The Lovesac pany(LOVE) - 2021 Q4 - Annual Report

Part I Business Lovesac, a technology-driven furniture company, specializes in modular couches and foam beanbag chairs, operating an omni-channel direct-to-consumer model with a 'Designed for Life' philosophy - The company's core philosophy, 'Designed for Life,' emphasizes durable, adaptable products, central to its brand and sustainability message[19][32] Sales Mix by Product (Fiscal Year 2021 vs. 2020) | Product | FY 2021 Sales % | FY 2020 Sales % | | :--- | :--- | :--- | | Sactionals | 84.5% | 80.7% | | Sacs | 14.0% | 17.0% | Sales Mix by Channel (Fiscal Year 2021 vs. 2020) | Channel | FY 2021 Sales % | FY 2020 Sales % | | :--- | :--- | :--- | | Ecommerce | 47.1% | 23.9% | | Showrooms | Not specified, but decreased 1.3% in absolute dollars | Not specified | | Other (Pop-ups/Shop-in-shops) | 7.3% | 12.7% | - The company utilizes a global supply chain with third-party manufacturing partners across multiple countries, owning no manufacturing facilities[38] - The business experiences seasonality, with 40.4% of total sales occurring in the fourth fiscal quarter of fiscal 2021[40] Customer Metrics (Fiscal Year 2021 vs. 2020) | Metric | Fiscal 2021 | Fiscal 2020 | | :--- | :--- | :--- | | Customer Acquisition Cost (CAC) | $434.61 | $391.71 | | CLV/CAC Ratio | 4.70 | 4.68 | | New Sactional Customer Growth | 48.3% | N/A | Risk Factors The company identifies numerous risks including the COVID-19 pandemic's impact, supplier reliance, competition, and technology infrastructure vulnerabilities - The COVID-19 pandemic creates significant uncertainty, potentially impacting consumer demand, supply chains, and showroom operations, with no guarantee of sustained e-commerce growth post-pandemic[61][65] - A substantial portion of the business relies on a small number of third-party suppliers, particularly for Sacs (single supplier) and Sactionals (multiple international suppliers), leading to concentration and geopolitical risks like tariffs[82][84][88] - The business operates in a highly competitive market, facing traditional, big-box, and online retailers, many with greater resources and brand recognition[69][71] - The omni-channel strategy, especially e-commerce reliance, exposes the company to risks like system interruptions, cybersecurity threats, and the need to adapt to evolving consumer preferences[77][110][118] - As an "emerging growth company," Lovesac is subject to reduced reporting requirements, potentially making its common stock less attractive to some investors[151] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None Properties The company leases its principal executive offices in Stamford, CT, and all 108 retail showrooms across 36 U.S. states and D.C - The company's primary offices are leased in Stamford, CT, occupying 22,480 square feet under a lease expiring in November 2024[162] - As of the report date, the company leases retail space for 108 showrooms across the United States[162] Legal Proceedings The company is involved in ordinary course legal proceedings, not expecting a material adverse effect on its business or financial condition - The company is involved in ordinary course legal proceedings, not expecting a material adverse effect on its business[163] Mine Safety Disclosures This item is not applicable to the company - Not applicable 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', with no cash dividends paid or intended, as earnings are retained for business growth - Common stock is traded on Nasdaq under the symbol "LOVE"[166] - The company has never paid cash dividends and does not intend to in the foreseeable future[167] Selected Financial Data This item is not applicable as the company is an emerging growth company - Not applicable Management's Discussion and Analysis of Financial Condition and Results of Operations Lovesac achieved significant fiscal 2021 growth, with net sales up 37.4% to $320.7 million driven by e-commerce, shifting from a net loss to a $14.7 million net income Results of Operations (Fiscal 2021 vs. 2020) Fiscal 2021 saw dramatic financial improvement, with net sales growing 37.4% driven by 170.8% internet sales, gross margin expanding 450 basis points, and a shift to $14.9 million operating income Consolidated Statement of Operations (Fiscal Year Ended) | Metric | January 31, 2021 | February 2, 2020 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $320.7M | $233.4M | 37.4% | | Gross Profit | $174.8M | $116.7M | 49.8% | | Gross Margin | 54.5% | 50.0% | +450 bps | | Operating Income (Loss) | $14.9M | ($15.8M) | N/A | | Net Income (Loss) | $14.7M | ($15.2M) | N/A | | Diluted EPS | $0.96 | ($1.07) | N/A | - Net sales increased due to a 170.8% ($95.3 million) surge in internet sales, offsetting a 1.3% ($1.9 million) decrease in showroom sales impacted by COVID-19[192] - Gross margin improved by 450 basis points, driven by 400 bps from reduced promotions and lower product costs, plus 50 bps from improved distribution expenses[193] - Selling, general and administrative (SG&A) expenses increased 13.5% to $111.4 million, but decreased as a percentage of net sales from 42.1% to 34.7%, demonstrating operating leverage[194][195] - Advertising and marketing expenses increased 43.6% to $41.9 million, representing 13.1% of net sales, up from 12.5% in the prior year due to increased media spending[196][197] Liquidity and Capital Resources Fiscal 2021 saw significant liquidity strengthening, with cash increasing by $29.8 million to $78.3 million, and net cash from operating activities at $40.5 million, with no outstanding debt Summary of Cash Flows (in thousands) | Activity | Fiscal 2021 | Fiscal 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $40,521 | ($11,194) | | Net Cash Used in Investing Activities | ($9,052) | ($10,650) | | Net Cash (Used in) from Financing Activities | ($1,667) | $21,312 | | Net Change in Cash | $29,802 | ($532) | | Cash at End of Period | $78,341 | $48,539 | - Operating cash flow improved due to a $14.7 million net income (vs. $15.2 million net loss in FY2020) and favorable working capital changes, including a $19.6 million increase in accrued liabilities and accounts payable[207][209] - As of January 31, 2021, the company had no outstanding borrowings on its revolving credit line, with $15.9 million of borrowing availability[214] Quantitative and Qualitative Disclosures About Market Risk This item is not applicable as the company is a smaller reporting company - Not applicable Financial Statements and Supplementary Data This section refers to the company's consolidated financial statements and related notes, included at the end of the Form 10-K - The company's audited consolidated financial statements are included at the end of the Annual Report on Form 10-K[238] 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 Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of January 31, 2021, with no attestation report required for this emerging growth company - Management concluded the company's disclosure controls and procedures were effective as of January 31, 2021[241] - Based on the COSO framework, management concluded the company's internal control over financial reporting was effective as of January 31, 2021[243] - No material changes occurred during the fourth quarter affecting the company's internal control over financial reporting[245] Other Information The company reports no other information for this item - None Part III Directors, Executive Officers and Corporate Governance Information on executive officers, directors, and corporate governance is incorporated by reference from the 2021 Proxy Statement - Information required by this item is incorporated by reference from the 2021 Proxy Statement[249] Executive Compensation Information on executive compensation is incorporated by reference from the 2021 Proxy Statement - Information required by this item is incorporated by reference from the 2021 Proxy Statement[252] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details securities authorized under equity compensation plans and incorporates other ownership information by reference from the 2021 Proxy Statement Securities Authorized for Issuance under Equity Compensation Plans (as of Jan 31, 2021) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by shareholders | 1,150,924 | $38.10 | 380,959 | Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2021 Proxy Statement - Information required by this item is incorporated by reference from the 2021 Proxy Statement[256] Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2021 Proxy Statement - Information required by this item is incorporated by reference from the 2021 Proxy Statement[257] Part IV Exhibits, Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed as part of the Form 10-K report, including an index of all exhibits - This section provides an index of all financial statements, schedules, and exhibits filed with the 10-K[259][261] Form 10-K Summary This optional disclosure was not included in this Annual Report on Form 10-K - Optional disclosure not included in this Annual Report on Form 10-K[262] Consolidated Financial Statements Financial Statements The consolidated financial statements present the company's financial position and performance, highlighting a significant increase in total assets to $171.0 million and a shift from net loss to $14.7 million net income Consolidated Balance Sheet Highlights (As of Year-End) | Account | Jan 31, 2021 | Feb 2, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $78.3M | $48.5M | | Merchandise inventories | $50.4M | $36.4M | | Total Assets | $171.0M | $125.7M | | Total Liabilities | $63.1M | $35.5M | | Total Stockholders' Equity | $107.9M | $90.2M | Consolidated Statement of Operations Highlights (For Fiscal Year Ended) | Account | 2021 | 2020 | | :--- | :--- | :--- | | Net sales | $320.7M | $233.4M | | Gross profit | $174.8M | $116.7M | | Operating income (loss) | $14.9M | ($15.8M) | | Net income (loss) | $14.7M | ($15.2M) | Notes to Consolidated Financial Statements The notes detail accounting policies and financial results, including revenue disaggregation by channel and product, $92.4 million in operating lease obligations, and equity incentive plan information Net Sales by Channel (Fiscal Year Ended) | Channel | 2021 | 2020 | | :--- | :--- | :--- | | Showrooms | $146,150,307 | $148,003,995 | | Internet | $151,064,651 | $55,781,186 | | Other | $23,522,792 | $29,592,198 | | Total net sales | $320,737,750 | $233,377,379 | Net Sales by Product (Fiscal Year Ended) | Product | 2021 | 2020 | | :--- | :--- | :--- | | Sactionals | $271,018,545 | $188,436,976 | | Sacs | $44,974,677 | $39,640,676 | | Other | $4,744,528 | $5,299,727 | | Total | $320,737,750 | $233,377,379 | - The company has future minimum rental payments under operating leases totaling $92.4 million[388] - As of January 31, 2021, total unrecognized equity-based compensation cost was approximately $5.3 million, to be recognized over a weighted average period of 2.65 years[408]