The Lovesac Company Announces Second Quarter Fiscal 2019 Financial Results

Second Quarter Net Sales Increased 60.3% to $33.2 million
Comparable Sales, Including Showroom and Internet Sales, Increased 41.0%

STAMFORD, Conn., Sept. 13, 2018 (GLOBE NEWSWIRE) -- The Lovesac Company (NASDAQ:LOVE) today announced its financial results for the second quarter of fiscal 2019, which ended on August 5, 2018.

Shawn Nelson, Chief Executive Officer, stated, "We are very pleased to have delivered a strong second quarter with over 60% sales growth. Our performance in the second quarter speaks to the strength of our differentiated and disruptive direct-to-consumer business model that leverages both Internet and traditional media combined with small, highly productive showrooms along with shop-in-shop showrooms to drive a robust digital sales model. We ship our patent protected, premium, and durable sacs and sactionals furniture directly to our customer's door for free, regardless of their path to purchase. We believe we have captured only a sliver of the addressable market to-date, and with extremely attractive customer acquisition costs to lifetime value economics that are unique to our hybrid business model, we are focused on investing in marketing to drive customer acquisition and market share gains."

For the Thirteen Weeks Ended August 5, 2018

  • Net sales increased 60.3% to $33.2 million in the second quarter of fiscal 2019 from $20.7 million in the second quarter of fiscal 2018, driven by strong showroom, Internet and shop-in-shop performance as a result of an increase in new customers combined with an increase in the total number of units sold and continued accelerated investments in marketing to increase brand awareness. Comparable sales, which includes showroom and Internet sales, increased 41.0%. Comparable showroom sales increased 34.2% and Internet sales increased 71.3%. 
  • The Company opened five new showrooms and closed one showroom in the second quarter of fiscal 2019 and ended the quarter with 72 showrooms in 30 states. This represents a unit increase of 16.1% over the same quarter in the prior year.
  • Operating loss was $6.8 million in the second quarter of fiscal 2019 compared to an operating loss of $2.3 million in the second quarter of fiscal 2018.
  • Net loss was $7.0 million and net loss attributable to common shares was $33.7 million including preferred dividends and deemed dividends in the second quarter of fiscal 2019, compared to a net loss of $2.4 million, or net loss attributable to common shares of $2.7 million including preferred dividends and deemed dividends in the second quarter in fiscal 2018. Adjusted net loss, which excludes the impact of the IPO and certain other non-recurring expenses, was $3.6 million in the second quarter of fiscal 2019 compared to $2.2 million in the second quarter of fiscal 2018 (see "GAAP and Non-GAAP Measures").Net loss per share, including preferred dividends and deemed dividends, was ($3.71) in the second quarter of fiscal 2019 compared to ($0.45) in the second quarter of fiscal 2018. Adjusted net loss per common share, which is calculated by dividing adjusted net loss by adjusted weighted average common shares outstanding assuming the IPO related issuances occurred at the beginning of each period presented, was ($0.27) in the second quarter of fiscal 2019 compared to ($0.16) in the second quarter of fiscal 2018 (see "GAAP and Non-GAAP Measures").Adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA"), was ($1.9) million in the second quarter of fiscal 2019 compared to ($1.6) million in the second quarter of fiscal 2018 (see "GAAP and Non-GAAP Measures").

Please see "Non-GAAP Financial Measures" and "Reconciliation of GAAP to Non-GAAP Financial Measures" below for more information.

For the Twenty-Six Weeks Ended August 5, 2018

  • Net sales increased 56.4% to $60.0 million in the first half of fiscal 2019 from $38.4 million in the first half of fiscal 2018 driven by strong showroom, Internet and shop-in-shop performance as a result of an increase in new customers combined with an increase in the total number of units sold and continued accelerated investments in marketing to increase brand awareness. Comparable sales, which includes showroom and Internet sales, increased 34.5%. Comparable showroom sales increased 28.6% and Internet sales increased 60.7%. 
  • The Company opened eight new showrooms and closed two showrooms in the first half of fiscal 2019.
  • Operating loss was $12.4 million in the first half of fiscal 2019 compared to an operating loss of $5.5 million in the first half of fiscal 2018.
  • Net loss was $12.7 million, and net loss attributable to common shares was $40.1 million including preferred dividends and deemed dividends in the first half of 2019. This compares to a net loss of $5.8 million in the first half of fiscal 2018 and a net loss attributable to common shares of $6.0 million including preferred dividends and deemed dividends in the first half of fiscal 2018. Adjusted net loss, which excludes the impact of the IPO and certain other non-recurring expenses, was $9.0 million in the first half of fiscal 2019 compared to $5.3 million in the first half of fiscal 2018 (see "GAAP and Non-GAAP Measures").Net loss per share, including preferred dividends and deemed dividends, was ($5.29) in the first half of fiscal 2019 compared to ($1.01) in the first half of fiscal 2018. Adjusted net loss per common share, which is calculated by dividing adjusted net loss by adjusted weighted average common shares outstanding assuming the IPO related issuances occurred at the beginning of each period presented, was ($0.67) in the first half of fiscal 2019 compared to ($0.39) in the first half of fiscal 2018 (see "GAAP and Non-GAAP Measures").Adjusted EBITDA was ($6.0) million in the first half of fiscal 2019 compared to ($4.0) million in the first half of fiscal 2018 (see "GAAP and Non-GAAP Measures").

Please see Non-GAAP financial measures. Please see "Non-GAAP Financial Measures" and "Reconciliation of GAAP to Non-GAAP Financial Measures" below for more information.

Recent Developments

On June 26, 2018, the Company completed its initial public offering ("IPO"), at an offering price to the public of $16.00 per share. The Company sold 4,025,000 shares of its common stock in the IPO, including the additional 525,000 shares purchased by the underwriters in the exercise of their overallotment option, resulting in total net proceeds of $59.2 million after deducting underwriters' discounts, commissions and expenses as well as the Company's IPO legal expenses. Immediately following the IPO, the Company paid down the balance on its asset-based loan in the amount of $4.7 million.  The Company intends to use the remaining net proceeds from the IPO for additional IPO related expenses, opening or remodeling showrooms, marketing investments, product development, working capital and other general corporate purposes.

Conference Call Details

A conference call to discuss the second quarter fiscal 2019 financial results is scheduled for today, September 13, 2018, at 8:30 a.m. Eastern Time. Investors and analysts interested in participating in the call are invited to dial 877-407-3982 (international callers please dial 201-493-6780) approximately 10 minutes prior to the start of the call. A live audio webcast of the conference call will be available online at investor.lovesac.com.

A recorded replay of the conference call will be available within two hours of the conclusion of the call and can be accessed online at investor.lovesac.com for 90 days.

About The Lovesac Company

Based in Stamford, Connecticut, The Lovesac Company is a direct-to-consumer specialty furniture brand with 74 retail showrooms supporting its ecommerce delivery model. Lovesac's name comes from its original Durafoam filled beanbags called Sacs. The Company derives a majority of its current sales from its proprietary platform called Sactionals, a washable, changeable, reconfigurable, and FedEx-shippable solution for large upholstered seating. Founder and CEO, Shawn Nelson's, "Designed for Life" philosophy emphasizes sustainable products that are built to last a lifetime and designed to evolve with the customer's needs, providing long-term utility and ultimately reducing the amount of furniture discarded into landfills.

Non-GAAP Information

This press release includes the following financial measures defined as non-GAAP financial measures by the Securities and Exchange Commission (the "SEC"): adjusted net loss, adjusted diluted loss per share and Adjusted EBITDA. Adjusted net loss excludes the effect of one-time costs related to the Company's IPO in June 2018 and fees associated with fundraising and reorganizing activities.  Adjusted diluted loss per share is defined as adjusted net loss divided by a pro forma share count which assumes the IPO took place before the relevant time period. We define Adjusted EBITDA as net income plus interest expense, income tax expense, depreciation and amortization, sponsor fees, deferred rent, equity-based compensation, write-off of property and equipment, one-time IPO-related expenses, and fees associated with fundraising and reorganizing activities. The Company has reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures under "GAAP and Non-GAAP Measures" in this release. The Company believes that these non-GAAP financial measures not only provide its management with comparable financial data for internal financial analysis but also provide meaningful supplemental information to investors. Specifically, these non-GAAP financial measures allow investors to better understand the performance of the Company's business and facilitate a more meaningful comparison of its diluted income per share and actual results on a period-over-period basis. The Company has provided this information as a means to evaluate the results of its ongoing operations. Other companies in the Company's industry may calculate these items differently than the Company does. Each of these measures is not a measure of performance under GAAP and should not be considered as a substitute for the most directly comparable financial measures prepared in accordance with GAAP. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results as reported under GAAP.

Cautionary Statement Concerning Forward Looking Statements

Certain statements either contained in or incorporated by reference into this communication, other than purely historical information, including estimates, projections and statements relating to Lovesac's business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included in or incorporated by reference into this press release regarding strategy, future operations, future financial position, future revenue, projected expenses, prospects, plans and objectives of management are forward-looking statements. Lovesac may not actually achieve the plans, carry out the intentions or meet the expectations disclosed in the forward-looking statements and you should not place undue reliance on these forward-looking statements. Such statements are based on management's current expectations and involve risks and uncertainties. Actual results and performance could differ materially from those projected in the forward-looking statements as a result of many factors. Lovesac disclaims any intent or obligation to update these forward-looking statements to reflect events or circumstances that exist after the date on which they were made.

Investor Relations Contact:
Rachel Schacter, ICR
(203) 682-8200
InvestorRelations@lovesac.com

(Tables to Follow)

 

 
 
THE LOVESAC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
       
  August 5, 2018   February 4, 2018
  (unaudited)    
       
Assets      
       
Current Assets      
Cash and cash equivalents $ 48,212,163     $ 9,175,951  
Trade accounts receivable   4,034,273       2,805,186  
Merchandise inventories   20,239,919       11,641,482  
Prepaid expenses and other current assets   5,794,464       6,062,946  
       
Total Current Assets   78,280,819       29,685,565  
       
Property and Equipment, Net   15,714,513       11,037,289  
       
Other Assets      
Goodwill   143,562       143,562  
Intangible assets, net   691,283       526,370  
Deferred financing costs, net    255,583       48,149  
       
Total Other Assets   1,090,428       718,081  
       
Total Assets $   95,085,760     $ 41,440,935  
       
Liabilities and Stockholders' Equity      
       
Current Liabilities      
Accounts payable $ 15,299,930     $ 12,695,954  
Accrued expenses   1,738,475       784,340  
Payroll payable   1,354,069       1,454,193  
Customer deposits   2,199,619       909,236  
Sales taxes payable   950,292       894,882  
Line of credit   -       405  
       
Total Current Liabilities   21,542,385       16,739,010  
       
Deferred Rent   1,315,115       1,063,472  
       
Total Liabilities   22,857,500       17,802,482  
       
Stockholders' Equity      
       
Preferred Stock $.00001 par value, 10,000,000 shares authorized, no
shares issued as of August 5, 2018 and 1,018,600 shares issued as of
February 4, 2018.
  -       26  
Common Stock $.00001 par value, 40,000,000 shares authorized and
13,451,644  shares issued as of August 5, 2018, 6,064,500 shares issued
as of February 4, 2018, respectively.
  135       61  
       
Additional paid-in capital   141,134,426       79,891,819  
       
Accumulated deficit   (68,906,301 )     (56,253,453 )
       
Stockholders' Equity   72,228,260       23,638,453  
       
Total Liabilities and Stockholders' Equity $   95,085,760     $   41,440,935  
       
 
THE LOVESAC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
               
  Thirteen weeks ended   Twenty-six weeks ended
  August 5, 2018   July 30, 2017   August 5, 2018   July 30, 2017
               
Net sales $ 33,249,012     $ 20,745,349     $ 60,017,810     $ 38,377,588  
               
Cost of merchandise sold   15,410,442       9,213,593       27,532,067       17,757,692  
               
Gross profit   17,838,570       11,531,756       32,485,743       20,619,896  
               
Operating expenses              
Selling, general and administrative expenses   23,899,447       13,528,187       43,501,738       25,456,781  
Depreciation and amortization   758,684       338,534       1,428,829       685,642  
               
Total operating expenses   24,658,131       13,866,721       44,930,567       26,142,423  
               
Operating loss   (6,819,561 )     (2,334,965 )     (12,444,824 )     (5,522,527 )
               
Interest expense   (435 )     (79,342 )     (58,420 )     (229,088 )
               
Net loss before taxes   (6,819,996 )     (2,414,307 )     (12,503,244 )     (5,751,615 )
               
Provision for income taxes   (149,604 )     -       (149,604 )     -  
               
Net loss $ (6,969,600 )   $ (2,414,307 )   $ (12,652,848 )   $ (5,751,615 )
               
Net loss per common share:              
Basic and diluted $ (3.71 )   $ (0.45 )   $ (5.29 )   $ (1.01 )
               
Weighted average number of  common shares outstanding:            
Basic and diluted   9,077,549       6,000,000       7,571,377       6,000,000  
               
Numerator:            
Net loss - Basic and diluted $ (6,969,600 )   $ (2,414,307 )   $ (12,652,848 )   $ (5,751,615 )
Preferred dividends and deemed dividends   (26,731,079 )     (287,032 )     (27,424,079 )     (287,032 )
Net loss attributable to common shares   (33,700,679 )     (2,701,339 )     (40,076,927 )     (6,038,647 )
Denominator:              
Weighted average number of common shares for basic and diluted net loss per share   9,077,549       6,000,000       7,571,377       6,000,000  
Basic and diluted net loss per share $ (3.71 )   $ (0.45 )   $ (5.29 )   $ (1.01 )
               
 
THE LOVESAC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
       
  Twenty-six weeks ended
  August 5, 2018   July 30, 2017
       
Cash Flows from Operating Activities      
Net loss $ (12,652,848 )   $ (5,751,615 )
Adjustments to reconcile net loss to net cash      
used in operating activities:      
Depreciation and amortization of property and equipment   1,350,493       573,011  
Amortization of other intangible assets   78,336       112,631  
Amortization of deferred financing fees   84,661       72,282  
Loss on disposal of property and equipment   6,139       -  
Equity based compensation   2,334,104       -  
Deferred rent   251,643       139,117  
Changes in operating assets and liabilities:      
Accounts receivable   (1,229,087 )     (799,590 )
Merchandise inventories   (8,598,437 )     (3,476,143 )
Prepaid expenses and other current assets   268,482       (1,073,893 )
Accounts payable and accrued expenses   3,521,298       1,305,883  
Customer deposits   1,290,383       115,855  
       
Net Cash Used in Operating Activities   (13,294,833 )     (8,782,462 )
       
Cash Flows from Investing Activities      
Purchase of property and equipment   (6,033,856 )     (2,986,051 )
Payments for patents and trademarks   (243,249 )     (103,749 )
       
Net Cash Used in Investing Activities   (6,277,105 )     (3,089,800 )
       
Cash Flows from Financing Activities      
Proceeds from initial public offering, net   59,168,596       -  
Payments of initial public offering issuance costs   (260,044 )     -  
Taxes paid for net share settlement of equity awards   (7,902 )     -  
Proceeds from sale of equity   -       12,822,294  
Principal payments on note payable   -       (194,530 )
Principal paydowns on the line of credit, net   (405 )     (835,353 )
Payments of deferred financing costs   (292,095 )     (25,000 )
Net Cash Provided by Financing Activities   58,608,150       11,767,411  
       
Net Change in Cash and Cash Equivalents   39,036,212       (104,851 )
       
Cash and Cash Equivalents - Beginning   9,175,951       878,696  
       
Cash and Cash Equivalents - End $ 48,212,163     $ 773,845  
       
Supplemental Cash Flow Disclosures      
Cash paid for interest $ 38,803     $ 156,864  
       
 
THE LOVESAC COMPANY
Reconciliation of non-GAAP Financial Measures
(unaudited)
           
Reconciliation of adjusted EBITDA          
           
  Thirteen Weeks Ended   Twenty-six Weeks Ended
(dollars in thousands) August 5, 2018 July 30, 2017   August 5, 2018 July 30, 2017
Net loss $ (6,970 ) $ (2,414 )   $ (12,653 ) $ (5,752 )
Interest expense   -     79       58     229  
Income taxes   150     -       150     -  
Depreciation and amortization   759     339       1,429     686  
EBITDA   (6,061 )   (1,996 )     (11,016 )   (4,837 )
Sponsor fees (a)   742     125       867     233  
Deferred rent (b)   128     72       252     139  
Equity-based compensation (c)   2,039     -       2,334     -  
Write-off of property and equipment (d)   -     -       6     -  
Other non-recurring expenses (e)(f)   1,292     239       1,538     488  
Adjusted EBITDA $ (1,860 ) $ (1,560 )   $ (6,019 ) $ (3,977 )
           
(a) Represents management fees charged by our equity sponsors.
(b) Represents the difference between rent expense recorded and the amount paid by the Company. In accordance with GAAP, the Company records the monthly rent expense equal to the total of the payments due over the term of the lease term, divided by the number of months a of the lease terms.
(c) Represents expenses associated with stock options, restricted stock units granted to our management and one-time stock bonus payable to Satori.
(d) Represents the net loss on disposal of fixed assets.
(e) Other expenses in the thirteen weeks ended August 5, 2018 are made up of: (1) $176 in fees and costs associated with our fundraising and reorganizing activities including the legal and professional services incurred in connection with such activities; (2) $73 in travel and logistical costs associated with the offering; (3) $88 in accounting fees related to the offering, (4) $450 in IPO bonuses paid to executives, (5) $446 in fees paid for investor relations and public relations relating to the IPO and (6) $59 in executive recruitment fees to build executive management team. Other expenses in the thirteen weeks ended July 30, 2017 are made up of: (1) $180 in fees and costs associated with our fundraising and reorganizing activities including the legal and professional services incurred in connection with such activities; (2) $59 in accounting fees related to the offering.
(f) Other expenses in the twenty-six weeks ended August 5, 2018 are made up of (1) $231 in accounting fees related to the offering, (2) $84 in travel and logistical costs associated with the offering. (3) $198 in accounting fees related to the offering, (4) $450 in IPO bonuses paid to executives, (5) $479 in fees paid for investor relations and public relations relating to the IPO and (6) $96 in executive recruitment fees to build executive management team. Other expenses in the twenty-six weeks ended July 30, 2017 are made up of: (1) $404 in fees and costs associated with our fundraising and reorganizing activities including the legal and professional services incurred in connection with such activities, (2) $25 in travel and logistical costs associated with the offering and (3) $59 in accounting fees related to the offering.
           
           
Reconciliation of net loss as reported to adjusted net loss          
           
(dollars in thousands, except share and per-share data) Thirteen weeks ended   Twenty -six weeks ended
  August 5, 2018 July 30, 2017   August 5, 2018 July 30, 2017
Net loss as reported $ (6,970 ) $ (2,414 )   $ (12,653 ) $ (5,752 )
Adjustments:          
Adjustments to selling, general and administrative expense:          
Sponsor fees relating to the IPO(a)   625     -       625     -  
Equity-based compensation related to IPO (b)   1,442     -       1,442     -  
Other non-recurring expenses (c)(d)   1,292     239       1,538     488  
Adjusted  net loss $ (3,611 ) $ (2,176 )   $ (9,048 ) $ (5,264 )
Adjusted basic and diluted weighted average shares outstanding - adjusted for IPO related share issuance (e)   13,444,748     13,359,671       13,434,838     13,359,671  
Adjusted net loss per common share $ (0.27 ) $ (0.16 )   $ (0.67 ) $ (0.39 )
           
(a) $625 paid in sponsor monitoring fees paid as a result of the IPO.
(b) $700 in executive restricted stock awards vested as a result of the IPO and $742 IPO bonus payable to Satori in common stock.
(c) Other expenses in the thirteen weeks ended August 5, 2018 are made up of: (1) $176 in fees and costs associated with our fundraising and reorganizing activities including the legal and professional services incurred in connection with such activities; (2) $73 in travel and logistical costs associated with the offering; (3) $88 in accounting fees related to the offering, (4) $450 in IPO bonuses paid to executives, (5) $446 in fees paid for investor relations and public relations relating to the IPO and (6) $59 in executive recruitment fees to build executive management team.  Other expenses in the thirteen weeks ended July 30, 2017 are made up of: (1) $180 in fees and costs associated with our fundraising and reorganizing activities including the legal and professional services incurred in connection with such activities; (2) $59 in accounting fees related to the offering.
(d) Other expenses in the twenty-six weeks ended August 5, 2018 are made up of (1)$231 in accounting fees related to the offering, (2) $84 in travel and logistical costs associated with the offering. (3) $198 in accounting fees related to the offering, (4) $450 in IPO bonuses paid to executives, (5) $479 in fees paid for investor relations and public relations relating to the IPO and (6) $96 in executive recruitment fees to build executive management team.  Other expenses in the twenty-six weeks ended July 30, 2017 are made up of: (1) $404 in fees and costs associated with our fundraising and reorganizing activities including the legal and professional services incurred in connection with such activities, (2) $25 in travel and logistical costs associated with the offering and (3) $59 in accounting fees related to the offering.
(e) Adjusted basic and diluted weighted average shares outstanding - adjusted for IPO related share issuance was calculated assuming the IPO related issuances occurred at the beginning of each period presented.

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