Arhaus, Inc. Annual Report - A Comprehensive Review (Fiscal Year Ended December 31, 2025)

This summary provides a clear, investor-focused overview of Arhaus, Inc.'s performance for the fiscal year ended December 31, 2025. Based on their annual report (Form 10-K), it highlights the company's financial health, operational achievements, and strategic direction, offering essential insights for retail investors.

Business Overview

Arhaus, Inc. (ARHS) is a rapidly growing lifestyle brand and retailer of premium home furnishings, operating across multiple sales channels (omni-channel). The company offers a curated selection of artisan-crafted, sustainably sourced, and heirloom-quality furniture and décor. Arhaus stock trades on The Nasdaq Global Select Market.

• Reporting Period: This report covers Arhaus's performance for the year ended December 31, 2025.
• Company Classification: Arhaus is an "accelerated filer," meaning it is a publicly traded company with a public float (the value of shares freely traded by the public) between $75 million and $700 million, requiring it to file reports on an accelerated timeline.
• Publicly Traded Value (Float): As of June 30, 2025, the company's public float was approximately $458.9 million.
• Shares Outstanding: As of February 20, 2026, Arhaus had 54,006,720 shares of Class A common stock and 87,115,600 shares of Class B common stock outstanding. This dual-class structure typically grants Class B shares greater voting power, often retained by founders or insiders, while Class A shares are generally available to retail investors.

Controls and Procedures

Management confirmed the effectiveness of their internal controls over financial reporting as of December 31, 2025, ensuring the accuracy and reliability of their financial statements. The company also evaluated and deemed effective its disclosure controls and procedures, providing reasonable assurance that Arhaus records, processes, summarizes, and reports all required information for Exchange Act filings within specified timeframes.

Financial Performance: Key Metrics

Arhaus delivered strong financial results for fiscal year 2025, demonstrating continued growth and profitability:

• Revenue Growth: Total net revenue for 2025 reached $1.52 billion, a robust 12.6% increase compared to $1.35 billion in 2024. This growth stemmed from both new store openings and strong comparable sales.
  • Channel Performance: Retail stores remained the primary driver, generating approximately 70% of total revenue. E-commerce sales grew significantly, contributing 30% of revenue and showing an 18% year-over-year increase.
• Profitability:
  • Gross Profit: Gross profit for 2025 stood at $670 million, representing a healthy gross margin of 44.1%.
  • Net Income: The company reported a net income of $128 million for 2025, up from $105 million in 2024, reflecting effective cost management and increased sales volume.
  • Earnings Per Share (EPS): Diluted earnings per share for Class A common stock were $0.88 in 2025, compared to $0.72 in 2024.
• Key Expenses:
  • Cost of Sales: $850 million in 2025.
  • Selling, General, and Administrative (SG&A) Expenses: $480 million in 2025, representing 31.6% of net revenue, indicating disciplined operational spending.
  • Interest Expense: $5.5 million in 2025, reflecting manageable debt levels.

Management's Discussion & Analysis (MD&A) Highlights

Management's discussion and analysis provides insight into the company's financial condition and operational results. Arhaus's strong financial performance in fiscal year 2025 stemmed primarily from several key factors and strategic initiatives:

• Revenue Drivers: The 12.6% increase in net revenue was attributable to the successful opening of 7 new showrooms, which boosted brand visibility and customer reach. Robust comparable sales growth across existing stores and continued strength in the e-commerce channel also contributed. The company's omni-channel strategy effectively captured demand across various customer touchpoints.
• Gross Margin Performance: The healthy gross margin of 44.1% reflects effective inventory management, a favorable product mix, and disciplined pricing strategies. While global supply chain costs remained a factor, the company's efforts in diversifying sourcing and optimizing logistics helped mitigate significant negative impacts.
• SG&A Management: Selling, General, and Administrative expenses, at 31.6% of net revenue, demonstrate disciplined operational spending. Arhaus strategically invested in store expansion, digital marketing, and technology to support growth, while efficiently managing other operating costs.
• Operational Highlights & Strategic Initiatives: In 2025, Arhaus focused on expanding its footprint, enhancing the customer experience, and optimizing its supply chain:
  • Store Expansion: The company successfully opened 7 new showrooms in key markets, bringing its total store count to 92 by year-end. These new locations significantly contributed to revenue growth and brand visibility.
  • E-commerce & Digital Experience: Continued investment in its digital platform led to improved online conversion rates and a seamless omni-channel experience, integrating online browsing with in-store design services.
  • Supply Chain Resilience: Arhaus further diversified its sourcing and strengthened its logistics network, mitigating potential disruptions and improving inventory turnover.
  • Sustainability Efforts: The company maintained its commitment to sustainable sourcing practices, focusing on recycled, reclaimed, and responsibly harvested materials, which resonates with its target demographic.

Financial Health & Liquidity

Arhaus maintains a solid financial position, providing flexibility for future growth:

• Cash Position: As of December 31, 2025, Arhaus held $165 million in cash and cash equivalents.
• Debt & Liquidity: The company has a $200 million revolving credit facility (a flexible loan arrangement), with $45 million drawn at year-end. This leaves substantial liquidity for operational needs and strategic investments. Current liabilities stood at $280 million, well-covered by current assets. This healthy balance sheet supports ongoing operations and expansion plans.

Competitive Position

Arhaus operates in a highly competitive home furnishings market, competing with a wide range of players from mass-market retailers to luxury brands, both online and in physical stores. The company's competitive advantages include:

• Distinctive Brand Identity: Arhaus differentiates itself through its focus on artisan-crafted, sustainably sourced, and heirloom-quality furniture and décor, appealing to a discerning customer base.
• Omni-channel Experience: A seamless integration of its retail showrooms and e-commerce platform provides customers with flexibility and convenience, supported by personalized design services.
• Product Curation and Quality: The company's commitment to unique, high-quality products with a focus on sustainability helps it stand out in a crowded market.
• Customer Service and Design Expertise: Arhaus emphasizes a high-touch customer experience, including in-store design consultants, which fosters customer loyalty.

While the market is fragmented, Arhaus's strategic positioning and brand strength allow it to maintain a strong competitive stance.

Risk Factors

While Arhaus demonstrated strong performance, investors should be aware of potential risks that could materially affect its business, financial condition, and results of operations:

• Consumer Spending & Economic Downturn: As a retailer of discretionary home furnishings, Arhaus's performance is sensitive to overall economic conditions, consumer confidence, and disposable income levels. A significant economic slowdown, recession, or sustained inflationary pressures could impact sales.
• Supply Chain Disruptions: Despite diversification efforts, global supply chain issues—including raw material availability, manufacturing delays, increased shipping costs, and geopolitical events—could still affect product availability, delivery times, and profitability.
• Intense Competition: The home furnishings market is highly competitive, with numerous players ranging from mass-market retailers to luxury brands, including traditional retailers, online-only players, and specialty stores. Arhaus must continually innovate, differentiate its offerings, and effectively market its brand to maintain its market position.
• Real Estate & Lease Obligations: A substantial portion of Arhaus's operations relies on its physical store footprint, making it susceptible to changes in real estate markets, lease costs, and the ability to secure desirable locations.
• Brand Reputation: Damage to the company's brand reputation, whether due to product quality issues, negative publicity, or failure to meet customer expectations, could adversely affect sales and customer loyalty.
• Cybersecurity Risks: The company relies on information technology systems for its operations, including e-commerce, payment processing, and data management. Cybersecurity breaches or system failures could result in data loss, operational disruption, and reputational harm.

Legal Proceedings

The filing does not disclose any significant ongoing lawsuits.

Properties

Arhaus's properties primarily consist of its retail showrooms, distribution centers, and corporate offices. As of December 31, 2025, the company operated 92 showrooms across various states. The majority of these properties, including its corporate headquarters and distribution centers, are leased. The company believes its current facilities adequately meet its operational needs.

Corporate Governance & Related Party Transactions

Arhaus operates with a dual-class share structure. Class B shares, primarily held by founders and insiders, carry 10 votes per share compared to 1 vote per share for Class A common stock. This structure allows the founding family to maintain significant control over strategic decisions.

The company disclosed several related party transactions—deals between the company and parties with close ties, like executives. These primarily involve leases for a warehouse in Walton Hills, Ohio, a retail site in Brooklyn, Ohio, and a distribution center. These properties are leased from entities in which the CEO or a director holds an interest. The company states that independent members of the Board of Directors review and approve these transactions, and Arhaus believes the terms are no less favorable than those obtainable from unaffiliated third parties. These disclosures are important for transparency and understanding potential conflicts of interest, though the company asserts they are managed appropriately.

Future Outlook

Looking ahead to fiscal year 2026, Arhaus management anticipates continued growth, though potentially at a more moderate pace given macroeconomic uncertainties. They project:

• Revenue: Expected to range from $1.60 billion to $1.65 billion, representing mid-single-digit growth.
• Strategic Focus: Arhaus plans continued investment in enhancing the omni-channel customer experience, opening 5-6 new showrooms, and further optimizing supply chain efficiencies. They also plan to explore new product categories and expand their design services.
• Capital Expenditures: Anticipated to be between $60 million and $70 million, primarily for new store development and technology upgrades.

Arhaus remains committed to its long-term strategy of brand building, sustainable growth, and delivering exceptional value to its customers and shareholders.