The Lovesac Company Announces First Quarter Fiscal 2020 Financial Results
June 10 2019 - 4:01PM
The Lovesac Company (Nasdaq:LOVE) today announced its financial
results for the first quarter of fiscal 2020, which ended May 5,
2019.
Shawn Nelson, Chief Executive Officer, stated,
“We are very pleased with our strong start to the year as we
delivered sales growth of 53.0%, with an increase in marketing
spend of only 22.3%. From an operational standpoint, our teams
continued to execute and we made good progress against all of our
strategic initiatives, which are centered around: traditional,
digital and social marketing; investing in our infrastructure;
growing and improving our showroom footprint; and expanding our
shop in shop presence.”
Mr. Nelson continued, “As we look to the
remainder of the year, we will continue to make critically
important infrastructure investments in support of our growth while
adjusting various aspects of our operations to offset much of the
impact of tariffs on goods from China. Given the significant market
share opportunity for our brand and our differentiated product and
disruptive, direct-to-consumer business model, we believe we are
well positioned to gain market share over the near and long-term
using our multi-channel approach that includes showrooms, shop in
shops and a vibrant e-commerce site.”
For the Thirteen Weeks Ended May 5,
2019
- Net sales increased 53.0% to $41.0
million in the first quarter of fiscal 2020 from $26.8 million in
the first quarter of fiscal 2019. The increase was driven by strong
showroom, Internet and shop in shop performance as a result of an
increase in new customers. This was combined with an increase in
the total number of units sold and continued accelerated
investments in marketing to increase brand awareness. Comparable
sales, which includes showroom and internet sales, increased 43.5%.
Comparable showroom sales increased 31.7% and internet sales
increased 85.3%.
- The Company opened five new
showrooms, closed two, and remodeled three showrooms in the first
quarter of fiscal 2020 and ended the quarter with 78 showrooms in
30 states. This represents a unit increase of 15% over the same
quarter in the prior year.
- Gross profit dollars increased
43.3% to $21.0 million in the first quarter of fiscal 2020 from
$14.6 million in the first quarter of fiscal 2019. Gross margin
decreased by 340 basis points to 51.3% in the first quarter of
fiscal 2020 from 54.7% in the first quarter of fiscal 2019
primarily driven by the 10% tariffs partially offset by reduced
costs of Sactionals and Sac products. This cost reduction was
primarily related to savings from a change in the sourcing of
Lovesoft and down blend fills.
- Selling, general and administrative
expenses increased $8.7 million, or 57.0%, to $23.9 million in the
thirteen weeks ended May 5, 2019 compared to $15.2 million in the
thirteen weeks ended May 6, 2018. The increase in selling, general
and administrative expenses was primarily related to an increase in
employment costs of $2.1 million, $0.5 million of increased rent
associated with the net addition of three showrooms, $2.0 million
of expenses related to the increase in sales such as $0.2 million
of credit card fees, $1.1 million of showroom and web related
selling expenses, $0.2 million of web affiliate program and web
platform hosting commissions and $0.5 million of shop in shop sales
agent fees. Overhead expenses increased $1.2 million to support
company initiatives and public company expenses and stock-based
compensation increased $2.9 million. As a percent of sales, total
SG&A expense increased by 150 basis points driven largely by
increases in infrastructure investments, stock compensation and
public company costs.
- Advertising and marketing expense
increased 22.3%, or $1.0 million, to $5.4 million in the first
quarter of fiscal 2020 from $4.4 million in the first quarter of
fiscal 2019. 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.
- Depreciation and amortization
expenses increased $0.4 million or 59.0% in the thirteen weeks
ended May 5, 2019 to $1.1 million compared to $0.7 million in the
thirteen weeks ended May 6, 2018. The increase in depreciation and
amortization expense is principally related to capital investments
for new and remodeled showrooms.
- Operating loss was $9.3 million in
the first quarter of fiscal 2020 compared to operating loss of $5.6
million in the first quarter of fiscal 2019. Excluding
non-recurring items of $0.2 million in the first quarter of fiscal
2020 and $0.2 million in the first quarter of fiscal 2019, Non-GAAP
operating loss was $9.1 million in the first quarter of fiscal 2020
and $5.4 million for the first quarter of fiscal 2019.
- Net loss and net loss attributable
to common shares were both $9.1 million for the first quarter of
fiscal 2020. There were no preferred dividends and deemed dividends
in the first quarter of fiscal 2020. This is compared to a net loss
of $5.7 million, or net loss attributable to common shares of $7.6
million including $1.9 million of preferred dividends and deemed
dividends in the first quarter of fiscal 2019. Non-GAAP adjusted
net loss, which excludes the impact of other expenses, was $9.1
million in the first quarter of fiscal 2020 and $5.5 million in the
first quarter of fiscal 2019 (see “GAAP and Non-GAAP Measures”).
Net loss per share was $0.67 in the first quarter of fiscal 2020
compared to net loss per share of $1.25 in the first quarter of
fiscal 2019, including preferred dividends and deemed dividends.
Non-GAAP adjusted net loss 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 beginning of each period presented, was $0.67 in the first
quarter of fiscal 2020 and $0.41 in the first quarter of fiscal
2019 (see “GAAP and Non-GAAP Measures”).
- Earnings before interest, taxes,
depreciation and amortization (“EBITDA”) was a loss of $8.3 million
in the first quarter of fiscal 2020 compared to a loss of $5.0
million in the first quarter of fiscal 2019. Adjusted EBITDA was a
loss of $4.7 million in the first quarter of fiscal 2020 compared
to a loss of $4.2 million in the first quarter of fiscal 2019 (see
“GAAP and Non-GAAP Measures”).
Please see “Non-GAAP Financial Measures” and
“Reconciliation of GAAP to Non-GAAP Financial Measures” below for
more information.
Recent Developments
On May 22, 2019 and May 29, 2019, the Company
and certain of the Company’s stockholders completed a secondary
public offering (the “Secondary Offering”) of an aggregate of
2,875,000 shares of common stock, at a public offering price of
$36.00 per share, which included 750,000 shares offered by the
Company. The Company intends to use the net proceeds of this
offering for increased sales and marketing expenses, product
development, and working capital and other general corporate
purposes. The Company did not receive any of the proceeds from the
sale of the shares offered by the selling stockholders but bore the
costs associated with the sale of such shares, other than
underwriting discounts and commissions.
Conference Call Details
A conference call to discuss the first quarter
fiscal 2020 financial results is scheduled for today, June 10th,
2019 at 4:30 p.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 direct-to-consumer specialty furniture brand currently
with 79 retail showrooms supporting its ecommerce delivery model.
Lovesac’s name comes from its original Durafoam filled beanbags
called Sacs. The Company derives a majority of its current sales
from its proprietary platform called Sactionals, a washable,
changeable, reconfigurable, and FedEx-shippable solution for large
upholstered seating. Founder and CEO, Shawn Nelson’s, “Designed for
Life” philosophy emphasizes sustainable products that are built to
last a lifetime and designed to evolve with the customer’s needs,
providing long-term utility and ultimately reducing the amount of
furniture discarded into landfills.
Non-GAAP Information
This press release includes the following
financial measures defined as non-GAAP financial measures by the
Securities and Exchange Commission (the “SEC”): adjusted net loss,
adjusted diluted loss per share and Adjusted EBITDA. Adjusted net
loss excludes the effect of one-time costs related to the Company’s
IPO in June 2018 and fees associated with fundraising and
reorganizing activities. Adjusted diluted loss per share is
defined as adjusted net loss divided by a pro forma share count
which assumes the IPO took place before the relevant time period.
We define Adjusted EBITDA as net income plus interest expense,
income tax expense, depreciation and amortization, sponsor fees,
deferred rent, equity-based compensation, write-off of property and
equipment, one-time IPO-related expenses, and fees associated with
fundraising and reorganizing activities. The Company has reconciled
these non-GAAP financial measures with the most directly comparable
GAAP financial measures under “GAAP and Non-GAAP Measures” in this
release. The Company believes 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 the Company’s business and facilitate a more
meaningful comparison of its diluted income per share and actual
results on a period-over-period basis. The Company has provided
this information as a means to evaluate the results of its ongoing
operations. Other companies in the Company’s industry may calculate
these items differently than the Company does. Each of these
measures is not a measure of performance under GAAP and should not
be considered as a substitute for the most directly comparable
financial measures prepared 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 Company’s results as reported under GAAP.
Cautionary Statement Concerning Forward
Looking Statements
Certain statements either contained in or
incorporated by reference into this communication, other than
purely historical information, including estimates, projections and
statements relating to Lovesac’s business plans, objectives and
expected operating results, and the assumptions upon which those
statements are based, are “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements, other than statements of historical facts, included
in or incorporated by reference into this press release regarding
strategy, future operations, future financial position, future
revenue, projected expenses, prospects, plans and objectives of
management are forward-looking statements. Lovesac may not actually
achieve the plans, carry out the intentions or meet the
expectations disclosed in the forward-looking statements and you
should not place undue reliance on these forward-looking
statements. Such statements are based on management’s current
expectations and involve risks and uncertainties. Actual results
and performance could differ materially from those projected in the
forward-looking statements as a result of many factors. Lovesac
disclaims 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
(Tables to Follow)
|
THE LOVESAC COMPANY |
CONDENSED CONSOLIDATED BALANCE SHEETS |
|
|
|
|
|
|
|
|
May 5, 2019 |
|
February 3, 2019 |
|
|
(unaudited) |
|
|
Assets |
|
|
|
|
|
Current Assets |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
35,711,749 |
|
|
$ |
49,070,952 |
|
Trade accounts receivable |
|
|
4,999,027 |
|
|
|
3,955,124 |
|
Merchandise inventories |
|
|
30,916,754 |
|
|
|
26,154,314 |
|
Prepaid expenses and other current assets |
|
|
6,343,493 |
|
|
|
5,933,872 |
|
|
|
|
|
|
|
Total Current Assets |
|
|
77,971,023 |
|
|
|
85,114,262 |
|
|
|
|
|
|
|
Property and Equipment, Net |
|
|
19,462,332 |
|
|
|
18,595,079 |
|
|
|
|
|
|
|
Other Assets |
|
|
|
|
|
Goodwill |
|
|
143,562 |
|
|
|
143,562 |
|
Intangible assets, net |
|
|
970,196 |
|
|
|
942,331 |
|
Deferred financing costs, net |
|
|
206,900 |
|
|
|
219,071 |
|
|
|
|
|
|
|
Total Other Assets |
|
|
1,320,658 |
|
|
|
1,304,964 |
|
|
|
|
|
|
|
Total Assets |
|
$ |
98,754,013 |
|
|
$ |
105,014,305 |
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
Accounts payable |
|
$ |
19,754,938 |
|
|
$ |
16,836,816 |
|
Accrued expenses |
|
|
2,618,049 |
|
|
|
3,701,090 |
|
Payroll payable |
|
|
3,077,339 |
|
|
|
2,269,834 |
|
Customer deposits |
|
|
1,331,493 |
|
|
|
1,059,957 |
|
Sales taxes payable |
|
|
635,455 |
|
|
|
750,922 |
|
Total Current Liabilities |
|
|
27,417,274 |
|
|
|
24,618,619 |
|
|
|
|
|
|
|
Deferred Rent |
|
|
1,605,951 |
|
|
|
1,594,179 |
|
|
|
|
|
|
|
Line of Credit |
|
|
- |
|
|
|
31,373 |
|
|
|
|
|
|
|
Total Liabilities |
|
|
29,023,225 |
|
|
|
26,244,171 |
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
Preferred Stock $.00001 par value, 10,000,000 shares authorized, no
shares issued as of May 5, 2019 and no shares issued as of February
3, 2019. |
|
|
- |
|
|
|
- |
|
Common Stock $.00001 par value, 40,000,000 shares authorized, and
13,752,035 shares issued and outstanding as of May 5, 2019, and
13,588,568 shares issued and outstanding as of February 3, 2019,
respectively. |
|
|
138 |
|
|
|
136 |
|
Additional paid-in capital |
|
|
141,790,236 |
|
|
|
141,727,807 |
|
Accumulated deficit |
|
|
(72,059,586 |
) |
|
|
(62,957,809 |
) |
|
|
|
|
|
|
Stockholders’ Equity |
|
|
69,730,788 |
|
|
|
78,770,134 |
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity |
|
$ |
98,754,013 |
|
|
$ |
105,014,305 |
|
|
|
|
|
|
|
|
THE LOVESAC COMPANY |
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS |
(unaudited) |
|
|
|
|
|
|
|
|
|
Thirteen weeks ended |
|
May 5, 2019 |
|
May 6, 2018 |
|
|
|
|
Net sales |
$ |
40,958,363 |
|
|
$ |
26,768,798 |
|
Cost of merchandise sold |
|
19,965,868 |
|
|
|
12,121,625 |
|
|
|
|
|
Gross profit |
|
20,992,495 |
|
|
|
14,647,173 |
|
Operating expenses |
|
|
|
Selling, general and administrative expenses |
|
23,861,612 |
|
|
|
15,194,504 |
|
Advertising and marketing |
|
5,389,330 |
|
|
|
4,407,787 |
|
Depreciation and amortization |
|
1,065,617 |
|
|
|
670,145 |
|
|
|
|
|
Total operating expenses |
|
30,316,559 |
|
|
|
20,272,436 |
|
|
|
|
|
Operating loss |
|
(9,324,064 |
) |
|
|
(5,625,263 |
) |
|
|
|
|
Interest income (expense), net |
|
234,563 |
|
|
|
(57,985 |
) |
|
|
|
|
Net loss before taxes |
|
(9,089,501 |
) |
|
|
(5,683,248 |
) |
|
|
|
|
Provision for income taxes |
|
(12,276 |
) |
|
|
- |
|
|
|
|
|
Net loss |
$ |
(9,101,777 |
) |
|
$ |
(5,683,248 |
) |
Net loss per common share: |
|
|
|
Basic and diluted |
$ |
(0.67 |
) |
|
$ |
(1.25 |
) |
Weighted average number of common shares outstanding: |
|
|
|
basic and diluted |
|
13,669,944 |
|
|
|
6,065,238 |
|
|
|
|
|
|
For the thirteen weeks ended |
|
May 5, 2019 |
|
May 6, 2018 |
Numerator: |
|
|
|
Net loss – Basic and diluted |
$ |
(9,101,777 |
) |
|
$ |
(5,683,248 |
) |
Preferred dividends and deemed dividends |
|
- |
|
|
|
(1,901,016 |
) |
Net loss attributable to common shares |
|
(9,101,777 |
) |
|
|
(7,584,264 |
) |
Denominator: |
|
|
|
Weighted average number of common shares for basic and diluted net
loss per share |
|
13,669,944 |
|
|
|
6,065,238 |
|
Basic and diluted net loss per common share |
$ |
(0.67 |
) |
|
$ |
(1.25 |
) |
|
|
|
|
|
THE LOVESAC COMPANY |
CONDENSED CONSOLIDATED STATEMENT OF CASH
FLOWS |
(unaudited) |
|
|
|
|
|
|
|
|
|
For the thirteen weeks ended |
|
May 5, 2019 |
|
May 6, 2018 |
|
|
|
|
Cash Flows from Operating Activities |
|
|
|
Net loss |
$ |
(9,101,777 |
) |
|
$ |
(5,683,248 |
) |
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
Depreciation and amortization of property and equipment |
|
1,016,035 |
|
|
|
631,991 |
|
Amortization of other intangible assets |
|
49,583 |
|
|
|
38,154 |
|
Amortization of deferred financing fees |
|
12,171 |
|
|
|
66,405 |
|
Loss on disposal of property and equipment |
|
46,857 |
|
|
|
6,139 |
|
Equity based compensation |
|
3,222,563 |
|
|
|
295,239 |
|
Deferred rent |
|
11,772 |
|
|
|
123,244 |
|
Changes in operating assets and liabilities: |
|
|
|
Accounts receivable |
|
(1,043,903 |
) |
|
|
(576,732 |
) |
Merchandise inventories |
|
(4,762,440 |
) |
|
|
(2,212,240 |
) |
Prepaid expenses and other current assets |
|
(409,621 |
) |
|
|
308,359 |
|
Accounts payable and accrued expenses |
|
2,527,119 |
|
|
|
1,224,425 |
|
Customer deposits |
|
271,536 |
|
|
|
190,171 |
|
Net Cash Used in Operating Activities |
|
(8,160,105 |
) |
|
|
(5,588,093 |
) |
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
Purchase of property and equipment |
|
(1,930,145 |
) |
|
|
(2,774,190 |
) |
Payments for patents and trademarks |
|
(77,448 |
) |
|
|
(79,170 |
) |
Net Cash Used in Investing Activities |
|
(2,007,593 |
) |
|
|
(2,853,360 |
) |
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
Taxes paid for net share settlement of equity awards |
|
(3,164,132 |
) |
|
|
- |
|
Proceeds from sale of preferred stock and warrants, net of issuance
costs |
|
4,000 |
|
|
|
- |
|
Principal (paydowns) borrowings on the line of credit |
|
(31,373 |
) |
|
|
1,499,595 |
|
Payments of deferred financing costs |
|
- |
|
|
|
(292,095 |
) |
Net Cash (Used in) Provided by Financing
Activities |
|
(3,191,505 |
) |
|
|
1,207,500 |
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
(13,359,203 |
) |
|
|
(7,233,953 |
) |
|
|
|
|
Cash and Cash Equivalents - Beginning |
|
49,070,952 |
|
|
|
9,175,951 |
|
|
|
|
|
Cash and Cash Equivalents - End |
$ |
35,711,749 |
|
|
$ |
1,941,998 |
|
|
|
|
|
Supplemental Cash Flow Disclosures |
|
|
|
Cash paid for interest |
$ |
8,392 |
|
|
$ |
40,031 |
|
Cash paid for taxes |
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE LOVESAC COMPANY |
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES |
|
|
|
For the thirteen weeks ended |
|
|
|
(unaudited) |
(dollars
in thousands) |
|
May 5, 2019 |
|
May 6, 2018 |
Net
loss |
|
$ |
(9,102 |
) |
|
$ |
(5,683 |
) |
Interest (income) expense |
|
|
(235 |
) |
|
|
58 |
|
Taxes |
|
|
12 |
|
|
|
- |
|
Depreciation and amortization |
|
|
1,066 |
|
|
|
670 |
|
EBITDA |
|
|
(8,259 |
) |
|
|
(4,955 |
) |
Sponsor fees (a) |
|
|
164 |
|
|
|
125 |
|
Deferred Rent (b) |
|
|
12 |
|
|
|
123 |
|
Equity-based compensation (c) |
|
|
3,223 |
|
|
|
295 |
|
Write-off of property and equipment (d) |
|
|
47 |
|
|
|
6 |
|
Other expenses (e) |
|
|
150 |
|
|
|
216 |
|
Adjusted
EBITDA |
|
$ |
(4,663 |
) |
|
$ |
(4,190 |
) |
|
|
|
|
|
|
(a) |
Represents management fees charged by our equity sponsors. |
(b) |
Represents the difference between rent expense recorded and the
amount paid by the Company. In accordance with GAAP, the Company
records monthly rent expense equal to the total of the payments due
over the lease term, divided by the number of months of the lease
terms. |
(c) |
Represents expenses associated restricted stock units granted to
our management. |
(d) |
Represents the net loss on the disposal of fixed assets. |
(e) |
Other expenses in the thirteen weeks ended May 5, 2019 are made up
of: $150 in recruitment fees to build executive management
team and Board of Directors. Other expenses in the thirteen
weeks ended May 6, 2018 are made up of: (1) $94 in fees and cost
associated with our fundraising and reorganizing activities
including the legal and professional services incurred in
connection with such activities; (2) $8 in travel and logistical
cost associated with the offering; (3) $32 in costs related to the
offering and finance fees; and (4) $82 in accounting fees related
to the offering. |
|
|
|
|
|
|
|
THE LOVESAC COMPANY |
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES |
(unaudited) |
|
|
|
|
|
|
|
Thirteen weeks ended |
(dollars in
thousands) |
May 5, 2019 |
|
May 6, 2018 |
Net loss as
reported |
$ |
(9,102 |
) |
|
$ |
(5,683 |
) |
Adjustments: |
|
|
|
Adjustments to selling, general and administrative expense: |
|
|
|
|
Other expenses (a) |
|
- |
|
|
|
216 |
|
Adjusted net
loss |
$ |
(9,102 |
) |
|
$ |
(5,468 |
) |
Adjusted basic and
diluted weighted average shares outstanding- adjusted for IPO
related issuance |
|
13,669,944 |
|
|
|
13,424,909 |
|
Adjusted net loss
per common share |
$ |
(0.67 |
) |
|
$ |
(0.41 |
) |
|
|
|
|
|
(a) |
Other expenses in the thirteen weeks ended May 6, 2018 are made up
of: (1) $94 in fees and cost associated with our fundraising and
reorganizing activities including the legal and professional
services incurred in connection with such activities; (2) $8 in
travel and logistical cost associated with the offering; (3) $32 in
costs related to the offering and finance fees; and (4) $82 in
accounting fees related to the offering. |
|
|
|
|
|
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