The Lovesac Company (LOVE) Earnings Call Transcript & Summary

Thanks. Good morning to all of you. Joining me today are Shawn Nelson, our Chief Executive Officer; Mary Fox, President and Chief Operating Officer; and Keith Siegner, Chief Financial Officer. Ahead of beginning, I want to remind everyone that certain information we discuss will contain forward-looking statements about upcoming events and our future financial results; that covers statements concerning our future expectations, financial projections, and our plans and prospects. Actual results could differ materially from what those statements set forth. To review these risks and uncertainties, you should look at the company's filings with the SEC, which include today's press release. Our forward-looking statements should not be relied upon as predictions of future events. Each forward-looking statement we make on this call rests on assumptions and beliefs as of today, and we assume no obligation to update them, except as applicable law requires. Today's discussion will also include non-GAAP financial measures, among them EBITDA and adjusted EBITDA; these non-GAAP measures should be considered alongside our GAAP results, not as a replacement for them or in isolation from them. A reconciliation of the most directly comparable GAAP financial measure to such non-GAAP financial measure appears as supplemental financial information in our press release. Now I'd like to hand the call over to Shawn Nelson, Chief Executive Officer of the Lovesac Company. Shawn?

Hello, everyone, and thanks for being here today. I'd like to begin with a broad look at how our third quarter turned out along with what we see ahead. After that, Mary Fox, who serves as our President and COO, will walk through the main growth efforts we're pursuing. Then Keith Siegner, our CFO, will take a closer look at the financials and several other matters tied to our outlook. Now, on to the Q3 highlights. We recorded total net sales of roughly $149.9 million, which works out to a 2.7% drop compared with the same period a year ago. As you've heard from plenty of others in our space, the stretch before the election kept headwinds firmly in place. For us, that appeared as pressure on what customers usually spend per order. We were happy that bids for really big installations went up, but those bids turned into sales less often than we had expected. All told, omnichannel comparable net sales dropped 8.3%, and gains from new and noncomp locations made up for a portion of that decline. SG&A deleverage weighed on both adjusted EBITDA and net loss, although better gross margins plus efficiencies in advertising and marketing cushioned part of the hit. Even though the quarter landed beneath both our recent trends and what we'd expected, we still gained market share during Q3 against a category that declined by high single digits, and we closed the quarter holding our largest pre-holiday cash balance in years. What drives our results is a highly productive omnichannel footprint, one resting on our Designed for Life platform, strengthened by the Love shown in how customers engage with us, amplified through compelling marketing, and bolstered by our growing emphasis on product innovation. Demonstrating our dedication to innovation, we successfully launched our AnyTable during the third quarter, marking our entry into case goods. We also completed an extensive overhaul of our surface lineup, which now includes the drink holder, coaster, and the new tray. Additionally, we introduced insert protectors in response to a common request from fans. Every one of these releases expands our versatile Sactionals platform, enhancing its competitive position in the marketplace while also driving repeat business through add-on opportunities, ensuring that our installed base—over 1 million households—continues to come back for more. We'll have additional updates to share shortly. With Q4 already well underway, we've got more product announcements we're excited to share. The charge side extension for our StealthTech platform just launched recently. You can now add charging to whichever side of a Sactional you like, and it works even if the full surround sound setup isn't built in. On top of that, thanks to teams working together across the company, we were able to move up the timeline and soft launch the Sactionals recliner that everyone's been waiting for. When it comes to power recliners, this one out-innovates anything else on the market globally. Should you not have done so already, you really should visit one of our 258 proper Lovesac showrooms and give this sleek, sophisticated, zero-wall clearance, rearrangeable engineering marvel a try. After you've taken a moment to appreciate the zero-gravity design, go ahead and remove the cushions so you can check out what lies beneath. What you'll see is gorgeous. Close to three years and in excess of 80,000 hours of combined design and engineering work went into creating this product, which we expect to keep selling for many decades ahead. Of course, it fits perfectly with every Sactional configuration ever purchased, because it simply substitutes for one seat. The sides — meaning the arms and backs that our existing customers own — work with it too. But the truly amazing part is that within any Sactionals setup, it can be arranged to function either wide ways or deep ways. It operates quietly and without a sound, it holds up well over time, and of course, it has that signature Lovesac comfort. Truly, there is no other recliner built with the Designed for Life approach anywhere in the world, and many patents are either pending or already granted for it. To illustrate how big the opportunity is, 25% of the entire sectional market specifically demands reclining features. Even though we've achieved a lot with Sactionals so far—and we think Sactionals are already the top-selling sectional platform in the United States—we were basically shut out of this massive recliner segment until we brought this product to market just a few weeks back. Already, it's beating what we anticipated in terms of our internal attachment rates and the responses we're getting from customers. Like I said earlier, the reclining seat works with what you already own, and it will also work with things coming down the road that we haven't talked about publicly yet. For people who already have Sactionals, the Reclining Seat sends a clear message: whatever you spent on Sactionals, even if that was years back, ranks among the smartest purchases you've ever made. You can count on Lovesac to keep growing what it offers in a way that adds value and appeal to what you bought from us originally, rather than taking that value away. No other company in consumer goods and retail operates this way — it's completely unlike anything else out there. That's Designed for Life showing up in real life, and it's something we take pride in. It's obvious that Lovesac has shifted into a much faster gear when it comes to innovation, and there are still plenty of major product rollouts that haven't even been revealed yet — including for fiscal 2026. That's right, fiscal 2026, which for us is just a matter of months away. This entire wave of innovation stems from investments that have compounded across the past five years: a large group of product engineers and industrial designers, along with research and marking specialists, supply chain experts, and sourcing professionals, all of them working inside Lovesac to deliver refined Designed for Life solutions that we'll use to generate new business and repeat purchases for many decades ahead. For years now, we've been putting money into the groundwork for profitable growth, even while the category has been difficult. It should be clear by now that the money we've put into these initiatives is starting to deliver results, and that only strengthens our enthusiasm for the enormous room Lovesac has to grow. We're hosting an Investor Day in New York City on Tuesday, December 17, and at that event we'll share additional details on our strategic framework, the products we're launching, our growth plans, how we're pursuing operational excellence, and what we aim to achieve financially — all of which ought to give our growth a real boost down the road. That's true even considering the new customers we've brought in, along with some promising signals as we chase the repeat purchase opportunity those recent launches have opened up. Serious pressure continues to weigh on the home category, and it still hasn't recovered from the demand we pulled forward while the pandemic was going on. Black Friday gave us plenty to feel good about when it came to brand buzz, quote pipeline growth in the double digits, and more. Yet, as our fourth quarter outlook shows, uncertainty is still hanging around and it's keeping consumers from moving forward. Our attention is on converting those customers who've shown clear interest in our quote pipeline, along with bringing in new customers too, but we think it makes sense to revise our outlook as Keith will explain. To sum up, our focus stays on keeping expenses in check and safeguarding profitability, even while we keep investing carefully in what we see as a distinctive and strong secular growth story. This narrative is built on an expanding roster of new Designed for Life product platforms, which are going to drive growth and expansion for this brand going forward. The people on our teams are at the heart of our operations every single day, and all of them put in tremendous effort to bring the Reclining Seat to launch well before the planned date, even as they powered through the busy holiday period. I want to express my gratitude to all of them for their ongoing commitment and their disciplined approach to execution as we continue navigating a consumer environment that never stops shifting. At Lovesac, the opportunity for growth stretches far into the future, with large addressable markets that are heavily fragmented, and where our current share is quite small, including in the platforms we already have. Thanks to a better spot in the market, a money-making operation that continues expanding, and a healthy net cash balance on our books, we were able to do our first ever buybacks of shares during Q3. Keith will explain that our intention is to keep operating the company and distributing capital carefully, with our focus on producing growth that is both sustainable and profitable across the long haul, which should generate value for all of our stakeholders. We look forward to telling you more about where we're headed over the long term at our Investor Day attendance By Invite Only, happening in New York City on December 17. Having said that, I'll turn it over to Mary, who will take you through our strategic priorities and how we're progressing in more depth. Mary?

Thanks, Shawn, and hello everybody on this morning's call. Per what Shawn walked through, our net sales came in at $149.9 million in quarter 3, a modest decline versus a year ago, yet they climbed 11.2% measured against a 2-year base, all while the category itself stays tough. What matters more: measured on a 5-year base, net sales have nearly doubled versus prepandemic levels, whereas the comparable category result has been roughly flat. Over that same stretch, our adjusted EBITDA margin is up 895 basis points. During quarter 3 we kept beating the category and picking up market share, supported by our focus on customers and products plus our distinctive omnichannel Infinity flywheel. What we've constructed is a business model and platform that no one else in the category has, which gives us a sizable total addressable market opportunity. Add to that brand health that is robust and expanding, an e-commerce experience that leads its class, touchpoint economics with high returns, and a supply chain that gives us an edge. Benefits keep flowing from the disciplined investments we make in our strategic initiatives and capabilities, positioning us for stronger underlying profitability in the years ahead. Now let me share the main highlights of what comes next for each of our strategic initiatives. Starting with product innovation. We know your curiosity and excitement are high, so let's go straight to our newest soft launch, the ultimate power recliner. Our target for the recliner had been a quarter 1 fiscal '26 launch date, yet thanks to a Herculean effort across all our teams, supply chain and commercialization included, we managed to soft launch it in touchpoints and online right before the key holiday period. Throughout fiscal '26 we'll push harder and more aggressively to build awareness and conversion for the recliner. Even lacking full media support, it has started strongly. The organizational capability we've developed to bring Designed for Life products to market has never been stronger, and I want to add several more details. Refining seat is a breakthrough powered recliner innovation that will lift category penetration by drawing incremental customers onto the Sactionals platform. Crucially, because it is reverse compatible with existing Sactionals, we can generate greater repeat customer business. The recliner offers unmatched comfort and flexibility while preserving the sleek sophisticated esthetic Lovesac is known for. Traditional recliners are confined to particular spots within a catch or section, but a single Reclining Seat can go virtually anywhere in a sectional configuration and in multiple orientation. Tapping into the recliner market opens the aperture for the sactional addressable market enormously, in our view, and drives incremental customer lifetime value through this and future innovation. Early next year the full launch campaign will kick off, and we look forward to sharing more with you at our Investor Day on December 17. We also keep building brand-relevant ambassador partnerships that tap into culture in real time. In quarter 3, for instance, we teamed up with Olivia Rodrigo, creating the GUTS World Tour pack for her international concert tour. Levi has been eagerly waiting for her debut tour across the globe, and on Instagram plus TikTok she commands a following exceeding 30 million. The GUTS surge hit Instagram hard, boosting impressions and adding over 6 million followers to our base within just a few days. Next, consider our omnichannel approach. By blending physical locations with our digital offerings, we keep reinforcing our standing as a genuinely omnichannel merchant. To start, 5 touchpoints were introduced during the quarter, and we're still set to hit at/or slightly above 30 net new showroom openings in Fiscal '25. Also, throughout the quarter we kept rolling out site upgrades that foster lasting connections with both new and current shoppers while backing our goal of delivering a best-in-class omnichannel experience; we rolled out major improvements to the experiences before and after buying, such as a better showroom locator plus upgrades to My Hub that enrich the post-purchase journey with more detailed order info, and cultivating enduring ties with our deeply engaged, addressable existing customer base stays a major opportunity for Lovesac and a core strategic priority as we keep introducing new items that fit into what they already own. Backwards compatibility provides a distinctive edge in fostering and strengthening customer bonds well beyond their first purchase. Following the PillowSac Accent Chair, releasing any table in quarter 3 helped push a double-digit rise in existing customer mix and sales compared to the prior year. Beyond drawing in new buyers, we'll keep tapping our devoted existing customer base as we roll out new innovations such as Reclining Seats and Charge Sides. Optimizing how we engage our highly active open quote holders is another strategic priority. Via improved data collection, we're boosting the work of our fantastic showroom partners, letting us connect with this group more systematically by delivering the right message at the right moment. The third piece is our ecosystem, built on gaining, pleasing and sustaining ties with loyal, loving customers. We kept utilizing our marketing blend and budget all quarter and deliberately reduced linear TV spending as the period approached the 2024 election. Our refinements in video, covering CTV and YouTube, are producing favorable traffic patterns and ROI, which helps counter ongoing inflationary strain in paid search and social media. Even though we've succeeded in employing marketing to establish this cherished brand and boost net sales amid both strong and weak macro environments, we foresee considerable untapped potential by broadening and refining our marketing strategy and playbook. Given that the Lovesac brand is now solidly recognized and supported by a collection of Designed for Life product platforms, we're in the process of bringing on our Chief Marketing Officer to guide us through the coming stage of expansion; once we have additional details, we'll provide an update on how that's developing; moving on, here's where things stand with the initial phase of our services rollout; during quarter 3, we introduced a beta site that gives our internal associates access to carefully vetted Lovesac items, or resale options, in a thoughtfully curated setting. The internal trial has produced impressive outcomes, and we're eager to extend that same experience to our customers, using open-box inventory to drive this effort forward while building on our commitment to excellent products that are Designed for Life and backed by circular operations. Last, we're making prudent investments in infrastructure and pursuing greater efficiency. During quarter 3, we achieved better material cost of goods and inbound freight results compared with the prior year, thanks to careful management and deliberate infrastructure spending on both capabilities and technology. One crucial piece of this involves our ongoing effort to diversify manufacturing away from China, which is generating year-over-year savings on tariff costs. As we noted earlier in the year, we upgraded our inbound logistics approach by shifting from a freight forwarder model to a direct carrier relationship, which reduces how much we depend on spot rates. This keeps paying off for us through improved overall pricing and container availability, while also reducing the impact of spot market pricing inflation, amounting to meaningful cost avoidance. Looking at gross margin, an uptick in promotional discounting during the quarter partially canceled out these savings, since we keep encountering elevated promotional activity across the category; we also achieved a 3% decrease in total inventory by the end of the quarter, which came from the advantages of recent investments, such as our new order management systems, that also help our outbound logistics assets. On that front, we're still making significant strides with our outbound logistics model and have effectively brought in local parcel providers across 2 key markets, which is contributing to lower overall costs and better customer satisfaction; we plan to keep assessing and growing this program into next year and beyond. To wrap up, we're happy with how our strategic priorities are advancing as we keep growing the business successfully and making essential foundational investments that will both fuel and sustain the considerable growth still to come. At this point, I'll hand the call to Keith.

Thanks, Mary. Let's dive straight into a brief look back at the third quarter, then we'll cover what we expect for the remainder of fiscal '25. Broadly speaking, Q3 net sales came in a bit below what we had guided, for the reasons Shawn walked through, but keeping tight control over the expenses we can manage allowed us to land at the better end of our profit guidance ranges anyway — and that's true even with the extra costs tied to last year's restatement of prior period financials. Starting with the performance metrics, keep in mind that whenever I say the third quarter, I mean fiscal '25 unless I note otherwise. Net sales dropped $4.1 million, or 2.7%, to $149.9 million in Q3 versus the same period a year ago. Showroom net sales fell $7.7 million, or 7.8%, to $91 million in Q3 versus the prior year period, which came from an 8.3% decline in omnichannel comparable net sales, partly offset by adding 28 new showrooms on a net basis. Internet net sales rose $4.9 million, or 12.1%, to $44.9 million in Q3 versus the prior year period. Other net sales — that covers pop-up shop, shop-in-shop and open-box inventory transactions — declined $1.4 million, or 8.6%, to $14 million in Q3 versus the prior year period, mostly because our temporary online pop-up shops on Costco.com were less productive. Open-box inventory transactions with ICON were roughly flat year-over-year, at $2.5 million in Q3. Right now, we don't expect any of those transactions in the fiscal fourth quarter. Turning to product category, in Q3 our Sactional net sales were down 2%. Sacs net sales were down 4%. We still expect to be mostly caught up on the StealthTech and PillowSac Accent Chair backlog during the fourth quarter. Together, those represented a shift of under $5 million in net sales from the second and third quarters into the fourth quarter. Our other net sales, which takes in decorative pillows, blankets and accessories, were down 16% versus the prior year period. Gross margin rose 110 basis points to 58.5% of net sales in Q3, compared with 57.4% in the prior year period. The main drivers were a 120 basis point drop in inbound transportation costs and a 40 basis point drop in outbound transportation and warehousing costs, partly offset by a 50 basis point decline in product margin caused by heavier promotional discounting. SG&A expense as a percentage of net sales was 47.9% in Q3, versus 43.9% in the prior year period. That higher percentage mostly reflects investments in payroll, equity-based compensation and rent, along with lower net sales. The rise in selling, general and administrative expense dollars was mainly due to a $5 million increase in payroll, $1.7 million in equity-based compensation, $0.8 million in rent, partly offset by reductions of $1.4 million in professional fees, $1.0 million in credit card fees and $0.9 million in infrastructure investments in the business to support current and future growth. Rent expense went up by $0.8 million, which came from a $1.4 million rise tied to adding 28 net new showrooms, though that was partly offset by a $0.6 million decrease in percentage rent. Regarding nonrecurring incremental fees connected to the restatement of prior period financials, we estimate those came to roughly $3.3 million during the third quarter, and that figure includes the settlement with the SEC. Forecasting these is quite challenging. While we're hopeful they'll be significantly lower moving forward, we'll keep calling out any such items, if applicable, on a quarterly basis. For advertising and marketing expenses, there was a decline of $1.2 million, or 5.5%, bringing the total to $19.9 million in the third quarter versus the same period a year ago. As a percentage of net sales, advertising and marketing expenses held steady at 13.3% during the third quarter, compared with 13.7% of net sales in the comparable period last year. Our operating loss for the quarter came in at $7.7 million, versus $3.6 million in last year's third quarter, and this was driven by the factors we just walked through. Before we move on to net loss, net loss per common share, and adjusted EBITDA, we'd ask you to consult the terminology and the reconciliation between each of our adjusted metrics and their most directly comparable GAAP measurements, which can be found in the earnings release we put out earlier this morning. Net loss for the quarter totaled $4.9 million, or negative $0.32 per common share, compared with a net loss of $2.3 million, or negative $0.15 per common share, in the same period last year. In the third quarter, we booked an income tax benefit of $2.1 million, versus $1.0 million a year earlier. Adjusted EBITDA for the quarter reached $2.7 million, compared with $2.5 million in the prior year period. Now shifting to our balance sheet: we closed the third quarter with a very strong balance sheet, giving Lovesac considerable flexibility to put capital into growth and thereby strengthen long-term value creation for shareholders. To start, we recorded $61.7 million in cash and cash equivalents, and we still had $36 million in committed availability along with zero borrowings on the credit facility we recently amended. Although our cash balance dipped a bit from the previous quarter, it rose substantially compared with the third quarter balances in fiscal '24 and fiscal '23. Historically, the third quarter represents our seasonally lowest cash flow balance, since we stock up on inventory before the holiday selling season. That really underscores how solid our net cash position is. Next, our total merchandise inventory levels match up with what we projected. We're feeling quite confident about the quality and the quantity of our inventory, as well as our capacity to sustain industry-leading in-stock positions and delivery times. Finally, during the quarter we bought back roughly 131,000 shares of our common stock at an average price of $26.13, spending approximately $3.4 million; that leaves about $36.6 million still available under our existing share repurchase authorization. We intend to share more specifics about our strategic approach to managing potential excess capital next week at our Investor Day. For additional details on our third quarter financial performance, please see our earnings press release. Turning to what lies ahead, the initial anecdotes we've gathered indicate that the Cyber 5 stretch proved rather difficult for businesses in the furniture space, meaning we lack firm figures at this point. Our working presumption of a 10% decrease for the category across the entire year is, by and large, unchanged. Consequently, it remains uncertain if the whole of the fourth quarter will get better or get worse relative to the declines of approximately 7% recorded during our fiscal third quarter. Even so, our ambition is to expand no matter what the category does, not to mention keep adding to our market share. Our intention is to bounce back fast from our original 4Q forecast, and we're confident that a strong long-term growth strategy exists to make that happen, which we will discuss at much greater length during next week's Investor Day. On top of that, because of the distinctive way we operate, we are consistently positioned to take advantage of a category recovery the moment it materializes, and with greater immediacy than others in our industry. When that takes place, the extra sales ought to generate a widening flow-through from top line growth into bottom line growth. Looking at the whole of fiscal '25, we are bringing our guidance ranges down; we project net sales between $660 million and $680 million; adjusted EBITDA is expected to land somewhere between $37.5 million and $48.5 million.

This takes in gross margins between 58% and 59%, advertising and marketing at roughly 13% when measured against net sales, plus SG&A at about 42% of net sales. Our net income estimate falls somewhere between $4.5 million and $12.5 million. Diluted income per common share should land in the $0.27 to $0.74 range, with roughly 16.9 million as the estimated diluted weighted average shares outstanding. One thing to keep in mind: fiscal '25 spans 52 weeks, while fiscal '24 carried an extra 53rd week during the fourth quarter; looking at the fourth quarter alone, we're projecting net sales between $221 million and $241 million. Adjusted EBITDA should come in somewhere between $43 million and $55 million. That figure assumes gross margins near 60.5%, advertising and marketing around 11.5% relative to net sales, and SG&A at roughly 29% of net sales. Net income should land between $28 million and $36 million; diluted income per common share is expected in the $1.67 to $2.14 range, alongside approximately 16.8 million estimated diluted weighted average shares outstanding. To wrap up, the category stabilizing and eventually returning to growth lies ahead of us, though precisely when that happens is still uncertain. In the interim, as those category headwinds persist, we're confident we can strike a balance between near-term results and profitability on one side, and putting money into product innovation and long-term growth on the other, which puts us in the best possible spot to create stakeholder value well into the future. Ahead of handing things back to the operator so we can kick off Q&A, one request: please aim your questions mostly at our results and what we expect near term; we intend to lay out complete context and perspective on our strategic framework, new products, growth initiatives and financial ambitions during our Investor Day next Tuesday, the 17th. Formal presentations and a Q&A section are both part of that event. We'll also have lots of our incredible Designed for Life products on hand so people can try them out. We truly hope you'll be there, and to ask for details, just send an e-mail to investorrelations@lovesac.com. With that, over to you, operator.

To start, I'd like to ask about your Q4 outlook. If we compare the updated guidance with what was previously implied, could you give us a bit more detail on what portion of that difference comes from the shifts in the factors you mentioned last quarter — sorry, last quarter — such as making up for delayed shipments, new products, and overall category improvement?

Sure. I'll start us off, and then I'll hand it to Shawn so he can go into some of the specifics a bit more. To be honest, the largest gap between the guidance we gave before and what we have now is the category. There were fairly few surprises when it came to the backlog amounts, as we discussed last quarter — it was in the mid-single-digit millions, or the single-digit millions, and it ended up being slightly under $5 million. Our supply chain teams did an excellent job bringing StealthTech back into stock following some delays in the long lead times we faced in sourcing. So almost all of those factors stayed fairly consistent. In fact — even from a recliner standpoint, moving it forward and doing a soft launch has been very encouraging for us; the feedback and interest we've gotten have been great. I'm certain we'll cover that more during this call, but it's been quite encouraging for us. What it really came down to was quotes converting. So Shawn, why don't you share a bit more about what we've observed on that front?

Absolutely. I'd say the most encouraging aspect of what we're observing in the business is that our quotes are significantly higher compared to the same period last year. That's the business working the way it should, aside from conversion, which — as we're hearing anecdotally — is being affected by customers showing greater caution with their spending, especially before the holidays. Look, we still have time left in the year, and we'll battle right up to the final moment to generate sales, generate revenue, and bring more people into the Lovesac family fold, since that's where the repeat process starts. And at this point we have a complete product lineup, including the recliner that we moved up and launched ahead of schedule, which is bringing us tremendous new business as well as repeat business. Clearly, that isn't sufficient to counterbalance the headwind we're facing in this category that keeps hanging around. It's been well over a couple of years now, approaching 3 years of severe headwinds; and we've acknowledged that. At the same time, we're innovating. And we have exciting news to share next week at the Investor Day; and so even as we stay paranoid about the day-to-day business and remain completely focused on generating sales. We simply don't know precisely what will unfold with the consumer over the remaining few weeks in our fiscal year. And so the guidance you're looking at reflects us being cautious while also, naturally, optimistic and focused on generating business through the very end.

Understood. And second, could you perhaps discuss how the product releases you've rolled out lately and what's coming down the line for next year kind of shape the way you go about growing brand awareness, as well as the wider marketing plan for next year?

Shawn, I believe your mic is off.

Yeah, you’ll be seeing more of our design for life strategy continue to roll out. What I find really thrilling, honestly, is what you’re already witnessing across every launch we’ve had this year. Innovation at Lovesac is speeding up — it once amounted to just 2 or 3 fresh introductions annually. This year alone, we’ve brought out over half a dozen. That gives customers a richer way to bring our brand into their everyday lives, and it hands us a ton of chances to generate repeat business. In a few days, we’ll be sharing some figures showing how strong this flywheel really is: folks frequently make sizable purchases with us once, then across a span of years they raise how much they spend as we offer them ways to add on. And that isn’t merely a strong commercial result. It’s completely unlike anything else out there. I don’t know of another consumer company that lets you genuinely build on that first purchase — and in doing so, not just advance sustainability, correct? These products really can last, and they also make what you bought initially worth more several years down the road than it was when you first got it. So you’re not only going to see proof of this on the platforms you already know, Sactionals and Sacs — we’re also going to talk about new platforms on the way, and that’s genuinely exciting for us.

Right, Shawn, I just want to piggyback on that point in response to what Maria asked. There are a few items to mention. We keep working to build awareness and draw additional customers into the funnel. I believe that shows up in what we've observed — really robust quote growth at double digits, and in fact it keeps climbing. And customers were spending over 30 minutes with us while putting together their quotes, picking out their perfect configuration along with the cover. So we're seeing that brand health persist, and awareness clearly matters a great deal to us since a tremendous amount of opportunity remains. The second item I mentioned is that we will be bringing on our first Chief Marketing Officer, and I'm really thrilled about that chance to make the funnel more effective. And as we have — Shawn, you brought up the recliner launch — our media campaign hasn't been turned on yet. It's a soft launch, since we moved it up purely because of the Herculean work from our teams, which was simply amazing, and it's such a fantastic product. And then early next year we will turn on what will be an amazing campaign to truly explain to people why our recliners are the best and how they can — existing customers can purchase it and add it to their configuration — and then bring in lots of new customers who never would have given us a thought before, because we had no recliner. Today we have the finest recliner available on the market.

Alright, first off, congratulations on the recliner soft launch. There's one thing I want to ask, plus a follow-up. So Shawn and the team, what's the right way for us to frame your approach to promotions? And what counts as a heavily promotional backdrop for this category, including how willing you are to give up sales in order to safeguard profitability?

Sure. I'll make a few points, and Mary can chime in. Over the last 3 years especially, we have put in serious effort — from the start of COVID onward — to be deliberate about how we promote, and to avoid pushing past the line into things like the 30% off deals you might see elsewhere. That matters to us. Out in the market, our competitors are running noticeably deeper promotions, and we're aware of it; we're seeing 40%, 50%, 60% off across many products. And to be fair, those competitors carry a far wider assortment than ours. There are clear pros and cons to that. When it comes to Lovesac specifically, we aren't discounting aggressively on our newest innovations, such as the recliner, the AnyTable, and certain other new offerings. We're staying disciplined. Why do we take that approach? Because, as Mary mentioned, quote growth is up double digits versus a year ago, correct? So the sales and marketing engine is performing very well right up to the final conversion step, where we need a bit more to push us across and help us hit the targets we set originally. We think there's still time left in the fiscal year to get there, though we're remaining careful. Looking ahead, our purpose is brand building; we aren't here merely to push StealthTech and stay narrowly fixated on that. We're convinced we're creating a brand that will endure for decades; and I believe once you watch us move into additional categories, a few of which we'll discuss in just a few days. You'll see why we have such confidence in this business right now and, naturally, going forward. And so, without making light of where the category stands today; we've accumulated cash; we're safeguarding profitability by keeping SG&A in check. And so we simply aren't in a place where we intend to go overboard with markdowns and promotions. For the most part, we feel quite good about the businesses we're seeing.

Right. And Tom, perhaps one final thing worth mentioning is that testing and learning never stops for us — that agility is genuinely among the standout strengths of this team, so that's what we'll keep doing. Still, as we've consistently said, provided there's a 3 at the front of whatever promotion we run, going as deep as the 40%, 50%, 60% off that others resort to simply isn't necessary. Once more, that comes down to the strength of the brand. Plus, our new innovation carries no meaningful discounts whatsoever, and even so, uptake has been really encouraging. So the work goes on. The team is set on converting that genuinely robust quote pipeline, and we're grateful to them for that — and for their tenacity.

Great. Then as a second question, what does the gross margin on the recliner look like next to the rest of your lineup?

Yeah, it matches. This is a product we feel a lot of pride in. Our goal was for it to sit right alongside our overall gross margin profile. Our gross margins are something we take pride in. They may be the best in the category, or among the best in the category, as you're aware. And right now we're seeing the recliner get adopted in a big way — nearly 50 to 50 split between existing customers and new ones, who are clearly folding it into what they've configured. So it's up and running, and we haven't even started promoting it to the fullest degree.

If we could just zero in on the short term for a moment. Could you break down where the fourth quarter stands versus that down 7% guidance? What exactly did you observe across Black Friday and Cyber Monday? Did it land at negative high single digits, matching what you'd guided? And then, Keith, would you mind sharing the omni comp assumption sitting inside the Q4 outlook — I'm just after an apples-to-apples read since we had that extra week a year ago.