EPS of $-0.73 increased by 12.1% from previous year
Gross margin of 53.7%
Net income of -10.84M
""Backed by the launch of the Recline of Civilization marketing campaign mid-quarter, we've seen increases in new customer attachment coupled with healthy units per transaction, all while maintaining the strong repeat customer purchases we spoke of last quarter."" - Shawn Nelson
The Lovesac Company (LOVE) QQ1 2026 Earnings Analysis: Designing for Life with EverCouch and Recliners Amid Tariff Headwinds and Growth Initiatives
Executive Summary
The Lovesac Company reported Q1 FY2026 results that showcased a modest top-line improvement led by showroom strength amid ongoing category headwinds. Total net sales rose 4.3% year over year to $138.4 million, driven by showroom gains (+18.2% to $96.5 million) while internet sales declined as Lovesac rebalanced its channel mix. The quarter featured meaningful gross margin pressure (53.7% vs. 54.3% prior year) primarily from higher promotional activity, but SG&A leverage and disciplined expense management supported an improved operating loss of $14.0 million vs. $17.9 million a year ago and a net loss of $10.8 million (-$0.73 per share) versus a $13.0 million loss a year ago. Management stressed execution on the EverCouch platform and other Design for Life initiatives as secular growth catalysts, while also highlighting tariff mitigation workstreams (vendor concessions, China diversification, selective pricing, and cost efficiencies) as key to preserving full-year guidance.
The balance sheet remained healthy with $26.9 million of cash, no debt drawn on the amended facility, and $36.0 million of committed availability. Inventory levels were intentionally elevated to weather tariff uncertainty, with expectations to begin normalizing in Q2 and support EverCouch stock throughput in the second half. Cash usage was significant in the quarter (-$41.4 million from operating activities), and free cash flow was negative (-$50.1 million) largely due to working capital and the inventory buildup. The company repurchased ~306k shares for ~$6.0 million, leaving about $14.1 million remain under the current authorization.
Management maintained full-year guidance of net sales $700–$750 million and adjusted EBITDA $48–$60 million, with an intermediate Q2 outlook projecting net sales of $157–$166 million and an adjusted EBITDA loss of $2–$7 million. The gross margin target for the full year remains ~59%, with advertising around 12.5% of net sales and SG&A around 41% of net sales. The company signaled ongoing opportunities across EverCouch marketing, showroom expansion (targeting ~100 showrooms for EverCouch by late summer), and collaborations with Costco, while exiting the Best Buy relationship to optimize its channel mix. Overall, Lovesac emphasizes a multiyear secular growth thesis built on new product platforms, a strengthened acquisition engine, and a more resilient supply chain posture to weather near-term category softness.
Key Performance Indicators
Revenue
138.37M
QoQ: -42.70% | YoY:4.32%
Gross Profit
74.37M
53.75% margin
QoQ: -48.99% | YoY:8.50%
Operating Income
-14.95M
QoQ: -131.42% | YoY:16.25%
Net Income
-10.84M
QoQ: -130.70% | YoY:16.36%
EPS
-0.73
QoQ: -131.60% | YoY:12.05%
Revenue Trend
Margin Analysis
Key Insights
Q1 FY2026 net sales: $138.4 million, +4.3% YoY; showroom net sales: $96.5 million, +18.2% YoY; internet net sales: $33.3 million, -8.9% YoY; gross margin: 53.7%, down 60 bps YoY (product margin down 230 bps due to promotions, offset by lower inbound costs by 130 bps and outbound costs by 40 bps); operating loss: $(14.95) million; net income: $(10.84) million; diluted EPS: $(0.73); Adjusted EBITDA: $(8.4) million.
YoY and QoQ metrics (from earnings metrics table): Revenue YoY +4.3%; Gross profit YoY +8.5%; Operating income YoY +16.3%; Net income YoY +16.4%; EPS YoY +12.1%; QoQ declines largely seasonality (Q4 2025 to Q1 2026) with ERP effect of -42.7% on revenue and -48.99% on gross profit; Q1 cash flow from operations: $(41.38) million; free cash flow: $(50.08) million; cash at end of period: $26.9 million; total debt: $191.6 million; net debt: $164.7 million.
Balance sheet health: cash and equivalents $26.9 million; committed availability $36.0 million; no borrowings; inventory elevated ahead of tariffs; no material near-term debt maturities; total assets $483.7 million; total liabilities $282.5 million; total stockholders’ equity $201.2 million.
Guidance: FY2026 full year net sales $700–$750 million; Adjusted EBITDA $48–$60 million; gross margin ~59%; Advertising ~12.5% of net sales; SG&A ~41% of net sales; Q2 FY2026 net sales $157–$166 million; Q2 Adjusted EBITDA $(2) to $(7) million; Q2 gross margin 55–56%; capital expenditures around $25 million for the year; Best Buy exit embedded as a one-time pre-tax charge (~$2 million) in SG&A; EverCouch launch executed (May 7) with plan for 100 showrooms this summer and formal marketing ramp in 2H FY2026.
Financial Highlights
- Q1 FY2026 net sales: $138.4 million, +4.3% YoY; showroom net sales: $96.5 million, +18.2% YoY; internet net sales: $33.3 million, -8.9% YoY; gross margin: 53.7%, down 60 bps YoY (product margin down 230 bps due to promotions, offset by lower inbound costs by 130 bps and outbound costs by 40 bps); operating loss: $(14.95) million; net income: $(10.84) million; diluted EPS: $(0.73); Adjusted EBITDA: $(8.4) million.
- YoY and QoQ metrics (from earnings metrics table): Revenue YoY +4.3%; Gross profit YoY +8.5%; Operating income YoY +16.3%; Net income YoY +16.4%; EPS YoY +12.1%; QoQ declines largely seasonality (Q4 2025 to Q1 2026) with ERP effect of -42.7% on revenue and -48.99% on gross profit; Q1 cash flow from operations: $(41.38) million; free cash flow: $(50.08) million; cash at end of period: $26.9 million; total debt: $191.6 million; net debt: $164.7 million.
- Balance sheet health: cash and equivalents $26.9 million; committed availability $36.0 million; no borrowings; inventory elevated ahead of tariffs; no material near-term debt maturities; total assets $483.7 million; total liabilities $282.5 million; total stockholders’ equity $201.2 million.
- Guidance: FY2026 full year net sales $700–$750 million; Adjusted EBITDA $48–$60 million; gross margin ~59%; Advertising ~12.5% of net sales; SG&A ~41% of net sales; Q2 FY2026 net sales $157–$166 million; Q2 Adjusted EBITDA $(2) to $(7) million; Q2 gross margin 55–56%; capital expenditures around $25 million for the year; Best Buy exit embedded as a one-time pre-tax charge (~$2 million) in SG&A; EverCouch launch executed (May 7) with plan for 100 showrooms this summer and formal marketing ramp in 2H FY2026.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
138.37M
4.32%
-42.70%
Gross Profit
74.37M
8.50%
-48.99%
Operating Income
-14.95M
16.25%
-131.42%
Net Income
-10.84M
16.36%
-130.70%
EPS
-0.73
12.05%
-131.60%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Strategy and product platforms: Management highlighted EverCouch as a new scale platform with broader TAM, alongside Recliner and ongoing evolution of pillow sack and Sactionals. Shawn Nelson asserted that EverCouch “doubles Lovesac's total addressable market” and is designed for life with easy assembly and washable covers. (Transcript)
- Marketing and customer acquisition: Mary Fox detailed a broad, data-driven mix of brand and performance marketing, showroom experiences, and partnerships (Costco, Best Buy exit). The Recline of Civilization campaign generated 5 billion earned impressions, 600% higher engagements, and ~700 PR articles, while website traffic increased ~25% YoY. Showroom demos and consumer-focused personalization are central to conversion. (Transcript)
- Channel strategy and partnerships: Lovesac exited Best Buy after five years to focus on owned digital/showroom channels and Costco, planning a 15% increase in roadshows in 2024-2025 to reach customers in about 100 showroom footprints. The company reiterated confidence in Costco as a major channel and noted “pop-ups” and direct data ownership. (Transcript)
- Tariffs and supply chain: Mary and Keith outlined a four-pronged tariff mitigation approach (vendor concessions, diversify China exposure to ~13% for the year with exit-rate lower than 13%, selective price adjustments, and cost efficiencies). Shawn emphasized manufacturing closer to consumers and reducing China exposure even in a potential tariff framework. (Transcript)
- Outlook and risk: Management remains focused on category stabilization and long-term secular growth in Lovesac’s core platforms, while signaling potential upside if new products outperform, balanced against tariff and macro risks. Keith highlighted that the full-year guidance can be met via multiple scenarios, including flat core product performance with upside from new platforms. (Transcript)
"Backed by the launch of the Recline of Civilization marketing campaign mid-quarter, we've seen increases in new customer attachment coupled with healthy units per transaction, all while maintaining the strong repeat customer purchases we spoke of last quarter."
— Shawn Nelson
"Loved by Lovesac, our new resell platform, is officially live in Texas. This state launch marks a significant step in our long-term commitment to sustainability, circularity, and innovation in home furnishings."
— Mary Fox
Forward Guidance
Lovesac maintains a cautiously optimistic view for FY2026, anchored by a 5% anticipated full-year category decline and offset by secular tailwinds from EverCouch and other platform launches. The trajectory hinges on successful execution of tariff mitigation measures, accelerated rollout of EverCouch marketing and showroom presence (targeting ~100 EverCouch showrooms by late summer with a formal marketing push in 2H), and continued strength in Costco-based roadshows and the resell/trade-in initiatives. The company expects gross margin to improve to about 59% for the full year, supported by pricing discipline and vendor concessions, while advertising is guided at roughly 12.5% of net sales and SG&A at about 41% of net sales. Management acknowledges that the timing and magnitude of tariff relief and consumer demand will shape quarterly dynamics, including potential near-term pressure in gross margin in Q2 due to a higher China exposure and limited cost-offset timing, but asserts that the four levers for tariff mitigation and a flexible cost structure should keep the company on its stated trajectory. Key monitoring factors for investors include: (i) progression of EverCouch and other platform launches (sales mix, ASP, showroom conversions, inventory absorption), (ii) tariff-related margin and cost dynamics (vendor concessions, China diversification, price realization, efficiency improvements), (iii) channel mix evolution (costs and profitability of Costco vs. showroom/digital channels), and (iv) working capital and inventory normalization as tariff-related stock unwinds.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
LOVE Focus
53.75%
N/A
N/A
N/A
SNBR
61.20%
0.47%
1.89%
-4.23%
LEG
18.10%
6.01%
4.09%
8.91%
PRPL
39.40%
-13.90%
-14.28%
-1.07%
LZB
43.10%
6.53%
2.62%
17.50%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
The Lovesac investment thesis rests on a multi-year secular growth trajectory anchored by innovative product platforms (EverCouch and recliner-enabled sofas) that broaden the brand’s TAM, complemented by a refined customer acquisition engine and selective channel optimization (continue to optimize Costco and showroom mix while exiting Best Buy). The near-term headwinds include tariff-driven margin compression and category softness, which management mitigates through a four-pronged tariff strategy, pricing discipline, and cost efficiencies. The FY2026 guidance implies mid-teens EBITDA potential if EverCouch and other platforms realize their planned ramp, with upside to gross margins as tariff pressure moderates and supply-chain efficiency improvements materialize. Key investment considerations are: (1) cadence and profitability of EverCouch and other platforms, (2) effectiveness of tariff-mitigation levers and any evolution in China exposure, (3) trajectory of working capital normalization as inventory unwinds, and (4) the incremental contribution from Loved by Lovesac and trade-in initiatives. In a normalized growth environment, Lovesac could compound EBITDA meaningfully as the EverCouch platform scales and demand recovers in the home furnishings market. However, investors should monitor the pace of store rollout costs, promotional dynamics, and the sustainability of category dynamics before assigning a higher multiple to the stock.
Key Investment Factors
Growth Potential
EverCouch and other design-for-life platforms are the primary growth engines; EverCouch expands TAM, enables premium pricing, and broadens showroom storytelling. The 100-showroom roll-out and associated marketing are intended to drive new-customer acquisition and higher conversion through enhanced demos and digital-to-showroom integration.
Profitability Risk
Tariff exposure and ongoing category softness; reliance on new product launches for upside; execution risk around rapid showroom expansion and cost controls; exit from Best Buy reduces near-term distribution breadth; potential execution delays in trade-in and resell platforms.
Financial Position
Strong liquidity cushion with $26.9m cash and no debt borrowings against an amended facility; elevated inventory given tariff uncertainty with plan to normalize in 2H; consistent capex guidance (~$25m) and controlled SG&A to support mid-teens EBITDA potential; ongoing stock repurchase program indicates capital discipline.
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