ARHS — Q2 2026 Financial Report Analysis

Overview

Arhaus, the premium furniture retailer with 109 showrooms in 31 states, grew second-quarter 2026 net revenue 7.4% to $384.9 million and lifted net income 13.1% to $39.6 million, or $0.28 per diluted share against $0.25 a year earlier. Two things sit behind those numbers, and they point in different directions. Orders came back hard: after falling 5.7% in the first quarter, Comparable Written Sales rose 12.5%. The profit line, though, was carried by a one-off. Arhaus booked a $23.8 million refund of tariffs it had paid under the International Emergency Economic Powers Act (IEEPA), which the U.S. Supreme Court struck down in February 2026. Without that refund, operating profit would have fallen sharply from a year ago.

At a glance

• Comparable Written Sales +12.5%: orders placed at established showrooms and online rose by double digits, up from a 5.7% drop in Q1, so the order book refilled during the quarter.
• Gross margin 44.7% (vs 41.4%): the tariff refund accounts for 620 basis points of this. Excluding it, gross margin was about 38.5%, roughly 290 basis points lower than a year ago.
• Net income $39.6M (+13.1%): by our estimate, removing the tariff refund and the related interest leaves roughly $22 million, about 38% below last year's $35.1 million.

Two kinds of "comparable sales"

Arhaus sells mostly made-to-order furniture, so weeks or months can pass between a customer placing an order and Arhaus recording the sale as revenue on delivery. The company therefore reports two same-store measures. Both look only at established locations (showrooms open long enough to compare fairly with last year), plus eCommerce:

• Comparable Written Sales (formerly "demand comparable growth"): the change in the value of orders placed. It is the early signal.
• Comparable Delivered Sales (formerly "comparable growth"): the change in the value of orders delivered. It tracks reported revenue more closely.

The 12.5% written figure is up against an easy comparison: in Q2 2025, written comps fell 3.6%. Across the two years combined, orders are up about 8.5%. That is solid, but well below what 12.5% suggests on its own. The supporting evidence is on the balance sheet. Client deposits, the money customers pay upfront for orders not yet delivered, rose 11.8% in six months to $263.8 million. That is the backlog that should turn into revenue in the second half.

Key metrics

Operating margin is the share of revenue left after running the business, before interest and tax. Adjusted EBITDA is the company's non-GAAP profit measure, which adds back depreciation, interest, tax and stock-based pay. It does not exclude the tariff refund.

What drove the quarter

Revenue. In the 10-Q's words, the $26.5 million increase was "driven primarily by increased demand for our products and $10.7 million of revenue growth related to new Showrooms opened in 2026 and 2025." Both channels grew at the same pace. Showroom (retail) revenue rose 7.4% to $320.2 million and eCommerce rose 7.4% to $64.7 million. In Q2 the company opened a roughly 20,000 sq ft showroom in Ashburn, Virginia, and a smaller "Loft" in Ontario, California, relocated its Crocker Park store in Westlake, Ohio, and expanded Lone Tree, Colorado.

Gross margin. The 10-Q breaks down the 330-basis-point rise (one basis point is 0.01 percentage point). The tariff recovery added 620 bp. Partly offsetting it, "higher product costs, which increased 190 basis points, higher fuel costs, which increased by 70 basis points, and Showroom occupancy costs, which increased 40 basis points." In dollars, product costs rose $16.4 million, occupancy $3.8 million and fuel $2.8 million.

Operating costs. Selling, general and administrative expenses (SG&A, all costs outside the cost of the goods themselves) rose 16.1% to $117.8 million. That is more than double the revenue growth rate, so SG&A climbed from 28.3% to 30.6% of revenue. The 10-Q attributes $8.4 million to "strategic investments to support and drive the growth of the business, including technology improvements," and $7.9 million to selling costs for new showrooms and higher order volume. In the segment note, selling expenses rose 20.8% to $45.9 million, and stock-based compensation nearly doubled to $3.4 million from $1.8 million. Arhaus is partway through a multi-year systems replacement (new ERP, order management, transportation and point-of-sale software) budgeted at about $50 million in total, with about $20 million of cash outflow expected in 2026.

What the headline numbers hide

The tariff refund is the profit story. Of the $23.8 million credited to cost of goods sold, the filing says $15.5 million related to inventory sold before April 2026. In other words, it reverses costs already charged in earlier quarters. Another $1.0 million of interest income came from the refunds. Our estimates, pre-tax unless stated:

The middle column is the fairest "underlying" view. The $8.3 million tied to goods sold in Q2 reflects the fact that these tariffs no longer apply, so some of that benefit should carry forward. Even on that basis, operating margin fell from 13.0% to roughly 10%, because product, freight and showroom costs rose faster than prices and SG&A outgrew revenue.

Cash conversion was weaker than profit, for a reason that has since reversed. Six-month operating cash flow was $59.8 million, down from $81.4 million, even though net income rose. Most of the gap is the tariff refund booked as a receivable rather than received as cash: prepaid and other current assets rose $38.2 million, including a $32.7 million IEEPA receivable. The company says that by August 6 it had received the full $37.8 million requested, plus $1.3 million of interest, so this should reverse in Q3. Free cash flow on the company's definition (operating cash flow minus investing cash flow) was $22.9 million, against $39.8 million a year ago.

Inventory looks fine relative to orders. Net inventory rose 4.3% since December to $353.5 million. That figure is after a $14.0 million reduction in inventory cost from the tariff recovery, so before that adjustment the growth was nearer 8.5%. With client deposits up 11.8% and written comps accelerating, the inventory build is consistent with the order backlog, not a sign of stock piling up unsold.

Tax and share count worked against EPS. The effective tax rate rose to 28.4% from 26.4%. For the half-year, the filing attributes the higher rate mainly to the Section 162(m) cap on deductible executive pay. Diluted shares edged up to 141.8 million from 141.2 million, and there were no buybacks. All of the EPS growth came from pre-tax profit, which in turn came from the tariff refund.

Cash went to a special dividend. Cash fell to $226.4 million from $253.4 million at year-end, mainly because of the $49.5 million ($0.35/share) special dividend paid in March. Arhaus has no long-term debt and nothing drawn on its $75 million revolving credit line.

Takeaway: The 12.5% jump in orders is the real news, and the 11.8% rise in customer deposits backs it up. The 13% net-income gain is not: without the tariff refund, mostly a reversal of costs from earlier quarters, operating margin fell from 13.0% to roughly 8–10% as product costs, freight and SG&A all grew faster than sales.

Outlook

Management kept its full-year revenue and comparable-delivered-sales outlook and raised net income and adjusted EBITDA for the tariff refund. It said it will put part of the refund toward "strategic growth initiatives while also offsetting elevated operating costs," so not all of the $23.8 million reaches the bottom line.

Our read. First-half net income was $41.9 million, so the full-year range implies $29–38 million for the second half, with Q3 guided to just $8–13 million. That is a steep drop from Q2's $39.6 million, and it shows how much of Q2's profit came from the refund rather than from the business. The full-year delivered-comp range of 0–3% looks cautious next to a 12.5% written comp. If Q2's orders convert on schedule, Q4 deliveries are where the upside would show. The risk runs the other way on margins: product cost (+190 bp) and fuel (+70 bp) pressure doesn't depend on the refund and will remain once it is gone. For Q3, watch whether written comps stay positive against a tougher comparison, whether gross margin excluding the refund stops falling, and whether operating cash flow recovers as the $32.7 million receivable turns into cash.

This is our first published analysis of Arhaus, so there is no prior outlook to check against. Source: Arhaus Form 10-Q for the quarter ended June 30, 2026 (filed August 6, 2026); guidance and quarterly comp figures from the Q2 2026 earnings release (Exhibit 99.1 to the August 6, 2026 Form 8-K).