Arhaus' Demand Boom Is Running Ahead of Its Delivery Trucks
Record written sales and a raised top line mask a 36% net income drop—and a Q4 guide that depends on converting backlog, not finding new demand.
ARHS · Earnings Call · 2026-11-05
The quarter the market paid for demand, not earnings
Arhaus opened its 40th anniversary year with a record third quarter: net revenue of $368 million, up 6.8%, and a raised full-year top-line guide. The stock has noticed—shares are up roughly 50% over the last 90 trading days, including a 60% surge in the last seven weeks, even after a long drawdown from the 2024 peak. But the earnings call was not a victory lap. Net income fell 36% to $7.8 million, adjusted EBITDA fell 12.3% to $27 million, and the EBITDA margin compressed 170 basis points to 7.4%. The gap between the demand headline and the profit line is the story.The demand is real. comparable written sales rose 13.9%, on top of 12.5% in the second quarter, for a two-year stack of 21.4%. John Reed said the strength was broad: “Comparable Written Sales increased 13.9% year-over-year, building on a strong growth in the prior year period, for a two-year stack increase of 21.4%.” — John Reed, Founder, Chairman, and Chief Executive Officer · 2026-11-05 That is the strongest demand signal Arhaus has produced in years. Orders above $25,000 rose 35%; orders above $100,000 rose 30% in the quarter and 60% in September. New customers grew more than 20% in September, and their average order value was 30%+ higher than existing customers. This is not a mass-market furniture recovery. It is an affluent consumer spending on second homes, renovations, and larger design projects while the broad housing market stays frozen.
The written-vs-delivered gap is the whole ballgame
The problem is conversion. sales growth in written orders does not hit revenue until furniture is delivered. Comparable delivered sales rose just 2.6% in Q3. Mike Lee explained the mechanical distortion: commissions are paid on written orders, revenue is recognized on delivery, so the gap created about 100 basis points of temporary SG&A deleverage that should reverse in Q4. Then he made a forecast that deserves attention:That single line frames the Q4 guide. Arhaus expects Q4 revenue of $398 million-$418 million, up 9.1%-14.6%, with comparable delivered sales of +6% to +12%. If delivered runs 15 points above written, the implied written comp is deeply negative—unless the backlog conversion is enormous. Analyst Andrew Carter pushed exactly that point. Lee’s response was firm: “we’re not forecasting a negative comp for written or delivered in Q4.” — Michael Lee, Chief Financial Officer · 2026-11-05 He also said October was “in many ways, a continuation of the strength that we’ve been seeing.” — Michael Lee, Chief Financial Officer · 2026-11-05 But the company will not give monthly written numbers, so investors are left to underwrite the delivery machine, not the demand signal.Right now, we are modeling that Q4 delivered will be about 15% higher than written.
That is the tension. The call’s bullish case is that Arhaus has a $325 million client deposit balance, up 37.7% from year-end, and a delivery network that is setting throughput records. The bear case is that written momentum cools before the backlog converts, leaving the P&L with the costs of demand generation but not the revenue. Management says the Q4 swing factor is simply “how much can we actually get delivered.” — Michael Lee, Chief Financial Officer · 2026-11-05 For a company that has spent the last year talking about supply-chain investment, that is an unusually clean test.
Tariff relief is real, but it is being reinvested
The other fresh development is tariff math. A year ago, Lee told investors: “Our new estimate is $50 million to $60 million, and that is an annualized number and that is net of any purchase cost savings or operations savings, but that is not net of pricing actions.” — Michael Lee, Chief Financial Officer · 2025-11-06 On this call, he cut the estimate to $30 million-$40 million under the current framework, citing the Supreme Court ruling and roughly $20 million of lower annualized impact. The prior call had already flagged tariff refund benefits; now the structural cost base looks lighter.“Under the current tariff framework, we estimate annual tariff costs of approximately $30 million-$40 million, compared with our estimates of $50 million-$60 million prior to the Supreme Court ruling, representing roughly $20 million of lower annualized impact.” — Michael Lee, Chief Financial Officer · 2026-11-05 But the profit guide did not move. Arhaus kept full-year net income at $71 million-$81 million and adjusted EBITDA at $160 million-$171 million, even after raising revenue. The reason is deliberate reinvestment: $3 million into the Spring Catalog and $2 million into digital and e-commerce, funded by the incremental $4 million-$5 million of revenue flow-through. The company also took price increases in October to offset fuel and ocean-freight costs. In other words, tariff relief is buying growth, not near-term EPS.
That is consistent with the last several quarters. Arhaus has been in an investment cycle, spending on technology, marketing, and catalog circulation while margins absorb the cost. The Q3 gross margin still expanded 50 basis points to 39.2%, but only after 230 basis points of product-cost and mix benefit offset 60 basis points of fuel surcharges, 110 basis points of showroom occupancy, and 100 basis points of clearance mix. The gross margin is doing work, but not enough to keep EBITDA from falling.
E-commerce and catalog are the next leg—if the math works
The most strategic part of the call was the digital pivot. New Chief Digital Officer K.C. Moss is being asked to take e-commerce from 16%-17% of revenue to 25% over five years—a $500 million opportunity by 2030, or $250 million-$275 million of incremental revenue. The white-space argument is compelling: about 80% of Arhaus’ e-commerce clients already live within 50 miles of a showroom, meaning digital can reach beyond the physical footprint rather than just cannibalize it. Lee called it “a $500 million opportunity for Arhaus by 2030” — Michael Lee, Chief Financial Officer · 2026-11-05 and said the company can support it with less occupancy and staffing cost than new stores.The prior quarter was more muted. Lee then said: “If you look at our e-com performance year-to-date, we’re 1%, 1.5%.” — Michael Lee, Chief Financial Officer · 2026-08-06 Now the target is explicit. This is a re-underwritten growth pillar with a dedicated operator, not a vague aspiration. The catalog is the other demand lever. Arhaus more than doubled fall catalog circulation, quadrupled prospect reach, and pulled forward new-customer acquisition; it is now increasing spring circulation. But catalog accounting is brutal: the expense hits when the book ships, before the revenue arrives. Lee was explicit: “We expense the catalogs when they are shipped.” — Michael Lee, Chief Financial Officer · 2026-11-05 That is why Q3 SG&A carried marketing and technology costs that management expects to leverage later. The bet is that a 40th-anniversary assortment—40th anniversary newness represented more than a quarter of written sales—turns catalog recipients into repeat clients before the cost cycle normalizes.