Michael Allen Baker

Michael Allen Baker inquired about the specific factors driving the revised EBITDA outlook, particularly the relative impact of tariffs versus promotional activity, and sought clarification on the timing of future 'new room' product launches and the long-term growth outlook presented at the analyst day.

Answer

President Mary Fox explained that reciprocal tariff rates for key sourcing countries like Vietnam, Malaysia, and Indonesia doubled from 10% to 20% or 19% since the last report, impacting the guidance. CFO Keith Siegner clarified that the EBITDA revision is primarily a gross margin topic, a 'perfect storm' of increased tariffs and higher promotional discounts due to competitive pressures. He noted that Q4's gross margin delta improves due to easier year-over-year comparisons from last year's ramped promotions and lower exposure to China-sourced goods. CEO Shawn Nelson confirmed that the 'new room' launch is still more than a year away, with many exciting living space products planned before then. He also affirmed that the long-term outlook from the analyst day remains unchanged, despite this year's tariff-related 'noise.'

Michael Allen Baker sought more detail on the changes to Lovesac's EBITDA outlook, specifically asking about the relative impact of tariffs versus promotional activity, and for greater specificity on why tariffs were worse than expected. He also asked for clarification on the timing of a 'new room' or big new launch and if it was being pushed out, and if there was any change to Lovesac's long-term outlook discussed at its Analyst Day.

Answer

President Mary Fox clarified that reciprocal tariff rates for key sourcing countries like Vietnam, Malaysia, and Indonesia doubled from 10% to 20% since the last report, impacting the guidance. CFO Keith Siegner added that the EBITDA change is primarily a gross margin issue, a 'perfect storm' of increased tariffs and higher promotional discounts due to the competitive backdrop. He explained that Q4's gross margin improvement is due to easier year-over-year comparisons from last year's ramped promotions and lower exposure to China-sourced goods. CEO Shawn Nelson confirmed that an early calendar 2026 launch for a new room is not realistic, indicating it's still some time away, with many exciting product announcements planned for the living room space first. Keith Siegner affirmed that the long-term outlook remains unchanged, acknowledging Fiscal 2026 as a 'wonky year' due to tariffs but expressing confidence in managing through distractions.