An Eye on Earnings Report: The Lovesac Company (NASDAQ: LOVE)

STAMFORD, Conn., June 26, 2019 – Shares of The Lovesac Company (NASDAQ: LOVE) declined -6.78% to $29.85. The stock grabbed the investor’s attention and traded 148.794K shares as compared to its average daily volume of 200.77K shares. The stock’s institutional ownership stands at 60.90%.

The Lovesac Company (LOVE) recently reported that net sales increased 64.4% to $64.20M in the fourth quarter of fiscal 2019 from $39.00M in the fourth quarter of fiscal 2018. The increase was driven by strong showroom, Internet and shop-in-shop performance as a result of a boost in new customers combined with a boost in the total number of units sold and continued accelerated investments in marketing to increase brand awareness. Comparable sales, which include showroom and Internet sales, increased 52.2%. Comparable showroom sales increased 43.5% and Internet sales increased 76.9%.

  • Gross profit dollars increased 54.9% to $35.50M in the fourth quarter of fiscal 2019 from $22.90M in the fourth quarter of fiscal 2018. Gross margin reduced by 340 basis points to 55.3% in the fourth quarter of fiscal 2019 from 58.7% in the fourth quarter of fiscal 2018 due mainly to growth in sactional products, which carry lower margins than sacs and higher freight costs as a percentage of net sales, a boost in sales for our shop-in-shop channel which also carries a lower gross margin than our other channels and a marginal impact of tariff related costs that were mitigated through SG&A programs.  The decrease in gross margin percentage was partially offset by reduced costs of our Sactionals and Sac products mainly related to cost savings from a change in the sourcing of our Lovesoft and down blend fills and lower costs negotiated with our vendors through cost reductions and volume rebates.
  • Selling, general and administrative expenses increased $5.30M, or 33.0%, to $21.40M in the thirteen weeks ended February 3, 2019 contrast to $16.10M in the fourteen weeks ended February 4, 2018. The increase in selling, general and administrative expenses was mainly related to a boost in employment costs of $1.00M, $1.50M of increased rent associated with our net addition of 9 showrooms, $2.80M of expenses related to the increase in sales such as $0.40M of credit card fees, $0.50M of web associate program and web platform hosting commissions and $1.90M of shop in shop sales agent fees. Overhead expenses increased $0.40M to support company programs and public company expenses and stock-based compensation reduced $0.50M.  As a percent to sales, total SG&A expense reduced by 789 basis points driven mostly by leverage in employment costs and rent expense.
  • Advertising and marketing expense increased 52.1%, or $1.80M, to $5.20M in the fourth quarter of fiscal 2019 from $3.40M in the fourth quarter of fiscal 2018. The increase advertising and in marketing costs relates to increased media, to include national media and direct to consumer programs which drive revenue beyond the period of the expense.
  • Operating income was $8.20M in the fourth quarter of fiscal 2019 contrast to operating income of $2.50M in the fourth quarter of fiscal 2018. Excluding non-recurring items of $0.10M in the fourth quarter of fiscal 2019 and $1.30M in the fourth quarter of fiscal 2018, operating income was $8.30M in the fourth quarter of fiscal 2019 and $3.80M for the fourth quarter of fiscal 2018
  • Net income and net income attributable to common shares were both $8.40M. There were no preferred dividends and deemed dividends in the fourth quarter of fiscal 2019. This is contrast to a net income of $2.40M, or net income attributable to common shares of $1.90M counting $0.50M of preferred dividends and deemed dividends in the fourth quarter in fiscal 2018. Adjusted net income, which excludes the impact of non-recurring expenses, was $8.50M in the fourth quarter of fiscal 2019 and $3.80M in the fourth quarter of fiscal 2018. Net income per share, counting preferred dividends and deemed dividends, was $0.62 in the fourth quarter of fiscal 2019 contrast to $0.31 in the fourth quarter of fiscal 2018. Adjusted net income per common share, which is calculated by dividing adjusted net income by adjusted weighted average common shares outstanding, assuming the IPO related issuances occurred at the starting of each period presented, was $0.63 in the fourth quarter of fiscal 2019 and $0.28 the fourth quarter of fiscal 2018.
  • Earnings before interest, taxes, depreciation and amortization (“EBITDA”) were $8.90M in the fourth quarter of fiscal 2019 contrast to $3.40M in the fourth quarter of fiscal 2018. Adjusted EBITDA was $10.00M contrast to $6.00M in the fourth quarter of fiscal 2018.

For the Fifty-Two Weeks Ended February 3, 2019:

  • Net sales increased 62.9% to $165.90M in fiscal 2019 from $101.80M in fiscal 2018. This increase was driven by strong showroom, Internet and shop-in-shop performance as a result of a boost in new customers combined with a boost in the total number of units sold and continued accelerated investments in marketing to increase brand awareness. Comparable sales, which include showroom and Internet sales, increased 43.8%. Comparable showroom sales increased 35.2% and Internet sales increased 75.1%.
  • Gross profit dollars increased 58.8% to $90.90M in fiscal 2019.

 

  • Selling, general and administrative expenses increased $25.60M, or 50.4%, to $76.40M in the fifty-two weeks ended February 3, 2019 contrast to $50.80M in the fifty-three weeks ended February 4, 2018. The increase in selling, general and administrative expenses was mainly related to a boost in employment costs of $3.90M, $4.50M of increased rent associated with our net addition of 9 showrooms, $10.60M of expenses related to the increase in sales such as $2.20M of credit card fees, $0.80M of showroom and web related selling expenses, $1.10M of web associate program and web platform hosting commissions and $6.50M of shop in shop sales agent fees. Overhead expenses increased $2.20M to support company programs and public company expenses, stock-based compensation increased $2.40M and $1.90M of expenses were related to capital raises.  As a percent to sales, total SG&A expense reduced by 387 basis points because of leverage in employment costs and rent expense.
  • Advertising and marketing expense increased by $9.20M or 99.8% to $18.40M in fiscal 2019 from $9.20M in fiscal 2018. The increase in advertising and marketing costs relates to increased media, to include national media and direct to consumer programs which drive revenue beyond the period of the expense.
  • Operating loss was $7.00M in fiscal 2019 contrast to an operating loss of $5.00M in fiscal 2018. Excluding non-recurring items of $2.00M in both fiscal 2019 and fiscal 2018, operating loss was $5.00M and $3.00M in the respective periods.
  • Net loss was $6.70M, and net loss attributable to common shares was $34.50M, counting preferred dividends and deemed dividends in fiscal 2019. This compares to a net loss of $5.50M in fiscal 2018 and a net loss attributable to common shares of $6.70M counting preferred dividends and deemed dividends. Adjusted net loss, which excludes IPO related sponsor fees and equity-based compensation and certain other non-recurring expenses, was $2.60M in fiscal 2019 contrast to a loss of $3.50M in fiscal 2018. Net loss per share, counting preferred dividends and deemed dividends, was $3.28 in fiscal 2019 contrast to $1.12 in fiscal 2018. Adjusted net loss per common share, which is calculated by dividing adjusted net loss by adjusted weighted average common shares outstanding assuming the IPO related issuances occurred at the starting of each period presented, was $0.19 in fiscal 2019 contrast to $0.27 in fiscal 2018.
  • Earnings before interest, taxes, depreciation and amortization (“EBITDA”), was a loss of $3.90M for fiscal 2019 contrast to a loss of $2.70M in fiscal 2018. Adjusted EBITDA was $3.40M contrast to $1.30M in the prior year period

LOVE has a market value of $423.27M while its EPS was booked as $-5.06 in the last 12 months. The stock has 14.18M shares outstanding. In the profitability analysis, the company has gross profit margin of 54.00% while net profit margin was -27.40%. Analyst recommendation for this stock stands at 1.50.

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