Q1 2024 Arhaus Inc Earnings Call
[music].
Good afternoon, and welcome today, our house first quarter 'twenty earnings Conference call, Paul and Steve are placed on listen only mode throughout the conference.
The speaker's presentation, there will be a question and answer period.
I will now turn the conference over to Wendy Watson Watson. Please go ahead.
Wendy M. Watson: Good morning, and thank you for joining me our house first quarter 2024 earnings call.
Wendy M. Watson: With me are John Lee Co founder, Chairman, and Chief Executive Officer, and Dan <unk>, Chief Financial Officer.
Wendy M. Watson: In your prepared remarks, they will be joined by Jim Porter, Our chief marketing and E Commerce officer for the Q&A session. During the Q&A. Please limit to one question and one follow up if you have additional questions. Please return to the queue.
Wendy M. Watson: We issued our earnings press release for the quarter ended March 31st 2024 before market opened today.
Wendy M. Watson: As a reminder, remarks today concerning future expectations events objectives strategies trends or results constitute forward looking statements.
Wendy M. Watson: Actual results or events may differ materially due to a number of risks and uncertainties for.
Wendy M. Watson: 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 most recent annual report on Form 10-K, and subsequent 10-Qs as such factors may be updated from time to time in our filings with the SEC.
Wendy M. Watson: The forward looking statements are made as of today's date and except as maybe required by law. The company undertakes no obligation to revise or update. These statements. We will also refer to certain non-GAAP financial measures in this morning's press release, including relevant non-GAAP reconciliations a replay of this call will be available on our website within <unk>.
Wendy M. Watson: 94 hours now I will turn the call over to John.
John P. Reed: Good morning, everyone and welcome to the our house first quarter conference call I want to begin the call today by congratulating our team on a solid start to 2024 and for staying focused on executing our key priorities, both large and small that are driving and supporting our four pronged strategic.
John P. Reed: <unk> growth strategy.
John P. Reed: The market opportunities, we have is substantial and we have a proven strategy with established initiatives to capitalize on it we are highly motivated to execute on these initiatives increasing brand awareness expanding our showroom base, enhancing our omnichannel capabilities and technology and investing too.
Wendy M. Watson: Upgrading our infrastructure improve our business tools and support our growth.
Wendy M. Watson: Our ongoing commitment to build on our progress across these initiatives is paying clear dividends to sustained results quarter after quarter at the same time, our debt free balance sheet and the flexibility. It affords us remains a competitive advantage as we maintain our focus on expense control and prudent capital.
Wendy M. Watson: <unk> deployments.
Wendy M. Watson: In the current environment I get a lot of questions about how we are continuing to do so well with luxury homes sales well below pre pandemic levels in mortgage interest rates expected to stay higher for a longer <unk>.
Wendy M. Watson: The answer is we see it.
Wendy M. Watson: As many of our clients are staying in their home and they want to enjoy them. So theyre remodeling refreshing, our simply replacing their furniture, our in home and trade designers have never been busier with projects ranging from small to large our clients' appetite to make their home a better place to live continues to be strong and given our client's demographics.
Wendy M. Watson: Our clients are going on there of European holidays, or summer or enjoying our crews, but they are also improving their homes at the same time.
Wendy M. Watson: Many of our design projects include assisting our clients with their second or third homes as well.
Wendy M. Watson: So we are very pleased with the state of our consumer and with the latest data showing both luxury home sales and listings increasing in this quarter. We are optimistic for the balance of this year and into 2025.
Wendy M. Watson: As you know and are very enthusiastic about expanding our showroom footprint and.
Wendy M. Watson: That continues to drive brand awareness and our long term growth.
Wendy M. Watson: Since our last call, we opened a new design studio.
Wendy M. Watson: A wonderful location in Greenwich, Connecticut.
Wendy M. Watson: It is already performing exceptionally well later this year, we are adding design studios in Peachtree, Georgia, and Hunter is still North Carolina narrowed Lake Norman.
Wendy M. Watson: We are proving out our design studio concept and it's working very well we develop the concept before the pandemic are smaller footprints showroom perfect for a second home markets and affluent pockets.
Wendy M. Watson: Princeton, New Jersey within or outside large markets.
Wendy M. Watson: Locations, where a lower square footage has preferred status with in home designers and the latest high Tech design tools to assist clients and imagining their homes.
Wendy M. Watson: In October of 2020, we opened our first design studio in Carmel, California, We expect to have 11 by the end of this year with a long runway ahead of us.
Wendy M. Watson: We also recently are opened.
Wendy M. Watson: Loft outlet in Pittsburgh, we are adding two more awful lot locations. This quarter, one in Denver and one in Florence, Kentucky, just outside of Cincinnati.
Wendy M. Watson: And then just a few weeks, we'll be opening an amazing new showroom at the Grove in Los Angeles, We expect it to be one of our flagship locations they cannot wait for clients to see it and experience it.
Wendy M. Watson: As we have discussed we have significant growth opportunities on the west coast and in addition to the growth. We are opening three more showrooms in California. This year, Carlsbad, Palo Alto and Carton Madera. We're also opening our first Oklahoma showroom. This year, what is so gratifying and exciting for me.
Wendy M. Watson: And our house team is how well our showrooms performance such a varied locations across the United States and we are not quite halfway through our goal of 165 plus traditional showroom locations.
Wendy M. Watson: Turning to products.
Wendy M. Watson: <unk> is one of our key competitive advantage and a big differentiator, our design merchandising and sourcing teams continued to delight, our clients with incredible new product.
Wendy M. Watson: Our product reflects our little luxury aesthetics, and the simultaneously eclectic family friendly and full of warmth and comfort are pieces have a unique handcrafted feel.
Wendy M. Watson: Signs of using the best materials and an unparalleled focus on quality. This confidence in our product comes from both client reaction and consistent performance clients are loving our spring new product introductions with newness. This year outperforming the incredible reception, we had last year as new spring product.
Wendy M. Watson: We're also very proud of the depth of our styles and collections.
Wendy M. Watson: And that our showrooms performed well across regions and one of the keys to this is the breadth of our products across traditional transitional and modern aesthetics.
Wendy M. Watson: Alongside our new products, our iconic best sellers continue to be well best sellers, we are able to consistently refresh these designs with beautiful new fabrics shapes finishes and sizes and present them in new and inspiring ways across all channels.
Wendy M. Watson: We believe our product is an incredible value and based on our demand trends our clients seem to agree and we cannot wait for you to see and experience. The new product we are coming up with this fall in our showrooms catalog in our house Dot com.
Wendy M. Watson: On our strategic growth initiative fronts. There are two areas I wanted to call out.
Wendy M. Watson: We just launched the new warehouse management system in our Ohio, DC, representing a tremendous amount of work across several of our functional areas. This is a key piece of the system upgrades that will enable us to improve our operational efficiencies and mostly set the foundation for long term growth.
Speaker Change: <unk> to our team.
Speaker Change: Second I also wanted to call out our final mile team over the past year, we've made several improvements to our final mile and home delivery processes.
Speaker Change: That are evident and better execution and delivery performance with some of the highest client survey scores we have ever received.
Speaker Change: Our extremely busy delivering our consistent results and client service, while growing and investing in the business requires unrelenting commitment.
Speaker Change: I am extremely grateful for the hard work our team puts in each day and every day.
Speaker Change: In the first quarter, we delivered net revenue of $295 million net income of $15 million and adjusted EBITDA of $29 million.
Speaker Change: As we reported this morning, we are pleased to have exceeded our top and bottom line outlook for the quarter as teams executed well and first quarter benefited from the shift in a new warehouse management system implementation to April from March we are on track to deliver on our first half.
Speaker Change: And full year outlook.
Speaker Change: Moving to demand is truly remarkable what our teams are achieving in the current macro environment as we continue to meaningfully outpace the industry. Our first quarter results are highlighted by February is mid single digits.
Speaker Change: And March is high single digit demand comp growth more than offsetting january's weather related high single digit demand comp decline.
Speaker Change: Our demand comp in April was up mid single digits.
Speaker Change: Before I turn the call over to Don to discuss these results and our full year outlook in more detail I want to reiterate our confidence in the outlook for our company for the balance of 2024, which we reaffirmed this morning.
Speaker Change: Future is bright.
Don: We believe our strategic competitive advantage positions us to continue to capitalize on the aspiration of our clients to live in beautiful curated spaces with our unique artisans crafted furniture.
Don: I'd like to extend a warm welcome to John Moran, who joined US as Chief operating officer on Monday prior to joining US John Walsh, Chief operating officer of Canada, Goose and brings a wealth of experience and operational execution and supporting transformation growth across the functions.
John P. Reed: He is an important addition to our leadership team as we scale the business and realize the significant potential for growth.
John P. Reed: As I said last quarter I generally feel there are no collections like our collections. There are no people like our people there is no potential like our potential our house stands out.
John P. Reed: It stands alone.
Speaker Change: I founded our house, almost 40 years ago I Couldnt have imagined the our house, we have today with the incredible potential we still have now I'll turn it over to Don.
Don: Thank you John and good morning, everyone net revenue in the first quarter was $295 million with a nine 5% comp decline against the comp growth comparison of 21% in the first quarter last year.
Don: Prior year included significant abnormal backlog deliveries that did not repeat this year as we caught up on deliveries in 2023 and have returned to a normal backlog.
Don: We were pleased with our demand comp growth of one 3% in the quarter as we continue to see strength in average order value and in orders over $5000 and $10000. We're also pleased the demand penetration of our in home design. Our program continues to increase.
Don: Our first quarter gross margin decreased to $115 million, driven primarily by lower net revenue and higher storm costs as we continue to expand our footprint.
Don: Gross margin as a percent of net revenue decreased to 39% driven primarily by the higher showroom cost deleverage related to the lower revenue and increased transportation costs.
Don: First quarter SG&A expense increased $14 million to $97 million, primarily driven by increased selling expenses related to new showrooms and demand strength increased corporate expenses as we invest in our strategic initiatives to support and drive the growth of the business and increased warehouse expense as our Dallas location continues to increase productivity.
Don: First quarter 2024, net income was $15 million adjusted EBITDA in the quarter with $29 million versus $55 million in the first quarter of 2023.
Don: First quarter net revenue of $295 million and adjusted EBITDA of $29 million resulted in a nine 9% adjusted EBITDA margin in the quarter.
Don: Next and we reported this morning, we are pleased to reaffirm our outlook for full year 2024, our expectations for how to hear well progressed have not changed since we initially provided our outlook in March apart from the warehouse management system going live in April rather than in March as a reminder, we expect full year adjusted EBITDA margins to be lower than 2023.
Don: We expect about 85% of the deleverage to come from SG&A with a lesser amount of deleveraging gross margin dealer.
Don: <unk> leverages driven by Comping prior year backlog delivery and strategic investments, we are making this year strategic.
Don: Strategic investments include corporate strategic investments of $10 million to $15 million to enhance our operational capabilities and drive our success long term as well as investments and other growth initiatives, such as E Commerce and our in home design around trade program.
Don: The $10 million to $15 million in corporate strategic investments include our new warehouse management system planning and allocation software and new manufacturing ERP at our upholstery facility and our in home delivery experience.
Speaker Change: To add further color. We also wanted to note we expect to have higher expense at our distribution centers this year as productivity improves in Dallas.
Don: In the second quarter of 2024, we anticipate net revenue in the range of $310 million to $320 million.
Don: We expect approximately 900 basis points of adjusted EBITDA deleverage in the second quarter. Approximately one third is from gross margin pressure, primarily due to higher storm costs related to growing our showroom footprint investments in in home delivery program and to a lesser extent the impact of price action product in our P&L.
Don: Balance of the deleverage is in SG&A, primarily due to new showrooms.
Don: Strategic growth investments and supply chain costs from the continued ramp of our Dallas distribution Center.
Don: Given the new warehouse management system implementation shift from March to April we expect the earnings upside relative to your original expectations in Q1 to be offset in Q2 with our anticipated first half financial performance in line with full year expectations, we shared in March.
Don: As I noted last quarter, we continue to expect net revenue growth in the balance of this year, we expect to deleverage in both gross margin and SG&A in the first half of the air to inflect in the second half as the P&L impact from the June 2023 price action product is complete revenue and earnings from new showrooms positively impact our P&L and we continue to expand our brand awareness and.
Don: Drive market share expansion we.
Don: We will update you on our third quarter expectations. When we report second quarter financial performance in August for all other details related to our 2020 core outlook. Please refer to our press release.
Speaker Change: In closing I want to thank our team for their focus and execution of our strategic growth priorities and investments.
Don: So proud of what we are accomplishing while delivering solid financial performance in retaining our balance sheet strength.
Don: We believe our four part strategic growth strategy and our strong debt free balance sheet are compelling competitive advantages, enabling us to make the necessary investments to build on our share gains and the highly fragmented $100 billion premium home furniture market.
Don: We're navigating the current environment from a position of strength and we believe we are well positioned to delay our clients, while maintaining our unwavering commitment to driving value for all stakeholders.
Speaker Change: This concludes our prepared remarks with that I'd like to thank you for joining us. This morning, and we are happy to take your questions.
Speaker Change: We will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise her hand and joined the queue.
Speaker Change: I would like to withdraw your question seemed a bright star one again.
Speaker Change: Your first question comes from the line of Philip Lee with William Blair. Please go ahead.
Speaker Change: Hi, This is Sabrina on for Bill Thanks for taking my question.
Sabrina: Can you talk about some of the progress our team has made on those internal system investments like an e-commerce capabilities on in home design and trade programs.
Sabrina: And.
Speaker Change: Signs of improvement and how that will flow through for the rest of the year.
Speaker Change: Good morning.
Speaker Change: We're really excited for how we're progressing through on some of the years.
Speaker Change: We've talked about a warehouse management system, which redeployed and.
Speaker Change: Starting to see some nice.
Speaker Change: Efficiencies in the warehouse there so pleased with that.
Speaker Change: A little bit early days for the other systems that we've talked about with regards to our planning and allocation program.
Speaker Change: Our manufacturing ERP is well underway during the kind of.
Speaker Change: Design and launch portion.
Speaker Change: And home delivery investments that we're making we've seen some really great.
Speaker Change: No changes.
Speaker Change: Our client survey responses, so really really pleased with the investments that we're making in these areas really to help the organization to the next level drive some efficiencies.
Speaker Change: From a financial efficiency perspective, we need to get all of the systems deployed one.
Speaker Change: And then of course, there will be alerting curve.
Speaker Change: James I'll adopt new software platforms and as we then Ben will start to see some financial efficiencies.
Speaker Change: We mentioned last quarter that we are evaluating our full systems infrastructure and platform. So we will continue to do that.
Speaker Change: Your systems that we're launching are in the process of working through and launching we're certainly excited about and confident that the business needs.
Speaker Change: We're also continuing to look at different things like.
Speaker Change: Inventory management platforms vendor management platform financials. This pack.
Speaker Change: Packages, so more to come on the coming quarter as management continues to refine our expectations for the organization and what those will look like.
Speaker Change: Is that in terms of sales, but also getting people to really understand our house brand differentiation in the product assortment, which as John mentioned, we're so excited with the new products that came in and really seeing people being able to engage and explore that online as well.
Speaker Change: So lots of enhancements a lot that you may see if you are on the site every single day, a lot, but he may not see because they're happening behind the scenes, but a lot of it has been going on and a lot more because they need to come this year into the future years.
Speaker Change: Great. That's really helpful. And then a quick question on kind of what the new product assortment could you provide some color on L. B trends throughout the quarter. If there was any specific product assortment or something or items that had been particularly resonating with consumers recently.
Speaker Change: Oh gosh, yeah, Theres a lot.
Speaker Change: Mhm.
Speaker Change: Yeah.
Speaker Change: The great thing about our business as is.
Speaker Change: It's a fashion business thanks for always trending.
Speaker Change: We're not trendy, where we get in and out of things and one season, you know things can last year's but.
Speaker Change: You know, where we're seeing people are watching more color in their homes.
Speaker Change: Shapes or softer more kirby.
Speaker Change: Well it is getting a little fresher lighter national dark.
Speaker Change: And you know grade type of things and.
Speaker Change: So it's constantly evolving but yeah, we really have some great new products that we've launched.
Speaker Change: Some last year. Some this spring and then as we said on the call very excited about this fall coming up.
Speaker Change: We have a lot of new products.
Speaker Change: So team is busy shooting everything as we speak and I'm getting ready to launch call probably in September or so.
Speaker Change: But.
Speaker Change: Yeah, so it ship.
Speaker Change: It's a moving target, but you know coming out of Covid and so forth people are changing things, we're again pretty straight dark kind of sterile I'd call them in my opinion and now they're a lot brighter lighter.
Speaker Change: More comfortable curvy type type products and that's what we're going after.
Speaker Change: Great. That's helpful. Thanks, and best of luck.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Steven Forbes with Guggenheim Partners. Please go ahead.
Steven Paul Forbes: Good morning. Thank you for taking my question. This is Julio Mark <unk> on for Steve Forbes just to follow up on product.
Steven Paul Forbes: Can you expand on product assortment expansion plans for 2024 and is there any way to maybe help better understand how you're thinking about new product contribution growth over the next coming years.
Speaker Change: And then a quick follow up after that thank you.
Steven Paul Forbes: You.
Speaker Change: Yeah, you bet.
Speaker Change: Yeah, I mean, what one of our focuses is to offer a broader arrangement of styles textures colors and so forth.
Speaker Change: It's a big country out there has different taste in.
Speaker Change: Alabama is in Cleveland in L a and.
Speaker Change: Although you know core pieces are always best sellers everywhere.
Speaker Change: Theres different tastes.
Speaker Change: Some markets are more moderate and get all everything has gone fairly modern contemporary over the years, but we're seeing a big swing on the people who are coming back to a little more transitional even some traditional pieces.
Speaker Change: So you know our focus is to take each category we carry.
Speaker Change: And <unk>.
Speaker Change: Or offer a broader assortment.
Speaker Change: We've been testing some.
Speaker Change: Really different product than like two or three stores across the country. Then the response has been.
Speaker Change: Nominal.
Speaker Change: It's something we'll probably grow with and.
Speaker Change: You know.
Speaker Change: On top of that you know the categories. We just keep growing upholstery big Big business, all the wood products from living rooms bedrooms of course is a massive.
Speaker Change: Business for Us and you know people have.
Speaker Change: Or a five bedroom, sometimes 10 bedrooms and they weren't different different assortment to be able to furnish the entire the entire house of work working hard or just expand their look and feel and taste, but it all fits under the our house brand. So at all at all.
Speaker Change: Coordinates goes together and so forth.
Speaker Change: On top of that we're really working hard to bring in color between decor pillows throws things like that things that can really brighten up of a room without making a big commitment to a bright bold.
Speaker Change: Patterns sectional or something.
Speaker Change: So that's something we're really really growing that and going after a big time as well and you'll see more of that actually in the fall than today.
Speaker Change: Great. Thank you very helpful actually and is there any way to think about how the upholstery mix has changed over the past few years and maybe if you can contextualize how much is being made.
Speaker Change: Within our house manufacturing facilities versus third party.
Speaker Change: Yeah. They are host part is there is a significant part of the business. It's.
Speaker Change: It's not quite half of the business that's close to that.
Speaker Change: And again the.
Speaker Change: Whether we're making it in our facility or down the street and a couple of the other domestic facilities in North Carolina.
Speaker Change: It's all it's all great product and.
Speaker Change: The different shapes and forms and and so forth is one that.
Speaker Change: We're working with all of our manufacturers on so it's working working in harmony.
Speaker Change: Trilled to be back in.
Speaker Change: And getting them custom, which is a huge part of our business in the upholstery business.
Speaker Change: Back to a really short window of lead time.
Speaker Change: Where it was out to 28 weeks I think a couple of years ago or much much quicker now down to I think five six weeks ourselves to get into the customer's home, which which we're pretty proud of what they've been working really hard at making that happen.
Speaker Change: Awesome. Thank you.
Speaker Change: You bet.
Speaker Change: Your next question comes from the line of Jeremy Hamblin from Craig Hallum Capital Group. Please go ahead.
Jeremy Scott Hamblin: Thanks, and congrats on the strong momentum in the business.
Jeremy Scott Hamblin: I wanted to just come to the the warehouse management system update the shift here.
Jeremy Scott Hamblin: Thinking about the impact on on Q2.
Jeremy Scott Hamblin: So yeah, I think kind of best guess on on the total delivered revenue in the quarter. If that's you know in the range of $25 million or something along those lines and then whether or not.
Jeremy Scott Hamblin: Has it gone.
Jeremy Scott Hamblin: Smoothly into expectations are you, having any lingering impacts that.
Jeremy Scott Hamblin: Resulting in delays on deliveries wanted to see if you could put a little more color around that.
Speaker Change: Sure. So you know.
Speaker Change: As it pertains to the second quarter we.
Speaker Change: Watching the W. Mass at the start of the quarter, certainly provides us with a little bit more flexibility to make up any timing shifts related to.
Speaker Change: Yeah, the revenue impact from the warehouse closure. So yeah, we feel good about what we've guided in that three times to $320 million net revenue range for a second partner.
Speaker Change: As it pertains to the actual implementation its gone you know as expected we pushed it from March to April prudently to be ensure that you know we were as prepared as possible I'm just from a back office perspective, and you know we never expect to be software platform implementations to go smoothly. So we prepare it.
Speaker Change: We can and then you know we're very fortunate in that we have a very dynamic and flexible leadership team that is now kind of constantly evaluating what different options. We have available to us when things pop up so we navigated that very well from my perspective, and you know.
Speaker Change: From the client perspective are really a non issue so clients are getting their product when they expect and that's exactly what we want these back office system implementation should not negatively impact the client experience in anyway.
Speaker Change: Got it and then just a quick follow up here the pricing actions that were taken last last summer in terms of you know how long you expect that to linger in terms of flow through to your gross margin.
Speaker Change: When what point would you expect the gross margin to no longer be.
Speaker Change: Impacted in any material way from our pricing actions.
Speaker Change: Sure. So we did piece of impact in the first quarter from the price actions that we took in June of 2023, we expect a lesser amount in the second quarter and then as weak we expect by the end of the second quarter to really have kind of cleared through any meaningful impact, which we noted we'll see some inflection in the second half of.
Speaker Change: The year one of those as you know due to the price action component kind of clearing through the P&L. So all of those skus are back to the you know the ones that we have a home in the go forward assortment, they're all back to their kind of pre price auction pricing and so we feel good about how we're positioned as we head into the last you know three.
Speaker Change: Partners of the year.
Speaker Change: Great. Thanks for taking the questions best wishes.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line I'm Simeon Gutman with Morgan Stanley. Please go ahead.
Simeon Ari Gutman: Hey, good morning, everyone I wanted to ask I guess, two part question first I know the CLO higher.
Simeon Ari Gutman: No not I know he started but I think in the news about a month and a half ago, we talked about it can we talk about John the role the need for that role and then as part of it can you give us a lay of the land in the next call. It one to three years.
Simeon Ari Gutman: Warehouse D C capacity systems upgrade Don kind of teed a few of these up I'm just curious what to expect as you scale this business going forward.
Speaker Change: Yes sure.
Speaker Change: As we've been speaking of where we are launching a lot of new systems and.
Speaker Change: And you know.
Speaker Change: We brought a new C O N two to really help orchestrate all of that.
Speaker Change:
Speaker Change: And.
Speaker Change: Yes.
Speaker Change: There'll be the Guy that's orchestrating the I T side to the planning side to the implementation side to the warehouse sites logistics and so forth. So.
Speaker Change: One great thing about that for me.
Speaker Change: I get to spend time on what I love, which is finding great product and keep driving the business forward.
Speaker Change: And I don't have to be in the 19 meeting about our systems, which I'm gonna be unhappy about.
Speaker Change: And so.
Speaker Change: So far he's been doing a phenomenal job just very short time he's been here. So it's something that I think you know the team is looking for that leadership. He's got a lot of experience in this well.
Speaker Change: Field in World and we're excited to have him be the orchestrator.
Speaker Change: You bet.
Speaker Change: I guess as part of that and any any more capacity that's needed and then other things you know I don't know if its automation, but other enhancements to the distribution center you have.
Speaker Change: Right now where we're in good shape now that we implemented the system, we have enough capacity.
Speaker Change: We've got great team out there are in all three of our large distribution centers here.
Speaker Change: And we're gonna.
Speaker Change: Just work out if there's any small kinks in the system will get those worked out over the next few weeks and everything.
Speaker Change: Everything is good to go just to start growing.
Speaker Change: Can I ask because it was a follow up hopefully that the other one was part of a longer question just the backdrop for furnishings.
Speaker Change: Had some weather volatility.
Speaker Change: Can you talk about.
Speaker Change: I guess the biggest ticket items in your and your and your product assortment.
Speaker Change: Diagnosing the consumer.
Speaker Change: There's been a lot of chatter about weakening more on the lower income side in the last call. It three to four weeks curious if there is any of that and does it feel like the industry has bottomed in terms of demand that's reverted post COVID-19 and now we're bouncing along the bottom or maybe even getting better.
Speaker Change: You know I'm I'm not an expert on what other people do all I know is our business and its very strong we've not seen any of that changed in the last 456 weeks here at all.
Speaker Change: As first time hearing of that so.
Speaker Change: Yeah, I can't answer that I I.
Speaker Change: Stick to what we're doing and executing our plan.
Speaker Change: And coming out incredible product executing it well getting it into customers' homes are delighted with the systems, we're using and how we're delivering it to them and you know then they're telling.
Speaker Change: And our friends and neighbors and theyre coming in and buying buying it. So I don't know I've not heard anything about things are bottoming out, especially on the lower end.
Speaker Change: Yeah. Thanks, John just to add into that looking specifically at occupancy monarch customer base are we haven't seen any notable differences or changes that we see.
Speaker Change: Our customers come out has really stayed very steady.
Speaker Change: 2019, I'm pretty pumped on that well continue to see that going strong.
Speaker Change: Looking at all of our Sops and things that we saw were still seeing that sort of 50 50 split.
Speaker Change: New and existing I mean, really really pleased with the response.
Speaker Change: Particularly from our prospects in new customer acquisition activities as Don mentioned on the call earlier as well, we're really pleased about that.
Speaker Change: The value of those customers coming in as well so as John mentioned, we really got to focus on doing what we're doing on product is working on messaging is working our showrooms are working.
Speaker Change: So what we're focused on Manhattan.
Speaker Change: The CCAR results.
Speaker Change: Thanks, everyone and good luck.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Cristina Fernandez with Telsey. Please go ahead.
Cristina Fernandez: Hi, Good morning, I wanted to ask about the competitive environment and promotions any change you're seeing some of your competitors also are introducing a lot of your product and then the promotions to anything that we should expect a leading up to the important memorial day weekend.
Cristina Fernandez: Hi, Kristina and good morning, Yeah. So we continue to see that elevated promotional market out there, which is really interesting. So I see from a memorial day promo starting already very early in the month.
Kristina: In terms of what we're doing what we're looking at you know I think you just referenced and as John and Don mentioned that our products working with our customers are spending money. We're really really pleased with that so from a marketing and branding perspective, we're really focused on continuing to put out that messaging around brand differentiation, we're continuing to introduce our house with your clients.
Kristina: We're continuing to focus on sharing the product and really letting that shine my name I'm clients take that journey and make that decision and our promotional strategy is really remain the same I'm with Delphi Ingersoll.
Cristina Fernandez: When we bought the promos around those shops.
Cristina Fernandez: Shopping weekends as I've spoken about on prior calls we have like sensors promo and no longer really just doing a three to four days right around the promo, but seeing that be a little bit longer and we're really happy with what we're seeing so in terms of what we're doing we're just focusing on continuing our strategy.
Cristina Fernandez: What we're doing and monitoring it very closely but as I mentioned it it's working for now so we're really happy with that.
Speaker Change: And then my second question is around the new stores do you have a lot of exciting locations coming up I wanted to ask about the discussions for those stores. How do you see them kind of whats the process to make sure you have the right store managers have designers are you moving.
Speaker Change: People from other stores or is it more.
Speaker Change: And looking for new employees and does meet market.
Speaker Change: Sure good good good question.
Speaker Change: Yes, we've not only are looking forward to the new stores, we're opening but weird.
Speaker Change: Have just opened up quite a few new stores in the last six eight months as well.
Speaker Change: And how it works for us is a.
Speaker Change: We always move a store manager to a new location.
Speaker Change: An existing store manager experience store manager was proven.
Speaker Change: To be a great leader and understand our culture.
Speaker Change: With that I would typically in most of the stores and it depends on where they are but most of them.
Speaker Change: We have a few a handful of folks that want to move them to them.
Speaker Change: So we'll move some experienced folks there as well in addition to that then of course, we have to hire a whole new staff are we've got a phenomenal university of our house training team.
Speaker Change: Team that gives.
Speaker Change: It gives them I believe six weeks of training before they open the doors.
Speaker Change: So they are thoroughly trained they'll they'll go work out of another store will get them on the floor.
Speaker Change: It only you're talking to clients, but then getting behind the desk and learning how to write up the sale and so forth and and assisting our clients. So they are very very well trained.
Speaker Change: Day, one when they're trying to open up the door and that our clients come in.
Speaker Change: Great. Thank you.
Speaker Change: Youre welcome.
Speaker Change: Your next question comes from the line up Jeffrey Wolf with Jefferies. Please go ahead.
Speaker Change: Good morning, Deborah Walter on for Jonathan.
Jeffrey Wolf: Thanks for taking my question it sounds like train design momentum continued to build can you just update us on the plan for deepening the trade channel.
Deborah Walter: The designer and then nothing in the near term opportunity within the contract business. Thank you.
Deborah Walter: Yeah, you bet.
Deborah Walter: The trade business is one that we are focused to continue to grow.
Speaker Change: These are folks that have their own business.
Speaker Change: And they have their own clients and you know, we're encouraging them to bring their clients and themselves into our showrooms. We have we have added folks internally.
Jeffrey Wolf: Internally that should do nothing but help these these trade folks.
Jeffrey Wolf: With the sale make it easier.
Jeffrey Wolf: And just to make it seamless so they don't have to spend a lot of their time on it and that's what we've learned there.
Jeffrey Wolf: There are time crunched and if we can help them with that we've got the products for sure.
Jeffrey Wolf: Or kind of a one stop shop for them.
Jeffrey Wolf: Don't have to go to 10 different vendors to buy things for a room. We've got the lighting, we got the rugs. We've got their furniture, we can we can do it all so we do it all we take care of it.
Jeffrey Wolf: We guarantee it.
Jeffrey Wolf: Issues, it immediately gets repaired or fixed or exchanged and and we're saying it's growing nicely, we're adding quite a few new trade members every single month.
Jeffrey Wolf: Trade business is outpacing the <unk>.
Jeffrey Wolf: The average growth of our business total.
Jeffrey Wolf: So we see a big big future and that we think we've only just started started that and we think we've got a huge runway ahead of us. So it is something we definitely are focusing on.
Jeffrey Wolf: And very excited about.
Speaker Change: Great. Thank you so much.
Speaker Change: You're welcome.
Speaker Change: Your next question comes from the lineup beyond with Bank of America. Please go ahead.
Speaker Change: Hi, This is matti check on for Robbie Thanks.
Matti: Thanks for taking our questions.
Matti: Just first you highlighted that demand comps grew mid single digits in February.
Matti: High single digits in March can you give any color on how April trended given that strong exit rate. Thank you.
Matti: Yeah April April was up mid single digits. So pleased with the response, we're seeing too you know some of our new collections.
Speaker Change: Particularly in outdoor or we have to phone line, which is doing really well.
Speaker Change: Our Italian collections are performing very well.
Speaker Change: So you know we're continuing to be very excited about the product introductions. We know January was impacted by weather, but we also know folks you know I've got decided not to purchase home furnishings, because it's colder snowy one one months sounds like they will come back they will come in so and we know that we resonate in various markets across the country.
Speaker Change: And so as we continue to drive our brand awareness up.
Speaker Change: We do expect genetic do you need to see some great great results. So I'm very pleased with April and how it's trending and we're looking forward to the balance of year.
Speaker Change: Great. Thank you.
Speaker Change: And then maybe just to dive a little deeper into your plans with E. Commerce. This year are you, adding skus online, maybe a larger assortment of like tabletop soft goods lower ABV products as well.
Speaker Change: I O V products and have.
Speaker Change: Have you seen a relationship between growth in the E Commerce business as you're opening new stores, given you're building awareness people are in and the actual showrooms and then maybe buying online. Thank you.
Speaker Change: Yeah, Hi, good morning, Great question, and I think the.
Speaker Change: The simple answer is we're excited about everything with ecommerce.
Speaker Change: The restaurant is that there's just so much opportunity.
Speaker Change: So as we are working on introducing new products and sometimes that as John mentioned earlier some of those categories that we're looking at you will see that come through on the web site Wow.
Speaker Change: In addition to that as you know I'll be talking with.
Speaker Change: We're constantly learning and testing and evaluating how we present the product to our clients digitally as well so not only we'll be introducing those new products online.
Speaker Change: Season's launch.
Speaker Change: We're also getting better and smarter every single day about how we started off that product assortments to our clients and to how we can bring.
Speaker Change: Great.
Speaker Change: And at the right times during the product.
Speaker Change: Ronnie I think one of the really exciting things there.
Ronnie: Lee I don't not sure that people are sorry, like more color I like more variety in their assortments out there are all sorts of amazing really incredible waste inspire people I'm, sorry, with color and show maybe that the wild type of call. It both repurposing sectional tight but that also shows the decor items.
Ronnie: Sure a little bit easier to get to on a on a fee basis. So a lot more to come there as we just figure out the product assortments oath faithfully and Oh, what it looks like we haven't spoken specifically to see product mix to your question about I'm looking at a specific categories.
Speaker Change: And I you know a L b.
Speaker Change: E Com, what we have talked about is how our a M P.
Speaker Change: Architecture is for reasons that you mentioned, we don't have as much of other stuff.
Speaker Change: For our smaller tabletop type items in our assortment, we are up to almost any way to quantify that tracks as I know.
Speaker Change: Mentioned that opportunity everywhere, but for now we're really happy with continuing to use our digital channels to support our full Omnichannel brand, we really see our digital channels not only as a sales channel, but also as our experienced channel a brand awareness channel, where we can enter.
Speaker Change: To us what makes our house special but also the full assortment to our clients.
Speaker Change: Really focused on trying to do that however, our clients want to interact with us and so looking too.
Speaker Change: Conversion of showrooms and E comm I, when we're making those decisions.
Speaker Change: So a lot more to come I think I touched on both parts of your question, but let me know if I missed anything there.
Speaker Change: That's perfect. Thank you so much.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Next question comes from Todd I Am Justin Kleber with Baird. Please go ahead.
Todd: Hey, good morning, everyone. Thanks for taking the questions first one for me Don you mentioned the increase in the in home design or penetration can you just provide us any updated benchmarks on that kind of where you sit today, how that's evolved.
Justin Kleber: Maybe relative to the time of the IPO just trying to get a sense for what inning, you think that initiative in.
Justin Kleber: Because it seems like it remains a nice driver for the business here.
Don: Yeah. So we don't disclose the actual demand penetration, but what we are really pleased about is how it's continuing to grow and so as we're continuing to test different staffing levels in the various you know volume locations that we have you know we're trying to see how high is high and so.
Speaker Change: So yeah, I would say, we're probably in inning four five mm, but really pleased with the performance that we're seeing we're also as John mentioned digging deeper into the trade program and how can we continue to drive that business and yeah, we know that the trade and our in home designer program. There's some nice overlap there's some great creative.
Speaker Change: <unk> when that happens when you get you know equal likeminded folks in a room I'm really thinking about about a client right. So yeah. We do expect some nice growth in the business and then home designer program as trade program increases, but also just as we continue to.
Speaker Change: Evaluate and fine tune, our staffing model with with regards that programs out you know more of a time that really really excited and how those programs are both performing.
Speaker Change: Yeah.
Speaker Change: That's great to hear thanks, Thanks for all that color and then my follow up is on is on demand and if you could just remind us or give us a sense for what your guidance.
Speaker Change: I assume from a demand pump perspective.
Speaker Change: So, let's say if demand ends up exceeding your internal plan would you left the upside flow through or are there certain investments you would choose to maybe pull forward.
Speaker Change: And to this year from future years. Thank you.
Speaker Change: Yeah. So that's a great question, we we have not guided to demand.
Speaker Change: So you know as we move into next year, we're excited for that demand comp and the comp to converge a little bit more or to give you better clarity, but but as we think about the investments that we need to make and want to make in the organization, whether it's corporate strategic investments and systems.
Speaker Change: <unk> and processes or whether its growth driving initiatives such as E. Commerce trade them are you know in home designer Theres kind of a whole host of opportunity for us from a growth per socket that we haven't even started to really dive into like contract as well and so it's it's a decision that you know management will be making.
Speaker Change: You know I think as we go and so we feel good about the guidance that we have out there for the year and you know, we're very optimistic and and what's going to happen in the industry was going to happen with the consumer that being said I'm a very conservative person. So I'm always kind of contemplating what the downside is that we have great strengthen our balance sheet with great cash position.
Speaker Change: So you know we feel really confident in and this year, how we're going to perform and you know I'd say more to come in later quarters about what and any changes that we might have at this point in time, you know, we think that our guide is achievable and yeah.
Speaker Change: Yeah, we feel good about the investments we're making are at the moment are contemplated for the year.
Speaker Change: Alright, well, thank you very much and best of luck.
Speaker Change: Thank you. Thank you.
MX Rocky: Your next question comes from the line of MX Rocky angle when T. D. Cohen. Please go ahead.
MX Rocky: Hey, Thanks, a lot for squeezing me in I'm, sorry, if I missed this earlier I just hopped on but how are you thinking about your value proposition and maintain your price gaps that you're comfortable with for the brand to succeed and then what could your response look like.
MX Rocky: Some of your Peters out permanently cut their prices and it's not just the holiday promotions.
MX Rocky: Yeah.
Speaker Change: Yeah. So we feel great about our value proposition, we're constantly evaluating how we're positioned within the competitive set but you know I'll turn it over time and it's like I said, we believe very strongly in our product quality aesthetic them and we feel we feel great about how we're positioned but John do you want to.
Speaker Change: Yeah.
John: You understand our business model.
John: It is and always has been we go direct to manufacturers, who actually make products buy from them.
John: It comes on ease of containers or trucks comes into one of our distribution centers and then right out to the consumer.
John: We don't.
John: By some middleman people with with.
John: That mark the product up in any way whatsoever.
John: Don't use very expensive designer folks who want some huge royalty on every single piece, we sell things like that so we really have the best model out there certainly in the high end business and.
John: And we believe we get great values.
John: But we're not you know we're in.
John: Not worried about other folks cutting their prices and so forth because you can't buy our products come out of the people.
John: Is exclusive to us that looks are different.
John: It's incredible quality in it.
MX Rocky: And it's an incredible value and.
MX Rocky: If our competitors cut prices is still going to be an incredible value. So we're.
MX Rocky: We're focusing on what we do best and.
MX Rocky: We have great product and it truly truly is a great value and our incredible quality. So it's hard to beat I think it's hard to beat our product.
MX Rocky: Okay.
Speaker Change: That's great color.
Speaker Change: Go ahead.
Speaker Change: Go ahead, yeah, we're just sticking with us.
Speaker Change: No that's great color I appreciate it and then as a follow up so we've now seen luxury home sales increased for six consecutive months. So curious do you think that we should start.
Speaker Change: It should start to show up in your demand comps potentially.
Speaker Change: As early as the next few months.
Speaker Change: Max you know this is Wendy I'll weigh in on that if you'd like to look at those some of those market stats and obviously, that's a you know a positive sign and you know the other thing I saw recently, which I'm sure. You're aware of is that listings are up even more than home sales are up in that market. So that.
Wendy M. Watson: But that's a nice trend and I would just remind you that most of our sales are driven by light refreshes. So repainting of room other things remodeling them home sales are a driver, but they're much smaller than those other two factors.
Speaker Change: That's great. Thanks, a lot guys and best of luck.
Speaker Change: Thank you very much.
Speaker Change: Our last question comes from the line of Peter Keith with Piper Sandler. Please go ahead.
Peter Jacob Keith: Hi, good morning, everyone nice results.
Peter Jacob Keith: Tariffs are becoming a bigger topic as we go through the year here and I was wondering if you could just address how youre thinking about that.
Peter Jacob Keith: I know you don't have a ton of China exposure, but.
Peter Jacob Keith: Maybe if you quantify it and also how did you adjust to the tariffs that went into place in furniture back in in 2018.
Speaker Change: Sure back in 2018, we were pissed, because we didn't like the 25% tariffs.
Wendy M. Watson: But you know, we we had to take price increases and our clients accepted them and we moved on.
Wendy M. Watson: What we did was immediately start working on getting product out of China. If we did have it in China and.
Wendy M. Watson: Just to remind you we had very little product in China to begin with I'm, certainly far far less than our competitors.
Wendy M. Watson: So most of the big guys now have moved on to two other countries if not they're moving on quickly and we're in it we're in a great position that if tariffs go to 150%, which we heard someone say the other day.
Wendy M. Watson:
Wendy M. Watson: That we won't Miss a beat.
Wendy M. Watson: We'll be good good shape and.
Wendy M. Watson: We're again working hard to adjust things move things.
Wendy M. Watson: If we need to quite some quite a fair amount was been moved back to North America.
Wendy M. Watson: And then countries like Indonesia, Vietnam, Cambodia, and so forth.
Wendy M. Watson: For some of them you know the Asian products and or our vendors that were incredibly loyal to their incredibly loyal to us.
Wendy M. Watson: No that they've got.
Wendy M. Watson: They've been in China, they need to get out they wanted to do business with us and and they've worked very hard at doing that.
Wendy M. Watson: Okay.
Wendy M. Watson: And then maybe secondarily the question directed towards Dawn.
Dawn: The guidance.
Dawn: But with the comp guidance I guess, the one thing I'm, having a hard time understanding is that the very heavy pressure in the first half.
Dawn: Some of which I know is from the new warehouse management system, but that.
Dawn: The heavy pressure in the first half and then leading to whats implied to be flat to positive comps in the back half and yet at the same time I think the backlog compares are a bit heavier in the back half so can.
Dawn: Can you just help us walk through whats, helping this this really nice comp acceleration of comp improvement as we go through the year.
Speaker Change #102: Yeah. So you know we we ended last year with a nice I'm kind of a normalized rate of backlog with January.
Speaker Change #102: Being one of our bigger months of the year from a demand perspective coming in or it just impacts the first quarter and you know a little bit into the second quarter and in a more meaningful way. So you know as we look at our demand you know what.
Speaker Change #102: Within the kind of hopper to be delivered we feel you know it both on the cost side and on the new showroom side, you know, what we're able to deliver more in the back half of the year, just based off of that and how the demand is flowing in kind of with January being a little bit soft due to weather and then the new showrooms.
Speaker Change #102: So it's mostly just driven by that topline Peter.
Peter Jacob Keith: Okay very good thank you so much.
Speaker Change #106: Thank you.
Wendy M. Watson: Yeah.
Speaker Change #103: That concludes our Q&A session I will turn the conference back to the speakers for closing remarks.
Speaker Change #107: Thank you everybody for participating today, and we look forward to talking to you again next quarter.
Speaker Change #101: Thanks, everyone.
Speaker Change #104: Have a good day.
Speaker Change #101: Okay.
Speaker Change #105: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Speaker Change #105: [music].