The Lovesac pany(US:LOVE)2022-12-07 16:32Financial Data and Key Metrics Changes - Total net sales for Q3 2023 were $134.8 million, an increase of 15.5% compared to the prior year period [16][59] - Adjusted EBITDA loss was $8.4 million, which was better than expectations, driven by better-than-planned gross margin declines [16][75] - Net loss for the quarter was $8.4 million or $0.55 per diluted share, compared to net income of $2.8 million or $0.17 per diluted share in the prior year period [73] Business Line Data and Key Metrics Changes - Showroom net sales increased by $13.3 million or 19% to $83 million, driven by higher point of sales transactions and the addition of new showrooms [60] - Other net sales, including pop-up shops and shop-in-shop transactions, increased by $7.1 million or 61.8% to $18.5 million [61] - Internet net sales decreased by $2.2 million or 6.3% to $33.3 million, reflecting a shift back to in-person shopping [63] Market Data and Key Metrics Changes - The overall furniture category is down in the mid-teens percentage-wise compared to last year, highlighting the company's outperformance [9][17] - The company reported a 38% of recent customers did not cross-shop with competitors, indicating strong brand loyalty [18] Company Strategy and Development Direction - The company aims to capitalize on a $46.2 billion total addressable market for couches and home audio, with a focus on innovation and sustainability [15][32] - The company is investing in technology and supply chain improvements to support long-term growth [20][56] - The company plans to continue expanding its showroom presence and enhancing its omnichannel experience [45][47] Management's Comments on Operating Environment and Future Outlook - Management noted that the macro environment remains challenging, but they expect to outperform the category and generate growth at a more modest rate compared to the previous year [26][27] - The company anticipates benefits from lower inbound freight costs flowing through to the P&L, with the greatest impact expected in fiscal 2024 [83][84] - Management expressed confidence in their positioning for the holiday season and the overall outlook for the fourth quarter [86] Other Important Information - The company is committed to sustainability, having repurposed over 159 million plastic bottles into their products and aiming for zero waste and zero emissions by 2040 [31][32] - The company has a strong debt-free balance sheet and expects to end the fiscal year with over $75 million in total liquidity [11][80] Q&A Session Summary Question: Consumer sentiment and impact of higher interest rates - Management noted that while the category is down, they continue to outperform and see a strong pipeline for the holiday season, with affluent core consumers [88][90] Question: Promotional efforts relative to competitors - Management indicated that their promotions are less deep than competitors due to strong brand strength, and they are confident in their marketing investments [96][97] Question: Role of China in supply chain - Management highlighted efforts to diversify supply chains, reducing reliance on China from nearly 100% to below 30%, and focusing on sustainable manufacturing closer to consumers [104][106] Question: Planned use of higher gross profits - Management plans to use some gross margin expansion to mitigate higher outbound freight costs while also investing back into the business [110][112]