ARHS — Arhaus, Inc.

Summary of Arhaus Q4 2025 Earnings Call

1. Key Financial Results and Metrics

• Full Year 2025 Results:

  • Net Revenue: $1.38 billion, up 8.5% year-over-year.
  • Gross Profit: $536 million, a 7% increase; gross margin decreased by 50 basis points to 38.9%.
  • Net Income: $67 million, down 1.9% year-over-year.
  • Adjusted EBITDA: $145 million, up 8.9%; adjusted EBITDA margin remained flat at 10.5%.

• Q4 2025 Results:

  • Net Revenue: $365 million, a 5.1% increase year-over-year.
  • Gross Profit: $139 million, a slight increase of 0.3%; gross margin decreased by 190 basis points to 38.1%.
  • Net Income: $15 million, down 29.1% year-over-year.
  • Adjusted EBITDA: $35 million, down 15.1% year-over-year.

2. Strategic Updates and Business Highlights

• Leadership Changes: Michael Rengel appointed as Chief Merchandising Officer to enhance product strategy and customer engagement.
• Product Innovation: 2025 saw significant product innovation, focusing on craftsmanship, customization, and traditional aesthetics with a modern twist.
• Showroom Expansion: Arhaus increased its showroom count to 107, completing 13 projects in 2025, with plans for 10-14 projects in 2026.
• Sourcing Strategy: 32% of total receipts were sourced domestically, with a focus on maintaining quality and flexibility amid tariff changes.
• Trade Channel Growth: The company is focusing on expanding its trade channel, which represents a significant growth opportunity in the $27 billion U.S. interior design market.

3. Forward Guidance and Outlook

• 2026 Guidance:
  • Net Revenue: Expected between $1.43 billion and $1.47 billion (3.7% to 6.6% growth).
  • Net Income: Projected between $66 million and $75 million.
  • Adjusted EBITDA: Expected between $150 million and $161 million.
  • Q1 2026 Guidance: Net revenue between $300 million and $320 million, with a potential decline in comparable sales due to weather impacts and promotional timing.

4. Bad News, Challenges, or Points of Concern

• Gross Margin Pressure: Decreased gross margin due to higher showroom occupancy costs and increased inventory reserves for obsolete inventory.
• Declining Net Income: Notable decrease in net income for Q4, attributed to strategic investments and showroom expansion costs.
• Softness in Sales: Comparable written sales declined 2.8% in Q4, impacted by promotional timing shifts and weather-related store closures.
• Tariff Headwinds: Anticipated tariff impacts for 2026 are estimated between $30 million and $40 million, which may affect margins.

5. Notable Q&A Insights

• Inventory Management: CFO Michael Lee discussed the proactive approach to managing obsolete inventory, emphasizing improved inventory health and turnover.
• Trade Channel Strategy: The company is enhancing its trade program to incentivize designers to allocate more client budgets to Arhaus, recognizing the potential for significant growth in this area.
• Q1 Challenges: Weather-related store closures and delays in marketing materials were noted as factors contributing to expected softness in Q1 sales.
• Margin Improvement: Management indicated expectations for modest margin improvement in 2026, driven by delivery efficiencies and product premiumization, despite ongoing investments in showroom expansion.

Overall, Arhaus demonstrated resilience and growth in 2025, but faces challenges related to margin pressures, inventory management, and macroeconomic uncertainties as it looks to 2026.