$LOVE - Lovesac a diamond in the rough, pt.3

$LOVE - Lovesac a diamond in the rough, pt.3 **Part 1: (October 2025) https://www.reddit.com/r/ValueInvesting/s/3jKfBm9Ocw** **Part 2: (January 2026) https://www.reddit.com/r/ValueInvesting/s/dSdi1rtlhz** **—-AI summary of pt1&2—-** **Summary of the Lovesac thesis** **Core business (as of Oct 2025)** Lovesac is a modular furniture company with \~$600M+ revenue, \~60% gross margins, and a $209M market cap. It carries no traditional debt (mainly showroom leases in premium locations) and typically holds \~$80M in cash. The product is highly sticky: lifetime frame warranty, long cushion/cover warranties, easy to reconfigure/move, and strong repeat purchasing as customers expand or change styles. Growth has been aggressive (551% over 10 years), funded by heavy marketing/SG&A. **Why the stock was beaten down** Trading under $15 due to a combination of: • Furniture tariffs hitting Vietnam manufacturing • Weak housing market (low home sales/churn reduces demand) • Lingering overhang from prior SEC issues involving the former CFO This created a “mechanical” sell-off at the intersection of tariffs, housing, and retail. The author views the resulting valuation as extremely cheap (EV/EBITDA \~1.5 on a projected 25% EBITDA margin even in tough conditions). **Bull case** Insiders and the company are buying/repurchasing shares. Showroom footprint continues to grow. When housing activity improves (and/or tariffs ease), the stock is expected to re-rate significantly — target of $40 over 1–3 years. Author plans to accumulate shares and LEAPS, adding on further weakness. **January 2026 updates** Positive operational progress: • Returned to Costco (historically a major catalyst) • New product launches over the next 18 months + development of an entire “another room” of furniture • Adding white-glove assembly service and a resell/credit program • Pausing further showroom expansion until the full product lineup is ready • Shifting manufacturing back to the U.S. by end of 2026 (expected margin expansion) • Cutting inefficient linear TV marketing in favor of influencers • Potential $10M+ tariff refund if tariffs are reversed Author has sold options and is now concentrated in the stock, planning to re-add options on dips. Explicitly notes the risk that it remains a furniture company that could still struggle or fail. **Bottom line** High-quality, high-margin modular furniture business trading at distressed multiples due to temporary macro/tariff/housing pressures, with multiple internal catalysts (product, distribution, manufacturing repatriation, marketing efficiency) already underway. Attractive asymmetric setup for patient capital, but still carries industry and execution risk. ——————- **Update: (pt 3)** Still a $200M market cap while having record non-Q4 sales in a very challenged category. Have $130M of inventory a $69M of cash. Still no financing debt - if you’re using yahoo they include operating leases in debt - that’s why it doesn’t show 0. You’re getting the business for free in the investment. Since my original post the company has retired 3% of the float via buybacks. Insiders have bought another 1.5% in uncharacteristic buys. There is still roughly $50M in the buyback plan available. Company is launching four products before end of year - one targeting the affluent loyal customer based on feedback for a product improvement. Others are the repatriated manufactured version, the smaller snug line for smaller area living (NYC, Chicago,) the white glove assembly service, and lastly an exchange program that will help entry level shoppers at a lower cost/equivalent or better margin and facilitate the upgrades of existing customers. General to stealth or recliner. This usually would be 4 years of product launches. The company has accelerated its development of goods and services to grow regardless of macro backdrop. Next year they are launching a whole new room. This means loyal customers will be buying more than their couch from Lovesac. Knowing their buy it for life views, this too will be an innovation to the industry. This also means a reduction in R&D spend - more revenue with equivalent or less SGA spend, while maintaining fantastic gross margins. As far as my investment. I sold my options and 60% of shares on last run up, anticipating another dip (this one) and I have replaced almost all my shares. I will get back over 100% of original investment as I’m aggressively bullish. Options purchases will be made at deep value, or when second half next year expirations are launched. Need to capture that huge product launch cycle next year in my options play. Right now shares are soooooo cheap to the value I see, why would I risk time decay. One year later, and I’m thankful the price has remained low so I can accumulate more before any catalyst sends this stock 300+%. Announced $21m tariff refund in earnings… still tanked. So fundamentals: $200M market cap $69M cash. No debt. $130M inventory. ~~$600M~~ $700M+ revenue $30M EBIT current state. 3% shares bought back Still large buyback plan ($50M) or 25% of shares. \~30% short interest Growth in a shrinking category. Macro backdrop is anemic. Any catalyst would be huge from the macro. If not, they’re paving their own way through R&D. As Buffett once said the stock market transfers money from the impatient to the patient. Still see this company 3x at some point in the next 36-60 months.