by U.S. home furnishings retailers continued to report record quarterly sales and profit improvements. This week, Lovesac and RH were up.
Stamford, Conn.-based Lovesac’s fiscal second-quarter net sales increased 28.7% to $61.9 million from $48.1 million for the same quarter a year ago. The gain for the period ended Aug. 2 was driven by a $387.2% jump in internet sales, offset in part by a showroom sales decrease of $58.9% and a 59.3% decline in “other” sales (shop-in-shop and pop-up shops) related to the impact of COVID-19.
The net loss for the quarter narrowed to $1.1 million, or 8 cents per share, from a loss of $4.8 million, or 33 cents per share. Gross profit in the quarter increased 27.9%, and the 25% tariff impact to gross profit was $2.4 million.
“Our operational pivot to focus on digital channels while showrooms were closed or operating in a limited fashion, as well as our efficient marketing efforts, were very effective,” CEO Shawn Nelson said in a release.
“We successfully positioned ourselves to capitalize on strong demand tailwinds … Importantly, with operational discipline, we successfully managed both our top line as well as our bottom line, in a pandemic disrupted environment, driving an almost 28% increase in gross profit dollars, positive adjusted EBITDA of $2.2 million and free cash flow of $9.9 million.”
Lovesac’s stock price closed down 15.6% on the day of the release (Sept. 9) but climbed back 7.2% Thursday to close at $28 per share.
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Luxury home furnishings retailer RH posted fiscal second-quarter net revenues of $709.3 million, nearly flat with the $706.9 million in revenues a year ago. Net income increased 54% to $98.4 million, and net income per share was up 30% to $3.71. Adjusted net income increase 72% to $123.0 million. On a per-share basis, adjusted net income increase 53% to $4.90.
Adjusted gross margin jumped to 47.5% from the previous 42% last year and adjusted operating margin was 21.8% in the second quarter ended Aug. 1, up from last year’s previous record of 14.9% despite flat revenues.
“The emergence of RH as a luxury brand generating luxury margins has arrived years sooner than expected and we now believe we will reach 20% adjusted operating margin in fiscal 2020 with mid-single-digit revenue growth,” Chairman and CEO Gary Friedman said.
Due to pandemic-induced global supply chain disruption, revenue growth lagged demand by about 16 points, Friedman said, with the gap widening as demand exceeded the company’s expectations.
“We expect revenues to lag demand by 5 to 10 points in the third quarter and begin to normalize in the fourth quarter as manufacturing and inventory receipts catch up to demand,” he said. “Notably, we have not seen an increase in our cancel
rate as a percentage of sales, signaling that we should convert a very high percentage of the demand to revenues over the next three quarters.”
As for the retailer’s outlook for the rest of the year into next year, “we believe it’s safe to assume that some level of elevated spending on the home will remain through 2021, and possibly beyond,” Friedman said.
“The booming real estate activity in second-home markets, an accelerated shift of families moving to larger suburban homes, and the uptick in homebuilding should drive increased spending in our market for an extended period of time as the cycle
for purchasing and furnishing a home is anything but quick. We also tend to believe that the longer we remain in this new, forced reconsideration of how and where we spend our time, consumers will develop new priorities and habits that could favor home-focused businesses indefinitely.”
RH’s stock soared the next trading day, up more than $64 or 20% Thursday, closing at $385.46 per share.
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