LOVESAC CO (NASDAQ:LOVE) Q2 2020 Earnings Conference Call - Final Transcript
Sep 11, 2019 • 08:30 am ET
320 basis points to 350 basis points lower than fiscal 2019, principally related to the following: expected tariff pressure, which is being offset by mitigation actions and SG&A initiatives, investments into our distribution infrastructure to support future growth, a slight headwind due to the continued shift in product mix towards Sactionals, as well as a slight impact from higher pop up shop channel mix sales. These decreases are partially offset by product margin gains relating to changes in discounting of promotional strategies, reduced product costs, related to vendor sourcing strategy and vendor rebates, as well as an accelerated shift of sourcing outside China.
In terms of SG&A, excluding advertising and marketing expense, as previously mentioned, we expect the most significant SG&A leverage to be generated in Q4, given the seasonality of our business. As a reminder, embedded in our SG&A outlook is all of the investments we are making in the business across people, process and infrastructure, and our Q4 net sales volumes enable us to produce the greatest amount of leverage on these investments over the prior year.
So, in summary, while we continue to expect quarterly fluctuations due to the timing of our tariff mitigation efforts, our advertising and marketing investments and investments across all areas of the business to support the significant growth opportunity we have, we anticipate that we will again deliver a high sales growth rate and will generate a positive adjusted EBITDA in fiscal 2020.
Finally, as it relates to capital expenditures, we now expect to incur approximately $11.5 million of CapEx in fiscal 2020, versus our prior guidance of approximately $13 million, due to a timing shift of investments of the Sac manufacturing CapEx to fiscal 2021. The vast majority of our CapEx will be spent on the opening of 17 showrooms, to remodel of approximately 8 legacy stores, the opening of 4 Macy's shop in shop pilot locations, and approximately $1.3 million being invested into the Sac manufacturing facility this fiscal.
The remaining spend is being allocated to technology in our showrooms, inventory management and logistics systems, e-commerce platform enhancements and for headquarters data and support systems. For all other details related to our results, please refer to our earnings press release.
With that, we would like to turn the call back to the operator, who can open it up for questions. Operator?