Affluent US Households And Sustainable Craftsmanship Will Transform Retail

Key Takeaways

• Expansion into affluent markets and focus on premium, sustainable furniture strengthens brand appeal, pricing power, and opportunities for long-term revenue and margin growth.
  
• Investment in omnichannel experiences and supply chain optimization increases customer engagement, stabilizes costs, and supports higher earnings despite macroeconomic uncertainty.
  
• Heavy reliance on physical store expansion and premium pricing faces risks from demographic shifts, rising costs, digital competition, and global supply chain vulnerabilities.

Catalysts

Operates as a lifestyle brand and premium retailer in the home furnishings market in the United States.

• Arhaus is poised to benefit from the sustained growth in the number of affluent U.S. households and ongoing wealth concentration, which positions the company to expand its core customer base and achieve higher average order values, driving long-term revenue growth.
  
• The company's strong focus on artisan-crafted, sustainable, and ethically sourced furnishings directly aligns with rising consumer demand for premium, values-driven products, which enhances brand appeal, supports pricing power, and creates opportunities for margin expansion as more consumers prioritize quality and sustainability in their homes.
  
• Aggressive expansion of the showroom footprint into new and underpenetrated markets, with 28 projects in the pipeline through 2027 and an increase in projected openings for 2025, allows Arhaus to capture greater addressable market share and increase top-line revenues as new locations consistently generate high engagement and order values.
  
• Strategic investment in digital and omnichannel experiences, such as e-commerce platform enhancements, virtual and in-home design services, and client personalization, is driving higher engagement, improved conversion rates, and increased average transaction sizes, which will likely fuel both revenue growth and operating leverage over time.
  
• Ongoing supply chain optimization, vertical integration in domestic manufacturing, and proactive shifts away from tariff-impacted sourcing are helping to stabilize costs and strengthen inventory management, supporting gross and net margin expansion and positioning the company for higher earnings growth even amidst near-term macroeconomic volatility.

Arhaus Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Arhaus compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Arhaus's revenue will grow by 9.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 4.5% today to 6.1% in 3 years time.
• The bullish analysts expect earnings to reach $102.2 million (and earnings per share of $0.71) by about July 2028, up from $58.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 22.9x on those 2028 earnings, up from 22.4x today. This future PE is greater than the current PE for the US Specialty Retail industry at 17.6x.
• Analysts expect the number of shares outstanding to grow by 0.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.74%, as per the Simply Wall St company report.

Arhaus Future Earnings Per Share Growth

Risks

• Arhaus’s strategy hinges on continued expansion of its brick-and-mortar showroom footprint, but long-term demographic shifts such as an aging population and declining household formation could shrink the premium home furnishing market, putting sustained revenue growth at risk.
  
• Rising competition from digitally native direct-to-consumer brands and mass-market retailers threatens the relevance and traffic of Arhaus’s experiential retail model, risking both market share and net revenue over time as consumer shopping preferences continue to shift online.
  
• Persistently high and escalating occupancy and labor costs, combined with Arhaus’s emphasis on showrooms in premium locations, may lead to ongoing operating margin compression, particularly if same-store sales growth slows or demand remains “choppy.”
  
• Strategic supply chain pivots away from China in response to changing tariffs have increased reliance on other international vendors, making Arhaus vulnerable to global supply chain disruptions and cost inflation, which could negatively affect gross margins and overall earnings, especially as the company faces new tariffs from multiple countries of origin.
  
• The company’s premium pricing strategy, which targets affluent consumers who may be less sensitive to macro volatility, could backfire in a prolonged economic downturn or periods of stock market instability, potentially reducing customer demand, compressing net revenue, and triggering margin contraction as management hesitates to engage in aggressive discounting.

Valuation

• The assumed bullish price target for Arhaus is $12.79, which represents two standard deviations above the consensus price target of $9.88. This valuation is based on what can be assumed as the expectations of Arhaus's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $13.0, and the most bearish reporting a price target of just $8.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.7 billion, earnings will come to $102.2 million, and it would be trading on a PE ratio of 22.9x, assuming you use a discount rate of 8.7%.
• Given the current share price of $9.28, the bullish analyst price target of $12.79 is 27.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.