Arhaus Inc

Previous wording

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2023. This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or are proven incorrect, could cause our business and results of operations to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements can generally be identified by the use of forward-looking terminology, including, but not limited to, “may,” “could,” “seek,” “guidance,” “predict,” “potential,” “likely,” “believe,” “will,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” “forecast,” or variations of these terms and similar expressions, or the negative of these terms or similar expressions. Past performance is not a guarantee of future results or returns and no representation or warranty is made regarding future performance. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond our control that could cause our actual results, performance or achievements to be materially different from the expected results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the following:

Current wording

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q for the three months ended March 31, 2025 (“Form 10-Q”) and our Annual Report on Form 10-K for the year ended December 31, 2024. This Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or are proven incorrect, could cause our business and results of operations to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements can generally be identified by the use of forward-looking terminology, including, but not limited to, “may,” “could,” “seek,” “guidance,” “predict,” “potential,” “likely,” “believe,” “will,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” “forecast,” or variations of these terms and similar expressions, or the negative of these terms or similar expressions. Past performance is not a guarantee of future results or returns and no representation or warranty is made regarding future performance. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond our control that could cause our actual results, performance or achievements to be materially different from the expected results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the following:

Previous wording

•Effectively managing our eCommerce business and digital marketing efforts;

Current wording

•Effectively managing our eCommerce sales channel and digital marketing efforts;

Previous wording

The following discussion contains references to thenine and three months ended September 30, 2024 and September 30, 2023, which represents the condensed consolidated financial results of Arhaus, Inc. and subsidiaries for thenine and three months ended September 30, 2024 and September 30, 2023, respectively.

Current wording

The following discussion contains references to the three months ended March 31, 2025 and March 31, 2024, which represents the condensed consolidated financial results of Arhaus, Inc. and subsidiaries for the three months ended March 31, 2025 and March 31, 2024, respectively.

Previous wording

Arhaus is a rapidly growing lifestyle brand and premium retailer in the U.S. home furnishings market, specializing in livable luxury supported by globally-sourced, heirloom-quality merchandise. We offer a differentiated direct-to-consumer approach to furniture and décor. Our curated assortments are presented across our sales channels in sophisticated, family friendly and unique lifestyle settings. We offer merchandise assortments across a number of categories, including furniture, outdoor, lighting, textiles and décor. Our products, designed to be used and enjoyed throughout the home, are sourced directly from factories and vendors with no wholesale or dealer markup, allowing us to offer an exclusive assortment at an attractive value. Our direct sourcing network consists of more than 400 vendors, some of whom we have had relationships with since our founding. Our product development teams work alongside our direct sourcing partners to bring to market proprietary merchandise that is a great value to clients, while delivering attractive margins.

Current wording

Arhaus is a growing lifestyle brand and premium retailer in the U.S. home furnishings market, specializing in livable luxury supported by globally-sourced, heirloom-quality merchandise. We offer a differentiated direct-to-consumer approach to furniture and décor. Our curated assortments are presented across our sales channels in sophisticated, family friendly and unique lifestyle settings. We offer merchandise assortments across a number of categories, including furniture, outdoor, lighting, textiles and décor. Our products, designed to be used and enjoyed throughout the home, are sourced directly from factories and vendors with no wholesale or dealer markup, allowing us to offer an exclusive assortment at an attractive value. Our product development teams work alongside our direct sourcing partners to bring to market proprietary merchandise that is a great value to clients, while delivering attractive margins.

Previous wording

As of September 30, 2024, we operated 101 Showrooms,88 with in-home interior designers. At December 31, 2023, we operated 92 Showrooms, 78 with in-home interior designers.

Current wording

As of March 31, 2025, we operated 103 Showrooms,91 with in-home interior designers. At December 31, 2024, we operated 103 Showrooms, 89 with in-home interior designers.

Previous wording

For the nine months ended September 30, 2024, we generated $924.1 million of net revenue, $362.5 million of gross margin and $47.3 million of net and comprehensive income. For thethree months ended September 30, 2024, we generated $319.1 million of net revenue, $123.1 millionof gross margin and $9.9 million of net and comprehensive income.

Current wording

For thethree months ended March 31, 2025, we generated $311.4 million of net revenue, $115.6 million of gross margin and $4.9 million of net and comprehensive income.

Previous wording

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. We expect certain of these expenses to continue to increase as we open new Showrooms, develop new product categories and otherwise pursue our current business initiatives. 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.

Current wording

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 sales channel. All new Showroom opening expenses, other than occupancy, are included in SG&A expenses and are expensed as incurred. We expect certain of these expenses to continue to increase as we open new Showrooms, develop new product categories and otherwise pursue our current business initiatives. 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.

Previous wording

Adjusted EBITDA. We believe that adjusted EBITDA is a useful measure of operating performance as the adjustments eliminate items that we believe are not reflective of underlying operating performance in a particular period. Adjusted

Current wording

Adjusted EBITDA. We believe that adjusted EBITDA is a useful measure of operating performance as the adjustments eliminate items that we believe are not reflective of underlying operating performance in a particular period. Adjusted EBITDA facilitates a comparison of our operating performance on a consistent basis from period-to-period and provides for a more complete understanding of factors and trends affecting our business.

Previous wording

(1)Other expenses represent costs and investments not indicative of ongoing business performance, such as public offering costs, severance and recruiting costs. For the nine and three months ended September 30, 2023, these expenses consisted largely of $0.7 million and $0.6 million of public offering costs, respectively.

Current wording

(1)Other expenses represent costs and investments not indicative of ongoing business performance, such as loss on disposal of assets.

Previous wording

As a percentage of net revenue, gross margin decreased 150 basis points to 38.6% of net revenue in the three months ended September 30, 2024 compared to 40.1% of net revenue in the three months ended September 30, 2023. The gross margin decrease as a percentage of net revenue was primarily driven by higher Showroom costs, which increased 100 basis points, higher delivery and transportation costs, which increased 30 basis points as a percentage of net revenue and deleverage on lower net revenue.

Current wording

As a percentage of net revenue, gross margin decreased 190 basis points to 37.1% of net revenue in the three months ended March 31, 2025 compared to 39.0% of net revenue in the three months ended March 31, 2024. The gross margin decrease as a percentage of net revenue was primarily driven by higher Showroom occupancy costs, which increased 120 basis points, and a product margin decrease of 40 basis points.

Previous wording

SG&A expenses increased $28.2 million, or 10.2%, to $304.1 million in the nine months ended September 30, 2024 compared to $275.9 million in the nine months ended September 30, 2023. The increase in SG&A expenses was due to an $11.7 million increase in selling expenses primarily related to new Showrooms and a $26.5 million increase in general and administrative costs primarily related to legal costs, marketing investments, strategic investments to support and drive the growth of the business, including supply chain and technology improvements and increased warehouse expenses. This was partially offset by the non-recurrence of a $10.0 million donation last year to The Nature Conservancy.

Current wording

SG&A expenses increased $13.4 million, or 13.9%, to $110.1 million in the three months ended March 31, 2025 compared to $96.7 million in the three months ended March 31, 2024. The increase in SG&A expenses was primarily due to a $7.2 million increase in general and administrative costs primarily related to warehouse expenses, marketing investments, and strategic investments to support and drive the growth of the business, including supply chain and technology improvements, in addition to a $6.2 million increase in selling expenses primarily related to new Showrooms.

Previous wording

As a percentage of net revenue, SG&A expenses increased 240 basis points to 35.2% of net revenue in the three months ended September 30, 2024 compared to 32.8% of net revenue in the three months ended September 30, 2023.

Current wording

As a percentage of net revenue, SG&A expenses increased 250 basis points to 35.3% of net revenue in the three months ended March 31, 2025 compared to 32.8% of net revenue in the three months ended March 31, 2024.

Previous wording

Interest income, net decreased to $0.5 million in the three months ended September 30, 2024 compared to $1.1 million in the three months ended September 30, 2023. The decrease was primarily due to lower interest income earned.

Current wording

Interest income, net decreased to $0.6 million in the three months ended March 31, 2025 compared to $1.4 million in the three months ended March 31, 2024.

Previous wording

Income taxes were $1.5 million in the three months ended September 30, 2024 compared to $5.3 million in the three months ended September 30, 2023. Our effective tax rate was 13.4% and 21.2% for the three months ended September 30, 2024 and September 30, 2023, respectively.

Current wording

Income taxes were $1.2 million in the three months ended March 31, 2025 compared to $4.8 million in the three months ended March 31, 2024. Our effective tax rate was 19.7% and 24.2% for the three months ended March 31, 2025 and March 31, 2024, respectively.

Previous wording

Net and comprehensive income decreased $9.8 million to $9.9 million in the three months ended September 30, 2024 compared to $19.7 million in the three months ended September 30, 2023. The decrease was driven by the factors described above.

Current wording

Net and comprehensive income decreased $10.2 million to $4.9 million in the three months ended March 31, 2025 compared to $15.1 million in the three months ended March 31, 2024. The decrease was driven by the factors described above.

Previous wording

Our primary cash needs have historically been for merchandise inventories, payroll, Showroom rent, marketing catalogs and capital expenditures associated with opening new Showrooms and updating existing Showrooms, as well as the development of our infrastructure and information technology. We seek out and evaluate opportunities for effectively managing and deploying capital in ways that improve working capital and support and enhance our business initiatives and strategies. As of September 30, 2024, we had cash and cash equivalentsof $177.7 million.

Current wording

Our primary cash needs have historically been for merchandise inventories, payroll, Showroom rent, marketing catalogs and capital expenditures associated with opening new Showrooms and renovating existing Showrooms, as well as the development of our infrastructure and information technology. We seek out and evaluate opportunities for effectively managing and deploying capital in ways that improve working capital and support and enhance our business initiatives and strategies. As of March 31, 2025, we had cash and cash equivalentsof $214.4 million.

Previous wording

For the nine months ended September 30, 2024, our principal sources of liquidity were cash flows from operations. We believe our operating cash flows will be sufficient to meet working capital requirements and fulfill other capital needs for at least the next 12 months, although we may enter into borrowing arrangements in the future.

Current wording

For thethree months ended March 31, 2025, our principal sources of liquidity were cash flows from operations. We believe our operating cash flows will be sufficient to meet working capital requirements and fulfill other capital needs for at least the next 12 months, although we may enter into borrowing arrangements in the future.

Previous wording

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. During the nine months ended September 30, 2024, the Company paid out $70.1 million of the aforementioned special cash dividend on its Class A and Class B common stock.

Current wording

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. The Company paid out $0.2 million of the aforementioned special cash dividend on its Class A common stock related to equity awards that vested during the three months ended March 31, 2025.

Previous wording

For the nine months ended September 30, 2024, net cash provided by operating activi ties was $115.4 million and consisted of net income of $47.3 million and an increase of non-cash items of $85.4 million, which were partially offset by a change in working capital and other activities of$17.3 million. The use of cash from working capital was primarily driven by an increase in merchandise inventory of $40.3 million, a decrease in operating lease liabilities of $23.1 million primarily due to payments made under the related lease agreements, a decrease in accrued expenses of $8.1 million and an increase in prepaid and other assets of $6.5 million. This was partially offset by an increase in client deposits of $50.3 million and an increase in accounts payable of $9.0 million in the nine months ended September 30, 2024.

Current wording

For thethree months ended March 31, 2025, net cash provided by operating activities was $46.5 million and consisted of net income of $4.9 million, an increase of non-cash items of $30.1 million and an increase in working capital and other activities of $11.5 million. The change in working capital was primarily driven by an increase in client deposits of $42.3 million, which was partially offset by a decrease in operating lease liabilities of $13.9 million primarily due to payments made under the related lease agreements, a decrease in accounts payable of $8.7 million, an increase in merchandise inventory of $4.4 million and a decrease in accrued expenses of $3.2 million in the three months ended March 31, 2025.

Previous wording

For thenine months ended September 30, 2023, net cash provided by operating activities was $147.9 million and consisted of net income of $94.0 million and an increase of non-cash items of $68.4 million, which were partially offset by a change in working capital and other activities of $14.6 million. The use of cash from working capital was primarily driven by a decrease in operating lease liabilities of $30.8 million primarily due to payments made under the related lease agreements, a decrease in accounts payable of $10.1 million and an increase in prepaid and other assets of $4.4 million. This was partially offset by a decrease in merchandise inventory of $17.4 million, an increase in client deposits of $9.8 million and an increase in accrued expenses of $3.5 million, in thenine months ended September 30, 2023.

Current wording

For thethree months ended March 31, 2024, net cash provided by operating activities was $36.8 million and consisted of net income of $15.1 million and an increase of non-cash items of $26.0 million, which were partially offset by a change in working capital and other activities of $4.3 million. The use of cash from working capital was primarily driven by an increase in merchandise inventory of $14.1 million, an increase in prepaid and other assets of $5.8 million, a decrease in accrued expenses of $5.1 million, a decrease in accounts payable of $4.8 million, and a decrease in operating lease liabilities of $4.2 million primarily due to payments made under the related lease agreements which was partially offset by an increase in client deposits of $29.1 million in thethree months ended March 31, 2024.

Previous wording

Investing activities consist primarily of capital expenditures related to investments in retail Showrooms, information technology and systems infrastructure, as well as supply chain investments.

Current wording

Investing activities consist primarily of capital expenditures related to investments in retail Showrooms, vehicles, information technology and systems infrastructure, as well as supply chain investments.

Previous wording

For thenine months ended September 30, 2023, net cash used in investing activities was $58.5 million primarily due to investments in Showrooms, supply chain expansion and information technology and systems infrastructure.

Current wording

For the three months ended March 31, 2025, net cash used in investing activities was $27.6 million primarily due to investments in Showrooms, vehicles and information technology and systems infrastructure.

Previous wording

For the nine months ended September 30, 2024, net cash used in investing activities was $88.7 million primarily due to investments in Showrooms, strategic investments in our supply chain, and information technology and systems infrastructure.

Current wording

For thethree months ended March 31, 2024, net cash used in investing activities was $25.9 million primarily due to investments in Showrooms, information technology and systems infrastructure and strategic investments in our supply chain.

Previous wording

Total capital expenditures, net of landlord contributions increased by$14.8 million in the nine months ended September 30, 2024 compared to thenine months ended September 30, 2023.

Current wording

Total capital expenditures, net of landlord contributions increased by $9.2 million in thethree months ended March 31, 2025 compared to thethree months ended March 31, 2024.

Previous wording

We anticipate our total capital expenditures, net of landlord contributions to be approximately $80 million in fiscal year 2024, primarily related to the opening of new Showrooms.

Current wording

We anticipate our total capital expenditures, net of landlord contributions to be between $90 million and $110 million in fiscal year 2025, primarily related to the opening of new Showrooms.

Previous wording

For thenine months ended September 30, 2023, net cash used in financing activities was $1.5 million primarily due to the repurchase of shares for payment of withholding taxes for equity based compensation.

Current wording

For thethree months ended March 31, 2025, net cash used in financing activities was$1.9 million primarily due to the repurchase of shares for payment of withholding taxes for equity based compensation.