ARHS - Earnings call transcript Q2 2022

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Operator

Good morning, and welcome to the Arhaus Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal remarks. Please note that this call is being recorded. And the reproduction of any part of this call is not permitted without written authorization from the company. will the I Ms. over gentlemen, and now conference turn to Ladies Watson, Investor of Vice Wendy President Relations. Senior go Please ahead.

Wendy Watson

Good morning, are earnings Dawn with call. Chairman, and a quarter Chief Phillipson, On second thank and joined the John with you Chief and main for summary Financial by me will Q&A Officer; of today they will Executive cover Dawn John with Officer. Co-Founder, joining Reed, operational and Arhaus' start points we details. Chief then, our made Porter, session. And in financial Jen this outlook performance Marketing morning's will the XXXX. be press release, along for for XXXX our Officer,

question Q&A, limit During follow up. and to one please one

XX-Q before on our If Those available please We ir.arhaus.com. on our to you available our queue. hours. market documents additional site of ended are XX Web Relations be the return A questions, call June XX, the replay opened for the year within and today. XXXX earnings at site have our Investor issued press Web release will

uncertainties. As concerning to results or future or objectives, trends, Actual strategies, statements. risks forward-looking constitute may today reminder, of and number differ materially events remarks a expectations, due events, a results

statements. statements please For risk as The the undertakes such as these be made risk and our maybe updated SEC. company update law, a with XX-K refer of XX-Qs, subsequent our forward-looking Form release and by described the to no or are may factors summary today's annual press from factors to in in And required time-to-time as the cautionary additional obligation of date. revise except filings morning's factors information, this and these and statements report on

John. the I financial refer release to this non-GAAP to the certain will reconciliations. We relevant And call press measures. over turn will also non-GAAP morning's now includes

John Reed

retail morning, results. you excited quarter, and another share $XXX participating our of a everyone increase in net increased channel growth XX% a growth quarterly EBITDA We our eComm our third morning and thank income was reported and with adjusted up and was our to Top company, demand a record we Net we XX% channel up quarter revenue second and XXX% and XX%. increased great comp are XX.X% This call. year million, Good from QX strong our XX.X%. as for had comprehensive public last XX%.

performance strong XX%. Our that of second very notable included and second of growth XX% year's quarter of is top quarter last performance particularly comp comp demand on growth

in we we year. the us to to began thrilled portfolio are our assortment. our unique the past collections for response ongoing inflation, developments. quarter macroeconomics, clients' and continued We across So our rates, interest our XX%. with Despite true and When do two-year passionate developing and stay continue and approach demand rising products introduce know throughout spring our second world pandemic of the comp for global over and by remains the including concerns, chain is supply inspiration from challenges, design stack all designing high around ongoing XXXX, well. the artisan-crafted to strong, to geopolitical to demand driven and seek what which allowed our product We our new

We are client also experience. keenly focused on our

Our furniture of them. highlighting piece within of showrooms designed décor beauty are inspire, the and every to

rigorous process thoughtfully guide training design of can clients and they homes. available and in are way product the their Our help decorating consultants furnishing any designs so and to undergo our quality our on through

Xx services in-home the the which value is see experience this website average. you our offering that result from in and to company average step further is complementary take And designer by results, clearly an clients, our As we order can a resonating. showroom over

and Colorado the to two quarter during and designer education; frontend needs and program, community in have of aesthetics, the the of to showrooms responded very grow also proud design both with opened our quality the We the the as software. room Springs are design York. trade on White which new New in on We continues with backend we our Plains,

We the ramp new our of pleased and opening quick to the showrooms. performance strong up be continue with

our studios Additionally, format to expand months. And we the over design additional this continue expectations. our to are to next exceed three two excited several markets in

timeless During furnishings properties' the we Lodge are with we us partnership and thrilled what from at outdoor New a in beachfront values Arhaus, designs celebrate Lodge. second our our Surf The deck outfitting York and partnership with also with Montauk, inspire Community through artisan-crafted dining quarter, launched collection. The Surf redesigning private and to these and are the

and chain, our are coming improve times steadily. down continue outbound and to logistics Regarding both inbound supply our lead

times expect rest continue year. of to lead over the the We to improve

last help we to backlog, discussed growth facilities our As support over times reduce X quarter, new will lead our distribution our next alleviate XX believe and our we years. the

outperformance. opening better distribution large half Our revenue center played than expected part went North first Carolina net and in our has a

up distribution and integration. a slower expected ramping are work seamless we we a open, at as ensure Our is to Texas intentionally center pace than

near We be this also facility the distribution of complete Ohio expect year. of the end our to expansion

our believe trends hundreds Looking to be incredible and boucle and the décor, beauty and called focus ever is of color. rich, clients the fabrics, the and is collection featuring sculptured fall We've celebration special better we've celebrate to furniture handcrafted of natural artisan our cannot forms, QX, strongest and our the décor, our arrivals within of such materials XXXX cannot forward title the including we with home textured This of product market, seem of campaign into key Arhaus collection carved a From one the agreeing. reading as to designed launched. Home, new I of this think wait and fall truly to launch and materials we on our some and collection. furniture

will catalog Our the in arrive showrooms products issue in the August. new and home clients' of our Style end will by our be

market furnishings $XX home in As a billion the a States. highly in United operate reminder, we fragmented

footprint, their high opening invest our our executing market by Our enabling continue strategy awareness are to gain we omni-channel clients, homes, brand predominantly from are us build to investment who making income the and and in showrooms, growth to households, share. grow the

I confidence team distribution current gives capacity, across our each outlook, opened hard newness closing, set congratulate Our year of of in sales, product have passion record to Dawn thank In we showrooms year. the you. selection, teams raising doubled for alongside moved proud categories, work. to work discuss. continue our people our remainder from I overall always And as make our want that done apart. you our produced production full performance their incredible everything Arhaus In Thank you've the the and best business. do believed excellent and posted momentum to the new we will year, grown all and center our have for the are last execution and results. and introduced their I three, for the to one in and am Arhaus to us

I'll to Now, Dawn. it turn over

Dawn Phillipson

Thank you, John.

for We XX.X% are XX.X% pleased and million, statement and of our XXXX our from center improve, in and delivery continues the include growth items new basis expectations. to well This basis. increased demand revenue our as growth products a a orders comp that Carolina distribution from in net Key as and supply two-year deliver the quarter of income deliveries our of by net on earnings eCommerce driven to in North as comp expectations. stacked channels, on revenue growth XX.X% demand both exceeded showroom one-year and second exceeded backlog was chain of $XXX

and both comp second showroom across delivered beat upside our net demand revenue Our and orders quarter significantly internal eCommerce in with expectations channels.

partially higher Our revenue second increased to margin and in I'm XXX costs. our of hard as a to proud percent ability and very fixed costs basis by points gross revenue, related of by by card variable net over quarter offset our to in as higher high offset higher second expense. during quarter work higher and inflation our the margin product chain well across margin leverage year-over-year internal than on showroom variable net net the demand. beat our gross the revenue time expected occupancy million credit to supply increased of $XXX company by reflecting primarily quarter container to and the margin gross expectations, related higher costs, net fees as driven XX% leverage increase revenue, costs lower also costs our expansion driven managing in fixed transportation partially a complexity. Gross XX%, rent the The

driven a Second by as the expand on XX%. corporate XX% non-recurrence the investments as including These revenue costs quarter year primarily increased and increase capacity, support points expense X,XXX as in prior the increased to year open showrooms SG&A net by the expenses were $XX and decrease of and well The revenue basis million prior to net was a our by distribution of as was on warehouse of public expenses expenses new partially we increase business, leverage as driven of growth The derivative costs. decreased XX% company-related percentage non-recurrence a net expense. revenue expense. derivative of offset percentage and the fixed to

in increased gross net by $XX $XX quarter quarter and to XXXX. EBITDA XXXX Adjusted expectations, XXX% in EBITDA our Adjusted Net $XX increased margins. quarter also million. XX% second quarter million $XX exceeded increased of in million the to significantly million in income of net quarter income driven of million XXXX adjusted from adjusted the income compared the to revenues of income and second $XX second Second net XX% the XXXX. better internal higher to

Turning flow. to and balance sheet the cash

higher and XX, strong As value to product XXX% up we to due Net in to were client year-over-year and merchandise no cash long-term $XXX and and December cash response freight inventory million XXXX, XXXX the up equivalents was inventory XX, and $XXX demand costs. million, debt. had build XX% inventory as from of increased June company ongoing as continue

with levels. are due dollars our rate. We a inventory inventory our inventory units to are significantly remain at growing our growing conditions, comfortable inflationary lower While

investing For June provided was $XX landlord the million. cash million activities by of net six activities months net and in cash $XX operating contributions $X XX, with used million, XXXX, was ended

were in capital of total a $XX landlord As first of approximately expenditures net the result, months six million contributions XXXX.

XXXX we our quarter year full morning, our outperformance. this announced we As reflect raising second to outlook are

$XX net the XX% have to year second our beat $XXX and down $XX recalibrated $X.XXX net now margin billion, of this for adjusted the earnings our as of billion I in to half some million $X.XXX full in year mentioned, We EBITDA year. assumptions cost full to we to We of internal growth revenue income quarter. for also a XX%, million of Breaking bit, expect million range revenue comparable $XXX second the of of and net million. expectations the and significantly revenue,

Recall reflecting assumptions distribution a due client in expansion. revenue our standards we from second one as in net distribution intentionally that net of as to key experience. outperformance this slightly while outlook square the are ramp less half feet raising are growing our seamless our for over first meet center. our is add to ensure for our will Dallas half we up year, capacity want to XXXX, possible XXX,XXX than integration will We our recently for to opened our an distribution revenue regions adjusting long-term And and centers high as slower three

the while We are what and continues we recalibrating the pleased costs. year increased seeing increased warehouse for from strong, assumptions full Demand third spend quarter. be marketing very our also to earnings with are raising in expectations, QX. of a moderation the levels We're in cost early though part

are higher costs. Dallas attractive storage to The anticipated. ramp than dollars the industry-wide We due than certain very gradual the result returns marketing as of we the our are well on higher increases product to costs higher originally more costs of projected, DC see originally are DC as with Dallas even warehouse that cost continuing the

continued in outlook Our costs. assumes year-over-year transportation and product inflation

of construction to experienced our showrooms keep We to $XX no full and delays. these new have million, expenditures from impact net for lowered as temporary our will landlord $XX Please permitting capital backlog. and revenue a range given in year mind some XXXX expectations million have contribution are delays have on

cycles backdrop, mid macroeconomic we by is we and driven demand backlog flexibility current exited believe market have by demand We the backlog, have strong and In Against gained our it address with past, and weather share. currently are this conditions deliveries. cyclical having balance just sheet anticipate of mindful strength we experience, to reminder be and a environments. and XXXX. to that the we normalized both Regarding

very for first related other the please refer strong press outlook, to updated For half XXXX encouraged now and excited In details XXXX like attention, our you to the well remainder performance we all about of are to questions. would the release. growth as our up our the by closing, long-term as call open of opportunities. in year, for we our and your Thank

Operator

a time, at question-and-answer and be session. Thank Instructions]. conducting you. we [Operator gentlemen, will Ladies this

from Please line go from Peter comes ahead. Piper Keith the question of first Our Sandler.

Peter Keith

results Hi. Great Thanks. morning, Good everyone. here.

trend there might frame guys think and just as been you you while around for you're the overall the the a economic Could in has comparisons see demand recession. around current on you I of and kind up, bucking are kind to any environment? economy your maybe concerns past of while, done have downturns how business

John Reed

increases. we took small But we we would what was different was good of Nice business. pull Peter, hit we products not of it new during with question. once really hear a on big approach our competitors a strategy Great recessions, We And take with that then it well. back we hiccups that through in the over focused marketing. and I to pull Yes, been our on But very point. more our would through Sure, guess we've And And growing our a share you. had out saw it pulled thrill to that always focused started the we new actually market had them especially offensive is than coming that sales. I'm our report entice last were which up had things, We some recessions were coming What approach. certainly at know didn't from products, out, an on increased do, quite we we huge years. few clients. really we've XX nicely. been Recession. introduce big, managed on happy recessions back

did. not of to we to had had course, our where So we -- managed we did. we inventory and expenses We adjust that adjust

an cautious. it But especially took approach. seemed we offensive coming recessions. have And the time, So of were out worked to we every

Dawn Phillipson

negative we add To strong then of a out with John's XXXX, Peter. a Good more XXXX in In growth. Dawn. comp context we a of comp This is little positive XX% comments, XXXX, and to had morning, a in X%. had comp XX% came

XX different strength we expenses further elaborate for XXXX. but we're we're a to we were kind company months. long So today what uncertainties we positioned view weather to really on the with term, In all and as the well feel point, our lie sheet John's ahead X to in variable, XXXX than of balance next

Peter Keith

there, the we're everything comp, kind Okay, of again, home And even furnishings. on that's premium demand with helpful. the it's bucking for trend hearing out

around You XX. at called the two-year out

on to I Where's XXX. even happen think you? you in to we basis on if at have looking even three-year a if on geometric comp a of the were basis, it's over three-year basis. But front things look that of demand we'd lot a a like

Dawn Phillipson

I do.

basis, on the demand year comp comp a three-year On the is XX.X. XXX.X%. a revenue comp on comp basis, So is two-year basis -- a the XX.X, three is

Peter Keith

good Okay. Thanks luck. so and much

Dawn Phillipson

Thanks, Peter.

John Reed

Thanks, Peter.

Operator

Thank you.

from Our is of line Curtis the Nagle of Please next question from go ahead. America. Bank

Curtis Nagle

the very taking question. Thanks much Great. for

guys that you strong kind chain pretty like cost seeing sound to trending didn't would was of how than expected. and for prior like something of terms It The perspective. the material But that but I things in better what from So love are context of tailwind. hear rest gross relative that's just of the was maybe to are supply a and one year? where margins, just expectations a

Dawn Phillipson

Curt. morning, Good

from up were a chain seeing are with relatively certainly Year-over-year, gross constraints is the we're -- easing pleased there. and So what container product costs perspective. supply so the margin flat,

about cost few more. we bit the into quarter, continued elevate last to heading say quarters that we've As the expected we think the the to expectation over a

cost stabilization will again I outbound fourth pleased to we're quarter, surcharges transportation stabilization in quarter have seen in offset that some We really and the into the the the quarter. the first seeing that there's relative second and continue there side. see say so in to on fuel

So that just the as the keep balance to in think about important we of year. mind

Curtis Nagle

design points terms in studio. very that's helpful. to want clarify I Okay, some of And then

case, expecting So just these that couple that builds is ones guess it I relatively soon. just guess are that of I up this what's think this and increased you getting kind confirming was incremental And going into sounds should in previously how think we what was weren't a and we're kind investment that previously, Again, the learn. we new a of looked more concept? about I the long driving maybe that's that at XXXX? if coming true like test

So, yes, on would thoughts love I to hear your that.

John Reed

a more. handle guess good I in of them, wanted Curt, great were -- the I at and mind couple was changed we we a the to Yes. my could honestly, of just and kind that up going But deals And of they real estate fault. popped hold add I markets. felt to results we guess, off. couple looking quite my were

two end So three we them, And go open to decided we of two them. will year. we have for I think to the of by the

we year, plan going should everything the goes following quarter set place plan the official with next four a for open we on, then that. or have thought the So was in and kind But for we'll we the market plenty so. next many see after that year. three, aggressive we can per how again, final an how in haven't months Obviously in we'll two of put and

Curtis Nagle

I enough. fair much. it. very Congrats. Okay, appreciate Thanks

John Reed

Thanks, Curt.

Operator

Thank you.

from is Jefferies. question from Please next the Our of line go Matuszewski Jonathan ahead.

Jonathan Matuszewski

Great. nice taking my Thanks questions for and quarter.

in the growth and how just terms First the of could per XQ. the my to growth? understand units if us transaction on how just much transaction Thanks. Curious in help and maybe us on color price give question of first any commentary contributed comp looking, you complexion is question. any was That's

Dawn Phillipson

Jonathan. morning, Good

we're the through filtering that driven in with both were by That's quarter. We're year. deployed seeing nicely what up increases last there. was AOV So price pleased really

penetration continues AOV for program designer that of in uptick saw the average expand a The AOV We nice be over to program. in-home Xx that of continues to our also our and company.

how we're are also transactions of nicely. up is pleased that those up Number numbers. both per Units healthily performing. So pleased with as traffic with program transaction, really so really well,

consumer and just the with showrooms. pleased that seeing product our all the response really and we're So our and our metrics marketing to

Jonathan Matuszewski

have And price income, with of Curious acquiring customers just like, aggressive you're you guys passing like that pricing. household seeing past some be helpful. in It that's sounds follow is less increase my if you terms it's guys along your maybe are of new competitors. in in what up trading on customer any than the Great, then outsized on an in looks would new maybe down? commentary presumably customer different the maybe higher acquisitions, Any if helpful? potentially Thanks. than been

John Reed

what We to. take with where happy to with now. increases, we're should haven't room -- increases last we're And But The vendors right that. we price adjusted increased took Yes, lately. quiet. suppliers' and was and from I as We on we price we prices. took pretty their as lot needed with the we Jen they're increases, product getting still other price things then at. as need if price facility pretty months, container right coming out in we has we comment have the have they're of all. the been increased, can at to customer increases to, change can But And comment our They maybe I on be and changed need happy seen just feel vendors pricing partners. if by into where we a are going say few costs increases

than three but had little they year. last down in were course, that We a have any big regard. Certainly Container know where costs, lower haven't surprises bit. ago, years of come

also with can But So we're, that container. United our is a as States. of be much can again, happy half made in you for I guess, be product paying

to us of hasn't prices as So had as much who our competitors are of a again, more most things their because lot hit that raise had imported.

to States. have to the our may you taken of here a more want Jen, they have, so percent we about in than talk half we -- haven't needed products as And the are but because

Jennifer Porter

which who new to speaking the Yes. we in demos, is They're in Hi, in. are coming more, spending customers seen This is Jonathan. great to directly haven't the Jen. any really Yes, see. customers changes the

to really are, They're channel that. of the that impactful there. goes coming same any as see in in seeing well. But continue they who there. We for terms we're not changes And

we'll So continue showrooms nice versus results. see really strong to eComm,

Jonathan Matuszewski

Best much. luck. so of Thanks

Jennifer Porter

Thank you.

Operator

Thank you.

of question next Our Yih line Adrienne from Please from comes the ahead. Barclays. go

Adrienne Yih

if to steady of for how QX. the curve? or the and that, in about can starts. are wondering points talk Jen. really if last long probably seeing quarter. housing the a do then John more your much, data of across Dawn you on business in pretty you John, kind months if across Congrats, is or sales, a was all, done. That's factor question it's macro to this comment three data the morning, of I be growth where nicely Dawn, sort John, pending and it into your said those Good housing points home Thanks want duration There you And at quarter I philosophical cadence much. between believe forecast? kind you like seems so was

John Reed

a Yes, of start $XX product that at worry day we're the look that. and very much. I is plan, And those anywhere too country. I having that dollar about it's executing All billion with every part on small in our and business best focus don't executing the a them I can

So we're if great. competitors, our could doing from we more get a couple percent

I I So if on. focus know Dawn, that's you facts I. more what than have don't

Dawn Phillipson

Yes.

and to tied really a tied there's point that the our than data more what so indicating seen stock volatility. stock for as us interesting more really this correlation in So outperformance less is tied volatility. customer time well historically, quarter housing to market bit a us but period, to in little is of demand to starts -- there's less we've And the

the consumer point, moderated month that meaningful was and about out strongest a of kind that the shows certainly from in cost quarter, of there through change think cadence nothing we was bit actual behavior. I call little the June April that demand but As would a the

Adrienne Yih

comp sort follow reconcile, as quick to strong; John, like I'm doesn't moderation to then long bit little should say. suggest it lead that demand up. the sounds a demand, But time for calendar an be just a long strong, we XXXX obviously, normalize that XQTD. just Okay. mid until of go super delivery, And trying then time of ongoing comment backlog -- there's lead going I

what's when of So to other? past kind they to when each revenue, like two the play and better that how booked they actually two did any getting those trying -- deliver actually out it just figure like things into is recognize

Dawn Phillipson

are pleased it so Special shortening lead Yes, longer than the longer product and with really nicely. is times time. be than We're what like upholstery majority we of little our a bit order to lead pre-pandemic. still would

John Reed

as half it Not what of was.

Dawn Phillipson

Yes.

to So delivering centers the about ramped and getting the into client's as pushing it's out that really the we it and able around distribution Dallas product towards think being the up of capacity constraints, home. put

rolling it backlog. a So is

six in than keep ago. mind even deliver for eight to six-plus months today and or that aren't product. were So clients we months waiting rolling, are It able more is we

that there. the with up and that Carolina, pleased the distribution outpaced slower. performance we're Dallas original productivity really So the of is for out certainly expectations phenomenal, seeing And little has coming our a facility. is bit North center

our for 'XX to beyond. So talked few backlog a really term until longer you months that's But we when goals long-term our constraint. or and recall if the were ago, not normalize

mind backlog that of than what the earlier a that pulling function you And is and lastly, keep we're in the up demand. time encourage anticipated the at then I delivered of transaction. we to the both just So

the refills to the pipeline, longer. so it therefore demand be bit pushing continues a strong, little kind backlog as So out of

Adrienne Yih

Thanks much, Super great so job. helpful. and

Dawn Phillipson

Thanks, Adrienne.

Operator

you. Thank

the Our line next Forbes question from of Guggenheim Partners. Steve go from ahead. comes Please

Steven Forbes

given on investments Dawn. years. John, to think you high the customer on thinking maybe sure is focus strength and making of you past the love if sort level, infrastructure, just demand, terms John you in business sort of of just can, would the an if about of needs technology, in of the is wanted I I ahead scaling of the where growth your morning, update people, experience, Good the the investment over here? of it your the business, around current mind are give inclusive three

John Reed

Sure.

with know, logistics of and you side forth. invested As warehouses in new these we the the business so

some and on in to sophisticated system help manage place Now forth. systems warehouse place so we're management focusing putting so a and different warehouses the putting forth in and us

So Not we're only been inventory very plan efficiently in than again, system We're and investing that, worthy or are new we're in in and so going older has get that locations. us. invest stores huge we're can Other new more to be but in and hoping new design look stores our to growing that. more a for to as a renovating things back like new we new warehouses. successful of our new investing planning our to locations, moving and proven success have older that proven be stores,

stores. that I'm So well existing we're going back as year excited about new every the as and remodeling some stores quite few a

Dawn Phillipson

Steve, little that. to on I'll a add

being pleased with the business the how We growth growth. in and we're prudent seeing really are investing we're we're in for

anticipate. the a see lot growth and X the ensure recognize lot it the months, we the some in that to out same we're the level SG&A in of investing spend At that next XX over we change. seen time, that that of can there. growth support we've could You the that There's can a to of business uncertainty

So with with that business to trying potential fiscally growth impact the needs anticipate. balance factors we the and could supporting we're responsible macro our the growth being that

Steven Forbes

just then made the around remodels. you maybe follow up John you. Thank breaking comment And [ph] a

an where give the sort standpoint, an how view next investment you network how new balance versus current stores, the update So those your focus existing and it, us macro and store on just curious you time of should needs two or you of if on the network current right, period view may from remodeling a could in whether we sort as period environment? XX-month store of the you

John Reed

Yes.

five seven to addition a that on mentioned, stores design few we new to in studios. plus year we're As planning a

this at we're year, So do two least going to or three.

So a we're on we're at renovating right what now. But count them. I stores don't looking have

renegotiating we to leases, need landlords street or move we'd that. contribution we and the are expire, look at and going space, stay we down it street to in then going then trying some across the to to leases get something, if As landlord remodel to if if want or or this back

ongoing So one at an time. fluid a location it's situation looking that we're lease, at one

Steven Forbes

Thank you.

Operator

you. Thank

line Benedict Baird. from ahead. next Peter Our question the go from comes Please of

Peter Benedict

you taking couple. Hi. guys. question. Good Thank I a for the have morning,

the there case terms there's anything to the just coming dynamics, there in and this situation cost pricing that relief ability cost to John, maybe like the some I'm or or outlook what Is you continue take you you seeing year where pricing? in product sustain? kind just you've price need you plan curious That's it. mentioned assumes to in at on of else a front, down you can First, sounds on event my some is And back on question. got of down. moderate, the first that you then would you're any also costs stabilization, think some balance over come take? the it price something's move levels certainly do of you're

John Reed

Yes, just a the thing forgot I gotten the lot stronger. is has other dollar

But is And, case, some So vendors. quite is course, of our in actually dollar the cases, a that in stronger. negotiated across the we've world, of discounts In bit the we stronger. euro. dollar with some pay

with some certainly of. we're they're raise -- part wanted think the But if discounts. right great Again, We can something that's and want customer it's negotiated a right out. on value. at. discounting So certain of don't we But affect because we steady we have is market now, could everything go we're a now. -- holding the we in that take planning taking offering to we're or it to. right think And prices, not with future we're something do again, We're with We crazy with way pricing -- we're where now. happy aware a the happy you discounts will

Dawn Phillipson

Peter, quarters. we to the lowered and have in reflect seeing we're the that three container stabilized within the last forecast the costs over the adjusted guide assumptions

there's the half about think mind. back some keep expenses you as So in the to year, of

costs. So container we in model for change the the recalibrated have

keep to those the in think kind quarters of assumptions. productivity three mind that I now to quarter. on like is peak I'd also Dallas the third with kind at makes you for sense stabilization, change of it

layered the about think facility, much which but that planning had are those the also expense quarter do opened given to, thoughtfully additional as little to of a expenses in, funds So with bit marketing, in invested there as there, out And we've expenses we're into how ramp we've speak third slow what then not ramp. but second will can quarter we're and we the are pleased shipping there. of and Jen up

you So Jen, want --? to do

Jennifer Porter

Peter. Hi, Yes.

a shifting are fall launch with coming. excited and are and that. across way been the exciting spend really, new whole support, mentioned, launch this So the bit as are and touched marketing We've pleased mentioned And really going a moving a marketing of into return is lot We we our today the comments A those about support, marketing a always we're using within across results. growth really higher, targets. we've in how well. lot aligns of utilizing forward as that it driven of previously are think new as on John really very with long-term really spends happening nicely fluid excited going are really are the storytelling data we're products, as to can year by with some as year. that little results Those half the fall. channels we into excited the in industry increasing upon we are dollars more marketing with and and be back gets earlier, trends new to looking we our campaigns, -- spending the are good Dawn revenue this it about based really things

increase of see out end content of the with the combination the We're the what excited do really strong really dollars before next all weeks combined that's August. to market. few an in strong coming in and in So product that can and

Peter Benedict

the just color horizon the effective? of been next should impact having, to great. been can you've efforts Thank the and over front? the be upgrades a with obviously what you. over And last next kind helpful. specifically? That's on digital particularly and your months improve expecting to we what's working that us an That's what then And It's But on that what's been have ongoing stick here of business. the And made year for then you that on to XX there? the your you side XX Jen, minute, eCommerce process what's give

Jennifer Porter

Yes, great question.

pleased to they're well. really and really we've how our conversion new I with engaging time believe sites. I of as seen terms seeing site the that QX And on continue with really, QX traffic into clients' be nicely and content. continue we're of performance results We the that mentioned for really positive and in

And then. XX through is As that next been reveal great you initial December. elevation, then new site mentioned, a and really, that beyond well. back updating, really XX as constant definitely launch had process. it as to and the to anticipate ever it exciting in And mentioned, testing We since you a of continuous a the process months, we learning, continue then has

was are our things logistics, you I the ease analytics the combination and of those the itself, some use, seeing that ability real-time site how the and to is content really upon the journey, both, if are think platform. learnings, understand we our are are, clients with moving engaging which engaging of new and about a site clients we and possibilities our that of I will, optimize were to working think big our based of really our content with And thing excited all of more. a see

product about a excited too clients there, We on don't clients' for to very homepage, what we content ago, and are the for storytelling something I UTC we But That's been week we that we're specifics our our more many secrets. onto two get social in homes. show AI-assisted want our capabilities specific content ability away all of into the we to engaged seeing because and are think really not going with the share to lot give I of I'm merchandising well. really has working works a product know being just seeing. channels. our weeks us to well incredibly added or launched so able really

to So as we're commerce bring experience the that excited really well. into

things lot happening are a there So of there.

are to what we next product, future. on are continues the the our I XX-plus things at exciting optimize think presenting and capabilities and sort really months key really that and that optimization of capabilities, analytics backend, on we merchandising working looking in all are way the conversion of we those the can learn the and runway that over have do the more

Peter Benedict

Thanks helpful. best much of very That's so luck. and

Jennifer Porter

Peter. Thanks,

Operator

Thank you.

question from is ahead. the Our go from of Simeon Please Morgan line next Stanley. Gutman

Simeon Gutman

cost implying the tell first well. I be if in there your you half. any ask to that everyone. was it write is second were hurting morning, Good that headwind that? couldn't going Is it's ability understand as sales Hi. Dallas, and to I around to then, a limiting about And wanted quantification it orders?

John Reed

not No, one bit. little

Dawn Phillipson

Yes, Simeon.

learned of It's size by Carolina the in over Dallas we also a that the a opening Dallas, is twice North facility. party. So lot operated third our facility. of

processes So implications as are and already. imagine, that than facility integrated is full can you seamlessly a robust of little more the the have system And over. systemic a our opening that we control

that make slower us client made sense experience, that So as experience consistently just we that luxury it the experience, that to to no and a lot makes sure of facility that were sense up evaluating premium ramp experience the outbound make facility, it that to implications we demand. a on to that for There's want what is side sure of be. the is

how we're mentioned, out. product is really I pleased As North Carolina really, with shipping

think are So business there two, and the takes to do relative and between of but the to to the slower expectations eight client it's we Dallas. ramp have right the a thing months ago, for some puts there

Simeon Gutman

fair enough. Okay,

about product fall question, for always is margin Dallas adding then and second the flavor? give bit half doing. release, what of to you is markup again your replacing? second two release shipping sense I new to going equation, Dawn, it margins, -- Dallas SKU then half? of the curious more us is And costs, because the can a really if The so maybe a give business? What percentage for parts, embedded this little guess a can us gross the second excluding to you on be from I'm outside gross count, fall you merchandise Are of product What's

Dawn Phillipson

Sure.

question. second there then and So over your pass for portion of I'll the it start to I'll John

we to year. mentioned, model bring I the have container balance As for of down the costs recalibrated the

with seeing think time pleased surcharges outbound to what do make change. now side. and we're that continued we're So anticipate the the on is that We fuel there right

level that you continued expect. would have at those So the

and out expenses variable on So certainly I'd of call you don't can that we are We quarterly takes is don't think guide rent guide basis, those margin. component. to a gross puts a some higher but the also about.

John? also higher, So role. the drive rent a as number we continue that will revenue to variable play

John Reed

think Yes, think very don't amount. Dawn wise, about. excited the now, asked to as we'll excited fall SKUs do our very, I mentioned, know very, product product continue you solid; launching a about very -- many that. about we're and product. I fair we're Very is. that -- very how We It's it's we're sellable

the holidays outdoor of be spring year about. certainly and season, first that then and going after the product product then the into indoor our rollout rolling we're at winter so major next the out we excited we'll with and end start Our forth,

planned very, We happy we've product. and extremely with think it's as we're continuing very we're So strong. the

Jennifer Porter

just to some add And well. as that Simeon, color to

about is look assortment us product the of one adding exciting think you talk elements launches. marketing the around new the we at things I campaign to those as for and when

their outdoor for into fall and start clients them, into it. for design from their infusion inspired with when newness it, the designers, to perfect as in lifestyle. to about So, launch QX consultants and the interior ultimately, example, be a products families, early of they as it's clients catalog with work strong new product was with in But we now those I really back that launch finding the fall, our for conjunction look speaking Clients campaign us to and engage engage their really potential clients that very visit going experience it, assortment. about with talking see and showrooms about product style, the about the response love

within as really really it's across when nice new effect We about interesting. a so And We're see business results our sales the we're well. product. halo seeing entire talking assortment

Simeon Gutman

Thanks, everyone.

Operator

Thank you.

ahead. go Group. Cristina Please from from of Advisory question the next Telsey Fernandez line Our is

Cristina Fernandez

of ask And around what as wanted competitive key expect morning relation the months? back Arhaus past landscape, results. and changes for of seen the over that, events as quarter on congratulations to Good the about should I the promotions the that year? to you've far couple from any in we half

John Reed

that. or anything can can out have We're our the we that me on haven't I no We're changes with promotions done in continuing we roll to in not planning well Jen marketing. any really priced. help But Yes, past. big that's start. product incredible

regards. in is is kind of as everything that So

Jennifer Porter

really there our Yes, to -- feel add Cristina, definitely We're strategy. John we're But as going competitors. continue Obviously, our just to close attention with out paying to everything. very we're about we promos to attention that. marketing. to see good what responding We're our we're happens mentioned, to also well well They're But our everything results. doing. They're future. incredibly pay close we're to Clients really to well very seeing in seeing responding product. to are the responding strong

what's But And in really I we like said, we're So really where what going we environment. to right the monitor optimizing about do. just now, we'll we on are. on good continue focused feel

Cristina Fernandez

cadence wanted delays Thank you ask alluded stores. is the follow up I in to opening about some to, then store And my opening you.

So to should seven of larger showrooms year, we those some for the or this like have into pushed still XXXX? of got five expect

John Reed

pushed how many been Yes, year? opened I have three into how be we open this many have -- three -- -- three don't have know year, will sorry. this we next year

Jennifer Porter

the little we that into shift year. three to year two be will as seen opening We've timing, But But perhaps expectation several said, year. remains of year. to over John anticipated design there. We into anticipate next a this they bit. the might be for shift early due this end would, three two by The first studios the opened quarter More the slightly next months. had those to

John Reed

Right.

two-year So to a we stay our of to five on seven. plan over basis are planning with

design 'XX XX 'XX, studios. over plus So and that be to will XX

Operator

answered has that question? your Fernandez, Ms.

Cristina Fernandez

That's it me. for Thanks.

Jennifer Porter

Thanks, Cristina.

Operator

closing the Wendy Ladies Watson over and And to reached Thank session. Ms. the I the comments. you. end of to we gentlemen, for conference would like have question-and-answer turn now

Wendy Watson

again look next Thank everybody interest Arhaus. and to you forward you We participation our quarter. speaking your in call in for to

Operator

The you. conference concluded. participation. Thank your now for Thank you of Arhaus, Inc. has

now may disconnect You lines. your

Arhaus (ARHS) 11 Aug 222022 Q2 Earnings call transcript