The Lovesac Company

Greetings. Welcome to Lovesac Fourth Quarter Fiscal 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Rachel Schachter of ICR. Thank you. You may begin.

Thank you. Good morning, everyone. With me on the call is Shawn Nelson, Chief Executive Officer, Mary Fox, President and Chief Operating Officer, and Donna Delamo, Chief Financial Officer. Before we get started, I would like to remind you that some of the information discussed will include forward-looking statements regarding future events and our future financial performance. These include statements about our future expectations, financial projections, and our plans and prospects. Actual results may differ materially from those set forth in such statements. For discussion of these risks and uncertainties, you should review the company's filings with the SEC, which includes today's press release. You should not rely on our forward-looking statements as projections of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of today, and we undertake no obligation to update them except as required by applicable law. Our discussion today will include non-GAAP financial measures, including EBITDA and adjusted EBITDA. These non-GAAP measures should be considered in addition to you and not as a substitute for or in isolation from our GAAP results. A reconciliation of the most directly comparable GAAP financial measure to such non-GAAP financial measure has been provided as supplemental financial information in our press release. Now, I'd like to turn the call over to Sean Nelson, Chief Executive Officer of the Logstaff Company.

Thank you, Rachel. Good morning, everyone, and thank you for joining us to review our record results for fiscal 2023 and to discuss our outlook and plans for fiscal year 2024, which is already underway. I will begin by sharing a high-level overview of both. Then, Mary Fox, our President and COO, will discuss our key growth initiatives for fiscal 2024. Finally, Donna Delamo, our CFO, will review our financial results and a few other items related to our outlook in more detail. Starting with our fourth quarter and fiscal 2023 performance, we put up record results for the fourth quarter and for the full year, building on our long track record of outperforming the industry and driving share gains. For the quarter, we delivered sales growth of 21.7%. and adjusted EBITDA growth of 51%, both ahead of the outlook we shared on our Q3 call. For the year, we generated a total annual net sales increase of 30.8% to $651.5 million, total Omnicom sales growth of 21.9%, and an adjusted EBITDA earnings increase of 8.7% to $60.4 million. We ended the year with total liquidity of $79.5 million, which includes cash of $43.5 million and availability on our line of credit. Notably, our strong debt-free balance sheet positions us well to navigate a difficult macro backdrop. To put perspective on the significance of these results, fiscal 2023 was a challenging year for the furniture industry given the macro pressures facing the consumer. As of year end, our data sources showed the home category overall to be down 16% versus the prior year. In contrast, our full year sales increased 30.8%, indicating meaningful market share gains. More importantly, these industry-leading sales results were achieved by converting real-time demand as we typically ship just days after an order is placed. We never had any meaningful backlog inflating our revenue results. We also contended with inflation across our cost base to varying degrees. Additionally, we were up against the record financial results that were delivered in fiscal 2022 and 2021 stacked. Our strong financial and operational results continue to be reflective of our unique competitive and operational advantages across our people, brand, business model, and operating platform. Lovesac is a sustained growth story with a four-year net sales CAGR of 40.8% and four-year adjusted EBITDA CAGR of 105%. Shifting gears back to FY23 full year results, we are very proud of our accomplishments for the year, which were driven by our unique omni-channel business model centered around our infinity flywheel, where success drives more success. Our Infinity Flywheel allows us to do business differently and consistently outperform the category in which we operate. In a nutshell, it goes like this. Customers see our highly advantaged, high ticket, proprietary products via advertising of every kind. They seek to experience it in one of our various branded physical touchpoints, configure it online or in showroom as they research, Invest in it because Designed for Life products are so long lasting and investable. Evolve and upgrade it to drive lifetime value because Designed for Life products uniquely facilitate this kind of repeat behavior. And finally, they advocate it actively because their experience with the product and our brand was so good thanks to the investments we've continued to make that improve our customer experience model ongoing. This then drives more people to see us again, which starts the process all over again and further drives the flywheel. Mary will expound on each note of this flywheel, sharing specific results to validate it and our plans to enhance it further through the investment for our future we have made of late and continue to make, even as we hold ourselves accountable to produce meaningful profits. In terms of our outlook for FY24, We expect the macro backdrop to remain challenging as elevated inflation and higher interest rates drive a more cautious consumer and put pressure on the high-ticket, more discretionary home category overall. We are highly cautious operationally in this environment. We are controlling expenses very tightly in every realm in the name of efficiency. We also expect to realize significant benefits from amortization of last year's inbound freight costs. This will drive up gross margins beginning in Q2 especially and serve as a partial offset to known SG&A increases year over year. The net result will be EPS growth. We will continue to make surgical investments in our future because we believe very strongly in the TAM headroom for the seating and home audio categories where we have less than 2% penetration and the massive total available markets that await in adjacent categories not yet announced, which will leverage our highly competitive design for life approach. Recent investments begin to pay back as soon as the second half of this year in expected results from a key product launch and a sectional family of products. We have a schedule for physical touchpoint expansion and product launches that will drive reliable sales growth with positive cash flows. for another year of strong market share gains versus broader decelerating category. Donna will provide more detail on guidance. This is a continuation of a multi-year trend for Lovesac. We greatly outperform our category, and this further strengthens the infinity flywheel effect spoken of. At Lovesac, we are maniacally focused on the long term because we are convinced that our business model has tremendous potential for continued high margin revenue growth in our current categories, adjacent categories, and related services. Because of our differentiated approach, these opportunities are unique to us. We make very long-term Design for Life products. We pair these with long-term focused programs, policies, and services that will eventually be monetized. The intended result is long-term relationships with customers, a brand that people just love. Our pursuit of this long-term vision is relentless and sustained. We view the need to run a very disciplined, efficient cash generating business right now in this challenged macro environment so that we may unlock our promising future. This means preserving cash, managing expenses tightly, and being surgical with investments, but investing nonetheless. We are willing to be this disciplined because we can be patient, looking forward to the expanding opportunity ahead. Management is 100% committed to this way of thinking. This is a big part of what we mean when we speak of sustainability. Products that can actually sustain and a pragmatic cash generating business that can actually sustain. Sustainability in all its forms is our greatest passion. So in summary, it was a strong end to another great year at Lovesac. We made important strides against each of our strategic growth initiatives and made good progress strengthening our foundation to support the long runway of growth still ahead. We are already more than six times the size we were at IPO in 2018, cash generative in the year ahead and profitable ongoing, even with significant headwinds contemplated. We are braced for a choppy macro backdrop and will continue to execute with discipline, willing to adjust to changing conditions and deliver bottom line results as we grow and drive long-term value for all stakeholders. Before turning the call over to Mary, I want to thank the entire Lovesac team for all they accomplished in fiscal 2023. while navigating much uncertainty. We have a great team and a culture that exudes the sentiment inferred by our timeless ticker symbol. Both at our hubs and on the front lines and in all our various touch points, we are so thankful for their discipline and commitment and generally cool disposition. We look forward to building on our success in fiscal 2024. With that, I will hand it over to Mary to cover our strategic priorities and progress. Mary?