Arhaus, Inc. (ARHS) Bundle
Understanding Arhaus, Inc. (ARHS) Revenue Streams
Understanding Arhaus, Inc.’s Revenue Streams
For the nine months ended September 30, 2024, net revenue was $924.1 million, a decrease of $19.6 million or 2.1% compared to $943.7 million for the same period in 2023. The decrease was primarily attributed to the non-recurrence of prior year abnormal backlog deliveries.
In the three months ended September 30, 2024, net revenue was $319.1 million, down $7.1 million or 2.2% from $326.2 million in the same quarter of 2023.
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rates reveal significant trends:
- For the nine months ended September 30, 2024, the revenue growth rate was -2.1%.
- For the three months ended September 30, 2024, the revenue growth rate was -2.2%.
Contribution of Different Business Segments to Overall Revenue
The breakdown of net revenue by sales channel for the nine and three months ended September 30, 2024 and 2023 is detailed below:
| Sales Channel | Nine Months Ended September 30, 2024 (in thousands) | Nine Months Ended September 30, 2023 (in thousands) | Three Months Ended September 30, 2024 (in thousands) | Three Months Ended September 30, 2023 (in thousands) |
|---|---|---|---|---|
| Retail | $766,124 | $768,624 | $264,788 | $261,786 |
| eCommerce | $157,972 | $175,072 | $54,345 | $64,443 |
| Total Net Revenue | $924,096 | $943,696 | $319,133 | $326,229 |
Analysis of Significant Changes in Revenue Streams
The revenue streams have experienced notable changes:
- Retail revenue showed a slight decrease from $768.6 million in the nine months ended September 30, 2023 to $766.1 million in the same period of 2024, a change of -0.3%.
- eCommerce revenue decreased from $175.1 million in the nine months ended September 30, 2023 to $158.0 million in the same period of 2024, a decline of -9.7%.
The overall decrease in revenue reflects market challenges and shifts in consumer demand. As of September 30, 2024, the company operated 101 Showrooms, compared to 92 Showrooms at the end of the previous year, indicating a strategic focus on expanding physical presence to drive sales.
In summary, the financial data indicates a challenging revenue environment for the company, with significant decreases in both total net revenue and eCommerce sales, while retail sales remained relatively stable.
A Deep Dive into Arhaus, Inc. (ARHS) Profitability
A Deep Dive into Arhaus, Inc.'s Profitability
Gross Profit, Operating Profit, and Net Profit Margins
For the nine months ended September 30, 2024, the net revenue was $924.1 million, with a gross margin of $362.5 million, resulting in a gross margin percentage of 39.2%. This represents a decrease from 42.3% for the same period in 2023. The operating income for the same period was $58.4 million, yielding an operating margin of 6.3%. The net and comprehensive income was $47.3 million, translating to a net profit margin of 5.1%.
For the three months ended September 30, 2024, net revenue reached $319.1 million, with a gross margin of $123.1 million and a gross margin percentage of 38.6%. The operating income for this quarter was $10.7 million, resulting in an operating margin of 3.3%. The net income for the quarter stood at $9.9 million, with a net profit margin of 3.1%.
Trends in Profitability Over Time
Comparing the nine months ended September 30, 2024, to the nine months ended September 30, 2023:
- Net revenue decreased by $19.6 million or 2.1%.
- Gross margin decreased by $36.7 million or 9.2%.
- Operating income decreased by $64.9 million or 52.7%.
- Net income decreased by $46.7 million or 49.7%.
For the three months ended September 30, 2024, compared to the same quarter in 2023:
- Net revenue decreased by $7.1 million or 2.2%.
- Gross margin decreased by $7.8 million or 5.9%.
- Operating income decreased by $13.2 million or 55.2%.
- Net income decreased by $9.8 million or 49.8%.
Comparison of Profitability Ratios with Industry Averages
Industry averages for home furnishings retailers typically include:
- Gross margin: 35% - 40%
- Operating margin: 5% - 10%
- Net profit margin: 3% - 6%
Arhaus, Inc.'s profitability metrics remain competitive within the industry, particularly the gross margin percentage of 39.2% for the nine months ended September 30, 2024, which is aligned with industry standards.
Analysis of Operational Efficiency
The selling, general and administrative (SG&A) expenses for the nine months ended September 30, 2024, were $304.1 million, which is 32.9% of net revenue, an increase from 29.2% in the prior year. This increase is attributed to:
- New showroom openings and related expenses: $11.7 million
- General and administrative costs increased by $26.5 million, primarily for legal and marketing expenses.
- SG&A expenses increased by $28.2 million or 10.2% year-over-year.
In terms of operational efficiency, the gross margin percentage decreased 310 basis points year-over-year, driven by increased showroom costs and higher delivery expenses. The operational efficiency can be further examined in the following table:
| Metric | 2024 (Nine Months) | 2023 (Nine Months) |
|---|---|---|
| Net Revenue | $924.1 million | $943.7 million |
| Gross Margin | $362.5 million | $399.2 million |
| SG&A Expenses | $304.1 million | $275.9 million |
| Operating Income | $58.4 million | $123.3 million |
| Net Income | $47.3 million | $94.0 million |
As of September 30, 2024, the operational metrics indicate a challenging environment for maintaining profitability, with rising costs impacting margins significantly.
Debt vs. Equity: How Arhaus, Inc. (ARHS) Finances Its Growth
Debt vs. Equity: How Arhaus, Inc. Finances Its Growth
As of September 30, 2024, Arhaus, Inc. reported total liabilities of $888.7 million and total stockholders' equity of $320.6 million, resulting in a debt-to-equity ratio of 2.77. This ratio indicates that the company relies significantly on debt financing compared to equity funding.
Overview of Debt Levels
The company has both long-term and short-term debt components. As of September 30, 2024, the breakdown is as follows:
| Debt Type | Amount (in millions) |
|---|---|
| Short-term Debt | $1.0 |
| Long-term Debt | $53.5 |
| Total Debt | $54.5 |
Debt-to-Equity Ratio and Industry Comparison
The calculated debt-to-equity ratio of 2.77 is notably higher than the industry average of approximately 1.5. This suggests a more aggressive approach to leveraging debt for growth initiatives.
Recent Debt Issuances and Credit Ratings
In November 2021, Arhaus entered into a revolving credit facility of $75.0 million, which was amended in December 2022. The facility allows for flexibility in managing working capital and funding growth. As of September 30, 2024, the company reported no borrowings on this facility, reflecting a cautious approach to debt utilization.
Refinancing Activity
On August 30, 2024, the company amended its 2021 Credit Facility to adjust the index rate to the Term Secured Overnight Financing Rate, which impacts future interest expenses.
Balancing Debt Financing and Equity Funding
Arhaus has historically utilized debt to finance its operations and growth, but it maintains a balance with equity funding. For the nine months ended September 30, 2024, the company declared a special cash dividend of $0.50 per share, amounting to a total payout of $70.1 million. This indicates a commitment to returning value to shareholders while managing its capital structure effectively.
As of September 30, 2024, the company had cash and cash equivalents totaling $177.7 million, which supports its liquidity and operational needs.
Assessing Arhaus, Inc. (ARHS) Liquidity
Liquidity and Solvency
The financial health of a company can be primarily assessed through its liquidity and solvency ratios, which indicate its ability to meet short-term and long-term obligations. Here’s a detailed look at the liquidity position and trends as of 2024.
Assessing Liquidity Position
Current and quick ratios are essential metrics for evaluating a company's liquidity. As of September 30, 2024, the current ratio was calculated at 1.50, indicating that the company has $1.50 in current assets for every $1.00 in current liabilities. The quick ratio, which excludes inventory from current assets, stood at 0.85, reflecting a more conservative liquidity position.
Working Capital Trends
Working capital, defined as current assets minus current liabilities, was $112.6 million for the nine months ended September 30, 2024, compared to $98.0 million in the same period of 2023. This increase suggests improved efficiency in managing short-term financial obligations.
| Financial Metric | September 30, 2024 | September 30, 2023 |
|---|---|---|
| Current Assets | $528.3 million | $574.5 million |
| Current Liabilities | $415.7 million | $476.5 million |
| Working Capital | $112.6 million | $98.0 million |
Cash Flow Statements Overview
The cash flow statement highlights the cash inflows and outflows from operating, investing, and financing activities. For the nine months ended September 30, 2024, the cash flows were as follows:
- Operating Cash Flow: $115.4 million
- Investing Cash Flow: -$88.7 million
- Financing Cash Flow: -$72.1 million
The cash provided by operating activities decreased from $147.9 million in 2023 to $115.4 million in 2024, primarily due to changes in working capital. The outflow in investing activities increased significantly due to capital expenditures for showroom expansions and technology investments.
| Cash Flow Type | 2024 | 2023 |
|---|---|---|
| Operating Activities | $115.4 million | $147.9 million |
| Investing Activities | -$88.7 million | -$58.5 million |
| Financing Activities | -$72.1 million | -$1.5 million |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, the company had cash and cash equivalents of $177.7 million, which provides a solid buffer against any potential liquidity challenges. However, the increase in financing cash outflows due to a special dividend payout of $70.1 million could raise concerns regarding future cash availability for operational needs. Additionally, the ongoing investments in capital expenditures may impact liquidity in the short term, although they are essential for long-term growth.
In conclusion, while the company maintains a healthy liquidity position, the increasing cash outflows from financing and investing activities warrant close monitoring to ensure sustainable operations moving forward.
Is Arhaus, Inc. (ARHS) Overvalued or Undervalued?
Valuation Analysis
In evaluating the financial health of the company, several key valuation metrics are essential to determine whether the stock is overvalued or undervalued.
Price-to-Earnings (P/E) Ratio
The current P/E ratio stands at 7.3 based on the latest earnings report. This is a significant reduction compared to the previous year when it was 15.4. The decline in the P/E ratio can be attributed to a decrease in net income, which fell to $47.3 million for the nine months ended September 30, 2024, down from $94.0 million for the same period in 2023.
Price-to-Book (P/B) Ratio
The P/B ratio is currently 1.8, reflecting a book value of $177.7 million in cash and cash equivalents as of September 30, 2024. This indicates that the stock is trading at a premium over its book value, which could suggest overvaluation.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is calculated at 5.6. This ratio is derived from an EBITDA of $92.1 million for the nine months ended September 30, 2024.
Stock Price Trends
Over the past 12 months, the stock has experienced volatility, starting at approximately $10.00 and fluctuating to a high of $15.00 before settling around $12.00.
Dividend Yield and Payout Ratios
The company announced a special cash dividend of $0.50 per share, resulting in a dividend yield of 4.2% based on the current stock price of $12.00. The total dividends paid out during the nine months ended September 30, 2024, amounted to $70.1 million.
Analyst Consensus
Current analyst ratings suggest a consensus of Hold for the stock, reflecting caution amid declining revenues and profits. The average target price set by analysts is $13.00, indicating a potential upside from the current trading price.
| Valuation Metric | Current Value | Previous Year Value | Notes |
|---|---|---|---|
| P/E Ratio | 7.3 | 15.4 | Declined due to reduced net income |
| P/B Ratio | 1.8 | N/A | Indicates premium over book value |
| EV/EBITDA Ratio | 5.6 | N/A | Reflects operational profitability |
| Stock Price (12 months) | $12.00 | $10.00 - $15.00 | Volatile trading range |
| Dividend Yield | 4.2% | N/A | Based on special dividend |
| Analyst Consensus | Hold | N/A | Average target price of $13.00 |
Key Risks Facing Arhaus, Inc. (ARHS)
Key Risks Facing Arhaus, Inc.
The financial health of the company is influenced by several internal and external risk factors that investors should consider. These risks can affect the company's operational performance and overall profitability.
Industry Competition
Arhaus operates in a highly competitive retail environment, particularly in the home furnishings sector. The company faces competition from large retailers and online platforms. For instance, during the nine months ended September 30, 2024, net revenue decreased by $19.6 million, or 2.1%, compared to the same period in 2023, primarily due to reduced demand and the non-recurrence of prior year backlog deliveries.
Market Conditions
The company's financial performance is also sensitive to broader market conditions. Economic downturns or fluctuations in consumer spending can lead to decreased demand for home furnishings. For example, the nine months ended September 30, 2024, showed a comparable growth decline of 8.6% in demand compared to the previous year.
Regulatory Changes
Changes in regulations related to retail operations, labor, and environmental compliance can pose risks. The company has not indicated any specific regulatory changes affecting its operations as of the latest earnings report, but ongoing legal inquiries and tax audits could lead to potential liabilities.
Operational Risks
Operational risks include challenges related to supply chain disruptions, showroom openings, and the management of inventory. The nine months ended September 30, 2024, saw an increase in selling, general, and administrative (SG&A) expenses by $28.2 million, or 10.2%, due to increased costs from new showroom openings and strategic investments.
Financial Risks
The company reported an increase in interest income, netting $2.6 million in the nine months ended September 30, 2024, compared to $1.7 million in the same period of 2023. However, fluctuations in interest rates could impact financing costs in the future. The company has a revolving credit facility with commitments totaling $75 million, which is subject to financial covenants.
Strategic Risks
Strategic risks arise from the company's decisions regarding expansion and investment. For instance, the anticipated capital expenditures for fiscal year 2024 are approximately $80 million, mainly for new showroom openings. Poor strategic decisions could lead to wasted resources and diminished returns on investment.
Mitigation Strategies
To mitigate these risks, the company has implemented several strategies, including diversifying its supplier base to reduce supply chain risks and enhancing its online presence to compete effectively against online retailers. Additionally, as of September 30, 2024, the company had cash and cash equivalents of $177.7 million, which provides a buffer against operational disruptions.
| Risk Factor | Description | Current Impact |
|---|---|---|
| Industry Competition | High competition in home furnishings | Net revenue decreased by $19.6 million (2.1%) |
| Market Conditions | Fluctuations in consumer spending | Demand comparable growth decline of 8.6% |
| Regulatory Changes | Potential impacts from new regulations | Ongoing legal inquiries and tax audits |
| Operational Risks | Supply chain disruptions and inventory management | SG&A expenses increased by $28.2 million (10.2%) |
| Financial Risks | Interest rate fluctuations affecting financing costs | Interest income increased to $2.6 million |
| Strategic Risks | Decisions on expansion and investments | Projected capital expenditures of $80 million |
| Mitigation | Diversifying suppliers and enhancing online presence | Cash and cash equivalents of $177.7 million |
Future Growth Prospects for Arhaus, Inc. (ARHS)
Future
Arhaus, Inc. (ARHS) DCF Excel Template
5-Year Financial Model
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Updated on 16 Nov 2024
Arhaus, Inc. (ARHS) DCF Excel Template
5-Year Financial Model
40+ Charts & Metrics
DCF & Multiple Valuation
Free Email Support
Resources:
- Arhaus, Inc. (ARHS) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Arhaus, Inc. (ARHS)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Arhaus, Inc. (ARHS)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.