Max Rakhlenko

Max Rakhlenko from TD Cowen asked about the elasticity observed in the business due to selective price increases and how this impacted Q3 comps, specifically the contribution from transactions versus ticket. He also inquired about the timing of tariff flow-through and its expected impact on margins in Q4 and subsequent quarters.

Answer

Laura Alber, CEO, explained that elasticity varies by product and competition, emphasizing the importance of innovation, exclusive products, and improved service for pricing power. Jeff Howie, CFO, detailed that tariffs took longer to flow through due to delayed effective dates and aggressive front-loading of inventory, confirming a larger impact is expected in Q4, as embedded in the guidance.

Max Rakhlenko asked about the elasticity observed in the business following selective price increases, inquiring about the impact on Q3 comps from transactions versus ticket. He also followed up on the flow-through of tariffs, asking for guidance on modeling their impact over the next several quarters, particularly for Q4.

Answer

CEO Laura Alber explained that pricing is constantly reviewed across brands and categories, noting that elasticity varies. She highlighted innovation and exclusive products as drivers of pricing power, along with improved service and experience. CFO Jeff Howie clarified that tariffs are taking longer to flow through due to delayed effective dates and aggressive front-loading of inventory, which benefited Q3. He stated that Q4 will see a larger tariff impact, as embedded in the guidance, and deferred 2026 guidance due to tariff volatility.

Max Rakhlenko questioned the medium-term revenue potential and four-wall economics of RH's European galleries, specifically referencing improvements in England and the strong start in Paris.

Answer

Chairman and CEO Gary Friedman discussed the rapid scaling of Paris, London, and Milan, noting higher brand awareness in London. He highlighted the potential for four-wall margins in Europe to align with U.S. galleries and the ongoing learning curve in operational execution.

Max Rakhlenko of TD Cowen inquired about the progress on reducing excess inventory in Q1 and asked for a bridge from Q1 free cash flow to the full-year guidance. He also asked if the company might need to raise capital.

Answer

CFO Jack Preston noted that inventory was down slightly sequentially, with more significant reductions planned for the second half of the year. Chairman & CEO Gary Friedman stated there is no plan to raise equity capital at the current stock price but might consider a convertible offering at a much higher price. He stressed that the company is not capital-constrained and is fully funding its growth initiatives.

Max Rakhlenko of TD Cowen asked for management's view on whether Arhaus is gaining market share and how it is positioned against competitors. He also inquired about the specific drivers behind the product margin expansion in the quarter.

Answer

Founder, Chairman, and CEO John Reed expressed confidence that Arhaus is taking market share, citing its unique, proprietary product and growing sales. On margins, Reed mentioned proactive price adjustments in the spring helped. CFO Michael Lee added that product margin improvement was also driven by product mix and sourcing concessions, while transportation cost leverage came from higher sales volume. He noted new store openings in Q4 would help leverage occupancy costs going forward.

Max Rakhlenko questioned the conservative same-club sales guidance for the second half of the year, asking why churn from online cancellations wouldn't normalize faster. He also asked about the new Director of Franchise Sales role and the strategy for adding new franchisees to the system.

Answer

CFO Jay Stasz clarified that churn from the online cancellation rollout is slightly higher than first modeled, warranting conservatism despite the ongoing benefit from the Classic Card price increase. CEO Colleen Keating added that new franchisees are needed for long-term growth and to provide succession options for existing franchisees nearing the end of their fund horizons.

Max Rakhlenko asked about the long-term potential for exclusive brand product margins, particularly with the new VP of Sourcing. He also questioned if the positive turn in the work business is sustainable or related to easier comparisons, and how the company analyzes that business's historical performance.

Answer

CEO John Hazen stated that while the new sourcing team could deliver over 100-200 basis points of margin gain, these benefits are not expected until fiscal 2027 and 2028. Regarding the work business, he noted its steady improvement but said he was not ready to 'declare victory,' as there is still more work to be done to reinvigorate the category.

Max Rakhlenko from TD Cowen asked if competitors are taking different pricing actions, thereby changing price spreads, and requested specifics on SG&A investments aimed at capturing market share.

Answer

CFO Jeremy Fletcher and CEO Brad Beckham both confirmed they are not seeing any material changes in price spreads and that the industry continues to act rationally. On SG&A, Fletcher pointed to investments in teams and inventory availability, while Beckham added that investments also include maintaining high service levels during slower periods to build long-term customer loyalty.

Max Rakhlenko of TD Cowen asked if O'Reilly is observing any changes in its price spreads versus competitors, particularly WDs, amid tariff actions. He also requested specifics on SG&A investments aimed at capitalizing on market share opportunities.

Answer

EVP & CFO Jeremy Fletcher and CEO Brad Beckham stated that they are not seeing any material changes in price spreads and believe the industry is behaving rationally. Regarding investments, they highlighted spending on their teams, inventory availability, and technology to enhance customer service, noting they will 'out hustle' competitors, especially during slower periods, to secure future business.