Arhaus (ARHS) risk factors, FY2024 10-K

Risks Related to Our Business and Industry

1. 01We may incur operating losses in the future, and may not achieve or maintain profitability in the future
2. 02We 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
3. 03Disruption in our receiving and distribution system or increased costs as a result of our recently opened distribution and manufacturing centers could adversely affect our business
4. 04We are subject to import and other international risks as a result of our reliance on foreign manufacturers and vendors to supply a significant portion of our merchandise
5. 05Changes in the health of the high-end housing market, as well as declines in consumer confidence and consumer spending, could adversely impact our revenue and results of operations
6. 06market has experienced significant volatility as well as periods of significant decline. We have seen that previous declines in the stock market and periods of high volatility have been correlated with a reduction in client demand for our products
7. 07We are exposed to 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
8. 08Increased commodity prices or increased freight and transportation costs could adversely affect our results of operations
9. 09Our business and operating results may be harmed if we are unable to timely and effectively deliver merchandise to our clients and manage our supply chain
10. 10Our continued success is substantially dependent on our positive brand identity
11. 11We are subject to the SEC’s internal control over financial reporting (“ICFR”) and auditor attestation requirements
12. 12Management will continue to evaluate and refine its financial statement close process. The processes, policies and procedures to support our financial close process will need to operate for a period of time and be tested for operating effectiveness
13. 13Adverse events in the primary regions of our operations could materially adversely affect our business
14. 14The failure to recruit, hire, and retain qualified personnel could materially adversely affect our business
15. 15We depend on our management’s and other team members’ experience and knowledge of our industry; we could be adversely affected were we to lose, or experience difficulty in recruiting and retaining, any such members of our team
16. 16We have and will continue to incur capital expenditures for the remodeling of our existing Showrooms, and there is no guarantee that this will result in incremental Showroom traffic or sales, which may adversely impact our results of operations and financial performance
17. 17Merchandise purchased from our vendors that is defective or otherwise does not meet our product quality standards could damage our reputation and brand image and harm our business, and we may not have adequate remedies against our vendors for such merchandise
18. 18Use of social media and influencers may materially and adversely affect our reputation or subject us to fines or other penalties
19. 19We rely on third parties to drive traffic to our website, and these providers may change their algorithms or pricing in ways that could negatively impact our business, results of operations, financial condition and prospects
20. 20From time to time we are subject to client or other various legal proceedings which could adversely affect our business, financial condition, results of operations and cash flows
21. 21Our failure to successfully manage the costs and performance of our print media might have a negative impact on our business
22. 22Our failure to successfully anticipate merchandise returns might have a negative impact on our business
23. 23Product warranty claims could have a material adverse effect on our business
24. 24If we are unable to successfully adapt to client shopping preferences or develop and maintain a relevant and reliable omni-channel experience for our clients, our financial performance and brand image could be adversely affected
25. 25channels that delivers the products they want, when and where they want them, our financial performance and brand image could be adversely affected
26. 26Our ability to attract clients to our Showrooms depends heavily on successfully locating our Showrooms in suitable locations. Any impairment of a Showroom location, including any decrease in client traffic, could cause our sales to be lower than expected
27. 27Our estimated addressable market is subject to inherent challenges and uncertainties. If we have overestimated the size of our addressable market, our future growth opportunities may be limited
28. 28We operate in a highly competitive industry sector which may adversely affect our future financial performance
29. 29Our lease obligations are substantial and expose us to increased risks
30. 30Growing our business may require additional capital, and if capital is not available to us, our business, operating results and financial condition may suffer
31. 31Disruption in the financial markets could have a material adverse effect on client demand and our ability to refund client deposits
32. 32Our business operations depend on good relations with our employees
33. 33Our business has been and may in the future be affected by the significant and widespread risks posed by public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases, such as the COVID-19 pandemic

Risks Related to Data Privacy and Information Technology

1. 34If we are unable to effectively manage our eCommerce sales channel and digital marketing efforts, our reputation and operating results may be harmed
2. 35or 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
3. 36If we experience security incident(s) that result in data breach(es), we could suffer a loss of sales and increased costs, exposure to significant liability, reputational harm and other negative consequences
4. 37Our failure to address risks associated with payment methods, credit card fraud and other consumer fraud, or our failure to control any such fraud, could damage our reputation and brand and could harm our business, results of operations and financial condition
5. 38eCommerce sales channel or in-store card acceptance mechanisms, customer credit card information could be obtained by an unauthorized third party
6. 39We are required to comply with payment card network operating rules and any material modification of our payment card acceptance privileges could have a material adverse effect on our business, results of operations, and financial condition

Risks Related to Our Intellectual Property

1. 40We may not be able to adequately protect our intellectual property rights
2. 41We are the owner of various trademarks for our brands and hold trademark registrations for many of them in the United States, Canada and China. We also own the Internet domain names for the Arhaus websites such as Arhaus.com, Arhaus.net, and Arhausfurniture.com, among others
3. 42If third parties claim that we infringe upon their intellectual property rights, our operating results could be adversely affected

Risks Related to Government Regulation

1. 43We are subject to governmental regulations and may be subject to enforcement if we are not in compliance with applicable regulation, and changes in laws could make conducting our business more expensive or otherwise change the way we do business
2. 44action 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
3. 45Expectations of our company relating to corporate responsibility factors may impose additional costs and expose us to new risks

Risks Related to Our Indebtedness

1. 46We are party to a revolving credit facility that contains covenants, which may restrict our current and future operations and could adversely affect our ability to execute our business needs
2. 47We may be unable to secure additional financing on favorable terms, or at all, to meet our future capital needs, which in turn could impair our growth

Risks Related to Ownership of our Class A Common Stock

1. 48The dual class structure of our common stock may adversely affect the trading market for our Class A common stock
2. 49Delaware law may protect decisions of our Board of Directors that have a different effect on holders of our Class A common stock and Class B common stock
3. 50The market price, trading volume and marketability of our Class A common stock may be significantly affected by numerous factors, some of which are beyond our control
4. 51Our anti-takeover provisions could prevent or delay a change in control of the Company, even if such change in control would be beneficial to our stockholders
5. 52We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our Class A common stock, which could depress the price of our Class A common stock
6. 53Our director who has a relationship with Freeman Spogli & Co. may have a conflict of interest with respect to matters involving us
7. 54We are a “controlled company” within the meaning of Nasdaq rules and qualify for and may rely on exemptions from certain corporate governance requirements
8. 55If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our Class A common stock adversely, our stock price and trading volume could decline
9. 56Delaware law and our corporate organizational and governing documents impose various impediments to the ability of a third party to acquire control of us, which could deprive our investors of the opportunity to receive a premium for their shares
10. 57Our amended and restated bylaws provide that a majority of our Board of Directors may call special meetings of our stockholders. Our amended and restated certificate of incorporation also permit the issuance without stockholder approval of authorized but unissued shares of common stock and preferred stock

General Risks

1. 58Our operations present risks which may not be fully covered by insurance