Summary of Arhaus Q4 2025 Earnings Call

1Key Financial Results and Metrics

Full Year 2025 Results:

Net Revenue: $1.38 billion, up 8.5% year-over-year.

Gross Profit: $536 million, up 7% year-over-year; Gross Margin: 38.9%, down 50 basis points.

Net Income: $67 million, a decrease of 1.9% year-over-year.

Adjusted EBITDA: $145 million, up 8.9% year-over-year; Adjusted EBITDA Margin: 10.5%.

Q4 2025 Results:

Net Revenue: $365 million, up 5.1% year-over-year.

Gross Profit: $139 million, up 0.3% year-over-year; Gross Margin: 38.1%, down 190 basis points.

Net Income: $15 million, down 29.1% year-over-year.

Adjusted EBITDA: $35 million, down 15.1% year-over-year.

2Strategic Updates and Business Highlights

Leadership Changes: Michael Rengel appointed as Chief Merchandising Officer to enhance product strategy and assortment.

Showroom Expansion: Increased showroom footprint by over 50% since 2019, ending the year with 107 showrooms. Completed 13 showroom projects in 2025.

Product Innovation: Strong focus on customization and high-quality materials, with record sales in upholstery and custom orders.

Trade Channel Growth: Significant opportunity identified in the $27 billion U.S. interior design market, with efforts to enhance partnerships with external designers.

Sourcing Strategy: Continued emphasis on diversified sourcing, with 32% of receipts from U.S. artisans, enhancing flexibility amid tariff changes.

3Forward Guidance and Outlook

2026 Guidance:

Expected Net Revenue: $1.43 billion to $1.47 billion (3.7% to 6.6% growth).

Net Income: $66 million to $75 million.

Adjusted EBITDA: $150 million to $161 million.

Q1 2026 Guidance: Net Revenue of $300 million to $320 million, indicating potential softness due to weather impacts and promotional shifts.

4Bad News, Challenges, or Points of Concern

Gross Margin Pressure: Decreased gross margin due to higher occupancy costs and increased inventory reserves for obsolete inventory.

Declining Net Income: Q4 net income down significantly, attributed to showroom expansion costs and strategic investments.

Softness in Sales: Comparable written sales declined 2.8% in Q4, with a notable drop in October due to promotional timing shifts.

Tariff Headwinds: Anticipated tariff impacts for 2026 estimated between $30 million and $40 million, with ongoing evaluation of pricing strategies.

5Notable Q&A Insights

Inventory Management: CFO Michael Lee addressed obsolete inventory concerns, emphasizing improved inventory health and management practices.

Sales Momentum: CEO John Reed expressed optimism about product innovation and evolving customer preferences, indicating potential for sales recovery.

Trade Channel Strategy: The company is focused on enhancing the trade program to incentivize designers and capture a larger share of client budgets.

Weather Impact: Q1 guidance reflects challenges from weather-related store closures and delays in catalog distribution, but management remains confident in long-term growth. Overall, Arhaus demonstrated resilience in 2025 despite facing macroeconomic challenges, with a strategic focus on product innovation, showroom expansion, and trade channel growth while navigating pressures on margins and inventory management.