Arhaus Inc.
02/26/2026 | Press release | Distributed by Public on 02/26/2026 05:12
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
We have prepared this Management's Discussion and Analysis ("MD&A") as an aid to understanding our financial results. It should be read together with the accompanying consolidated financial statements and related notes. It includes management's analysis of past financial results and certain potential factors that may affect future results, potential future risks and approaches that may be used to manage those risks. Some of the statements we make in this section are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this Annual Report entitled "Special Note Regarding Forward-Looking Statements." In addition to the discussion of potential risks discussed in MD&A, certain other risk factors may cause actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see the section in this Annual Report entitled "Risk Factors."
This discussion and analysis addresses 2025 and 2024 items and year-over-year comparisons between 2025 and 2024. Discussions regarding our financial condition and results of operations for 2024 compared to 2023 not included in this Annual Report can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
Overview
Founded in 1986 by John Reed, our CEO, and his father, Arhaus is a premium home furnishings brand built on a simple idea: furniture and décor should be responsibly sourced, lovingly made, and built to last. We operate a vertically integrated model, designing and sourcing products directly from skilled artisans and carefully selected manufacturing vendors around the world, including domestic upholstery production at our own North Carolina manufacturing facility. This approach enables us to offer a highly exclusive and customizable assortment of heirloom-quality furniture and décor designed to be used and enjoyed for generations. Design is at the core of everything Arhaus does. With more than 100 Showroom locations across the United States, our integrated omni-channel model connects every client touchpoint, from Showroom and interior design to eCommerce and catalog, allowing us to meet clients wherever and however they choose to shop while delivering a highly personalized client-first experience from discovery through delivery.
Our vertically integrated model, inclusive of design and product development teams, upholstery manufacturing capabilities, direct vendor sourcing, direct-to-consumer and direct-to-trade selling, allows Arhaus to maintain greater control over product quality, design integrity, and value. We offer merchandise across a broad range of categories, including furniture, outdoor, bath, lighting, textiles and décor. Our curated assortments are presented across our sales channels in sophisticated, family-friendly and lifestyle-oriented settings.
Based on third-party reports, publicly available data, and our internal research, we believe the United States premium home furnishings market is approximately $100 billion. This highly fragmented market is served by a large number of independent retailers, which we believe provides us a meaningful opportunity to increase market share over time. We believe that we are well positioned to grow market share through our differentiated brand positioning, scale, and strong resonance with affluent clients who value quality, craftsmanship, and design.
Products are designed for use throughout the home and are sourced directly from a global network of nearly 400 vendors. Through close collaboration with Arhaus product development teams and sourcing relationships, and supported by our vertically integrated model, we believe we are able to deliver high-quality products at a compelling value.
Arhaus strives to deliver awelcoming and inspirational experience across both Showrooms and eCommerce, guided by our belief that retail is theater. Showrooms are immersive, design-forward spaces that serve as an important driver of brand awareness and client engagement, while our eCommerce channel functions as a seamless extension of the physical Showroom experience. Our experienced design consultants and interior designers provide expert guidance and personalized service, supporting clients throughout their shopping journey. As of December 31, 2025, the Company operated 107 Showrooms in 31states, consisting of 90 Traditional Showrooms, 9 Design Studios and 8 Lofts.
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Traditional Showrooms | 90 | 85 | |||||||||
| Design Studios | 9 | 11 | |||||||||
| Lofts | 8 | 7 | |||||||||
| Total Showrooms | 107 | 103 | |||||||||
| Total gross square footage (in thousands) | 1,836 | 1,676 | |||||||||
| Showrooms with interior designers | 97 | 89 | |||||||||
| States where we operate | 31 | 30 | |||||||||
Factors Affecting Our Business
Our business performance and results of operations have been, and will continue to be, affected by the factors described below. While each of these key factors presents significant opportunities for our business, they also pose challenges that we must successfully address in order to sustain growth, improve our results of operations and achieve and maintain profitability.
Overall Economic Trends. The industry in which we operate is cyclical, and our net revenue is affected by general economic conditions, including conditions that affect the housing market and broader macroeconomic factors including the health and volatility of the stock market. We target consumers of high-end home furnishings. As a result, we believe that our sales are sensitive to a number of macroeconomic factors that influence consumer spending generally, and that our sales are particularly affected by the health of the higher end consumer and demand levels from that consumer demographic. While the overall home furnishings market may be influenced by factors such as employment levels, interest rates, new household formation and the affordability of homes for first time home buyers, the higher end of the housing market may be disproportionately influenced by other factors, including stock market prices, the number of second and third homes being purchased and sold, tax policies, interest rates, and perceived capital appreciation prospects in higher end real estate. Shifts in consumption patterns may continue to have an impact on consumer spending in the United States premium home furnishings market.In the past, we have experienced volatility in our sales trends related to many of these factors and believe our sales may be impacted by these economic factors in future periods.
Housing Market and Housing Turnover. Our business depends on consumer demand for our products and is therefore sensitive to a number of factors that influence consumer spending, including, among other things, housing prices, new construction, other activity in the housing sector, the state of the mortgage industry and other aspects of consumer credit tied to housing, including the availability and pricing of mortgage refinancing and home equity lines of credit. In particular, periods of increased or decreased home purchases may lead to increased or decreased consumer spending on home furnishings.
Our Strategic Initiatives. We are implementing a number of strategic initiatives that have had, and will continue to have, an impact on our results of operations. These initiatives include expanding our Showroom footprint, enhancing our digital marketing capabilities and eCommerce sales channel, increasing our product assortment, expanding our supply chain infrastructure, and continuing to invest in technology and related systems enhancements. As a result of the number of current business initiatives we are pursuing, we have experienced in the past, and may experience in the future, significant period-to-period variability in our financial performance and results of operations. While we anticipate that these initiatives will support the growth of our business, costs and timing issues associated with pursuing these initiatives can negatively affect our growth and profitability rates in the near term and may amplify fluctuations in our growth rates from quarter to quarter.
Our Ability to Source and Distribute Products Effectively. Our net revenue and gross margin are affected by our ability to purchase merchandise in sufficient quantities at competitive prices. Our level of net revenue has been adversely affected in prior periods by supply chain constraints, including the inability of our vendors to produce or ship sufficient quantities of some merchandise to match market demand from our clients, leading to higher levels of client backlog.
Consumer Preferences and Demand. Our ability to maintain our appeal with existing clients and to attract new clients depends on our ability to design, develop and offer a compelling product assortment responsive to client preferences and design trends. If we misjudge the market for our products or the product lines that we acquire, we may be faced with excess inventories for some products and may be required to become more promotional in our selling activities, which would impact our net revenue and gross margin.
Seasonality in Quarterly Results. Our quarterly results vary depending upon a variety of factors, including changes in our product offerings and the introduction of new merchandise assortments and categories, the opening of new retail locations, shifts in the timing of various events including holidays and other events such as Showroom closures, catalog releases, promotional events and the extent of our realization of the costs and benefits of our numerous strategic initiatives, among other things. As a result of these factors, our working capital requirements and demands on our distribution and delivery network may fluctuate during the year. Unique factors in any given quarter may affect period-to-period comparisons among the quarters being compared, and the results for any quarter are not necessarily indicative of the results that we may achieve for a full year.
For example, our large catalogs and storewide sales for the spring and fall may drive higher written sales in the months they occur than in the other months in the year. Variable expenses related to written sales will also be higher in those months. Net revenue related to written sales is recorded in later months, depending on when the client obtains control of the merchandise.
How We Assess the Performance of Our Business
In addition to U.S. GAAP results, this 10-K contains references to the non-GAAP financial measures below. We use these non-GAAP measures to help assess the performance of our business, identify trends affecting our business, formulate business plans and make strategic decisions. In addition to our results determined in accordance with U.S. GAAP, we believe that providing these non-GAAP financial measures is useful to our investors as they present an informative supplemental view of our results from period-to-period by removing the effect of non-recurring items.
The non-GAAP financial measures presented herein are specific to us and may not be comparable to similar measures disclosed by other companies because of differing methods used by other companies in calculating them. These measures are also not intended to be measures of free cash flow for management's discretionary use, as they do not reflect tax payments, debt service requirements and certain other cash costs that may recur in the future, including, among other things, cash requirements for working capital needs. Management compensates for these limitations by relying on our U.S. GAAP results in addition to using these non-GAAP financial measures. The non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. We consider the following financial and operating measures that affect our results of operations:
Net Revenue and Written Sales (Formerly "Demand"). Net revenue is recognized when a client obtains control of the merchandise. We also track written sales in our business which is a key performance indicator linked to the level of client orders placed. Written sales is an operating metric that we use to measure the dollar value of orders (based on purchase price) at the time the order is placed, net of the dollar value of cancellations and returns (based on unpaid purchase price and amount credited to client). These orders are recognized as net revenue when a client obtains control of the merchandise. Because written sales is measured net of cancellations, all written sales will eventually become net revenue, with appropriate reserves, when delivered to the client.
Comparable Delivered Sales (Formerly "Comparable Growth"). Comparable Delivered Sales is the year-over-year percentage change of the dollar value of orders delivered (based on purchase price), net of the dollar value of returns (based on amount credited to client), from comparable Showrooms and eCommerce, including through our catalogs and other mailings. This metric is a key performance indicator used by management to evaluate Showroom performance for locations that have been opened for at least 15 consecutive months, which enables management to view the performance of those Showrooms without the dollar value of orders delivered for new Showrooms being included. Comparable Showrooms are defined as permanent Showrooms open for at least 15 consecutive months, including relocations in the same market. Showrooms record written sales immediately upon opening, while orders delivered take additional time because product must be delivered to the client. The dollar value of orders delivered for Loft comparable locations is included.
Comparable Delivered Sales provides management insight into business performance for a particular period by comparing the dollar value of orders delivered (based on purchase price) in a period compared to the prior comparable period. Since delivery generally coincides with recognition of net revenue, with appropriate reserves, Comparable Delivered Sales trends will more closely track trends in reported net revenue than Comparable Written Sales.
Comparable Written Sales (Formerly "Demand Comparable Growth"). Comparable Written Sales is the year-over-year percentage change in written sales from our comparable Showrooms and eCommerce, including through our catalogs and other mailings. This metric is a key performance indicator used by management to evaluate Showroom performance for locations that have been opened for at least 13 consecutive months, which enables management to view the performance of those Showrooms without new Showroom written sales. For Comparable Written Sales, comparable Showrooms are defined aspermanentShowrooms open for at least 13 consecutive months, including relocations in the same market. The dollar value of orders written for Loft comparable locations is included.
Comparable Written Sales provides insight into business performance in a particular period by comparing the dollar value of orders (based on purchase price) placed in that period to the prior comparable period. Although these orders do not result in net revenue until the order is delivered at a later point in time, management utilizes this metric to evaluate core performance. While the underlying written sales that support this metric will generally translate into delivered sales over time, the Comparable Written Sales and Comparable Delivered Sales measures may not correlate in any specific period partially due the lag effects in both the numerator and denominator that occur between order placement and delivery, which tend to vary based on natural variations in the supply chain. Notwithstanding these limitations, management considers it useful to evaluate both measures together to assess overall performance trends and believes investors may find them useful when reviewed alongside reported results and other key metrics.
Gross Margin. Gross margin is equal to our net revenue less cost of goods sold. Cost of goods sold includes the direct cost of purchased merchandise, inventory reserves, inbound freight, all freight costs to get merchandise to our Showrooms, credit card fees, design, buying and allocation costs, our supply chain, such as product development and sourcing, occupancy costs related to Showroom operations, such as rent and common area maintenance for our leases, depreciation and amortization of leasehold improvements, equipment and other assets in our Showrooms. In addition, cost of goods sold includes all logistics costs associated with shipping product to our clients, partially offset by delivery fees collected from clients (recorded in net revenue on the consolidated statements of comprehensive income).
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 written sales, 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.
EBITDA. We define EBITDA as consolidated net income before depreciation and amortization, interest income, net and income tax expense.
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. Because adjusted EBITDA omits certain non-cash items and items that we believe are not reflective of underlying operating performance in a particular period, we feel that it is less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and can be more reflective of our operating performance in a particular period. We also use adjusted EBITDA as a method for planning and forecasting overall expected performance and for evaluating, on a quarterly and annual basis, actual results against such expectations.
The following is a reconciliation of our net and comprehensive income to EBITDA and adjusted EBITDA for the periods presented (in thousands):
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Year Ended
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|
December 31,
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| 2025 | 2024 | ||||||||||
| Net and comprehensive income | $ | 67,256 | $ | 68,550 | |||||||
| Interest income, net | (3,032) | (3,163) | |||||||||
| Income tax expense | 24,723 | 22,372 | |||||||||
| Depreciation and amortization | 46,793 | 39,086 | |||||||||
| EBITDA | 135,740 | 126,845 | |||||||||
| Equity based compensation | 9,182 | 7,640 | |||||||||
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Other expenses (income)(1)
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170 | (1,202) | |||||||||
| Adjusted EBITDA | $ | 145,092 | $ | 133,283 | |||||||
(1) Other expenses (income) represent costs and investments not indicative of ongoing business performance, such as loss (gain) on disposal of assets. For the year ended December 31, 2025, these other expenses (income) consisted largely of $0.1 million of loss on disposal of assets. For the year ended December 31, 2024, these other expenses (income) consisted largely of $1.2 million of gain on disposal of assets.
Free Cash Flow. We define Free Cash Flow as net cash provided by operating activities less net cash used in investing activities. We believe that Free Cash Flow is a useful measure that is helpful in understanding the strength of our liquidity and how our business generates cash. Management uses Free Cash Flow to evaluate our overall liquidity needs and determine appropriate capital allocation strategies. Free Cash Flow should not be considered in isolation or as an alternative to net cash from operating activities calculated in accordance with U.S. GAAP and should be viewed together with our other U.S. GAAP results.
Factors Affecting the Comparability of our Results of Operations
Our results over the past two years have been affected by the following events, which must be understood in order to assess the comparability of our period-to-period financial performance and condition.
Showroom Openings and Closings
New Showrooms contribute incremental expense, new Showroom opening expense and net revenue to the Company. Our recent Showroom growth from January 1, 2024 to December 31, 2025is summarized in the following table:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Showrooms open at beginning of period | 103 | 92 | |||||||||
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Showrooms opened (1)
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12 | 16 | |||||||||
| Showrooms closed for relocations | (7) | (5) | |||||||||
| Showrooms closed permanently | (1) | - | |||||||||
| Showrooms open at end of period | 107 | 103 | |||||||||
(1) Showrooms opened during the respective periods includes both new and relocated Showrooms.
Results of Operations
The following tables summarize key components of our results of operations for the periods indicated and should be read together with our consolidated financial statements and related notes.
Consolidated Statements of Comprehensive Income Data (in thousands):
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Year Ended
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December 31,
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2025
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2024
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Net revenue
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$ | 1,379,222 | $ | 1,271,107 | |||||||
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Cost of goods sold
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842,814 | 769,878 | |||||||||
| Gross margin | 536,408 | 501,229 | |||||||||
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Selling, general and administrative expenses
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447,441 | 415,426 | |||||||||
| Loss (gain) on disposal of assets | 81 | (1,202) | |||||||||
| Income from operations | 88,886 | 87,005 | |||||||||
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Interest income, net
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(3,032) | (3,163) | |||||||||
| Other income | (61) | (754) | |||||||||
| Income before taxes | 91,979 | 90,922 | |||||||||
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Income tax expense
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24,723 | 22,372 | |||||||||
| Net and comprehensive income | $ | 67,256 | $ | 68,550 | |||||||
Other Operational Data (dollars in thousands):
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Year Ended
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December 31,
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2025
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2024
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| Net revenue | $ | 1,379,222 | $ | 1,271,107 | |||||||
| Comparable delivered sales | 3.6 | % | (8.0) | % | |||||||
| Comparable written sales | 1.3 | % | (2.2) | % | |||||||
| Gross margin as a % of net revenue | 38.9 | % | 39.4 | % | |||||||
| Selling, general and administrative expenses as a % of net revenue | 32.4 | % | 32.7 | % | |||||||
| Income from operations as a % of net revenue | 6.4 | % | 6.8 | % | |||||||
| Net and comprehensive income | $ | 67,256 | $ | 68,550 | |||||||
| Net and comprehensive income as a % of net revenue | 4.9 | % | 5.4 | % | |||||||
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Adjusted EBITDA(1)
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$ | 145,092 | $ | 133,283 | |||||||
| Adjusted EBITDA as a % of net revenue | 10.5 | % | 10.5 | % | |||||||
| Total Showrooms at end of period | 107 | 103 | |||||||||
(1)See "How We Assess the Performance of Our Business" for a definition of adjusted EBITDA and a reconciliation of adjusted EBITDA to net income.
Comparison of the Years Ended December 31, 2025 and December 31, 2024
Net Revenue
Net revenue increased $108.1 million, or 8.5%, to $1,379.2 million in 2025 compared to $1,271.1 million in 2024. The increase was driven primarily by $64.4 million of revenue growth related to Showrooms opened in 2024 and 2025, with the remainder due to increased demand for our products.
Gross Margin
Gross margin increased $35.2 million, or 7.0%, to $536.4 million in 2025 compared to $501.2 million in 2024. The increase was primarily driven by higher net revenue, partially offset by higher products costs of $40.6 million, increased Showroom occupancy costs of $18.1 million, higher delivery and transportation costs of $6.1 million and higher credit card fees of $3.4 million.
As a percentage of net revenue, gross margin decreased 50 basis points to 38.9%of net revenue in 2025 compared to 39.4% of net revenue in 2024. Thegross margin decrease as a percentage of net revenue was primarily the result of higher Showroom occupancy costs, which increased 60 basis points, partially offset by delivery and transportation costs, which decreased 40 basis points.
Selling, General and Administrative Expenses
SG&A expenses increased $32.0 million, or 7.7%, to $447.4 million in 2025 compared to $415.4 million in 2024. The increase was primarily driven by a $16.4 million increase in general and administrative costs primarily related to corporate expenses, strategic investments to support and drive the growth of the business, including supply chain and technology improvements and warehouse expenses, in addition to a $15.6 million increase in selling expenses primarily related to new Showrooms.
As a percentage of net revenue, selling, general and administrative expenses decreased 30 basis points to 32.4% of net revenue in 2025 compared to 32.7% of net revenue in 2024.
Interest Income, net
Interest income, net decreased to $3.0 million in 2025 compared to $3.2 million in 2024.
Income Taxes
Income tax expense was $24.7 million in 2025 compared to $22.4 million in 2024. The increase was primarily due to higher income before taxes. Our effective tax rate was 26.9% in 2025 and 24.6% in 2024.
Net and Comprehensive Income
Net and comprehensive income decreased $1.3 million to $67.3 million in 2025 compared to $68.6 million in 2024. The decrease was driven by the factors described above.
Liquidity and Capital Resources
Liquidity Outlook
Our primary cash needs have historically been for merchandise inventories, payroll, marketing, Showroom rent, 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 December 31, 2025, we had cash and cash equivalents of $253.4 million.
For the year ended December 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.
While we do not require debt to fund our operations, our goal continues to be to position the Company to take advantage of the many opportunities that we may identify in connection with our business and operations. We have pursued in the past, and may pursue in the future, additional strategies to generate capital to pursue opportunities and investments, including new debt financing arrangements. In addition to funding the normal operations of our business, we have used our liquidity to fund investments and strategies related to growth initiatives, including supply chain and technology improvements. In addition, our needs and uses of capital may change in the future due to changes in our business or new opportunities that we choose to pursue. As of December 31, 2025, we have no material off-balance sheet arrangements.
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 $0.4 million of the aforementioned special cash dividend on its Class A common stock related to dividend equivalents on equity awards that vested during the year ended December 31, 2025, and $70.3 million on its Class A and Class B common stock to shareholders as of the Record Date and dividend equivalents on equity awards that vested during the year ended December 31, 2024.
We have begun a multi-year transformation that will replace certain of our existing systems with a modern and integrated platform encompassing a new ERP system, an order management system and a transportation management system. The total incremental investment in connection with these technology upgrades is expected to be approximately $30 million, including
implementation and project staffing costs as well as licensing fees through 2030. Cash outflows were approximately $1 million during the year ended December 31, 2025, and we anticipate approximately $12 million in 2026 and $10 million in 2027, with cash outflows tapering in early 2028 as we transition to annual licensing and maintenance costs of approximately $2 million per year through 2030.
Credit Facility
In November 2021, the Company entered into a revolving credit facility (the "2021 Credit Facility"). The 2021 Credit Facility provides for, among other things, (1) a revolving credit facility, in an aggregate amount not to exceed at any time outstanding the amount of such lender's commitment, (2) a letter of credit commitment, in an amount equal to the lesser of (a) $10.0 million, and (b) the amount of the revolving credit facility as of such date, and (3) a swingline loan, in an amount equal to the lesser of (a) $5.0 million, and (b) the amount of the revolving credit facility as of such date. The aggregate amount of all commitments of all lenders under the 2021 Credit Facility was initially $50.0 million. The 2021 Credit Facility contains restrictive covenants and has certain financial covenants, including a maximum rent-adjusted total leverage ratio and a minimum fixed charge ratio. The 2021 Credit Facility initially bore variable interest rates at the prevailing Bloomberg Short-Term Bank Yield index rate plus the applicable margin (1.50%at December 31, 2023), whereas the applicable margin is adjusted quarterly based on the Company's consolidated rent-adjusted total leverage ratio.
In December, 2022, the Company amended the 2021 Credit Facility to increase the revolving credit commitment thereunder by $25.0 million. After giving effect to such increase, the aggregate amount of all commitments under the 2021 Credit Facility is $75.0 million.
In August 2024, the Company amended the 2021 Credit Facility to adjust the index rate from the Bloomberg Short-Term Bank Yield Index to the Term Secured Overnight Financing Rate. The 2021 Credit Facility bears variable interest rates at the prevailing Term Secured Overnight Financing Rate plus the applicable margin (1.75% at December 31, 2024).
In May 2025, the Company issued an irrevocable standby letter of credit under the 2021 Credit Facility in the amount of $5.1 million in connection with a lease, which remained outstanding at December 31, 2025. The Company did not have any outstanding letters of credit at December 31, 2024.
In October 2025, the Company entered into the Third Amendment to Credit Agreement and Amendment to Security and Pledge Agreement (the "Amendment"). The Amendment further amends the 2021 Credit Facility to, among things, (1) extend the maturity date of the revolving credit facility from November 8, 2026 to October 17, 2030, and (2) increase the letter of credit commitment to an amount equal to the lesser of (a) $15 million, and (b) the amount of the revolving credit facility as of such date. After giving effect to the Amendment, the aggregate amount of the revolving credit commitments under the Credit Agreement remains $75 million. The Company has the option to increase the revolving credit commitment thereunder by an additional $25 million. In connection with the Amendment, the Company has incurred approximately $0.2 million in debt issuance costs. The 2021 Credit Facility bears variable interest rates at the prevailing Term Secured Overnight Financing Rate plus the applicable margin (1.75% at December 31, 2025). At December 31, 2025 and 2024, we had no borrowings on the 2021 Credit Facility and the available borrowing capacity on the 2021 Credit Facility was $69.9 million and $75.0 million, respectively.
Cash Flow Analysis
The following table provides a summary of our cash provided by operating, investing and financing activities (in thousands):
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Year Ended
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December 31,
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2025
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2024
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| Net cash provided by operating activities | $ | 136,848 | $ | 147,109 | |||||||
| Net cash used in investing activities | (77,816) | (99,534) | |||||||||
| Net cash used in financing activities | (3,481) | (72,951) | |||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 55,551 | $ | (25,376) | |||||||
Net cash provided by operating activities
Comparison of the Year Ended December 31, 2025and December 31, 2024
Operating activities consist primarily of net income adjusted for non-cash items including depreciation and amortization, operating lease amortization, deferred income taxes, equity based compensation and the effect of changes in working capital and other activities.
For 2025, net cash provided by operating activities was $136.8 million and consisted of net income of $67.3 million and an increase in non-cash items of $132.9 million, which were partially offset by a change in working capital and other activities of $63.3 million. The use of cash from working capital was primarily driven by a decrease in operating lease liabilities of $59.0 million primarily due to payments made under the related lease agreements, and an increase in merchandise inventory of $41.8 million, which were partially offset by an increase in client deposits of $15.1 million, an increase in accounts payable of $9.9 million, an increase in accrued expenses of $7.9 million, and a decrease in prepaid and other assets of $4.1 million.
For 2024, net cash provided by operating activities was $147.1 million and consisted of net income of $68.6 million, an increase in non-cash items of $108.8 million, which were partially offset by a change in working capital and other activities of $30.2 million. The use of cash from working capital was primarily driven by an increase in merchandise inventory of $42.7 million, a decrease in operating lease liabilities of $37.9 million primarily due to payments made under the related lease agreements, an increase in prepaid and other assets of $2.5 million, a decrease in accrued expenses of $0.9 million, which were partially offset by an increase in client deposits of $47.1 million, an increase in accounts payable of $5.6 million, and a decrease in accounts receivable of $1.1 million.
Net cash used in investing activities
Comparison of the Year Ended December 31, 2025and December 31, 2024
Investing activities consist primarily of capital expenditures related to investments in Showrooms, information technology and systems infrastructure, as well as supply chain investments.
For 2025, net cash used in investing activities was $77.8 million primarily due to investments in Showrooms, strategic investments in our supply chain, and information technology and systems infrastructure.
For 2024, net cash used in investing activities was $99.5 million primarily due to investments in Showrooms, strategic investments in our supply chain,and information technology and systems infrastructure.
Capital Expenditures
Historically, we have invested significant capital expenditures in opening new Showrooms. These capital expenditures have increased in the past and may continue to increase in future periods as we open additional Showrooms. Our capital expenditures include expenditures related to investing activities and outflows of capital related to construction activities to design and build leasehold improvement assets. Certain lease arrangements require the landlord to fund a portion of the construction related costs through tenant improvement allowance payments directly to us. New Showrooms may require different levels of company-funded capital investment in the future.
Historical capital expenditures are summarized as follows (in thousands):
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Year Ended
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December 31,
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2025
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2024
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| Net cash used in investing activities | $ | 77,816 | $ | 99,534 | |||||||
| Less: Landlord contributions | 20,922 | 33,587 | |||||||||
| Total capital expenditures, net of landlord contributions | $ | 56,894 | $ | 65,947 | |||||||
Total capital expenditures, net of landlord contributions decreased by $9.1 million in 2025 compared to 2024.
We anticipate our total capital expenditures, net of landlord contributions to be approximately $70.0 million to $90.0 million in fiscal year 2026, primarily related to new Showrooms and information technology and systems infrastructure.
Net cash used in financing activities
Comparison of the Year Ended December 31, 2025 and December 31, 2024
For 2025, net cash used in financing activities was $3.5 million, primarily due to the repurchase of shares for payment of withholding taxes for equity based compensation.
For 2024, net cash used in financing activities was $73.0 million, primarily due tothe payment of the special cash dividend on our Class A and Class B common stock.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which requires that certain estimates and assumptions be made that affect the amounts reported in our consolidated financial statements and related notes. We evaluate our accounting policies, estimates, and judgments on an on-going basis. We base our estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions and such differences could be material to the consolidated financial statements. Information on all of our significant accounting policies can be found in Note 2 - Basis of Presentation and Summary of Significant Accounting Policies in our consolidated financial statements.
Accounting policies and estimates are considered critical when they require management to make subjective and complex judgments, estimates and assumptions about matters that have a material impact on the presentation of the Company's consolidated financial statements and accompanying notes. The following critical accounting policy reflects the significant estimates and/or judgments used in the preparation of our consolidated financial statements.
Long Lived Assets
The Company evaluates long-lived assets, such as property, furniture and equipment and lease right-of-use assets, or asset groups for impairment whenever events or change in circumstances indicate that the carrying amount of those assets may not be recoverable. Circumstances that may indicate impairment include changes in the assets or asset groups expected use, physical condition, market price, cash flow generation, significant adverse legal events, and any asset or asset group specific events. When such events or circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected undiscounted future cash flows resulting from the use of the asset. If the sum of the estimated undiscounted future cash flows over the remaining life of the asset are less than the carrying value, the Company will recognize an impairment charge equal to the difference between the carrying value and the fair value, usually determined by the estimated discounted future cash flows associated with the asset.
Recent Accounting Pronouncements
See Note 2 - Basis of Presentation and Summary of Significant Accounting Policiesto our consolidated financial statements regarding the impact or potential impact of recent accounting pronouncements.
Arhaus Inc. published this content on February 26, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on February 26, 2026 at 11:12 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]