Marvelous Microcaps

The Lovesac Company (LOVE)

INTRO:

At Perritt Capital Management, we take focused positions in companies where we have a high conviction in their success; companies that are out of the mainstream of small cap investing. To highlight our process, we are pleased to present the newest installment in our ongoing series “Marvelous Microcaps – Big Ideas on Small Companies.”  This series profiles companies that we believe have a niche in their existing markets or are launching a product that could disrupt their marketplace.

THE COMPANY:

The Lovesac Company (LOVE) designs, manufactures, and sells furniture.  Lovesac’s tagline is “We intend to become one of the biggest, the most innovative and the most beloved furniture brands in the world.”  LOVE designed-for-life philosophy is to make well made, adaptable, aesthetically pleasing, and functional furniture.  They are technologically driven with its StealthTech brand which embeds speakers and sound properties allowing sound to pass through the fabric and upholstery. The company started with Sacs, or oversized beanbags.  They then progressed to Sactionals which is a platform, not simply a product.  The patented modular system makes it easy to assemble and change over time and incorporates washable covers, drink holders, power hubs, and various accessories designed for comfort.  They recently launched the “Angled Side” to add to both aesthetics and comfort.  LOVE’s products are sold in their own stores, online, Best-Buy shop-in locations as well as a Costco partnership.

WHY WE OWN: THE PERRITT ADVANTAGE

WHY WE OWN: THE PERRITT ADVANTAGE

The furniture sector has been hit by recession worries, but LOVE continues to take market share, increase revenue, and gross margins.  Their most recent quarter showed revenue up 4%, showroom sales up 6%, internet sales up 16% and gross margins increasing from 53% to 60%.  They have $55 million in cash and no debt.  There is a bit of an overhang in the stock regarding an accounting issue. It was found that they incorrectly recorded shipping expenses.  The company plans to fix their internal controls and has hired a new CFO.  This is an issue that should be resolved after restating the financials which have been completed.

LOVE is a company intent on being a disruptive force in the furniture sector. They are taking market share and delivering impressive results while their competitors struggle with stagnant or negative revenue growth.

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Data here is obtained from what are considered reliable sources.  We consider the data used to be relevant and reliable.

Fund holdings and sector allocations are subject to change at any time and should not be considered a recommendation to buy or sell any security. Please click PRCGX and PREOX for a list of the top ten holdings.

Before you invest in the Perritt MicroCap Opportunities Fund or Perritt Ultra MicroCap Fund, please refer to the prospectus for important information about the investment company, including investment objectives, risks, charges, and expenses. You may also obtain a hard copy of the  prospectus by calling 800-331-8936. The prospectus should be read carefully before you invest.

Mutual fund investing involves risk. Principal loss is possible. The Funds invest in smaller companies, which involve additional risks, such as limited liquidity and greater volatility. The Funds invest in microcap companies which tend to perform poorly during times of economic stress. The Ultra MicroCap Fund may invest in early-stage companies which tend to be more volatile and more speculative than investments in more established companies. 

Past Performance does not guarantee future results.

The Perritt Funds are distributed by Quasar Distributors, LLC.

First published November 2023.

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