📮The Sunday Newsletter archive

Luxury Living

Arhaus (ARHS) is a premium quality furniture retailer that designs and sells its own furniture. In the prospectus, it says that its products are of “heirloom quality” as they can last for generations. The company sells its furniture through its 73 showrooms across the US and through its own website. Arhaus was founded in 1986 but is still a fast-growing business. 

In the first half of the year, revenue jumped 58% to $355 million and the company reported a net income of $16 million. But the most impressive part of its financials is its extremely high cash flows 💸. In the first six months of the year, its operating cash flows came in at $111 million or 31% of total revenue

Arhaus says that it plans to open five to seven new stores per year for the next 15 years as it aims to double its number of showrooms. If it really achieves that target it can create significant shareholder value.  

📫Originally posted as part of the Sunday Newsletter
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Arhaus benefits from several industry tailwinds. The company’s main customer base is households with incomes of $100K+ and over time, more and more households have met this income threshold in the US. Also, the pandemic has created a suburbanization trend 🏡. Mainly wealthier households move out of cities and into larger homes that require more furniture.

Thanks to such positive catalysts the company expects the market for premium furniture to grow from $60 billion in 2019 to $99 billion in 2024, so its growth potential is quite large. 

Arhaus has priced its IPO at a midpoint price of $15.50 per share. Its market value at this price will be $2.1 billion and its P/S ratio 3.4. It’s a reasonable multiple given the company’s strong top and bottom-line performance as well as its strong industry tailwinds. Shares start trading on Thursday.

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