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What changed in Lovesac Co's 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of Lovesac Co's 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+221 added−206 removedSource: 10-K (2025-04-10) vs 10-K (2024-04-11)

Top changes in Lovesac Co's 2025 10-K

221 paragraphs added · 206 removed · 165 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

50 edited+9 added−12 removed25 unchanged
Biggest changeManagement’s Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2023 Annual Report on Form 10-K, as amended by Amendment No. 1 and Amendment No. 2 on Form 10-K/A filed on November 2, 2023 and November 30, 2023, respectively. 36 Table of Contents Results of Operations The following table summarizes key components of our results of operations for fiscal 2024, 2023, and 2022: 2024 2023 2022 2024 2023 2022 (In thousands) (Percentage of net sales) Net sales Showrooms $ 437,394 $ 398,184 $ 298,989 62.5 % 61.2 % 60.0 % Internet 199,778 176,519 150,622 28.5 % 27.1 % 30.2 % Other 63,093 76,476 48,628 9.0 % 11.7 % 9.8 % Total net sales 700,265 651,179 498,239 100.0 % 100.0 % 100.0 % Cost of merchandise sold 299,222 307,528 224,707 42.7 % 47.2 % 45.1 % Gross profit 401,043 343,651 273,532 57.3 % 52.8 % 54.9 % Operating expenses: Selling, general and administration expenses 264,314 215,979 160,017 37.7 % 33.2 % 32.1 % Advertising and marketing 94,050 79,864 65,078 13.4 % 12.3 % 13.1 % Depreciation and amortization 12,603 10,842 7,859 1.8 % 1.7 % 1.6 % Total operating expenses 370,967 306,685 232,954 52.9 % 47.2 % 46.8 % Operating income 30,076 36,966 40,578 4.4 % 5.6 % 8.1 % Interest income (expense), net 1,747 (117) (179) 0.2 % — % — % Net income before taxes 31,823 36,849 40,399 4.6 % 5.6 % 8.1 % (Provision for) benefit from income taxes (7,962) (10,361) 7,089 (1.1) % (1.6) % 1.4 % Net income $ 23,861 $ 26,488 $ 47,488 3.5 % 4.0 % 9.5 % Other Operational Data Our recent showroom growth is summarized in the following table: Showroom Count: February 4, 2024 January 29, 2023 Showrooms open at beginning of period 195 146 Showrooms opened 46 52 Showrooms closed (11) (3) Showrooms open at end of period (1) 230 195 Showroom remodels — 4 (1) Showrooms open at the end of the period include 6 kiosks and 2 mobile concierges as of fiscal 2024, and 13 kiosks and 2 mobile concierges as of fiscal 2023. 37 Table of Contents Fiscal 2024 Compared to Fiscal 2023 Net sales Net sales increased $49.1 million , or 7.5%, in fiscal 2024 compared to the prior year period .
Biggest changeResults of Operations The following table summarizes key components of our results of operations for fiscal 2025, 2024, and 2023: 2025 2024 2023 2025 2024 2023 (In thousands) (Percentage of net sales) Net sales Showrooms $ 425,863 $ 437,394 $ 398,184 62.6 % 62.5 % 61.2 % Internet 196,313 199,778 176,519 28.8 % 28.5 % 27.1 % Other 58,452 63,093 76,476 8.6 % 9.0 % 11.7 % Total net sales 680,628 700,265 651,179 100.0 % 100.0 % 100.0 % Cost of merchandise sold 282,793 299,222 307,528 41.5 % 42.7 % 47.2 % Gross profit 397,835 401,043 343,651 58.5 % 57.3 % 52.8 % Operating expenses: Selling, general and administrative expenses 281,450 264,314 215,979 41.4 % 37.7 % 33.2 % Advertising and marketing 88,027 94,050 79,864 12.9 % 13.4 % 12.3 % Depreciation and amortization 14,710 12,603 10,842 2.2 % 1.8 % 1.7 % Total operating expenses 384,187 370,967 306,685 56.5 % 52.9 % 47.2 % Operating income 13,648 30,076 36,966 2.0 % 4.4 % 5.6 % Interest and other income (expense), net 2,801 1,747 (117) 0.4 % 0.2 % — % Net income before taxes 16,449 31,823 36,849 2.4 % 4.6 % 5.6 % Income tax expense 4,893 7,962 10,361 0.7 % 1.1 % 1.6 % Net income $ 11,556 $ 23,861 $ 26,488 1.7 % 3.5 % 4.0 % Other Operational Data Our recent showroom growth is summarized in the following table: Showroom Count: February 2, 2025 February 4, 2024 Showrooms open at beginning of period 230 195 Showrooms opened 39 46 Showrooms closed (12) (11) Showrooms open at end of period (1) 257 230 Showroom remodels — — (1) Showrooms open at the end of the period include 1 kiosk and 2 mobile concierges as of fiscal 2025, and 6 kiosks and 2 mobile concierges as of fiscal 2024. 38 Table of Contents Fiscal 2025 Compared to Fiscal 2024 Net sales Net sales decreased $19.7 million , or 2.8%, in fiscal 2025 compared to fiscal 2024 driven by a decrease of 9.3% in omni-channel comparable net sales, partially offset by new showroom openings.
Cost of Merchandise Sold Cost of merchandise sold includes the direct cost of sold merchandise; inventory shrinkage; inventory adjustments due to obsolescence, including excess and slow-moving inventory and lower of cost or net realizable value reserves; inbound freight; all freight costs to ship merchandise to our showrooms, and warehousing and all logistics costs associated with shipping product to our customers.
Cost of Merchandise Sold Cost of merchandise sold includes the direct cost of sold merchandise; inventory shrinkage; inventory adjustments due to obsolescence, including excess and slow-moving inventory and lower of cost or net realizable value reserves; inbound freight; freight costs to ship merchandise to our showrooms, and warehousing and all logistics costs associated with shipping product to our customers.
Certain of our competitors and other retailers may report gross profit differently than we do, by excluding from gross profit some or all of the costs related to their distribution network and instead including them in selling, general and administrative expenses. As a result, the reporting of our gross profit and profit margin may not be comparable to other companies.
Certain competitors and other retailers may report gross profit differently than we do, by excluding from gross profit some or all of the costs related to their distribution network and instead including them in selling, general and administrative expenses. As a result, the reporting of our gross profit and profit margin may not be comparable to other companies.
Our continued infrastructure investments will include research and development costs on our existing and future products and foundational technology investments to support our continued growth. These investments will lessen the impact of expense leveraging during the period of investment with the greater impact of expense leveraging happening after the period of investment.
Our continued infrastructure investments include research and development costs on our existing and future products and foundational technology investments to support our continued growth. These investments will lessen the impact of expense leveraging during the period of investment with the greater impact of expense leveraging happening after the period of investment.
Sales made at Company operated showrooms, including shop-in-shops and pop-up-shops, and via the web are recognized, typically at the point of transference of title when the goods are shipped.
Net sales made at Company operated showrooms, including shop-in-shops and pop-up-shops, and via the web are recognized, typically at the point of transference of title when the goods are shipped.
Selling, general and administrative expenses as a percentage of net sales is usually higher in lower volume quarters and lower in higher volume quarters because a significant portion of the costs are relatively fixed. Our recent revenue growth has been accompanied by increased selling, general and administrative expenses. The most significant components of these increases are payroll and rent costs.
Selling, general and administrative expenses as a percentage of net sales is usually higher in lower volume quarters and lower in higher volume quarters because a significant portion of the costs are relatively fixed. Historically, our revenue growth has been accompanied by increased selling, general and administrative expenses. The most significant components of these increases are payroll and rent costs.
Comparable net sales includes sales at all retail locations and online, open greater than 12 months (including remodels and relocations) and excludes closed stores. Comparable net sales is intended only as supplemental information and is not a substitute for net sales presented in accordance with GAAP.
Comparable net sales includes sales at all retail locations and online, open greater than 12 months (including remodels and relocations) and excludes closed stores. Comparable net sales is intended only as supplemental information and is not a substitute for net sales presented in accordance with U.S. GAAP.
Gross profit as a percentage of our net sales is referred to as gross margin . Selling, General and Administrative Expenses Selling, general and administrative expenses include all operating costs, other than advertising and marketing expense, not included in cost of merchandise sold.
Gross profit as a percentage of our net sales is referred to as gross margin. Selling, General and Administrative Expenses Selling, general and administrative expenses include all operating costs, other than advertising and marketing expense and depreciation and amortization, not included in cost of merchandise sold.
We review our inventory levels on an 35 Table of Contents ongoing basis in order to identify slow-moving merchandise and use product markdowns to efficiently sell these products. The timing and level of markdowns are driven primarily by customer acceptance of our merchandise. Gross Profit Gross profit is equal to our net sales less cost of merchandise sold.
We review our inventory levels on an ongoing basis in order to identify slow-moving merchandise and use product markdowns to efficiently sell these products. The timing and level of markdowns are driven primarily by customer acceptance of our merchandise. Gross Profit Gross profit is equal to our net sales less cost of merchandise sold.
Omni-channel Comparable Net Sales Omni-channel comparable net sales is a measure that highlights the performance of our existing locations and websites by measuring the change in net sales for a period over the comparable prior-period of equivalent length.
Omni-channel Comparable Net Sales 36 Table of Contents Omni-channel comparable net sales is a measure that highlights the performance of our existing locations and websites by measuring the change in net sales for a period over the comparable prior-period of equivalent length.
The change in provision is primarily driven by lower net income before taxes, partially offset by a decrease in the effective tax rate. Liquidity and Capital Resources General Our business relies on cash flows from operations, our revolving line of credit (see “Revolving Line of Credit” below) and securities issuances as our primary sources of liquidity.
The decrease is primarily driven by lower net income before taxes, partially offset by an increase in the effective tax rate. Liquidity and Capital Resources General Our business relies on cash flows from operations, our revolving line of credit (see “Revolving Line of Credit” below) and securities issuances as our primary sources of liquidity.
Other factors that could affect our results of operations in future periods include: Macroeconomic Factors There are a number of macroeconomic factors and uncertainties affecting the overall business environment and our business, including increased inflation, rising interest rates, housing market conditions, consumer debt and available credit, global conflicts and uncertainties in the global financial markets.
Other factors that could affect our results of operations in future periods include: Macroeconomic Factors There are a number of macroeconomic factors and uncertainties affecting the overall business environment and our business, including increased inflation, elevated interest rates, housing market conditions, consumer debt and available credit, increased tariffs and trade restrictions, global conflicts and uncertainties in the global financial markets.
These capital expenditures have increased in the past and may continue to increase in future periods as we open additional showrooms. Capital expenditures are anticipated to support our showroom growth, including capital outlays for leasehold improvements, fixtures and equipment, and the construction of new showrooms.
These capital expenditures have increased in the past and may continue to increase in future periods as we open additional showrooms. Capital expenditures are anticipated to support our showroom growth, including capital outlays for leasehold improvements, fixtures and equipment, and the construction of new showrooms. Cash paid for capital expenditures was $21.5 million in fiscal 2025.
We expect these expenses, as well as rent expense associated with the opening of new showrooms, to increase as we grow our business. We expect to leverage total selling, general and administrative expenses as a percentage of net sales as net sales volumes continue to grow. We expect to continue to invest in infrastructure to support the Company’s growth.
We expect these expenses to increase as we grow our business. We expect to leverage total selling, general and administrative expenses as a percentage of net sales as net sales volumes continue to grow. We expect to continue to invest in infrastructure to support the Company’s growth.
For fiscal 2024, 2023, and 2022, the Company recognized $12.3 million, $21.3 million, and $3.5 million, respectively, of barter sales in exchange for media credits. The Company had $32.8 million and $25.2 million of unused media credits as of February 4, 2024, and January 29, 2023, respectively, and did not recognize any impairment.
For fiscal 2025, 2024, and 2023, the Company recognized $9.0 million, $12.3 million, and $21.3 million, respectively, of barter sales in exchange for media credits. The Company had $36.7 million and $32.8 million of unused media credits as of February 2, 2025, and February 4, 2024, respectively, and did not recognize any impairment.
As of February 4, 2024 and January 29, 2023, the Company’s borrowing availability under the line of credit was $36.0 million, and there were no outstanding borrowings under our credit facility.
As of February 2, 2025 and February 4, 2024, the Company’s borrowing availability under the line of credit was $32.6 million and $36.0 million, respectively, and there were no outstanding borrowings under our credit facility.
At February 4, 2024, we had $87.0 million in cash and cash equivalents. Our primary cash needs are for marketing and advertising, inventory, payroll, showroom rent, capital expenditures associated with opening new showrooms and updating existing showrooms, as well as infrastructure and information technology.
At February 2, 2025, we had $83.7 million in cash and cash 39 Table of Contents equivalents. Our primary cash needs are for marketing and advertising, inventory, payroll, showroom rent, capital expenditures associated with opening new showrooms and updating existing showrooms, as well as infrastructure and information technology.
Cash Flow Analysis The following table summarizes operating, investing, and financing activities for fiscal 2024, 2023, and 2022: in thousands 2024 2023 2022 Net cash provided by (used in) operating activities $ 76,441 $ (21,375) $ 32,648 Net cash used in investing activities (29,211) (25,549) (15,118) Net cash used in financing activities (3,727) (1,935) (3,479) Net change in cash and cash equivalents 43,503 (48,859) 14,051 Cash and cash equivalents at end of period $ 87,036 $ 43,533 $ 92,392 Net cash provided by (used in) operating activities Net cash provided by (used in) operating activities consists primarily of net income adjusted for certain non-cash items, including depreciation, amortization, loss on disposal of property and equipment, impairment of property and equipment, equity based compensation, non-cash operating lease cost, and deferred income taxes, and the effect of changes in working capital and other activities.
Cash Flow Analysis The following table summarizes operating, investing, and financing activities for fiscal 2025, 2024, and 2023: in thousands 2025 2024 2023 Net cash provided by (used in) operating activities $ 38,977 $ 76,441 $ (21,375) Net cash used in investing activities (21,517) (29,211) (25,549) Net cash used in financing activities (20,762) (3,727) (1,935) Net change in cash and cash equivalents (3,302) 43,503 (48,859) Cash and cash equivalents at end of period $ 83,734 $ 87,036 $ 43,533 Net cash provided by (used in) operating activities Net cash provided by (used in) operating activities consists primarily of net income adjusted for certain non-cash items, including depreciation and amortization, equity based compensation, non-cash lease expense, and deferred income taxes, and the effect of changes in working capital and other activities.
There have been no material changes to the significant accounting policies during fiscal 2024. Barter Arrangements The Company has a bartering arrangement with a third-party vendor, whereby the Company will provide inventory in exchange for media credits.
Basis of Presentation, and Summary of Significant Accounting Policies in the Notes to the Financial Statements included in Part IV of this report. There have been no material changes to the significant accounting policies during fiscal 2025. Barter Arrangements The Company has a bartering arrangement with a third-party vendor, whereby the Company will provide inventory in exchange for media credits.
The most significant components of our working capital are cash and cash equivalents, merchandise inventory, prepaid expenses, accounts payable, accrued expenses, other current liabilities and customer deposits.
We periodically use cash to repurchase shares of our common stock under our share repurchase program. The most significant components of our working capital are cash and cash equivalents, merchandise inventory, prepaid expenses, accounts payable, accrued expenses, customer deposits, and other current liabilities.
Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. 41 Table of Contents The Company records lease liabilities at the present value of the lease payments not yet paid, discounted at the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term.
The Company records lease liabilities at the present value of the lease payments not yet paid, discounted at the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term.
Our fiscal 2024 results contain an additional, non-comparable 53rd week when compared to fiscal 2023. A discussion of our results of operations and changes in financial condition for fiscal 2023 compared to fiscal 2022 has been excluded from this report, but can be found in Part II, Item 7.
A discussion of our results of operations and changes in financial condition for fiscal 2024 compared to fiscal 2023 has been excluded from this report, but can be found in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2024 Annual Report on Form 10-K.
These factors may have a negative impact on markets in 34 Table of Contents which we operate, including the potential for an economic recession, a continued downturn in the housing market, and a reduction in consumer discretionary spending.
These factors may have a negative impact on markets in which we operate, including the potential for an economic recession, a continued downturn in the housing market, and a reduction in consumer discretionary spending. We believe that these macroeconomic factors have contributed to the slowdown in demand that we have experienced in our business which may continue in future periods.
We continue to monitor the effects of global macroeconomic and geopolitical uncertainty,general market, political and economic conditions. 40 Table of Contents All of our significant accounting policies are outlined in Note 1. Basis of Presentation, and Summary of Significant Accounting Policies in the Notes to the Financial Statements included in Part IV of this report.
We evaluate our estimates and assumptions on an ongoing basis. We continue to monitor the effects of global macroeconomic and geopolitical uncertainty,general market, political and economic conditions. 41 Table of Contents All of our significant accounting policies are outlined in Note 1.
Critical Accounting Policies and Estimates The management's discussion and analysis of financial condition and results of operations is based upon our financial statements, which have been prepared in conformity with U.S. GAAP. Certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and requires us to make significant estimates and assumptions.
Stockholders' Equity in the Notes to the Financial Statements included in Part IV of this report. Critical Accounting Policies and Estimates The management's discussion and analysis of financial condition and results of operations is based upon our financial statements, which have been prepared in conformity with U.S. GAAP.
On March 24, 2023, the Company amended the credit agreement to extend the maturity date to September 30, 2024. All other terms of the credit agreement remain unchanged. For additional information regarding our line of credit with Wells Fargo Bank, see Note 8. Financing Arrangements in the Notes to the Financial Statements included in Part IV of this report.
For additional information regarding our line of credit with Wells Fargo Bank, see Note 8. Financing Arrangements in the Notes to the Financial Statements included in Part IV of this report.
Those estimates are based on our historical operations, our future business plans and projected financial results, and other various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis.
In applying these policies, management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, and other various other assumptions that we believe to be reasonable under the circumstances.
Net cash used in financing activities was $3.7 million in fiscal 2024, an increase from $1.9 million in the prior year period, primarily resulting from an increase in taxes paid for the net settlement of equity awards.
Net cash used in financing activities Financing activities consist primarily of repurchases of our common stock, taxes paid for the net settlement of equity awards and payment of deferred financing costs. 40 Table of Contents Net cash used in financing activities was $20.8 million in fiscal 2025, an increase from $3.7 million in the prior year period, primarily resulting from repurchases of our common stock beginning in fiscal 2025.
We adjust our inventory for obsolescence based on historical trends, aging reports, specific identification and its estimates of future retail sales prices. In addition, we include capitalized freight and warehousing costs in inventory related to the finished goods in inventory. Operating Leases The Company determines if a long-term contractual obligation is a lease at inception.
Merchandise inventories consist primarily of foam filled furniture, sectional couches, and related accessories. We adjust our inventory for obsolescence based on historical trends, aging reports, specific identification and its estimates of future retail sales prices. In addition, we include capitalized freight and warehousing costs in inventory related to the finished goods in inventory.
Capital expenditures during fiscal 2025 are projected to be in the range of $22.0 million to $30.0 million. Capital expenditures were $29.2 million in fiscal 2024. Leases The majority of our operating leases relate to company showrooms. We also lease our corporate facilities.
Capital expenditures are projected to be in the range of $22.0 million to $28.0 million for fiscal 2026. Leases The majority of our operating leases relate to company showrooms. We also lease our corporate facilities. At February 2, 2025, we had aggregate lease obligations of $222.9 million, with $32.0 million payable within 12 months.
We recognize operating lease cost over the estimated term of the lease, which includes options to extend lease terms that are reasonably certain of being exercised, starting when possession of the property is taken from the landlord, which normally includes a construction period prior to the showroom opening.
As the Company's leases do not provide an implicit interest rate, the Company uses an incremental borrowing rate based on the information available at possession date in determining the present value of lease payments. 42 Table of Contents We recognize operating lease cost over the estimated term of the lease, which includes options to extend lease terms that are reasonably certain of being exercised, starting when possession of the property is taken from the landlord, which normally includes a construction period prior to the showroom opening.
Levels of competition and the ability of our competitors to attract customers through competitive pricing or other factors may impact our results of operations.
Competition The retail industry is highly competitive and retailers compete based on a variety of factors, including design, quality, price and customer service. Levels of competition and the ability of our competitors to attract customers through competitive pricing or other factors may impact our results of operations.
Net cash provided by operating activities was $76.4 million in fiscal 2024, an increase from net cash used in operating activities of $21.4 million in the prior year period, primarily driven by changes in working capital related to inventory management actions, timing of payments to vendors, and a decrease in income tax payments. 39 Table of Contents Net cash used in investing activities Investing activities consist primarily of investments related to capital expenditures for new showroom openings, the remodeling of existing showrooms, and the acquisition of intangible assets.
Net cash provided by operating activities was $39.0 million in fiscal 2025, a decrease from $76.4 million in the prior year period, primarily driven by lower net income and changes in working capital related to inventory management actions and income taxes paid. The decrease was partially offset by cash inflows resulting from the timing of payments to vendors.
Merchandise Inventories Merchandise inventories are comprised of finished goods which are carried at the lower of cost or net realizable value and capitalized freight and warehousing costs. Cost is determined on a weighted-average method basis. Merchandise inventories consist primarily of foam filled furniture, sectional couches, and related accessories.
In fiscal 2025, 2024, and 2023, we did not recognize any impairment charges for any long-lived assets. Merchandise Inventories Merchandise inventories are comprised of finished goods which are carried at the lower of cost or net realizable value, including warehousing and capitalized freight costs. Cost is determined on a weighted-average method basis.
The majority of our operating leases relate to company showrooms. We also lease our corporate facilities. These operating leases expire at various dates through fiscal 2035. Showroom leases may include options that allow us to extend the lease term beyond the initial base period, subject to terms agreed upon at lease inception.
Operating Leases The Company determines if a long-term contractual obligation is a lease at inception. The majority of our operating leases relate to company showrooms. We also lease our corporate facilities. These operating leases expire at various dates through fiscal 2035.
Gross profit Gross profit increased $57.3 million, or 16.7% , in fiscal 2024 compared to the prior year period . Gross margin increased to 57.3% of net sales in fiscal 2024 from 52.8% of net sales in the prior year period.
We opened 5 additional Best Buy shop-in-shop locations compared to the prior year. Gross profit Gross profit decreased $3.2 million, or 0.8% , in fiscal 2025 compared to fiscal 2024. Gross margin increased 120 basis points to 58.5% of net sales in fiscal 2025 from 57.3% of net sales in fiscal 2024.
Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions and conditions. In applying these policies, management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates.
Certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and requires us to make significant estimates and assumptions. Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions and conditions.
The increase in gross margin percentage of 450 basis points was primarily driven by a decrease of approximately 550 basis points in total distribution and related tariff expenses, partially offset by a decrease of 100 basis points in product margin driven by higher promotional discounting.
The increase was primarily driven by a decrease of 240 basis points in inbound transportation costs, partially offset by a decrease of 80 basis points in product margin driven by higher promotional discounting and an increase of 40 basis points in outbound transportation and warehousing costs.
This decrease was principally due to the timing of inventory barter transactions coupled with lower productivity of our temporary online pop-up-shops on Costco.com, partially offset by an increase of 311 Costco in store pop-up-shops compared to the prior year period. We also opened 22 additional Best Buy shop-in-shop locations compared to the prior year period.
Other sales, which include pop- up-shop sales, shop-in-shop sales and barter inventory transactions, decreased $4.6 million , or 7.4% in fiscal 2025 compared to fiscal 2024. The decrease was primarily driven by a reduction in barter transactions coupled with lower productivity of our temporary online pop- up-shops on Costco.com, partially offset by an increase in Best Buy shop-in-shop sales.
In fiscal year 2024, we updated how we calculate comparable sales to better reflect our business, store growth and omni-channel sales approach. New Customer We define a customer as new when the customer has completed a transaction at Lovesac either at a showroom or internet channel only for the first time.
New Customer We define a customer as new when the customer has completed a transaction at Lovesac either at a showroom or internet channel only for the first time. Repeat customers accounted for approximately 46.8% of all transactions in fiscal 2025 compared to 43.6% in fiscal 2024.
At February 4, 2024, we had aggregate lease obligations of $214.5 million, with $17.6 million payable within 12 months. See Note 6, “Leases” of the Notes to Financial Statements for further discussion of our operating leases.
See Note 6, “Leases” of the Notes to Financial Statements for further discussion of our operating leases.
Working capital requirements are typically higher in the third fiscal quarter due to inventory built-up in advance of the holiday selling season. Net sales are historically higher in the fourth fiscal quarter due primarily to the impact of the holiday selling season.
Seasonality in Quarterly Results Our business is seasonal. As a result, our revenues fluctuate from quarter to quarter, which often affects the comparability of our results between periods. Working capital requirements are typically higher in the third fiscal quarter due to inventory built-up in advance of the holiday selling season.
Basis of Presentation and Results of Operations The following discussion provides an analysis of the Company’s financial condition and results of operations from management's perspective and should be read in conjunction with the financial statements and related notes included in this report. The discussion in this Form 10-K generally focuses on fiscal 2024 compared to fiscal 2023.
Advertising and marketing expenses are projected to rise as the Company drives net sales growth, supported by ongoing investments in these areas and careful monitoring to ensure efficient resource allocation.. 37 Table of Contents Basis of Presentation and Results of Operations The following discussion provides an analysis of the Company’s financial condition and results of operations from management's perspective and should be read in conjunction with the financial statements and related notes included in this report.
Internet sales (sales made directly to customers through our ecommerce channel) increased $23.3 million, or 13.2% , in fiscal 2024 compared to the prior year period driven by strong promotional campaigns. Other sales, which include pop- up-shop sales, shop-in-shop sales and barter inventory transactions, decreased $13.4 million , or 17.5% in fiscal 2024 compared to the prior year period.
New customers increased by 1.4% in fiscal 2025 as compared to 13.3% in fiscal 2024. Showroom net sales decreased $11.5 million, or 2.6% in fiscal 2025 compared to fiscal 2024. Internet sales (sales made directly to customers through our ecommerce channel) decreased $3.5 million, or 1.7% , in fiscal 2025 compared to fiscal 2024.
Net cash used in investing activities was $29.2 million in fiscal 2024, an increase from $25.5 million in the prior year period, primarily resulting from increased capital expenditures related to new showrooms. Net cash used in financing activities Financing activities consists of taxes paid for the net settlement of equity awards and payment of deferred financing costs.
Net cash used in investing activities was $21.5 million in fiscal 2025, a decrease from $29.2 million in the prior year period, primarily attributable to a reduction in capital expenditures, driven by a year-over-year decrease in the number of new showroom openings.
Interest income earned on the Company’s cash and cash equivalents balances was favorable from higher interest rates compared to the prior year period. 38 Table of Contents Provision for income taxes Income tax expense was $8.0 million in fiscal 2024 compared to $10.4 million in fiscal 2023.
The increase in interest income was primarily the result of higher cash deposits in the Company's interest-bearing bank accounts combined with higher interest rates. Income tax expense Income tax expense was $4.9 million in fiscal 2025 compared to $8.0 million in fiscal 2024.
The increase in depreciation and amortization expense is principally related to capital investments for new showrooms in fiscal 2024. Interest income (expense), net Interest income was $1.7 million in fiscal 2024 compared to interest expense of $0.1 million in fiscal 2023.
Depreciation and amortization expenses Depreciation and amortization expenses increased $2.1 million, or 16.7%, in fiscal 2025 compared to fiscal 2024, primarily driven by assets being placed into service related to leasehold improvements for new showrooms. Interest and other income, net Interest and other income, net was $2.8 million in fiscal 2025 compared to $1.7 million in fiscal 2024.
The increase in advertising and marketing costs relates to ongoing investments in marketing spends to support our net sales growth. Advertising and marketing expenses were 13.4% and 12.3% of net sales in fiscal 2024 and 2023, respectively. Depreciation and amortization expenses Depreciation and amortization expenses increased $1.8 million, or 16.2%, in fiscal 2024 compared to the prior year period.
As a percentage of net sales, SG&A was 41.4% in fiscal 2025, compared to 37.7% in fiscal 2024. Advertising and marketing expenses Advertising and marketing expenses decreased $6.1 million, or 6.4% , in fiscal 2025 compared to fiscal 2024. Advertising and marketing expenses were 12.9% and 13.4% of net sales in fiscal 2025 and 2024, respectively.
Overhead expenses increased $18.6 million mainly consisting of an increase of $13.2 million in investments in the business to support current and future growth and $11.7 million in professional fees primarily related to the restatement of previously issued financial statements, partially offset by a $6.3 million decrease in equity-based compensation.
The increase was primarily related to increases of $15.8 million in payroll, $3.7 million in equity-based compensation, $1.7 million in rent, $1.5 million related to a settlement with the SEC, and $1.1 million in professional fees, partially offset by decreases of $5.0 million in credit card fees and $1.6 million in other overhead costs.
Selling, general and administrative expenses were 37.7% of net sales in fiscal 2024, an increase of 450 basis points as compared to 33.2% of net sales in the prior year period. Advertising and marketing expenses Advertising and marketing expenses increased $14.2 million, or 17.8% , in fiscal 2024 compared to the prior year period.
Selling, general and administrative expenses SG&A expenses increased $17.2 million, or 6.5% , in fiscal 2025 compared to fiscal 2024.
Removed
We believe that these macroeconomic factors have contributed to the slowdown in demand that we have experienced in our business which may continue in future periods. Seasonality in Quarterly Results Our business is seasonal. As a result, our revenues fluctuate from quarter to quarter, which often affects the comparability of our results between periods.
Added
Net sales are historically higher in the fourth fiscal quarter due primarily to the impact of the holiday selling season. As such, results of a period shorter than a full year may not be indicative of results expected for the entire year.
Removed
As such, results of a period shorter than a full year may not be indicative of results expected for the entire year. Competition The retail industry is highly competitive and retailers compete based on a variety of factors, including design, quality, price and customer service.
Added
The discussion in this Form 10-K generally focuses on fiscal 2025 compared to fiscal 2024. Our fiscal 2024 results contain an additional, non-comparable 53rd week when compared to fiscal 2025.
Removed
In fiscal 2024, we updated how we calculate new and repeat customers to better reflect business across all of our channels as well as the purchase cycle of the categories in which we compete. Repeat customers accounted for approximately 43.6% of all transactions in fiscal 2024 compared to 41.3% in fiscal 2023.
Added
Net cash used in investing activities Investing activities consist primarily of investments related to capital expenditures for new showroom openings and the acquisition of intangible assets.
Removed
Advertising and marketing expense is expected to continue to increase as a percentage of net sales as we continue to invest in advertising and marketing which has accelerated net sales growth.
Added
On March 24, 2023, the Company amended the credit agreement to extend the maturity date to September 30, 2024.
Removed
The increase in overall net sales was driven by new showroom openings, partially offset by a decrease of 4.1% in omni-channel comparable net sales. New customers increased by 13.3% in fiscal 2024 as compared to 6.5% in the prior year period. Showroom net sales increased $39.2 million, or 9.8% in fiscal 2024 compared to the prior year period.
Added
On July 29, 2024, we amended the credit agreement to add an uncommitted accordion feature that allows the Company, subject to certain customary conditions, to increase the size of the revolving credit facility by $10 million and, among other things, extend the maturity date of the loans made under the Amendment from September 30, 2024 to July 29, 2029.
Removed
The decrease in total distribution and related tariff expenses over prior year is principally related to the positive impact of 670 basis points decrease in inbound transportation costs partially offset by 120 basis points in higher outbound transportation and warehousing costs.
Added
Share Repurchase On June 11, 2024, our board of directors authorized a share repurchase program for up to $40.0 million of shares of our common stock. Under the share repurchase program, we may repurchase shares from time to time in the open market, privately negotiated transactions and accelerated share repurchase.
Removed
Selling, general and administrative expenses Selling, general and administrative expenses increased $48.3 million, or 22.4% , in fiscal 2024 compared to the prior year period . The increase in selling, general and administrative expenses was primarily related to an increase in employment costs, overhead expenses, selling related expenses and rent.
Added
The timing, volume and nature of share repurchases, if any, will be at our sole discretion and will be dependent on market conditions, liquidity, applicable securities laws, and other factors. We may suspend or discontinue the share repurchase program at any time.
Removed
Employment costs increased by $21.3 million driven by an increase in new hires.
Added
We plan on funding any repurchases in the future with our current cash and cash equivalents and future cash flows. As of February 2, 2025, we had $20.1 million available to repurchase shares pursuant to the share repurchase program. For additional information, see Note 9.
Removed
Selling related expenses increased $6.0 million principally due to credit card fees related to the increase in net sales and an increase in credit card rates. Rent increased by $2.4 million related to a $6.1 million increase in rent expense from our net addition of 35 showrooms partially offset by a $3.7 million reduction in percentage rent.
Added
Showroom leases may include options that allow us to extend the lease term beyond the initial base period, subject to terms agreed upon at lease inception. Some leases also include early termination options, which can be exercised under specific conditions. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Removed
In fiscal 2024 and 2023, we did not recognize any impairment charges associated with showroom-level right-of-use assets. During fiscal 2022, we recorded impairment charges of $0.6 million associated with the assets of an underperforming retail location in selling, general and administrative expenses in our Statements of Operations.
Removed
Some leases also include early termination options, which can be exercised under specific conditions.
Removed
As the Company's leases do not provide an implicit interest rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

97 edited+41 added−27 removed240 unchanged
Biggest changeOur amended and restated certificate of incorporation provides that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for any (a) derivative action or proceeding brought on our behalf; (b) action asserting a claim of breach of a fiduciary duty owed by any director, officer, or other employee to us or our stockholders; (c) action asserting a claim arising under any provision of the DGCL or our amended and restated certificate of incorporation or amended and restated bylaws; or (d) action asserting a claim governed by the internal affairs doctrine.
Biggest changeOur amended and restated bylaws designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, and designates the federal district courts of the United States as the sole and exclusive forum for claims arising under the Securities Act, which, in each case could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers employees, agents or other stockholders. 30 Table of Contents Our amended and restated certificate of incorporation provides that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for any (a) derivative action or proceeding brought on our behalf; (b) action asserting a claim of breach of a fiduciary duty owed by any director, officer, or other employee to us or our stockholders; (c) action asserting a claim arising under any provision of the DGCL or our amended and restated certificate of incorporation or amended and restated bylaws; or (d) action asserting a claim governed by the internal affairs doctrine.
As such, any issue, or perceived issue, regarding the quality and safety of any items 13 Table of Contents we sell, regardless of the cause, could adversely affect our brand, reputation, operations and financial results. We are also subject to risks of fraud from our suppliers.
As such, any issue, or perceived issue, regarding the quality and safety of any items we sell, regardless of the cause, could adversely affect our brand, reputation, operations and financial results. We are also 13 Table of Contents subject to risks of fraud from our suppliers.
While our focus is to continue the expansion of our showrooms, this may result in the closure of underperforming showroom locations or locations with declining profitability in order to pursue more productive opportunities that are in line with our real estate strategy.
While our focus is to continue the expansion of our showrooms, this may result in the closure of underperforming showroom locations or locations with declining profitability in order to pursue more productive opportunities that are in line with our real estate strategy.
Our goal is to offer our customers seamless access to our products across our channels, and our success depends on our ability to anticipate and implement innovations in sales and marketing strategies to appeal to existing and potential customers who increasingly rely on multiple channels, such as ecommerce, to meet their shopping needs.
Our goal is to offer our customers seamless access to our products across our channels, and our success depends on our ability to anticipate and implement innovations in sales and marketing strategies to appeal to existing and potential customers who increasingly rely on multiple channels, such as ecommerce, to meet their shopping needs.
The principal factors and uncertainties that make investing in our common stock risky include, among others: • our ability to sustain profitability, and raise capital; • our ability to accurately forecast our operating results and growth rate or manage our growth effectively; • our ability to maintain our brand image, engage new and existing customers and gain market share; • our ability to compete successfully; • our ability to effectively market and launch our products and increase customer traffic; • our ability to attract, develop, motivate and maintain well-qualified associates; 7 Table of Contents • systems interruptions that impair customer access to our sites or other performance failures in our technology infrastructure, including significant disruptions of or breach in security of information technology systems and violation of data privacy laws; • systems interruptions that impair customer access to our sites or other performance failures in our technology infrastructure, including significant disruptions of or breach in security of information technology systems and violation of data privacy laws; • our ability to maintain effective internal controls over financial reporting; • the impact related to the restatement of our previously issued financial statements; • any decline in consumer spending including due to negative impact from economic conditions; • our dependence on a small number of suppliers, including international suppliers and those in developing countries, foreign manufacturing and imports; • the impact of increases in demand for, or the price of, raw materials used to manufacture our products; • our inability to manage our inventory levels and products, including the complexities created by our omni-channel operations, and sustain our Internet sales levels; • our ability to successfully open and operate new showrooms and continue to achieve showroom growth rates that we have achieved in the past; • our ability to successfully adapt to consumer shopping preferences; • unfavorable changes to government regulation of the Internet and ecommerce; • failure to meet our publicly announced guidance; and • our ability to protect our trademarks, brand image, or other intellectual property rights.
The principal factors and uncertainties that make investing in our common stock risky include, among others: • our ability to sustain profitability, and raise capital; • our ability to accurately forecast our operating results and growth rate or manage our growth effectively; • our ability to maintain our brand image, engage new and existing customers and gain market share; • our ability to compete successfully; • our ability to effectively market and launch our products and increase customer traffic; • our ability to attract, develop, motivate and maintain well-qualified associates; • systems interruptions that impair customer access to our sites or other performance failures in our technology infrastructure, including significant disruptions of or breach in security of information technology systems and violation of data privacy laws; • systems interruptions that impair customer access to our sites or other performance failures in our technology infrastructure, including significant disruptions of or breach in security of information technology systems and violation of data privacy laws; • our ability to maintain effective internal controls over financial reporting; • the impact related to the restatement of our previously issued financial statements; • any decline in consumer spending including due to negative impact from economic conditions; • our dependence on a small number of suppliers, including international suppliers and those in developing countries, foreign manufacturing and imports; • the impact of increases in demand for, or the price of, raw materials used to manufacture our products; • our inability to manage our inventory levels and products, including the complexities created by our omni-channel operations, and sustain our Internet sales levels; • our ability to successfully open and operate new showrooms and continue to achieve showroom growth rates that we have achieved in the past; • our ability to successfully adapt to consumer shopping preferences; • unfavorable changes to government regulation, including of the Internet and ecommerce; • failure to meet our publicly announced guidance; and • our ability to protect our trademarks, brand image, or other intellectual property rights.
The market price for our common stock may be influenced by many factors, including: • actual or anticipated fluctuations in our customer growth, sales, or other operating results; • variations between our actual operating results and the expectations of securities analysts, investors, and the financial community; • any forward-looking financial or operating information we may provide to the public or securities analysts, any changes in this information, or our failure to meet expectations based on this information; • actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our Company, or our failure to meet these estimates or the expectations of investors; • additional shares of our common stock being sold into the market by us or our existing stockholders, or the anticipation of such sales; • price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; • announcements by us or our competitors of significant products, acquisitions, strategic partnerships, joint ventures, or capital commitments; • lawsuits threatened or filed against us; • developments in new legislation or rulings by judicial or regulatory bodies; • other events or factors, including those resulting from war or incidents of terrorism, or responses to these events; and • the societal and economic impact of macroeconomic factors, public health crises and international conflicts.
The market price for our common stock may be influenced by many factors, including: • actual or anticipated fluctuations in our customer growth, sales, or other operating results; • variations between our actual operating results and the expectations of securities analysts, investors, and the financial community; • any forward-looking financial or operating information we may provide to the public or securities analysts, any changes in this information, or our failure to meet expectations based on this information; 28 Table of Contents • actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our Company, or our failure to meet these estimates or the expectations of investors; • additional shares of our common stock being sold into the market by us or our existing stockholders, or the anticipation of such sales; • price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; • announcements by us or our competitors of significant products, acquisitions, strategic partnerships, joint ventures, or capital commitments; • lawsuits threatened or filed against us; • developments in new legislation or rulings by judicial or regulatory bodies; • other events or factors, including those resulting from war or incidents of terrorism, or responses to these events; and • the societal and economic impact of macroeconomic factors, public health crises and international conflicts.
We believe our success has depended, and continues to depend, on the efforts and talents of Shawn Nelson, our founder, member of the Board of Directors and Chief Executive Officer, Mary Fox, our President and Chief Operating Officer, Keith Siegner, our Executive Vice President and Chief Financial Officer, and other members of our management team.
We believe our success has depended, and continues to depend, on the efforts and talents of Shawn Nelson, our founder, member of the Board of Directors and Chief Executive Officer, Mary Fox, our President and Chief Operating Officer, Keith Siegner, our Executive Vice President, Chief Financial Officer and Treasurer, and other members of our management team.
If the online market for furniture does not gain wider acceptance, our growth and business may suffer. In addition, our success in the online market will depend, in part, on our ability to attract consumers who have historically purchased furniture through traditional retailers.
If the online market for furniture does not continue to gain wider acceptance, our growth and business may suffer. In addition, our success in the online market will depend, in part, on our ability to attract consumers who have historically purchased furniture through traditional retailers.
We cannot guarantee that products we receive from suppliers will be of sufficient quality or free from damage, or that such products will not be damaged during shipping, while stored in one of our distribution facilities, or when returned by customers.
Additionally, we cannot guarantee that products we receive from suppliers will be of sufficient quality or free from damage, or that such products will not be damaged during shipping, while stored in one of our distribution facilities, or when returned by customers.
Further, these changes to tariffs or other rules related to cross border trade, could materially increase our cost of goods sold with respect to products that we purchase from vendors who manufacture products in China, which could in turn require us to increase our prices and, in the event consumer demand declines as a result, negatively impact our financial performance.
Further, these changes to tariffs or other rules related to cross border trade, could materially increase our cost of goods sold with respect to products that we purchase from vendors who manufacture products abroad, which could in turn require us to increase our prices and, in the event consumer demand declines as a result, negatively impact our financial performance.
Our ability to successfully open and operate new showrooms depends on many factors, including, among other things, our ability to: • identify new markets where our products and brand image will be accepted or the performance of our showrooms will be successful; • find available and suitable showroom locations that align with our consumer location strategy; • obtain labor and materials required to construct our showrooms that can achieve capital payback requirements; • obtain desired locations, including showroom size and adjacencies, in targeted high traffic street and urban locations and top tier malls; • adapt our showrooms to address public health crises; • negotiate acceptable lease terms, including desired rent and tenant improvement allowances; • achieve brand awareness, affinity and purchaser intent in new markets; • manage capital expenditures while designing new showrooms and remodeling our existing showrooms; • hire, train and retain showroom associates and field management; • assimilate new showroom associates and field management into our corporate culture; • source and supply sufficient inventory levels; • employ the technologies needed to service a customer and complete a transaction; • successfully integrate new showrooms into our existing operations and information technology systems; and • have the capital necessary to fund new showrooms.
Our ability to successfully open and operate new showrooms depends on many factors, including, among other things, our ability to: • identify new markets where our products and brand image will be accepted or the performance of our showrooms will be successful; • find available and suitable showroom locations that align with our consumer location strategy; 18 Table of Contents • obtain labor and materials required to construct our showrooms that can achieve capital payback requirements; • obtain desired locations, including showroom size and adjacency, in targeted high traffic street and urban locations and top tier malls; • adapt our showrooms to address public health crises; • negotiate acceptable lease terms, including desired rent and tenant improvement allowances; • achieve brand awareness, affinity and purchaser intent in new markets; • manage capital expenditures while designing new showrooms and remodeling our existing showrooms; • hire, train and retain showroom associates and field management; • assimilate new showroom associates and field management into our corporate culture; • source and supply sufficient inventory levels; • employ the technologies needed to service a customer and complete a transaction; • successfully integrate new showrooms into our existing operations and information technology systems; and • have the capital necessary to fund new showrooms.
Any claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
Concerns over the economic impact of rising inflation and interest rates, slower growth or recession, new or increased tariffs, decreased consumer confidence in the economy and armed hostilities, have caused extreme volatility in financial and capital markets, which has adversely impacted our stock price and may materially adversely affect our ability to access capital markets.
Concerns over the economic impact of fluctuating inflation and interest rates, slower growth or recession, new or increased tariffs, decreased consumer confidence in the economy and armed hostilities, have caused extreme volatility in financial and capital markets, which has adversely impacted our stock price and may materially adversely affect our ability to access capital markets.
Showroom locations may become unsuitable due to, and our sales volume and customer traffic generally may be harmed by, among other things: • economic downturns in a particular area; • competition from nearby retailers selling similar products; • changing consumer demographics in a particular market; • changing preferences of consumers in a particular market; • the closing or decline in popularity of other businesses located near our store; • reduced customer foot traffic outside a showroom location; and • store impairments due to acts of God, pandemic, terrorism, protest or periods or civil unrest.
Showroom locations may become unsuitable due to, and our sales volume and customer traffic generally may be harmed by, among other things: • economic downturns in a particular area; • competition from nearby retailers selling similar products; • changing consumer demographics in a particular market; • changing preferences of consumers in a particular market; • the closing or decline in popularity of other businesses located near our store; • reduced customer foot traffic outside a showroom location; and • store impairments due to acts of God, climate-related events, pandemic, terrorism, protest or periods or civil unrest.
We have elected to set and publicly share corporate ESG metrics related to reducing our impact on the environment. These statements reflect our current plans and aspirations and are not guarantees that we will be able to achieve them.
We have elected to set and publicly share corporate sustainability metrics related to reducing our impact on the environment. These statements reflect our current plans and aspirations and are not guarantees that we will be able to achieve them.
In addition, new showroom openings may negatively impact our financial results due to the effect of opening costs and lower sales during the initial period following opening. New showrooms, particularly those in new markets, build their 18 Table of Contents brand recognition and customer base over time and, as a result, may have lower margins and incur higher operating expenses.
In addition, new showroom openings may negatively impact our financial results due to the effect of opening costs and lower sales during the initial period following opening. New showrooms, particularly those in new markets, build their brand recognition and customer base over time and, as a result, may have lower margins and incur higher operating expenses.
We may also have difficulty accessing capital on favorable terms, or at all, be subject to fines, penalties or judgments, and incur reputational harm which may materially and adversely affect our business, results 22 Table of Contents of operations and financial condition. Additionally, investors may lose confidence in our financial reporting and our stock price may decline as a result.
We may also have difficulty accessing capital on favorable terms, or at all, be subject to fines, penalties or judgments, and incur reputational harm which may materially and adversely affect our business, results of operations and financial condition. Additionally, investors may lose confidence in our financial reporting and our stock price may decline as a result.
Moreover, if we do not successfully optimize our omni-channel operations, or if they do not achieve their intended objectives, it could have a material adverse effect on our business, financial condition, operating results and prospects. 19 Table of Contents Purchasers of furniture may choose not to shop online, which could affect the growth of our business.
Moreover, if we do not successfully optimize our omni-channel operations, or if they do not achieve their intended objectives, it could have a material adverse effect on our business, financial condition, operating results and prospects. Purchasers of furniture may choose not to shop online, which could affect the growth of our business.
We also expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in the United States, the European Union and other 24 Table of Contents jurisdictions, and we cannot yet determine always predict the impact of such future laws, regulations, and standards may have on our business.
We also expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in the United States, the European Union and other jurisdictions, and we cannot yet determine always predict the impact of such future laws, regulations, and standards may have on our business.
If our efforts to satisfy our existing customers are not successful, we may not be able to acquire new customers or reactivate prior customers through these referrals, which may adversely affect how we continue to grow our business, or may require us to incur significantly higher marketing expenses in order to acquire new customers. 10 Table of Contents Our business is highly competitive.
If our efforts to satisfy our existing customers are not successful, we may not be able to acquire new customers or reactivate 10 Table of Contents prior customers through these referrals, which may adversely affect how we continue to grow our business, or may require us to incur significantly higher marketing expenses in order to acquire new customers.
Additionally, we have recently experienced high employee turnover in our accounting department which has results in significant time and expense relating to identifying, recruiting, hiring, relocating and integrating qualified individuals. High employee turnover of key personnel may deplete our institutional knowledge base, erode our competitiveness and impact our internal controls and our financial reporting.
Additionally, we have in the past experienced high employee turnover in our accounting department which has results in significant time and expense relating to identifying, recruiting, hiring, relocating and integrating qualified individuals. High employee turnover of key personnel may deplete our institutional knowledge base, erode our competitiveness and impact our internal controls and our financial reporting.
Despite the security measures we have in place, our facilities and systems, and those of third parties with which we do business, may be vulnerable to security breaches, acts of vandalism and theft, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events.
Despite the security measures we have in place, our facilities and systems, and those of third parties with which we do business, have been subject to and may in the future be vulnerable to security breaches, acts of vandalism and theft, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events.
The online market for furniture is less developed than the online market for apparel, consumer electronics and other consumer products in the United States. While we believe this market is growing, it still accounts for a small percentage of the market as a whole. We are relying on online sales for our continued success and growth.
The online market for furniture is less developed than the online market for apparel, consumer electronics and other consumer products in the United States. While we believe this market is growing, it still accounts for a relatively smaller percentage of the market as a whole. We are relying on online sales for our continued success and growth.
The occurrence of any of the events or developments discussed in the risk factors below could have a material and adverse impact on our business, results of operations, financial condition and cash flows, and in such case, our future prospects would likely be materially and adversely affected.
The occurrence of any of the events or developments discussed in the risk factors below could have a material and adverse impact on our business, results of operations, financial condition and cash flows, and in such case, our future prospects would likely be materially 7 Table of Contents and adversely affected.
Failure to enhance our technology and marketing 8 Table of Contents efforts to align with our customers’ developing shopping preferences could significantly impair our ability to meet our strategic business and financial goals. Additionally, the growth of our business places significant demands on our operations, as well as our management and other employees.
Failure to enhance our technology and marketing efforts to align with our customers’ developing shopping preferences could significantly impair our ability to meet our strategic business and financial goals. Additionally, the growth of our business places significant demands on our operations, as well as our management and other employees.
This damage to our reputation may result in reduced demand for our products or increase the risk of litigation, all of which can negatively affect our business and operations. Significant merchandise returns could harm our business. We allow our customers to return products, subject to our return policy.
This damage to our reputation may result in reduced demand for our products or increase the risk of litigation, all of which can negatively affect our business and operations. 21 Table of Contents Significant merchandise returns could harm our business. We allow our customers to return products, subject to our return policy.
Failure to accurately forecast our operating results and growth rate could cause our actual results to be materially lower 23 Table of Contents than anticipated. If our growth rate declines as a result, investors’ perceptions of our business may be adversely affected, and the market price of our common stock could decline.
Failure to accurately forecast our operating results and growth rate could cause our actual results to be materially lower than anticipated. If our growth rate declines as a result, investors’ perceptions of our business may be adversely affected, and the market price of our common stock could decline.
We use a variety of factors in our forecasting and planning processes, including historical results, recent history and assessments of economic and market conditions. Our growth rates may not be sustainable, and our growth depends on the continued growth of demand for the products we offer.
We use a variety of factors in our forecasting and planning processes, including historical results, recent history and assessments of economic and market 23 Table of Contents conditions. Our growth rates may not be sustainable, and our growth depends on the continued growth of demand for the products we offer.
Due to broad uncertainty regarding the timing, content and extent of any regulatory changes in the United States or abroad, we cannot predict the impact, if any, that these changes could have to our business, financial condition and results of operations.
Due to broad uncertainty regarding the timing, content and extent of any 14 Table of Contents regulatory changes in the United States or abroad, we cannot predict the impact, if any, that these changes could have to our business, financial condition and results of operations.
It is difficult to predict when or for how long any of these conditions could affect our business and a prolonged economic downturn could have a material adverse effect on our business, financial condition, operating results and prospects.
It is 9 Table of Contents difficult to predict when or for how long any of these conditions could affect our business and a prolonged economic downturn could have a material adverse effect on our business, financial condition, operating results and prospects.
Factors impacting discretionary consumer spending include general economic conditions, inflation, reduction in wages and discretionary income, levels of unemployment, consumer debt, reductions in net worth based on severe market declines, residential real estate and mortgage markets, taxation, tariffs, volatility of fuel and energy prices, fluctuations in interest rates or currency exchange rates, consumer confidence, closure or restricted operating conditions for businesses, political and economic uncertainty, inclement weather, natural disasters, health epidemics or pandemics and other macroeconomic factors, including geopolitical conditions and regional conflicts.
Factors impacting discretionary consumer spending include general economic conditions, inflation, reduction in wages and discretionary income, levels of unemployment, consumer debt, reductions in net worth based on severe market declines, residential real estate and mortgage markets, taxation, regulations and new or increased tariffs, including retaliatory tariffs, export controls, volatility of fuel and energy prices, fluctuations in interest rates or currency exchange rates, consumer confidence, closure or restricted operating conditions for businesses, political and economic uncertainty, inclement weather, natural disasters, health epidemics or pandemics and other macroeconomic factors, including geopolitical conditions and regional conflicts.
To manage our growth effectively, we must continue to implement our operational plans and strategies, acquire new and retain existing customers, increase our showroom base, optimize our omni-channel operations, and improve and expand our infrastructure of people and information systems.
To manage our growth effectively, we must continue to implement our operational plans and strategies, acquire new and retain existing customers, increase our showroom base, optimize our omni-channel operations, and improve and expand our infrastructure of people and 8 Table of Contents information systems.
We expect raw material prices to remain at historically high levels in many categories during fiscal 2025 due to price inflation in certain raw materials and global supply chain complexities. Macroeconomic factors, such as inflation, will continue to introduce uncertainty into many markets, especially with respect to freight and labor availability.
We expect raw material prices to remain at historically high levels in many categories during fiscal 2026 due to price inflation and increased tariffs in certain raw materials and global supply chain complexities. Macroeconomic factors, such as inflation, will continue to introduce uncertainty into many markets, especially with respect to freight and labor availability.
Any of these events could have a material adverse effect on our reputation, business, financial condition, operating results and prospects. 14 Table of Contents Most of our products are shipped from our suppliers by ocean vessel.
Any of these events could have a material adverse effect on our reputation, business, financial condition, operating results and prospects. Most of our products are shipped from our suppliers by ocean vessel.
Our failure to adequately 21 Table of Contents prevent fraudulent transactions could damage our reputation, result in litigation or regulatory action and lead to expenses that could harm our business, financial condition, operating results and prospects. Financial Risks Our ability to raise capital in the future may be limited.
Our failure to adequately prevent fraudulent transactions could damage our reputation, result in litigation or regulatory action and lead to expenses that could harm our business, financial condition, operating results and prospects. Financial Risks Our ability to raise capital in the future may be limited.
Delays in deliveries and increases in freight charges or other costs of deliveries has and could continue to harm our sales, profitability, cash flows and financial condition. Some of our third-party suppliers experienced a shortage of qualified labor at their manufacturing facilities in certain geographies, particularly within the United States, due in part to general macroeconomic factors.
Delays in deliveries and increases in freight charges or other costs of deliveries has and could continue to harm our sales, profitability, cash flows and financial condition. Some of our third-party suppliers experienced a shortage of qualified labor at their manufacturing facilities in certain geographies, due in part to general macroeconomic factors.
In addition, as our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close showrooms in desirable locations. We may 16 Table of Contents also be unable to enter into new leases on terms acceptable to us or in desirable locations.
In addition, as our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close showrooms in desirable locations. We may also be unable to enter into new leases on terms acceptable to us or in desirable locations.
Many of our imported products are subject to existing duties, tariffs, anti-dumping duties and quotas that may limit the quantity or affect the price of some types of goods that we import into the United States. In addition, substantial regulatory uncertainty exists regarding international trade and trade policy, both in the United States and abroad.
Many of our imported products are subject to existing duties, tariffs, anti-dumping duties and quotas that may limit the quantity or affect the price of some types of goods that we import into the United States. In addition, recent events have resulted in substantial regulatory uncertainty regarding international trade and trade policy, both in the United States and abroad.
Although these weaknesses have been remediated, if we experience additional material weaknesses or other deficiencies in our internal control over financial reporting in the future or otherwise fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.
Although these weaknesses have been remediated, if we experience additional material weaknesses or other deficiencies in our internal control over financial reporting in the future or otherwise fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price. 22 Table of Contents We are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control.
We intend to continue remodeling our existing showroom base to reflect our new showroom design, and we intend to expend capital doing so. Our new showroom concept is designed to increase customer traffic and sales by emphasizing our unique product platform and using experiential technology.
We intend to continue remodeling our existing showroom base to reflect our new showroom design, and we intend to expend capital doing so. Our new showroom concept is designed to increase customer traffic and sales by emphasizing our 19 Table of Contents unique product platform and using experiential technology.
Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities 26 Table of Contents actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all.
Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all.
We may not be able to maintain 9 Table of Contents and enhance our brand if we receive unfavorable customer complaints, negative publicity or otherwise fail to live up to consumers' expectations.
We may not be able to maintain and enhance our brand if we receive unfavorable customer complaints, negative publicity or otherwise fail to live up to consumers' expectations.
Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this “Risk Factors” section, many of which are outside of our control, could result in the actual operating results being different from our guidance, and the differences may be adverse and material. Item 1B. Unresolved Staff Comments. None.
Any failure to successfully implement 31 Table of Contents our operating strategy or the occurrence of any of the events or circumstances set forth in this “Risk Factors” section, many of which are outside of our control, could result in the actual operating results being different from our guidance, and the differences may be adverse and material. Item 1B.
Our disclosure controls and procedures and internal controls over financial reporting have in the past been subject to deficiencies and material weaknesses, and we cannot assure you that additional material weaknesses will not arise in the future.
Our disclosure controls and procedures and internal controls over financial reporting have in the past been subject to deficiencies and material weaknesses which resulted in the restatement of our financial statements , and we cannot assure you that additional material weaknesses will not arise in the future.
Regardless of the merit of the claims, if our products are alleged to infringe or violate the intellectual property rights of other parties, we could incur substantial costs and we may have to, among other things: • obtain licenses to use such intellectual property rights, which may not be available on commercially reasonable terms, or at all; • redesign our products or change our marketing activities to avoid infringement or other violations of the intellectual property rights of others; • stop using the subject matter protected by the intellectual property held by others; • pay significant compensatory and/or enhanced damages, attorneys’ fees and costs; and/or • defend litigation or administrative proceedings which may be costly whether we win or lose, and which could result in a substantial diversion of our time, financial and management resources. 27 Table of Contents If any of the foregoing occur, our business, financial condition, operating results and prospects could be materially adversely affected.
Regardless of the merit of the claims, if our products are alleged to infringe or violate the intellectual property rights of other parties, we could incur substantial costs and we may have to, among other things: • obtain licenses to use such intellectual property rights, which may not be available on commercially reasonable terms, or at all; • redesign our products or change our marketing activities to avoid infringement or other violations of the intellectual property rights of others; • stop using the subject matter protected by the intellectual property held by others; • pay significant compensatory and/or enhanced damages, attorneys’ fees and costs; and/or • defend litigation or administrative proceedings which may be costly whether we win or lose, and which could result in a substantial diversion of our time, financial and management resources.
Competition presents an ongoing threat to the success of our business. Our business is rapidly evolving and intensely competitive, and we have many competitors in different industries. We compete with furniture stores, big box retailers, department stores, specialty retailers and online furniture retailers and marketplaces. We expect competition in both retail stores and ecommerce to continue to increase.
Our business is highly competitive. Competition presents an ongoing threat to the success of our business. Our business is rapidly evolving and intensely competitive, and we have many competitors in different industries. We compete with furniture stores, big box retailers, department stores, specialty retailers and online furniture retailers and marketplaces.
Our own systems, which are customized versions of ecommerce, customer relationship management, payment processing, and inventory management software technologies deployed by numerous retailers and wholesalers in a variety of industries, must work seamlessly in order for information to flow correctly and update accurately across these systems. We may experience periodic system interruptions from time to time.
Our own systems, which are customized versions of ecommerce, customer relationship management, payment processing, and inventory management software technologies deployed by numerous retailers and wholesalers in a variety of industries, must work seamlessly in order for information to flow correctly and update accurately across these systems.
Sales at these 17 Table of Contents showrooms are derived, in part, from the volume of foot traffic in these locations.
Sales at these showrooms are derived, in part, from the volume of foot traffic in these locations.
Raw materials used to manufacture our products are subject to availability constraints and price volatility impacted by a number of factors, including supply and demand for fabrics, weather, government regulations, economic conditions, economic and political instability, and other unpredictable factors.
Raw materials used to manufacture our products are subject to availability constraints and price volatility impacted by a number of factors, including supply and demand for fabrics, steel and metal components, and electronic components, weather, government regulations, economic conditions, economic and political instability, and other 15 Table of Contents unpredictable factors.
As a result, we have voluntarily self-reported to the SEC information concerning the internal investigation of these accounting matters. As a result of self-reporting, the Company is the subject of an ongoing, non-public investigation by the SEC.
As a result, we voluntarily self-reported to the SEC information concerning the internal investigation of these accounting matters. As a result of self-reporting, the Company was the subject of a non-public investigation by the SEC.
We plan to continue to expand our product line in the future. We may not be able to develop products which are attractive to our customers, and our costs to develop new products may be significant. It may take longer than we might expect for a product, even if ultimately successful, to achieve attractive sales results.
We may not be able to develop products which are attractive to our customers, and our costs to develop new products may be significant. It may take longer than we might expect for a product, even if ultimately successful, to achieve attractive sales results.
Inventory levels in excess of customer demand may result in lower than planned financial performance. We may be required to mark down certain products to sell any excess inventory or to sell such inventory through liquidation channels at prices that are significantly lower than our retail prices, any of which would negatively impact our business and operating results.
We may be required to mark down certain products to sell any excess inventory or to sell such inventory through liquidation channels at prices that are significantly lower than our retail prices, any of which would negatively impact our business and operating results.
Third parties may assert claims or initiate litigation asserting that our products or our marketing activities infringe or violate such third parties’ patent, copyright, trademark, trade secret or other intellectual property rights.
Our products or marketing activities may be found to infringe or violate the intellectual property rights of others. Third parties may assert claims or initiate litigation asserting that our products or our marketing activities infringe or violate such third parties’ patent, copyright, trademark, trade secret or other intellectual property rights.
As a result of the restatements, we have become subject to a number of additional risks and uncertainties, which may affect investor confidence in the accuracy of our financial disclosures and may raise reputational issues for our business. We expect to continue to face many of the risks and challenges related to the restatement.
As a result of the restatements, we have become subject to a number of additional risks and uncertainties, which may affect investor confidence in the accuracy of our financial disclosures and may raise reputational issues for our business.
Changes in the legal or regulatory environment affecting ESG and sustainability disclosure, responsible sourcing, supply chain transparency, or environmental protection, among others, including regulations to limit carbon dioxide and other greenhouse gas emissions, to discourage the use of plastic or to limit or to impose additional costs on commercial water use may result in increased compliance costs for us and our business partners, all of which may negatively impact our results of operations, financial condition and cash flows.
Changes in the legal or regulatory environment affecting ESG and sustainability disclosure, responsible sourcing, supply chain transparency, or environmental protection, among others, including regulations to limit carbon dioxide and other greenhouse gas emissions, to discourage the use of plastic or to limit or to impose additional costs on commercial water use may result in increased compliance costs for us and our business partners, all of which may negatively impact our results of operations, financial condition and cash flows.The expectations related to ESG and sustainability matters are rapidly evolving, and from time to time, we announce certain initiatives and goals, related to these matters.
We are subject to a variety of continuously evolving and developing laws and regulations in numerous jurisdictions regarding personal data protection and privacy laws, including the California Consumer Privacy Act, which was significantly modified by the California Privacy Rights Act, new privacy legislation passed in Virginia, Colorado, Utah and Connecticut, as well as the European Union's General Data Protection Regulation and China's Personal Information Protection Act.
We are subject to a variety of continuously evolving and developing laws and regulations in numerous state, federal and foreign jurisdictions regarding personal data protection and privacy laws, including the California Consumer Privacy Act, which was significantly modified by the California Privacy Rights Act, new privacy legislation passed in an increasing number of states, as well as the European Union's General Data Protection Regulation and China's Personal Information Protection Act.
Additionally, associates, contractors or consultants may misappropriate or disclose our confidential information or intellectual property and agreements with those persons may not exist, may not cover the information or intellectual property in question, or may not be enforceable, all of which could have an adverse impact on our business, financial condition, operating results and prospects for the future. 25 Table of Contents The protection of our intellectual property rights may require the expenditure of significant financial, managerial and operational resources.
Additionally, associates, contractors or consultants may misappropriate or disclose our confidential information or intellectual property and agreements with those persons may not exist, may not cover the information or intellectual property in question, or may not be enforceable, all of which could have an adverse impact on our business, financial condition, operating results and prospects for the future.
As of February 4, 2024, we had 230 showrooms, including 6 kiosks and 2 mobile concierges, but our growth strategy requires us to increase our showroom base. There can be no assurance that we will succeed in opening additional showrooms.
As of February 2, 2025, we had 257 showrooms, including 1 kiosk and 2 mobile concierges, but our growth strategy requires us to increase our showroom base. There can be no assurance that we will succeed in opening additional showrooms.
We depend on cash flow from operations to pay our lease expenses and to fulfill our other cash needs. If our business does not generate sufficient cash flow from operating activities, and sufficient funds are not otherwise available to us from other sources, we may not be able to service our substantial lease expenses, which would harm our business.
If our business does not generate sufficient cash flow from operating activities, 16 Table of Contents and sufficient funds are not otherwise available to us from other sources, we may not be able to service our substantial lease expenses, which would harm our business.
If the online shopping experience we provide does not appeal to consumers or meet the expectations of existing customers, we may not acquire new customers at rates consistent with historical periods, and existing customers’ buying patterns may not be consistent with historical buying patterns. If either of these events occur, our business, sales and results of operations may be harmed.
If the online shopping experience we provide does not appeal to consumers or meet the expectations of existing customers, we may not acquire new customers at rates consistent with historical periods, and existing customers’ buying patterns may not be consistent with historical buying patterns.
Shipping by air is significantly more expensive than shipping by ocean and our margins could be reduced. Shipping to alternative ports could also lead to delays in receipt of our products.
Shipping by air is significantly more expensive than shipping by ocean and our margins could be reduced. Shipping to alternative ports could also lead to delays in receipt of our products. We rely on third-party shipping companies to deliver our products to us.
Consequently, the only way our shareholders may be able to realize future gain on their investment is to sell their shares of common stock after the price of such shares has appreciated.
Consequently, the only way our shareholders may be able to realize future gain on their investment is to sell their shares of common stock after the price of such shares has appreciated. However, there is no guarantee that our shares of common stock will appreciate in value.
The risk of a security breach or disruption, particularly through cyberattack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. As artificial intelligence capabilities improve and are increasingly adopted, we may see cyber-attacks utilizing or exploiting artificial intelligence.
The risk of a security breach or disruption, particularly through cyberattack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.
Dependence on our ecommerce business and the continued growth of our direct and retail channels subjects us to certain risks, including: • the failure to successfully implement new systems, system enhancements and Internet platforms; • the failure of our technology infrastructure or the computer systems that operate our website and their related support systems, causing, among other things, website downtimes, telecommunications issues or other technical failures; • the reliance on third-party computer hardware/software providers; • rapid technological change; • liability for online content; • violations of federal, state, foreign or other applicable laws, including those relating to data protection; • credit card fraud; • cyber security and vulnerability to electronic break-ins and other similar disruptions; and • diversion of traffic and sales from our stores. 20 Table of Contents Our failure to successfully address and respond to these risks and uncertainties could negatively impact sales, increase costs, diminish our growth prospects and damage the reputation of our brand, each of which could have a material adverse effect on our business, financial condition, operating results and prospects.
Dependence on our ecommerce business and the continued growth of our direct and retail channels subjects us to certain risks, including: • the failure to successfully implement new systems, system enhancements and Internet platforms; • the failure of our technology infrastructure or the computer systems that operate our website and their related support systems, causing, among other things, website downtimes, telecommunications issues or other technical failures; • the reliance on third-party computer hardware/software providers; • rapid technological change, including as a result of artificial intelligence; • liability for online content; • violations of federal, state, foreign or other applicable laws, including those relating to data protection; • credit card fraud; • cyber security and vulnerability to electronic break-ins and other similar disruptions; and • diversion of traffic and sales from our stores.
We may be subject to product liability claims if people or property are harmed by the products we sell. We have not had any significant product liability claims to date. We place a high priority on designing our products to be safe for consumers and safety test our products in third-party laboratories.
We have not had any significant product liability claims to date. We place a high priority on designing our products to be safe for consumers and safety test our products in third-party laboratories.
Although we continue to implement strong physical and cybersecurity measures to ensure that our business operations remain functional and to ensure uninterrupted service to our customers, our systems and our operations remain vulnerable to cyberattacks and other disruptions due to the fact that a significant portion of our employees work remotely, and we cannot be certain that our mitigation efforts will be effective.
Although we continue to implement strong physical and cybersecurity measures to ensure that our business operations remain functional and to ensure uninterrupted service to our customers, our systems and our operations remain vulnerable to cyberattacks and other disruptions due to the fact that a significant portion of our employees work remotely, and we cannot be certain that our mitigation efforts will be effective. 24 Table of Contents Failure to comply with personal data protection and privacy laws, and other laws and regulations applicable to our business, can adversely affect our business.
Notwithstanding such expenditures, the steps we take to protect our intellectual property may not adequately protect our rights or prevent third parties from infringing, misappropriating or disclosing confidential information or intellectual property.
The protection of our intellectual property rights may require the expenditure of significant financial, managerial and operational resources. Notwithstanding such expenditures, the steps we take to protect our intellectual property may not adequately protect our rights or prevent third parties from infringing, misappropriating or disclosing confidential information or intellectual property.
The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline. The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business.
As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act (“Section 404”) requires that we furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting.
Section 404 of the Sarbanes-Oxley Act (“Section 404”) requires that we furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment requires disclosure of any material weaknesses identified by our management in our internal control over financial reporting.
Any damage to our technology systems or website could cause interruptions to our operations that materially adversely affect our ability to meet customers' requirements, resulting in an adverse impact to our business, financial condition and results of operations.
We and our third-party service providers have and may in the future experience periodic system interruptions from time to time. Any damage to our technology systems or website could cause interruptions to our operations that materially adversely affect our ability to meet customers' requirements, resulting in an adverse impact to our business, financial condition and results of operations.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law ("DGCL"), which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any holder of at least 15% of our capital stock for a period of three years following the date on which the stockholder became a 15% stockholder.] 29 Table of Contents Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law ("DGCL"), which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any holder of at least 15% of our capital stock for a period of three years following the date on which the stockholder became a 15% stockholder.
Material warranty claims could, among other things, harm our reputation and damage our brand, cause us to incur significant repair and/or replacement costs, and have a material adverse effect on our business, financial condition, operating results and prospects.
Material warranty claims could, among other things, harm our reputation and damage our brand, cause us to incur significant repair and/or replacement costs, and have a material adverse effect on our business, financial condition, operating results and prospects. We are and may in the future be subject to securities litigation, which is expensive and could divert management attention.
To the extent that we experience incremental costs in any of these areas, we may increase our selling prices or assess material surcharges to offset the impact.
To the extent that we experience incremental costs in any of these areas, we may increase our selling prices or assess material surcharges to offset the impact. However, increases in selling prices, or surcharges, may not fully mitigate the impact of raw material cost increases which would adversely impact operating income.
We depend on our ecommerce business and failure to successfully manage this business and deliver a seamless omni-channel shopping experience to our customers could have an adverse effect on our growth strategy, business, financial condition, operating results and prospects. Sales through our ecommerce channel account for a significant portion of our revenues.
If either of these events occur, our business, sales and results of operations may be harmed. 20 Table of Contents We depend on our ecommerce business and failure to successfully manage this business and deliver a seamless omni-channel shopping experience to our customers could have an adverse effect on our growth strategy, business, financial condition, operating results and prospects.
There is also increased focus by governmental and non-governmental organizations, customers, and other stakeholders, on corporate social responsibility and sustainability matters. Our reputation could be damaged if we do not (or are perceived not to) act responsibly with respect to any social or sustainability matters, which could negatively impact our business and results of operations.
Additionally, our reputation could be damaged if we do not (or are perceived not to) act responsibly with respect to any social or sustainability matters, which could negatively impact our business and results of operations.
Other potential plaintiffs may also file additional lawsuits in connection with the restatement. The outcome of any such litigation is uncertain. Additionally, the market price of our common stock has been and may continue to be volatile. As a result, we may be the target of securities class action litigation in the future.
Additionally, the market price of our common stock has been and may continue to be volatile. As a result, we may be the target of securities class action litigation in the future.
If one or more of the foregoing risks or challenges persist, our business, operations and financial condition are likely to be materially and adversely affected.
We cannot assure that all of the risks and challenges described above will be eliminated or that general reputational harm will not persist. If one or more of the foregoing risks or challenges persist, our business, operations and financial condition are likely to be materially and adversely affected.
Specifically, we are involved in and may in the future be subject to additional litigation or other disputes, which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the restatement.
We are currently involved in certain putative shareholder derivative actions filed on behalf of the Company against certain of its current and former officers and directors.and may in the future be subject to additional litigation or other disputes, which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the restatement.
However, there is no guarantee that our shares of common stock will appreciate in value. 30 Table of Contents We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which would cause the price of our securities to decline.
We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which would cause the price of our securities to decline.
It is not possible to prevent such behavior, and the precautions we take to prevent or detect this activity may not be effective. This unfavorable publicity could result in damage to our reputation and therefore have a material adverse effect on our business, financial condition, operating results and prospects. Our efforts to launch new products may not be successful.
This unfavorable publicity could result in damage to our reputation and therefore have a material adverse effect on our business, financial condition, operating results and prospects. 17 Table of Contents Our efforts to launch new products may not be successful. We plan to continue to expand our product line in the future.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe Board receives updates on a quarterly basis from senior management, including leaders from our Information Technology and Security, Risk Management. Finance, and Legal teams and our Chief Information Officer regarding matters of cybersecurity.
Biggest changeCybersecurity Governance Cybersecurity is an important part of our risk management and an area of focus for our Board and management. Our Board of Directors is responsible for the risk oversight of the Company, including cybersecurity risks. The Board receives updates on a quarterly basis from senior management, including leaders from our Information Technology and Security, Risk Management.
This includes existing and 31 Table of Contents new cybersecurity risks, status on how management is addressing and/or mitigating those risks, cybersecurity and data privacy incidents (if any) and status on key information security initiatives.
Finance, and Legal teams and our Chief Information Officer regarding matters of cybersecurity. This includes existing and new cybersecurity risks, status on how management is addressing and/or mitigating those risks, cybersecurity and data privacy incidents (if any) and status on key information security initiatives.
We additionally utilize third party technical tools to control system access and filter, restrict and regulate content that may pose a material risk to the Company. Employees are required to use multi-factor authentication to access Company systems and undergo annual security training. Management is responsible for identifying, monitoring and mitigating the material risks facing the Company, including cybersecurity risks.
The Company is committed to protecting its information system and data from cyber threats.We utilize third party technical tools to control system access and filter, restrict and regulate content that may pose a material risk to the Company. Employees are required to use multi-factor authentication to access Company systems and undergo annual security training.
The Audit Committee is informed of material risks from cybersecurity threats pursuant to the escalation criteria as set forth in the Company’s disclosure controls and procedures. Although the Company endeavors to mitigate cybersecurity risks, we face cybersecurity risks, threats and attacks that could have a material adverse effect on the Company’s business strategy, results of operations or financial condition.
The Audit Committee is informed of material risks from cybersecurity threats pursuant to the escalation criteria as set forth in the Company’s disclosure controls and procedures.
These individuals are informed about, and monitor the prevention, mitigation, detection and remediation of cybersecurity incidents and report to the Board on any appropriate items. Our Chief Information Officer has over 35 years of experience managing information technology and cybersecurity matters and is responsible for assessing and managing these cybersecurity risks.
Our cybersecurity risk management and strategy is overseen by our Chief Information Officer as well as other members of the senior leadership team at Lovesac. These individuals are informed about, and monitor the prevention, mitigation, detection and remediation of cybersecurity incidents and report to the Board on any appropriate items.
Management provides regular reports to the Board at every meeting to review our top risks, identify trends and help manage risk. Our cybersecurity risk management and strategy is overseen by our Chief Information Officer as well as other members of the senior leadership team at Lovesac.
Management is responsible for identifying, monitoring and mitigating the material risks facing the Company, including cybersecurity risks. Management provides regular reports to the Board at every meeting to review our top risks, identify trends and help manage risk.
Team members who support our information security program have relevant educational and industry experience. Cybersecurity Governance Cybersecurity is an important part of our risk management and an area of focus for our Board and management. Our Board of Directors is responsible for the oversight of risks from cybersecurity threats.
Our Chief Information Officer has over 35 years of experience managing information technology and cybersecurity matters and is responsible for assessing and managing these cybersecurity risks. Team members who support our information security program have relevant educational and industry experience.
Removed
The Company is committed to protecting its information system and data from cyber threats. As part of our ongoing efforts to enhance our cybersecurity posture, we conduct an annual review of our information technology control environment and engages third-party security experts to conduct risk and vulnerability assessments including penetration testing.
Added
The Audit Committee receives reports, briefings and presentations from senior management, including our Chief Information Officer, at periodic committee meetings, including, more in-depth presentations on specific areas of risk and regular enterprise risk management updates.
Added
Although the Company endeavors to mitigate cybersecurity risks, the nature of our business exposes us to cybersecurity threats and attacks that can lead to the unauthorized acquisition or access, compromise, loss, misuse or theft of our data, including personal information, confidential information or intellectual property.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe also lease retail space for our showrooms, in 230 locations throughout the majority of the U.S. states including Alabama, Arkansas, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin and the District of Columbia.
Biggest changeWe also lease retail space for our showrooms, in 257 locations throughout the majority of the U.S. states including Alabama, Arkansas, Arizona, California, Colorado, 32 Table of Contents Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin and the District of Columbia.
Item 2. Properties. Our primary offices are located in Stamford, Connecticut, where we occupy 22,480 square feet of office space pursuant to a lease agreement that expires in November 2024, and in Saint George, Utah, where we occupy 10,696 square feet of office space pursuant to a lease agreement that expires September 2031.
Item 2. Properties. Our primary offices are located in Stamford, Connecticut, where we occupy 28,000 square feet of office space pursuant to a lease agreement that expires in March 2040, and in Saint George, Utah, where we occupy 10,696 square feet of office space pursuant to a lease agreement that expires September 2031.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. See Note 7. Commitments, Contingencies and Related Parties to our financial statements within Part IV of this Annual Report on Form 10-K for a description of our legal proceedings. Item 4. Mine Safety Disclosures. Not applicable. 32 Table of Contents PART II.
Biggest changeItem 3. Legal Proceedings. See Note 7. Commitments, Contingencies and Related Parties to our financial statements within Part IV of this Annual Report on Form 10-K for a description of our legal proceedings, which is incorporated herein by reference. Item 4. Mine Safety Disclosures. Not applicable. 33 Table of Contents PART II.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our Common Stock. 33 Table of Contents February 1, 2019 February 2, 2020 January 31, 2021 January 30, 2022 January 29, 2023 February 4, 2024 The Lovesac Company common stock 100.00 47.81 238.16 212.89 109.39 96.97 Russell 2000 100.00 109.02 141.91 136.05 134.01 139.82 S&P 500 100.00 121.56 142.53 172.46 161.03 199.42 Item 6. [Reserved] Not applicable.
Biggest changeThe comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our Common Stock. 34 Table of Contents February 2, 2020 January 31, 2021 January 30, 2022 January 29, 2023 February 4, 2024 February 2, 2025 The Lovesac Company common stock 100.00 498.15 445.29 228.81 202.82 225.20 Russell 2000 100.00 130.17 124.80 122.93 128.26 151.53 S&P 500 100.00 117.25 141.87 132.47 164.06 202.59 Item 6. [Reserved] Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is traded on Nasdaq under the symbol “LOVE.” Holders As of April 8, 2024, there were 148 holders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is traded on Nasdaq under the symbol “LOVE.” Holders As of April 7, 2025, there were 125 holders of record of our common stock.
The graph assumes a $100 investment in each of our common stock, the S&P 500 and the Russell 2000 on February 1, 2019.
The graph assumes a $100 investment in each of our common stock, the S&P 500 and the Russell 2000 on February 2, 2020.
The following graph compares the cumulative total stockholder return on our common stock (assuming reinvestment of dividends) with the cumulative total return on the S&P 500 and the Russell 2000 from February 1, 2019 through February 4, 2024.
The following graph compares the cumulative total stockholder return on our common stock (assuming reinvestment of dividends) with the cumulative total return on the S&P 500 and the Russell 2000 from February 2, 2020 through February 2, 2025.
Added
Issuer Purchases of Equity Securities The following table summarizes the share repurchase activity for the thirteen weeks ended February 2, 2025: Total Number of Shares Purchased Average Price Paid Per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Program Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program (2) (in thousands) November 4, 2024 to December 1, 2024 — $ — — $ 36,571 December 2, 2024 to January 5, 2025 189,609 $ 24.17 189,609 $ 31,988 January 6, 2025 to February 2, 2025 456,680 $ 26.07 456,680 $ 20,084 Total 646,289 646,289 (1) Average price paid per share excludes broker commission fees and the 1% excise tax incurred under the Inflation Reduction Act of 2022.
Added
(2) In June 2024, our board of directors authorized the repurchase of up to $40.0 million in shares of our outstanding common stock. For additional information, refer to Note 9. Stockholders' Equity in the Notes to the Financial Statements included in Part IV of this report.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWe market and sell our products through an omni-channel platform that includes direct-to-consumer touch points in the form of our own showrooms, which include our mobile concierge and kiosks, and online directly at www.lovesac.com. We believe that our ecommerce centric approach, coupled with our ability to deliver our large upholstered products through express couriers, is unique to the furniture industry.
Biggest changeInnovation is at the center of our design philosophy with all of our core products protected by a robust portfolio of utility patents. We market and sell our products through an omni-channel platform that includes direct-to-consumer touch points in the form of our own showrooms, which include our mobile concierge and kiosks, and online directly at www.lovesac.com.
Each fiscal year generally is comprised of four 13-week fiscal quarters, although in the years with 53 weeks, the fourth quarter represents a 14-week period. The fiscal year ended February 4, 2024 consisted of 53 weeks. Fiscal year 2023 and 2022 each consisted of 52 weeks.
Each fiscal year generally is comprised of four 13-week fiscal quarters, although in the years with 53 weeks, the fourth quarter represents a 14-week period. The fiscal year ended February 2, 2025 consisted of 52 weeks. Fiscal years 2024 and 2023 consisted of 53 weeks and 52 weeks, respectively.
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Our current product offering is comprised of modular couches called Sactionals, premium foam beanbag chairs called Sacs, and their associated home decor accessories. Innovation is at the center of our design philosophy with all of our core products protected by a robust portfolio of utility patents.
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Our current product offering is comprised of modular couches called Sactionals, premium foam beanbag chairs called Sacs, the immersive surround sound home theater system called StealthTech, and the 35 Table of Contents most recently launched PillowSac TM Accent Chair and Sactionals Reclining Seat.
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We believe that our ecommerce centric approach, coupled with our ability to deliver our large upholstered products through express couriers, is unique to the furniture industry. Our Operations See

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeInflation In fiscal 2024, we saw inflationary pressures across various parts of our business and operations, including, but not limited to, wholesale cost inflation and rising costs across our supply chain. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions.
Biggest changeInflation In fiscal 2025, we continued to see normalization of inflationary pressures in the supply chain. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions.
The Company’s financial statements are contained in the pages beginning on F-1, which appear at the end of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.
The Company’s financial statements are contained in the pages beginning on F-1, which appear at the end of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. 43 Table of Contents

Other LOVE 10-K year-over-year comparisons