Why Lovesac Stock Is Plummeting Today

Key Points

• Lovesac's sales rose 3% in Q2 -- far better than the furniture industry's sales decline.

• The company's simpler Snugg furniture line was soft-launched during the quarter and could be a growth catalyst.

• Trading at just 0.4 times sales, Lovesac remains cheaply valued, but investors may need to be patient.

• 10 stocks we like better than Lovesac ›

Shares of modular furniture maker Lovesac (NASDAQ: LOVE) are down 17% Thursday as of 11 p.m. ET, according to data provided by S&P Global Market Intelligence.

During the second quarter, Lovesac met analysts' expectations by growing sales by 2.5%, and its $0.40 net loss per share was much better than expected for the company's slower summer quarter.

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However, management slashed full-year earnings-per-share guidance from $1.08 at the midpoint to $0.75, prompting the market's adverse reaction.

Lovesac keeps gaining market share

While 2.5% sales growth isn't necessarily eye-catching, it is much better than the broader furniture industry's sales decline of 4% over the same period. These market share gains are crucial to the investment thesis for Lovesac, as it is only the 19th-largest home furnishings retailer, according to Furniture Today.

Battling lower consumer confidence, a housing market in limbo, and ever-changing tariffs (such as those on China, where Lovesac makes roughly 15% of its furniture), the company's industry-beating growth in Q2 was respectable.

Image source: Getty Images.

Best yet, Lovesac's new durable, washable, and adaptable Snugg line of sofas and furniture soft-launched in Q2 and has been a success so far, according to management. Designed to boost online sales, Snugg sofas are simpler and don't require the learning curve (in-person demos) associated with Lovesac's Sactionals, which are more complex and infinitely customizable.

Ultimately, whether or not to buy Lovesac and tolerate the inevitable cyclicality that comes with it will be a decision that each interested investor must make. However, trading at just 0.4 times sales, Lovesac stock already has a lot of negativity priced into it. Shares could be poised to pop if the company's Snugg couches are a hit and it keeps gaining market share -- even in trying times.

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Josh Kohn-Lindquist has no position in any of the stocks mentioned. The Motley Fool recommends Lovesac. The Motley Fool has a disclosure policy.