Lovesac Q2 Sales Hit Record, Tariff Refunds Boost Margins

The Lovesac Co. reported its highest quarterly sales outside of the fourth quarter, reaching $161.2 million, a slight year-over-year increase. According to data from GN markets/earnings (en-US), the company navigated a challenging consumer environment by gaining market share and driving double-digit growth in premium configurations priced above $6,000. Showroom net sales rose 4.6% to $114.1 million, while internet net sales declined 5.3% to $40.2 million. The company also noted a 1.9% decline in omnichannel comparable sales, reflecting mixed performance across digital and physical channels.

Profitability saw a significant swing due to regulatory factors rather than core operational shifts alone. Gross margin expanded by 1,200 basis points to 68.4%, driven primarily by the recognition of $21 million in IEPA tariff refunds. Excluding these recoveries, the underlying gross margin was approximately 56%, a 40 basis point decrease from the prior year. Net income reached $7.4 million, or $0.51 per diluted share, compared to a loss of $6.7 million in the same period last year. The bottom line benefited from an $0.86 net gain from tariff refunds, while operating income turned positive at $10.9 million from a loss of $8.8 million previously.

Tariff Refunds Drive Margin Expansion

The financial impact of the International Emergency Economic Powers Act (IEPA) tariff refunds was the primary driver of the quarter’s improved profitability. Lovesac received approximately $21 million in refunds to date, with $20 million recognized through cost of merchandise sold. The remaining $1 million was allocated to inventory reductions and interest income. SG&A expenses increased slightly by 0.3% to $72.3 million, but improved by 10 basis points as a percentage of net sales to 44.8%. Advertising and marketing costs fell by $0.7 million to $22.8 million, representing a 50 basis point improvement in efficiency. These cost controls helped offset the decline in internet sales and the closure of the Best Buy partnership, which contributed to a 3.2% drop in other net sales.

Strong Balance Sheet Supports Shareholder Returns

Lovesac maintains a conservative financial position with $68.8 million in cash and cash equivalents, no outstanding debt, and $34 million in available borrowing capacity. Operating cash flow improved to a use of $11.4 million, compared to a use of $29.2 million in the prior year period. Inventory levels rose to $130.2 million from $124 million a year ago. The company repurchased approximately $7.2 million of its own stock in the first half of fiscal 2027, with $46.9 million remaining under its current authorization. This liquidity provides flexibility to fund growth initiatives and continue returning value to shareholders despite the volatile macroeconomic landscape.

Guidance Points to Continued Innovation

For the third quarter, Lovesac guides net sales to between $140 million and $150 million, with gross margins expected to normalize to 54.5% to 55.5% as the one-time tariff benefits fade. The company anticipates a net loss of $9 million to $12 million for the quarter. Full-year guidance remains steady, projecting net sales of $690 million to $710 million and adjusted EBITDA of $31.5 million to $35.5 million. Diluted EPS is forecast at $0.98 to $1.26, assuming an effective tax rate of 36% to 38%. Management plans to launch four major product introductions in the next two quarters, including extensions to the Snug platform and new large-format Sactionals, aiming to expand the total addressable market.