Q1 2022 Lovesac Co Earnings Call
[music].
Greetings welcome to Love sex first quarter of fiscal 2022 earnings Conference call.
At this time all participants are in a listen only mode.
The question and answer session will follow.
Formal presentation.
If anyone should require operator assistance during todays conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
I will now turn the call over to Rachel Schacter of ICR, Rachel you may now begin.
Thank you good morning, everyone with me on the call is Shawn Nelson Chief.
Follow the Cave Officer, Jack Krause, President and Chief operating officer and damage on the Chief Financial 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.
These include 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 a discussion.
These risks and uncertainties you should review the company's filings at the SEC, which include page press release.
You should not rely on our forward looking statements as predictions of future.
We're about at.
All forward looking statements that we make on this call are based on assumptions and beliefs as of today and we are.
Undertakes no obligation to update them, except as required by applicable law.
Our discussion today will include non-GAAP financial measures, including EBITDA and adjusted EBITDA.
He's the non-GAAP measures should.
Project There in addition to and not as a substitute for or in isolation from our GAAP results.
A reconciliation of the most directly comparable GAAP financial measures of such non-GAAP financial measure has been provided as supplemental financial information in our press release.
And at the Executive officer of the lots that company.
Thank you Rachel good morning, everyone and thank you for joining us today.
It was just 8 weeks ago that we were on our year end call, where I discussed at our fiscal 'twenty 'twenty, 1 accomplishments our C. T. The operating philosophy and loves checks go forward strategy and a fair amount of detail So I will.
Chief of remarks brief today by reviewing the highlights of our first quarter financial and operational performance before Jack outlined our first quarter progress on our key growth initiatives.
Donna will wrap up our prepared remarks with the review of our financial results and a few other items relating to our outlook.
We are overall very pleased with our.
I'll keep my results as we continue to build on our momentum from last year. As a reminder, we anniversaried the onset of the pandemic and subsequent showroom closures late in Q1.
Even on a 2 year basis business performance was very strong relative to the first quarter of fiscal 'twenty 'twenty, 1 with 2 year combined call.
First quarter at 98, 9%.
Now, let me review the highlights of our first quarter performance.
For the quarter total net sales were at $82.9 million up 52, 5% versus the prior year period, we delivered total comparable sales growth of 48.8 per cent and continue to be.
Very encouraged by the broad based strength in demand for our products across both new and existing customers.
We saw strong growth across showroom and other partially offset by a decrease in internet sales, reflecting the channel shift back to our showrooms that are now fully opened.
Adjusted EBITDA increased 190.
Comp with 7% to $5.3 million end marks the first time, we've achieved profitability in Q1.
This strong start to the year is reflective of continued strength of the demand environment combined with our focus on improving our offering customer experience and go to market position as we seek to expand our market share.
The 3 this heavily fragmented industry.
We continue to advance our strategic priorities during the quarter, which Jack will discuss in detail a few notable callouts starting with our brand presence of cross showrooms and channel partners. Our comp performance speaks for itself, but we're also seeing strength in the performance of our best buy shop in.
We are pleased to have all of our showroom leases meant 2 opened for the balance of the year already signed and moving toward opening.
Our innovation agenda and engine is humming.
Besides the planned launches on track already slated for later this year, we are quickly, adding talented engineers and designers to our team to allow us to scale.
Shop faster in the future.
As it relates to the broadly discussed supply chain backdrop I want the first recognize our team and the great work. They have done and continue to do navigating what remains a tight supply chain environment.
The diversification of our supply chain around our few core products and the international redundancies create.
Even if it has helped us stay in stock and meet demand in Q1 as we look ahead, we will have to manage this carefully through the year.
On the ESG front, we continue to develop our circle to consumer or C. T C philosophy, which continues to drive our operations under the CTC model, we plan to deliver more high.
Create a sustainable long term product platforms in multiple categories across the home space and pair them with services meant to create raving fans and the long term relationships with them.
Our long term focus on all things is at the heart of the circle to consumer philosophy.
Additionally, as part of our can.
Quality ESG focus in addition to the work we are doing on the environmental and sustainability side, we are making strides on the governance front.
Just this week, we announced the appointment of share in lighting as a new member of the board of directors share and currently serves as CEO of the vitamin Shoppe and has extensive and diverse experience.
The siem or facing businesses across areas, including product innovation.
Panel distribution and loyalty and personalization.
Her perspective will be very valuable as we continue to build and scale of the loves at ground.
Sharon is filling bill phoenix's position and we want to thank bill for all of his contributions as the board member.
And so over the last 4 years.
So in summary, we are very pleased with our first quarter results and the continued execution across our strategic priorities as we look at the remainder of the year against the dynamic operating environment, We will stay focused on expanding our brand continuing to elevate our customer experience and strengthening.
The foundation to support the considerable growth that lies ahead with that I'll hand, it over to Jack to cover our strategic priorities and progress Jack.
Thank you Shawn and good morning, everyone. We are very pleased with our first quarter performance and the strong progress our team continues to make on our key strategic.
Our Counterparties, which I will now review first efficient marketing and merchandising strategies, we are leveraging our learnings from the second half of fiscal 'twenty, 1 and are continuing to drive more efficiencies and high returns from our marketing spend.
Tactics contributing to these increases include extension of the media flights to.
Jake Prime key events, driving reach and our target customer through ramping up non linear buys like Hulu and OTT.
We're also targeting our linear buy to drive higher reach.
We're also increasing our digital spend as we know customers spend more time digitally researching the home furnishing from purchases.
The rent increases include both the spending more on existing platforms, but also introducing new channels, such as tech talk which we have seen success of them.
Second showroom operations, we opened 8 showrooms in Q1 and remain on track to open approximately 25. This year, our showrooms continue to be an important.
The components of our omni channel model, and importantly added capabilities like mobile concierge.
Appointment on the spot scheduling and showroom post purchase specialists are further enhancing the love Sac shopping experience to that end in the first quarter approximately 25% of our showroom business was generated.
Horton could from appointments driving strong productivity. We also plan to test the new consumer touch point in the second half.
By incorporating up to 10 branded kiosks and our real estate strategy.
These locations will be initially focused on trade areas, where our core consumers live.
Live, but our brand is not yet represented by physical touch point.
We believe that they will also serve as additional touch points in trade areas, where we have an opportunity to gain incremental business and an asset light manner.
Third initiative.
Expanding our other channel presence, we continue to be excited about our part.
Partnership with best buy and our expansion plans to open more shop in shops for the second half of this year and early next year with preliminary plans to open over 15 additional shop in shops.
We're very pleased with the strength of the Costco business, which we're executing with our online roadshows.
And Costco and her team of very pleased.
Pleased with the relationship and have plans to expand our presence digitally and are exploring potential physical touch points in the future as well.
We will also continue to pursue opportunities with other partners and we will provide updates when there is news of note.
In addition to the just discuss kiosk test will be launching at.
Larger mobile concierge pilot in the second half of this year as we continue to test touch points and seek to physically expand our brand while maximizing returns on our capital.
And fourth making disciplined infrastructure investments our brand is in its infancy.
And we're building a platform with the necessary infrastructure and capabilities to support the long and attractive runway for growth that lies ahead.
As we've mentioned previously we're focusing all of the products and figure out or in post purchase of aspects of the customer journey. That's the customers are getting more comfortable with shopping online for premium price products.
We continue to see success from our combined sales and service strategy, including the continued evolution of the post purchase specials program that we piloted this past winter. These associates reach out to post purchase customers and take a proactive approach the guiding the customer through their post purchase journey, including confirmation.
Of the customers order, providing shipping details and follow ups during setup and installation. These associates are all cross trained and other showroom sales and customer service activities, but at played a critical role in our post purchase experience as global supply chains continue to rebound from the pandemic.
We are seeing continued success with our new ecommerce platform with traffic up 65 per cent and conversion of 55 per cent in the quarter versus 2 years ago. Additionally, as we mentioned the make an appointment feature has been particularly important software launch appointments in Q1 accounted for 25 per cent of the demand sales in showrooms.
Arms and helped drive a 163 per cent increase in average order value over the same 2 year comparable period.
In terms of supply chain, we continue to make improvements across the areas, including delivery reducing costs increasing efficiencies.
And mitigating risk.
As Shawn said.
We're so proud of our team's agility that has helped us to manage the industry supply chain pressures today.
As the others in the industry of discussed there of raw material shortages of freight cost pressures and port delays that we're contending with.
To date, we have utilized a reduction in promotions to offset these pressures which in large part.
It has been enabled by the benign promotional environment.
We are increasing and continue to diversify our global production capacity in Vietnam, Malaysia, Indonesia, China, and the United States, and we will be implementing our new supply chain ERP system by the end of this year to help of scale and continue to drive off.
And the stocks with our customers we will continue to use all levers to navigate what we expect will remain a tight supply chain environment.
So in summary, we're very pleased with our strong start to the year. The pandemic tailwind continue within the home furnishings category and all of the work that our teams are doing is serving to strengthen.
The more of that brand and value proposition as we look to the remainder of the year. We recognize the environment remains dynamic and we'll continue to execute our vision and strategy with discipline as we focus on driving long term value to all of our stakeholders.
I will now turn the call over to Donna to review, our first quarter financials.
The love Donna.
Thank you Jack Good morning, everyone I will begin my remarks with the review of our first quarter results and then an update on the framework of shared with you last quarter as it relates to how we're approaching fiscal 2022.
Net sales increased $28.5 million or 50.
2.5 per cent to $82.9 million in the first quarter of fiscal 2022 as compared to $54.4 million in the prior year period, driven by our showroom sales and other channel sales. The increase in these channels was partially offset by a decrease in our internet sales against the period.
Period of elevated digital sales last year, given the pandemic related showroom closures.
Showrooms net sales increased $30.9 million or 174% to $49 million in the first quarter of fiscal 2022 as compared to $18.1 million in.
The prior year period.
This increase was due principally to a $26.7 million increase in comparable showroom sales to $41.3 million in the first quarter of fiscal 2022 as compared to $14.6 million in the prior year period.
Due to the temporary closures of all of our showroom locations.
As a reminder point of sales transactions represents orders placed through our showrooms, which does not always reflect the point at which control transfers to the customer when control transfers net sales of recorded.
Other sales, which.
At the pop up shop sales and shop in shop sales increased $2.6 million or 41, 4% to $8.8 million in the first quarter of fiscal 2022 as compared to $6.2 million in the prior year period with the increase related to the closures of all pop up shop in shop in.
Which include patients due to COVID-19 in the prior year period.
Internet sales sales need directly to customers through our ecommerce channel decreased $4.9 million or 16, 3% to $25.2 million in the first quarter of fiscal 2022 as compared to $30.1 million in the prior year.
<unk> driven by the comparisons against the elevated digital sales in the prior year period I just mentioned.
By product category, our <unk> sales increased 68, 9% and our other category sales, which includes decorative pillows blankets and other accessories also increased 94.3.
Percent.
Our <unk> sales decreased 26, 1% from the prior year period due to less promotional activity in fiscal 2022 as compared to the first quarter of last year.
Turning to our gross margin the 540 basis point increase over the prior year period was driven by a 4.
The period basis point improvement due to a reduction in promotional discounts.
The overall sectional product category premium cover mix impact and lower product costs related to vendor negotiated tariff mitigation initiatives due to higher volume.
Distribution expenses improved by 140 basis.
$400 over the prior year period due to higher leverage of 490 basis points in warehousing and distribution costs, partially offset by the increase in inbound and outbound freight costs of approximately 350 basis points.
We exceeded the first quarter net sales and growth.
At this point and expectations, we shared with you on our last call primarily driven by higher than estimated warehouse throughput of order shipped and a reduction in planned promotional activity. The last few weeks of the quarter.
In addition, we also realized benefits of higher leverage on warehousing and distribution costs due the.
<unk> net sales volume.
The 18, 9% year over year increase in SG&A was driven largely by an increase in employment costs.
<unk> and overhead expenses, partially offset by a decrease in selling related expenses the.
The increase in employment costs was primarily due to additional hires.
The high end both headquarters in our showrooms that were put on hold in the prior year period due to COVID-19 related financial relief.
<unk> measures the.
The increase in rent was related to the increase in our showroom count.
Overhead expenses increased due to infrastructure investments and insurance expense related to the growth of the company.
Hearing partially offset by a decrease in equity based compensation and travel related expenses related to COVID-19 restrictions.
Selling related expenses decreased due to lower in store pop up shop fees, partially offset by an increase in credit card fees related to the increase in net sales.
SG&A expense as a percentage of net sales decreased 10, 5% due to the expense leverage in multiple areas such as infrastructure investments selling related expenses employment costs rent equity based compensation travel and insurance.
SG&A expense was lower than our expectations in the first quarter.
<unk> principally related to the shift in our infrastructure investments and hiring to the level that was anticipated in both of our headquarters and showroom locations. We anticipate that these expenses will be higher in the second half of the fiscal year.
Our investments in advertising and marketing expenses increased.
The $2.5 million or 33% to $10.7 million in the first quarter of fiscal 2022 as compared to $8.2 million in the prior year period due to the reinstatement of marketing expense to support sales growth of showroom locations are now fully opened.
Advertising and marketing expenses.
<unk> were 12, 9% of net sales in the first quarter of fiscal 2022 as compared to 15, 1% of net sales in the prior year period. The 220 basis point decrease was due to leverage on the increase of net sales.
Depreciation and amortization increased $800000 from the prior year period.
To $2.4 million, principally related to the capital investments for new showrooms.
In the first quarter of fiscal 2022 operating income was $2.3 million compared to an operating loss of $8.4 million in the first quarter of last year with the increase driven by the net sales and gross margin.
Increase as well as the SG&A leverage I just discussed.
Net interest expense for the first quarter.
Was approximately $44000 principally related to unused line fees on our revolving line of credit.
Tax expense in the first quarter of fiscal 2022 was the hunter.
Margin the 3000 as compared to 25000 in the prior year period related to minimum state income tax liabilities.
Before we turn our attention to net income net income per share adjusted EBITDA. Please refer to the terminology and reconciliation between each of our adjusted metrics and their most.
And she directly comparable GAAP measurements in our earnings release issued earlier today.
Net income was $2.1 million or 13 cents per diluted share in the first quarter of fiscal 2022 compared to a net loss of $8.3 million or.
Our 58 cents per diluted share in the prior year period.
We generated positive adjusted EBITDA of $5.3 million in the first quarter of fiscal 2022 as compared to an adjusted EBITDA loss of $5.7 million in the prior year period.
Turning.
Turning to our balance sheet, our liquidity continues to remain strong as we ended the first quarter of fiscal 2022 with $65.7 million in cash and cash equivalents and $18.1 million in availability on our revolving line of credit with 42000 of the outstanding debt on the revolver.
Revolver related to the timing of the ABL fees being charged to the revolver.
Please refer to our earnings press release for other details on our first quarter 2022 fiscal performance.
Regarding our outlook as we said during our Q4 earnings call we are still.
Still operating in a pandemic environment with a wider range of potential outcomes as it relates to fiscal 2022.
Given this we're not providing formal guidance for the full year, but we will share an update on the framework that we provided during that call that will be helpful. As you are updating your models.
We are targeting another year of strong sales growth with approximately 25 showroom openings and we expect to restore expenses that were pulled back in fiscal 2021 due to the pandemic.
We will continue to strategically make infrastructure investments to support the substantial multi year growth opportunity that lies ahead.
Head.
With the additional showroom openings.
In <unk>.
A scenario where sales growth is in the mid 30% range. We would expect adjusted EBITDA margins in the mid single digit range with the year over year margin decline driven by both gross margin pressure.
<unk> as well as the expense and investment dynamics I just discussed.
We like others in the industry are facing intensifying free headwinds, which our teams are working hard to mitigate we.
We will be very disciplined on the expense side to help offset these inflationary pressures and therefore still believe adjusted even.
The margins in the mid single digits are at a reasonable outcome in a scenario where sales increases in the mid 30% range.
For our fiscal second quarter, we expect sales growth in the high 40% range with positive adjusted EBIT of dollars slightly less than the same quarter last year.
The slight reduction in projected adjusted EBIT of dollars is being driven by the efforts being placed on strategic expense reinstatement and the infrastructure investments needed to support the growth of the company that were put on hold in fiscal 2021 as part of our COVID-19 financial resilience measures.
We are still expecting to generate cash from working capital in fiscal 2022, and capex to be in the 15 million to $18 million range.
So in conclusion, we had a very strong first quarter from both the net sales and profitability perspective, we are focused on disciplined execution as we navigate.
8 of dynamic operating environment and position most ex for sustainable long term growth.
With that we would now like to turn the call back to the operator, who can open it up for questions operator.
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1 moment, please while we poll for questions and once again the star 1.
Thank you and our first question comes from the line of Camilo Lyon with BTG. Please proceed with your questions.
Thank you and good morning.
Great start to the year congrats on the momentum.
John I just wanted to ask firstly on the guidance that you just provided.
So you talked about.
Mid single digit digit EBITDA range if.
If you achieve mid <unk> sales growth.
You talked about gross margin pressures ensuing from freight yet you just put up a quarter, where you had about 500 basis points of little over 500 basis points of margin expansion could you just articulate what.
You see coming down the pipe.
Right.
That would suggest that theres incremental amount of gross margin pressure.
Aside from the freight expense that you've been experiencing already that would substantially decelerate the margin profile into the back half of the year.
Is.
Is it promotions is it something else that we're not contemplating.
And then I have a follow up please.
At good morning, so yeah, so and I think where were similar to a lot of other people out there that the freight headwinds just keep compounding so where we had originally.
The only project at our inbound freight rates in its specifically on the inbound side as port congestion.
Congestion.
Container availability, it's it's making it more and more difficult although inventory is at really good position for us at just costing us a lot more to bring it in and get ahead of some of the the other.
Of the people that need to get inventory in so.
So that's it's principally that is not related to discounting at all we have very strong discounting or reduction in discounting.
We're still planning to do that but at all.
100% related to the headwinds on the inbound freight I will tell you that.
We're gonna at will impact more in Q4 at would be most meaningful in Q4 than in Q3, when you're doing your modeling, but I think the the real positive takeaway is that even with those headwinds we do have more levers to pull of to make sure.
Sure that we can still generate adjusted EBIT of dollars in the mid single digit range. So the teams are working really really hard to mitigate from a top line all the way through the SG&A.
Thank you for the Atwood.
Add to that I think what you saw in the.
The.
In the quarter in the last couple of quarters of really leveraging systemically from the way of the company is growing and we expect it to get those end, we were seeing a lot of strength as well on the brand and stickiness, which we believe will continue to enable us to sell.
At decreased discounts however, the.
And.
The team has been really great at bringing in inventory in order to mitigate the potential.
Freight costs will be seen later in the second half so really what we're seeing is Ah.
The lack of impact in the first half of some of these headwinds people have been talking about and starting to to get those headwinds in.
In the second half, but the first half growth and margin is really related to just the scaling of the business and strengthening of the brand. So there's definitely 2 different trends going there..1 is long term and I think the other 1 where we would all agree is the transitory.
Situation in terms of freight headwinds.
Yeah.
Camilo 1 other thing I will throw in their queue.
If you recall from our fourth quarter earnings call I'm, even third and fourth quarter, we had some substantial things that also impacted the.
The gross margin vendor discounting, we were able to bring down.
Our inventory reserves.
So what we've done is we've started working with our vendors to not necessarily give it to us in rebates.
So the impact on the FERC first quarter of those 1 time rebates are going to be less impactful and we're actually getting at in pricing so that.
That reduction in pricing is helping us throughout the year versus the 1 time. So there is that that you know we still have 1 vendor that we work with the gives us rebates. So it just won't be as impactful the rebate number as it was in the prior year's because again, we're seeing at in the discounting on the product.
And also.
We do not anticipate any well called benefit from reduction in inventory reserves, so that's something else as well.
Got it great color.
And then just my second question is really reflective of what.
What youre seeing from the consumer perspective.
Active if I heard some of the prepared remarks correctly. It sounded like you have consumers coming to demanding more product.
More innovation from you. So the question is is that true or are you getting a pull sort of a request from the consumers now that they've now that.
This has been the step function change in awareness of the brand at.
And how does that coincide with.
The expected next innovation launch in end, what's the update on the timing of that thank you.
I'll start at and then hand, it off the Shawn because I can tell you a little bit about what we're seeing with customers I think internal research.
It shows us that our customers value our brand of more than they ever had so at the same time, while we're discounting less we're perceived as the higher value, which I think is a really.
A result of the team really working to create a great product and the integrated program and great customer service. So.
Certainly taking place right now.
We're also seeing.
Interestingly enough the more we advertise we're also seeing stronger word of mouth advertising start to happen. So we've seen that significantly increases the percentage of our new customers, which is telling us we are starting to get some of that.
Brand track.
Traction that that we've been looking for so we're very pleased with that on the innovation side I'll defer to Shawn on any comments on that.
Nothing new to add on the innovation side.
We believe the.
Things are on track and we look forward to.
New product launch.
Later.
That are in the.
We're excited about the future lots more to come.
Alright, thanks, very much guys. Good luck.
Thank you thank.
Thank you. Thank you.
Our next question comes from the line of Maria <unk> with Canaccord. Please proceed with your questions.
Of this year good morning, and congrats on very strong numbers I, just wanted to get a little bit more color on trends that you're sort of so in the later part of the April that sort of drove this strong performance relative to your outlook and I think Donna you mentioned that it was largely related to you at.
At the warehouse throughput was there anything else that sort of drove.
This outperformance and that maybe at sort of what drove this warehouse efficiency and does it create any sort of revenue recognition pull forward for you going forward and then I have a quick follow up.
Hi, good morning, so the the warehouse throughput at.
And that you know the finance team has to estimate in looking at what we think the capacity is and.
At the warehouse really rallied we did not have them work any extra hours or anything else. Its just that they were they were able to.
More inventory out that we had estimated again.
Something you at very conservative the estimate because we don't want throughput to be the thing that drives our revenue.
So what we do is we do very conservative estimates on what the warehouse capacity is coming in at the end of the quarter and the teams did a great job and accelerate.
Leading our without working any extra time. So that's that's really what that is and do we feel that we brought pulled any revenue forward no based on what we're seeing for the guidance. We provided on Q2, you can see that we do not feel that we pulled any revenue forward into Q1.
Got it that's very helpful and the secondly, obviously very impressive showroom growth this quarter of sort of how you're thinking about the than ever the between showrooms and internet sales as the reopening continues.
Yes. We're at look we are we're being very consistent where we've been historically, which as we know.
Celebrate trade areas, where we create physical touch points and showrooms are a price of our primary source of touch points right now we see a dynamic that strengthens the brand and the synergistic between E com and showroom. So we will continue to grow showrooms and we will continue to penetrate.
A lot of trade areas with.
That might execution, such as the coffee airs as we've discussed the things like the potential of the of kiosk tests as well and then as well as the potential for best buy in the future so strengthening.
The strengthening our touch points of our ability to touch as many customers as possible. We will continue to be something we'll do aggressively but we.
With that in the way that really looks at the highest potential return on capital.
While delivering the best brand experience. So there will be a continued development of of strong touch point strategy over the next 3 years to 4 years.
Got it thank you both.
Thank you. The next question comes from the line of Brian Nagel with Oppenheimer. Please proceed with your questions.
Hi, good morning.
Aren't you went out of my congratulations on a great quarter, great start to the year.
Thanks.
Some of my first question just with regard to sales in the quarterly sales stronger in Q1 of it is the guidance suggests continued.
The strength of Q2, but are you seeing any regional differences.
At the economy knowledge of reopening the.
Different piece of the different places where you are your part of your stores performed the shorts are you sort of where it's performing differently at different parts of the country get of reopening of activity.
Not not anything of particular note I would say that.
At our.
Our showrooms have been performing at.
During the pandemic period.
In relationship to how open the the markets were in I think what we're seeing now is as we're getting back to a I guess, it's called the new normal we're seeing strength across the whole business nothing in particular.
To note right now.
Okay. That's helpful. And then the second question I have I think the Jack in the U in the prepared comments you talked about.
Talking.
Some new new marketing efforts.
How do you look at the overall the progression.
The year of your of your of your market at this point it would be clearly there were some crosscurrents.
The pandemic of probably exist now, but if the overall barking deficiency of what what loves back with you and how should we think about that going forward.
Yeah. We continue you know we continue to look at a really I think the ultimate way of looking at it is and you know of.
Again of CAC to see L V a ratio in of.
At area, which includes our showrooms as well as the com and they're so interconnected it's hard for us to separate the businesses, but we're certainly looking at them that way. So we look at them, including the end and those costs are unlike I think what are the classical direct to consumer company would do we include the incremental either brick.
Rick and mortar.
Or capital touch point capital and the touch point costs in order to do at and that's what I think is going to allow us to continue to be very efficient, but if you look at it at traditional measures, we're seeing efficiency at a classic sales per square foot as high as it's ever been what we're seeing is conversion rates.
And our showrooms as high as they've ever been.
They are being driven by a lot of pre shopping online. So the historical ways. If you looked at the business are as efficient and as they've ever been but thats just that we're getting more and more away from that and getting to more of a trade area of valuation of the businesses.
As we go forward, which is much closer.
Those are 2 I think of lot of the commentary that.
That Shawn has alluded to about CTC being closer to the customer really thinking about these trade areas as total deployment of company assets in order to create.
Strong brands at the local level.
Great. Thank you very much I appreciate.
At that.
Yeah.
Thank you.
Our next question comes from the line of Thomas Forte with D. A Davidson. Please proceed with your question.
Great. Thanks, So 2 questions from me. The first question is Shawn I feel like we're in the middle of the homes Super cycle, meaning that if you think about cash.
'twenty 'twenty, 1 'twenty 2 'twenty 3 youre going to of a period of very strong sales growth in the home category not just because of the pandemic, but also because of economic stimulus of large amount of money.
And the savings right now.
And the move from consumers at Juicy.
Urban locations.
Calendar turbine.
Wanted to get your thoughts on that and then number 2.
Shawn and Jack you've talked about historically, how the cause.
Jack is a relatively young company historically, you've grown through periods of economic weakness, but how should we at Conversely think about your ability to grow.
From over the next couple of years during a period of at the minimum of elevated interest at home if it's not at home Super cycle. Thank you.
Yes, Thanks, Tom.
You know I would agree.
There are many trends of foot.
That are good.
For the home.
And you know we believe that we are of good for the home we will continue to innovate on things.
In our own unique way aren't designed for lifeway.
And be at that continues to be extremely.
Rare in the landscape and so.
Oh the trends you mentioned I think are all spot on there is a lot of money washing around there's a lot of savings as we all know now that of accumulated throughout the pandemic clearly people will go out in revenge spend and get back to their normal lives. We accept that at the same time you know it's loved.
Jack is a microcosm of and are you now in the some kind of a typical American company.
We are now primarily remote and in fact much of our.
The headquarters staffs at has chosen to relocate some.
Some.
Far from close I'm, just you know the a little closer to maybe Grandma's house I'm not across the street from the office necessarily in and as that movement happens.
Not of course, amongst our own crew, but.
Much more broadly and it may be.
A few more years of those kind of.
Policies unfolding at some companies choose to be.
The more advanced in their reaction to this change and some choose to be slower market forces will drive at there because.
People will want to live where they want to live in an end work for companies that want to work for and so.
I'll leave at that is extremely positive, particularly as we know for the couch category. The number 1 driver of the number 1 outside driver of the couch purchases as people moving and that's going to be going on for years as we've acknowledged before and so I you know we would agree with you where we're at we're very optimistic.
Stick and end bullish on our own prospects.
Let's call it a super cycle and I think that's a nice nice characterization end, if we're wrong that's okay too because the other side of the coin is what you mentioned in your question.
Love Sac I believe can continue to grow and grow rapidly.
We are again in part due to its the states stage in state in the World.
We are still at a.
Small company, we have captured very.
Mall are captured a very small piece of market share in a category that has.
Dominant leader and so you know couches or sold at every home furnishings retailer.
Most of these most of our competitors as it were play.
We're operating from the same playbook at the merchandising model, our new collections and the seasons vast collections you know 16 different couch.
No Dallas.
And while that May sound on its face like an advantage. If you look at what's happening through the pandemic. If you look at what's happening on the supply chain side, while we're facing headwinds and in end share costs. We're in stock.
Now at.
And we can ship in just days and end and we intend to be on the long term.
Profile, how we are able to operate them from this designed for life playbook, which are the selling proposition is just very different it's not about merchandising as much of its about.
Putting better products into the world that are built class a lot of time debenture of evolving compel people to buy them and so.
That said, we've got a lot more market share the capture by the way we have other other products that will come out and allow us to compete in the other categories.
And because we're so small.
There's a lot of growth and market share to be gained the head whether or not we're.
Or in some kind of super cycle, and so we're we're grateful for the.
The tailwind if if you want to call them that we're grateful I think at it shows in our marketing and advertising spend which you know.
Has has come down a bit, but but sales have been.
A stronger than ever our sales growth. You know this is this is growth on top of growth you know dating 3.4 years back end.
And and I think at exhibits the the traction that our brand is gaining.
In this age and stage that we're at and so I think we have the right product at the right time and you know we can call at luck that we we've been building the company to to.
Get to this.
Point for a lot of years, and we're going to hopefully be able to enjoy that right and continue to drive growth.
Great. Thank you Shawn Thank you Jack Thank you Donna great quarter.
Thank you.
Thank you.
Our next question is from the line of Matt Koranda.
Some of the capital. Please proceed with your questions.
Hey, guys. Thanks Jack.
2 questions first 1 on SG&A.
It just seems like head count costs arent coming back as telegraphed each quarter end.
Yes, it sounds like they may still come sort of later this fiscal year.
Maybe just wanted to see if you could highlight is there a dynamic happening where you are having trouble of billing roles or are we just sort of kicking him a little bit at each quarter on hires maybe just talk a little bit of about that dynamic. Please.
And there is there's no kicking yeah theres no kicking the can I think it's just.
Well, we may have been a little bit more.
Positive in how quickly we thought we could recruit or bringing in people, but theres no intention of moving anything down so we still intend to hire.
From the original plan, it's just shifting a little bit too.
In the year, we have quite a few hires the AIDS the need and we want to make sure we're making the right higher so the process, maybe taking a little longer than what we had anticipated.
Hopefully that's helpful and just to add a little bit of color I think there is.
Obviously, I know theres, a tight labor market and everybody.
You laid out at from that perspective, I can tell you that.
Pretty qual actually quantitatively, we're seeing more responses to any of our recruiting ads than we've ever seen so we're seeing the same type of stickiness with the brand as the recruiter, which is resulting in really great talent coming in I think our appetite was probably bigger.
Thinking of ability to digest as many hires and part of that is also because we have the.
At a really good onboarding process, which has been.
Really great for our associates and May have reduced our throughput, but it's increasing the quality and the stickiness I think of our internal associates.
Then or at all so we're going to continue to go towards the investment levels. We've always talked about it just may not come in the the constant rate that that we'd like at 2.
Okay. That's helpful. And then just on the high 40 per cent a revenue growth guidance for next quarter I wanted to see if maybe.
As we talk about the breakdown as to how we see at playing out between showroom Internet and other.
And is any of that outlook I guess predicated on of ramp up of of shop in shops.
Or additional sort of other revenue coming back online from Costco or whatnot it'd be helpful to get your thoughts there.
You could take I think the the business has been coming in consistently with what we've been expecting end what I would do I think is the best way to look at it is and I think you saw at as we quoted a lot of our numbers. We look at 2 year comps are up to even out things because of the the dynamics of the pandemic and I think if you look at at 2 year comp basis.
Other than some dramatic changes during the immediate post pandemic pandemic period Youll start to see trends that are that are more easily trackable across the.
At the different segments of our business.
Okay. That's helpful I'll jump back in queue. Thanks, guys.
Thank you.
Our next question is from the line of Alex Fuhrman Craig Hallum. Please proceed with your question.
Great. Thanks, very much for taking my question end and congratulations on all the great start to the year you know wanted to ask about the promotional activity and just broadly.
How you think about pricing I mean at just thinking from a big picture of perspective here I mean, it sounds like you've been kind of cutting back on discounting and promotions in response to supply chain constraints, but you know great problem to have your sales growth has actually been accelerating as you kind of think about that and look at what you experienced in Q1.
Is it possible of that your product has just been under price historically end and going forward, there's an opportunity to be less promotional or think about pricing a little bit differently.
A good question I think I think the the I would say the Prada.
Product hasn't been underpriced.
Historically relative to the brand that we've had but as we've really started to execute in the last couple of years, what we have seen as the significant increase in the value of the brand in the minds of of our customers and so I think in terms of the service improvements delivery improvements quality.
Of the way we package of the product the products themselves, we're seeing a higher a customer that expects and is getting a lot more value for the product. They pay so I think that we.
We certainly in our and our desire would be to continue to grow dramatically and at.
Of.
The dollars historically invested in discounting and product innovation and marketing and expansion. So as we see these opportunities.
We will take them now I think historically, we've been pretty conservative and we also know that right now we're in a benign environment, which.
Because of our I think agile execution. The last year has given us an opportunity and we want to make sure as we look strategically at Ford strategically in terms of price value relationship. We don't get too focused on what's happening right now because I think it's a very dynamic environment. So.
We're seeing great.
Great trends, we're seeing things happening that really show traction on the brand as we've discussed not only increasing rois in the advertising increasing word of mouth, but increasing value relative to a product that's actually being discounted.
At discounted less of.
All good signs and which we intend to operate the brand.
As a premium brand and really win through stickiness of the brand and surprise and delight the customer. So strategically we will pursue that but were also very aware of that in the past 12 months. We've seen some dynamics that that may be again, transitory and we want to make sure before we make any long term decisions.
We know exactly.
The right way to go.
Great that's really helpful. Thanks, Jack.
Thank you at this time, if each end of our question and answer session and I'll hand, the call back to management for closing remarks.
Yeah. Thank you so much for joining us.
For our fiscal 'twenty to Q1 earnings call. We appreciate everybody's support and we're very appreciative of our entire hashtag love Sac family team, who continues to deliver tremendous results.
We look forward to continuing the conversation with you.
Thank you.
This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.