What's Not To Love About The Lovesac Company
The Lovesac Company (NASDAQ: LOVE), along with the furniture industry at large, are among the most durable winners of the pandemic. The switch to stay at home/play at home/home and lifestyle Improvement has driven sales higher across the industry and accelerated the Lovesac company's hyper-growth story to new highs. After looking over the fiscal Q1 earnings report we couldn't be happier with this company. Revenue is up, growth is accelerating, margins are widening, profits are coming in, and the outlook is rosy. This market may see some turbulence in the near term but the long-term outlook is very bullish.
Shawn Nelson, Chief Executive Officer, stated, “Our strong first-quarter performance affirms the confluence of two highly-favorable dynamics in Lovesac’s evolution. The first is that we are providing a great customer experience, backed by product innovation, investments in digital, and expanded showrooms and other distribution channels … The second is that the pandemic tailwinds continue within the home furnishings category itself and our teams are executing across the board to strengthen the Lovesac brand and value proposition in this environment.”
The Lovesac Company Moves Higher After Blowout Results
The Lovesac Company reported $82.90 million in net revenue for the quarter which is down sequentially but that was expected. What was not expected was for the YoY growth to accelerate to 52.5% and blow past the consensus estimates by more than 1,000 basis points. results were driven by a 170.4% increase in showroom sales which can be attributed to economic reopening and a larger store count. The companies “other” category, which includes pop-up stores end shop-in-Shop sales, grew a little more than 41%.
Digital, which was a key factor in the company's success over the past year, saw sales decline 16.3%. This is noteworthy but not a concern due to channel shifts back to in-store sales and the fact e-commerce grew more than 250% in the prior year.
The company's surge in sales helped it to leverage both fixed and non-fixed costs despite upward price pressure in freight, wages, and materials. The gross margin improved by 540 basis points to 55.6% of sales while SG&A expenses declined more than 1,000 basis points as a percent of sales. As for earnings, the company's gross profit improved by 69% to drive a 120.3% increase in GAAP EPS and a 122% increase in adjusted EPS. On the bottom line, the $0.14 in GAAP EPS and $0.13 in adjusted eps both reverse losses in the prior year and defied the analyst’s expectations for losses this year.
The company did not give any guidance for the following quarter or the year but we see momentum continuing to build. Simply based on the results this quarter, we expect to see the analysts began raising their price targets as well as their EPS and revenue estimates. The consensus price target has nearly doubled in the last 90 days, we will not be surprised to see that happen again.
Technical Outlook: The Lovesac Company looks Ready To Rally
Shares of Lovesac jumped more than 2.5% in early trading following the release of the Q1 report. While the price action has been muted over the past week or two, it looks like the stock is ready to rally again. Investors might expect to see price action continue to trend sideways in the near term but, when it converges with the 30-day EMA we expect to see a rally begin. The key level for investors to watch now is at $80, if price action falls below there, the stock may enter a small correction before moving higher.
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