Arhaus's (NASDAQ:ARHS) Q3 Sales Top Estimates

Luxury furniture retailer Arhaus (NASDAQ:ARHS) beat analysts' expectations in Q3 FY2023, with revenue up 1.94% year on year to $326.2 million. The company's outlook for the full year was also close to analysts' estimates with revenue guided to $1.28 billion at the midpoint. Turning to EPS, Arhaus made a GAAP profit of $0.14 per share, down from its profit of $0.26 per share in the same quarter last year.

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John Reed, Co-Founder and Chief Executive Officer, commented, “As we close out this year and begin to look to 2024, we are focused on continuing to expand our collections of heirloom quality, artisan-crafted furniture, growing our Showroom footprint with several more exciting new locations to come in 2024, and improving our systems and making the necessary investments to support our growth for many years into the future”.

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 39.9% 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.

This quarter, Arhaus reported decent year-on-year revenue growth of 1.94% and its revenue of $326.2 million topped Wall Street's estimates by 2.62%. Looking ahead, the Wall Street analysts covering the company expect revenue to remain relatively flat over the next 12 months.

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Number of Stores

When a retailer like Arhaus is opening new stores, it usually means it's investing for growth because demand is greater than supply. Arhaus's store count increased by 5 locations, or 6.25%, over the last 12 months to 85 total retail locations in the most recently reported quarter.

Taking a step back, the company has opened new stores quickly over the last eight quarters, averaging 7.57% annual growth in new locations. This store growth outpaces the broader consumer retail sector. With an expanding store base and demand, revenue growth can come from multiple vectors: sales from new stores, sales from e-commerce, or increased foot traffic and higher sales per customer at existing stores.

Same-Store Sales

Same-store sales growth is an important metric that tracks demand for a retailer's established brick-and-mortar stores and e-commerce platform.

Arhaus has been one of the most successful retailers over the last two years thanks to skyrocketing demand within its existing stores. On average, the company has posted exceptional year-on-year same-store sales growth of 33.2%. This performance suggests that its steady rollout of new stores is beneficial for shareholders. When a company has strong demand, more locations should help it reach more customers seeking its products.

In the latest quarter, Arhaus's same-store sales fell 2.1% year on year. This decline was a reversal from the 54.3% year-on-year increase it posted 12 months ago. A one quarter hiccup isn't material for the long-term prospects of a business, but we'll keep a close eye on the company.

Key Takeaways from Arhaus's Q3 Results

Sporting a market capitalization of $1.15 billion, Arhaus is among smaller companies, but its more than $240.4 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

We enjoyed seeing Arhaus exceed analysts' revenue expectations this quarter, driven by better-than-expected (but still declining) same-store sales. We were also excited its adjusted EBITDA and EPS outperformed Wall Street's estimates. On the other hand, its gross margin sadly missed analysts' expectations. Zooming out, we think this was still a decent quarter, showing that the company is staying on track. The stock is flat after reporting and currently trades at $8.22 per share.

So should you invest in Arhaus 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.

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The author has no position in any of the stocks mentioned in this report.