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Lovesac Profit-Taking: Opportunity to Buy

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Results from the big banks have started pouring in with many of the Big Banks already on the board. All have handily beaten estimates, setting the tone for this earnings season. According to the Zacks Earnings Trends Report, the Finance sector is poised to grow earnings 50.5% this quarter.

But tucked in between all the big companies is a small home furnishings retailer called Lovesac (LOVE - Free Report) , which has a market cap of just $965.27 million. And this little player has done exceptionally well too.

Lovesac’s reported earnings of $1.37 were 144.6% above the estimated 56 cents and 270.3% above the year-ago level. Revenues were up 40.7%. Net profit jumped 300.7%, driven by lower promotional discounts and significant cost efficiencies.  

Revenue growth for the year ending Jan 2021 was 37.4% (the Zacks Consensus Estimate was for 32.8% growth). Earnings growth was 189.7% (Zacks Consensus was 110.6%).

Total comps at year end were up 53.0% compared to a 43.4% increase in the prior year. Sustained strength in demand led the company to add 17 stores through the year, including the Best Buy (BBY - Free Report) shop-in-shops. The change in customer buying habits during the pandemic led to a surge in online sales, which jumped 86.3% in the last quarter and were up 170.8% for the year.

This year, Lovesac expects to have additional consumer touchpoints, such as a mobile showroom for demonstrations on customer premises. It also expects to experiment with things like kiosks. This of course will increase infrastructure and other strategic spending, with a corresponding negative impact on the bottom line.

The company is clearly benefiting from the strength in housing and repair/renovation, which is what gets people to buy furnishings. The hybrid working model is becoming kind of normal and a hybrid schooling model may be around the corner. Lovesac’s own strategy of wooing customers with furniture that is based on recycled materials that could last a lifetime is also winning hearts. So the current strength should continue in the foreseeable future.

The shares sold off on the super results, which is obviously the result of profit taking. They are still up 44.5% year to date, but valuation looks more reasonable at these levels, creating the opportunity to get back in the game.

This Zacks Rank #2 (Buy) company is currently expected to grow revenue and earnings a respective 23.8% and 181.8% in fiscal 2022. But after these stellar results, one can only expect upward revision in these estimates, which will inevitably lead to an increase in the share price.   

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