The Lovesac Company (NASDAQ: LOVE) reported second-quarter fiscal 2027 earnings that beat Wall Street expectations, though the stock fell sharply after the report as investors focused on recurring profitability rather than one-time tariff benefits.
Diluted earnings per share came in at $0.51, compared with a loss of $0.45 in the year-ago period and analyst forecasts projecting a $0.36 loss. Net income totaled $7.4 million versus a $6.7 million loss a year earlier, and operating income was $10.9 million against an $8.8 million operating loss previously.
Net sales rose 0.4% to $161.2 million, marking the highest quarterly revenue outside of the fourth quarter in company history, according to CEO Shawn Nelson. The result narrowly missed consensus estimates.
The earnings beat was driven largely by approximately $21 million in IEEMA tariff refunds and interest received during the quarter. Of that total, $20 million was recognized through cost of merchandise sold, adding roughly $0.86 per share to EPS. On a non-GAAP basis excluding the tariff benefit, adjusted EBITDA declined to a negative $1.3 million from $0.8 million a year ago.
Gross margin jumped to 68.4% from 56.4% a year earlier, again heavily aided by tariff recoveries. Excluding those recoveries, gross margin came in at approximately 56%, down about 40 basis points year over year.
Comparable sales fell 1.9% on an omni-channel basis. Showroom net sales rose 4.6% to $114.1 million, supported by 14 net new showrooms opened over the past 12 months. Internet sales declined 5.3% to $40.2 million, while other net sales — which include the Best Buy partnership — dropped 23.2% as that relationship ended.
Product performance varied: Sactionals sales dipped 1.7%, Sacs fell 8.6%, and other products surged 198.2%, driven by Snugg accessories. Configuration prices above $6,000 posted double-digit growth, while sub-$6,000 offerings faced headwinds from inflation, interest rates and gas prices.
SG&A expenses were $72.3 million, up just 0.3%, representing 44.8% of net sales, down 10 basis points year over year. Advertising and marketing spend decreased $0.7 million to $22.8 million.
Lovesac holds $68.8 million in cash and cash equivalents with no outstanding debt and $34 million in available borrowing capacity. Inventory rose to $130.2 million from $124 million a year earlier. Operating cash flow used $11.4 million, improved from a $29.2 million use in the prior-year period.
In the first half of fiscal 2027, the company repurchased approximately $7.2 million of common stock, leaving $46.9 million remaining under its authorization.
The stock fell 9.23%, or $1.48, to $14.55 in premarket trading from a close of $16.03, trading roughly 25.4% below its 52-week high of $19.25.
For the third quarter, Lovesac guided for net sales of $140 million to $150 million, gross margins of 54.5% to 55.5%, and a net loss of $9 million to $12 million, or a basic loss per share of $0.62 to $0.83.
Full-year fiscal 2027 guidance calls for net sales of $690 million to $710 million, gross margins of 58.5% to 59.5%, and diluted EPS of $0.98 to $1.26 on approximately 14.6 million diluted shares.
On the product front, Lovesac plans four major launches before its new room introduction, including Snugg corner pieces and ottomans, a reverse-compatible swivel base for the Snugg chair, and a new large-format sectional platform. Initial onshore production of Sactionals seats is expected to begin in Q3, and white-glove delivery programs will expand nationally following first-half pilots. The resale platform, Loved by Lovesac, now operates in 32 states, with 70% of users being new to the brand.
