ARHS Q1 2024: Showroom Expansion Drives 11 New Studios as Demand Outpaces Industry
ARHS continues to defy luxury home market softness, leveraging showroom growth, design services, and operational investments to sustain demand momentum and brand differentiation. Investments in infrastructure, digital, and in-home design are supporting both near-term execution and long-term scalability, even as margin headwinds persist from footprint expansion and strategic initiatives. Management’s confident reaffirmation of full-year guidance signals conviction in both the business model and consumer resilience heading into 2025.
Summary
- Showroom and Studio Expansion Accelerates: ARHS doubled down on new location openings, fueling brand reach and omnichannel growth.
- Margin Pressure from Strategic Investments: Higher costs in SG&A and gross margin reflect deliberate infrastructure upgrades and footprint expansion.
- Demand Resilience Defies Housing Market Weakness: Elevated design project activity and trade penetration offset luxury home sales softness.
Business Overview
ARHS, or Arhaus, is a premium home furnishings retailer specializing in exclusive, artisan-crafted furniture and décor. The company generates revenue primarily through its showroom network, e-commerce platform, and in-home/trade designer programs, with major segments including furniture, upholstery, and home accessories. ARHS’s direct sourcing model—bypassing middlemen—enables product exclusivity and value, while its growing showroom and design studio footprint underpins a national omnichannel strategy.
Performance Analysis
ARHS reported $295 million in net revenue for Q1 2024, with a modest 1.3% demand comp growth despite a reported comp decline, reflecting a normalization from last year’s abnormal backlog deliveries. The company’s average order value (AOV) and orders above $5,000 and $10,000 remained robust, driven by a steady mix of high-ticket furniture and increased penetration of in-home designer services. Gross margin compressed to 39%, primarily due to higher showroom costs, deleverage from lower revenue, and increased transportation expenses as new locations ramped up.
SG&A expenses rose by $14 million, reflecting increased selling costs tied to new showrooms, corporate investments in digital and operational infrastructure, and higher warehouse expenses—especially as the Dallas distribution center scales. Adjusted EBITDA margin fell below 10%, underscoring the near-term cost impact of ARHS’s aggressive growth investments. Despite these pressures, the company exceeded both top and bottom-line outlooks, aided by prudent timing of its warehouse management system (WMS) launch.
- Backlog Normalization: Prior-year results were boosted by clearing abnormal backlog, which did not recur in 2024, making comps more challenging but normalizing revenue flow.
- Design Program Penetration: In-home designer and trade channels continue to grow, supporting higher AOV and recurring engagement.
- Showroom Cost Headwinds: Gross margin and SG&A deleverage are primarily attributed to new location ramp and strategic investments, not underlying demand weakness.
April demand comps remained up mid-single digits, with new collections and outdoor categories showing particular strength. The company’s omnichannel approach and product innovation are sustaining top-line momentum even as the broader luxury home market remains subdued.
Executive Commentary
"Our in-home and trade designers have never been busier with projects ranging from small to large. Our clients' appetite to make their home a better place to live continues to be strong... we are very pleased with the state of our consumer and with the latest data showing both luxury home sales and listings increasing in this quarter, we're optimistic for the balance of this year and into 2025."
Founder & Chief Executive Officer, Chairman & CEO
"We expect full year adjusted EBITDA margins to be lower than 2023. We expect about 85% of the deleverage to come from SG&A with a lesser amount of deleverage in gross margin. Deleverage is driven by comping prior year backlog delivery and strategic investments we are making this year."
Don, Chief Financial Officer
Strategic Positioning
1. Showroom and Studio Footprint Expansion
ARHS is aggressively scaling its physical presence, with new design studios in affluent markets and flagship showrooms on the West Coast and in Oklahoma. The design studio concept—smaller, high-tech, service-oriented locations—enables penetration into second-home and niche luxury markets, broadening the brand’s reach and supporting omnichannel engagement.
2. Operational Infrastructure and Technology Investment
The company is executing a multi-year upgrade of its systems infrastructure, including a new WMS, planning and allocation software, and manufacturing ERP for upholstery. These investments are designed to drive long-term efficiency, improve delivery execution, and support future scale, though management notes a learning curve and near-term cost drag as platforms are adopted.
3. Product Innovation and Assortment Diversification
ARHS’s product strategy emphasizes breadth across traditional, transitional, and modern aesthetics, with a focus on exclusive designs and rapid refresh cycles. Upholstery remains a core driver, with nearly half of production handled in-house or through tightly controlled domestic partners, enabling both quality and lead-time advantages. The company is also leaning into color, softer shapes, and decor accessories to capture evolving consumer preferences.
4. Trade and In-Home Designer Channel Growth
Trade and in-home designer programs are outpacing overall business growth, capturing high-value projects and deepening customer relationships. ARHS is investing in dedicated staff and seamless service for trade partners, positioning itself as a one-stop shop for designers and affluent clients seeking turnkey solutions across multiple properties.
5. Digital and Omnichannel Integration
E-commerce remains central to the brand’s growth, with ongoing platform optimizations, expanded product assortment online, and enhanced digital engagement strategies. The company views its website as both a sales and brand experience channel, supporting showroom traffic and reinforcing differentiation in a crowded market.
Key Considerations
This quarter highlights ARHS’s commitment to long-term brand building and operational scale, even as near-term profitability absorbs the cost of growth. The company’s debt-free balance sheet and flexible capital allocation are key enablers for these investments.
Key Considerations:
- Showroom Expansion as Brand Engine: New locations, especially design studios, are proving effective at driving both awareness and incremental demand.
- Margin Headwinds are Intentional: Cost deleverage is a function of proactive investments, not demand softness or competitive discounting.
- Consumer Resilience in Luxury Segment: ARHS’s core customer remains active, with design projects for primary, secondary, and even tertiary homes supporting steady AOV and engagement.
- Strategic Inventory and Sourcing Flexibility: Minimal China exposure and diversified sourcing insulate ARHS from tariff shocks and supply chain volatility.
- Technology and Leadership Upgrades: The addition of a seasoned COO and ongoing systems investments position ARHS for scalable growth and operational agility.
Risks
Margin compression is likely to persist through the first half as new showrooms and systems investments ramp, with management expecting deleverage to inflect in the back half. Competitive promotional intensity remains elevated, though ARHS’s differentiated product and direct sourcing model provide some insulation. Macro headwinds—especially in luxury home turnover—could limit upside, but the company’s focus on remodel and refresh demand mitigates this risk. Execution risk remains in large-scale systems rollouts and rapid footprint expansion.
Forward Outlook
For Q2 2024, ARHS guided to:
- Net revenue of $310 to $320 million
- Approximately 900 basis points of adjusted EBITDA deleverage, driven by showroom and SG&A costs
For full-year 2024, management reaffirmed guidance:
- Adjusted EBITDA margin lower than 2023, with deleverage inflecting in the second half
Management highlighted several factors that shape the outlook:
- Backlog normalization and new showroom contributions will drive sequential improvement
- Product innovation, trade channel growth, and digital investments are expected to sustain demand momentum
Takeaways
ARHS is prioritizing long-term brand and operational scale over near-term margin maximization, relying on showroom expansion, digital investments, and design channel penetration to sustain growth. Execution on new systems and the ability to manage margin headwinds will be key watchpoints through 2024.
- Showroom and Studio Growth: Physical expansion is driving brand reach, omnichannel engagement, and incremental demand across diverse markets.
- Margin and Cost Management: Investors should monitor the pace of operational efficiency gains and the timeline for margin inflection as systems and new locations mature.
- Demand Sustainability: Continued resilience in design projects and trade penetration will be critical for maintaining top-line momentum, especially if luxury home sales remain volatile.
Conclusion
ARHS is executing a deliberate playbook of brand-led growth, leveraging showroom expansion, digital innovation, and design services to outpace industry peers. While near-term margin pressure is unavoidable, the company’s strategic investments and consumer alignment position it for sustainable, scalable growth as the macro backdrop stabilizes.
Industry Read-Through
ARHS’s results and commentary offer a clear signal for the premium home furnishings sector: brand differentiation, experiential retail, and omnichannel integration are proving more resilient than pure-play e-commerce or legacy retail models. The ability to drive demand through design services and trade relationships is a powerful lever in a fragmented market. Tariff and sourcing flexibility will be increasingly important as trade policy risk rises, and companies with direct sourcing models and diversified manufacturing bases are best positioned to navigate volatility. For peers, the message is clear: operational agility, brand investment, and customer experience are essential to capturing share in a slow-growth, promotion-heavy environment.