The Lovesac Company (LOVE) Earnings Call Transcript & Summary

You may go ahead. Thanks, and good morning to all of you. Joining us on today's call are Sean Nelson, our Chief Executive Officer; Mary Fox, President; and Keith Signor, Chief Financial Officer. Before we begin... I want to point out that certain information we'll discuss contains forward-looking statements about upcoming events and how our finances will perform in the future. That covers statements regarding expectations for what lies ahead, financial projections, and our plans and prospects. Actual outcomes could differ materially from what those statements set forth. To review these risks and uncertainties, please look at the company's filings with the FCC, which include today's press release. Our forward-looking statements shouldn't be relied upon as predictions of future events. Every 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, including EBITDA and adjusted EBITDA. These non-GAAP measures ought to be considered in addition to and not as a substitute for, or in isolation from, our GAAP results. A reconciliation of the most directly comparable GAAP financial measure to such non-GAAP financial measure has been provided as supplemental financial information in our press release. Now I'd like to turn the call over to Sean Nelson, Chief Executive Officer of the Lovesac Company. Sean?.

Good morning, everyone, and thank you for joining us today. First, I'll briefly update you on our strategic roadmap. Next, I'll provide a summary of our first-quarter fiscal 2027 performance. Finally, I'll share some exciting developments about one of our strategic initiatives. Our president, Mary Fox, will then discuss our customer acquisition engines, operational initiatives, and key growth enablers. After that, our CFO, Keith Signer, will review the financial results in greater detail and provide more specifics on our outlook for the second fiscal quarter and the remainder of fiscal 2027. Before we get into the main details, I want to frame things around the bigger strategic picture. In my view, today's business climate increasingly favors brands that stand apart, that execute with discipline, that have product platforms with structural advantages, and that deliberately invest in lasting relationships with customers. Love Sack has devoted years to designing and putting that exact approach into practice. As I've said previously, we're transforming from a company driven by products into a lifestyle brand spanning multiple platforms and multiple rooms. We think this brand will grow into America's most loved home brand and, in time, one of the country's most popular. and the most loved brands. That's the idea our strategy and execution agenda are built around. We aren't attempting to win by offering limitless product ranges, rotating seasons, or chasing whatever's fashionable. What we're doing instead is creating platforms meant to last a long time, ones that grow alongside our customers through years and even decades. Items made to endure and engineered to change over time. For us, Designed for life isn't just a slogan — it functions as a core engineering tenet, the guiding idea behind our products. And more and more, it's turning into a wider emotional structure that shapes how people relate to the Love Sack brand. This is where context comes in. Static answers get offered to problems that keep shifting, yet that approach fails. What's the reason? It's straightforward. Lives change, homes change, families change — and that's precisely what our Design for Life ecosystem was created to address. In the coming four quarters, we'll be taking that philosophy into the marketplace. We'll start by upgrading what we offer for the living room, and then, in calendar 2027 — which is our fiscal 2028 — we intend to introduce a lineup of products suited to a different part of the home. What matters here is that our distinctive take on product philosophy is gaining traction in a segment that is still under pressure and heavily driven by promotions. In the first fiscal quarter, our teams met the challenge yet again, achieving gains in market share while producing financial results that matched our guidance. During the quarter, our sales slipped by roughly $0.2 million, or 0.1%, compared with the same stretch a year earlier. That happened while the furniture category itself was down 2.2%, and high-end furniture fell 5%. On the operational side, we keep getting encouraging evidence that the platform model is connecting with people. Our bigger configurations gained considerable traction, which tells us customers will move up to a higher price point when the value proposition makes sense. The reclining seat continues to outperform our expectations, and attachment rates remain steady—a recliner shows up in nearly one out of every three configurations. Snug, which had not yet reached its first birthday, keeps extending our footprint in comfort seating and living in tighter spaces, while upholding those same values—comfort, durability, maintainability, and flexibility—that people associate with Lovesac. For Snug, 80% of buyers had never purchased from Lovesac before. That supports our belief that we could widen our customer base while minimizing categorization. Just as significant: roughly 50% of Snug purchases come through e-commerce. That demonstrates we can create digital-first products capable of winning profitably in those channels. These aren't just scattered product wins; they're evidence that attachment across our design for life product platform is genuine, and that what we offer addresses real customer frustrations in ways ordinary furniture simply cannot. Along those lines, we're pleased to report that Love Sack climbed 2 spots on Furniture Today's top 100 retailers list—now the 17th largest furniture retailer nationwide. What thrills me most is that this happened with considerable greenfield opportunity still in front of us. During Q1, we needed that momentum while doing substantial foundational work on our wider brand evolution strategy; that effort sharpened product hierarchy, merchandising strategy, positioning architecture, customer segmentation, and the way all of it reaches consumers through our Here for Life marketing evolution, which is launching right now. Meanwhile, we keep investing in a modern marketing engine intended to supercharge brand consideration and lower our customer acquisition costs, which should drive faster demand generation and greater customer LTV. Mary will say more on that shortly. In the end, we think Love Sack's future isn't merely about moving more couches; it's about making the bond between our customers and our brand deeper—earning their loyalty and their love as we demonstrate that we can change just as their lives change. In parallel with that brand evolution effort, we've achieved major progress on a key structural initiative: shifting manufacturing onshore to the US. Although producing nearer to the customer had been a Lovesac ambition for a long time, the reality of an unpredictable tariff environment, freight swings, and wider geopolitical instability only underscored why a more regionalized, resilient, and flexible sourcing model matters. Yet it doesn't make economic sense to merely build the identical product the same basic way, only inside the U.S. That's precisely where LoveSec holds a differentiated edge. Our high volume core SKU architecture makes possible automation and manufacturing efficiency levels that traditional furniture competitors struggle to match at scale. Even with that base, we've reengineered these products entirely to maximize automation, boost manufacturability, and improve comfort and functionality. We're also updating parts of our IP portfolio, and through all of that we keep backward compatibility with each sectional we've ever sold; domestic production of satchel seats is still slated to kick off this summer. Down the road, we anticipate that this push will cut down on cost swings, speed up fulfillment, lessen our reliance on lengthy overseas freight cycles, and boost our capacity to provide the quick customer experiences we're recognized for. My view is that Lovesac heads into the rest of fiscal 2027 stronger and with greater strategic clarity; our identity is clear, our differentiation is clear, and the opportunities are clear to us. As we came into fiscal 2027, we had already demonstrated three key things. First, Love Sack remains vibrant, and people truly hold Design for Life items dear. Second, our system for bringing in buyers compounds itself whenever our Design for Life platforms expand. Third, the groundwork laid over the last few years — everything from revamping how we market, to our top-tier site and showroom footprint, to spreading out manufacturing sources and bringing information back onshore — these efforts hand us ever-greater room to maneuver through a fast-shifting landscape while continuing to invest in what lies ahead. We can't control where the economy goes, so our attention stays on creating a brand and a business that keeps winning substantial market share, expands categories all the way from the mailbox to the backyard fence, and strengthens relationships with customers over the long haul, regardless of what happens in the market near term. Being in this kind of powerful position feels great. Our balance sheet is strong, with a healthy cash position and zero debt. Our inventory sits lower and in a good spot, our strategic roadmap is clear, and an exceptional team is executing on it. A lot of what our product, marketing, and supply chain groups are working on should really start coming together toward the close of this year, and that makes us very confident about the plan and about what it will open up from here. Finally, I want to offer sincere thanks to our teams, associates, partners, shareholders, and everyone in the hashtag Love Sack family for the commitment, imagination, toughness, and enthusiasm they keep showing as we continue constructing what we think has the potential to be America's most beloved home brand.

With that, I'll hand it over to Mary. Thank you, Sean. Our initial superpower, Design for Life product platforms, continues to demonstrate increasing worth over time, because customers maintain them, adapt them, and advance them. That's the engine driving our financial model and our capacity for long-term value creation. LoveSac turns... first-time purchasers into enduring relationships, combining quick payback on customer acquisition costs with lifetime value growth through a blend of a powerful brand, unique product and platform innovation, and strong customer involvement. And importantly, this isn't merely hypothetical. Features along the lines of Reclining Seat do more than just drive interest from shoppers — they wake up the installed base too, which reinforces that loop linking fresh ideas, winning new buyers, and lasting growth in revenue from repeat customers. With more platforms and more rooms coming on line, we're confident our platform plus the acquisition engines powering it will let us keep lifting customer lifetime value as well as deliver substantial profitable expansion down the road. Turning to the first quarter: our teams deserve credit for navigating persistent uncertainty both in the category and in the broader macro backdrop, and for staying late in the day. Their attention remains fixed on the top priorities we set for fiscal 27 — igniting the core and building for scale — as we turbocharge the engines that bring in customers, fueling profitable growth while getting ready to enter a new room of the home within the next 12 months. Even though trends have held fairly steady since the fall, it's worth pausing to walk through a few specifics on what we're seeing in customer demand. Given that consumer sentiment sits at record lows, it comes as little surprise that softness persists in the transaction tier below 6,000. Conversely, add-ons that boost premium value, including LoveSoft storage and the reclining seat, have offset that weakness; moreover, transactions above $6,000 have grown at a mid double digit rate. Over the rest of the year, we'll focus on accelerating growth in these higher dollar value purchases, while also making entry-level options easier to access and better able to compete. Further details will come in upcoming quarters. Now let's discuss our brand and performance marketing engine. Sean brought up how our playbook is being modernized, and that involves not merely a change in how we spend — it means changing how we operate as we pursue success in AI-driven modern discovery. In the first quarter, we demonstrated our ability to get more out of our media spend and make smarter choices with advertising and marketing dollars. There are also indications that this approach is paying off. We're making the brand stronger so it can generate sales today while also accumulating value over the longer haul. Our Here for Life creative evolution has launched in the market, and it's deepening emotional resonance and cultural relevance while drawing first-time and returning shoppers into the funnel and turning them into buyers. Whereas competing furniture companies try to market flawlessness, Lovesac will present genuine reality. Authentic households, authentic individuals, authentic feeling. Since genuine living is precisely what we exist for. "Here for Life" is a comprehensive 360-degree initiative, spanning paid, owned, site, store, and retail channels, and it runs from today until July. By connecting with key demand moments through powerful campaign messaging and creative, we remain right at the heart of the cultural zeitgeist. Our "Ditch the Situation" ship campaign went live around the February holiday period, covering both Valentine's Day and President's Day, and it was built on a straightforward insight: a lot of people are settling in life, especially on their couch. We connected with the wider cultural discussion about upgrading whatever no longer serves you and turned that into a persuasive message for the home category. The results came back strong: 1.2 billion earned impressions, with paid search rising 33%. It's a prime illustration of the marketing engine we're constructing, one that bolsters the brand while also hitting our sales goals. We achieved significant efficiency improvements even as we scaled up demand during the quarter. We calculate that revenues directly tied to media rose 13%, and we generated double digit gains in return on ad spend by continuously repositioning our marketing model. That repositioning extends our ongoing move away from linear heavy media toward a completely integrated digital first ecosystem, fueled by social search, influencer, and creator content. What we're seeing goes beyond a simple change in where our channels are weighted. Rather, this represents a deeper, structural move toward an integrated acquisition system — one built for continuous optimization, sharper targeting, and compounding returns over time. One more thing worth mentioning: even though ad spend was down this quarter, that reflects deliberate scheduling of our activations, and we're confident the efficiency gains from Q1 will carry over as we ramp investment back toward our typical levels for the remainder of the year. And finally, we're carving out an advantage when it comes to modern discovery. In the first quarter, we directed resources toward AI readable content, structured data, and creator ecosystems, all to drive agentic engine optimization. We're just getting started — there's much more to come. Number two is how we present LoveSac digitally and deliver that experience through online channels. We're continuing to see returns from our digital transformation, since it allows us to create a smoother, more intuitive journey for customers and make our products easier to find. During the first quarter, that progress carried on. Our e-commerce revenue rose 7.1% versus the same period a year ago, driven by more site visitors and bigger average order values, and that combination allowed us to lift econ penetration by 170 basis points over the prior year. As Sean pointed out, Snug continues to demonstrate that a platform built digital-first — with a simple value proposition and a tightly curated assortment — can thrive on lovesac.com next to the more intricate platforms we offer that are geared toward in-showroom demonstrations. One thing that stands out is that web customer satisfaction keeps hitting all-time highs, and that gives us more confidence that the money we're putting in is making the customer experience better and bringing demand forward. Next, there's our showroom network—it's still a brand asset with a lot of impact, one that strengthens our Design for Life platforms and serves as the foundation of our omnichannel edge. Once quarter one wraps up, we will have expanded to 281 locations, and that fleet continues to deliver solid returns—one-year net cash, cash paybacks—while cannibalization remains under control in the markets we operate in. In the quarter, showroom net sales rose 0.5%, even with traffic pressure building across the wider category. The key point is that although traffic faced pressure, conversion rose compared with a year earlier, and our quote pipeline grew by roughly 12%. As I've mentioned previously, we rolled out an improved performance-based compensation plan for field teams beginning in quarter four, and we believe this is fueling our expansion. Finally, by joining forces with partners, we extend how we bring in customers beyond our own outlets and demonstrate to the coming generation just how scalable and efficient our model can be—while never relinquishing ownership of the customer relationship. First-quarter results were hurt by a lower number of Costco pop-up locations and by certain promotional timing issues, but we are already far along in refining this engine. Recently, we have been testing ways to divide and schedule shows, to improve how we handle staffing, and to broaden our assortment. These initiatives are producing favorable operational momentum and stronger margins, and they give us confidence to take these approaches even further. Of course, bringing customers in is just a step toward the real goal, which is forming relationships with them that last. Our attention stays fixed on improving the experience until it lives up to what our platforms do best, particularly when it comes to getting orders to people and the services on offer.

And now, white glove delivery and assembly pilots are still doing well and remain on schedule to go national this year. Our resale platform, loved by lovesac, has gained momentum and keeps meeting what we expected, which strengthens our circular operations model. Loved, which now operates in 30 states, has found that seven in 10 customers are new to the Lovesac brand, which further confirms resale is a key entry point into the Lovesac ecosystem. Also, during quarter one we grew the program with additional products, such as the reclining seat and snug. Moving on to the main growth enablers, our advantage supply chain turned in solid operational performance in quarter one, with steady improvement in processing, in transit times, and on-time delivery metrics. Our continued network efficiency gains help produce more consistent customer experience and a lower cost to serve, which helped counter some external cost pressure during the quarter tied to geopolitical uncertainty affecting oil and freight inputs. Keith will go into more detail on that, but let me spend a moment on how we are handling both this higher cost backdrop and the constantly shifting tariff situation. First, on higher oil prices and what they do to our freight costs, our beneficial cargo partnership involves locking in capacity at a contractual rate for that capacity. That gives us significant protection during periods like this when spot market prices jump. In quarter one, we gained from strong partnerships that assist in reducing spot market volatility, and we will use those partnerships in the year ahead. When it comes to domestic shipping, last mile included, we base rate planning on oil prices from the trailing 30 days. And second, on tariffs, our assumptions remain the same, and we are actively reducing risk through sourcing diversification, operational discipline, and the fuel for growth cost savings program. On refunds IEPA tariffs, we filed for IEPA tariff refunds and, quarter to date, have gotten $3.4 million. The amount already received is the only amount reflected in our guidance because of uncertainty around timing and possible recovery of the remaining balance. Finally, as Sean mentioned, we remain on track with our onshoring initiative for factional seats launching later this year, with design enhancements for better comfort, functionality and ease of assembly, all of which deliver real value to our customers. In sum, our supply chain is growing more efficient, more resilient and better positioned to support our next phase of growth.

Alright, I'll pass it along to Keith now. That's Keith Hughes, who serves as Chief Financial Officer for The Financial Aid Program — appreciate it, Mary. We'll jump right in with a quick review of quarter one, after which we'll go over our outlook for the rest of Fiscal 27. When we talk about performance metrics, remember that any reference to the first quarter means Fiscal 2027 unless we note otherwise. FOR Q1 COMPARED WITH THE EQUIVALENT PERIOD LAST YEAR. SHOWROOM NET SALES ROSE 0.6 MILLION, WHICH IS 0.6%, REACHING 97.1 MILLION DURING Q1 AGAINST THE YEAR-EARLIER PERIOD, WITH THE GAIN COMING FROM A NET ADDITION OF 14 NEW SHOWROOMS. Online sales climbed by 2.4 million, which works out to 7.1%, reaching 35.7 million during the first quarter compared with the same period a year earlier. A 1.0% drop in omnichannel comparable net sales partially canceled out those improvements. Revenue from popup shop sales, shop in shop sales, open box inventory transactions, and the Love by Lovesack program declined by 3.1 million, a 36.3% decrease, landing at 5.5 million in Q1 relative to the prior year period. The main reason for that reduction was the company shutting down its Best Buy shop and shop locations following the conclusion of its partnership with Best Buy. Looking at product category results for the first quarter, our Sactional net sales slipped 1.4%. Net sales fell by 22.5%. At the same time, our other net sales, a category that takes in our new Snug platform, decorative pillows, blankets, and accessories, climbed 228.1% versus the same period last year. In the first quarter of fiscal 27, gross margin was 52.1% of net sales, down 160 basis points from 53.7% in the year-ago period. The main driver was a 380 basis point increase in inbound transportation and tariff costs, along with a 110 basis point rise in outbound transportation and warehousing costs. Partly offsetting those pressures was a 330 basis point gain in product margin stemming from price increases and cost reduction initiatives, which was itself offset by heavier promotional discounting. During the first quarter of fiscal 27, SG&A costs represented 49.6% of net sales, compared with 48.5% a year earlier. That larger share largely reflected increased payroll along with other overhead expenses. The growth in selling, general and administrative dollars came primarily from a 1.0 million rise in payroll driven by higher incentive compensation and 0.5 million in additional other overhead costs. Rent increased 0.3 million, connected to a 0.4 million rise in rent expense from our net addition of 14 showrooms, partly offset by a $0.1 million decrease in percentage rent. Advertising and marketing expenses fell 2.0 million, or 10.7%, to 16.6 million in the first quarter compared with the prior year period. In Q1, ad and marketing spend equaled 12.0% of net sales, versus 13.4% in the same stretch a year earlier. The quarter's operating loss came to 17.4 million, up against 15.0 million in last year's first quarter, reflecting the drivers we just walked through. Prior to turning to net loss, net loss per common share, and adjusted EBITDA, please take a look at the terminology as well as the reconciliation linking each adjusted metric we report to its most directly complicated features. So on the tax side, for the first quarter we recorded a $5.6 million income tax benefit, up from $3.8 million in the same period last year. That higher effective tax rate was driven mostly by permanent differences related to employee benefit and equity programs. As for adjusted EBITDA, we posted a loss of $10.5 million for the quarter, versus a loss of $8.4 million a year ago. Turning to the balance sheet. We ended Q1 in a strong position, which gives Lovesac plenty of room to put money into growth and, in turn, build more long-term value for shareholders. Cash and cash equivalents came in at $57.0 million, and we still have $35 million of committed availability with nothing drawn on our recently amended credit facility. On inventory, we're satisfied with both how much we have and how good it is, and we're confident in our ability to keep leading the industry on in-stock levels and delivery times. For fiscal 27, we expect inventory balances to rise modestly compared with the year before, reflecting expansion of our products and platform. Next, our approach involves putting extra capital to work when opportunities arise, aiming to build value over the long haul and improve our returns on capital. Along those lines, during Q1 we bought back $2.4 million worth of shares of our common stock that were outstanding, which leaves us with plenty of dry powder—about $50—$51.7 million still available through our current repurchase program. For additional information about how we did financially in the first quarter, please check our earnings press release. Turning to what we expect going forward: I know I probably come across like a broken record here, but the truth is we've continued to observe category declines in the low single digits that have been fairly steady. Certain weeks show gains and others miss the mark, and that appears to be the macroeconomic reality we're facing; our assumption is that things will stay that way for the rest of the year. Even though we're aiming higher, we felt good about a couple of percent increase in demand during the fiscal first quarter and about keeping revenues roughly flat, since both results beat what the category did. As a reminder, we noted last quarter that first-quarter revenues trailed demand a bit because we broadened our white glove delivery offering late in the prior year. These purchases are being booked a bit farther ahead than the usual one-to-two-week window we see for standard fast and free shipping, which leaves a short-term hole. As we roll the offerings out to an even wider audience, we expect that pattern could carry over into the fiscal second quarter. Still, we regard it as a positive over the longer term, since customer reaction has been extremely strong and it opens up business that simply wouldn't have come about otherwise. There are a few more things worth noting about what's baked into our guidance for the fiscal second quarter and for the full year. To begin, we revised our assumptions so they capture our most current view on costs tied to COGS and logistics, driven by rising prices for materials, energy, and transportation. Next, we baked in the most current tariff environment for the rest of the year and are not making guesses about further shifts that could emerge. Third, when it comes to tariff refunds, we count only the ones already in hand and exclude any possible recoveries down the road. Keep in mind this means the fiscal second quarter and the full year contain roughly $3.6 million of refunds already collected, which helps gross margins and carries a modest bit of interest within our interest and other income line. Looking at the whole year in more detail, we're projecting net sales of $700 million to $740 million. Adjusted EBITDA should land somewhere between $35 million and $46 million. Within that, gross margins come in at 56%-57%, we're putting roughly 12% of net sales toward advertising and marketing, and SG&A runs at about 40%-41% of net sales. Net income, we figure, will fall between $5 million and $12 million. For diluted income per common share, our estimate is $0.34 to $0.81, with diluted weighted average shares outstanding of about 14.8 million. For the entire year, our effective tax rate should land somewhere between 39.1% and 40% at the middle of that range, but the actual figure could swing quite a bit based on where pre-tax income finishes within the bounds of our guidance. Looking at the second quarter, we're projecting net sales between $157 million and $166 million, which works out to slight revenue growth at the midpoint. Adjusted EBITDA should come in somewhere from negative $4 million to positive $2 million. Within that, gross margins are expected at 57.5%-58.5%, advertising and marketing will run about 14.5% of net sales, and SG&A is forecast at 44.5%-46.5% of net sales. Net loss is anticipated to fall between $3 million and $7 million. We're putting the estimate for basic loss per common share at somewhere between $0.20 and $0.48, and that's based on 14.7 million basic weighted average shares outstanding. So to wrap things up, we're balancing prudence with operating discipline, and we remain convinced that focusing on the bigger picture is what counts the most. What that bigger picture means is the huge opportunity over the long haul to build tremendous value for all Lovesac stakeholders; we're expanding the Lovesac brand and investing capital in new product innovation that covers style, function, and new categories, all of which supports a robust multi-year secular growth outlook, with exposure to macro upside being the icing on the cake. And with that, I'll hand it back to you, operator.

Thanks a lot. Sean, Mary, and Keith, I appreciate you all fielding my questions. There are two things I want to cover — a main question and then a follow-up. Sean, at a high level, Mary brought up AI, so she gets the credit — or the blame — for opening the door on this one. Could you talk about agentic commerce within the category.

and what Lovesac is doing to seize that opportunity? Thanks, Tom. I'm glad you asked. Sure — Thomas, clearly we've observed a few developments. A considerably larger share of search that shoppers weigh as they contemplate such a major purchase now arrives via LLMs. Because of that, our teams have put real effort into making certain that all of our content can be read by those systems. With LLMs, you frequently get far more words that assist in describing whatever it is people seek, which differs from the way conventional Google search works. So the team has invested substantial effort in AI readability and in getting all of that properly structured. The second element, I'd say, is that we're looking at collaborating and running pilots — with ChatGPT, for instance — around ads and being able to click through from that search so it takes someone directly to our site. Then, as I mentioned earlier, since everything is fully connected, we've put a great deal of work into how we genuinely enhance the experience on our site. That way, searchability involves much less friction. and lets them push conversion much more quickly. So the team has made plenty of progress on the site. I believe that explains a great deal of why Q1 performance came in so strong. We're also seeing an uptick in our share of voice on LLM; so there's more ahead. It has really only just begun, Tom, but we.

I'm seeing plenty of potential in this space. Thanks, Mary. Your response was excellent, and I really value it. Okay, so at this point I'm somewhat puzzled. When I consider Love by Lovesac, and I reflect on how it performed during the quarter, where you saw momentum in product mixes priced at 6,000 and above, plus I'm thinking about what your re-commerce initiative with Love by LoveSec could do to provide counter-cyclicality. So in what ways are shoppers, through Love by Lovesack, engaging? Are they turning to it as a method to connect with the brand while spending less? Are they—please help me grasp how Love by Lovesack, you explained the above 6K and below 6K really well, but the Love by Lovesack piece has me puzzled.

Yes, I realize, that's an excellent question, Tom, and clearly, since you've been following us for such a long time, Love by Love SAC only began its rollout this year. So we're present in 30 states. We haven't yet activated marketing to inform people much more about it, because we've still been focused on ensuring the steps—from being findable on Love by Love SAC all the way through the purchase, delivery, and everything else—you know, so that you can truly handle much higher volume. So I believe part of that falls on us, since we want to guarantee we can maintain a fantastic experience before expanding it further. And I think once people discover more about it, then as you mentioned, there's a chance. And like I said before, we perceive a great deal of potential. Teams are putting in considerable effort on figuring out how to capture that smaller-sized transaction. So you're absolutely right that it's an opportunity. So look forward to hearing more from us.

that builds out. Thank you, Mary. Thank you, Tom.

Brian, thanks — morning, and I appreciate you taking the questions. Let me start with the nearer-term one, since there are quite a few things shifting around on the sales side. We've spent a lot of time discussing that uneven macro environment. Still, looking at how Q1 came out, would it be reasonable to think the business decelerated — that things slowed relative to, say, the back half of the prior fiscal year?

Hey, Brian. Keith, why don't you handle that one? Go ahead and jump in if you'd like. This is somewhat tough to respond to. A lot of different elements are in play, I'd say, and that's a fair observation. To begin by naming those pieces: the macro doubt among what we might refer to as the upper middle class, which we've discussed before, was unmistakably evident to us. And when we describe strength above 6,000, well, it becomes even more pronounced once you pass 8,000, once you pass 10,000. What I believe we're witnessing is that the very top tier is performing quite well. What we began doing this quarter was rolling out fresh strategies aimed at making opening price points more appealing, in hopes of reigniting some of that transaction growth below 6,000. You saw us running promotions on our rain chenille fabric — a terrific fabric — and we were pleased with the results. You'll see further expansions of that ahead, not just in 2Q but as we move into 3Q. What you're seeing, hopefully, will be an improving trend there too, which Mary referenced in her remarks. Much more is coming on that front as we work to truly split our marketing and promotional tactics — sustaining strength at the high end, where demand is robust, while boosting the appeal of the opening price point. We did experience some timing shifts regarding our spend as we test a few of these new initiatives, as Mary discussed. So our spend in Q1 was lighter than the run rate. For the full year, that spend ought to return to more typical levels. That factors into this too, and we're on the verge of a whole lot of new product news — so nothing unexpected. Even going back to the guidance we gave for the quarter, we landed at the top end of the range we'd initially set. So overall, given all the moving pieces — and you're correct that there are many — I'd say the quarter finished in a solid place for us. And that positions us for what we hope will be momentum in the back half.

And Brian, perhaps I could just tack on one more thing to what Keith mentioned. So Keith said before, our demand ran ahead of net sales since we're expanding our paid services; so if you look at how demand grew versus how revenue grew in Q4, they're basically aligned; though clearly there's somewhat of a delay while customers pick their dates for delivery and installation, which is why you notice that slight gap between the demand and revenue delta.

That's useful, and I appreciate it. Now, for my second question, I'd like to ask about tariff refunds. We're beginning to hear more about this across the consumer sector generally. You've begun getting these refunds, so what I'd like to know is whether you have any sense of how much additional money might come your way and when that would happen. And then, probably more significantly, how should we think about the

methods through which Lovesec intends to make use of its refunds. All right, I'll begin, and after that I'll hand things over to Mary. To provide some background: we submitted an application and got approved for 20 — in other words, our request for a refund was approved for $20.8 million in total refunds. We got the initial 3.4 right when the window first opened, and after that things have been at a standstill; that's the reason we're handling it this way. As for when the rest might arrive, we have no idea. I suppose that's the reason we've adopted the approach we have and are treating it this way. We'll fold it in and report on it once it comes in. So, fingers crossed that it arrives. We'd really like to get that money back. Mary, if you'd like to discuss some of what we're planning for it, I'll turn it over to you.

Yes, of course, thank you. So, Brian, clearly we will always base our plans on what's actually sitting in our bank account, since a great deal of uncertainty remains regarding, as Keith mentioned, the timing — and beyond that, actually getting the remaining refunds. Our team is actively working in the customs portal. So when it will arrive is anyone's guess, though there are some signs it might be within the next month or thereabouts. Then, regarding how we'd approach that benefit if everything does come through, we've run through a variety of scenarios to genuinely work out what we'd do with such a benefit. A portion could go toward profitability, a portion could go toward strategic priorities, and we'll also find out much more about how we'd handle this depending on whether other considerations arise. So we don't want to depend on it at this point, but clearly the team has done a fantastic job submitting those applications and getting them approved. We'll tell you more once we see those funds materialize.

Good morning, and thank you for taking my questions. Perhaps, to build on the previous question, could you discuss any shifts in how consumers behaved during the most recent quarter? I realize you mentioned demand sitting under that 6,000 mark, but is there anything additional worth pointing out regarding configuration mix, financing attachment, or how people reacted to promotions? And on a wider note, has the consumer you observed in May and June improved or deteriorated relative to what you saw in February?