ARHS Q2 Deep Dive: Execution and Product Expansion Drive Outperformance Amid Volatile Environment

Luxury furniture retailer Arhaus (NASDAQ:ARHS) announced better-than-expected revenue in Q2 CY2025, with sales up 15.7% year on year to $358.4 million. Guidance for next quarter’s revenue was better than expected at $335 million at the midpoint, 0.9% above analysts’ estimates. Its non-GAAP profit of $0.25 per share was 67.1% above analysts’ consensus estimates.

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StockStory’s Take

Arhaus delivered a notable second quarter, with market reaction reflecting the company’s strong operational execution amid ongoing macroeconomic uncertainty. Management attributed the outperformance to the efficient in-sourcing of the Dallas Distribution Center, which enabled the company to fulfill high first-quarter demand more quickly. CEO John Reed credited this operational shift for helping drive comparable growth and highlighted the resilience of Arhaus’ high-end clientele as a key factor supporting record quarterly net revenue. Reed noted, “Our results this quarter are a testament to the strength of our brand, the loyalty of our clients, and above all, the incredible commitment of our teams.”

Looking forward, Arhaus’ guidance is shaped by continued investments in product innovation, showroom expansion, and strategic infrastructure improvements. Management believes that near-term demand trends will remain volatile due to external factors like tariffs and macroeconomic headwinds, but remains optimistic about the company’s ability to navigate these challenges. CFO Michael Lee emphasized that ongoing technology upgrades and sourcing strategies are expected to support margin stability and scalable growth, stating, “We are focused on executing strategic projects that will position Arhaus for continued profitable growth even in a dynamic environment.”

Key Insights from Management’s Remarks

Management attributed the quarter’s results to operational improvements in distribution, the early launch of new product lines, and evolving client preferences. Product expansion and omnichannel engagement drove increased order values and traffic.

• Distribution center transition: The successful in-sourcing of the Dallas Distribution Center allowed Arhaus to efficiently convert a large backlog of first-quarter orders into delivered revenue, highlighting increased operational agility and improving customer service.
• Product innovation and assortment: The launch of the Bath Collection marks a significant category expansion, with management describing it as one of the most comprehensive product extensions in company history. CEO John Reed compared its potential impact to the company’s outdoor business growth over the past five years.
• Showroom relocation and upgrades: Arhaus completed three showroom projects in the quarter, including relocations to higher-traffic retail destinations. These moves are part of a disciplined approach to footprint expansion, supporting proximity to affluent clients and enhancing the in-store experience.
• Omnichannel and designer engagement: The company’s “Buy More Save More” program and interior designer partnerships continued to drive higher average order values, with clients increasingly furnishing entire rooms or homes. Orders above $5,000 and $10,000 grew, reflecting the value of integrated showroom and online experiences.
• Margin improvement drivers: Product margin gains were supported by quiet price adjustments, improved sourcing cost concessions, and lower transportation costs due to higher volumes. Management highlighted proactive planning around tariffs and diversification of sourcing to maintain cost discipline.

Drivers of Future Performance

Arhaus expects near-term volatility in demand but is focused on product launches, showroom growth, and technology investments to support its long-term growth and margin outlook.

• Product launches and category expansion: Management anticipates the new Bath Collection and an expanded fall product assortment will attract high-value clients seeking whole-home solutions, driving both traffic and larger order sizes into the back half of the year.
• Showroom and infrastructure investments: Continued disciplined showroom openings, relocations, and technology upgrades—including a new enterprise resource planning (ERP) system—are expected to enhance operational efficiency, support scalability, and provide leverage as the company targets expansion to 165 showrooms and 50 design studios over time.
• External risks and margin headwinds: The company is closely monitoring tariffs and macroeconomic fluctuations, with $12 million in incremental tariff costs anticipated for the year. Management believes its diversified sourcing and proactive cost management can offset some of these pressures, but acknowledges ongoing uncertainty and choppiness in month-to-month demand.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) the sales impact and customer adoption of the new Bath Collection, (2) the effectiveness of showroom relocations and new openings in driving high-value customer engagement, and (3) the rollout and integration of technology upgrades such as the new ERP system. Progress on margin management amid tariff headwinds and sustained omnichannel growth will also be key signposts for Arhaus’ strategy execution.

Arhaus currently trades at $11.16, up from $9.88 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free).

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