Lovesac Q2 Profit Driven by Tariff Refunds Amidst Flat Sales

Lovesac reported second-quarter fiscal 2027 net sales of $161.2 million, a 0.4% increase year-over-year, according to data from GN markets/earnings (en-US). The company stated that this figure represents its highest quarterly sales outside of the fourth quarter in its history. Growth from new showroom openings offset a 1.9% decline in omni-channel comparable sales, indicating mixed momentum across the retail footprint.

Profitability metrics were significantly altered by a one-time benefit. Lovesac recognized $21 million in refunds related to IEEPA tariffs, which lifted reported gross margin to 68.4%. Without this recovery, the underlying gross margin was approximately 56%, reflecting continued pressure from transportation and warehousing costs.

Tariff Refunds Mask Underlying Margin Pressure

Chief Financial Officer Andrew Farag detailed that $20 million of the refund benefit was recognized in cost of merchandise sold, while $700,000 was recorded as interest income. This financial recovery turned an operating loss of $8.8 million in the prior-year quarter into an operating income of $10.9 million. Net income rose to $7.4 million, or $0.51 per diluted share, compared to a net loss of $6.7 million a year earlier.

Excluding the tariff-related gains, adjusted EBITDA stood at a loss of $1.3 million, down from positive adjusted EBITDA of $0.8 million in the same period last year. Farag attributed the underlying margin erosion to higher inbound and outbound transportation costs, partially offset by improvements in product margins through pricing adjustments and cost-reduction initiatives.

Premium Demand Offsets Lower Price Point Weakness

President Mary Fox noted that demand remains concentrated among high-spending customers. Configurations priced above $6,000 grew at a double-digit rate, supported by larger Sactionals configurations and premium fabric selections. The company stated that the premium mix is structurally stronger than it was two years ago, indicating a shift in the customer base toward higher-value purchases.

Conversely, sales below the $6,000 threshold continued to face headwinds from inflation and a promotional competitive environment. Although demand improved during the quarter, it did not return to growth. In response, Lovesac adjusted its pricing and promotional strategy in the third quarter to improve accessibility at key opening price points while maintaining its premium positioning.

Company Lowers Outlook Citing Launch Timing

Lovesac lowered its fiscal 2027 outlook, projecting net sales between $690 million and $710 million. Adjusted EBITDA is now expected to range from $31.5 million to $35.5 million. Management cited the timing of major product launches as a primary factor for the more conservative forecast.

New Sactionals and large-format sectional products are expected to contribute meaningfully to revenue only in the fourth quarter. This delay in product availability prompted the company to reduce its second-half guidance, reflecting a cautious approach to demand forecasting amid ongoing assessments of pricing and promotional changes.