Lovesac (NASDAQ:LOVE) reported second-quarter fiscal 2027 net sales of $161.2 million, up 0.4% from the prior-year period, as growth from new showrooms partially offset a 1.9% decline in omni-channel comparable sales. The furniture company said the quarter marked its highest quarterly sales outside the fourth quarter in its history.
Management said demand remained strongest among higher-spending customers, while purchases below $6,000 continued to face pressure from inflation, interest rates and a promotional competitive environment. The company lowered its outlook with a more conservative view of the second half, citing the timing of planned product launches and an ongoing assessment of pricing and promotional changes.
Tariff Refunds Lift Reported Profitability
The tariff-related recovery helped lift reported gross margin by 1,200 basis points to 68.4%, compared with 56.4% a year earlier. Excluding tariff recoveries, gross margin was approximately 56%, down about 40 basis points year over year. Farag attributed the underlying decline to inbound transportation and tariff costs, as well as outbound transportation and warehousing costs, partly offset by product-margin improvements from pricing and cost-reduction initiatives.
Operating income was $10.9 million, compared with an operating loss of $8.8 million in the prior-year quarter. Net income totaled $7.4 million, or $0.51 per diluted share, versus a net loss of $6.7 million, or $0.45 per share, a year earlier. The company said diluted earnings per share included a net $0.86 benefit from tariff refunds.
Adjusted EBITDA, excluding the $20 million tariff-refund benefit recognized in the quarter, was a loss of $1.3 million, compared with adjusted EBITDA of $0.8 million in the prior-year period.
Premium Demand Offsets Pressure at Lower Price Points
President Mary Fox said configurations above $6,000 grew at a double-digit rate in the second quarter, supported by larger Sactionals configurations, premium fabrics and recent product introductions. She said premium mix remained structurally stronger than it was two years earlier.
However, the business below the $6,000 price point did not return to growth despite improving during the quarter. Fox said Lovesac adjusted pricing and promotional strategy in the third quarter to improve accessibility at key opening price points while maintaining the company’s premium positioning and opportunities to sell product enhancements.
“With our Labor Day event still underway through this weekend, it is too early to get a full read on the performance from these changes,” Fox said, explaining the company’s more conservative outlook.
Showroom net sales increased 4.6% to $114.1 million, aided by 14 net new showrooms opened over the past 12 months and improved showroom conversion. Internet net sales declined 5.3% to $40.2 million. Other net sales fell 23.2%, primarily due to the closure of the Best Buy shop-in-shop partnership.
By product category, Sactionals sales declined 1.7% and Sacs sales declined 8.6%, while other products increased 198.2%, driven by newer categories including Snugg and accessories.
Innovation Pipeline Shifts More Meaningfully Into Fourth Quarter
Chief Executive Officer Shawn Nelson said Lovesac plans its most extensive product-introduction period to date in the second half of fiscal 2027. The company expects to introduce additions to the Snugg platform, a Sactionals innovation tied to its onshoring initiative, and a new large-format sectional platform aimed at a more premium customer.
Nelson said Snugg additions will include a corner piece, ottoman and reverse-compatible swivel base for the Snugg chair. The company also plans to introduce a new large-format sectional product in the fourth quarter.
Management had initially expected several of these products to launch during the third quarter. Nelson said that, while Snugg additions will be available for part of the third quarter, the Sactionals innovation and large-format sectional are now expected at the end of the third quarter, with no meaningful financial contribution until the fourth quarter.
“This is the reason for the shape of our guidance,” Nelson said during the question-and-answer session.
Lovesac also plans to begin initial U.S. production of Sactionals seats in the third quarter. Management said the effort is intended to improve speed, flexibility and automation while preserving compatibility with past and future generations of the platform.
Services, Resale and Marketing Initiatives
The company plans to roll out White Glove and Room of Choice delivery nationally in the third quarter after piloting the programs in the first half. Fox said the services are intended to reduce friction for customers and improve the post-purchase experience, though customer-selected delivery scheduling can create a temporary lag between demand and reported sales.
Lovesac also continues to expand its resale initiative, Loved by Lovesac. Fox said 70% of customers using the platform are new to the brand. The program is operating in 32 states, with four additional states expected in the coming months, and the company plans to open one outlet in Chicago.
On marketing, Fox said the company’s Here for Life campaign improved marketing efficiency and return on investment during the quarter. Lovesac is implementing a unified customer relationship management system in the third quarter, which management said is intended to enable more personalized messaging and incentives throughout the customer journey.
Outlook and Balance Sheet
For the third quarter, Lovesac expects net sales of $140 million to $150 million and a net loss of $9 million to $12 million. The company expects an adjusted EBITDA loss of $7 million to $10 million.
For fiscal 2027, Lovesac forecast net sales of $690 million to $710 million, including fourth-quarter revenue of $250.5 million to $260.5 million. It expects full-year net income of $14.5 million to $18.5 million, adjusted EBITDA of $31.5 million to $35.5 million, and diluted earnings per share of $0.98 to $1.26.
Farag said the outlook assumes housing-related demand and discretionary spending remain generally consistent with current trends. Management said it is not relying on a macroeconomic recovery to improve results, instead emphasizing product innovation, marketing efficiency and tight expense management.
Lovesac ended the quarter with $68.8 million in cash and cash equivalents, no outstanding debt and $34 million of available borrowing capacity under its revolving credit facility. Inventory was $130.2 million, compared with $124 million a year earlier, reflecting planned investments for product launches and in-stock positions. The company repurchased approximately $7.2 million of common stock during the first half, leaving about $46.9 million under its authorization.
About Lovesac (NASDAQ:LOVE)
Lovesac, trading on NASDAQ under the symbol LOVE, is an American furniture company known for its modular seating systems and distinctive foam-filled “Sacs.” Founded in 1995 by Shawn Nelson, the company has built a reputation for innovative design that emphasizes comfort, durability and adaptability. Its core offerings include Sactionals—customizable sectional sofas assembled from individual “Sactional” cubes—and the original Lovesac Sacs, large fabric-covered bean bag chairs available in a variety of sizes and materials.
In addition to seating solutions, Lovesac has expanded into home entertainment products with the introduction of the Stage, a modular soundbar system designed to integrate seamlessly with Sactionals.
