The Lovesac pany(LOVE) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows, reflecting significant revenue growth and a shift to profitability Condensed Consolidated Balance Sheets Provides a snapshot of the company's financial position, detailing assets, liabilities, and equity as of specific dates Balance Sheet Summary (in thousands) | Metric | Nov 1, 2020 | Feb 2, 2020 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $47,686 | $48,539 | ($853) | | Merchandise inventories | $57,758 | $36,400 | $21,358 | | Total Current Assets | $123,546 | $100,178 | $23,368 | | Total Assets | $151,128 | $125,664 | $25,464 | | Total Current Liabilities | $59,488 | $32,401 | $27,087 | | Total Liabilities | $65,876 | $35,509 | $30,367 | | Total Stockholders' Equity | $85,252 | $90,155 | ($4,903) | - Total assets increased to $151.1 million as of November 1, 2020, from $125.7 million as of February 2, 2020, primarily due to a significant increase in merchandise inventories[15] - Total liabilities rose sharply to $65.9 million from $35.5 million, driven by increases in accounts payable, accrued expenses, and a substantial rise in customer deposits from $1.7 million to $11.7 million[15] Condensed Consolidated Statements of Operations Details the company's financial performance over specific periods, showing revenues, expenses, and net income or loss Statement of Operations Summary (in thousands, except per share data) | Metric | Thirteen Weeks Ended Nov 1, 2020 | Thirteen Weeks Ended Nov 3, 2019 | YoY Change | | :--- | :--- | :--- | :--- | | Net sales | $74,742 | $52,097 | +43.5% | | Gross profit | $41,308 | $26,254 | +57.3% | | Operating income (loss) | $2,533 | ($6,867) | N/A (Turned to profit) | | Net income (loss) | $2,478 | ($6,748) | N/A (Turned to profit) | | Diluted EPS | $0.16 | ($0.46) | N/A (Turned to profit) | - For the thirty-nine weeks ended November 1, 2020, the company reported a net loss of $7.0 million, a significant improvement from the $20.6 million net loss in the same period of the prior year[18] Condensed Consolidated Statements of Cash Flows Summarizes the cash inflows and outflows from operating, investing, and financing activities over a period Cash Flow Summary (in thousands) | Metric | Thirty-nine weeks ended Nov 1, 2020 | Thirty-nine weeks ended Nov 3, 2019 | | :--- | :--- | :--- | | Net Cash Provided by (Used in) Operating Activities | $6,930 | ($36,439) | | Net Cash Used in Investing Activities | ($7,168) | ($6,984) | | Net Cash (Used in) Provided by Financing Activities | ($614) | $22,248 | | Net Change in Cash and Cash Equivalents | ($852) | ($21,175) | - The company generated $6.9 million in cash from operations for the thirty-nine weeks ended November 1, 2020, a major turnaround from the $36.4 million used in the prior-year period, primarily due to improved net loss and better working capital management[23] Notes to Condensed Consolidated Financial Statements Provides detailed explanations and disclosures regarding the accounting policies and specific line items within the financial statements - In response to the COVID-19 pandemic, the company closed all showrooms on March 18, 2020, reduced its workforce by 447 part-time employees, and implemented temporary executive pay cuts. As of November 1, 2020, all showrooms had reopened and 348 part-time associates had been rehired[28] Net Sales by Channel (in thousands) | Channel | Thirteen Weeks Ended Nov 1, 2020 | Thirteen Weeks Ended Nov 3, 2019 | YoY Change | | :--- | :--- | :--- | :--- | | Showrooms | $41,538 | $32,474 | +27.9% | | Internet | $25,710 | $11,416 | +125.2% | | Other | $7,494 | $8,208 | -8.7% | - The company has a $25.0 million line of credit with Wells Fargo, with borrowing availability of $19.2 million as of November 1, 2020. There were no borrowings outstanding on this date[52] - Future annual minimum rental payments under operating leases total $89.8 million, with payments extending through September 2031[44][45] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong performance, highlighting a 43.5% net sales increase driven by e-commerce, achieving profitability with improved margins and operating leverage, and maintaining sufficient liquidity Overview and COVID-19 Impact Provides an overview of the company's business model, key products, and the strategic and operational impacts of the COVID-19 pandemic - The company's business model is e-commerce centric, supported by 107 showrooms. Sactionals, its modular couch system, are the primary revenue driver, accounting for 84.7% of sales in the third quarter[81][83][86] - The COVID-19 pandemic accelerated the shift to online sales, which grew to 34.4% of total sales in Q3 2020 from 21.9% in the prior year. The company adapted by shifting its salesforce focus to its e-commerce platform during showroom closures[87][91] - In response to the pandemic, the company implemented cost-saving measures including temporary showroom closures, workforce reductions, and executive pay cuts. As of the report date, all showrooms had reopened[90] Results of Operations Analyzes the company's financial performance, detailing changes in net sales, gross profit, operating expenses, and net income over comparative periods Q3 2021 vs Q3 2020 Performance | Metric | Thirteen Weeks Ended Nov 1, 2020 | Thirteen Weeks Ended Nov 3, 2019 | Key Drivers | | :--- | :--- | :--- | :--- | | Net Sales | $74.7M | $52.1M | +43.5% YoY, driven by 125.2% growth in Internet sales. | | Gross Margin | 55.3% | 50.4% | +487 bps, due to reduced promotions and lower product costs. | | SG&A as % of Sales | 34.7% | 47.0% | Decreased 12.3%, showing significant operating leverage. | | Operating Income | $2.5M | ($6.9M) | Turned profitable due to sales growth and margin expansion. | - For the thirty-nine week period, net sales grew 35.3% to $191.1 million, with a 247.2% increase in Internet sales offsetting a 20.0% decline in showroom sales caused by COVID-19 closures[119] - Advertising and marketing expenses increased by 51.2% in Q3 to $11.0 million, representing 14.7% of net sales, as the company invested in media and direct-to-consumer programs to drive growth[115] Liquidity and Capital Resources Assesses the company's ability to meet its short-term and long-term financial obligations, including cash position and credit facilities - The company's primary liquidity sources are cash from operations and its revolving line of credit. As of November 1, 2020, the company held $47.7 million in cash and cash equivalents[129][99] - Net cash provided by operating activities for the 39-week period was $6.9 million, a significant improvement from a $36.4 million use of cash in the prior year, reflecting improved profitability and working capital management[130][132] - The company has a $25.0 million revolving credit facility with $19.2 million available and no outstanding balance as of November 1, 2020. Management believes current liquidity is sufficient for at least the next 12 months[139][129] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company indicates this section is not applicable, as it is not required to provide these disclosures as a smaller reporting company - This item is marked as 'Not Applicable' in the report[147] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management 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 the report[148] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[149] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or operations - The company is not a party to any legal proceedings that would individually or in aggregate have a material adverse effect on its business[152] Item 1A. Risk Factors No material changes to risk factors previously disclosed in the Annual Report on Form 10-K and subsequent quarterly reports - 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 February 2, 2020 and subsequent 10-Q filings[153] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In fiscal 2021, the company issued 136,834 common shares from cashless warrant exercises, receiving no cash proceeds - During fiscal 2021, 246,622 warrants were exercised on a cashless basis, resulting in the issuance of 136,834 common shares. The company received no proceeds from this exercise[153] Other Items (Items 3, 4, 5, 6) Confirms no defaults on senior securities, no mine safety disclosures, no other material information under Item 5, and lists exhibits including officer certifications - The company reports 'Not Applicable' for Item 3 (Defaults Upon Senior Securities) and Item 4 (Mine Safety Disclosures)[154][155] - No information was reported under Item 5 (Other Information)[156] - Item 6 lists the exhibits filed with the 10-Q, including CEO and CFO certifications and XBRL interactive data files[158]