Stock Story -
Furniture company Lovesac (NASDAQ:LOVE) reported Q1 CY2024 results topping analysts' expectations, with revenue down 6.1% year on year to $132.6 million. The company expects next quarter's revenue to be around $156 million, in line with analysts' estimates. It made a GAAP loss of $0.83 per share, down from its loss of $0.28 per share in the same quarter last year.
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Lovesac (LOVE) Q1 CY2024 Highlights:
- Revenue: $132.6 million vs analyst estimates of $128.1 million (3.6% beat)
- Revenue Guidance for Q2 CY2024 is $156 million at the midpoint, roughly in line with what analysts were expecting
- The company reconfirmed its revenue guidance for the full year of $735 million at the midpoint
- Gross Margin (GAAP): 54.3%, up from 50% in the same quarter last year
- Free Cash Flow was -$14.31 million, down from $49.53 million in the previous quarter
- Market Capitalization: $402.4 million
Known for its oversized, premium beanbags, Lovesac (NASDAQ:LOVE) is a specialty furniture brand selling modular furniture.
Home FurnishingsA healthy housing market is good for furniture demand as more consumers are buying, renting, moving, and renovating. On the other hand, periods of economic weakness or high interest rates discourage home sales and can squelch demand. In addition, home furnishing companies must contend with shifting consumer preferences such as the growing propensity to buy goods online, including big things like mattresses and sofas that were once thought to be immune from e-commerce competition.
Sales GrowthA company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones demonstrate sustained growth over multiple years. Over the last five years, Lovesac grew its sales at an incredible 30.9% compounded annual growth rate. This is encouraging because it shows Lovesac's offerings resonate with customers, a helpful starting point for our assessment of quality.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Lovesac's recent history shows its demand slowed significantly as its annualized revenue growth of 12.7% over the last two years is well below its five-year trend.
This quarter, Lovesac's revenue fell 6.1% year on year to $132.6 million but beat Wall Street's estimates by 3.6%. For next quarter, the company is guiding for flat year on year revenue of $156 million, slowing from the 4% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 5.2% over the next 12 months, an acceleration from this quarter.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Lovesac has shown poor cash profitability over the last two years, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin averaged 1.1%, lousy for a consumer discretionary business.
Lovesac burned through $14.31 million of cash in Q1, equivalent to a negative 10.8% margin. The company's quarterly cash flow turned negative after being positive in the same quarter last year, but we wouldn't read too much into it because working capital needs can be seasonal and cause quarter-to-quarter swings in the short term.
Key Takeaways from Lovesac's Q1 ResultsWe were impressed by Lovesac's optimistic earnings forecast for next quarter, which blew past analysts' expectations. We were also glad its full-year revenue guidance came in higher than Wall Street's estimates. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The stock is up 1.6% after reporting and currently trades at $26.40 per share.
