It was a textbook blowout performance by Lovesac (LOVE 0.61%) on Wednesday morning. The company behind premium beanbag chairs and even pricier modular sectionals came through with flying colors in its fiscal fourth quarter. It wasn't enough.

Lovesac shares were trading 6% higher in premarket trading ahead of Wednesday's opening bell. It opened 3% higher, but that, too, proved fleeting on a volatile trading day that history will remember more as the day a crypto marketplace went public than the day Lovesac's stock chart defied its ascending fundamentals. Lovesac shares closed 5% lower on the day it posted monster financial results.

A woman resting with a blanket in a large Lovesac beanbag chair.

Image source: Lovesac.

Bean there, done that

Net sales soared 41% to $129.7 million for the final three months of fiscal 2021, well ahead of the 26% year-over-year increase analysts were targeting. The robust showing during its historically strongest fiscal quarter lifted the top line for all of fiscal 2021 by 37%.

If you figure that Lovesac is benefiting from the stay-at-home phase of the pandemic with folks springing for cozier furniture for the home you would be right, but you would be missing the bigger picture here. Lovesac has now come through with four consecutive fiscal years of 33% in net sales growth or better. It was a simmering growth stock before you needed fresh furnishings for your streaming, knitting, and video gaming sessions.

A big part of the Lovesac model is its showrooms, and naturally it had to close all 91 of its storefronts in March of last year when the COVID-19 crisis made it unsafe to sell in person. Lovesac turned to online and phone sales to help keep it from squandering its momentum. Digital sales were a game changer, and even now when all of its stores are fully open for walk-in traffic, internet sales still surged 86% in its latest quarter. Comps soared 45% in the fourth quarter, largely on the strength of digital orders.

If you think Lovesac will shrink its footprint and emphasize internet orders now that it's had a good taste of the dot-com life you've once again underestimated the resiliency of the business model. There's a glut of copycats online selling cheaper beanbag chairs. Lovesac boutiques help the premium-priced products prove their worth. It's a hands-on experience. Lovesac has actually opened more stores during the pandemic lull, taking advantage of the brick-and-mortar apocalypse to pick up more storefronts from hungry landlords. It now has 108 locations.

The news gets even better on the bottom line. Margins expanded dramatically. Net income more than quadrupled to $21.7 million or $1.37 a share. Wall Street pros were settling for a profit of $0.58 a share.

Lovesac's guidance calls for 38% sales growth for the current fiscal quarter that ends in two weeks. It's only offering a framework for what its crystal ball shows for all of fiscal 2022, but by expanding its store count by 20%, even if it only matches that to increase its top line by 20% this year it will easily top Wall Street's estimates of $380 million. There will be some margin challenges, but new products and Lovesac excelling at steering customers to high-margin merchandise should deliver another year of bottom-line beats.

It was a solid report, and a pair of analysts went on to jack up their price targets. Lovesac is an unheralded growth story, and it continues to be underestimated by Wall Street. It has topped profit expectations by 83% or better in its last three quarterly updates.

Why did Lovesac slide on a well-received blowout report? The stock is nearly an 11-bagger over the past year, so that could have played a part in the "sell on the news" moment. However, that starting line is from a severely depressed point for most stocks a year ago. You don't bet against a company that is growing briskly, expanding margins, and producing analyst-thumping earnings growth. Lovesac will be back to claim the gains it earned but didn't receive on Wednesday.