Q4 2021 Lovesac Co Earnings Call
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Greetings and welcome to the LoveSac fourth quarter of fiscal 2021 earnings call at this time. All participants are in a listen-only mode a question-and-answer session will follow the formal presentation anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder. This conference is being recorded are now like to turn the conference over to your host Rachel schachter with I said, thank you you may begin. Thank you. Good morning. Everyone with me on the call is Shawn Nelson chief executive officer, Jack Krause president and Chief Operating Officer and Donna dellomo officer before we get started. I would like to remind you that some of the information discussed will include forward-looking statements regarding future events and our future financial performance long. Do you think we statements about our future expectations Financial projections and our plans and Prospects actual results May differ materially from those set forth in such statements for discussion.
Of these risks and uncertainties. You should review the company's filings with the SEC which includes today's press release. You should not rely on our forward-looking statements as predictions of future of that all forward-looking statements that we make on this call are based on assumptions and beliefs as of today and we undertake no obligation to update them except as required by applicable law our discussion today will include non-gaap Financial measures including Eva. And adjusted ebitda. These non-gaap measures should be considered in addition to and not as a substitute for life or in isolation from our Gap results a Reconciliation of the most directly comparable gaap Financial measure to such non-gaap Financial measure has been provided a supplemental information in our press release now, I'd like to turn the call over to Shawn Nelson Chief Executive Officer of the LoveSac company.
Thank you, Rachel. Good morning everyone and thank you for joining us today. I will start by reviewing the highlights of our fourth quarter and fiscal 2021 financial and operational performance. Then Chef house or president and CEO will outline our key growth initiatives for fiscal 22 and finally down a Del Amo. Our CFO will review our financial results on a few other items related to our Outlook and more details.
Before turning to our results. I want to start by thanking the entire lab tech team for their tireless efforts. What was an unprecedented year despite the challenging backdrop fiscal 2021 was a landmark year for LoveSac, We delivered record financial performance and seamlessly pivoted our business to an all-digital model in the face of pandemic driven showroom closures. We could not have achieved this without the grit and determination of our teams the COVID-19 pandemic demonstrated even more clearly the strength of our people our brand business model and operating platform and just as vitally yields durable and value enhancing lessons learned new tools and new customer insights that we will leverage in our decision-making as we look ahead.
During the height of the pandemic we established a crisis management process and team to facilitate rapid decision-making in a systematic manner. Our COVID-19 response was centered around three key pillars one team health and safety to business strength and three or financial Brazilians to that. And as you recall during March and April, we temporarily closed down all of our retail showrooms and began operating as well bone need to preserve and prioritize cash and Financial Health and liquidity. We pulled back on expenses and working capital. We remained agile and drove very strong results as we focused on meeting our customer.
We achieved many operational milestones in fiscal 2021 Kia among these accomplishments were we leveraged the full strength of our omnichannel model with the quick expansion of our digital capabilities. We attracted many new customers for the LoveSac family with growth and our customer base expected to yield benefits for years to come we expanded our brand awareness and channel partnership to include Best Buy and bestbuy.com Thursday. We open nineteen showroom this year despite the challenging backdrop. We strengthened our financial position end of the year with a cash balance of $78 million Thirty million above last year.
Even with the pandemic backdrop and while growing sales by nearly 40% year-on-year, we increased our post-purchase customer satisfaction scores significantly resulting in happier customers and reduced friction. We delivered a record number of product demos mostly via Facebook live at FaceTime methods as most of our showrooms were closed for much of the year. We launched an entirely new website at LoveSac. Com new more robust future-proof platform that will allow us to scale improve operational costs and be more agile in the future. We introduced seven new quick ship Fabrics diversifying our core product offering to cover more aesthetic preferences while spreading risk across redundant vendors in multiple geographies.
We've made dozens of internal process improvement from Shipping the most commonly purchased that covers inside of Sac duffels to save costs and reduced dislocation at delivery to the customer to numerous supply chain processes aimed at reducing friction reducing shrink increasing accuracy and driving operational efficiencies. Let me now review the highlights of our fourth quarter performance for the quarter total sales were 129.7 million up 40.7% versus the prior-year period including 86.1 growth in e-commerce. We took a total comparable sales growth of 45% and continue to be very encouraged by the broad-based strength in demand for our products across both new and existing customers adjusted ebitda increased 600% to 25.9 million the highest profitability we've achieved in a fourth-quarter this strong end to the year is reflective of continued strength in the demand and birth.
Combined with our focus on improving are offering customer experience and go to market position as we seek to expand our share in this heavily fragmented industry.
Fiscal year 2021 was a meaningful turning point to profitability and positive cash flow on an annual basis for LoveSac working our way through the pandemic and all the challenges and Tailwinds for our industry drove us to be thoughtful our strategy intentional and Swift implementing tactical adjustments and austere in our management of expenses as we braced for the unknown the combination of all these factors led to a year. That was perhaps more profitable than we would have intended in our long-term plans beforehand. We are happy to make this decisively from profitability on a percent basis and we intend to continue to grow the business profitably took over many investments in infrastructure and headcount were put off and will be made in fiscal year 2022 to support our outlook for long-term growth and goals to take meaningful market share in the faith large category.
Even with our significant growth we estimate we still have only captured approximately 2% of the couch market today on a blended two-year basis, which is more appropriate way to view our performance given the highly unusual fy2013 a steady bottom-line growth trajectory will be apparent illustrating our ability to deliver profitable growth even as we continue to invest meaningfully in our infrastructure ongoing Donna will offer more on our Outlook and expectations in her comments.
Why we expect the elevated level of top-line growth we saw in fiscal 2021 to moderate and perhaps normalizing fiscal 22 accelerated process on each of our strategic priorities is key to deliver growth and market share games besides our much anticipated major product Innovation, which I'll provide an update on a moment. We continue to make ongoing new product introductions and improvements to both are sakin sactional platform. Each Innovation is meant to increase these platforms ability to attract retain and expand our customer base driving up average order value as well as repeat business and more recent issue with this approach was evident in February when we launched an all-new guests rest kid that comes with unique mounting hardware for storage within a sactional storage seat further evidence of our commitment to reverse compatibility and our commitment to holistic designed for Life platform. Not just products the gas dress kit includes a topper and a sheet set that is sized just right to wage.
Adjacent sactional seats into the coziest spot for overnight guests that is roughly the size of a queen bed. So far. The guest rest has exceeded our launch. Internal sales expectations additionally in FY twenty one. We launched nearly seven new quick ship Fabrics diversifying our core product offerings to cover more aesthetic preferences in turn driving margin expansion pack while decreasing risk across redundant vendors and multiple geographies. We have also just resource and relaunched are popular poly linen fabric now utilizing fiber that is spun from recycled plastic in alignment with our designed for Life philosophy and commitment to sustainability the product pipeline also includes exciting third-party brand collaborations and co-brands to announce. The course of the next few quarters each is meant to drive business across the sack and sactionals platforms respectively. We continue to be excited about the development and consumer response game through testing dead.
to our new major
Audit Innovation that is planned to launch this year. We fully expect this product to redefine expectations for our category further strengthening our competitive Advantage for products in the home while growing total addressable Market. However, due to the global disruption in the supply chain of key components there is risk to our launch timeline. Now, we are focused on launching when we are in a good position to meet expected demand as we do expect this launch to be meaningful to Future revenues. We may not be on track to launch in the first half of this year as previously stated, but we hope to announce some point in this fiscal year and will provide more information once we have some certainty
On the front LoveSac commitment to sustainability has been Central to our stated purpose and strategy for a long time now horrified to learn that bulky Furniture makes up almost a third of in organic waste in landfills sactionals were launched back in 2006 as a sustainable solution that could also be transported and delivered more efficiently not to mention useful took a long period of time or so many other products these days frustrate consumers as they are made purposely obsolete or out of style after only a few years sactionals are currently the best example of our designed for life or dfl philosophy in action and are presently driving most of our rapid growth year upon year this dfl philosophy calls for products that are built to last a lifetime and designed to evolve with the user's life as it changes people like our products. So it's very practical reason and invest in them. Usually with a long-term point of view. It is a dog
Disadvantage that has helped us established a unique brand a high-margin business and a successful culture here at LoveSac our long-standing commitment to these sustainability principles is apparent not only in the durability of our products but through our ongoing sourcing efforts as well. For instance our somewhat recent transition to making 100% of our upholstery fabric from recycled plastic bag has already made LoveSac the highest volume consumer brand recycling plastic bottles into home decor Fabric in the United States through these efforts. We've already repurposed more than a hundred million miles today and our impact is compounding with our rapid growth. We are excited to announce that we will soon be able to share more details supporting the results of our work in this realm with the release of our firm industry-standard sustainability report by Q4 of this year with the collection and tracking of relevant data throughout our supply chain and operation. We will establish benchmarks against which we plan to deliver wage.
Furthermore as an innovator in the same business model where we are already one of the recognized leaders in our space. We call it the CTC business model Circle to Consumer and we believe it will not only become a key differentiator for our brand it will be good for the world to see is a circular business model of our conception CTC adopts elements from the broader circular economy movement where the company built and maintained long-term lifespan products as it's simultaneously developed services and policies meant to build and maintain long-term lifetime relationships with its customers.
This direct sales model.
Combined with more direct operational programs and policies can drive deeper customer connections under this model. We plan to deliver more high-quality sustainably manufactured product Platforms in multiple categories across the home space. We will also surround these products with numerous Innovative services such as in home consulting set up styling customization subscription and services. Appear trading resale refurbishing and remanufacturing programs that we believe will strengthen love sex relationships with these customers are brand equity and support circular industrial economy. We've used this holistic virtuous cycle model as the only one capable of achieving true sustainability while our Ambitions are far-reaching. We are prepared to make off slowly and invest prudently over a very long time so that we can continue to scale rapidly and profitably as we work towards this vision.
Leveraging designed for life as our unique approach to product design and circle to Consumer as our operational philosophy. We intend to achieve a 100% circular and sustainable business model reaching targets at zero waste and zero emissions by 2040. We believe that this unique approach to doing business coupled with these tangible goals to make LoveSac even more differentiated efficient competitive and profitable thus helping us achieve our stated mission of becoming the most beloved home brand in the world. We will have much more to say regarding these goals and rctc approach the coming months and years you will begin to see it reflected already and some of the new operational tactics. We are pursuing even this year some of which Jack will expound on today.
So in summary, we are extremely pleased with our fourth-quarter and full-year results achieving significant top and bottom line growth including record fourth-quarter profitability. We believe these results reflect the appeal of our platform and our strong discipline managing the business through a volatile. We are immensely proud of our team successfully navigated a challenging operating environment pivoting to meet the changing needs of our customers and took Capital eyes on the elevated demand for this category while also simultaneously advancing our strategic initiatives and building a better more adaptable LoveSac. I commend each and every one of them and I'm so grateful for the resiliency and Relentless commitment to serving our customers the progress we made in fiscal 2021 positions as well to capitalize on the continued opportunities. We see for our brand in fiscal 22,000 where our outlook for the home category balance of this year is strong giving macro Tailwinds We Believe will benefit a category putting strong home sales nesting and the urbanisation we feel wage.
For it to increase market share achieve continued strong sales growth and do it profitably. I will now turn the call over to Jack to review our fourth-quarter and full-year operational progress as well. As our plans of April 2022. Thank you Shawn. Good morning. Everyone are strong fourth-quarter results and our annual performance are a testament to the strength of our business model and the agility of old title LoveSac sales growth for the year grew 37% German by the strength of our showroom and web channels, which had a 32% increase in transactions and in eleven percent increase in over here. Now, let me give you a quick update on our operations those showrooms and with our Channel Partners currently 100% of our show rooms are in the walk-in paid off with increased health and sanitation protocols on the channel partner front Our Best Buy shop and shops are continuing to perform. Well as previously announced during the fourth quarter wage.
expanded our relationship with Best Buy doing
Include selling sactionals on bestbuy.com. We opened our fourth Best Buy location in March and are planning a shop-in-shop expansion with Best Buy for the second half of this year and early next year with preliminary wage and to open over fifteen additional shop and shops are Costco business was down as planned due to the reduction of physical roadshows, however, strength and higher-margin programs Drive improved gross margins for our other segments overall to 44.6% up five hundred basis points versus year-ago. We ended their test with Macy's a year end with the wage of focusing on the development of the shop and Shop concept with Best Buy and other potential partners with the ability to scale efficiently.
A fourth quarter with a strong end to the financial year 2021 with good operational progress made against our key priorities and we will build on this progress and financial gear 22. Let me give you an update on our progress and the key areas and plans for the coming year Sean already discussed product Innovation. So I'll start with our efficient marketing and Merchandising strategies, we maintain customer lifetime value or clv to customer acquisition cost ratio of 4.7 x and financial year 21, even as our advertising and media spins increased by 44% to 41.9 billion for the year demonstrating the efficiency and scalability of our marketing and customer acquisition strategies and the high returns that continue to do
Our fiscal 2021 customer cohort generated a record average first-year value of $2,044 per new customer. We believe this is an outcome of our focus on driving penetration sactionals.
Total customer count was up 32.9% in fiscal 2021 and we had a strong 48% increase in sactionals platform new customers both of which bode well for us going for life as we've said before our showroom Service Great amplifiers for our brand and the return on our marketing spend building on this energy. We plan to open another 20-plus shown no fiscal 2022 of which four of already opened in the month of February are strong medium brand traction as well as relatively benign competitive environment enables us to deploy promotions and financial your 21 in addition. Our merchandising strategies have helped to drive higher rate of these through product mix shifts towards premium and higher-margin covers. I'm leveraging in our learnings from the second half of fiscal 21, we expect a container drive more efficiencies and high returns from our marketing spend.
And financial year 2022 will continue to be focused on using more tactics that drive reach and further penetrate our Target customer Vietnam linear buys like Hulu and we continue to scale into these platforms while targeting are linear by to drive a higher reach. We're also seeing opportunities to increase our digital spends as customers spend more time digitally researching for Home Furnishing purchases.
Turning to our showroom operations during the fourth quarter. We opened one showroom in Hoboken New Jersey and ended the year with a total of 108 owned showroom locations as we continue to serve our real estate touchpoints. We're piloting several new initiatives this year including mobile concierge a mobile showroom to give us the ability to provide a demo to the customer and their own home game plan to task kiosks as well an additional off Mall pad sites. These touchpoints will augment our core showroom strategy and will update you on the roll out of these plans as we progress with our pilot in the first half of the year. We believe that this asset light approach to creating touchpoints will enable us to operate cross-functionally much closer to the customer enhancing a customer satisfaction as well as providing a strong support for future designed for life and circle the consumer initiatives that Sean mentioned earlier.
As part of our continued focus on increased safety and productivity. We saw continued success from our on the spot appointment scheduling in the fourth quarter that enables us to better leverage the strengths omnichannel model. We hosted over 11,000 appointments in Q4 up 27% from the previous quarter and so strong sales conversion that increase sequentially resulting of appointments accounting for 46.4% of the showroom business during to one of this year. We plan to test it environment where customers in e-commerce only areas can achieve a virtual appointment with our showrooms enabling us to get even closer to the customer wherever they're shopping from
As part of our commitment to operational excellence and the post-purchase experience. We also piloted a showroom post-purchase specials program in the fourth quarter. This team is focused on proactively communicating with customers at Key Milestones throughout the customers delivery experienced during this pilot. We exchanged over 34,000 messages with our delivery customers and saw a significant increase in post-purchase customer satisfaction with a customers who dealt with a post-purchase Specialists. We continue to refine this program with a pilot in the first quarter of this year update you on our planned expansion of this program later in the year.
In terms of expanding other channel presence in sales. I already provided you with an update on our expansion plans with BestBuy. We continue to pursue opportunities with other partners and we will provide updates when there is news of, New Jersey.
Finally, we're making discipline investments in our infrastructure including technology and Supply chains. We are pleased with the results that we've seen from our new e-commerce platform in addition to the increase in traffic versus last year. We saw an outsize increase in conversion rate in transactions as with any website. Our goal is to make continuous improvements based on customer feedback and changes happening within the business office LoveSac. Com. It's playing an important role in the customer Journey as Shoppers are spending more time on on the website to gain a better understanding of the brand and our products off visiting our showroom as just discussed the make an appointment feature has been a particularly important software launch shopping Behavior post-pandemic has changed in our omnichannel Integrations off at us up well to make discipline investments in e-commerce technology in the coming fiscal year specifically focusing on the product configurator and post-purchase aspects of birth.
Customer Journey as customers are getting more.
more comfortable with shopping online for premium-priced products
In terms of supply chain, we continue to focus on the customer experience from order to delivery reducing costs increasing efficiencies and mitigating risk in our supply chain, in addition to our Chicago Cub our distribution Network continues to expand what's up to six hundred thousand square feet of additional space in California and Pennsylvania allowing us to leverage outbound Transportation costs more trade areas raw material shortages and Port delays are currently challenging across the industry and our top priorities this year are to manage them and mitigate Supply risks in addition to move forward our holiday inventory into the first half to avoid holiday congestion. We're evaluating additional options to accelerate our distribution Network expansion on the supply side. We continue to strengthen manufacturing capability and Vietnam Malaysia, Indonesia China and the United States.
And finally our new supply chain Erp system, which is expected to be implemented by the end of the year will allow us to scale our ability to manage in stocks with better order management supply of planning and replenishment and end-to-end tracking capabilities.
So in summary, we're very pleased with their financial and operational performance in fiscal 2021 and continued to be excited about the opportunities that lie ahead we're very proud that our overall customer action scores end of the year significantly higher than when we began fiscal 21. This is a true Testament to our ability to be agile and meet customers needs even in a year. We are consumer constantly change their desired Journey. The shopping preferences. Well gains were driven by number of improvements there truly reflective of our unrelenting commitment to better meet. Our customers needs particularly and the post-purchase part of their Journey.
The dynamic environment of the past year slowed some of our plan investments in the business.
What's your implementing again this year as we return to our plans and investing and building capabilities and infrastructure required to drive sustainable and scalable growth.
As we looked at fiscal 2022 we are mindful of the uncertainty presented by the ongoing pandemic as well as an industry-wide supply chain Dynamics. However, we feel great about the things we can control the longer-term projector e of our business and potential of a brand we are pleased with our progress and more committed than ever to build LoveSac business to satisfy customer needs and around vision of creating a more sustainable business model through design for life and circle to Consumer initiatives.
With that, I'll turn the call over to Donna to review our fourth-quarter and full-year financials and a few details related to our fiscal 2022 Outlook. Thank you Jack. Good morning. Everyone. I will begin my remarks with a review of our fourth quarter results and then provide a framework for how we are approaching fiscal 2022 the 40.7% increase the net sales to 129.7 million was driven by strong growth in our internet channel of 86.1% and the continuation of the strong rebound of our showroom channel of 28.4% This was partially offset by decreased in other sales of 18.7% This decrease was primarily due to know Costco in store pop-ups during the fourth quarter of this fiscal year as compared to 206 in the prior Year's fourth-quarter related to ongoing
under negotiation
And this was partially offset by three temporary online pop ups on Costco.com compared to two in the prior-year fourth-quarter total comparable situation, which includes internet channels net sales and comparable showroom Point of Sales transactions increased 45% in the quarter as the result of an eighty 6.1% increase in the internet Channel map sales and 22.6% increase in comparable showroom sales. Please refer to our earnings press release for all of the details on our comparable sales performance.
By product category our sactional sales increased 48.8% are stack sales increased 6% and our other category sales which includes pillows blankets and other accessories increased 18.1%
The 890 basis point increase in gross margin over the prior year. Reflects five hundred basis points improvements and gross profit as a result of a reduction in motion. All discounts reduced inventory Reserve levels and lower product costs related to higher vendor negotiated Terror mitigation initiatives due to higher volume of distribution expenses, including warehousing Freight and tariff related expenses. Also improved by 382 basis points over the prior-year quarter due to higher leverage on birth housing and freight cost including tariffs.
We exceeded the fourth quarter gross margin expectations. We shared with you on our last call primarily driven by less promotional discounting in addition. We also realize benefits from lower inventory Reserve levels and additional vendor rebates driven by higher volume partially offset by slightly higher Freight and warehousing costs due to shift and timing of them and to Thursday. It's from prior quarter the 30% year-over-year increase in sg&a was driven largely by increases in employment costs increased expenses related to infrastructure improvements increase credit card fees due to higher internet and showroom sales increased Equity compensation increased rent associated with higher showroom account and life insurance expenses related to the growth of the company. These increases were partially offset by a decrease in in-store pop-up shop fees and to know in store popped off.
Stops occurring in the fourth quarter as well as a decrease in travel expenses as a result of COVID-19 related travel restrictions.
Empty the expense of the percent of net sales decreased 230 basis points primarily due to a decrease in selling related expenses related to in-store pop-up shop fees which were partially offset by temporary online pop-up shop fees and expense leverage in rent associated with our 108 showrooms and travel expenses off partially offset by a d leverage in employment costs equity-based Compensation Insurance and credit card fees related to the growth of the company. Sg&a expense was lower than expectations principally related to a delay in hiring to the level that was anticipated for the fourth quarter in both our headquarters and showroom locations.
our investments
Surprising in marketing which benefit extended period increased by 5.1 million or 60 basis points to 12% of net sales in the fourth quarter due to an increase in National media and with a focus on holiday media increase in direct-to-consumer programming and the continuation of running 15-second spots in our television advertising Max.
Depreciation and amortization increased $70,000 from the prior year. To 1.6 million principally related to Capital Investments for new and remodeled showroom.
In the fourth quarter of fiscal 2021 operating income with 21.8 million compared to an operating income of 5.3 million in the fourth quarter of last year's driven by the net sales gross margin increase as well as sg&a leverage. I just discussed.
Our net interest expense for the fourth quarter. We would possibly $45,000 principally related to unused line fees on our revolving line of credit tax expense in the fourth quarter of fiscal 2021 and 2020 was not material and relates to minimum state income tax liabilities.
Before we turn our attention to net income net income per share and adjusted ebitda. Please refer to the terminology and Reconciliation between each of our adjusted metrics and their money directly comparable gaap measurements in our earnings release issued earlier today.
Net income was 21.7 million or a dollar 37 and diluted earnings per share in the fourth quarter of fiscal 2021 compared to net income of 5.4 million or $0.37 diluted earnings per share in the fourth quarter of fiscal 2020. We generated positive adjusted ebitda of 25.9 million as compared to an adjusted ebitda of eight million in the fourth quarter of last year.
Turning to our balance sheet or liquidity remains strong as we ended the fourth quarter with 78.3 million dollars in cash and cash equivalents and fifteen point nine million dollars in availability on our revolving line of credit with no outstanding debt on the revolver.
Please refer to our earnings press release for details on our full fiscal 2021 financial performance regarding our Outlook. We are still operating in a pandemic off with a wide range of potential outcomes as it relates to fiscal 2022 given this we're not providing formal outlooks for the full year, but we'll share a framework that will be helpful after updating your model.
We are targeting another year of home sales growth with over 20 showroom openings and expect to restore expenses that were pulled back in fiscal 2021 due to the pandemic Thursday. We're also making infrastructure Investments to support the substantial multi-year growth opportunity that lies ahead.
Mario we're sales growth is in the low-to-mid 20% range. We would expect gross margin rates to be aligned with fiscal 2021 and adjusted ebitda rep to be in the mid single-digit range with a year-on-year margin rate declined driven by expense and investment Dynamics. Just discuss
For fiscal first-quarter which ends in a little over two weeks. We expect sales growth of approximately 38% flight gross margin improvement over the same quarter last year and and it just even a dollar loss in line with the same quarter last year, which is being driven by strategic expense reinstatement and infrastructure investments. Just put on hold and fiscal 2021 as part of our COVID-19 financial resilience measures, we expect to generate cash from working capital and fiscal $22 and we expect capex to be in the $13 to $16 range.
So in conclusion, we had a very strong fourth-quarter for both internet sales and profitability perspectives in an unprecedented fiscal year having made significant strides across all areas of the business. We will continue to build on this progress in fiscal 2022 and Beyond as we position LoveSac for long-term growth generating value off all of our stakeholders with that we would now like to turn the call back to the operator who can open it up for questions operator.
Thank you at this time will be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad month. You may press start to if you'd like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key. Our first question comes off of Brian Nagel with Oppenheimer and Company. Please proceed with your question.
Good morning. Thanks for taking my question or questions. So first off. Congratulations on a great quarter grade year nicely done.
I just wanted to touch on gross margin another hearing you for another impressive performance. So. You gave you gave some parameters but for the bulb for the outlet for q1 and therefore the for all the the current fiscal year, but cuz the question obviously is we look at the drivers in Q4 of that substantial gross margin increase and particularly what you called out in the project promotions. I mean, how should we think about the sustainability of the of the various drivers?
Good morning, Brian. Yeah, so, you know, the fourth quarter just is a quick reminder. That's between third and fourth quarter are the other quarters that are volume rebates come in that those with the quarters principally the fourth quarter where we re-evaluate him into where you reserve so there were some larger than anticipated benefits from being able to I'll say right size inventory reserves as well as the benefit of I guess benefit of getting additional rebates, but the things that we do see as sustainable going into you know, the the first quarter second quarter into the rest of the year would be uh, the decrease in our promotional discounting which I'm sure Jack will talk a little bit more about the higher products. Margin Mac.
That would be able to.
It from which is also a sustainable going through this year. So those are the two biggest items going into first and second quarter and third and fourth as well. So yeah, I would say those are the items and The Limited guidance or I guess framework that we provided for fiscal 2022 is it's those days it's that are going to help us some sustained the margins that we we were able to realize in fiscal Twenty-One going into 2022 for the full year off even as we have some headwinds with Freight which you know, everybody is talking about so the positive is that the initiatives that we have ongoing is is what's going to help us mitigate those head the head winds on the freight. So hopefully that answers your question.
Let's hope that's helpful. Then my second question is Shaun you talk about the product launch again. But so I guess maybe just understand more the timing of that. I wasn't home. I didn't I mean, but I missed it in the in the in the comments. But also, yeah.
Oh, so the one that you know, so with regard to the the guidance or the the the framework you gave for sales growth for the current year.
What's in that is how how much is there an expectation of some type of performance of the new products are shot? Go ahead. Yeah. First of all, there's no expectation for the performance of the new product in our sales guy down this year. We do expect to be able to announce and and launch the product in this fiscal year, but we've been conservative with our Outlook to that end. And so until we have a firm understanding of exactly when we'll be in a in a position to to support our expected sales. We uh-huh will just put off the announcement of that product until until that time, but we do expect you to be in this fiscal year.
Got it. Thank you Gratis again.
Brian the only thing I would not is I just want to make sure that that it's clear that that scenario that we gave 20% is not necessarily guidance. It's just something for you to build a framework around. So I just want to make sure that that is clear.
We hear you.
Okay, great.
Thank you. Our next question comes from the line of Maria ripps with canaccord genuity. Please proceed with your question.
Great congrats on some numbers and thanks for the questions. I wanted to go back to sort of gross margin expansion Point sort of more broadly. What do you see in in consumer Behavior or maybe the competitive landscape now that that's allowing you to Discount a little less over the past couple of quarters, and then I have a quick follow-up.
Thanks for the question. This is Jack. Of course I a couple of things one is we're seeing a benign promotional environment. We've seen it especially if you look at some of the more premium brands that that Target the types of customers we target are are all stating and behind promotional background. We also are seeing significantly increased rate of conversion through our our our funnel and I think that alludes to some high levels of stickiness and and brand traction. We're getting now beyond that we can't tell you exactly what's going to happen in the second half obviously, but we feel very good right now about the trajectory in the RO eyes. We're seeing and we continue to also get gross margin improvements to the product mix off and getting our courtship Fabrics sourced at higher margins, which has been critical to our business as well. So we still have a learning agenda we have other opportunities to pull levers if we see their operation.
reasonable keep you posted
got it. That's very helpful. And then maybe on the advertising front. Can you talk about sort of how you thinking about balancing National spend versus more localized approach a sort of targeting specific off and they'd be more broadly any thoughts around brand spending versus direct response as you're heading 2022 and sort of in the past you talked about sort of delivering higher wage in markets where you do have showrooms has that changed for you over the past year or so?
So a lot of questions in there, I'll start with the most recent one. So we are we are seeing significant impacts of touch points and driving our total revenue in a row. I so, um, the touchpoint strategy is as important as it's ever been. I think what the world right now challenges us to think about is how do you become more efficient and developing a point where customers can experience the product feel how good it is and make the final decisions. So we're continuing to see synergies from touch points for continuing to see increased our oh I seem to have more touch points. And in fact, if you really look at the year on 2-year stack, you'll start to see a lot of strength growing overall all the quarters and it's really when we see a significant lift in e-com. We'll see perhaps a little bit of a in the physical touch points, but it goes vice versa. So they're really support wage.
Each other and more and more interdependent, especially as you think about the the journey the journey is just in there wind right now. So it's really hard to separate a digital vs. Physical journey. I think the key will be how we get smarter about handling it in the long run. I think in terms of the way we're looking at our markets, we certainly we certainly look at our markets in terms of Roi by market and efficiency and we apply that the national spend is incredibly efficient and continues to allow us to to to get a breath of communication. We need to however, we are seeing increased levels of digital spends being very effective and markets as as we focus on expanding there's market. So I think think what you'll see is dead continued mix of national digital their synergetic synergistic as well. So obviously the the more National spins are the top of the funnel and as we get into the middle of the funnel those wage
Really help us nail it and right now while we're seeing an increase in.
Overall cost at the national level and media, I think because you know, the economy is coming back the brand stickiness and the efforts at the digital level are increasing our conversion rates. So we really see sort of a a continued positive and Roi based on looking at the combination of the national versus local studs.
Thank you. Our next question comes in line of Thomas Forte with the Davidson. Please proceed with your question.
Great. Thanks for taking my questions. So one question and one follow-up. So Sean at a high level. What's your goal for the pace of innovation including major and minor Innovation? And then what role does the showroom place when it comes to showcasing new products to Consumers?
Yeah, our car pays for Innovation hasn't changed. Our goal is for you know, roughly every couple of years to be able to put out something major and in between jobs continue with minor Innovation that incremental Innovation that allows us to increase our average order value allows us to continue to make their platforms more sticky or interesting more competitive in the landscape. Nothing's changed there. Um, we will obviously begin our major Innovation rollouts public company with with the one that we continue to talk about for this year and we'll be back with more news on that. Once we have a firm grasp of the timing change, but again expecting that this year in terms of the showrooms role in putting these out there. That's really our whole strategy we invented dead.
The things that we invent through this design for Life approach to product design are very unique. And even though they're meant to look like the things were familiar sactionals is the best example of that looks like a sectional sofa performs very very differently and requires some Hands-On understanding showrooms and touchpoints is probably a better word is Jack alluded to and if you if you heard some of the things that you talked about we have a lot of new touchpoint tactics the emerging that will be very exciting of us to bring other things to Market Advance hold.
Excellent. All right. So for my follow-up question, I want to hear Sean your current thoughts on International expansion including you know, the opportunity to enter English-speaking markets that can in the UK with either a LoveSac showroom model or potentially a shop and Shop one or the Costco warehouse opportunity.
Great question. It's something we continue to be excited about it's something that we continued to research and it's something that we are not prepared to announce our exact intentions other than to say it will happen. Someday. We have products that we think can resume many other markets we have, for many of these products filed and and issued all around the world and we continue to issue more patents internationally as well in preparation for that, but nothing to announce yet.
Great. Thanks.
questions
Thank you. Our next question comes from line of Camilo Lyon with btig. Please proceed with your question.
Thank you. I'll let my congrats on the Fantastic close to a great year. The first question I have is on or jog. Maybe if you can help us understand. What do you think? The brand is in terms of consumer awareness and recognition and I asked this within the context of you know, now a couple of quarters consecutive consecutive quarters of putting up marketing that is generating better Ro eyes with seemingly not as much needed investment. So is the brand of the point is as a team where consumers are coming to you without that Caesar from the marketing advertising perspective.
It's a great question. I mean there have been so many Dynamics going on this year and some and some Tailwinds it one would like to say the stickiness of the brand is starting to talk to appear in terms of increase conversion rates awareness rates may be slightly going up but not significant. However, you know, this is a category that has Faith speaking low awareness levels for products until people are engaged. So we'll have to really watch that as well. But but I think you know, I think there is some stickiness. I think the conversion rates reveal that and you know more to come
Great and along that front also in the context of the overall, Terry around increased Investments or return of postponed investment banker. What is the balance that we should think about with respect to investment in even margin flow through in other words, Do you see an improvement to the kind of the architecture of the outline that you provided from a sales perspective of the low to mid-20s should you exceed that? Will you reinvest first month or will you let that drop to the bottom line? And what what's the what's the mentality around flowed through given that you've got multi multiple years of Investments wage, um long-term growth opportunities in front of you.
I can grab that one. Yeah. So our our goal is to continue to reinvest straight. The goal is to we we put a substantial amount of Investments on hold last name for the all the right reasons. So our goal would be to to if we surpass our internal projections, they will be to reinvest back into the business office.
Guy and then down the one more for you just on gross margin and and more specifically on tariffs. Can you just update us on where you are in the mitigation efforts? Have you fully sold through the Palm Terrace affected inventory or is there still some drag that we should expect to see in is that being fully mitigated by the readers that your received from? You been to Partners and then just final final point on that is where is the East Coast DC at right now from a operational capacity perspective now fully up and running.
I'll take the East Coast first.
Yeah, so that is fully up and operational. It's a a magnificent, um facility for us over. It's about eight hundred thousand square feet, but it is it's fully operational as far as the tariffs. We still have the inventory coming in that is impacted by tariffs as we I would say that we we've level out on a supply chain overseas. We still have inventory that's coming in and I would expect us to continue to have it inventory come in from China. So to have a portion of our inventory that is impacted by tariffs until tariffs fully go away. As far as the mitigation. I wouldn't say that they're fully mitigated by vendor rebates and um, uh pricing discounts, but there is a big portion of them that that the big portion of that that is being mitigated but dead.
Also the help or I guess would be with the decrease in promotional discounting that's helping to mitigate the impact as well. So overall we still will continue to bring inventory in from China. And as long as China has the tariffs we we we will be impacted by tariffs.
Got it. Very helpful. Thank you and good luck this year.
Thank you.
Thank you. Our next question comes in line of Matt. Koranda with Roth Capital Partners. Please proceed with your question.
Hey guys, thanks for taking the questions just in the context of the low-to-mid 20% framework that you guys provided curious. If you could maybe help us with how we should be thinking about growth in fiscal 2002 and no Jack said I think up 11% this last year and then also be helpful to understand sort of what we are assuming in terms of contribution from the other Revenue line and a noted that you mentioned fifteen store expansion with Best Buy. So how much of that would be factored into the theoretical Outlook that you guys could
You want to give that up cover that one? Yeah, I can you could grab the aov one. I'll grab the the contributions. So again, the the June 20th is just a framework, right it's it's not meant to be guidance, but we are not in in our internal projections. We're considering the Best Buy expansion as an upside to our internal model so that the 15 or so best buy shopping shops that Gap mentioned again isn't up to our internal projections. So we're we're operating on internal projections on our own showroom expansion as well as the expanded. Ugh Costco online will call them temporary Road shows that are happening. Um, so again, that's all that would be all upside to the frame.
Work that we provided.
Okay, got it. And then on the LV is maybe Jack? Yeah, you'll be I would say, you know, there may be some some growth in aov, but it won't be as robust as you saw last year and you know that really depends too much on some of these other initiatives if they get activated or not. So as we go throughout the year, I think we'll give you be able to give you more insights on how that works through.
Okay, got it. And then on the CRV to I mean I noticed obviously you guys know that it hadn't changed much but underneath that I assume there are some some substantial changes potentially with cash just giving the marketing spend from this last year and and sort of maybe they were turn on that cat you're getting so maybe just wanted to give you the opportunity to kind of unpack that a bit and talk a little bit more about sort of the changes underneath pack radio that you get. Yeah. I mean it was basically flat. So what we saw was a customer acquisition cost that that did go up and it went up similar to the value that wage offer the first year customer value going up. So, you know, it's continuing to be really impressive and there is obviously in that kind of level there's a lot of room for expansion. A lot of companies will go with a significantly lower CLD to CAC as you know, so we have a lot of room for expansion and and I would say right now based on what we're seeing with converter.
And everything else and some of this belief that the brand May getting be getting sticky or that I don't see will we see any significant challenges to a ratio like that and the upcoming year off?
Thank you. Our next question comes from the line of Alex Fuhrman with craig-hallum capital. Please proceed with your question.
Thanks very much for taking my question and congratulations on your goal also to to achieve 100% circular and sustainable business model, you know wanted to ask a little bit more about that. It seems like a pretty pretty ambitious goal. Can you talk about some of the Investments that you're going to need to make between now and 2040 to get to that goal of zero weight the missions and what are some of the kind of internal sort of targets and metrics are going to have along the way as you as you kind of move towards that goal off.
Great question appreciate the focus. It's something that we are passionate about and focused on and and and perhaps I hope passionate about in a different way than then some companies. We found that the designed for Life philosophy in the way that we design products has not just been a nice thing that they you know, generates more sustainable products and makes us feel good. We found that position correctly. It is the basis for our
Is is the is the basis for the value of our products? It's what drives the stickiness of our brand it was it's what drives a lot of consumer. I think excitement around are around our brand and drive sales office and and therefore, you know, the sustainable business model becomes good business the same will be true. We believe for CTC a business model that is not just focused on sustainability but focused on a circular relationship with the customer where they have a real relationship with our firm the things they buy and the way that we deliver it gave them the way that we interact with them becomes not just again in pursuit of sustainability in the SG goals, but a a real situation ship that becomes more fruitful and again is is is really great for business that said there are many components to a circular business model is very ambitious goal. We recognize that a new age
uh, there will be Myriad Investments to make over the next uh,
Nineteen years as we as we approached get getting to zero waste into remission. So I don't think there's time on this call back to possibly list them all but I will say will begin with the business model as we as we develop these programs that will allow us to help consumers Trader Joe's products among themselves and productive ways help, you know, take back or trade in product is they upgraded for instance, uh, as we launched the storage seat good example people's question was head got regular seats might I be able to trade them in the obvious answer for a circular business will be yes, and we will obviously be able to redeploy us as an exact. You know, these it's it's the operational components of the business that will be focused on that will actually drive we believe more Goodwill for our brand and more business and and those ugh investments will come first serve.
We attempt to get 200 missions there will be many more on the obviously the supply chain side the manufacturing side if it's an entire business model, that's why we offer ourselves so much time our goal is not to be complacent but instead to really approach it holistically and uh, we think in a novel way we're really excited about about where that's going to come and because we've committed to growing profitably and and continuing to grow rapidly will need the time to spread those Investments out over a long period of time.
That's terrific. Thank you very much, John and just to just to add a little bit to that. I think is we have this knowledge of our strategy long term in terms of seats. And as we start to really look up our opening our business model having that vision is allowing us to do things significantly earlier than we would of and consider our options in a wider view. For example, I'll just throw this out there a way without when the absence of a CTC approach a concierge may only be considered a selling tool in the context of what we're trying to do. It could become a post-purchase off tool in terms of trade-ins in terms of covers switch outs in terms of refurbishing. So it becomes a really interesting approach as we apply to all the the levers. We're trying to test right now and find some very interesting ideas in there. So a lot more to come but that's an example of how this will drive our real operating business forward and we believe we can do it and continue to be profitable, but also be more and wage
impactful on the environment where rent
exactly
Thank you. Our final question this morning comes from the line of Vermont Williams with Steve. Please proceed with your question.
Good morning. I just had a quick question on on inventory. Could you just talk a little bit about how you're feeling about your current inventory position for sactionals and sex given the strong man you're seeing as well as the the supply chain headwinds that are impacting the industry.
Yeah, I'll I'll start a little bit of that done and you can probably finish I think one of the things were super pleased about is the the promotional environment being a softer than we expected the prior to the year in our ordering. So it's allowed us to be very efficient in terms of driving Revenue agent with less units going out than originally expected. So I think that that's going to help us in supply chain and I think we've been very aggressive in terms of the team ordering earlier for the end of the year volume. So we will be increasing inventory. I think at rates that that help us with expectations of probably, you know, four to six weeks of age plays in one way or another throughout the supply change. It will be covered by us or during early and and I think the other thing that Donna mentioned is some of those tariffs still coming out of China are wage
Art of an overall strategy where we have a lot of sources right now working a lot of redundancy, which is really helping us feel pretty good about how we can fulfill the the expectations of the Series 6 business.
Yeah, okay, and we are definitely strategically-placed. I think I've mentioned on a couple of calls that you know, we typically maintain a 12 to 16 weeks in stock inventory position. So we're we're really strong on our inventory levels. We will continue to be where we've got the warehousing everything off line to make sure that we we are mitigating whatever we see coming down the pike. So very strong processes internal internally around the inventory at all.
Okay, great. Thank you. That's awful.
Thank you. Ladies and gentlemen that concludes our question-and-answer session. I'll turn the floor back to mister Nelson for any final comments.
Thank you so much to all of our LoveSac employees and investors who supported us through this tumultuous Year. We're very pleased with our results and excited to come back to the conversation as this new fiscal year unfolds.
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.