Lovesac’s StealthTec built-in sound system is driving sales growth.
STAMFORD, Conn. — The Lovesac Company reported net sales growth of $129 million for the first quarter of 2023 which ended May 1, representing an increase of 56% over the prior year quarter.
“Lovesac’s strong performance in the first quarter exceeded expectations at the top and bottom lines and, perhaps more importantly, defied the macro headwinds that are negatively impacting consumers and the broader economy, said Shawn Nelson, CEO.
The company attributed its sales increase to what it considers to be its competitive advantages: customer loyalty, DTC business model and the ability to scale its operations with only a few SKUs that are not affected by seasonality.
Lovesac was bullish despite indicators that the market is slowing down. “Lovesac’s totally direct, omnichannel model will allow us to continue to gain share within the highly fragmented $46 billion couch and home audio markets where even with our sustained high-growth we have only garnered a 1% to 2% market share thus far,” according to Nelson.
A new StealthTech invisible home audio solution is gaining traction and Lovesac is expanding its sales channels both with BestBuy and a return to Costco. The company felt confident that it could weather any economic downturns and reiterated its fiscal 2023 “framework” that it announced at the beginning of its fiscal year.
- Net sales increase of 56% was driven by growth across all channels.
- Showroom net sales, which include kiosks and mobile concierges, increased 65.9%.
- Internet net sales increased 24.1%, and other channels which principally includes pop-up-shops and shop-in-shops increased 92.7%.
- The increase in showroom net sales was driven by an increase of 53.2% in comparable showroom sales related to a higher point of sale transactions with lower promotional discounting, a strong Easter promotional campaign and the addition of 31 new showrooms, 13 kiosks and two mobile concierges compared to the prior-year period.
- The increase in Internet net sales was driven by the same Easter promotional campaign. The increase in net sales in the “other” channel was principally related to higher productivity of temporary online pop-up-shops on Costco.com and hosting one additional online event compared to the prior year period.
- Lovesac opened 18 additional Best Buy shop-in-shop locations compared with the prior year period.
- Gross profit increased $20 million, or 43.5%, to $66.1 million in the first quarter of fiscal 2023 from $46.1 million in the first quarter of fiscal 2022.
- Gross margin decreased to 51.1% of net sales in the first quarter of fiscal 2023 from 55.6% of net sales in the prior year period primarily driven by an increase in total distribution and related expenses due to inbound transportation costs partially offset by an improvement in product margin.
- The product margin rate improvement is due to lower promotional discounting and continuing vendor negotiations to assist with the mitigation of tariffs.
- Advertising and marketing expense increased 48.9% due to continued investments in marketing spend to support sales growth. As a percent of net sales, advertising and marketing due to improved performance in our media activities, which has driven an increase in net sales.
- Total merchandise inventory was $123 million as of May 1, as compared with $56 million as of May 2, 2021, principally related to a stock inventory increase of $38 million, to support growth and maintain industry leading in-stock positions, coupled with an increase in freight capitalization of $29 million related to an increase in inbound freight expense.
Jean Marie Layton is senior editor for upholstery at Furniture Today. A design and furniture aficionado, she has worked as a writer/editor in industry and non-profits, in academic administration and in retail furniture sales. She pursued a master’s degree in the history of design at Parsons/Cooper-Hewitt and has a BA in history from Mount Holyoke College and an MA in liberal arts from Stanford University. Reach out to Jean Marie with your story ideas, tips and more at firstname.lastname@example.org