Q1 2025 The Lovesac Co Earnings Call
Operator: Greetings, and welcome to the Lovesac First Quarter Fiscal 2025 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 keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Caitlin Churchill with ICR. Please go ahead.
Operator: Greetings and welcome to the LoveSac first quarter fiscal 2025 earnings call. At this time, all participants are in the listen-only mode. A question-and-answer session will follow the formal presentation. If any winter require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Greetings and welcome to the <unk> first quarter fiscal 2025 earnings call.
Speaker Change: At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded.
Caitlin Churchill: I would now like to turn the conference over to your host, Keith Caitlin Churchill, with ICR. Please go ahead.
Speaker Change: I would now like to turn the conference over to your host Caitlin.
Speaker Change: Caitlin Churchill with ICR. Please go ahead.
Caitlin Churchill: Thank you. Good morning, everyone.
Unnamed: Thank you.
Caitlin Churchill: Good morning, everyone. This week on the call is Shawn Nelson, Chief Executive Officer, Mary Fox, President and Chief Operating Officer, and Chief Signal Chief Financial Officer.
Caitlin Churchill: Thank you good morning, everyone.
Me on the call is Shawn Nelson, Chief Executive Officer, Mary Fox, President and Chief operating Officer, and Keith sick nerve 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 in our future financial performance. These include statements about our future expectations, financial projections, and our plans and prospects. Actual results may differ materially from those set forth in such statements. For a discussion 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: For a discussion of these risks and uncertainties you should review the company's filings with the SEC, which includes today's press release.
Speaker Change: You should not rely on our forward looking statements as predictions of future events.
Caitlin Churchill: All forward-looking statements that we may come to call are based on assumptions and beliefs as of today, and we undertake no obligation to update them, except as required by applicable law.
Speaker Change: 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.
Caitlin Churchill: 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. A reconciliation of the most directly comparable GAAP financial measures to such non-GAAP financial measure has been provided as supplemental financial information in our press release.
Speaker Change: Our discussion today will include non-GAAP financial measures, including EBITDA and adjusted EBITDA.
Caitlin Churchill: These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. A reconciliation of the most directly comparable GAAP financial measures to such non-GAAP financial measures 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 Lovesac.
Speaker Change: These non-GAAP measure should be considered in addition to and not as a substitute for or in isolation from our GAAP results a.
Speaker Change: 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.
Shawn David Nelson: Now I'd like to turn the call over to Sean Nelson, Chief Executive Officer of the LoveSac Company. Thank you, Kaylen. Good morning, everyone, and thank you for joining us today. I'll start our discussion by reviewing highlights from our first quarter performance and sharing thoughts about our outlook. Then, Mary Fox, our President and COO, will update you on the progress we are making on our key gross initiatives. Before passing the call to keep signal, our CFO, who will review our financial results and outlook in more detail. Turning to the highlights of our fiscal first quarter, during our earnings conference call in April, we discussed a difficult first month of the first quarter and why we were confident that we could generate better results going forward.
Speaker Change: Now I'd like to turn the call over to Shawn Nelson Chief Executive Officer Epilepsy Company.
Shawn David Nelson: Thank you, Caitlin. Good morning, everyone, and thank you for joining us today.
Shawn David Nelson: Thank you Caitlin and good morning, everyone and thank you for joining us today.
Shawn David Nelson: I'll start our discussion by reviewing highlights from our first quarter performance and sharing thoughts about our outlook. Then Mary Fox, our President and COO, will update you on the progress we are making on our key growth initiatives before passing the call to Keith Siegner, our CFO, who will review our financial results and outlook in more detail. Turning to the highlights of our fiscal first quarter, during our earnings conference call in April, we discussed a difficult first month of the first quarter and why we were confident that we'd generate better results going forward.
I'll start our discussion by reviewing highlights from our first quarter performance and sharing thoughts about our outlook then.
Shawn David Nelson: And then Mary Fox, our President and C. O I will update you on the progress we are making on our key growth initiatives before passing the call to cute Cigna, our CFO, who will review our financial results and outlook in more detail.
Mary Fox: Turning to the highlights of our fiscal first quarter during our earnings conference call in April we discussed a difficult first months of the first quarter and why we were confident that we generate better results going forward.
Shawn David Nelson: Well, we're pleased with the adjustments we made to promotions and refinement in our approach to our new digital agency work, and we deliver net sales, adjusted EBITDA, net loss, and EPS at or slightly favorable to the high end of our guidance range. Specifically, for the first quarter, total net sales were $132.6 million, reflecting a year-over-year decline of 6% as we anniversaried a strong quarter last year and continued to contend with a challenging category backdrop.
Shawn David Nelson: Well, we're pleased that the adjustments we made to promotions and refinements in our approach with our new digital agency work. And we delivered net sales, adjusted EBITDA, net loss, and EPS at or slightly favorable to the high end of our guidance ranges. Specifically for the first quarter, total net sales were 132.6 million, reflecting a year-over-year decline of 6% as we anniversary a strong quarter last year and continued to contend with a challenging category backdrop. Total on the channel comparable net sales declined 14.8% for the quarter, though, as Keith will outline later, this was nearly all a result of difficult first month.
Mary Fox: Well, we're pleased that the adjustments, we made to promotions and refinement to our approach with our new digital agency work.
Speaker Change: And we delivered net sales adjusted EBITDA net loss and EPS at or slightly favorable to the high end of our guidance ranges.
Specifically for the first quarter total net sales were $132 6 million.
Speaker Change: Reflecting a year over year decline of 6% as we anniversaried a strong quarter last year.
And continued to contend with a challenging category backdrop.
Shawn David Nelson: Total omni-channel comparable net sales declined 14.8% for the quarter, though, as Keith will outline later, this was nearly all a result of the difficult first month before we made the adjustments I described earlier. First quarter adjusted EBITDA and net loss fell meaningfully versus the prior year first quarter.
Speaker Change: Total omni channel comparable net sales declined 14, 8% for the quarter, though as Keith will outline later this was nearly all a result of the difficult first months before we made the adjustments I described earlier.
Shawn Nelson: Before we made the adjustments, I described earlier. First quarter adjusted Edbidda and net loss fell, meaningfully versus the prior year of first quarter. The declining sales exacerbated the de-leverage from opening 35 new touch points and investments in future sales driving initiatives, while we also saw increases in professional fees and marketing. Some of which was non-recurring. Despite the full quarter results being below a recent trends, they still represented another quarter of market shared gains in a category that was down double digits. Additionally, at the midpoint of our newly issued guidance range for net sales in the fiscal second quarter, we'd be back to growth even against our 25th anniversary campaign last year.
First quarter, adjusted EBITDA, and net loss fell meaningfully versus the prior year first quarter.
Shawn David Nelson: The decline in sales exacerbated the de-leverage from opening 35 new touchpoints and investments in future sales-driving initiatives, while we also saw increases in professional fees and marketing, some of which was non-recurring. Despite the full quarter results being below our recent trends, they still represented another quarter of market share gains in a category that was down double digits. Additionally, at the midpoint of our newly issued guidance range for net sales in the fiscal second quarter, we'd be back to growth, even against our 25th anniversary campaign last year.
The declining sales exacerbated the deleverage from the opening 35, new touch points and investments in future sales driving initiatives.
Speaker Change: While we also saw increases in professional fees and marketing.
Speaker Change: Some of which was nonrecurring.
Speaker Change: Despite the full quarter results being below our recent trend. They still represented another quarter of market share gains in a category that was down double digits. Additionally, at the midpoint of our newly issued guidance range for net sales in the fiscal second quarter, we'd be back to growth even against our 2015.
Speaker Change: Suri campaign last year.
Shawn David Nelson: As we have outlined in the last several calls, the reason for our long-term consistent outperformance boils down to our focus on the customer, our advanced products, and our unique omnichannel business model with an omnichannel infinity flywheel unlike any other. Our design for life philosophy permeates everything we do. We are a platform company, as opposed to a product, or a merchant lead retailer. Innovation is in our DNA, but always with reverse compatibility in mind, reinforcing our commitment to sustainability, or sustain hyphen ability, as we like to say, product platforms that can actually survive. Our platforms are built to last and designed to evolve. That's the perfect segue into our latest product innovation. The sack that does it all now does even more. Welcome the Pillowsack Accent Sheriff!
Shawn Nelson: As we have outlined on the last several calls, the reason for our long-term consistent outperformance boils down to our focus on the customer. Our advanced products and our unique on-e-channel business model with an on-e-channel infinity flywheel unlike any other. Our design for life philosophy permeates everything we do. We are a platform company as opposed to a product company or a merchant-led retailer. Innovation is in our DNA, but always with reverse compatibility in mind, reinforcing our commitment to sustainability, or sustainability as we like to say. Product platforms that can actually sustain. Our platforms are built to last and designed to evolve.
Speaker Change: As we've outlined on the last several calls the reason for our long term consistent outperformance boils down to our focus on the customer.
Speaker Change: Our advantage products and our unique omni channel business model with an Omnichannel infinity flywheel. Unlike any other.
Speaker Change: Our designed for life philosophy permeates everything we do we.
Speaker Change: We are a platform company as opposed to a product company or a merchant led retailer.
Speaker Change: Innovation is in our DNA.
Speaker Change: But always with reverse compatibility in mind.
Speaker Change: Reinforcing our commitment to sustainability or sustained hyphen ability as we like to say product platforms that can actually sustain.
Speaker Change: Our platforms are built to last and designed to evolve.
Shawn Nelson: That's the perfect segue into our latest product innovation. The sack that does it all now does even more. Welcome the Pillow Sack Accent Shareframe. Jackson, the product that Lovesack was founded on 26 years ago, and our namesake, the world's most comfortable seat. Sacks have firmly established their role in the family room, lounge, play room, bedroom, and many other casual spaces in the home. We continue to be the leading brand in a subcategory that we established. What we've done with the introduction of the Accent Shareframe is to elevate the Pillow Sack, literally and figuratively. Combined, the Pillow Sack Accent Share is an eye-catching, inviting, sophisticated, and stylish way to enjoy cloud-like comfort in your more formal spaces.
Speaker Change: That's the perfect segue into our latest product innovation.
Speaker Change: That does it all now does even more.
Speaker Change: Welcome the pillow Shack accent sure Fred.
Shawn David Nelson: Sacs are the product that Lovesac was founded on 26 years ago and our namesake, the world's most comfortable seed. SACs have firmly established their role in the family room, lounge, playroom, bedroom, and many other casual spaces in the home. We continue to be the leading brand in this subcategory that we established. What we've done with the introduction of the accent chair frame is to elevate the pillow sack, literally and figuratively. Combined, the Pillowsack Accent Chair is an eye-catching, inviting, sophisticated, and stylish way to enjoy cloud-like comfort in your more formal space.
Speaker Change: So actually the product that loves Shaq was founded on 26 years ago, and our namesake the world's most comfortable seat.
Speaker Change: Tax have firmly establish their role in the family room lounge, playroom bedroom and many other casual spaces in the whole.
We continue to be the leading brand in the subcategory that we established what.
Speaker Change: What we've done with the introduction of the accident share frame is to elevate the telesat literally and figuratively.
Speaker Change: Combined the tourists like accent chair is an eye catching inviting sophisticated and stylish way to enjoy cloud like comfort in your more thoughtful spaces.
Shawn David Nelson: In fact, Architectural Digest believes... We turned this accent into the living room's ultimate statement. We've seen tremendous response from both new and existing customers who are all finding ways to express their own personal style, sometimes purchasing numerous covers to fit different occasions. It's generating buzz.
Shawn David Nelson: In fact, Architectural Digest believes we turned this accent into the living room's ultimate statement piece. We've seen tremendous response from both new and existing customers who are all funny ways to express their own personal style. Sometimes purchasing numerous covers to fit different occasions. It's generating buzz, appreciation for our design for life approach, and the leading customers to ask us what's next. On that front, our product innovation pipeline remains very healthy. We have a few more launches coming this fiscal year that are on the smaller side of platform extensions. Following those, we have a larger launch in early fiscal 26 that we believe will open the aperture of potential customers and benefit ALV for a core platform regards.
Speaker Change: Fact architectural Digest believes we turned this accent into the living rooms ultimate statement piece.
Speaker Change: We've seen tremendous response from both new and existing customers, who are all funny ways to express their own personal style, sometimes purchasing numerous covers to fit different occasions.
Shawn David Nelson: Appreciation for our design for life approach and leading customers to ask us, what's next? On that front, our product innovation pipeline remains very healthy. We have a few more launches coming this fiscal year that are on the smaller side of platform extension. Following those, we have a larger launch in early fiscal 26 that we believe will open the aperture of potential customers and benefit AOV for a core platform. Following that, we have plenty more in the works, including entirely new categories, but you'll have to wait for more details.
Speaker Change: It's generating buzz appreciation for our designed for life approach.
Speaker Change: And leading customers to ask us what's next.
Speaker Change: On that front, our product innovation pipeline remains very healthy.
Speaker Change: Have a few more launches coming this fiscal year that are on the smaller side of platform extensions.
Speaker Change: Following Joe's we have a larger launch in early fiscal 'twenty six that we believe will open the aperture of potential customers and benefit a L V for a core platform for box.
Shawn Nelson: Following that, we have plenty more in the works, including entirely new categories, but you'll have to wait for more details. Action. Existing Hello Sacramento's Consameless, the Integrate, the Blondo Frame, Fr added functionality, allowing them to experience their back in a whole new way, while new customers are discovering just how sophisticated a sack can be. As we launch a great innovation, we leverage our strong Architectural Digest partnership with an editor event last month in New York. Over 60 editor content creators and interior design professionals were in attendance to celebrate the perfect bridge of style with cloud-like comfort.
Speaker Change: Following that we have plenty more in the works, including entirely new categories, but you'll have to wait for more details. We're also laying the foundations for services that support our commitment to search their operations and support the value proposition for customers to deepen their love for the Love Shack brand.
Shawn David Nelson: We're also laying the foundations for services that support our commitment to circular operations and support the value proposition for customers to deepen their love for the Lovesac brand. Mary will give you more details, but resale and trade-in for our timeless and uniquely durable products are up first, so stay tuned. I'll close by touching on our outlook for the remainder of the year, which we reiterated today. As we discussed before, we are planning. We're not counting on a macro balance to make our numbers. In fact, we're still basing our full year outlook on another down year for the category, down 10% compared to last year.
Speaker Change: Barry will give you more details, but resale and trading for our timeless and uniquely durable products are up first so stay tuned.
Speaker Change: I'll close by touching on our outlook for the remainder of the year, which we reiterated today.
Speaker Change: As we discussed before we are planning prudently.
Speaker Change: We're not counting on a macro bounce to make our numbers.
Barry: In fact, we're still basing our full year outlook off another down year for the category down 10% compared to last year.
Shawn David Nelson: We're uniquely built as a business, primed to over-participate in a category rebound whenever it occurs in near real time. This will support top-line growth and expanding profitability. But I want to be clear, we are not just waiting idly for the tide to lift our boat.
Barry: We're a uniquely built as a business primed to over participate in a category rebound whenever it occurs in near real time.
Barry: This will support topline growth and expanding profitability, but I want to be clear we are not just waiting ideally for the tide to lift all boats.
Shawn David Nelson: We're expanding our physical accessibility through touch. We're expanding our digital accessibility with new CRM tools and more. We're reinforcing our tech foundations to ensure profitable scalability. We're innovating and adding products in existing and new categories. We're building a powerful brand. Certainly one that is unlike any other in our category. The opportunity is massive, and we're in a position of strength. Before I turn the call over to Mary, I want to thank the amazing Lovesac team for their role in delivering yet another strong outperformance versus the industry. With that, I will hand it over to Mary to discuss our strategic priorities and progress in more detail.
Barry: We're expanding our physical accessibility to touch points.
Barry: We're expanding our digital accessibility with new CRM tools and more.
Barry: We're reinforcing textron aviation's to ensure profitable scalability.
Barry: We're innovating and adding products in existing and new categories.
Barry: We're building a powerful brand.
Certainly one that is unlike any other in our category.
Speaker Change: The opportunity is massive and we're in a position of strength.
Speaker Change: Before I turn the call over to Mary I want to thank the amazing loves vaccines for their role in delivering yet another strong outperformance versus the industry.
Speaker Change: With that I will hand, it over to Mary to cover our strategic priorities and progress in more detail.
Mary Fox: Thank you, Shawn, and good morning, everyone. As Shawn discussed, we over-delivered to our net sales guidance for quarter one, which reflects a dramatic inflection in trend for March and April as compared to February and helps to put the quarter's tough start into context as what we believe is an anomaly. Importantly, on a five-year basis, our sales are up 224% from their pre-pandemic level, compared to the category at flat for the same time period, and our adjusted EBITDA margin has increased 365 basis points.
Mary Fox: Thank you, Sean and good morning, everyone as Shawn discussed we over delivered to our net sales guidance for quarter, one which reflects a dramatic inflection in trends in March and April as compared to February and helps to put the quarter tough start in the context of what we believe is an anomaly.
Speaker Change: Firstly on a five year basis, our sales were up 224% from pre pandemic level compared to the category of flat for the same time period and our adjusted EBITDA margin has increased 365 basis points.
Mary Fox: In Quarter 1, we outperformed the category, underpinned by our customer and product-centric focus and our unique omni-channel Infinity Flywheel. We've 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. We're also pleased with our performance as we start the second quarter, and we expect our growth to further benefit from disciplined investments in our strategic initiatives and capabilities that expand our addressable market. I'll now provide key highlights of our go-forward plans for each of our strategic initiatives. Firstly, product innovation.
Speaker Change: In quarter, one we outperformed the category underpinned by our customer and product centric focus and our unique omnichannel infinity flywheel.
Speaker Change: We've built a business model and our platform. Unlike anyone else in that category, resulting in a total addressable market opportunity that is significant.
Speaker Change: <unk> health, but is strong and growing best in class touch points economics, and an advantaged supply chain.
Speaker Change: We're also pleased with our performance as we start the second quarter, and we expect <unk> growth to further benefit from disciplined investment in our strategic initiatives and capabilities that expand our addressable market.
Speaker Change: I will now provide key highlights about go forward plans on each of our strategic initiatives.
Mary Fox: We were happy to launch the first of a number of great innovations this year, the PillowFact action chat. You now have so many options with the PillowSac. You can lounge in a peapod, you can lay it flat and create a guest bed, or place it in the new accent chair frame for a stylish seat. In addition to selecting from over 150 machine-washable, changeable covers, you can customize your accent chair with elegant hardware finishes and strap options. Existing Pillowsack owners can seamlessly integrate the blonde oak frame for added functionality, allowing them to experience their sack in a whole new way.
Speaker Change: Firstly product innovation, we were happy to launch the first of a number of great innovations. This year, the pillow SEC action to.
Speaker Change: You now have so many options with the pillows back you can lounge and a pea pod you can lay it flat and creates a guest but or place. It in the new accident chef frame for a stylish seat. In addition to selecting from over 150 machine Washable changeable, coupled you can customize our accident shad with elegant hard.
Speaker Change: West finishes and strap options.
Speaker Change: Existing pillar Sacco news can seamlessly integrate the palumbo frame Friday functionality, allowing them to experience that stuck in a whole new way, while new customers are discovering just how sophisticated attack can be.
Mary Fox: While new customers are discovering just how sophisticated a sack can be, as we launch this great innovation, we leveraged our strong Architectural Digest partnership with an editor event last month in New York. Over 60 editors, content creators, and interior design professionals were in attendance to celebrate the perfect bridge of style with cloud-like comfort.
Speaker Change: As we launch with Great innovation, we leveraged our strong architectural digest partnership with an editor event last month in New York.
Speaker Change: 60 attitudes content creators and interior design professionals were in attendance to celebrate the perfect bridge of style with cloud like comfort.
Mary Fox: The initial response has been everything we hoped for, and we look forward to sharing more in the upcoming quarter. Angleside, which we also 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 average order value than factionals without Angleside. We recently launched Angleside in Costco, and it is already the number one style choice. Additionally, customers who select Angleside report having even higher satisfaction with comfort than our standard size customers.
Shawn Nelson: The initial response has been everything we hoped for, and we look forward to sharing more in the upcoming quarter. Anger side, which we also launched last summer, continues to be a highlight for us. Notably, it continues to gain share, representing the largest mix of sides with an architectural business, and driving a higher average order values and sectionals without Anger side. We recently launched Anger Side in Costco, and it is already the number one style choice. Additionally, customers who select Anger side report having an even higher satisfaction with comfort than are standard side customers. We're on track for our material innovation launch in early fiscal 26, that we expect to significantly open the aperture of where we compete in the couch category and enable us to accelerate our market share game.
Speaker Change: The initial response has been everything we hoped for and we look forward to sharing more in the upcoming quarter.
Speaker Change: Angled side, which we also launched last summer continues to be a highlight for us notably it continues to gain share representing the largest makes it five within our sectional business and driving a higher average order values and sectional without angled side.
Speaker Change: We recently launched anglesite in cocoa and he is already the number one style choice.
Speaker Change: Additionally, customers, who select tangled side report, having an even higher satisfaction with comfort.
Speaker Change: Standard side talked about.
Mary Fox: We're on track for our material innovation launch in early Fiscal 26, which we expect to significantly open the aperture of where we compete in the couch category and enable us to accelerate our market share gain. We look forward to sharing more details with you closer to launch. Second, is our omni-channel experience, and we continue to strengthen our position as a true omni-channel retailer through a combination of our physical touchpoints and our digital platform.
Speaker Change: We're on track for a material innovation launch in early fiscal 'twenty six, but we expect to significantly opened the aperture with way we compete in the couch category and enable us to accelerate our market share gain.
Shawn David Nelson: We look forward to sharing more details with you closely for launch.
Speaker Change: Look forward to sharing more details with you closer to launch.
Shawn Nelson: Second is our Omni channel experience, and we continue to strengthen our position as a true Omni channel retailer through a combination of our physical touch points in our digital platform. During the quarter, we open 24 touch points and expanded our best by partnership with seven additional shopping shops. In quarter one, we launched an enhanced post purchase journey, My Hub, that further reduces the friction within the omni channel customer experience. This has led to a significant increase in customers creating an account online, and these accounts provide us with a greater opportunity to engage the customer with personalized experiences and product recommendations, including new launches and more.
Speaker Change: Secondly is our omnichannel experience and we continue to strengthen our position as a true omnichannel retailer for a combination of our physical touch points in all digital platform.
Mary Fox: During the quarter, we opened 24 touchpoints and expanded our Best Buy partnership with seven additional shop-in-shops. In quarter one, we launched an enhanced post-purchase journey, MyHub, that further reduces the friction within the omni-channel customer experience. This has led to a significant increase in customers creating an account online, and these accounts provide us with a greater opportunity to engage the customer with personalized experiences and product recommendations, including new launches and more. Everything is designed to help us build long-term relationships.
Speaker Change: During the quarter, we opened 24 touch points and expanded all best buy partnership with seven additional shop in shops in quarter. One we launched an enhanced post purchase journey my hub that further reduces the friction within the Omnichannel customer experience. This is led to a significant increase in customer pricing and accounts online.
Speaker Change: And these account provide us with a greater opportunity to engage the customer with personalized experiences and product recommendations, including new launches and more.
Shawn David Nelson: Everything is designed to help us build long-term relationships. And in phase two of my hub planned this year, we are launching a seamless quote-up date in conversion capability for our customers that will deliver an enhanced customer experience, increasing the conversion and customer satisfaction. Importantly, as a result of our unique omni channel experience, our customer satisfaction scores continue to improve and sequentially increase in quarter one, especially our digital experience and performance scores. These scores improved year over year to our highest levels recorded, driven in particular by the strategic investments and resources and technology in our customer service capabilities, supply chain, and our digital experience.
Speaker Change: Everything is designed to help us build long term relationships.
Mary Fox: And in phase two of my hub plan this year, we are launching a seamless quote update and conversion capability for our customers that will deliver an enhanced customer experience, increasing conversion and customer satisfaction. Importantly, as a result of our unique omnichannel experience, our customer satisfaction scores continue to improve and sequentially increase in Quarter 1, especially our digital experience and fulfilment scores. These scores improved year over year to our highest levels recorded, driven in particular by the strategic investments in resources and technology in our customer service capabilities supply chain and our digital experience. Third, our ecosystem is centered around acquiring, delighting, and maintaining relationships with loyal, loving customers. And in February, we completed the onboarding of our new agency, who will enhance this effort.
Speaker Change: And in phase two as might have planned. This year, we are launching a seamless quote updates and conversion capability for our customers that will deliver an enhanced customer experience, increasing the conversion and customer satisfaction.
Speaker Change: Importantly, as a result of our unique omnichannel experience, our customer satisfaction scores continue to improve and sequentially, increasing close to one, especially our digital experience and fulfillment calls these schools improved year over year to our highest levels recorded driven in particular by the strategic investments.
Speaker Change: [noise] sources, and technology, and our customer service capabilities supply chain and all digital experience.
Shawn David Nelson: Third is our ecosystem, which is centered around acquiring, delighting, and maintaining relationships with loyal, loving customers. And in February we completed the onboarding of our new agency, who will enhance the effort. Together we leveraged our marketing mix using national advertising and traditional format, including TV. An established media coupled with various digital strategies leveraging social media, non-million TV and influence the advertising.
Speaker Change: Third is our ecosystem, which is centered around acquiring to licensing and maintaining relationships with loyal loving talked about and in February we completed the on boarding of our new agency, who will enhance this effort together, we leveraged our marketing mix do you think national advertising and traditional format, including T V and established.
Mary Fox: Together, we leveraged our marketing mix 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 driving conversion using 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
Speaker Change: Media, coupled with various digital strategies, leveraging social media no many MTV and influence the advertising.
Speaker Change: Our digital marketing efforts focus heavily on driving conversion using localized and targeted tactics driving shop us into a loft that touch point 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.
Mary Fox: Looking forward, we will continue to actively test in the media space to optimize our investment for growth, especially considering opportunities in the space of video, search, and audience targeting, as well as broadening our brand awareness. In Q1, we successfully tested new targeting and promotional messaging for existing customers, including specific offers for the repurchase of covers.
Speaker Change: Looking forward, we will continue to actively test in the media space talk to my thorough investments for growth, especially considering opportunities in the space of video such as audience targeting as well as broadening our brand awareness.
Speaker Change: In Q1, we successfully tested new targeting and promotional messaging for existing customers, including specific office with a repurchase of cover as.
Speaker Change: As we grow our customer base, we believe that speaking differently to this segment is a key driver of success and building lifetime value and loyalty and our efforts aided in strong growth of existing customer repurchase close to one.
Mary Fox: As we grow our customer base, we believe that speaking differently to this segment is a key driver of success in building lifetime value and loyalty, and our efforts have aided in strong growth of existing customer repurchase in quarter one. Lastly, on services within our ecosystem, we are focused on building these capabilities and further unlocking the right side of our flywheel and customer lifetime value. We're in the early phases of setting up the infrastructure to offer fully digitized resale and trading capabilities later this year, all further extending the life of each Lovesac product and continuing to live on our promise to create products that are designed for life and supported by circular operations.
Speaker Change: Lastly on services within our ecosystem, we all focused on building these capabilities and further unlocking the right side of our flywheel and customer lifetime values are in the early phases of standing up the infrastructure to offer a fully digitized resale and trading capabilities. Later this year at all it further.
Speaker Change: Spending the life of each loves that product and continuing to live on our promise to create products that are designed for life and supported by secular operation.
Mary Fox: Now making disciplined infrastructure investments and driving efficiencies. In quarter one of fiscal 25, we delivered material growth margin improvements through COGS and inbound freight reductions. We also continue to make infrastructure investments both in capabilities and technology that we're already realizing the benefits of. We delivered a 9% reduction in total inventory at the end of the quarter, driven by the benefits of recent investments, including the new order management system. At the beginning of this year, we enhanced our inbound logistics strategy, moving from a freight forwarder model to a direct carrier relationship, minimizing our reliance on spot rates.
Speaker Change: Now, making disciplined infrastructure investments and driving efficiency in quarter, one fiscal 'twenty five we delivered material gross margin improvement through Cogs and inbound freight reductions. We also continue to make infrastructure investments both in capabilities and technology that we're already realizing the benefits from.
Speaker Change: We delivered a 9% reduction in total inventory at the end of the quarter driven by the benefits of recent investments, including the new order management system at.
Speaker Change: At the beginning of this year, we enhance all inbound logistics brushes eight moving from a freight forwarder model to a direct carrier relationships minimizing our reliance on spot rates. This benefits both in better ROI for pricing and availability as well as the emphasizing the spot market pricing inflation and misrepresent.
Mary Fox: This benefits us both in better overall pricing and availability, as well as de-emphasizing the spot market pricing inflation, and this represents significant cost avoidance. We're also making strong advancements in our outbound logistics model, and we've successfully introduced new local parcel providers in One Key Market, which is delivering lower costs than our national partner and, importantly, improved customer satisfaction. We'll continue to expand this program throughout this year and beyond. So, in summary, we're pleased with the progress on our strategic priorities and the strength of our performance that continued into the second quarter, 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. I will now pass the call over to Keith.
Speaker Change: Significant cost avoidance.
Speaker Change: We're also making strong advancements in our outbound logistics model and we have successfully introduced new local parcel providers name wonky market, which is delivering lower costs. The non national partner and importantly improved customer satisfaction will continue to expand this program throughout the year and beyond.
Speaker Change: So in summary, we are pleased with the progress on our strategic priorities and the strength of our performance that continued into the second quarter. As we continue to successfully expand the business and make important foundational investment to drive as well as support the substantial growth that lies ahead.
Speaker Change: Now pass the call over to Keith.
Keith Robert Siegner: Thanks, Mary. Let's jump right in to a quick review of the first quarter, followed by our outlook for the rest of fiscal 25. Net sales decreased $8.6 million, or 6.1%, to $132.6 million in the first quarter of fiscal 25 compared to the prior year period. This is slightly above our expectation, reflecting a successful adjustment to our promotional strategy and ironing out of inefficiencies following our agency transition, both of which heavily impacted the first month of fiscal 25.
Keith: Thanks, Mary, let's jump right on into a quick review of the first quarter, followed by our outlook for the rest of the fiscal 'twenty five net sales decreased $8 6 million or six 1% to $132 6 million in the first quarter of fiscal 25 compared to the prior year period.
This is slightly above our expectations, reflecting a successful adjustment to our promotional strategy and I'm running out of inefficiencies. Following the agency transition both of which heavily impacted the first month of fiscal first quarter.
Keith Robert Siegner: Despite that difficult first month, we were pleased to once again deliver market share gains, even against a still uncertain macro backdrop. Showroom net sales decreased $2 million, or 2.3%, to $81.6 million in the first quarter of fiscal 2025 compared to the prior year period, driven by a decrease of 14.8% in omnichannel comparable net sales, partially offset by the net addition of 35 new showrooms compared to the prior year period. For more perspective on intra-quarter trade,
Keith: Despite that difficult first month, we were pleased to once again deliver market share gains even again still uncertain macro backdrop.
Keith: Show them net sales decreased 2 million or 2.3% to $81 6 million in the first quarter of fiscal 2025 compared to the prior year period, driven by a decrease of 14, 8% in Omnichannel comparable net sales partially offset by the net addition of 35.
Keith: Five new showrooms compared to the prior year period.
Keith: For more perspective on intra quarter trends omnichannel comparable net sales were down only low single digits for the aggregated second and third periods of the fiscal first quarter for.
Keith Robert Siegner: Omnichannel comparable net sales were down only low single digits for the aggregated second and third periods of the fiscal first quarter. Performance of our new showrooms continues to be strong, and operational efficiencies from construction to opening enabled some earlier than planned openings.
Keith: Performance of our new showrooms continue to be strong and operational efficiencies from construction to opening enable some earlier than planned openings.
Keith Robert Siegner: Internet net sales decreased $3.6 million, or 9%, to $36.6 million in the first quarter of fiscal 2025 compared to the prior year period. [inaudible] which include pop-up shop, shop and shop, and open box inventory transactions decreased $3 million, or 17.1%, to 14.4 million in the first quarter of fiscal 25 compared to the prior year period. Primarily due to lower productivity of our temporary online pop-up shops on costco.com. 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.
Speaker Change: Internet net sales decreased $3 6 million or 9% to $36 6 million in the first quarter of fiscal 2025 compared to the prior year period.
Speaker Change: Other net sales, which include pop up shop shop in shop, and open box inventory transactions decreased <unk> 3 million or $17 one per se to $14 4 million in the first quarter of fiscal 25 compared to the prior year period, primarily due to lower productivity of our temporary online pop.
Speaker Change: Shops, and Costco Dot com.
Speaker Change: 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. We believe that fiscal 'twenty 'twenty four quarterly run rate is reflective of a potential baseline level to use in your models.
Keith Robert Siegner: We believe the fiscal 2024 quarterly run rate is reflective of a potential baseline level to use in your model. By product category, in the first quarter, our factional net sales decreased 5%. SAC, net sales decreased 17%. And our other net sales, which includes decorative pillows, blankets, and accessories, decreased 23% over the prior year.
Speaker Change: By product category in the first quarter, our sexual net sales decreased 5%.
Speaker Change: <unk> net sales decreased 17% and our other net sales, which includes decorative pillows blankets and accessories decreased 23% over the prior year.
Keith Robert Siegner: Growth margin increased 430 basis points to 54.3% of net sales in the first quarter of fiscal 25 versus 50.0% in the prior year period. Primarily driven by a decrease of 790 basis points in inbound transportation costs, partially offset by an increase of 240 basis points in outbound transportation and warehousing costs, as well as a decrease of 120 basis points in product margin driven by higher promotional discounts. SG&A expense as a percent of net sales was 51.6% in the first quarter of fiscal 25, versus 40.0% in the prior year period.
Speaker Change: Gross margin increased 430 basis points to 54, 3% of net sales in the first quarter of fiscal 'twenty five versus 50.0% in the prior year period, primarily driven by a decrease of 790 basis points in inbound transportation costs, partially offset by an increase of.
240 basis points in outbound transportation and warehousing costs as well as a decrease of 120 basis points in product margin driven by higher promotional discounting.
Speaker Change: SG&A expenses as a percent of net sales was 51, 6% in the first quarter of fiscal 'twenty five versus 40.0% in the prior year period.
Keith Robert Siegner: The increased percentage is primarily related to lower net sales, as well as investments in payroll, professional fees, rent, infrastructure, selling-related expenses, and equity-based compensation. In dollars, overhead expenses increased $6.3 million, consisting mainly of increases of $4.5 million in professional fees and $1.2 million in infrastructure investments into the business to support current and future growth, as well as $0.5 million in equity-based compensation. Employment costs increased by $4 million, primarily driven by an increase in new hires in fiscal 25.
Speaker Change: The increased percentage is primarily related to lower net sales as well as investments in payroll professional fees rent infrastructure selling related expenses and equity based compensation in.
Speaker Change: In dollars overhead expenses increased $6 3 million, consisting mainly of increases of $4 5 million in professional fees and $1.2 million in infrastructure investments into the business to support current and future growth.
Speaker Change: As well as zero point $5 million in equity based compensation.
Speaker Change: Employment cost increased by 4 million, primarily driven by an increase in new hires in fiscal 'twenty five.
Keith Robert Siegner: Rent increased by $1 million, related to a $1.4 million increase in rent expense from our net addition of 35 showrooms, partially offset by a $0.4 million reduction in percentage rent. Selling-related expenses increased $0.6 million, principally due to credit card fees related to an increase in credit card rates. We estimate non-recurring incremental fees associated with the restatement of prior-period financials were approximately $2.3 million in the first quarter. These are very difficult to forecast, though we will continue to highlight any, if applicable, each quarter. Advertising and marketing expenses increased $1.1 million, or 6.4%, to $18 million for the first quarter of fiscal 25 compared to the prior year period.
Speaker Change: <unk> increased by $1 million related to a $1.4 million increase in rent expense from our net addition, that's 35 showrooms, partially offset by a point 4 million reduction in percentage rent.
Speaker Change: Selling related expenses increased 0.6 million principally due to credit card fees related to an increase in credit card rates.
Speaker Change: We estimate non recurring incremental fees associated with the restatement of prior period financials was approximately $2 3 million in the first quarter is a very difficult to forecast that we will continue to highlight any applicable.
Speaker Change: Applicable each quarter.
Advertising and marketing expenses increased 1.1 million or six 4% to $18 million for the first quarter of fiscal 25 compared to the prior year period.
Keith Robert Siegner: Advertising and marketing expenses were 13.6% of net sales in the first quarter as compared to 12.0% of net sales in the prior year period, with the increased percentage primarily a result of lower net sales, as well as some timing of expenditures arising as part of our agency transition. Operating loss for the quarter was $17.9 million, compared to an operating loss of $5.7 million in the first quarter of last year, driven by the factors we just discussed.
Advertising and marketing expenses were $13, 6% of net sales in the first quarter as compared to 12.0% of net sales in the prior year period with the increased percentage, primarily a result of lower net sales.
Speaker Change: Well as some timing of expenditures arising as part of our aegis Sea transition.
Operating loss for the quarter was $17 9 million compared to operating loss of $5 7 million in the first quarter of last year driven by the factors, we just discussed.
Keith Robert Siegner: Before we turn our attention to net loss, net loss per common 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 earlier this morning. The net loss for the quarter was $13 million, or negative $0.83 per common share, compared to a net loss of $4.1 million, or negative $0.27 per common share, in the prior year period. During the first quarter of fiscal 25, we recorded an income tax benefit of $4.2 million as compared to $1.3 million in the prior year period.
Speaker Change: Before we turn our attention to net loss net loss per common 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 earlier this morning net.
Speaker Change: Net loss for the quarter was $13 million or negative <unk> 83 per common share comp.
Speaker Change: Compared to a net loss of $4 1 million or negative <unk> 27 cents per common share in the prior year period.
Speaker Change: During the first quarter of fiscal 'twenty five we recorded an income tax benefit of $4 2 million as compared to $1 3 million in the prior year period.
Keith Robert Siegner: Adjusted EBITDA for the quarter was a loss of $10.3 million as compared to an adjusted EBITDA loss of $2.1 million in the prior year period. Turning to our balance sheet, we ended the first quarter with a very healthy balance sheet, inclusive of $72.4 million in cash and cash equivalents, as well as $34 million of availability on a revolving line of credit with no borrowers. Our total merchandise inventory levels are in line with our projections.
Speaker Change: Adjusted EBITDA for the quarter was a loss of $10 3 million as compared to adjusted EBITDA loss of $2 1 million in the prior year period.
Speaker Change: Turning to our balance sheet, we ended the first quarter with a very healthy balance sheet inclusive of $72.4 million in cash and cash equivalents as well as $34 million of availability on our revolving line of credit with no borrowings. Our total merchandise inventory levels are in line with our projections, we feel exceptionally good about both the.
Keith Robert Siegner: 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. Please refer to our earnings press release for other details on our first quarter financial performance.
Speaker Change: Quality and quantity of our inventory and our ability to maintain industry, leading in stock positions and delivery times. Please.
Speaker Change: Please refer to our earnings press release for other details on our first quarter financial performance.
Speaker Change: So now our outlook.
Keith Robert Siegner: Much remains the same as when we spoke in April. 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 in more real time than our peers. As this occurs, the additional revenues should drive an expanding flow-through of top-line growth to the bottom-line. Specifically, we've not changed our baseline assumption for a 10% full-year category decline, which underpins our fiscal 25 outlook. The full fiscal first quarter category decline was about 12%, roughly consistent with our original assumption, which also expected modestly better category conditions in the second half versus the first half.
Speaker Change: Much remains the same as when we spoke in April 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 then more real time than our peers.
Speaker Change: As this occurs the additional revenues should drive expanding flow through of topline growth to bottom line growth specifically, we've not changed our baseline assumption for a 10% full year category decline, which underpins our fiscal 'twenty five outlook the full fiscal first quarter category decline was.
Speaker Change: About 12% roughly consistent with our original assumption, which also expected modestly better category conditions in the second half versus the first half.
Keith Robert Siegner: Again, should the category perform better, we would expect to perform better as well. For the full year fiscal 25, we are reaffirming our guidance. We estimate net sales of $700 million to $770 million. We expect adjusted EBITDA between $46 and $60 million. This includes gross margins of 57 to 59%, advertising and marketing of approximately 13% as a percent of net sales, and SG&A of approximately 39% as a percent of net sales.
Speaker Change: Should the category performed better we would expect to perform better as well or vice versa.
Speaker Change: For the full year fiscal 'twenty five we are reaffirming our guidance. We estimate net sales of 700 million to $770 million. We expect adjusted EBITDA between 46 and $60 million. This includes gross margins of 57% to 59% advertising and marketing of approximately 13%.
Speaker Change: As a percent of net sales and SG&A of 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 106 to $1 59, and approximately 17.0 million.
Keith Robert Siegner: We estimate net income to be between $18 and $27 million. We estimate diluted income per common share in the range of $106 to $159, and approximately $17.0 million estimated diluted weighted average shares outstanding. As a reminder, fiscal 25 will contain 52 weeks versus fiscal 24, which contained an additional 53rd week in the fourth quarter.
Speaker Change: Estimated diluted weighted average shares outstanding as a reminder, physical forty-five will contain 52 weeks versus fiscal 'twenty, four which contained an additional 53rd week in the fourth quarter.
Keith Robert Siegner: For the fiscal second quarter, we estimate net sales of $152 to $160 million, representing slight growth at the midpoint, a significant improvement from the fiscal first quarter. We expect an adjusted EBITDA loss between $2 and $5 million. This includes gross margins of approximately 58%, advertising and marketing of 14 to 15% as a percent of net sales, and SG&A of 45 to 47% as a percent of net sales. We estimate the net loss to be between $6 and $8 million. The basic loss per common share is expected to be 53 to 37 cents with 15.6 million weighted average shares outstanding.
Speaker Change: For the fiscal second quarter, we estimate net sales of $152 million to $160 million, representing slight growth at the midpoint a significant improvement from the fiscal first quarter, we expect adjusted EBITDA loss between two and $5 million. This includes gross margins of approximately 58%.
Speaker Change: Advertising and marketing of 14% to 15% as a percent of net sales and SG&A of 45, 47% as a percent of net sales we estimate net loss to be between six and $8 million. We estimate basic loss per common share is expected to be.
Speaker Change: 53 to 37 cents with $15 6 million weighted average shares outstanding.
Keith Robert Siegner: In summary, stabilization of the category and an eventual return to category growth are ahead of us. In the meantime, we're balancing prudence, efficiency, 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 Lovesac stakeholders. We are building the Lovesac brand and investing in new product innovation that spans style, function, and new categories. The PillowSac accent chair is but one example.
Speaker Change: In summary stabilization of the category and an eventual return to category growth are ahead of us in the meantime, 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 <unk>.
Speaker Change: All love Sac stakeholders, we are building the loved that brand and investing in new product innovation, that's been style function and new categories. The pillows accent chair is but one example try it I think you'll love it.
Keith Robert Siegner: Try it. I think you'll love it. I'll now turn the call back to the operator to start our Q&A session.
Speaker Change: I'll turn the call back to the operator to start our Q&A session.
Operator: 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. You may press star 2 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 key. Our first question comes from the line of Maria Ripps with Canaccord Genuity. Please proceed with your question.
Thank you at this time, we'll be conducting question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue. 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.
Speaker Change: Our first question comes from the line of Maria reps with Canaccord Genuity. Please proceed with your question.
Maria Ripps: Good morning, Anna. Thanks for taking my questions. First, could you maybe share a little bit more about your marketing efforts and how the partnership with the new media agency has been progressing so far? And then, maybe more broadly, what are some examples of things that you can do differently or maybe more effectively now that you're working with a larger agency?
Good morning, and thanks for taking my questions first could you maybe share a little bit more color on your marketing efforts and how the partnership with the New Media agency has been progressing so far and then maybe more broadly what are some examples of things that you can do differently or maybe more effectively now that youre working with a larger agency.
Mary Fox: Hey, good morning, Maria. Thank you for the question. So I think, firstly, we feel really good as we got through the initial onboarding in February. And, you know, I think the teams have really got set up around the customer segmentation and all just the learning curves and understanding our business. So that transition we feel good about; we see it in our results and our performance and the return on ad spend through March and April.
Maria: Hey, good morning, Maria Thank you for the question. So I think firstly, we feel really good as we go through the initial on boarding are in February and you know I think the teams.
Maria: Really go.
Maria: Around the customer segmentation and I'll, just the learning curve and understanding our business.
Speaker Change: So that transition we felt good on we see it in our result, and the performance and the return on AD spend through March and April.
Mary Fox: I think, you know, as we look forward around even optimization around some of our digital marketing, overall, I think the whole reason for the transition is just that they have so much more resources for us around data analytics, the economics of scale, I think we've shared with you before, that they have buying power and everything that they can bring through. So we've already forged a really strong relationship with the team. We're seeing it in the performance, as Keith, Sean, and I have shared, as we even step through into quarter two. And I think this is just the beginning. You know, and I think just so much more support around the resource and the team. You know, there's more to come.
Speaker Change: And I think that you know as we look forward around even optimization around some of our digital marketing.
Speaker Change: Overall I think the whole reason for the transaction is just they have so much more of a source for us around data analytics.
Keith: Economics of scale I think we shared with you before but that by buying power and everything that they can bring through so we've already forged a really strong relationship with the team we're seeing it's and the performances Keith shown and I have said as we even that through into quarter, two and I think this is just the beginning.
Keith: You know in that I think just so much more support around the resource from the team.
Keith: There's more to come.
Keith: Yeah.
Maria Ripps: That's very helpful. And Mary, you talked about sort of moving to direct carrier relationships. Can you maybe give us a little bit more color on that? Is that something that you've already launched? Is there anything you can share around sort of the timeline of the launch? And how should investors think about incremental benefits to gross margins as a result?
Speaker Change: That's very helpful. And then you talked about sort of moving our two direct carrier relationships are key.
Speaker Change: Maybe give us a little bit more color on that is that something that you've already launched is it.
Speaker Change: Sort of is there anything you can share around so maybe the timeline of the launch and how should investors think about incremental benefits to gross margins as a result.
Mary Fox: Yeah, no, great. I'll start that, and then maybe Keith will add something.
Speaker Change: Yeah, no great I'll start that and then make it a lot yeah. We are very grateful our teams actually stopped doing a lot of the heavy less Maria at the end of last year. So we have transitioned to.
Mary Fox: Yeah, we're very grateful. Our team actually started doing a lot of this heavy lifting, Maria, at the end of last year. So, we have transitioned to that direct carrier model versus using freight forwarders, and that work is now being realized. So, the majority of our containers that we are actually booking through this model are not as vulnerable to some of the stock market spot rate inflations you're hearing about. Also, in addition to that, it means we get availability of bookings and ensure that we remain in stock.
Speaker Change: To that direct carrier model versus using the freight forwarders.
Speaker Change: And that what Pat is now being realized.
Speaker Change: Majority of our containers that we are actually booking through this model and therefore, not as a vulnerable to some of the spot market. The fault rates Inflation's Youre hearing about also in addition to that it means we get availability bookings and ensure that we remain in stock. So let you know great progress from the team.
Mary Fox: So, you know, great progress from the team. And we continue to, you know, feel very good about all of the supply chain leverage points that we keep sharing with you strategically that really just continue to benefit us both in availability and in the P&L. And then maybe, Keith, would you like to talk through the P&L benefits?
Speaker Change: And we continue to.
Speaker Change: Feel very good about all of the supply chain leverage a point that we keep sharing with the strategic need that really just continue to advance suggest both.
Speaker Change: But let's see but also in the P&L and then maybe Keith you want to talk through on the P&L benefit.
Keith Robert Siegner: Absolutely. So, a good question, Maria.
Speaker Change: Absolutely so.
Maria: Good question Maria so.
Speaker Change: We knew about this plan given the early year implementation when we provided.
Keith Robert Siegner: So, we knew about this plan given its early year implementation when we provided the original gross margin guidance for the full year that we reiterated today. So, I think when you think about the quarterly cadence of what's still to come, really, what it's going to boil down to now is as we implement more of these changes on things like last mile freight that Mary discussed in her call, you're going to see an increasing benefit from those throughout the year.
Keith: The original gross margin guidance for the full year that we reiterated today. So I think when when you think about the quarterly cadence of what's still to come.
Keith: Really what it is going to boil down to now.
Keith: <unk> is as we implement more of these changes on things like last mile freight that Mary discussed in her call youre going to see an increasing benefit from those throughout the year. So when I think about the quarterly cadence because the prior year compares get a lot lot more difficult than what you saw in the first quarter.
Keith Robert Siegner: So when I think about the quarterly cadence, because the prior year comparisons get a lot more difficult than what you saw in the first quarter. The gross margin outlook for 2Q shows light pressure year over year, but we should be back to gross margin expansion in Q3 and Q4, as you think about your models, with a little bit more of that in Q4 as we gain momentum on some of these other initiatives.
Keith: The gross margin outlook for <unk> show slight pressure year over year, but we should be back to gross margin expansion in Q3 and Q4 as you think about your models with a little bit more of that in Q4 as we gain momentum on some of these other initiatives.
Maria Ripps: Got it. That's very helpful. Thank you so much for the call.
Speaker Change: Got it that's very helpful. Thank you so much for the color.
Operator: Thank you. Our next question comes from the line of Brian Nagel with Oppenheimer and Company. Please proceed with your question. Bye. Good morning.
Speaker Change: Thank you. Our next question comes from the line of Brian Nagel with Oppenheimer and company. Please proceed with your question.
Speaker Change: Hi, good morning.
Brian William Nagel: First off...
Brian William Nagel: First off congrats on managing well in a very difficult environment.
Speaker Change: Thank you very much.
Brian William Nagel: So the first question. The first question I have and I think it's a bit of a follow up to that prior question, but you talked about this inflection in your business that March and April being much better than February so you shifted.
Brian William Nagel: You discussed you shifted at all.
Speaker Change: Advertising partners, but can you talk more specifically about the steps you took that that helped to fuel that inflection stronger your business beginning in March.
Mary Fox: Yeah, sure, Brian. I'll start, and then if anyone else wants to add. So I think you know what we shared. I think there were two really key elements that we saw to the choppiness that we experienced in February. I think the first was that we shared we tried to step down in promotion as we had typically seen happen in the category coming up at the height of Black Friday, and as we stepped into that in February, and what we actually saw through Presidents Day, is that everyone else actually remained even more elevated.
Bryan: Yeah sure, let Bryan I'll start and then anyone else sounds right. So I think you know what we'd said I think there were two really key elements that we sold to the Choppiness that we experienced in February I think the first was that that so we'd said, we tried to step down in promotion.
Bryan: As we had typically seen happened in the category coming up at the highest black Friday, and there's that we stepped into that in February and what we actually sell through Presidents' day that everyone else actually remained even more elevated so as we've said we moved back to the let's.
Mary Fox: So as we had shared we moved back to the 30 off campaign that you know we've been driving and I think what's really exciting for us as we saw the progress through March, April even into quarter two is there isn't a direct linear relationship between necessarily what competitors are doing and where we need to be there's just a headline effect that we need to deliver which is very powerful at that three number whether the competition are at 36 off or 39 off or even you know a lot of them are advertising even at 60.
Speaker Change: So, let's see off campaign, but so you know we've been flagging and I think what's really exciting for us as we sold the progress through March April even into quarter. Two is there isn't a direct linear relationship between necessarily what competitors are doing and why we need to be this just the headline effect that we need to deliver which is very powerful.
Speaker Change: At that three number.
Whether competition or 30 states awful 39 off or even you know a lot of them are appetizing, even at 60 off it's working very well for us. So I think you know we feel very good with that inflection I'm you know Keith Chad before that's baked into our guidance and feel that that will really enable us to get that you know the traffic through at that time, and then I think.
Speaker Change: Cause we talked through with the agency really just focusing on their capabilities specifically around targeting are the customers that really are very interested in our product young parents have a dog and so forth. There's just a lot of work that just takes a bit of time and I think as we shut before February with a class a month for us it's never good.
Speaker Change: Time to do a transition, but we got through it and I think you know as we've talked shrimp and result that should demonstrate that benefit so more to come in and the whole point really with this agency is that they actually bring a lot more benefits to both in the analytics the buying power, but also frankly, just the optimization of our flywheel.
Brian William Nagel: That's very, very, very helpful, Mary. Second question I have, you know, just from a background perspective. You know, you know, you've all continued to highlight the success that has had in taking share in a typical backdrop. But I just want to check in on the background.
Mary Fox: That's very very helpful. Mary second question I have you just from a backdrop perspective, no I know.
Mary Fox: You all continue to highlight.
Mary Fox: The success of that.
Mary Fox: Lumpsucker side.
Speaker Change: I'm sure that in a typical backdrop, but I just wanted to check on the backdrop do you think it's getting worse or we were hearing more data points out there to suggest that you're particularly for lower income maybe building consumers actually pulling back further.
Brian William Nagel: Do you think it's getting worse? I mean, we're hearing more data that suggests that, particularly lower-income, maybe middle-income consumers, are actually pulling back further. Are you seeing a difficult backdrop emerge here?
Speaker Change: Are you are you seen actually a difficult backdrop merger.
Speaker Change: Okay.
Speaker Change: Yeah.
Shawn David Nelson: Shawn, do you, I think you're on, do you want to take this?
Sean: Sean do you I think you are.
Speaker Change: Do you want to take that.
Yes.
Shawn David Nelson: Yeah, we, uh,
Speaker Change: Yeah, we are.
Shawn David Nelson: You know, we observe so many different sources of data besides, of course, our own sales to try to determine our outlook for the year. So far, based on what we're seeing, for our customers, things are pretty steady. You know, we remain vigilant, we remain a bit paranoid, you know; we have been, I think, forever as a company that's come up. Somewhat scrappy in our early days.
Speaker Change: You know we observe so many different.
Speaker Change: Sources of data besides of course, our own sales to try to determine our outlook for the year. So.
Speaker Change: So far you know based on what we're seeing for our.
Speaker Change: Customer things are pretty steady.
Speaker Change: We remain vigilant we remain paranoid you know we have been I think.
Speaker Change: However, I think as a company that's come up somewhat scrappy and are early in our early days.
Shawn David Nelson: And it's served us well. So as we look at, for instance, the outlook that we put out there for our performance, we are not expecting any recovery in the macro this year, per se. We still think that, you know, that could happen. In terms of what we're seeing from customers, the trends that we've articulated on prior calls, maybe for the last two or three quarters, remain the same, where we have seen customers be just a little bit more thoughtful about the size of their configurations and, you know, attachment of different accessories and things like that, you know, just a little bit more conservative overall. But that's baked into our plans as they're laid out.
Speaker Change: And it served us well so as we look at for instance, the outlook that we've put out there for our performance we are not expecting any recovery in the macro this year per se.
Speaker Change: We still think that you know that could happen in terms of what we're seeing from customers.
Speaker Change: The trends that we've articulated on prior calls maybe for the last two or three quarters remain the same where we have seen.
Speaker Change: And our customers.
Speaker Change: Just a little bit more thoughtful about the size of their configurations.
Speaker Change: And.
Speaker Change: Attachment of different accessories, and things like that you know just a little bit more.
Speaker Change: Conservative.
Speaker Change: Overall, but that's baked into our plans as they were late.
Shawn David Nelson: And the trends that we're seeing in real time, you know, now feel about the same for this customer. So while I don't disagree, we also read the print that talks about the lower end consumer being very affected by what's happening with inflation, etc. Our customer is not exactly that customer, more affluent, more stable, and so far, the trends hold, and so we'll remain vigilant; we'll remain paranoid. And, you know, we think that there is also the case for upside to be had. Should the housing market kick back in, or you know, various other factors that would particularly affect our customers?
Speaker Change: And the trends that we're seeing in real time, you know now feel about the same.
Speaker Change: For this customer so while I don't disagree we also read the print.
Speaker Change: Talks about the lower end consumer being very pinched.
Speaker Change: By what's happening.
Speaker Change: With inflation et cetera.
Speaker Change: Our customer is not exactly that customer more affluent.
Speaker Change: More stable and.
Speaker Change: So far the trends hold and so we will remain vigilant will remain paranoid.
Speaker Change: And you know we think that there is also the case for upside to be had.
Speaker Change: Should the housing market kick back in or you know various factors that would particularly affect our customer.
Brian William Nagel: Thanks, Shawn. I appreciate all the color.
Sean: Thanks, Sean I appreciate all the color.
Speaker Change: Yeah.
Operator: Thank you. Our next question comes from the line of Thomas Forte with Maxim Group. Please proceed with your question. Great, thanks.
Speaker Change: Thank you. Our next question comes from the line of Thomas Forte with Maxim Group. Please proceed with your question.
Thomas Ferris Forte: Great, thanks. So, Shawn, Mary, and Keith, congrats on the quarter.
Thomas Ferris Forte: Great. Thanks, So Sean Barry Keith Congrats on the quarter I have one question and one follow up I. Suppose My first question can you talk about the frequency of product innovation for sex I can't remember the last time, you had something of this nature and then can you talk about how consumers responded in the past when you've had product innovation for sex.
Thomas Ferris Forte: I have one question and one follow-up. So, for the first question, can you talk about the frequency of product innovation for SACs? I can't remember the last time you had something of this nature. And then can you talk about how consumers have responded in the past when you've had product innovation for SACs?
Speaker Change: Yeah.
Shawn David Nelson: Yeah, thanks for pointing that out. It's an astute observation. We have probably neglected our fat category a bit in the past few years, the factional has just been such a driver of our growth. While we do continue to innovate in SACTIONALS, the SAC innovation engine is now officially turned back on, and we're very excited to see the performance of the POSAC Accenture frame. It's really been...
Speaker Change: Yeah, Thanks for pointing that out it's a it's an astute observation we have.
Speaker Change #100: Probably is as a brand and neglected our fac category had been in the past few years as sexual it has just been such a driver of our growth.
Speaker Change #101: While we do continue to innovate and to actuals. We are that's the Sac innovation engine is now officially turned back on and we're very excited to see the performance as opposed to like Accenture or frame. It it's really been.
Shawn David Nelson: It's really been impressive from our point of view, and, you know, without being more specific, we're really energized by it. So, the reaction is very favorable. The product we're very proud of, and we actually see a lot of upside in SACs over the next number of years. We have an innovation pipeline that continues to develop. There are products being cooked up right now that we expect to be launching in the next number of quarters.
Speaker Change #101: It's really been impressive from our point of view and you know without.
Speaker Change #102: Being more specific where we're really energized by it so.
Speaker Change #102: The reaction is very favorable.
Speaker Change #102:
Speaker Change #102: The product, we're very proud of.
Speaker Change #103: And we actually see a lot of upside in stocks over the next number of years, we have an innovation pipeline that continues to develop there are products being cooked on right now that we expect to be launching.
Speaker Change #103: You know just over the next number of quarters.
Shawn David Nelson: The success of the PillowSAC Chairframe gives us pause to think about extensions on it as a platform. And we have begun to think of it as a platform, given its success and ways that it can evolve and do what Design for Life products are meant to do. So we're really excited about that, and we think that... Accent Shares, in general, is obviously territory that Lovesac has a license to play in.
Speaker Change #105: The success of the early success of the Telesat chair frame gives us pause to think about extensions on it as a platform and we begin to think of it as a platform given its success in ways that it can evolve in and do what design for life products are meant to do so we're really excited by that and.
Speaker Change #104: You know we think that.
Speaker Change #104: Accent chairs in general is obviously territory that loves Shaq have license to play into Meanwhile, we have a number of as we've talked about it let's call them singles and we've said smaller innovations launching this year like this one that's turned out to maybe be more than a single well see but.
Shawn David Nelson: Meanwhile, we have a number of, as we've talked about, let's call them, you know, stingles, as we've said, smaller innovations launching this year like this one that's turned out to maybe be more than a single we'll see. But, you know, we'll continue to evolve our platform, factional stacks, and even as we, you know, work towards other categories as well. So we're really, really excited about it.
Speaker Change #104: Hmm.
Speaker Change #104: We'll continue to.
Speaker Change #104: <unk> evolve our platform factional Dax.
Speaker Change #106: And even if we you know work towards other categories as well. So we're really really excited about it.
Thomas Ferris Forte: Great. Thank you for that, Shawn. All right, so you talked about this in your prepared remarks, but I was hoping you could give some additional comments on your in-house e-commerce efforts and your long-term vision for Lovesac's e-commerce strategy.
Speaker Change #107: Great. Thanks for that Sean you.
Speaker Change #108: You talked about this in your prepared remarks, but I was hoping you can give some additional comments on your in house re commerce efforts and your long term vision for Love's tax recovery strategy.
Mary Fox: Yes, hey Tom, thank you for the question and yes it's a big passion of ours internally and you know we've talked a lot about circular operations and this is a big step towards delivering on that so you know we already expanded an internal test with our own associates around open box item sales and just building all of the infrastructure capabilities both in just the SOPs and also building up some technology through a great third party who is an expert around resale and trading so that work is already underway and that will enable us to be able to reactivate and really bring that right side of the flywheel that we've talked about in so many ways and truly demonstrate the customer lifetime value through services so I think that's kind of one key piece that you'll see and resale and trading over there. I think the second one you know that we've also when we'll share more as it literally just happened is we have Ray platform to a much faster platform through Adobe Edge for our e-commerce site and the speed change from this we platform that just happened is incredible and you know all of this again will help us enable for frictionless conversion of our customers as we start to think about just moving beyond just selling our great products but also being able to build those lifetime relationships so more to come on that that we'll share coming up and a lot of great work and energy that will start to share some of the initial results on through this year. Great. Thank you, Mary.
Speaker Change #108: Yeah, Hey, Tom. Thank you for the question and yes. It is a big passion about internally and you know we've talked a lot about the killer operations and this is a big step towards delivering on that so you.
Speaker Change #108: You know, we already expanded an internal test with our own associates around open Bulks I can sales.
Speaker Change #108: Just building all of the infrastructure capabilities. Both in just the piece and also building some technology through a great third party, who is an expert around these islands right and so that work is already underway.
Speaker Change #109: And that will enable us to be able to reactivate to really bring that right side of the flywheel that we've talked about are in so many ways.
Speaker Change #110: Truly demonstrate the customer lifetime values three three services. So I think that's kind of one key piece that you'll see and at least sell and trade. It in a way that I think the second one you know that we've also when will shed more is it literally just happened as we have re platform to a much faster.
Speaker Change #111: Our platform through Adobe edge for E Commerce site and the speed change from this re platform that just happened is incredible and that you know all if they still again will help us enable frictionless conversion of our customers as we start to think about just moving beyond just selling.
Speaker Change #112: Oh, great products, but also being able to build those lifetime relationship. So more to come on that that will shack coming up and a lot of great work and energy that will start to show some of the initial adult thumb through this yet.
Thomas Ferris Forte: Great. Thank you, Mary. I look forward to that.
Speaker Change #112: Great. Thank you Mary I look forward to that.
Tom: Yeah. Thank you Tom.
Operator: Thank you. Our next question comes from the line of Matt Koranda with Roth MKM. Please proceed with your question.
Tom: Thank you. Our next question comes from the line of Matt Koranda with Roth I'm Kam. Please proceed with your question.
Matthew Butler Koranda: Hey guys, good morning. Thanks for taking the questions. Just wanted to touch on the sales outlook for the full year and sort of what the implied numbers would suggest. I guess, to get back to the midpoint of the full year sales guide, we would require, I guess, a return to kind of mid single-digit growth in the back half of the year. Can you just talk about what the omni channel comps would look like in that scenario? Did they get back to breakeven or even positive?
Speaker Change #114: Hey, guys. Good morning, Thanks for taking the questions.
Matthew Butler Koranda: Just wanted to touch on the sales outlook for the full year and sort of what the back half implied numbers.
Matthew Butler Koranda: Would suggest I guess to get back to the midpoint of the full year sales guide, we would require I guess, a return to kind of mid single digit growth.
Speaker Change #116: In the back half of the year can you just talk about what the Omnichannel comps would look like in that scenario do they get back to breakeven or even positive.
Keith Robert Siegner: It's a good question, Matt. I mean, that's probably a little bit more specific than we're going to get into this morning. I think it all starts with the category, right? So, we talked about 10 for the full year, down 12 in the first quarter. So, the basic math is obviously slightly better than, you know, that 10% for the back half. Look, a big part of this is going to be not only that but also the cadence of new product introductions and the changes we're making in terms of how we're engaging with and talking to customers.
Speaker Change #117: It's a good question, Matt I mean, that's probably a little bit more specific and then we're going to get into this morning, I think it all starts with the category right. So we talked about 10 for the full year down 12 in the first quarter. So there's the basic math is obviously slightly better than.
Speaker Change #117: That 10% for the for the back half.
Speaker Change #118: A big part of this is going to be not only that but also the cadence of new product introductions and the changes we're making in terms of how we're engaging with and talking to customers.
Keith Robert Siegner: You know, Mary was getting into some of that before as well, but things like, for example, working with our new partner to change the way we cadence, like let's say we have a big holiday promotion, and how do we change our approach? We might drive more top of funnel in the beginning with a more aggressive approach to bottom of funnel conversion that we've done in the past. Lots of opportunities around that, too. So it's a combination of all of this.
Speaker Change #118: Mary was getting into some of that before as well, but like things like for example, working with our new partner to change the way, we we cadence like let's say, we have a big holiday promotion and how do we change our approach we might drive more top of funnel in the beginning with a more aggressive approach on bottom funnel bottom of funnel conversion that we've done in the past lots of.
Speaker Change #118: And it is around that too so it's a combination of all of this some improvement in the macro new product news and excitement around the brand as a result of those.
Keith Robert Siegner: Some improvement in the macro, new product, buzz news, and excitement around the brand as a result of those. It's changes in how we approach marketing, and our use of discounts and finance offers to really drive conversion. All of this, as well as new touchpoints that'll be expanding. We just opened a bunch of new touchpoints at the end of the first quarter, particularly showrooms. We'll start to leverage those more as people gain awareness for them within those local markets as we progress through the year.
Speaker Change #118: Changes in how we approach the marketing.
Speaker Change #119: And our use of discounts and finance offers to really drive conversion all of this as well as new touch points that'll be expanding we just opened at the end of first quarter, a bunch of new touch points, particularly showrooms will start to leverage those more.
People gain awareness for them.
Speaker Change #120: Within those local markets as we progress through the year. So all of this combined gets us to be comfortable with a return to growth at the midpoint of the range and like we said the midpoint of the range for second quarter is back to growth. So.
Keith Robert Siegner: So all of this combined gets us to be comfortable with a return to growth at the midpoint of the range. And like we said, the midpoint of the range even for the second quarter is back to growth. So, you know, hopefully, we prove to be conservative, but we're encouraged by what we're seeing thus far.
Speaker Change #121: Hopefully we prove to be conservative.
But we're encouraged by what we're seeing thus far.
Matthew Butler Koranda: Helpful. And then maybe just dovetailing off what you just mentioned, Keith, the touch points for the year. Maybe it sounds like it's probably front half loaded, just given that we opened a bunch toward the end of the first quarter. But maybe if you could talk about the progression of showroom openings for the year, and have we changed any plans on that front in terms of the total amount to be open?
Speaker Change #121: It's helpful. And then maybe just dovetailing off what you just mentioned.
Speaker Change #122: Touch points for the year, maybe it sounds like it's probably front half loaded just given that we opened a bunch towards the end of the first quarter, but maybe if you could talk about the progression of showroom openings for the year and have we changed any plans on that front in terms of the total amount to be open.
Keith Robert Siegner: Yeah, no change in plans on that front. You know, we're still looking for, on a gross basis, about 40 and, as you know, we opened, you know, the low 20s in the first quarter. So, you know, a much lighter cadence of openings as we progress through the year. That's been consistent with our past and consistent with our guidance. Although we did get a few more open in late first quarter, which pulled some forward from 2Q and 9.
Speaker Change #123: Yeah, no change in plans on that front you know, we're still looking for on a gross basis about 40 and as you know we opened.
Speaker Change #123: Low twenty's in the first quarter. So you know.
Speaker Change #123: A much lighter cadence of openings as we progress through the year.
Speaker Change #123: Consistent with our prior and consistent with our guidance, although we did get a few more open late first quarter, which pulled some forward from from <unk> into requeue.
Matthew Butler Koranda: Okay, helpful, and then maybe if I could sneak one more just as a follow-up on the gross margin question that was asked earlier. I guess it sounds like to get to the high 50s, we're getting a little bit less benefit from inbound freight, but then outbound becomes a positive driver as we move into the second quarter and beyond. I guess the plug for me is what pressure are we factoring in on product margins for the rest of the year? Maybe if you could just touch on that and any change to any sort of planned promotional activity.
Speaker Change #124: Okay helpful. And then maybe if I could sneak one more in just as a follow up on the gross margin question that was asked earlier I guess it sounds like to get to the high Fifty's, we're getting a little bit less benefit from inbound freight, but then outbound becomes a positive driver as we move into the second quarter and beyond.
Speaker Change #125: I guess the plug for me is what pressure are we factoring in on product margins for the rest of the year, maybe if you could just touch on that and any change to sort of planned promotional activities.
Keith Robert Siegner: Yes, so we are building pressure on product marketing, or let's call it discounts, so what we get is the product margin for the year. Nothing really changes on that front from what we gave in the original guidance back in April to now. Let me think about it from a full year perspective.
Speaker Change #126: Yes. So we are building in pressure on product marketing or let's call. It discounts to get the product margins for the year nothing really changes on that front from what we gave in the original guidance back in April to now.
Speaker Change #127: Let me think about it from like a from a full year perspective.
Keith Robert Siegner: You know, it's a couple hundred basis points of pressure that we've built in, so... You know, again, I think we're not, the way I would think about it is, While we'll see waning benefits on the inbound freight side of things, there's still plenty of other pieces of the puzzle that we didn't really highlight as major drivers that will come into play here. It's things like warehousing It's things like how we interplay the discounts versus the financing offers.
Speaker Change #128: Yeah, It's a couple of hundred basis points of pressure.
Speaker Change #128: We've built in.
Speaker Change #128: So.
Speaker Change #128: You know again I think we're not the way I would think about it is this.
Speaker Change #129: While we will see waning benefits on the inbound freight side of things, there's still plenty of other pieces of the puzzle that we didn't really highlight as major drivers that they will come into play here, it's things like warehousing, it's things like how we enter play the discounts versus the financing offers it's going to be the last mile piece that we just discussed.
Keith Robert Siegner: It's going to be the last mile piece that we just discussed, which includes everything from how we're shipping, where we're shipping from, and who we're shipping it through. So there's a whole bunch of moving pieces, a lot of smaller cats and dogs that add up to this. But again, we were very comfortable with this full-year range at $57,000.
Speaker Change #130: Do you know.
Speaker Change #130: Which includes everything from.
Speaker Change #130: How were shifting where we're shipping from.
Speaker Change #131: And who we're shipping it through right. So there's a whole bunch of moving pieces a lot of smaller cats and dogs. They add up to this but again, we were very comfortable with this full year range of 57 to 69.
Matthew Butler Koranda: Okay, very helpful, Jim Bridenkey. Thanks, guys.
Speaker Change #132: Okay very helpful I'll jump back in queue. Thanks, guys.
Operator: Thank you. Our next question comes from the line of Keegan-Cox with D. A. Davidson. Please proceed with your question.
Speaker Change #133: Thank you. Our next question comes from the line.
Speaker Change #133: I've Keegan Cox with D. A Davidson. Please proceed with your question.
Keegan-Cox: Hi guys. I just wanted to ask about the promotional environment. How do you guys feel you stack up against the competition? Your promotions were a little bit higher in this quarter than 4Q23, so just wondering how that is going to trend throughout the year.
Keegan Cox: Hi, guys I just wanted to ask about the promotional environment. How do you guys feel you stack up against the competition.
Speaker Change #135: Your promotions were a little bit more in this quarter than the <unk> 23. So.
Speaker Change #135: Just wondering how that is going to trend throughout the year.
Mary Fox: Yeah, hey Guy, Keegan, thank you for the question. So, you know, we've all seen the category become a lot more promotional, and this did intensify into quarter one and even into quarter two. So if you look at the latest Goldman report, you know, we see the category discounting anything up to 39%, and we are significantly below that. And again, so much around the brand stickiness that we have, and 40% of our customers don't even cross shop with anyone. So I think that all just reinforces everything.
Speaker Change #136: Yeah, Hey, Guy Keegan. Thank you for the question so.
Speaker Change #137: We've all seen the cashier to become a lot more promotional and they did intensify into close to one and even into quarter. Two so if you look at the latest Goldman report.
Speaker Change #137: You know, we see the tactically discounting as anything up to 79% and we are significantly below that.
Speaker Change #137: And again, you know so much around the stickiness that we have and and and.
Speaker Change #138: 40% of our customers what they need from cross shop us with any of them. So I think that all just reinforces everything I think as we shut the foreign closer one in.
Mary Fox: I think, as we shared before in quarter one, in February, we tested at a lower level, but we just found that that went down too far because, at the same time, the competition actually scaled up in discount and even used a lot of headlines around clearance. So, you know, we continue to test and learn. I think we're seeing some great success, even doing some promotional events outside of what you would see typical key traffic driving events and really just being able to clear through on the quote growth that we're getting each and every day.
Speaker Change #139: In February we tested at a lower level, but we just found that that went down to fall because of the same time the competition actually scaled up in discounts and even using a lot of headlines around clearance. So you know we continue to test and learn I think we're seeing some great success even.
Speaker Change #139: Some promotional events outside of what you would see typical key traffic driving event and really just being able to pull through on that that you could quote growth, but we're guessing each and every day.
Mary Fox: So it's all baked in, in terms of the higher rate of velocity that we've seen in the promotions with key shared in for the rest of this year, but we're going to continue to test through this year. And, you know, but really assuming that the competition remains at a higher level. And as I shared earlier, what we've seen... We don't need to be at the same level as the competition, we just need to have the right headline number, and I think that's the success that we feel very good about, and we'll continue to test through the rest of this year.
Speaker Change #139: So it's all baked in in terms of the the higher rates of velocity that we've seen in the promotions a T shirt and the rest of this year, but we're going to continue to test through this year and that you know, but really assuming that the competition remains at the high level and as I shared earlier and what we see.
Speaker Change #139: Yes.
Speaker Change #140: We don't need to be at the same level as the competition, we just need to have the right headline number and I think that's the success that we feel very good on and we'll continue to test through the rest of this year.
Speaker Change #140: Yeah.
Speaker Change #141: Awesome. Thank you and then a follow up is just you.
Keegan-Cox: And then a follow-up is just... You know, yields came down a little bit yesterday, and your stock reacted positively to it. So how sensitive do you guys think you are to
Speaker Change #142: You know we saw the yields come down a little bit yesterday, and your stock reacted positively to it so how how sensitive do you guys think you are to interest rates.
Keegan-Cox: From a demand perspective, like Shawn, do you want to talk about the demand piece first?
Speaker Change #143: From a from a demand perspective like Sean do you want to talk about the the demand piece first.
Shawn David Nelson: Yeah, you know, we believe that we are inexorably linked to the housing market to some extent, no, no question. And we believe that lower rates are going to have a significant impact on housing and, therefore, home prices in general. To that end, we just do not know what's coming, and we wouldn't pretend to, and so we've just tried to be very conservative in that realm and not bake anything in.
Speaker Change #143: Yeah, you know.
Speaker Change #143: We.
Sean: Believe that.
Speaker Change #144: We are inexorably linked to the housing market to some extent no no question and we believe that a lower rates are going to have a significant impact on housing and therefore home in general.
Speaker Change #144: To that end, we just.
Speaker Change #145: Do not.
Speaker Change #145: No what's coming in and we wouldn't pretend to and so we've just tried to be very conservative in that realm, and not bake anything in but we do believe that there will be significant upside I don't think you have to.
Shawn David Nelson: But we do believe that there will be significant upside. I don't think you have to be an economist to know that you tend to have a neighbor, friend, or perhaps yourself, waiting to move. And we know that moving and relocation in general is just a major driver for the couch category in particular. And we're one of the most significant players now in the couch category. Saxonels are probably the best selling couch in the United States of America, in terms of a single model.
Speaker Change #145: Be an economist to know that tend to have a neighbor friend or perhaps yourself.
Speaker Change #146: Waiting to move and we know that moving and relocation in general is just a major driver for the couch category in particular, and we're one of the most significant players now in the couch category.
Speaker Change #147: Fashion those are probably the best selling couch, the United States of America in terms of a single model couch and so you know this is the category that currently drives our business.
Shawn David Nelson: And so, you know, this is the category that currently drives our business, seating in general, along with Sachs. And so we're just, you know, we're really energized by what's ahead at some point. But in the meantime, we're just going to run the business really conservatively, and I think the thing to pay attention to is Lovesac, is that when it does come back, we will be the first to the plate. You know, the way that our supply chain works, our couches, as anyone who understands them understands, we pack hundreds of these into containers, for instance, overseas, where others pack dozens. We are able to ship within days to your home, almost no matter what fabric you buy or what have you.
Speaker Change #147: Seating in general along with Saks and so we're just we're really energized by what's ahead at some point.
Speaker Change #147: But in the in the meantime, we're just going to run the business really conservatively and I think the thing to pay attention to is love Sac.
Speaker Change #148: Is that when it does come back we will be the first to the plate.
The way that our supply chain works our couches.
Anyone who understands them understand.
Speaker Change #148: We pack hundreds of ease onto containers for instance, overseas where others pack dozens.
Speaker Change #149: We are able to ship within days to your home almost no matter what fabric you buy or what have you and these are advantages that are competitive with the competition just doesn't have our ability to scale the supply chain, even even for things that we stocking in our warehouses. So rapid because were always in production we don't change.
Shawn David Nelson: And these are advantages that the competition just doesn't have. Our ability to scale the supply chain, even for things that we stock in our warehouses, is so rapid because we're always in production, we don't change often, and we're not doing quarterly and even yearly changes. All of these benefits that really tie back to the product itself. [inaudible] You know, we'll see where it goes.
Speaker Change #150: Oftentimes, we're not doing quarterly and yearly change with all of these benefits that really tied back to.
Speaker Change #151: The product itself.
Speaker Change #151: Now it could be more nimble when you know some of the more favorable conditions happen and in the meantime, where we're trying to operate very conservatively. So.
Speaker Change #152: Yeah, It's a it's a factor we pay a lot of attention to and.
Speaker Change #151: You know well, we'll see where it goes.
Operator: Operator, I think we have time for one more question.
Speaker Change #153: Operator, I think we have time for one more question.
Operator: I'm not showing any other questions at the moment. I'll turn the floor back to you for any final comments.
Speaker Change #153: Uh huh.
Speaker Change #154: I'm not showing any other questions at the moment I'll turn the floor back to you for any final comments.
Shawn David Nelson: Great, well, thank you so much for all the support from our investors, as well as everyone in the hashtag Lovesac family that continues to make Lovesac the vibrant company that it is.
Speaker Change #155: Great well. Thank you so much for all the support from our investors as well as everyone in the hashtag Lebsack family that continues to make love sack, a vibrant company than it is to have a wonderful day.
Unnamed: Thank you.
Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
Unnamed: This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change #156: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.