Arhaus, Inc. Price & Performance (ARHS)

I would like to remind everyone that our remarks today concerning future events, objectives, strategies, trends or results constitute forward looking statements.

Actual results or events may differ materially due to a number of risks and uncertainties. For a summary of these risk factors and additional information, please refer to this morning's press release and the cautionary statements and risks fact described in our most recent annual report on Form 10 ks. As such factors may be updated from time to time in our filings with the SEC, EC. 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. 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.

Thanks, Tara, and good morning, everyone. Thank you for joining our fourth quarter and full year 2024 earnings call. I want to begin by thanking our dedicated teams across the business, our clients and our shareholders for their continued support of our house. Despite macroeconomic uncertainty, 2024 was a year of strong momentum and disciplined execution of our strategy. We saw healthy demand, expanded our showroom footprint, and further strengthened our brand. Our Arhaus crafted high quality furniture and a vertically integrated model continue to drive long term Turning to growth. We continue to execute our strategic plan with disciplined high return investments in our showroom footprints This year, we celebrated a major milestone by opening our one hundredth 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 forty years of history. With 11 new openings and five 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. Oklahoma City, Oklahoma, our first location in the state this showroom is strategically positioned within a premier mixed use luxury development.

Palm Desert, California, an expanded showroom located in the heart of the Coachella Valley near Palm Springs. Los Angeles, California, located at The Grove, a highly anticipated showroom at the iconic shopping center further strengthening our presence in California. And Carto Madera, California, Now our largest retail location in the state and our fourteenth in California. And lastly, just a few weeks ago, I had a privilege of hosting a client and trade event to relaunch our beautifully renovated Naples Florida We have an incredibly loyal client base there and we are thrilled to offer an elevated experience tailored to their needs. We see tremendous white space opportunities to drive future growth and to market 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. Meanwhile, ongoing renovations and expansions will further enhance the client experience. 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. A major driver of our success is our showroom team whose expertise passion and best in class service elevate the client's experience. Visual managers curate inspiring showroom presentations, design consultants undergo extensive training to deliver personalized service. Weekly training ensures that they tell the stories behind our handcrafted pieces emphasizing our brand artistry and craftsmanship. Our showroom team is our secret sauce, and a key competitive advantage. I'm grateful for their contribution to our success. Their impact is evident in our fourth quarter performance where we saw demand comparable growth of 5.7% driven by our strong product assortment, marketing initiatives and planned promotions. [indiscernible] While we experienced a decline in full year demand comparable growth of 2.2% due to softness in the second and third quarters, On a two year stack basis, demand comparable growth was approximately 5.5% underscoring the resilience microeconomic headwinds.

Looking forward to 2025, demand comparable growth looks solid with a positive client engagements. [indiscernible] At our house we're driven by design and product innovation. Leading the industry from the very start. We capture home enthusiast by pioneering new designs, concepts that continuously set us apart.

In a $100,000,000,000 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. After nearly forty years in the industry, I firmly believe there are no products like our products no people like ours, and no potential like our potential. I said it before, our house stands out our house stands alone because we continuously push the boundaries of home design. It is no surprise that our competitors are watching close no one can match the craftsmanship, quality and artistry of our house products. Every Rhouse product is meticulously crafted from the best materials with an uncompromising focus on quality and comfort. 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 R House difference.

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. 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. Looking ahead at 2025, we'll bring additional innovations and technology to ensure we remain at the forefront of these and function. Our direct sourcing model is another key differentiator. Allowing us to scale production to meet increased demand while bypassing wholesalers markups.

Our health supply chain is strategically designed to support our commitment to innovation, quality and efficiency. While mitigating potential risks. We have built a diversified global supply network, partnering with world class artisans and manufacturers across North America, Europe, Southeast Asia, We are proud to say that United States accounts for the largest share of our net revenue including our internal manufacturing. While the remainder is distributed across multiple countries, Our sourcing strategy remains dynamic and adaptable, ensuring a diverse and resilient supply network that responds to market conditions. Geopolitical risks and tariff changes. As we further diversify, we remain focused on long term flexibility and strategic supply chain management. As we look ahead, our long term strategy remains focused on four key pillars: 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. Including enhancing digital marketing, leveraging data driven client engagement and upgrading our website with improved analytics continued product to service, optimization. Second, expanding our showroom footprint. A goal of 165 traditional showrooms, almost double our current footprint, We have a long runway for growth and a robust pipeline in place. 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. Fourth, investing in growth to build scale and enhance long term margins. 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 and a planning system to optimize efficiencies and support our long term growth. By executing these priorities, we will be well positioned to drive continued growth and long term value. With that, I'll turn it over to John Porter, our Chief Marketing and E commerce Officer.

Thank you, John, and good morning, everyone. I'm excited to share today how we continue to elevate the Arhaus 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. As John mentioned, our partnerships with global artisans and our commitment to fine craftsmanship are key differentiators in today's competitive market. Building on that commitment, I'm proud to introduce Uphold, the third volume of our story series, 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. 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. Uphold is now available as a beautifully printed book in our showrooms and digitally at rhouse.com, bringing to life the passion and expertise behind our collections. I encourage you to explore uphold and experience firsthand how our debt Now let's dive into our broader marketing initiatives. Our omni channel strategy is focused on delivering a seamless inspiring client journey across all touch points and is built around six key pillars.

First, our showrooms. Our cornerstone brand experience offering immersive engagement that drives conversion. Second, e commerce. We are focused on delivering a seamless customer experience with e commerce, which we believe 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. Third, catalogs powerful storytelling tool driving demand growth. Our spring and fall twenty twenty four collections resonated strongly with clients.

Reaffirming Our House as a leader in quality and innovation. And our latest spring twenty twenty five catalog delivered in December has already demonstrated solid initial results. Fourth, in home designer services. A key driver of higher engagement and order values. With continued expansion planned both in showroom and virtually. Our growing showroom footprint fuels our in home design service delivering order value that are four times higher than those from non design clients. 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. Fifth, the digital and content strategy. At our house, we believe that purchasing furniture is more than just that selecting the perfect pieces unfolds over several months and we engage our clients on their when, where and how they prefer whether through broadly curated catalogs, digital first content or immersive in person experiences, we consistently reinforce our premium positioning and unparalleled craftsmanship. Our recent participation in the State Regis Snow Polo Tournament in our [indiscernible] The event which brought together Polo enthusiasts, the local community and key partners provided a unique platform while engaging with a discerning audience.

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. And lastly, client personalization. Our strategy leverages data driven insights 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. This targeted approach creates creates a seamless personalized experience throughout the entire customer journey. Continuous testing and refinement of our client personalization strategy ensure that we are driving loyalty and enhancing our brand's connection with each client. 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 and our pricing and promotional decisions were aligned with this Our goal was to emphasize high quality craftsmanship and our premium brand against quality as our clients and stakeholders expect from a high end luxury brand. In closing, with a strong marketing roadmap in place, we are well positioned com or stop by a showroom to experience our craftsmanship firsthand. 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. Thanks, Jen.

Morning, everyone.

Today, I will walk through our fourth quarter and full year 2024 financial performance our outlook for 2025 before turning it over to Q and A. Key items from our fourth quarter twenty twenty four income $347,000,000 up 0.9% year over year. 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. Fourth quarter gross margin decreased $2,000,000 or 1.8% to $139,000,000 primarily due to a $2,000,000 increase in showroom occupancy costs as we continue to expand our footprint. As a percentage of net revenue, gross margin declined 100 basis points to 40% reflecting the impact of higher showroom occupancy costs. Fourth quarter SG and A expense increased $11,000,000 11.1% to $111,000,000 primarily driven by higher showroom related costs in addition to the continued strategic investments to support business growth. In the quarter, net income decreased $10,000,000 or 31.8% to $21,000,000 while adjusted EBITDA declined $10,000,000 or 19.6% to $41,000,000 resulting in an adjusted EBITDA margin of 11.9%. Key items from our full year 2024 income statement include net revenue of $1,271,000,000 down 1.3% year over year.

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, strength in new showroom growth helped offset some of the decline. Full year gross margin decreased $39,000,000 or 7.3% to $5.00 $1,000,000 primarily driven by lower net revenue increased showroom occupancy costs and higher delivery and transportation costs. As a percentage of net revenue, gross margin declined two sixty basis points to 39.4% primarily reflecting the impact of higher showroom occupancy costs. Full year SG and A expense increased $39,000,000 or 10.5% to $415,000,000 primarily driven by general and administrative costs primarily related to legal costs, strategic investments to support and drive the growth of the business including supply chain and technology improvements, marketing investments, and increased warehouse expenses and selling expenses primarily related to new showrooms. These increases were partially offset by lower expenses following the non recurrence of a donation last year to The Nature Conservancy.

SG and A expense as a percentage of net revenue increased three fifty basis points to 32.7%. This increase reflects continued investment in new showroom openings and strategic investments to support business growth. For the year, net income decreased $57,000,000 or 45.3% to $69,000,000 while adjusted EBITDA declined $70,000,000 or 34.5% to $133,000,000 resulting in an adjusted EBITDA margin of 10.5%. Turning to our balance sheet and cash flow. We ended the year with $198,000,000 in cash and cash equivalents and remained debt free. Reinforcing our ability to invest strategically while maintaining financial [indiscernible] Looking ahead, we remain focused on executing our long term strategic priorities strategic investments and growing brand awareness. With this in mind, we are providing the following outlook for selected full year and first quarter twenty twenty five financial operating results. For full year 2025, we anticipate net revenue billion dollars and $1,360,000,000 and $1,400,000,000 reflecting a comparable growth range of 0% to 3%.

We anticipate first quarter twenty twenty five net revenue between $3.00 $3,000,000 and $323,000,000 reflecting a comparable growth range of negative 6% to up 1%. We expect full year 2025 adjusted EBITDA of hundred and $40,000,000 and $150,000,000 and first quarter twenty twenty five adjusted EBITDA between $17,000,000 and $27,000,000 For all other details related to our 2025 outlook, please refer to our press release. As you heard from John and Jen, we remain confident in our ability to execute on our long term strategy Our focus on product innovation brand differentiation, and customer engagement will continue to drive sustainable growth. In closing, I want to reaffirm our unwavering commitment to executing our growth strategy with discipline and focus. 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, With that, I'd like to thank you for joining us this morning, and we are Thank you. Thank you. Our first question is from Stephen Forbes with Guggenheim Securities. Please proceed with your question. Good morning. This is Julio Marquez on for Steve Forbes.

Maybe if you could speak to the lineup of product newness in 2025 and how much newness there is in the pipeline versus the last couple of years?

And then maybe any way to frame [indiscernible] Vitality score for some of the development pipeline revenues generated off off of some of that newness that maybe lastly, you can remind us of the inventory status across the showrooms. If it's up to stock with the latest inventory.

Sure. Mark, good morning. Yes, I think 2025 lineup of product is extremely solid. As we said in our we've really been leading leading the way on new styles, new designs, new colors and so forth. And we are very, very confident that 2025 is going to have just as much or more new product as in the past. Things have changed in our in our business where the consumers taste is 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, designs, are really changing ever since COVID now is over. People's taste 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. You bet.

Our next question is from Peter Benedict [indiscernible] This is Zach Beck on for Peter. John, you spoke to the change in your pricing strategy earlier. Just curious on how demand maybe 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. I'm just curious if the new approach is where you brought it out those trends?

Yes. Good morning. It's a great question. 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 for the last number of years now. We're really focused on pricing and our promotional strategy is focused on the quality of our products, the Arhaus and craftsmanship, materiality. All of those elements. And our primary focus is on giving a good value to our clients. So we spoke last year and a little bit on today's call about how we've been testing and trying how we're messaging some of those promos and the folks and approach to that. But overall, we're really pleased with what we saw in Q4. So more to come on that as we continue to to manage what we're doing. But as I've only thing I'd add to that, 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 Great. Thank you for that. And then maybe as a follow-up, just curious how the promotional backdrop played out relative to your expectations and in Q4? And 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.

Yes. 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. [indiscernible] We went in and executed our plan strategy for Q4, and we were happy with that. That. So I guess you could say the promotional environment met our expectations. Looking forward to 2025, in terms of what was factored in for product margin and planned promotions. We're seeing that continuing 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. Hey, thanks. Good morning, everyone.

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 think 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 the comps basically guided kind of flat to negative in Q1.

Yes. Good morning, Peter. I can start start on that one. We aren't separating out January versus February, but as you noticed John said, seeing spring off to a solid start. Obviously, can't comment on what anybody else might be referencing and what they're speaking to out there. One thing I would remind us and something we've spoken to in the past as well is 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.

Also, February is not over. Continuing to see what's happening there. Go ahead, Peter.

Well, I'm just trying to isolate that. The solid demand trends and then negative comp, I understand there's delivery delays, but this pretty big disconnect.

Yes. 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 2025. There may be some timing differences from quarter to quarter, but full year that should be more or less aligned.

Okay. And then maybe this separately, you talked about the promo strategy. So I mean, I guess trying to understand where you are today because I think when you look back at that weakness at AirPOC into Q2, Q3, I think you moved away from promos The consumer didn't like that. So You've kind of rearchitected your promo strategy 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 Where you stand today versus a couple of months ago?

Yes. 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 it's 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's summer trap, macro noise happening as you lead up to the elections. There's just a lot happening. And we as I mentioned earlier, we were playing around with how we were messaging and marketing our promotional strategy. But we were going in with the approach to pricing and promotions. That's the same price we have really showcasing that value to our clients and really playing with how we showcase that value.

We were happy with Q4. As John mentioned, that positive demand comp that we saw in Q4, and pleased with solid start that 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. 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 as our house and we will continue to share more with you if and when we make any changes to that strategy.

Okay, very good.

Thank you. Our next question is from Christina Fernandez with Telsey Advisory Group.

Good morning. Thanks for taking my question. I wanted to ask about the [indiscernible] a little bit lower than your animal targets. So is it just absorbing some of the 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. Sure, Christina. Yes, as we mentioned, think we did 11 new stores last year. And then I believe we opened another five new stores that were relocations So couple of those I think were slated for 25 that we're able to push into 2024. So if you look at a two year combination, we're right on track. With that said, we're pretty separate 2025. However, the design studio side of the business 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 [indiscernible] announce it today because we don't have deals done, but they easily put fall into 2025.

And then as 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 trend? Thanks.

Yes, I can talk to it 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 In addition to that, we really went after expanding some categories that are just working so well for us, and just balancing our inventory out. Getting more things in stock so we can service the consumer a lot quicker. And asking them to wait for the products. So, it's all We think good inventory, great investments, it really is setting us up for the future. Ryan doesn't have any input on that. The one other thing is just removing into the outdoor season, so we ramped up the inventory to support that time of the year. Yes. Last year, the outdoor season inventory came in little later than this year. So you're right. That all moved in much quicker. We want to get that in stock for the season. So that does add to it as well. Our next question is from Robbie Ohmes with Bank of America.

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 and A for the first quarter and 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? Think you mentioned the manufacturing ERP and planning software. Was expected to launch in the first half.

Yes. 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. With SG and 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. 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. Later in the year as well as our inventory planning system.

So those are both on track.

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?

Yes. We're in great shape as far as tariffs go. And God knows what tariffs are going to be where and when. But we've done everything possible to be ready for them and including speaking to all our 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 large increases 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 [indiscernible] Doing what we can. Obviously, Globally, we have an incredibly diverse 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 United States. So that gives us a huge competitive edge over our friend competitors, because it's a big part of our business is the 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 will be That's also a big competitor advantage over us. And the one thing to add, our current guidance includes [indiscernible] potential impact of tariffs that we know of today. So that has been reflected in what we have released this morning.

Okay. Thank you.

Thank you. Our next question question is from Jonathan Matzewski with Jefferies. Great. Good morning and thanks for taking my questions.

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 2024? Does it imply 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. Yes. So a great question, Jonathan.

I think right now, we're assuming sort of the same as last year. Obviously, we don't know what we don't know. So taking just a conservative approach to that. I think one of the things that we have talked about a lot on prior calls is things like the housing market, while obviously are a factor that we pay close attention to being a furniture company, That is not the largest driver of our sales So just as we've talked about on past calls, we're looking for primary drivers that we see within our client base [indiscernible] 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. All right, great. That's helpful. And then just a follow-up, Ryan, you mentioned the guidance that was provided in beds a headwind from tariffs that has been announced Is it possible to understand kind of the magnitude of the headwind that's embedded in the guide 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.

Yes, we've been working with some of our vendor partners and understanding what the potential impact could be 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? Got you. Thank you.

Our next question is from Philip Blee with William Blair. Please proceed with your question.

Good morning. Thanks for the question.

My questions are on the EBITDA guide. So the midpoint implies around $5,000,000 and EBITDA fall through on incremental 100 or so million in sales. So I understand the incremental million dollars to $10,000,000 investment spend, but what else is weighing on earnings this year Any sort of color on some bigger buckets that we should consider Or is this more of a function of conservatism given the choppy macro environment? [indiscernible] Yes. 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. So there's that and then yes, with what we just talked about really to tariffs and other promotional expectations for the year, we've we've baked all those into our guide.

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 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 relo or a larger scale refresh over the next few years? Thank you.

Sure. We just just passed our one hundredth store. So as leases come up, we are looking at locations, refreshes And we're going through the going through the fleet. I firmly, firmly believe that you need to keep your products fresh. You need to keep your stores fresh. Need to really while the consumer when they walk in, we just remodeled a store in Naples, Florida for instance. It was an old store. Ten years, fifteen 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. So in addition to obviously opening new stores and new locations, We're going back and looking looking at anything that we can to remodel as needed. Certainly, the bigger markets we look at first and we keep going down, but we're remodeling a store, moving a store in Dayton, Ohio, for instance, this year. To a great, great new little lifestyle center. 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 So we're looking 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 budgeted towards remodeling instead of all of it in new stores. So that's kind of the strategy we have and we're going to continue with that going forward.

Great.

Appreciate it. Best of luck.

You bet.

Our next question is from Jeremy Hamlin [indiscernible] Thanks and congrats. I wanted to just come back to the showroom openings and just understand maybe the cadence that you expect during the course of the year. I think on the Q3 call, it did sound like you were still expecting at that time the typical five to seven new showrooms. So I wanted to understand if there's been kind of any change in that outlook and whether or not kind of the timing or the shift 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 I know we have one slated quite an impressive showroom. I think one of the most if not the most iconic building in Pasadena, California. Slated to open this year. [indiscernible] so we're looking at we're hoping to hit that five number for sure. Which is what we're shooting for. Places like Pasadena where they just had the fires there's huge labor shortage. So things may be delayed a little bit because people are trying to get their homes built. And shortage of product and so forth.

So So we're dealing with that kind of stuff as well. But I think we're in good shape everywhere else around the country. I think we're doing couple in California, I mentioned Dayton, Ohio. That's a move store. I don't have the whole list in front of me on different locations. We normally don't want to divulge too much information to our competitors at this point. Getting ready to open. We just opened a great store in Florida in Winter Park in Orlando, just a few weeks ago actually. And off to an incredible start And so Florida is a booming market for us. 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. The Arizona Arhaus, just booming Texas is booming. So as we find great locations.

We open them. We're going to do it. 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 locations the right Arhaus, the right size locations and so forth. So as we find them, we open them. And 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. Understood. Thanks for the color. And then just a question here. You noted kind of a couple of in January, right, that you saw a really nice lift in consumer confidence following the November election that resulted in in strong written orders or demand comps in November and December, and it sounds like good start in January. [indiscernible] wanted to get a sense for how your core customer reacts There has been a fairly significant step down in consumer confidence as measured here in February. How does your cup 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.

But how much of kind of that buying decision is based on stock market trends and so forth, Just wanted to get an understanding of kind of the history there.

Yes. It's a great question. [indiscernible] I smiled a bit when you stated how do they react on disease conditions. Because I think I don't know if we've ever seen these conditions per se before. So we spoke in the past of we have seen softness leading into for example, as people are just wondering what's going to 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 Matt 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 we talk a lot about what our customers do and how they may have performed in the past. In the past, we have mentioned that our client has been more connected to the stock market per se instead of the housing market. 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 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. And then really, as I've spoken about in the past, 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, focus [indiscernible] targeted and purposeful of how we do that. And 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.

Great. Thanks for all the color and best wishes this year. Our next question is from Simeon Gutman with Morgan Stanley. Good morning. This is Pedro Gill for Simeon. My question is about the adjusted EBITDA guidance in the first quarter. You're guiding to an adjusted EBITDA decline of 24% year on year at the midpoint. On a revenue increase of 6% at the midpoint. So can you help us understand a little better where the deleverage is coming from besides the showroom occupancy. And related to that, given the higher level of inventories year on year, how are you planning the promotional cadence for the first quarter? Yes. So the first question, the two biggest drivers in Q1 are, as you mentioned, with the deleverages, the showroom occupancy and related cost related to the additional showrooms and then the strategic investments that we're making in the business.

And then just to touch on your question about how are we planning promotional cadence for Q1. As I touched on earlier, our approach to our promotional strategy going into 2025 is in line with our approach in 2024. Without getting into too much detail, I don't want to share a lot of cards here, but I would just remind you to look at calendar shifts. So we saw some calendar shifts in those key holiday dates Back in Q4, we're seeing some shifts in key holiday dates and 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? Yes, just on your point about [indiscernible] Calendar shift throughout the fourth quarter. How does that flow through into the promotional calendar during the first quarter?

Us understand. I apologize. I think I confused you there. I was just referencing thinking there are calendar shift 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 a lot of our promotional strategy airlines, we've key shopping periods, which align to those key holiday periods. 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.

Thank you. Our next question is from Seth Basham with Wedbush Securities.

Good morning. This is Matt McCarthy on for Seth. Just real quick, just wondering if you can update on new showroom performance relative to your model and if that performance there is that impacting some of your showroom plans for 2025? [indiscernible] plans are solid for 2025 and beyond. We've been very happy with the performance of the new the new showrooms. They're very solid, hitting our expectations of then some. And our plan is not changing at all. We're going continue to grow. And as we find great locations, we're going to open great stores. Great. Thank you.

You bet.

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.

Thank you, Thanks everybody. Thank you. Take care.

Thank you, everyone, for your participation in our call and interest in our You may now disconnect your lines. Goodbye.