The Lovesac pany(LOVE) - 2026 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements 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] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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][101] - 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] - 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] - 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] - 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] Quantitative and Qualitative Disclosures about Market Risk 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][125] - 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] 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 - 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] - 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] PART II. OTHER INFORMATION Legal Proceedings 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] - 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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][133] Defaults Upon Senior Securities This section is not applicable to the company's current financial reporting - Not applicable[134] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[135] Other Information 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][138] - 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] - 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] Exhibits 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]