What happened
Shares of Lovesac (LOVE 0.55%) were down 10.3% as of 12:08 p.m. ET on Wednesday after the company delivered results for its fiscal 2023 first quarter.
For the period, which ended May 1, net sales grew 56% year over year, beating analysts' consensus estimate. Though its gross margin fell by 4.5 percentage points, the company still reported earnings per share of $0.12, down only $0.01 from the year-ago quarter.
So what
Lovesac is popular for its "Sactionals" -- modular couches that can be arranged in a variety of configurations. Sactionals represented 87% of total sales in its fiscal 2022. Total net sales reached $129 million in fiscal Q1, giving Lovesac a nearly 50% compound annual growth rate since its initial public offering four years ago.
From a demand standpoint, Lovesac appears to be performing well in a challenging retail environment. But what might have spooked investors is that its gross margin slipped. Management pointed to supply chain costs for the decline.
Management also noted on the earnings call that they had observed some moderation in demand in the last few weeks.
Image source: Getty Images.
Now what
It's for these reasons that investors are probably worried that there could be a deceleration in sales growth for the rest of the year. However, management is focused on executing on its long-term strategy to capture a greater share of the addressable market in the couch and home audio categories, which it says are worth a total of $46 billion annually. Currently, Lovesac only wins about 1% to 2% of that market.
The company is innovating in the couch market with its latest StealthTech launch. Management believes Lovesac will continue to gain market share as it launches new products.
