What happened
Shares of Lovesac (LOVE -2.45%) fell as much as 14.6% early Thursday, according to data provided by S&P Global Market Intelligence, then largely recovered to trade down around 4% as of 2:30 p.m. ET Thursday after the furniture retailer announced it will need to restate some of its previously reported financial results.
So what
In a Securities and Exchange Commission (SEC) filing late yesterday, Lovesac disclosed that in June 2023 the company's audit committee of the board of directors commenced an internal investigation related to the discovery of a recorded journal entry in the quarter ended April 30 to capitalize $2.2 million of shipping expenses from the prior fiscal year ended Jan. 29.
As a result of that investigation, Lovesac now believes that its operating income and net income for the full fiscal year ended Jan. 29 were overstated by roughly $2 million to $3 million and $1.5 million to $2.5 million, respectively. Lovesac added that its operating income and net income were each overstated by less than $500,000 for its first quarter ended April 30. The overstatements resulted from errors with the methodology Lovesac used to calculate accrual of its last-mile freight expenses.
As an aside, it seems coincidental that Lovesac only just announced June that its then-CFO of six years was retiring and planned to take on a "senior strategic advisory role."
Now what
In any case, while the restatement certainly isn't ideal, it seems that Lovesac is handling it appropriately. This also isn't exactly a dealbreaker for Lovesac shareholders considering the company is steadily expanding and solidly profitable even with the restatement; Lovesac's latest guidance previously called for the planned opening of roughly 30 new showroooms, total comparable-store sales growth in the high single-digit to low-double-digit percent range, and for net income in the range of $30 million to $36 million this fiscal year.
