The Lovesac Company

Greetings and welcome to the Lovesac second quarter fiscal 2026 earnings 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Caitlin Churchill, Investor Relations. 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 Keith Signer, 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 a 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 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 a substitute for or in isolation from our GAAP results. 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 would like to turn the call over to Shawn Nelson, Chief Executive Officer of the Lovesac Company. Sean?

Good morning, everyone, and thank you for joining us. I'll start today by sharing a high-level overview of our second quarter results, provide an update on our Design for Life product platforms, and touch on our views for the remainder of the year before passing the discussion over to Mary Fox, our president. Mary will discuss our tailored customer acquisition engines and key growth enablers. Finally, Keith Signer, our CFO, will review our financial results and provide more detail on our Q3 and fiscal 26 outlook. Turning to our second quarter. Overall, we are pleased to have delivered results in line with or slightly favorable to our expectations across all metrics, representing another quarter of top line growth driven by our secular growth initiatives across Design for Life product platforms and efficient customer acquisition engines. For the second quarter, total net sales were 160.5 million, reflecting a year-over-year increase of 2.5%. These results reflect market share gains despite the ongoing headwinds facing our category, which we estimate declined approximately 4% for the comparable period. Total omnichannel comparable net sales increased 0.9% for the quarter with additional growth coming from new and non-comp touchpoint contributions. Our balance sheet remains very healthy with inventory levels and net cash providing substantial flexibility to weather tariff distractions, accelerate growth, and enhance returns on capital. This is a very exciting time for Lovesac. While the home category and high-ticket consumer goods in general have been under pressure for years now, With many in our industry waiting for an eventual recovery to the housing market and a normalized furniture replacement cycle, we've been both controlling expenses for efficiency and protecting significant investments in innovation to create meaningful long-term value for all stakeholders. And we've done this while maintaining annual profitability and a very strong balance sheet. In our December 2024 Investor Day presentation, you may recall, we used the analogy of an oak tree to represent the brand that we are focused on building here at Lovesac. Wide, tall, strong, and durable. Currently, the outside world sees only a few of the branches of this tree, namely the sectionals and the sacks, along with a few accessories and ancillary products around the edges. but we promised new branches over the next coming years. Some representing entire new rooms of the home. It was then that we unveiled the first new platform launch or brand new branch to this tree, a platform still in the living room, the Evercouch. The new Evercouch is in the midst of its debut with new fresh advertising support rolling out right now. Mary will speak to our observations and successes with Evercouch in more detail in just a few minutes. But as we refined our strategic roadmap for this pivotal transition from a product-focused company to a true brand, it became clear that we needed to sharpen and focus our positioning through a brand evolution refresh for Lovesac. This brand evolution work has been going on over this past year in collaboration with a world-class branding and design firm, and it's been fortuitous that our talented new CMO, Heidi Cooley, is fully onboarded now and able to spearhead this effort to its completion. This work has laid a clear and reliable foundation whereon we can build Love SAC into a multifaceted home brand with an organized and prioritized product hierarchy and merchandising strategy. This will not only allow us to confidently extend the brand further, but also deeper. into the categories where we already have strengths in order to compete even more vigorously for market share. To that point, we see many opportunities to rapidly harvest Lovesac brand equity, earning more revenue and margin dollars from existing markets and customers through incremental new product development and channel expansion. We believe this is our fastest and most credible path to more profitable and secular growth in the near term as we strengthen the core at Lovesac, even before we utilize this broader framework to compete in the new rooms in pursuit of the more radical growth opportunities that are still more than a year away. This brand evolution work and new product hierarchy has also led us to rethink everything from new product naming to some new products themselves. and the channels through which some of these new and even existing products can and should be offered. More to come on that, but yes, we see significant new channel opportunities, particularly with some of the new products that we are close to announcing that are still in the living room space. Meanwhile, to better align with this new product and channel strategy, we have chosen to rename the Evercouch product line to be called Snug by Lovesac. The advertising went live this week with a fresh new look and feel as you'll likely see on TV and digital platforms over the next few weeks. It suits the product better as the snug product line consisting of the snug sofa, the snug loveseat, and the snug chair is everything that Lovesec has to offer. It's washable, upgradable, shippable, movable, snugly and comfortable. but in a bit smaller package that can always fit any space and looks forever new. We're excited about its performance to date and its rollout recently expanded to 100 of our physical locations already. We promise to share in more detail the results of our brand evolution work, our product roadmap and hierarchy and channel strategy over the coming quarters as we bring incremental elements to life. But rest assured, While we're proud to have taken significant market share, even in these tough years for the category. Remember, we were recently ranked number 19th on the largest home furnishings retailer list by Furniture Today. Our ambition is to be much larger than that. We've made significant and fundamental investments in this brand and in new products that you are going to see unleashed in the marketplace starting now with the snug product line and with more to come in subsequent quarters and years. Turning to the macro, we've seen a very slight improvement in the category with overall furniture spend down 3.7% for May through July, with July being the best of the three months. It's too soon to count on July as a bend in the trend since we've seen stronger months arise occasionally in the past year. As such, our baseline for planning purposes remains unchanged from our initial outlook, which is a full year furniture category that is down mid-single digits. As for net sales, we remain focused on what we can control. Like I said earlier, we aim to leverage our secular growth initiatives to drive growth. We grew in the fiscal first and second quarters, and as Keith will detail later, we forecast growth for the full year, even without the category supporting us, within our original annual net sales guidance. As for profitability, these are very unusual times with the rules changing on us regularly, especially as it pertains to tariffs. Last quarter, we highlighted that barring materially different scenarios, we felt we could cover the potential impact of tariffs, increase competitive discounting, and the Best Buy exit fees with our previous annual guidance. We have numerous tools available to us given our unique model with high product margins, geographic redundancy, and strong vendor relationships. We've made solid progress on mitigation factors, including select price increases taken early in the fiscal third quarter. However, with incremental worsening in the tariff backdrop and continued pressure on competitive discounting, we have lowered our gross margin range, which has impacted the bottom line ranges accordingly. Importantly, we have identified additional measures that will benefit gross margins beginning later this year as well as over the coming quarters, which we believe will support the high 50s near 60% level we previously discussed over time. Keith will provide our updated guidance ranges in a few minutes. But in short, we estimate fiscal 26 to be another solid year of market share gains with absolute growth in a down category. Through selective pricing, tightly managed controllable expenses, and efficiencies in marketing spend, we believe we can expand bottom line profit margins and dollars to the midpoint of the range and end the year with a strong foundation for the future. In conclusion, we are committed to delivering on our objective, leveraging Lovesac's innovative product offerings, strong consumer relationships, and operational excellence to grow irrespective of the category in the near term, while maintaining clarity around long-term thinking and value creation. Our refreshed brand evolution work now unlocks the next phase of execution against our ambition of reaching our goal of 3 million Love SAC households by 2030 and building the most loved home brand in America. And while we aren't sitting around waiting for it, we believe that when the replacement cycle for comfort seating ramps up and housing turnover re-accelerates, which is one day closer than it was yesterday, Lovesac will be ready to capitalize on it immediately. This added revenue growth should drive even more flow through of top line growth to bottom line growth and additional margin expansion beyond that that is supported by our secular initiatives. Finally, I want to thank our dedicated team members who work tirelessly to bring our innovations to market and deliver an exceptional customer experience. Every one of you is helping to reshape the home furnishings industry with products that are designed for life, and thereby creating long-term value for all stakeholders. Before I hand it over to Mary, we'd ask everyone on this call for a moment of silence to remember the victims and survivors of the 9-11 attacks, the brave men and women who responded that day, and the families who continue to grieve.