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What changed in Arhaus, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Arhaus, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+270 added−282 removedSource: 10-K (2025-02-26) vs 10-K (2024-03-11)

Top changes in Arhaus, Inc.'s 2024 10-K

270 paragraphs added · 282 removed · 226 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

56 edited+8 added−7 removed47 unchanged
Biggest changeWe have taken measures to comply with the requirements of Proposition 65, but there is no guarantee that we will not be subject to fines, penalties, and lawsuits and complaints in the future. 10 Failure to comply with such laws and regulations, which tend to become more stringent over time, can result in significant fines, penalties, costs, and liabilities, which may be joint and several, or restrictions on operations, civil or criminal sanctions, and could expose us to costs of investigation or remediation, as well as tort claims, and could negatively affect our business, financial condition or results of operations.
Biggest changeFailure to comply with such laws and regulations, which tend to become more stringent over time, can result in significant fines, penalties, costs, and liabilities, which may be joint and several, or restrictions on operations, civil or criminal sanctions, and could expose us to costs of investigation or remediation, as well as tort claims, and could negatively affect our business, financial condition or results of operations. 10 Information About Our Executive Officers Refer to Item 10 of this Annual Report for information on the Company's executive officers, which is incorporated herein by reference.
W e have and will continue to si gnificantly invest in our product development capabilities, including key strategic hires made over the past few years. We believe these investments will allow us to enhance our competitive advantages of offering clients premium quality and customized product at a compelling value and ultimately drive net revenue growth.
W e have invested, and will continue to si gnificantly invest, in our product development capabilities, including key strategic hires made over the past few years. We believe these investments will allow us to enhance our competitive advantages of offering clients premium quality and customized product at a compelling value and ultimately drive net revenue growth.
Diversity, Equity and Inclusion We believe that much of our success is rooted in the diversity of our teams and our commitment to a diverse and inclusive culture. We value diversity at all levels and focus on extending our diversity and inclusion initiatives across our entire workforce.
We believe that much of our success is rooted in the diversity of our teams and our commitment to a diverse and inclusive culture. We value diversity at all levels and focus on extending our diversity and inclusion initiatives across our entire workforce.
We have longstanding relationships with our vendors which allow us a number of competitive advantages, including the ability to maintain consistent quality and ensure the majority of our products, approximately 95% based on net revenue in 2023, can only be purchased from Arhaus.
We have longstanding relationships with our vendors which allow us a number of competitive advantages, including the ability to maintain consistent quality and ensure the majority of our products, approximately 95% based on net revenue in 2024, can only be purchased from Arhaus.
We have longstanding relationships with our vendors which allow us a number of competitive advantages, including the ability to maintain consistent quality and ensure the majority of our products, approximately 95% based on net revenue in 2023, can only be purchased from Arhaus.
We have longstanding relationships with our vendors which allow us a number of competitive advantages, including the ability to maintain consistent quality and ensure the majority of our products, approximately 95% based on net revenue in 2024, can only be purchased from Arhaus.
Omni-Channel Approach We distribute our products through an omni-channel model, and our clients can purchase our products in our Showrooms, through our eCommerce platform, via print and digital media and by utilizing our in-home designer services. Our retail locations are Showrooms for our brand, and our website acts as a virtual extension of our Showrooms.
Omni-Channel Approach We distribute our products through an omni-channel model, and our clients can purchase our products in our Showrooms, through our eCommerce sales channel, via print and digital media and by utilizing our in-home designer services. Our retail locations are Showrooms for our brand, and our website acts as a virtual extension of our Showrooms.
Our Showrooms are highly inspirational and function as an invaluable brand awareness vehicle, while our eCommerce platform acts as a virtual extension of our Showrooms. Our seasoned sales associates and in-home designers provide expert advice and assistance to our client base that drives significant client engagement.
Our Showrooms are highly inspirational and function as an invaluable brand awareness vehicle, while our eCommerce sales channel acts as a virtual extension of our Showrooms. Our seasoned sales associates and in-home designers provide expert advice and assistance to our client base that drives significant client engagement.
In-home designer services provide a more personalized client experience and produce average order values (AOVs) over four times that of a standard order. Strong Direct Global Sourcing Relationships Our direct global sourcing relationships allow us to provide superior quality, differentiated customization and attractive value.
In-home designer services provide a more personalized client experience and produce average order values (“AOVs”) over four times that of a standard order. Strong Direct Global Sourcing Relationships Our direct global sourcing relationships allow us to provide superior quality, differentiated customization and attractive value.
Décor ranges from wall art to mirrors, vases to candles, and many other decorative accessories. Many of our products are conceived of, and developed by, our in-house design team of over 50 hi ghly skilled and experienced members.
Décor ranges from wall art to mirrors, vases to candles, and many other decorative accessories. Many of our products are conceived of, and developed by, our in-house design team of over 40 hi ghly skilled and experienced members.
Item 1. Business Overview Founded in 1986 by John Reed, our current Chief Executive Officer (“CEO”) and his father, Arhaus, Inc. (“Arhaus,” “Company,” “we,” “us” or “our”) is a rapidly growing lifestyle brand and omni-channel retailer of premium home furnishings. We were founded on a simple idea: furniture should be responsibly sourced, lovingly made and built to last.
Item 1. Business Overview Founded in 1986 by John Reed, our current Chief Executive Officer (“CEO”) and his father, Arhaus, Inc. (“Arhaus,” “Company,” “we,” “us” or “our”) is a growing lifestyle brand and omni-channel retailer of artisan-crafted home furnishings. We were founded on a simple idea: furniture should be responsibly sourced, lovingly made and built to last.
In addition to our current Traditional Showroom model, our Design Studio format (approximately 5,000 sq. ft.) is an extension of our in-home design services and carries a highly curated product selection in smaller, attractive markets. Enhance Omni-Channel Capabilities and Technology to Drive Growth We have several initiatives that continue to enhance our omni-channel capabilities.
In addition to our current Traditional Showroom model, our Design Studio format (approximately 5,400 sq. ft. on average) is an extension of our in-home design services and carries a highly curated product selection in smaller, attractive markets. Enhance Omni-Channel Capabilities and Technology to Drive Growth We have several initiatives that continue to enhance our omni-channel capabilities.
This allows us to offer an exclusive assortment of products to our clients at an attractive value. 6 We have a diversified ba se of over 400 vendors, and our top 10 vendors represent approximately 60% of our net revenue.
This allows us to offer an exclusive assortment of products to our clients at an attractive value. 6 We have a diversified ba se of over 400 vendors, and our top 10 vendors, including our internal manufacturer, represent approximately 60% of our net revenue.
Real Estate Strategy Our Showrooms have historically been in high traffic locations, and we favor top tier locations near luxury and contemporary retailers that we believe are consistent with our target clients’ demographic and shopping preferences. From January 1, 2022 to December 31, 2023, we successfully opened or relocated 18 new Showrooms.
Real Estate Strategy Our Showrooms have historically been in high traffic locations, and we favor top tier locations near luxury and contemporary retailers that we believe are consistent with our target clients’ demographic and shopping preferences. From January 1, 2023 to December 31, 2024, we successfully opened or relocated 30 new Showrooms.
Our vertical model and direct sourcing furnish clients with superior quality products and compelling value at attractive profit margins. We reported gross margin as a percent of net revenue of 42.0%, 42.7% and 41.4% for the years ended December 31, 2023, 2022 and 2021, respectively.
Our vertical model and direct sourcing furnish clients with superior quality products and compelling value at attractive profit margins. We reported gross margin as a percent of net revenue of 39.4% , 42.0% and 42.7% for the years ended December 31, 2024, 2023 and 2022, respectively.
Available Information We will make available, free of charge, on or through our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and Forms 3, 4 and 5 filed on behalf of directors and executive officers, as well as any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S.
Available Information We will make available, free of charge, on or through our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and Forms 3, 4 and 5 filed on behalf of directors and executive officers, as well as any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the United States Securities and Exchange Commission (“SEC”).
Our North Carolina facility doubled our in-house upholstery manufacturing capacity, improved our production efficiency and increased production square footage from 150,000 to 190,000. Our Industry and Market Opportunity We operate within the approximately $400 billion U.S. home furnishings and décor market.
Our North Carolina facility doubled our in-house upholstery manufacturing capacity, improved our production efficiency and increased production square footage from 150,000 to 190,000. Our Industry and Market Opportunity We operate within the approximately $400 billion United States home furnishings and décor market.
We believe there is potential to more than double our current Traditional Showroom base to ove r 165 locations in the United States in both new and existing markets. Illustrated by the success of our geographically diverse Showroom footprint, our omni-channel model has performed well in every region of the country, across retail formats and across market sizes.
We believe there is potential to substantially grow our current Traditional Showroom base to ove r 165 locations in the United States in both new and existing markets. Illustrated by the success of our geographically diverse Showroom footprint, our omni-channel model has performed well in every region of the country, across retail formats and across market sizes.
Securities and Exchange Commission (“SEC”). We maintain our website at www.arhaus.com. The information contained on our website is not part of this Annual Report. The SEC maintains a website that contains reports, proxy statements and other information regarding issuers that file electronically. The address of that website is www.sec.gov.
We maintain our website at www.arhaus.com. The information contained on our website is not part of this Annual Report. The SEC maintains a website that contains reports, proxy statements and other information regarding issuers that file electronically. The address of that website is www.sec.gov.
Our omni-channel model allows clients to begin or end their shopping experience online while also experiencing our theater-like Showrooms throughout the shopping process. We believe our omni-channel approach enables us to offer a compelling combination of design, quality and value. Showrooms As of December 31, 2023, we operated 92 Showrooms in 29 states.
Our omni-channel model allows clients to begin or end their shopping experience online while also experiencing our theater-like Showrooms throughout the shopping process. We believe our omni-channel approach enables us to offer a compelling combination of design, quality and value. Showrooms As of December 31, 2024, we operated 103 Showrooms in 30 states.
In-home Desig ner Services . We welcome all clients to use our complimentary in-home designer services with no appointment required. Our in-home designer s, who work with clients in the Showroom and travel to our clients’ residences, work in unison with our Showrooms and eCommerce platform to drive client conversion, order size and overall experience.
We welcome all clients to use our complimentary in-home designer services with no appointment required. Our in-home designer s, who work with clients in the Showroom and travel to our clients’ residences, work in unison with our Showrooms and eCommerce sales channels to drive client conversion, order size and overall experience.
We believe that increased brand awareness will lead to higher net revenue in our Showrooms and eCommerce business over time.
We believe that increased brand awareness will lead to higher net revenue in our Showrooms and eCommerce sales channels over time.
Our recent Showroom growth is summarized in the following table: 2023 2022 Showrooms open at beginning of period 81 79 Showrooms opened (1) 14 4 Showrooms closed for relocations (3) (1) Showrooms closed permanently — (1) Showrooms open at end of period 92 81 (1) Showrooms opened during the respective periods includes both new and relocated Showrooms.
Our recent Showroom growth is summarized in the following table: 2024 2023 Showrooms open at beginning of period 92 81 Showrooms opened (1) 16 14 Showrooms closed for relocations (5) (3) Showrooms open at end of period 103 92 (1) Showrooms opened during the respective periods includes both new and relocated Showrooms.
The following lists the number of Showrooms in each U.S. state where we operate as of December 31, 2023: Locations Showrooms Locations Showrooms Alabama 1 Minnesota 1 Arizona 2 Missouri 1 California 10 New Hampshire 1 Colorado 5 New Jersey 5 Connecticut 2 New York 4 Florida 8 North Carolina 3 Georgia 2 Ohio 9 Illinois 5 Pennsylvania 3 Indiana 1 South Carolina 1 Kansas 1 Tennessee 1 Kentucky 2 Texas 7 Louisiana 1 Utah 1 Maryland 4 Virginia 4 Massachusetts 3 Wisconsin 1 Michigan 3 7 The following lists the composition of our Showrooms as of: 2023 2022 Traditional Showrooms 80 72 Design Studios 8 6 Outlets 4 3 Total Showrooms 92 81 eCommerce Our eCommerce platform allows our clients to shop our product assortment and experience the unique lifestyle settings reflected in our Showrooms and print media.
The following lists the number of Showrooms in each state where we operate within the United States as of December 31, 2024: Locations Showrooms Locations Showrooms Alabama 1 Minnesota 1 Arizona 2 Missouri 1 California 14 New Hampshire 1 Colorado 6 New Jersey 5 Connecticut 3 New York 4 Florida 8 North Carolina 4 Georgia 3 Ohio 9 Illinois 5 Oklahoma 1 Indiana 1 Pennsylvania 4 Kansas 1 South Carolina 1 Kentucky 3 Tennessee 1 Louisiana 1 Texas 7 Maryland 4 Utah 1 Massachusetts 3 Virginia 4 Michigan 3 Wisconsin 1 7 The following lists the composition of our Showrooms as of each period presented: December 31, 2024 2023 Traditional Showrooms 85 80 Design Studios 11 8 Outlets 7 4 Total Showrooms 103 92 eCommerce Our eCommerce sales channel allows our clients to shop our product assortment and experience the unique lifestyle settings reflected in our Showrooms and print media.
Our new website creates a more interactive process through the use of virtual shopping tools that allow clients to visualize our products in their homes. Optimize Product Ass ortment. We continue building our product assortment to attract new clients and encourage repeat purchases from existing clients.
Our website creates a more interactive process through the use of chat functionality allowing clients to connect directly with interior designers and virtual shopping tools to help clients better visualize our products in their homes. Optimize Product Ass ortment. We continue building our product assortment to attract new clients and encourage repeat purchases from existing clients.
We believe that the premium segment has a potential CAGR of approximately 6% between 2022 and 2025. Our Products, Sourcing and Product Development We are a lifestyle brand and omni-channel retailer of premium home furnishings focused on providing livable luxury to clients. Our unique concept is dedicated to bringing clients heirloom quality, artisan-made furniture and décor.
Our Products, Sourcing and Product Development We are a lifestyle brand and omni-channel retailer of premium home furnishings focused on providing livable luxury to clients. Our unique concept is dedicated to bringing clients heirloom quality, artisan-made furniture and décor.
Our omni-channel model allows clients to begin or end their shopping journey online, while also experiencing our theater-like Showrooms throughout the shopping journey. As of December 31, 2023, we operated 92 Showrooms in 29 states, consisting of 80 Traditional Showrooms, 8 Design Studios and 4 Outlets. Our business witnessed strong performance over the last three years.
Our omni-channel model allows clients to begin or end their shopping journey online, while also experiencing our theater-like Showrooms throughout the shopping journey. As of December 31, 2024, we operated 103 Showrooms in 30 states, consisting of 85 Traditional Showrooms, 11 Design Studios and 7 Outlets. Our business witnessed healthy performance over the last three years.
The “Arhaus ® ” trademark is also registered with the China National Intellectual Property Administration (CNIPA) and the Canadian Intellectual Property Office. Our trademark registrations are valid and subsisting and are renewable at the end of their term.
The “Arhaus ® ” trademark is also registered with the China National Intellectual Property Administration (CNIPA) and the Canadian Intellectual Property Office. Our trademark registrations are valid and subsisting and are renewable at the end of their term. In addition, we own the domain names “arhaus.com,” “arhaus.net” and “arhausfurniture.com.” These domain names are renewable.
Our approach begins in our visually captivating, theater-like Showrooms. Our Showrooms drive brand awareness and create meaningful marketing buzz and volume uplift when we open in new markets. Our unit growth strategy is highly complementary to our eCommerce platform. As Showrooms open in new markets, we experience significant growth in our eCommerce business and overall client engagement across channels.
Our approach begins in our visually captivating, theater-like Showrooms. Our Showrooms drive brand awareness and create meaningful marketing buzz and volume uplift when we open in new markets. Our unit growth strategy is highly complementary to our eCommerce sales channel.
Competition The U.S . home furnishings and décor market is highly fragmented and competitive with approximately 23,000 retail establishments as of 2022, according to Bureau of Labor Statistics.
Competition The United States home furnishings and décor market is highly fragmented and competitive with approxim ately 23,000 retail establishments as of 2023, according to the Bureau of Labor Statistics.
Our Showroom composition includes 80 Traditional Showrooms, 8 Design Studios and 4 Outlets. Our Traditional Showrooms average approximately 16,000 square feet and our smaller format Design Studios average approximately 5,000 square feet. Our theater-like Showrooms are highly inspirational and function as an invaluable brand awareness vehicle.
Our Traditional Showrooms average approximately 16,600 square feet and our smaller format Design Studios average approximately 5,400 square feet. Our theater-like Showrooms are highly inspirational and function as an invaluable brand awareness vehicle.
As of that date, approximately 1,000 of our employees were based in our Showrooms, 420 of our employees were based in our warehouses, distribution centers and third party logistic warehouses, 230 of our employees were based in our manufacturing facility, and 640 of our employees were based in our corporate headquarters.
As of that date, approximately 1,160 of our employees were based in our Showrooms, 430 of our 9 employees were based in our warehouses, distribution centers and third party logistic warehouses, 270 of our employees were based in our manufacturing facility, and 690 of our employees were based in our corporate headquarters.
We will continue to innovate and invest in value-added digital and technological capabilities across our omni-channel footprint. Invest in Growth to Build Scale and Enhance Margins We have the opportunity to further drive net revenue and enhance operating margins by continuing to focus on our operating efficiency, including distribution and manufacturing capacity. Enhanced Distribution Efficiency and Capacity.
Invest in Growth to Build Scale and Enhance Margins We have the opportunity to further drive net revenue and enhance operating margins by continuing to focus on our operating efficiency, including distribution and manufacturing capacity. Enhanced Distribution Efficiency and Capacity.
Using these engagement methods within our omni-channel model contributes significantly to our brand awareness . We believe that continued investment in brand marketing, data-l ed insights and effective consumer targeting will expand and strengthen our client reach. Grow eCommerce Platform. eCommerce represents our fastest growing channel, with net revenue increasing by approximately 17% in 2023 compared to 2022.
Using these engagement methods within our omni-channel model contributes significantly to our brand awareness . We believe that continued investment in brand marketing, data-l ed insights and effective consumer targeting will expand and strengthen our client reach. Grow eCommerce Sales Channe l.
We also distribute catalogs for specific categories such as outdoor furnishings, special collections and certain holidays. In addition, we advertise consistently across digital platforms and regularly partner with social media influencers to drive brand awareness. Our print and digital media strategy drives both Showroom and eCommerce net revenue as it raises brand awareness and showcases new merchandise.
In addition, we advertise consistently across digital platforms and regularly partner with social media influencers to drive brand awareness. Our print and digital media strategy drives both Showroom and eCommerce net revenue as it raises brand awareness and showcases new merchandise. In-home Desig ner Services .
Our long-term plan anticipates opening five to seven new Traditional Showrooms plus incremental Design Studios, per year for the foreseeable future. We employ a data-driven, thorough process to select and develop new Showroom locations.
Our long-term plan anticipates opening on average five to seven new Traditional Showrooms per year, along with additional Design Studios as well as relocations within the same market. We employ a data-driven, thorough process to select and develop new Showroom locations.
Our long-standing direct sourcing partnerships were a significant contributor to our success, as many of our vendors increased capacity to help facilitate our net revenue growth. We benefited from these important, long-term relationships as our vendors worked with us to help meet the unprecedented increase in client demand and significant backlog that we experienced in recent years.
We benefited from these important, long-term relationships as our vendors worked with us to help meet the unprecedented increase in client demand and relieve significant backlog that we had experienced in recent years.
Clients increasingly engage with us through digital methods including our website and social media. To capitalize on these trends and continue increasing our client base, we continue to leverage data analytics to improve the client journey from the moment clients begin browsing online or enter our Showrooms.
To capitalize on these trends and continue increasing our client base, we continue to leverage data analytics to improve the client journey from the moment clients begin browsing online or enter our Showrooms. This will allow us to target clients with personalized digital offerings to increase online conversion and client lifetime value .
Marketing and Advertising We use a variety of marketing and advertising approaches to drive client traffic across all of our channels, strengthen and reinforce brand awareness, attract new clients and encourage repeat purchases from existing clients. We believe our Showrooms, catalogs, mailings, digital offerings and social media engagement, among other things, act as important branding and advertising vehicles.
Marketing and Advertising We use a variety of marketing and advertising approaches to drive client traffic across all of our sales channels, strengthen and reinforce brand awareness, attract new clients and encourage repeat purchases from existing clients.
Our website creates a more interactive shopping process through the use of virtual shopping tools to aid clients in visualizing our products in their homes. Our eCommerce platform also provides our clients with the ability to chat with a designer through our online design services tools. We update our website regularly to reflect new products, product availability and special offers.
Our website creates a more interactive shopping process through the use of chat functionality allowing clients to connect directly with interior designers and virtual shopping tools to help clients better visualize our products in their homes. We update our website regularly to reflect new products, product availability and special offers.
We employ a targeted approach with our print and digital media and also identify lifestyle-driven opportunities to reach potential clients, such as sending postcards or small mailers to clients and potential clients who have recently moved. We also employ a digital strategy to reach clients and potential clients through social media, influencers and other digital marketing.
Print and Digital Media Our spring and fall catalogs are distributed in both digital and physical formats. We employ a targeted approach with our print and digital media and also identify lifestyle-driven opportunities to reach potential clients, such as small mailers to clients and potential clients who have recently moved.
Our Dallas, Texas facility is approximately 800,700 square feet and is managed by a third party. Our facility in North Carolina has approximately 497,000 square feet of space, with approximately 307,000 square feet dedicated to distribution and the remainder primarily dedicated to manufacturing.
Our facility in North Carolina has approximately 497,000 square feet of space, with approximately 307,000 square feet dedicated to distribution and the remainder primarily dedicated to manufacturing. We also partner with third-party vendors to provide home delivery services to our clients.
Our print and digital media strategy serves as a key driver of net revenue through both our Showrooms and website. Our clients respond to the catalogs mailings and digital offerings across all of our channels, with net revenue trends closely correlating to the assortments that we emphasize and feature prominently in our media.
We believe our Showrooms and website, catalogs, mailings, digital offerings and social media engagement, among other things, act as important branding and advertising vehicles. Our print and digital media strategy serves as a key driver of net revenue through both our Showrooms and website. Our clients respond to the catalogs mailings and digital offerings across all of our channels.
We offer merchandise in a number of categories, including furniture, outdoor, lighting, textiles, and décor. Our curated assortments are presented across our merchandise sales channels in sophisticated, family friendly and unique lifestyle settings.
We offer merchandise in a number of categories, including furniture, outdoor, lighting, textiles and décor. Our curated assortments are presented across our merchandise sales channels in sophisticated, family friendly and unique lifestyle settings. Based on third-party reports, publicly available data and our internal research, we estimate the United States premium home furnishing market is approximately $100 billion.
Additionally, we partner with third-party vendors to provide home delivery services to our clients. These distribution centers serve all of our channels. Our Boston Heights, Ohio facility is approximately 1,003,500 square feet , approximately 900,000 square feet of this facility is dedicated to distribution and the remainder serves as our corporate headquarters.
Our distribution centers serve all of our sales channels. Our Boston Heights, Ohio facilities are approximately 1,028,500 square feet , approximately 900,000 square feet of this facility is dedicated to distribution and the remainder serves as our corporate headquarters. Our Dallas, Texas facility is approximately 800,700 square feet and is managed by a third party.
In a market characterized by small, independent competitors, we believe our premium lifestyle positioning, artisan-crafted style, superior quality, significant scale and level of convenience will enable us to increase our market share. 3 Highly Experiential Omni-Channel Approach We strive to offer our products to our clients via our omni-channel approach and operate our business in a channel agnostic way.
We serve our clients through our Showrooms and eCommerce sales channels, print and digital media and high-quality client 3 service. In a market characterized by small, independent competitors, we believe our premium lifestyle positioning, artisan-crafted style, superior quality, significant scale and level of convenience will enable us to increase our market share.
At December 31, 2023, our top 10 Showrooms by net revenue are located in 9 different states, and our model has proven successful in a variety of markets and economic cycles. Our goal is to open five to seven new Traditional Showrooms plus incremental Design Studios, per ye ar for the foreseeable futur e .
At December 31, 2024, our top 10 Showrooms by net revenue are located in 9 different states, and our model has proven successful in a variety of markets and economic cycles.
Driven by investment in our digital platform, we believe we can increase our eCommerce penetration over time. Print and Digital Media . We distribute two large catalogs each year, a spring and a fall edition, in both an online and physical format to millions of households, which have yielded strong results.
We distribute two large catalogs each year, a spring and a fall edition, in both an online and physical format to millions of households, which have yielded strong results. We also distribute smaller mailers and postcards throughout the year to targeted audiences.
In-home Designer Services Our in-home designers, who work with clients in the Showroom and travel to our clients’ residences, work in unison with our Showrooms and eCommerce platform to drive client conversion, order size and over all experience. Our in-home designer services provide a more personalized client experience and produce AOVs over four times that of a standard order.
Our in-home designer services provide a more personalized client experience and produce AOVs over four times that of a standard order. We welcome all clients to use our complimentary in-home designer services with no appointment required.
Similar in concept to our in-home designer program, our online designer platform provides clients with expert 5 service and advice from our design professionals via online video chat and virtual design capabilities. We believe bolstering this component of the client experience will drive higher client satisfaction and result in larger total company AOV over time.
To further strengthen client engagement and increase client interactions, we continue to expand our designer programs, both in-home and online. Similar in concept to our in-home designer program, our online designer platform provides clients with expert 5 service and advice from our design professionals via online video chat and virtual design capabilities.
Leveraging our proprietary data and technology, we are able to meet our clients wherever they want to shop, whether online or in one of our 92 Showrooms. Our product development and omni-channel go-to-market capabilities, together with our infrastructure and significant scale, enable us to offer a compelling combination of design, quality and value that we believe provides an unmatched experience.
Our product development and omni-channel go-to-market capabilities, together with our infrastructure and significant scale, enable us to offer a compelling combination of design, quality and value that we believe provides an unmatched experience. Showrooms . Our theater-like Showrooms act as an exceptionally strong brand-building tool and drive significant traffic. Our Traditional Showrooms average approximately 16,600 square feet.
We believe recent growth is related to our successful website re-launch in late 2021, our enhanced marketing efforts, attractive product assortment and improving brand awareness. Our eCommerce platform enables our clients to shop anywhere at any time and begin or complete transactions online.
Despite the 9% decrease in net revenue in 2024 compared to 2023, we believe eCommerce represents our fastest growing channel. We believe our growth over time will be driven by our website marketing strategy, attractive product assortment and improving brand awareness. Our eCommerce sales channel enables our clients to shop anywhere at any time and begin or complete transactions online.
Our Design Studio format, which also leverages these state-of-the-art tools, has experienced positive client receptivity, with the new format outperforming our expectations. We see tremendous growth potential across our omni-channel platform by increasing our ability to make data-driven decisions and maintaining a comprehensive focus on the client journey.
We see tremendous growth potential across our omni-channel platform by increasing our ability to make data-driven decisions and maintaining a comprehensive focus on the client journey. We will continue to innovate and invest in value-added digital and technological capabilities across our omni-channel footprint.
Showrooms . Our theater-like Showrooms act as an exceptionally strong brand-building tool and drive significant traffic. Our Traditional Showrooms average approximately 16,000 square feet. Our smaller format Design Studios, which are located in areas such as affluent second home markets where a lower square footage format is preferred, average approximately 5,000 square feet. eCommerce .
Our smaller format Design Studios, which are located in areas such as affluent second home markets where a lower square footage format is preferred, average approximately 5,400 square feet. eCommerce . Our online capabilities are an important entry point into our ecosystem, providing our clients with research and discovery tools and allowing them to begin or complete transactions online.
We welcome all clients to use our complimentary in-home designer services with no appointment required. As of December 31, 2023, we had 110 in-home designers in 78 Showrooms compared to 84 in-home designers in 65 Showrooms as of December 31, 2022.
As of December 31, 2024, we had 130 in-home designers in 89 Showrooms compared to 110 in-home designers in 78 Showrooms as of December 31, 2023.
In addition, we own the domain names “arhaus.com,” “arhaus.net,” and “arhausfurniture.com.” These domain names are renewable. 9 Human Capital As of December 31, 2023, we had approximately 2,280 employees and 10 temporary employees, including approximately 130 part-time employees.
Human Capital As of December 31, 2024, we had approximately 2,510 employees and 40 temporary employees, including approximately 120 part-time employees.
Our online capabilities are an important entry point into our ecosystem, providing our clients with research and discovery tools and allowing them to begin or complete transactions online. Our online design service professionals and virtual tools complement our eCommerce platform by engaging clients and providing them with expert design advice and capabilities.
Our online design service professionals and virtual tools complement our eCommerce sales channel by engaging clients and providing them with expert design advice and capabilities. Driven by investment in our digital platform, we believe we can increase our eCommerce penetration over time. Print and Digital Media .
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Based on third-party reports and publicly available data, we estimate the U.S. premium home furnishing market is approximately $100 billion , with the potential to grow at a compounded annual growth rate, or CAGR, of approximately 6% between 2022 and 2025.
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Our performance is summarized in the following table: Year Ended December 31, 2024 2024 2023 2022 Net revenue $1,271,107 $1,287,704 $1,228,928 Demand comparable growth (decline) (2.2) % 7.6 % 13.8 % Comparable growth (decline) (8.0) % 1.4 % 51.6 % Our long-standing direct sourcing partnerships were a significant contributor to our success, as many of our vendors increased capacity to help facilitate our net revenue growth.
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Net revenue was $1,287.7 million, $1,228.9 million, and $796.9 million for the years ended December 31, 2023, 2022 and 2021, respectively. Demand comparable growth was 7.6%, 13.8%, and 45.3% in the years ended December 31, 2023, 2022 and 2021, respectively. Comparable growth was 1.4%, 51.6% and 51.0% in the years ended December 31, 2023, 2022 and 2021, respectively.
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Highly Experiential Omni-Channel Approach We strive to offer our products to our clients via our omni-channel approach and operate our business in a channel agnostic way. Leveraging our proprietary data and technology, we are able to meet our clients wherever they want to shop, whether online or in one of our 103 Showrooms.
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We serve our clients through our Showrooms, eCommerce platform, print and digital media and high-quality client service.
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As Showrooms open in new markets, we may experience growth in our eCommerce sales channel and overall client engagement across channels. Clients increasingly engage with us through digital methods including our website and social media.
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This will allow us to target clients with personalized digital offerings to increase online conversion and client lifetime value . To further strengthen client engagement and increase client interactions, we continue to expand our designer programs, both in-home and online.
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We believe bolstering this component of the client experience will drive higher client satisfaction and result in larger total company AOV over time. Our Design Studio format, which also leverages these state-of-the-art tools, has experienced positive client receptivity.
Removed
Only one of our vendors accounts for more than 10% of our net revenue, and one other vendor accounts for more than 5% of net revenue. In 2023, approximately 40% of our net revenues and products were produced or sourced from vendors located in North America.
Added
Only one of our external vendors accounts for more than 10% of our net revenue, and two other external vendors each account for more than 5% of net revenue. The United States accounts for the largest share of our net revenue, including our internal manufacturing, while the remainder is distributed across multiple countries.
Removed
Print and Digital Media Our spring and fall catalogs are distributed in both digital and physical formats. In addition to our two seasonal catalogs, we distribute catalogs for specific categories such as outdoor furnishings, special collections and certain holidays.
Added
We also employ a digital strategy to reach clients and potential clients through social media, influencers and other digital marketing. In-home Designer Services Our in-home designers, who work with clients in the Showroom and travel to our clients’ residences, work in unison with our Showrooms and eCommerce sales channel to drive client conversion, order size and over all experience.
Removed
Information About Our Executive Officers Refer to Item 10 of this Annual Report on Form 10-K for information on the Company's executive officers, which is incorporated herein by reference.
Added
Our goal is to open on average five to seven new Traditional Showrooms per year, along with additional Design Studios as well as relocations within the same markets for the foreseeable futur e .
Added
We have taken measures to comply with the requirements of Proposition 65, but there is no guarantee that we will not be subject to fines, penalties, and lawsuits and complaints in the future.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

100 edited+25 added−41 removed294 unchanged
Biggest changeGAAP and SEC financial reporting requirements, including non-routine and complex transactions, to design, execute and/or provide appropriate oversight of activities related to internal control over financial reporting, or ICFR. • Implementing additional program change management policies and procedures, control activities, and tools to ensure changes affecting key financial systems related to IT applications and underlying accounting records are identified, authorized, tested, and implemented appropriately. • Designing and implementing a formal systems development lifecycle methodology and related program development controls to ensure significant IT change events are appropriately tested and approved. • Enhancing the design and operation of control activities and procedures within the computer operations domain to ensure key batch jobs are monitored, processing failures are adequately resolved, and recovery capability is tested. • Identifying and evaluating key IT dependencies including key reports, automated application controls, interfaces, and end user computer facilities. • Enhancing the design of the control activity over the review of our consolidated balance sheet and statement of cash flows to ensure the classification of operating and investing activities is appropriately presented in the statement of cash flows.
Biggest changeGAAP including the determination of the fair value of such awards. • Enhanced the design of the control activities over the review of our consolidated balance sheet and statement of cash flows to help ensure that the classification of operating and investing activities is appropriately presented in the statement of cash flows. • Designed and implemented policies and procedures, including but not limited to: – lease accounting; – revenue recognition; – goodwill and other long-lived assets; – fixed assets and software capitalization; – merchandise warranties; and – income taxes. • Enhanced company policies related to review of significant contracts prior to execution for critical accounting terms. • Engaged third-party consultants to assist senior management with the evaluation of our technology platforms and the potential providers for replacement technology platforms to redesign and strengthen the IT general control environment. • Assessed and continue to evaluate the IT function to ensure that it is adequately staffed with personnel with the appropriate knowledge and competency of ICFR needed for an effective IT general control environment. • Continued to enhance the design and operation of user access control activities and procedures to help ensure access to IT applications and data is adequately restricted to appropriate personnel, including the implementation of user and privileged access reviews, password policy enforcement and user provisioning and deprovisioning. • Commenced designing and implementing additional program change management policies and procedures, control activities, and tools to help ensure that changes affecting key financial systems related to IT applications and underlying accounting records are identified, authorized, tested, and implemented appropriately. • Designed and implemented a formal systems development lifecycle methodology and related program development controls to help ensure that significant IT change events are appropriately tested and approved.
Moreover, as we target consumers of high-end home furnishings for our products, our sales are particularly affected by the financial health of higher-end consumers and demand levels from that consumer demographic. In addition, not all macroeconomic factors are highly correlated in their impact on lower-end housing versus higher-end consumers.
Moreover, as we target consumers of high-end home furnishings for our products, our sales are particularly affected by the financial health of higher-end consumers and demand levels from that consumer demographic. In addition, not all macroeconomic factors are highly correlated in their impact on lower-end housing versus higher-end housing consumers.
There can be no assurance that such competitors will not be more successful than us or that we will be able to continue to maintain our position as a leader in style and innovation in the future. 26 Our lease obligations are substantial and expose us to increased risks. We do not own any of our Showrooms.
There can be no assurance that such competitors will not be more 26 successful than us or that we will be able to continue to maintain our position as a leader in style and innovation in the future. Our lease obligations are substantial and expose us to increased risks. We do not own any of our Showrooms.
We expect to continue to invest capital and other resources in our eCommerce channel, but there can be no assurance that our initiatives will be successful or otherwise succeed in driving sales or attracting clients.
We expect to continue to invest capital and other resources in our eCommerce sales channel, but there can be no assurance that our initiatives will be successful or otherwise succeed in driving sales or attracting clients.
These factors include, but are not limited to, the following: • macroeconomic conditions, including inflation and factors affecting the housing market; • the failure of securities analysts to continue to cover our common stock or changes in financial estimates or recommendations by analysts; • changes in market valuation or earnings of our competitors; • actual or anticipated variations in our annual or quarterly results of our operations, including our earnings estimates and whether we meet market expectations with regard to our earnings; • significant volatility in the market price and trading volume of securities of companies in the retail and consumer goods sectors in which our business operates, which may not be related to the operating performance of these companies and which may not reflect the performance of our business; • changes in preferences of our customers; • announcements of new products, significant price reductions or promotions by us or our competitors; • share transactions by principal stockholders; • stock price performance of our competitors; • market price and volume fluctuations in the stock market generally; • actual or anticipated negative earnings or other announcements by us or other retail companies; • downgrades in our credit ratings or the credit ratings of our competitors; 36 • natural or man-made disasters or other similar events including health issues or pandemics; and • global economic, legal and regulatory changes unrelated to our performance.
These factors include, but are not limited to, the following: • macroeconomic conditions, including inflation and factors affecting the housing market; • the failure of securities analysts to continue to cover our common stock or changes in financial estimates or recommendations by analysts; • changes in market valuation or earnings of our competitors; • actual or anticipated variations in our annual or quarterly results of our operations, including our earnings estimates and whether we meet market expectations with regard to our earnings; • significant volatility in the market price and trading volume of securities of companies in the retail and consumer goods sectors in which our business operates, which may not be related to the operating performance of these companies and which may not reflect the performance of our business; • changes in preferences of our customers; • announcements of new products, significant price reductions or promotions by us or our competitors; 36 • share transactions by principal stockholders; • stock price performance of our competitors; • market price and volume fluctuations in the stock market generally; • actual or anticipated negative earnings or other announcements by us or other retail companies; • downgrades in our credit ratings or the credit ratings of our competitors; • natural or man-made disasters or other similar events including public health issues or pandemics; and • global economic, legal and regulatory changes unrelated to our performance.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, in the event that the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of fiduciary duty, any action asserting a claim against us arising pursuant to the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws, any action to interpret, apply or enforce or determine the validity of our amended and restated certificate of incorporation or amended and restated bylaws, any action as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware, or any action asserting a claim against us that is governed by the internal affairs doctrine; provided that, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction; and provided further that, if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Delaware.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, in the event that the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of fiduciary duty, any action asserting a claim against us arising pursuant to the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws, any action to interpret, apply or enforce or determine the validity of our amended and restated certificate of incorporation or amended and restated bylaws, any action as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware, or any action asserting a claim against us that is governed by the internal affairs doctrine; provided that, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction; and provided further that, if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such 39 action may be brought in another state or federal court sitting in the State of Delaware.
This material weakness contributed to the following additional material weaknesses. • We did not design and maintain accounting policies, procedures and controls, or maintain documentary evidence of existing control activities over significant accounts and disclosures to achieve complete, accurate and timely financial accounting, reporting and disclosures, including adequate controls ove r the period-end financial reporting process, the preparation and review of account reconciliations and journal entries, including segregation of duties and assessing the reliability of reports and spreadsheets used in controls. 18 • We did not design and maintain effective controls to address the identification of and accounting for certain non-routine or complex transactions, including the proper application of U.S.
This material weakness contributed to the following additional material weaknesses. • We did not design and maintain accounting policies, procedures and controls, or maintain documentary evidence of existing control activities over significant accounts and disclosures to achieve complete, accurate and timely financial accounting, reporting and disclosures, including adequate controls ove r the period-end financial reporting process, the preparation and review of account reconciliations and journal entries, including segregation of duties and assessing the reliability of reports and spreadsheets used in controls. • We did not design and maintain effective controls to address the identification of and accounting for certain non-routine or complex transactions, including the proper application of U.S.
Specifically, we did not design and maintain: (i) program change management controls for financial systems to ensure that information technology program and data changes affecting financial applications and underlying accounting records are identified, tested, authorized and implemented appropriately; (ii) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate Company personnel; (iii) computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored; and (iv) testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements.
Specifically, we did not design and maintain: (i) program change management controls for financial systems to ensure that information technology program and data changes affecting financial applications and underlying accounting records are identified, tested, authorized and implemented appropriately; (ii) 18 user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate Company personnel; (iii) computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored; and (iv) testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements.
Showroom locations may become unsuitable due to, and our revenue volume and client traffic generally may be harmed by, among other things: • economic downturns in a particular area; 25 • competition from nearby retailers selling similar products; • changing client demographics in a particular market; • changing preferences of clients in a particular market; • the closing or decline in popularity of other businesses located near our Showroom; • reduced client foot traffic outside a Showroom location; and • Showroom impairments due to acts of God, pandemic, terrorism, protest or periods or civil unrest.
Showroom locations may become unsuitable due to, and our revenue volume and client traffic generally may be harmed by, among other things: • economic downturns in a particular area; • competition from nearby retailers selling similar products; • changing client demographics in a particular market; • changing preferences of clients in a particular market; • the closing or decline in popularity of other businesses located near our Showroom; • reduced client foot traffic outside a Showroom location; and • Showroom impairments due to acts of God, pandemic, terrorism, protest or periods or civil unrest.
Furthermore, as laws and regulations rapidly evolve to govern the use of these platforms and devices, the failure by us, our employees, our network of social media influencers, our sponsors or third parties acting at our direction to abide by applicable laws and regulations in the use of these platforms and devices or 22 otherwise could subject us to regulatory investigations, class action lawsuits, liability, fines or other penalties and have a material adverse effect on our business, financial condition and operating results.
Furthermore, as laws and regulations rapidly evolve to govern the use of these platforms and devices, the failure by us, our employees, our network of social media influencers, our sponsors or third parties acting at our direction to abide by applicable laws and regulations in the use of these platforms and devices or otherwise could subject us to regulatory investigations, class action lawsuits, liability, fines or other penalties and have a material adverse effect on our business, financial condition and operating results.
If our management is unable to certify the effectiveness of our internal control or if our independent registered public accounting firm cannot deliver a report attesting to the effectiveness of our internal control over financial reporting, or if we identify or fail to remediate any significant deficiencies or material weaknesses in our internal controls, we could be subject to regulatory scrutiny and a loss of public confidence, which could seriously harm our reputation, and the price per share of our Class A common stock could decline.
If our management is unable to certify the effectiveness of our internal control or if our independent registered public accounting firm 40 cannot deliver a report attesting to the effectiveness of our internal control over financial reporting, or if we identify or fail to remediate any significant deficiencies or material weaknesses in our internal controls, we could be subject to regulatory scrutiny and a loss of public confidence, which could seriously harm our reputation, and the price per share of our Class A common stock could decline.
While these actions are generally routine in nature and incidental to the operation of our business, if our assessment of any action or actions should prove inaccurate and/or if we are unsuccessful in our defense in these litigation matters, or any other legal proceeding, we may be forced to pay damages or fines, enter into consent decrees or change our business practices, any of which could adversely affect our business, financial condition or results of operations.
While these actions are generally routine in nature and incidental to the operation of our business, if our assessment of any action 23 or actions should prove inaccurate and/or if we are unsuccessful in our defense in these litigation matters, or any other legal proceeding, we may be forced to pay damages or fines, enter into consent decrees or change our business practices, any of which could adversely affect our business, financial condition or results of operations.
Further, 23 adverse publicity about client or other litigation may negatively affect us, regardless of whether the allegations are true, by discouraging clients from purchasing our products. Our failure to successfully manage the costs and performance of our print media might have a negative impact on our business. Print media mailing is a significant component of our marketing activities.
Further, adverse publicity about client or other litigation may negatively affect us, regardless of whether the allegations are true, by discouraging clients from purchasing our products. Our failure to successfully manage the costs and performance of our print media might have a negative impact on our business. Print media mailing is a significant component of our marketing activities.
Any of these actions could result in a material effect on our operating results, business and financial condition, including increased operating costs. 33 Expectations of our company relating to corporate responsibility factors may impose additional costs and expose us to new risks. There is an increasing focus from certain investors, clients and other key stakeholders concerning corporate responsibility.
Any of these actions could result in a material effect on our operating results, business and financial condition, including increased operating costs. Expectations of our company relating to corporate responsibility factors may impose additional costs and expose us to new risks. There is an increasing focus from certain investors, clients and other key stakeholders concerning corporate responsibility.
As a result, we might not be able to register, use or maintain the domain names that utilize the name Arhaus or our other brands in all of the countries in which we currently or intend to conduct business. If third parties claim that we infringe upon their intellectual property rights, our operating results could be adversely affected.
As a result, we might not be able to register, use or maintain the domain names that utilize the name Arhaus or our other brands in all of the countries in which we currently or intend to conduct business. 32 If third parties claim that we infringe upon their intellectual property rights, our operating results could be adversely affected.
We expect our operating expenses to increase in the future as we continue to expand our operating and retail infrastructure, including adding new Showrooms, increasing sales and marketing efforts, growing our eCommerce platform, enhancing our omni-channel capabilities, expanding into new geographies, developing new products, and in connection with legal, accounting, and other expenses related to operating as a public company.
We expect our operating expenses to increase in the future as we continue to expand our operating and retail infrastructure, including adding new Showrooms, increasing sales and marketing efforts, growing our eCommerce sales channel, enhancing our omni-channel capabilities, expanding into new geographies, developing new products, and in connection with legal, accounting, and other expenses related to operating as a public company.
If we are unable to refund client deposits or use our client deposits as a source of funding for our operating activities, our reputation and brand may be damaged and our funding costs may increase, which would have a material adverse effect on our business, financial results and condition. Our business operations depend on good relations with our employees.
If we are unable to refund client deposits or use our client deposits as a source of funding for our operating activities, our reputation and brand may be damaged and our funding costs may increase, which would have a material adverse effect on our business, financial results and condition. 27 Our business operations depend on good relations with our employees.
We must keep up to date with competitive technology trends and opportunities that are emerging throughout the retail environment, including the use of new or improved technology, evolving creative user interfaces, and other eCommerce marketing trends such as paid search, re-targeting, and the proliferation of mobile usage, among others.
We must keep up to date with competitive technology trends and opportunities that are emerging throughout the retail environment, including the use of new 28 or improved technology, evolving creative user interfaces, and other eCommerce marketing trends such as paid search, re-targeting, and the proliferation of mobile usage, among others.
In addition, our employees, contractors, vendors or other third parties with whom we do business may attempt to circumvent security measures in order to misappropriate such personal information, confidential information or other data, or may inadvertently 28 release or compromise such data. We expect to incur ongoing costs associated with the detection and prevention of cyber threats.
In addition, our employees, contractors, vendors or other third parties with whom we do business may attempt to circumvent security measures in order to misappropriate such personal information, confidential information or other data, or may inadvertently release or compromise such data. We expect to incur ongoing costs associated with the detection and prevention of cyber threats.
We plan to open new Showrooms in high traffic locations and historically we have favored top tier mall locations near luxury and contemporary retailers that we believe are consistent with our target clients’ demographics and shopping preferences. Revenues at these Showrooms are derived, in part, from the volume of foot traffic in these locations.
We plan to open new Showrooms in high traffic locations and historically we have favored top tier mall locations near luxury and contemporary retailers that we believe are consistent with our target clients’ demographics and 25 shopping preferences. Revenues at these Showrooms are derived, in part, from the volume of foot traffic in these locations.
Adams and Beargie are trustees (collectively, the “Founder Family Trusts”), which gives our Founder and the Founder Family Trusts substantial control over us, including over matters that require the approval of stockholders under our certificate of incorporation and applicable law or stock exchange rules, and their interests may conflict with ours or those of our stockholders.
Adams and Beargie are trustees (collectively, the “Founder Family Trusts”), which gives our Founder and the Founder Family Trusts substantial control over us, including over matters that require the approval of stockholders under our certificate of incorporation and applicable law or stock exchange rules, and their interests may conflict with ours or those of our other stockholders.
Our amended and restated certificate of incorporation provides that the doctrine of “corporate opportunity” will not apply with respect to Freeman Spogli or certain related parties or any of our directors who are employees of Freeman Spogli or its affiliates such that Freeman Spogli and its affiliates will be permitted to invest in competing businesses or do business with our customers.
Our amended and restated certificate of incorporation provides that the doctrine of “corporate opportunity” will not apply with respect to Freeman Spogli or certain related parties or any of our directors who are employees of Freeman Spogli or its affiliates such that Freeman Spogli and its affiliates will be 37 permitted to invest in competing businesses or do business with our customers.
If our revenue does not grow at a greater rate than our operating expenses, we will not be able to maintain profitability. 12 We have experienced fluctuations in the growth rate of our business and our high rates of growth in terms of revenue, earnings and margins may not be sustained in future time periods.
If our net revenue does not grow at a greater rate than our operating expenses, we will not be able to maintain profitability. 12 We have experienced fluctuations in the growth rate of our business and our high rates of growth in terms of revenue, earnings and margins may not be sustained in future time periods.
If, for any reason, our executives do not continue to be active in management, or we lose such persons, or other key team members, or we fail to identify and/or recruit for current or future positions of need, our business, financial condition or results of operations could be adversely affected.
If, for any reason, our executives do not continue to be active in management, or we lose such persons, or other key team 21 members, or we fail to identify and/or recruit for current or future positions of need, our business, financial condition or results of operations could be adversely affected.
In addition, damage or interruption can also occur as a result of non-technical issues, including vandalism, catastrophic events, and human error. Damage or interruption to our information systems may require a significant investment to fix or replace the affected system, and we may suffer interruptions in our operations in the interim.
In addition, damage or 29 interruption can also occur as a result of non-technical issues, including vandalism, catastrophic events, and human error. Damage or interruption to our information systems may require a significant investment to fix or replace the affected system, and we may suffer interruptions in our operations in the interim.
That information includes data about our clients as well as sensitive information about our vendors and workforce, 29 including social security numbers and bank account information. If our systems, or those of our third party service providers, are damaged, misappropriated, interrupted or subject to unauthorized access, information about our clients, vendors or workforce could be stolen or misused.
That information includes data about our clients as well as sensitive information about our vendors and workforce, including social security numbers and bank account information. If our systems, or those of our third party service providers, are damaged, misappropriated, interrupted or subject to unauthorized access, information about our clients, vendors or workforce could be stolen or misused.
If we are unable to use social media platforms as marketing tools in a cost-effective manner or if the social media platforms we use do not evolve quickly enough for us to fully optimize such platforms, our ability to acquire new clients and our financial condition may suffer.
If we are unable to use social media platforms as marketing tools in a cost-effective manner or if the social media platforms we use do not 22 evolve quickly enough for us to fully optimize such platforms, our ability to acquire new clients and our financial condition may suffer.
If we raise additional capital through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we may issue could have rights, preferences and privileges superior to those holders of our 34 Class A common stock.
If we raise additional capital through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we may issue could have rights, preferences and privileges superior to those holders of our Class A common stock.
If our existing stockholders sell a large number of shares, or if we issue a large number of shares of our common stock in connection with future acquisitions, strategic alliances, third-party investments and private placements or otherwise, 38 the market price of our Class A common stock could decline significantly.
If our existing stockholders sell a large number of shares, or if we issue a large number of shares of our common stock in connection with future acquisitions, strategic alliances, third-party investments and private placements or otherwise, the market price of our Class A common stock could decline significantly.
General Risks Our operations present risks which may not be fully covered by insurance. We carry comprehensive insurance against the hazards and risks underlying our operations. We believe our insurance policies are customary in the industry; however, some losses and liabilities associated with our operations 40 may not be covered by our insurance policies.
General Risks Our operations present risks which may not be fully covered by insurance. We carry comprehensive insurance against the hazards and risks underlying our operations. We believe our insurance policies are customary in the industry; however, some losses and liabilities associated with our operations may not be covered by our insurance policies.
Our net revenue growth may slow or our net revenue may decline for a number of other reasons, including reduced demand for our products, increased competition, a decrease in the growth or reduction in size of our overall market, or if we cannot capitalize on growth opportunities.
Our net revenue growth may slow or our net revenue may decline for a number of reasons, including reduced demand for our products, increased competition, a decrease in the growth or reduction in size of our overall market, or if we cannot capitalize on growth opportunities.
The PCI Standard 30 contains compliance guidelines with regard to our security surrounding the physical and electronic storage, processing and transmission of cardholder data. Compliance with the PCI Standard and implementing related procedures, technology and information security measures requires significant resources and ongoing attention.
The PCI Standard contains compliance guidelines with regard to our security surrounding the physical and electronic storage, processing and transmission of cardholder data. Compliance with the PCI Standard and implementing related procedures, technology and information security measures requires significant resources and ongoing attention.
These provisions include: • authorizing the issuance of “blank check” preferred stock that could be issued by our Board of Directors to increase the number of outstanding shares and thwart a takeover attempt; • the removal of directors only for cause; • prohibiting the use of cumulative voting for the election of directors; • limiting the ability of stockholders to call special meetings or amend our bylaws; • establishing advance notice and duration of ownership requirements for nominations for election to the Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; and • the ability of our Board of Directors upon majority vote to amend or repeal our bylaws.
These provisions include: • authorizing the issuance of “blank check” preferred stock that could be issued by our Board of Directors to increase the number of outstanding shares and thwart a takeover attempt; • our classified board structure; • the removal of directors only for cause; • prohibiting the use of cumulative voting for the election of directors; • limiting the ability of stockholders to call special meetings or amend our bylaws; • establishing advance notice and duration of ownership requirements for nominations for election to the Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; and • the ability of our Board of Directors upon majority vote to amend or repeal our bylaws.
For example, certain indices have eligibility criteria that exclude companies with multiple classes of shares of common stock. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structures.
For example, certain indices may have eligibility criteria that exclude companies with multiple classes of shares of common stock. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structures.
Currently, none of our employees are represented by a union or subject to any collective bargaining agreements. We believe that we have good relations with our employees and that these good relations contribute to the success of our 27 operations.
Currently, none of our employees are represented by a union or subject to any collective bargaining agreements. We believe that we have good relations with our employees and that these good relations contribute to the success of our operations.
The terms of the Revolving Credit Facility may restrict our current and future operations and could adversely affect our ability to finance our future operations or capital needs or to execute business strategies in the means or manner desired.
The terms of the Revolving Credit Facility may restrict our current and future operations 34 and could adversely affect our ability to finance our future operations or capital needs or to execute business strategies in the means or manner desired.
Any such action would be expensive to defend, likely would damage our reputation and market position, could result in substantial liability and could adversely affect our business and results of operations.
Any such 33 action would be expensive to defend, likely would damage our reputation and market position, could result in substantial liability and could adversely affect our business and results of operations.
If one or more of the analysts who cover us downgrade our Class A common stock or describe us or our business in a negative manner, the price of our Class A common stock would likely decline.
If one or 38 more of the analysts who cover us downgrade our Class A common stock or describe us or our business in a negative manner, the price of our Class A common stock would likely decline.
With the growth in importance and the impact of social media, the magnitude of such harm to our 21 business, reputation and brand image may be significantly amplified.
With the growth in importance and the impact of social media, the magnitude of such harm to our business, reputation and brand image may be significantly amplified.
The success of our business depends upon our ability to recruit, hire and retain qualified individuals to work in and manage our Showrooms and manufacturing and distribution centers in the geographic regions in which our 20 Showrooms and manufacturing and distribution centers are located, and our operations are subject to federal and state laws governing such matters as minimum wages, overtime, working conditions and employment eligibility requirements.
The success of our business depends upon our ability to recruit, hire and retain qualified individuals to work in and manage our Showrooms and manufacturing and distribution centers in the geographic regions in which they are located, and our operations are subject to federal and state laws governing such matters as minimum wages, overtime, working conditions and employment eligibility requirements.
The principal factors and uncertainties that make investing in our Class A common stock risky include, among others: • risks associated with the incurrence of operating losses in the future or failure to achieve or maintain profitability in the future; • fluctuations in the growth rate of our business and our high rates of growth in terms of revenue, earnings and margins, which may not be sustained in future periods; • our ability to purchase quality merchandise in sufficient quantities at competitive prices, including products that are produced by artisan vendors; • disruption in our receiving and distribution system or increased costs as a result of our recently opened distribution and manufacturing centers; • cybersecurity risks and costs associated with credit card fraud, identity theft and business interruption could result in unexpected expenses and loss of revenue; • risks associated with receiving, processing, storing, using and sharing personal data that requires us to comply with complex and evolving governmental regulations related to data privacy and data protection that could expose us to litigation or damage our reputation; • import and other international risks as a result of our reliance on foreign manufacturers and vendors to supply a significant portion of our merchandise; • changes in the health of the high-end housing market, as well as declines in consumer confidence and consumer spending; • risks associated with the interruption of supply and increased costs as a result of our reliance on third-party transportation carriers for shipment of our products; • increased commodity prices or increased freight and transportation costs; • our ability to timely and effectively deliver merchandise to our clients and manage our supply chain; • risks posed by a pandemic should an outbreak of an infectious disease occur; and • the dual class structure of our common stock, which has the effect of concentrating voting power with our Founder and the Founder Family Trusts, gives our Founder and the Founder Family Trusts substantial control over us, including over matters that require the approval of stockholders, and their interests may conflict with ours or those of our stockholders.
The principal factors and uncertainties that make investing in our Class A common stock risky include, among others: • risks associated with the incurrence of operating losses in the future or failure to achieve or maintain profitability in the future; • fluctuations in the growth rate of our business and our high rates of growth in terms of revenue, earnings and margins, which may not be sustained in future periods; • our ability to purchase quality merchandise in sufficient quantities at competitive prices, including products that are produced by artisan vendors; • disruption in our receiving and distribution system or increased costs as a result of our the continued integration of our distribution and manufacturing centers; • cybersecurity risks and costs associated with credit card fraud, identity theft and business interruption could result in unexpected expenses and loss of revenue; • risks associated with receiving, processing, storing, using and sharing personal data that requires us to comply with complex and evolving governmental regulations related to data privacy and data protection that could expose us to litigation or damage our reputation; • import and other international risks, including tariffs and changes to trade policies and agreements, as a result of our reliance on foreign manufacturers and vendors to supply a significant portion of our merchandise; • changes in the health of the high-end housing market, as well as declines in consumer confidence and consumer spending; • risks associated with the interruption of supply and increased costs as a result of our reliance on third-party transportation carriers for shipment of our products; • increased commodity prices or increased freight and transportation costs; • our ability to timely and effectively deliver merchandise to our clients and manage our supply chain; • risks posed by a pandemic should an outbreak of an infectious disease occur; and • the dual class structure of our common stock, which has the effect of concentrating voting power with our Founder and the Founder Family Trusts, gives our Founder and the Founder Family Trusts substantial control over us, including over matters that require the approval of stockholders, and their interests may conflict with ours or those of our other stockholders.
In addition, future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions.
Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions.
We are subject to the SEC’s internal control over financial reporting (“ICFR”) and auditor attestation requirements. During the course of preparing for our IPO, we identified material weaknesses in our ICFR as described below and these material weaknesses remained outstanding as of December 31, 2023.
We are subject to the SEC’s internal control over financial reporting (“ICFR”) and auditor attestation requirements. During the course of preparing for our IPO, we identified material weaknesses in our ICFR as described below and these material weaknesses remained outstanding as of December 31, 2024.
As a result, the dual class structure of our common stock has and may continue to prevent the inclusion of our Class A common stock in such indices and may cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure.
As a result, the dual class structure of our common stock may prevent the inclusion of our Class A common stock in such indices and may cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure.
We believe eCommerce offers a significant growth opportunity and our strategy includes investment in and expansion of our digital platform and eCommerce channel. The success of our eCommerce business depends, in part, on third parties and factors over which we have limited control.
We believe eCommerce offers a significant growth opportunity and our strategy includes investment in and expansion of our digital platform and eCommerce sales channel. The success of our eCommerce sales channel depends, in part, on third parties and factors over which we have limited control.
Our significant international supply chain increases the risk that we will not have adequate and timely supplies of various products due to local political, economic, social or environmental conditions, political instability, international conflicts, acts of terrorism, natural disasters, epidemics (including the COVID-19 pandemic), transportation delays, dock strikes, inefficient freight requirements, restrictive actions by foreign governments, changes in foreign laws, trade policy and regulations affecting exports, or changes in U.S. laws, trade policy and regulations affecting imports or domestic distribution.
Our significant international supply chain increases the risk that we will not have adequate and timely supplies of various products due to local political, economic, social or environmental conditions, political instability, international conflicts, acts of terrorism, natural disasters, epidemics (including the COVID-19 pandemic), transportation delays, dock strikes, inefficient freight requirements, restrictive actions by foreign governments, changes in foreign laws, trade policy and regulations affecting exports, or changes in United States laws, trade policy and regulations affecting imports or domestic distribution.
Further, any merchandise that does not meet our quality standards or applicable government requirements could trigger high rates of client complaints or returns, become subject to a product recall and/or attract negative publicity, which could in turn damage our reputation and brand image, result in client litigation (including class-action lawsuits), and harm our business.
Further, any merchandise that does not meet our quality standards, our clients’ perception of value or applicable government requirements could trigger high rates of client complaints or returns, become subject to a product recall and/or attract negative publicity, which could in turn damage our reputation and brand image, result in client litigation (including class-action lawsuits), and harm our business.
Additionally, in order for our business to function successfully, we and other vendors and third parties must be able to handle and transmit confidential and personal information securely, including in client orders placed through our website and the success of our eCommerce operations depends on the secure transmission of confidential and personal information over public networks, including the use of cashless payments.
Additionally, in order for our business to function successfully, we and other vendors and third parties must be able to handle and transmit confidential and personal information securely, including in client orders placed through our website and the success of our eCommerce sales channel depends on the secure transmission of confidential and personal information over public networks, including the use of cashless payments.
These material weaknesses resulted in a restatement of our previously issued annual consolidated financial statements as of and for the years ended December 31, 2020 and 2019 princip ally related to selling, general and administrative expenses and other long-term liabilities, and misclassifications in the balance sheets and statements of comprehensive income.
GAAP of such transactions. These material weaknesses resulted in a restatement of our previously issued annual consolidated financial statements as of and for the years ended December 31, 2020 and 2019 princip ally related to selling, general and administrative expenses and other long-term liabilities, and misclassifications in the balance sheets and statements of comprehensive income.
Our failure to successfully respond to these risks and uncertainties might adversely affect the sales or margin in our eCommerce business, require us to impair certain assets, and damage our reputation and brands.
Our failure to successfully respond to these risks and uncertainties might adversely affect the sales or margin in our eCommerce sales channel, require us to impair certain assets, and damage our reputation and brands.
We have determined our total addressable market based on, among other things, our analysis of the historical market size of the U.S. residential furniture and décor market, our observation and analysis of recent trends, client behaviors and client satisfaction, our estimates and expectations concerning future growth of the U.S. residential furniture market, including expected growth of the premium furniture segment, as well as other information derived from third-party research commissioned by us.
We have determined our total addressable market based on, among other things, our analysis of the historical market size of the United States residential furniture and décor market, our observation and analysis of recent trends, client behaviors and client satisfaction, our estimates and expectations concerning future growth of the United States residential furniture market, including expected growth of the premium furniture segment, as well as other information derived from third-party research commissioned by us.
Changes to U.S. health care laws, or potential global and domestic greenhouse gas emission requirements and other environmental legislation and regulations, could result in increased direct compliance costs for us (or may cause our vendors to raise the prices they charge us in order to maintain profitable operations because of increased compliance costs), increased transportation costs or reduced availability of raw materials.
Changes to United States health care laws, or potential global and domestic greenhouse gas emission requirements and other environmental legislation and regulations, could result in increased direct compliance costs for us (or may cause our vendors to raise the prices they charge us in order to maintain profitable operations because of increased compliance costs), increased transportation costs or reduced availability of raw materials.
In preparation of the December 31, 2023 consolidated financial statements, these material weaknesses resulted in a restatement as of and for the interim period ended September 30, 2023 and revisions as of and for the annual periods ended December 31, 2022 and 2021, and as of and for the interim periods ended March 31, 2022, June 30, 2022, September 30, 2022, December 31, 2022, March 31, 2023 and June 30, 2023, principally related to prepaid and other current assets, and property, furniture and equipment, net, which resulted in misclassifications in the balance sheets and statements of cash flows and the timely recording of operating right-of-use assets and operating lease liabilities.
In preparation of the December 31, 2023 consolidated financial statements and in preparation of the March 31, 2024 condensed consolidated financial statements, these material weaknesses resulted in restatements as of and for the interim period ended September 30, 2023 and revisions as of and for the annual periods ended December 31, 2023, 2022 and 2021, and as of and for the interim periods ended June 30, 2023, March 31, 2023, December 31, 2022, September 30, 2022, June 30, 2022 and March 31, 2022, principally related to prepaid and other current assets, property, furniture and equipment, net and operating lease liabilities, which resulted in misclassifications in the balance sheets and statements of cash flows and the timely recording of liabilities, operating right-of-use assets and operating lease liabilities.
If we fail to establish and maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results, or report them in a timely manner.
If we continue to fail to establish and maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results, or report them in a timely manner in the future.
For example, we purchased upholstery products representing approximately 10% of our total net revenue in 2023 from McCreary Modern, Inc.
For example, we purchased upholstery products representing approximately 10% of our total net revenue in 2024 from McCreary Modern, Inc.
Applicable U.S. privacy laws or new state or federal laws may limit our ability to collect and use data, require us to modify our data processing practices or result in the possibility of fines, litigation or orders which may have an adverse effect on our business and results of operations.
Applicable United States privacy laws or new state or federal laws may limit our ability to collect and use data, require us to modify our data processing practices or result in the possibility of fines, litigation or orders which may have an adverse effect on our business and results of operations.
Disruption in the financial markets could have a material adverse effect on client demand and our ability to refund client deposits. We collect deposits from our clients at the time of purchase and in advance of delivering products, and as of December 31, 2023, we had approximately $174 million in client deposits.
Disruption in the financial markets could have a material adverse effect on client demand and our ability to refund client deposits. We collect deposits from our clients at the time of purchase and in advance of delivering products, and as of December 31, 2024, we had approximately $221 million in client deposits.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. • We did not design and maintain an effective control environment commensurate with our financial reporting requirements.
A material weakness is a deficiency, or a combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. • We did not design and maintain an effective control environment commensurate with our financial reporting requirements.
Our ability to successfully open and operate new Showrooms depends on many factors, including, among other things, our ability to: • identify new markets where our brand and products will be accepted and the revenue at our Showrooms will meet our targeted revenue levels; • obtain desired locations, including Showroom size and adjacencies, in targeted high traffic street and urban locations and top tier retail locations; • adapt our Showrooms to address public health concerns or public health crises; • negotiate acceptable lease terms, including satisfactory rent and tenant improvement allowances; • achieve brand awareness and attract new clients in new markets; • manage capital expenditures while designing new Showrooms and remodeling our existing Showrooms; • hire, train and retain Showroom associates and field management; • assimilate new Showroom associates and field management into our corporate culture; • source and supply sufficient inventory levels; • employ the adequate technologies needed to serve our clients and protect their transactions with us; • successfully integrate new Showrooms into our existing operations and information technology systems; and • meet our capital needs, including to fund the opening of new Showrooms.
Our ability to successfully open and operate new Showrooms depends on many factors, including, among other things, our ability to: • identify new markets where our brand and products will be accepted and the revenue at our Showrooms will meet our targeted revenue levels; • obtain desired locations, including Showroom size and adjacencies, in targeted high traffic street and urban locations and top tier retail locations; • adapt our Showrooms to address public health concerns or public health crises; • negotiate acceptable lease terms, including satisfactory rent and tenant improvement allowances; • achieve brand awareness and attract new clients in new markets; • understand customer preferences in new markets; • manage capital expenditures while designing new Showrooms and remodeling our existing Showrooms; • hire, train and retain Showroom associates and field management; • assimilate new Showroom associates and field management into our corporate culture; • source and supply sufficient inventory levels; • comply with local laws and regulations in new markets as we continue to expand our geographic footprint; • employ the adequate technologies needed to serve our clients and protect their transactions with us; • successfully integrate new Showrooms into our existing operations and information technology systems; and • meet our capital needs, including to fund the opening of new Showrooms.
The shares of Class B common stock beneficially owned by our Founder represent approximately 48.77% of our total voting power. The shares of Class B common stock beneficially owned by the Founder Family Trusts represent, in the aggregate, approximately 45.48% of our total voting power.
The shares of Class B common stock beneficially owned by our Founder represent approximately 48.75% of our total voting power. The shares of Class B common stock beneficially owned by the Founder Family Trusts represent, in the aggregate, approximately 45.46% of our total voting power.
In the aggregate, as of February 15, 2024 , our Founder beneficially owns 45,078,259 shares of our Class B common stock, and the Founder Family Trusts, in the aggregate, beneficially own 42,037,341 shares of Class B common stock, representing all of the outstanding shares of Class B common stock.
In the aggregate, as of February 14, 2025 , our Founder beneficially owns 45,078,259 shares of our Class B common stock, and the Founder Family Trusts, in the aggregate, beneficially own 42,037,341 shares of Class B common stock, representing all of the outstanding shares of Class B common stock.
We experienced some delays in certain projects on account of the COVID-19 pandemic’s impact on business conditions and may experience similar delays in the future due to COVID-19 or other similar outbreaks of infectious diseases.
For example, we experienced some delays in certain projects on account of the COVID-19 pandemic’s impact on business conditions and may experience similar delays in the future due to similar outbreaks of infectious diseases.
If we elect to be treated as a controlled company and use these exemptions, our stockholders may not have the same protections afforded to stockholders of companies that are subject to all of Nasdaq rules regarding corporate governance, which could make our Class A stock less attractive to investors or otherwise harm our stock price.
Although we have not elected to be treated as a controlled company and use these exemptions, if we chose to do so in the future our stockholders may not have the same protections afforded to stockholders of companies that are subject to all of Nasdaq rules regarding corporate governance, which could make our Class A stock less attractive to investors or otherwise harm our stock price.
Continued increases in interest rates may further dampen growth in the U.S. housing market and may depress consumer optimism about the U.S. housing market and 15 home buying in the higher-end of the housing market. We believe that our client purchasing patterns are influenced by economic factors including the health and volatility of the stock market.
Increases in interest rates may dampen growth in the United States housing market and may depress consumer optimism about the United States housing market and home buying in the higher-end of the housing market. We believe that our client purchasing patterns are influenced by economic factors including the health and volatility of the stock market.
Although we have not historically purchased a significant amount of product from China, we may not be able to fully or substantially mitigate the impact of these or future tariffs, pass price increases on to our clients or secure adequate alternative sources of products, which would have a material adverse effect on our business, operating results and financial performance.
We may not be able to fully or substantially mitigate the impact of these or future tariffs, pass price increases on to our clients or secure adequate alternative sources of products, which would have a material adverse effect on our business, operating results and financial performance.
Similarly, the limited capitalization and liquidity of certain of our vendors and their lack of insurance coverage for product recall claims may result in such vendors being unable to refund our purchase price or pay applicable penalties or damages associated with any such defects or resulting product recalls. Our continued success is substantially dependent on our positive brand identity.
Similarly, the limited capitalization and liquidity of certain of our vendors and their lack of insurance coverage for product recall claims may result in such vendors being unable to refund our purchase price or pay applicable penalties or damages associated with any such defects or resulting product recalls.
As of February 15, 2024, the Founder Family Trusts beneficially hold approximately 29.97% of our outstanding capital stock and control approximately 45.48% of th e voting power of our outstanding capital stock. The current independent co-trustees of the Founder Family Trusts, Albert Adams and Bill Beargie, are also directors of the Company.
As of February 14, 2025, the Founder Family Trusts beneficially hold approximately 29.90% of our outstanding capital stock and control approximately 45.46% of th e voting power of our outstanding capital stock. The current independent co-trustees of the Founder Family Trusts, Albert Adams and Bill Beargie, are also directors of the Company.
To date, we have experienced minimal losses from credit card fraud, but we face the risk of significant losses from this type of fraud as our net sales increase.
We do not currently carry insurance against this risk. To date, we have experienced minimal losses from credit card fraud, but we face the risk of significant losses from this type of fraud as our net sales increase.
Furthermore, if we do not secure our online eCommerce platform or in-store card acceptance mechanisms, customer credit card information could be obtained by an unauthorized third party. Under current credit card practices, we are liable for fraudulent credit card transactions because we do not obtain a cardholder’s signature. We do not currently carry insurance against this risk.
Furthermore, if we do not secure our online 30 eCommerce sales channel or in-store card acceptance mechanisms, customer credit card information could be obtained by an unauthorized third party. Under current credit card practices, we are liable for fraudulent credit card transactions because we do not obtain a cardholder’s signature for eCommerce transactions.
Risks Related to Data Privacy and Information Technology If we are unable to effectively manage our eCommerce business and digital marketing efforts, our reputation and operating results may be harmed. Our eCommerce channel currently represents approximately 19% of total net revenue in 2023.
Risks Related to Data Privacy and Information Technology If we are unable to effectively manage our eCommerce sales channel and digital marketing efforts, our reputation and operating results may be harmed. Our eCommerce sales channel represented approximately 17% of total net revenue in 2024.
Our director who has a relationship with Freeman Spogli & Co. may have a conflict of interest with respect to matters involving us. One of our directors is affiliated with Freeman Spogli & Co.
Our director who has a relationship with Freeman Spogli & Co. may have a conflict of interest with respect to matters involving us. One of our directors is affiliated with Freeman Spogli & Co. (“Freeman Spogli”). This director has fiduciary duties to both us and Freeman Spogli.
Our products and their manufacturing, labeling, marketing and sale are also subject to various aspects of the Federal Trade Commission Act, state consumer protection laws and state warning and labeling laws, such as Proposition 65 in California.
Our products and their manufacturing, labeling, marketing and sale are also subject to various aspects of the Federal Trade Commission Act, state consumer protection laws and state warning and labeling laws, such as Proposition 65 in California. In addition, various jurisdictions may seek to adopt similar or additional product labeling or warning requirements.
In addition, various jurisdictions may seek to adopt similar or additional product labeling or warning requirements. 32 As a retail business, changes in laws related to employee benefits and treatment of employees, including laws related to limitations on employee hours, supervisory status, leaves of absence, mandated health benefits or overtime pay, could negatively impact us by increasing compensation and benefits costs for overtime and medical expenses.
As a retail business, changes in laws related to employee benefits and treatment of employees, including laws related to limitations on employee hours, supervisory status, leaves of absence, mandated health benefits or overtime pay, could negatively impact us by increasing compensation and benefits costs for overtime and medical expenses.
A major part of our organic growth strategy consists of increasing our Showroom base. Such large-scale projects entail significant risks, including shortages of materials or skilled labor, unforeseen engineering, environmental and/or geological problems, work stoppages, weather interference, unanticipated cost increases and non-availability of construction equipment.
Such large-scale projects entail significant risks, including shortages of materials or skilled labor, unforeseen engineering, environmental and/or geological problems, work stoppages, weather interference, unanticipated cost increases and non-availability of construction equipment.
As existing eCommerce and social media platforms continue to rapidly evolve and new platforms develop, we must continue to maintain a presence on these platforms and establish presences on new or emerging popular social media platforms.
We maintain relationships with many social media influencers and may engage in sponsorship initiatives. As existing eCommerce and social media platforms continue to rapidly evolve and new platforms develop, we must continue to maintain a presence on these platforms and establish presences on new or emerging popular social media platforms.
If for any reason we are unable to continue to implement our omni-channel initiatives or provide a convenient and consistent experience for our clients across all channels that delivers the products they want, when and where they want them, our financial performance and brand image could be adversely affected. 24 Our future growth depends on our ability to successfully implement our organic growth strategy, a major part of which consists of opening new Showrooms.
If for any reason we are unable to continue to implement our omni-channel initiatives or provide a convenient and consistent experience for our clients across all 24 channels that delivers the products they want, when and where they want them, our financial performance and brand image could be adversely affected.
We also cannot guarantee that our compliance with network rules, including the PCI Standard, will prevent illegal or improper use of our payments platform or the theft, loss, or misuse of the credit card data of customers or participants, or a security breach.
We also cannot guarantee that our compliance with network rules, including the PCI Standard, will prevent illegal or improper use of our payments platform or the theft, loss, or misuse of the credit card data of customers or participants, or a security breach. 31 Risks Related to Our Intellectual Property We may not be able to adequately protect our intellectual property rights.
We cannot assure you that the steps taken by us to protect our intellectual property rights will be adequate to prevent some infringement of our rights by others (especially with respect to infringement by non-U.S. entities with no physical U.S. presence), including imitation of our products and misappropriation of our images and brand. 31 If we are unable to protect and maintain our intellectual property rights, the value of our brand could be diminished, and our competitive position could suffer.
We cannot assure you that the steps taken by us to protect our intellectual property rights will be adequate to prevent some infringement of our rights by others (especially with respect to infringement by non-United States entities with no physical United States presence), including imitation of our products and misappropriation of our images and brand.
As of February 15, 2024, our Founder beneficially holds approximately 32.13% of our outstanding capital stock and controls approximately 48.77% of the voting power of our outstanding capital stock.
As of February 14, 2025, our Founder beneficially holds approximately 32.10% of our outstanding capital stock and controls approximately 48.76% of the voting power of our outstanding capital stock.
Further, the shares of Class B common stock will automatically convert into shares of Class A common stock on the earliest to occur of (i) twelve months after the death or incapacity of our Founder, and (ii) the date upon which the then outstanding shares of Class B common stock first represent less than 10% of the voting power of the then outstanding shares of Class A common stock and Class B common stock. 35 The concentration of ownership could deprive stockholders of an opportunity to receive a premium for shares of our Class A common stock as part of a sale of the Company and ultimately might affect the market price of our Class A common stock.
The shares 35 of Class B common stock will automatically convert into shares of Class A common stock on the earliest to occur of (i) twelve months after the death or incapacity of our Founder, and (ii) the date upon which the then outstanding shares of Class B common stock first represent less than 10% of the voting power of the then outstanding shares of Class A common stock and Class B common stock.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur cybersecurity team has experience in various roles across multiple industries involving managing information security, developing cybersecurity strategy, implementing effective information and cybersecurity programs and managing multiple industry and regulatory compliance environments. 42 Cybersecurity is an important part of our overall risk management processes and the Audit Committee of our Board of Directors has primary oversight responsibility for the Company’s cybersecurity and other technology risks.
Biggest changeOur cybersecurity team has experience in various roles across multiple industries involving managing information security, developing cybersecurity strategy, implementing effective information and cybersecurity programs and managing multiple industry and regulatory compliance environments. 42 Cybersecurity is an important part of our overall risk management processes and the Technology Committee of our Board of Directors has primary oversight responsibility for the Company’s cybersecurity and other technology risks.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following table sets forth the location, use and size of our corporate, distribution, manufacturing, warehouse, and retail facilities as of December 31, 2023 : Location Use Approximate Square Footage Boston Heights, Ohio (1) Corporate headquarters and distribution center 1,003,500 Conover, North Carolina (1) Distribution center and manufacturing facility 497,000 Dallas, Texas (1) Distribution center 800,700 Walton Hills, Ohio (1) Warehouse 235,900 Traditional Showrooms, Design Studios and Outlets (1)(2) Retail 1,438,200 (1) See Note 7 - Leases to our Consolidated Financial Statements included elsewhere in this Form 10-K.
Biggest changeThe following table sets forth the location, use and size of our corporate, distribution, manufacturing, warehouse, and retail facilities as of December 31, 2024 : Location Use Approximate Square Footage Boston Heights, Ohio (1) Corporate headquarters and distribution center 1,028,500 Conover, North Carolina (1) Distribution center and manufacturing facility 497,000 Dallas, Texas (1) Distribution center 800,700 Walton Hills, Ohio (1) Warehouse 235,900 Elyria, Ohio (1) Warehouse 171,000 Traditional Showrooms, Design Studios and Outlets (1)(2) Retail 1,676,000 (1) See Note 7 — Leases to our Consolidated Financial Statements included elsewhere in this Form 10-K.
Item 2. Properties Our headquarters and primary distribution center are located at 51 E. Hines Hill Road, Boston Heights, Ohio, just outside of Cleveland, Ohio. We believe that our current headquarters and facilities are well maintained.
Item 2. Properties Our corporate headquarters and primary distribution center are located at 51 E. Hines Hill Road, Boston Heights, Ohio, just outside of Cleveland, Ohio. We believe that our current corporate headquarters and facilities are well maintained.
(2) We lease our Traditional Showrooms, Design Studios and Outlets in multiple locations across 29 states.
(2) We lease our Traditional Showrooms, Design Studios and Outlets in multiple locations across 30 states.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are currently not a party to any legal proceedings, the outcome of which, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, financial condition or results of operations.
Biggest changeWe are currently not a party to any legal proceedings, the outcome of which, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, financial condition or results of operations. See Note 11 — Commitments and Contingencies to our consolidated financial statements included elsewhere in this Annual Report for further details.
Removed
See Note 13— Commitments and Contingencies to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details. Item 4. Mine Safety Disclosures Not applicable. 43 Part II
Added
Item 4. Mine Safety Disclosures Not applicable. 43 Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThere is no public trading market for our Class B common stock. Share Repurchases The following table contains information with respect to repurchases of shares made by the Company during the three months ended December 31, 2023. The table reflects shares delivered to the Company by employees to satisfy tax withholding obligations due upon the vesting of restricted stock.
Biggest changeShare Repurchases The following table contains information with respect to repurchases of shares made by the Company during the three months ended December 31, 2024. The table reflects shares delivered to the Company by employees to satisfy tax withholding obligations due upon the vesting of restricted stock units.
The graph uses the closing market price on November 4, 2021 of $12.80 per share as the initial value of our Class A common stock. Data for the Nasdaq Global Composite Index and Dow Jones U.S. Furnishings Index assumes reinvestment of dividends.
The graph uses the closing market price on November 4, 2021 of $12.80 per share as the initial value of our Class A common stock. Data for the Company, Nasdaq Global Composite Index and Dow Jones U.S. Furnishings Index assumes reinvestment of dividends.
The graph assumes $100 was invested in our Class A common stock at the market close on November 4, 2021, which was the first day our Class A common stock began trading, and its relative performance is tracked through December 31, 2023.
The graph assumes $100 was invested in our Class A common stock at the market close on November 4, 2021, which was the first day our Class A common stock began trading, and its relative performance is tracked through December 31, 2024.
This graph shall not be deemed “soliciting material” or be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Securities Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. 44 Recent Sales of Unregistered Securities and Use of Proceeds None.
This graph shall not be deemed “soliciting material” or be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that section, and shall not be deemed to be incorporated by reference into any of our 44 filings under the Securities Act of 1933, as amended, or the Securities Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information for Common Stock On November 4, 2021 , our Class A common stock began trading on the Nasdaq Global Select Market under the symbol “ARHS.” Prior to that date, there was no public trading market for our Class A common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information for Common Stock Our Class A common stock trades on the Nasdaq Global Select Market under the symbol “ARHS.” There is no public trading market for our Class B common stock.
Period Total number of shares purchased Weighted average price paid per share Total number of shares purchased as part of publicly announced plans Approximate dollar value of shares that may yet be purchased under publicly announced plans October 2023 332 $ 8.90 — $ — November 2023 — — — — December 2023 929 9.81 — — Total 1,261 $ 9.57 — $ — Holders of Record As of February 29, 2024, there were 136 stockholders of record of our Class A common stock and 4 stockholders of record of our Class B common stock.
Period Total number of shares purchased Weighted average price paid per share Total number of shares purchased as part of publicly announced plans Approximate dollar value of shares that may yet be purchased under publicly announced plans October 2024 520 $ 10.93 — $ — November 2024 50,175 9.68 — — December 2024 56 9.93 — — Total 50,751 $ 9.69 — $ — Holders of Record As of February 21, 2025, there were 107 stockholders of record of our Class A common stock and 3 stockholders of record of our Class B common stock.
Added
Recent Sales of Unregistered Securities and Use of Proceeds None. Item 6. [Reserved] 45

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeFinancial Statements and Supplementary Data 56 Consolidated Balance Sheets 59 Consolidated Statements of Comprehensive Income 60 Consolidated Statements of Changes i n Stockholders’/Members’ Equity (Deficit ) 61 Consolidated Statements of Cash Flows 63 Notes to Consolidated Financial Statements 65
Biggest changeFinancial Statements and Supplementary Data 55 Consolidated Balance Sheets 58 Consolidated Statements of Comprehensive Income 59 Consolidated Statements of Changes in Stockholders’ Equity 60 Consolidated Statements of Cash Flows 61 Notes to Consolidated Financial Statements 63

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeConsolidated Statements of Comprehensive Income Data: Year Ended December 31, (In thousands) 2023 2022 Net revenue $ 1,287,704 $ 1,228,928 Cost of goods sold 747,281 703,869 Gross margin 540,423 525,059 Selling, general and administrative expenses 376,112 340,388 Income from operations 164,311 184,671 Interest expense (income), net (3,351) 3,387 Other income (1,027) (1,294) Income before taxes 168,689 182,578 Income tax expense 43,450 45,944 Net and comprehensive income $ 125,239 $ 136,634 50 Other Operational Data: Year Ended December 31, (Dollars in thousands) 2023 2022 Net revenue $ 1,287,704 $ 1,228,928 Comparable growth 1.4 % 51.6 % Demand comparable growth 7.6 % 13.8 % Gross margin as a % of net revenue 42.0 % 42.7 % Selling, general and administrative expenses as a % of net revenue 29.2 % 27.7 % Income from operations as a % of net revenue 12.8 % 15.0 % Net and comprehensive income $ 125,239 $ 136,634 Net and comprehensive income as a % of net revenue 9.7 % 11.1 % Adjusted EBITDA (1) $ 203,481 $ 222,536 Adjusted EBITDA as a % of net revenue 15.8 % 18.1 % Total Showrooms at end of period 92 81 (1) See “How We Assess the Performance of Our Business” for a definition of adjusted EBITDA and a reconciliatio n of adjusted EBITDA to net income.
Biggest changeConsolidated Statements of Comprehensive Income Data (in thousands): Year Ended December 31, 2024 2023 Net revenue $ 1,271,107 $ 1,287,704 Cost of goods sold 769,878 747,281 Gross margin 501,229 540,423 Selling, general and administrative expenses 415,426 376,112 Gain on disposal of assets (1,202) — Income from operations 87,005 164,311 Interest income, net (3,163) (3,351) Other income (754) (1,027) Income before taxes 90,922 168,689 Income tax expense 22,372 43,450 Net and comprehensive income $ 68,550 $ 125,239 Other Operational Data (dollars in thousands): Year Ended December 31, 2024 2023 Net revenue $ 1,271,107 $ 1,287,704 Comparable growth (8.0) % 1.4 % Demand comparable growth (2.2) % 7.6 % Gross margin as a % of net revenue 39.4 % 42.0 % Selling, general and administrative expenses as a % of net revenue 32.7 % 29.2 % Income from operations as a % of net revenue 6.8 % 12.8 % Net and comprehensive income $ 68,550 $ 125,239 Net and comprehensive income as a % of net revenue 5.4 % 9.7 % Adjusted EBITDA (1) $ 133,283 $ 203,481 Adjusted EBITDA as a % of net revenue 10.5 % 15.8 % Total Showrooms at end of period 103 92 (1) See “How We Assess the Performance of Our Business” for a definition of adjusted EBITDA and a reconciliatio n of adjusted EBITDA to net income. 50 Comparison of the Years Ended December 31, 2024 and December 31, 2023 Net Revenue Net revenue decreased $16.6 million, or 1.3%, to $1,271.1 million in 2024 compared to $1,287.7 million in 2023.
We define EBITDA as consolidated net income before depreciation and amortization, interest expense (income), net and income tax expense. Adjusted EBITDA. We believe that adjusted EBITDA is a useful measure of operating performance as the adjustments eliminate items that we believe are not reflective of underlying operating performance in a particular period.
We define EBITDA as consolidated net income before depreciation and amortization, interest income, net and income tax expense. Adjusted EBITDA. We believe that adjusted EBITDA is a useful measure of operating performance as the adjustments eliminate items that we believe are not reflective of underlying operating performance in a particular period.
In addition, cost of goods sold includes all logistics 48 costs associated with shipping product to our clients, partially offset by delivery fees collected from clients (recorded in net revenue on the consolidated statements of comprehensive income). Sellin g, General and Administrative Expenses. Selling, general and administrative (“SG&A”) expenses include all operating costs not included in cost of goods sold.
In addition, cost of goods sold includes all logistics costs associated with shipping product to our clients, partially offset by delivery fees collected from clients (recorded in net revenue on the consolidated statements of comprehensive income). Sellin g, General and Administrative Expenses. Selling, general and administrative (“SG&A”) expenses include all operating costs not included in cost of goods sold.
For a complete discussion of forward-looking statements, see the section in this Report entitled “Special Note Regarding Forward-Looking Statements.” In addition to the discussion of potential risks discussed in MD&A, certain other risk factors may cause actual results, performance or achievements to differ materially from those expressed or implied by the following discussion.
For a complete discussion of forward-looking statements, see the section in this Annual Report entitled “Special Note Regarding Forward-Looking Statements.” In addition to the discussion of potential risks discussed in MD&A, certain other risk factors may cause actual results, performance or achievements to differ materially from those expressed or implied by the following discussion.
GAAP results in addition to using these non-GAAP financial measures. The non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. We consider the following financial and operating measures that affect our results of operations: 47 Net Revenue and Demand .
GAAP results in addition to using these non-GAAP financial measures. The non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. We consider the following financial and operating measures that affect our results of operations: Net Revenue and Demand .
Variable compensation includes Showroom commissions and Showroom bonus compensation related to demand, likely before the client obtains control of the merchandise. Variable compensation is not significant in our eCommerce channel. All new Showroom opening expenses, other than occupancy, are included in SG&A expenses and are expensed as incurred.
Variable compensation includes Showroom commissions and Showroom bonus compensation related to demand, likely before the client obtains control of the merchandise. Variable compensation is not significant in our eCommerce sales channel. All new Showroom opening expenses, other than occupancy, are included in SG&A expenses and are expensed as incurred.
The aggregate amount of all commitments of all lenders under the 2021 Credit Facility was initially $50.0 million. The 2021 Credit Facility contains restrictive covenants and has certain financial covenants, including a minimum rent-adjusted total leverage ratio and minimum fixed charge ratio.
The aggregate amount of all commitments of all lenders under the 2021 Credit Facility was initially $50.0 million. The 2021 Credit Facility contains restrictive covenants and has certain financial covenants, including a maximum rent-adjusted total leverage ratio and a minimum fixed charge ratio.
Demand comparable growth is the year-over-year percentage change of demand from our comparable Showrooms and eCommerce, including through our catalogs and other direct mailings.
Demand comparable growth is the year-over-year percentage change of demand from our comparable Showrooms and eCommerce, including through our catalogs and other mailings.
Discussions regarding our financial condition and results of operations for 2022 compared to 2021 not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Discussions regarding our financial condition and results of operations for 2023 compared to 2022 not included in this Annual Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Liquidity and Capital Resources Liquidity Outlook Our primary cash needs have historically been for merchandise inventories, payroll, marketing catalogs, Showroom rent, capital expenditures associated with opening new Showrooms and updating existing Showrooms, as well as the development of our infrastructure and information technology.
Liquidity and Capital Resources Liquidity Outlook Our primary cash needs have historically been for merchandise inventories, payroll, marketing catalogs, Showroom rent, capital expenditures associated with opening new Showrooms and renovating existing Showrooms, as well as the development of our infrastructure and information technology.
Cost of goods sold includes the direct cost of purchased merchandise, inventory shrinkage, inbound freight, all freight costs to get merchandise to our Showrooms, credit card fees, design, buying and allocation costs, our supply chain, such as product development and sourcing, occupancy costs related to Showroom operations, such as rent and common area maintenance for our leases, depreciation and amortization of leasehold improvements, equipment and other assets in our Showrooms.
Cost of goods sold includes the direct cost of purchased merchandise, inventory reserves, inbound freight, all freight costs to get merchandise to our Showrooms, credit card fees, design, buying and allocation costs, our supply chain, such as product development and sourcing, occupancy costs related to Showroom operations, such as rent and common area maintenance for our leases, depreciation and amortization of leasehold 48 improvements, equipment and other assets in our Showrooms.
GAAP, we believe that providing these non-GAAP financial measures are useful to our investors as they present an informative supplemental view of our results from period-to-period by removing the effect of non-recurring items.
GAAP, we believe that providing these non-GAAP financial measures is useful to our investors as they present an informative supplemental view of our results from period-to-period by removing the effect of non-recurring items.
For a discussion of such risk factors, see the section in this Annual Report entitled “Risk Factors.” This discussion and analysis addresses 2023 and 2022 items and year-over-year comparisons between 2023 and 2022.
For a discussion of such risk factors, see the section in this Annual Report entitled “Risk Factors.” This discussion and analysis addresses 2024 and 2023 items and year-over-year comparisons between 2024 and 2023.
Net cash used in investing activities Investing activities consist primarily of capital expenditures related to investments in retail Showrooms, information technology and systems infrastructure upgrades as well as supply chain investments.
Net cash used in investing activities Investing activities consist primarily of capital expenditures related to investments in Showrooms, information technology and systems infrastructure, as well as supply chain investments.
Revision of Previously Issued Consolidated Financial Statements This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” has been amended to give effect to the revision of our consolidated balance sheet and consolidated statements of cash flows, as more fully described in Note 1 – Nature of Business to the Notes to Consolidated Financial Statements – Revision of Previously Issued Consolidated Financial Statements Overview Arhaus is a rapidly growing lifestyle brand and premium retailer in the U.S. home furnishings market, specializing in livable luxury supported by globally-sourced, heirloom-quality merchandise.
Revision of Previously Issued Consolidated Financial Statements This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” has been amended to give effect to the revision of our consolidated balance sheet and consolidated statements of cash flows, as more fully described in Note 1 – Nature of Business to the Notes to Consolidated Financial Statements – Revision of Previously Issued Consolidated Financial Statements Overview Arhaus is a growing lifestyle brand and premium retailer in the United States home furnishings market, specializing in livable luxury supported by globally-sourced, heirloom-quality merchandise.
The use of cash from working capital was primarily driven by a decrease in client deposits of $28.8 million, a decrease in operating lease liabilities of $25.8 million primarily due to payments made under the related lease agreements, an increase in prepaid and other assets of $20.7 million, a decrease in accrued expenses of $1.5 million, which were partially offset by a decrease in merchandise inventory of $32.1 million and an increase in accounts payable of $1.2 million.
The use of cash from working capital was primarily driven by a decrease in operating lease liabilities of $39.0 million primarily due to payments made under the related lease agreements, a decrease in client deposits of $28.8 million, an increase in prepaid and other assets of $11.1 million, a decrease in accrued expenses $1.5 million, which were partially offset by a decrease in merchandise inventory of $32.1 million and an increase in accounts payable of $1.2 million.
Shifts in consumption patterns may continue to have an impact on consumer spending in the U.S. premium home furnishings market. In the past, we have 46 experienced volatility in our sales trends related to many of these factors and believe our sales may be impacted by these economic factors in future periods. Housing Market and Housing Turnover .
Shifts in consumption patterns may continue to have an impact on consumer spending in the United States premium home furnishings market. In the past, we have experienced volatility in our sales trends related to many of these factors and believe our sales may be impacted by these economic factors in future periods. Housing Market and Housing Turnover .
On December 9, 2022, the Company amended the 2021 Credit Facility to increase the revolving credit commitment thereunder by $25.0 million. After giving effect to such increase, the aggregate amount of all commitments under the 2021 Credit Facility is $75.0 million. The 2021 Credit Facility expires on November 8, 2026.
On December 9, 2022, the Company amended the 2021 Credit Facility to increase the revolving credit commitment thereunder by $25.0 million. After giving effect to such increase, the aggregate amount of all commitments under the 2021 Credit Facility is $75.0 million.
The 2021 Credit Facility bears variable interest rates at the prevailing Bloomberg Short-Term Bank Yield index rate plus the applicable margin (1.50% at December 31, 2023 and 1.50% at December 31, 2022), whereas the applicable margin is adjusted quarterly based on the Company’s consolidated rent-adjusted total leverage ratio.
The 2021 Credit Facility initially bore variable interest rates at the prevailing Bloomberg Short-Term Bank Yield index rate plus the applicable margin (1.50% at December 31, 2023), whereas the applicable margin is adjusted quarterly based on the Company’s consolidated rent-adjusted total leverage ratio.
These initiatives include expanding our Showroom footprint, enhancing our digital marketing capabilities and eCommerce platform, optimizing our product assortment, expanding our supply chain infrastructure and continuing to invest in technology and related enhancements.
These initiatives include expanding our Showroom footprint, enhancing our digital marketing capabilities and eCommerce sales channel, optimizing our product assortment, expanding our supply chain infrastructure and continuing to invest in technology and related systems enhancements.
We evaluate our accounting policies, estimates, and judgments on an on-going basis. We base our estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions and such differences could be material to the consolidated financial statements.
We base our estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions and such differences could be material to the consolidated financial statements.
We have pursued in the past, and may pursue in the future, additional strategies to generate capital to pursue opportunities and investments, including new debt financing arrangements. In addition to funding the normal operations of our business, we have used our liquidity to fund investments and strategies such as supply chain expansion and growth initiatives.
We have pursued in the past, and may 51 pursue in the future, additional strategies to generate capital to pursue opportunities and investments, including new debt financing arrangements. In addition to funding the normal operations of our business, we have used our liquidity to fund investments and strategies related to growth initiatives, including supply chain and technology improvements.
Overall Economic Trends . The industry in which we operate is cyclical. Consequently, our net revenue is affected by general economic conditions including conditions that affect the housing market and economic factors including the health and volatility of the stock market. We target consumers of high-end home furnishings.
Consequently, our net revenue is affected by general economic conditions including conditions that affect the housing market and economic factors including the health and volatility of the stock market. We target consumers of high-end home furnishings.
For 2023, net cash provided by operating activities was $172.3 million and consisted of net income of $125.2 million and an increase in non-cash items of $90.9 million, which were partially offset by a change in working capital and other activities of $43.8 million.
For 2023, net cash provided by operating activities was $168.7 million and consisted of net income of $125.2 million, an increase in non-cash items of $90.9 million, which were partially offset by a change in working capital and other activities of $47.4 million.
How We Assess the Performance of Our Business In addition to U.S. GAAP results, this 10-K contains references to the non-GAAP financial measures below. We use these non-GAAP measures to help assess the performance of our business, identify trends affecting our business, formulate business plans and make strategic decisions. In addition to our results determined in accordance with U.S.
We use these non-GAAP measures to help assess the performance of our business, identify trends affecting our business, formulate business plans and make strategic decisions. In addition to our results determined in accordance with U.S.
Comparison of the Year Ended December 31, 2023 and December 31, 2022 For 2023 , net cash used in investing activities was $96.7 million primarily due to investments in Showrooms, supply chain expansion and information technology and systems infrastructure.
Comparison of the Year Ended December 31, 2024 and December 31, 2023 For 2024 , net cash used in investing activities was $99.5 million primarily due to investments in Showrooms, strategic investments in our supply chain, and information technology and systems infrastructure.
Notwithstanding these limitations, management considers it useful to assess both measures together to get a more complete picture of overall performance trends, and believes these measures can be useful to investors for the same purpose, when viewed together with our reported results and other metrics. Showroom Data.
Notwithstanding these limitations, management considers it useful to assess both measures together to get a more complete picture of overall performance trends, and believes these measures can be useful to investors for the same purpose, when viewed together with our reported results and other metrics. Gross Margin. Gross margin is equal to our net revenue less cost of goods sold.
Critical Accounting Policies and Estimates Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which requires that certain estimates and assumptions be made that affect the amounts reported in our consolidated financial statements and related notes, as well as the related disclosures.
Critical Accounting Policies and Estimates Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which requires that certain estimates and assumptions be made that affect the amounts reported in our 53 consolidated financial statements and related notes. We evaluate our accounting policies, estimates, and judgments on an on-going basis.
Our recent Showroom growth is summarized in the following table: 2023 2022 Showrooms open at beginning of period 81 79 Showrooms opened (1) 14 4 Showrooms closed for relocations (3) (1) Showrooms closed permanently — (1) Showrooms open at end of period 92 81 (1) Showrooms opened during the respective periods includes both new and relocated Showrooms.
Our recent Showroom growth from January 1, 2023 to December 31, 2024 is summarized in the following table: 2024 2023 Showrooms open at beginning of period 92 81 Showrooms opened (1) 16 14 Showrooms closed for relocations (5) (3) Showrooms open at end of period 103 92 (1) Showrooms opened during the respective periods includes both new and relocated Showrooms.
For 2022, net cash provided by operating activities was $73.2 million and consisted of net income of $136.6 million, an increase in non-cash items of $80.4 million, which were partially offset by a change in working capital and other activities of $143.8 million.
For 2024, net cash provided by operating activities was $147.1 million and consisted of net income of $68.6 million and an increase in non-cash items of $108.8 million, which were partially offset by a change in working capital and other activities of $30.2 million.
Selling, General and Administrative Expenses SG&A expenses increased $35.7 million, or 10.5%, to $376.1 million in 2023 compared to $340.4 million in 2022.
Selling, General and Administrative Expenses SG&A expenses increased $39.3 million , or 10.5% , to $415.4 million in 2024 compared to $376.1 million in 2023.
For example, our large catalogs in the spring and fall may drive higher demand in the months they are released than in the other months in the year. Variable expenses related to demand will also be higher in those months. Net revenue related to demand is recorded in later months, depending on when the client obtains control of the merchandise.
For example, our large catalogs in the spring and fall may drive higher demand in the months they are released than in the other months in the year. Variable expenses related to demand will also be higher in those months.
Information on all of our significant accounting policies can be found in Note 2 — Basis of Presentation and Summary of Significant Accounting Policies in our consolidated financial statements. The following critical accounting policy reflects the significant estimates and/or judgments used in the preparation of our consolidated financial statements.
Information on all of our significant accounting policies can be found in Note 2 — Basis of Presentation and Summary of Significant Accounting Policies in our consolidated financial statements.
In addition, our needs and uses of capital may change in the future due to changes in our business or new opportunities that we choose to pursue.
In addition, our needs and uses of capital may change in the future due to changes in our business or new opportunities that we choose to pursue. As of December 31, 2024, we have no material off-balance sheet arrangements.
The gross margin decrease as a percentage of net revenue was primarily the result of higher Showroom costs, transportation costs and credit card fees, which together increased 100 basis points as a percentage of net revenue. This was partially offset by favorable product costs, contributing 40 basis points as a percentage of net revenue .
The gross margin decrease as a percentage of net revenue was primarily the result of higher Showroom occupancy costs, which increased 110 basis points, a product margin decrease of 60 basis points, higher delivery and transportation costs, which increased 40 basis points and higher credit card fees, which increased 20 basis points .
The use of cash from working capital was primarily driven by an increase in merchandise inventory of $78.1 million, a decrease in client deposits of $62.3 million due to improved delivery of our backlog orders and lower demand comparable growth in 2022, a decrease in operating lease liabilities of $33.7 million primarily due to payments made under the related lease agreements, an increase in prepaid and other assets of $6.9 million, which were partially offset by an increase in accrued expenses $27.7 million, an increase in accounts payable of $10.3 million.
The use of cash from working capital was primarily driven by an increase in merchandise inventory of $42.7 million, a decrease in operating lease liabilities of $37.9 million primarily due to payments made under the related lease agreements, an increase in prepaid and other assets of $2.5 million, a decrease in accrued expenses of $0.9 million, which were 52 partially offset by an increase in client deposits of $47.1 million, an increase in accounts payable of $5.6 million and a decrease in accounts receivable of $1.1 million.
This increase was primarily related to the opening of new Showrooms. Net cash used in financing activities Comparison of the Year Ended December 31, 2023 and December 31, 2022 For 2023, net cash used in financing activities was $1.8 million, primarily due to the repurchase of shares for payment of withholding taxes for equity based compensation.
For 2023, net cash used in financing activities was $1.8 million, primarily due to the repurchase of shares for payment of withholding taxes for equity based compensation.
Factors Affecting Our Business Our business performance and results of operations have been, and will continue to be, affected by the factors described below. While each of these key factors presents significant opportunities for our business, they also pose challenges that we must successfully address in order to sustain growth, improve our results of operations and achieve and maintain profitability.
While each of these key factors presents significant opportunities for our business, they also pose challenges that we must successfully address in order to sustain growth, improve our results of operations and achieve and maintain profitability. Overall Economic Trends . The industry in which we operate is cyclical.
New Showrooms may require different levels of capital investment on our part in the future. 52 Cash Flow Analysis The following table provides a summary of our cash provided by operating, investing and financing activities: Year Ended December 31, (In thousands) 2023 2022 Net cash provided by operating activities $ 172,299 $ 73,178 Net cash used in investing activities (96,722) (51,382) Net cash used in financing activities (1,799) (177) Net increase in cash, cash equivalents and restricted cash $ 73,778 $ 21,619 Net cash provided by operating activities Comparison of the Year Ended December 31, 2023 and December 31, 2022 Operating activities consist primarily of net income adjusted for non-cash items including depreciation and amortization, operating lease amortization, deferred income taxes, equity based compensation and the effect of changes in working capital and other activities.
Cash Flow Analysis The following table provides a summary of our cash provided by operating, investing and financing activities (in thousands): Year Ended December 31, 2024 2023 Net cash provided by operating activities $ 147,109 $ 168,685 Net cash used in investing activities (99,534) (93,108) Net cash used in financing activities (72,951) (1,799) Net (decrease) increase in cash, cash equivalents and restricted cash $ (25,376) $ 73,778 Net cash provided by operating activities Comparison of the Year Ended December 31, 2024 and December 31, 2023 Operating activities consist primarily of net income adjusted for non-cash items including depreciation and amortization, operating lease amortization, deferred income taxes, equity based compensation and the effect of changes in working capital and other activities.
Our effective tax rate was 25.8% in 2023 and 25.2% in 2022. Net and Comprehensive Income Net and comprehensive income decreased $11.4 million to $125.2 million in 2023 compared to $136.6 million in 2022. The decrease was driven by the factors described above.
Net and Comprehensive Income Net and comprehensive income decreased $56.7 million to $68.6 million in 2024 compared to $125.2 million in 2023. The decrease was driven by the factors described above.
For 2022 , net cash used in investing activities was $51.4 million primarily due to investments in supply chain expansion, Showrooms and information technology and systems infrastructure.
For 2023 , net cash used in investing activities was $93.1 million primarily due to investments in Showrooms, supply chain expansion, and information technology and systems infrastructure. Capital Expenditures Historically, we have invested significant capital expenditures in opening new Showrooms.
The following is a reconciliation of our net and comprehensive income to EBITDA and adjusted EBITDA for the periods presented: Year Ended December 31, (In thousands) 2023 2022 Net and comprehensive income $ 125,239 $ 136,634 Interest expense (income), net (3,351) 3,387 Income tax expense 43,450 45,944 Depreciation and amortization 29,442 24,901 EBITDA 194,780 210,866 Equity based compensation 7,909 4,288 Other expenses (1) 792 7,382 Adjusted EBITDA $ 203,481 $ 222,536 (1) Other expenses represent costs and investments not indicative of ongoing business performance, such as public offering costs, third-party consulting costs, one-time project start-up costs, severance, signing bonuses, recruiting and project-based strategic initiatives.
The following is a reconciliation of our net and comprehensive income to EBITDA and adjusted EBITDA for the periods presented (in thousands): Year Ended December 31, 2024 2023 Net and comprehensive income $ 68,550 $ 125,239 Interest income, net (3,163) (3,351) Income tax expense 22,372 43,450 Depreciation and amortization 39,086 29,442 EBITDA 126,845 194,780 Equity based compensation 7,640 7,909 Other (income) expenses (1) (1,202) 792 Adjusted EBITDA $ 133,283 $ 203,481 (1) Other (income) expenses represent costs and investments not indicative of ongoing business performance, such as gain on disposal of assets, secondary offering costs, severance, signing bonuses and recruiting costs.
We seek out and evaluate opportunities for effectively managing and deploying capital in ways that improve working capital and support and enhance our business initiatives and strategies. As of December 31, 2023 , we had cash and cash equivalents of $223.1 million. In 2021, the Company entered into a revolving credit facility (the “2021 Credit Facility”).
We seek out and evaluate opportunities for effectively managing and deploying capital in ways that improve working capital and support and enhance our business initiatives and strategies. As of December 31, 2024 , we had cash and cash equivalents of $197.5 million. For the year ended December 31, 2024, our principal sources of liquidity were cash flows from operations.
This was partially offset by a $7.5 million decrease in warehouse expenses and the non-recurring costs of $5.0 million related to the opening and set-up of our Dallas distribution center. As a percentage of net revenue, selling, general and administrative expenses increased 150 basis points to 29.2% of net revenue in 2023 compared to 27.7% of net revenue in 2022.
This was partially offset by the non-recurrence of a $10.0 million donation last year to The Nature Conservancy. As a percentage of net revenue, selling, general and administrative expenses increased 350 basis points to 32.7% of net revenue in 2024 compared to 29.2% of net revenue in 2023.
Capital Expenditures Historically, we have invested significant capital expenditures in opening new Showrooms and these capital expenditures have increased in the past and may continue to increase in future periods as we open additional Showrooms.
These capital expenditures have increased in the past and may continue to increase in future periods as we open additional Showrooms. Our capital expenditures include expenditures related to investing activities and outflows of capital related to construction activities to design and build leasehold improvement assets.
Our omni-channel model allows clients to begin or end their shopping journey online, while also experiencing our theater-like Showrooms throughout the shopping journey. As of December 31, 2023, we operated 92 Showrooms in 29 states, consisting of 80 Traditional Showrooms, 8 Design Studios and 4 Outlets.
Our omni-channel model allows clients to begin or end their shopping journey online, while also experiencing our theater-like Showrooms throughout the shopping journey.
Historical capital expenditures are summarized as follows: Year Ended December 31, (In thousands) 2023 2022 Net cash used in investing activities $ 96,722 $ 51,382 Less: Landlord contributions 21,900 16,159 Total capital expenditures, net of landlord contributions $ 74,822 $ 35,223 53 Total company fund ed capital expenditures increased by $39.6 million in 2023 compared to 2022.
Historical capital expenditures are summarized as follows (in thousands): Year Ended December 31, 2024 2023 Net cash used in investing activities $ 99,534 $ 93,108 Less: Landlord contributions 33,587 21,900 Total capital expenditures, net of landlord contributions $ 65,947 $ 71,208 Total capital expenditures, net of landlord contribution s decreased by $5.3 million in 2024 compared to 2023.
As of December 31, 2023 and 2022, we operated the following: 2023 2022 Traditional Showrooms 80 72 Design Studios 8 6 Outlets 4 3 Total Showrooms 92 81 Total Square Footage (in thousands) 1,438 1,308 Showrooms with in-home designers 78 65 States where we operate 29 29 Gross Margin.
Data about the Showrooms we operated as of each period presented is as follows: December 31, 2024 2023 Traditional Showrooms 85 80 Design Studios 11 8 Outlets 7 4 Total Showrooms 103 92 Total square footage (in thousands) 1,676 1,438 Showrooms with in-home designers 89 78 States where we operate 30 29 46 Factors Affecting Our Business Our business performance and results of operations have been, and will continue to be, affected by the factors described below.
For the year ended December 31, 2023, these other expenses consisted largely of $0.5 million of public offering costs. For the year ended December 31, 2022, these other expenses consisted largely of $5.0 million of costs related to the opening and set-up of our Dallas distribution center and $1.6 million of severance, signing bonuses and recruiting costs.
For the year ended December 31, 2024, these other (income) expenses consisted largely of $1.2 million of gain on disposal of assets. For the year ended December 31, 2023, these other (income) expenses consisted largely of $0.5 million of secondary offering costs.
Our capital expenditures include expenditures related to investing activities and outflows of capital related to construction activities to design and build landlord-owned leased assets, net of tenant allowances received. Certain lease arrangements require the landlord to fund a portion of the construction related costs through payments directly to us.
Certain lease arrangements require the landlord to fund a portion of the construction related costs through tenant improvement allowance payments directly to us. New Showrooms may require different levels of company-funded capital investment in the future.
Interest Expense (Income), net Interest expense (income), net decreased $6.7 million in 2023 compared 2022. The decrease was driven by interest income earned on money market fund investments and interest-bearing checking accounts of $8.8 million. 51 Income Taxes Income tax e xpense was $43.5 million in 2023 compared to $45.9 million in 2022.
Interest Income, net Interest income, net decreased to $3.2 million in 2024 compared to $3.4 million in 2023. Income Taxes Income tax e xpense was $22.4 million in 2024 compared to $43.5 million in 2023. The decrease was primarily due to lower income before taxes. Our effective tax rate was 24.6% in 2024 and 25.8% in 2023.
The increase was primarily driven by a $19.2 million increase in corporate expenses to support the growth of the business, a $15.8 million increase in selling expenses primarily related to new Showrooms and higher demand, the donation to The Nature Conservancy of $10.0 million and a $3.6 million increase in stock based compensation expense.
The increase was primarily driven by a $30.1 million increase in 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, in addition to a $19.2 million increase in selling expenses primarily related to new Showrooms.
At December 31, 2023, we had no borrowings on the 2021 Credit Facility. For the year ended December 31, 2023, our principal sources of liquidity were cash flows from operations.
The 2021 Credit Facility expires on November 8, 2026. At December 31, 2024, we had no borrowings on the 2021 Credit Facility.
The increase was driven by the increase in net revenue, partially offset by increased expense related to the higher net revenue, including $16.1 million of higher product costs, $10.6 million of increased Showroom costs, $9.8 million of increased transportation costs and $3.6 million of higher credit card fees related to higher demand during these time periods.
The decrease was primarily driven by lower net revenue, increased Showroom occupancy costs of $12.9 million, higher delivery and transportation costs of $2.6 million and higher credit card fees of $1.9 million. As a percentage of net revenue, gross margin decreased 260 basis points to 39.4% of net revenue in 2024 compared to 42.0% of net revenue in 2023.
Removed
Gross margin is equal to our net revenue less cost of goods sold.
Added
Net revenue related to demand is recorded in later months, depending on when the client obtains control of the merchandise. 47 How We Assess the Performance of Our Business In addition to U.S. GAAP results, this 10-K contains references to the non-GAAP financial measures below.
Removed
From January 1, 2022 to December 31, 2023 , we successfully opened or relocated 18 new Showrooms.
Added
The decrease was driven primarily by the non-recurrence of prior year abnormal backlog deliveries, partially offset by an increase in demand for our products. Gross Margin Gross margin decreased $39.2 million , or 7.3% , to $501.2 million in 2024 compared to $540.4 million in 2023 .
Removed
Comparison of the Years Ended December 31, 2023 and December 31, 2022 Net Revenue Net revenue increased $58.8 million, or 4.8%, to $1,287.7 million in 2023 compared to $1,228.9 million in 2022.
Added
On February 29, 2024 , the Board of Directors of the Company declared a special cash dividend on the Company’s Class A and Class B common stock of $0.50 per share, payable April 4, 2024 , to shareholders of record at the close of business on March 21, 2024 .
Removed
The increase was driven primarily by increased demand for our products in both Showrooms and eCommerce channels, as well as elements of our supply chain continuing to catch up with client demand. Comparable growth was 1.4% in 2023 compared to 51.6% in 2022. Demand comparable growth was 7.6% in 2023 compared to 13.8% in 2022.
Added
During the year ended December 31, 2024 , the Company paid out $70.3 million of the aforementioned special cash dividend on its Class A and Class B common stock. Credit Facility In November 2021, the Company entered into a revolving credit facility (the “2021 Credit Facility”).
Removed
Gross Margin Gross margin increased $15.3 million , or 2.9%, to $540.4 million in 2023 compared to $525.1 million in 2022.
Added
On August 30, 2024, the Company amended the 2021 Credit Facility to adjust the index rate from the Bloomberg Short-Term Bank Yield Index to the Term Secured Overnight Financing Rate. The 2021 Credit Facility bears variable interest rates at the prevailing Term Secured Overnight Financing Rate plus the applicable margin (1.75% at December 31, 2024).
Removed
As a percentage of net revenue, gross margin decreased 70 basis points to 42.0% of net revenue in 2023 compared to 42.7% of net revenue in 2022.
Added
We anticipate our total capital expenditures, net of landlord contributions to be approximately $90.0 million to $110.0 million in fiscal year 2025, primarily related to new Showrooms.
Removed
For 2022, net cash used in financing activities was $0.2 million, which represents principal payments under finance leases. Off-Balance Sheet Transactions Our liquidity is currently not dependent on the use of off-balance sheet transactions. We had no material off-balance sheet arrangements as of December 31, 2023 .
Added
Net cash used in financing activities Comparison of the Year Ended December 31, 2024 and December 31, 2023 For 2024, net cash used in financing activities was $73.0 million, primarily due to the payment of the special dividend on our Class A and Class B common stock.
Added
Accounting policies and estimates are considered critical when they require management to make subjective and complex judgments, estimates and assumptions about matters that have a material impact on the presentation of the Company’s consolidated financial statements and accompanying notes. The following critical accounting policy reflects the significant estimates and/or judgments used in the preparation of our consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+1 added−0 removed3 unchanged
Biggest changeWe purchase the majority of our inventory from vendors outside of the United States in transactions that are primarily denominated in U.S. dollars and, as such, any foreign currency impact related to these international purchase transactions was not significant to us for the years ended December 31, 2023, 2022 and 2021 , respectively.
Biggest changeWe purchase the majority of our inventory from vendors outside of the United States in transactions that are primarily denominated in U.S. dollars and, as such, any foreign currency impact related to these international purchase transactions is not significant to us.
We currently do not use derivative instruments to manage this risk. 54 Interest Rate Risk We are primarily exposed to interest rate risk with respect to borrowing under our 2021 Credit Facility and as of December 31, 2023, we have not drawn upon the 2021 Credit Facility.
We currently do not use derivative instruments to manage this risk. Interest Rate Risk We are primarily exposed to interest rate risk with respect to borrowing under our 2021 Credit Facility and as of December 31, 2024, we have not drawn upon the 2021 Credit Facility.
We currently do not use derivative instruments to manage this risk. 55
We currently do not use derivative instruments to manage this risk. 54
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Foreign Currency Exchange Risk We believe foreign currency exchange rate fluctuations do not contain significant market risk to us due to the nature of our relationships with our vendors outside of the United States.
We do not engage in financial transactions for trading or speculative purposes. Foreign Currency Exchange Risk We believe foreign currency exchange rate fluctuations do not contain significant market risk to us due to the nature of our relationships with our vendors outside of the United States.
Added
Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risks, which include changes in United States interest rates, foreign currency exchange rate fluctuations and the effects of economic uncertainty, which may affect the prices we pay our vendors in the foreign countries in which we do business.

Other ARHS 10-K year-over-year comparisons