Luxury furniture retailer Arhaus (NASDAQ: ARHS) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 5.5% year on year to $311.4 million. On the other hand, next quarter’s outlook exceeded expectations with revenue guided to $335 million at the midpoint, or 1.1% above analysts’ estimates. Its GAAP profit of $0.03 per share was 53.4% below analysts’ consensus estimates.
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Arhaus (ARHS) Q1 CY2025 Highlights:
- Revenue: $311.4 million vs analyst estimates of $313.9 million (5.5% year-on-year growth, 0.8% miss)
- EPS (GAAP): $0.03 vs analyst expectations of $0.06 (53.4% miss)
- Adjusted EBITDA: $18.57 million vs analyst estimates of $24.69 million (6% margin, 24.8% miss)
- The company dropped its revenue guidance for the full year to $1.34 billion at the midpoint from $1.38 billion, a 3.3% decrease
- EBITDA guidance for the full year is $134 million at the midpoint, below analyst estimates of $144 million
- Operating Margin: 1.7%, down from 6.2% in the same quarter last year
- Free Cash Flow Margin: 6.1%, up from 3.7% in the same quarter last year
- Locations: 100 at quarter end, up from 92 in the same quarter last year
- Same-Store Sales fell 1.5% year on year (-9.5% in the same quarter last year)
- Market Capitalization: $1.18 billion
Company Overview
With an aesthetic that features natural materials such as reclaimed wood, Arhaus (NASDAQ: ARHS) is a high-end furniture retailer that sells everything from sofas to rugs to bookcases.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.
With $1.29 billion in revenue over the past 12 months, Arhaus is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers. On the bright side, it can grow faster because it has more white space to build new stores.
As you can see below, Arhaus’s sales grew at an exceptional 20.5% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts) as it opened new stores and expanded its reach.
This quarter, Arhaus’s revenue grew by 5.5% year on year to $311.4 million, missing Wall Street’s estimates. Company management is currently guiding for a 8.1% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 8.8% over the next 12 months, a deceleration versus the last five years. Despite the slowdown, this projection is admirable and indicates the market sees success for its products.
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Store Performance
Number of Stores
A retailer’s store count often determines how much revenue it can generate.
Arhaus sported 100 locations in the latest quarter. Over the last two years, it has opened new stores at a rapid clip by averaging 11.5% annual growth, among the fastest in the consumer retail sector. This gives it a chance to scale into a mid-sized business over time.
When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.
Same-Store Sales
The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales is an industry measure of whether revenue is growing at those existing stores and is driven by customer visits (often called traffic) and the average spending per customer (ticket).
Arhaus’s demand has been shrinking over the last two years as its same-store sales have averaged 5.4% annual declines. This performance is concerning - it shows Arhaus artificially boosts its revenue by building new stores. We’d like to see a company’s same-store sales rise before it takes on the costly, capital-intensive endeavor of expanding its store base.
In the latest quarter, Arhaus’s same-store sales fell by 1.5% year on year. This decrease was an improvement from its historical levels. It’s always great to see a business’s demand trends improve.
Key Takeaways from Arhaus’s Q1 Results
It was good to see Arhaus provide revenue guidance for next quarter that slightly beat analysts’ expectations. On the other hand, its full-year EBITDA guidance missed significantly and its EBITDA fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock remained flat at $8.30 immediately following the results.
Arhaus’s latest earnings report disappointed. One quarter doesn’t define a company’s quality, so let’s explore whether the stock is a buy at the current price. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
