Core Insights - The Lovesac Company celebrates the one-year anniversary of its PillowSac Chair by introducing two new wood frame finishes: Brown and Black, enhancing customization options for consumers [1][2] - The PillowSac Chair is designed to be adaptable, reflecting the diverse lifestyles of customers, and now offers three frame options along with over 150 machine-washable PillowSac Covers [2] - The new frame finishes are priced starting at $675, while the complete PillowSac Chair starts at $1,350, available online and in Lovesac showrooms [3] Company Overview - The Lovesac Company, based in Stamford, Connecticut, is a technology-driven furniture brand known for its innovative and sustainable designs, including modular couches, premium foam beanbag chairs, and the PillowSac Chair [4] - The company emphasizes responsible production and innovation, having received multiple awards for sustainability and product design [4] - Products are marketed primarily online, supported by a network of physical showrooms and retail partnerships [4]

Core Viewpoint - The Lovesac Company has reached a settlement in a shareholder derivative action related to breaches of fiduciary duty and financial statement restatements, which is subject to court approval [2][3]. Group 1: Settlement Details - The settlement agreement includes corporate governance reforms that Lovesac will implement and maintain for at least four years [4]. - Lovesac will pay a total of $335,000 in attorneys' fees and expenses to the plaintiffs' co-lead counsel, pending court approval [5]. - Each plaintiff will receive a Service Award of $2,500 from the attorneys' fees and expenses award, also subject to court approval [5]. Group 2: Legal Context - The derivative action asserts claims against the defendants for breaches of fiduciary duty and other legal violations, distinct from a separate securities class action [2]. - Defendants deny all claims and wrongdoing but have opted to settle the action to avoid further litigation [3]. Group 3: Court Proceedings - A fairness hearing is scheduled for October 1, 2025, to determine the approval of the proposed settlement and the attorneys' fees [6]. - Securities holders are not entitled to individual compensation from the settlement, except for the Service Award to plaintiffs [7].

Industry Overview - The Zacks Retail-Home Furnishings industry is experiencing positive momentum in 2025, driven by stable mortgage rates, improved consumer confidence, and a rebound in housing activity [1] - The industry includes retailers offering a variety of home furnishing products, such as furniture, garden accessories, and bedding products [3] Trends Influencing the Industry - Online growth and technological advancements, including AR shopping tools and AI-driven personalization, are reshaping consumer experiences and driving growth [4] - Companies are focusing on customization and full-service packages to cater to Gen Z and millennials, enhancing customer loyalty and margins [5] - Product innovation and strategic marketing are crucial for gaining market share, with companies collaborating with renowned brands and enhancing customer experiences through digital marketing [6] Economic Factors - Consumer confidence improved significantly in May 2025, with the consumer confidence index rising by 12.3 points to 98.0 [7] - Mortgage rates have stabilized around 6.84%, creating a favorable environment for prospective homebuyers [8] - Despite economic uncertainties, including inflation and tariff concerns, the industry shows a favorable long-term outlook due to tech-driven evolution [2] Industry Performance - The Zacks Retail-Home Furnishings industry currently ranks 81, placing it in the top 33% of over 250 Zacks industries, indicating notable near-term prospects [11][12] - The industry has underperformed compared to the broader Zacks Retail-Wholesale sector and the S&P 500, with a loss of 0.4% against the sector's 16.1% growth [13] Valuation Metrics - The industry is trading at a forward 12-month price-to-earnings ratio of 20.44, compared to the S&P 500's 22.02 and the sector's 24.55 [17] Company Highlights - **Lovesac**: Achieved 4.3% revenue growth in Q1 2025, with a strong balance sheet and reduced China exposure, positioning it well for profitable growth [19][20] - **Lowe's**: Benefiting from a resilient Pro business and strategic acquisitions, with an estimated earnings growth of 2.4% year-over-year for fiscal 2025 [22][25] - **Home Depot**: Revenue rose 9.4% year-over-year in Q1 2025, driven by strong customer engagement and digital sales growth [28][29] - **Williams-Sonoma**: Focused on digital initiatives and e-commerce penetration, with an upward estimate revision for fiscal 2025 earnings [32][33]

Core Viewpoint - Lovesac is emerging from legal issues and is positioned for a potential rebound in share price driven by growth, operational quality, and a shift towards sustainable profitability, despite existing risks [1][2]. Financial Performance - Lovesac reported Q1 net revenue of $138.4 million, reflecting a growth rate of 4.4%, outperforming competitors like Ethan Allen and La-Z-Boy, which are growing at slower rates or experiencing declines [4]. - The company has increased its store count by 21 compared to the previous year, with sales in that channel up by 18%. However, digital and other categories saw declines of 9% and 40.5%, respectively [5]. - Operational quality improvements led to a contraction in gross margin by 60 basis points and a reduction in SG&A expenses by 310 basis points, resulting in a significant contraction of GAAP losses by over 1,600 basis points [5][6]. Guidance and Analyst Outlook - Management has increased guidance for the year, expecting revenue around $725 million and EPS of approximately $1.05, both exceeding consensus forecasts [6]. - Analysts maintain a bullish outlook on Lovesac, with a consistent "Buy" rating and a price target of $31.67, indicating a potential upside of 88.27% from the current price of $16.82 [7][9]. Share Buyback and Risks - Lovesac initiated a share buyback program, significantly reducing share count, but faces risks of ceasing or reversing this program due to decreased cash position and assets [8][9]. - The expected average share count is projected to increase by 11.6% between Q2 and the full year, which may offset the impact of buybacks [10]. - Short interest remains elevated at over 20%, posing a risk of further stock price decline if shorts re-enter the market [11].

Core Insights - Investors in the Retail - Home Furnishings sector may consider Lovesac (LOVE) and Somnigroup International (SGI) as potential undervalued stocks [1] Group 1: Zacks Rank and Earnings Outlook - Lovesac currently holds a Zacks Rank of 1 (Strong Buy), indicating a positive earnings outlook, while Somnigroup International has a Zacks Rank of 4 (Sell) [3] - The Zacks Rank system favors stocks with positive revisions to earnings estimates, suggesting that LOVE has an improving earnings outlook [3] Group 2: Valuation Metrics - Lovesac has a forward P/E ratio of 24.26, compared to Somnigroup International's forward P/E of 26.18 [5] - Lovesac's PEG ratio is 0.69, indicating better value relative to its expected earnings growth, while SGI has a PEG ratio of 1.70 [5] - Lovesac's P/B ratio is 1.46, significantly lower than SGI's P/B of 4.95, suggesting that LOVE is undervalued compared to its book value [6] Group 3: Value Grades - Lovesac has received a Value grade of A, while Somnigroup International has a Value grade of D, indicating that LOVE is viewed more favorably by value investors [6] - The combination of Zacks Rank and Style Scores suggests that value investors may prefer Lovesac over Somnigroup International at this time [6]

Core Viewpoint - The article emphasizes the importance of value investing and highlights Lovesac (LOVE) as a strong value stock based on its financial metrics and Zacks Rank [1][2][7] Company Analysis - Lovesac (LOVE) currently has a Zacks Rank of 1 (Strong Buy) and a Value grade of A, indicating strong potential for value investors [4] - The stock has a P/E ratio of 19.93, which is lower than the industry average of 20.83, suggesting it may be undervalued [4] - LOVE's Forward P/E has fluctuated between 62.22 and 11.65 over the past year, with a median of 18.76, indicating volatility but also potential for value [4] - The P/S ratio for LOVE is 0.45, significantly lower than the industry average of 1.24, reinforcing the notion of undervaluation [5] - LOVE's P/CF ratio stands at 13.14, which is attractive compared to the industry's average of 13.82, further supporting its undervalued status [6] - Over the past 52 weeks, LOVE's P/CF has ranged from 27.69 to 7.84, with a median of 15.10, indicating variability in cash flow performance [6] - Overall, the financial metrics suggest that Lovesac is likely undervalued, making it an appealing option for value investors [7]

Financial Performance - For the quarter ended April 2025, Lovesac reported revenue of $138.37 million, reflecting a year-over-year increase of 4.3% [1] - The earnings per share (EPS) was reported at -$0.73, an improvement from -$0.83 in the same quarter last year [1] - The revenue exceeded the Zacks Consensus Estimate of $136.95 million by 1.04% [1] - The EPS surprise was +9.88%, compared to the consensus estimate of -$0.81 [1] Key Metrics - Lovesac's showroom count at the end of the quarter was 267, slightly below the two-analyst average estimate of 269 [4] - Net Sales from Other sources were reported at $8.60 million, significantly lower than the average estimate of $13.91 million, representing a year-over-year decline of 40.4% [4] - Net Sales from Internet channels were $33.30 million, below the average estimate of $36.39 million, indicating a 9% year-over-year decrease [4] - Net Sales from Showrooms reached $96.50 million, surpassing the average estimate of $85.76 million, and showing an 18.2% increase compared to the previous year [4] Stock Performance - Shares of Lovesac have returned +0.6% over the past month, while the Zacks S&P 500 composite increased by +6.6% [3] - The stock currently holds a Zacks Rank 1 (Strong Buy), suggesting potential outperformance against the broader market in the near term [3]

Financial Data and Key Metrics Changes - Total net sales for the first quarter were $138.4 million, reflecting a year-over-year increase of 4.3% despite a 5% decline in the overall category [6][33] - Adjusted EBITDA loss improved by double-digit percentages year-over-year, with net loss decreasing to $10.8 million or negative $0.73 per common share compared to a net loss of $13 million or negative $0.83 per common share in the prior year [7][38] - SG&A expense as a percentage of net sales decreased to 48.5% from 51.6% in the prior year, driven by lower professional fees and higher net sales [35] Business Line Data and Key Metrics Changes - Showroom net sales increased by $14.9 million or 18.2% to $96.5 million, while internet net sales decreased by $3.3 million or 8.9% to $33.3 million [33][34] - Sactional net sales increased by 4.5%, and SAC net sales increased by 6.4%, while other net sales, including decorative pillows and accessories, decreased by 17.1% [34] Market Data and Key Metrics Changes - Total omni-channel comparable net sales increased by 2.8% for the quarter, with additional growth from new and non-comparable touchpoint contributions [6] - The overall market category is estimated to have declined by 5% for the comparable period, indicating market share gains for the company [6] Company Strategy and Development Direction - The company is focused on innovation with the launch of the EverCouch, which is expected to double the total addressable market and provide a solution for customers seeking style and comfort [9][10] - The company aims to be the most loved home brand in America by 2030 while driving profitable sales growth [17] - The exit from the Best Buy partnership is seen as a strategic move to enhance profitability and focus on expanding the Costco relationship [27][61] Management's Comments on Operating Environment and Future Outlook - Management noted that the promotional environment remains aggressive, with discount levels high across the category, but they are leveraging personalized promotions to drive showroom traffic [50][51] - The company is optimistic about future growth despite current market challenges, forecasting growth for the fiscal second quarter and the full year [14][41] - Management is actively working to mitigate tariff impacts and believes they can manage these within existing full-year guidance [15][41] Other Important Information - The company reported a healthy balance sheet with $26.9 million in cash and cash equivalents and $36 million in committed availability [38][39] - The company plans to launch a new resell platform in Texas as part of its commitment to sustainability and innovation in home furnishings [29] Q&A Session Summary Question: Can you discuss the promotional environment and its impact on gross margins? - Management noted that discount levels remain high, with competitors offering promotions around 40-45%, but they are focusing on personalized promotions to drive showroom traffic [50][51] Question: What are the expectations for the EverCouch product? - Management indicated that it is too early to provide detailed sales figures, but initial feedback has been positive, and internal goals are being exceeded [56][58] Question: Can you elaborate on the decision to exit the Best Buy partnership? - Management expressed excitement about new opportunities and emphasized the importance of expanding the Costco relationship while acknowledging the benefits gained from the Best Buy partnership [61][62] Question: How are tariffs influencing manufacturing decisions? - Management stated that they are on a path to exit manufacturing in China and are diversifying production to be closer to consumers, regardless of tariff impacts [66][68] Question: How does the company plan to manage pricing in light of tariffs and promotions? - Management is considering various levers for pricing adjustments and believes their strong brand positioning allows for strategic price increases without compromising competitiveness [76][80]

Financial Data and Key Metrics Changes - Total net sales for Q1 2026 were $138.4 million, reflecting a year-over-year increase of 4.3% despite a 5% decline in the overall category [5][31] - Adjusted EBITDA loss improved by double-digit percentages year-over-year, with net loss for the quarter at $10.8 million, or negative $0.73 per share, compared to a net loss of $13 million, or negative $0.83 per share, in the prior year [5][35] - SG&A expense as a percentage of net sales decreased to 48.5% from 51.6% in the prior year, driven by lower professional fees and higher net sales [33] Business Line Data and Key Metrics Changes - Showroom net sales increased by $14.9 million, or 18.2%, to $96.5 million, driven by a 2.8% increase in omni-channel comparable net sales and the addition of 21 new showrooms [31] - Internet net sales decreased by $3.3 million, or 8.9%, to $33.3 million, while other net sales, including pop-up shops, decreased by $5.8 million, or 40.5% [32] - Sactional net sales increased by 4.5%, while SAC net sales increased by 6.4%, and other net sales, including decorative pillows and accessories, decreased by 17.1% [32] Market Data and Key Metrics Changes - The overall market category is estimated to have declined by 5% for the comparable period, with the company gaining market share despite these headwinds [5][31] - The promotional environment remains aggressive, with competitors offering discounts around 40% to 45%, impacting gross margins [48] Company Strategy and Development Direction - The company is focused on leveraging its innovative product offerings and strong customer relationships to drive growth, even in a challenging category [14] - The launch of the EverCouch product platform is expected to significantly expand the company's total addressable market, with initial positive feedback from customers [9][10] - The company plans to enhance its marketing efforts and expand its showroom presence to support the new product launches [10][24] Management's Comments on Operating Environment and Future Outlook - Management noted that while the category trends are currently negative, they remain optimistic about future growth driven by new product launches and marketing strategies [38] - The company is actively working to mitigate tariff impacts and believes it can manage these within existing guidance [14][39] - Management expressed confidence in the long-term growth potential of the company, particularly as housing turnover and the replacement cycle for comfort seating are expected to improve [42] Other Important Information - The company ended its partnership with Best Buy, estimating a nonrecurring charge of approximately $2 million in Q2, while planning to expand its relationship with Costco [25][40] - The company has made significant progress in diversifying its manufacturing away from China, aiming for a more sustainable supply chain [66] Q&A Session Summary Question: Can you discuss the promotional environment and its impact on gross margins? - Management noted that discount levels remain high, with competitors offering significant promotions, but they are focusing on personalized promotions to drive showroom traffic and conversions [48][49] Question: What are the expectations for EverCouch sales and customer feedback? - Management indicated that it is too early to provide specific sales figures, but initial feedback has been positive, and internal goals are being exceeded [54][56] Question: Can you elaborate on the decision to exit the Best Buy partnership? - Management expressed excitement about new opportunities and emphasized the importance of expanding the Costco relationship, while acknowledging the benefits gained from the Best Buy partnership [60][62] Question: How are tariffs influencing manufacturing decisions? - Management stated that they are on a path to exit manufacturing in China entirely, focusing on producing closer to consumers for sustainability reasons [66][68] Question: How does the guidance account for new product performance? - Management clarified that the guidance does not overly rely on new products, as they can achieve targets even if core products remain flat [72][74] Question: How are price adjustments being considered in light of tariffs and promotions? - Management is continuously assessing pricing strategies, noting that their strong brand allows for surgical price increases without compromising competitive positioning [75][79]

[PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) Unaudited financial statements for Q1 FY2026 detail balance sheets, operations, equity, and cash flows, highlighting key financial shifts and subsequent events Balance Sheets | Financial Metric | May 4, 2025 (in thousands) | February 2, 2025 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $26,900 | $83,734 | | Merchandise inventories, net | $124,926 | $124,333 | | Total Assets | $483,740 | $532,250 | | Total Liabilities | $282,526 | $315,895 | | Stockholders' Equity | $201,214 | $216,355 | Statements of Operations | (amounts in thousands, except per share data) | Thirteen weeks ended May 4, 2025 | Thirteen weeks ended May 5, 2024 | | :--- | :--- | :--- | | Net sales | $138,373 | $132,643 | | Gross profit | $74,370 | $72,045 | | Operating loss | $(14,954) | $(17,856) | | Net loss | $(10,840) | $(12,960) | | Diluted net loss per share | $(0.73) | $(0.83) | Cash Flows | (amounts in thousands) | Thirteen weeks ended May 4, 2025 | Thirteen weeks ended May 5, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(41,377) | $(7,014) | | Net cash used in investing activities | $(8,701) | $(7,304) | | Net cash used in financing activities | $(6,756) | $(356) | | Cash and cash equivalents - Ending | $26,900 | $72,362 | - Subsequent to the quarter end, the company approved a plan to discontinue its partnership with Best Buy, involving winding down shop-in-shop locations, reducing its workforce by approximately **8%**, and incurring estimated costs of **$1.7 million to $2.1 million**[74](index=74&type=chunk) - On June 10, 2025, the Compensation Committee approved a **$1.5 million** performance-based cash incentive award for the CEO, contingent on achieving new product launch and net sales targets during fiscal years 2026, 2027, and 2028[76](index=76&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 FY2026 financial results, highlighting net sales growth, gross margin decline, improved operating loss, and increased cash used in operations Financial Performance Summary | Metric | Q1 FY2026 (ended May 4, 2025) | Q1 FY2025 (ended May 5, 2024) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $138.4M | $132.6M | +4.3% | | Gross Profit | $74.4M | $72.0M | +3.2% | | Gross Margin | 53.7% | 54.3% | -60 bps | | Operating Loss | $(15.0)M | $(17.9)M | Improvement | | Net Loss | $(10.8)M | $(13.0)M | Improvement | - Showroom net sales increased by **$14.9 million (18.2%)**, while internet sales decreased by **$3.3 million (8.9%)**[100](index=100&type=chunk)[101](index=101&type=chunk) - The **60 basis point** decrease in gross margin was driven by a **230 basis point** negative impact from higher promotional discounting, partially offset by improvements in transportation costs[102](index=102&type=chunk) - SG&A expenses decreased by **$1.3 million (1.9%)** due to lower professional fees, insurance, and credit card fees, offsetting increases in payroll, equity-based compensation, and rent[103](index=103&type=chunk) - The company ended the quarter with **267** showrooms, an increase of **21** locations from the prior year, after opening **11** and closing **1** during the quarter[98](index=98&type=chunk) - Net cash used in operating activities was **$41.4 million**, a significant increase from **$7.0 million** in the prior year period, primarily driven by changes in working capital related to vendor payments[112](index=112&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company identifies interest rate and inflation as primary market risks, actively managing their potential impact on financial results - The company is exposed to interest rate risk through its cash equivalents and floating-rate revolving line of credit, but does not expect a material impact on its results[124](index=124&type=chunk)[125](index=125&type=chunk) - Inflationary pressures in the supply chain continued to normalize in Q1 FY2026, with the company monitoring and minimizing effects through pricing, productivity, and cost reductions[126](index=126&type=chunk) [Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of May 4, 2025, the company's disclosure controls and procedures were effective to provide reasonable assurance that required information is recorded, processed, and reported timely[127](index=127&type=chunk) - There were no changes in the company's internal control over financial reporting during the quarter ended May 4, 2025, that have materially affected, or are reasonably likely to materially affect, these controls[129](index=129&type=chunk) [PART II. OTHER INFORMATION](index=27&type=section&id=Part%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) The company details legal proceedings, including a settled shareholder derivative action and an ongoing putative class action regarding pricing allegations - A shareholder derivative action has a definitive settlement agreement as of May 19, 2025, which received preliminary court approval, and is not expected to have a material financial impact[50](index=50&type=chunk) - The company is facing a putative class action lawsuit filed in March 2024, alleging false advertising of discounts, for which a possible loss cannot be reasonably estimated[51](index=51&type=chunk) [Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors previously disclosed in the Annual Report on Form 10-K for fiscal year ended February 2, 2025 - There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the fiscal year ended February 2, 2025[132](index=132&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=27&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details of share repurchase activity, including 306,325 shares repurchased and $14.1 million remaining under the authorized program Share Repurchase Activity | Period | Total Shares Purchased | Average Price Paid Per Share | Approx. Dollar Value Remaining ($ thousands) | | :--- | :--- | :--- | :--- | | April 7, 2025 to May 4, 2025 | 306,325 | $19.57 | $14,090 | | **Total for Quarter** | **306,325** | **$19.57** | **$14,090** | - The share repurchase program was authorized in June 2024 for up to **$40.0 million**, with **$14.1 million** remaining available as of May 4, 2025[67](index=67&type=chunk)[133](index=133&type=chunk) [Defaults Upon Senior Securities](index=27&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section is not applicable to the company's current financial reporting - Not applicable[134](index=134&type=chunk) [Mine Safety Disclosures](index=27&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company's operations - Not applicable[135](index=135&type=chunk) [Other Information](index=27&type=section&id=Item%205.%20Other%20Information) Key events include Satori Capital's trading plan, discontinuation of the Best Buy partnership, and a performance-based cash award for the CEO - On April 17, 2025, Satori Capital, LLC adopted a Rule 10b5-1 trading plan for the sale of up to **630,698** shares, plus an additional **50,000** shares[136](index=136&type=chunk)[138](index=138&type=chunk) - The company is ending its partnership with Best Buy, resulting in an approximate **8%** workforce reduction and expected costs of **$1.7 million to $2.1 million**, to be completed by Q3 fiscal 2026[139](index=139&type=chunk) - On June 10, 2025, the CEO was approved for a **$1.5 million** performance-based cash incentive award, contingent on achieving specific new product launch and related net sales targets through fiscal 2028[141](index=141&type=chunk) [Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including award agreements, certifications, and XBRL data files - The exhibits filed with this report include a Cash-Based Award Agreement, certifications from the CEO and CFO, and all required Inline XBRL documents[142](index=142&type=chunk)