Arhaus, Inc.

Good morning and welcome to the Our House second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal remarks. Please note that this conference is being recorded and the reproduction of any part of this call is not permitted without written authorization from the company. I will now turn the call over to your host, Wendy Watson, Senior Vice President of Investor Relations.

Good morning. Good morning. And thank you for joining our house's second quarter 2023 earnings call. On with me today are John Reed, co-founder, chairman, and chief executive officer, Jim Porter, chief marketing and e-commerce officer, and Don Phillipson, chief financial officer. John will start with a summary of the main points we made in this morning's press release, along with operational details. Jen will discuss Rooted, our most recent marketing campaign, and Don will cover our financial performance and outlook for the remainder of 2023. After these prepared remarks, we will open the call for questions. During Q&A, please limit to one question and one follow-up. If you have additional questions, please return to the queue. We issued our earnings press release and our 10Q for the quarter ended June 30, 2023, before market opened today. Those documents are available on our investor relations website at ir.ourhouse.com. A replay of the call will be available on our website within 24 hours. As a reminder, remarks today concerning future expectations, events, objectives, strategies, trends, or results constitute forward-looking statements. Actual results or events may differ materially due to a number of risks and uncertainties. For a summary of these risk factors and additional information, please refer to this morning's press release and the cautionary statements and risk factors described in our annual report on Form 10-K and subsequent 10-Qs, as such factors may be updated from time to time in our filings with the SEC. The forward-looking statements are made as of today's date, and except as may be required by law, the company undertakes no obligation to update or revise these statements. We will also refer to certain non-GAAP financial measures, and this morning's press release includes the relevant non-GAAP reconciliations. I will now turn the call over to John.

Thank you, Wendy. Good morning, everyone, and thank you for joining us today. It was another great quarter for our house, and our business continues to be incredibly resilient. We continue to win with our clients, and in the second quarter, we again saw exceptional demand comp growth. It is notable that the 11.6% demand comp stacks on a 22.5% demand comp in the second quarter last year. In terms of cadence, we started the quarter in April with a flat demand comp, which accelerated with May and June up mid-teens to low 20s. We are seeing strength in all categories and in all regions. We also have a strong start to the third quarter, with demand comp growth in July up high single digits. Turning to highlights for the second quarter, while continuing to execute our strategic initiatives and growth plan for the year, we delivered net revenue of $313 million, net and comprehensive income of $40 million with a margin of 12.8%, and adjusted EBITDA of $64 million with a margin of 20.4%. Note that revenue was below our expectations for the quarter, impacted by delivery delays, primarily focused on these three factors. First, slower deliveries out of the Dallas distribution center as we continue to optimize product assortment across the three distribution centers. Second, a temporary reduction in productivity as we implemented various new systems, including a new warehouse management system to drive future efficient growth. And third, some clients are also asking us to delay deliveries as they complete home-related projects. As we have gone from one distribution center to three in the past two years, it is critical that we continue to implement the system capabilities, processes, and talents to enable us to move product through our supply chain more efficiently as we scale for growth. Some of the factors that slowed revenue in the second quarter will continue into the second half of this year, And as a result, some of that net revenue originally expected in 2023 will be pushed to 2024. This is offset by our stronger than anticipated demand growth. As a result, midpoint for our year, net revenue outlook is unchanged. Don will discuss in more detail this later. Moving to profitability, we saw a nice earnings benefit from the impact of lower freight costs to our gross margin in the second quarter. This benefit is enabling us to pass through some of the lower pricing to our clients with a particular focus on ensuring we remain top of mind competitively. It is also allowing us to optimize our assortment as we make way for new product launches in the fall and address areas where we need less inventory on hand. Additionally, with our stronger earnings in the second quarter, we are raising our full-year net income and adjusted EBITDA outlook. Turning to an update on our showroom growth for the year, we are successfully scaling our showroom footprint along with executing our renovation, relocations, and expansion projects. To date, we have opened five new showrooms in 2023, two new design studios, Asheville, North Carolina, and Naperville, Illinois's, two traditional showrooms, Topanga, California, Peabody, Massachusetts, and a new outlet location in Dallas. We are very pleased with the strong performance of our new showrooms and proud of how they showcase our incredible product. For the balance of the year, we expect to open six additional traditional format showrooms, a West Hartford, Connecticut location in the third quarter, and five new showrooms in the fourth quarter, Coral Gables, Florida, Huntington Station, New York, and three new showrooms in California. An additional planned California showroom opening has been pushed to 2024. Our renovation, relocation, and expansion projects are all proceeding as expected. I encourage all of you to visit one of our showrooms and see the experience our product for yourselves. We also continue to grow our in-home designer program. We are focused on the growth of this program as the average order value we enjoy from our in-home designer assisted sale is four times our company average order value. I founded our house more than 35 years ago with the objective to source wood sustainably and to create an heirloom quality furniture. but to hope that it will be passed down from generations to generations and not end up in landfills. I've always been passionate about preserving our planet. And now, more than ever, we must do our part to help slow down global warming. I am proud tonight to announce a $10 million commitment to the Nature Conservancy to support their efforts to protect the critical rainforest in Borneo, Indonesia. Our donation will directly support the Nature Conservancy and their local Indonesian affiliate, WICAN, as they embark on an ambitious project to pilot solutions to drive more attractive and self-sustaining economics in forestry. We are proud to support these efforts, and we hope others will join us. We know that the environment is critical to our business, our employees, and our clients, and certainly the planet. and we know that we must take bold action now. We look forward to sharing this incredible journey with you, and we are confident that together we'll make a difference. Finally, I want to thank my team for their continued focus on providing an incredible product assortment, an amazing omni-channel experience, and client-first service, as well as executing our showroom openings and enhancing strategic systems that will allow us to scale for long-term growth and success. It is their execution that makes me confident in our ability to capitalize on the significant opportunities ahead of us. Now I'll turn it over to Jen to discuss Rooted, our latest campaign marketing campaign.