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Why Did The Lovesac Company Go Up 53.5% in May?

By Anne Burdakin – Updated Jun 5, 2020 at 12:43PM

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Lovesac sales show consumers love versatile modular furniture, even during pandemics.

What happened

The Lovesac Company (LOVE -0.83%), maker of modular sectional furniture and beanbag chairs, saw a share price increase of 53.5% in May according to data provided by S&P Global Market Intelligence.

Investors were cheered by performance information imparted during the fourth-quarter 2020 earnings conference call on April 16. Lovesac shares began to rise following the earnings release and continued upward in May.

Showrooms closed on March 17, and data through April 12 showed e-commerce point of sale (POS) transaction dollars up over 400%, with total POS dollars up 3.6% versus the same period in 2019, which included showroom sales.

Luckily, the warehousing and distribution system has a share of the grocery market and has continued to ship Lovesac products without skipping a beat, while other businesses deemed nonessential were required to close. This was a critical factor in Lovesac's success pivoting to an entirely online business, and it has worked out very well.

Young girl with computer asleep on a modular couch.

Image source: Getty Images

While many other retailers have reported massive sales decreases in the most recent quarter, Lovesac has adapted and executed a new plan during COVID-19, with attention-getting results. The company's rapid and successful pivot to online sales supported a fourth-quarter 2020 net sales increase of 43.6% to $92.2 million year over year.

Lovesac's sales gains are not coming at the expense of liquidity. At the beginning of pandemic-related showroom closures, Lovesac's balance sheet showed a net cash position of over $40 million in cash and $10 million under the line of credit for total liquidity of $50 million.

So what

Lovesac's performance during the health crisis has been very solid. But the company also kept its focus on growth while dealing with the unforeseen circumstances of coronavirus, and investors should take note.

"We are excited to announce our new pilot with Best Buy, as we expand our channel reach beyond our successful Costco partnership and Macy's pilot. Best Buy has already had three Lovesac shop-in-shops in market for the past 90 days as a test toward a larger program," said CEO Shawn Nelson during the April 16 earnings conference call.

A retailer's surviving the pandemic is a win, but thriving is unusual. Retail has been hit hard, but Lovesac saw the opportunity as people stayed home and thought about making domestic improvements.

The company kept full-time showroom associates on but essentially made them area trade representatives. The associates used technology to connect with customers and guide them through the buying process from home. The increased communication resulted in customer purchasing confidence, as did free shipping returns, a risk-free trial period, and the ready availability of swatches. 

Lovesac also made heavy use of social media, such as Pinterest and Facebook, creating the kind of positive word-of-mouth from customer input that money can't buy.

Now what

Lovesac intends to take the lessons it learned during the pandemic to continue improving omnichannel performance. Analysts have taken note. The First Call consensus recommendation is that Lovesac is a strong buy.

At $17.85 per share, Lovesac is up 10.9% in 2020, but seems to be on a rare retail trajectory given recent events. With a price-to-sales (PS) ratio of .70, the company looks like a good pick for investors as the economy makes its way back, and well into the future. There is a risk if the current recovery doesn't hold, but even if that happens, Lovesac has proven its resilience in uncertain times.

 

Anne Burdakin has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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