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What changed in Arhaus, Inc.'s 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of Arhaus, Inc.'s 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+322 added−315 removedSource: 10-K (2026-02-26) vs 10-K (2025-02-26)

Top changes in Arhaus, Inc.'s 2025 10-K

322 paragraphs added · 315 removed · 217 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeOur Products, Sourcing and Product Development We are a lifestyle brand and omni-channel retailer of premium home furnishings focused on providing livable luxury to clients. Our unique concept is dedicated to bringing clients heirloom quality, artisan-made furniture and décor.
Biggest changeThese growth initiatives include: • Premium, artisan-crafted product that differentiates the brand • Expansion of our Showroom footprint to increase awareness, engagement, and conversion • Increased brand awareness and client engagement through immersive experiences and storytelling, including catalogs and social media • An integrated omni-channel model that supports a connected client journey • Investments in scalable infrastructure to support growth Our Premium, Artisan-Crafted Products We are a lifestyle brand and omni-channel retailer of premium home furnishings and décor focused on providing livable luxury to clients.
We believe our Showrooms and website, catalogs, mailings, digital offerings and social media engagement, among other things, act as important branding and advertising vehicles. Our print and digital media strategy serves as a key driver of net revenue through both our Showrooms and website. Our clients respond to the catalogs mailings and digital offerings across all of our channels.
We believe our Showrooms and website, catalogs, mailings, digital offerings and social media engagement, among other things, act as important branding and advertising vehicles. Our print and digital media strategy serves as a key driver of net revenue through both our Showrooms and website. Our clients respond to the catalogs mailings and digital offerings across all of our sales channels.
We are currently managed by a group of experienced senior executives, including our Founder, Chairman and CEO, John Reed, and other key team members with substantial knowledge and understanding of the Company and the industry sector in which we operate.
We are currently managed by a group of experienced senior executives, including our Co-Founder, Chairman and CEO, John Reed, and other key team members with substantial knowledge and understanding of the Company and the industry sector in which we operate.
W e compete with national, regional and local home furnishing retailers, department stores, mail-order catalogs, online retailers focused on home furnishings, interior design trade and specialty showrooms, antique dealers and other merchants that provide unique items and custom-designed product offerings. We believe we compete primarily on the basis of our design, quality and value.
W e compete with national, regional, and local home furnishing retailers, as well as department stores, mail-order catalogs, online retailers focused on home furnishings, interior design trade and specialty Showrooms, antique dealers and other merchants that provide unique items and custom-designed product offerings. We believe we compete primarily on the basis of our design, quality, value, and service.
The charters for our Board of Directors’ Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee, as well as our Code of Business Conduct and Ethics, our Corporate Disclosure Policy and other related materials are available on our website. 11
The charters for our Board of Directors’ Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee, as well as our Code of Business Conduct and Ethics, our Corporate Disclosure Policy and other related materials are available on our website. 11 Table of Contents
Seasonality Our quarterly results depend upon a variety of factors, including the opening of new Showroom locations, the introduction of new merchandise assortments and categories, changes in our product offerings, shifts in quarter over quarter timing of various events such as holidays, Showroom closures, catalog releases, promotional events and the realization of the costs and benefits of our numerous strategic initiatives, among other things.
Seasonality Our quarterly results depend upon a variety of factors, including Showroom openings, the introduction of new merchandise, changes in our product offerings, shifts in timing of various events such as holidays, Showroom closures, catalog releases, promotional events, and the realization of the costs and benefits of our numerous strategic initiatives, among other things.
We continue to evaluate and optimize our print and digital media strategy based on our experience. In addition, we will continue to increase our brand awareness by expanding our Showroom footprint, enhancing digital marketing, and from our improved website features and analytics.
We continue to evaluate and optimize our print and digital media strategy based on our experience. In addition, we will continue to increase our brand awareness by expanding our Showroom footprint, increasing digital marketing, and improving website features and analytics.
Our vertical model and deep network of direct sourcing relationships allow us to bring to market higher quality products at more competitive price points than our competitors. We believe our distinctive brand based on livable luxury, our strong direct global sourcing relationships, and our highly experiential omni-channel approach allow us to compete effectively and differentiate ourselves from competitors.
Our vertically integrated model and deep network of direct sourcing relationships allow us to bring to market high quality and differentiated products at competitive price points. We believe our distinctive brand based on livable luxury, our strong direct global sourcing relationships, and our highly experiential omni-channel model allow us to differentiate ourselves from competitors.
Our recent Showroom growth is summarized in the following table: 2024 2023 Showrooms open at beginning of period 92 81 Showrooms opened (1) 16 14 Showrooms closed for relocations (5) (3) Showrooms open at end of period 103 92 (1) Showrooms opened during the respective periods includes both new and relocated Showrooms.
Our recent Showroom growth is summarized in the following table: December 31, 2025 2024 Showrooms open at beginning of period 103 92 Showrooms opened (1) 12 16 Showrooms closed for relocations (7) (5) Showrooms closed permanently (1) — Showrooms open at end of period 107 103 (1) Showrooms opened during the respective periods includes both new and relocated Showrooms.
Failure to comply with such laws and regulations, which tend to become more stringent over time, can result in significant fines, penalties, costs, and liabilities, which may be joint and several, or restrictions on operations, civil or criminal sanctions, and could expose us to costs of investigation or remediation, as well as tort claims, and could negatively affect our business, financial condition or results of operations. 10 Information About Our Executive Officers Refer to Item 10 of this Annual Report for information on the Company's executive officers, which is incorporated herein by reference.
Failure to comply with such laws and regulations, which tend to become more stringent over time, can result in significant fines, penalties, costs, and liabilities, which may be joint and several, or restrictions on operations, civil or criminal sanctions, and could expose us to costs of investigation or remediation, as well as tort claims, and could negatively affect our business, financial condition or results of operations.
As of that date, approximately 1,160 of our employees were based in our Showrooms, 430 of our 9 employees were based in our warehouses, distribution centers and third party logistic warehouses, 270 of our employees were based in our manufacturing facility, and 690 of our employees were based in our corporate headquarters.
As of that date, approximately 1,200 of our employees were based in our Showrooms, 580 of our employees were based in our warehouses, distribution centers and third party logistic warehouses, 310 of our employees were based in our manufacturing facility, and 740 of our employees were based in our corporate headquarters.
Our furniture product offerings are comprised of bedroom, dining room, living room and home office furnishings and include sofas, dining tables and chairs, accent chairs, console and coffee tables, beds, headboards, dressers, desks, bookcases and modular storage, among many more items.
Our product assortments span a wide range of categories and styles, including bedroom, dining room, living room, home office furnishings, and include sofas, dining tables and chairs, accent chairs, console and coffee tables, beds, headboards, dressers, desks, bookcases, modular storage, among many more items.
Marketing and Advertising We use a variety of marketing and advertising approaches to drive client traffic across all of our sales channels, strengthen and reinforce brand awareness, attract new clients and encourage repeat purchases from existing clients.
For more information, see the “ Liquidity and Capital Resources ” section herein. Marketing and Advertising We use a variety of marketing and advertising approaches to generate client traffic across all of our sales channels, strengthen and reinforce brand awareness, attract new clients and encourage repeat purchases from existing clients.
Décor ranges from wall art to mirrors, vases to candles, and many other decorative accessories. Many of our products are conceived of, and developed by, our in-house design team of over 40 hi ghly skilled and experienced members.
Our textile product assortment includes handcrafted indoor and outdoor rugs, bed linens, and pillows and throws. Our décor product assortment ranges from wall art to mirrors, vases to candles, and many other decorative accessories. Many of our products are conceived and developed by our in-house design team of hi ghly skilled and experienced members.
Human Capital As of December 31, 2024, we had approximately 2,510 employees and 40 temporary employees, including approximately 120 part-time employees.
Human Capital As of December 31, 2025, we had approximately 2,800 employees and 30 temporary employees, including approximately 100 part-time employees.
We offer merchandise in a number of categories, including furniture, outdoor, lighting, textiles and décor. Our curated assortments are presented across our merchandise sales channels in sophisticated, family friendly and unique lifestyle settings. Based on third-party reports, publicly available data and our internal research, we estimate the United States premium home furnishing market is approximately $100 billion.
Our curated assortments are presented across our sales channels in sophisticated, family-friendly and lifestyle-oriented settings. Based on third-party reports, publicly available data, and our internal research, we believe the United States premium home furnishings market is approximately $100 billion.
Item 1. Business Overview Founded in 1986 by John Reed, our current Chief Executive Officer (“CEO”) and his father, Arhaus, Inc. (“Arhaus,” “Company,” “we,” “us” or “our”) is a growing lifestyle brand and omni-channel retailer of artisan-crafted home furnishings. We were founded on a simple idea: furniture should be responsibly sourced, lovingly made and built to last.
Item 1. Business Overview Founded in 1986 by John Reed, our Chief Executive Officer (“CE O”), and his father, Arhaus, Inc. (“Arhaus”, “Company”, “we”, “us” or “our”) is a premium home furnishings brand built on a simple idea: furniture and décor should be responsibly sourced, lovingly made, and built to last.
Our facility in North Carolina has approximately 497,000 square feet of space, with approximately 307,000 square feet dedicated to distribution and the remainder primarily dedicated to manufacturing. We also partner with third-party vendors to provide home delivery services to our clients.
Our Conover, North Carolina facility totals approximately 497,000 square feet, of which approximately 307,000 square feet is dedicated to distribution, with the remainder primarily supporting manufacturing. In addition to our distribution centers, we partner with third-party service providers to manage home delivery services for our clients.
Our distribution centers serve all of our sales channels. Our Boston Heights, Ohio facilities are approximately 1,028,500 square feet , approximately 900,000 square feet of this facility is dedicated to distribution and the remainder serves as our corporate headquarters. Our Dallas, Texas facility is approximately 800,700 square feet and is managed by a third party.
Our Boston Heights, Ohio distribution facilities comprise approximately 1,028,500 square feet, of which approximately 900,000 square feet is dedicated to distribution, with the remainder serving as our corporate headquarters. Our Dallas, Texas distribution center consists of approximately 800,700 square feet. The facility was previously managed by a third-party logistics provider and was transitioned to Arhaus in 2025 .
W e have invested, and will continue to si gnificantly invest, in our product development capabilities, including key strategic hires made over the past few years. We believe these investments will allow us to enhance our competitive advantages of offering clients premium quality and customized product at a compelling value and ultimately drive net revenue growth.
W e have invested, and expect to continue investing , in our product development capabilities. We believe these investments enhance our competitive advantages by offering clients premium quality and customized product at a compelling value and ultimately drive long-term net revenue growth.
The following lists the number of Showrooms in each state where we operate within the United States as of December 31, 2024: Locations Showrooms Locations Showrooms Alabama 1 Minnesota 1 Arizona 2 Missouri 1 California 14 New Hampshire 1 Colorado 6 New Jersey 5 Connecticut 3 New York 4 Florida 8 North Carolina 4 Georgia 3 Ohio 9 Illinois 5 Oklahoma 1 Indiana 1 Pennsylvania 4 Kansas 1 South Carolina 1 Kentucky 3 Tennessee 1 Louisiana 1 Texas 7 Maryland 4 Utah 1 Massachusetts 3 Virginia 4 Michigan 3 Wisconsin 1 7 The following lists the composition of our Showrooms as of each period presented: December 31, 2024 2023 Traditional Showrooms 85 80 Design Studios 11 8 Outlets 7 4 Total Showrooms 103 92 eCommerce Our eCommerce sales channel allows our clients to shop our product assortment and experience the unique lifestyle settings reflected in our Showrooms and print media.
This current view of the domestic opportunity may evolve over time as market conditions, client demand, and operating experience continue to develop. 6 Table of Contents The following table lists the number of Showrooms in each state where we operate within the United States as of December 31, 2025: Locations Showrooms Locations Showrooms Alabama 1 Missouri 1 Arizona 2 Montana 1 California 16 New Hampshire 1 Colorado 6 New Jersey 5 Connecticut 3 New York 4 Florida 9 North Carolina 4 Georgia 3 Ohio 9 Illinois 4 Oklahoma 1 Indiana 1 Pennsylvania 4 Kansas 1 South Carolina 1 Kentucky 3 Tennessee 1 Louisiana 1 Texas 8 Maryland 4 Utah 1 Massachusetts 3 Virginia 4 Michigan 3 Wisconsin 1 Minnesota 1 The following table lists the composition of our Showrooms as of each period presented: December 31, 2025 2024 Traditional Showrooms 90 85 Design Studios 9 11 Lofts 8 7 Total Showrooms 107 103 From January 1, 2024 to December 31, 2025, we successfully opened or relocated 28 new Showrooms.
Our outdoor product offerings include outdoor dining tables, chairs, chaises and other furniture, lighting, textiles, décor, umbrellas and fire pits. Our lighting product offerings consist of a variety of distinct and artistic lighting fixtures, including chandeliers, pendants, table and floor lamps and sconces. Our textile product offerings include handcrafted indoor and outdoor rugs, bed linens, and pillows and throws.
Our outdoor product assortment includes outdoor dining tables, chairs, chaises and other furniture, lighting, textiles, décor, umbrellas and fire pits. Our bath product assortment includes vanities and storage pieces, faucets and hardware, and Turkish bath towels. Our lighting product assortment consists of a variety of distinct and artistic lighting fixtures, including chandeliers, pendants, table and floor lamps and sconces.
As a result of these factors, our working capital requirements and demands on our product distribution and delivery network may fluctuate during the year. Unique factors in any given quarter may affect comparisons between the quarters, and the results for any quarter are not necessarily indicative of the results that we may achieve for a full year.
As a result of these factors, our working capital requirements and demands on our product distribution and delivery network may fluctuate during the year.
On November 4, 2021 , the Company completed its initial public offering (“IPO”) of its Class A common stock, which is traded on the Nasdaq Global Select Market (the “Nasdaq”) under the symbol “ ARHS. ” Our vertical model, consisting of our design and product development teams, upholstery manufacturing capabilities, direct vendor sourcing, and direct-to-consumer selling, allows us to offer a differentiated approach to furniture and décor.
On November 4, 2021 , the Company completed its initial public offering (“IPO”) of its Class A common stock, which is traded on the Nasdaq Global Select Market (the “Nasdaq”) under the symbol “ ARHS ”.
We have policies intended to ensure that we conduct business in compliance with applicable laws and regulations. While we cannot predict policy changes by various regulatory agencies or unexpected operational or other developments, we believe we are in material compliance with laws applicable to our business.
While we cannot predict policy changes by various regulatory agencies or unexpected operational or other developments, we believe we are in material compliance with laws applicable to our business. 10 Table of Contents Environmental, Health, and Safety Regulation Our operations are subject to a variety of federal, state, local and foreign laws and regulations relating to health, safety and the protection of the environment.
Competition The United States home furnishings and décor market is highly fragmented and competitive with approxim ately 23,000 retail establishments as of 2023, according to the Bureau of Labor Statistics.
Unique factors in any given quarter may affect comparisons between the quarters, and the results for any quarter are not necessarily indicative of the results that we may achieve for a full year. 9 Table of Contents Competition The United States home furnishings and décor market is highly fragmented and competitive, with approxim ately 23,000 retail establishments as of 2024, according to the Bureau of Labor Statistics.
Our vertical model and direct sourcing furnish clients with superior quality products and compelling value at attractive profit margins. We reported gross margin as a percent of net revenue of 39.4% , 42.0% and 42.7% for the years ended December 31, 2024, 2023 and 2022, respectively.
We reported gross margin as a percent of net revenue of 38.9%, 39.4% and 42.0% for the years ended December 31, 2025, 2024 and 2023, respectively. Showrooms and Real Estate Strategy As of December 31, 2025, we operated 107 Showrooms across 31 states.
Only one of our external vendors accounts for more than 10% of our net revenue, and two other external vendors each account for more than 5% of net revenue. The United States accounts for the largest share of our net revenue, including our internal manufacturing, while the remainder is distributed across multiple countries.
We maintain relationships wit h nearly 400 vendors, and our top 10 vendors, including our internal manufacturer, represent approximately 50% of our net revenue in 2025 . Only one of our external vendors accounts for more than 10% of our net revenue, and two other external vendors each account for more than 5% of net revenue.
Our Showrooms have performed well in large and small markets, urban and suburban locations and across various Showroom formats and layouts. Our average unit volumes are relatively consistent across the Northeast, West, Midwest and South regions.
While performance varies by Showroom, our Showrooms have delivered attractive unit-level financial performance across our footprint and have operated successfully across a range of geographic regions, market sizes, and Showroom formats. Our Showroom experience spans large and small markets, as well as urban and suburban locations, with generally comparable average unit volumes across the Northeast, West, Midwest and South regions.
We offer a wide range of product categories designed to be used and enjoyed throughout the home, including furniture, outdoor, lighting, textiles and décor.
We offer a broad range of product assortment across furniture, outdoor, bath, lighting, textiles and décor categories, enabling clients to furnish entire homes through a single, integrated brand.
In addition to product design and development, we have upholstery manufacturing capabilities which allow us to create intricate, high quality products at attractive prices and margins. Our ability to innovate, curate products, categories and services, then rapidly scale across our omni-channel infrastructure is a powerful platform for continued long-term growth.
With respect to sourcing, the United 5 Table of Contents States accounts for the largest share of our net revenue, including our internal manufacturing, with the remainder sourced across multiple countries. In addition to product design and development, we have upholstery manufacturing capabilities which allow us to create intricate, high quality products at attractive prices and margins.
We have longstanding relationships with our vendors which allow us a number of competitive advantages, including the ability to maintain consistent quality and ensure the majority of our products, approximately 95% based on net revenue in 2024, can only be purchased from Arhaus.
We have longstanding relationships with many of our vendors, which provide several competitive advantages, including consistent product quality and a high degree of exclusivity. Over 90% of our products, based on net revenue i n 2025, are exclusive to Arhaus and are not available through other retailers.
We are disciplined in our approach to open ing Showrooms in top tier locations and expect to continue our prudent approach as we continue to grow our Showroom footprint. 8 Distribution and Delivery We manage the distribution and delivery of our products through our distribution centers in Boston Heights, Ohio, Dallas, Texas and Conover, North Carolina.
Investments in Scalable Infrastructure, Distribution, and Delivery We manage the distribution and delivery of our products through a network of distribution centers located in Boston Heights, Ohio; Dallas, Texas; and Conover, North Carolina. These facilities support fulfillment across all our sales channels.
Real Estate Strategy Our Showrooms have historically been in high traffic locations, and we favor top tier locations near luxury and contemporary retailers that we believe are consistent with our target clients’ demographic and shopping preferences. From January 1, 2023 to December 31, 2024, we successfully opened or relocated 30 new Showrooms.
Our real estate strategy focuses on locating Showrooms in high traffic, top tier retail locations that we believe align with the demographics, lifestyle preferences, and shopping behaviors of our target clients. We generally favor locations near other luxury and contemporary retailers that complement our brand positioning and enhance visibility and brand awareness.
Our in-home designer services provide a more personalized client experience and produce AOVs over four times that of a standard order. We welcome all clients to use our complimentary in-home designer services with no appointment required.
We believe interior design services represent a scalable, underpenetrated growth opportunity that deepens engagement, increases lifetime value, and supports revenue growth. 8 Table of Contents We welcome all clients to use our complimentary interior designer services with no appointment required.
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Today, we partner with artisans around the world who share our vision, creating beautiful, premium and heirloom-quality home furnishings that clients can use for generations.
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We operate a vertically integrated model, designing and sourcing products directly from skilled artisans and carefully selected manufacturing vendors around the world, including domestic upholstery production at our own North Carolina manufacturing facility. This approach enables us to offer a highly exclusive and customizable assortment of heirloom-quality furniture and décor designed to be used and enjoyed for generations.
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This attractive market is highly fragmented, served by many small independent furniture stores, which favorably positions us to grow profitably and gain market share. We believe we are well positioned within this market due to our unique approach, momentum, scale and growth strategies.
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Design is at the core of everything Arhaus does. With more than 100 Showroom locations across the United States, our integrated omni-channel model connects every client touchpoint, from Showroom and interior design to eCommerce and catalog, allowing us to meet clients wherever and however they choose to shop while delivering a highly personalized client-first experience from discovery through delivery.
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Our products are designed to be used and enjoyed throughout the home and are sourced directly from a network of more than 400 vendors with no wholesale or dealer markup. Our product development teams work alongside our direct sourcing partners to bring to m arket proprietary merchandise that is a great value to clients.
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Our vertically integrated model, inclusive of design and product development teams, upholstery manufacturing capabilities, direct vendor sourcing, direct-to-consumer and direct-to-trade selling, allows Arhaus to maintain greater control over product quality, design integrity, and value. We offer merchandise across a broad range of categories, including furniture, outdoor, bath, lighting, textiles and décor.
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These relationships, along with our vertical model, allow us to provide higher quality products at more competitive prices than both smaller independent operators and larger competitors. We believe in p roviding a dynamic and welcoming experience in our Showrooms and online with the conviction that retail is theater.
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This highly fragmented market is served by a large number of independent retailers, which we believe provides us a meaningful opportunity to increase market share over time. We believe that we are well positioned to grow market share through our differentiated brand positioning, scale, and strong resonance with affluent clients who value quality, craftsmanship, and design.
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Our Showrooms are highly inspirational and function as an invaluable brand awareness vehicle, while our eCommerce sales channel acts as a virtual extension of our Showrooms. Our seasoned sales associates and in-home designers provide expert advice and assistance to our client base that drives significant client engagement.
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Products are designed for use throughout the home and are sourced directly from a global network of nearly 400 vendors . Through close collaboration with Arhaus product development teams and sourcing relationships, and supported by our vertically integrated model, we believe we are able to deliver high-quality products at a compelling value.
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Our omni-channel model allows clients to begin or end their shopping journey online, while also experiencing our theater-like Showrooms throughout the shopping journey. As of December 31, 2024, we operated 103 Showrooms in 30 states, consisting of 85 Traditional Showrooms, 11 Design Studios and 7 Outlets. Our business witnessed healthy performance over the last three years.
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Arhaus strives to deliver a welcoming and inspirational experience across both Showrooms and eCommerce, guided by our belief that retail is theater. Showrooms are immersive, design-forward spaces that serve as an important driver of brand awareness and client engagement, while our eCommerce channel functions as a seamless extension of the physical Showroom experience.
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Our performance is summarized in the following table: Year Ended December 31, 2024 2024 2023 2022 Net revenue $1,271,107 $1,287,704 $1,228,928 Demand comparable growth (decline) (2.2) % 7.6 % 13.8 % Comparable growth (decline) (8.0) % 1.4 % 51.6 % Our long-standing direct sourcing partnerships were a significant contributor to our success, as many of our vendors increased capacity to help facilitate our net revenue growth.
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Our experienced design consultants and interior designers provide expert guidance and personalized service, supporting clients throughout their shopping journey. As of December 31, 2025, the Company operated 107 Showrooms in 31 states, consisting of 90 Traditional Showrooms, 9 Design Studios and 8 Lofts.
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We benefited from these important, long-term relationships as our vendors worked with us to help meet the unprecedented increase in client demand and relieve significant backlog that we had experienced in recent years.
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Our financial and operating performance are summarized in the following table: Year Ended December 31, 2025 2024 2023 Net revenue $ 1,379,222 $ 1,271,107 $ 1,287,704 Net revenue growth (decline) 8.5 % (1.3) % 4.8 % Gross margin as a % of net revenue 38.9 % 39.4 % 42.0 % Net and comprehensive income as a % of revenue 4.9 % 5.4 % 9.7 % Our Competitive Strengths A Design-Led, Artisan-Crafted Concept Delivering Livable Luxury We offer a differentiated concept within the premium home furnishing and décor market by combining design-led products, quality craftsmanship, compelling value, and an integrated omni-channel model.
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Our Competitive Strengths A Differentiated Concept Delivering Livable Luxury We provide a differentiated concept, redefining the premium home furnishing market by offering an attractive combination of design, quality, value and convenience. Artisan-crafted and globally curated, our products are highly differentiated from both small and large competitors. We create merchandise that offers livable luxury style with elements of durability and practicality.
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Our artisan-crafted, globally curated products are designed to balance elevated style with durability and everyday livability. 3 Table of Contents We engage clients through an omni-channel model grounded in our long-standing conviction that retail is theater, with physical Showrooms serving as immersive, inspirational brand environments and our eCommerce channel functioning as a natural extension of those spaces.
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We serve our clients through our Showrooms and eCommerce sales channels, print and digital media and high-quality client 3 service. In a market characterized by small, independent competitors, we believe our premium lifestyle positioning, artisan-crafted style, superior quality, significant scale and level of convenience will enable us to increase our market share.
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In a highly fragmented market with limited scale, we believe our premium positioning, vertically integrated model, service-oriented approach, and curated product assortment position us well to expand brand awareness and gain market share over time. Highly Experiential, Integrated Omni-Channel Model Our integrated omni-channel model supports a premium, high-touch client experience and the execution of our growth strategy.
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Highly Experiential Omni-Channel Approach We strive to offer our products to our clients via our omni-channel approach and operate our business in a channel agnostic way. Leveraging our proprietary data and technology, we are able to meet our clients wherever they want to shop, whether online or in one of our 103 Showrooms.
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By combining immersive Showrooms with digital engagement, interior design services, exclusive artisan-crafted products, and white-glove fulfillment, our omni-channel model offers purchasing and personalized service at scale. This integrated approach allows product, service, and engagement channels to reinforce one another, supporting higher client engagement, repeat behavior, and durable revenue growth over time.
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Our product development and omni-channel go-to-market capabilities, together with our infrastructure and significant scale, enable us to offer a compelling combination of design, quality and value that we believe provides an unmatched experience. Showrooms . Our theater-like Showrooms act as an exceptionally strong brand-building tool and drive significant traffic. Our Traditional Showrooms average approximately 16,600 square feet.
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For more information, see the “ Omni-Channel Model ” section herein. Our Customer Mix Our business is supported by a mix of customers, i ncluding our core customer, customers that work with our Arhaus interior designers, and trade. Interior designer-assisted projects generally exhibit higher average order values (“AOVs”), repeat purchasing behavior, and increased visibility into future projects.
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Our smaller format Design Studios, which are located in areas such as affluent second home markets where a lower square footage format is preferred, average approximately 5,400 square feet. eCommerce . Our online capabilities are an important entry point into our ecosystem, providing our clients with research and discovery tools and allowing them to begin or complete transactions online.
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This customer mix is supported by our omni-channel model and service-oriented approach. Industry-Leading Personalization and Customization Our omni-channel model supports extensive personalization and customization, allowing clients and designers to tailor products across hundreds of silhouettes, fabrics, and leathers.
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Our online design service professionals and virtual tools complement our eCommerce sales channel by engaging clients and providing them with expert design advice and capabilities. Driven by investment in our digital platform, we believe we can increase our eCommerce penetration over time. Print and Digital Media .
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These capabilities are supported in Traditional Showrooms, Design Studios, and eCommerce and are enabled by our vertically integrated sourcing model and domestic manufacturing capabilities. A significant portion of our upholstery assortment is produced domestically in the United States, with approximately 70% sourced domestically based on merchandise receipts in 2025.
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We distribute two large catalogs each year, a spring and a fall edition, in both an online and physical format to millions of households, which have yielded strong results. We also distribute smaller mailers and postcards throughout the year to targeted audiences.
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The largest portion of this production occurs at our own manufacturing facility in North Carolina, which provides enhanced control over design, quality, and lead time. We believe these capabilities differentiate Arhaus, support deeper client engagement, and reinforce our ability to deliver highly personalized, lifestyle-driven products.
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In addition, we advertise consistently across digital platforms and regularly partner with social media influencers to drive brand awareness. Our print and digital media strategy drives both Showroom and eCommerce net revenue as it raises brand awareness and showcases new merchandise. In-home Desig ner Services .
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Strong Direct Global Sourcing Relationships Our direct global sourcing relationships enable us to offer high-quality, differentiated products with compelling value. We maintain long-standing relationships with a network of global vendors and artisans, supporting consistent product quality, supply chain resilience, and a high degree of product exclusivity.
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We welcome all clients to use our complimentary in-home designer services with no appointment required. Our in-home designer s, who work with clients in the Showroom and travel to our clients’ residences, work in unison with our Showrooms and eCommerce sales channels to drive client conversion, order size and overall experience.
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As of 2025, over 90% of our products, based on net revenue, are exclusive to Arhaus. Our in-house design and product development teams work closely with our sourcing relationships to innovate and bring new assortments to market. For more information, see the “ Our Premium, Artisan-Crafted Products ” section herein.
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In-home designer services provide a more personalized client experience and produce average order values (“AOVs”) over four times that of a standard order. Strong Direct Global Sourcing Relationships Our direct global sourcing relationships allow us to provide superior quality, differentiated customization and attractive value.
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Capital Discipline, Scalable Infrastructure, and Superior Unit Economics Our Showroom expansion strategy is grounded in a disciplined, market-by-market approach, with rigorous evaluation applied to each investment based on location, format, and customer demographics.
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Coupled with our direct global sourcing network, we maintain highly adept in-house product design and development experts that partner with our vendors to innovate and create highly customized offerings. For more information on our Global Sourcing and Product Development see the “Our Products, Sourcing and Product Development” section below.
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This Showroom experience informs our site selection and capital deployment decisions as we continue to penetrate new markets in a selective and disciplined manner. 4 Table of Contents For more information, see the “Showrooms and Real Estate Strategy” section herein .
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Superior and Consistent Unit Economics Our inspirational, theater-like Showrooms have generated robust unit-level financial results, strong free cash flow and attractive, rapid returns on our investment. We have been successful across all geographic regions we have entered and have proven to be resilient to competitive entrants.
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In addition, we are making significant, multi-year investments in technology, distribution, and manufacturing infrastructure designed to support growth, improve operational efficiency, and enhance client experience. For more information, see the “Investments in Scalable Infrastructure, Distribution, and Delivery” section herein .
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Further, our seamless omni-channel experience contributes significant uplift in our markets. 4 Our Growth Strategies We believe there is a significant opportunity to drive sustainable growth and profitability by executing on the following strategies: Increase Brand Awareness to Drive Net Revenue We will continue to increase our brand awareness through an omni-channel approach which includes the growth of our Showroom footprint, enhanced digital marketing, improvement in website features and analytics and continued product assortment optimization: Expand Showroom Footprint.
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Our debt-free balance sheet, strong liquidity, and disciplined capital allocation framework, provide financial flexibility to invest through economic cycles while maintaining financial strength. We believe this long-term, disciplined approach supports sustainable value creation.
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Our Showrooms are a key component of our brand. We believe the expansion of our Showroom footprint will give more clients the opportunity to experience our inspirational and premium lifestyle concept, increasing brand awareness and driving net revenue. Enhance Digital Marketing Capabilities. Digital advertising, search, on-site offerings, and social media engagement are important branding and advertising vehicles.
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Our Growth Strategies We believe there is meaningful opportunity to drive sustainable growth and profitability by expanding brand awareness and deepening client engagement through disciplined execution of our operating model. Our growth initiatives, supported by our omni-channel model, are designed to deliver net revenue growth, improve operating leverage, and long-term value creation.
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Using these engagement methods within our omni-channel model contributes significantly to our brand awareness . We believe that continued investment in brand marketing, data-l ed insights and effective consumer targeting will expand and strengthen our client reach. Grow eCommerce Sales Channe l.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAdditionally, progress updates are regularly provided to the Board of Directors. • Trainings have been and will continue to be conducted with control owners and performers on various topics including, but not limited to: – user access review completion; – review and conclusions around Systems and Organization Control I (“SOC1”) reports; – software used in accounting; – validation of the system generated data used in the execution of a control; – account reconciliation formats and required support; – journal entry review and support; and – maintaining evidence of control support. • Assessed the competency and quantity of accounting personnel to determine the appropriate composition and expertise.
Biggest changeSignificant personnel additions have been made within our IT department and across the organization, including executive and senior level hires. • Hired and continue to hire additional personnel to enhance the segregation of duties in the IT department, particularly between IT development and IT operations. • A multi-year company-wide initiative has begun to modernize the Company’s IT infrastructure to be capable of streamlining many of our manual financial reporting processes, enhancing our information technology control environment and mitigating the underlying internal control gaps and limitations that cannot be remediated within current systems. • Conducting and continuing to conduct trainings for control owners and performers on key ICFR topics including, but not limited to: – user access review completion; – review and conclusions around Systems and Organization Control I (“SOC1”) reports; – software used in accounting; – validation of the system generated data used in the execution of a control; – account reconciliation formats and required support; – journal entry review and support; and – maintaining evidence of control support. 18 Table of Contents • Enhanced communications to employees regarding our internal control environment and related expectations.
These factors include, but are not limited to, the following: • macroeconomic conditions, including inflation and factors affecting the housing market; • the failure of securities analysts to continue to cover our common stock or changes in financial estimates or recommendations by analysts; • changes in market valuation or earnings of our competitors; • actual or anticipated variations in our annual or quarterly results of our operations, including our earnings estimates and whether we meet market expectations with regard to our earnings; • significant volatility in the market price and trading volume of securities of companies in the retail and consumer goods sectors in which our business operates, which may not be related to the operating performance of these companies and which may not reflect the performance of our business; • changes in preferences of our customers; • announcements of new products, significant price reductions or promotions by us or our competitors; 36 • share transactions by principal stockholders; • stock price performance of our competitors; • market price and volume fluctuations in the stock market generally; • actual or anticipated negative earnings or other announcements by us or other retail companies; • downgrades in our credit ratings or the credit ratings of our competitors; • natural or man-made disasters or other similar events including public health issues or pandemics; and • global economic, legal and regulatory changes unrelated to our performance.
These factors include, but are not limited to, the following: • macroeconomic conditions, including inflation and factors affecting the housing market; • the failure of securities analysts to continue to cover our common stock or changes in financial estimates or recommendations by analysts; • changes in market valuation or earnings of our competitors; • actual or anticipated variations in our annual or quarterly results of our operations, including our earnings estimates and whether we meet market expectations with regard to our earnings; • significant volatility in the market price and trading volume of securities of companies in the retail and consumer goods sectors in which our business operates, which may not be related to the operating performance of these companies and which may not reflect the performance of our business; • changes in preferences of our customers; • announcements of new products, significant price reductions or promotions by us or our competitors; • share transactions by principal stockholders; • stock price performance of our competitors; • market price and volume fluctuations in the stock market generally; • actual or anticipated negative earnings or other announcements by us or other retail companies; • downgrades in our credit ratings or the credit ratings of our competitors; • natural or man-made disasters or other similar events including public health issues or pandemics; and • global economic, legal and regulatory changes unrelated to our performance.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, in the event that the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of fiduciary duty, any action asserting a claim against us arising pursuant to the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws, any action to interpret, apply or enforce or determine the validity of our amended and restated certificate of incorporation or amended and restated bylaws, any action as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware, or any action asserting a claim against us that is governed by the internal affairs doctrine; provided that, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction; and provided further that, if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such 39 action may be brought in another state or federal court sitting in the State of Delaware.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, in the event that the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of fiduciary duty, any action asserting a claim against us arising pursuant to the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws, any action to interpret, apply or enforce or determine the validity of our amended and restated certificate of incorporation or amended and restated bylaws, any action as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware, or any action asserting a claim against us that is governed by the internal affairs doctrine; provided that, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction; and provided further that, if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Delaware.
If our management is unable to certify the effectiveness of our internal control or if our independent registered public accounting firm 40 cannot deliver a report attesting to the effectiveness of our internal control over financial reporting, or if we identify or fail to remediate any significant deficiencies or material weaknesses in our internal controls, we could be subject to regulatory scrutiny and a loss of public confidence, which could seriously harm our reputation, and the price per share of our Class A common stock could decline.
If our management is unable to certify the effectiveness of our internal control or if our independent registered public accounting firm cannot deliver a report attesting to the effectiveness of our internal control over financial reporting, or if we identify or fail to remediate any significant deficiencies or material weaknesses in our internal controls, we could be subject to regulatory scrutiny and a loss of public confidence, which could seriously harm our reputation, and the price per share of our Class A common stock could decline.
While these actions are generally routine in nature and incidental to the operation of our business, if our assessment of any action 23 or actions should prove inaccurate and/or if we are unsuccessful in our defense in these litigation matters, or any other legal proceeding, we may be forced to pay damages or fines, enter into consent decrees or change our business practices, any of which could adversely affect our business, financial condition or results of operations.
While these actions are generally routine in nature and incidental to the operation of our business, if our assessment of any action or actions should prove inaccurate and/or if we are unsuccessful in our defense in these litigation matters, or any other legal proceeding, we may be forced to pay damages or fines, enter into consent decrees or change our business practices, any of which could adversely affect our business, financial condition or results of operations.
While we will take all steps necessary to protect and enforce our rights because of factors beyond our control, we may not be entirely successful in protecting our assets, enforcing our rights or collecting on judgments. The inability to acquire, use or maintain our marks and domain names for our sites could substantially harm our business and operating results.
While we will take all appropriate steps necessary to protect and enforce our rights because of factors beyond our control, we may not be entirely successful in protecting our assets, enforcing our rights or collecting on judgments. The inability to acquire, use or maintain our marks and domain names for our sites could substantially harm our business and operating results.
As a result, we might not be able to register, use or maintain the domain names that utilize the name Arhaus or our other brands in all of the countries in which we currently or intend to conduct business. 32 If third parties claim that we infringe upon their intellectual property rights, our operating results could be adversely affected.
As a result, we might not be able to register, use or maintain the domain names that utilize the name Arhaus or our other brands in all of the countries in which we currently or intend to conduct business. If third parties claim that we infringe upon their intellectual property rights, our operating results could be adversely affected.
If we are unable to refund client deposits or use our client deposits as a source of funding for our operating activities, our reputation and brand may be damaged and our funding costs may increase, which would have a material adverse effect on our business, financial results and condition. 27 Our business operations depend on good relations with our employees.
If we are unable to refund client deposits or use our client deposits as a source of funding for our operating activities, our reputation and brand may be damaged and our funding costs may increase, which would have a material adverse effect on our business, financial results and condition. Our business operations depend on good relations with our employees.
There can be no assurance that such competitors will not be more 26 successful than us or that we will be able to continue to maintain our position as a leader in style and innovation in the future. Our lease obligations are substantial and expose us to increased risks. We do not own any of our Showrooms.
There can be no assurance that such competitors will not be more successful than us or that we will be able to continue to maintain our position as a leader in style and innovation in the future. Our lease obligations are substantial and expose us to increased risks. We do not own any of our Showrooms.
We must keep up to date with competitive technology trends and opportunities that are emerging throughout the retail environment, including the use of new 28 or improved technology, evolving creative user interfaces, and other eCommerce marketing trends such as paid search, re-targeting, and the proliferation of mobile usage, among others.
We must keep up to date with competitive technology trends and opportunities that are emerging throughout the retail environment, including the use of new or improved technology, evolving creative user interfaces, and other eCommerce marketing trends such as paid search, re-targeting, and the proliferation of mobile usage, among others.
If for any reason we are unable to continue to implement our omni-channel initiatives or provide a convenient and consistent experience for our clients across all 24 channels that delivers the products they want, when and where they want them, our financial performance and brand image could be adversely affected.
If for any reason we are unable to continue to implement our omni-channel initiatives or provide a convenient and consistent experience for our clients across all channels that delivers the products they want, when and where they want them, our financial performance and brand image could be adversely affected.
We plan to open new Showrooms in high traffic locations and historically we have favored top tier mall locations near luxury and contemporary retailers that we believe are consistent with our target clients’ demographics and 25 shopping preferences. Revenues at these Showrooms are derived, in part, from the volume of foot traffic in these locations.
We plan to open new Showrooms in high traffic locations and historically we have favored top tier mall locations near luxury and contemporary retailers that we believe are consistent with our target clients’ demographics and shopping preferences. Revenues at these Showrooms are derived, in part, from the volume of foot traffic in these locations.
We are currently managed by a group of experienced senior executives, including our Founder and CEO, John Reed, and other key team members with substantial knowledge and understanding of the industry sector in which we operate. Our success and future growth depend largely upon the continued services of our management team.
We are currently managed by a group of experienced senior executives, including our Co-Founder and CEO, John Reed, and other key team members with substantial knowledge and understanding of the industry sector in which we operate. Our success and future growth depend largely upon the continued services of our management team.
Furthermore, if we do not secure our online 30 eCommerce sales channel or in-store card acceptance mechanisms, customer credit card information could be obtained by an unauthorized third party. Under current credit card practices, we are liable for fraudulent credit card transactions because we do not obtain a cardholder’s signature for eCommerce transactions.
Furthermore, if we do not secure our online eCommerce sales channel or in-store card acceptance mechanisms, customer credit card information could be obtained by an unauthorized third party. Under current credit card practices, we are liable for fraudulent credit card transactions because we do not obtain a cardholder’s signature for eCommerce transactions.
If, for any reason, our executives do not continue to be active in management, or we lose such persons, or other key team 21 members, or we fail to identify and/or recruit for current or future positions of need, our business, financial condition or results of operations could be adversely affected.
If, for any reason, our executives do not continue to be active in management, or we lose such persons, or other key team members, or we fail to identify and/or recruit for current or future positions of need, our business, financial condition or results of operations could be adversely affected.
Use of social media and influencers may materially and adversely affect our reputation or subject us to fines or other penalties. We use third-party social media platforms as marketing tools, among other things. For example, we maintain Instagram, Facebook and Pinterest accounts, as well as our own content on our website.
Use of social media and influencers may materially and adversely affect our reputation or subject us to fines or other penalties. We use third-party social media platforms as marketing tools, among other things. For example, we maintain Instagram, Facebook, TikTok and Pinterest accounts, as well as our own content on our website.
In addition, damage or 29 interruption can also occur as a result of non-technical issues, including vandalism, catastrophic events, and human error. Damage or interruption to our information systems may require a significant investment to fix or replace the affected system, and we may suffer interruptions in our operations in the interim.
In addition, damage or interruption can also occur as a result of non-technical issues, including vandalism, catastrophic events, and human error. Damage or interruption to our information systems may require a significant investment to fix or replace the affected system, and we may suffer interruptions in our operations in the interim.
If we are unable to use social media platforms as marketing tools in a cost-effective manner or if the social media platforms we use do not 22 evolve quickly enough for us to fully optimize such platforms, our ability to acquire new clients and our financial condition may suffer.
If we are unable to use social media platforms as marketing tools in a cost-effective manner or if the social media platforms we use do not evolve quickly enough for us to fully optimize such platforms, our ability to acquire new clients and our financial condition may suffer.
The shares 35 of Class B common stock will automatically convert into shares of Class A common stock on the earliest to occur of (i) twelve months after the death or incapacity of our Founder, and (ii) the date upon which the then outstanding shares of Class B common stock first represent less than 10% of the voting power of the then outstanding shares of Class A common stock and Class B common stock.
The shares of Class B common stock will automatically convert into shares of Class A common stock on the earliest to occur of (i) twelve months after the death or incapacity of our Founder, and (ii) the date upon which the then outstanding shares of Class B common stock first represent less than 10% of the voting power of the then outstanding shares of Class A common stock and Class B common stock.
We rely in part on digital advertising, including search engine marketing and social media advertising, to promote awareness of our brand, grow our business, attract new clients and retain existing clients. In particular, we rely on search engines, such as Google, and social media platforms such as Instagram, Facebook and Pinterest as important marketing channels.
We rely in part on digital advertising, including search engine marketing and social media advertising, to promote awareness of our brand, grow our business, attract new clients and retain existing clients. In particular, we rely on search engines, such as Google, and social media platforms such as Instagram, Facebook, TikTok and Pinterest as important marketing channels.
Third parties may use trademarks and brand names similar to Arhaus’ trademarks and brand names and any potential confusion as to the source of goods or services could have an adverse effect on its business and may inhibit its ability to build name recognition in its markets of interest.
Third parties may use trademarks and brand names similar to Arhaus’ trademarks and brand names and any potential confusion as to the source of goods or services could have an adverse effect on our business and may inhibit our ability to build name recognition in its markets of interest.
These additional tariffs, as well as a government’s adoption of “buy national” policies or retaliation by another government against such tariffs or policies could introduce significant uncertainty into the market and may affect the prices of and supply of the products available to us.
These tariffs, as well as a government’s adoption of “buy national” policies or retaliation by another government against such tariffs or policies could introduce significant uncertainty into the market and may affect the prices of and supply of the products available to us.
If we are unable to successfully adapt to client shopping preferences or develop and maintain a relevant and reliable omni-channel experience for our clients, our financial performance and brand image could be adversely affected. We are continuing to grow our omni-channel business model.
If we are unable to successfully adapt to client shopping preferences or develop and maintain a relevant and reliable omni-channel model for our clients, our financial performance and brand image could be adversely affected. We are continuing to grow our omni-channel business model.
Further, historically the stock 15 market has experienced significant volatility as well as periods of significant decline. We have seen that previous declines in the stock market and periods of high volatility have been correlated with a reduction in client demand for our products.
Further, historically the stock market has experienced significant volatility as well as periods of significant decline. We have seen that previous declines in the stock market and periods of high volatility have been correlated with a reduction in client demand for our products.
Any failure to maintain a strong brand image could have a material adverse effect on our sales, results of operations, financial performance and prospects. 17 We have identified material weaknesses in our internal control over financial reporting.
Any failure to maintain a strong brand image could have a material adverse effect on our sales, results of operations, financial performance and prospects. We have identified material weaknesses in our internal control over financial reporting.
The terms of the Revolving Credit Facility may restrict our current and future operations 34 and could adversely affect our ability to finance our future operations or capital needs or to execute business strategies in the means or manner desired.
The terms of the Revolving Credit Facility may restrict our current and future operations and could adversely affect our ability to finance our future operations or capital needs or to execute business strategies in the means or manner desired.
Any such 33 action would be expensive to defend, likely would damage our reputation and market position, could result in substantial liability and could adversely affect our business and results of operations.
Any such action would be expensive to defend, likely would damage our reputation and market position, could result in substantial liability and could adversely affect our business and results of operations.
If one or 38 more of the analysts who cover us downgrade our Class A common stock or describe us or our business in a negative manner, the price of our Class A common stock would likely decline.
If one or more of the analysts who cover us downgrade our Class A common stock or describe us or our business in a negative manner, the price of our Class A common stock would likely decline.
Our substantial lease obligations could have significant negative consequences, including, among others: • increasing our vulnerability to general adverse economic and industry conditions; • limiting our ability to obtain additional financing; • requiring a substantial portion of our available cash to pay our rental obligations, reducing cash available for other purposes; • limiting our flexibility in planning for or reacting to changes in our business or in the industry in which we compete; and • placing us at a disadvantage with respect to some of our competitors who sell their products exclusively online.
Our substantial lease obligations could have significant negative consequences, including, among others: • increasing our vulnerability to general adverse economic and industry conditions; 24 Table of Contents • limiting our ability to obtain additional financing; • requiring a substantial portion of our available cash to pay our rental obligations, reducing cash available for other purposes; • limiting our flexibility in planning for or reacting to changes in our business or in the industry in which we compete; and • placing us at a disadvantage with respect to some of our competitors who sell their products exclusively online.
Showroom locations may become unsuitable due to, and our revenue volume and client traffic generally may be harmed by, among other things: • economic downturns in a particular area; • competition from nearby retailers selling similar products; • changing client demographics in a particular market; • changing preferences of clients in a particular market; • the closing or decline in popularity of other businesses located near our Showroom; • reduced client foot traffic outside a Showroom location; and • Showroom impairments due to acts of God, pandemic, terrorism, protest or periods or civil unrest.
Showroom locations may become unsuitable due to, and our revenue volume and client traffic generally may be harmed by, among other things: • economic downturns in a particular area; • competition from nearby retailers selling similar products; 23 Table of Contents • changing client demographics in a particular market; • changing preferences of clients in a particular market; • the closing or decline in popularity of other businesses located near our Showroom; • reduced client foot traffic outside a Showroom location; and • Showroom impairments due to acts of God, pandemic, terrorism, protest or periods or civil unrest.
Alternatively, we may be required to mark down certain products to sell any excess inventory or to sell such inventory through our Outlets or other liquidation channels at prices that are significantly lower than our retail prices, any of which would negatively impact our business and operating results.
Alternatively, we may be required to mark down certain products to sell any excess inventory or to sell such inventory through our Lofts or other liquidation channels at prices that are significantly lower than our retail prices, any of which would negatively impact our business and operating results.
We are subject to the SEC’s internal control over financial reporting (“ICFR”) and auditor attestation requirements. During the course of preparing for our IPO, we identified material weaknesses in our ICFR as described below and these material weaknesses remained outstanding as of December 31, 2024.
We are subject to the SEC’s internal control over financial reporting (“ICFR”) and auditor attestation requirements. During the course of preparing for our IPO, we identified material weaknesses in our ICFR as described below and these material weaknesses remained outstanding as of December 31, 2025 .
Failure by us, our manufacturers, or our vendors to comply with applicable laws and regulations or to obtain and maintain necessary permits, licenses, and registrations relating to our operations could subject us to administrative and civil penalties, including significant fines, civil liability, criminal liability or sanctions, or other enforcement actions.
Failure by us, our manufacturers, or our vendors to comply with applicable laws and regulations or to obtain and maintain necessary permits, licenses, compliance certificates and registrations relating to our operations could subject us to administrative and civil penalties, including significant fines, civil liability, criminal liability or sanctions, or other enforcement actions.
Specifically, we did not design and maintain: (i) program change management controls for financial systems to ensure that information technology program and data changes affecting financial applications and underlying accounting records are identified, tested, authorized and implemented appropriately; (ii) 18 user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate Company personnel; (iii) computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored; and (iv) testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements.
Specifically, we did not design and maintain: (i) program change management controls for financial systems to ensure that information technology program and data changes affecting financial applications and underlying accounting records are identified, tested, authorized and implemented appropriately; (ii) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate Company 17 Table of Contents personnel; (iii) computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored; and (iv) testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements.
GAAP of such transactions. These material weaknesses resulted in a restatement of our previously issued annual consolidated financial statements as of and for the years ended December 31, 2020 and 2019 princip ally related to selling, general and administrative expenses and other long-term liabilities, and misclassifications in the balance sheets and statements of comprehensive income.
These material weaknesses resulted in a restatement of our previously issued annual consolidated financial statements as of and for the years ended December 31, 2020 and 2019 princip ally related to selling, general and administrative expenses and other long-term liabilities, and misclassifications in the balance sheets and statements of comprehensive income.
In addition, many of our online advertising vendors provide advertising services to other companies, including companies with whom we may compete. As competition for online advertising has increased, the cost for some of these services has also increased. Our marketing initiatives may become increasingly expensive and generating a return on those initiatives may be difficult.
In addition, many of our online advertising vendors provide advertising services to other companies, including companies with whom we may compete. As competition for online advertising has increased, the cost for some of these services has also increased. Our marketing initiatives may become increasingly expensive and generating a return on those 21 Table of Contents initiatives may be difficult.
Any difficulties that we experience in our ability to obtain products in sufficient quality and quantity from our vendors could have a material adverse effect on our business. Disruption in our receiving and distribution system or increased costs as a result of our recently opened distribution and manufacturing centers could adversely affect our business.
Any difficulties that we experience in our ability to obtain products in sufficient quality and quantity from our vendors could have a material adverse effect on our business. Disruption in our receiving and distribution system or increased costs as a result of the continued integration of our recently opened distribution and manufacturing centers could adversely affect our business.
We are currently engaged in a number of initiatives to support the growth of our business which may result in costs and delays which may negatively affect our gross margin in the short term and may amplify fluctuations in our growth rate from quarter to quarter depending on the timing and extent of the realization of the costs and benefits of such initiatives.
We are currently engaged in a number of initiatives to 12 Table of Contents support the growth of our business which may result in costs and delays which may negatively affect our gross margin in the short term and may amplify fluctuations in our growth rate from quarter to quarter depending on the timing and extent of the realization of the costs and benefits of such initiatives.
If our net revenue does not grow at a greater rate than our operating expenses, we will not be able to maintain profitability. 12 We have experienced fluctuations in the growth rate of our business and our high rates of growth in terms of revenue, earnings and margins may not be sustained in future time periods.
If our net revenue does not grow at a greater rate than our operating expenses, we will not be able to maintain profitability. We have experienced fluctuations in the growth rate of our business in terms of revenue, earnings and margins may not be sustained in future time periods.
We collect, process and store certain personal information and other data relating to individuals, such as our clients, artisan partners, and employees. We rely substantially on commercially available systems, software, tools and monitoring to provide security for our processing, transmission and storage of personal information and other confidential information.
We collect, process and store certain personal information and other data relating to individuals, such as our clients, artisans, and employees. We rely substantially on commercially available systems, software, tools and monitoring to provide security for our processing, transmission and storage of personal information and other confidential information.
Any failure or perceived failure by us or any third parties with which we do business to comply with our privacy policies or with other privacy-related obligations to which we or such third parties are or may become subject, may result in investigations or enforcement actions against us by governmental entities, private claims, public statements against us by consumer advocacy groups or others, and fines, penalties or other liabilities.
Any failure or 30 Table of Contents perceived failure by us or any third parties with which we do business to comply with our privacy policies or with other privacy-related obligations to which we or such third parties are or may become subject, may result in investigations or enforcement actions against us by governmental entities, private claims, public statements against us by consumer advocacy groups or others, and fines, penalties or other liabilities.
We continue to take steps to ensure personnel both existing and newly hired are adequately trained with the appropriate level of knowledge and understanding of ICFR and its importance. 19 • Commenced and continue to update our policies and procedures to establish and maintain effective segregation of duties for our accounting staff in relation to journal entries, reconciliations and other applicable processes.
We continue to take steps to ensure personnel both existing and newly hired are adequately trained with the appropriate level of knowledge and understanding of ICFR and its importance. • Updated our policies and procedures to establish and maintain effective segregation of duties for our accounting staff in relation to journal entries, reconciliations and other applicable processes.
Such events could result in physical damage to or destruction or disruption of one or more of our properties, physical damage to or destruction of our inventory, the lack of an adequate workforce in parts or all of our operations, supply chain disruptions, data and communications disruptions.
Such events 19 Table of Contents could result in physical damage to or destruction or disruption of one or more of our properties, physical damage to or destruction of our inventory, the lack of an adequate workforce in parts or all of our operations, supply chain disruptions, data and communications disruptions.
The principal factors and uncertainties that make investing in our Class A common stock risky include, among others: • risks associated with the incurrence of operating losses in the future or failure to achieve or maintain profitability in the future; • fluctuations in the growth rate of our business and our high rates of growth in terms of revenue, earnings and margins, which may not be sustained in future periods; • our ability to purchase quality merchandise in sufficient quantities at competitive prices, including products that are produced by artisan vendors; • disruption in our receiving and distribution system or increased costs as a result of our the continued integration of our distribution and manufacturing centers; • cybersecurity risks and costs associated with credit card fraud, identity theft and business interruption could result in unexpected expenses and loss of revenue; • risks associated with receiving, processing, storing, using and sharing personal data that requires us to comply with complex and evolving governmental regulations related to data privacy and data protection that could expose us to litigation or damage our reputation; • import and other international risks, including tariffs and changes to trade policies and agreements, as a result of our reliance on foreign manufacturers and vendors to supply a significant portion of our merchandise; • changes in the health of the high-end housing market, as well as declines in consumer confidence and consumer spending; • risks associated with the interruption of supply and increased costs as a result of our reliance on third-party transportation carriers for shipment of our products; • increased commodity prices or increased freight and transportation costs; • our ability to timely and effectively deliver merchandise to our clients and manage our supply chain; • risks posed by a pandemic should an outbreak of an infectious disease occur; and • the dual class structure of our common stock, which has the effect of concentrating voting power with our Founder and the Founder Family Trusts, gives our Founder and the Founder Family Trusts substantial control over us, including over matters that require the approval of stockholders, and their interests may conflict with ours or those of our other stockholders.
The principal factors and uncertainties that make investing in our Class A common stock risky include, among others: • risks associated with the incurrence of operating losses in the future or failure to achieve or maintain profitability in the future; • fluctuations in the growth rate of our business in terms of revenue, earnings and margins, which may not be sustained in future periods; • our ability to purchase quality merchandise in sufficient quantities at competitive prices, including products that are produced by specialty and artisan vendors; • disruption in our receiving and distribution system or increased costs as a result of our the continued integration of our distribution and manufacturing centers; • cybersecurity risks and costs associated with credit card fraud, identity theft and business interruption could result in unexpected expenses and loss of revenue; • risks associated with receiving, processing, storing, using and sharing personal data that requires us to comply with complex and evolving governmental regulations related to data privacy and data protection that could expose us to litigation or damage our reputation; • import and other international risks, including tariffs and changes to trade policies and agreements, as a result of our reliance on foreign manufacturers and vendors to supply a significant portion of our merchandise; • changes in the health of the high-end housing market, as well as declines in consumer confidence and consumer spending; • risks associated with the interruption of supply and increased costs as a result of our reliance on third-party transportation carriers for shipment of our products; • increased commodity prices or increased freight and transportation costs; • our ability to timely and effectively deliver merchandise to our clients and manage our supply chain; • risks associated with the planning or implementation of technology upgrades, including new enterprise resource planning system; and • the dual class structure of our common stock, which has the effect of concentrating voting power with our Founder and the Founder Family Trusts, gives our Founder and the Founder Family Trusts substantial control over us, including over matters that require the approval of stockholders, and their interests may conflict with ours or those of our other stockholders.
For example, we purchased upholstery products representing approximately 10% of our total net revenue in 2024 from McCreary Modern, Inc.
For example, we purchased upholstery products representing approximately 10% of our total net revenue in 2025 from McCreary Modern, Inc.
Disruption in the financial markets could have a material adverse effect on client demand and our ability to refund client deposits. We collect deposits from our clients at the time of purchase and in advance of delivering products, and as of December 31, 2024, we had approximately $221 million in client deposits.
Disruption in the financial markets could have a material adverse effect on client demand and our ability to refund client deposits. We collect deposits from our clients at the time of purchase and in advance of delivering products, and as of December 31, 2025, we had approximately $236 million in client deposits.
As a public reporting company, we are subject to the Nasdaq rules and the rules and regulations established from time to time by the SEC. These rules and regulations require, among other things, that we establish and periodically evaluate procedures with respect to our internal control over financial reporting.
As a public reporting company, we are subject to the Nasdaq rules and the rules and regulations established from time to time by the SEC. These rules and regulations require, among other things, that we establish and periodically evaluate procedures 36 Table of Contents with respect to our internal control over financial reporting.
Recently, we have experienced delays related to disruptions in international shipping channels. F ailure to deliver merchandise in a timely and effective manner could cause clients to cancel their orders and could damage our brand and reputation, which could have a material adverse effect on our business, financial condition, operating results and prospects.
Recently, we have also experienced delays 15 Table of Contents related to disruptions in international shipping channels. F ailure to deliver merchandise in a timely and effective manner could cause clients to cancel their orders and could damage our brand and reputation, which could have a material adverse effect on our business, financial condition, operating results and prospects.
See Item 9A Controls and Procedures, for management’s annual report on internal control over financial reporting as of December 31, 2024. 41 Item 1B. Unresolved Staff Comments None.
See Item 9A Controls and Procedures, for management’s annual report on internal control over financial reporting as of December 31, 2025. Item 1B. Unresolved Staff Comments None.
This may complicate our supply chain and quality control process, and any inability to invest sufficient resources in quality control and compliance processes or significant turnover in the personnel dedicated to such function may result in quality control issues or product recalls.
This may complicate our supply chain and 20 Table of Contents quality control process, and any inability to invest sufficient resources in quality control and compliance processes or significant turnover in the personnel dedicated to such function may result in quality control issues or product recalls.
Our clients also engage with us online through our social media channels, including Instagram, Facebook and Pinterest, by providing feedback and public commentary about aspects of our business. Omni-channel retailing is rapidly evolving.
Our clients also engage with us online through our social media channels, including Instagram, Facebook, TikTok and Pinterest, by providing feedback and public commentary about aspects of our 22 Table of Contents business. Omni-channel retailing is rapidly evolving.
We expect our operating expenses to increase in the future as we continue to expand our operating and retail infrastructure, including adding new Showrooms, increasing sales and marketing efforts, growing our eCommerce sales channel, enhancing our omni-channel capabilities, expanding into new geographies, developing new products, and in connection with legal, accounting, and other expenses related to operating as a public company.
We expect our operating expenses to increase in the future as we continue to expand our operating and retail infrastructure, including adding new and updating existing Showrooms, increasing sales and marketing efforts, growing our eCommerce sales channel, enhancing our omni-channel model, expanding into new geographies, developing new products, investing in new technology, and in connection with legal, accounting, and other expenses related to operating as a public company.
In the aggregate, as of February 14, 2025 , our Founder beneficially owns 45,078,259 shares of our Class B common stock, and the Founder Family Trusts, in the aggregate, beneficially own 42,037,341 shares of Class B common stock, representing all of the outstanding shares of Class B common stock.
In the aggregate, as of February 13, 2026 , our Founder beneficially owns 45,078,259 shares of our Class B common stock, and the Founder Family Trusts, in the aggregate, beneficially own 42,037,341 shares of Class B common stock, representing all of the outstanding shares of Class B common stock.
The shares of Class B common stock beneficially owned by our Founder represent approximately 48.75% of our total voting power. The shares of Class B common stock beneficially owned by the Founder Family Trusts represent, in the aggregate, approximately 45.46% of our total voting power.
The shares of Class B common stock beneficially owned by our Founder represent approximately 48.72% of our total voting power. The shares of Class B common stock beneficially owned by the Founder Family Trusts represent, in the aggregate, approximately 45.44% of our total voting power.
Unique factors in any given quarter may affect period-to-period comparisons in our revenue growth, including: • the overall economic and general retail sales environment, including the effects of uncertainty relating to consumer spending, such as inflation and increased interest rates; • the availability of our products and the impact of delays or disruption in our supply chain; • consumer preferences and demand; • the number, size and location of the Showrooms we open, close, remodel or expand in any period; • our ability to efficiently source and distribute products; • changes in our product offerings and the introduction, and timing thereof, of new products and new product categories; • promotional events by us or our competitors; • our competitors introducing similar products or merchandise formats; • the distribution of our spring and fall catalogs each year; • the timing of various holidays, including holidays with potentially heavy retail impact; and • the success of our marketing programs.
Unique factors in any given quarter may affect period-to-period comparisons in our revenue growth, including: • the overall economic and general retail sales environment, including changes in consumer discretionary spending, confidence, and broader macroeconomic conditions; • the availability of our products and the impact of delays or disruption in our supply chain; • consumer preferences and demand; • the number, size and location of the Showrooms we open, close, remodel or expand in any period; • our ability to efficiently source and distribute products; • changes in our product offerings and the introduction, and timing thereof, of new products and new product categories; • promotional events by us or our competitors; • our competitors introducing similar products or merchandise formats; • the distribution of our spring and fall catalogs each year; • the timing of various holidays, including holidays with potentially heavy retail impact; and • the success of our marketing programs.
Moreover, we rely on one printer for all of our catalog printing work, which subjects us to various risks if the vendor fails to perform under our agreement. We have historically experienced fluctuations in our clients’ response to our catalogs.
Moreover, we rely on external printers for our catalog printing work, which subjects us to various risks if the vendor fails to perform under our agreement. We have historically experienced fluctuations in our clients’ response to our catalogs.
We believe eCommerce offers a significant growth opportunity and our strategy includes investment in and expansion of our digital platform and eCommerce sales channel. The success of our eCommerce sales channel depends, in part, on third parties and factors over which we have limited control.
Our eCommerce sales channel represented approximately 17% of total net revenue in 2025. We believe eCommerce offers a significant growth opportunity and our strategy includes investment in and expansion of our digital platform and eCommerce sales channel. The success of our eCommerce sales channel depends, in part, on third parties and factors over which we have limited control.
In a ddition, we compete with mail order catalogs and online retailers focused on home furnishings.
In addition, we compete with mail order catalogs and online retailers focused on home furnishings.
As of February 14, 2025, the Founder Family Trusts beneficially hold approximately 29.90% of our outstanding capital stock and control approximately 45.46% of th e voting power of our outstanding capital stock. The current independent co-trustees of the Founder Family Trusts, Albert Adams and Bill Beargie, are also directors of the Company.
As of February 13, 2026, the Founder Family Trusts beneficially hold approximately 29.79% of our outstanding capital stock and control approximately 45.44% of th e voting power of our outstanding capital stock. The current independent co-trustees of the Founder Family Trusts, Albert Adams and Bill Beargie, are also directors of the Company.
We compete with the interior design trade and specialty Showrooms, as well as antique dealers and other merchants that provide unique items and custom-designed product offerings. We also compete with national and regional home furnishing retailers and department Showrooms, includi ng RH, Room & Board, Serena and Lily and Pottery Barn.
We compete with the interior design trade and specialty showrooms, as well as antique dealers and other merchants that provide unique items and custom-designed product offerings. We also compete with national and regional home furnishing retailers and department showrooms, including RH, Room & Board, Serena and Lily, Williams Sonoma and Crate & Barrel.
Although we have not elected to be treated as a controlled company and use these exemptions, if we chose to do so in the future our stockholders may not have the same protections afforded to stockholders of companies that are subject to all of Nasdaq rules regarding corporate governance, which could make our Class A stock less attractive to investors or otherwise harm our stock price.
Although we have not elected to be treated as a controlled company and use these exemptions, if we chose to do so in the future our stockholders may not have the same protections afforded to stockholders of companies that are subject to all of Nasdaq rules regarding corporate governance, which could make our Class A stock less attractive to investors or otherwise harm our stock price. 34 Table of Contents Future sales of shares of Class A common stock, or the perception in the public market that such sales may occur, could adversely affect the market price of our Class A common stock.
Third parties may also oppose Arhaus’ trademark applications or otherwise challenge Arhaus’ use of the trademarks. If Arhaus’ trademarks are successfully challenged, Arhaus could be forced to rebrand its products which could result in the loss of brand recognition and could require additional resources devoted to advertising and marketing new brands. Domain names generally are regulated by Internet regulatory bodies.
Third parties may also oppose Arhaus’ trademark applications or otherwise challenge 29 Table of Contents Arhaus’ use of the trademarks. If Arhaus’ trademarks are successfully challenged, Arhaus could be forced to rebrand its products which could result in the loss of brand recognition and could require additional resources devoted to advertising and marketing new brands.
Future sales of shares of Class A common stock, or the perception in the public market that such sales may occur, could adversely affect the market price of our Class A common stock. Our stockholders could be diluted by such future sales and be further diluted upon the conversion of Class B common stock into Class A common stock.
Our stockholders could be diluted by such future sales and be further diluted upon the conversion of Class B common stock into Class A common stock. Future sales of our shares could adversely affect the market price of our Class A common stock.
The concentration of ownership could deprive stockholders of an opportunity to receive a premium for shares of our Class A common stock as part of a sale of the Company and ultimately might affect the market price of our Class A common stock.
The concentration of ownership could deprive stockholders of an opportunity to receive a premium for shares of our Class A common stock as part of a sale of the Company and ultimately might affect the market price of our Class A common stock. 32 Table of Contents The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.
A material weakness is a deficiency, or a combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. • We did not design and maintain an effective control environment commensurate with our financial reporting requirements.
A material weakness is a deficiency, or a combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. • We did not design and maintain an effective control environment due to a lack of an appropriate level of experience and training related to internal control over financial reporting.
This material weakness contributed to the following additional material weaknesses. • We did not design and maintain accounting policies, procedures and controls, or maintain documentary evidence of existing control activities over significant accounts and disclosures to achieve complete, accurate and timely financial accounting, reporting and disclosures, including adequate controls ove r the period-end financial reporting process, the preparation and review of account reconciliations and journal entries, including segregation of duties and assessing the reliability of reports and spreadsheets used in controls. • We did not design and maintain effective controls to address the identification of and accounting for certain non-routine or complex transactions, including the proper application of U.S.
This material weakness contributed to the following additional material weakness. • We did not design and maintain sufficient accounting policies, procedures and controls, or maintain adequate documentary evidence of existing control activities over significant accounts and disclosures to achieve complete, accurate and timely financial accounting, reporting and disclosures, including adequate controls ove r the period-end financial reporting process and the preparation and review of journal entries, including assessing the reliability of reports and spreadsheets used in controls.
We may take certain pricing, merchandising or marketing actions that could have a disproportionate effect on our business, financial condition and results of operations in a particular quarter or selling season, and as a result we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and cannot be relied upon as indicators of future performance. 13 We depend on our ability to purchase quality merchandise in sufficient quantities at competitive prices, including products that are produced by specialty and artisan vendors.
We may take certain pricing, merchandising or marketing actions that could have a disproportionate effect on our business, financial condition and results of operations in a particular quarter or selling season, and as a result we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and cannot be relied upon as indicators of future performance.
Because our Founder and the Class B Trusts hold more than a majority of the total voting power of our common stock, we are a “controlled company” within the meaning of Nasdaq rules.
We are a “controlled company” within the meaning of Nasdaq rules and qualify for and may rely on exemptions from certain corporate governance requirements. Because our Founder and the Class B Trusts hold more than a majority of the total voting power of our common stock, we are a “controlled company” within the meaning of Nasdaq rules.
GAAP including the determination of the fair value of such awards. • Enhanced the design of the control activities over the review of our consolidated balance sheet and statement of cash flows to help ensure that the classification of operating and investing activities is appropriately presented in the statement of cash flows. • Designed and implemented policies and procedures, including but not limited to: – lease accounting; – revenue recognition; – goodwill and other long-lived assets; – fixed assets and software capitalization; – merchandise warranties; and – income taxes. • Enhanced company policies related to review of significant contracts prior to execution for critical accounting terms. • Engaged third-party consultants to assist senior management with the evaluation of our technology platforms and the potential providers for replacement technology platforms to redesign and strengthen the IT general control environment. • Assessed and continue to evaluate the IT function to ensure that it is adequately staffed with personnel with the appropriate knowledge and competency of ICFR needed for an effective IT general control environment. • Continued to enhance the design and operation of user access control activities and procedures to help ensure access to IT applications and data is adequately restricted to appropriate personnel, including the implementation of user and privileged access reviews, password policy enforcement and user provisioning and deprovisioning. • Commenced designing and implementing additional program change management policies and procedures, control activities, and tools to help ensure that changes affecting key financial systems related to IT applications and underlying accounting records are identified, authorized, tested, and implemented appropriately. • Designed and implemented a formal systems development lifecycle methodology and related program development controls to help ensure that significant IT change events are appropriately tested and approved.
Enhanced the design of the control activities over the review of our consolidated balance sheet and statement of cash flows to help ensure that the classification of operating and investing activities is appropriately presented in the statement of cash flows. • Designed and implemented policies and procedures, including but not limited to: – lease accounting; – revenue recognition; – inventory; – goodwill and other long-lived assets; – fixed assets and software capitalization; – merchandise warranties; and – income taxes. • Continued to enhance the design and operation of user access control activities and procedures to help ensure access to IT applications and data is adequately restricted to appropriate personnel, including the implementation of user and privileged access reviews, password policy enforcement and user provisioning and deprovisioning. • Continued designing and implementing additional program change management policies and procedures, control activities, and tools to help ensure that changes affecting key financial systems related to IT applications and underlying accounting records are identified, authorized, tested, and implemented appropriately. • Designed and implemented a formal systems development lifecycle methodology and related program development controls to help ensure that significant IT change events are appropriately tested and approved.
Additionally, the lack of a sufficient number of professionals resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of our financial reporting objectives, as demonstrated by, amongst other things, insufficient segregation of duties in our finance and accounting functions.
Additionally, the lack of experience and training resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of our financial reporting objectives, as demonstrated by, amongst other things, insufficient segregation of duties across our significant business processes.
In addition to market and industry factors, the price and trading volume for our Class A common stock may be highly volatile for factors that are specific to our company. These factors include, but are not limited to, our low public float, and that we have a controlling shareholder.
In addition to market and industry factors, the price and trading volume for our Class A common stock may be highly volatile for factors that are specific to our company.
Accordingly, any rapid and significant changes in commodity prices or other supply chain costs may have a material adverse effect on our gross margins, operating results and financial performance. 16 Our business and operating results may be harmed if we are unable to timely and effectively deliver merchandise to our clients and manage our supply chain.
Even if we are able to pass these increased costs on to our clients, we may not be able to do so on a timely basis. Accordingly, any rapid and significant changes in commodity prices or other supply chain costs may have a material adverse effect on our gross margins, operating results and financial performance.
As of December 31, 2024, we had 103 Showrooms, including 11 Design Studios and seven Outlets, in 30 states in the United States. A major part of our organic growth strategy consists of increasing our Showroom base.
As of December 31, 2025, we had 107 Showrooms, including 90 Traditional Showrooms, 9 Design Studios, and 8 Lofts, in 31 states in the United States. A major part of our organic growth strategy consists of increasing our Showroom base.
Material damage to, or interruptions in, our information systems as a result of external factors, staffing shortages, cyber risk, or difficulties in updating our existing software or developing or implementing new software could have a material adverse effect on our business or results of operations, and we may be exposed to risks and costs associated with protecting the integrity and security of our clients’ information.
Although we have insurance coverage for losses associated with cyber-attacks, as with all insurance policies, there are coverage exclusions and limitations, and our coverage may not be sufficient to cover all possible losses and claims, and we may still suffer losses that could have a material adverse effect on our business (including reputational damage). 26 Table of Contents Material damage to, or interruptions in, our information systems as a result of external factors, staffing shortages, cyber risk, or difficulties in updating our existing software or developing or implementing new software could have a material adverse effect on our business or results of operations, and we may be exposed to risks and costs associated with protecting the integrity and security of our clients’ information.
We may not be able to fully or substantially mitigate the impact of these or future tariffs, pass price increases on to our clients or secure adequate alternative sources of products, which would have a material adverse effect on our business, operating results and financial performance.
We may not be able to fully or substantially mitigate the impact of these or future tariffs, pass price increases on to our clients or secure adequate alternative sources of products, which would have a material adverse effect on our business, operating results and financial performance. 14 Table of Contents We also face uncertainty in the interpretation of new tariffs and their applicability, including with respect to customs valuation, product classification and country-of-origin determinations.
Our failure to address risks associated with payment methods, credit card fraud and other consumer fraud, or our failure to control any such fraud, could damage our reputation and brand and could harm our business, results of operations and financial condition.
Our failure to successfully respond to these risks and uncertainties could reduce website sales and have a material adverse effect on our reputation, business, financial condition, or results of operations. 27 Table of Contents Our failure to address risks associated with payment methods, credit card fraud and other consumer fraud, or our failure to control any such fraud, could damage our reputation and brand and could harm our business, results of operations and financial condition.
Any disruptions in our receiving and distribution system or increased costs as a result of our new distribution centers could have a material adverse effect on our reputation, business, financial condition, and results of operations. 14 We are subject to import and other international risks as a result of our reliance on foreign manufacturers and vendors to supply a significant portion of our merchandise.
Any disruptions in our receiving and distribution system or increased costs as a result of our new distribution centers could have a material adverse effect on our reputation, business, financial condition, and results of operations.
As of February 14, 2025, our Founder beneficially holds approximately 32.10% of our outstanding capital stock and controls approximately 48.76% of the voting power of our outstanding capital stock.
As of February 13, 2026, our Founder beneficially holds approximately 31.98% of our outstanding capital stock and controls approximately 48.73% of the voting power of our outstanding capital stock.
Further, complying with these covenants could make it more difficult for us to successfully execute our business strategy, invest in our growth strategy and compete against our competitors who may not be subject to such restrictions. In addition, we may not be able to generate sufficient cash flow to meet the financial covenants or pay the principal or interest thereunder.
Further, complying with these covenants could 31 Table of Contents make it more difficult for us to successfully execute our business strategy, invest in our growth strategy and compete against our competitors who may not be subject to such restrictions.
We rely on foreign manufacturers and vendors to supply a significant portion of our merchandise.
We are subject to import and other international risks as a result of our reliance on foreign manufacturers and vendors to supply a significant portion of our merchandise. We rely on foreign manufacturers and vendors to supply a significant portion of our merchandise.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur cybersecurity team has experience in various roles across multiple industries involving managing information security, developing cybersecurity strategy, implementing effective information and cybersecurity programs and managing multiple industry and regulatory compliance environments. 42 Cybersecurity is an important part of our overall risk management processes and the Technology Committee of our Board of Directors has primary oversight responsibility for the Company’s cybersecurity and other technology risks.
Biggest changeCybersecurity Governance The Company’s cybersecurity risk management and strategy processes are led by our Chief Information Officer (“CIO”), Chief Information Security Officer (“CISO”) and a dedicated cybersecurity team with experience across multiple industries in various roles involving managing information security, developing cybersecurity strategy, implementing effective information and cybersecurity programs and managing multiple industry and regulatory compliance environments.
Impact of cybersecurity risks on business strategy, results of operations or financial condition Based on the information available as of the date of this Form 10-K, we have no reason to believe any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations or financial condition.
Impact of Cybersecurity Risks Based on the information available as of the date of this Form 10-K, we have no reason to believe any risks from cybersecurity threats, including previous incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations or financial condition.
For additional information, see Item 1A, “Risk Factors” in this Form 10-K. Cybersecurity Governance Our cybersecurity risk management and strategy processes are led by our CIO.
For additional information, see Item 1A, “Risk Factors” in this Form 10-K.
Our employees undergo cybersecurity awareness training and regular phishing awareness campaigns that are based upon and designed to emulate real-world contemporary threats. We provide prompt feedback (and, if necessary, additional training or remedial action) based on the results of such exercises.
Regular tabletop breach exercises, penetration tests, and simulations are conducted to improve our response capabilities. • Education and Training: Our employees undergo cybersecurity awareness training and regular phishing awareness campaigns that are based upon and designed to emulate real-world contemporary threats.
The Committee reviews and discusses with management our cybersecurity, privacy and data security programs, the status of projects to strengthen internal systems and any significant cybersecurity incidents, including recent incidents at other companies and the emerging threat landscape. The Committee also reviews with management the implementation and effectiveness of the Company’s controls to monitor and mitigate cybersecurity risks.
Cybersecurity is an important part of our overall risk management processes and the Technology Committee (“Committee”) of our Board of Directors has primary oversight responsibility for cybersecurity and other technology risks. The Committee reviews and discusses with management our cybersecurity, privacy and data security programs, the status of projects to strengthen internal systems and any significant cybersecurity incidents.
We also maintain insurance coverage that, subject to its terms and conditions, is intended to help us cover certain costs associated with cybersecurity incidents and information system failures. The Company (or the third parties it relies on) may not be able to fully, continuously, or effectively design and implement security controls as intended.
Cybersecurity risks associated with third-party service providers including suppliers, software and cloud-based service providers are considered during contracting and vendor selection. The Company (or the third parties it relies on) may not be able to fully, continuously, or effectively design and implement security controls as intended.
We consult with outside advisors and experts to assist with assessing, identifying, and managing cybersecurity risks, including to anticipate future threats and trends, and their impact on the Company’s risk environment. In addition, we continue to expand training and awareness practices to mitigate risk from human error, including mandatory computer-based training and internal communications for employees.
This program is designed to assess, identify, and manage material risks from potential threats to our data, systems, and networks, as well as those of our primary third-party suppliers. We consult with outside advisors and experts to assist with assessing, identifying, and managing cybersecurity risks, including to anticipate future threats and trends, and their impact on the Company’s risk environment.
Removed
Item 1C. Cybersecurity Cybersecurity Risk Management and Strategy We are regularly subject to cyberattacks and other cybersecurity incidents. In response, we evaluate and implement cybersecurity processes, technologies, and controls to aid in our efforts to assess, identify, and manage cybersecurity risks.
Added
Item 1C. Cybersecurity Cybersecurity Risk Management and Strategy Cybersecurity is a critical priority and is integrated into our enterprise risk management framework. The Company maintains a risk-based, multi-dimensional cybersecurity program, guided by the National Institute of Standards and Technology Cybersecurity Framework 2.0 (“NIST CSF”).
Removed
Our management team collaborates with our Information Security function, led by our Chief Information Officer (“CIO”) to gather insights for assessing, identifying and managing cybersecurity threat risks, their severity, and potential mitigations. We assess our information security program against the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF).
Added
We deploy a suite of physical, administrative, and technological safeguards to protect our information systems, including personal data (employee, client, consumer and business partner), intellectual property, and confidential business information. These protections are designed to maintain the confidentiality, integrity, and availability of all information housed within our network infrastructure.
Removed
This program includes policies, processes and procedures to help assess and identify our cybersecurity risks and inform how security measures and controls are developed, implemented and maintained. Such risk assessments along with risk-based analysis and judgment are used to select security controls to address risks.
Added
Key processes include: • Risk-Based Controls: We continuously improve our cybersecurity program’s maturity, risk management framework, policies, procedures, and governance.
Removed
During this process, the following factors, among others, are considered: likelihood and severity of risk, impact on the Company and others if a risk materializes, feasibility and cost of controls and impact of controls on operations.
Added
Security controls are selected based on likelihood and severity of risk, impact on the Company and stakeholders, feasibility and cost, and operational impact. • Incident Response Plan and Testing: We maintain a written incident response plan and dedicated teams to respond to incidents. Cross-functional teams assess priority and severity, and external experts may be consulted.
Removed
Our processes also considers cybersecurity risks associated with our use of third-party service providers including suppliers, software and cloud-based service providers during contracting and vendor selection processes.
Added
We work with external partners to develop and deliver education and training to mitigate cybersecurity risks. 37 Table of Contents • Third-Party Risk Management: Targeted cybersecurity assessments of suppliers are executed, evaluating their risk profiles and using a rating mechanism to identify vulnerabilities.
Removed
In addition to the processes, technologies, and controls that we have in place to reduce the likelihood of a material cybersecurity incident (or series of related cybersecurity incidents), the Company has a written incident response plan outlining how to address cybersecurity events that occur.
Added
Cybersecurity Program Maturity and Continuous Improvement We regularly assess our information security program against the NIST CSF and benchmark our maturity against leading practices in the retail sector.
Removed
The plan sets forth the steps for coordination among various corporate functions and governance groups and serves as a framework for the execution of responsibilities across businesses and operational roles.
Added
Cybersecurity and data privacy are priority matters as part of our management of risks. Our principal objectives are to protect our information technology equipment, networks, systems, and personal data (employee, client, consumer and business partner), as well as our intellectual property and confidential business information.
Removed
Our incident response plan is designed to help us coordinate actions to prepare for, detect, respond to and recover from cybersecurity incidents, and includes processes to triage, assess severity, escalate, contain, investigate, and remediate the incident, as well as to assess the need for disclosure, comply with applicable legal obligations and mitigate the impact to our brand and reputation and on impacted parties.
Added
In support of these objectives, our Information Security Team (“IST”), a function that spans our organization, has designed a strategy using the NIST CSF to mitigate cybersecurity risks that could result in the unauthorized access to and disruption of systems, as well as unauthorized access to and acquisition and manipulation of data.
Removed
In addition, our Board receives periodic updates regarding our cybersecurity program.
Added
In addition, our IST regularly meets with its business partners on cyber risk education and mitigation through communication of our projects and standards. Our CISO, who reports to our CIO, is responsible for implementing the NIST CSF.
Added
The Committee also reviews with management the implementation and effectiveness of the Company’s controls to monitor and mitigate cybersecurity risks. In addition, our Board of Directors receives periodic updates regarding our cybersecurity program. 38 Table of Contents

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following table sets forth the location, use and size of our corporate, distribution, manufacturing, warehouse, and retail facilities as of December 31, 2024 : Location Use Approximate Square Footage Boston Heights, Ohio (1) Corporate headquarters and distribution center 1,028,500 Conover, North Carolina (1) Distribution center and manufacturing facility 497,000 Dallas, Texas (1) Distribution center 800,700 Walton Hills, Ohio (1) Warehouse 235,900 Elyria, Ohio (1) Warehouse 171,000 Traditional Showrooms, Design Studios and Outlets (1)(2) Retail 1,676,000 (1) See Note 7 — Leases to our Consolidated Financial Statements included elsewhere in this Form 10-K.
Biggest changeThe following table sets forth the location, use and size of our corporate, distribution, manufacturing, warehouse, and retail facilities as of December 31, 2025: Location Use Approximate Gross Square Footage Boston Heights, Ohio (1) Corporate headquarters and distribution center 1,028,500 Conover, North Carolina (1) Distribution center and manufacturing facility 497,000 Hickory, North Carolina (1) Warehouse 55,100 Dallas, Texas (1) Distribution center 800,700 Walton Hills, Ohio (1) Warehouse 235,900 Elyria, Ohio (1) Warehouse 310,000 Traditional Showrooms, Design Studios and Lofts (1)(2) Retail 1,835,500 (1) See Note 7 — Leases to our Consolidated Financial Statements included elsewhere in this Form 10-K.
(2) We lease our Traditional Showrooms, Design Studios and Outlets in multiple locations across 30 states.
(2) We lease our Traditional Showrooms, Design Studios and Lofts in multiple locations across 31 states.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 4. Mine Safety Disclosures Not applicable. 43 Part II
Biggest changeItem 4. Mine Safety Disclosures Not applicable. 39 Table of Contents Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAny future determination to declare cash dividends will be made at the discretion of our Board of Directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions and other factors that our Board of Directors may deem relevant.
Biggest changeAny future determination to declare cash dividends will be made at the discretion of our Board of Directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions and other factors that our Board of Directors may deem relevant Stock Performance Graph The graph below presents our cumulative total shareholder returns on our common stock relative to the performance of the Nasdaq Global Composite Index and the Dow Jones U.S.
This graph shall not be deemed “soliciting material” or be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that section, and shall not be deemed to be incorporated by reference into any of our 44 filings under the Securities Act of 1933, as amended, or the Securities Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
This graph shall not be deemed “soliciting material” or be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Securities Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
Share Repurchases The following table contains information with respect to repurchases of shares made by the Company during the three months ended December 31, 2024. The table reflects shares delivered to the Company by employees to satisfy tax withholding obligations due upon the vesting of restricted stock units.
Share Repurchases The following table contains information with respect to repurchases of shares made by the Company during the three months ended December 31, 2025. The table reflects shares delivered to the Company by employees to satisfy tax withholding obligations due upon the vesting of restricted stock units.
The graph uses the closing market price on November 4, 2021 of $12.80 per share as the initial value of our Class A common stock. Data for the Company, Nasdaq Global Composite Index and Dow Jones U.S. Furnishings Index assumes reinvestment of dividends.
The graph uses the closing market price on November 4, 2021 of $12.80 per share as the initial value of our Class A common stock. Data for the Company, Nasdaq Global Composite 40 Table of Contents Index and Dow Jones U.S. Furnishings Index assumes reinvestment of dividends.
The graph assumes $100 was invested in our Class A common stock at the market close on November 4, 2021, which was the first day our Class A common stock began trading, and its relative performance is tracked through December 31, 2024.
Furnishings Index. The graph assumes $100 was invested in our Class A common stock at the market close on November 4, 2021, which was the first day our Class A common stock began trading, and its relative performance is tracked through December 31, 2025.
Recent Sales of Unregistered Securities and Use of Proceeds None. Item 6. [Reserved] 45
Recent Sales of Unregistered Securities and Use of Proceeds None. Item 6. [Reserved] 41 Table of Contents
Period Total number of shares purchased Weighted average price paid per share Total number of shares purchased as part of publicly announced plans Approximate dollar value of shares that may yet be purchased under publicly announced plans October 2024 520 $ 10.93 — $ — November 2024 50,175 9.68 — — December 2024 56 9.93 — — Total 50,751 $ 9.69 — $ — Holders of Record As of February 21, 2025, there were 107 stockholders of record of our Class A common stock and 3 stockholders of record of our Class B common stock.
Period Total number of shares purchased Weighted average price paid per share Total number of shares purchased as part of publicly announced plans Approximate dollar value of shares that may yet be purchased under publicly announced plans October 2025 530 $ 10.92 — $ — November 2025 12,097 9.84 — — December 2025 — — — — Total 12,627 $ 9.89 — $ — Holders of Record As of February 20, 2026, there were 99 stockholders of record of our Class A common stock and 3 stockholders of record of our Class B common stock.
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Stock Performance Graph The graph below presents our cumulative total shareholder returns on our common stock relative to the performance of the Nasdaq Global Composite Index and the Dow Jones U.S. Furnishings Index.
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On February 17, 2026, the Board of Directors of the Company declared a special cash dividend on the Company’s Class A and Class B common stock of $0.35 per share, payable March 31, 2026, to shareholders of record at the close of business on March 18, 2026 (the “Record Date”).

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeFinancial Statements and Supplementary Data 55 Consolidated Balance Sheets 58 Consolidated Statements of Comprehensive Income 59 Consolidated Statements of Changes in Stockholders’ Equity 60 Consolidated Statements of Cash Flows 61 Notes to Consolidated Financial Statements 63
Biggest changeFinancial Statements and Supplementary Data 53 Consolidated Balance Sheets 56 Consolidated Statements of Comprehensive Income 57 Consolidated Statements of Changes in Stockholders’ Equity 58 Consolidated Statements of Cash Flows 59 Notes to Consolidated Financial Statements 61
Item 6. [Reserved] 45 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 46 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 54 Item 8.
Item 6. [Reserved] 41 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 42 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 51 Item 8.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeConsolidated Statements of Comprehensive Income Data (in thousands): Year Ended December 31, 2024 2023 Net revenue $ 1,271,107 $ 1,287,704 Cost of goods sold 769,878 747,281 Gross margin 501,229 540,423 Selling, general and administrative expenses 415,426 376,112 Gain on disposal of assets (1,202) — Income from operations 87,005 164,311 Interest income, net (3,163) (3,351) Other income (754) (1,027) Income before taxes 90,922 168,689 Income tax expense 22,372 43,450 Net and comprehensive income $ 68,550 $ 125,239 Other Operational Data (dollars in thousands): Year Ended December 31, 2024 2023 Net revenue $ 1,271,107 $ 1,287,704 Comparable growth (8.0) % 1.4 % Demand comparable growth (2.2) % 7.6 % Gross margin as a % of net revenue 39.4 % 42.0 % Selling, general and administrative expenses as a % of net revenue 32.7 % 29.2 % Income from operations as a % of net revenue 6.8 % 12.8 % Net and comprehensive income $ 68,550 $ 125,239 Net and comprehensive income as a % of net revenue 5.4 % 9.7 % Adjusted EBITDA (1) $ 133,283 $ 203,481 Adjusted EBITDA as a % of net revenue 10.5 % 15.8 % Total Showrooms at end of period 103 92 (1) See “How We Assess the Performance of Our Business” for a definition of adjusted EBITDA and a reconciliatio n of adjusted EBITDA to net income. 50 Comparison of the Years Ended December 31, 2024 and December 31, 2023 Net Revenue Net revenue decreased $16.6 million, or 1.3%, to $1,271.1 million in 2024 compared to $1,287.7 million in 2023.
Biggest changeConsolidated Statements of Comprehensive Income Data (in thousands): Year Ended December 31, 2025 2024 Net revenue $ 1,379,222 $ 1,271,107 Cost of goods sold 842,814 769,878 Gross margin 536,408 501,229 Selling, general and administrative expenses 447,441 415,426 Loss (gain) on disposal of assets 81 (1,202) Income from operations 88,886 87,005 Interest income, net (3,032) (3,163) Other income (61) (754) Income before taxes 91,979 90,922 Income tax expense 24,723 22,372 Net and comprehensive income $ 67,256 $ 68,550 Other Operational Data (dollars in thousands): Year Ended December 31, 2025 2024 Net revenue $ 1,379,222 $ 1,271,107 Comparable delivered sales 3.6 % (8.0) % Comparable written sales 1.3 % (2.2) % Gross margin as a % of net revenue 38.9 % 39.4 % Selling, general and administrative expenses as a % of net revenue 32.4 % 32.7 % Income from operations as a % of net revenue 6.4 % 6.8 % Net and comprehensive income $ 67,256 $ 68,550 Net and comprehensive income as a % of net revenue 4.9 % 5.4 % Adjusted EBITDA (1) $ 145,092 $ 133,283 Adjusted EBITDA as a % of net revenue 10.5 % 10.5 % Total Showrooms at end of period 107 103 (1) See “How We Assess the Performance of Our Business” for a definition of adjusted EBITDA and a reconciliatio n of adjusted EBITDA to net income.
For 2024, net cash provided by operating activities was $147.1 million and consisted of net income of $68.6 million and an increase in non-cash items of $108.8 million, which were partially offset by a change in working capital and other activities of $30.2 million.
For 2024, net cash provided by operating activities was $147.1 million and consisted of net income of $68.6 million, an increase in non-cash items of $108.8 million, which were partially offset by a change in working capital and other activities of $30.2 million.
The use of cash from working capital was primarily driven by an increase in merchandise inventory of $42.7 million, a decrease in operating lease liabilities of $37.9 million primarily due to payments made under the related lease agreements, an increase in prepaid and other assets of $2.5 million, a decrease in accrued expenses of $0.9 million, which were 52 partially offset by an increase in client deposits of $47.1 million, an increase in accounts payable of $5.6 million and a decrease in accounts receivable of $1.1 million.
The use of cash from working capital was primarily driven by an increase in merchandise inventory of $42.7 million, a decrease in operating lease liabilities of $37.9 million primarily due to payments made under the related lease agreements, an increase in prepaid and other assets of $2.5 million, a decrease in accrued expenses of $0.9 million, which were partially offset by an increase in client deposits of $47.1 million, an increase in accounts payable of $5.6 million, and a decrease in accounts receivable of $1.1 million.
Cost of goods sold includes the direct cost of purchased merchandise, inventory reserves, inbound freight, all freight costs to get merchandise to our Showrooms, credit card fees, design, buying and allocation costs, our supply chain, such as product development and sourcing, occupancy costs related to Showroom operations, such as rent and common area maintenance for our leases, depreciation and amortization of leasehold 48 improvements, equipment and other assets in our Showrooms.
Cost of goods sold includes the direct cost of purchased merchandise, inventory reserves, inbound freight, all freight costs to get merchandise to our Showrooms, credit card fees, design, buying and allocation costs, our supply chain, such as product development and sourcing, occupancy costs related to Showroom operations, such as rent and common area maintenance for our leases, depreciation and amortization of leasehold improvements, equipment and other assets in our Showrooms.
Factors Affecting the Comparability of our Results of Operations Our results over the past two years have been affected by the following events, which must be understood in order to assess the comparability of our period-to-period financial performance and condition. 49 Showroom Openings and Closings New Showrooms contribute incremental expense, new Showroom opening expense and net revenue to the Company.
Factors Affecting the Comparability of our Results of Operations Our results over the past two years have been affected by the following events, which must be understood in order to assess the comparability of our period-to-period financial performance and condition. Showroom Openings and Closings New Showrooms contribute incremental expense, new Showroom opening expense and net revenue to the Company.
Critical Accounting Policies and Estimates Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which requires that certain estimates and assumptions be made that affect the amounts reported in our 53 consolidated financial statements and related notes. We evaluate our accounting policies, estimates, and judgments on an on-going basis.
Critical Accounting Policies and Estimates Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which requires that certain estimates and assumptions be made that affect the amounts reported in our consolidated financial statements and related notes. We evaluate our accounting policies, estimates, and judgments on an on-going basis.
We have pursued in the past, and may 51 pursue in the future, additional strategies to generate capital to pursue opportunities and investments, including new debt financing arrangements. In addition to funding the normal operations of our business, we have used our liquidity to fund investments and strategies related to growth initiatives, including supply chain and technology improvements.
We have pursued in the past, and may pursue in the future, additional strategies to generate capital to pursue opportunities and investments, including new debt financing arrangements. In addition to funding the normal operations of our business, we have used our liquidity to fund investments and strategies related to growth initiatives, including supply chain and technology improvements.
While we anticipate that these initiatives will support the growth of our business, costs and timing issues associated with pursuing these initiatives can negatively affect our growth rates in the near term and may amplify fluctuations in our growth rates from quarter to quarter. Our Ability to Source and Distribute Products Effectively .
While we anticipate that these initiatives will support the growth of our business, costs and timing issues associated with pursuing these initiatives can negatively affect our growth and profitability rates in the near term and may amplify fluctuations in our growth rates from quarter to quarter. Our Ability to Source and Distribute Products Effectively .
Liquidity and Capital Resources Liquidity Outlook Our primary cash needs have historically been for merchandise inventories, payroll, marketing catalogs, Showroom rent, capital expenditures associated with opening new Showrooms and renovating existing Showrooms, as well as the development of our infrastructure and information technology.
Liquidity and Capital Resources Liquidity Outlook Our primary cash needs have historically been for merchandise inventories, payroll, marketing, Showroom rent, capital expenditures associated with opening new Showrooms and renovating existing Showrooms, as well as the development of our infrastructure and information technology.
Our quarterly results vary depending upon a variety of factors, including changes in our product offerings and the introduction of new merchandise assortments and categories, the opening of new retail locations, shifts in the timing of various events quarter over quarter including holidays and other events such as Showroom closures, catalog releases, promotional events and the extent of our realization of the costs and benefits of our numerous strategic initiatives, among other things.
Our quarterly results vary depending upon a variety of factors, including changes in our product offerings and the introduction of new merchandise assortments and categories, the opening of new retail locations, shifts in the timing of various events including holidays and other events such as Showroom closures, catalog releases, promotional events and the extent of our realization of the costs and benefits of our numerous strategic initiatives, among other things.
In addition, cost of goods sold includes all logistics costs associated with shipping product to our clients, partially offset by delivery fees collected from clients (recorded in net revenue on the consolidated statements of comprehensive income). Sellin g, General and Administrative Expenses. Selling, general and administrative (“SG&A”) expenses include all operating costs not included in cost of goods sold.
In addition, cost of goods sold includes all logistics costs associated with shipping product to our clients, partially offset by delivery fees collected from clients (recorded in net revenue on the consolidated statements of comprehensive income). Selling, General and Administrative Expenses. Selling, general and administrative (“SG&A”) expenses include all operating costs not included in cost of goods sold.
Discussions regarding our financial condition and results of operations for 2023 compared to 2022 not included in this Annual Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Discussions regarding our financial condition and results of operations for 2024 compared to 2023 not included in this Annual Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
In addition, our needs and uses of capital may change in the future due to changes in our business or new opportunities that we choose to pursue. As of December 31, 2024, we have no material off-balance sheet arrangements.
In addition, our needs and uses of capital may change in the future due to changes in our business or new opportunities that we choose to pursue. As of December 31, 2025, we have no material off-balance sheet arrangements.
Comparable growth is the year-over-year percentage change of the dollar value of orders delivered (based on purchase price), net of the dollar value of returns (based on amount credited to client), from comparable Showrooms and eCommerce, including through our catalogs and other mailings.
Comparable Delivered Sales is the year-over-year percentage change of the dollar value of orders delivered (based on purchase price), net of the dollar value of returns (based on amount credited to client), from comparable Showrooms and eCommerce, including through our catalogs and other mailings.
These initiatives include expanding our Showroom footprint, enhancing our digital marketing capabilities and eCommerce sales channel, optimizing our product assortment, expanding our supply chain infrastructure and continuing to invest in technology and related systems enhancements.
These initiatives include expanding our Showroom footprint, enhancing our digital marketing capabilities and eCommerce sales channel, increasing our product assortment, expanding our supply chain infrastructure, and continuing to invest in technology and related systems enhancements.
For a discussion of such risk factors, see the section in this Annual Report entitled “Risk Factors.” This discussion and analysis addresses 2024 and 2023 items and year-over-year comparisons between 2024 and 2023.
For a discussion of such risk factors, see the section in this Annual Report entitled “Risk Factors.” This discussion and analysis addresses 2025 and 2024 items and year-over-year comparisons between 2025 and 2024.
In particular, periods of increased or decreased home purchases may lead to increased or decreased consumer spending on home furnishings. Our Strategic Initiatives. We are in the process of implementing a number of business initiatives that have had, and will continue to have, an impact on our results of operations.
In particular, periods of increased or decreased home purchases may lead to increased or decreased consumer spending on home furnishings. Our Strategic Initiatives. We are implementing a number of strategic initiatives that have had, and will continue to have, an impact on our results of operations.
On August 30, 2024, the Company amended the 2021 Credit Facility to adjust the index rate from the Bloomberg Short-Term Bank Yield Index to the Term Secured Overnight Financing Rate. The 2021 Credit Facility bears variable interest rates at the prevailing Term Secured Overnight Financing Rate plus the applicable margin (1.75% at December 31, 2024).
In August 2024, the Company amended the 2021 Credit Facility to adjust the index rate from the Bloomberg Short-Term Bank Yield Index to the Term Secured Overnight Financing Rate. The 2021 Credit Facility bears variable interest rates at the prevailing Term Secured Overnight Financing Rate plus the applicable margin (1.75% at December 31, 2024).
If we misjudge the market for our products or the product lines that we acquire, we may be faced with excess inventories for some products and may be required to become more promotional in our selling activities, which would impact our net revenue and gross margin. Seasonality in Quarterly Results .
If we misjudge the market for our products or the product lines that we acquire, we may be faced with excess inventories for some products and may be required to become more promotional in our selling activities, which would impact our net revenue and gross margin. 43 Table of Contents Seasonality in Quarterly Results .
On December 9, 2022, the Company amended the 2021 Credit Facility to increase the revolving credit commitment thereunder by $25.0 million. After giving effect to such increase, the aggregate amount of all commitments under the 2021 Credit Facility is $75.0 million.
In December, 2022, the Company amended the 2021 Credit Facility to increase the revolving credit commitment thereunder by $25.0 million. After giving effect to such increase, the aggregate amount of all commitments under the 2021 Credit Facility is $75.0 million.
Net revenue related to demand is recorded in later months, depending on when the client obtains control of the merchandise. 47 How We Assess the Performance of Our Business In addition to U.S. GAAP results, this 10-K contains references to the non-GAAP financial measures below.
Net revenue related to written sales is recorded in later months, depending on when the client obtains control of the merchandise. How We Assess the Performance of Our Business In addition to U.S. GAAP results, this 10-K contains references to the non-GAAP financial measures below.
Net revenue is recognized when a client obtains control of the merchandise. We also track demand in our business which is a key performance indicator linked to the level of client orders placed.
Net revenue is recognized when a client obtains control of the merchandise. We also track written sales in our business which is a key performance indicator linked to the level of client orders placed.
This metric is a key performance indicator used by management to evaluate Showroom demand performance for locations that have been opened for at least 13 consecutive months, which enables management to view the performance of those Showrooms without new Showroom demand included.
This metric is a key performance indicator used by management to evaluate Showroom performance for locations that have been opened for at least 13 consecutive months, which enables management to view the performance of those Showrooms without new Showroom written sales.
Variable compensation includes Showroom commissions and Showroom bonus compensation related to demand, likely before the client obtains control of the merchandise. Variable compensation is not significant in our eCommerce sales channel. All new Showroom opening expenses, other than occupancy, are included in SG&A expenses and are expensed as incurred.
Variable compensation includes Showroom commissions and Showroom bonus compensation related to written sales, lik ely before the client obtains control of the merchandise. Variable compensation is not significant in our eCommerce sales channel. All new Showroom opening expenses, other than occupancy, are included in SG&A expenses and are expensed as incurred.
Comparable Showrooms are defined as permanent Showrooms open for at least 15 consecutive months, including relocations in the same market. Showrooms record demand immediately upon opening, while orders delivered take additional time because product must be delivered to the client. The dollar value of orders delivered for Outlet comparable locations is included. Demand Comparable Growth .
Comparable Showrooms are defined as permanent Showrooms open for at least 15 consecutive months, including relocations in the same market. Showrooms record written sales immediately upon opening, while orders delivered take additional time because product must be delivered to the client. The dollar value of orders delivered for Loft comparable locations is included.
We seek out and evaluate opportunities for effectively managing and deploying capital in ways that improve working capital and support and enhance our business initiatives and strategies. As of December 31, 2024 , we had cash and cash equivalents of $197.5 million. For the year ended December 31, 2024, our principal sources of liquidity were cash flows from operations.
We seek out and evaluate opportunities for effectively managing and deploying capital in ways that improve working capital and support and enhance our business initiatives and strategies. As of December 31, 2025 , we had cash and cash equivalents of $253.4 million. For the year ended December 31, 2025, our principal sources of liquidity were cash flows from operations.
These capital expenditures have increased in the past and may continue to increase in future periods as we open additional Showrooms. Our capital expenditures include expenditures related to investing activities and outflows of capital related to construction activities to design and build leasehold improvement assets.
Capital Expenditures Historically, we have invested significant capital expenditures in opening new Showrooms. These capital expenditures have increased in the past and may continue to increase in future periods as we open additional Showrooms. Our capital expenditures include expenditures related to investing activities and outflows of capital related to construction activities to design and build leasehold improvement assets.
GAAP results in addition to using these non-GAAP financial measures. The non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. We consider the following financial and operating measures that affect our results of operations: Net Revenue and Demand .
GAAP results in addition to using these non-GAAP financial measures. The non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. We consider the following financial and operating measures that affect our results of operations: Net Revenue and Writt en Sales (Formerly “Demand”) .
While each of these key factors presents significant opportunities for our business, they also pose challenges that we must successfully address in order to sustain growth, improve our results of operations and achieve and maintain profitability. Overall Economic Trends . The industry in which we operate is cyclical.
While each of these key factors presents significant opportunities for our business, they also pose challenges that we must successfully address in order to sustain growth, improve our results of operations and achieve and maintain profitability. Overall Economic Trends .
Net cash used in financing activities Comparison of the Year Ended December 31, 2024 and December 31, 2023 For 2024, net cash used in financing activities was $73.0 million, primarily due to the payment of the special dividend on our Class A and Class B common stock.
For 2024, net cash used in financing activities was $73.0 million, primarily due to the payment of the special cash dividend on our Class A and Class B common stock.
The use of cash from working capital was primarily driven by a decrease in operating lease liabilities of $39.0 million primarily due to payments made under the related lease agreements, a decrease in client deposits of $28.8 million, an increase in prepaid and other assets of $11.1 million, a decrease in accrued expenses $1.5 million, which were partially offset by a decrease in merchandise inventory of $32.1 million and an increase in accounts payable of $1.2 million.
The use of cash from working capital was primarily driven by a decrease in operating lease liabilities of $59.0 million primarily due to payments made under the related lease agreements, and an increase in merchandise inventory of $41.8 million, which were partially offset by an increase in client deposits of $15.1 million, an increase in accounts payable of $9.9 million, an increase in accrued expenses of $7.9 million, and a decrease in prepaid and other assets of $4.1 million.
For example, our large catalogs in the spring and fall may drive higher demand in the months they are released than in the other months in the year. Variable expenses related to demand will also be higher in those months.
For example, our large catalogs and storewide sales for the spring and fall may drive higher written sales in the months they occur than in the other months in the year. Variable expenses related to written sales will also be higher in those months.
Consequently, our net revenue is affected by general economic conditions including conditions that affect the housing market and economic factors including the health and volatility of the stock market. We target consumers of high-end home furnishings.
The industry in which we operate is cyclical, and our net revenue is affected by general economic conditions, including conditions that affect the housing market and broader macroeconomic factors including the health and volatility of the stock market. We target consumers of high-end home furnishings.
Cash Flow Analysis The following table provides a summary of our cash provided by operating, investing and financing activities (in thousands): Year Ended December 31, 2024 2023 Net cash provided by operating activities $ 147,109 $ 168,685 Net cash used in investing activities (99,534) (93,108) Net cash used in financing activities (72,951) (1,799) Net (decrease) increase in cash, cash equivalents and restricted cash $ (25,376) $ 73,778 Net cash provided by operating activities Comparison of the Year Ended December 31, 2024 and December 31, 2023 Operating activities consist primarily of net income adjusted for non-cash items including depreciation and amortization, operating lease amortization, deferred income taxes, equity based compensation and the effect of changes in working capital and other activities.
Cash Flow Analysis The following table provides a summary of our cash provided by operating, investing and financing activities (in thousands): Year Ended December 31, 2025 2024 Net cash provided by operating activities $ 136,848 $ 147,109 Net cash used in investing activities (77,816) (99,534) Net cash used in financing activities (3,481) (72,951) Net increase (decrease) in cash, cash equivalents and restricted cash $ 55,551 $ (25,376) 49 Table of Contents Net cash provided by operating activities Comparison of the Year Ended December 31, 2025 and December 31, 2024 Operating activities consist primarily of net income adjusted for non-cash items including depreciation and amortization, operating lease amortization, deferred income taxes, equity based compensation and the effect of changes in working capital and other activities.
Net cash used in investing activities Investing activities consist primarily of capital expenditures related to investments in Showrooms, information technology and systems infrastructure, as well as supply chain investments.
Net cash used in investing activities Comparison of the Year Ended December 31, 2025 and December 31, 2024 Investing activities consist primarily of capital expenditures related to investments in Showrooms, information technology and systems infrastructure, as well as supply chain investments.
Demand comparable growth is the year-over-year percentage change of demand from our comparable Showrooms and eCommerce, including through our catalogs and other mailings.
Comparable Written Sales is the year-over-year percentage change in written sales from our comparable Showrooms and eCommerce, including through our catalogs and other mailings.
The increase was primarily driven by a $30.1 million increase in general and administrative costs primarily related to legal costs, strategic investments to support and drive the growth of the business, including supply chain and technology improvements, marketing investments and increased warehouse expenses, in addition to a $19.2 million increase in selling expenses primarily related to new Showrooms.
The increase was primarily driven by a $16.4 million increase in general and administrative costs primarily related to corporate expenses, strategic investments to support and drive the growth of the business, including supply chain and technology improvements and warehouse expenses, in addition to a $15.6 million increase in selling expenses primarily related to new Showrooms.
We anticipate our total capital expenditures, net of landlord contributions to be approximately $90.0 million to $110.0 million in fiscal year 2025, primarily related to new Showrooms.
We anticipate our total capital expenditures, net of landlord contributions to be approximately $70.0 million to $90.0 million in fiscal year 2026, primarily related to new Showrooms and information technology and systems infrastructure.
For demand purposes, comparable Showrooms are defined as permanent Showrooms open for at least 13 consecutive months, including relocations in the same market. Outlet comparable location demand is included.
For Comparable Written Sales, comparable Showrooms are defined as permanent Showrooms open for at least 13 consecutive months, including relocations in the same market.
Comparison of the Year Ended December 31, 2024 and December 31, 2023 For 2024 , net cash used in investing activities was $99.5 million primarily due to investments in Showrooms, strategic investments in our supply chain, and information technology and systems infrastructure.
For 2025, net cash used in investing activities was $77.8 million primarily due to investments in Showrooms, strategic investments in our supply chain, and information technology and systems infrastructure. For 2024 , net cash used in investing activities was $99.5 million primarily due to investments in Showrooms, strategic investments in our supply chain, and information technology and systems infrastructure.
Demand is an operating metric that we use to measure the dollar value of orders (based on purchase price) at the time the order is placed, net of the dollar value of cancellations and returns (based on unpaid purchase price and amount credited to client). These orders are recognized as net revenue when a client obtains control of the merchandise.
Written sales is an operating metric that we use to measure the dollar value of orders (based on purchase price) at the time the order is placed, net of the dollar value of cancellations and returns (based on unpaid purchase price and amount credited to client).
For the year ended December 31, 2024, these other (income) expenses consisted largely of $1.2 million of gain on disposal of assets. For the year ended December 31, 2023, these other (income) expenses consisted largely of $0.5 million of secondary offering costs.
For the year ended December 31, 2025, these other expenses (income) consisted largely of $0.1 million of loss on disposal of assets. For the year ended December 31, 2024, these other expenses (income) consisted largely of $1.2 million of gain on disposal of assets. Free Cash Flow .
For 2023, net cash provided by operating activities was $168.7 million and consisted of net income of $125.2 million, an increase in non-cash items of $90.9 million, which were partially offset by a change in working capital and other activities of $47.4 million.
For 2025, net cash provided by operating activities was $136.8 million and consisted of net income of $67.3 million and an increase in non-cash items of $132.9 million, which were partially offset by a change in working capital and other activities of $63.3 million.
The decrease was primarily driven by lower net revenue, increased Showroom occupancy costs of $12.9 million, higher delivery and transportation costs of $2.6 million and higher credit card fees of $1.9 million. As a percentage of net revenue, gross margin decreased 260 basis points to 39.4% of net revenue in 2024 compared to 42.0% of net revenue in 2023.
The increase was primarily driven by higher net revenue, partially offset by higher products costs of $40.6 million, increased Showroom occupancy costs of $18.1 million, higher delivery and transportation costs of $6.1 million and higher credit card fees of $3.4 million. 47 Table of Contents As a percentage of net revenue, gross margin decreased 50 basis points to 38.9% of net revenue in 2025 compared to 39.4% of net revenue in 2024.
Notwithstanding these limitations, management considers it useful to assess both measures together to get a more complete picture of overall performance trends, and believes these measures can be useful to investors for the same purpose, when viewed together with our reported results and other metrics. Gross Margin. Gross margin is equal to our net revenue less cost of goods sold.
Notwithstanding these limitations, management considers it useful to evaluate both measures together to assess overall performance trends and believes investors may find them useful when reviewed alongside reported results and other key metrics. Gross Margin. Gross margin is equal to our net revenue less cost of goods sold.
For 2023, net cash used in financing activities was $1.8 million, primarily due to the repurchase of shares for payment of withholding taxes for equity based compensation.
Net cash used in financing activities Comparison of the Year Ended December 31, 2025 and December 31, 2024 For 2025, net cash used in financing activities was $3.5 million, primarily due to the repurchase of shares for payment of withholding taxes for equity based compensation.
Data about the Showrooms we operated as of each period presented is as follows: December 31, 2024 2023 Traditional Showrooms 85 80 Design Studios 11 8 Outlets 7 4 Total Showrooms 103 92 Total square footage (in thousands) 1,676 1,438 Showrooms with in-home designers 89 78 States where we operate 30 29 46 Factors Affecting Our Business Our business performance and results of operations have been, and will continue to be, affected by the factors described below.
As of December 31, 2025, the Company operated 107 Showrooms in 31 states, consisting of 90 Traditional Showrooms, 9 Design Studios and 8 Lofts. 42 Table of Contents December 31, 2025 2024 Traditional Showrooms 90 85 Design Studios 9 11 Lofts 8 7 Total Showrooms 107 103 Total gross square footage (in thousands) 1,836 1,676 Showrooms with interior designers 97 89 States where we operate 31 30 Factors Affecting Our Business Our business performance and results of operations have been, and will continue to be, affected by the factors described below.
Our recent Showroom growth from January 1, 2023 to December 31, 2024 is summarized in the following table: 2024 2023 Showrooms open at beginning of period 92 81 Showrooms opened (1) 16 14 Showrooms closed for relocations (5) (3) Showrooms open at end of period 103 92 (1) Showrooms opened during the respective periods includes both new and relocated Showrooms.
Our recent Showroom growth from January 1, 2024 to December 31, 2025 is summarized in the following table: December 31, 2025 2024 Showrooms open at beginning of period 103 92 Showrooms opened (1) 12 16 Showrooms closed for relocations (7) (5) Showrooms closed permanently (1) — Showrooms open at end of period 107 103 (1) Showrooms opened during the respective periods includes both new and relocated Showrooms. 46 Table of Contents Results of Operations The following tables summarize key components of our results of operations for the periods indicated and should be read together with our consolidated financial statements and related notes.
Historical capital expenditures are summarized as follows (in thousands): Year Ended December 31, 2024 2023 Net cash used in investing activities $ 99,534 $ 93,108 Less: Landlord contributions 33,587 21,900 Total capital expenditures, net of landlord contributions $ 65,947 $ 71,208 Total capital expenditures, net of landlord contribution s decreased by $5.3 million in 2024 compared to 2023.
Historical capital expenditures are summarized as follows (in thousands): Year Ended December 31, 2025 2024 Net cash used in investing activities $ 77,816 $ 99,534 Less: Landlord contributions 20,922 33,587 Total capital expenditures, net of landlord contributions $ 56,894 $ 65,947 50 Table of Contents Total capital expenditures, net of landlord contributi ons decreased by $9.1 million in 2025 compared to 2024.
Net and Comprehensive Income Net and comprehensive income decreased $56.7 million to $68.6 million in 2024 compared to $125.2 million in 2023. The decrease was driven by the factors described above.
Net and Comprehensive Income Net and comprehensiv e income decreased $1.3 million to $67.3 million in 2025 compared to $68.6 million in 2024. The decrease w as driven by the factors described above.
Because demand is measured net of cancellations, all demand will eventually become net revenue, with appropriate reserves, when delivered to the client. Comparable Growth .
These orders are recognized as net revenue when a client obtains control of the merchandise. Because written sales is measured net of cancellations, all written sales will eventually become net revenue, with appropriate reserves, when delivered to the client. Comparable Delivered Sales (Formerly “Comparable Growth”) .
Demand comparable growth provides insight into business levels in a particular period by comparing the dollar value of orders (based on purchase price) placed in that period to the prior comparable period. Although these orders do not result in net revenue until the order is delivered at a later point in time, management utilizes this metric to evaluate core performance.
Although these orders do not result in net revenue until the order is delivered at a later point in time, management utilizes this metric to evaluate core performance.
The following is a reconciliation of our net and comprehensive income to EBITDA and adjusted EBITDA for the periods presented (in thousands): Year Ended December 31, 2024 2023 Net and comprehensive income $ 68,550 $ 125,239 Interest income, net (3,163) (3,351) Income tax expense 22,372 43,450 Depreciation and amortization 39,086 29,442 EBITDA 126,845 194,780 Equity based compensation 7,640 7,909 Other (income) expenses (1) (1,202) 792 Adjusted EBITDA $ 133,283 $ 203,481 (1) Other (income) expenses represent costs and investments not indicative of ongoing business performance, such as gain on disposal of assets, secondary offering costs, severance, signing bonuses and recruiting costs.
We also use adjusted EBITDA as a method for planning and forecasting overall expected performance and for evaluating, on a quarterly and annual basis, actual results against such expectations. 45 Table of Contents The following is a reconciliation of our net and comprehensive income to EBITDA and adjusted EBITDA for the periods presented (in thousands): Year Ended December 31, 2025 2024 Net and comprehensive income $ 67,256 $ 68,550 Interest income, net (3,032) (3,163) Income tax expense 24,723 22,372 Depreciation and amortization 46,793 39,086 EBITDA 135,740 126,845 Equity based compensation 9,182 7,640 Other expenses (income) (1) 170 (1,202) Adjusted EBITDA $ 145,092 $ 133,283 (1) Other expenses (income) represent costs and investments not indicative of ongoing business performance, such as loss (gain) on disposal of assets.
Interest Income, net Interest income, net decreased to $3.2 million in 2024 compared to $3.4 million in 2023. Income Taxes Income tax e xpense was $22.4 million in 2024 compared to $43.5 million in 2023. The decrease was primarily due to lower income before taxes. Our effective tax rate was 24.6% in 2024 and 25.8% in 2023.
Income Taxes Income tax expense was $24.7 million in 2025 compared to $22.4 million in 2024. The increase was primarily due to higher income before taxes. Our effective tax rate was 26.9% in 2025 and 24.6% in 2024.
During the year ended December 31, 2024 , the Company paid out $70.3 million of the aforementioned special cash dividend on its Class A and Class B common stock. Credit Facility In November 2021, the Company entered into a revolving credit facility (the “2021 Credit Facility”).
The Company paid $0.4 million of the aforementioned special cash dividend on its Class A common stock related to dividend equivalents on equity awards that vested during the year ended December 31, 2025 , and $70.3 million on its Class A and Class B common stock to shareholders as of the Record Date and dividend equivalents on equity awards that vested during the year ended December 31, 2024.
The gross margin decrease as a percentage of net revenue was primarily the result of higher Showroom occupancy costs, which increased 110 basis points, a product margin decrease of 60 basis points, higher delivery and transportation costs, which increased 40 basis points and higher credit card fees, which increased 20 basis points .
The gross margin decrease as a percentage of net revenue was primarily the result of higher Showroom occupancy costs, which increased 60 basis points, partially offset by delivery and transportation costs, which decreased 40 basis points. Selling, General and Administrative Expenses SG&A expenses increased $32.0 million, or 7.7%, to $447.4 million in 2025 compared to $415.4 million in 2024.
This was partially offset by the non-recurrence of a $10.0 million donation last year to The Nature Conservancy. As a percentage of net revenue, selling, general and administrative expenses increased 350 basis points to 32.7% of net revenue in 2024 compared to 29.2% of net revenue in 2023.
As a percentage of net revenue, selling, general and administrative expenses decreased 30 basis points to 32.4% of net revenue in 2025 compared to 32.7% of net revenue in 2024. Interest Income, net Interest income, net decreased to $3.0 million in 2025 compared to $3.2 million in 2024.
Comparable growth is an additional measure that management utilizes to compare the dollar value of orders delivered (based on purchase price) in a period compared to the prior comparable period. Since delivery generally coincides with recognition of net revenue, with appropriate reserves, comparable growth trends will more closely track trends in reported net revenue than demand comparable growth trends.
Since delivery generally coincides with recognition of net revenue, with appropriate reserves, Comparable Delivered Sales trends will more closely track trends in reported net revenue than Comparable Written Sales. Comparable Written Sales (Formerly “Demand Comparable Growth”) .
The decrease was driven primarily by the non-recurrence of prior year abnormal backlog deliveries, partially offset by an increase in demand for our products. Gross Margin Gross margin decreased $39.2 million , or 7.3% , to $501.2 million in 2024 compared to $540.4 million in 2023 .
The increase was driven primarily by $64.4 million of revenue growth related to Showrooms opened in 2024 and 2025, with the remainder due to increased demand for our products. Gross Margin Gross margin increased $35.2 million, or 7.0%, to $536.4 million in 2025 compared to $501.2 million in 2024.
While increases or decreases in demand comparable growth will translate into increases or decreases in comparable growth over time, the trends do not necessarily correlate in any particular period. This is partially due to the general lag in time between when an order is placed and when an order is delivered.
While the underlying written sales that support this metric will generally translate into delivered sales over time, the Comparable Written Sales and Comparable Delivered Sales measures may not correlate in any specific period partially due the lag effects in both the numerator and denominator that occur between order placement and delivery, which tend to vary based on natural variations in the supply chain.
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Revision of Previously Issued Consolidated Financial Statements This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” has been amended to give effect to the revision of our consolidated balance sheet and consolidated statements of cash flows, as more fully described in Note 1 – Nature of Business to the Notes to Consolidated Financial Statements – Revision of Previously Issued Consolidated Financial Statements Overview Arhaus is a growing lifestyle brand and premium retailer in the United States home furnishings market, specializing in livable luxury supported by globally-sourced, heirloom-quality merchandise.
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Overview Founded in 1986 by John Reed, our CE O, and his father, Arhaus is a premium home furnishings brand built on a simple idea: furniture and décor should be responsibly sourced, lovingly made, and built to last.
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We offer a differentiated direct-to-consumer approach to furniture and décor. Our curated assortments are presented across our sales channels in sophisticated, family friendly and unique lifestyle settings. We offer merchandise assortments across a number of categories, including furniture, outdoor, lighting, textiles and décor.
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We operate a vertically integrated model, designing and sourcing products directly from skilled artisans and carefully selected manufacturing vendors around the world, including domestic upholstery production at our own North Carolina manufacturing facility. This approach enables us to offer a highly exclusive and customizable assortment of heirloom-quality furniture and décor designed to be used and enjoyed for generations.
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Our products, designed to be used and enjoyed throughout the home, are sourced directly from factories and vendors with no wholesale or dealer markup, allowing us to offer an exclusive assortment at an attractive value. Our direct sourcing network consists of more than 400 vendors, some of whom we have had relationships with since our founding.
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Design is at the core of everything Arhaus does. With more than 100 Showroom locations across the United States, our integrated omni-channel model connects every client touchpoint, from Showroom and interior design to eCommerce and catalog, allowing us to meet clients wherever and however they choose to shop while delivering a highly personalized client-first experience from discovery through delivery.
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Our product development teams work alongside our direct sourcing partners to bring to market proprietary merchandise that is a great value to clients, while delivering attractive margins. We believe in providing a dynamic and welcoming experience in our Showrooms and online with the conviction that retail is theater.
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Our vertically integrated model, inclusive of design and product development teams, upholstery manufacturing capabilities, direct vendor sourcing, direct-to-consumer and direct-to-trade selling, allows Arhaus to maintain greater control over product quality, design integrity, and value. We offer merchandise across a broad range of categories, including furniture, outdoor, bath, lighting, textiles and décor.
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Our national omni-channel business positions our retail locations as Showrooms for our brand, while our website acts as a virtual extension of our Showrooms. Our theater-like Showrooms are highly inspirational and function as an invaluable brand awareness vehicle. Our seasoned sales associates and in-home designers provide expert advice and assistance to our client base that drives significant client engagement.
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Our curated assortments are presented across our sales channels in sophisticated, family-friendly and lifestyle-oriented settings. Based on third-party reports, publicly available data, and our internal research, we believe the United States premium home furnishings market is approximately $100 billion.
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Our omni-channel model allows clients to begin or end their shopping journey online, while also experiencing our theater-like Showrooms throughout the shopping journey.
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This highly fragmented market is served by a large number of independent retailers, which we believe provides us a meaningful opportunity to increase market share over time. We believe that we are well positioned to grow market share through our differentiated brand positioning, scale, and strong resonance with affluent clients who value quality, craftsmanship, and design.
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When the time gap from order to delivery increases, due to supply chain challenges for example, it may take longer for comparable growth to reflect demand comparable growth.
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Products are designed for use throughout the home and are sourced directly from a global network of nearly 400 vendors . Through close collaboration with Arhaus product development teams and sourcing relationships, and supported by our vertically integrated model, we believe we are able to deliver high-quality products at a compelling value.
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We also use adjusted EBITDA as a method for planning and forecasting overall expected performance and for evaluating, on a quarterly and annual basis, actual results against such expectations.
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Arhaus strives to deliver a welcoming and inspirational experience across both Showrooms and eCommerce, guided by our belief that retail is theater. Showrooms are immersive, design-forward spaces that serve as an important driver of brand awareness and client engagement, while our eCommerce channel functions as a seamless extension of the physical Showroom experience.
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Results of Operations The following tables summarize key components of our results of operations for the periods indicated and should be read together with our consolidated financial statements and related notes.
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Our experienced design consultants and interior designers provide expert guidance and personalized service, supporting clients throughout their shopping journey.
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Selling, General and Administrative Expenses SG&A expenses increased $39.3 million , or 10.5% , to $415.4 million in 2024 compared to $376.1 million in 2023.
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Comparable Delivered Sales provides management insight into business performance for a particular period by comparing the dollar value of orders delivered (based on purchase price) in a period compared to the prior comparable period.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe currently do not use derivative instruments to manage this risk. Interest Rate Risk We are primarily exposed to interest rate risk with respect to borrowing under our 2021 Credit Facility and as of December 31, 2024, we have not drawn upon the 2021 Credit Facility.
Biggest changeWe cannot predict with certainty the effect these increased costs may have on our financial statements or results of operations. We currently do not use derivative instruments to manage this risk. Interest Rate Risk We are primarily exposed to interest rate risk with respect to borrowing under our 2021 Credit Facility.
We purchase the majority of our inventory from vendors outside of the United States in transactions that are primarily denominated in U.S. dollars and, as such, any foreign currency impact related to these international purchase transactions is not significant to us.
We purchase the majority of our inventory from vendors outside of the United States in transactions that are primarily denominated in U.S. dollars and, as such, any foreign currency impact related to these international purchase transactions was not significant to us for the years ended December 31, 2025, 2024 and 2023.
We currently do not use derivative instruments to manage this risk. 54
We currently do not use derivative instruments to manage this risk. 52 Table of Contents
However, since we pay for the majority of our international purchases in U.S. dollars, a decline in the U.S. dollar relative to other foreign currencies would subject us to risks associated with increased purchasing costs from our vendors. We cannot predict with certainty the effect these increased costs may have on our financial statements or results of operations.
However, since we pay for the majority of our international purchases in U.S. dollars, a decline in the U.S. dollar relative 51 Table of Contents to other foreign currencies would subject us to risks associated with increased purchasing costs from our vendors.
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Except for the $5.1 million irrevocable standby letter of credit issued in May 2025 as discussed in Note 6 — Debt to our consolidated financial statements, we have no borrowings under the 2021 Credit Facility as of December 31, 2025.

Other ARHS 10-K year-over-year comparisons