Arhaus : 2023 Annnal Report

2023 ANNUAL REPORT

WE ARE KEEPERS of a BEAUTIFUL SECRET

Crafted by skillful hands. Painted in careful brushstrokes. Sculpted. Woven. Carved.

Ours is a secret, made to be shared.

Whether in the rolling foothills of North Carolina or villages in Italy and Mexico, our artisan partners create with passion and unmatched ingenuity. Their artistry can be seen and felt in every piece we offer-just as it has for more than 30 years.

AT ARHAUS, OUR CRAFTSMANSHIP IS BEYOND COMPARE

AND OUR QUALITY IS WITHOUT COMPROMISE.

When you hear our uncommon stories, or find yourself wandering one of our immersive, inspiring showrooms… you'll discover it. When you spend time exploring our expansive

digital experience, you'll see it for yourself.

We are keepers of a beautiful secret-one that's meant to be shared.

INTRODUCING ARHAUS: DOUBLING OUR SHOWROOM FOOTPRINT AND BUILDING BRAND AWARENESS

OUR SHOWROOMS ARE AN AUTHENTIC EXPRESSION OF WHO WE ARE.

We curate inviting spaces, meticulously layered footprints, and compelling digital presentations to take every visitor on the journey of their choosing, always letting inspiration lead the way. The tremendous opportunity to continue adding new showrooms across the U.S. will present the most immersive touchpoint to our brand to more and more potential new clients.

With 80 Traditional Showrooms today that can grow to 165+ along with incremental Design Studios, our runway for new showroom growth is unique and enviable in its scope and duration. We target adding five to seven new Traditional Showrooms each year, plus incremental Design Studios.

In 2023, we entered 11 new markets in locations as varied as Peabody, Massachusetts, Asheville, North Carolina, and Newport Beach, California, ending the year with 92 showrooms.

In 2024, we plan to open nine to eleven additional new locations and will exit the year with over 100 showrooms.

TRADITIONAL - 80

A LETTER FROM JOHN REED, FOUNDER, CHAIRMAN AND CHIEF EXECUTIVE OFFICER

This year, Arhaus is embarking on our 38th year in business, and our 38th year being driven by the simple idea that furniture and décor should be responsibly sourced, lovingly made, and built to last.

Our vision as the premium home furnishing destination in the U.S. is to stand for impeccable design, incomparable craftsmanship, inspirational presentation, and responsibly sourced home furnishings that are artisan-made to last for generations. In our endeavor to provide high quality, livable luxury furnishings, we delivered another outstanding year in 2023 with record net revenue of $1.3 billion, net income of $125 million and adjusted EBITDA1 of $203 million. We expect these financial trends to continue in 2024.

In 2023, we continued to invest in the parts of our business that differentiate us, and we plan to continue doing so in 2024.

SHOWROOMS AND ECOMMERCE - Our showrooms are an authentic expression of who we are. We curate inviting spaces, meticulously layered footprints, and compelling digital presentations to take every visitor on the journey of their choosing, always letting inspiration lead the way. Last year, we completed the largest number of showroom projects in our history, opening 11 new showrooms and renovating, relocating, and expanding eight. We ended 2023 with 92 showrooms, and expect another year of above-average showroom growth in 2024, with plans to have more than 100 showrooms by year end. Not only do they expand our geographic footprint, our showrooms are the most immersive touchpoints to our brand, and the biggest drivers of our brand awareness. The large percentage of potential clients who are not yet familiar with Arhaus presents a sizeable and exciting opportunity for growth-one that we will continue to pursue.

PRODUCT - Our product is designed using the best natural materials and with an unparalleled focus on quality and comfort. We are curious world travelers, and our mission to design and craft the best furniture and décor leads us to work alongside some of the most talented designers and craftspeople on Earth. In 2023, we launched what we believe to be some of our strongest new product collections ever, building both breadth and depth in our products and in our categories. We also launched the incredible Storied campaign across our retail footprint and digital channels, sharing who we are as a brand through the lens of the workshops and stories of our artisan partners around the world.

We build authentic relationships, inspiring and supporting our clients at every step of their journeys. We encourage exploration and customization, and we are never defined by a single style. Instead, we encourage and help our clients curate the unique styles of their homes.

This year, our new product launches will build and expand on the strength of what we brought to market in 2023, while also highlighting our unique perspectives as a brand.

SUSTAINABILITY - I am so proud of the important investment we made to help protect the critical rainforests of Borneo, Indonesia, through our $10 million commitment to The Nature Conservancy. The Borneo Rainforests are the oldest tropical forests on Earth, and home to the highest levels of biological diversity in the world-including the critically endangered orangutan.

LOOKING AHEAD - As we look to 2024 and beyond, our goal will remain: To inspire you at every touchpoint through our uncompromising commitment to artisan-crafted, heirloom-quality furniture, while we continue the path of growing our showroom footprint and introducing Arhaus to new clients.

I am excited about the opportunities for our business and our brand-both of which, even though I have been at this for close to 40 years, feel as though they are still in their early days with the best yet to come. We are a team of designers and dreamers and doers, as passionate as we are curious. Our near- and long-term prospects, combined with our team's strong and disciplined execution of strategic priorities and bolstered by our debt free balance sheet, have us well positioned to deliver on our financial and operational goals. I hope you visit us often in one of our showrooms and at Arhaus.com.

In closing, I want to personally congratulate every one of our team members on a job well done in 2023, and I want to thank them for their dedication to Arhaus and our clients. I am looking forward to what we will continue to build together in 2024!

Sincerely,

JOHN REED

1Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures,

Founder, Chairman & Chief Executive Officer

please refer to page 110 for reconciliation.

4

2023 ANNUAL REPORT

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

• ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  For the fiscal year ended December 31, 2023

  OR

• ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

  OF 1934

  For the transition period from to

Commission file number 001-41009

Arhaus, Inc.

(Exact name of registrant as specified in its charter)

Delaware

87-1729256

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

51 E. Hines Hill Road, Boston Heights, Ohio

(Address of Principal Executive Offices)

44236

(Zip Code)

[phone]

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, $0.001 par value per share	ARHS	The Nasdaq Global Select Market

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☒

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes ☐

No ☒

Based on the closing sales price as reported on The Nasdaq Global Select Market on June 30, 2023, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant on that date was approximately $211.9 million.

As of February 29, 2024, the registrant had 53,169,711 shares of Class A common stock and 87,115,600shares of Class B common stock outstanding.

Documents Incorporated By Reference:

Portions of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held May 16, 2024 are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent stated herein.

Table of Contents

Item 1A. Risk Factors

Item 3. Legal Proceedings

Item 15. Exhibits and Financial Statement Schedules

Item 4. Mine Safety Disclosures

Page
Part I	3
3
12
42
42
43
43
43
Part II	44
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities	44
[Reserved]	45
Management's Discussion and Analysis of Financial Condition and Results of Operations	46
Quantitative and Qualitative Disclosures About Market Risk	54
Financial Statements and Supplementary Data	56
Consolidated Balance Sheets	59
Consolidated Statements of Comprehensive Income	60
Consolidated Statements of Changes in Stockholders'/Members' Equity (Deficit)	61
Consolidated Statements of Cash Flows	63
Notes to Consolidated Financial Statements	65
Changes in and Disagreements With Accountants on Accounting and Financial Disclosures	96
Controls and Procedures	96
Other Information	98
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	98
99
Directors, Executive Officers and Corporate Governance	99
Executive Compensation	102
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	102
Certain Relationships and Related Transactions, and Director Independence	102
Principal Accountant Fees and Services	102
103
103
107
108

Item 1. Business

Item 1B. Unresolved Staff Comments Item 1C. Cybersecurity

Item 2. Properties

Item 5.

Item 6.

Item 7.

Item 7A.

Item 8.

Item 9.

Item 9A.

Item 9B.

Item 9C.

Part III

Item 10.

Item 11.

Item 12.

Item 13.

Item 14.

Part IV

Item 16. Form 10-K Summary

Signatures

Special Note Regarding Forward-Looking Statements

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this 10-K. This Annual Report on Form 10-K (the "Annual Report" or "10-K") contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or are proven incorrect, could cause our business and results of operations to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements can generally be identified by the use of forward-looking terminology, including, but not limited to, "may," "could," "seek," "guidance," "predict," "potential," "likely," "believe," "will," "expect," "anticipate," "estimate," "plan," "intend," "forecast," or variations of these terms and similar expressions, or the negative of these terms or similar expressions. Past performance is not a guarantee of future results or returns and no representation or warranty is made regarding future performance. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond our control that could cause our actual results, performance or achievements to be materially different from the expected results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the following:

• • Our ability to manage and maintain the growth rate of our business;

• • Our ability to obtain quality merchandise in sufficient quantities;

• • Disruption in our receiving and distribution system, including delays in the integration of our distribution centers and the possibility that we may not realize the anticipated benefits of multiple distribution centers;

• • The possibility of cyberattacks and our ability to maintain adequate cybersecurity systems and procedures;

• • Loss, corruption and misappropriation of data and information relating to clients and employees;

• • Changes in and compliance with applicable data privacy rules and regulations;

• • Risks as a result of constraints in our supply chain;

• • A failure of our vendors to meet our quality standards;

• • Declines in general economic conditions that affect consumer confidence and consumer spending that could adversely affect our revenue;

• • Our ability to anticipate changes in consumer preferences;

• • Risks related to maintaining and increasing Showroom traffic and sales;

• • Our ability to compete in our market;

• • Our ability to adequately protect our intellectual property;

• • Compliance with applicable governmental regulations;

• • Effectively managing our eCommerce business and digital marketing efforts;

• • Our reliance on third-party transportation carriers and risks associated with freight and transportation costs; and

• • Compliance with SEC rules and regulations as a public reporting company.

The risks, uncertainties and assumptions referred to above that could cause our results to differ materially from the results expressed or implied by such forward-looking statements include, but are not limited to, those discussed under Item 1A. Risk Factors, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Annual Report. All forward-looking statements included in this document are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements. These statements are based on information available to us as of the date of this 10-K. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

We are including this cautionary note to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or for any other reason.