ARHS 10-K & 10-Q changes, risk factors and insider trading

•fluctuations in the growth rate of our business and our high rates of growth in terms of revenue, earnings and margins, which may not be sustained in future periods;

•our ability to purchase quality merchandise in sufficient quantities at competitive prices, including products that are produced by specialty and artisan vendors;

We may incur operating losses in the future. We expect our operating expenses to increase in the future as we continue to expand our operating and retail infrastructure, including adding new and updating existing Showrooms, increasing sales and marketing efforts, growing our eCommerce sales channel, enhancing our omni-channel capabilities,model, expanding into new geographies, developing new products, investing in new technology, and in connection with legal, accounting, and other expenses related to operating as a public company. These efforts and additional expenses may be costlier than we expect, and we cannot guarantee that we will be able to increase our net revenue to offset our operating expenses. Our net revenue growth may slow or our net revenue may decline for a number of reasons, including reduced demand for our products, increased competition, a decrease in the growth or reduction in size of our overall market, or if we cannot capitalize on growth opportunities. If our net revenue does not grow at a greater rate than our operating expenses, we will not be able to maintain profitability.

We have experienced fluctuations in the growth rate of our business and our high rates of growth in terms of revenue, earnings and margins may not be sustained in future time periods.

Some factors affecting our business, including macroeconomic conditions and policies and changes in legislation, are not within our control. In prior periods, our results of operations have been adversely affected by weakness in the overall economic environment such as the initial periods of significant economic uncertainty and reduced economic activity as a result of the COVID-19 pandemic as well as slowdowns in the housing market. In addition, our business depends on consumer demand for our products and, consequently, is sensitive to a number of factors that influence consumer spending, including, among other things, the general state of the economy, capital and credit markets, consumer confidence, general business conditions, the availability and cost of consumer credit, the level of consumer debt, interest rates, level of taxes affecting consumers, housing prices, new construction and other activity in the housing sector and 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, our business performance is linked to the overall strength of luxury consumer spending in markets in which we operate. Economic conditions affecting selected markets in which we operate are expected to have an impact on the strength of our business in those local markets, including with respect to volatility in consumer demand and sentiment. Our business trends are frequently correlated closely with conditions in financial markets including the stock market. The global economic environment isremains currentlysubject into auncertainty, periodincluding the effects of widespreadinflation, uncertaintyinterest asrate governmentschanges, and centralevolving banks continue to respond to supply chain issuesmacroeconomic and inflation on businesspolicy conditions. In the event that equity and credit markets experience volatility and disruption, consumer demand for our product and our results of operations may be adversely affected.

•the overall economic and general retail sales environment, including thechanges effects of uncertainty relating toin consumer discretionary spending, such as inflationconfidence, and increasedbroader interestmacroeconomic ratesconditions;

Disruption in our receiving and distribution system or increased costs as a result of the continued integration of our recently opened distribution and manufacturing centers could adversely affect our business.

All of our products imported into the United States are subject to import taxes or costs, including new or increased tariffs, or similar duties, some of which could be applied retroactively, and modification to or withdrawal from free trade agreements or trade relationships, could increase the cost of the products that we distribute. For example, the U.S. has recently signaledannounced its intention to change U.S. trade policy, including potentially renegotiating or terminating existing trade agreements and leveraging tariffs. InSince Februarythe beginning of 2025, the U.S. imposedhas additionalannounced several different measures regarding tariffs. As the implementation of tariffs is ongoing, more tariffs may be added in the future. As of the date of this Annual Report, discussions remain ongoing with respect to tariffs on imports from Chinavarious andcountries, announcedincluding and subsequently paused implementation of tariffs on imports fromChina, Canada and Mexico. The current tariff environment is dynamic and uncertain. These additional tariffs, as well as a government’s adoption of “buy national” policies or retaliation by another government against such tariffs or policies could introduce significant uncertainty into the market and may affect the prices of and supply of the products available to us. Tariffs also can impact our or our vendors’ ability to source product efficiently or create other supply chain disruptions. We may not be able to fully or substantially mitigate the impact of these or future tariffs, pass price increases on to our clients or secure adequate alternative sources of products, which would have a material adverse effect on our business, operating results and financial performance.

We rely upon, and have contracts with, third-party carriers to transport products from our vendors and to our distribution centers, third-party warehouseswarehouses, and Showrooms for delivery to our clients. As a result of our dependence on third-party providers, we are subject to risks, including labor disputes, union organizing activity, adverse weather, natural disasters, climate change, the closure of our carriers’ offices or a reduction in operational hours due to an economic slowdown or the inability to sufficiently ramp up operational hours during an economic recovery or upturn, availability of adequate trucking or railway providers, possible acts of terrorism, international conflicts, outbreaks of disease (such as the COVID-19 pandemic) or other factors affecting such carriers’ ability to provide delivery services and meet our shipping needs, disruptions or increased fuel costs and costs associated with any regulations to address climate change. For example, due to the outbreak of the COVID-19 pandemic, our third-party providers experienced transportation disruptions and restrictions, labor shortages, vessel schedule changes, congestion and delays at ports, and a shortage of shipping containers needed to ship our products, which adversely impacted our inventory levels and resulted in a high number of client backorders. Recently, we have also experienced delays related to disruptions in international shipping channels. Failure to deliver merchandise in a timely and effective manner could cause clients to cancel their orders and could damage our brand and reputation, which could have a material adverse effect on our business, financial condition, operating results and prospects. Our reputation for providing a high level of client service is dependent on such third-party transportation providers delivering our product shipments in a timely manner. Further, in the event of delays by a third-party carrier, we may have to transition to a different third-party carrier, and such transition can take months to effectuate. In addition, fuel costs have been volatile, and transportation companies continue to struggle to operate profitably, which could lead to increased fulfillment expenses. Any rise in fulfillment expenses could negatively affect our business and operating results.

If we are unable to effectively manage our inventory levels and the responsiveness of our supply chain, including predicting the appropriate levels and type of inventory to stock within our distribution centers, our business and operating results may be harmed. For example, in recent years we experienced elevated levels of demand for many of our products, and as a result, encountered delays in fulfilling this demand and replenishing to appropriate inventory levels. Furthermore, demand for our products is influenced by certain factors, like the popularity of certain Showroom aesthetics, cultural and demographic trends, marketing and advertising expenditures, and general economic conditions, all of which can change rapidly and result in a quick shift in consumer demand. As a result, consumer preferences cannot be predicted with certainty and may change between selling seasons. We must be able to stay current with preferences and trends in our brands and address the consumer tastes for each of our target consumer demographics. We may not always be able to respond quickly and effectively to changes in consumer taste and demand due to the amount of time and financial resources that may be required to bring new products to market or to constraints in our supply chain if our vendors do not have the capacity to handle elevated levels of demand for part or all of our orders or could experience delays in production for our products. If we misjudge either the market for our merchandise or our clients’ purchasing habits or we experience continued or lengthy delays in fulfilling client demand, our clients could shop with our competitors instead of us, which could harm our business. Additionally, much of our merchandise requires that we provide vendors with significant ordering lead times and we may not be able to source sufficient inventory if demand for a product is greater than anticipated. Alternatively, we may be required to mark down certain products to sell any excess inventory or to sell such inventory through our OutletsLofts or other liquidation channels at prices that are significantly lower than our retail prices, any of which would negatively impact our business and operating results. The inability to respond quickly to market changes could have an impact on our expected growth potential and the growth potential of the market.

We continue to invest in the development of our brand and the marketing of our business. Our increased focus on elevating Arhaus as a luxury brand further increases the importance of our brand image, position and reputation. We believe that maintaining and enhancing our brand is integral to the future of our business and to the implementation of our strategies for expanding our business. This will require us to continue to make investments in areas such as marketing and advertising, as well as the day-to-day investments required for the operations of our Showrooms, website operations and employee training. Our brand image may be diminished if new products, services or other businesses fail to maintain or enhance our distinctive brand image, which could have a material adverse impact on our business and results of operations.

•We did not design and maintain an effective control environment commensuratedue with our financial reporting requirements. Specifically, we lackedto a sufficient complementlack of professionals with an appropriate level of accountingexperience knowledge,and training and experiencerelated to appropriatelyinternal analyze,control recordover andfinancial disclose accounting matters timely and accurately.reporting. Additionally, the lack of aexperience sufficientand number of professionalstraining resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of our financial reporting objectives, as demonstrated by, amongst other things, insufficient segregation of duties inacross our financesignificant andbusiness accounting functions.processes. This material weakness contributed to the following additional material weaknesses.weakness.

•We did not design and maintain sufficient accounting policies, procedures and controls, or maintain adequate documentary evidence of existing control activities over significant accounts and disclosures to achieve complete, accurate and timely financial accounting, reporting and disclosures, including adequate controls over the period-end financial reporting process,process and the preparation and review of account reconciliations and journal entries, including segregation of duties and assessing the reliability of reports and spreadsheets used in controls.

As of December 31, 2024, withWith the oversight of senior management and our Audit Committee, we continue to assess, implement and redesign our ICFR. WhileAlthough the material weaknesses areexisting notas of December 31, 2025 cannot be considered remediated until the related internal controls arehave testedoperated effectively for a sufficient period of time and deemedhave tobeen be operating effectively,tested, we have made meaningful progress and continue to implementexecute our remediation planplan, as followsincluding:

•Established a cross functional taskforce of cross functional senior members of the Company’s leadership to manage deficiency remediation. The taskforce is composed of internal resources and external advisorsleaders with expertise in designing and implementing internal controls.controls Ourto oversee remediation activities. The taskforce is responsible for the oversight of our remediation plan includes theincluding development of actions plans for individual control deficiencies.

•Trainings have beenConducting and will continuecontinuing to beconduct conductedtrainings withfor control owners and performers on variouskey ICFR topics including, but not limited to:

•Enhanced our communications to employees onregarding our internal control environment and related expectations. We continue to take steps to ensure personnel both existing and newly hired are adequately trained with the appropriate level of knowledge and understanding of ICFR and its importance.

•Commenced and continue to updateUpdated our policies and procedures to establish and maintain effective segregation of duties for our accounting staff in relation to journal entries, reconciliations and other applicable processes. To supplement existing procedures, management plansimplemented to utilizean account reconciliation software toolstool which are expected to increaseincreased the reliability around the monthly financial statement close procedures.procedures through utilization of period-end closing task checklists and standardized reconciliation processes.

–•formalized procedures over the review of our financial statements;

–•implemented period-end closing task checklists; and –standardized reconciliation process.

•Management will continue to evaluate and refine its financial statement close process to enhance processes around the preparation and review of journal entries, including assessing the reliability of reports and spreadsheets used in controls. Enhanced the design of the control activities over the review of our consolidated balance sheet and statement of cash flows to help ensure that the classification of operating and investing activities is appropriately presented in the statement of cash flows.

•CommencedContinued designing and implementing additional program change management policies and procedures, control activities, and tools to help ensure that changes affecting key financial systems related to IT applications and underlying accounting records are identified, authorized, tested, and implemented appropriately.

•EnhancingContinued to enhance the design and operation of control activities and procedures within the computer operations domain to help ensure that key batch jobs and interfaces are monitored, processing failures are adequately resolved, and recovery capability is tested.

•EnhancingContinued to enhance data backup procedures to help ensure that systems are adequately backed up and maintained and recovery of data from backups is tested.

•CommencedContinued identifyingidentifying, evaluating and evaluatingbegan testing key IT dependencies including key reports, automated application controls, interfaces and end user computer operations.

We are currently managed by a group of experienced senior executives, including our FounderCo-Founder and CEO, John Reed, and other key team members with substantial knowledge and understanding of the industry sector in which we operate. Our success and future growth depend largely upon the continued services of our management team. If, for any reason, our executives do not continue to be active in management, or we lose such persons, or other key team members, or we fail to identify and/or recruit for current or future positions of need, our business, financial condition or results of operations could be adversely affected.

We use third-party social media platforms as marketing tools, among other things. For example, we maintain Instagram, FacebookFacebook, TikTok and Pinterest accounts, as well as our own content on our website. We maintain relationships with many social media influencers and may engage in sponsorship initiatives. As existing eCommerce and social media platforms continue to rapidly evolve and new platforms develop, we must continue to maintain a presence on these platforms and establish presences on new or emerging popular social media platforms. If we are unable to use social media platforms as marketing tools in a cost-effective manner or if the social media platforms we use do not evolve quickly enough for us to fully optimize such platforms, our ability to acquire new clients and our financial condition may suffer. Furthermore, as laws and regulations rapidly evolve to govern the use of these platforms and devices, the failure by us, our employees, our network of social media influencers, our sponsors or third parties acting at our direction to abide by applicable laws and regulations in the use of these platforms and devices or otherwise could subject us to regulatory investigations, class action lawsuits, liability, fines or other penalties and have a material adverse effect on our business, financial condition and operating results.

We rely in part on digital advertising, including search engine marketing and social media advertising, to promote awareness of our brand, grow our business, attract new clients and retain existing clients. In particular, we rely on search engines, such as Google, and social media platforms such as Instagram, FacebookFacebook, TikTok and Pinterest as important marketing channels. In addition to purchasing traditional advertising space on search engines and social media platforms, we also partner with influencers who promote our brand and products to their followers. If search engines or social media platforms change their algorithms, terms of service, display or the featuring of search results, determine we are out of compliance with their terms of service or if competition increases for advertisements, we may be unable to cost-effectively market through these channels. Further, changes to third-party policies that limit our ability to deliver, target or measure the effectiveness of advertising, including changes by mobile operating system and browser providers such as Apple and Google, could reduce the effectiveness of our marketing. We also cannot accurately predict if the followers of our social media influencer partners will be interested in buying our products, or if our influencer partners will maintain their follower numbers throughout the time of our partnerships. Our relationships with our marketing vendors are not long term in nature and do not require any specific performance commitments. In addition, many of our online advertising vendors provide advertising services to other companies, including companies with whom we may compete. As competition for online advertising has increased, the cost for some of these services has also increased. Our marketing initiatives may become increasingly expensive and generating a return on those initiatives may be difficult. Even if we successfully increase revenue as a result of our paid marketing efforts, such increase may not offset the additional marketing expenses we incur.

Print media mailing is a significant component of our marketing activities. The cost of catalog production, printing and distribution impacts our operating margin and increases in these costs may not be offset by increased revenue generated. In addition, postal service delays can affect the timing of catalog delivery, which could cause clients to forego or defer purchases. Moreover, we rely on oneexternal printerprinters for all of our catalog printing work, which subjects us to various risks if the vendor fails to perform under our agreement. We have historically experienced fluctuations in our clients’ response to our catalogs. Client response to our catalogs is substantially dependent on merchandise assortment, availability and creative presentation, as well as the consumers to whom the catalogs are directed, timing of delivery of our mailings, the general retail sales environment and current domestic and global economic conditions. If we misjudge the correlation between our catalog marketing and net revenue, or if our catalog strategy overall does not continue to be successful, our results of operations could be negatively impacted.

If we are unable to successfully adapt to client shopping preferences or develop and maintain a relevant and reliable omni-channel experiencemodel for our clients, our financial performance and brand image could be adversely affected.

We are continuing to grow our omni-channel business model. While we interact with many of our clients through our Showrooms, our clients are increasingly using computers, tablets and smartphones to make purchases online and to help them make purchasing decisions when in our Showrooms. Our clients also engage with us online through our social media channels, including Instagram, FacebookFacebook, TikTok and Pinterest, by providing feedback and public commentary about aspects of our business. Omni-channel retailing is rapidly evolving. Our success depends, in part, on our ability to anticipate and implement innovations in client experience and logistics in order to appeal to clients who increasingly rely on multiple channels to meet their shopping needs. If for any reason we are unable to continue to implement our omni-channel initiatives or provide a convenient and consistent experience for our clients across all channels that delivers the products they want, when and where they want them, our financial performance and brand image could be adversely affected.

As of December 31, 2024,2025, we had 103107 Showrooms, including 1190 Traditional Showrooms, 9 Design StudiosStudios, and seven8 Outlets,Lofts, in 3031 states in the United States. A major part of our organic growth strategy consists of increasing our Showroom base. Such large-scale projects entail significant risks, including shortages of materials or skilled labor, unforeseen engineering, environmental and/or geological problems, work stoppages, weather interference, unanticipated cost increases and non-availability of construction equipment. For example, we experienced some delays in certain projects on account of the COVID-19 pandemic’s impact on business conditions and may experience similar delays in the future due to similar outbreaks of infectious diseases. There can be no assurance that we will succeed in opening additional Showrooms, which could have a material adverse effect on our business, financial condition, operating results and prospects.

The home furnishings sector is highly competitive. We compete with the interior design trade and specialty Showrooms,showrooms, as well as antique dealers and other merchants that provide unique items and custom-designed product offerings. We also compete with national and regional home furnishing retailers and department Showrooms,showrooms, including RH, Room & Board, Serena and LilyLily, Williams Sonoma and PotteryCrate Barn.& Barrel. In addition, we compete with mail order catalogs and online retailers focused on home furnishings. There are an increasing number of online and digital centric business models in the home furnishings sector and the impact of these competitors on other home furnishing businesses is uncertain although some of these digital offerings have gained market share primarily in areas outside the luxury end of the market.

No company can be entirely free of vulnerability to attack or compromise given that the techniques used to obtain unauthorized access, disable or degrade service, and obtain information or data change continuously. During the normal course of business, we have experienced and expect to continue to experience attempts to compromise our information systems. We collect, process and store certain personal information and other data relating to individuals, such as our clients, artisan partners,artisans, and employees. We rely substantially on commercially available systems, software, tools and monitoring to provide security for our processing, transmission and storage of personal information and other confidential information. We and our vendors have been the subject of hacking, social engineering, phishing attacks or other attacks. Due to these or other causes, we or our vendors have and in the future may suffer a security incident, which allow hackers or other unauthorized parties to gain access to personal information or other data, including payment card data or confidential business information, and we might not discover such issues for an extended period. The techniques used to obtain unauthorized access, to sabotage systems, and to obtain personal information, confidential information, or other data change continuously and generally are not identified until they are launched against a target. As a result, we and our vendors may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, our employees, contractors, vendors or other third parties with whom we do business may attempt to circumvent security measures in order to misappropriate such personal information, confidential information or other data, or may inadvertently release or compromise such data. We expect to incur ongoing costs associated with the detection and prevention of cyber threats.

Overall Economic Trends. The industry in which we operate is cyclical.cyclical, Consequently,and our net revenue is affected by general economic conditionsconditions, including conditions that affect the housing market and economicbroader 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.

Our Strategic Initiatives. We are in the process of implementing a number of businessstrategic 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, optimizingincreasing our product assortment, expanding our supply chain infrastructureinfrastructure, 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.

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 quarter over quarter 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 inand storewide sales for the spring and fall may drive higher demandwritten sales in the months they are releasedoccur than in the other months in the year. Variable expenses related to demandwritten sales will also be higher in those months. Net revenue related to demandwritten sales is recorded in later months, depending on when the client obtains control of the merchandise.

Net Revenue and Demand.Written Sales (Formerly “Demand”). Net revenue is recognized when a client obtains control of the merchandise. We also track demandwritten sales in our business which is a key performance indicator linked to the level of client orders placed. DemandWritten 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 demandwritten sales is measured net of cancellations, all demandwritten sales will eventually become net revenue, with appropriate reserves, when delivered to the client.

Comparable Growth.Delivered Sales (Formerly “Comparable Growth”). Comparable growthDelivered 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 demandwritten 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 OutletLoft comparable locations is included.

DemandComparable comparableDelivered growthSales provides management insight into business levelsperformance infor a particular period by comparing the dollar value of orders delivered (based on purchase price) placed in thata period compared to the prior comparable period. AlthoughSince thesedelivery ordersgenerally docoincides notwith resultrecognition of net revenue, with appropriate reserves, Comparable Delivered Sales trends will more closely track trends in reported net revenue untilthan theComparable orderWritten is delivered at a later point in time, management utilizes this metric to evaluate core performance.Sales.

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,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.

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.

(1) Other expenses (income) expenses represent costs and investments not indicative of ongoing business performance, such as loss (gain) on disposal of assets,assets. secondaryFor offeringthe costs,year severance,ended signingDecember bonuses31, and2025, recruitingthese costs.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) expenses consisted largely of $1.2 million of gain on disposal of assets. For the year ended December 31, 2023, these other (income) expenses consisted largely of $0.5 million of secondary offering costs.

Net revenue decreasedincreased $16.6$108.1 million, or 1.3%,8.5%, to $1,379.2 million in 2025 compared to $1,271.1 million in 2024 compared to $1,287.7 million in 2023.2024. The decreaseincrease was driven primarily by the$64.4 non-recurrencemillion of priorrevenue yeargrowth abnormalrelated backlogto deliveries,Showrooms partially offset by an increaseopened in 2024 and 2025, with the remainder due to increased demand for our products.

Gross margin decreasedincreased $39.2$35.2 million, or 7.3%,7.0%, to $536.4 million in 2025 compared to $501.2 million in 2024 compared to $540.4 million in 2023.2024. The decreaseincrease was primarily driven by lowerhigher net revenue, partially offset by higher products costs of $40.6 million, increased Showroom occupancy costs of $12.9$18.1 million, higher delivery and transportation costs of $2.6$6.1 million and higher credit card fees of $1.9$3.4 million.

As a percentage of net revenue, gross margin decreased 26050 basis points to 38.9% of net revenue in 2025 compared to 39.4% of net revenue in 2024 compared to 42.0% of net revenue in 2023.2024. The gross margin decrease as a percentage of net revenue was primarily the result of higher Showroom occupancy costs, which increased 110 basis points, a product margin decrease of 60 basis points, higherpartially offset by delivery and transportation costs, which increaseddecreased 40 basis points and higher credit card fees, which increased 20 basis points.

SG&A expenses increased $39.3$32.0 million, or 10.5%,7.7%, to $447.4 million in 2025 compared to $415.4 million in 2024 compared to $376.1 million in 2023.2024. The increase was primarily driven by a $30.1$16.4 million increase in general and administrative costs primarily related to legalcorporate costs,expenses, strategic investments to support and drive the growth of the business, including supply chain and technology improvements, marketing investmentsimprovements and increased warehouse expenses, in addition to a $19.2$15.6 million increase in selling expenses primarily related to new Showrooms. This was partially offset by the non-recurrence of a $10.0 million donation last year to The Nature Conservancy.

As a percentage of net revenue, selling, general and administrative expenses increaseddecreased 35030 basis points to 32.4% of net revenue in 2025 compared to 32.7% of net revenue in 2024 compared to 29.2% of net revenue in 2023.2024.

Income tax expense was $24.7 million in 2025 compared to $22.4 million in 2024 compared to $43.5 million in 2023.2024. The decreaseincrease was primarily due to lowerhigher income before taxes. Our effective tax rate was 26.9% in 2025 and 24.6% in 2024 and 25.8% in 2023.2024.

Our primary cash needs have historically been for merchandise inventories, payroll, marketing catalogs,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, 2024,2025, we had cash and cash equivalents of $197.5$253.4 million.

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. During the year ended December 31, 2024, theThe Company paid out $70.3$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.stock to shareholders as of the Record Date and dividend equivalents on equity awards that vested during the year ended December 31, 2024.

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% at1.50%at December 31, 2023), whereas the applicable margin is adjusted quarterly based on the Company’s consolidated rent-adjusted total leverage ratio.

OnIn December 9,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.

OnIn August 30, 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). The 2021 Credit Facility expires on November 8, 2026. At December 31, 2024, we had no borrowings on the 2021 Credit Facility.

For 2024,2025, net cash provided by operating activities was $147.1$136.8 million and consisted of net income of $68.6$67.3 million and an increase in non-cash items of $108.8$132.9 million, which were partially offset by a change in working capital and other activities of $30.2$63.3 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$59.0 million primarily due to payments made under the related lease agreements, and an increase in prepaidmerchandise and other assetsinventory of $2.5 million, a decrease in accrued expenses of $0.9$41.8 million, which were partially offset by an increase in client deposits of $47.1$15.1 million, an increase in accounts payable of $5.6$9.9 millionmillion, an increase in accrued expenses of $7.9 million, and a decrease in accountsprepaid receivableand other assets of $1.1$4.1 million.

For 2023,2024, net cash provided by operating activities was $168.7$147.1 million and consisted of net income of $125.2$68.6 million, an increase in non-cash items of $90.9$108.8 million, which were partially offset by a change in working capital and other activities of $47.4$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 $39.0$37.9 million primarily due to payments made under the related lease agreements, a decrease in client deposits of $28.8 million, an increase in prepaid and other assets of $11.1$2.5 million, a decrease in accrued expenses $1.5of $0.9 million, which were partially offset by aan decreaseincrease in merchandiseclient inventorydeposits of $32.1$47.1 million andmillion, an increase in accounts payable of $1.2$5.6 million, and a decrease in accounts receivable of $1.1 million.

We anticipate our total capital expenditures, net of landlord contributions to be approximately $90.0$70.0 million to $110.0$90.0 million in fiscal year 2025,2026, primarily related to new Showrooms.Showrooms and information technology and systems infrastructure.

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 three months ended MarchJune 31,30, 2026 (“Form 10-Q”) and our Annual Report on Form 10-K for the year ended December 31, 2025. 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:

The following discussion contains references to the three months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025, which represents the condensed consolidated financial results of Arhaus, Inc. and subsidiaries for the three months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025, respectively.

For the threesix months ended MarchJune 31,30, 2026, we generated $314.3$699.2 million of net revenue, $114.4$286.5 million of gross margin and $2.2$41.9 million of net and comprehensive income. For the three months ended June 30, 2026, we generated $384.9 million of net revenue, $172.1 million of gross margin, and $39.6 million of net and comprehensive income.

New Showrooms contribute incremental expense, new Showroom opening expense and net revenue to the Company. Our recent Showroom growth from January 1, 2025 to MarchJune 31,30, 2026 is summarized in the following table:

Net revenue increased $2.9$29.4 million, or 0.9%,4.4%, to $314.3$699.2 million in the threesix months ended MarchJune 31,30, 2026 compared to $311.4$669.8 million in the threesix months ended MarchJune 31,30, 2025. The increase was driven primarily by $9.3$20.2 million of revenue growth related to new Showrooms opened in 2026 and 2025, partiallywith offsetthe byremainder lowerdue to increased demand for our products.

Gross margin decreasedincreased $1.2$22.7 million, or 1.0%,8.6%, to $114.4$286.5 million in the threesix months ended MarchJune 31,30, 2026 compared to $115.6$263.8 million in the threesix months ended MarchJune 31,30, 2025. The decreaseincrease was primarily driven by higher net revenue and the benefit related to recoveries of IEEPA tariffs of $23.8 million, partially offset by increased product costs of $4.1$20.5 million, higher Showroom occupancy costs of $1.5$5.3 million, and higher fuel costs of $1.2$3.9 million, partially offset by lower delivery and transportation costs of $3.4 million and higher netcredit revenue.card fees of $1.6 million.

As a percentage of net revenue, gross margin decreasedincreased 70160 basis points to 36.4%41.0% of net revenue in the threesix months ended MarchJune 31,30, 2026 compared to 37.1%39.4% of net revenue in the threesix months ended MarchJune 31,30, 2025. The gross margin decreaseincrease was primarily driven by the benefit related to recoveries of IEEPA tariffs, which contributed 340 basis points, partially offset by higher product costs, which increased by 140 basis points, higher fuel costs, which increased by 50 basis points, Showroom occupancy costs, which increased by 40 basis pointspoints, and highercredit fuelcard costs,fees, which increased by 4010 basis points.

SG&A expenses increased $2.1$18.5 million, or 1.9%,8.7%, to $112.2$230.0 million in the threesix months ended MarchJune 31,30, 2026 compared to $110.1$211.5 million in the threesix months ended MarchJune 31,30, 2025. The increase was primarily due to a $1.9$10.3 million increase in general and administrative costs related to strategic investments to support and drive the growth of the business, including supply chain and technology improvements, and other corporate expenses.expenses and a $8.2 million increase in selling expenses primarily related to new Showrooms and increased demand for our products.

As a percentage of net revenue, SG&A expenses increased 40130 basis points to 35.7%32.9% of net revenue in the threesix months ended MarchJune 31,30, 2026 compared to 35.3%31.6% of net revenue in the threesix months ended MarchJune 31,30, 2025.

Interest income, net decreasedincreased to $0.5$1.5 million, of which $1.0 million related to interest earned on IEEPA refunds, in the six months ended June 30, 2026 compared to $1.3 million in the threesix months ended MarchJune 31, 2026 compared to $0.6 million in the three months ended March 31,30, 2025.

Income tax expense was $1.2$16.9 million in the threesix months ended MarchJune 31,30, 2026 compared to $1.2$13.8 million in the threesix months ended MarchJune 31,30, 2025. Our effective tax rate was 35.3%28.8% and 19.7%25.7% for the threesix months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025, respectively. The increase in the effective tax rate was primarily driven by the section 162(m) limitation on the deductibility of certain employee compensation that has a disproportionate impact on the quarterly tax rate.

Net and comprehensive income decreasedincreased $2.7$2.0 million to $2.2$41.9 million in the threesix months ended MarchJune 31,30, 2026 compared to $4.9$39.9 million in the threesix months ended MarchJune 31,30, 2025. The decreaseincrease was driven by the factors described above.

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 MarchJune 31,30, 2026, we had cash and cash equivalents of $177.1$226.4 million.

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. 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 MarchJune 31,30, 2026, 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 $0.1 million and $0.2$0.3 million of the aforementioned special cash dividend on its Class A common stock related to dividend equivalents on equity awards that vested during the threesix months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025, respectively.

On February 17, 2026, the Board of Directors of the Company declared a special cash dividend on the Company’s Class A and Class B common stock of $0.35 per share, payable March 31, 2026, to shareholders of record at the close of business on March 18, 2026. The Company paid $49.4$49.5 million of the aforementioned dividend on its Class A and Class B common stock to shareholders as of the Record Date during the threesix months ended MarchJune 31,30, 2026.

We have begun a multi-year transformation that will replace certain of our existing systems with a modern and integrated platform encompassing a new enterprise resource planning system (“ERP”), an order management system, a transportation management system and a transportationpoint managementof sale system. The total incremental investment in connection with these technology upgrades is expected to be approximately $30$50 million, including implementation and project staffing costs as well as licensing fees through 2030. Cash outflows were approximately $3$5 million during the threesix months ended MarchJune 31,30, 2026, and we anticipate approximately $12$20 million in 2026 and $10$12 million in 2027, with cash outflows tapering in early 2028 as we transition to annual licensing and maintenance costs of approximately $2$6 million per year through 2030.

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 MarchJune 31,30, 2025).

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 MarchJune 31,30, 2026.

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 other 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 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 MarchJune 31,30, 2026). At MarchJune 31,30, 2026 and December 31, 2025, we had no borrowings on the 2021 Credit Facility and the available borrowing capacity was $69.9 million and $69.9 million, respectively.

Net cash (used in) provided by operating activities

For the threesix months ended MarchJune 31,30, 2026, net cash usedprovided inby operating activities was $9.7$59.8 million and consisted of net income of $2.2$41.9 million adjusted for non-cash items of $35.7$76.6 million, which were partially offset by a decrease in working capital and other activities of $47.6$58.7 million. The use of cash from working capital was primarily driven by an increase in merchandiseprepaid inventoryand other current assets of $30.7$38.2 million,million primarily due to the IEEPA tariff receivable, a decrease in operating lease liabilities of $17.9$35.2 million primarily due to payments made under the related lease agreements, aan decreaseincrease in accruedmerchandise expensesinventory of $16.1$14.7 million, and a decrease in accounts payable $11.9 million, and an increase in prepaid and other current assets of $7.2$8.3 million, which was partially offset by an increase in client deposits of $35.3$27.8 million and a increase in accrued expenses of $8.1 million in the threesix months ended MarchJune 31,30, 2026.

For the threesix months ended MarchJune 31,30, 2025, net cash provided by operating activities was $46.5$81.4 million and consisted of net income of $4.9$39.9 million anadjusted increase offor non-cash items of $30.1$60.3 millionmillion, andwhich anwere increasepartially offset by a change in working capital and other activities of $11.5$18.8 million. The changeuse inof cash from working capital was primarily driven by an increase in client deposits of $42.3 million, which was partially offset by a decrease in operating lease liabilities of $13.9$28.0 million primarily due to payments made under the related lease agreements,agreements a decrease in accounts payable of $8.7 million,and an increase in merchandise inventory of $4.4$14.1 millionmillion, andwhich awas decreasepartially offset by an increase in client deposits of $12.2 million, an increase in accrued expenses of $3.2$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 threesix months ended MarchJune 31,30, 2025.

For the threesix months ended MarchJune 31,30, 2026, net cash used in investing activities was $15.9$36.9 million primarily due to investments in Showrooms, investments in our supply chain, and information technology and systems infrastructure, which was partially offset by insurance proceeds for property, furniture, and equipment.

For the threesix months ended MarchJune 31,30, 2025, net cash used in investing activities was $27.6$41.6 million primarily due to investments in Showrooms, vehicles, investments in our supply chain, and information technology and systems infrastructure.

Total capital expenditures, net of landlord contributions decreased by $9.3$1.4 million in the threesix months ended MarchJune 31,30, 2026 compared to the threesix months ended MarchJune 31,30, 2025.

For the threesix months ended MarchJune 31,30, 2026, net cash used in financing activities was $50.6$51.7 million primarily due to the payment of the special dividend on our Class A and Class B common stock.

For the threesix months ended MarchJune 31,30, 2025, net cash used in financing activities was $1.9$2.3 million primarily due to the repurchase of shares for payment of withholding taxes for equity based compensation. These shares were not repurchased in connection with any publicly announced share repurchase programs.