Thursday's Headlines: Lovesac Falls as Margins Contract

Thursday's Headlines: Lovesac Falls as Margins Contract

Here were the biggest movers in the MyWallSt shortlist yesterday:

Moving Up ⬆️

Casey's (CASY) +7.4%

Silicon Valley Bank (SIVB) +4.0% (BILL) +3.6%

ShotSpotter (SSTI) +3.2%

Ulta Beauty (ULTA) +3.1%

Moving Down ⬇️

Lovesac (LOVE) -21.3%

Brown-Forman (BF.B) -7.3%

Tripadvisor (TRIP) -6.4%

StoneCo (STNE) -6.3%

Farfetch (FTCH) -5.0%

Lovesac Falls as Margins Contract ❤️

Lovesac, the iconic couch and beanbag chair maker, delivered in its Q3 earnings on Wednesday in the face of challenging macroeconomic conditions. Despite this, the stock is down more than 21% as the market has grown wary of the company’s continued margin decline.

LOVE ended the quarter with a loss per share of $0.55 versus analysts’ expected loss of $0.73. However, this is a decrease from the positive $0.17 the company had in the same quarter last year. Lovesac is continuing to experience inflationary costs in manufacturing and transportation, which has taken a bite out of gross and net margins. The company’s gross margin contracted 300 basis points in the quarter and now sits at 47.2%.

When it comes to revenue, the sustainable furniture maker brought in $134.78 million, representing 15.5% growth year-over-year — this was in line with analysts estimates. Comparable sales were up 8.9%.

Growth was driven by in-person retail with showrooms experiencing a 19% increase in sales. While Lovesac’s “Other” channel, which includes its lucrative deals with Costco and Best Buy, saw sales increase by 61.8%.

On the company’s earnings call founder-CEO Shawn Nelson stated:

“We believe we are well positioned for the all-important fourth quarter holiday-season where early signs point to strong cash flow generation for the quarter. At the same time, we are planning for continued inflationary pressure on consumers and intend to maintain tight expense management and careful prioritization of critical spending to support continued growth.”

COO Mary Fox stated that Lovesac is working hard to reduce supply chain costs and has already seen freight expenses begin to decline. Management hopes this will be reflected in its performance in the coming year.

Rent the Runway Shares Jump on Strong Outlook 🛍

Shares of Rent the Runway jumped 27% in after-hours trading yesterday after the company posted strong revenue and an upbeat outlook for the fiscal year.

The clothing rental company saw sales jump 31% in the quarter, bringing in $77.4 million — analysts had expected $73 million. Adjusted EBITDA came in at $6.6 million, also smashing expectations. That was led by a 15% increase in active subscribers.

"We’re proud of our strong Adjusted EBITDA margin this quarter, which was up significantly versus the same period last year. We are also raising guidance for the year despite a tough environment," CEO Jennifer Hyman said.

Management now believes the company will bring in between $293 million and $295 million for the year.

Founded in 2009, Rent the Runway is an online fashion company that allows users to rent high-end apparel for a subscription. In an interview with CNBC the company’s CEO said inflation was making the service more appealing to consumers. “There’s no other place that the consumer can go to get as much financial value as she receives from our offering,” Hyman said.

The company has had a baptism of fire on the public markets having IPO’d in late 2021. Shares were down 91% before last night’s earning’s bump.

Carvana Plummets as Bankruptcy Looms 🚙

Shares in online car retailer Carvana took a heavy hit yesterday following reports that the company’s largest creditors have signed an agreement to cooperate in restructuring negotiations as the firm stares down the barrel of bankruptcy. Carvana dropped by a staggering 43% yesterday after the reports emerged.

The reports allege that 10 of Carvana’s biggest lenders have engaged in an agreement to act together should any restructuring occur. The creditors named include Pacific Investment Management and Apollo Global Management, and together the group holds close to 70% of Carvana’s outstanding debt — totalling roughly $4 billion.

Trading of Carvana was halted at one point yesterday as the stock fell below the $5 mark for the first time since going public in 2017. It now sits over 98% down for the year following yesterday’s capitulation, having been downgraded by multiple analysts since its poor third-quarter earnings report last month.