Q4 2021 Arhaus Inc Earnings Call

March 30, 2022

Operator: Good morning, and welcome to the Arhaus, Inc. Q4 2021 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. I will now turn the call over to your host, Wendy Watson, Senior Vice President of Investor Relations.

Good morning, and welcome to the our House fourth quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.

<unk> 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.

I will now turn the call over to your host Wendy Watson Senior Vice President of Investor Relations.

Wendy Watson: Good morning, and thank you for joining Arhaus, Inc.'s Q4 and full year 2021 earnings call. On with me today are John Reed, Co-Founder, Chairman, and Chief Executive Officer, Jennifer Porter, Chief Marketing Officer, and Dawn Phillipson, Chief Financial Officer. John will start with a summary of the main points we made in this morning's press release, along with operational details. Jennifer will discuss the status of marketing initiatives, and Dawn will cover our financial performance and our outlook for 2022. After their formal remarks, we will open the call for questions. For Q&A, please limit to one question and one follow-up. If you have additional questions, you may return to the queue. We issued our earnings press release and our 10-K for the year ended December 31, 2021, before market open today. These documents are available on our investor relations website at ir.arhaus.com.

Good morning, and thank you for joining our houses fourth quarter and full year 2021 earnings call on with me today are John Reed Co founder Chairman and Chief Executive Officer, Jim Porter, Chief Marketing Officer, and John Phillips, and Chief Financial Officer.

John I'll start with a summary of the main points. We made in this morning's press release, along with operational details.

Jim will discuss the status of marketing initiatives and John will cover our financial performance and our outlook for 2022.

After their formal remarks, we will open the call for questions for Q&A. Please limit to one question and one follow up if you have additional questions you may return to the queue.

We issued our earnings press release, and our 10-K for the year ended December 31, 2021 before market opened today.

These documents are available on our Investor Relations website at IR Dot our house Dot com.

Wendy Watson: A replay of the call will also be available on our website within 24 hours. As a reminder, remarks today concerning future expectations, events, objectives, strategies, trends, or results constitute forward-looking statements. Actual results or events may differ materially due to a number of risks and uncertainties. For a summary of these risk factors and additional information, please refer to this morning's press release and the cautionary statements and risk factors described in our annual report on Form 10-K, as such factors may be updated from time to time in our other filings with the SEC. The forward-looking statements are made as of today's date, and except as may be required by law, the company undertakes no obligation to update or revise these statements. We will also refer to certain non-GAAP financial measures, and this morning's press release includes the relevant non-GAAP reconciliations.

A replay of the call will also be available on our website within 24 hours.

As a reminder, remarks today concerning future expectations events objectives strategies trends or results constitute forward looking statements.

Actual results or events may differ materially due to a number of risks and uncertainties.

For a summary of these risk factors and additional information. Please refer to this morning's press release and the cautionary statements and risk factors described in our annual report on Form 10-K , as such factors may be updated from time to time in our other filings with the SEC.

The forward looking statements are made as of today's date and except as may be required by law. The company undertakes no obligation to update or revise these statements.

We will also refer to certain non-GAAP financial measures in this morning's press release includes the relevant non-GAAP reconciliations.

Wendy Watson: I will now turn the call over to John.

I will now turn the call over to John .

John Reed: All right. Thank you. Good morning, everyone, and thank you for taking the time to join our Q4 and full year 2021 earnings call. We are very pleased with our record Q4 and full year performance. For the full year of 2021, here are some facts. Net revenue increased 57% to $797 million, with our retail channel up over 56% and our e-com channel up 60%. Over 60%. Comp growth increased net 51%. Net and comprehensive income increased 117%. Adjusted net income increased 118%, and adjusted EBITDA increased a notable 77%. We ended the year with 79 showrooms across 28 states. John will cover our Q4 and full year 2021 financial performance and outlook for 2022 in more detail later in the call.

Alright, thank you.

Good morning, everyone and thank you for taking the time to join our fourth quarter and full year 2021 earnings call.

We were very pleased with our record fourth quarter and full year performance.

For the full year of 2021 here are some facts.

Net revenue increased 57% to $797 million with our retail channel up over 56% and our E com channel up 60% over 60%.

Comp growth increased 51%.

Net and comprehensive income increased to 117% adjust.

Adjusted net income increased 118% and adjusted EBIT da increase the notable 77%.

We ended the year with 79 showrooms across 28 states.

Don will cover our fourth quarter and full year 2021 financial performance and outlook for 2022, and a more detail later in the call, but we continue to be very encouraged by the trends of our business.

John Reed: We continue to be very encouraged by the trends of our business. 2021 was a monumental year for Arhaus. In addition to our record financial performance, we made some key investments that will support our long-term growth. First, we opened a nearly 500,000sq ft distribution center and upholstery product production facility in North Carolina. We began our 230,000sq ft expansion of distribution and corporate offices here at home in Ohio, and we launched a new website to enhance our client experience and analytic capabilities. In addition, we transitioned to a public company with the initial public offering of our stock in early November. Our results and accomplishments required a tremendous amount of work and execution by our over 1,700 associates.

2021 was it was a monumental year for our house. In addition to our record financial performance. We made some key investments that will support our long term growth.

First we opened nearly 500000 square foot distribution center in upholstery product production facility in North Carolina.

We began our 230000 square foot expansion of distribution and corporate offices.

Here at home in Ohio.

And we launched a new website to enhance our client experience and analytic capabilities.

In addition, retrans transitioned to a public company with the initial public offering.

Of our stock in early November .

Our results and accomplishments required a tremendous amount of work and execution by our over 1700 associates.

John Reed: I want to personally thank them for all their hard work in growing Arhaus, as well as building our brand and being true to our mission and values, and delivering an incredible product and client service experience. We have tremendous white space to grow our showroom footprint across the United States, and in 2021, we opened seven new showrooms. Three traditional showrooms in Boca Raton, Florida, Salem, New Hampshire, Short Hills, New Jersey, as well as four design studios in Burlingame, California, Princeton, New Jersey, Miramar Beach, Florida, and Aspen, Colorado. As part of our efforts to continuously optimize our retail footprint, we also relocated three showrooms in Oak Brook, Illinois, Charlotte, North Carolina, and McLean, Virginia, and converted these showrooms to our new format, and closed two older format stores in redundant locations as their leases expired.

I want to personally thank them for all their hard work in growing our house as well as building, our brand and being true to our mission and values.

Delivering an incredible product and client service experience.

We have tremendous white space to grow our showrooms footprints across the United States and in 2021, we opened seven new showrooms three traditional showrooms in Boca Raton, Florida.

Salem, New Hampshire short Hills, New Jersey.

As well as for design Studios in Burlingame, California, Princeton, New Jersey, Miramar Beach, Florida, and Aspen, Colorado.

As part of our efforts to continuously optimize our retail footprint. We also relocated three showrooms in Oak Brook, Illinois, Charlotte North Carolina in Mclean, Virginia, and converted the showrooms to our new format and closed two or older format stores and redundant locations as their leases.

Baird.

John Reed: To update you on current supply chain and dynamics and the expansion of our distribution and production capabilities. Our inbound product supply chain is improving tremendously. Lead times continue to be a bit longer than historic averages, but we expect lead times to continue to improve throughout 2022. Further, we expect the recent and upcoming additions to our outbound capacity to help alleviate constraints over the course of 2022. Our new North Carolina upholstery production and distribution center is open, it's operating, and it's really exceeding our expectations. The expansion of our Ohio distribution and corporate office facilities is progressing, and we expect it to be operational later this year. We are extremely excited about a third distribution center in Texas that we expect to open in H2 2022.

To update you on current supply chain and dynamics and the expansion of our distribution and production capabilities.

Our inbound product supply chain is improving tremendously lead times continues to be a bit longer than historical averages.

But we expect lead times to continue to improve.

Throughout 2022.

Further we expect the recent and upcoming additions to our outbound capacity to help alleviate constraints over the course of 2022.

Our new North Carolina upholstery production and distribution center is open its operating and its really exceeding our expectations.

The expansion of our Ohio distribution and corporate office facilities is progressing and we expect it to be operational later this year.

We are extremely excited about a third distribution center in Texas, and we expect to open in the second half of 2022.

John Reed: In closing, we have never been more excited about our business and the trends of our business. Demand remains strong across all channels, and we are very focused on delivering our incredible product to our clients. We operate in a fast-growing $60 billion premium home furnishings market in the United States. Our clients, who are predominantly from high-income households, continue to invest in their homes, and we continue to execute our growth strategy by opening showrooms and making the investments to build our brand awareness and grow our omni-channel footprint. With our market share today of less than 2% of this large fragmented market, we have a long and exciting runway for growth. Now I'll pass this over to Jen to review our current marketing initiatives in more detail.

In closing we have never been more excited about our business and the trends of our business.

Demand remains strong across all channels and we are very focused on delivering our incredible product to our clients.

We operate in a fast growing $60 billion premium home furnishings market in the United States.

Our clients, who are predominantly from high income households continue to invest in their homes.

And we continue to execute our growth strategy by opening showrooms and making the investments to build our brand awareness and grow our omni channel footprint.

With our market share today of less than 2% of this large fragmented market, we have a long and exciting runway for growth.

Now I'll pass this over to Jan to review, our current marketing initiatives in more detail.

Jennifer Porter: Thank you, John, and good morning, everyone. I am so happy to be able to share some of our marketing efforts from 2021 with you. As a quick reminder, Arhaus is a 35-year-old heritage brand that offers unique artisan crafted heirloom quality products to our clients. We are building out an omni-channel approach to marketing, anchored by our inspirational showrooms and extending through our website, our catalogs, and across digital channels and tools. We know what happens when a client sits on one of our sofas or sees the beauty and durability of a reclaimed wood table for themselves. Our priority is to bring the same experience to life across channels. Digital continues to be an exciting area of opportunity for us. As John mentioned, our 2021 e-commerce revenue was up over 60% compared to 2020.

Thank you John and good morning, everyone I am so happy to be able to share some of our marketing efforts from 2021 with you as a quick reminder, our house is a 35 year old heritage brands that offers unique artisan crafted heirloom quality products to our clients. We are building out an omnichannel approach to marketing anchored by our install.

Rational showrooms and extending through our website, our catalogs and across digital channels and tools.

We know what happens when a client sits on one of our sofa or sees the beauty and durability of our reclaimed wood table for themselves. So our priority is to bring the same experience to life across channels.

Digital continues to be an exciting area of opportunity for us as John mentioned, our 2021 E. Commerce revenue was up over 60% compared to 2020, we saw credit call digital enhancements with the launch of our <unk> planning tool, our shopper bolt digital catalogs, a virtual showroom tour and a new.

Jennifer Porter: We saw critical digital enhancements with the launch of our 3D Room Planning tool, our shoppable digital catalogs, a virtual showroom tour, and a new email platform, all in H1. In December 2021, we launched our new arhaus.com experience, which I encourage you to check out. While still early days, the launch immediately stepped up our online client experience by better showcasing our brand and allowing us to share more product knowledge. The site also bolsters our product merchandising and customer analytics capabilities. Our initial feedback and analytics are positive, with an increase in page views, time on site, and a reduction in cart abandonment since the launch. Earlier this month, we launched an omni-channel outdoor living campaign in support of our new and expanded outdoor product collection.

<unk> E mail platform all in the first half of the year in December 2021, we launched our new our house Dot com experience, which I encourage you to check out well.

While still early days the launch immediately stepped up our online client experience by better showcasing our brand and allowing us to share more product knowledge. The site also bolsters, our product merchandising and customer analytics capabilities. Our initial feedback and analytics are positive with an increase in page views.

Time on site as well as a reduction in cart abandonment since the launch.

Earlier this month, we launched an omnichannel outdoor living campaign in support of our new and expanded outdoor product collection. This campaign is a great example of the experience we can bring to life in our showrooms through our catalogs and online along with showcasing an exciting new product Assortments, we are advising our clients to journey.

Jennifer Porter: This campaign is a great example of the experience we can bring to life in our showrooms, through our catalogs, and online. Along with showcasing an exciting new product assortment, we are inviting our clients to journey with us to Greece and to get caught up in the magic of the Greek Isles. We believe that by being inspired by the world around us, we can help each client create their own personal oasis at home. Print media is a critical piece of our omni-channel strategy, and in addition to targeted mailings, we have two large catalogs each year in January and September. On our last call, I mentioned the fantastic results we were seeing with our fall catalog. We are seeing this trend continue with our January catalog sales significantly outperforming last year.

US to Greece and to get caught up in the magic of a Greek Isles, we believe that by being inspired by the world around US we can help each client create their own personal oasis at home.

Media is a critical piece of our Omnichannel strategy and in addition to targeted mailings. We have two large catalogs each year in January and September on our last call I mentioned the fantastic results, we were seeing with our fall catalog. We are seeing this trend continue with our January catalog sales significantly.

Last year looking.

Jennifer Porter: Looking forward into 2022, we doubled the circulation of our outdoor catalog, which hit homes earlier this month as part of our outdoor living campaign. Client growth was another highlight in 2021. New customer acquisition, both number of new clients and new client average order value, significantly increased over both 2020 and 2019. We achieved this growth across channels. Our 7 new showrooms that opened in 2021 are a great source of new client acquisition for us. We also saw significant success in reaching new clients through our direct mail and social media channels. We continue to see strong results whenever we reach new mailboxes or partner with new influencers and media partners to share our story. Existing client numbers and value increased as well, both in showrooms and online, driven by our targeted marketing initiatives and a great response to new product offerings.

Looking forward into 2022, we doubled the circulation of our outdoor catalog, which hit homes earlier this month as part of our outdoor living campaign.

Client growth was another highlight in 2021, new customer acquisition, both number of new clients and new clients average order value significantly increased over both 2020 and 2019, we achieved this growth across channels are seven new showrooms that opened in 2021.

Great source of new client acquisition for US. We also saw a significant success in reaching new clients through our direct mail and social media channels. We continue to see strong results whenever we reached new mailboxes or partner with new Influencers and media partners to share our story.

Existing client numbers and value increased as well both in showrooms and online driven by our targeted marketing initiatives and a great response to new product offerings.

Jennifer Porter: Looking forward to 2022, our focus is on client acquisition, engagement, and retention. We continue to learn and act on data from our new website launch, and we'll share more details on upcoming enhancements in future calls. We have some really exciting campaigns and product launches planned for this year, as well as new showrooms planned for H2. As I mentioned earlier, we are thrilled with this month's launch of our outdoor living campaign, and I encourage everyone to check it out when you have time. We look forward to sharing more information about our omnichannel development and growth throughout the year. For now, I'll pass over to Dawn Phillipson.

Looking forward to 2022, our focus is on client acquisition engagement and retention, we continue to learn and act on data from our new website launch and we will share more details on upcoming enhancements in future calls we have some really exciting campaigns and product launches planned for this year as well as new showrooms upon for the second.

Half of the year.

As I mentioned earlier, we are thrilled with this month's launch of our outdoor living campaign and I encourage everyone to check it out when you have time.

We look forward to sharing more information about our omnichannel development and growth throughout the year for now I'll pass over to Dawn Philippson.

Dawn Phillipson: Thank you, Jen, and good morning, everyone. As John mentioned, we are pleased with our 2021 Q4 and annual results and the strong underlying trends in our business. Please note that we have recast our financial statements to reflect an entity under common control with our operating company. The prior periods reflected in our Form 10-K have been adjusted to combine the entities for presentation purposes. The future impact to our financial statements is not expected to be material. For details and the recast financial information, please refer to our Form 10-K filed this morning. For the Q4, net revenue increased 46.3% to $238 million.

Thank you John and good morning, everyone.

As John mentioned, we are pleased with our 2021 fourth quarter and annual results and the strong underlying trends in our business. Please.

Please note that we have recast our financial statements to reflect an entity under common control with our operating company.

Prior periods reflected in our Form 10-K have been adjusted to combine the entities for presentation purposes.

Future impact to our financial statements is not expected to be material for details and the recast financial information. Please refer to our Form 10-K filed this morning.

For the fourth quarter net revenue increased 46, 3% to $238 million.

Dawn Phillipson: The growth was driven by increased demand for our products in both showroom and e-commerce channels, as well as delivery of orders in the backlog as our supply chain continues to catch up with client demand. Comparable growth was 40.5% in the quarter. Demand remained strong in the quarter, with demand comparable growth of 17.9% on a one-year basis, and 79.8% on a two-year stacked basis. Gross margin increased 39.1% to $97 million in the quarter, driven by our higher net revenue, partially offset by the related increase in product and transportation costs, as well as higher credit card fees and other store costs.

Growth was driven by increased demand for our products in both showroom and e-commerce channels as well as delivery of orders in the backlog as our supply chain continues to catch up with client demand.

Comparable growth was 45% in the quarter.

Demand remained strong in the quarter with demand comparable growth of 17, 9% on a one year basis and 79, 8% on a two year stacked basis.

Gross margin increased 39, 1% to $97 million in the quarter driven by a higher net revenue, partially offset by the related increase in product and transportation costs as well as higher credit card fees and other store costs.

Dawn Phillipson: Gross margin as a percent of net revenue decreased 210 basis points to 40.7%, better than our expectations and reflecting higher product and transportation costs, partially offset by our ability to leverage our fixed showroom occupancy costs over higher net revenue. SG&A expenses increased 57.5% to $100 million, primarily from investments to support the growth of our business, share-based compensation expense for equity awards, higher demand-driven commissions in our showrooms, and one-time costs related to the IPO. As a percentage of net revenue, SG&A expenses increased 290 basis points to 41.8%. Interest expense was approximately $1 million.

Gross margin as a percent of net revenue decreased 210 basis points to 47% better than our expectations and reflecting higher product and transportation costs, partially offset by our ability to leverage our fixed showroom.

Occupancy costs over higher net revenue.

SG&A expenses increased 57, 5% to $100 million, primarily from investments to support the growth of our business share based compensation expense for equity awards.

Higher demand driven commissions in our showroom and onetime costs related to the IPO.

As a percentage of net revenue SG&A expenses increased 290 basis points to 41, 8%.

Interest expense was approximately $1 million.

Dawn Phillipson: Q4 2021 net income of $7 million includes a $12 million income tax benefit primarily related to the recognition of a deferred tax asset that arose from our reorganization related to the IPO. This compared to net income of approximately $3 million in the Q4 last year. Adjusted net income in the Q4 of 2021 was $17 million. Adjusted EBITDA in the quarter increased 14% to $33 million from $29 million in the Q4 of 2020. For the full year, net revenue increased 57.1% to $797 million. Full year comparable growth was 51%. Demand was very strong throughout the year, with demand comp growth of 45.3% on a one-year basis and 70% on a two-year stacked basis.

Fourth quarter 2021, net income of $7 million includes a $12 million income tax benefit primarily related to the recognition of a deferred tax asset that arose from our reorganization related to the IPO.

This compared to net income of approximately $3 million in the fourth quarter last year.

Adjusted net income in the fourth quarter of 2021 was $17 million.

<unk> EBITDA in the quarter increased 14% to $33 million from $29 million in the fourth quarter of 2020.

For the full year net revenue increased 57, 1% to $797 million.

Full year comparable growth was 51%.

Demand was very strong throughout the year with demand comp growth of 45, 3% on a one year basis and 70% on a two year stack basis.

Dawn Phillipson: Gross margin increased 65.4% to $330 million for the year, and gross margin as a percent of net revenue increased 210 basis points to 41.4%. Net income of $37 million for the full year 2021 was up 116.7% compared to net income of approximately $17 million last year. This includes a $10 million income tax benefit primarily related to the recognition of the deferred tax asset I just mentioned. Adjusted EBITDA increased 77% in 2021 to $123 million from $69 million in 2020. Turning to the balance sheet, as of 31 December 2021, cash and cash equivalents were $124 million and the company had no long-term debt.

Gross margin increased 65, 4% to $330 million for the year.

Gross margin as a percent of net revenue increased 210 basis points to 41, 4%.

Net income of $37 million for the full year 2021 was up 116, 7% compared to net income of approximately $17 million last year.

This includes a $10 million income tax benefit primarily related to the recognition of the deferred tax asset I just mentioned.

Adjusted EBITDA increased 77% in 2000 $21 million to $123 million from $69 million in 2020.

Turning to the balance sheet as of December 31st.

Cash and cash equivalents were $124 million and the company had no long term debt.

Dawn Phillipson: Net merchandise inventory was $208 million as of December 31, 2021, a 92.9% increase from December 31, 2020, as we built inventories in response to strong ongoing client demand. As I mentioned, while we are reducing our backlog and our comp growth is now outpacing our demand comp growth, demand remains strong and we continue to increase our inventory levels accordingly. For the year ended December 31, 2021, net cash provided by operating activities was $146 million, and net cash used in investing activities was nearly $48 million, with landlord contributions of $18 million. As a result, total capital expenditures, net of landlord contributions, were approximately $30 million for the year. Regarding our full year 2022 outlook, please refer to this morning's press release.

Net merchandise inventory was $208 million as of December 31, 2021.

92, 9% increase from December 31, 2020, as we built inventories in response to strong ongoing client demand.

As I mentioned, while we are reducing our backlog and our comp growth is now outpacing our demand comp growth demand remains strong and we continue to increase our inventory levels accordingly.

For the year ended December 31, 2021, net cash provided by operating activities was $146 million and net cash used in investing activities was nearly $48 million with landlord contributions of $18 million.

As a result total capital expenditures net of landlord contributions were approximately $30 million for the year.

Regarding our full year 2022 outlook. Please refer to this morning's press release.

Dawn Phillipson: Highlights include full year net revenue of $1.13 to $1.17 billion, full year comparable growth in the range of 35% to 45%, net income of $70 to $80 million, and adjusted EBITDA of $145 to $155 million. We assume continued inflation in transportation, logistics, container, and product costs, which we will work to mitigate as needed. Regarding adjusted EBITDA margin, we expect year-over-year margins to stabilize in Q3 and expand in Q4. We expect healthy demand comp growth in 2022. As expected, we are seeing sequential declines but year-over-year growth. We will continue to ensure our inventory position supports our customer delivery time goals as we move through the year. As John mentioned, we expect our new distribution capacity to help alleviate our backlogs.

Highlights include full year net revenue of $1.13 billion to $1.17 billion.

Full year comparable growth in the range of 35% to 45%.

Net income of $70 million to $80 million.

And adjusted EBITDA of $145 million to $155 million.

We assume continued inflation in transportation logistics container and product costs, which we will work to mitigate as needed.

Regarding adjusted EBITDA margin, we expect year over year margins to stabilize in the third quarter and expand in the fourth quarter.

We expect healthy demand comp growth in 2022.

As expected, we are seeing sequential declines, but year over year growth. We will continue to ensure our inventory position supports our customer delivery time goals as we move through the year.

As John mentioned, we expect our new distribution capacity to help alleviate our backlog so far in 2022, our North Carolina facility is outperforming our expectations and is positively impacting net revenue more quickly than anticipated.

Dawn Phillipson: So far in 2022, our North Carolina facility is outperforming our expectations and is positively impacting net revenue more quickly than anticipated. Because of the timing of our Q4 and full year earnings release today, near the end of our Q1, we are also providing insight into our Q1 expectations. We expect Q1 net revenue of $232 to 236 million, net income of $12 to 14 million, and adjusted EBITDA of $24 to 26 million. In future quarterly reports, we will only be providing updates to our annual guidance. For all other details related to our 2022 outlook, please refer to our press release. We're all pleased with the strong start to the year and feel well positioned to deliver on our financial and operational goals in 2022. This concludes our prepared remarks.

Because of the timing of our fourth quarter and full year earnings release today near the end of our first quarter. We're also providing insight into our first quarter expectations.

We expect first quarter net revenue of $232 million to $236 million.

Net income of 12 million to $14 million and adjusted EBITDA of $24 million to $26 million.

In future quarterly reports, we will only be providing updates to our annual guidance.

For all other details related to our 2022 outlook. Please refer to our press release.

We're all pleased with the strong start to the year and feel well positioned to deliver on our financial and operational goals in 2022.

This concludes our prepared remarks, thank you for your attention and we would now like to open the call up for questions.

Dawn Phillipson: Thank you for your attention, and we would now like to open the call up for questions.

Operator: Thank you. We will now be conducting the question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first question has come from the line of Curtis Nagle with Bank of America. Please proceed with your questions.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad copper.

A confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

A moment, please while we poll for your questions.

Yes.

Our first questions come from the line of Curtis Nagle with Bank of America. Please proceed with your questions.

Curtis Nagle: Good morning. Thanks very much for taking the question. Curious to know a little more detail on the outperformance. Really strong quarter, really nice guidance. Sounds like some of that is due to clearing the backlogs maybe a little better than expected. I guess just what are you guys seeing from a customer or macro perspective? One of your bigger competitors had called out some potential headwinds, and that was having an impact on near term demand. Is that something you're seeing? Anything else we should be thinking about in terms of what are just really nice set of numbers for you guys?

Oh good morning, Thanks, very much for taking my question.

So.

Curious, though.

A little more detail on the outperformance.

Really strong quarter really nice guy.

Guidance it sounds like some of that is due to clearing the backlog, maybe a little better than expected.

I guess, what are you guys seeing from a customer or a macro perspective.

One of your bigger competitors have called out some potential headwinds.

And that was having an impact on near term demand is that something you're seeing or anything else, we should be thinking about in terms of yes.

Yes.

Really.

Really nice set of numbers for you guys.

John Reed: Yeah. Good morning. This is John Reed. Yeah, we're seeing, you know, business pretty much as we had forecasted. Business is still strong. We've not seen a big drop-off. You know, we're marching forward here. Who knows what the future's gonna bring, you know, with everything going on, between inflation and wars and so forth. So far we've seen demand pretty much on track of where we had expected it. We've not seen a big drop-off.

Yes. Good morning, this is John Reed.

Yes.

We're seeing.

Business.

Pretty much as we had forecasted.

Business is still strong.

We've not seen a big drop off.

And.

We're marching forward here.

Who knows what the future is going to bring you know with everything going on.

Between inflow.

Inflation and wars, and so forth but.

So far we've seen demand.

Pretty much on track of where we had expected that we have not seen a big drop off.

Curtis Nagle: Okay, great. Great to hear. Maybe just a question for Dawn on the gross margin. That also came in, you know, much better than expected. I think you called out maybe some additional operating leverage on occupancy. Anything else that was driving, you know, I think like a 200 bps better than at least we were thinking. Yeah.

Okay, great great great to hear.

And then maybe just a question for Don on the gross margin so.

Awesome came in much better than expected I think you called out maybe some additional.

Operating leverage on occupancy and everything else that was driving.

Uh huh.

200 bps.

200 bps better than we thought we were thinking.

Dawn Phillipson: Yeah.

Curtis Nagle: What are the bigger factors?

Yeah Yeah.

Curtis Nagle: What are the bigger factors?

Dawn Phillipson: Morning, Curtis.

Curtis Nagle: Morning.

Dawn Phillipson: Sure. Container costs in the Q4 were not as elevated as we had anticipated, relative to our expectations. As you're thinking about your model, that's where there's some benefit in the Q4. Apart from that, there was incremental leverage as you would expect on the higher revenues that is flowing through.

Good morning, sure container costs in the fourth quarter were not as elevated as we had anticipated relative to our expectations. So.

So as you're thinking about your model, that's where there is some benefit in the fourth quarter.

Okay.

So apart from that there there was incremental.

Leverage as you would expect on the higher revenues that is flowing through.

Curtis Nagle: Got it. Okay. Very helpful. Appreciate it.

Got it okay very helpful. I appreciate it.

Operator: Thank you. Our next question has come from the line of Jonathan Matuszewski with Jefferies. Please proceed with your questions.

Thank you our next questions come from the line of Jonathan Matuszewski with Jefferies. Please proceed with your questions.

Jonathan Matuszewski: Great. Thanks so much for taking my questions, and nice quarter, guys. First one was just on pricing. Other competitors in the market have been more aggressive with price increases. In 2021, I think you guys introduced a small increase early in the year and a larger increase later in the year. How are you guys thinking about pricing for 2022? Is an increase contemplated? Any thoughts there would be helpful.

Great. Thanks, so much for taking my questions and nice quarter guys. First one was just on pricing.

Other competitors in the market have been more aggressive with price increases.

In 2021, I think you guys introduced a small increase early in the year end.

A larger increase later in the year. How are you guys thinking about pricing for 2022 is an increase contemplated.

Any thoughts there would be helpful.

John Reed: Yeah, we adjusted prices a couple of times last year as needed. You know, we look at this very carefully. We are increasing prices as we're seeing you know, our cost increasing, whether it's from vendors or from you know, containers, which is obviously the two things that are increasing. You know, it continues to be a lever for us. We're ready to pull the lever as needed. If we see more price increases, we will take them. We don't see. You know, we've done a lot of analysis on our products versus our competition. We're still extremely competitive, in many cases, more competitive.

Yeah, We said we would.

We adjusted prices a couple of times last year as as needed.

Look at this very carefully.

We are we are increasing prices as were seeing.

Our cost increasing.

Whether it's from vendors or from.

<unk>, which is obviously the two things that are.

That are increasing.

Yes.

But it continues to be a lever for us we're ready to pull the lever if needed if we see more and more price increases we will take them.

We don't see.

We've done a lot of it.

Analysis on our products versus our competition, we're still extremely competitive.

In many cases more competitive and we'd like to stay more competitive.

John Reed: You know, we'd like to stay more competitive, but if we gotta take them, we will. We don't see that going to affect our business, if we need to.

But if we kind of take them, we will and we don't see that being going to affect our business.

If we need to.

Jonathan Matuszewski: Great. That's helpful. Then my follow-up was just on supply chain. You know, last night we heard from another executive, you know that it's their view that supply chain hasn't gotten better at all. I think you guys are painting a different tune this morning in terms of suggesting that you know inbound supply chain logistics are improving tremendously, and lead times are continuing to improve. Maybe just help us kinda you know square those two kind of observations. What are you guys seeing from vendors in terms of you know new factories that they're building, expanded capacity that they're installing, maybe greater allocation of resources to you guys? Any thoughts there would be helpful.

Great. That's helpful. And then my follow up was just on supply chain.

Last night, we heard from another executive.

You know that their view that our supply.

Supply chain hasn't gotten better at all and I think you guys are painting a different tune. This morning in terms of suggesting that.

Inbound.

Supply chain logistics are improving tremendously.

And lead times are continuing to improve so maybe just help us kind of square those two kind of observations.

What are you guys seen from vendors in terms of.

New factories that they are building expanded capacity that they're installing maybe greater allocation of resources to you guys.

Any thoughts there would be helpful.

John Reed: Absolutely. Yeah, I can pitch in on this one. First of all, our business model, you know, as I think we've explained to you guys, is a little different than a lot of our competition. You know, between United States, Mexico, Europe, it's a huge part of our business. United States is still over half of our business. We didn't have the big interruptions. Well, we had interruptions, of course, with the foam issue last year out of Texas, where nobody could make anything, any kind of domestic upholstery. That's far behind us now. You know, we don't have a lot of eggs in China's basket, which seems to be the hold up right now. You know, China keeps shutting down.

Absolutely.

I can I can pitch in on this one.

First of all our business model is as I think we've explained to you guys. It's a little different than a lot of our competition.

Between the United States, Mexico Europe .

A huge part of our business United States is still over half of our business.

So we didn't have the big.

Interruptions.

Well, we had interruptions of course with with with the phone issue last year.

Out of Texas, where you nobody could make anything any kind of a domestic upholstery, but.

That's far behind Us now.

So.

We don't have a lot of eggs in China's basket.

Which seems to be the hold up right now China keeps shutting down I think that just read they shut the entire city of Shanghai down.

John Reed: I think I just read they shut the entire city of Shanghai down for about a week or so here. You know, we get things out of Asia, but it's more South Asia. Indonesia is one of our larger countries. Again, you know, we're getting things out of countries that have not been affected. Now, with that said, with their business being so strong, you know, all of our vendors have stepped up. They've increased their capacity. We're very happy to report that, you know, folks are shipping, for the most part, on time. It's taking longer to get here, of course. You know, we factor all that in, so we placed orders farther out. We've already adjusted that. We've had plenty of time to figure that out last year.

For about a week or so here.

We get things out of Asia, but it's more South Asia, Indonesia.

Is one of our larger countries.

But again.

We're getting things out of.

Countries that have not been affected now with that said with their business being so strong.

All of our vendors.

Have have stepped up they've increased their capacity.

We're happy that very happy to report that.

Folks are shipping for the most part on time.

It's taking longer to get here of course, we factor all of that and so we placed orders farther out.

We've already adjusted that we've had plenty of time to figure that out last year.

John Reed: You know, we're placing orders 3, 4 months farther out than we used to. Now that we're on that program, you know, we're getting plenty of containers in. We're happy to report things are getting more and more in stock every day, and it'll continue to be that way. Because our goal and our concept is we try to keep everything in stock that customers see, so they can get it delivered right away, and that just continues to improve. We just opened our new upholstery facility down in North Carolina literally last month. It's humming great.

So replacing orders three or four months further out than we used to but now that now that we're on that program. We're getting plenty of containers in we're happy to report things are getting more and more in stock every day.

And it will continue to be that way.

Our goal and our concept as we try to keep everything in stock that customers see so they can get it delivered right away.

And that just continues to improve.

We just opened our new Poe.

Street facility down in North Carolina literally last month.

Hum.

John Reed: It hit what we wanted it to hit for March, as far as production goes, and we think we'll have plenty of capacity to take on more orders and to grow the business.

Great.

John Reed: It hit what we wanted it to hit for March, as far as production goes, and we think we'll have plenty of capacity to take on more orders and to grow the business.

It hit what we wanted it to hit for March.

As far as production goes and.

We think we will have plenty of capacity to take on more orders in the grow the business.

Jackie Sussman: Excellent. Thanks for all the color. Best of luck.

Jonathan Matuszewski: Excellent. Thanks for all the color. Best of luck.

Excellent. Thanks for all the color best of luck.

John Reed: Thank you.

Thank you.

Operator: Thank you. Our next questions come from the line of Peter Keith with Piper Sandler. Please proceed with your questions.

Thank you. Our next question is coming from the line of Peter Keith with Piper Sandler. Please proceed with your questions.

Peter Keith: Hey, good morning, Arhaus team. Great results here. Maybe a quick question for Dawn. I know last year when you were helping us shape the comp growth for 2022, you were always kind of assuming a mid-single digit demand comp for the year. Is that generally what you're continuing to expect and as maybe would it be steady through the year or do you think there's any change between the beginning of the year and end of year?

Hey, good morning, our house team great results here.

Maybe a quick question for Don I know.

Last year, when you were helping us shape the.

The comp growth for 2022, you're always just kind of assuming a mid single digit demand comp.

For the year is that generally what you're continuing to expect in may.

Maybe it would be steady through the year or do you think there's any change between the beginning of the year at end of year.

Dawn Phillipson: Sure. Good morning, Peter. While we don't guide to demand comps, what I can tell you is that we expected some sequential deceleration, so a 17.9% demand comp in Q4. We have come down from that, which is what you'd expect. You know, we can't continue to see these levels of increases year over year, wouldn't expect to. We are above, trending above the mid-single digit for Q1 to date. We continue to be really pleased with the consumer response to our marketing, our product, our showrooms. We think we're executing on all the right, you know, right strategies.

Sure Good morning, Peter.

So while we don't we don't guide to demand comp what I can tell you is that we expected some sequential deceleration. So a 17, 9% demand comp in Q4, we.

We have come down from that which is what you would expect we can't continue to see these levels of increases year over year wouldn't expect too we are above trending above the mid single digit for Q1 to date. So we continue to be really pleased with the consumer response to our marketing our product our showroom.

So we think where we're executing on all the right right strategies.

Peter Keith: Okay, fantastic. Maybe I'll take that and pivot it over to Jen. It just seems longer term you have this great brand awareness opportunity. Any data you can share, maybe I don't know if you would study it in the recent months or just maybe how you saw brand awareness improve through 2021 would be interesting to see.

Okay, Fantastic and maybe I'll take that over to Jen.

It just seems longer term you have this great brand awareness opportunity. So any data you can share.

Maybe I don't know if you would studies in recent months or just maybe how you saw brand awareness improve through 2021 would be interesting to see.

Jennifer Porter: Yeah. Hi, Peter. We are really excited. We obviously pay very, very close attention to our customer numbers. Really looking at that new clients, existing client split. We've seen that as the business has grown, really the percentage of sales there, we're still seeing hovering right around that 50/50 percent mark, which we feel really, really great about that considering how quickly the overall business is growing. We are seeing really strong results as we open up our new showrooms. As John mentioned, we opened up 7 new showrooms last year. We see those outperform the rest of chain in terms of new customer percentage. Definitely acting the way we'd expect them to as billboards for the brand, encouraging people to come in.

Yeah, Hi, Peter.

We are really excited we obviously pay very very close attention to our customer numbers. So really looking at that new clients existing clients split and we've seen that as the business has grown really as a percentage of sales. There. We're still seeing hopping right around that 50, 50%, Mark, which we feel really really great about that considering.

How quickly the overall business is growing.

We are seeing really strong results as we open up on your new showrooms.

John mentioned, we opened up seven new showrooms last year and.

And we see those outperformed the rest of the chain in terms of new customer percentage. So definitely acting the way, we would expect them to as billboards for the brand encouraging people to come in.

Jennifer Porter: I think one of the other areas that we look at very closely is things like organic traffic to the website, response to our catalogs when we're doing prospecting, word of mouth elements along those lines, and we're really pleased with all of the data that we are seeing there. We're not reporting on the specific brand awareness metric that we spoke to in the IPO process. All of the things that we are looking at, we're seeing our marketing metrics check across the board, which really suggests to me that we are starting to gain traction in the name recognition. We're also-

And then I think one of the other areas that we look at very closely as things like organic traffic to the website responds to our catalog somebody doing prospecting.

What a mouth elements along those lines and we're really pleased with all of the data that we're seeing there.

We're not reporting on a specific brand awareness metric that we spoke to and the IP.

IPO process, but all of the things that we are looking at we're seeing our marketing methods Jack.

And marketing methods check across the board, which really suggests to me that we are starting to gain traction.

Great recognition.

Peter Keith: That sounds great.

Jennifer Porter: Yeah. Thank you.

Yeah.

Peter Keith: Oh, I don't wanna interrupt. Go ahead. Okay. Thank you.

They don't want to interrupt go ahead.

Jennifer Porter: No, I was just gonna throw in a plug there for the new website as well. I think just the engagement that we are seeing on the website itself, not only is that obviously an immediate revenue driver, but the interaction, the time people are spending on the site, we're definitely seeing the brand resonate, which is another positive factor moving forward.

No I I was just going to throw in our plants the effort the new website as well and so I think just the engagement that we're seeing on the website itself.

Not only is that obviously.

Immediate revenue driver.

Interaction the time people are spending on the side, we're definitely seeing the brand resonate which is another positive factor moving forward.

Peter Keith: Yeah, that sounds great. Well, thanks so much and good luck this year, guys.

Yeah that sounds great. Thanks, so much and good luck this year guys.

Jennifer Porter: Thank you.

Thank you.

Okay.

Operator: Thank you. Our next questions come from the line of Simeon Gutman with Morgan Stanley. Please proceed with your questions.

Thank you our next questions come from the line of Simeon Gutman with Morgan Stanley . Please proceed with your questions.

Jackie Sussman: Hi, this is Jackie Sussman on for Simeon. I was wondering if you could share anything in terms of the breakout of the comp in Q4 between traffic and ticket and, you know, anything about how both customer acquisition and traffic is both faring and trending in Q1 to date.

Hi, This is Jackie sussman on for Simeon I was wondering if you could share anything in terms of the break out of the comp in the fourth quarter between traffic and ticket and you know anything about how the customer acquisition and traffic is both ferring and trending in in quarter to date.

Dawn Phillipson: Sure. Good morning. Both transactions and ticket are up healthily year over year. AOV increased about 7% in Q4 relative to prior year, and number of transactions is up, you know, about 14% versus prior year. We're seeing healthy growth in both of those metrics.

Sure good morning.

Both transactions and ticket are up healthily year over here <unk> increased about 7% in the fourth quarter relative to prior year and number of transactions is up.

About 14% versus prior year, so we're seeing healthy growth in both of those metrics.

Jackie Sussman: Awesome. Thank you so much. Just a quick follow-up on the questions that have been there on demand comp. I guess, how are you guys thinking about backlogs and kind of when they will peak? How has that changed in terms of what your expectations were from last quarter? Is this embedded into the guide?

Awesome. Thank you so much and just a quick follow up on the questions that have been there on demand comp I guess, how are you guys thinking about backlogs and kind of when they will peak.

How has that changed in terms of what your expectations were from last quarter and is this embedded into the guide.

Dawn Phillipson: Sure. The demand comp would not include any backlog. That would be in our comp growth number. We did guide to a 35% to 45% comp growth for the year. That would include the backlog. As John mentioned, we're working diligently to bring the right inventory in at the right times to help clear through the backlog. Our lead times are expected to decline nicely by the end of the year.

Sure. So the demand comp would not include any backlog that would be in our comp growth number.

And we do expect we did guide to a 35% to 45% comp growth for the year that would include the backlog as John mentioned, we're working diligently to bring the right inventory and at the right times to help clear through the backlog.

And our lead times are expected to decline nicely by the end of the year.

Jackie Sussman: Awesome. Thank you guys so much, and congrats on a great quarter.

Awesome. Thank you guys, so much and congrats on a great quarter.

Dawn Phillipson: Thank you.

Thank you.

Operator: Thank you. Our next questions come from the line of Steven Forbes with Guggenheim Securities. Please proceed with your questions.

Thank you. Our next question is coming from the line of Steven Forbes with Guggenheim Securities. Please proceed with your questions.

Steven Forbes: Good morning.

Steven Forbes: Good morning. I wanted to start with the new store performance. John or Dawn, curious if you could comment on the performance ramp of the 2021 class of new stores relative to expectations or relative to the traditional sort of store model build. And then just provide us some insight on the current thoughts around 2022's class, and maybe inclusive of the new versus existing market outlook.

Good morning.

Steven Forbes: I wanted to start with the new store performance. John or Dawn, curious if you could comment on the performance ramp of the 2021 class of new stores relative to expectations or relative to the traditional sort of store model build. And then just provide us some insight on the current thoughts around 2022's class, and maybe inclusive of the new versus existing market outlook.

Wanted to start with the new store performance John .

Im curious if you could comment on the performance ramp of the 21 class of new stores relative to expectations, where we are relative to the traditional sort of store model build.

And then just provide us some insight on the current thoughts around 2020 twos class.

And maybe inclusive of the new versus existing market outlook.

Dawn Phillipson: Morning, Steve. We don't typically give guidance on our performance metrics on specific showroom fleets. What we will say is that we're pleased with the performance we're seeing. Showrooms are continuing to execute well and in line or above expectations on the demand side. We're pleased with it. You know, Jen mentioned earlier that you know, customer metrics are doing well in those showrooms. You know, we think we're on target with our locations and our strategies for opening those showrooms.

Good morning, Steve.

So we don't typically give guidance on or performance metrics on specific showroom fleets, but what we will say is that we're pleased with the performance we're seeing.

Showrooms are continuing to execute well and in line or above expectations.

On the demand side and.

So we were pleased with it and John mentioned earlier that you know.

Customer metrics are doing well in those showrooms so.

We think we're on target with our locations and our strategies for opening those showroom.

Steven Forbes: Thank you. Maybe just a quick follow-up, John, for you. You think about the opportunity here in 2022, given the brand awareness ramp that has transpired and, you know, and all the work that you guys have sort of executed on. What do you sort of view as the categories of greatest opportunity? I mean, the outdoor launch. Is there sort of any sort of framework you can help us sort of contextualize as you think about where Arhaus is really leaning into in terms of, you know, a category perspective or just this driving the value proposition to a broader customer demographic?

Thank you and then maybe just a quick follow up.

Maybe John for you.

Do you think about the opportunity here in 2022, given given the brand awareness ramp that has transpired.

And all the work that you guys have some sort of executed on what are you sort of view as the the <unk>.

Categories of greatest opportunity.

Outdoor launch is there any sort of any sort of framework. You can you can help us sort of contextualize as you as you think about where where our house is really leaning into in terms of.

A category perspective, we're just driving the value proposition to a broader customer demographic.

John Reed: Sure. Well, I mean, we took the strategy when COVID started that we were gonna continue working on new products in all categories, increasing, you know, our selection, offering more exciting products, even upscaling some of the products. You know, the team has done a great job with that. You know, one thing we did that we think is a little different than some of our competitors is we've been aggressively rolling out new products. You know, the January catalog that just hit a couple of months ago had, I don't know, over 200 new products in it.

Sure.

We.

We took the strategy.

A year.

When Covid started that we were going to continue.

Working on new products in all categories.

Increasing our selection.

For a more exciting products, even even up scaling some of the products.

And the.

The team has done a great job with that so.

One thing we did that we think is a little different than some of our competitors, we've been aggressively rolling out new products.

The last the January catalogs, it just hits.

A couple of months ago had I don't know over 200, new products and that I think we had advertised.

John Reed: I think we had advertised the new outdoor catalog that we just hit just last week was just game changing for our outdoor. We think it was photographed over in Greece. We think it's the best-looking outdoor catalog anybody has done in the business. We're excited about that category as well. Really excited about all the categories. You know, we've got a great team of really talented folks that have been coming out with some great new products. We've been aggressively doing that because we think, you know, we look at times like this when people do cut back, they don't introduce new things, they don't produce as many catalogs and so forth.

The the new.

Outdoor catalog that we just had.

Just last week.

Was.

It was just game changing for outdoor we think it was it was it was photographed over in Greece.

We think it's we think it's the best looking outdoor catalog anybody has done in the business.

So we're excited about that category as well, but.

But really excited about all the categories and.

We've got a great team of really talented folks that have been coming out with some great new products and we've been aggressively doing that because we think.

We look at times like this when people cut back they don't introduce new things they don't produce as many catalogs and so forth and we kind of took the opposite approach and it seems to be working for us.

John Reed: We kinda took the opposite approach, and it seems to be working for us.

Steven Forbes: Thank you.

Thank you.

Operator: Thank you. Our next questions come from the line of Adrienne Yih with Barclays. Please proceed with your question.

Thank you our next questions come from the line of Adrienne <unk> with Barclays. Please proceed with your question.

Adrienne Yih: Good morning, everyone. Congratulations on the Q4 and then the success on trending into the first of the year. My first question is on digital. I'm sorry if I missed this, but did you actually give digital percent sales penetration? And Dawn, can you give us some color on the e-com segment margins there relative to the four-wall of the stores? And then my follow-up is, in terms of inventory, you had talked about the lead times getting better. To the extent that, can you give us some color on the component of that is in transit and what that inventory is in units at the end of the quarter? Thank you very much.

Good morning, everyone. Congratulations on the fourth quarter and then the success on trending into the first of the year.

So my first question is on digital I'm, sorry, if I missed this but did you actually good digital a percent sales penetration and Don can you give us some color on the EBIT segment margin there relative to the four wall of the stores and then my follow up is.

In terms of inventory.

You talked about the lead times are getting better.

So to the extent that a can you give us some color on the component of that is in transit and what that inventory is in unit at the end of the quarter. Thank you very much.

Dawn Phillipson: Good morning, Adrienne. For the full year, e-com penetration was right around 18%, in line with our expectations, and we're pleased with the performance of both segments in e-com and showrooms. As we think about inventory, it's important to keep in mind that we use a landed cost. As those container costs are increasing, the inventory levels are increasing. I think that's just important to note as we think about this year and then go forward. Apologies, what was the other portion of your question, Adrienne?

Good morning, Adrian so for the full year E comm penetration was right around 18%.

In line with our expectations and we're pleased with the performance of both segments in E comm in showrooms.

As we think about inventory.

It's important to keep in mind that we use a landed cost.

And so as those container costs are increasing the inventory levels are increasing.

So I think that's just important to note as we think about this year and then go forward.

Yeah.

Apologies what was the other portion of your question Adrian Yeah. It was basically was basically on that in terms of the breakdown between kind of what's in transit and then the difference between the actual dollar cost of inventory versus unit right. So what's the spread is it 10% is it basically it's a coffee inflation.

Adrienne Yih: Yeah, it was basically on that, in terms of the breakdown between kind of what's in transit and then the difference between the actual dollar cost of inventory versus units, right? So what's the spread? Is it 10%? Is it 5%? You know, basically it's the cost of inflation is effectively the crux of the question.

Is effectively the B L.

The crux of the question.

Dawn Phillipson: Yeah, we don't typically give units, just given that there is a kind of a lot of volatility as you think about, you know, sofas versus decor.

Yeah, we don't typically give units.

Just given that there are there is a kind of a lot of volatility as you think about you know.

<unk> versus the core.

Adrienne Yih: Yeah.

Dawn Phillipson: I'm not sure that metric would be terribly helpful for you. As we think about in transit, there is a decent amount of inventory in transit. As you think about how we invoice and pay for our inventory, we typically take possession of that inventory at the foreign port and then bring it in. As you think about the international transportation or international inventory being, you know, 50% to 60%. You know, you could probably take a, Gosh, Adrienne, you're asking a good question here. I don't know. Do we wanna give the number? I mean, it's, you know, I wouldn't say it's a meaningful amount. You know, it takes about 20 days for product to get internationally here.

So I'm not sure that that metric would be terribly helpful for you.

As we think about in transit.

There is a decent amount.

Of inventory in transit.

Do you think about how we.

Boyce and pay for our inventory, we typically take possession of that inventory.

At the foreign Port and then bring it in.

So as you think about the international transportation are international.

Inventory being 52.

60% speakers.

You could probably take a.

Okay.

Gosh Adrian here, you're asking a good question here.

I don't know if you want to give the number I mean, it's.

I wouldn't say, it's a meaningful amount it takes about 20 days for product to get internationally here.

Dawn Phillipson: In the event that that's helpful to you.

In the event that that is helpful to you.

Adrienne Yih: Yeah. We can back into it. Then, my final question, just, is on the basis point impact to gross margin in Q4, and I know you had some in Q3, when you're giving your guidance for 2022, everything seems to be getting on track to be improving. Are you expecting embedded in that guidance a reversal, like a net positive in Q3 and Q4 in that guidance on the GM line?

Yeah, we didn't we get back into it and then my final can you just put it on the basis point impact to gross margin in the fourth quarter and I know you had some in the third quarter. When you are giving your guidance for 2022 everything seems to be getting on the track to be improving are you expecting embedding in that guidance a reversal.

Like a net good guy in <unk> and <unk> in that guidance on the GM line.

Dawn Phillipson: Yeah. Not yet. So we've seen container costs stabilize, you know, in the end of the Q4, Q1, and that is driving some gross margin benefit in the Q4. As we think about the number of containers that we're bringing in this year that would have container costs applicable to it and the percentage that we've managed to secure on a contract rate versus a spot rate, I'm not comfortable taking those container costs down yet. I just think it's not prudent. There's other things that are factoring into that gross margin rate as well in 2022, things like fuel surcharges that we're seeing on the outbound side, transportation from the DCs to the hubs and the client homes, that's also factored into the 2022 guidance.

Yeah, not yet and so we've seen container cost stabilize.

At the end of the fourth quarter first quarter and that you saw some is driving some gross margin benefit in the fourth quarter.

As we think about the number of containers that were bringing in this year that would have container cost applicable to it and the percentage that we've managed to secure on a contract rate versus the spot rate.

I'm not comfortable taking.

Those container costs down yet.

I just think its not prudent theres other things that are factoring into that gross margin rate as well in 'twenty, but with things like fuel surcharges that were seeing on the outbound side transportation from the Dcs to the hubs and the client homes.

That's also factored into the 2022 guidance so we.

Dawn Phillipson: You know, we wanna be prudent. We wanna forecast in a responsible way. As of yet, I don't think it's the right time to take those container costs down for the balance of year.

We want to be prudent we want to forecast them in a responsible way so as of yet I don't think it's the right time to take those container costs down for the balance of year.

Adrienne Yih: Yeah. That's prudent. Thank you very much, and best of luck.

Yeah. That's good thank you very much and best of luck.

Dawn Phillipson: Thank you.

Thank you.

Operator: Thank you. Our next question comes from the line of Peter Benedict with Baird. Please proceed with your questions.

Conference.

Operator: Thank you. Our next question comes from the line of Peter Benedict with Baird. Please proceed with your questions.

Our next question comes from the line of Peter Benedict with Baird. Please proceed with your questions.

Peter Benedict: Hi, good morning, everybody. A couple questions. First, just on the backlog, still considerable over 40%, I think, of your LTM revenue. Just, I'm curious on how you're planning for that to flow into the P&L into revenue across 2022. Any color on Q1 or H1, H2? I'm trying to understand maybe what's normal for the business. You guys obviously have a plan here. Where might that backlog be at the end of this year if you kinda just do the numbers that you've laid out? Any help on that? That's my first question.

Hi, good morning, everybody.

Question. So first just on the backlog still still considerable over 40% I think of your LTM revenue.

I'm curious on how youre planning for that to flow into the P&L into revenue across 22 any color on first quarter or first half second half.

And then I'm trying to understand maybe what's normal for the business.

You guys, obviously have a plan here where might that backlog at the end of this year. If if you've kind of just do the numbers that you've laid out any any help on that that's my first question.

Dawn Phillipson: Sure. As we think about delivering the backlog, one of the constraints we have is our capacity to ship out of our facilities that we currently have. Boston Heights, we have this one facility and have had it. North Carolina, we opened up on the shipping side in the end of Q4. That is outperforming expectations, which we're really pleased about. As you think about deliveries, once we get our Dallas, Texas, facility open in the Q3 this year, we'll see a nice uptick in those delivered sales in the revenue line. Capacity constraints on our side, on the outbound side, certainly is one of the items that's inhibiting catching up on that backlog.

Sure So as we think about.

As we think about delivering the backlog one of the constraints. We have is our capacity to ship out of our facilities that we currently have so Boston hype. We have this one facility and it had at North Carolina, We opened up on the shipping side and the end of Q4 that is.

Outperforming expectations, which we're really pleased about but as you think about deliveries once we get our Dallas, Texas facility open in the third quarter of this year, we will see a nice uptick in those delivered sales and the revenue line. So.

Capacity constraints on our side on the outbound side.

Certainly as is one of the items that's inhibiting.

Catching up on that backlog.

Dawn Phillipson: We're excited for Dallas to open, and it's on track, so we're pretty thrilled about that.

So we're excited for for Dallas to open and it's on track. So we're we're pretty thrilled about that.

Yeah.

Peter Benedict: Love it. That's helpful. Is any perspective on what's normal? I mean, I know you guys are doing a lot here on the distribution side, and so maybe, you know, your experience 2, 3 years ago is not informing maybe what is possible here from a backlog perspective. I mean, it's again, it's north of 40% of your revenue or your trailing revenue. Is there a framework you can help us think about when maybe the business is, quote-unquote, back to normal, where that might be landing? If not, no problem, but just curious.

So.

That's helpful and any perspective on what's normal I mean, I know you guys are doing a lot here.

With the on the distribution side and so maybe.

Your experience two three years ago is not.

Informing maybe what is possible here from a backlog perspective, so I mean again, it's north of 40% of your revenue or your trailing revenue.

Is there a framework you can help us think about when when maybe the businesses quote unquote back to normal where that might be landing if not no problem, but just curious.

Dawn Phillipson: Sure. In the transaction, we had noted that, you know, the growth rate for 2022 and 2023 would be right around 30% on net revenue with, you know, 2022 being a bit higher, 2023 being a bit lower. We would normalize as we move into 2024 and beyond. We do think there will still be some backlog to deliver. It is a rolling backlog, so clients are not waiting. You know, we wouldn't expect them to be waiting, you know, that length of time. But as far as, you know, a backlog number for the end of this year, we're gonna push through as much of it as we can. It's the right thing for the client. It's the right thing for the company.

Sure so.

In the transaction, we had noted that the.

The growth rate for 2022, and 2023 would be right around 30% on net revenue with.

22, being a bit higher 23, being a bit lower and then we would normalize.

As we move into 'twenty four and beyond so we do think there will still be some backlog to deliver it as a rolling backlog so clients are not waiting.

We wouldn't expect them to be waiting.

You know that length of time.

But as far as a backlog number for the end of this year, we're going to push through as much of it is we can it's the right thing for the client it's the right thing for the company.

Dawn Phillipson: You know, more to come on that, I guess, as we move through the year. It's a bit early to speculate on that at this point.

So.

Dawn Phillipson: You know, more to come on that, I guess, as we move through the year. It's a bit early to speculate on that at this point.

More to come on that I guess as we move through the year, but it's a bit early to speculate on that at this point.

Peter Benedict: No, no, fair enough. I guess, and thank you for that. My next question may be for Jen. You know, you talked about 2022 being kind of a year of customer acquisition and retention. Maybe help us with what you think are some of the most impactful marketing initiatives you have on tap for this year. Maybe some perspective around the cost to acquire customers, how that's been trending, and what kind of your view is on that going forward. Thank you.

No no fair enough.

For that and then my next question, maybe for Jen talked about 'twenty, two being kind of a year of customer acquisition and retention maybe help us with what you think are some of the most impactful marketing initiatives you have on <unk>.

Tap for this year.

And maybe some perspective around the cost to acquire customers, how that's been trending and what kind of your view is on that going forward. Thank you.

Jennifer Porter: Yeah, of course. Good morning. I think we have a lot in the works, and I think what's really exciting about Arhaus, Inc. is that you know, we have this brand, this story, this artisanal product that's been developed, you know, for 35+ years, and we're really focusing on now introducing that story to more people. So we have a really broad mix of marketing tactics and levers that we can pull. As I mentioned on the call, and as John reiterated, we are absolutely thrilled with outdoor.

Yeah of course good morning.

I think we have a lot in works and I think what's really exciting about <unk>.

Our house is that.

We have this brand.

Story. This artist no products is being developed for 35 plus years and where we're at.

Really focusing on now introducing that story to more people. So we have a really broad mix of marketing tactics and methods that we can pull.

As I mentioned on the call unless John reiterated we are absolutely thrilled with outdoor and I think that's really showing us that and what we can do in terms of getting that story out to more consumers not only through our showrooms, but also digitally on the site to our direct mail through partnerships with media and Influencers.

Jennifer Porter: I think that's really showing a step up in what we can do in terms of getting that story out to more consumers, not only through our showrooms, but also digitally on the site, through our direct mail, through partnerships with media and influencers, and various other things that you'll see throughout the year. I think I am really excited about some of our upcoming big launches. Looking at fall, we'll be launching our next big catalog, and more new products surrounding that. We have a lot of actions and activities surrounding that element.

And then there is other things that you'll see throughout the year.

I think I am really excited about some of our upcoming big launches so looking at fall.

We'll be launching our next big catalog.

And more new product surrounding that so we have a lot of actions and activities surrounding that element.

Jennifer Porter: This month, actually, at the beginning of the month, we just celebrated the opening of our Aspen store in Aspen with an event in that market, and I think that was a really great example of how we marketed and addressed specific communities. We are really excited when we open up a new showroom to be joining a community and meeting our neighbors and really being able to introduce the brand one-on-one to potential clients. I think that event and that initiative in that local market, while it was local to Aspen, it has legs nationwide and was really powerful to get to know that climate. I would expect to see more initiatives and actions like that. Moving to your question about customer acquisition and costs.

This month's actually at the beginning of the month, we just celebrated the opening of our Aspen store.

And Aspen with an event in that market and I think that was a really great example of how we marketed and addressed specific communities. We are really excited when we open up a new showroom to be joining a community and meeting our neighbors and really being able to introduce the brand one on one with potential clients and I think.

That.

And that initiative in that local market, while it was local to Aspen It has legs nationwide and what's really powerful.

Got to know that that that climate, so I would expect to see more.

And actions like that.

Moving to your question about customer acquisition and costs I'm sure you're hearing this across the industry digital marketing is an ever evolving arena with all of our privacy regulations and things that have come up costs are going up. So we are seeing cost rising we're seeing efficacy of some of our campaigns falling.

Jennifer Porter: I'm sure you're hearing this across, you know, the industry. Digital marketing is an ever-evolving arena with all of the privacy regulations and things that have come up. Costs are going up, so we are seeing costs rising. We're seeing efficacy of some of our campaigns falling. I think though, again, what we are really pleased about is that we do have that broad marketing mix. We do have new showrooms opening. We do have a very, very strong print marketing program. We are really just in the early stages of working with influencers and partners outside of a brand. We have an incredibly strong team that we have really worked very hard to bring in-house over the last few years.

I think though again, what we are really.

Pleased about is that we do have that broad market marketing mix. So we do have new showrooms opening we do have a very very strong print marketing program. We are really just in the early stages of working with Influencers and partners outside of a brand and then we have an incredibly strong team that we have really worked.

Hard to bring in house over the last few years. So we have people focused on every campaign an initiative that we're doing constantly optimizing and reevaluating our spend on any specific channels.

Jennifer Porter: We have people focused on every campaign and initiative that we are doing, constantly optimizing and reevaluating our spend on any specific channels. We're not committed to any one channel to achieve our business needs. We can sort of shift the funds around and move things as we need to continue working. We're feeling really excited about 2022. Obviously, we'll be paying very close attention to the market and everything that's going on there, but a lot of fun things to come, which I look forward to telling you about later in the year.

We're not committed to any one channel to achieve our business needs. We can sort of shift of funds around the move things as we need to continue working so we're feeling really excited about 2022.

So you will be paying very close attention to the market and everything that's going on there, but a lot of fun things to come which I look forward to telling you about later in the year.

John Reed: That's great. Super helpful. Thanks very much.

Peter Benedict: That's great. Super helpful. Thanks very much.

That's great Super helpful. Thanks, very much.

Operator: Thank you. Our next question comes from the line of Cristina Fernandez with Telsey Advisory Group. Please proceed with your questions.

Thank you. Our next question is coming from the line of Cristina Fernandez with Telsey Advisory Group. Please proceed with your questions.

Cristina Fernandez: Hi, good morning. I had a question for John. Following on the supply chain comment around the lead times coming down, will you be able to give some color on where they are maybe on weeks versus peak? And how is that translating to the order wait times you're quoting customers? Have those been able to come down, and how are they trending versus key competitors?

Hi, Good morning, I had a question for John following on the supply chain comments around the lead times coming down would you be able to give some color.

Where are they maybe on weeks versus peak in how is that translating to the to the order wait times to 40 customers have dose being able to come down and how are they trending versus key competitors.

John Reed: Good morning, Cristina. Yes, they have definitely come down. They're way off the peak. I think we're quoting, you know, 8, 9 weeks now for a customer to wait on average, you know, which before had been 16, 25 and so forth, you know, last year. They continue to come down, and every month they're coming down less and less. Our, you know, upholstery business, which is a big part of our business, the custom part, which is what we're really known for, has come down over a month. The lead time's gotten shortened by a month last month, and I think next month we're gonna shorten it by another month. It continues to come down.

Good morning Kristina.

Yes, they have definitely come down.

They are way off the peak.

And.

I think we're quoting.

Eight nine weeks now and for a customer to wait on average.

Which before had been <unk> 25, and so forth.

Last year.

So they continue to come down at every month, there theyre coming down less and less.

R R.

Upholstery business, which is a big big part of our business the custom part which is what we're really known for.

Has come down over a months lead times.

Shortened by a month last month and I think next month, we're going to shorten that by another month.

It's continues to come down customers are responding very nicely too.

John Reed: Customers are responding very nicely to the decreases because, you know, they'd rather not wait. They'd like to get their product. We've been doing a nice job right across the board, with lead times coming down, certainly on our best sellers as well, which is very important, of course. I don't know. You know, we track what competitors are doing. They're all over the board. Some are still out 20-some weeks on things. Some are trying to get things in stock. Again, it depends on where they're getting them from and so forth. It's literally all over the board right now.

Decreases because they.

They are.

No.

They'd rather not wait they'd like to get their product. So we've been doing a nice job right across the board.

Lead times coming down certainly on our best sellers as well, which is which is very important of course.

I don't know.

We track with what competitors are doing they're all over the board.

Some are still out 'twenty some weeks some things.

Some are trying to get things in stock again.

We're getting them from and so forth so.

But it's literally all over the board right now.

Cristina Fernandez: That is very helpful. My second question, I wanted to ask about the interior designers, which is, you know, a key initiative for the company and enables, you know, to get more AOV. How did that trend in Q4 as far as penetration? Are you seeing that increase? Any sort of thoughts about expanding the interior designer community in 2022?

Got it very helpful. And then my second question I wanted to ask about the the interior designers, which is our key initiatives for the company and enabled to to get more it would be how did that trend in the fourth quarter as far as penetration you see.

That increase in its always talks about expanding into designer community in 2022.

John Reed: Right. We have our own internal designers as well as we work a lot with the trade. Both have been growing very nicely last year, and the trends seem to be continuing for this Q1. We're thrilled with that business, and we're gonna continue to grow it. We've got initiatives in place to grow both internal designers and outside trade designers.

Right, we have our own internal designers as well as we work a lot with the trade and both have been growing very very nicely last year.

And the trends seem to be continuing for this first quarter.

<unk>.

We're thrilled with that business and we're going to continue to grow it and we've got initiatives in place to grow both internal designers and outside trade designers.

Okay.

Yes.

Cristina Fernandez: Thank you, and you'll-

Thank you.

Speaker 15: Oh, right. Sorry, she was writing a number down for me. We have over 70 designers currently on staff, and we're looking to grow that.

John Reed: Oh, right. Sorry, she was writing a number down for me. We have over 70 designers currently on staff, and we're looking to grow that.

Oh, sorry.

Sorry, she was already a number down for me.

We have over 70 designers currently.

On staff and we're looking to grow that.

Cristina Fernandez: Any color you can share on the penetration of, you know, I guess the percentage of sales that are coming from those interior designers?

Any color you can share on the on the penetration of.

I guess your percentage of sales are coming from those interior designers.

Dawn Phillipson: Yeah. Hi, Cristina. You know, demand penetration continues to increase with those designers. So we're finding that the program is really resonating, and we're pleased with the performance. It's up nicely versus last year.

Yeah, Hey, Kristina.

Demand penetration continues to increase with those designers. So we're finding that the program is really resonating.

And we're pleased with the performance, but it's up nicely versus last year.

Cristina Fernandez: Thanks for that.

Thanks, Matt.

Operator: Thank you. There are no further questions at this time. I would like to turn the call back over to Wendy Watson for any closing comments.

Thank you there are no further questions at this time I would like to turn the call back over to Wendy Watson for any closing comments.

Dawn Phillipson: Thank you, everyone, for participating, and we look forward to talking to you again next quarter.

Wendy Watson: Thank you, everyone, for participating, and we look forward to talking to you again next quarter.

Thank you everyone for participating and we look forward to talking to you again next quarter.

Speaker 15: Thanks, everybody. Appreciate your time. Have a great day.

John Reed: Thanks, everybody. Appreciate your time. Have a great day.

Thanks, everybody appreciate your time.

Have a great day.

Operator: This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day. Good morning, and welcome to the Arhaus Q4 2021 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. I will now turn the call over to your host, Wendy Watson, Senior Vice President of Investor Relations.

Operator: This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.

Okay.

[music].

Good morning, and welcome to the our House fourth quarter 2021 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 comes.

<unk>.

I will now turn the call over to your host Wendy Watson Senior Vice President of Investor Relations.

Wendy Watson: Good morning, and thank you for joining Arhaus' Q4 and full year 2021 earnings call. Along with me today are John Reed, Co-Founder, Chairman, and Chief Executive Officer, Jennifer Porter, Chief Marketing Officer, and Dawn Phillipson, Chief Financial Officer. John will start with a summary of the main points we made in this morning's press release, along with operational details. Jennifer will discuss the status of marketing initiatives, and Dawn will cover our financial performance and our outlook for 2022. After their formal remarks, we will open the call for questions. For Q&A, please limit to one question and one follow-up. If you have additional questions, you may return to the queue. We issued our earnings press release and our 10-K for the year ended 31 December 2021 before market opened today. These documents are available on our investor relations website at ir.arhaus.com.

Good morning, and thank you for joining our houses fourth quarter and full year 2021 earnings call with me today are John Reed Co founder Chairman and Chief Executive Officer, Jim Porter, Chief Marketing Officer, and Don Phillips, and Chief Financial Officer.

John I'll start with a summary of the main points. We made in this morning's press release, along with operational details.

Jim will discuss the status of marketing initiatives and John will cover our financial performance and our outlook for 2022.

After their formal remarks, we will open the call for questions for Q&A. Please limit to one question and one follow up if you have additional questions you may return to the queue.

We issued our earnings press release, and our 10-K for the year ended December 31, 2021 before market opened today.

These documents are available on our Investor Relations website at IR Dot our house Dot Com a replay of the call will also be available on our website within 24 hours.

Wendy Watson: A replay of the call will also be available on our website within 24 hours. As a reminder, remarks today concerning future expectations, events, objectives, strategies, trends, or results constitute forward-looking statements. Actual results or events may differ materially due to a number of risks and uncertainties. For a summary of these risk factors and additional information, please refer to this morning's press release and the cautionary statements and risk factors described in our annual report on Form 10-K as such factors may be updated from time to time in our other filings with the SEC. The forward-looking statements are made as of today's date, and except as may be required by law, the company undertakes no obligation to update or revise these statements. We will also refer to certain non-GAAP financial measures, and this morning's press release includes the relevant non-GAAP reconciliations.

As a reminder, remarks today concerning future expectations events objectives strategies trends or results constitute forward looking statements.

Actual results or events may differ materially due to a number of risks and uncertainties.

As such factors may be updated from time to time in our other filings with the SEC.

The forward looking statements are made as of today's date and except as may be required by law. The company undertakes no obligation to update or revise these statements. We will also refer to certain non-GAAP financial measures in this morning's press release includes the relevant non-GAAP reconciliations.

Wendy Watson: I will now turn the call over to John.

I will now turn the call over to John .

John Reed: All right. Thank you. Good morning, everyone, and thank you for taking the time to join our Q4 and full year 2021 earnings call. We are very pleased with our record Q4 and full year performance. For the full year of 2021, here are some facts. Net revenue increased 57% to $797 million with our retail channel up over 56% and our e-com channel up over 60%. Comp growth increased net 51%. Net and comprehensive income increased 117%. Adjusted net income increased 118%, and adjusted EBITDA increased a notable 77%. We ended the year with 79 showrooms across 28 states.

Alright, thank you.

Good morning, everyone and thank you for taking the time to join our fourth quarter and full year 2021 earnings call.

We are very pleased with our record fourth quarter and full year performance.

For the full year of 2021 here are some facts.

Net revenue increased 57% to $797 million with our.

<unk> channel up over 56% and our E com channel up 60% over 60%.

Comp growth increased net 51% net and comprehensive income increased 117%.

Adjusted net income.

Increased 118% and adjusted EBIT da increase the notable 77%.

We ended the year with 79 showrooms across 28 states.

John Reed: Dawn Phillipson will cover our Q4 and full year 2021 financial performance and outlook for 2022 in more detail later in the call. We continue to be very encouraged by the trends of our business. 2021 was a monumental year for Arhaus. In addition to our record financial performance, we made some key investments that will support our long-term growth. First, we opened a nearly 500,000sq ft distribution center and upholstery production facility in North Carolina. We began our 230,000sq ft expansion of distribution and corporate offices here at home in Ohio, and we launched a new website to enhance our client experience and analytic capabilities. In addition, we transitioned to a public company with the initial public offering of our stock in early November.

Don will cover our fourth quarter and full year 2021 financial performance and outlook for 2022, and a more detail later in the call.

We continue to be very encouraged by the trends of our business.

2021 was it was a monumental year for our house. In addition to our record financial performance. We made some key investments that will support our long term growth.

First we opened nearly 500000 square foot distribution center in upholstery product production facility in North Carolina.

We began our 230000 square foot expansion of distribution and corporate offices here.

Here at home in Ohio, and we launched a new website to enhance our client experience and analytic capabilities.

In addition, we trans transitioned to a public company with the initial public offering.

Of our stock in early November .

John Reed: Our results and accomplishments required a tremendous amount of work and execution by our over 1,700 associates. I want to personally thank them for all their hard work in growing our house, as well as building our brand and being true to our mission and values, and delivering an incredible product and client service experience. We have tremendous white space to grow our showrooms footprints across the United States, and in 2021, we opened 7 new showrooms. Three traditional showrooms in Boca Raton, Florida, Salem, New Hampshire, Short Hills, New Jersey, as well as four design studios in Burlingame, California, Princeton, New Jersey, Miramar Beach, Florida, and Aspen, Colorado.

Yeah.

Our results and accomplishments required a tremendous amount of work and execution by our over 1700 associates.

Yes.

I want to personally thank them for all their hard work in growing our house as well as building, our brand and being true to our mission and values.

Delivering an incredible product and client service experience.

We have tremendous white space to grow our showrooms footprints across the United States and in 2021, we opened seven new showrooms three traditional showrooms in Boca Raton, Florida Salem.

Salem, New Hampshire short Hills, New Jersey.

As well as for design Studios in Burlingame, California, Princeton, New Jersey, Miramar Beach, Florida, and Aspen, Colorado.

John Reed: As part of our efforts to continuously optimize our retail footprint, we also relocated three showrooms in Oak Brook, Illinois, Charlotte, North Carolina, and McLean, Virginia, and converted these showrooms to our new format and closed two older format stores in redundant locations as their leases expired. To update you on current supply chain dynamics and the expansion of our distribution and production capabilities, our inbound product supply chain is improving tremendously. Lead times continue to be a bit longer than historic averages, but we expect lead times to continue to improve throughout 2022. Further, we expect the recent and upcoming additions to our outbound capacity to help alleviate constraints over the course of 2022. Our new North Carolina Upholstery production and distribution center is open, it's operating, and it's really exceeding our expectations.

As part of our efforts to continuously optimize our retail footprint. We also relocated three showrooms in Oak Brook, Illinois, Charlotte North Carolina in Mclean, Virginia, and converted the showrooms to our new formats and close to or older format stores and redundant locations as their leases expire.

<unk>.

To update you on current supply chain and dynamics and the expansion of our distribution and production capabilities.

Our inbound.

Product supply chain is improving tremendously lead times continues to be a bit longer than historic averages.

But we expect lead times to continue to improve throughout 2022.

Further we expect the recent and upcoming additions to our outbound capacity to help alleviate constraints over the course of 2022.

Our new North Carolina upholstery production and distribution center is open its operating and its really exceeding our expectations.

John Reed: The expansion of our Ohio distribution and corporate office facilities is progressing, and we expect it to be operational later this year. We are extremely excited about a third distribution center in Texas that we expect to open in H2 2022. In closing, we have never been more excited about our business and the trends of our business. Demand remains strong across all channels, and we are very focused on delivering our incredible product to our clients. We operate in a fast-growing $60 billion premium home furnishings market in the United States. Our clients, who are predominantly from high-income households, continue to invest in their homes, and we continue to execute our growth strategy by opening showrooms and making the investments to build our brand awareness and grow our omni-channel footprint.

The expansion of our Ohio distribution and corporate office facilities is progressing and we expect it to be operational later this year.

We are extremely excited.

About a third distribution center in Texas that we expect to open in the second half of 2022.

In closing we have never been more excited about our business and the trends of our business.

Demand remains strong across all channels and we are very focused on delivering our incredible product to our clients.

We operate in a fast growing $60 billion premium home furnishings market in the United States.

Our clients, who are predominantly from high income households continue to invest in their homes.

And we continue to execute our growth strategy by opening showrooms and making the investments to build our brand awareness and grow our omni channel footprint.

John Reed: With our market share today of less than 2% of this large, fragmented market, we have a long and exciting runway for growth. Now I'll pass this over to Jen to review our current marketing initiatives in more detail.

With our market share today of less than 2% of this large fragmented market, we have a long and exciting runway for growth.

Now I'll pass this over to Jan to review, our current marketing initiatives in more detail.

Jennifer Porter: Thank you, John, and good morning, everyone. I am so happy to be able to share some of our marketing efforts from 2021 with you. As a quick reminder, Arhaus is a 35-year-old heritage brand that offers unique artisan-crafted, heirloom quality products to our clients. We are building out an omni-channel approach to marketing anchored by our inspirational showrooms and extending through our website, our catalogs, and across digital channels and tools. We know what happens when a client sits on one of our sofas or sees the beauty and durability of a reclaimed wood table for themselves. Our priority is to bring the same experience to life across channels. Digital continues to be an exciting area of opportunity for us. As John mentioned, our 2021 e-commerce revenue was up over 60% compared to 2020.

Thank you John and good morning, everyone I am so happy to be able to share some of our marketing efforts from 2021 with you as a quick reminder, our house is a 35 year old heritage brand that offers unique artisan crafted heirloom quality products to our clients. We are building out an omnichannel approach to marketing anchored by our <unk>.

<unk> showrooms and extending through our website, our catalogs and across digital channels and tools. We know what happens when a client sits on one of our sofa or sees the beauty and durability of our reclaimed wood table for themselves. So our priority is to bring the same experience to life across channels.

Digital continues to be an exciting area of opportunity for us as John mentioned, our 2021 E. Commerce revenue was up over 60% compared to 2020, we saw critical digital enhancements with the launch of our <unk> planning tool, our shopper bolt digital catalogs, a virtual showroom tour and a new.

Jennifer Porter: We saw critical digital enhancements with the launch of our 3D Room Planning tool, our shoppable digital catalogs, a virtual showroom tour, and a new email platform all in H1. In December 2021, we launched our new arhaus.com experience, which I encourage you to check out. While still early days, the launch immediately stepped up our online client experience by better showcasing our brand and allowing us to share more product knowledge. The site also bolsters our product merchandising and customer analytics capabilities. Our initial feedback and analytics are positive, with an increase in page views, time on site, as well as a reduction in cart abandonment since the launch. Earlier this month, we launched an omni-channel outdoor living campaign in support of our new and expanded outdoor product collection.

U E mail platform all in the first half of the year in December 2021, we launched our new our house Dot com experience, which I encourage you to check out.

Still early days the launch immediately stepped up our online client experience by better showcasing our brand and allowing us to share more product knowledge. The site also bolsters, our product merchandising and customer analytics capabilities. Our initial feedback and analytics are positive with an increase in page views.

I am on site as well as a reduction in cart abandonment since the launch.

Jennifer Porter: This campaign is a great example of the experience we can bring to life in our showrooms, through our catalogs, and online. Along with showcasing an exciting new product assortments, we are inviting our clients to journey with us to Greece and to get caught up in the magic of the Greek Isles. We believe that by being inspired by the world around us, we can help each client create their own personal oasis at home. Print media is a critical piece of our omni-channel strategy, and in addition to targeted mailings, we have two large catalogs each year in January and September. On our last call, I mentioned the fantastic results we were seeing with our fall catalog. We are seeing this trend continue with our January catalog sales significantly outperforming last year.

Along with showcasing an exciting new product Assortments, we are advising our clients to journey with us to Greece and to get caught up in the magic of a Greek Isles.

We believe that by being inspired by the world around US we can help each client create their own personal oasis at home.

Bank media is a critical piece of our Omnichannel strategy and in addition to targeted mailings. We have two large catalogs each year in January and September on our last call I mentioned the fantastic results, we were seeing with our forecast block. We are seeing this trend continue with our January catalog sales significantly outperform.

Last year looking.

Jennifer Porter: Looking forward into 2022, we doubled the circulation of our outdoor catalog, which hit homes earlier this month as part of our outdoor living campaign. Client growth was another highlight in 2021. New customer acquisition, both number of new clients and new client average order value, significantly increased over both 2020 and 2019. We achieved this growth across channels. Our 7 new showrooms that opened in 2021 are a great source of new client acquisition for us. We also saw significant success in reaching new clients through our direct mail and social media channels. We continue to see strong results whenever we reach new mailboxes or partner with new influencers, and media partners to share our story. Existing client numbers and value increased as well, both in showrooms and online, driven by our targeted marketing initiatives and a great response to new product offerings.

Looking forward into 2022, we doubled the circulation of our outdoor catalog, which hit homes earlier this month as part of our outdoor living campaign.

Client growth was another highlight in 2021, new customer acquisition, both number of new clients and new client average order value significantly increased over both 2020 and 2019, we achieved this growth across channels are seven new showrooms that opened in 2021.

Great source of new client acquisition for US. We also saw significant success in reaching new clients through our direct mail and social media channels. We continue to see strong results whenever we reached new mailboxes or partner with new Influencers and media partners to share our story.

Existing client numbers and value increased as well both in showrooms and online driven by our targeted marketing initiatives and a great response to new product offerings.

Jennifer Porter: Looking forward to 2022, our focus is on client acquisition, engagement, and retention. We continue to learn and act on data from our new website launch, and we'll share more details on upcoming enhancements in future calls. We have some really exciting campaigns and product launches planned for this year, as well as new showrooms planned for H2. As I mentioned earlier, we are thrilled with this month's launch of our outdoor living campaign, and I encourage everyone to check it out when you have time. We look forward to sharing more information about our omni-channel development and growth throughout the year. For now, I'll pass over to Dawn Phillipson.

Looking forward to 2022, our focus is on client acquisition engagement and retention, we continue to learn and act on data from our new website launch and we'll share more details on upcoming enhancements in future calls we have some really exciting campaigns and product launches planned for this year as well as new showrooms upon for the second.

Half of the year.

As I mentioned earlier, we are thrilled with this month's launch of our outdoor living campaign and I encourage everyone to check it out when you have time wed.

We look forward to sharing more information about our omnichannel development and growth throughout the year for now I'll pass over to Dawn philippson. Thanks.

Thank you Jen and good morning, everyone.

As John mentioned, we are pleased with our 2021 fourth quarter and annual results and the strong underlying trends in our business.

Please note that we have recast our financial statements to reflect an entity under common control with our operating company.

Prior periods reflected in our Form 10-K have been adjusted to combine the entities for presentation purposes.

Future impact to our financial statements is not expected to be material for details and the recast financial information. Please refer to our Form 10-K filed this morning.

For the fourth quarter net revenue increased 46, 3% to $238 million.

Dawn Phillipson: The growth was driven by increased demand for our products in both showroom and e-commerce channels, as well as delivery of orders in the backlog as our supply chain continues to catch up with client demand. Comparable growth was 40.5% in the quarter. Demand remained strong in the quarter, with demand comparable growth of 17.9% on a one-year basis and 79.8% on a two-year stacked basis. Gross profit increased 39.1% to $97 million in the quarter, driven by our higher net revenue, partially offset by the related increase in product and transportation costs, as well as higher credit card fees and other store costs.

Comparable growth was 45% in the quarter.

Demand remains strong in the quarter with demand comparable growth of 17, 9% on a one year basis and 79, 8% on a two year stacked basis.

Occupancy costs over higher net revenue.

SG&A expenses increased 57, 5% to $100 million.

Primarily from investments to support the growth of our business share based compensation expense for equity awards.

Higher demand driven commissions in our showrooms and onetime costs related to the IPO.

As a percentage of net revenue SG&A expenses increased 290 basis points to 41, 8%.

Interest expense was approximately $1 million.

Dawn Phillipson: Q4 2021 net income of $7 million includes a $12 million income tax benefit primarily related to the recognition of a deferred tax asset that arose from our reorganization related to the IPO. This compared to net income of approximately $3 million in the Q4 last year. Adjusted net income in the Q4 of 2021 was $17 million. Adjusted EBITDA in the quarter increased 14% to $33 million from $29 million in the Q4 of 2020. For the full year, net revenue increased 57.1% to $797 million. Full year comparable growth was 51%. Demand was very strong throughout the year with demand comp growth of 45.3% on a one-year basis, and 70% on a two-year stacked basis.

This compared to net income of approximately $3 million in the fourth quarter last year.

Adjusted net income in the fourth quarter of 2021 was $17 million.

Adjusted EBITDA in the quarter increased 14% to $33 million from $29 million in the fourth quarter of 2020.

For the full year net revenue increased 57, 1% to $797 million or.

<unk> comparable growth was 51%.

Demand was very strong throughout the year with demand comp growth of 45, 3% on a one year basis and 70% on a two year stacked basis.

Dawn Phillipson: Gross margin increased 65.4% to $330 million for the year, and gross margin as a percent of net revenue increased 210 basis points to 41.4%. Net income of $37 million for the full year 2021 was up 116.7% compared to net income of approximately $17 million last year. This includes a $10 million income tax benefit primarily related to the recognition of the deferred tax asset I just mentioned. Adjusted EBITDA increased 77% in 2021 to $123 million from $69 million in 2020. Turning to the balance sheet, as of December 31, cash and cash equivalents were $124 million and the company had no long-term debt.

Gross margin increased 65, 4% to $330 million for the year and gross margin as a percent of net revenue increased 210 basis points to 41, 4%.

Net income of $37 million for the full year 2021 was up 116, 7% compared to net income of approximately $17 million last year.

This includes a $10 million income tax benefit primarily related to the recognition of the deferred tax asset I just mentioned.

Adjusted EBITDA increased 77% in 2021% to $123 million from $69 million in 2020.

Turning to the balance sheet as of December 31.

Cash and cash equivalents were $124 million and the company had no long term debt.

Dawn Phillipson: Net merchandise inventory was $208 million as of 31 December 2021, a 92.9% increase from 31 December 2020, as we built inventories in response to strong ongoing client demand. As I mentioned, while we are reducing our backlog and our comp growth is now outpacing our demand comp growth, demand remains strong, and we continue to increase our inventory levels accordingly. For the year ended 31 December 2021, net cash provided by operating activities was $146 million, and net cash used in investing activities was nearly $48 million, with landlord contributions of $18 million. As a result, total capital expenditures, net of landlord contributions, were approximately $30 million for the year. Regarding our full year 2022 outlook, please refer to this morning's press release.

Net merchandise inventory was $208 million as of December 31, 2021.

92, 9% increase from December 31, 2020, as we built inventories in response to strong ongoing client demand.

As I mentioned, while we are reducing our backlog and our comp growth is now outpacing our demand comp growth demand remains strong and we continue to increase our inventory levels accordingly.

As a result total capital expenditures net of landlord contributions were approximately $30 million for the year.

Regarding our full year 2022 outlook. Please refer to this morning's press release.

Highlights include full year net revenue of 1.13 to $1 $7 billion.

Full year comparable growth in the range of 35% to 45%.

Net income of $70 million to $80 million and adjusted EBITDA of $145 million to $155 million.

We assume continued inflation in transportation logistics container and product costs, which we will work to mitigate as needed.

Regarding adjusted EBITDA margin, we expect year over year margins to stabilize in the third quarter and expand in the fourth quarter.

We expect healthy demand comp growth in 2022.

As expected, we are seeing sequential declines, but year over year growth. We will continue to ensure our inventory position supports our customer delivery time goals as we move through the year.

Dawn Phillipson: So far in 2022, our North Carolina facility is outperforming our expectations and is positively impacting net revenue more quickly than anticipated. Because of the timing of our Q4 and full year earnings release today, near the end of our Q1, we're also providing insight into our Q1 expectations. We expect Q1 net revenue of $232 to 236 million, net income of $12 to 14 million, and adjusted EBITDA of $24 to 26 million. In future quarterly reports, we will only be providing updates to our annual guidance. For all other details related to our 2022 outlook, please refer to our press release. We're all pleased with the strong start to the year and feel well positioned to deliver on our financial and operational goals in 2022. This concludes our prepared remarks.

Because of the timing of our fourth quarter and full year earnings release today near the end of our first quarter. We're also providing insight into our first quarter expectations.

We expect first quarter net revenue of $232 million to $236 million net.

Net income of 12 million to $14 million.

And adjusted EBITDA of $24 million to $26 million.

In future quarterly reports, we will only be providing updates to our annual guidance.

For all other details related to our 2022 outlook. Please refer to our press release.

We're all pleased with the strong start to the year and feel well positioned to deliver on our financial and operational goals in 2022.

This concludes our prepared remarks, thank you for your attention and we would now like to open the call up for questions.

Dawn Phillipson: Thank you for your attention, and we would now like to open the call up for questions.

Operator: Thank you. We will now be conducting the question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for your questions. Our first question has come from the line of Curtis Nagle with Bank of America. Please proceed with your questions.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.

Yes.

Our first question is coming from the line of Curtis Nagle with Bank of America. Please proceed with your questions.

Curtis Nagle: Good morning. Thanks very much for taking the question. So curious to know a little more detail on the outperformance. You know, really strong quarter, really nice guidance. Sounds like some of that, you know, is due to clearing the backlogs maybe a little better than expected. I guess just what are you guys seeing from a customer or macro perspective? You know, one of your bigger competitors had called out some potential headwinds, and that was having an impact on near-term demand. Is that something you're seeing or, you know, anything else we should be thinking about in terms of what are just really nice set of numbers for you guys?

Good morning, Thanks, very much for taking my question.

So.

Curious, though.

More detail on the outperformance.

We're really strong quarter really nice.

Guidance it sounds like some of that is due to clearing the backlog, maybe a little better than expected.

What are you guys seeing from.

A customer or a macro perspective.

One of your bigger competitors have called out some potential headwinds.

And that was having an impact on near term demand is that something you're seeing or anything else, we should be thinking about in terms of yes.

Yes.

Really.

Really nice set of numbers for you guys.

John Reed: Yeah. Good morning. This is John Reed. Yeah, we're seeing, you know, business pretty much as we had forecasted. Business is still strong. We've not seen a big drop off. You know, we're marching forward here. Who knows what the future's gonna bring, you know, with everything going on between inflation, wars, and so forth. So far we've seen demand pretty much on track of where we had expected it. We've not seen a big drop off.

Yes. Good morning, this is John Reed.

Yes.

We're seeing.

Business.

Pretty much as we had forecasted.

Business is still strong.

We've not seen a big drop off.

And.

We're marching forward here.

Who knows what the future is going to bring you know with everything going on.

Between the.

Inflation and wars, and so forth but.

So far we.

We've seen demand.

Pretty much on track of where we would expect to that we have not seen a big drop off.

Curtis Nagle: Okay, great. Great to hear. Maybe just a question for Dawn on the gross margin. That also came in, you know, much better than expected. I think you called out maybe some additional operating leverage on occupancy. Anything else that was driving, you know, I think like 200 bips better than at least we were thinking. Yeah.

Okay, great great great to hear.

And then maybe just a question for Don on the gross margin. So that it also came in much better than expected I think you called out maybe some additional.

Yeah.

Operating leverage on occupancy.

Else that was driving.

No.

200 bps.

200 bps better than we thought we were thinking.

Dawn Phillipson: Yeah. Good morning, Curtis.

Curtis Nagle: What are the bigger factors? Morning.

So yeah, yeah, we're doing bigger factors good morning sure.

Dawn Phillipson: Sure. Container costs in Q4 were not as elevated as we had anticipated, relative to our expectations. As you're thinking about your model, that's where there's some benefit in Q4. Apart from that, there was incremental leverage as you would expect on the higher revenues that is flowing through.

Container costs in the fourth quarter were not as elevated as we had anticipated relative to our expectations. So.

So as Youre thinking about your model, that's where there is some benefit in the fourth quarter.

We.

So apart from that there's there was incremental.

Leverage as you would expect on the higher revenues that is flowing through.

Curtis Nagle: Got it. Okay, very helpful. Appreciate it.

Got it okay very helpful. I appreciate it.

Operator: Thank you. Our next question has come from the line of Jonathan Matuszewski with Jefferies. Please proceed with your questions.

Thank you our next questions come from the line of Jonathan Matuszewski with Jefferies. Please proceed with your questions.

Great. Thanks, so much for taking my questions and nice quarter guys. First one was just on pricing.

Other competitors in the market have been more aggressive with price increases.

In 2021, I think you guys introduced a small increase early in the year end.

A larger increase later in the year. How are you guys thinking about pricing for 2022 is an increase contemplated.

Any thoughts there would be helpful.

John Reed: Yeah. We adjusted prices a couple of times last year as needed. You know, we look at this very carefully. We are increasing prices as we're seeing you know our cost increasing, whether it's from vendors or from you know containers, which is obviously the two things that are increasing. But you know, it continues to be a lever for us. We're ready to pull the lever as needed. If we see more price increases, we will take them. We don't see. You know, we've done a lot of analysis on our products versus our competition. We're still extremely competitive, in many cases, more competitive.

Yeah, we said.

We adjusted prices a couple of times last year as as needed.

We look at this very carefully we are we are.

<unk> increasing prices as were seeing.

Our cost increasing.

Whether it's from vendors or from <unk>.

Containers, which is obviously the two two things that are that.

That are increasing.

Yes.

But it continues to be a lever for us we're ready to pull the lever as needed if we see more and more price increases we will take them.

We don't see.

We've done a lot of.

Analysis on our products versus our competition, we're still extremely competitive.

In many cases more competitive and.

John Reed: You know, we'd like to stay more competitive, but if we gotta take them, we will. We don't see that going to affect our business, if we need to.

Wed like to stay more competitive.

But if we kind of take them, we will and we don't see that being going to affect our business.

If we need to.

Jonathan Matuszewski: Great. That's helpful. My follow-up was just on supply chain. You know, last night we heard from another executive, you know, that it's their view that supply chain hasn't gotten better at all. I think you guys are painting a different tune this morning in terms of suggesting that you know, inbound supply chain logistics are improving tremendously, and lead times are continuing to improve. Maybe just help us kinda you know, square those two kind of observations. What are you guys seeing from vendors in terms of you know, new factories that they're building, expanded capacity that they're installing, maybe greater allocation of resources to you guys? Any thoughts there would be helpful.

Great. That's helpful. And then my follow up was just on supply chain.

Last night, we heard from another executive.

You know that their view that supply.

Supply chain hasn't gotten better at all and I think you guys are painting a different tune. This morning in terms of suggesting that.

Inbound.

Supply chain logistics are improving tremendously.

And lead times are continuing to improve so maybe just help us kind of you.

Square.

Two kind of observations.

What are you guys seen from vendors in terms of.

New factories that they are building expanded capacity that they're installing that maybe greater allocation of resources to you guys and any thoughts there would be helpful.

John Reed: Absolutely. Yeah, I can pitch in on this one. First of all, you know, our business model as I think we've explained to you guys is a little different than a lot of our competition. You know, between the United States, Mexico, and Europe, it's a huge part of our business. The United States is still over half of our business. We didn't have the big, you know, interruptions that. Well, we had interruptions, of course, with the foam issue last year in, you know, out of Texas, where nobody could make anything, any kind of domestic upholstery. But that's far behind us now. You know, we don't have a lot of eggs in China's basket, which seems to be the hold up right now. China keeps shutting down.

Absolutely.

I can I can pitch in on this one.

First of all our business model is as I think we've.

Explain to you guys, it's a little different than a lot of our competition.

Between the United States, Mexico Europe .

A huge part of our business the United States is still over half of our business.

So we didn't have the big.

Interruptions.

Well, we had interruptions of course with with the phone issue last year.

Out of Texas, where nobody could make anything any kind of a domestic upholstery, but.

That's far behind Us now.

So.

We don't have a lot of eggs in China's basket.

Which seems to be the hold up right now China keeps shutting down I think that just read they shut the entire city of Shanghai down.

For about a week or so here.

We get things out of Asia, but it's more South Asia, Indonesia.

As one of our larger countries.

But again.

We're getting things out of.

Countries that are in that.

Then affected now with that said with their business being so strong.

All of our vendors.

Have have stepped up they've increased their capacity.

We're happy that very happy to report that.

Folks are shipping for the most part on time.

It's taking longer to get here of course.

After all of that and so we placed orders further out.

We've already adjusted that we've had plenty of time to figure that out last year.

John Reed: You know, we're placing orders 3, 4 months farther out than we used to. Now that we're on that program, you know, we're getting plenty of containers in. We're happy to report things are getting more and more in stock every day. It'll continue to be that way, 'cause our goal and our concept is we try to keep everything in stock that customers see so they can get it delivered right away. That just continues to improve. We just opened our new upholstery facility down in North Carolina literally last month. It's humming great. It hit what we wanted it to hit for March, as far as production goes.

So replacing orders three or four months further out than we used to.

But now that now that we're on that program, we're getting plenty of containers in we're happy to report things are getting more and more in stock every day.

And it will continue to be that way.

Because our goal and our concept as we try to keep everything in stock that customers see so they can get it delivered right away.

And that just continues to improve.

We just opened our new.

Upholstery facility down in North Carolina literally last month.

It's humming great.

It hit what we wanted it to hit for March as.

John Reed: We think we'll have plenty of capacity to take on more orders and to grow the business.

As far as production goes and.

We think we'll have plenty of capacity to take on more orders in the grow the business.

Jonathan Matuszewski: Excellent. Thanks for all the color. Best of luck.

Excellent. Thanks for all the color best of luck.

John Reed: Thank you.

Thank you.

Operator: Thank you. Our next question comes from the line of Peter Keith with Piper Sandler. Please proceed with your questions.

Thank you. Our next question is coming from the line of Peter Keith with Piper Sandler. Please proceed with your questions.

Peter Keith: Hey, good morning, Arhaus team. Great results here. Maybe a quick question for Dawn. I know last year when you were helping us shape the comp growth for 2022, you were always kind of assuming a mid-single digit demand comp for the year. Is that generally what you're continuing to expect? As maybe would it be steady through the year, or do you think there's any change between the beginning of the year and end of year?

Hey, good morning, our house team great results here.

Maybe a quick question for Don I know.

Last year, when you were helping us shape the.

The comp growth for 2022, you're always just kind of assuming a mid single digit demand comp.

For the year.

That generally what you're continuing to expect in May.

Maybe would it be steady through the year or do you think there's any change between the beginning of the year and end of year.

Dawn Phillipson: Sure. Good morning, Peter. While we don't guide to demand comps, what I can tell you is that we expected some sequential deceleration. A 17.9% demand comp in Q4. We have come down from that, which is what you'd expect. You know, we can't continue to see these levels of increases year over year, wouldn't expect to. We are above, trending above the mid-single digit for Q1 to date. We continue to be really pleased with the consumer response to our marketing, our product, our showrooms. We think we're executing on all the right, you know, right strategies.

Sure Good morning, Peter.

So while we don't we don't guide to demand comps what I can tell you is that we expected some sequential deceleration. So a 17, 9% demand comp in Q4.

So we think we're executing on all the right.

Right strategies.

Peter Keith: Okay, fantastic. Maybe I'll take that and pivot it over to Jen. It just seems longer term you have this great brand awareness opportunity. Any data you can share, maybe, I don't know if you would study it in the recent months or just maybe how you saw brand awareness improve through 2021 would be interesting to see.

Okay, Fantastic and maybe I'll take that and pivot over to Jen.

It just seems longer term you have this great brand awareness opportunity. So any data you can share.

Maybe I don't know if you would studies in recent months or just maybe how you saw brand awareness improve through 2021 would be interesting to see.

Jennifer Porter: Yeah. Hi, Peter. We are really excited. We obviously pay very, very close attention to our customer numbers, really looking at that new client/existing client split. We've seen that as the business has grown, really the percentage of sales there, we're still seeing hovering right around that 50/50 percent mark, which we feel really, really great about that considering how quickly the overall business is growing. We are seeing really strong results as we open up our new showrooms. As John mentioned, we opened up 7 new showrooms last year. We see those outperform the rest of chain in terms of new customer percentage. Definitely acting the way we'd expect them to as-

Yeah, Hi, Peter.

We are really excited we obviously pay very very close attention to our customer numbers. So really looking at that new clients existing clients split and we've seen that as the business has grown really the percentage of sales. There, we're still seeing hopping right around that 50%, 50%, Mark, which we feel really really great about that consider.

How quickly the overall business is growing.

We are seeing really strong results as we open up new showrooms.

John mentioned, we opened up seven new showrooms last year and.

Dawn Phillipson: Billboards for the brand, encouraging people to come in. I think one of the other areas that we look at very closely is things like organic traffic to the website, response to our catalogs when we're doing prospecting, word of mouth elements along those lines, and we're really pleased with all of the data that we are seeing there. We're not reporting on the specific brand awareness metric that we spoke to in the IPO process. All of the things that we are looking at, we're seeing our marketing metrics check across the board, which really suggests to me that we are starting to gain traction in the name recognition. We're also

And then I think one of the other areas that we look at very closely as things like organic traffic to the website responds to our catalogs and we're doing prospecting.

What a mouth elements along those lines and we're really pleased with all of the data that we are seeing there.

We're not reporting on a specific brand awareness metric that we spoke to and the IPO process, but all of the things that we are looking at we're seeing our marketing methods Jack.

And marketing methods check across the board, which really suggests to me that we are starting to gain traction.

Great recognition.

John Reed: That sounds great.

Dawn Phillipson: Yeah. Thank you.

Yes.

Sure.

John Reed: Oh, I don't wanna interrupt. Go ahead. Okay. Thank you.

They don't want to interrupt go ahead.

Dawn Phillipson: No, I was just gonna throw in a plug there for the new website as well. I think just the engagement that we are seeing on the website itself, not only is that obviously an immediate revenue driver, but the interaction, the time people are spending on the site, we're definitely seeing the brand resonate, which is another positive factor moving forward.

No I was just going to throw in a plant there for the new web site as well and so I think just the engagement that we're seeing on the website itself.

Is that all to see immediate revenue driver.

Interaction the time people are spending on the side, we're definitely seeing the brand resonate which is another positive factor moving forward.

John Reed: Yeah. That sounds great. Well, thanks so much, and good luck this year, guys.

Yes that sounds great well, thanks, so much and good luck this year guys.

Dawn Phillipson: Thank you.

Thank you.

Okay.

Operator: Thank you. Our next questions come from the line of Simeon Gutman with Morgan Stanley. Please proceed with your questions.

Thank you our next questions come from the line of Simeon Gutman with Morgan Stanley . Please proceed with your questions.

Jackie Sussman: Hi, this is Jackie Sussman on for Simeon. I was wondering if you could share anything in terms of the breakdown of the comp in Q4 between traffic and ticket and anything about how the customer acquisition and traffic is both faring and trending in quarter to date.

Hi, This is Jackie <unk> on for Simeon I was wondering if you could share anything in terms of the break out of the comp in the fourth quarter between traffic and ticket and anything about how the customer acquisition and traffic is both ferring and trending quarter to date.

Dawn Phillipson: Sure. Good morning. Both transactions and ticket are up healthily year over year. AOV increased about 7% in Q4 relative to prior year. Number of transactions is up, you know, about 14% versus prior year. We're seeing healthy growth in both of those metrics.

Sure good morning.

Both transactions and ticket are up healthily year over year <unk> increased about 7% in the fourth quarter relative to prior year and number of transactions is up.

About 14% versus prior year, so we're seeing healthy growth in both of those metrics.

Awesome. Thank you so much and just a quick follow up on the questions that have been there on demand comp I guess, how are you guys thinking about backlogs and kind of when they will peak.

How has that changed in terms of what your expectations were from last quarter and is this embedded into the guide.

Dawn Phillipson: Sure. The demand comp would not include any backlog. That would be in our comp growth number. We did guide to a 35% to 45% comp growth for the year. That would include the backlog. As John mentioned, we're working diligently to bring the right inventory in at the right time to help clear through the backlog. Our lead times are expected to decline nicely by the end of the year.

Sure. So the demand comp would not include any backlog that would be in our comp growth number.

And we do expect we did guide to a 35% to 45% comp growth for the year that would include the backlog and as John mentioned, we're working diligently to bring the right inventory and at the right times to help clear through the backlog.

And our lead times are expected to decline nicely by the end of the year.

Jackie Sussman: Awesome. Thank you guys so much, and congrats on a great quarter.

Awesome. Thank you guys, so much and congrats on a great quarter.

Dawn Phillipson: Thank you.

Thank you.

Operator: Thank you. Our next questions come from the line of Steven Forbes with Guggenheim Securities. Please proceed with your questions.

Thank you our next questions come from the line of Steven Forbes with Guggenheim Securities. Please proceed with your questions.

Steven Forbes: Good morning. I wanted to start with the new store performance. John or Dawn, curious if you could comment on the performance ramp of the 2021 class of new stores relative to expectations or relative to the traditional sort of store model build. Then just provide us some insight on the current thoughts around 2022's class, and maybe inclusive of the new versus existing market outlook.

Good morning.

I wanted to start with the new store performance So John .

Curious if you could comment on the performance ramp of the 21 class of new stores relative to expectations were relative to the traditional sort of store model build.

And then just provide us some insight on the current thoughts around 2020 twos glass.

And maybe inclusive of the new versus existing market outlook.

Dawn Phillipson: Morning, Steve. We don't typically give guidance on performance metrics on specific showroom fleets. What we will say is that we're pleased with the performance we're seeing. Showrooms are continuing to execute well and in line or above expectations on the demand side. We're pleased with it. You know, Jen mentioned earlier that you know, customer metrics are doing well in those showrooms. You know, we think we're on target with our locations and our strategies for opening those showrooms.

Good morning, Steve.

So we don't typically give guidance on or performance metrics on specific showroom fleets, but what we will say is that we're pleased with the performance. We're seeing showrooms are continuing to execute well and in line or above expectations on.

On the demand side.

So we were pleased with it and Jen mentioned earlier that.

Customer metrics are doing well in those showrooms so.

We think we're on target with our locations and our strategies for opening those showroom.

Steven Forbes: Thank you. Then maybe just a quick follow-up, maybe John, for you. You think about the opportunity here in 2022, given the brand awareness ramp that has transpired and, you know, and all the work that you guys have sort of executed on, what do you sort of view as the categories of greatest opportunity? I mean, the outdoor launch. Is there any sort of framework you can help us sort of contextualize as you think about where Arhaus is really leaning into in terms of, you know, a category perspective or just this driving the value proposition to a broader customer demographic?

Thank you and then maybe just a quick follow up.

Maybe John for you.

You think about the opportunity here in 2022, given given the brand awareness ramp that has transpired.

And all the work that you guys have some sort of executed on what are you sort of view as the key.

<unk> greatest opportunity.

The outdoor launch is there sort of any sort of framework. You can you can help us sort of contextualize as you as you think about where where our house is really leaning into in terms of.

Yes, a category perspective, we're just driving the value proposition to a broader customer demographic.

John Reed: Sure. I mean, you know, we took the strategy a year, well, when COVID started, that we were gonna continue working on new products in all categories, increasing, you know, our selection, offering more exciting products, even upscaling some of the products. You know, the team has done a great job with that. One thing we did that we think is a little different than some of our competitors is we've been aggressively rolling out new products. You know, the January catalog that just hit a couple of months ago had, I don't know, over 200 new products in it.

Sure.

We.

We took the strategy.

A year.

When Covid started that we're going to continue.

Working on new products in all categories.

Increasing.

Our selection.

For a more exciting products, even even up scaling some of the products.

And.

The team has done a great job with that.

No.

One thing we did that we think is a little different than some of our competitors as we've been aggressively rolling out new products.

The last January catalog that just hits.

A couple of months ago had I don't know over 200, new products into that I think we had advertised.

The the new.

Outdoor catalog that we just had.

Just last week.

Was just game changing for outdoor we think it was it was it was photographed over in Greece.

We think it's we think it's the best looking outdoor catalog anybody has done in the business.

So we're excited about that category as well, but.

But really excited about all the categories.

Peter Benedict: You know, we've got a great team of really talented folks that have been coming out with some great new products, and we've been aggressively doing that because we think you know, we look at times like this when people do cut back, they don't introduce new things, they don't produce as many catalogs and so forth, and we kinda took the opposite approach. It seems to be working for us.

We've got a great team of really talented folks that have been coming out with some great new products and we've been aggressively doing that because we think.

Jonathan Matuszewski: Thank you.

Thank you.

Operator: Thank you. Our next question comes from the line of Adrienne Yih with Barclays. Please proceed with your question.

Thank you our next questions come from the line of Adrienne <unk> with Barclays. Please proceed with your question.

Adrienne Yih: Good morning, everyone. Congratulations on the Q4 and then the success on trending into the first of the year. My first question is on digital. I'm sorry if I missed this, but did you actually give digital percent sales penetration? And Dawn, can you give us some color on the EBIT segment margins there relative to the four walls of the stores? And then my follow-up is, in terms of inventory, it talked about the lead times getting better. To the extent that, can you give us some color on the component of that is in transit and what that inventory is in units at the end of the quarter? Thank you very much.

Good morning, everyone. Congratulations on the fourth quarter and then the success on trending into the first of the year.

So my first question is on digital I'm, sorry, if I missed this but did you actually good digital percent penetration and Don can you give us some color on the EBIT segment margin there relative to the four wall of the stores and then my follow up is.

In terms of inventory.

You talked about the lead times getting better so to the extent that a can you give us some color on the component of that is in transit and what that inventory in units at the end of the quarter. Thank you very much.

Yes.

Good morning, Adrian so for the full year E comm penetration was right around 18%.

In line with our expectations and we're pleased with the performance of both segments in E comm in showrooms.

As we think about inventory.

It's important to keep in mind that we use a landed cost.

And so as those container costs are increasing the inventory levels are increasing.

<unk>.

So I think that's just important to note as we think about this year and then go forward.

Yeah.

Apologies what was the other portion of your question Adrian.

Adrienne Yih: Yeah. It was basically on that, in terms of the breakdown between kind of what's in transit and then the difference between the actual dollar cost of inventory versus units, right? What's the spread? Is it 10%? Is it 5? You know, basically, it's the cost of inflation is effectively the crux of the question.

It was basically was basically on that in terms of the breakdown between kind of what's in transit and then the difference between the actual dollar cost at inventory versus unit rates. So what's the spread is it 10% is it basically it's a coffee inflation is effectively the b L.

The crux of the question.

Dawn Phillipson: Yeah. We don't typically give units, just given that there is a kind of a lot of volatility as you think about, you know, sofas versus decor.

Yeah, we don't typically give units.

Just given that there are there is a kind of a lot of volatility as you think about.

<unk> versus the core.

Adrienne Yih: Yeah.

Dawn Phillipson: I'm not sure that metric would be terribly helpful for you. As we think about in transit, there is a decent amount of inventory in transit. As you think about how we invoice and pay for our inventory, we typically take possession of that inventory at the foreign port and then bring it in. As you think about the international transportation or international inventory being, you know, 50% to 60%, you know, you could probably take a... Gosh, Adrienne, you're asking a good question here. I don't know. Do we wanna give the number? I mean, it's, you know... I wouldn't say it's a meaningful amount.

So I'm not sure that that metric would be terribly helpful for you.

As we think about in transit.

There is a decent amount.

Yeah.

Inventory in transit.

Do you think about how we.

Invoice and pay for our inventory, we typically take possession of that inventory at.

The foreign Port and then bring it in.

So as you think about the international transportation or international container.

Inventory being 52.

Z percent speakers.

You could probably take a.

Okay.

Gosh, Adrian you're asking a good question here.

I don't know if youre going to give the number I mean, it's.

Wouldn't say, it's a meaningful amount it takes about 20 days for product to get internationally here.

Dawn Phillipson: You know, it takes about 20 days for product to get internationally here, so in the event that that's helpful to you.

So in the event that that is helpful to you.

Adrienne Yih: Yeah. We can back into it. My final question is on the basis point impact to gross margin in the Q4, and I know you had some in the Q3. When you're giving your guidance for 2022, everything seems to be getting on the track to be improving. Are you expecting embedded in that guidance a reversal, like a net good guy in Q3 and Q4 in that guidance on the GM line?

Yeah, we did we get back into it and then my final question is on the basis point impact to gross margin in the fourth quarter and I know you had some in the third quarter when you're giving your guidance for 2022 everything seems to be getting on the track to be improving are you expecting embedding in that guidance a reversal.

Like a net good guy and <unk> and <unk> in that guidance on the GM line.

Dawn Phillipson: Yeah, not yet. So we've seen container costs stabilize, you know, in the end of the Q4, Q1, and that is driving some gross margin benefit in the Q4. As we think about the number of containers that we're bringing in this year that would have container costs applicable to it and the percentage that we've managed to secure on a contract rate versus a spot rate, I'm not comfortable taking those container costs down yet. I just think it's not prudent. There's other things that are factoring into that gross margin rate as well in 2022, things like fuel surcharges that we're seeing on the outbound side, transportation from the DCs to the hubs and the client homes, that's also factored into the 2022 guidance.

Yeah, not yet so we've seen container cost stabilize.

And the end of the fourth quarter first quarter and that you saw some is driving some gross margin benefit in the fourth quarter.

I am not comfortable taking.

Those container costs down yet.

I just think its not prudent theres other things that are factoring into that gross margin rate as well in 2000, so with things like fuel surcharges that were seeing on the outbound side transportation from the Dcs to the hubs and the client homes.

That's also factored into the 2022 guidance so we.

Dawn Phillipson: You know, we wanna be prudent. We wanna forecast in a responsible way. As of yet, I don't think it's the right time to take those container costs down for the balance of year.

We want to be prudent we want to forecast in a responsible way so as of yet I don't think it's the right time to take those container costs down for the balance of year.

Adrienne Yih: Yeah. That's prudent. Thank you very much, and best of luck.

Yeah. That's good thank you very much and best of luck.

Dawn Phillipson: Thank you.

Thank you.

Operator: Thank you. Our next question comes from the line of Peter Benedict with Baird. Please proceed with your question.

Conference.

Our next question comes from the line of Peter Benedict with Baird. Please proceed with your questions.

Peter Benedict: Hi. Good morning, everybody. A couple questions. First, just on the backlog, still considerable over 40%, I think, of your LTM revenue. I'm curious on how you're planning for that to flow into the P&L into revenue across 2022. Any color on Q1 or H1, H2. I'm trying to understand maybe what's normal for the business. You guys obviously have a plan here. Where might that backlog be at the end of this year if you kinda just do the numbers you've laid out? Any help on that? That's my first question.

Hi, good morning, everybody.

A couple of questions. So first just on the backlog still still considerable over 40% I think of your LTM revenue just I'm curious on how youre planning for that to flow into the P&L into revenue across 22 any color on first quarter or first half second half.

And then.

Trying to understand maybe what's normal for the business.

Obviously, you have a plan here.

Backlog at the end of this year, if you kind of just do the numbers.

You've laid out any any help on that that's my first question.

Dawn Phillipson: Sure. As we think about delivering the backlog, one of the constraints we have is our capacity to ship out of our facilities that we currently have. Boston Heights, we have this one facility and have had it. North Carolina, we opened up on the shipping side in the end of Q4. That is outperforming expectations, which we're really pleased about. As you think about deliveries, once we get our Dallas, Texas, facility open in the Q3 of this year, we'll see a nice uptick in those delivered sales in the revenue line. Capacity constraints on our side, on the outbound side, certainly is one of the items that's inhibiting catching up on that backlog.

Sure So as we think about.

As we think about delivering the backlog one of the constraints. We have is our capacity to ship out of our facilities that we currently have so.

Boston Hyatt we have this one facility and have had it North Carolina, we opened up on the shipping side and the end of Q4 that is outperforming expectations, which we're really pleased about but as you think about deliveries once we get our Dallas, Texas facility open in the third quarter there.

Sure, we'll see a nice uptick in those delivered sales and the revenue line so capacity constraints on our side on the outbound side.

Certainly as is one of the items that's inhibiting.

Catching up on that backlog.

Dawn Phillipson: We're excited for Dallas to open, and it's on track, so we're pretty thrilled about that.

So we're excited for for Dallas to open and it's on track. So we're we're pretty thrilled about that.

Yes.

Peter Benedict: Love it. That's helpful. Is any perspective on what's normal? I mean, I know you guys are doing a lot here with on the distribution side, and so maybe, you know, your experience two, three years ago is not informing maybe what is possible here from a backlog perspective. I mean, it's again, it's north of 40% of your revenue or your trailing revenue. Is there a framework you can help us think about when maybe the business is quote-unquote back to normal, where that might be landing? If not, no problem, but just curious.

So.

That's helpful and any perspective on what's normal I mean, I know you guys are doing a lot here.

With the on the distribution side and so maybe.

Your experienced two three years ago is not.

Informing maybe what is possible here from a backlog perspective. So it's again, it's north of 40% of your revenue or your trailing revenue.

Is there a framework you can help us think about when when maybe the businesses quote unquote back to normal where that might be landing if not no problem, but just curious.

Dawn Phillipson: Sure. In the transaction, we had noted that, you know, the growth rate for 2022 and 2023 would be right around 30% on net revenue with, you know, 2022 being a bit higher, 2023 being a bit lower. We would normalize as we move into 2024 and beyond. We do think there will still be some backlog to deliver. It is a rolling backlog, so clients are not waiting. You know, we wouldn't expect them to be waiting that length of time. But as far as a backlog number for the end of this year, we're gonna push through as much of it as we can. It's the right thing for the client. It's the right thing for the company.

Sure so.

In the transaction, we had noted that.

The growth rate for 2022, and 2023 would be right around 30% on net revenue with 20.

'twenty, two being a bit higher 23 being a bit lower.

And then we would normalize.

As we move into 'twenty four and beyond so we do think there will still be some backlog to deliver it as a rolling backlog so clients are not waiting.

We wouldn't expect them to be waiting.

You know that length of time.

But as far as our.

A backlog number for the end of this year, we're going to push through as much of it is we can it's the right thing for the client it's the right thing for the company.

Dawn Phillipson: You know, more to come on that, I guess, as we move through the year. It's a bit early to speculate on that at this point.

So.

More to come on that I guess as we move through the year, but it's a bit early to speculate on that at this point.

Peter Benedict: Yeah, no, fair enough. Thank you for that. Then my next question, maybe for Jen. You know, we talked about 2022 being kind of a year of customer acquisition and retention. Maybe help us with what you think are some of the most impactful marketing initiatives you have on tap for this year. And maybe some perspective around the cost to acquire customers, how that's been trending, and what kind of your view is on that going forward. Thank you.

No no fair enough.

And thank you for that and then my next question maybe for Jim you talked about the 22 being kind of a year of customer acquisition and retention.

Can you help us with what you think are some of the most impactful marketing initiatives you have on <unk>.

Pat for this year.

And maybe some perspective around the cost to acquire customers, how that's been trending and what kind of your view is on that going forward. Thank you.

Jennifer Porter: Yeah, of course. Good morning. I think we have a lot in the works, and I think what's really exciting about Arhaus is that, you know, we have this brand, this story, this artisanal product that's been developed, you know, for 35+ years, and we're really focusing on now introducing that story to more people. We have a really broad mix of marketing tactics and levers that we can pull.

Yeah of course good morning.

I think we have a lot in works and I think what's really exciting about <unk>.

Our house is that.

We have this brand.

Story. This artist no product is being developed for 35, plus years, and where we're really focusing on now introducing that story to more people.

So we have a really broad mix of marketing tactics and levers that we can pull.

Jennifer Porter: As I mentioned on the call, and as John reiterated, we are absolutely thrilled with outdoor, and I think that's really showing a step up in what we can do in terms of getting that story out to more consumers, not only through our showrooms, but also digitally on the site, through our direct mail, through partnerships with media and influencers, and various other things that you'll see throughout the year. I think I am really excited about some of our upcoming big launches. Looking at fall, we'll be launching our next big catalog, and more new products surrounding that. We have a lot of actions and activities surrounding that element.

As I mentioned on the call and as John reiterated we are absolutely thrilled with outdoor and I think that's really showing a step and what we can do in terms of getting that story out to more consumers not only do our showrooms, but also digitally on the site through our direct mail through partnerships with media and Influencers.

There's other things that you'll see throughout the year.

I think I am really excited about some of our upcoming big launches so looking at fall.

We'll be launching our next big catalog.

And more new product surrounding that so we have a lot of actions and activities surrounding that element.

This month's actually at the beginning of the month, we just celebrated the opening of our Aspen store.

In Aspen with an event in that market and I think that was a really great example of how we marketed and address specific communities.

We are really excited when we open up a new showroom to be joining a community and meeting our neighbors and really being able to introduce the brand one on one potential clients and I think that.

And that initiative in that local market, while it was local to Aspen. It has legs nationwide and was really powerful to get to know that that that climate. So I would expect to see more.

And actions like that.

Jennifer Porter: Moving to your question about customer acquisition and costs, I'm sure you're hearing this across, you know, the industry. Digital marketing is an ever-evolving arena with all of the privacy regulations and things that have come up. Costs are going up, so we are seeing costs rising. We're seeing efficacy of some of our campaigns falling. I think, though, again, what we are really pleased about is that we do have that broad marketing mix. We do have new showrooms opening. We do have a very, very strong print marketing program. We are really just in the early stages of working with influencers and partners outside of a brand. We have an incredibly strong team that we have really worked very hard to bring in-house over the last few years.

Moving to your question about customer acquisition costs I'm sure you're hearing this across the industry digital marketing is an ever evolving arena with all of that privacy regulations and things that have come up costs are going up. So we are seeing cost rising we're seeing efficacy if some of our campaigns falling.

<unk>.

I think though again, what we are really pleased about is that we do have that broad market marketing mix. So we do have new showrooms opening we do have a very very strong print marketing program. We are really just in the early stages of working with Influencers and partners outside of our brand.

And then we have an incredibly strong team that we have really worked very hard to bring in house over the last few years. So we have people focused on every campaign an initiative that we're doing constantly optimizing and reevaluating our spend on any specific channels.

Jennifer Porter: We have people focused on every campaign and initiative that we're doing, constantly optimizing and reevaluating our spend on any specific channels. And we're not committed to any one channel to achieve our business needs. We can sort of shift the funds around and move things as we need to continue working. We're feeling really excited about 2022. Obviously, we'll be paying very close attention to the market and everything that's going on there, but a lot of fun things to come, which I look forward to telling you about later in the year.

We're not committed to any one channel to achieve our business needs, we can sort of shift of funds around the mood things as we need to continue working so we're feeling really excited about 2022.

Obviously, we'll be paying very close attention to the market and everything that's going on there, but a lot of fun things to come which I look forward to telling you about later in the year.

Peter Benedict: That's great. Super helpful. Thanks very much.

That's great Super helpful. Thanks, very much.

Operator: Thank you. Our next question has come through the line of Cristina Fernandez with Telsey Advisory Group. Please proceed with your questions.

Thank you. Our next question is coming from the line of Cristina Fernandez with Telsey Advisory Group. Please proceed with your questions.

Cristina Fernandez: Hi, good morning. I had a question for John following on the supply chain comment around the lead times coming down. Would you be able to give some color on, you know, where are they maybe on weeks versus peak? And how is that translating to the order wait times you're quoting customers? Have those been able to come down, and how are they trending versus key competitors?

Hi, Good morning, I had a question for John following on the supply chain comments around the lead times coming down would you be able to give some color.

Where are they maybe on weeks versus peak in how is that translating to the to the order wait times, you're quoting customers have dose being able to come down and how are they trending versus key competitors.

Good morning Kristina.

Yes, they have definitely come down.

They are way off the peak.

<unk>.

I think we are quoting.

Eight nine weeks now.

And for a customer to wait on average.

Before had been <unk> 25, and so forth.

Last year.

So they continue to come down in every month, there theyre coming down less and less.

Our.

Upholstery business, which is a big big part of our business the custom part which is what we're really known for.

<unk> has come down over a months.

The lead times shortened by one month last month and I think next month, we're going to shorten up by another month. So it continues to come down customers are responding very nicely to two the decreases because.

John Reed: Customers are responding very nicely to the decreases because they, you know, they'd rather not wait. They'd like to get their product. We've been doing a nice job right across the board with lead times coming down, certainly on our best sellers as well, which is very important, of course. I don't know. You know, we track what competitors are doing. They're all over the board. Some are still out 20-some weeks on things. Some are trying to get things in stock. Again, it depends on where they're getting them from and so forth. It's literally all over the board right now.

They.

They'd rather not wait they'd like to get their product. So we've been doing a nice job right across the board.

With lead times coming down certainly on our best sellers as well, which is which is very important of course.

I don't know.

We track with what competitors are doing they are all over the board.

Some are still out 'twenty some weeks some things.

Some are trying to get things in stock again, it depends on where they are where they are getting them from and so forth. So.

But it's literally all over the board right now.

Cristina Fernandez: Yeah, that is very helpful. Then my second question, I wanted to ask about the interior designers, which is, you know, a key initiative for the company and enable, you know, to get more AOV. How did that trended in the Q4 as far as penetration? Are you seeing that increase? Any sort of thoughts about expanding the interior designer community in 2022?

Okay. That's very helpful. And then my second question I wanted to ask about the interior designers, which is our key initiatives for the company and enabled to get more it would be how did that trend in the fourth quarter as far as penetration you see.

That increase and sort of thoughts about expanding into designer community in 2022.

John Reed: Right. We have our own internal designers as well as we work a lot with the trade. Both have been growing very nicely last year. The trends seem to be continuing for this Q1. We're thrilled with that business and we're gonna continue to grow it. We've got initiatives in place to grow both internal designers and outside trade designers.

Right, we have our own internal designers as well as we work a lot with the trade and both have been growing very very nicely last year.

And the trends seem to be continuing for this first quarter.

We're thrilled with that business and we're going to continue to grow it and we've got initiatives in place to grow both internal designers and outside trade designers.

Okay.

Yes.

Cristina Fernandez: Thank you.

Thank you Andy.

John Reed: Oh, right. Sorry. She was writing a number down for me. Yeah, we have over 70 designers currently on staff, and we're looking to grow that.

Oh right.

Alright, she was already a number down for me.

Over 70 designers currently on staff and we're looking to grow that.

Cristina Fernandez: Any color you can share on the penetration of, you know, I guess the percentage of sales that are coming from those interior designers?

Any color you can share on the on the penetration of <unk>.

I guess your percentage of sales are coming from those interior designers.

Operator: Yeah. Hi, Cristina. You know, demand penetration continues to increase with those designers. We're finding that the program is really resonating, and we're pleased with the performance. But it's up nicely versus last year.

Yeah, Hey, Kristina.

Demand penetration continues to increase with those designers. So we're finding that the program is really resonating.

And we're pleased with the performance, but it's up nicely versus last year.

Cristina Fernandez: Thanks for that.

Thanks for that.

Operator: Thank you. There are no further questions at this time. I would like to turn the call back over to Wendy Watson for any closing comments.

Thank you there are no further questions at this time I would like to turn the call back over to Wendy Watson for any closing comments.

Wendy Watson: Thank you everyone for participating, and we look forward to talking to you again next quarter.

Thank you everyone for participating and we look forward to talking to you again next quarter.

John Reed: Thanks everybody. Appreciate your time. Have a great day.

Thanks, everybody appreciate your time.

Have a great day.

Operator: This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.

Q4 2021 Arhaus Inc Earnings Call

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