Arhaus 2Q25 Immediate Call Postmortem
Really feels like a lot of the upside this quarter was a one-off due to Dallas opening earlier than expected. They called out the 20 pt gap between 1Q written and 1Q delivered as an example of what that looked like. Clearly that helped a lot on occupancy leverage too. Sigman was all over this in Q&A.
Strong beat combined with impressive exit run rate of July demand comp up 15.7%. Reaffirmed full year guidance combined with the reduction in capex certainly gives reason for pause, as, while likely prudent, just doesn’t seem they are putting their money where their mouth is.
They are encouraged by strong momentum in July but expect month to month trends to remain choppy due to external factors. The inflection from June is very interesting – see more noise in June. Executed on a lot of things internally in July: marketing campaign, successful warehouse sale, etc. Haven’t done the warehouse sale in 4-5 years.
Written orders and delivered orders are expected to converge by the end of the year.
It certainly is nice to see a furniture company with well controlled inventory levels, no debt, and ample cash on the balance sheet. Oh wait, Williams-Sonoma also has these features. It’s almost like there is a good reason why nobody else thinks it’s prudent to use Restoration Hardware’s capital allocation strategy.
Launching the Arhaus Bath collection online and at select showrooms this fall, which the product innovation team spent two years working on. Think it’s a great time to launch new product as consumer tastes have changed over last year or so. Can’t wait to compare their work here with Waterworks.
Michael just said he expects to revisit the KPI’s they disclose later this year. Admits the current metrics of comp growth and demand comp growth can be confusing. Will engage stakeholders to get feedback. Here’s mine: comp store sales are critical for any retailer.
They continue to think no competitor has the same whitespace for future growth in the industry. The TAM of their business is $100 billion. Arhaus has less than 2% share. LT they expect to reach 165 traditional showrooms and 50 design studios. Traditional showrooms have $10 mm in sales, 32% contribution margin, and a payback period under two years. Design studios do less in revenue, have 35% contribution margin, and payback period under two years. In home design consultants have an average order value that is 4x higher. The LT algo is for high single digit growth in sales and low double digit in adjusted EBITDA.
Extended the buy more save more program early last fall and will continue it. Happy with the increase in order values over $5k and $10k. They are seeing this strength continuing.
Andrew asked about the weak implied guidance in 4Q. They blamed it on the choppy consumer but excited about the products for this fall. Every month this year has been up or down so admittedly the guide for both 3Q and 4Q reflects some of that uncertainty.
*These are our unabridged quick thoughts and notes from the call. We get them out as soon as possible after the call ends. Management has given some topics to dig deeper into and will circle back in several days with a more comprehensive work up as well as detailed scenario analysis of how consensus numbers shook out.
Originally posted on X and Substack.