Sometimes it's good to stand out in a crowd. Lovesac (LOVE 1.64%) posted financial results for its fiscal 2024 first quarter on Wednesday morning, continuing to post sales growth at a time when many furniture makers are going the other way.
The bad news is that revenue gains continue to decelerate at Lovesac. The good news is that there are things far worse than slowing growth. Leading online furniture retailer Wayfair (W 3.51%) has now posted eight consecutive quarters of year-over-year declines in revenue.
Comparing the two companies may not seem fair. Wayfair is a household name, an e-tailing giant that sells a wide range of third-party furniture with sales peaking north of $14.1 billion in 2020. Lovesac sells only its own distinct product lines through physical showrooms and digital sales channels. Lovesac is also a lot smaller than Wayfair with $663.4 million in trailing revenue. However, the two companies are moving in different directions within the same furniture market, and it's a notable contrast.
NASDAQ: LOVE
Key Data Points
Cool beans
Lovesac's report on Wednesday may not seem very impressive at first glance. Net sales rose 9% to $141.2 million, the blending of a 3% increase in showroom net sales and a more robust 29% surge in internet net sales. After six consecutive fiscal years of delivering top-line growth of better than 30%, the new fiscal 2024 is shaping up to be a big step down.
The bottom line is even less impressive. Margins contracted despite Lovesac relying less on promotional discounting to move its premium bean bag chairs and high-tech sectionals. Lovesac's net loss of $4.2 million for the fiscal first quarter reverses a small profit of $1.9 million a year earlier.
Image source: Lovesac.
Dig a little deeper and the results grow more impressive. Analysts were bracing for an increase in net sales of only 4%. They were also targeting a larger loss of $0.42 a share for the quarter. Lovesac has now topped Wall Street profit targets in each of the last five quarters with at least double-digit percentage beats in all but one of the reports.
| Quarter | EPS Estimate | EPS Actual | Surprise |
|---|---|---|---|
| Q1 fiscal 2023 | ($0.21) | $0.12 | 157% |
| Q2 fiscal 2023 | $0.41 | $0.45 | 10% |
| Q3 fiscal 2023 | ($0.76) | ($0.55) | 28% |
| Q4 fiscal 2023 | $1.72 | $1.74 | 1% |
| Q1 fiscal 2024 | ($0.42) | ($0.28) | 33% |
Data: Yahoo! Finance. EPS = earnings per share.
Guidance isn't as comforting. Despite the bottom-line beat, Lovesac's guidance remains at a profit per share between $1.83 and $2.24 this fiscal year. It's also holding firm to its earlier projection of $700 million to $740 million in net sales this year. New guidance for the current quarter points to a small loss, with net sales growth slowing to a mere 1%. Analysts were expecting a small profit on a 2% top-line uptick. Lovesac has been historically conservative with its forecasts, but it's easy to see why the market wasn't thrilled with a "beat and stall" performance.
NYSE: W
Key Data Points
Losing its way
Slowing growth isn't as bad as Wayfair consistently posting negative sales growth over the last two years, but let's put Wayfair in a better light. Furniture sales spiked in 2020 when the COVID-19 crisis literally hit home. Folks invested in their home furnishings, figuring that they might as well be as comfortable as possible in the process of hunkering down. Despite sales likely declining for the third year in a row, Wayfair's trailing revenue is still 31% higher than it was in 2019. The bullish counter for Lovesac is that its net sales have nearly tripled -- up 184% -- in that time.
Wayfair's bottom line is also worth redefining. The red ink is substantial. It will continue to be that way for several years on a reported basis, but analysts see it turning the corner on an adjusted basis by 2025. The good news is that last year should be the worst of the deficits -- peak valley, if you will. Despite analysts bracing for a 3% decline on the top line for Wayfair this year, they also see the online furniture retailer shaving its adjusted annual by more than half this year. Another deficit haircut is expected next year.
The bullish counter for Lovesac is that it's already very profitable. The quarterly loss it just posted, as well as the one it's targeting for the fiscal second quarter, reflect the seasonality of the business. It has historically more than made that up over the holidays. Lovesac stock is also pretty cheap at less than 12 times the midpoint of its earnings outlook for this year.
Disappointing guidance on Wednesday may be tripping up my earlier expectations for a great week for Lovesac, but it's still one of my favorite retail stocks in this otherwise thorny market for consumer-facing storefronts. Wayfair should return to sales growth next year, but Lovesac still offers a better value for investors without the near-term profit hurdles to clear.
