Dive Brief:
- Furniture brand Lovesac reported its third-quarter net sales increased 14.3% year over year to $154 million, mostly driven by showroom and e-commerce growth, according to a Wednesday press release.
- The brand’s net loss improved 68.2% to $2.3 million and gross margin increased from 48.2% the year before to 57.4%. Lovesac’s marketing and advertising spend increased 10.8% while its operating loss improved about 64.4% to $3.6 million.
- Lovesac narrowed its full-year guidance, now predicting net sales in the range of $710 million to $720 million instead of its previous outlook of $710 million to $730 million. Additionally, the brand now predicts net income to reach between $22 million and $26 million as opposed to ranging from $20 million to $29 million.
Dive Insight:
Lovesac’s positive Q3 earnings set the stage for the brand’s holiday expectations.
“We are very pleased with the start to the holiday season, successfully navigating the challenged category backdrop with continued healthy market share gains thus far,” Lovesac CEO Shawn Nelson said in a statement. “Our strong balance sheet and effective execution by our teams gives us confidence we can balance efficiency with proactive investments in new products to drive consumer demand and further expand our market leadership well into the future.”
The brand’s net sales performance during Q3 was partially bolstered by growth at the in-store level. Driven by new locations opening, showroom net sales increased 18.9%. The company ended the period in October with 230 locations compared to 189 in the same period last year.
The latest results from Lovesac come after news earlier in the year that it had to restate some financial filings with the U.S. Securities and Exchange Commission.
A November filing revealed that Lovesac commenced an internal investigation into the recording of last-mile shipping expenses after it found “an inappropriately recorded journal entry in the quarter ended April 30, 2023 to capitalize $2.2 million of shipping expenses that related to the fiscal year ended January 29, 2023.”
The investigation found that the journal entry was not in compliance with generally accepted accounting principles and contained errors related to the brand’s methodology for calculating the accrual of its last-mile freight expenses. As such, restated financials for the 13-week periods ending April 30, 2023, and May 1, 2022, include slight reductions in gross profit, operating loss and income, as well as net loss and income.
As a result, the SEC is conducting its own ongoing, non-public investigation into Lovesac and the brand is fully cooperating, per the November filing. The news follows a C-suite shuffle in June, in which the brand announced CFO and Executive Vice President Donna Dellomo would retire with Keith Siegner taking over the positions. Chief Strategy Officer Jack Krause also retired, with Nelson and COO Mary Fox taking on the role’s responsibilities.
