Business Overview and History

Arhaus, Inc. is a rapidly growing lifestyle brand and premium retailer in the United States home furnishings market. Founded in 1986 by John Reed and his father, the company has established itself as a leader in the premium segment of the $100 billion U.S. home furnishings industry. Arhaus specializes in livable luxury, offering heirloom-quality merchandise sourced directly from a global network of over 400 vendors.

Arhaus was born out of a simple idea - that furniture should be responsibly sourced, lovingly made, and built to last. The company's focus on artisan-crafted products, vertical integration, and direct sourcing has allowed it to carve out a unique position in the highly fragmented premium home furnishings market.

From its inception, Arhaus has partnered with artisans around the world who share its vision of creating beautiful, premium home furnishings. The company's vertical model includes in-house design and product development, upholstery manufacturing capabilities, direct vendor sourcing, and direct-to-consumer selling, allowing it to offer a differentiated approach to furniture and décor.

Arhaus' curated assortments are presented across its merchandise sales channels in sophisticated, family-friendly, and unique lifestyle settings. This approach has helped the company build a loyal customer base drawn to its unique, heirloom-quality products and personalized service.

In 2021, Arhaus reached a significant milestone by completing its initial public offering, listing its Class A common stock on the Nasdaq Global Select Market under the symbol "ARHS." This move has positioned the company for further expansion and increased brand awareness.

Throughout its history, Arhaus has faced various challenges, including navigating economic downturns and changes in consumer preferences. However, the company's unwavering commitment to quality, craftsmanship, and an elevated customer experience has allowed it to overcome these obstacles and continue growing its business.

Financial Performance and Key Metrics

Arhaus has delivered impressive financial results in recent years, though 2024 saw some macroeconomic headwinds impact the business. For the full year 2024, the company reported net revenue of $1.271 billion, down 1.3% year-over-year. Comparable growth declined 8% for the year, while demand comparable growth, a key operating metric, decreased 2.2%. However, on a 2-year stack basis, demand comparable growth was approximately 5.5%.

Gross margin for 2024 was 39.4% of net revenue, down 260 basis points from the prior year. This decline was primarily driven by higher showroom occupancy costs, increased delivery and transportation expenses, and elevated credit card fees. Selling, general, and administrative (SG&A) expenses increased 10.5% to $415 million, or 32.7% of net revenue, as the company continued to invest in strategic growth initiatives.

Net income for the full year 2024 was $68.6 million, a 45.3% decrease from 2023. Adjusted EBITDA, a non-GAAP metric, declined 34.5% to $133 million, with an adjusted EBITDA margin of 10.5%.

For the fourth quarter of 2024, Arhaus reported revenue of $347 million, representing a 0.9% increase compared to Q4 2023. Net income for the quarter was $21.3 million. The company also reported a demand comparable growth of 5.7% for Q4 2024.

Operating cash flow for the full year 2024 was $147.1 million, while free cash flow stood at $39.7 million.

Liquidity

Despite the macroeconomic headwinds, Arhaus maintained a strong balance sheet, ending 2024 with $197.5 million in cash and cash equivalents and no outstanding debt. The company has a $75 million revolving credit facility, with no borrowings outstanding as of December 31, 2024.

Arhaus' debt-to-equity ratio as of December 31, 2024, was 1.45. The company's current ratio stood at 1.32, while its quick ratio was 0.58, indicating a solid short-term liquidity position.

Operational Highlights and Strategic Initiatives

A key driver of Arhaus' success has been its focus on providing a differentiated, immersive shopping experience for clients. The company's theater-like showrooms act as invaluable brand-building tools, driving significant traffic and engagement. In 2024, Arhaus celebrated the milestone of opening its 100th showroom, expanding its national footprint to 103 locations across 30 states. This includes 85 Traditional Showrooms, 11 Design Studios, and 7 Outlets.

Looking ahead, the company plans to continue its disciplined showroom expansion, targeting an average of 5-7 new traditional showrooms per year, along with additional design studios and strategic relocations. Arhaus believes it has the potential to support over 165 traditional showrooms in the United States, providing ample runway for future growth.

In addition to expanding its physical footprint, Arhaus is also investing in its omni-channel capabilities and digital platform. The company sees e-commerce as its fastest-growing revenue channel, and it is focused on delivering a seamless, personalized customer experience across all touchpoints.

Arhaus' product development and sourcing strategies also contribute to its competitive edge. The company's design teams work closely with a global network of over 400 vendors to create proprietary, heirloom-quality merchandise that cannot be easily replicated by competitors. This direct sourcing model allows Arhaus to offer exceptional value to its clients.

Product Segments and Offerings

Arhaus offers a diverse range of product categories across its sales channels, including:

1. Furniture: A wide variety of pieces for the bedroom, dining room, living room, and home office, including sofas, dining tables and chairs, accent chairs, console and coffee tables, beds, dressers, desks, and bookcases.

2. Outdoor: Outdoor dining tables and chairs, chaises, lighting, textiles, décor, umbrellas, and fire pits designed to complement indoor furniture offerings.

3. Lighting: A variety of distinct and artistic lighting fixtures, including chandeliers, pendants, table and floor lamps, and sconces.

4. Textiles: Handcrafted indoor and outdoor rugs, bed linens, pillows, and throws designed to enhance the overall aesthetic and comfort of the home environment.

5. Décor: A wide range of accessories and decorative items, such as wall art, mirrors, vases, candles, and other decorative accents curated to complement the company's furniture, lighting, and textile offerings.

Risks and Outlook

While Arhaus has demonstrated resilience in the face of macroeconomic headwinds, the company faces various risks that could impact its future performance. These include disruptions in its supply chain, increased competition in the premium home furnishings market, and sensitivity to changes in consumer spending and the housing market.

For the full year 2025, Arhaus is guiding for net revenue between $1.36 billion and $1.40 billion, reflecting a comparable growth range of 0% to 3%. The company expects adjusted EBITDA for 2025 to be between $140 million and $150 million.

For the first quarter of 2025, Arhaus anticipates net revenue between $303 million and $323 million, reflecting a comparable growth range of negative 6% to up 1%. Adjusted EBITDA for Q1 2025 is expected to be between $17 million and $27 million.

Industry Trends and Market Position

Based on third-party reports, publicly available data, and the company's internal research, the United States premium home furnishing market is estimated to be approximately $100 billion. This attractive market is highly fragmented, served by many small independent furniture stores, which favorably positions Arhaus to grow profitably and gain market share.

Arhaus primarily sells in the United States, focusing on the premium segment of the home furnishings market. The company's emphasis on livable luxury, supported by heirloom-quality merchandise and a unique showroom experience, has helped it carve out a distinctive position in this competitive landscape.

Conclusion

Arhaus has carved out a unique position in the premium home furnishings market through its focus on artisan-crafted products, vertical integration, and global sourcing capabilities. The company's differentiated showroom experience, omni-channel strategy, and continuous product innovation have positioned it for long-term growth, despite the macroeconomic challenges faced in 2024. As Arhaus continues to execute on its strategic initiatives and navigate industry trends, it remains well-positioned to capture market share and deliver value to its shareholders in the evolving home furnishings market.