The Lovesac pany(LOVE) - 2025 Q1 - Quarterly Results

Executive Summary Q1 FY25 Performance Overview The Lovesac Company reported Q1 FY25 net sales of $132.6 million, a 6.1% decrease year-over-year, meeting or slightly exceeding expectations, and reaffirmed its full-year fiscal 2025 outlook Q1 FY25 Net Sales Overview | Metric | Q1 FY25 (Millions) | Q1 FY24 (Millions) | % Inc (Dec) | | :----- | :----------------- | :----------------- | :---------- | | Net Sales | $132.6 | $141.2 | (6.1%) | CEO Commentary CEO Shawn Nelson expressed satisfaction with Q1 performance, highlighting the company's strategic platforms and new product launches for future growth - CEO Shawn Nelson stated that Q1 performance was inline to slightly above expectations, reflecting continued outperformance compared to the industry[2] - The company believes its 'omni-channel infinity flywheel,' 'Designed for Life platform,' and 'advantaged supply chain' position it well for continued results and future opportunities[2] - Lovesac is expanding its product offering with the recent launch of the PillowSac Accent Chair and plans for further innovative launches[2] First Quarter Fiscal 2025 Financial Results Key Financial Measures Net sales decreased by 6.1% to $132.6 million, while gross profit increased by 2.1% to $72.0 million, but operating expenses rose significantly, leading to a widened net loss of $13.0 million Q1 FY25 Key Financial Metrics | Metric | Q1 FY25 (Millions) | Q1 FY24 (Millions) | % Inc (Dec) | Change (bps) | | :-------------------------------- | :----------------- | :----------------- | :---------- | :----------- | | Net Sales | $132.6 | $141.2 | (6.1%) | | | Showrooms Sales | $81.6 | $83.6 | (2.3%) | | | Internet Sales | $36.6 | $40.2 | (9.0%) | | | Other Sales | $14.4 | $17.4 | (17.1%) | | | Gross Profit | $72.0 | $70.6 | 2.1% | | | Gross Margin | 54.3% | 50.0% | | 430 bps | | Total Operating Expenses | $89.9 | $76.3 | 17.9% | | | SG&A | $68.4 | $56.5 | 21.0% | | | SG&A as a % of Net Sales | 51.6% | 40.0% | | 1,160 bps | | Advertising and Marketing | $18.0 | $16.9 | 6.4% | | | Advertising & Marketing as a % of Net Sales | 13.6% | 12.0% | | 160 bps | | Net Loss | $(13.0) | $(4.1) | (214.9%) | | | Basic Net Loss per Common Share | $(0.83) | $(0.27) | (207.4%) | | | Diluted Net Loss per Common Share | $(0.83) | $(0.27) | (207.4%) | | | Adjusted EBITDA | $(10.3) | $(2.1) | (381.1%) | | | Net Cash (used in) provided by operating activities | $(7.0) | $6.3 | (211.5%) | | Q1 FY25 Sales and Showroom Metrics | Metric | Q1 FY25 | Q1 FY24 | | :-------------------------- | :------ | :------ | | Omni-channel Comparable Net Sales | (14.8)% | (6.2)% | | Internet Sales | (9.0)% | 28.7% | | Ending Showroom Count | 246 | 211 | Operational Highlights Net sales declined due to lower comparable sales, partially offset by new showrooms, while gross margin improved from reduced inbound transportation costs, despite increased SG&A expenses - Net sales decreased by 6.1% ($8.6 million) primarily due to a 14.8% decrease in omni-channel comparable net sales, partially offset by the net addition of 35 new showrooms (24 opened, 3 closed, 5 kiosks closed)[5] - Gross margin increased by 430 basis points to 54.3%, driven by a 790 basis point decrease in inbound transportation costs, partially offset by increased outbound transportation/warehousing costs (240 bps) and higher promotional discounting (120 bps)[5] - SG&A expense increased by 21.0% ($11.9 million) due to investments in payroll, professional fees, rent, infrastructure, selling-related expenses (including customer financing fees up 8.6% to $6.7 million), and equity-based compensation[5] - Operating loss widened to $17.9 million from $5.7 million, with operating margin at (13.5)% compared to (4.0)% in the prior year[5] - Net loss increased to $13.0 million (or $(0.83) per share) from $4.1 million (or $(0.27) per share), despite an increased income tax benefit of $4.2 million[5] Other Financial Highlights Other Financial Highlights Cash and cash equivalents increased to $72.4 million, with no outstanding debt, while total merchandise inventory decreased to $94.7 million due to planned stock reduction and lower freight capitalization Key Balance Sheet Items | Metric | May 5, 2024 (Millions) | April 30, 2023 (Millions) | | :-------------------------- | :--------------------- | :---------------------- | | Cash and cash equivalents | $72.4 | $45.1 | | Line of credit balance | $0 | $0 | | Line of credit availability | $33.7 | $36.0 | | Total merchandise inventory | $94.7 | $104.5 | - The decrease in merchandise inventory was principally related to a planned stock inventory decrease of $10.2 million and a $1.4 million decrease in freight capitalization due to lower inbound freight expense[10] Outlook Full Year Fiscal 2025 Guidance For FY25, Lovesac projects net sales between $700 million and $770 million, Adjusted EBITDA between $46 million and $60 million, and net income between $18 million and $27 million Full Year Fiscal 2025 Guidance | Metric | Range (Millions) | | :-------------------------- | :----------------- | | Net Sales | $700 - $770 | | Adjusted EBITDA | $46 - $60 | | Net Income | $18 - $27 | | Diluted Income per Common Share | $1.06 - $1.59 | - Fiscal 2025 will contain 52 weeks, compared to 53 weeks in Fiscal 2024[11] Second Quarter Fiscal 2025 Guidance For Q2 FY25, Lovesac anticipates net sales between $152 million and $160 million, an Adjusted EBITDA loss between $2 million and $5 million, and a net loss between $6 million and $8 million Second Quarter Fiscal 2025 Guidance | Metric | Range (Millions) | | :-------------------------- | :----------------- | | Net Sales | $152 - $160 | | Adjusted EBITDA Loss | $(2) - $(5) | | Net Loss | $(6) - $(8) | | Basic Loss per Common Share | $(0.37) - $(0.53) | Company Information About The Lovesac Company The Lovesac Company is a Stamford, CT-based technology-driven home furnishing brand known for its 'Designed For Life' approach, offering modular couches and premium foam beanbag chairs - The Lovesac Company is a technology-driven home furnishing brand based in Stamford, CT, known for its 'Designed For Life' approach, creating durable and adaptable products[12] - Key products include Sactionals (modular couches) and Sacs (premium foam beanbag chairs), protected by utility patents[12] - Products are sold primarily online at www.lovesac.com, supplemented by showrooms, shop-in-shops, and pop-up-shops with third-party retailers[12] Non-GAAP Information Definition and Purpose of Adjusted EBITDA Adjusted EBITDA is a non-GAAP measure used for internal analysis and investor information, defined as earnings before interest, taxes, depreciation, and amortization, with specific non-cash adjustments - Adjusted EBITDA is a non-GAAP measure defined as earnings before interest, taxes, depreciation, and amortization, adjusted for specific non-cash and other items (e.g., management fees, equity-based compensation, write-offs, deferred rent, financing expenses, certain charges/gains)[13] - The company uses Adjusted EBITDA for internal financial analysis and believes it provides meaningful supplemental information to investors, facilitating understanding of business performance and trends[14] - Non-GAAP measures have limitations and should not be considered a substitute for GAAP measures like net income (loss) or cash flows from operating activities[14] Reconciliation of Non-GAAP Financial Measures Reconciliation of Non-GAAP Financial Measures For Q1 FY25, a net loss of $(12.96) million was adjusted to an Adjusted EBITDA of $(10.26) million by adding back interest, taxes, depreciation, equity-based compensation, and other non-recurring expenses Adjusted EBITDA Reconciliation | Metric (amounts in thousands) | Q1 FY25 (May 5, 2024) | Q1 FY24 (April 30, 2023) | | :-------------------------------- | :-------------------- | :--------------------- | | Net loss | $(12,960) | $(4,115) | | Interest income, net | $(744) | $(341) | | Income tax benefit | $(4,152) | $(1,250) | | Depreciation and amortization | $3,502 | $2,822 | | EBITDA | $(14,354) | $(2,884) | | Equity-based compensation | $1,203 | $805 | | Loss on disposal of assets | $43 | $0 | | Other non-recurring expenses (benefit) | $2,850 | $(53) | | Adjusted EBITDA | $(10,258) | $(2,132) | - Other non-recurring expenses in Q1 FY25 included professional fees related to financial statement restatement and severance, partially offset by insurance proceeds and other legal matters. In Q1 FY24, it represented business loss proceeds received from an insurance settlement[25] Forward-Looking Statements & Investor Information Cautionary Statement Concerning Forward-Looking Statements This standard disclaimer warns that forward-looking statements are subject to risks and uncertainties, and actual results may differ materially, advising against undue reliance - The press release contains forward-looking statements, identifiable by terms like 'may,' 'believe,' 'anticipate,' 'expect,' and 'outlook,' which are based on management's current expectations[15] - Actual results and performance could differ materially from projections due to various factors, including economic instability, changes in consumer spending, interest rates, inflation, ability to manage growth, supply chain disruptions, and regulatory risks[15] - Readers are cautioned not to rely on forward-looking statements, and the company disclaims any obligation to update them[15] Investor Relations Contact Contact information for investor relations is provided, including the name, firm, phone number, and email address - Investor Relations Contact: Caitlin Churchill, ICR, (203) 682-8200, InvestorRelations@lovesac.com[16] Condensed Financial Statements (Unaudited) Condensed Balance Sheets Total assets slightly decreased to $477.19 million, while total liabilities increased to $271.86 million, leading to a decrease in stockholders' equity to $205.33 million Condensed Balance Sheets (amounts in thousands) | Metric | May 5, 2024 | February 4, 2024 | | :-------------------------------- | :---------- | :--------------- | | Assets | | | | Cash and cash equivalents | $72,362 | $87,036 | | Merchandise inventories, net | $94,713 | $98,440 | | Total Current Assets | $190,791 | $214,448 | | Property and equipment, net | $77,001 | $70,807 | | Operating lease right-of-use assets | $162,461 | $155,856 | | Total Assets | $477,189 | $482,180 | | Liabilities | | | | Total Current Liabilities | $105,526 | $106,356 | | Operating lease liabilities, long-term | $165,879 | $157,876 | | Total Liabilities | $271,857 | $264,684 | | Stockholders' Equity | | | | Accumulated earnings | $21,441 | $34,401 | | Total Stockholders' Equity | $205,332 | $217,496 | Condensed Statements of Operations Net sales declined to $132.64 million, and despite a slight increase in gross profit, significantly higher operating expenses resulted in an operating loss of $(17.86) million and a net loss of $(12.96) million Condensed Statements of Operations (amounts in thousands) | Metric | Q1 FY25 (May 5, 2024) | Q1 FY24 (April 30, 2023) | | :-------------------------------- | :-------------------- | :--------------------- | | Net sales | $132,643 | $141,193 | | Cost of merchandise sold | $60,598 | $70,618 | | Gross profit | $72,045 | $70,575 | | Selling, general and administration expenses | $68,403 | $56,546 | | Advertising and marketing | $17,996 | $16,913 | | Total operating expenses | $89,901 | $76,281 | | Operating loss | $(17,856) | $(5,706) | | Net loss before taxes | $(17,112) | $(5,365) | | Benefit from income taxes | $4,152 | $1,250 | | Net loss | $(12,960) | $(4,115) | | Basic Net loss per common share | $(0.83) | $(0.27) | | Diluted Net loss per common share | $(0.83) | $(0.27) | Condensed Statement of Cash Flows Operating activities shifted to a net cash use of $(7.01) million, driven by the increased net loss, resulting in a net decrease of $(14.67) million in cash and cash equivalents Condensed Statement of Cash Flows (amounts in thousands) | Metric | Q1 FY25 (May 5, 2024) | Q1 FY24 (April 30, 2023) | | :-------------------------------- | :-------------------- | :--------------------- | | Net loss | $(12,960) | $(4,115) | | Net cash (used in) provided by operating activities | $(7,014) | $6,291 | | Net cash used in investing activities | $(7,304) | $(4,177) | | Net cash used in financing activities | $(356) | $(522) | | Net change in cash and cash equivalents | $(14,674) | $1,592 | | Cash and cash equivalents - Ending | $72,362 | $45,125 | - The shift in operating cash flow from positive to negative was largely influenced by the increased net loss, partially offset by changes in working capital items like trade accounts receivable and merchandise inventories[22]