Why Lovesac Stock Sagged by 37% in December

As 2024 drew to a close, it seemed there wasn't a great deal of investor love for Lovesac (NASDAQ: LOVE). They shunned the specialty furniture maker's shares after it posted a less-than-inspiring quarterly earnings report. A gloomy analyst update didn't help to improve the situation. Across December, Lovesac's stock lost more than 37% of its value.

Losses and expectations

Much of that sell-off occurred in the middle of the month in the wake of Lovesac's release of its third-quarter fiscal 2025 figures. These revealed that net sales fell by nearly 3% year over year to $149.9 million during the period. Net loss deepened to $4.9 million, or $0.32 per share, from the third quarter of fiscal 2024's $2.3 million shortfall.

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Collectively, analysts tracking the stock were expecting better. They were modeling a top line in excess of $155 million and a net loss of $0.24 per share.

Lovesac chalked up its top-line fall largely to a more than 9% drop in omnichannel sales. This was at least somewhat offset by the net addition of 28 new company showrooms.

It also took an optimistic tone when discussing its immediate future. The company quoted CEO Shawn Nelson as saying, "Our expanding portfolio of innovative products is resonating with customers and creating new avenues for sustained growth in the future." He cited the recently launched reclining seat as one product that exemplifies this innovation.

Nevertheless, Lovesac is anticipating a sales decline on an annual basis. It proffered guidance for the entirety of fiscal 2025, calling for $660 million to $680 million, which would be notably lower than the $700 million it earned in the previous frame. On the plus side, management expects to land in the black on the bottom line, with annual net income of $4.5 million to $12.5 million.

Less than a week after unveiling those quarterly results and in advance of the company's investor day, Lovesac published an update about its expectations going forward. It's targeting annual net sales growth of 10% to 15% and would like to improve its annual profitability by at least 25%. Judging by the market's reaction, though, it seems more than a few investors are skeptical that these targets can be met.

Time for a price target cut

DA Davidson analyst Thomas Forte might be considered a Lovesac skeptic, too. Following the earnings release, Forte made a fairly dramatic cut to his price target on the stock. He now feels it's worth $35 per share, well down from his previous $44.

I don't feel investors should ever trade a stock based purely or mostly on quarterly performance, but this company's latest report raises several concerns. Let's see whether it can right the ship in the new year.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Lovesac. The Motley Fool has a disclosure policy.