The Lovesac Company Q4 FY2026 earnings call

• Design for Life product innovation: Launched Snug platform, Pillow Sack Chair Junior, swept arm for sectionals, refreshed Saxonals cover assortment. - Brand evolution and strategic shifts: Sharpening positioning, rebuilding marketing playbook, focusing on harvesting the brand to win the living room, planning prolific new product introductions in fiscal 2027, including Snug Sofa extensions, Sactionals redesign for domestic manufacturing, new high-end sectional sofa platform, reducing customer purchase friction with delivery options. - Customer acquisition engines: Brand and performance marketing evolution, digital configurations improvement, showroom experience launch of Brand Tour, enhanced Costco partnership. - Growth enablers: Path to domestic production of factional insert pieces next summer, leveraging supply chain as competitive advantage.

Third quarter net sales were $150.2 million, about $1 million below guidance range. Adjusted EBITDA and net loss within guidance ranges. Showroom net sales increased $11.7 million or 12.8% to $102.7 million. Internet net sales decreased 7.6 million or 16.9% to 37.3 million. Other net sales decreased 3.8 million or 27.3% to 10.2 million. Sectional net sales decreased 1.0%, SAX net sales decreased by 9.0%, other net sales (including new Snug platform, etc.) increased 126.3%. Gross margin decreased 240 basis points to 56.1% due to tariffs, transportation, and promotional intensity, partially offset by price increases, cost savings, and vendor concessions.

Full year fiscal 2026: Net sales $685 - $705 million, adjusted EBITDA $37 - $43 million, gross margins 56% - 57%, advertising and marketing ~12.5% of net sales, SG&A ~40% - 41% of net sales, net income $2 - $8 million, diluted income per common share $0.15 - $0.49. Fourth quarter: Net sales $236 - $256 million, adjusted EBITDA $51 - $56 million, gross margins 57.5% - 58.5%, advertising and marketing 10% of net sales, SG&A 27.5% - 28.5% of net sales, net income $30 - $36 million, diluted income per common share $1.88 - $2.22. Slowing physical store expansion in fiscal 2027, planning ~10 net showroom openings.

Macro conditions leading to consumer uncertainty and choppy week-to-week sales, particularly in lower dollar volume transactions; impact of tariffs and transportation costs on gross margin; competitive landscape and potential copycat products affecting market share; uncertainties in consumer spending and category trends impacting sales and growth projections.

Q: On the Love by Lovesac re-commerce efforts, how much discount to consumer and gross margin to Lovesac?

A: Discount around 20% - 25% to full price, two tiers for product conditions. Building infrastructure for resale, planning to launch trade-in program next year.

Q: Changes for fiscal 2027, P&L impacts?

A: Pushing out new room launch, cutting back on showrooms, launching new sofa, more promotional. Need a couple months for details, focusing on building profitability and cash position for new room launch.

Q: Why lower fourth quarter outlook despite industry improvement?

A: Industry has choppy, messy conditions, high end worse than industry on balance, tough compares over new year, abundance of caution.

Q: Revenue weakness in quarter, where from?

A: Weakness in lower end transaction sizes (small set up factional), high end premiumization driving higher AOV, website overhaul driving growth.

Q: Cadence of demand in quarter and fourth quarter, regions of weakness?

A: Q3 demand worse in middle, some regions like Florida and Texas affected. Fourth quarter improvement due to promotions and marketing adjustments.

Q: Gross margin outlook in fourth quarter?

A: Softer due to incremental need for promotions to remain competitive and lower absolute sales level.

Q: Reshoring benefits?

A: More stable pricing, better product, efficient supply chain, shorter shipping distances, better inventory management, new features and intellectual property.

Q: Gross margin strategy on entering new rooms?

A: Target to maintain growth margins, focusing on product and manufacturing efficiencies, leveraging domestic production.