Arhaus, Inc.

Good morning and welcome to the Aarhus First Quarter 2025 Earnings Conference Call. 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, Tara Atwood, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us for the R-House first quarter 2025 earnings call. Joining me on today's call are John Reed, our founder, chairman, and chief executive officer, Jennifer Porter, our chief marketing and e-commerce officer, and Ryan Brody, our senior vice president of finance. After our prepared remarks, we will open the line up for a Q&A session. During Q&A, please limit to one question and one follow-up. We issued our press release and 10Q for the quarter ended March 31st, 2025, before the market opened today. Those documents are available on our investor relations website at ir.rhouse.com. A replay of the call will be available on our website within 24 hours. I would like to remind everyone that our 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-Q. 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 accept 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 will turn the call over to John.

Good morning, everyone, and thank you for joining us today. We're pleased with our performance this quarter, delivering first quarter results in line with our expectations. supported by showroom growth, healthy client engagements across our retail and e-commerce channels, and continued disciplined execution of our operating model. Net revenue grew a healthy 5.5% and demand comparable growth was up an impressive 4.1%. We ended the quarter with $214 million in cash and cash equivalents and remained debt-free, Our strong financial position provides us the flexibility to invest in strategic growth opportunities and create value for our shareholders. Since the huge uncertainty shock the past couple months, we're focused on what we can control, executing with discipline, investing strategically, and growing our showroom footprint to support long-term profitable growth. We believe our differentiated model built on artisan-crafted, high-quality design, and a premium client experience, continues to be a distinct competitive advantage. Now, let me walk through seven proof points that gives us confidence in the road ahead, starting with our people. We're building our house for the long term, and that begins with talent. I'm incredibly proud of our depth bench of experienced leaders across the company. Individuals who creativity, passion, and discipline continue to drive our success. We're also excited to welcome Michael Lee as our new Chief Financial Officer starting May 12th. Mike brings extensive experience in financial leadership that will be instrumental. And across our showrooms, our team remains our secret sauce. Their expertise and connection with their clients are the key competitive advantage. one that consistently sets our house apart. The strength of our people is reflected in our ability to execute, especially through the agility of our sourcing and supply chain operations. Which brings me to my second proof point, our supply chain and sourcing agility. Today, our sourcing footprint is diversified across North America, Europe, and South Asia. enabling us to adopt quickly to global dynamics while upholding the exceptional quality standards that define our house. It's important to emphasize that our diversification strategy has been in place for many years, long before the current headlines, and reflects our commitment to sourcing from a broad range of trusted global vendors. At our house, product development isn't about sourcing diversification as a starting point, It's about going around the world to find the best of the best. That commitment to exceptional craftsmanship, authentic materials, and trusted relationships naturally lead to a sourcing model that is diverse, balanced, and resilient. In April, the United States represented approximately 36% of our total receipts, including our internal manufacturing operation. We continue to invest in U.S. manufacturing, particularly in our domestic upholstery business. Over 70% of our upholstery business comes from the United States, with the largest portion coming from our own North Carolina facility, supporting proprietary design, cost control, and our premium positioning. We also recognize the heightened focus on China sourcing amid evolving tariff dynamics. In April, China represented approximately 13% of our total product receipts. We expect this to decline to approximately 5% or less in the third quarter, and we believe we can reach approximately 1% in the fourth quarter. Our sourcing evolution underscores the agility of our operating model and the successful execution of our teams. Of course, the strength of our supply chain wouldn't be possible without our vendor relationships, my third point. These relationships enable us to maximize agility, minimize financial risk, and move with speed and confidence during times of uncertainty. They are not simply transactional. They're built on mutual trust, shared values, and a longstanding commitment to delivering exceptional quality. My deep-rooted passion for sourcing keeps me closely connected to this work, from scouring hidden gem artisan markets to building direct relationships with vendors and artisans around the world. Over the past month, I've had the opportunity to meet face-to-face with many of our global vendors alongside members of our leadership team. These visits reaffirm what we've long known. When it matters most, our vendors show up as an extension of our team. Our success is mutually beneficial, and many vendors and artisans have scaled with us, in some cases for decades. Whether it's helping to offset cost pressure, prioritizing resources and production, or adapting quickly to the dynamic environment, our vendors consistently help us navigate. Together with our vendors, we continue to deliver exceptional value without ever compromising quality our clients expect and love. Which brings me to my fourth proof point, our resilient high-end client base. We believe we are meaningfully over-indexed to an affluent consumer who has historically been less reactive to macro volatility Importantly, this client has consistently been the last to pull back and the first to return when conditions stabilize. And while stock market volatility may be weighing on consumer sentiment more broadly, overall demand was healthy in the first quarter. Our clients remain deeply invested in their homes and consistently prioritize quality, craftsmanship, and long-term value in their purchase decisions. Proof point five. Consistent strategic execution. We remain focused on executing our long-term strategy by continuing to invest in what matters most. Best-in-class product quality, thoughtful innovation, newness that resonates with our clients. We're expanding our physical footprint while deepening client engagement through a multi-touchpoint model, including our catalogs, which remain among our most powerful storytelling tools. At the same time, we're making strategic investments in technology and e-commerce to further elevate the client experience and strengthen our omni-channel capabilities. This disciplined execution is a key reason we gained market share and recovered faster than many peers coming out of the pandemic, and why we remain confident in our approach going forward. Proof point number six, showroom growth and investment. In 2024, we opened 11 new showrooms, which are performing well, while relations enhance brand visibility and deepen client engagements. Looking ahead, we have 28 total showroom projects in the pipeline through the end of 2027, with even more opportunities likely. This momentum reflects our disciplined focus on scaling thoughtfully, elevating the showroom experience, expanding market share, and supporting long-term revenue growth. And underpinning all of this is my seventh and final point, our financial strength. We continue to operate from a position of discipline, debt-free with ample liquidity and a healthy balance sheet. We believe that a strong financial foundation allows us to invest confidently in long-term growth, navigate near-term uncertainty, and deliver long-term value for our shareholders. In short, our house is well-positioned for the future. powered by the strength of our brand, the passion of our people, and the disciplined execution of our strategy. Now let's take a closer look at our performance in the quarter. Beginning with showrooms. In the first quarter, we completed five total showroom projects, one new traditional showroom, and four strategic relocations. The highlights include Winter Park, Florida, a new traditional showroom opened in Winter Park Village in an upscale lifestyle center. Sarasota, Florida, relocated showroom opened in Centerport at Waterside, a key Florida market. In Burlingame, California, we relocated a showroom in downtown Burlingame, tailored to the local clientele. Looking ahead, I am pleased to share that we are raising our outlook on this front and now expect to complete approximately 12 to 15 total showroom projects in 2025. This includes four to six new showrooms, up from the prior three to five, and eight to nine strategic relocation, remodels, and expansions. Our long-term remains an average of five to seven new traditional showrooms annually. Importantly, our timing is driven by readiness, not just the calendar. We open locations when we believe they are prepared to deliver the experience our clients expect. We encourage you to view our footprint growth through the lens of total showroom project activity. For every project, whether new opening, relocation, remodel, or expansion, is evaluated through the same discipline's return on investment approach. Our showroom strategy is clear. Target premier locations with strong foot traffic, complementary code tendencies, and opportunities to enhance the brand visibility and grow market share. Every decision is made with a focus on sustainable, high-quality growth and expected returns on investments. Turning to our product, design is the core of who we are. This season, clients are responding to warmer products, softer silhouettes, eclectic use of color and pattern. Highlights include our outdoor collection featuring premium teak, all-weather wicker, and our first Italian upholstered collection. Upholstery remains a hallmark, handcrafted by skilled artisans. Across collections, rich textures, warm woods, and unexpected materials create a fresh yet familiar look and feel. Looking ahead to 2025, we'll continue to innovate in materials, silhouettes, and personalization, keeping us at the forefront of design, comfort, and quality. Turning to demand, as I shared earlier, we delivered an impressive, demand comparable growth of 4.1% in the quarter. However, demand comparable growth was not linear through the quarter. With strong performance in January up approximately 10%, March up approximately 7%, partially offset by February, which was down approximately 6%. As we said before, a week, even a month, doesn't define a trend. And while there was more volatility, we are very pleased with our overall strength of the quarter. Looking ahead to the second quarter, April demand was softer than expected with demand comparable growth down 10%, impacted by the shock of the tariff news and the stock market. While near-term volatility remains, our model is built on resilience and we believe our continued unique positioning is a powerful long-term advantage. In closing, Our long-term strategy remains clear and focused and anchored by our four key priorities, increasing brand awareness to drive net revenue, growing our showroom footprint, enhancing our omni-channel client experience, and investing in the growth to build scale. As we look ahead, we remain confident. We have a strong business, a solid foundation, and a strategy that's working. Our team is proactively managing tariffs through sourcing, diversification, and we continue to adapt as needed to protect both margin and momentum. With a premium brand, a loyal and growing client base, and a balance sheet that allows us flexibility, we're well-positioned to invest in long-term value creation. I'm proud of what we've accomplished this quarter and even more excited about the opportunities ahead. Thank you to our team, clients, and shareholders. Your continued support drives everything we do. With that, I'll turn it over to Jen Porter, our Chief Marketing and E-commerce Officer.