Our House (ARHS) Q4 2025: Tariff Impact Narrows to $40M, Margin Resilience Holds Amid Expansion
Our House navigated a volatile macro and tariff environment in Q4 2025, balancing record revenue with disciplined margin management and ongoing investment in showrooms and digital transformation. Despite near-term inventory and occupancy headwinds, the company’s high-end positioning and flexible sourcing strategy enabled continued growth, while management sharpened its focus on trade channel expansion and operational leverage. Guidance into 2026 signals confidence in the model’s durability, though the path to margin expansion will require executing through persistent cost and policy pressures.
Summary
- Tariff Headwind Moderates: Sourcing flexibility and vendor negotiations narrowed expected 2026 tariff impact.
- Showroom Expansion Drives Scale: Investments in new locations and digital infrastructure underpin long-term growth.
- Trade and Customization Accelerate: High-value design services and trade partnerships emerge as key levers for future share gains.
Performance Analysis
Our House delivered record full-year revenue with 8.5% growth, marking the high end of guidance and reflecting the brand’s resonance with affluent, design-conscious consumers. Gross margin contracted 50 basis points to 38.9%, primarily due to higher showroom occupancy and a Q4 spike in inventory reserves for obsolete stock. Despite these pressures, adjusted EBITDA rose nearly 9%, with margin flat at 10.5% as management maintained expense discipline while investing in supply chain, technology, and new showrooms.
Q4 results were mixed: Net revenue rose 5.1%, but gross margin fell by 190 basis points, with 160 basis points attributed to inventory write-downs and another 110 basis points to occupancy costs. SG&A load increased slightly due to strategic investments, while net income and adjusted EBITDA declined year-over-year, reflecting the reinvestment phase. Comparable written sales grew 1.3% for the year, with temporary Q4 softness tied to promotional timing and weather, but demand rebounded in November and December.
- Inventory Write-Downs: Q4 margins were pressured by a targeted move to clear obsolete inventory, improving long-term stock health.
- Showroom-Driven SG&A: Expansion and new store ramping drove higher occupancy and selling costs, offset by improved productivity in delivery operations.
- Trade and Custom Growth: Upholstery and interior design services reached record written sales, supporting higher average order values and reinforcing brand differentiation.
Free cash flow of $59 million enabled a special dividend, while the company maintained a debt-free balance sheet and increased liquidity, positioning for continued investment and resilience against ongoing tariff risk.
Executive Commentary
"Our clients' purchases are highly considered. They are intentional investments in the home, and our high-end clients continue to invest. They are choosing high-quality pieces. They are investing in custom-ordered specialized pieces that we make just for them... When demand becomes more considered, differentiation matters most. And when clients invest in intention, they invest in quality. That is where we always win."
John Reed, Founder, Chairman & Chief Executive Officer
"Adjusted EBITDA margin was flat versus last year at 10.5%, demonstrating disciplined expense management and healthy operating performance as we invest for the long term... Our outlook for 2026 contemplates continued revenue and profit growth while also funding these strategic investments."
Michael Lee, Chief Financial Officer
Strategic Positioning
1. Tariff and Sourcing Flexibility
Our House’s diversified sourcing model—32% domestic receipts and 70% of upholstery sourced in the U.S.— proved critical as 2025’s tariff headwinds were partially offset by vendor negotiations and selective price increases. Management now estimates 2026 tariff exposure at $30–$40 million, down from prior expectations, and remains poised to shift sourcing further if policy evolves. This flexibility, combined with domestic manufacturing, is central to margin defense in a volatile trade landscape.
2. Showroom Expansion and Omnichannel Leverage
Showroom growth remains a core engine, with 13 projects in 2025 and a 3.9% net unit increase, bringing the count to 107. Management is enhancing disclosure around unit economics and maturity ramps, signaling a disciplined approach to capital allocation. The company’s omnichannel model, with 90% of sales within 50 miles of a showroom, reinforces local engagement and high-touch service, while digital investments aim to further integrate the customer journey.
3. Premiumization and Customization
Customization and interior design services are driving higher engagement and average order value, with custom and trade channels delivering record written sales. The product strategy is shifting toward richer colors, traditional aesthetics, and exclusive materials, emphasizing “heirloom quality” and differentiation from mass-market peers. Expanded domestic upholstery capabilities and a robust pipeline of newness support this premiumization thesis.
4. Trade Channel Acceleration
The trade business—serving external designers—represents a $27 billion market opportunity, with Our House positioning as a one-stop partner through expanded incentives and service offerings. Management is “stepping on the gas” in this channel, aiming to capture greater share of large-scale projects and repeat business, which carry significantly higher average order values and drive margin accretion.
5. Digital Transformation and Operational Efficiency
A multi-year $30 million digital transformation is underway, targeting finance, operations, and transportation management systems. The near-term investment will weigh on SG&A, but management expects meaningful operating leverage and $10 million in annual P&L benefit post-implementation, supporting long-term EBITDA margin expansion toward 16–18%.
Key Considerations
2025 highlighted Our House’s ability to grow through volatility, but the next phase will test its operational discipline and pricing power as macro and policy headwinds persist.
Key Considerations:
- Tariff Mitigation Levers: Sourcing shifts, vendor negotiations, and targeted pricing actions will remain critical as trade policy uncertainty continues into 2026.
- Showroom Ramp Timing: New locations require upfront investment and time to mature; management’s enhanced disclosure on ramp curves and unit economics will be key for evaluating ROI.
- Inventory Discipline: Q4’s inventory reserve reset positions the company for improved stock health, but ongoing vigilance is needed to avoid future write-downs as assortments expand.
- Trade and Design Channel Upside: Success in scaling the trade and interior design business could materially lift average order value, repeat rates, and margin profile over time.
- Digital Platform Execution: Realizing planned SG&A leverage and operational efficiency gains from new systems will be a multi-year process with execution risk.
Risks
Persistent tariff volatility and macro uncertainty could pressure margins and demand, especially if policy shifts or consumer confidence deteriorates. Showroom expansion entails ramp risk and upfront cost drag, while delays in digital transformation could postpone expected SG&A leverage. Inventory management will require continued rigor as assortment complexity grows. Competitive pressure from both premium and value peers remains a structural risk, particularly if high-end discretionary spending slows.
Forward Outlook
For Q1 2026, Our House guided to:
- Net revenue of $300–$320 million (down 3.7% to up 2.8% YoY)
- Net income of $0–$5 million and adjusted EBITDA of $13–$20 million
For full-year 2026, management projects:
- Net revenue of $1.43–$1.47 billion (up 3.7%–6.6%)
- Adjusted EBITDA of $150–$161 million
Management emphasized confidence in full-year targets despite Q1 softness, citing deferred demand from weather and catalog delays, and pointed to ongoing margin resilience as new showrooms ramp and digital investments mature.
- Tariff impact is expected to be $30–$40 million, with ongoing mitigation efforts.
- Showroom and trade channel expansion remain key growth levers.
Takeaways
Our House’s 2025 results underscore a resilient business model, but the next leg of growth will depend on disciplined execution through macro, tariff, and operational complexity.
- Margin Defense: Sourcing agility and pricing power offset tariff and occupancy headwinds, but inventory and ramp costs require ongoing vigilance.
- Growth Vectors: Trade and design channels, alongside showroom expansion, offer outsized upside if executed with operational discipline and capital efficiency.
- Execution Watch: Investors should track digital transformation milestones, showroom ROI, and the pace of trade channel scaling as key markers for margin and growth trajectory.
Conclusion
Our House closed 2025 with record revenue and steady margin management, navigating tariffs and macro volatility with a flexible sourcing model and targeted investments. The company enters 2026 well-positioned, but must deliver on digital, trade, and showroom initiatives to unlock the next phase of profitable growth.
Industry Read-Through
Our House’s results highlight the resilience of the high-end home furnishings segment, where affluent consumers continue to invest in customization and design services despite macro headwinds. The company’s ability to mitigate tariff and supply chain risks through diversified sourcing and domestic manufacturing offers a playbook for peers facing similar policy uncertainty. Trade and design partnerships are emerging as critical growth levers across the sector, while the showroom-plus-digital model demonstrates that localized, experiential retail remains vital for premium brands. Competitors in adjacent categories should note the growing importance of operational flexibility, inventory discipline, and omnichannel integration as the industry navigates persistent volatility.