arhs-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-41009

Arhaus, Inc.

(Exact name of registrant as specified in its charter)


Delaware						87-1729256
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

51 E. Hines Hill Road, Boston Heights, Ohio

(Address of Principal Executive Offices)

44236

(Zip Code)

(440) 439-7700

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, $0.001 par value per share	ARHS	The Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of October 27, 2023 the registrant had 53,167,306 shares of Class A common stock and 87,115,600 shares of Class B common stock outstanding.

Table of Contents


		Page
Part I - Financial Information		2
Item 1.	Financial Statements of Arhaus, Inc. and Subsidiaries	2
	Condensed Consolidated Balance Sheets (unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income (unaudited)	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited)	4
	Condensed Consolidated Statements of Cash Flows (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	28
Part II. Other Information		31
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	32
Signatures		33

Part I - Financial Information

Item 1. Financial Statements of Arhaus, Inc. and Subsidiaries


Arhaus, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited, amounts in thousands, except share and per share data)


	September 30, 2023		December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	236,930	$	145,181
Restricted cash equivalents	3,465		7,346
Accounts receivable, net	1,962		1,734
Merchandise inventory, net	268,960		286,419
Prepaid and other current assets	63,140		37,371
Total current assets	574,457		478,051
Operating right-of-use assets	314,378		252,055
Financing right-of-use assets	39,480		38,522
Property, furniture and equipment, net	156,632		135,066
Deferred tax asset	16,585		16,841
Goodwill	10,961		10,961
Other noncurrent assets	3,081		296
Total assets	$	1,115,574	$	931,792

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	58,138	$	62,636
Accrued taxes	13,134		12,256
Accrued wages	12,015		20,860
Accrued other expenses	47,073		35,169
Client deposits	212,406		202,587
Current portion of operating lease liabilities	42,472		39,744
Current portion of financing lease liabilities	925		531
Total current liabilities	386,163		373,783
Operating lease liabilities, long-term	360,708		289,871
Financing lease liabilities, long-term	54,010		51,835
Deferred rent and lease incentives	2,032		2,272
Other long-term liabilities	4,173		4,336
Total liabilities	$	807,086	$	722,097
Commitments and contingencies (Note 9)
Stockholders' equity
Class A shares, par value $0.001 per share (600,000,000 shares authorized, 52,749,450 issued and 52,666,334 outstanding and 51,437,348 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively)	52		51
Class B shares, par value $0.001 per share (100,000,000 shares authorized, 87,115,600 shares issued and outstanding as of September 30, 2023 and December 31, 2022)	87		87
Retained Earnings	114,076		20,053
Additional Paid-in Capital	194,273		189,504
Total Arhaus, Inc. stockholders' equity	308,488		209,695
Total liabilities and stockholders' equity	$	1,115,574	$	931,792

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Arhaus, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited, amounts in thousands, except share and per share data)


	Nine months ended September 30,				Three months ended September 30,
	2023		2022		2023		2022
Net revenue	$	943,696	$	872,595	$	326,229	$	320,030
Cost of goods sold	544,481		505,561		195,372		183,739
Gross margin	399,215		367,034		130,857		136,291
Selling, general and administrative expenses	275,890		246,767		106,977		89,145

Income from operations	$	123,325	$	120,267	$	23,880	$	47,146
Interest expense (income), net	(1,731)		3,367		(1,080)		751

Other income	(738)		(584)		(78)		(109)
Income before taxes	125,794		117,484		25,038		46,504
Income tax expense	31,771		27,851		5,297		9,568
Net and comprehensive income	$	94,023	$	89,633	$	19,741	$	36,936


Net and comprehensive income per share, basic
Weighted-average number of common shares outstanding, basic	139,365,870		137,939,577		139,628,776		138,484,495
Net and comprehensive income per share, basic	$	0.67	$	0.65	$	0.14	$	0.27
Net and comprehensive income per share, diluted
Weighted-average number of common shares outstanding, diluted	140,021,670		139,545,802		140,140,899		139,845,333
Net and comprehensive income per share, diluted	$	0.67	$	0.64	$	0.14	$	0.26

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


Arhaus, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited, amounts in thousands)


	Nine Months Ended
	Common Stock						Treasury Stock			Total Stockholders' Equity
	Class A			Class B			Class A
	Shares	Amount		Shares	Amount		Shares	Amount		Retained Earnings		Additional Paid-in Capital		Total Stockholders' Equity
Balances as of December 31, 2022	51,437	$	51	87,116	$	87	—	$	—	$	20,053	$	189,504	$	209,695
Net income	—	—		—	—		—	—		94,023		—		94,023

Shareholder capital contribution	—	—		—	—		—	—		—		42		42
Equity based compensation	1,312	1		—	—		—	—		—		5,751		5,752
Shares withheld to cover employees' withholding taxes for equity based compensation	(83)	—		—	—		83	—		—		(1,024)		(1,024)
September 30, 2023	52,666	$	52	87,116	$	87	83	$	—	$	114,076	$	194,273	$	308,488

	Nine Months Ended
	Common Stock						Treasury Stock			Total Stockholders' Equity
	Class A			Class B			Class A
	Shares	Amount		Shares	Amount		Shares	Amount		Retained Earnings (Accumulated Deficit)		Additional Paid-in Capital		Total Stockholders' Equity
Balances as of December 31, 2021	50,428	$	50	86,519	$	87	—	$	—	$	(116,581)	$	186,209	$	69,765
Net income	—	—		—	—		—	—		89,633		—		89,633
Adjustment to deferred tax asset impact of Reorganization from partnership to a corporation	—	—		—	—		—	—		—		(1,278)		(1,278)
Shareholder capital contribution	—	—		—	—		—	—		—		62		62
Equity based compensation	1,009	1		597	—		—	—		—		2,612		2,613
September 30, 2022	51,437	$	51	87,116	$	87	—	$	—	$	(26,948)	$	187,605	$	160,795

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


Arhaus, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Stockholders’ Equity (continued) (Unaudited, amounts in thousands)


	Three Months Ended
	Common Stock						Treasury Stock				Total Stockholders' Equity
	Class A			Class B			Class A
	Shares	Amount		Shares	Amount		Shares		Amount		Retained Earnings		Additional Paid-in Capital		Total Stockholders' Equity
Balances as of June 30, 2023	52,345	$	52	87,116	$	87	25		$	—	94,335		$	193,090	$	287,564
Net income	—	—		—	—		—		—		19,741		—		19,741
Shareholder capital contribution	—	—		—	—		—		—		—		12		12
Equity based compensation	379	—		—	—		—		—		—		1,848		1,848
Shares withheld to cover employees' withholding taxes for equity based compensation	(58)	$	—	—	$	—	$	58	$	—	$	—	$	(677)	$	(677)
September 30, 2023	52,666	$	52	87,116	$	87	83		$	—	$	114,076	$	194,273	$	308,488

	Three Months Ended
	Common Stock						Treasury Stock				Total Stockholders' Equity
	Class A			Class B			Class A
	Shares	Amount		Shares	Amount		Shares		Amount		Retained Earnings (Accumulated Deficit)		Additional Paid-in Capital		Total Stockholders' Equity
Balances as of June 30, 2022	51,360	$	51	87,116	$	87	—		—		$	(63,884)	$	187,640	$	123,894
Net income	—	—		—	—		—		—		36,936		—		36,936
Adjustment to deferred tax asset impact of Reorganization from partnership to a corporation	—	—		—	—		—		—		—		(1,278)		(1,278)
Shareholder capital contribution	—	—		—	—		—		—		—		19		19
Equity based compensation	77	—		—	—		—		—		—		1,224		1,224
Balances as of September 30, 2022	51,437	$	51	87,116	$	87	—		$	—	$	(26,948)	$	187,605	$	160,795

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Arhaus, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited, amounts in thousands)



	Nine months ended September 30,
	2023		2022

Cash flows from operating activities
Net income	$	94,023	$	89,633
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	21,439		18,319
Amortization of operating lease right-of-use asset	24,733		21,976
Amortization of deferred financing fees, interest on finance lease in excess of principal paid and interest on operating leases	16,037		8,731
Equity based compensation	5,752		2,613
Deferred tax assets	256		5,458
Amortization of cloud computing arrangements	386		—

Amortization and write-off of lease incentives	(241)		(224)
Insurance proceeds	60		—
Changes in operating assets and liabilities
Accounts receivable	(228)		(1,550)
Merchandise inventory	17,399		(84,228)
Prepaid and other assets	(28,952)		(11,249)

Other noncurrent liabilities	273		456
Accounts payable	(4,093)		10,334
Accrued expenses	3,502		23,682
Operating lease liabilities	(28,797)		(22,586)
Client deposits	9,819		(3,128)
Net cash provided by operating activities	131,368		58,237

Cash flows from investing activities
Purchases of property, furniture and equipment	(42,306)		(36,950)
Insurance proceeds	333		—
Net cash used in investing activities	(41,973)		(36,950)

Cash flows from financing activities
Principal payments under finance leases	(503)		(113)
Repurchase of shares for payment of withholding taxes for equity based compensation	(1,024)		—
Net cash used in financing activities	(1,527)		(113)
Net increase (decrease) in cash, cash equivalents and restricted cash equivalents	87,868		21,174

Cash, cash equivalents and restricted cash equivalents
Beginning of period	152,527		130,908
End of period	$	240,395	$	152,082

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents


Arhaus, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (continued) (Unaudited, amounts in thousands)



	Nine months ended September 30,
	2023		2022
Supplemental disclosure of cash flow information
Interest paid in cash	$	3,962	$	3,858
Interest received in cash	5,395		316
Income taxes paid in cash	28,856		20,579

Noncash operating activities:
Lease incentives	7,313		7,532

Noncash investing activities:
Purchase of property, furniture and equipment in accounts payable	2,756		2,661

Noncash financing activities:
Adjustment to deferred tax asset impact of Reorganization from partnership to a corporation	—		(1,278)
Derecognition of build-to-suit assets as a result of ASC 842 adoption	—		(31,017)
Capital contributions	42		62

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.