Lovesac Q4 2025 Earnings Report

Lovesac EPS Results

• Actual EPS: $2.13
• Consensus EPS: $1.80
• Beat/Miss: Beat by +$0.33
• One Year Ago EPS: $1.87

Lovesac Revenue Results

• Actual Revenue: $241.50 million
• Expected Revenue: $230.33 million
• Beat/Miss: Beat by +$11.17 million
• YoY Revenue Growth: -3.60%

Lovesac Announcement Details

• Quarter: Q4 2025
• Date: 4/10/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, April 10, 2025
• Conference Call Time: 8:30AM ET

Lovesac (NASDAQ:LOVE) designs, manufactures, and sells furniture. It offers sactionals, such as seats and sides; sacs, including foam beanbag chairs; and other products comprising drink holders, footsac blankets, decorative pillows, fitted seat tables, and ottomans. The company markets its products primarily through www.lovesac.com website, as well as showrooms at top tier malls, lifestyle centers, mobile concierges, kiosks, and street locations in 41 states in the United States; and in store pop-up- shops and shop-in-shops, and barter inventory transactions. The Lovesac Company was founded in 1995 and is based in Stamford, Connecticut.

Lovesac Q4 2025 Earnings Call Transcript

Presentation

[Mary Fox, President & COO at The Lovesac Company]

Against the grind culture of today, leaving anyone who sees it yearning to recline in a love sack. It was developed to be social first, leveraging influencers and content creators to exponentially grow awareness. It worked. Nearly 5,000,000,000 earned impressions and counting, and this is a great example of where Lovesac sits at the center of cultural trends. We also had a very cool collaboration with mister beast, the ultimate YouTuber, on his last to leave the circle wins $1,000,000 video challenge.

[Mary Fox, President & COO at The Lovesac Company]

A hundred Lovesac movie facts starred in this series that had more than 97,000,000 views and counting. You can expect to see even more of these groundbreaking ideas as Heidi joins our team, so stay tuned. Second is our digital configurations and how we bring Lovesac to life online. We've invested significantly in our digital experience, including the replatforming of our website to increase online conversion, customer satisfaction, and enhance our SEO efforts. We also reimagine the customer experience through MyHub, furthering our goal of creating a frictionless omnichannel experience and enabling a more purposeful approach to driving repeat customer purchases.

[Mary Fox, President & COO at The Lovesac Company]

It's also working with recliner repeat sales at nearly 40% of Sactional sales to date. These platform investments have also set us up to launch EverCouch. I'll note we aren't simply recreating the Sactionals experience online, but have reimagined 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 to maximum effect. 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, President & COO at The Lovesac Company]

Third is our showroom experience, the physical brand amplifiers of our Design for Life products, the linchpin of our omnichannel model. It's an efficient use of capital to provide convenient accessibility to customers looking to experience Lovesac in real life. 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 conversion, as I mentioned earlier, but also created the pathway for new product innovations such as the recliner. Entering fiscal twenty twenty six, we just launched a new performance based compensation model for our field teams that retains the spirits of the customer experience but also provides strong incentives for high performance.

[Mary Fox, President & COO at The Lovesac Company]

And finally, complementing our showroom experience is our partnership model with Costco being a great example. With Costco's more than a 20,000,000 members, our roadshow model allows us to activate pop ups in their clubs while owning a % of the customer data and relationship. We'll continue to expand our assortment with Costco this year and have already added in Stealth Tech and Pillow Sac accent chair. We plan a 15% increase in road shows over last year, further demonstrating our unique ability to sell large premium products in approximately a hundred square feet. When combined, these four elements of our customer acquisition engines create an unmatched customer experience that drives brand love.

[Mary Fox, President & COO at The Lovesac Company]

In fact, in fiscal twenty twenty five, we recorded our highest customer satisfaction scores ever. We're planning to reinforce this further by launching customer facing services. Following internal resell and trade in tests throughout fiscal twenty twenty five, we expect to launch customer facing pilots for both programs in select markets later this year. Our data shows that these programs really highlight our commitment to design for life principles and reinforce the long term value of our customers' investment. Nearly as important to sustain profitable growth over the long term are our growth enablers.

[Mary Fox, President & COO at The Lovesac Company]

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. In fiscal twenty twenty five, 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 twenty six. As a result, we delivered healthy gross margin expansion of 120 basis points in fiscal twenty twenty five, achieving a nearly 59% gross margin rate for this year. Having reduced our exposure to spot market rates by more than 95%, we entered fiscal twenty six in a great position, which brings us to the recent news on tariffs.

[Mary Fox, President & COO at The Lovesac Company]

Let's start with some contextual information. We have 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. Prior to the recent news, our country of origin estimates for fiscal twenty six were Vietnam, about 50%, Malaysia, about 28%, China down to 13%, and Indonesia, about 6%. We are actively continuing this effort with numerous options for additional diversification, including new geographies and are working to get China to be under 10% of the total. As we learn more in the coming weeks, we will adjust accordingly and have deployed task forces to accelerate mitigating actions.

[Mary Fox, President & COO at The Lovesac Company]

As Keith will outline momentarily, we enter fiscal twenty six 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 tariff scenarios, but we need to be careful not to implement these in a knee jerk manner that could confuse our customers and damage the brand. 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. 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 relatively smaller. We believe we have the ability to selectively take price increases due to the strength of our brand and the unique and compelling nature of our Design for Life products that are loved by many.

[Mary Fox, President & COO at The Lovesac Company]

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 our Design for Life principles and operational model is to inspire humankind to buy better so you can buy less. This updated report shows continued progress towards our goals, including our commitment to zero waste, zero emissions by 2040. We're proud to have diverted countless thousands of couches from manfills. We're proud to have passed the 300,000,000 milestone in fiscal twenty five for recycled plastic bottles used in our fabric and so much more.

[Mary Fox, President & COO at The Lovesac Company]

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, Executive VP & CFO at The Lovesac Company]

Thanks, Mary. Before we begin, I wanna thank everyone who attended our inaugural Investor Day, whether in person, virtually, or even after the fact through the presentation, which remains available on our website. We hope it was clear how unique Lovesac is, unique in brand, unique in business model, and unique in secular growth opportunity, powered by continued market share gains in our existing categories as well as expansion into new product platforms, which begins next quarter with EverCouch. Sean and Mary already discussed factors that made fiscal twenty five such an important year for Lovesac, so let's jump right into a quick review of the numbers and our outlook. As a reminder, the fourth quarter of fiscal twenty four included a fourteenth week, representing the fifty third week in the prior year.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

Revenues were 680,600,000.0 for the year, which were down from 700,300,000.0 the prior year, owing to category headwinds of approximately 9% for the year, but we're slightly above the latest range of guidance we provided in December. Gross margin was nearly 59%, a solid level that provides options for navigating the current macro conditions. Net income of $11,600,000 was down from fiscal twenty four owing to the lower revenues, but still supported positive free cash flow for the year and a healthy cash balance that I'll speak more about in a couple minutes. Moving on to the fourth quarter, please note that all performance metric references to the fourth quarter refer to fiscal twenty five unless otherwise noted. Net sales decreased $9,000,000 or 3.6% to $241,500,000 in the fourth quarter compared to the prior year.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

Showroom net sales decreased $2,400,000 or 1.6% to $154,500,000 in the fourth quarter compared to the prior year period, 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. Internet net sales decreased 7,600,000.0 or 9.7% to 70,500,000.0 in the fourth quarter compared to the prior year period. Other net sales, which include pop up shop shop in shop and open box inventory transactions, increased 1,000,000 or 6.7% to 16,500,000.0 in the fourth quarter compared to the prior year period due to higher productivity of our temporary online pop up shops on costco.com. There were no open box inventory transactions in the fourth quarter compared to 2,900,000.0 in the prior year period. By product category, in the fourth quarter, our Sactional net sales decreased 3.8%, SAC net sales decreased 3%, and our other net sales, which include decorative pillows, blankets and accessories, increased 2.7% over the prior year period.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

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, partially offset by a decrease of 50 basis points in product margin driven by higher promotional discounting. SG and A expense as a percent of net sales was 28% in the fourth quarter versus 30.5% in the prior year period. The decreased percentage is primarily related to lower credit card fees, professional fees, rent, utilities, and other overhead costs. The decrease in selling, general, and administrative expense dollars was primarily related to a decrease of 3,800,000.0 in credit card fees, 1,500,000.0 in professional fees, 700,000.0 in rent, 700,000.0 in utilities, and $2,700,000 in other overhead costs, partially offset by increases of $500,000 in payroll and $200,000 in equity based compensation. Rent decreased 700,000.0 related to a $1,100,000 reduction in percentage rent, partially offset by a $400,000 increase in rent expense from our net addition of 27 showrooms.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

We estimate nonrecurring incremental fees associated with the restatement of prior period financials were approximately $500,000 in the fourth quarter. Advertising and marketing expenses decreased 2,700,000 or 9.2% to $26,800,000 for the fourth quarter compared to the prior year period. 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. Operating income for the quarter was $47,600,000 compared to $40,400,000 in the fourth quarter of last year, driven by the factors we just discussed. Before we turn our attention to net income, net income per diluted 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 this morning.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

Net income for the quarter was $35,300,000 or $2.13 per diluted share compared to $31,000,000 or $1.87 per diluted share in the prior year period. During the fourth quarter, we recorded an income tax provision of $13,000,000 as compared to $10,200,000 in the prior year period. Adjusted EBITDA for the quarter was $53,900,000 as compared to $48,400,000 in the prior year period. 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, Executive VP & CFO at The Lovesac Company]

We reported $83,700,000 in cash and cash equivalents, roughly similar to the prior year, while retaining 33,000,000 committed availability and no borrowings on our recently amended credit facility. This healthy cash position occurred despite two factors that highlight our flexibility. First, our total merchandise inventory levels were up 26% versus the prior year to 124,300,000.0. 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 wildcards related to tariffs or other supply chain disruptions. Second, during the quarter, we repurchased approximately 646,000 shares of our common stock at an average price of $25.51 for approximately $16,500,000 thereby bringing our total repurchases for the fiscal year to $19,900,000 We have approximately $20,100,000 remaining under our existing share repurchase 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, Executive VP & CFO at The Lovesac Company]

Please refer to our earnings release for other details on our fourth quarter financial performance. Now for our outlook. The category has 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. 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, Executive VP & CFO at The Lovesac Company]

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. As Mary outlined, we have many arrows in our quiver with respect to managing tariff impact above and beyond the approximate $10,000,000 of tariff we had already included in our full year outlook under the old tariff regime. We're actively pursuing some combination of all of those options at our disposal. Additionally, we have many secular tailwinds helping counter the category outlook and providing optimism, ranging from annualization of fiscal twenty five major product launches, a February launch of EverCouch, a reboot of our marketing strategies under new leadership, growth in physical showrooms, new tools for relationship management, and more. So let's start with the fiscal first quarter since we anticipate minimal impact from the recent tariff headlines.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

We estimate net sales of 136 to 142,000,000, representing mid single digit revenue growth at the midpoint. We expect adjusted EBITDA loss between 8,000,000 and $12,000,000 This includes gross margins of approximately 54.5%, advertising and marketing of 13.5% as a percent of net sales, and SG and A of approximately 50% as a percent of net sales. We estimate net loss to be between $10,000,000 and $13,000,000 We estimate basic loss per common share to be $0.66 to $0.85 with 14,800,000.0 weighted average shares outstanding. For the full year fiscal exclude any incremental impact from recent tariff updates above and beyond those present under the old tariff regime. We estimate net sales of 700,000,000 to $750,000,000 We expect adjusted EBITDA between 48 and 60,000,000.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

This includes gross margins of approximately 59%, advertising and marketing of approximately 12 and a half percent as a percent of net sales, and SG and A of approximately 41% as a percent of net sales. We estimate net income to be between 13,000,000 and $22,000,000 We estimate diluted income per common share in the range of $0.80 to 1.36 and approximately 16,300,000.0 diluted weighted average shares outstanding. In summary, stabilization of the category and an eventual return to category growth are ahead of us even if that timing is unclear at the moment. 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.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

We're building the Lovesac brand and investing in new product innovation that spans style, function, and new categories that supports a powerful multiyear secular growth outlook with macro upside exposure as icing on the cake. I'll now turn the call back to the operator to start our Q and A session.

[Operator]

Thank you. We'll now be conducting a question and answer session. And a confirmation tone indicate your line is in the question queue. You may press 2 if you like to withdraw your question from the queue. For participants who are using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

[Operator]

One moment, please, while we poll for questions. Thank you. Our first question today comes from the line of Maria Ripps with Canaccord Genuity. Please proceed with your question.

[Maria Ripps, Managing Director, Senior Research Analyst at Canaccord Genuity Inc]

Great. Good morning, and thanks for taking my questions. First, sort of understanding the situation is very fluid here, but is there any color maybe you can share around how you're thinking through your inventory strategy here given the ninety day tariff delay? I know you brought your inventory levels up in the end of the quarter, but how much of sort of inventory you're planning to pull forward from sort of countries outside of China maybe over the next over the next couple of months?

[Mary Fox, President & COO at The Lovesac Company]

Hey. Good good morning. Good morning for the question. Yeah. So, obviously, we said, we had built up from our industry across all of our product lines.

[Mary Fox, President & COO at The Lovesac Company]

So we feel very good in terms of our position. The teams are actively working right now. And since last week, have to speak to one of the across countries. And I think one of the great of our supply chain is we have full redundancy of all of our products. So they are working that through, and, you know, we feel good in terms of where the plans are.

[Mary Fox, President & COO at The Lovesac Company]

And, obviously, with the news yesterday, we're really pushing through on, obviously, the most dominant countries that we source from, which are Malaysia and Vietnam as an example, to ensure that we continue to stay in stock. We have great inventory levels, but also, obviously, managing the headwinds that just recently came into bear from last week.

[Maria Ripps, Managing Director, Senior Research Analyst at Canaccord Genuity Inc]

Got it. That's that's very helpful, Mary. And then secondly, is there anything you can share sort of around consumer behavior here sort of more recently, maybe in February and and more so in March, just given all the macro data points that we've been getting? Like, are you seeing any maybe softening in consumer spending here in the near term, I guess?

[Mary Fox, President & COO at The Lovesac Company]

Yeah. No. Thank you. We you the key key steps in terms of on the guidance. You know, we feel good in terms of performance quarter to date.

[Mary Fox, President & COO at The Lovesac Company]

From February that continued through to today. So, you know, we see pretty much stable performance from our customers in terms of whether it be piece counts, in terms of, you know, whether they're trading up. We have seen a little bit quieter between key promotions and then being stronger during events. And then, obviously, you know, we continue to see the quote conversion progress that we made through quarter four as well. So too early to say in terms of even just some of the more recent news and any changes, but really nothing that has changed to call out for it.

[Maria Ripps, Managing Director, Senior Research Analyst at Canaccord Genuity Inc]

Got it. That's helpful. Thank you very much for the color.

[Operator]

Our next question is from the line of Matt Koranda with Roth Capital Partners. Please proceed with your question.

[Matthew Koranda, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Hey, guys. Good morning. Just wanted to see if maybe you could confirm for me. It it looks like the midpoint of the the q one range might incorporate the assumption of positive omnichannel comps. So just wanted to see if Keith could maybe unpack that.

[Matthew Koranda, MD & Senior Research Analyst at Roth Capital Partners, LLC]

And then just quarter to date, it sounded like, Mary, you said February was strong, but I think that's against a relatively easy comp from last year. So maybe just talk about the trends you saw into March and April. And then lastly, just if you could maybe talk about sort of I know it's really early and the sample size is small, but any consumer reaction function to sort of the liberation day announcements in terms of trends you saw over the last week.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

Sure thing. Thanks. I'll start off with the with the first two parts of that, Matt, and then and then kick it over to Mary. So, you know, if you look back to recent trends, you could see pretty clearly that we we've been doing between 506 basis points of growth coming from the non new and non comp. So one thing that's a little different is in fiscal twenty five, so last year, we had a heavily first quarter weighted, new showroom opening cadence.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

This year, we're gonna be a little bit more balanced through the year, a little less weight on q one. So we might be slightly below that five to 6% contribution from new and non comp. So when you think about, you know, the growth rate that we're implying for the first quarter, I think your assumption for flat to slightly positive. Depending on where we are in that range is definitely a possibility. You know, one thing I'm gonna talk about just a little bit with the quarter and the progress to date that does make this a little bit noisy and why I'd really, like, urge you to focus on that quarter in entirety is if you recall in the first month of fiscal twenty five, we had some volatility related to a promotional strategy miss and dislocations from switching media agencies.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

So there's a lot of noise in our year over year growth rates in in the first month. 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, you know, at the levels of growth that we're talking about for q one. So hopefully, gives you a little bit of context.

[Mary Fox, President & COO at The Lovesac Company]

Yeah. And I think, Matt, just to add to your your other question, I think Keith covered kind of quarter to date. I think in terms of any consumer reactions, you know, last week's a quite a week for us. So I think we really need to hold as we build through to the Easter event, 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.

[Mary Fox, President & COO at The Lovesac Company]

So looking forward to Easter and closing out the quarter.

[Matthew Koranda, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Okay. 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 ninety days. How should we think about Lovesac's ability to take price increases? What would those come in the form of?

[Matthew Koranda, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Would that come in the form of a a list price increase, and we should expect the same sort of steady promotional, cadence that you guys have been on? Just wanted to to hear sort of your latest thoughts about how you sort of mitigate some of the tariff risks beyond just the the change in vendor sourcing.

[Mary Fox, President & COO at The Lovesac Company]

Yeah. No. Thank you for the question. I think, you know, obviously, the team are working very hard with some vendors on concessions because that's the key element that can really help us in terms of sustaining some of the impact. I think the second piece, obviously, Keith shared with our structurally higher gross margins than many other competitors, it really means that the effective surgical price increases we'd need to take are much smaller.

[Mary Fox, President & COO at The Lovesac Company]

So as we really work through, you know, we've taken price, before January and seen a lot of success with that without any impact around demand. So, we 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 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 on MSRP between 510% just in February and early March.

[Mary Fox, President & COO at The Lovesac Company]

And this is obviously done well in advance of the latest news on the tariff increases from last week. So we see, you know, opportunity, you know, they've already risen, that we can actually be able to, you know, execute effectively, not impact demand, and continue to stay very strong to, you know, our customer value. 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 shop us with anyone else. 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 be finalized before we execute anything.

[Matthew Koranda, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Okay. Appreciate it. I'll turn it over, guys. Thanks.

[Operator]

Our next questions come from the line of Thomas Forte with Maxim Group. Please proceed with your questions.

[Tom Forte, Managing Director & Senior Consumer Internet Analyst at Maxim Group]

Great. Thanks for taking my questions. So I have one question on tariffs and one question not on tariffs, and I acknowledge it's hard to come up with a non tariff question. Alright. So it sounds like 13% of your sourcing is from China, and you're aiming to move it below 10%.

[Tom Forte, Managing Director & Senior Consumer Internet Analyst at Maxim Group]

If you wanted to, how quickly could you move it all out of China?

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

Sean's on mute.

[Shawn Nelson, Founder, CEO & Director at The Lovesac Company]

Sorry. Yeah. I'll take I'll I'll I'll jump in on this one. I'm 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.

[Shawn Nelson, Founder, CEO & Director at The Lovesac Company]

As you know, I think the thing that differentiates Lovesac from a a lot and really all of our key competitors is is while I think every serious furniture company operates in all of these geographies in the East, Lovesac operates redundantly. So there are almost no critical products that are solely sourced in China, and, we're able to, you know, move production, lean further on these other geographies that have now seen some abatement already. And, and we do see a path to getting down below 10% this year, and and that's what we're actively doing. So, you know, ultimately, it'll probably force us completely out of out of China, and and that's, that's fine as well. So we're excited about the headway we're making.

[Shawn Nelson, Founder, CEO & Director at The Lovesac Company]

It's happening so fast, you know, in in days, really, and already already in motion. And, of course, our our q one 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 in the in terms of the the biggest tariffs so far. Yeah. So feeling really good about our position.

[Tom Forte, Managing Director & Senior Consumer Internet Analyst at Maxim Group]

Thank you, Sean. I appreciate that. Alright. So for my non tariff question, So in thinking about potential catalysts for home related merchandise sales, such as furniture, how should investors think about the potential for lower interest rates unlocking the housing market resulting in more consumers moving? So recognizing it's fluid situation, one silver lining from the market turmoil is that at times, interest rates have been lower.

[Tom Forte, Managing Director & Senior Consumer Internet Analyst at Maxim Group]

We've read stories about large increases in mortgage demand. Seems like there's a lot of pent up demand to move, which may be unlocked by lower rates. I would love your thoughts on this.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

Yeah. I'll start off first, then I'll let Sean step in. I mean, I'll take it. We'll take it. We would love to see it.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

We we don't even care about what drives the interest rates lower to some extent if it's, if it's a geopolitical play on a macro basis. As long as there's not a big recession underlying it, the lower interest rates will be wonderfully accepted, I think, by everybody in our category, including us. And I and I really, what I wanna impress upon this is we 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 continue to take market share like we've talked about in our existing categories where we only are present in 1,000,000 households in The US, which is is shocking to us. With our existing platforms, there's no reason we shouldn't be in many millions of households.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

And with the addition of all of the new products last year and the EverCouch, which is our entrance into chairs, loveseats, and sofas 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. But because of the uniqueness of our model and because of the inventory position as we've been talking about, as soon as that lower interest rate unlocks housing turnover, we're ready to go. And we'll put this we'll participate real time. We can ship in one to two weeks. We don't have to place an order for a green roll arm couch that's gonna take nine months to get here and then hope that it's on file and we can sell it.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

We can sell you whatever you want within one to two weeks whenever you're ready. And I think that's a it's a super compelling element, to our model. But, Sean, if you wanna talk more about the big picture, please.

[Shawn Nelson, Founder, CEO & Director at The Lovesac Company]

Well, I'll just I'll just add that the other the other trend that overlays this hopeful one is couches, especially not ours, wear out. And we're coming up on that big COVID pull forward, you know, renewing of people's couches as people in a lot of ways have spent more time at home than ever over these past these past half a decade. So we're really excited about, you know, the natural turnover in the categories that we focus on the most. And, now with the EverCouch coming on, helping us address whole new opportunities in urban markets and, smaller, yeah, rooms and other other things, we think that there's a lot of trends that are gonna really play the love sack's favor. Finally, from an inventory perspective, you know, we're going to no matter what, as we proved through the last both tariff cycle back in 2018 as well as through COVID, we will we will not run out of stock.

[Shawn Nelson, Founder, CEO & Director at The Lovesac Company]

We never did. It's a strength of ours, and I can almost guarantee that that won't be the story for some of the some of some of the other players in 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're we look forward to that.

[Tom Forte, Managing Director & Senior Consumer Internet Analyst at Maxim Group]

Great. Thanks for taking my questions.

[Operator]

Our next questions come from the line of Alex Fuhrman with Craig Hallum. Please proceed with your questions.

[Alex Fuhrman, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Hey, guys. Thanks very much for taking my question. You've had a you have a lot more products now than you've ever had, 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 or maybe start leaning on different distribution partners to market a wider range of products?

[Shawn Nelson, Founder, CEO & Director at The Lovesac Company]

Oh, man. We are so excited to talk about this one. Just probably not on this call. We have plenty of room for EverCouch in our life. Our showrooms were really built to sell couches.

[Shawn Nelson, Founder, CEO & Director at The Lovesac Company]

We just haven't been selling many. We've been selling all sectionals, and so we're really excited how EverCouch is gonna play into our strengths. You know, we've established a brand that people think of as, you know, those clever couches they've seen on TV, online, social media influencers. And then in some cases, we just don't fit their lifestyle. So we're we're very comfortable introducing EverCouch.

[Shawn Nelson, Founder, CEO & Director at The Lovesac Company]

We're not concerned at all about space, and and I think you're gonna really see how that folds into the batter of our current showroom footprint seamlessly. As we move into next year, we have all kinds of really clever and exciting solutions for how we will show up in our omnichannel way and in a way that's true to Lovesac's nature in a way that really plays to our strengths. 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. But, it's going to come probably a lot you know, at least the news of it and and some of the explanation will will will I think you're gonna we're gonna be, you know, prepared to be talking about that even even as this year continues. And so, you know, for now, our showrooms are small and tight and efficient, and we will continue to open, you know, as we've said, another this year.

[Shawn Nelson, Founder, CEO & Director at The Lovesac Company]

And, we're really excited being about being able to grow this way and being able to adapt as we get into these other categories in what we think is a truly strategic and artful way that will be innovative in retail and omnichannel execution. So, you know, more to come.

[Alex Fuhrman, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Great. That's that's really helpful, Sean. Thanks, and looking forward to to seeing, some of those innovations as they happen.

[Shawn Nelson, Founder, CEO & Director at The Lovesac Company]

Thank you.

[Operator]

Our next question is from the line of Brian Nagel with Oppenheimer. Please proceed with your questions.

[William Dossett, Director - Equity Research at Oppenheimer & Co. Inc.]

Hey, good morning. This is William Dosten on for Brian. Congratulations on a nice quarter.

[Shawn Nelson, Founder, CEO & Director at The Lovesac Company]

Thank you.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

Thank you.

[William Dossett, Director - Equity Research at Oppenheimer & Co. Inc.]

Yes. So my first question was on just tariff mitigation efforts. I wanted to get clarification. So you mentioned that given structurally higher margins at Love, the price increases need to offset tariffs may be smaller. Can you elaborate on that?

[William Dossett, Director - Equity Research at Oppenheimer & Co. Inc.]

And then also, I guess, related, competitors have taken five to 10% off of MSRP recently. How has your promotional strategy changed in recent months, if at all?

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

Sure thing. Thanks. I'll take the first one. What we were applying with the lower required price increases is take the math of what our gross profits are. Our gross profit margin of near 60%.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

When you back out inbound freight, 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, substantially higher actually even than where we're running on a full year gross profit basis. When you think about what that COGS actually is as a percentage of sales, you do the math as to what type of total net sales price increase would be required to offset the strict product cost. That's how you get to, you know, what we were say, you know, even in some of the really draconian tariff outlooks could probably be covered with a single digit high single digit price increase, and that's clearly doesn't look like it's going to be the case already. But look. We you know, we have options.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

We can take those price increases. We can, shift the intensity of our promotional strategy. We can play around with what our finance offers are through our, you know, our our financing program. All of these are different ways that we can help to offset that, let alone on the cost side of the initiatives that Mary talked about before. But, you know, hopefully, that gives a little context.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

Thanks.

[Mary Fox, President & COO at The Lovesac Company]

Yeah. And I think, William, just to add your other part of the question. So, you know, as we tracked, with our competitors and saw them taking their MSRP up by five to 10% in February and March, they've also continued to be at record high levels on promotions. So, you know, that has continued for us as we went through Presidents' Day and and through this quarter to date. We've continued with our flash events, the typical handle of a 30 off and even with some reduced financing that we've seen success with.

[Mary Fox, President & COO at The Lovesac Company]

So, you know, we continue to drive that. We do continue also to have some pocket offers in the showroom sometimes, particularly for the larger setup, but certainly feel good in the algorithm of how we're working through in our promotions that are 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 and continue to gain market share.

[William Dossett, Director - Equity Research at Oppenheimer & Co. Inc.]

Okay. I appreciate that. And so I I I may have misspoken that, competitors have taken their MSRP up by five to 10% in recent weeks?

[Mary Fox, President & COO at The Lovesac Company]

Yes. Yes. That's correct. So they up in, in February and March, '5 to 10 up in MSRP. Correct.

[William Dossett, Director - Equity Research at Oppenheimer & Co. Inc.]

Okay. And another question that I wanted to touch on would would be product launches. With your fiscal twenty six guide for growth of three to 10%, how much of this may 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.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

Sure thing. Thanks. I'll take the first part and then, maybe kick it over to, to Sean to talk about the recliner. But, you you know, as I mentioned earlier, we're approaching this year from the perspective of prudent and realistic management around the macro conditions. 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.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

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 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. And, you 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 a % by any means.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

Not at all. We can have some of them hit and some of them miss and still hit our guidance. That's kind of the approach we took to this. So, you know, I we're really encouraged about the new showrooms that we're opening. We're very excited about the potential that those, can contribute.

[Keith Siegner, Executive VP & CFO at The Lovesac Company]

We think the new products can be fantastic. We think we could sharpen a message. All of these things know I know I'm getting a little redundant and repetitive, but I just really wanted to, you know, hammer home the point that we've got multiple paths we think to achieve the the top line aspirations that we set out for this year.

[Shawn Nelson, Founder, CEO & Director at The Lovesac Company]

Yeah. As as as far as the recliner goes, I think it's been our most successful product launch maybe ever, at least in 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, it's exceeded our expectations. It's outstripped the initial supply, and we quickly were able to, recover from that.

[Shawn Nelson, Founder, CEO & Director at The Lovesac Company]

As you've seen, we've really, haven't had any egregious waiting periods for recliner. They're in stock now. So we've been able to demonstrate, you know, this extreme flexibility we have. And and you have to appreciate that the recliner has, you know, it's a powered recliner. It, if you understand Sactionals, you understand that these rectangles can be used the long ways or the deep ways, which is one of the most remarkable things about the Sactionals platform.

[Shawn Nelson, Founder, CEO & Director at The Lovesac Company]

Right? If you're tall, you want it deep. If you're shorter, you want it wide, or if you wanna adjust the room and how it fits between two windows. This one recliner skew works in either direction. It has and the and the consumer can adjust it on the fly.

[Shawn Nelson, Founder, CEO & Director at The Lovesac Company]

It's hard to describe over the you know, over a call. But the the reason I'm I'm mentioning it is because to do all of this and do it elegantly, safely, reliably, with electronics required 650 individual parts. This is by far the most complex product we've ever produced. And the 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. You know, as as we've mentioned, we sold over 18,500 units, and that's just over the first few number of months.

[Shawn Nelson, Founder, CEO & Director at The Lovesac Company]

Right? This is not even six months. So we're really excited about that and and especially excited to see that sales are evenly split between new and repeat customers. So it's working in exactly all the ways we wanted it to. We're really proud of it.

[Shawn Nelson, Founder, CEO & Director at The Lovesac Company]

And and, you know, I think the lastly, the best part is, of course, we hold numerous patents on it. Like, we do all of our key products. And it we this big investment we made in it and even to launch it as we've as we just we we had over 4,000,000,000 impressions from this Kathy Hilton campaign with the the recline of civilization, and so 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, we'll build on it for a decade or two decades. And that's the beautiful thing about these design for life products.

[Shawn Nelson, Founder, CEO & Director at The Lovesac Company]

They have life that goes so far beyond when we take the time to to to build them right. And so, anyway, really excited about that and really excited that we're able to also shift production of of so many, SKUs so rapidly out of out of China as we mentioned because, so many of the suppliers are are excited by what it represents and and excited that we're that we can move so fast with them. So, all good news here.

[William Dossett, Director - Equity Research at Oppenheimer & Co. Inc.]

Thank you so much. Look forward to be connecting more offline.

[Operator]

Thank you. At this time, this will conclude our question and answer session and will 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.

Participants

Executives

• Mary Fox, President & COO
• Keith Siegner, Executive VP & CFO
• Shawn Nelson, Founder, CEO & Director

Analysts

• Maria Ripps, Managing Director, Senior Research Analyst at Canaccord Genuity Inc
• Matthew Koranda, MD & Senior Research Analyst at Roth Capital Partners, LLC
• Tom Forte, Managing Director & Senior Consumer Internet Analyst at Maxim Group
• Alex Fuhrman, Senior Research Analyst at Craig-Hallum Capital Group LLC
• William Dossett, Director - Equity Research at Oppenheimer & Co. Inc.