Lovesac (LOVE)

Furniture company Lovesac (NASDAQ:LOVE) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 2.5% year on year to $160.5 million. The company expects next quarter’s revenue to be around $156 million, close to analysts’ estimates. Its GAAP loss of $0.45 per share was 36.2% above analysts’ consensus estimates.

Company Overview

Known for its oversized, premium beanbags, Lovesac (NASDAQ:LOVE) is a specialty furniture brand selling modular furniture.

A healthy housing market is good for furniture demand as more consumers are buying, renting, moving, and renovating. On the other hand, periods of economic weakness or high interest rates discourage home sales and can squelch demand. In addition, home furnishing companies must contend with shifting consumer preferences such as the growing propensity to buy goods online, including big things like mattresses and sofas that were once thought to be immune from e-commerce competition.

Lovesac’s primary competitors include La-Z-Boy (NYSE:LZB), Wayfair (NYSE:W), West Elm (owned by Williams-Sonoma NYSE:WSM), and private companies IKEA and Ashley Furniture

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Lovesac grew its sales at an impressive 21.5% compounded annual growth rate. Its growth beat the average consumer discretionary company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Lovesac’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 1.6% over the last two years was well below its five-year trend.

This quarter, Lovesac grew its revenue by 2.5% year on year, and its $160.5 million of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 4.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 5.7% over the next 12 months. While this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.

Lovesac’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 1.9% over the last two years. This profitability was inadequate for a consumer discretionary business and caused by its suboptimal cost structure.

This quarter, Lovesac generated an operating margin profit margin of negative 5.5%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Lovesac’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

In Q2, Lovesac reported EPS of negative $0.45, down from negative $0.38 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Lovesac’s full-year EPS of $0.63 to grow 23.4%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Lovesac broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.

Lovesac’s free cash flow clocked in at $7.83 million in Q2, equivalent to a 4.9% margin. This result was good as its margin was 4.8 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Lovesac hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 25.1%, splendid for a consumer discretionary business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Lovesac’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Lovesac reported $34.19 million of cash and $193.5 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $48.94 million of EBITDA over the last 12 months, we view Lovesac’s 3.3× net-debt-to-EBITDA ratio as safe. We also see its $1.79 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Lovesac beat analysts’ EBITDA expectations this quarter on in-line revenue. On the other hand, its EBITDA guidance for next quarter missed and its full-year EBITDA guidance also fell short of Wall Street’s estimates. The outlook is weighing on shares, and the stock traded down 9.5% to $18.80 immediately following the results.

Updated: December 3, 2025 at 9:59 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Lovesac.

Lovesac falls short of our quality standards. To begin with, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. On top of that, Lovesac’s projected EPS for the next year is lacking, and its low free cash flow margins give it little breathing room.

Lovesac’s P/E ratio based on the next 12 months is 54.4x. At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $29.33 on the company (compared to the current share price of $14.11).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.