The Lovesac Company — Second Quarter Fiscal 2027 Earnings Summary

Financial Performance

• Total net sales for the quarter ended August 2, 2026, were $161.2 million, a 0.4% increase from $160.5 million in the prior year period.
• Year-to-date net sales were $299.4 million, a 0.2% increase from $298.9 million in the prior year period.
• Gross profit for the quarter was $110.3 million, a 21.7% increase from $90.6 million in the prior year period; gross margin expanded 1,200 basis points to 68.4% from 56.4%.
• Year-to-date gross profit was $182.2 million, a 10.5% increase from $165.0 million; gross margin increased 570 basis points to 60.9% from 55.2%.
• Excluding IEEPA tariff recoveries, gross margin for the quarter was 56.0% (a 40 basis point reduction year-over-year) and 54.2% year-to-date (a 100 basis point reduction).
• Net income for the quarter was $7.4 million ($0.51 per diluted share), compared to a net loss of $6.7 million ($0.45 per diluted share) in the prior year.
• Year-to-date net loss was $3.7 million ($0.25 per diluted share), compared to a net loss of $17.5 million ($1.19 per diluted share) in the prior year.
• Net income per diluted share for both the quarter and year-to-date includes a $0.86 benefit from IEEPA tariff refunds.
• Adjusted EBITDA for the quarter was a loss of $1.3 million, compared to a profit of $0.8 million in the prior year.
• Year-to-date Adjusted EBITDA was a loss of $11.8 million, compared to a loss of $7.6 million in the prior year.
• Net cash provided by operating activities for the quarter was $23.9 million, a 96.7% increase from $12.2 million in the prior year.
• Net cash used in operating activities year-to-date was $11.4 million, an improvement from $29.2 million used in the prior year period.
• Cash and cash equivalents balance was $68.8 million as of August 2, 2026, compared to $34.2 million as of August 3, 2025.
• Total merchandise inventory was $130.2 million as of August 2, 2026, compared to $124.0 million as of August 3, 2025.
• The Company had no debt on its line of credit as of August 2, 2026, with $34.0 million available.

Guidance and Future Outlook

• Full-year fiscal 2027 net sales guidance is $690 million to $710 million.
• Full-year fiscal 2027 net income guidance is $14.5 million to $18.5 million.
• Full-year fiscal 2027 Adjusted EBITDA guidance is $31.5 million to $35.5 million.
• Full-year fiscal 2027 diluted income per common share guidance is $0.98 to $1.26 on approximately 14.6 million estimated shares.
• Third quarter fiscal 2027 net sales guidance is $140 million to $150 million.
• Third quarter fiscal 2027 net loss guidance is $9 million to $12 million.
• Third quarter fiscal 2027 Adjusted EBITDA loss guidance is $7 million to $10 million.
• Third quarter fiscal 2027 basic loss per common share guidance is $0.62 to $0.83 on approximately 14.5 million estimated shares.
• Outlook reflects approximately $21.0 million of IEEPA tariff refunds collected, including interest.
• Management expects a prolific year of new product introductions to build through the second half of the year and strengthen the position entering fiscal 2028.

Business Segments and Product Lines

• Showroom net sales were $114.1 million for the quarter (up 4.6% year-over-year) and $211.2 million year-to-date (up 2.7%).
• Internet net sales were $40.2 million for the quarter (down 5.3% year-over-year) and $75.9 million year-to-date (up 0.1%).
• Omni-channel comparable net sales decreased 1.9% in the quarter and 1.3% year-to-date.
• The Company opened 5 showrooms and closed 2 showrooms during the quarter, resulting in a net addition of 14 showrooms year-to-date.
• Ending showroom count was 284 as of August 2, 2026, compared to 270 in the prior year period.
• The high-end business showed resilience with customers configuring larger setups and adding value enhancers like Reclining Seat, Lovesoft, and Storage.
• The Company closed its Best Buy shop-in-shop locations during the quarter.

Market and Competitive Landscape

• The category backdrop is described as "choppy" and "dynamic."
• Gross margin improvements were driven by price increases, partially offset by higher promotional discounting.
• Inbound transportation and tariff costs increased by 160 basis points in the quarter and 260 basis points year-to-date.
• Outbound transportation and warehousing costs increased by 130 basis points in the quarter and 120 basis points year-to-date.

Risks and Challenges

• Gross margin was negatively impacted by increases in inbound transportation, tariff costs, and outbound transportation and warehousing costs.
• The Company faces a dynamic environment with choppy category trends.
• Year-to-date operating loss was $6.4 million, compared to $23.8 million in the prior year period.
• Adjusted EBITDA remains negative for both the quarter and year-to-date periods.

Management Commentary and Tone

• CEO Shawn David Nelson stated results reflected a "record Q2 performance" and came in within guidance range.
• Management emphasized executing with discipline, building the brand, and investing in innovation to drive long-term results.
• Management described the business as entering the back half in a "position of real financial strength" with no debt and a strong cash position.
• Management noted they are "appropriately measured" in their outlook for the balance of the year.
• SG&A expense increases were attributed to payroll associated with severance, higher incentive compensation, and new product innovation costs.
• Advertising and marketing expense decreased due to the strategic timing of investments and an emphasis on efficiency.

Other Key Points

• The Company received $21.0 million in IEEPA tariff refunds and related interest during the quarter, with $20.0 million recognized through cost of merchandise sold.
• Operating income for the quarter was $10.9 million, compared to an operating loss of $8.8 million in the prior year period.
• Year-to-date operating loss was $6.4 million, compared to $23.8 million in the prior year period.
• Income tax expense for the quarter was $4.7 million, compared to a benefit of $2.1 million in the prior year.
• Income tax benefit for the year-to-date period was $0.9 million, compared to $5.9 million in the prior year.
• The Company recorded $7.2 million in repurchases of common stock during the year-to-date period.
• Equity-based compensation decreased year-to-date, partially offsetting increases in payroll and severance costs.
• The Company is undergoing a restatement of previously issued financial statements, with related professional fees included in other non-recurring expenses.