Lovesac (LOVE) Q1 2027 Earnings Transcript

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Date

Thursday, June 11, 2026 at 8:30 a.m. ET

Call participants

• Chief Executive Officer — Shawn Nelson
• President and Chief Operating Officer — Mary Fox
• Chief Financial Officer — Keith Siegner

Takeaways

• Net sales -- $138.2 million, a decline of $0.2 million or 0.1%, against an industry contraction of 2.2% in furniture and 5% in high-end furniture.
• Showroom net sales -- Increased $0.6 million or 0.6% to $97.1 million, driven by 14 additional showrooms.
• Internet sales -- Rose $2.4 million or 7.1% to $35.7 million, boosting e-commerce penetration by 170 basis points.
• Omni-channel comparable net sales -- Declined 1.0%.
• Other net sales -- Fell $3.1 million or 36.3% to $5.5 million, primarily due to the exit from the Best Buy partnership.
• Sactional net sales -- Dropped 1.4%.
• Sacs net sales -- Decreased 22.5%.
• Other (Snug, accessories) net sales -- Rose 228.1% over the prior year; does not sum to total due to offsetting declines in Sactionals and Sacs.
• Gross margin -- 52.1%, down 160 basis points versus the prior year due to inbound and outbound transportation, tariff pressures, and increased promotional discounting, partially offset by price increases and cost-cutting.
• SG&A expense -- 49.6% of net sales, up from 48.5%, mainly reflecting higher payroll and overhead.
• Advertising and marketing spend -- $16.6 million in the quarter, down $2.0 million or 10.7%, at 12.0% of net sales versus 13.4% previously, reflecting a planned timing shift.
• Operating loss -- $17.4 million, compared to $15.0 million in the prior year.
• Net loss -- $11.1 million, or negative $0.76 per share, versus $10.8 million, or negative $0.73 per share.
• Adjusted EBITDA loss -- $10.5 million, compared to $8.4 million previously.
• Cash position -- $57.0 million in cash and equivalents, $35 million in committed credit availability, and no debt.
• Inventory -- Management reported both quality and quantity as healthy with expectations for only modest increases driven by platform expansion.
• Share repurchases -- $2.4 million repurchased in the quarter, with $51.7 million remaining under authorization.
• Showroom fleet -- Expanded to 281 locations with one-year net cash paybacks and limited cannibalization.
• Customer trends -- Mid double-digit growth in transactions above $6,000; notable softness in sub-$6,000 transactions, with conversion rate improvements and 12% higher quote pipeline.
• Snug platform -- 80% of Snug buyers were new to Lovesac; nearly 50% of Snug sales occurred online.
• Loved by Lovesac (resale) -- Pilots live in 30 states; 70% of resale customers new to the brand.
• Tariff refunds -- $3.4 million received and included in guidance; company applied for $20.8 million in total refunds, with timing and remaining proceeds uncertain.
• Outlook: annual net sales -- Guided to $700 million-$740 million.
• Outlook: annual adjusted EBITDA -- Projected between $35 million and $46 million.
• Outlook: annual net income -- Estimated between $5 million and $12 million; diluted EPS of $0.34 to $0.81.
• Outlook: Q2 net sales -- Estimated at $157 million-$166 million, with gross margins of 57.5%-58.5%.

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Risks

• Gross margin compression of 160 basis points resulted from higher inbound transportation and tariff costs, as well as increased outbound and warehousing expenses.
• Operating loss widened to $17.4 million from $15.0 million and adjusted EBITDA loss increased, reflecting cost pressures and increased SG&A.
• Loved by Lovesac "was impacted by lower Costco pop-up shop counts and some promotional timing," and other net sales, which include the Loved by Lovesac program, decreased by $3.1 million.
• Uncertainty remains over the timing and receipt of the $17.4 million in additional tariff refunds; only $3.4 million has been received and is reflected in guidance.

Summary

Lovesac (NASDAQ:LOVE) maintained flat net sales in a contracting high-end furniture market, with significant digital channel expansion and a larger showroom footprint supporting traffic and conversion. The company’s platform-driven product strategy yielded strong growth in Snug and accessory sales, with modular configurations and premium add-ons accelerating mix shift to higher-value transactions. Management articulated strategic clarity around ongoing supply chain onshoring, continued marketing engine modernization, operational discipline amid macro headwinds, and near-term plans to enter a new room category in calendar 2027.

• Executives cited substantial momentum in larger-ticket transactions—those above $6,000—as counterbalancing persistent softness in lower-price segments.
• Showroom expansion delivered positive net sales and conversions despite declining sector traffic; management noted “Limited cannibalization across markets.”
• The company highlighted a 7.1% increase in web sales, supported by “record levels of web customer satisfaction” attributed to “digital-first platform” enhancements and AI-driven content upgrades.
• Domestic Sactional seat production will launch by late summer, accompanied by a redesigned product with “improved comfort, functionality, and ease of assembly,” but management does not anticipate material financial impact until scale is achieved.
• Only approximately $3.6 million of the $20.8 million in applied-for tariff refunds—including a small amount of interest—have been received to date; this amount alone is included in both Q2 and full year margin guidance.
• Guidance anticipates 2027 net income of $5 million-$12 million and adjusted EBITDA of $35 million-$46 million, factoring in inflationary headwinds, restrained upside from additional tariff proceeds, and a rising proportion of higher-margin e-commerce and premium SKUs.

Industry glossary

• Sactionals: Lovesac’s modular seating product line, consisting of individual seats and sides that can be rearranged to create custom configurations.
• Snug: A newer Lovesac platform targeting smaller space living and digital-first buyer engagement, designed with simplified configurations and a focus on comfort and adaptability.
• Loved by Lovesac: The company’s recommerce (resale) program, enabling customers to purchase pre-owned or refurbished Lovesac products.
• Attachment rate: The percentage of product configurations that include a particular feature or add-on—e.g., “nearly 1 out of every 3 configurations getting a recliner.”

Full Conference Call Transcript

Shawn Nelson, Chief Executive Officer of The Lovesac Company. Shawn.

Shawn Nelson

Good morning, everyone. Thank you for joining us today. I'll start our conversation by sharing a brief review of our strategic roadmap. I'll provide a high-level summary of our first quarter fiscal 2027 performance. Finally, I'll discuss exciting updates on our strategic initiatives. Mary Fox, our President, will then take you through our customer acquisition engines, operational initiatives, and key growth enablers. Finally, Keith Siegner, our CFO, will dive deeper into our financial results and provide additional detail on our outlook for fiscal second quarter and the remainder of fiscal 2027.

Before getting into the quarter specifics, I want to begin with the broader strategic landscape, as I believe the operating environment we find ourselves in today increasingly favors differentiated brands with disciplined execution, structurally advantaged product platforms, and enterprises intentionally focused on building long-term customer relationships. That is exactly what Lovesac has spent years architecting and operationalizing.

As I've shared in the past, we are evolving from a product-driven company into a multi-platform, multi-room lifestyle brand. A brand we believe will become America's most loved home brand, and over time, one of its most loved brands. That is what we build our strategy and execution agenda around. We are not trying to compete through endless assortments, seasonal replacement cycles, or trend-driven merchandising. Instead, we are building long-duration product platforms designed to evolve with our customers' lives over years and decades.

Products that are built to last and designed to evolve. Designed for Life is not simply a tagline for us. It's an engineering principle. It is a product philosophy. Increasingly, it is becoming a broader emotional framework for how customers connect with the Lovesac brand itself. Context is important here. This doesn't work. Why? It's simple.

People's lives evolve, their homes evolve, their families evolve. That is exactly what our Designed for Life ecosystem is built to do. Over the next four quarters, you will see us bring this ethos to market. First, through the enhancement of our offerings for the living room, and second, through our planned launch of a portfolio of distinctive and relevant products for a new room of the home in calendar 2027, our fiscal 2028.

Importantly, our unique approach to product philosophy is resonating within a category that remains pressured and highly promotional. During the fiscal first quarter, once again, our teams rose to the challenge, delivering market share growth and with financial results in line with our guidance. Net sales for the quarter decreased approximately $0.2 million or 0.1% versus the prior year period against a furniture category that declined 2.2% and high-end furniture, which declined by 5%.

Operationally, we also continue to see encouraging proof points that the platform model is resonating. We saw significant momentum in our larger configurations, showing that the customer is willing to trade up if the value proposition is right. Reclining Seat continues to outperform our expectations, and attachment rates have remained strong at nearly 1 out of every 3 configurations getting a recliner.

Snug, which was still less than a year old, continues to broaden our reach into comfort seating and smaller space living while reinforcing the same principles of comfort, durability, maintainability, and flexibility that Lovesac has become known for. 80% of Snug customers are new to Lovesac, proving our thesis that we could expand our customer appeal while minimizing cannibalization. Equally important is that nearly half our Snug sales are through our e-commerce channels, showcasing our ability to develop digital-first products that can win profitably in those channels.

These are not isolated product signals. They are proof points that Designed for Life product platform attachment is real, and that our solutions solve real customer pain points in ways that traditional furniture just can't. To that end, we are proud to share that Lovesac moved up two places in Furniture Today's top 100 retailers list. We're now the 17th largest furniture retailer in the country, and what's most exciting to me is how that is achieved with substantial greenfield opportunity ahead of us.

Our first quarter continued the momentum in building the substantial foundational work around our broader brand evolution strategy. This work helped clarify product hierarchy, merchandising strategy, positioning architecture, customer segmentation, how it all manifests to the consumer under our Here for Life marketing evolution, which is rolling out as we speak.

At the same time, we are continuing to invest in a modern marketing engine that will turbocharge our brand consideration and reduce our customer acquisition costs, leading to accelerated demand generation and higher customer LTV. Mary will share more about this in a moment. Ultimately, we believe the future of Lovesac is not just about selling more couches, it is about deepening the relationship our customers have with our brand, winning their loyalty and their love as we prove our ability to evolve in the same way their lives do.

Simultaneously, with this brand evolution work, we've made substantial progress on one of our most important structural initiatives, bringing manufacturing onshore to the U.S.

While bringing manufacturing closer to the customer has long been an aspiration for Lovesac, the realities of the uncertain tariff landscape, freight volatility, and broader geopolitical uncertainty only reinforced the importance of building a more regionalized, resilient, and flexible sourcing model. It's not economically attractive to simply make the exact same product in the same basic way, just in the U.S., and that's where Lovesac has a differentiated advantage. Our high-volume, core SKU architecture enables levels of automation and manufacturing efficiency that are difficult for traditional furniture players to replicate at scale.

Even with that foundation, we've redesigned these products from the ground up to optimize automation, improve manufacturability, enhance comfort and functionality, and refresh portions of our intellectual property portfolio, all while maintaining reverse compatibility across every Sactional ever sold. We remain on track to begin domestic manufacturing of Sactional seats this summer.

Over time, we expect this initiative to help reduce cost volatility, improve fulfillment speed, reduce dependency on long international freight cycles, and strengthen our ability to deliver the fast customer experiences we are known for. I believe Lovesac enters the remainder of fiscal 2027 from a position of increasing strategic clarity and strength. We know who we are, we know how we're differentiated, and we know where the opportunities are. We entered fiscal 2027 having proven three important things.

First, the Lovesac brand is vibrant, and the love for Designed for Life products is real. Second, that our customer acquisition engine compounds over time as our Designed for Life platforms expand.

Third, that the foundational work completed over the last several years, from the modernization of our marketing engine, to our best-in-class website and showrooms network, to supply chain diversification and onshoring initiatives, give us increasing flexibility to navigate a highly dynamic environment while continuing to build for the long term.

The macro will be what the macro will be, our focus remains on building a brand and business that can continue to gain meaningful market share, expanding categories from the mailbox to the backyard fence, and strengthening long-term customer relationships irrespective of short-term market conditions.

We are pleased to be in such a position of strength, a strong balance sheet with solid cash position and no debt, lower and well-positioned inventory, a clear strategic roadmap, and a world-class team executing it.

A lot of the work we're doing here in product and marketing and supply chain will start to culminate towards the end of this year, giving us tremendous confidence in the plan and what it will enable ongoing. Finally, I want to sincerely thank our teams, associates, partners, shareholders, and the entire #LovesacFamily for their continued dedication, creativity, resilience, and passion as we continue building what we believe can become the most loved home brand in America. With that, I'll turn the call over to Mary.

Mary Fox

Thank you, Shawn. Our first superpower Designed for Life product platforms continue to demonstrate their ability to grow more valuable over time as customers maintain them, adapt them, and evolve them. That dynamic is what powers our economics and long-term value creation potential. Lovesac turns first-time buyers into long-term relationships, compounding immediate customer acquisition cost payback with lifetime value expanders through a combination of strong brand, unique product and platform innovation, and deep customer engagement.

Importantly, it is not theoretical. Launches like reclining seat not only drive customer demand but activate our installed base, reinforcing the flywheel between innovation, new customer acquisition, and durable repeat customer revenue growth. As we expand into new platforms and new rooms, we're confident that our platform model and the customer acquisition engines that activate it will position us to further amplify both customer lifetime value and meaningful profitable growth for years to come.

Turning to quarter one, we're proud of our teams for navigating the continued uncertainty of the category and macro environment by staying laser focused on our key priorities for fiscal 2027, igniting the core and building for scale as we turbocharge our customer acquisition engines to drive profitable growth while preparing to launch into a new room of the home over the next 12 months.

While trends have been fairly consistent since the fall, I thought it worth a moment to share some details of what we're seeing within our customer demand. Given record low consumer sentiment, it's not overly surprising that we continue to see some softness in the under $6,000 transactions here. At the other end of the spectrum, our premium value enhancers like Lovesoft Fill, storage, and reclining seat have been able to offset that softness, and we've experienced mid double-digit growth in our over $6,000 transactions.

For the balance of the year, our efforts will be concentrated on leaning into this high dollar value transaction growth while improving accessibility and competitiveness in the opening price point options. We'll have more to share on this in coming quarters. Let's now focus on our brand and performance marketing engine. Shawn referenced the modernization of our playbook, which is not simply rooted in spending differently, but in operating differently as we build towards winning an AI-driven modern discovery.

Quarter one demonstrated our ability to improve media efficiency and optimize advertising and marketing investment, and we are seeing signs that the strategy is working. We're strengthening the brand to both drive sales now and build equity over the long term. Our Here for Life creative evolution is live in market, improving both emotional connection and cultural relevance while bringing new and repeat customers into the funnel and converting them.

While other furniture brands seek to sell perfection, Lovesac is going to show perfect reality. Real homes, real people, real emotion, because real life is what we are here for. Here for Life is a full 360-degree campaign with paid, owned site, store, and retail running from now through July. We continue to be at the epicenter of the cultural zeitgeist by tapping into important demand moments with strong campaign messaging and creative.

Our Ditch the Situationship campaign activated around the February holiday window, spanning both Valentine's Day and President's Day, and was based on a simple insight. Too many people are settling in life, particularly on their couch. We tapped into the broader cultural conversation around upgrading what no longer serves you and translated it into a compelling home category message, and the results were strong. 1.2 billion earned impressions and paid search up 33%.

It's a great example of the marketing engine we're building, one that strengthens the brand while delivering against our sales targets. We drove meaningful efficiency gains while scaling demand for the quarter. We estimate our revenues attributed directly to media grew 13%, and we drove double-digit return on ad spend improvements through continued repositioning of our marketing model.

That repositioning is a continuation of our migration from linear-heavy media to a fully integrated digital-first ecosystem powered by social search influence and creator content. This is not just a channel mix shift. Rather, it is a structural shift to an integrated acquisition system that enables continuous optimization, better targeting, and compounding returns over time.

I also want to add that while advertising spend for the quarter was down, it was driven by planned timing of activations, and we're optimistic that the efficiency gains in quarter one will scale as we invest close to our historic levels across the balance of the year. Finally, we're building a competitive advantage in modern discovery. In quarter one, we invested in AI-readable content, structured data, and creator ecosystems to drive agentic engine optimization. This is just the beginning, with much more to come.

Second is our digital configurations and how we bring Lovesac to life online. Our digital transformation continues to bear fruit as we create a more intuitive customer experience and optimize discoverability, and quarter one demonstrated continued improvement.

E-commerce sales for the quarter increased 7.1% year-over-year, supported by growth in traffic and higher average order values, enabling us to increase our e-com penetration by 170 basis points versus last year. As Shawn mentioned, Snug continues to illustrate that a digital-first platform with simplified value proposition and streamlined assortment can win on lovesac.com in parallel to our more complex platforms that skew towards showroom demonstrations.

Most importantly, we continue to see record levels of web customer satisfaction, reinforcing our confidence that our investments are enhancing the customer experience and unlocking demand.

Third is our showroom network, and it continues to serve as a high impact brand asset that amplify our Designed for Life platforms and anchor our omni-channel advantage. As we scale to 281 locations by the end of quarter one, this fleet continues to deliver compelling returns with one year net cash paybacks. Limited cannibalization across markets. Showroom net sales increased 0.5% during the quarter, despite increasing traffic pressure across the broader category.

Importantly, while traffic was pressured, conversion increased year-over-year, and our quote pipeline increased approximately 12%. As I've shared before, we enhanced our performance-based compensation program for the field team starting back in quarter four, thus enabling our growth.

Finally, our partnership model extends our customer acquisition engine beyond our own channels and demonstrates the scalability and efficiency of our model without ceding control of the customer relationship. While quarter one performance was impacted by lower Costco pop-up shop counts and some promotional timing, we're well underway optimizing this engine.

Recent tests focused on show segmentation and cadencing, staffing model improvements, and assortment expansion, delivered all encouraging operational trends and margin improvement that gives us the confidence to roll these strategies out further. Of course, these customer acquisition engines are merely a means to an end to build long-term customer relationships. We're laser-focused on elevating the experience to match the strengths of our platforms, particularly in fulfillment and the services we provide.

Room of Choice and now white glove delivery and assembly pilots continue to perform well and are on track for national expansion this year. Loved by Lovesac, our resale platform, has built momentum and continues to deliver in line with our expectation and reinforces our circular operations model.

Loved by Lovesac, which is now live in 30 states, has seen 7 in 10 customers are new to the Lovesac brand, further validating resale as an important entry point to the Lovesac ecosystem. Furthermore, we expanded the program with incremental products during quarter one, including the reclining seat and Snug.

Pivoting to our key growth enablers, our advantage supply chain delivered solid operational performance in quarter one with consistent progress in processing, in-transit times, and on-time delivery metrics. Our ongoing network efficiency gains helped deliver better customer experience consistency and lower cost to serve, which helped offset some of the external cost pressure we saw in the quarter owing to geopolitical uncertainty in oil and freight inputs.

Keith will discuss this in greater detail, but let me take a moment to discuss how we're navigating both this increased cost environment as well as the ever-evolving tariff landscape.

First, with respect to increased oil prices and the impact on our freight costs, our beneficial cargo partnership includes securing capacity at a contractual rate for that capacity. Such, this provides us with meaningful insulation through times like these, where spot market prices spike. In quarter one, we benefited from strong partnerships that help mitigate the volatility of the spot market, we will leverage these partnerships year to go. As for domestic shipping, including last mile, we have planned for rates based on the trailing 30-day oil prices.

Second on tariffs, our assumptions haven't changed, we're actively mitigating risk through our sourcing diversification, operational discipline, and Fuel for Growth cost savings program. Regarding refunds, i.e., per tariffs, we applied for a per-tariff refunds, quarter to date, we've received $3.4 million.

The amount already received is the only amount that has been contemplated in our guidance due to the uncertainty of timing and potential recovery of the remaining balance. Lastly, as Shawn shared, we are on track with our onshoring initiative for Sactional seats launching later this year with the design enhancements of improved comfort, functionality, and ease of assembly, all of which are real value to our customers.

In sum, our supply chain is becoming more efficient, more resilient, and better positioned to support our next phase of growth. With that, I'll turn the call over to Keith.

Keith Siegner

Thanks, Mary. Let's jump right on in to a quick review of first quarter, followed by our outlook for the rest of fiscal 2027.

As we begin with performance metrics, please note that all references to the first quarter refer to fiscal 2027 unless otherwise noted. Net sales decreased $0.2 million or 0.1% to $138.2 million in the first quarter compared to the prior year period. Showroom net sales increased to $0.6 million or 0.6% to $97.1 million in the first quarter compared to the prior year period, driven by the net addition of 14 new showrooms.

Internet sales increased $2.4 million or 7.1% to $35.7 million in the first quarter compared to the prior year period. These were partially offset by a decrease of 1.0% in omni-channel comparable net sales.

Other net sales, which include pop-up shop sales, shop in shop sales, open box inventory transactions, and the Loved by Lovesac program, decreased $3.1 million or 36.3% to $5.5 million in the first quarter compared to the prior year period. The decrease was primarily attributable to the closure of the company's Best Buy shop in shop locations as a result of the discontinuation of its partnership with Best Buy.

By product category, in the first quarter, our Sactional net sales decreased 1.4%, Sacs net sales decreased 22.5%, and our other net sales, which includes our new Snug platform, decorative pillows, blankets, and accessories, increased 228.1% over the prior year. Gross margin decreased 160 basis points to 52.1% of net sales in the first quarter of fiscal 2027, versus 53.7% in the prior year period, primarily driven by increases of 380 basis points in inbound transportation and tariff costs, and 110 basis points in outbound transportation and warehousing costs, partially offset by an increase of 330 basis points in product margin driven by price increases and cost reduction initiatives, partially offset by higher promotional discounting.

SG&A expense as a percent of net sales was 49.6% in the first quarter of fiscal 2027, versus 48.5% in the prior year period. The increased percentage is primarily related to higher payroll and other overhead costs. The increase in selling general and administrative expense dollars was primarily related to increases of $1.0 million in payroll associated with higher incentive compensation and $0.5 million in other overhead costs.

Rent increased by $0.3 million related to $0.4 million increase in rent expense from our net addition of 14 showrooms, partially offset by a $0.1 million reduction in percentage rent. Advertising and marketing expenses decreased $2.0 million or 10.7% to $16.6 million for the first quarter compared to the prior year period. Advertising and marketing expenses were 12.0% of net sales in the first quarter as compared to 13.4% of net sales in the prior year period.

Operating loss for the quarter was $17.4 million compared to $15.0 million in the first quarter of last year, driven by the factors we just discussed.

Before we turn our attention to net loss per common share and adjusted EBITDA, please refer to the terminology and reconciliation between each of our adjusted metrics and their most directly comparable GAAP measurements in our earnings release issued earlier this morning. Net loss for the quarter was $11.1 million, or negative $0.76 per common share, compared to net loss of $10.8 million, or negative $0.73 per common share in the prior year period.

During the first quarter, we recorded an income tax benefit of $5.6 million as compared to $3.8 million in the prior year period. The increase in our effective tax rate was primarily driven by the impact of permanent differences associated with employee benefit and equity programs. Adjusted EBITDA loss for the quarter was $10.5 million as compared to $8.4 million in the prior year period. Turning to our balance sheet.

We ended the first quarter with a healthy balance sheet that provides substantial flexibility for Lovesac to invest in growth to enhance long-term value creation for shareholders. We reported $57.0 million in cash and cash equivalents while retaining $35 million in committed availability and no borrowings on our recently amended credit facility. We feel good about both the quality and quantity of our inventory and our ability to maintain industry-leading in-stock positions and delivery times.

We anticipate modest increases in inventory balance during fiscal 2027 versus the prior year to account for product and platform expansion. Second, our strategy is to allocate excess capital opportunistically with a focus on long-term value creation and enhancing returns on capital. To that end, in the first quarter, we repurchased $2.4 million of our common stock outstanding, leaving substantial dry powder available as reflected by approximately $51.7 million remaining under our existing share repurchase authorization. Please refer to our earnings press release for other details on our first quarter financial performance.

Now our outlook. I'm sure I sound a little like a broken record, it's honestly the case that we've seen relatively consistent low single-digit category declines continuing. Some weeks improve while others fall short, which seems the reality we're in from a macroeconomic perspective. We're planning for this to remain the case throughout the remainder of the year. While we strive for more, we were pleased to have demand up a couple of percent in the fiscal first quarter and to hold revenues at flattish, both better than the category.

Recall, as we discussed last quarter, revenues for first quarter were slightly behind demand owing to the expansion of our white glove delivery option near the end of the quarter. We've seen these orders being scheduled slightly further out than our normal one to two weeks for traditional fast and free delivery, creating a temporary gap. We anticipate this dynamic may continue into the fiscal second quarter as we expand the offerings even more broadly. We see this as a long-term positive since the customer feedback has been extremely positive, and it opens up sales that wouldn't have occurred had we not had the service.

There are a few other items to note regarding what's included in our fiscal second quarter and full year guidance.

First, we've adjusted our plans to reflect our latest outlook for costs related to COGS and logistics as a result of inflation in materials, energy, and transportation. Second, we factored the latest backdrop for tariffs for the remainder of the year and aren't speculating as to incremental changes that might arise. Third, as it pertains to tariff refunds, we are including solely those that we've already received and are not including potential future recoveries.

Please note that this means the fiscal second quarter and full year include approximately $3.6 million of refunds collected, which benefits gross margins and includes a small amount of interest in our interest and other income line item. Specifically for the full year, we estimate net sales of $700 million-$740 million. We expect adjusted EBITDA between $35 million and $46 million.

This includes gross margins of 56%-57%, advertising and marketing of approximately 12% as a percent of net sales, and SG&A of approximately 40%-41% as a percent of net sales. We estimate net income to be between $5 million and $12 million. We estimate diluted income per common share in the range of $0.34 to $0.81 and approximately 14.8 million in estimated diluted weighted average shares outstanding. We estimate a full-year effective tax rate of 39%-40% at the midpoint of the range, though this can vary widely depending on where pre-tax income ultimately ends up across the range within our outlook.

For the second quarter, we estimate net sales of $157 million-$166 million, representing modest revenue growth at the midpoint. We expect adjusted EBITDA between negative $4 million and positive $2 million.

This includes gross margins of 57.5%-58.5%, advertising and marketing of approximately 14.5% as a percent of net sales, and SG&A of 44.5%-46.5% as a percent of net sales. We estimate net loss to be $3 million-$7 million. We estimate basic loss per common share to be $0.20 to $0.48, with 14.7 million basic weighted average shares outstanding. In summary, we're balancing prudence and efficiency with our belief it's essential to stay focused on the big picture. That's the massive long-term opportunity for tremendous value creation for all Lovesac stakeholders.

We're building the Lovesac brand and investing in new product innovation that spans style, function, and new categories to support a powerful multiyear secular growth outlook with macro upside exposure as icing on the cake. With that, over to you, operator.

Operator

Thank you. We'll now be conducting a question and answer session. We ask that you please limit yourself to one question and one follow-up. If you'd like to ask a question, please press *1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press *2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the * keys. Thank you. Our first question is from the line of Thomas Forte with Maxim Group. Please proceed with your questions.

Thomas Forte

Great. Thanks. Shawn, Mary, and Keith, thanks for taking my questions. I have one question and one follow-up. Shawn, high level, Mary used the words AI, so I'm going to blame Mary for giving me the opportunity to ask this question. Can you think about agentic commerce in the category and what Lovesac is doing to capitalize on that opportunity?

Mary Fox

Thank you, Tom. I appreciate the question. I think obviously, Tom, as we have seen a couple of things. A lot more of search that customers are considering as they really think about a very significant purchase is coming through LLMs. The teams have been really working to ensure all of our content is readable. With LLMs, there's often a lot more words that help kind of describe what people are looking for versus traditional Google search. The team have been doing a lot of work around AI readability, and kind of getting all of that structured in place.

I think the second piece is when we think about working and piloting, for example, ChatGPT in terms of ads and the ability to be able to click through from that search to take us straight through to our site. As I had shared, because everything is fully connected, is we've done a lot of work about how do we actually improve our site experience. The search ability becomes a lot less friction, and enables them to be able to drive conversion a lot faster. A lot of progress the team have been doing on the site.

I think that's a lot of why the performance in Q1 was so strong, and we're seeing an uptick in terms of our share of voice on LLMs. More to come. It's just really kind of started, Tom, but we see a lot of opportunity here.

Thomas Forte

Thank you, Mary. That was a great answer that I appreciate very much. All right, here I'm a little confused. When I think about Loved by Lovesac and I think about the performance in the quarter where you had the strength in assortments priced at $6,000 and higher, and I think about the potential for your recommerce effort with Loved by Lovesac to give you counter-cyclicality. How are consumers using Loved by Lovesac? Are they using it as a way to engage with the brand and save money? Help me understand how Loved by Lovesac. You did a great job of explaining the more than $6K and the less than $6K, but I'm confused on the Loved by Lovesac part.

Mary Fox

Yeah, I know. It's a great question, Tom. Obviously, you know, having studied us for so long, Loved by Lovesac really just started rolling out this year. We're in 30 states. We really haven't switched on marketing to tell people a lot more about it because we've been really still working through making sure the processes from search ability on Loved by Lovesac through to the transaction and shipping out and so forth, that you can really have a lot more volume. I think that's partly on us, that we want to make sure we can sustain a great experience and then build it out.

I think as people learn more and more about it, then to your point, there's an opportunity. As I indicated earlier, we see a lot of opportunity.

There's a lot of work the teams are doing about how to tap into that lower size transactions. You're spot on. That's an opportunity. Expect to see more from us as that builds out.

Thomas Forte

Thank you, Mary.

Mary Fox

Thank you, Tom.

Operator

Our next questions are from the line of Brian Nagel with Oppenheimer. Please proceed with your question.

Brian Nagel

Good morning. Thanks for taking my questions.

Keith Siegner

Absolutely.

Brian Nagel

The first question I want to ask is about a bit more near term, you have a lot of moving pieces here with sales, and we talked a lot about the choppy macro backdrop. If you look at the Q1 results, is it fair to assume that the business was slower? There was a slowing from what we saw, let's just say the second half of last fiscal year?

Mary Fox

Hey, Brian. Yeah, Keith, you take it. Yeah.

Keith Siegner

If I just want to jump in. It's a little bit of a difficult question to answer. I think a number of factors are at play. I think to start with what those moving pieces are, the macro uncertainty within sort of that, let's call it the upper middle class that we've talked about, was definitely clear to us. When we talk about seeing strength above $6,000, it gets even stronger when you get above $8,000, get above $10,000. I think what we're seeing there is the very high end is doing very well. Right?

I think that what we've started to do during this quarter was to introduce new strategies to increase attractiveness of opening price points to try to rekindle some of that transaction growth below $6,000. You saw us running some promotions around our Range Chenille fabric, which is a fantastic fabric. We liked what we saw from that. You're going to see more expansions of that coming, not only in Q2, but as we get into Q3. I think what you're seeing is hopefully going to be improvement in that trend as well. Mary mentioned that in her comments.

You're going to see a lot more coming on that as we try to really bifurcate our marketing and promotional approaches to maintain strength at the high end where the demand is strong, but increase the opening price point attractiveness.

We did have some shifts in timing in relation to our spend as we're experimenting with a few new of these initiatives, as Mary talked about. We did have a lighter spend in Q1 than the run rate. That spend should step back to more normal rates for the full year. That's part of this as well. We're about to have a whole bunch of new product news. Nothing surprising. Even to go back to where we gave guidance for the quarter, we came in at the high end of the range from what we had originally provided. I think generally speaking, giving all of the moving pieces, because you're right, there are a lot of moving pieces.

I think the quarter ended up in a good spot for us, and that sets us up for hopefully momentum in the second half.

Mary Fox

Brian, maybe if I can just add one other point to what Keith shared. Keith had talked earlier, our demand outpaced net sales, because we are building out our paid services. If you actually look at the demand growth relative to the revenue growth in Q4, it is pretty much in line. Obviously with a bit of a lag as customers are selecting their delivery and installation dates, you are seeing that bit of a difference in the delta of demand and revenue.

Brian Nagel

No, that is helpful. I appreciate all that. The second question I want to ask is on tariff refunds. We are starting to hear, I guess, more of this throughout the consumer sector broadly. You have started to receive these refunds. I guess the questions I want to ask is there any insight into how much more you could receive and the timing of that? Then probably more importantly, how should we think about the ways in which Lovesac plans to utilize these refunds?

Keith Siegner

All right, I will start, and then I will kick it over to Mary. To give you some context, we applied for and were accepted for $20.8 million of total refunds. We received the original $3.4 million at the very beginning of the opening of the window, and it has been in pause ever since. That is why we are taking this approach. As it relates to timing for the remainder, we do not know. I think that is why we have taken the approach we have and consider it. We will include it and report on it as it is received. Fingers crossed that this comes. We would love to have that back.

I think, Mary, if you want to talk about some of what our plans are for that, I will kick it over to you.

Mary Fox

Yeah, sure. Thank you. I think, tobacco, Brian, we will always plan on what we have in our bank account, because there is still a lot of uncertainty around, as Keith said, timing, but also actually receiving the rest of the refunds. The team are actively in the customs portal. Your guess is as good as ours in terms of when it will come in, but some indications that it could be in the next month or so.

Then I think in terms of how we would think through in terms of that benefit should everything come through, we have worked through a number of scenarios, to really think in terms of what we would do with that benefit. Some could support profitability, some could be around strategic priorities. We will also learn a lot more, in terms of how we would treat this given if there is other considerations. We don't want to count on it yet. Obviously the team has done an amazing job getting in for those applications and receiving them. We'll share more with you as we get those realized.

Brian Nagel

Very helpful. Thank you.

Operator

The next questions are from the line of Maria Ripps with Canaccord Genuity. Please proceed with your question.

Maria Ripps

Great. Good morning, thanks for taking my questions. Just to follow up on the last question, can you just talk a little bit about any changes in consumer behavior sort of this last quarter? I know you talked about demand below that 6,000 level, anything incremental you would highlight in terms of maybe configuration mix, financing attached, response to promotions? More broadly, has the consumer you were seeing in May and June gotten any better or worse versus what you saw in February?

Mary Fox

Maria, thank you for the question. Very much similar to what we have seen and what we've been sharing. Continued acceleration on the larger size transactions, and a lot of strong performance there, as well as also the value-added additions such as recliner, Lovesoft, and Storage Seat, just to name a few. Very much that trend is continuing, and still seeing that softness in the smaller size transactions. Really nothing new for that.

I think as we've always shared, customers are more focused on timing. As we start an event, it can be a little bit quieter in terms of their conversion, and then as the event gets to a close, then you get a lot of activity. You're just seeing definitely that bell curve moving out. I think, Keith, we look obviously at things like financing, and we're really not seeing an uptick on uses of financing. Really not driving there. I think our job to do, as we shared, is continue to accelerate on what's working as we see our consumers responding, also doing some more work as Keith shared on that smaller size transaction.

That's really kind of, Maria, what we are seeing up until now.

Maria Ripps

Got it. That's very helpful, Mary. Can you maybe give us a little bit more color on the domestic production that's starting this summer? I guess how much of your production cost base does that initially cover? What's sort of the realistic timeline to scale that volume? How should we think about sort of the cost differential versus importing sort of in the rollout phase, but also at scale?

Shawn Nelson

Yeah. Thanks, Maria. This is Shawn responding. We're very excited about onshoring. I think all of us are living on the same planet and observe all of the volatility that this endeavor can hopefully help us mitigate on top of course, the sustainability considerations, on top of cost considerations. Which at the outset, our goal is to come in flat, right? Like manufacturing, I'll call it like for like, but I'll come back to that. It's not like for like. Manufacturing like for like in the U.S. versus, say, Vietnam, Asia, is a very difficult proposition.

In fact, it was not achievable on a true like for like basis, meaning we're not just making the same product out of wood here in the U.S. We've taken a whole new design approach to the product, designing it for manufacturing, designing it for automation.

Yes, we're on track to begin the early stages of that manufacturing late this summer. We're very excited about that. Like any massive undertaking, it's going to take a period of time to come to scale. We are not planning any material pickup in margin or even offsets to the supply chain in this fiscal year. Even though we will see product rolling through and selling through in the second half of the year, it's still got a long way to scale.

We believe that we'll have the capacity and the opportunity in the future to make the consideration of, for instance, eliminating our overseas manufacturing for those SKUs. Again, I'll remind us that we're talking about in the early stages of this Sactional seats. We're leaving our options open. In a volatile world, optionality is key. Redundancy is key.

It's served us well as we've seen manufacturing ebb and flow between the various countries that we operate in Southeast Asia, and Asia more broadly. No specifics other than those basic outline factors as we move into this endeavor. We're really excited about it. Look, we've spun up a lot of new manufacturing operations as we've hopped from country to country in through all of this volatility. What we've seen is that there's always opportunity to do better with time as we observe the manufacturing process, work with our partners to trim costs, revise the product, revise supply chains, and find ways of making it more efficient. We expect the same here.

In fact, in this operation, we're more integrally involved, obviously, than our typical arrangement with partners overseas. We will not own the factory. We will not operate the factory.

We're not interested in doing that fundamentally as a business. Look, we view so much of this as upside to the business and frankly, another moat around Lovesac. Lastly, I'll just remind us that we're also talking about not just a product that's been redesigned for manufacturing. What I'd call a better product. It's going to have features and benefits that the current Sactionals cease to not offer. They're very cool. They're very meaningful. There will be new patents and intellectual property protections associated with that, we're just super excited about it.

Operator

Our next question is from the line of Eric Des Lauriers with Craig-Hallum. Please proceed with your question.

Eric Des Lauriers

Great. Thanks for taking my questions, and congrats on the continued progress with challenging macro backdrop here. First for me, just a clarifying question around the difference in the behavior that you're seeing in transactions below and above $6,000. There's basically a natural mix shift going on right now as transactions above $6,000 are growing very robustly. I think you said mid double digit. Is your approach here to deliberately accelerate or deliberately slow that mix change? Are you kind of mix agnostic here, and you're of course just trying to grow both buckets. Just looking to kind of clarify your approach to this bifurcation that you're seeing.

Mary Fox

I think, Eric, you know us. We're very competitive, and we want to win, we will be very deliberate in accelerating all opportunities, and we see customers really responding. 100% continue to drive that and accelerate it. As Keith said earlier, there's a huge opportunity for us as we think through in terms of recapturing some of those customers at the under $6,000 transactions. We see it in quote growth, that they're there, they're just taking longer to be able to convert. There's more initiatives that are coming this year that we'll share more on the next earnings call that will enable us really to tap into that. You can expect us to try and drive both.

Eric Des Lauriers

Awesome. That's helpful. Just in terms of the marketing engine improvements, it seems like this is really starting to flow through the P&L in the past couple quarters. Could you maybe give us just a couple more examples of what you've done already, whether this is more of a top of funnel traffic generation focused or more conversion focused. What maybe has yet to make a material impact so far, and how, if at all, does this tie into your sort of bifurcated approach with these transactions you're seeing? Thank you.

Mary Fox

No great question. Thank you, Eric. I think, as we've shared, the continued pivot for us was around moving to this paid earned owned operating model, really driving out the stronger unit economics that you referenced. First, that's around optimizing media mix and moving out of much more of the traditional linear TV, digital, social first investments. Teams have done a great job around building a lot more creator content that helps build the equity in the brand. I mentioned earlier the Here for Life campaign that really helps build brand equity at the top of the funnel, and we're seeing a lot of strength there. We're seeing an uptick in brand health. Search dynamics are doing really well.

As we kind of optimize through and down through the funnel, just really being able to be a lot more focused, whether it be thinking about digital video and social that helps us drive that conversion through the funnel. Things like YouTube have been really strong for us. The teams are doing test and learns. I think one of the things that's really good with the new structure we put in at the back end of last year is just they're a lot more agile. They're making moves faster, and a lot more tools to be able to help us to do that. It's fair to say continued investments because our brand awareness, there's still a lot of opportunity.

There's still a lot of customers to attract.

You're going to continue to see us doing that through broader campaigns, but then a lot sharper through the funnel in terms of driving out the conversion, including to Tom's question earlier, how do we really make sure agentic commerce is a big frontier for us. Continue to see more of that evolution.

Eric Des Lauriers

That's very helpful. Thank you very much.

Mary Fox

Thank you, Eric.

Eric Des Lauriers

Thank you.

Operator

Our next question's from the line of Matt Koranda with ROTH Capital. Please proceed with your questions.

Matt Koranda

Hey, guys. Thanks. Just given the higher-end strength that you mentioned, wondered if you could maybe just set the table for the larger format product that you expect to introduce later this year. Wanted to hear a little bit, I guess, about updated thinking around timing of the introduction, anything material that you built into the sales guidance for the year, how we should be thinking about cannibalization of kind of the larger configuration Sactionals.

Shawn Nelson

Great question, Matt. Thanks. Yeah, we're very excited about the larger format sectional sofa that we're introducing in the latter half of this year. To get right to the question, we do have sales planned in this year for this product, we have purposely planned very little from an expectation perspective, from an inventory buy perspective. We obviously would love to out-perform and see this as a healthy, exciting product launch that will more materially affect next year. There certainly is an expectation built into this year.

I think it's important to zoom out and understand our overall perspective on sectional sofas and on competing in general for more market share.

Lovesac is evolving very rapidly right now, and over the next 18 months, investors, if we were to fast-forward even 12 months from now and 18 months from now, Lovesac will look and show up very differently and become, in many respects, much more competitive, both with what I will call incumbents in the home category, those larger firms that offer full catalogs and while we will be a long way from any kind of full catalog, we do believe that in the realms that we intend to play in, now we'll start with the living room, we can be more competitive if we show up with a more fulsome product offering. This goes beyond even just sectional sofas.

This goes into some very limited accent products and what we'll call complements that will allow us to complete the room and compete better. Compete better through photography, online catalog, and the overall merchandising and consumer experience. We will be anchored in the living room by sectional sofas. That includes Snug. Snug is getting a corner piece this year very soon. Snug is getting the swivels for the chairs, which I'm actually sitting in right now, and it's a really exciting product. I think I have more Snug chairs and swivels in my home, obviously on prototype, than any other Lovesac product in my life now.

It speaks to this idea that Lovesac consumers can have any one of these three platforms that we're talking about in their life, in the same room even, in different rooms, in different places.

We absolutely intend to take more market share of the living room, and by the way, other rooms of the home that have living room-esque soft seating experiences. Rather than even view Sactionals as the anchor of this business on the go forward, I'm talking about, let's call it the living room business, we really should shift our thinking to sectional sofas. By the way, in the consumer's mind, that's what Lovesac is famous for. We see it reflected back to us every day on social media.

Consumers don't speak to, "Hey, check out my Sactionals." They say, "Check out my Lovesac." It's often confusing to me as the father of this brand, a Lovesac used to be a six foot, eight-foot beanbag. A Lovesac now in a customer's mind is a really big, amazing gushy, ushy sofa that does all the things.

By the way, each one of our platforms will do all the things in their own way, including this one that we're introducing the back half of this year that you asked about. We're really excited about it. It's part of a bigger strategic move, it really sets the table and solidifies our standing, again, to compete for more market share as we then move into the new room, which obviously is also a massive focus that is taking a lot of attention, energy, and investment inside the company now.

Matt Koranda

Appreciate all the details, Shawn. Thanks. Then maybe just with the new room that's coming and the wider assortment that you're referencing, curious how we should be thinking about showrooms and expansion there. I know that you guys have slowed the expansion a bit. How should we be thinking about how the assortment fits into the existing showroom footprint that you have? Do we need to change some of the posture of the showrooms to make room for the new products, new room that you'll be introducing next year? I wanted to hear a little thoughts on the showroom strategy.

Shawn Nelson

Yeah, this is a great question. One that I'll be a little bit vague about because we're not quite ready to reveal all of our plans there, but I'll try to give you some breadcrumbs. Lovesac is one of the world's foremost operators of small footprint specialty retail, transacting on very large ticket, high margin products, fueled through advertising, fueled by advertising. We don't want to mess that up, right? We recognize the power in that. As anyone can see, stores still represent almost 70% of our sales, and we love that because these are customers that we have a deeper relationship with. We know them, we hear their stories, we plan with them.

Then we continue to follow up and clientele with their friends. There isn't a better outcome than having face-to-face real-world transactions and relationships, especially in this day and age.

That's becoming more and more true as society continues to evolve and become more digital. We are absolutely showroom friendly and excited to be in that business. At the same time, our original mantra continues to be true. We want as few as we can get away with, right? Like we are a business. We intend to be a high margin business. Obviously, we're investing very heavily in all this innovation that we've spoken of, which is compressing our overall margins right now. To some degree, that will be the case for a while because we have a lot of innovation to unleash.

Stores and the rent for these-- and we now call them stores, call them showrooms, represent our largest expense, the rent expense.

What I'm saying to you, as we move into a broader assortment, no, we don't intend to grow the size of our footprint very much. Already, though, the leases we've been signing as we've gotten sharper real estate strategy, frankly, more power in the marketplace because Lovesac shows up with very high sales for square foot, et cetera. We've been signing slightly larger leases for a long time now and found that to be very successful. Still putting up the same and better metrics from a sales per square foot and overall performance standpoint.

We'll continue to allow that square footage to creep just a little bit, but they're still in that 1,000, 1,200, a big Lovesac store might be 1,500 square foot range.

As we look toward the new room, again, I'll keep it vague other than to say we recognize the power in focusing a small footprint on selling anchor items. The anchor for our living room format is the sectional sofa, and we don't want to dilute that. I'll also say, though, that we want to lean into that strength, amplify that strength, and be able to take advantage of now new opportunities to have these brand billboards in the best geographies and real estate in the United States of America. It's another piece of this overall marketing engine that we've built.

Lastly, I'll just say that we do also like the idea of every one of these wonderful associates that we have. We have almost 2,000 Sacers around the country representing the brand. We love empowering them to sell against a whole catalog and use our website as that full digital configuration experience. Even as we talk about some of these complementary products that may or may not appear in their stores, as we talk about new room products that may or may not appear in their stores, their ability to sell against a full catalog of product that's broadening and create these wonderful interactions with customers.

You've seen how we can miniaturize our products through the blocks that have been copied by others at this point because they're so effective.

Our ability to sell very large ticket, high margin items out of small spaces is a superpower of ours, and we intend to lean into that as you watch all this innovation unfold of next year. We have a North Star of keeping, let's just call it rent low, expenses low, and sales higher and higher, and that's what drives our decision-making in that realm.

Keith Siegner

Just to throw a CFO style bullet on the end, just for fun. In the simplest form, Matt, the way I think about this is as opposed to, here's our store, how many stores can we have? It's what market share do we think the Lovesac brand can take across all of these products and platforms, and then what's the most efficient way to get it? We're going to test a few things, learn from that what gives the greatest customer experience, and then let the data tell us what the next steps are. Just a slightly different summary on exactly what Shawn just said.

Matt Koranda

Thanks, guys. I appreciate all the detail.

Operator

Thank you. Ladies and gentlemen, this concludes our question and answer session. I'll turn the floor back to management for closing comments.

Shawn Nelson

Thanks so much to all of the Lovesac Family out there that supports this brand and company and our Lovesac investors that continue to give us the support we need to unfold this awesome vision and ultimately inspire humankind to buy better stuff, saying, "Buy less stuff." Have a great day.

Operator

This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation, and have a wonderful day.

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