“Given our strong cash generation and balance sheet strength, I am pleased to announce our Board of Directors approved a special cash dividend of $0.50 per share payable on or about April 4, 2024, to shareholders of record at the close of business on March 21, 2024. We are very pleased to be able to return value to our shareholders while retaining the balance sheet strength that will allow us to continue investing in the growth of Arhaus.

“I want to thank the Arhaus team for their hard work and tremendous accomplishments in 2023 and for their unwavering dedication to our clients. We are excited about our future and are committed to delivering value to all our stakeholders.”

Fourth Quarter 2023 Results

Net revenue decreased 3.5% to $344 million, compared to $356 million in the fourth quarter of 2022. The decrease was the result of strong prior year delivery of orders in the backlog, partially offset by favorable demand versus prior year with demand comparable growth⁽¹⁾ of 1.6%.

Comparable growth⁽¹⁾ was (6.8)% and demand comparable growth⁽²⁾ was 1.6% in the fourth quarter of 2023.

Gross margin decreased 10.6% to $141 million, compared to $158 million in the fourth quarter of 2022, driven primarily by the decrease in net revenue and higher transportation expense and Showroom costs, partially offset by lower costs related to the reduction in net revenue.

Selling, general and administrative (“SG&A”) expenses increased 7.1% to $100 million, compared to $94 million in the fourth quarter of 2022, primarily driven by higher corporate expense to support the growth of the business and higher selling expense related to new Showrooms and higher demand, partially offset by lower warehouse expense.

Net and comprehensive income was $31 million, a 33.6% decrease compared to $47 million in the fourth quarter of 2022, due to the factors discussed above. Net income as a percent of net revenue decreased 410 basis points to 9.1% in the fourth quarter of 2023, compared to 13.2% in the fourth quarter of 2022. Adjusted net income was $31 million in the fourth quarter of 2023, compared to $48 million in the fourth quarter of 2022.

Adjusted EBITDA decreased 30.9% to $51 million, compared to $74 million in the fourth quarter of 2022. Adjusted EBITDA as a percent of net revenue decreased 590 basis points to 14.9% in the fourth quarter of 2023, compared to 20.8% in the fourth quarter of 2022.

Full Year 2023 Results

Net revenue in 2023 increased 4.8% to $1.3 billion, compared to $1.2 billion in 2022. The increase was driven primarily by higher demand in both Showroom and eCommerce channels as well as the delivery of orders in the backlog.

Full year comparable growth⁽¹⁾ was 1.4%, compared to 51.6% in 2022 and full year demand comparable growth⁽²⁾ was 7.6% compared to 13.8% in 2022.

Gross margin increased 2.9% to $540 million in 2023, compared to $525 million in 2022, driven by higher net revenue, partially offset by higher costs related to the increase in net revenue, including product, Showroom costs and transportation expense, as well as higher credit card fees related to increased demand.

Full year SG&A expense increased 10.5% to $376 million, compared to $340 million in 2022. The increase was primarily driven by investments to support the growth of the business, including higher corporate expenses to support our growth, increased selling expense related to new Showrooms and stronger demand, the donation to The Nature Conservancy, and higher stock based compensation expense. This was partially offset by lower warehouse expense and the non-recurrence of costs related to the opening and set up of our Dallas distribution center.

Net and comprehensive income of $125 million was an 8.3% decrease compared to $137 million in 2022, driven by the above factors. Net income as a percent of net revenue decreased 140 basis points to 9.7% in 2023, compared to 11.1% in 2022. Adjusted net income of $126 million was a 11.5% decrease compared to $142 million in 2022.

Adjusted EBITDA decreased 8.6% to $203 million, compared to $223 million in 2022. Adjusted EBITDA as a percent of net revenue decreased 230 basis points to 15.8% in 2023, compared to 18.1% in 2022.

Balance Sheet and Cash Flow Highlights, as of December 31, 2023

Cash and cash equivalents totaled $223 million, and the Company had no long-term debt at December 31, 2023. Net merchandise inventory decreased 11.2% to $254 million, compared to $286 million as of December 31, 2022. Client deposits decreased 14.2% to $174 million.

For the year ended December 31, 2023, net cash provided by operating activities was $172 million, compared to $73 million for the full year ended December 31, 2022.

For the full year ended December 31, 2023, net cash used in investing activities was approximately $97 million, which includes landlord contributions of approximately $22 million and company-funded capital expenditures⁽³⁾ of approximately $75 million. For the full year ended December 31, 2022, net cash used in investing activities was approximately $51 million, which included landlord contributions of approximately $16 million and company-funded capital expenditures⁽³⁾ of approximately $35 million.

The Company ended the year with 92 total showrooms across 29 states.

Outlook

The table below presents our expectations for selected full year and first quarter 2024 financial operating results. We expect first quarter net revenue to be impacted by both the warehouse management system implementation in our Ohio distribution center and weather.

In 2024, the Company plans to open nine to eleven new Showrooms, as well as renovate, relocate and expand several locations.

^{(1) Comparable growth is a key performance indicator and is defined as the year-over-year percentage change of the dollar value of orders delivered (based on purchase price), net of the dollar value of returns (based on amount credited to client), from our comparable Showrooms and eCommerce, including through our direct-mail catalog.
(2) Demand comparable growth is a key performance indicator and is defined as the year-over-year percentage change of demand from our comparable Showrooms and eCommerce, including through our direct-mail catalog.
(3) Company-funded capital expenditures is defined as total net cash used in investing activities less landlord contributions.
(4) U.S. GAAP net income (loss).
(5) We have not reconciled guidance for Adjusted EBITDA to the corresponding GAAP financial measure because we do not provide guidance for the various reconciling items. These items include, but are not limited to, future share-based compensation expense, income taxes, interest expense, and transaction costs. We are unable to provide guidance for these reconciling items because we cannot determine their probable significance, as certain items are outside of our control and cannot be reasonably predicted due to the fact that these items could vary significantly from period to period. Accordingly, reconciliations to the corresponding GAAP financial measure is not available without unreasonable effort.}

Conference Call

You are invited to listen to Arhaus’ conference call to discuss the fourth quarter and full year 2023 financial results scheduled for today, March 7, 2024, at 8:30 a.m. Eastern Time. The call will be available over the Internet on our website (http://ir.arhaus.com) or by dialing (877) 407-3982 within the U.S., or 1 (201) 493-6780, outside the U.S. The conference ID is: 13741045.

A recorded replay of the conference call will be available within approximately three hours of the conclusion of the call and can be accessed online at http://ir.arhaus.com for approximately twelve months.

About Arhaus

Founded in 1986, Arhaus is a rapidly growing lifestyle brand and omni-channel retailer of premium home furnishings. Through a differentiated proprietary model that directly designs and sources products from leading manufacturers and artisans around the world, Arhaus offers an exclusive assortment of heirloom quality products that are sustainably sourced, lovingly made, and built to last. With over 90 showroom and design center locations across the United States, a team of interior designers providing complimentary in-home design services, and robust online and eCommerce capabilities, Arhaus is known for innovative design, responsible sourcing, and client-first service. For more information, please visit www.arhaus.com.

Investor Contact:

Wendy Watson
SVP, Investor Relations
(440) 439-7700 x3409
invest@arhaus.com

Non-GAAP Financial Measures

In addition to the results provided in accordance with U.S. GAAP, this press release and related tables include adjusted EBITDA, adjusted EBITDA as a percentage of net revenue and adjusted net income, which present operating results on an adjusted basis.

We use non-GAAP measures to help assess the performance of our business, identify trends affecting our business, formulate business plans and make strategic decisions. In addition to our results determined in accordance with U.S. GAAP, we believe that providing these non-GAAP financial measures is useful to our investors as they present an informative supplemental view of our results from period to period by removing the effect of non-recurring items. However, our inclusion of these adjusted measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items or that the items for which we have made adjustments are unusual or infrequent or will not recur. These non-U.S. GAAP measures are not a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP. Because not all companies use identical calculations, the presentations of these measures may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company. These measures should only be read together with the corresponding U.S. GAAP measures. Please refer to the reconciliations of adjusted EBITDA and adjusted net income to the most directly comparable financial measures prepared in accordance with U.S. GAAP below.

Forward-Looking Statements

Certain statements contained herein, including statements under the headings “Full Year 2024 Outlook Highlights” and “Outlook” are not based on historical fact and are “forward-looking statements” within the meaning of applicable securities laws.

Forward-looking statements can generally be identified by the use of forward-looking terminology, including, but not limited to, “may,” “could,” “seek,” “guidance,” “predict,” “potential,” “likely,” “believe,” “will,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” “forecast,” or variations of these terms and similar expressions, or the negative of these terms or similar expressions. Past performance is not a guarantee of future results or returns and no representation or warranty is made regarding future performance. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond our control that could cause our actual results, performance or achievements to be materially different from the expected results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to: our ability to manage and maintain the growth rate of our business; our ability to obtain quality merchandise in sufficient quantities; disruption in our receiving and distribution system, including delays in the integration of our distribution centers and the possibility that we may not realize the anticipated benefits of multiple distribution centers; the possibility of cyberattacks and our ability to maintain adequate cybersecurity systems and procedures; loss, corruption and misappropriation of data and information relating to clients and employees; changes in and compliance with applicable data privacy rules and regulations; risks as a result of constraints in our supply chain; a failure of our vendors to meet our quality standards; declines in general economic conditions that affect consumer confidence and consumer spending that could adversely affect our revenue; our ability to anticipate changes in consumer preferences; risks related to maintaining and increasing showroom traffic and sales; our ability to compete in our market; our ability to adequately protect our intellectual property; compliance with applicable governmental regulations; effectively managing our eCommerce business and digital marketing efforts; our reliance on third-party transportation carriers and risks associated with increased freight and transportation costs; and compliance with SEC rules and regulations as a public reporting company. These factors should not be construed as exhaustive. Further information on potential factors that could affect the financial results of the Company and its forward-looking statements is included in the Company’s filings with the Securities and Exchange Commission. The Company assumes no obligation to update any forward-looking statement, except as may be required by law. These forward-looking statements speak only as of the date of this release. All forward-looking statements are qualified in their entirety by this cautionary statement.

^{(1) Other expenses represent costs and investments not indicative of ongoing business performance, such as public offering costs, third-party consulting costs, one-time project start-up costs, severance, signing bonuses, recruiting and project-based strategic initiatives. For the year ended December 31, 2023, these expenses consisted largely of $0.5 million of public offering costs. For the year ended December 31, 2022, these expenses consisted largely of $5.0 million of costs related to the opening and set-up of our Dallas distribution center and $1.6 million of severance, signing bonuses and recruiting costs.}

^{(2) The Company applied its normalized tax rate of 25.9% and 25.9% on adjustments recognized after the Company’s change in tax status for the years ended December 31, 2023 and December 31, 2022, respectively.}

^{(1) Other expenses represent costs and investments not indicative of ongoing business performance, such as public offering costs, third-party consulting costs, one-time project start-up costs, severance, signing bonuses, recruiting and project-based strategic initiatives. For the year ended December 31, 2023, these expenses consisted largely of $0.5 million of public offering costs. For the year ended December 31, 2022, these expenses consisted largely of $5.0 million of costs related to the opening and set-up of our Dallas distribution center and $1.6 million of severance, signing bonuses and recruiting costs.}

^{(1) Other expenses represent costs and investments not indicative of ongoing business performance, such as public offering costs, third-party consulting costs, one-time project start-up costs, severance, signing bonuses, recruiting and project-based strategic initiatives. For the three months ended December 31, 2022, these other expenses consisted largely of $0.4 million of costs related to the opening and set-up of our Dallas distribution center and $0.4 million severance, signing bonuses and recruiting costs.}

^{(2) The Company applied its normalized tax rate of 25.9% and 26.2% on adjustments recognized after the Company’s change in tax status for the three months ended December 31, 2023 and December 31, 2022, respectively.}

^{(1) Other expenses represent costs and investments not indicative of ongoing business performance, such as public offering costs, third-party consulting costs, one-time project start-up costs, severance, signing bonuses, recruiting and project-based strategic initiatives. For the three months ended December 31, 2022, these expenses consisted largely of $0.4 million of costs related to the opening and set-up of our Dallas distribution center and $0.4 million severance, signing bonuses and recruiting costs.}