Lovesac Company Reports 2nd Quarter Results

September 12, 2024  by Karen Parrish in Business Strategy, Industry   

Shawn Nelson, chief executive officer, stated, “Our second quarter results were in line with our expectations as we continued to drive market share gains amidst a challenging industry backdrop. We are pleased with the incredible reception we have seen with the product innovation we have delivered recently through our PillowSac Accent Chair as well as our newly launched AnyTable."

"We are excited to continue to build on the momentum we are driving through expanding our offering, and while we are prudently planning for the second half of the year given the category headwinds, we believe we are well positioned to deliver on our objectives for both the near- and long-term.”

Highlights for the Quarter Ended August 4, 2024:

·       Net sales increased $2.1 million, or 1.3%, in the second quarter of fiscal 2025 compared to the prior year period primarily driven by the net addition of 31 new showrooms, partially offset by a decrease of 5.4% in omni-channel comparable net sales. During the second quarter of fiscal 2025, we opened 10 additional showrooms and closed 2 showrooms.

·       Gross profit remained flat in the second quarter of fiscal 2025 compared to the prior year period. Gross margin decreased 80 basis points to 59.0% of net sales in the second quarter of fiscal 2025 from 59.8% of net sales in the prior year period primarily driven by a decrease of 110 basis points in product margin driven by higher promotional discounting and an increase of 50 basis points in outbound transportation and warehousing costs, partially offset by a decrease of 80 basis points in inbound transportation costs.

·       SG&A expense increased $9.9 million, or 15.4%, in the second quarter of fiscal 2025 compared to the prior year period due to investments in payroll, equity-based compensation, professional fees, rent, and infrastructure.

·       Advertising and marketing expense decreased $3.2 million, or 12.2% in the second quarter of fiscal 2025 compared to the prior year period primarily due to costs related to our 25th anniversary campaign in FY24 not repeating in FY25.

·       Operating loss was $8.4 million in the second quarter of fiscal 2025 compared to $1.0 million in the prior year period. Operating margin was (5.3)% of net sales in the second quarter of fiscal 2025 compared to (0.7)% of net sales in the prior year period.

·       Net loss was $5.9 million in the second quarter of fiscal 2025 or $(0.38) net loss per common share compared to $0.6 million or $(0.04) net loss per common share in the prior year period. During the second quarter of fiscal 2025, the Company recorded an income tax benefit of $1.8 million, compared to less than $0.1 million in the prior year period. The change in benefit is primarily driven by higher net loss before taxes and an increase in the effective tax rate.

Highlights for the Year-to-date Period Ended August 4, 2024:

·       Net sales decreased $6.5 million, or 2.2%, in the first half of fiscal 2025 compared to the prior year period primarily driven by a decrease of 10.0% in omni-channel comparable net sales, partially offset by the net addition of 31 new showrooms compared to the prior year period.

·       Gross profit increased $1.4 million, or 0.9%, in the first half of fiscal 2025 compared to the prior year period. Gross margin increased 170 basis points to 56.8% of net sales in the first half of fiscal 2025 from 55.1% of net sales in the prior year period primarily driven by a decrease of 420 basis points in inbound transportation costs, partially offset by an increase of 130 basis points in outbound transportation and warehousing costs and a decrease of 120 basis points in product margin driven by higher promotional discounting.

·       SG&A expense increased $21.7 million, or 18.0%, in the first half of fiscal 2025 compared to the prior year period due to investments in payroll, professional fees, equity-based compensation, infrastructure, and rent.

·       Advertising and marketing expense decreased $2.1 million, or 4.9% in the first half of fiscal 2025 compared to the prior year period primarily due to costs related to our 25th anniversary campaign in FY24 not repeating in FY25.

·       Operating loss was $26.2 million in the first half of fiscal 2025 compared to $6.7 million in the prior year period. Operating margin was (9.1)% of net sales in the first half of fiscal 2025 compared to (2.3)% of net sales in the prior year period.

·       Net loss was $18.8 million in the first half of fiscal 2025 or $(1.21) net loss per diluted share compared to $4.8 million or $(0.31) net loss per diluted share in the prior year period. During the first half of fiscal 2025, the Company recorded an income tax benefit of $6.0 million, compared to $1.3 million for the prior year period. The change in benefit is primarily driven by higher net loss before taxes and an increase in the effective tax rate.

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 2025:

·       Net sales in the range of $700 million to $735 million.

·       Adjusted EBITDA¹ in the range of $52 million to $59 million.

·       Net income in the range of $17 million to $21 million.

·       Diluted income per common share in the range of $1.01 to $1.26 on approximately 16.9 million estimated diluted weighted average shares outstanding.

·       Fiscal 2025 will contain 52 weeks versus Fiscal 2024 which contained an additional “53rd week” in the fourth quarter. 

The Company currently expects the following for the third quarter of fiscal 2025:

·       Net sales in the range of $152 million to $160 million.

·       Adjusted EBITDA¹ in the range of a loss of $3 million to income of $1 million.

·       Net loss in the range of $4 million to $8 million.

·       Basic loss per common share in the range of $0.28 to $0.50 on approximately 15.6 million estimated weighted average shares outstanding.

Conference Call Information:

A recorded replay of the conference call will be available within two hours of the conclusion of the call and can be accessed online at investor.lovesac.com for 90 days.