The Lovesac Company (LOVE) Earnings Call Transcript & Summary

Thanks. Morning, everybody. Joining me are Shawn Nelson, our Chief Executive Officer; Mary Fox, President; and Keith Siegner, Chief Financial Officer. Prior to beginning, I want to note that certain information we'll discuss contains forward-looking statements about upcoming events and how our finances will perform going forward. That covers statements concerning our expectations ahead, financial projections, plus our plans and prospects. Results in reality could vary materially from what those statements set forth. To review these risks and uncertainties, please look at the company's filings with the SEC, among them today's press release. Our forward-looking statements shouldn't be relied upon as predictions of events yet to come. Each forward-looking statement made during this call rests on assumptions and beliefs held as of today, and no obligation is undertaken by us to update them unless applicable law requires it. Non-GAAP financial measures, EBITDA and adjusted EBITDA included, will also come up today; these non-GAAP measures ought to be viewed alongside our GAAP results, not as a replacement for them or taken in isolation from them. A reconciliation between the most directly comparable GAAP financial measure and 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 this morning. To kick things off, I'll give you a big-picture look at how we performed in Q1, then bring you up to speed on the design-for-life platforms we offer, and share our thinking about the rest of the year. After that, I'll hand things over to Mary Fox, our President. Mary will walk you through the tailored customer acquisition engines we've built and the key growth enablers. Then Keith Siegner, our CFO, will take you through the financials and give more color on what we expect for Q2 and FY2026. Now, on to the first quarter. Broadly speaking, we're happy to have posted results that matched what we anticipated and that align with our strategy of seizing secular initiatives and getting back to growth. In Q1, total net sales came in at $138.4 million, up 4.3% versus the prior-year period. Those numbers show market share gains even as this category keeps facing headwinds, which we figure shrank 5% during the comparable period. Total omnichannel comparable net sales rose 2.8% in the quarter, with more growth contributed by new and non-comp touchpoints. Importantly, what our results show is not just top-line growth but SG&A leverage too, since the benefits of earlier investments meant to strengthen core capabilities and speed up our product innovation cadence are now starting to pay off. Consequently, adjusted EBITDA, net loss, and net loss per common share each saw double-digit percentage improvement year over year. Our balance sheet is still quite strong as well, with inventory levels and net cash giving us plenty of flexibility to ride out tariff distractions, speed up growth, and improve returns on capital. Now, the exciting part: innovation across our design-for-life product platforms. First, having had a reclining seat on the market for a full quarter, we can report that it's been a massive success. With the Recline of Civilization marketing campaign launching mid-quarter behind it, we've observed gains in new customer attachment along with healthy units per transaction, and all of this happened while the strong repeat customer purchases we mentioned last quarter held up. Our customers adore the recliner and view it as offering tremendous value next to what competitors sell, which makes us optimistic about continued meaningful contributions for many years ahead. Second, the EverCouch, our first new product platform in more than a decade; this elegant and sophisticated entry into the armchair, loveseat, and sofa category effectively doubles Lovesac's total addressable market. EverCouch is a true design-for-life product platform built to the highest standards from the best materials. In our view, it is the best couch on the market, period. EverCouch offers a solution for customers whose needs differ from those of a Sactionals customer, putting less emphasis on modularity but focusing more on style, comfort, maintainability, and ease of use. Because of this engineering, it carries a lower price point. EverCouch is beautiful, featuring washable covers, exchangeable arm styles, rapid shipping capabilities, and easy assembly with no tools, of course. What's even better is that it draws on Lovesac's established brand equity in couches and comfort seating. Following a six-week test-and-learn effort in suburban Boston, we formally introduced EverCouch on lovesac.com and across 27 showrooms on May 7th. The early response has been quite encouraging, and our showroom staff are thrilled. We haven't yet activated the marketing machine, because we're still honing the sales training based on what we've learned, and we're also building up inventory to back a wider sales push. It is selling, and we take pride in this new invention from Lovesac. Marketing, growth into more showrooms, and possibly selective use of partner channels are all underway to boost awareness and appreciation for this exciting new platform from Lovesac. Although our tendency is to concentrate on the bigger product launches, rest assured that we anticipate ongoing, incremental improvements to existing products as well. For instance, when we hit the one-year mark for the launch of our enormously successful PillowSac chair in May, we introduced new wood frame colors, among them a darker brown and a stunning black; those additions stemmed from consumer insights and data gathered from our current and potential customers. It's a textbook illustration of how we allow research and data to guide our innovation so we raise our odds of success. There's a great deal more coming in that vein this year and continuously. Finally, we're making outstanding progress on our additional product platforms slated to launch over the years ahead, among them new rooms of the house starting in fiscal 2027, which, by the way, is calendar 2026. Widening our addressable markets and widening our brand. This ought to strengthen the relationship we share with our customers and fuel expansion of our business and value creation. We're not quite ready to reveal all the details yet, but stay tuned. Believe me, we're working on some genuinely exciting things; we receive many questions regarding the consumer, including monthly or even weekly trends, in an attempt to gain some insight into a fundamental shift in trend. Only two months have passed since our prior earnings call, and frankly, it's too soon to make a definitive call about any change in trend from the data we're seeing today. The category improved somewhat in March, softened somewhat in April, and the quarter wrapped up right in line with the average trend since the fall, which is down mid-single digits. That stays our baseline planning for the time being, but we'll update you once matters grow clearer. What I can tell you is that we stay focused on what we can control. As I mentioned earlier, we intend to use our secular growth initiatives to generate growth here at Lovesac; we grew in the fiscal first quarter, and as Keith will explain later, we project growth for the fiscal second quarter and for the full year, even without the category supporting us. On the tariff front, we're taking active steps to reduce what could be a hit, and we think every tool we have available can be used to keep that impact in check. Mary's going to share specifics shortly, though because of our distinctive approach — high product margins, redundancy across geographies, and solid ties with vendors — we're confident the effect can be absorbed inside the full-year guidance we already have, assuming no fresh wildcard situations arise. To wrap up, we're dedicated to hitting our goals, drawing on Lovesac's creative offerings, robust connections with customers, and operational strength to expand no matter what the category does in the near term, all while keeping long-term thinking and value creation clear. Let me be clear. Once the replacement cycle for comfort seating picks up speed and housing turnover begins accelerating again, we'll be positioned to seize that moment right away. We're delighted that Heidi Cooley, our new Chief Marketing Officer, has joined us. Heidi is already collaborating closely with our teams, crafting plans that back our ambition of becoming the most loved home brand in America by 2030, while at the same time generating profitable sales growth. We can't wait to share more down the road. Last, I have to thank the whole Lovesac family for how adaptable and creative they are, and for their dedication to this mission. Bringing new product platforms to market demands additional work from each and every team member, from our touchpoints all the way to HQ, and that's on top of dealing with tariff uncertainty and a tough category, to put it mildly. Each of you matters. You're transforming the home category with products built for life, and in doing so, building long-term value for every stakeholder; with that, I'll pass things to Mary, who will go over our strategic priorities and progress in greater depth. Mary?

Thank you, Shawn, and good morning to all of you. I'm going to turn now to our second superpower — the customer acquisition engines we've built to fit each of our design-for-life platforms precisely — along with our growth enablers, one of which is our advantage supply chain. Starting with those acquisition engines: what makes this a superpower is how we blend varying amounts of brand and performance marketing, digital configuration via lovesac.com, outstanding showroom experiences, and productive partnerships so that each product platform gets the optimal treatment. When we get this right, we can create awareness among customers efficiently, turn that awareness into actual customers, and in time establish lasting relationships and brand love. Rather than jumping straight into each piece, I want to begin by calling out quarter one's growth as an illustration of what Lovesac gains from having such a distinctive array of acquisition engine choices. It was gratifying to see the business return to growth across quarter one, with notably strong quote conversion in our showrooms. Deliberately, we chose to push marginally harder into showrooms while accepting a bit less from our internet business, and there were two reasons for that. One, we drew on how well our product demos perform to build appreciation for new innovations like the recliner. Two, much as we did at the close of quarter four, we countered competitors' aggressive discounting thanks to personalized offers that remained highly relevant and effective; we keep honing the mix, allowing data to steer us toward peak performance. With that context set, let's take a few moments on each piece, beginning with brand and performance marketing. As Shawn mentioned, we're seeing enormous momentum behind one of our latest innovations, the reclining seat, backed in quarter one by a Recline of Civilization campaign; the idea was to build it social-first, using influencers and content creators to spark a cultural moment that would multiply new customer awareness, and it delivered. That campaign produced 5 billion earned impressions along with more than 600% growth in engagement across every digital channel and nearly 700 PR articles. During quarter one, we also rebalanced our marketing spending, boosting the top-of-funnel awareness effort, particularly via search and social media, so it sat in proper balance with mid and lower-funnel conversion tactics. That delivered too, driving a solid 25% lift in website traffic as customers begin discovering what we offer — an investment we expect to pay off over time as that awareness matures. We'll keep testing and learning across the funnel, especially around new awareness tactics, while we stay focused on building the Lovesac brand and bringing new innovations to market. Carrying forward quarter one's momentum with new customers, in quarter two we rolled out our newest television commercial, which shows our Recliner in action. Keep an eye out for additional cultural moments like this in the months ahead for PillowSac Accent Chair Frame, StealthTech, and our recently introduced platform, EverCouch, among others. CTV remains a powerful tool we intend to refine throughout the year, as gains in linear TV help counterbalance a portion of the rising costs in search. Next is our digital setup and the way we present Lovesac online. As we keep putting resources into enhancing the digital experience — both through technology and by making the customer journey better — we're realizing returns across every stage of our flywheel. Moving to Adobe Edge has boosted our SEO, drawing qualified traffic to the site and letting us redirect marketing dollars toward organic search visits, which climbed nearly 40% compared with a year earlier in quarter one. MyHub, our customer re-engagement center, is steadily getting better, with the constant aim of delivering a seamless omnichannel experience for both new and returning purchases. During quarter one, repeat purchases rose more than 20% versus last year, while over 40% more customers logged into their accounts. Maybe even more significantly, these platform upgrades let us roll out new products and platforms successfully. I'm not talking just about what's underneath, but what customers actually see. EverCouch sparked the redesigned homepage and the refreshed site navigation. Starting in May, shoppers can find the categories and particular items they want faster and more naturally, with clear separation among sectionals, couches, and chairs. Initial signals point to a more involved customer converting at a better rate alongside enhanced satisfaction overall. We'll gain further insight as we increase spending on customer acquisition efforts during this year, such as the official launch of our EverCouch marketing campaign in the latter half of this year. Third comes our showroom experience — the in-person brand magnifiers for our design-for-life products, the cornerstone of our omnichannel approach, with product platforms readily available in real life. Only a few weeks back, we updated our product demo to fit the EverCouch; this ongoing refinement of our signature selling process lets customers feel every feature and benefit of our product platforms and fuels the conversion gains I mentioned earlier. Shawn and I devote considerable time in the field hearing from our teams, and we recently were together in the field adjusting the demo to fold in all the valuable feedback from our soft launch. Although every showroom can already sell EverCouch, we intend to expand physical inclusion of an EverCouch product to roughly 100 showrooms later this summer, enabling every major DMA to display this platform. I'd also like to call attention to a recently introduced change to our performance-based compensation model for field teams, which now includes a mix of individualized metrics alongside the company-wide metrics we've long used. We're already seeing positive results in quarter one, and it was simply wonderful to witness how driven our teams are to grow their business and the brand's potential. Last, rounding out our showrooms is our partnership model, which includes Costco and Best Buy. We just wrapped up an in-depth strategic planning assessment where we looked at ways to optimize the options for our customer acquisition engine. As a result of that assessment, we decided to bring our Best Buy partnership to a close after 5 successful years working together. Back when this partnership started in 2020, Lovesac had fewer than 100 showrooms nationwide, and Best Buy assisted us in rapidly growing our distribution points and building credibility in home audio and tech, while we simultaneously helped strengthen their leadership position in tech-enabled product categories. Now, 5 years later, our showroom count has tripled, giving our existing and future customers convenient access to experience Lovesac and Stealth Tech. We have tremendous confidence in our capacity to deliver an outstanding customer experience and generate more profitable growth through our own digital and showroom ecosystem, along with our Costco partnership; alongside this decision, we estimate we will book a non-recurring charge of roughly $2 million in Q2, partially offset by better profitability in the back half. As for Costco, it accounts for the substantial portion of our partnership model. Given Costco's over 120 million members and robust traffic, our roadshow model lets us set up pop-ups within its clubs while retaining 100% ownership of the customer data and relationship.

Our partnership with Costco will keep growing our product selection throughout this year, and we're aiming for a 15% bump in roadshows compared to the prior year, which showcases even more how uniquely capable we are of moving premium goods in roughly 100 sq ft. Taken together, these four components of our customer acquisition engines deliver a customer experience without equal, fueling brand love; we'll deepen that brand experience and customer satisfaction even more by rolling out services that face customers directly. We're thrilled to announce that Love to buy Lovesac, our brand-new resale platform, has officially gone live in Texas. That inaugural state debut represents a major milestone in our enduring dedication to sustainability, to circularity, and to innovation within home furnishings. Through granting pre-owned items a second life, we're doing more than cutting waste; we're strengthening our pledge to craft goods that are built to last, designed to evolve and be loved again. This also serves as an essential basis for us to introduce trade-in services, which we intend to launch later this year, which will help unlock both trade-in and trade-up for our new and loyal customers. This marks a meaningful milestone in our path toward a more responsible and resilient future for Lovesac. Central to our ability to sustain all of this profitable growth over the long term are our growth enablers. Let me just touch briefly on our supply chain, an essential element of our financial success and one constructed for scalability ahead of new product and platform introductions. Across the last several years, we've overhauled our network strategy and carrier models, such as deploying both transportation and order management systems. We're now well along in our efforts to optimize our warehouse and outbound logistics programs, in line with what we've shared previously. On tariffs, as we noted back in April, we possess four key levers to help reduce our exposure, and we've achieved meaningful progress on each one. The first centers on collaborating with our long-term vendors for concessions, and we've gotten backing from every key vendor. The second involves the effort to diversify manufacturing further away from China; we remain on track to be about 13% for the full fiscal year, with an exit rate substantially lower than that. Third, because of the strength of our brand and the reality that our last price increase was a narrow one in 2023, we carried out some surgical and strategic price increases last month and are pleased with how things have performed since being implemented; we feel very good about our value proposition, since many other brands have taken multiple increases in the past two years. The final initiative was examining other cost efficiencies, and the teams have kept pushing this work forward. Right now we're leveraging all of these levers to varying degrees, with flexibility to refine them further depending on the final outcomes of tariff implementations. Along with the flexibility gained by building higher than normal inventory ahead of this potential, we believe that our four-pronged approach should mitigate the majority of the current tariff pressure. Having said that, I'll now pass things over to Keith so he can go over additional details regarding how we performed financially and what we expect going forward. Keith.

Appreciate that, Mary. We'll dive straight into a brief look at the first quarter, then move on to what we expect for the remainder of fiscal 2026. Before getting into the performance metrics, keep in mind that whenever I mention the first quarter, I'm talking about fiscal 2026 unless I say otherwise. Net sales rose $5.8 million, which is 4.3%, reaching $138.4 million in Q1 versus the same period a year earlier. Showroom net sales climbed $14.9 million, or 18.2%, hitting $96.5 million in Q1 compared with the prior year period, fueled by a 2.8% gain in omnichannel comparable net sales along with the net addition of 21 new showrooms. On the internet side, net sales came in at $33.3 million for Q1, down $3.3 million, or 8.9%, from the same period a year earlier. Other net sales — that includes pop-up shops, shop-in-shop, and open box inventory activity — reached $8.6 million in Q1, a drop of $5.8 million, or 40.5%, versus last year's comparable period. The main driver of that decrease was a decision by the company not to enter into any barter transactions during the current period. Turning to product categories for Q1, Sactionals net sales were up 4.5%, Sacs net sales rose 6.4%, and other net sales, a category that covers decorative pillows, blankets, and accessories, declined 17.1% compared with the prior year period. During the first quarter of fiscal 2026, gross margin declined 60 basis points, landing at 53.7% of net sales, versus 54.3% in the same period last year. The main driver was a 230-basis-point fall in product margin tied to more aggressive promotional markdowns, though that was partially offset by a 130-basis-point reduction in inbound transportation costs along with a 40-basis-point decrease in outbound transportation and warehousing costs. SG&A expenses represented 48.5% of net sales in Q1 of fiscal 2026, versus 51.6% a year ago. The improvement in that percentage is primarily attributable to lower professional fees, credit card fees, computer expense, and other overhead costs, as well as increased net sales. Most of the decline in SG&A dollars came from lower professional fees and insurance matters, which fell $3.8 million, along with a $0.9 million drop in credit card fees, a $0.7 million decrease in computer expense, and $0.3 million less in other overhead costs. Those reductions were partly offset by increases in payroll of $2.2 million, equity-based compensation of $1.3 million, and rent of $0.9 million. The rent increase was driven by a $1 million rise in rent expense from the net addition of 21 showrooms, partially offset by a $0.1 million decrease in percentage rent. We estimate that non-recurring incremental fees related to the restatement of prior period financials totaled about $0.6 million in Q1. Advertising and marketing expenses rose $0.6 million, or 3.3%, to $18.6 million for Q1 versus the prior year period. Advertising and marketing expenses stayed relatively flat at 13.4% of net sales in Q1 compared with 13.6% of net sales in the prior year period. For the quarter, our operating loss came in at $15 million, versus $17.9 million in last year's first quarter, and that was due to the items we already walked through. Before we get into net loss, net loss per common share, and adjusted EBITDA, please take a moment to review the terminology and the reconciliation between each adjusted metric and its most directly comparable GAAP measure, all of which are included in the earnings release issued earlier today. For the quarter, net loss came to $10.8 million, or negative $0.73 per common share, compared with a net loss of $13 million, or negative $0.83 per common share, in the same period a year ago. During the first quarter, we recognized an income tax benefit of $3.8 million, versus $4.2 million in the prior year period. For the quarter, our adjusted EBITDA loss came to $8.4 million, compared with a loss of $10.3 million during the same period a year earlier. Turning now to the balance sheet: we ended the first quarter in a healthy position, which provides Lovesac with considerable flexibility to put money into growth and, in doing so, boost long-term value creation for shareholders. Cash and cash equivalents came in at $26.9 million, and we maintained $36 million in committed availability, with nothing drawn on the credit facility we recently amended. First, total merchandise inventory levels are in line with what we projected, even though they sit a bit above where they need to be because of the deliberate build we undertook ahead of tariff uncertainty. We anticipate beginning to reduce surplus inventory in Q2, and we estimate that will help counterbalance the working capital needs tied to building EverCouch stock levels across the back half of the fiscal year. Regarding our inventory, we're quite pleased with how much we have and how good it is, and we're confident in our capacity to keep in-stock positions and delivery times at an industry-leading standard. Also, in line with how we approach deploying spare capital when opportunities arise—prioritizing long-term value creation and better returns on capital—we bought back roughly 306,000 shares of common stock during the quarter, paying an average of $19.57 per share for a total of about $6 million; after that, about $14.1 million stays available under the share repurchase authorization we already have. Check out our earnings press release for additional information about how we did financially in the first quarter. Turning now to what we expect going forward. Shawn noted earlier that although things shift from week to week and month to month—March was stronger while April came in softer—the broader category patterns have largely been settling back to a roughly negative mid-single-digit range when you average them across the past seven or eight months. Because of that, we're being cautious and keeping both our projection and our strategy unchanged, which assumes the category will shrink by 5% over the entire year. On top of that, a number of long-term favorable forces are working in our favor to offset that category forecast and give us reasons to feel encouraged. The factors at play include turning partial-year figures into full-year ones, the big product introductions planned for fiscal 2025, the recent debut of EverCouch, a fresh take on our marketing approach brought about by new leadership, expansion in our brick-and-mortar showroom footprint, additional relationship management resources, and so on. Looking ahead to the entirety of fiscal 2026, our guidance stands as previously stated. First off, as Mary walked through, we have a lot of levers at our disposal for managing tariff impacts. Right now we're pursuing some combination of all 4 options she outlined, and we feel confident that tariff-related effects can be kept within the ranges we've given for the full year. With that said, how much of each mitigation approach we actually use will hinge on the final, specific tariffs that get put in place. When you consider the full-year guidance, net sales could carry an upward bias while gross margin could carry a downward bias, landing us at the same adjusted EBITDA, net income, and diluted EPS figures, once again, subject to what ultimately happens with tariffs. Also keep in mind that our guidance for both the full year and the second quarter reflects the write-off tied to the conclusion of our relationship with Best Buy, which we presently peg at roughly $2 million pre-tax. That non-recurring, one-time charge pushes SG&A higher and brings net income and EPS lower, yet it has no effect on adjusted EBITDA in our guidance because of its non-recurring character. To be specific about the full year, we project net sales between $700 million and $750 million. We anticipate adjusted EBITDA in the $48 million to $60 million range. That figure assumes gross margins near 59%, advertising and marketing at about 12.5% of net sales, and SG&A at roughly 41% of net sales; we project net income in the $13 million to $22 million range. For diluted earnings per common share, our estimate falls in the range of $0.80 to $1.36, and we expect diluted weighted average shares outstanding of about $16.3 million. Now looking at the fiscal second quarter: net sales should land somewhere between $157 million and $166 million. At the midpoint, that works out to low single-digit revenue growth, and it accounts completely for everything we've planned near term around tariff mitigation. For adjusted EBITDA, we're expecting a loss somewhere in the $2 million to $7 million band. Embedded in that are gross margins near 55%-56%, advertising and marketing spending equal to roughly 15% of net sales, and SG&A running at about 47% of net sales. Our net loss projection is somewhere between $8 million and $12 million. Our estimate for basic loss per common share falls in the range of $0.58 to $0.83, assuming 14.6 million weighted average shares outstanding. To wrap up, the category still needs to stabilize and, at some point, get back to growing, though when that happens isn't clear at the moment. As we navigate this fog in the category, we're balancing caution and cost discipline against our belief that focusing on the big picture matters greatly. That big picture means a huge opportunity over the long term to create tremendous value for all Lovesac stakeholders. We're expanding the Lovesac brand and directing capital toward fresh product innovation that covers aesthetics, utility, and additional categories, which supports a robust multi-year secular growth outlook—and any macroeconomic tailwinds would just be a bonus. With that said, I'll turn it back to you, Operator.

All right, thank you. I'd like to ask about how promotions are shaping up. You mentioned that gross margins came in slightly below what was anticipated due to the promotional landscape. Could you describe what you're observing from your rivals? Please set me straight if I have this wrong, but my understanding is that during the first quarter, gross margin fell short of what was anticipated compared with the guidance provided three months ago, and yet the full-year gross margin outlook has stayed the same. What, I suppose, is improved or improves down the road in gross margin that allows you to stay on track? Thanks.

Hi, Mike. This is Mary. I'll handle the promotional environment portion first, then I'll let Keith speak further about gross margins. Much like what we told you in April, discount levels across the category remain extraordinarily elevated; they haven't retreated from their highest point, and compared with a year ago they're higher by no less than roughly 400 basis points. We're observing numerous competitors sitting in the neighborhood of 40%-45%. As we've consistently said previously, when our main promotions during those tentpole occasions carry a three at the front, we enjoy considerable success. The second point, which I also mentioned, is that we're becoming much more targeted with personalized promotions, which genuinely help us grasp what our customers are thinking about, what they want to accomplish, and steer them into the showrooms so they can experience a demo. That approach lets us truly showcase far more of our innovation and results in a fair amount of trade-off. Within the guidance, we've accounted for that sort of ongoing competitive situation when it comes to promotions. I'll pass it to Keith to cover gross margin in more detail.

Absolutely. Thanks. Mike, essentially it comes down to when each of those various levers that Mary and I discussed a few minutes back takes effect. Consider, for instance, how much we depend geographically on China, correct? It begins the year far higher than where it finishes, averaging out to 13%. Tariffs on China have existed for quite a while, so that element provides some offset. Vendor contributions are another one. We've been collaborating with them. The year began with zero from that, but once the tariff situation emerged, we've engaged with them on plans that unfold across the year. Pricing is yet another. As Mary noted, we've been putting in considerable effort, examining our relative pricing position in the market and how we might place ourselves in an appropriate spot where the value proposition we offer stays exceptionally strong and the value remains truly compelling for those customers. That unfolds over the year and possibly at higher levels depending on where those tariffs ultimately land. When we consider that entire plan, the costs tied to all of this arrive first, before the benefit comes, which sort of blends into the picture as the year progresses. A great deal sits behind this that accumulates toward it, but we feel quite good about that. Hopefully, that's somewhat clear.

Yes, it does. Thank you. That's clear to me. If I may pose another question, just in case, is there additional detail available regarding EverCouch, which has been available in stores for five weeks now? I believe you described the feedback as extremely favorable, but I'd like to know whether you can provide any information about sales or anything unexpected regarding what customers are saying about that item.

Yes. Thanks. This is Shawn speaking. Commenting extensively on sales is premature, except to say that we are extremely happy with it and our internal targets are being surpassed. Our confidence in this product is very high. Given that only a handful of weeks have passed and it is clearly in something of a trial period, with just a small number of showrooms carrying it physically, the key point is that this represents an entirely new platform launch. I realize this may sound odd for a business somewhat renowned for couches. In manufacturing terms, until now we have actually offered only sectionals. And to have this sofa, loveseat, chair solution, which functions quite differently from sectionals—a product we have, naturally, been offering for two decades—arrive with no quality problems whatsoever and no worries regarding construction or design. That matters because this is a platform we will be selling against for the coming two decades, in the way we do things at Lovesac. Sharing much detail is premature beyond saying it has been well received; it is definitely selling right now. It now forms part of our product mix. It will remain so for quite some time. We are very enthusiastic about how it alters the profile of what our showrooms offer. By that I mean, when we conduct our own research—since, as you're aware, we are an organization led by research rather than led by merchandising—style and comfort are the essential requirements for comfort seating. Sectionals are excellent, yet clearly have constraints regarding what is provided to the customer in a style profile. EverCouch transforms that dramatically, and we are very happy with the outcome. There will be considerably more data to share on the upcoming call, I'm certain.

Excellent. That's reasonable. Thanks a lot. Appreciate it.

Excellent. Hello, and I appreciate you answering my questions. To begin, might you elaborate a bit on why you chose to end the arrangement with Best Buy? Does this suggest you'll lean more heavily on Costco to expand your footprint beyond your showrooms? And perhaps in a wider sense, could you discuss your overall strategy for distribution alliances at this point, given that you now have a considerably larger physical footprint?

Sure. I'll kick things off, and Mary will add her thoughts too. We're genuinely thrilled about fresh possibilities for fresh channels at Lovesac. As our product range grows, those possibilities are more within reach for us than they've ever been. We're actively pursuing partnerships. This is a truly thrilling period. The EverCouch in particular creates possibilities for us because of its logistical ease compared to Sactionals in numerous ways, even extending to matters like POS factors, delivery factors, and so on; we're also truly eager to keep growing the Costco connection via both additional products and additional selling chances. The coming year and afterward will be a period of experimentation, learning, and significant diversification—not only in terms of products, but in terms of channels for Lovesac. In the meantime, we're truly thankful for the Best Buy arrangement we recently concluded, and it was an excellent means for us to gain visibility when we had extremely few showrooms; it provided a swift route to additional touchpoints and was particularly crucial for introducing the Stealth Tech product in a manner that truly earned Lovesac substantial credibility within the home audio sector. Stealth Tech remains a cornerstone of what we sell and will grow even more vital as we expand into additional categories and additional rooms, as we've talked about. We believe we extracted all we required from that arrangement. Simultaneously, we maintain an excellent connection with Best Buy and its team. In fact, throughout our lengthy history, this marks our second time moving in and out of Best Buy during periods that benefited both brands. Existence is lengthy, and Lovesac is intended to endure for many decades, and we're eager to keep fostering alliances out there when they prove beneficial to the brand and our approach.

Yes, Maria — I'd like to jump in on that. Our plan is extremely well-defined and precise, I believe. Considering all the work we put into the analysis, if you look back to five years ago, when we had 91 showrooms, and now we've tripled that figure, it was simply a very obvious opening for us. Of the Best Buy locations, 80% sit inside a 25-mile radius of our showrooms, and we'll keep growing the showroom footprint, as we examined both at present and looking ahead. It was quite evident that in order for us to genuinely bring the brand to life — the new platform, clearly featuring EverCouch — going through our showrooms along with the Costco partnership was truly the optimal route for us, both when it comes to connecting with customers and from a profitability standpoint, since staffing and running showrooms at lower volumes is plainly costly. Our confidence is enormous. One major edge we hold, I'd say, is having all of our customer data, which lets us target anyone who has previously purchased Lovesac at Best Buy. That CRM engine will clearly be highly effective for us, plus local targeting to inform customers about the location of their closest showroom. And of course, the website, which keeps getting sharper and stronger — we walked through some of that earlier — simply makes that seamless omnichannel experience possible in such a terrific manner. I believe it's the confidence in our plan that truly made it obvious that now was the moment to make that call. Like Shawn mentioned, we're extremely thankful to Best Buy and feel quite positive about the path ahead, especially the Costco partnership. They visited us at the office only about a week ago, genuinely reviewing our future plans and really working together with us. I feel good about that.

Understood, that's quite useful. Thanks. Then, I'd like to ask about China tariffs and how the recent framework agreement between the U.S. and China affects the odds that you'll leave China entirely. If that's still on the table, what kind of timeline should we expect?

Yeah. Well, we've had a lengthy, notable partnership with our Asian manufacturers, especially those in China, naturally. The present tariff landscape there is clearly unsustainable. I believe I've read that this is, in fact, the intent behind the tariff circumstances there, at least for consumer brands such as ours. We feel fortunate that we've already diversified away from China; as far as we're concerned, we can envision a route in the very near term to basically produce nothing in China and shift our entire manufacturing operation out of the country. For the most part, we've already accomplished that in real time. We have complete redundancy across other Asian regions and are now increasingly shifting toward America. Our perspective isn't actually shaped by tariffs. At Lovesac, to remind anyone who follows us intermittently, our perspective is to produce nearer to the people who use the product. We aim to move resources across shorter distances, convert them into finished goods more sustainably, and send them back to customers across shorter distances. That vision drives us no matter what occurs with tariffs; we're on track to achieve precisely that. In fact, as we overhaul even our existing product line, which is occurring behind the scenes, and investigate manufacturing through the perspective I just described, we think we have a route to more production nearer to the consumer. At the same time, as I mentioned, we can fully exit China and remain very confident in our capacity to keep a continuous supply chain without interruptions or anything of that sort. In the immediate future, we still produce a handful of items there, purely in a transitional mode, but that's rapidly shrinking toward zero.

Understood. I really appreciate it, Shawn. Thanks as well, Mary.

Hello there. Good morning.

Morning to you.

Let's start with questions. First, I realize conditions are shifting constantly, but when you mention some early wins from these newly launched items, how much of that, I suppose you'd call it upside, is already reflected in the outlook for the rest of this fiscal year?

I'll take that one. What we're trying to do with our forecast during this, let's say, uncertain macroeconomic stretch, is avoid placing too heavy a burden on any single element through some overly bold presumption. As I mentioned during my prepared comments, plenty of factors are working in our favor. To be completely candid, we can reach the full year outlook even if the core products are essentially unchanged. Growth from the core products isn't truly necessary for us to arrive at those figures. Put another way, should the new products perform really well, we might even witness the core products declining. There are numerous paths to get where we need to go; that's a crucial part of how we're operating the company right now and keeping ourselves strong, keeping the company in good shape, surviving to compete another day. We're prepared to move the moment housing turnover speeds up again, the replacement cycle strengthens, everything Shawn mentioned. Our entire aim is to act as sensible, clear-eyed stewards of this company, preserving profitability, cash flow, strength, and growth, while still holding onto the upside for the macro as well. We're set for all of that. It's a well-balanced strategy. Lots of possible scenarios can bring us to the full year outlook across both existing and new products. If the macro improves, ideally all of us do even better.