The Lovesac Company Announces Third Quarter Fiscal 2021 Financial Results
12/09/2020 - 07:00 AM
Third Quarter Net Sales Growth of 43.5 % ; Comparable Sales Growth of 53. 5 % Net Income I ncreases to $ 2.5 million from ($6.7) million in Third Quarter Fiscal 2021 Adjusted EBITDA I ncreases to $ 6.0 million from ($3.7) million in Third Quarter Fiscal 2021
STAMFORD, Conn., Dec. 09, 2020 (GLOBE NEWSWIRE) -- The Lovesac Company (Nasdaq: LOVE) (“Lovesac” or the “Company”) today announced its financial results for the third quarter of fiscal 2021, which ended November 1, 2020.
Shawn Nelson, Chief Executive Officer, stated, “Lovesac’s third quarter results exceeded our expectations on the top and bottom line, a strong affirmation that we continue to successfully navigate marketplace challenges. Highlights include strong topline growth of 43.5%, a total comparable sales increase of 53.5%, gross margin expansion of 487 bps and Adjusted EBITDA1 of $6.0 million. These results speak to the resiliency of our business model and the exceptional job our team has done to meet customer demand in a challenging and rapidly evolving environment.”
Mr. Nelson continued, “Our business fundamentals are strong, and our recently expanded partnership with Best Buy broadens our audience and expands Sactionals adoption in an agile, capital efficient manner. In combination with continued progress on our key strategic initiatives, we are well-positioned to capitalize on product demand and as such, we expect a strong year over year increase of 50% to 60% in Adjusted EBITDA1 for the fourth quarter. We look forward to building on our progress and success as we close out the fiscal year.”
Mr. Nelson added, “We believe that Lovesac leads the DTC and furniture categories in its commitment to sustainability and ESG initiatives, building sustainable products and contributing to a reduction of furniture waste in landfills. This is an endeavor that has been core to our DNA since the inception of our company, guided by our Designed For Life philosophy, with substantial progress to-date including sourcing all of our affixed upholstery fabric from 100% recycled plastic and repurposing over 20 million plastic bottles last year alone. Our products are built to last a lifetime and designed to evolve, and next year, we will be improving our communication on our tracking and impact. Adherence to our high bar for innovation and sustainability will, we believe, fuel market share gains in the current, and even new categories, in which we will compete. We will make operating decisions in support of our purpose, which is to inspire humankind to actually buy less, but buy better.”
Key Measures for the Third Quarter and Year - to - Date Period of Fiscal 2021 End ing N ovember 1 , 2020: (Dollars in millions, except per share amounts)
Quarter Ended November 1, 2020 Quarter Ended November 3, 2019 % Inc (Dec) Year to Date Ended November 1, 2020 Year to Date Ended November 3, 2019 % Inc (Dec) Net Sales $ 74.7 $ 52.1 43.5 % $ 191.1 $ 141.2 35.3 % Gross Profit1 $ 41.3 $ 26.3 57.3 % $ 99.6 $ 71.5 39.3 % Gross Margin 1 5 5.3 % 50.4 % 487 bps 5 2 .2 % 50. 7 % 150 bps Total Operating Expense $ 38.8 $ 33.1 17.1 % $ 106.5 $ 92.7 15.0 % SG&A $ 25.9 $ 24.5 6.0 % $ 75.2 $ 70.3 6.9 % SG&A as % of Net Sales 3 4 .7 % 4 7.0 % ( 1 , 228 ) bps 39.3 % 49.8 % ( 1 , 045 ) bps Advertising & Marketing $ 11.0 $ 7.3 51.2 % $ 26.3 $ 18.7 40.7 % Advertising & Marketing as % of Net Sales 1 4.7 % 1 3.9 % 75 bps 13. 8 % 1 3.3 % 5 3 bps Basic EPS Income (Loss) $ 0.17 $ (0.46 ) (137.0 %) $ (0.48 ) $ (1.45 ) (66.9 %) Diluted EPS Income (Loss) $ 0.16 $ (0.46 ) (134.8 %) $ (0.48 ) $ (1.45 ) (66.9 %) Net income (loss) $ 2.5 $ (6.7 ) (136.7 %) $ (7.0 ) $ (20.6 ) (66.2 %) Adjusted EBITDA2 $ 6.0 $ (3.7 ) 259.7 % $ 2.4 $ (11.7 ) 120.8 % Cash (Used In) Provided by Operating Activities $ (5.1 ) $ (13.4 ) 61.9 % $ 6.9 $ (36.4 ) (119.0 %)
1 Estimated gross 25% tariff impact for the third quarter of fiscal 2021 to Gross Profit and Gross Margin was $2.8 million and 373 bps, respectively. Estimated gross 25% tariff impact for the Thirty-Nine weeks ending November 1, 2020 to Gross Profit and Gross Margin was $7.6 million and 399 bps, respectively. Estimated gross blended 10% to 25% tariff impact for the third quarter of fiscal 2020 to Gross Profit and Gross Margin was $3.3 million and 605 bps, respectively. Estimated gross blended 10% to 25% tariff impact for the Thirty-Nine weeks ending November 3, 2019 to Gross Profit and Gross Margin was $5.7 million and 351 bps, respectively.2 Adjusted EBITDA is a non-GAAP measure. See “Non-GAAP Information” and “Reconciliation of Non-GAAP Financial Measures” included in this press release.
Percent Increase (Decrease), except showroom count Quarter Ended November 1, 2020 Quarter Ended November 3, 2019 Year to Date ended November 1, 2020 Year to Date Ended November 3, 2019 Total Comparable Sales ( 3 )( 4 ) 53.5 % 34.3 % 58.7 % 39.5 % Comparable Showroom Sales ( 4 ) 25.5 % 29.7 % (14.2 %) 31.7 % Internet Sales 125.2 % 47.7 % 247.2 % 64.7 % Ending Showroom Count 107 84 107 84
3 Total comparable sales include showroom transactions through the point of sale and internet net sales.4 Comparable showroom sales reflect transactions through the point of sale and not necessarily product that has shipped to the customer. Product that has shipped to the customer is what is included in Net Sales. Showrooms were closed as required by local and state laws as a result of the COVID-19 pandemic effective March 18, 2020 but have since reopened in some format. We are abiding with federal, state and local guidelines with respect to the operating status of our showrooms. As of the end of the third quarter, most showrooms had fully reopened to the walk-in phase, with some still in the virtual or by appointment only phase.
Highlights for the Quarter Ended November 1, 2020:
The net sales increase of 43.5% was driven by an increase in internet sales of 125.2%, coupled with an increase in showroom sales of 27.9% partially offset by a decrease of 8.7% in “Other” sales (which includes shop-in-shops and pop-up shops) related to a decrease in in store pop-up shops The gross profit increase of $15.1 million, or 57.3%, was primarily due to the increase in net sales, higher average retail price due to less promotional discounts and favorable mix impact, partially offset by the impact of tariffs. The 487 basis point increase in gross margin versus the prior year period reflects 535 basis points improvement in gross profit as a result of a reduction in promotional discounts, positive mix impact and lower product costs related to vendor negotiated tariff mitigation initiatives partially offset by an increase of approximately 48 basis points in distribution and tariff related expenses. SG&A expense as a percent of net sales decreased 1,228 basis points primarily due to leverage of employment costs, rent, and selling related expenses such as credit card fees and pop-up shop fees, partially offset by increases in equity compensation. Advertising and marketing expense increased 51.2% over the prior year period and as a percent of net sales increased by 75 bps principally due to increased media and direct-to-consumer program spend which contributed to the third quarter sales increase over the prior year period. Operating income was $2.5 million in the third quarter of fiscal 2021 compared to an operating loss of $6.9 million in the third quarter of fiscal 2020. Operating margin was 3.4% of net sales in the third quarter of fiscal 2021 compared to (13.2%) of net sales in the third quarter of fiscal 2020. Net income was $2.5 million in the third quarter of fiscal 2021 compared to a net loss of $6.7 million in the third quarter of fiscal 2020. Highlights for the Thirty-Nine weeks Ended November 1 , 2020:
The net sales increase of 35.3% was driven by an increase in internet sales of 247.2%, partially offset by a decrease in showroom sales of 20.0% and a decrease of 21.2% in “Other” sales (which includes shop-in-shops and pop-up shops) due to the impact of closures related to COVID-19. The gross profit increase of $28.1 million, or 39.3%, was primarily due to the increase in net sales, higher average retail price due to less promotional discounts and favorable mix impact partially offset by the impact of tariffs. The 150 basis point increase in gross margin versus the prior year period reflects 321 basis points improvement in gross profit as a result of a reduction in promotional discounts, lower product costs related to vendor negotiated tariff mitigation initiatives and a continued shift of product sourcing from outside of China, partially offset by an increase of approximately 171 basis points in distribution and tariff related expenses. SG&A expense includes less than $0.1 million and $0.6 million of other non-recurring expenses related to financing and executive recruitment fees, respectively. SG&A expense as a percent of net sales decreased 1,045 basis points primarily due to leverage of employment costs, rent, selling related expenses such as credit card fees and pop-up shop fees and equity-based compensation, partially offset by increases in insurance and computer expense related to infrastructure investments. Advertising and marketing expense increased 40.7% over the prior year period and as a percent of net sales increased by 53 bps principally due to increased media and direct-to-consumer program spend which contributed to the sales increase over the prior year period. Operating loss was $6.9 million compared to $21.1 million in the prior year period. Operating margin was (3.6%) of net sales compared to (15.0%) of net sales in the prior year period. Net loss was $7.0 million compared to $20.6 million in the prior year period. Other Financial Highlights as of November 1 , 2020:
The cash and cash equivalents balance as of November 1, 2020 was $47.7 million as compared to $27.9 million as of November 3, 2019. There was no debt outstanding on the Company’s line of credit as of November 1, 2020 and November 3, 2019, respectively. The Company’s availability under the line of credit was $19.2 million as of November 1, 2020 and $13.5 million as of November 3, 2019. Total inventory was $57.8 million as of November 1, 2020 as compared to $50.2 million as of November 3, 2019. Conference Call Information: A conference call to discuss the third quarter of fiscal 2021 financial results is scheduled for today, December 9, 2020, at 8:30 am Eastern Time. Investors and analysts interested in participating in the call are invited to dial 877-407-3982 (international callers please dial 201-493-6780) approximately 10 minutes prior to the start of the call. A live audio webcast of the conference call will be available online at investor.lovesac.com.
A recorded replay of the conference call will be available within two hours of the conclusion of the call and can be accessed online at investor.lovesac.com for 90 days.
Notes
1 Adjusted EBITDA is a non-GAAP measure. See “Non-GAAP Information” and “Reconciliation of Non-GAAP Financial Measures” included in this press release.
About The Lovesac Company Based in Stamford, Connecticut, The Lovesac Company is a technology driven company that designs, manufactures and sells unique, high quality furniture derived through its proprietary “Designed for Life” approach which results in products that are built to last a lifetime and designed to evolve as our customers’ lives do. Our current product offering is comprised of modular couches called Sactionals, premium foam beanbag chairs called Sacs, and their associated home decor accessories. Innovation is at the center of our design philosophy with all of our core products protected by a robust portfolio of utility patents. We market and sell our products primarily online directly at www.lovesac.com, supported by direct-to-consumer touch-feel points in the form of our own showrooms as well as through shop-in-shops and pop-up-shops with third party retailers.
Non-GAAP Information Adjusted EBITDA is defined as a non-GAAP financial measure by the Securities and Exchange Commission (the “SEC”) that is a supplemental measures of financial performance not required by, or presented in accordance with, GAAP. We define “Adjusted EBITDA” as earnings before interest, taxes, depreciation and amortization, adjusted for the impact of certain non-cash and other items that we do not consider in our evaluation of ongoing operating performance. These items include management fees, equity-based compensation expense, write-offs of property and equipment, deferred rent, financing expenses and certain other charges and gains that we do not believe reflect our underlying business performance. We have reconciled this non-GAAP financial measure with the most directly comparable GAAP financial measure within the schedules attached hereto.
We have also presented herein certain forward-looking statements about the Company’s future financial performance that include non-GAAP (or “as-adjusted”) financial measures, including Adjusted EBITDA. This non–GAAP financial measure is derived by excluding certain amounts, expenses or income, from the corresponding financial measures determined in accordance with GAAP. The determination of the amounts that are excluded from this non-GAAP financial measure is a matter of management judgment and depends upon, among other factors, the nature of the underlying expense or income amounts recognized in a given period. We are unable to present a quantitative reconciliation of the aforementioned forward-looking non-GAAP financial measure to its most directly comparable forward-looking GAAP financial measures because management cannot reliably predict all of the necessary components of such GAAP measures, which could be significant in amount.
We believe that these non-GAAP financial measures not only provide its management with comparable financial data for internal financial analysis but also provide meaningful supplemental information to investors. Specifically, these non-GAAP financial measures allow investors to better understand the performance of our business, facilitate a more meaningful comparison of our actual results on a period-over-period basis and provide for a more complete understanding of factors and trends affecting our business. We have provided this information as a means to evaluate the results of our ongoing operations alongside GAAP measures such as gross profit, operating income (loss) and net income (loss). Other companies in tour industry may calculate these items differently than we do. These non-GAAP measures should not be considered as a substitute for the most directly comparable financial measures prepared in accordance with GAAP, such as net income (loss) or net income (loss) per share as a measure of financial performance, cash flows from operating activities as a measure of liquidity, or any other performance measure derived in accordance with GAAP. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company’s results as reported under GAAP.
Cautionary Statement Concerning Forward Looking Statements Certain statements in this press release, other than purely historical information, including estimates, projections and statements relating to our business plans, objectives and expected operating results and outlook, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended which statements involve substantial risk and uncertainties. In some cases, you can identify forward-looking statements because they contain words or phrases such as “may,” “believe,” “anticipate,” “could,” “should,” “intend,” “plan,” “will,” “aim(s),” “can,” “would,” “expect(s),” “estimate(s),” “project(s),” “forecast(s)”, “positioned,” “approximately,” “potential,” “goal,” “pro forma,” “strategy,” “outlook” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. All statements, other than statements of historical facts, included in this press release regarding strategy, future operations, future financial position or projections, future revenue, projected expenses, prospects, plans and objectives of management are forward-looking statements. These statements are based on management’s current expectations and/or beliefs and assumptions that management considers reasonable, which assumptions may or may not prove correct. We may not actually achieve the plans, carry out the intentions or meet the expectations disclosed in the forward-looking statements and you should not place undue reliance on these forward-looking statements. Actual results and performance could differ materially from those projected in the forward-looking statements as a result of many factors. The preliminary financial results included in this press release represent the most current information available to management. Among the key factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements are the effect and consequences of the novel coronavirus public health crisis on matters including U.S. and local economies, our business operations and continuity, our ability to keep our showrooms open, the health and productivity of our associates, the ability of third-party providers to continue uninterrupted service, risks related to tariffs, the countermeasures and mitigation steps that we adopt in response to tariffs and other similar issues, the regulatory environment in which we operate, our ability to sustain recent growth rates, our ability to sustain the recent increase in our Internet sales, our ability to manage the growth of our operations over time, our ability to maintain, grow and enforce our brand and trademark rights, our ability to improve our products and develop new products, our ability to obtain, grow and enforce intellectual property related to our business and avoid infringement or other violation of the intellectual property rights of others, our ability to successfully open and operate new showrooms, and our ability to compete and succeed in a highly competitive and evolving industry, as well as those risks and uncertainties disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Form 10-K and in our Form 10-Qs filed with the Securities and Exchange Commission, and similar disclosures in subsequent reports filed with the SEC, which are available on our investor relations website at investor.lovesac.com and on the SEC website at www.sec.gov. Any forward-looking statement made by us in this press release speaks only as of the date on which we make it. We disclaim any intent or obligation to update these forward-looking statements to reflect events or circumstances that exist after the date on which they were made.
Investor Relations Contact: Rachel Schacter, ICR (203) 682-8200 InvestorRelations@lovesac.com
THE LOVESAC COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS
November 1, 2020 February 2, 2020 Assets (unaudited) Current Assets Cash and cash equivalents $ 47,686,348 $ 48,538,827 Trade accounts receivable 7,231,414 7,188,925 Merchandise inventories 57,758,331 36,399,862 Prepaid expenses and other current assets 10,869,620 8,050,122 Total Current Assets 123,545,713 100,177,736 Property and Equipment, Net 25,906,210 23,844,261 Other Assets Goodwill 143,562 143,562 Intangible assets, net 1,419,527 1,352,161 Deferred financing costs, net 113,338 146,047 Total Other Assets 1,676,427 1,641,770 Total Assets $ 151,128,350 $ 125,663,767 Liabilities and Stockholders’ Equity Current Liabilities Accounts payable $ 25,223,308 $ 19,887,611 Accrued expenses 16,900,124 8,567,580 Payroll payable 4,561,285 887,415 Customer deposits 11,668,451 1,653,597 Sales taxes payable 1,134,883 1,404,792 Total Current Liabilities 59,488,051 32,400,995 Deferred rent 6,387,801 3,108,245 Line of credit - - Total Liabilities 65,875,852 35,509,240 Stockholders’ Equity Preferred Stock $0.00001 par value, 10,000,000 shares authorized, no shares issued or outstanding as of November 1, 2020 and February 2, 2020. - - Common Stock $.00001 par value, 40,000,000 shares authorized, 14,683,138 shares issued and outstanding as of November 1, 2020 and 14,472,611 shares issued and outstanding as of February 2, 2020. 147 145 Additional paid-in capital 170,391,395 168,317,210 Accumulated deficit (85,139,044 ) (78,162,828 ) Stockholders’ Equity 85,252,498 90,154,527 Total Liabilities and Stockholders’ Equity $ 151,128,350 $ 125,663,767
THE LOVESAC COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Thirteen weeks ended Thirty-nine weeks ended November 1, 2020 November 3, 2019 November 1, 2020 November 3, 2019 Net sales $ 74,742,200 $ 52,097,232 $ 191,060,017 $ 141,202,010 Cost of merchandise sold 33,434,372 25,843,532 91,413,080 69,670,642 Gross profit 41,307,828 26,253,700 99,646,937 71,531,368 Operating expenses Selling, general and administration expenses 25,945,632 24,484,791 75,160,559 70,302,779 Advertising and marketing 10,975,176 7,258,284 26,337,298 18,717,517 Depreciation and amortization 1,853,922 1,377,659 5,033,484 3,649,072 Total operating expenses 38,774,730 33,120,734 106,531,341 92,669,368 Operating income (loss) 2,533,098 (6,867,034 ) (6,884,404 ) (21,138,000 ) Interest (expense) income, net (43,860 ) 134,416 (22,233 ) 538,306 Net income (loss) before taxes 2,489,238 (6,732,618 ) (6,906,637 ) (20,599,694 ) Provision for income taxes (10,779 ) (15,692 ) (69,579 ) (21,392 ) Net income (loss) $ 2,478,459 $ (6,748,310 ) $ (6,976,216 ) $ (20,621,086 ) Net income (loss) per common share: Basic $ 0.17 $ (0.46 ) $ (0.48 ) $ (1.45 ) Diluted $ 0.16 $ (0.46 ) $ (0.48 ) $ (1.45 ) Weighted average number of common shares outstanding: Basic 14,561,835 14,538,586 14,520,282 14,179,995 Diluted 15,581,487 14,538,586 14,520,282 14,179,995
THE LOVESAC COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Thirty-nine weeks ended November 1, 2020 November 3, 2019 Cash Flows from Operating Activities Net loss $ (6,976,216 ) $ (20,621,086 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization of property and equipment 4,603,971 3,457,737 Amortization of other intangible assets 429,513 191,335 Amortization of deferred financing fees 65,062 54,768 Net loss (gain) on disposal of property and equipment 5,487 (166,865 ) Equity based compensation 2,638,628 4,020,978 Deferred rent 3,279,556 903,945 Changes in operating assets and liabilities: Trade accounts receivable (42,489 ) (4,625,978 ) Merchandise inventories (21,358,469 ) (24,052,012 ) Prepaid expenses and other current assets (2,801,852 ) (2,781,766 ) Accounts payable and accrued expenses 17,072,202 4,812,508 Customer deposits 10,014,855 2,367,227 Net Cash Provided by (Used in) Operating Activities 6,930,248 (36,439,209 ) Cash Flows from Investing Activities Purchase of property and equipment (6,671,407 ) (6,834,382 ) Payments for patents and trademarks (496,879 ) (449,278 ) Proceeds from disposal of property and equipment - 300,000 Net Cash Used in Investing Activities (7,168,286 ) (6,983,660 ) Cash Flows from Financing Activities Proceeds from the issuance of common shares, net - 25,610,000 Taxes paid for net share settlement of equity awards (564,441 ) (3,342,304 ) Proceeds from the issuance of warrants, net - 12,000 Paydowns of line of credit - (31,373 ) Payment of deferred financing costs (50,000 ) - Net Cash (Used in) Provided by Financing Activities (614,441 ) 22,248,323 Net Change in Cash and Cash Equivalents (852,479 ) (21,174,546 ) Cash and Cash Equivalents - Beginning 48,538,827 49,070,952 Cash and Cash Equivalents - Ending $ 47,686,348 $ 27,896,406 Supplemental Cash Flow Disclosures Cash paid for taxes $ 69,579 $ 6,706 Cash paid for interest $ 61,685 $ 38,632
THE LOVESAC COMPANY RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (unaudited)
Thirteen weeks ended Thirteen weeks ended Thirty-nine weeks ended Thirty-nine weeks ended (dollars in thousands) November 1, 2020 November 3, 2019 November 1, 2020 November 3, 2019 Net income (loss) $ 2,479 $ (6,748 ) $ (6,976 ) $ (20,621 ) Interest expense (income), net 44 (134 ) 22 (538 ) Provision for income taxes 11 16 70 21 Depreciation and amortization 1,854 1,378 5,033 3,649 EBITDA 4,388 (5,488 ) (1,851 ) (17,489 ) Management fees (a) 125 141 375 438
LOVE Rankings
#4234 Ranked by Stock Gains
LOVE Stock Data
Industry
Wood Kitchen Cabinet and Countertop Manufacturing
Sector
Manufacturing
Tags
Retail Trade, Specialty Stores, Manufacturing, Wood Kitchen Cabinet and Countertop Manufacturing
Country
US
City
Stamford
About LOVE
lovesac builds furniture that is designed for life. we are the creator of sactionals, the world's most adaptable couch and sacs, the most comfortable seat on earth. we work hard, we play hard, and we do whatever it takes to make it happen.