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Luvu Brands, Inc. (LUVU)·Q1 2023 Earnings Summary

Executive Summary

  • Record net sales of $8.10M (+29.5% YoY) drove gross profit of $2.00M and gross margin of 24.5%; net income rose to $0.49M ($0.01 EPS) and Adjusted EBITDA reached $0.68M .
  • Sequentially, revenue accelerated from preliminary Q4 FY22 $6.20M to $8.10M in Q1 FY23; gross profit also improved to $2.00M; management highlighted strong holiday positioning and capacity to fulfill $8–$10M quarters via vertical integration and Mexico sewing partner scale .
  • Liberator segment surged +86% YoY to $5.10M, attributed to increased digital/retail demand and Netflix “How to Build a Sex Room” exposure; Jaxx (-5%) and Avana (-25%) declined YoY, while resale (-26%) and Other (-30%) were softer .
  • No formal numerical guidance issued; qualitative outlook called for “strong” Q2 results into holiday; prior quarter guidance for Q4 FY22 (> $6M revenue) was met/exceeded with $6.20M preliminary sales .
  • Consensus estimates from S&P Global were unavailable at time of research (API limit); comparisons to Street are therefore not provided.

What Went Well and What Went Wrong

What Went Well

  • “We delivered a strong quarter … record sales of $8.1 million, an increase of 29.5% over the prior year,” underscoring demand resilience and effective multi-channel marketing .
  • Liberator brand momentum: “sales increased 86% … primarily attributable to … exposure from Netflix series How to Build a Sex Room,” expanding DTC and retail traction .
  • Profit focus and efficiency: management is “laser‑focused on profitability and higher margins,” with new equipment (Eton 3 conveyor line) expected to lift throughput and margins over subsequent quarters .

What Went Wrong

  • Category mix headwinds: Jaxx (-5%), Avana (-25%), resale (-26%), and Other (-30%) revenue declines YoY despite overall growth, raising questions on breadth of demand outside Liberator .
  • Persistent input inflation: “labor and raw material cost increases” weighed on margin levels, limiting gross margin to 24.5% (up slightly YoY but below the 27% achieved in Q3 FY22) .
  • Governance change: auditor resignation and appointment of a new reviewer for Q1 FY23 (Assurance Dimensions), which investors typically monitor for transition risks (no disagreements reported) .

Financial Results

Sequential trend (oldest → newest)

MetricQ3 FY22 (Mar 31, 2022)Q4 FY22 (Jun 30, 2022, prelim)Q1 FY23 (Sep 30, 2022)
Revenue ($USD Millions)$6.80 $6.20 $8.10
Gross Profit ($USD Millions)$1.80 N/A$2.00
Gross Margin (%)27.0% N/A24.5%
Net Income ($USD Millions)$0.45 N/A$0.49
Diluted EPS ($USD)$0.01 N/A$0.01
Adjusted EBITDA ($USD Millions)$0.62 N/A$0.68
Cash and Equivalents ($USD Millions)$0.94 (3/31) $0.86 (6/30) $1.35 (9/30)
Working Capital ($USD Millions)$1.23 (3/31) $0.77 (6/30) $1.03 (9/30)

Year-over-year comparison (Q1 FY22 vs Q1 FY23)

MetricQ1 FY22Q1 FY23
Revenue ($USD Millions)$6.20 $8.10
Gross Profit ($USD Millions)$1.50 $2.00
Gross Margin (%)24.1% 24.5%
Operating Expenses ($USD Millions)$1.18 $1.40
Net Income ($USD Millions)$0.23 $0.49
Diluted EPS ($USD)$0.00 $0.01
Adjusted EBITDA ($USD Millions)$0.40 $0.68

Segment breakdown (Q1 FY23)

SegmentNet Sales ($USD Millions)YoY Change
Liberator$5.10 +86%
Jaxx$1.80 -5%
Avana$0.60 -25%
Purchased for Resale$0.30 -26%
Other Revenue$0.30 -30%

KPIs and Operating metrics

KPIQ1 FY23Prior Period(s)Notes
Adjusted EBITDA ($USD Millions)$0.68 $0.62 (Q3 FY22) Non‑GAAP reconciliation provided in releases
Cash and Equivalents ($USD Millions)$1.35 (9/30) $0.86 (6/30) Liquidity improved sequentially
Working Capital ($USD Millions)$1.03 (9/30) $0.77 (6/30) Sequential improvement
Mexico sewn products share (%)~35% 25–30% (Q3 FY22) Outsourcing supports capacity/margins

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ4 FY22“Revenue to exceed $6M” Actual prelim: $6.20M Met/Exceeded
RevenueQ2 FY23NoneManagement expects “strong results” into holiday; no formal range provided Maintained (no formal guidance)
Margins/OpExQ2 FY23NoneQualitative focus on margin improvement via automation and pricing; no numeric guidance Maintained (no formal guidance)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q1 FY23)Trend
Margin managementQ3 FY22: gross margin 27%; price actions and purchasing lowered input costs; pursuing automation .Gross margin 24.5%; equipment installed (Eton 3 line) with expected future impact; goal to increase margins .Mixed near-term; constructive medium-term
Outsourcing/CapacityQ3 FY22: Mexico sewing 25–30% .Mexico sewing ~35%; “no problem doing $8–$10M quarters” with current footprint .Improving capacity
Demand drivers (Liberator)Q3 FY22: EU expansion via Orion; sexual wellness adoption .Netflix exposure cited; +86% YoY Liberator sales; retailers adding “sex room” concepts .Strengthening
Channel/MarketingQ3 FY22: Amazon ~35% revenue; multichannel PPC/social; new retailers onboarded .Continued multichannel push; strong holiday readiness; email marketing driving repeat .Stable/Positive
Macro/Supply chainQ3 FY22: supplier issues limited growth to 9% (corrugated shortages); freight cost focus .Ongoing headwinds noted; vertical integration aided agility to meet surges .Headwinds persist but mitigated
Regulatory/Governance—Auditor change (no disagreements); new firm engaged for Q1 review .Transition monitored

Management Commentary

  • “We delivered a strong quarter … record sales of $8.1 million … Our success comes from our balanced and diversified direct‑to‑consumer business … outstanding digital marketing execution.” — Louis Friedman, CEO .
  • “Liberator sales increased 86% … primarily attributable to … Netflix series How to Build a Sex Room. Our innovation and product engine are humming like never before.” — Louis Friedman, CEO .
  • “We are definitely very confident about Q2 … we’re ready … All guns are loaded.” — Jordan Friedman (Sales) and Louis Friedman (CEO) on holiday setup .
  • “It’s pretty easy for us to do … $8–$10 million a quarter with our current facility, supported by Mexico … we can pivot quite easily.” — Louis Friedman, CEO .
  • “Our latest investment was in our Eton 3 conveyor line … we’ll hope to start seeing impact on the margin from that implementation in the further quarters.” — Alexander Sannikov, CFO .

Q&A Highlights

  • Holiday/Q2 outlook: Management expects “strong results,” highlighting new products and inventory readiness across Liberator, Jaxx, and Avana .
  • Capacity/operations: Vertical integration plus Mexico sewing partners (~35% of sewn products) enable scaling to $8–$10M quarters without strain .
  • Customer cohorts: Roughly 30% repeat customers; robust email marketing cadence (~100,000 emails sent four times weekly) supports retention and cross‑sell .
  • Margin trajectory: New machinery increases throughput and should aid margins; pricing discipline and supply chain shopping continue; margin goal is to move higher .
  • IP/competition: Liberator protected by long‑standing patents and brand equity; Jaxx cost advantages from repurposed foam stream support competitiveness vs outsourced peers .

Estimates Context

  • S&P Global consensus estimates could not be retrieved at time of analysis due to an API daily request limit; as a result, revenue and EPS comparisons to Street are unavailable for Q1 FY23. If/when consensus becomes available, we will update the beat/miss assessment accordingly.

Key Takeaways for Investors

  • Liberator‑led growth inflection: +86% YoY segment growth tied to mainstream media exposure and broader retailer adoption suggests a durable demand catalyst beyond Q1 .
  • Operating leverage potential: Capacity commentary plus Mexico scaling and automation investments point to room for margin expansion as throughput increases and pricing holds .
  • Mix watch‑items: Jaxx and Avana softness implies concentration risk; monitor product refreshes and category marketing to rebalance growth across segments .
  • Liquidity/working capital improved sequentially, supporting inventory positioning for peak season; watch cash conversion in Q2/Q3 .
  • Governance: Auditor transition bears monitoring; no reported disagreements, but consistency in filings and reviews should be tracked .
  • Distribution runway: EU (Orion) and mass‑market “sexual wellness” channel evolution (e.g., Target/Walmart concepts) create medium‑term revenue optionality .
  • Near‑term trading: Seasonal tailwinds and media‑driven demand could support Q2 prints; focus on margin progression and breadth of growth beyond Liberator in coming quarters .