The Lovesac Company's Q2 2026 Earnings Call: Contradictions Emerge on Marketing Strategy, Tariff Impact, and Promotional Pressures

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 11, 2025

Financials Results

• Revenue: $160.5M, up 2.5% YOY
• EPS: ($0.45) per share, compared to ($0.38) in the prior year
• Gross Margin: 56.4%, down 260 bps YOY (59.0% prior year)
• Operating Margin: Approximately -5.5%, versus approximately -5.4% in the prior year

Guidance:

• FY26 net sales: $710–$740M (4%–9% growth).
• FY26 adjusted EBITDA: $42–$55M.
• FY26 gross margin: 57%–58%.
• FY26 advertising & marketing: ~12% of sales.
• FY26 SG&A: ~40%–41% of sales.
• FY26 net income: $8–$17M; diluted EPS: $0.52–$1.05; ~16.3M diluted shares.
• Q3 net sales: $151–$161M (mid-single-digit growth at midpoint).
• Q3 adjusted EBITDA loss: $1–$7M.
• Q3 gross margin: 56%–57%.
• Q3 advertising & marketing: ~14% of sales; SG&A: 47%–49%.
• Q3 net loss: $8–$12M; basic loss/share: $0.51–$0.83.
• Assumes furniture category down ~5% for FY26; gross margin actions to benefit from Q4.

Business Commentary:

• Slight Revenue Growth and Market Share Gain:
• Lovesac reported total net sales of $160.5 million for Q2, reflecting a year-over-year increase of 2.5%.

• This growth was driven by market share gains despite an 4% decline in the furniture category and efficient customer acquisition through Design for Life product platforms.

• Impact of Tariffs and Promotions on Gross Margin:

• Gross margin decreased by 260 basis points to 56.4%, primarily due to increases in transportation costs and higher promotional discounting.

• The decline was exacerbated by tariff pressures, particularly from countries like Vietnam and Malaysia, which doubled their tariff rates.

• Strength in Supply Chain and Tariff Mitigation:

• Lovesac's supply chain was purpose-built for scalability, successfully managing tariff costs through a four-point mitigation plan.

• This included actions like diversifying manufacturing, strategic pricing, and concession negotiations with vendors to reduce costs.

• New Product Launches and Brand Evolution:

• The introduction of the new Snug by Lovesac product line was designed to represent the brand well, especially in environments without Lovesac's direct management.
• This launch is part of a broader strategy to leverage simple, high-quality products that can represent the brand in new channels and support long-term growth.

Sentiment Analysis:

• “Results in line with, or slightly favorable to, our expectations… net sales were $160.5M, up 2.5%.” “We have lowered our gross margin range,” citing tariffs and competitive discounting. “We estimate FY26 net sales of $710 to $740 million” with adjusted EBITDA $42–$55M. “We expect gross margins of 57% to 58%… additional measures will benefit gross margins beginning in Q4.”

Q&A:

• Question from Maria Ripps (Canaccord Genuity): Will the brand evolution refresh change your customer acquisition approach or marketing effectiveness near term?
  Response: Yes—expect noticeable go-to-market changes under the new CMO; Snug launch showcases a sharper message and heavier digital/CTV/YouTube mix to boost efficiency and conversions.

• Question from Maria Ripps (Canaccord Genuity): What partnerships or distribution are best suited for Snug by Lovesac?
  Response: Too early for specifics; Snug’s simpler demo needs enable non-Lovesac channels, with the website primary; exploring additional online/offline placements.

• Question from Michael Baker (D.A. Davidson): What drove the EBITDA outlook change—tariffs or promotions—and what changed in tariffs?
  Response: Gross margin pressure from both: reciprocal tariffs in key countries roughly doubled (~10% to ~20%) and elevated promotions; China sourcing mix heavier in Q3; Q4 benefits from easier promo lap and lower China exposure.

• Question from Michael Baker (D.A. Davidson): Timing for the new room launch—has it been pushed out?
  Response: Launch is more than a year away (not early 2026); several living-room product launches arrive before that.

• Question from Michael Baker (D.A. Davidson): Any change to the long-term growth algorithm from Investor Day?
  Response: No change—tariffs create near-term noise, but long-term ramp outlook remains intact.

• Question from Eric Delore (Craig Hallum): What levers restore gross margin in late Q4 and beyond?
  Response: Plan includes optimizing outbound logistics/last-mile, further country-of-origin diversification, paid delivery tiers and return policy tweaks, more surgical promo strategy by product/channel, and normalization as category stabilizes.

• Question from Eric Delore (Craig Hallum): Clarify the product hierarchy concept (Sactionals vs. Snug).
  Response: Yes—Snug is simpler and channel-flexible versus Sactionals’ hands-on demo needs; broader hierarchy underpins channel strategy, with more details forthcoming.

• Question from Eric Delore (Craig Hallum): Does the brand refresh increase marketing spend?
  Response: No material increase; mix shifting from linear TV to digital; refresh costs already absorbed; aim for higher efficiency.

• Question from Thomas Forte (Maxim Group): Prospects for Lovesac manufacturing in the U.S.?
  Response: Actively pursuing domestic production; expect a significant portion to migrate to U.S. manufacturing over coming quarters via a phased approach.

• Question from Thomas Forte (Maxim Group): Update on re-commerce (Loved by Lovesac).
  Response: Resale live in six states and expanding; trade-in pilot later this year with broader scaling next year to enhance value and loyalty.

• Question from Matthew Koranda (ROTH Capital Partners): Did your comp track the category improvement, and what about promotional intensity and mix?
  Response: Continuing to gain share in a still-promotional category; no trade-down observed, premium fills and recliner attachment remain strong.

• Question from Matthew Koranda (ROTH Capital Partners): Customer response to price increases—impact on conversion or trade-down?
  Response: No material trade-down or unit mix shift; customers accept targeted increases; monitoring newer actions.

• Question from Matthew Koranda (ROTH Capital Partners): Clarify Q3 vs. Q4 gross margin dynamics.
  Response: Q3 pressured by heavier tariff mix and lapping a less-promotional period; Q4 improves mainly from easier promo lap and lower China exposure, implying flattish YOY GM.

• Question from Andrew Chazen (Oppenheimer, for Brian Nagel): What unmitigated tariff costs are assumed, and is further pricing in the guide?
  Response: Guide assumes current tariff rates only; no additional price increases beyond those executed; longer-term mitigation initiatives continue.

• Question from Andrew Chazen (Oppenheimer, for Brian Nagel): Any change to the expense profile into late 2025/2026?
  Response: No structural change; Q4 SG&A rate higher YOY due to prior-year incentive comp unwind; otherwise disciplined cost control.