ARHS Q1 Earnings Call: Tariffs, Showroom Growth, and Guidance Above Expectations for Q2

Luxury furniture retailer Arhaus (NASDAQ:ARHS) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 5.5% year on year to $311.4 million. Its non-GAAP EPS of $0.03 per share was 51% below analysts’ consensus estimates.

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StockStory’s Take

Arhaus’s first quarter results were shaped by continued expansion of its showroom footprint and a resilient affluent customer base, despite volatility in consumer demand. Management pointed to strong engagement in both retail and e-commerce channels, with designer-led services driving higher average order values. CEO John Reed attributed the quarter’s performance to the company’s diversified supply chain, noting that over 70% of upholstery products were sourced and manufactured in the United States, minimizing exposure to shifting tariffs. Reed also emphasized the importance of long-standing vendor partnerships, which have allowed Arhaus to adapt sourcing strategies quickly in response to global trade developments. The company remained disciplined in its promotional and pricing approach, focusing on product quality and customer experience rather than broad-based discounts.

Looking ahead, management expects near-term volatility due to evolving tariff policies and shifts in consumer sentiment, but remains focused on strategic investments and showroom growth to drive long-term performance. CEO John Reed stated that Arhaus will continue to prioritize expanding its physical footprint, with 12 to 15 showroom projects planned for the year and additional relocations to enhance brand visibility. CFO Ryan Brody outlined plans to mitigate the estimated $10 million impact from new tariffs through further sourcing diversification and vendor concessions, rather than broad price increases. Management highlighted ongoing investments in technology and operational infrastructure, such as upgraded warehouse management and payment systems, to support scalability and enhance client experience. They believe these efforts, combined with a debt-free balance sheet, will position Arhaus to navigate uncertainty and capitalize on future demand.

Key Insights from Management’s Remarks

Management cited showroom expansion, supply chain agility, and a loyal client base as key factors supporting the quarter’s growth, while tariff-related cost pressures and consumer uncertainty weighed on margins.

• Showroom-driven demand growth: New and relocated showrooms generated meaningful client engagement, with management noting that approximately 90% of clients live within 50 miles of a location. These projects not only expanded market presence but also contributed to higher average order values, especially for transactions exceeding $5,000 and $10,000.
• Sourcing diversification strategy: The company’s supply chain is now spread across North America, Europe, and South Asia, reducing reliance on China. Management expects receipts from China to fall to about 1% by year-end, and highlighted investments in domestic manufacturing—particularly in upholstery—to control quality and costs.
• Tariff impact and mitigation: Leadership estimated a $10 million profit and loss impact from newly implemented tariffs but anticipates offsetting much of this through strategic sourcing shifts and vendor cost concessions. Management emphasized that the majority of Arhaus’s products are not affected by the highest tariffs due to the company’s existing U.S. production base.
• Omnichannel and e-commerce investments: The company continued to invest in technology for both online and showroom experiences, rolling out a new payment platform and enhancing its e-commerce site to drive engagement. Digital and content strategies, including catalog storytelling, remain central to Arhaus’s brand positioning.
• Steady client behavior: Despite macroeconomic headwinds and a choppy demand environment, Arhaus reported no significant change in cancellation rates or delivery delays. Clients remained responsive to both large and small purchases, and the company maintained a flexible promotional approach based on customer response to thresholds in its “buy more, save more” program.

Drivers of Future Performance

Arhaus’s outlook for the next quarter and the full year is shaped by tariff costs, continued showroom expansion, and operational investments to support growth and margin resilience.

• Tariff mitigation and sourcing shifts: The company anticipates ongoing cost pressure from global tariffs, particularly those affecting Chinese imports. However, management believes strategic sourcing adjustments and strong vendor relationships will help offset much of the anticipated $10 million impact, limiting the need for broad price increases.
• Showroom expansion as a growth driver: With 12 to 15 showroom projects planned for the year, including new openings and relocations, Arhaus expects these investments to enhance brand visibility, attract new clientele, and capture greater market share. Management underscored that new showrooms are evaluated for long-term returns and are not subject to short-term demand fluctuations.
• Operational investments and margin focus: Continued investment in technology—such as upgraded warehouse management systems and payment platforms—is expected to improve efficiency and scalability. Management also aims to keep gross margin roughly flat year-over-year by balancing fixed occupancy costs with product margin improvements, even as revenue growth remains volatile.

Catalysts in Upcoming Quarters

Going forward, the StockStory team will be monitoring (1) the impact of further tariff mitigation and sourcing diversification on margins; (2) execution and returns from new showroom openings and relocations; and (3) the effectiveness of operational investments in technology and supply chain infrastructure. Shifts in consumer sentiment and the company’s ability to sustain higher average order values will also be important signposts.

Arhaus currently trades at a forward P/E ratio of 17.7×. At this valuation, is it a buy or sell post earnings? See for yourself in our full research report (it’s free).

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