ARHS — Arhaus, Inc.

Summary of Arhaus Q3 2025 Earnings Call

1. Key Financial Results and Metrics

• Net Revenue: $345 million, an 8% increase year-over-year and the highest third-quarter revenue in company history.
• Comparable Growth: 4.1%, indicating healthy underlying client demand.
• Demand Comparable Growth: 7.4% for the quarter, reflecting strong performance from high-end clients.
• Gross Profit: $133.4 million, up 8.4% year-over-year; gross margin at 38.7%, a slight increase from the previous year.
• Net Income: $12.2 million, a 23.1% increase year-over-year.
• Adjusted EBITDA: $31.2 million, up 35.2% year-over-year, with an adjusted EBITDA margin of 9.1%.
• Cash Position: $262 million in cash and cash equivalents, with a debt-free balance sheet.

2. Strategic Updates and Business Highlights

• Product Launches: The Fall 2025 Collection was noted as the strongest in company history, driving significant demand.
• Showroom Expansion: Opened the largest traditional showroom in Pasadena, California, and plans to open a showroom in Bozeman, Montana.
• Sustainability Commitment: Emphasis on responsibly sourced and artisan-crafted products, with a focus on domestic upholstery to mitigate tariff impacts.
• In-Home Design Program: Continued success with clients generating higher order values, reflecting strong engagement and loyalty.
• Technology Investments: Initiated a digital transformation project with a $30 million investment aimed at modernizing operations and improving efficiencies.

3. Forward Guidance and Outlook

• 2025 Revenue Guidance: Expected between $1.35 billion and $1.38 billion, reflecting a year-over-year growth rate of 6.2% to 8.6%.
• Q4 Guidance: Anticipated net revenue between $336 million and $366 million, indicating potential year-over-year decline of 3.3% to growth of 5.4%.
• Net Income for 2025: Projected between $58 million and $68 million.
• Adjusted EBITDA for 2025: Expected between $135 million and $145 million.

4. Bad News, Challenges, or Points of Concern

• October Demand Decline: Experienced a significant drop in demand comparable growth of 14.8% due to promotional calendar shifts and pull-forward effects from September.
• Tariff Impact: Updated estimates for 2026 indicate a potential tariff impact of $50 million to $60 million, which could pressure margins despite mitigation strategies.
• Macro Environment: Ongoing uncertainty in the macroeconomic backdrop, including consumer sentiment and housing market conditions, poses risks to future demand stability.
• Promotional Pressure: Competitors are increasingly aggressive with promotions, which could impact pricing strategies and market positioning.

5. Notable Q&A Insights

• Demand Volatility: Management acknowledged the month-to-month demand choppiness and indicated that while Q3 was strong, caution is warranted moving into Q4.
• Pricing Strategy: The company is taking a measured approach to pricing adjustments to offset tariff impacts while maintaining customer value perception.
• Technology Initiatives: The digital transformation project is expected to enhance operational efficiency and internal controls, with significant long-term benefits anticipated.
• High-End Client Engagement: Despite macro challenges, the high-end client base remains engaged, with deferred demand rather than lost demand being a key theme.

Overall, Arhaus reported a strong third quarter with record revenues and positive demand trends, but faces challenges related to macroeconomic conditions and tariff impacts, necessitating careful management of pricing and promotional strategies moving forward.