5 takeaways from Arhaus IPO

The preliminary prospectus shows a luxury home furnishings retailer in aggressive growth mode on the front and back ends as well as digitally.

BOSTON HEIGHTS, Ohio — Top 100 company Arhaus filed a preliminary prospectus with the Securities and Exchange Commission Monday for an initial public offering that could be worth up to $100 million.

And — just like it is for many in the industry — the prospectus shows the upscale home furnishings retailer’s business was initially shaken by the Covid-19 pandemic, but recovered with runaway sales growth and demand despite all of the industry’s supply chain woes.

Here are a few takeaways from the prospectus:

First the numbers: Arhuas, with 75 stores (including three outlets) in 27 states reported 2020 net revenue of $507.4 million, up 2.6% from $494.5 million in 2019. E-commerce sales accounted for about 18% of total revenue last year vs. 11% in 2019. Comparable revenue growth was up 0.9%. Net income was up 7.2% to $17.8 million.

For the first half of this year, net revenue jumped 58.6% to $355.4 million and comparable revenue growth was up 53.1% vs. a 7.2% decrease for the same period in 2020. (Keep in mind, the retailer’s stores were temporarily shut down for part of the 2020 period due to the pandemic.) Net income for the first half was up 18.7% to $16.2 million.

Other numbers: Gross margin as a percent of net revenue was 42% in the first half, vs. 38% for the same period last year and 36% for all of fiscal 2019 so profitability is steadily increasing. The company employs more than 1,400 people. That includes 58 in-home designers, with plans to reach 70 by year end.

The origin story: Arhaus was started in 1986 by CEO John Reed and his father with the opening of their first location in downtown Cleveland. It started with a “simple idea,” Reed says in his prospectus letter: “Furniture should be responsibly sourced, lovingly made, and built to last.”

In the 35 years since, “my team and I have traveled the world, seeking inspiration, beautiful materials, and master artisans who use techniques as old as time,” he goes on to say. “We partner with those artisans because they take the time to do things right, building heirloom-quality furniture and décor by hand with an authenticity that others in the industry simply can’t match — no matter how hard they try.”

Reed said the company believes in “the theater of retail” and has designed its stores — and more recently its digital footprint — “as centers of imagination and endless inspiration. Every detail is intentionally chosen and layered together beautifully, creating something new to discover every time you walk through our doors … We want clients to immerse themselves in our furniture and décor — touching, feeling, and experiencing every artisan-crafted collection.”

Arhaus makes its own upholstery. Sales of goods from its own manufacturing facility accounted for 40% of the retailer’s upholstery business and 16% of overall merchandise revenue last year.

Arhaus is experiencing supply chain disruption just like everyone else. In a section on “Our ability to source and distribute products effectively,” the company noted, “a number of our vendors are experiencing delays in production and shipment of merchandise orders related to direct and indirect effects of the Covid-19 pandemic.” Last year and through the first half of this year, that lag has delayed the company’s ability to convert demand  into delivered sales. 

Later it noted, “It may take several quarters for inventory receipts and manufacturing to catch up to the increase in demand.”

There’s plenty of room for growth, both physically and digitally. While the company didn’t go into detail on the digital potential, Arhaus believes it can more than double its store count to more than 165 locations in both new and existing markets. “Illustrated by the success of our geographically diverse showroom footprint, our omni-channel model has performed well in every region of the country, across retail formats and across market sizes,” it said.

Currently, the company expects to open five to seven new stores per year for the foreseeable future, which means it could reach that 165-plus number within the next 15 years. 

It’s also expanding the backend. The existing distribution center and corporate office in Ohio will be expanded by about 230,000 square feet. A new North Carolina facility will include about 310,000 square feet of distribution center, and Arhaus is also thinking about opening yet another DC “to help streamline shipping times and further support our rapidly growing demand,” it said. Its NC facility opening later this year also will double the retailer’s in-house manufacturing capacity, increasing square footage from 150,000 to 190,000.

Estimated timing for the IPO was not disclosed. The retailer plans to be listed on the Nasdaq under the ticker ARHS.

Reed ended his brief letter in the prospectus with this:

“We stand for livable luxury and are poised to continue revolutionizing the industry. With so many exciting possibilities on the horizon, I am thrilled to craft the future of furniture with you.”

Clint Engel

Clint Engel is a veteran home furnishings industry journalist and executive editor of Home News Now. Please share your feedback with him at clint@homenewsnow.com

View all posts by Clint Engel →

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