Lovesac Co Q4 FY2025 earnings call

Key Points from Shawn - Fiscal 2025 Overview: Had most prolific year for new product launches, codified long-term strategy at Investor Day, reinvented supply chain and enhanced CRM, healthy balance sheet. - New Products: Reclining Seat sold over 18,500 units with strong new/repeat customer purchases; EverCouch to launch in 2Q fiscal 2026. - Leadership: Heidi Cooley joined as Chief Brand and Marketing Officer. ### Mary's Insights - Customer Acquisition Engines: Leverage brand performance marketing, digital configurations, showroom experiences, and partnerships. - Supply Chain: Transformed network strategy, reduced exposure to spot market rates, working to diversify sourcing away from China. - ESG: 4th annual ESG Report published, progress towards zero waste and zero emissions by 2040. ### Keith's Financial Review - Fourth Quarter Results: Net sales $241.5M, down 3.6% Y/Y; gross margin 60.4%; operating income $47.6M. - Balance Sheet: Healthy cash position, $83.7M in cash and cash equivalents, repurchased ~646,000 shares.

In the fourth quarter, sactional net sales decreased 3.8%, Sac net sales decreased 3.0%, and other net sales (including decorative pillows, blankets, and accessories) increased 2.7% compared to the prior year period. Gross margin increased 70 basis points to 60.4% of net sales in the fourth quarter versus 59.7% in the prior year period.

Fiscal Q1: Estimates net sales of $136 million to $142 million (mid-single-digit revenue growth at midpoint) and adjusted EBITDA loss between $8 million and $12 million, with gross margins ~54.5%. ### Full Year Fiscal 2026: Estimates net sales of $700 million to $750 million, adjusted EBITDA between $48 million and $60 million, with secular tailwinds including product launches, EverCouch launch, and new marketing strategies.

Risks: - Macro conditions remain challenging with category fluctuations. - Potential tariff impact, working to diversify sourcing but need to manage carefully to avoid confusing customers. - Supply chain disruptions and uncertainty around global negotiations and competitor/consumer response.

Q: How much of inventory is planned to be pulled forward from countries outside of China over the next couple of months?

A: Shawn mentioned they are actively moving production out of China in real time, have a path to get below 10% sourcing from China this year, and Q1 inventory is already spoken for.

Q: How should investors think about potential lower interest rates unlocking the housing market?

A: Keith and Shawn noted lower interest rates could unlock housing market, Lovesac is ready to participate with quick shipping and unique product offerings, and couches wear out creating natural turnover opportunities.

Q: How quickly could sourcing be moved out of China?

A: Shawn said they are actively moving production out of China in days, have a path to get below 10% sourcing from China this year, with no critical products solely sourced in China.

Q: How does the recliner perform versus expectations?

A: Shawn stated the recliner has exceeded expectations, outstripped initial supply, sold over 18,500 units, with even split between new and repeat customers, and is their most successful product launches in modern history.