The Lovesac Company Comfortably Beats The Consensus
The Lovesac Company (NASDAQ: LOVE) is a story-within-a-story that we see accelerating its hyper-growth over the course of the next year. Not only is the furniture industry benefiting from strong tailwinds put in place by the pandemic but it is a growing concern within the industry. Its unique line of eco-friendly sectional sofas and chairs are resonating with the public and driving a word-of-mouth campaign worth hundreds of millions in future sales. Share prices jumped a significant 20% in the wake of the report but we think this is just the beginning of a very long, sustained rally in this company.
The Lovesac Company Absolutely Rocked In Q3
The Lovesac Company is not immune to the global supply chain challenges and inflation that is plaguing the world but it does have a bit of insulation from the crisis. The company’s narrow selection of goods is supported by a broad manufacturing base that means orders can be fulfilled from any of a number of locations and delivered very quickly. This and the demand for its products helped to drive revenue to $116.67 million and up 56.1% from last year, beating the Marketbeat.com consensus by 400 basis points. If you are thinking the comp versus last year is easy don’t, last year's revenue grew 42% YOY so this year’s accelerating really means something.
On a comp basis, sales are up 47% across the network with showroom sales up 53% and eCommerce up 38%. The company says it is seeing momentum across all channels and we see the new deal with StealthTech to embed surround sound in the couches will add to it. The only bad news is that higher tariffs due to increased sourcing from China and inbound freight costs cut into the gross margin. Gross margin declined by 510 basis points but was partially offset by an improvement in SG&A. SG&A expenses fell 210 basis points as a percentage of revenue and left the GAAP earnings well above expectations. The company reported GAAP earnings of $0.17 for a $0.01 gain over last year and $0.60 better than expected.
The company did not give any guidance but the outlook is very positive. There is obvious momentum in the underlying business and there are expansion efforts underway as well. In our view, revenue should continue to grow at a high-double-digit rate and may even accelerate again in the 4th quarter. Last year, revenue grew 43% from the 3rd to the 4th quarter.
The Analysts Love The Lovesac Company
The analysts have been bullish on The Lovesac Company all year and the sentiment is strengthening. The Marketbeat.com consensus rating is a firm Buy with at least three price target upgrades posted since the earnings report was released. BTIG maintained its Overweight rating when it upped its target to $113 and the current high. This target implies more than 45% upside for the stock even after the 20% pop on earnings and we think it is still low.
The Technical Outlook: The Lovesac Company Confirms Trend
The key takeaway from the post-release price action is that The Lovesac Company is in a strong, long-term uptrend and that trend has been confirmed. The 20% pop confirms support at the 150-day moving average and that is seen in the indicators as well. The MACD, in particular, is consistent with rising support and support at the current level that could lead to a more sustained bullish upswing in momentum. The next target for major resistance is near the $86 level, a move above that would be bullish and have the stock approaching all-time-high levels.
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