The Lovesac Company
Annual Report 2024

Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 2, 2025
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 001-38555
THE LOVESAC COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
32-0514958
State or Other Jurisdiction of
Incorporation or Organization
 
I.R.S. Employer Identification No.
 
 
 
421 Atlantic Street
Stamford, Connecticut
 
06901
Address of Principal Executive Offices
 
Zip Code
Registrant’s telephone number, including area code (888) 636-1223
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.00001 par value per share
 
LOVE
 
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☒
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant's executive officers during the relevant recovery period pursuant to § 240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ☒
As of August 4, 2024 (last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the voting common stock held by
non-affiliates of the Registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) was approximately $342,562,675.

As of April 7, 2025, there were 14,793,504 shares of common stock, $0.00001 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive proxy statement relating to its 2025 Annual Meeting of Stockholders, or the 2025 Proxy Statement, to be filed with the
Securities and Exchange Commission, are incorporated by reference into Part III of this Annual Report on Form 10-K. Such 2025 Proxy Statement will be filed with the U.S.
Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates. Except with respect to information specifically incorporated
by reference in this Form 10-K, the proxy statement is not deemed to be filed as part of this Form 10-K.

Table of Contents
TABLE OF CONTENTS
Page
PART I.
Item 1.
Business.
1
Item 1A.
Risk Factors.
7
Item 1B.
Unresolved Staff Comments.
32
Item 1C.
Cybersecurity
32
Item 2.
Properties.
32
Item 3.
Legal Proceedings.
33
Item 4.
Mine Safety Disclosures.
33
PART II.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
34
Item 6.
[Reserved].
35
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
35
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
43
Item 8.
Financial Statements and Supplementary Data.
43
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
43
Item 9A.
Controls and Procedures.
44
Item 9B.
Other Information.
46
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
46
PART III.
Item 10.
Directors, Executive Officers and Corporate Governance.
47
Item 11.
Executive Compensation.
48
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
48
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
48
Item 14.
Principal Accountant Fees and Services.
48
PART IV.
Item 15.
Exhibits, Financial Statement Schedules.
49
Item 16.
Form 10-K Summary.
49
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TRADEMARKS
The Lovesac Company owns or has rights to use multiple trademarks that it uses in conjunction with the operation of its business. The trademarks of The Lovesac Company,
which are registered in U.S. Patent and Trademark Office, are LOVESAC, DESIGNED FOR LIFE FURNITURE CO., DESIGNED FOR LIFE, DFL, ALWAYS FITS, FOREVER
NEW, TOTAL COMFORT, THE WORLD'S MOST ADAPTABLE COUCH, SACTIONALS, LOVESOFT, SIDE, STEALTHTECH, SACTIONALS POWER HUB, THE WORLD'S
MOST COMFORTABLE SEAT, SACS, SAC, SUPERSAC, MOVIESAC, CITYSAC, GAMERSAC, SQUATTOMAN, DURAFOAM, FOOTSAC, ROOM FOR TWO, and
REWRITING THE RULES OF COMFORT. Solely for convenience, the Company only uses the ™ or ® symbols the first time any trademark or trade name is mentioned. Such
references are not intended to indicate in any way that the Company will not assert, to the fullest extent permitted under applicable law, its rights to its trademarks and trade
names. Each trademark or trade name of any other company appearing in this Annual Report on Form 10-K is, to the Company's knowledge, owned by such other company.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other legal authority,
which statements may involve substantial risk and uncertainties. All statements contained in this Annual Report on Form 10-K other than statements of historical fact,
including statements regarding our future operating results, financial position and liquidity, our business strategy and plans, market growth and trends, and our objectives for
future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,”
“expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative
of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions.
You should not place undue reliance on forward looking statements. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be
achieved or occur at all or on a specified timeframe. The cautionary statements set forth in this Annual Report on Form 10-K, including in Part II - Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations and elsewhere, identify important factors which you should consider in evaluating our forward-
looking statements. These factors include, among other things: business disruptions or other consequences of economic instability, political instability, civil unrest, armed
hostilities and global conflict, natural and man-made disasters, pandemics or other public health crises, or other catastrophic events; the impact of changes or declines in
consumer spending and inflation on our business, sales, results of operations and financial condition; active pending or threatened litigation; our ability to manage and sustain
our growth and profitability effectively, including in our ecommerce business, forecast our operating results, and manage inventory levels; our cash flows, changes in the
market price of the Company’s common stock, global economic and market conditions and other considerations that could impact the specific timing, price and size of
repurchases under our stock repurchase program or our ability to fund any stock repurchases; our ability to improve our products and develop new products; our ability to
successfully open and operate new showrooms; our ability to advance, implement or achieve the goals set forth in our ESG Report; our ability to realize the expected benefits
of investments in our supply chain and infrastructure; disruption in our supply chain and dependence on foreign manufacturing and imports for our products; execution of our
share repurchase program and its expected benefits for enhancing long-term shareholder value; our ability to acquire new customers and engage existing customers;
reputational risk associated with increased use of social media; our ability to attract, develop and retain highly skilled associates; system interruption or failures in our
technology infrastructure needed to service our customers, process transactions and fulfill orders; any inability to implement and maintain effective internal control over
financial reporting; unauthorized disclosure of sensitive or confidential information through breach of our computer system; the ability of third-party providers to continue
uninterrupted service; the impact of changes in diplomatic and trade relations, as well as tariffs, and the countermeasures and tariff mitigation initiatives; the regulatory
environment in which we operate; our ability to maintain, grow and enforce our brand and intellectual property rights and avoid infringement or violation of the intellectual
property rights of others; and our ability to compete and succeed in a highly competitive and evolving industry.
We caution you that the foregoing list may not contain all of the factors that may impact the forward-looking statements made in this Annual Report on Form 10-K.
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You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form
10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations,
and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the sections entitled
“Risk Factors” and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Annual Report on Form 10-K. Moreover, we operate in
a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties
that could have an impact on the forward-looking statements contained in this Annual Report on Form 10-K. We cannot assure you that the results, events, and circumstances
reflected in the forward-looking statements will be achieved or occur at all or on a specified timeline, and actual results, events, or circumstances could differ materially from
those described in the forward-looking statements.
The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to
update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to
reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our
forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of
any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
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PART I.
Item 1. Business.
When used in this report, the terms “we,” “us,” “our,” “Lovesac” and the “Company” mean The Lovesac Company.
Company Overview
We are a technology driven company that designs, manufactures and sells unique, high quality furniture derived through our proprietary "Designed for Life" approach which
results in products that are built to last a lifetime and designed to evolve as our customers’ lives do. Our current product offering is comprised of modular couches called
Sactionals, premium foam beanbag chairs called Sacs, the immersive surround sound home theater system called StealthTech, and the most recently launched PillowSac
Accent Chair and Sactionals Reclining Seat. Innovation is at the center of our design philosophy with all of our core products protected by a robust portfolio of utility patents.
We market and sell our products through an omni-channel platform that includes direct-to-consumer touch points in the form of our own showrooms, which include our mobile
concierge and kiosks, and online directly at www.lovesac.com. We believe that our ecommerce centric approach, coupled with our ability to deliver our large upholstered
products through express couriers, is unique to the furniture industry.
Product Overview
Our products serve as a set of building blocks that can be rearranged, restyled and re-upholstered for any new setting or occasion, mitigating constant changes in fashion and
style. They are built to last and evolve throughout a customer’s life.
•
Sactionals. Our Sactional product line currently represents a majority of our net sales. We believe our Sactionals platform is unlike competing products in its
adaptability yet is comparable aesthetically to similarly priced premium couches and sectionals. Our Sactional products include a number of patented features relating
to their geometry and modularity, coupling mechanisms and other features. Utilizing primarily two, standardized pieces, “seats” and “sides,” and approximately 200
high quality, tight-fitting cover options that are removable, washable, and changeable, customers can create numerous permutations of a sectional couch with minimal
effort. Customization is further enhanced with our specialty-shaped modular offerings, such as our wedge seat, roll arm and angled sides. In September 2024, we
launched the AnyTable
, a versatile table that seamlessly enhances any Sactionals living space, and in November 2024, we launched the Sactionals Reclining Seat, an
innovation that integrates advanced reclining technology and delivers unparalleled comfort and flexibility while maintaining the sleek, sophisticated aesthetic of our
Sactionals. Our custom features and accessories can be added easily and quickly to a Sactional to meet endless design, style, storage and utility preferences, reflecting
our Designed for Life philosophy. Sactionals are built to meet the highest durability and structural standards applicable to fixed couches. Sactionals are comprised of
standardized units and we guarantee their compatibility over time, which we believe is a major pillar of their value proposition to the consumer. Our Sactionals
represented 91.4%, 91.0% and 89.8% of our net sales for fiscal 2025, 2024 and 2023, respectively.
Our Sactionals StealthTech Sound + Charge product line complements our Sactionals as a unique innovation that features immersive surround sound by Harman
Kardon and convenient wireless charging, all seamlessly embedded and hidden inside the adaptable Sactionals platform. The system includes two Sound + Charge
Sides each with embedded front- and rear-firing Harman Kardon speakers, a Subwoofer that easily integrates into a Sactionals Seat Frame and a Center Channel, all
working in unison to deliver captivating surround sound that is completely hidden from view. In May 2023, we introduced Satellite Subwoofers as an add-on to the
Sound + Charge System. The Satellite Subwoofer is an upgrade to the existing StealthTech setup and enhances the bass and overall entertainment experience. In
November 2024, we launched the StealthTech Charge Side, integrating wireless device charging into our Sactionals Sides without the need for our sound system.
•
Sacs. We believe that our Sacs product line is a category leader in oversized beanbags. The Sac product line offers 5 different sizes ranging from 35 pounds to 95
pounds with capacity to seat 3+ people on the larger model Sacs. Filled with Durafoam, a proprietary blend of shredded foam, Sacs provide serene comfort and
guaranteed durability. Their removable covers are machine washable and may be easily replaced with a wide selection of cover offerings. In May 2024, we launched
the PillowSac
 Accent Chair Frame, an accessory that elevates the style and comfort of our existing PillowSac. Our Sacs represented 7.2%, 7.4% and 8.5% of our net
sales for fiscal 2025, 2024 and 2023, respectively.
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•
Other. Our Other product line enhances the versatility of our Sacs and Sactionals, catering to the evolving demands and preferences of our customers. Our current
offerings include Sactional-specific drink holders, Footsac blankets, decorative pillows, fitted seat tables, ottomans in various styles and finishes, and the unique
Sactionals Power Hub. These products provide our customers with the flexibility to personalize their furnishings with both decorative and practical add-ons, ensuring
they can adapt to meet changing style preferences.
Sales Channels
We offer our products through an omni-channel platform that provides a seamless and meaningful experience to our customers online and in-store. Our distribution strategy
allows us to reach customers through three distinct, brand-enhancing channels.
•
Showrooms. We market and sell our products through 257 showroom locations at top tier malls, lifestyle centers, mobile concierge, kiosk, and street locations in 42
states in the U.S. We carefully select the best small-footprint showroom locations in high-end malls and lifestyle centers for our showrooms. Compared to traditional
retailers, our showrooms require significantly less square footage because of our need to have only a few in-store sample configurations for display and our ability to
stock our inventory for immediate sale. The architecture and layout of these showrooms is designed to communicate our brand personality and key product features.
Our goal is to educate first-time customers, creating an environment where people can touch, feel, read, and understand the technology behind our products. Our
showroom concept emphasizes our unique product platform and utilizes technology in more experiential ways to increase traffic and net sales. Net sales generated by
this channel accounted for 62.6%, 62.5% and 61.2% of total net sales for fiscal 2025, 2024 and 2023, respectively.
•
Ecommerce. Through our ecommerce channel, we believe we are able to significantly enhance the consumer shopping experience for home furnishings, driving
deeper brand engagement and loyalty, while also realizing more favorable margins than our showroom locations. We believe our robust technological capabilities
position us well to benefit from the growing consumer preference to transact at home and via mobile devices. With furniture especially suited to ecommerce
applications, our net sales generated by this channel accounted for 28.8%, 28.5% and 27.1% of total net sales for fiscal 2025, 2024 and 2023, respectively.
•
Other touchpoints. We augment our showrooms with other touchpoint strategies including online and in store pop-up-shops, shop-in-shops, and barter inventory
transactions.
◦
In store and online pop-up-shops. We utilize in store pop-up-shops to increase the number of locations where customers can experience and purchase our
products, a low cost alternative to drive brand awareness, in store sales, and ecommerce sales. These in store pop-up-shops are typically 10-day shows and are
staffed similarly to our showrooms with associates trained to demonstrate and sell our products and promote our brand. In fiscal 2025 and 2024, we operated
601 and 424 in store pop-up-shops, respectively, and 9 and 8 online pop-ups on Costco.com, respectively.
◦
Shop-in-shops. Shop-in-shops are designed to be in permanent locations carrying the same digital technology of our showrooms and are also staffed with
associates trained to demonstrate and sell our products. Shop-in-shops require less capital expenditure to open a productive space to drive brand awareness
and touchpoint opportunities for demonstrating and selling our products. As of February 2, 2025 and February 4, 2024, we operated 49 and 44 Best Buy shop-
in-shops, respectively.
◦
Barter inventory transactions. Our barter inventory transactions with a third party vendor are part of our Circle Operations ("CO"), Designed for Life, and
Environmental, Social and Governance ("ESG") initiatives. CO is a way of doing business that is meant to reduce our footprint, while dramatically extending
the life of products through more looped, localized, long-term, and sustainable practices, policies, and programs. We repurpose returned open-box inventory
in exchange for media credits, which are being used to support our advertising initiatives to create brand awareness and drive net sales growth.
Other net sales, which includes pop-up-shop sales, shop-in-shop sales, and barter inventory transactions, accounted for 8.6%, 9.0% and 11.7% of total net sales for
fiscal 2025, 2024 and 2023, respectively.
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Customers
Our Designed for Life products provide flexibility, upgrade ability and sustainability, elements that attract a wide customer base and can change as their life changes. Our
customers have different tastes, styles, purchasing goals and budgets when shopping for couches, and our Sactionals platform’s modularity addresses this array of needs.
•
Target Demographics. Based on our internal data, our target customer is 25 to 54 years in age with an annual household income of over $75,000. We consider this to
be an attractive demographic because of its higher than average rates of household formation and furniture purchasing. Since 2020, we have experienced growth in
new customer transactions from our target customers and beyond, demonstrating the expansive relatability and demand of our products.
•
Customer Lifetime Value. We aim to maximize customer lifetime value for both new and existing customers by delivering a consistent brand message across our
omni-channel platform, which we believe influences our customers’ buying decisions, and through our unique product offerings designed to evolve with our
customers’ needs. We believe we have an opportunity to increase revenue and loyalty from new and existing customers, thereby extending customer lifetime value. We
will continue to drive penetration of Sactionals and StealthTech, and invest in product development to enhance customer experience and drive sales of additional
products to existing customers. We believe we are well positioned in the market and there is significant room to expand our customer base and convert them into
active, lifetime customers.
Growth Strategies
To position Lovesac for future growth, in the last several years we have made significant investments in overhead, optimized and integrated our business technologies and
processes, and further developed our marketing strategies. In addition, we have refocused our strategy regarding our showrooms, moving across malls, lifestyle centers, strip
malls, and pad sites and continue to support ecommerce sales, a critical growth channel. We are moving to fixed versus variable rent structures in many of our lease
arrangements, and our interactive technology driven showroom experience has resulted in higher traffic levels and conversion.
We are also focused on the following key strategies to drive sales growth:
Continue to Build on Our Brand
We aggressively invest in brand building and direct marketing efforts through a robust and diverse marketing mix, with a focus on building the Lovesac and Sactional customer
base. Our ecommerce channel plays a significant role in the shopper journey as it is frequently the first step in the shopping journey a prospect will take and our first
opportunity to build our brand and educate on our product. We continue to invest into this digital channel to improve user experience, enhancing their research, understanding
and confidence in their purchase decision.
Our commitment to sustainability is central to our stated purpose and strategy. Our Designed For Life approach calls for products that are built to last a lifetime and designed to
evolve with our customers’ lives. Sactionals represent our Designed For Life philosophy in action and customers generally invest in them with a long-term focus. We believe
this is a competitive advantage and has helped us establish a unique brand and a successful culture.
Strategy on Innovation
Innovation and test-and-learn are engrained within our Company, from product to operations to marketing and distribution. From inception, we have focused on developing
unique, innovative and proprietary product platforms. We deploy a dual strategy of continuously researching and product invention and designing. We are continuously
expanding and introducing new extensions to these platforms to broaden the appeal, grow the addressable market of our product offerings and ultimately continue to grow and
evolve with our customers’ needs. We continually evaluate new products to complement our Sactionals and Sac lines and are currently developing accessories for the tech-
savvy consumer. Our patented StealthTech Sound + Charge product line is a unique innovation that features immersive surround sound by Harman Kardon and convenient
wireless charging, all seamlessly embedded and hidden inside the adaptable Sactionals platform. The System includes two Sound + Charge Sides each with embedded front-
and rear-firing Harman Kardon speakers, a Subwoofer that easily integrates into a Sactionals Seat Frame and a Center Channel, all working in unison to deliver captivating
surround sound that is completely hidden from view. In fiscal year 2024, we introduced Satellite Subwoofers as an add-on to the Sound + Charge System. The Satellite
Subwoofer upgrades your existing StealthTech setup to enhance the bass and your overall entertainment experience. In fiscal year 2025, we continued to build on our strategy
of innovation
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with the launches of the PillowSac
 Accent Chair, AnyTable
, Sactionals Reclining Seat, and StealthTech Charge Side. As we continue to grow our business and add
additional showrooms in strategic locations across the United States, we seek the ability to service more customers locally with area-designated representatives who will shift
their efforts between our showrooms and customers’ homes.
Increase Sales and Operating Margins
We seek to increase sales and operating margins through our premium market position and pricing strategy and omni-channel platform, which we believe will require relatively
small near-term increases in fixed overhead.
•
Premium Market Position and Pricing. Our products are positioned in the premium couch segment of the furniture market. We market as premium products because
of our proprietary foam fillings, higher quality materials, our unique Designed For Life design philosophy, and unique Circle Operations operating philosophy
requiring a distinct level of manufacturing and service capabilities. At our price point, we offer a unique value proposition that combines both beautiful aesthetics and
utility to our customers that we believe our competitors cannot offer. Additionally, our high-end branding strategy, further enhanced by our celebrity endorsements and
large social media following, commands premium pricing, as we feel lowering prices may negatively affect the perception of our products. The difference is explained
by our platform approach, where once a customer buys their first couch, the cost of expanding and adding to it over time drives more value than the traditional method
of purchasing another new couch to replace the old one.
•
Omni-channel Platform. By leveraging our omni-channel platform, we cost-effectively drive traffic to our ecommerce channel, resulting in increased web-based
sales and improved operating margins. We continually seek to improve our ecommerce capabilities to drive sales, improve customer satisfaction score ("CSAT"), and
take advantage of the lower cost of this channel. Our showrooms and other direct marketing efforts work in concert to drive customer conversion in ecommerce,
providing customers with the flexibility to purchase where, when, and how they want. Customers have the capability to begin an order in the showroom, continue the
purchase online, and vice versa. In addition, our shop-in-shops provide a low-cost alternative to drive brand awareness and both in-store and ecommerce sales.
Supply Chain and Sourcing
We manage a global supply chain of highly vetted and qualified, third-party manufacturing partners to produce our products. Our partners operate facilities located in Vietnam,
China, Malaysia, Indonesia, Mexico, Taiwan, India, and the United States. We do not currently own or operate any manufacturing facilities as we believe our partners’ facilities
are sufficient to meet our current demand and will be able to meet any additional demand in the future. We do, however, expect to invest in additional domestic manufacturing
capabilities to support supply chain redundancy for certain of our products. Additionally, we work closely with our manufacturing partners regarding product quality and
manufacturing process efficiency. To mitigate the concentration risk in our supply chain, we have and continue to pursue a higher diversification of manufacturing partners,
with both sourcing, tariff, and geographical advantages.
Logistics and Distribution
We are able to efficiently distribute and ship our products to our customers. Due to the unique modularity of our Sactionals products and the ability to shrink our Sacs, we are
able to distribute our products through nationwide express couriers and efficiently utilize warehouse space and international shipping routes. We believe our Sactionals are the
only product in its category that enjoys this logistical advantage.
Seasonality
We experience seasonal fluctuations in our sales. A larger percentage of our sales occur in the fourth quarter of our fiscal year, which coincides with Black Friday (the day after
Thanksgiving, when retailers typically offer holiday discounts), the holiday season and our related promotional and marketing campaigns. Our total net sales for each of the
fiscal 2025 quarters in sequential order equaled 19.5%, 23.0%, 22.0% and 35.5%, respectively.
Intellectual Property
We own 41 U.S. federal trademark registrations, 281 foreign trademark registrations, and a number of U.S. and foreign trademark applications and common law trademark
rights. Some of our registered U.S. trademarks include registrations for
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Lovesac®, Designed for Life®, DFL®, Sactionals®, SAC®, StealthTech®, Moviesac®, Squattoman®, Total Comfort®, Footsac®, The World’s Most Comfortable Seat®,
and The World’s Most Adaptable Couch®. Our trademarks, if not renewed, are scheduled to expire between calendar years 2024 and 2035.
In order to maintain our U.S. trademark registrations, we must continue to use the marks in commerce on the goods and services identified in the registrations and must make
required filings with the U.S. Patent and Trademark Office at intervals specified by applicable statutes and regulations. Failure to comply with these requirements may result in
abandonment or cancellation of the registrations.
We have 35 issued U.S. utility patents and 63 issued foreign utility patents, that are scheduled to expire between 2025 and 2042. Our Sactional technology patents include our
proprietary geometric modular system and segmented bi-coupling technology. Our StealthTech technology patents include our proprietary sound and entertainment system. We
also have multiple patents pending and expect to file patent applications for future innovations. We believe that our patent portfolio, combined with our innovative design
approach may deter others from attempting to imitate or replicate our products.
Competition
Our business is rapidly evolving and intensely competitive. Retailers compete based on a variety of factors, including design, quality, price and customer service. Levels of
competition and the ability of our competitors to attract customers through competitive pricing or other factors may impact our results of operations. Our competition includes
furniture stores, big box retailers, department stores, specialty retailers and online furniture retailers and marketplaces.
We believe our combination of proprietary products, brand strength, loyal customer base, omni-channel approach, technological platform, unique consumer experience,
logistical advantages and seasoned management team allow us to compete effectively against and differentiate ourselves from the competition.
Environmental Sustainability and Social Responsibility
Our business is purpose driven, pursuing continued economic growth alongside environmental and social responsibility through innovative and lasting programs. We have
incorporated social, environmental, health and safety procedures into our global manufacturing standards. Additionally, we are taking an enhanced inventory of our carbon
footprint and constructing new operational processes to reduce waste throughout our value chain.
Our social and environmental initiatives include but are not limited to the following:
Social Responsibility Initiatives
We aim to foster an inclusive culture where associates feel welcomed and valued, something we believe that will help associates reach their fullest talent potential and deliver
remarkable results. Our Belonging at Lovesac initiatives focus on supporting associates, including focusing on the behaviors that will help mitigate bias throughout the
employee experience to enable people of all identities and backgrounds to feel like they belong and do their best work. Furthermore, we offer continuous opportunities to learn
new skills on the job and tools to develop meaningful careers. Associate development hours and engagement scores are regularly measured and reported with a goal to
transparently share our progress in these areas each year. Extending our social commitments beyond our own operations and into the communities where we can make a
difference, we have established a committee to expand future community giving programs known as Lovesac Gives Back. The program's mission is to support our ambition to
become the most beloved home brand in America by giving back to the communities we serve.
Environmental Sustainability Initiatives
Delivering innovative solutions to support a sustainable, low carbon future is anchored in our guiding principles. In fiscal 2022, we established new Environmental, Social and
Governance (ESG) targets to minimize our overall environmental impacts across a range of important measures, such as emission, energy use, waste, and sustainable sourcing.
Each year, our internal ESG Committee, comprised of members of our leadership team, works to track and report on progress towards these ongoing commitments. By 2040,
we plan to reach targets of zero waste and zero emissions across our entire value chain. We are also aiming to repurpose 1 billion plastic bottles in our products with fabrics
made from recycled plastic fibers. Detailed information on these and other long-term environmental goals can be found in our fiscal year 2024 ESG Report.
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We monitor our sourcing facilities that manufacture Lovesac products for implementation of safe and ethical business practices in the areas of working hours, wages, benefits,
forced labor, discrimination, and child labor. These facilities are also required to manage their environmental impacts, provide a safe and healthy environment in all
workspaces, comply with all local wage and hour laws and regulations, and comply with all applicable environmental laws and regulations. Ethical and environmental practices
are confirmed through agreements with our manufacturers to submit to third party auditing and authorized monitoring. We work to ensure our products are safe for our
customers and their homes with strict safety standards and responsible use of chemicals. To achieve these standards, we strive for all of our products to meet or exceed
performance requirements for product durability, safety, and consumer satisfaction through rigorous safety inspections.
In December 2024, we published our fourth annual Environmental, Social, and Governance (ESG) report aligned with the guidance of the Sustainability Accounting Standards
Board (SASB). We believe that transparently disclosing the goals and metrics pertinent to our ESG programs will grant our stakeholders continued visibility of our progress. To
that end, we expect to update this report annually for consistent transparency of our evolving ESG strategy and related efforts. Our most recent ESG report is available at:
https://investor.lovesac.com/esg. The contents of our website and our ESG Report are not incorporated by reference in this Form 10-K.
Environmental Compliance
Our manufacturing operations are subject to a variety of U.S. and international environmental protection measures. We believe that our operations comply in all material
respects with applicable environmental laws and regulations. Our compliance with these requirements is not expected to have a material effect upon our capital expenditures,
cash flows, earnings, or competitive position.
Human Capital
The long-term success of our business depends on attracting, developing and retaining top talent to drive our growth strategy and support our guiding principles. These
principles are the foundation of our business and grounded in true sustainability, a singular focus on high quality execution of fewer core products, consideration of all
stakeholder perspectives in our decision-making, and championing meaningful relationships through the development of products that bring people together.
Our corporate culture celebrates our associates at online rallies and annual in-person events designed to engage our associates and reward them for exemplary performance and
embodiment of our core competencies and values. We support our associates’ professional development through training platforms and programs on topics relevant to our
business, functional areas, or policies and procedures. Our associates participate in coaching sessions with their managers where they are evaluated on their performance
relative to certain key performance indicators and alignment with our core competencies and given actionable feedback. We engage our associates on many levels to share
learnings, educate, and foster community and connection.
Our talent acquisition strategy is to attract top talent and become a sought-after U.S. employer focused on our Designed For Life philosophy and a culture of Top Ambition and
Love Matters. We have initiated this strategy by expanding the areas from which we source talent and offering flexible remote working opportunities for eligible associates. We
will continue to build on this strategy, working in parallel with our evolving future work strategy. We also offer a robust and immersive onboarding plan to create a strong
foundation for our new associates and timely, effective integration.
In fiscal 2025, a majority of our workforce continued to work remotely. To support our headquarters-based associates, we ensure that our associates have the technology to
support remote work and are redefining our future working environment to offer flexible working solutions. For associates supporting our showrooms, we implemented specific
protocols to ensure the safety of our associates and our customers.
As of February 2, 2025, we had 920 full-time associates and 1,104 part-time associates, and we contracted with twenty-five independent contractors.
All associates and contractors are subject to contractual agreements that specify, among other things, requirements for confidentiality, ownership of newly developed
intellectual property and restrictions on working for competitors as well as other matters.
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Belonging at Lovesac
At Lovesac, we champion building meaningful relationships as we foster an inclusive culture that embraces and celebrates the individuality of everyone. We believe that when
associates feel welcomed and valued, they can reach their fullest talent potential and deliver remarkable results. We believe our culture and our business is enhanced by our
workforce being comprised of individuals with diverse backgrounds, perspectives, skills, and experiences that align with the needs of our business. We are an equal opportunity
employer. We believe in meritocratic hiring of A players with the necessary skills and talent to move us into the next chapter and rewarding Associates for performance. In
fiscal 2025, we focused on the behaviors that will help mitigate bias throughout the employee experience to enable people of all identities and backgrounds to feel welcome and
do their best work. We maintained our steering committee of senior leaders and an action council of associates that direct and enable our belonging initiatives. We measure the
impact on our associates’ experiences through the annual Engagement Survey.
Product Development
We design and sell non-seasonally driven, Designed For Life products, that are focused on driving incremental value for our customer. The process leverages numerous inputs
to shape our product roadmap, sequencing of product launches, and prioritization of product projects. A few examples of these sources of information are consumer insights
generated by research commissioned by Lovesac, patterning our category and key competitors, and product opportunities developed to address customer satisfaction. All
products that we bring to market must adhere to our Designed For Life design philosophy which calls for products that are built to last a lifetime and designed to evolve as life
changes. This ensures that our products not only leverage responsible inputs when possible, but also create a sustainable product that is built to last and designed to evolve.
Government Regulation
We are subject to numerous U.S. and international trade laws and regulations, and U.S. federal, state and foreign laws and regulations covering a variety of subject matters,
many of which are evolving. These laws and regulations involve matters including privacy, data use, data protection and personal information, intellectual property, anti-spam,
consumer credit offerings, content protection, electronic contracts and communications (such as “do not call/mail” and text messaging requirements), consumer protection,
pricing transparency and false advertising, use of artificial intelligence, Internet neutrality, product liability and labeling, ecommerce, taxation, environmental, safety, economic
or other trade prohibitions, sanctions, or tarrifs, anti-corruption and political law compliance, securities law compliance, and online payment services. Our compliance with
these laws and regulations may be onerous and could, individually or in the aggregate, increase our cost of doing business and/or otherwise have an adverse impact on our
business, reputation, financial condition, and operating results.
For additional information about government regulation applicable to our business, see Part I, Item 1A. Risk Factors in this Annual Report on Form 10-K.
Available Information
Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, our Proxy Statements and amendments to these reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) are available, free of charge, on our investor relations
website (https://investor.lovesac.com) as soon as reasonably practicable after we file such materials electronically with or furnish it to the SEC. Information contained on, or
that can be accessed through, our website does not constitute part of this Annual Report on Form 10-K and the inclusion of our website address in this Annual Report is for
reference only. The SEC also maintains a website that contains our SEC filings at www.sec.gov.
Item 1A. Risk Factors.
An investment in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other
information contained in this Annual Report on Form 10-K, including our financial statements and the related notes thereto. The risks and uncertainties described below are
not the only ones we face. Additional risks and uncertainties not presently known to us, or that we currently believe are not material, also may become important factors that
affect us and impair our business operations. The occurrence of any of the events or developments discussed in the risk factors below could have a material and adverse impact
on our business, results of operations, financial condition and cash flows, and in such case, our future prospects would likely be materially
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and adversely affected. If any of such events or developments were to happen, the trading price of our common stock could decline.
Summary
Our business is subject to numerous risks and uncertainties, as described below, that may prevent us from achieving our business objectives or may adversely affect our
business, financial condition, results of operations, cash flows, and prospects. The principal factors and uncertainties that make investing in our common stock risky include,
among others:
•
our ability to sustain profitability, and raise capital;
•
our ability to accurately forecast our operating results and growth rate or manage our growth effectively;
•
our ability to maintain our brand image, engage new and existing customers and gain market share;
•
our ability to compete successfully;
•
our ability to effectively market and launch our products and increase customer traffic;
•
our ability to attract, develop, motivate and maintain well-qualified associates;
•
systems interruptions that impair customer access to our sites or other performance failures in our technology infrastructure, including significant disruptions of or
breach in security of information technology systems and violation of data privacy laws;
•
systems interruptions that impair customer access to our sites or other performance failures in our technology infrastructure, including significant disruptions of or
breach in security of information technology systems and violation of data privacy laws;
•
our ability to maintain effective internal controls over financial reporting;
•
the impact related to the restatement of our previously issued financial statements;
•
any decline in consumer spending including due to negative impact from economic conditions;
•
our dependence on a small number of suppliers, including international suppliers and those in developing countries, foreign manufacturing and imports;
•
the impact of increases in demand for, or the price of, raw materials used to manufacture our products;
•
our inability to manage our inventory levels and products, including the complexities created by our omni-channel operations, and sustain our Internet sales levels;
•
our ability to successfully open and operate new showrooms and continue to achieve showroom growth rates that we have achieved in the past;
•
our ability to successfully adapt to consumer shopping preferences;
•
unfavorable changes to government regulation, including of the Internet and ecommerce;
•
failure to meet our publicly announced guidance; and
•
our ability to protect our trademarks, brand image, or other intellectual property rights.
Business and Industry Risks
If we fail to manage our growth effectively, our business, financial condition and operating results could be harmed.
Our historical growth rates may not be sustainable or indicative of future growth. To manage our growth effectively, we must continue to implement our operational plans and
strategies, acquire new and retain existing customers, increase our showroom base, optimize our omni-channel operations, and improve and expand our infrastructure of people
and
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information systems. The success of our growth strategy depends, in part, on our ability to keep existing customers engaged and attract new customers to our brand. There is no
guarantee that we will continue to be able to retain existing customers and drive customer acquisition rates necessary for us to maintain our current growth rate.
Additionally, we may not be able to achieve the showroom sales growth rates that we have achieved historically as we continue to expand our showroom base. While our focus
is to continue the expansion of our showrooms, this may result in the closure of underperforming showroom locations or locations with declining profitability in order to pursue
more productive opportunities that are in line with our real estate strategy. In addition, the results of operations of our showroom locations have and are expected to continue to
fluctuate based on, among others, consumer spending patterns, fashion trends, competition, current economic conditions, pricing, inflation, the timing of the release of new
merchandise and promotional events, changes in our product assortment, the success of marketing programs, weather conditions and public health crises. These factors may
cause our showroom sales results and growth rates in the future to be materially lower than recent periods or our expectations, which could harm our business and results of
operations.
Growing our business through our omni-channel operations is key to our growth strategy. Our goal is to offer our customers seamless access to our products across our
channels, and our success depends on our ability to anticipate and implement innovations in sales and marketing strategies to appeal to existing and potential customers who
increasingly rely on multiple channels, such as ecommerce, to meet their shopping needs. Failure to enhance our technology and marketing efforts to align with our customers’
developing shopping preferences could significantly impair our ability to meet our strategic business and financial goals.
Additionally, the growth of our business places significant demands on our operations, as well as our management and other employees. The growth of our business may
require significant additional resources to meet these daily requirements, which may not scale in a cost-effective manner or may negatively affect the quality of our sites and
customer experience. We are also required to manage relationships with a growing number of suppliers, customers and other third parties across the world. Our information
technology systems and our internal controls and procedures may not be adequate to support future growth of our supplier and employee base. Failure to manage our growth
and organizational change effectively could lead us to over-invest or under-invest in technology and operations; result in weaknesses in our infrastructure, systems or controls;
give rise to operational mistakes, losses or loss of productivity or business opportunities; reduce customer satisfaction; limit our ability to respond to competitive pressures; and
result in loss of employees and reduced productivity of remaining employees. If we are unable to manage the growth of our organization effectively, our business, financial
condition and operating results may be materially adversely affected.
Our business, results of operations and financial condition may be adversely affected by global economic conditions and the effect of economic pressures and other
business factors on discretionary consumer spending and consumer preferences.
We face numerous business risks relating to macroeconomic factors. Uncertainties in global economic conditions that are beyond our control have in the past impacted
discretionary consumer spending and our business and may in the future materially adversely affect our business, results of operations, financial condition and stock price.
Consumer purchases of discretionary items, including our products, generally decline during recessionary periods and other times when disposable income is lower. Factors
impacting discretionary consumer spending include general economic conditions, inflation, reduction in wages and discretionary income, levels of unemployment, consumer
debt, reductions in net worth based on severe market declines, residential real estate and mortgage markets, taxation, regulations and new or increased tariffs, including
retaliatory tariffs, export controls, volatility of fuel and energy prices, fluctuations in interest rates or currency exchange rates, consumer confidence, closure or restricted
operating conditions for businesses, political and economic uncertainty, inclement weather, natural disasters, health epidemics or pandemics and other macroeconomic factors,
including geopolitical conditions and regional conflicts. Deterioration in economic conditions, increasing inflation or increasing unemployment levels may reduce the level of
discretionary consumer spending and inhibit consumers’ use of credit, which may adversely affect our sales. In recessionary periods and other periods where disposable income
is adversely affected, we may have to increase the number of promotional sales or otherwise dispose of inventory for which we have previously paid to manufacture, which
could further adversely affect our financial performance. A downturn in the economic environment can also lead to financial instability, increased credit and collectability risk
on our receivables, the failure of important partners, including suppliers, manufacturers, logistics providers, and other financial institutions. It is
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difficult to predict when or for how long any of these conditions could affect our business and a prolonged economic downturn could have a material adverse effect on our
business, financial condition, operating results and prospects.
Our inability to maintain our brand image, engage new and existing customers and gain market share could have a material adverse effect on our growth strategy and our
business, financial condition, operating results and prospects.
Our ability to maintain our brand image and reputation is integral to our business and implementation of our growth strategy. Maintaining, promoting and growing our brand
will depend largely on the success of our design, merchandising and marketing efforts and our ability to provide a consistent, high-quality product and customer experience.
Our reputation could be jeopardized if we fail to maintain high standards for product quality and integrity and any negative publicity about these types of concerns, whether real
or perceived, may reduce demand for our products. If customers do not have a satisfactory shopping experience, they may seek out alternative offerings from our competitors
and may not return as a customer as often in the future, or at all. In addition, unfavorable publicity regarding, for example, our practices relating to privacy and data protection,
product quality or availability, poor customer service, delivery problems, competitive pressures, litigation or regulatory activity, could seriously harm our reputation. A
significant portion of our customers' brand experience also depends on third parties outside our control, including manufacturers, suppliers, assembly and installation service
providers and logistics providers such as FedEx, UPS and other third-party delivery agents. If these third parties do not meet our or our customers' expectations, our brands may
suffer irreparable damage. Additionally, our reputation could be damaged if we do not (or are perceived not to) act responsibly with respect to any social or sustainability
matters, which could negatively impact our business and results of operations. While we believe our brand enjoys a loyal customer base, the success of our growth strategy
depends, in part, on our ability to keep existing customers engaged and attract new customers to our brand. We may not be able to maintain and enhance our brand if we receive
unfavorable customer complaints, negative publicity or otherwise fail to live up to consumers' expectations. If we experience damage to our reputation or loss of consumer
confidence, we may not be able to retain existing customers or acquire new customers, which could have a material adverse effect on our business, financial condition,
operating results and prospects.
If we fail to acquire new customers, or fail to do so in a cost-effective manner, we may not be able to achieve revenue growth or profitability.
To acquire new customers, we must appeal to prospects who have historically used other means of commerce to purchase furniture, such as traditional furniture retailers. We
have made significant investments related to customer acquisition and expect to continue to spend significant amounts to acquire additional customers and to reactivate prior
customers. To date, we have reached new customers primarily through our showroom presence in various markets, and through social media, digital content, third-party
advocates for our brand and products, by word of mouth, and through national television advertisements. These efforts are expensive and may not result in the cost-effective
acquisition of customers. Our marketing expenses have varied from period to period, and we expect this trend to continue as we test new channels and refine our marketing
strategies. Until now, these efforts have allowed us to acquire new customers at what we believe is a reasonable cost and rate. However, there is no guarantee that these methods
will continue to be successful or will drive customer acquisition rates necessary for us to achieve revenue growth or profitability.
We also utilize non-paid advertising. Our non-paid advertising efforts include search engine optimization, non-paid social media, mobile "push" notifications and email. We
obtain a significant amount of traffic via search engines and, therefore, rely on search engines such as Google, Bing and Yahoo!. Although we employ search engine
optimization and search engine marketing strategies, our ability to maintain and increase the number of visitors directed to our website and application is not entirely within our
control. Search engines frequently update and change the logic that determines the placement and display of results of a user's search, such that the purchased or algorithmic
placement of links to our sites can be negatively affected. Moreover, a search engine could, for competitive or other purposes, alter its search algorithms or results, causing our
sites to place lower in search query results. A major search engine could change its algorithms in a manner that negatively affects our paid or non-paid search ranking, and
competitive dynamics could impact the effectiveness of search engine marketing or search engine optimization. We also obtain a significant amount of traffic via social
networking websites or other channels used by our current and prospective customers. As e-commerce and social networking continue to rapidly evolve, we must continue to
establish relationships with these channels and may be unable to develop or maintain these relationships on acceptable terms. If we are unable to cost-effectively drive traffic to
our sites, our ability to acquire new customers, reactivate prior customers or retain our existing customers and our financial condition would suffer.
Further, some of our new customers originate from word of mouth or other non-paid referrals from existing customers. If our efforts to satisfy our existing customers are not
successful, we may not be able to acquire new customers or reactivate
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prior customers through these referrals, which may adversely affect how we continue to grow our business, or may require us to incur significantly higher marketing expenses
in order to acquire new customers.
Our business is highly competitive. Competition presents an ongoing threat to the success of our business.
Our business is rapidly evolving and intensely competitive, and we have many competitors in different industries. We compete with furniture stores, big box retailers,
department stores, specialty retailers and online furniture retailers and marketplaces.
We expect competition in both retail stores and ecommerce to continue to increase. Our ability to compete successfully depends on many factors both within and beyond our
control, including:
•
the size and composition of our customer base;
•
our selling and marketing efforts;
•
the quality, price, reliability and uniqueness of products we offer;
•
the convenience of the shopping experience that we provide;
•
our ability to distribute our products and manage our operations; and
•
our reputation and brand strength.
Many of our current and potential competitors have longer operating histories, greater brand recognition, larger fulfillment infrastructures, greater technological capabilities,
faster and less costly shipping, more efficient distribution models, significantly greater financial, marketing and other resources and larger customer bases than we do. These
factors may allow our competitors to, among other things, derive greater sales from their existing customer base, acquire customers at lower costs and respond more quickly
than we can to new or emerging technologies and changes in consumer habits. These competitors may engage in more extensive research and development efforts, undertake
more far-reaching marketing campaigns and adopt more aggressive pricing policies. If we are unable to successfully compete, our business, financial condition, operating
results and prospects could be materially adversely affected.
We have faced and may face price competition in the future. In addition, competitors with whom we compete, or who can obtain better pricing, more favorable contractual
terms and conditions, or more favorable allocations of products during periods of limited supply may be able to offer lower prices than we are able to offer. Our operating
results and financial condition may be adversely affected by these and other industry-wide pricing pressures.
We rely on the performance of members of management and highly skilled personnel. If we are unable to attract, develop, motivate and retain well-qualified associates, our
business could be harmed.
We believe our success has depended, and continues to depend, on the efforts and talents of Shawn Nelson, our founder, member of the Board of Directors and Chief Executive
Officer, Mary Fox, our President and Chief Operating Officer, Keith Siegner, our Executive Vice President, Chief Financial Officer and Treasurer, and other members of our
management team. Our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled associates. The market for such
associates in the cities in which we operate is competitive. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. The loss of
any of our key associates, including members of our senior management team, could materially adversely affect our ability to execute our business plan, and we may not be
able to find adequate replacements. Our inability to recruit and develop mid-level managers could have similar adverse effects on our ability to execute our business plan.
Moreover, we believe that a key contributor to our success and our ability to retain highly skilled personnel has been our corporate culture, which we believe fosters innovation,
teamwork, and a passion for our products and consumers. If we fail to maintain the beneficial aspects of our corporate culture globally, it could adversely affect our ability to
attract and retain employees, continue to perform at current levels, or execute on our business strategy.
Our officers and other key associates are employed at-will, meaning that they may terminate their employment relationship with us at any time, and their knowledge of our
business and industry would be extremely difficult to replace. While others have employment agreements with stated terms, they could still leave our employ. If we do not
succeed in retaining and motivating existing associates or attracting well-qualified associates, our business, financial condition, operating results and prospects may be
materially adversely affected.
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System interruptions that impair customer access to our sites or other performance failures in our technology infrastructure could damage our business, reputation and
brand, and substantially harm our business and results of operations.
The satisfactory performance, reliability and availability of our website, transaction processing systems and technology infrastructure are critical to our reputation, and our
ability to acquire and retain customers and maintain adequate customer service levels. We currently rely on a variety of third-party service providers to support mission critical
systems and the efficient flow of merchandise from and between warehouses and showrooms to customers and we cannot be sure that these third-party systems, services and
support will continue to be available to us without interruption. For example, we rely on common carriers for the delivery of merchandise purchased by customers through our
website and in our showrooms, and the systems we employ to communicate delivery schedules and update customers about order tracking interface with the information
systems of these common carriers. Our own systems, which are customized versions of ecommerce, customer relationship management, payment processing, and inventory
management software technologies deployed by numerous retailers and wholesalers in a variety of industries, must work seamlessly in order for information to flow correctly
and update accurately across these systems. We and our third-party service providers have and may in the future experience periodic system interruptions from time to time.
Any damage to our technology systems or website could cause interruptions to our operations that materially adversely affect our ability to meet customers' requirements,
resulting in an adverse impact to our business, financial condition and results of operations.
In addition, continued growth in our transaction volume, as well as surges in online traffic and orders associated with promotional activities and seasonal trends in our business,
place additional demands on our technology platform and could cause or exacerbate slowdowns or interruptions. We have in the past and may in the future experience
slowdowns or interruptions in some or all of our sites when we are updating them, and new technologies or infrastructures may not be fully integrated with existing systems on
a timely basis, or at all. Additionally, periodically these systems and our website may need to be expanded, updated or upgraded as our business needs change. Our net revenue
depends on the number of visitors who shop on our sites and the volume of orders we can handle. Unavailability of our sites or reduced order fulfillment performance would
reduce the volume of goods sold and could also materially adversely affect consumer perception of our brand.
Through third parties that underwrite customer risk, we offer financing options in order to increase the market demand for our products among customers who may not be able
to buy them using cash. The systems of these third parties must work efficiently in order to give customers real-time credit availability. Changes in the risk underwriting or
technologies of these third parties may result in lower credit availability to our potential customers and therefore reduced sales. The occurrence of any of the foregoing could
substantially harm our business and results of operations.
Unauthorized disclosure of sensitive or confidential information, whether through a breach of our computer system or otherwise, could severely hurt our business.
Certain aspects of our business involve the receipt, storage and transmission of customers’ personal information and consumer preferences, as well as confidential information
about our associates, our suppliers and our Company, some of which is entrusted to third-party service providers and vendors. Despite the security measures we have in place,
our facilities and systems, and those of third parties with which we do business, have been subject to and may in the future be vulnerable to security breaches, acts of vandalism
and theft, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events. In addition, the rapid evolution and increased adoption of
artificial intelligence technologies may intensify these cybersecurity risks.
An electronic security breach in our systems (or in the systems of third parties with which we do business) that results in the unauthorized release of individually identifiable
information about customers or other sensitive data could occur and have a material adverse effect on our reputation, lead to substantial financial losses from remedial actions,
and lead to a substantial loss of business and other liabilities, including possible punitive damages. In addition, as the regulatory environment relating to retailers and other
companies’ obligation to protect such sensitive data becomes increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with
those requirements could result in additional costs, and a material failure on our part to comply could subject us to fines, other regulatory sanctions and lawsuits.
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A substantial portion of our business is dependent on a small number of suppliers. In some instances, our suppliers are the only source of supply, or one of a limited
number of suppliers, used by the Company for materials, components or services. A material disruption or labor shortage at any of our suppliers could impede our ability to
meet customer demand, manufacture or deliver our products, and reduce our sales, and/or negatively affect our financial results.
We do not own or operate any manufacturing facilities and therefore depend on third-party suppliers for the manufacturing of all of our products. Moreover, a substantial
portion of our business is dependent on a small number of suppliers. Sacs are currently manufactured by two manufacturers in Texas and North Carolina, which have previously
experienced, and may continue to experience in the future, disruptions to its manufacturing operations. Sactionals are manufactured by suppliers in Vietnam, China, Malaysia,
Indonesia, Mexico, Taiwan, and India. If our relationship with these suppliers or the suppliers' services are disrupted, terminated or otherwise negatively impacted, we could
have difficulty or incur additional costs in replacing these suppliers.
We rely on two primary logistics and transportation carriers to fulfill our last mile product delivery services. These carriers could be vulnerable to labor challenges, liquidity
concerns, the impacts of global health conditions, or other factors that may result in delays in deliveries or increased costs of deliveries. Any significant delay in deliveries to
our customers could cause increased order cancellations or returns and cause us to lose sales or incur increased costs. Delays in deliveries and increases in freight charges or
other costs of deliveries has and could continue to harm our sales, profitability, cash flows and financial condition.
Some of our third-party suppliers experienced a shortage of qualified labor at their manufacturing facilities in certain geographies, due in part to general macroeconomic
factors. A prolonged shortage of qualified labor may result in disruption, delays in deliveries or increased costs of deliveries, which could decrease our third-party suppliers'
ability to effectively produce and meet our demands and efficiently operate their facilities. A prolonged labor shortage could also lead to increased labor costs from higher
overtime, the need to hire temporary help to meet demand and higher wages rates in order to attract and retain employees. Any of these developments or manufacturing
disruptions could materially increase our sourcing costs and have a material adverse effect on our results of operations.
Certain of our suppliers’ manufacturing facilities, and machines within an otherwise operational facility, have previously ceased temporarily, and could in the future cease,
operations unexpectedly due to a number of events, which could materially and adversely impact our business, operations and financial condition. These events include but are
not limited to:
•
equipment failure;
•
public health crises, such as the COVID-19 pandemic;
•
fires, floods, earthquakes, hurricanes, or other natural disasters and climate-related events;
•
unscheduled maintenance outages;
•
utility and transportation infrastructure disruptions;
•
labor difficulties;
•
other operational problems;
•
war or terrorism;
•
political, social or economic instability, such as any conflict that may arise between China and Taiwan; or
•
financial instability or bankruptcy of any such supplier.
Further, we rely on our suppliers' representations of product quality, safety and compliance with applicable laws and standards. If our suppliers or other vendors violate our
agreements, applicable laws or regulations, or implement practices regarded as unethical, unsafe, or hazardous to the environment, it could damage our reputation and
negatively affect our operating results. Further, concerns regarding the safety and quality of products provided by our suppliers could cause our customers to avoid purchasing
those products from us, or avoid purchasing products from us altogether, even if the basis for the concern is outside our control. As such, any issue, or perceived issue,
regarding the quality and safety of any items we sell, regardless of the cause, could adversely affect our brand, reputation, operations and financial results. We are also
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subject to risks of fraud from our suppliers. If our suppliers violate our agreements, applicable laws or regulations, or implement fraudulent practices regarding their products, it
could harm our business, reputation and brands and our operating results may be negatively affected.
We are subject to risks associated with our dependence on foreign manufacturing, suppliers and imports for our products.
Our business highly depends on global trade, as well as trade and other factors that impact the specific countries where our vendors’ production facilities are located. Our future
success will depend in large part upon our ability to maintain our existing foreign vendor relationships and to develop new ones based on the requirements of our business and
any changes in trade dynamics that might dictate changes in the locations for sourcing of products. While we rely on long-term relationships with many of our vendors, we have
no long-term contracts with them and generally transact business with them on an order-by-order basis.
Our current suppliers are located in China, Vietnam, Taiwan, India, Indonesia, Malaysia, Mexico and the United States. Our reliance on international suppliers increases our
risk of supply chain disruption. Events that have in the past and could in the future cause disruptions to our supply chain include but are not limited to, the imposition of
additional trade laws or regulations; public health crises; the imposition of additional duties, tariffs and other charges on imports and exports; foreign currency fluctuations;
theft; and restrictions on the transfer of funds. The occurrence of any of the foregoing could materially increase the cost and reduce or delay the supply of our products, which
could adversely affect our business, financial condition, operating results and prospects.
Many of our imported products are subject to existing duties, tariffs, anti-dumping duties and quotas that may limit the quantity or affect the price of some types of goods that
we import into the United States. In addition, recent events have resulted in substantial regulatory uncertainty regarding international trade and trade policy, both in the United
States and abroad. The U.S. Government has also raised the possibility of other initiatives that may affect importation of goods including renegotiation of trade agreements with
other countries and the introduction of new or increased import duties or tariffs with respect to products from a number of different countries. The U.S. has imposed or
proposed the imposition of new tariffs on products imported into the U.S. from a number of countries, including China, Mexico, Canada and other countries and could propose
additional tariffs or increases to those already in place. A substantial portion of our products sourced from China has been affected by increased tariffs and may be subject to
further increased tariffs. We rely upon vendors outside of the U.S. for the substantial majority of our products. The possible implementation of a border tax or new or increased
tariffs could materially increase our cost of goods sold with respect to merchandise that we purchase from vendors who manufacture products outside the U.S., which could in
turn require us to increase our prices and, in the event consumer demand declines as a result, negatively impact our results of operations. Furthermore, certain of our
competitors may be better positioned than us to withstand or react to border taxes, tariffs or other restrictions on global trade and as a result, we may lose market share to such
competitors. Due to broad uncertainty regarding the timing, content and extent of any regulatory changes in the U.S. or abroad, we cannot predict the impact, if any, that these
changes could have to our business, financial condition and results of operations.
We also face uncertainty in the interpretation of new tariffs and their applicability, including with respect to customs valuation, product classification and country-of-origin
determinations. Although we and our vendors seek to comply with applicable customs laws and regulations, the application of rules regarding new tariffs can be subject to
varying interpretations or future re-interpretations. It is possible that U.S. Customs and Border Protection or other relevant authorities could, upon review or audit, disagree with
the valuation, rules of origin or classification methods applied to certain merchandise. Any such disagreement could result in the retroactive assessment of additional duties with
interest, the imposition of penalties, or other enforcement actions without the ability to mitigate such penalties, thereby adversely affecting our operations or financial results.
Additionally, the availability of certain goods could be affected if suppliers choose to limit their exposure to U.S. markets in response to unfavorable trade policies, and we may
be unable to source alternatives quickly enough to avoid interruptions in product supply. Further, these changes to tariffs or other rules related to cross border trade, could
materially increase our cost of goods sold with respect to products that we purchase from vendors who manufacture products abroad, which could in turn require us to increase
our prices and, in the event consumer demand declines as a result, negatively impact our financial performance. Certain of our competitors may be better positioned than us to
withstand or react to these kinds of changes including border taxes, tariffs or other restrictions on global trade and as a result we may lose market share to such competitors. In
addition, while we may be able to continue to expand and shift our sourcing options, such expansion is time consuming and would be difficult or impracticable for many
products and may result in an increase in our manufacturing costs. Due to broad uncertainty regarding the timing, content and extent of any
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regulatory changes in the United States or abroad, we cannot predict the impact, if any, that these changes could have to our business, financial condition and results of
operations.
Our reliance on suppliers in developing countries increases our risk with respect to available manufacturing infrastructure, labor and employee relations, political and
economic stability, corruption, and regulatory, environmental, health and safety compliance.
Our reliance on suppliers in developing countries increases our risk with respect to infrastructure available to support manufacturing, labor and employee relations, political and
economic stability, natural disasters, corruption, and regulatory, environmental, health and safety compliance. Any failure of our suppliers to comply with ethical sourcing
standards or labor or other local laws in the country of manufacture, or the divergence of a supplier’s labor practices from those generally accepted as ethical in the United
States, could disrupt the shipment of products, force us to locate alternative manufacturing sources, reduce demand for our products, damage our reputation and/or expose us to
potential liability for their wrongdoings. Any of these events could have a material adverse effect on our reputation, business, financial condition, operating results and
prospects.
Most of our products are shipped from our suppliers by ocean vessel. If a disruption occurs in the operation of ports through which our products are imported, we may
incur increased costs and suffer delays, which could have a material adverse effect on our business, financial condition, operating results and prospects.
Most of our products are shipped from our suppliers by ocean vessel. If a disruption occurs in the operation of ports through which our products are imported, for instance, as a
result of port congestion, adverse weather, terrorist attack, natural disasters or climate change, we may incur increased costs related to air freight or use of alternative ports.
Shipping by air is significantly more expensive than shipping by ocean and our margins could be reduced. Shipping to alternative ports could also lead to delays in receipt of
our products. We rely on third-party shipping companies to deliver our products to us. Our ability to efficiently ship products to customers has been and may be in the future
negatively affected by factors beyond our and the shipping companies' control,which may include labor disputes, union organizing activity, supply chain issues, the closure of
such shipping companies’ offices or a reduction in operational capacity due to an economic slowdown or the inability to sufficiently ramp up operational capacity during an
economic recovery or upturn, health pandemics and epidemics, political instability, military conflict, increased fuel costs and costs associated with any regulations to address
climate change, and other factors affecting the shipping industry’s capacity or ability to deliver our products to us. For example, ocean freight capacity issues increased during
the COVID-19 pandemic which resulted in greater demand for shipping and reduced capacity and equipment, which resulted in increases in shipping container rates. As a
result, our inventory levels were adversely impacted and resulted in elevated, and sometimes lengthy, customer backorders. While the pandemic-era disruptions have largely
subsided, if in the future there are transportation delays, increases on costs of shipping containers, more extensive travel restrictions, closures or disruptions of businesses and
facilities or social, economic, political or labor instability in the affected areas, as a result of pandemics or otherwise, these developments could have a material adverse effect
on our business, financial condition, operating results and prospects.
Additionally, a recent proposal by the U.S. to impose new port fees on Chinese-operated and built vessels and to restrict a percentage of U.S. products from being transported
on non-U.S. vessels could have the potential to dramatically impact shipping capacity and costs. The actual implementation of these proposed actions remains uncertain. The
final form, scope, and effective dates of any measures that are ultimately adopted may significantly differ from the current proposals. Furthermore, retaliatory measures from
China or other nations could further compound disruptions and cost increases within the global shipping industry. This proposal could result in a significant increase in our
shipping costs, cause inventory disruptions and have a material adverse effect on our operations and financial results.
Additionally, we cannot guarantee that products we receive from suppliers will be of sufficient quality or free from damage, or that such products will not be damaged during
shipping, while stored in one of our distribution facilities, or when returned by customers. While we take measures to ensure the products' quality and avoid damage, including
evaluating supplier product samples, conducting inventory inspections and inspecting returned products, we cannot control the products while it is out of our possession or
prevent all damage while in our distribution facilities.
Increases in the demand for, or the price of, raw materials used to manufacture our products or other fluctuations in sourcing or distribution costs could increase our costs
and negatively impact our gross margin.
Our gross margin depends, in part, on our ability to mitigate rising costs or shortages of raw materials used to manufacture our products. Raw materials used to manufacture our
products are subject to availability constraints and price volatility impacted by a number of factors, including supply and demand for fabrics, steel and metal components, and
electronic components, weather, government regulations, economic conditions, economic and political instability, and other
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unpredictable factors. In addition, our sourcing costs may fluctuate due to labor conditions, transportation or freight costs, energy prices, currency fluctuations, tariffs and trade
restrictions, public health crises, or other unpredictable factors. The occurrence of any of the foregoing could increase our costs, delay or reduce the availability of our products
and negatively impact our gross margin. For example, members of the U.S. Government have called for substantial changes to tax policies, including the possible
implementation of a border tax. The U.S Government has also raised the possibility of other initiatives that may affect importation of goods including renegotiation of trade
agreements with other countries and the introduction of new or increased import duties or tariffs with respect to products from a number of different countries. The U.S. has
imposed or proposed the imposition of new tariffs on products imported into the U.S. from a number of countries. If maintained, these and other newly announced tariffs and
the potential escalation of trade disputes could increase price and supply pressures.
Although we instituted measures to ensure our supply chain remains open to us, we have in the past, and may in the future continue to, experience raw material supply chain
challenges related to suppliers negatively impacted by macroeconomic factors and shipping delays. These global supply chain challenges could continue or reoccur in the future
and in turn materially adversely impact our manufacturing production and fulfillment of backlog. While we strive to maintain multiple sources for our raw materials, the impact
of certain other macroeconomic conditions on raw materials and increased demand on our supply chain, could again cause additional pricing and availability pressures. Higher
raw material prices and costs of sourced products could have an adverse effect on our future margins. We expect raw material prices to remain at historically high levels in
many categories during fiscal 2026 due to price inflation and increased tariffs in certain raw materials and global supply chain complexities. Macroeconomic factors, such as
inflation, will continue to introduce uncertainty into many markets, especially with respect to freight and labor availability. To the extent that we experience incremental costs in
any of these areas, we may increase our selling prices or assess material surcharges to offset the impact. However, increases in selling prices, or surcharges, may not fully
mitigate the impact of raw material cost increases which would adversely impact operating income.
Our inability to manage our inventory levels and products, including with respect to our omni-channel operations, could have a material adverse effect on our business,
financial condition, operating results and prospects.
Inventory levels in excess of customer demand may result in lower than planned financial performance. We may be required to mark down certain products to sell any excess
inventory or to sell such inventory through liquidation channels at prices that are significantly lower than our retail prices, any of which would negatively impact our business
and operating results. Alternatively, if we underestimate demand for our products, we may experience inventory shortages resulting in delays in fulfilling customer demands
and replenishing to appropriate inventory levels, missed sales and lost revenues. We may not always be able to respond quickly and effectively to changes in consumer taste and
demand due to the amount of time and financial resources that may be required to bring new products to market or to constraints in our supply chain if our vendors do not have
the capacity to handle elevated levels of demand for part or all of our orders or could experience delays in production for our products. Much of our merchandise requires that
we provide vendors with significant ordering lead times and we may not be able to source sufficient inventory if demand for a product is greater than anticipated. Continued or
lengthy delays in fulfilling customer demand could cause our customers to shop with our competitors instead of us, which could harm our business. Either of these events could
significantly affect our operating results and brand image and loyalty.
We are required to make substantial lease payments under our leases, and any failure to make these lease payments when due would likely harm our business. In addition,
many of our leases contain relocation clauses that allow the landlord to move the location of our showrooms. As our leases expire, we may be unable to negotiate
acceptable renewals.
We do not own any of our showrooms. Instead, we rent all of our showroom spaces pursuant to leases. Nearly all of our leases require a fixed annual rent, and many of them
require the payment of additional rent if showroom sales exceed a negotiated amount. Most of our leases are “net” leases that require us to pay all costs of insurance,
maintenance and utilities, as well as applicable taxes.
Our required payments under these leases are substantial and account for a significant portion of our selling, general and administrative expenses. We expect that any new
showrooms we open will also be leased, which will further increase our lease expenses and require significant capital expenditures. We depend on cash flow from operations to
pay our lease expenses and to fulfill our other cash needs. If our business does not generate sufficient cash flow from operating activities,
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and sufficient funds are not otherwise available to us from other sources, we may not be able to service our substantial lease expenses, which would harm our business.
Our substantial lease obligations could have significant negative consequences, including, among others:
•
increasing our vulnerability to general adverse economic and industry conditions;
•
limiting our ability to obtain additional financing;
•
requiring a substantial portion of our available cash to pay our rental obligations, reducing cash available for other purposes;
•
limiting our flexibility in planning for or reacting to changes in our business or in the industry in which we compete; and
•
placing us at a disadvantage with respect to some of our competitors who sell their products exclusively online.
Moreover, our showroom leases are generally long term and non-cancelable, and we generally expect future showrooms to be subject to similar long term, non-cancelable
leases. If an existing or future showroom is not profitable, and we decide to close it, we may nonetheless be required to perform our obligations under the applicable lease
including, among other things, paying the base rent for the balance of the lease term if we cannot negotiate a mutually acceptable termination payment.
Many of our leases include relocation clauses that allow the landlord to move the location of our showrooms. If any of our showrooms are relocated, there can be no assurance
that the new location will experience the same levels of customer traffic or success that the prior location experienced. In addition, as our leases expire, we may fail to negotiate
renewals, either on commercially acceptable terms or at all, which could cause us to close showrooms in desirable locations. We may also be unable to enter into new leases on
terms acceptable to us or in desirable locations. If any of the foregoing occur, our business, sales and results of operations may be harmed.
Our business depends on effective marketing and increased customer traffic, and the failure to effectively develop and expand our sales and marketing capabilities could
harm our ability to increase our customer base and achieve broader market acceptance of our e-commerce and our omnichannel approach for shopping.
We rely on a variety of marketing strategies to compete for customers and increase sales. If our competitors increase their spending on marketing, if our marketing is less
effective than that of our competitors, or if we do not adequately leverage the technology and data analytics needed to generate concise competitive insight, our business,
financial condition, operating results and prospects could be adversely affected. Additionally, if the online market for our products does not continue to gain acceptance, a
significant portion of our business may suffer. Our success will depend, in part, on our ability to attract consumers who have historically purchased furniture through traditional
retailers. Furthermore, we may have to incur significantly higher and more sustained advertising and promotional expenditures in order to attract additional online consumers to
our sites and convert them into purchasing customers online. We market our products globally through a range of advertising and promotional programs and campaigns,
including social media. If we do not successfully market our products or invest in the right campaigns or promotions for the right products at the right time, the lack of success
or increased costs of promotional programs could have an adverse effect on our business, financial condition, and results of operations.
Our increased use of social media poses reputational risks.
As use of social media becomes more prevalent, our susceptibility to risks related to social media increases. The immediacy of social media precludes us from having real-time
control over postings made regarding us via social media, whether matters of fact or opinion. Information distributed via social media could result in immediate unfavorable
publicity we may not be able to reverse. Our ability to prevent Internet publication of false or misleading information regarding our products or the Company is limited. We rely
in part upon third parties, such as social media influencers, to market its brand, and are unable to fully control their efforts. Influencers with whom we maintain a relationship
could engage in behavior or use their platforms to communicate directly with our customers in a manner that reflects poorly on our brand, and these communications may be
attributed to us or otherwise adversely affect us. It is not possible to prevent such behavior, and the precautions we take to prevent or detect this activity may not be effective.
This unfavorable publicity could result in damage to our reputation and therefore have a material adverse effect on our business, financial condition, operating results and
prospects.
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Our efforts to launch new products may not be successful.
We plan to continue to expand our product line in the future. We may not be able to develop products which are attractive to our customers, and our costs to develop new
products may be significant. It may take longer than we might expect for a product, even if ultimately successful, to achieve attractive sales results. We incur significant
research and development and other expenditures in the pursuit of improvements and additions to our product line. The success of new product introductions depend on a
number of factors including, but not limited to, timely and successful research and development, pricing, market and consumer acceptance, the ability to successfully identify
and originate product trends, effective forecasting and management of product demand, purchase commitments and inventory levels, availability of products in appropriate
quantities to meet anticipated demand, ability to obtain timely and adequate delivery of components for our new products from third-party suppliers, management of any
changes in major component suppliers, management of manufacturing and supply costs, management of risks and delays associated with new product design and production
ramp-up issues, logistics, and the risk that new products may have quality issues or other defects or bugs in the early stages of introduction including testing of new parts and
features. Failure to successfully develop or market new products or delays in the development of new products could have a material adverse effect on our financial condition,
results of operations and business.
Our ability to attract customers to our showrooms depends heavily on successfully locating our showrooms in suitable locations. Any impairment of a showroom location,
including any decrease in customer traffic, could cause our sales to be lower than expected.
We plan to open new showrooms in high traffic urban and suburban locations and historically we have favored top tier mall locations near luxury and contemporary retailers
that we believe are consistent with our key customers’ demographics and shopping preferences. Our site selection has evolved to include lifestyle and strip shopping centers.
Sales at these showrooms are derived, in part, from the volume of foot traffic in these locations. Showroom locations may become unsuitable due to, and our sales volume and
customer traffic generally may be harmed by, among other things:
•
economic downturns in a particular area;
•
competition from nearby retailers selling similar products;
•
changing consumer demographics in a particular market;
•
changing preferences of consumers in a particular market;
•
the closing or decline in popularity of other businesses located near our store;
•
reduced customer foot traffic outside a showroom location; and
•
store impairments due to acts of God, climate-related events, pandemic, terrorism, protest or periods or civil unrest.
Even if a showroom location becomes unsuitable, we will generally be unable to cancel the long-term lease associated with such showroom.
We may be unable to successfully open and operate new showrooms, which could have a material adverse effect on our business, financial condition, operating results and
prospects.
As of February 2, 2025, we had 257 showrooms, including 1 kiosk and 2 mobile concierges, but our growth strategy requires us to increase our showroom base. There can be
no assurance that we will succeed in opening additional showrooms. If we are unable to successfully open and operate new showrooms, it could have a material adverse effect
on our business, financial condition, operating results and prospects.
Our ability to successfully open and operate new showrooms depends on many factors, including, among other things, our ability to:
•
identify new markets where our products and brand image will be accepted or the performance of our showrooms will be successful;
•
find available and suitable showroom locations that align with our consumer location strategy;
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•
obtain labor and materials required to construct our showrooms that can achieve capital payback requirements;
•
obtain desired locations, including showroom size and adjacency, in targeted high traffic street and urban locations and top tier malls;
•
adapt our showrooms to address public health crises;
•
negotiate acceptable lease terms, including desired rent and tenant improvement allowances;
•
achieve brand awareness, affinity and purchaser intent in new markets;
•
manage capital expenditures while designing new showrooms and remodeling our existing showrooms;
•
hire, train and retain showroom associates and field management;
•
assimilate new showroom associates and field management into our corporate culture;
•
source and supply sufficient inventory levels;
•
employ the technologies needed to service a customer and complete a transaction;
•
successfully integrate new showrooms into our existing operations and information technology systems; and
•
have the capital necessary to fund new showrooms.
In addition, new showroom openings may negatively impact our financial results due to the effect of opening costs and lower sales during the initial period following opening.
New showrooms, particularly those in new markets, build their brand recognition and customer base over time and, as a result, may have lower margins and incur higher
operating expenses. Unavailability of desired showroom locations, delays in the acquisition or opening of new showrooms, delays or costs resulting from a decrease in
commercial development due to capital restraints, difficulties in staffing and operating new showroom locations or a lack of customer acceptance of showrooms in new market
areas may negatively impact our new showroom growth and the costs or the profitability associated with new showrooms. While we are seeking to mitigate some of the risks
related to our mall-based showrooms by opening high traffic street and lifestyle center-based showrooms and continuing to build our online sales, there can be no assurance that
this strategy will be successful or lead to greater sales.
As we expand our showroom base and expend capital remodeling our existing showrooms, we may not be able to achieve the showroom sales growth rates that we have
achieved in the past and there is no guarantee that this will result in incremental showroom traffic or sales and there is no guarantee that this will result in incremental
showroom traffic or sales and there is no guarantee that this will result in incremental showroom traffic or sales, which could cause our share price to decline.
As we expand our showroom base, we may not be able to achieve the showroom sales growth rates that we have achieved historically. If our showroom sales growth rates
decline or fail to meet market expectations, our financial results could be impacted and the value of our common stock could decline. While our focus is to continue the
expansion of our showrooms, this may result in the closure of underperforming showroom locations or locations with declining profitability in order to pursue more productive
opportunities that are in line with our real estate strategy. The closure of these showrooms and transition to new showroom locations as part of our strategy may impact our
sales and productivity.
In addition, the results of operations of our showroom locations have fluctuated in the past and can be expected to continue to fluctuate in the future. A variety of factors affect
showroom sales, including, among others, consumer spending patterns, fashion trends, competition, current economic conditions, pricing, inflation, the timing of the release of
new merchandise and promotional events, changes in our product assortment, the success of marketing programs, weather conditions and public health crises. If we misjudge
the market for our products, we may have excess inventory of some of our products and miss opportunities for other products. These factors may cause our showroom sales
results in the future to be materially lower than recent periods or our expectations, which could harm our results of operations and result in a decline in the price of our common
stock.
We intend to continue remodeling our existing showroom base to reflect our new showroom design, and we intend to expend capital doing so. Our new showroom concept is
designed to increase customer traffic and sales by emphasizing our
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unique product platform and using experiential technology. However, there is no guarantee that the capital spent on these remodeled showrooms will result in increased
showroom traffic or increased sales.
Our inability to successfully optimize our omni-channel operations and maintain a relevant and reliable omni-channel experience for our customers could have a material
adverse effect on our growth strategy and our business, financial condition, operating results and prospects.
Growing our business through our omni-channel operations is key to our growth strategy. Our goal is to offer our customers seamless access to our products across our
channels, and our success depends on our ability to anticipate and implement innovations in sales and marketing strategies to appeal to existing and potential customers who
increasingly rely on multiple channels, such as ecommerce, to meet their shopping needs. However, our omni-channel operations create additional complexities in our ability to
manage inventory levels, as well as certain operational issues, including timely shipping and returns. Accordingly, our success depends to a large degree on continually
evolving the processes and technology that enable us to plan and manage inventory levels and fulfill orders, address any related operational issues and further align channels to
optimize our omni-channel operations. Additionally, while we interact with many of our customers through our showrooms, our customers are increasingly using computers,
tablets and smartphones to make purchases online and to help them make purchasing decisions when in our showrooms. Our customers also engage with us online through our
social media channels, including Facebook and Instagram, by providing feedback and public commentary about aspects of our business. Failure to enhance our technology and
marketing efforts to align with our customers’ developing shopping preferences could significantly impair our ability to meet our strategic business and financial goals.
Moreover, if we do not successfully optimize our omni-channel operations, or if they do not achieve their intended objectives, it could have a material adverse effect on our
business, financial condition, operating results and prospects.
Purchasers of furniture may choose not to shop online, which could affect the growth of our business.
The online market for furniture is less developed than the online market for apparel, consumer electronics and other consumer products in the United States. While we believe
this market is growing, it still accounts for a relatively smaller percentage of the market as a whole. We are relying on online sales for our continued success and growth. If the
online market for furniture does not continue to gain wider acceptance, our growth and business may suffer.
In addition, our success in the online market will depend, in part, on our ability to attract consumers who have historically purchased furniture through traditional retailers. We
may have to incur significantly higher and more sustained advertising and promotional expenditures in order to attract additional online consumers to our website and convert
them into purchasing customers. Specific factors that could impact consumers’ willingness to purchase furniture from us online include:
•
concerns about buying products, and in particular larger products, with a limited physical storefront, face-to-face interaction with sales personnel and the ability to
physically examine products;
•
delivery time associated with online orders;
•
actual or perceived lack of security of online transactions and concerns regarding the privacy of personal information;
•
delayed shipments or shipments of incorrect or damaged products
•
inconvenience associated with returning or exchanging items purchased online;
•
usability, functionality and features of our website; and
•
our reputation and brand strength.
If the online shopping experience we provide does not appeal to consumers or meet the expectations of existing customers, we may not acquire new customers at rates
consistent with historical periods, and existing customers’ buying patterns may not be consistent with historical buying patterns. If either of these events occur, our business,
sales and results of operations may be harmed.
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We depend on our ecommerce business and failure to successfully manage this business and deliver a seamless omni-channel shopping experience to our customers could
have an adverse effect on our growth strategy, business, financial condition, operating results and prospects.
Sales through our ecommerce channel account for a significant portion of our revenues. Our business, financial condition, operating results and prospects are dependent on
maintaining our ecommerce business. Dependence on our ecommerce business and the continued growth of our direct and retail channels subjects us to certain risks, including:
•
the failure to successfully implement new systems, system enhancements and Internet platforms;
•
the failure of our technology infrastructure or the computer systems that operate our website and their related support systems, causing, among other things, website
downtimes, telecommunications issues or other technical failures;
•
the reliance on third-party computer hardware/software providers;
•
rapid technological change, including as a result of artificial intelligence;
•
liability for online content;
•
violations of federal, state, foreign or other applicable laws, including those relating to data protection;
•
credit card fraud;
•
cyber security and vulnerability to electronic break-ins and other similar disruptions; and
•
diversion of traffic and sales from our stores.
Our failure to successfully address and respond to these risks and uncertainties could negatively impact sales, increase costs, diminish our growth prospects and damage the
reputation of our brand, each of which could have a material adverse effect on our business, financial condition, operating results and prospects.
Seasonal trends in our business create variability in our financial and operating results and place increased strain on our operations.
Historically, we have experienced surges in online traffic and orders associated with promotional activities and seasonal trends. This activity may place additional demands on
our technology systems and logistics network and could cause or exacerbate slowdowns or interruptions. Any such system, site or service interruptions could prevent us from
efficiently receiving or fulfilling orders, which may reduce the volume or quality of goods we sell and may cause customer dissatisfaction and harm our reputation and brand.
Climate change or measures to address climate change can negatively affect our business or damage our reputation.
Climate change related events, including increased frequency or severity of natural disasters and other extreme weather conditions (including fluctuations in temperatures,
water availability, floods, wildfires and resultant air quality impacts, other unusual or prolonged adverse weather patterns and power shutoffs associated with these events) and
their impact on critical infrastructure, could pose risks to our supplier facilities, impair our production capabilities, and disrupt our supply chain. Climate change may also have
a negative effect on the pricing and availability of wood sourced and used in the manufacture of our products. In addition, the impacts of climate change may alter customer
preferences toward increased demand for climate-friendly products, resulting in a potential loss in market share if we fail to meet this demand. We have elected to set and
publicly share corporate sustainability metrics related to reducing our impact on the environment. These statements reflect our current plans and aspirations and are not
guarantees that we will be able to achieve them. Any failure to achieve or properly report on the targets set forth in our ESG Report, or any perception of failure to act
responsibly in the areas in which we report, may harm our reputation with investors, customers and other third parties. This damage to our reputation may result in reduced
demand for our products or increase the risk of litigation, all of which can negatively affect our business and operations.
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Significant merchandise returns could harm our business.
We allow our customers to return products, subject to our return policy. If customer returns are significant, our business, financial condition, operating results and prospects
could be harmed. Further, we modify our policies relating to returns from time to time, which may result in customer dissatisfaction or an increase in the number of product
returns.
We are subject to risks related to online payment methods.
We accept payment using a variety of methods, including credit card, debit card, PayPal, Apple Pay, Amazon Pay, Affirm and gift cards. As we offer new payment options to
consumers, we may become subject to additional regulations, compliance requirements and fraud. For certain payment methods, including credit and debit cards, we pay
interchange and other fees, which may increase over time and increase our operating costs and we may be unable to pass through these costs to consumers. We are also subject
to payment card association operating rules and certification requirements, including the Payment Card Industry Data Security Standard and rules governing electronic funds
transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply.
As our business changes, we may also be subject to different rules under existing standards, which may require new assessments that involve costs above what we currently pay
for compliance. If we fail to comply with the rules or requirements of any provider of a payment method we accept, if the volume of fraud in our transactions limits or
terminates our rights to use payment methods we currently accept, or if a data breach occurs relating to our payment systems, we may, among other things, be subject to fines or
higher transaction fees and may lose, or have restrictions placed upon, our ability to accept credit card and debit card payments from consumers or our ability to facilitate other
types of online payments. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to
our payment systems that may result in higher costs. If any of these events were to occur, our business, financial condition and operating results could be materially adversely
affected.
In addition, we occasionally receive orders placed with fraudulent credit card data. We may suffer losses as a result of orders placed with fraudulent credit card data even if the
associated financial institution approved payment of the orders. Under current credit card practices, we may be liable for fraudulent credit card transactions. Our failure to
adequately prevent fraudulent transactions could damage our reputation, result in litigation or regulatory action and lead to expenses that could harm our business, financial
condition, operating results and prospects.
Financial Risks
Our ability to raise capital in the future may be limited. Our inability to raise capital when needed could prevent us from growing and could have a material adverse effect
on our business, financial condition, operating results and prospects.
If we experience insufficient cash flow from operations to support our operating and capital needs, we will be required to raise additional capital through public or private
financing or other arrangements. Such financing may not be available on acceptable terms, or at all. We may sell common stock, preferred stock, convertible securities and
other equity securities in one or more transactions at prices and in such a manner as we may determine from time to time. If we sell any such equity securities in subsequent
transactions, investors may be materially diluted. Concerns over the economic impact of fluctuating inflation and interest rates, slower growth or recession, new or increased
tariffs, decreased consumer confidence in the economy and armed hostilities, have caused extreme volatility in financial and capital markets, which has adversely impacted our
stock price and may materially adversely affect our ability to access capital markets. Debt financing, if available, may involve restrictive covenants and could reduce, among
other things, our operational flexibility. If we cannot raise funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures. In addition,
debt financings may be blocked by our senior lender that provides an asset-backed revolving credit facility to fund our inventory purchases in advance of customer sales. Our
lender has, and any subsequent senior lender likely will have, the right to consent to any new debt financing. There can be no assurance that our lender will provide such
consent. Our inability to raise capital when needed could prevent us from growing and have a material adverse effect on our business, financial condition, operating results and
prospects.
We previously identified material weaknesses in our internal control over financial reporting that resulted in a restatement of our financial statements. Although these
weaknesses have been remediated, if we experience additional material weaknesses or other deficiencies in our internal control over financial reporting in the future or
otherwise fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results, prevent fraud or file
our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.
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We are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act
(“Section 404”) requires that we furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment
requires disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Our independent registered public accounting firm
also needs to attest to the effectiveness of our internal control over financial reporting. Effective internal control over financial reporting is necessary for us to provide reliable
financial reports and, together with adequate disclosure controls and procedures, is designed to prevent fraud. Any failure to maintain or implement required new or improved
controls, or difficulties encountered in implementation could cause us to fail to meet our reporting obligations.
Our disclosure controls and procedures and internal controls over financial reporting have in the past been subject to deficiencies and material weaknesses which resulted in the
restatement of our financial statements , and we cannot assure you that additional material weaknesses will not arise in the future. If other material weaknesses or other
deficiencies arise in the future or if our independent registered public accounting firm is unable to express an opinion or expresses a qualified or adverse opinion about the
effectiveness of our internal control over financial reporting, we may be unable to accurately report our future financial results, which could cause our future financial results to
be materially misstated and require additional restatement. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of
periodic reports in addition to applicable stock exchange listing requirements. We may also have difficulty accessing capital on favorable terms, or at all, be subject to fines,
penalties or judgments, and incur reputational harm which may materially and adversely affect our business, results of operations and financial condition. Additionally,
investors may lose confidence in our financial reporting and our stock price may decline as a result.
Additionally, we have in the past experienced high employee turnover in our accounting department which has results in significant time and expense relating to identifying,
recruiting, hiring, relocating and integrating qualified individuals. High employee turnover of key personnel may deplete our institutional knowledge base, erode our
competitiveness and impact our internal controls and our financial reporting. We cannot assure you that the measures we have taken to date, or any measures we may take in the
future, will be sufficient to prevent or avoid potential future material weaknesses. Our failure to maintain the adequacy and effectiveness of our internal controls, including any
failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed, and we
could fail to meet our financial and other reporting obligations.
We face risks related to the restatement of our previously issued financial statements and the material weaknesses in our internal control over financial reporting.
As previously disclosed, we reached a determination to restate our financial statements as of and for the year ended January 29, 2023, and the unaudited condensed quarterly
financial information for the quarterly periods ended April 30, 2023, October 30, 2022, July 31, 2022 and May 1, 2022. As a result, we voluntarily self-reported to the SEC
information concerning the internal investigation of these accounting matters. As a result of self-reporting, the Company was the subject of a non-public investigation by the
SEC. The Company cooperated fully with the SEC in its investigation, and on October 29, 2024, the Company agreed to a settlement to resolve the claims against it. Without
admitting or denying the SEC’s allegations, we agreed to the entry of a final judgment ordering us to pay a $1.5 million civil penalty and imposing a permanent injunction
against future violations of Section 17(a)(3) of the Securities Act of 1933 and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and the
associated rules thereunder. As a result of the restatements, we have become subject to a number of additional risks and uncertainties, which may affect investor confidence in
the accuracy of our financial disclosures and may raise reputational issues for our business. Specifically, we were involved in a putative securities class action that was filed
against us and certain of our current and former officers, which we have settled. We are currently involved in certain putative shareholder derivative actions filed on behalf of
the Company against certain of its current and former officers and directors.and may in the future be subject to additional litigation or other disputes, which may include,
among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the restatement. We cannot assure that all of the risks and
challenges described above will be eliminated or that general reputational harm will not persist. If one or more of the foregoing risks or challenges persist, our business,
operations and financial condition are likely to be materially and adversely affected.
We may be unable to accurately forecast our operating results and growth rate, which may adversely affect our reported results and stock price.
We may not be able to accurately forecast our operating results and growth rate. We use a variety of factors in our forecasting and planning processes, including historical
results, recent history and assessments of economic and market
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conditions. Our growth rates may not be sustainable, and our growth depends on the continued growth of demand for the products we offer. Lower demand caused by changes
in customer preferences, a weakening of the economy or other factors may result in decreased revenues or growth. Furthermore, many of our expenses and investments are
fixed, and we may not be able to adjust our spending in a timely manner to compensate for any unexpected shortfall in our operating results. Failure to accurately forecast our
operating results and growth rate could cause our actual results to be materially lower than anticipated. If our growth rate declines as a result, investors’ perceptions of our
business may be adversely affected, and the market price of our common stock could decline.
We may not be able to fully utilize our media credits if our third-party vendor ceases operations or if there are significant changes to our marketing strategy before the
credits expire.
The Company recognizes an asset for media credits obtained through barter transactions with a third-party vendor. We utilize these marketing credits as a percentage of certain
advertising costs. If our third-party experiences a material adverse effect on their business, they may be unable to offer the level of advertising needed to fully utilize our
remaining credits. If our business or the broader macroeconomic environment experiences a material change to advertising or marketing strategies, we may be unable to fully
utilize our credits prior to expiration. If we determine through evaluation that we may not be able to fully utilize our remaining credits, the Company may be required to impair
the remaining credits, and that impairment could have a material adverse effect on our financial statements.
Legal, Tax and Regulatory Risks
A significant disruption in, or breach in security of, our information technology systems or violations of data protection laws could have a material adverse effect on our
business and reputation.
In the ordinary course of business, we electronically collect, use and store confidential information, including proprietary business information belonging to us, our customers,
suppliers, business partners and other third parties and personally identifiable information of our associates. We rely on information technology systems to protect this
information and to keep financial records, process orders, manage inventory, coordinate shipments to customers, and operate other critical functions. There can be no assurance
that the precautions of our partners, vendors, and other third parties on which we rely will be adequate to prevent significant damage, system failure or data loss. These
precautions may change over time as laws and regulations regarding data privacy, security and protection of information change. Our information technology systems may be
susceptible to damage, disruptions or shutdowns due to power outages, hardware failures, telecommunication failures and user errors. In addition, our remote hybrid working
environment may exacerbate these and other operational risks. If we experience a disruption in our information technology systems, whether due to human error or misconduct,
system errors or vulnerabilities in our or our third party service providers' products, systems or solutions, it could result in the loss of sales and customers and significant
incremental costs, which could materially adversely affect our business.
We have been and may in the future be subject to security breaches caused by computer viruses and other malicious codes, malware, ransomware, phishing and other
unauthorized access attempts, social engineering, denial-of-service attacks, illegal break-ins or hacking, sabotage, acts of vandalism by disgruntled associates or third parties,
and other means of unauthorized access. The risk of a security breach or disruption, particularly through cyberattack or cyber intrusion, including by computer hackers, foreign
governments and cyber terrorists, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.
Additionally, because techniques used to obtain unauthorized access to systems and networks are increasingly sophisticated and constantly evolving, we may not be able to
anticipate, detect, or prevent all attacks until after they have already been launched. For example, as artificial intelligence continues to evolve, cyber-attackers could also use
artificial intelligence to develop malicious code and sophisticated phishing attempts. Our information technology network and systems have been and, we believe, continue to
be under constant attack. Accordingly, despite our security measures or those of our third-party service providers, a security breach may occur, including breaches that we may
not be able to detect. A breach of our or our third party service providers' information technology systems that results in the unauthorized release of confidential information
could adversely affect our reputation, leading to a loss of our existing customers and potential future customers, cause financial losses due to remedial actions or potential
liability, including punitive damages and regulatory fines or penalties, and materially increase the costs we incur to protect against these risks, including costs associated with
insurance coverage and potential remediation measures. In addition, we have a large remote workforce and have implemented security and other policies to govern this
population of associates. Although we continue to implement strong physical and cybersecurity measures to ensure that our business operations remain functional and to ensure
uninterrupted service to our customers, our systems and our operations remain vulnerable to cyberattacks and other disruptions due to the fact that a significant portion of our
employees work remotely, and we cannot be certain that our mitigation efforts will be effective.
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Failure to comply with personal data protection and privacy laws, and other laws and regulations applicable to our business, can adversely affect our business.
We are subject to a variety of continuously evolving and developing laws and regulations in numerous state, federal and foreign jurisdictions regarding personal data protection
and privacy laws, including the California Consumer Privacy Act, which was significantly modified by the California Privacy Rights Act, new privacy legislation passed in an
increasing number of states, as well as the European Union's General Data Protection Regulation and China's Personal Information Protection Act. Failure to comply with these
laws and regulations or to otherwise protect personal data from unauthorized access, use or other processing, could result in litigation, claims, legal or regulatory proceedings,
inquiries or investigations, damage to our reputation, fines or penalties, all of which can adversely affect our business.
Our handling of data is subject to a variety of laws and regulations, including regulation by various government agencies, including the United States Federal Trade
Commission (FTC) and various state, local and foreign regulators, and agencies. Our agreements with certain customers and business partners may also subject us to certain
requirements related to our processing of personal information, including obligations to use industry-standard or reasonable security measures to safeguard personal
information. We also expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in
the United States, the European Union and other jurisdictions, and we cannot yet determine always predict the impact of such future laws, regulations, and standards may have
on our business. We expect that existing laws, regulations, and standards may even be interpreted differently or inconsistently relative to each other in the future.
We are also subject to numerous laws and regulations including those relating to the production, sale, marketing, labeling, content, safety and distribution of our products,
employment and occupational health and safety, and environmental, social and governance matters and reporting, among others. Compliance with these laws and regulations is
costly and complex given the nature of our business, our reliance on third party suppliers in foreign countries and our exposure to the laws of those countries, and the frequent
adoption of new laws and regulations. Failure to comply with such laws or regulations can subject us to criminal or civil investigations or enforcement actions, fines, penalties,
injunctions or restrictions, all of which can adversely affect our business.
We may be unable to protect our trademarks or brand image, which could harm our business.
We rely on trademark registrations and common law trademark rights to protect the distinctiveness of our brand. We regard our customer and prospect lists, trademarks, domain
names, copyrights, patents and similar intellectual property as critical to our success, and we rely on trademark, copyright and patent law, trade secret protection, agreements
and other methods with our associates and others to protect our proprietary rights. Our inability to enforce or the expiration of our intellectual property rights may harm our
competitive position and our business. If we are unable to protect our technology and to adequately maintain and protect our intellectual property rights, we may find ourselves
at a competitive disadvantage to others who need not incur the additional expense, time and effort required to create the innovative solutions that have enabled us to be
successful to date. The loss or expiration of our intellectual property rights and exclusivity agreements can have a significant adverse effect on our revenues.
Additionally, there can be no assurance that the actions we have taken to establish and protect our trademarks will be adequate to prevent counterfeiting or infringement of our
trademarks by others. We may not be able to claim or assert trademark or unfair competition claims against third parties for any number of reasons, and our trademarks may be
found invalid or unenforceable. A judge, jury or other adjudicative body may find that the conduct of competitors does not infringe or violate our trademark rights. Third parties
may claim that the use of our trademarks and branding infringe, dilute or otherwise violate the common law or registered marks of that party, or that our sales and marketing
efforts constitute unfair competition. Such claims could result in injunctive relief prohibiting the use of our marks, branding and marketing activities, and significant damages,
treble damages and attorneys’ fees and costs could be awarded as a result of such claims. Moreover, United States and foreign trademark offices may refuse to grant existing
and future trademark applications and may cancel or partially cancel trademark registrations.
The laws of certain foreign countries may not protect the use of unregistered trademarks to the same extent as do the laws of the United States. As a result, international
protection of our brand image may be limited, and our right to use our trademarks outside the United States could be impaired. Other persons or entities may have rights to
trademarks that contain portions of our marks or may have registered similar or competing marks for furniture and/or accessories in foreign countries where our products are
manufactured. There may also be other prior registrations of trademarks identical or similar to our trademarks in other foreign countries of which we are not aware.
Accordingly, it may be possible for others
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to prevent the manufacture of our branded merchandise in certain foreign countries or the sale or exportation of our branded merchandise from certain foreign countries to the
United States. If we were unable to reach a licensing arrangement with these parties, we might be unable to manufacture our products in those countries. Our inability to
register our trademarks or purchase or license the right to use the relevant trademarks or logos in these jurisdictions could limit our ability to manufacture our products in less
costly markets or penetrate new markets in jurisdictions outside the United States. The occurrence of any of the foregoing could harm our business.
We may not be able to adequately protect our intellectual property rights.
We regard our customer and prospect lists, trademarks, domain names, copyrights, patents and similar intellectual property as critical to our success, and we rely on trademark,
copyright and patent law, trade secret protection, agreements and other methods with our associates and others to protect our proprietary rights. We might not be able to obtain
protection in the United States or internationally for our intellectual property, and we might not be able to obtain effective intellectual property protection in countries in which
we may in the future sell products. If we are unable to obtain such protection, our business, financial condition, operating results and prospects may be harmed. Additionally,
associates, contractors or consultants may misappropriate or disclose our confidential information or intellectual property and agreements with those persons may not exist, may
not cover the information or intellectual property in question, or may not be enforceable, all of which could have an adverse impact on our business, financial condition,
operating results and prospects for the future.
The protection of our intellectual property rights may require the expenditure of significant financial, managerial and operational resources. Notwithstanding such expenditures,
the steps we take to protect our intellectual property may not adequately protect our rights or prevent third parties from infringing, misappropriating or disclosing confidential
information or intellectual property. The validity, enforceability and infringement of our patents, trademarks, trade secrets and other intellectual property rights may be
challenged by others in litigation or through administrative process, and we may not prevail in such disputes. Additionally, because the process of obtaining patent and
trademark protection is expensive and time-consuming, we may not be able to prosecute all necessary or desirable patent and trademark applications at a reasonable cost or in a
timely manner, and such applications may never be granted. Even if such applications issue as patents and trademarks, there can be no assurance that these patents and
trademarks will adequately protect our intellectual property, as the legal standards relating to the validity, enforceability and scope of protection of patents, trademarks and other
intellectual property rights are uncertain. If we are unable to adequately protect our intellectual property rights, our business, financial condition, operating results and prospects
may be harmed.
We also might be required to spend significant resources to monitor and protect our intellectual property rights. We may not be able to discover or determine the extent of any
infringement, misappropriation, disclosure or other violation of our intellectual property rights, confidential information or other proprietary rights. We may initiate claims or
litigation against others for infringement, misappropriation or violation of our intellectual property rights, confidential information or other proprietary rights or to establish the
validity of such rights. Despite our efforts, we may be unable to prevent third parties, former associates, consultants or independent contractors from infringing upon,
misappropriating, disclosing or otherwise violating our intellectual property rights, confidential information and other proprietary rights. In addition, initiating claims or
litigation against others for infringement, misappropriation, disclosure or violation of our intellectual property rights, confidential information or proprietary rights will be
expensive, and may be prohibitively expensive. Any litigation or other dispute resolution mechanism, whether or not it is resolved in our favor, could result in significant
expense to us and divert the efforts of our technical and management personnel, which may materially adversely affect our business, financial condition, operating results and
prospects.
Evolving government regulations and investor expectations on environmental, social and governance factors may impose additional costs and expose us to new risks.
There is uncertainty regarding potential laws, regulations and policies related to global environmental sustainability matters, climate change laws and regulations, including
disclosure obligations and reporting on such matters. Changes in the legal or regulatory environment affecting ESG and sustainability disclosure, responsible sourcing, supply
chain transparency, or environmental protection, among others, including regulations to limit carbon dioxide and other greenhouse gas emissions, to discourage the use of
plastic or to limit or to impose additional costs on commercial water use may result in increased compliance costs for us and our business partners, all of which may negatively
impact our results of operations, financial condition and cash flows.The expectations related to ESG and sustainability matters are rapidly evolving, and from time to time, we
announce certain initiatives and goals, related to these matters. We could fail, or be perceived to fail to act responsibly, in our efforts, or we could fail in accurately reporting our
progress on such initiatives and goals.
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We may be subject to product liability claims if people or property are harmed by the products we sell.
We have not had any significant product liability claims to date. We place a high priority on designing our products to be safe for consumers and safety test our products in
third-party laboratories. Still, the products we sell or have manufactured may expose us to product liability claims, litigation and regulatory action relating to personal injury,
death and environmental or property damage. Some of our agreements with our suppliers and international manufacturers may not indemnify us from product liability for a
particular supplier’s or international manufacturer’s products, or our suppliers or international manufacturers may not have sufficient resources or insurance to satisfy their
indemnity and defense obligations. Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that
insurance will continue to be available to us on economically reasonable terms, or at all. Any product liability claims asserted against us could, among other things, harm our
reputation, damage our brand, cause us to incur significant costs, and have a material adverse effect on our business, results of operations and financial condition.
Product warranty claims could have a material adverse effect on our business.
We provide a lifetime warranty on the hard insert pieces of our Sactionals and the soft insert pieces of our Sacs and a limited warranty on our StealthTech components which, if
deficient, could lead to warranty claims. The Company maintains a reserve for warranty claims. However, there can be no assurance that our reserve for warranty claims will be
adequate or additional warranty reserves will not be required due to failures in the technology in our StealthTech components or reduced warranty reserves may be required.
Material warranty claims could, among other things, harm our reputation and damage our brand, cause us to incur significant repair and/or replacement costs, and have a
material adverse effect on our business, financial condition, operating results and prospects.
We are and may in the future be subject to securities litigation, which is expensive and could divert management attention.
We are involved in and may in the future be subject to litigation or other disputes, which may include, among others, claims invoking the federal and state securities laws,
contractual claims or other claims arising from the restatements, market price volatility or other factors. In particular, on December 19, 2023, a putative securities class action
was filed against us and certain of our current and former officers in the United States District Court for the District of Connecticut captioned Gutknecht v. The Lovesac
Company, No. 3:23-cv-1640 to recover damages allegedly caused by violations of federal securities law in connection with the restatements. Additionally, three putative
shareholder derivative actions have been filed in the United States District Court for the District of Connecticut on behalf of the Company against certain of its current and
former officers and directors. The cases assert claims on behalf of the Company for breach of fiduciary duty, violations of the Exchange Act, unjust enrichment, corporate
waste, and aiding and abetting primary violations. Other potential plaintiffs may also file additional lawsuits in connection with the restatement. The outcome of any such
litigation is uncertain. Additionally, the market price of our common stock has been and may continue to be volatile. As a result, we may be the target of securities class action
litigation in the future. The defense or settlement of this litigation and any future litigation could be time-consuming and expensive, divert the attention of management away
from our business, and, if any litigation is adversely resolved against us, could have a material adverse effect on our financial condition. Any additional regulatory
consequences, litigation, claim or dispute, whether successful or not, could subject us to additional costs, divert the attention of our management, or impair our reputation. Each
of these consequences could have a material adverse effect on our business, results of operations and financial condition.
Government regulation of the Internet and ecommerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our
business and results of operations.
We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet and ecommerce. Existing and future regulations and
laws could impede the growth of the Internet, ecommerce or mobile commerce. These regulations and laws may involve taxes, tariffs, privacy and data security, anti-spam,
consumer credit offerings, content protection, electronic contracts and communications (such as “do not call/mail” and text messaging requirements), consumer protection, use
of artificial intelligence, Internet neutrality and gift cards. It is not clear how existing laws governing issues such as property ownership, sales and other taxes and consumer
privacy apply to the Internet as the vast majority of these laws were adopted prior to the advent of the Internet and do not contemplate or address the unique issues raised by the
Internet or ecommerce. It is possible that general business regulations and laws, or those specifically governing the Internet or ecommerce, may be interpreted and applied in a
manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Additionally, we are subject to various federal, state and local
consumer protection, pricing transparency and false advertising laws that regulate retailers and
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govern the marketing, advertising, promotion and sale of merchandise, including California’s Consumer Legal Remedies Act.
Though we seek at all times to be in full compliance with all such laws, we cannot be sure that our practices have complied, comply or will comply fully with all such laws and
regulations. Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation, a loss in business and proceedings
or actions against us by governmental entities or others. Any such proceeding or action could damage our reputation and brand, force us to spend significant amounts in defense
of these proceedings, distract our management, increase our costs of doing business, decrease the use of our website by consumers and result in the imposition of monetary
liability. We may also be contractually liable to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any such laws or regulations.
In particular, we are subject to a putative class action lawsuit in California related to the Company’s pricing practices. The complaint generally alleges that the Company falsely
advertised discounts on certain products. The plaintiff seeks, among other things, an unspecified amount of monetary damages, including treble damages, punitive damages,
injunctive relief related to the Company’s sales practices, and attorneys’ fees, expert fees, and other expenses. Although we intend to defend ourselves vigorously against the
claims asserted against us, we cannot predict the potential outcomes, cost and expenses associated with current and any future claims and lawsuits. Any damages, legal fees, or
costs associated with litigating or resolving claims under any such laws could be material.
Our products or marketing activities may be found to infringe or violate the intellectual property rights of others.
Third parties may assert claims or initiate litigation asserting that our products or our marketing activities infringe or violate such third parties’ patent, copyright, trademark,
trade secret or other intellectual property rights. The asserted claims and/or litigation could include claims against us or our suppliers alleging infringement of intellectual
property rights with respect to our products or components of such products.
Regardless of the merit of the claims, if our products are alleged to infringe or violate the intellectual property rights of other parties, we could incur substantial costs and we
may have to, among other things:
•
obtain licenses to use such intellectual property rights, which may not be available on commercially reasonable terms, or at all;
•
redesign our products or change our marketing activities to avoid infringement or other violations of the intellectual property rights of others;
•
stop using the subject matter protected by the intellectual property held by others;
•
pay significant compensatory and/or enhanced damages, attorneys’ fees and costs; and/or
•
defend litigation or administrative proceedings which may be costly whether we win or lose, and which could result in a substantial diversion of our time, financial and
management resources.
If any of the foregoing occur, our business, financial condition, operating results and prospects could be materially adversely affected.
Risks Related to Ownership of Our Common Stock
The trading price of the shares of our common stock has been and is likely to continue to be highly volatile.
The stock market in general has experienced volatility that has often been unrelated to the operating performance of particular companies. The market price for our common
stock may be influenced by many factors, including:
•
actual or anticipated fluctuations in our customer growth, sales, or other operating results;
•
variations between our actual operating results and the expectations of securities analysts, investors, and the financial community;
•
any forward-looking financial or operating information we may provide to the public or securities analysts, any changes in this information, or our failure to meet
expectations based on this information;
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•
actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our Company, or our failure
to meet these estimates or the expectations of investors;
•
additional shares of our common stock being sold into the market by us or our existing stockholders, or the anticipation of such sales;
•
price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;
•
announcements by us or our competitors of significant products, acquisitions, strategic partnerships, joint ventures, or capital commitments;
•
lawsuits threatened or filed against us;
•
developments in new legislation or rulings by judicial or regulatory bodies;
•
other events or factors, including those resulting from war or incidents of terrorism, or responses to these events; and
•
the societal and economic impact of macroeconomic factors, public health crises and international conflicts.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could
decline.
The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business. If one or more of
these securities or industry analysts ceases coverage of us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to
decline. If one or more of the analysts who cover us downgrades our common stock, publishes inaccurate or unfavorable research about our business or if our operating results
do not meet their expectations, our stock price could decline.
Future sales and issuances of our common stock or rights to purchase common stock could result in additional dilution of the percentage ownership of our stockholders
and could cause our stock price to decline.
In order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock.
Future sales and issuances of our common stock or rights to purchase our common stock could result in substantial dilution to our existing stockholders. We may sell shares or
other securities in the future that could have rights superior to existing stockholders. The price per share at which we sell additional shares of our common stock, or securities
convertible or exchangeable into common stock, in future transactions may be higher or lower than the current price per share of our common stock.
We cannot guarantee that our share repurchase program will be fully consummated or will enhance long-term stockholder value, and share repurchases could increase the
volatility of the trading price of our common stock and diminish our cash reserves.
In June 2024, our Board of Directors approved a share repurchase program under which we are authorized to purchase up to $40.0 million of our common stock from time to
time. Our share repurchase program does not have an expiration date and does not obligate us to repurchase any specific dollar amount or to acquire any specific number of
shares on any particular timetable or at all. There can be no assurance that we will repurchase shares at favorable prices or at all. Further, our share repurchases could affect the
trading price of our common stock, increase its volatility, reduce the market liquidity for our stock and may be suspended or terminated at any time, which may result in a lower
market valuation of our common stock. Repurchasing our common stock will reduce the amount of cash we have available to fund working capital, capital expenditures,
strategic acquisitions or business opportunities, and other general corporate purposes. The actual timing, number and value of shares repurchased will depend on various
factors, including the market price of our common stock, trading volume, general market conditions and other corporate and economic considerations.
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Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our Company more difficult, and limit attempts by our
stockholders to replace or remove our current management.
Provisions in our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws may have the effect of delaying or preventing a change of control
or changes in our management. Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws include provisions that:
•
permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships by the affirmative vote of a majority of the
directors or stockholders holding at least 25% of our issued and outstanding shares of common stock;
•
provide that directors may only be removed by the majority of the shares of voting stock then outstanding entitled to vote generally in election of directors;
•
require two-thirds of all directors who constitute the board of directors or holders at least a majority of the issued and outstanding shares our common stock to adopt,
amend or repeal provisions of our Amended and Restated Bylaws;
•
require 50% of the voting power of all then outstanding shares of our capital stock entitled to vote generally in election of directors to amend, alter or repeal, or adopt
any provision inconsistent with certain sections of our Amended and Restated Certificate of Incorporation;
•
except as otherwise provided by the terms of any series of preferred stock, special meetings of our stockholders may be called only by the board of directors, the
chairperson of the board of directors, the chief executive officer, the president (in the absence of a chief executive officer) or at least 25% of all then outstanding shares
of our capital stock entitled to vote generally in the election of directors, voting together as a single class;
•
establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual
stockholder meetings;
•
restrict the forum for certain litigation against us to Delaware
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to
replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are
governed by the provisions of Section 203 of the Delaware General Corporation Law ("DGCL"), which generally prohibits a Delaware corporation from engaging in any of a
broad range of business combinations with any holder of at least 15% of our capital stock for a period of three years following the date on which the stockholder became a 15%
stockholder.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of
money available to us.
Our amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, in each case, to the fullest
extent permitted by Delaware law. Pursuant to our charter, our directors will not be liable to us or any stockholders for monetary damages for any breach of fiduciary duty,
except (i) for acts that breach his or her duty of loyalty to us or our stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law; and (iii) as otherwise required pursuant to the DGCL. The amended and restated bylaws also require us, if so requested, to advance expenses that
such director or officer incurred in defending or investigating a threatened or pending action, suit or proceeding, provided that such person will return any such advance if it is
ultimately determined that such person is not entitled to indemnification by us. We have indemnified certain of our officers and directors and advanced expenses in connection
with certain claims. These claims have and any claims for indemnification by our directors and officers in the future may reduce our available funds to satisfy successful third-
party claims against us and may reduce the amount of money available to us.
Our amended and restated bylaws designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings
that may be initiated by our stockholders, and designates the federal district courts of the United States as the sole and exclusive forum for claims arising under the
Securities Act, which, in each case could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers employees, agents
or other stockholders.
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Our amended and restated certificate of incorporation provides that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware shall,
to the fullest extent permitted by law, be the sole and exclusive forum for any (a) derivative action or proceeding brought on our behalf; (b) action asserting a claim of breach of
a fiduciary duty owed by any director, officer, or other employee to us or our stockholders; (c) action asserting a claim arising under any provision of the DGCL or our amended
and restated certificate of incorporation or amended and restated bylaws; or (d) action asserting a claim governed by the internal affairs doctrine.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to an alternative forum, the federal district courts of the United States shall be
the sole and exclusive forum for the resolution of any action asserting a claim arising under the Securities Act or the rules and regulations promulgated thereunder. Pursuant to
the Exchange Act, claims arising thereunder must be brought in federal district courts of the United States.
To the fullest extent permitted by law, any person or entity purchasing or otherwise acquiring or holding any interest in any shares of our capital stock shall be deemed to have
notice of and consented to the forum provision in our amended and restated bylaws. This choice of forum provision may limit a stockholder’s ability to bring a claim in a
different judicial forum, including one that it may find favorable or convenient for a specified class of disputes with us or our directors, officers, other stockholders or
employees, which may discourage such lawsuits, make them more difficult or expensive to pursue and result in outcomes that are less favorable to such stockholders than
outcomes that may have been attainable in other jurisdictions.
By agreeing to this provision, however, stockholders are not deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.
The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation or bylaws has been challenged in legal proceedings, and it is possible
that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the choice of forum provisions in our amended and restated bylaws
to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse
effect on our business, financial condition and results of operations.
We do not expect to declare any dividends in the foreseeable future.
The continued operation and growth of our business will require substantial cash. Accordingly, we do not anticipate paying any cash dividends to holders of our common stock
at any time in the foreseeable future. Any determination to pay future dividends will be at the discretion of our board of directors and will depend upon our results of operations,
financial condition, contractual restrictions, indebtedness, restrictions imposed by applicable law and other factors our board of directors deems relevant. Consequently, the only
way our shareholders may be able to realize future gain on their investment is to sell their shares of common stock after the price of such shares has appreciated. However, there
is no guarantee that our shares of common stock will appreciate in value.
We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which would cause the price of our securities
to decline.
From time to time, we release earnings guidance in our earnings conference calls, earnings releases, or otherwise, regarding our future performance that represents our
management's estimates as of the date of release. This guidance includes forward-looking statements based on projections prepared by our management. Projections are based
upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive
uncertainties and contingencies on our business, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some
of which will change. Some of those key assumptions relate to the macroeconomic environment, including inflation and fluctuations in interest rates, which are inherently
difficult to predict. We generally state possible outcomes as high and low ranges, which are intended to provide a sensitivity analysis as variables are changed but are not
intended to imply that actual results could not fall outside of the suggested ranges. Furthermore, analysts and investors may develop and publish their own projections of our
business, which may form a consensus about our future performance. Furthermore, if we make downward revisions of our previously announced guidance, if we withdraw our
previously announced guidance, or if our publicly announced guidance of future operating results fails to meet expectations of securities analysts, investors or other interested
parties, the price of our securities would decline. Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the
guidance furnished by us will not materialize or will vary significantly from actual results. Accordingly, our guidance is only an estimate of what management believes is
realizable as of the date of release. Actual results may vary from our guidance and the variations may be material. In light of the foregoing, investors are urged not to rely upon
our guidance in making an investment decision regarding our securities. Any failure to successfully implement
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our operating strategy or the occurrence of any of the events or circumstances set forth in this “Risk Factors” section, many of which are outside of our control, could result in
the actual operating results being different from our guidance, and the differences may be adverse and material.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
Risk Management and Strategy
We recognize the importance of assessing, identifying, and managing material risks associated with cybersecurity threats, as such term is defined in Item 106(a) of Regulation
S-K. These risks include, among other things: operational risks, intellectual property theft, fraud, extortion, harm to employees or customers and violation of data privacy or
security laws.
The Company is committed to protecting its information system and data from cyber threats.We utilize third party technical tools to control system access and filter, restrict and
regulate content that may pose a material risk to the Company. Employees are required to use multi-factor authentication to access Company systems and undergo annual
security training. Management is responsible for identifying, monitoring and mitigating the material risks facing the Company, including cybersecurity risks. Management
provides regular reports to the Board at every meeting to review our top risks, identify trends and help manage risk.
Our cybersecurity risk management and strategy is overseen by our Chief Information Officer as well as other members of the senior leadership team at Lovesac. These
individuals are informed about, and monitor the prevention, mitigation, detection and remediation of cybersecurity incidents and report to the Board on any appropriate items.
Our Chief Information Officer has over 35 years of experience managing information technology and cybersecurity matters and is responsible for assessing and managing these
cybersecurity risks. Team members who support our information security program have relevant educational and industry experience.
Cybersecurity Governance
Cybersecurity is an important part of our risk management and an area of focus for our Board and management. Our Board of Directors is responsible for the risk oversight of
the Company, including cybersecurity risks. The Board receives updates on a quarterly basis from senior management, including leaders from our Information Technology and
Security, Risk Management. Finance, and Legal teams and our Chief Information Officer regarding matters of cybersecurity. This includes existing and new cybersecurity risks,
status on how management is addressing and/or mitigating those risks, cybersecurity and data privacy incidents (if any) and status on key information security initiatives. The
Audit Committee of the Company’s Board of Directors oversees, among other things, the adequacy and effectiveness of the Company’s internal controls, including internal
controls designed to assess, identify, and manage material risks from cybersecurity threats. The Board of Directors, as a whole and at the Audit Committee level, oversee the
most significant risks facing the Company and our processes to identify, prioritize, assess, manage and mitigate those risks.
The Audit Committee, which is comprised solely of independent directors, has been designated by our Board to oversee cybersecurity risk. The Audit Committee is informed of
material risks from cybersecurity threats pursuant to the escalation criteria as set forth in the Company’s disclosure controls and procedures. The Audit Committee receives
reports, briefings and presentations from senior management, including our Chief Information Officer, at periodic committee meetings, including, more in-depth presentations
on specific areas of risk and regular enterprise risk management updates.
Although the Company endeavors to mitigate cybersecurity risks, the nature of our business exposes us to cybersecurity threats and attacks that can lead to the unauthorized
acquisition or access, compromise, loss, misuse or theft of our data, including personal information, confidential information or intellectual property. Additional information on
cybersecurity risks we face is discussed in Part I, Item 1A, “Risk Factors,” under the heading “Legal, Tax and Regulatory Risks.”
Item 2. Properties.
Our primary offices are located in Stamford, Connecticut, where we occupy 28,000 square feet of office space pursuant to a lease agreement that expires in March 2040, and in
Saint George, Utah, where we occupy 10,696 square feet of office space pursuant to a lease agreement that expires September 2031. We also lease retail space for our
showrooms, in 257 locations throughout the majority of the U.S. states including Alabama, Arkansas, Arizona, California, Colorado,
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Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri,
Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee,
Texas, Utah, Virginia, Washington, Wisconsin and the District of Columbia.
Item 3. Legal Proceedings.
See Note 7. Commitments, Contingencies and Related Parties to our financial statements within Part IV of this Annual Report on Form 10-K for a description of our legal
proceedings, which is incorporated herein by reference.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is traded on Nasdaq under the symbol “LOVE.”
Holders
As of April 7, 2025, there were 125 holders of record of our common stock. Because shares of our common stock are held by depositories, brokers and other nominees, the
number of beneficial holders of our shares is substantially larger than the number of record holders.
Issuer Purchases of Equity Securities
The following table summarizes the share repurchase activity for the thirteen weeks ended February 2, 2025:
Total Number of
Shares
Purchased
Average Price Paid Per
Share 
Total Number of Shares
Purchased as Part of
Publicly Announced
Program
Approximate Dollar Value of
Shares That May Yet Be
Purchased Under the
Program
(in thousands)
November 4, 2024 to December 1, 2024
— 
$
— 
— 
$
36,571 
December 2, 2024 to January 5, 2025
189,609 
$
24.17 
189,609 
$
31,988 
January 6, 2025 to February 2, 2025
456,680 
$
26.07 
456,680 
$
20,084 
Total
646,289 
646,289 
 Average price paid per share excludes broker commission fees and the 1% excise tax incurred under the Inflation Reduction Act of 2022.
In June 2024, our board of directors authorized the repurchase of up to $40.0 million in shares of our outstanding common stock. For additional information, refer to Note 9.
Stockholders' Equity in the Notes to the Financial Statements included in Part IV of this report.
Dividends
We have never paid cash dividends on any of our capital stock and we currently intend to retain our future earnings, if any, to fund the development and growth of our business.
We do not intend to pay cash dividends to holders of our common stock in the foreseeable future.
Lovesac Stock Performance Graph
The graph below shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities
under that Section, and shall not be deemed to be incorporated by reference into any of our other filings under the Securities Act or the Exchange Act.
The following graph compares the cumulative total stockholder return on our common stock (assuming reinvestment of dividends) with the cumulative total return on the S&P
500 and the Russell 2000 from February 2, 2020 through February 2, 2025. The graph assumes a $100 investment in each of our common stock, the S&P 500 and the Russell
2000 on February 2, 2020. The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our
Common Stock.
(1)
 (2)
(1)
(2) 
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February 2,
2020
January 31,
2021
January 30,
2022
January 29,
2023
February 4,
2024
February 2,
2025
The Lovesac Company common
stock
100.00
498.15
445.29
228.81
202.82
225.20
Russell 2000
100.00
130.17
124.80
122.93
128.26
151.53
S&P 500
100.00
117.25
141.87
132.47
164.06
202.59
Item 6. [Reserved]
Not applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes
appearing elsewhere in this Annual Report on Form 10-K. As discussed in the section titled “Forward-Looking Statements,” the following discussion and analysis contains
forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ
materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those
identified below and those discussed in the section titled “Risk Factors” under Part I, Item 1A in this Annual Report on Form 10-K.
We operate on a 52- or 53-week fiscal year that ends on the Sunday closest to February 1. Each fiscal year generally is comprised of four 13-week fiscal quarters, although in
the years with 53 weeks, the fourth quarter represents a 14-week period. The fiscal year ended February 2, 2025 consisted of 52 weeks. Fiscal years 2024 and 2023 consisted
of 53 weeks and 52 weeks, respectively.
Overview
We are a technology driven company that designs, manufactures and sells unique, high quality furniture derived through our proprietary "Designed for Life" approach which
results in products that are built to last a lifetime and designed to evolve as our customers’ lives do. Our current product offering is comprised of modular couches called
Sactionals, premium foam beanbag chairs called Sacs, the immersive surround sound home theater system called StealthTech, and the
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most recently launched PillowSac
 Accent Chair and Sactionals Reclining Seat. Innovation is at the center of our design philosophy with all of our core products protected by
a robust portfolio of utility patents. We market and sell our products through an omni-channel platform that includes direct-to-consumer touch points in the form of our own
showrooms, which include our mobile concierge and kiosks, and online directly at www.lovesac.com. We believe that our ecommerce centric approach, coupled with our ability
to deliver our large upholstered products through express couriers, is unique to the furniture industry.
Our Operations
See Item 1. Business for information on our products, customers, business model, channels, growth strategies, seasonality and other factors describing our business.
Factors Affecting Our Operating Results
While our growth strategy has contributed to our improving operating results, it also presents significant risks and challenges. The timing and magnitude of new showroom
openings, existing showroom renovations, and marketing activities may affect our results of operations in future periods. These strategic initiatives will require substantial
expenditures.
Other factors that could affect our results of operations in future periods include:
Macroeconomic Factors
There are a number of macroeconomic factors and uncertainties affecting the overall business environment and our business, including increased inflation, elevated interest
rates, housing market conditions, consumer debt and available credit, increased tariffs and trade restrictions, global conflicts and uncertainties in the global financial markets.
These factors may have a negative impact on markets in which we operate, including the potential for an economic recession, a continued downturn in the housing market, and
a reduction in consumer discretionary spending. We believe that these macroeconomic factors have contributed to the slowdown in demand that we have experienced in our
business which may continue in future periods.
Seasonality in Quarterly Results
Our business is seasonal. As a result, our revenues fluctuate from quarter to quarter, which often affects the comparability of our results between periods. Working capital
requirements are typically higher in the third fiscal quarter due to inventory built-up in advance of the holiday selling season. Net sales are historically higher in the fourth fiscal
quarter due primarily to the impact of the holiday selling season. As such, results of a period shorter than a full year may not be indicative of results expected for the entire year.
Competition
The retail industry is highly competitive and retailers compete based on a variety of factors, including design, quality, price and customer service. Levels of competition and the
ability of our competitors to attract customers through competitive pricing or other factors may impact our results of operations.
How We Assess the Performance of Our Business
We consider a variety of financial and operating measures, including the following, to evaluate our business, measure our performance, identify trends affecting our business,
formulate business plans, and make strategic decisions.
Net Sales
Net sales reflect our sale of merchandise plus shipping and handling revenue less returns and discounts. Net sales made at Company operated showrooms, including shop-in-
shops and pop-up-shops, and via the web are recognized, typically at the point of transference of title when the goods are shipped.
Omni-channel Comparable Net Sales
TM
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Omni-channel comparable net sales is a measure that highlights the performance of our existing locations and websites by measuring the change in net sales for a period over
the comparable prior-period of equivalent length. Comparable net sales includes sales at all retail locations and online, open greater than 12 months (including remodels and
relocations) and excludes closed stores. Comparable net sales is intended only as supplemental information and is not a substitute for net sales presented in accordance with
U.S. GAAP.
New Customer
We define a customer as new when the customer has completed a transaction at Lovesac either at a showroom or internet channel only for the first time. Repeat customers
accounted for approximately 46.8% of all transactions in fiscal 2025 compared to 43.6% in fiscal 2024. We expect a healthy mix between new and repeat customers in our
transaction mix as we spend on acquiring new customers.
Cost of Merchandise Sold
Cost of merchandise sold includes the direct cost of sold merchandise; inventory shrinkage; inventory adjustments due to obsolescence, including excess and slow-moving
inventory and lower of cost or net realizable value reserves; inbound freight; freight costs to ship merchandise to our showrooms, and warehousing and all logistics costs
associated with shipping product to our customers. Certain competitors and other retailers may report gross profit differently than we do, by excluding from gross profit some
or all of the costs related to their distribution network and instead including them in selling, general and administrative expenses. As a result, the reporting of our gross profit
and profit margin may not be comparable to other companies.
The primary drivers of our cost of merchandise sold are raw materials costs, labor costs in the countries where we source our merchandise, and logistics costs. We expect gross
profit to increase to the extent that we successfully grow our net sales and continue to realize scale economics with our manufacturing partners. We review our inventory levels
on an ongoing basis in order to identify slow-moving merchandise and use product markdowns to efficiently sell these products. The timing and level of markdowns are driven
primarily by customer acceptance of our merchandise.
Gross Profit
Gross profit is equal to our net sales less cost of merchandise sold. Gross profit as a percentage of our net sales is referred to as gross margin.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include all operating costs, other than advertising and marketing expense and depreciation and amortization, not included in cost of
merchandise sold. These expenses include all payroll and payroll-related expenses; showroom expenses, including occupancy costs related to showroom operations, such as
rent and common area maintenance; occupancy and expenses related to many of our operations at our headquarters, including utilities, equity based compensation, financing
related expense; public company expenses; customer financing fees; and credit card transaction fees. Selling, general and administrative expenses as a percentage of net sales is
usually higher in lower volume quarters and lower in higher volume quarters because a significant portion of the costs are relatively fixed.
Historically, our revenue growth has been accompanied by increased selling, general and administrative expenses. The most significant components of these increases are
payroll and rent costs. We expect these expenses to increase as we grow our business. We expect to leverage total selling, general and administrative expenses as a percentage
of net sales as net sales volumes continue to grow. We expect to continue to invest in infrastructure to support the Company’s growth. Our continued infrastructure investments
include research and development costs on our existing and future products and foundational technology investments to support our continued growth. These investments will
lessen the impact of expense leveraging during the period of investment with the greater impact of expense leveraging happening after the period of investment. However, total
selling, general and administrative expenses generally will leverage during the periods of investments with the greatest leverage occurring within the fourth quarter.
Advertising and Marketing Expense
Advertising and marketing expense include digital, social, and traditional advertising and marketing initiatives, that cover all of our business channels. Advertising and
marketing expenses are projected to rise as the Company drives net sales growth, supported by ongoing investments in these areas and careful monitoring to ensure efficient
resource allocation..
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Basis of Presentation and Results of Operations
The following discussion provides an analysis of the Company’s financial condition and results of operations from management's perspective and should be read in conjunction
with the financial statements and related notes included in this report. The discussion in this Form 10-K generally focuses on fiscal 2025 compared to fiscal 2024. Our fiscal
2024 results contain an additional, non-comparable 53rd week when compared to fiscal 2025. A discussion of our results of operations and changes in financial condition for
fiscal 2024 compared to fiscal 2023 has been excluded from this report, but can be found in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations in our fiscal 2024 Annual Report on Form 10-K.
Results of Operations
The following table summarizes key components of our results of operations for fiscal 2025, 2024, and 2023:
2025
2024
2023
2025
2024
2023
(In thousands)
(Percentage of net sales)
Net sales
Showrooms
$
425,863 
$
437,394 
$
398,184 
62.6 %
62.5 %
61.2 %
Internet
196,313 
199,778 
176,519 
28.8 %
28.5 %
27.1 %
Other
58,452 
63,093 
76,476 
8.6 %
9.0 %
11.7 %
Total net sales
680,628 
700,265 
651,179 
100.0 %
100.0 %
100.0 %
Cost of merchandise sold
282,793 
299,222 
307,528 
41.5 %
42.7 %
47.2 %
Gross profit
397,835 
401,043 
343,651 
58.5 %
57.3 %
52.8 %
Operating expenses:
Selling, general and administrative expenses
281,450 
264,314 
215,979 
41.4 %
37.7 %
33.2 %
Advertising and marketing
88,027 
94,050 
79,864 
12.9 %
13.4 %
12.3 %
Depreciation and amortization
14,710 
12,603 
10,842 
2.2 %
1.8 %
1.7 %
Total operating expenses
384,187 
370,967 
306,685 
56.5 %
52.9 %
47.2 %
Operating income
13,648 
30,076 
36,966 
2.0 %
4.4 %
5.6 %
Interest and other income (expense), net
2,801 
1,747 
(117)
0.4 %
0.2 %
— %
Net income before taxes
16,449 
31,823 
36,849 
2.4 %
4.6 %
5.6 %
Income tax expense
4,893 
7,962 
10,361 
0.7 %
1.1 %
1.6 %
Net income
$
11,556 
$
23,861 
$
26,488 
1.7 %
3.5 %
4.0 %
Other Operational Data
Our recent showroom growth is summarized in the following table:
Showroom Count:
February 2, 2025
February 4, 2024
Showrooms open at beginning of period
230
195
Showrooms opened
39
46
Showrooms closed
(12)
(11)
Showrooms open at end of period
257
230
Showroom remodels
— 
— 
 Showrooms open at the end of the period include 1 kiosk and 2 mobile concierges as of fiscal 2025, and 6 kiosks and 2 mobile concierges as of fiscal 2024.
(1)
(1)
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Fiscal 2025 Compared to Fiscal 2024
Net sales
Net sales decreased $19.7 million, or 2.8%, in fiscal 2025 compared to fiscal 2024 driven by a decrease of 9.3% in omni-channel comparable net sales, partially offset by new
showroom openings. New customers increased by 1.4% in fiscal 2025 as compared to 13.3% in fiscal 2024.
Showroom net sales decreased $11.5 million, or 2.6% in fiscal 2025 compared to fiscal 2024.
Internet sales (sales made directly to customers through our ecommerce channel) decreased $3.5 million, or 1.7%, in fiscal 2025 compared to fiscal 2024.
Other sales, which include pop-up-shop sales, shop-in-shop sales and barter inventory transactions, decreased $4.6 million, or 7.4% in fiscal 2025 compared to fiscal 2024. The
decrease was primarily driven by a reduction in barter transactions coupled with lower productivity of our temporary online pop-up-shops on Costco.com, partially offset by an
increase in Best Buy shop-in-shop sales. We opened 5 additional Best Buy shop-in-shop locations compared to the prior year.
Gross profit
Gross profit decreased $3.2 million, or 0.8%, in fiscal 2025 compared to fiscal 2024. Gross margin increased 120 basis points to 58.5% of net sales in fiscal 2025 from 57.3%
of net sales in fiscal 2024. The increase was primarily driven by a decrease of 240 basis points in inbound transportation costs, partially offset by a decrease of 80 basis points
in product margin driven by higher promotional discounting and an increase of 40 basis points in outbound transportation and warehousing costs.
Selling, general and administrative expenses
SG&A expenses increased $17.2  million, or 6.5%, in fiscal 2025 compared to fiscal 2024. The increase was primarily related to increases of $15.8  million in payroll,
$3.7 million in equity-based compensation, $1.7 million in rent, $1.5 million related to a settlement with the SEC, and $1.1 million in professional fees, partially offset by
decreases of $5.0 million in credit card fees and $1.6 million in other overhead costs. As a percentage of net sales, SG&A was 41.4% in fiscal 2025, compared to 37.7% in
fiscal 2024.
Advertising and marketing expenses
Advertising and marketing expenses decreased $6.1 million, or 6.4%, in fiscal 2025 compared to fiscal 2024. Advertising and marketing expenses were 12.9% and 13.4% of net
sales in fiscal 2025 and 2024, respectively.
Depreciation and amortization expenses
Depreciation and amortization expenses increased $2.1 million, or 16.7%, in fiscal 2025 compared to fiscal 2024, primarily driven by assets being placed into service related to
leasehold improvements for new showrooms.
Interest and other income, net
Interest and other income, net was $2.8 million in fiscal 2025 compared to $1.7 million in fiscal 2024. The increase in interest income was primarily the result of higher cash
deposits in the Company's interest-bearing bank accounts combined with higher interest rates.
Income tax expense
Income tax expense was $4.9 million in fiscal 2025 compared to $8.0 million in fiscal 2024. The decrease is primarily driven by lower net income before taxes, partially offset
by an increase in the effective tax rate.
Liquidity and Capital Resources
General
Our business relies on cash flows from operations, our revolving line of credit (see “Revolving Line of Credit” below) and securities issuances as our primary sources of
liquidity. At February 2, 2025, we had $83.7 million in cash and cash
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equivalents. Our primary cash needs are for marketing and advertising, inventory, payroll, showroom rent, capital expenditures associated with opening new showrooms and
updating existing showrooms, as well as infrastructure and information technology. We periodically use cash to repurchase shares of our common stock under our share
repurchase program. The most significant components of our working capital are cash and cash equivalents, merchandise inventory, prepaid expenses, accounts payable,
accrued expenses, customer deposits, and other current liabilities. We believe that cash expected to be generated from operations, the availability under our revolving line of
credit and our existing cash balances are sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months.
Capital Expenditures
Historically, we have invested significant capital expenditures in opening new showrooms and updating existing showrooms. These capital expenditures have increased in the
past and may continue to increase in future periods as we open additional showrooms. Capital expenditures are anticipated to support our showroom growth, including capital
outlays for leasehold improvements, fixtures and equipment, and the construction of new showrooms. Cash paid for capital expenditures was $21.5 million in fiscal 2025.
Capital expenditures are projected to be in the range of $22.0 million to $28.0 million for fiscal 2026.
Leases
The majority of our operating leases relate to company showrooms. We also lease our corporate facilities. At February  2, 2025, we had aggregate lease obligations of
$222.9 million, with $32.0 million payable within 12 months. See Note 6, “Leases” of the Notes to Financial Statements for further discussion of our operating leases.
Cash Flow Analysis
The following table summarizes operating, investing, and financing activities for fiscal 2025, 2024, and 2023:
in thousands
2025
2024
2023
Net cash provided by (used in) operating activities
$
38,977 
$
76,441 
$
(21,375)
Net cash used in investing activities
(21,517)
(29,211)
(25,549)
Net cash used in financing activities
(20,762)
(3,727)
(1,935)
Net change in cash and cash equivalents
(3,302)
43,503 
(48,859)
Cash and cash equivalents at end of period
$
83,734 
$
87,036 
$
43,533 
Net cash provided by (used in) operating activities
Net cash provided by (used in) operating activities consists primarily of net income adjusted for certain non-cash items, including depreciation and amortization, equity based
compensation, non-cash lease expense, and deferred income taxes, and the effect of changes in working capital and other activities.
Net cash provided by operating activities was $39.0 million in fiscal 2025, a decrease from $76.4 million in the prior year period, primarily driven by lower net income and
changes in working capital related to inventory management actions and income taxes paid. The decrease was partially offset by cash inflows resulting from the timing of
payments to vendors.
Net cash used in investing activities
Investing activities consist primarily of investments related to capital expenditures for new showroom openings and the acquisition of intangible assets.
Net cash used in investing activities was $21.5 million in fiscal 2025, a decrease from $29.2 million in the prior year period, primarily attributable to a reduction in capital
expenditures, driven by a year-over-year decrease in the number of new showroom openings.
Net cash used in financing activities
Financing activities consist primarily of repurchases of our common stock, taxes paid for the net settlement of equity awards and payment of deferred financing costs.
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Net cash used in financing activities was $20.8 million in fiscal 2025, an increase from $3.7 million in the prior year period, primarily resulting from repurchases of our
common stock beginning in fiscal 2025.
Revolving Line of Credit
On March 25, 2022, we amended our existing credit agreement providing for an asset-based revolving credit facility with the lenders party thereto, and Wells Fargo Bank,
National Association ("Wells Fargo Bank"), as administrative agent. The maturity date of our credit agreement was extended to March 25, 2024 and, among other things, the
maximum revolver commitment was increased from $25.0 million to $40.0 million, subject to borrowing base and availability restrictions. Our credit agreement includes a
$1,000,000 sublimit for the issuance of letters of credit and a $4,000,000 sublimit for swing line loans.
We are required to pay a commitment fee of 0.30% based on the daily unused portion of the credit facility. Amounts outstanding under the credit facility, at our option, bear
interest at either a base rate or a term secured overnight term rate ("SOFR") based rate, plus, in either case, a margin determined by reference to our quarterly average excess
availability under the credit facility and ranging from 0.50% to 0.75% for borrowings accruing interest at base rate and from 1.625% to 1.850% for borrowings accruing interest
at term SOFR. Swing line loans will at all times accrue interest at a base rate plus the applicable margin. The lower margins described above will apply initially and will adjust
thereafter from time to time based on the quarterly average excess availability under the credit facility.
On March 24, 2023, the Company amended the credit agreement to extend the maturity date to September 30, 2024. On July 29, 2024, we amended the credit agreement to add
an uncommitted accordion feature that allows the Company, subject to certain customary conditions, to increase the size of the revolving credit facility by $10 million and,
among other things, extend the maturity date of the loans made under the Amendment from September 30, 2024 to July 29, 2029. For additional information regarding our line
of credit with Wells Fargo Bank, see Note 8. Financing Arrangements in the Notes to the Financial Statements included in Part IV of this report. As of February 2, 2025 and
February 4, 2024, the Company’s borrowing availability under the line of credit was $32.6 million and $36.0 million, respectively, and there were no outstanding borrowings
under our credit facility.
Share Repurchase
On June 11, 2024, our board of directors authorized a share repurchase program for up to $40.0 million of shares of our common stock. Under the share repurchase program,
we may repurchase shares from time to time in the open market, privately negotiated transactions and accelerated share repurchase. The timing, volume and nature of share
repurchases, if any, will be at our sole discretion and will be dependent on market conditions, liquidity, applicable securities laws, and other factors. We may suspend or
discontinue the share repurchase program at any time. We plan on funding any repurchases in the future with our current cash and cash equivalents and future cash flows.
As of February 2, 2025, we had $20.1 million available to repurchase shares pursuant to the share repurchase program. For additional information, see Note 9. Stockholders'
Equity in the Notes to the Financial Statements included in Part IV of this report.
Critical Accounting Policies and Estimates
The management's discussion and analysis of financial condition and results of operations is based upon our financial statements, which have been prepared in conformity with
U.S. GAAP. Certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and requires us to make
significant estimates and assumptions. Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other
assumptions and conditions. In applying these policies, management uses their judgment to determine the appropriate assumptions to be used in the determination of certain
estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, and other various other assumptions that we believe
to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. We continue to monitor the effects of global macroeconomic and
geopolitical uncertainty,general market, political and economic conditions.
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All of our significant accounting policies are outlined in Note 1. Basis of Presentation, and Summary of Significant Accounting Policies in the Notes to the Financial
Statements included in Part IV of this report. There have been no material changes to the significant accounting policies during fiscal 2025.
Barter Arrangements
The Company has a bartering arrangement with a third-party vendor, whereby the Company will provide inventory in exchange for media credits. Barter sales transaction with
commercial substance are recorded at a transaction price based on the estimated fair value of the non-cash consideration of the media credits to be received and the revenue is
recognized when control of inventory is transferred, which is when the inventory is picked up in our warehouse. Fair value is estimated using various considerations, including
the cost of similar media advertising if transacted directly, the expected sales price of product given up in exchange for the media credits, and the expected usage of media
credits prior to expiration based on forecasted media spend subject to media credits under the barter arrangement. Projecting marketing spend requires estimating such factors
as sales growth, inflation, overall economics of the retail industry, and changes in marketing trends, and are therefore subject to variability and difficult to predict, among other
things. The Company recognizes an asset for media credits which is subsequently evaluated for impairment at each reporting period for any changes in circumstances. For fiscal
2025, 2024, and 2023, the Company recognized $9.0 million, $12.3 million, and $21.3 million, respectively, of barter sales in exchange for media credits. The Company had
$36.7 million and $32.8 million of unused media credits as of February 2, 2025, and February 4, 2024, respectively, and did not recognize any impairment.
Impairment of Long-Lived Assets
Our long-lived assets consist of property and equipment and right-of-use assets from leases. Property and equipment includes leasehold improvements, and other tangible
assets. Long-lived assets are reviewed for potential impairment at such time that events or changes in circumstances indicate that the carrying amount of an asset might not be
recovered. We evaluate for impairment at the individual showroom level, which is the lowest level at which individual cash flows can be identified. When evaluating long-lived
assets for potential impairment, we will first compare the carrying amount of the assets to the future undiscounted cash flows for the respective long-lived asset. If the estimated
future cash flows are less than the carrying amounts of the assets, an impairment loss is measured as the excess of the carrying value over its fair value. We estimate fair value
based on future discounted cash flow based on our historical operations of the showroom and estimates of future showroom profitability and economic conditions. These
estimates include factors such as sales growth, gross margin, employment costs, lease escalation, and overall macroeconomic conditions, and are therefore subject to variability.
Actual future results may differ from those estimates. If required, an impairment loss is recorded for that portion of the assets' carrying value in excess of fair value.
In fiscal 2025, 2024, and 2023, we did not recognize any impairment charges for any long-lived assets.
Merchandise Inventories
Merchandise inventories are comprised of finished goods which are carried at the lower of cost or net realizable value, including warehousing and capitalized freight costs. Cost
is determined on a weighted-average method basis. Merchandise inventories consist primarily of foam filled furniture, sectional couches, and related accessories. We adjust our
inventory for obsolescence based on historical trends, aging reports, specific identification and its estimates of future retail sales prices. In addition, we include capitalized
freight and warehousing costs in inventory related to the finished goods in inventory.
Operating Leases
The Company determines if a long-term contractual obligation is a lease at inception. The majority of our operating leases relate to company showrooms. We also lease our
corporate facilities. These operating leases expire at various dates through fiscal 2035. Showroom leases may include options that allow us to extend the lease term beyond the
initial base period, subject to terms agreed upon at lease inception. Some leases also include early termination options, which can be exercised under specific conditions. Our
lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company records lease liabilities at the present value of the lease payments not yet paid, discounted at the rate of interest that the Company would have to pay to borrow
on a collateralized basis over a similar term. As the Company's leases do not provide an implicit interest rate, the Company uses an incremental borrowing rate based on the
information available at possession date in determining the present value of lease payments.
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We recognize operating lease cost over the estimated term of the lease, which includes options to extend lease terms that are reasonably certain of being exercised, starting
when possession of the property is taken from the landlord, which normally includes a construction period prior to the showroom opening. When a lease contains a
predetermined fixed escalation of the fixed rent, we recognize the related operating lease cost on a straight-line basis over the lease term. In addition, certain of our lease
agreements include variable lease payments, such as payments based on a percentage of sales that are in excess of a predetermined level and/or increases based on a change in
the consumer price index or fair market value. These variable lease payments are excluded from minimum lease payments and are included in the determination of net lease
cost when it is probable that the expense has been incurred and the amount can be reasonably estimated. If an operating lease asset is impaired, the remaining operating lease
asset will be amortized on a straight-line basis over the remaining lease term.
Recent Accounting Pronouncements
See Note 1. Basis of Presentation, and Summary of Significant Accounting Policies in the Notes to the Financial Statements included in Part IV of this report for a
discussion of recently issued and adopted accounting standards.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
In the normal course of business, we are exposed to a variety of market risks, including fluctuations in interest rates and inflation that could affect our financial position and
results of operations.
Interest Rate Risk
Cash and cash equivalents and short-term investments were held primarily in cash deposits, certificates of deposit, money market funds and investment grade corporate debt.
The fair value of our cash, cash equivalents and short-term investments will fluctuate with movements of interest rates, increasing in periods of declining rates of interest and
declining in periods of increasing rates of interest.
Interest on the revolving line of credit incurred pursuant to the credit agreements described herein would accrue at a floating rate based on a formula tied to certain market rates
at the time of occurrence; however, we do not expect that any changes in prevailing interest rates will have a material impact on our results of operations.
Inflation
In fiscal 2025, we continued to see normalization of inflationary pressures in the supply chain. We continue to monitor the impact of inflation in order to minimize its effects
through pricing strategies, productivity improvements and cost reductions. If our costs were to be subject to more significant inflationary pressures, we may not be able to fully
offset such higher costs through price increases or other cost efficiency measures. Our inability or failure to do so could harm our business, financial condition and results of
operations.
Item 8. Financial Statements and Supplementary Data.
The Company’s financial statements are contained in the pages beginning on F-1, which appear at the end of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
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Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (principal financial officer), has evaluated
the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this
Annual Report. Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation, that our disclosure controls and procedures were effective
as of February 2, 2025.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. The Company’s internal
control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles in the United States of America, and that receipts and expenditures of the Company are being made only
in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of February 2, 2025. In making this assessment, management used the
criteria set forth in 2013 by the Committee of Sponsoring Organizations of the Tread way Commission (COSO) in “Internal Control-Integrated Framework.” Based on
management’s assessment using the COSO criteria, management has concluded that the Company’s internal control over financial reporting was effective as of February 2,
2025. The effectiveness of our internal control over financial reporting as of February 2, 2025 has been audited by Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their attestation report, included within this Item 9A of this Annual Report on Form 10-K.
Changes in our Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fourth fiscal quarter of the fiscal year ended February  2, 2025 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or the Company’s
internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the Company have been detected.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of The Lovesac Company
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of The Lovesac Company (the “Company”) as of February 2, 2025, based on criteria established in Internal
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of February 2, 2025, based on criteria established in Internal Control — Integrated
Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the financial statements as of and for the
year ended February 2, 2025, of the Company and our report dated April 10, 2025, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Stamford, Connecticut
April 10, 2025
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Item 9B. Other Information.
Trading Arrangements
On January 10, 2025, Shawn D. Nelson, CEO, adopted a Rule 10b5-1 trading arrangement that is intended to satisfy the affirmative defense of Rule 10b5-1(c) for the sale of up
to 24,000 shares of the Company’s common stock. Mr. Nelson's plan will expire on January 10, 2026, subject to early termination for certain specified events set forth in the
plan.
No other director or officer of the Company (as defined in Section 16 of the Securities Exchange Act of 1934, as amended) adopted, modified or terminated a Rule 10b5-1
trading arrangement or a non- Rule 10b5-1 trading arrangement (each as defined in Item 408 (a) and (c) of Regulation S-K) during the thirteen weeks ended February 2, 2025.
Transactions by Section 16 directors and officers will be disclosed publicly through Form 4 filings with the SEC to the extent required by law.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
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PART III.
Item 10. Directors, Executive Officers and Corporate Governance.
The following is a list of the names, ages and backgrounds of our current executive officers as of April 10, 2025:
Name
Age
Present Position
Business Experience
Shawn Nelson
48
Chief Executive Officer and
Director
Shawn Nelson founded Lovesac in 1998 and is currently serving as Chief Executive Officer of the
Company and as a member of the Board of Directors. Mr. Nelson is the lead designer of the
Company's patented products and leads sourcing, creative, design, public relations, investor relations
and culture. In 2005, Mr. Nelson won Richard Branson's "The Rebel Billionaire" on Fox and continues
to participate in ongoing TV appearances. Mr. Nelson has a Master's Degree in Strategic Design and
Management and is a former graduate-level instructor at Parsons, The New School for Design in New
York City. Mr. Nelson is also fluent in Mandarin.
Mary Fox
52
President and Chief Operating
Officer
Mary Fox is the President and Chief Operating Officer of Lovesac since November 2021. Previously,
she served as General Manager for North America Consumer Products at BIC from 2018 to November
2021. Prior to joining BIC, she spent six years at L’Oréal in various roles within Ecommerce, New
Business Development, and Business Transformation in the United States. Before L’Oréal, Ms. Fox
held several senior leadership positions at Walmart in both the United States and International
divisions. During her time as SVP Global Sourcing at Walmart, Ms. Fox co-founded the Sustainable
Apparel Coalition in 2009 with Patagonia, which is now the leading global apparel, footwear, and
textile coalition focused on sustainable production. Since 2023, Ms. Fox is a director of AF Ventures, a
venture capital fund investing in high growth consumer products. She also served as a director of AF
Acquisition Corp., a special purpose acquisition company targeting the better-for-you food and
beverage, health and wellness, beauty, personal care and pet industries, from 2021 to 2023. She also
served on the Board of Directors of The Lovesac Company from February 2020 to November 2021.
Ms. Fox graduated from Coventry University in the United Kingdom and holds a degree in
manufacturing engineering and business studies.
Keith Siegner
50
Executive Vice President, Chief
Financial Officer and Treasurer
Keith Siegner is Executive Vice President, Chief Financial Officer and Treasurer of The Lovesac
Company. From April 2021 to February 2023, he served as Chief Financial Officer of Vindex, LLC, a
leading global esports technology and infrastructure company that was sold to Savvy Games Group in
February 2023. In this role, Keith led global finance operations for Vindex and its subsidiaries, which
included Esports Engine, Vindex Intelligence and Belong Gaming Arenas. Prior to joining Vindex he
served as the Vice President, Investor Relations, Mergers & Acquisitions, and Treasurer at Yum!
Brands (NYSE: YUM), which included leading the capital markets, global cash management, and risk
finance teams, as well as several years in corporate strategy. Before YUM, Keith was a senior banking
executive in equity research for over 15 years at UBS Securities, where he was Executive Director,
and at Credit Suisse before that. He began his career at Arthur Andersen in the International Tax
Consulting Division. Keith received Bachelor’s and Master’s accounting degrees from Wake Forest
University, and is a Certified Financial Analyst Charterholder and a Certified Public Accountant
(inactive).
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We will file with the SEC a definitive proxy statement (the “2025 Proxy Statement”) pursuant to Regulation 14A for our 2025 annual meeting of stockholders within 120 days
of the fiscal year ended February 2, 2025. The additional information required by this Item will appear in the 2025 Proxy Statement and is incorporated by reference herein.
Our board of directors has adopted a Code of Business Conduct and Ethics applicable to all officers, directors and associates, which is available on our website
(https://investor.lovesac.com) under "Governance." We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a
provision of our Code of Conduct by posting such information on the website address and location specified above.
Item 11. Executive Compensation.
The information required by this Item will appear in the 2025 Proxy Statement and is incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item will appear in the 2025 Proxy Statement and is incorporated by reference herein.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item will appear in the 2025 Proxy Statement and is incorporated by reference herein.
Item 14. Principal Accountant Fees and Services.
The information required by this Item will appear in the 2025 Proxy Statement and is incorporated by reference herein.
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PART IV.
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this report:
1.
Financial Statements (see Part II, Item 8. Financial Statements and Supplementary Data)
Report of Independent Registered Public Accounting Firm (PCAOB ID 34)
F-3
Balance Sheets – As of February 2, 2025 and February 4, 2024
F-5
Statements of Operations – Years Ended February 2, 2025, February 4, 2024, and January 29, 2023
F-6
Statements of Changes in Stockholders’ Equity - Years Ended February 2, 2025, February 4, 2024, and January 29, 2023
F-7
Statements of Cash Flows - Years Ended February 2, 2025, February 4, 2024, and January 29, 2023
F-8
Notes to Financial Statements
F-9
2. Financial Statement Schedules
Schedules have been omitted because they are not required or are not applicable or because the information required to be set forth therein either is not material or is
included in the financial statements or notes thereto.
3. Exhibits
See the Exhibit Index.
Item 16. Form 10-K Summary.
Optional disclosure not included in this Annual Report on Form 10-K.
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EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
Filed / Incorporated
by Reference from
Form **
Incorporated by
Reference from
Exhibit Number
Dated Filed
2.1
Assignment and Assumption Agreement
S-1
 
2.1
4/20/2018
3.1
Amended and Restated Certificate of Incorporation
8-K
 
3.1
6/7/2021
3.2
Amended and Restated Bylaws
8-K
 
3.2
12/1/2023
4.5
Description of the Company’s securities registered pursuant to Section 12 of the
Exchange Act of 1934
10-K
4.5
4/11/2024
10.1†
Wells Fargo Credit Agreement
S-1
 
10.1
4/20/2018
10.2†
Amendment No. 6 to Credit Agreement between The Lovesac Company and
Wells Fargo Bank, N.A.
10-K
10.2
3/30/2022
10.3±
Second Amended and Restated 2017 Equity Incentive Plan
10-Q
 
10.1
6/8/2022
10.4±
Amendment No. 1 to Second Amended and Restated 2017 Equity Incentive Plan
8-K
10.1
6/2/2023
10.5±
Form of Restricted Stock Units Agreement
S-1/A
 
10.3
5/23/2018
10.6
Amended and Restated Registration Rights Agreement
S-1
 
10.5
4/20/2018
10.7±
Employment Agreement dated October 26, 2017, by and between The Lovesac
Company and Shawn Nelson
S-1
 
10.6
4/20/2018
10.8±
First Amendment to Employment Agreement dated October 2, 2019, by and
between The Lovesac Company and Shawn Nelson
10-K
10.8
4/14/2021
10.9±
Second Amendment to Employment Agreement dated March 24, 2022, by and
between The Lovesac Company and Shawn Nelson
10-K
10.14
3/30/2022
10.10±
Amended and Restated Employment Agreement dated March 23, 2023, by and
between The Lovesac Company and Shawn Nelson
10-K
10.16
3/29/2023
10.11±
Employment Agreement between The Lovesac Company and Mary Fox, dated
September 30, 2021
8-K
10.1
11/12/2021
10.12±
Offer Letter between The Lovesac Company and Mary Fox, dated September 30,
2021
8-K
10.3
11/12/2021
10.13±
Mary Fox Resignation Letter from Board of Directors, dated November 9, 2021
8-K
10.4
11/12/2021
10.14±
Form of Stock Option Award Agreement
10-K
 
10.11
4/14/2021
10.15±
The Lovesac Company Annual Incentive Compensation Plan
10-Q
10.1
12/9/2021
10.16±
The Lovesac Company Director Compensation Policy, as amended, dated
February 2, 2025
Filed herewith.
10.17†
Amendment No. 7 to Credit Agreement between The Lovesac Company and
Wells Fargo Bank, N.A.
10-K
10.22
3/29/2023
10.18±
Employment Agreement between the Company and Keith Siegner, dated June 1,
2023
10-K
10.24
4/11/2024
10.19±
Offer Letter between the Company and Keith Siegner, dated May 12, 2023
10-K
10.25
4/11/2024
10.20
Retailer Program Agreement between Synchrony Bank (formerly GE Capital
Retail Bank) and the Company (formerly SAC Acquisition LLC), dated April 1,
2013
10-K
10.27
4/11/2024
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Exhibit
Number
Description of Exhibit
Filed / Incorporated
by Reference from
Form **
Incorporated by
Reference from
Exhibit Number
Dated Filed
10.21
First Amendment to Retailer Program Agreement between Synchrony Bank
(formerly GE Capital Retail Bank) and the Company (formerly SAC Acquisition
LLC), dated September 1, 2014
10-K
10.28
4/11/2024
10.22
Second Amendment to Retailer Program Agreement between Synchrony Bank
(formerly SAC Acquisition LLC), dated May 11, 2018, and effective as of
January 1, 2018
10-K
10.29
4/11/2024
10.23
Third Amendment to Retailer Program Agreement between Synchrony Bank and
the Company (formerly SAC Acquisition LLC), dated March 24, 2023, and
effective as of January 1, 2023
10-K
10.30
4/11/2024
10.24†
Eighth Amendment to Credit Agreement, dated as of September 7, 2023, by and
among The Lovesac Company, Wells Fargo Bank, National Association, as agent,
swing line lender and L/C issuer, and the other lenders party thereto.
Filed herewith.
10.25†
Ninth Amendment to Credit Agreement, dated as of July 29, 2024, by and among
The Lovesac Company, Wells Fargo Bank, National Association, as agent, swing
line lender and L/C issuer, and the other lenders party thereto.
8-K
10.1
7/31/2024
10.26±
Amendment No. 2 to the Second Amended and Restated 2017 Equity Incentive
Plan
8-K
10.1
6/14/2024
19.1
The Lovesac Company Insider Trading Policy, as amended
Filed herewith.
21.1
List of Subsidiaries
10-K
 
21.1
4/14/2021
23.1
Consent of Deloitte & Touche LLP
Filed herewith.
 
 
 
31.1
Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, as amended
Filed herewith.
 
 
 
31.2
Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, as amended
Filed herewith.
 
 
 
32.1*
Certification of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, as amended
Filed herewith.
 
 
 
32.2*
Certification of the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, as amended
Filed herewith.
 
 
 
97.1*
The Lovesac Dodd-Frank Clawback Policy
10-K
97.1
4/11/2024
101.INS
XBRL Instance Document
 
 
 
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
 
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
 
51

Table of Contents
Exhibit
Number
Description of Exhibit
Filed / Incorporated
by Reference from
Form **
Incorporated by
Reference from
Exhibit Number
Dated Filed
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
 
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
± Indicates a management contract or compensatory plan.
† Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted
schedule or exhibit to the SEC upon its request.
* This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of
that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended or the Exchange Act.
52

Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
The Lovesac Company
By:
/s/ Shawn Nelson
Shawn Nelson
Date: April 10, 2025
Chief Executive Officer
(Principal Executive Officer)
By:
/s/ Keith Siegner
Keith Siegner
Date: April 10, 2025
Executive Vice President and
 Chief Financial Officer
(Principal Financial Officer and
 Principal Accounting Officer)
53

Table of Contents
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Shawn Nelson and Keith Siegner, and each of them,
as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and
confirming that all said attorneys-in-fact and agents, or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Exchange Act, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
/s/ Shawn Nelson
April 10, 2025
Shawn Nelson
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Keith Siegner
April 10, 2025
Keith Siegner
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
/s/ Andrew Heyer
April 10, 2025
Andrew Heyer
Chairman and Director
/s/ Walter McLallen
April 10, 2025
Walter McLallen
Director
/s/ Sharon M. Leite
April 10, 2025
Sharon M. Leite
Director
/s/ Shirley Romig
April 10, 2025
Shirley Romig
Director
/s/ John Grafer
April 10, 2025
John Grafer
Director
/s/ Jack Krause
April 10, 2025
Jack Krause
Director
/s/ Vineet Mehra
April 10, 2025
Vineet Mehra
Director
54

Table of Contents
THE LOVESAC COMPANY
FINANCIAL STATEMENTS
AS OF FEBRUARY 2, 2025 AND FEBRUARY 4, 2024 AND FOR THE YEARS ENDED FEBRUARY 2, 2025, FEBRUARY 4, 2024, AND JANUARY 29, 2023
F-1

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THE LOVESAC COMPANY
CONTENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID 34)
F-3
 Financial Statements
Balance Sheets
F-5
Statements of Operations
F-6
Statements of Changes in Stockholders’ Equity
F-7
Statements of Cash Flows
F-8
Notes to the Financial Statements
F-9
F-2

Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of The Lovesac Company
Opinion on the Financial Statements
We have audited the accompanying balance sheets of The Lovesac Company (the "Company") as of February 2, 2025 and February 4, 2024, the related statements of
operations, changes in stockholders' equity, and cash flows, for each of the three years in the period ended February 2, 2025, and the related notes (collectively referred to as the
"financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 2, 2025 and
February 4, 2024, and the results of its operations and its cash flows for each of the three years in the period ended February 2, 2025, in conformity with accounting principles
generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over
financial reporting as of February 2, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated April 10, 2025, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our
audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be
communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are
not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Barter Arrangements — Refer to Note 1 to the financial statements
Critical Audit Matter Description
The Company has a bartering arrangement with a third-party vendor, in which the Company repurposes returned open-box inventory in exchange for media credits. Barter sale
transactions with commercial substance are recorded at a transaction price based on the estimated fair value of the non-cash consideration of the media credits to be received
and the revenue is recognized when control of inventory is transferred, which is when the inventory is picked up from the Company’s warehouse. Fair value is estimated using
various considerations including the cost of similar media advertising if transacted directly, the expected sales price of product given up in exchange for the media credits, and
the expected usage of media credits prior to expiration based on a forecasted media spend subject to media credits under the barter arrangement. For the year ended February 2,
2025, the Company recognized $9.0 million of barter sales in exchange for media credits. The Company recognizes an asset for media credits which is subsequently evaluated
for impairment at each reporting period for
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any changes in circumstances. As of February 2, 2025, the Company had $36.7 million of unused media credits and did not recognize any impairment.
We identified the barter arrangement as a critical audit matter because of the significant estimate and assumptions management makes to determine the transaction price based
on the estimated fair value of the non-cash consideration received in exchange for the media credits and of forecasted media spend used to evaluate the unused media credits for
potential impairment. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of
management’s estimate of the fair value of the sale transaction price and future utilization of media credits.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to barter arrangement included the following, among others:
◦
We tested the effectiveness of controls over the determination of the transaction price.
◦
We read the underlying barter transaction agreements.
◦
For a sample of barter sale transactions, we tested that the sale occurred and the estimated fair value of the sale transaction price, as follows:
▪
Obtained shipping documents that evidenced the transfer of control of the related inventory.
▪
Compared management’s estimate of advertising costs to the actual advertising costs incurred for selected promotional campaigns subject to the barter
arrangement from the third-party vendor.
▪
Compared the transaction price of the inventory sold through the bartering agreement to the transaction price of like inventory sold to other third-party
customers.
▪
Tested the underlying assumptions to management’s analysis to determine their ability to utilize media credits by 1) making inquiries of management related
to their projected advertising and media spend, 2) performing a lookback analysis of total marketing spend and specific marketing spend with the third-party
vendor, and 3) comparing the forecasts to the amounts included in the overall business forecast as communicated to the Board of Directors.
/s/ Deloitte & Touche LLP
Stamford, Connecticut
April 10, 2025
We have served as the Company’s auditor since fiscal 2023.
F-4

Table of Contents
THE LOVESAC COMPANY
BALANCE SHEETS
(amounts in thousands, except share and per share amounts)
February 2, 2025
February 4, 2024
Assets
Current Assets
Cash and cash equivalents
$
83,734 
$
87,036 
Trade accounts receivable, net
16,781 
13,463 
Merchandise inventories, net
124,333 
98,440 
Prepaid expenses
14,807 
11,664 
Other current assets
6,942 
3,845 
Total Current Assets
246,597 
214,448 
Property and equipment, net
77,990 
70,807 
Operating lease right-of-use assets
157,750 
155,856 
Goodwill
144 
144 
Intangible assets, net
1,586 
1,457 
Deferred tax asset
15,277 
10,803 
Other assets
32,906 
28,665 
Total Assets
$
532,250 
$
482,180 
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable
$
51,814 
$
28,821 
Accrued expenses
51,986 
38,622 
Payroll payable
9,501 
6,998 
Customer deposits
11,250 
8,257 
Current operating lease liabilities
22,662 
17,628 
Sales taxes payable
7,897 
6,030 
Total Current Liabilities
155,110 
106,356 
Operating lease liabilities, long-term
160,361 
157,876 
Income tax payable, long-term
424 
452 
Line of credit
— 
— 
Total Liabilities
$
315,895 
$
264,684 
Commitments and Contingencies (See Note 7)
Stockholders’ Equity
Preferred stock $0.00001 par value, 10,000,000 shares authorized, no shares issued or outstanding as of
February 2, 2025 and February 4, 2024.
— 
— 
Common stock $0.00001 par value, 40,000,000 shares authorized, 14,786,934 shares issued and outstanding as
of February 2, 2025 and 15,489,364 shares issued and outstanding as of February 4, 2024.
— 
— 
Additional paid-in capital
190,510 
183,095 
Accumulated earnings
25,845 
34,401 
Stockholders’ Equity
216,355 
217,496 
Total Liabilities and Stockholders’ Equity
$
532,250 
$
482,180 
The accompanying notes are an integral part of these financial statements
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Table of Contents
THE LOVESAC COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED FEBRUARY 2, 2025, FEBRUARY 4, 2024, AND JANUARY 29, 2023
(amounts in thousands, except per share data and share amounts)
2025
2024
2023
Net sales
$
680,628 
$
700,265 
$
651,179 
Cost of merchandise sold
282,793 
299,222 
307,528 
Gross profit
397,835 
401,043 
343,651 
Operating expenses:
Selling, general and administrative expenses
281,450 
264,314 
215,979 
Advertising and marketing
88,027 
94,050 
79,864 
Depreciation and amortization
14,710 
12,603 
10,842 
Total operating expenses
384,187 
370,967 
306,685 
Operating income
13,648 
30,076 
36,966 
Interest and other income (expense), net
2,801 
1,747 
(117)
Net income before taxes
16,449 
31,823 
36,849 
Income tax expense
4,893 
7,962 
10,361 
Net income
$
11,556 
$
23,861 
$
26,488 
Net income per common share:
Basic
$
0.75 
$
1.55 
$
1.74 
Diluted
$
0.69 
$
1.45 
$
1.66 
Weighted average shares outstanding:
Basic
15,502,469 
15,427,975 
15,198,754 
Diluted
16,791,471 
16,460,383 
15,955,668 
The accompanying notes are an integral part of these financial statements
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THE LOVESAC COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED FEBRUARY 2, 2025, FEBRUARY 4, 2024, AND JANUARY 29, 2023
Common
Additional Paid-
in Capital
Accumulated
Earnings
(Deficit)
Total Shareholders'
Equity
(amounts in thousands, except share amounts)
Shares
Amount
Balance - January 30, 2022
15,123,338 
$
— 
$
173,762 
$
(15,948)
$
157,814 
Net income
— 
— 
— 
26,488 
26,488 
Equity-based compensation
— 
— 
10,450 
— 
10,450 
Vested restricted stock units
72,360 
— 
— 
— 
— 
Taxes paid for net share settlement of equity awards
— 
— 
(1,658)
— 
(1,658)
Balance - January 29, 2023
15,195,698 
— 
182,554 
10,540 
193,094 
Net income
— 
— 
— 
23,861 
23,861 
Equity-based compensation
— 
— 
4,216 
— 
4,216 
Vested restricted stock units
219,074 
— 
— 
— 
— 
Taxes paid for net share settlement of equity awards
— 
— 
(3,675)
— 
(3,675)
Exercise of warrants
74,592 
— 
— 
— 
— 
Balance - February 4, 2024
15,489,364 
$
— 
$
183,095 
$
34,401 
$
217,496 
Net income
— 
— 
— 
11,556 
11,556 
Equity-based compensation
— 
— 
7,945 
— 
7,945 
Vested restricted stock units
75,283 
— 
— 
— 
— 
Repurchases of common stock
(777,713)
— 
— 
(20,112)
(20,112)
Taxes paid for net share settlement of equity awards
— 
— 
(530)
— 
(530)
Balance - February 2, 2025
14,786,934 
$
— 
$
190,510 
$
25,845 
$
216,355 
The accompanying notes are an integral part of these financial statements
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THE LOVESAC COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 2, 2025, FEBRUARY 4, 2024, AND JANUARY 29, 2023
(amounts in thousands)
2025
2024
2023
Cash Flows from Operating Activities
Net income
$
11,556 
$
23,861 
$
26,488 
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment
14,292 
12,174 
10,454 
Amortization of other intangible assets
418 
429 
388 
Amortization of deferred financing fees
127 
159 
164 
Net loss on disposal of property and equipment
140 
235 
45 
Gain on lease termination
— 
(131)
— 
Equity based compensation
7,945 
4,216 
10,450 
Non-cash lease expense
25,171 
22,631 
19,265 
Deferred income taxes
(4,474)
(2,126)
1,044 
Change in operating assets and liabilities:
Trade accounts receivable
(3,318)
(4,360)
(555)
Merchandise inventories
(25,893)
21,187 
(11,135)
Prepaid expenses and other current assets
(6,064)
(164)
3,087 
Other assets
(4,241)
(6,301)
(20,913)
Accounts payable
22,392 
2,669 
(12,774)
Accrued expenses and other payables
17,507 
14,020 
(18,564)
Operating lease liabilities
(19,546)
(14,007)
(22,263)
Customer deposits
2,993 
1,497 
(6,556)
Other liabilities
(28)
452 
— 
Net cash provided by (used in) operating activities
38,977 
76,441 
(21,375)
Cash Flows from Investing Activities
Purchase of property and equipment
(21,026)
(28,736)
(25,242)
Payments for patents and trademarks
(491)
(475)
(307)
Net cash used in investing activities
(21,517)
(29,211)
(25,549)
Cash Flows from Financing Activities
Taxes paid for net share settlement of equity awards
(530)
(3,675)
(1,658)
Repurchases of common stock
(19,929)
— 
— 
Proceeds from the line of credit
— 
255 
— 
Payments on the line of credit
— 
(255)
— 
Payment of deferred financing costs
(303)
(52)
(277)
Net cash used in financing activities
(20,762)
(3,727)
(1,935)
Net change in cash and cash equivalents
(3,302)
43,503 
(48,859)
Cash and cash equivalents - Beginning
87,036 
43,533 
92,392 
Cash and cash equivalents - Ending
$
83,734 
$
87,036 
$
43,533 
Supplemental Cash Flow Data:
Cash paid for taxes
$
8,447 
$
1,810 
$
10,670 
Cash paid for interest
$
112 
$
146 
$
192 
Non-cash investing and financing activities:
Asset acquisitions not yet paid for at period end
$
1,240 
$
1,576 
$
4,103 
Excise tax on share repurchases, accrued but not paid
$
183 
$
— 
$
— 
The accompanying notes are an integral part of these financial statements
F-8

Table of Contents
THE LOVESAC COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation, and Summary of Significant Accounting Policies
Nature of Operations
The Lovesac Company (the “Company”, “we”, “us” or “our”) is a technology driven company that designs, manufactures and sells unique, high quality furniture derived
through its proprietary "Designed for Life" approach which results in products that are built to last a lifetime and designed to evolve as our customers’ lives do. The Company
markets and sells its products through modern and efficient showrooms and, increasingly, through online sales directly at www.lovesac.com, supported by direct-to-consumer
touch points in the form of our own showrooms, which include our mobile concierge and kiosks, as well as through shop-in-shops and online pop-up-shops with third party
retailers. As of February 2, 2025, the Company operated 257 showrooms including kiosks and mobile concierges located throughout the United States. The Company was
formed as a Delaware corporation on January 3, 2017, in connection with a corporate reorganization with SAC Acquisition LLC, a Delaware limited liability company (“SAC
LLC”), the predecessor entity to the Company.
Basis of Presentation
The financial statements of the Company as of February 2, 2025 and February 4, 2024 and for the years ended February 2, 2025, February 4, 2024 and January 29, 2023 have
been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the
Securities and Exchange Commission.
Fiscal Year
The Company’s fiscal year is determined on a 52/53 week basis ending on the Sunday closest to February 1. Hereinafter, fiscal years ended February 2, 2025, February 4, 2024
and January 29, 2023 are referred to as fiscal 2025, 2024 and 2023, respectively. Fiscal 2025, 2024 and 2023 were 52-week, 53-week and 52-week fiscal years, respectively.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of
assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The Company evaluates its estimates and judgements on an ongoing basis
based on historical experience, expectations of future events and various other factors we believe to be reasonable under the circumstances and revise them when necessary in
the period the change is determined. Actual results may differ from the original or revised estimates.
Revenue Recognition
The Company's revenue consists substantially of product net sales. The Company reports product net sales net of discounts and recognizes them at the point in time when
control transfers to the customer, which generally occurs upon our delivery to a third-party carrier.
Shipping and handling charges billed to customers are included in revenue. The Company recognizes shipping and handling expense as fulfillment activities (rather than a
promised good or service) when the activities are performed. Accordingly, the Company records the expenses for shipping and handling activities at the same time the
Company recognizes revenue. Shipping and handling costs incurred are included in cost of merchandise sold and include inbound freight and tariff costs relative to inventory
sold, warehousing, and last mile shipping to our customers. Shipping and handling costs were $116.0 million, $133.2 million and $159.7 million in fiscal 2025, 2024 and 2023,
respectively.
Estimated refunds for returns and allowances are recorded using our historical return patterns, adjusting for any changes in returns policies. The Company records estimated
refunds for net sales returns on a monthly basis as a reduction of net sales and cost of sales on the statement of operations and an increase in inventory and customers returns
liability on the balance sheet. As of February 2, 2025 and February 4, 2024, there was a returns allowance recorded on the balance sheet in the amount of $9.2 million and $5.6
million, respectively, which was included in accrued expenses, and sales returns of $2.4 million and $1.3 million, respectively, included in merchandise inventories.
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Table of Contents
In some cases, deposits are received before the Company transfers control, resulting in contract liabilities. These contract liabilities are reported as customer deposits on the
Company's balance sheet. As of February 2, 2025, and February 4, 2024, the Company recorded customer deposit liabilities in the amount of $11.3 million and $8.3 million,
respectively. During fiscal 2025, 2024 and 2023, the Company recognized $8.3 million, $6.8 million and $13.3 million, respectively, related to customer deposits from fiscal
2024, 2023 and 2022, respectively.
The Company offers its products through an inventory lean omni-channel platform that provides a seamless and meaningful experience to its customers in showrooms, which
include mobile concierge and kiosks, and through the internet. The Other channel predominantly represents net sales through the use of online and in-store pop-up shops, shop-
in-shops, and barter inventory transactions. In-store pop-up-shops and shop-in-shops are staffed with associates trained to demonstrate and sell our product. The following
represents net sales disaggregated by channel:
(in thousands)
2025
2024
2023
Showrooms
$
425,863 
$
437,394 
$
398,184 
Internet
196,313 
199,778 
176,519 
Other
58,452 
63,093 
76,476 
Total net sales
$
680,628 
$
700,265 
$
651,179 
The Company has no foreign operations and its net sales to foreign countries was less than 0.01% of total net sales in fiscal 2025, 2024, and 2023.
The Company had no customers that comprise more than 10% of total net sales in fiscal 2025, 2024, or 2023. See Note 10. Segment Information for net sales disaggregated
by product.
Barter Arrangements
The Company has a bartering arrangement with a third-party vendor. The Company repurposes returned open-box inventory in exchange for media credits, which are being
used to support our advertising initiatives to create brand awareness and drive net sales growth. Barter transactions with commercial substance are recorded at a transaction
price based on the estimated fair value of the non-cash consideration of the media credits to be received and the revenue is recognized when control of inventory is transferred,
which is when the inventory is picked up in our warehouse. Fair value is estimated using various considerations, including the cost of similar media advertising if transacted
directly, the expected sales price of product given up in exchange for the media credits, and the expected usage of media credits prior to expiration based on forecasted media
spend subject to media credits under the barter arrangement. The Company recognizes an asset for media credits which is subsequently evaluated for impairment at each
reporting period for any changes in circumstances. As the barter credits are expected to be utilized at various dates through their expiration dates, the Company will classify the
amount expected to be utilized in the next fiscal year as current, which is included in Prepaid expenses, with the remaining balance included as part of Other assets on the
balance sheet.
For fiscal 2025, 2024, and 2023, the Company recognized $9.0 million, $12.3 million, and $21.3 million, respectively, of barter sales in exchange for media credits. As of
February 2, 2025, and February 4, 2024, the Company had $5.3 million and $5.1 million, respectively, of unused media credits expected to be utilized in the next fiscal year
classified as current, and the remaining balance of $31.4 million and $27.7 million, respectively, classified as non-current. The credits expire from January through October
2034 and the Company expects to utilize all credits prior to expiration. The Company did not recognize any impairment for fiscal 2025, 2024, and 2023. The difference
between the opening and closing balances of the Company's prepaid barter credit primarily results from the inventory exchanged for media credits during the period, offset by
utilization of those credits.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity at purchase of three months or less to be cash equivalents. The Company has deposits with financial
institutions that maintain Federal Deposit Insurance Corporation “FDIC” deposit insurance up to $250,000 per depositor. The portion of the deposit in excess of this limit
represents a credit risk to the Company. Due to the high cash balance maintained by the Company, the Company does maintain depository balances in excess of the insured
amounts.
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Table of Contents
Trade Accounts Receivable, net
Trade accounts receivable are stated at their estimated realizable amount and do not bear interest for which collectability is reasonably assured. Management determines the
allowance for doubtful accounts by regularly evaluating individual customer accounts, considering the customer’s financial condition, and credit history, and general and
industry current economic conditions. Trade accounts receivables are evaluated for collectability on a regular basis and an allowance is recorded, if necessary. Recoveries of
amounts previously written off are recorded when received. Historically, collection losses have been immaterial as a significant portion of the Company’s receivables are
related to individual credit card transactions and two wholesale customers. For fiscal 2025, 2024, and 2023, the Company recognized $0.4 million, $1.0 million, and $0.4
million, respectively, related to bad debt write-offs.
Breakdown of trade accounts receivable is as follows:
(in thousands)
February 2, 2025
February 4, 2024
Credit card receivables
$
11,121 
$
10,963 
Wholesale receivables
5,660 
2,500 
Total trade accounts receivable, net
$
16,781 
$
13,463 
The Company had two wholesale customers that comprised 100% of wholesale receivables at February 2, 2025 and February 4, 2024, respectively.
Prepaid Expenses
The Company recognizes payments made for goods and services to be received in the near future as prepaid expenses. Prepaid expenses consist primarily of barter credits and
payments related to income taxes, insurance, rent, credit card fees, marketing, software licenses, and other costs.
Other Current Assets
Other current assets consist primarily of rebate receivables, deposits, and other receivables.
Private Label Credit Card
The Company has an agreement with Synchrony Bank (formerly GE Capital Retail Bank) (“Issuer”) to provide clients with private label credit cards (the “Retailer Program
Agreement”) which was amended on March 24, 2023 to extend the term of the agreement through March 31, 2026. Each private label credit card bears The Lovesac Company
brand logo and can only be used at the Company’s Showroom locations or website. The Issuer is the sole owner of the accounts issued under the private label credit card
program and absorbs the losses associated with non-payment by the private label card holders and fraudulent charges with specific requirements.
During the term of the Retailer Program Agreement, the Company receives a percentage of private label credit card sales from the Issuer and is also eligible to receive incentive
payments for the achievement of certain targets. These funds are recorded within net revenue in the statements of operation. The Company also receives reimbursement funds
from the Issuer for certain expenses the Company incurs. These reimbursement funds are used by the Company to fund marketing and other programs associated with the
private label credit card and are recorded within net revenue in the statements of operation.
Merchandise Inventories, net
Merchandise inventories are comprised of finished goods which are carried at the lower of cost or net realizable value. Cost is determined on a weighted-average method basis.
Merchandise inventories consist primarily of foam filled furniture, sectional couches, and related accessories. The Company adjusts its inventory for obsolescence based on
historical trends, aging reports, specific identification and its estimates of future retail sales prices. In addition, the Company includes capitalized freight and warehousing costs
in inventory relative to the finished goods in inventory.
Gift Certificates and Merchandise Credits
The Company sells gift certificates and issues merchandise credits to its customers in the showrooms and through its website. Revenue associated with gift certificates and
merchandise credits is deferred until redemption of the gift certificate
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Table of Contents
and merchandise credits. The Company did not recognize any breakage revenue in fiscal 2025, 2024 or 2023 as the Company continues to honor all outstanding gift certificates.
Property and Equipment, net
Property and equipment are stated at cost less accumulated depreciation and amortization. Office and showroom furniture and equipment, software and vehicles are depreciated
using the straight-line method over their estimated useful lives. Leasehold improvements are amortized using the straight-line method over their expected useful lives or lease
term, whichever is shorter.
Expenditures for repairs and maintenance are charged to expense as incurred. For assets sold or otherwise disposed of, the cost and related accumulated depreciation or
amortization is removed from the accounts, and any resulting gain or loss is reflected in operations for the period. The disposals generally relate to the decommissioning of aged
assets, remodeled showrooms, and fixtures used during pop-up-shops. Expenditures for major betterments that extend the useful lives of property and equipment are
capitalized.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the identified net assets of each business acquired. Goodwill and other indefinite-lived intangible
assets are tested annually for impairment in the fourth fiscal quarter and in interim periods if certain events occur indicating that the carrying amounts may be impaired. The
Company did not recognize any goodwill impairment charges during fiscal 2025, 2024, or 2023.
Intangible Assets, net
Intangible assets with finite useful lives, including patents, trademarks, and other intangible assets are being amortized on a straight-line basis over their estimated lives of 10
years, 3 years, and 5 years, respectively. Intangible assets with finite useful lives are reviewed for impairment whenever events or circumstances indicate that the carrying
amount of the asset might not be recovered. There were no impairments during fiscal 2025, 2024, or 2023.
Intangible assets, net as of February 2, 2025 and February 4, 2024 consists of (in thousands):
February 2, 2025
February 4, 2024
Weighted-
Average
Remaining Life
(in years)
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Weighted-
Average
Remaining Life
(in years)
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Patents
7.5
$
3,974 
$
(2,459)
$
1,515 
7.5
$
3,493 
$
(2,140)
$
1,353 
Trademarks
2.0
1,661 
(1,590)
71 
2.0
1,595 
(1,491)
104 
Other intangibles
0.0
840 
(840)
— 
0.0
840 
(840)
— 
Total
$
6,475 
$
(4,889)
$
1,586 
$
5,928 
$
(4,471)
$
1,457 
Amortization expense was $0.4 million in fiscal 2025, 2024, and 2023.
The following table presents the future expected amortization expense as of February 2, 2025 (in thousands):
2026
$
373 
2027
293 
2028
264 
2029
198 
2030
158 
After
300 
$
1,586 
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Table of Contents
Impairment of Long Lived Assets
Our long-lived assets consist of property and equipment and right-of-use assets from leases. Property and equipment includes leasehold improvements, and other tangible
assets. Long-lived assets are reviewed for potential impairment at such time that events or changes in circumstances indicate that the carrying amount of an asset might not be
recovered. We evaluate for impairment at the individual showroom level, which is the lowest level at which individual cash flows can be identified. When evaluating long-lived
assets for potential impairment, we will first compare the carrying amount of the assets to the future undiscounted cash flows for the respective long-lived asset. If the estimated
future cash flows are less than the carrying amounts of the assets, an impairment loss is measured as the excess of the carrying value over its fair value. We estimate fair value
based on future discounted cash flow based on our historical operations of the showroom and estimates of future showroom profitability and economic conditions. These
estimates include factors such as sales growth, gross margin, employment costs, lease escalation, and overall macroeconomic conditions, and are therefore subject to variability.
Actual future results may differ from those estimates. If required, an impairment loss is recorded for that portion of the assets' carrying value in excess of fair value.
In fiscal 2025, 2024, and 2023, the Company did not recognize any impairment charges associated with showroom-level right of use lease assets.
Product Warranty
Depending on the type of merchandise, the Company offers either a three-year limited warranty or a lifetime warranty. The Company’s warranties require it to repair or replace
defective products at no cost to the customer. At the time product revenue is recognized, the Company reserves for estimated future costs that may be incurred under its
warranties based on historical experience. The Company periodically reviews the adequacy of its recorded warranty liability. Product warranty expense, without any reserve
adjustments, was approximately $2.5 million, $2.0 million, and $0.7 million in fiscal 2025, 2024, and 2023. Warranty reserve was $2.4 million and $1.4 million as of
February 2, 2025 and February 4, 2024, respectively, which was included in accrued expenses.
Leases
The Company leases its office, warehouse facilities and retail showrooms under operating lease agreements which expire at various dates through April 2035. Leases with an
initial term of twelve months or less are not recorded on the balance sheet and are expensed as incurred over the lease term in the Statements of Operations.
The Company determines if a contract contains a lease at inception based on our right to control the use of an identified asset and our right to obtain substantially all of the
economic benefits from the use of that identified asset. Operating right-of-use assets represents the right to use an underlying asset pursuant to the lease for the lease term, and
lease liabilities represent the obligation to make lease payments arising from the lease, both of which are recognized based on the present value of future minimum lease
payments over the lease term at the possession date. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives
received. We combine lease and non-lease components for our showroom real estate leases in determining the lease payments subject to the initial present value calculation.
The lease payments are discounted at the Company's incremental borrowing rate as the implicit rate in the lease is not readily determinable for most of the Company's leases,
which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. We determine
incremental borrowing rates quarterly as of the last day of each prior fiscal quarter provided by a third party valuation specialist.
We recognize operating lease cost over the estimated term of the lease, which includes options to extend lease terms that are reasonably certain of being exercised, starting
when possession of the property is taken from the landlord, which normally includes a construction period prior to the showroom opening. When a lease contains a
predetermined fixed escalation of the fixed rent, we recognize the related operating lease cost on a straight-line basis over the lease term. In addition, certain of our lease
agreements include variable lease payments, such as payments based on a percentage of net sales that are in excess of a predetermined level and/or increases based on a change
in the consumer price index or fair market value. These variable lease payments are excluded from minimum lease payments and are included in the determination of net lease
cost when it is probable that the expense has been incurred and the amount can be reasonably estimated. If an operating lease asset is impaired, the remaining operating lease
asset will be amortized on a straight-line basis over the remaining lease term.
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Table of Contents
Fair Value Measurements
The carrying amount of the Company’s financial instruments classified as current assets and current liabilities approximate fair values based on the short-term nature of the
accounts.
Cost of Merchandise Sold
Cost of merchandise sold includes the direct cost of sold merchandise; inventory shrinkage; inventory adjustments due to obsolescence, including excess and slow-moving
inventory and lower of cost or net realizable value reserves; inbound freight; all freight costs to ship merchandise to our showrooms, and warehousing and all logistics costs
associated with shipping product to our customers. Certain of our competitors and other retailers may report gross profit differently than we do, by excluding from gross profit
some or all of the costs related to their distribution network and instead including them in selling, general and administrative expenses. As a result, the reporting of our gross
profit and profit margin may not be comparable to other companies.
The primary drivers of our cost of merchandise sold are raw materials costs, labor costs in the countries where we source our merchandise, and logistics costs. We review our
inventory levels on an ongoing basis in order to identify slow-moving merchandise and use product markdowns to efficiently sell these products. The timing and level of
markdowns are driven primarily by customer acceptance of our merchandise.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include all operating costs, other than advertising and marketing expense and depreciation and amortization, not included in cost of
merchandise sold. These expenses include all payroll and payroll-related expenses; showroom expenses, including occupancy costs related to showroom operations, such as
rent and common area maintenance; occupancy and expenses related to many of our operations at our headquarters, including utilities, equity based compensation, financing
related expenses and public company expenses; and credit card transaction fees. Selling, general and administrative expenses as a percentage of net sales is usually higher in
lower volume quarters and lower in higher volume quarters because a significant portion of the costs are relatively fixed.
Research and Development Expenses
Research and development costs are charged to expense in the period incurred. Research and development expense were $8.4 million, $7.7 million, and $8.4 million in fiscal
years 2025, 2024, and 2023, respectively.
Employee Benefit Plan
In February 2017, the Company established The Lovesac Company 401(k) Plan (the “401(k) Plan”) with elective deferrals beginning May 1, 2017. The 401(k) Plan calls for
elective deferral contributions, safe harbor matching contributions and profit sharing contributions. All employees of the Company will be eligible to participate in the 401(k)
Plan in the month following one (1) month of service and the employee is over age 21. Participants are able to contribute up to 100% of their eligible compensation to the
401(k) Plan subject to limitations with the IRS. Employer contributions to the 401(k) Plan for fiscal years 2025, 2024, and 2024 were approximately $2.1 million, $1.6 million,
and $1.3 million, respectively.
Advertising Expenses
Advertising expense include digital, social, and traditional advertising that covers all of our business channels. All advertising costs are expensed as incurred, or upon the
release of the initial advertisement. Total advertising expenses were $77.4 million, $82.3 million, and $71.4 million in fiscal years 2025, 2024, and 2023, respectively.
Showroom Preopening and Closing Costs
Non-capital expenditures incurred in preparation for opening new retail showrooms are expensed as incurred and included in selling, general and administrative expenses.
The Company continually evaluates the profitability of its showrooms. When the Company closes or relocates a showroom, the Company incurs unrecoverable costs, including
the net book value of abandoned fixtures and leasehold improvements, lease termination payments, costs to transfer inventory and usable fixtures and other costs of vacating
the leased location. Such costs are expensed as incurred and are included in selling, general and administrative expenses.
F-14

Table of Contents
Equity-Based Compensation
The Company adopted the 2017 Equity Plan which provides for awards in the form of options, stock appreciation rights, restricted stock awards, restricted stock units,
performance shares, performance units, cash-based awards and other stock-based awards. All awards shall be granted within 10 years from the effective date of the 2017 Equity
Plan. Vesting is typically over a three or four-year period and is contingent upon continued employment with the Company on each vesting date.
The fair value of the restricted stock units is determined based on the closing price of the Company's common stock on the grant date and the expense is recognized over the
service period. For performance based restricted stock units, the number of units received will depend on the achievement of financial metrics relative to the approved
performance targets. For performance based restricted stock units, stock-based compensation expense is recognized based on expected achievement of performance targets. The
Company recognizes forfeitures as they occur.
Income Taxes
The Company accounts for uncertainty in income taxes using a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position
for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of
related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.
The Company classifies the liability for unrecognized tax benefits as non-current to the extent that the Company anticipates payment (or receipt) of cash beyond one year.
Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes.
Deferred income taxes are provided on temporary differences between the income tax basis of assets and liabilities and the amounts reported in the financial statements and on
net operating loss and tax credit carry forwards.
A valuation allowance is provided for that portion of deferred income tax assets not likely to be realized. Deferred income tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
Basic and Diluted Net Income (Loss) Per Common Share
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted
net income per common share is computed by dividing net income by the weighted average number of common shares outstanding plus dilutive potential common shares,
including unvested restricted stock units, stock options, and warrants. Diluted net income per common share includes, in periods in which they are dilutive, the effect of those
potentially dilutive securities under the treasury stock method, where the average market price of the common stock exceeds the exercise prices for the respective periods. In
periods of loss, there are no potentially dilutive common shares to add to the weighted average number of common shares outstanding.
Recent Accounting Pronouncements
The Company has considered all recent accounting pronouncements issued by the Financial Accounting Standards Board and they were considered to be not applicable or the
adoption of such pronouncements will not have a material impact on the financial statements.
Recent Accounting Pronouncements Adopted
Segment Reporting. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires all
public entities to provide enhanced disclosures about significant segment expenses. The amendments in this ASU are to be applied retrospectively and are effective for our
annual financial statements starting in fiscal 2025 and interim periods starting in fiscal 2026, with early adoption permitted. On February 5, 2024, the Company adopted ASU
2023-07 with impact to its disclosures only and no impacts to its results of operations, cash flows or financial condition.
Recent Accounting Pronouncements Not Yet Adopted
Income Taxes. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances transparency about
income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid and to improve the effectiveness of
income tax disclosures. This accounting standards update will be effective for us for fiscal year 2026 and interim periods beginning in
F-15

Table of Contents
the first quarter of fiscal 2027, with early adoption permitted. The Company expects this ASU to only impact its disclosures with no impacts to its results of operations, cash
flows or financial condition.
Disaggregation of income statement expenses. In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense
Disaggregation Disclosures (Subtopic 220-40), which requires additional disclosure of certain costs and expenses within the notes to the financial statements. This accounting
standards update will be effective for us for fiscal year 2028 and interim periods beginning in the first quarter of fiscal 2029, with early adoption permitted. The Company
expects this ASU to only impact its disclosures with no impacts to its results of operations, cash flows or financial condition.
Climate-Related Disclosures. In March 2024, the SEC passed rule changes that will require registrants to provide certain climate-related information in their registration
statements and annual reports. The new rules enhance and standardize climate-related disclosures in an effort to provide investors with more consistent, comparable and reliable
information about the impact of climate-related risks on registrants. The rules require disclosure of greenhouse gas (GHG) emissions in annual reports and registration
statements Additionally, all registrants would be required to provide numerous climate-related disclosures within their financial statements and elsewhere in their filings. In
April 2024, the SEC released an order staying this final rule pending judicial review of all the petitions challenging the rule. The Company is currently evaluating the impact of
the potential rule change. This accounting standards update would be effective for us for fiscal year 2027.
Note 2. Property and Equipment, net
Property and equipment, net as of February 2, 2025 and February 4, 2024 consists of (in thousands):
Estimated Life
February 2, 2025
February 4, 2024
Office and store furniture, and equipment
5 Years
$
15,410 
$
13,089 
Software
5 Years
3,006 
5,206 
Leasehold improvements
Shorter of estimated useful life or lease term
97,874 
80,501 
Computers
3 Years
5,747 
5,254 
Tools, Dies, Molds
5 Years
1,525 
779 
Vehicles
5 Years
497 
497 
Construction in process
NA
6,442 
7,826 
Total
130,501 
113,152 
Accumulated depreciation and amortization
(52,511)
(42,345)
Property and equipment, net
$
77,990 
$
70,807 
Depreciation and amortization expense was $14.3 million, $12.2 million, and $10.5 million in fiscal 2025, 2024, and 2023, respectively.
Note 3. Accrued Expenses
The following table presents the components of accrued expenses (in thousands):
February 2, 2025
February 4, 2024
Accrued warehouse, freight, and inventory
$
17,837 
$
13,348 
Customer return liability
10,042 
5,606 
Accrued income taxes
8,259 
7,675 
Accrued advertising and marketing
6,707 
3,373 
Warranty liability
2,391 
1,359 
Other accrued expenses
6,750 
7,261 
Total Accrued Expenses
$
51,986 
$
38,622 
 Other accrued expenses consists primarily of professional fees, credit card fees, rent, property and equipment, and other operating costs.
(1)
(1)
F-16

Note 4. Income Taxes
The Company is subject to federal, state and local corporate income taxes. The components of the provision for income taxes reflected on the statements of operations for fiscal
2025, 2024, and 2023 are set forth below:
2025
2024
2023
Current taxes:
U.S. federal
$
6,767 
$
6,898 
$
6,127 
State and local
2,600 
3,190 
3,190 
Total current tax expense
$
9,367 
$
10,088 
$
9,317 
Deferred taxes:
U.S. federal
$
(3,498)
$
(1,238)
$
1,767 
State and local
(976)
(888)
(723)
Total deferred tax (benefit) expense
(4,474)
(2,126)
1,044 
Total income tax expense
$
4,893 
$
7,962 
$
10,361 
A reconciliation of income taxes at the federal statutory corporate rate to the effective rate for fiscal 2025, 2024, and 2023 is as follows:
2025
2024
2023
Provision (benefit) at federal Statutory rates
21.0 %
21.0 %
21.0 %
State tax, net of federal provision (benefit)
6.6 %
5.1 %
4.9 %
Non-deductible executive compensation
— %
0.3 %
1.8 %
Permanent adjustments
0.2 %
0.1 %
0.2 %
Penalties
1.9 %
— %
— %
Equity-based compensation
2.7 %
0.5 %
0.1 %
Research and development credit
(2.1)%
(3.6)%
— %
Other
(0.4)%
0.2 %
0.1 %
Uncertain tax benefits
(0.2)%
1.4 %
— %
Effective tax rate
29.7 %
25.0 %
28.1 %
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Table of Contents
Significant components of the Company's deferred tax assets are as follows (in thousands):
February 2, 2025
February 4, 2024
Deferred Income Tax Assets
State net operating loss carryforward
$
286 
$
342 
Intangible assets
467 
465 
Accrued liabilities
4,043 
2,879 
Equity-based compensation
3,122 
2,219 
Merchandise inventories
4,534 
3,848 
Research and development capitalization
4,183 
3,687 
Operating lease liabilities
46,994 
45,220 
Total Deferred Income Tax Assets
63,629 
58,660 
Deferred Income Tax Liabilities
Operating lease right of use asset
(40,505)
(40,393)
Property and equipment
(7,847)
(7,464)
Total Deferred Tax Liabilities
(48,352)
(47,857)
Net Deferred Income Tax Asset
$
15,277 
$
10,803 
At February 2, 2025 and February 4, 2024, the Company did not have any net operating loss carryforwards available for federal income tax purposes. The Company has
approximately $4.8 million and $5.7 million of state net operating loss carryforwards as of February 2, 2025 and February 4, 2024, respectively. The state net operating losses
expire at various times between 2032 and 2040. The statute of limitations has expired for all tax years prior to 2022 for federal and state tax purposes. However, the net
operating losses generated on the Company's federal and state tax returns in prior years may be subject to adjustments by the federal and state tax authorities.
As of February 2, 2025 and February 4, 2024, the Company did not record a valuation allowance against its net deferred tax assets, due to its assessment and conclusion that it
is more likely than not that it would realize its net deferred tax assets.
A reconciliation of beginning and ending amounts of unrecognized tax benefits for fiscal 2025, 2024, and 2023 is as follows:
2025
2024
2023
Gross unrecognized tax benefit, beginning of period
$
452 
$
— 
$
— 
Additions based on tax positions related to the current year
65 
177 
— 
Additions related to tax positions in prior year
— 
275 
— 
Settlements related to tax positions in a prior period
— 
— 
— 
Decreases based on tax positions in a prior period
(142)
— 
— 
Gross unrecognized tax benefit, end of period
$
375 
$
452 
$
— 
The Company recognizes only those tax positions that meet the more-likely-than-not recognition threshold and establishes tax reserves for uncertain tax positions that do not
meet this threshold. As of February 2, 2025 and February 4, 2024, the Company has unrecognized tax benefits of $0.4 million and $0.5 million, respectively. The Company
does not anticipate any material adjustments relating to unrecognized tax benefits within the next twelve months; however, the ultimate outcome of tax matters is uncertain and
unforeseen results can occur. We had no material interest or penalties during fiscal 2025, 2024, and 2023. To the extent these unrecognized tax benefits are ultimately
recognized, approximately $0.4 million will impact the Company’s effective tax rate. Our policy is to record interest and penalties directly related to uncertain tax positions as
income tax expense in the statements of operations.
The Internal Revenue Service (IRS) has concluded the audit of the Company's fiscal 2019 federal income tax return as of February 4, 2024. During fiscal 2025, the Company
filed amended federal and state income tax returns for fiscal 2022 and 2023 as a result of the IRS audit settlement. The amended returns did not have a material impact to the
financial statements.
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Table of Contents
On August 16, 2022, the Inflation Reduction Act was signed into law. The Inflation Reduction Act includes various tax provisions, which are effective for tax years beginning
on or after January 1, 2023. The Company assessed and concluded that the Inflation Reduction Act did not have an impact to the financials as of February 2, 2025, and will
continue to monitor the impact of the changes.
For tax years beginning after December 31, 2021, the Tax Cuts & Jobs Act of 2017 eliminated the option to deduct research and development expenditures as incurred and
instead required taxpayers to capitalize and amortize them over five or 15 years beginning in 2022. For fiscal 2025, 2024, and 2023, due to the capitalization of research and
development expenditures, the Company’s current federal taxable income increased by approximately $7.5 million, $9.0 million, and $7.7 million, respectively, with a
corresponding increase in the Company’s deferred tax assets. The Company will continue to monitor the impact of changes in tax legislation.
Note 5. Basic and Diluted Net Income Per Common Share
The following table sets forth the computation of basic and diluted net income per share for fiscal 2025, 2024, and 2023:
(amounts in thousands, except per share data and share amounts)
2025
2024
2023
Net income
$
11,556 
$
23,861 
$
26,488 
Weighted-average number of common shares outstanding, basic
15,502,469 
15,427,975 
15,198,754 
Effect of dilutive securities
1,289,002 
1,032,408 
756,914 
Weighted-average number of common shares outstanding, diluted
16,791,471 
16,460,383 
15,955,668 
Basic net income per share
$
0.75 
$
1.55 
$
1.74 
Diluted net income per share
$
0.69 
$
1.45 
$
1.66 
 The effect of dilutive securities includes unvested restricted stock units, stock options and warrants. During fiscal 2024, all remaining outstanding warrants were exercised.
For fiscal 2025, 2024, and 2023, the effects of 495,366 stock options outstanding were excluded from the computation of diluted net income per share because their effect
would have been anti-dilutive.
Note 6. Leases
Components of lease expense were as follows (in thousands):
2025
2024
2023
Operating lease expense
$
34,469 
$
30,305 
$
24,173 
Variable and short term lease expense
7,465 
13,290 
16,803 
Total lease expense
$
41,934 
$
43,595 
$
40,976 
Variable lease expense includes percentage rent, maintenance, sales tax on rent, insurance and other variable charges included in the lease as well as rental expenses related to
short term leases.
During fiscal 2025, 2024, and 2023, we did not recognize any impairment charges associated with showroom-level right-of-use assets.
(1)
(1)
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Table of Contents
Future minimum lease payments under non-cancelable leases as of February 2, 2025 were as follows (in thousands):
2026
$
32,024 
2027
33,583 
2028
31,331 
2029
28,826 
2030
26,810 
Thereafter
70,284 
Total undiscounted future minimum lease payments
222,858 
Less: imputed interest
(39,835)
Total present value of lease obligations
183,023 
Less: current operating lease liability
(22,662)
Operating lease liability- long term
$
160,361 
Supplemental cash flow information related to our operating leases is as follows (in thousands):
2025
2024
2023
Operating cash flow information:
Amounts paid on operating lease liabilities
$
34,651
$
29,748
$
23,724
Non-cash activities
Net additions to right-of-use assets obtained in exchange for lease obligations
$
22,639
$
42,064
$
53,239
Weighted average remaining lease term - operating leases
6.9 years
7.5 years
7.4 years
Weighted average discount rate - operating leases
5.23%
4.97%
4.10%
Note 7. Commitments, Contingencies and Related Parties
Legal Proceedings
We are subject to legal proceedings and claims that arise in the ordinary course of business, as well as certain other non-ordinary course proceedings, claims and investigations,
as described below. We make a provision for a loss contingency when it is both probable that a material liability has been incurred and the amount of the loss can be reasonably
estimated. If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the
estimates within that range is a better estimate than any other amount, we accrue the low end of the range. For proceedings in which an unfavorable outcome is reasonably
possible but not probable and an estimate of the loss or range of losses arising from the proceeding can be made, we disclose such an estimate, if material. If such a loss or
range of losses is not reasonably estimable, we disclose that fact. We review any such loss contingency provisions at least quarterly and adjust them to reflect the impacts of
negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. We recognize insurance recoveries, if any, when they
are probable of receipt. All associated costs due to third-party service providers and consultants, including legal fees, are expensed as incurred. Legal proceedings are inherently
unpredictable. It is possible that our financial position, results of operations or cash flows could be materially negatively affected in any particular period by an unfavorable
resolution of one or more of such legal proceedings.
As previously disclosed, the Company voluntarily self-reported to the SEC information concerning the internal investigation of the accounting matters that led to the
restatement of its previously issued audited financial statements as of and for the year ended January 29, 2023 and our unaudited condensed financial statements for the
quarterly periods ended April 30, 2023, October 30, 2022, July 31, 2022 and May 1, 2022. As a result of self-reporting, the Company was the subject of a non-public
investigation by the SEC. The Company cooperated fully with the SEC in its investigation, and on October 29, 2024, the Company agreed to a settlement to resolve the claims
against it. Without admitting or denying the SEC’s allegations, Lovesac agreed to the entry of a final judgment ordering it to pay a $1.5 million civil penalty and imposing a
permanent injunction against future violations of Section 17(a)(3) of the Securities Act of 1933 and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act
of 1934 and the associated rules thereunder. During
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fiscal 2025, the penalties were recognized within selling, general and administrative expense in the Statements of Operations and paid in full.
On December 19, 2023, a putative securities class action was filed against the Company and certain of its current and former officers related to the restatement of certain of the
Company’s financial statements. The suit, captioned Gutknecht v. The Lovesac Company, No. 3:23-cv-1640, was filed in the United States District Court for the District of
Connecticut and alleges that all defendants violated Sections 10(b) of the Exchange Act and SEC Rule 10b-5 and that the individual defendants violated Section 20(a) of the
Exchange Act. The complaint generally alleges that the Company made certain misrepresentations or failed to disclose certain accounting errors related to the restatement of its
financial statements and that the Company’s disclosure controls and procedures and internal controls over financial reporting were deficient. The plaintiffs seek, among other
things, an unspecified amount of damages and attorneys’ fees, expert fees and other costs. On March 11, 2024, the court appointed Susan Cooke Peña as Lead Plaintiff and The
Rosen Law Firm, P.A. as Lead Counsel. On May 29, 2024, the parties entered into a term sheet to settle the action, subject to various conditions, including execution of a
definitive settlement agreement, filing of the definitive agreement with the court, and court approval. The parties executed the definitive settlement agreement on July 30, 2024.
The court preliminarily approved the proposed settlement on August 1, 2024, authorized dissemination of notice to the class, and scheduled a fairness hearing. On December 9,
2024, the Court entered an order approving final settlement of the litigation, including dismissing the lawsuit and releasing all claims in exchange for a settlement payment by
the Company (the “Approval Order”). On December 10, 2024, the Court entered judgment dismissing the litigation on the merits and with prejudice according to the terms of
the parties’ settlement agreement and the Approval Order. During fiscal 2025, the settlement was recognized within selling, general and administrative expense in the
Statements of Operations and paid in full.
On July 29, 2024, a putative shareholder derivative action captioned Getz v. Nelson, No. 3:24-cv-1260, was filed in the United States District Court for the District of
Connecticut on behalf of the Company against certain of its current and former officers and directors. Two similar shareholder derivative actions, captioned Valle v. Dellomo,
No. 3:24-cv-1327, and McKinnon v. Nelson, No. 3:24-cv-1343, were filed in the same court against the same defendants on August 19, 2024, and August 21, 2024, respectively.
The cases assert claims on behalf of the Company for breach of fiduciary duty, violations of the Exchange Act, unjust enrichment, corporate waste, and aiding and abetting
primary violations. The factual allegations underlying those claims are similar to those alleged in the securities class action. The plaintiffs seek, among other things, an
unspecified amount of damages and attorneys’ fees, expert fees, and other costs. On September 20, 2024, the Court consolidated the three lawsuits under the caption In re The
Lovesac Company Derivative Litigation, Lead Case No. 3:24-cv-01260-VAB (i.e., the “Derivative Action”). The parties have reached an agreement in principle to settle the
Derivative Action, which is subject to execution of a definitive agreement and, among other conditions, approval by the Court. If the contemplated settlement is ultimately
concluded as agreed in principle, the Company believes the resolution will not have a material impact to the financial statements.
On March 21, 2024, a putative class action complaint related to the Company’s pricing was filed against the Company. The lawsuit, captioned Nguyen v. The Lovesac
Company, was filed in the Superior Court of California, County of Sacramento, and was removed to the United States District Court for the Eastern District of California. The
complaint generally alleges that the Company falsely advertised discounts on certain products. The plaintiff seeks, among other things, an unspecified amount of monetary
damages, including treble damages, punitive damages, injunctive relief related to the Company’s sales practices, and attorneys’ fees, expert fees, and other expenses. On June
24, 2024, the Company filed a motion to dismiss. On July 15, 2024, the plaintiff filed an amended complaint. On August 12, 2024, the Company filed a motion to dismiss the
plaintiff’s amended complaint. On November 26, 2024, the court entered an order to stay all proceedings in the case in light of a mediation of the dispute scheduled for January
23, 2025. The parties were unable to come to an agreement at the January 23, 2025 mediation. On February 7, 2025, the court unstayed the proceedings in the case for the
purpose of ruling on the Company's pending motion to dismiss. On March 28, 2025, the court granted the Company's motion to dismiss with leave to amend, but dismissed
Plaintiff's request for injunctive relief without leave to amend. The court provided the plaintiff 30 days to file another amended complaint. If the plaintiff amends his complaint,
the Company will have 21 days to file a responsive pleading. At this time, we are unable to reasonably estimate the possible loss or range of loss from this proceeding.
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Note 8. Financing Arrangements
Credit Line
On February 6, 2018, the Company established a $25.0 million line of credit with Wells Fargo Bank, National Association ("Wells"). On March 25, 2022, the Company
amended the credit agreement to extend the maturity date to March 25, 2024, and among other things, increase the maximum revolver commitment from $25.0 million to
$40.0 million, subject to borrowing base and availability restrictions. Availability is based on eligible accounts receivable and inventory. The amended agreement contains a
financial covenant that requires us to maintain undrawn availability under the credit facility of at least 10% of the lesser of (i) the aggregate commitments in the amount of
$40.0 million and (ii) the amounts available under the credit facility based on eligible accounts receivable and inventory. Our credit agreement includes a $1.0 million sublimit
for the issuance of letters of credit and a $4.0 million sublimit for swing line loans.
Under the amended line of credit, the Company may elect that revolving loans bear interest at either a base rate or a term SOFR based rate, plus, in either case, a margin
determined by reference to our quarterly average excess availability under the line of credit and ranging from 0.50% to 0.75% for borrowings accruing interest at a base rate
and from 1.625% to 1.850% for borrowings accruing interest at term SOFR. Swing line loans will at all times accrue interest at a base rate plus the applicable margin. The
lower margins described above will apply initially and will adjust thereafter from time to time based on the quarterly average excess availability under the line of credit.
On March 24, 2023, the Company amended the credit agreement to extend the maturity date to September 30, 2024. On July 29, 2024, the Company amended the credit
agreement to, among other things, add an uncommitted accordion feature that allows the Company, subject to certain customary conditions, increase the size of the revolving
credit facility by $10.0 million and extend the maturity date of the loans made under the credit agreement from September 30, 2024 to July 29, 2029.
As of February 2, 2025 and February 4, 2024, the Company’s borrowing availability under the line of credit with Wells was $32.6 million and $36.0 million, respectively, there
were no borrowings outstanding on this line of credit, and the Company was in compliance with required covenants.
Note 9. Stockholders' Equity
Common Stock Warrants
On June 29, 2018, the Company issued 281,750 warrants with a five-year term and an average exercise price of $19.20 to Roth Capital Partners, LLC as part of the
underwriting agreement in connection with the Company's IPO. Warrants may be exercised on a cashless basis, where the holders receive fewer shares of common stock in lieu
of a cash payment to the Company. As of January 30, 2022, the weighted average contractual life of the 281,750 outstanding warrants was 1.4 years. There were no warrants
issued, exercised, or expired and canceled in fiscal 2023 and the weighted average remaining contractual life was 0.4 years as of January 29, 2023. In fiscal 2024, Roth Capital
Partners, LLC performed a cashless exercise of all 281,750 remaining outstanding warrants resulting in 74,592 net shares issued. As of February 2, 2025, no warrants remain
outstanding.
Equity Incentive Plans
The Company adopted the Second Amended and Restated 2017 Equity Incentive Plan (the "2017 Equity Plan") which provides for awards in the form of stock options, stock
appreciation rights, restricted stock awards, restricted stock units, performance shares, performance based restricted stock units, cash-based awards and other stock-based
awards. All awards shall be granted within 10 years from the effective date of the 2017 Equity Plan. In fiscal 2025, the 2017 Equity Plan was amended to increase the shares of
our common stock authorized and reserved for issuance by 1,100,000 shares, which increased the number of shares of common stock reserved for issuance under the 2017
Equity Plan to 3,979,889 shares of common stock.
Time-Based Restricted Stock Units
Time-based restricted stock units ("RSU awards") granted under the 2017 Equity Plan are generally subject to only a service-based vesting condition. RSU awards vest equally
over three years on the anniversary date of the grant date if employed at the time of vesting. The valuation of these RSU awards is based solely on the fair value of the
Company’s stock on the date of grant.
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Table of Contents
Performance Based Restricted Stock Units
Performance based restricted stock units ("PSU awards") granted under the 2017 Equity Plan are generally subject to both a service-based vesting condition and a performance-
based vesting condition. PSU awards will vest upon the achievement of specified performance targets and subject to continued service through the applicable vesting dates. The
stock-based compensation expense relating to PSU awards is recognized over the requisite service period when it is probable that the performance condition will be satisfied.
Stock Options
In June 2019, the Company granted 495,366 non-statutory stock options to certain officers of the Company with an exercise price of $38.10 per share. 100% of the stock
options are subject to vesting on the third anniversary of the date of grant if the officers are still employed by the Company and the average closing price of the Company’s
common stock for the prior 40 consecutive trading days has been at least $75 by the third anniversary of the grant. Both the employment and the market condition were
originally to be satisfied no later than June 5, 2022 or the options would terminate. These options were valued using a Monte Carlo simulation model to account for the path
dependent market conditions that stipulate when and whether or not the options shall vest. The 495,366 stock options were modified in fiscal 2022 to extend the term of the
options through June 5, 2024. This resulted in additional compensation of approximately $0.9 million, of which, $0.3 million was recorded upon modification with the
remaining expense to be recognized over the remaining expected term. The market condition was met on June 5, 2021, which was the date on which the average closing price
of the Company’s common stock had been at least $75 for 40 consecutive trading days. The options vested and became exercisable on June 5, 2022 as the officers were still
employed on that date.
There were no stock options issued, exercised, or expired and canceled during fiscal 2025, 2024, and 2023.
The following represents stock option activity during fiscal 2025, 2024, and 2023 :
Number of options
Weighted average
exercise price
Weighted average
remaining
contractual life (in
years)
Average intrinsic
value
Outstanding at January 30, 2022
495,366 
$
38.10 
2.35 $
6,162 
Issued
— 
— 
Canceled and forfeited
— 
— 
Exercised
— 
— 
Outstanding at January 29, 2023
495,366 
38.10 
1.35
— 
Issued
— 
— 
Canceled and forfeited
— 
— 
Exercised
— 
— 
Outstanding at February 4, 2024
495,366 
38.10 
5.34
— 
Issued
— 
— 
Canceled and forfeited
— 
— 
Exercised
— 
— 
Outstanding and exercisable at February 2, 2025
495,366 
$
38.10 
4.34 $
— 
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Table of Contents
Time and Performance Based Restricted Stock Units
The following table summarizes the Company's RSU and PSU awards activity during fiscal 2025, 2024, and 2023:
Number of shares
Weighted average grant date
fair value
Unvested at January 30, 2022
533,333 
$
28.41 
Granted
289,625 
44.20 
Forfeited
(62,186)
29.09 
Vested
(120,516)
36.03 
Unvested at January 29, 2023
640,256 
34.50 
Granted
836,678 
26.50 
Forfeited
(63,298)
34.93 
Vested
(381,228)
25.24 
Unvested at February 4, 2024
1,032,408 
31.41 
Granted
847,634 
21.47 
Forfeited
(484,447)
32.55 
Vested
(106,593)
34.31 
Unvested at February 2, 2025
1,289,002 
$
24.20 
In March 2023, Shawn Nelson, our Chief Executive Officer, received a one-time performance and retention long-term incentive grant of 235,000 Restricted Stock Units (the
“RSU Grant”) pursuant to the 2017 Equity Plan and Mr. Nelson’s Restricted Stock Units Agreement and Grant Notice (the “RSU Agreement”). The RSU Grant vests on the
later to occur of (i) the fifth anniversary of the date of grant so long as, (x) on or prior to such date (subject to certain limited extensions), the Company has achieved a specified
level of performance with respect to share price and net sales, and (y) Mr. Nelson remains in continuous service with the Company as Chief Executive Officer through such
date; or (ii) if the specified level of performance with respect to net sales is not achieved on or prior to the fifth anniversary of the date of grant, but the other conditions in
subclause (i) are achieved, the first date that such specified level of performance with respect to net sales is achieved, so long as it is achieved on or prior to the seventh
anniversary of the date of grant and so long as Mr. Nelson remains in continuous service with the Company through such date. Except in the event of termination of
employment as defined in the 2017 Equity Plan, the RSU Grant will be settled in shares of common stock of the Company on the first anniversary of the applicable vesting
date. The RSU grant was valued using a Monte Carlo simulation model to account for the path dependent market conditions that stipulate when and whether or not the options
shall vest. The grant date fair value of the RSU Grant was $4.4 million. The expense will be recognized on a straight-line basis over the longest of the derived, explicit, or
implicit service period.
Equity-based compensation expense was approximately $7.9 million, $4.2 million, and $10.5 million for fiscal 2025, 2024, and 2023 respectively. The total unrecognized
equity based compensation cost related to unvested RSU and PSU awards was approximately $16.7 million as of February 2, 2025 and will be recognized in operations over a
weighted average period of 2.7 years.
Share Repurchase Program
On June 11, 2024, our Board of Directors approved a $40.0 million share repurchase program. Under the share repurchase program, we may repurchase shares from time to
time in the open market, privately negotiated transactions and accelerated share repurchase. The timing, volume and nature of share repurchases, if any, will be at our sole
discretion and will be dependent on market conditions, liquidity, applicable securities laws, and other factors. We may suspend or discontinue the share repurchase program at
any time. The exact number of shares to be repurchased by the Company, if any, is not guaranteed. Depending on market conditions and other factors, these repurchases may be
commenced or suspended at any time or periodically without prior notice.
During fiscal 2025, we repurchased and subsequently retired 777,713 shares of common stock for $19.9  million, including broker commissions and fees. The Inflation
Reduction Act imposed a nondeductible 1% excise tax on the net value of stock repurchases. During fiscal 2025, the excise tax on net share repurchases was not material.
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Table of Contents
As of February 2, 2025, we had $20.1 million available to repurchase shares pursuant to the share repurchase program.
Note 10. Segment Information
Segments are reflective of how the chief operating decision maker ("CODM") reviews operating results for the purpose of allocating resources and assessing performance. The
CODM group of the Company is comprised of the Chief Executive Officer and the President/Chief Operating Officer.
The Company markets and sells its products through an omni-channel platform that provides a seamless and meaningful experience to its customers across multiple channel.
The Company has one operating segment which aligns with the way our CODM group evaluates performance and allocates resources within the Company. As the Company's
products and sales channels are complementary and analyzed in the same manner, the Company operates its business as one operating segment and therefore it has one
reportable segment.
The CODM group regularly receives financial information presented on an entity-wide basis. The CODM group uses net sales and net income as reported on the statements of
operations to allocate resources, assess performance of our business, and evaluate earnings generated in deciding where to reinvest profits into its single reportable segment.
Net sales and net income are used to monitor budget versus actual results. The significant expenses considered by the CODM group in evaluating the performance of our
business are consistent with the financial information included on the Company's statements of operations. There are no additional expense categories and amounts that meet
the definition of significant expense items that are regularly provided to the CODM group and included in net income. The CODM group may also evaluate financial
performance based on net income adjusted for certain items that are unusual and non-recurring. While management uses these additional adjusted metrics in assessing and
allocating resources to our business, management recognizes that US GAAP principles are the basis of our performance.
The Company’s net sales by product which are considered one segment are as follows:
2025
2024
2023
Sactionals
$
621,898 
$
637,388 
$
584,449 
Sacs
48,798 
51,719 
55,145 
Other
9,932 
11,158 
11,585 
Total net sales
$
680,628 
$
700,265 
$
651,179 
Interest income (expense), net is as follows:
2025
2024
2023
Interest income (expense), net
2,800 
1,747 
(117)
Interest income (expense), net is included in Interest and other income (expense), net on the statements of operations.
As the Company discloses a single reportable segment, total net sales is reported in the statements of operations, segment assets are reported in the balance sheets, and capital
expenditures are reported in the statements of cash flows. The Company has material long-lived assets, as stated on the balance sheet, with immaterial long-lived assets located
in foreign countries. The accounting policies of the reported segment are the same as those described in Note 1. Basis of Presentation, and Summary of Significant
Accounting Policies.
Refer to Revenue Recognition in Note 1. Basis of Presentation, and Summary of Significant Accounting Policies for additional information on our sales channels,
geographic areas, and major customers.
(1)
(1) 
F-25

Exhibit 10.16 THE LOVESAC COMPANY DIRECTOR COMPENSATION POLICY (Adopted February 2, 2025) The Lovesac Company (the “Company”) believes that the granting of equity and cash compensation to its members of the Board of Directors (the “Board,” and members of the Board, the “Directors”) represents an effective tool to attract, retain and reward Directors who are not employees of the Company (the “Outside Directors”). This Director Compensation Policy (this “Policy”) is intended to formalize the Company’s policy regarding cash compensation and grants of equity to its Outside Directors. Unless otherwise defined herein, capitalized terms used in this Policy will have the meaning given such term in the Company’s Second Amended and Restated 2017 Equity Incentive Plan, as amended (the “Plan”). Each Outside Director will be solely responsible for any tax obligations incurred by such Outside Director as a result of the equity and cash payments such Outside Director receives under this Policy. 1. CASH RETAINERS No Outside Director will receive per meeting attendance for attending Board or meetings of committees of the Board. Outside directors will receive the following annual cash retainers as applicable. All such annual cash retainers will be paid quarterly in arrears on a prorated basis. Upon election or re-election to the Board at the Company’s Annual Meeting of Stockholders (“Annual Meeting”), a Director may elect to receive his or her cash retainers in the form of restricted stock units. Such restricted stock units shall vest in full upon the earlier of the (i) the 12-month anniversary of the grant date; or (ii) the next Annual Meeting, in each case, provided that the Outside Director continues to serve as an Outside Director through the applicable vesting date. (a) Annual Cash Retainer. Each Outside Director will be paid an annual cash retainer of $75,000. (b) Committee Chair and Committee Member Annual Cash Retainer.
Each Outside Director who serves as chair of a committee of the Board will be paid additional annual fees as follows: Chair of Audit Committee: $15,000 Chair of Compensation Committee: $10,000 Chair of Nominating and Governance Committee: $10,000 (c) Board Chair Retainer. The Company’s Board Chair will be paid an annual cash retainer of $50,000. 2. EQUITY COMPENSATION Outside Directors will be entitled to receive Awards under the Plan (or the applicable equity plan in place at the time of grant), including discretionary Awards not covered under this Policy. All grants of Awards to Outside Directors pursuant to Section 2 of this Policy will be automatic and nondiscretionary, except as otherwise provided herein, and will be made in accordance with the following provisions: (a) No Discretion. No person will have any discretion to select which Outside Directors will be granted any Awards under this Policy or to determine the number of shares of Company common stock (“Shares”) to be covered by such Awards.

 
2 (b) Annual Awards. Upon election or re-election to the Board on the date of each Annual Meeting, each Outside Director automatically will be granted an Award of restricted stock units with a grant date fair value (determined in accordance with U.S. generally accepted accounting principles) of $125,000 (an “Annual Award”). Each Annual Award will fully vest upon the 12-month anniversary of the grant date provided that the Outside Director continues to serve as an Outside Director through the applicable vesting date. An Outside Director first appointed to the Board after the Annual Meeting shall be granted a pro-rata portion of the Annual Award calculated based on such Outside Director’s days of service during the 12- month vesting period associated with the most recent Annual Award. (c) Award Deferral. Directors are permitted to defer settlement of their Annual Award on a tax-deferred basis pursuant to the terms of the Plan. Directors who elect to defer settlement receive payment of their Annual Grant in whole shares within sixty days of their “separation of service” from the Board for any reason, or upon a “change in control” as those terms are defined in the Plan. 3. STOCK OWNERSHIP GUIDELINES. Each Outside Director shall be required to own shares of the Company’s common stock equal to three times his or her annual cash retainer within five years of joining the Board. 4. TRAVEL EXPENSES Each Outside Director’s reasonable, customary and documented travel expenses to Board meetings will be reimbursed by the Company in accordance with the terms of the Company’s Travel and Representation Policy. 5. ADDITIONAL PROVISIONS All provisions of the Plan not inconsistent with this Policy will apply to Awards granted to Outside Directors. 6. REVISIONS The Board in its discretion may change and otherwise revise the terms of Awards granted under this Policy, including, without limitation, the number of Shares subject
thereto, for Awards of the same or different type granted on or after the date the Board determines to make any such change or revision.


 

[Execution] 7605175.2 AMENDMENT NO. 8 TO CREDIT AGREEMENT AMENDMENT NO. 8 TO CREDIT AGREEMENT, dated as of September 7, 2023 (this “Amendment No. 8”), is by and among Wells Fargo Bank, National Association, a national banking association, in its capacity as administrative agent and collateral agent (in such capacity, together with its successors and assigns, “Agent”) pursuant to the Credit Agreement (as defined below), the parties to the Credit Agreement from time to time as lenders (individually, each a “Lender” and collectively, “Lenders”), and The Lovesac Company, a Delaware corporation (the “Lead Borrower,” and together with any other Person that becomes party hereto as a borrower, individually a “Borrower” and collectively, the “Borrowers”). W I T N E S S E T H : WHEREAS, Agent, Lenders and certain other parties have entered into a senior secured revolving credit facility pursuant to which Agent and Lenders have made, and may make, loans and advances and provide other financial accommodations to Borrowers as set forth in the Credit Agreement, dated as of February 2, 2018, by and among Agent, Lenders, Borrowers and Guarantors, as amended by Amendment No. 1 to Credit Agreement, dated as of June 28, 2018, Amendment No. 2 to Credit Agreement, dated as of October 25, 2018, Amendment No. 3 to Credit Agreement, dated as of March 26, 2019, Amendment No. 4 to Credit Agreement, dated as of April 8, 2020, Amendment No. 5 to Credit Agreement dated as of May 13, 2021, Amendment No. 6 to Credit Agreement, dated as of March 25, 2022, and Amendment No. 7 to Credit Agreement, dated as of March 24, 2023 (the “Credit Agreement”), and the other Loan Documents (as defined therein); WHEREAS, Lead Borrower has requested that Agent and Lenders agree to amend the Credit Agreement, and Agent and Lenders are willing to agree to such amendment, subject to the terms and
conditions contained herein; and WHEREAS, by the execution and delivery of this Amendment No. 8, Agent, Lenders and Lead Borrower intend to evidence such amendment; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions. For purposes of this Amendment No. 8, all terms used herein which are not otherwise defined herein, including but not limited to, those terms used in the recitals hereto, shall have the respective meanings assigned thereto in the Credit Agreement as amended by this Amendment No. 8. 2. Amendment to Credit Agreement. Subject to the satisfaction (or waiver in accordance with Section 10.1 of the Credit Agreement) of the conditions precedent set forth in Section 4 of this Amendment No. 8, clause (b) of Section 6.01 of the Credit Agreement is hereby amended by inserting the following language immediately after the reference to “forty-five (45) days”: “(or seventy-five (75) days in the case of the Fiscal Quarter ending July 30, 2023)” 3. [Reserved] 4. Amendment No. 8 Effective Date; Conditions Precedent to Amendments. The amendment set forth in Section 1 shall become effective on and as of the date (the “Amendment No. 8 Effective Date”) on which all of the conditions precedent set forth on Schedule 1 hereto have been Exhibit 10.24

 
2 satisfied (or waived in accordance with Section 10.01 of the Credit Agreement). 5. Representations and Warranties. Lead Borrower represents and warrants to Agent and Lenders as follows, which representations and warranties shall survive the execution and delivery hereof: 5.1. On the date of this Amendment No. 8, immediately after giving effect to this Amendment No. 8, no Default or Event of Default has occurred and is continuing. 5.2. This Amendment No. 8 has been duly authorized, executed and delivered by all necessary corporate action on the part of Lead Borrower and, if necessary, its equity holders and is in full force and effect on the date hereof, as the case may be, and the agreements and obligations of Lead Borrower contained herein constitute legal, valid and binding obligations of Lead Borrower, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. 5.3. All of the representations and warranties of Lead Borrower set forth herein and in each of the other Loan Documents shall be true and correct in all material respects (or, in the case of any representations and warranties qualified by materiality or Material Adverse Effect, in all respects) on and as of the date hereof on and immediately after the effectiveness of this Amendment No. 8 and the transactions contemplated hereby with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct in all material respects (or, in the case of any representations and warranties qualified by materiality or Material Adverse Effect, in all respects) as of such earlier date). 6. Effect of Amendment No. 8. Except as expressly
set forth herein, no other amendments, changes or modifications to the Loan Documents are intended or implied, and in all other respects the Loan Documents are hereby specifically ratified and confirmed by all parties hereto as of the effective date hereof and the Loan Parties shall not be entitled to any other or further amendment by virtue of the provisions of this Amendment No. 8 or with respect to the subject matter of this Amendment No. 8. To the extent of conflict between the terms of this Amendment No. 8 and the other Loan Documents, the terms of this Amendment No. 8 shall control. The Credit Agreement and this Amendment No. 8 shall be read and construed as one agreement. This Amendment No. 8 is a Loan Document. 7. Ratification. Lead Borrower hereby (i) ratifies and reaffirms all of its payment and performance obligations, contingent or otherwise, under the Credit Agreement and each other Loan Document to which it is a party, (ii) ratifies and reaffirms the grant of liens or security interests over its property pursuant to the Loan Documents and confirms that such liens and security interests continue to secure the Obligations, (iii) agrees that such ratification and reaffirmation is not a condition to the continued effectiveness of the Loan Documents and (iv) agrees that neither such ratification and reaffirmation, nor the Agent’s nor any Lender’s solicitation of such ratification and reaffirmation, constitutes a course of dealing giving rise to any obligation or condition requiring a similar or any other ratification or reaffirmation from any party to the Credit Agreement with respect to any amendment, consent or waiver with respect to the Credit Agreement or any of the other Loan Documents. 8. Governing Law. THIS AMENDMENT NO. 8 SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES
THEREOF, BUT INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.


 
3 9. Jury Trial Waiver. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AMENDMENT NO. 8 OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AMENDMENT NO. 8 BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. 10. Binding Effect. This Amendment No. 8 shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. 11. Waiver, Modification, Etc. No provision or term of this Amendment No. 8 may be modified, altered, waived, discharged or terminated orally or by course of conduct, except in accordance with the terms of the Credit Agreement. 12. Entire Agreement. This Amendment No. 8 represents the entire agreement and understanding concerning the subject matter hereof among the parties hereto, and supersedes all other prior agreements, understandings, negotiations and discussions, representations, warranties, commitments, proposals, offers and contracts concerning the subject matter hereof, whether oral or written. 13. Headings. The headings listed herein are for convenience only and do not constitute matters to be construed in
interpreting this Amendment No. 8. 14. Counterparts. This Amendment No. 8 may be executed in any number of counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same agreement. This Amendment No. 8 may be executed in any number of counterparts, and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Execution of any such counterpart may be by means of (a) an electronic signature that complies with the federal Electronic Signatures in Global and National Commerce Act, state enactments of the Uniform Electronic Transactions Act, or any other relevant and applicable electronic signatures law; (b) an original manual signature; or (c) a faxed, scanned, or photocopied manual signature. Each electronic signature or faxed, scanned, or photocopied manual signature shall for all purposes have the same validity, legal effect, and admissibility in evidence as an original manual signature. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]


 
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 8 to be duly executed and delivered by their authorized officers as of the day and year first above written. LEAD BORROWER: THE LOVESAC COMPANY By: _________________________ Name: _________________________ Title: _________________________ AGENT AND LENDERS: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Agent, L/C Issuer and a Lender By: _________________________ Name: _________________________ Title: _________________________ EVP & CFO Keith Siegner


 


 
SCHEDULE 1 Conditions Precedent (a) Agent shall have received this Amendment No. 8 executed and delivered by duly authorized officers of the Lead Borrower, the Lenders and the Agent; and (b) No Default or Event of Default shall exist or have occurred on the Amendment No. 8 Effective Date.


 

THE LOVESAC COMPANY INSIDER TRADING POLICY This Insider Trading Policy describes the standards of The Lovesac Company and its subsidiaries, if any (the "Company"), on trading, and causing the trading of, the Company's securities or securities of certain other publicly traded companies while in possession of confidential information. This Policy is divided into two parts: the first part prohibits trading in certain circumstances and applies to all of the Company’s directors, officers, employees and other agents and members of the forgoing persons’ respective immediate family members and households, and the second part imposes special additional trading restrictions and applies to all (i) directors of the Company, (ii) executive officers of the Company and (iii) the employees or roles listed on Appendix A (collectively, "Covered Persons"). One of the principal purposes of the federal securities laws is to prohibit so-called "insider trading." Simply stated, insider trading occurs when a person uses material nonpublic information obtained through involvement with the Company to make decisions to purchase, sell, give away or otherwise trade the Company's securities or to provide that information to others outside the Company. The prohibitions against insider trading apply to trades, tips and recommendations by virtually any person, including all persons associated with the Company, if the information involved is "material" and "nonpublic." These terms are defined in this Policy under Part I, Section 3 below. The prohibitions would apply to any director, officer or employee who buys or sells Company stock on the basis of material nonpublic information that he or she obtained about the Company, its customers, suppliers, or other companies with which the Company has contractual relationships or may be negotiating transactions. PART I 1. Applicability This Policy applies to all trading or other transactions in the Company's securities, including
common stock, options and any other securities that the Company may issue, such as preferred stock, notes, bonds and convertible securities, as well as to derivative securities relating to any of the Company's securities, whether or not issued by the Company. This Policy applies to all directors, officers, employees and other agents of the Company and their respective immediate family members, members of their households, dependents and any other individuals or entities whose transactions in securities they influence, direct or control (collectively “you” or “your”). You are responsible for making sure that these individuals and entities comply with this Policy. 2. General Policy: No Trading or Causing Trading While in Possession of Material Nonpublic Information (a) You may not purchase or sell, or offer to purchase or sell, any Company security, whether or not issued by the Company, while in possession of material nonpublic information about the Company. (The terms "material" and "nonpublic" are defined in Part I, Section 3(a) and (b) below). Exhibit 19.1

 
2 (b) If you know of any material nonpublic information about the Company, you may not communicate that information to ("tip") any other person, including family members and friends, or otherwise disclose such information without the Company’s authorization. (c) You may not purchase or sell any security of any other company, whether or not issued by the Company, while in possession of material nonpublic information about that company that was obtained in the course of your involvement with the Company. If you know of any such material nonpublic information, you may not communicate that information to, or tip, any other person, including family members and friends, or otherwise disclose such information without the Company's authorization. (d) For compliance purposes, you should never trade, tip or recommend securities (or otherwise cause the purchase or sale of securities) while in possession of information that you have reason to believe is material and nonpublic unless you first consult with, and obtain the advance approval of, the Compliance Officer (which is defined in Part I, Section 3(c) below). (e) Covered Persons must "pre-clear" all trading in securities of the Company in accordance with the procedures set forth in Part II, Section 4 below. 3. Definitions (a) Material. Insider trading restrictions come into play only if the information you possess is "material." Materiality, however, involves a relatively low threshold. Information is generally regarded as "material" if it has market significance, that is, if its public dissemination is likely to affect the market price of securities, or if it otherwise is information that a reasonable investor would want to know before making an investment decision. Material information can be positive or negative and can relate to virtually any aspect of a company’s business or to any type of security, debt or equity. Some common examples of information that may be material include: • Financial results and
financial condition; • significant changes in the Company's prospects; • significant write-downs in assets or increases in reserves; • developments regarding significant litigation or government agency investigations; • changes in liquidity; • changes in earnings estimates or unusual gains or losses in major operations; • major changes in management; • changes in dividends; • extraordinary borrowings; • award or loss of a significant contract; • changes in debt ratings; • proposals, plans or agreements, even if preliminary in nature, involving mergers, acquisitions, divestitures, recapitalizations, strategic alliances, licensing arrangements, or purchases or sales of substantial assets; • offerings of Company securities;


 
3 • pending statistical reports (such as, consumer price index, money supply and retail figures, or interest rate developments); and • information relating to significant cybersecurity risks or incidents. The above list is not exhaustive, and many other types of information may be considered “material” depending on the circumstances. Material information is not limited to historical facts but may also include projections and forecasts. With respect to a future event, such as a merger, acquisition or introduction of a new product, the point at which negotiations or product development are determined to be material is determined by balancing the probability that the event will occur against the magnitude of the effect the event would have on a Company's operations or stock price should it occur. Thus, information concerning an event that would have a large effect on stock price, such as a merger, may be material even if the possibility that the event will occur is relatively small. When in doubt about whether particular nonpublic information is material, you should presume it is material. If you are unsure whether information is material, you should consult the Compliance Officers before making any decision to disclose such information or to trade in or recommend securities to which that information relates. (b) Nonpublic. Insider trading prohibitions come into play only when you possess information that is material and "nonpublic." The fact that information has been disclosed to a few members of the public does not make it public for insider trading purposes. To be "public" the information must have been widely disseminated in a manner designed to reach investors generally, and the investors must be given the opportunity to absorb the information. Even after public disclosure of information about the Company, you must wait until the close of business on the second trading day after the information was publicly disclosed before you can treat the information as
public. Nonpublic information may include: (i) information available to a select group of analysts or brokers or institutional investors; (ii) undisclosed facts that are the subject of rumors, even if the rumors are widely circulated; and (iii) information that has been entrusted to the Company on a confidential basis until a public announcement of the information has been made and enough time has elapsed for the market to respond to a public announcement of the information (normally two (2) trading days). As with questions of materiality, if you are not sure whether information is considered public, you should either consult with the Compliance Officers or assume that the information is nonpublic and treat it as confidential. (c) Compliance Officers. The Company has appointed the Chief Financial Officer and General Counsel as the Compliance Officers for this Policy. The duties of the Compliance Officers include, but are not limited to, the following: (i) assisting with implementation and enforcement of this Policy; (ii) circulating this Policy to all employees and ensuring that this Policy is amended as necessary to remain up-to-date with insider trading laws;


 
4 (iii) pre-clearing all trading in securities of the Company by Covered Persons in accordance with the procedures set forth in Part II, Section 4 below; and (iv) providing approval of any Rule 10b5-1 plans under Part II, Section 1(c) below and any prohibited transactions under Part II, Section 5 below. (v) providing a reporting system with an effective whistleblower protection mechanism. 4. Exceptions The trading restrictions of this Policy do not apply to the following: (a) 401(k) Plan. Investing 401(k) plan contributions in a Company stock fund in accordance with the terms of the Company's 401(k) plan. However, any changes in your investment election regarding the Company’s stock are subject to trading restrictions under this Policy. (b) Options. Exercising options to purchase Company shares granted under the Company’s applicable equity incentive plan for cash or the delivery of previously owned Company shares. However, the sale of any shares issued on the exercise of Company-granted options and any cashless exercise of Company-granted options are subject to trading restrictions under this Policy. 5. Violations of Insider Trading Laws Penalties for trading on or communicating material nonpublic information can be severe, both for individuals involved in such unlawful conduct and their employers and supervisors, and may include jail terms, criminal fines, civil penalties and civil enforcement injunctions. Given the severity of the potential penalties, compliance with this Policy is absolutely mandatory. (a) Legal Penalties. A person who violates insider trading laws by engaging in transactions in a company's securities when he or she has material nonpublic information can be sentenced to a substantial jail term, subject to disgorgement of profits and required to pay a criminal penalty of several times the amount of profits gained or losses avoided. In addition, a person who tips others may also be liable for transactions by the tippees to whom he or
she has disclosed material nonpublic information. Tippers can be subject to the same penalties and sanctions as the tippees, and the SEC has imposed large penalties even when the tipper did not profit from the transaction. The SEC can also seek substantial civil penalties from any person who, at the time of an insider trading violation, "directly or indirectly controlled the person who committed such violation," which would apply to the Company and/or management and supervisory personnel. These control persons may be held liable for up to the greater of $1.2 million or three times the amount of the profits gained or losses avoided plus, in the case of entities, a criminal penalty of up to $2.5 million. Even for violations that result in a small or no profit, the SEC can seek penalties from a company and/or its management and supervisory personnel as control persons. (b) Company-imposed Penalties. Employees who violate this Policy may be subject to disciplinary action by the Company, including dismissal for cause. Any exceptions to the Policy,


 
5 if permitted, may only be granted by the Compliance Officers and must be provided before any activity contrary to the above requirements takes place. 6. Inquiries If you have any questions regarding any of the provisions of this Policy, please contact the Compliance Officers. PART II 1. Blackout Periods All Covered Persons are prohibited from trading in the Company's securities during blackout periods as defined below. (a) Quarterly Blackout Periods. Trading in the Company's securities is prohibited during the period beginning at the close of the market on two weeks before the end of each fiscal quarter and ending at the close of business on the second trading day following the date the Company's financial results are publicly disclosed and Form 10-Q or Form 10-K is filed. During these periods, you generally possess or are presumed to possess material nonpublic information about the Company's financial results. (b) Other Blackout Periods. From time to time, other types of material nonpublic information regarding the Company (such as negotiation of mergers, acquisitions or dispositions or new product developments) may be pending and not be publicly disclosed. While such material nonpublic information is pending, the Company may impose special blackout periods during which you are prohibited from trading in the Company's securities. If the Company imposes a special blackout period that affects you, you will be notified. (c) Exception. These trading restrictions do not apply to transactions under a pre- existing written plan, contract, instruction, or arrangement under Rule 10b5-1 under the Securities Exchange Act of 1934 (an "Approved 10b5-1 Plan") provided that such Approved 10b5-1 Plan complies with the requirements set forth in Part II, Section 3 below and in SEC Rule 10b5-1 as then in effect. 2. Trading Window You are permitted to trade in the Company's securities when no blackout period is in effect. Generally, this means that you
can trade during the period beginning on the day that blackout period under Section 1(a) ends and ending on the day that the next blackout period under Section 1(a) begins. However, even during this trading window, if you are in possession of any material nonpublic information you should not trade in the Company's securities until the information has been made publicly available or is no longer material. In addition, the Company may close this trading window if a special blackout period under Part II, Section 1(b) above is imposed and will re-open the trading window once the special blackout period has ended.


 
6 3. Pre-Arranged Trading Plans SEC Rule 10b5-1(c) provides a defense from insider trading liability if trades occur pursuant to a pre-arranged “trading plan” that meets specified conditions. Under this rule, if you enter into and operated a binding contract, an instruction or a written plan in good faith that specifies the amount, price and date on which securities are to be purchased or sold, and if these arrangements are established in accordance with the terms of Rule 10b5-1 and at a time when you do not possess material, non-public information relevant to such trades, then the transactions under the trading plan will be exempt from the trading restrictions set forth in this Policy. Arrangements under Rule 10b5-1(c) may specify the amount, price and date through a formula or may specify trading parameters which another person has discretion to administer, but you must not exercise any subsequent discretion affecting the transactions, and if your broker or any other person exercises discretion in implementing trades, you must not influence his or her actions and he or she must not possess any relevant material, non- public information at the time of the trades. Covered Persons must represent in such trading plans that they are not aware of any material, non-public information about the Company and are entering such trading plan in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5. Trading plans can be established for a single trade or a series of trades, however no more than one single-trade trading plan may be entered into in any 12- month period. Covered Persons may only have one trading plan in place for purchases or sales during any one period, except in limited circumstances in accordance with SEC rules and after specific approval by the Compliance Officers. It is important that you properly document the details of a trading plan. In addition to the trading plan requirements described above, there are a number of
additional procedural conditions to Rule 10b5-1(c) that must be satisfied before you can rely on a trading plan as an affirmative defense against an insider trading charge. These requirements include, among others: (a) that you act in good faith; (b) that you not modify your trading instructions while you possess relevant material, non-public information; and (c) that you not enter into or alter a corresponding or hedging transaction or position. Because Rule 10b5-1(c) is complex, you must be sure that you fully understand the applicable limitations and conditions under Rule 10b5-1 before you establish a trading plan. A Covered Person may only enter into or modify a trading plan if (a) it is precleared by the Compliance Officers; (b) at a time that the Covered Person is not in possession of material, non-public information; and (c) only during a trading window period outside of the blackout period that applies to the Covered Person. Consistent with the requirements of Rule 10b5-1, the Company requires a waiting period (a “cooling-off period”) between the establishment of a trading plan and the commencement of trading under such trading plan. The cooling-off period must be, (a) for Section 16 reporting persons, at least the later of (i) 90 days, or (ii) two business days following the disclosure in a periodic report of the Company’s financial results for the fiscal period in which the trading plan was adopted, subject to a maximum of 120 days and, (b) for all other Covered Persons, 30 days. Consistent with the requirements of Rule 10b5-1, the cooling-off periods are also required for modifications of a trading plan that changes the amount of shares subject to the trading plan, the transaction price or the timing of the transaction. For other types of trading plan modifications, the Company requires a cooling-off period of 30 days between the modification and commencement of trading under such plan. The Compliance Officers will review a proposed trading plan to
determine if the plan is in compliance with this Policy. If the


 
7 Compliance Officers deem appropriate, a review of any trading plan or modification may be considered by the Audit Committee prior to approval. Revocation of a trading plan should occur only in unusual circumstances. Effectiveness of any revocation or amendment of a trading plan will be subject to the prior review and approval of the Compliance Officers. Revocation is effected upon written notice to the broker and, once a trading plan has been revoked, the participant must wait at least 30 days before trading outside of a trading plan and comply with the applicable cooling-off period for establishing a new plan discussed in the preceding paragraph. Under certain circumstances, a trading plan must be revoked. This may include circumstances such as the announcement of a merger or the occurrence of an event that would cause the transaction either to violate the law or to have an adverse effect on the Company. The Compliance Officers and the administrator of the Company’s stock plans are authorized to notify the broker in such circumstances, thereby insulating the insider in the event of revocation. All trading plans entered into or terminated by a Section 16 reporting person of the Company will be disclosed in the Company’s next Form 10-Q or Form 10-K. 4. Pre-clearance of Securities Transactions (a) Because Covered Persons are likely to obtain material nonpublic information on a regular basis, the Company requires all such persons to refrain from trading, even during a trading window under Part II, Section 2 above, without first pre-clearing all transactions in the Company’s securities. (b) Subject to the exemption in subsection (d) below, no Covered Person may, directly or indirectly, purchase or sell (or otherwise make any transfer or gift of) any Company security at any time without first obtaining prior approval from a Compliance Officer. The attached pre- clearance form shall be used for this purpose. These procedures also apply to
transactions by such Covered Person’s spouse, other persons living in such person’s household and minor children and to transactions by individuals or entities over which such person exercises influence, directs or controls. (c) Unless revoked, a grant of permission will normally remain valid until the close of trading two business days following the day on which it was granted. If the transaction does not occur during the two-day period, pre-clearance of the transaction must be re-requested. (d) Pre-clearance is not required for purchases and sales of securities under an Approved 10b5-1 Plan. With respect to any purchase or sale under an Approved 10b5-1 Plan, the third-party effecting transactions on behalf of the Covered Person should be instructed to send duplicate confirmations of all such transactions to the Compliance Officers. 5. Prohibited Transactions (a) Covered Persons are prohibited from trading in the Company’s equity securities during a blackout period imposed under an “individual account” retirement or pension plan of the


 
8 Company, during which at least 50% of the plan participants are unable to purchase, sell or otherwise acquire or transfer an interest in equity securities of the Company, due to a temporary suspension of trading by the Company or the plan fiduciary. (b) Covered Persons, including any such person’s spouse, other persons living in such person’s household and minor children and individuals or entities over which such person exercises influence, directs or control, are prohibited from engaging in the following transactions in the Company’s securities unless advance approval is obtained from the Board of Directors for transactions involving directors and executive officers of the Company, or the Compliance Officers for transactions involving such other roles listed on Appendix A: (i) Short-term trading. Covered Persons who purchase or sell Company securities may not transact in an opposite purchase or sale of any Company securities of the same class for at least six months after the purchase; (ii) Short sales. Covered Persons may not sell the Company’s securities short; (iii) Options trading. Covered Persons may not buy or sell puts or calls or other derivative securities on the Company’s securities; (iv) Trading on margin or pledging. Covered Persons may not hold Company securities in a margin account or pledge Company securities as collateral for a loan; and (v) Hedging. Covered Persons may not enter into hedging or monetization transactions or similar arrangements with respect to Company securities. 6. Acknowledgment and Certification Persons subject to this Policy are required to sign the attached acknowledgment and certification.


 

Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-280583 and 333-275884 on Form S-8 of our reports dated April 10, 2025, relating to the
financial statements of The Lovesac Company and the effectiveness of The Lovesac Company's internal control over financial reporting appearing in this Annual Report on
Form 10-K for the year ended February 2, 2025.
/s/ Deloitte & Touche LLP
Stamford, CT
April 10, 2025

Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Shawn Nelson, certify that:
1.
I have reviewed this Annual Report on Form 10-K of The Lovesac Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting.
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: April 10, 2025
Signed:
/s/ Shawn Nelson
Name:
Shawn Nelson
Title:
Chief Executive Officer
(Principal Executive Officer)

Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Keith Siegner, certify that:
1.
I have reviewed this Annual Report on Form 10-K of The Lovesac Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting.
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: April 10, 2025
Signed:
/s/ Keith Siegner
Name:
Keith Siegner
Title:
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)

Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Shawn Nelson, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form
10-K of The Lovesac Company for the fiscal year ended February 2, 2025, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of The
Lovesac Company.
Date: April 10, 2025
Signed:
/s/ Shawn Nelson
Name:
Shawn Nelson
Title:
Chief Executive Officer
(Principal Executive Officer)

Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Keith Siegner, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form
10-K of The Lovesac Company for the fiscal year ended February 2, 2025, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of The
Lovesac Company.
Date: April 10, 2025
Signed:
/s/ Keith Siegner
Name:
Keith Siegner
Title:
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)