I'm Mike Baker, one of the consumer analysts at D.A. Davidson, and I'm very happy to be running this fireside chat with Lovesac. We find this to be one of the most unique and interesting consumer brands and see a long runway for growth, particularly, by the way, if housing recovers. Many of you know the origin story, but if not, started by Shawn in his college dorm and has grown to $700+ million in annual sales, and we think a long way to go. Very pleased to have Shawn Nelson, the founder and CEO, also president and COO, Mary Fox, and the CFO, Keith Siegner, who in his past life was sitting out here with you guys. We have about 25 minutes. I'll run through some Q&A just to draw questions. First question is, can we get some more comfortable chairs for you guys?
We should all be sitting on big Sacs, and these chairs are a little stiff, but we'll get through it. Talk about product innovation. I think that's one of the most interesting parts of the story. Where you are in terms of new products, what you launch in 2025, what you're thinking about in 2026.
All right. Well, I'll dive in. Thanks for joining. Yeah, 2025 was an exciting year for Lovesac. 2026 is going to be even more exciting. I think this year to come will be our most prolific product development, product launch cycle ever. A few big highlights. So last year we launched what we call the Snug Sofa Collection, which is pretty straightforward on its face, a very simple platform that's meant to come in at a little bit lower price point compared to where Lovesac is traditionally known for being with our famous Sactionals. The Snug platform, sofa, loveseat, chair that will this year grow into a full expandable Sactional platform, including some new accessories, one of which you can get a sneak peek of if you walked out of this room and turned to the left at the end of this hallway.
You'll see a whole Snug sofa armchair setup, including the swivel, the swivel accessory with that armchair that will be on display. So that's coming this year to expand on that Snug platform and take it to be a more prolific Sactional platform, as we've talked about, which is really exciting because we've gotten this far as a brand mostly on the back of Sactionals, which is a pretty awesomely efficient Sactional platform that you can buy a bunch of seats, buy a bunch of sides, build anything you want, but it's rather complex in many respects. And the Snug slides in there at sort of this entry level for us. But not to be outdone, in 2026, we've announced that we're launching also a high-end, a higher-end Sactional platform that will be both larger footprint.
So think of it small, medium, large, low, middle, high kind of strategy that, as simple and straightforward as that sounds, we've never had a Lovesac. We've kind of demanded all of our growth and excitement to come off the Sactionals platform for this last decade, sort of finally have a more prolific offering across, again, kind of a small, medium, large footprint will be new for us, actually, and really exciting in the coming year. So those are two big focus areas of ours in the coming year. But I think the most exciting thing in product development that we have to talk about in the year to come will be mid-year. We've announced we expect to reshore our entire Sactionals production.
So again, this is more than 80% of our sales comes off the Sactionals platform, and we will be onshoring it out of Asia back to the United States mid-year. Of course, it'll take the better part of a year to ramp and overlap with the existing product, but it's not just a question of onshoring. It's a question of bringing a better product made more efficiently and doing it at a margin-neutral basis, sans tariffs in the United States. So this is a big deal. And the only reason it's possible for Lovesac is back to first principles. If you understand what we do, that Sactionals platform that drives most of our sales is made up of seats and sides.
I have seats and sides in my own living room at home that were made in 2008, mixed with brand new ones made this last year, complete with StealthTech, our surround sound system added to it because our stuff is forever reverse compatible and future compatible. The same will be true for our Made-in-America Sactionals, where we will be making them instead of with wood as their primary component. It will be a combination of metal, wood, and resin components that will deliver a better product that will have new features and benefits that are not currently available, new patents that come with those that we're very proud of, and still be reverse compatible with the Sactionals we've been selling for the past two decades, along with the Sactionals, of course, we'll be selling for the next decade. This is a big piece of news from Lovesac.
It's only possible because of our flow, because of our extreme volume in these seats and side components from which you can make 10,000 different sofa configurations, Sactional configurations, and the ability to then automate that manufacturing here in the United States. And so I think we're going to be a leader in that realm. Regardless of what happens with tariffs, we're both feet in. We're doing this regardless. It will play out, I think, to leave Lovesac in a position of great strength and stability in an otherwise ridiculously volatile world. And we're just proud to do it. And so it's been a long time coming, but that's a big piece of our product development for this year. And I could go on. There will be other things around the edges. Our overall theme for the year is to win the living room.
We intend to do even better, with a more fulsome collection in the living room before we launch into the new room that we've been talking about for quite some time now, pushed out into the following year. This year will be all about harvesting the brand, amassing the cash and stability, profitability, goodwill amongst investors so that when we launch into that new room early in the following fiscal year, so more than a year away from today, we'll be in a great position to do so.
Yeah, great. Well, you touched on a lot of topics there, including Made in America . I do want to delve into that just one more time because I think it's amazing. So in other words, when we hear last week that tariffs are being rolled back on furniture, and that does impact the stock prices, at least of all the home furnishing companies, but you've sort of done it now that it doesn't really impact your business. And you touched on it briefly, but a little bit more detail. You're going to be able to make this in the U.S. in a margin-neutral way.
Absolutely.
So talk about how you've been able to do that.
Yeah. Well, again, the key is it comes back to the, so at Lovesac, we have a guiding philosophy that we call Designed for Life. Very simple. We make products. And by the way, this is the backbone of our brand. This is what differentiates our brand from all other brands, not just in home furnishings, but frankly, from consumer brands on earth. We make stuff that is built to last a lifetime, can evolve with you as your life changes, which allows you to have it the rest of your life if you want to. Now, that will require you to add on, grow, continue to adapt it over time, in our case, new covers, new accessories, ways to adapt your style. And that's great for our business.
It drives a lot of repeat business, but it mostly drives more business in the sameness of these seats and sides from which you can build all these different Sactionals. This same philosophy will guide the development of all of our new platforms, whether we're talking about Snug at the entry level, whether we're talking about the new Sactional platform that we announced at the high end. That said, the end result is volume, volume in those core seats and sides where covers may come and go with seasons and accessories also can come and go with trends. Those core pieces at Lovesac across all of our platforms is the reason that we're able to drive significant volume and therefore have the argument to onshore and build a manufacturing capability around the sameness of those core pieces that can be almost fully automated.
The other exciting part about this venture for us is that it will be off balance sheet, so it's such an attractive business for manufacturers that we have a number of manufacturers lined up who will build it for us. Now, it requires a very close relationship with those because we have to design the product and the manufacturing capability together, and that's what we've done in this case, and we'll go live with that mid-year this year with one supplier and parlay it into at least a second and maybe third, even by the end of the year, and that's our spirit of redundancy. Already in the past couple of years, we've, in fact, maybe the past few years with tariffs and everything else happening in this volatile world, we've seen the benefits of having redundant suppliers. We've seen factories burn to the ground.
We've seen factories have to shift countries. And so we are passionate about multiple redundancies and sameness in manufacturing. And that's why this is available to us. And we do believe we can do it on a cost-neutral basis. And I think it's going to be very exciting.
Yeah. It's interesting you said, I heard you say in one of the breakouts, you can advertise Made in America , which is great, and everyone loves that. It doesn't really drive the business per se, which I find interesting, but I think who knows? This is a different world than it was in past times. So maybe it will be a great marketing tool. Speaking of marketing tools, I wanted to ask Mary a little bit about what you're doing with the brand, how you're changing that. I think a great hire you made. If you could talk about who you brought in as the new person to run that and just how you're evolving the whole messaging.
Yeah, for sure, so I think the first thing, as we as a leadership team really see the huge opportunity for this brand, not only in the living room, but adding in new rooms. It was very clear to us that we needed a terrific CMO to come in and really be able to help us tell the story as this brand really expands, so we were delighted to welcome Heidi Cooley to our business back in April, as you're referencing, and Heidi, prior to that, was at Crocs for eight years and really helped to scale that brand and really take it from something that wasn't cool to being one of the ultimate cultural zeitgeists and did such a great job in telling that story, so she started, she's already transformed her whole organization, strengthening the talent, really focusing in terms of where the opportunities are for our playbook.
So you're starting to see snippets of that work already. I think we shared in our last earnings call a lot of shift around our media mix, really moving a lot more into agentic commerce, really thinking about how do we win in terms of LLMs, and then also in terms of just the emotional nature of how we tell the story. So one example we were talking about earlier, coming out of the Cyber event at the beginning of December tends to be a little bit quieter, ramping up then to the New Year's Eve tentpole moment. The team developed an amazing campaign called Couchmas, which was really talking about Santa Claus or Father Christmas, as I would say. Shawn was ribbing me earlier about that, having a rest after what was a very high-pressured moment as you kind of prepare for the holidays.
Frankly, many people feel the same way. It's kind of like exhaustion of kind of getting through that key holiday. And there was just a lot of fun with that campaign of really relevantly kind of connecting with what is on consumers' minds, how do we bring our product into the center of storytelling. And we're super happy just to see that one example. So there's going to be a lot more that will come. We've got some exciting developments around a much bigger campaign, as Shawn shared. And as you think about us developing out our portfolio and just the huge opportunity to reach so many more households in America, there's just a lot of runway to come. So just the start, Mike, but I think you'll start to see those builds over time.
Right, right. The name Snug, that was a great sort of new shift that you guys did with Heidi, which I think is great. Let's get Keith involved. Not a boring CFO question, because I think this is a great point. And Shawn, you had referenced it earlier. You've been investing a lot over the last three or four years: people, processes, new stores. If you could talk about how you leverage that going forward, what kind of investments still need to be made, and/or as the top line grows, presumably a better housing market, all these new products, how does that flow through to the bottom line?
Good question. We could talk the whole rest of the time on this for sure. So to step back and think simplistically about what we're looking to accomplish here, I think it's important to realize we are looking to double and triple this company. We're not here for 10% per year for a while. We are looking to double and triple this company. We can extend this brand. It's not a product company. We are a brand that has products that support that brand. That's the ambition. So when we talk about the investments that we've been making, it's been to put ourselves into a position to accomplish that: profitable sales growth of real materiality. This is hard because we've been in a declining category for the last four years. We've been in an intense promotional environment as a result of the lack of consumer demand.
And at the same time, we've had this uncertainty on the top line. We've had uncertainty in cost structure given tariffs and more. So it's been a tricky time. If you think about this year that we're wrapping up right now in Q4, had we only had tariffs, fine. Had we only had the consumer uncertainty, fine. Both together are material enough that they've put us under pressure. Now, that being said, we have still managed to focus, because this is important to us, on full year profitability, cash flow generation, health and balance sheet playing a long game here. That's essential to what we're doing. So there's this trade-off between near-term dialing back of investments and letting more of the profit flow through, which is important to us. And we've talked a lot about that with the markets, with maintaining those investments that double and triple this company.
That would have played out this year had we not had two very material headwinds that were unforeseen. So the way we think about this going forward, and particularly as it relates to this coming year, given all these opportunities that you heard Shawn and Mary just talk about, the fact that we have a chance to really harvest the brand that we've built, it's important to recognize that given these uncertain times in the category and competitive landscape, it makes more sense strategically to focus on winning the living room, harvesting the brand we've built, and giving the entire organization time to take all of that new marketing and brand positioning that Heidi and her team have come up with and really refine that into a big launch of the new room early next year.
So we've had a few questions like, would we have done this without the macro, without the tariffs? And the answer is this is the right strategy regardless. It's even more the right strategy given those overarching macro items we've been looking at. So going forward, what do we plan for over the medium to long term? We plan for a business that should grow double digits on the top line without support of the category, with increasing flow through of that top line growth throughout the P&L. Obviously, individual years can vary. Some will be better, some will be worse, but that's the business we're looking to build. And that's the type of growth we'd like to put forward over this path of doubling and tripling the company. And again, we are starting from a position of strength.
When you look at our guidance, this is full year profitability, full year cash flow growth despite category declines and with a balance sheet that is net cash. So again, we're starting from a position of strength.
Great. Yep, makes sense. And one of the areas of, and this question will be for anyone, I suppose, but for harvesting, but then presumably ramping up again at some point, I'd just like to ask you about, it's really a two-part question: store growth and the economics of new stores and what your plan is there. But really, truly, I think an omnichannel story you guys are. I mean, you do have an online business. People usually don't shop in all your purchases come with people working through both channels. No one buys a couch online without seeing it. No one just walks into the store and walks out with a couch and throws it in their car. So really two questions. Talk about the store growth opportunity and then the omnichannel part of it.
I'll kick this off, and then if you do want to chime in. Nowadays, when we think about this business model evolution that I just talked about, the way we start, whether it's in winning the living room or moving into new rooms, is what market share do we think we can take? How does our brand show up? What's the addressable market? What market share can we take? The second step is what's the most efficient way to take it? And it's a very different approach than here's my store, how many stores can I have and go just to build more. Stepping back and thinking truly as an omnichannel retailer, I think is very important.
When we talk about our superpowers, we often talk about two superpowers: Designed for Life products, which you heard about before, and then the second is our customer acquisition engines or how we sell as an omnichannel retailer. We talk about it very purposefully. Number one is the digital presence. Lovesac.com. It needs to be the best customer experience digitally of anything, any brand in this category. We are doubling down on that. We've started that process. You've probably already seen that. But we know that some customers will not buy without touching, seeing, feeling, sitting, lying down on it. So step two of that sales process is our owned physical experience through our showrooms. It's a phenomenal experience. We have very talented folks who make the process of buying our stuff seem so fun. It's not how many can we have.
It's how few do we need to provide customers that really awesome experience that befits this brand. We know we can never have too many, though. We can't touch everybody. So step three, so it's digital, our showroom. Step three is to use partners to gain access to eyeballs. That's physical eyeballs. That's digital eyeballs. A great example of that is our partnership with Costco, where we do physical pop-up shops, and we have an online presence with Costco as well to gain access and drive awareness to customers who we know will love and appreciate our brand and become ambassadors for us. So at the highest level, that's the approach we're taking, and it sets us up well for a consistent shift into the new room as well.
Yeah. I mean, I'll just add as evidence internally for the green shoots we're seeing in living to this model that Keith described is the new Snug platform's success within Costco and particularly Costco.com. And that was something that we hoped for, but now that it's live in market, we can see happening, and we're really proud of that. And so what that looks like is a simpler, so again, Sactionals that have done so much work for us to get us here are fantastic, but it's a fairly complex buying cycle, customer education cycle. We put a Lovesac sofa, loveseat, armchair on display on our own website as well as Costco.com. And sure enough, you see the Snug platform, which is a much simpler offering, really finding success on the digital platforms, including Costco.com. And that's kind of an outsized performer in that realm.
And that gives us great insight as to our opportunity as a brand to deliver more products that can present simply, be an easier online purchase, and not require so much of the real-world interaction that products like Sactionals require. And so we're trying to do both. We're trying to both drive more business online where obviously the net margins can be even more accretive faster, as well as continue to provide the real-world experience for the products that require that. And I think Lovesac is not a retailer. We do operate almost 300 retail locations of our own, very small footprint, very small staff, which makes them wildly efficient, but we really think of ourselves as a brand first.
I think the one thing I'll also add is that we talk a lot about new customers, but we have an installed base of repeat customers that love our products, and when we launch an innovation, they don't even have to go into the showrooms because they know us, they trust us, they understand, and they already have that installed base of their product, and they can add on, and I think as Shawn and Keith talked about our innovation pipeline continuing to build, you have an opportunity to acquire new customers. There's a huge amount of this fragmented category that we can tap into, but you also have these fans that just love our product, and the ability to acquire them is cheaper, easier, and more effective, so for us, throttling on both opportunities, we see a lot of headroom to come.
Right, great. As always happens at ICR, we're out of time. We have about 30 seconds left. I got through about half of my Baker's Dozen questions. So I would love to see everyone at their breakouts. We're doing some one-on-one meetings. I'll just editorialize with 15 seconds left as one of the things I appreciate is none of what you talked about is predicated on the housing market getting better. Everyone has given up on that idea. But there does seem to be some movement that mortgage rates are now below six or just about there. That could really help in 2026.
Yeah. All upside for now.
Thank you.
Thank you.