The Lovesac Company Is Oversold And Ready To Rebound
The Lovesac Company (NASDAQ: LOVE) has been in a downtrend since early in 2021 driven by fears of slowing growth, diminishing tailwinds, and supply chain issues, and those fears were misplaced. The Q1 2023 results are so strong as to make us believe the analysts haven’t been paying attention and, to be fair, they really haven’t. There’s been minimal analyst activity in calendar 2022 but the takeaway is very bullish. The two include one price target increase and one reduction that are both above the consensus and the Marketbeat.com consensus is more than 188% above the current price action. While we aren’t holding our breath for a 188% gain, we do see an environment in which higher share prices can be expected. The company’s results are not only above the expectation but show an acceleration in business activity that is driving profits.
The Lovesac Company, Love Those Results
The Lovesac Company had a very strong quarter in which revenue growth accelerated sequentially and YOY. the $129.4 million in net sales is down sequentially due to seasonal trends but up 56.1% versus the 52.5% gain last year and the 32.75% gain two years ago. The revenue also beat the analyst consensus by 1270 basis points on strength in all channels. On a two-year basis, sales are up 215% and are expected to grow more. On a comp basis, comps are up 42% on a 53% increase in showroom sales and a 24% increase in digital. The sales were also aided by the addition of 39% more stores which pushed total showroom sales to +65.9%, digital to 24.1%, and the Other category to 92.7%.
Moving down to the income, the company experienced a large 640 basis point impact on the gross margin related to higher tariffs and inbound freight costs. This was offset by internal efficiencies that left the gross margin down 450 basis points versus last year. SG&A expenses were also controlled and fell 230 basis points despite an increase in ad spending. On the bottom line, the operating margin came in at 200 basis points, down 70, but well above the consensus to leave GAAP EPS at $0.12 or $0.34 better than expected.
The company did not give any formal guidance but reiterated its expectation to deliver growth above 25%. "Looking ahead, we continue to focus on product innovation, most obviously represented by our still-new StealthTech invisible home audio solution, efficient and targeted marketing, and campaigns, channel expansion with new and existing partners, and a focus on operational excellence. Our continued progress, momentum, and even most recent trends give us the confidence to reiterate our fiscal 2023 annual framework, which was put forth at the outset of this year,” said CEO Shawn Nelson.
The Technical Outlook: Short Sellers Plague The Lovesac Company
The Lovesac Company tried to move higher on the Q1 results but short-sellers capped the gains and have the shares more than 15% lower going into the open of the session. This move could lead the stock lower but we see a bottom very close if not at hand. The technicals suggest the market is oversold and ready to rebound, and the results and outlook suggest the stock is undervalued at the current levels. Assuming the market can hold price action above key support at the $30 level, we expect to see short-covering begin soon and keep price action moving sideways if not edging higher. Longer-term, The Lovesac Company is well-positioned within the furniture industry and on track to rival industry leaders within the next year or two.
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