Arhaus And RH Distinguished By Premium Focus, Scale, And National Networks - Analyst Initiates Coverage

Stifel analyst Andrew Carter initiated coverage on Arhaus, Inc. ARHS with a Buy rating and forecast of $19.5.

According to Carter, Arhaus’s short public market tenure has been successful with consistent execution, enabling revenue growth to build upon the COVID surge.

In addition, the current discount to retail peers is undervaluing the analyst’s growth outlook, with Arhaus in the middle innings of executing its primary expansion initiative.

The analyst also initiated coverage on RH RH with a Buy rating and a forecast of $315.

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RH disproportionately capitalized on the COVID surge, but pressure amid rightsizing has drawn scrutiny, with shares down 68% from the August 2021 peak.

According to the analyst, the current discount valuation to specialty retail peers on an FY25E EBITDA basis is compelling (ARHS 9.4x, RH 9.5x, Specialty retail peers 11.3x).

Against a fragmented home furnishings category with mass/e-commerce accounting for nearly 25% of U.S. furniture sales, these two companies are distinguished by their premium focus, scale, and national networks, enabling advantaged growth profiles and above-average retail operating margins with estimated product margins in the mid-to-high 60s, the analyst writes.

Per Carter, retail is the most efficient avenue for acquiring furniture customers.

57% of U.S. households within 50 miles of ARHS/RH theatre-like showrooms with the footprints difficult to replicate and both expanding from increasing positions of strength.

In addition, these two companies serve a higher income consumer with top 10% of U.S. households accounting for 32% of 2022 U.S. furniture purchases.

For Arhaus, the analyst estimates $1.6 billion FY26E revenue, +7.4% CAGR FY23-FY26E, with the operating margin relatively flat considering heavy ongoing investment.

For RH, the analyst estimates $3.96 billion FY26E revenue, +8.6% CAGR FY23-FY26E, with an operating margin of +340 bps with expansion constrained by a heavy level of ongoing investment, including losses to support international expansion.

Price Action: RH shares are trading lower by 0.21% to $241.48 at last check Tuesday, while ARHS shares are trading higher by 0.14% to $14.78.

Image via Unsplash

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