The Lovesac Company (NASDAQ: LOVE) reported Q2 EPS of ($0.08), $0.40 better than the analyst estimate of ($0.48). Revenue for the quarter came in at $61.9 million versus the consensus estimate of $52.35 million.

Highlights for the Quarter Ended August 2, 2020:

• The net sales increase of 28.7% was driven by an increase in internet sales of 387.2%, partially offset by a decrease in showroom sales of (58.9%) due to the impact of showroom closures related to COVID-19 and a decrease of (59.3%) in “Other” sales (which includes shop-in-shops and pop-up shops) related to the impact of COVID-19.
• The gross profit increase of 27.9% was primarily due to the increase in net sales, partially offset by the impact of tariffs. The approximately 31 basis point decrease in gross margin versus the prior year period reflects an increase of approximately 198 basis points in distribution and tariff related expenses, partially offset by improvements of approximately 167 basis points in product costs as a result of vendor negotiations associated with tariff mitigation and continued shift of product sourcing outside of China.
• SG&A expense in the second quarter of fiscal 2021 and second quarter of fiscal 2020 included less than $0.3 million of other non-recurring expenses related to financing initiatives. SG&A expense as a percent of net sales decreased 785 basis points primarily due to leverage of employment costs, rent, and selling related expenses such as credit card fees and pop-up shop fees, partially offset by increases in insurance costs, equity compensation and computer expense related to infrastructure investments.
• Advertising and marketing expense in the second quarter of fiscal 2021 increased approximately 18.1% over the prior year quarter principally due to increased media and direct-to-consumer program spend which contributed to the second quarter sales increase over the prior year period.
• Operating loss was $1.0 million in the second quarter of fiscal 2021 compared to $4.9 million in the second quarter of fiscal 2020. Operating margin decreased to (1.7%) of net sales in the second quarter of fiscal 2021 from (10.3%) of net sales in the second quarter of fiscal 2020.
• Net loss was $1.1 million in the second quarter of fiscal 2021 compared to $4.8 million in the second quarter of fiscal 2020.

Shawn Nelson, Chief Executive Officer, stated, “I am very pleased with our team’s resiliency and ability to adapt as we continued to serve our customers in a rapidly changing operating environment. Our operational pivot to focus on digital channels while showrooms were closed or operating in a limited fashion, as well as our efficient marketing efforts, were very effective. We successfully positioned ourselves to capitalize on strong demand tailwinds resulting in second quarter sales growth of nearly 29% and comparable sales growth of approximately 72% versus the prior year period. Importantly, with operational discipline, we successfully managed both our top line as well as our bottom line, in a pandemic disrupted environment, driving an almost 28% increase in gross profit dollars, positive Adjusted EBITDA1 of $2.2 million and free cash flow of $9.9 million.”

Mr. Nelson continued, “The environment remains uncertain and we will continue to be disciplined and flexible as we navigate a dynamic marketplace while remaining focused on advancing the initiatives that underpin our long-term growth strategy. We are working to deliver an elevated and more seamless omni-channel experience for our customers, making select strategic infrastructure investments to support our growth and creating efficiencies across the business as we continue to innovate and expand the Lovesac brand and our universe of loyal customers.”

Outlook:

Given the impact of the COVID-19 pandemic and the resulting response by the Company, including cost savings and deferral measures, the Company is providing the following outlook commentary for fiscal 2021:

Mr. Nelson concluded, “Coming off a very strong Labor Day, we feel really good about our ability to deliver overall sales growth in the third quarter that is in line with second quarter growth rates. For the full year, we are well-positioned to drive positive Adjusted EBITDA1, coming entirely in the fourth quarter as the third quarter will be pressured by expense shifts and significant marketing increases that are in large part due to COVID-19-driven deferrals from the second quarter. With gross margins that are expected to be down approximately 200 basis points year-over-year in the third quarter, and the aforementioned expense shifts, we expect an Adjusted EBITDA1 loss of $10 million to $11 million in the third quarter. Importantly, we will continue to be nimble and flexible and will remain disciplined in our approach to running the business as we head into the seasonally high volume period of the year.”

For its current fiscal 2021 year, the Company continues to expect to generate cash from working capital, to open 15-18 new showrooms, to add two additional regional distribution facilities by the end of the fiscal year, and to have capital expenditures in the $12 million to $14 million range.

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