Financial Data and Key Metrics Changes - Total net sales for Q1 2026 were $138.4 million, reflecting a year-over-year increase of 4.3% despite a 5% decline in the overall category [5][31] - Adjusted EBITDA loss improved by double-digit percentages year-over-year, with net loss for the quarter at $10.8 million, or negative $0.73 per share, compared to a net loss of $13 million, or negative $0.83 per share, in the prior year [5][35] - SG&A expense as a percentage of net sales decreased to 48.5% from 51.6% in the prior year, driven by lower professional fees and higher net sales [33] Business Line Data and Key Metrics Changes - Showroom net sales increased by $14.9 million, or 18.2%, to $96.5 million, driven by a 2.8% increase in omni-channel comparable net sales and the addition of 21 new showrooms [31] - Internet net sales decreased by $3.3 million, or 8.9%, to $33.3 million, while other net sales, including pop-up shops, decreased by $5.8 million, or 40.5% [32] - Sactional net sales increased by 4.5%, while SAC net sales increased by 6.4%, and other net sales, including decorative pillows and accessories, decreased by 17.1% [32] Market Data and Key Metrics Changes - The overall market category is estimated to have declined by 5% for the comparable period, with the company gaining market share despite these headwinds [5][31] - The promotional environment remains aggressive, with competitors offering discounts around 40% to 45%, impacting gross margins [48] Company Strategy and Development Direction - The company is focused on leveraging its innovative product offerings and strong customer relationships to drive growth, even in a challenging category [14] - The launch of the EverCouch product platform is expected to significantly expand the company's total addressable market, with initial positive feedback from customers [9][10] - The company plans to enhance its marketing efforts and expand its showroom presence to support the new product launches [10][24] Management's Comments on Operating Environment and Future Outlook - Management noted that while the category trends are currently negative, they remain optimistic about future growth driven by new product launches and marketing strategies [38] - The company is actively working to mitigate tariff impacts and believes it can manage these within existing guidance [14][39] - Management expressed confidence in the long-term growth potential of the company, particularly as housing turnover and the replacement cycle for comfort seating are expected to improve [42] Other Important Information - The company ended its partnership with Best Buy, estimating a nonrecurring charge of approximately $2 million in Q2, while planning to expand its relationship with Costco [25][40] - The company has made significant progress in diversifying its manufacturing away from China, aiming for a more sustainable supply chain [66] Q&A Session Summary Question: Can you discuss the promotional environment and its impact on gross margins? - Management noted that discount levels remain high, with competitors offering significant promotions, but they are focusing on personalized promotions to drive showroom traffic and conversions [48][49] Question: What are the expectations for EverCouch sales and customer feedback? - Management indicated that it is too early to provide specific sales figures, but initial feedback has been positive, and internal goals are being exceeded [54][56] Question: Can you elaborate on the decision to exit the Best Buy partnership? - Management expressed excitement about new opportunities and emphasized the importance of expanding the Costco relationship, while acknowledging the benefits gained from the Best Buy partnership [60][62] Question: How are tariffs influencing manufacturing decisions? - Management stated that they are on a path to exit manufacturing in China entirely, focusing on producing closer to consumers for sustainability reasons [66][68] Question: How does the guidance account for new product performance? - Management clarified that the guidance does not overly rely on new products, as they can achieve targets even if core products remain flat [72][74] Question: How are price adjustments being considered in light of tariffs and promotions? - Management is continuously assessing pricing strategies, noting that their strong brand allows for surgical price increases without compromising competitive positioning [75][79]

Financial Data and Key Metrics Changes - The company reported revenues of $680.6 million for the fiscal year, down from $700.3 million the previous year, reflecting a category headwind of approximately 9% [54] - Gross margin for the fourth quarter increased by 70 basis points to 60.4% compared to 59.7% in the prior year period, driven by decreases in inbound and outbound transportation costs [58] - Net income for the fourth quarter was $35.3 million, or $2.13 per diluted share, compared to $31 million, or $1.87 per diluted share in the prior year period [61] Business Line Data and Key Metrics Changes - Net sales for the fourth quarter decreased by $9 million or 3.6% to $241.5 million compared to the prior year [56] - Showroom net sales decreased by 1.6% to $154.5 million, while internet net sales decreased by 9.7% to $70.5 million [56] - Sectional net sales decreased by 3.8%, while other net sales, including decorative pillows and accessories, increased by 2.7% [58] Market Data and Key Metrics Changes - The company experienced a decrease of 9.4% in omnichannel comparable net sales, partially offset by the addition of 27 new showrooms [56] - The overall home furnishings category continues to face challenges, with the company planning for a 5% full-year category decline [66] Company Strategy and Development Direction - The company aims to reach 3 million Lovesac households by 2030 and is focused on becoming a powerful brand in the home furnishings market [23] - The introduction of the EverCouch is expected to expand the addressable market significantly, effectively doubling it by entering the $14 billion couch category [20] - The company is actively diversifying its supply chain to reduce reliance on China, aiming to bring sourcing from China below 10% [47][108] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism entering fiscal 2026, citing a strong position despite macro challenges [13] - The company believes it has the necessary ingredients to grow irrespective of category challenges, supported by innovative product offerings and strong customer relationships [26] - Management highlighted the importance of maintaining a healthy balance sheet to weather macro uncertainties and enhance returns on capital [62] Other Important Information - The company reported a healthy cash position of $83.7 million and a total merchandise inventory level up 26% to $124.3 million [62][63] - The company is committed to sustainability, aiming for zero waste and zero emissions by 2040, and has recycled over 300 million plastic bottles in fiscal 25 [51] Q&A Session Summary Question: Inventory strategy given tariff delays - Management indicated that they have built up inventory across all product lines and are actively working to source from dominant countries like Malaysia and Vietnam to stay in stock [78] Question: Consumer behavior trends in recent months - Management noted stable performance from customers, with no significant changes in spending patterns observed [82] Question: Clarification on Q1 revenue growth assumptions - Management confirmed that they expect flat to slightly positive growth, with some noise in year-over-year growth rates due to promotional strategy changes and timing of Easter [92] Question: Pricing strategy in response to tariffs - Management is exploring vendor concessions and believes that their structurally higher margins allow for smaller price increases without impacting demand [99] Question: Potential for moving sourcing out of China - Management stated that they are actively moving production out of China and are on track to reduce sourcing from China below 10% this year [108] Question: Impact of lower interest rates on housing market - Management expressed optimism that lower interest rates could unlock housing turnover, allowing the company to participate in market growth [112]