The Lovesac Company's Q3 2026: Contradictions Emerge on Brand Evolution, Tariff/Inventory Management, Marketing, and Showroom Strategy

Date of Call: None provided

Financials Results

• Revenue: $150.2M, up $0.3M or 0.2% YOY
• EPS: -$0.72 per common share, compared to $0.32 per common share prior year
• Gross Margin: 56.1%, down 240 bps vs 58.5% prior year
• Operating Margin: Operating loss $15.8M, compared to operating loss $7.7M prior year

Guidance:

• FY26 net sales $685M-$705M; Adjusted EBITDA $37M-$43M; gross margin 56%-57%; advertising ~12.5% of sales; SG&A ~40%-41%; net income $2M-$8M; diluted EPS $0.15-$0.49 (≈16.2M diluted shares).
• Q4 FY26 net sales $236M-$256M; Adjusted EBITDA $51M-$56M; gross margin 57.5%-58.5%; advertising 10% of sales; SG&A 27.5%-28.5%; net income $30M-$36M; diluted EPS $1.88-$2.22 (≈16.2M shares).
• No fiscal 2027 guidance provided; plan to slow showroom expansion to ~10 net openings in fiscal 2027.

Business Commentary:

• Sales Performance and Market Share:
• Lovesac's third-quarter net sales were $150.2 million, around $1 million below guidance, with a slight year-over-year growth of about 1%.

• The decline was attributed to macroeconomic challenges and consumer uncertainty, particularly in lower dollar volume transactions.

• Design for Life Product Innovation:

• New product launches included the PillowSac Chair Junior and a fourth arm option for Sactionals, which contributed to revenue growth.

• Innovations like the Snug platform and Sactionals Swept Arm style were successful in driving demand and market share gains.

• Marketing and Customer Acquisition:

• The company shifted its marketing strategy towards digital channels and influencer partnerships to target Middle-income consumers.

• This adjustment improved conversion rates, particularly in lower-end transactions, leading to a strong holiday season performance.

• Financial Outlook and Margin Pressures:

• Lovesac's adjusted EBITDA and net loss were within guidance ranges, pressured by a 240 basis point decrease in gross margin due to tariffs and transportation costs.
• Despite promotional intensity and margin pressures, the company aims to maintain profitability through strategic adjustments and product launches.

Sentiment Analysis:

Overall Tone: Neutral

• Management reported a slight Q3 sales beat vs prior year but missed guidance by ~$1M and saw a 240 bps gross margin decline; they described 'encouraging green shoots' from new products and marketing and plan domestic manufacturing to improve margins, while maintaining cautious guidance due to choppy consumer demand and tough comps.

Q&A:

• Question from Thomas Forte (Maxim Group): On the Loved by Lovesac re-commerce efforts, what is the discount to the consumer versus buying new, and what’s the gross margin to Lovesac on the re-commerce sale?
  Response: Resale is priced roughly 20%-25% below new with two condition tiers; rollout in 27 states is building infrastructure to enable a trade-in program next year (gross-margin on resale not specified).

• Question from Michael Baker (D.A. Davidson): With multiple changes for fiscal 2027 (pushed launch, fewer showrooms, new sofa, more promotions, more domestic manufacturing), how should we think about P&L impacts (sales, costs, margins)?
  Response: Company is finalizing FY27 AOP but is prioritizing harvesting the core brand, launching quick-to-market, low-cost product extensions to improve profitability and cash ahead of a bigger calendar-2027 launch; detailed FY27 impacts will be provided in coming months.

• Question from Michael Baker (D.A. Davidson): Follow-up — why provide a lower Q4 outlook versus three months ago despite holiday momentum?
  Response: Management is exercising caution due to choppy, week-to-week consumer behavior, tougher compares over New Year, and pronounced weakness at lower-dollar transactions and parts of the high end, so they are conservative on Q4.

• Question from Eric DeLore (Craig-Hallum Capital Group): Where did the revenue weakness in the quarter come from (items under $6k—Sacs vs Sactionals components) and did it impact internet vs showroom more?
  Response: Weakness concentrated in sub-$6k smaller setups (primarily small Sactionals); internet declined more (down 16.9%); high-end premiumization and Snug/web improvements helped recovery into Q4.

• Question from Eric DeLore (Craig-Hallum Capital Group): Follow-up — timeline to see impact from the marketing overhaul?
  Response: Tactical shifts (digital, influencers, programmatic) produced near-term Q4 improvements within days/weeks; deeper brand evolution and storytelling will continue to roll out across Q1–Q2 next year.

• Question from Matt Koranda (Roth Capital Partners): Can you describe the cadence of demand in Q3 and into Q4, any regional concentration, drivers of improvement, and are comps positive quarter-to-date?
  Response: Comps are positive for Q4-to-date; Q3 weakness began after Labor Day (mid-quarter) affecting lower-ticket orders; recovery driven by stronger promotions and media optimization; some states (e.g., FL, TX) were weaker but the issue was broad.

• Question from Matt Koranda (Roth Capital Partners): Follow-up — what's driving the softer gross margin outlook for Q4?
  Response: Incremental promotional step-up to win sub-$6k transactions and deleverage of fixed costs (warehousing, etc.) from lower absolute sales.

• Question from Brian Nagel (Oppenheimer & Co.): On reshoring/domestic manufacturing, what are the longer-term benefits and margin implications for Lovesac?
  Response: Reshoring targets similar-or-better gross margins while delivering shorter lead times, lower transportation and inventory costs, improved product features, automation, IP defensibility, and operational stability; management expects domestic production to be gross-margin neutral or favorable.

• Question from Thomas Forte (Maxim Group): Follow-up — gross margin strategy when entering new rooms: will initial margins be comparable or lower and then ramp?
  Response: Target is to maintain high-50s gross margins (mid-to-high 50% range) for new room introductions; domestic manufacturing and design efficiencies are expected to support those margins.

Contradiction Point 1

Brand Evolution and Marketing Strategy

It involves changes in the company's approach to brand evolution and marketing, which are key aspects of its growth strategy and customer acquisition.

How long will the marketing overhaul impact results? - Eric DeLore (Craig-Hallum Capital Group)

2026Q3: The brand refresh is just coming to prime time. We have a new CMO on board who is insanely talented and excited to be taking those controls. You'll see a lot change in the way that we go to market at Lovesac. - Shawn Nelson(CEO)

With your brand rebranding, do you expect any changes to customer acquisition strategies or marketing effectiveness in the near term? - Maria Ripps (Canaccord Genuity Corp., Research Division)

2026Q2: We have so much happening on the brand and marketing front that will be a major theme for the next few quarters. This brand refresh is just coming to prime time. - Shawn Nelson(CEO)

Contradiction Point 2

Tariff Impact and Cost Management

It involves the company's approach to managing tariff impacts and cost efficiency, which directly influences financial performance and strategic planning.

How will the delayed new room launch and reduced showroom expansion affect fiscal 2027 P&L? - Michael Baker (D.A. Davidson)

2026Q3: As you know, we've been managing the year-over-year delta with a combination of cost reduction and mix adjustments and promotional adjustments. - Keith Siegner(CFO)

Can you provide more detail on the changes in the EBITDA outlook compared to a few months ago? Specifically, how do tariffs and promotional activity compare in their impact? - Michael Baker (D.A. Davidson)

2026Q2: Tariffs have stepped up, and we've made good progress on managing costs by working with vendors for concessions and on manufacturing diversification, including the work to further diversify manufacturing away from China. - Mary Fox(COO)

Contradiction Point 3

Marketing Strategy and Effectiveness

It involves the company's approach to marketing and the expected timeline for its impact, which are crucial for understanding how Lovesac is adjusting its strategies and communication with customers.

How long will the marketing overhaul's impacts last? - Eric DeLore(Craig-Hallum Capital Group)

2026Q3: Immediate impacts are already evident with shifts to digital channels and influencers. Website adjustments have also shown quick results. - Mary Fox(CMO)

How does EverCouch's marketing engine operate, and how will you expand distribution beyond 100 showrooms? - Eric Delane(Craig Hallum)

2026Q1: The marketing engine for EverCouch will ramp up in summer. Showroom expansion is planned gradually. Website enhancements and omnichannel strategies are also critical for distribution. - Mary Fox(CMO)

Contradiction Point 4

Showroom Expansion and Strategic Focus

It highlights changes in the company's strategic focus on showroom expansion and the role of distribution channels, which impact growth and cost management.

Can you discuss the P&L impacts for fiscal 2027 due to the delayed new room launch and reduced showroom expansion? - Michael Baker(D.A. Davidson)

2026Q3: We're focusing on harvesting Lovesac's brand and launching new products quickly and cost-effectively. - Keith Siegner(CFO)

What prompted the decision to exit the Best Buy partnership? Is Costco now a key growth channel? - Maria Ripps(Canaccord Genuity)

2026Q1: New opportunities in distribution channels are opening up with EverCouch. Continuing to expand the Costco partnership for new products and showrooms. - Shawn Nelson(CEO)

Contradiction Point 5

Inventory Strategy and Tariff Impact

It involves the company's strategy to manage inventory and pricing in response to potential tariffs, which are crucial for financial planning and operational efficiency.

Can you discuss the P&L impacts for fiscal 2027 due to the delayed new room launch and reduced showroom expansion? - Michael Baker (D.A. Davidson)

2026Q3: We're focusing on harvesting Lovesac's brand and launching new products quickly and cost-effectively. This strategy aims to stabilize our P&L amidst macroeconomic uncertainty. - Keith Siegner(CFO)

How is the 90-day tariff delay affecting your inventory strategy, and how much inventory are you sourcing from non-China countries? - Maria Ripps (Canaccord Genuity)

2025Q4: We have already built up inventory across all of our product lines to protect against potential tariff impacts. We are actively working to diversify sourcing further and expect to continue managing our inventory levels effectively. - Mary Fox(President and COO)