Arhaus, Inc. Q2 FY2025 earnings call

• John Reed welcomed new CFO Michael Lee and outlined strategic priorities: increasing brand awareness, growing Showroom footprint, enhancing omnichannel experience, and investing in infrastructure. Achieved record net revenue driven by in-sourcing the Dallas Distribution Center, with Q2 comparable growth at 10.5% though demand comparable growth was impacted by macro pressures. July demand comparable growth was 15.7% with year-to-date up 2.2%.
• Highlighted product innovation including the launch of the Arhaus Bath Collection, featuring vanities, storage, faucets, hardware, and towels, designed with intention and quality craftsmanship. Jennifer Porter discussed marketing efforts like lifestyle-driven collaborations, the fall catalog launch, and the "The Feeling of Home" campaign, emphasizing storytelling and emotional connection with clients. Michael Lee detailed financial results, sourcing strategies, Showroom expansion plans, and investments in technology and distribution networks.

In the second quarter, Arhaus achieved a record net revenue exceeding $358 million, up 15.7% year-over-year. Gross margin was $148 million, up 19.1% versus the prior year. Gross profit expanded to 41.4%, with Showroom occupancy decreasing 50 basis points, product margin increasing 30 basis points, and transportation costs decreasing 30 basis points. Net income was $35 million, up 57.7% year-over-year, and adjusted EBITDA was $60 million, up 51.2% year-over-year. Net merchandising inventory stood at $311 million, a 4.7% increase from December 31, 2024.

• Reaffirmed full-year 2025 outlook: net revenue between $1.29 billion and $1.38 billion, net income $48 million to $68 million, adjusted EBITDA $123 million to $145 million. Third-quarter 2025 outlook: net revenue $320 million to $350 million, net income $7 million to $17 million, adjusted EBITDA $23 million to $33 million. Acknowledged continued macro uncertainty and $12 million tariff impact with no targeted price increases embedded in guidance.

• Macro pressures, shifting tariffs, and geopolitical tensions affecting consumer sentiment. Volatility in demand comparable growth due to external economic and political factors. Potential challenges in aligning demand comparable growth and comparable growth metrics in the short term.

Q: Given the Bath Collection launch, expand on product opportunities and consumer requests.

A: John Reed mentioned focusing on core products, upholstery with 600 fabrics and 90 leathers, and continuing to update categories.

Q: Key learnings from the 3-tier Buy More Save More program.

A: John Reed and Jennifer Porter noted the program is working, with increased orders over $5,000 and $10,000 driven by the interior designer program.

Q: Implied weak fourth quarter demand and tariff impact.

A: Michael Lee discussed year-to-date choppiness, continued macro uncertainty, and the impact of tariffs on the back half.

Q: Supply chain investments and leverage.

A: Michael Lee talked about ERP investments, operational benefits, and scaling for long-term growth.

Q: Demand inflection in July and trends across price points.

A: Jennifer Porter discussed higher order values from interior designers and the impact of marketing and promotions in July.

Q: Market share and competition.

A: John Reed stated Arhaus is taking market share with unique product and proprietary vendors.

Q: Product margin drivers and outlook.

A: John Reed and Michael Lee mentioned price adjustments, Dallas DC execution, and new store openings impacting margins.

Q: B2B playbook and brand awareness.

A: Jennifer Porter discussed the onboarding of Jill for B2B and the halo effect of trade designers on brand awareness.

Q: Bath Collection scaling parallel.

A: John Reed compared it to the outdoor collection's growth.