Luxury furniture retailer Arhaus (NASDAQ:ARHS) beat analysts’ expectations in the fourth quarter of fiscal 2023, with revenue down 3.5% year over year to $344 million. Full-year revenue guidance also topped analysts’ estimates, but forecast for the next quarter was $265 million was less impressive, coming in 9.4% below expectations. Non-GAAP earnings were $0.22 per share, compared to earnings of $0.34 per share in the same quarter last year.
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Arhaus (ARHS) Q4 FY2023 Highlights:
- Income: $344 million vs. analyst estimates of $335.5 million (2.5% increase)
- earnings per share (non-GAAP): $0.22 vs. analysts’ estimates of $0.16 (34.1% increase)
- Revenue forecast for 1Q 2024 is $265 million at the midpoint, below analysts’ estimates of $292.3 million.
- Management income guide for upcoming financial 2024 averaged $1.35 billion, beating analyst estimates by 1.8% and implying growth of 4.8% (vs. 6.1% in fiscal 2023)
- Free Cash Flow was -$13.82 million compared to $509,000 in the same quarter last year.
- Gross Profit (GAAP): 41% compared to 50% in the same quarter last year.
- Same store sales decreased by 6.8% year on year
- Store locations: 90 at the end of the quarter, an increase of 9 over the last 12 months
- Market capitalization: $1.80 billion
Arhaus (NASDAQ:ARHS) is a luxury furniture retailer that combines the aesthetics of natural materials like reclaimed wood, selling everything from sofas to rugs and bookcases.
Home Furniture RetailersFurniture retailers understand that “home is where the heart is,” but no home would be complete without a comfortable sofa to relax on or a dreamy bed to lounge on. These stores focus on providing more than just the practical necessities in the home. but also the aesthetics, style and charm of tables, lamps and mirrors. Decades ago, it was thought that furniture would resist e-commerce due to the logistical challenges of shipping large furniture, but now you can buy a mattress online and have it delivered in a box in a few days; Therefore, like other retailers, furniture stores need to adapt to new realities and consumer behavior.
Sales Growth Arhaus is a small retailer that sometimes has disadvantages compared to larger competitors that benefit from economies of scale. On the other hand, one of the advantages is that its growth rate can be higher since it grows from a small base.
As you can see below, the company’s 27% annual revenue growth rate over the last four years (we compare to 2019 to normalize the impact of COVID-19) has been incredible as the company has opened more brick-and-mortar locations and increased sales at existing, open stores.
Arhaus’s revenue fell 3.5% year over year to $344 million in the quarter, but beat Wall Street estimates by 2.5%. The company forecast revenue to decline 13% year over year in the next quarter to $265 million, a reversal from the 23.7% year over year growth it posted in the same quarter last year. Looking ahead, Wall Street expects sales to grow 2.2% over the next 12 months, an acceleration from this quarter.
Same-Store Sales Same-store sales growth is an important metric that tracks demand for a retailer’s existing brick-and-mortar stores and e-commerce platform.
Arhaus has become one of the most successful retailers over the past two years thanks to rapid growth in demand in existing stores. The company averaged exceptional same-store sales growth of 27.3% year over year. These results suggest that continually opening new stores could be beneficial for shareholders. When a company has high demand, increasing the number of stores should help it attract more customers looking for its products.
In the most recent quarter, Arhaus’ same-store sales fell 6.8% year over year. The decline was a reversal from the 47% year-on-year growth recorded 12 months ago. We’ll be watching the company closely to see if this turns into a long-term trend.
Key Takeaways from Arhaus’ Fourth Quarter Results
We were impressed by how well Arhaus beat analysts’ estimates for operating profit and earnings per share this quarter. We were also encouraged that its earnings beat Wall Street estimates. These two figures were driven by better-than-expected same-store sales (down 6.8% compared to an estimated decline of 10.4%). Given the strong quarter, management shared optimistic guidance for full-year 2024 revenue and EBITDA, easily beating analysts’ estimates.
With full-year 2023 free cash flow beating internal estimates, Arhaus is declaring a special one-time dividend of $0.50 per share – representing a ~4% yield on the current share price. The dividend will be paid on April 4, 2024 to shareholders of record on March 21, 2024.
Overall, this quarter’s results appear to be quite positive and shareholders should be optimistic. The stock was unchanged following the earnings and is currently trading at $12.75 per share.