The Lovesac Company

Greetings. Welcome to Lovesac's second quarter fiscal 2027 earnings conference call. At this time, all participants are in listen-only mode. Question and answer session will follow the formal presentation. We ask you to please zoom yourself to one question and one follow-up. You may then re-enter the queue with additional questions. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Colton West, Investor Relations. Thank you. You may now begin.

Thank you. Good morning, everyone. With me on the call today is Shawn Nelson, Chief Executive Officer, Mary Fox, President, and Andrew Farrig, 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 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 would like to turn the call over to Shawn Nelson, Chief Executive Officer of the Lovesac Company. Shawn?

Good morning, everyone, and thank you for joining us today. I'll start by sharing a brief review of our strategic roadmap, and then I'll provide a high-level summary of our second quarter fiscal 2027 performance and some of the exciting initiatives we've brought to market. Mary Fox, our president, will then take you through our customer acquisition engine. Operational Initiatives, and Key Growth Enablers. Finally, Andrew Farag, our new CFO, will dive deeper into our financial results and provide additional detail on our outlook for the third quarter and balance of fiscal 2027. Before diving in, I want to welcome Andrew, who joined us as Chief Financial Officer just in June of this year. Andrew brings more than 20 years of finance and operating leadership across retail, consumer goods, and manufacturing. He is the right partner as we execute the most ambitious product innovation roadmap in Lovesac's history coming up. We are thrilled to have Andrew as part of our hashtag Lovesac family. Before discussing the quarter, I'd like to step back and think about the broader state of the category and our business. We are all too familiar with the operating environment for the home category over the past several years, up through our fiscal 2027. This case-shaped economy, consumer sentiment, and category headwinds appear to occasionally ease only to pick back up as the macro environment changes. Across the category, we are seeing deeper promotions from competitors than ever before from some of the industry's strongest brands. And while we have adjusted our strategy to remain competitive, we have never lost sight of a simple belief. Consumers do not need more furniture. They need better furniture and better solutions for how they actually live. Even in this challenging environment, Lovesac continues to gain market share, expand relevance, and accelerate innovation. We built Lovesac as a disruptor by challenging the conventions of a category that had seen little meaningful innovation in decades. Rather than offering another static piece of furniture, we created designed-for-life product platforms that are built to last, designed to evolve, and made to love. Our unique products solve the real challenges of how people and families actually live. The proliferation of modular offerings and copycat brands seeking to replicate some elements of our model validates the opportunity that we identified. But it doesn't dilute our leadership because our differentiation extends beyond configurability. It is grounded in fully backward and forward compatible platforms, protected intellectual property, continuous innovation, and a growing ecosystem of products and services that increase the value of ownership over time. We believe these advantages position Lovesac to expand awareness, deepen customer relationships and take significant market share in this large and highly fragmented market. The convergence of our foundational capabilities that we began investing in years ago has picked up significant momentum in this Q2 period. Our product platform innovation engine, our digital first marketing playbook and our customer data infrastructure are all positioning us to enter this next phase of profitable growth with a stronger competitive advantage than at any point in our history. Turning to our second quarter performance, we delivered our highest quarterly sales ever outside of Q4 in our company's history. Our record results were within our guidance range despite an operating backdrop that remains challenging. We delivered net sales of 161.2 million A slight increase to last year. Importantly, we continued to gain market share, reinforcing that our platform model and brand proposition are resonating even in an uncertain consumer environment. When customers clearly understand the durability, flexibility, and long-term value embedded in our design for life platforms, they continue to engage with our brand. We saw particular strength on larger satchels configurations and premium enhancements. which gives us confidence that our value proposition remains compelling when the customer is ready to consider. We are also thrilled with the early read and attachment rates of our white glove and room of choice delivery programs which we have recently piloted and plan to roll out nationally in the second half. Innovation continues to be the most visible proof point of our value proposition. The reclining seat addition to sectionals and our new Snug Sofa platform both reinforced the power of our platform approach during the quarter. Reclining seat deepened engagement with factionals boasting record high attachment rates while Snug broadened our reach with its more digitally advantaged incremental offering. More than 50% of Snug sales are occurring online as intended with its simpler feature set, simpler shopping experience and lower entry price point. These are not isolated product lines. They are evidence that our platforms can expand customer relevance, create new entry points, and compound value over time, all of which increase our confidence as we launch the most prolific innovation roadmap in Lovesac's history that will be rolling out with the introduction starting in the second half. While the macro environment continues to create friction on opening price points for factionals, we are encouraged by the improvement that we have seen on those below $6,000 setups and The engagement we are seeing in the funnel including quote activity. We also recognize that in this environment, some customers are taking longer to convert. Our job is to meet that moment with sharper accessibility and value perception while preserving the premium positioning and attachment opportunities that make Lovesac distinct. As Mary will discuss, we have invested in pricing optimizations that we expect will recapture the opening price point consumer and better position us in the second half. Looking ahead, what excites me most is that we are continuing to challenge the conventions of the category through the acceleration of our product platform innovation engine. Building on the successful launches of Reclining Seat and Snug, the second half of fiscal 2027 will represent the most prolific period of new product introductions ever. While we can't share all the details, we will be launching innovation that unlocks even more personalization and comfort in our Sactionals platform, extensions to the Snug platform that will enable greater functionality and consumer appeal, and a brand new seating platform that will broaden our total addressable market and attract a more premium customer segment. All of this will begin to take effect in Q4. And of course, All this comes ahead of the launch of our new room in FY28, which remains on track. Preparing for this period of accelerated innovation requires planned investment in inventory ahead of the associated revenue opportunity. While product platforms will always remain a superpower to Lovesac, history has proven that brands become bigger and more valuable than products alone. We wake up every morning to our stated mission of building the most loved home brand in America. We shared with you in Q1 the launch of our Here for Life campaign, and I am pleased that Q2 brought significant momentum as we shifted from simply telling our story to embedding Lovesac into cultural moments and conversations in an authentic and equity-building way. Finally, as we have discussed the past several quarters, we will be launching our initial onshore production of Saccional Seats in the second half of FY27 Bringing with it speed, flexibility, and automation while remaining forward and backwards compatible with every generation of Saxonals born and yet to come. The net result of these efforts will be improved customer experience, stronger margins, and a further reinforced IP moat. In closing, as we enter the second half of the year, my conviction in the opportunity ahead of us has never been stronger. The capabilities that we have spent years building are converging simultaneously starting in that second half. Product innovation that expands our total addressable market. Brand building that turbocharges our new customer acquisition. Customer data infrastructure that unlocks quote conversion and LTV. Services that build in deeper, longer lasting relationships and a supply chain that brings manufacturing closer to the customer. To reinforce why we are so confident in our second half, particularly Q4, we have four significant innovations to launch even before we get to that new room that is hotly anticipated for next year. Any one of these four might have been our once big annual innovation in any prior year, and they represent some of the payoff from our years of R&D that we have been long investing in. We will be very focused on bringing all of these to market over these next six months, We expect to further dominate sectional sofas with the launch of a snug corner piece in ottoman that can transform any snug chair, loveseat, or sofa into a full sectional platform as well as the reverse compatible swivel base for the snug chair. That snug chair with the swivel is my new favorite product. I have seven of them throughout my home at this point. Snug is thus our small format sectional sofa platform. We also have a significant innovation to introduce on the sectional platform as we onshore that will unlock personalized comfort in every seat in a way that is unlike any modular sectional sofa on the planet. And finally, we will launch an entirely new, very large format sectional platform that will expand our town and attract an even more premium customer. There is another big introduction after the holidays that we are not ready to speak to in any detail yet. The four of these huge innovations will solidify Lovesac's ongoing and growing leadership in sectional sofas. All of this innovation will begin to take effect in Q4, and combined with the full national rollout of white glove and room of choice delivery services, it positions Lovesac to compete like never before. We enter the second half of the year from a position of considerable strength. Our balance sheet remains healthy with a strong cash position, no debt, and inventory that is better aligned to demand. And this merely sets the stage for FY28, when we will be bringing Design for Life to an entirely new room of the home, which remains on track. While the financial benefits of all this will not arrive all at once, we believe the cumulative effect of these initiatives will become increasingly visible over the coming quarters, reinforcing our confidence in the long-term algorithm that we are building. I want to thank our teams, associates, partners, shareholders, customers, and the entire Hashtag Lovesac family for their continued dedication, creativity, resilience, and passion as we continue to live up to our stated purpose to inspire humankind to buy better stuff, especially our stuff, so they can ultimately buy less. With that, I'll turn the call over to Mary.