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Wendy Watson; Senior Vice President, Investor Relations; Arhaus Inc.
John Reed; Chairman of the Board of Directors, President and Chief Executive Officer, Founder; Arhaus Inc.
The sparkles; Director of Logistics; Arhaus Inc.
Jennifer Porter; Director of Marketing; Arhaus Inc.
Julio Márquez; Analyst; Guggenheim Partners
Jérémy Hamblin; Analyst; Craig Hallum
Simeon Gutman; Analyst; Morgan Stanley
Cristina Fernandez; Analyst; Telsey Advisory Group
Jeffrey Walter; Analyst; Jefferies
Justin Kléber; Analyst; Robert W. Baird
Max Rakhlenko; Analyst; TD Cowen
Peter Keith; Analyst; Piper Sandler
Operator
Hello and welcome to Arhaus’ earnings call for the first quarter of 2024. (Operator’s Instructions) Now I’ll pass it on to Wendy Watson. Wendy Watson, pass forward.
Wendy Watson
Hello, and thank you for participating in Arhaus’s Q1 2024 earnings call. And with me are John Reed, co-founder, president and CEO; and Dawn Phillipson, chief monetary officer. Following their comments, Jen Porter, our Director of Marketing and eCommerce, will join them for the Q&A session. During the Q&A, limit yourself to a query and a follow-up. If you have more queries, please come back to the queue. We issued our earnings press release for the quarter ending March 31, 2024 before the market opened today. As a reminder, any comments made today regarding expectations, expectations, objectives, strategies, trends or long-term effects constitute forward-looking statements. Actual effects or events may differ materially due to multiple threats and uncertainties. For a summary of those threat points and more information, please see this morning’s press release and the warning statements and threat points described in our most recent annual report form. 10-K and the upcoming 10-Q, as those items will likely be updated from time to time in our filings with the SEC. Forward-looking statements are made as of today and, as required by law, the Company undertakes no legal responsibility to revise or update such statements. We will also address certain non-GAAP monetary measures in this morning’s press release, adding applicable non-GAAP reconciliations. A replay of this call will be available on our online page within 24 hours. Now I’ll leave the floor to John.
John Reed
Hello everyone and welcome to Arhaus’ first quarter conference call. I wanted to kick off the call today by congratulating our team on a strong start to 2024 and for staying focused on executing our key priorities, big and small, that drive and support our four-year strategic expansion strategy. shutters. The market position opportunities that we have. It is significant and we have a demonstrated strategy with established projects to capitalize on it. We are very motivated to launch those projects, expand our knowledge of lopass, expand our showroom base, edit our functions and omnichannel generation and make an investment to upgrade our infrastructure, improve our equipment sales and help our expansion. Our continued commitment to building our progress on all of those projects is paying transparent dividends with sustained effects quarter after quarter. At the same time, our debt-free balance sheet and the flexibility it provides us remains a competitive strength as we remain focused on controlling expenses and deploying capital prudently. In the current environment, I’m getting a lot of questions about how we continue to be successful with luxury home sales well below pre-pandemic levels and how loan interest rates are expected to remain high for longer. The answer, in our opinion, is that many of our clients are staying at home and need to enjoy it. They are remodeling, refreshing or simply replacing their furniture. Our house and our professional designers have never been busier with projects ranging from small to giant. Our consumers’ drive to make their home a better place to live remains strong. And given the demographics of our visitors, our consumers are going on vacations to Europe or summer vacations or enjoying a cruise, but at the same time they are also upgrading their home. Many of our design projects include helping our clients with their second and third homes as well. Therefore, we are very pleased with the state of our consumers and the latest insights indicating that luxury home sales and listings increased during this quarter. We are positive for the remainder of this year and into 2025. As you know, I am very excited about the expansion of our showroom and how this continues to drive lopass awareness and our long-term expansion. Since our last call, we have opened a new design studio in a lovely location in Greenwich, Connecticut. His performance is already exceptional. Later this year, we will be launching design studios in Peach Tree, Georgia and Huntersville, North Carolina, near Lake Norman. We are testing our design studio concept and it is working very well. We were coming up with the concept before the pandemic, a smaller sized showroom, ideal for momentary positions in the housing market in affluent wallets like Princeton, New Jersey, prime positions in the indoor or outdoor market, positions where prefers a smaller square footage, with integrated staff. home designers and the latest high-tech design equipment to help consumers manage their homes. In October 2020 we opened our first design studio in Carmel, California. We plan to have 11 by the end of this year, with a long road ahead. We also recently opened the Arhaus The Loft store in Pittsburgh. We’re adding two more Loft positions this quarter, one in Denver and another in Florence, Kentucky, just outside of Cincinnati. And in just a few weeks, we’ll be opening an incredible new showroom in The Grove and Los Angeles. We hope it will be one of our flagship positions and we can’t wait for our visitors to see and delight in it. As we have mentioned, we have significant expansion opportunities on the West Coast. In addition to this expansion, this year we will open 3 more showrooms in California, in Carlsbad, Palo Alto and Corte Madera. We will also be opening our first showroom in Oklahoma this year. What is so rewarding and exciting for me and the Arhaus team is the realization of our showrooms in such diverse positions throughout the United States, and we have not yet reached our goal of having more than 165 classic showrooms. Let’s move on to the products. The product is one of our main competitive merits and a great differentiator. Our design, sales and sourcing groups continue to delight our consumers with incredible new products. Our product reflects our liveable luxury aesthetic and is at once eclectic, familiar and full of warmth and comfort. Our pieces feature exclusive handcrafted metal and are designed using the finest fabrics and an unparalleled focus on quality. This confidence in our product comes from visitor feedback and consistent performance. Customers love our new spring product launches, and this year’s new product surpassed the amazing reaction we got with last year’s new spring product. We are also very proud of the intensity of our styles and selections. I mentioned that our showrooms perform well in all regions, but one of the keys to this past fortune is the breadth of our products in classic, transitional and fashion aesthetics. In addition to our new products, our iconic bestsellers continue to be best sellers. We can constantly improve those designs with lovely new fabrics, shapes, finishes and sizes and offer them in inspiring new tactics across all channels. Our product is an incredible value. And based on our call for finishes, our consumers seem to agree and we can’t wait for you to see and delight in the new product we will be offering this fall in our showroom catalog at arhaus. com. In terms of our strategic expansion initiative, there are two spaces I need to draw attention to. First, we just introduced the new warehouse control formula at our Ohio DC, which adds a massive amount of paints to several of our functional spaces. This is a key component of the formula updates that will allow us to improve our operational power and, most importantly, lay the foundation for long-term expansion. Congratulations to our team. Secondly, I also need to mention our Final Mile team. Over the last year, we have made several improvements to our back-end and home delivery processes, resulting in better delivery execution and performance, with some of the highest visitor survey scores we have ever achieved. We’re incredibly busy providing consistent effects and targeted service to visitors, while making an investment in the business requires unwavering commitment, and I’m incredibly grateful for the tough paintings our team makes every day, every day. every day. day. In the first quarter we achieved net effects. profit of $295 million, net source of profit of $15 million and adjusted EBITDA of $29 million. As we reported this morning, we are pleased to have exceeded our earnings and results guidance for the quarter as teams performed well and the first quarter benefited from the implementation of our new warehouse control formula from April to March. We are on track to meet our outlook for the first component and the full year. Let’s call. What our groups are achieving in the current macroeconomic environment is truly remarkable. As we continue to particularly outperform the industry, our first quarter effects are highlighted through mid-single-digit expansion demand in February and mid-single-digit expansion demand in March, more than offsetting single-digit climate-related decline. in call for January. Our April call increased by single digits. Before turning the call over to Dawn to talk in more detail about those effects and our outlook for the full year, I wanted to reiterate our confidence in our company’s customers for the remainder of 2024, which we reaffirmed this morning. Our long term is brilliant. Our strategic competitive merit allows us to continue capitalizing on our consumers’ aspiration to live in charming and cared for spaces with our exclusive and handcrafted furniture. I would like to welcome John Moran, who joined us as Chief Operating Officer on Monday. Prior to joining us, John was COO at Canada Goose and brings a wealth of experience driving operational execution and assisting transformational expansion across functions. He is a vital addition to our leadership team as we grow the business and realize its significant expansion prospects. As I said last quarter, sometimes I feel like there are no collections like ours. There are no other people like ours. There is no perspective comparable to ours. Arhaus stands out. Arhaus is alone. When I founded Arhaus at most 40 years ago, I may not have believed in the Arhaus we have today with the incredible future we have left. I will now turn the land over to Dawn.
The Dawn Shines
Thanks Juan and hello everyone. Net sales in the first quarter were $295 million, down 9. 5% from the 21% expansion in the first quarter of last year. Last year saw significant abnormal delays in deliveries that were not repeated this year as we met deliveries in 2023 and returned to a general order book. We are pleased with the call for 1. 3% expansion during the quarter as we continue to see strength. in the average cost of the order and in orders greater than $5,000 and $10,000. We are also pleased that the penetration call for our home design program continues to increase. Our first quarter gross profit decreased to $115 million, primarily due to decreased net cash inflow and higher showroom costs as we continue to expand our presence. Gross margin as a percentage of net sales decreased to 39%, primarily due to higher showroom costs, deleveraging from declining cash and increased transportation costs. First quarter general and administrative expenses increased $14 million to $97 million, primarily due to higher promotional expenses similar to new showrooms and strong demand, increasing corporate spending as we invest in our strategic projects to help e driving business expansion, and building upd warehouse spend as our Dallas location continues to increase productivity. Net cash source for the first quarter of 2024 was $15 million. Adjusted EBITDA for the quarter was $29 million, compared to $55 million in the first quarter of 2023. First quarter net cash inflows of $295 million and adjusted EBITDA of $29 million resulted in an adjusted EBITDA margin of 9. 9% for the quarter. Then, as we announced this morning, we are pleased to reaffirm our outlook for the full year 2024. Our expectations for how the year will progress have not changed since we first obtained our outlook in March, with the exception of the implementation of the warehouse control in April instead of March. As a reminder, we expect full-year adjusted EBITDA margins to be lower than in 2023. We expect approximately 85% of the deleveraging to come from general and administrative expenses, with a lesser degree of deleveraging from gross margin. The deleveraging is due to the combination of last year’s backlog and the strategic investments we are making this year. Strategic investments come with strategic corporate investments of $10 million to $15 million to enhance our operational functions and drive our long-term success, as well as investments in other expansion projects. such as e-commerce and our home design and industry program. The $10-15 million in strategic corporate investments comes with our new warehouse control formula, scheduling and allocation software, new production ERP at our upholstery facilities, and our in-house delivery service. To add more color, we also want to note that we expect increased spending in our distribution centers this year as productivity improves in Dallas. In the second quarter of 2024, we expect net sales to be between $310 million and $320 million. We expect adjusted EBITDA to deleverage through approximately 900 core issuances in the second quarter. About a third is due to gross margin pressure, primarily due to higher near-term costs such as the expansion of our showroom presence, investments in the home delivery program and, to a lesser extent, the effect of the action of the value in our cash source on the statement. The balance of SG&A deleveraging was primarily due to new showrooms, strategic expansion investments and upstream costs similar to the continued ramp-up of our Dallas distribution center. Taking into account the change in the implementation of the new warehouse control formula from March to April, we expect a relative increase in profits. initial be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be that we percentage in March. As I noted last quarter, we continue to expect net cash expansion for the remainder of this year. We expect the deleveraging of gross margin and general and administrative expenses in the first part of the year to carry over to the second part. Although the profit and loss effect of the June 2023 value stock product has ended, the collection and profit of the new showrooms will definitely affect our profit and loss, and we continue to generate awareness of our logo and increase our percentage of market. . We will update you on our expectations for the third quarter when we report our second quarter monetary effects in August. For all other key themes similar to our 2024 outlook, please see our press release. In closing, I would like to thank our team for their focus and execution of our investments and strategic expansion priorities. I am very proud of what we are achieving while providing strong monetary functionality and maintaining the strength of our balance sheet. We believe our four-pronged strategic expansion strategy and strong debt-free balance sheet are compelling competitive advantages, allowing us to make the required investments to capitalize on our percentage gains in the highly fragmented home furnishings market. high-end, with a cost of 100,000 million dollars. We are navigating the existing environment from a position of strength and believe we are well positioned to delight our consumers while maintaining our unwavering commitment to cost-effectiveness for all stakeholders. This concludes our prepared remarks. With that said, I would like to thank you for being with us this morning and we will be happy to answer your questions.
Operator
(Operator Instructions) Philip Lee, William Blair.
Hi. I’m Sabrina for Philip. Thank you for answering my question. Can you tell us about some of the progress our team has made in those investments in internal systems, such as e-commerce features and enhanced design-and-sharing programs, such as the first one?Symptoms of improvement and how will this translate over the rest of the year?
The Dawn Shines
Yes. Hello Sabrina. It’s dawn. In fact, we’re excited about how we’re progressing on some of those formulas. We talked about the warehouse control formula we implemented and I’m starting to see some big innovations in the warehouse. I am very happy with this. It’s still a little early for the other formulas we’ve talked about in terms of our plans and allocation schedule. Our production ERP is very complex in the design and launch part. By investing in home delivery, we have noticed very significant adjustments in our visitor survey responses. So I’m really pleased with the investments that we’re making in those areas, really to help the organization move to the next level, to drive efficiency. Well, from a monetary power perspective, we want to implement and launch all of those formulas. And then, of course, there will be a learning curve as groups adopt all the new software platforms and we start to see monetary efficiencies. Last quarter we discussed that we were benchmarking our entire infrastructure and formula platform. Array, so we’ll continue to do that. These new formulas that we are launching, that are being developed and introduced lately, we are really excited and convinced that the company wants them. But we also continue to look at other things like stock control platforms, supplier control platforms, and monetary formula packages. So there will be more in the coming quarters as control continues to refine our expectations for the organization and what they will look like, but we are happy with it. Jen, did you want to share anything about the e-commerce investments we’re making?
Jennifer Porter
Yes good day. To echo Dawn, we are also very excited about what we are doing at e-com. We are now in year 3 with our new platform. And we continue to learn, implement and optimize the site, honestly, almost every day. So we’re really pleased with the effects that we’re seeing in e-commerce, both in terms of sales and also in some of the innovations that have been made. We drive traffic to the site and interact when other people are on the site. And I think what’s really wonderful about those e-commerce innovations is that, historically, we know that the majority of our consumers interact with us on arhaus. com, regardless of where they end up transacting. and tracking those effects and getting a more complete picture of our consumers, their behavior, what they’re responding to, is actually a wonderful tool, not just for driving conversions and sales. And in terms of sales, we see wonderful innovations, but we also get other people to see the differentiation of the Arhaus logo and the product range. As John mentioned, we are very excited about the new products that have arrived and we are actually seeing them. Other people can also interact in-store and online. So there are many, many innovations, many things that you can see if you are on the site every day, many of which you may not see because they are going through scenes. But a lot has happened and a lot more will continue this year in the future.
Genial. Es really useful. And then a quick consultation on the new product collections. Could you provide us with a review of the quarter’s AOV trends, if there is a collection of products or espressos that have resonated recently, specifically with consumers?
John Reed
Oh damn. Yes, there are many of them. Yes. I mean, the wonderful thing about our company is that it is a fashion company. Things are in fashion. We don’t have style when we’re in and out of things in a single season. Things can last for years. But we found that other people need more color in their homes. The shapes are softer, more curved, things become a little fresher, clearer, not so dark and of quality. That’s why it is constantly evolving. But yeah, we’ve definitely had some wonderful new products that we introduced, some last year and some this spring. And then, as we said on the call, I’m very excited about this fall. We have many new products. The photography team is busy filming everything as we speak and preparing to release the game in the fall, probably September. But yeah, it’s a moving target. But as a result of COVID and so on, other people change and things went back to being pretty straight, dark, like a sterilized spine. In my opinion, they are now much brighter, lighter and more comfortable with curved type products, and that is what we are looking for.
Super. It’s useful. Thank you and good luck.
John Reed
Thank you.
Operator
Steven Forbes, Guggenheim Fellows.
Julio Márquez
Hello, thank you for answering my question. Here Julio Martinez replaces Steve Forbes. Can you tell us more about the plans to expand the collection of products and stores by 2024?Is there a better perception of how you foresee the expansion in the contribution of new products over the next few years?And a quick follow-up after that. Thank you.
John Reed
Yes. I mean, one of our goals is to offer a wider variety of styles, textures, colors, etc. It’s a big country there. There are other tastes in Alabama, Cleveland and Los Angeles. Although the emblematic pieces are the best sellers everywhere, the cases are different. Some markets are more fashionable. Everything has become quite trendy and cool over the years. We’re seeing a lot of other people go back to a small market transition or even some classic pieces. So our purpose is to take each category we offer and offer a broader collection. We’ve been testing some other products and at a couple of outlets around the country, the reaction has been phenomenal. So that’s all we’re going through to probably expand it. And in addition to that category, as we continue to grow, upholstery is a really important issue. All wood products, from the living room to the bedroom, of course, which is a big business for us. And other people have four, five bedrooms, often 10 bedrooms, and they need another collection to be able to furnish the whole house. So we work hard to expand how we look, feel and taste. But all this belongs to the Arhaus brand. Then all the coordinates pass in combination and so on. On the more sensible side of that, we really find it difficult to bring color in between the middle pillars and put things like that, and things that can really brighten our room without making a big commitment to an ambitious vertical pattern or sectional or something like that. it’s anything that we’re really coming up with and also looking for at different times, and you’ll see more of that in the fall than you do now.
Julio Marquez
Great. Thanks. Very useful, actually. And is there a way to reflect on how the upholstery harvester has evolved in recent years?What if you could contextualize the amount of production done at Arhaus’ production facility compared to that of a third party?
John Reed
The Arhaus component Ouais. La is a vital component of the company. This is not a component of the activity, almost yet. And again, whether we manufacture it in our facility or on the street and some other national services in North Carolina, they’re all wonderful products. And the other shapes, etc. , are the ones we paint with all our makers, so they paint in harmony. We’re excited to come back and be able to customize, which is a major component of our business and the upholstery business, in a very short lead time, whereas a few years ago, I think, it was 28 weeks. I think we’re much, much faster now, about five or six weeks to get to the customer, which we’re pretty proud of. They worked very hard and worked hard to achieve it.
Julio Márquez
Impressive. Thank you.
Operator
Jeremy Hamblin, Craig-Hallum Capital Group.
Jérémie Hamblin
Thank you and congratulations on the strong momentum of the company. I just wanted to get to the warehouse control formula update, replace it here, and think about the effect in the second quarter. So, think about the most productive estimate of the overall profit generated during the quarter, if it’s in the $25 million range or something like that?And then, whether or not it went as planned, do you find any lingering effects that lead to delays in deliveries?Just Searched to see if you can add a little more color to this.
The Dawn Shines
Of course. So, looking for the current quarter, we will launch the WMS at the beginning of the quarter. In fact, this gives us a little more flexibility to offset any delays like the warehouse closet profit effect. So we’re pleased with our guidance on the range of net earnings of $310 million to $320 million for the second quarter. As for the actual implementation, everything went as planned. We drove it through March and April to make sure we were as prepared as possible from a workplace perspective. And we will never expect software platform implementation to go smoothly, so we prepare as productively as possible. And we’re very lucky to have a very dynamic and flexible control team that constantly compares the other functions we have available when things come up. So we walked through the situation from my perspective. From the visitor’s point of view, this is rarely a big problem. This means that consumers get their product when they expect it, and that’s precisely what we want. Implementing this formula in the workplace should not in any way negatively affect the visitor experience.
Jérémie Hamblin
They gave it to me. And then just a little follow-up here. The pricing measures that were taken last summer, in terms of how long you expect them to have an effect on your gross margin, at what point do you expect gross margin to increase?It will no longer be particularly affected by pricing measures.
The Dawn Shines
Of course. So, we saw some effects in the first quarter because of the price movements we took in June 2023. We expect a smaller effect in the second quarter. Then, we expect any significant effects on will dissipate well until the end of the second quarter, and we have noticed some inflection in the second part of the year. One of these is due to the redemption of the stock action component during the PL. So, all of those SKUs have gone back to those that we have a home for and the long-term collection, they’ve all gone back to their previous price movements in terms of pricing. Therefore, we are pleased with our positioning as we approach the last three quarters.
Jérémie Hamblin
Super. Thank you for answering the questions. Best wishes.
Operator
Simeon Gutman, Morgan Stanley.
Siméon Gutman
Hello everyone. I guess I wanted to ask a two-part question. First of all, I know the COO upstairs; I know it’s started, but I think in the news about a month and a half ago we talked about it. Are we talking, John, about the role, about the need for this role?And then, in that context, can you give us an idea of the floor in the next upgrade of one- to three-year-old warehouse DC capacity systems?has featured a few of them, I’m just curious about what to expect as you grow this business in the future.
John Reed
Yes, right. As we mentioned, we’re launching a lot of new systems and we’ve hired the new COO to help orchestrate all of that. Then, you’ll be the user who orchestrates the IT aspect, from the planning aspect to implementation. appearance. in the appearance of the logistics warehouse, etc. The wonderful thing about me is that I get to spend time on what I love, which is locating wonderful products and proceeding to drive the business forward. And I don’t want to attend a systems meeting. , as I’m going to do, and so far he’s done a phenomenal job in the very short time he’s been here. So that’s all I think the team is looking for, that leadership. He enjoys this box and this world, and we’re so happy that he’s the orchestrator.
Siméon Gutman
I guess in that environment you need more capacity and then other things. I don’t know if it’s automation, other innovations in the means of distribution that you have?
John Reed
At the moment we are in good shape. Now that we have implemented the system, we have enough capacity. We have a wonderful team there. Our 3 main distribution centers here. And we’re just going to fix them; If there are small flaws in this system, we will fix them in the next few weeks, and everything will be in a position to start growing.
Siméon Gutman
Can I ask as follow-up, I hope? The other component of a longer question. As a backdrop for the furniture, there has been some weather volatility. Can you tell us about, I suppose, the most important elements of your product range, customer diagnostics?There have been a lot of rumors about further weakening in the aspect of declining source of income over the past 3 or 4 weeks. Are you curious to know if there is any of this? Does it feel like the industry has hit rock bottom in terms of calling for a post-Covid situation to be reversed and is now recovering or maybe even improving?
John Reed
I’m not an extra in what others do. The only thing I know is our business, and it’s very solid. We haven’t noticed anything replaced in the last four, five or six weeks. It’s the first time I’ve heard of him. So yes, I can’t answer that question. I stick to what we’re doing and execute our plan and deliver an amazing product, execute it well, walk into the homes of customers who are excited about the systems that we are and how we’re delivering them. And then they tell their friends and neighbors about it and they come to buy it. So I don’t know. I haven’t heard anything about things or minimums, especially at the back of the stairs.
Siméon Gutman
Thanks, Jean.
Jennifer Porter
Ouais. Et just to add to that, looking in particular at our Jstomer and our visitor base, we haven’t noticed any noticeable difference or replacement at this time. Our Jstomer has remained very solid since 2019, before the pandemic. We continue to see this getting stronger and stronger. Looking at all of our stats and the things we share, we see this through a 50/50 split between new and existing. In fact, we were pleased with the response, especially from our customers and our new visitor acquisition activities. As Dawn also commented in the previous call, we are also very pleased with the price obtained through the customers who arrived. As John said, we really want to focus on what we’re doing. Our product works. Our messaging formula works. Our showrooms are up and running, so we’re concentrating on that and proceeding to see smart results.
Siméon Gutman
Thank you all. Good luck.
John Reed
Thank you.
Operator
Cristina Fernandez, Telsey.
Cristina Fernandez
Hello smart morning. I wanted to ask you about the competitive environment in promotions, what new do you see?Some of its competitors are also launching a lot of new products. And in promotions, anything we find before the all-important Memorial Day weekend?
Jennifer Porter
Hello Cristina. Good day. Yes, we continue to see a significant promotional market, which is really interesting. We are beginning to see that some of them are faithful. They are maintained and begin at the beginning of the month. In terms of what we’re doing, what we’re looking for, as you just talked about and as John and Dawn talked about, our product works, our consumers spend money. We’re actually happy with this from a marketing and logo perspective, where our goal is to proceed to spread that message about logo differentiation. We continue to introduce Arhaus to new consumers. We continue to focus on sharing the product and letting it shine and allowing our consumers to go on that adventure and make that decision. And our promotional strategy remains the same. And we see effects when we do promotions around them, in terms of buying food on the weekends. As I said on previous calls, we have extended those promotions. It is no longer just a matter of spending the 3 or 4 days that the promotion lasts, but of waiting a little longer. And we’re really pleased with what we see. So in terms of what we’re doing, we’re just focused on continuing our strategy of doing what we’re doing, and we’re following that very closely. And as I mentioned, it works for now. So we’re really pleased with it.
Cristina Fernandez
And then my current question is about new stores. You have a lot of exciting deals coming up. I wanted to ask you about those stores, how do you see and what is the procedure to make sure you have the right store managers and designers?Are you moving from other stores or is it more about educating and locating new workers?in those new markets?
John Reed
Of course. Good question. Yes, not only are we waiting for new outlets to open, but we have also just opened several new outlets in the last six to eight months. And the best thing for us is that we moved the store manager to a new location. An existing store manager, an experienced store manager, has proven to be a wonderful leader and understands our culture. We have this regularly, in most outlets, and it depends on where they are, but for most of them we have a few. of other people who need to settle there. Therefore, we will transfer other experienced people there as well. As most aware of this, we will of course have to hire a completely new team. We have a phenomenal educational team at Arhaus University that gives them, I think, six weeks of education before they open their doors. Therefore, they are perfectly trained. They will stop by to look at boxes in another store, take them out of the box not only to communicate with consumers, but they will also sit behind a table and learn how to write the sale, etc. , and help our consumers. That’s why they are very, very well trained from day one, when we open the door and when our consumers arrive.
Cristina Fernandez
Super. Thank you.
John Reed
You are welcome.
Operator
Jeffrey Walter, Jefferies.
Jeffrey Walter
Hello, Jeffrey Walter replaces Jonathan Matuszewski. Thank you for answering our question. As it turns out, the design dynamics of trains continue to unfold. Can you just tell us about the sales channel presence plan with the in-house designers and then talk about any short-term opportunities in the contract sector?Thank you.
John Reed
Yes, you can bet. Yes, the commercial sector is an area in which we are focusing to continue growing. These are other people who have their own businesses and their own clients. And we inspire them to bring their consumers and themselves to our showrooms. We’ve brought other people on board internally to do nothing more than help capture those merchants, help with sales, make things easier, just make things transparent so they don’t want to spend a lot of time on it. And that’s what they. . . we learned. They are pressed for time. And if we can help them, we do indeed have the products or a one-stop shop for them. They don’t want to go to 10 other dealers to purchase pieces for one room. We have kindness. We have the carpet. We have this furniture. We can not do anything. So we do each and every thing. We take care of it. We ensure that in the event of a problem, it will be repaired and its protective accessory replaced. And we are seeing smart expansion. We upload a number of new professional members every month. Foreign industry is developing faster than the average expansion of our global activity. So we see a wonderful, very wonderful long term there. We have only just begun. We have a huge runway ahead of us. That’s something we’re definitely focused on and passionate about.
Jeffrey Walter
Super. Thanks a lot.
John Reed
You are welcome.
Operator
Robbie Ohmes, Bank of America.
Hi, it’s Maddie who takes care of Robby Ohmes. Thank you for answering our questions. First, you noted that demand grew in the lowest single digits in February and in the highest single digits in March. Can you give us an idea of how April will evolve, given this peak rate of departures?Thank you.
The Dawn Shines
Yes, April went up in single digits. I’m very pleased with the reaction we’re seeing to some of our new collections, especially outdoors. We have Beaumont, which is working very well. Our ties and collections look great. So we’re still very excited about product launches. We know that the month of January was affected by the weather. But we also know that other people shouldn’t buy home furnishings because it’s cold or snowy for a month. Then they’ll come, they’ll come. And we know we’re resonating in diverse markets across the country. So as we continue to increase awareness of our logo, we hope to continue to see wonderful results. I’m very pleased with April and how it’s evolved, and we’re looking forward to the rest of the year.
Super. Merci. Et so, maybe just to dig a little deeper into your e-commerce projects this year, are you adding online SKUs, maybe a larger collection of tabletop textile products, inferior AOV products as well, AOV products?And have you noticed a date between the expansion of the e-commerce industry, when you open new stores, since you’re aware of construction, other people go to actual showrooms and then maybe shop online. Thank you.
Jennifer Porter
Yes. Hello smart morning. Excellent consultation. I think the undeniable answer is that we are excited about everything related to e-commerce. There are, like the rest of our business, many opportunities. As we work on introducing new products and expanding the collection, as John mentioned earlier, some of the categories we’re looking at, you’ll probably see on the online page as well. In addition to that, as you know, I’m going to tell you, we are constantly learning, testing and comparing how we provide the product to our consumers virtually as well. Therefore, we will not only introduce those new products online as those seasons are released, but we will also get smarter and smarter every day about how to bring this collection of products to consumers and therefore how we can ensure this loyalty in the market. level. at the right time during the product journey. I think one of the really exciting things virtually, as John commented, is that other people are starting to like more colors and more variety in their collections. There are all kinds of really amazing tactics to motivate other people and the color of the surface and maybe show the wild, super colorful, super (inaudible) nature in the place, but also show the two main elements, which are a little less difficult to access in a place. weekly. So there is much more to come as we have just discovered the collection of products, both visually and how it looks. We did not particularly communicate about product mix in response to your query about searching in quick categories, AOV and e-commerce. What we have communicated is that the AOV is superior to that of all our competition for the reasons you mentioned. We don’t have as many basic or smaller dinnerware pieces in our collection. We focus more on furniture. As I mentioned, there are opportunities everywhere. But for now we are really happy. We continue to use our virtual channels to support our comprehensive omnichannel logo. In fact, we consider our virtual channels not only as a sales channel, but also as an experienced channel, a logo awareness channel where we can offer what makes Arhaus special, but also the entire collection to our consumers. We really try to be present, but our consumers want to interact with us and therefore they are looking to improve conversion in showrooms and in e-commerce, and we make those decisions. Much more to come. I think you’ve reached the most sensible component of your query, but please let me know if I’m missing anything.
It’s perfect. Thanks a lot.
Jennifer Porter
Thank you.
Operator
Justin Kléber, Baird.
Justin Kléber
Hello everyone. Thank you for answering the questions. First of all, Dawn, you talked about the growing penetration of home designers. Can you give us some up-to-date benchmarks on that and where you are today, how it’s evolved, compared to the time of the IPO?I’m just looking to get a sense of what input you think this initiative is in, because it turns out it’s still a smart driving force for the company here.
The Dawn Shines
Yes. Therefore, we do not reveal the true call to penetration, but what satisfies us is how it continues to grow. And so, as we continue to check other staffing grades at the other volume locations that we have, we look to see how superior they are. So I would say we’re probably at circular 4 or 5, but we’re happy with it. with the functionality we are seeing. As John mentioned, we’re also delving into the advertising program and how we can continue to drive that business. And we know that craftsmanship and our home design program overlap in attractive ways. A great artistic collaboration happens when other like-minded people get together in a room and think about the safety of clients. Therefore, we expect to see a large expansion in activity in the home design program as the advertising program increases, but also as we continue to benchmark and refine our staffing style as it relates to that program. Those systems are working.
Justin Kléber
That’s wonderful to hear. Thank you. Thank you for all this color. And then my tracking is available. What if he simply reminded us or gave us a concept of what his recommendation entails from the perspective of a call?And let’s say that if the call ends up exceeding your internal plan, would you pass up the benefits?Or are you sure? Investments you could postpone this year for years to come?Thank you.
The Dawn Shines
Yes, that is a wonderful question. We do not consult the application. And so as we move into next year, we’re excited for this call and the composition to converge a little more to bring you more wonderful clarity. But when we think about the investments we want and want to make in the organization, whether they are strategic corporate investments in systems and processes or projects that drive expansion, such as e-commerce managed from home, there are a lot of opportunities for us from a of expansion in which we have not even begun to reach a similar agreement yet. It is, therefore, a resolution that the control will adopt as it progresses. That’s why we are satisfied with the direction we have for the year. And we are very positive about what is going to happen in the industry, what can happen to the consumer. That said, I’m a very conservative person, so I think about the downsides. But we have wonderful strength on our balance sheet with an excellent monetary position, so we’re actually confident about how we’re going to perform this year. And I’ll say more in the coming quarters about adjustments we might have. At this moment we believe that our purpose is achievable and we are satisfied with the investments we have been making lately and making plans for the year.
Justin Kléber
It is ok. Well, thank you very much and good luck.
The Dawn Shines
Thank you.
John Reed
Thank you.
Operator
Max Rakhlenko, TD Cowen.
Max Rajlenko
Hey, thank you so much for having me. I’m sorry if I missed this one before, I just took advantage of it, but what do you think about your cost proposition and maintaining the price differentials you’re comfortable with in order for the logo to succeed?And then, what might your response be? It seems as if some of your peers are lowering your values and it’s not just about holiday promotions?
The Dawn Shines
Yes, we are satisfied with our price proposition. We constantly compare our positioning in relation to the competition. But I’m going to give the floor to John in a second, but we’re very convinced of the aesthetics of the quality of our products and we’re very pleased with the way we’re positioned. But John, do you want to (inaudible)?
John Reed
Yes. If you see our business style, it is and has been: we go directly to the brands that actually make the products, we buy them from them, we ship them in boxes or trucks, we get them to one of our distribution centers and then directly to the consumer. Array We do not buy from middlemen, other people who mark the product in some way. We don’t use well-loved designers who need massive royalties for each and every piece we sell, things like that. So we literally have the most productive style that exists, without a doubt, in the high-end sector. And we think we price it high. But we don’t worry about other people cutting costs, etc. because you can’t buy our products from other people. This is exclusive to us. The looks are different. It’s incredible quality and incredible price. And if our competition lowers costs, it will still be an incredible price. So we focus on what we do most productively. And we have wonderful products that are literally wonderfully priced and incredibly quality. So it’s hard to beat; I think it’s hard to beat our product. (several speakers)
Max Rajlenko
It’s a color. To find.
John Reed
To find. Yes, we are answering the question.
Max Rajlenko
No, it’s a wonderful color. I apreciate it. And then, as a follow-up, we saw luxury home sales increase for six consecutive months. How curious, do you think we’ll start? If this started showing up on your applications potentially as soon as next. few moths?
Wendy Watson
Max, here’s Wendy. I’m going to play around with this. I’d like to take a look at some of those market statistics, and that’s clearly a positive sign. And the other thing I’ve noticed recently, and that I’m sure you’re aware of, is that the listings have increased even more. In this market they have increased more than home sales, so it’s a wonderful trend. But I just need to remind you that most of our sales are due to soft renovations, i. e. repainting the room, other things, remodels. Home sales are a determining factor, but they are much smaller than those other two factors.
Max Rajlenko
That’s great. Thank you guys so much, good luck.
John Reed
Thanks a lot.
Operator
Peter Keith, Piper Sandler.
Peter Keith
Hello, hello everyone. Good results. Price is becoming a vital topic as the year progresses. And I wondered if he could tell us what he thinks. I know you’re not very exposed to China, but maybe you do quantify it, and also how did you adapt to the price lists put in place and the furniture in 2018?
John Reed
Of course. In 2018 we were disappointed because we didn’t like the 25% tariff. But we had to accept price increases and our customers accepted them and we moved forward. What we did was start without delay to take the products out of China if we had them in China. And just to remind you, first of all, we had very few products in China. Certainly much less than our competitors. Therefore, most of the big ones have gone to establish themselves in other countries. Otherwise, they move quickly. And we will be in a great position if the stock charts achieve 150% success, as we have heard. Someone said the other day that we would not lack anything. We’ll be fine, in good shape. And again, we’re working hard to adjust things, move them if we need to. A considerable amount was repatriated to North America, then to countries such as Indonesia, Vietnam, Cambodia, etc. , for some Asian countries. some products. And our suppliers, who we are incredibly unwavering with, are incredibly unwavering with us. Now that they are in China, they will have to leave. They need to do business with us and they have worked very hard to achieve this.
Peter Keith
It is ok. And maybe right now, the question is about Dawn and the tips. With the competitor’s recommendation, I guess the only thing I have a hard time understanding is the top strain in the first part, some of which, I know, come from the new warehouse control system. But that big tension in the first part led to flat to positive alignments at the back and yet at the same time, I think the lag comparisons are a bit heavier at the back, so could you help me?We are the ones who contribute to this great acceleration or improvement of the composition throughout the year.
The Dawn Shines
So we ended last year with a fairly normalized retention rate, with January being one of our most important months of the year due to a call to attitude (technical difficulties). It just has a more significant effect in the first trimester and a little bit. a little bit in the second trimester. So when we took a look at our request for delivery of the hopper, we thought, both in the composition aspect and in the look of the new showroom, what else can we deliver in the second part of the founding year. About that and how the call is coming, January was a bit mild due to the weather and then the opening of new showrooms. Basically, it’s because of that front row, Peter.
Peter Keith
It is ok. Very well. Thanks a lot.
The Dawn Shines
Of course.
John Reed
Thank you.
Operator
That concludes our Q&A session. I will now return the conference to the speakers for their closing remarks.
Wendy Watson
Thank you all for participating and we look forward to seeing you again next quarter.
John Reed
Thank you all. Have a day.
Operator
Ladies and gentlemen, this concludes today’s appeal. Thank you all for participating. You can now log out.