Lovesac (NASDAQ: LOVE) reported Q2 FY2027 net sales of $161.2 million, up 0.4% year over year, and diluted EPS of $0.51 versus a $0.45 loss per share a year earlier. The return to GAAP profitability was driven chiefly by $21.0 million of IEEPA tariff refunds and related interest; excluding the recoveries, gross margin declined and adjusted EBITDA remained negative.
Core Earnings Data
Revenue growth was modest as new showrooms offset a 1.9% decline in omni-channel comparable sales and the closure of Lovesac’s Best Buy shop-in-shop locations. Total operating expenses were nearly unchanged at $99.3 million, allowing the increase in reported gross profit to flow through to operating income.
The results cover the 13 weeks ended August 2, 2026. Adjusted EBITDA is a non-GAAP measure and, unlike the other reported metrics, excludes the tariff-recovery benefit.
| Metric | Q2 FY2027 | Q2 FY2026 | Year-over-Year Change |
|---|---|---|---|
| Net sales | $161.2M | $160.5M | +0.4% |
| Gross profit | $110.3M | $90.6M | +21.7% |
| Gross margin | 68.4% | 56.4% | +1,200 bps |
| Operating income (loss) | $10.9M | $(8.8)M | Returned to profit |
| Net income (loss) | $7.4M | $(6.7)M | Returned to profit |
| Diluted EPS | $0.51 | $(0.45) | Returned to profit |
| Adjusted EBITDA | $(1.3)M | $0.8M | Down about $2.1M |
| Operating cash flow | $23.9M | $12.2M | +96.7% |
Reported operating margin improved to 6.9% from negative 5.5%. Advertising and marketing spending fell 2.9% to $22.8 million, while SG&A was nearly flat at $72.3 million despite severance, higher incentive compensation, and other overhead costs.
Business and Channel Performance
Showrooms generated $114.1 million of sales, up 4.6%, and were the only channel to post growth. Lovesac ended the quarter with 284 showrooms, compared with 270 a year earlier, after opening five and closing two during the quarter.
Internet sales declined 5.3% to $40.2 million, while other sales fell 23.2% to $6.9 million. The 1.9% decline in omni-channel comparable sales indicates that total revenue growth depended on the expanded showroom base rather than stronger sales from established locations and online operations. The closure of the Best Buy shop-in-shop locations also weighed on the result.
Tariff Recoveries Turned GAAP Profit Positive While Adjusted EBITDA Fell
The $21.0 million of IEEPA tariff refunds and related interest was the defining factor in the quarter. Lovesac recognized $20.0 million as a reduction in cost of merchandise sold, $0.3 million as a reduction in inventory, and $0.7 million as interest income.
Tariff recoveries contributed 1,240 basis points to gross margin, slightly more than the entire reported increase of 1,200 basis points. Excluding the recoveries, gross margin was 56.0%, down 40 basis points from the prior year. A 250-basis-point improvement in product margin, primarily from price increases, was more than offset by a combined 290 basis points of higher inbound transportation, tariff, outbound transportation, and warehousing costs. Higher promotional discounting also limited the pricing benefit.
The refunds contributed $0.86 to diluted EPS, exceeding the company’s total reported EPS of $0.51. Adjusted EBITDA, which removes the tariff benefit and certain other items, deteriorated to a $1.3 million loss from positive $0.8 million. This divergence shows that the GAAP profit improvement did not reflect a comparable improvement in underlying operating performance.
Cash Flow and Balance Sheet
Quarterly operating cash flow increased to $23.9 million, but operating cash flow for the first half of FY2027 remained negative at $11.4 million, compared with negative $29.2 million a year earlier. Inventory growth used $23.8 million of operating cash during the first half.
Cash and cash equivalents were $68.8 million at August 2, up from $34.2 million a year earlier but down from $101.9 million at the beginning of the fiscal year. The first-half cash decline also reflected $12.2 million of investing outflows and $9.4 million of financing outflows, including $7.2 million of share repurchases.
Merchandise inventory increased to $130.2 million from $124.0 million a year earlier, primarily because of a planned $7.2 million increase in stock inventory. Lovesac had no balance on its credit line and had $34.0 million available under the facility.
Earnings Guidance
Lovesac updated its full-year net income and diluted EPS outlook to include the approximately $21.0 million of tariff refunds and related interest. Its current outlook also incorporates the latest tariff backdrop but does not assume additional changes.
| Period | Metric | Latest Guidance |
|---|---|---|
| FY2027 | Net sales | $690M-$710M |
| FY2027 | Net income | $14.5M-$18.5M |
| FY2027 | Adjusted EBITDA | $31.5M-$35.5M |
| FY2027 | Diluted EPS | $0.98-$1.26 |
| Q3 FY2027 | Net sales | $140M-$150M |
| Q3 FY2027 | Net loss | $9M-$12M |
| Q3 FY2027 | Adjusted EBITDA loss | $7M-$10M |
| Q3 FY2027 | Basic loss per share | $0.62-$0.83 |
The Q3 outlook anticipates renewed GAAP and adjusted losses, making the timing of revenue, marketing investments, product launches, and cost pressures important to the full-year ranges.
Management Commentary
CEO Shawn David Nelson said the higher end of Lovesac’s business remained resilient as customers selected larger configurations and added features such as Reclining Seat, Lovesoft, and Storage. At the same time, management described the category backdrop as choppy and said it was taking a measured approach to the remainder of the year.
Management also expects its new-product introduction program to build through the second half of FY2027 and strengthen the company’s position entering FY2028. The financial contribution from those launches was not quantified.
Recent Insider Transactions
The supplied insider data show three reported purchases in June 2026 followed by one director sale in July. The broader six-month summary categorized 291,701 shares as purchases across 28 transactions and 5,000 shares as sales in one transaction, although the report also contained stock-award and derivative-exercise entries that should not be treated as open-market buying.
| Date | Insider and Role | Action | Price per Share | Disclosed Value |
|---|---|---|---|---|
| July 17, 2026 | Vineet Mehra, Director | Sale of 5,000 shares | $18.38 | $91,908 |
| June 22, 2026 | Shawn David Nelson, CEO | Purchase | $13.64 | $24,961 |
| June 22, 2026 | Mary Fox, President | Purchase | $14.41 | $24,785 |
| June 18, 2026 | Andrew R. Heyer, Director | Purchase | $14.68 | $440,400 |
These transactions are presented as reported and do not, on their own, establish insiders’ views of the company’s outlook.
Risks Investors Need to Watch
- Comparable-sales weakness: Omni-channel comparable sales declined 1.9%, internet sales fell 5.3%, and total growth depended on additional showrooms. Continued weakness at established locations could make revenue growth more costly to sustain.
- Profitability without tariff recoveries: Excluding the refund, gross margin declined 40 basis points, while adjusted EBITDA moved into a loss. Transportation, warehousing, tariff, and promotional costs remain pressures on underlying profitability.
- Expected Q3 losses: Guidance calls for a $9 million to $12 million net loss and a $7 million to $10 million adjusted EBITDA loss, leaving full-year results dependent on performance later in the fiscal year.
- Inventory and cash usage: Inventory increased while first-half operating cash flow remained negative. Although cash and credit availability provide liquidity, additional inventory growth could consume more cash if demand does not improve.
- Product-launch execution: Management is relying on a substantial second-half launch schedule, but the company did not quantify its expected sales or earnings contribution.
Conclusion
Lovesac’s Q2 FY2027 GAAP results improved sharply, but the change was primarily attributable to a one-time tariff recovery rather than broad revenue growth or stronger adjusted profitability. Showroom expansion kept total sales slightly positive despite weaker comparable and online sales. Investors’ next focus will be whether new products and the expanded store base can improve organic demand, offset logistics and promotional costs, and support the full-year outlook after an expected loss in Q3.
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