LOVESAC CO (NASDAQ:LOVE) Q2 2020 Earnings Conference Call Transcript

Sep 11, 2019 • 08:30 am ET

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LOVESAC CO (NASDAQ:LOVE) Q2 2020 Earnings Conference Call Transcript

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Presentation
Executive
Shawn Nelson

is reflected in our almost 45% top line growth for the quarter; two, we made strategic investments in our infrastructure to improve the overall customer shopping experience and position us for continued success, as we scale the business, including expanded capacity and increased accuracy of customer delivery; three, we opened two new and remodeled three showrooms during the quarter, as we continue to increase our showroom presence; four, we enjoyed strong results from our pop up shop business with Costco, and given our continued success, during the quarter, we were given the opportunity to run an 18-day event on costco.com, which emulates the in-store pop up shop partnership online.

We had very encouraging results from this initial online events and have plans for another two online roadshows with Costco for later this year. In addition to our pop up shop business with Costco, we continue to foster new relationships with other retailers, and we are very excited to announce today our new partnership with Macy's to pilot four permanent shop in shop test locations. Not only will this increase our brand awareness and drive customer acquisition, but it is also a testament to the existing strength and appeal of our small, but rapidly growing brand and innovative product line. Jack will discuss our second quarter operational progress and expand on the details of this exciting new partnership in just a moment.

As it relates to our outlook, given our strong Q2 financial performance, our marketing, and other plans for the remainder of the year, we are reiterating today our fiscal 2020 annual revenue guidance of 40% to 45% sales growth. We are also reiterating our expectations for positive adjusted EBITDA for fiscal 2020. We are very pleased to be in a position to reiterate our full year adjusted EBITDA outlook, despite increased tariffs, which is a testament to the tremendous progress we have made with tariff mitigation actions, which I will now discuss.

To start, I could not be more proud of our teams for their efforts and dedication to mitigating the impact of these special tariffs and optimizing our supply chain. Our focus on optimizing our supply chain is threefold. Number one, swiftly relocating manufacturing out of China; two, negotiating aggressive vendor discounts; and three, assortment, promotional shifts and surgical price adjustments that has shown zero negative impact on sales to date.

First, in terms of relocating manufacturing outside of China, we have already successfully moved the majority of our Sactionals manufacturing to Vietnam and also Malaysia for redundancy. Sactionals without covers currently represents approximately 57% of our overall sales, based on costs. The remaining portion of our Sactional production will have moved entirely out of China by the end of Q2 next year.

A long term Chinese manufacturing partner of ours is currently in construction on a new purpose built, highly automated Sactionals factory located in Vietnam to support our continued rapid growth, along with co-located, cut-and-sew facilities for both Sac and Sactionals covers. Based on our success