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    Arhaus (ARHS)

    ARHS Q4 2024: Guides Q1 EBITDA Down 24% Amid Showroom Costs

    Reported on Aug 7, 2025 (Before Market Open)
    Pre-Earnings Price$11.91Last close (Feb 25, 2025)
    Post-Earnings Price$11.07Open (Feb 26, 2025)
    Price Change
    $-0.84(-7.05%)

    What went well

    • Strong Product Innovation: Management expects robust new product rollouts in 2025 that will match or exceed prior years’ newness, reinforcing demand strength and keeping the brand at the forefront of design trends.
    • Effective Store Expansion & Refresh Strategy: The company’s consistent growth in showroom footprint—including new openings and strategic relocations—has translated into strong comps and sales growth, reinforcing customer engagement and brand positioning.
    • Adaptive Pricing & Promotional Tactics: The team’s ability to adjust promotional calendars (e.g., aligning with shifted holiday dates) and maintain a consistent pricing strategy amid a highly promotional market supports continued consumer traction and resilient margins.

    What went wrong

    • Inventory Buildup Concerns: The discussion revealed that inventory levels have increased significantly (up 17%), partly driven by expanded and larger showrooms. This buildup could pressure margins if products must be sold at discounted prices or if liquidity issues arise.
    • Margin Pressure from High Fixed Costs: There is notable concern over margin deleverage due to rising showroom occupancy costs and strategic investments in system implementations and showroom expansions. These higher fixed costs could negatively impact profitability, particularly in the near term.
    • Uncertainty in Promotional and Pricing Strategies: The Q&A highlighted ongoing experimentation with pricing and promotional strategies, compounded by shifts in key holiday calendars and macroeconomic volatility. This uncertainty in execution may result in unpredictable sales performance and impact overall margins.

    Q&A Summary

    1. EBITDA Guide
      Q: What drives Q1 EBITDA decline?
      A: Management explained that increased showroom occupancy costs and strategic investments—including system upgrades and tariff contingencies—are the primary drivers behind the expected 24% year-on-year EBITDA decline, with an approximate $5M fall-through on $10M incremental sales.

    2. Margin Outlook
      Q: How will gross margin fare in Q1?
      A: They expect slight margin deleverage in Q1 due to higher showroom expenses, while anticipating full-year gross margins to remain relatively consistent.

    3. Store Openings
      Q: What is the 2025 store opening plan?
      A: Management noted that although fewer traditional showrooms (around 3–5) are planned this year to absorb recent acceleration, additional design studios and strategic remodels will support growth and improved comps.

    4. Inventory Levels
      Q: Why is inventory up 17%?
      A: The increase reflects investments in larger, newer showrooms and a proactive build-up ahead of the outdoor season to ensure product availability.

    5. Promotional Strategy
      Q: How will calendar shifts affect promotions?
      A: Management clarified that shifts in holiday dates—for example, a later Easter—are being factored into the promotional calendar to align with key shopping periods, maintaining overall strategic consistency.

    6. Demand & Pricing
      Q: How are early 2025 demand trends?
      A: Despite strong January demand, delivery delays impacted comps, and management expects these timing differences to resolve as the year progresses.

    7. Product Pipeline
      Q: What about 2025 new product rollout?
      A: They reaffirmed that the 2025 lineup is robust, with new product introductions matching or exceeding past years to meet evolving consumer tastes through continuous design innovation.

    8. Tariff Impact
      Q: How are tariff challenges managed?
      A: Through diversified sourcing and contingency planning, management is well-prepared for potential tariff impacts, which are already factored into current guidance.

    9. Macro Outlook
      Q: What are the 2025 housing assumptions?
      A: A conservative approach is taken, with expectations similar to last year and only modest housing market influence, as macro trends are closely monitored.

    10. Showroom Cadence
      Q: What is the cadence for new showrooms?
      A: The plan is to open about 5 top-quality showrooms across key markets, focusing on strategic locations amid ongoing market challenges.

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