Lovesac soars on Q2 earnings beat

Lovesac CEO & Founder Shawn Nelson joins Yahoo Finance’s Seana Smith and Adam Shapiro to discuss the company’s second-quarter earnings beat.

Video Transcript

SEANA SMITH: Adam, let's take a look at Lovesac, because speaking of names that are on the move today, shares jumping here with the stock up just around 7%. Now, Lovesac was out with earnings, beating on both the top and bottom lines. And you can see investors clearly excited about what they heard from the company. So we want to bring in Shawn Nelson, the CEO and Founder of Lovesac.

And, Shawn, it's great to have you-- congratulations on the strong quarter, beating on both the top and bottom lines, your market cap now over $1 billion. What's your big takeaway from the quarter?

SHAWN NELSON: Yeah, it's been a crazy year. And we've seen our stock go up and down even as the business has only gone up. We've had record growth stacked on now three years of very high growth. And we've turned profitable last year. And you know, two profitable quarters into this year, and really happy with the way the business is performing even in this turbulent you know supply chain-ridden market.

ADAM SHAPIRO: So how do you sustain that growth once we've emerged fully from the pandemic and the housing market cools off?

SHAWN NELSON: Yeah, for us, we're at the right place at the right time. You know, we are catching our stride. One of the greatest examples of that is for the first time ever this year, our awareness for people buying our products number one source is word of mouth, as opposed to our own advertising. You know, so I think our brand is catching on.

Our product, Sactionals, which drives 75%-plus of our business, is catching on-- these modular sofas that can be with you the rest of your lives. You can add to them, grow them, rearrange them. We started with Sacs-- they kind of made us famous, gave us our name-- these giant not bean bags filled with foam. But Sactionals have just exploded.

So for us, you know, even was maybe these COVID tailwinds, people staying at home, buying couches, perhaps may subside. I think that Lovesac is gaining momentum and gaining market share rapidly against the incumbents in the market that sell boring old furniture that can't do what ours can do.

SEANA SMITH: Shawn, you mentioned that challenging supply chain landscape. How have you as a company navigated this? Because this is something we've talked about with a number of CEOs over the past several months. And it's also a situation that doesn't seem to be improving significantly at least at this point.

SHAWN NELSON: No doubt. The supply chain globally right now is a mess. And thankfully, over the last couple of years as we faced the tariffs first, we got really aggressive spinning up redundant factories outside of China-- so China, Malaysia, Indonesia, Vietnam. And so as we have flare-ups with COVID, we have ports congested, what have you-- these seats and sides, you know, that you're looking at right now that make up Sactionals-- it's 1's and 0's. It's digital furniture and we bring them in by the container load.

And they're the same. They're the same yesterday and tomorrow. And they're reverse compatible with each other. So we can go deep on inventory. We can bring inventory out of numerous sources and dodge a lot of these bullets that are disrupting many people's supply chains. We've been in stock all the way through.

You buy a couch from us, it's delivered in days to your door by FedEx. And that's been unique to Lovesac and will continue as we go forward, we believe.

ADAM SHAPIRO: I wish I'd known that when we got our new couch and then had to wait eight months for it to get here. Real quick, and I did this online, so correct, because online is online-- the naked Lovesacs are made in the United States, but the coverings are coming from, perhaps, Vietnam and China. I mean, would it make sense to do it all here in the USA?

SHAWN NELSON: Yeah, we definitely view domestic manufacturing as our long-term outcome, not just based on the current supply chain situation, which we do believe will come back into focus at some point maybe later next year, but on principle. We have this design for life philosophy, making things that are built to last a lifetime, designed to evolve, that are truly sustainable, and a circle to consumer operating philosophy.

And so sustainability is in our bones. And we believe that manufacturing from recycled goods-- we're the single-largest re-purchaser of plastic water bottles to home deck fabric in the US already, making all of our upholstery out of recycled plastic water bottle spun fabrics. So that's just the tip of the iceberg-- making it closer to the consumer, shipping in over shorter distances, shipping out over shorter distances, perhaps with e-vehicles-- that's where we're going. And so it's not just the current supply chain disruption that has us motivated to do that, it's in our bones. And we will get there.

SEANA SMITH: Sean, what are the areas of growth or opportunity for your company? What does that product pipeline look like?

SHAWN NELSON: Well, first, you know, we believe this Sactionals product-- I bet you don't even know anyone who owns Sactionals. You know, we're still an up and coming brand, but we're the fastest-growing furniture retailer in the United States. It'll carry us past $1 billion in sales annually at some point. And so we have a good runway to develop other things. We have over 40 issued patents on things-- not just Sactionals, but other inventions as well, things that will be built to last a lifetime designed to evolve.

So if you look around your home and you say, man, that would be cool to see this built to last a lifetime designed to evolve with me, change, wash, rearrange, grow with me-- my Sactionals in my living room are 14 years old-- they're mated to all of our newest inventions. So it's all reverse compatible. We will do that in other verticals as well.

Meanwhile, in October, November time frame, we have a big product launch that we've been just waiting to announce. And we can look forward to that. And it will be our next foray into a new category and really reveal what's next for Lovesac and why we're so bullish on our outlook.

SEANA SMITH: And, Shawn, because you have this unique perspective, this view into the consumer-- we've been talking about maybe consumers are pulling back on their spending now as the Delta variant emerges and really takes over nationwide, are you seeing that at all in your business? It doesn't look like, at least from last quarter, that that has been reflected in your business.

SHAWN NELSON: Yeah, 65% top-line growth last quarter following a greater than 50% the quarter before, stacked on years of 30% and 40% growth. So no, we're not seeing a pullback even now. And it might be unique to Lovesac. Like I said, we're kind of the right product, in the right place, at the right time, at the right stage in our evolution coming up as a brand and being the disruptor. But so far, we are seeing no signs of slowing in this home category as it pertains to what we're doing.

SEANA SMITH: Shawn Nelson, CEO and Founder of Lovesac, great to speak with you. We look forward to having you back on Yahoo Finance again. Lovesac shares up just around 7% today.