Arhaus, Inc. (ARHS) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents mixed signals: while revenue and net income are within guidance, comparable sales decline and margins decrease. Positive aspects include new product launches and showroom performance, but macroeconomic uncertainties and declining cash reserves pose risks. The Q&A highlights optimism in second-half guidance and consumer response but also notes inflationary pressures and a cautious macroeconomic view. Given the market cap, these mixed factors suggest a neutral stock price movement.
Key Financial Performance
Net Revenue $314 million in the first quarter, up 0.9% year-over-year. This marks the largest first quarter net revenue in the company's history. The growth occurred despite challenges such as tariff uncertainty, macro volatility, and geopolitical disruption.
Gross Profit $114 million, down 1% year-over-year. Gross margin decreased by 70 basis points to 36.4%, driven by higher fuel prices (40 basis points) and showroom occupancy costs (40 basis points).
Selling, General and Administrative (SG&A) Expenses $112 million, up 1.9% year-over-year. The increase was primarily due to strategic investments in supply chain, technology improvements, and other corporate expenses. SG&A load increased by 40 basis points to 35.7%.
Net Income $2.2 million, within the company's guidance. Adjusted EBITDA was $18 million, with adjusted EBITDA margin decreasing by 30 basis points year-over-year. Seasonal impacts contributed to lower margins in the first quarter.
Comparable Delivered Sales Decreased by 1.7% year-over-year. This was above the midpoint of the company's guidance range. The decline was attributed to severe weather, delayed catalog release, and broader consumer softness tied to macroeconomic uncertainty.
Comparable Written Sales Decreased by 5.7% year-over-year. Factors contributing to the decline included weather-related disruptions, delayed Spring catalog release, and macroeconomic and geopolitical uncertainty, including the war in Iran.
Cash and Cash Equivalents $177 million at the end of the quarter, a 30% decrease from December 31, 2025. The decrease was primarily due to a $49 million special cash dividend paid in March.
Net Merchandise Inventory $369 million, up 9% from December 31, 2025. The increase reflects higher product costs (including tariffs), inventory investments in best sellers, new product introductions, and outdoor assortments ahead of the seasonal ramp. Excluding tariff impact, inventory would be up approximately 6%.
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Operating Highlights
Product Innovation: Arhaus continues to invest in livable luxury, heirloom quality, and artisan-crafted pieces. They are expanding customization capabilities with hundreds of silhouettes and over 700 fabrics and leathers. The company is in one of its strongest periods of product innovation, featuring expressive designs with richer colors, patterns, and layered textures.
Showroom Growth: Arhaus operates 108 showrooms and plans to complete 10-14 showroom projects in 2026, including 4-6 new openings. Recent expansions include a new showroom in Ashburn, Virginia, and an expanded showroom in Lone Tree, Colorado. Showrooms opened since 2019 have contributed 37% of net revenue growth.
Infrastructure Investments: Arhaus is modernizing its distribution network and technology infrastructure, including implementing a new transportation management system (TMS) and progressing on order management and enterprise resource planning systems. These initiatives aim to improve operational efficiency and enhance the client experience.
Client Engagement: Arhaus is focusing on its interior design and trade channels, which are significant demand drivers. The redesigned trade program offers personalized support and tools for design professionals. The U.S. interior design market is valued at $27 billion, presenting a growth opportunity.
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Risk or Challenges
Weather-related disruptions: More than half of the showrooms experienced weather-related disruptions, including temporary closures in key markets, impacting traffic and sales during promotional periods.
Delayed catalog release: The delay in the Spring catalog release shifted demand timing, contributing to a decrease in comparable written sales.
Macroeconomic and geopolitical uncertainty: Broader macroeconomic uncertainty and geopolitical tensions, including the conflict in Iran, created cautious consumer sentiment, impacting sales and overall delivery volumes.
Tariff impacts: The company faces ongoing tariff impacts, estimated at $30 million to $40 million for 2026, which could affect product costs and pricing strategies.
Increased SG&A expenses: Selling, general, and administrative expenses increased due to strategic investments in supply chain, technology, and other corporate expenses, impacting margins.
Transportation management system implementation: The implementation of a new transportation management system is in its early stages, with potential risks related to execution and operational disruptions during the transition.
Inventory management challenges: Higher product costs, including tariff impacts, and increased inventory investments in best sellers and new products could lead to financial strain if demand does not meet expectations.
Consumer sentiment and demand volatility: Shifting consumer sentiment and cautious spending behavior due to economic uncertainties could lead to deferred or reduced demand, impacting revenue.
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Guidance & Outlook
Revenue Guidance for 2026: Net revenue is expected to be between $1.43 billion and $1.47 billion, representing year-over-year growth of 3.7% to 6.6%.
Comparable Delivered Sales: Expected to range from flat to a 3% increase for the full year 2026.
Net Income Guidance: Net income is projected to be between $66 million and $75 million for 2026.
Adjusted EBITDA Guidance: Expected to range between $150 million and $161 million for 2026.
Second Quarter 2026 Revenue Outlook: Net revenue is projected to be between $350 million and $370 million, reflecting a year-over-year growth rate of -2.4% to +3.2%.
Second Quarter Comparable Delivered Sales: Expected to range from -5% to flat.
Second Quarter Net Income: Projected to be between $19 million and $24 million.
Second Quarter Adjusted EBITDA: Expected to range between $40 million and $49 million.
Promotional and Marketing Efforts: Increased promotional activity and marketing efforts are planned to drive volume, client engagement, and demand generation while protecting margins.
Interior Design and Trade Channels: Continued strength is expected in these channels, contributing to demand and revenue growth.
Tariff Impacts for 2026: Estimated to be in the range of $30 million to $40 million, with potential benefits from vendor negotiations and sourcing shifts.
Showroom Expansion Plans: Approximately 10 to 14 showroom projects are planned for 2026, including 4 to 6 new openings and 6 to 8 relocations, renovations, or expansions.
Strategic Investments: Continued investments in modernizing distribution networks, technology infrastructure, and operational systems to support long-term growth and efficiency.
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Shareholder Return Plan
Special Cash Dividend: A $49 million special cash dividend was paid in March 2026.
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Key Q&A
Q:What is the company's guidance for the second half of the year and how does it compare to current trends?
A:The guidance implies 3% to 6.5% comparable growth in the second half of the year. Current trends are supportive of this outlook, with showroom traffic and client engagement improving significantly since Q1. The company needs to deliver 1% to 4% delivered comp growth in Q2 to Q4 to meet the full-year guidance of 0% to 3%.
Q:What is the timeline and expected impact of the order management system and ERP rollout?
A:The company is targeting Q1 2027 for deployment of the order management system and ERP. The transportation management system (TMS) is already showing benefits, with $4 million to $5 million annualized savings expected. For FY '26, $1 million to $2 million in benefits are forecasted. The digital transformation is expected to yield 50 basis points of SG&A efficiency over the next two years.
Q:How are consumers responding to new product launches and current trends?
A:Consumers are responding positively to new product launches, including the Spring collection and expanded outdoor and bath introductions. Newness accounted for 12% of sales in Q1, up from 8% last year. Demand turned positive in April and May, with performance exceeding internal forecasts.
Q:What changes have been made to the promotional strategy and how are they performing?
A:The company elevated promotional activity in April to address macroeconomic challenges and a tough Q1. The strategy includes buy more, save more promotions and creative marketing. April and May performance has been strong, with affluent customers remaining engaged and continuing large projects.
Q:What is the company's exposure to foam and polyol shortages due to the Texas chemical plant incident?
A:The company is confident in its foam supply and does not anticipate material delays in upholstery or other categories. There are some cost pressures on foam, but they are not significant.
Q:How are new galleries performing compared to older ones?
A:New galleries and renovated or relocated galleries are performing well, often exceeding plans. They are outperforming the overall fleet, though both new and existing galleries are doing well.
Q:What is the company's outlook on gross margins and inflationary pressures?
A:The company expects flattish gross margins for the year, revising down from a previous expectation of 60 to 70 basis points of expansion. This is due to persistent inflationary pressures, including fuel costs and supply chain logistics. Productivity initiatives are being implemented to offset these headwinds.
Q:What is the company's view on the broader macroeconomic and housing environment for the second half of the year?
A:The company is not building a recession into its full-year guidance but acknowledges challenges such as weak housing markets, inflation, and rising consumer credit costs. High-end housing and affluent consumers remain resilient, supporting the company's outlook.
Q:What is the impact of the new trade model on the business?
A:The new trade model offers trade professionals a choice between a commission-based format or a discount. Early responses have been very positive, though it is still in the early stages of implementation.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the potential impact of tariff refunds, stating that they do not have enough information at this stage but expect to share more by the end of Q2.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Arhaus designer
Arhaus driver
Arhaus uniqueness
Ashburn Virginia
Ashburn area
Asia decade
CEO environment
Colorado market
Designer project
Europe South
Iran macro
Lone
client base
confidence
connection
consumer
cycle
destination
discipline
engagement conversion
flexibility
luxury
omnichannel model
period uncertainty
pressure
professional
program
relationship
sale
showroom experience
silhouette
space
term opportunity
timing
weather disruption
ARHS Transcript
Arhaus, Inc. (ARHS) Q1 2026 Earnings Call Transcript
Unknown5-7
The earnings call presents mixed signals: while revenue and net income are within guidance, comparable sales decline and margins decrease. Positive aspects include new product launches and showroom performance, but macroeconomic uncertainties and declining cash reserves pose risks. The Q&A highlights optimism in second-half guidance and consumer response but also notes inflationary pressures and a cautious macroeconomic view. Given the market cap, these mixed factors suggest a neutral stock price movement.
Arhaus, Inc. (ARHS) Q4 2025 Earnings Call Transcript
Unknown2-26
The earnings call reflects mixed signals: weak Q4 financials with declining net income and EBITDA, offset by optimistic full-year guidance and strategic investments. The Q&A highlights risks like tariff impacts and inventory issues, yet management remains confident in growth potential and margin improvements. With a market cap of ~$2.39 billion, the stock is likely to remain stable, as positive long-term strategies counterbalance short-term financial challenges.
Arhaus, Inc. (ARHS) Presents at Morgan Stanley Global Consumer & Retail Conference 2025 Transcript
Neutral12-2
Arhaus, Inc. (ARHS) Q3 2025 Earnings Call Transcript
Positive11-6
The earnings call highlights strong strategic initiatives, such as new product launches and showroom expansions, which are positively received by customers. Despite some macroeconomic concerns, the company's optimistic guidance and proactive tariff management strategies are encouraging. The Q&A section reinforces positive sentiment with strong September demand and effective pricing strategies. While there are some uncertainties, the overall sentiment is positive, suggesting a potential stock price increase of 2% to 8% over the next two weeks.
ARHS Report
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