United States securities and exchange commission logo
August 24, 2021
John Reed
Chief Executive Officer
Arhaus, Inc.
51 E. Hines Hill Road
Boston Heights, Ohio 44236
Re: Arhaus, Inc.
Draft Registration
Statement on Form S-1
Submitted July 30,
2021
CIK No. 0001875444
Dear Mr. Reed:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so
we may better
understand your disclosure.
Please respond to this letter by providing the requested
information and either submitting
an amended draft registration statement or publicly filing your
registration statement on
EDGAR. If you do not believe our comments apply to your facts and
circumstances or do not
believe an amendment is appropriate, please tell us why in your
response.
After reviewing the information you provide in response to these
comments and your
amended draft registration statement or filed registration statement, we
may have additional
comments.
Draft Registration Statement on Form S-1
General
1. Please provide us with
supplemental copies of all written communications, as defined in
Rule 405 under the
Securities Act, that you, or anyone authorized to do so on your behalf,
have presented or
expect to present to potential investors in reliance on Section 5(d) of the
Securities Act, whether
or not you retained, or intend to retain, copies of those
communications. Please
contact the staff member associated with the review of this filing
to discuss how to
submit the materials, if any, to us for our review.
John Reed
FirstName
Arhaus, Inc.LastNameJohn Reed
Comapany
August 24, NameArhaus,
2021 Inc.
August
Page 2 24, 2021 Page 2
FirstName LastName
Basis of Presentation
Key Terms and Performance Indicators Used in this Prospectus; Non-GAAP
Financial Measures,
page ii
2. You define "merchandise revenue" as revenue from sale of merchandise
exclusive of
certain items. You define "demand merchandise revenue" as the value of
merchandise
from orders placed exclusive of the same items as for "merchandise
revenue." Please
explain to us and disclose as appropriate what the difference between
the sale amount
of merchandise and the value of merchandise orders represents and the
distinction
between the two you are intending to convey to investors.
3. Please explain to us and disclose as appropriate how returned
merchandise is factored
in determining a factual representation of "demand."
Company Overview, page 1
4. Please revise to define in greater detail what you consider to be the
"premium home
furnishing market."
5. We note your disclosure in the second paragraph that both demand
comparable brand
revenue growth and comparable brand revenue growth have been
meaningful over the last
three years. Please revise to clarify what you mean by "meaningful"
and provide
quantification for the referenced periods. Additionally, we note that
you have highlighted
demand comparable revenue growth of 25% in 2020. Please revise to
balance that
presentation with your comparable brand revenue growth percentage for
the same period.
6. We note in the fourth paragraph and elsewhere you reference delivering
"attractive
margins" or "attractive profit margins." In each instance, please
revise to clarify what you
mean by attractive margins or attractive profit margins.
7. Please revise the seventh paragraph to disclose comparable information
for 2019.
8. We note your disclosure that you believe there is potential to more
than double your
current showroom base to more than 150 locations in both new and
existing markets. We
also note comparable disclosure in the Expand Our Showroom Base and
Capture Market
Share section on page 9 to include a reference to the "next decade."
To the extent
possible, please revise to clarify and quantify the timeframe
applicable to your expansion
plan. Please also reconcile with your disclosure in the Real Estate
Strategy section on
page 96 to include the statement that you currently do not have an
anticipated timeframe
to open new showrooms.
Strong Operating Performance and Momentum , page 2
9. Please revise to include comparable information related to your
comparable brand revenue
growth between 2020 and 2019.
John Reed
FirstName
Arhaus, Inc.LastNameJohn Reed
Comapany
August 24, NameArhaus,
2021 Inc.
August
Page 3 24, 2021 Page 3
FirstName LastName
Competitive Strengths
Superior and Consistent Unit Economics, page 7
10. Please show us how "unit-level adjusted EBITDA" and the related margin
are computed.
Strong Direct Global Sourcing Relationships, page 7
11. We note your disclosure that the majority of your products can only be
purchased from
Arhaus. Please revise to quantify the percentage of products which are
exclusive to
Arhaus.
Grow eCommerce Platform, page 8
12. We note your disclosure here and elsewhere that eCommerce merchandise
revenue
increased 64% in 2020 compared to 2019. With a view towards revised
disclosure, please
advise how much of this growth was attributable to the COVID-19
pandemic in
comparison to historical growth increases in prior periods and whether
you expect this
trend to continue going forward.
Our Growth Strategies
Increase Brand Awareness to Drive Sales, page 8
13. Please disclose how "returns on digital advertising spend of 11x" was
computed for
transparency to investors about how this was derived.
Summary Historical Consolidated Financial Data, page 16
14. Please show the computation of "comparable brand revenue growth" and
"demand
comparable brand revenue growth" for transparency to investors about
how they were
derived.
Use of Proceeds, page 55
15. Please revise the third paragraph to more specifically identify and
quantify the principal
intended uses of the net proceeds. Alternatively, if you have no
current specific plan for
the proceeds or a significant portion of the proceeds, state that that
is the case and discuss
the principal reasons for the offering. Refer to Item 504 of
Regulation S-K.
The Reorganization, page 60
16. Please refer to the post-offering ownership chart on page 62. Please
revise to add the
ownership and voting percentages of your Class A and Class B common
stock after the
offering. In this regard, we note the listed shareholder contingency
groups differ from the
descriptions and bullets presented in the last paragraph on page 60.
John Reed
FirstName
Arhaus, Inc.LastNameJohn Reed
Comapany
August 24, NameArhaus,
2021 Inc.
August
Page 4 24, 2021 Page 4
FirstName LastName
Management's Discussion and Analysis of Financial Condition and Results of
Operations
How We Assess the Performance of Our Business, page 73
17. You present "merchandise revenue" as a non-GAAP financial measure.
Please tell us how
you determined that adding back to net revenue rebates and reserves
related to returns and
discounts does not substitute individually tailored revenue
recognition and measurement
methods for those of GAAP. Refer to the answer to Question 100.04 of
the staff's Non-
GAAP Financial Measures Compliance and Disclosure Interpretations.
Additionally,
provide us with a quantified listing of each item comprising the
GAAP adjustments in
calculating the measure. Further, explain to us with a view to
disclosing as appropriate
the reasons why your management believes this information is useful to
investors and why
this measure provides useful information to investors regarding your
financial condition
and results of operations pursuant to Item 10(e)(1)(i)(C) and (D) of
Regulation S-K.
18. We note your disclosure of "comparable brand revenue growth" and
"demand comparable
brand revenue growth" metrics in the filing. Please expand your
disclosure to state why
these metrics provide useful information to investors and how you use
them in managing
or monitoring the performance of your business. Additionally, discuss
how these
measures meaningfully differ from one another. Please refer to Release
No. 33-10751 for
guidance.
Adjusted EBITDA, page 75
19. You disclose the measure omits non-cash items, however it appears it
also omits items
within "new showroom opening expenses" and "other expenses" that have
been or will be
paid in cash. Accordingly, please revise the characterization of this
measure.
Results of Operations
Comparison of the Years Ended December 31, 2020 and December 31, 2019
Net Revenue, page 77
20. You attribute the change in net revenue to multiple factors. The
effect of price increases
is quantified under "gross margin," but other cited factors are not
quantified anywhere.
Please expand your discussion to quantify the amount of the change
contributed by each
underlying factor that you identified. Refer to Item 303 of Regulation
S-K and section
501.04 of the staff s Codification of Financial Reporting Policies
for guidance.
21. Cost of goods sold decreased in 2020 from 2019 despite an increase in
net revenue
between these periods. It does not appear the reason for the 2020
decrease and inverse
relationship are analyzed. Factors affecting the change in the amount
of cost of goods
sold are discussed under "gross margin," but they appear to
substantially offset one
another. Please expand your disclosure as appropriate. Refer to Item
303 of Regulation
S-K and Section III of Release No. 33-8350 for guidance.
John Reed
FirstName
Arhaus, Inc.LastNameJohn Reed
Comapany
August 24, NameArhaus,
2021 Inc.
August
Page 5 24, 2021 Page 5
FirstName LastName
Liquidity and Capital Resources
Net cash provided by operating activities, page 80
22. You attribute a portion of the $128.5 million increase in net cash
provided by operating
activities between 2020 and 2019 to increased net income, the change
in which amounted
to $1.2 million. It appears a material portion (28%) of the change in
operating cash
beyond the factors cited has not been analyzed. Please expand your
disclosure as
appropriate for a fuller analysis of the material factors contributing
to the increase in
operating cash. Refer to the introductory paragraph of section IV.B
and paragraph B.1 of
SEC Release No. 33-8350 for guidance.
Management, page 101
23. We note that you have identified a number of director nominees. Please
revise the Exhibit
Index on page II-3 to annotate that you will file consents for such
individuals as required
by Rule 438 of the Securities Act of 1933.
You may contact Suying Li at 202-551-3335 or Doug Jones at 202-551-3309
if you have
questions regarding comments on the financial statements and related matters.
Please contact
Donald Field at 202-551-3680 or Lilyanna Peyser at 202-551-3222 with any other
questions.
Sincerely,
Division of
Corporation Finance
Office of Trade &
Services