Thank you for joining us. I'm Cristina Fernández, a Senior Analyst at TAG, covering the home furnishings and the sporting goods sectors. Joining me today from Lovesac, I have Founder and CEO, Shawn Nelson, and CFO, Andrew Farag. To get started, perhaps for you, Shawn, can you talk about the environment today and how do you see consumers' appetite to spend on furniture? Do increasing rates have an impact, or is the market just in a steady state at a lower level? How do you view it? Yeah. This is the worst environment for home furnishings since 2008, 2009, 2010, and you could argue worse than that, especially in our niche category for couches. To give you context in terms of Lovesac specifically, we're very proud to have 10X'd the company roughly since we came public around 2018, and then gotten to a place where we haven't had a big down year, even over the past four years of post-COVID recovery. For the home category, there was just massive pull forward in especially bigger ticket items like mattresses and sofas, and what we sell during COVID, and the hangover from that is still very real. On top of that, of course, interest rates, worst housing market in a very long time, and that's the environment we find ourselves in. But we've maintained, and because we've maintained, where most of our competitors have had at least one big down year in this last four-year moment, we've taken more market share, strangely, than even when we were on a trajectory at 10X-ing the company because we've maintained our position. While we're not growing a ton in the last four years, we've kind of stayed flat around $700 million in annual sales. We're pretty proud of that. The consumer, to answer your question, is a mixed bag. I think everything we're all reading over and over again, the K-shaped recovery, high end, low end. Lovesac continues to do decently in this category because we have a high-end product that is highly differentiated, and that consumer still has some strength. But I think everyone's under pressure in this environment, whether it be macro forces, gas prices, inflation. And so what we've done is use these last four years to really innovate, and we are now just unleashing a pretty rapid series of meaningful innovations that have occupied our time and energy and cash over these past four years. We've been trying to use that time wisely, and if the macro environment ever does turn to the better, we're going to be in great shape to capitalize on that. If not, we're going to find our way to secular growth, with or without help from the macro. Great. Let's talk about all that innovation that you have coming. First of all, you started with an expanded Snugg collection this past September. Can you talk about the early feedback for that collection? Where do you see the biggest opportunity for growth? Yeah. Lovesac is arguably the leader, and at least a serious leader in sectional sofas in the United States of America. The Sactionals business, that is our highly modular sectional sofa platform that is not just a traditional sectional, it is totally different, it is only from Lovesac, IP protected in many ways, has been wildly successful for two decades. Meanwhile, we have continued to innovate on that platform to drive AOV with innovations like our recliner that you can add on, even to pieces you bought 10 years ago. StealthTech, our surround sound charging system that is embedded and can eventually grow into a whole home system, I think. Lots of aesthetic and functional innovations on that platform. But we know through our own research, because we are really not a traditional merchant-led retail business that is just trading on taste and aesthetic. We do deep research from a CPG kind of approach to business to understand the needs that are or are not being met by our products and by the category broadly, and then we go innovate against those. The big opportunity we see in the near term is we can take more share of the sectional sofa, couch category by having a small platform, a medium platform for everyone, that is what Sactionals already is and expanding, and even a larger platform. To answer your question specifically, Snugg is our small platform. We launched it as just sofa love seats, armchairs. We have now just last week almost expanded it to corner piece, ottoman, swivel for that armchair, which is allowing us to capture more and more market share at that entry level price point that we have heretofore struggled to capture because Sactionals are inherently on the more expensive end, given all of their features and flexibility. Now, this Snugg platform gives you some of that Lovesac modularity, all of that Lovesac future growth, including the reverse compatibility that we are famous for. In a smaller package, not quite as feature-rich as Sactionals, but really helps us at that smaller entry level. And then on the other end, we are just about to launch. We are a couple of weeks away from going live with an even bigger platform coming, and we have not named it. I mean, we have, but we haven't announced the name, but it's really exciting, and the inventory's in the warehouse, and we're about to unleash it on Q4, and that will drive, we think, even more sales at the very high end. Speaking of that K-shaped curve and give us more strength where we're already seeing strength in the business, but with an aesthetic that we don't currently offer from Sactionals that we know customers want. Great. So then when you look at your core customer base and the new customers that are coming, do you look at it more like targeting specific demographic from a wealth perspective as far as different ticket points, or you feel like also you can expand the age? I guess, how you're looking at the entire demographic, where you historically been, and what these new product lines will enable you to reach? Yeah. So an important thing to remember is we already have a big established customer base. Nearly 1.5 million strong of people in our database who love our brand, have chosen our brand, spent many thousands of dollars with us typically, and they have more rooms in their home. I have Snugg in my home office, I have Snugg in my bedroom, I have Snugg swivel chairs flanking my Sactionals out in our great room, and I've got a place just waiting for that new larger platform that I described that will help us compete. Number one, we'll always be remarketing to our established customer base who knows and loves us for all the reasons that you should love Lovesac. Built to last, designed to evolve, here for life. No other brand brings it that way. But we know who our customer is very deeply. We've kind of segmented it into three distinct categories. One of them, we like to call the have-it-alls. This is the customer who is actually on the older side, but they're changing their home, they're investing in remodeling. That's a big customer set for us, and that bigger platform especially is going to speak to them, we think. And these other platforms for the reasons I described. We also approached the want it all. These are your young families that are establishing their homes now they're maybe stuck in their homes, choosing to remodel in this environment. And again, these platforms really speak to these same customers that we've been targeting, but in new ways and different ways that we just weren't able to deliver on before. We continue to stay focused on the same customer groups, but now with new messaging to both capture those that have ignored us before and recapture those that can spend more with us. When you think about all the new products, what you just launched and what's coming, are the margins of these products pretty similar to what you've had, or are they lower and then once they ramp up, they'll bigger or are they more accretive to the overall margin? Yeah. I'll let Andrew take that one. Yeah. We have a unique kind of operations and supply chain at Lovesac that's not typical to any other furniture manufacturer or retailer. As the team innovates, our product development team innovates, we're able to leverage that scale and that operational flow to make sure that we're at least able to deliver these products at the current gross margin profile that we have in the aggregate, or hopefully in some cases, be more accretive. There's a lot of innovation happening at Lovesac right now, and if you saw our Q2 earnings release, you'll see that a lot of it gets unleashed pretty soon with some of the bigger stuff coming next year, which is going to be really exciting. As we expand to that multi-category platform, that will create some challenges in terms of how we manage SKUs and others, but we try and be very cognizant of how we are managing costs and how we are managing the margin profile of the business. As you see us expand, expect that we will continue to be very disciplined in how we approach that to ensure that we are maintaining in the aggregate the margin profile that the company has been able to deliver on for the last couple of years, and that is roughly in that mid-50% gross margin range. Okay. Then Shawn, when you look at Lovesac and where you compete in the marketplace and the brand, what would you say is your more durable advantage? Yeah. We have two pillars to define this brand, and by which we test everything, from our products, of course, to our store experience, delivery experience, to our marketing, and that is forever, it is our forever philosophy, which I will come back to, and comfy. We started with just comfy. We started with an eight-foot bean bag, not even full of beans, filled with shredded foam that I sold on my college campus because people thought it was funny, and built our first store around that. Surprising even to us, people would come in, flop down. The music was cranking, the doors were wide open, playing movies on the screen. It was just a fun time, and people wanted to take a piece of that home with them and probably put it in their basement movie room. To be honest with you, over this last 10 years, that comfy, vibey aspect of Lovesac has atrophied a little bit as we have just gone hard on the forever aspect of this business. You are going to see us over this next year kind of do both well, because it is through that comfy side that we get attention on social media, have a lot of fun, and endear this brand to people, and it is that forever side that really pays off in the long run if you choose Lovesac, and I will describe that. The best way for me to define that forever side is to make it real. My sofa in my great room, TV room at home, I have got four kids, two dogs, two cats. I've moved six times with it, and there are pieces in that big Sactional that are 20 years old, because that's when we started making Sactionals. Believe it or not, they're still valid. They're mated up with brand-new pieces. They're mated up with our recliner, which can work either long ways or deep ways. It's highly innovative. It's not normal. It's hidden in plain sight. You wouldn't even know which one's the recliner. It's mated up with StealthTech, full surround sound, multi-channel system, Dolby 5.1 digital, grown to 9.2. You can have multiple subwoofers, daisy chain. All of that wearing its 10th set of covers because I can, and it's fun, and it's interesting, and we've moved again, and we want a new look. Everything I just described to you, even new pillows, right? Because my dogs have smashed these ones, and they've gotten tired over time and I can. Everyone in this room has a couch. If it's not a Lovesac, if I challenge you just to get a new pillow for it, could you? What model do you have? Where did it come from? Do they even make it anymore? What about your fabric? With Lovesac, we never even drop our fabrics. We might move them to custom. But seven years later, when your cats claw the arm and they just want one cover of one arm to refreshen that thing, yep, we have it for you. That is the forever philosophy. We're reverse compatible. We're future compatible. We will continue to bring out the newest ideas and technologies and embed them in invisible ways. No, you don't even have to start over with a brand-new couch. Now extend that philosophy through everything that's going to come from Lovesac, even as we've promised we're now in the year to come, moving into a whole new room of the home with that philosophy. Never losing our comfy vibes. That's the Lovesac brand, and that's the reason we'll win as a brand, and that's the focus of Lovesac. We're not here to try to be West Elm, but I don't know, more modular. Or try to be Crate & Barrel, but younger or something like that. We're building a brand, and we're going to do that in ways that will sometimes even be surprising, I think, to most investors, in the ways we'll manifest over this next year and beyond. Yeah. As you think about building the brand further, how would you rate your brand awareness today? If you look at marketing, what is the best medium to attract new customers? Is it promotions, marketing campaigns? Yeah. Our unaided brand awareness in furniture is very low. If you just ask people on the street, "Name a furniture brand," they're not often going to say Lovesac. I think it's around less than 2%. So big opportunity there for obvious reasons. We are the 17th largest home furnishings retailer in America. We sell two products. Everyone above me on that list could sell you napkin rings and, I don't know, candlesticks. While I don't think we'll ever make those things, we have a huge opportunity to grow into new categories in chunky, meaningful, forever ways, capture more market share, even as we elevate that awareness. We've been running TV and digital ads now for 15 years, since we really went heavy into advertising. That's really cranked up our aided awareness. If you were to ask customers now, "Name a couch brand," and get more specific with it, Lovesac actually ranks really highly because we've been so focused on Sactionals and really dominated that category in a lot of ways. We will continue to do so now with these new platforms. Both a combination of success in building a brand in our niche and just blank open space in expanding this brand into new territory. We really have a stomach for the long term. As I just described with our product, we only think in decades, both with product and with this brand. It also seems like in addition to innovation and product, you really want to improve the experience on the delivery side, so you're rolling White Glove nationally, also Room of Choice. Why are these changes important now? Is it something the consumer was asking you and you didn't have? Maybe talk more about those initiatives. Yeah. I'll let Andrew take that one as well. One of the reasons that we were so happy to bring Andrew on as our new CFO is he's got deep operational expertise, besides, of course, being our finance guy. Lovesac's, as I just described, undergoing tremendous operational and even brand evolution at the moment. Services is yet an extension of that, and it has deep operational implications that even Andrew's been able to be involved with in his short tenure. Yeah. I think what we've seen over kind of the life cycle of Lovesac is we're on this S-curve, and our early adopters were the tinkerers, kind of the innovators. They loved the product, and they loved putting it together. Even today, we still have a lot of that within the Lovesac family. I think what we've started to see evolve as the brand has grown and as we've penetrated more households is that some people just don't want to put the couch together. I think that's really where services comes in and really helps us. You saw maybe a couple weeks ago, we released that we're rolling out White Glove and Room of Choice nationwide. That's important for us because we are in the high segment, the high AOV kind of furniture segment, it's important that those buyers get the experience that they want. You think, "Oh, this is something simple, like, what took you so long?" It's actually pretty tough to scale this. We can't just call TaskRabbit and say, "Put somebody's couch together." This is an experience. You're going into someone's home, so it took us a while to make sure we got it right, and that it lived up to the experience that we wanted our customers to have. So now we do offer those options where they can schedule when they want it, and to have it completely put together or have it brought inside, because it's not a great experience to have something left on your doorstep and when you're not home, that can present challenges. As we've evolved as a business, it's been important for us to evolve our services as well. Now you're seeing us take a very pragmatic approach to this, but something that the community's been asking for for a while. We expect that to have some revenue upside for us as we move into the future quarters ahead. We also expect this to really endear the customer base to Lovesac, because of what Shawn said, this forever mentality and the ability to continue to iterate and buy up within the platform. We see that as a real big value statement for our customers, and we're proud of that. Another change of the company has been bringing production to the U.S. I know when Lovesac was here last year, talked a lot about that. If I have it correctly, you start producing Sactionals this year, fiscal year- Yeah fiscal year 2027. Can you talk about the choice, the ramp, how is this transition going to unfold? Yeah, we're super proud of this. Beyond being proud of what this means for sustainability, what this means for reliability and durability in this crazy VUCA world that we're all living in, it also is something that we think Lovesac is uniquely poised to do. I'll describe it for you. The Sactionals business, which is the lion's share of our revenue to date, until these new sofa platforms really start to take hold, and we're excited about that. But the Sactionals business is as big as many of the, if you can think of the most famous furniture brands in the U.S. that we would compete with at the high end, Sactionals is roughly the size of most of those companies' entire upholstery business. They might have 30 or 40 sofa collections and dining chairs and everything else. It's a big business. It's hundreds of container loads of seats and sides, because a side can be an arm or a back, on the water right now, constantly flowing out to America. With that volume, not only can we dial up the reliability and durability of the product, because anytime there's ever a problem, we fix it, we dial it in. The Sactionals we're selling today are way better than the ones that I have in my own couch from 20 years ago, even. Even those are valid. What's my point? With that kind of volume, we can now robotize it. But it had to be done using new materials, not just wood, because wood is very messy and there's lots of steps to it. You're going to see us now spin up domestic production of our number one SKU, our seats, before the end of the year in production, flowing out with 100% quality match, even perhaps more durable, but it'll look more like a car factory. While it'll take us a while to ramp into the kind of volume we need to replace that entire business, we think it's the future of Lovesac. Our goal is to drive so much volume across these platforms that share common SKUs, like Sactionals, because that's how we always think. Even the new stuff that's coming, and the new room that's coming, has this same kind of modular approach. With that sameness, not just newness, which drives most retailers and brands, but the sameness that's inherent in Sactionals actually, still with flexibility, comes that opportunity to do this. It is more than just onshoring and all of the benefits that might flow from that, as the world becomes more volatile, pirates and storms and gas price, who knows what. But also, just efficiency, reliability, and competitive advantage versus all of our competitors. We are really excited about what it represents. Okay. Then we have a couple of minutes, so wanted to touch on the outlook for the rest of the year. You had your call a few weeks ago. You moderated the outlook a little bit on the top line for sales growth to now be down 1% to down 2%. A lot of it is going to happen in the fourth quarter, given the product introduction. Can you talk about the shape of the year and your confidence in achieving the guidance, given where the macro is today? Yeah. Same disclaimer that was read earlier. No reliance on forward-looking statements, obviously. What we released in Q2, obviously, there are no updates that we are providing to guidance, nor are we pre-releasing anything related to earnings and what is currently happening. But I think we are still confident with what was said in Q2. If you think about where the company is going and where we have been, a lot of the reasons for bringing that down at the point that we did was it was really related to product innovation and the timing of that coming through to market. Right, and as Shawn has mentioned, those things are very imminent. Some of them are now in stock in our inventory. Some of it we have already announced. Some of it we will be announcing very soon. We have a real strong feeling about what that is going to deliver. In addition to that, if you think about why we were showing growth in Q4 is typically always our strongest quarter of the year. What this does, it creates a halo effect because we've got now product innovation, we've got services, and we've got all that happening in the busiest quarter that we typically have. So we expect that to bear some fruit as we think about where we're going to end at the end of the year. But dynamics are tough right now. Anyone following the macro can see that it's a tough environment. So we're very focused on how we end this fiscal period for us, but also very focused on what's next. The future for Lovesac is really bright and like Shawn mentioned, coming into the new room, that'll bear hopefully a lot of upside. It'll create a lot of secular growth that maybe we haven't seen to date, and that's a result of a lot of things, some within our control, some without. But that's how we're thinking about the future. Yeah, I think just as we said on our Q2 earnings call, Q3 we expect to be choppy for these reasons. The innovations we would have liked to have seen hit in Q3, we knew they wouldn't, we knew they were slipping toward Q4. That only further stacks our reliance on Q4, which is not where we want to be as a business. But by this time next year, we'll not only have all these innovations now lapping themselves, which we have really high hopes for, but also that new room will be in market as well. So Lovesac will be in a very different company, even let's say, seven, eight, nine months from now. That's really the message on Lovesac as a stock, is everyone's eyes are on the future for us, while we've been very proud to maintain our resilience in the category and strangely, in this tough environment, take even more market share than when we were ripping. It's all about these future innovations that are launching finally now, almost in real time, and those to come over the next six months. Great. Well, I think with that, we're almost out of time. Great. Thank you so much for joining us. That's a good point to end our fireside chat with. Thank you everyone for joining us. Thanks for having us. Thanks, Cristina.