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Form 10-Q Lovesac Co For: Oct 30

December 8, 2022 7:06 AM EST

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 30, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                     
Commission File Number: 001-38555
THE LOVESAC COMPANY
(Exact name of registrant as specified in its charter)
Delaware32-0514958
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Two Landmark Square, Suite 300
 
 Stamford, Connecticut
06901
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (888) 636-1223
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.00001 par value per share LOVE The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes No
As of December 1, 2022, there were 15,192,442 shares of common stock, $0.00001 par value per share, outstanding.


THE LOVESAC COMPANY
FORM 10-Q
INDEX TO QUARTERLY REPORT ON FORM 10-Q
October 30, 2022
Page
 
 
Condensed Statements of Operations for the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021
 
 
Condensed Statements of Cash Flows for the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021
 
   
   
i

Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other legal authority, which statements may involve substantial risk and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions.
You should not place undue reliance on forward looking statements. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur at all or on a specified timeframe. The cautionary statements set forth in this Quarterly Report on Form 10-Q, including in Part I – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere, identify important factors which you should consider in evaluating our forward-looking statements. These factors include, among other things:
our ability to sustain recent growth rates;
our ability to sustain the increase in our Internet sales;
our ability to manage the growth of our operations over time;
our ability to maintain, grow and enforce our brand and trademark rights;
our ability to improve our products and develop new products;
our ability to obtain, grow and enforce intellectual property related to our business and avoid infringement or other violation of the intellectual property rights of others;
our ability to successfully open and operate new showrooms;
the impact of any systems interruptions that impair customer access to our sites or other performance failures in our technology infrastructure;
any decline in consumer spending including due to negative impact from economic conditions;
our ability to compete and succeed in a highly competitive and evolving industry; and
the effect and consequences of current economic conditions, including the impact of the novel coronavirus (“COVID-19”) public health crisis, the conflict between Russia and Ukraine, and inflation on our business operations and continuity.
We caution you that the foregoing list may not contain all the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the sections entitled “Risk Factors” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission and in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur at all or on a specified timeline, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
ii

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
iii

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
THE LOVESAC COMPANY
CONDENSED BALANCE SHEETS
(unaudited)
 October 30,
2022
January 30,
2022
(amounts in thousands, except share and per share amounts) 
Assets  
Current Assets  
Cash and cash equivalents$3,832 $92,392 
Trade accounts receivable15,357 8,547 
Merchandise inventories154,481 108,493 
Prepaid expenses and other current assets41,867 15,726 
Total Current Assets215,537 225,158 
Property and equipment, net47,477 34,137 
Operating lease right-of-use assets133,075 100,891 
Other Assets
Goodwill144 144 
Intangible assets, net1,395 1,413 
Deferred financing costs, net73  
Deferred tax asset9,695 9,836 
Total Other Assets11,307 11,393 
Total Assets$407,396 $371,579 
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable$47,267 $33,247 
Accrued expenses33,126 40,497 
Payroll payable7,199 9,978 
Customer deposits5,861 13,316 
Current operating lease liabilities20,774 16,382 
Sales taxes payable4,770 5,359 
Total Current Liabilities118,997 118,779 
Operating Lease Liabilities, long-term130,229 96,574 
Line of Credit  
Total Liabilities249,226 215,353 
Commitments and Contingencies (see Note 6)
Stockholders’ Equity
Preferred Stock $0.00001 par value, 10,000,000 shares authorized, no shares issued or outstanding as of October 30, 2022 and January 30, 2022.
  
Common Stock $.00001 par value, 40,000,000 shares authorized, 15,192,134 shares issued and outstanding as of October 30, 2022 and 15,123,338 shares issued and outstanding as of January 30, 2022.
  
Additional paid-in capital175,108 173,762 
Accumulated deficit(16,938)(17,536)
Stockholders’ Equity158,170 156,226 
Total Liabilities and Stockholders’ Equity$407,396 $371,579 
The accompanying notes are an integral part of these condensed financial statements.
1

THE LOVESAC COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
Thirteen weeks endedThirty-nine weeks ended
(amounts in thousands, except per share data and share amounts)October 30,
2022
October 31,
2021
October 30,
2022
October 31,
2021
Net sales$134,784 $116,678 $412,698 $302,041 
Cost of merchandise sold71,212 58,062 202,092 138,317 
Gross profit63,572 58,616 210,606 163,724 
Operating expenses
Selling, general and administration expenses53,658 38,087 147,425 104,191 
Advertising and marketing19,050 15,832 54,039 39,548 
Depreciation and amortization2,459 1,726 8,196 5,748 
Total operating expenses75,167 55,645 209,660 149,487 
Operating (loss) income (11,595)2,971 946 14,237 
Interest expense, net(69)(45)(101)(135)
Net (loss) income before taxes(11,664)2,926 845 14,102 
Benefit from (Provision for) income taxes3,245 (174)(247)(842)
Net (loss) income $(8,419)$2,752 $598 $13,260 
Net (loss) income per common share:
Basic$(0.55)$0.18 $0.04 $0.88 
Diluted$(0.55)$0.17 $0.04 $0.83 
Weighted average number of common shares outstanding:
Basic15,220,593 15,146,890 15,190,079 15,092,844 
Diluted15,220,593 16,069,729 16,067,066 16,015,683 

The accompanying notes are an integral part of these condensed financial statements.
2

THE LOVESAC COMPANY
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 30, 2022 AND OCTOBER 31, 2021
(unaudited)
CommonAdditional Paid-in
Capital
Accumulated
Deficit
Total
(amounts in thousands, except share amounts)SharesAmount
Balance - January 31, 202115,011,556 $ $171,382 $(63,436)$107,946 
Net income— — — 2,061 2,061 
Equity based compensation— — 654 — 654 
Issuance of common stock for restricted stock4,868 — — — — 
Exercise of warrants2,106 — 20 — 20 
Balance - May 2, 202115,018,530  172,056 (61,375)110,681 
Net income— — — 8,448 8,448 
Equity based compensation— — 1,085 — 1,085 
Issuance of common stock for restricted stock78,446 — — — — 
Exercise of Warrants8,850 — 84 — 84 
Taxes paid for net share settlement of equity awards— — (3,370)(3,370)
Balance - August 1, 202115,105,826  169,855 (52,927)116,928 
Net income— — — 2,752 2,752 
Equity based compensation— — 1,110 — 1,110 
Issuance of common stock for restricted stock17,056 — — — — 
Taxes paid for net share settlement of equity awards— — (193)(193)
Balance - October 31, 202115,122,882  170,772 (50,175)120,597 
Balance - January 30, 202215,123,338  173,762 (17,536)156,226 
Net income— — — 1,895 1,895 
Equity based compensation— — 1,163 — 1,163 
Issuance of common stock for restricted stock1,704 — — — — 
Taxes paid for net share settlement of equity awards— — (47)— (47)
Balance - May 1, 202215,125,042 $ $174,878 $(15,641)$159,237 
Net income— — — 7,122 7,122 
Equity based compensation— — 1,034 — 1,034 
Issuance of common stock for restricted stock58,235 — — — — 
Taxes paid for net share settlement of equity awards— — (1,402)— (1,402)
Balance - July 31, 202215,183,277  174,510 (8,519)165,991 
Net loss— — — (8,419)(8,419)
Equity based compensation— — 732 — 732 
Issuance of common stock for restricted stock8,857 — — — — 
Taxes paid for net share settlement of equity awards— — (134)— (134)
Balance - October 30, 202215,192,134 $ $175,108 $(16,938)$158,170 
The accompanying notes are an integral part of these condensed financial statements.
3

THE LOVESAC COMPANY
CONDENSED STATEMENT OF CASH FLOWS
(unaudited)
Thirty-nine weeks ended
(amounts in thousands)October 30,
2022
October 31,
2021
Cash Flows from Operating Activities  
Net income$598 $13,260 
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization of property and equipment7,911 5,121 
Amortization of other intangible assets285 627 
Amortization of deferred financing fees117 68 
Net loss on disposal of property and equipment41  
Equity based compensation2,929 2,850 
Non-cash operating lease cost13,582 11,003 
Impairment of right of use lease asset 554 
Deferred income taxes141  
Changes in operating assets and liabilities:
Trade accounts receivable(6,810)(5,281)
Merchandise inventories(45,988)(44,127)
Prepaid expenses and other current assets(20,547)1,166 
Accounts payable and accrued expenses3,281 9,265 
Operating lease liabilities(13,227)(10,396)
Customer deposits(7,455)711 
Net Cash Used in Operating Activities(65,142)(15,179)
Cash Flows from Investing Activities
Purchase of property and equipment(21,292)(11,386)
Payments for patents and trademarks(267)(455)
Net Cash Used in Investing Activities(21,559)(11,841)
Cash Flows from Financing Activities
Payment of deferred financing costs(276) 
Taxes paid for net share settlement of equity awards(1,583)(3,563)
Proceeds from the exercise of warrants 104 
Net Cash Used in Financing Activities(1,859)(3,459)
Net Change in Cash and Cash Equivalents(88,560)(30,479)
Cash and Cash Equivalents - Beginning92,392 78,341 
Cash and Cash Equivalents - Ending$3,832 $47,862 
Supplemental Cash Flow Disclosures
Cash paid for taxes$9,811 $775 
Cash paid for interest$65 $80 
The accompanying notes are an integral part of these condensed financial statements.
4

THE LOVESAC COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 30, 2022 AND OCTOBER 31, 2021
NOTE 1 - BASIS OF PRESENTATION AND OPERATIONS
The balance sheet of The Lovesac Company (the “Company”, “we”, “us” or “our”) as of January 30, 2022, which has been derived from our audited financial statements as of and for the 52-week year ended January 30, 2022, and the accompanying interim unaudited condensed financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. Certain information and note disclosures normally included in annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), have been condensed or omitted pursuant to those rules and regulations. The financial information presented herein, which is not necessarily indicative of results to be expected for the full current fiscal year, reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the interim unaudited condensed financial statements. Such adjustments are of a normal, recurring nature. These condensed financial statements should be read in conjunction with the Company’s financial statements filed in its Annual Report on Form 10-K for the fiscal year ended January 30, 2022.
Due to the seasonality of the Company’s business, with the majority of our activity occurring in the fourth quarter of each fiscal year, the results of operations for the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021 are not necessarily indicative of results to be expected for the full fiscal year.
Nature of Operations
The Company is a technology driven company that designs, manufactures and sells unique, high quality furniture derived through its proprietary “Designed for Life” approach which results in products that are built to last a lifetime and designed to evolve as our customers’ lives do. The Company markets and sells its products through modern and efficient showrooms and, increasingly, through online sales directly at www.lovesac.com, supported by direct-to-consumer touch-feel points in the form of our own showrooms, which include our newly created mobile concierge and kiosks, as well as through shop-in-shops and online pop-up-shops with third party retailers. The Company was formed as a Delaware corporation on January 3, 2017, in connection with a corporate reorganization with SAC Acquisition LLC, a Delaware limited liability company, the predecessor entity to the Company.
COVID-19
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic and, in the following weeks, the U.S. federal, state and local governments issued lockdown orders and related safety measures impacting the operations of our showrooms and consumer demand. Although there has been a general improvement in conditions, there continues to be significant uncertainties around the scope and severity of the pandemic, its impact on the global economy, including supply chains, and other business disruptions that may impact our operating results and financial condition. We continue to follow the guidance issued by federal, state and local governments and health organizations and have taken measures to protect the safety of our associates and customers.
NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS
The Company has considered recently issued accounting pronouncements and they were considered to be not applicable or the adoption of such pronouncements will not have a material impact on its condensed financial statements.

5

NOTE 3 – INTANGIBLE ASSETS, NET
A summary of intangible assets follows:
October 30, 2022
(amounts in thousands)Estimated LifeGross Carrying AmountAccumulated Amortization Net carrying amount
Patents10 years$3,017 $(1,796)$1,221 
Trademarks3 years1,478 (1,304)174 
Other intangibles5 years840 (840) 
Total$5,335 $(3,940)$1,395 
January 30, 2022
(amounts in thousands)Estimated LifeGross Carrying AmountAccumulated Amortization Net carrying amount
Patents10 years$2,838 $(1,626)$1,212 
Trademarks3 years1,390 (1,189)201 
Other intangibles5 years840 (840) 
Total$5,068 $(3,655)$1,413 
Amortization expense associated with intangible assets subject to amortization is included in depreciation and amortization expense on the accompanying condensed statements of operations. Amortization expense on other intangible assets was $0.1 million and $0.1 million and $0.3 million and $0.6 million for the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021, respectively.
As of October 30, 2022, estimated future amortization expense associated with intangible assets subject to amortization is as follows:
(amounts in thousands)
Remainder of Fiscal 2023$96 
2024297 
2025276 
2026214 
2027171 
2028129 
Thereafter212 
$1,395 
NOTE 4 – INCOME TAXES

The Company recorded an income tax benefit and income tax expense of $3.2 million and $0.2 million, for the thirteen and thirty-nine weeks ended October 30, 2022, respectively and income tax expense of $0.2 million and $0.8 million for the thirteen and thirty-nine weeks ended October 31, 2021, respectively. The effective tax rate was 27.8% and 29.2% for the thirteen and thirty-nine weeks ended October 30, 2022 as compared with 5.9% and 6.0% for the thirteen and thirty-nine weeks ended October 31, 2021. The effective tax rate varies from the 21% federal statutory tax rate for the thirteen and thirty-nine weeks ended October 30, 2022 primarily due to state taxes. Comparatively, the effective tax rate for the thirteen and thirty-nine weeks ended October 31, 2021 was lower than the 21% federal statutory tax rate primarily due to the release of a full valuation allowance on the Company’s net deferred tax assets. The valuation allowance was fully released as of the end of fiscal year 2022.

6

The Company does not anticipate any material adjustments relating to unrecognized tax benefits within the next twelve months; however, the ultimate outcome of tax matters is uncertain and unforeseen results can occur. The Company had no material interest or penalties during the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021, respectively, and does not anticipate any such items during the next twelve months. The Company's policy is to record interest and penalties directly related to uncertain tax positions as income tax expense in the condensed statements of operations.
NOTE 5 – BASIC AND DILUTED NET (LOSS) INCOME PER COMMON SHARE
Basic net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Diluted net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of common shares outstanding and common stock equivalents outstanding during the period. Diluted net (loss) income per common share includes, in periods in which they are dilutive, the effect of those potentially dilutive securities where the average market price of the common stock exceeds the exercise prices for the respective periods.
For the thirteen weeks ended October 30, 2022, the effects of 657,515 shares of common stock related to restricted stock units, 495,366 shares of common stock underlying stock options of potentially dilutive shares which may be issued in the future and warrants to purchase 281,750 shares of common stock were excluded from the diluted net (loss) income per share calculation because the effect of including these potentially dilutive shares was antidilutive. For the thirty-nine weeks ended October 30, 2022, the effects of 657,515 shares of common stock related to restricted stock units, 495,366 shares of common stock underlying stock options and warrants to purchase 281,750 shares of common stock were included in the diluted share calculation and there were no anti-dilutive awards during this period.
For the thirteen and thirty-nine weeks ended October 31, 2021, the effects of 518,262 shares of common stock related to restricted stock units, 495,366 shares of common stock underlying stock options and warrants to purchase 281,750 shares of common stock were included in the diluted share calculation.
NOTE 6 – COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its office, warehouse facilities and retail showrooms under operating lease agreements which expire at various dates through January 2033. The Company determines if a contract contains a lease at inception based on our right to control the use of an identified asset and our right to obtain substantially all of the economic benefits from the use of that identified asset. Certain operating leases have renewal options and rent escalation clauses. We assess these options to determine if we are reasonably certain of exercising these options based on all relevant economic and financial factors. Any options that meet these criteria are included in the lease term at lease commencement.
Lease right-of-use assets represent the right to use an underlying asset pursuant to the lease for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Lease right-of-use assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate generally applicable to the location of the lease right-of-use asset, unless an implicit rate is readily determinable. We combine lease and certain non-lease components for our showroom real estate leases in determining the lease payments subject to the initial present value calculation. Lease right-of-use assets include upfront lease payments and exclude lease incentives, where applicable. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.
Lease expense for operating leases consists of both fixed and variable components. Expense related to fixed lease payments are recognized on a straight-line basis over the lease term. Variable lease payments are generally expensed as incurred, where applicable, and include certain index-based changes in rent, certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease. Leases with an initial term of twelve months or less are not recorded on the balance sheet. In addition, certain of our equipment lease agreements include variable lease payments, which are based on the usage of the underlying asset. The variable portion of payments are not included in the initial measurement of the asset or lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred.
7

ASC 842 requires companies to use the rate implicit in the lease whenever that rate is readily determinable and if the interest rate is not readily determinable, then a lessee may use its incremental borrowing rate. Our leases do not have an interest rate implicit in the lease. As a result, for purposes of measuring our ROU asset and lease liability, we determined our incremental borrowing rate by computing the rate of interest that we would have to pay to (i) borrow on a collateralized basis (ii) over a similar term (iii) at an amount equal to the total lease payments and (iv) in a similar economic environment. We determine incremental borrowing rates as of the first day of each fiscal year and analyze changes in interest rates and the Company's credit profile to determine if the rates need to be updated during the fiscal year. The lease term for all of our lease arrangements include the noncancelable period of the lease plus, if applicable, any additional periods covered by an option to extend the lease that is reasonably certain to be exercised by the Company. Our leases generally do not include termination options for either party to the lease or restrictive financial or other covenants. Some of our leases contain variable lease payments based on a Consumer Price Index or percentage of sales, which are excluded from the measurement of the lease liability.
The Company’s lease terms and rates are as follows:
 October 30,
2022
Weighted average remaining lease term (in years)
Operating Leases7.5
 
Weighted average discount rate
Operating Leases4.07 %
During the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021, the Company recognized operating lease expense of $6.3 million and $4.9 million and $17.5 million and $13.9 million, respectively. In addition, during the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021, we recognized $4.3 million and $2.9 million and $10.9 million and $7.3 million, respectively, for index-based changes in rent, maintenance, real estate taxes, insurance and other charges included in the lease as well as rental expenses related to short term leases.
We did not recognize any impairment charges associated with showroom-level ROU assets during the thirteen and thirty-nine weeks ended October 30, 2022. During the thirteen and thirty-nine weeks ended October 31, 2021, we recognized impairment charges totaling $0.6 million associated with showroom-level ROU assets that are included as part of selling, general and administrative expenses.
The following table discloses the location and amount of our operating lease costs within our condensed balance sheets:
(amounts in thousands)Balance sheet locationOctober 30,
2022
Assets  
Operating leasesOperating lease right-of-use assets (non-current)$133,075 
  
Liabilities 
Current: 
Operating leasesCurrent operating lease liabilities$20,774 
  
Noncurrent: 
Operating leasesOperating lease liability, long term130,229 
  
Total lease liabilities $151,003 
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The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable leases with terms of more than one year to the total lease liabilities recognized on the condensed balance sheet as of October 30, 2022:
(amounts in thousands)
Remainder 2023$6,600 
202426,537 
202525,415 
202623,204 
202720,806 
Thereafter74,588 
Total undiscounted future minimum lease payments177,150 
Less: imputed interest(26,147)
Total present value of lease obligations151,003 
Less: current operating lease liability(20,774)
Operating lease liability- long term$130,229 
Supplemental Cash Flow information and non-cash activity related to our operating leases is as follows:
(amounts in thousands)
For the Thirty-nine weeks ended
October 30, 2022
For the Thirty-nine weeks ended
October 31, 2021
Operating cash flow information: 
Amounts paid on operating lease liabilities$13,227 $10,396 
Non-cash activities
Right-of-use assets obtained in exchange for lease obligations$44,934 $106,415 
Severance Contingency
The Company has various employment agreements with its senior level executives. A number of these agreements have severance provisions, ranging from 12 to 18 months of salary, in the event those employees are terminated without cause. The total amount of exposure to the Company under these agreements was $4.9 million at October 30, 2022 if all executives with employment agreements were terminated without cause and the full amount of severance was payable.
Legal Contingency
The Company is involved in various legal proceedings in the ordinary course of business. Management cannot presently predict the outcome of these matters, although management believes, based in part on the advice of counsel, that the ultimate resolution of these matters will not have a materially adverse effect on the Company’s condensed financial position, results of operations or cash flows.
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NOTE 7 – FINANCING ARRANGEMENTS
The Company has a line of credit with Wells Fargo Bank, National Association (“Wells”). On March 25, 2022, the line of credit with Wells was amended and increased from $25.0 million to allow the Company to borrow up to $40.0 million, subject to borrowing base and availability restrictions, and will mature in March 2024. Borrowings are limited to 85% of eligible credit card receivables plus 90% of eligible wholesale receivables plus 89% of the net recovery percentage for the eligible inventory multiplied by the value of such eligible inventory of the Company for the period from December 16 of each year until October 14 of the immediately following year, with a seasonal increase to 90% of the net recovery percentage for the period from October 15 of each year until December 15 of such year, seasonal advance rate, minus applicable reserves established by Wells. The amended agreement contains a financial covenant that requires us to maintain undrawn availability under the credit facility of at least 10% of the lesser of (i) the aggregate commitments in the amount of $40.0 million and (ii) the amounts available under the credit facility based on eligible accounts receivable and inventory. As of October 30, 2022 and January 30, 2022, the Company’s borrowing availability under the line of credit with Wells was $36.0 million and $22.5 million, respectively. As of October 30, 2022 and January 30, 2022, there were no borrowings outstanding on this line of credit.
Under the amended line of credit with Wells, the Company may elect that revolving loans bear interest at either a base rate or a term Secured Overnight Funds Rate ("SOFR") based rate, plus, in either case, a margin determined by reference to our quarterly average excess availability under the line of credit and ranging from 0.50% to 0.75% for borrowings accruing interest at a base rate and from 1.625% to 1.850% for borrowings accruing interest at term SOFR. Swing line loans will at all times accrue interest at a base rate plus the applicable margin. The lower margins described above will apply initially and will adjust thereafter from time to time based on the quarterly average excess availability under the line of credit.
NOTE 8 – STOCKHOLDERS’ EQUITY
Common Stock Warrants
The following represents warrant activity during the thirty-nine weeks ended October 30, 2022 and October 31, 2021:
 Average exercise
price
Number of warrants Weighted average remaining
 contractual life (in years)
Warrants Outstanding at January 31, 2021
$19.07 293,973 2.57
Warrants issued  0
Expired and canceled9.83 (98)0
Exercised16.00 (12,125)0.09
Outstanding at October 31, 2021
$19.20 281,750 1.66
    
Warrants Outstanding at January 30, 2022
$19.20 281,750 1.41
Warrants issued  0
Expired and canceled  0
Exercised  0
Outstanding at October 30, 2022
$19.20 281,750 0.66
In the thirty-nine weeks ended October 31, 2021, a total of 5,625 warrants were exercised on a cashless basis, whereby the holders received fewer shares of common stock in lieu of a cash payment to the Company. Warrants exercised in the thirty-nine weeks ended October 31, 2021, resulted in the issuance of 10,956 common shares. There were 98 warrants that expired in the thirty-nine weeks ended October 31, 2021.
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Equity Incentive Plan
The Company adopted the Amended and Restated 2017 Equity Incentive Plan (the “2017 Equity Plan”) which provides for awards in the form of stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance shares, performance units, cash-based awards and other stock-based awards. All awards shall be granted within 10 years from the effective date of the 2017 Equity Plan. On June 2, 2022, the stockholders of the Company approved of the Second Amended and Restated 2017 Equity Incentive Plan (the "Amended 2017 Equity Plan") that increased the number of shares of common stock reserved for issuance thereunder by 550,000 shares of common stock. The number of shares of common stock reserved for issuance under the Amended 2017 Equity Plan was 2,654,889 at October 30, 2022.
Stock Options
In June 2019, the Company granted 495,366 non-statutory stock options to certain officers of the Company with an option price of $38.10 per share. 100% of the stock options are subject to vesting on the third anniversary of the date of grant if the officers are still employed by the Company and the average closing price of the Company’s common stock for the prior 40 consecutive trading days has been at least $75 by the third anniversary of the grant. Both the employment condition and the market condition must be satisfied no later than June 5, 2024 or the options will terminate. These options were valued using a Monte Carlo simulation model to account for the path dependent market conditions that stipulate when and whether or not the options shall vest. The 495,366 stock options were modified in fiscal 2022 to extend the term of the options through June 5, 2024. This resulted in additional compensation of approximately $0.9 million of which, $0.3 million was recorded upon modification with the remaining expense to be recognized over the remaining expected term. The market condition was met on June 5, 2021, which was the date on which the average closing price of the Company’s common stock had been at least $75 for 40 consecutive trading days. The options vested and became exercisable on June 5, 2022 as the officers were still employed on that date.
A summary of the status of our stock options as of October 30, 2022 and October 31, 2021, and the changes during the thirty-nine weeks ended October 30, 2022 and October 31, 2021 is presented below:
 Number of optionsWeighted average exercise priceWeighted average remaining contractual life (in years)Average intrinsic value
Outstanding at January 31, 2021
495,366 $38.10 3.35 
Exercised 
Expired and canceled 
Outstanding at October 31, 2021
495,366 $38.10 2.6$27.08 
Exercisable at the end of the period —  
 
 Number of optionsWeighted average exercise priceWeighted average remaining contractual life (in years)Average intrinsic value
Outstanding at January 30, 2022
495,366 $38.10 2.35$28.68 
Granted  00
Canceled and forfeited  00
Outstanding at October 30, 2022
495,366 $38.10 1.6$5.45 
Exercisable at the end of the period495,366 $38.10 1.6$5.45 
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Restricted Stock Units
A summary of the status of our unvested restricted stock units as of October 30, 2022 and October 31, 2021, and changes during the thirty-nine weeks then ended, is presented below:
 Number of shares Weighted average grant date fair value
Unvested at January 31, 2021
655,558 $18.86 
Granted75,656 76.91 
Forfeited(39,503)20.52 
Vested(173,449)19.54 
Unvested at October 31, 2021
518,262 $26.57 
 Number of shares Weighted average grant date fair value
Unvested at January 30, 2022
533,333$28.94 
Granted289,62545.58 
Forfeited(50,638)29.47 
Vested(114,805)33.94 
Unvested at October 30, 2022
657,515$35.07 
Equity based compensation expense was approximately $0.7 million and $1.1 million and $2.9 million and $2.9 million for the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021, respectively.
The total unrecognized equity-based compensation cost related to unvested restricted unit awards was approximately $4.9 million as of October 30, 2022 and will be recognized in operations over a weighted average period of 2.12 years.
NOTE 9 – EMPLOYEE BENEFIT PLAN
In February 2017, the Company established the TLC 401(k) Plan (the “401(k) Plan”) with Elective Deferrals beginning May 1, 2017. The 401(k) Plan calls for Elective Deferral Contributions, Safe Harbor Matching Contributions and Profit-Sharing Contributions. All associates of the Company will be eligible to participate in the 401(k) Plan as of the day of the month which is coincident with or next follows the date on which they attain age 21 and complete one month of service. Participants will be able to contribute up to 100% of their eligible compensation to the 401(k) Plan subject to limitations with the IRS. The Company's contributions to the 401(k) Plan were $0.3 million and $0.2 million and $1.0 million and $0.6 million for the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021, respectively.
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NOTE 10 – SEGMENT INFORMATION
The Company has determined that the Company operates within a single reporting segment. The chief operating decision makers of the Company are the Chief Executive Officer, and President and Chief Operating Officer. The Company’s operating segments are aggregated for financial reporting purposes because they are similar in each of the following areas including economic characteristics, class of consumer, nature of products and distribution method and products are a singular group of products which make up over 95% of net sales.
The following represents net sales by product offering for the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021, respectively:
 Thirteen weeks endedThirty-nine weeks ended
 October 30,
2022
October 31,
2021
October 30,
2022
October 31,
2021
(amounts in thousands)  
Sactionals$119,355 $100,374 $370,870 $263,558 
Sacs12,550 14,195 34,385 33,053 
Other2,879 2,109 7,443 5,430 
 $134,784 $116,678 $412,698 $302,041 
NOTE 11 – BARTER ARRANGEMENTS
The Company has a bartering arrangement with a third-party vendor, whereby the Company will provide inventory in exchange for media credits. The Company exchanged $1.4 million and $5.3 million of inventory for certain media credits during the thirteen and thirty-nine weeks ending October 30, 2022. The Company exchanged $0.6 million of inventory for certain media credits during the thirteen and thirty-nine weeks ending October 31, 2021.
The contribution to the Company's gross profit from its bartering arrangement was $2.9 million and $11.1 million during the thirteen and thirty-nine weeks ending October 30, 2022. The contribution to the Company's gross profit from its bartering arrangement was $0.5 million during the thirteen and thirty-nine weeks ending October 31, 2021.
The Company had $17.6 million and $3.4 million of unused media credits remaining as of October 30, 2022 and January 30, 2022, respectively, which is included in “Prepaid and other current assets” on the accompanying condensed balance sheet.

NOTE 12 – REVENUE RECOGNITION
The Company’s revenue consists substantially of product sales. The Company reports product sales net of discounts and recognizes them at the point in time when control transfers to the customer, which generally occurs upon our delivery to a third-party carrier.
Estimated refunds for returns and allowances are recorded using our historical return patterns, adjusting for any changes in returns policies. The Company records estimated refunds for net sales returns on a monthly basis as a reduction of net sales and cost of sales on the condensed statements of operations and an increase in inventory and customers returns liability on the condensed balance sheets. There was a returns allowance recorded on the condensed balance sheet in the amount of $2.9 million and $2.0 million as of October 30, 2022 and January 30, 2022, respectively, which was included in accrued expenses and $0.7 million and $0.4 million as of October 30, 2022 and January 30, 2022, associated with sales returns included in merchandise inventories.
In some cases, deposits are received before the Company transfers control, resulting in contract liabilities. These contract liabilities are reported as deposits on the Company’s condensed balance sheet. As of October 30, 2022 and January 30, 2022, the Company recorded under customer deposit liabilities the amount of $5.9 million and $13.3 million respectively. During the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021, the Company recognized approximately $13.3 million and $6.0 million, respectively, related to our customer deposits.
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The Company offers its products through an inventory lean omni-channel platform that provides a seamless and meaningful experience to its customers in showrooms, which includes mobile concierge and kiosks, and through the internet. The Other channel predominantly represents sales through the use of online pop-up-shops and shop-in-shops that are staffed with associates trained to demonstrate and sell our product. The following represents net sales disaggregated by channel:
Thirteen weeks endedThirty-nine weeks ended
(amounts in thousands)October 30,
2022
October 31,
2021
October 30,
2022
October 31,
2021
Showrooms$82,957 $69,694 $256,637 $181,274 
Internet33,319 35,542 100,109 90,198 
Other18,508 11,442 55,952 30,569 
$134,784 $116,678 $412,698 $302,041 
The Company has no foreign operations and its sales to foreign countries was less than .01% of total net sales in both fiscal 2023 and 2022. 
The Company had no customers in fiscal 2023 or 2022 that comprise more than 10% of total net sales. 
See Note 10 for sales disaggregated by product.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended January 30, 2022. As discussed in the section titled “Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified in the Forward-Looking Statements section herein and set forth below and those discussed in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent report on Form 10-K filed with the Securities and Exchange Commission.
We operate on a 52- or 53-week fiscal year that ends on the Sunday closest to February 1. Each fiscal year generally is comprised of four 13-week fiscal quarters, although in the years with 53 weeks, the fourth quarter represents a 14-week period.
Overview
We are a technology driven company that designs, manufactures and sells unique, high quality furniture derived through our proprietary “Designed for Life” approach which results in products that are built to last a lifetime and designed to evolve as our customers’ lives do. Our current product offering is comprised of modular couches called Sactionals, premium foam beanbag chairs called Sacs, and their associated home decor accessories. Innovation is at the center of our design philosophy with all of our core products protected by a robust portfolio of utility patents. We market and sell our products through an omni-channel platform that includes direct-to-consumer touch-feel points in the form of our own showrooms, which include our newly created mobile concierge and kiosks, online directly at www.lovesac.com, and through shop-in-shops and online pop-up-shops with third party retailers. We believe that our ecommerce centric approach, coupled with our ability to deliver our large, upholstered products through express couriers, is unique to the furniture industry.
Impact of COVID-19 and Macro-Economic Factors
There continues to be uncertainties around the COVID-19 pandemic, including the impact of additional waves or resurgences, or new strains or variants of the virus on the global economy and supply chains, and other business disruptions that may impact our operating results and financial condition. We continue to follow the guidance issued by federal, state and local governments and health organizations and have taken measures to protect the safety of our associates and customers.
We continue to serve our customers through our omni-channel platform as our products can be easily configured in touchpoints, shopped online and delivered quickly in a touchless way. We continue to experience growth as our net sales increased $110.7 million, or 36.6% to $412.7 million for the thirty-nine weeks ended October 30, 2022, compared to $302.0 million for the thirty-nine weeks ended October 31, 2021. Retail sales drove an increase of $75.4 million, or 41.6%, to $256.6 millions for the thirty-nine weeks ended October 30, 2022, compared to $181.3 million for the thirty-nine weeks ended October 31, 2021. Our internet sales (sales made directly to customers through our ecommerce channel) also increased $9.9 million or 11.0% to $100.1 million for the thirty-nine weeks ended October 30, 2022, compared to $90.2 million for the thirty-nine weeks ended October 31, 2021. New customers increased by 4.1% for the thirty-nine weeks ended October 30, 2022 as compared to 13.7% for the thirty-nine weeks ended October 31, 2021.
The industry in which we operate is cyclical. Our revenues and results of operations are affected by general economic conditions and certain other macro-economic factors and uncertainties. Purchasers of our products are sensitive to a number of factors that influence the levels of consumer spending, including economic conditions, consumer disposable income, housing market conditions, consumer debt, interest rates, inflation and consumer confidence. We continue to monitor the impact of the pandemic and overall economic and market conditions with respect to our sources and uses of capital.
15

Seasonality
Our business is seasonal. As a result, our revenues fluctuate from quarter to quarter, which often affects the comparability of our results between periods. Net sales are historically higher in the fourth fiscal quarter due primarily to the impact of the holiday selling season.
Product Overview
Our products serve as a set of building blocks that can be rearranged, restyled and re-upholstered with any new setting, mitigating constant changes in fashion and style. They are built to last and evolve throughout a customer’s life.
Sactionals. Our Sactional product line currently represents a majority of our net sales. We believe our Sactionals platform is unlike competing products in its adaptability yet is comparable aesthetically to similarly priced premium couches and sectionals. Our Sactional products include a number of patented features relating to their geometry and modularity, coupling mechanisms and other features. Utilizing only two, standardized pieces, “seats” and “sides,” and approximately 200 high quality, tight-fitting covers that are removable, washable, and changeable, customers can create numerous permutations of a sectional couch with minimal effort. Customization is further enhanced with our specialty-shaped modular offerings, such as our wedge seat and roll arm side. Our custom features and accessories can be added easily and quickly to a Sactional to meet endless design, style, storage and utility preferences, reflecting our Designed for Life philosophy. Sactionals are built to meet the highest durability and structural standards applicable to fixed couches. Sactionals are comprised of standardized units and we guarantee their compatibility over time, which we believe is a major pillar of their value proposition to the consumer. Our Sactionals represented 88.6% and 89.9% of our sales for the thirteen and thirty-nine weeks ended October 30, 2022, respectively.

During October 2021, we introduced the new Sactionals StealthTech Sound + Charge product line. This unique innovation features immersive surround sound by Harman Kardon and convenient wireless charging, all seamlessly embedded and hidden inside the adaptable Sactionals platform. The System includes two Sound + Charge Sides each with embedded front- and rear-firing Harman Kardon speakers, a Subwoofer that easily integrates into a Sactionals Seat Frame and a Center Channel, all working in unison to deliver captivating surround sound that is completely hidden from view.
Sacs. We believe that our Sacs product line is a category leader in oversized beanbags. The Sac product line offers 6 different sizes ranging from 22 pounds to 95 pounds with capacity to seat 3+ people on the larger model Sacs. Filled with Durafoam, a blend of shredded foam, Sacs provide serene comfort and guaranteed durability. Their removable covers are machine washable and may be easily replaced with a wide selection of cover offerings.
Other. Our Other product line complements our Sacs and Sactionals by increasing their adaptability to meet evolving consumer demands and preferences. Our current product line offers Sactional-specific drink holders, Footsac blankets, decorative pillows, fitted seat tables and ottomans in varying styles and finishes and our unique Sactionals Power Hub, providing our customers with the flexibility to customize their furnishings with decorative and practical add-ons to meet evolving style preferences.
Sales Channels
We offer our products through an omni-channel platform that provides a seamless and meaningful experience to our customers online and in-store. Our distribution strategy allows us to reach customers through four distinct, brand-enhancing channels.
Showrooms. We market and sell our products through 189 retail locations at top tier malls, lifestyle centers, mobile concierge, kiosk, and street locations in 40 states in the U.S. We carefully select the best small-footprint retail locations in high-end malls and lifestyle centers for our showrooms. Compared to traditional retailers, our showrooms require significantly less square footage because of our need to have only a few in-store sample configurations for display and our ability to stack our inventory for immediate sale. The architecture and layout of these showrooms is designed to communicate our brand personality and key product features. Our goal is to educate first-time customers, creating an environment where people can touch, feel, read, and understand the technology behind our products. We are updating and remodeling many of our showrooms to reflect our new showroom concept, which emphasizes our unique product platform, and is the standard for new showrooms. Our new showroom concept utilizes technology in more experiential ways to increase traffic and sales. Net sales
16

completed through this channel accounted for 61.5% and 62.2% of total net sales for the thirteen and thirty-nine weeks ended October 30, 2022, up from 59.7% and 60.0% of total net sales for the thirteen and thirty-nine weeks ended October 31, 2021.
Ecommerce. Through our ecommerce channel, we believe we are able to significantly enhance the consumer shopping experience for home furnishings, driving deeper brand engagement and loyalty, while also realizing more favorable margins than our showroom locations. We believe our robust technological capabilities position us well to benefit from the growing consumer preference to transact at home and via mobile devices. With furniture especially suited to ecommerce applications, our net sales completed through this channel accounted for 24.7% and 24.3% of total net sales for the thirteen and thirty-nine weeks ended October 30, 2022, down from 30.5% and 29.9% of total net sales for the thirteen and thirty-nine weeks ended October 31, 2021, respectively.
Other touchpoints. We augment our showrooms with other touchpoint strategies including online pop-up-shops, shop-in-shops, and barter inventory transactions. We utilize in store pop-up-shops to increase the number of locations where customers can experience and purchase our products, a low-cost alternative to drive brand awareness, in store sales, and ecommerce sales. These in-store pop-up-shops are staffed similarly to our showrooms with associates trained to demonstrate and sell our products and promote our brand. Unlike the in-store pop-up-shops which are typically 10-day shows, and pop-up locations, shop-in-shops are designed to be in permanent locations carrying the same digital technology of our showrooms and are also staffed with associates trained to demonstrate and sell our products. Shop-in-shops require less capital expenditure to open a productive space to drive brand awareness and touchpoint opportunities for demonstrating and selling our products. We hosted 68 in-store pop-up-shops in the thirteen weeks ended October 30, 2022 and did not host in-store pop-up-shops in the thirteen weeks ended October 31, 2021.
We operated 3 and 8 online pop-up-shops on Costco.com for the thirteen and thirty-nine weeks ended October 30, 2022, and 2 and 6 for the thirteen and thirty-nine weeks ended October 31, 2021, respectively. We operated 22 Best Buy shop-in-shops for the thirteen and thirty-nine weeks ended October 30, 2022, up from 5 in the thirteen and thirty-nine weeks ended October 31, 2021, respectively. Other sales which includes pop-up-shop sales, shop-in-shop sales, and barter inventory transactions accounted for 13.7% and 13.6% of our total sales for the thirteen and thirty-nine weeks ended October 30, 2022, up from 9.8% and 10.1% of our total sales for the thirteen and thirty-nine weeks ended October 31, 2021, respectively.
SELECTED CONDENSED FINANCIAL INFORMATION
The following tables present our summary condensed financial and other data as of and for the periods indicated. The condensed statement of operations data for the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021, the condensed statement of cash flow data for the thirteen and thirty-nine weeks ended October 30, 2022 and October 31, 2021 and the summary condensed balance sheet data as of October 30, 2022, are derived from our unaudited condensed financial statements included elsewhere in this Quarterly Report filed on Form 10-Q and have been prepared on the same basis as the audited condensed financial statements.
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The summarized financial information presented below is derived from and should be read in conjunction with our audited condensed financial statements including the notes to those financial statements and our unaudited condensed financial statements including the notes to those financial statements both of which are included elsewhere in is Quarterly Report filed on Form 10-Q along with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results are not necessarily indicative of our future results.
Thirteen weeks endedThirty-nine weeks ended
(amounts in thousands, except per share data and share amounts)October 30,
2022
October 31,
2021
July 31,
2022
August 1,
2021
Condensed Statement of Operations Data:
Net sales
Showrooms$82,957 $69,694 $256,637 $181,274 
Internet33,319 35,542 100,109 90,198 
Other18,508 11,442 55,952 30,569 
Total net sales134,784 116,678 $412,698 $302,041 
Cost of merchandise sold71,212 58,062 202,092 138,317 
Gross profit63,572 58,616 210,606 163,724 
Operating expenses
Selling, general and administrative expenses53,658 38,087 147,425 104,191 
Advertising and marketing19,050 15,832 54,039 39,548 
Depreciation and amortization2,459 1,726 8,196 5,748 
Total operating expenses75,167 55,645 209,660 149,487 
Operating (loss) income (11,595)2,971 946 14,237 
Interest expense, net(69)(45)(101)(135)
Net (loss) income before taxes(11,664)2,926 845 14,102 
Benefit from (Provision for) income taxes3,245 (174)(247)(842)
Net (loss) income $(8,419)$2,752 $598 $13,260 
Net Income Attributable to Common Stockholders$(8,419)$2,752 $598 $13,260 
Net (loss) income per common share:
Basic (1)$(0.55)$0.18 $0.04 $0.88 
Diluted (1)$(0.55)$0.17 $0.04 $0.83 
Weighted average number of common shares outstanding:
Basic15,220,593 15,146,890 15,190,079 15,092,844 
Diluted15,220,593 16,069,729 16,067,066 16,015,683 
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Thirteen weeks endedThirty-nine weeks ended
(dollars in thousands)October 30,
2022
October 31,
2021
October 30,
2022
October 31,
2021
EBITDA (2)(3)(9,136)4,697 9,142 19,985 
Adjusted EBITDA (2)(3)$(8,356)$5,818 $12,112 $23,553 
As of
(amounts in thousands)October 30,
2022
January 30,
2022
Balance Sheet Data:
Cash and cash equivalents$3,832 $92,392 
Working capital96,540 106,379 
Total assets407,396 371,579 
Total liabilities249,226 215,353 
Total stockholders’ equity158,170 156,226 
Thirty-nine weeks ended
(amounts in thousands)October 30, 2022October 31, 2021
Condensed Statement of Cash flow Data:
Net Cash Used in Operating Activities$(65,142)$(15,179)
Net Cash Used in Investing Activities(21,559)(11,841)
Net Cash Used in Financing Activities(1,859)(3,459)
Net change in cash and cash equivalents(88,560)(30,479)
Cash and cash equivalents at the end of the period3,832 47,862 
(1)For the calculation of basic and diluted net income per share, see Note 5 and Note 8 to our condensed financial statements.
(2)EBITDA and Adjusted EBITDA are “Non-GAAP Measures” that are supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We believe that EBITDA and Adjusted EBITDA are useful measures of operating performance, as they eliminate expenses that are not reflective of the underlying business performance, facilitate a comparison of our operating performance on a consistent basis from period-to-period and provide for a more complete understanding of factors and trends affecting our business. Additionally, EBITDA is frequently used by analysts, investors and other interested parties to evaluate companies in our industry. We use EBITDA and Adjusted EBITDA, alongside GAAP measures such as gross profit, operating income (loss) and net income (loss), to measure and evaluate our operating performance and we believe these measures are useful to investors in evaluating our operating performance.
These Non-GAAP Measures should not be considered as alternatives to net income (loss) or net income (loss) per share as a measure of financial performance, cash flows from operating activities as a measure of liquidity, or any other performance measure derived in accordance with GAAP. They should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Additionally, our Non-GAAP Measures are not intended to be measures of free cash flow for management’s discretionary use, as they do not consider certain cash requirements such as tax payments and debt service requirements and certain other cash costs that recur in the future. Our Non-GAAP Measures contain certain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized. In addition, our Non-GAAP Measures exclude certain non-recurring and other charges.
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In the future, we may incur expenses that are the same as or similar to some of the adjustments in our Non-GAAP Measures. Our presentation of our Non-GAAP Measures should not be construed to imply that our future results will be unaffected by any such adjustments. Management compensates for these limitations by relying primarily on our GAAP results and by using our Non-GAAP Measures as supplemental information. Our Non-GAAP Measures are not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.
(3)We define “EBITDA” as earnings before interest, taxes, depreciation and amortization. We define “Adjusted EBITDA” as EBITDA adjusted for the impact of certain non-cash and other items that we do not consider in our evaluation of ongoing operating performance. These items include management fees, equity-based compensation expense, write-offs of property and equipment, deferred rent, financing expenses and certain other charges and gains that we do not believe reflect our underlying business performance.
Reconciliation of Non-GAAP Financial Measures
The following provides a reconciliation of Net income to EBITDA and Adjusted EBITDA for the periods presented:
(amounts in thousands)Thirteen weeks ended October 30, 2022Thirteen weeks ended October 31, 2021Thirty-nine weeks ended October 30, 2022Thirty-nine weeks ended October 31, 2021
Net (loss) income$(8,419)$2,752 $598 $13,260 
Interest expense, net69 45 101 135 
(Benefit) provision for income taxes(3,245)174 247 842 
Depreciation and amortization2,459 1,726 8,196 5,748 
EBITDA(9,136)4,697 9,142 19,985 
Equity-based compensation (a)739 1,121 3,034 3,014 
Loss on disposal of property and equipment (b)41