Earnings call transcript: Arhaus misses Q1 2025 EPS forecasts, stock dips

Arhaus Inc. reported its first-quarter 2025 earnings, revealing an earnings per share (EPS) of $0.0308, below the forecasted $0.0592. The company’s revenue reached $311 million, slightly missing the expected $314.83 million. Following the release, Arhaus’s stock fell by 2.15% in pre-market trading, reflecting investor disappointment with the earnings miss. According to InvestingPro data, 11 analysts have recently revised their earnings expectations downward for the upcoming period, suggesting continued near-term challenges. With a market capitalization of $1.18 billion, Arhaus currently trades at a P/E ratio of 19.45x.

Key Takeaways

• Arhaus’s Q1 2025 EPS was $0.0308, missing the forecast of $0.0592.
• Revenue for the quarter was $311 million, slightly below the $314.83 million forecast.
• The stock price dropped by 2.15% in pre-market trading after the earnings announcement.
• The company launched new product lines, including an outdoor collection and Italian upholstery.
• Arhaus ended the quarter with $214 million in cash and no debt.

Company Performance

Arhaus Inc. reported a solid year-over-year revenue increase of 5.5% for the first quarter of 2025, reaching $311 million. The company noted a demand comparable growth of 4.1%, indicating steady consumer interest despite market challenges. Arhaus’s net income was $5 million, with an adjusted EBITDA of $19 million, marking a 6% margin. The company maintained a strong financial position with $214 million in cash and no debt, underscoring its financial stability. InvestingPro analysis shows the company operates with moderate debt levels and strong cash flows to cover interest payments, with a healthy current ratio of 1.32x. Get access to over 30 additional financial metrics and detailed analysis with InvestingPro.

Financial Highlights

• Revenue: $311 million, up 5.5% year-over-year
• Net Income: $5 million
• Adjusted EBITDA: $19 million (6% margin)
• Cash Position: $214 million, debt-free

Earnings vs. Forecast

Arhaus’s EPS of $0.0308 fell short of the forecasted $0.0592, representing a significant miss. The revenue also slightly missed expectations, coming in at $311 million compared to the anticipated $314.83 million. This earnings miss contrasts with the company’s previous performance, where it consistently met or exceeded forecasts.

Market Reaction

Following the earnings release, Arhaus’s stock price fell by 2.15% in pre-market trading, closing at $8.18. This drop reflects investor disappointment due to the earnings miss. The stock remains closer to its 52-week low of $6.61 than its high of $19.81, indicating potential investor caution. InvestingPro data reveals the stock has experienced significant price volatility, with a beta of 2.65, while showing a strong return over the last month despite falling significantly over the past three months. The stock currently trades near its Fair Value based on InvestingPro’s comprehensive valuation model.

Outlook & Guidance

Arhaus provided guidance for the full year 2025, projecting net revenue between $1.29 billion and $1.38 billion and net income ranging from $48 million to $68 million. According to InvestingPro data, analyst targets range from $8.50 to $14.00 per share, suggesting potential upside. Access the complete Pro Research Report, available for Arhaus and 1,400+ other US stocks, to get detailed insights into the company’s valuation, growth prospects, and financial health metrics. The company plans to continue its showroom expansion strategy, with 12-15 projects slated for 2025, and expects strategic investment expenses to range from $15 million to $20 million.

Executive Commentary

CEO John Reed emphasized the company’s long-term vision, stating, "We’re in it for the long term." He highlighted Arhaus’s resilient operating model, saying, "Our model is built on resilience." Ryan Brody, SVP of Finance, expressed confidence in the company’s strategic priorities, noting, "We believe our differentiated brand, resilient operating model, and long-term strategic priorities position us to navigate uncertainty."

Risks and Challenges

• Market Volatility: Fluctuations in consumer sentiment due to stock market changes could impact sales.
• Tariff Impacts: An expected $10 million tariff impact in 2025 might affect profitability.
• Supply Chain Adjustments: Reducing China sourcing to 1% by Q4 2025 may pose logistical challenges.
• Economic Uncertainty: Macroeconomic pressures could influence consumer spending in the luxury segment.
• Showroom Expansion: Execution risks associated with opening new showrooms and relocations.

Q&A

During the earnings call, analysts inquired about Arhaus’s tariff mitigation strategies and the impact of market volatility on April sales. Executives confirmed no significant changes in customer cancellations and maintained confidence in the company’s long-term business model.

Full transcript - Arhaus Inc (ARHS) Q1 2025:

Operator/Moderator: Good morning, and welcome to the IR Health First Quarter twenty twenty five Earnings Call. Please note that this call is being recorded, and the reproduction of any part of this call is not permitted without written authorization from the company. I will now turn the call over to your host, Tara Atwood, Vice President of Investor Relations. Please go ahead.

Tara Atwood, Vice President of Investor Relations, R House: Good morning, and thank you for joining us for the RHAS first quarter ’20 ’20 ’5 earnings call. Joining me on today’s call are John Reed, our Founder, Chairman and Chief Executive Officer Jennifer Porter, our Chief Marketing and eCommerce Officer and Ryan Brody, our Senior Vice President of Finance. After our prepared remarks, we will open the line up for a Q and A session. During Q and A, please limit to one question and one follow-up. We issued our press release and 10 Q for the quarter ended 03/31/2025, before the market opened today.

Those documents are available on our Investor Relations website at ir.rhouse.com. A replay of the call will be available on our website within twenty four hours. I would like to remind everyone that our remarks today concerning future expectations, events, objectives, strategies, trends or results constitute forward looking statements. Actual results or events may differ materially due to a number of risks and uncertainties. For a summary of these risk factors and additional information, please refer to this morning’s press release and the cautionary statements and risk factors described in our most recent annual report on Form 10 ks and subsequent 10 Q.

As such, factors may be updated from time to time in our filings with the SEC. The forward looking statements are made as of today’s date and except as may be required by law. The company undertakes no obligation to update or revise these statements. We will also refer to certain non GAAP financial measures, and this morning’s press release includes the relevant non GAAP reconciliations. Now I will turn the call over to John.

John Reed, Founder, Chairman and Chief Executive Officer, R House: Good morning, everyone, and thank you for joining us today. We’re pleased with our performance this quarter, delivering first quarter results in line with our expectations, supported by showroom growth, healthy client engagements across our retail and e commerce channels and continued disciplined execution of our operating model. Net revenue grew a healthy 5.5% and demand comparable growth was up an impressive 4.1%. We ended the quarter with $214,000,000 in cash and cash equivalents and remain debt free. Our strong financial position provides us the flexibility to invest in strategic growth opportunities and create value for our shareholders.

Since the huge uncertainty shock the past couple of months, we’re focused on what we can control, executing with discipline, investing strategically and growing our showroom footprint to support long term profitable growth. We believe our differentiated model built on artisan crafted, high quality design and a premium client experience continues to be distinct competitive advantage. Now let me walk through seven proof points that gives us confidence in the road ahead, starting with our people. We’re building our house for the long term, and that begins with talent. I’m incredibly proud of our depth bench of experienced leaders across the company, individuals whose creativity, passion and discipline continue to drive our success.

We’re also excited to welcome Michael Lee as our new Chief Financial Officer starting May 12. Mike brings extensive experience and financial leadership that will be instrumental. And across our showrooms, our team remains our secret sauce. Their expertise and connection with our clients are the key competitive advantage, one that consistently sets our house apart. The strength of our people is reflected in our ability to execute, especially through the agility of our sourcing and supply chain operations, which brings me to my second proof point, our supply chain and sourcing agility.

Today, sourcing footprint is diversified across North America, Europe and South Asia, enabling us to adapt quickly to global dynamics while upholding the exceptional quality standards that define our house. It’s important to emphasize that our diversification strategy has been in place for many years, long before the current headlines, and reflects our commitment to sourcing from a broad range of trusted global vendors. At our house, product development isn’t about sourcing diversification as a starting point. It’s about going around the world to find the best of the best. That commitment to exceptional craftsmanship, authentic materials, and trusted relationships naturally lead to a sourcing model that is diverse, balanced and resilient.

In April, United States represented approximately 36% of our total receipts, including our internal manufacturing operation. We continue to invest in U. S. Manufacturing, particularly in our domestic upholstery business. Over 70% of our upholstery business comes from The United States, with the largest portion coming from our own North Carolina facility, supporting proprietary design, cost control and our premium positioning.

We also recognize a heightened focus on China sourcing amid evolving tariff dynamics. In April, China represented approximately 13% of our total product receipts. We expect this to decline to approximately 5% or less in the third quarter, and we believe we can reach approximately 1% in the fourth quarter. Our sourcing evolution underscores the agility of our operating model and the successful execution of our teams. Of course, the strength of our supply chain wouldn’t be possible without our vendor relationships, my third point.

These relationships enable us to maximize agility, minimize financial risk and move with speed and confidence during times of uncertainty. They are not simply transactional. They’re built on mutual trust, shared values, and a long standing commitment to delivering exceptional quality. My deep rooted passion for sourcing keeps me closely connected to this work, from scouring hidden gem artisan markets to building direct relationships with vendors and artisans around the world. Over the past month, I’ve had the opportunity to meet face to face with many of our global vendors alongside members of our leadership team.

These visits reaffirm what we’ve long known. When it matters most, our vendors show up as an extension of our team. Our success is mutually beneficial, and many vendors and artisans have scaled with us, in some cases for decades. Whether it’s helping to offset cost pressure, prioritizing resources and production or adapting quickly to the dynamic environment, our vendors consistently help us navigate. Together with our vendors, we continue to deliver exceptional value without ever compromising quality our clients expect and love, which brings me to my fourth proof point, our resilient high end client base.

We believe we are meaningfully over indexed to an affluent consumer who has historically been less reactive to macro volatility. Importantly, this client has consistently been the last to pull back and the first to return when conditions stabilize. And while stock market volatility may be weighing on consumer sentiment more broadly, overall demand was healthy in the first quarter. Our clients remain deeply invested in their homes and consistently prioritize quality, craftsmanship, and long term value in their purchase decisions. Proof point five, consistent strategic execution.

We remain focused on executing our long term strategy by continuing to invest in what matters most, best in class product quality, thoughtful innovation, newness that resonates with our clients. We’re expanding our physical footprint while deepening client engagement through a multi touch point model, including our catalogs which remain among our most powerful storytelling tools. At the same time, we’re making strategic investments in technology and e commerce to further elevate the client experience and strengthen our omnichannel capabilities. This disciplined execution is a key reason we gained market share and recovered faster than many peers coming out of the pandemic and why we remain confident in our approach going forward. Proof point number six, showroom growth and investment.

In 2024, we opened 11 new showrooms, which are performing well, while relations enhanced brand visibility and deepened client engagements. Looking ahead, we have 28 total showroom projects in the pipeline through the end of twenty twenty seven, with even more opportunities likely. This momentum reflects our disciplined focus on scaling thoughtfully, elevating the showroom experience, expanding market share and supporting long term revenue growth. And underpinning all of this is my seventh and final point, our financial strength. We continue to operate from a position of discipline, debt free with ample liquidity and a healthy balance sheet.

We believe the strong financial foundation allows us to invest confidently in long term growth, navigate near term uncertainty and deliver long term value for our shareholders. In short, R House is well positioned for the future, powered by the strength of our brand, the passion of our people and the disciplined execution of our strategy. Now let’s take a closer look at our performance in the quarter. Beginning with showrooms. In the first quarter, we completed five total showroom projects, one new traditional showroom and four strategic relocations.

The highlights include Winter Park, Florida, a new traditional showroom opened in Winter Park Village in an upscale lifestyle center. Sarasota, Florida, relocated showroom opened in Centerport at Waterside, a key Florida market. In Burlingame, California, we relocated a showroom in Downtown Burlingame, to the local clientele. Looking ahead, I am pleased to share that we are raising our outlook on this front and now expect to complete approximately 12 to 15 total showroom projects in 2025. This includes four to six new showrooms, up from the prior three to five, and eight to nine strategic relocation remodels and expansions.

Our long term remains an average of five to seven new traditional showrooms annually. Importantly, our timing is driven by readiness, not just the calendar. We open locations when we believe they are prepared to deliver the experience our clients expect. We encourage you to view our footprint growth through the lens of total showroom project activity. For every project, whether new opening, relocation, remodel or expansion is evaluated through the same disciplined return on investment approach.

Our showroom strategy is clear, target premier locations with strong foot traffic, complementary code tendencies and opportunities to enhance the brand visibility and grow market share. Every decision is made with a focus on sustainable, high quality growth and attractive expected returns on investments. Turning to our product. Design is the core of who we are. This season, clients are responding to warmer products, softer silhouettes, eclectic use of color and pattern.

Highlights include our outdoor collection featuring premium teak, all weather wicker, and our first Italian upholstery collection. Upholstery remains a hallmark handcrafted by skilled artisans. Across collections, rich textures, warm woods, and unexpected materials create a fresh yet familiar look and feel. Looking ahead to 2025, we’ll continue to innovate in materials, silhouettes and personalization, keeping us at the forefront of design comfort and quality. Turning to demand.

As I shared earlier, we delivered an impressive demand comparable growth of 4.1% in the quarter. However, demand comparable growth was not linear through the quarter. With strong performance in January up approximately 10%, March up approximately 7%, partially offset by February, which was down approximately 6%. As we said before, a week, even a month doesn’t define the trend. And while there was more volatility, we are very pleased with our overall strength of the quarter.

Looking ahead to the second quarter, April demand was softer than expected with demand comparable growth down 10%, impacted by the shock of the tariff news and the stock market. While near term volatility remains, our model is built on resilience and we believe our continued unique positioning is a powerful long term advantage. In closing, our long term strategy remains clear and focused on anchored by our four key priorities: increasing brand awareness to drive net revenue, growing our showroom footprint, enhancing our omnichannel client experience and investing in the growth to build scale. As we look ahead, we remain confident. We have a strong business, a solid foundation and a strategy that’s working.

Our team is proactively managing tariffs through sourcing diversification, and we continue to adapt as needed to protect both margin and momentum. With a premium brand, a loyal and growing client base and a balance sheet that allows us flexibility, we’re well positioned to invest in long term value creation. I’m proud of what we’ve accomplished this quarter and even more excited about the opportunities ahead. Thank you to our team, clients and shareholders. Your continued support drives everything we do.

With that, I’ll turn it over to Jen Porter, our Chief Marketing and Ecommerce Officer.

Jennifer Porter, Chief Marketing and eCommerce Officer, R House: Thank you, John, and good morning, everyone. We had a solid quarter across both our retail and e commerce channels despite operating in a more volatile environment. Our omnichannel strategy, designed to meet clients wherever and however they choose to shop, continues to drive meaningful engagement and conversion across all touch points. This strategy is anchored in six core pillars: showrooms, e commerce, catalogs, in home design services, digital and content, and client personalization. Our showrooms remain a cornerstone of the Our House experience, delivering immersive, elevated environments that inspire clients and drive conversion.

Approximately 90% of our clients live within 50 miles of a showroom, and that proximity, combined with high touch personalized service, continues to fuel brand awareness and market share expansion. New showrooms opened in recent quarters are performing well, supported by our long tenured experienced teams. Our showroom growth contributed meaningfully to healthy net revenue in the first quarter, and showroom driven demand was a key contributor to our overall demand strength. Client engagement remained strong, driven by our unique product mix, refreshed seasonal assortments and the exceptional performance of our highly trained showroom teams, including our in home designers who bring trusted expertise to every interaction. These designer led services continue to be a key competitive differentiator and growth driver.

Designer driven demand was strong both in store and virtually, and clients who engage with our design team generate order values four times higher than average. In the quarter, we saw meaningful growth in orders above $5,000 and $10,000 along with record high average order value. These transactions, we believe, deepen loyalty and increase order depth across categories. Just as we deliver elevated personalized experiences in our showrooms and through our design services, we’re creating that same level of inspiration and ease online. Online engagement remained healthy throughout the quarter, and our eCommerce business delivered strong performance.

Growth was driven by strategic investments in technology, platform enhancements, product storytelling and a compelling product mix. We continue to invest in e commerce to further elevate the client experience and drive long term growth. The online experience is more than transactional. It’s a platform to inspire, educate and connect with our clients. Our digital and content engagement continues to drive impressive traffic and deepen brand engagement across channels.

Earlier this spring, I visited several of our global partners in Italy and Romania. Seeing their craftsmanship firsthand was a powerful reminder of the care and precision behind every piece, the foundation of our storytelling and emotional client connection. What sets our health apart and what we do best is clear: exceptional product quality, broad aesthetic appeal and our artisan led approach. Even in a more challenged consumer environment, our storytelling resonates. Clients respond not only to how our products look and feel, but also to the intention, values and meaning behind them, something we take pride in and believe we do better than anyone else.

Our pricing and promotion strategy remains unchanged. We continue to drive high quality growth through a differentiated value proposition, educating clients on what makes Our House unique, artisan crafted, high quality design and a premium client experience. This disciplined approach supports margin stability, protects brand integrity and reinforces the long term value of our product while preserving flexibility when needed. On tariffs, we are actively monitoring the evolving landscape and remain prepared to respond with discipline. Should targeted pricing adjustments be necessary, we will implement them thoughtfully and communicate clearly, always of a focus on maintaining client trust and delivering exceptional value.

In closing, while the environment remains dynamic, we are staying close to our clients, leaning into our unique strengths, and maintaining discipline in how we engage, price and promote. We remain focused on executing across our six omnichannel pillars to drive sustainable, high quality growth and deepen client relationships. With that, I’ll turn the call over to Ryan Brody, Senior Vice President of Finance, to walk you through our financial results. Ryan, over to you.

Ryan Brody, Senior Vice President of Finance, R House: Thanks, Jen. Good morning, everyone. Today, I will walk through our first quarter twenty twenty five financial performance, key business drivers and our outlook for the second quarter and full year 2025 before turning it over to Q and A. Key items from our first quarter twenty twenty five income statement include net revenue was $311,000,000 up 5.5% year over year, landing near the midpoint of our guidance. Growth was primarily driven by increased demand across both our retail and e commerce channels, supported by continued showroom expansion, partially offset by a comparable growth of negative 1.5, which landed near the midpoint of our guidance range.

Demand comparable growth was 4.1%, driven by healthy client response to our products and strong engagement across both our retail and e commerce channels. Gross margin was $116,000,000 up 0.4 year over year. The increase was primarily due to higher net revenue, partially offset by increased product cost of $7,100,000 higher showroom occupancy cost of $5,200,000 and higher delivery and transportation cost of $1,700,000 As a percentage of net revenue, gross margin decreased 190 basis points to 37.1% of net revenue, primarily driven by higher showroom occupancy costs, which increased 120 basis points and a product margin decrease of 40 basis points. Selling, general and administrative expenses were $110,000,000 up 13.9% year over year, primarily due to a $7,200,000 increase in general and administrative costs, primarily related to warehouse expenses, marketing investments and strategic investments to support and drive the growth of the business, including supply chain and technology improvements in addition to a $6,200,000 increase in selling expenses primarily related to new showrooms and variable compensation due to higher demand. Net income was $5,000,000 landing near the midpoint of our guidance.

And finally, adjusted EBITDA was $19,000,000 landing at the lower end of our guidance, resulting in an adjusted EBITDA margin of 6%. Turning to our balance sheet, we ended the quarter with $214,000,000 in cash and cash equivalents and remain debt free. Looking ahead, we remain focused on executing against our long term strategic priorities, including disciplined growth, strategic investments, and continued expansion of brand awareness while remaining agile in the face of ongoing macro uncertainty. Given increased volatility driven by tariff shifts and softening consumer sentiment, we are revising and widening our full year 2025 outlook to reflect a more cautious stance. Notably, the midpoint of our previous outlook now represents the high end of the updated range.

For full year 2025, we now expect net revenue between $1,290,000,000 and $1,380,000,000 reflecting an updated comparable growth range of negative 5% to up 1.5%. As a reminder, comparable growth and demand comparable growth may diverge over shorter time periods, but align more closely over the course of the year. Net income of $48,000,000 to $68,000,000 and adjusted EBITDA between $123,000,000 and $145,000,000 For second quarter twenty twenty five, we anticipate net revenue between $320,000,000 and $350,000,000 reflecting a comparable growth range of negative 2% to up 5%. Net income of $17,000,000 to $24,000,000 and adjusted EBITDA between $41,000,000 and $48,000,000 As it relates to tariffs, our outlook includes the full impact of currently implemented tariff actions, including a 170 tariff on goods imported from China, Ten Percent tariff on goods imported from all other countries of origin, and 25% tariffs on imported steel and aluminum. We estimate the total potential P and L impact from incremental 2025 tariffs currently in effect to be net amount of approximately $10,000,000 which has been factored into the updated guidance.

We believe a portion of the larger tariff impact can be mitigated through strategic sourcing shifts to other countries and vendor cost concessions. There are several factors contributing to this number, including the timing of product receipts and deliveries as well as the mitigation actions already underway. Simply put, there are a lot of moving parts. While pricing remains a potential lever, no targeted increases are currently reflected in our guidance. We are actively monitoring the evolving trade environment and will respond with discipline.

Let me briefly highlight the strategic investments we’re making to drive long term growth, operational efficiency and client experience and how they’re reflected in our 2025 guidance. In 2024, we completed important foundational upgrades, including a new warehouse management system at our Ohio distribution center already delivering measurable improvements. Looking ahead to 2025 and beyond, we’re investing in systems and infrastructure to support scalable growth. We’re strategically transitioning distribution management at our Dallas distribution center in house, building on proven expertise and implementing our warehouse management system there with completion expected in the second quarter. We’ve begun rolling out a new payment platform expected to be fully implemented across all showrooms by late May, enabling mobile features like Tap to Pay, Apple Pay, and Google Pay, while driving operational and expense efficiencies.

We’re also implementing a new inventory planning system to improve forecasting and inventory optimization and a new ERP platform at our North Carolina upholstery manufacturing facility to increase production visibility and improve efficiency as we scale. These strategic investments as well as other key projects are expected to be approximately 15,000,000 to $20,000,000 in SG and A in 2025, mostly in the second half of the year as system implementations ramp up. We are making these investments from a position of strength, debt free, with a healthy cash position and disciplined capital allocation. We believe these investments are foundational to expanding long term margin potential and enhancing client experience. With a deep experienced team, we’re confident in our ability to execute.

In closing, our focus is clear. We’re executing with discipline and staying agile. We believe our differentiated brand, resilient operating model, and long term strategic priorities position us to navigate uncertainty and deliver sustainable value for our shareholders. We look forward to sharing continued progress and are pleased to welcome our new CFO, Michael Li to the next earnings call. Thank you for joining us.

We are happy to take your questions.

Operator/Moderator: Thank you. Ladies and gentlemen, we will now be conducting the question and answer please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. The first question comes from the line of Steven Forbes from Guggenheim Securities.

This

William Marquez, Analyst, Guggenheim Securities: is William Marquez on for Steve. John, very quickly, just given the balance sheet strength and your comments around receipts from China year end, can you speak to how our house will manage the holistic value proposition you’re bringing to market? And I think you mentioned something about pricing. No plans yet. But I guess how is the management thinking about protecting margin during 2025?

Or do you see 2025 as a year to drive brand awareness and volume share capture?

John Reed, Founder, Chairman and Chief Executive Officer, R House: Yes. You’re going have to clarify the first part of your question. But the second part is, yes, we feel good about our margin. With everything going on, it’s very, very fluid, as you can all know and imagine. But, you know, our plans are to try to hold our margin as it is and proceed as business as usual, we’re gonna focus on what we can do.

We cannot do with the things that are going on outside our control, but we know what we can control. We’ve been in business for decades. We’ve been through recessions and so on and so forth and crashes, and we know how to handle these kind of things in these kind of times. We’ve always been extremely successful at it. We’ve always come out of them stronger than ever, and that’s what we’re planning on doing.

We’re focusing on the long term, and that includes healthy margins, healthy sales, and executing our plan. I’m sorry. What was the first part of your question?

William Marquez, Analyst, Guggenheim Securities: Just given your balance sheet strength and just some of the comments around, like, the receipts from China by year end, like, anything you can provide on, you know, just the holistic value proposition and managing that?

John Reed, Founder, Chairman and Chief Executive Officer, R House: Yeah. I mean, balance sheet’s looking great. We’re we’re again, as I just said, we’re we’re we’re in this for the long term. So we are investing in the future, and we’re gonna continue doing that. Certainly, we’re gonna go look at it every thirty days or so, if we have to tweak something, we will.

As far as China goes, we’ve been working we never were nearly as heavy in China as most of our competitors, first of all. And being so strong in The United States on production that we’re in great shape. Getting down that we’re hoping 1% by the end of the year is just is amazing. And that’s the thanks to some of our great, great partners we’ve had overseas and in the country for many, many years and decades. And they’re truly our partners.

They’re working with us. If we need to move things, we’re building new factories in other countries and so forth. So we’re in great shape there.

William Marquez, Analyst, Guggenheim Securities: Excellent. Just a very quick follow-up on consumer behavior. Are you guys seeing any, like, change in engagement trends? I know you mentioned a meaningful step up in in sales over 5 k and 10 k, but anything anything that’s changed since early April that may have informed that change in sales guidance? Curious with the data points that were considered behind the new outlook.

John Reed, Founder, Chairman and Chief Executive Officer, R House: Yes. Well, we had something called Liberation Day in April. We had something called the stock market was crashing in April. Obviously, that affects everybody, including our customers. I mean, very intelligent people.

They’re invested in the stock market, and things like that shake people. It’s not gonna be long term, but short term, it shakes people up, and they’re not sure what to do. That’s why we think we had the softer sales. Well, we know that’s why we had the softer sales in April. And everything works its way out.

It’s not like people are gonna stop buying furniture. They love their homes. Ever since COVID, it’s been a wonderful thing for the home business, especially the good quality home business. And so, you know, there’s some pent up demand that maybe people held off a few weeks, a couple months. That’s it.

And, you know, I don’t need to tell you guys what happened in April because you read the news as much as I did.

William Marquez, Analyst, Guggenheim Securities: Absolutely. Thank you. Much appreciated.

John Reed, Founder, Chairman and Chief Executive Officer, R House: You bet.

Operator/Moderator: Thank you. The next question comes from the line of Seth Sigman from Barclays. Please go ahead.

Serena, Analyst, Barclays: Hi, this is Serena on for Seth. Regarding the low end of the comps guidance, can you just give more perspective on how you came up with that negative 5% number? And can you reconcile Q2 versus the drop off implied for the rest of the year?

Ryan Brody, Senior Vice President of Finance, R House: Yes. As you’ve with some of the information that we’ve shared so far for year to date trends with demand performance, it’s been pretty choppy. And so the widening of the guidance ranges to account for the potential that that continues throughout the rest of the year. And really trying to like John mentioned every 30 days kind of read and react to what’s going on and adjusting our plans as we need to at that point in time. That’s the main driver is just to account for that potentially occurring for the rest of the year.

Cristina Fernandez, Analyst, Telsey Advisory Group: Great. Thanks.

Operator/Moderator: Thank you. The next question comes from the line of Cristina Fernandez from Telsey Advisory Group. Please go ahead.

Cristina Fernandez, Analyst, Telsey Advisory Group: Hi, good morning. I wanted to ask about the tariff mitigation strategy. You talked about 10,000,000 embedded in the guidance, for the impact. I guess, how much of that you think can be mitigated versus strategic from strategic sourcing chips and vendor concessions? And can you talk about the timing of how that 10,000,000 flow through the rest of the year?

John Reed, Founder, Chairman and Chief Executive Officer, R House: Yeah. Sure. I can start, and Ryan can fill us in on the timing of it. But as you know, every country has been put on a 10% tariff other than China, which is 170%. As we’ve moved stuff out of China, which we’ve done, I think, brilliantly, We’re in great shape there.

The other tariffs is the other tariffs, so that’s what we’re planning on. We have worked with our great, great partners to absorb some of that, and I’d be thrilled to announce every partner that we’ve talked to, every meaningful partner has really contributed and has really helped us. So what’s left is the $10,000,000 and we think that’s pretty darn good number, a very good number considering all these tariffs all over the world. And don’t forget, a big, big part of our business is still produced right here in The United States. So that helps quite a bit as well.

So I don’t know when it’s gonna flow through, Ryan can give you some more specifics on that.

Ryan Brody, Senior Vice President of Finance, R House: Yes, so in regards to timing, as you would know, Q1 wouldn’t have been impacted by this as well as getting into April, we wouldn’t have had any of this incremental costs flow through the P and L. So obviously we’re looking into later in the year when that impact would occur. And as we’ve shared with trying to get we’re targeting China receipts to be about 5% in Q3. So as you can imagine, the flow through of the tariff impact would kind of align with that step down coming from China. But it’s fluid and it depends on when the inventory is received and then delivered to customers.

So what we’ve provided is the approximately 10,000,000 impact and predominantly factored into the second half of the year.

Cristina Fernandez, Analyst, Telsey Advisory Group: And then my follow-up on the on the real estate strategy, you’re opening one more new showroom. So wanted to see, are you seeing, I guess, better incremental real estate opportunities? And I also noticed that you closed two design studios during the quarter. So can you talk about what the strategy is there? Was there any disappointment with that performance?

And how are you thinking about that for med going forward?

John Reed, Founder, Chairman and Chief Executive Officer, R House: Sure. As we’ve been growing the business and opening new showrooms, a, they’re profitable. B, it’s building brand awareness and more and more people come to the showrooms, they come to the websites. So again, we are strategically running this business to look more forward than this month and next month and the next six months. I mean, we’re in it for the long term.

And when you work on showrooms and so forth, obviously you’re out a year or so or two on new locations. But we’re happy to say that we’re not slowing down our growth. Must have had an opportunity that fell back into this year that maybe we had originally planned for next year. And we’re always looking for new opportunities as well. We’re a very fluid but disciplined company, and we take advantage of opportunities as they come about.

And we’ve come up with some incredible new opportunities coming up here in the future that we’re really excited about and we think are really gonna move the needle on keeping business going forward.

Operator/Moderator: Thank you. The next question comes from the line of Robert Ohmes from Bank of America. Please go ahead.

Robert Ohmes, Analyst, Bank of America: Thanks for taking my questions. Maybe one follow-up just on the margin, a little help on so the occupancy kind of increase, the 120 basis points pressure from occupancy cost. A little color on how we should think about that in modeling gross margin for the rest of the year? And any other kind of thoughts on gross margin in 1Q versus how it could look as you move through the next three quarters?

Ryan Brody, Senior Vice President of Finance, R House: Yes. So as we mentioned on the call last quarter, we expect gross margin to be roughly flat to LY. So this is more of just a function of deleveraging off of the fixed cost with related to showroom occupancy in q one because of the the lower revenue versus what you’d see, like, in our q two guide for revenue.

Robert Ohmes, Analyst, Bank of America: Gotcha. That’s helpful. And then just on the you talked about the record high average order value. Any more color on how the customers are behaving? Are you seeing sort of bigger ticket hold up better than impulse purchases?

Or any other color you can give on what people were doing during the quarter and then maybe what they’re doing in April?

John Reed, Founder, Chairman and Chief Executive Officer, R House: Yes. Looking studying the sales, big ticket, small tickets, we haven’t seen any drop off on either side, whether it’s coming in and buying a couple pillows or buying an entire home full of furniture. Jen can give you maybe some more color on that. She follows this very closely.

Jennifer Porter, Chief Marketing and eCommerce Officer, R House: Yeah, I mean, think that’s it. We’re really happy seeing those increases in those orders over five ks and 10 ks as we spoke. We’re continuing to see solid strength as we spoke about end of last year as well with clients who are engaging with interior designers and doing those bigger projects of rooms and homes. But as John mentioned, there’s no real shift in consumer behavior across any of our cohorts. I think to give you a little bit more color, just on Q1 and April, as we mentioned, Q1 was good, but it was choppy.

So we were up in that Jan and March. We were down in February. Obviously, we were down approximately 10 in April. We did see some softness in traffic in April. But what we’re really excited to see is that as clients are coming in and engaging with us, whether online or in showrooms, they are still responding really well to the product.

They’re still engaging at the levels that we saw before. We’re still seeing those high purchases. So we’re really happy. There might be some hesitancy due to the macro people walking through the doors or coming in to commit to that project. But as John mentioned earlier, that’s a shift in timing.

It might delay them a few weeks or a few months. But when they’re in the doors, they’re still responding really well to our products, and we’re continuing to see those really nice higher average order value sales. And I would just add a little color to April. If you

Tara Atwood, Vice President of Investor Relations, R House: think about April, we also exited April a little bit stronger, and that might be slightly helpful.

Robert Ohmes, Analyst, Bank of America: Got you. Thank you.

John Reed, Founder, Chairman and Chief Executive Officer, R House: Thank you.

Operator/Moderator: The next question comes from the line of Andrew Carter from Stifel. Please go ahead.

Andrew Carter, Analyst, Stifel: Hey, thank you. Good morning. I wanted to ask about the significant disconnect in comparable sales growth and comparable demand. I got that you were like double digits November, December. You said 10% January.

That should inform the quarter. And of course, deposits are up, I think, to 20% of trailing 12%. So anything can you speak to there around kind of the extended delivery times for customers? And do you see any risk of cancellations?

John Reed, Founder, Chairman and Chief Executive Officer, R House: Yeah. We watch course cancellations, and there’s been zero change in cancellations. Everybody still wants their product even after all the news and excitement in April. But, yeah, we’re all good there. People have not not canceled.

I mean, you know, you have the the noise if something doesn’t fit and things like that, but absolutely zero change in that. I just took a look at that yesterday. Year to date, it’s all good.

Andrew Carter, Analyst, Stifel: But then just also kind of focusing in within that, how much have delivery times or wait times increased for customers, and have you had to go back? This is just focusing on the deposits and the disconnect. Thanks.

John Reed, Founder, Chairman and Chief Executive Officer, R House: Yeah, we haven’t seen any change in that. Lot of customers still are if it’s the large purchases, they are building or whatever, and we’re just waiting for the home to be for us to say deliver it. We’re sitting on a lot of good product, but again, the percentage hasn’t changed from the past year or so. So we’re not seeing any significant changes in that as well. There’s always an amount that people just don’t want yet because they’re running late, getting remodeled or whatever it is.

But when they’re ready, we’re ready. We’re in great shape inventory wise, we’re in great shape delivery wise, and we can get consumers their product when they want it.

Ryan Brody, Senior Vice President of Finance, R House: And speaking to the increase in client deposits that you’re referencing, that’s basically the difference between what you see on the demand side, which we provided the plus 4.1% comp in Q1 as well as the lower net revenue performance in Q1. So that’s been the increase that you saw in Q1, which then looking towards the Q2 guide, we’ve guided on the high end of the range to a plus 5% comp on the delivered side, that’s when we’re starting to see that flow through the P and L.

Andrew Carter, Analyst, Stifel: And then just, I mean, it’s 20% of trailing 12. What should deposits be as a percentage of revenue? And that would be my last question. I’ll pass it on.

Ryan Brody, Senior Vice President of Finance, R House: I would say where we’re currently at is not like anything out of the ordinary with where it should be trending. You may have some ebbs and flows from quarter to quarter depending on when there’s higher demand sales quarters versus delivered or net revenue. But overall, I wouldn’t view us as having like an increased backlog like we did over like the 2022 and 2023 time periods.

Operator/Moderator: Thanks. I’ll pass it on. The next question comes from the line of Peter Benedict from Baird.

William Marquez, Analyst, Guggenheim Securities: I apologize if missed some

Tara Atwood, Vice President of Investor Relations, R House0: of the call. But so I apologize if this has already been asked. I’m curious if the consumer response to the changes you guys have made in the kind of the discount levels related to the buy more, save more spend thresholds. I know you’ve talked about some good strength at some of the higher price points. Is that are you really seeing that when you go to the 20%, twenty five % off pairing versus the 15% to 20% off pairing?

Is that really driven a meaningful change in that consumer engagement? Just kind of curious about that and how you’re thinking about your pricing architecture going forward. Thank you.

John Reed, Founder, Chairman and Chief Executive Officer, R House: Yeah. What we like about this model is it can be incredibly flexible. And as we started this model back in the fall of last year, we saw that it’s working very well. Customers are responding. They’re trading up.

So if they’re close to a threshold, they’ll trade up so they can get to it, which makes perfect sense, we love that. So the different percentages, you know, we’re playing around with to see what responds, what doesn’t respond. If, you know, 20 or 15 responds just as well as a 25, we adjust things every month. And that’s what’s nice about the model is we can adjust it and we’re very flexible. So we’re seeing certainly the higher percentages.

Obviously, are going to take it. And they’ve been responding and trading up even more so because of that. So we’ve been pleased with what we’ve seen.

Tara Atwood, Vice President of Investor Relations, R House0: Got it. Thanks for the perspective.

John Reed, Founder, Chairman and Chief Executive Officer, R House: You bet, Peter.

Operator/Moderator: Thank you. The next question comes from the line of Jeremy Hamblin from Craig Hallum. Please go ahead.

Tara Atwood, Vice President of Investor Relations, R House1: Great. Thanks for taking the questions. Good morning. I wanted to just get into the showroom opening cadence here. And just as you’ve softening here in kind of overall orders and demand trends, are you seeing some of that show up in newer showrooms?

And then as we look ahead to maybe a little bit more macro uncertainty that’s probably not gonna go away, that quickly, are you looking at, as we get into 26 kind of showroom, openings, is there is the plan to kind of stay the course in terms of the number of openings and kind of the locations, or, you know, is there, you know, any consideration to maybe a a a a bit more moderate, opening schedule?

John Reed, Founder, Chairman and Chief Executive Officer, R House: Yeah. As you can imagine, you sign leases years in advance, and you get locked in for the next year or so. But with that said, we’ve decided as a management team that we’ve got, we think, the best model in the business. We’ve the best product. We’re executing very well.

And we see no reason to slow down for, you know, ’26 and ’27 and so forth. It’s, you know, we’re in a great cash position. We can, you know, fund these things and not be, you know, at all, scared about running out of cash or so forth. So again, we’re in it for the long term. And in 2027, we think business is gonna be good.

If business slows down for a while here, as I’ve seen for many, many years, it’ll come back and there’s a pent up demand. And when there’s a pent up demand, if you’re ready to capture that, you take more market share. And if we have new stores, that’s even more new market share. So that’s exactly what we’re planning on doing.

Tara Atwood, Vice President of Investor Relations, R House1: And then just a follow-up question, I think, here for Ryan. So you saw occupancy deleverage 120 bps in the first quarter. Wanted to get a sense for what you’re expecting in terms of occupancy leverage or deleverage over the course of 2025.

Ryan Brody, Senior Vice President of Finance, R House: I think we expect to see maybe slight deleverage, but not as pronounced as what you saw in Q1.

Tara Atwood, Vice President of Investor Relations, R House1: Okay. And then implying that product margin would be up year over year?

Ryan Brody, Senior Vice President of Finance, R House: Approximately, yes, slightly. Yes. That’s the main other piece that would offset the offsetting the occupancy side when mentioned earlier on the call that we expect the gross margin to be approximately flat year over year.

Tara Atwood, Vice President of Investor Relations, R House1: Got it. Thanks for the color.

John Reed, Founder, Chairman and Chief Executive Officer, R House: Thank you, Jeremy.

Operator/Moderator: We take the next question from the line of Simeon Gutman from Morgan Stanley. Please go ahead.

Tara Atwood, Vice President of Investor Relations, R House2: Hey. I wanted to follow-up on gross margin for a sec. The outlook for the total year being flat and yet the sales outlook, it looks like it’s getting worse and the main factor for the first quarter was occupancy deleverage. And then on top of that, you mentioned that you have this $10,000,000 tariff hit, but you’re not putting anything back into price. It didn’t sound like you’re raising price.

So how does this flat gross margin come out unless you’re planning to offset with product margin in other places? Thank you.

Ryan Brody, Senior Vice President of Finance, R House: Yes. So in general, if you recall, the second half of last year wasn’t our strongest performance. So this year, we’re up against some easier comps starting in May from a demand comp perspective. And as we talked about earlier, we layered in the volume discount starting in October and we’ve been pretty happy with the results so far. And so there’s puts and takes across the P and L and our estimates for the second half of the year, but we still expect it to be roughly flat year over year.

Tara Atwood, Vice President of Investor Relations, R House2: Okay. And then as a follow-up, the new space productivity that our models punch out, it’s in the 40s. I think you probably have a more accurate number, and you said you’re happy with new store performance. What does that look like? Because I think ours is affected by the timing.

And then if you take, like, mature comp and then implied in the back half, I think it’s somewhere down high single, maybe low double digits. So what’s happening at non new stores? Is it maturation? Is it just the soft market? Is there some cannibalization happening?

Can you talk about the performance in more mature stores? Thank you.

Ryan Brody, Senior Vice President of Finance, R House: Yes, you’re correct. From the back half, yes, we have been implied on the demand comp side, a high single digit comp in the back half of the year, which as I mentioned earlier, that reflects a continuation of the choppiness that we’ve seen from April year to date.

Tara Atwood, Vice President of Investor Relations, R House2: And anything on the new space productivity that our models are computing suggests 40%. I don’t think that’s I don’t know if that’s right or wrong, if you can comment on that. If we’re just is it being skewed because of the timing of when galleries or showrooms are opening during the quarters?

Ryan Brody, Senior Vice President of Finance, R House: Yes. There’s definitely a component to when they open and when we actually start to see deliveries flow through.

Tara Atwood, Vice President of Investor Relations, R House2: Okay. Thanks. Good luck.

Operator/Moderator: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I would now like to turn the floor over to Tara Atwood for closing comments. Tara?

Tara Atwood, Vice President of Investor Relations, R House: Thank you, everyone, for joining the call. We appreciate your time, and have a great day.

John Reed, Founder, Chairman and Chief Executive Officer, R House: Thanks, everybody. Thank

Operator/Moderator: you. Ladies and gentlemen, thank you for your participation and interest in our house. You may now disconnect your lines. Goodbye.

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