GlobeNewswire Inc | Dec 8, 2021 07:00AM EST

December 08, 2021

Strong Momentum Across Channels Drives 56.1% Growth in Net SalesComparable Sales Increased 47.1% on Top of 53.5% in the Prior Year PeriodNet Income Improved 11% to $2.8 millionThird Quarter Adjusted EBITDA1 of $5.8 million

STAMFORD, Conn., Dec. 08, 2021 (GLOBE NEWSWIRE) -- The Lovesac Company (Nasdaq: LOVE) (Lovesac or the Company) today announced financial results for the third quarter of fiscal 2022, which ended October31, 2021.

Shawn Nelson, Chief Executive Officer, stated, Our results for the third quarter reflect strong, sustainable and profitable growth across all sales channels including, most notably, an increase in showroom sales of nearly 70% and a nearly 40% increase for internet sales. This performance is a testament to the teams exceptional execution and affirms that our personalized shopping experience, whether in person, online or directly to customers' homes through our recently launched Mobile Concierge service, is resonating and meeting customers where they prefer to shop. We generated strong top-line growth against the backdrop of macro supply chain disruption that reveals some of the many advantages of our unique business model with a concentrated sku count and redundant manufacturing spread across multiple geographies, delivering customers orders within days.

Mr. Nelson continued, Operationally, we made good progress against our strategic priorities including the much-anticipated launch of our new Stealthtech embedded surround sound system, which is reverse-compatible with all of the designed-for-life Sactionals we have sold to-date. The results of this approach to achieving true sustainability will be highlighted in our first ever formal ESG report being published later this month. As we look to the final quarter of the year, we are pleased with our strong start to the all-important holiday season and are confident in our in-stock position to meet fourth quarter demand. We look forward to delivering an elevated customer experience across channels during the busiest time of year and closing out fiscal 2022.

Key Measures for the Third Quarter and Year-to-date Period of Fiscal 2022 Ending October31, 2021:(Dollars in millions, except per share amounts)

Thirteen weeks ended Thirty-nine weeks ended October November % Inc October November % Inc 31, 1, (Dec) 31, 1, (Dec) 2021 2020 2021 2020Net Sales $116.7 $74.7 56.1% $302.0 $191.1 58.1%Gross Profit $58.6 $41.3 41.9% $163.7 $99.6 64.3%Gross Margin 50.2% 55.3% (510) 54.2% 52.2% 200 bps bpsTotal Operating Expense $55.6 $38.8 43.5% $149.5 $106.5 40.3%SG&A $38.1 $25.9 46.8% $104.2 $75.2 38.6%SG&A as a % of Net Sales 32.6% 34.7% (207) 34.5% 39.3% (484) bps bpsAdvertising & Marketing $15.8 $11.0 44.3% $39.5 $26.3 50.2%Advertising & Marketing as 13.6% 14.7% (111) 13.1% 13.8% (69) bpsa % of Net Sales bpsBasic EPS Income (Loss) $0.18 $0.17 5.9% $0.88 $(0.48) (283.3%)Diluted EPS Income (Loss) $0.17 $0.16 6.3% $0.83 $(0.48) (272.9%)Net Income (Loss) $2.8 $2.5 11.0% $13.3 $(7.0) (290.1%)Adjusted EBITDA ^1 $5.8 $6.0 (2.3%) $23.6 $2.4 866.5%Net Cash (Used in) Provided $(15.9) $(5.1) (210.1%) $(15.2) $6.9 (319.1%)by Operating Activities

1 Adjusted EBITDA is a non-GAAP measure. See Non-GAAP Information and Reconciliation of Non-GAAP Financial Measures included in this press release.

Percent Increase (Decrease) except showroom count Thirteen weeks ended Thirty-nine weeks ended October 31, November 1, October 31, November 1, 2021 2020 2021 2020Total Comparable Sales 47.1% 53.5% 44.8% 58.7%^2Comparable Showroom 53.3% 25.5% 133.0% (14.2%)Sales ^3Internet Sales 38.2% 125.2% (11.4%) 247.2%Ending Showroom Count 135 107 135 107

2 Total comparable sales include showroom transactions through the point of sale and internet net sales.3 Comparable showroom sales reflect transactions through the point of sale and not necessarily product that has shipped to the customer. Product that has shipped to the customer is included in Net Sales. Showrooms were closed as required by local and state laws as a result of the COVID-19 pandemic effective March 18, 2020. As of the end of the fourth quarter of fiscal 2021, all showrooms had fully reopened to the walk-in phase, and remain open. We are abiding by federal, state and local guidelines with respect to the operating status of our showrooms.

Highlights for the Quarter Ended October31, 2021:

-- The net sales increase of 56.1% was due to higher sales volume and lower promotional discounting, driving an increase in showroom sales of 67.8% which include mobile concierges and kiosk, an increase in internet sales of 38.2%, and an increase of 52.7% in our Other channel which include pop-up-shops, shop-in-shops, and sales related to inventory barter transactions. The increase in showroom sales was driven by an increase of 53.3% in comparable showroom sales related to a very strong Labor Day campaign with lower discounting and the addition of 28 new showrooms. Internet sales also increased due to the same promotional campaign. The increase in sales in our Other channel was principally due to higher productivity of our temporary online pop-up-shop on Costco.com compared to the prior year period.

-- Gross profit increased $17.3million, or 41.9%, to $58.6million in the thirteen weeks ended October31, 2021 from $41.3million in the thirteen weeks ended November1, 2020. Gross margin decreased 510 basis points to 50.2% of net sales in the thirteen weeks ended October31, 2021 from 55.3% of net sales in the thirteen weeks ended November1, 2020 primarily driven by an increase of approximately 748 basis points in total distribution and related tariff expenses partially offset by an improvement of 238 basis points in product margin. The increase in total distribution and related tariff expenses over the prior year period is principally related to a 953 basis point increase in inbound container freight costs and increased tariffs related to higher product sourcing from China, partially offset by a 205 basis point improvement due to higher leverage of warehousing and outbound freight costs. The product margin rate improvement is due to lower promotional discounting and continuing vendor negotiations to assist with the mitigation of tariffs.

-- SG&A expense as a percent of net sales decreased by 207 basis points due to higher leverage within infrastructure investments, equity-based compensation, insurance, rent, and selling related expenses, partially offset by deleverage in employment costs and travel. The deleverage in certain expenses relate to the investments we are making into the business that were put on hold in the prior year period due to COVID-19 financial resilience measures.

-- Advertising and marketing expense increased 44.3% due to continued investments in marketing spend to support our sales growth. As a percent of net sales, advertising and marketing decreased by 111 basis points due to improved performance in our media activities driving higher sales volume at lower promotional discounting.

-- Operating income was $3.0million in the third quarter of fiscal 2022 compared to operating income of $2.5million in the third quarter of fiscal 2021. Operating margin was 2.5% of net sales in the third quarter of fiscal 2022 compared to 3.4% of net sales in the third quarter of fiscal 2021.

-- Net income was $2.8 million in the third quarter of fiscal 2022 compared to net income of $2.5 million in the third quarter of fiscal 2021.

Highlights for the Year-to-date Period ended October31, 2021:

-- The net sales increase of 58.1% was due to higher sales volume and lower promotional discounting, driving an increase in showroom sales of 150.0% which include mobile concierge and kiosk, and an increase of 83.0% in our Other channel which include pop-up-shops, shop-in-shops, and sales related to inventory barter transactions partially offset by a decrease in internet sales of 11.4%. The increase in showroom sales was driven by an increase of 133.0% in comparable showroom sales with all showroom locations fully open in the current period versus the limited showroom operations in the prior year period due to COVID-19. Sales in our Other channel principally increased due to prior year closures of all pop-up-shop and shop-in-shop locations due to COVID-19 combined with 2 additional temporary online pop-up-shops on Costco.com. The decline in internet sales reflected the channel shift back to our showrooms that are now fully reopened.

-- Gross profit increased $64.1million, or 64.3%, to $163.7million in the thirty-nine weeks ended October 31, 2021 from $99.6million in the thirty-nine weeks ended November 1, 2020. Gross margin increased 200 basis points to 54.2% of net sales in the thirty-nine weeks ended October 31, 2021 from 52.2% of net sales in the thirty-nine weeks ended November 1, 2020 primarily driven by an increase of approximately 367 basis points in product margin partially offset by an increase of 167 basis points in total distribution and related tariff expenses. The product margin rate improvement is due to lower promotional discounting and continuing vendor negotiations to assist with the mitigation of tariffs. The increase in total distribution and related tariff expenses over the prior year period is principally related to an 822 basis point increase in inbound container freight costs and increased tariffs related to higher product sourcing from China, partially offset by a 655 basis point improvement due to higher leverage of warehousing and outbound freight costs.

-- SG&A expense as a percent of net sales decreased by 4.8% primarily due to higher leverage within infrastructure investments, selling related expenses, rent, equity-based compensation and insurance, partially offset by deleverage in employment costs and travel. The deleverage in certain expenses relate to the investments we are making into the business that were put on hold in the prior year period due to COVID-19 financial resilience measures.

-- Advertising and marketing expense increased 50.2% due to the reinstatement of marketing spend with showroom locations fully open in the current period versus the limited showroom operations in the prior year period due to COVID-19. As a percent of net sales, advertising and marketing decreased by 69 basis points due to improved performance in our media activities driving higher sales volume at lower promotional discounting.

-- Operating income was $14.2million in the thirty-nine weeks ended October 31, 2021 compared to an operating loss of $6.9million in the thirty-nine weeks ended November 1, 2020. Operating margin was 4.7% of net sales in the thirty-nine weeks ended October 31, 2021 compared to (3.6%) of net sales in the thirty-nine weeks ended November 1, 2020.

-- Net income was $13.3million in the thirty-nine weeks ended October 31, 2021 compared to net loss of $7.0million in the thirty-nine weeks ended November 1, 2020.

Other Financial Highlights as of October31, 2021:

-- The cash and cash equivalents balance as of October31, 2021 was $47.9million as compared to $47.7 million as of November1, 2020. There was no balance on the Companys line of credit as of October31, 2021 or November1, 2020. The Companys availability under the line of credit was $22.5 million and $19.2 million as of October31, 2021 and November1, 2020, respectively.

-- Total merchandise inventory was $94.5million as of October31, 2021 as compared to $57.8 million as of November1, 2020.

Conference Call Information:

A conference call to discuss the financial results for the quarter ended October31, 2021 is scheduled for today, December 8, 2021, at 8:30 a.m. Eastern Time. Investors and analysts interested in participating in the call are invited to dial (877) 407-3982 (international callers please dial (201) 493-6780) approximately 10 minutes prior to the start of the call. A live audio webcast of the conference call will be available online at investor.lovesac.com.

A recorded replay of the conference call will be available within two hours of the conclusion of the call and can be accessed online at investor.lovesac.com for 90 days.

About The Lovesac Company

Based in Stamford, Connecticut, The Lovesac Company is a technology driven company that designs, manufactures and sells unique, high quality furniture derived through its proprietary Designed for Life approach which results in products that are built to last a lifetime and designed to evolve as our customers lives do. Our current product offering is comprised of modular couches called Sactionals, premium foam beanbag chairs called Sacs, and their associated home decor accessories. Innovation is at the center of our design philosophy with all of our core products protected by a robust portfolio of utility patents. We market and sell our products primarily online directly at www.lovesac.com, supported by direct-to-consumer touch-feel points in the form of our own showrooms as well as through shop-in-shops and pop-up-shops with third party retailers.

Non-GAAP Information

Adjusted EBITDA is defined as a non-GAAP financial measure by the Securities and Exchange Commission (the SEC) that is a supplemental measure of financial performance not required by, or presented in accordance with, GAAP. We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, adjusted for the impact of certain non-cash and other items that we do not consider in our evaluation of ongoing operating performance. These items include management fees, equity-based compensation expense, write-offs of property and equipment, deferred rent, financing expenses and certain other charges and gains that we do not believe reflect our underlying business performance. We have reconciled this non-GAAP financial measure with the most directly comparable GAAP financial measure within the schedules attached hereto.

We believe that these non-GAAP financial measures not only provide its management with comparable financial data for internal financial analysis but also provide meaningful supplemental information to investors. Specifically, these non-GAAP financial measures allow investors to better understand the performance of our business, facilitate a more meaningful comparison of our actual results on a period-over-period basis and provide for a more complete understanding of factors and trends affecting our business. We have provided this information as a means to evaluate the results of our ongoing operations alongside GAAP measures such as gross profit, operating income (loss) and net income (loss). Other companies in our industry may calculate these items differently than we do. These non-GAAP measures should not be considered as a substitute for the most directly comparable financial measures prepared in accordance with GAAP, such as net income (loss) or net income (loss) per share as a measure of financial performance, cash flows from operating activities as a measure of liquidity, or any other performance measure derived in accordance with GAAP. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Companys results as reported under GAAP.

Cautionary Statement Concerning Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other legal authority. Forward-looking statements can be identified by words such as may, believe, anticipate, could, should, intend, plan, will, aim(s), can, would, expect(s), estimate(s), project(s), forecast(s), positioned, approximately, potential, goal, pro forma, strategy, outlook or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. All statements, other than statements of historical facts, included in this press release regarding strategy, future operations, future financial position or projections, future revenue, projected expenses, sustainability goals, prospects, plans and objectives of management are forward-looking statements. These statements are based on managements current expectations, beliefs and assumptions concerning the future of our business, anticipated events and trends, the economy and other future conditions. We may not actually achieve the plans, carry out the intentions or meet the expectations disclosed in the forward-looking statements and you should not rely on these forward-looking statements. Actual results and performance could differ materially from those projected in the forward-looking statements as a result of many factors. Among the key factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements include: the effect and consequences of COVID-19 on our business, sales, results of operations and financial condition; changes in consumer spending and shopping preferences, and economic conditions; our ability to achieve or sustain profitability; our ability to manage and sustain our growth effectively, including our ecommerce business, forecast our operating results, and manage inventory levels; our ability to advance, implement or achieve our sustainability, growth and profitability goals through leveraging our Designed for Life and Circle-to-Consumer philosophies; our ability to realize the expected benefits of investments in our supply chain and infrastructure; disruption in our supply chain and dependence on foreign manufacturing and imports for our products; our ability to acquire new customers and engage existing customers; reputational risk associated with increased use of social media; our ability to attract, develop and retain highly skilled associates; system interruption or failures in our technology infrastructure needed to service our customers, process transactions and fulfill orders; implementing and maintaining effective internal control over financial reporting; unauthorized disclosure of sensitive or confidential information through breach of our computer system; the ability of third-party providers to continue uninterrupted service; the impact of tariffs, and the countermeasures and tariff mitigation initiatives; the regulatory environment in which we operate, our ability to maintain, grow and enforce our brand and intellectual property rights and avoid infringement or violation of the intellectual property rights of others; our ability to improve our products and develop and launch new products; our ability to successfully open and operate new showrooms; and our ability to compete and succeed in a highly competitive and evolving industry, as well as those risks and uncertainties disclosed under the sections entitled Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations in our most recent Form 10-K and in our Form 10-Qs filed with the Securities and Exchange Commission, and similar disclosures in subsequent reports filed with the SEC, which are available on our investor relations website at investor.lovesac.com and on the SEC website at www.sec.gov. Any forward-looking statement made by us in this press release speaks only as of the date on which we make it. We disclaim any intent or obligation to update these forward-looking statements to reflect events or circumstances that exist after the date on which they were made.

Investor Relations Contact:Rachel Schacter, ICR(203) 682-8200InvestorRelations@lovesac.com

THE LOVESAC COMPANYCONDENSED CONSOLIDATED BALANCE SHEETS October 31, January 31, 2021 2021(amounts in thousands, except per share and share (unaudited) amounts)Assets Current Assets Cash and cash equivalents $ 47,862 $ 78,341 Trade accounts receivable 9,794 4,513 Merchandise inventories 94,544 50,417 Prepaid expenses and other current assets 11,421 10,128 Total Current Assets 163,621 143,399 Property and equipment, net 32,133 25,868 Operating lease right-of-use assets 95,567 ? Other Assets Goodwill 144 144 Intangible assets, net 1,345 1,517 Deferred financing costs, net 23 91 Total Other Assets 1,512 1,752 Total Assets $ 292,833 $ 171,019 Liabilities and Stockholders? Equity Current Liabilities Accounts payable $ 25,430 $ 24,311 Accrued expenses 23,427 17,187 Payroll payable 7,865 6,362 Customer deposits 6,704 5,993 Current operating lease liabilities 15,722 ? Sales taxes payable 2,430 2,471 Total Current Liabilities 81,578 56,324 Deferred Rent ? 6,749 Operating Lease Liabilities, long-term 90,658 ? Line of Credit ? ? Total Liabilities 172,236 63,073 Stockholders? Equity Preferred Stock $0.00001 par value, 10,000,000 sharesauthorized, no shares issued or outstanding as of ? ? October31, 2021 and January31, 2021.Common Stock $0.00001 par value, 40,000,000 sharesauthorized, 15,122,882 shares issued and outstanding ? ? as of October31, 2021 and 15,011,556 shares issuedand outstanding as of January31, 2021.Additional paid-in capital 170,773 171,382 Accumulated deficit (50,176 ) (63,436 )Stockholders? Equity 120,597 107,946 Total Liabilities and Stockholders? Equity $ 292,833 $ 171,019

THE LOVESAC COMPANYCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited) Thirteen weeks ended Thirty-nine weeks ended(amounts inthousands, October 31, November 1, October 31, November 1,except per 2021 2020 2021 2020share andshare amounts)Net sales $ 116,678 $ 74,742 $ 302,041 $ 191,060 Cost ofmerchandise 58,062 33,434 138,317 91,413 soldGross profit 58,616 41,308 163,724 99,647 Operating expensesSelling,general and 38,087 25,945 104,191 75,160 administrationexpensesAdvertising 15,832 10,975 39,548 26,337 and marketingDepreciationand 1,726 1,854 5,748 5,034 amortizationTotaloperating 55,645 38,774 149,487 106,531 expenses Operating 2,971 2,534 14,237 (6,884 )income (loss)Interest (45 ) (44 ) (135 ) (22 )expense, netNet income(loss) before 2,926 2,490 14,102 (6,906 )taxesProvision for (174 ) (11 ) (842 ) (70 )income taxesNet income $ 2,752 $ 2,479 $ 13,260 $ (6,976 )(loss) Net income(loss) per common share:Basic $ 0.18 $ 0.17 $ 0.88 $ (0.48 )Diluted $ 0.17 $ 0.16 $ 0.83 $ (0.48 ) Weightedaverage numberof common sharesoutstanding:Basic 15,146,890 14,561,835 15,092,844 14,520,282 Diluted 16,069,729 15,581,487 16,015,683 14,520,282

THE LOVESAC COMPANYCONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS(unaudited) Thirty-nine weeks ended October November(amounts in thousands) 31, 1, 2021 2020Cash Flows from Operating Activities Net income (loss) $ 13,260 $ (6,976 )Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:Depreciation and amortization of property and equipment 5,121 4,604 Amortization of other intangible assets 627 430 Amortization of deferred financing fees 68 65 Net loss on disposal of property and equipment ? 5 Equity based compensation 2,850 2,639 Deferred rent ? 3,280 Non-cash operating lease cost 11,003 ? Impairment of right of use lease asset 554 ? Changes in operating assets and liabilities: Trade accounts receivable (5,281 ) (42 )Merchandise inventories (44,127 ) (21,358 )Prepaid expenses and other current assets 1,166 (2,803 )Accounts payable and accrued expenses 9,265 17,070 Operating lease liabilities (10,396 ) ? Customer deposits 711 10,015 Net Cash (Used in) Provided by Operating Activities (15,179 ) 6,929 Cash Flows from Investing Activities Purchase of property and equipment (11,386 ) (6,671 )Payments for patents and trademarks (455 ) (497 )Net Cash Used in Investing Activities (11,841 ) (7,168 )Cash Flows from Financing Activities Taxes paid for net share settlement of equity awards (3,563 ) (564 )Proceeds from the exercise of warrants 104 ? Payment of deferred financing costs ? (50 )Net Cash Used in Financing Activities (3,459 ) (614 )Net Change in Cash and Cash Equivalents (30,479 ) (853 )Cash and Cash Equivalents - Beginning 78,341 48,539 Cash and Cash Equivalents - Ending $ 47,862 $ 47,686 Supplemental Cash Flow Disclosures Cash paid for taxes $ 775 $ 70 Cash paid for interest $ 80 $ 62

THE LOVESAC COMPANYRECONCILIATION OF NON-GAAP FINANCIAL MEASURES(unaudited) Thirteen Thirteen Thirty-nine Thirty-nine(amounts in weeks ended weeks ended weeks ended weeks endedthousands) October 31, November 1, October 31, November 1, 2021 2020 2021 2020Net income $ 2,752 $ 2,479 $ 13,260 $ (6,976 )(loss)Interest 45 44 135 22 expense, netTaxes 174 11 842 70 Depreciationand 1,726 1,854 5,748 5,034 amortizationEBITDA 4,697 4,388 19,985 (1,851 )Management ? 125 ? 375 fees (a)Deferred rent ? 378 ? 1,234 (b)Equity-basedcompensation 1,121 1,063 3,014 2,638 (c)Loss ondisposal of ? ? ? 5 property andequipment (d)Impairment ofright of use ? ? 554 ? lease asset(e)Othernon-recurring ? ? ? 36 expenses (f)(g)Adjusted $ 5,818 $ 5,954 $ 23,553 $ 2,437 EBITDA (a) Represents management fees and expenses charged by our equity sponsors. Represents the difference between rent expense recorded and the amount paid by the Company. In accordance with generally accepted accounting principles, the Company records monthly rent expense equal(b) to the total of the payments due over the lease term, divided by the number of months of the lease terms. The Company adopted ASC 842 at the beginning of fiscal 2022 therefore we no longer recognize deferred rent. Represents expenses, such as compensation expense and employer taxes(c) related to RSU equity vesting and exercises associated with stock options and restricted stock units granted to our associates and board of directors. (d) Represents the loss on disposal of fixed assets related to showroom remodels. Represents the impairment of the right of use lease asset for one(e) showroom for which the fixed assets had been impaired in the prior fiscal quarter. (f) There were no other non-recurring expenses in the thirteen weeks ended October31, 2021 and November1, 2020, respectively. There were no other non-recurring expenses in the thirty-nine weeks(g) ended October31, 2021. Other non-recurring expenses in the thirty-nine weeks ended November1, 2020 are related to professional and legal fees related to financing initiatives.