Earnings call transcript Q2 2022

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ConferenceCall Participants

Clark Wright - D. A. Davidson

Camilo Lyon - BTIG

Maria Ripps - Canaccord

ROTH - Koranda Matt

Oppenheimer - Nagel Brian

Alex Fuhrman Craig-Hallum -

Lamont - Stifel Williams

Operator

will Quarter Greetings. all Conference Earnings note The that question-and-answer participants Instructions] is presentation. Second Welcome Lovesac Fiscal session brief Call. A recorded. in this listen-only XXXX the Please a formal [Operator to are mode. follow being At conference this time,

ICR. may now begin. At this the turn you will conference over Rachel, time, I to Rachel Schacter,

Rachel Schacter

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

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

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

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

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

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

Shawn Nelson

Rachel. you, Thank

results, Jack will review initiatives. reviewing prepared our you second remarks a progress everyone before of today. our wrap items with financial us highlights our begin on a quarter outlook. performance up Donna related few to and and and of other morning, joining for quarter financial second our will key our our Good outlines growth by operational the thank I

momentum results we achieved in quarter our We last XX.X% QX are our on the very QX This pleased reported reported into year. as continued increase, company. ever sales second of the as we growth top from QX highest rate quarterly a public was with and

quarterly XX% Our builds noteworthy to with year taking during CAGR even operation attenuation is XX% even a in limited it showroom of rate rate growth into sustained in a when only growth three pandemic QX more with that years upon our account slight time. the that last

Bottom-line, achieving we and awareness believe we basis, our on we brand in stems the continued while conversion from results. as strong two-year Even are a of success very terms gains are making a huge days. almost the a consumer tight supply amidst the just in We delivering supply turbulent to stock, environment. Throughout always managing chain in and direct the orders all actively backdrop. pandemic active chain nearly remained

us scenarios recognizing which strength of continue The strength and competitive in-stock into and gives our and the confidence in continued gains. unique Customers product in margins to notable are strength results QX to long-term. to experience is pricing the evident our over share test drive new on we our demand, now promotional market are positions,

strength customers. to showroom existing and new continued very be prior from broad We and delivered We by Total the versus across growth sales sales. comparable performance. showroom including of base other our saw our XX.X% me quarter comparable of year strong growth XXX.X both in million let sales were growth up highlights Now second encouraged channels. XXX.X% the the XX.X% total review and period

fully With the internet reflective opened. our decline showrooms shift now of channel to sales back of are

shortly. leverage prior million X.X margin SG&A also discuss which primarily million XX.X expansion. we by for year quarter further EBITDA the gross from And period, Adjusted the to significantly Donna saw increased will in driven

initiatives touchpoints year and Our environment continued against reflect innovation, will along channels marketing key quarter half our detail customer with progress a strong and strategic a strong discuss disciplined product infrastructure execution making results merchandising our demand our showrooms and first combination second fiscal growth other on in including of to efficient Jack investments. strategies, creative of and expand a strategies. to our utilization key 'XX

So will highlights. key just I on some operational focus quarter two

partners. an of open to Starting showrooms perform omnichannel track with the well, XX across strategy. our year. and Bestbuy.com increasing and demand We versus total quarter remain presence QX. showrooms brand for remained to XX.X% integral our seven part during on channel the continues with sales opened Showrooms

Best next year more XX to half to and open preliminary open plans second of the We additional this on year are shop-in-shops. with Buy shop-in-shops for early plan into over

to well shows perform exceed Additionally, Costco and expectations. our continue road

innovation, face Moschino Jeremy sac that coming few the ideas designer are and names cutters with house are now. Hypebeast. Weekly are ago, end, have Scott. for product we very Italian launch are fashion innovative the already Cut this TV outlets Jeremy key up like Us and handmade Two our teams collaboration Scott key new Jeremy a of Making with with Regarding series. landing our and sales placements To high-profile and collaboration fashion Initial complement Sactionals covers seen the with celebrity of created exposure Sac strong constantly we international in is Sac the the to and weeks the celebrated limited-edition platforms. major

will quarter. product Lovesac before launch, of are very finally announcement excited major to end and to we anticipated bring this be third market this terms excited the are In new we very planning confident that for an And and patented we innovation long about. that of our customer introduction are

marketing branding efforts. of terms and In our

than indicators marketing on be see the We we our marketing ROIs this on These based leading elaborate with Jack what brand efforts higher campaigns. expected results very further. pleased of are as strong to strength. driving will continue of

nature. more numerous broadly it the industry view half managed chain in hedge a year as the rising actively Through shipping against higher have the cost and of chain discussed we to like container adjustments we the As in due bounce pullbacks, rate promotional we inflation. temporary the and supply gross are and backdrop, supply first which others relates to tactical facing headwinds, is in margins shortages

As have we built Vietnam, ensure U.S. as and and deliberately stock with the create lead and Malaysia geographically that with we short and chain well you along in as redundancies manufacturing strategically as times to to Indonesia, supply are China a positions. strong diverse and critical view aware,

our We represent tenured have of with significant a and deep relationships business. their and portion partners

to reaction escalation recent Vietnam. To in illustrate in COVID

Vietnam more Our to pandemic working provide on housing to wishing on through and shutdown. more site the employees site continue built for shelter to voluntarily dormitories manufacturer avoid

example our vendors, key many geographies. of to business one it While importance the our redundant just illustrates

unique and over more have of half allowed supply chain ahead than addition, our in to curve stay decade. relationships provided we with us strengths In the These working of been as navigate challenges environment. vendors us have a the us with current for strong

chain in We intensifying services, and materials supply inbound through of These our working for U.S., the the freight to variety mitigate cover top on are efforts. hand freight to more inventory China, redirecting raw headwind SKUs. leveraging transload using selling include more a ports directing air here to building POs U.S.

in front, QX ESG ever ESG and first this forward formal we the our On reporting to making disclosures look year.

will a to localized, will most the the customers. next will DTC where on evolution is across help Lovesac a way plan the a over brand DTC us deliver most customers direct focus efficient to to long-term model, delivering with that become business CTC more to way looped, valued model time, the but ways. programs philosophy, services also our not is sustainable the high product doing our focused. more the space and or same, We and quality does CTC to and business more in relationships commitment as CTC propel with the more develop long-term continue that circular focuses long-term consumer home to the The our further build multiple on only CTC manufactured platforms through but sustainable outcomes. compelling of in goods it circle beyond deliver and paired outcomes doing marketplace categories to in business competitive requires consumer of more

than surprise that win last will delight precious sustainable with product follow will engaged us that customer them customers, over are far only more not we Our round thus years with our believe introductions we and products paired them come. way to most and and can but already encourage keep interaction these longer for that services of with programs in more and next

So perspective. in summary, and we results our second quarter are with extremely financial from pleased the both operational

our Our home result category continued strong positioned within furnishing strong just category reflective, and results in-stock importantly, share a positions demand environment, and are at very leading disruption, industry market but of the not business our is gains. well the

the with expect we remain heard the so conditions are discussed of to to faced chain same we remainder year, look dynamic we tie As by many. the you've and environment supply the

tactics supply mitigation in give and strategies executing great our challenging ability while against value remain focused chain chain environment, on for long-term supply to we us all to growth our confidence key drive stakeholders. diversified navigate Our that

priorities With that, our progress. it strategic to and to Jack cover hand Jack? I'll over

Jack Krause

review. marketing our and will strategies, Starting Shawn, efficient We're quarter one good and you, growth very Thank the now against we've with results strides I morning strategies. everyone. which second merchandising with pleased and made our

overall One, marketing digital ROI continues and see on within health very perform awareness Despite marketing, a tactics growth initiatives, ROIs are strong we driving particularly per has consideration newer strategies perceptions advertising of target as and leading value, strength. our established within what increased on to brand marketing media tremendous benchmarks pre-pandemic, advertising since and brand click with style and expected hyperlocal than SMS indicators above like audience. seen quality, cost our coupled based higher

top of the and Source driven TV of to the of with year. growing filling fastest by awareness mouth be word the than seems digital last word for funnel overall overall, of purchasers, and frequently themes more mouth

Social been increase but on this to channels higher CPM has offset conversion core continues rates. by

continue but to We pressures cost see offsetting overall to conversion. media expect higher a anticipate

social the of scheduled creative have half second refresh the and of during year. We TV

on basis advantaged shorten social proposition promotional by quarter, a XXX approximately inventory campaigns position plan the have is mitigate helping which well We as testing supply also have as the the headwind us channels us key reduce in Reddit. a discounting and second in year-over-year Snapchat impacts. points driver of These including chain and and to combined brand with new strengthening enabled tactics TikTok,

and higher Our driving covers. strategies Love increasingly mixed continued merchandising margin soft premium are the priced benefits gravitating also customers to as are

in front, customize new success. to was an email and we On This for iterate automation is launched aided to further omnichannel second collectively points quote omnichannel to a seek out looking the have create the support and quarter. additional conversion in automated are including added showroom the conversion, areas showroom trigger teams stronger which touch

remain we and showroom for track second to Secondary year. quarter on open in operations, the XX open seven showrooms this

on in Like In showroom post on and capabilities. a expand an post showrooms continue be who purchase second the average reach our are more a shopping purchase specialists specialists Throughout the specialist QX, CSAT omnichannel important team these purchase with strategy for added specialists who spot with enhancing purchase both to ecommerce threshold continued in scheduling Lovesac than did XX% experience. customers service physical post of of touchpoints the and lift Our for purchase across predetermined those to the customers. part engaged post dollar and the point their not. quarter, purchases met their drove five whose communicated customers versus post

counting of appointment models. traditional continue and stronger normal services to operating walking drive one-on-one showrooms even customer, leverage to a over XX% continue year-to-date. to return for as converting demand than appointments XX% showroom it results approximately These Customers

half points. we to be incorporating initially in where not trade gain live. focused by to serve our We as consumers plan continue in the core XX These We'll estate have opportunity kiosks in new in on But testing our strategy. additional second our concierge physical They represented mobile customer be by light touch will a to to trade the an yet locations touchpoint manner. in several markets. brand incremental touch business points also also branded service asset is up test an areas where will areas real

customers our situation learned plans We monitor the scenarios. in and the have members. team and a and safety health for to and pandemic We prioritize continue of a operating XXXX lot variety in of carefully place

by business area on very channel our presence. increases year-over-year the half. in to online driven our roadshows we're an premium directly touchpoints and Third with which expanding pleased Costco shows potential seen hosting productivity cover Sac Love looking expanding We're of the costco.com. the We've the the expand as soft, with second four planned we're two also presence future offering exploring and events we're digitally well. for strength And physical

our by QX bestbuy.com is with due run. as open in on also bestbuy.com plans shop-in-shops about We've expansion business track Best We in marketing and XX% to in continue customer This we've to opportunities to early with our year second partnership preliminary demand. experience Buy on next plans that our the XX additional partners. and to excited increased with terms the remain to be shop-in-shops. seen open other versus of more tests pursue We'll well continue improvements some as half with

to in Area qX, new of to almost notably most in XX significant year, life product over and rendering launched rate growth most focus last the the with conversion true XD the traffic. four, configuration we quality the an ecommerce the experience, making much visual improved introducing a enhancements, experience. of infrastructure in product experience starting the quarter XX% to associated covers, remains most our disciplined investments, more upgrade them we in technology rate improve from which see conversion with Elevating customer mobile second

introduction enhancement utilizing funnel major payment experience, shortens the methods. the to the customers of Apple for which checkout Pay is significantly Another that conversion

chain make improvements risk. costs, continue we increasing supply mitigating reducing Regarding across updates, including and to areas efficiencies, delivery,

have our in year-over-year in the holiday of next and Illinois, as grew by quarter. year-over-year get additional notably, demand year's in front And space footprint We demand. over as California secured well to XX% the second Pennsylvania,

We lean levels. in be our will freight and longer shortages. pressures, contending inventory focused localized times cost import this material on due and delays, and evident second to inventory Like raw are half we temporary others with remain investment

disruption. to mentioned, mitigation Shawn tactics this implemented several offset As help have we

continue we and strong by XX public. brand growth punctuates plus consecutive our performance, quarters since business the to of summary, the which scale underscored in as XX% So quarterly going

of reduction in done and job in with have position. same teams inventory value time, brand is managing the great year-over-year promotions Our the At a awareness. in our changes despite gaining traction word continues mouth to driving proposition biggest a our our grow,

strong the margins. to along advantages and great position, competitive value half look with pricing a back leverage optimize will in-stock to continue and the we to As we our of our on demand year, capitalize and proposition inventory

will I over hand our that, second to results. call financial With Donna? quarter review the to Donna

Donna Dellomo

the Jack. everyone. our the XXXX. are then review remainder Good and a shared relates an begin of last second I you, framework remarks quarter will morning, I of quarter results with my on Thank fiscal approaching with to as provide it update we you how

XXXX the XX.X Net by prior XXX.X net sales the or quarter period. XX.X as million to driven second showroom to million compared other increased This year in XX.X% sales a channel online in channels. The by period million increase decrease was and in of fiscal increase digital both against sales the showroom partially these in elevated closures given our shift last purchasing. related year internet pandemic net channels and to sales was a offset our of

XX.X showroom This million quarter of XX.X point net million period. was increase as million comparable a Showroom XXX.X% $XX.X year XX.X primarily sales to year to transactions in in million second in year XXXX quarter increased the of result as as to XXXX due in in of periods of operations limited compared sale into as XX.X or prior million the second increase in-person the to fiscal the to XX.X as compared prior shopping. in the sales fiscal due a million shifted well prior the showroom to back COVID-XX

are control which transactions and point a our always As not recorded. net placed sales of through when represent transfers showrooms, at does which reflect customer the reminder, the orders point to sales

was we quarter of addition, since meaningful In the opened showrooms sales year, second increase. non-com last the showroom of additional XX a driver which

shop-in-shop more compared fiscal year, our quarter million which million includes as XXXX the XXX.X% related pop-up to shop due the year to $XX.X sales to of and or increase million, $X net were sales, online of X.X locations this in the reopening in and net increased pop-up Other this the second COVID-XX. to events With period. shop-in-shop closed year in that prior prior shop quarter

channel XX.X second the sales, net prior and million sales during the in in channel XXXX. to to comparisons period, million back of XX% fiscal to showrooms, digital driven all the directly in quarter with the fiscal which year-over-year were million through prior to XX.X made year customers the decreased Internet period the XXXX decrease as ecommerce the of or our quarter by second compared sales shift year open elevated against XX.X our

increased Sac or By sales, net sactional sales and accessories category increased includes product XX.X% other other category pillows, year our net decorative XX.X%, the net sales increased over XXX.X% which blankets quarter. prior and

by costs, related period point sactional XXX escalating product also year a prior and over to of net driven costs higher impact warehousing basis sales discounts, Distribution to with initiatives Turning sales increase volumes. was purchases partially rate. back to mitigation impacted inbound as margins. inbound to category is volume. basis basis to to which distribution year improved due freight leverage points XXX higher a vendor basis The and higher costs covers are well by of vendors. improvement points container increase help tariff XXX as an was This expenses and point basis in coming by in to other our gross a prior due points tariffs offset by shift overseas over XX% lower net in to costs our period, overall relating XXX reduction due from This to the product promotional some XXX mix due premium inventory shifts container negotiated the alleviate China, the congestion

and sales sales X, was all combined net The promotional stock we such periods. we call. supply purchases gross during primarily increase quarter lower on driven with ensure shared these margin during second if with the you just continue in last exceeded allows vendors in July events discounts of remain not higher by SKUs. inventory We key in chain net volume The to our expectations as to shift us sales be nimble diversification to between most for our

quarter help of done The was and the issued discounting year that headwinds the during to fiscal result freight half increased all as impact inbound of which period the experiencing. first importers compared gross to as not mitigation percent prior XXXX margin cost fiscal in reductions quarter supply promotional of second the the half fiscal if continued of in XXXX our fiscal chain second gross are increase in second soften efforts, the on was year, projected most the margin guidance such of of

higher the sales benefits year In addition, year-over-year an in put due The in net largely due also made originally we higher of on last by and to hold was volume. increase XX.X% distribution we increase projected HQ realized costs and that on leverage were COVID-XX. some as showroom hires warehousing to employment SG&A costs driven

had expenses negotiated higher increase the to pop-up sales, with related XX partially as net year and rent online higher also We the expense in selling by related showrooms offset compared shop additional lower to fees period. prior the

due earnings related anticipated, and higher into rent, we a expenses of offset expense SG&A selling the decrease were our and primarily which infrastructure to that second equity and equity investments percent X.X% deleveraging certain to the as due by net compensation multiple continued on prior employment quarter, put as quarter in investments equity we call. event sales from based as related compensation to well of deleverage expense investments, increased and support partially Overhead travel. discussed first as insurance infrastructure an an on costs, the our in such as expensing year COVID-XX expenses compensation hold growth. to relate business expenses, a to The trigger resulting related expense the leverage acceleration in areas, to

and into was the expectations the that to in infrastructure our second our partially related our than of card the lower to shift second by to year. principally the in These some were quarter in was offset expense in showroom locations shifts hiring anticipated fiscal sales of investments half for both and headquarters delay level the SG&A higher net increase fees the related credit of the the quarter.

spend million, locations million quarter $X.X second $X.X growth, were in XX.X% year reinstatement to to or increased marketing the sales the as million the period, due compared expenses of support marketing fully prior $XX to of and in XXXX open. showroom to as fiscal Advertising

marketing fiscal to quarter XXX period. to XX.X% which to in were net The Advertising basis of second higher increase COVID-XX. compared expenses point and year the was was in and sales increased the due sales compared XXXX prior period media media as impacted net XX.X% activities the costs by of prior of

to to period compared XXXX, net second well related leverage in million, increased $XXX,XXX principally prior an $X the by gross driven last year $X.X income showrooms. amortization discussed. with the as to increase and SG&A $X margin fiscal sales for as the year was in increase to of new Depreciation second the million, operating capital quarter loss the In million of of the from investments quarter operating just

unused Tax relating fees the Net for compared to tax fiscal liabilities. as $XX,XXX in second interest state to credit. period was approximately of revolving expense quarter year in to was quarter the income principally $XX,XXX on line expense XXXX minimum line related prior a of $XXX,XXX the

please we share of adjusted adjusted refer reconciliation and terminology each between comparable Before to measurements EBITDA, in earlier income issued the turn most GAAP today. and and metrics their earnings income, our attention release directly our our to per net net diluted

was per million $X.X adjusted of fiscal the diluted period. $X.X million, EBITDA share to million] of in quarter generated second of net of We the XXXX EBITDA fiscal $X.X second to as [ph] prior loss or prior income [$XX.X adjusted period. per the year year in share a in XXXX $X.XX in $X.XX diluted of million, compared Net compared or the quarter

$X,XXX cash to to strong Turning ABL with and outstanding remain with and million being the on on timing the cash million revolver. of quarter line availability in second XX.X the to to the charged revolver related the a $XX.X less of liquidity our ended equivalents revolving of than debt our sheet, balance we continues credit, fees in as

XXXX our details our second quarter earnings for financial other press release fiscal performance. refer to Please on

a fiscal we as operating call, potential Regarding environment our to it XXXX. QX during wider with relates year still outcomes outlook, a as we are pandemic of earnings our range in said

on outlook hopeful framework not full are we year, you an as but for the models. that during provided the that formal update we share are your we updating this, we'll call that providing Given are

year another with back due expenses are We in we to expect were approximately showroom the strong openings that pandemic. sales XX of fiscal targeting and XXXX growth restore pulled to

substantial will growth lies We the infrastructure that strategically support opportunity to ahead. multi-year continue make investments to

strong additional adjusted would decline showroom growth openings driven the and where range, margins by year-to-date both the in X% EBITDA gross margin the dynamics pressure X% of EBITDA approximately like is scenario performance, expense facing XXX basis mid we, range With are to a points as year-over-year margin sales as the expect as as adjusted intensifying freight compared infrastructure to we with XX% in in others just headwinds, the prior well fiscal year, industry the discussed. the I in in

and margin been be the gross pressures. side continue to the offset disciplined expense on have We very to help will

quarter XX% gross third sales EBITDA approximately expense XXX fiscal expect put For positive basis XXXX infrastructure measures. financial supply our the hold the of impacted lower needed the on points the being on as strategic expected EBITDA year. and of headwinds in fiscal chain adjusted $X COVID-XX Adjusted of year-over-year investments company is last of due with negative part EBITDA the being the growth reinstatements dollars increasing our same and range that to we were placed compared approximately in to quarter, growth margins by support efforts to in $X resilience adjusted million the million to

cash to XX year given a $XX healthy XX range in fiscal this in the position be million cash are versus quarter. openings CapEx showroom $XX million equivalent fiscal current and We XXXX view shared our end expect view now to and of of to prior still last expecting

So both in sales from conclusion, profitability a and QX perspective. exceeded our net expectations

execution months, members being prouder great sustainable as of and position environment we team be challenges who exceptional the chain back growth. we is focused navigate to supply outstanding the we have and for the Lovesac the Lovesac stands a last results. XX work. flexible despite COVID on And on As what look long-term all continue out of dynamic We operating their driven and nimble are cannot

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

Operator

the you. Thank Instructions] We'll question-and-answer conducting be [Operator you. now Thank session.

from questions. Tom with Davidson. your Our is Forte coming D.A. first proceed line question of with the Please

Clark Wright

is you D.A. one my behalf you Thanks taking more This the point, from morning. seems clear point, first is Clark in My spending think just Good purchases Tom category? for money questions. the your our of vantage talking home it be consumers for as that from guys Wright Davidson do Forte. to on TSA have on in travel they're data? scaled From throughput back us reflected their would vantage

Jack Krause

that Hey, start we're to what please seeing Donna, that the making this any is in industry-wide it. terms to I'll seeing of disruption Clark, brand. that changes and behaviors dynamics Well, think on we're add the not I Shawn due Jack, to we're or relates in buying our industry in

the part been, is consideration. obviously than which funnel As is farther rates we down discussed making decision earlier, of we're which ever I really in to they've winning think awareness we're seeing conversion that are than higher the

there for strength macro based health. are rate, are measures continued for the while think growth some of or seeing tailwinds a of on been So the more that we brand do of are static all I headwinds we market, in happening, which things competitors have our in

we So brand because sector I can't on those just really can't data within comment changes see our right those now.

Clark Wright

Thank be this you're today? the within able supply you. greater then competition. you And Do competitive would greater an my just challenging faster the even with couches get a consumer question is advantage -- to even second chain, think

Jack Krause

we absolutely, is. know Yes, it

get is of the part and put of, continuing it enjoy have a decisions which position. product not and to the product of service driven And we process great stock teams that's the obviously product in purchase I part evergreen of are by we're levels, very nature, a to use it. think only in proud have to leading us series a but made industry really

to a gain advantage continue giving a want disrupt and are the just really So it to our continue us take share to while to which on, that in -- of objective advantage we is is because we environment this category competitive clearly we there's pandemic going doing.

Clark Wright

Great color. you. Thank

Operator

Thank you.

with Lyon Camilo of your questions. BTIG. line the from coming is Please question next with proceed Our

Camilo Lyon

you Thank if I infrastructure basis I the could what out gross QX that ask results first much into unpack you. on decline if that? how XXX the a you quantify wanted of then to the follow was? and expectation, tough Congratulations very just from And the on was you that up? margin just the second articulate Great pushed environment. a half could the also QX Donna, expense just around And could the takes have puts points in quarter. if components --

Donna Dellomo

Yes. Good morning.

container So is yes, net-net. We're inbound costs diversified gives We're impact the an of no currently an relates supply slight XXX% too advantage importers. negative coming a seeing that freight. overseas. from puts piece us gross our margin essentially on and which And than chain, take XX% that our related as in on The well. are then to increase different the there's to other

to see able but China. we our is the allows where is Vietnam, as of by out it to we're is we may in which So in customers. impacted know China us shift our purchases And to from tariffs, container it us in stock inventory, to congestion our vendors important inventory over stay coming to be that comes that on inventory super

of year, the that, which piece, XXX points very strategic year-over-year continue is basis I on to we've in increase, question? We been margin to discounting, gross only impact on mitigate think first the that our -- given -- the the been to down gross have does half mitigate That we're the And us. for costs have that Camilo? those. reduce answer an does margin And come has then helping the does these seeing container that the line seeing the and and on we XX% promotional able overall, us impact, way

Camilo Lyon

Yes.

just been and puts XXX the So clarify, you're about points, articulated? down that basis total gross just all talking given margins QX to have takes you

Donna Dellomo

Correct. Yes.

Camilo Lyon

Okay.

spend QX Okay, then perfect. the was that realized? And just thought much to infrastructure back and more been looks you happen to out of going that has what be half pushed now how of in

Donna Dellomo

only just that other were were bring that is very say and of the hires, on And players. our interview so probably but the being many have the not which at of And number. piece infrastructure and going aggressive don't that exact as investment, been thinking to we $X.X they're beginning push know what knowing we little But on strategic our can thought probably HQ I I not when team, the we close and those to probably, making too a year. We're extensive. our we players -- out as has It's hires. sure the was in A we million timing do Yes. people that close the showroom process financial the the probably onboard onboarding would I it's to is statements. to

infrastructure that So themselves, to that's that's timing, and $X.X million close the probably save. but probably necessarily that would investments probably to half an strategic, out shift, SG&A call second were not of that's That a shifted was just I not we'll on say a it was the the they're year.

Camilo Lyon

and isolate you're the not forth Jack, how marketing Thank top on online great. you to to you toggling generate detail increased more the the CACs funnel? traffic end of in media, wondering between continue could rising you. back just ROIs. maybe gave And some great then to spend That's face but if media, I'm marketing of your

Jack Krause

the higher one very I are get of think Yes, OTT, targeting is, effective. but a to continuing media we couple through use in of which like has more things, CPM, top the of funnel, it's a

believe awareness across have overall word because mouth of, of ROIs as brand indicator up, stickiness, we're is just but seeing coming mentioned I think that up the brand TV costs I nowhere really media I the of board out the the the points is conversion. at And efficiency brand top addition, gone to and of funnel. in stickiness the seeing despite of Obviously, and increasing terms your and the become We're it. think go equity tailwinds year-over-year, the in the amazing. the we at In leading I to of CPMs is bottom that middle made pretty funnel create that which the also change provides earlier efficiencies

happen, are year that costs certainly for now the really but are I So marketing increasing. by just despite environment bear predict efficiencies seen getting tailwinds a we've to continue generated can't brand so Obviously, we're going where stronger. getting how far, right long to a this us out that's of lot positive

Camilo Lyon

actually you inbounds dialing insights traffic quantity of And Is that those from same still purchase spend of back surveys? your the word level in that perhaps and seeing of are into you giving post receiving the mouth component?

Jack Krause

helps think of bit continued as question. little started business marketing, at important we I to, to of digital hyper-local percentage a to we Well, we've your certainly we've the for continued and a get at more look significantly answer -- and sure. is to look more That digital becomes

Camilo Lyon

all And and great for Great. but success holiday. into me, job the continued that's

Shawn Nelson

Thanks, Camilo.

Operator

of questions. with comes from next Canaccord. your Ripps Maria question Please Our with line the proceed

Maria Ripps

very strong Great. taking for questions. and thanks my on Congrats results

talk is And very So just can else you different strong key so drove quick revenue, there your events, you QX have And follow-up. maybe that a from what but mentioned then healthy performance anything maybe expected? expectations? on was what outperformance about versus during you I this

Jack Krause

in to probably and biggest details. have XXX. obviously welded our better color exceeded the The had it's well at LLY, both outstanding definitely is Shawn, But as growth, showrooms had the because we very comp and Donna think I both overall expectations. on they LY were and will overperformance Donna look, numbers web strong LLY, much and showrooms, while

as that Buy -- So expectations, Costco also. organic our as segment, would business development and the is is our what beat Best our business business say sorry, I which well

to as brand the really, We proposition, quarter. all promotional causing that's promotional real look the growing increases think really fourth we seeing of strength engage and for that's benign across us So opportunity in go as in those periods. we as our well a I periods. strengthen environment we're during because segments. strength to manage margins with people see during us forward do And dramatic pricing And strength as

Maria Ripps

Jack. you, Thank it. Got

seems pretty sort several widened quarters. today And pandemic? of on core past now may sort over of, that it customer of the you us the customer significantly maybe how and have target your out base like refresh just changed coming is who your you Can

Jack Krause

future lot our board, but a critical Well, and are really parent, young We're attracting core dramatically. is the has real really our changed the customer think as growth all them want-it- engagement I don't business, of well. of our new indicators with core, customers that to across

doing So very group. well we're with that

can and but is values. I a tell what has brand gone growing among the want-it-alls with or looking older the brand are you engaging in that values engagement And right parent sweet expanding in brand their their And of the is they're them, home alignment awareness and either young and awareness dramatically. spot. not millennials a only that Our to family is our are represents Lovesac up, buy awareness

So sweet with that very continues our that we're pleased and be to spot.

Maria Ripps

Thanks Great. the much color. for so

Operator

Our next question Koranda comes ROTH. from with Matt proceed the Please questions. line with of your

Matt Koranda

was you you trends just thanks. quarter-to-date guys, context growth in that Hi about for maybe of could How guidance Day that'd at least just qualitatively maybe the the XX% talk if the provided? Wondered quarter be Labor helpful?

Jack Krause

you want or? to hit Donna, do that

Donna Dellomo

over on Sure, Labor can that. discounting Day from that very for projected we've very was I I of promotion think share, well a we a than mute. last could what handful four be days I Labor internally the stronger I over actually ran, with Day could because We and Labor on and it happen. mean, months. had back had what was strong pulled okay, very good. Day was to we that I we start had strong received, weekend weekend,

the embraced were Labor make in for that did we The So, we'll just growth so plans. needed these in new any everybody, guidance we framework to of or sure our promotion, them XX%, new any could and just of weekend the we of not some trigger the very past Day so initiatives account early strong. people had on because provided year, remind we our we year-over-year when initiatives, have of yes, to say

which new product exciting. kiosks, super that being that So being is launch, concierges our and

are or of opening you, guidance we're the to additional of providing updates the -- right. the that any and showrooms, So framework

open So and XX. now originally, at to we XX were we're planning

So order additional pretty we updates will point update have be happen at or include in all initiatives all are our that to providing plans. the we're they in this that when will the the able I you to we say your of because now to time in modeling certain

Jack Krause

Right.

Matt Koranda

And -- then Okay, that's helpful.

Jack Krause

last couple certainly The only I'll add elasticity the a weeks is to fact continued the not seeing -- in saw of promotions. we're I'll lot support of we to demand decrease for add that that

So a to look and as think margins we third into continue at next we'll lever have in the look we on quarter strong to manage very I year.

Matt Koranda

it levers I of on unpack be just I have you I you're existing we offsets promotional what specifically like a and more little headwind Wanted it getting. that, bit offsetting of inbound could lower there a maybe citing, that yes, few And but that were was headwind to helpful, leverage points wanted guess, that more gross freight know that'd the the Okay, understandable quantify to just to basis sort environments, with? on sounded see helpful freight, you XXX so guys. on warehouse touch facing, that's could in you're if margins you're your surprised here. then way you're that QX, inbound pull in you maybe like terms that on than a in the front, different year-over-year quite

Donna Dellomo

start. can I

specific I in can on increase other certainly, somewhere a with an an that, I numbers share what XX% than currently that did you expected So share at costs, increase. we and guess, ago, have few even built I I XX% lower on a projection around don't call with container in have a would we're increases, rate who right, our XX% maybe had but minutes

coming see for has job. discounting, in those flexible as toward a and to we So freight agile and promotional able team us, great our very to that nimble the done enough we're be headwinds and plan

had far plans, that the came guided had gross right. of we in where in ahead internal our through even quarter to see, we margins were the can or second you As

can you So how that information is additional us. turn shows presented when we quickly being to

advantage. inventory we that goes a -- gives competitive us the may in we back cost the diversification divert which to of costs, to increase then supply more right. but product the a bit are our most to us have in, container again, that headwinds have chain. inventory, the to some It bring make strong China little if And our in not -- from stock, and specific that in in really those the always we're of bringing shift So the sure

Jack Krause

we're Yes, which is discounts, dramatically a value think to that continue just we're year, stock, pricing my our around I equation value go we even manage back really to in a just have power our comment equation, we've just because decreased earlier, seeing up things. in circles to price note in

Matt Koranda

accruals XQ little quarter? it'd and more dollars, $XX little in you And I bit but investments. on makes in maybe gave could of the get of than EBITDA think I up Maybe that, bonus like even order more to I it terms million in XQ bit delayed quite of million, the you one? on I Donna, raw maybe to guide, between to the to and guess, play and one for a accounts kind in sequentially just fourth a but with more some OpEx on maybe that more just in Okay, expect only step cited a sequentially just to for line to be maybe speak of the have helpful get color could out of EBITDA guidance about split sense. as guys If sneak bit you $X I believe you the SG&A marketing

Donna Dellomo

saying Well, operating. so you're

lot hard in biggest based marketing adjustment Marketing percent will more as total in higher. is margin on We It's I mentioned, probably a between higher there spend, as gross the marketing that's So what a number. as see the and what's be for it consensus, see spend because out I I be little in adjustment. little may up to broken marketing operating a there know we out sales the QX. margin don't that SG&A, spend a a

is putting biggest launch, we're new the product against that initiatives marketing that right. Probably product, our for our the all reason up

our in call. fiscal remind accounted -- XQ not new not the guidance that earnings product product our even on or first in that was was So launch launch for, as provided the quarter you year I framework we new

launch you. in product helps. we're coming if into new it that is heavy the in that providing to now full So involve numbers investments marketing And that force does

So -- it's everything

Matt Koranda

I'll gross sense. offline. makes take It amount

Donna Dellomo

support these of which through on the are marketing new all needed to coming in initiatives have coming and they around now dollars everything are it's top-line, SG&A. that Yes, support through now

Matt Koranda

sense. I'll Got amount offline. it. take guys. Makes Thanks, gross

Operator

your Nagel line Please Oppenheimer. the Brian proceed The of next with questions. question from comes with

Brian Nagel

and nice taking Hi, Congratulations. good for morning, my you quarter. Very question. thank

I So a I company extraordinarily and on supply way bit look the my guess the the well chain. with question a you frame want a just supply you environment. results the But that as the for managed question of difficult to at chain was quarter, first very, fiscal follow-up is, second a very

-- it guidance QX in suggest you're maybe well. room maybe the Now managing not least that would at for leaving as

could the course, what for quarter? of be this of mean, over quarter out there year balance what's factors changing, in managing more I second Lovesac in the So, difficult that the coming we're to manage

Donna Dellomo

us able are most advantage, were isolated the or in That a a, And say mitigate principally we -- we costs. to of container the costs. time, efficient won't at do but from managed plan the margin but I competitive are. on container those allows we I have cost purchases just we're to the not increased in second is It evergreen inventory manner, quarter we the we're inventory, the because gross not. again, mean, same our

I like bringing today. appropriately. to seasonal inventory, in us merchandise to said, allows has We're plan evergreen in our So not that come

they our can So We we make manage can that -- can timing work sure needs. of of inventory. our manage supply with inventory. of weeks to We vendors to they're overseas produce

in from definitely we're isolated have but increased advantage costs keeps again, not else everybody we the seeing container which part, as So on is And, well. that stock. us that an

Jack Krause

want that, to to up us quarter headwinds have trend game, ahead big caught give has second year get we we all time, look, fluctuations. which just gains pulled quarter, get mean in us by to know when the but lever exactly to that knew of going of margin what is, us causes sequential to pandemic into a I a And we there's this we think sometimes kinds isn't. that We we I would for had the be. to extraordinary perhaps Yes. add where are think in And the third the there

we quarter-by-quarter would, same the look to thought we've think start really we I and I it's overanalyzing stuff. we got land to at to year, So careful next believe, where the be going thing. always We're as

We headwinds, the in have a growth, pricing leader will continue have in strength, margins. I believe not to be but only gross strategically yes, we industry, in we

Brian Nagel

question quarter And with strong have actually just extraordinarily to follow-up Okay. regard in then the I sales, again, QX. sales

been on crisis crisis. from maybe nuance just a were benefited There's now the the consumers economy standpoint, pulling this out other the the companies because away that concern through focused Lovesac there potentially category. So more more among is from COVID

the crisis is we your not strengthening change that Are you of from anyways up, seeing but the pulled sales sales abating. as if So, further, strength or away sales in of the the holding makeup crisis? composition

Jack Krause

exactly of because next core where sectionals, we our support on we're it years on our items, be to especially in money No, there, it's spending obviously, and and our be them. continuing upon where want investment it'll getting out the build to platform new initiatives the couple

pretty the think of thought your plan we're it looking to I long-term So we and at right trends, seeing about flow in terms where be. much would they they're

Brian Nagel

Great.

Thank I'll it appreciate I Okay, you. there. it. leave

Operator

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

Alex Fuhrman

given kind any a to effort, question. in described Wanted it the seems as for less rising yet like Thanks promotional you're my was you pricing and bit all. costs of very margin slowdown little promotion. ask mitigation a much chain there seem taking like about thinking being demand how Great. and really gross about at doesn't supply It

promotional do and kind well you're bit the promotions you the given your intention of years? your you've couple just back a as that think come as maybe made over over down platform more think as you both discounts deploy products, kind higher years? next the to prices the to of little to get that the being to starting are prices chain maybe discover the of costs ticket warranted about or how it So the you of Is supply do improvements

Jack Krause

can continued promotions that's understand at Right. use this today's we a That's outstanding. to lot What question demand less I would nuances. MSRPs great that year to through obviously continue and say is, a get we've with of

the is year look think really at promotional the within long-term approach it and tactic obviously MSRP I we as is strategic.

as will the get But the with product, the the going long associated more, looking to the of get of that's track internally, always price longer at brand expose the more, save it helps sort life the believe have benefits I we the stack think smarter we're we're some on promotional value a customer, because the about starting the potentially aspects. of I value, design we MSRP really believe the changes. relationship of cadence that in for flexibility to with run, product,

we're So the is demand one at is what a, manage tactical one would little looking strategic bit way within finite. of is and both, the I to a a year say platform more dial

we areas you So on go as adjustments both forward. can expect

Alex Fuhrman

Okay, that's really helpful, Thank you. Jack.

Operator

Thank you.

Please coming the line your final of with proceed with Our is question Williams from questions. Lamont Stifel.

Lamont Williams

taking thank for you question. my everyone, Hi,

seeing bit off what about you're differences little talk seeing the recovery Now in you've traffic you traffic any Are I that in a recovery, we're further into you there? the opened just some showrooms? mall. the showrooms know more in could in

Jack Krause

are seeing. we Yes,

are we So interesting. it's some seeing and differences

with as in really And more some much cosmopolitan. are more robust concentrated seeing in think I that we're believe movement of traffic the areas work-from-home areas. returns we not associated it's and the

of that's across almost rates which are basis, seeing we showrooms think with look a of. two-year seeing are with we're segments growth that said, on but Now, it generating slightly And now. I traffic unheard we're conversion right at extremely what seeing if lower, versus you a model all strong of XX%,

efficient strategy. as to look gets look it the So to at to to the that leads continue us off to we've of we'll continue and the back and We'll exist concepts probably to obviously have as showrooms, which about. malls, other well most at touchpoint evolve continue talked way some

Lamont Williams

Okay, all right, great, thank you.

Operator

I'll turn closing management this At for floor the back time, to you. remarks. Thank

Shawn Nelson

Yes.

has outstanding So that results, to a leading of been special day. us team, played going We to to beat. pivotal won't up. Have #LovesacFamily a these our own just since our up a great thank to our I ever supporting let investors want public, generating so a part has for much offer And you never and role everyone in well. missed as our thanks who momentum

Operator

This concludes conference. today's

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

The Lovesac Company (LOVE) 9 Sep 212022 Q2 Earnings call transcript