Lovesac Posts 2.5% Revenue Gain in Q2

Lovesac (LOVE 2.32%), a modular furniture specialist known for its “Designed for Life” product philosophy, reported earnings for the second quarter of fiscal 2026 on September 11, 2025. Highlights included modest revenue growth within the guided range but continued pressure on profitability, as gross margin fell and net losses widened. Management tightened its full-year outlook, raising projected sales slightly but reducing profit expectations, reflecting an environment of continued cost pressures and increased promotional activity.

Business Overview and Strategy

Lovesac designs and sells modular furniture, focusing on products such as Sactionals (modular couches) and Sacs (bean bag–style seating). These products are built to be customizable and durable, aiming to fulfill a “Designed for Life” ethos that targets long-term value and minimal waste. Its business combines showroom retail, direct-to-consumer sales over the internet, and more recently, a limited assortment through third-party partners and pop-up shops.

The company’s recent strategy centers on driving growth through innovation, expanding showroom presence, advancing sustainability initiatives, and connecting with consumers via omni-channel engagement. Showroom sales have become the cornerstone, contributing the largest share of net sales and providing a venue for product demonstration. Key factors for continued progress include innovation, supply chain discipline, and maintaining effective brand marketing in a competitive environment.

Quarter in Review: Financial and Operational Developments

Lovesac posted revenue of $160.5 million, up 2.5% from the prior-year quarter, landing within its stated guidance of $157 million to $166 million. The revenue figure was driven by a 10.4% year-over-year increase in showroom sales. The company added a net three new showrooms, raising its total to 270, which supported both sales growth and its broader brand transition strategy. However, internet channel sales slid 4.1%, while sales from pop-ups and other third-party points dropped 33.6%. With the associated costs appearing as non-recurring expenses.

Gross profit slipped to $90.6 million, reflecting a gross margin contraction to 56.4% from 59.0% in the prior-year period. According to management, margin compression resulted mainly from higher inbound and outbound transportation costs, as well as a decrease in product margin due to heavier promotional discounting. Management explained, “Gross margin decreased 260 basis points to 56.4% of net sales from 59.0% of net sales in the prior-year period, primarily driven by increases of 110 basis points in inbound transportation costs, 50 basis points in outbound transportation and warehousing costs, and a decrease of 100 basis points in product margin due to higher promotional discounting.” The company also saw its operating expenses decrease 1.3% year-over-year, with the selling, general, and administrative cost ratio improving by 2.1 percentage points, showing progress in cost management.

Adjusted EBITDA, a profit measure excluding interest, taxes, and certain non-cash expenses, was $0.8 million, representing a sharp decline of 44.1% compared to the previous year. Net loss was $6.7 million, compared to $5.9 million in the prior-year quarter, translating to a loss per diluted share of $0.45. Management said the loss remained narrower than its guided range, which expected a net loss between $8 million and $12 million, but it marks a larger net loss compared to the prior-year quarter. Despite the loss, net cash from operating activities improved, delivering $12.2 million of operating inflow versus $6.2 million in the year-ago period, though the year-to-date figure points to higher inventory-related outflows as the company anticipates future demand and ongoing tariffs.

Channel-specific dynamics were prominent this quarter. While showrooms delivered revenue growth, internet sales and pop-ups underperformed. Merchandise inventories were $124.0 million as of August 3, 2025, compared to $88.3 million as of August 4, 2024, increasingly tied up by planned stocking ahead of tariff risks and product launches.

From a product innovation standpoint, Lovesac continued expanding its EverCouch line. The EverCouch is a sofa, loveseat, and armchair platform designed to broaden the company’s offerings in the couch and armchair category. Management remains focused on the “Designed for Life” product approach and ongoing brand transformation, launching new marketing campaigns but holding advertising and marketing spend flat as a percentage of net sales. No detailed quantitative update was provided on specific performance of EverCouch or other new innovations during the period.

Sustainability remains a central part of the brand, with modular, durable furniture, and an ongoing goal of reaching zero waste and emissions by 2040. While prior periods highlighted recognition for recycled content, such as plastic bottle repurposing, this quarter’s release did not provide specific updates or new key performance metrics for environmental, social, and governance (ESG) progress.

Looking Ahead: Guidance and Investor Considerations

Management updated its full-year guidance, raising the midpoint for net sales slightly to a new range of $710 million to $740 million (from $700 million to $750 million previously). However, targets for adjusted EBITDA (non-GAAP), net income, and diluted earnings per share were all reset lower. The current full-year forecast is $42 million to $55 million for adjusted EBITDA (non-GAAP), $8 million to $17 million in net income, and $0.52 to $1.05 in diluted earnings per share. The company cited ongoing pressures from transportation costs and higher discounting as factors shaping these expectations.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.