Matthew Butler Koranda

Matthew Koranda inquired about the quarter's sales progression relative to category trends, the customer response to recent pricing actions on Sactionals and potential trade-downs to Snug, and sought clarification on the gross margin progression, specifically the Q3 headwinds and the Q4 improvement drivers.

Answer

President Mary Fox stated that Lovesac's underlying performance quarter-to-date feels strong, demonstrating continued market share gains despite a promotional environment and challenging macros. She noted no trade-down observed from surgical price increases in Q2, with Sacs and Recliner innovations performing well. CFO Keith Siegner clarified that Q3 gross margin headwinds stem from not yet lapping last year's heavier Q4 promotions and a significantly higher impact from China tariffs (several hundred basis points more than Q2). The Q4 improvement is primarily due to easier year-over-year promotional laps and a reduction in tariff burden as China-sourced goods exposure lessens, resulting in a flattish year-over-year gross margin in Q4, not an expansion.

Matthew Butler Koranda asked about the progression of the quarter, specifically if Lovesac's comparable sales performance picked up commensurately with the reported improvement in the overall category from July into August. He also inquired about the customer response to Lovesac's recent pricing actions on Sactionals, asking if it affected conversion from the quotation pipeline or led to customers trading down to Snug, and sought clarification on the gross margin progression, specifically the Q3 headwinds and the implied Q4 gross margin improvement.

Answer

President Mary Fox stated that Lovesac feels good about its underlying performance quarter-to-date, demonstrating continued market share gains despite the category still being down. She noted that a surgical price increase in Q2 Fiscal 2026 did not result in trade-downs to opening price point fabrics or shifts in unit selection, indicating strong value perception, and that a more recent price increase is still in early days with no resistance observed to date. CFO Keith Siegner clarified that Q3 faces headwinds from a lower promotional intensity lap compared to last year and a significantly higher impact from China tariffs as a percentage of sales. He explained that Q4's improvement is primarily due to easier year-over-year comparisons as promotional offers were significantly ramped up in Q4 of last year, and the tariff burden eases off considerably.