[Management View]
Lovesac reported Q1 FY2026 net sales of $138.4 million, up 4.3% YoY, driven by showroom expansion and product innovation. The company emphasized its strategic focus on showroom-led growth, digital engagement, and product innovation, including the successful launch of the EverCouch platform. Management highlighted progress in tariff mitigation, inventory management, and cost containment, while reiterating its commitment to long-term value creation.

[Outlook]
For FY2026, Lovesac reaffirmed guidance with net sales expected between $700 million and $750 million, adjusted EBITDA of $48 million to $60 million, and gross margin around 59%. Q2 FY2026 guidance includes net sales of $157 million to $166 million and an adjusted EBITDA loss of $2 million to $7 million. The company plans to expand EverCouch distribution to 100 showrooms and increase Costco roadshows by 15% YoY.

[Financial Performance]
- Total Net Sales: $138.4 million (+4.3% YoY)
- Showroom Net Sales: $96.5 million (+18.2% YoY)
- Internet Net Sales: $33.3 million (-8.9% YoY)
- Gross Margin: 53.7% (-60 bps YoY)
- Operating Loss: $15 million (vs. $17.9 million YoY)
- Net Loss: $10.8 million (vs. $13 million YoY)
- Adjusted EBITDA Loss: $8.4 million (vs. $10.3 million YoY)

[Q&A Highlights]

**Question 1:** Can you elaborate on the promotional environment and its impact on gross margins?
**Answer:** Management noted that the promotional environment remains highly competitive, with discount levels up 400 basis points YoY. Competitors are offering discounts of 40-45%, but Lovesac has maintained success with promotions starting with a "3." Personalized promotions and showroom demos have been effective in driving trade-ups. Gross margin pressures in Q1 were due to higher promotional discounting, but vendor concessions, pricing adjustments, and reduced reliance on China are expected to improve margins later in the year.

**Question 2:** How is the EverCouch performing, and what feedback have you received?
**Answer:** Initial EverCouch sales have exceeded internal goals, with positive customer feedback on style, comfort, and functionality. The product is performing well in urban markets due to its smaller scale. Management emphasized that EverCouch broadens Lovesac's addressable market and enhances showroom offerings. More data will be shared in the next earnings call.

**Question 3:** Why did you decide to end the Best Buy partnership, and how will you approach distribution partnerships going forward?
**Answer:** The decision to end the Best Buy partnership was driven by Lovesac's expanded showroom footprint, which now overlaps with 80% of Best Buy locations. The company will focus on optimizing its showroom and Costco partnerships, leveraging Costco's strong traffic and customer base. Management remains open to exploring new distribution channels, particularly for products like EverCouch.

**Question 4:** What is the timeline for exiting manufacturing in China, and how does the recent US-China tariff framework impact this?
**Answer:** Lovesac is on track to reduce reliance on China to 13% for FY2026, with a lower exit rate by year-end. The company has already diversified its supply chain across Asia and is moving toward manufacturing closer to end consumers. Management expressed confidence in achieving a fully China-independent supply chain in the near term.

**Question 5:** How much upside from new products is baked into FY2026 guidance?
**Answer:** Management stated that FY2026 guidance does not rely on outsized success from new products. The company can achieve its targets even if core products remain flat. New products like EverCouch and the recliner provide additional growth opportunities but are not critical to meeting guidance.

**Question 6:** How are pricing actions being balanced with the promotional environment?
**Answer:** Lovesac has implemented surgical price increases, leveraging its strong brand and unique value proposition. The company remains competitive with promotions while maintaining a focus on value. Management highlighted that its structurally higher gross margins allow for smaller price increases compared to competitors.

**Question 7:** What are the plans for marketing and distribution of EverCouch?
**Answer:** EverCouch is currently available in 27 showrooms and will expand to 100 showrooms by late summer. Marketing efforts will ramp up in the second half of FY2026, including a formal campaign launch. The product is also available online, with a redesigned website improving customer navigation and conversion rates.

**Question 8:** How is working capital expected to evolve through FY2026?
**Answer:** Inventory levels are expected to decrease slightly by year-end, even with the addition of EverCouch. CapEx is estimated at $25 million for the year. Lovesac's low working capital requirements, due to quick customer payments and minimal accounts receivable, provide financial flexibility.

[Sentiment Analysis]
Management maintained a confident and optimistic tone, emphasizing strategic clarity and execution. Analysts were generally positive but sought clarity on gross margin pressures, tariff mitigation, and new product performance.

[Quarterly Comparison]
| Metric | Q1 FY2026 | Q1 FY2025 | YoY Change |
|-------------------------|-----------|-----------|------------|
| Total Net Sales | $138.4M | $132.6M | +4.3% |
| Showroom Net Sales | $96.5M | $81.6M | +18.2% |
| Internet Net Sales | $33.3M | $36.6M | -8.9% |
| Gross Margin | 53.7% | 54.3% | -60 bps |
| Operating Loss | $15M | $17.9M | Improved |
| Net Loss | $10.8M | $13M | Improved |
| Adjusted EBITDA Loss | $8.4M | $10.3M | Improved |

[Risks and Concerns]
1. Persistent promotional pressures in the furniture category.
2. Tariff uncertainties and potential cost impacts.
3. Execution risks associated with new product launches and showroom expansion.
4. Dependence on macroeconomic factors like housing turnover and consumer spending.

[Final Takeaway]
Lovesac demonstrated resilience in a challenging market, achieving growth through showroom expansion and product innovation. The EverCouch launch marks a significant milestone, broadening the company's addressable market and enhancing its showroom strategy. While gross margin pressures persist, management's focus on tariff mitigation, pricing strategies, and operational efficiencies provides a clear path to achieving FY2026 guidance. Investors should monitor the performance of new products and the evolving competitive landscape.