This Is Why We Love The Lovesac Company
The Lovesac Company (NASDAQ: LOVE) hit our radar over the last year and has done nothing but impress us in the time since. Not only is this a great co...
The Lovesac Company Is One Comfortable Growth Story
The Lovesac Company (NASDAQ: LOVE) hit our radar over the last year and has done nothing but impress us in the time since. Not only is this a great company and growth story but it is one whose high double-digit growth was accelerated to hyper-growth levels by the pandemic. The latest report proves that not only is the company be well received by the marketplace but that trends within the furniture industry remain strong. The bottom line is that The Lovesac Company is an undervalued, underappreciated growth story ready for a major rally in share prices.
The Lovesac Company Growth Accelerates To Record High
The Lovesac Company had a truly great quarter supported by strength in the showrooms and digital channels. The company posted $102.40 in consolidated revenue for a gain of 65.4% over last year. This is a record high pace of growth, good for sequential growth of 25% and 2-year growth of 112%, and it also beat the consensus estimate by 1250 basis points. On a segment basis, sales in the showrooms increased 290% over last year but last year's quarter was severely impacted by the pandemic. Last year the company's showroom sales fell 45% while e-commerce sales rose 387%. This quarter, e-commerce sales fell by 30% but remain strong on a two-year basis and are offset by strength in the showrooms.
Shawn Nelson, Chief Executive Officer, stated, “Across nearly every key operating metric, Lovesac's quarterly results affirm the fundamental efficacy of our disruptive home furnishings model, the competitive advantages of our diversified supply chain and resulting strong in-stock positions, along with growing brand awareness … our very strong second-quarter performance marks 14 consecutive quarters of 25%+ sales growth with profitability nicely ahead of expectations driven primarily by lower promotions and fixed cost leverage on this quarter’s 65% sales increase.”
Moving down the report, the results are equally impressive. The company was able to widen both the gross margin and the operating margin and reverse last year's loss into a surprise profit. The gross margin improved 750 basis points to 57.6% while SG&A expenses declined by 320 basis points. On the bottom line, the GAAP earnings of $0.52 outpaced the consensus by $0.62 putting the company firmly on track to smash the full-year consensus. According to Market beat data, the consensus for the full year is $0.85 in GAAP earnings and the company has already earned 76.5% of that with 2 quarters to go.
The Analysts Are Silent On The Lovesac Company
According to the data from Marketbeat.com, the analysts are very bullish on The Lovesac Company but have yet to issue any statements in the wake of the Q2 earnings report. Based on the chatter in the wake of the last earnings report and the strength of this report, we expect to see a half-dozen or more price target increases coupled with the possibility of rating upgrades and new analysts joining the flock. The current consensus price target is just above $100 and assumes a near 60% increase in prices from the current price action.
The Technical Outlook: The Lovesac Company Is In Reversal
The Lovesac Company shares corrected over the past few months but have hit bottom and are now in reversal. Price action is up more than 18% in the wake of the Q2 earnings report and looks like it will be heading higher. Assuming that price action maintained support above the short-term moving average, today's move is confirming an irregular double bottom that could easily take the stock back up to the $100 level. The stock is highly valued at 60X its consensus earnings estimate but, the consensus estimate is too low and could easily be doubled by year-end. In that light, Lovesac is growing at a high double-digit pace and trading for only 30X its earnings. That's cheap.