The Lovesac Company (LOVE) Tops Q2 EPS by 19c

The Lovesac Company (NASDAQ: LOVE) reported Q2 EPS of ($0.31), $0.19 better than the analyst estimate of ($0.50). Revenue for the quarter came in at $48.1 million versus the consensus estimate of $47.7 million.

Shawn Nelson, Chief Executive Officer, stated, “We reported a strong second quarter with revenue growth of close to 45%, as the entire team is executing our strategies to expand the Lovesac brand and deliver on our near and longer term goals. We are further strengthening our multi-channel model with the addition of productive new showrooms, the expansion of our pop up shop business at Costco and the announcement of a brand new shop in shop pilot with Macy’s that is expected to launch late in the third quarter, as well as increasingly effective advertising and marketing strategies.”

Mr. Nelson continued, “Given our first half performance and our plans for the remainder of the year, we are reiterating our full year outlook for 40% to 45% revenue growth and positive Adjusted EBITDA. Importantly, this outlook includes the net impact from all announced Lists 1 through 4 tariffs to date that our teams continue to successfully mitigate through various means, with only minor price increases. We have reduced our manufacturing in China from 75% of our total manufacturing at the beginning of the year to 44% as of this month. We believe this puts us on a path to being completely out of China, if necessary, well before the end of next year. I would like to thank all of our teams as well as our vendor partners for their hard work and collaboration that have enabled this outcome.”

For the Thirteen Weeks Ended August 4, 2019

• Net sales increased 44.8% to $48.1 million in the second quarter of fiscal 2020 from $33.2 million in the second quarter of fiscal 2019. This increase was driven by strong showroom, Internet and pop up shop (which we previously referred to as shop in shops) performance with both transaction and ticket growth resulting from successful advertising and marketing strategies which drew new customers to the brand while also driving repeat purchase behavior. Comparable sales, which includes showroom and Internet sales, increased 40.7% compared to a 41.0% increase in the prior year period. Comparable showroom sales increased 31.8% and Internet sales increased 71.5%.
• The Company opened two new showrooms and closed no showrooms in the second quarter of fiscal 2020 and ended the quarter with 80 showrooms in 32 states. This represents a unit increase of 11.1% over the same quarter in the prior year.
• Gross profit increased $6.4 million, or 36.1%, to $24.3 million in the second quarter of fiscal 2020 from $17.8 million in the second quarter of fiscal 2019. Gross margin decreased to 50.4% of net sales from 53.6% of net sales in the prior year period. The decrease in gross margin rate was driven primarily by the impact of the 10% China tariffs partially offset by reduced costs of Sactionals and Sacs products. The decrease in costs of Sactionals and Sacs products was primarily related to cost savings from improved sourcing of Lovesoft and down blend fills in addition to an ongoing shift of manufacturing from China to Vietnam
• Selling, general and administrative expenses increased $1.5 million, or 7.3%, to $22.0 million in the second quarter of fiscal 2020 compared to $20.5 million in the second quarter of fiscal 2019. The increase in selling, general and administrative expenses was primarily related to an increase in employment costs of $1.4 million, $0.8 million of increased rent associated with our net addition of 2 showrooms, $3.6 million of expenses related to the increase in sales such as $0.5 million of credit card fees, $2.3 million of showroom and web related selling expenses, $0.2 million of web affiliate program and web platform hosting commissions and $0.6 million of pop up shop sales agent fees. Overhead expenses decreased $4.3 million consisting of a decrease in IPO related expenses of $1.3 million, management fees of $0.7 million, one-time professional fees of $0.3 million, net loss on disposal of property and equipment of $0.1 million and equity based compensation $1.9 million.
• As a percent of net sales, total SG&A expense decreased to 45.6% from 61.5% in the prior year period driven largely by decreases in equity based compensation and IPO related expenses, partially offset by infrastructure investments such as increased headcount, supply chain optimization efforts and technology enhancements to support increased sales growth.
• Advertising and marketing expenses increased $2.5 million, or 68.8%, to $6.1 million in the second quarter of fiscal 2020 compared to $3.6 million in the second quarter of fiscal 2019. The increase in advertising and marketing costs relates to increased media and direct to consumer programs, which are expected to drive revenue beyond the period of the expense.
• Depreciation and amortization expenses increased $0.4 million or 58.9% in the second quarter of fiscal 2020 to $1.2 million compared to $0.8 million in the second quarter of fiscal 2019. The increase in depreciation and amortization expense principally relates to capital investments for new and remodeled showrooms.
• Operating loss was $4.9 million in the second quarter of fiscal 2020 compared to an operating loss of $7.0 million in the second quarter of fiscal 2019.
• Net loss and net loss attributable to common shares was $4.8 million in the second quarter of fiscal 2020, compared to a net loss of $7.0 million, or net loss attributable to common shares of $33.7 million including preferred dividends and deemed dividends in the second quarter in fiscal 2019. Adjusted net loss, which excludes the impact of the IPO and certain other non-recurring expenses in both periods, was $4.5 million in the second quarter of fiscal 2020 compared to $5.7 million in the second quarter of fiscal 2019 (see “GAAP and Non-GAAP Measures”).
• Net loss per share, including preferred dividends and deemed dividends, was ($0.33) in the second quarter of fiscal 2020 compared to ($3.71) in the second quarter of fiscal 2019. Adjusted net loss per common share, which is calculated by dividing adjusted net loss by adjusted weighted average common shares outstanding assuming the IPO related issuances occurred at the beginning of each period presented, was ($0.31) in the second quarter of fiscal 2020 compared to ($0.63) in the second quarter of fiscal 2019 (see “GAAP and Non-GAAP Measures”).
• Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”), was ($3.3) million in the second quarter of fiscal 2020 compared to ($2.0) million in the second quarter of fiscal 2019 (see “GAAP and Non-GAAP Measures”).

For earnings history and earnings-related data on The Lovesac Company (LOVE) click here.

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