The Lovesac Company (NASDAQ:LOVE) Q4 2022 Earnings Conference Call March 29, 2022 5:00 PM ET Company Participants Rachel Schacter - ICR, IR Shawn Nelson - CEO Mary Fox - President and COO Donna Dellomo - CFO Jack Krause - Chief Strategy Officer Conference Call Participants Thomas Forte - D.A. Davidson Maria Ripps - Canaccord Brian Nagel - Oppenheimer Camilo Lyon - BTIG Alex Fuhrman - Craig-Hallum Capital Group Matt Koranda - ROTH Capital Lamont Williams - Stifel Operator Greetings, and welcome to The Lovesa ...

LOVESAC ICR Conference January 2022 Safe Harbor Statement This presentation by The Lovesac Company (the "Company," "we," "us," and "our") includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements are subject to a number of risks, uncertainties and assumptions, and you should not rely upon forward-look ...

[PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) The company's financial statements for the period ended October 31, 2021, show significant growth in assets, driven by increases in merchandise inventories and operating lease right-of-use assets. Total assets grew to $292.8 million from $171.0 million at the start of the fiscal year. Net sales for the thirty-nine weeks increased by 58.1% year-over-year to $302.0 million, turning a prior-year net loss of ($7.0) million into a net income of $13.3 million. However, cash flow from operations was negative at ($15.2) million, primarily due to a significant build-up in inventory Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Oct 31, 2021 (unaudited) (in thousands) | Jan 31, 2021 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $47,862 | $78,341 | | Merchandise inventories | $94,544 | $50,417 | | Total Current Assets | $163,621 | $143,399 | | Total Assets | $292,833 | $171,019 | | Total Current Liabilities | $81,578 | $56,324 | | Total Liabilities | $172,236 | $63,073 | | Stockholders' Equity | $120,597 | $107,946 | Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Thirteen Weeks Ended Oct 31, 2021 (in thousands) | Thirteen Weeks Ended Nov 1, 2020 (in thousands) | Thirty-nine Weeks Ended Oct 31, 2021 (in thousands) | Thirty-nine Weeks Ended Nov 1, 2020 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $116,678 | $74,742 | $302,041 | $191,060 | | Gross profit | $58,616 | $41,308 | $163,724 | $99,647 | | Operating income (loss) | $2,971 | $2,534 | $14,237 | ($6,884) | | Net income (loss) | $2,752 | $2,479 | $13,260 | ($6,976) | | Diluted EPS | $0.17 | $0.16 | $0.83 | ($0.48) | Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Thirty-nine weeks ended Oct 31, 2021 (in thousands) | Thirty-nine weeks ended Nov 1, 2020 (in thousands) | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | ($15,179) | $6,929 | | Net Cash Used in Investing Activities | ($11,841) | ($7,168) | | Net Cash Used in Financing Activities | ($3,459) | ($614) | | **Net change in cash and cash equivalents** | **($30,479)** | **($853)** | - The company operates as a single reporting segment, with products aggregated for financial reporting purposes. Over **95%** of net sales come from a singular group of products[63](index=63&type=chunk) Net Sales by Product (in thousands) | Product | Thirteen Weeks Ended Oct 31, 2021 (in thousands) | Thirty-nine Weeks Ended Oct 31, 2021 (in thousands) | | :--- | :--- | :--- | | Sactionals | $100,374 | $263,558 | | Sacs | $14,195 | $33,053 | | Other | $2,109 | $5,430 | | **Total** | **$116,678** | **$302,041** | Net Sales by Channel (in thousands) | Channel | Thirteen Weeks Ended Oct 31, 2021 (in thousands) | Thirty-nine Weeks Ended Oct 31, 2021 (in thousands) | | :--- | :--- | :--- | | Showrooms | $69,694 | $181,274 | | Internet | $35,542 | $90,198 | | Other | $11,442 | $30,569 | | **Total** | **$116,678** | **$302,041** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the strong performance to growth across all sales channels, particularly a significant rebound in showroom sales post-COVID-19 restrictions. Net sales for the third quarter increased 56.1% YoY to $116.7 million, and for the thirty-nine weeks, they grew 58.1% to $302.0 million. Gross margin for the quarter decreased by 510 basis points to 50.2% due to higher transportation and tariff costs, though this was partially offset by lower promotional discounting. For the thirty-nine-week period, gross margin improved by 200 basis points to 54.2%. The company continues to invest in marketing and infrastructure to support growth, leading to higher operating expenses, but achieved leverage in SG&A as a percentage of sales. Cash used in operations was primarily for inventory investment to support demand and mitigate supply chain risks [Results of Operations - Thirteen weeks ended October 31, 2021 vs. November 1, 2020](index=27&type=section&id=Results%20of%20Operations%20-%20Thirteen%20weeks%20ended%20October%2031%2C%202021%20vs.%20November%201%2C%202020) - Net sales increased by **$42.0 million**, or **56.1%**, to **$116.7 million**, driven by growth across all channels. Showroom sales saw a significant increase of **67.8%** to **$69.7 million**, with comparable sales up **53.3%**. Internet sales grew **38.2%** to **$35.5 million**[103](index=103&type=chunk) - Gross margin decreased by **510 basis points** to **50.2%** from **55.3%**. This was primarily driven by a **748 basis point** increase in distribution and tariff expenses, partially offset by a **238 basis point** improvement in product margin from lower promotional discounting[104](index=104&type=chunk) - Selling, general and administrative (SG&A) expenses increased by **$12.2 million** (**46.8%**) to **$38.1 million**, mainly due to higher employment costs (**+$6.4 million**), rent (**+$2.7 million**), and infrastructure investments (**+$1.3 million**). However, as a percentage of net sales, SG&A improved, decreasing from **34.7%** to **32.6%**[105](index=105&type=chunk)[106](index=106&type=chunk) - Advertising and marketing expenses increased by **$4.8 million** (**44.3%**) to **$15.8 million** to support sales growth. As a percentage of net sales, these expenses decreased from **14.7%** to **13.6%** due to improved media performance[107](index=107&type=chunk) [Results of Operations - Thirty-nine weeks ended October 31, 2021 vs. November 1, 2020](index=29&type=section&id=Results%20of%20Operations%20-%20Thirty-nine%20weeks%20ended%20October%2031%2C%202021%20vs.%20November%201%2C%202020) - Net sales increased by **$110.9 million**, or **58.1%**, to **$302.0 million**. This was driven by a **150.0%** increase in showroom sales to **$181.3 million**, which more than offset an **11.4%** decrease in internet sales. The shift reflects customers returning to in-store shopping post-COVID-19 restrictions[111](index=111&type=chunk) - Gross margin increased by **200 basis points** to **54.2%** from **52.2%**. The improvement was driven by a **367 basis point** increase from lower promotional discounts and favorable vendor negotiations, which offset a **167 basis point** negative impact from higher distribution and tariff expenses, particularly escalating inbound container costs[112](index=112&type=chunk) - SG&A expenses increased by **$29.0 million** (**38.6%**) to **$104.2 million**, driven by higher employment costs (**+$16.3 million**), rent (**+$6.6 million**), and infrastructure investments. As a percentage of net sales, SG&A showed significant leverage, decreasing from **39.3%** to **34.5%**[114](index=114&type=chunk)[115](index=115&type=chunk) - Advertising and marketing expenses increased by **$13.2 million** (**50.2%**) to **$39.5 million**, reflecting the reinstatement of marketing spend as showrooms fully reopened. As a percentage of net sales, these expenses slightly decreased from **13.8%** to **13.1%**[116](index=116&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) - The company's primary sources of liquidity are cash from operations and its revolving line of credit. Primary cash needs include advertising, inventory, payroll, rent, and capital expenditures for showrooms and infrastructure[120](index=120&type=chunk) Cash Flow Summary (in thousands) | Activity | Thirty-nine weeks ended Oct 31, 2021 (in thousands) | Thirty-nine weeks ended Nov 1, 2020 (in thousands) | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(15,179) | $6,929 | | Net Cash Used in Investing Activities | $(11,841) | $(7,168) | | Net Cash Used in Financing Activities | $(3,459) | $(614) | | **Net change in cash and cash equivalents** | **$(30,479)** | **$(853)** | - Net cash used in operating activities was **$15.2 million**, primarily due to a **$44.1 million** increase in inventory, which was a strategic investment to support sales growth and mitigate supply chain disruptions[123](index=123&type=chunk) - The company has a **$25.0 million** revolving credit facility with Wells Fargo. As of October 31, 2021, borrowing availability was **$22.5 million**, with no outstanding borrowings[129](index=129&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk exposure is to interest rate fluctuations related to its revolving credit facility, which is tied to LIBOR. Management does not believe this risk is material and does not currently use interest rate hedging instruments. The company is also aware of the upcoming transition away from LIBOR and will pursue alternative interest rate calculations as needed - The company's main market risk is interest rate risk from its borrowing activities under the line of credit with Wells Fargo, which may bear interest at a rate tied to LIBOR[135](index=135&type=chunk) - The company acknowledges the planned discontinuation of LIBOR after 2021 and notes that its credit agreement includes provisions for alternative interest rate calculations, such as the Secured Overnight Financing Rate (SOFR)[136](index=136&type=chunk) [Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on an evaluation conducted by management, including the CEO and CFO, the company's disclosure controls and procedures were deemed effective as of October 31, 2021. Additionally, there were no material changes to the company's internal control over financial reporting during the third quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report[137](index=137&type=chunk) - There were no changes in internal control over financial reporting during the thirteen weeks ended October 31, 2021, that have materially affected, or are reasonably likely to materially affect, internal controls[138](index=138&type=chunk) [PART II. OTHER INFORMATION](index=34&type=section&id=Part%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) The company reports that it is not currently a party to any legal proceedings that would be expected to have a material adverse effect on its business, financial condition, or results of operations - The company is not presently a party to any legal proceedings that would individually or in aggregate have a material adverse effect on its business, operating results, financial condition, or cash flows[141](index=141&type=chunk) [Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended January 31, 2021 - No material changes have been made to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2021[142](index=142&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is not applicable for the reporting period - This item is not applicable[143](index=143&type=chunk) [Defaults Upon Senior Securities](index=34&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable for the reporting period - This item is not applicable[144](index=144&type=chunk) [Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable for the reporting period - This item is not applicable[145](index=145&type=chunk) [Other Information](index=34&type=section&id=Item%205.%20Other%20Information) There is no other information to report for this period - None[146](index=146&type=chunk) [Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q. Key exhibits include the company's Annual Incentive Compensation Plan, Director Compensation Policy, an employment agreement with Mary Fox, an amendment to the employment agreement with Jack A. Krause, and CEO/CFO certifications as required by the Sarbanes-Oxley Act - The report includes several exhibits, such as: - 10.1: The Lovesac Company Annual Incentive Compensation Plan - 10.2: The Lovesac Company Director Compensation Policy - 10.3: Employment Agreement with Mary Fox - 31.1 & 31.2: Certifications of the CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act - 32.1 & 32.2: Certifications of the CEO pursuant to Section 906 of the Sarbanes-Oxley Act[148](index=148&type=chunk)

The Lovesac Company (NASDAQ:LOVE) Q3 2022 Earnings Conference Call December 8, 2021 8:30 AM ET Company Participants Rachel Schacter - ICR, IR Shawn Nelson - CEO Jack Krause - Chief Strategy Officer Mary Fox - President and COO Donna Dellomo - CFO Conference Call Participants Brian Nagel - Oppenheimer Victoria James - D.A. Davidson Camilo Lyon - BTIG Maria Ripps - Canaccord Matt Koranda - ROTH Alex Fuhrman - Craig-Hallum Lamont Williams - Stifel Operator Greetings and welcome to The Lovesac Third Quarter Fis ...

Financial Performance - Net sales for the thirteen weeks ended August 1, 2021, reached $102.4 million, a 65.5% increase compared to $61.9 million for the same period in 2020[20] - Gross profit for the twenty-six weeks ended August 1, 2021, was $105.1 million, up from $58.3 million in the prior year, reflecting an increase of 80.2%[20] - Operating income for the thirteen weeks ended August 1, 2021, was $9.0 million, compared to an operating loss of $1.0 million for the same period in 2020[20] - Net income for the twenty-six weeks ended August 1, 2021, was $10.5 million, a significant recovery from a net loss of $9.5 million in the same period last year[25] - Total revenue for the thirteen weeks ended August 1, 2021, was $102.4 million, a 65.5% increase from $61.9 million for the same period in 2020[68] - For the twenty-six weeks ended August 1, 2021, total revenue reached $185.4 million, up 59.6% from $116.3 million in the prior year[68] - Net income for the thirteen weeks ended August 1, 2021, was $8,447,000, a turnaround from a net loss of $1,107,000 in the same period of 2020[96] - Adjusted EBITDA for the twenty-six weeks ended August 1, 2021, was $17,735,000, compared to a loss of $3,516,000 in the same period of 2020[97] Assets and Liabilities - Total assets increased to $281.3 million as of August 1, 2021, compared to $171.0 million as of January 31, 2021, marking a growth of 64.6%[18] - Total liabilities rose to $164.3 million as of August 1, 2021, compared to $63.1 million as of January 31, 2021, an increase of 160.5%[18] - Cash and cash equivalents decreased to $68.5 million from $78.3 million at the beginning of the year, a decline of 9.9%[17] - Customer deposits increased significantly to $13.4 million from $6.0 million, reflecting a growth of 123.5%[17] - The total undiscounted future minimum lease payments under noncancelable leases exceed $112 million, with a present value of lease obligations at approximately $98 million[51] Operating Expenses - Operating expenses for the twenty-six weeks ended August 1, 2021, totaled $93.8 million, up from $67.8 million in the prior year, an increase of 38.4%[20] - Selling, general and administrative expenses for the thirteen weeks ended August 1, 2021, were $35,385,000, up from $23,383,000 in 2020, reflecting increased operational costs[96] - Selling, general and administrative expenses for the twenty-six weeks increased by $16.9 million, or 34.3%, to $66.1 million, representing 35.7% of net sales, down from 42.3%[123][124] - Advertising and marketing expenses increased by $5.9 million, or 81.9%, to $13.0 million, accounting for 12.7% of net sales compared to 11.6%[116] Customer Metrics - New customers increased by 9.6% for the twenty-six weeks ended August 1, 2021, compared to 52.5% for the same period in 2020[86] - Ecommerce accounted for 29% of total net sales for the thirteen weeks ended August 1, 2021, down from 74% for the same period in 2020[92] - Showroom sales accounted for 61% of total net sales for the thirteen weeks ended August 1, 2021, up from 21% for the same period in 2020[92] - Internet sales decreased by $21.5 million, or 28.2%, for the twenty-six weeks ended August 1, 2021, reflecting a shift back to in-store purchases[86] Future Outlook and Strategy - The Company plans to continue opening new retail showrooms in larger markets and increase shop-in-shop relationships to boost sales[32] - The company provided a positive outlook for the next quarter, projecting revenue growth of BB% driven by new product launches and market expansion strategies[165] - The company is exploring market expansion opportunities in international regions, targeting a growth rate of CC% in these markets[165] - Strategic acquisitions are being considered to enhance product offerings and market presence, with a focus on companies that align with Lovesac's brand values[165] - The company emphasized its commitment to sustainability in new product lines, aiming for a reduction in carbon footprint by DD% over the next five years[165] - Marketing strategies will be intensified, with an increase in digital advertising budget by EE% to reach a broader audience[165] - The company plans to enhance its supply chain efficiency, aiming for a reduction in lead times by FF% to better meet customer demand[165] Miscellaneous - The Company adopted new accounting standards in fiscal 2022, which did not materially affect its consolidated results of operations[34] - The estimated future amortization expense associated with intangible assets is projected to be $1.19 million over the next several years[37] - The Company continues to provide a full valuation allowance against its net deferred tax assets due to uncertainty in utilizing these assets[38] - The weighted average remaining lease term for operating leases is 7.0 years, with a weighted average discount rate of 3.76%[48] - The company has a line of credit with Wells Fargo Bank allowing borrowing up to $25 million, with availability of $22.5 million as of August 1, 2021[58] - The company reported a net cash used in investing activities of $(7,357,000) for the twenty-six weeks ended August 1, 2021, compared to $(5,271,000) in the same period of 2020[97]

Financial Data and Key Metrics Changes - Total sales increased to $102.4 million, up 65.4% compared to the prior year period, building on a 28.7% sales increase reported in Q2 last year [9][39] - Adjusted EBITDA rose significantly to $12.4 million from $2.2 million in the prior year period, driven by gross margin expansion [14][57] - Net income was $8.4 million, or $0.52 per diluted share, compared to a net loss of $1.1 million, or $0.08 per diluted share in the prior year [57] Business Line Data and Key Metrics Changes - Showroom net sales increased by 387.1% to $62.6 million, driven by a $40.3 million increase in comparable showroom point of sales transactions [40] - Other net sales, including pop-up shop and shop-in-shop sales, increased by 243.4% to $10.4 million [42] - Internet net sales decreased by 36% to $29.5 million, reflecting a shift back to in-person shopping as showrooms reopened [43] Market Data and Key Metrics Changes - Comparable showroom sales grew by 290.9%, with total comparable sales growth of 39.5% [13] - Bestbuy.com sales increased by 44.3% compared to Q1, indicating strong demand in that channel [15][32] - The company opened seven new showrooms during the quarter, remaining on track to open a total of 28 for the year [15][39] Company Strategy and Development Direction - The company is focused on expanding its omnichannel strategy, with plans to open more Best Buy shop-in-shops and additional showroom locations [15][32] - The introduction of a new product launch is anticipated before the end of Q3, which is expected to excite customers [17] - The company is developing a "circle to consumer" (CTC) philosophy aimed at sustainability and long-term customer relationships [22][23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating supply chain challenges through a diversified supply chain and tactical adjustments [18][24] - The company expects continued strong sales growth, targeting approximately 50% growth for Q3, despite anticipated gross margin pressures [61][62] - Management highlighted the importance of maintaining strong in-stock positions and competitive pricing to optimize demand and margins [37][94] Other Important Information - The company plans to make its first formal ESG disclosures in Q4 [21] - SG&A expenses increased by 51.3% due to higher employment costs and additional showroom openings [49] - The company ended the quarter with $68.5 million in cash and cash equivalents, indicating strong liquidity [58] Q&A Session Summary Question: Have consumers scaled back their purchases in the home category? - Management noted that they are not seeing changes in buying behaviors related to their brand, with continued strength in conversion rates [65] Question: Is the ability to deliver consumer couches faster than competitors a competitive advantage? - Management confirmed that their industry-leading service levels and stock positions provide a significant competitive advantage [66] Question: Can you unpack the components of the Q3 gross margin expectation? - Management indicated that the decline in gross margin is primarily related to inbound freight costs, which have increased significantly [70] Question: What drove the strong Q2 revenue performance? - Management attributed the outperformance to strong growth in showrooms and business development segments, as well as effective promotional strategies [82] Question: How has the core target customer changed post-pandemic? - Management stated that while they are attracting new customers, their core demographic remains young parents seeking quality and value [83]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 2, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File Number: 001-38555 THE LOVESAC COMPANY (Exact name of registrant as specified in its charter) | Delaware | 32-0514958 | | --- | ...

The Lovesac Company (NASDAQ:LOVE) Q1 2022 Earnings Conference Call June 9, 2021 8:30 AM ET Company Participants Rachel Schacter - SVP, ICR, IR Shawn Nelson - Founder and CEO Jack Krause - President and COO Donna Dellomo - EVP and CFO Conference Call Participants Camilo Lyon - BTIG Maria Ripps - Canaccord Brian Nagel - Oppenheimer Thomas Forte - D.A. Davidson Matt Koranda - ROTH Capital Alex Fuhrman - Craig-Hallum Operator Greetings. Welcome to The Lovesac's First Quarter Fiscal 2022 Earnings Conference Call ...

Part I [Business](index=5&type=section&id=Item%201.%20Business) Lovesac, a technology-driven furniture company, specializes in modular couches and foam beanbag chairs, operating an omni-channel direct-to-consumer model with a 'Designed for Life' philosophy - The company's core philosophy, **'Designed for Life,'** emphasizes durable, adaptable products, central to its brand and sustainability message[19](index=19&type=chunk)[32](index=32&type=chunk) Sales Mix by Product (Fiscal Year 2021 vs. 2020) | Product | FY 2021 Sales % | FY 2020 Sales % | | :--- | :--- | :--- | | Sactionals | 84.5% | 80.7% | | Sacs | 14.0% | 17.0% | Sales Mix by Channel (Fiscal Year 2021 vs. 2020) | Channel | FY 2021 Sales % | FY 2020 Sales % | | :--- | :--- | :--- | | Ecommerce | 47.1% | 23.9% | | Showrooms | Not specified, but decreased 1.3% in absolute dollars | Not specified | | Other (Pop-ups/Shop-in-shops) | 7.3% | 12.7% | - The company utilizes a **global supply chain** with third-party manufacturing partners across multiple countries, owning no manufacturing facilities[38](index=38&type=chunk) - The business experiences **seasonality**, with **40.4% of total sales** occurring in the fourth fiscal quarter of fiscal 2021[40](index=40&type=chunk) Customer Metrics (Fiscal Year 2021 vs. 2020) | Metric | Fiscal 2021 | Fiscal 2020 | | :--- | :--- | :--- | | Customer Acquisition Cost (CAC) | $434.61 | $391.71 | | CLV/CAC Ratio | 4.70 | 4.68 | | New Sactional Customer Growth | 48.3% | N/A | [Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors) The company identifies numerous risks including the COVID-19 pandemic's impact, supplier reliance, competition, and technology infrastructure vulnerabilities - The **COVID-19 pandemic** creates significant uncertainty, potentially impacting consumer demand, supply chains, and showroom operations, with no guarantee of sustained e-commerce growth post-pandemic[61](index=61&type=chunk)[65](index=65&type=chunk) - A substantial portion of the business relies on a **small number of third-party suppliers**, particularly for Sacs (single supplier) and Sactionals (multiple international suppliers), leading to concentration and geopolitical risks like tariffs[82](index=82&type=chunk)[84](index=84&type=chunk)[88](index=88&type=chunk) - The business operates in a **highly competitive market**, facing traditional, big-box, and online retailers, many with greater resources and brand recognition[69](index=69&type=chunk)[71](index=71&type=chunk) - The **omni-channel strategy**, especially e-commerce reliance, exposes the company to risks like system interruptions, cybersecurity threats, and the need to adapt to evolving consumer preferences[77](index=77&type=chunk)[110](index=110&type=chunk)[118](index=118&type=chunk) - As an **"emerging growth company,"** Lovesac is subject to reduced reporting requirements, potentially making its common stock less attractive to some investors[151](index=151&type=chunk) [Unresolved Staff Comments](index=41&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None [Properties](index=41&type=section&id=Item%202.%20Properties) The company leases its principal executive offices in Stamford, CT, and all 108 retail showrooms across 36 U.S. states and D.C - The company's primary offices are leased in Stamford, CT, occupying **22,480 square feet** under a lease expiring in **November 2024**[162](index=162&type=chunk) - As of the report date, the company leases retail space for **108 showrooms** across the United States[162](index=162&type=chunk) [Legal Proceedings](index=41&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings, not expecting a material adverse effect on its business or financial condition - The company is involved in ordinary course legal proceedings, not expecting a material adverse effect on its business[163](index=163&type=chunk) [Mine Safety Disclosures](index=41&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=43&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq under 'LOVE', with no cash dividends paid or intended, as earnings are retained for business growth - Common stock is traded on Nasdaq under the symbol **"LOVE"**[166](index=166&type=chunk) - The company has never paid cash dividends and does not intend to in the foreseeable future[167](index=167&type=chunk) [Selected Financial Data](index=43&type=section&id=Item%206.%20Selected%20Financial%20Data) This item is not applicable as the company is an emerging growth company - Not applicable [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Lovesac achieved significant fiscal 2021 growth, with net sales up **37.4% to $320.7 million** driven by e-commerce, shifting from a net loss to a **$14.7 million net income** [Results of Operations (Fiscal 2021 vs. 2020)](index=47&type=section&id=Results%20of%20Operations%20%28Fiscal%202021%20vs.%202020%29) Fiscal 2021 saw dramatic financial improvement, with net sales growing **37.4%** driven by **170.8% internet sales**, gross margin expanding **450 basis points**, and a shift to **$14.9 million operating income** Consolidated Statement of Operations (Fiscal Year Ended) | Metric | January 31, 2021 | February 2, 2020 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $320.7M | $233.4M | 37.4% | | Gross Profit | $174.8M | $116.7M | 49.8% | | Gross Margin | 54.5% | 50.0% | +450 bps | | Operating Income (Loss) | $14.9M | ($15.8M) | N/A | | Net Income (Loss) | $14.7M | ($15.2M) | N/A | | Diluted EPS | $0.96 | ($1.07) | N/A | - Net sales increased due to a **170.8% ($95.3 million) surge in internet sales**, offsetting a **1.3% ($1.9 million) decrease** in showroom sales impacted by COVID-19[192](index=192&type=chunk) - Gross margin improved by **450 basis points**, driven by **400 bps** from reduced promotions and lower product costs, plus **50 bps** from improved distribution expenses[193](index=193&type=chunk) - Selling, general and administrative (SG&A) expenses increased **13.5% to $111.4 million**, but decreased as a percentage of net sales from **42.1% to 34.7%**, demonstrating operating leverage[194](index=194&type=chunk)[195](index=195&type=chunk) - Advertising and marketing expenses increased **43.6% to $41.9 million**, representing **13.1% of net sales**, up from **12.5%** in the prior year due to increased media spending[196](index=196&type=chunk)[197](index=197&type=chunk) [Liquidity and Capital Resources](index=50&type=section&id=Liquidity%20and%20Capital%20Resources) Fiscal 2021 saw significant liquidity strengthening, with cash increasing by **$29.8 million to $78.3 million**, and net cash from operating activities at **$40.5 million**, with no outstanding debt Summary of Cash Flows (in thousands) | Activity | Fiscal 2021 | Fiscal 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $40,521 | ($11,194) | | Net Cash Used in Investing Activities | ($9,052) | ($10,650) | | Net Cash (Used in) from Financing Activities | ($1,667) | $21,312 | | **Net Change in Cash** | **$29,802** | **($532)** | | **Cash at End of Period** | **$78,341** | **$48,539** | - Operating cash flow improved due to a **$14.7 million net income** (vs. **$15.2 million net loss** in FY2020) and favorable working capital changes, including a **$19.6 million increase** in accrued liabilities and accounts payable[207](index=207&type=chunk)[209](index=209&type=chunk) - As of January 31, 2021, the company had **no outstanding borrowings** on its revolving credit line, with **$15.9 million** of borrowing availability[214](index=214&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=56&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable as the company is a smaller reporting company - Not applicable [Financial Statements and Supplementary Data](index=56&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section refers to the company's consolidated financial statements and related notes, included at the end of the Form 10-K - The company's audited consolidated financial statements are included at the end of the Annual Report on Form 10-K[238](index=238&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=57&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None [Controls and Procedures](index=57&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls and internal control over financial reporting were effective as of January 31, 2021, with no attestation report required for this emerging growth company - Management concluded the company's disclosure controls and procedures were **effective** as of January 31, 2021[241](index=241&type=chunk) - Based on the COSO framework, management concluded the company's internal control over financial reporting was **effective** as of January 31, 2021[243](index=243&type=chunk) - No material changes occurred during the fourth quarter affecting the company's internal control over financial reporting[245](index=245&type=chunk) [Other Information](index=57&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None Part III [Directors, Executive Officers and Corporate Governance](index=58&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on executive officers, directors, and corporate governance is incorporated by reference from the 2021 Proxy Statement - Information required by this item is incorporated by reference from the 2021 Proxy Statement[249](index=249&type=chunk) [Executive Compensation](index=59&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive compensation is incorporated by reference from the 2021 Proxy Statement - Information required by this item is incorporated by reference from the 2021 Proxy Statement[252](index=252&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=59&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section details securities authorized under equity compensation plans and incorporates other ownership information by reference from the 2021 Proxy Statement Securities Authorized for Issuance under Equity Compensation Plans (as of Jan 31, 2021) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by shareholders | 1,150,924 | $38.10 | 380,959 | [Certain Relationships and Related Transactions, and Director Independence](index=59&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the 2021 Proxy Statement - Information required by this item is incorporated by reference from the 2021 Proxy Statement[256](index=256&type=chunk) [Principal Accounting Fees and Services](index=59&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information on principal accounting fees and services is incorporated by reference from the 2021 Proxy Statement - Information required by this item is incorporated by reference from the 2021 Proxy Statement[257](index=257&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=60&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists financial statements, schedules, and exhibits filed as part of the Form 10-K report, including an index of all exhibits - This section provides an index of all financial statements, schedules, and exhibits filed with the 10-K[259](index=259&type=chunk)[261](index=261&type=chunk) [Form 10-K Summary](index=60&type=section&id=Item%2016.%20Form%2010-K%20Summary) This optional disclosure was not included in this Annual Report on Form 10-K - Optional disclosure not included in this Annual Report on Form 10-K[262](index=262&type=chunk) Consolidated Financial Statements [Financial Statements](index=68&type=section&id=Financial%20Statements) The consolidated financial statements present the company's financial position and performance, highlighting a significant increase in total assets to **$171.0 million** and a shift from net loss to **$14.7 million net income** Consolidated Balance Sheet Highlights (As of Year-End) | Account | Jan 31, 2021 | Feb 2, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $78.3M | $48.5M | | Merchandise inventories | $50.4M | $36.4M | | Total Assets | $171.0M | $125.7M | | Total Liabilities | $63.1M | $35.5M | | Total Stockholders' Equity | $107.9M | $90.2M | Consolidated Statement of Operations Highlights (For Fiscal Year Ended) | Account | 2021 | 2020 | | :--- | :--- | :--- | | Net sales | $320.7M | $233.4M | | Gross profit | $174.8M | $116.7M | | Operating income (loss) | $14.9M | ($15.8M) | | Net income (loss) | $14.7M | ($15.2M) | [Notes to Consolidated Financial Statements](index=73&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies and financial results, including revenue disaggregation by channel and product, **$92.4 million** in operating lease obligations, and equity incentive plan information Net Sales by Channel (Fiscal Year Ended) | Channel | 2021 | 2020 | | :--- | :--- | :--- | | Showrooms | $146,150,307 | $148,003,995 | | Internet | $151,064,651 | $55,781,186 | | Other | $23,522,792 | $29,592,198 | | **Total net sales** | **$320,737,750** | **$233,377,379** | Net Sales by Product (Fiscal Year Ended) | Product | 2021 | 2020 | | :--- | :--- | :--- | | Sactionals | $271,018,545 | $188,436,976 | | Sacs | $44,974,677 | $39,640,676 | | Other | $4,744,528 | $5,299,727 | | **Total** | **$320,737,750** | **$233,377,379** | - The company has future minimum rental payments under operating leases totaling **$92.4 million**[388](index=388&type=chunk) - As of January 31, 2021, total unrecognized equity-based compensation cost was approximately **$5.3 million**, to be recognized over a weighted average period of **2.65 years**[408](index=408&type=chunk)

The Lovesac Company (NASDAQ:LOVE) Q4 2021 Earnings Conference Call April 14, 2021 8:30 AM ET Company Participants Rachel Schacter - SVP, ICR, IR Shawn Nelson - CEO Jack Krause - President and COO Donna Dellomo - EVP and CFO, Treasurer and Secretary Conference Call Participants Brian Nagel - Oppenheimer and Company Maria Ripps - Canaccord Genuity Thomas Forte - D.A. Davidson Camilo Lyon - BTIG Matt Koranda - ROTH Capital Partners Alex Fuhrman - Craig-Hallum Group Lamont Williams - Stifel Operator Greetings, ...