Arhaus Inc.
08/07/2025 | Press release | Distributed by Public on 08/07/2025 04:41
Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q for the six andthree months ended June 30, 2025 ("Form 10-Q") and our Annual Report on Form 10-K for the year ended December 31, 2024. This Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or are proven incorrect, could cause our business and results of operations to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements can generally be identified by the use of forward-looking terminology, including, but not limited to, "may," "could," "seek," "guidance," "predict," "potential," "likely," "believe," "will," "expect," "anticipate," "estimate," "plan," "intend," "forecast," or variations of these terms and similar expressions, or the negative of these terms or similar expressions. Past performance is not a guarantee of future results or returns and no representation or warranty is made regarding future performance. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond our control that could cause our actual results, performance or achievements to be materially different from the expected results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the following:
•Our ability to manage and maintain the growth rate of our business;
•Our ability to obtain quality merchandise in sufficient quantities;
•Disruption in our receiving and distribution system, including delays in the integration of our distribution centers and the possibility that we may not realize the anticipated benefits of multiple distribution centers;
•Effects of new or proposed tariffs and changes to international trade policies and agreements;
•The possibility of cyberattacks and our ability to maintain adequate cybersecurity systems and procedures;
•Loss, corruption and misappropriation of data and information relating to clients and employees;
•Changes in and compliance with applicable data privacy rules and regulations;
•Risks as a result of constraints in our supply chain or disruptions due to geopolitical events such as acts of war and/or terrorism or other hostilities;
•A failure of our vendors to meet our quality standards;
•Declines in general economic conditions that affect consumer confidence and consumer spending that could adversely affect our revenue;
•Our ability to anticipate changes in consumer preferences;
•Risks related to maintaining and increasing Showroom traffic and sales;
•Our ability to compete in our market;
•Our ability to adequately protect our intellectual property;
•Compliance with applicable governmental regulations;
•Effectively managing our eCommerce sales channel and digital marketing efforts;
•Our reliance on third-party transportation carriers and risks associated with freight and transportation costs; and
•Compliance with SEC rules and regulations as a public reporting company.
The risks, uncertainties and assumptions referred to above that could cause our results to differ materially from the results expressed or implied by such forward-looking statements include, but are not limited to, those discussed under Item 1A. Risk Factors, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2024, as well as those included under Item 1A. Risk Factors in our quarterly report on Form 10-Q for the quarter ended March 31, 2025. All forward-looking statements included in this document are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements. These statements are based on information available to us as of the date of this Form 10-Q. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The following discussion contains references to the six andthree months ended June 30, 2025 and June 30, 2024, which represents the condensed consolidated financial results of Arhaus, Inc. and subsidiaries for the six andthree months ended June 30, 2025 and June 30, 2024, respectively.
Overview
Arhaus is a growing lifestyle brand and premium retailer in the U.S. home furnishings market, specializing in livable luxury supported by globally-sourced, heirloom-quality merchandise. We offer a differentiated direct-to-consumer
approach to furniture and décor. Our curated assortments are presented across our sales channels in sophisticated, family friendly and unique lifestyle settings. We offer merchandise assortments across a number of categories, including furniture, outdoor, lighting, textiles and décor. Our products, designed to be used and enjoyed throughout the home, are sourced directly from factories and vendors with no wholesale or dealer markup, allowing us to offer an exclusive assortment at an attractive value. Our product development teams work alongside our direct sourcing partners to bring to market proprietary merchandise that is a great value to clients, while delivering attractive margins.
We believe in providing a dynamic and welcoming experience in our Showrooms and online with the conviction that retail is theater. Our national omni-channel business positions our retail locations as Showrooms for our brand, while our website acts as a virtual extension of our Showrooms. Our theater-like Showrooms are highly inspirational and function as an invaluable brand awareness vehicle. Our seasoned sales associates and in-home designers provide expert advice and assistance to our client base that drives significant client engagement. Our omni-channel model allows clients to begin or end their shopping journey online, while also experiencing our theater-like Showrooms throughout the shopping journey.
As of June 30, 2025, we operated 103Showrooms, 93with in-home interior designers. At December 31, 2024, we operated 103 Showrooms, 89 with in-home interior designers.
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June 30, 2025 |
December 31, 2024 |
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| Traditional Showrooms | 87 | 85 | |||||||||
| Design Studios | 9 | 11 | |||||||||
| Outlets | 7 | 7 | |||||||||
| Total Showroom locations | 103 | 103 | |||||||||
| Total square footage (in thousands) | 1,718 | 1,676 | |||||||||
For the six months ended June 30, 2025, we generated $669.8 million of net revenue, $263.8 million of gross margin and $39.9 million of net and comprehensive income. For the three months ended June 30, 2025, we generated $358.4 million of net revenue, $148.2 million of gross margin and $35.1 million of net and comprehensive income.
How We Assess the Performance of Our Business
In addition to U.S. GAAP results, this Form 10-Q 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 Demand. Net revenue is recognized when a client obtains control of the merchandise. We also track demand in our business which is a key performance indicator linked to the level of client orders placed. Demand 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 demand is measured net of cancellations, all demand will eventually become net revenue, with appropriate reserves, when delivered to the client.
Comparable Growth. Comparable growth 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 demand immediately upon opening, while orders delivered take additional time because product must be delivered to the client. The dollar value of orders delivered for Outlet comparable locations is included.
Demand Comparable Growth. Demand comparable growth is the year-over-year percentage change of demand 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 demand 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 demand included. For demand purposes, comparable Showrooms are defined as permanent Showrooms open for at least 13 consecutive months, including relocations in the same market. Outlet comparable location demand is included.
Demand comparable growth provides insight into business levels 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.
Comparable growth is an additional measure that management utilizes to compare 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 growth trends will more closely track trends in reported net revenue than demand comparable growth trends. While increases or decreases in demand comparable growth will translate into increases or decreases in comparable growth over time, the trends do not necessarily correlate in any particular period. This is partially due to the general lag in time between when an order is placed and when an order is delivered. When the time gap from order to delivery increases, due to supply chain challenges for example, it may take longer for comparable growth to reflect demand comparable growth. Notwithstanding these limitations, management considers it useful to assess both measures together to get a more complete picture of overall performance trends, and believes these measures can be useful to investors for the same purpose, when viewed together with our reported results and other 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 condensed 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 demand, 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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| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| Net and comprehensive income | $ | 39,948 | $ | 37,333 | $ | 35,066 | $ | 22,234 | ||||||||||||||||||
| Interest income, net | (1,317) | (2,038) | (744) | (606) | ||||||||||||||||||||||
| Income tax expense | 13,791 | 12,644 | 12,593 | 7,828 | ||||||||||||||||||||||
| Depreciation and amortization | 22,959 | 17,709 | 11,597 | 9,106 | ||||||||||||||||||||||
| EBITDA | 75,381 | 65,648 | 58,512 | 38,562 | ||||||||||||||||||||||
| Equity based compensation | 3,390 | 3,351 | 1,795 | 1,327 | ||||||||||||||||||||||
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Other expenses(1)
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108 | - | - | - | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 78,879 | $ | 68,999 | $ | 60,307 | $ | 39,889 | ||||||||||||||||||
(1)Other expenses represent costs and investments not indicative of ongoing business performance, such as loss on disposal of assets.
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 June 30, 2025 is summarized in the following table:
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June 30, 2025 |
December 31, 2024 |
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| Showrooms open at beginning of period | 103 | 92 | ||||||||||||
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Showrooms opened (1)
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7 | 16 | ||||||||||||
| Showrooms closed for relocations | (6) | (5) | ||||||||||||
| Showrooms closed permanently | (1) | - | ||||||||||||
| Showrooms open at end of period | 103 | 103 | ||||||||||||
Results of Operations
The following tables summarize key components of our results of operations for the periods indicated. The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes.
Condensed Consolidated Statements of Comprehensive Income Data (in thousands):
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| June 30, | June 30, | |||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| Net revenue | $ | 669,807 | $ | 604,963 | $ | 358,435 | $ | 309,801 | ||||||||||||||||||
| Cost of goods sold | 405,993 | 365,537 | 210,208 | 185,429 | ||||||||||||||||||||||
| Gross margin | 263,814 | 239,426 | 148,227 | 124,372 | ||||||||||||||||||||||
| Selling, general and administrative expenses | 211,520 | 191,684 | 101,462 | 94,991 | ||||||||||||||||||||||
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Loss on disposal of assets
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108 | - | - | - | ||||||||||||||||||||||
| Income from operations | $ | 52,186 | $ | 47,742 | $ | 46,765 | $ | 29,381 | ||||||||||||||||||
| Interest income, net | (1,317) | (2,038) | (744) | (606) | ||||||||||||||||||||||
| Other income | (236) | (197) | (150) | (75) | ||||||||||||||||||||||
| Income before taxes | 53,739 | 49,977 | 47,659 | 30,062 | ||||||||||||||||||||||
| Income tax expense | 13,791 | 12,644 | 12,593 | 7,828 | ||||||||||||||||||||||
| Net and comprehensive income | $ | 39,948 | $ | 37,333 | $ | 35,066 | $ | 22,234 | ||||||||||||||||||
Other Operational Data (dollars in thousands):
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| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| Net revenue | $ | 669,807 | $ | 604,963 | $ | 358,435 | $ | 309,801 | ||||||||||||||||||
| Comparable growth | 4.7 | % | (8.3) | % | 10.5 | % | (7.1) | % | ||||||||||||||||||
| Demand comparable growth | 0.4 | % | (0.8) | % | (3.6) | % | (3.0) | % | ||||||||||||||||||
| Gross margin as a % of net revenue | 39.4 | % | 39.6 | % | 41.4 | % | 40.1 | % | ||||||||||||||||||
| Selling, general and administrative expenses as a % of net revenue | 31.6 | % | 31.7 | % | 28.3 | % | 30.7 | % | ||||||||||||||||||
| Income from operations as a % of net revenue | 7.8 | % | 7.9 | % | 13.0 | % | 9.5 | % | ||||||||||||||||||
| Net and comprehensive income | $ | 39,948 | $ | 37,333 | $ | 35,066 | $ | 22,234 | ||||||||||||||||||
| Net and comprehensive income as a % of net revenue | 6.0 | % | 6.2 | % | 9.8 | % | 7.2 | % | ||||||||||||||||||
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Adjusted EBITDA(1)
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$ | 78,879 | $ | 68,999 | $ | 60,307 | $ | 39,889 | ||||||||||||||||||
| Adjusted EBITDA as a % of net revenue | 11.8 | % | 11.4 | % | 16.8 | % | 12.9 | % | ||||||||||||||||||
| Total Showrooms at end of period | 103 | 97 | 103 | 97 | ||||||||||||||||||||||
Comparison of the six months ended June 30, 2025 and June 30, 2024
Net Revenue
Net revenue increased $64.8 million, or 10.7%, to $669.8 million in the six months ended June 30, 2025 compared to $605.0 millionin the six months ended June 30, 2024. The increase was driven primarily by $36.9 million of revenue growth related to new Showrooms opened in 2024 and 2025, with the remainder due to the increased demand for our products.
Gross Margin
Gross margin increased $24.4 million, or 10.2%, to $263.8 million in the six months ended June 30, 2025 compared to $239.4 millionin the six months ended June 30, 2024. The increase was primarily driven by higher net revenue, partially
offset by increased product costs of $23.1 million, increased Showroom occupancy costs of $8.1 million and higher delivery and transportation costs of $5.8 million.
As a percentage of net revenue, gross margin decreased 20basis points to 39.4%of net revenue in the six months ended June 30, 2025 compared to 39.6% of net revenue in the six months ended June 30, 2024. The gross margin decrease as a percentage of net revenue was primarily the result of Showroom occupancy costs, which increased 30 basis points.
Selling, General and Administrative Expenses
SG&A expenses increased $19.8 million, or 10.3%, to $211.5 million in the six months ended June 30, 2025 compared to $191.7 million in the six months ended June 30, 2024. The increase was due to a $12.7 million increase in general and administrative costs primarily related to corporate expenses, warehouse expenses and strategic investments to support and drive the growth of the business and a $7.1 million increase in selling expenses primarily related to new Showrooms.
As a percentage of net revenue, SG&A expensesdecreased 10 basis points to 31.6% of net revenue in the six months ended June 30, 2025 compared to 31.7% of net revenue in the six months ended June 30, 2024.
Interest Income, net
Interest income, net decreased to $1.3 million in the six months ended June 30, 2025 compared to $2.0 million in the six months ended June 30, 2024.
Income Taxes
Income tax expense was $13.8 million in the six months ended June 30, 2025 compared to $12.6 million in the six months ended June 30, 2024. Our effective tax rate was 25.7% and 25.3% for the six months ended June 30, 2025 and June 30, 2024, respectively.
Net and Comprehensive Income
Net and comprehensive income increased $2.6 million to $39.9 million in the six months ended June 30, 2025 compared to $37.3 million in the six months ended June 30, 2024. The increase was driven by the factors described above.
Comparison of the three months ended June 30, 2025 and June 30, 2024
Net Revenue
Net revenue increased $48.6 million, or 15.7%, to $358.4 million in the three months ended June 30, 2025 compared to $309.8 million in the three months ended June 30, 2024. The increase was driven primarily by increased demand for our products and $19.8 million of revenue growth related to new Showrooms opened in 2024 and 2025.
Gross Margin
Gross margin increased $23.8 million, or 19.1%, to $148.2 million in the three months ended June 30, 2025 compared to $124.4 million in the three months ended June 30, 2024. The increase was primarily due to higher net revenue, partially offset by increased product costs of $16.0 million, higher delivery and transportation costs of $4.1 million and higher Showroom occupancy costs of $2.9 million.
As a percentage of net revenue, gross margin increased 130 basis points to 41.4% of net revenue in the three months ended June 30, 2025 compared to 40.1% of net revenue in the three months ended June 30, 2024. The gross margin increase as a percentage of net revenue was primarily driven by Showroom occupancy costs, which decreased 50 basis points, a product margin increase of 30 basis points and delivery and transportation costs, which decreased 30 basis points.
Selling, General and Administrative Expenses
SG&A expenses increased $6.5 million, or 6.8%, to $101.5 million in the three months ended June 30, 2025 compared to $95.0 million in the three months ended June 30, 2024. The increase was primarily due to a $5.5 million increase in general and administrative costs primarily related to corporate expenses, warehouse expenses and strategic investments to support and drive the growth of the business.
As a percentage of net revenue, SG&A expenses decreased 240 basis points to 28.3% of net revenue in the three months ended June 30, 2025 compared to 30.7% of net revenue in the three months ended June 30, 2024.
Interest Income, net
Interest income, net increased to $0.7 million in the three months ended June 30, 2025 compared to $0.6 million in the three months ended June 30, 2024.
Income Taxes
Income taxes were $12.6 million in the three months ended June 30, 2025 compared to $7.8 million in the three months ended June 30, 2024. Our effective tax rate was 26.4% and 26.0% for the three months ended June 30, 2025 and June 30, 2024, respectively.
Net and Comprehensive Income
Net and comprehensive income increased $12.9 million to $35.1 million in the three months ended June 30, 2025 compared to $22.2 million in the three months ended June 30, 2024. The increase was driven by the factors described above.
Liquidity and Capital Resources
Liquidity Outlook
Our primary cash needs have historically been for merchandise inventories, payroll, Showroom rent, marketing catalogs and 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 June 30, 2025, we had cash and cash equivalents of $234.8 million.
For the six months ended June 30, 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 such as 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 June 30, 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 out $0.3 million of the aforementioned special cash dividend on its Class A common stock related to equity awards that vested during the six months ended June 30, 2025 and $70.1 million on its Class A and Class B common stock to shareholders as of the Record Date during the six months ended June 30, 2024.
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 June 30, 2024), 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 was $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 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 June 30, 2025). The 2021 Credit Facility expires on November 8, 2026. 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 June 30, 2025. At June 30, 2025, we had no borrowings on the 2021 Credit Facility and the available borrowing capacity was $69.9 million. Refer to Note 4 - Debtto our condensed consolidated financial statements for further information on our 2021 Credit Facility.
Cash Flow Analysis
The following table provides a summary of our cash provided by operating, investing and financing activities (amounts in thousands):
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2025
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2024
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Net cash provided by operating activities
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$ | 81,428 | $ | 84,304 | ||||||||||
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Net cash used in investing activities
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(41,622) | (62,158) | ||||||||||||
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Net cash used in financing activities
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(2,316) | (71,052) | ||||||||||||
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Net increase (decrease) in cash, cash equivalents and restricted cash
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$ | 37,490 | $ | (48,906) | ||||||||||
Net cash provided by operating activities
Comparison of the six months ended June 30, 2025 and June 30, 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 the six months ended June 30, 2025, net cash provided by operating activities was $81.4 million and consisted of net income of $39.9 million adjusted for non-cash items of $60.3 million, which were partially offset by a change in working capital and other activities of $18.8 million. The use of cash from working capital was primarily driven by a decrease in operating lease liabilities of $28.0 million primarily due to payments made under the related lease agreements and an increase in merchandise inventory of $14.1 million, which was partially offset by an increase in client deposits of $12.2 million, an increase in accrued expenses of $4.7 million, a decrease in prepaid and other assets of $4.4 million and an increase in accounts payable of $1.8 million in the six months ended June 30, 2025.
For the six months ended June 30, 2024, net cash provided by operating activities was $84.3 million and consisted of net income of $37.3 million adjusted for non-cash items of $57.6 million, which were partially offset by a change in working capital and other activities of $10.6 million. The use of cash from working capital was primarily driven by an increase in merchandise inventory of $19.3 million, an increase in prepaid and other assets of $11.5 million, a decrease in accrued expenses of $11.3 million, a decrease in operating lease liabilities of $10.7 million primarily due to payments made under the related lease agreements, which was partially offset by an increase in client deposits of $36.5 million and an increase in accounts payable of $4.6 million in the six months ended June 30, 2024.
Net cash used in investing activities
Investing activities consist primarily of capital expenditures related to investments in retail Showrooms, vehicles, information technology and systems infrastructure, as well as supply chain investments.
Comparison of the six months ended June 30, 2025 and June 30, 2024
For the six months ended June 30, 2025, net cash used in investing activities was $41.6 million primarily due to investments in Showrooms, vehicles, investments in our supply chain, and information technology and systems infrastructure.
For the six months ended June 30, 2024, net cash used in investing activities was $62.2 million primarily due to investments in Showrooms, strategic investments in our supply chain, and information technology and systems infrastructure.
Capital Expenditures
Historically, we have invested significant capital expenditures in opening new Showrooms. These capital expenditures have increased in the past and may continue to increase in future periods as we open additional Showrooms. Our capital expenditures include expenditures related to investing activities and outflows of capital related to construction activities to design and build leasehold improvement assets. Certain lease arrangements require the landlord to fund a portion of the construction related costs through tenant improvement allowance payments directly to us. New Showrooms may require different levels of company-funded capital investment in the future.
Historical capital expenditures are summarized as follows (amounts in thousands):
| Six months ended | ||||||||||||||
| June 30, | ||||||||||||||
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2025
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2024
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Net cash used in investing activities
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$ | 41,622 | $ | 62,158 | ||||||||||
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Less: Landlord contributions
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11,149 | 21,936 | ||||||||||||
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Total capital expenditures, net of landlord contributions
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$ | 30,473 | $ | 40,222 | ||||||||||
Total capital expenditures, net of landlord contributionsdecreased by $9.7 million in the six months ended June 30, 2025 compared to the six months ended June 30, 2024.
We anticipate our total capital expenditures, net of landlord contributions to be between $80 million and $100 million in fiscal year 2025, primarily related to the opening of new Showrooms.
Net cash used in financing activities
Comparison of the six months ended June 30, 2025 and June 30, 2024
For the six months ended June 30, 2025, net cash used in financing activities was $2.3 million primarily due to the repurchase of shares for payment of withholding taxes for equity based compensation.
For the six months ended June 30, 2024, net cash used in financing activities was $71.1 million primarily due to the payment of the special dividend on our Class A and Class B common stock.
Critical Accounting Policies and Estimates
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 our financial statements and accompanying notes. For a description of our critical accounting policies and estimates, see Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2024.
Recent Accounting Pronouncements
See Note 2-Recently Issued Accounting Standards to our condensed consolidated financial statements.
Arhaus Inc. published this content on August 07, 2025, and is solely responsible for the information contained herein. Distributed via SEC EDGAR on August 07, 2025 at 10:41 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]