Arhaus, Inc. 2025 Annual Report (10-K) Summary
Business Context and Reporting Period
This summary covers the Annual Report on Form 10-K for Arhaus, Inc. (ARHS) for the fiscal year ended December 31, 2025. Arhaus is a premium home furnishings retailer operating a vertically integrated, omni-channel model with 107 Showrooms across 31 U.S. states as of year-end. The company designs, sources, and sells heirloom-quality furniture and décor, maintaining a debt-free balance sheet with significant liquidity.
Key Financial Metrics
| Metric | 2025 | 2024 | Change |
|---|---|---|---|
| Net Revenue | $1,379.2 million | $1,271.1 million | +8.5% |
| Gross Margin | $536.4 million (38.9%) | $501.2 million (39.4%) | -50 bps |
| Operating Income | $88.9 million (6.4%) | $87.0 million (6.8%) | -40 bps |
| Net Income | $67.3 million (4.9%) | $68.6 million (5.4%) | -1.9% |
| Adjusted EBITDA | $145.1 million (10.5%) | $133.3 million (10.5%) | +8.9% |
| Operating Cash Flow | $136.8 million | $147.1 million | -7.0% |
| Cash & Equivalents | $253.4 million | $197.5 million | +28.3% |
| Client Deposits | $235.9 million | $220.9 million | +6.8% |
Note: The company maintains a $75 million revolving credit facility with no outstanding borrowings as of December 31, 2025. Available capacity was $69.9 million due to a $5.1 million letter of credit.
Material Changes vs. Prior Period
- Revenue Growth: Driven primarily by $64.4 million in revenue from Showrooms opened in 2024 and 2025, alongside increased product demand. Comparable delivered sales grew 3.6%.
- Margin Compression: Gross margin percentage declined 50 basis points due to higher product costs ($40.6M increase), increased Showroom occupancy costs ($18.1M), and higher delivery/transportation costs ($6.1M).
- Expense Management: Selling, General, and Administrative (SG&A) expenses increased 7.7% to $447.4 million, driven by corporate strategic investments (supply chain/technology) and new Showroom opening costs. However, SG&A as a percentage of revenue improved slightly to 32.4%.
- Capital Deployment: Total capital expenditures (net of landlord contributions) decreased to $56.9 million in 2025 from $65.9 million in 2024. The company initiated a multi-year ERP transformation with approximately $1 million spent in 2025.
Guidance, Outlook, and Risks
- Capital Expenditure Outlook: Management anticipates total capital expenditures (net of landlord contributions) to be between $70.0 million and $90.0 million in fiscal year 2026, focused on new Showrooms and IT infrastructure.
- Dividends: On February 17, 2026, the Board declared a special cash dividend of $0.35 per share, payable March 31, 2026.
- Internal Control Weaknesses: The company disclosed material weaknesses in Internal Control over Financial Reporting (ICFR) as of December 31, 2025. These relate to the control environment, accounting policies/procedures, and IT general controls. While remediation is underway (hiring experts, outsourcing internal audit, modernizing IT), the auditor issued an adverse opinion on the effectiveness of ICFR.
- Key Risks:
- Supply Chain & Tariffs: Exposure to international trade policies, tariffs, and vendor capacity constraints.
- Real Estate: Substantial lease obligations (approx. $580 million total lease liabilities) and risks associated with Showroom performance in new markets.
- Cybersecurity: Risks related to data breaches and reliance on third-party technology providers.
- Macroeconomics: Sensitivity to the high-end housing market, consumer confidence, and interest rates.
Investor Verification Checklist
- ICFR Remediation Timeline: Verify the specific timeline and progress reports regarding the remediation of the three identified material weaknesses in internal controls.
- Margin Recovery: Monitor whether gross margin compression from occupancy and logistics costs stabilizes or improves in upcoming quarters.
- ERP Implementation: Track the execution and cost management of the new Enterprise Resource Planning (ERP) system rollout, which is a critical operational risk.
- Client Deposit Utilization: Assess the conversion rate of the $236 million in client deposits into recognized revenue and the risk of order cancellations.
- Showroom Unit Economics: Review the performance of the 12 new Showrooms opened in 2025 to ensure they meet targeted revenue and profitability metrics.