Lovesac Announces Financial Results for Third Fiscal Quarter 2025

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

Shawn Nelson, chief executive officer, stated, “Near-term headwinds for our category clearly persisted through the pre-election period. However, we gained market share and strengthened our competitive position through our relentless focus on product innovation and operational excellence. Our expanding portfolio of innovative products is resonating with customers and creating new avenues for sustained growth in the future. The soft launch of our Reclining Seat in the fourth quarter is just one of many exciting examples to come. The fundamental drivers of our business - including our brand equity, innovation pipeline, and customer relationship opportunities - are strong and give us high conviction in our ability to deliver substantial value creation over the long term. We look forward to sharing a detailed view of these opportunities and our strategic roadmap at our upcoming investor day next week.”

Highlights for the Quarter Ended November 3, 2024:

— Net sales decreased $4.1 million, or 2.7%, in the third quarter of fiscal 2025 compared to the prior year period primarily driven by a decrease of 8.3% in omni-channel comparable net sales, partially offset by the net addition of 28 new showrooms. During the third quarter of fiscal 2025, we opened 5 additional showrooms and closed 1 showroom.

— Gross profit decreased $0.8 million, or 0.9% in the third quarter of fiscal 2025 compared to the prior year period. Gross margin increased 110 basis points to 58.5% of net sales in the third quarter of fiscal 2025 from 57.4% of net sales in the prior year period primarily driven by decreases of 120 basis points in inbound transportation costs and 40 basis points in outbound transportation and warehousing costs, partially offset by a decrease of 50 basis points in product margin driven by higher promotional discounting.

— SG&A expense increased $4.1 million, or 6.1%, in the third quarter of fiscal 2025 compared to the prior year period due to investments in payroll, equity-based compensation, and rent.

— Advertising and marketing expense decreased $1.2 million, or 5.5% in the third quarter of fiscal 2025 compared to the prior year period primarily due to strategic reduction in media spend.

— Operating loss was $7.7 million in the third quarter of fiscal 2025 compared to $3.6 million in the prior year period. Operating margin was (5.1)% of net sales in the third quarter of fiscal 2025 compared to (2.3)% of net sales in the prior year period.

— Net loss was $4.9 million in the third quarter of fiscal 2025 or $(0.32) net loss per common share compared to $2.3 million or $(0.15) net loss per common share in the prior year period. During the third quarter of fiscal 2025, the Company recorded an income tax benefit of $2.1 million, compared to $1.0 million in the prior year period. The change in benefit is primarily driven by higher net loss before taxes.

Highlights for the Year-to-date Period Ended November 3, 2024:

— Net sales decreased $10.7 million, or 2.4%, in the year-to-date period ended November 3, 2024, compared to the prior year period primarily driven by a decrease of 9.1% in omni-channel comparable net sales, partially offset by the net addition of 28 new showrooms compared to the prior year period.

— Gross profit increased $0.7 million, or 0.3%, in the year-to-date period ended November 3, 2024, compared to the prior year period. Gross margin increased 150 basis points to 57.4% of net sales in the year-to-date period ended November 3, 2024, from 55.9% of net sales in the prior year period primarily driven by a decrease of 320 basis points in inbound transportation costs, partially offset by a decrease of 90 basis points in product margin driven by higher promotional discounting and an increase of 80 basis points in outbound transportation and warehousing costs.

— SG&A expense increased $25.8 million, or 13.7%, in the year-to-date period ended November 3, 2024, compared to the prior year period due to investments in payroll, professional fees, including a settlement with the SEC, equity-based compensation, rent, and infrastructure.

— Advertising and marketing expense decreased $3.3 million, or 5.1% in the year-to-date period ended November 3, 2024, 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 $34.0 million in the year-to-date period ended November 3, 2024, compared to $10.3 million in the prior year period. Operating margin was (7.7)% of net sales in the year-to-date period ended November 3, 2024, compared to (2.3)% of net sales in the prior year period.

— Net loss was $23.8 million in the year-to-date period ended November 3, 2024, or $(1.53) net loss per diluted share compared to $7.1 million or $(0.46) net loss per diluted share in the prior year period. During the year-to-date period ended November 3, 2024, the Company recorded an income tax benefit of $8.1 million, compared to $2.3 million for the prior year period. The change in benefit is primarily driven by higher net loss before taxes.

Other Financial Highlights as of November 3, 2024:

— The cash and cash equivalents balance as of November 3, 2024, was $61.7 million as compared to $37.7 million as of October 29, 2023. There was no balance on the Company’s line of credit as of November 3, 2024, and October 29, 2023. The Company’s availability under the line of credit was $36.0 million and $35.7 million as of November 3, 2024, and October 29, 2023, respectively. As previously announced, on July 29, 2024, we amended the credit agreement to add an uncommitted accordion feature that allows the Company, subject to certain customary conditions, to increase the size of the revolving credit facility by $10 million and, among other things, extend the maturity date of the loans made under the Amendment from September 30, 2024, to July 29, 2029.

— Total merchandise inventory was $113.4 million as of November 3, 2024, as compared to $116.6 million as of October 29, 2023, primarily due to a decrease in freight capitalization of $3.3 million related to the decrease in inbound freight expense.

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 $660 million to $680 million.

— Adjusted EBITDA1 in the range of $37.5 million to $48.5 million.

— Net income in the range of $4.5 million to $12.5 million.

— Diluted income per common share in the range of $0.27 to $0.74 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 fourth quarter of fiscal 2025:

— Net sales in the range of $221 million to $241 million.

— Adjusted EBITDA1 in the range of $43 million to $55 million.

— Net income in the range of $28 million to $36 million.

— Diluted income per common share in the range of $1.67 to $2.14 on approximately 16.8 million estimated diluted weighted average shares outstanding.

1 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 within two hours of the conclusion of the call and can be accessed online at investor.lovesac.com for 90 days.