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Lovesac: Softening Demand And Falling Metrics Cast Shadows On Its Prospects

Aug. 09, 2023 10:49 AM ETThe Lovesac Company (LOVE)18 Comments
Deniel Selivanov profile picture
Deniel Selivanov


  • Lovesac is a premium furniture retailer specializing in customizable furniture.
  • Squeeze on the demand side is leading to implementing bigger and longer promotional strategies.
  • I rate LOVE as a "Sell", with a fair value of $22.77/share (which incorporates a 25% margin.

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Company Description

Lovesac (NASDAQ:LOVE) - Household Goods - Premium goods

Founded in 1995, Lovesac ("the company") is a premium (target customers are people with an annual household income of over $100,000) furniture retailer specializing in selling unique and customizable furniture. It operates within

This article was written by

Deniel Selivanov profile picture
Greetings, I have a grounding in both long and short-side investment strategies. My primary focus revolves around the consumer discretionary sector, where I specialize in seeking out promising companies based on Peter Lynch's investment style. My aim is to navigate the intricate tapestry of markets, seeking out promising pathways for generating alpha.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (18)

Aricool profile picture
@Deniel Selivanov

re "I rate LOVE as a "Sell", with a fair value of $22.77/share (which incorporates a 25% margin."
good call. $LOVE is ~20% cheaper now. Are you rating it a buy now, or is it a broken stock? thx.
Deniel Selivanov profile picture
@Aricool Hi, I am waiting for the 2Q results to provide an update as I would like to see how some of the dynamics are playing out.

On the technical analysis side, I am looking at the $16.48 level.
@Deniel Selivanov it is already a very bad sign that Lovesac was not able until now to report Q2 results.
Deniel Selivanov profile picture
@KFYY indeed, the market seems to agree too since during the market bounces it produces shy to negative returns, something unusual from a "risk-on" stock
I would not be surprised if LOVE goes below $10 per share by mid next year. As it has accounting tricks, I expect institutions will start to cut their positions.
Deniel Selivanov profile picture
@KFYY still waiting for 2Q results..
Thanks for the article. I like its structure, but I think you can improve your valuation methodology. Anyway, very good read
Deniel Selivanov profile picture
@nohedgebets Thank you, I appreciate your feedback which I am going to address!
Great analysis! I was skeptical as I am convinced about the long term pospects of the stock, but your prediction of a short term bearish movement was correct.
Deniel Selivanov profile picture
@Strathos Thank you, I appreciate it!
So you advise to sell because of downward pressure with fair value just shy of 23 but also state that as they navigate through the cycle they will experience a boost? It’s trading at 25. That’s a lot of dancing. Trying to sell before it hits 23 and then buy in again when it’s expected to recover? Too games-y. I’ll pass. You are going to outsmart yourself. I’m just going to keep adding through the cycle and when the shorts become longs I’ll be very happy
Deniel Selivanov profile picture
@K. Oakes I mean from the cycle / industry-dynamics point of view + product concentration risk, I would wait instead of averaging down which is something personally I try to avoid as I prefer to buy higher than lower.. having said that, LOVE is a risk-on stock so yes if you expect a bullish sentiment to continue (market-wide) we may see a nice squeeze on it
ErikInvest profile picture
Lets talk about Risks

1 - Crowded Investment: one thing I don't like, and that makes me unwilling to short the name is that the investment is crowded. With short interest at 30.85%, the chances of being squeezed out are high and hence the risks of incurring significant losses are high.

This made me laugh. Doing the company analysis based on the short %? Totally nonsensical.

2 - Top-line growth: Product innovation coupled with showroom expansion and cash conversion cycle deterioration may provide a significant boost to the top line, which may lead to a boost of confidence from the Street.

The expansion into the American market is going very well. New stores and high demand. So, what are we talking about? What is slowing down?

3 - Margins dynamics: better-than-feared margin dynamics driven by falling freight costs and competitive lease terms.

Inflation leads to an increase in raw materials. It's normal that under high rates, margins tighten, just like for any other company that purchases raw materials. Here, too, we're not talking about the company itself but about the macroeconomic context that applies to everyone.

Honestly, when I want to read an article, I would like to see company data analysis. A thorough business analysis, not just wind and dust.
Deniel Selivanov profile picture
@ErikInvest Hi, thanks for the reply.
1) I mean, if having a 30%+ short interest is not crowded (short-side), I don't know what it is

2) High demand from where? I mean I am reading across all the industry about a softening demand and demand squeeze

3) Yes, but if the demand were that strong as you suggest, Lovesac should be able to easily pass some of that inflation from input to output... I am not seeing it
ErikInvest profile picture
@Deniel Selivanov Yes, but if the demand were that strong as you suggest, Lovesac should be able to easily pass some of that inflation from input to output... I am not seeing it

The margins remain the same even as demand grows as long as the cost of raw materials remains high. And the shorts will remain there until the cost of raw materials falls. What can we do in this Lovesac? Nothing. Just pretend nothing's happening and aim to sell even more even if the margins will remain unchanged. And when this cycle ends, there will be an explosion in price upwards. This is the right time to buy.
Deniel Selivanov profile picture
@ErikInvest I see where you are going, yes from the cycle point of view an early cycle is among the best for consumer discretionary... imo we are not there yet, as we are more likely to be something in between a late cycle and a recessionary phase
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