Arhaus (NASDAQ:ARHS), a leading home improvement company, has been making waves with a consistent pattern of quarterly revenue and earnings exceeding expectations, with its stock surging over 60% in the past year. The company continues to grow, adding 11 new showrooms and conducting eight renovation projects last year, broadening its footprint and brand visibility nationwide. Its expansion, market position, and potential for significant multi-year growth make it a compelling option for investors looking for growth at a reasonable price.
Arhaus Expands
Arhaus is a lifestyle brand and omni-channel retailer of high-end home furnishings. The company has seen significant growth, featuring a unique business model that includes designing and sourcing its products directly from top manufacturers and artisans worldwide. The company’s reach includes over 80 showrooms and design centers across the U.S., a team of interior designers offering free in-house design services, and online and e-commerce capabilities.
Expansion is a key focus for Arhaus management, as shown by the opening of ten new stores over the past year. The company plans to open nine to eleven more showrooms. There has also been a substantial commitment to enhancing operational efficiency, with $15 million spent on improving various management systems (warehouse, inventory, and vendor management systems).
The home furnishing market is estimated to be $518.21 billion and is expected to reach $631.40 billion by 2029, growing at a CAGR of 4.15%.
Arhaus’ Recent Financial Results & Outlook
Arhaus has recently posted results for the first quarter of 2024. The company reported a net revenue of $295.16 million, an impressive 11.68% above analysts’ expectations of $264.30 million. The earnings per share (EPS) of $0.11 also surpassed the consensus estimate of $0.02.
Despite these positive highlights, the company experienced a slight decrease in net revenue compared to Q1 of 2023 ($305 million). This was attributed to the absence of abnormal backlog deliveries from the previous year and a weather-related impact on deliveries in January.
Arhaus’ gross margin also declined, from $128 million in Q1 2023 to $115 million, primarily due to lower net revenue and increased Showroom costs as the company continues to expand. As of March 31, 2024, the company had $233 million in cash and cash equivalents and no long-term debt, seeing a 5.6% increase in net merchandise inventory to $268 million.
Management has reaffirmed its 2024 outlook, with net revenue between $1.33 billion and $1.37 billion, adjusted EBITDA ranging from $185 million to $200 million, and net and comprehensive income of $95 million to $105 million.
What Is the Price Target for ARHS Stock?
Analysts following the company have been constructive on the stock. For instance, Jefferies analyst Jonathan Matuszewski recently raised the price target on the shares from $19 to $22 while reiterating a Buy rating. He noted that strategic moves by Arhaus signal growth potential, with a 50% increase in showroom numbers fostering healthy unit growth. The company’s strategic system upgrades are anticipated to bring about efficiency and optimize pricing.
Overall, Arhaus is rated a Strong Buy based on eight analysts’ aggregate recommendations and recently assigned price targets. The average price target for ARHS stock is $18.75, representing a potential upside of 17.92% from current levels.
The stock has been on a positive upswing, climbing roughly 40% year-to-date. It trades in the upper half of its 52-week price range of $7.30 – $19.81 and, at current levels, is reasonably priced with a P/E of 20.9x, in line with the Home Improvement Retail industry average of 21.36x.
Final Analysis on ARHS
Arhaus has increased its market presence and paved the way for potentially significant multi-year growth. Expansion remains a priority, with plans for more showrooms in the pipeline and recent investments in enhancing operational efficiency. Recent solid financial results have exceeded expectations, and the company’s outlook signifies prospects for ongoing growth, making the stock a compelling Growth at a Reasonable Price (GARP) option for investors.
