LOVE - Earnings call transcript Q2 2020

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Operator

Greetings. Welcome to Lovesac Second Quarter Fiscal 2020 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] Please note, this conference is being recorded.

the to turn ICR. Schacter now will conference Rachel over of I you. Thank

You may begin.

Rachel Schacter

morning, you. everyone. Thank Good

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

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

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

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

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

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

Shawn Nelson

Good for morning, us Rachel. Thanks, everybody, thanks and today. joining

outline details program making our Jack exciting shop on Krause, key launching update our financial level on our an growth shop discussing which call will the we the today’s progress highlights are after including Then, outlook I’ll on is begin will QX. I in mitigation our an tariff new and thoughts in initiatives, results, high operational that second review President and of by and our our around briefly efforts. provide quarter COO,

our few our in a CFO, items our financial will outlook Finally, more Donna to related detail. Dellomo, review results and

same internet second significant driven to strong financial increased increased comparable and showroom quarter by of growth our great feel include and results. business showroom almost of our sales internet in XX% XX.X%, Total sales, XX.X% million. which $XX.X about We XX.X%. increase Net comp by sales,

again as both growth million comp driven as behavior. by QX, driving our ticket purchase to growth we while the to strategies was customers of well also model and $X.X repeat allow as digital transactions our a loss saw second marketing the In draw new quarter. Adjusted EBITDA brands, us for multi-channel

continue made topline few increase and emulates on with online from results the online. up our two to were we initial marketing, successful another us experience brand roadshows progress opened encouraging customer reflected plans we campaign our the scale is presence; priorities customer One, shop are: continued good strong as we the growth lean from XX-day run pop-up later position for continue during in showrooms we almost the made which results showroom continued highlights given and as increased quarter. of we against investments success to our to including strategic this delivery; XX% into Costco sales, for and two, and strategic drive A accuracy opportunity improve year. our and this we shopping expanded quarter, to Operationally, the the overall our a awareness increase two with three an event which business in to have the we including We three, the partnership second infrastructure in very remodeled our Costco quarter four, costco.com, events given and during new had quarter; in-store success for shop for Day pop online capacity Memorial we enjoyed business

with with also appeal we growing in shop testament brand the other it new our Costco, our announce of shop to on In a up existing are permanent to excited but and to this product today will four strength only of rapidly second just our a our and operational test small new very business Not drive awareness progress customer Macy’s partnership relationships our shop and retailers, Jack pilot in new continue and with foster details but line. quarter the partnership and acquisition, locations. addition expand pop will we brand to is discuss increase innovative exciting moment. to it

to other we fiscal to it year, are guidance marketing, our growth. given performance, and outlook, XXXX XX% our our relates today annual strong revenue sales QX reiterating remainder for our the of As plans of financial the XX%

We reiterating for expectations positive our are EBITDA XXXX. adjusted fiscal also for

position very I pleased with increased a the outlook, in to which to despite are progress to our now EBITDA adjusted we a will be tariffs, testament made reiterate tariff actions, which full-year tremendous is mitigation discuss. have We

and dedication tariffs to special chain. these start, more our impact for the teams not To our I and could mitigating efforts proud be supply their of of optimizing

Our vendor three, have negotiating is price and focus China; adjustments shown negative to zero assortment, one, impact supply date. swiftly aggressive discounts; out two, manufacturing shifts, threefold. promotional optimizing on of that Number our on chain surgical sales relocating and

covers. entirely also the and of to along confident approximately facilities we sales portion of on Chinese for co-located is located covers Vietnam without growth Sac progress of Based both manufacturing and in next our construction ours remaining success continued to The support cut of rapid of by year. manufacturing toward First, automated for in QX manufacturing of thus Sactionals of end balance the and of a similarly costs. our expect overall have by Vietnam our XX% Sactional Sactionals manufacturing on production A year with year. and terms China that based new moved already Sactionals the a at make our highly resourcing QX of China, relocating far, end we our Sac pace currently in our this only will next Malaysia majority will on and out China in sew to our partner we covers factory long-term the percentage purpose-built, rapid have a Sactionals represents of of have moved redundancy. outside small covers currently successfully are Sactionals

production levels, exposure their in and expeditious the with of special associated These you these to versus result for next the which throughout pre-tariff will to goods, our also even first year. lower tariffs P&L will moves eliminate our through costs see flow starting turnover inventories

today minority offsets announced XX% from discounted the piece tariffs our vendor cost manufacturing been recently most that in effect has Second, our of remains manufacturer, of by China to regarding increase that a discounts, the the of to XX%. Sactionals

and like still blankets on accessories China manufactured of of transition to List out tariffs. China. throw pillows as items subject Sac X as aggressive to nearly have for discounts all X everything are covers we we and recently various cut-and-sewn vendor and through achieved term well And carry in the us Our all these Sactionals near through

are costs, We are grateful on save to in supply with support their other us for partners, out of in overall operations the have business, various diversify particularly most to They their of China our retain this risk. them to area. and collaborative moving chain our our vendors and been region countries

and positive and adjusted sourcing our growth. coupled adjustments are this a of with products year. of And work, we be than of are down disciplined that approximately that before this more few China, we number project coming surgical at year-end they ago, the month, this all even in not half assortment by of majority to now end goods to chain are diverse. the a EBITDA, toward XX% will all second and fiscal from tariffs of our be with of is pleased our our year management next expense manufactured Essentially, fall were to expect by the at swift execution heading of elevations listed. recent additions because costs points, zero tariff next It of will the result more last continue if total expect a and only as pricing deliver by in share year, far the and supply and XX% of year As to we we end that lower and this robust

This our ongoing to chain of and costs, our expect the product well-diversified gross corresponding second temporarily return percent basis XXX margins the versus rate full XXX by year half to year, newly next expect gross for run last lower the range to the supply margins with points But, by we we year. decline to year. mid-XX%

long Because strong maintain term. machine, of we the pricing innovation value gross and our power, exhibited proposition, manufacturing relentless that collaborative we over these margins best-in-class confident partners can are

only because basket our sold, believe door with by innovation speaking but commitment eyes our Designed order this our importantly, is It reverse foray Power and for it’s opens of opportunities excited concept it will to ever our the into the and average it unique and value, of we’ve brand. new it not Hub we in for repeat business, this innovation, the into Sactionals The electronics loyal new we patented, is our numerous increased the all launch are drive Finally, month. compatible ethos reinforces first technology ahead more Life Sactionals the customers. pieces size of

their other in it platform waiting Sactionals the we upgrade that throughout evolve imagined hole they not Every could have Power own and bought for many it and lifetime, just over piece years in and allow are these maybe yet to has add this receiver inventions come. customers have as even ever a they to well, the that designed Hub, product. ways when or to is to sold Sactionals embedded already originally already it grow

unprecedented competitive this mention, sustainability landscape. brand customer unique implications We term, over be platform’s and believe the waste Not and will reduced that satisfaction of the terms in will in in long to landfills. and loyalty that the levels result

throughout financial So, with pleased I’m the in very operational and progress our quarter. summary,

advantages the look growth will strategic focus the our leveraging continue exists that for realize Lovesac. we against to potential year, this executing to As distinct half we to on initiatives competitive our of and second significant

of the performance on work Their and turn we the this the move driving our team growth, job want to that to all day-out. for I and day-in into to thank over do a great call the members forward as I look they year. half rapid second hard of is Jack, we Before again building

simple. our it’s standpoint, From

As Company. I hope four public becoming we’ve reported the quarters across a since we demonstrated

ability going confident deliver and positive our high maintaining EBITDA growth our while to long-term forward to challenges are on to progress. External near we you notwithstanding, basis. look very on updating goals in an keep sales annual delivering our adjusted We’re and on

over our remainder the over turn call to now year. and Jack, to COO, President the will our key for this priorities go I of

Jack Krause

you, Shawn, and morning, Thank good everyone.

with our second we’re against execute performance We said, to growth strong key quarter results. our Shawn continued initiatives. As financial and pleased delivered

the some for our of review of the plans the remainder year. now I’ll and operational discuss highlights

our drive Starting sales. marketing with expanding brand increase and awareness efforts to

effectiveness continued our the Our a marketing second of results top quarter to line are testament strategies.

we quarter, achieved of and sales the For web at driven growth comps of XX.X% by showrooms XX.X%, overall comparable XX.X%.

strong Memorial TV marketing Memorial as finished The pre-tentpole sales sales market strong, a ROIs. weekly in pre-twelve-week both by ROI campaign program sales sales test versus very indicated averages increasing and average, saw Overall, lift their Day our performance. Day

the XX Given Labor continued to scaled markets positive we subject these fourth will test of and look nationally to scale the encouraging for in results, year. results, this we Day, quarter this to

media the CPC Campaign six-week clicks very proved site over of advertising, and be click. favorable to site during brand Memorial digital to terms In of cost driver Day a traffic an test Pinterest with per awareness at efficient or the XXX,XXX

XXx the increase saw also monthly almost XX-time engagement in in increase and over platform with viewers We great engagers. an monthly within

digital increased test to advertising. of we see the as to TV half, continue a continue result synergy we’ll ROIs in with the as marketing increased second Overall,

We to the the at towards look we quarter. look drive business strategies marketing will fourth new efficient as

year fourth have this Importantly, sales successfully tested we leveraged so many most quarter. marketing far of will to in the the the be in heavily initiatives drive

quarter and with Next, having quarter XX design. XXXX our remodeled current X and to showrooms showroom the XX and in total new showrooms new and XX a fiscal improving showrooms including showroom opened been in the three in ending in approximately XX markets. remain of of two on open We expanding We penetration presence. markets, our rebranded showrooms track to new locations remodeled our the improving

second shops. channel pop in to the of year, quarter the Turning in XX.X% the in X.X% up In last increased our XXX Costco, million. up a $X.X quarter Pop to from pop up increase XXXX, other drove quarter. productivity shops our fiscal we sales second which with operated up XXX

which the $XX was on to up even foot over over past shows a sales, discussed pop net months. year, Costco road calls, our growth. productivity, shops than have own driving been Last year-over-year multiples in million growth previous with over contributor our $X As XX-day our a showrooms, per delivered square higher XX XXX%

post we website, both drive and these revenue show. In shops our on during believe addition, pop up additional

capitalize up locations We market. presence, us continue offering products a we acquisition product of limited necessarily don’t shop introducing the on to our to showcasing the format attributes believe our unique to traffic customer where allows and areas a have opportunities that high by in pop in wider showroom a brand

to of the results in ran providing of an success, Lovesac Due This for balance to Costco with encouraging. due in road we’ve we July, the very were to shows, year. two bring the and coverage. XX-day costco.com, in additional dotcom generated event event event success our $XXX,XXX And events worked the scheduled with nationwide The sales nearly XX the days. to

entered very officially pleased shop of shop into Macy’s to highly partnership in in announce locations four deploy We’ve concept a permanent year. test with other we are to retailers Macy’s with a that similar attractive QX a also exploring have and pilot to in shop of in been opportunities this more shop

locations Herald a fashion space. well The in the retail of LA and to is for City, Buckhead center Macy’s as they choice have in Carle in store logical to ability their County, us innovation New demonstrated a flagship include York Furniture Square the furniture District be Square Del Island, bringing in leader Amo in as Long the Lenox Atlanta. Gallery Place

agile We Lovesac manner. presence have additional look and outside with shops our had reach forward shop to in tremendous as expand pop we efficient brand for Lovesac the Macy’s an up in own the of and with shop channels success establishing

Sactionals Unlike this extremely road will important be know We shop and shopping through Macy’s up shops the which we many will Macy’s XX-day shows journeys, shows, the partnership, test the launching believe broader Macy’s to in key this able QX. permanent forward brand locations, kicking pop asset demo Costco in are a the and and to of light the QX, sales and customers’ be brand in that off pilot majority is demos locations. the profile in impact great with expected more Lovesac adoption deliver We is and accelerate a look Sactionals customer of to audience platform. fit the with to experiencing the

initial be technology be our the similar our current but to to least per current of be will Lovesac Because freestanding These expansion showrooms, continue showrooms, will digital with run performance locations will to on potential be showrooms to that less And prior significantly is in shop will the margin update rates less investment, expansion. to these we becomes shops available. than third year supervision by a permanent sales these the CapEx information and of of our CapEx same our like we employees for own at carrying staffed show test four be plan you as team. direct designed our contribution under details, and full room. test operation plans locations to expect and The

we’re a the and Officer, appointment very September spent that, Finally, as Chain Tom Chain SVP, seasoned future executive, Chief growth, effective most our Lee as is senior as chain Supply in years Office of Depot support team Tom merchandising supply to Walmart our prior Officer Supply and and excited of SpartanNash. investment substantial merchandising part our Chief recently in served both our to at And supply of he Xth. in and roles. continued chain announce

to and board delivers This to look continued a experience. have for from addition chain we supply forward We’re his him an on well very develop positions benefiting expertise as business unparalleled excited that the continue success. important customer to world-class

of pleased we’re including results went on strategic the summary, our all that and our mitigation Shawn second tariff the made quarter over. work priorities, in with progress So, operational

continue and year, growing investing the our on and we’ll business strategically of position the to focus remainder to the to infrastructure the technology for growth. look we in As business long-term

new launch we discuss further with in Costco of including opening detail. in we our and in Donna the Power as highest the Hub ahead, with business, as in and greatest the effectiveness, of discussed. opportunities business the proven year-over-year our QX, well just will increases to see confident drivers with marketing impact showroom But, guidance the as the look we which, that I of plans discussed will along be spend continue increased Macy’s, Sean the QX

for will a as as a outlook, turn few well our the call And items our quarter more review that, results, Dellomo, Officer. now related to with detailed of Donna to Financial second I Chief over our

Donna Dellomo

Thank you, Jack. Good morning, everyone.

XXXX. some I will our then our and my provide fiscal of quarter thoughts commentary results for remarks begin with the review second around

Total in $XX.X quarter. net transaction as from of our successful advertising to performance growth ticket internet behavior. showrooms while increase $XX.X and both XX Comparable showrooms. up shop resulting strategies, new repeat sales sales, as and also helped quarter sales prior drew the driven brand the our performance. sales was by strong of number customers the and quarter million increases. This which which XX.X% two purchase sales with growth QX include driving XXth also XX.X% positive showroom million internet We fuel showrooms An showroom from the ended and sales, consecutive increased Comparable represent with showroom, increased pop new comp increased to and sales XX.X%. marketing opened well in year showroom

other XX.X% our in Costco the increased Showroom channel, $X.X includes at XX.X% internet results quarter. pop $XX.X increased which to by million, million. $X.X sales Looking our million, locations, second XX.X% up sales to for to and channel increased our shops

sales, decreased the blankets product from and compared as include sales increased sales prior to in our accessories, our $XXX,XXX pillows, and category our the $XXX,XXX XX%, year Sactionals other quarter which Sac to second By category, decorative increased XX.X%, quarter. other

second quarter. the to dollars Gross profit XX.X% in million increased $XX.X

by points in from year. by offset Sac reduced Lovesoft decline last to primarily our gross the to period expected, and year-over-year of Sactionals driven partially a from cost XXX of manufacturing Vietnam our margin in XX% our China. As This an and shift ongoing tariff costs XX.X% by sourcing percentage was reported and impact, of primarily same countries down change products, the of savings XX.X% related outside basis to decreased other fills blend the and

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

higher rent, other related equity and Excluding expenses overhead was in expenses variable a employment nonrecurring detailed increased to offset increase SG&A in approximately by costs our release. as The as $XX.X and of compensation, sales, SG&A $XXX,XXX press as increase total driven partially by well largely in the million. decrease to which in were expenses,

SG&A percentage a total largely by compensation stock driven and as described of sales, As decreases expense by decreased above. XX.X%, IPO-related in expenses

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

As a related to expenses sales, Memorial of quarter, largely to very increased Day, XX.X% to percentage marketing had in advertising ROI. positive due basis points an increase advertising XXX this and which a

period year remodeled Depreciation increased $X.X and from prior and to principally $XXX,XXX showrooms. million, capital amortization to investments the new for related

$X.X adjusted excluding million, second loss In second of quarter million approximately was million, the of expenses. of adjusted was the million operating XXXX, million operating second excluding $X XXXX, $X.X XXXX, of was the last of loss non-recurring expenses. fiscal second quarter quarter approximately operating $XXX,XXX $X.X in fiscal quarter fiscal loss of In the nonrecurring compared year. In $X.X operating to of loss an

and the to minimum Net quarter financing. is XXXX related Tax and interest income of and than of to XXXX share in XXX,XXX, primary IPO which income fiscal second tax state was $XX,XXX the was less liabilities. our expense other relates impact

point adjusted per Before income income metrics these focus like as attention share adjusted to EBITDA, the net today. to would that I and will earlier my on for of each and net our adjusted directly our costs, and Please and income, we income turn net in between per release GAAP discussion financing net and EBITDA. reconciliation out IPO comparable the to terminology our metrics measurements refer most of well their earnings other as share issued

financing in was fiscal of fiscal for of loss costs was IPO in adjusted second quarter loss XXXX, and per to compared Adjusted the an $X.XX net second the net share million was Adjusted XXXX. XXXX. year. loss of EBITDA loss the second the a of $X.X of second quarter in million Net quarter the as $X.X adjusted in quarter of $X.X second fiscal of and to in million quarter fiscal compared of $X the $X.XX last million, XXXX a loss

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

like showrooms fiscal year fiscal to as Now, outlook. in XXXX items discuss on fiscal we XXXX a XXXX, with open for the half showroom a I our of From X. relates this full would are XX the perspective, and to year remodel openings few to it new track second continue showroom to expect to XX

road Costco We pilot as the to shows Macy’s our the shops, referring as pop given of in nature shop up setup. shop shops and are our now

with As mentioned as our in to road shop fiscal three up in-store Costco, XXXX, shows for as in Macy’s. shops operate Costco with up addition pilot will four shop pop well online we

levels We continue full XX% fiscal strong XXXX. between deliver growth sales of in expect to to XX% to

high low be revenue this below end expected items. of However, approximately do with XX%, is expected growth we This QX be annual end of significantly whilst following of QX to above target our annual to the expect range. to due growth the cadence is the

sales comp see comps slightly significant QX. expect QX sales with to expected with We total deceleration a total ahead sales comp to increase be total a in QX in in of growth QX in

being in sales made total and fiscal on with seasonality the marketing quarter, our investments XXXX. late basis growth. of working point QX have advertising with a greater business be on However, the planned are media important QX ROIs being of to two-year in which projected cadence QX with line out largest of volume Normal in that comps impact to QX and strategically greater investments QX, in

be Costco of fiscal openings QX, in by and will addition, total revenue of QX. heavily showroom showroom In more QX the timing significant most to The pop and the of half the number increase weighted over than prior in shops up number happening XXXX new pop during increase fiscal year. is impacted up the compared continued prior number year QX first as of in to which this shops with the

XXXX XXXX. productive Costco are first to those of half in fiscal revenue half Second pop shops of projected as the be as

new that shops costco.com The Macy's road pilot amount include Jack in to initiatives impact mentioned QX of shows fiscal and the XXXX shop the on four greatest have new revenues. will

the with cadence, in reported improvement Consistent expected a sales larger followed discussed than growth a loss in we just by substantial QX. QX QX, expect EBITDA we adjusted

Given the positive generate for fiscal we've to continue process to discussed, adjusted we Shawn XXXX. EBITDA as significant made, tariff mitigation expect

a to strategy, product and as distribution discounting offset reduced promotional being margin and accelerated XXXX well costs mix We offset sales. outside points an as for gains slight to mitigation Sactionals, which to related changes following: decreases well tariff pop by into support sourcing relating prior vendor mix is due shop partially initiatives; as up as by XXX to vendor related impacts continued product China. headwind rebates, to are channel and These future Expected towards from of product approximately sourcing shift strategies, in shift pressure, be actions full-year expect slight gross fiscal the a XXX the fiscal XXXX, margins our SG&A basis to to in infrastructure lower than growth; principally investments

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

the net sales SG&A infrastructure, is across of year. QX over amount process enable the produce the on and volumes business prior leverage in making we As a greatest the our outlook our all investments reminder, embedded are in to investments these and us of people,

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

remodel X management $XX.X incur relates to of legacy the vested Finally, X XXXX. into shift and pilot expect of prior headquarters opening as approximately showrooms, the technology of Macy's is logistics Sac in stores, XXXX versus Sac and being will manufacturing our facility be opening The CapEx to approximately vast the our inventory majority due of CapEx now a $XX the of timing it support CapEx spent approximately million to we our in to of on XX guidance capital fiscal of million, remaining expenditures, in investments being $X.X e-commerce million data enhancements, approximately fiscal. locations, spend shop for showrooms, of manufacturing to allocated shop The and this the systems. and systems, platform fiscal

release. related refer our press to details please earnings other all results, to For our

operator to questions. for like can the call back to turn it would we who open that, the Operator? up With

Operator

is Please Instructions] [Operator Our Dave question first ROTH you. Capital with proceed. Partners. from Thank King

Dave King

that's growth in Thanks. Good Macy's, that? you versus confidence comp expecting QX from driving the but you morning, of perspective and two-year guess, QX a first what's It had like guidance out? you laid maybe what are I QX off, anticipating what's everyone. and what driving some in the what sounds you’re the for versus QX,

Jack Krause

throughout terms marketing Yes. speaking, spend the it’s to of on it's Consistently working in spends roughly Dave, goes total in in of media, of pretty harder to consistent whereas tougher year QX year. a comps us going the tougher and roughly QX a impact the two-year with plus comparables. increase we're will see XX%, in We you starts basis. which Obviously, QX into was that that'll acceleration. give the confident And effect in marketing, be working the by and effect Jack. will reason the QX the at our believe, -- maintain But, dramatic flat greatest it feel we so quarter-to-quarter -- is against hey, the sales look roughly plus market working a over far if ago, year-over-year media comparable --

Dave King

helps. Okay. That

Jack Krause

the that, several on reason have that tests QX background as implement analysis, versus we’ve we delay going doing as the And had talked a is, to just earlier, that QX. give on. to And in we've do really our come opportunities about we're

Dave King

Okay.

it's runs Day? bit regional early performance learnings expanded early know on a of any but talk so I so, far? And the to about Are the ROIs you prior increasing, little Labor initial can that media front, the had you

Jack Krause

events, ROI pre-tentpole so and of The in Yes. pretty expansion run the is showing events the rate. increases

still of the our done sort -- will point, this at program. the of I'll it I'll final of analysis do QX we So, media. Labor What believe need haven't is, part we do Day be to

So, we'll be and couple into finalizing program. the of it in QX next weeks putting finalized then that

Operator

Our next and Brian Company. question with Please Nagel proceed. from is Oppenheimer

Brian Nagel

quarter. Nice

and or laying out The for and maybe for components QX QX, I question Donna, Could of and it. fourth the ask, I the that? you when the just guidance first I missed third sales, reiterate guidance remind the want you is quarter and to sales apologize, were what

Donna Dellomo

Yes. that increase with we're quarter. about in What is to significant XX% we're -- fourth sales saying increase year-over-year expecting total a will

the into XX% lining of guidance annual to XX%. still we're So,

guidance that high QX. But, significantly we annual range it XX% of be provided. higher the So, we've didn't guidance will give to for XX% than the

Brian Nagel

the then, cadence say, to of want marketing reason one, primary know, comparison; primary basically the And the is I I The choppiness back reason that -- you more that, again, because it. investment? so Got missing I a can right. I'm difficult that given just reiterated. think, make sorry, We just and for just for two, into piece. this get sure I have to and

Jack Krause

Yes. two There are things.

So, you're right.

comment. really that And into So, I'll two things. it's broken confirm

third, to we’re relatively comp dramatically So, quarter higher fourth and basis, significantly marketing, on explained we believe working the our in that relative get the we'll just you have speaking I marketing that our a lift. increasing

initiatives. component of just is other that The

So, dramatic for openings third. new a versus in the quarter, have we’ll example, in fourth increase showroom

The two as also rollout our was third really in openings shop had And of quarter well of we mentioned. shop Macy's lowest the results Costco quarter, quarters. fourth last the we the showroom get several additional rate in the the in new shows we’ll as

those will incremental an effect. So, have

fourth well comp have effects So, as initiatives in some the new kicking we business as in, quarter. just

Brian Nagel

regard gross with to other margins. question the Then, it. just had, Got I

been comments, of congrats deal Now, that. in you've articulated done lot so there’ve so been on and press you your the as clearly, say, release efforts with in prepared to a to – tariffs, the

margin out that newer how As that we're deal you is type to of run the we investment number? basis much rate how year-on-year, much these there down here with way in quarter, at XXX as gross of second the versus in a look points parse a tariffs of degradation nature, -- is one time or that

Donna Dellomo

is related the we decrease that tariff consistent, pressure. still Yes. that margin and about that The XX% guidance given, to year-over-year it's pretty of in had

to into But, The initiatives -- relates XX% levels. have some opening relative some inventory other to the increases the increase at warehouses, XX% to with of minimum multiple infrastructure, relates increases majority a FedEx, tariffs. up to the investing in we impact cost on some or cost

Brian Nagel

think of future? second on in analogous, about location should so closer And that to or then, -- of should my retail it's the final recognizing own are question -- regard question, a too Macy's Macy's, say, expect think to should like initiative is, showrooms. partnerships with we in sounds it one Macy's, type economics now the a other to Macy's more to And your showroom? in then, very be How very, we distant this you how will the whether the not so to is we about me early, of discussions Costco,

Jack Krause

question. Good Yes.

right. So, I think, you're

I really asset think, more our execution. own Macy's showrooms, an analogous is with it to light being

a on we as the assume of showrooms. same rate get to we obviously, Macy’s showroom. would -- third our of in returns And the So, easy pretty normal we than spend be want types hurdle to a we those less expect would the be to expect CapEx to it's

CapEx normal a you will are the easily look could at you shop to XX% of that way, in Obviously, to there between -- shop of roughly say run roughly that showroom. XX% XX% rate exceptions. So, be of a Macy’s if XX% huge the a

For example, a Herald is Square substantial opportunity.

But, at very separately. that So, we'd that look it's early.

and really is at we're way is testing best the way the because makes as doing what running what as close to at to the and be investment look -- you obviously sense, right think that's we're because is it CapEx look it model now, and math it think, out. So them going and I the

Brian Nagel

you. Thank

Operator

is next from with D.A. proceed. Forte question Our Please Davidson. Thomas

Thomas Forte

had question. a Macy's. my I for couple Thanks on Great. taking follow-ups

little. Macy's? touched Costco? question first feel then, the versus But, how customer So, then, and you a they base, I last think had economics And general? know refining that in core similar why Do this the on I the like And have about Jack is, just a should question. Macy's we of

limit in those locations adjacent in more shops in would shop you then if So, shops? in shop near showroom pilot Macy's, results this

Jack Krause

Good questions.

I their think really do it thing and So, at a think, stores. we're with Macy's? is, collaboration the one is as -- think, Macy's why this to I of one top looking

XX attributes customers. look our see So, the the the furniture XXX Macy's sold with shared significant to of segment there. top hundreds dollars a if also of you in lot top is with a Macy's, Macy's retailer at we millions of

top think with a it’s experience like lot a to be be to partnership. in I will for our And doing a think especially of things. -- furniture we So, Macy's, product. great able it that opportunity shoppers those huge And interesting I characteristics think they're really

them Costco rent In of terms shops be to in inside much run. way system. way are we the because employees, seen like is they of the that showroom rate we what through works them And it manage expect our way our of up pop contribution essentially paying will a with higher own those the we significantly them more terms working of the we than own a to we’ve the in these staff are of are be

Thomas Forte

close proximity Macy’s the And to then, a showrooms you in showrooms, shop within not shop? adjacencies for fill would other

Jack Krause

into bit of little insight a that. Yes,

for So, some is the we the test, the those parameters. way interesting running four test we're reason ran Macy's

very our So, close for Square example, District Herald is Flatiron showroom. to

the what look with test a locations. the see is the a showrooms are as have Macy's, we in mall happens of their we'll one as what this which happens. have and left showroom And furniture So, We'll we'll happens same then, Macy's, between there. that Place, showroom Carle at a that have has mile in apart. also to a opportunity And we'll what see

So, how we efficient and laying at it with our then our way purpose start maximize terms the this partners. most way a dynamics is at do primary of out win-win test in the point in understand and a of penetration really -- the also to that Macy's to plan this

Operator

from with Our next is Alex Craig-Hallum. Fuhrman question Please proceed.

Alex Fuhrman

Great. been curious just there the Has capital part things and touch have like you accelerate Thanks like that very faster sense One have progress much of your expected. driving good sounds your lot sounds of that is, incredibly relative your A It kind and supportive. you able a moving for of sight to -- conference on wanted of strong quarter. it give has on out lot than it vendors that you been a guys mean, better sounds to like very out of question, made I why us sounds and nicely. on here. taking a another expected? and congratulations it call, a you're my Can what's China have that that? vendors certainly couple Just the to production completely line there. in of been buy of moved being in like so to commitment more than of I prior you've

Shawn Nelson

Yes, great question.

rapidly. been we go I that don't slow. do moving intend we I specific very on We we guidance rapidly it. we just could and ever think to believe thought gave moving to continue don't intended have we fast how

our I plan everything's think, and to according exactly moving it's that.

offering and outside very countries been Vietnam, I even investing cases, others on, order the China, other they and get can in described side, that that have as us to themselves suppliers support China. left the current outside are the as of were meanwhile, are most heavy other and in of kind it for lights supportive, coming business that tunnel, still, some so us up. they're keep Malaysia, behind of discounts And that on in goods through Our are with their

think, Lovesac, going we're confluence our according well, with I execute, only operate. just it's and things And in familiar think, matter so, watching public the we going out. getting a to obviously I a to And year which of it's ability of a those things markets, how plan,

Alex Fuhrman

curious in think of furniture are a if furniture are all be or that like -- customer if it's that other fair how Just in your partnership. be you then, going And Macy's going and if to part couple big Macy's difference of some placement sounds are large the a sections I Obviously, going the a a maybe data negotiations curious, about be it where should And and your shop have been of and some own their on to that shop own, to going I'm retailer do shops those you aren't? this sense near with then, brands Macy's, it's own we big the they stores just opportunity, customer is in shops? or to located? of to Costco. on will is employees, huge your to that of you questions furniture be is assume relationship? imagine, that Are relative in to the a able capture the

Jack Krause

varies with testing, literally type walk-throughs in by the independent the way the places. -- Macy's stores that walked We do critical, of -- in they're lot happy can obviously next is the And have locations not Not are management, their the they of from team they're negotiations stores because in they they are tell even with evolution, the to we’ve they're I the locations. them say necessarily us terms this very I'd we're furniture locations. that very Macy's in of I believe section. and of primarily every operate, the And What with relationship you strong tell big and Great store questions. organization putting -- Macy's by are they the key furniture, store. a have because and our it in volume you, store. Yes, can is to a -- obviously, store really the teams such believe

the along questions, of most working works learning effectively, out are part that's answers I parts what as terms answer with some of of coming Tom's to adjacencies of in now, expect that agenda what our out figure and start questions, most. another would have there the So, talk what laying to time would that are some of so plan. this, to trying to accelerate store be we some to an attributes that fastest? working, And we're out Macy's of we next a are us model allow answers we execution this, over That's the store all about hopefully do the your

So, posted you good and questions, we'll on it. keep

Alex Fuhrman

you've a magic TV a the a creative, up commercial, Great. basically Can Thanks have to your Just lift lastly, talk been you versions about And you the the a have or of last then nice from couple seen been bit got for you've something kind last your ago. last few until of of of months you there that It curious, creative, market, second role in came of what formula seen of different TV played kind response the now a in looks TV in the seems different that. a there from little then, same very and like was months of much out over that commercial commercial? type that. and with it’s course very successful years marketing has that new maybe out that? couple

Jack Krause

very a because successful had We such I commercial we actually with new started the new new quantitatively better tested and The the obviously or careful the old we research Good one execution. creative in than across of Yes. brand, tested attributes, say a this board. would were that and as quantitative these equal terms cetera. and mode persuasion execution question. to we et

that We that are results can on driving the expect at, to traffic showing also initial drive levels television at historically. tell you that it's it new we

total get Labor on. is Day the discussion, still Labor work actually which that, Now, think, can't for don't whole other still we -- have into going start get into Day to results media and mix the which run, still I I you still analyzed a post the than media being is because

in that. feeling we're But, about for So, have quarter you the lot more information we'll overall. good creative next about the very probably a

Operator

Next, Thomas D.A. we follow-up question from have with Forte proceed. a Please Davidson.

Thomas Forte

thanks. Great,

discuss mid-XXs. asked gross your are for what really returning margin to an year next your to So, on the gross are comments performance next following once drive with will again strong the the that year? me impressed investor They that Can margin outlook you question. ask inputs

Shawn Nelson

Donna business pressure tariffs, to. largely has the the has mean, been Yes. I as spoken on

touch We freights can few pressures outside has have the that. et logistics, other vast cetera, majority the pieces, and it But, are chain, in on Donna or supply been small, that tariffs. be a

least those So, also, free, costs China, exiting countries. through these as are but we first we it at lower outside tariff mitigate primarily in as getting were, we then special I not tariffs, free are only tariffs as mentioned,

mid-XXs the range in right get that on our operating product were flows as through that we supply chain. margins so, And to gross we to and back expect

the we you very But it's the So, on a it’ll be that basis our basis, begin get year good to ability those ability rate even return add? know, the levels. run have run anything before if as it second Donna, And half a next to And else on there maintain were. see to to because I to to forward. of flow longer take that to it rate feel P&L and back about don't go our we may

Donna Dellomo

I And component start to an then, investments year. tariff, shops still Sactionals. infrastructure, is the think the really, continue see we mean, and impact we'll will major of the to I to Yes. up see which some through less pop next the on into shift

of amount I greatest seeing happening now. think, that shift the we're

on see the in to come right, So, the half to to expect start has full a Shawn elevate that, when higher We that quarters to to those all see don't second at mid-XX% but start we'll the start rate, starts year in range. mentioned, we'll to elevate. level itself the to margins see out, as start run

Thomas Forte

Thank Shawn. Thank Great. Donna. you, you,

Jack Krause

And state that I hired on working XX us we've chain to just beyond we'll just think, a the other logistics chain Chief note think, combining to Lee and into that, allows that, next to months, leveraging the XX areas. add And important in and Supply Chain months really Officer. as be that Yes. Tom start a aspects supply to it's I our value

that company. efficient issue. XX with only catching next XX to be really we've we'll think, begun outside tariffs just months, to I of a So, up as whole the And get the growth in

Operator

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

Shawn Nelson

questions your And support we on as we us for much continue to you eye grow. very encourage an all appreciate keep and Thanks as the investors. to

Operator

Thank you. conference. This today's concludes

this lines thank at You for may time. you your disconnect participation. And, your

The Lovesac Company (LOVE) 11 Sep 192020 Q2 Earnings call transcript