Release Date: June 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Lovesac Co (LOVE, Financial) delivered net sales, adjusted EBITDA, net loss, and EPS at or slightly favorable to the high end of their guidance ranges.
- The company saw a significant improvement in sales trends in March and April compared to February, indicating a positive response to their promotional adjustments.
- The launch of the PillowSac Accent Chair has been well-received, generating buzz and positive customer feedback.
- The company has a strong balance sheet with $72.4 million in cash and cash equivalents and no borrowings on their revolving line of credit.
- The Lovesac Co (LOVE) continues to innovate with a healthy product pipeline, including new launches planned for fiscal '26 and beyond.
Negative Points
- Total net sales for the first quarter declined by 6% year-over-year, reflecting a challenging market environment.
- Omnichannel comparable net sales declined 14.8% for the quarter, primarily due to a difficult start in the first months.
- The company experienced a significant increase in SG&A expenses as a percentage of net sales, driven by investments in payroll, professional fees, and infrastructure.
- Advertising and marketing expenses increased by 6.4% compared to the prior year period, impacting overall profitability.
- Net loss for the quarter was $13 million, a substantial increase from the $4.1 million net loss in the prior year period.
Q & A Highlights
Q: Could you share more about your marketing efforts and the progress with the new media agency?
A: (Mary Fox, President and COO) We feel good about the transition to the new agency, which started in February. The team has set up around customer segmentation and understanding our business. We see positive results in our return on ad spend through March and April. The new agency provides more resources for data analytics, buying power, and overall support, which is reflected in our performance.
Q: Can you provide more details on moving to direct carrier relationships and the expected benefits?
A: (Mary Fox, President and COO) We transitioned to a direct carrier model from using freight forwarders at the end of last year. This change minimizes our reliance on spot market rates, ensuring better pricing and availability. This benefits both our availability and P&L. (Keith Siegner, CFO) This transition was factored into our original gross margin guidance. We expect increasing benefits from these changes throughout the year, particularly in Q3 and Q4.
Q: What steps did you take to fuel the business inflection in March and April?
A: (Mary Fox, President and COO) We adjusted our promotional strategy after seeing competitors remain highly promotional post-Black Friday. We returned to a 30% off campaign, which worked well. Additionally, our new agency focused on targeting interested customers more effectively, optimizing our marketing efforts.
Q: Are you seeing a worsening backdrop in consumer behavior, particularly among lower and middle-income consumers?
A: (Shawn Nelson, CEO) We observe various data sources and remain vigilant. Our customer base is more affluent and stable, and current trends are steady. We are not expecting a macro recovery this year but remain prepared for potential upside if conditions improve.
Q: Can you discuss the frequency of product innovation for sacs and consumer response?
A: (Shawn Nelson, CEO) We have renewed focus on sac innovation, with the PillowSac Accent Chair Frame showing impressive early success. We have a pipeline of innovations for sacs and other categories, with more launches planned over the next few quarters.
Q: Can you elaborate on your in-house e-commerce efforts and long-term vision?
A: (Mary Fox, President and COO) We are building infrastructure for resale and trade-in capabilities, enhancing our circular operations. We recently replatformed our e-commerce site for faster performance, which will help improve customer conversion and build long-term relationships.
Q: What does the sales outlook for the full year imply for omnichannel comps in the back half?
A: (Keith Siegner, CFO) We expect some improvement in the macro environment, new product introductions, and changes in marketing strategies to drive growth. We are comfortable with a return to growth at the midpoint of our range, with new touch points and marketing efforts contributing to this.
Q: How do you feel about the promotional environment and your position relative to competitors?
A: (Mary Fox, President and COO) The category has become more promotional, but we remain below the average discount levels. We continue to test and learn, finding success with the right headline numbers without matching competitors' discount levels. This strategy is baked into our guidance for the year.
Q: How sensitive is Lovesac to interest rates and the housing market?
A: (Shawn Nelson, CEO) We are linked to the housing market, and lower rates could significantly impact our business. We remain conservative in our outlook but are prepared to capitalize on favorable conditions when they arise. Our supply chain advantages allow us to be nimble and responsive to changes in demand.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
