Arhaus (ARHS) Q3 2026 earnings review
Arhaus orders rise 14%, but higher costs cut its profit
Shoppers ordered much more furniture from Arhaus, the high-end home furnishings retailer, while rising shipping and marketing bills cut its profit. Comparable written sales—new orders at existing stores—rose 14% from a year ago, lifting customer deposits to $325 million. Chief executive John Reed credited new collections and custom options, and the company raised its full-year sales plan while keeping its profit outlook unchanged.
| Comparable written sales (new orders) | +13.9% from a year ago (+12.5% last quarter) |
|---|---|
| Net revenue | $368.1M +6.8% from a year ago |
| Net income | $7.8M -36.0% from a year ago (guided $8–13M) |
| Full-year outlook | Sales raised $25M profit outlook held flat |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because booming customer orders were offset by higher overhead and delivery costs that kept full-year profit flat. Two straight quarters of double-digit order growth and a higher fourth-quarter delivery plan show that demand is real rather than a temporary weather bounce. The bad news: selling and overhead expenses jumped 15%, so the extra $25 million of planned full-year revenue adds nothing to net income.
The question now is whether Arhaus can turn its record order backlog into profit once upfront catalog bills pass and furniture reaches customers. Either fourth-quarter deliveries will outrun the cautious profit plan, or ongoing freight, tariff, and clearance costs will keep squeezing margins into next year. Fourth-quarter profit margins and 2027 cost targets will settle it.
🐂 Bull Case
New Orders Accelerated Against a Record Base
Arhaus tracks comparable written sales, which measure new customer orders at stores open for at least 13 months. Last quarter, orders jumped 12.5%, but critics worried that gain merely caught up on purchases delayed by winter weather. Chief executive John Reed said that "continued investment in compelling new collections and expanded customization is resonating with clients".
Third-quarter comparable written sales grew 13.9% from a year ago, accelerating from the second quarter. That growth came after the furniture retailer mailed its 40th-anniversary fall catalog to more than twice as many households as in the spring. Crucially, the company beat a tough comparison from last year, when orders rose 7.4% during a record September.
Back-to-back quarters of double-digit order growth argue against the fear that second-quarter demand was a one-off weather bounce. Still, one print only fades the concern about erratic demand, because management did not state how much of the order jump came from half-price clearance events. What to watch: fourth-quarter comparable written sales against last year's 2.8% drop. Another double-digit gain would prove that new collections are driving steady demand.
Customer Deposits Reached a Record $325 Million
When shoppers order custom sofas or tables, Arhaus collects upfront payments recorded on the balance sheet as client deposits. Three months ago, management held its full-year revenue outlook flat even as orders rose, raising doubts about whether those orders would turn into deliveries this year.
In the third quarter, client deposits climbed 28.0% from a year ago to $325.0 million. By our math, the retailer added $61.2 million of net new deposits during the quarter, nearly triple the $20.9 million it added in the same period last year. Management raised its full-year revenue plan by $25 million at the middle of the range and forecast fourth-quarter comparable delivered sales growth of 6% to 12%.
The combination of a second straight quarter of rising deposits and a higher revenue outlook resolves the concern over second-half deliveries. Because client deposits turn into recognized revenue when furniture reaches the customer's home, the $325.0 million backlog backs up the fourth-quarter delivery ramp. What to watch: fourth-quarter net revenue against the $398 million to $418 million plan. Landing near the top would show that factories are clearing the order backlog on time.
Positives this quarter didn't test
Two standing growth drivers from earlier quarters received no new figures in the third-quarter earnings release.
- Interior design and trade channels: total interior designers stayed at 152, up from 142 at year-end, while the release gave no update on trade program membership; full-year showroom design staffing will show whether the channel is still expanding.
- Store and warehouse software upgrades: the release did not mention the point-of-sale system rollout planned for the fourth quarter or the core operating software launch set for February 2027; fourth-quarter remarks will test whether both projects stayed on schedule.
🐻 Bear Case
Higher Sales Brought Zero Extra Full-Year Profit
"Our investments in our people, infrastructure, and technology are strengthening our foundation and positioning Arhaus for sustainable, profitable long-term growth," finance chief Michael Lee said. Yet in the third quarter, selling, general and administrative expenses—which cover store payroll, catalog mailings, and corporate overhead—jumped 14.8% from a year ago to $134.3 million, more than twice the 6.8% pace of revenue growth.
- Selling and overhead costs: 36.5% of revenue, up 2.5 percentage points from a year ago
- Operating margin: 2.7% of revenue, down 2.0 percentage points from 4.8% last year
- Net income: $7.82 million, down 36.0% from a year ago and below the $8 million to $13 million outlook
- Full-year outlook: revenue raised by $25 million at the middle of the range, but net income and Adjusted EBITDA held flat
Part of the cost increase happened because Arhaus pays sales commissions and catalog bills when customers place orders, while accounting rules wait to record revenue until the furniture arrives. However, holding full-year profit flat while raising revenue by $25 million shows that fourth-quarter deliveries will not cover the extra marketing and freight bills this year. What to watch: fourth-quarter selling and overhead costs as a share of revenue. A reading above 33.4% for the full year would mean overhead grew faster than management planned.
Freight and Tariffs Still Squeeze Underlying Margins
Earlier this year, Arhaus won a $37.8 million refund on past import tariffs, recognizing $23.8 million of that gain in the second quarter and leaving $14.0 million in inventory to boost second-half profit by $5 million to $7 million per quarter. In the third quarter, reported gross margin—revenue left after the cost of making and shipping furniture—rose 0.5 percentage points from a year ago to 39.2%.
In the outlook section, the company noted "continued fuel and transportation cost pressures and the strategic investment into expanded marketing initiatives to support future growth". By our math, excluding a $6 million midpoint tariff refund benefit from cost of goods sold leaves an underlying third-quarter gross margin of about 37.6%, down 1.1 percentage points from 38.7% a year ago.
This matters because the one-time tariff refund finishes flowing through inventory at the end of this year, while Section 301 import duties and higher shipping rates remain in place. Once the refund benefit ends, gross margin will reflect those higher freight and tariff bills directly. What to watch: the exact third-quarter tariff refund amount in the upcoming quarterly filing. A benefit of $6 million or more would confirm that underlying product margins shrank.
Risks this quarter didn't answer
Three standing concerns from prior quarters could not be tested from the third-quarter earnings release alone.
- Discounting on older inventory: management previously planned six months of up-to-50%-off clearance events, and the release did not state how much of the 13.9% order jump came from discounted goods; conference call remarks will test the promotional mix.
- Accounting control weaknesses: four material weaknesses in internal controls were previously tied to the February 2027 software upgrade, with no status update in the release; the quarterly filing's controls section will show if they persist.
- Related-party store and warehouse leases: payments to entities partly owned by the founder live in the filing footnotes rather than the release; Note 10 of the quarterly filing will show the nine-month total.
💲 Other KPIs
Cash rose 25.5% from the end of 2025, even after the furniture maker paid a $49.6 million special cash dividend in the first quarter. By our math, third-quarter free cash flow—operating cash left after capital spending—reached $91.9 million, up from $28.0 million a year ago because customer deposits brought in $89.0 million over the first nine months.
Stock on hand grew 9.7% from a year ago and 6.4% from the end of 2025, rising by $7.0 million from the second quarter. Inventory is growing at about one-third the 28.0% pace of customer deposits, which keeps working capital tied up in unsold goods low heading into the fourth-quarter delivery peak.
Total store count held steady from the second quarter and rose 5.8% from 103 a year ago. During the third quarter, the retailer relocated its Charlotte, North Carolina store into a 35,000-square-foot building—its second-largest traditional showroom—and renovated one location in Atlanta, Georgia. Total showroom square footage is up 4.7% since December.
🔮 Guidance
Raised. The middle of the full-year sales plan moved up by $25 million to $1.475 billion, or 6.9% growth from last year. Arhaus had held this target unchanged for three straight quarters before raising it today on higher customer deposits.
New. The fourth-quarter outlook calls for 11.8% revenue growth at the middle of the range, up from 6.8% in the third quarter. Arhaus has beat its quarterly revenue midpoint for four straight quarters by an average of 3.3%; if the pattern holds, fourth-quarter revenue would reach $421 million.
Raised. Management lifted the full-year comparable delivered sales target by 1.75 percentage points at the middle of the range, to 3.25%, after holding it at 0% to 3% for three quarters. Through the first nine months, comparable delivered sales are up 1.8%.
New. The plan points to 9.0% growth at the middle of the range, a sharp step-up from 2.6% in the third quarter. The acceleration rests on delivering the $325.0 million of customer deposits sitting on the balance sheet against an easy 1.4% comparison from a year ago.
Unchanged. The full-year profit target still calls for $75.5 million at the middle of the range, up 12.3% from last year because of the second-quarter tariff refund. Across four quarters, the midpoint moves have been $0, +$5 million, and $0, as fuel and marketing costs absorbed the latest revenue raise.
New. At the $25.5 million midpoint, fourth-quarter profit would rise 69.0% from last year's $15.1 million, which was weighed down by an inventory write-down. That rebound follows a 36.0% profit drop in the third quarter.
Unchanged. Management kept the full-year midpoint at $165.5 million, or 14.1% growth from 2025. Over the last four quarters, the midpoint moves were $0, +$10 million (when the tariff refund was added), and $0 today.
New. The $49.5 million midpoint represents 41.5% growth from a year ago and an Adjusted EBITDA margin of 12.1% at the revenue midpoint, up from 7.4% in the third quarter as seasonal delivery volume peaks.
Unchanged. With $46 million spent in the first nine months, the $80 million midpoint leaves $34 million for the fourth quarter by our math, double the $17 million spent in the third quarter.
Unchanged. After $39.4 million in the first nine months, the $52.5 million midpoint leaves $13.1 million for the fourth quarter by our math, slightly below the $14.3 million recorded in the third quarter.
Unchanged. Both full-year assumptions match the prior quarter's plan. The third-quarter effective tax rate was 33.2%, bringing the nine-month tax rate to 29.5%.
Unchanged. The store expansion plan has stayed identical all year. With 109 showrooms open at the end of September compared to 107 at the end of 2025, most new store openings for the year fall into the fourth quarter.
❓ Key Questions
How much of the tariff refund helped third-quarter margins?
Management previously estimated that $5 million to $7 million of capitalized tariff refunds would lower cost of goods sold in the third quarter. Without the exact figure, investors cannot see how much underlying product margins shrank from freight and new tariffs.
Did half-price clearance sales drive the 13.9% order jump?
Last quarter, Arhaus said it would run up-to-50%-off events on older inventory for six months. Management did not disclose the share of third-quarter written orders that came from clearance discounts versus full-price fall collections.
Why did $25 million of extra sales add zero profit?
Arhaus raised its full-year revenue midpoint by $25 million but kept Net Income and Adjusted EBITDA unchanged. How much of that ~ $10 million gross profit pool went to unexpected fuel and shipping rates versus elective marketing spend?
Are the store and warehouse software rollouts on schedule?
Arhaus pulled its point-of-sale system rollout forward into the fourth quarter and scheduled its core operating software launch for February 2027, which is also needed to fix four material accounting weaknesses. The release gave no status update on either milestone.