Well, good morning. Thank you all for joining us. So my name is Brian Nagel. I'm a senior equity research analyst here at Oppenheimer covering consumer growth and e-commerce. So this is a continuation of our 26th annual Oppenheimer consumer growth and e-commerce conference. Again, we very much appreciate everyone tuning in this morning. So I'm pleased to have with us our first presenting company today, Lovesac, and a few members of the company's senior leadership team here so we have uh founder and ceo sean nelson president mary fox and cfo keith siegner so i appreciate all you taking the time to join us thank you for having us hey yeah thank you brett absolutely we're going to structure this as a uh an informal fireside chat with me asking questions from the lovesack team answering those questions to the extent there are any questions from the audience just please uh send them through the chat and i'll be happy to work them into our conversation. But I thought we'd start, because I'll direct this to you, Sean. I've had the pleasure of studying Love Sack now for a while. I very much enjoyed watching the company, its brand, its position evolve. So what I'd love to start with is just kind of your perspectives on the brand and how the brand is evolving here and the underlying strategic position of the brand
today. Yeah, thanks, Brian. It's great to be with you. And yeah, Love Sack is a company that was founded a long time ago and has followed a very strange path to growth. We stand today now as the leader in the United States for sectional sofas. We make a really cool product that we are the most famous for today called Sactionals. This is a couch that you can arrange and rearrange change endlessly and, uh, keep it for the rest of your life. If you want to, if you're willing to maintain it and grow it and change it and wash it and all these other things, that's why customers love us. And, and that love for a product that can actually sustain, you know, in this world of sustainability messaging and whatnot, so many things actually let us down and we all, you know, are privy to the effects of planned obsolescence and all these other things. So Love Sacks brand really flies in the face of that. And our ambition is not to expand that into, you know, a small box online version of West Elm or something. You know, we do have opportunities to compete more broadly in the furniture category. You're going to see some of that action this year. But ultimately, our ambition is to build the most loved brand in America. And that might sound like a tall order from a company that started by making gigantic beanbags. But, you know, whether you've sat in a six or eight foot love sack before, you know, chopped up, foam filled, not beanbag and felt the love that comes from that experience, you know. and we lead that small category or one of our amazing sectional sofas, again, that can be with you for decades because of all of its really unique attributes. It really is a product and a brand that resonates with people in a different way and allows us to show up in the world differently. And so we're really excited about what's going on inside the company right now. We like to say it's not just that we make great products because we do, you know, the patents around sectionals have been formidable, the growth that it's brought the company, you know, to 10x the company since our IPO eight years ago, we're really proud of and our ability to, you know, maintain strong performance, even post COVID, which has been terrible for the furniture category, all on the back of this brand. Um, but now we're poised to move into a new room, leveraging the same brand, uh, attributes and compete even more broadly and, and, uh, and expand the company, um, much further. And so it's a, it's, it's exciting time at Love Sack. We have all kinds of, all kinds of cool things going on. Like I said, it's not just that we, we make great products, but we've learned to sell stuff, uh, greatly. You know, we show up in the world very differently than others, and we're very proud of what we're building.
To follow up on that, you know, you've had a number of recent product launches or additions. Maybe you can talk about that. But I think then one of the most exciting things that you've talked about recently is, you know, this forthcoming move into a new world, which we should see, I guess, next year. So maybe we can talk more extensively about that.
Yeah, so we haven't announced it. But specifically, but we have said that we will be expanding into a new room with a full suite of products early next year. And we view this as a huge deal. You know, Love Sack has done very well over this past decade by being radically focused. You know, we don't even today sell rugs and lamps and credenzas and end tables, of course, like would be expected from a company that has a huge business in couches. We've put on the blinders, we've stayed focused. And even in couches, we only have a couple of, let's call them lines, where most of our competitors, especially at our scale, have 30 and 40 styles and collections of sofas, sectionals, et cetera. But our business in sectionals eclipses most of those competitors in scale. And so it's been a wildly efficient business. We want to take all of that efficient thinking in SKUs, efficient thinking in inventory, and of course, design for life, nature of the product, things that are built to last a lifetime, designed to evolve, and scale that into a new room where we believe we can have an anchor product similar to sectionals. You know, it's washable and changeable and modular and can grow and expand with you, but do it in a category that we have not yet exploited, in a category that customers are asking us for. And that's, I think, a hallmark of who LoveSack is. You know, we're not a merchant-led brand. We're a lot more like a P&G, a PepsiCo, than a merchant-led furniture brand. And so we do deep consumer research, consumer insights that have led us to this big opportunity, as we see. And our ambition is to double the company on that, you know, take the same playbook that we're good at and go do it again in a new category. Meanwhile, filling in some of those gaps around the edges, even in the living room where we compete today to have to drive bigger AOV, you know, bigger basket size and continue to cultivate that business over time as well. So, you know, good steady growth from our living room business going forward, we hope, and massive upside opportunity starting, you know, first half of next year in this new room that we're going to come into with guns blazing. And the exciting thing about that is because we're launching, of course, on the heels of, I think, so much success over the past number of years, both at retail and, of course, online through direct marketing methods, our ability to show up with a fulsome offering, still very tight, still very controlled from an inventory standpoint. But a very competitive offering is much greater than it was when we hurled ourselves at the furniture category through couches, you know, let's call it 10 years ago. And so you're going to see us bring the heat. And we're really excited about what that new room opportunity offers the company and our growth proposition.
so the one aspect of love sack that i find it's very intriguing and i think it's maybe not totally appreciated within the market it's just the the best i would say the investment acumen you know so as you talk about whether the products that have been launched recently enhancements your existing products have launched and then maybe more importantly this this new room you're talking about i mean how much how for how long you know has to have these these products been in the works have been basically within the lovesack enterprise, been designed and tested the investments that
have gone behind all this. Yes, thank you. Years and years. We've been cooking on this new category honestly for the better part of a decade. That might sound crazy, but we got really serious about it two and three years ago. And the reason that it takes so long and it's about to come to fruition for us to cook these things is, again, because we're not just making like for like product and putting our name on it. We're not just sourcing stuff around the globe and slapping a love sack box around it and coming to market. We reinvent a category when we enter that category. Sactionals reinvented sectional sofas. And by the way, have dragged with it half a dozen or a dozen startup copycat lookalikes as evidence of that. Now, they can't do what we're doing with Saxonals because of our patents and also the way we go to market. Again, we're not just good at making things, we're good at bringing them to market through digital means, through Lovesac stores. You can't even buy Lovesac from anyone but Lovesac. We're a true direct consumer brand. We operate 280 lovesack physical locations around the country. And that experience inside that store is just as sacred to us as the product itself. And it's the reason we have the success that we have both at the top line and at the bottom line, you know, we're profitable cashflow positive. We have, uh, you know, our highest, uh, cash levels ever generated in the year we just rounded out. And so this, you know, and no debt, right. And so So we're going to take all that strength, apply it to this new category, having cooked on it for years now. It's like no one's more excited than we are to finally get to the launch point that's coming, you know, because it's finally like the clock is ticking. You know, we're within the next, let's call it, you know, 12-month cycle to be coming out with this and having cooked on it for so long. Again, not just the product, but the whole retail experience, the whole, we call it in-store demo experience that will extend, of course, through digital means. All of this is culminating over these next 12 months into this new room. And there will be new patents associated with that, new waves to be created, and a whole new era in that realm of the home category that's not been seen before because we're messing with it. We like to say, by the way, and this is the funny aspect about Love Sack, there will be fewer couches sold on Earth ultimately because we mess with couches. Now, we have a long way to go. We have low single-digit market share overall, even despite this wild growth because it's such a big and yet fragmented market. So the TAM is huge still in the core business that we're in. But we're looking at a wide open playing field that we've never touched with the same innovative approach. And we're excited to get started on that. That's very helpful.
Let's take a step back before we talk more about the particulars of love. This is our consumer conference. We've had a lot of discussion out there just on the health of the consumer. And I know you have discussed recently the health of the consumer in your comments. So I'd love to get the update from Lovesack. Do you see the health of the consumer and how any consumer weakness may be impacting your business in the nearer term here?
Yeah, look, it's been a tough few years since COVID. Who knew that the global pandemic would cause like economic boom for especially in the home category? And we enjoyed that and we took that growth. And we haven't stepped back. You know, the furniture category is a fraction. It has been decimated in those four years since, and yet we've held our revenues steady and continue to generate profits. But I'd love to kick it to Mary, our president, who's really plugged in tightly to our marketing machine and to the customer to give you some data on that and more color there.
Thank you, Sean. Yeah, Brian, great question. Obviously, you know, Sean, you mentioned it earlier, we obsess about the consumer, you know, both in terms of delighting them in our innovation, but also just understanding the trends and how do we monetize on them. So certainly for sure, they're still buying, they're buying a lot of product, but they are a little bit more selective as we've been seeing. And Sean, as you said, you know, from that pull forward during COVID, the category really is back to at a lower level than 2019. So the good news is we talk about in the business is we're just one day closer to kind of really getting that category back into growth. What we're seeing from a consumer sentiment and trend perspective is decision cycles are a little bit longer. So they're taking time to do their research and then being very considered around what they're buying. They are buying a little bit more skewed to tentpole moments during events. So, you know, that value prop is critical. And I think as we've shared with you, you know, when it comes to LoveSack, what's really encouraging is when you bring great innovation, they really value it. And, you know, we've talked to you about the amazing recliner that we launched, you know, 18 months ago. You know, that is a more premium add-on, but the experience is incredible. It's the best recliner on the market. and the adoption of that has been so strong so even kind of in this more pressured time they really value innovation I think for us specifically our customer does skew more higher income and as you know from all the trends the higher income consumer whilst they're facing these inflationary pressures that we all know of and we read of and we see every day they have held up relatively better we've seen a lot more acceleration at the higher end of the transaction size more of the premium add-ons etc and then the lower end size transactions brian as we've talked about they have been a little bit softer um as that uh you know consumers fighting a little bit more around you know how much can i spend and i think one of the wonderful things about our product is you can add on to our platform um at any point in time you know i have my love stack is 15 years old way older than ever sure and i ever dreamt of meeting you and fast forward i've added you know multiple things onto it stealth tech recliners i've added new pieces on as we added new things to our family around pets and kids and all of that and you can keep adding on so you know at times people are buying less pieces and then later on you know adding on and i think that's one of the incredible elements of our platform is enabling people to have that flexibility. So for us, as we think about continuing to win in this year and beyond, obsessing about the consumer, delighting them with innovation, and then really figuring around how do you get that value prop right for the different consumer segments, I think a couple of the highlights to share with you today.
That's very helpful. Maybe talk about the marketing. So I know you talked, I guess, Let me ask a couple of questions. I mean, talk about how the overall marketing engine of LoveSack is evolving with your use of digital as well as still some traditional media. But then also maybe more near-term. I think you were discussing this recently about maybe a marketing message more geared towards this, that consumer that's struggling now and how to get them over the bump here in a tougher time to buy a LoveSack.
Yeah, no, great. Yeah, thank you for the question. So, you know, we've really been talking, our marketing engine has been pivoting a lot more to digital social first uh paid earned and model you know really moving off what we were more traditionally invested in around linear tv and this is really helping us to be able to drive greater conversion and greater unit economics within all of that as you see that's resonating with many brands you know and sean obviously you know as the founder there's a real ability for us to tell our story so you know we've been evolving our content engine we talk a lot around how do we win obviously with search starting a lot around llms and really making sure that love sack is front and center as customers are thinking about making this very considered purchase and i think you know for us that's been super important so you know the the other element as we think about the experience because it's all leaning into marketing you know sean talked about the showrooms and really this very effective demonstration you know consumers come in and they go okay this is what i am looking for we we take them through a journey understanding what matters for them in their life and then we have a really good way of them being able to deliver them the solution they want but we also have our number one touch point is our website so there's been a lot of work done on our website to really help improve that journey and help drive the conversion through the funnel, linking to the digital storytelling that we're doing, and then how do you really harness them through to the conversion? So I think that's been great. And, you know, a couple of examples, you know, that we've shared quarter one. You know, what we brought in and, you know, we announced Heidi Cooley joined us last year as our CMO. She came from Crocs where she really turned that brand into the cultural zeitgeist brand that was just so relevant around collaborations and just being the item to wear um so we're thrilled she's been with us for a year and you're seeing a lot of her work coming to life so you know back in february you know it's kind of the the weather outside is not so great you know people are kind of looking around um but you know what her leadership really focuses on is tap into cultural moments that are happening so we launched a campaign called situationship that was really tapping into the insight that people often settle for things in life and they should really challenge themselves and there's just a whole lot of viral conversations around this so her ability to create a moment in a in a moment of just a sea of sameness um you know in a whole campaign around challenge the couch you're sitting on and are you settling for something that isn't as comfy or isn't as flexible and doesn't do all the things sean talked about And we had an amazing level of success, you know, more than a billion impressions, great conversion. So it's just one example of many, you know, that we're really trying to bring the relevancy to what's on people's minds. And then the last piece of your question around, you know, back to that consumer that's very focused on value and how do I find something that can fit my wallet right now? um you know there's a lot of work that we're doing both in sharpening the story um to be able to demonstrate that value but also back to the website experience um you know creating starter packs being able to show people very clearly you know we're starting at on a certain fabric choice and really helping them to be able to be very clear as soon as they start to experience the brand where there could be those you know opening price point opportunities but then also through explaining the journey showing them that they can add on over time so there's more to come actually in terms of enabling that uh consumer that wants the brand loves the brand has you know drawn sean we hear it all the time when we're in showrooms they are so excited they've heard it from their friend their neighbor about this great brand um you know they come in with four credit cards at times to be able to make a transaction um so you'll see more from us coming particularly on the website around how that's going to be sharpened that's very helpful let's talk about
the showrooms you know so i think that you're one of a key obviously key key consumer touchpoint so where are you now you know growth in showrooms and i guess you know another real question i have as we think about this rather significant product extension that's forthcoming? How are the showrooms going to evolve to basically showcase more items?
Yeah, that's a great question. And to step back to this idea that Sean was talking about before about you could think of it in effect, we are building a business inside our existing business. You could even call it a startup to some extent. What's important about that though is we're not a startup, right? We have a national brand. We have a true omni-channel distribution system, including the website Mary just talked about, 281 stores, and distribution access points through our relationship with Costco. So we have these latent advantages, and we have an installed base of rabid fans who love us and would love to have more stuff from us. So what's important about this is it could be very easy to fall into the trap of saying, listen, we have some of the most productive small box retail expressions in all of consumer. Let's just go as fast as we can. But what we've done here is to step back for a second and to think more holistically about this because the world is changing. OK, here we are, a product company evolving into a lifestyle brand. Right. That's number one. what market share do we think we can take? That's where we start. And then we say, what's the most efficient way to take it, right? How do we take the 281 stores that we do have and make them work the hardest for us? What's the efficient curve, the efficient frontier of where we should get to? Is it how many can we have or how few do we need to provide an excellent consumer experience that's convenient and that really builds the brand right so we're rethinking this so i think you're going to see a number of different expressions from us in the future that'll really tap into the creativity and and and the head start that we have as an omni-channel you know purveyor you know or omni-channel brand so i think what the way i would think about this is as follows. We are not going to fundamentally change from our highly efficient, effective routes, but we're going to experiment around the edges. Do we have stores that are only for the living room? Do we have stores that are only for the new room? Do we maybe bookend a really powerful center so that LoveSack brand exists at both, right? And they can send people back and forth by the way that can also be very efficient for us because we can share people share management share you know all the operational behind the scenes characteristics that make us an efficient executor of that customer experience so stay tuned on this but again the point here is what's the most market share we think we could take what's the most efficient way to take it and And that's where you're going to see us moving forward.
Very helpful, Keith. Let's shift a bit to, I guess, external tariffs. So tariffs have been an issue for Lovesac. The way I'll frame the question is maybe an update on what you're seeing in tariff funds and what you've done so far to mitigate tariffs. I think you've started to receive now some tariff refunds, at least initially. And then maybe the bigger picture piece of the question, this is real more for Sean, is, you know, you've talked about this rather significant reshoring effort, you know, kind of where we are in that, how we should think about the longer term, you know, either business model
or financial implications. Yeah, let me start there, and then Mary, you pick up. Yeah, look, we're done with tariffs. We're on-shoring our business, and look, that's a dramatic statement. It's going to take us quite a while to do it all, but no joke, we announced a few quarters ago that We'll be making sectionals, which is the lion's share of our sales, especially by the dollar, you know, sectionals, inserts, seats and sides that you can arrange and rearrange endlessly. We're going to begin making seats, which is our biggest dollar item by far in this business in the United States for costs that are, you know, comparable to what we're making them for in Asia, which is remarkable, I think, landed, you know, delivered costs. We're going to be doing that before the end of this year. We're going to be doing that just later this year. And that's been, again, a two-year project. We had to re-engineer the product to be built for mass production, for lights out, not quite, but automated manufacturing, far less labor, obviously, out of new materials. Of course, the finished sectionals pieces will work seamlessly with the ones you already own and will look and feel the same when they're wearing covers. But underneath, new materials, new engineering, new patents on new features that current sectionals don't even have that will make the product even superior, not just to our competitors, copycats and startups that are, you know, trying to do things similar, but to ourselves. I mean, this is a better product made in America for less money. And we're really excited about that. And so that comes live later this year. And, you know, we'll chase that down with a redundant factory to then take it further into our product catalog. And we want to be done with tariffs. We want to be done with pirates and storms and all the other wars and all the other, volatility that's out there. But meanwhile, for, I guess, just deeper info on tariffs and these rebates and everything, I'll turn it to Mary. I'll start and then Keith, you can round
us out. So I think, you know, the first thing from our side is, you know, we've been experiencing tariffs for a long time. So, you know, 2018, as you know, there were the three or one tariffs that came in. So as a company, we had been dealing with that for some time. So it's not the first rodeo of dealing with it and then obviously last year a number of different tariffs came into place that was a very significant headwind but as you know from our results and everything that Sean shared at the beginning we we figured our way through that you know through a four-point plan firstly working with our very long-term vendors they own the factories we work directly with them so a lot more efficient in kind of the cost model so they really help support us there there was then a lot of work done around surgical pricing opportunities, looking at kind of how we manage the business from a fuel for growth, as we call it internally. So how do you drive out more efficiencies? How do you drive some offsets to cover for those tariffs? And then importantly, with tariff rates being different at each country level, a lot of work around diversification and moving some of our production you know out so you know those those the work that was done obviously garnered the results that we saw through last year and and we feel very proud to the team because it was highly intensive then as we continue in this year you know tariffs move in the news all the time so we've planned for what we know today again you know working at mitigation and how do we manage because as you know there's also costs of goods inflation that's coming in because the oil price increases albeit hopefully that will start to lower down soon um so uh you know the team are continuing to run that playbook and then keith as we shared yesterday um you know the team had applied for tariffs i'll let keith walk you through that detail um and we've started to get some of those refunds in so keith i'll hand to you on the detail
that. I do think it's important context for one second because this is important in terms of the overall outlook and guidance and factors Mary just discussed. When the IEPA tariffs were deemed to be illegal, there were other tariffs that were put in place immediately. Sometimes I think we talk to folks who think that the tariffs that we were paying went away and we're not paying them right now. We are paying 122 tariffs right now, which go through the end of July-ish. What we've built in is a continuation of those beyond July at the existing levels, no increase and no disappearance of those. But our guidance considers that the tariffs we are paying right now, including the 301 and the 122s, just endure throughout the rest of the year. All right. So now to go back to the IEPA tariffs, we applied very early on. We were one of the first companies to get all of our applications in. Most of them were accepted. So there was 20.8 million total that we applied for. Of that, 3.4 has been received. um there is some interest that comes along with that as well which brings us up to about 3.6 that came in 2q it's included in our 2q guidance and in our full year guidance therefore as a result however we have not included the remaining the difference between the total and the 3.4 if and when that comes through because there's still questions around it if and when it does come through we will recognize that through our financials at that time um but we'll also know a lot more about what else is changing in the world for example what happens at the end of july when the 122s hit expiration we'll have a lot more clarity around a number of open questions that exist so we'll we'll give you a lot more information about that with next quarter's earnings because we'll have a more holistic picture but um yeah we are we feel pretty good about our position that we've done everything we can and are hopeful that the rest of the
tariff refund will come through that's very helpful so i'm seeing we have one minute left dessert. The topic we should have discussed, we didn't discuss here, we could throw in quickly.
Look, we're proud of what we build at Love Sack. We're poised to, as we said, our ambition is not just steady growth, but even though we'll take it, especially in times of duress like this for the home category, as we continue to kind of watch the world unfold. But regardless of what the macro does or doesn't do, we have plans to double and triple this company. And that may sound aggressive, but that's our ambition. And it's going to take years to unfold, I'm sure. But the real momentum on that will begin toward the end of this year as we have our most prolific year of product launches ever in the living room where we already have great traction leading into this new room launch early next year. and we're really excited about everything that will come with that.
Well, I very much appreciate your time. It's always great seeing you. Thank you for joining the conference and congrats. Best of luck. Thanks for having us.
Thank you, Brian. Nice to see you.