Lovesac shares squeeze 27% as guidance catches shorts off guard
2min read Lovesac (LOVE) reported mixed results for its fiscal Q2 2025, with EPS and revenue showing slight beats relative to analyst expectations. The company posted a loss per share of $0.38, which was better than the estimated loss of $0.42 per share. Revenue came in at $156.6 million, just below the estimated $157 million but representing a year-over-year increase of 1.7%. Despite the modest beat, Lovesac’s stock surged over 18% following the results, driven largely by positive forward guidance and strong investor sentiment.
Investors should be aware that the company has a low float (13.97 million) and high short interest (26.9%), making it very susceptible to a short squeeze. Given the hammer reversal witnessed in markets, it is likely that shorts got caught flat footed as guidance is viewed as better than feared.
For full-year fiscal 2025, Lovesac provided guidance for net sales in the range of $700 million to $735 million, slightly below prior estimates of $700 million to $770 million. EPS guidance was also revised to a range of $1.01 to $1.26, compared to previous forecasts of $1.06 to $1.59, and place the midpoint below the consensus estimate of $1.24. However, the company provided stronger-than-expected guidance for adjusted EBITDA, projecting a range of $52 million to $59 million, higher than the analyst estimate of $48 million. This suggests that despite a more conservative revenue outlook, profitability could improve in the coming quarters.
Key performance metrics revealed that net sales were bolstered by the net addition of 31 new showrooms, although comparable omni-channel net sales decreased by 5.4%. Gross margin was 59%, slightly down from 59.8% in the prior year but better than the estimated 57.9%. The decline in gross margin was driven by higher promotional discounting and increased outbound transportation and warehousing costs, partially offset by lower inbound transportation costs. This indicates that while Lovesac has managed to maintain profitability, it faces ongoing cost pressures.
Several drivers contributed to the company’s results, including a 15.4% increase in SG&A expenses due to investments in payroll, equity-based compensation, and rent. Despite these rising costs, Lovesac reduced advertising and marketing expenses by 12.2% year-over-year, a reflection of non-recurring costs related to last year’s 25th anniversary campaign. The company reported an operating loss of $8.4 million, compared to a $1.0 million loss in the same period last year, translating into an operating margin of -5.3%. Net loss for the quarter was $5.9 million, or $0.38 per share, down from a loss of $4.00 per share in the same quarter last year.
The company’s guidance for Q3 2025 points to net sales in the range of $152 million to $160 million, with adjusted EBITDA ranging from a loss of $3 million to a gain of $1 million. Lovesac also expects a net loss of $4 million to $8 million for the third quarter. Despite these losses, the company remains optimistic about its long-term growth strategy, particularly as it continues to open new showrooms and innovate its product offerings, such as the PillowSac Accent Chair and the AnyTable.
Lovesac’s balance sheet remains strong, with cash and cash equivalents of $72.1 million, up 32% year-over-year, significantly above the analyst estimate of $49.1 million. This financial flexibility will be crucial as the company navigates a challenging retail environment marked by shifting consumer preferences and high transportation costs. The company’s ability to manage its working capital and maintain healthy cash reserves has positioned it well for future growth, despite short-term headwinds.
Overall, while Lovesac’s Q2 results were mixed, the company’s forward guidance and strong market position provide a cautiously optimistic outlook for investors. The stock’s post-earnings surge reflects the market’s confidence in the company’s ability to manage costs and drive profitability, even amid broader economic uncertainties. However, with slowing sales growth and ongoing margin pressures, Lovesac will need to execute effectively in the second half of the year to meet its full-year targets.