Pedro Gil

Pedro Gil asked about the key drivers of Arhaus's full-year EBITDA margin leverage for 2026, particularly given tariff headwinds and strategic investments, and inquired about specific factors contributing to the weaker first-quarter guidance in terms of comps and margin. He also asked about the extent of pricing actions taken in Q4 2025 to mitigate tariff headwinds and the outlook for price inflation in 2026.

Answer

CFO Michael Lee explained that the Q1 2026 guidance was influenced by strong December deliveries, January weather softness, store closures, low traffic, and isolated spring catalog mailing delays, leading to incremental February promotions. For the full year, he highlighted margin expansion from delivery efficiencies, operating effectiveness, and improved product mix, noting that SG&A leverage would be limited by strategic investments. Regarding tariffs, Michael Lee detailed Arhaus's strategy to protect margins, maintain supplier relationships, and remain nimble, confirming pricing actions in October 2025 and a revised 2026 tariff impact range of $30 million-$40 million, reflecting ongoing mitigation efforts.

Pedro Gil inquired about the key drivers for Arhaus's projected full-year EBITDA margin leverage of 20 basis points, specifically asking if it stems from gross margin improvements or new showroom ramp-ups, and sought clarification on the weaker Q1 guidance compared to the rest of the year. He also asked about the extent of pricing actions taken in Q4 to mitigate tariff headwinds and the company's outlook on price inflation for 2023.

Answer

CFO Michael Lee attributed Q1 softness to strong December deliveries impacting January/February, weather-related store closures, and spring catalog mailing delays, leading to incremental February promotions. For the full year, he noted margin expansion from delivery efficiencies, operating effectiveness, and improved product mix, while SG&A leverage is limited by strategic investments. Regarding tariffs, Mr. Lee highlighted success in protecting margins, maintaining supplier relationships, and nimbleness through pricing and promotions, confirming October pricing actions without disclosing the quantum and discussing the updated 2026 tariff impact range.

Pedro Gil, on behalf of Simeon Gutman at Morgan Stanley, asked how Wayfair reconciles its strong demand with the depressed housing market. He also questioned supplier profitability and whether they might need to raise prices.

Answer

CEO Niraj Shah reiterated that the overall market remains weak due to housing turnover, but Wayfair's growth is structural and driven by company-specific initiatives that allow it to take share. He explained that suppliers are keen to maintain competitive pricing to preserve demand and are using various levers, including their own margins and ocean freight savings, to avoid price hikes.