The Lovesac Company (LOVE) Earnings

Management highlights

- Strategic Direction & Brand Evolution * The company is evolving from a product-driven business to a multi-room, multi-platform lifestyle brand centered on its "Design for Life" philosophy: durable, modifiable products that evolve with customers over years/decades, rather than trend-driven or seasonal replacement goods. * Moved up 2 spots to 17th largest furniture retailer in the U.S., with significant remaining greenfield growth opportunity. * Launched the full 360-degree "Here for Life" marketing campaign, focused on real customers and real homes to build long-term brand equity and improve customer funnel conversion. - Product Performance Highlights * Larger configurations and premium add-ons (Reclining Feet, Love Soft Fill, Storage) have strong momentum, with mid-double-digit growth in transactions over $6,000 offsetting softness in transactions under $6,000. Reclining Feet attachment rates remain strong at ~33% of configurations. * The new Snug smaller-space seating platform, <1 year old, continues to outperform expectations: 80% of Snug customers are new to Lovesac, 50% of Snug sales are through e-commerce, validating the digital-first product expansion thesis with minimal capital outlay. - Customer Acquisition & Omnichannel * Shifted marketing from linear media to an integrated digital-first ecosystem, driving 13% growth in media-attributed revenue and double-digit improvements in return on ad spend in Q1. Invested in AI-readable content and agentic search optimization to capture new AI-driven discovery traffic. * E-commerce sales grew 7.1% YoY, increasing e-commerce penetration by 170 bps, with record web customer satisfaction scores. * The 281-location showroom network delivered 0.5% net sales growth YoY (despite category-wide traffic pressure), with higher year-over-year conversion and a 12% increase in quote pipelines. New showrooms deliver 1-year net cash paybacks with limited market cannibalization. * The Loved by Lovesac resale platform, live in 30 states, has 7 out of 10 customers new to the brand, acting as a new entry point to the Lovesac ecosystem and supporting the company's circular operations model. The platform was expanded to include Reclining Seat and Snug in Q1. - Supply Chain & Onshoring * On track to begin U.S. domestic manufacturing of Sactional seats in summer 2027. Products have been redesigned from the ground up to optimize for automation, improve manufacturability, add new customer features, and maintain reverse compatibility with all existing Sactionals. This initiative will reduce cost volatility, improve fulfillment speed, and reduce dependency on international freight. * Secured contracted freight capacity that insulated the company from Q1 spot market freight price spikes driven by higher oil prices. Received $3.4 million in approved IEPA tariff refunds to date, with only this amount reflected in current guidance.

Guidance

- Full fiscal 2027 guidance is maintained with the following ranges: net sales of $700 million to $740 million, adjusted EBITDA of $35 million to $46 million, gross margins of 56% to 57%, advertising and marketing of ~12% as a percent of net sales, SG&A of 40% to 41% as a percent of net sales, and diluted EPS of $0.34 to $0.81. - Fiscal 2027 second quarter guidance: net sales of $157 million to $166 million (modest growth at the midpoint), adjusted EBITDA of -$4 million to +$2 million, gross margins of 57.5% to 58.5%, advertising and marketing of ~14.5% as a percent of net sales, and a net loss of $3 million to $7 million (EPS loss of $0.20 to $0.48 per share). - Guidance includes only the $3.4 million in tariff refunds already received, with no additional potential future refunds factored in due to timing uncertainty. - Guidance accounts for updated cost outlooks for materials, energy, transportation, and current tariff conditions, and assumes continued low single-digit declines in the overall furniture category for the remainder of the year. - A temporary gap between demand and net sales is expected to continue into Q2 as the expanded white glove delivery option has longer customer scheduling lead times than standard delivery, which management views as a long-term positive for overall sales.

Segment performance

Overall net sales for Q1 fiscal 2027 were $138.2 million, a 0.1% decrease year-over-year (YoY). By channel: Showroom net sales were $97.1 million (+0.6% YoY, 70.3% of total net sales), Internet sales were $35.7 million (+7.1% YoY, 25.8% of total net sales), and Other net sales (pop-ups, resale, open-box) were $5.5 million (-36.3% YoY, 4.0% of total net sales). By product segment: Sectional net sales decreased 1.4% YoY, Sack net sales decreased 22.5% YoY, and Other product sales (including the new Snug platform, accessories, pillows, blankets) increased 228.1% YoY. Gross margin was 52.1% of net sales, down 160 bps YoY due to higher inbound/outbound transportation and tariff costs, partially offset by higher product margins from price increases and cost reduction initiatives. SG&A expenses were 49.6% of net sales, up 110 bps YoY driven by higher payroll and overhead costs. The operating loss for the quarter was $17.4 million, with a net loss of $11.1 million ($-0.76 per share) and an adjusted EBITDA loss of $10.5 million.

Risks & headwinds

- Continued macroeconomic uncertainty and weak consumer sentiment have resulted in soft demand for transactions under $6,000, which could pressure overall top-line growth if the company is unable to rekindle demand in this segment. - Volatility in freight costs, oil prices, and the tariff landscape creates input cost uncertainty that can pressure gross margins, even with mitigation strategies in place. - Uncertainty around the timing and amount of additional approved IEPA tariff refunds, with no guarantee the full approved amount will be received in the near term. - The U.S. onshoring initiative is a large-scale undertaking that will take time to scale, and will not deliver material supply chain or margin benefits in fiscal 2027, with potential for unforeseen execution risks during ramp-up. - Overall furniture category demand remains pressured, with low single-digit declines continuing through the quarter, creating a challenging operating environment for all players in the space.

Analyst Q&A

• Q: How is Lovesac positioning itself to capitalize on the agentic/AI commerce opportunity in furniture? /

  A: A growing share of consumer search for large furniture purchases now occurs through large language models (LLMs). The company has prioritized making all its online content AI-readable and properly structured for LLM discovery, and is piloting ad placements that convert LLM search directly to site traffic. It has also improved site searchability and frictionlessness to convert this new traffic faster, and is already seeing an uptick in share of voice in LLM results, with more progress to come.

• Q: What is the role of the Loved by Lovesac resale platform, particularly as a counter-cyclical offering for price-sensitive consumers? /

  A: The resale platform is still in early rollout, currently live in 30 states, and the company has not yet activated marketing for the program as it works to refine end-to-end processes to support higher volume. Management confirms it sees significant opportunity for the platform to serve price-sensitive consumers and act as an entry point to the Lovesac brand, with more expansion and marketing planned as operations stabilize.

• Q: How much additional tariff refund could Lovesac receive, when might it arrive, and how would the company use any additional proceeds? /

  A: The company has had a total of $20.8 million in refund applications approved, but has only received $3.4 million to date, and the processing window has been paused since the initial disbursement. There is no clear visibility on the timing of future disbursements, so only received amounts are included in current guidance. If the full amount is received, management is evaluating multiple uses including supporting profitability and funding core strategic priorities, with no final decisions made yet.

• Q: What is the timeline and expected impact of the upcoming U.S. domestic manufacturing launch? /

  A: Domestic production of redesigned Sactional seats is on track to start in late summer 2027, but will take time to scale, so no material margin or supply chain benefits are expected in fiscal 2027. The product was fully redesigned for automation and added customer features (not just reproduced identically) to make domestic manufacturing cost-competitive with imports. Management plans to retain optionality and redundancy in sourcing, and views onshoring as a long-term risk mitigant for geopolitical and supply chain volatility that also builds a competitive moat for the brand.

• Q: What is the showroom strategy as Lovesac expands into new product categories and a new room of the home? /

  A: Lovesac will lean into its existing superpower of small-footprint, high-margin specialty retail, and does not plan to meaningfully increase the size of individual showrooms. Existing new leases already have slightly more square footage than older locations, which has worked well for performance. The company will leverage the omnichannel model, where showroom associates can sell the full expanded product catalog digitally even if some new products are not displayed in-store, to keep rent (the company's largest operating expense) contained while expanding offerings.