altering purchasing patterns [3] - Companies are under pressure to maintain margins as they compete on price, product quality, and speed to market, leading to increased costs in digital investments and operational expenses [4] - There is a focus on expanding product portfolios and market reach through enhanced online experiences, reward programs, and innovative product offerings, particularly in personal care and fitness-related items [5] Digitization and Growth Strategies - Industry participants are investing in digital platforms and optimizing supply chains to adapt to changing consumer shopping behaviors, including curbside pickup and contactless payment solutions [6] - Renovations and improvements in store experiences are being prioritized to keep physical locations relevant in a digital-first shopping environment [6] Market Performance - The Zacks Retail – Miscellaneous industry is currently ranked 197, placing it in the bottom 22% of over 250 Zacks industries, indicating a negative earnings outlook [7][8] - The industry has underperformed compared to the broader Retail – Wholesale sector and the S&P 500, declining 7.3% over the past year, while the S&P 500 rose 20.3% [9] Valuation Metrics - The industry is trading at a forward 12-month price-to-earnings (P/E) ratio of 16.2X, lower than the S&P 500's 20.31X and the sector's 22.4X, with historical trading ranges between 11.14X and 23.93X over the past five years [10] Company Highlights - **Sally Beauty**: Focused on customer engagement and innovative concepts, with a trailing four-quarter earnings surprise of 2.1% and a projected EPS growth of 2.7% [11] - **Ulta Beauty**: Strengthening its omnichannel business and enhancing customer experience, with a trailing four-quarter earnings surprise of 5.8% and projected revenue growth of 9.9% [12] - **Five Below**: Improving product selection and digital capabilities, with a trailing four-quarter earnings surprise of 5.7% and projected revenue growth of 16% [14] - **Arhaus**: Benefiting from strong demand and successful product launches, with a trailing four-quarter earnings surprise of 33.5% and projected revenue growth of 4.2% [15]

BOSTON HEIGHTS, Ohio, Jan. 15, 2024 (GLOBE NEWSWIRE) -- Arhaus (NASDAQ:ARHS), a rapidly growing lifestyle brand and omni-channel retailer of premium artisan-crafted home furnishings, will release its fourth quarter and full year 2023 financial results before market open on Thursday, March 7, 2024. The Company will host a conference call at 8:30 a.m. Eastern Time the same day to review its financial and operational results and answer questions from the investment community. Investors will be able to access t ...

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Financial Data and Key Metrics Changes - The company reported net revenue of $326 million, an increase of $6 million or 1.9% year-over-year, with a comparable decline of 2.1% versus Q3 last year when comp growth was 54.3% [12][14] - Demand comparable growth was 11.7% on a one-year basis and 99.5% on a four-year stack basis [12] - Gross margin decreased by 4% to $131 million, with gross margin as a percentage of net revenue down 250 basis points to 40% [12][13] - Third quarter net income decreased by 47% to $20 million, and adjusted EBITDA decreased by 41% to $34 million from $57 million in Q3 2022 [13] Business Line Data and Key Metrics Changes - The company experienced strong demand across all regions, products, and channels, with a notable performance in e-commerce, which was up 26% [7][58] - The retail side of the business saw a decline of 2.7% [58] - The company is focusing on growing its trade business and enhancing in-home delivery experiences [8][76] Market Data and Key Metrics Changes - The company is expanding its showroom footprint, with plans to open six to eight new traditional showrooms and two to three new outlet locations in 2024 [10][11] - The company has opened eight new showrooms year-to-date and plans to open three additional showrooms in California by December [9] Company Strategy and Development Direction - The company aims to expand its collection of globally inspired heirloom quality artisan-crafted furniture and grow its showroom footprint [11] - The company is investing in enhancing the final mile delivery experience and increasing the number of in-home designers [8][76] - The company is also focusing on the trade business, which has shown significant growth potential [76] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's strategy and the ability to clear the abnormal backlog by the end of the year, leading to a normalized backlog in 2024 [21][67] - The company is being conservative in its fourth-quarter guidance due to macroeconomic uncertainties and the timing of promotions [70] - Management noted that brand awareness is growing, driven by new showroom openings and positive customer experiences [39][41] Other Important Information - The company made a significant donation of $10 million to the Nature Conservancy, which impacted the SG&A expenses [13] - Management indicated that the donation was a one-time opportunity and there are no current plans for similar donations in 2024 [82] Q&A Session Summary Question: Demand trends and backlog flow-through - Management expects to clear the abnormal backlog by the end of the year, with a higher normalized backlog rolling into next year [17][21] Question: Performance of new stores - New stores are performing well, meeting or exceeding expectations, particularly in larger markets [22][23] Question: Pricing actions and gross margin pressures - The company has seen sales increase on certain collections due to pricing actions, but there has been some gross margin compression as a result [26][28] Question: E-commerce performance - E-commerce has shown strong growth, with clients responding well to price actions and full-price products [58][60] Question: Future showroom openings and cash management - The company is focused on reinvesting cash into growth opportunities, including showroom expansions and trade programs [56] Question: Sustainability initiatives - The recent donation to the Nature Conservancy was a one-time event, with no current plans for similar initiatives in 2024 [82]

Table of Contents Title of each class Trading Symbol(s) Name of each exchange on which registered Class A common stock, $0.001 par value per shareARHSThe Nasdaq Global Select Market UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For ...

Financial Data and Key Metrics Changes - The company reported net revenue of $313 million, an increase of $7 million or 2.2% year-over-year, with a demand comp growth of 11.6% on a one-year basis and 102.3% on a four-year stacked basis [17][6][19] - Net income increased by 10% to $40 million, and adjusted EBITDA rose by 5% to $64 million, resulting in a 20% adjusted EBITDA margin, an increase of 70 basis points year-over-year [19][6][8] Business Line Data and Key Metrics Changes - The company experienced strength across all categories and regions, with a strong start to Q3, showing demand comp growth in July up high single digits [6][8] - The average order value from the in-home designer program is four times the company average order value, indicating a successful initiative in this area [10] Market Data and Key Metrics Changes - The company opened five new showrooms in 2023 and plans to open six additional traditional format showrooms by the end of the year, indicating a strong expansion strategy [9][21] - The company is focused on the premium home furniture market, which is highly fragmented and valued at $100 billion, positioning itself to capture market share [21] Company Strategy and Development Direction - The company is committed to sustainable practices, announcing a $10 million donation to the Nature Conservancy to support environmental efforts [11][12] - The company aims to continue its strategic growth plan by enhancing its showroom footprint and investing in systems to improve operational efficiency [9][21] Management's Comments on Operating Environment and Future Outlook - Management noted that some factors affecting revenue in Q2 will continue into the second half of the year, but stronger-than-anticipated demand growth is expected to offset these impacts [8][20] - The company anticipates adjusted EBITDA margin to decrease by approximately 750 to 850 basis points in the second half of 2023 compared to the same period in 2022 due to various investments and increased costs [20][21] Other Important Information - The company is implementing a new warehouse management system to enhance operational efficiency and is focused on optimizing product assortment [7][26] - The management team is confident in their ability to capitalize on significant opportunities ahead, driven by a strong product assortment and omni-channel experience [13][21] Q&A Session Summary Question: Real estate plans for 2024 and new product pipeline - The company plans to open five to seven new stores in 2024, with a strong mix of special orders in the upholstery business [24][25] Question: Guidance framework for the second half - Management expects the primary purchase drivers related to housing to remain consistent, with no significant changes anticipated [29] Question: Pricing adjustments and competitive landscape - The company is passing along lower supply chain costs to customers selectively, maintaining margins while remaining competitive [31][32] Question: Timing of deliveries and brand impact - Management believes that delays in delivery do not significantly impact brand perception, as customers are willing to wait for unique, high-quality products [36][37] Question: New showroom productivity expectations - The company targets a minimum revenue of $10 million and an adjusted EBITDA contribution of 32% for new traditional showrooms [39] Question: Second half outlook on gross margin and SG&A - Management indicated that while gross margin may be under pressure, investments in new showrooms and systems are expected to drive long-term growth [41][42] Question: Impact of pricing adjustments on gross margin - The company is confident that the pricing adjustments will not negatively impact gross margins in the long term, as they are strategically managing inventory and costs [60][61]

[Part I - Financial Information](index=4&type=section&id=Part%20I%20-%20Financial%20Information) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition [Item 1. Financial Statements of Arhaus, Inc. and Subsidiaries](index=4&type=section&id=Item%201.%20Financial%20Statements%20of%20Arhaus%2C%20Inc.%20and%20Subsidiaries) Presents unaudited condensed consolidated financial statements, including balance sheets, income, equity, and cash flow statements, with detailed notes [Condensed Consolidated Balance Sheets (unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(unaudited)) Provides a snapshot of the company's assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheets (amounts in thousands) | Item | June 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------ | :------------------ | | **Assets** | | | | Total current assets | $521,047 | $478,051 | | Total assets | $1,045,279 | $931,792 | | **Liabilities and Stockholders' Equity** | | | | Total current liabilities | $344,627 | $373,783 | | Total liabilities | $757,715 | $722,097 | | Total Arhaus, Inc. stockholders' equity | $287,564 | $209,695 | - Total assets increased by **$113.5 million (12.2%)** from December 31, 2022, to June 30, 2023, primarily driven by increases in cash and cash equivalents, merchandise inventory, and operating right-of-use assets[7](index=7&type=chunk) - Total stockholders' equity increased by **$77.9 million (37.2%)** from December 31, 2022, to June 30, 2023, mainly due to an increase in retained earnings[7](index=7&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(unaudited)) Details the company's financial performance, including net revenue, gross margin, and net income over specific periods Condensed Consolidated Statements of Comprehensive Income (amounts in thousands, except per share data) | Item | Six months ended June 30, 2023 | Six months ended June 30, 2022 | Three months ended June 30, 2023 | Three months ended June 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | :------------------------------- | :------------------------------- | | Net revenue | $617,467 | $552,565 | $312,899 | $306,265 | | Gross margin | $268,358 | $230,743 | $140,120 | $133,026 | | Income from operations | $99,445 | $73,121 | $53,989 | $50,252 | | Net and comprehensive income | $74,282 | $52,697 | $40,183 | $36,639 | | Net and comprehensive income per share, basic | $0.53 | $0.38 | $0.29 | $0.27 | | Net and comprehensive income per share, diluted | $0.53 | $0.38 | $0.29 | $0.26 | - Net revenue increased by **11.7%** for the six months ended June 30, 2023, and by **2.2%** for the three months ended June 30, 2023, compared to the respective prior periods[9](index=9&type=chunk) - Net and comprehensive income increased by **40.9%** for the six months ended June 30, 2023, and by **9.7%** for the three months ended June 30, 2023, year-over-year[9](index=9&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Equity (unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity%20(unaudited)) Outlines changes in the company's equity, reflecting net income, equity-based compensation, and other adjustments Condensed Consolidated Statements of Changes in Stockholders' Equity (amounts in thousands) | Item | Balances as of Dec 31, 2022 | Six Months Ended June 30, 2023 | | :----------------------------------- | :-------------------------- | :----------------------------- | | Total Stockholders' Equity | $209,695 | $287,564 | | Net income | — | $74,282 | | Equity based compensation | — | $3,904 | | Shares withheld for taxes | — | $(347) | | Item | Balances as of March 31, 2023 | Three Months Ended June 30, 2023 | | :----------------------------------- | :---------------------------- | :------------------------------- | | Total Stockholders' Equity | $245,094 | $287,564 | | Net income | — | $40,183 | | Equity based compensation | — | $2,274 | - Total stockholders' equity increased from **$209.7 million** at December 31, 2022, to **$287.6 million** at June 30, 2023, primarily due to net income of **$74.3 million** and equity-based compensation[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows (unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(unaudited)) Summarizes cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (amounts in thousands) | Activity | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $61,795 | $41,110 | | Net cash used in investing activities | $(32,482) | $(20,355) | | Net cash used in financing activities | $(477) | $(50) | | Net increase in cash, cash equivalents and restricted cash equivalents | $28,836 | $20,705 | | Cash, cash equivalents and restricted cash equivalents, end of period | $181,363 | $151,613 | - Net cash provided by operating activities increased by **$20.7 million (50.3%)** for the six months ended June 30, 2023, compared to the same period in 2022[21](index=21&type=chunk) - Net cash used in investing activities increased by **$12.1 million (59.6%)** for the six months ended June 30, 2023, primarily due to increased purchases of property, furniture, and equipment[21](index=21&type=chunk) [Notes to Condensed Consolidated Financial Statements (unaudited)](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) Provides detailed explanations of the company's accounting policies, financial line items, and other relevant disclosures [Note 1. Nature of Business and Basis of Presentation](index=9&type=section&id=1.%20Nature%20of%20Business%20and%20Basis%20of%20Presentation) Arhaus, Inc. is a premium home furnishings retailer, with financial statements prepared under U.S. GAAP, including key accounting estimates and revenue recognition policies - Arhaus, Inc. operates as a premium retailer in the home furnishings market, with **85 Showrooms** as of June 30, 2023, and an e-commerce platform[24](index=24&type=chunk) - Gift card liability decreased from **$1.0 million** at December 31, 2022, to **$0.4 million** at June 30, 2023, with breakage income for the six and three months ended June 30, 2023, being **$0.7 million**[32](index=32&type=chunk) - The Company earned **$3.3 million** and **$1.8 million** in interest income for the six and three months ended June 30, 2023, respectively, from money market funds and other Level 1 cash and cash equivalent investments[35](index=35&type=chunk) [Note 2. Recently Issued Accounting Standards](index=10&type=section&id=2.%20Recently%20Issued%20Accounting%20Standards) Details the adoption status of new accounting standards, noting no material impact from recent updates or future adoptions - No material impact from new accounting standards adopted in fiscal 2023[36](index=36&type=chunk) - ASU 2023-01 (Leases: Common Control Arrangements) will be adopted on January 1, 2024, and is not expected to have a material impact[37](index=37&type=chunk)[38](index=38&type=chunk) [Note 3. Merchandise Warranties](index=11&type=section&id=3.%20Merchandise%20Warranties) Explains the company's merchandise warranty policy and reconciles the estimated liability for product warranties over time Merchandise Warranty Liability Reconciliation (amounts in thousands) | Item | Six months ended June 30, 2023 | Six months ended June 30, 2022 | Three months ended June 30, 2023 | Three months ended June 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | :------------------------------- | :------------------------------- | | Balance as of beginning of period | $6,375 | $4,724 | $6,465 | $4,963 | | Accruals during the period | $6,749 | $5,104 | $3,368 | $2,908 | | Settlements during the period | $(6,546) | $(4,416) | $(3,255) | $(2,459) | | Balance as of end of the period | $6,578 | $5,412 | $6,578 | $5,412 | - Merchandise warranty liability increased to **$6.6 million** at June 30, 2023, from **$6.4 million** at the beginning of the period[40](index=40&type=chunk) [Note 4. Long-Term Debt](index=11&type=section&id=4.%20Long-Term%20Debt) Describes the company's revolving credit facility, its terms, and compliance with debt covenants, noting no outstanding borrowings - The 2021 Credit Facility was amended in December 2022, increasing the revolving credit commitment to **$75.0 million**[42](index=42&type=chunk) - As of June 30, 2023, the Company had **no borrowings** on the 2021 Credit Facility and was in compliance with all debt covenants[42](index=42&type=chunk)[43](index=43&type=chunk) - Deferred financing costs related to the credit facility were **$0.4 million**, amortized over the term[42](index=42&type=chunk) [Note 5. Leases](index=12&type=section&id=5.%20Leases) Outlines the company's operating and finance lease arrangements, including related party leases, total lease costs, and future lease liabilities Lease Assets and Liabilities (amounts in thousands) | Item | June 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------ | :------------------ | | Total leased assets | $349,190 | $290,577 | | Total operating lease liabilities | $394,381 | $329,615 | | Total finance lease liabilities | $54,797 | $52,366 | Total Lease Costs (amounts in thousands) | Period | 2023 | 2022 | | :----------------------------------- | :--- | :--- | | Six months ended June 30, | $48,132 | $40,474 | | Three months ended June 30, | $24,058 | $21,287 | Weighted Average Lease Terms and Discount Rates | Item | June 30, 2023 | June 30, 2022 | | :----------------------------------- | :------------ | :------------ | | Operating leases (remaining term in years) | 9.42 | 8.74 | | Finance leases (remaining term in years) | 21.24 | 22.87 | | Operating leases (discount rate) | 5.82% | 4.32% | | Finance leases (discount rate) | 9.63% | 9.72% | Future Lease Liabilities at June 30, 2023 (amounts in thousands) | Year Ending December 31, | Operating Lease Liabilities | Finance Lease Liabilities | Total Lease Liabilities | | :----------------------- | :-------------------------- | :------------------------ | :---------------------- | | Remainder of 2023 | $29,778 | $2,873 | $32,651 | | 2024 | $63,255 | $5,758 | $69,013 | | 2025 | $57,966 | $5,758 | $63,724 | | 2026 | $54,852 | $6,217 | $61,069 | | 2027 | $51,037 | $6,028 | $57,065 | | 2028 | $45,828 | $5,527 | $51,355 | | Thereafter | $221,991 | $109,943 | $331,934 | | Total lease payments | $524,707 | $142,104 | $666,811 | | Less: Amounts representing interest | $(130,326) | $(87,307) | $(217,633) | | Total | $394,381 | $54,797 | $449,178 | [Note 6. Equity Based Compensation](index=14&type=section&id=6.%20Equity%20Based%20Compensation) Details the company's equity incentive plan, compensation expenses for various awards, and unrecognized compensation balances Restricted Stock Activity (six months ended June 30, 2023) | Item | Amount | | :----------------------------------- | :------------- | | Unvested at December 31, 2022 | 1,510,269 | | Vested | (932,852) | | Unvested at June 30, 2023 | 577,417 | Equity Based Compensation Expense (amounts in thousands) | Item | Six months ended June 30, 2023 | Six months ended June 30, 2022 | Three months ended June 30, 2023 | Three months ended June 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | :------------------------------- | :------------------------------- | | Restricted Stock | $1,360 | $1,389 | $662 | $692 | | PSUs | $1,245 | $0 | $812 | $0 | | RSUs | $1,299 | $0 | $800 | $0 | - Total unrecognized equity-based compensation for Restricted Stock is **$7.5 million** (weighted average period of **2.89 years**), for PSUs is **$5.3 million** (**1.93 years**), and for RSUs is **$6.2 million** (**2.27 years**) as of June 30, 2023[59](index=59&type=chunk)[65](index=65&type=chunk) [Note 7. Segment Reporting](index=17&type=section&id=7.%20Segment%20Reporting) Confirms Arhaus operates as a single reportable segment, providing net revenue breakdown by merchandise sales channel - The Company operates as **one operating segment**, offering furniture, outdoor, lighting, textiles, and décor[66](index=66&type=chunk) Net Revenue by Merchandise Sales Channel (amounts in thousands) | Channel | Six months ended June 30, 2023 | Six months ended June 30, 2022 | Three months ended June 30, 2023 | Three months ended June 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | :------------------------------- | :------------------------------- | | Retail | $506,838 | $458,965 | $256,736 | $256,395 | | eCommerce | $110,629 | $93,600 | $56,163 | $49,870 | | Total net revenue | $617,467 | $552,565 | $312,899 | $306,265 | [Note 8. Net and Comprehensive Income per Share](index=17&type=section&id=8.%20Net%20and%20Comprehensive%20Income%20per%20Share) Explains the calculation of basic and diluted net and comprehensive income per share, including factors affecting share counts Net and Comprehensive Income Per Share (amounts in thousands except share and per share data) | Item | Six months ended June 30, 2023 | Six months ended June 30, 2022 | Three months ended June 30, 2023 | Three months ended June 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | :------------------------------- | :------------------------------- | | Net and comprehensive income | $74,282 | $52,697 | $40,183 | $36,639 | | Weighted-average common shares outstanding, basic | 139,232,238 | 137,662,601 | 139,389,967 | 137,840,691 | | Weighted-average common shares outstanding, diluted | 139,959,943 | 139,394,055 | 139,979,928 | 139,454,109 | | Net and comprehensive income per share, basic | $0.53 | $0.38 | $0.29 | $0.27 | | Net and comprehensive income per share, diluted | $0.53 | $0.38 | $0.29 | $0.26 | - **710,490** and **773,662** shares of unvested restricted stock and RSUs were excluded from diluted EPS computation for the six and three months ended June 30, 2023, respectively, due to their anti-dilutive effect[71](index=71&type=chunk) [Note 9. Commitments and Contingencies](index=18&type=section&id=9.%20Commitments%20and%20Contingencies) Addresses the company's involvement in legal proceedings and tax inquiries, assessing their potential financial impact - Management believes current litigation and claims will not have a material adverse effect on the Company's financial position, results of operations, or cash flows[72](index=72&type=chunk) - Liabilities for non-income tax matters were **$0.3 million** at June 30, 2023, and **$0.4 million** at December 31, 2022[73](index=73&type=chunk) [Note 10. Related Party Transactions](index=18&type=section&id=10.%20Related%20Party%20Transactions) Details lease agreements and accounts payable with entities where the CEO and a Director have ownership interests - Lease agreement for Walton Hills warehouse with Pagoda Partners, LLC (CEO indirectly owns 50%) extended to April 2034; rent expense was **$0.7 million** for six months ended June 30, 2023[74](index=74&type=chunk) - Lease agreement for Brooklyn Outlet with Brooklyn Arhaus (CEO and Director own 85% and 15%) has monthly payments of **$20 thousand**; rent expense was **$0.2 million** for six months ended June 30, 2023[75](index=75&type=chunk) - Lease agreement for distribution center and manufacturing building with Premier Conover, LLC (CEO indirectly owns 40%) has monthly payments ranging from **$0.2 million to $0.3 million**; rent expense was **$2.0 million** for six months ended June 30, 2023[76](index=76&type=chunk) - Accounts payable due to related parties for state and federal income tax refunds were **$1.8 million** at June 30, 2023, and December 31, 2022[77](index=77&type=chunk) [Note 11. Income Taxes](index=19&type=section&id=11.%20Income%20Taxes) Presents income tax expense and effective tax rates for the reported periods, noting no unrecognized tax benefits Income Tax Expense and Effective Tax Rate (amounts in millions) | Period | Income Tax Expense | Effective Tax Rate | | :----------------------------------- | :----------------- | :----------------- | | Six months ended June 30, 2023 | $26.5 | 26.3% | | Six months ended June 30, 2022 | $18.3 | 25.8% | | Three months ended June 30, 2023 | $14.4 | 26.3% | | Three months ended June 30, 2022 | $12.4 | 25.3% | - No unrecognized tax benefits have been recognized as of June 30, 2023[80](index=80&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides management's perspective on financial condition, results of operations, liquidity, capital resources, and critical accounting policies [Overview](index=20&type=section&id=Overview) Arhaus is a rapidly growing premium home furnishings retailer with an omni-channel model, achieving significant net revenue and income - Arhaus is a rapidly growing lifestyle brand and premium retailer in the U.S. home furnishings market, specializing in livable luxury and globally-sourced, heirloom-quality merchandise[85](index=85&type=chunk)[86](index=86&type=chunk) - The Company operated **85 Showrooms** at June 30, 2023, up from **81** at December 31, 2022, with **71** offering in-home interior designers[87](index=87&type=chunk)[92](index=92&type=chunk) Key Financial Highlights (amounts in millions) | Period | Net Revenue | Gross Margin | Net and Comprehensive Income | | :----------------------------------- | :---------- | :----------- | :--------------------------- | | Six months ended June 30, 2023 | $617.5 | $268.4 | $74.3 | | Three months ended June 30, 2023 | $312.9 | $140.1 | $40.2 | [How We Assess the Performance of Our Business](index=21&type=section&id=How%20We%20Assess%20the%20Performance%20of%20Our%20Business) Explains key GAAP and non-GAAP financial measures used to evaluate business performance, including Net Revenue, Demand, Comparable Growth, and Adjusted EBITDA - Demand is an operating metric measuring the dollar value of client orders placed, net of cancellations and returns, which eventually becomes net revenue[90](index=90&type=chunk) - Comparable growth measures year-over-year percentage change of delivered orders from comparable Showrooms (open for at least 15 consecutive months) and eCommerce[91](index=91&type=chunk) - Adjusted EBITDA is defined as consolidated net income before depreciation and amortization, interest expense (income), net, income tax expense, equity-based compensation, and other expenses (e.g., consulting, project start-up costs, severance)[98](index=98&type=chunk)[101](index=101&type=chunk) Reconciliation of Net and Comprehensive Income to EBITDA and Adjusted EBITDA (amounts in thousands) | Item | Six months ended June 30, 2023 | Six months ended June 30, 2022 | Three months ended June 30, 2023 | Three months ended June 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | :------------------------------- | :------------------------------- | | Net income | $74,282 | $52,697 | $40,183 | $36,639 | | Interest expense (income), net | $(651) | $2,616 | $(478) | $1,316 | | Income tax expense | $26,474 | $18,283 | $14,372 | $12,414 | | Depreciation and amortization | $14,140 | $11,995 | $7,400 | $6,119 | | **EBITDA** | **$114,245** | **$85,591** | **$61,477** | **$56,488** | | Equity based compensation | $3,904 | $1,389 | $2,274 | $692 | | Other expenses | $437 | $4,658 | $0 | $3,258 | | **Adjusted EBITDA** | **$118,586** | **$91,638** | **$63,751** | **$60,438** | [Factors Affecting the Comparability of our Results of Operations](index=24&type=section&id=Factors%20Affecting%20the%20Comparability%20of%20our%20Results%20of%20Operations) Discusses how showroom openings and closings impact the comparability of the company's financial results across periods - In the six months ended June 30, 2023, the Company opened **six Showrooms** and closed **two** (related to relocations)[103](index=103&type=chunk) - During the year ended December 31, 2022, **four Showrooms** were opened and **two** were closed (one due to relocation)[103](index=103&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Details the financial performance for the six and three months ended June 30, 2023, compared to the same periods in 2022, across key income statement items Statement of Condensed Consolidated Comprehensive Income Data (amounts in thousands) | Item | Six months ended June 30, 2023 | Six months ended June 30, 2022 | Three months ended June 30, 2023 | Three months ended June 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | :------------------------------- | :------------------------------- | | Net revenue | $617,467 | $552,565 | $312,899 | $306,265 | | Cost of goods sold | $349,109 | $321,822 | $172,779 | $173,239 | | Gross margin | $268,358 | $230,743 | $140,120 | $133,026 | | Selling, general and administrative expenses | $168,913 | $157,622 | $86,131 | $82,774 | | Income from operations | $99,445 | $73,121 | $53,989 | $50,252 | | Interest expense (income), net | $(651) | $2,616 | $(478) | $1,316 | | Other income | $(660) | $(475) | $(88) | $(117) | | Income before taxes | $100,756 | $70,980 | $54,555 | $49,053 | | Income tax expense | $26,474 | $18,283 | $14,372 | $12,414 | | Net and comprehensive income | $74,282 | $52,697 | $40,183 | $36,639 | Other Operational Data | Item | Six months ended June 30, 2023 | Six months ended June 30, 2022 | Three months ended June 30, 2023 | Three months ended June 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | :------------------------------- | :------------------------------- | | Comparable growth | 8.9% | 53.1% | (0.8)% | 65.2% | | Demand comparable growth | 8.5% | 14.7% | 11.6% | 22.5% | | Gross margin as a % of net revenue | 43.5% | 41.8% | 44.8% | 43.4% | | SG&A as a % of net revenue | 27.4% | 28.5% | 27.5% | 27.0% | | Income from operations as a % of net revenue | 16.1% | 13.2% | 17.3% | 16.4% | | Net and comprehensive income as a % of net revenue | 12.0% | 9.5% | 12.8% | 12.0% | | Adjusted EBITDA | $118,586 | $91,638 | $63,751 | $60,438 | | Adjusted EBITDA as a % of net revenue | 19.2% | 16.6% | 20.4% | 19.7% | | Total Showrooms at end of period | 85 | 80 | 85 | 80 | [Comparison of the six months ended June 30, 2023 and 2022](index=25&type=section&id=Comparison%20of%20the%20six%20months%20ended%20June%2030%2C%202023%20and%202022) Analyzes the financial performance for the six months ended June 30, 2023, highlighting increases in net revenue, gross margin, and net income - Net revenue increased by **$64.9 million (11.7%)** to **$617.5 million**, driven by increased demand in Showrooms and eCommerce[109](index=109&type=chunk) - Gross margin increased by **$37.6 million (16.3%)** to **$268.4 million**, with gross margin as a percentage of net revenue increasing **170 basis points** to **43.5%**, primarily due to favorable product (**190 bps**) and transportation costs (**10 bps**)[110](index=110&type=chunk)[111](index=111&type=chunk) - SG&A expenses increased by **$11.3 million (7.2%)** to **$168.9 million**, mainly due to increased corporate and selling expenses, partially offset by decreased warehouse expenses, while as a percentage of net revenue, SG&A decreased **110 basis points** to **27.4%**[112](index=112&type=chunk) - Net and comprehensive income increased by **$21.6 million (40.9%)** to **$74.3 million**[115](index=115&type=chunk) [Comparison of the three months ended June 30, 2023 and 2022](index=26&type=section&id=Comparison%20of%20the%20three%20months%20ended%20June%2030%2C%202023%20and%202022) Analyzes the financial performance for the three months ended June 30, 2023, highlighting increases in net revenue, gross margin, and net income - Net revenue increased by **$6.6 million (2.2%)** to **$312.9 million**, driven by increased demand[116](index=116&type=chunk) - Gross margin increased by **$7.1 million (5.3%)** to **$140.1 million**, with gross margin as a percentage of net revenue increasing **140 basis points** to **44.8%**, primarily due to lower product costs (**200 bps**)[117](index=117&type=chunk)[118](index=118&type=chunk) - SG&A expenses increased by **$3.4 million (4.1%)** to **$86.1 million**, mainly due to increased corporate and selling expenses, partially offset by decreased warehouse expenses, while as a percentage of net revenue, SG&A increased **50 basis points** to **27.5%**[119](index=119&type=chunk) - Net and comprehensive income increased by **$3.5 million (9.7%)** to **$40.2 million**[122](index=122&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses the company's cash position, credit facility, operating cash flow sufficiency, and projected capital expenditures [Liquidity Outlook](index=27&type=section&id=Liquidity%20Outlook) Assesses the company's strong liquidity position, including cash and credit facility availability, and projected sufficiency of operating cash flows - As of June 30, 2023, the Company had cash and cash equivalents of **$176.8 million**[123](index=123&type=chunk) - The Company has a **$75.0 million** revolving credit facility with no borrowings outstanding as of June 30, 2023[125](index=125&type=chunk) - Operating cash flows are expected to be sufficient to meet working capital and other capital needs for at least the next 12 months[125](index=125&type=chunk) [Capital Expenditures](index=27&type=section&id=Capital%20Expenditures) Outlines historical and projected capital expenditures, primarily for new showrooms and infrastructure, net of landlord contributions - Total capital expenditures, net of landlord contributions, increased by **$10.3 million** for the six months ended June 30, 2023, compared to the same period in 2022[137](index=137&type=chunk) - Anticipated total company-funded capital expenditures for fiscal year 2023 are between **$70 million and $80 million**, primarily for new Showrooms[138](index=138&type=chunk) [Cash Flow Analysis](index=28&type=section&id=Cash%20Flow%20Analysis) Analyzes cash flows from operating, investing, and financing activities, detailing changes and their primary drivers Summary of Cash Flows (amounts in thousands) | Activity | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $61,795 | $41,110 | | Net cash used in investing activities | $(32,482) | $(20,355) | | Net cash used in financing activities | $(477) | $(50) | | Net increase (decrease) in cash, cash equivalents and restricted cash equivalents | $28,836 | $20,705 | - Net cash provided by operating activities increased to **$61.8 million** for the six months ended June 30, 2023, from **$41.1 million** in the prior year, primarily due to higher net income and non-cash adjustments, despite a **$61.9 million** use of cash from working capital[133](index=133&type=chunk)[134](index=134&type=chunk) - Net cash used in investing activities was **$32.5 million** for the six months ended June 30, 2023, mainly for purchases of property, furniture, and equipment[135](index=135&type=chunk) - Net cash used in financing activities was **$0.5 million** for the six months ended June 30, 2023, primarily due to share repurchases for withholding taxes on equity-based compensation[139](index=139&type=chunk) [Off-Balance Sheet Transactions](index=29&type=section&id=Off-Balance%20Sheet%20Transactions) Confirms the absence of any material off-balance sheet arrangements as of the reporting date - The Company has **no material off-balance sheet arrangements** as of June 30, 2023[140](index=140&type=chunk) [Critical Accounting Policies and Estimates](index=29&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Refers to the Annual Report on Form 10-K for a detailed description of critical accounting policies and estimates - Critical accounting policies and estimates are detailed in the Annual Report on Form 10-K for the year ended December 31, 2022[141](index=141&type=chunk) [Recent Accounting Pronouncements](index=29&type=section&id=Recent%20Accounting%20Pronouncements) Directs readers to Note 2 of the financial statements for information on recently issued accounting standards - Refer to Note 2 for information on recently issued accounting standards[142](index=142&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Assesses the company's exposure to market risks, including foreign currency, interest rates, and inflation, and their potential impact - Foreign currency exchange rate fluctuations are **not significant** due to the majority of international inventory purchases being denominated in U.S. dollars[144](index=144&type=chunk) - A **100 basis point change** in interest rates is not expected to have a material impact on financial condition or results of operations, given no current borrowings on the 2021 Credit Facility[145](index=145&type=chunk) - The Company has historically been able to recover cost increases due to inflation (labor, material, transportation) through price increases[146](index=146&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Reports on the ineffectiveness of disclosure controls and procedures due to material weaknesses in internal control over financial reporting - Disclosure controls and procedures were **not effective** at the reasonable assurance level as of June 30, 2023[148](index=148&type=chunk) - Four material weaknesses were identified in internal control over financial reporting, including: (1) lack of sufficient accounting knowledge and segregation of duties, (2) inadequate accounting policies and controls, (3) ineffective controls for non-routine/complex transactions (e.g., incentive unit plan), and (4) ineffective IT general controls[148](index=148&type=chunk)[150](index=150&type=chunk)[152](index=152&type=chunk) - A remediation plan is being implemented, including updating policies, enhancing financial reporting procedures, improving user access controls, hiring qualified personnel, and strengthening IT change management and development controls[154](index=154&type=chunk) [Part II. Other Information](index=33&type=section&id=Part%20II.%20Other%20Information) Presents additional information not covered in Part I, including legal proceedings, risk factors, equity sales, and other disclosures [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) States that there are no legal proceedings that would have a material adverse effect on the company's financial position - The Company is not currently a party to any legal proceedings that would have a material adverse effect on its business, financial condition, or results of operations[160](index=160&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) Confirms no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K - No material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[161](index=161&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Reports no publicly announced share repurchases, with any shares purchased related to tax withholding for equity vesting - No shares were purchased as part of publicly announced share repurchase programs during the three months ended June 30, 2023[162](index=162&type=chunk)[163](index=163&type=chunk) - Shares delivered by employees to satisfy tax withholding obligations upon vesting of restricted stock are not considered part of publicly announced repurchase programs[162](index=162&type=chunk) [Item 3. Defaults Upon Senior Securities](index=33&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Confirms that the company has not defaulted on any senior securities - No defaults upon senior securities[163](index=163&type=chunk) [Item 4. Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) States that the company has no mine safety disclosures to report - No mine safety disclosures[163](index=163&type=chunk) [Item 5. Other Information](index=33&type=section&id=Item%205.%20Other%20Information) Announces the separation of the Chief Operating Officer, effective August 8, 2023 - Tim Kuckelman, Chief Operating Officer, separated from the Company effective August 8, 2023[164](index=164&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) Lists the exhibits filed as part of the Form 10-Q, including certificates, XBRL taxonomy documents, and other corporate governance documents - Includes Certificates of CEO and CFO (31.1, 31.2, 32.1, 32.2) and XBRL Interactive Data Files (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[166](index=166&type=chunk) [Signatures](index=35&type=section&id=Signatures) Indicates the report was duly signed by the Chief Financial Officer on August 9, 2023 - The report was signed by Dawn Phillipson, Chief Financial Officer, on August 9, 2023[168](index=168&type=chunk)[169](index=169&type=chunk)

Financial Data and Key Metrics Changes - The company reported net revenue of $305 million, a 24% increase compared to Q1 last year [6][14] - Comparable growth was 21%, with net and comprehensive income increasing by 112% [6][15] - Adjusted EBITDA rose by 76% to $55 million, resulting in an 18% adjusted EBITDA margin, an increase of 530 basis points year-over-year [16] Business Line Data and Key Metrics Changes - Showroom sales increased by 23%, while e-commerce sales grew by 25% [14] - Demand comp growth for the first quarter was 5.6%, with a two-year stack growth of 13.9% [13] Market Data and Key Metrics Changes - The company is expanding its showroom footprint, planning to open 12 new showrooms in 2023 [7][8] - The supply chain is reported to be well-positioned, with product lead times returning to pre-pandemic levels [9] Company Strategy and Development Direction - The focus for 2023 includes investing in long-term growth through showroom expansion and enhancing marketing efforts [7][11] - The company aims to build brand awareness and prioritize client satisfaction while managing expenses [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's strategy and balance sheet, which is well-positioned to navigate economic fluctuations [11][19] - The outlook for 2023 remains unchanged, with expected net revenue growth of 1% to 6% and adjusted EBITDA of $180 million to $195 million [17][19] Other Important Information - The company has no long-term debt and cash and cash equivalents were reported at $145 million [16] - Client deposits decreased to $198 million, primarily due to improved order deliveries [17] Q&A Session Summary Question: How are customers engaging with the product lineup and what is the status of real estate pipelines? - Management noted a phenomenal response to new product launches, emphasizing unique and handmade items [23] - The company has secured favorable lease agreements during COVID, focusing on prime locations [24] Question: Can you provide details on pre-opening expenses for new stores? - Pre-opening costs were not disclosed, but management indicated there would be some impact in the second half of the year [27] Question: What factors are influencing the first-half revenue expectations? - Management indicated that backlog fulfillment and client readiness for product delivery are key factors affecting revenue timing [31] Question: What is the current state of inventory and promotional strategies? - Inventory is up 18% year-over-year, with management confident in their product assortment and promotional strategies [36][37] Question: How is the company addressing competitive promotional activity? - Management believes their unique product quality allows them to maintain pricing without significant discounting, although they are prepared to use promotions if necessary [63][64] Question: What is the status of the contract business and future initiatives? - The contract business is a smaller part of the overall strategy, but management sees growth potential in hospitality and other sectors [73][74]