Good morning, and welcome to the Arhaus second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal remarks. Please note that this call is being recorded, and the reproduction of any part of this call is not permitted without written authorization from the company. I will now turn the call over to your host, Wendy Watson, Senior Vice President of Investor Relations. Please go ahead. Good morning, and thank you for joining the Arhaus second quarter 2024 earnings call. On with me today are John Reed, Co-founder, Chairman, and Chief Executive Officer, and Dawn Phillipson, Chief Financial Officer. After prepared remarks, they will be joined by Jen Porter, our Chief Marketing and E-commerce Officer, for the Q&A session. During Q&A, please limit to one question and one follow-up. If you have additional questions, please return to the queue. We issued our earnings press release and our 10-Q for the quarter ended June 30, 2024, before market open today. Those documents are available on our investor relations website at ir.arhaus.com. A replay of the call will be available on our website within 24 hours. As a reminder, remarks today concerning future expectations, events, objectives, strategies, trends, or results constitute forward-looking statements. Actual results or events may differ materially due to a number of risks and uncertainties. For a summary of these risk factors and additional information, please refer to this morning's press release and the cautionary statements and risk factors described in our most recent annual report on Form 10-K and subsequent 10-Qs, as such factors may be updated from time to time in our filings with the SEC. The forward-looking statements are made as of today's date, and except as may be required by law, the company undertakes no obligation to update or revise these statements. We will also refer to certain non-GAAP financial measures, and this morning's press release includes the relevant non-GAAP reconciliations. Now I'll turn the call over to John. Good morning, everyone, and welcome to the Arhaus second quarter conference call. Our team delivered another quarter of solid operational execution, with several new showrooms opening, successful new product development and important strategic investments made to support our long-term growth. In the second quarter, we delivered a net revenue of $310 million, net income of $22 million, and Adjusted EBITDA of $40 million. During the quarter, we saw demand comparable growth soften to a decline of 3%. On a two-year stack basis, demand comp growth increased 8.6% in the second quarter, and on a three-year stack basis, demand comparable growth increased 31.1%. We're very proud of our strong growth over the past several years and expect to continue to grow our demand comps mid-single digits in the long term, even as there is near-term contraction related to the macro environment. July's demand comp accelerated the second quarter trend with a high teens decline, resulting in a two-year stack demand comp decline in a low double-digit and a three-year stack low double-digit demand comp increase. Demand metrics in the second quarter were mixed. Our average order value and comp traffic were down. Conversions were down slightly year-over-year, but up sequentially from the first quarter. Transactions in the second quarter were positive, and orders over $5,000 and $10,000 continued to grow nicely. We also saw a solid growth in new customers in the second quarter, and the total traffic was up. Total demand in the second quarter increased mid-single digits. We continue to be very pleased with the new showroom performance and our showroom expansion plans. Dawn will discuss in more detail later in the call, but given the current consumer backdrop and industry trends, as well as our own demand comp trends over the past three months, we are adjusting our expectations for the second half of the year and lowering our full year outlook. While our net revenue and earnings outlook are not what we originally expected for the second half of this year, I am confident that we have the right strategy, the right product, the right marketing to continue to successfully grow over time. We have extensive experience navigating cyclical consumer environments, where we maintain focus on our expense control, while our strong debt-free balance sheet allows us to continue to execute our strategic growth plans. During times of economic softening, we have and will continue to invest in product, marketing, and showrooms. As we have done before, we are confident that this approach will enable us to emerge from this cycle in an even stronger position. We will continue to advance our growth strategy by enhancing and elevating our product assortment, expanding our showroom base, increasing brand awareness, and making the strategic investments necessary to upgrade our infrastructure and improve our business tools to support this growth. Our growing showroom footprint with two primary formats continued to drive brand awareness and our long-term growth. We have opened eight new showrooms in six states so far this year and opened our 100th location. I want to thank our teams across Arhaus for their effort in achieving this important milestone in our journey. Just since late May, we have opened three incredible new showrooms, which are our large format in fabulous centers in California, The Grove in Los Angeles, the Beacon La Costa in Carlsbad, and Stanford Shopping Center in Palo Alto. Today, we have 83 traditional showrooms, only halfway through our goal of 165 traditional showrooms. Our 165 traditional showrooms goal is based on very attractive markets we have identified through our experienced real estate team. We perform robust analytic work in our location list and have more opportunities than we choose to execute in any given year. Our model is successful in a variety of markets and across all geographies, allowing us the opportunity for significant expansion. In short, we couldn't be more excited about the new location opportunities ahead of us. As you know, we are also thrilled with our smaller design studio concept, and last week opened our second design studio of the year in Peachtree City, Georgia. Our skilled real estate team has identified 100 locations for design studios, and while we are early in our growth journey, with this footprint, we are incredibly pleased with the performance we've seen, with design studios outperforming the balance of the chain. We are on pace to meet our showroom opening goal for 2024, with a design studio in the Lake Norman, North Carolina, area and traditional showrooms in Oklahoma City and Corte Madera, California, slated to open later this year. As I mentioned earlier, we are pleased with the performance of our new showroom and our new showroom's economics. Moving to our brand awareness. This is a significant opportunity as more and more potential clients become familiar with Arhaus. The top two ways we increase brand awareness are through opening new showrooms and recommendations from friends and family. From our nearly 40 years in the industry, we generate our strong recommendations from friends and family because the factors that set us apart in the premium home furnishings industry, our exceptional product and the value propositions it represents, the unique artisan nature of the aesthetics, the time we take to understand our clients' wants and needs in their homes and matching that with our livable luxury approach, the inspirational and aspirational experience in our showrooms, the ability to match our clients with our complimentary in-home designers, and the ease with which we work with our clients' own interior designers, and our focus on creating the best in-home experience in the industry. Speaking of product, we cannot wait for you to see our new fall collections, which will begin arriving in showrooms at the end of the month. At the same time, our fall catalog will start arriving in homes. It is a stunning catalog, and we have meaningfully increased circulation with prospects to drive brand awareness. We are introducing some incredible new collections that build on the success of our some of our most popular pieces. You'll see stunning new wood finishes that we are very excited about, and new curved takes and wonderful fabrics in our upholstery collections. We continue to focus on offering our clients high design, combined with the trademark comfort and functionality that define livable luxury aesthetics. On our strategic investment front, as we've communicated, we are focused on setting the foundation for long-term growth by improving operational efficiencies with upgraded infrastructure, technology, and processes. We are pleased to have implemented our new warehouse management system and continue to refine the opportunities for operational efficiencies. Further, over the next several months, we will begin to deploy a new planning system that will help optimize our inventory purchases and forecast capabilities, and a new ERP at our upholstery manufacturing facility that will improve margin visibility and production capabilities. We are continuing to work hard to create a future scalable operating environment that will set the stage for more efficient growth. Turning now to supply chains for the update on ocean freight. All carriers are still avoiding the Red Sea, and transit times are two weeks longer on average, which we are planning for in our inventory purchases. Spot rates have increased this summer from container capacity shortages, early peak season shipping, and port congestion at the Asian points. During the second quarter, we were able to bring in all of our containers using the contract rate, but have paid some higher spot rates in the third quarter to ensure product availability for our clients. This impact is factored into our revised outlook for the remainder of the year. Together with our vendors, not only did we learn to successfully navigate supply chain challenges during the pandemic, but we confirmed our geographically diverse supply chain is an advantage in our industry. I am pleased to say that with our strong vendor relationship, we are also working together to improve our costs given the current environment. But don't mistake that for cost engineering. We do not reduce our quality to hit a margin target. Before I turn this over to Dawn to discuss our results and outlooks in more detail, I want to thank our teams for striving to provide industry-leading client service every day and for achieving key milestones in advancing our strategic growth initiatives in the first half of 2024. I'm extremely proud of all of you, and I'm excited to keep the momentum going. Now I'll turn it over to Dawn. Thank you, and good morning. Net revenue in the second quarter was $310 million, with a 7.1% comp decline. The decrease in net revenue compared to the prior year was driven primarily by the non-recurrence of prior year abnormal backlog deliveries and the implementation of our warehouse management system in our Ohio distribution centers. As John mentioned earlier, our demand comp declined 3% in the quarter, with April's mid-single-digit increase more than offset by mid-single-digit declines in the balance of the quarter. Our second quarter gross margin decreased to $124 million, driven primarily by higher showroom costs as we continue to expand our footprint, lower product margin related to promotional activity, and increased delivery and transportation costs as we continue to invest in our final mile experience. Gross margin as a percent of net revenue decreased to 40.1%, driven primarily by lower product margins, higher showroom costs, and higher delivery and transportation costs. Second quarter SG&A expense increased $9 million - $95 million, primarily driven by higher selling expenses related to new showrooms, increased corporate expenses as we invest in our strategic initiatives to support and drive the growth of the business, and higher warehouse expense related to increased productivity in Dallas and the WMS implementation. Second quarter 2024 net income was $22 million. Adjusted EBITDA in the quarter was $40 million versus $64 million in the second quarter of 2023. Second quarter net revenue of $310 million and Adjusted EBITDA of $40 million resulted in a 12.9% Adjusted EBITDA margin in the quarter. As we reported this morning, we are lowering our full-year outlook for 2024. While our first half performance was consistent with our expectations, our second half net revenue and growth margin expectations have changed given recent demand trends. We experienced softening demand comps starting in May, and the negative trend accelerated into July. We believe this is a reflection of the pullback by the home furnishings consumer that is starting to impact our business. In the past, we've seen that our client has typically been the last to stop shopping and the first to start again during times of economic downturn. Similar to how we've handled other cycles, our uncompromising strategy of new product introductions, marketing investments, and opening new showrooms will allow us to capture market share as the macro improves and as clients return to investing in their homes. Our outlook contemplates a low double-digit demand comp decline for the remainder of the year. We believe this is especially prudent in an election year, when the industry generally experiences slowing year-over-year sales growth in the second half of the year relative to the first half. At the same time, as John mentioned, we are very excited about our fall product launches, supported by robust marketing campaigns. As the midpoint of our range implies, we expect net revenue to decline approximately 1% in the second half of the year versus the second half of 2023. On the profitability side, we expect approximately 280 basis points of Adjusted EBITDA deleverage in the second half of 2024. We expect about 70% of the deleverage to come from SG&A, with the balance in gross margin. The majority of this deleverage is from slowing demand and continued important growth investments. Compared to our prior expectations for the second half, we now expect incremental deleverage from the lower net revenue, which will impact both gross margin and SG&A. Our outlook allows for flexibility around promotions for the balance of the year, as well as factors in elevated freight costs. We now expect gross margin deleverage in the second half of the year versus our prior expectation of gross margin inflection. In the third quarter of 2024, we anticipate net revenue in the range of $325 million-$345 million, and at the midpoint, we expect Adjusted EBITDA to decline approximately 130 basis points versus prior year. For all other details related to our 2024 outlook, please refer to our press release. In closing, I want to reiterate our strong commitment to our strategic growth strategy, despite the current macro challenges. Our long-term growth targets have not changed. We continue to expect long-term total revenue growth in the high single digits as we grow showrooms in the mid to high single-digit range and comparable sales grow mid-single digits. We will also continue to improve operational efficiency, driving Adjusted EBITDA growth of low double digits long term. Our debt-free balance sheet is a meaningful competitive advantage that allows us to make the responsible investments to build on our share gains in the highly fragmented $100 billion premium home furniture market. We continue to navigate the current environment from a position of strength, and we believe we are well positioned to maintain our client-first service and drive value for all stakeholders. This concludes our prepared remarks. With that, I'd like to thank you for joining us this morning, and we are happy to take your questions. Ladies and gentlemen, we will now be conducting a question-and-answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we request you to restrict to one question and one follow-up question. Our first question comes from the line of Simeon Gutman with Morgan Stanley. Please go ahead. Hi, everyone. I wanted to ask first, just the technical on the fourth quarter backing into the comp. It looks like it's down mid-teens. It's just straight math, but I wanna make sure that's correct. And then the summer swoon, I guess, that's occurred. Can you talk about, has it been a real change in demand? Has it been, I guess, customers may be deferring purchases and anything you can talk about, product categories. Was it outdoor that slowed, or it's all the indoor and fall purchases that customers have stopped buying? Yeah. Good morning, Simeon. John Reed here. Yeah, first of all, on the last part of that question, now we've seen the products. It hasn't been a specific category whatsoever. It's kind of just been across the board. You know, we're seeing nice traffic in our stores. People are just, you know, taking a little break right now from buying as much as they had been. You know, business has been so strong for so long, and we're still buying growing leads. Our interior designers are still very, very busy. So there really hasn't been a huge change in that. It's just, you know, it seems like the summer blues, and people are traveling so much. Our customers are certainly that they're taking a little break from what they had been. Then, if I can sneak in a follow-up, I think the press release mentions promotional activity. It may be the first time it's been written. Might have talked about it on calls, but talk about the backdrop and then your approach to it, and how much you're weighting in the fall. You have new product coming, and how much of the gross margin is also promotions for the back half? Thank you. Sure. I can take part of that, and Jen can as well. Yeah, the back half, our product lineup is unbelievable. We're very, very excited about it. We think it's certainly the strongest in the industry. You know, I've been through these times, we all have, for quite a while, ups and downs and so forth. You know, the way our strategic plan's always been is, you know, people pull back in times like this, if their business is bad. We kind of do the opposite. We accelerate our new product, our excitement, the looks in the stores, we're freshening them up. We're bringing a lot of color in the stores. We're doing things that really excite the customer because that's what they want. They want exciting products, they want exciting visits, experiences. You know, if we keep that, keep that going, people come back and we really win when business comes back. We've done that every time for 36 years now. Jen, you have anything to add to that? Yeah. Hi, Simeon. So just to add a little bit more color to that. You know what? As, as you heard, we, we did get more promotional in Q2 than we would have been in the past. You know, as we've been speaking, the last, you know, probably almost two years now, we've definitely seen that heightened promotional activity out there from our peers. I think one of the really, you know, interesting things is, you know, it's been a really tough macro environment out there for the last year, year and a half. We've been hearing a lot of our peers really, you know, having to address that, and, and we've really been an outlier to that. So, you know, it's definitely something that we've been monitoring, we're going to be continuing to monitor. As Dawn mentioned, the guide for the rest of the year allows us to be promotional, as we see what happens going into fall and Q4. But just echoing, you know, what John said, we are really, really excited looking at our fall launch coming here in just a few weeks. A couple of weeks back, at the end of July, we did a sneak preview of some of our fall products, and we're really pleased with the marketing engagement that we saw from consumers there. You know, and we're seeing some positive elements. We're seeing really nice traffic to the website. We're seeing engagement with marketing. We're excited about the products. We're definitely seeing, you know, the lower traffic in stores, the lower order values in stores than we'd like. We saw that softening in Q2. We were also up against really positive, strong comps last year in May and June. So, you know, we're looking at that acceleration of a decline into July quite a bit. But, you know, there's a lot of positive coming forward to fall. And as Dawn mentioned, we are ready and able to be more promotional if we need to be, but we are also looking at all those levers we can pull in terms of increasing our marketing spend, making sure the fall product gets out to stores, continuing to open up our showrooms and really positioning us to be there, you know, when this cycle turns around. Good morning, Simeon. This is Dawn. I just wanted to confirm you're, you're thinking about that correctly from a comp basis in the fourth quarter, you know, down that kind of mid-teens is, is, appropriate. And then, with regards to your gross margin question in the second half, if you remember, we're lapping the price action SKUs from last year. So, you know, as we think about product margin year-over-year in the second half, there's, there's a little bit of incremental compression layered into the second half relative to last year's second half, driven by, some of those container costs that we are seeing elevate. But for the most part, you know, we're, we're from a product margin perspective, year-over-year, we think, you know, that will be relatively flat. And then from a gross margin perspective, we are anticipating a bit of deleverage on showroom rent versus last year, as you think about the continued investment in new showrooms, and our growth strategy there. Thanks, Dawn. Good luck, everyone. Thank you. Thank you. Thank you. Our next question is from the line of Max Rakhlenko with TD Cowen. Please go ahead. Great. Thanks a lot, guys. So first, John, given your perspective, how long do these cycles typically last on the high end? Are they shorter than the overall market? And then what categories typically inflect first as we do look for signs of improvements ahead? Good morning, Max. Yeah, I mean, you know, every cycle is different. You know, we had the big crash, what was that, in 2008 or something? And, you know, which is totally different than COVID, which is totally different than today. So, you know, your guess is as good as mine on that. Obviously, there's a lot of news out there. There's election coming up, which has all kinds of cheery news in it. So who knows? I don't know. I do know that, you know, we stay focused on what our plan is. We execute our plan very, very well. We think better than anyone, and we come out of these things, you know, some of our competition may fall off. And we come out of these stronger and get more and more market share every time. So that's what we're, that's what we're focusing on, and that's what we're excited about. Got it. Okay. And then philosophically, how nimble are you with dealing with changing competition in the marketplace? So for instance, if Crate & Barrel start to make changes on price that are impacting you, how would you go about maybe, you know, reacting, or is that generally not how you're thinking about the business? Yeah, generally not. We certainly watch the competition very closely, but when we, you know, compare product to product, we really don't have any product that we can compare to as far as quality goes or design goes. So, you know, we think the ones we do look at, you know, people are undercutting us. The quality isn't there. It's inferior. So we're not too worried about that. We've got an incredible sales team, the best in the business, incredible, you know, army of interior designers who are out there, and customers aren't. They want a beautiful home. They don't remember two years ago what they paid for it, as long as it's working, it's comfortable, it's not falling apart and so forth. So we stay with that vision and that focus, that we're not gonna compromise our quality. We could easily cut quality and take prices down 20%, 30%, but I won't do that. I will not take quality down because in the long run, that goes back to hurt you. Great. Thanks a lot, and best regards. Thank you. Thank you. Our next question is from the line of Steven Forbes with Guggenheim Securities. Please go ahead. Good morning. Maybe start with Dawn as a follow-up to Simeon's question. You think through the sort of decrement, the margin profile implied by the guidance change, it's really high, and I think that's what we're trying to get our arms around. So you mentioned promotional activity, you also mentioned freight costs, right? Investment into marketing. Any way to help frame, you know, sort of how you explain the high decrement, the margin profile? Then as you think through sort of this promotional activity comment, can you parse it out into the various impacts? I mean, how much is being driven by inventory management? Is there any sort of price value correction, and/or, or is this simply just, to stimulate conversion given the macro? Thank you. Yeah, good morning, Steve. So as we're thinking about the second half, you know, we are expecting deleverage of about 280 basis points versus prior year. So you can think about that as about 70% of that is coming through in SG&A, and about 30% of that is coming through in gross margin. On the gross margin side, as you said, there's, there's—we've left ourselves some operating flexibility around promotions, but we're still feeling good about our product margin relative to prior year. We are seeing deleverage as we're continuing to invest in our growth strategies, which is, you know, those new showroom rents are rolling through gross margin. So the balance is in SG&A, and really, you know, our spend, as we think about what we guided to 3 months-6 months ago versus where we're at today, is still consistent. So we are continuing to invest in new showrooms, we're continuing to invest in our strategic growth initiatives around our planning system, our manufacturing ERP, our warehouse management system. We are going a little bit deeper in marketing in the back half of this year. Really excited to continue to drive brand awareness, increase our spend in prospecting a bit for the September catalog, which is gonna be beautiful and really support the product launches that are rolling out at the end of this month. And then, you know, a bit of deleverage on the warehouse expense as Dallas is continuing to ramp up in productivity. So, you know, I think from a spend perspective, we're consistent with what we said all along. There's just some noise as you think about, you know, how that, how that math is all working relative to where we thought revenue would be, you know, for the year six months ago, versus where we think revenue will be this year, you know, in the back half now, where we, where we think it'll be today. Then maybe a follow-up for John. You think about this sort of lean into share and, you're being very optimistic, right, about sort of the strengthening of the position during a challenging backdrop. You know, product, product, obviously a big, a big focus there. So can you, can you expand on the product pipeline? I mean, you know, what, what are some of the product initiatives that you're excited about, whether it's assortment, expansion, breadth, depth? You know, what are you sort of leaning into? Any, any teases for the fall here or early thoughts on newness come the spring? Sure. I mean, I can, I can talk big picture about that. You know, we, we are launching new product in every category, first of all. Very, very excited about the upholstery end of the business, you know, which is the largest category we have. And it drives. When you think about it, it drives a lot of other purchases, rugs, lamps, end tables, so forth. So we've really focused on, on, on that part, and, we're rolling out some incredibly strong product, incredibly great designs, some of the most comfortable, best quality things I've ever seen in my lifetime. And, and we're hitting both, both sides. You know, we're pushing the envelope as far as on the high end, and we also have some really great, you know, kind of starting price point products that we feel will bring new clients in the door. And if people are, you know, looking to save a little bit of money or not spend quite as much, then we have that covered. So I think that's probably our most exciting part, that I think is we've got the entire gamut of upholstery, and, you know, and that includes chairs, and recliners, sectionals, and sofas, and so on and so forth. And again, that's how I've always seen the business drive, especially in times, you know, when times do dip a little bit. That's usually what how we come out really strong. Thank you. Thank you. Our next question is from the line of Seth Sigman with Barclays. Please go ahead. Great. Good morning, everyone. If you go back and think about the drop-off you've seen in the business the last few months, I guess I'm trying to better understand just the consumer engagement. Any more perspective on, you know, how much of that drop-off is actual traffic versus maybe conversion and consumers pushing things out? Do you have a way to measure that? Just trying to think through, you know, is it just deferral that comes back at some point? Just help us frame that a little bit. Thank you. Yeah, I can start that, Seth. Yeah, I mean, people are coming in. They're not as excited as they were, you know, two years ago when COVID was going on, where they would take anything at any price and wait any length of time for it. They just seem to be, you know, busy with other things in their life right now. And, they're still engaged, they're still coming in. You know, we haven't seen a huge, huge traffic drop. The new stores are doing fantastic. The response is unbelievable, especially out in California. And, so we're gonna just keep focusing on that. I don't know if you guys have anything else to say. Yeah. So interestingly enough, from a data perspective, we've really seen some mixed results around different components. Traffic on a comp basis decelerated in the second quarter. The number of orders over $5,000 and $10,000 were up versus last year. So still seeing some strength there. Number of transactions increased healthily versus last year, but the average order was down slightly. Units per transaction is up, though. So the data's really mixed, so it kind of speaks to what John was saying. You know, it's the folks are maybe coming in more often to look at things prior to making a transaction. But, Jen, anything additional on the consumer? Yeah, I mean, I think Dawn and John sort of said it all. We're seeing a lot. I think we are really pleased with seeing those $5,000-$10,000 and above orders performing really healthily as you think about, you know, consumer behavior when they're buying furniture. And, you know, if you have bought a new home or if you are updating and doing a renovation, you have a time frame, and you have that drive to complete that purchase. But as both Dawn and John mentioned, we're seeing less of that sense of urgency to complete for maybe some of those more less urgent purchases. They're browsing, they're exploring. As I mentioned, we're seeing that heightened traffic to the website. We're seeing that heightened engagement with the product. You know, and as we've always spoken about, we know that that's where a lot of our clients are, you know, doing their exploring. They're engaging with the website before they make that purchase. So there's definitely that interest level. We're just seeing less of that urgency to make the purchase today. And as we've all been saying, I think that's, you know, what we are all focused on. That is really at the core of our strategy. We want to be here for our clients wherever they are ready, and continuing to present them all of the great products, the inspiration, the reasons, you know, that set Arhaus apart from, you know, everybody else out there in the market, and then we'll be here when they're ready to convert. That's helpful. And I guess just the follow-up there is thinking about, you know, Arhaus has been able to really navigate a very difficult environment the last couple of years, right? It's been tough out there, and a lot of your peers have been seeing that for some time. So to some extent, it's caught up to you now, and I guess the question we're getting is, why now? I do think if you look at your business on a four or five-year basis, you adjust for all the swings, it's actually much more stable than the big drop-off that you're talking to. But anyway, I guess the real question is: What gives you confidence that it's not something more competitive that's changing? What gives you confidence in, you know, price points where they are today, that they don't need to be adjusted further? Just any more context. Thank you. Yeah, I think, you know, as you mentioned, we were the first ones to kind of, or the last ones, I should say, to see this effect of sales slowing down, and our competitors have seen it a lot earlier. All I can say is we're gonna come out of it a lot quicker as well. We've always seen these things where, you know, we start them later than our competitors, but we also come out of them a lot quicker because of what we do. We've got an amazing product. We absolutely don't think this is competitors taking our business by any means whatsoever. You know, we look at that backwards and forwards. We, you know, we're in touch with our stores, our store managers, our top salespeople, literally every week, and we've not heard a peep about that one little bit. I think that the other thing that I would add on to there is that confidence is, we've never seen price be the driving factor of our purchases. And what's interesting, looking at Q2, and particularly, going into July, we're actually, although we were more aggressive with our promotional strategy, we're actually starting to see promos be a little bit less effective in driving traffic and conversion. And, you know, I think what that speaks to of us is it's not price that's a factor. Our clients want what they want. They are able to pay for it, and obviously, everybody likes a deal, but it's not a question of if they can get a better price point, they'll make the purchase, and if they can't, they won't. As John mentioned, you can't find the same product with the same quality at, at our competitors, so it's not a pricing conversation. So, you know, we're continuously monitoring that, but I think that sort of speaks to the fact that we're seeing sort of this slowdown across promo and non-promotional business as something more to the macro level. I got it. Thank you so much. Good luck. Thank you. Thank you. Our next question is from the line of Robbie Ohmes with Bank of America. Please go ahead. Oh, good morning. Thanks for taking my questions. There's kind of two follow-ups here. Well, the first question is, you guys called out the, you know, that you're pleased with the new showroom performance, and I was just curious, is new showroom performance better than you would have expected relative to existing showrooms in the way they've been performing, you know, the last couple of months? And then the second question, just to follow up on the promotional question, are there any sort of changes to the way Arhaus would be promotional historically? Are there any new things you guys are looking at that you can share with us to, you know, for to specifically for this environment? Thanks. Yeah, the new showrooms are performing very well. We're very excited. The traffic's in there. The response has been absolutely phenomenal, you know, especially out in California, where we've focused on opening some incredibly beautiful, most beautiful showrooms we've ever done. And the response is great. So, you know, to compare them to other stores, I mean, we really come up with a, you know, a solid, conservative sales plan for new stores, and we're very happy, you know, to see how their business is doing. So it's not necessarily comparing them to, you know, a store in Cleveland, Ohio, or Tampa, Florida, or something like that, because they're all totally different markets, different size stores and so forth. And then to jump in, and, if you'll allow me for a second, I just have to do a marketing plug. If you guys haven't visited arhaus.com in August, I strongly encourage you to do so. We've recently launched a campaign celebrating our showroom experience, and it features a lot of incredible imagery from some of these new showrooms that we've opened this year. And it's absolutely stunning, but it's just something - it celebrates something that we're really proud of as a business, is how incredible our showroom experience is and how unique it is. So, if you haven't visited, please, please go check it out. But to touch on your point about just promotional strategy and how we're thinking about the rest of the year and if we're gonna make any changes, you know, as I mentioned earlier, the, and Dawn mentioned, the guide does allow us that flexibility on how we're looking at promos for the rest of the year. We are currently looking at, you know, our same strategy of those holiday weekends, Black Friday, those key promotional periods. You know, we've been talking over the last few calls about how we've started lengthening those promotional periods. We're always looking at, you know, how we're setting those up, what those look like, how we are optimizing our marketing messaging of those promos. So we are going to continue to do that into the back half. But as of now, really looking, you know, at that similar, those similar time periods, as our ongoing strategy. Terrific. Thank you. Thank you, Robbie. Thank you. Our next question is from the line of Phillip Blee with William Blair. Please go ahead. Hi, this is Sabrina. Thanks for taking our question. Can you talk some about some of the progress your team has made on the internal system investments and what benefits you expect to gain when the new system launches over the next few months, maybe from inventory purchasing or your forecasting abilities? Morning, Sabrina. Yeah, you know, we're excited to continue to invest in the systems that we've been talking about. Our warehouse management system launched in April, and we're continuing to refine that and build on some of the operating efficiencies that we've you know seen in the system to date. So excited for how that's continuing to progress and as we continue to tweak that. Our planning software is in process, as we've said before, and you know there's a couple of different unlocks and different phases that we'll have with that program, and it's on track with where we expect it to be. So you know some great opportunities with that is improved demand forecasting you know at a more granular level, both geographically and then on a SKU basis. So, really looking forward to getting some unlocks there, driving some labor efficiencies with the teams here. And so over the next several months, we'll be kind of launching the first phase of that. And then our manufacturing ERP, which is going to provide quite a bit of increased margin visibility and production capability enhancements. So, you know, that is also slated to launch over the next several months. As you can imagine, lifting an entire ERP for a manufacturing facility is extensive, and we want to make sure that we're doing it correctly and really thinking through the different benefits and making sure that we are deploying that responsibly. So, excited for all of those things to launch. No major delays or anything that I would call out here. And so yeah, looking forward to getting those up and running for the team. Thanks. That's helpful. And then quickly back to the competitive landscape. Have you been seeing a lift from the local independent mom-and-pops going out of business, along with maybe other regional brands in the premium space? Any thoughts there would be helpful. Thank you. Yeah, I don't have any data on that, and we're in so many different markets now. That's hard to see. I haven't seen anything locally here. You know, you would, that would be more local marketing and so forth, and I've not seen anything here, and I haven't seen, heard anybody report on anything. Sabrina? Thank you. Thank you. Our next question comes from the line of Peter Keith with Piper Sandler. Please go ahead. Hey, thanks. Good morning. I'm gonna take the competitor question with a different angle. So you do have a large competitor in this space. It seems like they've tried to knock off some of your product lines. And so maybe as you look at that, that direct overlap where, where you've been copied, are you seeing any impact on that area of your, of your business in the last month or two? Good morning, Peter. To answer your question, no, we have not. You know, we feel, again, our product is a great quality, incredible pricing, and we have not seen, we've not seen any change in those particular products that you may be referring to. Okay, good. And then, maybe for Dawn, I'm just trying to play around with the model and wondering why there's such a large sales and comp drop-off in Q4. So if I just take the midpoint of the Q3 comp guide, it seems to imply Q4 comp of down 9% to down 20%, and Q4 revenues below Q3. I guess, can you walk us through why that is the proper outlook? Yeah. So mostly it's timing, Peter. If you think about, you know, if we are anticipating a kind of low double-digit comp demand comp decline, you know, the timing to get that product delivered, there's just a bit of a lag. So really, as you think about about the timing of the demand to delivered realization, and then also just remember last year, up against a really strong abnormal backlog. So every quarter, as we progressed through last year, we had a you know, a higher number of or a higher amount of abnormal backlog that we were delivering. So just the year-over-year compare is still skewed by that component. Okay, thank you. You're welcome. Thank you, Peter. Our next question is from the line of Jeremy Hamblin with Craig-Hallum Capital Group. Please go ahead. Thanks. And want to come back to, you know, the commentary around gross margin. I think, Dawn, that you noted that in the back half of the year, you expect some deleverage. I was hoping you might be able to provide a bit more, kind of guardrails around what you're expecting, kind of Q3 deleverage versus Q4. Yeah, absolutely. So you know, I think the important thing to note is that there's the reasons are the same, you know, as we think about the third quarter, and we think about the fourth quarter, continuing to invest in, you know, new showroom expansion, continuing to invest in our strategic investments. You know, those aren't. There isn't necessarily a significant spike in one quarter versus another as we think about the back half. So to the extent that is helpful, I would just note, you know, continue to note that last year, we would've been getting incremental deleverage, or sorry, incremental leverage last year from the higher abnormal backlogs, you know, as we moved through the year. So when you're looking at a margin rate basis in the quarters, just, just keep in mind that there might be incremental deleverage in the fourth quarter versus the third, just driven by the abnormal backlog of last year. And then as we think about the price action SKUs that we were deploying in June of last year, and as those were getting delivered, deliveries of those would've been heavier in the fourth quarter versus the third quarter. So, you know, just a little bit of noise there, I would say, between the quarters on timing of deliveries versus when we deployed those, you know, price actions. Got it. Okay. And then I just want to come back to the traffic trends and conversion here for a second, because I think there was, you know, a little bit of mixed messaging in terms of, you know, sounds like traffic is down. And wanted to get a sense, if you could share, how much, you know, traffic has fallen off May, June, July, you know, just to get a sense for, you know, what you're seeing from conversion and kind of those that are more or less window shopping but not purchasing in the near term. Yeah, interestingly enough, traffic was down more year-over-year in the first quarter than in the second quarter. So while traffic on a comp basis was still down in the second quarter, it was sequentially up. So interesting, you know, I'd call it in the kind of mid-single digit decline for the second quarter. And what about as you've started in Q3? You know, we haven't disclosed that, and so, you know, we're seeing, I would say, no meaningful change in metrics, but recognize that, you know, one month doesn't make a quarter either. So we're tracking it. We're paying very close attention to the demand metrics. We look at those on a daily basis to see, you know, what's happening in each showroom. But, you know, we'll report more on that when we report the third quarter. Got it. Thanks, for the color. Best wishes. Thank you. Thank you. Our next question is from the line of Cristina Fernández of the Telsey Advisory Group. Please go ahead. Thank you. Good morning. I wanted to ask about inventory flow, and as you look at the demand trends you've seen in the past few months, what is your flexibility in adjusting your inventory to be—to remain in a, you know, clean position here over the next, you know, 6 months-12 months? Yeah, I mean, it's. Again, we've been through many, many cycles, up cycles, where we need our partners to make more products, and if we're having a down cycle, then we ask them to make less products. So it's fairly straightforward. We're very, very flexible. We're incredibly meaningful to our suppliers, and they're our partners, so they, you know, they work with us both ways. And ideally, you know, everything is perfect and everything, they can make exactly the same amount of pieces every single month, but that just isn't reality. So they're very flexible. We don't see any issues with that. You know, if we get in an overstocked position or an understocked position, we work with them to fix it and level it out. We've got a great planning team and a great sourcing team and a great product team that are very, very close to the vendors, and they'll do whatever they can in their power to help us out with smoothing out inventory. And then the second question is going back to the promotions. It seems like, you know, you increased promotions in the second quarter and are willing to step them up. How are you balancing, you know, making sure that you don't damage the brand or train the consumer to wait for the promotion, especially if the promotions are not being as effective in driving traffic and conversion? Yeah. Good morning, Cristina. That is—that's a great question, and that's at the heart of, you know, what we talk about and focus on every single day here. I think, you know, the way we're approaching that and the way we've always approached that is, you know, we right now are looking forward to our fall launch. We're looking forward to the fall product. We're looking forward to the fall marketing. You know, there, there are two reasons why we're increasing—we increased the investment in our fall marketing campaign. One was to, you know, offset what we are starting to see in the macro, but the other is because we love the campaign and the product that we're launching so much, truly believe it is the best catalog that we have ever put out into the market. And we have great, great product that we're really proud of as well. So I think to your point, it really is having those conversations and balancing and making sure that we don't lose sight of our long-term opportunity with any short-term decisions or needs that we're making. I think on the flip side, though, we have proven over the last, you know, 4 years-5 years now, that by speaking to and emphasizing the product assortment, the quality, the artisan stories, the differentiation, the showroom experience in everything that we do in the majority of the marketing and messaging that we put out there, it allows us to be promotional when we want to be without damaging the brand, as you mentioned. That is a balance, that is something we want to do. But our clients are very smart. They know what they want. They know how, you know, the markets work. They know how promotions work. And so we're constantly, constantly toeing that line. And that's our strategy going into the back half of the year. We're not going to overreact any which way. We're going to keep doing what works for us and what we do best, and we'll be reading our fall launch very closely here in the next two months. Thanks. Thank you. Thank you. Ladies and gentlemen, if you wish to ask a question, please press star and one. Our next question is from the line of Peter Benedict with Baird. Please go ahead. Oh, hey, good morning, guys. I was a little late to join, so I apologize if either of these have been asked. But, my first question is just, could you clarify the revenue headwind from the warehouse management system implementation that went in April? Yeah, good morning, Peter. So certainly there was, there was a little bit of an impact, which we had talked about, you know, on prior calls, just from a timing perspective. So as you, you know, about one week, call it, of revenue, you know, that, that was shifted into a different time period. Okay, thanks. And then given the investments you're making in stores and systems, just curious what level of revenue growth you think would be required to kind of hold your EBITDA margins flattish? I mean, obviously, in the back half of this year, you guys are pushing ahead with the investments. I kind of as a related question, as you think maybe more towards 2025, if a soft demand environment persists, do you continue on that path, or do you make any adjustments to try to cushion the margin impact? Thank you. Yeah. So I would say there's kind of two things that I would call out, in response to your question. The first is that we firmly and strongly believe that continuing to invest in showroom expansion, new product introductions, and our marketing campaigns are incredibly important, even, you know, in a down cycle. So as we think about, you know, the investments in the organization, and to come out of a down cycle in a very strong position and take market share, continue to build on our market share gains, we need to continue to invest in those three components in particular. So we will continue to do that. As I think about your broader question, you know, we are still in growth investment mode. So as you think about the investments we're making in the back office, we've talked about our warehouse management system, we've talked about the planning system, our manufacturing ERP. We've also been assessing over the last several months, what other system changes need to be deployed in order to support the size of the organization today and then drive future efficiencies as we continue to scale top line. So, you know, I would say near-term investments are going to drive that longer-term, you know, margin expansion. But in the near term, we need to be thinking about that. You know, I would encourage you to think about it in that there's gonna be additional investments. We've said we're investing $10 million-$15 million this year in our corporate strategic investments. You know, you could anticipate that number will be comparable next year, if not a little bit higher. We'll give more detail and insight into that as we continue to refine internally and confirm our timing plans on those. The other item that I would just call out as a reminder is that on the incremental flow-through of revenue, you know, flow-through down to Adjusted EBITDA is between 30% and 40%. So if that's helpful as you're kind of building out your models, that's the flow-through. Great. Thanks so much, Dawn. Appreciate it. Thanks, Peter. Thank you. Our next question is from the line of Jonathan Matuszewski with Jefferies. Please go ahead. Hey, good morning. Thanks for taking my question. I wanted to ask about the typical consumer purchase cycle, and I'm sure it varies, but is there a standard, you know, decision length that you observe between maybe an initial visit to the website or initial visit to the showroom and maybe when that consumer decides to, you know, pull the trigger on a purchase? Just trying to think about whether, you know, this is a dynamic where, you know, consumers are just being more choiceful and maybe just need more time to make a decision. So maybe you'll see kind of that demand slow through later in the year. But any perspective on that kind of decision process and any kind of changes you've been observing lately? Thanks so much. Yeah, I can start that, Jonathan, and then Jen can jump in. You know, in the store, the store model, you know, typically folks come in a store, they touch, feel things, you know, they go back, they take swatches home, things like that. And you know, they figure out what they want and need. And then if they need more help, they. We could put them together with one of our interior designers. So, you know, they can come, certainly, they come back at least twice before they buy as an average. Certainly, there's people walk in and say, "Hey, I need a sofa tomorrow," and, you know, they buy it, and we deliver it in five days or so. But, you know, most part, people are more thoughtful. They have to measure. They're not, you know, they're not experts at that thing. What colors go together? What rug goes with what fabric on the sofa? Things like that. So it's a longer process, and sometimes they'll come back twice, sometimes three times, you know, sometimes four times, depending on the project, and depending on how much they love. Because, you know, a lot of people love this, love this process. They're fixing up their home to be beautiful, and it's a really, really important decision for them. So they take it seriously, and sometimes they buy a little quicker than other times. Right now, they're buying a little slower than normal, but that's kind of the process, and Jen can fill you in on the rest. Yeah. Hi, Jonathan. No, totally agree with everything, John just said, and I think that's, you know, what we really look at. Furniture is a considered purchase. And, you know, you definitely see differing behaviors. So, you know, we definitely see people who walk in and buy a chair or go to the website and buy decor or soft goods or accessories. But, you know, our clients are, we believe, are attracted to Arhaus because of the quality, because of the ability to really consider and build out a home for your family for years to come. You know, our furniture is built to last. These aren't sort of purchases that people are making and then looking to, you know, redo six months later. So I think it's really interesting when you look at the spectrum of those behaviors. One thing I think that's also interesting to remember, if you think about Arhaus versus some of our peers in the space as well, is to remember that we are more heavily weighted to those larger furniture pieces, those larger average order values. And so I think that does play around a little bit with the mix of how effective things like promotions are, or how effective those things, in terms of trying to drive that sort of spur of the moment impulse purchase. We do see great success of that, people going online, but really it is about allowing and providing that space and that experience for clients truly to take their time, and to be inspired and build a home that they can really be proud of. Helpful. Thank you. Thank you. Our next question comes from the line of Peter Keith with Piper Sandler. Please go ahead. Oh, thanks for letting me back in. So, two follow-ups. One, the first one's for John. You've been in this business for quite a number of decades. Have you had a period where you had one or two soft months that were just a hiccup, and then the business retraced back to normal trends? Does this sound like seem like a familiar backdrop that you've seen before, or this pace of slowdown is a bit unprecedented? Yeah, no, I have, Peter. This has happened before. It just... And it seems like it's a hiccup. You know, typically, it happens in the summer months, where folks are focusing on other things. They're outdoors, they're traveling, trying to get all the vacations in with their kids and so forth. And, it, it's not, you know, untypical. We haven't seen it lately because of COVID and so forth, so, you know, we were all spoiled on seeing, you know, double-digit increases every month. But, but no, I absolutely have seen it in the past, for sure. And then it comes back, you know, in the past, it's typically has come back pretty strong in the fall, where people are back in their homes and getting ready for the holidays and so forth. So that's kind of good for my final question to Dawn. So you've had a really tough July. I don't think of July as a seasonally relevant month for furniture. To your point, it's a vacation month. So with the construct of the guidance, you've taken the EBITDA down 30% for the year. Are you taking... You know, I guess, help us understand this, like, stacked demand trends coming out of July, you're kind of holding that. And then on the gross margin, have you—sounds like you've also given yourself some wiggle room to promote, but it could be upside if you don't promote. Just really trying to understand the magnitude of this guide down after, you know, one soft summer month. Yeah. So I, you know, I'd clarify a little bit. We have seen, you know, deceleration in the May-June timeframe. That was stronger deceleration than, you know, what we would have anticipated in those months. Certainly accelerated into July. So, you know, while the second quarter demand comp was down 3%, we've had about 90 days, you know, three months of deceleration. And so, you know, I think it's prudent as we look towards the back half of the year, there's a lot going on with the economy, there's a lot going on with the election, which can be very distracting. So certainly, I don't have a crystal ball. I don't know exactly how the balance of this year is gonna play out. I think this is a responsible way to think about the business, think about the trends that we're seeing, think about... You know, we have a lot of additional customer information that we don't share publicly for competitive reasons, and those indicators are, you know, kind of telling us that maybe this is, you know, could persist a little bit longer than just July and, and August. So, you know, I think this is a responsible way to look at the business through the back half. We think that there's a nice opportunity and wanted to leave ourselves some wiggle room in the numbers for promotional activity as we move through the year. You know, in a great environment, in a perfect world, we won't need it, and, you know, and the consumer will return very strongly in a couple of months. But we don't have any evidence that that is going to be the case. So, we're just, you know, prudently managing as we're thinking about the business, watching the consumer trends on a daily basis, and, you know, I think this is a reasonable expectation for the organization at this time. Okay. And then maybe just one very quick follow-up. You know, July is a quirky month for a lot of companies. We're finding with earnings season, you had hurricane, CrowdStrike outage. Anything and that sort that may have impacted the demand comp that you'd want to flag? Not, not that we've seen. No. Nothing we can put our fingers on, Peter. Okay. All right. Thank you very much. Thank you. Thank you. Ladies and gentlemen, this concludes our question and answer session. I would now hand the conference over to Wendy Watson for her closing comments. Thank you, everybody, for joining today, and we will look forward to talking to you again next quarter. Thank you. The conference of Arhaus has now concluded. Thank you for your participation. You may now disconnect your line. Goodbye.