Q2 2026 Arhaus Inc Earnings Call

August 6, 2026

Operator 2: Good morning. Welcome to the Arhaus Q2 2026 earnings call. Please note that this call is being recorded. The reproduction of any part of this call is not permitted without written authorization from the company. I will now turn the call over to your host, Tara Atwood Saja, Vice President and Head of Investor Relations. Please go ahead.

Operator: Good morning. Welcome to the Arhaus Q2 2026 earnings call. Please note that this call is being recorded. The reproduction of any part of this call is not permitted without written authorization from the company. I will now turn the call over to your host, Tara Atwood Saja, Vice President and Head of Investor Relations. Please go ahead.

Speaker #1: Arhaus second quarter 2026 earnings call. Please note that this call is being recorded, and the reproduction of any part of this call is not permitted without written authorization from the company.

Speaker #1: Investor Relations. Please go ahead.

Speaker #2: Good morning, and thank you for joining us for the Arhaus second quarter 2026 earnings call. Joining me on today's call for prepared remarks are John Reed, our founder, chairman, and chief executive officer; and Michael Lee, our chief financial officer; during Q&A, we kindly ask that you limit yourself to one question only.

Tara Atwood Saja: Good morning. Thank you for joining us for the Arhaus Q2 2026 earnings call. Joining me on today's call for prepared remarks are John Reed, our Founder, Chairman, and Chief Executive Officer, and Michael Lee, our Chief Financial Officer. During Q&A, we kindly ask that you limit yourself to one question only. This will allow us to get to as many callers as possible within our one-hour window. You are welcome to re-queue for additional questions if time permits. We issued our earnings press release and Form 10-Q for the quarter ended 30 June 2026, before the market opened today. Those documents are available on our investor relations website at ir.arhaus.com. A replay of the call will be available on our website within 24 hours. I would like to remind everyone that our remarks today concerning future expectations, events, objectives, strategies, targets, trends, or results constitute forward-looking statements.

Speaker #2: This will allow us to get to as many callers as possible within our one-hour window. You are welcome to re-queue for additional questions, if time permits.

Speaker #2: We issued our earnings press release informed 10Q for the quarter ended June 30, 2026, before the market opened today. Those documents are available on our investor relations website at ir.arhaus.com.

Speaker #2: A replay of the call will be available on our website within 24 hours. I would like to remind everyone that our remarks today concerning future expectations, events, objectives, strategies, targets, trends, or results constitute forward-looking statements.

Speaker #2: Actual results or events may differ materially due to a number of risks and uncertainties. For a summary of these risk factors and additional information, please refer to this morning's press release and the cautionary statements and risk factors described in our most recent annual report on Form 10K, and subsequent 10Qs, as factors may be updated from time to time in our filings with the SEC.

Tara Atwood Saja: Actual results or events may differ materially due to a number of risks and uncertainties. For a summary of these risk factors and additional information, please refer to this morning's press release and the cautionary statements and risk factors described in our most recent annual report on Form 10-K and subsequent Form 10-Qs, as factors may be updated from time to time in our filings with the SEC. The forward-looking statements are made as of today's date. Except as may be required by law, the company undertakes no obligation to update or revise these statements. We will also refer to certain non-GAAP financial measures. This morning's press release includes the relevant non-GAAP reconciliations. Now, I will turn the call over to John. John, over to you.

Speaker #2: The forward-looking statements are made as of today's date and accept as may be required by law. The company undertakes no obligation to update or revise these statements.

Speaker #2: We will also refer to certain non-GAAP financial measures and this morning's press release includes the relevant non-GAAP reconciliations. Now, I will turn the call over to John.

Speaker #2: John, over to you.

Speaker #3: Thanks, Tara. Good morning, everyone, and thank you for joining us. This morning we reported second quarter results that reflect the continued strength of the Arhaus brand.

John Reed: Thanks, Tara. Good morning, everyone. Thank you for joining us. This morning, we reported Q2 results that reflect the continued strength of the Arhaus brand and the resilience of our business. We generated record net revenue and strong comparable written sales, reflecting continued client engagement and momentum across our three customer demand channels, which is a testament to the strength of our differentiated model. While the broader environment remains dynamic, the high-end consumer continues to demonstrate resilience, supported by a relatively healthy US economy, solid consumer spending, and the positive wealth effects of higher stock prices. We delivered record net revenue of $385 million above the high end of our guidance range. Comparable written sales increased 12.5% in the quarter, bringing year-to-date comparable written sales to 2.8%.

Speaker #3: And the resilience of our business. We generated record net revenue and strong comparable written sales. Reflecting continued client engagement and momentum across our three customer demand channels, which is a testament to the strength of our differentiated model.

Speaker #3: While the broader environment remains dynamic, the high-end consumer continues to demonstrate resilience supported by relatively healthy U.S. economy, solid consumer spending, and a positive wealth effect of higher stock prices.

Speaker #3: We delivered record net revenue of $385 million above the high end of our guidance range. Comparable written sales increased 12.5% in the quarter, bringing year-to-date comparable written sales to $2.8%.

Speaker #3: Our clients remain highly engaged and continue to prioritize investments in their home, driving strong demand for our differentiated product assortment and the elevated experience Arhaus provides.

John Reed: Our clients remain highly engaged and continue to prioritize investments in their home, driving strong demand for our differentiated product assortment and the elevated experience Arhaus provides. Turning to products. For 40 years, Arhaus has been built on the belief that furniture and decor should be responsibly sourced, lovingly made, and built to last for generations. That philosophy continues to differentiate our brand and remains one of our strongest drivers of client demand. During the quarter, we saw strength across our assortment and collections. Clients responded to our distinctive mix of heirloom quality furnishings, globally curated designs, and handcrafted pieces made with natural materials and time-honored techniques. Strong written sales reflected continued interest in new product introductions alongside our extensive customization capabilities, giving clients the opportunity to create spaces that feel uniquely their own.

Speaker #3: Turning to products, for 40 years Arhaus has been built on the belief that furniture and decor should be responsibly sourced, lovingly made, and built to last for generations.

Speaker #3: That philosophy continues to differentiate our brand and remains one of our strongest drivers of client demand. During the quarter, we saw strength across our assortment and collections.

Speaker #3: Clients responded to our distinctive mix of heirloom-quality furnishings, globally curated designs, and handcrafted pieces made with natural materials and time-honored techniques. Strong written sales reflected continued interest in new product introductions, alongside our extensive customization capabilities.

Speaker #3: Giving clients the opportunity to create spaces that feel uniquely their own. This balance of timeless design and thoughtful innovation continues to resonate with both our new and existing clients.

John Reed: This balance of timeless design and thoughtful innovation continues to resonate with both our new and existing clients. Demand was broad-based across categories, including upholstery, outdoor, and The Collected Home, our vintage-inspired collection celebrating craftsmanship, heritage, and enduring designs. Our domestic upholstery manufacturing capabilities in North Carolina remain an important competitive advantage, allowing us to deliver exceptional quality, customization, and service while providing greater flexibility and control over production. We remain committed to keeping our assortment fresh while staying true to the aesthetics that define Arhaus. We believe the strength of our product strategy lies in offering distinctive furnishings that are difficult to replicate, supported by disciplined merchandising, continuous product innovation, and meaningful investments in our product pipeline. Looking ahead, we have several important events in the coming weeks to engage with our clients.

Speaker #3: Demand was broad-based across categories, including a upholstery, outdoor, and the collected home. Our vintage-inspired collection celebrating craftsmanship, heritage, and enduring designs. Our domestic upholstery manufacturing capabilities in North Carolina remain an important competitive advantage.

Speaker #3: Allowing us to deliver exceptional quality customization and service while providing greater flexibility and control over production. We remain committed to keeping our assortment fresh while staying true Arhaus.

Speaker #3: We believe the strength of our product strategy lies in offering distinctive furnishings that are difficult to replicate, supported by disciplined merchandising, continuous product innovation, and meaningful investments in our product pipeline.

Speaker #3: Looking ahead, we have several important events in the coming weeks to engage with our clients. We will launch our special 40th anniversary fall catalog, reaching more than double the number of households compared to our spring catalog.

John Reed: We will launch our special 40th anniversary fall catalog, reaching more than double the number of households compared to our spring catalog, including a focus on high-potential prospective clients, followed by our September semiannual storewide sale. Combined with compelling new product introductions and a strong in-stock position, we believe this positions us well for the important fall selling season. Better inventory availability allows us to offer clients more of what they want, when they want it, supporting higher conversion, stronger delivered sales, and an even better client experience. I want to thank our product team and artisan partners around the world. Their passion for great design, commitment to craftsmanship, and ability to anticipate emerging trends continue to differentiate the Arhaus brand and bring our vision to life for our clients. Turning to our clients. The Q2 reinforced the breadth and quality of demand across all three demand channels.

Speaker #3: Including a focus on high-potential prospective clients, followed by our September semi-annual store-wide sale. Combined with compelling new product introductions, and a strong in-stock position, we believe this positions us well for the important fall selling season.

Speaker #3: Better inventory availability allows us to offer clients more of what they want when they want it, supporting higher conversion, stronger delivered sales, and an even better to thank our product team and artisan partners around the world.

Speaker #3: Their passion for great design, commitment to craftsmanship, and ability to anticipate emerging trends continue to differentiate the Arhaus brand and bring our vision to life for our clients.

Speaker #3: Turning to our clients, the second quarter reinforced the breadth and quality of demand across all three demand channels. Our core customers, Arhaus Interior Design and Trade.

John Reed: Our core customers, Arhaus Interior Design and Trade. Throughout the quarter, we continued to see clients investing in home through larger, higher value projects reflecting healthy engagement with our premium assortment and no meaningful evidence of trade down. We believe this speaks to the resilience of our client base, the differentiated value of the Arhaus brand, and the enduring appeal of our product offering. Arhaus Interior Design continues to be an important driver for client engagement as more clients use our complimentary design services to bring larger whole home projects to life. These relationships not only create a highly personalized experience, but also create a deeper client loyalty and long-term engagement with Arhaus. We have also been encouraged by the early response to the enhanced trade program, which relaunched earlier this year.

Speaker #3: Throughout the quarter, we continued to see clients investing in home through larger higher-value projects, reflecting healthy engagement with our premium assortment, and no meaningful evidence of trade down.

Speaker #3: We believe this speaks to the resilience of our client base, the differentiated value of the Arhaus brand, and the enduring appeal of our product offering.

Speaker #3: Interior design continues to be an important driver for client engagement, as more clients use our complimentary design services to bring larger, whole-home projects to life.

Speaker #3: These relationships not only create a highly personalized experience, but also creates a deeper client loyalty, and long-term engagement with Arhaus. We have also been encouraged by the early response to the enhanced trade program, which relaunched earlier this year.

Speaker #3: Supported by the dedicated team focused on expanding relationships with design professionals, we believe the program represents a meaningful long-term opportunity to broaden our reach to cultivate a growing base of recurring project-driven business.

John Reed: Supported by the dedicated team focused on expanding relationships with design professionals, we believe the program represents a meaningful long-term opportunity to broaden our reach, to cultivate a growing base of recurring project-driven business. Overall, the continued strength across our core customer interior design and trade channels highlights the multiple ways clients choose to engage with Arhaus. We believe this diversified demand model, combined with the differentiated product and elevated client experience, positions us to continue building lasting customer relations and supporting sustainable long-term growth. Turning to showrooms. Our showrooms are the front door of the Arhaus brand and one of the most important drivers of awareness, engagement, and conversion. They bring product to life, support our interior design and trade channels, and provide an immersive client experience that differentiates Arhaus. Demand across the showroom portfolio was broad-based during the quarter.

Speaker #3: Overall, the continued strength across our core customer Interior Design and Trade channels highlights the multiple ways clients choose to engage with Arhaus. We believe this diversified demand model combined with the differentiated product and elevated client experience positions us to continue building lasting customer relations and supporting sustainable long-term growth.

Speaker #3: Turning to showrooms, our showrooms are the front door of the Arhaus brand, and one of the most important drivers of awareness, engagement, conversion. They bring product to life, support our Interior Design and Trade channels, and provide an immersive client experience that differentiates Arhaus.

Speaker #3: Demand across the showroom portfolio was broad-based during the quarter. We generated strong written sale growth across every region and all of our showroom formats, including our traditional and design studio showrooms.

John Reed: We generated strong written sales growth across every region and all of our showroom formats, including our traditional and design studio showrooms. This breadth gives us confidence that demand is not dependent on a single geography or a market, and that our product and brand resonates with clients from coast to coast. We continue to see significant white space for expansion while maintaining a disciplined approach to grow. During Q2, we opened a nearly 20,000 square foot traditional showroom in Ashburn, Virginia, relocated our Westlake, Ohio showroom, and expanded our Park Meadows showroom in Lone Tree, Colorado. Just last week, we opened our newly relocated Charlotte, North Carolina showroom at The Village at SouthPark. At approximately 35,000 square feet, it is our second-largest traditional showroom after our Pasadena, California showroom, and provides an elevated, immersive destination for our clients in an important market for us.

Speaker #3: This breadth gives us confidence that demand is not dependent on a single geography, or market, and that our product and brand resonates with clients from coast to coast.

Speaker #3: We continue to see significant white space for expansion while maintaining a disciplined approach to grow. During the second quarter, we opened a nearly 20,000 square foot traditional showroom in Ashburn, Virginia.

Speaker #3: Relocated Westlake, Ohio showroom, and expanded our Park Meadows showroom in Lone Tree, Colorado. And just last week, we opened our newly relocated Charlotte, North Carolina showroom, at the Village at South Park.

Speaker #3: At approximately $35,000 square feet, it is our second largest traditional showroom after Pasadena, California showroom. And provides an elevated, immersive destination for our clients in an important market for us.

Speaker #3: The opening also reflects our long-standing connection to North Carolina, where skilled artisans, crafts, many of our signature upholstery pieces. For 2026, we continue to expect approximately 10 to 14 total showroom projects, including four to six new openings six to eight relocations, renovations, and expansions.

John Reed: The opening also reflects our longstanding connection to North Carolina, where skilled artisans craft many of our signature upholstery pieces. For 2026, we continue to expect approximately 10 to 14 total showroom projects, including four to six new openings, six to eight relocations, renovations, and expansions. We maintain a disciplined approach to evaluating projects against our targeted return criteria, and recent openings have continued to perform in line with our expectations. A key reason for our showrooms perform well is our people. Ashburn demonstrates the importance of combining the right location with the experienced team. We placed established leaders from nearby showrooms at the location and hired and trained the broader team well ahead of the opening. As a result, Ashburn opened with a team that understood our product, client design services, and service model, and the showroom has performed ahead of our expectations since opening.

Speaker #3: We maintain a disciplined approach to evaluating projects against our targeted return criteria. Recent openings have continued to perform in line with our expectations.

Speaker #3: A key reason for our showroom perform well is our people. Ashburn demonstrates the importance of combining the right location with the experienced team. We place established leaders from nearby showrooms at the location and hired and trained the broader team well ahead of the opening.

Speaker #3: As a result, Ashburn opened with a team that understood our product, client, design services, and service model, and the showroom has performed ahead of our expectations since opening.

Speaker #3: We continue to believe our physical presence remains an important competitive advantage and the meaningful driver of awareness, client engagement, and conversion. As we look ahead, we remain focused on executing the strategy that has served us well for four decades, creating exceptional products, delivering an elevated client experience, and investing thoughtfully in the long-term growth of the Arhaus brand.

John Reed: We continue to believe our physical presence remains an important competitive advantage and a meaningful driver of awareness, client engagement, and conversion. As we look ahead, we remain focused on executing the strategy that has served us well for four decades, creating exceptional products, delivering an elevated client experience, and investing thoughtfully in the long-term growth of the Arhaus brand. We believe we are well-positioned for the important fall selling season and remain confident in the signature opportunities ahead. I want to thank our team members and artisans around the world for their passion, craftsmanship, and commitment to excellence. Their dedication is what makes Arhaus special and continues to strengthen the relationship we have with our clients. With that, I'll turn the call over to Mike.

Speaker #3: We believe we are well positioned for the important fall selling season and remain confident in the signature opportunities ahead. I want to thank our team members and artisans around the world for their passion, craftsmanship, and commitment to excellence.

Speaker #3: Their dedication is what makes Arhaus special, and continues to strengthen the relationship we have with our clients. With that, I'll turn the call over to Mike.

Speaker #2: Thanks, John, and good morning, everyone. Our second quarter performance reflected disciplined execution against our most difficult year-over-year comparison of 2026. We delivered results above the high end of our guidance range, across all our key financial metrics, and generated strong comparable written sales, reinforcing our confidence in the full-year outlook.

Michael Lee: Thanks, John, and good morning, everyone. Our Q2 performance reflected disciplined execution against our most difficult year-over-year comparison of 2026. We delivered results above the high end of our guidance range across all our key financial metrics and generated strong comparable written sales, reinforcing our confidence in the full year outlook. This marked our seventh consecutive quarter of delivering results at or above our guidance. Before I turn to our results, I want to address an unplanned benefit related to IEEPA tariffs that was recognized in the quarter and not included in our previous financial guidance. Arhaus requested refunds of $37.8 million for IEEPA tariffs previously paid. As of 30 June 2026, we recognized a receivable of $32.7 million, which is included in prepaid and other current assets within the balance sheet, and we received $5.1 million in cash refunds.

Speaker #2: This marked our seventh consecutive quarter delivering results at or above our guidance. Before I turn to our results, I want to address an unplanned benefit related to IEPA tariffs that was recognized in the quarter and not included in our previous financial guidance.

Speaker #2: Arhaus requested refunds of $37.8 million for IEPA tariffs previously paid. As of June 30th, 2026, we recognized the receivable of $32.7 million which is included in prepaid and other current assets within the balance sheet, and we receive $5.1 million in cash refunds.

Speaker #2: During the quarter, we recognized a benefit in cost of goods sold of $23.8 million for the recovery of IEPA tariffs paid, of which $15.5 million is related to inventory sold prior to April 2026, and $8.3 million is related to inventory sold in the quarter.

Michael Lee: During the quarter, we recognized a benefit in cost of goods sold of $23.8 million for the recovery of IEEPA tariffs paid, of which $15.5 million is related to inventory sold prior to April 2026, and $8.3 million is related to inventory sold in the quarter. Additionally, we recorded $14 million primarily related to a reduction in inventory costs in merchandise inventory net within the balance sheet. As of today, we have received the full tariff refund in cash. Moving on to our results for the quarter. Net revenue was approximately $385 million in Q2, up 7.4% year-over-year, marking the highest net revenue in our 40-year history. This performance is particularly notable as we lapped a prior year period that benefited greatly from the accelerated ramp, following the insourcing of our Dallas distribution center. We grew over that comparison and year-over-year comparisons ease through the balance of 2026.

Speaker #2: Additionally, we recorded $14 million, primarily related to a reduction in inventory costs in merchandise inventory, net, within the balance sheet. As of today, we have received the full tariff refund in cash.

Speaker #2: Moving on to our results for the quarter. Net revenue was approximately $385 million in the second quarter, up 7.4% year over year, marking the highest net revenue in our 40-year history.

Speaker #2: This performance is particularly notable as we elapsed a prior year period that benefited greatly from the accelerated ramp following the insourcing of our Dallas distribution center.

Speaker #2: We grew over that comparison, and year over year comparisons eased through the balance of 2026. Gross profit was $172 million, up 16.1% versus last year.

Michael Lee: Gross profit was $172 million, up 16.1% versus last year. This increase included a recognized $23.8 million benefit from the recovery of previously paid IEEPA tariffs, of which $15.5 million related to inventory sold prior to April 2026. Excluding this benefit and to better reflect a more normalized gross profit for the quarter, gross profit would've been $157 million, up 5.6% versus last year, primarily due to higher net revenue. Gross margin was 44.7%, an increase of 330 basis points versus last year. This increase included 400 basis points of benefits related to the IEEPA tariff recoveries associated with the inventory sold prior to April 2026. Excluding this benefit, gross margin would've been 40.7%, down 70 basis points versus last year, driven largely by higher fuel and shipping costs.

Speaker #2: This increase included a recognized $23.8 million benefit from the recovery of previously paid IEPA tariffs, of which $15.5 million related to inventory sold prior to April 2026.

Speaker #2: Excluding this benefit and to better reflect a more normalized gross profit for the quarter, gross profit would have been $157 million, up 5.6% versus last year primarily due to higher net revenue.

Speaker #2: Gross margin was 44.7%, an increase of 330 basis points versus last year. This increase included 400 basis points of benefits related to the IEPA tariff recoveries associated with the inventory sold prior to April 2026.

Speaker #2: Excluding this benefit, gross margin would have been 40.7%, down 70 basis points versus last year, driven largely by higher fuel and shipping costs. Notably, 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: Notably, we increased our delivery fee in June to help offset these inflationary pressures, and this will start to flow through in Q3. Selling, general, and administrative expenses were $118 million, up 16.1% versus last year. The increase was primarily driven by an $8.4 million increase in general and administrative costs, including approximately $3 million of strategic investments related to technology licensing and other costs incurred to support our business transformation. We also saw a $7.9 million increase in selling expenses, primarily related to new showrooms and increased demand for our products. As a result, SG&A load increased 230 basis points to 30.6%. While our strategic investments create some near-term expense pressure, we believe they are important to strengthening the client experience, improving scalability, and supporting long-term profitable growth.

Speaker #2: Selling general and administrative expenses were $118 million, up 16.1% versus last year. The increase was primarily driven by an 8.4 million increase in general and administrative costs including approximately $3 million of strategic investments related to technology licensing and other costs incurred to support our business transformation.

Speaker #2: We also saw a 7.9 million increase in selling expenses primarily related to new showrooms and increased demand for our products. As a result, SG&A load increased $230 basis points to $30.6%.

Speaker #2: While our strategic investments create some near-term expense pressure, we believe they are important to strengthening the client experience and proving scalability and supporting long-term profitable growth.

Speaker #2: Net income was $40 million. Up 13.1% versus last year, and adjusted EBITDA was $70 million, up 16.8% versus last year, both above the high end of our guidance range.

Michael Lee: Net income was $40 million, up 13.1% versus last year. Adjusted EBITDA was $70 million, up 16.8% versus last year, both above the high end of our guidance range. Excluding the $15.5 million tariff refund benefit associated with inventory sold prior to April 2026, adjusted EBITDA would've been $55 million, down 8.9% versus last year, primarily reflecting higher fuel and shipping costs, increased selling expenses associated with new showrooms, and strategic investments to support long-term growth of the business. Adjusted EBITDA margin was 18.3%, an increase of 150 basis points versus last year. Excluding the 400 basis point tariff refund benefit associated with inventory sold prior to April 2026, adjusted EBITDA margin would've been 14.3%, down 250 basis points versus last year, driven largely by higher fuel and shipping costs, increased selling expenses associated with new showrooms, and strategic investments to support the long-term growth of the business.

Speaker #2: Excluding the 15.5 million tariff refund benefit associated with inventory sold prior to April 2026, adjusted EBITDA would have been $55 million, down 8.9% versus last year, primarily reflecting higher fuel and shipping costs increased selling expenses associated with new showrooms and strategic investments to support long-term growth of the business.

Speaker #2: Adjusted EBITDA margin was 18.3%, an increase of 150 basis points versus last year. Excluding the 400 basis point tariff refund benefit associated with inventory sold prior to April 2026, adjusted EBITDA margin would have been 14.3%, down 250 basis points versus last year. This was driven largely by higher fuel and shipping costs and increased selling expenses associated with new showrooms and strategic investments to support the long-term growth of the business.

Speaker #2: Turning to our comparable metrics. Comparable delivered sales increased 4% in the second quarter, exceeding the high end of our guidance range, against our most difficult delivered sales comparison for the year.

Michael Lee: Turning to our comparable metrics. Comparable delivered sales increased 4% in Q2, exceeding the high end of our guidance range against our most difficult delivered sales comparison for the year. Year to date, comparable delivered sales were 1.4%, consistent with our full year outlook of flat to positive 3%. Comparable written sales increased 12.5%, bringing year-to-date comparable written sales to positive 2.8%. We believe the Q2 acceleration reflected a combination of factors. As John mentioned, we saw broad-based strength across our product assortment, including newness, upholstery, customization, outdoor, and The Collected Home assortment. In addition, our Arhaus Interior Design team continued to generate strong momentum by inspiring clients, deepening engagement with the brand, and helping convert larger, more complex projects. We also benefited from increased marketing activity designed to drive engagement, conversion, and brand awareness.

Speaker #2: Year to date, comparable delivered sales were $1.4%, consistent with our full-year outlook of flat to positive 3%. Comparable written sales increased 12.5%, bringing year to date comparable written sales to positive 2.8%.

Speaker #2: We believe the second-quarter acceleration reflected a combination of factors. As John mentioned, we saw broad-based strength across our product assortment, including newness, upholstery, customization, outdoor, and the Collected Home assortment.

Speaker #2: In addition, our interior design team continued to generate strong momentum by inspiring clients, deepening engagement with the brand, and helping convert larger, more complex projects.

Speaker #2: We also benefited from increased marketing activity designed to drive engagement, conversion, and brand awareness. These efforts included incremental investment in paid search and digital optimization, as well as our planned catalog expansion to additional households.

Michael Lee: These efforts included incremental investment in paid search and digital optimization, as well as our planned catalog expansion to additional households. As we have seen historically, periods of temporary softness can be followed by stronger demand as clients reengage. Overall, we believe that Q2 performance reflects a combination of some recovered demand from Q1 and healthy underlying momentum across the Arhaus brand. Before turning to our balance sheet and outlook, I would like to provide additional context around our long-term financial framework and how we are positioning Arhaus for sustainable growth. While quarterly results can vary based on the timing of written to delivered conversion, our promotional cadence, investment timing, and the broader macroeconomic environment, our long-term strategy remains consistent. We are focused on building a larger, more profitable business by balancing market-leading revenue growth with expanding profitability over time.

Speaker #2: As we have seen historically, periods of temporary softness can be followed by stronger demand as clients re-engage. Overall, we believe this second quarter performance reflects a combination of some recovered demand from the first quarter and healthy underlying momentum across the Arhaus brand.

Speaker #2: Before turning to our balance sheet and outlook, I would like to provide additional context around our long-term financial framework and how we are positioning Arhaus for sustainable growth.

Speaker #2: While quarterly results can vary based on the timing of written to delivered conversion, our promotional cadence, investment timing, and the broader macroeconomic environment, our long-term strategy remains consistent.

Speaker #2: We are focused on building a larger, more profitable business by balancing market-leading revenue growth with expanding profitability over time. This is summarized by our three strategic imperatives as follows.

Michael Lee: This is summarized by our three strategic imperatives as follows. First, achieving market-leading sales growth. We continue to see meaningful opportunities to grow the Arhaus brand by simplifying the selling experience across our channels, creating a more seamless omni-luxury journey for our clients, expanding our showroom footprint, growing our Arhaus Interior Design, trade, and contract businesses, broadening brand awareness, and strengthening our digital and e-com capabilities. Together, we believe these initiatives deepen client engagement, expand our market share, and support sustainable long-term growth. Second, strengthening our product leadership. Our product remains our greatest point of differentiation and the foundation of the Arhaus brand. We continue to invest in innovation and newness while preserving the timeless design aesthetic that defines us. Our focus remains on extending our leadership in luxury upholstery, building on the strength of our best-selling collections, and attracting luxury customers through fresh, relevant assortments.

Speaker #2: First, achieving market-leading sales growth. We continue to see meaningful opportunities to grow the Arhaus brand by simplifying the selling experience across our channels, creating a more seamless omni-luxury journey for our clients, expanding our showroom footprint, growing our interior design, trade, and contract businesses, broadening brand awareness, and strengthening our digital and e-commerce capabilities.

Speaker #2: Together, we believe these initiatives deepen client engagement, expand our market share, and support sustainable long-term growth. Second, strengthening our product leadership. Our product remains our greatest point of differentiation and the foundation of the Arhaus brand.

Speaker #2: We continue to invest in innovation and newness while preserving the timeless design aesthetic that defines us. Our focus remains on extending our leadership in luxury upholstery, building on the strength of our best-selling collections, and attracting luxury customers through fresh, relevant assortments.

Speaker #2: Third, advancing operational excellence and perfecting the client experience. As we grow, we remain focused on building a more efficient and scalable operating model by accelerating product flow from concept to showroom, enhancing execution across the business, and digitally enabling the enterprise.

Michael Lee: Third, advancing operational excellence and perfecting the client experience. As we grow, we remain focused on building a more efficient and scalable operating model by accelerating product flow from concept to showroom, enhancing execution across the business, and digitally enabling the enterprise. Technology is a key enabler of this strategy. During Q2, we successfully launched TMS, and our ERP and OMS implementations remain on track for a February 2027 go-live. In addition, we are opportunistically pulling forward the implementation of our new modern POS platform into Q4 of this year, ahead of our original timeline. This pull forward simplifies our overall technology roadmap, accelerates our transition from legacy systems, and equips our showroom teams with a more modern and intuitive selling platform.

Speaker #2: Technology is a key enabler of this strategy. And during the second quarter, we successfully launched TMS and our ERP and OMS implementations remain on track for a February 2027 go-live.

Speaker #2: In addition, 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.

Speaker #2: This pull-forward simplifies our overall technology roadmap, accelerates our transition from legacy systems, and equips our showroom teams with a more modern and intuitive selling platform.

Speaker #2: Over time, we believe these investments will create a more seamless, connected experience across our customer demand channels, improve operational efficiency and further elevate the client experience.

Michael Lee: Over time, we believe these investments will create a more seamless, connected experience across our customer demand channels, improve operational efficiency, and further elevate the client experience. Turning to our balance sheet and liquidity. We ended Q2 with $226 million in cash and cash equivalents, maintaining our strong liquidity position. Net merchandise inventory totaled $354 million, up 4.3% from 31 December 2025. The composition of our inventory remains healthy, with aged inventory down both sequentially and year-over-year. Importantly, best seller inventory improved during Q2, and we exited June with strong in-stock levels across our network. Overall, we believe we are well-positioned in inventory to support current demand, continued product newness, and the conversion of written orders into net revenue. Client deposits ended Q2 at approximately $264 million, up 11.8% year-over-year, reflecting the strength of Q2 written demand.

Speaker #2: Turning to our balance sheet and liquidity, we ended the quarter with $226 million in cash and cash equivalents, maintaining our strong liquidity position. Net merchandise inventory totaled $354 million, up 4.3% from December 31, 2025.

Speaker #2: The composition of our inventory remains healthy, with aged inventory down both sequentially and year over year. Importantly, bestseller inventory improved during the quarter, and we exited June with strong in-stock levels across our network.

Speaker #2: Overall, we believe we are well positioned in inventory to support current demand continued product newness and the conversion of written orders into net revenue.

Speaker #2: Client deposits ended the quarter at approximately $264 million, up 11.8% year over year, reflecting the strengths of second quarter written demand. Turning to tariffs and sourcing.

Michael Lee: Turning to tariffs and sourcing. Following the recent implementation of the new Section 301 tariff framework, we estimate our 2026 tariff impact to be approximately $30 to $40 million. We continue to address this headwind through our diversified global sourcing strategy, vendor negotiations, pricing actions, and ongoing operational efficiencies. These initiatives provide us with many levers to help mitigate tariff-related costs while maintaining our focus on product quality, value, and long-term profitability. While the tariff environment remains dynamic, our diversified sourcing model and disciplined operating approach positions us well to adapt as policies evolve. We will continue to monitor developments and adjust our sourcing and pricing strategies as appropriate. Turning now to our outlook. As I mentioned earlier, Q2 marked our seventh consecutive quarter of delivering results at or above our guidance.

Speaker #2: Following the recent implementation of the new Section 301 tariff framework, we estimate our 2026 tariff impact to be approximately 30 to 40 million dollars.

Speaker #2: We continue to address this headwind through our diversified global sourcing strategy, vendor negotiations, pricing actions, and ongoing operational efficiencies. These initiatives provide us with many levers to help mitigate tariff-related costs while maintaining our focus on product quality, value, and long-term profitability.

Speaker #2: While the tariff environment remains dynamic, our diversified sourcing model and disciplined operating approach positions us well to adapt as policies evolve. We will continue to monitor developments and adjust our sourcing and pricing strategies as appropriate.

Speaker #2: Turning now to our outlook. As I mentioned earlier, the second quarter marked our seventh consecutive quarter of delivering results at or above our guidance.

Speaker #2: This consistency reflects our understanding of the business, our disciplined execution, and our measured approach to forecasting in an environment that remains dynamic. We were very pleased with our second quarter results and the meaningful acceleration and comparable written sales.

Michael Lee: This consistency reflects our understanding of the business, our disciplined execution, and our measured approach to forecasting in an environment that remains dynamic. We were very pleased with our Q2 results and the meaningful acceleration in comparable written sales. The quarter strengthened our confidence in the full-year outlook. At the same time, we believe it remains appropriate to maintain a prudent net revenue range that reflects multiple potential scenarios for the consumer environment. For the full year, we continue to expect net revenue between $1.43 and $1.47 billion, representing year-over-year revenue growth of between 3.7% and 6.6%. We continue to expect comparable delivered sales of flat to +3%.

Speaker #2: The quarter strengthened our confidence in the full-year outlook. At the same time, we believe it remains appropriate to maintain a prudent net revenue range that reflects multiple potential scenarios for the consumer environment.

Speaker #2: For the full year, we continue to expect net revenue between $1.43 and $1.47 billion representing year over year revenue growth of between 3.7 and 6.6%.

Speaker #2: We continue to expect comparable delivered sales to be flat to up 3%. We are updating our full-year profitability guidance to reflect the benefit recognized from the recovery of previously paid IEPA tariffs.

Michael Lee: We are updating our full-year profitability guidance to reflect the benefit recognized from the recovery of previously paid IEEPA tariffs. We now expect net income of $71 million to $80 million and adjusted EBITDA of between $160 to 171 million. As we've discussed, we view the IEEPA tariff recovery as a discrete one-time benefit that is being allocated as follows. First, consistent with our long-term capital allocation philosophy, we are reinvesting a portion of these recoveries back into the business to support strategic growth imperatives. These investments include more than doubling the distribution of our fall catalog and increasing our spring 2027 catalog circulation in a similar manner, as well as expanding our marketing and digital investments and pulling forward the implementation of our new POS system.

Speaker #2: And we now expect net income of $71 million to $80 million, and adjusted EBITDA up between $160 and $171 million. As we've discussed, we view the IEPA tariff recovery as a discrete, one-time benefit that is being allocated as follows.

Speaker #2: First, and consistent with our long-term capital allocation philosophy, we are reinvesting a portion of these recoveries back into the business to support strategic growth imperatives.

Speaker #2: These investments include more than doubling the distribution of our fall catalog and increasing our spring 2027 catalog circulation in a similar manner. As well as expanding our marketing and digital investments and pulling forward the implementation of our new POS system.

Speaker #2: These incremental investments, which are reflected in our updated guide, are expected to total between $7 and $10 million during fiscal 2026. Second, the recovery helps offset meaningful cost pressures we continue to face across the business, including approximately $10 million of elevated fuel expense, and $10 million of higher shipping costs for the year, driven by disruption in the Middle East, as well as ongoing labor and inflationary pressures while preserving flexibility as the tariff environment continues to evolve.

Michael Lee: These incremental investments, which are reflected in our updated guide, are expected to total between $7 to 10 million during fiscal 2026. Second, the recovery helps offset meaningful cost pressures we continue to face across the business, including approximately $10 million of elevated fuel expense and $10 million of higher shipping costs for the year, driven by disruption in the Middle East, as well as ongoing labor and inflationary pressures, while preserving flexibility as the tariff environment continues to evolve. Finally, after funding these strategic investments and offsetting the incremental costs, the remaining benefit of approximately $10 million flows through to adjusted EBITDA and is reflected in our updated full year profitability guidance range. Importantly, our outlook does not assume a meaningful improvement in housing turnover, consumer confidence, or the broader macroeconomic environment.

Speaker #2: And finally, after funding these strategic investments, and offsetting the incremental costs, the remaining benefit of approximately $10 million flows through to adjusted EBITDA and is reflected in our updated full-year profitability guidance range.

Speaker #2: Importantly, our outlook does not assume a meaningful improvement in housing turnover, consumer confidence, or the broader macroeconomic environment. Turning to the third quarter. We expect continued business momentum, balanced against ongoing macroeconomic uncertainty and variability in the timing of written sales conversion to delivered sales.

Michael Lee: Turning to Q3, we expect continued business momentum balanced against ongoing macroeconomic uncertainty and variability in the timing of written sales conversion to delivered sales. Our outlook is supported by healthy product availability, continued strength across our interior design and trade channels, compelling new product introductions, our 40th anniversary fall catalog, and our September semiannual storewide sale. From a profitability perspective, we expect Q3 to reflect the continued impact of tariffs, elevated fuel and shipping costs, and planned investments in technology and marketing. These pressures are expected to be partially offset by the growing benefit of our June delivery fee increase, pricing actions we've taken, and transportation productivity initiatives, including the initial TMS benefits, as well as continued disciplined expense management. For Q3 of 2026, we expect net revenue between $355 to 375 million, representing year-over-year growth of between 3% and 8.8%.

Speaker #2: Our outlook is supported by healthy product availability, continued strength across our interior design and trade channels, compelling new product introductions, our 40th anniversary fall catalog, and our September semi-annual store-wide sale.

Speaker #2: From a profitability perspective, we expect the third quarter to reflect a continued impact of tariffs, elevated fuel and shipping costs, and planned investments in technology and marketing.

Speaker #2: These pressures are expected to be partially offset by the growing benefit of our June delivery fee increase. Pricing actions we've taken, and transportation, productivity initiatives, including the initial TMS benefits, as well as continued disciplined expense management.

Speaker #2: For the third quarter of 2026, we expect net revenue between $355 and $375 million, representing year-over-year growth of between 3% and 8.8%. We expect comparable delivered sales of minus 1% to plus 5%, net income of between 8 and 13 million, and adjusted EBITDA of between 26 and 34 million.

Michael Lee: We expect comparable delivered sales of -1% to +5%, net income of between $8 to 13 million, and adjusted EBITDA of between $26 to 34 million. We are pleased with our Q2 results and the progress we have made across Arhaus. We delivered results above the high end of our guidance. We saw a meaningful acceleration in written sales. We continue to execute against the operational and strategic priorities supporting long-term growth. While the environment remains dynamic, we are focused on the factors within our control, which include driving demand, improving conversion, managing our costs with discipline, and building a stronger, more scalable, and more profitable business. I want to thank our teams across Arhaus for their continued focus and execution and our shareholders for their ongoing support. With that, I turn the call over to the operator. We are happy to take your questions.

Speaker #2: We are pleased with our second quarter results and the progress we have made across our house. We delivered results above the high end of our guidance.

Speaker #2: We saw a meaningful acceleration in written sales, and we continue to execute against the operational and strategic priorities supporting long-term growth. While the environment remains dynamic, we are focused on the factors within our control which include driving demand, improving conversion, managing our costs with discipline, and building a stronger, more scalable, and more profitable business.

Speaker #2: I want to thank our teams across Arhaus for their continued focus and execution, and our shareholders for their ongoing support. With that, I turn the call over to the operator.

Speaker #2: We are happy to take your questions.

Speaker #1: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad.

Operator 2: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Please limit yourself to one question. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question will come from Jonathan Matuszewski with Jefferies.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Please limit yourself to one question. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question will come from Jonathan Matuszewski with Jefferies.

Speaker #1: A confirmation tone will indicate your line is in the question queue. Please limit yourself to one question. You may press star two if you would like to remove your question from the queue.

Speaker #1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And our first question will come from Jonathan Matazuski with Jefferies.

Speaker #2: Well, great. Good morning. John and Mike, nice results here. Your results confirm a narrative that's kind of building around a widening divergence in affluent consumer spend on this category relative to maybe a mass consumer.

Jonathan Matuszewski: Great. Good morning, John and Mike. Nice results here. Your results confirm a narrative that's kind of building around a widening divergence in affluent consumer spend on this category relative to maybe a mass consumer. Can you add some more context around your Q2 demand trend? As we think about the acceleration, how much of that has been driven by an uptick in new customers entering your file? How much did discrete pricing adjustments contribute? It sounds like mix is playing a role as well with consumers maybe leaning towards higher value, complex projects. How did your Q2 demand break down across some of those drivers? Thank you.

Speaker #2: So can you add some more context around your two-queue demand trend? As we think about the acceleration, how much of that has been driven by an uptick in new customers entering your file, how much did discrete pricing adjustments contribute, and it sounds like mix is playing a role as well with consumers maybe leaning towards higher value complex projects.

Speaker #2: So how did your two-queue demand break down across some of those drivers? Thank you.

Speaker #3: Sure, Jonathan. I can try to answer the first part of that. So first of all, across the board, we didn't see any meaningful change in new customers versus existing customers.

John Reed: Sure, Jonathan, I can try to answer the first part of that. First of all, across the board, we didn't see any meaningful change in new customers versus existing customers. It stayed pretty much as it has been. The product assortment has gotten so much better that we're seeing basically larger sales per customer. A lot of people are renovating some new home builds, but a lot of people are putting money back into their homes as they've decided maybe not to move. We're seeing a really nice increase in people coming in, being very serious about renovating a room or an entire house. That certainly has helped our business. Anything to add, Mike?

Speaker #3: It stayed pretty much as it has been. The product assortment has gotten so much better that we're seeing basically larger sales per customer. A lot of people are renovating, some new home builds.

Speaker #3: But a lot of people are putting money back into their homes. As they decided not maybe not to move. And so we're seeing a nice, really nice increase in people coming in, being very serious about renovating a room or an entire house.

Speaker #3: And that's certainly has helped our business. Anything to add, Mike?

Speaker #2: Sure. I can build on that. Jonathan, I'd say just looking at overall traffic in the quarter, we're very happy with traffic. It was a big rebound versus Q1.

Michael Lee: Sure. I can build on that, Jonathan. I'd say, just looking at overall traffic in the quarter, we were very happy with traffic. It was a big rebound versus Q1. When you break down the fundamentals of existing versus new customers, I agree with John, it was very consistent, but in total up, versus where we were in Q1. Looking at things like average order value, units per transaction, those all continue to perform quite strong. Even looking at order sizes and order counts for large sales, we were very happy with Q2, looking at orders above 10,000, orders above 25,000, orders above 100,000. It was quite strong. We are very happy with what we're seeing from our customer base, and would concur that the high-end consumer continues to perform well.

Speaker #2: And when you break down the fundamentals of existing versus new customers, I agree with John. It was very consistent, but in total, up versus where we were in Q1.

Speaker #2: Looking at things like order average order value, units per transaction, those all continue to perform quite strong. And then even looking at order sizes and order counts for large sales, we were very happy with Q2 looking at orders above 10,000, orders above 25,000, orders above 100,000.

Speaker #2: It was quite strong. So we are very happy with what we're seeing from our customer base and would concur that the high-end consumer continues to perform well.

Speaker #4: Thank you. Best of luck.

Jonathan Matuszewski: Thank you. Best of luck.

Speaker #2: Thank you.

John Reed: Thank you.

Speaker #3: Thank you, Jonathan.

Michael Lee: Thank you, Jonathan.

Speaker #1: And our next question will come from Steve Forbes with Guggenheim Securities.

Operator 2: Our next question will come from Steven Forbes with Guggenheim Securities.

Operator: Our next question will come from Steve Forbes with Guggenheim Securities.

Speaker #4: Hey, guys. Good morning. This is Jake Nivash on for Steve. So John, just question on the trade program. So given the strength and written demand trends, curious if you can expand upon the trade program, how it's performing, and maybe give us some high-level commentary on the size of that business today if you're able to quantify.

Jake Nevosh: Hey, guys. Good morning. This is Jake Nevosh on for Steve. John, just a question on the trade program. Given the strength and demand trends, curious if you can expand upon the trade program, how it's performing, and maybe give us some high level commentary on the size of that business today, if you're able to quantify, and what key initiatives you're leaning into to scale it here. Thank you very much.

Jake Nivasch: Hey, guys. Good morning. This is Jake Nivasch on for Steve. John, just a question on the trade program. Given the strength and demand trends, curious if you can expand upon the trade program, how it's performing, and maybe give us some high level commentary on the size of that business today, if you're able to quantify, and what key initiatives you're leaning into to scale it here. Thank you very much.

Speaker #4: And what key initiatives you're leaning into to scale it here. Thank you very much.

Speaker #3: Sure, Jake. Be glad to. So the trade program is one that we've focused as we've been talking about. A few things we've done. We've adjusted or given an option on how the trade folks can earn money on buying our products.

John Reed: Sure, Jake. Be glad to. The trade program is one that we've focused as we've been talking about. A few things we've done. We've adjusted or given an option on how the trade folks can earn money on buying our products. We had been paying a commission-based thing. Now we're doing a discount as well. We're letting the trade members decide which way they want to go, which has been extremely successful. We've been adding thousands of new trade members each month, actually, since we started that. That just launched a few months ago. With that, we've also added a significant amount to the team. Folks that are living all over the country that were in the trade business or are in the trade business that are helping us attract new trade design firms to come and work with us because we offer everything.

Speaker #3: We had been paying a commission-based thing. Now we're doing a discount as well. So we're letting the trade members decide which way they want to go.

Speaker #3: Which has been extremely successful. We've been adding thousands of new trade members each month, actually, since we started that. And that just launched a few months ago.

Speaker #3: With that, we've also added a significant amount to the team, folks that are living all over the country, that are we're in the trade business or are in the trade business, that are helping us attract new trade design firms.

Speaker #3: To come and work with us because we offer everything. They can come in and do everything from the lighting to the rugs, to the upholstery.

John Reed: They can come in and do everything from the lighting, to the rugs, to the upholstery. It's a full-service shop, whereas most trade members have to go through catalogs and order things from all these different companies. We make it simple. We warehouse it for them. We stand behind it. We repair it if something happens to it. The trade members are loving that. We think it's a huge opportunity. We're just really getting started with it, and the future should be amazing.

Speaker #3: It's a full-service shop, whereas most trade members have to go through catalogs and order things from all these different companies. And we make it simple.

Speaker #3: We warehouse it for them. We stand behind it. We repair it if something happens to it. And the trade members are loving that. So we think it's a huge opportunity.

Speaker #3: We're just really getting started with it. And the future should be amazing.

Speaker #4: Perfect. Thank you very much.

Jake Nevosh: Perfect. Thank you very much.

Jake Nivasch: Perfect. Thank you very much.

Speaker #3: Thank you.

John Reed: Thank you.

Speaker #1: And moving next to Madeline Chuck with Bank of America. Great, thanks. Thanks for taking our questions. Could you provide a little more color on how comps progressed through the quarter?

Operator 2: Moving next to Madeline Schuck with Bank of America.

Operator: Moving next to Madeline Cech with Bank of America.

Madeline Schuck: Great. Thanks. Thanks for taking our question. Could you provide a little more color on how comps progressed through the quarter, including the exit rate in June, and what trends you saw in July that keep you confident in your full year outlook?

Madeline Cech: Great. Thanks. Thanks for taking our question. Could you provide a little more color on how comps progressed through the quarter, including the exit rate in June, and what trends you saw in July that keep you confident in your full year outlook?

Speaker #1: Including the exit rate in June and what trends you saw in July that keep you confident in your full year outlook?

Speaker #5: Hi, Madeline. It's Mike here. Yeah, we don't get into monthly disclosures anymore, but I will tell you that we were happy with the quarter overall.

Michael Lee: Hi, Madeline, it's Mike here. Yeah, we don't get into monthly disclosures anymore, but I will tell you that we were happy with the quarter overall. We alluded to the fact on our last call, I think we referred it to kind of a V-shaped recovery as we were getting into the second half of the April timeframe. I'd say overall for the quarter, we were quite happy with the performance. Normal seasonality ebbs and flows with the flow of our promotions, but quite happy.

Speaker #5: We alluded to the fact on our last call, I think we referred it to kind of a V-shaped recovery as we were getting into the second half of the April timeframe.

Speaker #5: And I'd say overall for the quarter, we're quite happy with the performance. Normal seasonality ebbs and flows with the flow of our promotions, but we're quite happy.

Speaker #5: The other thing, just to build on that, Madeline, in terms of promotions, one of the things that we started doing in the quarter that we really plan to continue over the next six months is the promotion strategy that we implemented around some of these up to 50% off discounts were really focused on some of our long-dated inventory.

Michael Lee: The other thing, just to build on that, Madeline, in terms of promotions, one of the things that we started doing in the quarter that we really plan to continue over the next six months is the promotion strategy that we implemented around some of these up to 50% off discounts were really focused on some of our long-dated inventory, and we found that it proved to be a really good traffic driver, created a lot of excitement in the showrooms, and also allowed us to move through some of that long-dated inventory. When you look at the margin impacts of that, it was quite modest because those up to discount offers were really limited to mid-single digit mix of sales overall.

Speaker #5: And we found that it proved to be a really good traffic driver, created a lot of excitement in the showrooms. And also allowed us to move through some of that long-dated inventory and when you look at the margin impacts of that, it was quite modest because those up to discount offers were really limited to mid-single-digit mix of sales overall.

Speaker #5: So it didn't have a lot of impact. In terms of the financials, didn't have a lot of impact in terms of mix of sales, but allowed us to move through that inventory.

Michael Lee: It didn't have a lot of impact in terms of the financials, didn't have a lot of impact in terms of mix of sales, but allowed us to move through that inventory. We're coming out of Q2 pretty jazzed about our results. Q3 is, again, shaping up to look pretty well. Consumer continues to be happy. As John mentioned, we're in a great position from a product perspective. We're in a better position from an in-stock status than we've been in for many months, really since I got here 14 months ago. We're very encouraged about where the business is and where it's headed.

Speaker #5: So we're coming out of Q2 pretty jazzed about our results. And Q3 is, again, shaping up to look pretty well. So consumer continues to be happy.

Speaker #5: As John mentioned, we're in a great position from a product perspective. We're in a better position from an in-stock status than we've been in for many months, really, since I got here 14 months ago.

Speaker #5: So, we're very encouraged about where the business is and where it's headed.

Speaker #6: And I'll just add to that quickly too. And John jump in. When we think about coming into the fall, Maddie, we talked about that 40-year anniversary catalog.

Tara Atwood Saja: I'll just add to that quickly, too, and John, jump in. When we think about coming into the fall, Maddie, we talked about that 40-year anniversary catalog. We're incredibly excited about that. It's doubling in terms of the households that we're getting that to. On newness, we alluded to as well, just the incredible designs and also that semi-annual sale. That will certainly provide strength and demand and people coming in and just engagement. John, I don't know if you want to add anything about the product and newness we're seeing for the fall.

Speaker #6: We're incredibly excited about that. It's doubling. In terms of the household that we're getting that to, newness we alluded to as well, just the incredible designs.

Speaker #6: And also that semi-annual sale. So that will certainly provide strength and demand and people coming in and just engagement. And John, I don't know if you want to add anything about the product and newness we're seeing for the fall.

Speaker #2: Yeah, that's the most exciting part in our business is the new product is just truly been killing it. And we're just getting started with it.

John Reed: Yeah, that's the most exciting part in our business is the new product has just truly been killing it. We're just getting started with it. We rolled out a lot of newness come the Q1. We tested it in a fair amount of stores, and now that we've seen what is working, we are rushing to get it to all stores in many cases. When we launched the September catalog, we think it's by far the best ever. I mean, the best-looking catalog, but absolutely the best lineup of new products we truly have ever had. We think it's going to carry us through the, certainly the Q3, Q4 into next year for sure. We'll keep going with that. Yeah, it's going to be an exciting H2 of the year.

Speaker #2: We rolled out a lot of newness. The first quarter, we tested it in a fair amount of stores. And now that we've seen what is working, we are rushing to get it to all stores in many cases.

Speaker #2: And when we launched this September catalog, we think it's by far the best ever. I mean, the best-looking catalog, but absolutely the best lineup of new products.

Speaker #2: We've truly ever had. And we think it's going to carry us through, certainly, third and fourth quarter into next year for sure. And we'll keep going with that.

Speaker #2: And yeah, it's going to be an exciting second half of the year.

Speaker #5: Some of the leading indicators, Madeline, on newness for the fall, we're starting to get some early indicators from customers that we're going to blow away newness relative to last year as well.

Michael Lee: Some of the leading indicators, Madeline, on newness for the fall, we're starting to get some early indicators from customers that we're going to blow away newness relative to last year as well. Really excited about the newness that's coming out.

Speaker #5: So really excited about the newness that's coming out.

Speaker #2: Yep.

John Reed: Yeah.

Speaker #1: Great. Thank you.

Tara Atwood Saja: Great. Thank you.

Madeline Cech: Great. Thank you.

Speaker #3: Yep. Thank you.

John Reed: Yep. Thank you.

Speaker #1: And our next question will come from Peter Keith with Piper Sandler.

Operator 2: Our next question will come from Peter Keith with Piper Sandler.

Operator: Our next question will come from Peter Keith with Piper Sandler.

Speaker #7: Hi, this is Alexia Morgan on for Peter Keith. Thanks for taking our question. We were wondering if you could elaborate more on assumptions around the sustainability of the Q2 momentum for full-year guidance, just since it seems like the full-year demand comp guidance assumes some deceleration.

Alexia Morgan: Hi, this is Alexia Morgan for Peter Keith. Thanks for taking our question. We were wondering if you could elaborate more on assumptions around the sustainability of the Q2 momentum for full year guidance, since it seems like the full year demand comp guidance assumes some deceleration in H2. Thank you.

Speaker #7: In the second half. Thank you.

Speaker #3: Yeah, again, I think our business is going to be strong. We certainly are cautious with external things going on in the world. Certainly, freight cost and wars and all kinds of things like that that we can't forget about.

John Reed: Yeah, again, I think our business is going to be strong. We certainly are cautious with external things going on in the world. Certainly freight cost and wars and all kinds of things like that we can't forget about. We're rather conservative in our thinking. We think it's going to be strong. Knock on wood, if everything stays the way it is now, it should be pretty strong, and we're very happy with it.

Speaker #3: So we want to be rather conservative in our thinking. And but we think it's going to be strong. Knock on wood, everything stays the way it is now.

Speaker #3: It should be pretty strong. And we're very happy with it.

Speaker #5: Alexia, if I could just offer internally, when we're forecasting our business, we've always got sensitivities around the forecast between high side, low side forecast when we get into our merch plans.

Michael Lee: Alexa, if I could just offer. Internally, when we're forecasting our business, we've always got sensitivities around the forecast between high side, low side forecast when we get into our merch plans. I can tell you that there is a lot of optimism today within our merch teams on the H2 possibilities, we are protecting against some of the high side forecasts that we're seeing, just to make sure that if the performance continues at Q2 levels, that we're well positioned to support that business. That does nothing in terms of the guidance we're providing, it gives you a little bit of a peek on internal sentiment on the business.

Speaker #5: And I can tell you that there is a lot of optimism today within our merch teams on the second half possibilities. And we are protecting against some of the high side forecasts that we're seeing just to make sure that if the performance continues at Q2 levels that we're well positioned to support that business.

Speaker #5: So that does nothing in terms of the guidance we're providing, but it gives you a little bit of a peek on internal sentiment on the business.

Speaker #1: Great. Thank you.

Alexia Morgan: Great. Thank you.

Speaker #3: Yep. Thank you.

John Reed: Yep. Thank you.

Speaker #1: And we'll hear next from Peter Benedict with Baird. Peter, your line is open.

Operator 2: We'll hear next from Peter Benedict with Baird. Peter, your line is open.

Operator: We'll hear next from Peter Benedict with Baird. Peter, your line is open.

Speaker #8: Sorry about that. I was on mute. Thanks for taking the question, guys. So question on kind of product margins down 190 basis points in the quarter.

Peter Benedict: Sorry about that. I was on mute. Thanks for taking the question, guys. Question on kind of product margins down 190 basis points in the quarter. If you could dig in a little bit further on what the drivers were there, maybe bucket those, and then how you think about that over the back half of this year. Thinking about Q4 in particular as you lap the inventory impairment. Related to all that, the delivery fee increase from 1 June, how's that kind of impacting the guidance over the back half of the year? Thank you.

Speaker #8: If you could dig in a little bit further on what the drivers were there, maybe bucket those. And then how do you think about that over the back half of this year?

Speaker #8: Thinking about 4Q in particular as you lap the inventory impairment. And related to all that, the delivery fee increase from June 1, how's that kind of impacting the guidance over the back half of the year?

Speaker #8: Thank you.

Speaker #5: Yeah, thanks, Peter. Good question. I can cover some of the key drivers of margin, though we don't get into quarterly guidance on gross margin per se.

Michael Lee: Yeah. Thanks, Peter. Good question. I can cover some of the key drivers of margin, though we don't get into quarterly guidance on gross margin per se. I'd say the number one driver on margin is tariff assumptions, and we continue to expect $30 to $40 million of tariff impacts for the year. I think last quarter, we had mentioned that we were coming in at the lower end of that range. I think with the latest on tariff announcements, we're coming in closer to that midpoint, slightly above the midpoint on that range. That $30 to $40 million range continues to be valid. On fuel, look, this is a tough one to forecast. We do expect fuel surcharges to remain elevated into Q3 and Q4 at similar levels of what we expected in Q2.

Speaker #5: But I'd say number one, driver on margin is tariff assumptions. And we continue to expect 30 to 40 million dollars of tariff impacts for the year.

Speaker #5: I think last quarter, we had mentioned that we were coming in at the lower end of that range. I think with the latest on tariff announcements, we're coming in closer to that midpoint, slightly above the midpoint on that range.

Speaker #5: But that 30 to 40 million dollar range continues to be valid. On fuel, look, this is a tough one to forecast. But we do expect fuel surcharges to remain elevated in Q3 and Q4.

Speaker #5: At similar levels, of what we expected in Q2. But depending on the news of the day, right, this could change wildly. But our current forecast is assuming about a 10 million dollar impact for the year, 4 million of that's behind us.

Michael Lee: Depending on the news of the day, right, this could change wildly. Our current forecast is assuming about a $10 million impact for the year, $4 million of that's behind us. You guys know that that $4 million is really Q2 in nature, because in Q1, fuel prices didn't have a big impact. Expecting about a $5 to $6 million impact balance a year. Again, that's really subject to change based on oil markets and the Iran conflict and all of that. From a shipping supply chain perspective, I think Tara did a nice job in the investor relations investor deck, laying some of this out in more detail. We've got about $10 million of impacts factored in our guide on, I'll call it just shipping/supply chain/manufacturing headwinds.

Speaker #5: And you guys know that that 4 million is really Q2 in nature because in Q1, fuel prices didn't have a big impact. So expecting about a 5 to 6 million dollar impact balance a year.

Speaker #5: But again, that's really subject to change based on oil markets and the Iranian war and all of that. From a shipping, supply chain perspective, I think Tara did a nice job in the investor relations investor deck laying some of this out in more detail.

Speaker #5: But we've got about 10 million dollars of impacts factored in our guide on, I'll call it just shipping slash supply chain slash manufacturing headwinds.

Speaker #5: And the reality is that from a shipping perspective, even though we are largely hedged on shipping because our containers are under contract, when we go to the spot market for additional containers, we're exposed to the spot market prices and spot market prices have really spiked over the last 60 to 90 days.

Michael Lee: The reality is that from a shipping perspective, even though we are largely hedged on shipping because our containers are under contract, when we go to the spot market for additional containers, we're exposed to the spot market prices. Spot market prices have really spiked over the last 60 to 90 days, and we're navigating through it. Our logistics team's doing an amazing job trying to avoid those spot prices where we can. The reality is we are out there on spot buys. That's something we're keeping an eye on, something to be mindful of when you're modeling out the H2. From a manufacturing perspective, this isn't something that's probably obvious to people outside the company, but when you talk about fuel prices, there are fuel inputs that go into things like foam, and our foam costs have gone up in manufacturing.

Speaker #5: And we're navigating through it. Our logistics team is doing amazing job trying to avoid those spot prices where we can. But the reality is, as we are out there on spot buys, so that's something we're keeping an eye on, something to be mindful of when you're modeling out the second half.

Speaker #5: From a manufacturing perspective, this isn't something that's probably obvious to people outside the company. But when you talk about fuel prices, there are fuel inputs that go into things like foam and our foam costs have gone up in manufacturing.

Speaker #5: So that's factored into this as well. But a lot of this comes down to the Middle East conflict and how sticky some of these input prices will be post the war winding down.

Michael Lee: That's factored into this as well. A lot of this comes down to the Middle East conflict and how sticky some of these input prices will be post the war winding down. We've been admittedly a little bit cautious on some of these cost headwinds. 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 three to four months. From a delivery fee perspective, really happy with the move that we made. We implemented new delivery fees in June. This is the first time we've taken a fee increase, really, in three to four years, and there's been almost zero impact. We're not hearing much from customers, if anything. We're not hearing much from our internal serving team, really happy with the move that we made.

Speaker #5: So we've been admittedly a little bit cautious on some of these cost headwinds. 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 three to four months.

Speaker #5: From a delivery fee perspective, really happy with the move that we made we implemented new delivery fees in June. This is the first time we've taken a fee increase really in three to four years.

Speaker #5: And there's been almost zero impact we're not hearing much from customers. If anything, we're not hearing much from our internal selling team. So really happy with the move that we made.

Speaker #5: That's worth about 5 to 6 million dollars annually in terms of run rate. And we would expect that run rate to start to flow through as a benefit in Q3.

Michael Lee: That's worth about $5 to $6 million annually in terms of run rate, we would expect that run rate to start to flow through as a benefit in Q3. Not a full Q3 benefit, but most of a run rate benefit, just because of the lag effect. The other thing that we're building into our margin forecast for balance of year are the benefits of the TMS, the transportation management system. We've talked about the benefits of this extensively. You guys know what we're spending on this and what the benefits are. We're projecting $4 to $5 million of annualized run rate savings when this thing gets going, we are forecasting to see some of that flow through in Q3 and Q4. Really happy with what we're seeing there. The other thing to be mindful of is just occupancy costs.

Speaker #5: Not a full Q3 benefit, but most of a run rate benefit. Just because of the lag effect. The other thing that we're building into our margin forecast for balance of year are the benefits of the TMS, the transportation management system.

Speaker #5: We've talked about the benefits of this extensively; you guys know what we're spending on this and what the benefits are. We're projecting $4 to $5 million of annualized run rate savings when this thing gets going.

Speaker #5: And we are forecasting to see some of that flow through in Q3 and Q4. So really happy with what we're seeing there. The other thing to be mindful of is just occupancy costs.

Speaker #5: We continue to open new showrooms and that does serve as a drag on operating or gross margin, as those showrooms scale. So in Q3, I think the Q3 versus Q2 occupancy costs are similar in nature.

Michael Lee: We continue to open new showrooms, that does serve as a drag on operating or gross margin as those showrooms scale. In Q3, I think the Q3 versus Q2 occupancy costs are similar in nature, it starts to moderate in Q4. To the extent that you're modeling occupancy, that's something to be mindful of. Finally, the tariff refunds that I talked about a few minutes ago in my prepared remarks. There will be additional flow-through of the tariff refunds in Q3 and Q4, and we're expecting $5 to $7 million of flow-through benefit in Q3 and similar amount in Q4. It could be a little spiky. It's hard to forecast what's going to flow through and what items have different tariffs attached to it.

Speaker #5: And then it starts to moderate in Q4. So to the extent that you're modeling occupancy, that's something to be mindful of. And then finally, the tariff refunds that I talked about a few minutes ago in my prepared remarks.

Speaker #5: There will be additional flow-through of the tariff refunds in Q3 and Q4. And we're expecting 5 to 7 million of flow-through benefit in Q3 and similar amount in Q4.

Speaker #5: It could be a little spiky. It's hard to forecast what's going to flow through and what items have different tariffs attached to it. So there's a little bit of variability there.

Michael Lee: There's a little bit of variability there, I think that would be a good range to take into account. Those are kind of the key drivers that I would be thinking about. Back to your point, Peter, we did take an impairment on some inventory in Q4 last year. Our margin, I think, in Q4 was just above 38%, and I think in Q3 we were around 38.7%. As we look out in the second half, we do expect to come in north of that in our forecasting. Despite all the headwinds and tailwinds I went through, we think we're going to see benefits year over year from a margin perspective. Hopefully that's a good build for you and we can always talk later if you have more questions.

Speaker #5: But I think that would be a good range to take into account. So those are kind of the key drivers that I would be thinking about.

Speaker #5: But back to your point, Peter, we did take an impairment on some inventory in Q4 last year. So our margin I think in Q4 was just above 38%.

Speaker #5: And I think in Q3, we were around 38.7%. As we look out in the second half, we do expect to come in north of that in our forecasting despite all the headwinds and tailwinds I went through.

Speaker #5: We think we're going to see benefits year over year from a margin perspective. So hopefully that's a good build for you. And we can always talk later if you have more questions.

Speaker #1: No, that was terrific. Thanks so much.

Peter Benedict: No, that was terrific. Thanks so much.

Speaker #5: All right. Thank you, Peter.

Michael Lee: All right. Thank you, Peter.

Speaker #4: And our next question will come from Simeon Gutman with Morgan Stanley.

Operator 2: Our next question will come from Simeon Gutman with Morgan Stanley.

Operator: Our next question will come from Simeon Gutman with Morgan Stanley.

Speaker #6: Hi everyone. Hi John. Hi Michael. A couple of questions. One quick clarification. The higher delivery cost, does that get into that 5 to 6 million you said?

Simeon Gutman: Hi, everyone. Hi, John. Hi, Michael. A couple of questions and one quick clarification. The higher delivery cost, does that get into that $5 to $6 million you said? Does that flow through the comp? My real questions are twofold. First, John, when you talk about the excitement around new product, we look at the showroom expansion. You have a pretty good run rate here. I guess, when does this business get to, I don't know, maybe mid-single digit comp on a sustainable basis? It feels like it's getting close, but curious if you can underwrite that for 2027. The other follow-up, this is more for you, Michael. If we look at the Q2 composition, the SG&A dollars rose a lot. I missed some of the prepared, if there was some stuff related to tariff in there.

Speaker #6: Does that flow through the comp? And then my real questions are twofold. First, John, when you talk about the excitement around new product, we look at the showroom expansion.

Speaker #6: You have a pretty good run rate here. I guess when does this business get to, I don't know, maybe mid-single digit comp on a sustainable basis?

Speaker #6: It feels like it's getting close, but curious if you can underwrite that for '27. And then the other follow-up, this is more for you, Michael.

Speaker #6: If we look at the second quarter composition, the SG&A dollars rose a lot. I missed some of the prepared if there was some stuff related you take out the gross margin benefit from refunds, it looks like core SG&A would have been well above average.

Simeon Gutman: If you take out the gross margin benefit from refunds, it looks like core SG&A would have been well above average, such that the flow-through wasn't so great. I wanted just to get clarification on Q2, how noisy it was, and things that I'm missing in there. Thank you.

Speaker #6: Such that the flow-through wasn't so great. So I wanted to just to get clarification on second quarter. How noisy it was and things that I'm missing in there.

Speaker #6: Thank you.

Speaker #5: Sure. Sure. I could speak about the sales and the products. So yeah, I mean, looking forward to the third, fourth quarter and into next year.

John Reed: Sure. I can speak about the sales and the products. Art, yeah, looking forward to the Q3, Q4 and into next year. As I said before, our product is really resonating with our clients, and it's really in all categories. We're seeing some really nice increases everywhere. We're about to launch some of our newest product, that precious product, largest collections that we've ever done, coming up in the September and so forth. I think the product is definitely on track. We've got an incredible team, incredible supply chain out there that's really working with us, shipping on time and so forth. Great quality. We're learning every day on what's going to be hot, and we're moving really fast to get that stuff out to the stores and promote it and so forth.

Speaker #5: As I said before, our product is really, really resonating with our clients. And it's really in all categories. We're seeing some really nice increases everywhere.

Speaker #5: We're about to launch some of our newest products, that precious product. Largest collections that we've ever done, coming up in September and so forth.

Speaker #5: So I think the product is definitely on track. We've got an incredible team, incredible supply chain out there. That's really working with us, shipping on time and so forth.

Speaker #5: Great quality. And we're learning every day on what's going to be hot and we're moving really fast to get that stuff out to the stores and promote it and so forth.

Speaker #5: Really new trends out there that we just absolutely love. The dead on who we are. We've never been an ultra-modern company. Much more eclectic, warmer, incredible woods and stones and so forth.

John Reed: Really new trends out there that we just absolutely love, they're dead on who we are. We've never been an ultra-modern company. Much more eclectic, warmer, incredible woods and stones and so forth. We're taking some categories, really growing them. Upholstery, of course, is our biggest category, and we're launching up some new product that's just amazing, and new collections that fit a new customer as well. We're really going after more of a broad depth of a client that certainly hits our demographics, but in taste-wise, we're hitting a much broader client than we've ever hit and offering a better selection. Things from taking relics and beautiful antiques and replicating them into today's world, to doing some more modern product as well. We're going both directions. Pricing, same higher pricing, some sharper price point product to hit a younger customer.

Speaker #5: So, we're taking some categories, really, really growing them. Upholstery, of course, is our biggest category. And we're launching some new product that's just amazing.

Speaker #5: And new collections that fit a new customer as well. We're really going after more of a broad depth of a client. That certainly hits our demographics, but in taste-wise, we're hitting a much broader client than we've ever hit.

Speaker #5: And offering a better selection. Things from taking relics and beautiful antiques and replicating them into today's world to doing some more modern product as well.

Speaker #5: So we're going both directions. Pricing, same. Higher pricing, some sharper price point product to hit a younger customer. So we think we're hitting on all cylinders right now.

John Reed: We think we're hitting on all cylinders right now, and I'm sure that's going to continue into the fall and into next year.

Speaker #5: And I'm sure that's going to continue into the fall and into next year.

Speaker #3: Simeon, I'll jump in. Just one build to John's comment. Getting to that mid-single digit sustainable comp growth rate. A big part of that's e-com too.

Michael Lee: Tim, I'll jump in. Just one build to John's comment, getting to that mid-single digit sustainable comp growth rate. A big part of that's e-com too. We've talked a little bit about our aspirations on e-com. If you look at our e-com performance year to date, we're down 1%, 1.5%, and we think that should be a growth business for us. We made an announcement last month about our desire to really improve the focus on this channel over time. E-com plays a critical role there. Getting back to your other questions, the delivery fee is not in the comp, just be mindful of that. Q2 SG&A, yeah, it was a little elevated. Just be mindful of two things.

Speaker #3: And we've talked a little bit about our aspirations on e-com. If you look at our e-com performance year to date, we're down 1%, 1.5%.

Speaker #3: And we think that should be a growth business for us. We made an announcement last month about our desire to really improve the focus on this channel over time.

Speaker #3: But e-com, plays a critical role there. Getting back to your other questions, the delivery fee is not in the comp. So just be mindful of that.

Speaker #3: And then, second quarter SG&A, yeah, it was a little elevated. Just be mindful of two things. Number one, with the strategic investments that we're making, our IT costs are elevated as we're going through this investment cycle for the year.

Michael Lee: Number one, with the strategic investments that we're making, our IT costs are elevated as we're going through this investment cycle for the year. That's one note. The other note is our selling costs were a little bit elevated, and be mindful that some of our selling costs is driven by written sales. If you have a big written sales month relative to delivered sales, you get a little bit of a de-leveraging because of that timing. That will reverse out a little bit as written sales and delivered converge over time. SG&A overall for the year will be elevated. We've been really clear on that. We factor that into our guide. As we sit here today, we think SG&A is going to land around 100 basis points higher on a percent of revenue basis than prior year. It's just a good anchoring point.

Speaker #3: So that's one note. The other note is our selling costs were a little bit elevated. And be mindful that some of our selling costs is driven by written sales.

Speaker #3: So if you have a big written sales month relative to delivered sales, you get a little bit of a deleveraging because of that timing.

Speaker #3: So that will reverse out a little bit. As written sales and delivered converge over time. SG&A, overall for the year, will be elevated. We've been really clear on that.

Speaker #3: We factor that into our guide. As we sit here today, we think SG&A is going to land around 100 basis points higher on a percent of revenue basis than prior year.

Speaker #3: It's just a good anchoring point. And you can try to angulate that back and say, okay, where are those investments going? It's really the catalog that John highlighted.

Michael Lee: You can triangulate that back and say, "Okay, where are those investments going?" It's really the catalog that John highlighted. We're making a big bet on doubling the fall circ. We're going to increase the spring circ, which we pay for this year as well. Those are two very prudent investments that help us get to that mid-single-digit comp growth that you're talking about. We're also investing in the POS pull forward project as well as the digital transformation. That's in the SG&A outlook. There's definitely an investment cycle going on here, but we look forward to the returns on investment that are going to come from that and allow us to sustainably grow this business and expand margins over time. It's a very necessary investment that we're making right now.

Speaker #3: We're making a big bet on doubling the false circ. We're going to increase the spring circ, which we pay for this year as well.

Speaker #3: Those are two very prudent investments that help us get to that mid-single digit comp growth that you're talking about. We're also investing in the POS pull forward project as well as the digital transformation.

Speaker #3: So that's in the SG&A outlook. So there's definitely an investment cycle going on here, but we look forward to the returns on investment that are going to come from that and allow us to sustainably grow this business and expand margins over time.

Speaker #3: So it's a very necessary investment that we're making right now.

Speaker #6: Thank you.

Simeon Gutman: Thank you.

Speaker #5: Thank you.

John Reed: Thank you.

Speaker #1: And we'll go next to Seth Sigman from Barclays.

Operator 2: We'll go next to Seth Sigman from Barclays.

Operator: We'll go next to Seth Sigman from Barclays.

Speaker #7: Great. Good morning, everyone. Thanks for taking the question. I wanted to ask about pricing. You've raised prices periodically over the last year. Can you just update us on the strategy from here?

Seth Sigman: Great. Good morning, everyone. Thanks for taking the question. I wanted to ask about pricing. You've raised prices periodically over the last year. Can you just update us on the strategy from here and specifically as it relates to the tariff refunds? It doesn't seem like you're investing in price. You seem more focused on some of the longer-term drivers that you talked about. Can you just speak to that and what you're seeing across the industry as it relates to pricing and how folks are using those tariff refunds? Just to follow up on that last point around the investment cycle, is it fair to say that you're including the costs here related to that? That $7 to $10 million, but not necessarily including the sales benefit since you kept the full-year sales unchanged. Thanks so much.

Speaker #7: And specifically, as it relates to the tariff refunds, it doesn't seem like you're investing in price. Seems more focused on some of the longer-term drivers that you talked about.

Speaker #7: But can you just speak to that and what you're seeing across the industry as it relates to pricing and how folks are using those tariff refunds?

Speaker #7: And then just to follow up on that last point around the investment cycle, is it fair to say that you're including the costs here related to that?

Speaker #7: That 7 to 10 million but not necessarily including the sales benefit since you kept the full year sales unchanged? Thanks so much.

Speaker #5: Sure, Seth. Yeah, pricing, we're not doing anything significantly different than we have been. For this spring and summer. Obviously, there are some headwinds with more delivery costs or container costs and so forth.

John Reed: Sure, Seth. Pricing, we're not doing anything significantly different than we have been for this spring and summer. Obviously, there are some headwinds with more delivery costs or container costs and so forth. We've worked with our vendors, who are incredible partners with us, and we're going to hold pricing right now. We don't see that we have to raise prices. We certainly don't see we have to lower prices as well. That's kind of a steady point right now for this year and have no plans to change it.

Speaker #5: But we've worked with our vendors, who are incredible partners with us. And we're going to hold pricing right now. We don't see that we have to raise prices.

Speaker #5: We certainly don't see we have to lower prices as well. So that's kind of a steady point right now for this year and have no plans to change it.

Speaker #3: I can jump in. And I think I followed the question okay, but let me just quickly remind everybody the reinvestments that we're making along with the tariff refunds.

Michael Lee: I can jump in, and I think I followed the question okay, but let me just quickly remind everybody the reinvestments that we're making along with the tariff refunds. Just overall tariff refunds were the $38 million, recognizing $24 million in Q2 and forecasting $5 to $7 million of additional benefit in Q3 and Q4 respectively. We're going to reinvest about $5 million back into marketing, really to accelerate growth further. We're really big believers in the catalogs and believe we've got better catalogs than we've ever had. We're going to double the circulation for the fall, and we're going to increase the circulation in the spring. Those two investments, around $5 million, both of which will hit our P&L this year.

Speaker #3: So just overall tariff refunds, we're the 38 million dollars. Recognizing 24 million in Q2 and forecasting 5 to 7 million of additional benefit in Q3 and Q4 respectively.

Speaker #3: We're going to reinvest about 5 million dollars back into marketing, really to accelerate growth further. We're really big believers in the catalogs and believe we've got better catalogs than we've ever had.

Speaker #3: So we're going to double the circulation for the fall and we're going to increase the circulation in the spring. Those two investments around 5 million dollars, both of which will hit our P&L this year.

Speaker #3: On the technology side, 4 to 6 million dollars of incremental spend relative to what we talked about at the beginning of the year in terms of the digital transformation.

Michael Lee: On the technology side, $4 to $6 million of incremental spend relative to what we talked about at the beginning of the year in terms of the digital transformation, and it's really driven by the decision to pull forward our new POS system, which was always in our long-term technology roadmap, but was previously planned to follow the ERP, OMS, TMS wave of investments. In light of the tariff refunds, and also in light of the fact that we've learned that by pulling this forward, we can actually wean ourselves off of legacy systems faster and also de-risk the deployment of these technologies, we felt it was a very prudent decision, and that is now underway. That POS pull forward is going to be $2 to $3 million of P&L this year.

Speaker #3: And it's really driven by the decision to pull forward our new POS system, which was always in our long-term technology roadmap but was previously planned to follow the ERP, OMS, TMS wave of investments.

Speaker #3: But in light of the tariff refunds and also in light of the fact that we've learned that by pulling this forward, we can actually wean ourselves off of legacy systems faster and also de-risk the deployment of these technologies.

Speaker #3: We felt it was a very prudent decision and that is now underway. So that POS pull forward is going to be 2 to 3 million dollars of P&L this year.

Speaker #3: And from a cash perspective, that POS is now overlaid into the investor deck that you guys can see for our digital transformation. It's about 20 million dollars over five years.

Michael Lee: From a cash perspective, that POS is now overlaid into the investor deck that you guys can see for our digital transformation. It's about $20 million over 5 years, with $2 to $3 million being this year. Again, this is a major capability win for Arhaus. It will absolutely change the game for the 1,100 sales folks that we have across the organization. We're also deploying $2 to $3 million into IT for additional resources to attack our backlog of initiatives. IT is moving really fast right now to really modernize all of our capabilities, and in some ways, they're ahead of schedule on certain things and are looking for more funding to go after the backlog of projects. We think that's a prudent use of tariff reimbursements.

Speaker #3: With 2 to 3 million being this year. And again, this is a major, major capability win for our house. It will absolutely change the game for the 1,100 sales folks that we have across the organization.

Speaker #3: We're also deploying 2 to 3 million dollars into IT for additional resources to attack our backlog of initiatives. IT is moving really fast right now to really modernize all of our capabilities.

Speaker #3: And in some ways, they're ahead of schedule on certain things. And I'm looking for more funding to go after the backlog of projects. So we think that's a prudent use of tariff reimbursements.

Speaker #3: And then we talked about some of these cost headwinds between fuel surcharges and shipping sourcing costs that we won't belabor here. And then the rest drops to the adjusted EBITDA.

Michael Lee: We talked about some of these cost headwinds between fuel surcharges and shipping sourcing costs that we won't belabor here. The rest drops to the adjusted EBITDA. Hopefully that makes sense. In terms of your other question around does the SG&A reflect these investments, it absolutely does. There is a burn rate on these investments that do not go into CapEx, that are OpEx in nature. They cannot be capitalized. That is in our P&L today, and there is no revenue attached to it because these are all in-flight projects that have not gone live yet. We are definitely in an investment cycle, and we're being very prudent about the projects that we take on. We're being very prudent about making sure we stay on track, on scope, on budget.

Speaker #3: So hopefully that makes sense. In terms of your other question around does the SG&A reflect these investments, it absolutely does. There is a burn rate on these investments that do not go into capex that are opex in nature.

Speaker #3: They cannot be capitalized so that is in our P&L today and there is no revenue attached to it because these are all in-flight projects that have not gone live yet.

Speaker #3: So we are definitely in an investment cycle and we're being very prudent about the projects that we take on. We're being very prudent about making sure we stay on track, on scope, on budget.

Speaker #3: And as we sit here today, we're on schedule for a Q1 go-live. Of this technology. So it's a really exciting time for our house and we'll continue to provide updates on a quarterly basis.

Michael Lee: As we sit here today, we're on schedule for a Q1 go live of this technology. It's a really exciting time for Arhaus, and we'll continue to provide updates on a quarterly basis.

Speaker #7: Great. Thank you, guys.

Seth Sigman: Great. Thank you, guys.

Speaker #3: All right. Thank you.

Michael Lee: All right. Thank you.

Speaker #5: Thank you.

John Reed: Thank you.

Speaker #1: And this now concludes our question and answer session. I would like to turn the floor back over to Tara Atwood-Sage for closing comments.

Operator 2: This now concludes our question and answer session. I would like to turn the floor back over to Tara Atwood Saja for closing comments.

Operator: This now concludes our question and answer session. I would like to turn the floor back over to Tara Atwood Saja for closing comments.

Speaker #4: Thank you, everyone, for joining us.

Tara Atwood Saja: Thank you everyone for joining us.

Speaker #5: Thanks, you guys. Appreciate it. Have a great day.

John Reed: Thanks, you guys. Appreciate it.

Michael Lee: Thank you.

John Reed: Have a great day.

Speaker #4: Bye.

Tara Atwood Saja: Bye.

Operator 2: Ladies and gentlemen.

Operator: Ladies and gentlemen. Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.

Tara Atwood Saja: Goodbye

Operator 2: Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.

Q2 2026 Arhaus Inc Earnings Call

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