Executive Summary

Record net sales of $6.9M (+2.2% YoY) with Liberator strength offset by declines in Jaxx/outdoor; gross margin compressed to 25.6% from 26.6% YoY and adjusted EBITDA fell to $0.48M, indicating mix and macro headwinds .
Sequentially softer vs Q2: revenue down from $8.1M, gross profit down from $2.3M, adjusted EBITDA down from $0.88M, and net income down from $0.70M, reflecting seasonality and outdoor softness .
Management struck a cautious tone, citing “conservative growth expectations” given broader macro uncertainty while targeting ~20% inventory reduction and adding automation to support margins .
Segment mix shift to higher-margin Liberator (Q3: $4.5M, +38% YoY; 65% of sales) is a positive structural trend and potential catalyst, with mainstream channel expansion (Rooms To Go, Tractor Supply) highlighted on the call .

What Went Well and What Went Wrong

What Went Well

Liberator momentum: sales rose 38% YoY to $4.5M with Liberator at “a 5-year rising to 65% of sales,” driven by marketing and mainstream acceptance of sexual wellness .
Operational focus: management added purchasing talent, pursued just‑in‑time sourcing, and “adding additional automation...to reduce labor costs,” aiming to bolster margins despite cost pressures .
Strategic channel expansion: “Rooms To Go has placed orders for Jaxx beanbags” and ~60 Jaxx products loaded on Tractor Supply, broadening distribution beyond e‑commerce .

What Went Wrong

Jaxx/outdoor weakness: Jaxx sales fell 36% YoY to $1.2M; management flagged weather, post‑pandemic demand softening, and rising competition as drivers .
Margin compression and profitability: gross margin slipped to 25.6% (from 26.6% YoY); adjusted EBITDA declined to $0.48M (from $0.62M YoY) and net income fell to $0.29M (from $0.45M YoY) .
Macro headwinds and inventory: management emphasized cautious growth outlook and noted elevated fabric/outdoor material inventories that require aggressive reduction to free space and protect cash .

Financial Results

Consolidated P&L and Cash (Q1–Q3 FY2023; oldest → newest)

Metric	Q1 2023	Q2 2023	Q3 2023
Revenue ($USD Millions)	$8.1	$8.1	$6.9
Gross Profit ($USD Millions)	$2.0	$2.3	$1.8
Gross Margin (%)	24.5%	27.8%	25.6%
Operating Expenses ($USD Millions)	$1.397	$1.476	$1.386
Adjusted EBITDA ($USD Millions)	$0.675	$0.877	$0.484
Net Income ($USD Millions)	$0.492	$0.695	$0.293
Diluted EPS ($USD)	$0.01	$0.01	$0.00
Cash and Cash Equivalents ($USD Millions)	$1.348	$1.875	$1.353

Notes: Q2 press materials reference “adjusted operating margin” of 27.8%, which aligns with reported gross margin; CFO explicitly cites gross margin at 27.8% in Q2, indicating a labeling inconsistency in the release .

Segment Revenue Mix (Q1–Q3 FY2023; oldest → newest)

Segment	Q1 2023 ($M)	Q2 2023 ($M)	Q3 2023 ($M)
Liberator	$5.1	$4.9	$4.5
Jaxx	$1.8	$2.1	$1.2
Avana	$0.6	$0.5	$0.6
Products Purchased for Resale	$0.3	$0.4	$0.3
Other Revenue	$0.3	$0.3	$0.3

KPIs and Operating Notes

KPI / Note	Q1 2023	Q2 2023	Q3 2023
Liberator share of sales	—	—	65% (up from 48% last year)
E‑commerce mix	—	—	“about 85% e‑commerce” (own sites + channels)
Inventory plan	—	—	Target ~20% inventory reduction rest of FY2023
New channels	—	Rooms To Go exploring; regional chains interest	Rooms To Go order placed; 60 Jaxx SKUs at Tractor Supply

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY2023 remainder	Not provided	“Conservative growth expectations” given macro uncertainty	Maintained caution
Gross Margin	FY2023	Not provided	Focus on improvements via sourcing/automation; no numeric range	Qualitative focus
Operating Expenses	FY2023	Not provided	~20% of net sales in Q3; no forward range	Not guided
Inventory	FY2023	Not provided	Target ~20% reduction in remaining months	New operational target
Dividends/Tax/OI&E/Segments	FY2023	Not provided	No numeric guidance disclosed	N/A

Earnings Call Themes & Trends

Topic	Q1 2023 (Nov’22)	Q2 2023 (Feb’23)	Q3 2023 (May’23)	Trend
Macro outlook	Expect headwinds but confident in brands and initiatives	“Short‑term challenge” risk to accelerated trend; cautious on margins	“Conservative growth expectations” amid global concerns	Sustained caution
Gross margin drivers	Slight improvement; DTC strength; equipment investments underway	Gross margin 27.8%; economies of scale; conveyor line impact	Margin down to 25.6%; pursuing automation and sourcing savings	Volatile; ops actions ongoing
Segment performance	Liberator +86% YoY; Netflix exposure	Liberator +49% YoY; Jaxx −11%	Liberator +38% YoY; Jaxx −36% (outdoor softness)	Liberator strong; Jaxx outdoor weak
Channel expansion	Adding mass market e‑tailers; retail interest	Regional furniture chains; education/commercial; ORION EU growth	Rooms To Go order; Tractor Supply SKUs; mainstream acceptance	Broadening
Inventory management	Domestic manufacturing agility	Mexico sewing ~35%; working capital up	Target ~20% inventory reduction; fabric/outdoor material overhang	Tighter controls
Marketing/branding	Multichannel PPC/social; Rolling Stone ads; mainstream push	Continued PPC; DTC content; made‑in‑USA positioning	Performance marketing; Meta ad constraints; Liberatorstore.com workaround	Content‑led growth

Management Commentary

“Although Luvu Brands is up 15% in revenue for the first nine months with improving gross margins, we are moving forward with conservative growth expectations...We share concerns about potential broader challenges facing the U.S. and world economies” – CEO Louis Friedman .
“We have added talent to our purchasing team...adding additional automation...to reduce our labor costs...We are targeting an inventory reduction of about 20%” – CEO Louis Friedman .
“The Liberator collection is at a 5‑year rising to 65% of sales...primarily due to marketing across our mainstream channels” – Sales Director Jordan Friedman .
“Rooms To Go has placed orders for Jaxx beanbags...we loaded 60 Jaxx products on Tractor Supply” – CEO Louis Friedman .

Q&A Highlights

Liberator growth drivers: decades‑long brand investment, mainstream acceptance of sexual wellness, cross‑branding with Avana for mainstream channels, and Netflix exposure; management emphasized assistive use‑cases and broad demographics .
Performance marketing constraints: PPC on Google/Amazon effective; Meta limitations for adult content led to Liberatorstore.com to comply with ad policies .
Inventory and channel order flow: fabric/outdoor inventories elevated; proactive reduction plan; Rooms To Go order shipping partly in Q4; Tractor Supply product listings live; cautious near‑term outlook .
Mix and e‑commerce: ~85% e‑commerce; rapid product launch capability across marketplaces supports agility and throughput .

Estimates Context

We attempted to retrieve S&P Global consensus for Q3 2023 (EPS, revenue, EBITDA). Estimates were unavailable at the time of request due to data access limits; coverage for micro‑cap OTC names can be sparse. As a result, we cannot assess beats/misses vs Wall Street consensus for this quarter [Values from S&P Global unavailable].

Key Takeaways for Investors

Liberator mix shift is structurally positive: stronger margins and mainstream adoption underpin long‑term thesis; watch continued penetration of mass retail and content‑driven DTC channels .
Near‑term caution warranted: sequential softness from Q2 and margin compression in Q3 reflect seasonality and outdoor category headwinds; monitor execution on inventory reduction and automation benefits .
Channel catalysts: Rooms To Go and Tractor Supply broaden reach; conversion and reorder velocity will be key for sustained Jaxx recovery and overall growth .
Operational discipline: targeted inventory actions and sourcing/automation initiatives should support cash and margin resilience through macro uncertainty .
Watch for guidance clarity: management provides qualitative outlooks without numeric guidance; additional disclosure (e.g., margin targets, capex cadence) would aid expectations setting .
Cross‑check metrics: Q2 press language on “adjusted operating margin” appears to reference gross margin; use CFO’s margin references for accuracy when modeling .
Subsequent update to finance leadership (Sept 2023 CFO change) indicates continued focus on financial discipline; monitor any changes to reporting cadence or capital policy .

Luvu Brands, Inc. (LUVU)·Q3 2023 Earnings Summary