Lovesac Co Q3 FY2025 earnings call

• Q3 Results Overview: Total net sales were down year-over-year, but there were market share gains against a down category. Omnichannel comparable net sales declined, but new and noncomp touchpoint contributions partially offset this. Adjusted EBITDA and net loss were affected by SG&A deleverage but offset by gross margin expansion and advertising leverage.
• Product Innovation: Entered the case goods category with AnyTable, overhauled surface products, and offered insert protectors. Soft-launched the Reclining Seat, which is reverse compatible and has strong initial uptake. Also launched the Charge Side extension to the StealthTech platform. Had over 6 million follower growth via partnership with Olivia Rodrigo for the GUTS World Tour pack.
• Omnichannel Experience: Opened 5 touchpoints, on track for ~30 net new showrooms in Fiscal '25. Made website enhancements to nurture customer relationships, including improvements to the showroom locator and My Hub.
• Infrastructure Investments: Diversified manufacturing outside China, improved inbound and outbound logistics, and reduced inventory by 3% at the end of the quarter.

Total net sales for the third quarter were approximately $149.9 million, representing a year-over-year decline of 2.7%. Regarding product categories: Sactional net sales decreased by 2%, Sacs net sales decreased by 4%, and other net sales (including decorative pillows, blankets, and accessories) decreased by 16%. Gross margin increased to 58.5% of net sales, a 110 basis point improvement, driven by decreases in inbound transportation costs and outbound transportation and warehousing costs, though partially offset by higher promotional discounting.

• Lowered full-year fiscal '25 net sales guidance to $660 million to $680 million and adjusted EBITDA guidance to $37.5 million to $48.5 million.
• Fourth quarter net sales guidance is $221 million to $241 million, and adjusted EBITDA guidance is $43 million to $55 million. Cautious about category challenges but optimistic about secular growth plan and ability to capitalize on category rebound when it occurs.

• Persistent headwinds in the pre-election period affected consumer spending and quote conversion. The home category remains severely challenged, not recovered from post-pandemic pull forward. Changes in furniture financing programs impacted revenue flow through the Lovesac financing program.

Q: About Q4 outlook and the delta from prior guidance.

A: The biggest delta from prior guidance is due to the category. Backlog was less than $5M, supply chain issues for StealthTech were resolved, but conversion of quotes is a key factor.

Q: Promotional strategy and gross margin of the recliner.

A: Not promoting new inventions heavily. Recliner gross margin is in line with overall profile, and there's good uptake with nearly 4,000 units sold so far, 50-50 between existing and new customers.

Q: Fourth quarter tracking and recliner attach rates.

A: Q4 tracking is conservative due to conversion challenges. Recliner has strong initial uptake with ~4,000 units sold, and it's off to a strong start without full media support.

Q: Transition to new media buying agency.

A: Positive transition with better buying power, media performance stronger, focusing on cultural marketing like NBA sponsorship and optimization.

Q: Post-election period and balance between product launches and top line guidance.

A: Post-election period has been mixed. Market share gains from product launches, but softer top line due to lower quote conversion before Christmas; cautiously optimistic about post-Christmas performance