The Lovesac Company (LOVE) share price experienced a significant 31% drop immediately following disappointing revenue for Q3, missing consensus estimates. The company has issued forward guidance for Fiscal 2025 that fell short of analysts’ projections. Despite these challenges, the company remains confident in delivering value creation in the long term. For example, despite net sales being down, the company still posted quarterly earnings that beat analysts’ predictions. Analysts have lowered price targets for the company following the less-than-stellar Q3 results. Yet, most remain bullish on the stock overall, signaling a potential buy-on-the-dip opportunity for investors willing to be patient.
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“Lovesac, baby, Lovesac (that’s where it’s at)”
Lovesac is a technology-driven company that designs, produces, and sells unique, high-quality furniture. Its product portfolio includes modular couches, premium foam beanbag chairs, and various home decor accessories. Through a direct-to-consumer model, Lovesac markets its products online and operates physical showrooms, shop-in-shops, and pop-up shops.
Currently, Lovesac holds a minor share in the vast furniture market, signaling significant potential for growth and expansion. The company is well-positioned to take advantage of the predicted growth in furniture spending, forecasted to increase at a CAGR of 5.36% through 2030. Regarding the company’s growth, CEO Shawn Nelson highlighted that Lovesac has gained market share and enhanced its competitiveness by concentrating on product innovation and operational excellence.
Revenue Misses, Earnings Beat
Lovesac’s Q3 financial results were mixed. The reported revenue of $149.91 million showed a 2.7% decrease year-over-year, missing analysts’ targets by $5.35 million. The decrease primarily resulted from an 8.3% reduction in omni-channel comparable net sales. The company attempted to combat these losses by opening five more showrooms despite closing one, making the total number of new outlets 28. Unfortunately, gross profit decreased by $0.8 million or 0.9% compared to the previous year.
Operating losses for the quarter were $7.7 million, a significant increase compared to the $3.6 million of the prior year. Net losses were also up a substantial $4.9 million, or a net loss per common share of $0.32, versus $2.3 million, or a net loss per common share of $0.15 from the same period a year earlier—however, this slightly beat expectations.
Positive financial highlights include an increase in the cash and cash equivalents balance, reaching $61.7 million from the previous $37.7 million. Merchandise inventory was down to $113.4 million due to a decrease in freight capitalization of $3.3 million.
Management released its financial guidance for Fiscal year 2025, projecting net sales between $660 million and $680 million and adjusted EBITDA between $37.5 million and $48.5 million. The projected net income is expected to range from $4.5 million to $12.5 million, with a diluted income per common share between $0.27 and $0.74.
Stock Doubled, Then Gave It All Back
Before the post-Q3 drop, the stock had broken out nicely, almost doubling from $20 per share in September to over $39 in early December. It’s given up most of those gains, though it still reflects a 3.09% gain year-to-date. Yet it shows ongoing negative price momentum as it trades below the major moving averages. A P/S ratio of 0.6x looks relatively discounted compared to the Consumer Discretionary sector average of 0.95x.
Analysts following the company have quickly adjusted for Q3’s results but remain bullish. For example, DA Davidson’s Michael Baker, a five-star analyst according to Tipranks’ ratings, lowered the firm’s price target to $35 while keeping a Buy rating on the shares, noting that Q3 results were largely disappointing. Still, the company saw double-digit growth in customer quotes, a positive sign for potential future growth.
Six analysts recently recommended that the Lovesac Company be rated a Strong Buy overall. Their average price target for LOVE stock is $40.00, representing a potential 51.86% upside from current levels.
Bottom Line on Lovesac
Despite experiencing a significant drop in shares after a disappointing Q3 revenue result, Lovesac remains optimistic about its long-term value creation in a large and growing market. Although there was decreased revenue and increased operating and net losses for the most recent quarter, Lovesac saw a rise in cash and cash equivalents, and earnings slightly beat expectations. Analysts continue to be bullish on the stock with its strong brand equity among younger buyers and positioning for future growth. Value-oriented investors might want to keep their eyes open for a buy-on-the-dip window when the stock’s negative price momentum subsides.
