Arhaus's (NASDAQ:ARHS) Q1: Beats On Revenue But Quarterly Guidance Underwhelms

Kayode Omotosho /
2024/05/09 6:38 am EDT

Luxury furniture retailer Arhaus (NASDAQ:ARHS) reported Q1 CY2024 results beating Wall Street analysts' expectations, with revenue down 3.1% year on year to $295.2 million. On the other hand, next quarter's revenue guidance of $315 million was less impressive, coming in 4.5% below analysts' estimates. It made a GAAP profit of $0.11 per share, down from its profit of $0.24 per share in the same quarter last year.

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Arhaus (ARHS) Q1 CY2024 Highlights:

  • Revenue: $295.2 million vs analyst estimates of $264.3 million (11.7% beat)
  • EPS: $0.11 vs analyst estimates of $0.02 ($0.10 beat)
  • Revenue Guidance for Q2 CY2024 is $315 million at the midpoint, below analyst estimates of $329.9 million
  • The company reconfirmed its revenue guidance for the full year of $1.35 billion at the midpoint
  • Gross Margin (GAAP): 39%, down from 48.6% in the same quarter last year
  • Free Cash Flow of $10.9 million is up from -$828,000 in the same quarter last year
  • Same-Store Sales were down 9.5% year on year
  • Store Locations: 90 at quarter end, increasing by 8 over the last 12 months
  • Market Capitalization: $1.86 billion

With an aesthetic that features natural materials such as reclaimed wood, Arhaus (NASDAQ:ARHS) is a high-end furniture retailer that sells everything from sofas to rugs to bookcases.

Home Furniture Retailer

Furniture retailers understand that ‘home is where the heart is’ but that no home is complete without that comfy sofa to kick back on or a dreamy bed to rest in. These stores focus on providing not only what is practically needed in a house but also aesthetics, style, and charm in the form of tables, lamps, and mirrors. Decades ago, it was thought that furniture would resist e-commerce because of the logistical challenges of shipping large furniture, but now you can buy a mattress online and get it in a box a few days later; so just like other retailers, furniture stores need to adapt to new realities and consumer behaviors.

Sales Growth

Arhaus is a small retailer, which sometimes brings disadvantages compared to larger competitors that benefit from economies of scale. On the other hand, one advantage is that its growth rates can be higher because it's growing off a small base.

As you can see below, the company's annualized revenue growth rate of 26% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was incredible as it added more brick-and-mortar locations and increased sales at existing, established stores.

Arhaus Total Revenue

This quarter, Arhaus's revenue fell 3.1% year on year to $295.2 million but beat Wall Street's estimates by 11.7%. The company is guiding for revenue to rise 0.7% year on year to $315 million next quarter, slowing from the 2.2% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 9.1% over the next 12 months, an acceleration from this quarter.

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Same-Store Sales

Same-store sales growth is a key performance indicator used to measure organic growth and demand for retailers.

Arhaus's demand has been spectacular for a consumer retail business over the last eight quarters. On average, the company has increased its same-store sales by an impressive 21% year on year. This performance suggests that its steady rollout of new stores could be beneficial for shareholders. When a company has strong demand, more locations should help it reach more customers seeking its products.

Arhaus Year On Year Same Store Sales Growth

In the latest quarter, Arhaus's same-store sales fell 9.5% year on year. This decline was a reversal from the 21% year-on-year increase it posted 12 months ago. We'll be keeping a close eye on the company to see if this turns into a longer-term trend.

Key Takeaways from Arhaus's Q1 Results

We were impressed by how significantly Arhaus blew past analysts' EPS expectations this quarter. We were also excited its revenue outperformed Wall Street's estimates. On the other hand, its revenue guidance for next quarter missed analysts' expectations. Overall, we think this was still a really good quarter that should please shareholders. The stock is up 2.4% after reporting and currently trades at $13.5 per share.

Arhaus may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.