Part 1: Analysis of Past Performance
Arhaus Inc., a premium retailer and growing lifestyle brand in the US home furnishings market, has posted strong financial results for the year ended December 31, 2022. The company’s direct-to-consumer approach to furniture and decor has worked in its favour, with the curated assortments being presented across the sales channel in sophisticated, unique, and family-friendly lifestyle settings. The company operates 81 showrooms in 29 states, 65 of which offer in-home interior designers.
One of the significant boosts to the company’s financial performance was the completion of its initial public offering (IPO) on November 4, 2021. Arhaus sold 12,903,226 shares of Class A common stock at an IPO price of $13.00 per share, resulting in proceeds of $151.4 million. The proceeds were net of underwriting discounts and commissions of $10.4 million and offering expenses of $5.9 million. Shares of the company's Class A common stock are now traded on the Nasdaq under the ticker symbol “ARHS”.
The company applies a direct sourcing network of over 400 vendors, with direct sourcing partners working alongside its product development team in bringing to market proprietary merchandise. The lack of wholesale or dealer markup allows the company to offer exclusive assortment at an attractive value, providing clients with a great value while delivering attractive margins.
Arhaus has been adversely affected by several factors such as general economic conditions, including unemployment levels, interest rates, and economic trends, including housing affordability, for first-time buyers. It also had to deal with shifts in consumption patterns, including consumer spending on home furnishings. Nonetheless, the company has continued to grow and implement its strategic initiative by introducing new business ideas such as expanding the Showroom footprint, enhancing digital marketing capabilities, and optimizing the product assortment and expanding its supply chain infrastructure.
Part 2: Forward-Looking Analysis
While the company has achieved a strong financial position, the future is uncertain, and the company must continue to adapt in the face of a volatile market. Arhaus is sensitive to a range of macroeconomic factors. It targets consumers of high-end home furnishings, which means that its sales are sensitive to factors that influence consumer spending, including general economic conditions such as stock market prices, tax policies, and perceived capital appreciation prospects in higher-end real estate.
The housing market also plays a significant role in the performance of the company, and the state of the mortgage industry and financial credit tied to housing, given that higher or lower home purchases result in increased or decreased spending on home furnishings by consumers. Arhaus must be prepared to address these challenges in a way that ensures sustained growth, improved results of operations, and profitability.
To remain competitive, it is essential that the company continue to leverage its strengths in innovative marketing strategies and expanding its Showroom footprint. A competitive advantage in supply chain infrastructure and carefully selected and curated assortments will create new growth opportunities.
In the past, the company has launched various initiatives that have led to considerable fluctuations in its financial performance. While it expects the ongoing initiatives to support business growth, cost and timing are likely to be issues associated with implementing these initiatives, and they may negatively affect growth rates in the near term, amplifying fluctuations in growth rates from quarter to quarter.
Arhaus Inc. recognizes that its future profitability and growth are dependent on its ability to maintain its brand image, adapt to emerging technology, continue to evolve its product offerings while expanding its Showroom footprint, and respond proactively to economic changes, maintaining a competitive edge.