What changed in this filing

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Item 1. Business

2022-03-30 compared with 2021-04-14 · 168 added, 293 removed, 61 unchanged (88% of the section changed)

When used in this report, the terms “we,”

“us,” “our,” “Lovesac” and the “Company” mean The Lovesac Company.

When used in this report, the terms “we,” “us,” “our,” “Lovesac” and the “Company” mean The Lovesac Company.

Company Overview

We are a technology driven company that designs,

manufactures and sells unique, high quality furniture derived through our proprietary Designed for Life philosophy which results in products

that are built to last a lifetime and designed to evolve as our customers’ lives do.

Our current product offering is comprised

of modular couches called Sactionals, premium foam beanbag chairs called Sacs, and their associated home decor accessories.

is at the center of our design philosophy with all of our core products protected by a robust portfolio of utility patents.

and sell our products primarily online directly at www.lovesac.com, supported by direct-to-consumer touch-feel points in the form of

our own showrooms as well as through shop-in-shops and pop-up-shops with third party retailers.

We believe that our ecommerce centric

approach, coupled with our ability to deliver our large upholstered products through express couriers, is unique to the furniture industry.

The name “Lovesac” was derived from

our original innovative product, a premium foam beanbag chair, the Sac.

The Sac was developed in 1995 and provided the foundation for

We believe that the large size, comfortable foam filling and irreverent branding of our Sacs products have been instrumental

in growing a loyal customer base and our positive, fun image.

Our Sacs represented 14.0% and 17.0% of our sales for fiscal years 2021

and 2020, respectively.

Our Sactionals product line currently represents

a majority of our sales.

Sactionals are a couch system that consists of two components, seats and sides, which can be arranged, rearranged

and expanded into thousands of configurations easily and without tools.

Our Sactional products include a number of patented features relating

to their geometry and modularity, coupling mechanisms and other features.

We believe that these high quality premium priced products enhance

our brand image and customer loyalty and expect them to continue to garner a significant share of our sales.

Our Sactionals represented 84.5% and 80.7% of

our sales for fiscal years 2021 and 2020, respectively.

Sacs and Sactionals come in a wide variety of colors and fabrics that allow consumers

to customize their purchases in numerous configurations and styles.

We provide lifetime warranties on our Sactionals frames and the foam

used in both product lines, and 3-year warranties on our covers.

Our Designed for Life trademark reflects our dynamic product line that

is built to last and evolve throughout a customer’s life.

Customers can continually update their Sacs and Sactionals with new covers,

additions and configurations to accommodate changes in their family and housing situations.

The Company was formed in the State of Delaware

on January 3, 2017, in connection with a corporate reorganization with SAC Acquisition LLC, a Delaware limited liability company, the

predecessor entity to the Company.

Our common stock began trading on Nasdaq under the symbol “LOVE” on June 27, 2018 and we

consummated our initial public offering of shares of our common stock, or our IPO, on June 29, 2018.

We are a technology driven company that designs, manufactures and sells unique, high quality furniture derived through our proprietary Designed for Life philosophy which results in products that are built to last a lifetime and designed to evolve as our customers’ lives do.

Our current product offering is comprised of modular couches called Sactionals, premium foam beanbag chairs called Sacs, and their associated home decor accessories.

Innovation is at the center of our design philosophy with all of our core products protected by a robust portfolio of utility patents.

The Company markets and sells its products through modern and efficient showrooms and, increasingly, through online sales directly at www.lovesac.com, supported by direct-to-consumer touch-feel points in the form of our own showrooms, which include our newly created mobile concierge and kiosks, as well as through shop-in-shops and online pop-up-shops with third party retailers.

We believe that our ecommerce centric approach, coupled with our ability to deliver our large upholstered products through express couriers, is unique to the furniture industry.

The name “Lovesac” was derived from our original innovative product, a premium foam beanbag chair, the Sac.

The Sac was developed in 1995 and provided the foundation for the Company.

We believe that the large size, comfortable foam filling and irreverent branding of our Sacs products have been instrumental in growing a loyal customer base and our positive, fun image.

Our Sacs represented 10.5%, 14.0% and 17.0% of our sales for fiscal years 2022, 2021 and 2020, respectively.

Our Sactionals product line currently represents a majority of our sales.

Sactionals are a couch system that consists of two components, seats and sides, which can be arranged, rearranged and expanded into thousands of configurations easily and without tools.

Our Sactional products include a number of patented features relating to their geometry and modularity, coupling mechanisms and other features.

We believe that these high quality premium priced products enhance our brand image and customer loyalty and expect them to continue to garner a significant share of our sales.

Our Sactionals represented 87.6%, 84.5% and 80.7% of our sales for fiscal years 2022, 2021 and 2020, respectively.

Sacs and Sactionals come in a wide variety of colors and fabrics that allow consumers to customize their purchases in numerous configurations and styles.

We provide lifetime warranties on our Sactionals frames and the foam used in both product lines, and 3-year warranties on our covers.

Our Designed for Life trademark reflects our dynamic product line that is built to last and evolve throughout a customer’s life.

Customers can continually update their Sacs and Sactionals with new covers, additions and configurations to accommodate changes in their family and housing situations.

The Company was formed in the State of Delaware on January 3, 2017, in connection with a corporate reorganization with SAC Acquisition LLC, a Delaware limited liability company, the predecessor entity to the Company.

Our common stock began trading on Nasdaq under the symbol “LOVE” on June 27, 2018 and we consummated our initial public offering of shares of our common stock, or our IPO, on June 29, 2018.

Product Overview

Our products serve as a set of building blocks

that can be rearranged, restyled and re-upholstered with any new setting, mitigating constant changes in fashion and style.

They are built

to last and evolve throughout a customer’s life.

Our products serve as a set of building blocks that can be rearranged, restyled and re-upholstered with any new setting, mitigating constant changes in fashion and style.

They are built to last and evolve throughout a customer’s life.

• Sactionals .

Our Sactional product line currently represents a majority of our net sales.

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Customization is further enhanced with our specialty-shaped modular offerings, such as our wedge seat and roll arm side.

In October 2021 StealthTech Sound + Charge product line was introduced that features immersive surround sound by Harman Kardon and convenient wireless charging, all seamlessly embedded and hidden inside the adaptable Sactionals platform.

Our custom features and accessories can be added easily and quickly to a Sactional to meet endless design, style, storage and utility preferences, reflecting our Designed for Life philosophy.

Sactionals are built to meet the highest durability and structural standards applicable to fixed couches.

Sactionals are comprised of standardized units and we guarantee their compatibility over time, which we believe is a major pillar of their value proposition to the consumer.

Sactionals are comprised

of standardized units and we guarantee their compatibility over time, which we believe is a major pillar of their value proposition to the consumer.

We believe that our Sacs product line is a category leader in oversized beanbags.

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Sales Channels

We offer our products through an omni-channel

platform that provides a seamless and meaningful experience to our customers online and in-store.

Our distribution strategy allows us

to reach customers through four distinct, brand-enhancing channels.

Through our ecommerce channel, we believe we are able to significantly enhance the consumer shopping experience for home furnishings, driving deeper brand engagement and loyalty, while also realizing more favorable margins than our showroom locations.

We believe our robust technological capabilities position us well to benefit from the growing consumer preference to transact at home and via mobile devices.

With furniture especially suited to ecommerce applications, our net sales completed through this channel accounted for 47.1% and 23.9% of total net sales for fiscal years 2021 and 2020, respectively.

We market and sell our products through 108 showrooms at top tier malls, lifestyle centers and street locations in 36 states in the U.S.

We offer our products through an omni-channel platform that provides a seamless and meaningful experience to our customers online and in-store.

Our distribution strategy allows us to reach customers through four distinct, brand-enhancing channels.

• Showrooms .

We market and sell our products through 146 showrooms at top tier malls, lifestyle centers, kiosks, mobile concierges, and street locations in 39 states in the U.S.

We carefully select the best small-footprint retail locations in high-end malls and lifestyle centers for our showrooms.

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We are updating and remodeling many of our showrooms to reflect our new showroom concept, which emphasizes our unique product platform, and will be the standard for future showrooms.

Our new showroom concept, introduced in 2016, utilizes technology in more experiential ways to increase traffic and sales.

Our showroom concept utilizes technology in more experiential ways to increase traffic and sales.

Our net sales completed through this channel accounted for 60.0%, 45.6% and 63.4% of total net sales for fiscal years 2022, 2021 and 2020, respectively.

• Ecommerce .

We believe our robust technological capabilities position us well to benefit from the growing consumer preference to transact at home and via mobile devices.

With furniture especially suited to ecommerce applications, our net sales completed through this channel accounted for 30.2%, 47.1% and 23.9% of total net sales for fiscal years 2022, 2021 and 2020, respectively.

• Other touchpoints .

We augment our showrooms with other touchpoint strategies including in

store pop-up- shops and shop-in-shops.

We utilize in store pop-up-shops to increase the number of locations where customers can experience

and purchase our products, a low cost alternative to drive brand awareness, in store sales, and ecommerce sales.

These in store pop-up-shops

are staffed similarly to our showrooms with associates trained to demonstrate and sell our products and promote our brand.

the in store pop-up-shops which are typically 10-day shows, and pop-up locations, shop-in-shops are designed to be in permanent locations

carrying the same digital technology of our showrooms and are also staffed with associates trained to demonstrate and sell our products.

Shop-in-shops require less capital expenditure to open a productive space to drive brand awareness and touchpoint opportunities for

demonstrating and selling our products.

During fiscal year 2021, we operated shop-in-shops at Macy’s and have currently expanded

the use of shop-in-shops into Best Buy and online at Best Buy.com.

Our Macy’s shop-in-shop test ended January 31, 2021 and

we are no longer operating shop-in-shops at Macy’s.

We hosted 153 and 756 pop-up-shops at Costco locations during fiscal years

2021 and 2020, respectively, and 5 temporary online pop-ups during fiscal year 2021.

We expect to continue hosting temporary online

pop-ups on Costco.com and do not currently expect any further contribution from Costco in store pop-up-shops.

Other sales which includes

pop-up-shop sales and shop-in-shop sales accounted for 7.3% and 12.7% of our total sales for the fiscal years ended 2021 and 2020,

respectively.

Our Designed for Life products

provide flexibility, upgradeability and sustainability, elements that attract a wide customer base and can change as their life changes.

Our customers have different tastes, styles, purchasing goals and budgets when shopping for couches, and our Sactionals platform’s

modularity addresses this array of needs.

We augment our showrooms with other touchpoint strategies including online and in store pop-up-shops, shop-in-shops, and barter inventory transactions.

We utilize in store pop-up-shops to increase the number of locations where customers can experience and purchase our products, a low cost alternative to drive brand awareness, in store sales, and ecommerce sales.

These in store pop-up-shops are staffed similarly to our showrooms with associates trained to demonstrate and sell our products and promote our brand.

Unlike the in store pop-up-shops which are typically 10-day shows, and pop-up locations, shop-in-shops are designed to be in permanent locations carrying the same digital technology of our showrooms and are also staffed with associates trained to demonstrate and sell our products.

Shop-in-shops require less capital expenditure to open a productive space to drive brand awareness and touchpoint opportunities for demonstrating and selling our products.

During fiscal year 2022, we operated 21 shop-in-shops at Best Buy and online at Best Buy.com as compared to 3 shop-in-shops in fiscal 2021.

We hosted 7 online pop-ups and no in store pop-up-shops in fiscal year 2022 as compared to 5 online pop-ups and 153 in store pop-up-shops in fiscal year 2021.

We expect to continue hosting online pop-ups on Costco.com and do not currently expect any further contribution from Costco in store pop-up-shops.

Other sales which includes pop-up-shop sales, shop-in-shop sales and inventory barter transactions accounted for 9.8%, 7.3% and 12.7% of our total sales for the fiscal years ended 2022, 2021 and 2020, respectively.

Our Designed for Life products provide flexibility, upgradeability and sustainability, elements that attract a wide customer base and can change as their life changes.

Our customers have different tastes, styles, purchasing goals and budgets when shopping for couches, and our Sactionals platform’s modularity addresses this array of needs.

• Target Demographics.

on our internal data, our typical customer is 25 to 45 years in age with an annual household income of over $100,000.

We consider this

to be an attractive demographic because of its higher than average rates of household formation and furniture purchasing.

experienced recent accelerated growth in new customer transactions from our target customers and beyond, demonstrating the expansive relatability

and demand of our products.

Based on our internal data, our typical customer is 25 to 45 years in age with an annual household income of over $100,000.

We consider this to be an attractive demographic because of its higher than average rates of household formation and furniture purchasing.

Since 2020, we have experienced accelerated growth in new customer transactions from our target customers and beyond, demonstrating the expansive relatability and demand of our products.

• Robust customer lifetime value.

fiscal 2021 cohort had an average first year value of $2,044 per new customer, and this is the highest first year value of all cohorts

we have tracked since fiscal 2015 and 51.9% higher than the 3 year benchmark fiscal 2015 cohort whose Customer Lifetime Value (CLV) is

currently $1,346 which increased from $1,314 in fiscal 2020.

We believe this is an outcome of our decision to focus on driving penetration

of Sactionals.

We calculated our fiscal 2021 cohort CLV by dividing the aggregate gross profits through fiscal 2021 attributed to the

fiscal 2021 cohort (approximately $215 million) by the total number of new customers from fiscal 2021 (105,336).

In addition, our Customer Acquisition Cost (CAC)

was $434.61 for fiscal 2021.

The fiscal 2022 cohort had an average first year value of $2,840 per new customer, and this is the highest first year value of all cohorts we have tracked since fiscal 2015 and 105.0% higher than the 3 year benchmark fiscal 2015 cohort whose Customer Lifetime Value (CLV) is currently $1,385, which increased from $1,346 in fiscal 2021.

We believe this is an outcome of our decision to focus on driving penetration of Sactionals.

We calculated our fiscal 2022 cohort CLV by dividing the aggregate gross profits through fiscal 2022 attributed to the fiscal 2022 cohort (approximately $342 million) by the total number of new customers from fiscal 2022 (120,351).

In addition, our Customer Acquisition Cost (CAC) was $548.74 for fiscal 2022.

This is an increase from our fiscal 2021 CAC which was $434.61.

This increase is attributable to our increase

in marketing spend targeted at Sactional customers.

We expect our CAC to continue to increase as we continue to target Sactional customers.

We expect this increase in CAC to correspond with a continued increase in CLV.

Our CLV/CAC ratio for fiscal 2021 was 4.70 compared to

4.68 for fiscal 2020.

This increase is attributable to our increase in marketing spend targeted at Sactional customers and we expect our CAC to continue to increase as we continue to target Sactional customers.

We also expect this increase in CAC to correspond with a continued increase in CLV.

Our CLV/CAC ratio for fiscal 2022 was 5.17 compared to 4.70 for fiscal 2021.

Growth Strategies

To position Lovesac for future growth, in

the last several years we have made significant investments in overhead, optimized and integrated our business technologies and

processes, and further developed our marketing strategies.

In addition, we have refocused our strategy regarding our showrooms,

moving to higher end malls and lifestyle centers, to support ecommerce sales, our primary growth channel.

We have also moved to

fixed versus variable rent structures in many of our lease arrangements and have introduced a new interactive technology driven

showroom experience that has resulted in higher traffic levels and conversion.

We are also focused on the following key strategies

to drive sales growth:

To position Lovesac for future growth, in the last several years we have made significant investments in overhead, optimized and integrated our business technologies and processes, and further developed our marketing strategies.

In addition, we have refocused our strategy regarding our showrooms, moving to higher end malls and lifestyle centers while testing new showroom concept such as kiosks and mobile concierge, to support ecommerce sales, our primary growth channel.

We have also moved to fixed versus variable rent structures in many of our lease arrangements and have introduced a new interactive technology driven showroom experience that has resulted in higher traffic levels and conversion.

We are also focused on the following key strategies to drive sales growth:

Continue to Build on Our Brand

Based on our own internal study concluded in April

2017, we estimated that our brand awareness is less than 1% among all consumers nationally.

Before 2017, we invested minimally in advertising.

Since then, we have aggressively invested in brand building and direct marketing efforts through a robust and diverse marketing mix.

focus on building the Lovesac and Sactional brands has led to an increase in our new Sactional customer base, which grew by 48.3% in fiscal

Through our ecommerce channel, we believe we are able to significantly enhance the consumer shopping experience, driving deeper

brand engagement and loyalty, while also realizing more favorable margins than our showroom locations.

We continue to invest into this

digital channel to improve user experience, enhancing their research, understanding and confidence in their purchase decision.

Our commitment to sustainability is central to our stated purpose and

Our Designed For Life philosophy calls for products that are built to last a lifetime and designed to evolve with our customers’

We aggressively invest in brand building and direct marketing efforts through a robust and diverse marketing mix.

Our focus on building the Lovesac and Sactional brands has led to an increase in our new Sactional customer base, which grew by 33.1% in fiscal 2022.

Through our ecommerce channel, we believe we are able to significantly enhance the consumer shopping experience, driving deeper brand engagement and loyalty, while also realizing more favorable margins than our showroom locations.

We continue to invest into this digital channel to improve user experience, enhancing their research, understanding and confidence in their purchase decision.

Our commitment to sustainability is central to our stated purpose and strategy.

Our Designed For Life philosophy calls for products that are built to last a lifetime and designed to evolve with our customers’ lives.

Sactionals represent our Designed For Life philosophy in action and customers generally invest in them with a long-term focus.

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New Strategy on Innovation

and test-and-learn are engrained within our Company, from product to operations to marketing and distribution.

From inception, we have

focused on developing unique, innovative and proprietary product platforms.

We deploy a dual strategy of continuously researching and

product invention and designing.

We are continuously expanding and introducing new extensions to these platforms to broaden the appeal,

grow the addressable market of our product offerings and ultimately continue to grow and evolve with our customers’ needs.

We continually

evaluate new products to complement our Sactionals and Sac lines and are currently developing accessories for the tech-savvy consumer.

we continue to grow our business and add additional showrooms in strategic locations across the United States, we seek the ability to

service more customers locally with area-designated representatives who will shift their efforts between our showrooms and customers’

Our concierge operators in the field will be able to assist customers via online chat services from home thereby creating more

touchpoints customers in new and existing locations, contributing to our efficient approach to growing our footprint and services to suit

the evolving needs of our customers.

Innovation and test-and-learn are engrained within our Company, from product to operations to marketing and distribution.

From inception, we have focused on developing unique, innovative and proprietary product platforms.

We deploy a dual strategy of continuously researching and product invention and designing.

We are continuously expanding and introducing new extensions to these platforms to broaden the appeal, grow the addressable market of our product offerings and ultimately continue to grow and evolve with our customers’ needs.

We continually evaluate new products to complement our Sactionals and Sac lines and are currently developing accessories for the tech-savvy consumer.

During October 2021,

we introduced the Sactionals StealthTech Sound + Charge product line.

This unique innovation features immersive surround sound by Harman Kardon and convenient wireless charging, all seamlessly embedded and hidden inside the adaptable Sactionals platform.

The System includes two Sound + Charge Sides each with embedded front- and rear-firing Harman Kardon speakers, a Subwoofer that easily integrates into a Sactionals Seat Frame and a Center Channel, all working in unison to deliver captivating surround sound that is completely hidden from view.

As we continue to grow our business and add additional showrooms in strategic locations across the United States, we seek the ability to service more customers locally with area-designated representatives who will shift their efforts between our showrooms and customers’ homes.

Our concierge operators in the field will be able to assist customers via online chat services from home thereby creating more touchpoints customers in new and existing locations, contributing to our efficient approach to growing our footprint and services to suit the evolving needs of our customers.

Increase Sales and Operating Margins

We seek to increase sales and operating margins

through our premium market position and pricing strategy and omni-channel platform, which we believe will require relatively small near

term increases in fixed overhead.

We seek to increase sales and operating margins through our premium market position and pricing strategy and omni-channel platform, which we believe will require relatively small near term increases in fixed overhead.

• Premium Market Position and Pricing .

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Supply Chain and Sourcing

We manage a global supply chain of highly vetted

and qualified, third-party manufacturing partners to produce our products.

Our partners operate facilities located in the UnitedStates,

China, Vietnam, Malaysia, Taiwan, Indonesia, and India.

We do not own or operate any manufacturing facilities as we believe our partners’

facilities are sufficient to meet our current demand and will be able to meet any additional demand in the future.

Additionally, we work

closely with our manufacturing partners regarding product quality and manufacturing process efficiency.

To mitigate the concentration

risk in our supply chain, we have and continue to pursue a higher diversification of manufacturing partners, with both sourcing, tariff,

and geographical advantages.

We manage a global supply chain of highly vetted and qualified, third-party manufacturing partners to produce our products.

Our partners operate facilities located in the United States, China, Vietnam, Malaysia, Taiwan, Indonesia, and India.

We do not currently own or operate any manufacturing facilities as we believe our partners’ facilities are sufficient to meet our current demand and will be able to meet any additional demand in the future.

We do, however, expect to invest in additional domestic manufacturing capabilities to support supply chain redundancy for certain of our products.

Additionally, we work closely with our manufacturing partners regarding product quality and manufacturing process efficiency.

To mitigate the concentration risk in our supply chain, we have and continue to pursue a higher diversification of manufacturing partners, with both sourcing, tariff, and geographical advantages.

Logistics and Distribution

We are able to efficiently distribute and ship

our products to our customers.

Due to the unique modularity of our Sactionals products and the shrinkability of our Sacs, we are able

to distribute our products through nationwide express couriers and efficiently utilize warehouse space and international shipping routes.

We are able to efficiently distribute and ship our products to our customers.

Due to the unique modularity of our Sactionals products and the shrinkability of our Sacs, we are able to distribute our products through nationwide express couriers and efficiently utilize warehouse space and international shipping routes.

We believe our Sactionals are the only product in its category that enjoys this logistical advantage.

We experience seasonal fluctuations in our sales.

A larger percentage of our sales occur in the fourth quarter of our fiscal year, which coincides with Cyber Monday (the first Monday after

Thanksgiving, when online retailers typically offer holiday discounts), the holiday season and our related promotional and marketing campaigns.

Our fiscal 2021 quarters in sequential order equaled 17.0%, 19.3%, 23.3% and 40.4% of total sales respectively.

A larger percentage of our sales occur in the fourth quarter of our fiscal year, which coincides with Cyber Monday (the first Monday after Thanksgiving, when online retailers typically offer holiday discounts), the holiday season and our related promotional and marketing campaigns.

Our fiscal 2022 quarters in sequential order equaled 16.6%, 20.6%, 23.4% and 39.4% of total net sales, respectively.

Intellectual Property

We own 31 U.S.

federal trademark registrations,

134 foreign trademark registrations, and a number of U.S.

federal trademark registrations, 177 foreign trademark registrations, and a number of U.S.

and foreign trademark applications and common law trademark rights.

Our registered

trademarks include registrations for the Lovesac ® , Lovesoft ® , Sactionals ® , Durafoam

® , SAC ® and Designed For Life ® trademarks.

Our trademarks, if not renewed, are scheduled

to expire between 2021 and 2029.

Our registered U.S.

trademarks include registrations for the Lovesac ® , Lovesoft ® , Sactionals ® , Durafoam ® , SAC ® , SACS ® , Moviesac ® , Supersac ® , Squattoman ® , Total Comfort ® , Gamersac ® , Citysac ® , Footsac ® , Always Fits.

Forever New ® , The World’s Most Comfortable Seat ® , and Designed For Life ® trademarks.

Our trademarks, if not renewed, are scheduled to expire between 2022 and 2031.

In order to maintain our U.S.

trademark registrations,

we must continue to use the marks in commerce on the goods and services identified in the registrations and must make required filings

with the U.S.

trademark registrations, we must continue to use the marks in commerce on the goods and services identified in the registrations and must make required filings with the U.S.

Patent and Trademark Office at intervals specified by applicable statutes and regulations.

Failure to comply with these

requirements may result in abandonment or cancellation of the registrations.

Failure to comply with these requirements may result in abandonment or cancellation of the registrations.

We have 26 issued U.S.

utility patents and 26

issued foreign utility patents, that are scheduled to expire between 2022 and 2037.

utility patents and 38 issued foreign utility patents, that are scheduled to expire between 2022 and 2039.

We have 15 pending U.S.

utility patent applications,

36 pending foreign utility patent applications and 2 pending international patent applications.

Our Sactional technology patents include

our proprietary geometric modular system and segmented bi-coupling technology.

We also have multiple patents pending and expect to file

patent applications for future innovations.

We believe that our patent portfolio, combined with our innovative design approach may deter

others from attempting to imitate or replicate our products.

Our business is rapidly evolving and intensely

utility patent applications, 35 pending foreign utility patent applications and 2 pending international patent applications.

Our Sactional technology patents include our proprietary geometric modular system and segmented bi-coupling technology.

We also have multiple patents pending and expect to file patent applications for future innovations.

We believe that our patent portfolio, combined with our innovative design approach may deter others from attempting to imitate or replicate our products.

Our business is rapidly evolving and intensely competitive.

Retailers compete based on a variety of factors, including design, quality, price and customer service.

Levels of competition

and the ability of our competitors to attract customers through competitive pricing or other factors may impact our results of operations.

Our competition includes furniture stores, big box retailers, department stores, specialty retailers and online furniture retailers and

marketplaces.

We believe our combination of proprietary products,

brand strength, loyal customer base, omni-channel approach, technological platform, unique consumer experience, logistical advantages

and seasoned management team allow us to compete effectively against and differentiate ourselves from the competition.

COVID-19 Update

While the COVID-19 pandemic led to shifts in the

way in which we operate, including temporarily closing all of our showroom locations and a reduction in workforce, we continued to serve

our customers through our online channels.

As our products can be easily configured, shopped online and delivered quickly in a touchless

way, coupled with consumers’ demand for home related products and solutions, we experienced increased growth during this period.

Our net sales increased $87.4 million, or 37.4%, to $320.7 million for the fiscal year ended 2021, compared to $233.4 million for the

fiscal year ended 2020 which was driven by internet sales (sales made directly to customers through our ecommerce channel) which increased

$95.3 million, or 170.8%, to $151.1 million for the fiscal year ended 2021 compared to $55.8 million for the fiscal year ended 2020 which

more than offset the decrease in our showroom net sales of $1.9 million, or 1.3% in the same time periods.

New customers increased by

32.9% as of the fiscal year ended 2021 as compared to 22.5% as of the fiscal year ended 2020.

We redeployed 218 full-time field

associates, leveraging numerous forms of one-on-one virtual customer interactions such as Facebook live events, Facetime, text messaging

and Podium chat systems.

We believe that these tactics, which bolster our ongoing direct-to-consumer core competencies, allow us to capitalize

on the accelerated growth and demand.

Due to the significant growth of our ecommerce platform, we have adapted our systems, technology

and supply chain and logistics capabilities to manage the increase in online demand.

We plan to continue to develop our digital capabilities

and invest in our technological infrastructure.

In an effort to appropriately manage the business

in this uncertain environment, we tightly managed our cash outlays.

In addition to temporary reduction in compensation of associates and

Board of Directors, we also tightly managed inventory purchases, marketing and promotion spend, working capital and capital expenditures.

As a result, we had a cash and cash equivalent position of $78.3 million as of the fiscal year ended January 31, 2021.

Levels of competition and the ability of our competitors to attract customers through competitive pricing or other factors may impact our results of operations.

Our competition includes furniture stores, big box retailers, department stores, specialty retailers and online furniture retailers and marketplaces.

We believe our combination of proprietary products, brand strength, loyal customer base, omni-channel approach, technological platform, unique consumer experience, logistical advantages and seasoned management team allow us to compete effectively against and differentiate ourselves from the competition.

Environmental Sustainability and Social Responsibility

Our business is purpose driven, pursuing continued economic growth alongside environmental and social responsibility through innovative and lasting programs.

We have incorporated social, environmental, health and safety procedures into our global manufacturing standards.

Additionally, we are taking an enhanced inventory of our carbon footprint and constructing new operational processes to reduce waste throughout our value chain.

Our environmental and social initiatives include but are not limited to the following:

We are committed to provide a fulfilling and inclusive workplace, cultivating a diverse workforce and continuous opportunities to learn new skills.

We have increased training hours by 25 percent since fiscal 2020, recognizing the positive value of professional development for our associates.

As of December 31, 2021, 55 percent of our workforce was made up of racial or ethnic minority groups, and 60 percent were women.

In fiscal 2021, we founded a Diversity, Equity, and Inclusion (DEI) council and steering committee, that will lead the continued growth of programs supporting underrepresented groups and empowering employees to be responsive equality leaders.

Delivering innovative solutions to support a sustainable, low carbon future is anchored in our guiding principles.

By 2040, we hope to achieve a one-hundred percent circular and sustainable business model, reaching targets of zero waste and zero emissions.

In the coming year, we plan to report scope 1 and 2 emissions in alignment with Green House Gas Protocol Corporate Accounting and Reporting Standard and share the roadmap intended to help us achieve our zero waste and zero emissions goals.

We monitor our sourcing facilities that manufacture Lovesac products for implementation of safe and ethical business practices in the areas of working hours, wages, benefits, forced labor, discrimination, and child labor.

These facilities are also required to manage their environmental impacts, provide a safe and healthy environment in all workspaces, comply with all local wage and hour laws and regulations, and comply with all applicable environmental laws and regulations.

Ethical and environmental practices are confirmed through agreements with our manufacturers to submit to third party auditing and authorized monitoring.

We work to ensure our products are safe for our customers and their homes with strict safety standards and responsible use of chemicals.

To achieve these standards, we strive for all of our products to meet or exceed performance requirements for product durability, safety, and consumer satisfaction through rigorous safety inspections.

At the end of fiscal 2022, we published our first annual Environmental, Social, and Governance (ESG) report aligned with the guidance of the Sustainability Accounting Standards Board (SASB).

We believe that transparently disclosing the goals and metrics pertinent to our ESG programs will grant our stakeholders continued visibility of our progress.

To that end, we expect to update this report on an annual basis for consistent transparency of our evolving ESG strategy and related efforts.

Our most recent ESG report is available at:

https://investor.lovesac.com/esg.

The content of our website is not incorporated by reference in this Form 10-K.

Environmental Compliance

Our manufacturing operations are subject to a variety of U.S.

and international environmental protection measures.

We believe that our operations comply in all material respects with applicable environmental laws and regulations.

Our compliance with these requirements is not expected to have a material effect upon our capital expenditures, cash flows, earnings, or competitive position.

Human Capital

The long-term success

of our business depends on attracting, developing and retaining top talent to drive our growth strategy and support our guiding principles.

These principles are the foundation of our business and grounded in true sustainability, a singular focus on high quality execution of

fewer core products, consideration of all stakeholder perspectives in our decision-making, and championing meaningful relationships through

the development of products that bring people together.

Our corporate culture

celebrates our associates at online rallies and annual events designed to engage our associates and reward them for exemplary work and

embodiment of our values.

We support our associates’ professional development through annual training programs on topics relevant

to our business, functional areas, or policies and procedures.

Our associates participate in quarterly coaching sessions with their managers

four times per year where they are evaluated on their performance relative to certain key performance indicators and alignment with our

values and given actionable feedback.

We engage our associates on many levels to share learnings, educate, and foster community

and connection.

Our talent acquisition

strategy is to attract top talent and become a sought-after U.S.

employer focused on our Designed For Life philosophy and a culture of

diversity, equality and inclusivity.

We have initiated this strategy by expanding the areas from which source talent and offering

flexible remote working opportunities for eligible associates.

We will continue to build on this strategy, working in parallel with

our evolving future work strategy.

We also offer a robust and immersive onboarding plan to create a strong foundation for our new

associates and timely, effective integration.

Due to the COVID-19 pandemic,

in fiscal 2021 a majority of our workforce began, and in most cases continue, to work remotely.

To support our headquarters-based associates,

we took measures to ensure our associates had the technology to support remote work and are redefining our future working environment

to offer flexible working solutions.

For associates supporting our showrooms, we implemented specific protocols to ensure the safety of

our associates and our customers.

As of January 31, 2021, we had 369 full-time associates

and 409 part-time associates, and we contracted with 7 independent contractors.

Our workforce was 58% female, and women hold 60% of the

available leadership roles within the Company.

All associates and contractors are subject to

contractual agreements that specify, among other things, requirements for confidentiality, ownership of newly developed intellectual property

and restrictions on working for competitors as well as other matters.

Diversity, Equality and Inclusion

In fiscal 2021, we prioritized

developing a strategic diversity, equality and inclusion plan to ensure a diverse workforce composition, operating in an inclusive and

transparent workplace culture, to leverage all of our talents.

We engaged with partners to guide our diversity, equality and inclusion

strategy, and elicited feedback from our associates on factors affecting diverse individuals and communities.

We also established

a steering committee of senior leaders and a Diversity and Inclusion Council of associates to drive our program’s objectives.

have expanded our diversity recruiting practices, deployed training programs to increase awareness of diversity, equality and inclusion

issues, and are developing tools to drive accountability toward achieving the Company’s goals.

The long-term success of our business depends on attracting, developing and retaining top talent to drive our growth strategy and support our guiding principles.

These principles are the foundation of our business and grounded in true sustainability, a singular focus on high quality execution of fewer core products, consideration of all stakeholder perspectives in our decision-making, and championing meaningful relationships through the development of products that bring people together.

Our corporate culture celebrates our associates at online rallies and annual events designed to engage our associates and reward them for exemplary work and embodiment of our values.

We support our associates’ professional development through annual training programs on topics relevant to our business, functional areas, or policies and procedures.

Our associates participate in quarterly coaching sessions with their managers where they are evaluated on their performance relative to certain key performance indicators and alignment with our values and given actionable feedback.

We engage our associates on many levels to share learnings, educate, and foster community and connection.

Our talent acquisition strategy is to attract top talent and become a sought-after U.S.

employer focused on our Designed For Life philosophy and a culture of diversity, equity and inclusivity.

We have initiated this strategy by expanding the areas from which we source talent and offering flexible remote working opportunities for eligible associates.

We will continue to build on this strategy, working in parallel with our evolving future work strategy.

We also offer a robust and immersive onboarding plan to create a strong foundation for our new associates and timely, effective integration.

Due to the ongoing COVID-19 pandemic, in fiscal 2022 a majority of our workforce continued to work remotely.

To support our headquarters-based associates, we took measures to ensure our associates had the technology to support remote work and are redefining our future working environment to offer flexible working solutions.

For associates supporting our showrooms, we implemented specific protocols to ensure the safety of our associates and our customers.

As of January 30, 2022, we had 607 full-time associates and 578 part-time associates, and we contracted with 20 independent contractors.

Our workforce was 58% female, and women hold 53% of the available leadership roles within the Company.

All associates and contractors are subject to contractual agreements that specify, among other things, requirements for confidentiality, ownership of newly developed intellectual property and restrictions on working for competitors as well as other matters.

Diversity, Equity and Inclusion

In fiscal 2022, we prioritized developing a strategic diversity, equity and inclusion plan to ensure a diverse workforce composition, operating in an inclusive and transparent workplace culture, to leverage all of our talents.

We engaged with partners to guide our diversity, equity and inclusion strategy, and elicited feedback from our associates on factors affecting diverse individuals and communities.

We also established a steering committee of senior leaders and a Diversity and Inclusion Council of associates to drive our program’s objectives.

We have expanded our diversity recruiting practices, deployed training programs to increase awareness of diversity, equity and inclusion issues, and are developing tools to drive accountability toward achieving the Company’s goals.

Product Development

Lovesac designs and sells non-seasonally driven,

Designed For Life products, that are focused on driving incremental value for our customer.

The process leverages numerous inputs

to shape our product roadmap, sequencing of product launches, and prioritization of product projects.

A few examples of these sources

of information are consumer insights generated by research commissioned by Lovesac, patterning our category and key competitors, and product

opportunities developed to address customer satisfaction.

All products that we bring to market must adhere to our Designed For Life

design philosophy which calls for products that are built to last a lifetime and designed to evolve as life changes.

This ensures that

our products not only leverage responsible inputs when possible, but also create a sustainable product that is built to last and designed

We design and sell non-seasonally driven, Designed For Life products, that are focused on driving incremental value for our customer.

The process leverages numerous inputs to shape our product roadmap, sequencing of product launches, and prioritization of product projects.

A few examples of these sources of information are consumer insights generated by research commissioned by Lovesac, patterning our category and key competitors, and product opportunities developed to address customer satisfaction.

All products that we bring to market must adhere to our Designed For Life design philosophy which calls for products that are built to last a lifetime and designed to evolve as life changes.

This ensures that our products not only leverage responsible inputs when possible, but also create a sustainable product that is built to last and designed to evolve.

Government Regulation

We are subject to numerous U.S.

and international

trade laws and regulations, and U.S.

federal, state and foreign laws and regulations covering a variety of subject matters, many of which

are evolving.

These laws and regulations involve matters including privacy, data use, data protection and personal information, intellectual

property, product liability, ecommerce, taxation, economic or other trade prohibitions or sanctions, anti-corruption and political law

compliance, securities law compliance, and online payment services.

Our compliance with these laws and regulations may be onerous and

could, individually or in the aggregate, increase our cost of doing business and/or otherwise have an adverse impact on our business,

reputation, financial condition, and operating results.

For additional information about government regulation

applicable to our business, see Part I, Item 1A, "Risk Factors" in this Annual Report on Form 10-K.

and international trade laws and regulations, and U.S.

federal, state and foreign laws and regulations covering a variety of subject matters, many of which are evolving.

These laws and regulations involve matters including privacy, data use, data protection and personal information, intellectual property, product liability, ecommerce, taxation, economic or other trade prohibitions or sanctions, anti-corruption and political law compliance, securities law compliance, and online payment services.

Our compliance with these laws and regulations may be onerous and could, individually or in the aggregate, increase our cost of doing business and/or otherwise have an adverse impact on our business, reputation, financial condition, and operating results.

For additional information about government regulation applicable to our business, see Part I, Item 1A, "Risk Factors" in this Annual Report on Form 10-K.

Available Information

Copies of our Annual

Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, our Proxy Statements and amendments to these reports

filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)

are available, free of charge, on our investor relations website (https://investor.lovesac.com) as soon as reasonably practicable after

we file such materials electronically with or furnish it to the SEC.

Information contained on, or that can be accessed through,

our website does not constitute part of this Annual Report on Form 10-K and the inclusion of our website address in this Annual Report

is for reference only.

Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, our Proxy Statements and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) are available, free of charge, on our investor relations website (https://investor.lovesac.com) as soon as reasonably practicable after we file such materials electronically with or furnish it to the SEC.

Information contained on, or that can be accessed through, our website does not constitute part of this Annual Report on Form 10-K and the inclusion of our website address in this Annual Report is for reference only.

The SEC also maintains a website that contains our SEC filings at www.sec.gov.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business