Luvu Brands Inc

Greetings, ladies and gentlemen, and welcome to Lou Vu Brands, Inc.' 's Fiscal 2022 First Quarter Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded. It is now my pleasure to introduce Ron Scott, the company's Chief Financial Officer. Mr. Scott, you may begin.

Thank you, Kate, and thank you to everyone who has joined us today for Lubu Brand's fiscal 2022 first quarter conference call. Joining me today is Louis Friedman, our founder, president, and chief executive officer. This morning, we filed our quarterly report on Form 10-Q for the three months ended September 30th, 2021, and issued an earnings release that highlighted the company's first quarter performance. There are a number of items that we look forward to discussing with you this morning, including Lubu Brand's financial results for the first quarter ended September 30, 2021, recent developments in Lubu Brand's operational activities, as well as the company's near-term plans for the future. At the conclusion of this call, we'll be answering questions during a brief Q&A session. Before we get started, I'd like to remind you that some of the information discussed today 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 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 measures has been provided as supplemental financial information in our press release. Now, with that completed, I'd like to start the call with a few words from Lubu Brand's founder and CEO, Louis Friedman.

Louis? Good morning, and thank you, Ron, and thank you, everyone, for joining us this morning. We are pleased with our first quarter results. We have net sales of $6.2 million, an increase of 16% over the prior, first quarter, making our sixth consecutive quarter of profitability. During this first quarter, we took delivery of and installed a new fabric cutting production line that's been reducing our product lead times, improving quality, and lowering cutting costs. Since over 90% of our net sales are through e-commerce channels, this new equipment allows us to be more reactive with our just-in-time manufacturing, enabling us to deliver a wider variety of products to our customers in reduced lead times. For our foam-based products, our expanded roll compression equipment doubles our production capacity while helping to offset rising freight and delivery costs. We are fortunate to be a U.S. manufacturer. This has allowed us to avoid many of the supply chain and shipping container shortages faced by competitors relying on offshore manufacturing. I'll now turn the call over to Ron Scott, Luvu Brand's Chief Financial Officer, to summarize some of the financial highlights of the first quarter fiscal 2020. Ron, please go ahead.

Thank you, Louis. I'll briefly touch on some of the financial highlights from the first quarter fiscal 2022. Net sales increased 16% to a first quarter record of $6.2 million compared to $5.4 million in the same year-ago quarter. Sales of Liberator products increased 36% to $2.7 million from $2 million in the prior year. Jaxx product sales totaled $1.9 million, up 10% from $1.7 million in the first quarter of the prior fiscal year. Avana products decreased 23% to $744,000 from $960,000 in the prior year. This was mainly attributed to manufacturers' chemical allocations and supply shortages of memory foam. Gross profit for the first quarter totaled $1.5 million compared to $1.5 million in the prior year first quarter. Labor costs, raw material costs, and transportation cost increases caused a decline in the percentage gross margin, dropping to 24% from 28% in the prior year. Operating expenses were approximately 19% of net sales or $1,176,000 compared to 20% of net sales or approximately $1,052,000 for the same period in the prior year. Net income for the quarter was $227,000 or zero cents per share compared to a net income of $329,000 or zero cents per share in the prior year first quarter. Adjusted EBITDA for the three months ended September 30, 2021 was $398,000 compared to $494,000 in the prior year period. We continue to increase the quantity of products owned by our contractor in Mexico and it's now running at 25 to 30% of all our sown products. Cash and cash equivalents on September 30, 2021 totaled $961,000 compared to $977,000 at June 30 of this year. And working capital increased from $435,000 at June 30, 2021 to $705,000 at the end of the first quarter. Now I'd like to turn the call back to Lewis for some additional comments regarding current developments.

Lewis? Hey, thank you, Ron. Overall, I'm pleased with the first quarter results. Although cost increases for raw materials, labor, and transportation have impacted our gross profit margins, we're beginning to see some stabilization and retraction in our raw material costs. As we seek out new suppliers, procure additional surplus materials, and expand our selling operation in Mexico to over 30 employees, our consumer wholesale price increases should start to restore our margins to historical levels. Our diverse offering of consumer products continues to attract new and repeated customers, and as a result, I expect to see continued strong demand across our three major brands as we approach the holiday season. Regarding the holiday season, our inventory is well stocked. I expect net sales to be between 6.4 million and 6.6 million in the current quarter ending December 31st, 2021. This represents a 15% year-over-year growth at the midpoint. As for new products, our children's Playscape collection is selling aggressively pre-holiday. Sales of our recently launched modular headboard concept called the Panelist continues to grow as we add new channels of distribution. Beyond the holiday season, our outdoor product line is redesigned and has new collections currently being sold to hospitality, marine, and specialty retailers and e-tailers. Our Atlanta manufacturing facility allows us to continue to execute within a challenging supply chain environment. Utilizing a comprehensive lean approach to manufacturing, we also have a goal in finding new uses for sustainable materials. The more Liberator products that we produce and sell, the more foam trim becomes available to repurpose into panelist headboards and beanbag micro-cushions. We remain focused on executing against our key growth strategies to drive long-term value for shareholders. We appreciate the recent strong support we've received from shareholders and look forward to keeping you updated on our progress and developments as we finish our second quarter. This wraps up our formal presentation. And operator, we're now open for a call for Q&A. And after Q&A, we'll have some closing comments.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please type your question on the webcast link. If you would like to ask your question over the phone lines, please press star 1 to join the queue and press star 2 to withdraw. One moment while we poll for questions. Our first question from the phone lines today is coming from Brian Robson, a private investor. Your line is live. You may begin. Hi.

Congratulations on the quarter. Hi, Brian. Hi, Brian. Hi there. As I look at your business, you've continued to have strong sales growth. You spoke of a couple of things from the more recent quarter in terms of the roll compression machine as well as fabric cutting machine and how that's increased your throughput. You've had success on some of your new product lines as well, and it seems like the real challenge is just getting your margin lifted a bit. And you spoke about in your press release some of the efforts to do price increases, and you also talked about perhaps a return to more normal levels. You know, as you look both in the near term and the longer term, what sort of a margin specifically are we talking about?

So, you know, we've always been shooting for margins, blended margins in the low 30s. So, you know, we're Now, last quarter we were at 24%. We'd like to get back to 28% as soon as possible. And with some of this new equipment, hopefully we can get to 32%, 33%, which is really our goal.

And so even like at a level such as 28%, that would have a significant impact. Is that something that you see as achievable in the next six months? Yeah. Okay. And then you spoke of your, I guess, guided revenue growth of roughly 15%. Where do your open orders stand today? And as the holiday rush is getting upon us, what kind of early indicators have you seen as far as how things are looking on that end?

Well, we're Today we're roughly halfway through the second quarter, and revenue at this point is on track with that guidance. I think we're up 15% year over year for the first half of the second quarter. Open orders, that changes every day, but it's... $800,000? Yeah, $800,000.

Yeah, about that. So we're running about $800,000 this morning.

Okay. You know, and that's kind of where it's been consistently through this quarter. So, you know, we expect to see same results through this month and, you know, prior to December 20th when it's kind of our last shipping day for Christmas.

Okay, thanks. And as I guess as I look at your EBITDA and in terms of what I'd model, I get something just over $2 million a year, which means that I think your market cap is probably fluctuating around 15 or 16 million, so roughly an eight times multiple. Though there's been more shareholder interest, you're still in somewhat of an obscure place, and I just wondered if you have any thoughts or interests or exploring the possibility of uplisting.

Yeah, we've had ongoing discussions about that. We don't have anything in the works currently to do an uplist. I think we'll probably revisit that in three to six to nine months. But, yeah, that's certainly our goal list at NASDAQ as soon as we can.

Okay, very good. That's it for me. Good luck, guys. Thanks. We appreciate that. Thanks, Mark.

Thank you. Once again, ladies and gentlemen, if you have any questions or comments, please press star 1 to join the queue over the audio lines or type your question on the webcast link. Our next question today is coming from Russell Valentine, a private investor. Your line is live. You may begin.

Good morning. My question is about uplifting to the community. major stock market. In my past 40, 50 years of investing, it really doesn't pay to uplist unless you have the earnings behind you, because then you have to reverse split and things like that to meet requirements. So I hope you don't do that. But is there any way to increase your visibility of your company to be able to get the word out about your products?

Well, there's lots of ways. Every ad that we do, every email blast that we do, every bit of literature and packaging all has reference to the fact that we are a public company. I guess what we really need to do is have an IR firm behind us and get some momentum that way. But for instance, if you open up Rolling Stone magazine, you'd see in our ad a public company, LUVU Brands. And so we probably circulate to our customer base three to four times a week in our correspondence with them. There's approximately 100,000 customers in our email list, so we mail out about 400,000 per week. And on every email correspondence, it always lists the fact that we're a public company and it's on our websites and so on. So I guess the only other thing we're missing is some good press. Yeah. And that needs to be, we are expanding our digital agency and we certainly need to do more of that.

We do have a conference that will be a virtual conference. We'll be attending early in December, the Sedoti conference, um, So that could create some addition.

When exactly is that, mid-December?

I think it's December 7th.

December 7th. Okay, so it's coming up, yeah.

Coming up, yeah.

I have one more question.

Sure.

In order to meet like 100% of production, are you close to, I mean, how much more in business can we get to get to 100% or are you, Are you close to 100% capability now, or how much more increase can you do to meet 100% of production?

I mean, in terms of what our capacity is? Yes, yes. We're probably, I mean, if we ran three shifts, we could increase almost... Well, even without three shifts, I think we can comfortably ship...

I guess 200K a day comfortably on one shift. We're in a building 140,000 square feet, and as we grow our business, we grow our operation in Mexico, and we grow our operation here. Our plant is getting tight, but it's certainly manageable, and I guess it depends on which product lines we grow with. Some require more space than others, but I would like to shoot for 200,000 a day out the door. and that would be comfortable on one shift. That would give us about 230 people, I guess, to do that revenue. Today we should ship at least 160 probably in that area, and we'll do that comfortably. Very good.

Thank you for your time, gentlemen.

We appreciate the call. Thank you.

Thank you. We have no further questions over the audio lines at this time.

And I guess there's no written questions.

Nope. Okay.

Do you have any closing comments you'd like to finish with?

Yes, I do. Thank you, Operator. Yes, thought I'd mention that we're also expanding our product design group and our in-house creative and digital agency. We are obsessed with building brands that add value to people's lives, and for our stakeholders, we believe we're building upon a solid foundation for Luvu Brands' future growth, and we're well-positioned to capitalize on our growing markets. Thank you all for your time. We look forward to updating you on further developments at www.luvubrands.com. On behalf of the entire Luvu Brands management team, I want to again thank you for joining us today.

Ladies and gentlemen, this concludes today's conference call.

You may disconnect from the webcast at this time and we thank you for your participation.