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

Executive Summary & Business Update The Lovesac Company's Q1 FY26 performance, strategic initiatives, and market position First Quarter Fiscal 2026 Highlights The Lovesac Company reported a 4.3% increase in Q1 FY26 net sales to $138.4 million, driven by omni-channel comparable net sales growth and new showroom additions, with operating and net losses improving year-over-year despite a decrease in gross margin Key Financial Measures for Q1 FY26 vs. Q1 FY25 | Metric | Q1 FY26 (May 4, 2025) (million USD) | Q1 FY25 (May 5, 2024) (million USD) | % Inc (Dec) | | :--------------------------------- | :---------------------------------- | :---------------------------------- | :---------- | | Net sales | $138.4 | $132.6 | 4.3% | | Gross profit | $74.4 | $72.0 | 3.2% | | Gross margin | 53.7% | 54.3% | (60) bps | | Total operating expenses | $89.3 | $89.9 | (0.6%) | | SG&A as a % of Net Sales | 48.5% | 51.6% | (310) bps | | Advertising & marketing as a % of Net Sales | 13.4% | 13.6% | (20) bps | | Net loss | $(10.8) | $(13.0) | 16.4% | | Diluted net loss per common share | $(0.73) | $(0.83) | 12.0% | | Adjusted EBITDA | $(8.4) | $(10.3) | 17.7% | | Omni-channel Comparable Net Sales | 2.8% | (14.8)% | - | | Internet Sales | (8.9)% | (9.0)% | - | | Ending Showroom Count | 267 | 246 | - | - Net sales increased by $5.8 million, or 4.3%, in the first quarter of fiscal 2026 compared to the prior year period, primarily driven by an increase of 2.8% in omni-channel comparable net sales and the net addition of 21 new showrooms[7] CEO Commentary & Strategic Initiatives CEO Shawn Nelson highlighted Q1 performance aligning with expectations, driven by investments in core capabilities and product innovation, with the company gaining market share despite category headwinds and launching its third "Designed For Life" platform, EverCouch, effectively doubling its total addressable market - The company delivered topline growth and leveraged operating expenses, benefiting from previous investments in core capabilities to bolster its infinity flywheel and accelerate product innovation[2] - Lovesac achieved market share gains in Q1 FY26 despite persistent category headwinds and an evolving macroeconomic backdrop, reinforcing its unique competitive advantages[2] - The launch of the third Designed For Life Platform, EverCouch, expands into the armchair, loveseat, and sofa category, effectively doubling the company's total addressable market[2] Detailed Financial Performance - First Quarter Fiscal 2026 A comprehensive review of Lovesac's Q1 FY26 financial results, including sales, profitability, and balance sheet changes Key Financial Measures The company's Q1 FY26 financial results show a modest increase in total net sales, driven by showroom growth, while internet sales declined, with gross profit increasing but gross margin slightly decreasing, and operating and net losses narrowing compared to the prior year Key Financial Measures (Thirteen weeks ended) | Metric | May 4, 2025 (million USD) | May 5, 2024 (million USD) | % Inc (Dec) | | :----------------------------------- | :------------------------ | :------------------------ | :---------- | | Net sales | | | | | Showrooms | $96.5 | $81.6 | 18.2% | | Internet | $33.3 | $36.6 | (8.9%) | | Other | $8.6 | $14.4 | (40.5%) | | Total net sales | $138.4 | $132.6 | 4.3% | | Gross profit | $74.4 | $72.0 | 3.2% | | Gross margin | 53.7 % | 54.3 % | (60) bps | | Total operating expenses | $89.3 | $89.9 | (0.6%) | | SG&A | $67.1 | $68.4 | (1.9%) | | Advertising and marketing | $18.6 | $18.0 | 3.3% | | Net loss | $(10.8) | $(13.0) | 16.4% | | Basic net loss per common share | $(0.73) | $(0.83) | 12.0% | | Diluted net loss per common share | $(0.73) | $(0.83) | 12.0% | | Adjusted EBITDA | $(8.4) | $(10.3) | 17.7% | Omni-channel Sales and Showroom Count | Metric | Thirteen weeks ended May 4, 2025 | Thirteen weeks ended May 5, 2024 | | :------------------------------- | :------------------------------- | :------------------------------- | | Omni-channel Comparable Net Sales | 2.8 % | (14.8)% | | Internet Sales | (8.9)% | (9.0)% | | Ending Showroom Count | 267 | 246 | Operational and Financial Highlights The company experienced growth in net sales driven by showroom expansion and comparable sales, while managing to reduce SG&A expenses, with overall profitability improving with a narrower operating and net loss despite a slight dip in gross margin due to promotional activities, and cash and inventory levels seeing significant changes Net Sales and Gross Profit Analysis Analysis of net sales growth driven by showroom expansion and comparable sales, alongside a detailed breakdown of gross profit and margin changes - Net sales increased by $5.8 million, or 4.3%, in the first quarter of fiscal 2026 compared to the prior year period, primarily driven by an increase of 2.8% in omni-channel comparable net sales and the net addition of 21 new showrooms[7] - Gross profit increased $2.4 million, or 3.2%, in Q1 FY26, while gross margin decreased 60 basis points to 53.7% of net sales, primarily due to a 230 basis point decrease in product margin from higher promotional discounting, partially offset by decreases of 130 basis points in inbound transportation costs and 40 basis points in outbound transportation and warehousing costs[7] Operating Expenses and Profitability Examination of changes in SG&A and advertising expenses, leading to an improved operating loss and narrowed net loss for the quarter - SG&A expense decreased $1.3 million, or 1.9%, in Q1 FY26 due to decreases in professional fees, insurance matters, credit card fees, computer expense, and other overhead costs, partially offset by increases in payroll, equity-based compensation, and rent[7] - Advertising and marketing expense increased $0.6 million, or 3.3%, in Q1 FY26, primarily driven by costs associated with the launch of a new product marketing campaign[7] - Operating loss was $15.0 million in Q1 FY26 compared to $17.9 million in the prior year period, with operating margin improving to (10.8)% of net sales from (13.5)%[7] - Net loss was $10.8 million (or $(0.73) per common share) in Q1 FY26, an improvement from $13.0 million (or $(0.83) per common share) in the prior year, primarily driven by a lower net loss before taxes[7] Balance Sheet and Cash Flow Overview Overview of significant changes in cash, inventory, and operating cash flow, reflecting the company's liquidity and working capital management - The cash and cash equivalents balance as of May 4, 2025, was $26.9 million, down from $72.4 million as of May 5, 2024[7] - Total merchandise inventory was $124.9 million as of May 4, 2025, compared to $94.7 million as of May 5, 2024, primarily related to a planned stock inventory increase of $25.9 million coupled with an increase in freight capitalization of $5.1 million[7] - Net cash used in operating activities significantly increased to $(41.4) million in Q1 FY26 from $(7.0) million in Q1 FY25[3] Financial Outlook The company's financial projections for both the full fiscal year 2026 and the upcoming second quarter Full Year Fiscal 2026 Guidance The company projects full-year fiscal 2026 net sales between $700 million and $750 million, with Adjusted EBITDA ranging from $48 million to $60 million, and net income between $13 million and $22 million Full Year Fiscal 2026 Guidance | Metric | Range | | :----------------------------------- | :----------------------------- | | Net sales | $700 million to $750 million | | Adjusted EBITDA | $48 million to $60 million | | Net income | $13 million to $22 million | | Diluted income per common share | $0.80 to $1.36 | | Estimated diluted weighted average shares outstanding | Approximately 16.3 million | Second Quarter Fiscal 2026 Guidance For the second quarter of fiscal 2026, Lovesac anticipates net sales between $157 million and $166 million, an Adjusted EBITDA loss of $2 million to $7 million, and a net loss of $8 million to $12 million Second Quarter Fiscal 2026 Guidance | Metric | Range | | :----------------------------------- | :-------------------------------- | | Net sales | $157 million to $166 million | | Adjusted EBITDA loss | $2 million to $7 million | | Net loss | $8 million to $12 million | | Basic loss per common share | $0.58 to $0.83 | | Estimated weighted average shares outstanding | Approximately 14.6 million | Company Information & Disclosures Essential information about The Lovesac Company, its non-GAAP financial measures, and important forward-looking statements About The Lovesac Company The Lovesac Company is a Connecticut-based, technology-driven furniture company known for its "Designed for Life" approach, offering modular, adaptable products like Sactionals and Sacs, with the brand emphasizing responsible production and innovation, selling primarily online and through a physical retail presence - The Lovesac Company is a technology-driven company that designs, manufactures, and sells unique, high-quality furniture through its proprietary "Designed for Life" approach, resulting in products built to last and evolve with customers' lives[11] - Current product offerings include modular couches (Sactionals), premium foam beanbag chairs (Sacs), the Pillowsac Accent Chair, an immersive surround sound home theater system (StealthTech), and an innovative sofa seating solution (EverCouch)[11] - Products are marketed and sold primarily online directly at www.lovesac.com, supported by a physical retail presence in Lovesac branded showrooms, as well as through shop-in-shops and pop-up-shops with third-party retailers[11] Non-GAAP Financial Measures The company uses Adjusted EBITDA as a non-GAAP financial measure to provide supplemental information for evaluating ongoing operating performance, defining it as earnings before interest, taxes, depreciation, and amortization, adjusted for certain non-cash and other items - Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, adjusted for the impact of certain non-cash and other items such as management fees, equity-based compensation expense, write-offs of property and equipment, deferred rent, and financing expenses[14] - These non-GAAP financial measures provide management with comparable financial data for internal analysis and offer meaningful supplemental information to investors, facilitating a more meaningful comparison of actual results on a period-over-period basis[15] - Non-GAAP measures should not be considered as a substitute for the most directly comparable financial measures prepared in accordance with GAAP, such as net income (loss) or net income (loss) per share, and have limitations as analytical tools[15] Forward-Looking Statements & Investor Relations The press release contains forward-looking statements regarding future operations, financial position, and product launches, which are subject to various risks and uncertainties, with the company disclaiming any obligation to update these statements and providing investor relations contact information - This press release contains forward-looking statements concerning expectations, strategy, plans, future operations, launch of new products, future financial position or projections, future revenue, projected expenses, and sustainability goals[16] - Actual results and performance could differ materially from those projected due to factors such as economic instability, changes in consumer spending, cybersecurity risks, ability to manage growth, supply chain disruptions, and competition[16] - The company disclaims any intent or obligation to update these forward-looking statements to reflect events or circumstances that exist after the date on which they were made[16] - Investor Relations Contact: Caitlin Churchill, ICR, (203) 682-8200, InvestorRelations@lovesac.com[17] Condensed Financial Statements (Unaudited) Unaudited condensed financial statements for Q1 FY26, including balance sheets, statements of operations, and cash flows Condensed Balance Sheets The unaudited condensed balance sheets show total assets decreased from $532.25 million at February 2, 2025, to $483.74 million at May 4, 2025, primarily due to a decrease in cash and cash equivalents, with total liabilities also decreasing while stockholders' equity saw a reduction Condensed Balance Sheets (amounts in thousands) | (amounts in thousands, except share and per share amounts) | May 4, 2025 | February 2, 2025 | | :------------------------------------------------------- | :---------- | :--------------- | | Assets | | | | Cash and cash equivalents | $26,900 | $83,734 | | Trade accounts receivable, net | $13,022 | $16,781 | | Merchandise inventories, net | $124,926 | $124,333 | | Prepaid expenses | $12,977 | $14,807 | | Other current assets | $3,628 | $6,942 | | Total Current Assets | $181,453 | $246,597 | | Property and equipment, net | $85,267 | $77,990 | | Operating lease right-of-use assets | $164,272 | $157,750 | | Goodwill | $144 | $144 | | Intangible assets, net | $1,719 | $1,586 | | Deferred tax asset | $18,914 | $15,277 | | Other assets | $31,971 | $32,906 | | Total Assets | $483,740 | $532,250 | | Liabilities and Stockholders' Equity | | | | Accounts payable | $25,019 | $51,814 | | Accrued expenses | $42,453 | $51,986 | | Payroll payable | $7,137 | $9,501 | | Customer deposits | $11,639 | $11,250 | | Current operating lease liabilities | $22,599 | $22,662 | | Sales taxes payable | $4,218 | $7,897 | | Total Current Liabilities | $113,065 | $155,110 | | Operating lease liabilities, long-term | $169,037 | $160,361 | | Income tax payable, long-term | $424 | $424 | | Line of credit | — | — | | Total Liabilities | $282,526 | $315,895 | | Stockholders' Equity | $201,214 | $216,355 | | Total Liabilities and Stockholders' Equity | $483,740 | $532,250 | Condensed Statements of Operations For the thirteen weeks ended May 4, 2025, net sales increased to $138.37 million from $132.64 million in the prior year, with gross profit also increasing, and the company reporting a reduced net loss of $10.84 million compared to $12.96 million in the previous year Condensed Statements of Operations (amounts in thousands) | (amounts in thousands, except per share data and share amounts) | Thirteen weeks ended May 4, 2025 | Thirteen weeks ended May 5, 2024 | | :------------------------------------------------------------- | :------------------------------- | :------------------------------- | | Net sales | $138,373 | $132,643 | | Cost of merchandise sold | $64,003 | $60,598 | | Gross profit | $74,370 | $72,045 | | Operating expenses: | | | | Selling, general and administrative expenses | $67,117 | $68,403 | | Advertising and marketing | $18,594 | $17,996 | | Depreciation and amortization | $3,613 | $3,502 | | Total operating expenses | $89,324 | $89,901 | | Operating loss | $(14,954) | $(17,856) | | Interest and other income, net | $325 | $744 | | Net loss before taxes | $(14,629) | $(17,112) | | Income tax benefit | $3,789 | $4,152 | | Net loss | $(10,840) | $(12,960) | | Net loss per common share: | | | | Basic | $(0.73) | $(0.83) | | Diluted | $(0.73) | $(0.83) | | Weighted average shares outstanding: | | | | Basic | 14,792,080 | 15,537,823 | | Diluted | 14,792,080 | 15,537,823 | Condensed Statements of Cash Flows The condensed statement of cash flows shows a significant increase in net cash used in operating activities, from $(7.01) million in Q1 FY25 to $(41.38) million in Q1 FY26, leading to a substantial net decrease in cash and cash equivalents for the quarter Condensed Statements of Cash Flows (amounts in thousands) | (amounts in thousands) | Thirteen weeks ended May 4, 2025 | Thirteen weeks ended May 5, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Cash Flows from Operating Activities | | | | Net loss | $(10,840) | $(12,960) | | Net cash used in operating activities | $(41,377) | $(7,014) | | Cash Flows from Investing Activities | | | | Purchase of property and equipment | $(8,577) | $(7,296) | | Payments for patents and trademarks | $(124) | $(8) | | Net cash used in investing activities | $(8,701) | $(7,304) | | Cash Flows from Financing Activities | | | | Taxes paid for net share settlement of equity awards | $(744) | $(356) | | Repurchases of common stock | $(6,000) | — | | Payment of deferred financing costs | $(12) | — | | Net cash used in financing activities | $(6,756) | $(356) | | Net change in cash and cash equivalents | $(56,834) | $(14,674) | | Cash and cash equivalents - Beginning | $83,734 | $87,036 | | Cash and cash equivalents - Ending | $26,900 | $72,362 | Reconciliation of Non-GAAP Financial Measures Reconciliation of non-GAAP financial measures, specifically Adjusted EBITDA, to the most directly comparable GAAP measure, net loss Adjusted EBITDA Reconciliation The reconciliation of net loss to Adjusted EBITDA shows an improvement from $(10.26) million in Q1 FY25 to $(8.45) million in Q1 FY26, with key adjustments including equity-based compensation and other non-recurring expenses Adjusted EBITDA Reconciliation (amounts in thousands) | (amounts in thousands) | Thirteen weeks ended May 4, 2025 | Thirteen weeks ended May 5, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net loss | $(10,840) | $(12,960) | | Interest income, net | $(327) | $(744) | | Income tax benefit | $(3,789) | $(4,152) | | Depreciation and amortization | $3,613 | $3,502 | | EBITDA | $(11,343) | $(14,354) | | Equity-based compensation (a) | $2,622 | $1,203 | | Loss on disposal of assets (b) | $21 | $43 | | Other non-recurring expenses (c) | $253 | $2,850 | | Adjusted EBITDA | $(8,447) | $(10,258) | - Equity-based compensation (a) represents expenses such as compensation expense and employer taxes related to RSU equity vesting and exercises associated with stock options and restricted stock units granted to associates and board of directors[25] - Other non-recurring expenses (c) for the thirteen weeks ended May 4, 2025, include professional fees related to the restatement of previously issued financial statements, severance, and expenses associated with other legal matters, partially offset by benefits related to insurance proceeds[27]