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Lovesac CEO on Q4 earnings, revenue beat

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Yahoo Finance’s Myles Udland and Brian Sozzi speak with Lovesac CEO Shawn Nelson about how the company is faring amid COVID-19 and the state of the furniture industry.

Video Transcript

MYLES UDLAND: All right, well, the stay-at-home trade continues as people continue to remake their living spaces that they are spending more time in than ever. One company benefiting from that is Lovesac. And the company's CEO Shawn Nelson joins us now to discuss a record year for the business. Shawn, thanks for jumping on this morning. Just talk us through what trends you guys have seen, really, in the last year and how you're now thinking about those as the world starts to normalize and people are maybe not panic buying a couch or a chair and maybe thinking about life going back to normal.

SHAWN NELSON: Yeah, that's the question everybody's asking. Our view is that life has been forever altered. And, like it or not, people are working at home, staying at home, contemplating where they want their home to be, as company policies come down, just like the interview before, speaking about where people are going to be working, are they going back to the office. In our case, we'll be primarily remote. And I believe a lot of the country will be that way in corporate America.

So we're bullish on the housing market. We're bullish on people moving. That's the number one driver for couch purchases, is people changing places. And we have the only couch that can move with you in the back seat of a Honda if you want because of the way Sactionals packed down and are shipped FedEx and delivered to your door and reconfigured and can be with you the rest of your life.

BRIAN SOZZI: Shawn, what type of couches-- what are some of your top sellers right now during the pandemic?

SHAWN NELSON: Yeah, so our business began with these giant not bean bags filled with a sort of foam called Lovesacs. If you've ever seen, like, an 8-foot not bean bag filled with foam, that's probably a Lovesac. But our Sactionals have just caused our business to explode. We have been the fastest growing furniture retailer in the United States for a few years now, based on this product. It's furniture that could literally be with you the rest of your life, not just because you can move it easily and can be delivered easily, but because you can arrange it, rearrange it, reconfigure it, and recover it. Machine washable, kid-proof, life-proof couch.

And so, that's the core platform. And we have numerous products we've layered in over the years, a couple of new introductions this year that allows people to grow and expand, add technology, charge their phones, charge their devices, embedded, hidden in the couch, reverse compatible with the pieces they already might have bought a few years ago. We continue to put out reverse compatible accessories that go with these Sactionals. And I think that's what's caused us to build the following we've built.

MYLES UDLAND: And so, Shawn, if I go in today to one of your showrooms or I go online, how long is it going to take me to get a couch? Because if I've had this conversation with one friend, I've had it with all of them about four, six, eight-month waits for some couches. Where are you guys at in that point?

SHAWN NELSON: Four to six days in our case maybe, depending how close you are to one of our warehouses. We are always in stock. Sactionals are special. It's just seats and size. You buy any number of these seats in size that can be configured or reconfigured, covered or recovered any way you like. And we've got covers ready to go in any fabric you want, 200 others you could have custom ordered. If you feel like waiting four weeks and need stripes or polka dots or what have you, we can do that, too. But typically, they're ready to go. They're in stock. They're moving rapidly. And we keep them in stock because that's literally all we sell. We're a very unique company in that way.

BRIAN SOZZI: I noticed, Shawn, you have more showrooms open now year over year. Is that-- why is that showroom having that open? Why is that still important?

SHAWN NELSON: Yeah, so during the pandemic, we were able to actually prove our thesis that these are not retail stores. These are truly showrooms for the internet. We're a direct-to-consumer business. We're totally direct-to-consumer. No wholesale, no distribution per se. It's all our own showrooms, even where we collaborate with, say, Best Buy. We're doing shop in shops. They're little Lovesac shops inside of their footprint. And during the pandemic, we had to close all of them, all at once. And we saw all of our business move online. We didn't miss a beat. We continued growing 30%, 40% all the way through.

And now, out the other end, all the business has moved back to the showrooms. We're comping in incredible rates. Q4 was a 45% same showroom sales comp. But they're all internet sales at their core. They're people that have researched online, checked it out, understand what they want. They come into the showroom to sit on the thing. I mean, we're selling $3,000 or $4,000 or $5,000, $10,000 couches. They love to sit on it. Try it out, pick their fabrics in person. But really, they began as internet customers. And the pandemic helped us prove that.

And so, these showrooms play a tremendous role in conversion. We're long on showrooms. We'll continue to open, you know, around 20 this year, as well as another 15 of these Best Buy shop in shops. We're really excited about making this available to customers. But our ultimate goal is to have as few as possible, as few showrooms as possible, but be able to be available to everyone. We're not trying to build some kind of retail chain.

BRIAN SOZZI: So, how many locations are you in Best Buy? And are you still in Costco?

SHAWN NELSON: So, with Costco, we've moved to an all online format. We were doing pop-up shops within Costco. We've also got some interesting things brewing there and possibly with other retailers as well. But in the meantime, we are focused on only putting showrooms where we can be available to people within, like, a 25-minute drive. And so we're not trying to be everywhere. We're not trying to be convenient. We're just trying to cover the map. We've got a long way to go. And so, Costco is a great partner. And these partnerships like Costco and Best Buy will allow us to reach more people more ways.

MYLES UDLAND: And then, Shawn, something you guys talked about a little bit in the earnings release was the impact that tariffs were having on the business. How are you thinking about those pressures? And do you have any visibility or any hopes on how those situations may change as the new administration kind of breaks in here?

SHAWN NELSON: Yeah, so Lovesac became a bit of a poster child for tariffs at the beginning of that entire saga. Because we had all of our production in China. Luckily, we had already been working on diversifying, and we did so very rapidly. We're now producing in four different countries across Asia. We even have plans in the future to be able to produce all in the United States. But that's a longer term focus of ours on the manufacturing side.

In the meantime, that diversification has not had-- very lucky timing. With everything that's happening in the world today and the global supply chain and containers piling up here and there, having redundant production of these same two SKUs that power our whole business, like, the same two SKUs that you might buy for your basement would be the same two SKUs that someone might buy for their cabin or whatever, just wearing different covers, right, and configured differently.

And so all of our containers coming over from each one of those geographies have those same items on them, which allows us, even if we run into stoppages here or there, has given us great flexibility. And it's why we're always in stock right now, ready to go. And we ship FedEx, so it's just days away.

MYLES UDLAND: All right, there you go. A word to all the viewers out there who are getting a six-month quote at their local mall, Lovesac four to six days. Shawn Nelson, CEO of Lovesac. Shawn, thanks for jumping on. Really appreciate it.

SHAWN NELSON: Great to see you guys. Thanks so much.