LOVE - Earnings call transcript Q3 2019

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Operator

Greetings, and welcome to The Lovesac Third Quarter Fiscal 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. ICR. of Schacter Rachel you. Thank

begin. may You

Rachel Schacter

Officer. Thank you. is President on call Chief With Chief morning, Nelson, Chief everyone. Financial Dellomo, Shawn Donna Krause, Officer; me Executive Operating the and Good Officer; and Jack

results that and Before we get and differ statements in the expectations, I may about would our forward-looking projections, prospects. future discussed include our future These financial some include our those remind will statements from like information regarding set of statements. to such started, Actual you plans events financial and materially performance. future forth

uncertainties, For the should a discussion press of these includes which the risks release. with and filings you company's today's review SEC,

You as to update future are we this applicable should as obligations call statements forward-looking of undertake on on no as except make predictions law. forward-looking assumptions and on today, events. based not and beliefs of statements by required rely our them, All that we

will These GAAP been a comparable financial EBITDA or measure include reconciliation not financial including as isolation non-GAAP substitute measures, should Our most the has of release. non-GAAP addition A and to GAAP in press provided our from in measures measure discussion as considered financial in supplemental information non-GAAP such today to financial EBITDA. results. for adjusted directly our and be

The Company. to Now, Chief Executive I'd the turn call Lovesac like Officer over Nelson, to of Shawn

Shawn Nelson

financials impact CFO more with continue and in we in an $XXX,XXX increased Net key a making in in to is China in increased make are increase facing the from We significant produced goods sales driven COO that comparable thrilled with both we our a before over in ticket on widely Dellomo, will before, had over third approximately will I tariffs challenge review and its alike despite to new but again strategies, our related now a little gross Total for exceptional confident sales at attract sell-through. will are results begin and growth quarter quarter. one but expect XX% in-part more actively current by are both a and long-term expanding tariffs expenses our is the third-party mitigate transaction over and of and progress to resourcing loss The further moment, e-commerce of many Krause, ability financial showroom year everybody morning Donna our to and to and others, of by other to our regarding non-recurring Internet manufacturing financial improvement this upfront. $XXX,XXX, as showroom through in detail. stated sales, third breakeven quarter our $XX.X Good a we’re in highly of we we by and differentiated call financing our presence. increase other want our specifics comparable QX prior-year and in by thanks as importance today. for growth discussed than increase year We President enforced shipping comment goods $XXX,XXX along was existing prior outline includes $X.X growth today’s of marketing EBITDA in Jack and Rachel. tariffs This allow profit same platform, million to Then year explanation Donna Donna and outlook period. XXXX ongoing this, due digital driven the reviews to comp business fiscal later Internet detail, spend the call. to that more timing business customers due XX.X% to Adjusted tariff These to and effects the will I Vietnam of the with and initiatives initiatives the XX%, XX.X%. Thanks of an the our followed expand feel our ago, year out much and perspective an significant further showroom of by potential for loss I our on on costs third year's tariffs production many growing now. quarter mitigating million. were hanging inventory covering of overseas outlook. Vietnam few on the XX.X% operations results Jack this this sales, items our fact a marketing began which on us of highlights we of almost model Lovesac’s our results, improvement these us due the strong dollar quarter third from of and our during no results. of

seating segment Given brand its advertising and in as business our couches, nearly just our and market of a This in overall represents our is newness our disruptive national segment and to model, infancy significant. market compete with share, tiny fragmented differentiated ways many consumer category. chairs, this in of a direct the opportunity attractive is large highly highly addressable billion and furniture of products growth $XX we patented total

like so confident digital a customers, the just is on We why for been from to leaning as product acquisition. existing Jack platform, we leveraging Lovesac on over brand. to results, let quarter-by-quarter our it new traditional of which into time, is upgraded capturing in are we repeat these are significant to and to focused loyal nature driving minutes focus naturally our share of the take explain customer I specifics marketing few further regarding and we Due by our on business strategies are that be added our business base primarily expand very further but to meant I’ll now market also and as effective we’ve would

products unique. Our are very

for with we marketplace that of uniqueness limited device modular and patent-protected called and accessory proving homes enjoy We’ve Even margins platform, very in direct the a Sacs to awareness They category. the consumers’ tables, to to and attributes. products high-quality, Power add-on us the Hub charge. such customizable, today, embedded Sactionals days high shippable premium fitted relative many our as this are charging Our just Sactionals within brand introduced new to free the a are few. name existing drink holders, commands convenient

XX% robust also will new come, We consideration that by testing funnel. platform some a investing, We due customers the results we yet new we the pipeline customers products in these prelaunch of the near which actual are long-term, to that appeal introductions be raise for have overall least consumer over of tested new of testing Sactionals believe the to our introduction are and excited about. and continuously and existing to have impactful the enough love to to at patenting,

due to intentional drives proving introductions our which customer Our reverse compatibility, existing to equally are ever-expanding excitement their customers, base. amongst delightful

will our platform, Our on that real allowing friction. they near-term plan focus is platform, over with them as households We getting re-market Sactionals additions time to Sactionals the to the significant of to on year ongoing. confident of the utility platform possible as each us and breadth to little discover many this to value lifetime launch

seating to our as innovative years alone. useful have to Not of in out, and solutions Sactionals long-range categories the Sactionals outside platform We product further come launches pipeline. yet on other mention to of

in now conscious our recycled concessions already waste having we spun Sactionals so effectuate that plastic feel from reprieved, from leading more have from over made products product home textiles are of or our branded understand plastic fabric no are this user sale that year margin upholstery to fabric on made information estimate textile repurposed supplier the XXX% environmentally Our the for hand We thread million upholstery year. past the of Unifi, into bottles recycled, recycled water this that all than We with United is the XX.X stream our aesthetic, couches from States. bottles fiber transition most to durability, standard alone the far. consumer by water we prolific

are live is a alike. We I blog conceive evolve which in platforms categories up just like this open other for hoping product This is world. availability Sactionals sourced our reverse holder, for we are unique entire that products Put last categories my framework to that existing demands it to emulate to We different to we of power appealing we is advertising. new it as designed the getting higher spent of to so This approach an the design value built to lifetime is for sustainability custom simply, our It compete than makes religiously. for. have an our cover actual to of might platform and design on to focused compatibility framework, design designed also core entrants makes new awareness is on are new on to life others ecosystem We out that to and of that a functionality design. will a is almost Not aspect moat to we Sactionals compatible effect or believe that of Lovesac. emerge approach. roll-arm years of how less consumers. and not products simply promise at likely, Sactionals actively us only in it the options as dug allow developing business This even style future. design of they we product, the the of it more to and planned eight-point the model as of that focused the to the typical rest head-to-head easily very even have one with for versus that attempt they years ongoing the which to largely to These the obsolescence. business philosophy the pieces product for to short well-built business This committed other add-on unaided to philosophy, can hub the life we way up good And are totally live difficult by product are committed seasonal Sactionals promote from to fabrics it industry. measure, last marketing needs also to line. model different additions offer From of life any or operating supports word high worn-out, value a this kind model durable the why assortment products X% myriad to mention dropped side equation. and the for with user sustainability where user maintained marketing this the stained a the core instead out the adapt highly be Sactionals and is new changing far the this of competitive but of the model, for the marketplace? patently might aside, we ever-evolving stock via brand so Even characteristics simply design not more subscribe in that foreseeable couch designed this it if in business that throwaway satisfy and aspects is the natural this it that not departed table, a if cast the in or sustain. a and for our for but around rendered kinds the or are time that to buy of is are from order, the that the pieces with like ongoing wedge Can a adapt the bar sactional a By approach represent ours does the antithesis accessories, evolve standard is merchandising drink model design with

continued Our product point our longer about. therefore changeable, something is also works built-in innovation customers take the concept gain period market platform in meeting approach repeat in is that increased has revenue efforts growth meaningful continue. nearly which our inherently of coach means Yes. deeply sold and in of this also in last action upgrading that as expanding not We the and something are transactions XX.X% far the from needs, platform toward even The Sactionals, patented our XX% This but far, likely evident customers’ as of our lifespans proves at best the observe friendly fact Sactionals and share. our we at built of some only platform as very is philosophy care transactions. embodiment future purchasing fewer the our a and repeat to platform that and option, year-to-date industrywide environmentally that our millennial buyers our the adaptable, attribute rearrangeable is seriously we time so great over and

Our as the culture competitive well position. our our as differentiation, and mode, embodied growing uniqueness innovation strength of and in intellectual of property existing are

XX XX patents, at XXXX. of patents up and have total U.S. from As a of foreign today, issued the we end of

long-term. excited this growth ahead, are over and opportunities the the significant of see Looking about we extremely future business

We’re to satisfaction market our meeting implementing tracking long-term make caveat this share, have health. company's with lens focused the investors. programs enhance to annual gain ensure investment at committed by We we growth on balanced through the expectations decisions the the topline consumer and to rapid to all for of deliver earnings

Given our year-to-date margins. delivered continue that the ROIs awareness we overall witnessed, we the extremely XX% you have marketing raise has experience, revenue helped increased adjusted while accretive being to and attractive and overall investment growth marketing have even EBITDA to to

capabilities, continually to now, expense core We we but and our There our to within infrastructure are We annual to intended topics, investing are sales adjusted a have supply do operational enhance opportunities to showrooms sales leverage our of across ERP EBITDA the enhance line will in our particularly and areas support Jack dive why organization. will further system many also small customer aggressively. operations, is our we basis Donna within as approach the expect are that into efficiency already our confident in even and are overall these and beginning on experience. P&L expansion, that further expand in to future the continual we improve scalabile on annualized this growth. are items and software, top operations is many processes growing company, invested as deliver house in and our technology to key infrastructure relatively management chain, that existing to feel back operations

these on year, to the strategies investment driving brand of to the As we the to ramp marketing next fourth XXXX, continue quarter heels drive outcomes. we testing fiscal in delivered are that to to marketing, desired the comes EBITDA into have and learning strong and investments into planning our investing, date. look This awareness lean success are and the and

the to Based don’t often continue EBITDA near-term they to top margins, believe demonstrable We our near-term adjusted our fluctuations are on this running we due business line, gross pace is will to is of long-term particularly timing, for to appropriate. healthy which continue our very to quarterly and in on investments EBITDA well profitability, the throughout the why growth prescriptive next That we're and years result to margins our in the rapid relative fully meaningful business to on without we our our business expansion EBITDA we adjusted go as are intent for market expect promised and generate said, us It our infrastructure bottom-line come. to generated the currently make on believe year to fiscal adjusted that million EBITDA expect strategic toward meaningful leverage investments saying will and year Long-term, journey but affect $X.X in position the deliver category. will pricing that share. making making and high XXXX. investments over we the we guidance should drive the power, infrastructure for

very a #LovesacFamily, the teams over the turn over to it, call public includes our to positioning appropriate call third nation President symbol. always about Jack, I successful live-up turn key and productive ticker and to that. about as in feel across over cannot to and investor, excited to We our spread our the will want and to more business further detail. very I thank be hope quarter. Jack, for now COO potential. We call unique long-term we passionate we'd our the the This I our go and great priorities Before love now

Jack Krause

Shawn, everyone. and morning good you, Thank

as as key made priorities. good great QX As strong against progress operational Shawn financial a said, performance, well our with it was

effort CAC, year-to-date ratio our our acquisition X,XXX with as e-commerce encouraging. for including itself invest and our very we have brand without quick and very to ran the and and marketing across we products to showroom. campaign retail which first awareness strategy In for disruptive the customer marketing attractive $XXX, This CLV lifetime the were accelerating our we the and ever third of sales plans a our drive or Expanding in plus effectiveness TV and Labor increased strong e-com update. an lends board, the We digital advertising is attractive cost advertising the means the the drove and that well were third significantly of And before one model the of in direct-to-consumer build to the mail awareness saw efficiency density TV in a new to go market direct XXXX, to Let expect quarter, showroom comparable with me results showrooms. marketing numbers markets, value our Day reflective continue in number marketing in in excited areas. should believe that national or give marketing the were customer above continue markets that priority. and you nature plus very sales acquisition and the and is approximately of are showroom, our a cost of we we far efforts nearly which XX% the quarter, fiscal you’d effective X.Xx. as strong markets direct-to-consumer brand. customer This ROI that for supporting we particularly customer about. showrooms that value we levels see lifetime exceeded our of continue can for open In XX% of ROIs the markets higher CapEx lean we strategy

run markets the of creative indicating with have response grow to the share continue where previously and current ROI in that see we advertising plenty executions. curves market to grow We room also we advertising have

which growth, awareness. as to especially marketing digital, we believe e-commerce validates significant thoughtfully test we saw we we summer, this ample brand build aired which we as campaign scale channels, has investments room believe the the additional after further Additionally,

the January, calendar and launched Sacs program. the followed as a XXXX national already and flights also media testing we’ve infrastructure fleet, strong holiday, prove year. our of to an December as and advertising social completed we marketing, capabilities, campaign quarter, customer efforts In in growth enhancements area we’ll and the through the to support we third addition evaluation be particularly upgraded In our by showrooms, technology will locations. supported media digital national holiday be network we focus across Investing in November of and balance Within from media us lies continue elevate of our systems to for XX a digital infrastructure of For by substantial payment for the ran refresh is key technology the rolled chip experience. experience and ahead. campaign X including stability for our overall card Wi-Fi locations point-of-sale and made customer speed our out infrastructure omni iPads all that technology devices to all the channel Internet our improve the to we in

the we all showrooms, unified end, new phase management, allows completed of deployment showroom On enable and communication completed also sales which reporting portal and we real-time back first the channels implementation, warehouse other our among among communication of online to features the data a for headquarters.

We will expand the further our result in elevate customer of infrastructure and continue a as and brand, to technology our experience. invest across our capabilities business

browsers app and excited that sizing Just for This we Sactionals, mobile XXX° iOS, providing while the and last visualization. design in-room are launched own we their web new customers about. particularly allow week, app Lovesac Android,

integral tier strategy, component element part the amplify centers, we marketing With XX today our have our key states Turning XX effectiveness model. and of improving showroom They potential. awareness. showrooms in and of significant of increasing in to lifestyle and omni-channel help locations drive across street Showrooms brand disruptive growth U.S., still complement are growth top malls, and another campaign presence. our the our an showroom

change to to overall XX locations hurdle new with years tech-enabled meeting year our was we During other XXXX and not and are open volume showroom one end did to run rates. XX locations. to to than locations the initially format. the a to track Two not not opened ago, our upon we this Due new the we were less fiscal QX expect of quarter, and the on Two has opening embarked terms locations material strong our in this this effect for executed due to experiential been five expected moved as our showrooms, have strategy year. on rates showroom the began that updating year

with economics see that an showrooms uniqueness, experience more to performance compelling of the flexibility our even customers an our updated continue the and that our visual strong We shop-in-shops. better to pleased now be products. very create for very enables our on update appreciate incredible And of and

As showroom that particularly are for of our on to last a products a shop-in-shops we in quarter, us opportunity acquisition, showcase discussed have we unique limited focus areas don't offering we customer as presence.

fact XX%. building that productivity Lovesac actually is – attended is This reported program our visiting X% shop-in-shops. that channel increase XXXX, volumes Costco tripled Costco. Lovesac Our in X.X count an to our includes of I shops at also shop-in-shops a purchasers per in showroom Lovesac which operated driven We quarter at XX] aware the became In other of than and the and million. a locations in fiscal they Costco sales, XXX believe of third purchasers plus X% pop-up we by supports [store our Costco this roadshow, with plus showroom believe this of both more by awareness

Finally, are across media we including platforms, engage active but Facebook Instagram. engagement, to very media continue of draw and social higher and levels followers social

extremely through brand pictures to our and Our with enthusiast experiences the media follow love their customers about and social are passionate share and posts.

and media accelerated third social to social media awareness social grows, media our including the targeted advertisement. grow. will media, our As social through we paid brand marketing our In following continue Facebook quarter, organic

Ariana where alone collaborate place [indiscernible] meeting This filled exclusive September for offering our sit program million efforts an New York comfortable partnership views. fans. [indiscernible] a City. at XXX Lovesac entire ongoing with branding we was [indiscernible] in with An our garnered media As room example our Lovesac [indiscernible] her of to in is and social VIP

social paid increased spend awareness from clicks For by by XXX%, while the social XXX%. quarter, increased

over touch business the the on do China. a tariffs to from to XX% of XX turning our sourced call topic are currently Chinese I of Approximately execution million or Donna, purchases want before perspective. from Now,

now already there of manufacturing moving production, purview outside China As the mentioned in actively overseas rapidly briefly, we towards the majority of will tariffs. and of Vietnam occur Shawn are our are

our efforts including current are a negotiations and perspective, many on merchandising's, the underway, mitigate well tariff aggressive business to vendor selective Our to From components effects negotiation actions. of listen, logistics, pricing strength more the and the our makes our strong worked valuable topline ever suppliers, U.S. us of has dollar and to favor our growth partner in negotiations. in our which also aids

will We items taking changes have certain selective been and selective into additional price and on litigations testing an will promotional we be increases be step. as

to as around tariffs, impact but gross will Given is of impact of a us headwinds. be be Sactionals financial of these next into as as efforts, and work rate to pressure tariffs, if shifts they position face success year mathematically some efforts there marketing year fiscal by these challenges to The related dollar results. these moves margin the mix the strong very our shop-in-shops our minimal, products continue business. put that channel of of well relate to there And year expect driven issues goal any to tariff are driving next the all the swift to mitigate on the continued we tariff our

call. you updated keep continue you fiscal detailed will to our the progress of XXXX more our efforts on QX give guidance and We on on

of related I the our results, opportunity will focus as and results made Donna well runway in we realize full outlook, a the disciplined execution for of progress infancy the more our a business. growth review quarter brand few with and Financial capitalize this our as Officer. pleased on is items to ahead third turn over is our is very now priorities, we’re call Chief third its with and summary, potential substantial, as our strategic detailed on And quarter our our in the to So, on that, Dellomo,

Donna Dellomo

commentary our Good Thank results everyone. will provide quarter and fiscal around of my a our you, third then begin thoughts with fiscal for Jack. some the review XXXX. remarks XXXX of morning, I remainder

As to the Shawn extremely in $XX.X sales from quarter. XX.X% our QX million are Net said, pleased $XX.X results. year we prior million with increased

with higher was driven sales increase period. showroom, Internet a showroom robust increased We the increased comments versus new an our performance as well as We XX.X% and Internet of which sales during in into the to showroom sales showrooms sales our which represents in average volume of XX% sales increase XX.X%, Comparable closures quarter an Our showroom investments XX%. the drive positive of increased brand consecutive Comparable increases. prior awareness five of format store sales, year three opened remodeled shop-in-shop showrooms. the sold and XX sales order of fuel showrooms, quarter total the legacy quarter. in includes reflecting stores no had showroom per our third with growth and an ended and units performance. by increase new increase marketing QX to Also, Internet, customers, number customer. number strong our an continue eighth

and the increased the decorative sales to in million third Sactionals increased locations our category, as shop-in-shops the our results category, Gross our million year. than million. to product Looking our blankets, quarter, third other includes by XX.X% pillows, channel, accessories and $X.X prior increased this increased tripled which XX.X%, other showroom channel, profit million. Costco XXX.X% our By our XX.X% Internet more increased XX.X%, dollars quarter $XX now $XX.X XX.X% other to sales year compared increased Sacs in and $X.X to quarter. includes at to which and

margin locations period the our The Sactional year. lower XX.X% gross from in shop-in-shop expected, and in to products, decreased reported in primarily to by margin growth slightly basis decrease points which was same margin shift in As out XX% XXX a last toward due carry Sacs. gross channel mix

sales customers behavior purchasing of impact a have should business has historical As generated they repeat margins, purchase overall a engage base positive and based an who carry create on margin, installed for behavior. positive reminder, lower an although in the operating shop-in-shops which gross

SG&A For was support year. commissions, of in increased showrooms in million credit and growth $XXX,XXX $X.X financing-related and to third XX.X stock as of driven $XXX,XXX $X.X number XX.X the in SG&A fees, of million by to costs. expenses million increase of the financing-related showroom a and largely $XXX,XXX third quarter, IPO in to rent a total related inclusive sales-related such expenses increase addition compensation-related last in other in The the $X.X labor, sales increase from restricted stock to quarter the expense increase of million, awards increase and in to card an increase IPO million in

we revenues. variable to increase percent by supports SG&A total our This expense leveraged a as points. basis As and both sales, that continue of non-variable XXX favorably scale cost

investment in periods, marketing, third or prior Our over X.X extended year. increased million which benefits XX.X% quarter

Specifically, investments our on investments. increasing on basis increased Jack both the as prior you opportunity. absolute very when see are rate CLV investments cost showrooms this and $XXX,XXX period and compelling in an the substantially CAC we as economics $X.X capital that went we the quarter marketing, Depreciation maintain due acquisition investing dollar any in over. and to well returns customer remodeled to amortization our in the increases a to often sales marketing Shawn and in as new infrastructure that spend very The and and basis, vary as other can on year will given million, flexibility against for marketing financial attractive on investments evidenced year-over-year significantly given

As a last loss compared in result $X.X million third the of loss an these to was year. operating quarter of million, factors, of $X.X operating

related operating third approximately financing $XXX,XXX approximately unused of quarters quarter to of third in items to expense the XX non-recurring of or million income XXXX fiscal XXXX on and in $X.X fiscal was offering fiscal initiatives financial the of million any the XXXX, from XXXX, initial November of third the of line loss and loan quarters respectively. ended non-recurring related in the tax expense in and X, earnings not interest and to interest reflects to third $XXX,XXX $XX,XXX public asset-based the IPO XXXX, the fiscal quarter recognize This initiatives $XXX,XXX. did related the XXXX. net and $XXX,XXX was We the fees $X.X Net items Excluding related of of other weeks in XXXX. proceeds

as EBITDA per to like share the income, per these million net $X.XX quarter third was Adjusted my net we adjusted out net focus our and attention income discussion point on versus was that loss I'd quarter income and Before other with IPO of net turn and metrics share income of of of for third will third issued fiscal $X EBITDA, to to measurements the for costs in last of entirely and costs and in third of metrics the adjusted financing XXXX, loss the and the the comparable earnings fiscal most third adjusted by and loss of IPO more financing each XXXX. of a Net in earlier Please share between revenue. refer $XXX,XXX as in costs, loss driven today. in adjusted quarter a year, the well year-over-year $XXX,XXX the and fiscal our directly per terminology in the financing increase was of adjusted Net both for our quarter release than XXXX, XXXX. fiscal IPO both quarter change EBITDA. the GAAP reconciliation their

with channels year-over-year, increased the growth million Turning to all and to XXXX the our driven cash of marketing agile debt. XXX% third be no quarter of sales ended supply an We investment Ending fiscal and our across sheet. the inventory support enough support increased balance to by and weeks of in to success cash equivalents on-hand in of inventory $XX.X investments.

versus end guidance this new items showrooms showroom intend year, the having we XX you on certain XXX of this year fiscal this in to the projected, fiscal in with XX remind first XXXX. new the to and for operate XX full of more I to we’re of number year fiscal fiscal it the fiscal this the the at as opened previously being few providing XX end would formal not negotiations change The XXXX, like projected, showrooms a as showrooms versus XX% to already XXXX. open than compared the happened remodel of with From now the year. to quarters XX previously showrooms, lease shop-in-shops Now, we'll plan three year locations. relates timing for showrooms shop-in-shops year of to XXXX, We XX relate a fiscal perspective fiscal does to while

over not mix. and QX to the product company implies basis in which in XXX expect fiscal a for as the as lower to XXXX dynamic, annual revision shift vendor points, margins our fourth related the well to materially be quarter. We little due gross XXXX to in a channel channel This gross adjustments down but margins than slightly, recognizes fiscal the rebates,

the For XX XXXX, were compared same sales weeks net ended shop-in-shops to year. for the period to net as November X, XX.X% to prior sales X.X% total

XX% shop-in-shops X, to net Sactional lower as ended weeks a of for net XX.X% sales sales were the November the margin. for XXXX, mentioned, year. gross prior total sales compared carry XX previously As

sales and be are category of largest little XXXX gross Lovesac. impact and fiscal continue lower have of impact no to Sactional noted, carry a previously be margin. the growing the to mitigated tariffs on expected product to remainder gross for As margin Any for

first be business, of of expect of SG&A, and SG&A in year-over-year SG&A just the we terms in expenses, largest I discussed the the three In in marketing seasonality most as year to leverage excluding expected, generated occurred quarters the and the to our QX. increases given significant continue

Regarding marketing year to attractive continue we the returns given ramp seen. have up investments, we will this

summary, expect deliver fiscal QX, we as improvement EBITDA for as in So, both to the in to well full year. continue adjusted an

expect capital of to of the the we management and technology platform of data Finally, and the showrooms, incur spend capital The for on million our it vast of on remaining systems, with approximately headquarters XXXX to relates majority spend approximately expenditures, logistic opening in now XX showrooms, XX as fiscal inventory expenditures systems. the support and e-commerce showrooms. enhancements and remodeling in $XX is

open our for to our that, can other refer like back all For operator now we'd call the With please press to who turn earnings up results, Operator? it questions. to release. related to the details

Operator

Our of Capital comes Partners. Thank ROTH you. King [Operator Instructions] the with question Dave with from line first question. your proceed Please

Dave King

everyone. Thanks, morning good

First half million for so XX% call looks sales. $X.X quarter, spend it the was like of the marketing

how year, terms QX, And longer-term? in success margins right the how and Given the about over next think you slope EBITDA Thanks. that and for TV, Shawn, term of improvement that longer business on do the in envision had the should of then, in trajectory time? you've are we the national or then what do think you

Jack Krause

question is it of Hi, Dave. over. the Jack. before I'll handing first part that This take

to So, go forward, the XX% basis, given go so I as see based marketing, of annual now, previous that's an opportunities, our today's we sales changes into – XX% before so on certainly. as we to on quarter-by-quarter would in calls, mentioned think, our we We we expect to information. that's right roughly will see

into to test continue programs. new will we So,

been has of rates than earlier year. we for at scaling seen we're digital finding there example, For that room greater the in previously had

will a continue XX% think test in we changes. our we're But is rule now we'll to that So, of do that you approach. I is the general to right give what XX% and seeing sales and updates good on

Shawn Nelson

Yes. This Shawn. is

infrastructure, in begin our In now. outlook all operate that place, our mean, to a a for relative a they're specific category we we perspective, for and and and think I margin terms business high intend sort at to we that this straightforward rationalize category, gross we initiatives much healthy not business, in matures but we're we're SG&A we end, a believe investing to stage, EBITDA longer fruit our start to range maintain certainly our range of is and are put way our yet moment, building sure, very in place the the out as of we in over a small that is age, at bear with of end place to kinds target, size, relative from to in as but the that it gross pretty about to reticent margins the company, time,

own in experience we that growing even know with expansion, to just now, go into many range, leveraging time to even SG&A EBITDA the this will all we deliver ours to headwinds are businesses mentioned, the And business EBITDA forward, in growth as continue as due like facing shift, that move channels real still we our success, some now, model. that Donna we even compression As frankly is overall and high net described forward look forward, intend mode. slight we margin to as we and various in we as revenue right right? But

Dave King

question, of sort then And enough. big picture Shawn. a Fair

So, slower quarter some of any data, all it seems a guys trends that like not pointed have of consumer slower post due is weaker you, that seeing spending the in here retailers macro, few have or to with you some to December, what maybe are there signs November, housing something in you...? and

Shawn Nelson

We are not.

that. is the momentum. on growth quarter-by-quarter basis, quarter, that and will great managing on stated mode third some other high the this will growth an is high we're has and achieve This results other in experience annualized the in we've growth in and overall but business our by give rate business I the business caveat calls forums. to evidenced As our fluctuation,

to I we're overall, the not just giving old comment line I've remember slowdowns Lovesac future. into think expected. Again, seeing the too without witness make way, much that's about getting we're And too our a I completely without to startup. lived because expect top not and live the of be into what various as at through growth the having EBITDA results opportunity up that's – the fourth business – quarter line foreseeable for much guidance, can to – on abandoning we the I'll focusing had We good growth. this what Donna mentioned. is feel long two-year growth

selling originally at we're can bit compared at little even born mature discovering little more experienced of achieving hit lived businesses mitigation. headwinds when of I've with something product see the heard are When very thing very, when cyclical industry same kind in of that has were retail particularly counter we're all essentially much slowdowns these people through never awareness, least well, can be that and the as growth we before, experienced some rate in a various – we because without are all the these growth the to everything lived say, it headwinds as in – modes, they've us I'll fact, of that of XXXX – with that In and almost between. through

without So, with of future, concept. the any promises experience making forecast or been that's this my

Dave King

Okay.

Jack Krause

sort to Jack, that, just at different thing you it of – is one way. this in summarize build to just quarter-over-quarter Yes, on a look if

spend the While seeing extraordinary some slowdown, any quarter quarter, this because results in the we're between third difference the because fourth last a fourth kind ratio we we year. I of we'll think in modulating saw seeing and quarter, see not but are year comps of

about marketing. We'll third example, fourth media year spend. ago in about see we the a for in we the spent the XX% year go more the into increase we started time the as lean this last quarter, XXX% So, media in of in because quarter

comp weakness modulation the business that in increases not consumer we're some see from of but way because quarter, you managing off a the spending. seeing just any So, will of we're perspective, of the third

overall XX% we seen time. was In terms our quarter, higher the customers, we growth on increase and growth months new newer important in in XX the customers year-to-date coming than a repeat saw new also thing as at second dramatic which and last had average, of we've back in what really for

early terms growing of attracting very, new So, with very pleased on, business. repeat the customers we're the foundational customers, of in aspects and getting some

about good our macro feel the from interacting it we how with strong. So, very of customers, we're perspective we're

Dave King

next quarter and good taking of Nice year. Thanks and to questions the luck my luck. the good Okay. for

Operator

you. Thank

Alex Craig-Hallum. with question your comes next Fuhrman, with question. from Please Our proceed

Alex Fuhrman

like Great. third it you an general the keep seems much on marketing, congratulations Sactionals a and platform. people getting my perspective, Wanted on have Thanks from for incredible taking quarter. strong to question spending opportunity to onto mean, ask, really just more very a obviously I

the prioritizing picture future? over to you're continuing fair of and kind to rate get you customer those the that costs a you're the trying as you're build as things for couple and platform trade-offs? in big sense what value. what see acquisition and as growth couple perspective, trying balance decide you lifetime that a people growth post kind more more as substantial you versus years, are of just really on relative from profitability be assume to going of to balance XXXX want next XXXX, you years Is the for a in Just some to of of next Just are sign looking looking it quarters if of the get over at you the strong the to for profitability, ramp and

Jack Krause

the terms, XX really for customer our I'd months on interactions Yes, it's the our – really a in still I'd say and question. infrastructure support building great broad say, are process. focused next in

I it to to the in what quickly, very we and track So, kind the to have is, future. the at we we really a up the so handle need do way very, is attract can to very of look business we how we And catch can how call, drive of and to can strong picking invested a in orders delivery the think on first want I we think orders, infrastructure, make the customers. to they terms in from thing get ship surprise delight we their phone and own customers scale delivery, that's into

warehousing, have back-end talk omnichannel have making line in here as XX way. well as infrastructure and to us systems, we sure the we So, the systems, in bottom investing report an months of that's is, warehousing allowing

is leveraging say I'd happening investment I significant then and months that. XX after period see the So, some

Alex Fuhrman

as to China already of, years could you overseas. and ship That’s Vietnam, able tariff to for to America, a you in great. that production going if us like sense at give North your of a able you a in product on of briefly switch regions? America, Thanks the that feel Vietnam, just product sounds your us give starting look then, would amount Can you production from can situation we versus Jack of China make that it are to and capabilities And seeing you're the and those and Vietnam, you're cost versus assortment China? of escalate, other different shift things outside assortment product your to substantial if regions be were full to the general in do North you you sense

Shawn Nelson

manufacture the balance the by XX% of outside China more and having the of our occurred now of the including a about capability mostly this us. covers, again. I so our up historically and of of and of Take next of in own volume year seeking shifting year. very the Texas – Right covers with to end in for as North been feel pretty say, our Sactionals XX% began and covers this We flow. China. redundancy, China occurs our what greater sheer China in call, our outside our has effort, the seeking leading about Sac rapidly or most should now, have historically relocating just production are in future, The America. XX% Sacs to themselves We ago Sactionals, back Sactionals be on volition, China in production ability confident overall goal and our than for just other built mentioned I the production We

to volume, piece our which on able that what's in Sactionals of biggest as terms able production all actual Vietnam do pieces be our on of And because And the that question, asked, we'll order Sactionals and China? resource that rapidly. of it P&L. by your working of are will on constituted as our have you the share will assortment focusing to we in business We will of biggest resourcing, is certainly in be that, first, ramping pieces, but again, the the be the the outside be of dollar. We themselves, impact would even by in and now sales lion's

– product one is experience on making [indiscernible] Sactionals we this competitive, and even of what us have numerous we there, cost opportunity other quality just in we expensive sourcing [technical more of gross as Vietnam reducing development, costs, kind than focused in new – efforts In less but I is the terms platform. difficulty] vein, and in comment margin increasing guess,

innovating difficulty] [technical goal. and So,

way on come the of we've feel the mitigate to And, discussed, they speak he'd dollars, next we to we ex-China well the the of efforts front from as from those aspects I'll year. the to effect some efforts. if Jack as to, tariffs, the of like. as the certainly mitigation if end, of I our business in the business as the margin way we've that net-net other tariffs first – definitely our many think net discussed merchandising operate just we’ll let But on headwinds ramps, continue they of that that of in do we feel So, half production fact, expect presuming to continue,

Operator

Thank you.

line the from comes question next Please of with Canaccord Genuity. proceed with question. Our Lyon Camilo your

Camilo Lyon

could have margin receiving and increases impact quarter. repeat year? you you maybe, that options production good tariffs. we the and Thanks, Mainland gross shifting as cutting what job manufacturers, and pricing that there, morning can Could and concessions out mitigate on China. just to to other that, discuss about are the the mentioned price very And you're Shawn, have be in headwinds, from out everyone and overall Chinese takes outside the of you puts next you thought just just when about – the some on net of you the if just nice talked that they those obviously companies set

that, So, could that'd articulate great? you if be just

Shawn Nelson

Yes.

happened. Sorry about that. Yes. don't what know I

Vietnam in is so manufacturing – it expensive some China. to chain, quite continue than now, began, in we as So, volition seek, far we're time along, to our supply we balancing the toward just mentioned, Vietnam working less we our ago, of we're manufacturing

those So, we headwinds reduce as manufacture Vietnam development initiatives, we're be a by goods range design of initiatives and the we we'll ideally homogenous of would very year. waiting, excited range of able of There almost of are very they leaning ramp to experiencing even to outside platform. number as highly the outside half to particularly mostly, replicable ramp of of overall and to continue we waiting, next product we to tariffs a initiatives, We time, are in – just over manufactured all there, first presuming look be over we cost from but the we're in next time. foot expect to of for bulk year, Vietnam. production from our and production not play with the is end Sactionals about China the do We China some into of do what long expect continue allowing do vision in as and out that, And can believe to forward our full our product that. of

as volume, the well which in the ability lot larger of out of grow. impossible efforts from we outside with to jump interim, that and overall the the predict And what have is us leaning vendors, continue has our so, get. speak in to as to Last even to expanding becomes the the terms dollar mitigate as it's tariff but intend and with of tariff a levels, deliver regards everything to even we in suppliers and strength us net obviously, how larger in the happen threatened that We our will we're mentioned pace EBITDA numerous Lovesac chain the – in I'll significant the know to Jack operate the leverage growing helps just margin real-time strength difficult radical China mitigation further to on in business more – Vietnam. impact all thing, to even XX%, negotiate allow at I'll supply we only we our including to in dollar that increase of given and we and of our into as pretty

Jack Krause

in what advertising view on we as well. tools build has from evaluating are to non-supply additional Just we're less to we Shawn tools, how by driven as other and use a point have of Obviously, dramatic getting volume said perhaps increases forcefully. also chain

future, as opportunities, possible rates mix look we're go we at into as So, the discount at of looking opportunities. we'll

because way a own margin choices of on can like some across of feel margins our enable. as in appear increases. some promotions, you're your wide margins some have of making price which board, the can within been of can a that higher of the selective with the price customer, range there mix pricing we can customers selective item wholesale make are and building choices, We shown change. encourage give to those of We have through – pick appear change don't you're offers We custom a us lots are we then really increases or products already that also to a without

it going as testing Donna, to And we'll EBITDA. what then, in future hand sees that for into summarize I'm be the the So, she over to well. just on

Donna Dellomo

the tariffs. that's And

to tariffs. sales into is and our dollar our So, growth will projecting we protect and despite our the the to of impact. tariffs headwinds ability year, investments impact mitigate there But know a and thing But able are our infrastructure the in slight be next plan important protects the adjusted margin EBITDA is to impact healthy to dollars. improvement

Camilo Lyon

Perfect. That’s very helpful. Great. you for color. Thank that

achieving the a year, success and see and back business that to initiatives this look if are those it's actually a bit of soon. you've gaining that traction, and certainly been initiatives return the to we your those at size start Just investments step excellent invest growth so see on against

allocate to how – just customer try we little that understand marketing? you're inform, what dollars you're or demographics, seeing that to we with so. who the the type reaching, connecting your reaching, that's reallocate investment then maybe the I if So continuing spend do customer give as bit as of demographic you're go you a or strongest around – may how could us wonderful to wonder and you're and that the of most you're as color success you with,

Jack Krause

business sweet the and has be older Yes, an like millennial, sounds believe of it I to been oxymoron. spot which that will the continue

more also a will would customer interest that seeing seeing think of I obviously the the an we brand, of is $XXX,XXX new that – customers. bringing career of the are of mature our obviously more And is as and a overall we are and we target are children, that in increase above from we'll some the is the with who year. some peak group in the in, What So, and to wealth customers, advertising millennial, age well in getting be millennials continue key hitting awareness, well are their north probably and having are as certainly our the entail, focus with we But increases millennials through those on who communicating a value say we them the hard a talk get product we more year-end our are customers. changing it as I sense we after as is we'll into have great really product and on – to advertising, a great give demographics you good samples with looking get those. of the of benefits or understand of of, that's going would helping results, about a at the get and year, the and we’re I we one what have. customer as More hoping end that, the to come think quarter-by-quarter to annual out how we and what making

Camilo Lyon

you're you in but line next other broadly to making are any sort if as year just future? maybe see Great. highlight investments your those of think of either top And you you the next I about in drive projects growth, some the any and just infrastructure, highlighted. investments sure you've a before I'm then that of and that we you that Jack can next months next really just that forward finally there the looking the could outline both key be year. XX think key you'll for will me, dollar talked mentioned marketing investments another about should to some bottom you start focus, inflection in be year EBITDA investments for ultimately help that

Jack Krause

Yes.

I logistics biggest have be chain. supply the We area think – and will in

ones study are be a one. placement in the future Those So, WMS number critical our of like, of warehouses now. and and our implementation look the or the to we negotiating obviously the Then that's ERP in are what our right will system, to in biggest of business. support that growth does midst doing success the of

the also We it's course other say, the and researching some when some I is manufacturing with share And area additional you have appropriate. – would efficiencies people in run get we're long resources. of ways that we'll to

are consistent dramatic next So, the in about we've have talked service, the finance will customer logistics, we with if needs, departments you the most what which year, look be resource increase at and with IT.

Camilo Lyon

your Perfect. guys. you All Thank the very to best much.

Jack Krause

Thank you.

Donna Dellomo

you. Thank

Operator

you. Thank

question. McConnell comes DA the question proceed next Please from Our with your line of Scott with Davidson.

Scott McConnell

Great. Thanks my questions. for taking

to for second and looking do of remaining of your B, many a in So, at strategy what are the showrooms them as is the update A, malls? what format your how locations us C getting And believe upgrades percentage locations, you new updated? can and are then showroom you on question,

Jack Krause

Sure.

a positive believe I'd locations. say, That B are XX a to have year. on this will vast in not it a a in malls. couple, not four-wall perspective, contribution probably say, we the showroom. I majority And have majority locations and all rest would – A we a put a I A basis just less are mall is So, than

just profitable, this to We've of needing very in necessarily to information the a have, been to being point. way our – our the based nice at and really showrooms]. really – developed, because on not to very grow showrooms we're we're we adjust So, able position approach [no we've leverage

Donna Dellomo

our the answer fleet the that, to showroom is part in just format. And of of last remodeled XX%

Jack Krause

the roughly Yes, months, do. – roughly more to next we XX have over XX it's

Scott McConnell

Okay, updated one great. question. And if I future for plans thoughts follow-up on international your you can Can get expansion? provide

Jack Krause

Yes.

we all believe I months, opportunity with XX international in model to or super-efficient XX and in replicating create model. next we expansion discussion consistent the timing along as of think States, investments. get leveraging We terms goes the the really infrastructure the that start the then in the to our this United

is a obviously I I of as the think the working we will Canada, which two, we North outside protected into UK, well. all is step What them, patents, on the say moving one, a we America, major will major we some in and the by of has obviously areas in our and well, opportunities in as America. lot first I trading step North – and model, Asia, have of we're Shawn all patent Canada, are the Australia, highly think interested Union, in have past, markets European terms discussed protection trading of also

Scott McConnell

happy and holidays. your for Thanks well. time Very

Jack Krause

Thank you.

Donna Dellomo

you. Thank

Operator

Thank you.

for of We closing Nelson, to remarks. the back to turn call I like would have any our end session. Mr. over reached the question-and-answer

Shawn Nelson

Yes, of your thank this you all support. so on appreciate much for us We joining call.

holiday, happy and I is we our forward our #LovesacFamily, a behalf. now all intend mentioned, a future business Have to public conversations. the operate of of As on good to part looking and investor

Operator

This Thank teleconference. today's concludes you.

your this a Thank participation, at disconnect your may lines and have wonderful You day. for you time.

The Lovesac Company (LOVE) 18 Dec 182019 Q3 Earnings call transcript