Q4 2024 Arhaus Inc Earnings Call
Speaker Change: Greetings and welcome to the Our House fourth quarter 2024 earnings conference call. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance, please press star zero on your telephone keypad. Please note that this call is being recorded and the reproduction of any part of this call is not permitted without written authorization from the company.
Speaker Change: I will now turn the call over to your host, Tara Atwood, Senior Vice President of Investor Relations. Please go ahead.
Tara Atwood: Good morning, and thank you for joining us for the Our House fourth quarter and full year 2024 earnings call.
Tara Atwood: Joining me on today's call are John Reed, our founder, chairman, and chief executive officer. Jennifer Porter, our chief marketing and e-commerce officer. And Ryan Brody, our senior vice president of finance.
Tara Atwood: After our prepared remarks, we will open the line up for a Q&A session. During Q&A, please limit to one question and one follow-up.
Tara Atwood: We issued our earnings press release in 10K for the year ended December 31st, 2024, before the market opened today.
Tara Atwood: Those documents are available on our Investor Relations website at ir.ourhouse.com. A replay of the call will be available on our website within 24 hours.
Tara Atwood: I would like to remind everyone that our remarks today concerning future expectations, events, objectives, strategies, trends, or results constitute forward-looking statements.
Tara Atwood: Actual results or events may differ materially due to a number of risks and uncertainties.
Tara Atwood: 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, as such factors may be updated from time to time in our filings with the SEC.
Tara Atwood: The forward-looking statements are made as of today's date, and except as may be required by the law, the company undertakes no obligation to update or revise these statements.
Tara Atwood: We will also refer to certain non-GAAP financial measures, and this morning's press release includes the relevant non-GAAP reconciliations. Now I will turn the call over to John.
John: Thanks, Tara, and good morning, everyone. Thank you for joining our fourth quarter and full year 2024 earnings call.
John: I want to begin by thanking our dedicated teams across the business, our clients, and our shareholders for their continued support of our house.
John: Despite macroeconomic uncertainty, 2024 was a year of strong momentum and disciplined execution of our strategy.
John: we saw healthy demand, expanded our showroom footprint, and further strengthened our brand.
John: Our artisan-crafted, high-quality furniture and a vertically integrated model continue to drive long-term customer loyalty and sustainable financial performance.
turning to growth.
John: We continue to execute our strategic plan with disciplined, high-return investments in our showroom footprints.
John: This year we celebrated a major milestone by opening our 100th showroom and expanding our presence to a total of 103 locations across 30 states and all four major
Geographic Regions.
2024 was a record year of showroom growth.
marking our largest expansion in nearly 40 years of history.
John: With 11 new openings and five strategic relocations in key markets, showroom highlights include Greenwich, Connecticut, our third location in the state. The stunning new showroom is situated just above Greenwich Avenue in the downtown shopping district.
John: Oklahoma City, Oklahoma, our first location in the state, this showroom is strategically positioned within a premier mixed-use luxury development.
John: Palm Desert, California. An expanded showroom located in the heart of the Coachella Valley near Palm Springs.
Los Angeles, California, located at the Grove.
John: a highly anticipated showroom at the iconic shopping center further strengthening our presence in California
John: and Corta Madera, California. Now our largest retail location in the state and our 14th in California.
John: And lastly, just a few weeks ago, I had the privilege of hosting a client and trade event to relaunch our beautifully renovated Naples, Florida showroom. We have an incredibly loyal client base there, and we are thrilled to offer an elevated experience tailored to their needs.
John: We see tremendous white space opportunities to drive future growth and to market
John: share expansion. Our long-term strategy includes opening an average of five to seven new traditional showrooms annually, along with additional design studios and showroom relocations.
John: Meanwhile, ongoing renovations and expansions will further enhance the client experience.
John: The growth in our showroom footprints continues to strengthen brand awareness and engagement with higher client spending and strong showroom interactions reinforcing our immersive showroom experience as a key differentiator.
John: A major driver of our success is our showroom team, whose expertise, passion, and best-in-class service elevate the client's experience.
John: Visual managers curate inspiring showroom presentations, while design consultants undergo extensive training to deliver personalized service.
John: Weekly training ensures that they tell the stories behind our handcrafted pieces, emphasizing our brand artistry and craftsmanship.
John: Our showroom team is our secret sauce and a key competitive advantage. I'm grateful for their contribution to our success.
John: Their impact is evident in our fourth quarter performance, where we saw demand-comparable growth of 5.7 percent, driven by our strong product assortment, marketing initiatives, and planned promotions.
John: While we experience a decline in full-year demand comparable growth of 2.2% due to softness in the second and third quarters.
John: On a two-year stack basis, demand comparable growth was approximately 5.5%, underscoring the resilience of our brand and omni-channel strategies amid microeconomic headwinds.
John: Looking forward to 2025, demand comparable growth looks solid with a positive client engagement.
Products.
at our house.
John: We're driven by design and product innovation, leading the industry from the very start. We capture home enthusiasts by pioneering new designs, concepts that continuously set us apart.
John: In a $100 billion market where trends eventually become mainstream, we're consistently one step ahead, advancing to the next wave of creative thinking with every product and collection launch.
John: After nearly 40 years in the industry, I firmly believe there are no products like our products, no people like ours, and no potential like our potential.
John: I've said it before, our house stands out, and our house stands alone, because we continuously push the boundaries of home design.
John: It is no surprise that our competitors are watching closely. And while imitation is flattering, the reality is no one can match the craftsmanship, quality, and artistry of our house products.
John: Every R House product is meticulously crafted from the best materials with an uncompromising focus on quality and comfort.
John: As inspired world travelers, we partner with the world's most talented designers, artisans, to create exceptional furniture and decor. This dedication to global collaboration and fine craftsmanship is the corner of the Our House difference.
John: Ensuring we remain at the forefront of our industry innovation, our clients seek the highest quality that is exactly what we deliver. At our house we don't just compete, we lead.
John: In 2024, we expanded our product offering by introducing expanded wood furniture selections, versatile designs with interchangeable components for greater customization, and an elevated approach to power motion furniture that seamlessly blends comfort with craftsmanship.
John: Looking ahead at 2025, we'll bring additional innovations in technology to ensure we remain at the forefront of design and function.
John: Our direct sourcing model is another key differentiator, allowing us to scale production to meet increased demand while bypassing wholesalers' markups.
John: Our health supply chain is strategically designed to support our commitment to innovation, quality, and efficiency while mitigating potential risks.
John: We have built a diversified global supply network, partnering with world-class artisans and manufacturers across North America, Europe, Southeast Asia.
John: We are proud to say that the United States accounts for the largest share of our net revenue, including our internal manufacturing, while the remainder is distributed across multiple countries.
John: Our sourcing strategy remains dynamic and adaptable, ensuring a diverse and resilient supply network that responds to market conditions, geopolitical risks, and tariff changes.
John: As we further diversify, we remain focused on long-term flexibility and strategic supply chain management.
John: As we look ahead, our long-term strategy remains focused on four key pillars.
John: First, increasing brand awareness to drive net revenue. We will continue to expand our showroom footprint and increase brand awareness through an omni-channel approach.
John: including enhancing digital marketing, leveraging data-driven client engagement, and upgrading our website with improved analytics and continued product assortment optimization.
John: Second, expanding our showroom footprint. With a goal of 165 traditional showrooms, or almost double our current footprint, we have a long runway for growth and a robust pipeline in place.
John: Third, enhancing omni-channel capabilities and technology. We are focused on delivering a seamless customer experience with e-commerce, we believe representing our fastest-growing revenue channel.
John: Fourth, investing in growth to build, scale, and enhance long-term margins.
John: Following the implementation of our new warehouse management system and progress in upgrading our operational infrastructure, 2025 will see a launch of a new ERP system at our upholstery manufacturing facility.
John: and a planning system to optimize efficiencies and support our long-term growth.
John: By executing these priorities, we will be well positioned to drive continued growth and long-term value.
Speaker Change: With that, I'll turn it over to John Porter, our Chief Marketing and E-commerce Officer.
Speaker Change: Thank you, John, and good morning, everyone. I'm excited to share today how we continue to elevate the Our House brand and drive long-term growth through our marketing and omni-channel strategy, an approach that builds brand awareness and deepens engagement across our showrooms, e-commerce, and in-home design services.
Speaker Change: As John mentioned, our partnerships with global artisans and our commitment to fine craftsmanship are key differentiators in today's competitive market.
Speaker Change: Building on that commitment, I'm proud to introduce Uphold, the third volume of our storied series, which we launched last week.
Speaker Change: Uphold celebrates the heritage and artistry of our North Carolina-based upholstery artisans, showcasing the timeless techniques and meticulous attention to detail that have helped shape our legacy of creating heirloom-quality pieces.
Speaker Change: These artisans use the finest materials sourced from around the world to craft some of the most beautiful, comfortable, and highest quality upholstery available today.
Speaker Change: Uphold is now available as a beautifully printed book in our showrooms and digitally at ourhouse.com, bringing to life the passion and expertise behind our collections.
Speaker Change: I encourage you to explore, uphold, and experience firsthand how our dedication to fine craftsmanship continues to set us apart.
Speaker Change: Now, let's dive into our broader marketing initiatives. Our omni-channel strategy is focused on delivering a seamless, inspiring client journey across all touchpoints and is built around six key pillars.
Speaker Change: First, our showrooms, our cornerstone brand experience offering immersive engagement that drives conversion.
Speaker Change: Second, e-commerce. We are focused on delivering a seamless customer experience with e-commerce, which we believe represents our fastest growing revenue channel.
Speaker Change: Our showrooms and digital channels work together. Showrooms drive high-touch engagement, while e-commerce provides seamless accessibility. The combination of digital innovation and in-store expertise has fueled higher engagement, increased website traffic, and record-high average order volume in 2024.
Speaker Change: Third, catalogs, a powerful storytelling tool driving demand growth. Our spring and fall 2024 collections resonated strongly with clients, reaffirming our house as a leader in quality and innovation. And our latest spring 2025 catalog, delivered in December, has already demonstrated solid initial results.
Speaker Change: Fourth, in-home designer services, a key driver of higher engagement and order values. We've continued expansion planned both in showroom and virtually. Our growing showroom footprint fuels our in-home design service, delivering order values that are four times higher than those from non-design clients.
Speaker Change: As John mentioned, our showroom team is our secret sauce, a key competitive advantage at our house. We will continue to invest in our in-home designers and team to generate demand and deepen the engagement with clients.
Speaker Change: Fifth, the digital and content strategy. At our house, we believe that purchasing furniture is more than just a transaction. It's a lifestyle journey. We understand that selecting the perfect pieces unfolds over several months, and we engage our clients on their terms, when, where, and how they prefer.
Speaker Change: Whether through thoughtfully curated catalogues, digital-first content, or immersive in-person experiences, we consistently reinforce our premium positioning and unparalleled craftsmanship.
Speaker Change: Our recent participation in the St. Regis Snow Polo Tournament in Aspen is a perfect example of this lifestyle approach. The event, which brought together polo enthusiasts, the local community, and key partners, provided a unique platform to showcase our product artistry and design while engaging with a discerning audience.
Speaker Change: At every stage of a client journey, from initial awareness and consideration to purchase and post-purchase engagement, our goal is to deliver a seamless and inspiring experience that is distinctly our house, offering not just furniture, but a lifestyle and way of living.
Speaker Change: And lastly, client personalization. Our strategy leverages data-driven insights to deeply understand client preferences, allowing us to tailor our marketing, curate dynamic site merchandising, and deliver smart product recommendations for optimized engagement that resonates at an individual level with our clients.
Speaker Change: This targeted approach creates a seamless, personalized experience throughout the entire customer journey. Continuous testing and refinement of our client personalization strategy ensures that we are driving loyalty and enhancing our brand's connection with each client.
Speaker Change: Before I close, I want to highlight our pricing and promotional strategy. In 2024, reinforcing our premium positioning remained a key focus of our marketing efforts.
Speaker Change: and our pricing and promotional decisions were aligned with this strategy. Our goal was to emphasize high-quality craftsmanship and our premium brand identity, qualities our clients and stakeholders expect from a high-end luxury brand.
Speaker Change: In closing, with a strong marketing roadmap in place, we are well positioned for the year ahead. I encourage everyone to visit ourhouse.com or stop by a showroom to experience our craftsmanship firsthand.
Speaker Change: and when you do, be sure to sit on one of our sofas. You'll immediately feel the difference in comfort and quality. With that, I'll turn the call over to Ryan Brody, Senior Vice President of Finance, to walk you through our financial results. Ryan, over to you.
Ryan Brody: Thanks, Jen. Good morning, everyone. Today, I will walk through our fourth quarter and full year 2024 financial performance, key business drivers, and our outlook for 2025 before turning it over to Q&A.
Ryan Brody: Key items from our fourth quarter 2024 income statement include net revenue of $347 million of 0.9% year-over-year.
Ryan Brody: We experienced a decline in comparable growth of 6.4%, primarily due to lapping the impact of abnormal backlog fulfillment in the prior year.
Meanwhile, demand comparable growth was 5.7% reflecting strong client demand.
Ryan Brody: Fourth quarter gross margin decreased $2 million, or 1.8%, to $139 million, primarily due to a $2 million increase in showroom occupancy costs as we continue to expand our footprint.
Ryan Brody: As a percentage of net revenue, gross margin declined 100 basis points to 40.0%, reflecting the impact of higher showroom occupancy costs.
Ryan Brody: Fourth quarter SG&A expense increased $11 million, or 11.1%, to $111 million, primarily driven by higher showroom-related costs, in addition to the continued strategic investments to support business growth.
Ryan Brody: In the quarter, net income decreased $10 million, or 31.8%, to $21 million, while adjusted EBITDA declined $10 million, or 19.6%, to $41 million, resulting in an adjusted EBITDA margin of 11.9%.
Ryan Brody: Key items from our full year 2024 income statement include net revenue of $1.271 billion, down 1.3% year over year.
Ryan Brody: We experienced a decline in comparable growth of 8%, primarily due to lapping the impact of abnormal backlog fulfillment in the prior year. Meanwhile, demand comp declined 2.2%, largely driven by softness in the second and third quarters.
However,
strengthened new showroom growth, helped offset some of the decline.
Ryan Brody: Full-year gross margin decreased $39 million, or 7.3% to $501 million, primarily driven by lower net revenue, increased showroom occupancy costs, and higher delivery and transportation costs.
Ryan Brody: As a percentage of net revenue, gross margin declined 260 basis points to 39.4%, primarily reflecting the impact of higher showroom occupancy costs.
Ryan Brody: Full year SG&A expense increased $39 million, or 10.5%, to $415 million.
Ryan Brody: primarily driven by general and administrative costs, primarily related to legal costs, strategic investments to support and drive the growth of the business.
Ryan Brody: including supply chain and technology improvements, marketing investments, and increased warehouse expenses and selling expenses primarily related to new showrooms.
Ryan Brody: These increases were partially offset by lower expenses following the non-recurrence of a donation last year to the Nature Conservancy.
Ryan Brody: SG&A expense as a percentage of net revenue increased 350 basis points to 32.7 percent.
Ryan Brody: This increase reflects continued investment in new showroom openings and strategic investments to support business growth.
For the year, net income decreased $57 million.
or 45.3%.
Ryan Brody: to $69 million, while adjusted EBITDA declined $70 million, or 34.5%, to $133 million, resulting in an adjusted EBITDA margin of 10.5%.
Turning to our balance sheet and cash flow.
Ryan Brody: Looking ahead, we remain focused on executing our long-term strategic priorities with an emphasis on disciplined growth, strategic investments, and growing brand awareness.
Ryan Brody: With this in mind, we are providing the following outlook for selected full year and first quarter 2025 financial operating results.
Ryan Brody: For full year 2025, we anticipate net revenue between $1.36 billion and $1.40 billion, reflecting a comparable growth range of 0% to 3%.
Ryan Brody: We anticipate first quarter 2025 net revenue between $303 million and $323 million, reflecting a comparable growth range of negative 6% to up 1%.
Ryan Brody: We expect full year 2025 adjusted EBITDA between $140 million and $150 million, and first quarter 2025 adjusted EBITDA between $17 million and $27 million.
Ryan Brody: For all other details related to our 2025 outlook, please refer to our press release.
Ryan Brody: As you heard from John and Jen, we remain confident in our ability to execute on our long-term strategy.
Ryan Brody: Our focus on product innovation, brand differentiation, and customer engagement will continue to drive sustainable growth.
Ryan Brody: In closing, I want to reaffirm our unwavering commitment to executing our growth strategy with discipline and focus.
Ryan Brody: While the macroeconomic environment remains dynamic, our strong debt-free balance sheet provides us with the financial flexibility to make strategic, high-impact investments that strengthen our competitive position in the premium home furnishings market.
Ryan Brody: With that, I'd like to thank you for joining us this morning, and we are happy to take your questions.
Ryan Brody: Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please, while we poll for questions.
Speaker Change: Thank you. Our first question is from Stephen Forbes with Guggenheim Securities. Please proceed with your question.
Speaker Change: Good morning, this is Julio Marquezon for Steve Forbes. Maybe if you could speak to the lineup of product newness in 2025 and you know how much how much newness there is in the pipeline versus the last couple years and then maybe any way to frame you know
Speaker Change: vitality score for some of the development pipeline, you know, revenues generated off of, you know, some of that newness.
Speaker Change: then maybe lastly you can remind us of the inventory status across the showrooms and you know if it's
up to site with the latest inventory. Thank you.
Mark: Mark, good morning. Yeah, I think, you know, 2025 lineup of product is extremely solid.
As we said in our script there, that
Mark: You know, we've really been leading the way on new styles, new designs, new colors, and so forth, and we're very, very confident that 2025 is going to have just as much or more new product as in the past.
Mark: things have changed in our, you know, in our business where the consumers taste.
Mark: changing, the styles are changing, and we are right there, which is fun. It's a lot of fun and very exciting. Colors of things, textures of products, of woods, textures of fabrics.
Mark: designs are really changing ever since COVID, you know, now is over. People's tastes change and so we're proud to say that we're right on top of the product and we're going to have some great new rollouts for 2025. Very, very exciting stuff.
Great, thank you.
You bet.
Our next question is from Peter Benedict with Baird.
Mark: Hi, thanks. This is Zach back on for Peter. John, you spoke to the change in your pricing strategy earlier. Just curious on how demand may be trended across price points in Q4. I remember this fall you guys mentioned seeing traction with both some higher price point products and clearance items. Just curious that the new approach has maybe broadened out those trends.
Speaker Change: Yeah, good morning. It's a great question. You know, as we mentioned, we're pleased with Q4. I think it's important to note that our approach to pricing and promotions has stayed solid, you know, for the last number of years now. We're really focused on, you know, pricing and our promotional strategies, focused on the quality of our products, the arts and craftsmanship,
Speaker Change: those elements and you know our primary focus is on giving a good value to our clients. So you know we spoke last year and a little bit on today's call about how we've been
Speaker Change: testing and trying how we're messaging some of those promos and the folks that approach to that but overall we're really pleased with what we saw in Q4.
Speaker Change: So, more to come on that as we continue to, you know, monitor what we're doing, but, you know, the only other thing I'd add to that, you know, as I mentioned on prior calls, we are very focused on what is working for our customer and for our business and really connecting that engagement that we're seeing.
Speaker Change: Great, thank you for that. And then maybe as a follow-up, I'm just curious how the promotional backdrop played out relative to your expectations in Q4. Maybe what does your guidance assume for the backdrop in 2025, both for our house, but also more broadly with peers in the sector? Thank you.
Speaker Change: Yeah, no, that's a great question. I mean, we continue to see a highly promotional market out there. I've been talking about that for a couple of years now. That definitely continued.
Speaker Change: We went in and executed our plan strategy for Q4, and we were happy with that. So I guess you could say the promotional environment met our expectations. I'm looking forward to 2025.
Speaker Change: in terms of, you know, what was factored in for product margin and plan promotions, we're seeing that continuing, you know, per our strategy in 2024, really solid margins there, what we expected and continuing that plan going into 2025.
Great, thanks. I'll pass it on.
Our next question is from Peter Keith with Piper Sandler.
Thanks. Good morning, everyone.
Peter Keith: So, a nice solid finish to the year with your demand trends. We are hearing about some weakness in some bigger ticket household products here to start the year. I know you said demand was solid, but could you put any quantification to what you're seeing with January and February? And then maybe on a related note, if the demand is good, why are the comps basically guided at a flat to negative in Q1?
Speaker Change: Good morning, Peter. I can start on that one. We aren't separating out January versus February, but you know, as you notice, John said, things spring off to a solid start.
Speaker Change: obviously can't comment on what anybody else might be referencing and what they're speaking to out there. One thing I would remind since something was spoken to in the past as well is, you know, one weekend one month doesn't make a trend. So in terms of what we're looking at, again, we're off to a solid start and those results are factored into the guide.
Speaker Change: Also, you know, February is not over, so we're continuing to see what's happening there.
But yeah, just to pick on that, I mean, we...
Go ahead, Peter.
Peter Keith: Well, I just started trying to escalate the solid demand trend and then the negative comp. I understand there's delivery delays, but there's a pretty big disconnect.
Speaker Change: Yeah, so as we moved into 2025, we've now moved beyond the abnormal backlog from 2023. So the comp and the demand comp should be more aligned starting in 25. There may be some timing differences from quarter to quarter, but full year that should be more or less aligned.
Okay.
Speaker Change: And then maybe this separately, you talked about the promo strategy. So.
but I guess
Speaker Change: I'm trying to understand where you are today, because I think when you look back at that weakness that air-pocketed Q2, Q3, I think you moved away from promos. The consumer didn't like that, so you've kind of re-architected your promo strategy.
Speaker Change: Where are you today? Have you kind of landed in a spot that you like or is it still a work in progress? Maybe just get us up to speed on, you know, where you stand today versus a couple months ago.
Speaker Change: Yeah, no, great question. I think, just to clarify, I mean, 2024 was a choppy year. We spoke to softness we saw in Q2 and Q3, and I know we've talked about that on the prior calls as well. I think it's important to remember there's a lot going on in that time period. There was summer travel. There's a lot of macronoids happening. There's the lead up to the elections. There's just a lot happening.
Speaker Change: were playing around with how we were messaging and marketing our promotional strategy.
Speaker Change: But we were going in, you know, with the approach to pricing and promotions, you know, that's the same price we have really.
Speaker Change: showcasing that value to our clients and really playing with how we showcase that value.
Speaker Change: We were happy with Q4, as John mentioned, that positive demand comp that we saw in Q4. I'm pleased with a solid start we're seeing in January. So in terms of sort of how our approach has changed maybe in the last few months versus prior and then going forward, our approach really hasn't changed. We've been testing and learning a lot.
Speaker Change: and we are going to continue to read those results and make updates as we always do. I think that's one of the strengths of how we approach our strategies at our house. And we will continue to share more with you if and when we make any changes to that strategy.
Okay, very good. Thanks so much.
Thank you. Peter.
Speaker Change: Our next question is from Christina Fernandez with Telsey Advisory Group.
Speaker Change: Good morning. Thanks for taking my question. I wanted to ask about the store openings for 2025.
Speaker Change: 3 to 5 is a little bit lower than your annual target. So, is it just absorbing some of the, you know, the higher pace of openings last year? And any other stores you want to, you're planning on opening as far as design studios or outlets that we should consider? Thanks.
Christina: Sure, Christina. Yeah, as we mentioned, I think we did 11 news stories last year.
Christina: and then I believe we opened another five new stores that were relocations. So, a couple of those I think were slated for 2025 that we were able to push into 2024. So, you know, if you look at a two-year combination, we're right on track.
Christina: With that said, you know, we're pretty set for 2025. However, the design studio side of the business
Christina: is a lot more flexible and we can move quickly on those. So we are in the process of speaking to some landlords about some locations there that we can't.
Christina: announced today because we don't have deals done, but they easily could fall into 2025.
Speaker Change: And then as a follow-up, on the inventory, which was up 17%, is there any timing that's leading to that increase or product newness, or can you speak about, it seems a little bit higher than your sales trends, thanks.
Speaker Change: Yeah, I can talk and maybe Ryan can fill in some facts, but obviously with all the new showrooms they take quite a bit of inventory. And some of our new showrooms are larger than our traditional showrooms had been, which we're trying to grow the square footage a little bit.
So we can offer more products
Speaker Change: In addition to that, we really went after expanding some categories that are just working so well for us.
Speaker Change: and just balancing our inventory out, getting more things in stock so we can service the consumer a lot quicker than asking them to wait for products. So it's all, you know, we think good inventory, great investments and it really is setting us up for the future.
Ryan doesn't have any.
Speaker Change: and put on that. The one other thing is we're moving into the outdoor season so we've ramped up the inventory to support that that time of the year. Yeah, last year the outdoor season inventory came in.
a little later than this year, so you're right.
Speaker Change: That all moved in much quicker. We wanted to get that in stock for the season so that that does add to it as well
Robbie Olmes: Our next question is from Robbie Olmes with Bank of America.
Robbie Olmes: Hi, this is Maddie on for Robbie. Thanks for taking our questions. I was just wondering if you could give any help on how we should think about gross margin or SG&A for the first quarter in 2025. Any first half or second half dynamics to remember? Maybe could you remind us the timing of when you plan to phase your software implementations this year? I think you mentioned the manufacturing ERP and planning software was expected to launch in the first half.
Speaker Change: Yeah, so to start with with gross margin for Q1, we expect some slight deleverage in Q1 from showroom occupancy costs, but for full year gross margin expect to be relatively consistent year-over-year.
Speaker Change: With SG&A, as we've discussed over the past year or so, with our showroom expansion, we expect to see increased costs as well as the strategic investments that we're making to support the growth of the business.
Speaker Change: In regards to some of the system implementations that you're talking about, we're still on track with our ERP at our manufacturing facility for later in the year, as well as our inventory planning system. So those are both on track.
Speaker Change: Great, thank you. And maybe just as a follow-up, have you taken any preemptive measures ahead of potential tariffs? Maybe have you taken any price with new collections?
Speaker Change: Yeah we're in great shape as far as tariffs go and you know God knows what tariffs are going to be where and when but we've done everything possible to to be ready for them including speaking to all our
Speaker Change: you know, our partners out there. If something happens, what if this, what if that, what do we have to do? Certainly all our partners are willing to step up and help financially lessen that blow so we don't have to just give straight, you know, large increases.
Speaker Change: to our to our customers So we feel we're in good shape again. It's it's moving every day. I mean, I don't know what the tariff will be tomorrow. So
Speaker Change: We're doing what we can, obviously, you know, globally, we have an incredibly diverse
Speaker Change: population out there of different countries and keep in mind we have probably more, we have the largest
Part of our business is handmade in the United States.
Speaker Change: That gives us a huge competitive edge over our friend competitors because it's a big part of our business is the...
Speaker Change: is the product that's made right here in the United States. We have our own manufacturing facility, as well as work with a lot of great manufacturers right here in the States.
So we think that'll be...
Speaker Change: that's also a big big kind of competitor advantage over us.
Speaker Change: And the one thing to add, our current guidance includes the potential impact of tariffs that we know of today. So that has been reflected in what we have released this morning.
Thank you.
Thank you.
Our next question is from Jonathan Matuszewski with Jefferies.
Jonathan Matuszewski: Good morning and thanks for taking my questions. The first question was just trying to understand the macro and housing assumptions embedded in your Comp Outlook for 25. Just trying to understand if it's consistent with...
Jonathan Matuszewski: 2024, does it imply, you know, recent housing momentum from 4Q continues in 2025? Trying to get a sense of just any incremental optimism embedded in the outlook. Thanks so much. That's my first question.
Speaker Change: Yeah, so a great question, Jonathan. I think right now we're assuming sort of the same as last year. You know, obviously, we don't know what we don't know. So taking just a conservative approach to that, I think, you know, one of the things that we have talked about a lot on prior calls is, you know, things like the housing market, while obviously are a factor that we pay close attention to being a furniture company, that is, you know,
Speaker Change: you know, not the largest driver of our sales. You know, so just as we've talked about on past calls.
Speaker Change: we're looking for the primary drivers that we see within our client base is anything from light refreshes to sort of contractor-led remodels and then the third of those elements being the housing market. So as of now the guide is assuming sort of a status quo model but we'll be paying very close attention moving forward.
Speaker Change: All right, great. That's helpful. And then just to follow up, Ryan, you mentioned the guidance that was provided in BEDS.
a headwind from tariffs that have been announced.
Speaker Change: Is it possible to understand kind of the magnitude of the headwind that's embedded in the guy to the extent, as you mentioned, it's a fluid environment. So if there is any retraction, helpful to understand kind of the impact there. Thank you.
Speaker Change: Yeah, we've been working with some of our vendor partners and understanding what the potential impact could be.
Speaker Change: and from there we've worked on some contingency plans and potentially resourcing to other markets and just kind of waiting to see how the next few months play out from a timing perspective of when these things go into place.
Speaker Change: Our next question is from Philip Lee with William Blair. Please proceed with your question.
Thanks.
Speaker Change: So you touched on the system investments that we're making there to continue to support the growth of the business. We also have the showroom expansion costs related to those.
Speaker Change: So there's that and then yeah with what we just talked about related to tariffs and other promotional expectations for the year we've we've baked all those into our guide.
Speaker Change: Okay, great. Thanks. And then I believe you've relocated about five stores last year. What are your plans this year for the number of relocations or refreshes?
Speaker Change: What sort of lift does that have on comps and then how much of your fleet would you say is a potential target for a reload or a larger scale refresh over the next few years? Thank you.
Sure, you know, we just
Speaker Change: just passed our 100th store. So as leases come up, we are looking at location, refreshes,
Speaker Change: and we're going through the fleet. I firmly, firmly believe that you need to keep your products fresh. You need to keep your stores fresh.
Speaker Change: You need to really, while the consumer, when they walk in, we just remodel the store in Naples, Florida, for instance. It was an old store.
Speaker Change: probably 10 years, 15 years since we had remodeled it, since we've remodeled it, the sales growth has been phenomenal. Reaction has been phenomenal. It's just building and building our brand. In addition to obviously opening new stores and new locations.
Speaker Change: We're going back and looking, looking at anything that we can to remodel if as needed, certainly, you know,
Speaker Change: the bigger markets we look at first and then we keep going down. But we're remodeling a store, moving a store in Dayton, Ohio, for instance, this year to a great new little lifestyle center.
Speaker Change: that we know is going to give Dayton, Ohio, a nice boost. So it works across the board. We're happy with the performance. When we do move a store, remodel a store, we're very happy with the sales and the additional profits they're going to contribute.
Speaker Change: So, we're looking at about the same amount this year as last year, and we'll continue kind of on that page. We take part of our capital expense and budget it towards remodeling.
Speaker Change: and set up all of it in new stores. So that's kind of the strategy we have and we're gonna continue with that going forward.
Great, appreciate it. Best of luck.
Be right back.
Our next question is from Jeremy Hamlin with Craig Hallow.
Jeremy Hamlin: Thanks and congrats. I wanted to just come back to the the showroom openings and just understand maybe
Speaker Change: The cadence that you expect during the course of the year, I think, you know, on the Q3 call, it did sound like you were still expecting, at that time, the typical 5 to 7.
Speaker Change: new showroom. So I wanted to understand if there's been kind of any change in that outlook and whether or not, you know, kind of the timing or the shift.
Speaker Change: of when you might expect the three to five showrooms to open up this year. And then also just what are the geographies that you're targeting?
Sure, I think...
So, you know, we're looking at
There's
Speaker Change: You know, shortage of product and so forth. So anyway, so we're dealing with with with that kind of stuff as well. But.
Speaker Change: But I think we're in good shape everywhere else around the country. I think we're doing a couple in California. I mentioned Dayton, Ohio. That's a MOVE store.
Speaker Change: I don't have the whole list in front of me on different locations. We normally don't don't want to divulge too much information to our competitors. It's just getting ready to open. We just opened a great store in Florida in Winter Park.
Speaker Change: in Orlando just a few weeks ago actually and off to an incredible start.
Speaker Change: and so Florida is a booming market for us. You know we're finishing out California and then we're going through the country. We've got lots and lots of opportunities all through the country.
Speaker Change: you know, the Arizona area is just booming, Texas is booming, so we're in great shape and we're going to take care.
Speaker Change: As we find grit locations, we open them. We're going to do it.
Speaker Change: conservatively, but we're also going to do it in a way that it makes sense. We're not going to open locations just to open them.
They have to be the great, great locations, the right...
the right areas, the right size.
Speaker Change: locations and so forth. So as we find them we open them and you know we've got plenty of cash to do it. We're going to continue to grow and we're going to continue to take opportunity and keep taking market share for that matter.
Speaker Change: Thanks for the color. And then just a question here. You noted, you know, kind of a couple of
Speaker Change: in January, right, that you saw a really nice lift in consumer confidence following the November election that resulted in, you know, strong written orders.
Speaker Change: or demand comps in November and December and it sounds like a good start in January.
Speaker Change: Just wanted to get a sense for how your core customer reacts, you know There has been a fairly significant step down in consumer confidence
Speaker Change: as measured here in February. How does your customer typically react in these scenarios? Obviously, you've got a lot of attractive new products that you've just launched and sounds like some great forthcoming launches.
Speaker Change: But how much of kind of that buying decision is kind of based on stock market trends and so forth. Just wanted to get an understanding of kind of the history there.
Speaker Change: Yeah, you know, it's a great question. I smiled a bit when you stated how do they react on disease conditions because I think
Speaker Change: I don't know if we've ever seen these conditions per se before, you know, so we spoke in the past of
Speaker Change: We have seen softness leading into elections, for example, as people are just wondering what's gonna happen there. And as you mentioned, we spoke to the fact that we were happy with November and December, definitely saw clients making purchases at that time. We spent all last year talking to noise and macro uncertainty and conversations that are happening in the news. And I think we're starting off this year having a lot of those same conversations. So, you know, we
We talk a lot about, you know, what our...
Speaker Change: customers do and how they may have performed in the past. In the past, we have mentioned that, you know, our client has been, you know, more connected to the stock market per se, instead of the housing market.
Speaker Change: But I would caution anybody about relying too much on what's happened historically. We are focused on staying very connected with our clients. The great thing is we have a leading indicator of demand sales. We are interacting with them every single day in our showrooms. We are seeing how they're engaging with us and connecting with our traffic to the site, engaging with our marketing channels, how they're interacting with us, what conversion rates look like, all of those elements. And so we're laser focused on monitoring all of that.
Speaker Change: really, as I've spoken about in the past, focused on executing to our strategies. We're doing what we do best, which is focusing on the product pipeline, focusing on making sure our showrooms look incredible, focusing on launching the right marketing campaigns at the right time, and being really targeted and purposeful with how we do that.
Speaker Change: As John and I mentioned earlier on the call, we feel really confident about our strategy going into next year, and we are going to focus on executing that, and we'll read and react to the larger state of what's going on if we need to, as we all learn more.
Speaker Change: Great. Thanks for all the color and best wishes this year.
Thank you very much.
Speaker Change: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: Our next question is from Simeon Gutman with Morgan Stanley. Please proceed with your question.
Speaker Change: Good morning, this is Pedro Gil for Simeon. My question is about the adjusted EBITDA guidance in the first quarter. You are guiding to an adjusted EBITDA decline of 24% year-on-year at the midpoint, on a revenue increase of 6%.
at the midpoint.
Speaker Change: So, can you help us understand a little better where the leverage is coming from besides the showroom occupancy?
Speaker Change: and related to that given the higher level of inventories here and here.
Speaker Change: How are you planning the promotional cadence for the first quarter?
Speaker Change: So the first question, the two biggest drivers in Q1, as you mentioned, with the deleverages, the showroom occupancy and related costs related to the additional showrooms, and then the strategic investments that we're making in the business.
Speaker Change: And then just to touch on your question about how are we planning promotional cadence for Q1. Now as I touched on earlier, our approach to our promotional strategy going into 2025 is in line with our approach in 2024.
Speaker Change: Without getting into too much detail. I don't want to share show all the cards here, but I would just remind you to look at calendar shifts. So we saw some calendar shifts in those key holiday dates.
Speaker Change: back in Q4, we're seeing some shifts in key holiday dates, which correlates to key shopping periods and historical promotional periods in 2025 as well. So just being aware of those.
Does that feed through into the first quarter promotional calendar?
I'm sorry, can you repeat that question?
Yeah, just on your point about the...
calendars shift throughout the fourth
quarter. How does that flow through into the future?
for the promotional calendar.
order help.
Speaker Change: Oh, I see. I apologize. I think I confused you there. I was just reckoning there are calendar shifts in 2025 in Q1 and Q2 as to when some of those peak holidays fall just on the calendar year. And so Easter, for example, is later this year than it was last year. So as we've spoken to, you know, a lot of our promotional strategy aligns with those key shopping periods, which align to those key holiday periods.
Speaker Change: So similarly to how you saw some shifts in Thanksgiving, Black Friday, Cyber Monday timing in November and December, we're seeing some of those shifts, such as Easter, happening in Q1 as well.
Okay, got it. Thank you.
Speaker Change: Our next question is from Seth Basham with Wedbush Securities. Please proceed with your question.
Speaker Change: Good morning, this is Matt McCartney on for Seth. Just real quick, just wondering if we get an update on new showroom performance relative to your model and if that performance there, is that impacting some of your showroom plans for 2025?
Speaker Change: No, our plans are solid for 2025 and beyond. You know, we've been very happy with the performance of the new showrooms. They're very solid, hitting our expectations of InSom. And our plan is not changing at all. We're gonna continue to grow. And as we find great locations, we're gonna open great stores.
Great, thank you.
Speaker Change: Thank you, ladies and gentlemen. We have reached the end of our question and answer session. I would like to turn the floor over to Tara Atwood for any closing comments.
Tara Atwood: Thank you everyone for joining. We appreciate your interest in our house and we hope you have a great day.
Thanks, everybody. Thank you. Take care.
Speaker Change: Thank you, everyone, for your participation in our call and interest in our house. You may now disconnect your lines.