Arhaus, Inc. (ARHS) Earnings

Management highlights

- Brand and Demand Context * The company reported record Q2 2026 net revenue that exceeded the high end of its prior guidance range, marking the seventh consecutive quarter of results at or above guidance. * High-end consumers demonstrated continued resilience, supported by a healthy U.S. economy, solid spending, and positive wealth effects from higher stock prices; no meaningful trade-down to lower-value products was observed. * Comparable written sales increased 12.5% QoQ and 2.8% year-to-date, while comparable delivered sales increased 4% in Q2 and 1.4% year-to-date. - Product Strategy * The brand is differentiated by its focus on responsibly sourced, heirloom-quality, customizable furnishings, with strong demand for both new product introductions and core classic assortments. * The company is preparing to launch a 40th anniversary fall catalog, distributed to more than double the number of households reached by the spring 2026 catalog, focused on high-potential prospective clients, ahead of the September semi-annual store-wide sale. * Inventory composition remains healthy, with lower aged inventory sequentially and YoY, improved bestseller stock levels, and strong overall in-stock positions to support demand. - Demand Channels * Interior design services remain a key engagement driver, supporting larger whole-home projects, building deeper customer loyalty, and driving long-term brand engagement. * The enhanced relaunched trade program has seen strong early results: thousands of new trade members are added monthly, with flexible commission/discount options, a dedicated expanded national trade team, and a full-service one-stop offering for design professionals that is driving rapid growth. * The diversified multi-channel demand model is cited as a core strategic strength, supporting sustainable long-term growth. - Showroom Expansion * Strong written sales growth was recorded across all regions and all showroom formats (traditional and design studio). * For full-year 2026, the company remains on track to complete 10 to 14 total showroom projects, including 4 to 6 new openings and 6 to 8 relocations, renovations, and expansions, all evaluated against strict targeted return criteria. * Recent new/relocated showrooms have met or exceeded performance expectations, with pre-opening team training and placement of experienced leaders cited as a key driver of early success. - Operational and Technology Investments * The company is in an active investment cycle for digital and operational transformation to improve scalability, efficiency, and the customer experience. * The Transportation Management System (TMS) launched successfully in Q2, with ERP and OMS implementations still on track for a February 2027 go-live. * The rollout of a new modern POS platform has been pulled forward to Q4 2026 (from original plans post-ERP launch), simplifying the technology roadmap and accelerating the transition from legacy systems.

Guidance

- Full-year 2026 net revenue guidance is maintained at $1.43 billion to $1.47 billion, representing 3.7% to 6.6% year-over-year growth, with comparable delivered sales expected to be flat to +3%, unchanged from prior guidance. - Full-year 2026 profitability guidance is updated to reflect the one-time IEPA tariff recovery benefit: net income is now expected to be $71 million to $80 million, and adjusted EBITDA is expected to be $160 million to $171 billion. Approximately $7 to $10 million of the one-time tariff benefit will be reinvested in the business in 2026, $20 million will offset elevated fuel, shipping, and inflationary cost pressures, and the remaining ~$10 million will flow through to adjusted EBITDA. - Q3 2026 guidance calls for net revenue of $355 million to $375 million (3% to 8.8% YoY growth), comparable delivered sales of -1% to +5%, net income of $8 million to $13 million, and adjusted EBITDA of $26 million to $34 million. The June delivery fee increase will begin to offset fuel and shipping cost pressures starting in Q3, with $5 to $7 million of additional tariff recovery benefit expected in Q3, and a similar amount expected in Q4. - Full-year 2026 tariff impact from the new Section 301 framework is still expected to be $30 million to $40 million, unchanged from prior estimates.

Segment performance

Our House operates three customer demand channels: core customers, in-house interior design, and trade. No separate absolute revenue or revenue contribution percentage figures were reported for individual channels. Overall company net revenue for Q2 2026 was $385 million (up 7.4% year-over-year), gross profit was $172 million (up 16.1% YoY, $157 million excluding the one-time IEPA tariff recovery benefit, up 5.6% YoY), selling, general and administrative expenses were $118 million (up 16.1% YoY), net income was $40 million (up 13.1% YoY), and adjusted EBITDA was $70 million (up 16.8% YoY, $55 million excluding the one-time tariff benefit, down 8.9% YoY). Strength was broad-based across product categories including upholstery, outdoor furniture, and Collected Home (the company's vintage-inspired collection), with domestic upholstery manufacturing in North Carolina cited as a core competitive advantage.

Risks & headwinds

- Macroeconomic and geopolitical risks: Ongoing uncertainty around consumer spending, housing turnover, and consumer confidence; elevated and volatile fuel and shipping costs driven by Middle East conflict, with spot container shipping prices spiking over the past 60-90 days; broad inflationary pressure on input and labor costs. - Trade policy uncertainty: The tariff environment remains dynamic, with ongoing changes to policy frameworks that could impact future input costs. - Short-term margin pressure: Gross margin (excluding the one-time tariff benefit) is down 70 basis points YoY in Q2, driven by higher fuel and shipping costs; SG&A margin is up 230 basis points YoY due to strategic growth investments, creating short-term operating pressure. - New showroom expansion creates near-term occupancy cost drag on margins as new locations scale.

Analyst Q&A

• Q: How did Q2 2026 demand acceleration break down across new vs. existing customers, pricing actions, and order size mix? /

  A: There was no meaningful change in the split between new and existing customers, which held steady at historical levels. Traffic rebounded strongly from Q1 2026, with overall traffic up versus the first quarter. Average order value, units per transaction, and large order volumes (for orders above $10,000, $25,000, and $100,000) all performed very strongly, as customers are investing in larger whole-home renovation projects rather than moving, confirming continued strength in high-end consumer spending. (312 characters)

• Q: How is the relaunched trade program performing, what is the growth strategy, and what is its current size? /

  A: The program launched a few months ago and has already exceeded early expectations, with thousands of new trade members added monthly. Key updates include flexible pricing options that let trade partners choose between commission or discount structures, a new dedicated national trade team to recruit design firms, and a full-service one-stop offering that includes warehousing and product support, which differentiates R House from traditional multi-supplier ordering processes. Management calls the trade channel a large untapped long-term growth opportunity that is just getting started. (415 characters)

• Q: Why did the company maintain full-year revenue guidance despite the stronger-than-expected Q2 momentum, and what is internal sentiment around second half performance? /

  A: Management intentionally keeps guidance conservative to account for external unpredictable factors including elevated freight costs and geopolitical conflict. Internally, the commercial team has high optimism for stronger second half performance relative to the guided range, and the guidance range protects for downside scenarios while leaving the company well-positioned to support stronger demand if Q2 momentum continues. No change to the full-year range was needed to reflect this internal outlook. (378 characters)

• Q: What drove the Q2 gross margin decline (excluding tariff benefits), what is the margin outlook for the second half, and how much benefit will the June delivery fee increase provide? /

  A: Key headwinds include $30-$40 million in 2026 Section 301 tariff impacts (currently tracking near the midpoint of the range), ~$10 million in elevated annual fuel costs (most of which remains in the second half), ~$10 million in shipping/supply chain headwinds from spiked spot container prices, and higher foam input costs tied to fuel prices. The June delivery fee increase will provide a $5-$6 million annual run-rate benefit, most of which will flow through in Q3. Additional tailwinds include $4-$5 million in annualized TMS savings (starting in H2 2026), $5-$7 million of additional tariff recovery per quarter, and year-over-year margin expansion in Q4 2026 as it laps the 2025 Q4 inventory impairment charge. (582 characters) Total characters (excluding headers): ~1687 / 2000 limit