Q4 2022 Arhaus Inc Earnings Call

Greetings, ladies and gentlemen, and won't come to your own ink equaled.

Fourth quarter and full year of 2022 earnings call.

At this time, all participants are in listen only mode.

Accretion or notification what part of the prepared remarks.

As a reminder, this.

Conference is being recorded.

Ill now turn the country's tier.

When people are eating.

Senior Vice President.

Okay.

Sure.

Good morning, and thank you for joining me our house fourth quarter and full year 2022 earnings call and with me today are John Reed Co founder Chairman and Chief Executive Officer, Jen Carter, Chief marketing and E Commerce Officer, and Don Phillips and Chief Financial Officer.

Sure.

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

General discuss the status of our marketing marketing initiatives and Don will cover our financial performance and our outlook for 2023.

We will then open the call to questions. During Q&A. Please limit to one question and one follow up if you have additional questions. Please return to the queue.

We issued our earnings press release, and our 10-K for the year ended December 31st 2022 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 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 uncertainty.

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 filings with the SEC.

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

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

Now I'll turn the call over to John .

Good morning, everyone and thank you for joining us today.

2022 was another record year for our house, if we achieved the milestone of over $1 billion.

And net revenue over a 50% comp growth for the second consecutive year and adjusted EBIT da of well over $200 million.

We have exceeded our net revenue and profitability expectations in every quarter since our IPO in November of 2021.

What our team accomplished this year was truly amazing I need to thank my entire team, but not only their hard work, but their passion to succeed and to get better every single day.

Home furnishings retail is made up of many different disciplines and I was thrilled to see every department stepped up performed incredibly well and focus on delighting our clients congratulations team.

The tenure and strength of our relationship with our vendors has also been a key to our success.

Our product development sourcing and merchandising teams have worked tirelessly to build newness and depth in our product categories that have so clearly resonated with their clients, resulting in 14% demand comps for 2022 on top of 2020 ones over 45% demand comps.

Turning to some highlights from the 20th 22 full year results net revenue of $1.2 billion.

It was up $432 million increase over 2021, with our showroom channel up 57% and our E Com channel up 43%.

Comp growth of 52% and demand comp growth of 14%.

Net and comprehensive income was up $100 million and adjusted EBITDA increased by $100 million to $223 million.

Don will cover our fourth quarter and full year of 2022 in more detail.

We delivered an exceptional quarter of net revenue and earnings with net revenue up 50% comp growth.

47% and strong 10% demand comp growth, notably lapping an 18% prior year demand increase.

Net income was up 606% and adjusted EBITDA up 126% to $74 million.

Our outstanding finish to 2022 was driven by both demand strong demand in the fourth quarter and accelerated delivery of our backlog.

As our new Dallas distribution center outperformed expectations.

Enabling us to deliver product in our backlog, we had expected to deliver in 2020, three but moved it into 2020 two.

I'm, so proud of our team's sense of urgency in the fourth quarter that drove them to deliver much more of our product into our clients' homes for the holidays than either we or the clients had expected our clients are thrilled a testament to our client first strategy.

We are excited about the success of our new distribution footprint.

And the critical support it will provide as we execute our growth strategies and expand our showroom footprint.

Turning to our operational accomplishments in the year, what different differentiates our house or the same attributes that are driving our growth and where we prioritize our energies.

First highest quality exclusive design product quality in our products has always been our number one focus.

With our recent growth many of our vendors partners more.

Then doubled their production without compromising quality or quality remains as high as ever.

We are also differentiated by our inspirational showrooms and our omnichannel approach to our clients' experience.

And our emphasis on clients first service.

I mentioned earlier, our product development sourcing and merchandising teams continue to knock it out of the park delivering heirloom quality artisan crafted furniture that is resonating with our clients, we never stopped designing and developing products hand in hand with our vendors during the pandemic.

This strategy of continuing to develop and introduce new products has set us apart in our <unk>.

Industry and drove the strong demand we saw throughout 2022.

And we could not be happier with our 2023 product lineup, we think it's the best ever.

In early January of 'twenty to 'twenty three the most recent introduction of new products hit our showrooms and the website and it was highlighted in our spring catalog later in the call General discussed the success of that catalog with you.

And we are already seeing remarkable client excitement around our new collections and product extensions.

We're also very excited about this year's outdoor launch that hits stores just this week.

We think it's the best lineup.

Of outdoor product, we've ever had and builds on the success, we saw with outdoor in 2022.

Moving to showrooms, we continue to invest in showroom growth in 2022.

We opened two traditional showrooms in White Plains, New York, and Colorado Springs.

Our new design studio in Park City, Utah, along with one relocation and two showroom renovations.

We are proud of and we're very proud of everything we put in place.

Last two years for adding two new distribution centers aggressively developing new product collections and categories and now in 'twenty. Two 'twenty three we're happy to announce the largest number of showroom real estate projects in our history.

We expect to complete 17 separate projects, including plans to open 12, new showrooms and to renovate and expand five additional existing showrooms.

I also have more exciting news regarding our showrooms as previously discussed we have been testing a smaller format design called the design studio.

We opened our first design studio in Carmel, California, 29 months ago. Today, we have six design studios tomorrow, we are opening or a seventh in Asheville North Carolina.

<unk> test has proven to us that the concept works and as the performance of our design studios format has exceeded our expectations I'm thrilled to officially.

The design studios will be part of our showroom expansion plans going forward.

Over the long term, we expect to have 100 or more design Studios. In addition to our plans to have over 165.

Traditional formats showrooms.

If you look at a map of our existing showrooms that we and we include in our Investor presentation on our Investor website, you can see the incredible white space opportunity, we have in front of us with many many years of growth the wind is at our backs.

And rest assured we have a very disciplined real estate strategy refusing to compromise either location or the financial return criteria.

Our decisions to open showrooms.

Our new showrooms continued to perform incredibly well and Don will share some of the some of the targeted unit economics later in the call.

As a reminder, we target, adding an average of five to seven new showrooms annually.

We'll balance our annual opportunities between traditional showrooms and design studios based on resources and our focus on consistency of excellent client service across our omni channel footprint.

Regarding supply chain on the inbound downside.

Our average lead times continue to improve and for most of the products are back to pre pandemic levels container costs are lower.

Year over year, while U S inland transportation rates remain elevated but are stabilized on the outbound side I mentioned the investment we made in 2022 growing our distribution footprint by adding an 800000 square foot distribution center in Dallas.

And expanding our Ohio distribution center by 200000 square feet.

We believe our distribution capacities will support our growth for the next seven to 10 years.

During 2022 we also invested in our E com and omni channel capabilities and.

And information technology systems, as we transitioned to scale these investments and enhancements enhancements will continue in 2020 three 'twenty.

2023 is off to a strong start.

With new product exciting showroom expansion plans through.

The first two months of the quarter demand comparable growth are up high single digits.

We feel well positioned to deliver on our financial and operational goals indicated in our outlook for 2023 that Dan will discuss in detail.

I also want to take a moment to welcome Alexis Dupree to our board of Directors Alexis was appointed a new director at our Board meeting last week and will stand for election to a full term at our annual meeting of shareholders in May.

Alexis is the chief supply chain officer of Nordstrom's she.

She has decades of experience in global supply chain operations.

Leading retail organizations, it's an honor to have Alexis join us and enhance the collective.

Gil set of our board.

Finally, our long term prospects remain very strong we will continue to execute our strategy and runway for future growth looks very promising I.

I want to reiterate that our vision could not be realized without the hard work and successful execution of our team.

I want to personally congratulate every one of our team members on a job well done and thank them for their dedication to our house now over to John .

Thank you John and good morning, everyone I'm happy to recap our key marketing efforts from 'twenty to 'twenty, two with you and discuss some of our initiatives for 2023.

For my showrooms to our catalogs, social media presence, our house dot com and more.

Our house touch point is designed to deliver a seamless experience that engages and inspires our clients we.

We are incredibly proud of recent initiatives within our omnichannel ecosystem, including a powerful campaign photography that was shot on location and I'm talking Greece in Costa Rica, the more impactful artisan focused storytelling on a new easier to use E Commerce web site and the experiential collaborations with new partners like the soft launch in.

Montoc Aspen Art Museum, and asked around top antique show, which have helped to elevate our house brand to new and existing clients. We look forward to continuing these relationships and introducing even more compelling campaigns and partnerships in 2023.

One of the biggest highlights from 2022 was the success we saw over the course of the year come on you are house Dotcom experience launched in late December of 'twenty 'twenty. One we are incredibly pleased supposed to full year and Q4 2022 results.

Increases in traffic conversion and page views and time on site.

We also saw decreases in cost abandonment and strong improvements in our mobile performance.

In 'twenty two 'twenty three we are looking forward to even more enhancements to the cosmetics variance on site and backend analytics capabilities, which will help us to further drive engagement and conversion across channels. We know that most of our clients engage with us digitally even if that purchases and one of our showroom locations, so really infused continuing.

Build out this channel at discovery and research for our clients.

From a brand perspective, we were really pleased with our key seasonal product launches supported by our spring outdoor living in fall of 2022 campaigns. All three campaigns drove strong engagement with both our existing client base and brought new clients into the brand through digital and print mediums.

Looking forward to 'twenty to 'twenty, three we purposely invested more heavily in to some of our spring campaign initiatives to drive new client acquisition. We are pleased with the early results of our spring launch and I'm, particularly pleased with the new client acquisition, we are seeing from our spring catalog, which hit homes in late December .

New outdoor living 20 twenty-three campaign, just hit homes in showrooms. This week and we are thrilled by early rates wherever you are searching for a lush oasis a harp, a cape or seaside crest inspire your own personal outdoor century, our outdoor 2023 product assortment delivers.

Perhaps one of our most exciting opportunities for growth is the large percentage of potential clients, who are not yet familiar with our brands.

By executing on building on the strategy has developed over the past 35 years, we will be able to introduce our house on the core values that have always defined us to potential clients in key markets nationwide.

It's important to note that many of our major competitors in the U S. P. P. M home furnishings market today high brand awareness that matches at least twice the level of ours. We are keenly aware of the opportunity that growing our brand awareness and by extension our market share and client base presents over the next several years.

We will continue to drive this growth by opening more showrooms and Hans thing all capabilities related to Omnichannel marketing on technology and by expanding our product assortment across key categories. We look forward to sharing more information throughout the year.

Now I'll pass it over to Don Thompson. Thank.

Thank you John and good morning, everyone.

John mentioned, we are incredibly proud of our 2022 fourth quarter and full year results and our operational performance throughout the year.

He items from our fourth quarter 2022 income statement include net revenue of $356 million comp growth of 47% and demand comp growth of 10% on a one year basis 27, 9% on a two year stack basis, and 89, 9% on a three year stack basis.

During the quarter, we saw strong demand in both our showroom in E Commerce sales channel.

Our net revenue growth was driven by both demand and the acceleration of delivery of orders in our backlog related to our increased distribution capacity as our supply chain continue to improve enabling us to substantially outperform our backlog delivery expectations placed product in our clients homes.

Salary to delivery of orders in the fourth quarter represented approximately $40 million and net revenue that we had expected to deliver in 2023.

Our fourth quarter gross margin increased $61 million to $158 million in the quarter driven by a higher net revenue, partially offset by higher variable costs related to the increase in net revenue, including product transportation and variable rent expense.

Gross margin as a percentage of net revenue increased 370 basis points to 44% driven by favorable product costs and leverage on fixed showroom occupancy costs over the higher net revenue benefited from the accelerated delivery of product in the backlog.

This was partially offset by higher variable rent and transportation expense.

Fourth quarter, SG&A expense decreased $6 million to $94 million a.

The decrease was primarily driven by the non recurrence of derivative expense related to the termination of our former credit facility lower equity based compensation expense. The non recurrence of one time IPO expenses and lower variable compensation in our showroom. This was partially offset by increased warehouse and corporate expense to support the growth of the business.

SG&A expense as a percentage of net revenue decreased 15.5 percentage points to 26% driven by the items just described as well as leverage on fixed costs on the $118 million net revenue increase.

Fourth quarter 2022, net income increased $40 million to $47 million.

Adjusted net income in the fourth quarter of 2022 increased 175% to $48 million compared to adjusted net income of $17 million in the fourth quarter of 2021.

Adjusted EBITDA in the quarter increased $41 million to $74 million from $33 million in the fourth quarter of 2021.

Net income and adjusted EBITDA in the quarter exceeded our internal expectations, primarily due to the faster than anticipated delivery of product in the backlog as Dallas outperformed our expectations and enabled us to place more product in our clients homes.

The fourth quarter net revenue of $356 million and adjusted EBITDA of $74 million resulted in a 700 basis point increase in adjusted EBITDA margin to 21% demonstrating the fixed cost leverage realized on revenue growth and helping drive our record quarterly earnings and margin.

For the full year key income statement items include net revenue of $1.2 billion comp growth of 51, 6%.

And demand comp growth of 13, 8% on a one year basis 59, 1% on a two year stack basis, and 83, 8% on a three year stack basis.

During the year demand was strong in both showroom and ecommerce channels as we strive to provide a seamless experience for the client to transact where and how they prefer.

Our net revenue growth was driven by both demand and the continued delivery of orders in our backlog related to our increased distribution capacity and improvement in product lead time.

Our full year gross margin increased $195 million to $525 million driven by a higher net revenue, partially offset by higher variable costs related to the increase in net revenue, including product transportation and variable rent expense.

As well as higher credit card fees related to the increased interest rates and demand.

Gross margin as a percent of net revenue increased 130 basis points to 43%, reflecting our ability to leverage our fixed showroom occupancy costs over the higher net revenue. We also saw favorable product costs, which were partially offset by higher variable costs related to the increased net revenue, including transportation and variable rent expense.

Full year, SG&A expense increased $44 million to $340 million the.

The increase was primarily driven by investments to support the growth of our business, including higher corporate and warehouse expenses as new showrooms open and we expand distribution capacity as well as public company related costs, partially offset by the non recurrence of both derivative expense related to the termination of our former credit facility.

One time IPO expenses.

SG&A expenses as a percentage of net revenue decreased 950 basis points to 28% driven by the items just described as well as leverage on fixed costs on the $432 million.

Net revenue increase.

Full year 2022, net income increased $100 million to $137 million.

Adjusted net income in 'twenty, and 'twenty, two increased 71% to $142 million compared to adjusted net income of $83 million in 2020 one.

Adjusted EBITDA in 2022 increased $100 million to $223 million from $123 million in 2020 one.

Full year 2022, net revenue of $1.2 billion and adjusted EBITDA of $223 million resulted in an 18% adjusted EBITDA margin for the year, an increase of 270 basis points year over year.

As we have discussed throughout 2022 we consistently exceeded our internal expectations for the delivery of products in our backlog as we brought new distribution capacity online over the past year, our new North Carolina facility in December 'twenty, 'twenty, one or D C and Dallas This past July and our fourth quarter 2022 D. C expansion here in Ohio.

I want to acknowledge and thank our teams across the company for their exceptional work over the past year delivering product in backlog, helping drive 2022 strong performance and most importantly, improving delivery times that allowed our product to more quickly reach our clients' home.

In 2022 due in part to the success of our expanded footprint the delivery of our backlog had a significant positive impact both on our net revenue and our earnings as we spread expenses over the higher net revenue.

Turning to the balance sheet and cash flow as of December 31, 2022, cash and cash equivalents were $145 million and the company has no long term debt.

That merchandise inventory was $286 million up $78 million from December 31, 2021 as we built inventory in response to client demand and as inventory value increase due to higher freight and product cost a.

A few things that are impacting inventory to keep in mind include.

Freight as a percent of inventory is up nearly 1000 basis points versus pre pandemic levels.

Our in stock positions are significantly improved this year for example, our outdoor collections are approximately 90% in stock this year versus approximately 40% in stock last year.

As I have mentioned previously while our inventory dollars are growing due to inflationary conditions, our inventory and that they're growing at a lesser rate.

Client deposits decreased to $203 million down $62 million from December 31, 2021, primarily due to the improved delivery of orders in the backlog and lower demand comp growth in 2022.

For the full year ended December 31, 2022, net cash provided by operating activities was $74 million and net cash used in investing activities was $53 million with landlord contributions of $16 million.

As a result total capital expenditures net of landlord contributions were approximately $36 million for the year below our estimates primarily due to showroom opening delays and lower than expected spend in warehouse expansion.

Turning to our outlook with the uncertainty of the macro backdrop, we have assumed a wider range of demand comp for full year 2023, and constructed the guidance range that includes a normalized mid single digit demand comp at the high end of our net revenue range and that's slightly negative demand comp decline of approximately 1% at the low end up the range.

Due to delivering more product in the backlog to our clients than we expected in the fourth quarter of 2022, we anticipate significantly lower backlog delivery than previously planned and full year 2023 versus full year 2022, resulting in negative 4% to plus 1% comp growth.

No further frame the impact of the backlog on our financial results in 2022, and our 2023 expectations, we thought more detail would be helpful.

In 2022 due to the success of our expanded footprint and highly prioritizing delivery of product to our clients. We were able to deliver an approximate round numbers roughly $150 million of product in our backlog positively impacting both our net revenue and our earnings as we spread expenses over the higher net revenue.

As I mentioned previously the pull forward of backlog into the fourth quarter of 2022 from the first quarter of 2023 represented approximately $40 million of additional net revenue in the fourth quarter versus original expectations.

We generally expect our contribution margin on the backlog flow through to be in the range of 35% to 45%.

In the first half of 2023, we expect to work through the remaining approximately 100 million dollar balance in our backlog at a similar contribution margin.

Turning to our 2023 earnings outlook, we expect full year adjusted EBITDA margins to be compressed due to the fixed cost deleverage on lower comps created by the backlog dynamic discussed and growth investments, we were making during the year.

Growth investments include expenses related to our showroom projects are much larger distribution center footprint and systems improvements to enhance our omnichannel and technology capabilities, all of which are key to our long term strategy and enable us to build scale across our business.

In particular, the new showroom investments include higher rent staffing and variable compensation cost tied to the level and cadence of our store openings, many of which will be in more expensive markets. Additionally, new show or rent typically starts to six to 12 months in advance of the showroom opening and after opening net revenue lags demand in there.

A showroom while commissions are paid on showroom demand.

This is expected to have a sizable impact on our P&L performance this year and will be most noticeable in the second half of the year.

For the full year of 2023, we expect net revenue of one point to $4 billion to $1 $3 billion, which represents growth of 1% to 6%.

Comparable growth in the range of negative 4% to positive 1% net.

Net income of 95 million to $110 million and adjusted EBITDA of 180 million to $195 million.

We also want to give you some direction derived from the midpoint of our outlook for how to think about our expected performance in the first half and in the second half of 2023 due to a large impact of the backlog delivery pull forward into 2022, and the remaining backlog delivery in the first half of 2023.

Our net revenue outlook reflects the expectation that we will continue delivering our backlog through the first half of 2023.

This cadence of backlog delivery is expected to result in net revenue growth in the high teens in the first half of 2023 compared to the first half of 2022.

In the second half of 2023 we expect net revenue to be down high single digits. As we are lapping substantial backlog delivery in the second half of 2022 that includes the fourth quarter backlog pull forward I mentioned that we do not expect to repeat in 2023 as demand continues to normalize.

We expect the vast majority of our new showroom openings to occur in the second half of the year with several in the fourth quarter.

Regarding our adjusted EBITDA outlook in the first half of 2023, we expect adjusted EBITDA margin to be up approximately 100 basis points compared to the first half of 2022, primarily from leverage on the higher net revenue.

In the second half of 2023, we expect adjusted EBITA margin to drop approximately 700 to 800 basis points compared to the second half of 2022.

Primarily from reduced leverage on that revenue declines related to lapping the backlog deliveries in the second half of 2022 and from our growth investments, particularly higher rent or staffing and higher variable compensation from the large number of expected showroom openings in activity.

Year over year warehouse expenses and investments in technology systems, and Omnichannel enhancements that will support our growth.

As we always do we expect to carefully manage expenses, even as we continue to invest in this growth.

As John mentioned in 2023, we are very excited about our robust showroom expansion plans of 12, new showrooms as three show of openings planned for 2022 shifted into this year. We also have five renovations relocations and expansions planned accordingly, our full year expectation for capital expenditures net of landlord contributions.

And just from $75 million to $85 million.

Importantly, we believe we have a very strong new showroom economic model, our new showroom quickly and generate strong returns on investment.

When evaluating new traditional showrooms that averaged approximately 17000 square feet, we target minimum net revenue per new showroom of $10 million and an average showroom contribution margin of approximately 32% each by year three of operation and with a targeted payback on investment in less than two years.

With our smaller new design studio format showrooms that averaged approximately 5000 square feet, we target a lower net revenue per new showroom and a higher average show a contribution margin of approximately 35% each by year three of operation also with a targeted payback on investment in under two years.

For all other details related to our 2023 outlook. Please refer to our press release.

We also wanted to reiterate our long term growth targets. These are forward looking goals expressed as a compound annual growth rate.

Over the long term, we target mid single digit comparable sales growth mid to high single digit showroom growth high single digit total revenue growth and low double digit adjusted EBITDA growth.

In closing, our operational and financial performance in 2022 substantially exceeded our expectations and we are focused on the long term investments, we're making as we transition to scale, including a robust showroom opening plan supported by great economic returns in both our traditional and design studio formats, along with E Commerce capability I T and systems.

Investments in Omnichannel enhancements.

We believe our strong debt free balance sheet enabled us to execute on our strategic growth plan and make the necessary investments to build on our share gains in this highly fragmented $100 billion premium home furniture market. We believe we are well positioned to meet the needs of our clients in any economic environment and remain keenly focused on driving value for all stakeholders.

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

Thank you, ladies and gentlemen, we will now be conducting a question and answer session.

It's Christian Keith Smith.

Then one on each one of our key pad.

A confirmation tone will indicate cutting on easy to Christian gear.

He might prism TV too.

Actually the question queue.

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Keep up your handset before pressing just talk here.

This is Christian comes from cause Nagle of Bank of America.

Good morning, just wanted to focus a little bit on the.

Twenty-three sales guidance.

Came in a bit below.

The Street I appreciate the commentary on the backlog right.

Like is there anything else going on there in terms of just incorporating a weaker view on the consumer and I mean, if it was just really just do the backlog what why not have communicated about earlier, but just for the purpose of kind of basic expectation management and I have a follow up after that.

Hey, Kurt.

You know for where we're pleased with how we performed in the fourth quarter and extremely proud of how Dallas performed in particular and was able to really drive product into the clients' homes in time for the holiday a great great client response to that so pleased with how the facilities performed.

You know I think we're being prudently.

Prudently cautious for this year, when we're thinking about the demand and that we don't know what's going to happen in the back half of the same kind of commentary that I think every retailer said really for the last couple of years and so we're pleased with how we're performing quarter to date. The first two months of the quarter demand comps were up high single digits. So really.

Both the marketing materials that went out late January .

And yeah. The the client response to our new product introductions as well so pleased with how things are performing their and just taking you know what we think is a prudent approach to what we think the consumer might do this year.

Oh, Okay, focusing on me I'm sure group, so a great good to hear that we're now we set some targets for the design galleries could you give us some I guess.

Our parameters in terms of sales productivity just given that this is now.

It's supposed to be part of the model and maybe I misheard. This but are we still sort of targeting five to seven.

New stores a year I felt that was just for the the galleries.

The exact dollars are now a member of I would've thought it would've been a little higher but maybe I misheard.

Now I'll say, so you heard correctly. So we are really pleased with how the design studios have performed and we feel it's the right time to kind of move out of the test mode and kind of think about where the right locations are for these new new design studios going forward, but you know I think similar to how we approach kind of overall.

Financial spend and being prudent with our cash position and investments.

Likely prior to say, we had said you know that five to seven mm.

The annual target was the traditional showrooms, but now we believe holistically looking at every market available to US you know we believe five to seven is the right cadence of openings for us kind of go forward on an annual basis. So think that the opportunity now is to look and make sure that we are.

Expanding into the right markets and the right location. So we'll continue to stick to the five to seven per year and just allocate between traditional and design studios as we evaluate each particular location.

Or are we still targeting 150.

Yeah.

Long term, yeah that is correct yes.

Thanks, John I appreciate it.

You bet.

Yeah.

Thank you.

Question comes from Steven Forbes Oh go ahead.

<unk> Securities.

Good morning, John Don Don John .

Congrats on a great year.

Maybe just to expand on dons comments around the back half margin commentary.

I think mass sort of would be about seven to 800 basis point give backward what pushed the margin structure sort of in the low double digit range, which I think is sort of in line.

With where the IPO model was for 2023, so is that the right baseline to think about sort of building off of as we look into 2024 and beyond for that 12 plus percent adjusted EBITDA margin profile.

So so while we're not prepared to guide to 24 and beyond we did put those long term targets out there earlier today and you know the.

Our adjusted EBITDA growth.

You know the second half is really compressed we have some incremental investments that we're really excited about them to drive the business and really help the business continued to scale, but in a really efficient way so things like a warehouse management system improvements.

Improvements in our planning software our manufacturing ERP, so things like that we're really excited about we're also looking at different ways to communicate with clients from a scheduling perspective. So you know I think ideally I'm in a perfect world, we'd always leverage right, that's always going to be our goal and so more to come on 24 I think.

It's in the future, but I'm excited for 'twenty, three and all the new things that we have planned for this year to really help drive the top line and improve the efficiency of the organization.

And then maybe maybe a reversal of our furnaces question on demand.

I look at the demand guidance.

You know really positively for sorting this out year here in 2023, So I don't know if you could sort of maybe just take a step back high level.

Talk about what Youre seeing in terms of engagement and conversion.

On website engagement sort of utilization of the designers in our stores you know average order value strength.

Because I think that the demand the demand comp guidance you gave I think is probably above your underlying expectations here.

And really our highlight right as we think about 123.

Yeah, just I mean big picture, yes.

We're thrilled with what we're doing.

When we look at all the all the news out there.

Try to study some of our competitors.

We think were blown away, we know we are and.

You know what with all the negative stuff out there I mean, we're doing fantastic and.

In the future, we've got 12, new stores being opened.

Once we get those open and so forth.

It's more than double any I think any year, we've ever done we're pretty darn close to it and you.

You know once we get that opened I mean, I think you know our futures looking looking incredible.

And we're very very very excited about it. So yes, we think we're doing well John can maybe fill in on some of the more of the facts on the E com and so forth Yeah, Hi, Steve Good morning, Yeah, just to Echo what John said, where we're really happy with what we're seeing and you know obviously, we pay very close attention to the market we watch what.

Repairs are doing way read all the same youth you guys do.

We're seeing really great responses as John mentioned on the call clients are responding really well to the product, they're responding really well to our campaigns, we've gotten a little bit more aggressive in some of our marketing type, Texas I mentioned going after new client acquisition.

To set us up strong going into 2023 here and we're really pleased with the results. We're seeing there customer behavior is is looking good to us and we're very pleased with that I'll, just say I'm, we're happy with what we're seeing across your existing client base on new clients, we're seeing particularly strong results within our existing client base.

It's really nice to see the product is really hitting online as I mentioned earlier on the call. You know, we're really happy with all of those metrics, we're seeing traffic's up sales up conversions uptime on sites up decreases in cars abandonment really great mobile performance as well and and I think the big.

The thing that we're focused on is really leaning into our business and doing more with what's working for us continuing to learn everyday I've spoken a lot in the past about we really think that we're just at the beginning of a lot of these journeys with the new site just launching at the end of 2021, we're so pleased with what we saw in 2022, but we're learning new things.

Every day and are really excited about additional optimizations on launches for this year within our marketing channels are learning and optimizing those every day I'm being able to you know.

Increased investment because again just to remind everyone from you know back before the IPO, we really were just starting to get more aggressive in our marketing tactics.

Beach proactive outreach, so looking at that optimization and strength combined with the new showrooms combined with how great. The product is working we're just really excited.

I appreciate the color. Thanks.

Yeah.

Thank you.

It comes from Jonathan Matuszewski of Jefferies.

Great. Good morning, a nice quarter and thanks for taking my question. My first one is on the quarter to date high single digit demand comp a mention could you comment on your promotional posture. During the first two months of the year relative to the comparable period last year.

And relative to <unk>.

You bet.

It's been the same we stayed on track.

During the same same marketing same promotions, we've been doing for for many years quite honestly.

Haven't done anymore, I haven't done any less and.

Seems to be working.

Responding very well.

Our clients.

They love our products and of course, you know.

If they can get it for a little bit cheaper they love that.

If not they tend to buy it as well so.

It's we've been thrilled with that but to answer your question, we've not changed our.

Our discounting or promotions at all.

Got you that's helpful and my follow up question.

There's been some softening in luxury home markets around the U S in terms of pricing and turnover as of late I recognize your business has historically been more tied to movements in the stock market versus the the housing market, but are you seeing any regional differences.

In markets, where kind of a luxury housing and cooling more than others.

We're all youre, putting up really strong numbers, but just curious about any regional differences. Thanks, so much.

Hey, Jonathan No you know, we're not seeing any significant regional differences, we're really pleased with how we're performing and in particular in some of those luxury markets, we're outperforming them.

The balance of chain. So excited I'm you know to continue seeing where the design studios can go from that perspective, as well as traditional footprint. So so nothing majored in out there.

Great Best of luck.

Thank you.

The next question comes from Peter Keith Piper Sandler.

Hey, Thanks, Good morning, everyone. Congrats on wrapping up a great year.

And Don Thanks for the puts and takes around the guidance, we're still kind of working through the numbers here, but I wanted to dig into the.

Second half year EBITDA margin declines I think you said it was down high single digit basis points or percentage, however, I want to say it.

So I understand sales are down a lot at the same time in the back half the year I was thinking your freight costs are going to be substantially lower so that should be a gross margin benefit youre lapping the Dallas DC opening so you should start leveraging those DC costs. So can you just frame up some of the puts and takes around that that back half of the year, particularly.

In the context of notable EBITDA margin declines.

Yeah. So so you know you have to couple of the main points revenue is certainly I'm going to be down not implying anything wrong in the business still feel really great about the demand. Its just the function of the backlog in 'twenty two and then in 'twenty three and the timing of when that flows through it's certainly going to impact them year over year comparison.

In the second half.

So you know we feel good about where container costs or are there still slightly elevated from pre pandemic levels would've come down nicely I'm as you know that will take some time to flow through the P&L just based on our inventory position and what we have on hand today at those higher container cost levels inbound fuel is still elevated.

So the cost to get the product from the port to the distribution centers is included as well in Atlanta cost of inventory and so that still remains elevated them, but as we really think about some of the other puts and takes it's.

Investments in marketing so continuing to make sure that we stay top of mind with clients continuing to.

Focused on you know new product introductions and all the relevant items that they can go with that.

We're also investing in it capabilities, which I mentioned you know so so those are you know those can be pricey, but extremely important to continue to to help us be able to build scale in the company and then to drive efficiencies. So you know near term investments to drive that you know medium longer term growth and.

And productivity.

And then lastly, I think you know the new showroom openings is important to keep in mind. So.

We typically take possession of those about six to 12 months prior to opening so we have all of the associated cost of rent costs associated with opening those locations and as we're thinking about this year a lot of those locations are on the west coast, which are more expensive than locations kind of in the mid west or I'm on the east coast. So we have.

Incremental expenses associated with those and then as we think about the weighting of when those showrooms, they're gonna open it's primarily back half. So we will have you know as we're staffing up and I'm kind of getting those locations ready and relevant marketing for those locations. There's just more more expenses associated with that so.

Those are those are kind of the biggest call outs I would say for the margin compression.

Fair enough and just to follow up on that the lower container costs. It does take some time to flow through inventory when does that start to decline for you year on year and become a gross margin tailwind.

Yeah, I mean, I mean, we should see favorability this year at some point certainly skewed more towards the back half I would say, but a lot of it is contingent upon product mix and sell through I would also say.

Are we were less impacted than perhaps other folks in the retail space given that half of our product is sourced domestically and the rest of it is really geographically dispersed. So if you're I'm kind of thinking about us relative to maybe some other retailers. We do have a different impact just like we weren't hit as hard you know over the last couple of years.

Or is the the associated relief of that will also not be quite as exciting I guess I'd say, so but it should be you know more in the back half.

Okay Fair enough and then maybe more for John and Jane If you talked about leaning into.

Marketing and going after a lot of new customers you flashed a brand awareness.

<unk> at the time of the IPO of 34% for the premium home furnishings market. That's probably now two or three years old have you updated any brand awareness study to see if that's been improving.

Yeah, I can take that so we actually did we updated that study at the end of last year. We're looking at those found awareness metrics and we're really pleased with Oprah report, how we performed competently comparatively and the market what's exciting for US though is looking at the opportunity go forward is that that Brian .

S split between us and those named payers out in the market still remains very significant so a lot of them are still more than twice where we are.

So we're pleased with the progress that we've made over the last two years, but I think even more thrilled about that continued opportunity we have over the next few years.

And so maybe we can move with higher than 34%.

It's hard to compare drugs that like to like looking at the percentage numbers in terms of comparative performance.

Performance, we believe we improved versus the market, but don't want to really speak to specific numbers.

Okay.

Fair enough. Thank you so much for the insights.

Yeah, just just to add to that we're clearly, adding a lot of new clients every month, which we've been thrilled with obviously, that's how you grow your business.

And.

To John's point.

We did some marketing in December January to two new clients and we were just thrilled at the.

The response rate right.

Far larger than we had thought.

Which means you know, we're getting new customers and more.

More and more people are becoming aware of us, but but the future looks incredible because again.

Our awareness is only half of some of the big guys out there and.

You know every every point, we get to add to that is enormous amount of clients. So.

Even as we add a point or two or three or four or five every year, we see our future just being incredible as people become aware of us and as they do their throat with us They love our product deliver stores, our showrooms they love lover, our teams or our designers and.

And of course, they loved loved the quality of the product and once they do that they're kind of hooked for life is one of our clients and they tell their friends.

So we think that's a huge huge part of.

Why were growing why the future looks so good and why we're performing so well.

Yes.

Fully agree with all that John So that's what I wanted to dig into it I appreciate the comments.

Thank you.

Oh.

Thank you. The next question comes from Cristina Fernandez.

Telsey Advisory group.

Hey, good morning, and thank you for taking my questions. Congratulations on a good year I wanted to ask about what you're seeing on product pricing on the orders you are placing with your manufacturers and how does that impact just pricing in general for your products to consumers in 2023.

Yeah pricing has been very very stable now for I would say at least the last six to eight months or so.

We are truly not seeing price increases.

Cost of lumber and so forth has settled down.

So.

As you know the freight costs have come down, but just the pure manufacturing costs have been very very steady.

In some cases, we've been able to get them down a little bit.

Hum.

<unk>.

Sure.

Manufacturing.

Partners have.

Getting a little smarter on manufacturing and so forth and buying.

Buying larger.

Orders of wood and raw materials, so they get a discount if they if they buy more and then they're sitting on some of that inventory, but we've been flowing them orders and projections for a year, so they're able to do that and invest in the materials. So.

All in all good I'd see no.

No ones no.

No one's raising prices.

Currently.

Which is good.

But better than last year at the last two years, which were crazy.

Yes.

A follow up with.

<unk> hundred.

100, additional potential store target from design studios.

Does that change your infrastructure needs or can you accommodate.

Those are additional stores would be expansion in distribution manufacturing you made last year I guess, how does that impact your infrastructure needs over the next you know.

A couple of years.

Yes over the next couple of years, where we're good where we got plenty of space plenty of capacity.

Whether it's a full full blown showroom or design studio logistically, they're really the same.

The folks buy our products, we delivered to their homes and.

Come out of one of three warehouses so.

We got plenty of space, where we're going to do a new study as we have.

As we have thought of opening and growing quicker than maybe we had thought a few years ago, we were.

Will do we will keep studying that to make sure we have enough space. So we won't be caught with a shortage in the future.

Yeah.

Thank you.

Thank you. The next question comes from Peter Benedict Baird.

Hey, good morning, everyone, it's actually Justin Kleber on for Pete Thanks for taking the questions.

And congrats on all the real estate projects in the pipeline.

If I could just play Devil's advocate for a moment given what is likely to be a more difficult macro backdrop. This year essentially in the 'twenty 'twenty four.

Why do you think now is the right time be ramping store growth and then what maybe what are some of the expense levers you can pull.

To protect the margin structure of the business if the topline backdrop does further deteriorate.

I mean first of all every one of our stores as profitable.

As we open new ones, we fully intend them to be profitable.

They're definitely not a drag on.

On the income and and it does nothing more than give us more leverage on the fixed expenses.

As we add volume so we see.

We don't see any reason not does not just to grow and to grow as aggressively as we can.

In a smart way.

So.

We think opening stores again, a lot of these stores and we get the stores open get get this get to say I'll get it delivered.

We are talking.

You know it towards the end of the end of this year, but into next year, we think it's going to be fantastic and.

If there's economic issues next year, where we're fine with that.

We know we're going to make money in these new stores.

We don't worry about that one one bit.

Hey, Jess and then just a follow up on that you know of the two.

12 locations, we have three opening this year and 23 mm three of those shifted from 'twenty 'twenty. Two so you know I wouldn't say that we have an overly aggressive cadence it's slightly above the five to seven that we've articulated them you know over the last several quarters, but we're really excited about the locations that were presented to us this year.

And because of those particular locations and yeah, we run various scenarios on those.

Whether it's you know potential recessionary or you know well performing location. So I'm you know.

These locations were really excited about the open. So we thought it was prudent and made sense to stretch from that five to seven upwards to nine this year. So we feel really good about that and then in the with.

With her hurts your your financial question you know in the long term, we we kind of view every expense is variable. So we certainly have levers as we always do we are continually running downside scenarios in various scenarios, if if the macro softens.

And we felt confidence right now that would based on what we know based on what we're seeing them that that we have strategies that will enable us to be successful. This year. We do have demand is a really nice leading indicator, which we've talked about before you know we have a couple of months of visibility that when that demand starts to soften before it ever hits the P&L.

We have different levers that you can take whether that's.

Anything from additional marketing touch points to potential promotions that I'm, not saying, we're being more promotional but it certainly remains a lever them. So you know we evaluate in real time I think we're really dynamic company in a dynamic management team and we'll continue to do that just as we have historically.

And we certainly have taken into account that.

The luxury home business or building.

It is slowing as we read in.

They continue to but.

The way that we look at it is we're going to be in a position to really capture a lot of that the clients.

Business.

When we when we do pull out of this because we're going to have our locations open in our showrooms open in our designers there.

It's kind of to me, it's kind of silly to wait until it gets through the cycle and then say Oh, let's go open the store.

Store takes two or three years open so.

Lagging three years, so we're going to be three years ahead of the competition the way I'm looking at it and which is a huge huge plus for us.

Yeah, no that makes sense. Thanks for all that color, John and Don just a follow up on.

On the new store Economics, Don you mentioned in your three of you read I think I think you said $10 million for the traditional showrooms can you just remind us how you model the maturation of our new store Oh from from year one to your three just so we can think about the same store sales waterfall looking out over the next few years.

As these new stores start to.

Start to ramp up the the maturation curve.

Sure.

You know I said it was a minimum net revenue target of $10 million for the traditional showrooms.

So some of those are are far in excess of somewhere closer to the 10, we kind of get really strong on the demand side. So ramps very quickly really pleased with consumer response in the markets that we enter them as you know there's a timing lag between when we take the demand and when we deliver it.

Which has been a little bit exacerbated in the last couple of years, just given the supply chain constraints.

But in a normalized world, we ramp pretty quickly so.

Yeah excited ticket get these showrooms open and start seeing them perform.

Got it alright, guys well congrats on the on the year and best of luck in 2023. Thank you very much.

The question.

Thank you.

Thank you.

When does that concludes our question and answer session I would now like turn the conference over to Wendy Watson for closing remarks.

Thank you everybody for your participation in our call and your interest in our house, we look forward to speaking to you again next quarter.

Okay.

Thank you ladies and gentlemen that concludes today's conference call. Thank you for joining US you may now disconnect your lines.

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Greetings, ladies and gentlemen, and welcome to all homes, Inc.

<unk> fourth quarter and full year of 2000 <unk> earnings call.

At this time, all participants are in listen only mode.

Accretion in anticipation with part of the prepared remarks.

As a reminder, this call.

The quoted.

Now ill turn the conference over to your host.

When people went to an.

Senior Vice President.

I think the stimulation.

Good morning, and thank you for joining me our house fourth quarter and full year 2022 earnings call on with me today are John Reed Co founder Chairman and Chief Executive Officer, Jim Porter, Chief marketing and E Commerce Officer, and Dan <unk> Chief Financial Officer.

Dan will start with a summary of the main points. We made in this morning's press release, along with operational detail.

Ken will discuss the status of our marketing marketing initiatives and Don will cover our financial performance and our outlook for 2023.

We will then open the call to questions.

During Q&A please limit to one question and one follow up if you have additional questions. Please return to the queue.

We issued our earnings press release, and our 10-K for the year ended December 31, 2022 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 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 filings with the SEC.

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

Now turn the call over to John .

Good morning, everyone and thank you for joining us today.

2022 was another record year for our house and we achieved the milestone of over $1 billion.

And net revenue over 50% comp growth for the second consecutive year, and adjusted EBIT da of well over $200 million.

We have exceeded our net revenue and profitability expectations in every quarter since our IPO in November of 2021.

What our team accomplished this year was truly amazing I need to thank my entire team, but not only their hard work with their passion to succeed and to get better every single day.

Home furnishings retail is made up of many different disciplines and I was thrilled to see every department stepped up performed incredibly well and focused on delighting our clients congratulations team.

The 10 year and strength of our relationship with our vendors has also been a key to our success.

Our product development sourcing and merchandising teams have worked tirelessly to build newness and depth in our product categories that have so clearly resonated with their clients, resulting in 14% demand comps for 2022 on top of 2021 is over 45% demand comps.

Turning to some highlights from the 2022 full year results net revenue of $1 $2 billion was up $432 million increase over 2021, with our showroom channel up 57% and our E com.

Panel up 43%.

Comp growth of 52% and demand comp growth of 14%.

Net and comprehensive income was up $100 million and adjusted EBITDA increased by $100 million to $223 million.

Don will cover our fourth quarter and full year of 2022 in more detail.

But we delivered an exceptional quarter of net revenue and earnings with net revenue up 50% comp growth.

47% and strong 10% demand comp growth, notably lapping an 18% prior year demand increase.

Net income was up 606% and adjusted EBITDA up 126% to $74 million.

Our outstanding finish to 2022 was driven by both demand strong demand in the fourth quarter and accelerated delivery of our backlog.

As our new Dallas distribution center outperformed expectations.

Enabling us to deliver product in our backlog, we had expected to deliver in 2023, but moved it into 2022.

I'm, so proud of our team's sense of urgency in the fourth quarter that drove them to deliver much more of our product into our clients' homes for the holidays than either we or the clients had expected our clients are thrilled a testament to our client first strategy.

We're excited about the success of our new distribution footprint and the critical support it will provide as we execute our growth strategies and expand our showroom footprint.

Turning to our operational accomplishments in the year, what different differentiates our house or the same attributes that are driving our growth and where we prioritize our energies <unk>.

First highest quality exclusive design product quality in our products has always been our number one focus.

And with our recent growth many of our vendors partners.

More than doubled their production without compromising quality or quality remains as high as ever.

We're also differentiated by our inspirational showrooms and our Omnichannel approach to our clients' experience and.

And our emphasis on clients first service.

As I mentioned earlier, our product development sourcing and merchandising teams continue to knock it out of the park.

Delivering heirloom quality artisan crafted furniture that is resonating with our clients, we've never stopped designing and developing products hand in hand with our vendors during the pandemic.

This strategy of continuing to develop and introduce new products have set us apart in our industry and drove the strong demand we saw throughout 2022.

And we could not be happier with our 2023 product lineup, we think it's the best ever.

In early January 2023, the most recent introduction of new products hit our showrooms and the web site and was highlighted in our spring catalog later in the call General discussed the success of that catalog with you.

And we are already seeing remarkable client excitement around our new collections and product extensions. We are also very excited about this year's outdoor launch that hits stores just this week.

We think it's the best lineup.

Of outdoor product, we've ever had and builds on the success, we saw with outdoor in 2022.

Moving to showrooms, we continue to invest in showroom growth in 2022.

We opened two traditional showrooms in White Plains, New York, and Colorado Springs.

Our new design studio in Park City, Utah, along with one relocation and two showroom renovations.

We are proud we're very proud of everything we put in place over the last two years for adding two new distribution centers aggressively developing new product collections and categories and now in 2023, we're happy to announce the largest number of showroom real estate projects in our history.

We expect to complete 17 separate projects, including plans to open 12, new showrooms and to renovate and expand five additional existing showrooms.

I also have more exciting news regarding our showrooms as previously discussed we have been testing a smaller format design called the design studio.

We opened our first design studio in Carmel, California, 29 months ago. Today, we have six design Studios Tomorrow, we are opening our seventh in Asheville North Carolina.

Test has proven to us that the concept works and as the performance of our design studios format has exceeded our expectations I am thrilled to officially.

The design studios will be part of our showroom expansion plans going forward.

Over the long term, we expect to have 100 or more design Studios. In addition to our plans to have over 165.

Traditional formats showrooms.

If you look at a map of our existing showrooms that we include in our Investor presentation on our Investor website, you can see the incredible white space opportunity, we have in front of us with many many years of growth the wind is at our backs.

And rest assured we have a very disciplined real estate strategy refusing to compromise either location or the financial return criteria.

Our decisions to open showrooms.

Our new showrooms continued to perform incredibly well and Don will share some of the some of the targeted unit economics later in the call.

As a reminder, we target, adding an average of five to seven new showrooms annually, we will balance our annual opportunities between traditional showrooms and design studios based on resources and our focus on consistency of excellent client service across our omni channel footprint.

Regarding supply chain on the inbound downside.

Our average lead times continue to improve and for most of the products are back to pre pandemic levels container costs are lower.

Year over year, while U S inland transportation rates remain elevated but are stabilized on the outbound side I mentioned the investment we made in 2022 growing our distribution footprint by adding an 800000 square foot distribution center in Dallas.

And expanding our Ohio distribution center by 200000 square feet, we believe our distribution capacities will support our growth for the next seven to 10 years.

During 2022, we also invested in our E com and Omnichannel capabilities and.

And information technology systems, as we transitioned to scale. These.

These investments and enhancements enhancements will continue in 2023.

2023 is off to a strong start.

With new products exciting showroom expansion plans.

Through the first two months of the quarter demand comparable growth are up high single digits.

We feel well positioned to deliver on our financial and operational goals indicated in our outlook for 2023 that Dan will discuss in detail.

I also want to take a moment to welcome Alexis Dupree to our board of Directors Alexis was appointed a new director at our Board meeting last week and will stand for election to a full term at our annual meeting of shareholders in May.

Alexis is the chief supply chain officer of Nordstrom's.

She has decades of experience in global supply chain operations at several leading retail organizations. It's an honor to have <unk> join us and enhance the collective skill set of our board.

Finally, our long term prospects remain very strong we will continue to execute our strategy and runway for future growth looks very promising.

I want to reiterate that our vision could not be realized without the hard work and successful execution of our team.

I want to personally congratulate every one of our team members on a job well done and thank them for their dedication to our house now over to John .

Thank you John and good morning, everyone I am happy to recap our key marketing efforts from 2022 with you and discuss some of our initiatives for 2023.

From our showrooms to our catalogs, social media presence, our house dot com and more.

Our house touch point is designed to deliver a seamless experience that engages and inspires our clients we.

We are incredibly proud of recent initiatives within our omnichannel ecosystem, including our powerful campaign photography that was shot on location and Im Tuckett, Greece in Costa Rica, the more impactful artisan focus storytelling on a new easier to use e-commerce website, and the experiential collaborations with new partners like the surf Lodge and.

<unk> talk the Aspen Art Museum and asked around top antique show, which have helped to elevate the powerhouse brand to new and existing clients. We look forward to continuing these relationships and introducing even more compelling campaigns and partnerships in 2023.

One of the biggest highlights from 2022 was the success we saw over the course of the year come on you are house Dot Com experience launched in late December of 2021, we are incredibly pleased with both the full year in Q4 of 2022 results see increases in traffic conversion page views and time on site. We also.

Saw decreases in cost of abandonment and strong improvements in our mobile performance in.

In 2023, we are looking forward to even more enhancements to the customer experience on site and our back end analytics capabilities, which will help us to further drive engagement and conversion across channels. We know that most of our clients engage with us digitally even if that purchases and one of our showroom locations. So really enthused about continuing to be.

The outlet channel of discovery and research for our clients.

From a brand perspective, we were really pleased with our key seasonal product launches supported by our spring outdoor living in fall 2022 campaigns.

All three campaigns drove strong engagement with both our existing client base and brought new clients into the brand through digital and print mediums.

Looking forward to 2023, we purposely invested more heavily in to some of our spring campaign initiatives to drive new client acquisition. We are pleased with the early results of our spring launch and are particularly pleased with the new client acquisition. We are seeing from our spring catalog, which hit homes in late December .

Our new outdoor living 2023 campaign, just hit homes in showrooms. This week and we are thrilled by early rates wherever you are searching for a lush oasis a harbor cape or seaside cliffs to inspire your own personal outdoor sanctuary are outdoor 2023 product assortment delivers.

Perhaps one of our most exciting opportunities for growth is the large percentage of potential clients, who are not yet familiar with our brands by.

By executing on building on the strategies, we have developed over the past 35 years, we will be able to introduce our house and the core values that have always defined us to potential clients in key markets nationwide.

It is important to note that many of our major competitors in the U S premium home furnishings market today high brand awareness that measures at least twice the level of ours. We are keenly aware of the opportunity that growing our brand awareness and by extension our market share and client base presents over the next several years, we will continue to drive.

This growth by opening more showrooms enhancing our capabilities related to omnichannel marketing on technology and by expanding our product assortment across key categories. We look forward to sharing more information throughout the year for now I'll pass over to Don Thompson.

Thank you Jen and good morning, everyone. As John mentioned, we are incredibly proud of our 2022 fourth quarter and full year results and our operational performance throughout the year key items from our fourth quarter 2022 income statement include net revenue of $356 million comp growth of 47% and demand comp.

Growth of 10% on a one year basis 27, 9% on a two year stack basis, and 89, 9% on a three year stack basis.

During the quarter, we saw strong demand in both our showroom in E Commerce sales channel.

Our net revenue growth was driven by both demand and the acceleration of delivery of orders in our backlog related to our increased distribution capacity as our supply chain continue to improve enabling us to substantially outperform our backlog delivery expectations placed product in our clients homes.

The accelerated delivery of orders in the fourth quarter represented approximately $40 million and net revenue that we had expected to deliver in 2023.

Our fourth quarter gross margin increased $61 million to $158 million in the quarter driven by a higher net revenue, partially offset by higher variable costs related to the increase in net revenue, including product transportation and variable rent expense.

Gross margin as a percentage of net revenue increased 370 basis points to 44% driven by favorable product costs and leverage on fixed showroom occupancy costs over the higher net revenue benefited from the accelerated delivery of product in the backlog.

This was partially offset by higher variable rent and transportation expense.

Fourth quarter, SG&A expense decreased $6 million to $94 million.

The decrease was primarily driven by the non recurrence of derivative expense related to the termination of our former credit facility lower equity based compensation expense. The non recurrence of one time IPO expenses and lower variable compensation in our showroom. This was partially offset by increased warehouse and corporate expense to support the growth of the business.

SG&A expense as a percentage of net revenue decreased 15, five percentage points to 26% driven by the items just described as well as leverage on fixed costs on the $118 million net revenue increase.

Fourth quarter 2022, net income increased $40 million to $47 million.

Adjusted net income in the fourth quarter of 2022 increased 175% to $48 million compared to adjusted net income of $17 million in the fourth quarter of 2021.

Adjusted EBITDA in the quarter increased $41 million to $74 million from $33 million in the fourth quarter of 2021.

Net income and adjusted EBITDA in the quarter exceeded our internal expectations, primarily due to the faster than anticipated delivery of product in the backlog as Dallas outperformed our expectations and enabled us to place more product in our clients homes.

The fourth quarter net revenue of $356 million and adjusted EBITDA of $74 million resulted in a 700 basis point increase in adjusted EBITDA margin to 21% demonstrating the fixed cost leverage realized revenue growth and helping drive our record quarterly earnings and margins.

For the full year key income statement items include net revenue of $1 2 billion comp growth of 51, 6% and demand comp growth of 13, 8% on a one year basis 59, 1% on a two year stack basis, and 83, 8% on a three year stack basis.

During the year demand was strong in both showroom and e-commerce channels as we strive to provide a seamless experience for the client to transact where and how they prefer our.

Our net revenue growth was driven by both demand and the continued delivery of orders in our backlog related to our increased distribution capacity and improvement in product lead time.

Our full year gross margin increased $195 million to $525 million driven by a higher net revenue, partially offset by higher variable costs related to the increase in net revenue, including product transportation and variable rent expense.

As well as higher credit card fees related to the increased interest rates and demand.

Gross margin as a percent of net revenue increased 130 basis points to 43%, reflecting our ability to leverage our fixed showroom occupancy costs over the higher net revenue. We also saw favorable product costs, which were partially offset by higher variable costs related to the increased net revenue, including transportation and variable rent expense.

Full year, SG&A expense increased $44 million to $340 million the.

The increase was primarily driven by investments to support the growth of our business, including higher corporate and warehouse expenses as new showrooms opened and we expand distribution capacity as well as public company related costs, partially offset by the non recurrence of both derivative expense related to the termination of our former credit facility.

One time IPO expenses.

SG&A expense as a percentage of net revenues decreased 950 basis points to 28% driven by the items just described as well as leverage on fixed costs on the $432 million net revenue increase.

Full year 2022, net income increased $100 million to $137 million.

Adjusted net income in 2022 increased 71% to $142 million compared to adjusted net income was $83 million in 2021.

Adjusted EBITDA in 2022 increased $100 million to $223 million from $123 million in 2021.

Full year 2022, net revenue of $1 2 billion and adjusted EBITDA of $223 million resulted in an 18% adjusted EBITDA margin for the year, an increase of 270 basis points year over year.

As we have discussed throughout 2022, we consistently exceeded our internal expectations for the delivery of products in our backlog as we brought new distribution capacity online over the past year, our new North Carolina facility in December 2021, our D C and Dallas This past July and our fourth quarter 2022 D. C expansion here in Ohio.

I want to acknowledge and thank our teams across the company for their exceptional work over the past year delivering product in backlog, helping drive 2022 strong performance and most importantly, improving delivery times that allowed our product to more quickly reach our clients' homes.

In 2022 due in part to the success of our expanded footprint the delivery of our backlog had a significant positive impact both on our net revenue and our earnings as we spread expenses over the higher net revenue.

Turning to the balance sheet and cash flow as of December 31, 2022, cash and cash equivalents were $145 million and the company has no long term debt.

Net merchandise inventory was $286 million up $78 million from December 31, 2021, as we built inventory in response to client demand and inventory value increased due to higher freight and product cost a.

A few things that are impacting inventory to keep in mind include.

As a percent of inventory is up nearly 1000 basis points versus pre pandemic levels.

Our in stock positions are significantly improved this year for example, our outdoor collections are approximately 90% in stock this year versus approximately 40% in stock last year.

As I've mentioned previously while our inventory dollars are growing due to inflationary conditions, our inventory units are growing at a lesser rate.

Client deposits decreased to $203 million down $62 million from December 31, 2021, primarily due to the improved delivery of orders in the backlog and lower demand comp growth in 2022.

For the full year ended December 31, 2022, net cash provided by operating activities was $74 million and net cash used in investing activities was $53 million with landlord contributions of $16 million.

As a result total capital expenditures net of landlord contributions were approximately $36 million for the year below our estimates primarily due to showroom opening delays and lower than expected spend in warehouse expansion.

Turning to our outlook with the uncertainty of the macro backdrop, we've assumed a wider range of demand comp for full year 2023, and constructed the guidance range that includes a normalized mid single digit demand comp at the high end of our net revenue range and a slightly negative demand comp decline of approximately 1% at the low end of the range.

Due to delivering more product in the backlog to our clients than we expected in the fourth quarter of 2022, we anticipate significantly lower backlog delivery than previously planned and full year 2023 versus full year 2022, resulting in negative 4% to plus 1% comp growth.

To help further frame the impact of the backlog on our financial results in 2022 and on our 2023 expectations without more detail would be helpful.

In 2022 due to the success of our expanded footprint and highly prioritizing delivery of product to our clients. We were able to deliver an approximate round numbers roughly $150 million of product in our backlog positively impacting both our net revenue and our earnings as we spread expenses over the higher net revenue.

As I mentioned previously the pull forward of backlog into the fourth quarter of 2022 from the first quarter of 2023 represented approximately $40 million of additional net revenue in the fourth quarter versus original expectations.

We generally expect our contribution margin on the backlog flow through to be in the range of 35% to 45%.

In the first half of 2023, we expect to work through the remaining approximately $100 million balance in our backlog at a similar contribution margin.

Turning to our 2023 earnings outlook, we expect full year adjusted EBITDA margins to be compressed due to the fixed cost deleverage on lower comps created by the backlog dynamic discussed and growth investments, we were making during the year.

Growth investments include expenses related to our showroom project, our much larger distribution center footprint and systems improvements to enhance our omnichannel and technology capabilities, all of which are key to our long term strategy and enable us to build scale across our business.

In particular, the new showroom investments include higher rent staffing and variable compensation costs tied to the level and cadence of our store openings, many of which will be in more expensive markets. Additionally, new show our rent typically starts to six to 12 months in advance of the showroom opening and after opening net revenue lagged demand in the.

A showroom while commissions are paid on showroom demand.

This is expected to have a sizable impact on our P&L performance this year and will be most noticeable in the second half of the year.

For the full year of 2023, we expect net revenue of one point to $4 billion to $1 3 billion, which represents growth of 1% to 6%.

Comparable growth in the range of negative 4% to positive 1% net.

Net income of $95 million to $110 million and adjusted EBITDA of 180 million to $195 million.

We also wanted to give you some direction derived from the midpoint of our outlook for how to think about our expected performance in the first half and in the second half of 2023 due to a large impact of the backlog delivery pull forward into 2022, and the remaining backlog delivery in the first half of 2023.

Our net revenue outlook reflects the expectation that we will continue delivering our backlog through the first half of 2023.

This cadence of backlog delivery is expected to result in net revenue growth in the high teens in the first half of 2023 compared to the first half of 2022.

In the second half of 2023, we expect net revenue to be down high single digits. As we are lapping substantial backlog delivery in the second half of 2022 that includes the fourth quarter backlog pull forward I mentioned that we do not expect to repeat in 2023 as demand continues to normalize.

We expect the vast majority of our new showroom openings to occur in the second half of the year with several in the fourth quarter.

Regarding our adjusted EBITDA outlook in the first half of 2023, we expect adjusted EBITDA margin to be up approximately 100 basis points.

To the first half of 2022, primarily from leverage on the higher net revenue.

In the second half of 2023, we expect adjusted EBITA margin to drop approximately 700 to 800 basis points compared to the second half of 2022.

Primarily from reduced leverage on net revenue declines related to lapping the backlog deliveries in the second half of 2022 and from our growth investments, particularly higher rent or staffing and higher variable compensation from the large number of expected showroom openings in activity.

Higher year over year warehouse expenses and investments in technology systems, and Omnichannel enhancements that will support our growth.

As we always do we expect to carefully manage expenses, even as we continue to invest in this growth.

As John mentioned in 2023, we are very excited about our robust showroom expansion plans of 12, new showrooms as three show of openings planned for 2022 shifted into this year. We also have five renovations relocations and expansions planned accordingly, our full year expectation for capital expenditures net of landlord contributions.

<unk> from $75 million to $85 million.

Importantly, we believe we have a very strong new showroom economic model, our new showroom quickly and generate strong returns on investment.

When evaluating new traditional showrooms, but averaged approximately 17000 square feet, we target minimum net revenue per new showroom of $10 million and an average storm contribution margin of approximately 32% each by year three of operation and with a targeted payback on investment in less than two years.

With our smaller new design studio format showrooms that average approximately 5000 square feet, we target a lower net revenue per new showroom and a higher average showing contribution margin of approximately 35% each by year three of operation also with a targeted payback on investment in under two years.

For all other details related to our 2023 outlook. Please refer to our press release.

We also wanted to reiterate our long term growth targets. These are forward looking goals expressed as a compound annual growth rate over the long term, we target mid single digit comparable sales growth mid to high single digit showroom growth high single digit total revenue growth and low double digit adjusted EBITDA growth.

In closing, our operational and financial performance in 2020 to substantially exceeded our expectations and we are focused on the long term investments, we're making as we transition to scale, including a robust showroom opening plans supported by great economic returns in both our traditional and design studio formats, along with e-commerce capability IC and systems.

<unk> and Omnichannel enhancements.

We believe our strong debt free balance sheet enables us to execute on our strategic growth plan and make the necessary investments to build on our share gains in this highly fragmented $100 billion premium home furniture market. We believe we are well positioned to meet the needs of our clients in any economic environment and remain keenly focused on driving value for all stakeholders.

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

Thank you, ladies and gentlemen, we will now be conducting a question and answer session.

Christian please.

And then one on the telephone keypad.

Commission Ted will indicate.

Christian here.

You may persist two.

<unk>.

The question queue.

For participants, making use of equipment may be needed to reasonably comprehensive.

Chris can you just talk here.

This is Christian comes from.

Nickel off of Bank of America.

Good morning, just wanted to focus a little bit on the <unk>.

23 sales guidance.

Came in a decent bit below the.

The Street I appreciate the commentary on the backlog right.

Like is there anything else going on there in terms of just incorporating a weaker view on the consumer and I mean, if it's if it was just really just do the backlog what why not have communicated about earlier just.

Just for the purpose of kind of basic expectation management.

I have a follow up after that.

Hi, good morning.

For where we're pleased with how we performed in the fourth quarter and extremely proud of how Dallas performed in particular and was able to really drive product into the clients' homes.

In time for the holiday.

Great client response to that so pleased with how the facilities performed.

You know I think we're being prudently.

Prudently cautious for this year, when we're thinking about the demand and that we don't know what's going to happen in the back half with the same kind of commentary that I think every retailer said really for the last couple of years and so we're pleased with how we're performing quarter to date. The first two months of the quarter demand comps were up high single digits. So really.

Both the marketing materials that went out late January .

And yeah. The the client response to our new product introductions as well so pleased with how things are performing their and just taking what we think is a prudent approach to what we think the consumer might do this year.

Okay.

Sure. So a great good to hear that we're now.

We set some targets for the design galleries could you give us some I guess.

Parameters in terms of sales productivity just given that this is now.

We part of our model and maybe I misheard. This but are we still sort of targeting five to seven.

New stores a year I felt that was just for the.

The galleries.

Design galleries are now in their I would've thought it would've been a little higher but maybe I misheard.

No. So you heard correctly. So we are really pleased with how the design studios have performed and we feel it's the right time to kind of move out of the test mode and kind of think about where the right locations or so.

These new new design studios going forward, but you know I think similar to how we approach kind of overall financial spend and being prudent with our cash position and investments historically prior to today. We had said you know that five to seven mm.

The annual target was the traditional showrooms, but now we believe holistically looking at.

Every market available to us we believe five to seven is the right cadence of openings for us kind of go forward on an annual basis. So.

So think that the opportunity now is to look and make sure that we are expanding into the right markets and the right location. So we'll continue to stick to the 5% to 7% per year and just allocate between traditional and design studios as we evaluate each particular location.

Are we still targeting 150.

<unk>.

Long term, yes that is correct yes.

Great. Thanks, John I appreciate it.

You bet.

Thank you.

Question comes from Steven Forbes Oh go ahead.

<unk> Securities.

Good morning, John Don John .

Congrats on a great year.

Maybe just to expand on dons comments around the back half margin commentary.

I think mass sort of seven to 800 basis point give backward what pushed the margin structure sort of in the low double digit range, which I think is sort of in line.

With where the IPO model was for 2023, so is that the right baseline to think about sort of building off of as we look into 2024 and beyond is where that 12 plus percent adjusted EBITDA margin profile.

So so while we're not prepared to guide to 24 and beyond we did put those long term targets out there earlier today and you know the.

Adjusted EBITDA growth.

The second half is really compressed we have some incremental investments that we're really excited about them to drive the business and really help the business continued to scale, but in a really efficient way so things like a warehouse management system improvements in our planning software or manufacturing ERP. So things like that we're really excited about where also.

King at different ways to communicate with clients from a scheduling perspective, so yeah, I think ideally in a perfect world, we'd always leverage right. That's always going to be our goal. So more to come on 24, I think it's in the future, but I'm excited for 'twenty, three and all the new things that we have planned for this year.

It really helped drive the top line and improve the efficiency of the organization.

And then maybe maybe a reversal of furnaces question on demand.

I mean, I look at the demand guidance.

Really positively for sorting this out year here in 2023, so I don't know if you could sort of maybe just take a step back high level.

Talk about what Youre seeing in terms of engagement and conversion on web site engagement sort of utilization of the designers in our stores you know average order value strength.

Because I think that the demand the demand comp guidance you gave I think it is probably above.

Buying expectations here.

And really our highlight right as we think about 'twenty three.

Yes, just I mean big picture.

Yes, we're thrilled with what we're doing you know when we look at all the all the news out there.

Try to study some of our competitors.

We think were blown away we know we are in.

With all the negative stuff out there.

We're doing fantastic and.

As we look in the future, we've got 12, new stores being opened.

Once we get those open and so forth that's more than double any I think any year, we've ever done a pretty darn close to it.

You know once we get that opened I mean, I think our futures looking looking at incredible.

And we're very very very excited about it. So yes, we think we're doing well John can maybe fill in on some of the more of the facts on the E com and so forth Yeah, Hi, Steve Good morning, Yeah, just to Echo what John said, where we're really happy with what we're seeing in <unk>.

Obviously, we pay very close attention to the market we watch what our peers are doing we read all the same youth you guys do.

We're seeing really great responses as John mentioned on the call clients responding really well to the product they are responding really well to our campaigns.

We've gotten a little bit more aggressive in some of our marketing tactics as I mentioned going after new client acquisition.

To set us up strong going into 2023 here and we're really pleased with the results we're seeing there customer.

Hevia is is looking good to us and where we are.

So that obviously, we're happy with what we're seeing across the existing client base new clients, we're seeing particularly strong results within our existing client base, which is really nice to see the product is really heading online as I mentioned earlier on the call. We're really happy with all of those metrics, we're seeing traffic.

Sales up conversions uptime on sites up decreases in cars abandonment really great mobile performance as well.

And I think the big thing that we're focused on is really leaning into our business and doing more of what's working for us continuing to learn everyday.

I've spoken a lot in the past about we really think that we're just at the beginning of a lot of these journeys with the new site just launching at the end of 2021. We're so pleased with what we saw in 2022, but we're learning new things every day and are really excited about additional optimizations on launches for this year within our marketing channels are learning.

Optimizing those every day I'm being able to.

Increased investment because again just to remind everyone from back before the IPO. We really were just starting to get more aggressive in our marketing tactics outreach proactive outreach so looking at that optimization and strength combined with the new showrooms combined with how great. The product is working we're just really excited.

I appreciate the color. Thanks.

Okay.

Thank you.

Sure comes from Jonathan Mott Minsky.

Jefferies.

Great. Good morning, a nice quarter and thanks for taking my question. My first one is on the quarter to date high single digit demand comp Ah.

<unk> mentioned could you comment on your promotional posture during the first two months of the year relative to the comparable period last year and relative to <unk>.

You bet yeah.

Then the same we've stayed on track.

During the same same marketing same promotions, we've been doing for for many years quite honestly and.

Haven't done anymore, I haven't done any less and.

It seems to be working.

Responding very well.

Our clients.

They love our products and of course.

If they can get it for a little bit cheaper they love that.

If not they tend to buy it as well so.

We've been thrilled with that but to answer your question, we've not changed R. R.

Our discounting or promotions at all.

Got you that's helpful and my follow up question.

There's been some softening in luxury home markets around the U S in terms of pricing and turnover as of late I recognize your business has historically been more tied to movements in the stock market versus the housing market, but are you seeing any regional differences.

In markets, where kind of luxury housing and cooling more than others.

We're all youre, putting up really strong numbers, but just curious about any regional differences. Thanks, so much.

Hey, Jonathan No, we're not seeing any significant regional differences, we're really pleased with how we're performing and in particular in some of those luxury markets, we're outperforming them.

The balance of chain so excited.

Continue seeing where the design studios can go from that perspective, as well as traditional footprint. So so nothing major to note there.

Great Best of luck.

Thank you.

Yeah.

The next question comes from Peter Keith Piper Sandler.

Hey, Thanks, Good morning, everyone. Congrats on wrapping up a great year.

And Don Thanks for the puts and takes around the guidance, we're still kind of working through the numbers here, but I wanted to dig into the.

Second half year EBITDA margin declines I think you said it was down high single digit basis points or percentage, however, I want to say it.

So I understand sales are down a lot at the same time in the back half the year I was thinking your freight costs are going to be substantially lower so that should be a gross margin benefit youre lapping the Dallas DC opening so you should start leveraging those DC costs. So can you just frame up some of the puts and takes around that that back half of the year.

Really in the context of notable EBITDA margin declines.

Yeah. So so you know you hit a couple of the main points revenue is certainly going to be down not implying anything wrong in the business still feel really great about the demand. Its just the function of the backlog in 'twenty two and then in 'twenty three and the timing of when that flows through it's certainly going to impact them year over year comparison.

In the second half.

We feel good about where container costs or are there still slightly elevated from pre pandemic levels that have come down nicely.

You know that will take some time to flow through the P&L just based on our inventory position and what we have on hand today. It goes higher container cost levels inbound fuel is still elevated so the cost to get the product from the port to the distribution centers is included as well in that landed cost of inventory.

So that still remains elevated them.

But as we really think about some of the other puts and takes it's.

Our investments in marketing so continuing to make sure that we stay top of mind with clients continuing to.

Focus on new product introductions, and all the relevant items.

With that.

We're also investing in it capabilities, which I mentioned.

So so those are you know those can be pricey, but extremely important to continue to to help us be able to build scale in the company and then to drive efficiencies. So near term investments to drive that you know medium longer term growth and and productivity and then lastly, I think you know the new showroom openings.

It is important to keep in mind so.

We typically take possession of those about six to 12 months prior to opening so we have all of the associated cost the ramp costs associated with opening those locations and as we're thinking about this year a lot of those locations are on the west coast, which are more expensive than locations kind of in the mid west or I'm on the east coast. So we have.

The incremental expenses associated with those and then as we think about the weighting of when those showrooms, they're gonna open it's primarily back half. So we will have you know as we're staffing up and I'm kind of getting those locations ready and relevant marketing for those locations. There's just more more expenses associated with that so.

Those are those are kind of the biggest call outs I would say for the margin compression.

Fair enough and just to follow up on that the lower container cost. It does take some time to flow through inventory when does that start to decline for you year on year and become a gross margin tailwind.

Yeah, I mean, we should see favorability this year at some point certainly skewed more towards the back half I would say, but a lot of it is contingent upon product mix and sell through I would also say you know.

Are we were less impacted than perhaps other folks in the retail space given that half of our product is sourced domestically and the rest of it is really geographically dispersed. So if you're kind of thinking about us relative to maybe some other retailers. We do have a different impact just like we weren't hit as hard you know over the last couple of years.

The associated relief of that will also not be quite as exciting I guess I'd say, so but it should be you know more in the back half.

Okay Fair enough and then maybe more for John and Jane If you talked about leaning into.

Marketing and going after a lot of new customers you flashed a brand awareness.

<unk> at the time of the IPO of 34% for the premium home furnishings market is probably now two or three years old have you updated any brand awareness study to see if that's been improving.

Yeah, I can take that so we actually did we updated that study at the end of last year. We're looking at those brand awareness metrics and we're really pleased with our report how we performed competently comparison.

Comparatively in the market.

What's exciting for US, though is looking at the opportunity go forward is that that brand awareness split between us and those named payers out in the market still remains very significant sell off of them are still more than twice, where we are so.

So we're pleased with the progress that we've made over the last two years, but I think even more thrilled about the continued opportunity we have over the next few years.

And so maybe we can move move higher than 34%.

It's hard to compare the racks that like to like looking at the percentage numbers in terms of comparison.

Performance, we believe we improved versus the market, but don't want to really speak to specific numbers.

Okay.

Fair enough. Thank you so much for the insights.

Yes, I would just just to add to that we're clearly, adding a lot of new clients every month, which we've been thrilled with obviously, that's how you grow your business.

And.

To John's point.

We did some marketing in December January to two new clients and we were just thrilled at the response rate by <unk>.

Far larger than we had thought.

Which means we're getting new customers and.

More and more people are becoming aware of us, but but the future looks incredible because again.

Our awareness is only half of some of the big guys out there and.

You know every every point, we get to add to that is enormous amount of clients. So.

Even as we add a point or two or three or four or five every year.

We see our share of future just being incredible as people become aware of us and as they do their throat with us They love our product deliver stores, our showrooms, they love lover, our teams or our designers and and.

And of course, they loved loved the quality of the product and once they do that they're kind of hooked for life is one of our clients and they tell their friends.

So we think that's a huge huge part of.

Why were growing why the future looks so good and why we're performing so well.

Yes.

Fully agree with all that John So that's all I wanted to dig into it I appreciate the comments.

Thank you.

Oh.

Thank you. The next question comes from Cristina Fernandez.

Telsey Advisory group.

Hey, good morning, and thank you for taking my question. Congratulations on a good year I wanted to ask about what youre seeing on product pricing on the orders you are placing with your manufacturers and how does that impact.

Just pricing in general for your products to consumers in 2023.

Yeah pricing has been very very stable now for I would say at least the last six to eight months or so.

We are truly not seeing price increases.

Cost of lumber and so forth has settled down.

So.

As you know the freight costs have come down, but just the pure manufacturing costs have been very very steady.

In some cases, we've been able to get them down a little bit.

As you know.

Our our manufacturing.

Partners have gotten a little smarter on manufacturing and so forth and buying.

<unk> larger.

Orders of say wood and raw materials, so they get a discount if they if they buy more and then they are sitting on some of that inventory, but we've been flowing them orders and projections for a year. So they are able to do that and invest in the materials. So.

All good I would say no.

No ones no.

No one is raising prices.

Currently.

Which is good.

But better than last year at the last two years, which were crazy.

Yes.

Just a follow up.

A.

100, additional potential store target from design studios.

Does that change your infrastructure feeds or can you accommodate.

Those additional stores would be expansion in distribution manufacturing you made last year I guess, how does that impact your infrastructure needs over the next you know.

A couple of years.

Yes over the next couple of years, where we're good.

Got plenty of space plenty of capacity.

Whether it's a full full blown showroom or design studio.

Logistically, they're really the same.

The folks buy our products, we delivered to their homes and.

It will come out of one of three warehouses.

We've got plenty of space, where we're going to do a new study as we have as.

As we have thought of opening and growing quicker than maybe we had thought a few years ago.

We will do we will keep studying that to make sure we have enough space. So we won't be caught with a shortage in the future.

Yeah.

Thank you.

Thank you. The next question comes from Peter Benedict Baird.

Hey, good morning, everyone, it's actually Justin Kleber on for Pete Thanks for taking the questions.

That's on all the real estate projects in the pipeline.

If I could just play Devil's advocate for a moment given what is likely to be a more difficult macro backdrop. This year essentially in the 'twenty 'twenty four why do you think now is the right time to be ramping store growth and then what maybe Don what are some of the expense levers you can pull.

The margin structure of the business if the topline backdrop does further deteriorate.

I mean first of all every one of our stores as profitable.

As we open new ones, we fully intend them to be profitable so.

They're they're they're definitely not a drag on them.

On the income and and it does nothing more than give us more leverage on the fixed expenses.

As we add volume so we see we.

We don't see any reason not does not to grow.

And to grow as aggressively as we can.

In a smart way.

So.

We think opening stores again, a lot of these stores, let me get the stores open.

Get the get the say I'll get it delivered.

We are talking.

Towards the end of the end of this year, but into next year, we think it's going to be fantastic.

As economic issues next year, where we're fine with that.

We know we're going to make money in these new stores.

We don't worry about that one bit.

Hey, Jason and just a follow up on that you know if the 12 locations. We have three opening this year and 23 mm three of those shifted from 2022. So you know I wouldn't say that we have an overly aggressive cadence it's slightly above the five to seven that we've articulated.

Over the last several quarters.

But we're really excited about the locations that were presented to us this year and because of those particular locations and yeah. We run various scenarios on those whether it's you know potential recessionary or you know well performing location. So these locations are really excited about the open. So we thought it was prudent.

And made sense to stretch from that five to seven upwards to nine a share. So we feel really good about that and then in the with.

With her hurts your financial question you know in the long term, we kind of view every expense is variable.

So we certainly have levers as.

As we always do we are continually running downside scenarios in various scenarios, if if the macro cell phones, and we felt confident right now based on what we know based on what we're seeing that that we have strategies that will enable us to be successful. This year. We do have demand is a really nice leading indicator.

<unk>, which we've talked about before we have a couple of months of visibility that when that demand starts to soften before it ever hits. The P&L, we have different levers that you can take whether that's.

Anything from additional marketing touch points to potential promotions that I'm, not saying, we're being more promotional but it certainly remains a lever them. So you know we evaluate in real time I think we're really dynamic company in a dynamic management team and we will continue to do that just as we have historically.

And we certainly have taken into account that.

The luxury home business or building.

It is slowing as we reason and may continue to but.

The way that we look at it is we're going to be in a position to really capture a lot of that the clients.

<unk>.

When we when we do pull out of this because we're going to have our locations open in our showrooms open in our designers there.

It's kind of to me, it's kind of silly to wait until it gets through the cycle and then say Oh, let's go open a store a store takes two or three years open. So youre lagging three years. So we're going to be three years ahead of the competition the way I'm looking at it.

Which is a huge huge plus for us.

Yes, no that makes sense. Thanks for all that color, John and Don just a follow up on.

On the new store Economics, Don you mentioned in your three <unk> I think I think you said $10 million for the traditional showrooms can you just remind us how you model the maturation of a new store.

From year, one to your three just so we can think about the same store sales waterfall.

Looking out over the next few years.

As these new stores start to.

To ramp up the maturation curve.

Sure we are.

I thought it was a minimum net revenue target of $10 million for the traditional showrooms.

So some of those are far in excess somewhere closer to the 10, we kind of get really strong on the demand side. So ramps very quickly really pleased with consumer response in the markets that we enter them as you know there's a timing lag between when we take the demand and when we deliver it.

Which has been a little bit exacerbated in the last couple of years, just given the supply chain constraints.

But in a normalized world, we ramp pretty quickly so.

Yeah excited ticket get these showrooms open and start seeing them perform.

Got it alright, guys well congrats on the on the year and best of luck in 2023. Thank you very much for taking the questions.

Thank you.

Thank you. Thank you. Thank you.

When does that concludes our question and answer session I would now like turn the conference over to Wendy Watson.

Remarks.

Thank you everybody for your participation in our call and your interest in our house, we look forward to speaking to you again next quarter.

Okay.

Thank you ladies and gentlemen that concludes today's conference call. Thank you for joining US you may now disconnect your lines.