Arhaus (ARHS)

Luxury furniture retailer Arhaus (NASDAQ:ARHS) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 8% year on year to $344.6 million. Guidance for next quarter’s revenue was optimistic at $351 million at the midpoint, 2% above analysts’ estimates. Its GAAP profit of $0.09 per share was in line with analysts’ consensus estimates.

Company Overview

With an aesthetic that features natural materials such as reclaimed wood, Arhaus (NASDAQ:ARHS) is a high-end furniture retailer that sells everything from sofas to rugs to bookcases.

Furniture retailers understand that ‘home is where the heart is’ but that no home is complete without that comfy sofa to kick back on or a dreamy bed to rest in. These stores focus on providing not only what is practically needed in a house but also aesthetics, style, and charm in the form of tables, lamps, and mirrors. Decades ago, it was thought that furniture would resist e-commerce because of the logistical challenges of shipping large furniture, but now you can buy a mattress online and get it in a box a few days later; so just like other retailers, furniture stores need to adapt to new realities and consumer behaviors.

Competitors offering higher-end furniture include public companies Restoration Hardware (NYSE:RH), MillerKnoll (NASDAQ:MLKN), and Williams Sonoma (NYSE:WSM). Private company West Elm is also a competitor.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $1.36 billion in revenue over the past 12 months, Arhaus is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers. On the bright side, it can grow faster because it has more white space to build new stores.

As you can see below, Arhaus’s 18.8% annualized revenue growth over the last six years (we compare to 2019 to normalize for COVID-19 impacts) was excellent as it opened new stores and expanded its reach.

This quarter, Arhaus reported year-on-year revenue growth of 8%, and its $344.6 million of revenue exceeded Wall Street’s estimates by 2%. Company management is currently guiding for a 1.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 4.3% over the next 12 months, a deceleration versus the last six years. Despite the slowdown, this projection is above average for the sector and suggests the market sees some success for its newer products.

Number of Stores

A retailer’s store count often determines how much revenue it can generate.

Arhaus operated 100 locations in the latest quarter. It has opened new stores at a rapid clip over the last two years, averaging 10.8% annual growth, much faster than the broader consumer retail sector. This gives it a chance to scale into a mid-sized business over time.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales provides a deeper understanding of this issue because it measures organic growth at brick-and-mortar shops for at least a year.

Arhaus’s demand has been shrinking over the last two years as its same-store sales have averaged 3.2% annual declines. This performance is concerning - it shows Arhaus artificially boosts its revenue by building new stores. We’d like to see a company’s same-store sales rise before it takes on the costly, capital-intensive endeavor of expanding its store base.

In the latest quarter, Arhaus’s same-store sales rose 4.1% year on year. This growth was a well-appreciated turnaround from its historical levels, showing the business is regaining momentum.

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

Arhaus has great unit economics for a retailer, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an excellent 41.8% gross margin over the last two years. That means Arhaus only paid its suppliers $58.16 for every $100 in revenue.

Arhaus’s gross profit margin came in at 38.7% this quarter, down 6.4 percentage points year on year. Arhaus’s full-year margin has also been trending down over the past 12 months, decreasing by 2.3 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to discount products and higher input costs (such as labor and freight expenses to transport goods).

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Arhaus’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 7.5% over the last two years. This profitability was mediocre for a consumer retail business and caused by its suboptimal cost structure.

Analyzing the trend in its profitability, Arhaus’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Arhaus generated an operating margin profit margin of 4.8%, up 1.4 percentage points year on year. The increase was encouraging, and because its gross margin actually decreased, we can assume it was more efficient because its operating expenses like marketing, and administrative overhead grew slower than its revenue.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Arhaus has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 3.6% over the last two years, slightly better than the broader consumer retail sector.

Taking a step back, we can see that Arhaus’s margin expanded by 4.9 percentage points over the last year. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat.

Arhaus’s free cash flow clocked in at $27.98 million in Q3, equivalent to a 8.1% margin. This result was good as its margin was 6.7 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Arhaus hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 36.2%, splendid for a consumer retail business.

Arhaus reported $265.9 million of cash and $519.1 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $151.3 million of EBITDA over the last 12 months, we view Arhaus’s 1.7× net-debt-to-EBITDA ratio as safe. We also see its $1.08 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Arhaus beat analysts’ EBITDA expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. On the other hand, its EBITDA guidance for next quarter missed. Overall, this print had some key positives. The stock traded up 1.7% to $9.90 immediately after reporting.

Updated: December 4, 2025 at 9:39 PM EST

Are you wondering whether to buy Arhaus or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Arhaus isn’t a terrible business, but it doesn’t pass our quality test. To begin with, its revenue growth was a little slower over the last three years, and analysts expect its demand to deteriorate over the next 12 months. And while its new store openings have increased its brand equity, the downside is its shrinking same-store sales tell us it will need to change its strategy to succeed. On top of that, its brand caters to a niche market.

Arhaus’s P/E ratio based on the next 12 months is 22.3x. At this valuation, there’s a lot of good news priced in - you can find more timely opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $11.23 on the company (compared to the current share price of $10.59).