Q4 2024 The Lovesac Company Earnings Call

Greetings and welcome to the loves ShaQ4th quarter of fiscal 2024 earnings call.

Operator: Greetings and welcome to the Lovesac fourth quarter fiscal 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone key.

At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Operator: As a reminder, this conference is being recorded. I will now turn the call over to your host, Caitlin Churchill, and best wishes for Lovesac. Thank you. You may begin. Thank you. Good morning, everyone.

As a reminder, this conference is being recorded.

I will now turn the call over to your host Caitlin Churchill Investor Relations for loves Shaq. Thank you you may begin.

Caitlin Churchill: Thank you good morning, everyone with me on the call is Shawn Nelson Chief Executive Officer, Mary Fox, President and Chief operating Officer, and Keith Sidner Chief Financial Officer.

Caitlin Churchill: With me on the call is Shawn Nelson, Chief Executive Officer, Mary Fox, President and Chief Operating Officer, and Keith Siegner, 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. However, actual results may differ materially from those set forth in such statements.

Caitlin Churchill: 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.

Caitlin Churchill: For a 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 events. 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 EBITDA and adjusted EBITDA. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results.

For a discussion of these risks and uncertainties you should review the company's filings with the FCC, which includes today's press release, you should not rely on our forward looking statements are predictions of future events. 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.

Caitlin Churchill: Except as required by applicable law.

Caitlin Churchill: Discussion today will include non-GAAP financial measures, including EBITDA and adjusted EBITDA. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results.

Caitlin Churchill: A reconciliation of the most directly comparable GAAP financial measure to such a non-GAAP financial measure has been provided as supplemental financial 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, Caitlin. Good morning, everyone, and thank you for joining us today.

Caitlin Churchill: A reconciliation of the most directly comparable GAAP financial measure to such non-GAAP financial measure has been provided a supplemental financial information in our press release.

Caitlin Churchill: Now I'd like to turn the call over to Shawn Nelson Chief Executive Officer up a lot to our company.

Shawn David Nelson: Thank you Caitlin and good morning, everyone and thank you for joining us today.

Shawn David Nelson: What a year it has been. In our 25th year in business, in true Lovesac fashion, we made meaningful strides across a number of areas as we strengthened our omni-channel infinity flywheel, reinforced our Design for Life product platform, and made the strategic investments necessary to profitably scale our brand and business for years and years to come. We crossed $700 million in revenue for the fiscal year, reflecting high single-digit growth for the year and tripled the revenues of just four years ago. That is against a category that was down mid-teens for the year and approximately flat now over the past four years.

Shawn David Nelson: What a year it has been in our 20th year in business in true luxury fashion, we made meaningful strides across a number of areas as we strengthen our omni channel Infinity flywheel reinforce our designed for life product platform and make the strategic investments necessary to profitably scale, our brand and business for you.

Years and years to come we crossed 700 million in revenue for the fiscal year, reflecting high single digit growth for the year and triple the revenues are just four years ago that.

Shawn David Nelson: That was against the category that was down mid teens for the year and approximately flat now over the past four years.

Shawn David Nelson: Despite industry headwinds, we delivered material gross profit dollar expansion with gross margins up into the high 50s. This more than covered the essential investments in product and capabilities to support sustained profitable growth, while net income was down versus last year on a reported basis. Excluding the non-recurring expenses related to the restatement that we've discussed previously, we are pleased to deliver net income growth for the year. We ended the year with $87 million in cash and zero borrowings on our credit facility.

Shawn David Nelson: By industry headwinds, we delivered material gross profit dollar expansion with gross margins up into the high Fifty's.

Shawn David Nelson: This more than covered the essential investments in products and capabilities to support sustained profitable growth.

Shawn David Nelson: While net income was down versus last year on a reported basis.

Shawn David Nelson: Excluding the nonrecurring expenses related to the restatement that we've discussed previously we are pleased to deliver net income growth for the year.

Shawn David Nelson: We ended the year with 87 million in cash and zero borrowings on our credit facility, a very healthy balance sheet.

Shawn David Nelson: A very healthy balance sheet. These results include a solid fourth quarter performance in which we delivered year-over-year growth in revenues, growth profits, and net income. While a mid-quarter lull meant we fell just shy of our guidance for net sales, we managed costs well and were within the ranges for Gross Margin, Adjusted EBITDA, Net Income, and Diluted EPS, all of which Keith will review in detail later. The outperformance we have delivered compared to the industry over the past four years is underpinned by our focus on the customer, our advantaged products, and our unique omni We compete in a large addressable market of over $46 billion. We continue to gain market share every year, and yet, we've barely scratched the surface of this huge and fragmented category. We approach this TAM, and everything we do, through what has always been a sustainability lens rooted in our very unique designed for life philosophy. We make things that are built to last a lifetime and designed to evolve.

Shawn David Nelson: These results include a solid fourth quarter performance in which we delivered year over year growth in revenues gross profit and net income.

Shawn David Nelson: While a mid quarter lull minute, we fell just shy of our guidance for net sales, we managed costs well.

Shawn David Nelson: And were within the ranges for gross margin adjusted EBITDA net income and diluted EPS, all of which Keith will review in detail later.

Shawn David Nelson: The outperformance, we have delivered compared to the industry over the past four years is underpinned by our focus on the customer our advantage products and our unique omni channel business model with an infinity flywheel. Unlike any other.

Shawn David Nelson: We compete in a large addressable market of over 46 billion.

We continue to take market share every year and yet we've barely scratched the surface of this huge and fragmented category.

Shawn David Nelson: We approached this Tam and everything we do.

Shawn David Nelson: Through what has always been a sustainability lens rooted in our very unique designed for life philosophy.

Shawn David Nelson: We make things that are built to last a lifetime and designed to evolve.

Shawn David Nelson: This approach to doing business delivers unmatched product longevity, which, when paired with the services we intend to launch, should continue to drive long-term relationships with customers who love us. This is how we will build a brand unlike any other. Our brand health is stronger than ever, gaining against our category with innovation that is changing the landscape of the home, as seen in response to our new angled side and stealth tech product. We have best-in-class touchpoint economics. We estimate they are second only to Apple and Tiffany's, with incredible payback periods of about one year and 4X the sales per square foot productivity compared to most of our competitors. Our advantaged supply chain delivers orders to our customers in a matter of days, backed with evergreen inventory. And through the investments we've made, we've driven further supply chain efficiencies of weight, enabling us to reduce inventory at fiscal year end by almost 20% without compromising delivery times or customer experience.

Shawn David Nelson: This approach and drink business delivers unmatched product longevity, which when paired with the services. We intend to launch should continue to drive long term relationships with customers, who love us.

Shawn David Nelson: This is how we build the brand unlike any other.

Shawn David Nelson: Our brand health is stronger than ever gaining against our category with innovation that is changing the landscape of the home.

Shawn David Nelson: Seen in response to our new Ingleside and style tech products.

Shawn David Nelson: We have best in class touch point economics, we estimate there are second only to Apple and Tiffany's with incredible payback periods of about one year and four acts the sales per square foot productivity compared to most of our competitors are advantaged supply chain delivers orders to our customers in a matter of days backed with evergreen in.

Shawn David Nelson: Tori and through the investments we've made we've driven further supply chain efficiencies of weight, enabling us to reduce inventory at fiscal year end by almost 20% without compromising delivery times or customer experience. In addition to strengthening our supply chain and distribution capabilities our investments over the past few years.

Shawn David Nelson: In addition to strengthening our supply chain and distribution capabilities, our investments over the past few years have been focused on expanding our showroom footprint, building technology capabilities, enhancing end-to-end customer experience, and ensuring our innovation engine is cranking as we enter Fiscal 25. We've made many of the key foundational investments and are now focused on driving our next phase of growth. We are actively developing many new products to meaningfully expand our total addressable market in the comfort seating category and new categories as well. The actions we are taking today will position us to capitalize disproportionately when the category returns to growth, which it will. We're continually refining our marketing strategies and tactics to draw new customers into our brand fold, deepen the relationship once in the brand fold, and enhance the overall lifetime value of customers. For Fiscal 2025, our outlook begins with a conservative macro backdrop. It's the prudent thing to do.

Shawn David Nelson: Been focused on expanding our showroom footprint building technology capabilities elevating end to end customer experience and ensuring our innovation engine is cranking.

Shawn David Nelson: As we enter fiscal 'twenty five.

Shawn David Nelson: We've made many of the key foundational investments and are now focused on driving our next phase of growth.

Shawn David Nelson: We are actively developing many new products to meaningfully expand our total addressable market in our comfort heating category and new categories as well.

Shawn David Nelson: The actions, we are taking today will position us to capitalize disproportionately when the category returns to growth, which it will.

Shawn David Nelson: We're continually refining our marketing strategies and tactics to draw new customers into our brand fold deepen the relationship once in the brand fold.

Shawn David Nelson: And enhance the overall lifetime value of customers.

Shawn David Nelson: For fiscal 2025, our outlook begins with a conservative macro backdrop, it's the prudent thing to do.

Shawn David Nelson: We're estimating another year of category declines, including a full-year decline of approximately 10%, with a modestly better back half than the first. It's important to appreciate that our unique business model enables us to plan this way without giving up the upside. If the macro does better, we can ride the demand curve in near real time, a capability that very few of our competitors have. With that as their foundation, we expect to deliver net sales growth of approximately flat to up 10%, representing Continued Market Share Gain. Please note that we expect EBITDA to grow faster than sales over the long term even while we continue to reinvest in SG&A and truly exciting future sales drivers. Lovesac is an outlier.

Shawn David Nelson: We are estimating another year of category declines, including a full year decline of approximately 10%.

Shawn David Nelson: With a modestly better back half than first.

It's important to appreciate that our unique business model enables us to plan this way without giving up the upside.

Shawn David Nelson: If the macro does better we can ride the demand curve in near real time capability that very few of our competitors have.

With that as a foundation, we expect to deliver net sales growth of approximately flat to up 10% representing continued market share gains.

Shawn David Nelson: Note that we expect EBITDA to grow faster than sales over the long term, even while we continue to reinvest into SG&A and truly exciting future sales drivers.

Shawn David Nelson: Loves Shaq is an outlier we've achieved category, beating high growth rates for years, we're profitable cash flow positive have net cash and an active product development pipeline that spans products and categories.

Shawn David Nelson: We've achieved category-beating high growth rates for years. We're profitable, cash flow positive, have net cash, and an active product development pipeline that spans products and categories. Lovesac is in a position of strength with a truly massive opportunity ahead of us.

Shawn David Nelson: Loves Shaq is in a position of strength with a truly massive opportunity ahead of us.

Shawn David Nelson: We're primed to over-participate in a category rebound through continued market share gains on existing products. Then, we'll compound that growth by expanding our brand and business even further. As powerful as our product platforms, innovation pipeline, and marketing prowess are, we would be nothing without our amazing people. A huge shout out to each and every one of our core hashtag Lovesac family. You make the magic happen.

Shawn David Nelson: We're trying to over participate in a category rebound through continued market share gains on existing products, then will compound that growth by expanding our brand and business even further.

Shawn David Nelson: As powerful as our product platforms innovation pipeline and marketing prowess are we would be nothing without our amazing people.

Speaker Change: Huge shout out to each and every one of our core hashtag love Sac family you make the magic happen.

Mary Fox: Speaking of amazing people, I will now hand the call over to Mary Fox, our President and Chief Operating Officer, to discuss the key operational highlights of Fiscal 2024 and priority areas for the upcoming year, after which Keith will go over our financial results and guide you into more detail. Thank you, Shawn, and good morning, everyone. As Shawn discussed, with sales growth of 7.5% for fiscal 2024, our results reflected industry-leading growth driven by our unique omnichannel business model. Importantly, on a four-year basis, our sales are up 200% from pre-pandemic levels, compared to the category at flat over the same time period, and our adjusted EBITDA margin has increased 930 basis points. We believe this consistent financial outperformance is ahead of any other brand in our category, underpinned by our customer and product-centric focus and our unique omnichannel infinity flywheel. We have built a business model and a platform unlike anyone else in the category, resulting in a total addressable market opportunity that is significant. Brand health that is strong and growing, best-in-class touchpoint economics, and an advantaged supply chain. A few highlights of our Infinity Flywheel that Shawn shared earlier.

Speaker Change: Speaking of Amazing people I will now hand, the call over to Mary Fox, Our President and Chief operating officer to discuss the key operational highlights for fiscal 2024 and priority areas for the upcoming year after which Keith will go over our financial results and guidance in more detail.

Mary Fox: Thank you, Sean and good morning, everyone as Shawn discussed with sales growth of 7% for fiscal 2024, our results reflect the industry, leading growth driven by our unique omni channel business model.

Mary Fox: On a full year basis, our sales are up 200% from pre pandemic level compared to the category flat over that same time period and our adjusted EBITDA margin has increased 930 basis points.

Mary Fox: We believe the consistent financial outperformance is ahead of any other brand in our category underpinned by our customer and product centric focus and our unique omnichannel Infinity flywheel, we have built the business model on the platform. Unlike anyone else in the Catholic rate, resulting in a total adjustable market opportunity that is.

Mary Fox: Brand health is strong and growing best in class touch points economics in an advantaged supply chain.

Mary Fox: A few highlights of our infinity flywheel that Sean shared earlier.

Mary Fox: We compete in a large addressable market of over $46 billion. We believe we have the number one selling couch in America but have massive market share potential remaining, as we've barely scratched the surface of this huge and fragmented category. We're confident because our customers are our strongest proponents. Word of Mouth is our number one awareness driver, and over a third of our customers report that they don't even cross shop with other brands.

Mary Fox: We compete in a large addressable market of over $46 billion we.

We believe we have the number one selling couch in America, but have massive market share potential remaining as we've barely scratched the surface of the huge and fragmented category.

Mary Fox: We're confident because our customers are our strongest proponent.

Mary Fox: But his mouth is on number one striker and over a third of our customers report that they don't even cross shop with other brands.

Mary Fox: Our brand health is stronger than ever with innovation fueling. These games the launches of angled side and still tech have helped drive our customer lifetime value customer acquisition cost ratio that is unsurpassed and continued strengthen our marketing ROI enables healthy reimbursement.

Mary Fox: Our brand's health is stronger than ever, with innovation fueling these gains. The launches of Angleside and StealthTech have helped drive a customer lifetime value and customer acquisition cost ratio that is unsurpassed, and continued strength in our marketing ROI enables healthy reinvestment. We have best-in-class touchpoint economics that we estimate are second only to Apple and Tiffany, based on incredible cash payback periods of one year and up to four times the sales-per-foot productivity of our competitors. And finally, our evergreen inventory, coupled with an advantaged supply chain, enables delivery times measured in just days, resulting in customer satisfaction of over 84 percent, increasing customer loyalty, and further differentiating Lovesac from the

Mary Fox: We have best in class touch points economics that we estimate our second only to Apple and Tiffany based on incredible cash payback periods of one yet.

Mary Fox: At four times the sales per foot productivity.

Mary Fox: <unk>.

Mary Fox: And finally, our evergreen inventory, coupled with an advantaged supply chain enable delivery time measured in just days, resulting in customer satisfaction of over 84% increasing customer loyalty and further differentiating look back from the crowd.

Mary Fox: We are uniquely positioned to continue to profitably take market share with our core platforms even in the current market dynamics that Shawn discussed. On top of that, we expect our brothers to further benefit from disciplined investments in our strategic initiatives and capabilities that expand our addressable markets. I will now provide key highlights of our go-forward plans for each of our strategic initiatives. Firstly, product innovation. Angled Side, which we launched last summer, continues to be a highlight for us. Notably, it continues to gain share, representing the largest mix of sides within our factional business and driving a higher AOV than factionals without Angled Side. Additionally, customers who select the Angled Side report having even higher satisfaction with comfort than our standard side customers.

Mary Fox: We are uniquely positioned to continue to profitably take market share with our core platforms eat.

Mary Fox: Even through the current market dynamics that Sean discussed.

Mary Fox: On top of that we expect to further benefit from disciplined investments in our strategic initiatives and capabilities that expand our addressable market I will now provide key highlights about go forward plans on each of our strategic initiatives.

Mary Fox: Firstly product innovation angled side, which we launched last summer continues to be a highlight for us notably it continues to gain share representing the largest mix of sites with an architectural business and driving a higher as even sectional without angled side. Additionally, customers, who select tangled side report.

Mary Fox: And the even highest satisfaction with comfort then all standard side customers.

Mary Fox: For StealthTech in Fiscal 24, sectionals that were sold with StealthTech generated nearly three times the average sectional order value. We're also excited about our next StealthTech launch that is expected in the second half of this year. This minor launch will continue our commitment to bringing elegant and invisible technology to our customers that enriches their experience on our product platform. In addition to the Stealth Tech expansion, we have several other exciting and disruptive launches across both our factional and SAC platforms this year. We expect these to drive AOV and to broaden the appeal of our product platform. Stay tuned, since we think you'll love them.

Mary Fox: So still stuck in fiscal 'twenty for <unk> that was sold with Deltec generated nearly three times the average sectional to failure.

We're also excited about next Val Tex launch that is expected in the second half of this year.

Mary Fox: This minor launch, we'll continue our commitment to bringing elegant and invisible technology to our customers that enriches their experience on our product platform.

In addition to spell check expansion, we have several other exciting and disruptive launches across both all functional attack platforms. This year, we expect these to drive a avi and to broaden appeal of our product platform.

Since we think you'll love them.

Mary Fox: In early Fiscal 26, we are planning to launch a material innovation that we expect to significantly open the aperture of where we compete in the couch category and enable us to accelerate our market share gains. We look forward to sharing more details with you closer to launch. Lastly, behind the scenes, we're already developing many innovations for disruptive Design for Life product platform launches in existing and new product categories over the next several years. Secondly, our omni-channel experience; we have become a true omni-channel retailer through a combination of our physical touchpoints and digital platform. For the physical aspect of omni-channel, I discussed our strong showroom economics when I covered Brand Health, and we've seen year-over-year occupancy cost reductions as we lean into our real estate strategy and shift to a higher percentage of non-mall locations and improved deal structures.

Mary Fox: In early fiscal 'twenty six we are planning to launch a material innovation that we expect to significantly opened the aperture why we compete in the couch Patrick rate and enable us to accelerate our market share gains.

Look forward to sharing more details with you closer to launch lastly, behind the themes, we're already developing many innovations the disruptive design for life product platform launches in <unk>.

Mary Fox: Existing and new product categories over the next several years.

Mary Fox: Secondly, our omnichannel experience and we have become a true omnichannel retailer through a combination of our physical touch points and digital platform.

Mary Fox: So the physical aspects of Omnichannel I discussed our strong showroom economics, when I covered brand health and we've seen year over year occupancy cost reductions as we lean into our real estate strategy and shift to a higher percentage of non mall locations and improved deal structure.

Mary Fox: In terms of our showrooms, we continue to see opportunity to roughly double our current showroom fleet from 230 to more than 400 locations over the next five years, and we'll continue exploring productive opportunities to bring our products and our services to our customers. For Fiscal 25, we expect to open approximately 30 net new showrooms as we continue to leverage our predictive analytics tool and consistently optimize our fleet and our site selection model with industry-leading payback. Turning to the e-commerce aspect of Omnichannel, we had a strong year with e-commerce sales growth of 12% and were one of the only brands to grow in quarter four when we beat the e-commerce category trends by over 1200 basis points, with customer satisfaction improving year over year.

Mary Fox: All of our showrooms, we continue to see opportunity to roughly double our current showroom fleet from 230 to more than 400 locations over the next five years and will continue exploring productive opportunities to bring our products and our services to our customers.

Mary Fox: For fiscal 'twenty five we expect to open approximately 30 net new showroom as we continue to leverage our predictive analytics tool and consistently optimize our fleet and our site selection model with industry, leading paybacks.

Turning to the e-commerce aspect of Omnichannel, we had a strong year with e-commerce sales growth of 12% of all one of the only brands to grow in quarter four when we'd beat the e-commerce category trends by over 200 basis points and with customer satisfaction improving year over year.

Mary Fox: Looking at our other channels, our Best Buy Shop and Shops, which ended the year at 44 locations, which are discreet from our 230 showrooms, are very powerful, as they allow tech-focused shoppers an additional opportunity to experience our products, especially stealth tech, which is most effective when experienced in person. So that's it, Best Buy Shop and Shop attachment rates for Stealth Tech are roughly double that of our stand-alone showrooms and eight times that of our online platform.

Mary Fox: Looking at our other channels all best buy shop in shops, which ended the year at 44 locations, which are discrete from up 230 showrooms are very powerful as they allow tech focused shop us additional opportunity to experience our products, especially style tech, which is most effective when they expire.

Mary Fox: In person.

Mary Fox: Does that then bestbuy shop in shop attachment rates with self checkout, roughly double basketball Standalone, Chevron and eight times our online platform.

Mary Fox: For Costco, we continue to strengthen our partnership with nearly a 50% growth in physical roadshows planned for Fiscal 25 versus Fiscal 24, backed by additional bundle assortments to increase relevancy for customers. The first step in expanding our assortment is the introduction of Angleside at Costco, which started in Q1. We're proud of our roadshow results thus far and see significant runway for continued future expansion. Our efforts at responding to consumers are as evidenced by our improving customer satisfaction scores. These scores improved year-over-year to our highest levels recorded, driven in particular by strategic investments in resources and technology in our customer service capabilities, supply chain, and our digital experience. Looking to fiscal 25, as part of our focus on customer satisfaction. We have begun a multi-phase project to optimize the customer experience with a project we're calling MyHub.

The Costco, we continue to strengthen our partnership with nearly a 50% growth in physical road shows planned for fiscal 'twenty five Bucks a fiscal 'twenty four box by additional bundle assortments increased relevancy for customers.

Mary Fox: The first step in expanding our assortment is the introduction of ankle side at Costco, which started in Q1.

Mary Fox: We're proud of our road show results, thus far and see significant runway for continued future expansion.

Mary Fox: Our restaurants are resonating with consumers as evidenced by our improving customer satisfaction goals. These scores improved year over year to our highest levels recorded.

Mary Fox: And in particular by strategic investments in resources, and technology, and our customer service capability supply chain and all digital experience.

Mary Fox: Looking to fiscal 'twenty five as part of our focus on customer satisfaction, we have begun a multi phase project to optimize the customer experience with a project, we're calling my thought.

Mary Fox: This will create a one-of-a-kind post-purchase experience whereby a customer can visit their account online and do everything from check the status of their order all the way to receive personalized content and videos based on their specific purchase and setup ideas. Phase 1 launched earlier this year, and subsequent phases will further integrate the omnichannel experience in a way that no other brand is doing. Thirdly, for our ecosystem, we have a circular operations philosophy and have developed a circular ecosystem for our customers and our products, driving optimal value for our customers and their investment in our design for life product platform. The goal is long-term relationships.

Mary Fox: This will create a one of a kind post purchase experience whereby a customer can visit that accounts online and do everything from check the status of that order all the way to receive personalized content and videos based on less specific purchase and set up I did see.

Mary Fox: One launched early this year and subsequent phases will further integrate the omnichannel experience in a way that no other brand is doing.

Mary Fox: Thirdly for our ecosystem, we have a second operation philosophy and have developed a secular ecosystem for our customers and our products driving optimal value for our customers and their investments and all designed for life product platform.

Mary Fox: Our goal is long term relationships.

Mary Fox: During the year, we continue to market, our product and Brian using national advertising and traditional format, including TV and established media coupled with various digital strategy, leveraging social media and non linear television and influence some advertising.

Mary Fox: During the year, we continue to market our product and brand using national advertising in traditional formats, including TV and established media, coupled with various digital strategies, leveraging social media, non-linear TV, and influencer advertising. Our digital marketing efforts focus heavily on localized and targeted tactics driving shoppers into a Lovesac touchpoint to experience our products in person. This reinforces our commitment to a truly omnichannel business model, meeting customers where they choose to interact with us. In quarter four, we successfully tested new targeting and promotional messaging for existing customers.

Mary Fox: Our digital marketing efforts focused heavily on localized and targeted tactics driving shoppers into a loves that touch point to experience our products in person.

Mary Fox: This reinforces our commitment to a truly omnichannel business model meeting customers, where they choose to interact with it.

Mary Fox: In quarter, four we successfully tested new targeting and promotional messaging for existing customers as we grow our customer base. We believe that speaking differently to the segment is a key driver of success in building long term value.

Mary Fox: As we grow our customer base, we believe that speaking differently to this segment is a key driver of success in building long-term value and loyalty and plan on rolling this out in fiscal 25. Media ROIs also improved year over year as we drove highly qualified traffic to our touchpoints and websites throughout the year, with a very special focus on hyper-local digital marketing. We plan to expand new marketing tactics to drive high ROI-performing traffic to our touchpoints to experience a demo, and we also plan to leverage prime and linear TV buys to drive reach. And here are a couple of data points to illustrate our progress. In fiscal 24, we gained over 155,000 new customers, and first-year purchase margin was up mid-single digits from fiscal 23.

Mary Fox: Loyalty and plan on Rolling this out in fiscal 'twenty five.

Mary Fox: Media ROI and also improve year over year as we drove highly qualified traffic to our touch points and website throughout the year with a very special focus on hyper local digital marketing.

Mary Fox: We plan to expand to new marketing tactics to drive high ROI performing traffic to our touch point to experience with them and we also plan to leverage prime in linear television buys to drive reach and here are a couple of data points to illustrate our progress in.

Mary Fox: In fiscal 'twenty four week gained over a 155000, new customers and first year purchase margin was up mid single digits from fiscal 'twenty three.

Mary Fox: Our full first-year customer lifetime value, and customer acquisition cost ratio remained flat year-over-year with CAC and LTB increasing relatively the same amount year-over-year in spite of some headwinds in promotional, pricing, and media inflation. As a reminder, we mourn the break-even at the first purchase, and we know that our customers do repeat, adding to or upgrading their design for life factionals or facts for decades. Our repeat business increased to 43% of overall transactions from 38% at the end of Fiscal 23, demonstrating the opportunity to build long-term relationships with our customers around our Design for Life platform. Lastly, we just expanded an internal test for associates and open box item sales.

Mary Fox: Full first year customer lifetime value.

Acquisition cost ratios remained flat year over year with CAC and LTV, increasing relatively the same amount year over year in spite of some headwinds in promotional pricing a major inflation pressure.

As a reminder, we more than breakeven episodic purchase and we know that our customers do repeat adding to or upgrading that designed for large sectional or effect for decades.

I'll repeat business increased to 43% of those little transactions from 38% at the end of fiscal 'twenty three demonstrating the opportunity to build long term relationships with our customers around our designed for life platform.

Mary Fox: Lastly, we just expanded an internal test for associates and open box item sales with this program. We are creating the foundation that will leverage as we begin to activate the right side of our flywheel and enable customer lifetime value through services, notably beginning with trade in and we sell.

Mary Fox: With this program, we are creating the foundation that we'll leverage as we begin to activate the right side of our flywheel and enable customer lifetime value through services, notably beginning with trade-in and resale, and finally Making Disciplined Infrastructure Investments and Driving Efficiencies. Since our IPO in fiscal 2019, Lovesac has consistently demonstrated a very disciplined approach to investing and growing the business for the long term. Over this time period, we achieved profitable growth despite category headwinds and inflationary operating costs, and we will continue to manage the business this way. In fiscal 24, we delivered material growth margin improvements through COGS reductions and by leveraging cost reductions for inbound freight and warehousing, as well as new capabilities in planning and operational simplicity. This enabled an 18% reduction in total inventory at year end, but more opportunities remain.

Mary Fox: Yeah.

Mary Fox: And finally, making disciplined infrastructure investments and driving efficiencies.

Mary Fox: Since our IPO in fiscal 2019, Luxe pack has consistently demonstrated a very disciplined approach to investing and growing the business for the long term over this time period, we achieved profitable growth despite category headwinds and inflationary operating call and we will continue to manage the business.

Mary Fox: This way.

In fiscal 'twenty, four we delivered material gross margin improvement.

Mary Fox: Cogs reductions and by leveraging cost reductions, our inbound freight and warehousing as well as new capabilities in planning and operational simplicity. This enabled an 18% reduction in total inventory at yearend, but more opportunities remain.

Mary Fox: We launched a new order management system that should further enhance customer satisfaction, improve delivery metrics around timeline expectations, and increase efficiency of working capital. We will also see incremental savings on inbound freight and logistics through new partnerships. In Fiscal 25, our other investments for growth will be primarily in the areas of technology and research and development to continue to fuel our flywheel and deliver the transformative innovations to come, some of which I shared earlier. So, in summary, we are pleased with the progress on our strategic priorities as we continue to successfully expand the business and make important foundational investments to drive, as well as support the substantial growth that lies ahead. Before I turn over to Keith, I wanted to briefly mention our third annual ESG report, which was published on December 23, and where we outlined our roadmap to reach zero waste and zero emissions by 2040, an admirable goal. Sustainability starts with the word sustain, and we believe our design for life approach to Satchinals has diverted thousands of couches from landfills. Additionally, we repurpose and remove from the waste stream a very large amount of plastic bottles for use in upholstery fabric.

Mary Fox: We launched a new order management system that should further enhance customer satisfaction improved delivery metrics around timeline expectations and increased efficiency of working capital.

Mary Fox: We also see incremental savings on inbound freight and logistics through new partnerships.

In fiscal 'twenty five all other investments for growth will be primarily in the areas of technology and research and development to continue to fuel our flywheel and delivered the transformative innovations to come some of which I said earlier.

Mary Fox: So in summary, we are pleased with the progress on our strategic priorities as we continue to successfully expand the business and make important foundation investments dry as well as support the substantial growth that lies ahead.

Before I turn over to Keith I wanted to briefly mention our third annual ESG report, which was published in December 'twenty, three and where we outlined our roadmap to reach zero waste zero emissions by 2040, and admirable goal sustainability stopped with the wood state and we believe our designed for life.

Mary Fox: Approached attaching also divested thousands of couches from landfills.

Mary Fox: Additionally, we repurposed and remove from the waste stream, a very large amount of plastic muscles for us and upholstery fabric more than 73 million in fiscal 'twenty, four and more than 253 million to date.

Keith Robert Siegner: More than $73 million in fiscal 24 and more than $253 million to date. In short, Lovesac makes products that sustain from sustainable materials. I will now pass the call over to Keith.

Mary Fox: In short loves that makes products that sustain from sustainable materials.

Mary Fox: I will now pass the call over to Keith.

Keith Robert Siegner: Thanks Mary. Fiscal 24 was a momentous year for Lovesac. It marked our 25th anniversary, and we delivered several milestone achievements. Revenues exceeded $700 million.

Keith Robert Siegner: Thanks, Mary fiscal 'twenty four was a momentous year for love Sac and marks our 20 <unk> anniversary and we delivered several milestone achievements revenues exceeded 700 million gross profits exceeded $400 million, representing a gross margin over 57% net.

Keith Robert Siegner: Gross profits exceeded $400 million, representing a gross margin of over 57%. Net income of $23.9 million, as reported, was down from fiscal 2023, but adjusting for the just over $5 million in non-recurring expenses related to the successfully resolved restatement, net income would have been up. Inventories declined 18%, and we ended the year with $87 million in cash on the balance sheet.

Keith Robert Siegner: Net income was $23 9 million as reported was down from fiscal 'twenty, three but adjusting for the just over 5 million nonrecurring expenses related to the successfully resolved restatement net income would have been up inventories.

Keith Robert Siegner: Inventories declined 18% and we ended the year with $87 million in cash on the balance sheet.

Keith Robert Siegner: All of that is despite category headwinds and pressure on operating expenses from investments in people, systems, and product innovation to set us up for sustained profitable growth for the long term. Now, let's jump right into a quick review of the fourth quarter of Fiscal 24, which, as a reminder, included a 14th week, representing the 53rd week of our fiscal year. Then I'll discuss our outlook for fiscal 25. Net sales increased by $12 million, or 5%.

Keith Robert Siegner: All of that is despite category headwinds and pressure on operating expenses from investments in people systems and product innovation to set us up for sustained profitable growth for the long term now.

Keith Robert Siegner: Now, let's jump right into a quick review of the fourth quarter of fiscal 'twenty, four which as a reminder included a 14th week, representing the 50 <unk> week from our fiscal year.

Then I'll discuss our outlook for fiscal 'twenty five.

Keith Robert Siegner: Net sales increased $12 million or 5% to $255 million in the fourth quarter with the year over year increase driven by showrooms and web.

Keith Robert Siegner: $250.5 million in the fourth quarter, with the year-over-year increase driven by showrooms and the web. This was slightly below our expectations provided in early December, owing to a mid-quarter lull before a bounce-back in late January. Showroom net sales increased $15.4 million, or 10.9%, to $156.9 million in the fourth quarter as compared to $141.5 million in the prior year period. The increase in showroom sales was driven by the addition of 35 net new showrooms compared to the prior year period, partially offset by a decrease of 4.1% in omni-channel comparable net sales. Internet net sales increased by $1.7 million, or 2.2%.

Keith Robert Siegner: Was slightly below our expectations provided in early December owing to a mid quarter lull before a bounce back in late January.

Keith Robert Siegner: Showroom net sales increased $15 4 million or 10, 9% to $156 9 million in the fourth quarter as compared to $1 41 5 million in the prior year period.

Keith Robert Siegner: The increase in showroom sales was driven by the addition of 35 net new showrooms compared to the prior year period.

Keith Robert Siegner: Partially offset by a decrease of four 1% and Omnichannel comparable net sales.

Keith Robert Siegner: Internet net sales increased $1 7 million or two 2%.

Keith Robert Siegner: $78 1 million in the fourth quarter.

Third the $76 4 million in the prior year period.

Keith Robert Siegner: $78.1 million in the fourth quarter, as compared to $76.4 million in the prior year period. Other net sales, which include pop-up shop, shop-and-shop, and open-box inventory transactions, decreased $5 million, or 24.6%, to $15.5 million in the fourth quarter. The decrease was principally due to lower open-box inventory transactions, which were only $2.9 million compared to $8.5 million in the fourth quarter of fiscal 23.

Keith Robert Siegner: Other net sales, which include pop up shop and shop in shop, and open box inventory transactions decreased $5 million or 24, 6% to $15 $5 million in the fourth quarter.

Keith Robert Siegner: The decrease was principally due to a lower open box inventory transactions, which were only $2 $9 million compared to $8 5 million in the fourth quarter of fiscal 'twenty three.

Keith Robert Siegner: As a reminder, we may engage in limited open box inventory transactions with icon going forward to ensure our warehouses are operating as efficiently as possible.

Keith Robert Siegner: As a reminder, we may engage in limited open box inventory transactions with ICON going forward to ensure our warehouses are operating as efficiently as possible. However, we believe this recent run rate is more reflective of a potential baseline level, given the success of our Return to Stock program and the beneficial impact of resale and trade-in, which are targeted for launch later this year. By product category in the fourth quarter, our sectional net sales increased 7%, Sac's net sales decreased 13%, and our other net sales, which include decorative pillows, blankets, and accessories, decreased 8% compared to the prior year.

Keith Robert Siegner: However, we believe this recent run rate is more reflective of our potential baseline level.

Keith Robert Siegner: The success of our return to stock program and the beneficial impact of resale and trading which are targeted for launch later this year.

Keith Robert Siegner: By product category in the fourth quarter, our sectional net sales increased 7%.

Keith Robert Siegner: <unk> net sales decreased 13% and our other net sales, which includes decorative pillows blankets and accessories.

Keith Robert Siegner: <unk>, 8% compared to the prior year.

Keith Robert Siegner: Gross Margin increased 360 basis points to 59.7% of net sales in the fourth quarter versus 56.1% in the prior year quarter, primarily driven by 550 basis points of a decrease in inbound transportation costs, partially offset by 100 basis points of higher outbound transportation and warehousing costs and 90 basis points related to higher promotional discounting. SG&A expense as a percent of net sales increased by 170 basis points in the 4th quarter, or less than half the deal average seen in the 3rd quarter. The de-leverage was primarily due to the reduction within employment costs. Continued investments to support current and future growth, professional fees, and selling-related expenses tied to the Lovesac credit card. In dollars, employment costs increased by $6.8 million, primarily driven by an increase in new hires in fiscal 24.

Keith Robert Siegner: Gross margin increased 360 basis points to 59, 7% of net sales in the fourth quarter versus $56 one in the prior year quarter.

Keith Robert Siegner: Primarily driven by 550 basis points decrease in inbound transportation costs.

Keith Robert Siegner: Partially offset by 100 basis points, and higher outbound transportation and warehousing costs, and 90 basis points related to higher promotional discounting.

Keith Robert Siegner: SG&A expense as a percent of net sales increased by 170 basis points in the fourth quarter or less than half the deleverage seen in the third quarter.

Keith Robert Siegner: The deleverage was primarily due to deleverage within employment costs.

Keith Robert Siegner: Continued investments to support current and future growth professional.

Keith Robert Siegner: Professional fees and selling related expenses tied to the love Sac credit card.

Keith Robert Siegner: In dollars employment costs increased by $6 8 million, primarily driven by an increase in new hires and fiscal 'twenty four.

Keith Robert Siegner: Selling related expenses increased <unk> 5 million, principally due to credit card fees related to the increase in net sales and an increase in credit card rates.

Keith Robert Siegner: Selling-related expenses increased $0.5 million, principally due to credit card fees related to the increase in net sales and an increase in credit card rates. Rent expenses increased $0.2 million, offset by a decrease in overhead expenses of $0.1, consisting mainly of increases of $4.4 million in infrastructure investments, in other miscellaneous items, and $2.4 million in professional fees, offset by a decrease of $6.4 million in equity-based compensation. We estimate non-recurring incremental fees associated with the restatement of prior-period financials were approximately $1.9 million in the fourth quarter.

Keith Robert Siegner: <unk> expenses increased $2 million offset by a decrease in overhead expenses and <unk> 1 million.

Keith Robert Siegner: Consisting mainly of increases of $4 $4 million in infrastructure investments.

Keith Robert Siegner: In other miscellaneous items and $2 4 million in professional fees.

Keith Robert Siegner: Offset by a decrease of $6 4 million and equity based compensation.

Keith Robert Siegner: We estimate nonrecurring incremental fees associated with the restatement of prior period financials was approximately $1 9 million in the fourth quarter.

Keith Robert Siegner: Advertising and marketing expenses increased $3 7 million or 14, 2% to.

Keith Robert Siegner: Advertising and marketing expenses increased $3.7 million, or 14.2%. 29.5 million for the fourth quarter of fiscal 24 compared to 25.8 million in the prior year period. Advertising and marketing expenses were 11.8% of net sales in the fourth quarter as compared to 10.8% of net sales in the prior year period. Operating income for the quarter was $40.4 million, compared to $36.5 million in the fourth quarter of last year, driven by the factors we just discussed. Before we turn our attention to net income, net income per diluted share, and adjusted EBITDA, please refer to the terminology and reconciliation between each of our adjusted metrics and their most directly comparable gap measurements in our earnings release issued early this morning. Net income for the quarter was $31 million, or $1.87 per diluted share, compared to $26.2 million, or $1.65 per diluted share in the prior period, and included just under $2 million of non-recurring During the fourth quarter of fiscal 24 and fiscal 23, we recorded an income tax provision of $10.2 million.

Keith Robert Siegner: The $29 5 million for the fourth quarter of fiscal 'twenty four.

Keith Robert Siegner: Third to $25 8 million in the prior year period.

Keith Robert Siegner: Advertising and marketing expenses were 11, 8% of net sales in the fourth quarter as compared to 10, 8% of net sales in the prior year period.

Keith Robert Siegner: Operating income for the quarter was $40 4 million compared to $36 5 million in the fourth quarter of last year driven by the factors, we just discussed.

Keith Robert Siegner: Before we turn our attention to net income net income per diluted share and adjusted EBITDA. Please refer to the terminology and reconciliation between each of our adjusted metrics and their most directly comparable GAAP measurements in our earnings release issued early this morning.

Keith Robert Siegner: Net income for the quarter was $31 million or $1 87 per diluted share compared to $26 2 million or $1 65 per diluted share in the prior period and included just under $2 million of nonrecurring expenses as mentioned earlier.

Keith Robert Siegner: During the fourth quarter of fiscal 'twenty, four and 'twenty three we recorded an income tax provision of $10 2 million.

Keith Robert Siegner: Adjusted EBITDA for the quarter was $48 4 million as compared to $46 7 million in the prior year period.

Keith Robert Siegner: Adjusted EBITDA for the quarter was $48.4 million as compared to $46.7 million in the prior year period. Turning to our balance sheet, our total merchandise inventory levels are in line with our projections, down 18% versus the end of fiscal 23. We feel exceptionally good about both the quality and quantity of our inventory and our ability to maintain industry-leading in-stock positions and delivery times. Mary discussed ongoing initiatives to further optimize on top of this year's success. We ended the fourth quarter with a very healthy balance sheet, inclusive of $87 million in cash and cash equivalents, as well as $36 million in availability on our revolving line of credit with no borrowing.

Keith Robert Siegner: Turning to our balance sheet, our total merchandise inventory levels are in line with our projections down 18% versus the end of fiscal 'twenty three we feel exceptionally good about both the quality and quantity of our inventory and our ability to maintain industry, leading in stock positions and delivery times.

Keith Robert Siegner: We discussed ongoing initiatives to further optimize on top of this year's successes.

Keith Robert Siegner: We ended the fourth quarter with a very healthy balance sheet inclusive of $87 million in cash and cash equivalents as well as $36 million in availability on our revolving line of credit with no borrowings.

These refer to our earnings press release for other details on our fourth quarter financial performance.

Keith Robert Siegner: Please refer to our earnings press release for other details on our fourth quarter financial performance. Now, our outlook. As Shawn mentioned, the category has remained unpredictable and in decline. After a strong finish to January, February was a particularly difficult month.

Keith Robert Siegner: So now our outlook as Sean mentioned category has remained unpredictable and then decline.

Keith Robert Siegner: After a strong finish to January February was a particularly difficult month.

Keith Robert Siegner: We then experienced substantial improvement in trends in March.

Keith Robert Siegner: Given this we wanted to be transparent that we're prudently basing our outlook off another year of category declines specifically, 10% full year decline with modest improvement in the second half versus the first half.

Keith Robert Siegner: We then experienced substantial improvement in trends and markets. Given this, we want to be transparent that we're prudently basing our outlook on another year of category declines, specifically a 10% full year decline with modest improvement in the second half versus the first half. Should the category perform better, we would expect it to perform better, or vice versa. For the full year of Fiscal 25, we estimate net sales of $700 million to $770 million.

Keith Robert Siegner: Should the category performed better we would expect to perform better or vice versa.

Keith Robert Siegner: For the full year fiscal 'twenty five we estimate net sales of $700 million to $770 million we.

Keith Robert Siegner: We expect adjusted EBITDA between $46 million and $60 million. This includes gross margins of 57% to 59% advertising and marketing of approximately 13% as a percent of net sales.

Keith Robert Siegner: We expect adjusted EBITDA between $46 million and $60 million, which includes gross margins of 57 to 59 percent. Advertising and marketing cost approximately 13% of net sales, and SG&A cost approximately 39% as a percent of net sales. We estimate net income to be between $18 and $27 million. We estimate diluted income per common share in the range of $1.06 to $1.59, and approximately $17 million of estimated diluted weighted average share is outstanding.

Keith Robert Siegner: And SG&A of approximately 39% as a percent of net sales.

We estimate net income to be between 18 and $27 million.

Keith Robert Siegner: We estimate diluted income per common share in the range of $1 six to $1 59, and approximately 17 million estimated diluted weighted average shares outstanding as a reminder, fiscal 'twenty five will contain 52 weeks versus fiscal 'twenty, four which contained an additional 50.

Keith Robert Siegner: Third week in the fourth quarter.

Keith Robert Siegner: As a reminder, Fiscal 25 will contain 52 weeks, versus fiscal 24, which contained an additional 53rd week in the fourth quarter. For the fiscal first quarter, which is our most difficult quarter to lap of the year. We estimate net sales of $126 to $132 million. We expect an adjusted EBITDA loss between $13 and $16 million. This includes gross margins of approximately 55%, advertising and marketing of 14 to 15% as a percent of net sales, and SG&A of 51 to 53% as a percent of net sales. We estimate the net loss to be between $13 and $16 million.

Keith Robert Siegner: For the fiscal first quarter, which is our most difficult quarter to lap of the year.

Keith Robert Siegner: We estimate net sales of $126 million to $132 million.

Keith Robert Siegner: We expect adjusted EBITDA loss between 13 and $16 million. This.

Keith Robert Siegner: This includes gross margins of approximately 55%.

Advertising and marketing of 14% to 15% as a percent of net sales and SG&A of 51% to 53% as a percent of net sales.

We estimate net loss to be between 13 and $16 million, we estimate basic loss per common share to be between 84 and $1 three with 15 million weighted average shares outstanding.

Keith Robert Siegner: We estimate the basic loss per common share to be between $0.84 and $1.03, with 15 million weighted average shares outstanding. In summary, stabilization of the category and an eventual return to category growth are ahead of us, even if that timing is unclear at the moment. While in this Category 5, we are balancing prudence, inefficiency, and expense with our belief that it's essential to stay focused on the big picture. That's the massive long-term opportunity for tremendous value creation for all Lovesac stakeholders. We are building the Lovesac brand and investing in new product innovation that spans style, function, and new categories. But make no mistake, we aim to grow irrespective of the category in the near-term, continuing our track record of market share gains.

Keith Robert Siegner: In summary stabilization of the category and an eventual return to category growth are ahead of us even if that timing is unclear at the moment while.

Keith Robert Siegner: While in this category fog, we're balancing prudent inefficiency and expenses with our belief that it's essential to stay focused on the big picture. That's the massive long term opportunity for tremendous value creation for all of <unk> stakeholders. We are building the <unk> brand and investing in new product.

Keith Robert Siegner: Innovation, that's been style function and new categories.

Keith Robert Siegner: Make no mistake, we aim to grow irrespective of the category in the near term continuing our track record of market share gains plus we're primed to capitalize on the category rebound as soon as it happens and more in real time than our peers. As this occurs the additional revenues should drive expanding flow through.

Keith Robert Siegner: Plus, we're primed to capitalize on the category rebound as soon as it happens and more in real-time than our peers. As this happens, the additional revenues should drive an expanding flow-through of top-line growth to bottom-line growth. I'll now turn the call back to the operator to start our Q&A session. Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Keith Robert Siegner: Of topline growth to bottom line growth.

Speaker Change: Now I'll turn the call back to the operator to start our Q&A session.

Speaker Change: Okay.

Speaker Change: Thank you at this time well be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.

You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Operator: You may press star 2 if you'd like to remove your question from the list. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. Our first question comes from the line of Brian Nagel with Oppenheimer & Company. Please proceed with your question. Hi, good morning. Good morning, Brian. So my question... to make it like one question with a few parts, but just really with regard to kind of the sales trajectory. Keith and I think Shawn.

Speaker Change: Our first question comes from the line of Brian Nagel with Oppenheimer and company. Please proceed with your question.

Brian William Nagel: Hi, good morning.

Brian William Nagel: Good morning, Rod So my question.

Brian William Nagel: To make it like one question with a few parts, but just really with regard to.

Brian William Nagel: Because the sales trajectory, so Keith and I think Sean mentioned it too.

Speaker Change: You talked about if I heard you correctly.

Speaker Change: You have some weak weakness or strength in January weakness of February then re strengthening in March and again, if I heard that correctly. So the question I have there is there was there anything I mean, we've talked about a difficult category for a while others have mentioned this as well but is there anything you've noticed that would kind of driven that anything you sort of say that's driven that.

Brian William Nagel: We talked about, if I heard you correctly, a weakness in or strength in January, weakness in February, then re-strengthening in March. Again, if I heard that correctly. So the question I have there is, you know, is there anything, I mean, we've talked about a difficult category for a while. Is there anything you noticed that has kind of driven that, anything new, so to say, that's driven that? That's sales balls. Then the second question I have...

Speaker Change: That sales volatility.

Speaker Change: Then the second question I have.

Speaker Change: If you look at the guidance you gave the sales growth guidance you gave for Q1 is that reflective of where.

Speaker Change: Sales are tracking now.

Speaker Change: You know recognizing we're pretty late into the fiscal first quarter and then the third question.

Keith Robert Siegner: If you look at the guidance you gave, the sales growth guidance you gave for Q... Is that reflective of where sales are tracking now? And then the third question is, you know, you talked about it, you know, a restraint in sales over the balance of the current fiscal year. Is there anything in particular that you're pointing to there, or is that more, you know, we discussed in product launches, or just more kind of timing related? Yes, thank you Brian. I'll probably take the first part and then finish up the rest.

Speaker Change: You talked about it.

Speaker Change: A restraint in its sales over the balance of all.

Speaker Change: Of the current of the current fiscal year is there anything in particular that you're pointing to there was or was that more you did discuss some product launches or just more kind of timing.

Speaker Change: Related to the overall industry dynamics.

Speaker Change: <unk>.

Speaker Change: Yes, Thank you Fran.

Speaker Change: I'll probably take it.

Speaker Change: And then.

Speaker Change: Right.

Speaker Change: So I think as Keith obviously share with.

Speaker Change: With that our guidance for the year, we are obviously still assuming that we can remain very tough and.

Mary Fox: So I think, as Keith obviously shared, you know, with our guidance for the year, we are obviously still assuming the category to remain very tough, and we, well, even with, you know, the guidance that we've talked about, continue to take very strong market share. Specifically, we thought January was very strong for us. We'd dialed promotions up a little bit more because we'd seen, as Keith talked about, a bit of a lull in December as we tried to pull down on the typical Black Friday promotions. We did that again in February, and what we saw was the same dynamic as in December. So key competitors were up to 50% off during February and had very aggressive deals, even in clearance.

Speaker Change: And we sell even with you know the guidance that we've talked about continue to take very strong market share.

Speaker Change: Pacific Today, you know we talked about January was very strong for us we had dialed promotions off a little bit more because we've seen as Keith spoke quite a bit of a lull in December as we tried to pull down of the typical.

Speaker Change: Black Friday promotion and we did that again in February.

Speaker Change: And what we saw is the same dynamic as it system.

Speaker Change: He can passengers were up to 50% off during February and had very aggressive deals in clearance.

Speaker Change: So for US you know that was a factor and then you know as we pivoted into March.

Mary Fox: So for us, you know, that was the first factor. And then, you know, as we pivoted into March, we moved back to 30% off, and all of that is baked into our guidance because it's clear we need to have very compelling value in a category that's deep in promotion. And we've done that, and we feel really good.

Speaker Change: We moved back to San Francisco.

Speaker Change: And all of that is baked into our guidance because it's clear we need to have the virus palling value deep.

Deepen promotion and and we've done that we feel really good to your point in March has been very strong a big big step up from where we were in February I think the second piece, which was a little bit of what happened in February.

Mary Fox: To your point, March has been very strong, a big, big step up from where we were in February. I think the second piece, which is a little bit of what happened in February, is that we did have a little bit of disruption. We moved to a new media agency, so there's a little bit around media planning, timing, and some targeting. This is all back on track, so again, hence giving us confidence for the rest of this year and the strengthening of the sale. So yes, as your question talks about the guidance for Q1, that is reflective and baked in, and as Keith shared, March has been much, much stronger in the early start of April. We are also seeing that as well. I think Keith would be a lot of fun.

Speaker Change: It did have a little bit of disruption, we moved to a new media agency.

Speaker Change: Little bit around media planning timing and some targeting this is all back on track.

Speaker Change: So again, and it's giving us the confidence that for the rest of this year and the strengthening of the sale. So yes is your question talks about the guidance for Q1 and that is reflected in baked in and as Keith said shed March has been much much stronger than the early stop of April and we are also seeing that.

Speaker Change: As well.

Speaker Change: I think just to add.

Speaker Change: Yes, just to add on that so when we look at the credit card data from Bank of America, which is one of the primary.

Speaker Change: Let's call it real time ish benchmarks that we look at for category performance.

Keith Robert Siegner: Just to add to that, so when we look at the credit card data from Bank of America, which is one of the primary, let's call it real-time-ish benchmarks that we look at for category performance, still around down 14 for both February and March, right? So when you put the two months together, our performance is still showing market share gains, even if not where we would have planned for it for the reasons Mary just discussed at Impact February. I would highlight that because of the 53rd week and because of the five weeks that happened in our P2, we're really just entering P3 right now. So it's basically from the early part of this week through the end of the quarter, which is May 5th.

Speaker Change: Still around down 14 for both February and March right. So when you put the two months together our performance is still showing market share gains even if not where we would have had planned for it for the reasons as Mary just discussed that impacted February.

Speaker Change: I would highlight that because of the 50 <unk> week and because of the five weeks that happened in our P. Two we're really just entering P. Three right now so it's basically from the early part of this week through the end of the quarter, which is.

Speaker Change: May 5th so we still have basically most of all of <unk> to go and that's all incorporated into our guidance, but again, we were we were encouraged as to the rebound we saw in our trends in March when we think about the drivers for the year and you know and where that shakes out obviously, we tried to give you more context around the base.

Keith Robert Siegner: So we still have basically most of P3 to go, and that's all incorporated into our guidance. But again, we were encouraged by the rebound we saw in our trends in March. When we think about the drivers for the year and where that shakes out, obviously, we try to give you more context around the baseline for the category that's underpinning our outlook. And when we think about our ability to take market share, it's a lot of the same things. Mary talked about how we have a number of product launches coming this year and enhancements to our marketing. We're gonna continue to tweak and optimize our promotions. We do have touchpoint expansion, right?

Speaker Change: Your line of category that's underpinning.

Speaker Change: Our outlook.

Speaker Change: When we think about our ability to take market share. It's a lot of the same things very talks about we have a number of product launches coming this year, we have enhancements to our marketing we're going to continue to tweak and optimize our promotions. We do have touch point expansion right. We also have what looks like to us easier compares especially on a two year.

Our basis as we progress through the year, so put all that stuff together.

Speaker Change: We still have secular you know levers within our control that we are going to Poland continue to refine that we think will support another year of market share gains.

Keith Robert Siegner: We also have what looks like to us easier comparisons, especially on a two-year basis as we progress through the year. So put all that stuff together, and we still have secular levers within our control that we are going to pull and continue to refine that we think will support another year of market share. I appreciate all the color.

Speaker Change: Well I appreciate all the color. Thank you.

Speaker Change: Thank you. Our next question comes from the line of Maria <unk> with Canaccord Genuity. Please proceed with your question.

Maria: Oh, great good morning, and thanks for taking my questions.

Maria: So appreciate all the color around sort of your guidance, but sort of broadly it looks like you were able to outperform the category by a wide margin for a couple of years now and sort of deliver growth in a declining category, two but kind of and you just sort of highlighted some of the reasons for softer Q1, but is there anything that maybe.

Brian William Nagel: Thank you. Thank you. Our next question comes from the line of Maria Ripps with Canaccord Genuity.

Maria Ripps: Please proceed with your question. Great. Good morning, and thanks for taking my question.

Mary Fox: So I appreciate all the color around sort of your guidance, but, sort of broadly, it looks like you were able to outperform the category by a wide margin for a couple of years now and sort of deliver growth in a declining category. So, kind of, and you just sort of highlighted some of the reasons for software Q1, but is there anything that maybe has changed in your ability to outperform the vertical, especially as we look towards Q1 with expected revenue demand? Oh, Maria, hi.

Maria: It has changed its sort of been your ability to outperform the vertical, especially as we look towards Q1 with expected revenue declines.

Speaker Change: Oh hi.

Speaker Change: Yes, sorry, we were just a switching around so thank you for the question. So I think you know we still feel incredibly confident in terms of all the factors around why our company has been so successful in the last four years and if you think about 200% growth in the last four years on a category that it's flattened.

Mary Fox: Yeah, sorry, we're just changing rooms. So, thank you for the question. So I think, you know, we still feel incredibly confident in terms of all the factors around why our company has been so successful in the last four years. And if you think about 200% growth in the last four years, on a category that is flat, and you know, we've just delivered a year where no one else is at the growth rates that we have delivered that we compete against. So, you know, we see a very strong line for the path around innovation that I touched on. We talked a lot about the continued performance around marketing and just the brand stickiness that continues to grow and improve. And our awareness, our unaided awareness, is still low.

Speaker Change: And you know we've just delivered a year when no one else is that the growth rates that we have delivered that we compete against.

Speaker Change: So you know we see a very strong line for the path around innovation, you know that I touched on we talk a lot about the continued performance around marketing and just the brand stickiness that continues to grow and improve.

Speaker Change: And our awareness or unaided awareness is still low, but you know the aided awareness and then how we're able to cope.

Speaker Change: Customer through all purchase funnel continues to be very very strong and you know we talk a lot about the number one indicator for all brands strengths is around word of mouth. So we feel very good on that and you know even with the guidance as he said you know we will still be gaining significant share the second with very clear around all touch points opening.

Mary Fox: But, you know, the aided awareness and then how we're able to pull customers through our purchase funnel continue to be very, very strong. And, you know, we talk a lot about the number one indicator for our brand strength being word of mouth. So we feel very good about that. And, you know, even with the guidance that Keith shared, we will still be gaining a significant share. The second point is that we're very clear about our touchpoint opening for this year.

So this year at the performance is continuing as we see our new showrooms outperforming on that principle muslin I think Keith talked a bit about some of the economic benefit that we're getting.

Speaker Change: As we manage our fleet and occupancy charges and then I think the third one as you know we've always plan very conservatively and I think you know we've gone through two years of very tough double digit decline and this team consistently every time outperformed and the one thing I'm very proud eating it.

Mary Fox: The performance is continuing, as we see our new showrooms outperforming their competitors. And I think Keith talked a bit about some of the economic benefits that we're getting as we manage our fleet and occupancy charges. And then I think the third one is, you know, we've always planned very conservatively. And I think, you know, we've gone through two years of very tough double-digit declines. And this team consistently, every time, outperform

Speaker Change: We talked about some of the innocent in February 15th pivot soft we test we moved we have jobs and everything that Keith has laid out in the forecast you know will continue so I think there's a lot that we feel very good about this year and beyond and everything in terms of the financial performance continues.

Mary Fox: And the one thing I'm very proud of, even as we talked about some of the toughness in February, this team pivots fast. We test, we move, we adjust. And everything that Keith has laid out in the forecast, you know, will continue. So I think there's a lot that we feel very good about this year and beyond. And everything in terms of the financial performance continues to show that for us. Yeah, and I'll just tag on this is Shawn.

Speaker Change: To show that for us.

Speaker Change: Yeah, and I'll just tag on this is Sean I'm really I appreciate the question.

Sean: The aspect to love sack that is.

Sean: Probably overlooked, particularly you know tough.

Sean: Tough times like this for the category is that for the last decade, we've invested very seriously and intensely in building our brand and in <unk>.

Shawn David Nelson: Maria, I appreciate the question. The aspect of Lovesac that is probably overlooked, particularly in tough times like this for the category, is that for the last decade, we've invested very fastidiously and intensely in building our brand. What I'm speaking about is, you know, there is obviously a lot of competition, particularly in the digital landscape for couches, modular couches, et cetera, because of the The server we've created and obviously the growth that we've garnered in this. The big difference between Lovesac and all of those competitors in that realm, as well as some of the competitors in the traditional realm, most of the competitors, and this is based on And that's taken a decade to build.

Sean: What I'm speaking to is you know there is obviously a lot of competition, particularly in the digital landscape for for couches modular couches et cetera because of the.

Sean: Further we've created and the and obviously the growth that we've garnered in this room.

Sean: The big difference between love sack and all of those competitors in that room as well as as well as some of the competitors are in the traditional around most of the competitors and this is based on our own internal brand strength studies.

Sean: Is the strength of this brand and Thats taken a decade to build and you know it's not just a digital marketing engine. That's you know kicking butt in and making hay when the Sun is shining, but a real.

Shawn David Nelson: And, you know, it's not just a digital marketing engine that's, you know, kicking butts and making hay when the sun is shining. But a real effort through the activations, through the events, through obviously relentless traditional advertising, TV advertising combined with digital, et cetera, that's really built a lot of awareness for our brand, a lot of acceptance, a lot of love, and a lot And so, you know, Lovesac is a highly sought-after product.

Sean: Effort to you know.

Sean: Through the Activations.

Sean: Through the events.

Sean: Through obviously a relentless.

Sean: Traditional advertising television advertising combined with digital et cetera, that's really built.

Sean: A lot of awareness for our brand a lot of acceptance of lot of a lot of love and a lot of a lot of demand and so you know love Sac is a highly sought after product will continue to launch more products underneath this brand flag.

Shawn David Nelson: We'll continue to launch more products underneath this brand flag, and we expect them to perform well just as we continue to perform well against the category. And so that brand strength really carries us through a time like this versus many others who are really focused on just, you know, converting through digital means or relying on foot traffic in showrooms, et cetera, in stores, et cetera. So Lovesac is a real outlier in this way, and I don't think it's fully appreciated or valued.

And we expect them to perform well just as we continued to perform well versus the category and so that brand strength really carries us.

Sean: Through a time like this versus many others who are.

Sean: Really focused on just you know converting through digital means.

Sean: We're relying on foot traffic insurance et cetera in stores et cetera. So that's that gives us a real outlier in this way and I don't think it's fully appreciated or valued.

Mary Fox: And that's okay. You know, we're focused on just, you know, it's taken this long to build the brand to this point. It'll take another decade to take it where we want to take it, and that's our point of view at management. And in the meantime, we'll continue to shuck and jive and do all the things necessary to perform against the category, gain market share, and emerge with some really exciting new products on the horizon in the near and medium term, even as this category rebuilds. And then, secondly, could you maybe give us a little bit more color on your trading and resale initiative? What are some of the logistics investments that are needed to enable this initiative? And will you be sort of just connecting, buying, and selling consumers, or will you be taking ownership of them? Yeah, great. Thank you, Maria.

Sean: That's okay. You know we're focused on just you know it's taken this long to build the brand at this point.

Sean: It will take another decade to take it where we want to take it and that's our point of view at management.

Sean: And in the meantime, we will continue to shut in Jive and do all the things necessary.

To perform against the category gained market share and emerge with some really exciting new products on the horizon in the near and medium term, even if this category will rebound.

Speaker Change: Got it that's very helpful. Thank you and and then secondly can you maybe give us a little bit more color on your trading and resale initiatives are what are some sort of logistic investments that I needed to enable this initiative and will give me sort of just connecting buying and selling consumers or will he be taken ownership.

Speaker Change: All this inventory.

Yeah, great. Thank you Maria.

Mary Fox: This is an initiative we're very passionate about because, I think, as we talk about the infinity flywheel, we've been very active on the left side. You know, driving amazing brand awareness, touch points that we can convert with an incredible Design for Life platform and amazing products that are for life. And the ability to be able to establish the services that we've touched on is so important. So the work that we started last year around circular operations was just starting to build the foundations for the ability to do trade-in and resale. And, you know, and I touched a little bit on just the fact that we're even just in this foundational build, launching an internal test for our own team members around open box item sales and just building the technology to be able to do that. And we have an external partner that is also helping us with that. Also, working in terms of just the overall FNOP processes that have to happen.

Speaker Change: And initiative, we're very passionate about it because I think as they talk about the infinity flywheel, we've been very active around the left side around you know driving amazing brand awareness touch point that week, but with an incredible design for life platform and an amazing product.

Speaker Change: The dolphins.

Speaker Change: <unk> and ability to be able to establish the services that we've touched on them is so important. So the work that we started last year are ramped up your operations was just starting to build the foundations for the ability to do a trade in and resell them and you know and I touched a little.

Speaker Change: Just the fact that we're even just in the foundational bells launching an internal test well our own team members around open box items sales in just building the technology to be able to do that and we have an external partner that is also helping us with that.

Speaker Change: If they're working in terms of just the overall S. N L. P processes that have to happen all of that is baked in in terms of those investments into our business for this year.

Mary Fox: All of that is baked in terms of those investments into our business for this year. And then later in the year, we'll come back and share with you the progress that we're making on resale and trade-in. And so, yes, you know, as we build that loop out, there will be a bit of inventory, and we will then manage that through. We see a very high demand for our product on the secondary market today. So, you know, the ability for us to have an amazing brand experience and really do something that no one else can do because other brands have a much harder time doing resale and trade-in. It's super expensive logistically and very complicated and hard to keep the product intact.

Speaker Change: And then later and be able to come back and share with you the progress that we're making them for resale and trading and so yes, you know as we build that loop out you know that will be Oh inventory and we will be then managing that through we see a very high demand for our product.

Speaker Change: On the secondary market today, so it is happening.

Speaker Change: Today. So you know the ability for us to have an amazing brand experience and really do something that no one else can do because although the other brand.

Speaker Change: Much harder for them to do resell and trade it super expensive logistically and very complicated and hard ski product contact. So you know as we talk about innovations to come and then the ability for our customers.

Mary Fox: So, you know, as we talk about innovations to come and then the ability for our customers that bought a product 10 years ago to be able to trade-in covers, get new covers, and be able to build up their lifetime value, we are very excited about this ability. So we look forward to sharing more news with you and the progress of this obviously very critical initiative. Thank you very much for the call.

Speaker Change: Customers that bought our product 10 years ago now to trade and cover getting you cover and be able to build up their lifetime value and we are very excited about visibility. So we look forward to sharing more news for you.

Speaker Change: And the progress of this obviously is very critical initiatives.

Got it thank you very much for the color.

Speaker Change: Thank you. Our next question comes from the line of Matt Koranda with Roth M. Kam. Please proceed with your question.

Mary Fox: Thank you. Our next question comes from the line of Matt Koranda with Roth MKM. Please proceed. Hey guys, good morning.

Matthew Butler Koranda: Hey, guys good morning.

Matthew Butler Koranda: I just wanted to spin back to the quarter to date trend that you shared, maybe just, Is there any way to unpack or quantify what you saw in February and March? And I know you mentioned March getting a little bit better than February on a relative basis. Was March actually up on a year-over-year basis, or just down less badly than February, maybe just a little bit more there? And then Mary, could you talk about the promotional tactics?

Matthew Butler Koranda: Just wanted to spend back to the quarter to date trends that you shared maybe just.

Matthew Butler Koranda: Is there any way to unpack them quantify them. What you saw in February and March and I know you mentioned March getting a little bit better than February on a relative basis. Just was March actually up on a year over year basis, or just down less badly than February and maybe just a little bit more there.

Matthew Butler Koranda: And then just Mary if you could talk about the promotional tactics I know you sort of touched on it in one of your previous responses, but just wanted to hear you speak a little bit more about the more frequent promotions that we're running in the 30% off promotions.

Keith Robert Siegner: I know you sort of touched on it in one of your previous responses, but just wanted to hear you speak a little bit more about the more frequent promotions that are running and the 30% off promotions and how those are kind of faring relative to some of the broader promotions you mentioned in the industry. Here, I'll start off and then pass it over to Mary to talk more about the promotional tactics. Just in terms of specifics, at this point, we're not going to get into the exact specifics in relation to February and March, but Mary kind of gave the details and a lot of what it boiled down to in February, given that the category was about the same, according to the credit card data for both February and March. Some of this was company-specific, right?

Matthew Butler Koranda: And how those are kind of faring relative to some of the broader promotions you mentioned in the industry.

Matthew Butler Koranda: Yes.

Matthew Butler Koranda: I'll start off and then pass it over to Mary to talk more about the promotional tactics just in terms of specifics.

At this point, we're not going to get into the exact specifics in relation to February and March, but Mary kind of give the details and look at what are a lot of what it boils down to in February.

Matthew Butler Koranda: Given that the category was about the same according to the credit card data for both February and March. Some of this was company specific right. So the factor as Mary said, we've tried to dial back on our promotions. However, the competitors, we're dialing up on the promotions at that time as well as you know.

Matthew Butler Koranda: Dislocations in our marketing program relative to the change in agency, which happened on the first day of the fiscal year alright. So it really it really impacted the entirety of PD, one, but we corrected for that we adjusted for that we tweak the promotions as we headed into March and we saw a massive bounce back it was a dramatic shift in.

Matthew Butler Koranda: Trends, we've taken both February and March Holistically into account as we think about our plans for P. Three which is April and that's all compartmentalize within our guidance. Obviously this is an ongoing constant effort to tweak and refine and tweak and refine test and learn all of those types of things so but at this point.

Keith Robert Siegner: For the fact, as Mary said, we tried to dial back on the promotion. However, the competitors were dialing up on the promotions at that time, as well as, you know, dislocations in our marketing program relative to the change in agency, which happened on the first day of the fiscal year, right? So it really impacted the entirety of P1.

Matthew Butler Koranda: We think this is the best representation.

Matthew Butler Koranda: <unk> of our placement in this quarter and then as we get later into the year for all the things I talked about a little earlier, that's when we really start to see the launches alright that Mary highlighted before that's when we see the touch point expansion really kicking in.

Matthew Butler Koranda: And that's when we think we can get even sharper.

Matthew Butler Koranda: With our marketing and promotions finance offers all of that kind of stuff to really crystallizing and converts are the.

Matthew Butler Koranda: The interest we're seeing from our customers.

Keith Robert Siegner: But we corrected for that. We adjusted for that. We tweaked the promotions as we headed into March, and we saw a massive bounce back. It was a dramatic shift in trends.

Speaker Change: I don't know if you want to talk more about the promotional tactics.

Speaker Change: Yeah, no. Thank you Keith and I. Thank him you know Max obviously black Friday, typically we see the strongest promotions of the year and that you know we came out to 30%.

Speaker Change: And a couple of bundled deals and and you know as you know compared to the rest of the category. That's still substantially lower we had a very strong performance than.

Keith Robert Siegner: We've taken both February and March holistically into account as we think about our plans for P3, which is April, and that's all compartmentalized within our guidance. Obviously, this is an ongoing, constant effort to tweak and refine and tweak and refine, test and learn, all those types of things. But at this point, we think this is the best representation of our progress in this quarter.

Then what we normally would do it stepped down a little bit coming out of that Black Friday, but as I said, you know, we saw everyone else holding them and they've actually many ways actually get more aggressive in using the clearance area, just taking cost out product and actually promoting it to even more aggressively we're seeing you know promotion.

Speaker Change: Up to 50% off so when we had dialed back down.

Speaker Change: The dead than that you know we saw the velocity just held back a little bit because people close that loan growth is really strong conversion was just a little bit slower and we know we always have to have a compelling value. So as we test it back into the 30 off.

Keith Robert Siegner: And then as we get later into the year, for all the things I talked about a little earlier, that's when we really start to see the launches, right, that Mary highlighted before. That's when we see the touchpoint expansion really kicking in, and that's when we think we can get even sharper with our marketing and promotions, finance offers, all that kind of stuff to really crystallize and convert the interest we're seeing from our customers. Mary, I don't know if you want to talk more about the promotional tech. Yeah, no, thank you, Keith.

Speaker Change: As Keith said, we saw great growth in March. So you know like anything we're going to continue to test and learn.

Speaker Change: One of the really interesting part of all this.

Speaker Change: Is from a consumer behavior point of view.

Speaker Change: We see a very high percentage of workloads.

Speaker Change: Close the quotes and in about a week to two weeks.

So you know for US, we just really adjusting our promo campaigns and Antarctic, allowing what we see when they're coming in and then to be able to drive them to conversions. So you know again big advantage for us as we manage across all of our channels.

Mary Fox: And I think, you know, Matt, obviously, Black Friday is typically when we see the strongest promotions of the year. And, you know, we came out at 30% off, and a couple of bundle deals. And, you know, as you know, compared to the rest of the category, that's still substantially lower, we had a very strong performance. Okay.

Speaker Change: You know in the past that.

Speaker Change: Keith is baked in you know we have industry, leading gross margin performance in U S.

Speaker Change: Only about the growth year over year, and just all of them are full and so we're just really threading the needle between top line growth gross margin growth and how that flows through so you know we'll adjust through the year, but you know so good now in terms of where we are settled and our programming.

Speaker Change: Okay got it and then on the gross margin guide for the first quarter it looks like yeah.

Matthew Butler Koranda: And then on the gross margin guide for the first quarter, it looks like, you know, there's some expansion there. Just wondered, maybe, Keith, if you could touch on sort of what's factored in in terms of promotional headwinds versus some of the continued sort of unlock that we're seeing from lower inbound freight. And then for the full year, if we look at the guidance, I guess we're still seeing some deleverage on SG&A. Just wondered if you could maybe touch on sort of what the planned investments are there and maybe why not, or why we can't see or couldn't see a little bit more leverage on that line this coming year. Sure thing, I'll start with gross margin. So the story for first quarter gross margin is really consistent with kind of what we've been talking about the last six months and with the full year. You know, we got to this high 50s range; we think this is a comfortable level.

Some expansion there.

Speaker Change: Just wondering maybe if you could touch on sort of what's factored in in terms of promotional headwind.

Speaker Change: Versus some of the continued sort of unlocks that we're seeing from lower inbound freight maybe just touch on that and then for the full year. If we look at the guidance I guess, we're still seeing some deleverage on SG&A.

Speaker Change: Wondering if you could maybe touch on sort of what the planned investments are there and maybe why not or why we can't see or couldn't see a little bit more leverage on that line that's coming here.

Speaker Change: Sure thing I'll start with the gross margin. So the story for first quarter gross margins is really consistent with kind of what we've been talking about the last six months and with the full year. We got to this high Fifty's range. We think this is a comfortable level last year's first quarter was still burdened by a little bit of the capitalized inbound freight that hadn't burned off as I said and that's helping us.

Keith Robert Siegner: Last year's first quarter was still burdened by a little bit of the capitalized inbound freight that hadn't burned off as of then, so that's helping us a little bit year over year in the first quarter. We do expect gross margin expansion for this year. Obviously, the total top line will impact that range that you saw within our guidance that we provided. But there are a few things Mary was talking about that have the potential to benefit both the inbound and outbound sides of freight and logistics for us. You know, even in the first quarter, we were, we had been getting some questions in relation to, you know, whether it's the Red Sea, whether it's Baltimore, all that kind of stuff.

Speaker Change: Little bit year over year in first quarter, we do expect gross margin expansion for this year, obviously, the the total topline will impact that range that you saw was in our guidance that we provided but theres a theres a few things Mary was talking about that have the potential to benefit both the inbound and outbound side of.

Speaker Change: Freight and logistics for us.

Speaker Change: No.

Speaker Change: Even in first quarter.

Speaker Change:

Speaker Change: We were we had been getting some questions in relation to whether it's red sea, whether it's Baltimore all of that kind of stuff just to put some of this stuff into context.

Keith Robert Siegner: Just to put some of this stuff into context, you know, as we moved into P-12 and P-1, we've really changed some of the relationships we have. We've moved to direct service providers for ocean freight and container drayage using a beneficial cargo owner direct carrier model. That's definitely impacting things for us. We're also moving on the outbound side into evaluating some alternative options for last mile carrier projects and tests, all the stuff we think has potential to benefit the gross margin side of things. So we definitely see potential for gross margins, but the magnitude of that expansion really depends upon the top line for the year, which again is largely dependent upon where the category ends up.

Speaker Change: Joe as we moved into peak 12 N P. One we've really changed some of the relationships. We have we moved to a direct service providers for ocean freight and container drayage using a beneficial cargo owner direct carrier model, that's definitely impacting things for US. We're also moving on an outbound.

Speaker Change: Syed into evaluating some some alternative options.

Speaker Change: Options for last mile carrier projects and tests all of this stuff, we think has potential to.

Speaker Change: Benefited gross margin side of things so.

Speaker Change: We definitely see potential for gross margins the magnitude of that expansion really just depending upon the topline.

Speaker Change: For the year, which again is largely dependent upon where the category ends up on the SG&A side of things like.

Keith Robert Siegner: On the SG&A side of things, this is really what we're trying to do here is balance the long term against the near term here. Please appreciate this is tricky because we want to be efficient, but we also don't want to take our eyes off the price. We know we need to invest in these long-term value creation drivers, and that's what you're seeing a lot of this year. We're off of last year's model, which was largely infrastructure-driven pressure on those, and now it's more about growth.

Speaker Change: This is really what we're trying to do here is to balance.

Speaker Change: The long term against the near term here.

Speaker Change: And it.

Speaker Change: Please I appreciate this is tricky right, because we want to be efficient.

Speaker Change: But we also don't want to take our eyes off the prize right. We know we need to invest in these long term value creation drivers.

Speaker Change: That's what's you're seeing a lot of this year, we're off of last year's model, which was largely infrastructure driven pressure on those and now it's more about growing. So you know we gave some of those details earlier, but when Mary talks about a busy year for product innovation and a really exciting innovation coming in early fiscal 'twenty six it open to the <unk>.

Keith Robert Siegner: We gave some of those details earlier, but when Mary talks about a busy year for product innovation and a really exciting innovation coming in early fiscal 26 that opens the aperture and potentially benefits AOV for our core product category, this is where this is going, and we hope to keep that pace of innovation going beyond that. We think again that those who can make select investments during a period of macro uncertainty stand to benefit the most over the medium and long term, and that's what we're doing because we can. We are in a good position, we are profitable, and we have the cash to be wise, to be prudent as we can and see if the macro does bounce back like we all hope it will.

Speaker Change: Aperture and potentially benefits for our core product category. This is where this is going.

And we hope to keep that pace of innovation going beyond that.

Speaker Change: That's we think again, those who can make select investments during a period of macro uncertainty stand to benefit the most over the medium and long term and that's what we're doing because we can we are in a good position we are profitable and we have the cash for being wise, we're being prudent as we can.

Speaker Change: And look at the macro does bounce back like we all hope it will we wanted to you wanted to know what everybody wants to do and if it does we're ready to go when we're ready to exploit that and capitalize on that opportunity.

Keith Robert Siegner: We want it to, you want it to, everybody wants it to, and if it does, we're ready to go. We're ready to exploit that and capitalize on that opportunity, and we'll be in a better position to do so because of these investments we're making, particularly in the product. Okay, very helpful, Keith. If I could sneak one more in, can we just maybe level set everybody on the cadence of profitability by quarter for the rest of the year? Obviously, I am not asking for specific guidance.

Speaker Change: We'll be in a better position to do so because of these investments, we're making particularly in the product innovation.

Speaker Change: Okay very helpful. Keith if I could sneak one more in just can we just maybe level set everybody on the cadence of profitability by quarter for the rest of the year, obviously not asking for specific guidance, but should we expect I would imagine <unk> that would be the trough in terms of profitability.

Matthew Butler Koranda: But should we expect, I would imagine one Q would be the trough in terms of profitability. Should we expect you to be at least break even or positive for the rest of the year? Maybe just a little bit more on some sort of cadence?

Speaker Change: Should we expect it to be at least breakeven or positive for the rest of the year, maybe just a little bit more on sort of cadence I know you provided a little one H versus do it but just anything on profitability and cadence for this year.

Keith Robert Siegner: I know you provided a little 1H versus 2H comparison, but just anything on profitability and cadence for the Yeah, I mean, that really boils down to where the top line shakes out. I mean, obviously, this is, you know, based upon what we just gave in terms of category backdrop and full-year guidance, we expect the most difficult top-line picture of the year to be Q1. And it is historically also our most difficult quarter. Nothing changes on that front.

Keith Robert Siegner: Yeah, I mean, that's that really boils down to where the topline shakes out I mean, obviously this is based upon what we just gave in terms of category backdrop in full year guidance, we expect the most difficult topline picture of the year to be Q1.

Keith Robert Siegner: And it has historically also our most difficult quarter nothing changes on that front Q.

Keith Robert Siegner: Q4 still remains the bulk of the profits. It's just such a big selling year for us or selling quarter for us. Sorry.

Keith Robert Siegner: Q4 still remains the bulk of the profits, it's just such a big selling year for us.

Keith Robert Siegner: Our selling quarter for us sorry.

Keith Robert Siegner: You know, there's a little wiggle room around that, but, you know, you can look at seasonal trends historically, coupled with a slightly better macro backdrop for the year in the back half versus the first half. And, you know, the quarters will likely fall out, you know, very similar in your model to what we have planned. So, you know, nothing unusual outside of those two dynamics that should be affecting it. Okay, that makes sense. I'll take the rest of mine offline.

Keith Robert Siegner: You know theres, a little wiggle around that but you know it's.

Keith Robert Siegner: You can look at seasonal trends historically, coupled with a slightly better macro backdrop for the year in the back half versus the first half and you know this quarter was good.

Keith Robert Siegner: This will likely fall out.

Keith Robert Siegner: Similar in your model to what we have planned so.

Nothing unusual outside of those two dynamics that should be affecting that cadence.

Speaker Change: Okay makes sense I'll take the rest of mine offline. Thanks, guys.

Speaker Change: Thank you. Our next question comes from the line of Mike Baker with D. A Davidson. Please proceed with your question.

Matthew Butler Koranda: Thank you. Our next question comes from the line of Mike Baker with D.A. Davidson.

Mike Baker: Please proceed with your question. Okay, thanks. Maybe following up on some previous questions, but asking it a different way. The guidance shows a massive ramp in sales growth and profitability growth after the first quarter, yet your advertising as a percent of sales, which seems to be the big driver to helping sales, goes down for the rest of the year, right? I think you're 14 and a change for the first quarter, and then 13 for the full year, which implies something lower than that for the rest of the year.

Mike Baker: Okay. Thanks.

Mike Baker: Maybe following up with some some previous questions, but asking it a different way.

Mike Baker: It is a massive ramp in sales growth and profitability growth. After the first quarter, yeah. Your advertising as a percent of sales, which seems to be the big driver.

To help yourselves goes down for the rest of the year right I think your 14 in change for the first quarter and then 13 for the full year, which implies something lower than that for the rest of the year. So I guess, if you could help us again with a little more color as to why the rest of the year gets so much better and then beyond that like it seems like when you're advertising more advertising as a percent of <unk>.

Keith Robert Siegner: So I guess if you could help us again with a little more color on why the rest of the year gets so much better. And then, beyond that, it seems like when you're advertising more, advertising as a percent of sales, that's driving sales. Why not go above the 13% in the short term, 14, 15% for 2024, for calendar 2024?

Mike Baker: That's driving sales why not go above the 13% in the short term 14 15 per cent for 'twenty 'twenty four for calendar 'twenty 'twenty four thanks.

Keith Robert Siegner: So, just starting with Q1. You know, obviously, given the seasonality that we just discussed and Matt's question, this is the most, it's the lowest spend in Q1, and we had inefficiency in spend, given the dislocations related to the transition. That's kind of what drove that dynamic.

Speaker Change: Sure sure thing. Thanks, So just starting with Q1.

Speaker Change: Obviously, given the seasonality that we just discussed in Matt's question. This is the most it's the lowest spend in Q1, and we had inefficiency and spend given the dislocations related to the transition that's kind of what drove that dynamic we have bigger dollars and anticipate we anticipate more effective.

Keith Robert Siegner: We have bigger dollars and anticipate more effectiveness and efficiency of the dollars as we get into the later seasons. That also couples with the promotions. That also couples with the product innovation that we'll be bringing. All of these things kind of work together, you know, so your question is fair.

Speaker Change: This inefficiency of the dollars as we get into the later seasons that also couples with the promotions that also coupled with the product innovation that we'll be bringing all of these things kind of work together.

Speaker Change: So your question is fair, we totally get it but you know we've been through all of that and and I'm very comfortable at this point with.

Mary Fox: We totally get it, but, you know, we've been through all that, and I'm very comfortable at this point with that dynamic of lower percentages, but higher dollars, and more effectiveness, and impact of all of those things combined to drive the, you know, what you would see within that range again. I think, Keith, just to add, I think, Mike, what we also see, I mean, within our marketing and advertising spend, there's a short-term working media that drives growth. And, you know, that's in the quarter and beyond because it's never just that time.

Speaker Change: With that dynamic of lower percentages, but higher dollars and more effectiveness and impact of all of those things combined to drive the you know what.

Speaker Change: You would see within that range of guidance.

Speaker Change: I think Keith just to add I think Mike what we also see I mean within our marketing.

Marketing and advertising spend you know that this is a short term working media that drive Roes.

Speaker Change: And you know that in the quarter and beyond because it never always just a little time I think the second piece and I'll spend is all the research and development work around the innovation to come so what does that also builds and as well as a brand that cookie building one of the things that we've always talked about it you know.

Mary Fox: I think the second piece in our spend is all the research and development work around the innovations to come. So there's that also built in, as well as, you know, building brand equity. One of the things that we've always talked about is, you know, we continue to test and learn all the time around advertising and marketing. So, for example, the team is running a test right now really looking at, you know, opportunities outside of big promotional windows, temple moments that you would typically see, to see in terms of, you know, the traffic that we can drive and then convert through the funnel.

Speaker Change: We continue to test and learn all the time around our advertising and our marketing. So for example, the team are running a test right now.

I'm really looking at a you know.

Speaker Change: Opportunities outside of fake promotional windows 10 pole moments that you would typically see them to see in terms of the traffic that we can drive and then convert the funnel so.

Keith Robert Siegner: So, you know, the team is very energized around that. Lots of debates and a great outlook in terms of testing. And that will continue and is one of the reasons that, you know, we have been successful is because of that agility. And I think, as Keith shared, we feel very good in terms of the runway for the rest of the year because, obviously, touch points are a key lever, as well, for us, as we think about growth and the formula of success that we've had for so many years. Okay, fair enough. One quick, just housekeeping, was part of the analysis show on the back half with the variables we need are how much the extra week helped in terms of sales and EBITDA. Excuse me, I have my estimates, but is that something you're willing to share? Yeah, there was nothing unusual about it that would make it a non-standard week for us.

Speaker Change: You know the team is very energized around that lots of debates in the end and great.

Speaker Change: Outlook in terms of testing.

Speaker Change: And that will continue and it's one of the reasons that you know we have been successful as Baxter, Jay let's say.

You know and I think as Keith <unk>, you know, we feel very good in terms of the runway for the rest of the year cause obviously touch points are a key lever as well for us as we think about the gross then and the formula for success that we've had for so many years.

Speaker Change: Okay Fair enough one quick just housekeeping.

Speaker Change: As part of the analysis show in the back half with the variables, we need or a how much of the extra week helped in terms of sales and EBITDA.

Speaker Change: Excuse me I have my estimates, but is that something you're you're willing to share.

Speaker Change: Yeah, there was nothing unusual about it that would make it a non standard a week for us.

Keith Robert Siegner: So it's pretty consistent across most of the metrics with a typical Q4 week. [inaudible] Okay, thank you. Thank you. Our next question comes from Thomas Forte with Maxim Group.

Speaker Change: So it's pretty consistent.

Speaker Change: Across most of the metrics with it.

Speaker Change: With a with a typical Q4 week.

Speaker Change: No nothing really unusual on that.

Speaker Change: In terms of sales and profitability or EBITDA dollars, yeah, yeah, there's a number of moving pieces across the things, but it's a it's a relatively represented as Q4 week.

Thomas Ferris Forte: Please proceed with your question. Great. So for the sake of time, three quick questions. The three quick answers are more than acceptable. The inventory management, was that a one-off, or is that a permanent change?

Speaker Change: Understood.

Speaker Change: Yeah.

Speaker Change: Thank you. Our next question comes from the line of Thomas Forte with Maxim Group. Please proceed with your question.

Speaker Change: Great.

Thomas Ferris Forte: Three quick questions three quick answers are more than acceptable.

Thomas Ferris Forte: Management was that a one off or is that a permanent change.

Mary Fox: And then on the services revenue, I like that you're talking more about it, but how should you think about the relative profitability? The gross margin on your goods is quite high. And then, lastly, when thinking about your full year out... How do you think about the notion that there may be fewer rate cuts, but it seems like there's a greater likelihood of a soft landing? So I know the home category.

Thomas Ferris Forte: Then on the services revenue.

Thomas Ferris Forte: If you're talking more about it but how should we think about the relative profitability of your gross.

Thomas Ferris Forte: On your goods is quite high and then lastly, what.

Thomas Ferris Forte: When thinking about your full year outlook, how do you think about the notion that there may be fewer rate cuts, but it seems like there's a greater likelihood of a soft landing. So I know home category can be highly sensitive to interest rates, but it seems like the good news is that there's a greater chance of a soft landing and I'd love your high level.

Mary Fox: I'd love your high-level thoughts on that. Yes. Keith, can I take the inventory management? I'm going to go ahead and close this one. Sure. Sounds good. Yeah, Tom.

Speaker Change: So on that thanks.

Speaker Change: Yeah, So I'll take the inventory management.

Keith Robert Siegner: So, yeah, for us, it was... All right. So, yeah, thank you, everyone. Thank you, a result of a lot of the investments we've made in the past in the supply chain. So, you know, for us, we will continue to drive efficiencies in our inventory and even just kind of speed to market as we move goods from the factory through to our DC. So continue, you'll expect to see some benefits continue. And the team honestly has done an amazing job, so we're just very grateful. And I think back to the point Keith touched on before, the ability for us to drive up as demand swings back at the point where the category gets back into some momentum. We're also really able to be very agile and be able to build up inventory, so feel good on that one.

Speaker Change: Sure Oh, that's good.

Speaker Change: Yeah, Yeah, it's Tom so yes.

Speaker Change: Just to eat with.

The result is a lot of the investments we've made in the past.

In supply chain.

Speaker Change: You know for US, we will continue to drive efficiencies and now inventory and even just kind of the speed to market. Since we move goods from factory through to D. C. So continue you'll expect to see some benefits continuing him and.

Speaker Change: And the team honestly has done an amazing job. So we're just very grateful that I think back to the point he touched on before the ability for us to drive up as the demand will swing back at the point, where the casualty does a backend system momentum. We're also really able to be very agile and be able to build up inventory.

Speaker Change: So good on that one.

Mary Fox: I think service revenue is, you know, we'll share more through the year as we think in terms of the model. It's still very early days as we start to build out those capabilities, so we'll give you some more color on that later in the year. And I think, Keith, maybe you want to go to Outlook. Sure, sure thing. So look, it's a macro discussion that could get really complicated really quickly. Do we not get rate cuts which result in, you know, greater housing turnover, which typically results in more desire for furnishings? But do we also get a soft landing?

Speaker Change: Service revenue is that you know we'll share more through the year as we think in terms of the the model. It's still very early days as we start to build out these capabilities.

Speaker Change: So what we'll give you some more color to that later in the year and I think Keith maybe you want to go to the outlet.

Keith Robert Siegner: Sure sure. Thanks, So look at it.

Keith Robert Siegner: The macro discussion could get really complicated really quickly do we not get the rate cuts, which result in.

Keith Robert Siegner: Greater housing turnover, which typically results in more more desire for the for the furnishings, but do we also got a soft landing what happens with the elections what have there's a lot of these moving pieces and I think really what.

Keith Robert Siegner: What happens with the elections? What happens? There are a lot of these moving pieces, and I think really what we were trying to say was that because we are in this enviable position of not having to make a call on exactly when that bounce is going to come, we're going to take a conservative approach and manage our expenses against that, setting us up for the position where should that work out, should we get more housing turnover, should we get more home furnishing demands, rates go lower, elections We can participate and ride that demand curve in real time. And that's the point. So, you know. That's why we're providing a lot more of the transparency behind it. Yes, we hope it plays out the way you're talking about, but we're not building a plan that requires any of the more positive outcomes to really dominate the rest, and that's what we do. That's why we were so transparent with that macro benchmark underneath our guide.

Keith Robert Siegner: What we're trying to just to say it was.

Keith Robert Siegner: Because we are in this enviable position of not having to make a call on exactly when that balance is going to come we're going to take a conservative approach and manage our expenses against that setting us up for the position where should that work out should we get more housing turnover should we get more home furnishing demand as rates go lower elections out of it.

Keith Robert Siegner: Ever.

We can participate and ride that demand curve in real time.

Keith Robert Siegner: And that's the plan.

Keith Robert Siegner: So you know.

Keith Robert Siegner: That's why we're providing a lot more of the transparency behind that yes, we hope it plays out the way the way Youre talking about but we're not building a plan that requires any of the more positive outcomes too to really dominate the rest.

Keith Robert Siegner: And that's what we that's why we are so transparent with that macro benchmark underneath our guidance.

Thomas Ferris Forte: Great. Thank you, Keith. Thank you, Mary.

Speaker Change: Great. Thank you Keith Thank you Mary Thank you Sean.

Operator: Thank you. Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Nelson for any final comments. Yes, we just want to thank all of our investors as well as all the Lovesackers out there that keep this company going. Thank you, and we look forward to an amazing fiscal year. Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. Nelson for any final comments.

Keith Robert Siegner: Yes, we just want to thank all of our investors as well as.

Shawn David Nelson: All the loves doctors out there that keep this company.

Nelson: And we look forward to an amazing fiscal year.

Speaker Change: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.