$3.78
$14.72
bear $3.78
base $10.46
bull $14.72
margin of safety $5.50
market price* $9.93
Arhaus sells high-end home furnishings (upholstery, case goods, outdoor, lighting, rugs) through 107 showrooms in 31 states and online. Most of what it sells is made to order, so clients pay deposits (about $236 million at the end of 2025) and wait for delivery. It carries no bank debt; its only borrowing-like obligation is a long-term finance lease of about $53 million with roughly 19 years left, plus about $0.5 billion of showroom operating leases that are already charged in its operating cash flow. HOW WE MEASURED EARNINGS. We start from cash generated by operations and remove swings in inventory, receivables, payables and client deposits, because these move by tens of millions from timing alone (for example, inventory and deposits swung the 2022 cash flow by about $110 million against the reported result). We then subtract stock compensation as a real cost and deduct capital spending, crediting back only the portion that mirrors sales growth. Showroom rent stays inside operating cash flow as an ordinary cost. On this basis owner earnings per share were $0.66 (2021, IPO year), $1.11 (2022), $0.57 (2023), $0.17 (2024) and $0.43 (2025). To value the business before its lender, we add back about $5 million a year of cash interest on the finance lease, giving business cash flow of roughly $0.47 per share in 2025. WHAT WE TREATED AS NORMAL. We used the middle result of 2023 through 2025, about $0.47 per share (about $66 million a year). We left out 2021, when the company was private for most of the year and its share count was much lower, and 2022, when a post-pandemic backlog of orders was being delivered at peak margins and deposits were unwinding; that year reflects conditions that have since reversed. Recent results support the level: first-half 2026 revenue was $699 million (up 4.4%) and net income $41.9 million (up about 5%). Operating cash flow fell in the half to $59.8 million from $81.4 million, driven by a $38 million build in prepaid and other assets and an inventory increase, which we treat as timing; we could not tie the prepaid build to a specific cause from the annual filing. Growth check: owner earnings rose sharply in 2025 (from $0.17 to $0.43) because 2024 was depressed, but that rebound is already inside our starting level. Our base case assumes only 4% growth in year one, well below that trailing jump. WHAT WE CREDITED AS GROWTH. The company has grown revenue about 3.9% a year from 2022 to 2025 (from $1.23 billion to $1.38 billion) while opening showrooms every year (16 in 2024, 12 in 2025, funded from its own cash; net count 92 to 103 to 107) and through a year of falling comparable sales (delivered comparable sales fell 8.0% in 2024 and rose 3.6% in 2025). We credit growth at or below that demonstrated pace and taper it as the showroom base matures. We did not credit management's showroom targets, market expansion, share gains or margin recovery. THE THREE CASES. Bear (about $3.78 per share): business cash flow stays at the weakest level in our record, about $0.21 per share (2024, when comparable sales fell 8%), and never recovers or grows. The disclosed risks behind this are import tariffs (gross margin slipped from 39.4% to 38.9% in 2025), reliance on foreign manufacturers, and fixed showroom rents (weighted average 8.6 years remaining) that magnify any sales drop. The business is worth about $3.45 per share; it owes about $0.46 per share on the finance lease (valued at about $65 million because its roughly 9.5% rate is above our 6% yardstick) but holds about $0.79 per share of cash beyond operating needs, so the difference adds about $0.33 per share, giving $3.78. This case could still cover its roughly $5 million interest bill many times over. Base (about $10.46 per share): business cash flow starts at $0.47 per share and grows 4% a year for five years, 3% for three, 2% for two, then holds flat, reflecting showroom leases and a brand that have persisted through the downturn without any further growth being assumed. The business is worth about $10.13 per share, less the same net cash cushion of $0.33, giving $10.46. Bull (about $14.72 per share): the 2024 dip proves temporary and business cash flow starts at $0.54 (the middle of 2022 through 2025), then grows 7% a year for five years (the pace of net showroom additions in 2024 and 2025) and 5% for five more, then holds flat. The business is worth about $14.39 per share plus the $0.33 net cash cushion. CASH AND DEBT. We counted the finance lease as debt and treated cash above about $115 million (roughly half of client deposits, which are customer money owed against undelivered orders) as excess, using the June 30, 2026 balance of $226 million. There are no bank borrowings and no maturities that threaten the outcome; the main financial commitment is the long-dated lease. WHAT WOULD MAKE THIS ESTIMATE WRONG. If comparable sales fall again and tariffs cannot be passed through, cash flow could fall below our bear case. Gross margin fell by half a point in 2025, and written comparable sales (up only 1.3% versus delivered up 3.6%) suggest the near-term pace is modest. On the upside, more showrooms opened at the historic pace would exceed our base assumptions. We also could not fully reconcile why prepaid and other assets rose so much in early 2026. The finance lease and operating leases are fixed obligations that do not shrink if sales do. Our base case reads about $10.46 per share; the margin-of-safety price sits at a considerable discount to that, since results depend on discretionary big-ticket spending and imported goods.