Arhaus Q2 2026 Earnings: Tariff Recoveries Lift Profitability

Arhaus (NASDAQ: ARHS) reported fiscal second-quarter 2026 net revenue of $384.9 million, up 7.4% year over year, while diluted EPS increased to $0.28 from $0.25. Gross profit and adjusted EBITDA rose faster than revenue, but both included a $23.8 million benefit from IEEPA tariff recoveries. Comparable written sales increased 12.5%, compared with 4.0% growth in comparable delivered sales.

Core earnings data

Reported profitability improved across the income statement. Gross profit rose 16.1%, operating income increased 16.0%, and net income grew 13.1%.

The tariff recovery was the most important factor affecting comparability. Meanwhile, selling, general and administrative expenses increased 16.1%, more than twice the rate of revenue growth.

Sales and showroom performance

Comparable written sales, which measure orders booked, increased 12.5% in the quarter. Comparable delivered sales, which more closely track recognized revenue, rose 4.0%. The gap indicates that order activity improved faster than deliveries, although the timing of backlog conversion remains important.

On a year-to-date basis, comparable written sales increased 2.8% and comparable delivered sales rose 1.4%. Those figures reflect weaker first-quarter results, when written and delivered sales declined 5.7% and 1.7%, respectively.

Arhaus ended the quarter with 109 showrooms across 31 states, up from 107 at the end of 2025. It completed four showroom projects during Q2: two new locations, one relocation, and one expansion. The company continues to expect 10 to 14 total showroom projects in 2026, including four to six new openings, with mid-single-digit net unit growth.

Approximately 36% of the showroom portfolio had been open or reopened for less than three years at quarter-end. Arhaus said this mix provides potential revenue growth as newer locations mature.

Tariff recoveries lifted margins while operating expenses continued to rise

Arhaus recognized a $23.8 million reduction in cost of goods sold from the recovery of previously paid IEEPA tariffs. Of that amount, $15.5 million related to inventory sold before April 2026 and $8.3 million related to inventory sold during Q2.

The recovery was approximately equal to the entire year-over-year increase in reported gross profit. On a mechanical basis, subtracting the benefit would leave gross profit of about $148.3 million, nearly unchanged from $148.2 million a year earlier, and an implied gross margin of roughly 38.5% versus 41.4%. This is not a company-provided adjusted measure, but it illustrates how significantly the refund affected reported profitability.

SG&A expenses increased by approximately $16.3 million year over year. Consequently, despite the tariff benefit, operating income increased by only about $7.5 million. The relationship between these figures shows that the reported margin expansion should not be viewed entirely as an improvement in underlying operations.

Arhaus requested $37.8 million of tariff refunds and had recognized a $32.7 million receivable as of June 30. By the August 6 earnings release, the company had received all $37.8 million, plus $1.3 million of interest.

Cash flow and balance sheet

Cash-flow figures were provided for the six months ended June 30 rather than for Q2 alone. Six-month operating cash flow declined to $59.8 million from $81.4 million, while free cash flow decreased to $22.9 million from $39.8 million.

Working-capital movements included a $38.2 million use of cash from prepaid and other assets, a line that contained the tariff refund receivable at quarter-end. Inventory also used $14.7 million, while a $27.8 million increase in client deposits provided a partial offset.

Arhaus ended June with $226.4 million of cash and no long-term debt. Cash was down 10.6% from year-end, primarily reflecting the approximately $49 million special cash dividend paid in March. Net merchandise inventory increased 4.3% to $353.5 million, while client deposits rose 11.8% to $263.8 million.

Earnings guidance

Arhaus maintained its full-year revenue and comparable delivered sales outlook. It updated its net income and adjusted EBITDA ranges to include the tariff recovery benefit, while noting that part of the recovery will be reinvested in strategic initiatives or used to offset elevated operating costs.

The full-year revenue range represents expected growth of 3.7% to 6.6%. For Q3, the company expects revenue growth between 3.0% and 8.8%.

The company also expects $70 million to $90 million of company-funded capital expenditures and approximately $50 million to $55 million of depreciation and amortization for 2026.

Management’s view

CEO John Reed attributed sales momentum to new product collections, customization, and engagement across product categories. CFO Michael Lee emphasized continued investment in digital transformation, operational efficiency, and capabilities intended to support longer-term growth.

Management nevertheless retained caution in its outlook because of uncertainty surrounding consumer conditions, geopolitical developments, and the timing of converting written orders into delivered sales.

Risks investors should watch

• Tariff recoveries distort underlying profitability: The $23.8 million benefit accounted for nearly all of the year-over-year increase in gross profit, limiting the usefulness of reported margins as a measure of the recurring earnings run rate.
• Operating expenses are growing faster than revenue: SG&A rose 16.1% against 7.4% revenue growth. Continued investment and elevated operating costs could limit how much future sales growth reaches operating income.
• Written orders still need to convert into deliveries: Comparable written sales substantially outpaced delivered sales, but revenue recognition depends on order timing, backlog, and successful delivery.
• Cash conversion weakened: Six-month free cash flow declined despite higher net income. Planned capital expenditures and working-capital requirements remain important factors to monitor.

Summary

Arhaus produced higher Q2 revenue and improved order activity, with written sales growing faster than delivered sales. Reported earnings and margins increased, but the $23.8 million tariff recovery was the main driver of gross profit growth while SG&A continued to rise rapidly. The next key indicators are the conversion of written orders into delivered revenue, expense control, cash generation, and execution against the maintained full-year sales outlook.