Q4 2025 The Lovesac Co Earnings Call
Speaker Change: Greetings and welcome to the Lovesac's fourth quarter fiscal 2025 earnings conference call. At this time, all participants are in listening mode. A question and answer session will follow the formal presentation.
Speaker Change: If anyone today should require upward assistance, please press star zero from your telephone keypad, as a reminder, this conference is being recorded.
Speaker Change: At this time, it is now my pleasure to introduce Caitlin Churchill with the best relations. Caitlin, you may begin.
Speaker Change: Thank you. Good morning, everyone. With me on the call is Shawn Nelson, Chief Executive Officer, Mary Fox, President and Chief Operating Officer, and Keith Siegner, Chief Financial Officer.
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.
Speaker Change: For a discussion of these risks and uncertainties, you should review the company's filing to the SEC, which includes today's press release.
Speaker Change: You should not rely on our forward-looking statements as predictions of future events.
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 a applicable law. Our discussion today will include non-GAAP financial measures, including EBITDA and adjusted EBITDA.
Speaker Change: These non-GAAP measures should be considered in addition to and not as a substitute for or an isolation from our gap results.
Speaker Change: A reconciliation of the most directly comparable GAAP financial measure to such non-GAAP financial measure has been provided as supplemental financial information in our press release.
Speaker Change: Now I would like to turn the call over to Shawn Nelson, Chief Executive Officer of the Lovesac Company.
Shawn Nelson: Good morning everyone and thank you for joining us. I'll start by sharing a high-level overview of our fourth quarter and full year fiscal 2025 results.
Shawn Nelson: provide an update on our design for life product platforms and share some exciting news about an amazing new addition to our leadership team.
Speaker Change: Then, Mary Fox, our President, will discuss our tailored customer acquisition engines and finally, Keith Siegner, our CFO , will review our financial results and provide more detail on our School 2026 outlook.
Speaker Change: Before getting into details, I'd like to take a moment to reflect on milestone achievements for Lovesac in fiscal 2025.
Speaker Change: First, we had our most prolific year ever for new product launches.
Speaker Change: Having gained significant momentum, innovation, and commercialization of platform extensions, including major successes like the Pillow Sack Accent Chair, and the early launch of the
Speaker Change: Second, we codified our long-term strategy and value creation model, which we delivered at our first ever investor day, and unveiled the first of three completely new product platforms that we planned to launch over the next three years. The Evercouch.
Speaker Change: Third, we strengthen the foundations of our business having reinvented our supply chain and dramatically enhanced our CRM tools to deepen and broaden the mode around our unique on-the-channel business model.
Speaker Change: Last, we have a very healthy balance sheet which gives us substantial flexibility to weather tariff distractions, accelerate growth and enhance returns on capital for years to come.
Speaker Change: Moving to results, it was a solid end to fiscal 2025 with fourth quarter earnings results that came in toward the high end of our outlook provided in December .
Speaker Change: With strong, quote, conversion in the second half of the quarter, sells slightly outpaste the high end of our guidance range. This helped close out another fiscal year of market share gains for Lovesac, a note where the accomplishment, even if not at the level we aspire to.
Speaker Change: While macro conditions were, and remain challenging, we are optimistic as we enter fiscal 2026 in a position of strength.
Speaker Change: Lovesac's secular growth potential is massive, but our business model is also uniquely positioned to help us capitalize on macro upside whenever it does materialize. And that's without the need to over commit during periods of uncertainty.
Speaker Change: As our fourth quarter results demonstrate, we have a focused and nimble team that can deliver reliable results even in a competitive and tumultuous environment.
Speaker Change: The modular nature of our core products allow for flexibility in our supply chain, including redundant, identical sourcing for our most critical skews across numerous countries.
Speaker Change: which allow us to ebb and slow our production to the most advantageous environments in real time. This is a competitive advantage that is unique to Lovesac's model.
Speaker Change: As for product, I want to be clear, we have step-changed the metabolic rate of new product and platform launches at Lovesac.
Speaker Change: They will come faster and with greater impact over these next few years.
Speaker Change: Cisco 2025 was just the beginning. Our clarity around the design for life approach to product development is ingrained into the organization, and we've been cooking up new ideas to build a pipeline that should last for a very long time.
Specifically for 2025, we had multiple successful product launches.
Speaker Change: culminating in the early introduction of our highly anticipated reclining seat in Q4, which expands our core total addressable market of 9.5 billion for static sectionals by an additional 4 billion for motion seating capabilities.
Speaker Change: There's nothing like this recliner on the market. It represents nearly three years and more than 80,000 hours of design and engineering and development, creating a truly revolutionary power
Speaker Change: The recliner is a marvel of engineering with zero wall clearance and the totally unique ability to function in both wide and in deep orientations.
Speaker Change: and our signature design for life approach, of course, ensures that it will remain valuable and compatible for decades to come.
Speaker Change: Since launch, the reclining seat has sold over 18,500 units with attachment rates and customer feedback exceeding our expectations, as well as a nearly 50-50 split between new and repeat customers.
Speaker Change: and that's all without a national marketing campaign to generate broader awareness. We only just recently launched the Recliner campaign, the Recline of Civilization. We're very encouraged to battle with potential.
Speaker Change: In addition to the recliner, this year we successfully launched our Pillosac Accent Chair and the Case Goods category with the any table.
Speaker Change: Completed an overhaul of our surface products, including the drink holder, coaster, and the new tray.
Speaker Change: offered the long requested insert protectors to our fans' delight and overhauled our custom fabric line, which has far outpaced our expectations for both new and repeat customers.
Speaker Change: But our sites are already set on fiscal 2026 and beyond with our third design for life platform, the Evercouch, already being tested in the marketplace.
Speaker Change: The Evercouch is an optimized and elegant solution for people looking for an armchair, love
Speaker Change: where they need to differ from those of a Saxonel's customer.
Speaker Change: Our insight of Rose as we realize that despite being thought of as a couch company, we really don't sell many couch-sized configurations, let alone love-seed or share configurations for sure.
Speaker Change: Saxonals are amazing, but it may not be ideal for a size, style, or price standpoint in the smallest of configurations.
Speaker Change: Evercouch fills those gaps and opens up the $14 billion couch category to us, effectively more than doubling the addressable market that we operate in currently.
Speaker Change: It's beautiful with washable covers, exchangeable arm styles, rapid shipping capability, and easy assembly with no tools, of course.
Speaker Change: Even better is that it leverages Lovesac's, if that was brand equity, in couches and comfort seating.
[inaudible]
Speaker Change: We aim to expand Evercouch to roughly 30 showrooms and national availability on Lovesac.com in the second quarter.
Speaker Change: Initial feedback from our field teammates is very positive with customers even asking to be put on the waiting list ahead of the May launch
Speaker Change: and Least I forget to mention, there will be more new platforms to come over the next three years as we foreshadowed it investor day, each an expansion into a new room of the house.
Speaker Change: As we discussed in December , Lovesac is at the pivotal moment of transcending seating products and becoming a powerful brand in its own right.
Speaker Change: We recognize that we need the right kind of leadership and creativity to optimize this next phase of growth into new product categories and thereby live up to our ambition of reaching our goal of 3 million Lovesac households by 2030 and building the most loved home brand in America.
Speaker Change: With that backdrop, we are totally thrilled to announce that Heidi Cooley will join Lovesac as our first ever Chief Brand in Marketing Officer.
Speaker Change: Heidi is a seasoned marketing executive with 20 years of experience across public and private companies. Most recently serving as the chief marketing officer for Crocs, where she helped transform the brand into a multi-billion dollar business over the course of her tenure there.
Speaker Change: She's led high impact marketing strategies, scaled digital platforms, and driven innovation across omnichannel consumer touch points while also emphasizing culture, community, and sustainability.
Speaker Change: Heidi brings exactly the right kind of leadership and creativity that we need to fuel this next phase of growth into new product categories. Welcome to the team Heidi.
Speaker Change: Looking ahead to fiscal 2026, sure, macroback top doesn't make life easy.
Speaker Change: Keith will share the specific numbers, but the principle is simple. We believe we have the necessary ingredients to grow irrespective of the category in the near term, while maintaining clarity around long-term thinking and value creation.
Speaker Change: While the home furnishings category continues to face challenges, our innovative product offerings, strong customer relationships, and operational excellence underpin and attractive runway for growth.
Speaker Change: Lovesac has large and extremely fragmented dressable markets, of which we currently enjoy a very low share, even in our current platforms.
Speaker Change: This revenue growth should drive expanding flow through of the top line to bottom line growth and thereby higher margins, even with further acceleration from an eventual category rebound.
Speaker Change: In closing, we want to thank our dedicated team members who have worked tirelessly to bring our innovations to market and deliver an exceptional customer experience. Their commitment to our mission is the foundation of Lovesac's success.
Speaker Change: We look forward to continuing our journey of reshaping the home furnishings industry with products that are truly designed for life. With that, I'll hand it over to Mary to cover our strategic priorities and progress in more detail. Mary?
Mary Fox: Thank you, Shawn, and good morning everyone. We detailed our long-term strategy and value creation model at our recent investor day, which has centered on our two superpowers.
Mary Fox: Shawn just shared an update on the first of these, our Design for Life Product Platform, and how we believe Lovesac's Secular Growth Potential is massive, thereby positioning us to continue to take market share for years to come.
Mary Fox: I'll now focus on our customer acquisition engines that are uniquely tailored to each of these designed for live platforms, as well as on our growth enablers, especially our advantage of the plighty
Mary Fox: Beginning with customer acquisition engines, our superpower really lies in our ability to leverage different mixes of brand and performance marketing.
Mary Fox: Digital Configuration Through Lovesac.com, incredible showroom experiences and efficient partnerships to optimally affect by product platforms.
Mary Fox: Done wisely, we can officially generate customer awareness, convert that awareness into customers, and ultimately build long-term relationships and brand love. Let's spend a few moments on each.
Mary Fox: Starting with our brand performance marketing, we had shared back in December that we were encouraged by the strong double digit quote-growth we had seen through Black Friday, but were portions given the lower than expected quote-conversion to sales we're experiencing, along with the compressed holiday selling season.
Mary Fox: We are pleased to share that we saw significantly higher co-conversion during the late December and January periods, leveraging personalized offers as customers focused on their homes after the compressed holiday season.
Mary Fox: While we did selectively increase discounts above recent levels, we were able to avoid resulting to the extraordinary discounting levels at many of our competitors, as you see in our gross margin.
Mary Fox: As Shawn said earlier, we have tremendous momentum with our newest innovation, the reclining seat.
Mary Fox: It's surpassed all our expectations, achieving the highest attach rate of all our recent innovations supporting higher AOD and generating strong new and repeat customer purchases. Recall Q4 really represented a soft launch with minimal marketing support.
Mary Fox: But we've just turned on our marketing engine with our recline of civilization campaign that launched in March.
Mary Fox: with Kathy Hilton, Jay Chetty and others. This campaign is a fun, tongue-in-cheek movement against the grind culture of today, leaving anyone who sees it yearning to recline in a
Mary Fox: It was developed to be social first, leveraging influencers and content creators to exponentially grow awareness. It worked nearly five billion earned impressions and counting, and this is a great example of where Lovesac fits at the centre of cultural trends.
Mary Fox: We also had a very cool collaboration with Mr. Beast, the ultimate YouTuber on his last to leave the circle wins $1 million video challenge.
Mary Fox: A hundred Lovesac movie facts starred in this series that had more than 97 million views and counting. You can expect to see even more of these groundbreaking ideas that Heidi joins our team, so stay tuned.
Mary Fox: Second is our digital configurations and how we bring Lovesac to life online. We've invested significantly in our digital experience, including the re-platforming of our website to increase online conversion, customer satisfaction, and enhance our SBO efforts.
Mary Fox: We also reimagine the customer experience through MyHub, furthering our goal of creating a frictionless omni-channel experience and enabling a more purposeful approach to driving repeat customer purchases. It's also working with retina repeat sales at nearly 40% of the factional sales to date.
Mary Fox: These platform investments have also set us up to launch Evercouch.
Mary Fox: I'll note we aren't simply recreating the sectionals experience online but have we imagined the optimal buying experience for the more traditional chair and couch purchaser. This is a perfect example of how we will tailor our customer acquisition engines by platform for maximum effect.
Mary Fox: We'll also utilize our learnings from last year's product launches to continue to drive repeat customer engagement and conversion, all with the goal of increasing customer lifetime value.
Mary Fox: Third is our showroom experience, the physical brand amplifiers of our Design for Life products, the linchpin of our Omni Channel model.
Mary Fox: It's an efficient use of capital to provide convenient accessibility to customers looking to experience with love-packing real life.
Mary Fox: In quarter four, we embarked on the next evolution of our product demonstration selling process, the product tour. This improved selling framework helped improve quote-unversion, as I mentioned earlier, but also created the pathway for new product innovations such as the recliner.
Mary Fox: Entering fiscal 2026, we just launched a new performance-based compensation model for our field teams that retains the spirit of a customer experience that also provides strong incentives for high performance.
Mary Fox: And finally, complimenting our showroom experience is our partnership model with Costco being a great example.
Mary Fox: with Costco's more than 120 million members of road show model, allows us to activate pop-ups in their clubs, while owning 100% with the customer data and relationship.
Mary Fox: We'll continue to expand our assortment with Costco this year and have already added in Stealthtech and Pillow Sack Accent Chair. We plan a 15 cent increase in ratios over last year, further demonstrating our unique ability to sell large premium products in approximately a hundred square feet.
Mary Fox: When combined, these four elements of our customer acquisition engines create an unmatched customer experience that drives brand love.
Mary Fox: In fact, in fiscal 2025, we recorded our highest customer satisfaction scores ever. We're planning to reinforce this further by launching customer-facing services.
Mary Fox: Following internal resell and trade-in tests throughout fiscal 2025, we expect to launch customer facing pilots for both programmes in select markets later this year.
Mary Fox: Our data shows that these programs really highlight our commitment to design for life principles and reinforce the long-term value of our customer's investment.
Mary Fox: Nearly as important to sustain profitable growth over the long-term are our growth in Adlers.
Mary Fox: Let's start with our supply chain, a key strength that has been a critical component of our financial success over the past few years and in preparing us to dramatically expand to new product platforms.
Mary Fox: In fiscal 2025, we transformed our network strategy and carrier models. We implemented both transportation and order management systems, and we began work on optimizing our warehousing and outbound logistics programs, which we plan to continue through fiscal 26.
Mary Fox: As a result, we delivered healthy gross margin expansion of 120 basis points in fiscal 25, achieving a nearly 59% gross margin rate for this year.
Mary Fox: Having reduced our exposure to spot market rates by more than 95%, we entered fiscal 26 in a great position.
Mary Fox: which brings us to the recent news on Terrace. Let's start with some contextual information.
Mary Fox: We've made significant progress in recent years to diversify our countries of origin and establish redundancy of each product across multiple countries in order to have options.
Mary Fox: Prior to the recent news, our country of origin estimates for fiscal 26 were Vietnam about 50%, Malaysia about 28%, China down to 13%, and Indonesia about 6%.
Mary Fox: We are actively continuing this effort with numerous options for additional diversification, including new job fees and are working to get China to the under 10% of the total.
Mary Fox: As we learn more in the coming weeks, we will adjust accordingly and have deployed task forces to accelerate mitigating actions.
Mary Fox: As Keith will outline momentarily, we entered fiscal 26 with higher than normal levels of inventory across our product lines, which was purposeful just in case of this possibility. In addition, we have numerous ways to structurally manage through various terrorist scenarios.
Mary Fox: But we need to be careful not to implement these in a knee jerk manner that could confuse our customers and damage the brand.
Mary Fox: These options include working with our long-term vendors for concessions, reviewing opportunities for surgical price increases, adjusting our promotional intensity and capturing other efficiencies.
Mary Fox: Another important consideration is that our structurally higher gross margins that many other competitors mean that the effective price increases needed to offset the tariffs are relatively smaller.
Mary Fox: We believe we have the ability to selectively take price increases due to the strengths of our brand and the unique and compelling nature of our design for life products that are loved by many.
Mary Fox: Before I turn to Keith, I wanted to briefly mention our fourth annual ESG report published in December . You may or may not know this, but our purpose as a company, central to a design for life principles and operational model, is to inspire humankind to buy better so you can buy less.
Mary Fox: This updated report shows continued progress towards our goals, including our commitment to zero waste zero emissions by 2040.
Mary Fox: We're proud to have diverted countless thousands of couches from Mansfield. We're proud to have passed the 300 million milestone in fiscal 25 for recycled plastic bottles used in our fabric.
Mary Fox: And so much more. We know that our actions today will shape the world of tomorrow and we're leading by example. Together we can create a future that's brighter, greener, and more comfortable for generations to come. And now to Keith.
Keith Siegner: Thanks, Mary. Before we begin, I want to thank everyone who attended our inaugural investor day, whether in person, virtually, or even after the fact through the presentation, which remained available on our website.
Keith Siegner: We hope it was clear how unique Lovesac is, unique in brand, unique in business model and unique in secular growth opportunity.
Keith Siegner: Powered by continued market share gains in our existing categories, as well as expansion into new product platforms, which begins next quarter with Evercouch.
Keith Siegner: Shawn and Mary already discussed factors that made fiscal 25 such an important year for Lovesac. So let's jump right into a quick review of the numbers in our outlook. As a reminder, the fourth quarter of fiscal 24 included a 14th week representing the 53rd week in the prior year.
Keith Siegner: Revenues were $680.6 million for the year, which were down from $700.3 million to prior year, owing to category headwinds of approximately 9% for the year.
Keith Siegner: But we're slightly above the latest range of guidance we've provided in December .
Keith Siegner: Gross Margin was nearly 59%, a solid level that provides options for navigating the current macro conditions.
Keith Siegner: Net income of 11.6 million was down from fiscal 24, owing to the lower revenues, but still supported positive free cash flow for the year, and a healthy cash balance that will speak more about in a couple minutes.
Keith Siegner: Moving on to the fourth quarter, please note that all performance metric references to the fourth quarter refer to fiscal 25 unless otherwise noted.
Keith Siegner: Net sales decreased 9 million or 3.6% to 241.5 million in the fourth quarter, compared to the prior year.
Keith Siegner: Showroom net sales decreased 2.4 million or 1.6% to 154.5 million in the fourth quarter.
compared to the prior year period.
Keith Siegner: driven by a decrease of 9.4% in omnichannel comparable net sales, partially offset by the net addition of 27 new showrooms period over period.
Keith Siegner: Internet net sales decreased 7.6 million or 9.7 percent to 70.5 million in the fourth quarter compared to the prior year period.
Keith Siegner: Due to higher productivity of our temporary online pop-up shops on Costco.com There were no open-voxed inventory transactions in the fourth quarter compared to 2.9 million in the prior year period
Keith Siegner: By product category, in the fourth quarter, our sectional net sale decreased 3.8%.
Keith Siegner: Sack net sales decreased 3.0 percent, and our other net sales, which include decorative pillows, blankets and accessories, increased 2.7 percent over the prior year period.
Keith Siegner: Gross Margin increased 70 basis points to 60.4% of net sales in the fourth quarter versus 59.7% in the prior year period, primarily driven by decreases of 90 basis points in inbound transportation costs and 30 basis points in outbound transportation and warehousing costs.
Keith Siegner: Partially offset by a decrease of 50 basis points in product margin driven by higher promotional discounted.
Keith Siegner: S-GNA expenses a percent of net sales was 28% in the fourth quarter versus 30.5% in the prior year period.
Keith Siegner: The decreased percentage is primarily related to lower credit card fees, professional fees, rent utilities, and other overhead costs.
Keith Siegner: The decrease in selling general and administrative expense dollars was primarily related to a decrease of 3.8 million in credit card fees, 1.5 million in professional fees, 0.7 million in rent, 0.7 million in utilities, and 2.7 million in other overhead costs.
Keith Siegner: Partially offset by increases of 0.5 million in payroll and 0.2 million in equity-based compensation.
Keith Siegner: Red decreased 0.7 million, related to a 1.1 million reduction in percentage rent.
Keith Siegner: Partially offset by a 0.4 million increase in rent expense from our net addition of 27 showrooms.
Keith Siegner: We estimate non-recurring incremental fees associated with the restatement of prior period financials were approximately 0.5 million in the fourth quarter.
Keith Siegner: Advertising and Marketing Expenses Decrease 2.7 million or 9.2% to 26.8 million for the fourth quarter compared to the prior year period.
Keith Siegner: Advertising and marketing expenses were 11.1% of net sales in the fourth quarter as compared to 11.8% of net sales in the prior year period.
Keith Siegner: Operating income for the quarter was 47.6 million compared to 40.4 million in the fourth quarter of last year driven by the factors we just discussed.
Keith Siegner: Before we turn our attention to net income, net income for diluted share and adjusted EBITDA, please refer to the terminology and reconciliation between each of our adjusted metrics and their most directly comparable gap measurements in our earnings release issued earlier this morning.
Keith Siegner: Net income for the quarter was $35.3 million or $2.13 per diluted share compared to $31 million or $1.87 per diluted share in the prior year period.
Keith Siegner: During the fourth quarter, we recorded an income tax provision of 13 million as compared to 10.2 million in the prior year period.
Keith Siegner: Adjust the EBITDA for the quarter with 53.9 million, as compared to 48.4 million in the prior year period.
Keith Siegner: Turning to our balance sheet. We ended the fourth quarter with a very healthy balance sheet that provides substantial flexibility for Lovesac to weather macro uncertainty, accelerate growth, and or enhance returns on capital. All with a focus on optimizing long-term value creation for shareholders.
Keith Siegner: We reported 83.7 million in cash and cash equivalents, roughly similar to the prior year, while retaining 33 million in committed availability and no borrowings on a recently amended credit facility.
Keith Siegner: This healthy cash position occurred despite two factors that highlight our flexibility.
Keith Siegner: First, our total merchandise inventory levels were up 26% versus the prior year to 124.3 million.
Keith Siegner: Given our strong cash position, we saw an opportunity to build safety stock across our product portfolio in order to give ourselves additional wiggle room, should there be wild cards related to tariff or other supply chain disruptions.
Keith Siegner: Second, during the quarter we repurchased approximately 646,000 shares of our common stock at an average price of 2551 for approximately 16.5 million thereby bringing our total repurchases for the fiscal year to 19.9 million.
Keith Siegner: We have approximately 20.1 million remaining under our existing Sherry Purchase Authorization and plan to be opportunistic, balancing attractiveness of accretion from repurchases at current levels with uncertainty owing to the current tariff backdrop.
Keith Siegner: Please refer to our earnings release for other details on our fourth quarter financial performance.
Now for our outlook.
Keith Siegner: The category is remained unpredictable month to month, but generally seems to have bounced around negative mid-single digits on average for the last five or six months.
Keith Siegner: Further complicating things is a potential tariff impact, but it's not realistic to confidently assess the final outcome of global negotiations nor competitor and consumer response just yet. We expect to have much more clarity in two short months when we report first quarter earnings.
Keith Siegner: For the moment, we're prudently planning our outlook off a 5% full-year category decline, not dissimilar from the recent trends I just discussed.
Mary Fox: It's Mary Outland. We have many arrows in our quiver with respect to managing tariff impact above and beyond the approximate 10 million dollars of tariff we had already included in our full year outlook under the old tariff regime.
Mary Fox: We're actively pursuing some combination of all of those options at our disposal.
Mary Fox: Additionally, we have many secular tailwinds helping counter the category outlook and providing optimism.
Ranging from annualization of fiscal 25 major product launches.
Mary Fox: A 2Q launch of Evercouch, a reboot of our marketing strategies under new leadership, growth and physical showrooms, new tools for relationship management, and more.
Mary Fox: So let's start with the fiscal first quarter since we anticipate minimal impact from the recent
Mary Fox: We estimate net sales of 136 to 142 million, representing mid-single-digit revenue growth at the midpoint.
Mary Fox: We expect the justity, but the loss between 8 and 12 million.
This includes gross margins of approximately 54.5%.
Mary Fox: Advertising and Marketing of 13.5% as a percent of net sales and SGNA of approximately 50% as a percent of net sales.
Mary Fox: We estimate net loss to be between 10 million and 13 million. We estimate basic loss for common share to be 66 cents to 85 cents with 14.8 million weighted average shares outstanding.
Mary Fox: For the full year of fiscal 26, please note these numbers exclude any incremental impacts from recent tariff updates above and beyond those present under the old tariff regime. We estimate net sales of 700 to 750 million.
We expected just an EBITDA between 48 and 60 million.
Mary Fox: This includes gross margins of approximately 59%, advertising and marketing of approximately 12.5% as a percent of net sales, and SGNA of approximately 41% as a percent of net sales.
Mary Fox: We estimate net income to be between 13 and 22 million. We estimate deluded income for common share in the range of 80 cents to $1.36 and approximately 16.3 million deluded weighted average shares outstanding.
Mary Fox: In summary, stabilization of the category and an eventual return of category growth are ahead of us, even if that timing is unclear at the moment.
Mary Fox: While in this category fog, we're balancing prudence and efficiency 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.
Mary Fox: We're building the Lovesac brand, an investing in new product innovation that spans style, function, and new categories that supports a powerful multi-year secular growth outlook with macro upside exposure as icing on the cake.
Mary Fox: I'll now turn the call back to the operator to start our Q&A session.
Mary Fox: Thank you. We'll now be conducting the question and answer session.
Speaker Change: If you'd like to ask a question at this time, you may press star one from your telephone keypad and a confirmation tone indicate your lines in the question queue.
Mary Fox: You may first start, too, if you'd like to withdraw your question from the queue [inaudible]
Mary Fox: For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys
One moment please, we'll be poll for questions. Thank you.
Speaker Change: Our first question today comes from the line of Maria Ripps with Category Genuity. Please
Maria Ripps: Great morning, and thanks for taking my questions. First, sort of understanding the situation is very fluid here, but is there any call of maybe you can share around how you're thinking through your inventory strategy here given to the 9th day, terror delay? I know you brought your inventory level up in the end of the quarter, but how much of inventory you're planning to pull forward from, sort of, hundreds outside of China maybe over the next couple of months? [inaudible]
I don't know, I don't know. I don't know. I don't know. I don't know.
Hey, good morning. Good morning for the question. Yes, so obviously, yes.
Speaker Change: We had to filter from our industry across all of our product line, so we feel very good is our vision. The team's are actively working. [inaudible]
Right now, and since last week, I have to excuse myself [inaudible]
what
Cross-Countries [inaudible]
Speaker Change: and I think one of the great advantages of our supply chain is we have full redundancy.
Speaker Change: of all of our products, so they are working that through.
Speaker Change: And, you know, we feel good in terms of where the plans are and obviously with the news yesterday, we're really pushing through on obviously the most dominant countries that we saw from, which are Malaysia and Vietnam as an example to ensure that we continue to send stock. We have great inventory levels, but also we'll see managing. Thanks.
Speaker Change: The headwinds that just recently came into best in last week.
Speaker Change: So, that's very helpful, Mary. And then secondly, is there anything you can share around consumer behavior here, or more recently, maybe in February , and more so in March, just given all the macro data points that we've been getting? Are you seeing any maybe something in consumer spending here in the New York Journal, I guess?
you know whether they're trading up. [inaudible]
Speaker Change: We have seen a little bit quieter between key promotions and then being stronger during events.
Speaker Change: and then, obviously, we continue to see the quote-conversion progress that we make through Forte for as well. So, too early to say, in terms of even just some of the more recent news in any changes, but really nothing that has changed to call out for it.
Sir, this is helpful. Thank you very much for the call.
Speaker Change: Our next questions from the line of Matt Koranda with Roth Capital Partners, which suits your question.
Hey, guys. Good morning.
Speaker Change: I just wanted to see if maybe you could confirm for me. It looks like the midpoint of the Q1 range might incorporate the assumption of positive on the channel comp.
Speaker Change: I just wanted to see if Keith can maybe unpack that.
Speaker Change: And then just quarter to day, that sounded like Mary said. [inaudible]
Speaker Change: February was strong, but I think that's against a relatively easy come from last year, so maybe just talk about the trends you saw in March and April .
Speaker Change: And then lastly, just if you could maybe talk about sort of, I know it's really early on the sample size is small but any consumer reaction function to sort of a liberation day announcements in terms of trends you saw over the last week.
I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: Sure, thanks. I'll start off with the first two parts of that, and then you get over to Mary. So you know, if you look back to recent trends
Speaker Change: You could see pretty clearly that we've been doing between 500 and 600 basis points of growth coming from the non-new and non-comp. So, one thing that's a little different is in fiscal 25, so last year...
Speaker Change: We had a heavily first quarter weighted new showroom opening cadence this year. We're going to be a little bit more balanced through the year a little less weight.
Speaker Change: on Q1, so we might be slightly below that 5% to 6% contribution from new and non-comp. So when you think about the growth rate that we're applying for the first quarter, I think your assumption for flat to slightly positive, depending on where we are on that range is definitely the possibility.
Speaker Change: You know, one thing I'm going to talk about just a little bit with the corridor and the progress to date that does make this a little bit noisy and wide, it really, like urge you to focus on the corridor and entirety, is if you recall in the first month of fiscal 25,
Speaker Change: We had some volatility related to a promotional strategy miss and
Speaker Change: This location is from switching media agency, so there's a lot of noise in our year of year growth rates in the first month.
Speaker Change: and then there's noise in the second and third because Easter moved from month three to month two for us. So put that all together and you know we're really encouraged to be at the levels of growth that we're talking about for Q1. So hopefully that gives you a little bit of context.
[inaudible]
Speaker Change: Yeah, and I think Matt just adds to your other question, I think Keith covered kind of quarter to date.
Speaker Change: I think in terms of any consumer reactions, those last weeks are quite a week for us, so I think we really need to hold.
Speaker Change: as we build through to the Easter events, as we close out the quarter, really to be able to learn anything more, but certainly not really seen any kind of change of any kind of materiality. So, looking forward to Easter, including out the quarter. Thank you for your time.
Speaker Change: Okay, I appreciate that. And then maybe just wanted to see about the way that we should think about pricing in reaction to some of the tariffs that they do end up sticking after the 90 days.
Speaker Change: How should we think about Lovesac's ability to take price increases? What would those come in the form of, would that come in the form of a list price increase and we should expect the same sort of. [inaudible]
Speaker Change: Teddy promotional came to you guys have been on just wanted to hear sort of your latest thoughts about how you sort of mitigate some of the terrifresque beyond just the change in vendor
Speaker Change: Yeah, no, thank you for the question. I think, you know, obviously the team are working very hard.
for the awesome benders on concessions because that's the key element.
Speaker Change: that can really help us in terms of sustaining some of the impact.
Keith Siegner: I think the second piece obviously, Keith shared with our structurally high growth margins and many other competitors.
It really means that the effect is...
Keith Siegner: surgical price increases we'd need to take a much smaller. So as we really work through, you know, we've taken price before in 2001 and 23 and seen a lot of success with that without any impact around demand.
Keith Siegner: So we're working actively through with the scenarios. We need to see where everything closes out because it is changing by the day. But we have good plans around those surgical changes that we can make in the kind of mid-single.
Keith Siegner: Level, and I think what's interesting, you know, we track pricing, you know, competitively in the category and we saw many competitors taking price.
Keith Siegner: on MSRP between five and ten percent just in February and early March. And this is obviously done well in advance at the latest news on the tariff increases from last week.
Keith Siegner: So we see, you know, opportunity, you know, a save already risen that we can actually be able to
Keith Siegner: You know, execute effectively, not impact demand and continue to stay very strong to, you know, our customer values. I think one of the other last pieces you know Matt, we've shared with you in the past that nearly 40% of our customers don't even cross shoppers with anyone else.
Keith Siegner: So we'll stay very close to it, be very meaningful in it, but obviously really need to let the full understanding of the impact the finalized before we execute anything.
[inaudible]
Okay, appreciate it. I'll turn it over, guys. Thanks.
Speaker Change: Our next questions come from the line of Thomas Forte with a maximum group. Please receive a few questions.
Question on tariffs and one question not on tariffs.
Uh, Shawn's on mute.
Speaker Change: I'll jump in on this one. I'm in China right now, taking this call from China and actively moving plenty of production out of here in real time with the team. It's really exciting. As you know, I think the thing that differentiates.
Speaker Change: Lovesac and really all of our key competitors is while I think every serious furniture company operates in all of these geographies in the East, Lovesac operates redundantly.
There are almost no critical products.
that are solely sourced in China.
Speaker Change: and we're able to move production lean further on these other geographies.
that have now seen some abatement already.
Speaker Change: and we do see a path to getting down below 10% this year and that's what we're actively doing so you know ultimately
Speaker Change: It will probably force us completely out of Charna, and that's fine as well. So we're excited about the headway we're making, it's happening so fast.
Speaker Change: You know, in days really, and already in motion, and of course our Q1 is all spoken for inventory wise. So we're talking about a very finite batch of inventory that will even have an effect on this year.
Speaker Change: in terms of the biggest terror so far. Yeah, so feeling really good about our position.
Speaker Change: Thank you, Shawn. I appreciate that. Alright, so for my non-tariff question, so I'm thinking about potential catalysts for home-related merchandise sales, such as furniture.
Speaker Change: Hashan investors think about the potential for lower interest rates, unlocking the housing market, resulting in more consumers moving.
Speaker Change: So recognizing its fluid situation once overlining from the market turmoil is that at times interest rates have been lower. We've read stories about large increases in mortgage demand. Seems like there's a lot of pen-up demand to move, which may be unlocked by lower rates. I would love your thoughts on this.
[inaudible]
Speaker Change: Yeah, I'll start off first and then I'll let Shawn step in. I mean...
Speaker Change: I'll take it. We'll take it. We'd love to see it. We don't even care about what drives the interest rates lower to some extent if it's if it's a geopolitical plan a macro basis as long as there's not a big recession underlying. It's the lower interest rates will be wonderfully accepted I think.
Speaker Change: We're controlling our own destiny here. We are and have already built a pipeline of truly differentiated products that should enable us to continue to take market share like we've talked about in our existing categories where we only are present in one million households.
in the U.S. it, which is shocking to us.
Speaker Change: With our existing platforms, there's no reason we shouldn't be in many millions of households.
Speaker Change: and with the addition of all of the new products last year and the Evercouch, which is our entrance into chair's love seats and sofas.
Speaker Change: with an appropriate style forward price competitive, wonderful product that's launching in second quarter, we think we have a really compelling case to buck those trends and to drive growth for our business and to translate that top line growth to bottom line growth.
Speaker Change: But, because of the uniqueness of our model and because of the inventory position as we've been talking about as soon
Speaker Change: As that lower interest rate unlocks housing turnover, we're ready to go and we'll participate real time. We can ship in one to two weeks.
We don't have to place an order to serve.
Speaker Change: for a green roll arm couch that's going to take nine months to get here and then hope that it's on style and we can sell it. We can tell you whatever you want within one to two weeks whenever you're ready.
Speaker Change: and I think that's a super compelling element to our model, but Shawn, if you want to talk more about the big picture, please.
Speaker Change: Well, I'll just add that the other trend that overlays [inaudible]
This hopeful one.
Speaker Change: is couches, especially not hours, wear out. And we're coming up on that big COVID pull-forward, renewing of people's couches.
Speaker Change: As people in a lot of ways have spent more time at home than ever over these past half a decade so we're really excited about you know the natural turnover and the categories that we focus on the most.
Speaker Change: And now with the Evercouch coming on, helping us address whole new opportunities in urban markets and smaller rooms and other things, we think that there's a lot of trends that are going to...
Speaker Change: really played a Lovesac favor. Finally, from an inventory perspective, you know, we're going to, no matter what, as we've proved to the last, both Terra cycle back in 2018, as well as through COVID.
We will not run out of stock. We never did.
Speaker Change: It's a strength of ours, and I can almost guarantee that that won't be the story for some of the other players on our category, and that will be a major opportunity for us to gain market share over these next years as all of this changes, so we look forward to that. Thank you very much.
Great. Thanks for taking my questions.
I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: Our next questions come from the line of Alex Fuhrman with Craig Helm. Let's just hear with your questions.
Hey guys, thanks very much for taking my question. You've had a lot more products now than you've ever had.
Speaker Change: And it sounds like there's a lot more to come over the next couple of years. How does that impact how you think about your showroom strategy? Do you need to start opening larger showrooms or maybe start leaning on different distribution partners to market a wider range of products?
Speaker Change: Oh man, we are so excited to talk about this one, just probably not on this call. We have plenty of room for ever couching our life, our showrooms.
Speaker Change: We're really built to sell couches. We just haven't been selling many. We've been selling all sectionals.
Speaker Change: and so we're really excited how Evercouch is going to play to our strengths. He's established a brand.
Speaker Change: that people think of as those clever couches they've seen on TV.
Online, Social Media Influencers [inaudible]
Speaker Change: and then in some cases we just don't fit their lifestyle so we're very comfortable introducing ever couch. We're not concerned at all about space and I think you're going to really see
Speaker Change: How that folds into the batter of our current showroom footprint seamlessly. As we move into next year, we have all kinds of
Speaker Change: Really clever and exciting solutions for how we will show up on the channel way in a way that's true to Lovesac, nature in a way that really plays to our strengths.
Speaker Change: And of course I'm being cryptic because we're super cryptic about, you know, the biggest platform introduction until we're ready to announce them Thank you very much.
Speaker Change: But it's going to come probably a lot, you know, at least the news of it and some of the explanation will I think you're gonna...
Speaker Change: We're going to be prepared to be talking about that even as this year continues.
Speaker Change: And so, you know, for now, our showrooms are small and tight and efficient.
Speaker Change: and we will continue to open, you know, as we've said, another 30-ish this year, and we're really excited about being able to grow this way and being able to adapt.
Speaker Change: As we get into the other categories in what we think is a truly strategic and artful way that will be innovative in retail and on the channel.
The execution, so, you know, more to come.
Speaker Change: Great, that's really helpful, Shawn. Thanks and looking forward to seeing some of those innovations that they happen.
Thank you.
Speaker Change: Our next question is from the line of Brian Nagel with Oppenheimer. Please receive your questions.
Speaker Change: Hey, good morning. This is William Dostodon for Brian . Congratulations on a nice quarter.
Speaker Change: Thank you. So yeah, so my first question was on just care for mitigation efforts. I wanted to
Thank you. Thank you. Thank you.
Speaker Change: Clarification. So you mentioned the given higher, structurally higher margins that love that price increases need offset tariffs may be smaller. Can you elaborate on that and then also. So.
Speaker Change: I guess related competitors have taken 5 to 10% off of MSRP recently. How is your promotional strategy changed in recent months?
If at all.
Sure thing, thanks. I'll take the first one.
Speaker Change: What we are applying with the lower required price increases is take the math of what our gross profits.
when you back out inbound free.
Speaker Change: Warehousing, Last Mile, and other costs and things like that that flow through there, you actually get to a strict product margin that's quite a bit higher.
Speaker Change: Substantially higher, actually, even then where we're running on a full year gross profit basis. So when you think about what that cogs actually is as a percentage of sales
Speaker Change: You do the math as to what type of total net sales price increase would be required to offset the strict product cost.
Speaker Change: That's how you get to what we were even in some of the really draconian tariff outlooks.
Speaker Change: Could probably be covered with a single digit, high single digit price increase, and that clearly doesn't look like it's going to be the case already. But look, we have options. We can take those price increases, we can shift the intensity of our promotional strategy.
Mary Fox: We can play around with what our finance offers are through our financing program. All of these are different ways that we can help offset that let alone on the cost side of the initiatives that Mary talked about before, but hopefully that is a little context.
Thanks.
Speaker Change: Yeah, and I think William, just to ask your other part of the question, so you know, as we track with our competitors and saw them taking their MSR here by 5 to 10% in February of March.
Speaker Change: They've also continued to be at record high levels on promotion, so that has continued for us as we went through Presidents Day and through this quarter to date.
Speaker Change: We've continued with our flash event, the typical handle of a 30-off and even with some reduced to find out the things.
Speaker Change: that we've seen success with. We continue to drive that. We do continue also to have some coffee doffes in the showroom sometimes.
particularly for the largest set-up. [inaudible]
Speaker Change: but certainly feel good in the algorithm of how we're working through in our promotions that have planned, but the team are always testing so we're all always learning and we will continue to adjust as the year plays out and obviously to ensure that we stay very relevant and continue to game market share.
[inaudible]
Speaker Change: Okay, I appreciate that. And so I may have mistaken that competitors have taken their MSRP off by 5% to 10% in recent weeks. Yes, yes, that's correct. So they have been in February of March, time to 10% up in MSRP correct.
Speaker Change: Okay, and another question that I wanted to touch on would be product launches.
Speaker Change: Matthew Fiskel, 26th, God for Growth of 3-10% How Much Of This
Speaker Change: that would be from product launches versus market share gains amid broader category declines, and specifically just wanted to ask about how the recliner has performed versus your expectations.
Speaker Change: I'll take the first part and then I'm going to kick it over to Shawn to talk about the recliner, but you know...
Speaker Change: As I mentioned earlier, we're approaching this year from the perspective of...
Prudence.
Speaker Change: and Realistic Management around the macro condition. So we've been floating around, plus or minus, you know, some months better, some months worse, but the category has sort of been in this down mid-single digits for the last five or six months as I mentioned.
Speaker Change: That's the scenario we're building our plan for this year off of, more of the same. So in order for us to get to the total growth rates against that backdrop, we do need
Speaker Change: These new products, the physical showroom expansion, enhancements in our marketing strategy, all of these different things that I was talking about. We think can generate better than category performance.
Speaker Change: And you know, so there's a whole number of different scenarios that could come together. We're not relying on every single one of these to hit 100% by any means.
Speaker Change: Not at all. We can have some of them in some of them miss and still hit our guidance. That's kind of the approach we took to this so
Speaker Change: You know, we're really encouraged about the new showrooms that we're opening. We're very excited about the potential that those.
Speaker Change: King Contribute. We think the new products can be fantastic. We think we could sharpen a message. All of these things, I know I'm getting a little redundant and repetitive, but I just really wanted to hammer home the point that we've got multiple paths we think to achieve the top line aspirations that we set out for this year. [inaudible]
Go to Beadaholique.com for all of your beading supply needs!
Yes, as far as the recliner goes.
Speaker Change: I think it's been our most successful product launch, maybe ever, at least in our modern history, maybe since stealth tech, and in many ways even more impactful than that, and that was massive for us. So it's exceeded our expectations, it's outstripped.
Speaker Change: The initial supply, and we quickly were able to recover from that as you've seen. We've really haven't had any egregious waiting periods for recliner. They're in stock now.
Speaker Change: So we've been able to demonstrate this extreme flexibility we have and you have to appreciate that the recliner has, you know, the power of recliner.
Speaker Change: If you understand saxonals, you understand that these rectangles can be used the long ways or the deep ways, which is one of the most...
Speaker Change: Remarkable things about the SACTIONALS platform, right? If you're tall, you want to deep, if you're shorter, you want to wide or if you want to adjust the room and how it fits between two windows. This one recliner skew works in either direction and the consumer can adjust it on the fly. It's hard to describe over a call, but the reason I'm mentioning it is because...
Speaker Change: to do all of this and do it elegantly, safely, reliably with electronics required 650 individual
Speaker Change: This is by far the most complex product we've ever produced.
Speaker Change: and the fact that we've been able to do it at our high margins, right at initial launch, without any significant quality issues at all, and been able to replenish our stock when it far outstripped our expectations as we mentioned we sold over 18,500 units and that's just over the first.
Speaker Change: A few number of months, right? This is not even six months.
Speaker Change: So we're really excited about that and especially excited to see that cells are evenly split between the new and repeat customers.
Speaker Change: So it's working in exactly all the ways we wanted it to. We're really proud of it. And you know I think the lastly the best part is of course we hold the numerous patents on it like we do all of our are.
Speaker Change: Key products and the big investment we made in it and even to launch it as we just we had over four billion.
Speaker Change: Impressions from this Kathy Hilton campaign with the Recline of Civilization and we had a lot of fun with it. On social media, all of this investment, both in the product and in the marketing of it, will build on it for a decade or two decades.
Speaker Change: And that's the beautiful thing about these designs for life products. They have life that goes so far beyond when we take the time to
Speaker Change: to build them right. And so, anyway, really excited about that and really excited that we're able to also shift production of so many.
Speaker Change: Excuse so rapidly out of China as we mentioned because so many of the suppliers are excited by what it represents and excited that we can move so fast with them. So all good news here.
Thank you so much, looks forward to connecting more off on.
Thank you.
Speaker Change: At this time, this will conclude our question and answer session and we'll also conclude today's conference. We thank you for your participation. You may now disconnect your lines at this time and have a wonderful day.