Lovesac Q2 Sales Grow Marginally as Tariff Refunds Boost Profit

Lovesac reported second-quarter fiscal 2027 net sales of $161.2 million, a 0.4% increase from the prior-year period. This result represents the highest quarterly sales figure outside of the fourth quarter in the company's history. Growth was driven by the expansion of its physical footprint, which partially offset a 1.9% decline in omni-channel comparable sales. The company noted that demand remained concentrated among higher-spending customers, while purchases below the $6,000 threshold continued to face headwinds from inflation and competitive promotions.

Profitability metrics improved significantly due to a one-time benefit. Lovesac recognized a $21 million gain from IEEPA tariff refunds and related interest during the quarter. This recovery lifted reported gross margin by 1,200 basis points to 68.4%, compared with 56.4% in the same period last year. Excluding these tariff recoveries, the underlying gross margin was approximately 56%, down about 40 basis points year over year due to higher inbound and outbound transportation costs. Net income swung to a positive $7.4 million, or $0.51 per diluted share, from a net loss of $6.7 million a year earlier.

Tariff Refunds Drive Margin Improvement

Chief Financial Officer Andrew Farag detailed the composition of the tariff benefit, noting that $20 million was recognized in cost of merchandise sold, $300,000 reduced inventory values, and $700,000 was recorded as interest income. Despite the positive impact on the income statement, the company’s adjusted EBITDA, excluding the $20 million tariff benefit, was a loss of $1.3 million. This compares to an adjusted EBITDA of $0.8 million in the prior-year period, indicating that operational efficiency challenges persist even as reported profits improve. Operating income rose to $10.9 million from an operating loss of $8.8 million in the prior-year quarter.

Farag attributed the underlying margin pressure to increased logistics costs, specifically inbound transportation and warehousing expenses. These factors were partially mitigated by product-margin improvements resulting from pricing strategies and cost-reduction initiatives. The company’s financial performance thus reflects a divergence between statutory accounting results and core operational trends, with the tariff refund serving as the primary driver of the quarter’s positive net income.

Premium Mix Supports Revenue Growth

President Mary Fox highlighted that configurations priced above $6,000 grew at a double-digit rate, supported by larger Sactionals configurations and premium fabric options. This segment remains structurally stronger than it was two years prior, offsetting slower growth in the lower price bracket. Showroom net sales increased by 4.6% to $114.1 million, aided by the opening of 14 net new showrooms over the past 12 months and improved conversion rates. Conversely, internet net sales declined by 5.3% to $40.2 million, and other net sales fell 23.2% following the closure of the Best Buy shop-in-shop partnership.

By product category, sales of the flagship Sactionals line declined by 1.7%, while Sacs sales dropped 8.6%. However, the company saw a 198.2% increase in other product sales, driven by newer categories such as the Snugg platform and accessories. This shift indicates a diversification of the revenue base, although the core furniture segments continue to face competitive pressure in the mid-market segment.

Conservative Outlook Amid Product Launches

Management lowered its outlook for the second half of fiscal 2027, citing the timing of planned product launches and an ongoing assessment of pricing strategies. Chief Executive Officer Shawn Nelson stated that the company is planning its most extensive product-introduction period to date, including additions to the Snugg platform and a new large-format sectional aimed at premium customers. These innovations are tied to the company’s onshoring initiative and are expected to drive growth in the latter half of the year.

Fox noted that the company adjusted its pricing and promotional strategy in the third quarter to improve accessibility at key opening price points while maintaining its premium positioning. She indicated that it is too early to fully assess the performance of these changes, as the Labor Day event was still underway at the time of the report. The company’s guidance from GN markets/earnings (en-US) reflects a cautious approach, prioritizing margin stability and strategic product development over immediate volume growth in the near term.