Arhaus, Inc.

Good morning and welcome to the R House second quarter 2024 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 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 the Our House Second Quarter 2024 Earnings Call. On with me today are John Reed, Co-Founder, Chairman, and Chief Executive Officer, 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 and our 10Q for the quarter ended June 30, 2024, 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 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. Now I'll turn the call over to John.

Good morning, everyone, and welcome to the R-HUB's second quarter conference call. Our team delivered another quarter of solid operational execution with several new showrooms opening, successful new product development, and important strategic investments made to support our long-term growth. In the second quarter, we delivered a net revenue of $310 million net income of $22 million, and adjusted EBITDA of $40 million. During the quarter, we saw demand comparable growth soften to a decline of 3%. On a two-year stack basis, demand count growth increased 8.6% in the second quarter, and on a three-year stack basis, demand comparable growth increased 31.1%. We're very proud of our strong growth over the past several years, and expect to continue to grow our demand comps mid-single digits in the long term, even as there is near-term contraction related to the macro environment. July's demand comp accelerated the second quarter trend with a high teens decline, resulting in a two-year stacked demand comp decline in a low double digits and a three-year stacked low double-digit demand comp increase. Demand metrics in the second quarter were mixed. Our average order value and comp traffic were down. Conversions were down slightly year over year, but up sequentially from the first quarter. Transactions in the second quarter were positive and orders over $5,000 and $10,000 continued to grow nicely. We also saw a solid growth in new customers in the second quarter and the total traffic was up. Total demand in the second quarter increased mid-single digits. We continue to be very pleased with the new showroom performance and our showroom expansion plans. Don will discuss in more detail later in the call, but given the current consumer backdrop and industry trends, as well as our own demand comp trends over the past three months, we are adjusting our expectations for the second half of the year and lowering our full year outlook. While our net revenue and earnings outlook are not what we originally expected for the second half of this year, I am confident that we have the right strategy, the right product, the right marketing to continue to successfully grow over time. We have extensive experience navigating cyclical consumer environments where we maintain focus on our expense control while our strong debt-free balance sheet allows us to continue to execute our strategic growth plans. During times of economic softening, we have and will continue to invest in product, marketing, and showrooms. As we have done before, we are confident that this approach will enable us to emerge from this cycle in an even stronger position. We will continue to advance our growth strategy by enhancing and elevating our product assortment, expanding our showroom base, increasing brand awareness, and making the strategic investments necessary to upgrade our infrastructure and improve our business tools to support this growth. Our growing showroom footprint with two primary formats continues to drive brand awareness and our long-term growth. We have opened eight new showrooms in six states so far this year and opened our 100th locations. I want to thank our teams across our house for their effort in achieving this important milestone in our journey. Just since late May, we have opened three incredible new showrooms, which are a large format in fabulous centers in California, the Grove in Los Angeles, the Beacon La Costa in Carlsbad, and Stanford Shopping Center in Palo Alto. Today, we have 83 traditional showrooms, only halfway through our goal of 165 traditional showrooms. Our 165 traditional showrooms goal is based on very attractive markets we have identified through our experienced real estate team. We perform robust analytic work in our location list and have more opportunities than we choose to execute in any given year. Our model is successful in a variety of markets and across all geographies. allowing us the opportunity for significant expansion. In short, we couldn't be more excited about the new location opportunities ahead of us. As you know, we are also thrilled with our smaller design studio concept, and last week opened our second design studio of the year in Peachtree City, Georgia. Our skilled real estate team has identified 100 locations for design studios, and while we are early in our growth journey, With this footprint, we are incredibly pleased with the performance we've seen, with design studios outperforming the balance of the chain. We are on pace to meet our showroom opening goal for 2024 with a design studio in the Lake Norman, North Carolina area and traditional showrooms in Oklahoma City and Corte Madera, California, slated to open later this year. As I mentioned earlier, we are pleased with the performance of our new showrooms in our new showrooms economics. Moving to our brand awareness. This is a significant opportunity as more and more potential clients become familiar with our house. The top two ways we increase brand awareness are through opening new showrooms and recommendations from friends and family. From our nearly 40 years in the industry, we generate our strong recommendations from friends and family because the factors that set us apart in the premium home furnishing industry, our exceptional product and the value propositions it represents, the unique artisan nature of the aesthetics, the time we take to understand our clients' wants and needs in their homes and matching that with our livable luxury approach, the inspirational and aspirational experience in our showrooms, the ability to match our clients with our complimentary in-home designers, and the ease with which we work with our clients' own interior designers, and our focus on creating the best in-home experience in the industry. Speaking of product, we cannot wait for you to see our new fall collections, which will begin arriving in showrooms at the end of the month. At the same time, our fall catalog will start arriving in homes. It is a stunning catalog, and we have meaningfully increased circulation with prospects to drive brand awareness. We are introducing some incredible new collections that build on the success of some of our most popular pieces. You'll see stunning new wood finishes that we are very excited about and new curved takes and wonderful fabrics in our upholstery collections. We continue to focus on offering our clients' high design combined with the trademark comfort and functionality that define livable luxury aesthetics. On our strategic investment front, as we communicated, we are focused on setting the foundation for long-term growth by improving operational efficiencies with upgraded infrastructure, technology, and processes. We are pleased to have implemented our new warehouse management system and continue to refine the opportunities for operational efficiencies. Further, over the next several months, we will begin to deploy a new planning system that will help optimize our inventory purchases and forecast capabilities, and a new ERP at our upholstery manufacturing facility that will improve margin visibility and production capabilities. We will continue to work hard to create a future scalable operating environment that will set the stage for more efficient growth. Turning now to supply chains for the update on ocean freight. All carriers are still avoiding the Red Sea, and transit times are two weeks longer on average, which we are planning for in our inventory purchases. Spot rates have increased this summer from container capacity shortages, early peak season shipping, and port congestion at the Asian point. During the second quarter, we were able to bring in all of our containers using the contract rate, but have paid some higher spot rates in the third quarter to ensure product availability for our clients. This impact is factored into our revised outlook for the remainder of the year. Together with our vendors, not only did we learn to successfully navigate supply chain challenges during a pandemic, but we confirmed our geo... Graphically diverse supply chain is an advantage in our industry. I am pleased to say that with our strong vendor relationship, we are also working together to improve our costs given the current environment. But don't mistake that for cost engineering. We do not reduce our quality to hit a margin target. Before I turn this over to Don to discuss our results and outlooks in more detail, I want to thank our teams for striving to provide industry-leading client service every day and for achieving key milestones in advancing our strategic growth initiatives in the first half of 2024. I'm extremely proud of all of you, and I'm excited to keep the momentum going. Now I'll turn it over to Dawn.