The Lovesac pany(LOVE) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in equity, and cash flows, for the quarter ended August 2, 2020 Condensed Consolidated Balance Sheets As of August 2, 2020, total assets increased to $135.3 million, driven by cash and inventories, while total liabilities rose significantly to $53.5 million due to higher accounts payable and customer deposits | Balance Sheet Items | August 2, 2020 | February 2, 2020 | | :--- | :--- | :--- | | Current Assets | | | | Cash and cash equivalents | $54,835,258 | $48,538,827 | | Merchandise inventories | $41,014,621 | $36,399,862 | | Total Current Assets | $107,770,046 | $100,177,736 | | Total Assets | $135,332,392 | $125,663,767 | | Current Liabilities | | | | Accounts payable | $24,482,861 | $19,887,611 | | Customer deposits | $9,095,033 | $1,653,597 | | Total Current Liabilities | $48,044,419 | $32,400,995 | | Total Liabilities | $53,512,777 | $35,509,240 | | Stockholders' Equity | $81,819,615 | $90,154,527 | - Customer deposits surged to $9.1 million from $1.7 million at the beginning of the fiscal year, indicating a significant increase in customer orders awaiting fulfillment[17] Condensed Consolidated Statements of Operations For the thirteen weeks ended August 2, 2020, net sales grew 28.7% year-over-year to $61.9 million, significantly reducing the operating loss to $1.0 million and improving net loss per share to ($0.08) | Metric | Thirteen weeks ended August 2, 2020 | Thirteen weeks ended August 4, 2019 | | :--- | :--- | :--- | | Net sales | $61,945,410 | $48,146,415 | | Gross profit | $31,055,540 | $24,285,173 | | Operating loss | $(1,038,424) | $(4,946,902) | | Net loss | $(1,106,924) | $(4,770,999) | | Net loss per share (Basic & Diluted) | $(0.08) | $(0.33) | - For the twenty-six weeks ended August 2, 2020, net sales increased to $116.3 million from $89.1 million in the prior year period, while the net loss narrowed to $9.5 million from $13.9 million[20] Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased to $81.8 million as of August 2, 2020, primarily due to a $9.5 million net loss incurred during the first half of the year, increasing the accumulated deficit - Total stockholders' equity stood at $81,819,615 as of August 2, 2020[23] - The accumulated deficit increased from $(78,162,828) at the start of the fiscal year to $(87,617,503) due to the net losses recorded in the first and second quarters[23] Condensed Consolidated Statements of Cash Flows For the twenty-six weeks ended August 2, 2020, the company generated $12.1 million in cash from operating activities, a significant turnaround driven by improved working capital management | Cash Flow Activity | Twenty-six weeks ended August 2, 2020 | Twenty-six weeks ended August 4, 2019 | | :--- | :--- | :--- | | Net Cash Provided by (Used in) Operating Activities | $12,073,256 | $(23,041,225) | | Net Cash Used in Investing Activities | $(5,271,405) | $(4,074,784) | | Net Cash (Used in) Provided by Financing Activities | $(505,420) | $22,247,409 | | Net Change in Cash and Cash Equivalents | $6,296,431 | $(4,868,600) | - The positive operating cash flow was significantly aided by a $7.4 million increase in customer deposits and an $8.2 million increase in accounts payable and accrued expenses[26] Notes to Condensed Consolidated Financial Statements This section details the basis of presentation, impact of COVID-19, key accounting policies, and a significant shift in revenue channels towards internet sales - In response to COVID-19, the company closed all showrooms on March 18, 2020, implemented a workforce reduction of 447 part-time employees, and temporarily reduced executive cash compensation[31] | Sales Channel | Thirteen weeks ended August 2, 2020 | Thirteen weeks ended August 4, 2019 | | :--- | :--- | :--- | | Showrooms | $12,850,565 | $31,261,694 | | Internet | $46,074,015 | $9,456,513 | | Other | $3,020,830 | $7,428,208 | - The company has a $25.0 million line of credit with Wells Fargo, with $9.9 million available and no borrowings outstanding as of August 2, 2020[51] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 performance, highlighting a 28.7% net sales increase driven by internet sales, stable gross margin, and improved net loss - Q2 net sales increased 28.7% to $61.9 million, driven by a 387.2% increase in Internet sales to $46.1 million, which offset the 58.9% decrease in showroom sales caused by COVID-19 related closures[112] - Gross margin for Q2 decreased slightly by 31 basis points to 50.1% of net sales, as higher distribution and tariff costs were mostly offset by product cost reductions from vendor negotiations and supply chain diversification[113] | Metric | Thirteen weeks ended August 2, 2020 | Thirteen weeks ended August 4, 2019 | | :--- | :--- | :--- | | Net Loss | $(1,107,000) | $(4,771,000) | | EBITDA | $506,000 | $(3,741,000) | | Adjusted EBITDA | $2,185,000 | $(3,299,000) | - The company ended the quarter with a cash position of $54.8 million and believes its liquidity is sufficient to meet working capital and capital expenditure needs for at least the next 12 months[95][130] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company states that this item is not applicable for this reporting period, indicating no material market risks requiring quantitative or qualitative disclosure were identified - The company reports this section as 'Not Applicable'[149] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of the end of the quarter - Based on an evaluation by management, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of August 2, 2020[150] - There were no changes in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[151] Part II. OTHER INFORMATION Item 1. Legal Proceedings The company reports that it is not currently a party to any legal proceedings that would have a material adverse effect on its business, financial condition, or operations - The company is not presently a party to any legal proceedings that would be expected to have a material adverse effect on its business[154] Item 1A. Risk Factors This section highlights the significant negative impact of the COVID-19 pandemic as a key risk factor, detailing operational disruptions and potential liquidity concerns - The COVID-19 pandemic is identified as a significant risk that may have a negative impact on the company's business, sales, results of operations, and financial condition[156] - All showroom locations were closed in March 2020 due to the pandemic. While they have since reopened in some format, future operations and customer traffic remain uncertain[156] - The company's liquidity could be negatively impacted if the crisis continues, potentially requiring additional financing in disrupted capital markets[158] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company states that this item is not applicable for this reporting period - The company reports this section as 'Not Applicable'[160] Item 3. Defaults Upon Senior Securities The company states that this item is not applicable for this reporting period - The company reports this section as 'Not Applicable'[161] Item 4. Mine Safety Disclosures The company states that this item is not applicable - The company reports this section as 'Not Applicable'[162][163] Item 5. Other Information The company reports no other information for this period - The company reports 'None' for this item[164] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The exhibits filed with this report include certifications from the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act, as well as Inline XBRL documents[165]