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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Arhaus (ARHS) Q3 FY2023 Highlights:
- Revenue: $326.2 million vs analyst estimates of $317.9 million (2.62% beat)
- EPS: $0.14 vs analyst estimates of $0.12 (19.1% beat)
- The company reconfirmed its revenue guidance for the full year of $1.28 billion at the midpoint
- Free Cash Flow of $60.1 million, up from $532 thousand in the same quarter last year
- Gross Margin (GAAP): 40.1%, down from 48.4% in the same quarter last year
- Same-Store Sales were down 2.1% year on year
- Store Locations: 85 at quarter end, increasing by 5 over the last 12 months
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 RetailerFurniture 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 GrowthArhaus 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.
Number of StoresWhen 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 SalesSame-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.
The author has no position in any of the stocks mentioned in this report.
