love-20220731

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to


Commission File Number: 001-38555

THE LOVESAC COMPANY (Exact name of registrant as specified in its charter)


Delaware						32-0514958
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


Two Landmark Square, Suite 300
Stamford, Connecticut						06901
(Address of principal executive offices)						(Zip Code)

Registrant’s telephone number, including area code: (888) 636-1223

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.00001 par value per share

LOVE

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 31, 2022, there were 15,184,357 shares of common stock, $0.00001 par value per share, outstanding.

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THE LOVESAC COMPANY

FORM 10-Q

INDEX TO QUARTERLY REPORT ON FORM 10-Q

July 31, 2022


		Page
PART I. FINANCIAL INFORMATION		1

Item 1.	Unaudited Fi nancial Statements	1

	Condensed Balance Sheets as of July 31 , 2022 and January 30, 20 22	1

	Condensed Statements of Operations for the thirteen and twenty-six weeks ended July 31 , 2022 and August 1 , 2021	2

	Condensed Statements of Changes in Stockholders’ Equity for the thirteen and twent y -six weeks ended July 3 1, 2022 and August 1 , 2021	3

	Condensed Statements of Cash Flows for the thirteen and twent y-six weeks ended July 3 1, 2022 and August 1 , 2021	4

	Notes to Condensed Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28

Item 4.	Controls and Procedures	29

Part II. OTHER INFORMATION		30

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults Upon Senior Securities	30

Item 4.	Mine Safety Disclosures	30

Item 5.	Other Information	30

Item 6.	Exhibits	31

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Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other legal authority, which statements may involve substantial risk and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions.

You should not place undue reliance on forward looking statements. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur at all or on a specified timeframe. The cautionary statements set forth in this Quarterly Report on Form 10-Q, including in Part I – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere, identify important factors which you should consider in evaluating our forward-looking statements. These factors include, among other things:

•our ability to sustain recent growth rates;

•our ability to sustain the increase in our Internet sales;

•our ability to manage the growth of our operations over time;

•our ability to maintain, grow and enforce our brand and trademark rights;

•our ability to improve our products and develop new products;

•our ability to obtain, grow and enforce intellectual property related to our business and avoid infringement or other violation of the intellectual property rights of others;

•our ability to successfully open and operate new showrooms;

•the impact of any systems interruptions that impair customer access to our sites or other performance failures in our technology infrastructure;

•any decline in consumer spending including due to negative impact from economic conditions;

•our ability to compete and succeed in a highly competitive and evolving industry; and

•the effect and consequences of current economic conditions, including the impact of the novel coronavirus (“COVID-19”) public health crisis, the conflict between Russia and Ukraine, and inflation on our business operations and continuity.

We caution you that the foregoing list may not contain all the forward-looking statements made in this Quarterly Report on Form 10-Q.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the sections entitled “Risk Factors” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission and in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur at all or on a specified timeline, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

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The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

iii

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

THE LOVESAC COMPANY

CONDENSED BALANCE SHEETS

(unaudited)


	July 31, 2022		January 30, 2022
(amounts in thousands, except share and per share amounts)
Assets
Current Assets
Cash and cash equivalents	$	17,652	$	92,392
Trade accounts receivable	8,970		8,547
Merchandise inventories	146,626		108,493
Prepaid expenses and other current assets	36,011		15,726
Total Current Assets	209,259		225,158
Property and equipment, net	42,049		34,137
Operating lease right-of-use assets	113,823		100,891
Other Assets
Goodwill	144		144
Intangible assets, net	1,425		1,413
Deferred financing costs, net	116		—
Deferred tax asset	7,098		9,836
Total Other Assets	8,783		11,393
Total Assets	$	373,914	$	371,579
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	34,238	$	33,247
Accrued expenses	29,372		40,497
Payroll payable	5,056		9,978
Customer deposits	6,488		13,316
Current operating lease liabilities	18,514		16,382
Sales taxes payable	4,391		5,359
Total Current Liabilities	98,059		118,779
Operating Lease Liabilities, long-term	109,864		96,574
Line of Credit	—		—
Total Liabilities	207,923		215,353
Commitments and Contingencies (see Note 6)
Stockholders’ Equity
Preferred Stock $0.00001 par value, 10,000,000 shares authorized, no shares issued or outstanding as of July 31, 2022 and January 30, 2022.	—		—
Common Stock $.00001 par value, 40,000,000 shares authorized, 15,183,277 shares issued and outstanding as of July 31, 2022 and 15,123,338 shares issued and outstanding as of January 30, 2022.	—		—
Additional paid-in capital	174,510		173,762
Accumulated deficit	(8,519)		(17,536)
Stockholders’ Equity	165,991		156,226
Total Liabilities and Stockholders’ Equity	$	373,914	$	371,579

The accompanying notes are an integral part of these condensed financial statements.

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THE LOVESAC COMPANY

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)


	Thirteen weeks ended				Twenty-six weeks ended
(amounts in thousands, except per share data and share amounts)	July 31, 2022		August 1, 2021		July 31, 2022		August 1, 2021
Net sales	$	148,534	$	102,448	$	277,914	$	185,363
Cost of merchandise sold	67,608		43,416		130,880		80,255
Gross profit	80,926		59,032		147,034		105,108
Operating expenses
Selling, general and administration expenses	48,866		35,385		93,767		66,103
Advertising and marketing	19,088		13,036		34,989		23,716
Depreciation and amortization	3,076		1,602		5,737		4,022
Total operating expenses	71,030		50,023		134,493		93,841

Operating income	9,896		9,009		12,541		11,267
Interest income (expense), net	3		(46)		(32)		(90)
Net income before taxes	9,899		8,963		12,509		11,177
Provision for income taxes	(2,777)		(515)		(3,492)		(668)
Net income	$	7,122	$	8,448	$	9,017	$	10,509

Net income per common share:
Basic	$	0.47	$	0.56	$	0.59	$	0.70
Diluted	$	0.45	$	0.52	$	0.56	$	0.66

Weighted average number of common shares outstanding:
Basic	15,195,116		15,096,528		15,175,247		15,034,954
Diluted	16,004,061		16,100,927		16,032,731		16,039,352

The accompanying notes are an integral part of these condensed financial statements.

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THE LOVESAC COMPANY

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THIRTEEN AND TWENTY-SIX WEEKS ENDED JULY 31, 2022 AND AUGUST 1, 2021

(unaudited)


	Common			Additional Paid-in Capital		Accumulated Deficit		Total
(amounts in thousands, except share amounts)	Shares	Amount
Balance - January 31, 2021	15,011,556	$	—	$	171,382	$	(63,436)	$	107,946
Net income	—	—		—		2,061		2,061
Equity based compensation	—	—		654		—		654
Vested restricted stock units	4,868	—		—		—		—
Exercise of warrants	2,106	—		20		—		20
Balance - May 2, 2021	15,018,530	—		172,056		(61,375)		110,681

Net income	—	—		—		8,448		8,448
Equity based compensation	—	—		1,085		—		1,085
Vested restricted stock units	78,446	—		—		—		—
Exercise of Warrants	8,850	—		84		—		84
Taxes paid for net share settlement of equity awards	—	—		(3,370)				(3,370)
Balance - August 1, 2021	15,105,826	—		169,855		(52,927)		116,928

Balance - January 30, 2022	15,123,338	—		173,762		(17,536)		156,226
Net Income	—	—		—		1,895		1,895
Equity Based Compensation	—	—		1,163		—		1,163
Vested restricted stock units	1,704	—		—		—		—
Taxes paid for net share settlement of equity awards	—	—		(47)		—		(47)
Balance - May 1, 2022	15,125,042	$	—	$	174,878	$	(15,641)	$	159,237

Net Income	—	—		—		7,122		7,122
Equity Based Compensation	—	—		1,034		—		1,034
Vested restricted stock units	58,235	—		—		—		—
Taxes paid for net share settlement of equity awards	—	—		(1,402)		—		(1,402)
Balance - July 31, 2022	15,183,277	$	—	$	174,510	$	(8,519)	$	165,991

The accompanying notes are an integral part of these condensed financial statements.

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THE LOVESAC COMPANY

CONDENSED STATEMENT OF CASH FLOWS

(unaudited)


	Twenty-six weeks ended
(amounts in thousands)	July 31, 2022		August 1, 2021
Cash Flows from Operating Activities
Net income	$	9,017	$	10,509
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization of property and equipment	5,549		3,479
Amortization of other intangible assets	188		543
Amortization of deferred financing fees	71		45
Equity based compensation	2,197		1,739
Non-cash operating lease cost	8,711		9,012
Impairment of right of use lease asset	—		554
Deferred income taxes	2,738		—
Changes in operating assets and liabilities:
Trade accounts receivable	(423)		(2,850)
Merchandise inventories	(38,133)		(24,575)
Prepaid expenses and other current assets	(17,916)		461
Accounts payable and accrued expenses	(16,024)		2,830
Operating lease liabilities	(8,501)		(8,351)
Customer deposits	(6,828)		7,373
Net Cash (Used in) Provided by Operating Activities	(59,354)		769
Cash Flows from Investing Activities
Purchase of property and equipment	(13,461)		(7,141)
Payments for patents and trademarks	(200)		(215)
Net Cash Used in Investing Activities	(13,661)		(7,356)
Cash Flows from Financing Activities
Payment of deferred financing costs	(276)		—
Taxes paid for net share settlement of equity awards	(1,449)		(3,370)

Proceeds from the exercise of warrants	—		104
Net Cash Used in Financing Activities	(1,725)		(3,266)
Net Change in Cash and Cash Equivalents	(74,740)		(9,853)
Cash and Cash Equivalents - Beginning	92,392		78,341
Cash and Cash Equivalents - Ending	$	17,652	$	68,488
Supplemental Cash Flow Disclosures
Cash paid for taxes	$	9,393	$	670
Cash paid for interest	$	34	$	32

The accompanying notes are an integral part of these condensed financial statements.

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THE LOVESAC COMPANY

CONDENSED NOTES TO FINANCIAL STATEMENTS

FOR THE THIRTEEN TWENTY-SIX WEEKS ENDED JULY 31, 2022 AND AUGUST 1, 2021

NOTE 1 - BASIS OF PRESENTATION AND OPERATIONS

The balance sheet of The Lovesac Company (the “Company”, “we”, “us” or “our”) as of January 30, 2022, which has been derived from our audited financial statements as of and for the 52-week year ended January 30, 2022, and the accompanying interim unaudited condensed financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. Certain information and note disclosures normally included in annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), have been condensed or omitted pursuant to those rules and regulations. The financial information presented herein, which is not necessarily indicative of results to be expected for the full current fiscal year, reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the interim unaudited condensed financial statements. Such adjustments are of a normal, recurring nature. These condensed financial statements should be read in conjunction with the Company’s financial statements filed in its Annual Report on Form 10-K for the fiscal year ended January 30, 2022.

Due to the seasonality of the Company’s business, with the majority of our activity occurring in the fourth quarter of each fiscal year, the results of operations for the thirteen and twenty-six weeks ended July 31, 2022 and August 1, 2021 are not necessarily indicative of results to be expected for the full fiscal year.

Nature of Operations

The Company is a technology driven company that designs, manufactures and sells unique, high quality furniture derived through its proprietary “Designed for Life” approach which results in products that are built to last a lifetime and designed to evolve as our customers’ lives do. The Company markets and sells its products through modern and efficient showrooms and, increasingly, through online sales directly at www.lovesac.com, supported by direct-to-consumer touch-feel points in the form of our own showrooms, which include our newly created mobile concierge and kiosks, as well as through shop-in-shops and online pop-up-shops with third party retailers. The Company was formed as a Delaware corporation on January 3, 2017, in connection with a corporate reorganization with SAC Acquisition LLC, a Delaware limited liability company (“SAC LLC”), the predecessor entity to the Company.

COVID-19

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic and, in the following weeks, the U.S. federal, state and local governments issued lockdown orders and related safety measures impacting the operations of our showrooms and consumer demand. Although there has been a general improvement in conditions, there continues to be significant uncertainties around the scope and severity of the pandemic, its impact on the global economy, including supply chains, and other business disruptions that may impact our operating results and financial condition. We continue to follow the guidance issued by federal, state and local governments and health organizations and have taken measures to protect the safety of our associates and customers.

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

The Company has considered recently issued accounting pronouncements and they were considered to be not applicable or the adoption of such pronouncements will not have a material impact on its condensed financial statements.

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NOTE 3 – INTANGIBLE ASSETS, NET

A summary of intangible assets follows:

July 31, 2022

(amounts in thousands)

Estimated Life

Gross Carrying Amount

Accumulated Amortization

Net carrying amount

Patents

10 years

2,982

(1,737)

SEC Form 10-Q filed by The Lovesac Company