Earnings call transcript: Lovesac beats EPS forecast in Q1 2026

Lovesac reported a better-than-expected Q1 FY2026 EPS of -$0.73, surpassing forecasts by 8.75%, with net sales increasing 4.3% year-over-year to $138.4 million driven by showroom growth, despite an 8.9% decline in internet sales and the end of its Best Buy partnership. Despite the EPS beat, the stock fell 12.29% to $20.50, reflecting investor concerns over strategic shifts and continued net losses; however, the company reaffirmed its full-year net sales guidance of $700-$750 million and adjusted EBITDA guidance of $48-$60 million, while analysts maintain a strong buy consensus with an EPS forecast of $1.57 for FY2026.

Analysis

Lovesac (LOVE) reported Q1 FY2026 earnings with an EPS of -$0.73, surpassing the forecasted -$0.80 by 8.75%, though revenue of $138.4 million slightly missed expectations of $138.61 million. Net sales increased 4.3% year-over-year, driven by an 18.2% rise in showroom sales, which offset an 8.9% decline in internet sales, indicating a strategic pivot. Despite the EPS beat and improved adjusted EBITDA loss of $8.4 million (from $10.3 million year-prior), the stock plummeted 12.29% to $20.50, reflecting investor apprehension over the termination of the Best Buy partnership, ongoing net losses, and declining internet revenues. The company's gross margin contracted by 60 basis points to 53.7%, attributed to higher promotional discounting. Lovesac reaffirmed its full-year FY2026 guidance, projecting net sales between $700 million and $750 million and adjusted EBITDA of $48 million to $60 million, supported by new product launches like EverCouch and a focus on its showroom and Costco channels. Management detailed a four-pronged strategy to mitigate tariff impacts, aiming to keep them within existing guidance, though this could pressure gross margins in the near term (Q2 gross margin guidance is 55-56% vs. full-year ~59%). The stock exhibits high price volatility with a beta of 2.29, and while analysts' price targets range from $24 to $38, suggesting potential undervaluation, the company faces challenges in a promotional retail environment and must successfully execute its strategic shifts.

Key Decisions for Investors

• Investors should scrutinize the company's ability to translate showroom growth and new product momentum, such as with EverCouch, into sustainable profitability, particularly given the 8.9% decline in internet sales and the termination of the Best Buy partnership.
• Carefully evaluate the market's sharp negative reaction to the earnings report against the backdrop of an EPS beat and reaffirmed full-year guidance, considering whether strategic concerns are overly discounted or if the 12.29% stock drop presents a reassessment opportunity.
• Monitor the impact of tariff mitigation strategies on gross margins, as management indicated potential for a downward bias to margins to achieve adjusted EBITDA targets, and assess the effectiveness of the planned $2 million Q2 charge related to the Best Buy exit.
• Given the stock's high beta of 2.29 and persistent net losses, investors should weigh the potential upside suggested by analyst price targets ($24-$38) against the inherent volatility and execution risks associated with the company's strategic pivot and competitive market conditions.