LOVE - Earnings call transcript Q4 2019

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Operator

Greetings. And welcome to The Lovesac Fourth Quarter Fiscal 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. to of conference ICR. like host, to now Schacter Rachel would turn over the your I

Rachel Schacter

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

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

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

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

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

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

Shawn Nelson

Total I And Jack and the brand. our thanks will full and our by our operational COO, with accomplishments and our morning, to a elaborate our will joining and results initiatives our fourth fourth year. Thanks, opportunity related other highlights call of We had which a finally, sales our detail. results. XX.X% outline significant we discussing will for key increased long-term President Donna strong strong business XX.X% and by which in the few comparable our increase see and results. of items outlook everybody, XX.X% Krause, growth Net our driven review this and CFO showroom and sales for sales Rachel. operational XX.X%. highlights today’s very After in to for review financial Internet $XX.X financial on our will year key today. financial includes Good for quarter increased us by I of pleased and year more Then, a growth million. showroom the Internet the Dellomo, comp are same begin quarter

despite of as for this We improvement and $XX and was in both shop-in-shop $X.X attract spend the other fiscal Our ticket fourth million alike fourth non-recurring showroom growth, $X million million strategies, by continue digital year through period. platform were marketing and year-over-year and million increase for marketing driven expanding decrease expenses achieved growing quarter we both to a prior presence. $X.X Adjusted e-commerce year in and XXXX over prior the again transaction quarter quarter. comparable the new versus significant approximately sales financing existing customers our EBITDA of

growth EBITDA our the increased XXXX $X.X increased of comparable high XX.X% $XXX.X sales to improved in showroom in on delivered XX.X%, fiscal by of Net annual versus for in expectations a we Total $X.X including growth and we business a year, Internet financial same the sales was and Internet fiscal comp million XXXX. Adjusted by set showroom XX.X% rate basis. million driven XX.X%. of For sales achieving sales million. on an ourselves EBITDA and

innovative. that to one, quality, is product and Designed authentic that great against made create past also one philosophy, our strategic high product reflects I key of customizable, operational Number we now this will We every which for progress initiatives, sustainable our year continued Life review.

patents of Our two, we and XX awareness. fiscal and year-over-year Number end unique products XXXX. U.S. number increased brand XXXX, fiscal up to leaned XX.X% marketing, to increased our traditional the XX foreign are of from patent protected at patents into and in drive issued digital we which

levels prototype on format integral past increasing year Instagram. This iPads building we and We including with our very customer in of showroom new we payment model. shop-in-shop among active investments in with as driving completion maintaining showrooms, all that our the remains results, showroom Key were of total showroom headquarters. social XX% during of rates. customer platforms of communication to in year, dramatic across to deployment Number management social a strong and presence presence. substantial locations, The to particularly customer the six, and media and updated it data the customers, in Number a base and shop-in-shops technology areas see ahead. warehouse nearly sale Sactional and card returns showroom to acquisition, have an implementation our lies and of support first to prove We media elevate and in enable our of brand awareness operated also and to addition these pleased in as effective continue point Facebook Number our new the where fiscal XX the Costco. we showroom well growth disruptive and increase continues XXX four, omnichannel of in great followers investments our a experiential component is repeat very our locations are very increase our portal and accelerated the XX opened our engagement while with product XXXX drove investments. showrooms three, of chip including Sactionals we communication our phase infrastructure experience don’t offering higher unified

of social followers improving unpaid XX%. growth campaigns our is business engagement what XX% our on in over it Lovesac million to about pages understand QX, Instagram its up seeding understand Facebook reached increased to can quarter, our plus while fourth via driving focus. order the investors likes believe our versus awareness XX rate investments and in our how For year. long-term and potential on XXX% the last over by and view time fully We become and near-term supporters important over management thinks for to

We of the believe is has in disruptive financial a Sactionals sometime sound product and which awareness is proprietary years is continued surprising and invented history we continue may to only that recently growth. even brand the themselves to category of brand consumer were unlocked Sactionals advertising us primary have already, model XX delivering though that a are robust ago, appropriate the for its has alone that but what driver our for become product. our perfected infancy,

through using on couches, done effective, of is $XX billion market are focused is direct market platform size, seating of business multi-pronged shop-in-shops as that to marketing the expanding total capitalize with Sactionals. ability category acquisition share gain we and that and market core and products we is differentiation our to awareness, gains. showrooms, Combined a model, as widespread within can with retention, Our chairs Lovesac’s are addressable and furniture proven the strategies, meaningful to overall and includes invent brand now we approach in proven our category vibrant the with consumer substantial our opportunities share e-commerce well-positioned point new appeal, based segment have to site. customer have market patent driving bring sofa we customer life our for on the and

acceptance on Sactional and faster time its it in likely ever platform adding formative couch. and them a in investing We the their products of the upgrades as new the its categories, some customers evolution any time broadly be to consumers designing Sactionals more our focus of suite we bringing market. providing engage products. in seeking protection to but will the many be wasting on and them still a are We money with patent platform very needed for will benefits itself their adaptable collection And before to to for and accessories do to repeat understand believe reaching actively in on be new in experience of near-term throwaway this over versus the and

platform enhance Sacs of than provide little over new platform the support. customers of products numerous We expand organic product to additions advertising with reveal to mention continues further the and buyers not to have growth XX% this opportunity annually greater that enjoy very appeal us with existing upgrade to the to the will and of family Sactionals time, to yet with

Our unique to real built to our strategic to for calls approach for to Designed commitment lifetime our are business design changes. philosophy, and with solutions evolve and stem from Life people’s essentially platforms life that which tactical last product designed a

a our more business manufacturing foam-filled manufacturing to environment. that and implementing patent the undeniably more since States, to and $X.X of strengthen, observed we while more bring in are commitment of Sacs to mitigated a thus and mention have more efforts QX for excited operation ensure service this Pursuant which will sustainable, reliability be consumer, mention a patent us by risk their while this more protected a will for design CapEx and making consumer. this core basis. we roughly better, meaningfully and Western market shorten light of also an philosophy, and I that make novel in the our stable, United the to invest integrated to to is on providing sourcing to announce Life inputs Utah simultaneously even both million are final on with our the in plans our utilize is part in simply strategy, as to stuff to approach the redundant the impact message reducing effort everyone Not We supply to sustainable to vertically for in we utility overall to sphere utility more year. operational chain are being which products Designed good resonates to that

be only redundancy key this been business of manufacturing and product previously view in namesake third-party have one principle. We to we manufacturer ours as holding for a

Sac experience begin the to the deliver but in users, both We of in cost business efficiencies facility these as until the expect goods efficiencies of as our fiscal not following end the long-term, this to we well delivery to year. of will over cost

we only XX We makes water sustainability, to stream have XXX% waste since converter million to our more still largest perhaps water have waste the achieve spun us to pertains revising year even that the plastic best yarn are to Sactionals on scaling estimate to United scale, Sactionals than fabric that made utilize bottles the product it to our recycled bottles We from results the and decor believe our and last this formative real the from alone, of of we in States changes home plastic diverted rapidly. are We single in is making consumer way upholstery. already evidence business significant plastic all as last of core do year core

decorative our Sac even We Sactionals forward continue to utilize we to do covers more this going recycled and as of plan in yarn well. of Repreve as many

that brand Given affords over a We add they a way the view growth and right. things over to of long commitment to the these lives care make consumer make portfolio the our as selling of will aggressive by the long of out to rest do to time, and to could of upgrade of of only our it the reliability we have nature time our and We and decisions and they if them them time. continued take patent take support us view prospects believe we a very couch the their do of expansion go our customers.

investing each but meaningful committed the on some XX% we in expansion drive fiscal thoughtfully top in XXXX, of some that what basis by top we we to Coming at quarter rates line, grow already including fast significantly high EBITDA overhead achieve intend begins of and growth into long-term, maintaining to share have an into. maintain a our what the we ranges near-term. to to margin EBITDA high best-in-class and business to already should long-term. over year, annual we be our we category, this dollar the we gross the not of will growth over Once to expect because produce results significant are off have on margins year, level growing which too our expect yet basis, the for a the growth to market XX% committed in on almost While leverage we are in kind

support this necessary the consumer In XXXX, fiscal brand. characterize in a to it adopted become of a will year investment we terms year infrastructure widely of what as

scale. doing are team it and to a things shore We this prepare business massive up many for as

of and delivery not the set to to experience, what well-known the for product the our a and long-term every to support and is their intention most but expect. to most Our us order and the up company, unpacking to chain one facet upgraded shopping consumer with to invested IT be as especially logistics, our to in of only relationship must brands, be beloved supply This well. from we processes, growth the of unrelentingly infrastructure people, checkout become very requires is overall in experience our furniture to with improve customer and intended kind

we result to prescriptive may As of the due particularly in before, I and is appropriate. said which line, we often the for are EBITDA business profitability, running and don’t have pace the will timing on our is affect investments fluctuations long-term near-term quarterly believe this quarterly guidance why

of the in XX% for to fiscal XXXX, until for this is our tariffs on outlook assume produced China that terms our update. goods year thoughts continue In around there in we further enforced tariffs

ago profit of Vietnam tariffs to in this for and gross year. potential that percentage due over to downward to began rate we we us of actively gross X a points most shipping the dollar overseas to We fact from tariffs From of manufacturing of the are production have operations pressure on perspective, third-party our Vietnam to mitigate expect points margins taken resourcing in due year gross a a effects margin percentage standpoint, goods. part X steps these much

on them are mitigate year. on XXXX Donna to tactics very to good initiatives. dollar expect achieve results for will our strategic EBITDA we various on, through an pleased still In elaborate progress fiscal Jack expansion and However, we that our this summary, further basis made with annual and we

invest and will brand continue position marketing XXXX enduring the into infrastructure success. our fiscal in long-term lean we in as to We for

their Jack, I the and and our over all contributions HQ thank we XXXX. call the Jack, forward year. President tireless record to on and in want They to company our call our Before to this turn turn fiscal to for and driven to-date for this to to members customers. go will our team all over look building now track I priorities our I at of showrooms across COO, have success over key

Jack Krause

good Shawn, and you, Thank morning, everyone.

was strong priorities. against a a As end robust operational Shawn quarter growth our our sales made fourth good key of to said, with progress year

Let year. on for plans you me and our update the progress give an

increase digital is TV, direct to awareness Our drive first expanding and sales. and mail priority social marketing brand

sales Our the fourth great e-comm growth be marketing showrooms effective yielding plus as very XX.X% for and our strategies of XX.X% continue to and results are by for in evidenced comparable quarter.

year value which customer customer, a from Our XXXX. of is hit first is in someone of year first The a X,XXX Lovesac measure in or up the X,XXX CLV, record fiscal fiscal XXXX,

XXXX, from Day. national fiscal marketing CAC XXXX, as in increased we Labor expected, As awareness drive to $XXX campaign including acquisition first customer cost TV brand approximately for increased fiscal to ever our in or our $XXX

our at to year, CLV ratio of ability to the $XX.X we our year-over-year indicative For scale. the nearly expenditures and our XXX% million marketing efficiently to increased by CAC year which finished is Xx,

our we also and customers are showroom, saw which on expect will as key by of we this driven XXXX efforts repeat supported will higher with XX% customers highlight the of the our effectiveness CAC investments without marketing We ROI Sactional strong we with that in XX% in and increased continue drive far to in attractive that and marketing national to accompanied be pleased CAC are extremely trend for Other expect our year. campaign digital quarter CLV by increase markets CLV remains The that very a increases. by new the our fourth that exceeds the our transactions marketing be metrics fiscal the our marketing. again advertising continue

results the by gains. Xnd paid areas. In balance campaigns to continue from Our showroom, significantly in to a accelerated sales testament with supporting our significantly are showroom National improved The above curves open in and DTC presence, being and our volumes supported social in levels media performance the markets positive synergy were efforts a the programming. the through DTC, of national performance saw effectiveness search sales efficiency without of volume all disproportionately a reduced new web model. without showroom fact media through and marketing marketing, demonstrating markets digital markets showrooms we for national and these The still netting accelerated campaign and year. awareness XXth with December see plans efficiency more a driven invest at to from showrooms. that proof high-density digital results strong to we true incremental in rates the that targeted build channel. continue flights we we are markets before is affiliate Digital CapEx ran in between media slightly for November can advertising E-com

remain awareness very Instagram. advertising with fans grow Lovesac. as way loyal with connected very significant stay way our is increasing which a of and passionate In we across word spread and social social social about our in to followers media family constantly increase media Facebook addition, the and to view pictures media customers, We the in products effective on brand post engagement active our and and our a Lovesac as also reflected

For XX versus on campaigns up awareness million the growth via followers reached seating, last social to quarter, over our over XXX% fourth year. Instagram driving

target followers, rate engagement our Jordyn likes X.X meals XX% the currency Jones in these cultural customer. has with XX%. Some our Facebook being million X.X unpaid target demonstrate XX.X specifics followers. the and [ph] QX, followers and with our with relevancy of highlights with million David make our We million increased by Dobrik improving our brand believe by audience seating page authentic with

will we lean our marketing extend brand as given reach brand into and we levels XXXX, low optimize continue our fiscal to awareness. For of

of be to as increase efficiency. mix will we overall using result marketing TV part resulting second our in a opportunity successful XX testing, As our an of spots

the time Memorial July on of always viability We will and also the periods. Day test Fourth during TV of

addition, will social is into brand test Lovesac of In by the paid targeting with the social where to interest our niche in a Pinterest, And and eco-friendlies, resonates for we inspiration. lastly, parents new highly audiences The we creative engaged expand with them channel will presence seeking including market target and pet Lovesac owners that them. target

Internet in particularly the the us scale Next, area brand. in is point improvements the from infrastructure discussed across a infrastructure quarter, the the and another addition showrooms all locations. card benefited as experience previously of devices chip with iPads, customer focus including enhance payment technology in of refresh Wi-Fi our the In technology business investing sale fourth we and network key of capabilities, for fleet upgrades,

with pleased implementation, In the other are real-time of online customers headquarters. allows sales We our features, and the channels management a all launched that of among first to which for enable we data Android warehouse deployment and to phase Lovesac AOV showroom the portal communication in-room very with our communication showrooms, iOS and and among has unified app providing by customer reporting near design for the as December, XX% email, app and own as engagement from their open well $X,XXX. generated from were an of sales visualization, which XXX response of very while evidenced Sactional, app an QX the rate degree been sizing high allows stats positive in

which communication around customer home quarter, With customers, better provide quick between to In also follow-up Google are first a a and to fiscal open plan we experience have efficiently we we by creating supply sales our the search showroom SMS invest with chain in to and platform, support accountability. to already a is platform vehicle provide customers to an a service. team teams. can improving continuing to goals web customer This as customer enables implemented hovering natural as SMS that addition, post-purchase In teams the order new omnichannel podium XX%, on associate a showroom well technology, and our In in request moment quotes, of culture Reviews their rates ranking. XXXX, being our enhance SMS in new our is associates used from experience market. our integrate in

re-concepting include Our shopping a additional the with experience. will to the also investment in designed these technologies enhance areas of showroom

chain Included the is for for redundancy on year a focus in much systems are our to supply network, plans some that small achieve option line. of enhancements. continuing us our allow investment and for including optimization facility this will opening needed product the We manufacturing delivery Sac

immaterial. margin While we reclaim fiscal a implications the overall in will expect of long bit do financial in to XXXX be run,

our We and to on clarity making also processes information. in customer to and order focused experience improvements of the financial internal improve are our ERP

showroom total strategy helps The a not third to brand our element are key our key with tier QX awareness. the XX year, is share U.S. in open approach XXXX of continue locations. of we component had locations and showrooms in showroom street openings. the expand did centers We our of a improving brick-and-mortar presence. XX ended to as malls, with We growth market Showrooms gain fiscal increasing visibility high in locations the XX multi-pronged lifestyle and presence states for our year in any new and top

the year updated format. quarter our our from the the format. four in ended in store fleet We legacy also the model of fourth experiential tech XX% enabled We with showrooms updated to showroom

mentioned in significant area We open XX our designed consumer to of XXXX with in on and to investment the customer the our and As we earlier, runway for re-concepting fiscal of us between locations. journey growth includes experience. and enhance omnichannel XX new technologies ahead see planning a showrooms shopping additional are research showrooms this

channel other previous was the for areas our offering Shop-in-shop the to up we locations. capitalized presence. in operated up XXX allows with pop-up of XXX% which in traffic shop-in-shops, in of the increase quarter million Costco The in shops year. reflected we the quarter in our in to productivity continues a showroom high don’t by XXXX, fourth necessarily XX Costco, Turning increase locations our is where of includes which acquisition to sales, increase quarter. products on opportunities customer X.X have limited XX.X% fourth the our fiscal from to and shop-in-shops In showcasing

presence will we exploring will this while that retailers our also deploy Given with the similar fiscal updated showroom seeing opportunities strong showrooms, we our expand in are other continue keep to concept results on. you to XXXX, from we

brand. with we the year made So, in and investments business that our for as The pleased quarter capped well results important summary, Lovesac foundational continue to make We on progress priorities fourth very our strategic expand are drive successfully good to a strong we as growth And lies for detailed items ahead. to turn review a our outlook. a quarter our more our few Chief call well that with substantial I the Officer. over the that, Donna now of results Financial to fourth related as Dellomo, support as will as

Donna Dellomo

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

We are XXXX. end our marks very pleased with to strong results, which fiscal QX a

in XXXX showroom period. format customers, As four fiscal new as XX-week versus increase prior showroom, in reflecting fiscal from had our fourth was new legacy two XX% remodeled increased the This opened increased to a in and driven and and increase our include units sales customer. XX-week our was XX.X% an represents with with sales shop-in-shop during QX of as number We and reminder, fourth increased showrooms, order compared the stores an advertising year a XXXX. Comparable to comparable no sold, XX.X% of increases. total the which prior sales increased million number quarter comp showroom well fourth Net growth performance ended new of XX.X%, helped period and a closures average Internet an our sales in showroom We awareness increase the the Also, and which $XX.X per the quarter. strong $XX of an by fuel in positive investments, showroom Internet a showroom sales, million performance. year ninth XX.X% the increase in XX brand consecutive quarter marketing showrooms the being showrooms. drive period, higher into volume Internet quarter of sales, of quarter. year sales sales

includes blankets channel, Looking Internet XX.X% from at Gross XX.X% $X.X pillows, by our XX.X% our as million and sales period Sactional which sales XX.X% same include other XX.X%, XX.X% fourth sales and to in by Costco $XX.X XXX.X% to in Gross increased showroom gross other category, and in reported percentage the XX.X% which increased basis to $XX.X year. By XX.X% in $XX.X sales, million. profit in our to accessories, other dollars decorative to sales our our quarter increased last points locations shop-in-shops decreased fourth results increased category increased expected. product the channel, Sac quarter. year increased quarter. million. A the the prior compared XXX year-over-year margin decline increased million to margin percentage was our

which to our were than margin in margin a acts offset gross impact of other margin fourth a basis amplifier and was and delivers percentage the carry media reductions quarter to The rebates. costs product Sactional primarily vendors gross from predicted and margin and tariffs costs cost volume than stronger related also the and than was our growth to products, Sacs of than our with which cost in savings The a by the for predicted and lower related and sales higher gross mitigated lower percentage reduced positive in products, down the related decrease cost decrease However, lower as in point net originally fills sales, channel, operating impact the tariff an quarter basis full marginal this increase a in Sac as negotiated prior carries Lovesoft blend initiatives. through and of margins sourcing partially the XXX a gross through change lower primarily margin of quarter fiscal channels, shop-in-shop as sales to $XXX,XXX our our costs to Sactional year’s company led due to XXX compared in freight Sactionals a SG&A by points. that for percentage fourth

planned than than profit the shop-in-shop With overall revenues, Sactional particularly stronger sales, growth. stronger we gross and drove expected dollar

excluding total million marketing advertising For million of year. to quarter $XX.X and SG&A fourth expense XX% quarter, increased the $XX.X from last the fourth in

and was $XXX,XXX addition credit total in million. million sales $XXX,XXX related of expenses million in largely initiatives compensation driven in initiative to $XXX,XXX and the an support to million related increased increase as increased with agent public company increase of $XX.X rent and Overhead of SG&A associated company to increased $XXX,XXX SG&A affiliate sales and fees, financing program of our expenses other The $XXX,XXX. $X.X net of nine card commissions, platform decreased such the increase million, and $X of non-recurring Excluding showrooms, hosting $X.X costs expense, employment an IPO of shop-in-shop by increase expenses fees. of web web $X.X stock-based of

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

and Our benefit marketing, which increased advertising investments $X.X XX.X% periods QX million over prior or year. extended in

strong basis our QX this XX and marketing by Given advertising quarter. volumes, expenses points leveraged we

As discussed key very spend. investments attractive advertising a us our awareness brand on marketing financial we given for are priority before, low have and and returns this

in CLV, and cost As went that Shawn CAC the economics the Jack over. evidenced both

lean $XXX,XXX any the acquisition decreased investing will flexibility prior year-over-year advertising you We and XX% will XX% into and with given will investments our that net advertising marketing marketing annual sales. of to quarter projected asset see Depreciation The opportunity. to in continue in a maintain increases compelling spend vary of to against year amortization and to and due $XXX,XXX can the we often when period timing this disposals. customer in substantially as very of

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

fourth the net was to of expense to $X.X XXXX, IPO February to XXXX and $X.X XX liabilities. from the related to the other income than of million fiscal the related interest loan and X, relating the public expense tax Tax fiscal of of XXXX fees financing initial of in fourth in $X.X line reflects on related Net asset amortization items proceeds less fiscal non-recurring financing the based earnings quarter the quarters fourth financing deferred and quarter fourth XXXX. XXXX state fiscal fourth of in minimum the XXXX. and $XX,XXX and initiatives XXXX in weeks quarter ended offering $XX,XXX related $XXX,XXX fees This income unused income and was of to million the of million non-recurring fiscal fiscal $XXX,XXX. interest $XXX,XXX the for items operating of Excluding quarter for was initiatives

income from as adjusted fiscal leverage. SG&A increased the IPO release change the IPO the turn my terminology the Adjusted of and refer their of earlier in costs, each year-over-year our would other EBITDA most in quarter metrics issued fourth net to year, to fourth for more will reconciliations fourth of costs EBITDA. and quarter highly in on net $X XXXX. of fiscal in driven adjusted million costs $X.X $X.X fiscal well the adjusted was $XX XXXX for to XXXX, Please $X.XX point in resulting by share fourth than million of GAAP comparable million revenues adjusted $X.XX income between adjusted earnings focus net quarter share per and of and IPO I XXXX. these income quarter Net and the financing the net the in that share quarter million income out and our attention in to like and of fourth measurements the to per Net income, our compared financing as was per metrics today. and financing and the income for directly with we Before last EBITDA, fiscal increase discussion

new new top sales legacy an with results, includes our during year the Internet the prior the and of year. year XX net showrooms, from the ended increased XX.X%. into Comparable full million on Comparable XX.X% opened showroom sales of XX.X%. sales, XX.X% our sales year increased $XXX.X to and in increased to remodeled in showroom year. four XX.X% increased closed showrooms. increase sales We million format XX prior showroom $XXX.X which Turning stores Internet XX and

by increase channel, in the to was million, our increase net Gross were prior shop-in-shop points that gross to a the $XXX.X and costs savings other profit the gross decorative to margin partially By as in sales, primarily our our lower other also the Sactional carry blend and down was showroom in tariff of of initiatives. Sactional our and from and XX.X% increased million reductions by year. an sales Sac company increased delivers $XX gross increased as includes XXX acts category, to with which than related increased sales fiscal marginal increased through volume which primarily margins locations, which change $XX.X and increased margin in decreased and by costs than freight and The channels, million XX.X% products pillows, lower XX.X% sales dollars fiscal XX.X% a blankets decrease lower our percentage offset includes products, accessories The in our compared a cost a from positive to vendors of impact of XXXX. decrease sourcing to Gross percentage XXXX. through due related the year, higher sales, margin in our Looking increased mitigated shop-in-shops costs carries and for $XX.X rebates. Internet in basis to sales XX.X% channel our percentage a Sac XX.X% costs at and other Sacs Sactionals amplifier XX.X% sales, million. fills, channel which to margin reduced cost Lovesoft other SG&A our and media Costco negotiated XXX% results product XX.X%, margins in our operating for category

With the revenues, growth. drove particularly Sactional dollar than sales, overall expected stronger we gross shop-in-shop profit than stronger planned and

$XX.X For $XX.X total increased million marketing million and full advertising year, to million $XX.X last the excluding from year. SG&A,

$X.X to initiative to of Excluding to rent expenses in expenses related $XX.X million of an and a and $X.X support increase fees awards increase costs, stock credit to related total compensation growth increase increase sales a by card in showrooms, related sales addition increase in million SG&A The $X.X the costs. expense increase financing million million expenses, of million and increased commissions, employment the to million. in million other in as in $XX.X number IPO our related in financing for an restricted a IPO related in non-recurring largely driven $X of such stock SG&A was increase $X.X and increase

XXX a total and employment percentage basis rent leveraged in to leverage of due sales, by costs expense. points SG&A As

to million showrooms. the remodeled $X million, increased advertising from $X Operating prior our million in compared million an period $XXX,XXX XX.X% operating to $XX.X XXXX and fiscal. capital loss fiscal and marketing or million prior to in fiscal loss $X.X to investments and Our year XXXX. or due from investments for amortization XX.X% $X.X was new increased for Depreciation sales of of

in less to fiscal Net to fiscal was $X.X of related $X.X was unused $X per compared was in to in items million both Tax income non-recurring expense IPO and to compared million XXXX relating in asset Fiscal fiscal of for $XX,XXX financing operating fiscal in and financing net state from related tax fiscal fees million $X.X fees, reflects the adjusted interest interest IPO million public $X.X year. loss This initial for XXXX XXXX. million in than other and and million $X.XX loss costs expense EBITDA initiatives fiscal the XXXX, $X.X on to expense and $XXX,XXX of $X XXXX. the Net to was liabilities. loss versus million XXXX interest earnings IPO adjusted XXXX. fiscal net line XXXX share fiscal minimum $XXX,XXX. borrowings to of in increased fiscal was $X.XX related Net offering XXXX. XXXX Excluding XXXX, and $X for the income on fiscal million based in loss financing amortization costs in proceeds loan $XXX,XXX a financing and the adjusted deferred the last ‘XX, and

debt cash hand an freight inventory weeks to investments relative year-over-year and fees of inventory be $XX.X costs supply the charges. to warehousing Turning Ending and tariff to on to an $XX,XXX XXX% advertising enough to in support increase sales investment all the growth ABL. our of of driven on and and inventory agile to related support success increased balance by in sheet, we our and in marketing cash increased the ended across channels equivalents and in the year unused our capitalized in line million with build

we three it Now, XX would XXXX. year a we to full to items as formal We pop for in shop-in-shops and the the quarters providing to first year new a fiscal operate discuss this more than pop-up I are year, From versus last not to fiscal showroom guidance, approximately to XX plan like XXXX, remodel this up occurring fiscal showrooms of few while shop-in-shops intend XXXX. XXX XXX year open XX% of relates shop-in-shops eight. the perspective, with

of We strong to year from expect intend levels the XX% and levels we and sales although growth sales for drive moderation between full to a growth XXXX deliver XX%.

QX and marketing dollars into EBITDA of $X our improvement million result remain timing again QX declines EBITDA a for in adjusted advertising, year-over-year to in an the $X in in Net expect for investments QX, relatively QX. infrastructure, to we in XXXX. million While dollars significant improvement due flat increase year we and the and efforts to adjusted in and fiscal is EBITDA mitigation adjusted of tariff expect

be expect fiscal lower related ‘XX, XXXX We the fiscal gross margins for to principally than following. to

tariff expected pressure, The and by mitigated SG&A initiatives. margin is first, which being

The second future is support growth. investments in our to distribution infrastructure

product Sactionals. The gains channel slight from mix. These is continued vendor partially as higher offset to fourth, the strategy. are product in sourcing well discounting a And third impact in is by decreases strategy toward relative shop-in-shop reduced mix shift costs and

approximately the points embedded factors. the due result, our pressure gross basis XXX just a to year outlook of of combination is in As full margin mentioned

the of decline basis expect pressure margin ramp mitigation points. a tariff the XXX our face most to strategy, of Given gross QX we with over

excluding be the of mentioned, expect marketing In we significant our expense, given as in terms generated of SG&A to QX most SG&A, seasonality previously the leverage business.

are SG&A people, prior enable reminder, this the of and year. a we infrastructure, our us across the leverage investment to QX embedded into is As volumes in our over process business all and enables outlook investments making --

QX with will ramp net the in investment given fiscal Regarding advertising we the to this of most annual in up investments, marketing XX% investment of deleverage XXXX, attractive to on returns sales. and continue XX% an and

across adjusted advertising the while our mitigation to summary, in will we continue of growth anticipate the expect the areas investments investments an timing all a the absolute to year and So, our efforts, of opportunity high improvement we have, due again sales that significant level tariff rate fluctuations and for quarterly business we to XXXX. marketing full fiscal EBITDA support we and in of growth deliver

in to CapEx majority million on expect of approximately incur of fiscal with showrooms, to this we of $XX Finally, capital being remodel management the and the $X.X Sac e-commerce enhancements XXXX, data stores, remaining for technology The in it to million approximately spent of to spend XX systems. expenditures, manufacturing opening inventory systems, legacy as our XX being headquarters eight a and vast and into approximately the relates showrooms, support is invested factory. and allocated company-operated logistics platform

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

Operator

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

Dave King

everyone. morning, Good Thanks.

Donna Dellomo

morning. Good

Shawn Nelson

Good morning, Dave.

Dave King

hey. -- First

XX% versus you I going the the deleverage first think, about XX% National So pace, out, we are the maybe commentary guidance you laid quarter margin the growth QX. annual TV this in you year, to not first year. revenue in talked sticking it a to quarter I how the last think, have having versus pressures with in bit, marketing Donna, thinking and first, should the I be guess, about

about be Just how should we that? thinking

Jack Krause

of Hey, is more Dave. just -- revenue I take This it’s topline. first, Jack. will because answer will the a a I take little

-- some first significantly the year, the pretty stronger obviously going lower smarter a we -- get second into the with lapping half. efficiency half national and see half on throughout national second getting the a are versus the terms see half, be in just into of first we half first in we growth and in an Because period. to annual second the marketing about the holiday opportunities doing to in of half of regional we a a with the on half advertising comp bit are with combination perhaps are I comps second little in constant the but lot gains performance, we lot testing of think over are netting we as in are two-year going

Dave King

marketing for to way still same the then And that that has be helps. you that, spend XX%, I getting are about -- about improved you Jack, maybe ROIs, TV, is talked That thinking on that right Okay. still you on over previously example, time? level of the think,

Jack Krause

we many you I tell strongest we -- I what an hard had. strongest pleased it the fourth program details to the attribution of very, ever on overall the right, would because as I the get the that’s that apples-to-apples, to we had. makes don’t and but want have give were Well, very you are are into ROI have ROIs overall too numbers, quarter ROIs company,

Dave King

Okay. great from to just And It one is hear. I me. more guess

can in the of business, the how you visibility performing, what sounds already is Costco day the talk have that’s and sort about like sort On do gains revenue that increasing in you then future still road per there, shop-in-shop that you? the there you about show future to plan, the is of kind number relationships And think something is, then follow-up a has should have of how Costco shared potential beyond Thanks. for we with Costco? it

Jack Krause

question. Great Okay.

last the Costco, quarter do shop-in-shops did with think of year growth -- year. fourth in see shops we will number this mentioned Donna the increased obviously, and I the productivity. outline from We So, we did

we the of of our shop-in-shop obviously number in about we and by sort driven increases it’s advertising a like increased awareness was think implemented comp XX% that fourth that quarter. in So

have awareness creating spend we other growth really Costco, with shops, mid-term. do with are And the of because areas partners. really we also, believe In partnerships we of opportunities CapEx effective future for a in investigating find business and of is we in the of near-term this opportunities some right the terms if with way some the about low thinking frequency of the other shop-in-shops. Clearly, the perhaps, into expansion

Dave King

my Great to Thanks nice Great. questions hear. and for quarter. taking

Jack Krause

Thanks.

Operator

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

Camilo Lyon

Nice Good you. morning, Thank job. Great everyone. quarter.

Donna Dellomo

Camilo. morning, Good

Camilo Lyon

I the expectations your little XX% of hoping was provide your about maybe comps. this you store bit XX% a components versus that growth should between color the could year, as we sales Donna, to on difference of think your growth Internet

would that great. can sort provide you If shape that, of any to be

Donna Dellomo

greater investment the It’s doing start Sactional AOV. are showrooms. marketing. our It in will in the But the business continued let XX then we will finish in Jack I out increase to drives this increase what the sentence. the and shop-in-shops XX that our essentially It’s it’s I is with Costco.

to point, happy it’s is So four -- are we will two-year that it’s are comp really us. showing Jack’s the driving. And we things the what say combination very two-year which is about of very comp the those

what that’s increase revenue XX% factors those all is in said Jack essentially together year-over-year. that XX% is to good. driving So

Camilo Lyon

to Okay. I moving inventory guess piece. just the

-- could hand think more Just you inventory the delivery little bit, quick time. inventory if amount a you a how that as to on you because give carry little of a could just color and that of on decent I bit have composition

how are growth your if enabling about you inventory achieve should So or we up think surpass over either objectives? XXX%, to sales that we seeing

Donna Dellomo

Yes.

stock those we make ship did XXXX possible a effort inventory make can build we SKUs. fiscal in sure all to levels as on quickly and that So conscious remain in to as

So investments will as increase the possible pull hand really but year, an us for big increase on especially test our it as do mentioned ROI to -- those did levers to for positive And to make as earlier you We inventory on not handle very not that allow that significant Jack XXX%. marketing. fiscal facilities customers we sure that we we ship quickly see you of marketing the the us. to that be are But in to XXXX. be this see the addition expect some saw last to support to marketing can seeing testing year, on build to our the extent although, will saw multiple distribution strategy, it in

make become able combined, support inventory sure and our that the at marketing initiatives. us growth all issue just company’s to doesn’t for an we to to be So, all want

job we So make that sure to I in think XXXX those we of initiatives. did a fiscal all tremendous supported

see that fiscal year-over-year. So we won’t XXXX growth in

Jack Krause

to and we just model of have SKUs. seasonal products And way inventory really all we some the SKUs obviously, add are we our the flavor managed in no terms have fantastic growth, core to a really Yeah. in have,

of of and low strategies, merchandising growth a this risk in becoming So relative outdated inventory is to other very and companies lot at unusable.

core key at inventory So bet it’s growth that this point. a as especially we really product high company into our

Donna Dellomo

Yeah.

best maintain much covers selling our then be into inventories our strategic are we concede, pretty We covers, flagship right?. have and or which on

is our So, point, of in inventory active merchandiser a inventory to not or are inventory Jack’s we grows.

Jack Krause

Yeah.

Camilo Lyon

That’s it. question we color. Jack, used Got my And a on example. as just great last is general shop-in-shops,

your you favorable footprint do about to to so -- up can at like awareness components -- think that someone you the rising. stores brand open think opposed start your this distribution? about balance As at and entire you to those partnership versus you math own more marries own How the How how them as you Costco that your with with think do a versus last having of really does point third-party you with fully your wholesale do start what capture become two point that to partnerships increasing year margin. as what about

Jack Krause

run, desired point ability I the a long we would group as it a high in really indicators penetration, think our I customer and opportunities geographic shop-in-shop will use as run. the that aren’t supported as are to that’s by or example, speaks an reach effectively a we see areas, areas. great say not question for to potential density continue plans to at the target short long-term customer in that in learnings absolutely in getting the of e-comm we areas showrooms, our performance terms well so when in from this

those So areas. looking future we at as indicators in are and investment those certainly terms of of in opportunities certainly will

Camilo Lyon

it. guys. good very and much luck Thanks Got

Jack Krause

you. Thank

Shawn Nelson

Thank you.

Donna Dellomo

Thank you.

Operator

Fuhrman question the next Craig-Hallum. line with Please comes of with from your Our Alex question. proceed

Alex Fuhrman

just this stores question in year. of showrooms really clip showrooms puts other advertising frequency. you you seems new good for up more many obviously are year. a guess trade-off increase this tremendously time congratulations have in try even like more you. you just for XX to kind to my about, ramping XX, quite do than in just the or to customers opening at helping it’s you these to think year, as successful kind been showrooms to now it’s mean, and and are and you sounds very think which and purchase I just both? want you than scale the to things advertising am things I maybe about you would we seen like national it new be much those trying I taking I or seems But be of bring I of going understand, Thank wanted to am a out which certainly program, on versus really sheet, of figure more great able the ask trying as investing leaning have Great. a one Is this to about like to that takes the same wonder how understand you are trying all whether understand the national as or am advertising more which balance I into some puts why more you given time. and not of have open great your takes to

Jack Krause

some big and great question our these I Yes. next think couple our over the are the variables penetration pretty and It’s awareness of lack a of that in our years. and lack can country change growth of given

what’s look showroom e-comm do know, looking indicators as when these some and terms we So are you where opportunity that how we of of and looking penetration in growth, in of are at at shop-in-shops certainly area the we we go. potential long-term can

so smartly starting of and we media million, -- things are versus than running is when almost the of that incredibly we showrooms are our showrooms one million $X.X doing you see right year years, have investing think what ago payback where two call are are with we I about run they you at highest rate opening showrooms less ever $X.X what seen we at now, two amplifier. the years at look to is first as this are productive. And really the really

and So Xx then where what’s we versus that long-term return payback so we the marketing of as we obviously the we of look in potential it media, effect showrooms really are showrooms what have of amplifying think because is at that’s how the having and on period not, showroom areas amplifiers seeing media investment. response

and is through between have and as of a the synergy at an versus population really There’s need of a them two other. If we and a we to that we it’s cost one to look lens high what’s showroom think that longer has to really the years. long-term clearly So the the versus the to great years six location, CapEx density through synergy there. five it’s have area a know look

Alex Fuhrman

retailers partnering at some year if pop-up at do you addition Costco, are in other helpful. That’s with looking I round Great. really And with that mentioned having would think, similar within looking you just the quickly, call you that then was another format potentially on kind be could potentially of ask retailer? permanent what to or I it are stores a

Jack Krause

on have share there the soon you. table and several At this point, material we to we information are to options will back as get as

Alex Fuhrman

much. Thanks Okay. That’s very great.

Jack Krause

Thank you.

Operator

line comes Davidson. question Sean the of with Henderson D.A. Please from proceed with next your Our question.

Sean Henderson

you for my taking today. Thank Good question morning, guys.

some you to really been provide in quickly warehouse locations, everyone’s appreciated. of like? would would could its of expand be maybe and Just upon with know I efforts just some color that terms potentially of what your relationship kind That But touched if Costco leveraging it’s look to international so very your successful far. on

Jack Krause

they to say are do and performance expand in our countries. would their and order from interested I some to in we is are are pleased What very make sure they that am regulations other perspective. I have right sure the have agree Costco that right would one very to we adhering certainly number expansion. to with pursuing the is infrastructure

give be in you on the updates next will We that area quarters. able to several

to you will a I have better think opportunity we fill there.

Sean Henderson

Thank you. Yeah. Great.

Operator

the the back Shawn for call remarks. the Nelson end have like I would turn reached of And and gentlemen, Ladies question-and-answer to to we closing session.

Shawn Nelson

the just keep support We going. all we to us. much intend all our for so of you investors Thank and appreciate joining from

Operator

conference. today’s concludes This

participation. disconnect you your may this your time. Thank You lines for at

The Lovesac Company (LOVE) 4 May 192019 Q4 Earnings call transcript