The Lovesac Company Rockets Higher On Results And Outlook
The Lovesac Company (NASDAQ: LOVE) is among our favorite plays in a favorite sector. The company is supported not only by secular tailwinds in the furniture industry but its own hypergrowth story, a story the institutions have been betting big on over the past year. The institutions purchased a net 22% of the stock (based on the pre-earnings release market cap of $669 million) over the last year bringing total ownership to nearly 96% of the company. This is a very significant figure in light of the 4% worth of insider holdings and makes this desirable stock a very tightly held issue. As for the insiders, they’ve been selling over the past year but only lightly and the activity is consistent with share-based compensation and expiring lock-ups so not a red flag for us.
It is worth noting that institutional activity picked up significantly in the first quarter of 2022 netting more than 5.7% of the market cap. This follows a round of analysts upgrades that have the consensus price target at $106.50 or more than 100% above the pre-release price action. There have been no analysis commentaries since the report was released but it’s just a matter of time. We are expecting to see either upgrades, price target increases, new analysts' coverage, or, more likely, a combination of the three which will add additional upward pressure to the price action. Regardless, even with the post-release spike in prices, there is considerable upside in the outlook.
The Lovesac Company Executes Deftly In Turbulent Times
We expected The Lovesac Company to outperform the expectations and even we were surprised by the results. The combination of limited product offerings, overlapping production capability, and inventory depth helped the company meet demand in ways other furniture companies have been unable to do. This led to revenue of $196.2 million which is up 51.3% over last year and last year's revenue grew by 40%. The net revenue also beats the consensus estimates by 1250 basis points on the combination of strong comps and showroom store count growth. On a comp basis, total comps are up 50% with showrooms up 72.6% and eCommerce up 22.8%. As for store count, the company has 38 or about 35% more stores than last year.
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Moving down, the company experienced margin pressure but less than expected and a portion is due to increased advertising and inventory increases. The margin increased by 200 basis points at the gross level while SG&A increased by 15% and both were less than expected. This left the GAAP earnings at $2.03 or up 48% from last year and $1.51 better than expected which is quite an accomplishment. The company did not give any guidance in the report but it is showing obvious momentum and financial strength which is a real catalyst for share prices.
“We enter fiscal 2023 with the people, strategy and platform primed to build on our success and deliver long-term, sustainable and profitable growth. We’ll drive this growth by remaining focused on key drivers: smart investments in product extensions and technology, creative deployment of our omni-channel sales model, supply chain and operating efficiencies,” says CEO Shawn Nelson.
The Technical Outlook: The Lovesac Company Is In Reversal
The Lovesac Company is not only in reversal following the Q4 release but it is also in a short-squeeze. The short interest was over 14% at the last report and is likely still (was likely) still high going into the report. Now, with shares up more than 17% in premarket action, it looks like short-covering is on in earnest. The short-covering may drive some volatility in the near term but we expect to see support get established above $48.50 and for new highs to be set soon after. If the market follows through on the pre-market action, however, this stock could continue moving higher with a chance of hitting the $60 level fairly quickly.
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