The Lovesac Company (NASDAQ: LOVE) reported Q3 EPS of ($0.46), $0.03 worse than the analyst estimate of ($0.43). Revenue for the quarter came in at $52.1 million versus the consensus estimate of $54.29 million.

For the Thirteen Weeks Ended November 3, 2019

• Net sales increased 25.0% to $52.1 million in the third quarter of fiscal 2020 from $41.7 million in the third 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 digital marketing strategies which drew new customers to the brand while also driving repeat purchase behavior. Comparable sales, which includes showroom and Internet sales, increased 32.5%. Comparable showroom sales increased 27.1% and Internet sales increased 47.7%.
• The Company opened four new showrooms in the third quarter of fiscal 2020 and ended the quarter with 84 showrooms in 32 states. This represents a unit increase of 9.1% over the same quarter in the prior year.
• Gross profit increased $3.4 million, or 14.7%, to $26.3 million in the third quarter of fiscal 2020 from $22.9 million in the third quarter of fiscal 2019. Gross margin decreased to 50.4% of net sales from 54.9% of net sales in the prior year period. The expected decrease in gross margin rate was driven primarily by the impact of the 25% 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. Given timing factors, the benefits of the sourcing work and recently negotiated vendor concessions are expected to impact gross margins starting in the first quarter of fiscal 2021.
• Selling, general and administrative expenses increased $5.2 million, or 26.7%, to $24.5 million in the third quarter of fiscal 2020 compared to $19.3 million in the prior year period. The increase in selling, general and administrative expenses was primarily related to investments to support growth including: an increase in employment costs of $1.6 million, $0.9 million of increased rent associated with our addition of four showrooms offset by a reduction of $0.1 million of expenses related to sales such as an increase of $0.4 million of credit card fees, offset by a reduction of $0.5 million of pop-up shop sales agent fees. Overhead expenses increased $2.8 million consisting of an increase of $2.3 million in infrastructure improvements, increase in equity-based compensation of $0.1 million, and an increase of $0.4 million related to operating costs of the business such as insurance.
• As a percent of net sales, total SG&A expense increased to 47.0% from 46.4% in the prior year period, driven largely by increases in infrastructure improvements, employment and insurance costs, partially offset by selling related expenses.
• Advertising and marketing expenses increased $2.1 million, or 40.5%, to $7.3 million in the third quarter of fiscal 2020 compared to $5.2 million in the third 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 $0.3 million or 27.1% in the third quarter of fiscal 2020 to $1.4 million compared to $1.1 million in the third quarter of fiscal 2019. The increase in depreciation and amortization expense principally relates to capital investments for new and remodeled showrooms.
• Operating loss was $6.9 million in the third quarter of fiscal 2020 compared to an operating loss of $2.7 million in the third quarter of fiscal 2019.
• Net loss and net loss attributable to common shares was $6.7 million in the third quarter of fiscal 2020, compared to a net loss of $2.5 million, or net loss attributable to common shares of $2.9 million including preferred dividends and deemed dividends in the third quarter in fiscal 2019. Adjusted net loss, which excludes the impact of the IPO and certain other non-recurring expenses in both periods, was $6.7 million in the third quarter of fiscal 2020 compared to $2.0 million in the third quarter of fiscal 2019 (see “GAAP and Non-GAAP Measures”).
• Net loss per share, including preferred dividends and deemed dividends, was ($0.46) in the third quarter of fiscal 2020 compared to ($0.22) in the third 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 ($0.46) in the third quarter of fiscal 2020 compared to ($0.15) in the third quarter of fiscal 2019 (see “GAAP and Non-GAAP Measures”).
• Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”), was ($3.7) million in the third quarter of fiscal 2020 compared to ($0.4) million in the third quarter of fiscal 2019 (see “GAAP and Non-GAAP Measures”).

Shawn Nelson, Chief Executive Officer, stated, “We are very pleased to have delivered better than expected third quarter Adjusted EBITDA results even with a slight top-line impact from a timing shift of showroom openings. This demonstrates our disciplined approach to managing the business while still achieving continued high growth.”

Nelson added, “The all-important fourth quarter is off to a great start with greater than 42% growth over fourth quarter last year and we are on track to deliver positive Adjusted EBITDA for the full fiscal year.”

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