Stifel cuts Arhaus stock price target to $11.50, maintains Buy

On Monday, Stifel analysts reduced their price target on Arhaus Inc (NASDAQ:ARHS) shares to $11.50, down from the previous $14.00, while maintaining a Buy rating on the stock. Currently trading at $9.36, the stock sits below the analyst consensus range of $10.50 to $14.00. According to InvestingPro, 9 analysts have recently revised their earnings expectations downward for the upcoming period. The adjustment follows the company’s fourth-quarter results for the fiscal year 2024, which revealed stronger profitability, aligning with the company’s January preannouncement. The earnings report showed that revenue performance met the acceleration indicated in the earlier update.

The initial fiscal year 2025 revenue and profitability guidance provided by Arhaus was less than impressive, with first-quarter comparable revenue guidance ranging from a decrease of 6% to an increase of 1%. This guidance seemed inconsistent with the double-digit comparable demand and solid start to the year experienced in November and December. The lack of adequate explanation during the earnings call for the shortfall relative to expectations led to a significant drop in Arhaus shares by 23%, while the S&P 500 saw a decline of only 1.4%.

Despite the underwhelming guidance and the subsequent impact on Arhaus’ stock price, Stifel analysts believe that the guidance may be overly conservative. They suggest that it fully accounts for transitory headwinds but does not reflect the intact long-term prospects of the company. Stifel’s continued constructive approach is based on their belief that Arhaus shares are dramatically undervalued, especially when compared to its peers in the furnishings sector. The analysts assert that the company’s stock should reach parity with its furnishing peers, which is reflected in the newly set target price. The company maintains a "FAIR" overall financial health score according to InvestingPro, with solid profitability metrics including a 46% gross margin and positive earnings of $0.49 per share over the last twelve months. Discover more valuable insights and 5 additional ProTips with an InvestingPro subscription, including our comprehensive Pro Research Report covering what really matters about Arhaus and 1,400+ other top stocks.

In other recent news, Arhaus Inc. reported impressive financial results for the fourth quarter of 2024, surpassing analysts’ expectations. The company achieved an earnings per share (EPS) of $0.15, significantly higher than the forecasted $0.08, and reported revenues of $347 million, exceeding the expected $315.09 million. Despite this strong performance, Arhaus experienced a 1.3% decline in full-year revenue, totaling $1.271 billion. The company ended the year debt-free with $198 million in cash, and it projects up to 3% revenue growth for 2025.

In terms of analyst activity, Piper Sandler downgraded Arhaus’s stock from Overweight to Neutral, reducing its price target from $15.00 to $12.00. This decision was influenced by significant management turnover and concerns about the company’s financial performance, particularly the lack of margin expansion. The analysts noted that Arhaus’s EBITDA margins have been declining, and the company’s guidance for 2025 does not indicate expected margin growth. Arhaus also faced a demand downturn in mid-2024, leading to a 30% reduction in EBITDA guidance.

Despite these challenges, Arhaus plans to open 3-5 new showrooms in 2025 and aims for an adjusted EBITDA of $140-$150 million. Piper Sandler’s cautious stance reflects concerns over execution risks and financial volatility, which could affect Arhaus’s ability to communicate effectively with investors. These recent developments highlight the mixed outlook for Arhaus as it navigates market challenges and strategic investments in the coming year.

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