The Lovesac Company Q2 FY2026 earnings call

• Shawn Nelson provided an overview of Q2 results, discussed Design for Life product platforms, and year-end views, mentioning the brand evolution work and the renaming of EverCouch to Snug.
• Mary Fox focused on customer acquisition engines, including brand and performance marketing, digital configurations, showroom experience, and partnership model, highlighting the launch of Snug and its soft launch progress.
• Keith Siegner reviewed financial results, including net sales, gross margin, SG&A expenses, and balance sheet health, and provided the Q3 and fiscal 2026 outlook.

For the second quarter, total net sales were $160.5 million, a year-over-year increase of 2.5%. Showroom net sales increased $10.3 million or 10.4% to $109.1 million, driven by a 0.9% increase in omnichannel comparable net sales and 16 new showrooms. Internet net sales decreased $1.8 million or 4.1% to $42.5 million. Other net sales, including pop-up shop and barter transactions, decreased $4.5 million or 33.6% to $9 million. By product category, SAC net sales increased 4.6%, Sactionals net sales decreased 22.5%, and other net sales (accessories) increased 2%. Gross margin decreased 260 basis points to 56.4% of net sales.

• Full-year fiscal 2026 net sales guidance tightened to 4%-9% growth.
• Adjusted EBITDA expected between $42 million and $55 million, with gross margins 57%-58%, advertising and marketing at ~12% of net sales, and SG&A at ~40%-41% of net sales.
• Q3 net sales estimated $151 million to $161 million, adjusted EBITDA loss $1 million to $7 million, with gross margins 56%-57%.

• Tariff headwinds, including higher than expected tariff rates on key sourcing countries.
• Competitive discounting pressures impacting gross margins.
• Best Buy exit costs and nonrecurring expenses related to partnership termination.

Q: As The Lovesac Company undertakes brand evolution, do you anticipate changes to the customer acquisition approach or marketing effectiveness in the near term?

A: Shawn Nelson and Mary Fox discussed the ongoing brand refresh, new CMO Heidi Cooley's role, and the launch of the Snug campaign with Britney Snow, indicating changes in go-to-market strategy and advertising.

Q: How do the tariffs impact the EBITDA outlook, and which is more significant, tariffs or promotional activity?

A: Mary Fox discussed tariff rates doubling on key sourcing countries, and Keith Siegner explained the gross margin pressures from tariffs and increased promotional discounts, with the combination impacting the model more than expected.

Q: Could you expand on the levers to pull on expanding gross margins midway through Q4 and into next year?

A: Keith Siegner outlined levers including optimizing outbound logistics, realigning countries of origin, implementing new delivery service levels and return policies, evolving promotion strategy, and expecting category normalization to relieve pressure.

Q: How should investors think about The Lovesac Company made in the USA?

A: Shawn Nelson stated the company is working towards domestic manufacturing, with a component-based approach enabling economies of scale, and significant manufacturing moving domestic in the next quarters.

Q: Provide an update on e-commerce efforts and their role in mitigating tariff impact.

A: Mary Fox discussed the resale platform Love by Love Sac, expanded to five states, with plans to roll out trade-in capability, enhancing customer lifetime value and value proposition.

Q: On gross margin progression and Q3 headwinds, explain the lap of promotions and tariff impact.

A: Keith Siegner explained Q3 headwinds from lower promotional intensity lap and higher tariff impact from China sourcing, with Q4 seeing improvement from lapping last year's heavy promotions and easing tariff burden.

Q: On gross margin unmitigated tariff cost and expense profile change into back half 2025 and 2026.

A: Keith Siegner discussed current tariff rates not factored in guidance, and no material expense profile change except higher SG&A in Q4 due to not unwinding incentive compensation like last year.