The Lovesac Company

Ladies and gentlemen, good morning and welcome to the Love SAC's second quarter fiscal 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Rachel Shakhtar of ICR. Please go ahead.

Thank you. Good morning, everyone. With me on the call is Sean Nelson, Chief Executive Officer, Mary Fox, President and Chief Operating Officer, and Keith Stigner, 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 filing with the SEC, which includes today's press release. You should not rely on our forward-looking statements as predictions 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 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 Shawn Nelson, Chief Executive Officer of the Lovesac Company.

Thank you, Rachel. Good morning, everyone, and thank you for joining us today. I'll start this call off by reviewing the highlights of our second quarter fiscal 2024, briefly providing an update on our operational accomplishments and finishing up with our outlook. Then Mary Fox, our president and COO, will update you on the progress we made against our strategic initiatives. And finally, Keith Signer, our new CFO, will review our financial results and a few other items related to our outlook in more detail. Before diving in, I want to thank everybody for their patience as we work through our financial restatement. We hold ourselves to very high standards of integrity. Accuracy and reliability of our financial statements is paramount. As of today, all amended filings are complete. Additionally, we're enhancing teams and implementing procedures and disciplines as we work to build a world-class organization able to support growth for years to come. Moving on to our results, we're pleased with our second quarter performance with top and bottom line exceeding our initial outlook provided in June. The economic environment remained challenging as macro pressures drove a more cautious consumer In turn, keeping pressure on the home category. While we also felt pressure, Lovesac operated from a position of strength, leveraging our 25th anniversary campaign and omnichannel expansion to continue our track record of outperforming the category and achieving positive net sales growth. Not to be overlooked, we delivered growth by a difficult comparison, lapping top line growth of 45% in the second quarter of fiscal 23. Specifically, total net sales were 154.5 million, up 4% versus the prior year period, supported by total comparable sales growth of 7.2% for the quarter. On a two-year basis, net sales grew an impressive 51%. Adjusted EBITDA was 5.3 million as compared to 12.3 million in the prior year period. As expected, gross margin expansion was more than offset by important investments in growth. The leverage in marketing and advertising resulted from our 25th anniversary celebrity campaign and the launch and support of our angled side innovation, both of which will benefit us in the coming quarters. We also continue to make necessary and disciplined infrastructure investments to ensure we have the foundations for category-beating profitable growth for the long term. The pressure from the investments will abate later this year. as we'll talk more about that in a few minutes. Operationally, we made good progress on our initiatives to strengthen our Infinity Flywheel that supports our differentiated business model. Mary will discuss in detail the progress on specific growth strategies, but let me provide a brief update. On the product innovation front, as previously discussed, we formally launched Angled Side in the quarter. Angled Side offers benefits to augment both aesthetics and comfort, importantly, addressing the number one style gap we identified in our research. By opening the aperture of potential customers, we're reaching more new and existing customers and seeing meaningful contribution every week since the launch of the angled side. We continue to wisely expand our physical footprint, supporting awareness and benefiting our e-commerce sales. all together delivering a seamless omnichannel experience to our customer. We're driving marketing efficiency with new tactics, including hyper-local marketing to drive traffic. Lastly, we are still carefully investing in technology and R&D to fuel continued innovation to further elevate the entire customer experience and to ensure that we have a strong foundation to support the long runway of growth ahead. Looking to the second half of the year, we expect the macro environment to remain challenging, continuing to pressure the home category. We are not planning for any meaningful recovery in category growth this fiscal year. In terms of the promotional environment, we expect it will be more competitive as we head into holiday season and anticipate more frequency and depth of discounting across the industry. We've adapted our own plans accordingly and will remain very agile through the holiday season. Even taking this into account, which doesn't change our confidence that Lovesac will continue to outperform the category and, yes, generate stronger growth in the second half than the first half. This is clear in our guidance where we estimate third quarter revenues of approximately $154 million and are tightening the range of our fiscal 2024 net sales guidance to $710 million to $730 million. Given the macro backdrop, we're highly cautious operationally We're focused on efficiency and will control expenses very tightly. This will become more clear as we lap necessary foundational investments that began in the second half of fiscal 23 and which put peak pressure on bottom line growth in second and third quarters this year. After adding in some discreet expenses, primarily professional fees related to the restatement of approximately 4 million, we now anticipate fiscal 24 net income in the range of $20 million to $29 million. In summary, we have an unwavering commitment to the customer, delivering our unique designed-for-life platforms through circular operations and an omnichannel experience. We're pleased with our performance thus far in fiscal 24, growing net sales and comping positively in a declining category while funding essential investments in long-term growth and maintaining a very healthy balance sheet. We're committed to operating the business with great discipline as we navigate the current environment and build on our track record of market share gains, which will become more evident in the coming quarters. We're confident in the future, and we believe that we are well positioned to deliver on our outlook for the remainder of this fiscal year and capitalize on any opportunities the macro backdrop offers. I want to extend my gratitude and appreciation to our Lovesac team. It is their execution that enables our best in category financial and operational performance and drives my confidence and excitement in our future. With that, we'll hand it over to Mary to cover our strategic priorities and progress in more detail. Mary?