Release Date: September 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Lovesac Co (LOVE, Financial) reported total net sales of $156.6 million, reflecting a positive net sales growth of 1.3% for the quarter.
- The company successfully launched the PillowSac Accent Chair Frame (PACS), which saw incredible response and surpassed expectations, selling out within weeks.
- The new AnyTable product was launched, representing Lovesac's entry into the adjacent furniture category of tables and case goods.
- The company has a strong balance sheet with $72.1 million in cash and cash equivalents and no borrowings on its credit facility.
- Lovesac's omnichannel model and CRM tools are driving momentum, with significant enhancements to their website and customer engagement platforms.
Negative Points
- Total omnichannel comparable net sales decreased by 5.4%, indicating some challenges in maintaining consistent sales across all channels.
- Gross margin decreased by 80 basis points to 59% of net sales, primarily due to higher promotional discounting and increased outbound transportation and warehousing costs.
- SG&A expenses as a percentage of net sales increased to 47%, driven by higher payroll, equity-based compensation, professional fees, and rent.
- The company reported an operating loss of $8.4 million for the quarter, compared to $1 million in the same period last year.
- Net loss for the quarter was $5.9 million, or negative $0.38 per common share, compared to a net loss of $0.6 million, or negative $0.04 per common share, in the prior year period.
Q & A Highlights
Q: Can you quantify the pent-up demand for the new Accent Chair and StealthTech, and how much were the delays?
A: The impact started near the end of the second quarter and will pick up more through the third quarter, resolving in Q4. It's millions of dollars, but in the single digits. We have good visibility into the closure of those lead times and when we can ship.
Q: Are there any early signs of mortgage rates coming down that might help your business or give visibility into the back half outlook?
A: The promotional environment is very competitive, and we are holding the line on our promotional levels. We are not seeing meaningful green shoots but remain vigilant in planning the business. Innovation like the PillowSac Accent Chair Frame and AnyTable are driving resilience.
Q: Does your guidance include any buyback, and what is the buyback philosophy?
A: The discussion has been ongoing between management and the Board. We had to address the credit facility first. We feel good about the balance sheet and plan to offset the dilution of stock compensation at a minimum. No buybacks are built into the forecast yet.
Q: Can you talk about your thoughts around narrowing your full-year guidance, especially on the upper end?
A: We are bullish on our innovation but cautious due to lingering macro uncertainty and intensified promotional activity. We felt it was prudent to tighten the range.
Q: What are your latest thoughts on the optimal number of showrooms and overall touch points for the business?
A: We see a runway of just over 400 showrooms and plan to deliver around 30 net showroom openings this year. Showrooms drive awareness and digital business, and we see a long runway ahead.
Q: Can you give your current thoughts on your strategy for new product development, such as StealthTech and AnyTable?
A: Our Designed for Life philosophy underpins everything we do. We view our territory as from the mailbox to the backyard fence. We remain focused on the living room with Sactionals and extensions like AnyTable. We are actively developing and prototyping in other realms but remain conservative in our approach.
Q: Can you talk about the gross margins and contribution margins on new products like the PillowSac Accent Chair and AnyTable?
A: We are disciplined about maintaining gross margins. New products are designed to meet customer expectations while providing the margins we need. We learn from each launch and refine our approach for future innovations.
Q: How should we think about product innovation as a contributor to your top-line growth algorithm?
A: Everything starts with seats and sides, which generate profits and cash flows to support innovation. We balance the reality of the category with the need to unleash our product portfolio. The macro environment influences how innovation shows up in the business model.
Q: What is the initial demand makeup for the PillowSac Accent Chair?
A: It's 50-50 between existing and new customers. This drives repeat business and new customer acquisition. The product has been a phenom on social media and is driving brand awareness and sales.
Q: Can you unpack the cadence of demand throughout the quarter and share trends for August to September?
A: Q3 is in line with Q2, with stable underlying trends. Labor Day performance was as expected, despite a competitive promotional environment. We plan to deliver low-single-digit revenue growth for Q3.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
