Arhaus' Tariff Windfall: A Record Quarter With an Asterisk — and a High-Stakes Reinvestment Bet

A $24M one-time IEEPA refund dresses up what's still a fuel-and-shipping-battered P&L; management is spending the windfall on catalogs and an accelerated tech overhaul.

ARHS · Earnings Call · 2026-08-06

A record quarter, with an asterisk

On the surface, Arhaus delivered a knockout second quarter: record net revenue of $385M, up 7.4% year-over-year, and comparable written sales accelerating to +12.5%, the strongest demand print in recent memory. But the profit story deserves a closer read, because roughly $24M of the quarter's gross profit came from a one-time IEEPA tariff refund — an unplanned windfall the company itself acknowledged “was not included in our previous financial guidance” — Michael Lee, Chief Financial Officer · 2026-08-06.

Arhaus requested refunds of $37.8 million for IEEPA tariffs previously paid. As of June 30, 2026, we recognized a receivable of $32.7 million ... and we received $5.1 million in cash refunds. During the quarter, we recognized a benefit in cost of goods sold of $23.8 million.
Michael Lee, Chief Financial Officer · 2026-08-06

Strip out the refund and the quarter tells a different story: gross margin of 40.7%, down 70 basis points year-over-year, and adjusted EBITDA of $55M, down 8.9%. The tariff refund is real — management confirmed the full amount has since been received in cash — but it is a discrete, one-time event, not an improvement in the underlying operating engine. Notably, as recently as the prior quarter the company refused to guide on it: “our current guidance does not include anything on tariff refunds. We just don't know enough at this stage to guide on it.” — Michael Lee, Chief Financial Officer · 2026-05-07

The pressure underneath

The gap between reported and normalized results is explained by a familiar set of headwinds: fuel costs ($10M for the year), higher shipping costs ($10M), and knock-on inflation in inputs like foam used in the company's domestic upholstery manufacturing, all exacerbated by the Middle East conflict. CFO Michael Lee was explicit that this is shock-driven rather than structural: “we don't see these as long-term durable cost headwinds. These are really driven by some of the shocks that we've experienced over the last 3 to 4 months.” — Michael Lee, Chief Financial Officer · 2026-08-06 The response was an overdue pricing lever — the company increased its delivery fee in June, its first such move in 3-4 years: “we increased our delivery fee in June to help offset these inflationary pressures, and this will start to flow through in the third quarter.” — Michael Lee, Chief Financial Officer · 2026-08-06 That fee is worth $5M-$6M annually. SG&A load also rose 230 basis points to 30.6% as new showrooms and strategic technology investments weighed on the P&L, though the company expects TMS-driven transport savings to begin offsetting some of this in Q3 and Q4.

Written vs. delivered: a real demand signal

The most notable signal this quarter is the divergence between written and delivered sales — comparable written sales surged +12.5% while comparable delivered sales grew just +4%. Management frames the acceleration as recovered demand from a weather-plagued Q1 (the prior call cited 60 showrooms closed for five days in January, a ~4% hit to selling days) combined with genuine momentum. CEO John Reed described clients “putting money back into their homes as they decided maybe not to move” — John Reed, Founder, Chairman, and Chief Executive Officer · 2026-08-06, with no meaningful trade-down and strength across orders above $10K, $25K, and $100K. The prior quarter's call had already flagged the improving trend: “April and May are performing even ahead of some of our internal forecasts.” — Michael Lee, Chief Financial Officer · 2026-05-07 The relaunched trade program is an increasingly material growth engine: “We've been adding thousands of new trade members each month, actually, since we started that.” — John Reed, Founder, Chairman, and Chief Executive Officer · 2026-08-06 Client deposits rose 11.8% year-over-year to $264M — a concrete leading indicator that the written-demand acceleration is real, even if the full-year delivered-comp guide (flat to +3%) remains conservative. The company held its revenue guidance while raising profitability, implying that some of the demand strength is expected to convert to delivered sales later in the year, with a further $5M-$7M of tariff-refund benefit expected to flow through in each of Q3 and Q4.

Deploying the windfall

The most consequential decision this quarter is how management is spending the refund. Rather than bank it, they are reinvesting $7M-$10M into growth: more than doubling the 40th-anniversary fall catalog circulation, increasing spring 2027 distribution, and — most strategically — pulling the new POS platform into Q4 2026, ahead of the ERP/OMS wave: “we are opportunistically pulling forward the implementation of our new modern POS platform into the fourth quarter of this year, ahead of our original timeline.” — Michael Lee, Chief Financial Officer · 2026-08-06 This accelerates the investment cycle management telegraphed at the start of the year; the ERP/OMS remains on track for a February 2027 go-live, with the CFO reiterating the long-term prize of 16-18% EBITDA margins — the same target he laid out back in February: “this business should be operating at 16%, 17%, 18% EBITDA margin versus where we are today.” — Michael Lee, Chief Financial Officer · 2026-02-26 The pressure is visible in the metrics: gross margin has declined from a 43.5% peak in mid-2023 to 36.4% in the latest filed quarter (Q1 2026), before any refund benefit, and free cash flow turned negative in that quarter as the company ramped inventory ahead of demand. Arhaus is not alone — IEEPA refund themes dominate the market's earnings cycle this quarter, and the 90-day tape shows an IEEPA tariff-refund basket up roughly 20%. The stock has rallied ~39% over the past 90 days as investors rewarded the guide raise and the demand print. The open question is whether the underlying margin normalization — absent a repeat refund — can carry that momentum through the second half.