The Lovesac Company (LOVE) Earnings Call Transcript & Summary

Thanks. Morning, everybody. 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 diving in, please let me note that certain material covered in this conversation will contain forward-looking statements about upcoming events and how our finances will perform going forward. Among these are statements concerning what we expect in the future, our financial projections, plus our plans and prospects. What actually happens could differ materially from what those statements describe. To understand these risks and uncertainties, please look at the company's filings with the SEC, including the press release issued today. You shouldn't treat our forward-looking statements as forecasts of things to come. Every forward-looking statement we're making during this call rests on assumptions and beliefs held as of today, and we assume no duty to revise them, unless applicable law demands it. Today's conversation will also cover 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 their own. A reconciliation showing the closest comparable GAAP financial measures against that non-GAAP financial measure appears as supplemental financial information in our press release; and now I'd like to hand things over to Shawn Nelson, Chief Executive Officer of the Lovesac Company. Shawn?

Hi everybody, and I appreciate you joining us today. First, I'll provide a broad overview of our results for Q4 and the whole of fiscal 2025, then update you on the Designed for Life product platforms, and pass along some exciting news about a wonderful new addition to our leadership team. Next, Mary Fox, our President, will explain our specialized customer acquisition engines. Finally, Keith Siegner, our CFO, will cover the financials and give extra detail on our fiscal 2026 outlook. Before we get started, I'd like to take a moment to recognize several milestone achievements for Lovesac in fiscal 2025. First, when it came to introducing new items, this past year was the most productive we've ever had. We gained a lot of ground on innovation and on bringing platform extensions to market, and we scored some major successes, including the PillowSac Accent Chair and the Reclining Seat's early debut. Second, we committed our long-range plan and our approach to creating value to paper, sharing both during our inaugural Investor Day, where we also unveiled the EverCouch — the first of three entirely new product platforms we plan to launch within the next three years. Third, we shored up the core of our operation, since we had reworked our supply chain and made major upgrades to our CRM tools, which widens and strengthens the protective barrier surrounding our distinctive omnichannel business model. To wrap up, our financial position is quite strong, affording us considerable room to absorb tariff-related noise, speed up expansion, and improve capital returns over the coming years. Now, looking at performance, fiscal 2025 wrapped up nicely, as fourth quarter earnings came in near the upper portion of the outlook we shared in December. With robust quote conversion during the latter half of the quarter, sell landed a bit above the top of our guidance range. That helped us finish yet another fiscal year in which Lovesac captured additional market share — a meaningful achievement, though not as high as we aim for. Although macroeconomic conditions have been and continue to be difficult, we feel confident going into fiscal 2026, standing on firm ground. Lovesac has enormous long-term growth opportunities, and the way our company is built gives us a special edge that lets us take advantage of favorable economic conditions as soon as they appear—without having to make big commitments too early when things are uncertain. Our Q4 numbers show that our team stays focused and moves quickly, producing dependable outcomes even when the market is tough and chaotic. Because our main products are modular, we gain flexibility throughout our supply chain. That includes having backup, duplicate sourcing for our most essential SKUs in many different nations, so we can shift production up or down in real time toward whatever setting works best. That kind of competitive benefit is something only Lovesac's model provides. When it comes to product, let me state plainly that Lovesac has fundamentally transformed how quickly we bring new products and platforms to market. Over the coming years, these launches will arrive more rapidly and land with bigger results. Fiscal 2025 marked only the start. Our approach to developing products through Design for Life is woven into the very fabric of this company, and we continue to produce new ideas that build a pipeline designed to last far into the years ahead. Looking at 2025 in particular, we had a number of wins on the product launch front, and the highlight came when we released our long-awaited Reclining Seat during the early part of Q4. That addition expands our core addressable market — 9.5 billion for static sactionals — by an additional 4 billion tied to motion seating. You won't find another recliner comparable to this one anywhere in the market. It represents nearly three years of effort along with more than 80,000 hours spent on design, engineering, and development, and the result is a truly groundbreaking power recliner that can be incorporated smoothly into any sactional configuration, whether that's a new setup or one you already own. This recliner really is a remarkable piece of engineering. It needs no clearance from the wall, and it has the utterly distinctive ability to function whether positioned wide or deep. Plus, our Design for Life philosophy, of course, means it will keep its worth and remain compatible for many decades to come. From the time it launched, the Reclining Seat has sold over 18,500 units, and both attachment rates and customer feedback came in above our expectations, with buyers splitting nearly 50 to 50 between first-time and returning customers. What's more, none of that required a national marketing campaign to raise broader awareness. We launched the recliner campaign — recline of civilization — only a short while ago, and we feel quite positive about its potential. Past the recliner, we had several wins this year: the PillowSac Accent Chair launched, the AnyTable marked our entry into case goods, we completed a full overhaul of our surface lineup — the drink holder, coaster and the new tray — we gave our fans the insert protectors they'd been asking for, which delighted them, and we reimagined our custom fabric range, and the response from both first-time buyers and returning ones has blown past what we expected. Even so, our eyes are on fiscal 2026 and what comes after, and the EverCouch — our third Design for Life platform — is already being tested in the marketplace. For anyone wanting an armchair, loveseat or sofa whose needs differ from those of a sactional customer, the EverCouch is a polished, elegant solution. The lightbulb moment came for us like this: people see us as a couch business, yet the truth is we hardly move any couch-sized setups at all — and even fewer loveseat or chair setups, honestly. Sactionals are great, no question, but when you look at size, style, or price, the tiniest configurations may not be where they shine. That's the gap EverCouch fills, and it throws open the $14 billion couch category's doors to us, which in effect more than doubles the addressable market we play in today. It looks stunning, comes with washable covers, swappable arm styles, the ability to ship fast, and simple assembly that of course requires no tools. And here's the kicker: it leans on the brand equity Lovesac has already built in couches and comfort seating. We're aiming to get EverCouch into roughly 30 showrooms, and to have it available nationwide on lovesac.com, by the time the second quarter wraps up. What we've been hearing back from our field teammates early on has been genuinely encouraging — customers are even asking to be put on the waiting list, and that's happening ahead of the May launch. And I should mention this too: more new platforms are coming over the next three years, exactly as we laid out at Investor Day, and every single one of them takes us into another room of the house. Like we said back in December, Lovesac is at that critical point where we move past seating products and become a strong brand in our own right. We recognize that to make the most of this upcoming stage of expansion into additional product categories, we need the right leadership and creative talent. That's essential if we're going to fulfill our aspiration of reaching 3 million Lovesac households by 2030 and becoming the most loved home brand in America. With all of that in mind, we couldn't be more excited to share that Heidi Cooley is coming aboard as Lovesac's first Chief Brand and Marketing Officer. Heidi brings deep marketing expertise, with 20 years spent at both public and private companies. Her most recent role was Chief Marketing Officer at Crocs, and during her time there she played a key part in turning that brand into a multibillion dollar business. Her background includes directing marketing efforts with significant impact, expanding digital properties, and advancing innovation throughout all consumer contact channels, with a focus on culture, community, and sustainability as well. The leadership style and inventive approach Heidi possesses are precisely what's required to drive the upcoming stage of expansion into additional product lines. We're glad to have you aboard, Heidi. As we look toward fiscal 2026, certainly, the broader economic environment presents challenges. Keith will provide the detailed figures, yet the underlying approach remains straightforward. Our view is that we possess what's needed to achieve growth no matter what happens with the category in the short term, all while keeping a clear focus on long-range strategy and generating value. Even though the home furnishings space is still difficult, we have new products, solid ties with customers, and great operations, which give us a promising path to grow. Lovesac operates in big, highly fragmented markets where we hold only a small slice right now, even with the platforms we already have. As revenue rises, more of it should flow down from the top line to the bottom line, lifting margins, and that holds true even if things speed up further once the category eventually bounces back. To wrap up, we want to thank the hardworking members of our team who have put in endless effort to launch our new products and provide an outstanding customer experience. Their dedication to what we stand for is what makes Lovesac successful. We're excited to keep pushing forward on our effort to transform the home furnishings business through offerings that genuinely embody Designed for Life. At this point, I'll pass things along to Mary so she can walk through our strategic priorities and the progress we've made in greater depth. Mary?

Thanks, Shawn, and good morning, everyone. During our latest Investor Day, we laid out the strategy for the long haul along with the model for creating value, both of which revolve around our two superpowers. Shawn has already given an update on the first one—our Design for Life product platform—and explained why we see enormous secular growth potential for Lovesac, which puts us in position to keep gaining market share well into the future. Now I want to turn to the customer acquisition engines that are built specifically for each Design for Life platform, and also to the enablers of our growth, above all our advantaged supply chain. Starting with those customer acquisition engines: our real superpower is the capacity to combine varying blends of brand and performance marketing, digital configuration via lovesac.com, amazing showroom experiences, and efficient partnerships so that we can optimally affect each product platform. When done wisely, this lets us efficiently create customer awareness, turn that awareness into customers, and in the end establish long-term relationships and brand love. Let's take a few moments on each, beginning with our brand performance marketing. During our December update, we mentioned that the robust double-digit increase in quotes we observed leading up to Black Friday was encouraging. However, we stayed watchful since conversions from those quotes into actual purchases were coming in below what we'd anticipated, and the holiday shopping window was shorter than usual. Now we're pleased to share that quote conversion rose substantially during late December and January. We achieved this by leveraging personalized offers as people shifted their focus back to their homes after the condensed holiday period wrapped up. While we did choose to increase discounts somewhat beyond what we'd recently been offering, we succeeded in steering clear of the deep, exceptional markdowns that numerous rivals resorted to—something our gross margin reflects. Shawn brought this up before, and I want to build on it: the Reclining Seat, our latest product, has built up incredible momentum. It went past every expectation we had. No other recent launch has matched its attach rate, it's helping push AOV higher, and it's driving both first-time buys and repeat orders. Remember that Q4 amounted to a soft launch with very little marketing behind it. Now, though, we've turned our marketing engine on, thanks to the Recline of Civilization campaign, which kicked off in March featuring Kathy Hilton, Jay Shetty, and others. The campaign is a playful, tongue-in-cheek movement aimed at today's grind culture, and it leaves everyone who encounters it wanting nothing more than to recline in a Lovesac. The approach was designed with social at its core, using influencers and content creators to drive awareness up exponentially. That effort has generated close to 5 billion earned impressions so far, and it shows how Lovesac can sit right at the center of cultural trends. We also did a really cool collaboration with Mr. Beast, the ultimate YouTuber, on his last to leave the circle wins $1 million video challenge. A 100 Lovesac, MovieSacs were featured in this series, which has more than 97 million views and counting. With Heidi joining our team, expect to see even more of these groundbreaking ideas, so stay tuned. Now, let's turn to our digital setups and how we present Lovesac on the internet. We've put substantial resources into our online experience, which includes moving our site to a new platform to boost web conversions, increase customer happiness, and strengthen our Seo work. Through MyHub, we've also rethought the customer journey, which advances our aim of delivering a smooth omnichannel experience and supports a more intentional strategy for generating repeat purchases. It's also paying off with recliner repeat purchases, which account for almost 40% of sactional sales so far. These platform investments have additionally positioned us to introduce EverCouch. I'd like to highlight something: when it comes to the web, our goal isn't simply to copy what the sactional experience offers. Instead, we've reimagined what an optimal buying journey should be for someone shopping for a more traditional chair or couch. That's a perfect example of how each platform gets its own tailored customer acquisition approach from us, so we can achieve maximum impact. Beyond that, lessons from the product launches we did last year will be put to use as we continue driving repeat engagement and conversions among existing customers, with the overarching goal of boosting customer lifetime value. Moving to point three: our showrooms, which serve as in-person amplifiers of the brand for our Design for Life products. They're the foundation of our omnichannel strategy. Offering customers who wish to try Lovesac in person convenient access this way is capital-efficient. In Q4, we moved into the following phase of how we demo and sell our products — the product tool. As I noted before, this improved sales framework lifted how often quotes turned into orders, and beyond that, it created room for fresh product ideas, including the recliner. Looking ahead to fiscal 2026, a fresh compensation structure tied to performance has just been launched for our field teams. It preserves the customer experience ethos we value, while providing meaningful rewards for strong results. Last, completing the showroom offering is our partnership approach, and Costco stands out as a leading illustration. With Costco's membership base exceeding 120 million people, our roadshow strategy allows us to open pop ups inside their clubs, and we hold onto 100% of the customer data and relationship. Our assortment with Costco will continue expanding during this year, and StealthTech along with PillowSac Accent Chair have already been brought in. Our road show count is set to rise by 15% over the prior year, and that gives us yet another way to demonstrate how we alone can move big-ticket premium merchandise within a footprint of about 100 square feet. When you add these four pieces of how we bring customers in, the result is a level of experience no one else offers, and that's what makes people fall in love with the brand — in fact, fiscal 2025 brought us the best customer satisfaction numbers we've ever recorded. We plan to push further by rolling out services that directly serve the customer. Having run internal tests of resale and trade in during fiscal 2025, we're looking to kick off customer facing pilots for each of those programs in certain markets before this year is out. Based on what we're seeing in the numbers, these programs really show how committed we are to the Design for Life principle, and they make our customers' investments more valuable over time. Our growth enablers matter almost as much when it comes to keeping profitable growth going over the long haul. Let's start with supply chain — it's a big edge for us and has been key to our financial results in recent years, while also putting us in position to expand significantly into new product platforms. In fiscal 2025, we reworked our network strategy as well as our carrier models. We implemented transportation and order management systems, and we kicked off work focused on making our warehousing and outbound logistics programs better, which we plan to continue in fiscal '26. Because of this, we achieved solid gross margin improvement of 120 basis points in fiscal ’25, reaching a gross margin rate of almost 59% for the year. After cutting our exposure to spot market rates by over 95%, we moved into fiscal ’26 from a strong position. That leads us to the latest tariff developments. First, some background. In recent years, we have made considerable progress diversifying where our products originate and building redundancy for every product across several countries so that we have choices. Before the recent developments, our fiscal ’26 country of origin estimates were roughly 50% Vietnam, about 28% Malaysia, China reduced to 13%, and Indonesia around 6%; we are continuing that work actively, with many options for further diversification, including additional geographies, and we are striving to bring China below 10% of the total. As we gain more clarity in the weeks ahead, we will make adjustments as needed, and we have set up task forces to speed up mitigating actions. As Keith will explain shortly, we are entering fiscal ’26 with inventory levels across our product lines that are above normal, and that was intentional in case this situation arose. We also have plenty of levers to pull structurally across various tariff situations, though we need to steer clear of hasty moves that might rattle our customers and damage the brand. Among those levers: working out concessions with vendors we've used for years, looking at opportunities for raising prices on select items, changing how aggressively we run promotions, and finding other efficiencies. Another important thing to note: since our gross margins are structurally higher than what many of our competitors have, the price hikes actually needed to offset the tariffs are smaller by comparison. With the strength of our brand and the unique, compelling quality of our Design for Life products that so many people love, we think selective price increases are something we can do. Before handing things to Keith, I also wanted to note briefly our fourth annual ESG Report, which was published in December. You may not be aware, but our company purpose, which sits at the heart of our Design for Life principles and operating model, is to inspire humankind to buy better, so you can buy less; this latest report reflects continued progress toward our goals, including our pledge of zero waste and zero emissions by 2040. We take pride in having kept countless thousands of couches out of landfills. We also take pride in having surpassed the 300 million milestone in fiscal ’25 for recycled plastic bottles used in our fabric, along with much more. It's clear to us that what we do now is going to determine what the world looks like later, and we're setting the standard ourselves. If we work together, we can build a tomorrow that's more comfortable, greener, and brighter for the generations ahead. And with that, I'll hand things over to Keith.

Thank you, Mary. Before we get started, I'd like to express appreciation to all those who joined us for our first-ever Investor Day — whether you were there in person, tuned in online, or caught up afterward via the presentation, which you can still find on our website. Our hope is that it came through clearly just how distinctive Lovesac is — distinctive in its brand, distinctive in its business model, and distinctive in the secular growth opportunity ahead, fueled by ongoing share gains within our current categories and by moving into new product platforms, starting next quarter with EverCouch. Shawn and Mary have already gone over the elements that made fiscal '25 such a significant year for Lovesac, so we'll dive straight into a brief look at the numbers and what we're projecting. Just a reminder, the fourth quarter of fiscal '24 contained a 14th week, which was the 53rd week of the previous year. For the year, revenues came in at $680.6 million, down versus $700.3 million a year earlier, because of category headwinds of roughly 9% across the year, yet that figure was a bit higher than the most recent guidance range we gave in December. Gross margin stood at almost 59%, a strong level that gives us room to maneuver through today's macro environment. Net income reached $11.6 million, lower than fiscal '24 as a result of reduced revenues, but it still allowed for positive free cash flow during the year and a solid cash position that I'll cover in more detail shortly. Now turning to the fourth quarter — keep in mind that whenever I cite a performance metric for the fourth quarter, I mean fiscal '25, unless I say otherwise. Net sales fell $9 million, or 3.6%, to $241.5 million in Q4 versus the comparable period last year. Showroom net sales dropped $2.4 million, or 1.6%, to $154.5 million in Q4 compared with the same period a year ago, pulled down by a 9.4% decline in omnichannel comparable net sales, though that was partly offset by adding 27 net new showrooms year over year. Internet net sales declined $7.6 million, or 9.7%, to $70.5 million in Q4 relative to the prior year period. Other net sales — covering pop-up-shops, shop-in-shops, and open box inventory transactions — rose $1.0 million, or 6.7%, to $16.5 million in Q4 versus the year-earlier period, thanks to greater productivity from our temporary online pop-up-shops on costco.com. Open box inventory transactions were absent in Q4, versus $2.9 million in the prior year period. Turning to how our product categories performed in Q4: net sales for our sactional were down 3.8%, Sac net sales fell 3.0%, and the combined net sales of our other offerings — decorative pillows, blankets, and accessories — were up 2.7%, all measured against the same period last year. In Q4, gross margin increased 70 basis points, reaching 60.4% of net sales, up from 59.7% during the prior year period. The main drivers were a 90 basis point decrease in inbound transportation costs and a 30 basis point decrease in outbound transportation and warehousing costs, which were partially offset by a 50 basis point decline in product margin caused by heavier promotional discounting. For the fourth quarter, selling, general and administrative expense as a percentage of net sales was 28%, versus 30.5% a year earlier. The smaller share is mostly due to lower costs for credit cards, professional services, rent, utilities, and other overhead. In dollar terms, the decrease in SG&A came primarily from credit card fees falling by $3.8 million, professional fees by $1.5 million, rent by $0.7 million, utilities by $0.7 million, and other overhead costs by $2.7 million, partially offset by a $0.5 million increase in payroll and a $0.2 million increase in equity-based compensation. Rent went down by $0.7 million. That was driven by a $1.1 million decline in percentage rent, and it was partially offset by a $0.4 million rise in rent expense that came from adding 27 showrooms on a net basis. We figure the non-recurring incremental fees related to restating prior period financials were about $0.5 million in Q4. For the fourth quarter, advertising and marketing expenses were down $2.7 million, or 9.2%, landing at $26.8 million, compared with the same period a year earlier. In Q4, advertising and marketing expenses made up 11.1% of net sales, versus 11.8% of net sales in the prior year period. For the quarter, operating income came in at $47.6 million, compared with $40.4 million in last year's fourth quarter, thanks to the factors we just went over. Before turning to net income, net income per diluted share and adjusted EBITDA, please see the terminology and reconciliation between each of our adjusted metrics and their most directly comparable GAAP measurements in our earnings release, issued earlier this morning. Net income for the quarter was $35.3 million, or $2.13 per diluted share, versus $31 million, or $1.87 per diluted share, in the prior year period. During the fourth quarter, we recorded an income tax provision of $13 million, compared with $10.2 million in the prior year period. For the quarter, adjusted EBITDA came in at $53.9 million, up from $48.4 million during the same period a year earlier. Now looking at our balance sheet — we ended the fourth quarter in a very strong position, which gives Lovesac plenty of room to handle macroeconomic uncertainty, speed up growth, and/or improve returns on capital, with everything aimed at maximizing long-term value creation for shareholders. Cash and cash equivalents totaled $83.7 million, about the same as last year, and we still have $33 million in committed availability along with zero borrowings under our recently amended credit facility. We reached this solid cash position even with two factors that demonstrate our flexibility. To start, total merchandise inventory came to $124.3 million, a 26% increase over the prior year. Because we're sitting on a solid amount of cash, we spotted a chance to stockpile inventory as a buffer throughout our lineup of products, which would give us more flexibility if tariffs throw us a curveball or if other supply chain problems crop up. On top of that, during the quarter we repurchased approximately 646,000 shares of common stock. We paid an average of $25.51 per share, which came to roughly $16.5 million in total. With that, our buybacks for the fiscal year now add up to $19.9 million. Roughly $20.1 million remains accessible under the share repurchase authorization we have in place right now. We'll take an opportunistic stance — balancing how appealing the accretion looks when buying at current prices against the uncertainty that today's tariff landscape creates. Our earnings release has more details on the fourth quarter's financial results. Now let's discuss what lies ahead. This category has remained volatile from one month to the next, but overall it seems to have hovered in the negative mid-single-digit territory over the past five or six months on average. Potential tariff impacts add further uncertainty, and at this stage it's unrealistic to predict with confidence how international negotiations will conclude, or how rivals and shoppers will react. We anticipate much clearer visibility in merely two months, when first quarter earnings are reported. Right now, we are prudently basing our outlook on a 5% decline for the category across the full year, which is fairly similar to the recent trends I just mentioned. As Mary described, we have plenty of arrows in our quiver when it comes to handling tariff impact, over and above the roughly $10 million of tariff we had already factored into our full year outlook under the previous tariff regime. We are actively pursuing some mix of all those options available to us.

On top of that, a number of long-term tailwinds are working in our favor against the category backdrop, and they give us reasons for optimism: the annualization of fiscal '25, significant product introductions, an EverCouch rollout in 2Q, a fresh approach to marketing under new leadership, expansion of our physical showrooms, additional relationship management tools, and more. Let's begin with the fiscal first quarter, because we're expecting only a small effect from the recent tariff news; our net sales projection is $136 million to $142 million, which works out to mid-single-digit revenue growth at the midpoint; we anticipate an adjusted EBITDA loss of $8 million to $12 million. That figure assumes gross margins near 54.5%. Advertising and marketing at 13.5% of net sales, and SG&A at roughly 50% of net sales; our net loss estimate falls between $10 million and $13 million; basic loss per common share is projected at $0.66 to $0.85, based on $14.8 million weighted average shares outstanding. Turning to the full year of fiscal '26, keep in mind that these figures leave out any incremental effect from recent tariff changes, beyond what existed under the prior tariff regime; our net sales estimate is $700 million to $750 million. Adjusted EBITDA should land between $48 million and $60 million. That assumes gross margins near 59%, advertising and marketing at roughly 12.5% of net sales, and SG&A at roughly 41% of net sales. Net income is projected between $13 million and $22 million. Diluted income per common share is estimated at $0.80 to $1.36, with about $16.3 million diluted weighted average shares outstanding; to sum up, the category should stabilize and eventually return to growth, though the timing remains uncertain right now. While we're in this category fog, we're weighing prudence against efficiency, believing it's vital to keep our eyes on the big picture. That means the enormous long-term opportunity to create tremendous value for every Lovesac stakeholder. We're growing the Lovesac brand and putting money into new product innovation across style, function, and new categories, which underpins a strong multiyear secular growth outlook, with macro upside as a bonus. I'll hand the call back to the operator now so we can begin the Q&A.

Thank you. Good morning, and I appreciate you fielding my questions. To start with, obviously the circumstances remain quite unpredictable, but could you perhaps provide some insight into the way you're approaching your inventory planning right now, in light of the 90-day postponement of tariffs? I realize you increased your inventory levels toward the end of the quarter, but what portion of inventory do you intend to move up, perhaps from nations other than China, across the coming couple of months?

Hello, good morning. I appreciate that question. Certainly, as you know, we had accumulated stock throughout our sector for every one of our product lines. As a result, we feel quite confident about where we stand. Our teams are hard at work at this moment, and have been since last week < > nations, and I believe a significant benefit of our supply chain is that we possess complete redundancy across every product we make. So they're sorting that out, and we're confident regarding how the plans look; and clearly, following yesterday's developments, we are really concentrating our efforts on the primary nations we procure from, such as Malaysia and Vietnam, to make certain we keep shipping stock. Our inventory levels are excellent, though naturally we're also handling the challenges that emerged only recently, starting last week.

Understood. That's quite useful, Mary. Then second, could you tell us anything about how shoppers have been acting lately, perhaps during February and even more so in March? With all the macroeconomic figures we've been receiving, are you noticing any possible pullback in what consumers are spending in the short term, I suppose?

Yeah. No, thanks < > regarding the outlook, we're feeling positive about how the quarter has gone so far, with a robust February that has carried on right up to now. So what we're seeing is fairly steady results from our shoppers, whether that's unit volume or whether they're moving up to pricier items. Things have seemed a touch slower in the gaps between major promotions, then picking up more during special events. And clearly, we keep witnessing the quote conversion improvement we achieved across quarter four; so it's too soon to tell when it comes to even a few of the fresher headlines and whatever shifts might follow, but honestly there's nothing that's different worth flagging, Maria.

That's helpful, thank you very much for the color.

Hi guys, good morning. I just wanted to check whether you could confirm something for me — it seems like the midpoint of the Q1 range may bake in an assumption of positive omnichannel comps. So I was hoping Keith might be able to unpack that. And then on a quarter-to-date basis, it sounded like, Mary, you described February as strong, but I believe that came up against a fairly easy comparison from last year; so perhaps you could discuss the trends you observed moving into March and April; and finally, if you could speak to, well. I know it's really early and we don't have much data yet, but did you notice any way consumers responded to the Liberation Day announcements based on what the trends looked like over the past week?

Absolutely, thanks. I'll take the first two parts of that question, Matt, and then pass things along to Mary. When you look at how things have been going lately, it's quite evident that growth has been coming in at 500 to 600 basis points from the non-new and non-comp categories. The one thing that stands out as somewhat different is in fiscal '25. In the prior year, our schedule for opening new showrooms was concentrated heavily in Q1. Looking ahead across the year, our approach will be somewhat more even, carrying less emphasis in the first quarter. That means we could come in a touch under the five to six percent figure that comes from new and non-comp. As for the rate of growth we're using for Q1, a forecast of flat to modestly up strikes me as entirely plausible, and where you fall inside that band will determine the exact outcome. There's something I want to touch on briefly — regarding this quarter and how things have gone so far, which is what creates some of the messiness here, and the reason I'd strongly encourage everyone to look at the quarter as a whole. If you remember, during the opening month of fiscal '25, we ran into some ups and downs tied to a promotional strategy that missed the mark, along with disruptions caused by changing media agencies. As a result, our year-over-year growth figures for that first month carry a lot of distortion; and then months two and three carry their own distortion, since for us Easter shifted out of month three and into month two. When we consider all those factors together, we feel quite positive about reaching the growth rates we've outlined for Q1. I hope this provides some useful background.

Right. And Matt, to piggyback on what you asked earlier, I believe Keith already went over where we stand quarter-to-date. As far as how consumers are responding, the week before this one was on the slower side for us. So honestly, we have to wait until we move toward the Easter event and wrap up the quarter before we can really pick up on anything additional. That said, we have definitely not observed anything resembling a meaningful shift. So we are eager for Easter and for finishing out the quarter.

All right, that's helpful. Next, I was hoping to get a sense of how we ought to frame pricing given what's happening with tariffs. Should those remain in place once the 90 days are up, how should we gauge Lovesac's capacity to raise prices? What shape would that take — would it be an uptick on list prices? And should we anticipate the same consistent promotional rhythm you've maintained? I just wanted to hear your most recent thinking on how you offset certain tariff exposures, apart from simply shifting where you source from vendors.

Yes, no, thanks for asking. Clearly, the team is putting in a great deal of effort around concessions, since that's a crucial lever that can genuinely assist us in cushioning a portion of the hit. Then there's the second element — as Keith mentioned, our gross margins are structurally greater than those of numerous rivals, which genuinely means the targeted, precise price hikes we'd have to implement end up being significantly smaller. As we continue working through this, we raised prices once before back in '23, and that went quite well, with no effect on demand. So we're actively developing scenarios; we have to wait and see how things ultimately land, since the situation shifts daily; but we have solid strategies for those precise adjustments we're able to make, in the mid single-digit range. What's also notable is that we monitor competitor pricing within the category, and we observed a number of rivals raising MSRP prices somewhere between 5% and 10% during February and the early part of March alone. That was clearly done long before the most recent tariff hike news emerged last week. So we perceive an opening, given they've already moved up, for us to pull this off successfully, without hurting demand and while remaining highly committed to delivering value to our customers. One more thing, Matt — as we've told you previously, close to 40% of our buyers never even comparison shop us against anyone else. So we'll monitor this closely and treat it seriously, though we clearly must wait for the complete picture of the effects to be settled before we take any action.

All right. Thanks for that. I'll hand things over, everyone. Appreciate it.

Awesome. I appreciate you fielding my questions. I've got one about tariffs and another that isn't about tariffs. And yes, I realize finding something not related to tariffs was a challenge. Okay, so from what I understand, 13% of what you source comes from China, and your goal is to get that figure under 10%, should you choose to. How fast could you shift all of it away from China?

Shawn has his mic muted.

Yeah, I'll take this one — let me jump in. I'm actually in China at the moment. I'm taking this call from China, and with the team, we're actively shifting a lot of production out of here in real time. It's genuinely exciting. I think what sets Lovesac apart from many others — and honestly from all of our main competitors — is that while every serious furniture company, I believe, runs operations across all those geographies in the East, Lovesac runs with redundancy. That means there are virtually no critical products that come only from China. And we can shift production, relying more heavily on those other geographies where we've already seen some abatement. We see a route to getting below 10% this year, and that's exactly what we're doing right now. So in the end, it will likely push us entirely out of China, and that's fine too. So we're excited about the progress we're making. It's happening so quickly — in days, really — and it's already underway. And naturally, our Q1 is fully spoken for on the inventory side. So what we're discussing is a very limited batch of inventory that will even impact this year, when it comes to the biggest tariffs so far. Yeah, so we feel really good about where we stand.

Thanks, Shawn. I appreciate it. Okay, now to my question that isn't about tariffs. When we consider what might spark sales of home goods like furniture, how are investors supposed to weigh the possibility that cheaper borrowing costs open up the housing market, leading more people to relocate? Of course this is a shifting situation, but one bright spot amid the market chaos is that borrowing costs have sometimes come down. We've seen reports of big jumps in mortgage applications. There appears to be substantial delayed demand to move, which cheaper rates could release. I'd really like to hear what you think.