Arhaus, Inc.

Good morning and welcome to the R House fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow formal remarks. Please note that this call 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. Please go ahead.

Good morning, and thank you for joining our house for the fourth quarter and full year 2023 earnings call. On with me are John Reed, Co-Founder, Chairman, and Chief Executive Officer, who is joining us this morning from Italy, and Don Phillipson, Chief Financial Officer. After prepared remarks, they will be joined by Jen Porter, our Chief Marketing and E-Commerce Officer, for the Q&A session. 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 for the year ended December 31st, 2023 before market opened today. Yesterday, after market closed, We filed an 8K to inform investors that we identified an error in our unaudited condensed consolidated balance sheet as of September 30, 2023, related to certain leasehold and landlord improvements prior to showroom completion being incorrectly included in prepaid and other current assets rather than property, furniture, and equipment net. This error resulted in inaccurate cash flows ascribed to the operating and investing activities in the unaudited condensed consolidated statement of cash flows for the nine months ended September 30th, 2023. As such, we will restate our financial statements for the third quarter of 2023 and revise the December 31st, 2022 comparative balance sheet that will be included in the amended third quarter 10-Q. For more details, please refer to the 8K. These documents are available on our investor relations website at ir.ourhouse.com. 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 most recent 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. A replay of this call will be available on our website within 24 hours. Now, I will turn the call over to John.

Good morning, everyone, and thank you for joining us on the call today. We delivered a strong fourth quarter 2023 with net revenue of $344 million, net income of $31 million, and adjusted EVA of $51 million, and are very pleased to have exceeded our top and bottom line outlook for the quarter. According to our 2023 performance, it was another exceptional year for our house, fueled by our long-term growth strategies to, one, increase brand awareness, two, expand our showroom base, three, enhance our omni-channel capabilities and technology, And four, invest in growth to build scale and to enhance long-term margins. Highlights from our 2023 full-year results include net revenue of $1.3 billion, with our showroom channel up 2% and our e-commerce channel up 17%. On top of growth of 57% and 43% of each of these channels in the full year 2022. Comp growth of 1% and demand comp growth of 8%, both at or above the high end of our outlook for the year. And cycling comp growth of 52% and a demand comp growth of 14% in a full year of 2022. And comprehensive income of $125 million and adjusted EBITDA of $203 million. Given our strong cash generation and balance sheet strength following 2023's outstanding performance, I am pleased to announce our Board of Directors approved a special cash dividend of 50 cents per share, table on or about April 4th of 2024, to shareholders of record at the close of business on March 21st, 2024. We are very pleased to be able to return value to our shareholders while retaining the balance sheet's strength that will allow us to continue investing in the Our House growth. Don will cover our fourth quarter and full year 2023 financial results in more detail later on in the call, but I want to congratulate our team for delivering these results. I'm astonished by what our team has accomplished in the short time since we went public on November 4th of 2021. At that time, we had 77 showrooms. Today, we have 92 showrooms, adding almost 20% to our showroom total. And we expect to add another 9 to 11 this year. Over the last three years, we believe the U.S. premium home furnishings market has grown 50%, while our growth has been more than three times that of the industry. We've increased our net revenue by 154%, or $780 million today. increased our net income by 634%, or $108 million, and increased our adjusted EBITDA by 193%, or $134 million. As impressive as this growth and the execution by our team has been, it is our future potential that is so significant and has me so excited. Going forward, we expect to continue to grow faster than the market by executing on our strategy. Starting with showroom growth, which is the number one way we expand our brand awareness, in 2023 we completed the largest number of showroom projects in our history, opening eight new showrooms, two new design studios, and one new outlet location, along with eight renovations, relocations, and expansion projects. Remember, our new showroom economics are very strong. And we target new traditional showrooms who generate at least $10 million in revenue by year three, with target adjusted EBITDA margins averaging 32%, and average investment payback in two years or less. In 2024, as I mentioned, we expect another year above the record showroom growth, with plans equal or exceed the number of 2023 showroom projects. including four to six new traditional showrooms, two design studios, three outlets, and to renovate, relocate, or expand several existing showrooms. With wonderful feedback from our clients and the continued word-of-mouth awareness building around our showrooms and the incredible product they showcase, we look forward to introducing the Our House brand and experience to many more clients over the next several years, especially as we continue to work towards our target of 165 traditional showrooms. The number two way we expand brand awareness is through recommendations from friends and family. Our incredible product and the value proposition it offers is at the heart of these recommendations. And we enjoy persistent demand for our product throughout 2023, driven by the success of many of our newer product collections. We frequently describe traveling the world to seek inspiration. meet with incredible artisans, and ensure we continue to delight our clients with beautiful products from across the globe. As Wendy mentioned, I am joining you from Italy today where members of our product development team and I are working on some really exciting new products. Last year I told you I thought 2023 was going to be the best year ever in new product lineup, and I think we have exceeded even that very high bar. with the product introductions and category expansions in 2024. Our spring and outdoor catalogs and showrooms are currently showcasing this product, and I encourage all of you to go to the showrooms and spend some time on ourhouse.com to judge for yourself. During 2023, we also continue to make some important growth investments to enhance our omnichannel capabilities and technology. We are growing our insights from web site engagement, and have launched our incredible story campaigns online and in print, highlighting artisans from Mexico and Italy. These campaigns not only tell our product stories, but they elevate our brand at a time when we are introducing our house to many new clients across the United States. This is also a great time to highlight the Volume 2 launch of the story campaign, Bellissimo Segreto, A Beautiful Secret. As a reminder, we developed the story campaign in response to our clients asking to know more about the talented craftsmen behind our beautiful products. The introductory volume of Story Rooted, a story not common, highlighted a family of woodworking artisans in Mexico and was released last fall. The current campaign is a testament to our Italian partnerships, some of which were established decades ago and all of which have been instrumental to building our brand. We are thrilled to continue this series and look forward to telling the R-House story through future volumes. We are also continuing to make strategic investments to upgrade the technology that supports our business and long-term growth plans and enhances our capabilities in warehouse management, inventory planning and allocation, and manufacturing delivery and efficiencies. Our teams have been working around the clock on these initiatives. I'm excited about our technology roadmap and the long-term advantages and expected margin enhancements it will create for us. These investments and enhancements will continue in 2024 and Don will give you more detail on the size and scope of these investments. These are near and long-term prospects combined with the team's strong and disciplined execution of our strategic priorities and buttressed by our debt-free balance sheet has us well positioned to deliver on our financial and operational goals. As we look to 2024 and beyond, I'm excited about the opportunities of our business and our brand, both of which in many ways is still in the early days, even though I've been at this for close to 40 years. I generally feel that there are no collections like our collections. There are no people like our people. And there's no potential like our potential. Our house stands out. And our house stands alone. Our product is designed using the best materials and with the unparalleled focus on quality and comfort. We are curious world travelers. And our mission to design and craft the best furniture and decor leads us to work alongside some of the most talented designers and craftsmen on earth. Our showrooms are an authentic expression of who we are. We curate inviting spaces, carefully layered footprints, and compelling digital presentations to take every visitor on the journey of their choosing, always letting inspiration lead the way. With our clients' experience, we aim to build authentic relationships, inspiring and supporting our clients at every step in the journey. We encourage exploration, customization, we are never defined by the single style instead we encourage and help our clients curate the unique styles of their homes and i believe we are have the best team in the industry we are a team of designers dreamers and doers as passionate as we are curious finally i want to personally congratulate our team for a great job of 2023 and thank them for their dedicated dedication to our house and our clients i'm looking forward to what we will continue to build in 2024 and beyond. Now I'll turn it over to Dawn.