Arhaus Moves From “Nice” List to Buy List

Arhaus Executes Successfully Amid Challenges 

We highlighted Arhaus NASDAQ: ARHS a few weeks ago as a recently IPO'd stock that deserved a spot on your nice list. The company operates as a higher-end retailer of home furnishings and decor and its business appears to be well-supported. Now, after outpacing the consensus for Q3 results and guiding the market higher this stock deserves a move from “nice” list to buy list. If what we’re seeing is right, this company is in the early stages of a hyper-growth spurt akin to what The Lovesac Company NASDAQ: LOVE is doing. In that light, we are expecting to see the Q3 results repeated again and again over the next several quarters to years and for share prices to sustain a long and lucrative rally. 

Arhaus Beats As Supply Chain Catches Up 

Arhaus had a great quarter and one that has produced a glimmer of hope for the broader economy. Revenue gains were not only supported by organic sales but by supply chain improvements that are whittling down the backlog. The company reported $203.33 million in net revenue or up 68.7% from last year and 100 basis points better than expected. The strength is driven by showroom sales and eCommerce compounded by increased deliveries of previously written sales. On a comp basis, sales are up 61% YOY and compounded by the addition of several new locations in key markets. 

Moving down the report, the company experienced significant margin improvement due to sales leverage and lower interest expenses than in the previous year. The company net margin improved by 700 basis points, the adjusted EBITDA improved by 215%, and the net income rose by a stunning 1700% (not basis points) to drive GAAP EPS above the Marketbeat.com consensus estimate. The $0.13 in GAAP EPS beat by $0.04 or 44% and this strength is expected in the 4th quarter as well. 

The company is guiding 4th quarter revenue to a range of $205 to $215 or up 20% to 25% from last year. This compares to the Marketbeat.com consensus of $196 and there is upside risk in the numbers. The guidance is only calling for a 6% sequential increase in revenue while other higher-end household names like The Lovesac Company are expecting much larger increases.

The Analysts Like Arhaus 

Arhaus caught our eye when its post-IPO quiet period came to an end and 9 sell-side analysts assigned what amounts to a Strong Buy rating on the stock. The Marketbeat.com consensus of price targets has the stock trading near $15 and roughly 50% above the current levels. No analysts have changed their opinion in the wake of the report but Bank of America says it is impressed with them. In the eyes, there is a very strong case for a price-multiple expansion and share-price appreciation assuming the company can continue to execute as it has been doing. 

The Technical Outlook: Arhaus Is Rebounding 

Arhaus hit a bottom a few days before earnings were released and the rebound is advancing in the wake of it. Now, with shares up another 10%, it looks like a full reversal is in play that could take the shares back up to the $13 level. If the next quarter’s results come in like we expect them to, we would expect to see this stock move up to new highs and double the all-time high fairly quickly.