Arhaus Inc

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

1. Nature of Business

Arhaus, Inc (“Arhaus,” “Company,” “we,” “us” or “our”) is a Delaware corporation and is a premium retailer in the home furnishings market, specializing in livable luxury supported by heirloom quality merchandise. We offer merchandise in a number of categories, including furniture, outdoor, lighting, textiles, and décor. Our curated assortments are presented across our merchandise sales channels in sophisticated, family friendly and unique lifestyle settings. We position our retail locations as Showrooms for our brand, while our website acts as a virtual extension of our Showrooms. The Company operated 92 Showrooms at December 31, 2023.

Arhaus was formed on July 14, 2021 for the purpose of completing an initial public offering (“IPO”) of its common stock and related transactions in order to carry on the business of Arhaus, LLC (“LLC”) and its subsidiaries. Pursuant to the corporate reorganization and completion of the IPO in November 2021, the Company became a holding company for LLC and its subsidiaries.

Reorganization and Initial Public Offering

On November 4, 2021, the Company completed its IPO and sold 12,903,226 shares of Class A common stock at an IPO price of $13.00 per share and received proceeds of $151.4 million, net of underwriting discounts and commissions of $10.4 million and offering expenses of $5.9 million. The Company used a portion of the net proceeds to pay the Term Loan exit fee of $64.1 million, as discussed in Note 6— Debt. The remainder of the net proceeds were used for general corporate purposes, including payment of fees and expenses in connection with the IPO and to replenish working capital followinga pre-IPO payment in the amount of $100.0 million which consisted of a $50.7 million dividend to noncontrolling interests and a $49.3 million distribution to the owners of Homeworks.

In connection with the IPO, the Company reorganized its ownership structure from a limited liability company to a corporation for the purpose of issuing common stock on a publicly traded exchange. Pursuant to the terms of the Integrated Contribution Agreement by and among the Company, FS Arhaus Holding, Inc. (“FS Arhaus,” “Class B Units,” or “noncontrolling interest”), a Delaware corporation, Homeworks Holdings Inc. (“Homeworks,” or “Class A Units”) and the unit holders (“Management Unitholders”) of LLC, a series of transactions were completed on November 8, 2021, which we refer to, collectively, as the “Reorganization.”LLC and Homeworks were identified as entities under common control, in which both entities are ultimately controlled by the same party before and after the Reorganization and therefore resulted in a change in reporting entity. In accordance with ASC 805-50-45-5, for transactions between entities under common control, the consolidated financial statements for periods prior to the Reorganization have been adjusted to retrospectively combine the previously separate entities for presentation purposes.

The Reorganization transactions included:

•the amendment and restatement of the certificate of incorporation of Arhaus, Inc., to authorizetwo classes of common stock, Class A common stock and Class B common stock and to authorize the Company to issue up to 750,000,000 shares of common stock, consisting of 600,000,000 share of Class A common stock, par value of $0.001 per share,100,000,000 shares of Class B common stock, par value of $0.001 and 50,000,000 shares of Preferred Stock, par value of $0.001; and

•the Company’s acquisition of the units of LLC held by FS Arhaus, Homeworks, John Reed (“Reed”) through the John P. Reed Trust dated April 29, 1985, as Amended (“Reed Revocable Trust”) and the Management Unitholders, pursuant to the mergers and exchanges described below, and the issuance in those transactions of Class A common stock to the holders of FS Arhaus and the Management Unitholders and Class B common stock to Homeworks, Reed and the Reed Revocable Trust.

The following steps describe the transactions that were completed to effect the Reorganization on November 8, 2021:

•Step 1: The Company formed two wholly owned subsidiaries, Ash Merger Sub 1, Inc. (“Merger Sub 1”), a Delaware corporation, and Ash Merger Sub 2, Inc. (“Merger Sub 2”), a Delaware corporation;

•Step 2(a): Merger Sub 1 merged with and into FS Arhaus, with FS Arhaus surviving the merger, or Surviving Corporation 1, and became a wholly owned subsidiary of the Company and the holders of FS Arhaus received shares of Class A common stock;

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

•Step 2(b): Merger Sub 2 merged with and into Homeworks, with Homeworks surviving the merger, or Surviving Corporation 2, and became a wholly owned subsidiary of the Company and the owners of Homeworks received shares of Class B common stock;

•Step 2(c): The Management Unitholders contributed their units in LLC to the Company in exchange for shares of Class A common stock;

•Step 2(d): Reed and the Reed Revocable Trust contributed their respective units in LLC to the Company in exchange for shares of Class B common stock;

•Step 2(e): The Company contributed the units of LLC that it owns directly to Surviving Corporation 1 and Surviving Corporation 2 in proportion to the units of LLC owned by Surviving Corporation 1 and Surviving Corporation 2; and

•Step 3: The Company issued shares of Class A common stock to the purchasers in the IPO.

As a result of the Reorganization, a total of 39,623,041 shares of Class A common stock and 87,536,950 shares of Class B common stock were issued to the former holders of FS Arhaus, the former holders of Homeworks, Reed, the Reed Revocable Trust and the Management Unitholders. Of the total 127,159,991 shares of common stock issued,2,520,229 shares of Class A common stock and 596,598 shares of Class B common stock issued to Management Unitholders were subject to certain vesting conditions specified in individual award agreements and were issued as restricted stock with the exact time-based vesting provisions as the incentive units that were exchanged for such shares. If the vesting conditions of the restricted stock are not satisfied, such restricted stock will be forfeited and cancelled.

Revision of Previously Issued Consolidated Financial Statements

In preparation of the December 31, 2023 consolidated financial statements, the Company identified an error within the consolidated balance sheet as of December 31, 2022, related to certain leasehold and landlord improvements prior to showroom completion being incorrectly included in prepaid and other current assets rather than property, furniture and equipment, net. The error resulted in inaccurate cash flows ascribed to operating and investing activities in the consolidated statement of cash flows for the years ended December 31, 2022 and 2021. The Company has evaluated the errors both quantitatively and qualitatively and concluded they were not material, individually or in the aggregate, to such prior period consolidated financial statements and concluded to revise such prior period consolidated financial statements.

In connection with the revision of the Company’s prior period consolidated financial statements, we determined it was appropriate to correct for certain other previously identified immaterial errors. Additionally, although not presented herein, we revised the consolidated balance sheet as of December 31, 2021 in conjunction with the revision of the consolidated statement of cash flows for the year ended December 31, 2021.

We have also revised impacted amounts within the accompanying notes to the consolidated financial statements, as applicable. Specifically, Note 2 -Basis of Presentation and Summary of Significant Accounting Policies, Note 3 -Property, Furniture and Equipment, and Note 7 -Leases.

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

The following tables summarize the impact of these corrections for the periods presented (amounts in thousands):

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

2. Basis of Presentation and Summary of Significant Accounting Policies

A summary of significant accounting policies applied in the preparation of the consolidated financial statements are as follows:

Basis of Presentation

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Theconsolidated financial statements include our accounts and those of our wholly owned subsidiaries. Accordingly, all intercompany balances and transactions have been eliminated through the consolidation process. Certain prior year amounts have been reclassified to conform to the current year presentation.

Use of Estimates

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The accounting estimates and other matters included within ourconsolidated financial statements and notes to the consolidated financial statements we have assessed include, but were not limited to, revenue recognition, including a reserve for merchandise returns, inventory reserves, impairment of long-lived assets and fair value of financial instruments which include, but are not limited to, accounts receivable, payables and lease obligations.

Cash and Cash Equivalents

The Company considers cash and all other highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company regularly carries deposits in excess of federally insured amounts, but does not believe that it is exposed to significant concentration of credit risk as they are carried at a high-quality financial institutions with investment-grade ratings.

From time to time, the Company invests in Level 1 cash and cash equivalent investments such as money market funds and interest-bearing checking accounts. For the years ended December 31, 2023 and 2022, the Company earned $8.8 million and $1.9 million in interest income, respectively. The Company didnot have cash and cash equivalent investments for the year

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

ended December 31, 2021. Interest income is included within interest expense (income), net on our consolidated statements of comprehensive income.

Cash and cash equivalents include $19.9 million and $13.0 million at December 31, 2023 and 2022, respectively, for amounts in-transit from credit card companies since settlement is reasonably assured and not restricted.

Restricted Cash

The Company maintains certain cash balances restricted as to withdrawal or use. Restricted cash is comprised primarilyof cash used as collateral for the Company’s credit card sales processing partner, a portion of our workers’ compensation obligations that our insurance carrier requires us to collateralize and a portion of our customs obligation that the U.S Customs and Border Protection requires us to collateralize.

Accounts Receivable

The Company’s accounts receivables are $2.4 million and $1.7 million, respectively, at December 31, 2023 and 2022, net of allowance for expected credit losses of $0.6 million and $0.7 million, respectively. The allowance for expected credit losses is determined by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history, the client’s current ability to pay its obligations, and the current and future condition of the general economy and industry as a whole. Accounts receivable are written off when they become uncollectible and any payments subsequently received on such receivables are credited to the allowance for expected credit losses. Accounts receivable are recorded at the invoiced amount and do not bear interest.

Revenue Recognition

Net revenue consists of sales to clients, net of returns and discounts. Net revenue and cost of goods sold are recognized when performance obligations under the terms of the contract are satisfied and the control of merchandise has been transferred to a client, which occurs when merchandise is received by our clients. Net revenue from “direct-to-client” and “home-delivered” sales are recognized when the merchandise is delivered to the client. Net revenue from “cash-and-carry” Showroom sales are recognized at the point of sale in the Showroom. Discounts provided to clients are accounted for as a reduction of sales at the point of sale. Sales commissions are incremental costs and are expensed as incurred.

A reserve is recorded for projected merchandise returns based on actual historical return rates. The Company provides an allowance for sales returns based on historical return rates, which is presented on a gross basis. The allowance for sales returns is presented within accrued other expenses and the estimated value of the right of return asset for merchandise is presented within prepaid expense and other current assets on the consolidated balance sheets. Actual merchandise returns are monitored regularly and have not been materially different from the estimates recorded. Merchandise returns are granted for various reasons, including delays in merchandise delivery, merchandise quality issues, client preference and other similar matters. The Company has various return policies for their merchandise, depending on the type of merchandise sold. Returned merchandise often represents merchandise that can be resold. Amounts refunded to clients are generally made by issuing the same payment tender as used in the original purchase. Merchandise exchanges of the same merchandise at the same price are not considered merchandise returns and, therefore, are excluded when calculating the sales returns reserve. The allowance for sales returns of $8.0 million and $8.3 million at December 31, 2023 and 2022, respectively, is recorded in the accrued other expenses line item on the consolidated balance sheets.

All taxes assessed by a government authority that are both imposed on and concurrent with a specific revenue producing transaction and collected by the Company from clients are excluded from the measurement of the transaction price. As a result, sales are stated net of tax.

The Company collects various taxes as an agent in connection with the sale of merchandise and remits these amounts to the respective taxing authorities. These taxes are included within accrued taxes line item of the consolidated balance sheets until remitted to the respective taxing authorities.

Shipping and handling is recognized as an activity to fulfill the performance obligation of transferring merchandise to clients, therefore the fees are recorded in net revenue. The costs incurred by the Company for shipping and handling are included in cost of goods sold, and the costs of shipping and handling activities are accrued for in the same period as the delivery to clients.

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

Client deposits represent payments made by clients on orders. At the time of order, the Company collects deposits for all orders equivalent to at least 50 percent of the client’s purchase price. Orders are recognized as revenue when the merchandise is delivered to the client and at the time of delivery the client deposit is no longer recorded as a liability. The Company expects that substantially all client deposits as of December 31, 2023 will be recognized within the next 12 months as the performance obligations are satisfied.

Private Label Credit Card

The Company has an agreement with a Credit Card Issuer (“Issuer”) to provide clients with private label credit cards (the “Card Agreement”) which was amended on January 13, 2021 to extend the term of the agreement through August 31, 2026. Each private label credit card bears the Arhaus brand logo and can only be used at the Company’s Showroom locations or website. The Issuer is the sole owner of the accounts issued under the private label credit card program and absorbs the losses associated with non-payment by the private label card holders.

During the term of the Card Agreement, the Company receives a percentage of private label credit card sales from the Issuer and is also eligible to receive incentive payments for the achievement of certain targets. These funds are recorded within net revenue in the consolidated statements of comprehensive income. The Company also receives reimbursement funds from the Issuer for certain expenses the Company incurs. These reimbursement funds are used by the Company to fund marketing and other programs associated with the private label credit card and are recorded within net revenue in the consolidated statements of comprehensive income.

Loyalty Reward Program

The Company offers a loyalty reward program for clients who use the Company’s private label credit card to receive rewards based on the client’s merchandise purchases. The liabilities associated with the rewards are established on the consolidated balance sheets when the rewards are issued and are removed from the consolidated balance sheets, either when used by the client or upon expiration (three months from when the reward is issued). At December 31, 2023 and 2022, outstanding liabilities related to the loyalty reward program of $1.4 million and $1.5 million, respectively, are included within the accrued other expenses line item of the consolidated balance sheets.

Merchandise Inventory

The Company’s merchandise inventory is comprised primarily of finished goods and is carried at the lower of cost or net realizable value, with cost determined on a weighted-average cost method. To determine if the value of inventory should be marked down, below original cost, we use estimates to determine the lower of cost or net realizable value, which considers current and anticipated demand, client preference and merchandise age.

Reserves for shrinkage are estimated and recorded throughout the period as a percentage of current merchandise inventory levels and historical shrinkage results. Actual shrinkage is recorded throughout the year based upon periodic cycle counts and the results of the Company’s annual physical inventory counts.

Merchandise inventory includes reserves of $7.6 million and $5.7 million at December 31, 2023 and 2022, respectively.

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

Prepaid and Other Current Assets

Prepaid and other current assets consist of the following (amounts in thousands):

(1)Presented net of accumulated amortization of $2.7 million as of December 31, 2023.

Advertising Costs

Except for costs associated with the semi-annual catalogs, the Company expenses advertising costs as incurred. Advertising costs amounted to $43.0 million, $38.7 million and $35.9 million for the years ended December 31, 2023, 2022 and 2021, respectively, and are included within the selling, general and administrative expenses line item on the consolidated statements of comprehensive income. Expense associated with the catalogs are recognized upon the delivery of the catalogs to the carrier.

Lease Accounting

The Company leases real estate for our Showrooms, corporate headquarters, distribution centers, and equipment. We determine if a contract contains a lease at inception based on our right to control the use of an identified asset and our right to obtain substantially all the economic benefits from the use of that identified asset. Our leases often have the option to renew lease terms, in addition, certain lease agreements may be terminated prior to their original expiration date. The Company assesses these options to determine if we are reasonably certain of exercising them based on all relevant economic and financial factors. Any options that meet these criteria are included in the lease term at lease commencement. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company accounts for lease and non-lease components as a single lease component. We determine the lease classification and begin to recognize lease and any related expenses upon the lease’s commencement, which for real estate leases is generally when we take possession or control of the asset.

Lease arrangements may require the landlord to provide tenant allowances for the Company’s real estate leases. Standard tenant allowances received from landlords, typically those received under operating lease agreements, are recorded as cash and cash equivalents with an offset recorded in operating right-of-use assets on the consolidated balance sheets.

Lease Classification

Certain of our real estate and equipment leases are classified as finance leases. Lease characteristics that we evaluate to

determine lease classification include, but are not limited to, the lease term, incremental borrowing rate, fair value of the leased asset and the economic life of the leased asset. Lease related assets classified as financing leases are included in financing right-of-use assets on the consolidated balance sheets. Financing lease assets and liabilities are recognized at the commencement date of the lease based on the present value of future minimum lease payments. For finance leases, interest expense is presented for the lease liability in the interest expense (income), net line item of our consolidated statements of comprehensive income, consistent with how other interest expense is presented. The Company presents amortization of the right-of-use asset in the selling, general and administrative expense line item of our consolidated statements of comprehensive income, consistent with presentation of depreciation or amortization of similar assets.

Leases that do not meet the definition of a finance lease are considered operating leases. Lease related assets classified as operating leases are included in operating right-of-use assets on the consolidated balance sheets. Operating lease assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. For operating leases, the Company presents lease expense in cost of goods sold and selling, general and administrative

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

expense line items based on the nature of the expense, which are components of income from operations of our consolidated statements of comprehensive income. The Company recognizes lease cost on a straight-line basis over the term of the lease.

Lease Payments

The majority of the real estate lease agreements include minimum rent payments which are subject to stated lease escalations over the lease term and eligible renewal periods. These stated fixed payments, through the lease term, are included in our measurement of the lease right-of-use assets and lease liabilities upon lease commencement.

Depending on particular Showroom leases, the Company can also owe variable rental payments if particular Showrooms meet certain sales figures. Due to the variable and unpredictable nature of such payments, the Company does not recognize a lease right-of-use asset and lease liability related to such payments. Estimated variable rental payments are included in accrued expenses on the consolidated balance sheets in the period they are incurred and until such payments are made, and the related lease cost is included in cost of goods sold on the consolidated statements of comprehensive income.

Incremental Borrowing Rate

When readily available, we use the discount rate implicit within the lease as determined at the time of lease commencement. However, the discount rate implicit within many of our leases is generally not determinable at the time of lease commencement and therefore the Company determines the discount rate based on its incremental borrowing rate (“IBR”). See Note 7— Leases for further discussion on how the Company estimated the IBR.

Property, Furniture and Equipment

Property, furniture and equipment is stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization is calculated using the straight-line method generally using the following useful lives:

Depreciation and amortization expense was $29.4 million, $24.9 million and $23.9 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Property, furniture and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. For further discussion regarding the impairment accounting policy refer to “Long-Lived Assets.”

Software Capitalization

For software developed or obtained for internal use, the Company capitalizes direct external costs associated with developing or obtaining internal-use software. Capitalized costs related to internal-use software under development are treated as construction-in-progress until the program, feature or functionality is ready for its intended use, at which time depreciation commences. These costs are amortized on a straight-line basis over the estimated useful life of the software, which generally isthree years. The Company expenses any data conversion or training costs as incurred. Capitalized software costs are included in property, furniture and equipment, net in the consolidated balance sheets.

The Company defers costs incurred with the implementation of a cloud computing arrangement (“CCA”) that is a service contract, consistent with our policy for software developed or obtained for internal use. The deferred implementation costs of cloud computing arrangements are amortized on a straight-line basis over the term of the cloud computing arrangement, ranging fromtwo tofive years, in the same line item in the consolidated statements of comprehensive income as the associated hosting fees. The eligible implementation costs incurred of a cloud computing arrangement are included in prepaid and other current assets and other noncurrent assets in the consolidated balance sheets, and in operating cash flows of the consolidated statements of cash flows. Deferred CCA implementation costs were $4.8 million, net of accumulated amortization of $0.7 million for the year ended December 31, 2023.

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

Goodwill

Goodwill represents the excess of the purchase price over the fair value of assets and liabilities acquired in a business combination. The Company operates asone segment and has a single reporting unit, “Arhaus Consolidated”. For the purposes of goodwill impairment testing, a reporting unit is defined as an operating segment or one level below an operating segment (referred to as a component) for which discrete financial information is available.

We test goodwill for impairment on an annual basis in the fourth quarter of each year, and more frequently if events or changes in circumstances indicate that it might be impaired. Circumstances that may indicate impairment include, but are not limited to:

•Deterioration in general economic conditions, limitations on accessing capital, or other developments in equity and credit markets;

•Industry and market considerations such as deterioration in the environment in which the Company operates, an increased competitive environment, a decline in market dependent multiples or metrics, a change in the market for the Company’s merchandise or services, or a regulatory or political development;

•Cost factors that have a negative effect on earnings and cash flows;

•Overall financial performance;

•Changes in management, key personnel, strategy, or clients; and

•A sustained decrease in share price in either absolute terms or relative to peers.

Under U.S. GAAP, we have the option to first assess qualitative factors in order to determine if it is more likely than not that the fair value of our reporting unit is greater than its carrying value (“Step 0”). The term more likely than not refers to a level of likelihood that is more than 50 percent. If the qualitative assessment leads to a determination that the reporting unit’s fair value is likely less than its carrying value, or if we elect to bypass the qualitative assessment altogether, we are required to perform a quantitative impairment test (“Step 1”) by calculating the fair value of the reporting unit and comparing the fair value with its associated carrying value. We will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.

We determine fair values using an equally weighted combination of the discounted cash flow approach (“income approach”) and the guideline public company method (“market approach”), based upon the relevance and availability of the data at the time we perform the valuation.

Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for the reporting unit. Actual results may differ from those assumed in our forecasts. We derive our discount rate based on our weighted average cost of capital determined by using a combination of the capital asset pricing model, the cost of debt and an appropriate industry capital structure. We use a discount rate that is commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Valuations using the market approach are derived from metrics of publicly traded companies that are deemed sufficiently similar to the Company. Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is reasonably possible that the judgments and estimates described above could change in future periods.

Long-Lived Assets

The Company evaluates long-lived assets, such as property, furniture and equipment and lease right-of-use assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. Circumstances that may indicate impairment include, but are not limited to:

•A significant decrease in the market price of a long-lived asset or asset group;

•A significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition;

•A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset or asset group, including an adverse action or assessment by a regulator;

•An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset or asset group;

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

•A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group; and

•A current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

An asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets, which for our Showrooms is the individual Showroom level.

In those circumstances that may indicate an impairment, the Company performs an undiscounted cash flow analysis to determine if an impairment exists. If the sum of the estimated undiscounted future cash flows over the remaining life of the asset are less than the carrying value, the Company will recognize an impairment charge equal to the difference between the carrying value and the fair value, usually determined by the estimated discounted future cash flows associated with the asset.

Based on management’s analysis there were no events or circumstances identified during 2023 or 2022 indicating a potential impairment of any long-lived assets.

Merchandise Warranties

The Company warrants certain merchandise to be free of defects in both construction materials and workmanship from the date the performance obligation was fulfilled to the client forthree toten years depending on the merchandise category. The Company accounts for merchandise warranties by accruing an estimated liability at the time we recognize revenue on the sale of warrantied merchandise. We estimate future warranty claims based on claim experience which includes materials and labor costs to perform the repairs or replace products. We use judgment in making our estimates. We record differences between our estimated and actual costs when the differences are known.

A reconciliation of the changes in our limited merchandise warranty liability is as follows (amounts in thousands):

(1) $4.1 million and $3.7 million were recorded in accrued other expenses at December 31, 2023 and 2022, respectively. The remainder is recorded in other long-term liabilities.

We recorded accruals during the periods presented in the table above, primarily to reflect charges that relate to warranties issued during the respective periods.

Income Taxes

We account for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. In estimating future tax consequences, we generally take into account all expected future events then known to us, other than changes in the tax law or rates which have not yet been enacted and which are not permitted to be considered. We may record a valuation allowance to reduce our net deferred tax assets to the amount that is more-likely-than-not to be realized. The determination as to whether a deferred tax asset will be realized is made on a jurisdictional basis and is based upon the weight of available evidence. Future taxable income of the appropriate character in either the carryback or carryforward period under the tax law and ongoing prudent and feasible tax planning are considered in determining the amount of the valuation allowance, and the amount of the allowance is subject to adjustment in the future. Specifically, in the event we were to determine that it is not more-likely-than-not that we would be able to realize our net deferred tax assets in the future, an adjustment to the valuation allowance would decrease net income in the period such determination is made. This allowance does not alter our ability to utilize the underlying tax net operating loss and credit carryforwards in the future, the utilization of which requires future taxable income.

The accounting standard for uncertainty in income taxes prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on subsequent recognition, derecognition, and

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

measurement based on management’s best judgement given the facts, circumstances, and information available at the reporting date. Differences between tax positions taken in a tax return and amounts recognized in the financial statements generally result in an increase in liability for income taxes payable or a reduction of an income tax refund receivable, or a reduction in a deferred tax asset or an increase in a deferred tax liability, or both. At December 31, 2023 and 2022, the Company assessed its income tax positions and concluded that it hadno unrecognized tax benefits. We recognize interest and penalties related to unrecognized tax benefits in income tax expense on the consolidated statements of comprehensive income. No such interest and penalties were recorded for the years ended December 31, 2023, 2022 or 2021.

Prior to the Reorganization, the Company was a limited liability company under the Internal Revenue Code that had elected to be taxed as a partnership and did not pay federal or most state corporate income taxes on its taxable income, but rather its members were liable for their respective portions of the taxable income (loss) of Arhaus, LLC. Therefore, no provision for federal income taxes are included in these consolidated financial statements prior to the Reorganization. Subsequent to the Reorganization, Arhaus, LLC’s taxable income flows through to FS Arhaus and Homeworks who are subject to U.S. federal and state corporate income taxes.

The Company is subject to federal, state and local income tax examinations by tax authorities. With few exceptions, the Company is no longer subject to federal, state and local tax examinations for the years before 2019.

Cost of Goods Sold

Cost of goods sold includes the direct cost of purchased merchandise, inventory shrinkage, inbound freight, all freight costs to get merchandise to our Showrooms, credit card fees, design, buying and allocation costs, our supply chain, such as product development and sourcing, occupancy costs related to Showroom operations, such as rent and common area maintenance for our leases, depreciation and amortization of leasehold improvements, equipment and other assets in our Showrooms. In addition, cost of goods sold includes all logistics costs associated with shipping product to our clients, partially offset by delivery fees collected from clients (recorded in net revenue on the consolidated statements of comprehensive income).

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses include all operating costs not included in cost of goods sold. These expenses include payroll and payroll related expenses, Showroom expenses other than occupancy and expenses related to many of our operations at our distribution centers and corporate headquarters, including marketing, information technology, legal, human resources, utilities and depreciation and amortization expense. Payroll includes both fixed compensation and variable compensation. Variable compensation includes Showroom commissions and Showroom bonus compensation related to demand, likely before the client obtains control of the merchandise. Variable compensation is not significant in our eCommerce channel. All new Showroom opening expenses, other than occupancy, are included in SG&A expenses and are expensed as incurred. SG&A expenses as a percentage of net revenue are usually higher in lower-volume quarters and lower in higher-volume quarters because a significant portion of the costs are fixed.

Gift Cards

The Company sells gift cards to clients in our Showrooms and through our website. Such gift cards do not have expiration dates. We defer revenue when payments are received in advance of performance for unsatisfied obligations related to our gift cards. The liability related to unredeemed gift cards at December 31, 2023 and 2022 of $0.5 million and $1.0 million, respectively, is recorded in the accrued other expenses line item of the consolidated balance sheets. The Company recognizes income associated with breakage proportional to actual gift card redemptions. For the year ended December 31, 2023, breakage income was $0.8 million. For the years ended December 31, 2022 and 2021, breakage was minimal.

Self-Insurance

We maintain insurance coverage for significant exposures as well as those risks that, by law, must be insured. In the case of health care coverage for employees, we have a managed self-insurance program related to claims filed. Expenses related to this self-insured program are computed on an actuarial basis, based on claims experience, regulatory requirements, an estimate of claims incurred but not yet reported (“IBNR”) and other relevant factors. The projections involved in this process are subject to uncertainty related to the timing and number of claims filed, levels of IBNR, fluctuations in health care costs and changes to regulatory requirements. We had liabilities of $1.4 million and $1.0 million at December 31, 2023 and 2022, respectively, recorded in the accrued other expenses line item of the consolidated balance sheets.

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

We carry workers’ compensation insurance subject to a deductible amount for which we are responsible on each claim. We had liabilities related to workers’ compensation claims of $0.6 million and $0.5 million at December 31, 2023 and 2022, respectively, recorded in the accrued taxes line item of the consolidated balance sheets.

Credit Risk and Concentration Risk

Appr oximately 15%,13% and 18% of the Company’s merchandise was purchased from one vendor for the years ended December 31, 2023, 2022 and 2021, respectively. No other vendor made up more than 10% of purchases for the years ended December 31, 2023, 2022 and 2021.

Fair Values of Financial Instruments

The Company’s primary financial instruments are cash and cash equivalent investments, accounts receivable, payables, lease obligations, and equity based compensation instruments. Due to the short-term maturities of cash and cash equivalent investments, accounts receivable and payables, the Company believes the fair values of these instruments approximate their respective carrying values at December 31, 2023 and 2022. See Note 7— Leases for discussion of our lease obligations and Note 10— Equity Based Compensation for discussion of our equity based compensation instruments.

The Company has established a hierarchy to measure our financial instruments at fair value, which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs represent market data obtained from independent sources, whereas unobservable inputs reflect the Company’s own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. The hierarchy defines three levels of inputs that may be used to measure fair value:

Level 1 Unadjusted quoted prices in active markets for identical, unrestricted assets and liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

Level 3 Unobservable inputs that reflect the entity’s own assumptions about the assumptions market participants would use in the pricing of the asset or liability and are consequently not based on market activity but rather through particular valuation techniques.

Deferred Financing Fees

Debt issuance costs were recorded as part of the establishment of the Company’s financing arrangements (see Note 6—Debt). The debt issuance costs were recorded within the other noncurrent assets line item on the consolidated balance sheets and are amortized as interest expense over the contractual life of the debt structure using the straight-line method.

Noncontrolling Interest

Noncontrolling interests represent the ownership interests of the Company held by FS Arhaus. The Company identifies its noncontrolling interests separately within the Company’s consolidated statements of changes in stockholders’/members’ equity (deficit). The amounts of consolidated net and comprehensive income attributable to the Company and to the noncontrolling interest are presented separately on the Company’s consolidated statements of comprehensive income. As part of the Reorganization, the noncontrolling interest held by FS Arhaus was exchanged for shares of Class A common stock. Accordingly, net and comprehensive income attributable to noncontrolling interest shown for 2021 on the consolidated statements of comprehensive income only represents income statement activity until the day of the Reorganization.

Equity Based Compensation

In connection with the Reorganization, the Company adopted the 2021 Equity Incentive Plan (the “2021 Equity Plan”), which authorized the Company to grant stock options (either incentive or non-qualified), stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance shares, performance share units (“PSUs”) and other stock-based awards with respect to our Class A common stock. During the years ended December 31, 2023 and 2022, the Company granted RSU and PSU awards to certain of the Company’s named executive officers and other key employees under the 2021 Equity Plan. The Company also granted RSU awards to certain members of the Board of Directors. The fair value of each RSU and PSU

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

award is based on the grant date market price and recognizes costs as expense over the vesting period. Forfeitures are accounted for as they occur. See Note 10—Equity Based Compensation for further discussion on the awards granted under the 2021 Equity Plan.

Net and comprehensive income per share

Basic net and comprehensive income per share is computed as net income attributable to Arhaus, Inc. divided by the weighted-average number of common shares outstanding for the period. Diluted net and comprehensive income per share is computed as net income attributable to Arhaus, Inc. divided by the weighted-average number of common shares outstanding for the period and common share equivalents under equity plans using the treasury stock method. Potential dilutive securities are excluded from the computation of diluted net income per share if their effect is anti-dilutive.

Recently Issued Accounting Standards

New Accounting Standards Adopted

We did not adopt any Accounting Standard Updates (“ASU”) during the year ended December 31, 2023 that had a material impact on our accounting policies or our consolidated financial statements.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheets. While it will still be necessary for lessees to distinguish between “operating” and “financing” (formerly known as “capital”) leases, these distinctions will primarily affect how a lessee must recognize expense in its income statement. The new guidance is effective for financial statements issued for annual periods beginning after December 15, 2021.

The Company adopted Accounting Standards Codification (“ASC”) ASC 842 as of January 1, 2022, using the modified retrospective approach by applying the transition provisions at the beginning of the period of adoption. Comparative periods will continue to be presented in accordance with ASC 840. The Company elected the package of practical expedients permitted under the transition guidance, which allowed the Company to carryforward the historical lease classification, lease identification and initial direct costs. The Company did not elect the “Land Easements” or “Hindsight” practical expedients. Additionally, the Company made the following accounting policy elections in connection with the adoption:

•Exclude short-term leases from our consolidated balance sheets; and

•Include both the lease and non-lease components as a single component and account for it as a lease.

As a result, the Company measured the right-of-use asset and lease liability for operating and finance leases as of January 1, 2022, using the remaining portion of the lease term that was determined under ASC 840. The adoption resulted in $242.0 million recognized as total right-of-use assets and $326.5 million recognized as total lease liabilities on our consolidated balance sheets as of January 1, 2022. For certain previous operating and capital leases, we qualified as the deemed owner of the construction project due to our significant involvement during the construction period under build-to-suit lease accounting requirements within ASC 840. As part of our adoption of ASC 842, we derecognized the cost of these construction projects of $31.0 million, which were previously recorded in property, furniture and equipment, net with an offsetting obligation in accrued other expenses on our consolidated balance sheets at December 31, 2021. See Note 7 —Leases for additional information.

In October 2020, the FASB issued ASU 2020-10, “Codification Improvements.” The amendments in this Update represent changes to clarify the Codification or correct unintended application of guidance that are not expected to have a significant effect on current accounting practice. The amendments in this Update affect a wide variety of Topics in the Codification and apply to all reporting entities within the scope of the affected accounting guidance. ASU 2020-10 is effective for annual periods beginning after December 15, 2021 for non-public business entities. Early application is permitted. The amendments in this Update should be applied retrospectively. The Company adopted the standard as of January 1, 2022. The adoption of this standard did not have a material impact on our consolidated financial statements.

Accounting Standards Not Yet Adopted

The following table summarizes accounting standards which we have not yet adopted but will be adopting. ASU 2023-01 is effective for annual periods beginning after December 15, 2023. We believe the adoption will not have a material impact on our accounting policies or our consolidated financial statements and related disclosures. ASU 2023-07 is effective for annual periods beginning after December 15, 2023. We believe the adoption will not have a material impact on our accounting policies

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

or our financial position or results of operations but could have a material impact on our related disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. We believe the adoption will not have a material impact on our accounting policies or our financial position or results of operations but could have a material impact on our related disclosures.

3. Property, Furniture and Equipment

Property, furniture and equipment, net consists of the following (amounts in thousands):

4. Accrued Other Expenses

Accrued other expenses consist of the following (amounts in thousands):

5. Goodwill

During 2023, we reviewed Arhaus Consolidated, ourone reporting unit’s goodwill for impairment by performing a qualitative assessment in the fourth quarter. Based on the results, we determined that it was more likely than not the fair value of goodwill recorded exceeded the current carrying value and concluded no impairment existed.

During the years ended December 31, 2023 and 2022, there was no change in the recorded goodwill balances and we have not recorded any historical goodwill impairments.

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

6. Debt

In 2017, the Company entered into a term loan of $40.0 million (the “Term Loan”). The Company’s Term Loan had an exit fee clause which allowed the holder of the Term Loan to receive either $3.0 million upon repayment of the Term Loan or a payout equivalent to 4.0% of the total equity value of the Company. The 4.0% of the total equity value of the Company payout was payable upon a change of control, qualified IPO or sale of all or substantially all assets of the Company. In connection with the repayment of the Term Loan on December 28, 2020, the holder informed the Company it would decline the option to receive the $3.0 million and elect to receive a payout equivalent to 4.0% of the equity value. The exit fee was treated as a derivative and adjusted to fair value each reporting period. In connection with the Company’s IPO, the fair value of the exit fee was determined to be $64.1 million and was paid by the Company in November 2021, using proceeds from the IPO. The Company recorded $44.5 million of derivative expense for the year ended December 31, 2021 in selling, general and administrative expenses within the consolidated statements of comprehensive income.

On June 25, 2020, the Company entered into a credit agreement (the “Revolver”), which included a revolving credit facility of $30.0 million with availability limited pursuant to a borrowing base formula based on specified percentages of eligible inventory, net of reserves. Amortization expense related to deferred financing fees was $0.4 million for the year ended December 31, 2021 and is included in interest expense (income), net within the consolidated statements of comprehensive income. The Revolver was set to expire on June 25, 2023.

On November 4, 2021 the Company terminated the Revolver of which there were no borrowings drawn. The termination of the Revolver resulted in a $1.4 million loss on extinguishment of debt. The loss, which included a $0.6 million early termination fee and a write off of the remaining unamortized loan costs of $0.8 million, is included in the loss on extinguishment of debt within the consolidated statements of comprehensive income for the year ended December 31, 2021.

On November 8, 2021, the Company entered into a new revolving credit facility (the “2021 Credit Facility”). The 2021 Credit Facility provides for, among other things, (1) a revolving credit facility, in an aggregate amount not to exceed at any time outstanding the amount of such lender’s commitment, (2) a letter of credit commitment, in an amount equal to the lesser of (a) $10.0 million, and (b) the amount of the revolving credit facility as of such date, and (3) a swingline loan, in an amount equal to the lesser of (a) $5.0 million, and (b) the amount of the revolving credit facility as of such date. The aggregate amount of all commitments of all lenders under the 2021 Credit Facility was initially $50.0 million. The 2021 Credit Facility contains restrictive covenants and has certain financial covenants, including a minimum rent-adjusted total leverage ratio and minimum fixed charge ratio. The 2021 Credit Facility bears variable interest rates at the prevailing Bloomberg Short-Term Bank Yield index rate plus the applicable margin (1.50% at December 31, 2023,1.50% at December 31, 2022 and 1.75% at December 31, 2021), whereas the applicable margin is adjusted quarterly based on the Company’s consolidated rent-adjusted total leverage ratio.

On December 9, 2022, the Company amended the 2021 Credit Facility to increase the revolving credit commitment thereunder by $25.0 million. After giving effect to such increase, the aggregate amount of all commitments under the 2021 Credit Facility is $75.0 million. The 2021 Credit Facility expires on November 8, 2026.

At December 31, 2023 and 2022, we hadno borrowings on the 2021 Credit Facility. Deferred financing costs related to the 2021 Credit Facility of $0.4 million and $0.4 million at December 31, 2023 and 2022, respectively, were recorded in other noncurrent assets on the consolidated balance sheets and will be amortized over the term of the 2021 Credit Facility on a straight-line basis. Accumulated amortization related to deferred financing costs for the 2021 Credit Facility was $0.1 million and $0.1 million as of December 31, 2023 and 2022, respectively.

The Company was in compliance with all applicable debt covenants at December 31, 2023 and 2022, and expects to remain in compliance over the next 12 months.

7. Leases

During the first quarter of fiscal 2022, we adopted ASU 2016-02, Leases (Topic 842) and all related amendments as discussed in Note 2—Basis of Presentation and Summary of Significant Accounting Policies. The Company leases real estate and equipment under operating and finance leases, some of which are from related parties as discussed in Note 14— Related Party Transactions. The most significant obligations under these lease agreements require the payments of periodic rentals, real estate

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

taxes, insurance and maintenance costs. Depending on particular Showroom leases, the Company can also owe a percentage rent payment if particular Showrooms meet certain sales figures.

The following table summarizes the amounts recognized in our consolidated balance sheets related to leases (amounts in thousands):

The components of lease cost recognized within our consolidated statements of comprehensive income are as follows (amounts in thousands):

(1)Includes $0.4 million and $0.4 million of month-to-month lease costs for the years ended December 31, 2023 and 2022, respectively.

Rent expense calculated under ASC 840 for the year ended December 31, 2021 was $66.5 million. Percentage rent expense calculated under ASC 840 for the year ended December 31, 2021 was $6.1 million. Amortization of landlord improvements calculated under ASC 840 for the year ended December 31, 2021 was $13.5 million.

We often have options to renew lease terms for Showrooms and other assets. The exercise of lease renewal options is generally at our sole discretion. In addition, certain lease agreements may be terminated prior to their original expiration date at our discretion. We evaluate each renewal and termination options at the lease commencement date to determine if we are

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

reasonably certain to exercise the option on the basis of economic factors. The weighted average remaining lease terms are as follows:

When readily available, we use the discount rate implicit within the lease as determined at the time of lease commencement. However, the discount rate implicit within many of our leases is generally not determinable at the time of lease commencement and therefore the Company determines the discount rate based on its IBR. For leases in which the discount rate was not explicit, the Company utilized a market-based approach to estimate the IBR, which required significant judgment. The Company estimated the base IBR based on an analysis of (i) yields on the Company’s 2021 Credit Facility, as well as comparable companies and (ii) unsecured yields and discount rates. The Company applied adjustments to the base IBRs to account for full collateralization and lease term. The weighted average discount rates used to measure our lease liabilities are as follows:

Future lease liabilities at December 31, 2023 are as follows (amounts in thousands):

(1) Includes leases with related parties. See Note 14— Related Party Transactions for amounts leased from related parties.

At December 31, 2023, the Company has entered into leases for Showrooms and equip ment which have not yet commenced with expected lease terms ranging from 3 to 17 years. The aggregate minimum rental payments over the term of the leases of approximately $153.6 million are not included in the above table.

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

Supplemental cash flow information related to leases is as follows (amounts in thousands):

8. Employee Benefit Plans

The Company has a defined contribution retirement savings plan covering substantially all employees. The Company may contribute a discretionary matching contribution equal to a percentage that the Company deems advisable. Total costs recorded in selling, general and administrative expenses on the consolidated statements of comprehensive income related to the plan were $3.7 million, $2.6 million and $2.2 million for the years ended December 31, 2023, 2022 and 2021, respectively.

9. Stockholders’/Members’ Equity (Deficit)

Homeworks Equity Structure Prior to Reorganization

In accordance with the change in reporting entity, the Company’s consolidated financial statements were retrospectively adjusted to include Homeworks’ financial results for all periods presented (see Note 1— Nature of Business). Prior to the Reorganization, Homeworks’ historical equity structure was comprised of 645 voting and 4,158 non-voting shares. The equity of Homeworks includes their investment in LLC and the noncontrolling interest in LLC discussed below, which were owned by FS Arhaus and management incentive unit holders. Prior to the Reorganization, Homeworks and Reed held Class A units in LLC while FS Arhaus held Class B Units in LLC. Refer below for information on the LLC equity structure prior to the Reorganization. For the year ended December 31, 2021 cash distributions made were $61.9 million.

Arhaus, LLC Equity Structure Prior to Reorganization

Prior to the Reorganization, LLC established a multi-class unit structure with its members. Pursuant to LLC’s Third Amended and Restated Limited Liability Company Agreement dated June 26, 2017 (the “2017 LLC Agreement”) and the Arhaus, LLC 2017 Equity Plan (the “2017 Equity Plan”), LLC was authorized to issue up to 20,938,265 Class A Units,7,488,248 Class B Units,3,185,435 Class C Units,285,387 Class D Units,3,158,501 Class F Units,3,158,501 Class F-1 Units,1,250,000 Class A Preferred Units and 1,250,000 Class B Preferred Units.

In May 2021, the 2017 LLC Agreement and 2017 Equity Plan were amended to authorize the Company to issue up to 967,987 Class G incentive units. Additionally, in accordance with the amendments, the authorized Class F and Class F-1 incentive units that could be issued were reduced to 2,190,514 and 2,190,514, respectively. No changes to the Company’s Class C and D incentive units were made. The Class C, D, F, F-1 and G Units (collectively referred to as the “Incentive Units) were incentive units to be issued to employees, directors, and others pursuant to the terms of the amended 2017 Equity Plan and have no voting rights and do not participate in profits or losses.

Only the Class A and Class B Units had voting rights. Distributions were payable to the various unit classes only upon the occurrence of certain capital events, based upon participation thresholds and waterfalls as defined within the amended 2017 LLC Agreement. If Class B Units or Class B Preferred Units remained outstanding on January 6, 2023, the holder of those units, as defined, would have the right to cause a sale of the Company. Income and loss of the Company is allocated proportionately based off of the equity waterfall defined in the 2017 LLC Agreement.

Prior to the Reorganization, the Company could make quarterly tax distributions to the Class A and B members pro rata based on the taxable income allocated to such members in an amount equal to the product of each member’s distributive share of the

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

Company’s taxable income relating to each quarter (as estimated by the Board of Directors based on the results of the quarter), including any guaranteed payments, and the assumed tax rate. For the year ended December 31, 2021, the Company’s tax distribution made to Class A and B members was $7.9 million.

Prior to the Reorganization, the Company made a pre-IPO payment in the amount of $100.0 million which consisted of a $50.7 million dividend to noncontrolling interests and a $49.3 million distribution to the owners of Homeworks.

Amendment and Restatement of Certificate of Incorporation

In connection with the Reorganization, the Company’s Certificate of Incorporation was amended and restated to authorizetwo classes of common stock, Class A common stock and Class B common stock, and to authorize the Company to issue up to 750,000,000 shares of common stock, consisting of 600,000,000 shares of Class A common stock, par value of $0.001 per share,100,000,000 shares of Class B common stock, par value of $0.001 per share and 50,000,000 shares of Preferred Stock, par value of $0.001 per share.

Holders of Class A common stock are entitled toone vote per share, and holders of Class B common stock are entitled toten votes per share. Except as otherwise required in the Certificate of Incorporation or by applicable law, the holders of Class A common stock and Class B common stock shall vote together as a single class on all matters. Further, except as otherwise required in the Certificate of Incorporation or by applicable law, the holders of Class A common stock and Class B common stock shall be treated equally, identically and ratable in all respects as to all matters including, dividends, distributions, subdivision or combination and change of control transactions.

Initial Public Offering

On November 4, 2021, the Company completed its IPO and sold 12,903,226 shares of Class A common stock at an IPO price of $13.00 per share and received proceeds of $151.4 million, net of underwriting discounts and commissions of $10.4 million and offering expenses of $5.9 million. The Company used a portion of the net proceeds to pay the Term Loan exit fee of $64.1 million, as discussed in Note 6—Debt. The remainder of the net proceeds were used for general corporate purposes, including payment of fees and expenses in connection with the IPO and to replenish working capital following the payment of the Pre-IPO dividend to LLC Unit holders. No preferred shares were issued as part of the IPO.

2021 Equity Incentive Plan

In connection with the Reorganization, the Company adopted the 2021 Equity Plan, which authorized the Company the ability to grant stock options (either incentive or non-qualified), SARs, restricted stock, RSUs, performance shares, PSUs and other stock-based awards with respect to our Class A common stock. Under this plan, the maximum number of Class A common stock that may be granted through awards is 11,205,100 shares. As of December 31, 2023, there were 8,950,235 shares of Class A common stock available to be granted. See Note 10—Equity Based Compensation for further discussion on the awards granted under the 2021 Equity Plan.

Other Equity Transactions

In December 2021, Reed, a related party, transferred 421,350 shares of Class B common stock, which were automatically converted upon transfer to shares of Class A common stock to certain long-tenured employees of the Company, which was treated as an equity award. The transferred shares of Class A common stock do not have any vesting requirements. As a result of the transfer and awarding of the Class A common stock to employees, the Company recorded $4.6 million of compensation expense at December 31, 2021, within the selling, general and administrative expenses line item of the consolidated statements of comprehensive income. Further, Reed contributed $2.8 million to the Company in relation to the tax withholding obligations of the Company and those long tenured employees. The contribution was recorded as withholding expense within the selling, general and administrative expenses line item of the consolidated statements of comprehensive income.

In accordance with the change in reporting entity, the Company’s consolidated financial statements include a deferred compensation liability related to a former employee of Homeworks. At the time of the Reorganization, Reed assumed the

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

deferred compensation liability which resulted in a capital contribution to additional paid-in-capital for $3.9 million at December 31, 2021.

Subsequent Event

On February 29, 2024, the Board of Directors of the Company declared a special cash dividend on the Company’s Class A and Class B common stock of $0.50 per share, payable April 4, 2024, to shareholders of record at the close of business on March 21, 2024.

10. Equity Based Compensation

In January 2014, the Arhaus, LLC 2014 Equity Plan was established which allowed for the granting of Class C and D incentive units to employees. In June 2017, the Board adopted the 2017 Equity Plan, which allowed for the granting of Class F/F-1 incentive units to employees and in May 2021, the 2017 LLC Agreement and 2017 Equity Plan were amended to allow for the granting of Class G incentive units.

The Class C, D, F, F-1 and G incentive units vest over three tofive years. All holders of the Incentive Units become fully vested in the event of a change in control, death or disability, as long as the holder of the unit is employed by the Company on the date of such event. Further, certain Class G incentive unit holders who are terminated without cause will have their unvested units fully vest upon that event.

The Incentive Units represent interests that share only in proceeds from defined capital transactions above specified participation thresholds. Upon the Incentive Unit holder’s termination of employment, all unvested units are forfeited, and the Company has the right to purchase all vested units at a per unit price equal to the fair market value of a unit determined at the date such right is exercised by an independent appraisal firm to be mutually agreed to by the Company and the unit holder; provided however, all vested and unvested units are forfeited without compensation in the event of termination for cause.

In connection with the Reorganization, the Incentive Unit holders contributed their units of LLC to Arhaus, Inc. in exchange for shares of Class A or Class B common stock for their vested Incentive Units and Class A or Class B restricted stock for their unvested Incentive Units (collectively referred to as the "Exchanged Stock"). The Exchanged Stock's fair value was equal to the respective Incentive Units’ fair market value prior to the Reorganization, which was in accordance with the distribution waterfall defined in the 2017 LLC Agreement. The vesting requirements for the exchanged Class A and Class B restricted stock (collectively the "Restricted Stock") did not change from the original Incentive Unit terms. The exchange of the Exchanged Stock was accounted for as a Type I (probable-to-probable) modification in accordance with ASC 718, Stock Based Compensation, in which no incremental fair value was determined to have been given to the Incentive Unit holders.

Activity of the Company’s Restricted Stock and their equity based compensation expense are summarized in the following tables (amounts in thousands, except per share data):

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

(1) Total unrecognized compensation cost to be recognized in future periods is $6.2 million at December 31, 2023, and will be recognized over a weighted average period of 2.4 years. Equity based compensation is recorded within selling, general and administrative expenses on our consolidated statements of comprehensive income.

The total fair value of shares vested during the years ended December 31, 2023 and 2022 was$13.1 million and $11.8 million, respectively. The total fair value of shares vested was minimal for the year ended December 31, 2021.

Per the 2021 Equity Plan, each RSU and PSU represents a contingent right to receiveone share of the Company’s Class A common stock upon vesting. The RSUs granted to award recipients vest in one-third increments on each of the first, second and third anniversary of the date of grant, provided that the award recipient continues to serve the Company through the applicable vesting date (“Continuous Service”). If the award recipient’s Continuous Service terminates for any reason other than death, disability or in connection with a change in control (as such terms are defined in the 2021 Equity Plan), unless the Compensation Committee determines otherwise, all RSUs that are unvested at the time of such termination shall be forfeited and cancelled immediately without consideration. The RSUs issued to certain members of the Board of Directors will vest on theone-year anniversary of the grant date.

The number of PSUs earned will be based on the Company’s financial performance as measured against pre-established target goals for cumulative demand revenue and cumulative adjusted EBITDA (the “Performance Goals”) over the applicable three year performance period. PSUs will vest as of the end of the three year performance period subject to the award recipient’s Continuous Service, but will not settle and payout until the number of PSUs earned is determined by the Compensation Committee. The award recipient may earn between 0% and 200% of the PSU target award based on the Company’s achievement of the Performance Goals.

Activity of the Company’s PSU and RSU awards and their equity based compensation expense are summarized in the following tables (amounts in thousands, except per share data):

(1)Total unrecognized equity based compensation for the PSUs to be recognized in future periods is $3.5 million at December 31, 2023, and will be recognized over a weighted average period of 1.5 years. Equity based compensation expense is recorded within selling, general and administrative expenses on our consolidated statements of comprehensive income.

(2)Total unrecognized equity based compensation for the RSUs to be recognized in future periods is $7.8 million at December 31, 2023, and will be recognized over a weighted average period of 2.3 years. Equity based compensation expense is recorded within selling, general and administrative expenses on our consolidated statements of comprehensive income.

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

The total fair value of RSUs vested during the year ended December 31, 2023 was$3.5 million. There wereno RSUs that vested for the years ended December 31, 2022 and 2021.

11. Segment Reporting

Our chief operating decision maker (“CODM”) is our CEO, who reviews financial information presented on a consolidated basis for purposes of making decisions, assessing financial performance and allocating resources. We operate our business asone operating segment and therefore we haveone reportable segment that offers an assortment of merchandise across a number of categories, including furniture, outdoor, lighting, textiles, and décor. The assortment of merchandise can be purchased through our Retail and eCommerce sales channels.

The majority of our revenue is generated through sales to clients in the United States. Sales to clients outside of the United States are not significant. Further, no single client represents more than ten percent or more of our net revenue.

Net revenue by merchandise sales channel is as follows (amounts in thousands):

12. Net and comprehensive income per share

As a result of the Reorganization and IPO, existing Class A and Class B Unitholders of LLC were issued Class A and Class B common stock in the Company, in accordance with the distribution waterfall defined in the Company’s 2017 LLC Agreement. The Class A Unitholders received 80,792,206 shares of Class B common stock and the Class B Unitholders received 31,266,536 shares of Class A common stock. Accordingly, all share and per share amounts for the year ended December 31, 2021 presented in theconsolidated statements of comprehensive incomeand this note have been adjusted retroactively, where applicable, to reflect the Reorganization.

Basic and diluted net and comprehensive income per share for the years ended December 31, 2023 and 2022 was calculated by taking net and comprehensive income attributable to Arhaus, Inc. and dividing by basic and diluted weighted-average number of common shares outstanding. For the year ended December 31, 2021, basic and diluted net comprehensive income per share was calculated by adjusting net and comprehensive income for comprehensive income attributable to noncontrolling interest and dividing by basic and diluted weighted-average number of common shares outstanding. Management Incentive Unitholders did not participate in the earnings or losses of the Company as of December 31, 2021 and therefore are not participating securities. As such, they were not included within the calculation of basic or diluted earnings per share as of December 31, 2021.

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

Basic and diluted net and comprehensive income per share are as follows (amounts in thousands, except unit and per share data):

(1) During the years ended December 31, 2023, 2022 and 2021, 539,283,583,118 and 99,405, respectively, shares of unvested restricted stock, RSUs and PSUs were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.

(2) Excluded from the calculation of the effect of dilutive restricted stock as of December 31, 2023 and 2022, were 571,058 and 513,125 PSUs, respectively, because they did not meet the required performance criteria. The Company did not have any outstanding PSUs as of December 31, 2021.

13. Commitments and Contingencies

The Company is involved in litigation and claims that are incidental to its business. Although the outcome of these matters cannot be determined at the present time, management of the Company believes that the ultimate resolution of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

From time to time, the Company has received inquiries from a number of state and local taxing agencies with respect to the remittance of sales, use, telecommunications, excise, and income taxes. Several jurisdictions are currently conducting tax audits of the Company's records. The Company collects, or has accrued for, taxes that it believes are required to be remitted. The amounts that have been remitted have historically been within the accruals established by the Company. The Company adjusts its accrual when facts relating to specific exposures warrant such adjustment. As of December 31, 2023 and 2022, we recorded liabilities of $0.2 million and $0.4 million, respectively, in accrued other expenses on the consolidated balance sheets for non-income tax matters that were probable and reasonably estimable.

In August 2023, the Company committed to make a $10.0 million donation to The Nature Conservancy. For the year ended December 31, 2023, the Company recorded expense of $10.0 million within selling, general and administrative expenses on our consolidated statements of comprehensive income. As of December 31, 2023, we have a remaining commitment of $5.0 million recorded as a liability within accrued other expenses on our consolidated balance sheets.

14. Related Party Transactions

The Company has beneficial owners and affiliated entities under the related party definition in ASC 850, “Related Party Disclosures.” Related parties include those defined in the Company’s proxy statement which has been incorporated by reference herein.

Leasing transactions

In November 2000, the Company entered into a lease agreement with Pagoda Partners, LLC, a company of which John Reed, our CEO, indirectly owns 50%, for our warehouse in Walton Hills, Ohio. The base lease term was 17 years with a 5-year renewal option. In August 2020, the Company amended the lease agreement to extend the lease term to April 2024. The monthly rental payments are $0.1 million. In July 2023, the Company amended the lease agreement to extend the lease term to

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

April 2034 withone 5-year renewal option. The monthly rental payments range from $0.1 million to $0.2 million. Rent expense was $1.6 million, $1.4 million and $1.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.

In July 2010, the Company entered into a lease agreement with Brooklyn Arhaus, a company of which our CEO and Bill Beargie, a Director of the Company, own 85% and 15%, respectively, for our Outlet in Brooklyn, Ohio. The base lease term is 15 years with no lease renewal options. The monthly rental payments are $20 thousand. Rent expense was $0.3 million, $0.3 million and $0.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.

In September 2014, the Company entered into a lease agreement with Premier Arhaus, LLC, a company of which our CEO indirectly owned 50% during 2021, on a triple net lease basis for our headquarters building and distribution center, with construction completed during 2016. The base lease term is 17 years, with a 10-year renewal option at fixed rental payments, and withtwo additional 5-year renewal options at fair market rent. The monthly rental payments range from $0.2 million to $0.5 million during the 17-year base lease term and from $0.5 million to $0.6 million during the 10-year renewal period. In September 2021, the Company amended the existing finance lease agreement to extend the lease term for an additional three years, which included monthly rental payments of $0.6 million. Further, the amended lease agreement provides for the expansion of the Company’s distribution center and monthly rental payments range from $0.1 million to $0.2 million. During the fourth quarter of 2021, the lessor sold its interest in the leased assets to a third party. As a result, the lease is no longer with a related party of the Company. Rent expense was $5.9 million for the year ended December 31, 2021.

In March 2021, the Company entered into a lease agreement with Premier Conover, LLC, a company of which our CEO indirectly owns 40%, for a distribution center and manufacturing building, for which construction was completed in the fourth quarter of 2021. The base lease term is for 12 years, with a 10-year renewal option andtwo additional 5-year renewal options at the higher of the minimum base rent or the fair market rent at the time of renewal execution. The monthly rental payments range from $0.2 million to $0.3 million during the 12-year base lease term and from $0.4 million to $0.5 million during the 10-year renewal period. Rent expense was $4.0 million, $3.7 million and $0.2 million for the years ended December 31, 2023, 2022 and 2021 respectively.

Other transactions

In accordance with the change in reporting entity, the Company’s consolidated statements of cash flows include the payment and receipt of a related-party note receivable between Homeworks and our CEO for $1.0 million for the year ended December 31, 2021. The receivable and the full principal on the note receivable, including accrued interest, were paid back to the Company by the CEO in May 2021.

In accordance with the Reorganization, the Company has accounts payable due to noncontrolling interests of LLC for state and federal income tax refunds filed for tax periods prior to the Reorganization. The accounts payable due to related parties were $2.3 million and $1.8 million at December 31, 2023 and 2022, respectively, and are included within accounts payable on theconsolidated balance sheets.

For additional discussion of the Company’s related party transactions see Notes 1— Nature of Business and 9— Stockholders’/Members’ Equity (Deficit).

15. Income Taxes

Components of income before provision for (benefit from) income taxes include (amounts in thousands):

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

The components of the provision for (benefit from) income taxes include (amounts in thousands):

(1)The 2021 deferred tax benefit reflects the recognition of deferred taxes as a result of the Reorganization. After the Reorganization, LLC’s taxable income flows through to FS Arhaus and Homeworks who are subject to U.S. federal and state corporate income taxes.

The difference between income taxes expected at the U.S. federal statutory income tax rate of 21% and the provision (benefit) for income taxes is summarized as follows (amounts in thousands):

(1) Prior to the Reorganization, the Company was not subject to corporate income taxes. After the Reorganization, a deferred tax benefit related to Homeworks investment in the Arhaus, LLC partnership was recognized through income tax expense because Homeworks lost its nontaxable status through the Reorganization. The deferred tax benefit related to FS Arhaus, Inc.’s investment in Arhaus, LLC was recognized as a capital contribution to additional paid-in-capital for $17.4 million.

(2) The tax investment amount changed as a result of the LLC’s federal tax filing in 2022, therefore the Company recorded a return-to-provision adjustment of $1.6 million and $1.1 million to additional paid-in capital for the years ending December 31, 2023 and 2022, respectively.

Components of our deferred tax assets and liabilities include (amounts in thousands):

As of December 31, 2023, we have state NOL carryforwards of less than $1.0 million that begin to expire in 2041.

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

Based on available evidence (namely, a three-year cumulative income position), management believes it is more-likely-than-not that the net U.S. and state deferred tax assets will be fully realizable. We have not recorded a valuation allowance against deferred tax assets.

No unrecognized tax benefits have been recognized as of December 31, 2023 and 2022. We recognize accrued interest and penalties related to unrecognized tax benefits within the provision for income taxes in the consolidated statements of operations. There wereno amounts of interest and penalties accrued as of December 31, 2023 and 2022.

We file income tax returns in the U.S. and various state and local jurisdictions. The tax years after 2019 remain open to examination by the state taxing jurisdictions in which the Company is subject to tax. As of December 31, 2023, the Company was not under examination by the Internal Revenue Service or any state tax jurisdiction.

The Inflation Reduction Act was enacted on August 16, 2022 and includes a new 15% minimum tax on “adjusted financial statement income” beginning with the Company’s fiscal year 2023, a new 1% excise tax on stock repurchases after December 31, 2022, and several tax incentives to promote clean energy. While these tax law changes have no immediate effect and are not expected to have a material adverse effect on our results of operations going forward, we will continue to evaluate their impact as further information becomes available.

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

16. Revision of Previously Issued Condensed Consolidated Financial Statements (Unaudited)

As described in Note 1 -Nature of Business, the Company identified an error within the consolidated balance sheets, related to certain leasehold and landlord improvements prior to showroom completion being incorrectly included in prepaid and other current assets rather than property, furniture and equipment, net. The error resulted in inaccurate cash flows ascribed to operating and investing activities in the consolidated statements of cash flows. The errors impacted the unaudited condensed consolidated balance sheets and unaudited condensed consolidated statements of cash flows as of and for the three months ended March 31, 2023 and 2022, as of and for the six months ended June 30, 2023 and 2022, and the unaudited condensed consolidated balance sheet as of September 30, 2022. The Company has evaluated the errors both quantitatively and qualitatively and concluded they were not material, individually or in the aggregate, to such prior period unaudited condensed consolidated financial statements and concluded to revise such prior period unaudited condensed consolidated financial statements.

In connection with the revision of the Company’s unaudited condensed consolidated financial statements, we determined it was appropriate to correct for certain other previously identified immaterial errors. The Company will effect the revision of the unaudited interim condensed consolidated financial information for the first two quarters of 2023 as part of our filing of the 2024 interim Form 10-Qs.

The following tables summarize the impact of these corrections for the periods presented (amounts in thousands):

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements

Arhaus, Inc. and SubsidiariesNotes To Consolidated Financial Statements