Arhaus, Inc.

in decreasing 70 basis points to 36.4%, driven by higher fuel prices of 40 basis points and showroom occupancy costs of 40 basis points. Selling general and administrative expenses increased 1.9% to 112 million, driven by a $1.9 million increase primarily related to strategic investments to support and drive the growth of the business including supply chain and technology improvements and other corporate expenses. As a result, SG&A load increased 40 basis points to 35.7%. Net income was $2.2 million and within our guidance, and adjusted EBITDA was $18 million and within our guidance range. Adjusted EBITDA margin decreased 30 basis points year over year. As a reminder, there is a seasonal impact to margins in the first quarter, which carries lower net revenue as a result of less operating leverage. Turning to our comparable metrics, comparable delivered sales decreased 1.7% above the midpoint of our guidance range. Performance during the quarter was impacted by severe weather, our delayed catalog, as well as broader consumer softness tied to macroeconomic uncertainty, which weighed on overall delivery volumes. Comparable written sales decreased 5.7%, driven by a combination of factors. Weather-related disruption in key markets reduced traffic during important promotional periods, including our semiannual store-wide sale in January. In total, more than half of our showrooms experienced temporary closures at some point during the quarter, due to adverse weather conditions. Additionally, the delayed timing of our spring catalog release, as well as macroeconomic and geopolitical uncertainty, including the war in Iran, impacted comparable written sales. While comparable written sales were pressured during the quarter, trends improved meaningfully in the back half of March, where elevated promotional activity drove stronger engagement and improved conversion. That trend continued in April and into May. Turning to our balance sheet and liquidity. We ended the quarter with $177 million in cash and cash equivalents, a decrease of 30% from December 31st, 2025. This primarily reflects the $49 million special cash dividend paid in March. Net merchandise inventory totaled $369 million, up 9% from December 31st, 2025. And the increase reflects higher product costs, including the impact of tariffs, as well as inventory investments, including increased depth in best sellers, as well as new product introductions, in addition to outdoor assortments ahead of the seasonal ramp. Excluding tariff impact, net merchandise inventory would be up approximately 6% from December 31st, 2025. Turning to strategic investments, we continue to make meaningful progress on numerous initiatives to modernize our distribution network and our technology infrastructure. This initiative is aligned with our long-term strategy designed to improve operational efficiency, enhance the client experience, and strengthen our internal controls and support profitability. Simply put, these investments are foundational to supporting our next phase of growth. A recent milestone was a go live of phase one of our transportation management system in April. This is an important foundational step in modernizing our distribution network and strengthening our transportation capabilities across the business. We are now live with the new TMS system and are nearing the end of our hyper care phase, at which point we will be fully operational. And as with any large-scale implementation, there is continued work underway, and our teams remain focused on execution and long-term success. Our TMS is expected to deliver several meaningful benefits over time. First, improved cost efficiencies through better load optimization, route planning, and carrier selection, helping us to reduce transportation expense and improve network productivity. greater operational visibility through real-time tracking and system-driven planning, replacing manual processes and giving us stronger control across the delivery journey. And third, stronger integration and scalability across our broader distribution network, creating efficiencies through connectivity with our warehouse management systems and other platforms. We are encouraged by the progress and excited about the long-term value this platform can create as we continue to expand capabilities across the network. Additionally, we continue to make meaningful progress on our order management system and enterprise resource planning initiatives. Our OMS investment is critical to enhancing the client experience and improving the purchase journey across our omnichannel model, while our ERP investment is designed to modernize our core financial and operational systems. Execution across our distribution network and technology infrastructure investment remains our top priority, and success is delivering these initiatives on time, on budget, and within scope. Equally important is the cultural shift underway. As we implement these systems, we are increasing accountability and standardization across our house, building a more scalable and disciplined operating model. Overall, we view these strategic investments as essential to strengthening our foundation and positioning our house for long-term profitable growth. Turning to tariffs and sourcing. Trade policy remains fluid, particularly following the recent Supreme Court ruling on certain IEPA-related tariffs and the rollout of the CBP refund process. We are actively evaluating the potential implications, including the the administrative process required to pursue refunds. Separately, the 10% global tariff implemented under Section 122 is currently scheduled to expire in July, though the path forward remains uncertain. Given this evolving backdrop, we continue to take a disciplined and measured approach. Importantly, our diversified sourcing strategy and meaningful domestic manufacturing footprint position us well across the range of potential policy scenarios. Based on current policy, we continue to estimate 2026 tariff impacts to be in the range of 30 to 40 million. This reflects some benefits from vendor negotiations, sourcing shifts, and operational efficiencies. We will continue to assess pricing over the coming months and quarters and plan to respond quickly and thoughtfully as conditions evolve. Turning to our outlook. While we continue to operate in a challenging environment, we remain confident in our full-year 2026 outlook. In the first quarter, we achieved results within our expected range, and we continue to believe our long-term strategy and operating model position us well to navigate near-term volatility. We recognize that the consumer has been pressured by broader economic uncertainty, geopolitical tensions, and shifting consumer sentiment. And that being said, we also see several meaningful factors supporting the balance of the year. First, we entered the second quarter with healthy client deposits, which we expect to convert to delivered revenue as inventory availability and in-stock positions improve across key categories. Second, we have increased promotional activity and marketing efforts to drive volume and client engagement, strengthen brand awareness, and stimulate demand. And third, we have seen continued strength in our interior design and trade channels. As a result, these factors continue to support our confidence in the back half of the year. Importantly, because of prior pricing actions, we have flexibility to increase our promotional activity while continuing to protect our margins. This allows us to support volume and demand generation without creating meaningful pressure on profitability. As we have said before, for our client base, we believe demand is often deferred rather than lost. Our clients make considered purchases, and we believe deferred demand, improved product availability, and demand generation efforts support our confidence in maintaining our full-year guidance. It's also important to note that our current outlook does not include any benefits from potential IEPA tariff refunds. As we gain full clarity and confirmation around those refunds, we will evaluate any impact and update our guidance if necessary. For the full year, we continue to expect net revenue between $1.43 billion and $1.47 billion for year-over-year growth of between 3.7% and 6.6%. Comparable delivered sales of flat to plus 3%. net income of $66 million to $75 million, and adjusted EBITDA of $150 million to $161 million. For the second quarter of 2026, we expect continued near-term pressure on demand as consumers remain cautious amid ongoing macroeconomic and geopolitical uncertainty. Our second quarter outlook reflects a range of outcomes with the low-end assuming continued pressure on demand trends and the high-end incorporating benefits from improved inventory availability, strong in-stock positions, client deposit conversion, and the positive impact of our increased marketing and promotional activity. As a reminder, we are also lapping a particularly strong second quarter in the prior year, which benefited from elevated delivered sales following insourcing of operations of our Dallas Distribution Center. And therefore, second quarter performance should be viewed in the context of this year over year comparison. For the second quarter of 2026, we expect net revenue between 350 million to 370 million for a year over year growth rate of down 2.4% to up 3.2% with comparable delivered sales of minus 5% to flat and net income of 19 million to 24 million and adjusted EBITDA of 40 million to 49 million. In closing, we are controlling what we can control and investing where it matters most and in positioning our house to emerge stronger. We have the brand, the product, the balance sheet, and the strategy to navigate this period and capture opportunity as demand improves. Thank you to our teams across our house for their focus and execution. And to our shareholders, thank you for your continued support. And with that, I'll turn it over to the operator.

We are happy to answer your questions.

Thank you.