The Lovesac Company (LOVE) on Q4 2021 Results - Earnings Call Transcript

Operator: Greetings, and welcome to The Lovesac Fourth Quarter Fiscal 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Rachel Schacter with ICR. Thank you. You may begin. Rachel Schacter: Thank you. Good morning, everyone. With me on the call is Shawn Nelson, Chief Executive Officer; Jack Krause, President and Chief Operating Officer; and Donna Dellomo, Chief Financial Officer. Shawn Nelson: Thank you, Rachel. Good morning, everyone, and thank you for joining us today. I will start by reviewing the highlights of our fourth quarter and fiscal 2021 financial and operational performance. Then Jack Krause, our President and COO will outline our key growth initiatives for fiscal ‘22. And finally, Donna Dellomo, our CFO will review our financial results and a few other items related to our outlook in more detail. Before turning to our results, I want to start by thanking the entire Lovesac team for their tireless efforts in what was an unprecedented year. Despite the challenging backdrop, fiscal 2021 was a landmark year for Lovesac, in which we delivered record financial performance and seamlessly pivoted our business to an all-digital model in the face of pandemic-driven showroom closures. We could not have achieved this without the grit and determination of our team. The COVID pandemic demonstrated even more clearly the strength of our people, our brand, business model and operating platform, and just as vitally yielded durable and value-enhancing lessons learned, new tools, and new customer insights that we will leverage in our decision making as we look ahead. Jack Krause: Thank you, Shawn. Good morning, everyone. Our strong fourth quarter results and our annual performance are a testament to the strength of our business model and the agility of our teams. Total Lovesac sales growth for the year grew 37%, driven by the strength of our showroom and web channels, which had a 32% increase in transactions and an 11% increase in AOV year-over-year. Now let me give you a quick update on our operations, both showrooms and with our channel partners. Currently, 100% of our showrooms are in the walk-in phase, with increased health and sanitation protocols. On the channel partner front, our Best Buy shop in shops are continuing to perform well. As previously announced during the fourth quarter, we expanded our relationship with Best Buy to include selling sactionals on bestbuy.com. We opened our fourth Best Buy location in March and are planning a shop in shop expansion with Best Buy for the second half of this year and early next year with preliminary plans to open over 15 additional shop in shops. Our Costco business was down as planned due to the reduction of physical roadshows. However, strength and higher margin programs helped drive improved gross margins for our other segment overall to 44.6%, up 500 basis points versus a year ago. We ended our test with Macy's at year end with the intent of focusing on the development of the shop in shop concept with Best Buy and other potential partners with the ability to scale efficiently. Our fourth quarter was a strong end to the financial year 2021 with good operational progress made against our key priorities. And we'll build on this progress in financial year ‘22. Let me give you an update on our progress and the key areas and plans for the coming year. Shawn already discussed product innovation so I'll start with our efficient marketing and merchandising strategies. We maintained customer lifetime value or CLV to customer acquisition cost, CAC, ratio of 4.7x in financial year ‘21, even as our advertising and media spends increased by 44% to $41.9 million for the year, demonstrating the efficiency and scalability of our marketing and customer acquisition strategies, and the high returns they continue to deliver. Our fiscal 2021 customer cohort generated a record average first year value of $2,044 per new customer. We believe this is an outcome of our focus on driving penetration of sactionals. Total customer count was up 32.9% in fiscal 2021 and we had a strong 48% increase in sactionals platform new customers, both of which bode well for us going forward. As we have said before, our showrooms serve as great amplifiers for our brand and the return on our marketing spend. Building on this synergy we plan to open another 20 plus showrooms in fiscal 2022 of which four have already opened in the month of February. Our strong media and brand traction, as well as relatively benign competitive environment enabled us to deploy fewer promotions in financial year ‘21. In addition, our merchandising strategies have helped to drive higher AOVs through product mix shifts towards premium and higher margin covers. Leveraging in our learnings from the second half of fiscal ‘21 we expect to continue to drive more efficiencies and high returns from our marketing spend. In financial year 2022, we will continue to be focused on using more tactics that drive reach and further penetrate our target customer via non-linear buys like Hulu and OTT and we continue to scale into these platforms while targeting our linear buy to drive a higher reach. We're also seeing opportunities to increase our digital spends as customers spend more time digitally researching their home furnishing purchases. Turning to our showroom operations, during the fourth quarter, we opened one showroom in Hoboken, New Jersey and ended the year with a total of 108 own showroom locations. As we continue to evolve our real estate touch points we are piloting several new initiatives this year, including mobile concierge, a mobile showroom to give us the ability to provide a demo to the customer in their own home. We also plan to add test kiosks as well and additional off-mall pad sites. These touch points will augment our core showroom strategy and we'll update you on the rollout of these plans, as we progress through our pilots in the first half of the year. We believe that this asset light approach to creating touch points will enable us to operate cross functionally much closer to the customer, enhancing customer satisfaction, as well as providing a strong support for future Designed for Life and circle to consumer initiatives that Shawn mentioned earlier. As part of our continued focus on increased safety and productivity, we saw continued success from our on the spot appointment scheduling in the fourth quarter that enabled us to better leverage the strength of our omni-channel model. We hosted over 11,000 appointments in Q4, up 27% from the previous quarter, and saw strong sales conversion that increased sequentially resulting in appointments accounting for 46.4% of the showroom business. During Q1 of this year, we plan to test an environment where customers in e-commerce only areas can achieve a virtual appointment with our showrooms, enabling us to get even closer to the customer wherever they're shopping from. As part of our commitment to operational excellence, and the post-purchase experience, we also piloted a showroom post-purchase specialist program in the fourth quarter. This team is focused on proactively communicating with customers at key milestones throughout the customers’ delivery experience. During this pilot, we exchanged over 34,000 messages with our delivery customers and saw a significant increase in post-purchase customer satisfaction with the customers who dealt with a post purchase specialist. We continue to refine this program with a pilot in the first quarter of this year. And we'll update you on our planned expansion of this program with a pilot in the first quarter of this year. And we'll update you on our planned expansion of this program later in the year. In terms of expanding online, we continue to pursue opportunities with other partners and we will provide updates when there's news of note. Finally, we are making disciplined investments in our infrastructure, including technology and supply chain. We are pleased with the results that we've seen from our new e-commerce platform. In addition to the increase in traffic versus last year, we saw an outsized increase in conversion rate and transactions. As with any website, our goal is to make continuous improvements based on customer feedback and changes happening within the business. Lovesac.com is playing an important role in the customer journey, as shoppers are spending more time on the website to gain a better understanding of the brand and our products before visiting a showroom. As just discussed the make-an-appointment feature has been a particularly important software launch. Shopping behavior post-pandemic has changed and our omni channel integrations have set us up well to make disciplined investments in e-commerce technology in the coming fiscal year, specifically focusing on the product configurator and post purchase aspects of the customer journey, as customers are getting more comfortable with shopping online for premium priced products. In terms of supply chain, we continue to focus on the customer experience from order to delivery, reducing costs, increasing efficiencies, and mitigating risks in our supply chain. In addition to our Chicago DC hub, our distribution network continues to expand with up to 600,000 square feet of additional space in California and Pennsylvania, allowing us to leverage outbound transportation costs in more trade areas. Raw material shortages and port delays are currently challenging across the industry. And our top priorities this year are to manage them and mitigate supply risk. In addition to pulling forward our holiday inventory into the first half to avoid holiday congestion we're evaluating additional options to accelerate our distribution network expansion. On the supply side, we continue to strengthen our manufacturing capability in Vietnam, Malaysia, Indonesia, China, and the United States. And finally, our new supply chain, ERP system, which is expected to be implemented by the end of the year will allow us to scale our ability to managing stocks with better order management, supplier management, planning and replenishment, and end to end tracking capabilities. So in summary, we're very pleased with our financial and operational performance in fiscal 2021. And continue to be excited about the opportunities that lie ahead. We're very proud that our overall customer satisfaction scores ended the year significantly higher than when we began fiscal ‘21. This is a true testament to our ability to be agile and meet customer's needs, even in a year, where our consumer constantly changed their desired journey and shopping preferences. While gains were driven by a number of improvements, they're truly reflective of our unrelenting commitment to better meet our customer's needs, particularly in the post purchase part of their journey. The dynamic environment of the past year slowed some of our planned investments in the business, which are implementing again this year as we return to our plans of investing and building capabilities and infrastructure required to drive sustainable and scalable growth. As we looked at fiscal 2022, we are mindful of the uncertainty presented by the ongoing pandemic, as well as an industry-wide supply chain dynamics. However, we feel great about the things we can control, the longer term trajectory of our business and potential of our brand. We are pleased with our progress, and more committed than ever to build Lovesac business to satisfy customer needs, and our own vision of creating a more sustainable business model through Designed for Life and circle to consumer initiatives. With that, I'll turn the call over to Donna to review our fourth quarter and full year financials and a few details related to our fiscal 2022 outlook. Donna Dellomo: Thank you, Jack. Good morning, everyone. I will begin my remarks with a review of our fourth quarter results and then provide a framework for how we are approaching fiscal 2022. The 40.7% increase in net sales to $129.7 million was driven by strong growth in our internet channel of 86.1% and the continuation of the strong rebound of our showroom channel of 28.4%. This was partially offset by a decrease in other sales of 18.7%. This decrease was primarily due to no Costco in store pop-ups during the fourth quarter of this fiscal year, as compared to 206 in the prior year’s fourth quarter related to ongoing vendor negotiations. And this was partially offset by three temporary online pop-ups on costco.com compared to two in the prior year fourth quarter. Total comparable sales, which includes internet channels, net sales and comparable showroom point of sales transactions increased 45% in the quarter as a result of an 86.1% increase in the internet channel net sales and 22.6% increase in comparable showroom sales. Please refer to our earnings press release for all of the details on our comparable sales performance. By product category, our sactional sales increased 48.8%, our sac sales increased 6% and our other category sales, which includes decorative pillows, blankets and other accessories increased 18.1%. The 890 basis point increase in gross margin over the prior year period reflects 508 basis points improvements in gross profit as a result of a reduction in promotional discounts, reduced inventory reserve levels, and lower product costs related to higher vendor negotiated tariff mitigation initiatives due to higher volume. Distribution expenses, including warehousing freight and tariff-related expenses also improved by 382 basis points over the prior year's quarter due to higher leverage on warehousing and freight costs including tariffs. We exceeded the fourth quarter gross margin expectations we shared with you on our last call, primarily driven by less promotional discounting. In addition, we also realized benefits from lower inventory reserve levels and additional vendor rebates, driven by higher volume partially offset by slightly higher freight and warehousing costs due to shift in timing of inventory receipts from prior quarter. The 30% year-over-year increase in SG&A was driven largely by increases in employment costs, increased expenses related to infrastructure improvements, increased credit card fees due to higher internet and showroom sales, increased equity compensation, increased rent associated with higher showroom count, and increased insurance expenses related to the growth of the company. These increases were partially offset by a decrease in, in-store pop up shop fees, due to no in-store pop up shops occurring in the fourth quarter, as well as a decrease in travel expenses as a result of COVID-19 related travel restrictions. SG&A expense as a percent of net sales decreased 230 basis points, primarily due to a decrease in selling related expenses related to in-store pop up shop fees, which were partially offset by temporary online pop-up fees and expense leverage in rent associated with our 108 showroom and travel expenses, partially offset by a deleverage in employment costs, equity-based compensation insurance and credit card fees related to the growth of the company. SG&A expense was lower than our expectations principally related to a delay in hiring to the level that was anticipated for the fourth quarter in both our headquarters and server locations. Our investments in advertising and marketing which benefit extended periods increased by $5.1 million or 60 basis points to 12% of net sales in the fourth quarter due to an increase in national media spend with a focus on holiday media, increase in direct to consumer programming and the continuation of running 15 second spots in our television advertising mix. Depreciation and amortization increased $70,000 from the prior year period to $1.6 million, principally related to capital investments for new and remodeled showrooms. In the fourth quarter of fiscal 2021, operating income was $21.8 million compared to an operating income of $5.3 million in the fourth quarter of last year, driven by the net sales and gross margin increase as well as SG&A leverage I just discussed. Our net interest expense for the fourth quarter was approximately $45,000, principally related to unused line fees on our revolving line of credit. Tax expense in the fourth quarters of fiscal 2021 and 2020 was not material and relates to minimum state income tax liabilities. Before we turn our attention to net income, net income per 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 today. Net income was $21.7 million, or $1.37 in diluted earnings per share in the fourth quarter of fiscal 2021 compared to net income of $5.4 million, or $0.37 diluted earnings per share in the fourth quarter of fiscal 2020. We generated positive adjusted EBITDA of $25.9 million as compared to an adjusted EBITDA of $8 million in the fourth quarter of last year. Turning to our balance sheet, our liquidity remained strong as we ended the fourth quarter with $78.3 million in cash and cash equivalents and $15.9 million in availability on our revolving line of credit with no outstanding debt on the revolver. Please refer to our earnings press release for details on our full fiscal 2021 financial performance. Regarding our outlook, we are still operating in a pandemic environment with a wide range of potential outcomes as it relates to fiscal 2022. Given this we're not providing formal outlook for the full year, but we'll share a framework that will be helpful as you're updating your models. We are targeting another year of strong sales growth with over 20 showroom openings and expect to restore expenses that were pulled back in fiscal 2021 due to this pandemic. We are also making infrastructure investments to support the substantial multi-year growth opportunity that lies ahead. In a scenario where sales growth is in the low to mid-20% range, we would expect gross margin rate to be in line with fiscal 2021 and Adjusted EBITDA rate to be in the mid-single digit range with the year-on-year margin rate decline driven by expense and investment dynamics just discussed. For our fiscal first quarter, which ends in a little over two weeks we expect sales growth of approximately 38%, slight gross margin rate improvement over the same quarter last year, and an adjusted EBITDA dollar loss in line with the same quarter last year, which is being driven by strategic expense reinstatements and infrastructure investments that were put on hold in fiscal 2021 as part of our COVID-19 financial resilience measures. We expect to generate cash from working capital in fiscal 2022, and we expect CapEx to be in the $13 million to $16 million range. So in conclusion, we had a very strong fourth quarter for both a net sales and profitability perspective and an unprecedented fiscal year having made significant strides across all areas of the business. We will continue to build on this progress in fiscal 2022 and beyond, as we position Lovesac for long term growth, generating value for all of our stakeholders. With that, we would now like to turn the call back to the operator who can open it up for questions. Operator? Operator: Thank you. At this time, we'll be conducting a question-and-answer session . Our first question comes from the line of Brian Nagel with Oppenheimer and Company. Please proceed with your question. Brian Nagel: Hi, good morning. Thanks for taking my question, or questions. So first off, congratulations on a great quarter. Great year. Nicely done. So the first question -- I just want to touch on gross margin. Another -- here in Q4, another extraordinarily impressive performance. So Donna, you gave some parameters for the outlook for Q1 and for all the current fiscal year. The question I have is as we look at the drivers in Q4 of that substantial gross margin increase and particularly, which you called out in the press release less promotions? I mean, how should we think about the sustainability of the various drivers? Donna Dellomo: Good morning, Brian. Yeah. So the fourth quarter, just as a quick reminder, that's between third and fourth quarter, are the other quarters that our volume rebates come in. Those were the quarters, principally the fourth quarter where we reevaluate inventory reserves. So there were some larger than anticipated benefits from being able to, I'll say, right size inventory reserves, as well as the benefit of, I guess, benefit of getting additional vendor rebates. But the things that we do see as sustainable going into the first quarter, second quarter and through the rest of the year, would be the decrease in our promotional discounting, which I'm sure Jack will talk a little bit more about, the higher products margin mix that we were able to benefit from, which is also sustainable going through this year. So those are the two biggest items going into first and second quarter, and third and fourth as well. So yeah, I would say those are the items and the limited guidance, or I guess, framework that we provided for fiscal 2022, is it's those benefits that are going to help us sustain the margins that we were able to realize in fiscal ‘21 going into 2022 for the full year, even as we have some headwinds with freight, which everybody is talking about. So the positive is that the initiatives that we have ongoing is what's going to help us mitigate those headwinds on the freight. So hopefully that answers your question. Brian Nagel: No, that's helpful. Then my second question, Shawn, you talked about the product launch again, but I guess, maybe just to understand clearly what the timing of that, I wasn't -- I didn't maybe I missed it in the comments. But also Shawn Nelson: Yeah, okay. Brian Nagel: So with regard to the guidance or the framework you gave for sales growth for the current year, what's in that -- how much is there an expectation of some type of performance of the new product? Sorry, Shawn go ahead. Shawn Nelson: Yeah, first of all, there's no expectation for the performance of the new product in our sales guidance for this year. We do expect to be able to announce and launch the product in the fiscal year. But we've been conservative with our outlook to that end. And so until we have a firm understanding of exactly when we'll be in an inventory position to support our expected sales, we will just put off the announcement of that product until that time, but we do expect should be in this fiscal year. Brian Nagel: Got it? Thank you. Congrats again. Donna Dellomo: Brian, the only thing I would add is, I just want to make sure that it's clear that, that scenario that we gave of 20% is not necessarily guidance. It's just something for you to build a framework around. So I just want to make sure that, that is clear. Brian Nagel: We hear you. Donna Dellomo: Okay, great. Operator: Thank you. Our next question comes from the line of Maria Ripps with Canaccord Genuity. Please proceed with your question. Maria Ripps : Great, congrats on strong numbers, and thanks for the questions. I wanted to go back to sort of gross margin expansion point, sort of more broadly, what do you see in consumer behavior, or maybe the competitive landscape now that's allowing you to discount a little less over the past couple of quarters? And then I have a quick follow up? Jack Krause : Sure, thanks. Thanks for the question. This is Jack, of course. A couple things, one is we're seeing a benign promotional environment. We've seen it, especially if you look at some of the more premium brands that target the types of customers we target are all stating a benign promotional background. We also are seeing significantly increased rates of conversion through our funnel. And I think that alludes to some high levels of stickiness and brand traction we're getting now. Beyond that, we can't tell you exactly what's going to happen in the second half, obviously. But we feel very good right now about the trajectory and the ROIs we're seeing. And we continue to also get gross margin improvements due to product mix and getting our quick ship fabrics sourced at higher margins, which has been critical to our business as well. So we still have a learning agenda. We have other opportunities to pull levers, if we see there are opportunities, and we'll keep you posted. Maria Ripps : Got it. That's very helpful. And then maybe on the advertising front, can you talk about sort of how you thinking about balancing national spend versus more localized approach, sort of targeting specific markets? And then more broadly, any thoughts around brand spending versus direct response as you're heading into 2022? And sort of in the past, you talked about sort of delivering higher advertising ROI in markets where you do have showrooms. Has that changed for you over the past year or so? Jack Krause : So a lot of questions in there. I'll start with the most recent one. So we are seeing significant impacts of touch points in driving our total revenue and our ROI. So the touch point strategy is as important as it's ever been. I think what the world right now challenges us to think about is how do you become more efficient in developing touch points where customers can experience the product, feel how good it is, and make the final decision. So we're continuing to see synergies from touch points versus continuing to see increased ROIs in markets that have more touch points. And in fact, if you really look at the year, on to your stack comps, you'll start to see a lot of strength growing overall in all the quarters. And it's really, when we see a significant lift in eCom, we'll see perhaps a little bit of a dip in the physical touch points, but it goes vice versa. So they're really supporting each other and more and more interdependent, especially as you think about the journey. The journey is just intertwined right now. So it's really hard to separate a digital versus physical journey. And I think the key will be how we get smarter about handling it in the long run. I think in terms of the way we're looking at our markets, we certainly look at our markets in terms of ROI by market and efficiency and we apply that the national spend is incredibly efficient and continues to allow us to get a breadth of communication we need to. However we are seeing increased levels of digital spends being very effective in markets as we focus on expanding those markets. So I think what you'll see is a continued mix of national and digital or synergistic as well. So obviously, the more national spends are the top of the funnel. And as we get into the middle of the funnel those digital spends really help us nail it. And right now, while we're seeing an increase in overall cost at the national level in media, I think because the economy's coming back, the brand's stickiness and the efforts at the digital level are increasing our conversion rates. So we really see sort of a continued positive in our ROIs based on looking at the combination of the national versus local spends. Operator: Thank you. Our next question comes from the line of Thomas Forte with D.A. Davidson. Please proceed with your question. Thomas Forte: Great, thanks for taking my questions. So one question and one follow up. So Shawn, at a high level, what's your goal for the pace of innovation, including major and minor innovation? And then what role does the showroom play when it comes to showcasing new products to consumers? Shawn Nelson: Yeah, our pace for innovation hasn't changed. Our goal is for roughly every couple years to be able to put out something major. And in between continue with minor innovation, that incremental innovation that allows us to increase our average order value, allows us to continue to make the platform more sticky, more interesting, more competitive and the landscape. Nothing's changed there. We will obviously begin our major innovation rollouts as a public company with the one that we continue to talk about for this year. And we'll be back with more news on that once we have a firm grasp of the timing. But again, expecting that this year. In terms of the showrooms role in putting these out there, that's really our whole strategy. We invent things. The things that we invent through this Designed for Life approach to product design are very unique. And even though they're meant to look like the things we're familiar with and sactionals is the best example of that looks like a sactional sofa performs very, very differently and requires some hands on understanding. Showrooms and touch points is probably a better word as Jack alluded to. And if you heard some of the things that he talked about, we have a lot of new touch point tactics emerging that will be very exciting and allow us to bring other things to market as they unfold. Thomas Forte: Excellent. All right, so for my follow up question, I want to hear Shawn, your current thoughts on international expansion, including, the opportunity to enter English speaking markets like Canada , the UK with either a Lovesac showroom model, or potentially a shop in shop one, or the Costco warehouse opportunity? Shawn Nelson: Great question. It's something we continue to be excited about. It's something that we continue to research. And it's something that we are not prepared to announce our exact intentions other than to say it will happen someday. We have products that we think can resonate in many other markets. We have patents for many of these products, filed and issued all around the world. And we continue to issue more patents internationally as well, in preparation for that, but nothing to announce yet. Thomas Forte: Great, thanks for taking my questions. Operator: Thank you. Our next question comes from the line of Camilo Lyon with BTIG. Please proceed with your question. Camilo Lyon: Thank you all and my congrats on the fantastic close to a great year. The first question, I have Shawn or Jack, maybe if you can help us understand where you think the brand is in terms of consumer awareness and recognition? And I ask this within the context of now a couple of quarters -- consecutive quarters of putting up marketing that is generating better ROIs with seemingly not as much needed investment. So is the brand at a tipping point where consumers are coming to you without that teaser from the marketing advertising perspective? Shawn Nelson: It's a great question. I mean, there have been so many dynamics going on this year and some bad and some tailwinds. One would like to say the stickiness of the brand is starting to appear in terms of increased conversion rates. Awareness rates maybe slightly going up but not significant. However, this is a category that has generally speaking low awareness levels for products. And so people are engaged. So we'll have to really watch that as well. But I think there is some stickiness. I think the conversion rates reveal that and more to come. Camilo Lyon: Great. And along that front, also in the context of the overall commentary around increased investments, or return of postponed investments, what is the balance that we should think about with respect to investment and even margin flow through? In other words, should you see an improvement to the kind of the architecture or the outline that you provided from a sales perspective of, I think, low to mid 20s? Should you exceed that? Will you reinvest further? Or will you let that drop to the bottom line? What's the mentality around flow through, given that you've got multi multiple years of investments, longer term growth opportunities in front of you? Donna Dellomo: I can grab that one. Yeah, so our goal is to continue to reinvest, right. The goal is to -- we put a substantial amount of investments on hold last year for all the right reasons. So our goal would be to, if we surpass our internal projections, they will be to reinvest back into the business Camilo Lyon: Got it, and then Donna one more for you, just on gross margin, and more specifically on tariffs. Can you just update us on where you are in the mitigation efforts? Have you fully sold through the tariff affected inventory? Or is there still some drag that we should expect to see? And is that being fully mitigated by the rebates that you're receiving from your vendor partners? And then just final point on that is, where is the East Coast DC, at right now from operational capacity perspective? Is that now fully up and running? Donna Dellomo: I'll take the East Coast first. Yeah, so that is fully up and operational. It's a magnificent facility for us. Over it's about 800,000 square feet. But it is -- it's fully operational. As far as the tariffs, we still have inventory coming in, that is impacted by tariffs. As we -- I would say that we level out our supply chain overseas, we still have inventory that's coming in. And I would expect us to continue to have inventory come in from China. So to have a portion of our inventory that is impacted by tariffs until tariffs fully go away. As far as the mitigation, I wouldn't say that they're fully mitigated by vendor rebates and pricing discounts. But there is a big portion of them that -- a big portion of that that is being mitigated. But also the help, or I guess, with the decrease in promotional discounting, that's helping to mitigate the tariff impact as well. So overall, we still will continue to bring inventory in from China. And as long as China has the tariffs, we will be impacted by tariffs. Camilo Lyon: Got it. Very helpful. Thank you, and good luck this year. Donna Dellomo: Thank you. Operator: Thank you. Our next question comes from the line of Matt Koranda with ROTH Capital Partners. Please proceed with your question. Matt Koranda : Hey, guys, thanks for taking the questions. Just in the context of the low to mid 20% framework that you guys provided, curious if you could maybe help us with how we should be thinking about AOV growth in fiscal planning too. I know Jack said, I think up 11% this last year. And then also be helpful to understand sort of what we are assuming in terms of contribution from the other revenue line. I noticed that you mentioned a 15 store expansion with Best Buy. So how much of that would be factored into the theoretical outlook that you guys gave? Shawn Nelson: You want to give that -- cover that one? Donna Dellomo: Yes, I can. You can grab the AOV one, I'll grab the contribution. So again, that's the 20, mid-20 is just a framework rate? It's not meant to be guidance. But we are not in our internal projections, we're considering the Best Buy expansion as an upside to our internal models. So that the 15 or so Best Buy shop in shops that Jack mentioned, again is an upside to our internal projections. So we're operating on internal projections on our own showroom expansion, as well as the expanded Costco online. We'll call them temporary roadshows that are happening. So again, that's all -- that would be all upside to the framework that we provided. Matt Koranda : Okay, got it. And then on the AOVs, maybe Jack. Jack Krause : AOV, I would say, there may be some growth in AOV, but it won't be as robust, as you saw last year. And that really depends too on some of these other initiatives if they get activated or not. So as we go throughout the year, I think we'll be able to give you more insights on how that works through. Matt Koranda : Okay, got it. And then on the CLV to CAC, and I mean, I noticed, obviously, you guys haven't changed much. But underneath that, I assume there are some substantial changes, potentially, with CAC, just given the marketing spend from this last year, and sort of maybe the return on that CAC that you're getting. So maybe just wanted to give you the opportunity to kind of unpack that a bit and talk a little bit more about sort of the changes underneath the CLV and CAC ratio that you gave? Jack Krause : Yeah, I mean, it was basically flat. So what we saw was a customer acquisition cost that did go up and it went up similar to the value that we sell for the first year customer value going up. So it's continuing to be really impressive. And there is obviously in that kind of level, there's a lot of room for expansion. A lot of companies will go with a significantly lower CLV to CAC, as you know. So we have a lot of room for expansion. And I would say right now, based on what we're seeing with conversion rates and everything else, and some of this belief that the brand may getting be getting stickier that I don't see we see any significant challenges to a ratio like that in the upcoming year? Operator: Thank you. Our next question comes from the line of Alex Fuhrman with Craig-Hallum Capital Group. Please proceed with your question. Alex Fuhrman : Great, thanks very much for taking my question. And congratulations on your goal also to achieve a 100% circular and sustainable business model. Wanted to ask a little bit more about that. It seems like a pretty ambitious goal. Can you talk about some of the investments that you're going to need to make between now and 2040 to get to that goal of zero waste in emissions? And what are some of the kind of internal sort of targets and metrics you are going to have along the way as you kind of move towards that goal? Shawn Nelson: Great questions, appreciate the focus. It's something that we are passionate about and focused on and perhaps I hope, passionate about in a different way than some companies. We've found that the Designed for Life philosophy in the way that we design products, has not just been a nice thing that generates more sustainable products and makes us feel good. We've found that positioned correctly, it is the basis for the value of our products. It's what drives the stickiness of our brand. It's what drives a lot of consumer, I think excitement around our around our brand and drive sales. And therefore the sustainable business model becomes good business. The same will be true we believe for CTC, a business model that is not just focused on sustainability, but focused on a circular relationship with the customer where they have a real relationship with our firm, the things they buy, and the way that we deliver it to them, the way that we interact with them becomes not just again, in pursuit of sustainability and ESG goals, but a real relationship that becomes more fruitful and again is really great for business. That said there are many components to a circular business model, is very ambitious goal. We recognize that and there will be myriad investments to make over the next 19 years as we approach getting to zero waste and zero emission. So I don't think there's time on this call to possibly list them all but I will say we'll begin with the business model as we develop these programs that will allow us to help consumers trade our product amongst themselves in productive ways, help take back our trade-in products as they upgrade it. For instance, as we launched a storage seat, a good example, people's question was, hey, I've got regular seats, might I be able to trade them in? The obvious answer for a circular business will be yes. And we will obviously be able to redeploy those. That's an -- these, it's the operational components of the business that we will be focused on that will actually drive, we believe more goodwill for our brand and more business. And those investments will come first, as we attempt to get to zero waste and zero emissions, there will be many more on the -- obviously the supply chain side, the manufacturing side. It's an entire business model. That's why we've given ourselves so much time. Our goal is not to be complacent, but instead to really approach it holistically. And we think in a way we're really excited about where that's going to come in, because we've committed to growing profitably and continuing to grow rapidly, we'll need the time to spread those investments out over a long period of time. Alex Fuhrman : That's terrific. Thanks very much, Shawn. Jack Krause : And just to add a little bit to that, I think as we have this knowledge of our strategy long term in terms of CTC, and as we start to really look at sharpening our business model, having that vision is allowing us to do things significantly earlier than we would have and consider our options in a wider view. For example, I'll just throw this out there. Without --in the absence of a CTC approach, a concierge may only be considered a selling tool. In the context of what we're trying to do, it could become a post-purchase tool in terms of trade ins, in terms of cover swap switch outs, in terms of refurbing. So it becomes a really interesting approach as we apply to all the levers we're trying to test right now and finding some very interesting ideas in there. So a lot more to come. But that's an example of how this will drive our real operating business forward. And we believe we can do it and continue to be profitable, but also be more and more impactful on the environment we're in. Alex Fuhrman : Thanks, Jack. Operator: Thank you. Our final question this morning comes from the line of Lamont Williams with Stifel. Please proceed with your question. Lamont Williams: Hi, good morning. Just had a quick question on inventory. Could you just talk a little bit about how you're feeling about your current inventory position for sactionals and sac, given the strong demand you're seeing, as well as the supply chain headwinds that are impacting the industry? Jack Krause : Yeah, I'll start a little bit of that, Donna, and you can probably finish. I think one of the things we're super pleased about is the promotional environment being softer than we expected prior to the year in our ordering. So it's allowed us to be very efficient in terms of driving revenue, with less units going out than originally expected. So I think that's going to help us in supply chain. And I think we've been very aggressive in terms of the team ordering early for the end of the year volume. So we will be increasing inventory, I think at rates that help us with expectations, in probably, four to six weeks of delays in one way or another throughout the supply chain, will be covered by us ordering early. And I think the other thing that Donna mentioned is some of those tariffs still coming out of China are part of an overall strategy where we have a lot of sources right now working, a lot of redundancy, which is really helping us feel pretty good about how we can fulfill the expectations on the series six business. Donna Dellomo: Yeah. Okay. And we are definitely strategically placed. I think I've mentioned on a couple of calls that we typically maintain a 12 to 16 week in stock inventory position. So we're really strong on our inventory levels. We will continue to be where we've got the warehousing. Everything is aligned to make sure that we are mitigating whatever we see coming down the pike. So very strong processes internal, internally around the inventory and all positions. Lamont Williams: Okay, great. Thank you. That's helpful. Operator: Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Nelson for any final comments. Shawn Nelson: Thank you so much to all of our Lovesac employees and investors who have supported us through this tumultuous year. We're very pleased with our results and excited to continue the conversation as this new fiscal year unfolds. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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Lovesac Co. Price Target Update and Q1 Fiscal 2025 Performance Review

  • Thomas Forte of D.A. Davidson has updated the price target for The Lovesac Co. to $32, indicating a potential increase of about 21.86%.
  • Lovesac reported net sales of $132.6 million for Q1 of fiscal year 2025, reflecting a strong start and aligning with the company's yearly expectations.
  • The company's strategic initiatives, including the launch of the PillowSac Accent Chair, highlight Lovesac's commitment to innovation and market expansion.

Thomas Forte of D.A. Davidson recently updated the price target for The Lovesac Co. (NASDAQ:LOVE) to $32, suggesting a potential increase of about 21.86% from its current trading price of $26.26. This adjustment reflects a positive outlook on the company's future performance and market position. Lovesac, known for its innovative home furnishing products like the adaptable Sactionals and the newly launched PillowSac Accent Chair, has made significant strides in the home furnishing industry, setting itself apart from competitors with its unique offerings and business model.

The Lovesac Company, headquartered in Stamford, Connecticut, reported net sales of $132.6 million for the first quarter of fiscal year 2025, ending May 5, 2024. This performance aligns with the company's expectations for the year, indicating a strong start to the fiscal period. The announcement, made on June 13, 2024, underscores the company's robust financial health and its ability to maintain growth momentum in a competitive market.

CEO Shawn Nelson's remarks on the company's Q1 performance highlight Lovesac's strategic advantages, including its omni-channel infinity flywheel and supply chain, which are pivotal for its sustained success. Nelson's satisfaction with the quarterly results and the strategic positioning of Lovesac's product offerings and operational capabilities suggest a confident outlook for the company's future. The introduction of the PillowSac Accent Chair is a testament to Lovesac's commitment to expanding its product line and catering to evolving consumer preferences.

The stock performance of Lovesac, with a current trading price of $26.26 and a market capitalization of around $406.76 million, reflects investor confidence in the company's growth trajectory. The stock's movement, with a year's range between $14.18 and $29.81, and a trading volume of 662,562 shares, indicates active market engagement and investor interest in Lovesac's business model and growth prospects.

In summary, the revised price target by Thomas Forte of D.A. Davidson, coupled with Lovesac's strong Q1 fiscal 2025 performance and strategic initiatives, paints a promising picture for the company. Lovesac's focus on innovation, strategic market positioning, and expanding its product offerings positions it well for future success and justifies the optimistic outlook from analysts and investors alike.

The Lovesac Company Prepares for Q1 Fiscal 2025 Earnings Report Amid Market Challenges

  • The Lovesac Company is set to announce its Q1 fiscal 2025 earnings, with analysts expecting an EPS of -$0.99 and revenue of $128.07 million.
  • Despite a challenging market, Lovesac has historically surpassed earnings expectations in three of the last four quarters, with an average surprise of 25.6%.
  • Investors are closely watching Lovesac's financial metrics, including a P/E ratio of approximately 16.17 and a current ratio of about 2.02, for signs of stability and growth potential.

The Lovesac Company (NASDAQ:LOVE), known for its innovative furniture designs, including its flagship product, the Sactional, is on the brink of revealing its first-quarter fiscal 2025 earnings. Scheduled for Thursday, June 13, 2024, before the market opens, the company faces a critical moment as Wall Street anticipates its performance. Analysts have set the earnings per share (EPS) expectation at -$0.99, with projected revenue of around $128.07 million for the period. This forecast comes at a time when the demand for home furnishings has seen a downturn, potentially impacting Lovesac's financial outcomes.

In the previous quarter, Lovesac reported an EPS of $1.87, which did not meet the Zacks Consensus Estimate by 6 cents and also represented a decline from the year-ago figure of 55 cents. Despite this, the company managed to achieve a year-over-year increase in net sales of 5%. This mixed performance underscores the challenges Lovesac faces in maintaining growth amidst fluctuating market demands. The upcoming earnings report is particularly significant, as it reflects not only the company's ability to navigate these challenges but also its resilience in a competitive home furnishings market.

Analysts have maintained a steady consensus estimate for Lovesac's fiscal first-quarter loss per share at 99 cents over the past 30 days. This consistency in expectations, despite a significant anticipated increase in losses compared to the 28 cents loss per share reported in the year-ago period, suggests that analysts have a stable view of Lovesac's financial health. The company has historically surpassed earnings expectations in three of the last four quarters, with an average surprise of 25.6%, highlighting its potential to outperform amidst adversity.

The unchanged consensus EPS estimate ahead of the earnings release is a critical indicator for investors, as it reflects the collective reassessment of Lovesac's financial outlook by analysts. Such stability in earnings estimates, especially when facing a projected downturn, can influence investor sentiment and stock price movements. As Lovesac prepares to unveil its quarterly results, stakeholders are keenly awaiting insights that could shed light on the company's strategic direction and its impact on future earnings potential.

Given the anticipated decline in both earnings and revenues for the quarter ending April 2024, Lovesac's upcoming earnings call is poised to be a pivotal event. It offers an opportunity for the company to address investor concerns, outline strategies for navigating the current market landscape, and potentially influence its stock's trajectory. With a keen eye on Lovesac's financial metrics, such as its price-to-earnings (P/E) ratio of approximately 16.17 and a healthy liquidity position indicated by a current ratio of about 2.02, investors are looking for signs of stability and growth potential in a challenging economic environment.

The Lovesac Company Shares Continue the Rally Following Strong Q3 Results

The Lovesac Company (NASDAQ:LOVE) shares closed more than 5% higher today following yesterday’s rally, which was driven by the company’s reported Q3 results. Quarterly EPS come in at $0.17, beating the consensus estimate of ($0.40). The company impressed with seemingly strengthening underlying topline expansion and efforts of senior leadership to manage well supply chain disruptions, so as to preserve profitability and continue to successfully expand the company’s standing with core consumers.