Arhaus (ARHS) risk factors, FY2025 10-K

Risks Related to Our Business and Industry

1. 01We may incur operating losses in the future, and may not achieve or maintain profitability in the future
2. 02We have experienced fluctuations in the growth rate of our business in terms of revenue, earnings and margins may not be sustained in future time periods97% rewritten
3. 03support the growth of our business which may result in costs and delays which may negatively affect our gross margin in the short term and may amplify fluctuations in our growth rate from quarter to quarter depending on the timing and extent of the realization of the costs and benefits of such initiativesNew
4. 04Disruption in our receiving and distribution system or increased costs as a result of the continued integration of our recently opened distribution and manufacturing centers could adversely affect our business
5. 05We are subject to import and other international risks as a result of our reliance on foreign manufacturers and vendors to supply a significant portion of our merchandise47% rewritten
6. 06Changes in the health of the high-end housing market, as well as declines in consumer confidence and consumer spending, could adversely impact our revenue and results of operations26% rewritten
7. 07We are exposed to risks associated with the interruption of supply and increased costs as a result of our reliance on third-party transportation carriers for shipment of our products
8. 08Increased commodity prices or increased freight and transportation costs could adversely affect our results of operations
9. 09Our business and operating results may be harmed if we are unable to timely and effectively deliver merchandise to our clients and manage our supply chain
10. 10Our continued success is substantially dependent on our positive brand identity56% rewritten
11. 11Our brand image may be diminished if new products, services or other businesses fail to maintain or enhance our distinctive brand image, which could have a material adverse impact on our business and results of operationsNew
12. 12We are subject to the SEC’s internal control over financial reporting (“ICFR”) and auditor attestation requirements65% rewritten
13. 13personnel; (iii) computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored; and (iv) testing and approval controls for program development to ensure that new software development is aligned with business and IT requirementsNew
14. 14Adverse events in the primary regions of our operations could materially adversely affect our business
15. 15The failure to recruit, hire, and retain qualified personnel could materially adversely affect our business
16. 16We depend on our management’s and other team members’ experience and knowledge of our industry; we could be adversely affected were we to lose, or experience difficulty in recruiting and retaining, any such members of our team
17. 17We have and will continue to incur capital expenditures for the remodeling of our existing Showrooms, and there is no guarantee that this will result in incremental Showroom traffic or sales, which may adversely impact our results of operations and financial performance
18. 18Merchandise purchased from our vendors that is defective or otherwise does not meet our product quality standards could damage our reputation and brand image and harm our business, and we may not have adequate remedies against our vendors for such merchandise34% rewritten
19. 19quality control process, and any inability to invest sufficient resources in quality control and compliance processes or significant turnover in the personnel dedicated to such function may result in quality control issues or product recallsNew
20. 20Use of social media and influencers may materially and adversely affect our reputation or subject us to fines or other penalties
21. 21We rely on third parties to drive traffic to our website, and these providers may change their algorithms or pricing in ways that could negatively impact our business, results of operations, financial condition and prospects
22. 22From time to time we are subject to client or other various legal proceedings which could adversely affect our business, financial condition, results of operations and cash flows
23. 23Our failure to successfully manage the costs and performance of our print media might have a negative impact on our business
24. 24Our failure to successfully anticipate merchandise returns might have a negative impact on our business
25. 25Product warranty claims could have a material adverse effect on our business
26. 26If we are unable to successfully adapt to client shopping preferences or develop and maintain a relevant and reliable omni-channel model for our clients, our financial performance and brand image could be adversely affected80% rewritten
27. 27Our ability to attract clients to our Showrooms depends heavily on successfully locating our Showrooms in suitable locations. Any impairment of a Showroom location, including any decrease in client traffic, could cause our sales to be lower than expected
28. 28Our estimated addressable market is subject to inherent challenges and uncertainties. If we have overestimated the size of our addressable market, our future growth opportunities may be limited
29. 29We operate in a highly competitive industry sector which may adversely affect our future financial performance
30. 30Our lease obligations are substantial and expose us to increased risks
31. 31Growing our business may require additional capital, and if capital is not available to us, our business, operating results and financial condition may suffer
32. 32Disruption in the financial markets could have a material adverse effect on client demand and our ability to refund client deposits
33. 33Our business operations depend on good relations with our employees
34. 34Our business has been and may in the future be affected by the significant and widespread risks posed by public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases, such as the COVID-19 pandemic

Risks Related to Data Privacy and Information Technology

1. 35If we are unable to effectively manage our eCommerce sales channel and digital marketing efforts, our reputation and operating results may be harmed29% rewritten
2. 36If we experience security incident(s) that result in data breach(es), we could suffer a loss of sales and increased costs, exposure to significant liability, reputational harm and other negative consequences
3. 37Our failure to address risks associated with payment methods, credit card fraud and other consumer fraud, or our failure to control any such fraud, could damage our reputation and brand and could harm our business, results of operations and financial condition70% rewritten
4. 38We are required to comply with payment card network operating rules and any material modification of our payment card acceptance privileges could have a material adverse effect on our business, results of operations, and financial condition
5. 39We are investing in a number of technology upgrades, including a new enterprise resource planning system, and challenges with the planning or implementation of such systems may impact our business, operations, financial results and internal control over financial reportingNew

Risks Related to Our Intellectual Property

1. 40We may not be able to adequately protect our intellectual property rights
2. 41We are the owner of various trademarks for our brands and hold trademark registrations for many of them in the United States, Canada and China. We also own the Internet domain names for the Arhaus websites such as Arhaus.com, Arhaus.net, and Arhausfurniture.com, among others84% rewritten
3. 42Arhaus’ use of the trademarks. If Arhaus’ trademarks are successfully challenged, Arhaus could be forced to rebrand its products which could result in the loss of brand recognition and could require additional resources devoted to advertising and marketing new brandsNew
4. 43If third parties claim that we infringe upon their intellectual property rights, our operating results could be adversely affected

Risks Related to Government Regulation

1. 44We are subject to governmental regulations and may be subject to enforcement if we are not in compliance with applicable regulation, and changes in laws could make conducting our business more expensive or otherwise change the way we do business31% rewritten
2. 45Expectations of our company relating to corporate responsibility factors may impose additional costs and expose us to new risks

Risks Related to Our Indebtedness

1. 46We are party to a revolving credit facility that contains covenants, which may restrict our current and future operations and could adversely affect our ability to execute our business needs
2. 47We may be unable to secure additional financing on favorable terms, or at all, to meet our future capital needs, which in turn could impair our growth

Risks Related to Ownership of our Class A Common Stock

1. 48The dual class structure of our common stock may adversely affect the trading market for our Class A common stock
2. 49Delaware law may protect decisions of our Board of Directors that have a different effect on holders of our Class A common stock and Class B common stock
3. 50The market price, trading volume and marketability of our Class A common stock may be significantly affected by numerous factors, some of which are beyond our control
4. 51Our anti-takeover provisions could prevent or delay a change in control of the Company, even if such change in control would be beneficial to our stockholders
5. 52We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our Class A common stock, which could depress the price of our Class A common stock
6. 53We are a “controlled company” within the meaning of Nasdaq rules and qualify for and may rely on exemptions from certain corporate governance requirements
7. 54If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our Class A common stock adversely, our stock price and trading volume could decline
8. 55Delaware law and our corporate organizational and governing documents impose various impediments to the ability of a third party to acquire control of us, which could deprive our investors of the opportunity to receive a premium for their shares
9. 56Our amended and restated bylaws provide that a majority of our Board of Directors may call special meetings of our stockholders. Our amended and restated certificate of incorporation also permit the issuance without stockholder approval of authorized but unissued shares of common stock and preferred stock

General Risks

1. 57Our operations present risks which may not be fully covered by insurance64% rewritten
2. 58with respect to our internal control over financial reporting. Reporting obligations as a public company place a considerable strain on our financial and management systems, processes and controls, as well as on our personnelNew