Why Arhaus (ARHS) Shares Are Getting Obliterated Today

Max Juang /
2024/07/08 3:23 pm EDT

What Happened:

Shares of luxury furniture retailer Arhaus (NASDAQ:ARHS) fell 9.1% in the morning session after Jefferies analyst Jonathan Matuszewski downgraded the stock's rating from Buy to Hold and lowered the price target from $22 to $16. The analyst cited multiple concerns, including "slowing site traffic growth, falling e-commerce conversion, and a growing percentage of browsing activity tied to sale SKUs." The analyst also highlighted worries related to the housing market, adding, "As investors increasingly embrace a view of persistently stubborn housing turnover into 1H'25, we believe stocks with rich margin expansion will outperform, and we now have less conviction that ARHS will check that box."

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What is the market telling us:

Arhaus's shares are very volatile and over the last year have had 20 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 4 months ago, when the stock gained 18.2% on the news that the company reported fourth quarter results that blew past analysts' operating income and EPS forecasts. Its revenue also outperformed Wall Street's estimates. Those two beats were driven by better-than-expected same-store sales performance (6.8% decline compared to an estimated 10.4% decline). 

Given the strong quarter, management shared upbeat revenue and EBITDA guidance for the full year 2024, easily topping analysts' estimates. Because its free cash flow for the full year 2023 beat its internal projections, Arhaus declared a special, one-time cash dividend of $0.50 per share - this represents a ~4% yield on the current share price. Overall, this quarter's results seemed fairly positive, and shareholders should feel optimistic.

Arhaus is up 28% since the beginning of the year, but at $14.93 per share it is still trading 24.1% below its 52-week high of $19.68 from June 2024. Investors who bought $1,000 worth of Arhaus's shares at the IPO in November 2021 would now be looking at an investment worth $1,167.

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