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LoveSac has 'been a disruptor' in the couch category: CEO

LoveSac Founder and CEO Shawn Nelson joins Yahoo Finance Live to discuss the furniture brand's marketing spending, inventory, and supply chain challenges.

Video Transcript

RACHELLE AKUFFO: Taking a look at LoveSac's quarterly results that were out this morning. The furniture brand reported revenue of $148.5 million, that's a 45% year over year increase in net sales. The stock currently in the green there just over 1% at trading. All right well we're going to take a closer look now and talk about that with our guest who's going to be joining us on Yahoo Finance Live. Do we have you there?

There you go. Good to have you on the show. So first, I want to get your reaction to this earnings report, especially amid this climate where a lot of companies are still figuring out what consumers want.

SHAWN NELSON: Yeah. Look, it's a dynamic time, to say the least. We're so pleased to put up our, I think, 17th quarter of greater than 25% growth. The last number of quarters have been in the 40s and mid-fifties kind of growth with increasing EBITDAs as well. So we're feeling good, but we definitely recognize the storm clouds on the horizon with consumer behavior changing by the minute and, therefore, we've put forth guidance and framework that would show some attenuation to this kind of growth over the next couple of quarters.

But still, finishing the year quite strong for LoveSac.

TAYLOR CLOTHIER: Shawn, talk to us a little bit more about those trends that we're seeing to begin shift. Consumers certainly pulling back on some of their spending as they're facing sky high inflation. How big of an impact do you see this being on LoveSac over the coming quarters?

SHAWN NELSON: Yeah. I think that, particularly in the home category that's seen tremendous tailwinds through COVID at different times as people hunkered down at home and rethought their decor, that's a tide that lifted all ships. Now we get to see who the real survivors are. And the best part about LoveSac is we have been the disruptor, we've been the company taking tremendous market share in the couch category. We've grown, since we've come public, almost six times where we were at when we came public back in 2018 from a revenue standpoint and, of course, grown earnings along with it.

And so we believe we are the disruptor. We believe that momentum, the organic growth that's coming from people adopting our superior product, these Sactionals, that I'm sitting in right now, is what's driving our business versus just market dynamics. And so as you compare LoveSac to other peers that are more beholden to simple market dynamics when they're selling essentially commodities, they're selling beautiful furniture, but it's like beautiful furniture you could find almost anywhere else. Our unique, modular, life-proof couches that you're kind of seeing some of the benefits of right now in this video help you understand why we've been growing organically. So we do expect some slowing.

We've been very transparent about that in our outlook. But for us, the share momentum will still drive meaningful growth and still high growth for the year as we navigate through these tumultuous times.

DAVE BRIGGS: Yeah, the Sactionals, that's excellent video. I'd also like to hear about the Stealth Technology, but first, shares are down 60% year to date, they're down 12% today. What's the what's the investor story?

SHAWN NELSON: Yeah. Look, I think that investors in the home category have been ahead of the curve for a number of quarters now and LoveSac has been pulled down like many peers. And while we would all love to see higher stock prices, I think that over the long term companies like LoveSac that have a unique point of view, that have defensible patents-- We've recently been a victor in a very important patent litigation. --we feel like we have the organic growth and the momentum to carry us through and thereby driving even more disruption to the category versus, again, just market commodity players.

StealthTech, that you mentioned, is the best example. This is a completely hidden surround sound system that could be in the Sactionals I'm sitting in right here, invisible to view, full surround sound, front, rear, surround speaker, sub-woofer, invisible, and yet tuned to cut through the foam and the fabric and the upholstery and deliver Harman Kardon quality home audio brought to you only by LoveSac, it's our invention, it's our patents, and we're very proud of that. And ultimately, we will become a major disruptor in home audio, how unlikely does that sound? So this kind of adoption-- And that's the difference, right? We're not just a market player, we're on a product adoption cycle.

People are learning about these products they've never heard of, they never even seen an invention like that before, and that takes time to build. Thankfully, the momentum we have, again, will be slowed by some of these headwinds, but not stopped. And that's why you're seeing our outlook positive when the whole category is reporting negative outlooks for the most part in the quarters to come. So I think we're dragged down by the overall market, especially in this environment, but we will come out the other end with, I believe, out-sized performance both as a company and, of course, as a stock.

RACHELLE AKUFFO: And, Shawn, you've come a long way since at 18 years old sort of designing you and having your own first foam-filled pillow to where you are now. Consumers had a lot of changes over COVID; hybrid, work from home, and now concerns about discretionary income in the middle of inflation. What does the next evolution for the company look like given the state of the consumer?

SHAWN NELSON: Yeah, so number one is the goal to make our products not discretionary and, by the way, to focus on non-discretionary segments like the couch. Like as people move and relocate and do all of the things that you just spoke of there are many things that are discretionary, but a couch is not one of them. I don't think any of us have moved, even if we're renting into a new place where we didn't find a couch solution right away. And at our growth rates, at our spend rates on marketing, our advertisements are there to capture you in that moment and convert you to Sactionals, which is the only couch you can have the rest of your life.

So we will take that same approach to invention. We call it design for life, things that are built to last a lifetime and can evolve with you as your life changes. So it can grow with you, grow with your family, change, be divided up, moved around easily, et cetera. And apply it to other categories in the home and continue to evolve as we have now from just the beanbag LoveSac, our namesake, to the Sactionals, which have grown us into the many hundreds of millions, approaching a billion in sales over the next few years, to StealthTech home audio, and other categories in the home that you can't imagine.

Because who would have imagined we would have branched out into home audio? But for lots of reasons we've done exactly that. It's been very successful. We will do hundreds of millions in sales in home audio over the next number of years. This is not a small category for us.

And very proud of what the team has built with me here at LoveSac. It's been a blessing.