The Lovesac pany(LOVE) - 2020 Q4 - Annual Report

Part I Business The Lovesac Company is an omni-channel furniture retailer specializing in modular couches and premium foam beanbag chairs, with Sactionals comprising the majority of sales - Product Sales Mix (Fiscal Year 2020 vs. 2019) | Product Line | FY 2020 Sales % | FY 2019 Sales % | | :--- | :--- | :--- | | Sactionals | 80.7% | 72.5% | | Sacs | 17.0% | 24.8% | - Sales Channel Mix (Fiscal Year 2020 vs. 2019) | Channel | FY 2020 Sales % | FY 2019 Sales % | | :--- | :--- | :--- | | Ecommerce | 23.9% | 19.9% | | Other (Pop-ups/Shop-in-shops) | 12.7% | 11.9% | - The company operates 91 showrooms in 35 states, designed to be small-footprint and technology-driven for customer education[23] - In response to the COVID-19 pandemic in March/April 2020, the company closed all showrooms, reduced its workforce by approximately 445 part-time employees (57% of total headcount), and temporarily reduced executive cash compensation by 20%[26] - Customer Acquisition Metrics (Fiscal Year 2020 vs. 2019) | Metric | Fiscal 2020 | Fiscal 2019 | | :--- | :--- | :--- | | Customer Acquisition Cost (CAC) | $319.71 | $309.46 | | Customer Lifetime Value (CLV) / CAC Ratio | 4.68 | 4.98 | - The company holds significant intellectual property, including 18 issued U.S. utility patents, 21 issued foreign utility patents, and numerous trademarks such as Lovesac®, Sactionals®, and Designed For Life®[48][50] Risk Factors The company faces multiple risks including the COVID-19 pandemic, operating losses, supply chain reliance, and substantial lease obligations - The COVID-19 outbreak is a primary risk, leading to the closure of all showroom locations since March 2020, which could materially adversely affect business, sales, and financial condition[55] - The company has a history of operating losses and may not achieve or sustain profitability, with growth dependent on increasing traffic, conversion rates, and opening new showrooms[58] - A substantial portion of products are sourced from a small number of suppliers, with Sacs manufactured by a single supplier in Texas and Sactionals manufactured in the USA, China, Taiwan, India, Malaysia, and Vietnam, creating supply chain risk[81] - Goods imported from China are subject to significant tariffs (10% ad valorem duty, with a proposed increase to 25%), which could materially increase the cost of goods sold and negatively impact financial performance[87][88] - The company has substantial, long-term, non-cancelable lease obligations for its showrooms, which account for a significant portion of SG&A expenses and expose it to risks even if a location becomes unprofitable[102][105][107] - The equity sponsor, Mistral, controls approximately 19% of the common stock, enabling it to influence matters requiring stockholder approval, which may create interests that conflict with other stockholders[138] Unresolved Staff Comments The company reports that there are no unresolved staff comments - None[158] Properties The company's principal executive offices are in Stamford, CT, and it leases retail space for 91 showrooms across the United States - The primary corporate office is located at Two Landmark Square, Suite 300, Stamford, CT 06901[159] - The company leases retail space for 91 showroom locations throughout the majority of U.S. states[159] Legal Proceedings The company is involved in ordinary course legal proceedings, not expected to materially affect its financial condition - The company is involved in ordinary course legal proceedings but does not expect them to have a material adverse effect on its business[161] Mine Safety Disclosures This item is not applicable to the company - Not applicable[162] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "LOVE", and it has no plans to pay cash dividends - Common stock is traded on Nasdaq under the symbol "LOVE"[165] - The company has never paid cash dividends and does not intend to in the foreseeable future[166] Selected Financial Data This section provides summary consolidated financial data for fiscal years 2020 and 2019, including key metrics and non-GAAP measures - Consolidated Statement of Operations Data (in thousands) | Metric | Fiscal Year 2020 | Fiscal Year 2019 | | :--- | :--- | :--- | | Total net sales | $233,377 | $165,881 | | Gross profit | $116,690 | $90,881 | | Operating loss | $(15,809) | $(7,043) | | Net Loss | $(15,205) | $(6,704) | | Net loss per common share | $(1.07) | $(3.28) | - Consolidated Balance Sheet Data (in thousands) | Metric | As of Feb 2, 2020 | As of Feb 3, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $48,539 | $49,071 | | Total assets | $125,664 | $105,014 | | Total liabilities | $35,509 | $26,244 | | Total stockholders' equity | $90,155 | $78,770 | - Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | Fiscal Year 2020 | Fiscal Year 2019 | | :--- | :--- | :--- | | Net loss | $(15,205) | $(6,704) | | EBITDA | $(10,651) | $(3,909) | | Adjusted EBITDA | $(3,721) | $3,385 | Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal 2020, net sales grew 40.7% to $233.4 million, but gross margin declined due to China tariffs, leading to a higher operating loss - Fiscal 2020 vs. 2019 Performance Comparison (in millions) | Metric | Fiscal 2020 | Fiscal 2019 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $233.4 | $165.9 | 40.7% | | Gross Profit | $116.7 | $90.9 | 28.4% | | SG&A Expenses | $98.1 | $76.4 | 28.4% | | Advertising & Marketing | $29.2 | $18.4 | 59.0% | | Operating Loss | $(15.8) | $(7.0) | 125.1% | - The 4.8 percentage point decrease in gross margin (from 54.8% to 50.0%) was primarily driven by the impact of 25% China tariffs, partially offset by sourcing-related cost savings for Sactionals products[211] - Internet sales grew 68.9% to $55.8 million, while showroom sales increased 30.9% to $148.0 million, with comparable showroom point-of-sale transactions increasing by 34.4%[210] - Net cash used in operating activities was $11.2 million in fiscal 2020, primarily due to a net loss of $15.2 million and a $10.2 million increase in inventory[226][228] - The company has a $25.0 million revolving credit facility with Wells Fargo, with $12.5 million of borrowing availability and no outstanding balance as of February 2, 2020[233] - Contractual Obligations as of Feb 2, 2020 (in thousands) | Obligation Type | Total | Less than 1 year | 1 - 3 years | 3 - 5 Years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Employment agreements | $3,671 | $3,671 | $ - | $ - | $ - | | Operating leases | $68,637 | $11,169 | $19,851 | $17,684 | $19,933 | | Total | $72,307 | $14,840 | $19,851 | $17,684 | $19,933 | Quantitative and Qualitative Disclosures About Market Risk As a "smaller reporting company," the company is not required to provide this information - The company is not required to provide this information as it qualifies as a "smaller reporting company"[256] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for fiscal years 2020 and 2019, including balance sheets, statements of operations, and cash flows Consolidated Balance Sheets The balance sheet as of February 2, 2020, shows total assets of $125.7 million, driven by inventory and property growth, with increased liabilities and equity - Key Balance Sheet Items (in thousands) | Account | Feb 2, 2020 | Feb 3, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $48,539 | $49,071 | | Merchandise inventories | $36,400 | $26,154 | | Total Assets | $125,664 | $105,014 | | Total Current Liabilities | $32,401 | $24,619 | | Total Liabilities | $35,509 | $26,244 | | Total Stockholders' Equity | $90,155 | $78,770 | Consolidated Statements of Operations For fiscal 2020, the company reported a net loss of $15.2 million on $233.4 million in sales, primarily due to lower gross margin and increased operating expenses - Statement of Operations Highlights (in thousands) | Account | Fiscal 2020 | Fiscal 2019 | | :--- | :--- | :--- | | Net sales | $233,377 | $165,881 | | Gross profit | $116,690 | $90,881 | | Operating loss | $(15,809) | $(7,043) | | Net loss | $(15,205) | $(6,704) | Consolidated Statements of Cash Flows Net cash used in operating activities increased to $11.2 million in fiscal 2020, primarily due to higher net loss and inventory growth, while financing activities provided $21.3 million - Summary of Cash Flows (in thousands) | Activity | Fiscal 2020 | Fiscal 2019 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(11,194) | $(7,008) | | Net Cash Used in Investing Activities | $(10,650) | $(11,362) | | Net Cash Provided by Financing Activities | $21,312 | $58,265 | | Net Change in Cash | $(532) | $39,895 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[259] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of February 2, 2020 - Management concluded that the company's disclosure controls and procedures were effective as of February 2, 2020[260] - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of February 2, 2020[263] Other Information The company reports no other information for this item - None[265] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Security Ownership Information for Items 10 through 14 is incorporated by reference from the company's definitive proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's definitive proxy statement[268][269][270][271][272] Part IV Exhibits, Financial Statement Schedules This section lists the exhibits filed with or incorporated by reference into the Form 10-K, with financial statement schedules omitted - This section contains a list of all exhibits filed with the Form 10-K, including governance documents, material contracts, and certifications[277][278] Form 10-K Summary This optional disclosure was not included in the Annual Report - Optional disclosure not included in this Annual Report on Form 10-K[279]