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Lovesac Reports Second Quarter Fiscal 2024 Financial Results

November 5, 2023  by HFBusiness Staff in Business Strategy, Industry   

Shawn Nelson, chief executive officer, stated, “We are very pleased with our second quarter performance, which affirms the resilience of our brand and disruptive business model that has consistently delivered category outperformance and extraordinary customer love and loyalty. The quarterly highlights include 4% total net sales growth, impressively lapping 45.0% net sales growth in the year ago period.”

“Operational highlights included the launch of our new Angled Side product – a strategic expansion of our Sactionals portfolio that has been very well received – and successful growth of our physical and e-commerce footprint to deliver a seamless, omnichannel customer experience.”

Mr. Nelson continued, “Looking ahead, we expect consumer spending in our category to remain challenged. To that end, we will prudently control expenses with a focus on efficiency balanced against proactive investments in new products to drive consumer demand and further expand our market leadership. Coupled with our healthy balance sheet, we are positioned well to optimize the opportunity ahead of us.”

Highlights for the Quarter Ended July 30, 2023:

Net sales increased 4.0% in the second quarter primarily driven by growth within our Showroom and Internet channels. Showroom net sales, which include kiosks and mobile concierges, increased 6.3%. Internet net sales increased 16.6%, and our “Other” channel which principally includes pop-up-shops and shop-in-shops decreased 27.7%.

The increase in showroom net sales was driven by an increase of 2.7% in comparable showroom sales related to higher point of sale transactions with higher promotional discounting, the addition of 54 new showrooms and 5 less kiosks compared to the prior year period, and marketing campaigns. The internet net sales increase was driven by the same strong promotion campaigns. The Company also opened three additional Best Buy shop-in-shop locations compared to the prior year period.

Gross profit increased $13.3 million, or 16.8%, to $92.4 million in the second quarter of fiscal 2024 from $79.1 million in the second quarter of fiscal 2023. Gross margin increased 650 basis points to 59.8% of net sales in the second quarter of fiscal 2024 from 53.3% of net sales in the prior year period primarily driven by a decrease of approximately 720 basis points in total distribution and related tariff expense, partially offset by a decrease of 70 basis points in product margin driven by higher promotional discounting.

The decrease in total distribution and related tariff expenses over prior year is principally related to the positive impact of the 880 basis points decrease in inbound transportation costs partially offset by 160 basis points in higher outbound transportation and warehousing costs.

SG&A expense as a percent of net sales increased by 840 basis points due to investments in payroll, selling related expenses, infrastructure, and professional fees.

Advertising and marketing expense increased 39% due to continued investments in marketing spend to support our net sales growth including our 25th anniversary brand campaign. As a percent of net sales, advertising and marketing increased by 430 basis points.

Operating loss was $1.0 million in the second quarter of fiscal 2024 compared to operating income of $8.1 million in the second quarter of fiscal 2023. Operating margin was (0.6)% of net sales in the second quarter of fiscal 2024 compared to 5.5% of net sales in the second quarter of fiscal 2023.

Net loss was $0.6 million in the second quarter of fiscal 2024 or $(0.04) net loss per diluted share compared to net income of $5.8 million or $0.37 net income per diluted share in the second quarter of fiscal 2023.

During the second quarter of fiscal 2024, the Company recorded an income tax benefit of less than $0.1 million, compared to income tax expense of $2.3 million for the second quarter of fiscal 2023. The change in provision is primarily driven by the Company generating net loss before taxes of $0.6 million and net income before taxes of $8.1 million in the second quarter of fiscal 2024 and fiscal 2023, respectively.

Outlook:

The Company provides guidance of select information related to the Company’s financial and operating performance, and such measures may differ from year to year. The projections are as of this date and the Company assumes no obligation to update or supplement this information.

The Company expects the following for the full year of fiscal 2024:

Net sales in the range of $710.0 million to $730.0 million.

Adjusted EBITDA4 in the range of $51.0 million to $63.0 million.

Net income in the range of $20.0 million to $29.0 million.

Diluted income per common share in the range of $1.21 to $1.75 on approximately 16.5 million estimated diluted weighted average shares outstanding.

Fiscal 2024 will contain an additional “53rd week” in the fourth quarter versus 52 weeks in fiscal 2023.

The Company currently expects the following for the third quarter of fiscal 2024:

Net sales of approximately $154.0 million.

Adjusted EBITDA4 in the range of a loss of $1.5 million to a gain of $0.5 million.

Net loss in the range of $5.2 million to $3.2 million.

Diluted loss per common share in the range of $0.20 to $0.33 on approximately 15.5 million estimated weighted average shares outstanding.

4 Adjusted EBITDA is a non-GAAP measure. See “Non-GAAP Information” and “Reconciliation of Non-GAAP Financial Measures” included in this press release.

Conference Call Information:
A recorded replay of the conference call will be available online at investor.lovesac.com for 90 days.