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United States securities and exchange commission logo
September 23, 2021
John Reed
Chief Executive Officer
Arhaus, Inc.
51 E. Hines Hill Road
Boston Heights, Ohio 44236
Re: Arhaus, Inc.
Amendment No. 1 to
Draft Registration
Statement on Form S-1
Submitted September
7, 2021
CIK No. 0001875444
Dear Mr. Reed:
We have reviewed your amended draft registration statement and
have the following
comments. In some of our comments, we may ask you to provide us with
information so we
may better understand your disclosure.
Please respond to this letter by providing the requested
information and either submitting
an amended draft registration statement or publicly filing your
registration statement on
EDGAR. If you do not believe our comments apply to your facts and
circumstances or do not
believe an amendment is appropriate, please tell us why in your
response.
After reviewing the information you provide in response to these
comments and your
amended draft registration statement or filed registration statement, we
may have additional
comments.
Amendment No. 1 to Draft Registration Statement on Form S-1
Competitive Strengths
Superior and Consistent Unit Economics, page 8
1. Refer to your response
to prior comment 10. It does not appear the added definition of
"unit-level adjusted
EBITDA" on page iii states how the related margin is computed.
Please revise
accordingly.
2. It appears
unit-level adjusted EBITDA is a non-GAAP financial measure. Please
present the disclosure
required by Item 10(e) of Regulation S-K, including a reconciliation
to the most directly
comparable GAAP financial measure. In this regard, it appears the
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FirstName
Arhaus, Inc.LastNameJohn Reed
Comapany 23,
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comparable GAAP measure is "income from operations" presented on your
statement of
comprehensive income as it appears the non-GAAP measure is intended to
represent the
direct operations of showrooms and is not indicative of overall
company performance and
profitability. Further, since the non-GAP measure relates to
operations at a showroom
level, please remove "EBITDA" from the description of the measure as
EBITDA suggests
a measure that relates to company wide results. Refer to questions
103.01 and 103.02 of
the staff s "Non-GAAP Financial Measures" Compliance and Disclosure
Interpretations
(C&DI) for guidance.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
How We Assess the Performance of Our Business
Net Revenue and Demand, page 76
3. From your disclosures and responses it appears demand merchandise
revenue and
merchandise revenue are equivalent as they both represent retail
sales of merchandise.
You state in prior comment 3 returned merchandise is reflected in
demand as an offset
against retail sales. However, it is not clear how measures based on
demand
merchandise revenue is reflective of this since merchandise
revenue as computed on
page 77 excludes reserves for returns and discounts. Please advise.
Also, tell us how you
determined that adding back to net revenue reserves related to returns
and discounts does
not substitute individually tailored revenue recognition and
measurement methods for
those of GAAP as it appears these enter into the determination of the
merchandise retail
sale amount. Refer to the answer to Question 100.04 of the above noted
C&DI.
4. You add back private label credit card fees and rebates and
worry free warranty fees
as adjustments in calculating the "merchandise revenue" measure.
Please explain to us
and expand your disclosure to discuss the nature of these adjustments
and your basis for
including such amounts in "merchandise revenue."
Adjusted EBITDA, page 78
5. You disclose your "adjusted EBITDA" non-GAAP measure omits items that
are not
reflective of underlying operating performance. Please clarify why you
do not consider
the new showroom opening expenses to be normal, recurring, cash
operating expenses
necessary to operate your business when these costs have been incurred
every quarter
since March, 2019, showrooms appear to be integral to your operations
and you plan to
continue to increase your number of showrooms for the foreseeable
future. Refer to
Question 100.01 of the staff s Non-GAAP Financial Measures
Compliance and Disclosure
Interpretations.
Statement of Consolidated Comprehensive Income Data, page 80
6. Please present with equal or greater prominence the GAAP measure
comparable to the
non-GAAP measure "adjusted EBITDA as a % of net revenue." Refer to
Item
10(e)(1)(i)(A) of Regulation S-K.
John Reed
Arhaus, Inc.
September 23, 2021
Page 3
Comparison of the Six Months Ended June 30, 2021 and June 30, 2020
Gross Margin, page 81
7. Please expand your discussion to explain the causes of the greater
than 10% increase in
gross margin as a percentage of net revenue in the six months ended
June 30, 2021 as
compared to the percentage in the six months ended June 30, 2020 and
the relative
contribution of each cause to the increase. Consider similar analysis
for the annual period
as there is a greater than 10% increase in that period's gross margin
percentage as well.
Results of Operations
Comparison of the Years Ended December 31, 2020 and December 31, 2019, page 82
8. Refer to your response to prior comment 21. From your disclosure under
"Gross margin"
the aggregate of lower costs of $5.2 million attributable to strategic
sourcing and lower
costs as a result of temporary showroom closings was partially offset
by higher credit card
fees of $4.0 million. This does not materially explain the $10.6
million decrease in cost of
goods sold or the reason for the inverse relationship it has with
revenue when a direct
relationship is expected. Please expand your disclosure as appropriate
following the
guidance in Item 303(a), (b) and (b)(2)(i) and (ii) of Regulation S-K
and section III of
Release No. 33-8350. Given the materiality of cost of goods sold to
your results of
operations, consider discussing material changes in cost of goods sold
in a separate
section for greater transparency to investors. Please consider the
preceding in regard to
the change in cost of goods sold for the interim period as the gross
margin analysis for that
period appears to only explain $15.0 million of the approximately
$68.0 million change in
cost of goods sold for the period.
Liquidity and Capital Resources
Net cash provided by operating activities, page 85
9. Refer to your response to prior comment 22 and disclosure of the changes
in net cash
provided by operating activities for both the interim and annual
periods. It appears
operating cash is not impacted by the non-cash items referred to. Also,
there is no
discussion of the underlying factors affecting changes in working
capital and the
FirstName LastNameJohn Reed
consequent impact on cash. Please revise your disclosure as appropriate
following the
Comapany NameArhaus,
guidance Inc.
in the introductory paragraph of section IV.B and paragraph
B.1 of SEC Release
No. 23,
September 33-8350.
2021 Page 3
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John Reed
FirstName
Arhaus, Inc.LastNameJohn Reed
Comapany 23,
September NameArhaus,
2021 Inc.
September
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You may contact Suying Li at 202-551-3335 or Doug Jones at 202-551-3309
if you have
questions regarding comments on the financial statements and related matters.
Please contact
Donald Field at 202-551-3680 or Lilyanna Peyser at 202-551-3222 with any other
questions.
Sincerely,
Division of
Corporation Finance
Office of Trade &
Services