The Lovesac Company (LOVE) Earnings Call Transcript & Summary

Thank you, and good morning to all of you. Joining us today are Shawn Nelson, our Chief Executive Officer; Mary Fox, who serves as President and Chief Operating Officer; and Keith Siegner, our Chief Financial Officer. Ahead of diving in, please note that a portion of what we discuss will contain forward-looking statements about upcoming events and how our finances will perform in the future. Among these are statements concerning our expectations going forward, projections of a financial nature, and our plans and prospects. Results in reality could end up differing substantially from what those statements describe; to understand the risks and uncertainties involved, please look at the company's SEC filings, which contain today's press release. You shouldn't treat any forward-looking statement we make as a forecast of what will actually happen. Every forward-looking statement offered on this call rests on assumptions and beliefs held as of today, and unless applicable law demands it, we assume no duty to revise them. Today's discussion will also reference non-GAAP financial measures, among them EBITDA and adjusted EBITDA. These non-GAAP measures ought to be viewed alongside our GAAP results, not as a replacement for them or on a standalone basis. A reconciliation linking the closest comparable GAAP financial measure to each such non-GAAP financial measure appears as supplemental financial information within our press release. At this point, I'll hand the call over to Shawn Nelson, Chief Executive Officer of the Lovesac Company.

Thanks, Caitlin. Morning, everybody, and I appreciate you being here with us today. It's been quite a year. During our 25th year of doing business, in classic Lovesac style, we achieved significant progress in several areas as we bolstered our Omnichannel Infinity Flywheel, strengthened our Design for Life product platform, and made the strategic investments required to scale our brand and business profitably for many years ahead. We surpassed $700 million in revenue during the fiscal year, which represents high single-digit growth and is triple what we brought in just 4 years ago. That happened even though the category declined mid-teens over the year and is roughly flat across the last 4 years. Despite challenges in the industry, we saw significant growth in gross profit dollars, and our gross margins moved up to the high 50s. This was sufficient to fund the essential investments in products and capabilities that are necessary for sustained, profitable growth. While net income on a reported basis was lower than the prior year, if you take out the nonrecurring charges related to the restatement we've previously discussed, we are pleased to share that net income increased for the year. At year-end, we had $87 million in cash and had not drawn on our credit facility, giving us a very strong balance sheet. These results are a reflection of a solid fourth quarter, during which revenues, gross profits, and net income all rose compared to the same period last year. Even though a dip in the middle of the quarter pushed our net sales a bit below the guidance we'd set, we kept a tight grip on expenses and finished inside the expected ranges for gross margin, adjusted EBITDA, net income, and diluted EPS — Keith will take you through all of those numbers in more depth shortly. What has let us beat the industry over these past 4 years comes from how we put customers first, the way our products stand apart, and our unique omnichannel setup built around an Infinity Flywheel that simply has no rival. Our addressable market is huge, north of $46 billion; we add share every year, and even so, we've barely scratched the surface of a category this vast and fragmented. When we look at this TAM, and at everything we take on, we do so through a sustainability lens — something that's always been at our core and is rooted in our unique Designed for Life philosophy. The things we make are meant to last a lifetime and to evolve. Operating this way delivers product longevity that nobody else can match, and when you pair that with the services we intend to roll out, it ought to keep fueling lasting relationships with customers who are fans of what we do. That's the path to building a brand without a peer. Our brand health has never been better, and we're gaining share in our category thanks to innovation that is reshaping the home — you can see that in how people responded to our new Angled Side and StealthTech products — and we have best-in-class touchpoint economics. In our view, they sit in the number two spot, behind only Apple and Tiffany's, and they enjoy outstanding payback windows of about one year along with sales per square foot that come in at four times what the majority of our rivals manage. Because our supply chain is so robust, orders from customers show up in only a handful of days, and we hold evergreen stock to make that possible. Leveraging the investments already in place, we have lately unlocked further efficiencies across the supply chain, enabling us to reduce inventory by close to 20% as the fiscal year closed, all while preserving both delivery speed and the customer experience. Beyond bolstering our supply chain and distribution capabilities, our spending over the last several years has targeted growing our showroom footprint, developing technology capabilities, improving the end-to-end customer experience, and keeping our innovation engine humming. Now that we're entering fiscal '25, many of the critical foundational investments are complete, and our focus has shifted to fueling the next phase of growth; we're hard at work developing numerous new products that will significantly expand our total addressable market within the comfort seating category as well as in new categories. The steps we're taking now will put us in position to capture outsized benefit when the category returns to growth, and return it will. We continue to refine how we go to market and the specific approaches we use, so that new customers join our brand family, the bond with them gets deeper after they come aboard, and customer lifetime value rises overall. As we look at fiscal 2025, we're building our guidance on top of a conservative macro assumption. That's just the sensible way to do it. We expect another year in which the category shrinks, and that includes a decline of about 10% for the full year, with the second half somewhat better than the first. It's important to understand that because our business model is so different, we can plan this way and still keep the upside available. If the macro environment turns out stronger, we have the ability to follow demand as it shifts almost immediately — something only a handful of rivals are capable of. Building on that base, we expect to report net sales growth somewhere between roughly flat and a 10% increase, reflecting further share gains in the market. Bear in mind, looking out over the longer horizon, that we anticipate EBITDA expanding at a quicker pace than sales, even while we continue putting more money back into SG&A and into future sales drivers that are genuinely exciting. Lovesac is unlike the rest. For a number of years, we have reported high growth rates that outpaced the category. We turn a profit, generate positive cash flow, carry net cash, and maintain an active pipeline for developing products that spans both products and categories. Lovesac occupies a strong position, with an enormous opportunity lying ahead of us. We are set up to over-participate in a rebound of the category by continuing to gain market share on products we already have. After that, we'll build on that momentum by growing our brand and business even more. Even though our product platforms, innovation pipeline, and marketing strength are impressive, none of that would count for anything without our incredible team — a massive thank you to every single member of our core #LovesacFamily, you're the ones who create the magic. Since we're talking about incredible team members, I'll pass things over now to Mary Fox, our President and Chief Operating Officer, who will walk through the main operational highlights from fiscal 2024 and the top priorities for the year ahead, and after that Keith will review our financial results and guidance in greater detail.

Thanks, Shawn, and good morning to all of you. As Shawn covered, with a 7.5% sales increase in fiscal 2024, what we delivered showed growth that leads the industry, powered by the distinctive omnichannel model we operate. Importantly, looking at the whole year, our sales climbed 200% over where they stood before the pandemic, while the category stayed flat across that same stretch, and our adjusted EBITDA margin is up 930 basis points. We see this steady financial outperformance as being ahead of every other brand in our space, supported by how we center customers and products around our distinctive Omnichannel Infinity Flywheel; we've created a business model and platform that no one else in the category has, which gives us a sizable total addressable market opportunity, brand health that is both strong and expanding, best-in-class touchpoint economics, and a supply chain with real advantages. A few things Shawn noted earlier about our Infinity flywheels. We play in a big addressable market exceeding $46 billion; we think our couch is the #1 selling in America, yet we still have enormous market share potential ahead since we've only just begun to touch this massive, fragmented category. Our confidence comes from the fact that our customers are our biggest advocates. Word of mouth ranks as our #1 awareness driver, and more than 1/3 of our customers say they don't even cross shop with other brands. Our brand health has never been stronger, with innovation driving these gains, the Angle Side and StealthTech launches have helped push the customer lifetime value to customer acquisition cost ratio to a level that is unsurpassed, and ongoing strength in our marketing ROI allows for healthy reinvestment. Our touchpoint economics are best-in-class, which we estimate rank second only to Apple and Tiffany, based on an incredible cash payback period of 1 year and up to 4x the sales per foot productivity of our competitors. And finally, our evergreen inventory, combined with an advantaged supply chain, makes delivery times measurable in just days, producing customer satisfaction above 84%, boosting customer loyalty and setting Lovesac further apart from the crowd; we are uniquely positioned to keep profitably taking market share with our core platforms even amid the current market dynamics that Shawn discussed. Beyond that, we anticipate our growth will gain further from disciplined investments in our strategic initiatives and capabilities that widen our addressable markets. I'll now walk through key highlights of our go-forward plans for each of our strategic initiatives. First, product innovation. Angled Side, which we launched last summer, remains a highlight for us. Notably, it keeps gaining share, making up the largest mix of size within our Sactional business and driving a higher AUV than Sactionals without Angled Side. Additionally, customers who choose Angled Side report having even higher satisfaction with comfort than our standard Side customers; with StealthTech in fiscal '24, Sactionals sold with StealthTech generated nearly 3 times the average Sactional order value. We're also excited about our next StealthTech launch that is expected in the second half of this year. This small introduction will carry forward our dedication to delivering a refined, unseen technology to our buyers that enhances what they get from our product platform. Beyond growing StealthTech, we also have a number of additional thrilling and game-changing releases lined up this year across our Sactional and Side platform; we anticipate these will lift AOV and widen the attractiveness of our product platforms. Keep watching, because we believe you'll adore them; during early fiscal '26, we intend to roll out a materials breakthrough that we think will considerably expand the aperture where we contend within the couch category, and let us speed up our market share gains. We can't wait to tell you more as launch gets nearer. Finally, quietly, we are already working on numerous innovations for disruptive design for life product platform launches spanning existing and new product categories across the coming several years. Second, our omnichannel experience, and we have turned into a genuine omnichannel retailer via a mix of our physical touchpoints and digital platform. On the physical side of omnichannel, I covered our robust showroom economics when I went over brand health, and we have recorded year-over-year occupancy cost reductions as we press into our real estate strategy and move toward a greater percentage of < > locations plus better deal structures. Regarding our showrooms, we keep seeing room to approximately double our present showroom fleet from 230 to over 400 locations within the next 5 years, and we will keep seeking out productive chances to deliver our products and our services to our customers. For fiscal '25, we anticipate opening about 30 net new showrooms as we keep using our predictive analytics tool and steadily refine our fleet and our site selection model with industry-leading paybacks. Shifting to the e-commerce side of omnichannel. We enjoyed a robust year with e-commerce sales growth of 12% and we are among the only brands to grow in quarter 4 when we surpassed the e-commerce category trends by over 1,200 basis points and with customer satisfaction rising year-over-year. Looking at our remaining channels, our Best Buy Shop-in-Shops, which closed the year at 44 locations, which are separate from our 230 showrooms are extremely potent as they give tech-focused shoppers another chance to try our products, particularly StealthTech, which works best when tried in person. Toward that aim, Best Buy Shop-in-Shops attachment rates for StealthTech are about double those of our stand-alone showrooms and 8x our online platform. As for Costco, we keep reinforcing our partnership with nearly 50% growth in physical road shows planned for fiscal '25 versus fiscal '24, supported by extra bundle assortments and greater relevancy for customers. The initial move in broadening our assortment is the arrival of Angled Side at Costco, which began in Q1. We take pride in our road show results so far and perceive substantial runway for ongoing future expansion. Our efforts are connecting with consumers as shown by our improving customer satisfaction scores. Those metrics rose versus the prior year, reaching the best marks we've ever logged, propelled especially by deliberate spending on people and tools within our customer service operations, our supply chain, and our digital experience. As we turn toward fiscal '25, and with customer satisfaction as a priority, we've kicked off a multiphase initiative aimed at refining how customers interact with us, which we're naming My Hub; the idea is to deliver a distinctive post-purchase journey where someone can log into their account on the web and handle anything from tracking their order to getting tailored content and videos tied to what they bought, plus setup suggestions. The first phase went live earlier this year, and later phases will deepen the integration of the omnichannel experience in a manner that sets us apart from every other brand. Third, when it comes to our ecosystem, our operations follow a circular philosophy, and we've built a circular ecosystem serving both our customers and our products, generating the best possible value for buyers and the money they put into our design for life product platform. What we're after is a lasting relationship. Throughout the year, we kept promoting our products and brand through national advertising in conventional channels, such as TV and established media, alongside a range of digital tactics, making use of social media, nonlinear TV, and influencer advertising.

We concentrated our digital marketing quite a bit on local and highly targeted approaches that bring shoppers to a Lovesac location so they can try what we sell in person. That strengthens how dedicated we are to a genuinely omnichannel model, serving customers wherever they prefer to engage with us. During quarter 4, we ran successful tests of fresh targeting and promotional messaging aimed at people who already buy from us. As our customer base expands, we're convinced that communicating with this group in a distinct way is a major factor behind creating lasting value and loyalty, and we intend to introduce this in fiscal '25. Media ROIs likewise rose compared with a year earlier, since we attracted strongly qualified visitors to our touchpoints and website across the year, placing particularly heavy emphasis on hyper local digital marketing. We intend to broaden novel marketing approaches that bring high ROI performing traffic to our touchpoints so people can try a demo, and we also intend to use prime and linear TV purchases to build reach. Here are a few figures showing how far we've come: during fiscal '24, we added more than 155,000 new customers, while first year purchase margin climbed mid-single digits versus fiscal '23. The ratio between our full first year customer lifetime value and our customer acquisition cost stayed level compared with a year earlier, with CAC and LTV both rising by roughly the same amount year-over-year, even with certain headwinds involving promotional pricing and pressure from media inflation. Keep in mind that we do better than breakeven on the initial purchase, and we recognize that our customers come back, adding to or upgrading their Designed for Life Sactionals or Sacs across decades. Transactions from repeat business climbed to 43% of the total, up from 38% when fiscal '23 ended, which shows the chance we have to create lasting relationships with buyers through our Design for Life platform. Last of all, we've just widened an internal test covering associates and sales of open box items. Through this initiative, we're laying the groundwork we'll draw on as we start activating the right side of our flywheel and unlock customer lifetime value via services, most notably starting with trade-in and resales. And to close, we're making disciplined infrastructure investments while pursuing efficiencies. Ever since our IPO in fiscal 2019, Lovesac has repeatedly shown a highly disciplined method of investing and expanding the business over the long term. Across that stretch, we generated profitable growth even with category headwinds and inflationary operating costs, and we'll keep running the business that way; during fiscal '24, we achieved substantial gross margin gains via cost reductions and by capitalizing on lower costs for inbound freight and warehousing, plus new capabilities in planning and operational simplicity. That made possible an 18% decrease in total inventory at year-end, though additional opportunities are still there; we introduced a new order management system expected to further boost customer satisfaction, improve delivery metrics regarding time line expectations and raise working capital efficiency. We additionally anticipate extra savings on inbound freight and logistics from new partnerships. Looking at fiscal '25, the main place we'll direct additional growth investment is technology plus research and development, so we keep feeding our flywheel and bring out the game-changing innovations still to come — a few of which I walked through a moment ago. To wrap up, the strides we've made against our strategic priorities make us happy, since we're steadily growing the company while laying the crucial groundwork that both powers and props up the big expansion ahead. Prior to handing things to Keith, I'd like to touch quickly on our third annual ESG report, released in December '23, in which we laid out the path we'll follow to hit zero waste along with zero emissions by 2040 — goals worth admiring. The root of sustainability is the notion of sustaining, and we feel our Design for Life strategy for Sactionals has kept thousands of couches out of landfills. On top of that, we give new purpose to — and pull out of the waste stream — an extremely large quantity of plastic bottles destined for upholstery fabric: over 73 million during fiscal '24, and over 253 million up to now. Put simply, the items Lovesac builds endure, thanks to materials that endure. I'll hand the call to Keith at this point.

Thanks, Mary. Fiscal '24 proved to be a landmark year here at Lovesac. It's our 25th anniversary, and we hit a number of significant milestones. Revenue came in above $700 million. Gross profit topped $400 million, which works out to a gross margin above 57%. Net income, as reported, was $23.9 million — lower than fiscal '23 — but if you adjust for the just over $5 million of nonrecurring expenses tied to the restatement that we successfully resolved, net income would actually have risen. Inventories were down 18%, and we finished the year with $87 million of cash on the balance sheet. Even with challenges facing the category and strain on operating costs stemming from what we've put into personnel, infrastructure, and developing new products—all aimed at setting us up for lasting, profitable expansion over time—none of that stopped these results. Now, let's jump right into reviewing Q4 of fiscal '24, which, just to note, included an extra week—making it week 53 of our fiscal year—and afterward, I'll go over what we expect for fiscal '25. Net sales rose $12 million, or 5%, to $250.5 million in Q4, with the year-over-year gain coming from showrooms and web; that was a touch under what we guided in early December, because of a mid-quarter soft patch before things rebounded in late January. Showroom net sales climbed $15.4 million, or 10.9%, to $156.9 million in Q4, up from $141.5 million a year earlier. The showroom increase came from adding 35 net new showrooms versus the prior year period, partly offset by a 4.1% drop in omnichannel comparable net sales. Internet net sales grew $1.7 million, or 2.2%, to $78.1 million in Q4, compared with $76.4 million a year earlier. Other net sales — which covers pop-up shops, shop-in-shops, and open-box inventory transactions — came in at $15.5 million for Q4, down $5 million, or 24.6%. The main driver of that drop was a lower volume of open-box inventory transactions, which reached just $2.9 million, compared with $8.5 million in the fourth quarter of fiscal '23. Keep in mind that we might carry out a limited number of open-box inventory transactions with ICON down the road, so that our warehouses operate as efficiently as possible. That said, given how successful our return to stock program has been, along with the beneficial impact of resale and trade-in — both of which are scheduled to launch later this year — we believe this recent run rate is nearer to a potential baseline level. Turning to how each product line performed in the fourth quarter: Sactional's net sales increased 7%. Sacs saw net sales decline 13%, while our remaining net sales — decorative pillows, blankets, and accessories — came in 8% lower than the prior year. In Q4, gross margin climbed 360 basis points to reach 59.7% of net sales, compared with 56.1% during the same quarter a year earlier. The main driver was a 550 basis point drop in inbound transportation costs, which was partially offset by 100 basis points of higher outbound transportation and warehousing costs, plus 90 basis points tied to greater promotional discounting. Relative to net sales, selling, general, and administrative expenses were up 170 basis points in Q4 — that amounts to less than 50% of the deleverage recorded in Q3. The deleverage came mainly from employment cost deleverage, ongoing spending to back present and future expansion, professional fees, and selling-related costs linked to the Lovesac credit card. Looking at dollars, employment costs were up $6.8 million, mostly from more new hires during fiscal '24. Selling-related expenses rose $0.5 million, chiefly because of credit card fees tied to higher net sales plus an uptick in credit card rates. Rent expenses climbed $0.2 million, which was offset by overhead expenses dropping $0.1 million — made up mostly of $4.4 million more in infrastructure investments and other miscellaneous items plus $2.4 million more in professional fees, offset by a $6.4 million reduction in equity-based compensation. We estimate that nonrecurring incremental fees tied to restating prior period financials came to roughly $1.9 million in Q4. Advertising and marketing expenses grew $3.7 million, or 14.2%, reaching $29.5 million in the fourth quarter of fiscal '24 versus $25.8 million a year earlier. As a share of net sales, advertising and marketing expenses were 11.8% in Q4 compared with 10.8% in the same period last year. Operating income for the quarter reached $40.4 million, up from $36.5 million in last year's fourth quarter, thanks to the factors we just covered. Prior to discussing net income, net income per diluted share, and adjusted EBITDA, I'd ask that you review the terminology as well as the reconciliation of each adjusted metric to its most directly comparable GAAP figure, all of which can be found in the earnings release issued earlier today. For the quarter, net income reached $31 million, equal to $1.87 per diluted share, compared with $26.2 million, or $1.65 per diluted share, during the same period last year, and as I noted previously, it reflected slightly less than $2 million in nonrecurring expenses. During the fourth quarters of fiscal '24 and '23, we recorded an income tax provision of $10.2 million. Adjusted EBITDA for the quarter totaled $48.4 million, up from $46.7 million in the prior year period. Turning to the balance sheet: our total merchandise inventory is right in line with what we projected, and it's 18% lower than where we ended fiscal '23. We're feeling really strong about the inventory's quality and its quantity, and about our capacity to keep leading the industry when it comes to in-stock positions and delivery times. Mary went over the efforts we have underway to build on what we achieved this year and optimize even further. We finished the fourth quarter with a solid balance sheet — $87 million in cash and cash equivalents, along with $36 million available on our revolving line of credit, and nothing drawn on it. For additional information about how we performed financially in the fourth quarter, take a look at our earnings press release. Now, on to our outlook. Shawn already noted that this category continues to shrink and remains hard to predict. After January wrapped up on a strong note, February turned out to be a particularly tough month. March then brought a meaningful improvement in our trends. Given that, we want to be straightforward: our outlook assumes yet another year of decline for the category — specifically, a 10% decrease across the full year, with modest improvement in the second half compared with the first. Should the category perform better, we'd expect to perform better as well, and the reverse holds true; for the whole of fiscal '25, we expect net sales in the range of $700 million to $770 million. Adjusted EBITDA should come in somewhere between $46 million and $60 million. That figure encompasses gross margins between 57% and 59%, advertising and marketing at roughly 13% of net sales, and SG&A at roughly 39% of net sales. We project net income falling somewhere between $18 million and $27 million. Diluted income per common share is projected in the $1.06 to $1.59 range, alongside an estimated 17 million diluted weighted average shares outstanding. As a point of reminder, fiscal '25 will comprise 52 weeks, whereas fiscal '24 included an extra 53rd week during the fourth quarter. Turning to the fiscal first quarter, which stands as our toughest quarter to < > in the year, we project net sales from $126 million to $132 million. We expect an adjusted EBITDA loss somewhere in the range of $13 million to $16 million, and that figure factors in gross margins of about 55%. When it comes to advertising and marketing, we're looking at 14% to 15% of net sales, and SG&A will land between 51% and 53% of net sales. On the bottom line, our net loss should fall somewhere between $13 million and $16 million. For basic loss per common share, we estimate a range of $0.84 to $1.03, based on 15 million weighted average shares outstanding. To wrap up, the category stabilizing and eventually getting back to growth is something that lies ahead of us, though right now the timing remains uncertain. Within this segment, we're weighing careful cost control and effectiveness against our conviction that keeping our eyes on the larger picture matters most. That represents an enormous chance to generate substantial worth over the long haul for everyone with a stake in Lovesac. We're establishing the Lovesac name and putting money into fresh product development covering design, utility, and entirely new segments. To be clear, our goal is expansion no matter what the segment does in the short run, extending our history of capturing greater market share. On top of that, we're positioned to take advantage of the segment's recovery the moment it occurs, and to do so more immediately than our competitors. When that happens, those extra sales ought to translate into a bigger share of revenue gains reaching the profit line. At this point, I'll hand things over to the operator so we can begin taking your questions.

I suppose I could combine everything into a single question with multiple parts. But let's focus on the sales trajectory. Keith, and I believe Shawn brought this up as well. You mentioned — assuming I understood correctly — that January showed strength, February showed weakness, and then March saw renewed strengthening, again, if my understanding is right. What I'd like to know is whether there's anything — I mean, we've been discussing a challenging category for some time. Other people have brought this up too; but did you observe anything that might have caused that, anything new that could explain that — that kind of sales volatility? My second question is, regarding the guidance you provided, the sales growth guidance for Q1, does that reflect where sales currently stand, given that we're fairly far along in the fiscal first quarter? And my third question: you mentioned sales restrengthening across the remainder of this fiscal year? Is there something specific you're referring to there, or is it more about the product launches you discussed or simply the timing tied to broader industry dynamics?

Yes. Thank you, Brian. I'll likely handle the first portion and then < >. I believe, as key clearly communicated through our guidance for the year, we are still assuming the category stays extremely difficult. And we will, even under the guidance we've discussed, keep gaining very substantial market share. To be specific, January proved very strong for us. We ramped up dial promotions somewhat more since we'd observed, as Keith mentioned, a bit of a slowdown in December when we attempted to scale back the usual Black Friday promotions. We repeated that in February. What we found was the identical pattern from December. So key competitors offered as much as 50% off throughout February and ran extremely aggressive deals, including in clearance; so for us, that was factor number one. Then when we shifted into March, we returned to 30% cost and all of that is incorporated into our guidance since it's evident we must have a very < > value category with deep promotions. And we've accomplished that, and we feel genuinely good about your point. March has been extremely strong, a huge, huge improvement over where February left us. Regarding the second element, which was somewhat about what occurred in February, we did experience a bit of disruption. We transitioned to a new media agency; so there was some issue around media planning timing and certain targeting; this has all been corrected; so again, therefore, this gives us confidence for the remainder of this year and the strengthening of the sale. To answer your question about the Q1 guidance, yes, that's reflected and included. And like Keith mentioned, March was far stronger, and in the early part of April, we're seeing the same thing too. I think Keith...

Yeah, I'll jump in on that. Looking at the credit card information from Bank of America — that's one of the main, I guess you'd say near-real-time yardsticks we use to gauge how the category is performing — it's still running roughly 14% lower for February and March combined, correct? So if you take those 2 months as a whole, we're continuing to post market share gains, even if they aren't at the level we'd planned, for the reasons Mary just went through that hurt February. Worth pointing out, given the 53rd week and given the 5 weeks that fell in our P2, we're only now moving into P3; so essentially it runs from the start of this week until the quarter wraps up on May 5; meaning almost all of P3 is still ahead of us, and all of that is baked into our guidance. Still, we felt good about the improvement we saw in our trends during March. Turning to what will drive the year and how that plays out. Naturally, we aim to give you added context on the category baseline sitting beneath our outlook. And as for our capacity to capture market share, it comes down to many of the same items. Mary mentioned, we've got several product launches lined up this year. We're improving our marketing; we'll keep adjusting and fine-tuning our promotions; we do have touchpoint expansion, correct? On top of that, we appear to have easier compares, particularly on a 2-year basis as the year goes on. So taking all of that into account, we still hold secular levers we control that we'll pull and keep sharpening, which we believe will deliver yet another year of market share gains.

Thanks for all the specifics on the outlook. More generally, it looks like you've been outpacing the sector by a lot for a few years, and you've grown even though the sector itself has been shrinking. You just walked through a few reasons Q1 looks softer, but has anything shifted in your capacity to beat the vertical, especially with revenue expected to fall in Q1?

Yes, apologies, we're just rearranging a few things. Appreciate the question. Our confidence remains very high in every one of the elements that explain why this company has done so well across the past 4 years. Think about what we've done over the past four years: 200% growth in a category that isn't growing at all. And in the year we just finished, nobody we compete with came close to the growth rates we posted. So when I look at the innovation path I mentioned earlier, the outlook is really strong. We spend a lot of time discussing how marketing keeps performing and how the brand keeps getting stickier and stronger. Our awareness numbers—our unaided awareness—are still on the low side, but aided awareness, and the way we move customers through our purchase funnel, remain extremely, extremely solid. We also talk a lot about word of mouth being the #1 indicator of our brand strength. We're feeling really confident about that. Despite the guidance Keith gave, we're still going to pick up a substantial amount of share. Then, the second thing is that we have a very clear picture of our touchpoint openings for this year. Things keep going the way they're going, with our new showrooms beating their pro formas; and I believe Keith mentioned some of the economic advantages we're seeing from how we handle our fleet and occupancy charges. And the third thing, I'd say, is that our planning has always been quite conservative; and we've just come through 2 years of really brutal double-digit decline. And each and every time, this team outperformed. One thing that makes me really proud — and we touched on some of this back in February — is how quickly this team can change direction. We run tests, we take action, we make tweaks, and all of what Keith presented in the forecast is going to keep happening. So there's plenty that leaves us feeling quite optimistic about this year and what comes after. And on the financial side, the results keep demonstrating that for us.

Yeah, and I'll add something here. Shawn here. Maria, thanks for asking that. Something about Lovesac that people tend to miss, especially when the category is going through a rough stretch like right now, is that over the past 10 years, we have put money in very deliberately and very aggressively to build our brand. What I mean is, there's clearly tons of competition out there, especially online, for sofas, modular sofas, and so on, and that's because of the excitement we've generated and clearly the growth we've achieved in this space. What really separates Lovesac from every one of those digital rivals, and also from certain rivals in the traditional space — most of the competition, and I'm basing this on our own internal brand strength studies — comes down to how strong this brand is. And building that took 10 years; it isn't merely a digital marketing machine that's crushing it and cashing in while the Sun shines. It's a genuine push to — via the activations, via the events, via clearly nonstop traditional advertising, TV advertising, paired with digital, and so on — truly create a great deal of awareness for our brand, a great deal of acceptance, a great deal of love and a great deal of demand. So Lovesac is a product people badly want; we'll keep rolling out additional products under this brand flag, and we anticipate they'll do well just as we keep doing well relative to the category. So that brand strength genuinely gets us through a period like this, unlike plenty of others who are genuinely focused merely on converting via digital channels or depending on foot traffic and showrooms, and so on — in stores, and so on. So Lovesac is a genuine outlier in that respect, and I don't believe it's completely appreciated or valued, and that's fine. We're focused on — getting the brand to this point took this long, and getting it where we want it to go will take another 10 years. That's how we see it at management. And in the interim, we'll keep shutting and diving and doing everything required to perform relative to the category, pick up market share and come out with some genuinely thrilling new products on the horizon in the near and medium term even as this category rebounds.

That helps a lot. Now, for the second thing, could you give us some additional detail about the trading and resale effort you're pursuing? Which logistics-related investments are required to make that effort possible? Also, will you mainly be linking up buyers with sellers, or are you going to hold that inventory yourselves?

Yes. Great. Thanks, Maria. We care deeply about this effort, since when we discuss the Infinity flywheel, we've been quite busy on the <<inaudible>> side, on generating fantastic brand awareness, touchpoints we turn into conversions through an incredible Designed for Life platform and incredible products, that <<inaudible>> for life, and being able to set up the services we've mentioned matters enormously. So with the work we began last year on <<inaudible>> operations, we're only now starting to lay the groundwork so we can offer trade in and resale. I also mentioned briefly that even during this foundational build, we're launching an internal test involving our own team members for open box item sales, and simply developing the technology that makes it possible. There's an external partner helping us with that as well, and also working on the overall S&OP processes that need to occur. All of that is included within those investments in our business for this year. Then, later in the year, we'll return and tell you about the progress we're making on resale and trade in. So yes, as we complete that loop, there will be <<inaudible>> inventory, and we'll be handling it through that, and today we see very strong demand for our product on the secondary market. So it's already occurring right now. So we have the chance to deliver a fantastic brand experience and truly do something nobody else is capable of. That's because for other brands, doing resell and trade in is far more difficult. Logistically, it costs a tremendous amount, it's extremely complicated, and keeping the product intact is very hard. So when we discuss the innovations still to come, plus the chance for customers who purchased a product 10 years ago to trade in covers, receive new covers, and grow their lifetime value, we're really thrilled about visibility. So we're eager to bring you more news and updates on the progress of this, clearly, very essential effort.

I wanted to circle back to those quarter-to-date trends you gave us. Is there a way to break those down or put numbers to them—what you observed across February and March? You said March improved somewhat versus February on a relative basis. Was March truly positive compared with a year ago, or was it simply a smaller decline than February? Any extra color there would help. Then, Mary, could you address promotional tactics? You touched on this in an earlier answer, but I'd like to hear more from you regarding the increased frequency of promotions we're running and those 30% off offers, and how they're performing against the wider promotions you referenced across the industry?

I'll begin, then hand things to Mary for more on promotional tactics. On specifics, right now we won't provide exact figures for February and March, but Mary can walk through the details and examine much of what it came down to in February, since the category was roughly flat based on the credit card data across both February and March. Part of this was company specific—for the reasons Mary described, we attempted to pull back on promotions; even so, competitors were ramping up promotions during that period. Plus there were disruptions in our marketing program tied to the agency change, which took effect on the first day of the fiscal year, correct? So it affected all of P1, but we fixed it. We made adjustments for it. We modified the promotions going into March and observed a huge rebound. The shift in trends was dramatic. We've considered February and March together in full as we plan for P3, which is April, and all of that sits inside our guidance. Naturally, this is a continuous, ongoing push to adjust and improve and adjust and improve, test and learn, and everything along those lines. So right now, we believe this best reflects where we stand in this quarter. Then, as we move deeper into the year, because of everything I mentioned a bit earlier, that's the point when we truly begin seeing the launches Mary called out previously. That's the point when touchpoint expansion truly starts to take hold. And that's the point when we believe we can become even more precise with marketing and promotions, finance offers, and all of that, to truly solidify and convert the interest our customers are showing. Mary, I don't know whether you'd like to say more regarding promotional tactics.

Yeah. No. Thanks, Keith. And Matt, clearly, on Black Friday we usually witness the year's deepest discounting, and we launched with 30% off plus a few package offers. As you're aware, set against the remainder of the category, that remains considerably lower. Our results were very strong. Then, ordinarily, we'd ease off somewhat once Black Friday passed. But like I mentioned, we observed everybody else staying put and, in many respects, actually growing more aggressive by leaning on the clearance section — simply taking core inventory items and pushing them even harder. We were seeing discounts reaching 50% off. So when we did scale back, as Keith said, velocity dropped off somewhat, since people — quote growth was truly robust, conversion was merely a bit slower. And we recognize we must always offer compelling value. So as we tested returning to 30% off, as Keith noted, we enjoyed excellent growth in March; thus, like anything, we'll keep testing and learning. And I believe one of the genuinely fascinating aspects of our business, from a consumer behavior standpoint, is that we observe a really high proportion of customers closing a quote within roughly a week to 2 weeks. So for us, we're simply fine-tuning our promotional campaigns and tactics, letting < > we observe when they arrive, and then being able to push them toward conversion; so once more, a major advantage for us as we manage throughout all our channels. In < > that Keith has factored in, we possess industry-leading gross margin results. And we spoke earlier about the year-over-year increase and simply all of that performance. So we're constantly balancing top line growth, gross margin growth and how that translates through. So we'll make adjustments during the year, but feel good right now regarding where we stand with our programming.