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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. As discussed in the section titled “Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” under Part I, Item 1A in this Annual Report on Form 10-K.

We operate on a 52- or 53-week fiscal year that ends on the Sunday closest to February 1. Each fiscal year generally is comprised of four 13-week fiscal quarters, although in the years with 53 weeks, the fourth quarter represents a 14-week period. The fiscal year ended February 2, 2025 consisted of 52 weeks. Fiscal years 2024 and 2023 consisted of 53 weeks and 52 weeks, respectively.

Overview

We are a technology driven company that designs, manufactures and sells unique, high quality furniture derived through our proprietary "Designed for Life" approach 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, the immersive surround sound home theater system called StealthTech,and the

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most recently launched PillowSacTM Accent Chair and Sactionals Reclining Seat. Innovation is at the center of our design philosophy with all of our core products protected by a robust portfolio of utility patents. We market and sell our products through an omni-channel platform that includes direct-to-consumer touch points in the form of our own showrooms, which include our mobile concierge and kiosks, and online directly at www.lovesac.com. 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.

Our Operations

See Item 1. Business for information on our products, customers, business model, channels, growth strategies, seasonality and other factors describing our business.

Factors Affecting Our Operating Results

While our growth strategy has contributed to our improving operating results, it also presents significant risks and challenges. The timing and magnitude of new showroom openings, existing showroom renovations, and marketing activities may affect our results of operations in future periods. These strategic initiatives will require substantial expenditures.

Other factors that could affect our results of operations in future periods include:

Macroeconomic Factors

There are a number of macroeconomic factors and uncertainties affecting the overall business environment and our business, including increased inflation, elevated interest rates, housing market conditions, consumer debt and available credit, increased tariffs and trade restrictions, global conflicts and uncertainties in the global financial markets. These factors may have a negative impact on markets in which we operate, including the potential for an economic recession, a continued downturn in the housing market, and a reduction in consumer discretionary spending. We believe that these macroeconomic factors have contributed to the slowdown in demand that we have experienced in our business which may continue in future periods.

Seasonality in Quarterly Results

Our business is seasonal. As a result, our revenues fluctuate from quarter to quarter, which often affects the comparability of our results between periods. Working capital requirements are typically higher in the third fiscal quarter due to inventory built-up in advance of the holiday selling season. Net sales are historically higher in the fourth fiscal quarter due primarily to the impact of the holiday selling season. As such, results of a period shorter than a full year may not be indicative of results expected for the entire year.

Competition

The retail industry is highly competitive and 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.

How We Assess the Performance of Our Business

We consider a variety of financial and operating measures, including the following, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.

Net Sales

Net sales reflect our sale of merchandise plus shipping and handling revenue less returns and discounts. Net sales made at Company operated showrooms, including shop-in-shops and pop-up-shops, and via the web are recognized, typically at the point of transference of title when the goods are shipped.

Omni-channel Comparable Net Sales

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Omni-channel comparable net sales is a measure that highlights the performance of our existing locations and websites by measuring the change in net sales for a period over the comparable prior-period of equivalent length. Comparable net sales includes sales at all retail locations and online, open greater than 12 months (including remodels and relocations) and excludes closed stores. Comparable net sales is intended only as supplemental information and is not a substitute for net sales presented in accordance with U.S. GAAP.

New Customer

We define a customer as new when the customer has completed a transaction at Lovesac either at a showroom or internet channel only for the first time. Repeat customers accounted for approximately 46.8% of all transactions in fiscal 2025 compared to 43.6% in fiscal 2024. We expect a healthy mix between new and repeat customers in our transaction mix as we spend on acquiring new customers.

Cost of Merchandise Sold

Cost of merchandise sold includes the direct cost of sold merchandise; inventory shrinkage; inventory adjustments due to obsolescence, including excess and slow-moving inventory and lower of cost or net realizable value reserves; inbound freight; freight costs to ship merchandise to our showrooms, and warehousing and all logistics costs associated with shipping product to our customers. Certain competitors and other retailers may report gross profit differently than we do, by excluding from gross profit some or all of the costs related to their distribution network and instead including them in selling, general and administrative expenses. As a result, the reporting of our gross profit and profit margin may not be comparable to other companies.

The primary drivers of our cost of merchandise sold are raw materials costs, labor costs in the countries where we source our merchandise, and logistics costs. We expect gross profit to increase to the extent that we successfully grow our net sales and continue to realize scale economics with our manufacturing partners. We review our inventory levels on an ongoing basis in order to identify slow-moving merchandise and use product markdowns to efficiently sell these products. The timing and level of markdowns are driven primarily by customer acceptance of our merchandise.

Gross Profit

Gross profit is equal to our net sales less cost of merchandise sold. Gross profit as a percentage of our net sales is referred to as gross margin.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include all operating costs, other than advertising and marketing expense and depreciation and amortization, not included in cost of merchandise sold. These expenses include all payroll and payroll-related expenses; showroom expenses, including occupancy costs related to showroom operations, such as rent and common area maintenance; occupancy and expenses related to many of our operations at our headquarters, including utilities, equity based compensation, financing related expense; public company expenses; customer financing fees; and credit card transaction fees. Selling, general and administrative expenses as a percentage of net sales is usually higher in lower volume quarters and lower in higher volume quarters because a significant portion of the costs are relatively fixed.

Historically, our revenue growth has been accompanied by increased selling, general and administrative expenses. The most significant components of these increases are payroll and rent costs. We expect these expenses to increase as we grow our business. We expect to leverage total selling, general and administrative expenses as a percentage of net sales as net sales volumes continue to grow. We expect to continue to invest in infrastructure to support the Company’s growth. Our continued infrastructure investments include research and development costs on our existing and future products and foundational technology investments to support our continued growth. These investments will lessen the impact of expense leveraging during the period of investment with the greater impact of expense leveraging happening after the period of investment. However, total selling, general and administrative expenses generally will leverage during the periods of investments with the greatest leverage occurring within the fourth quarter.

Advertising and Marketing Expense

Advertising and marketing expense include digital, social, and traditional advertising and marketing initiatives, that cover all of our business channels. Advertising and marketing expenses are projected to rise as the Company drives net sales growth, supported by ongoing investments in these areas and careful monitoring to ensure efficient resource allocation..

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Basis of Presentation and Results of Operations

The following discussion provides an analysis of the Company’s financial condition and results of operations from management's perspective and should be read in conjunction with the financial statements and related notes included in this report. The discussion in this Form 10-K generally focuses on fiscal 2025 compared to fiscal 2024. Our fiscal 2024 results contain an additional, non-comparable 53rd week when compared to fiscal 2025. A discussion of our results of operations and changes in financial condition for fiscal 2024 compared to fiscal 2023 has been excluded from this report, but can be found in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2024 Annual Report on Form 10-K.

Results of Operations

The following table summarizes key components of our results of operations for fiscal 2025, 2024, and 2023:

(In thousands) (Percentage of net sales)

Net sales

Operating expenses:

Other Operational Data

Our recent showroom growth is summarized in the following table:

Showrooms open at beginning of period 230 195

Showrooms opened 39 46

Showrooms closed (12) (11)

Showrooms open at end of period(1) 257 230

Showroom remodels — —

(1) Showrooms open at the end of the period include 1 kiosk and 2 mobile concierges as of fiscal 2025, and 6 kiosks and 2 mobile concierges as of fiscal 2024.

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Fiscal 2025 Compared to Fiscal 2024

Net sales

Net sales decreased$19.7 million, or 2.8%, in fiscal 2025 compared to fiscal 2024 driven by a decrease of 9.3% in omni-channel comparable net sales, partially offset by new showroom openings. New customers increased by 1.4% in fiscal 2025 as compared to 13.3% in fiscal 2024.

Showroom net sales decreased $11.5 million, or 2.6% in fiscal 2025 compared to fiscal 2024.

Internet sales (sales made directly to customers through our ecommerce channel) decreased $3.5 million, or 1.7%, in fiscal 2025 compared to fiscal 2024.

Other sales, which include pop-up-shop sales, shop-in-shop sales and barter inventory transactions, decreased$4.6 million, or 7.4% in fiscal 2025 compared to fiscal 2024. The decrease was primarily driven by a reduction in barter transactions coupled with lower productivity of our temporary online pop-up-shops on Costco.com, partially offset by an increase in Best Buy shop-in-shop sales. We opened 5 additional Best Buy shop-in-shop locations compared to the prior year.

Gross profit

Gross profit decreased $3.2 million, or 0.8%, in fiscal 2025 compared to fiscal 2024. Gross margin increased 120 basis points to 58.5% of net sales in fiscal 2025 from 57.3% of net sales in fiscal 2024. The increase was primarily driven by a decrease of 240 basis points in inbound transportation costs, partially offset by a decrease of 80 basis points in product margin driven by higher promotional discounting and an increase of 40 basis points in outbound transportation and warehousing costs.

Selling, general and administrative expenses

SG&A expenses increased $17.2 million, or 6.5%, in fiscal 2025 compared to fiscal 2024. The increase was primarily related to increases of $15.8 million in payroll, $3.7 million in equity-based compensation, $1.7 million in rent, $1.5 million related to a settlement with the SEC, and $1.1 million in professional fees, partially offset by decreases of $5.0 million in credit card fees and $1.6 million in other overhead costs. As a percentage of net sales, SG&A was 41.4% in fiscal 2025, compared to 37.7% in fiscal 2024.

Advertising and marketing expenses

Advertising and marketing expenses decreased $6.1 million, or 6.4%, in fiscal 2025 compared to fiscal 2024. Advertising and marketing expenses were 12.9% and 13.4% of net sales in fiscal 2025 and 2024, respectively.

Depreciation and amortization expenses

Depreciation and amortization expenses increased $2.1 million, or 16.7%, in fiscal 2025 compared to fiscal 2024, primarily driven by assets being placed into service related to leasehold improvements for new showrooms.

Interest and other income, net

Interest and other income, net was $2.8 million in fiscal 2025 compared to $1.7 million in fiscal 2024. The increase in interest income was primarily the result of higher cash deposits in the Company's interest-bearing bank accounts combined with higher interest rates.

Income tax expense

Income tax expense was $4.9 million in fiscal 2025 compared to $8.0 million in fiscal 2024. The decrease is primarily driven by lower net income before taxes, partially offset by an increase in the effective tax rate.

Liquidity and Capital Resources

General

Our business relies on cash flows from operations, our revolving line of credit (see “Revolving Line of Credit” below) and securities issuances as our primary sources of liquidity. At February 2, 2025, we had $83.7 million in cash and cash

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equivalents. Our primary cash needs are for marketing and advertising, inventory, payroll, showroom rent, capital expenditures associated with opening new showrooms and updating existing showrooms, as well as infrastructure and information technology. We periodically use cash to repurchase shares of our common stock under our share repurchase program. The most significant components of our working capital are cash and cash equivalents, merchandise inventory, prepaid expenses, accounts payable, accrued expenses, customer deposits, and other current liabilities. We believe that cash expected to be generated from operations, the availability under our revolving line of credit and our existing cash balances are sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months.

Capital Expenditures

Historically, we have invested significant capital expenditures in opening new showrooms and updating existing showrooms. These capital expenditures have increased in the past and may continue to increase in future periods as we open additional showrooms. Capital expenditures are anticipated to support our showroom growth, including capital outlays for leasehold improvements, fixtures and equipment, and the construction of new showrooms. Cash paid for capital expenditures was $21.5 million in fiscal 2025. Capital expenditures are projected to be in the range of $22.0 million to $28.0 million for fiscal 2026.

Leases

The majority of our operating leases relate to company showrooms. We also lease our corporate facilities. At February 2, 2025, we had aggregate lease obligations of $222.9 million, with $32.0 million payable within 12 months. See Note 6, “Leases” of the Notes to Financial Statements for further discussion of our operating leases.

Cash Flow Analysis

The following table summarizes operating, investing, and financing activities for fiscal 2025, 2024, and 2023:

Net cash provided by (used in) operating activities $ 38,977 $ 76,441 $ (21,375)

Net cash provided by (used in) operating activities

Net cash provided by (used in) operating activities consists primarily of net income adjusted for certain non-cash items, including depreciation and amortization, equity based compensation, non-cash lease expense, and deferred income taxes, and the effect of changes in working capital and other activities.

Net cash provided by operating activities was $39.0 million in fiscal 2025, a decrease from $76.4 million in the prior year period, primarily driven by lower net income and changes in working capital related to inventory management actions and income taxes paid. The decrease was partially offset by cash inflows resulting from the timing of payments to vendors.

Net cash used in investing activities

Investing activities consist primarily of investments related to capital expenditures for new showroom openings and the acquisition of intangible assets.

Net cash used in investing activities was $21.5 million in fiscal 2025, a decrease from $29.2 million in the prior year period, primarily attributable to a reduction in capital expenditures, driven by a year-over-year decrease in the number of new showroom openings.

Net cash used in financing activities

Financing activities consist primarily of repurchases of our common stock, taxes paid for the net settlement of equity awards and payment of deferred financing costs.

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Net cash used in financing activities was $20.8 million in fiscal 2025, an increase from $3.7 million in the prior year period, primarily resulting from repurchases of our common stock beginning in fiscal 2025.

Revolving Line of Credit

On March 25, 2022, we amended our existing credit agreement providing for an asset-based revolving credit facility with the lenders party thereto, and Wells Fargo Bank, National Association ("Wells Fargo Bank"), as administrative agent. The maturity date of our credit agreement was extended to March 25, 2024 and, among other things, the maximum revolver commitment was increased from $25.0 million to $40.0 million, subject to borrowing base and availability restrictions. Our credit agreement includes a $1,000,000 sublimit for the issuance of letters of credit and a $4,000,000 sublimit for swing line loans.

We are required to pay a commitment fee of 0.30% based on the daily unused portion of the credit facility. Amounts outstanding under the credit facility, at our option, bear interest at either a base rate or a term secured overnight term rate ("SOFR") based rate, plus, in either case, a margin determined by reference to our quarterly average excess availability under the credit facility and ranging from 0.50% to 0.75% for borrowings accruing interest at base rate and from 1.625% to 1.850% for borrowings accruing interest at term SOFR. Swing line loans will at all times accrue interest at a base rate plus the applicable margin. The lower margins described above will apply initially and will adjust thereafter from time to time based on the quarterly average excess availability under the credit facility.

On March 24, 2023, the Company amended the credit agreement to extend the maturity date to September 30, 2024. On July 29, 2024, we amended the credit agreement to add an uncommitted accordion feature that allows the Company, subject to certain customary conditions, to increase the size of the revolving credit facility by $10 million and, among other things, extend the maturity date of the loans made under the Amendment from September 30, 2024 to July 29, 2029. For additional information regarding our line of credit with Wells Fargo Bank, see Note 8. Financing Arrangements in the Notes to the Financial Statements included in Part IV of this report. As of February 2, 2025 and February 4, 2024, the Company’s borrowing availability under the line of credit was $32.6 million and $36.0 million, respectively, and there were no outstanding borrowings under our credit facility.

Share Repurchase

On June 11, 2024, our board of directors authorized a share repurchase program for up to $40.0 million of shares of our common stock. Under the share repurchase program, we may repurchase shares from time to time in the open market, privately negotiated transactions and accelerated share repurchase. The timing, volume and nature of share repurchases, if any, will be at our sole discretion and will be dependent on market conditions, liquidity, applicable securities laws, and other factors. We may suspend or discontinue the share repurchase program at any time. We plan on funding any repurchases in the future with our current cash and cash equivalents and future cash flows.

As of February 2, 2025, we had $20.1 million available to repurchase shares pursuant to the share repurchase program. For additional information, see Note 9. Stockholders' Equity in the Notes to the Financial Statements included in Part IV of this report.

Critical Accounting Policies and Estimates

The management's discussion and analysis of financial condition and results of operations is based upon our financial statements, which have been prepared in conformity with U.S. GAAP. Certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and requires us to make significant estimates and assumptions. Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions and conditions. In applying these policies, management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, and other various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. We continue to monitor the effects of global macroeconomic and geopolitical uncertainty,general market, political and economic conditions.

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All of our significant accounting policies are outlined in Note 1. Basis of Presentation, and Summary of Significant Accounting Policies in the Notes to the Financial Statements included in Part IV of this report. There have been no material changes to the significant accounting policies during fiscal 2025.

Barter Arrangements

The Company has a bartering arrangement with a third-party vendor, whereby the Company will provide inventory in exchange for media credits. Barter sales transaction with commercial substance are recorded at a transaction price based on the estimated fair value of the non-cash consideration of the media credits to be received and the revenue is recognized when control of inventory is transferred, which is when the inventory is picked up in our warehouse. Fair value is estimated using various considerations, including the cost of similar media advertising if transacted directly, the expected sales price of product given up in exchange for the media credits, and the expected usage of media credits prior to expiration based on forecasted media spend subject to media credits under the barter arrangement. Projecting marketing spend requires estimating such factors as sales growth, inflation, overall economics of the retail industry, and changes in marketing trends, and are therefore subject to variability and difficult to predict, among other things. The Company recognizes an asset for media credits which is subsequently evaluated for impairment at each reporting period for any changes in circumstances. For fiscal 2025, 2024, and 2023, the Company recognized $9.0 million, $12.3 million, and $21.3 million, respectively, of barter sales in exchange for media credits. The Company had $36.7 million and $32.8 million of unused media credits as of February 2, 2025, and February 4, 2024, respectively, and did not recognize any impairment.

Impairment of Long-Lived Assets

Our long-lived assets consist of property and equipment and right-of-use assets from leases. Property and equipment includes leasehold improvements, and other tangible assets. Long-lived assets are reviewed for potential impairment at such time that events or changes in circumstances indicate that the carrying amount of an asset might not be recovered. We evaluate for impairment at the individual showroom level, which is the lowest level at which individual cash flows can be identified. When evaluating long-lived assets for potential impairment, we will first compare the carrying amount of the assets to the future undiscounted cash flows for the respective long-lived asset. If the estimated future cash flows are less than the carrying amounts of the assets, an impairment loss is measured as the excess of the carrying value over its fair value. We estimate fair value based on future discounted cash flow based on our historical operations of the showroom and estimates of future showroom profitability and economic conditions. These estimates include factors such as sales growth, gross margin, employment costs, lease escalation, and overall macroeconomic conditions, and are therefore subject to variability. Actual future results may differ from those estimates. If required, an impairment loss is recorded for that portion of the assets' carrying value in excess of fair value.

In fiscal 2025, 2024, and 2023, we did not recognize any impairment charges for any long-lived assets.

Merchandise Inventories

Merchandise inventories are comprised of finished goods which are carried at the lower of cost or net realizable value, including warehousing and capitalized freight costs. Cost is determined on a weighted-average method basis. Merchandise inventories consist primarily of foam filled furniture, sectional couches, and related accessories. We adjust our inventory for obsolescence based on historical trends, aging reports, specific identification and its estimates of future retail sales prices. In addition, we include capitalized freight and warehousing costs in inventory related to the finished goods in inventory.

Operating Leases

The Company determines if a long-term contractual obligation is a lease at inception. The majority of our operating leases relate to company showrooms. We also lease our corporate facilities. These operating leases expire at various dates through fiscal 2035. Showroom leases may include options that allow us to extend the lease term beyond the initial base period, subject to terms agreed upon at lease inception. Some leases also include early termination options, which can be exercised under specific conditions. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company records lease liabilities at the present value of the lease payments not yet paid, discounted at the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term. As the Company's leases do not provide an implicit interest rate, the Company uses an incremental borrowing rate based on the information available at possession date in determining the present value of lease payments.

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We recognize operating lease cost over the estimated term of the lease, which includes options to extend lease terms that are reasonably certain of being exercised, starting when possession of the property is taken from the landlord, which normally includes a construction period prior to the showroom opening. When a lease contains a predetermined fixed escalation of the fixed rent, we recognize the related operating lease cost on a straight-line basis over the lease term. In addition, certain of our lease agreements include variable lease payments, such as payments based on a percentage of sales that are in excess of a predetermined level and/or increases based on a change in the consumer price index or fair market value. These variable lease payments are excluded from minimum lease payments and are included in the determination of net lease cost when it is probable that the expense has been incurred and the amount can be reasonably estimated. If an operating lease asset is impaired, the remaining operating lease asset will be amortized on a straight-line basis over the remaining lease term.

Recent Accounting Pronouncements

See Note 1. Basis of Presentation, and Summary of Significant Accounting Policies in the Notes to the Financial Statements included in Part IV of this report for a discussion of recently issued and adopted accounting standards.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

In the normal course of business, we are exposed to a variety of market risks, including fluctuations in interest rates and inflation that could affect our financial position and results of operations.

Interest Rate Risk

Cash and cash equivalents and short-term investments were held primarily in cash deposits, certificates of deposit, money market funds and investment grade corporate debt. The fair value of our cash, cash equivalents and short-term investments will fluctuate with movements of interest rates, increasing in periods of declining rates of interest and declining in periods of increasing rates of interest.

Interest on the revolving line of credit incurred pursuant to the credit agreements described herein would accrue at a floating rate based on a formula tied to certain market rates at the time of occurrence; however, we do not expect that any changes in prevailing interest rates will have a material impact on our results of operations.

Inflation

In fiscal 2025, we continued to see normalization of inflationary pressures in the supply chain. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. If our costs were to be subject to more significant inflationary pressures, we may not be able to fully offset such higher costs through price increases or other cost efficiency measures. Our inability or failure to do so could harm our business, financial condition and results of operations.

Item 8. Financial Statements and Supplementary Data.

The Company’s financial statements are contained in the pages beginning on F-1, which appear at the end of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

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Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (principal financial officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report. Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation, that our disclosure controls and procedures were effective as of February 2, 2025.

Management's Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of February 2, 2025. In making this assessment, management used the criteria set forth in 2013 by the Committee of Sponsoring Organizations of the Tread way Commission (COSO) in “Internal Control-Integrated Framework.” Based on management’s assessment using the COSO criteria, management has concluded that the Company’s internal control over financial reporting was effective as of February 2, 2025. The effectiveness of our internal control over financial reporting as of February 2, 2025 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their attestation report, included within this Item 9A of this Annual Report on Form 10-K.

Changes in our Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fourth fiscal quarter of the fiscal year ended February 2, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or the Company’s internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of The Lovesac Company

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of The Lovesac Company (the “Company”) as of February 2, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 2, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the financial statements as of and for the year ended February 2, 2025, of the Company and our report dated April 10, 2025, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Stamford, Connecticut

April 10, 2025

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Item 9B. Other Information.

Trading Arrangements

On January 10, 2025, Shawn D. Nelson, CEO, adopted a Rule 10b5-1 trading arrangement that is intended to satisfy the affirmative defense of Rule 10b5-1(c) for the sale of up to 24,000 shares of the Company’s common stock. Mr. Nelson's plan will expire on January 10, 2026, subject to early termination for certain specified events set forth in the plan.

No other director or officer of the Company (as defined in Section 16 of the Securities Exchange Act of 1934, as amended) adopted, modified or terminated a Rule 10b5-1 trading arrangement or a non- Rule 10b5-1 trading arrangement (each as defined in Item 408 (a) and (c) of Regulation S-K) during the thirteen weeks ended February 2, 2025. Transactions by Section 16 directors and officers will be disclosed publicly through Form 4 filings with the SEC to the extent required by law.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

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PART III.

Item 10. Directors, Executive Officers and Corporate Governance.

The following is a list of the names, ages and backgrounds of our current executive officers as of April 10, 2025:

Name Age Present Position Business Experience

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We will file with the SEC a definitive proxy statement (the “2025 Proxy Statement”) pursuant to Regulation 14A for our 2025 annual meeting of stockholders within 120 days of the fiscal year ended February 2, 2025. The additional information required by this Item will appear in the 2025 Proxy Statement and is incorporated by reference herein.

Our board of directors has adopted a Code of Business Conduct and Ethics applicable to all officers, directors and associates, which is available on our website (https://investor.lovesac.com) under "Governance." We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of our Code of Conduct by posting such information on the website address and location specified above.

Item 11. Executive Compensation.

The information required by this Item will appear in the 2025 Proxy Statement and is incorporated by reference herein.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item will appear in the 2025 Proxy Statement and is incorporated by reference herein.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item will appear in the 2025 Proxy Statement and is incorporated by reference herein.

Item 14. Principal Accountant Fees and Services.

The information required by this Item will appear in the 2025 Proxy Statement and is incorporated by reference herein.

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PART IV.

Item 15. Exhibits, Financial Statement Schedules.

(a)The following documents are filed as part of this report:

1.Financial Statements (see Part II, Item 8. Financial Statements and Supplementary Data)

Report of Independent Registered Public Accounting Firm (PCAOB ID 34) F-3

Balance Sheets – As of February 2, 2025 and February 4, 2024 F-5

Notes to Financial Statements F-9

2. Financial Statement Schedules

Schedules have been omitted because they are not required or are not applicable or because the information required to be set forth therein either is not material or is included in the financial statements or notes thereto.

3. Exhibits

See the Exhibit Index.

Item 16. Form 10-K Summary.

Optional disclosure not included in this Annual Report on Form 10-K.

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EXHIBIT INDEX

3.1 Amended and Restated Certificate of Incorporation 8-K 3.1 6/7/2021

10.6 Amended and Restated Registration Rights Agreement S-1 10.5 4/20/2018

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19.1 The Lovesac Company Insider Trading Policy, as amended Filed herewith.

23.1 Consent of Deloitte & Touche LLP Filed herewith.

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

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101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

± Indicates a management contract or compensatory plan.

† Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon its request.

* This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended or the Exchange Act.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

The Lovesac Company

By: /s/ Shawn Nelson

Shawn Nelson

Date: April 10, 2025 Chief Executive Officer

(Principal Executive Officer)

By: /s/ Keith Siegner

Keith Siegner

Date: April 10, 2025 Executive Vice President and Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

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POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Shawn Nelson and Keith Siegner, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Exchange Act, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/ Shawn Nelson April 10, 2025

Shawn Nelson

Chief Executive Officer and Director

(Principal Executive Officer)

/s/ Keith Siegner April 10, 2025

Keith Siegner

Executive Vice President and

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

/s/ Andrew Heyer April 10, 2025

Andrew Heyer

Chairman and Director

/s/ Walter McLallen April 10, 2025

Walter McLallen

Director

/s/ Sharon M. Leite April 10, 2025

Sharon M. Leite

Director

/s/ Shirley Romig April 10, 2025

Shirley Romig

Director

John Grafer

Director

Jack Krause

Director

/s/ Vineet Mehra April 10, 2025

Vineet Mehra

Director

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THE LOVESAC COMPANY

FINANCIAL STATEMENTS

AS OF FEBRUARY 2, 2025 AND FEBRUARY 4, 2024 AND FOR THE YEARS ENDED FEBRUARY 2, 2025, FEBRUARY 4, 2024, AND JANUARY 29, 2023

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THE LOVESAC COMPANY

CONTENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID 34) F-3

Financial Statements

Balance Sheets F-5

Statements of Operations F-6

Statements of Changes in Stockholders’ Equity F-7

Statements of Cash Flows F-8

Notes to the Financial Statements F-9

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of The Lovesac Company

Opinion on the Financial Statements

We have audited the accompanying balance sheets of The Lovesac Company (the "Company") as of February 2, 2025 and February 4, 2024, the related statements of operations, changes in stockholders' equity, and cash flows, for each of the three years in the period ended February 2, 2025, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 2, 2025 and February 4, 2024, and the results of its operations and its cash flows for each of the three years in the period ended February 2, 2025, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of February 2, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 10, 2025, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Barter Arrangements — Refer to Note 1 to the financial statements

Critical Audit Matter Description

The Company has a bartering arrangement with a third-party vendor, in which the Company repurposes returned open-box inventory in exchange for media credits. Barter sale transactions with commercial substance are recorded at a transaction price based on the estimated fair value of the non-cash consideration of the media credits to be received and the revenue is recognized when control of inventory is transferred, which is when the inventory is picked up from the Company’s warehouse. Fair value is estimated using various considerations including the cost of similar media advertising if transacted directly, the expected sales price of product given up in exchange for the media credits, and the expected usage of media credits prior to expiration based on a forecasted media spend subject to media credits under the barter arrangement. For the year ended February 2, 2025, the Company recognized $9.0 million of barter sales in exchange for media credits. The Company recognizes an asset for media credits which is subsequently evaluated for impairment at each reporting period for

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any changes in circumstances. As of February 2, 2025, the Company had $36.7 million of unused media credits and did not recognize any impairment.

We identified the barter arrangement as a critical audit matter because of the significant estimate and assumptions management makes to determine the transaction price based on the estimated fair value of the non-cash consideration received in exchange for the media credits and of forecasted media spend used to evaluate the unused media credits for potential impairment. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s estimate of the fair value of the sale transaction price and future utilization of media credits.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to barter arrangement included the following, among others:

◦We tested the effectiveness of controls over the determination of the transaction price.

◦We read the underlying barter transaction agreements.

◦For a sample of barter sale transactions, we tested that the sale occurred and the estimated fair value of the sale transaction price, as follows:

▪Obtained shipping documents that evidenced the transfer of control of the related inventory.

▪Compared management’s estimate of advertising costs to the actual advertising costs incurred for selected promotional campaigns subject to the barter arrangement from the third-party vendor.

▪Compared the transaction price of the inventory sold through the bartering agreement to the transaction price of like inventory sold to other third-party customers.

▪Tested the underlying assumptions to management’s analysis to determine their ability to utilize media credits by 1) making inquiries of management related to their projected advertising and media spend, 2) performing a lookback analysis of total marketing spend and specific marketing spend with the third-party vendor, and 3) comparing the forecasts to the amounts included in the overall business forecast as communicated to the Board of Directors.

/s/ Deloitte & Touche LLP

Stamford, Connecticut

April 10, 2025

We have served as the Company’s auditor since fiscal 2023.

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THE LOVESAC COMPANY

BALANCE SHEETS

Assets

Current Assets

Liabilities and Stockholders' Equity

Current Liabilities

Income tax payable, long-term 424 452

Line of credit — —

Commitments and Contingencies (See Note 7)

Stockholders’ Equity

Total Liabilities and Stockholders’ Equity $ 532,250 $ 482,180

The accompanying notes are an integral part of these financial statements

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THE LOVESAC COMPANY

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED FEBRUARY 2, 2025, FEBRUARY 4, 2024, AND JANUARY 29, 2023

(amounts in thousands, except per share data and share amounts) 2025 2024 2023

Operating expenses:

Interest and other income (expense), net 2,801 1,747 (117)

Net income per common share:

Weighted average shares outstanding:

The accompanying notes are an integral part of these financial statements

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THE LOVESAC COMPANY

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED FEBRUARY 2, 2025, FEBRUARY 4, 2024, AND JANUARY 29, 2023

(amounts in thousands, except share amounts) Shares Amount

Vested restricted stock units 72,360 — — — —

Taxes paid for net share settlement of equity awards — — (1,658) — (1,658)

Equity-based compensation — — 4,216 — 4,216

Vested restricted stock units 219,074 — — — —

Taxes paid for net share settlement of equity awards — — (3,675) — (3,675)

Exercise of warrants 74,592 — — — —

Equity-based compensation — — 7,945 — 7,945

Vested restricted stock units 75,283 — — — —

Taxes paid for net share settlement of equity awards — — (530) — (530)

The accompanying notes are an integral part of these financial statements

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THE LOVESAC COMPANY

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED FEBRUARY 2, 2025, FEBRUARY 4, 2024, AND JANUARY 29, 2023

Cash Flows from Operating Activities

Depreciation and amortization of property and equipment 14,292 12,174 10,454

Amortization of other intangible assets 418 429 388

Amortization of deferred financing fees 127 159 164

Net loss on disposal of property and equipment 140 235 45

Gain on lease termination — (131) —

Change in operating assets and liabilities:

Prepaid expenses and other current assets (6,064) (164) 3,087

Other liabilities (28) 452 —

Cash Flows from Investing Activities

Payments for patents and trademarks (491) (475) (307)

Cash Flows from Financing Activities

Taxes paid for net share settlement of equity awards (530) (3,675) (1,658)

Repurchases of common stock (19,929) — —

Proceeds from the line of credit — 255 —

Payments on the line of credit — (255) —

Payment of deferred financing costs (303) (52) (277)

Supplemental Cash Flow Data:

Non-cash investing and financing activities:

Asset acquisitions not yet paid for at period end $ 1,240 $ 1,576 $ 4,103

Excise tax on share repurchases, accrued but not paid $ 183 $ — $ —

The accompanying notes are an integral part of these financial statements

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THE LOVESAC COMPANY

NOTES TO FINANCIAL STATEMENTS

Note 1. Basis of Presentation, and Summary of Significant Accounting Policies

Nature of Operations

The Lovesac Company (the “Company”, “we”, “us” or “our”) is a technology driven company that designs, manufactures and sells unique, high quality furniture derived through its proprietary "Designed for Life" approach which results in products that are built to last a lifetime and designed to evolve as our customers’ lives do. 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 points in the form of our own showrooms, which include our mobile concierge and kiosks, as well as through shop-in-shops and online pop-up-shops with third party retailers. As of February 2, 2025, the Company operated 257 showrooms including kiosks and mobile concierges located throughout the United States. The Company was formed as a Delaware corporation on January 3, 2017, in connection with a corporate reorganization with SAC Acquisition LLC, a Delaware limited liability company (“SAC LLC”), the predecessor entity to the Company.

Basis of Presentation

The financial statements of the Company as of February 2, 2025 and February 4, 2024 and for the years ended February 2, 2025, February 4, 2024 and January 29, 2023 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission.

Fiscal Year

The Company’s fiscal year is determined on a 52/53 week basis ending on the Sunday closest to February 1. Hereinafter, fiscal years ended February 2, 2025, February 4, 2024 and January 29, 2023 are referred to as fiscal 2025, 2024 and 2023, respectively. Fiscal 2025, 2024 and 2023 were 52-week, 53-week and 52-week fiscal years, respectively.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The Company evaluates its estimates and judgements on an ongoing basis based on historical experience, expectations of future events and various other factors we believe to be reasonable under the circumstances and revise them when necessary in the period the change is determined. Actual results may differ from the original or revised estimates.

Revenue Recognition

The Company's revenue consists substantially of product net sales. The Company reports product net sales net of discounts and recognizes them at the point in time when control transfers to the customer, which generally occurs upon our delivery to a third-party carrier.

Shipping and handling charges billed to customers are included in revenue. The Company recognizes shipping and handling expense as fulfillment activities (rather than a promised good or service) when the activities are performed. Accordingly, the Company records the expenses for shipping and handling activities at the same time the Company recognizes revenue. Shipping and handling costs incurred are included in cost of merchandise sold and include inbound freight and tariff costs relative to inventory sold, warehousing, and last mile shipping to our customers. Shipping and handling costs were $116.0 million, $133.2 million and $159.7 million in fiscal 2025, 2024 and 2023, respectively.

Estimated refunds for returns and allowances are recorded using our historical return patterns, adjusting for any changes in returns policies. The Company records estimated refunds for net sales returns on a monthly basis as a reduction of net sales and cost of sales on the statement of operations and an increase in inventory and customers returns liability on the balance sheet. As of February 2, 2025 and February 4, 2024, there was a returns allowance recorded on the balance sheet in the amount of $9.2 million and $5.6 million, respectively, which was included in accrued expenses, and sales returns of $2.4 million and $1.3 million, respectively, included in merchandise inventories.

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In some cases, deposits are received before the Company transfers control, resulting in contract liabilities. These contract liabilities are reported as customer deposits on the Company's balance sheet. As of February 2, 2025, and February 4, 2024, the Company recorded customer deposit liabilities in the amount of $11.3 million and $8.3 million, respectively. During fiscal 2025, 2024 and 2023, the Company recognized $8.3 million, $6.8 million and $13.3 million, respectively, related to customer deposits from fiscal 2024, 2023 and 2022, respectively.

The Company offers its products through an inventory lean omni-channel platform that provides a seamless and meaningful experience to its customers in showrooms, which include mobile concierge and kiosks, and through the internet. The Other channel predominantly represents net sales through the use of online and in-store pop-up shops, shop-in-shops, and barter inventory transactions. In-store pop-up-shops and shop-in-shops are staffed with associates trained to demonstrate and sell our product.The following represents net sales disaggregated by channel:

The Company has no foreign operations and its net sales to foreign countries was less than 0.01% of total net sales in fiscal 2025, 2024, and 2023.

The Company had no customers that comprise more than 10% of total net sales in fiscal 2025, 2024, or 2023. See Note 10. Segment Information for net sales disaggregated by product.

Barter Arrangements

The Company has a bartering arrangement with a third-party vendor. The Company repurposes returned open-box inventory in exchange for media credits, which are being used to support our advertising initiatives to create brand awareness and drive net sales growth. Barter transactions with commercial substance are recorded at a transaction price based on the estimated fair value of the non-cash consideration of the media credits to be received and the revenue is recognized when control of inventory is transferred, which is when the inventory is picked up in our warehouse. Fair value is estimated using various considerations, including the cost of similar media advertising if transacted directly, the expected sales price of product given up in exchange for the media credits, and the expected usage of media credits prior to expiration based on forecasted media spend subject to media credits under the barter arrangement. The Company recognizes an asset for media credits which is subsequently evaluated for impairment at each reporting period for any changes in circumstances. As the barter credits are expected to be utilized at various dates through their expiration dates, the Company will classify the amount expected to be utilized in the next fiscal year as current, which is included in Prepaid expenses, with the remaining balance included as part of Other assets on the balance sheet.

For fiscal 2025, 2024, and 2023, the Company recognized $9.0 million, $12.3 million, and $21.3 million, respectively, of barter sales in exchange for media credits. As of February 2, 2025, and February 4, 2024, the Company had $5.3 million and $5.1 million, respectively, of unused media credits expected to be utilized in the next fiscal year classified as current, and the remaining balance of $31.4 million and $27.7 million, respectively, classified as non-current. The credits expire from January through October 2034 and the Company expects to utilize all credits prior to expiration. The Company did not recognize any impairment for fiscal 2025, 2024, and 2023. The difference between the opening and closing balances of the Company's prepaid barter credit primarily results from the inventory exchanged for media credits during the period, offset by utilization of those credits.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity at purchase of three months or less to be cash equivalents. The Company has deposits with financial institutions that maintain Federal Deposit Insurance Corporation “FDIC” deposit insurance up to $250,000 per depositor. The portion of the deposit in excess of this limit represents a credit risk to the Company. Due to the high cash balance maintained by the Company, the Company does maintain depository balances in excess of the insured amounts.

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Trade Accounts Receivable, net

Trade accounts receivable are stated at their estimated realizable amount and do not bear interest for which collectability is reasonably assured. Management determines the allowance for doubtful accounts by regularly evaluating individual customer accounts, considering the customer’s financial condition, and credit history, and general and industry current economic conditions. Trade accounts receivables are evaluated for collectability on a regular basis and an allowance is recorded, if necessary. Recoveries of amounts previously written off are recorded when received. Historically, collection losses have been immaterial as a significant portion of the Company’s receivables are related to individual credit card transactions and two wholesale customers. For fiscal 2025, 2024, and 2023, the Company recognized $0.4 million, $1.0 million, and $0.4 million, respectively, related to bad debt write-offs.

Breakdown of trade accounts receivable is as follows:

Total trade accounts receivable, net $ 16,781 $ 13,463

The Company had two wholesale customers that comprised 100% of wholesale receivables at February 2, 2025 and February 4, 2024, respectively.

Prepaid Expenses

The Company recognizes payments made for goods and services to be received in the near future as prepaid expenses. Prepaid expenses consist primarily of barter credits and payments related to income taxes, insurance, rent, credit card fees, marketing, software licenses, and other costs.

Other Current Assets

Other current assets consist primarily of rebate receivables, deposits, and other receivables.

Private Label Credit Card

The Company has an agreement with Synchrony Bank (formerly GE Capital Retail Bank) (“Issuer”) to provide clients with private label credit cards (the “Retailer Program Agreement”) which was amended on March 24, 2023 to extend the term of the agreement through March 31, 2026. Each private label credit card bears The Lovesac Company brand logo and can only be used at the Company’s Showroom locations or website. The Issuer is the sole owner of the accounts issued under the private label credit card program and absorbs the losses associated with non-payment by the private label card holders and fraudulent charges with specific requirements.

During the term of the Retailer Program Agreement, the Company receives a percentage of private label credit card sales from the Issuer and is also eligible to receive incentive payments for the achievement of certain targets. These funds are recorded within net revenue in the statements of operation. The Company also receives reimbursement funds from the Issuer for certain expenses the Company incurs. These reimbursement funds are used by the Company to fund marketing and other programs associated with the private label credit card and are recorded within net revenue in the statements of operation.

Merchandise Inventories, net

Merchandise inventories are comprised of finished goods which are carried at the lower of cost or net realizable value. Cost is determined on a weighted-average method basis. Merchandise inventories consist primarily of foam filled furniture, sectional couches, and related accessories. The Company adjusts its inventory for obsolescence based on historical trends, aging reports, specific identification and its estimates of future retail sales prices. In addition, the Company includes capitalized freight and warehousing costs in inventory relative to the finished goods in inventory.

Gift Certificates and Merchandise Credits

The Company sells gift certificates and issues merchandise credits to its customers in the showrooms and through its website. Revenue associated with gift certificates and merchandise credits is deferred until redemption of the gift certificate

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and merchandise credits. The Company did not recognize any breakage revenue in fiscal 2025, 2024 or 2023 as the Company continues to honor all outstanding gift certificates.

Property and Equipment, net

Property and equipment are stated at cost less accumulated depreciation and amortization. Office and showroom furniture and equipment, software and vehicles are depreciated using the straight-line method over their estimated useful lives. Leasehold improvements are amortized using the straight-line method over their expected useful lives or lease term, whichever is shorter.

Expenditures for repairs and maintenance are charged to expense as incurred. For assets sold or otherwise disposed of, the cost and related accumulated depreciation or amortization is removed from the accounts, and any resulting gain or loss is reflected in operations for the period. The disposals generally relate to the decommissioning of aged assets, remodeled showrooms, and fixtures used during pop-up-shops. Expenditures for major betterments that extend the useful lives of property and equipment are capitalized.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the identified net assets of each business acquired. Goodwill and other indefinite-lived intangible assets are tested annually for impairment in the fourth fiscal quarter and in interim periods if certain events occur indicating that the carrying amounts may be impaired. The Company did not recognize any goodwill impairment charges during fiscal 2025, 2024, or 2023.

Intangible Assets, net

Intangible assets with finite useful lives, including patents, trademarks, and other intangible assets are being amortized on a straight-line basis over their estimated lives of 10 years, 3 years, and 5 years, respectively. Intangible assets with finite useful lives are reviewed for impairment whenever events or circumstances indicate that the carrying amount of the asset might not be recovered. There were no impairments during fiscal 2025, 2024, or 2023.

Intangible assets, net as of February 2, 2025 and February 4, 2024 consists of (in thousands):

Amortization expense was $0.4 million in fiscal 2025, 2024, and 2023.

The following table presents the future expected amortization expense as of February 2, 2025 (in thousands):

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Impairment of Long Lived Assets

In fiscal 2025, 2024, and 2023, the Company did notrecognize any impairment charges associated with showroom-level right of use lease assets.

Product Warranty

Depending on the type of merchandise, the Company offers either a three-year limited warranty or a lifetime warranty. The Company’s warranties require it to repair or replace defective products at no cost to the customer. At the time product revenue is recognized, the Company reserves for estimated future costs that may be incurred under its warranties based on historical experience. The Company periodically reviews the adequacy of its recorded warranty liability. Product warranty expense, without any reserve adjustments, was approximately $2.5 million, $2.0 million, and $0.7 million in fiscal 2025, 2024, and 2023. Warranty reserve was $2.4 million and $1.4 million as of February 2, 2025 and February 4, 2024, respectively, which was included in accrued expenses.

Leases

The Company leases its office, warehouse facilities and retail showrooms under operating lease agreements which expire at various dates through April 2035. Leases with an initial term of twelve months or less are not recorded on the balance sheet and are expensed as incurred over the lease term in the Statements of Operations.

The Company determines if a contract contains a lease at inception based on our right to control the use of an identified asset and our right to obtain substantially all of the economic benefits from the use of that identified asset. Operating right-of-use assets represents the right to use an underlying asset pursuant to the lease for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease, both of which are recognized based on the present value of future minimum lease payments over the lease term at the possession date. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received. We combine lease and non-lease components for our showroom real estate leases in determining the lease payments subject to the initial present value calculation.

The lease payments are discounted at the Company's incremental borrowing rate as the implicit rate in the lease is not readily determinable for most of the Company's leases, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. We determine incremental borrowing rates quarterly as of the last day of each prior fiscal quarter provided by a third party valuation specialist.

We recognize operating lease cost over the estimated term of the lease, which includes options to extend lease terms that are reasonably certain of being exercised, starting when possession of the property is taken from the landlord, which normally includes a construction period prior to the showroom opening. When a lease contains a predetermined fixed escalation of the fixed rent, we recognize the related operating lease cost on a straight-line basis over the lease term. In addition, certain of our lease agreements include variable lease payments, such as payments based on a percentage of net sales that are in excess of a predetermined level and/or increases based on a change in the consumer price index or fair market value. These variable lease payments are excluded from minimum lease payments and are included in the determination of net lease cost when it is probable that the expense has been incurred and the amount can be reasonably estimated. If an operating lease asset is impaired, the remaining operating lease asset will be amortized on a straight-line basis over the remaining lease term.

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Fair Value Measurements

The carrying amount of the Company’s financial instruments classified as current assets and current liabilities approximate fair values based on the short-term nature of the accounts.

Cost of Merchandise Sold

Cost of merchandise sold includes the direct cost of sold merchandise; inventory shrinkage; inventory adjustments due to obsolescence, including excess and slow-moving inventory and lower of cost or net realizable value reserves; inbound freight; all freight costs to ship merchandise to our showrooms, and warehousing and all logistics costs associated with shipping product to our customers. Certain of our competitors and other retailers may report gross profit differently than we do, by excluding from gross profit some or all of the costs related to their distribution network and instead including them in selling, general and administrative expenses. As a result, the reporting of our gross profit and profit margin may not be comparable to other companies.

The primary drivers of our cost of merchandise sold are raw materials costs, labor costs in the countries where we source our merchandise, and logistics costs. We review our inventory levels on an ongoing basis in order to identify slow-moving merchandise and use product markdowns to efficiently sell these products. The timing and level of markdowns are driven primarily by customer acceptance of our merchandise.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include all operating costs, other than advertising and marketing expense and depreciation and amortization, not included in cost of merchandise sold. These expenses include all payroll and payroll-related expenses; showroom expenses, including occupancy costs related to showroom operations, such as rent and common area maintenance; occupancy and expenses related to many of our operations at our headquarters, including utilities, equity based compensation, financing related expenses and public company expenses; and credit card transaction fees. Selling, general and administrative expenses as a percentage of net sales is usually higher in lower volume quarters and lower in higher volume quarters because a significant portion of the costs are relatively fixed.

Research and Development Expenses

Research and development costs are charged to expense in the period incurred. Research and development expense were $8.4 million, $7.7 million, and $8.4 million in fiscal years 2025, 2024, and 2023, respectively.

Employee Benefit Plan

In February 2017, the Company established The Lovesac Company 401(k) Plan (the “401(k) Plan”) with elective deferrals beginning May 1, 2017. The 401(k) Plan calls for elective deferral contributions, safe harbor matching contributions and profit sharing contributions. All employees of the Company will be eligible to participate in the 401(k) Plan in the month following one (1) month of service and the employee is over age 21. Participants are able to contribute up to 100% of their eligible compensation to the 401(k) Plan subject to limitations with the IRS. Employer contributions to the 401(k) Plan for fiscal years 2025, 2024, and 2024 were approximately $2.1 million, $1.6 million, and $1.3 million, respectively.

Advertising Expenses

Advertising expense include digital, social, and traditional advertising that covers all of our business channels. All advertising costs are expensed as incurred, or upon the release of the initial advertisement. Total advertising expenses were $77.4 million, $82.3 million, and $71.4 million in fiscal years 2025, 2024, and 2023, respectively.

Showroom Preopening and Closing Costs

Non-capital expenditures incurred in preparation for opening new retail showrooms are expensed as incurred and included in selling, general and administrative expenses.

The Company continually evaluates the profitability of its showrooms. When the Company closes or relocates a showroom, the Company incurs unrecoverable costs, including the net book value of abandoned fixtures and leasehold improvements, lease termination payments, costs to transfer inventory and usable fixtures and other costs of vacating the leased location. Such costs are expensed as incurred and are included in selling, general and administrative expenses.

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Equity-Based Compensation

The Company adopted the 2017 Equity Plan which provides for awards in the form of options, stock appreciation rights, restricted stock awards, restricted stock units, performance shares, performance units, cash-based awards and other stock-based awards. All awards shall be granted within 10 years from the effective date of the 2017 Equity Plan. Vesting is typically over a three or four-year period and is contingent upon continued employment with the Company on each vesting date.

The fair value of the restricted stock units is determined based on the closing price of the Company's common stock on the grant date and the expense is recognized over the service period. For performance based restricted stock units, the number of units received will depend on the achievement of financial metrics relative to the approved performance targets. For performance based restricted stock units, stock-based compensation expense is recognized based on expected achievement of performance targets. The Company recognizes forfeitures as they occur.

Income Taxes

The Company accounts for uncertainty in income taxes using a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. The Company classifies the liability for unrecognized tax benefits as non-current to the extent that the Company anticipates payment (or receipt) of cash beyond one year. Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes.

Deferred income taxes are provided on temporary differences between the income tax basis of assets and liabilities and the amounts reported in the financial statements and on net operating loss and tax credit carry forwards.

A valuation allowance is provided for that portion of deferred income tax assets not likely to be realized. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Basic and Diluted Net Income (Loss) Per Common Share

Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number of common shares outstanding plus dilutive potential common shares, including unvested restricted stock units, stock options, and warrants. Diluted net income per common share includes, in periods in which they are dilutive, the effect of those potentially dilutive securities under the treasury stock method, where the average market price of the common stock exceeds the exercise prices for the respective periods. In periods of loss, there are no potentially dilutive common shares to add to the weighted average number of common shares outstanding.

Recent Accounting Pronouncements

The Company has considered all recent accounting pronouncements issued by the Financial Accounting Standards Board and they were considered to be not applicable or the adoption of such pronouncements will not have a material impact on the financial statements.

Recent Accounting Pronouncements Adopted

Segment Reporting. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires all public entities to provide enhanced disclosures about significant segment expenses. The amendments in this ASU are to be applied retrospectively and are effective for our annual financial statements starting in fiscal 2025 and interim periods starting in fiscal 2026, with early adoption permitted. On February 5, 2024, the Company adopted ASU 2023-07 with impact to its disclosures only and no impacts to its results of operations, cash flows or financial condition.

Recent Accounting Pronouncements Not Yet Adopted

Income Taxes. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid and to improve the effectiveness of income tax disclosures. This accounting standards update will be effective for us for fiscal year 2026 and interim periods beginning in

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the first quarter of fiscal 2027, with early adoption permitted. The Company expects this ASU to only impact its disclosures with no impacts to its results of operations, cash flows or financial condition.

Disaggregation of income statement expenses. In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40), which requires additional disclosure of certain costs and expenses within the notes to the financial statements. This accounting standards update will be effective for us for fiscal year 2028 and interim periods beginning in the first quarter of fiscal 2029, with early adoption permitted. The Company expects this ASU to only impact its disclosures with no impacts to its results of operations, cash flows or financial condition.

Climate-Related Disclosures. In March 2024, the SEC passed rule changes that will require registrants to provide certain climate-related information in their registration statements and annual reports. The new rules enhance and standardize climate-related disclosures in an effort to provide investors with more consistent, comparable and reliable information about the impact of climate-related risks on registrants. The rules require disclosure of greenhouse gas (GHG) emissions in annual reports and registration statements Additionally, all registrants would be required to provide numerous climate-related disclosures within their financial statements and elsewhere in their filings. In April 2024, the SEC released an order staying this final rule pending judicial review of all the petitions challenging the rule. The Company is currently evaluating the impact of the potential rule change. This accounting standards update would be effective for us for fiscal year 2027.

Note 2. Property and Equipment, net

Property and equipment, net as of February 2, 2025 and February 4, 2024 consists of (in thousands):

Office and store furniture, and equipment 5 Years $ 15,410 $ 13,089

Accumulated depreciation and amortization (52,511) (42,345)

Depreciation and amortization expense was $14.3 million, $12.2 million, and $10.5 million in fiscal 2025, 2024, and 2023, respectively.

Note 3. Accrued Expenses

The following table presents the components of accrued expenses (in thousands):

Accrued warehouse, freight, and inventory $ 17,837 $ 13,348

Accrued advertising and marketing 6,707 3,373

(1) Other accrued expenses consists primarily of professional fees, credit card fees, rent, property and equipment, and other operating costs.

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Note 4. Income Taxes

The Company is subject to federal, state and local corporate income taxes. The components of the provision for income taxes reflected on the statements of operations for fiscal 2025, 2024, and 2023 are set forth below:

Current taxes:

Deferred taxes:

A reconciliation of income taxes at the federal statutory corporate rate to the effective rate for fiscal 2025, 2024, and 2023 is as follows:

Provision (benefit) at federal Statutory rates 21.0 % 21.0 % 21.0 %

State tax, net of federal provision (benefit) 6.6 % 5.1 % 4.9 %

Non-deductible executive compensation — % 0.3 % 1.8 %

Permanent adjustments 0.2 % 0.1 % 0.2 %

Penalties 1.9 % — % — %

Equity-based compensation 2.7 % 0.5 % 0.1 %

Research and development credit (2.1) % (3.6) % — %

Uncertain tax benefits (0.2) % 1.4 % — %

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Significant components of the Company's deferred tax assets are as follows (in thousands):

Deferred Income Tax Assets

State net operating loss carryforward $ 286 $ 342

Research and development capitalization 4,183 3,687

Deferred Income Tax Liabilities

Operating lease right of use asset (40,505) (40,393)

At February 2, 2025 and February 4, 2024, the Company did not have any net operating loss carryforwards available for federal income tax purposes. The Company has approximately $4.8 million and $5.7 million of state net operating loss carryforwards as of February 2, 2025 and February 4, 2024, respectively. The state net operating losses expire at various times between 2032 and 2040. The statute of limitations has expired for all tax years prior to 2022 for federal and state tax purposes. However, the net operating losses generated on the Company's federal and state tax returns in prior years may be subject to adjustments by the federal and state tax authorities.

As of February 2, 2025 and February 4, 2024, the Company did not record a valuation allowance against its net deferred tax assets, due to its assessment and conclusion that it is more likely than not that it would realize its net deferred tax assets.

A reconciliation of beginning and ending amounts of unrecognized tax benefits for fiscal 2025, 2024, and 2023 is as follows:

Gross unrecognized tax benefit, beginning of period $ 452 $ — $ —

Additions based on tax positions related to the current year 65 177 —

Additions related to tax positions in prior year — 275 —

Settlements related to tax positions in a prior period — — —

Decreases based on tax positions in a prior period (142) — —

Gross unrecognized tax benefit, end of period $ 375 $ 452 $ —

The Company recognizes only those tax positions that meet the more-likely-than-not recognition threshold and establishes tax reserves for uncertain tax positions that do not meet this threshold. As of February 2, 2025 and February 4, 2024, the Company has unrecognized tax benefits of $0.4 million and $0.5 million, respectively. The Company does not anticipate any material adjustments relating to unrecognized tax benefits within the next twelve months; however, the ultimate outcome of tax matters is uncertain and unforeseen results can occur. We had no material interest or penalties during fiscal 2025, 2024, and 2023. To the extent these unrecognized tax benefits are ultimately recognized, approximately $0.4 million will impact the Company’s effective tax rate. Our policy is to record interest and penalties directly related to uncertain tax positions as income tax expense in the statements of operations.

The Internal Revenue Service (IRS) has concluded the audit of the Company's fiscal 2019 federal income tax return as of February 4, 2024. During fiscal 2025, the Company filed amended federal and state income tax returns for fiscal 2022 and 2023 as a result of the IRS audit settlement. The amended returns did not have a material impact to the financial statements.

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On August 16, 2022, the Inflation Reduction Act was signed into law. The Inflation Reduction Act includes various tax provisions, which are effective for tax years beginning on or after January 1, 2023. The Company assessed and concluded that the Inflation Reduction Act did not have an impact to the financials as of February 2, 2025, and will continue to monitor the impact of the changes.

For tax years beginning after December 31, 2021, the Tax Cuts & Jobs Act of 2017 eliminated the option to deduct research and development expenditures as incurred and instead required taxpayers to capitalize and amortize them over five or 15 years beginning in 2022. For fiscal 2025, 2024, and 2023, due to the capitalization of research and development expenditures, the Company’s current federal taxable income increased by approximately $7.5 million, $9.0 million, and $7.7 million, respectively, with a corresponding increase in the Company’s deferred tax assets. The Company will continue to monitor the impact of changes in tax legislation.

Note 5. Basic and Diluted Net Income Per Common Share

The following table sets forth the computation of basic and diluted net income per share for fiscal 2025, 2024, and 2023:

(amounts in thousands, except per share data and share amounts) 2025 2024 2023

Basic net income per share $ 0.75 $ 1.55 $ 1.74

Diluted net income per share $ 0.69 $ 1.45 $ 1.66

(1) The effect of dilutive securities includes unvested restricted stock units, stock options and warrants. During fiscal 2024, all remaining outstanding warrants were exercised. For fiscal 2025, 2024, and 2023, the effects of 495,366 stock options outstanding were excluded from the computation of diluted net income per share because their effect would have been anti-dilutive.

Note 6. Leases

Components of lease expense were as follows (in thousands):

Variable lease expense includes percentage rent, maintenance, sales tax on rent, insurance and other variable charges included in the lease as well as rental expenses related to short term leases.

During fiscal 2025, 2024, and 2023, we did not recognize any impairment charges associated with showroom-level right-of-use assets.

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Future minimum lease payments under non-cancelable leases as of February 2, 2025 were as follows (in thousands):

Total undiscounted future minimum lease payments 222,858

Less: imputed interest (39,835)

Total present value of lease obligations 183,023

Less: current operating lease liability (22,662)

Operating lease liability- long term $ 160,361

Supplemental cash flow information related to our operating leases is as follows (in thousands):

Operating cash flow information:

Non-cash activities

Weighted average discount rate - operating leases 5.23% 4.97% 4.10%

Note 7. Commitments, Contingencies and Related Parties

Legal Proceedings

We are subject to legal proceedings and claims that arise in the ordinary course of business, as well as certain other non-ordinary course proceedings, claims and investigations, as described below. We make a provision for a loss contingency when it is both probable that a material liability has been incurred and the amount of the loss can be reasonably estimated. If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range. For proceedings in which an unfavorable outcome is reasonably possible but not probable and an estimate of the loss or range of losses arising from the proceeding can be made, we disclose such an estimate, if material. If such a loss or range of losses is not reasonably estimable, we disclose that fact. We review any such loss contingency provisions at least quarterly and adjust them to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. We recognize insurance recoveries, if any, when they are probable of receipt. All associated costs due to third-party service providers and consultants, including legal fees, are expensed as incurred. Legal proceedings are inherently unpredictable. It is possible that our financial position, results of operations or cash flows could be materially negatively affected in any particular period by an unfavorable resolution of one or more of such legal proceedings.

As previously disclosed, the Company voluntarily self-reported to the SEC information concerning the internal investigation of the accounting matters that led to the restatement of its previously issued audited financial statements as of and for the year ended January 29, 2023 and our unaudited condensed financial statements for the quarterly periods ended April 30, 2023, October 30, 2022, July 31, 2022 and May 1, 2022. As a result of self-reporting, the Company was the subject of a non-public investigation by the SEC. The Company cooperated fully with the SEC in its investigation, and on October 29, 2024, the Company agreed to a settlement to resolve the claims against it. Without admitting or denying the SEC’s allegations, Lovesac agreed to the entry of a final judgment ordering it to pay a $1.5 million civil penalty and imposing a permanent injunction against future violations of Section 17(a)(3) of the Securities Act of 1933 and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and the associated rules thereunder. During

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fiscal 2025, the penalties were recognized within selling, general and administrative expense in the Statements of Operations and paid in full.

On December 19, 2023, a putative securities class action was filed against the Company and certain of its current and former officers related to the restatement of certain of the Company’s financial statements. The suit, captioned Gutknecht v. The Lovesac Company, No. 3:23-cv-1640, was filed in the United States District Court for the District of Connecticut and alleges that all defendants violated Sections 10(b) of the Exchange Act and SEC Rule 10b-5 and that the individual defendants violated Section 20(a) of the Exchange Act. The complaint generally alleges that the Company made certain misrepresentations or failed to disclose certain accounting errors related to the restatement of its financial statements and that the Company’s disclosure controls and procedures and internal controls over financial reporting were deficient. The plaintiffs seek, among other things, an unspecified amount of damages and attorneys’ fees, expert fees and other costs. On March 11, 2024, the court appointed Susan Cooke Peña as Lead Plaintiff and The Rosen Law Firm, P.A. as Lead Counsel. On May 29, 2024, the parties entered into a term sheet to settle the action, subject to various conditions, including execution of a definitive settlement agreement, filing of the definitive agreement with the court, and court approval. The parties executed the definitive settlement agreement on July 30, 2024. The court preliminarily approved the proposed settlement on August 1, 2024, authorized dissemination of notice to the class, and scheduled a fairness hearing. On December 9, 2024, the Court entered an order approving final settlement of the litigation, including dismissing the lawsuit and releasing all claims in exchange for a settlement payment by the Company (the “Approval Order”). On December 10, 2024, the Court entered judgment dismissing the litigation on the merits and with prejudice according to the terms of the parties’ settlement agreement and the Approval Order. During fiscal 2025, the settlement was recognized within selling, general and administrative expense in the Statements of Operations and paid in full.

On July 29, 2024, a putative shareholder derivative action captioned Getz v. Nelson, No. 3:24-cv-1260, was filed in the United States District Court for the District of Connecticut on behalf of the Company against certain of its current and former officers and directors. Two similar shareholder derivative actions, captioned Valle v. Dellomo, No. 3:24-cv-1327, and McKinnon v. Nelson,No. 3:24-cv-1343, were filed in the same court against the same defendants on August 19, 2024, and August 21, 2024, respectively. The cases assert claims on behalf of the Company for breach of fiduciary duty, violations of the Exchange Act, unjust enrichment, corporate waste, and aiding and abetting primary violations. The factual allegations underlying those claims are similar to those alleged in the securities class action. The plaintiffs seek, among other things, an unspecified amount of damages and attorneys’ fees, expert fees, and other costs. On September 20, 2024, the Court consolidated the three lawsuits under the caption In re The Lovesac Company Derivative Litigation, Lead Case No. 3:24-cv-01260-VAB (i.e., the “Derivative Action”). The parties have reached an agreement in principle to settle the Derivative Action, which is subject to execution of a definitive agreement and, among other conditions, approval by the Court. If the contemplated settlement is ultimately concluded as agreed in principle, the Company believes the resolution will not have a material impact to the financial statements.

On March 21, 2024, a putative class action complaint related to the Company’s pricing was filed against the Company. The lawsuit, captioned Nguyen v. The Lovesac Company, was filed in the Superior Court of California, County of Sacramento, and was removed to the United States District Court for the Eastern District of California. The complaint generally alleges that the Company falsely advertised discounts on certain products. The plaintiff seeks, among other things, an unspecified amount of monetary damages, including treble damages, punitive damages, injunctive relief related to the Company’s sales practices, and attorneys’ fees, expert fees, and other expenses. On June 24, 2024, the Company filed a motion to dismiss. On July 15, 2024, the plaintiff filed an amended complaint. On August 12, 2024, the Company filed a motion to dismiss the plaintiff’s amended complaint. On November 26, 2024, the court entered an order to stay all proceedings in the case in light of a mediation of the dispute scheduled for January 23, 2025. The parties were unable to come to an agreement at the January 23, 2025 mediation. On February 7, 2025, the court unstayed the proceedings in the case for the purpose of ruling on the Company's pending motion to dismiss. On March 28, 2025, the court granted the Company's motion to dismiss with leave to amend, but dismissed Plaintiff's request for injunctive relief without leave to amend. The court provided the plaintiff 30 days to file another amended complaint. If the plaintiff amends his complaint, the Company will have 21 days to file a responsive pleading. At this time, we are unable to reasonably estimate the possible loss or range of loss from this proceeding.

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Note 8. Financing Arrangements

Credit Line

On February 6, 2018, the Company established a $25.0 million line of credit with Wells Fargo Bank, National Association ("Wells"). On March 25, 2022, the Company amended the credit agreement to extend the maturity date to March 25, 2024, and among other things, increase the maximum revolver commitment from $25.0 million to $40.0 million, subject to borrowing base and availability restrictions. Availability is based on eligible accounts receivable and inventory. The amended agreement contains a financial covenant that requires us to maintain undrawn availability under the credit facility of at least 10% of the lesser of (i) the aggregate commitments in the amount of $40.0 million and (ii) the amounts available under the credit facility based on eligible accounts receivable and inventory. Our credit agreement includes a $1.0 million sublimit for the issuance of letters of credit and a $4.0 million sublimit for swing line loans.

Under the amended line of credit, the Company may elect that revolving loans bear interest at either a base rate or a term SOFR based rate, plus, in either case, a margin determined by reference to our quarterly average excess availability under the line of credit and ranging from 0.50% to 0.75% for borrowings accruing interest at a base rate and from 1.625% to 1.850% for borrowings accruing interest at term SOFR. Swing line loans will at all times accrue interest at a base rate plus the applicable margin. The lower margins described above will apply initially and will adjust thereafter from time to time based on the quarterly average excess availability under the line of credit.

On March 24, 2023, the Company amended the credit agreement to extend the maturity date to September 30, 2024. On July 29, 2024, the Company amended the credit agreement to, among other things, add an uncommitted accordion feature that allows the Company, subject to certain customary conditions, increase the size of the revolving credit facility by $10.0 million and extend the maturity date of the loans made under the credit agreement from September 30, 2024 to July 29, 2029.

As of February 2, 2025 and February 4, 2024, the Company’s borrowing availability under the line of credit with Wells was $32.6 million and $36.0 million, respectively, there were no borrowings outstanding on this line of credit, and the Company was in compliance with required covenants.

Note 9. Stockholders' Equity

Common Stock Warrants

On June 29, 2018, the Company issued 281,750 warrants with a five-year term and an average exercise price of $19.20 to Roth Capital Partners, LLC as part of the underwriting agreement in connection with the Company's IPO. Warrants may be exercised on a cashless basis, where the holders receive fewer shares of common stock in lieu of a cash payment to the Company. As of January 30, 2022, the weighted average contractual life of the 281,750 outstanding warrants was 1.4 years. There were no warrants issued, exercised, or expired and canceled in fiscal 2023 and the weighted average remaining contractual life was 0.4 years as of January 29, 2023. In fiscal 2024, Roth Capital Partners, LLC performed a cashless exercise of all 281,750 remaining outstanding warrants resulting in 74,592 net shares issued. As of February 2, 2025, no warrants remain outstanding.

Equity Incentive Plans

The Company adopted the Second Amended and Restated 2017 Equity Incentive Plan (the "2017 Equity Plan") which provides for awards in the form of stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance shares, performance based restricted stock units, cash-based awards and other stock-based awards. All awards shall be granted within 10 years from the effective date of the 2017 Equity Plan. In fiscal 2025, the 2017 Equity Plan was amended to increase the shares of our common stock authorized and reserved for issuance by 1,100,000 shares, which increased the number of shares of common stock reserved for issuance under the 2017 Equity Plan to 3,979,889 shares of common stock.

Time-Based Restricted Stock Units

Time-based restricted stock units ("RSU awards") granted under the 2017 Equity Plan are generally subject to only a service-based vesting condition. RSU awards vest equally over three years on the anniversary date of the grant date if employed at the time of vesting. The valuation of these RSU awards is based solely on the fair value of the Company’s stock on the date of grant.

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Performance Based Restricted Stock Units

Performance based restricted stock units ("PSU awards") granted under the 2017 Equity Plan are generally subject to both a service-based vesting condition and a performance-based vesting condition. PSU awards will vest upon the achievement of specified performance targets and subject to continued service through the applicable vesting dates. The stock-based compensation expense relating to PSU awards is recognized over the requisite service period when it is probable that the performance condition will be satisfied.

Stock Options

In June 2019, the Company granted 495,366 non-statutory stock options to certain officers of the Company with an exercise price of $38.10 per share. 100% of the stock options are subject to vesting on the third anniversary of the date of grant if the officers are still employed by the Company and the average closing price of the Company’s common stock for the prior 40 consecutive trading days has been at least $75 by the third anniversary of the grant. Both the employment and the market condition were originally to be satisfied no later than June 5, 2022 or the options would terminate. These options were valued using a Monte Carlo simulation model to account for the path dependent market conditions that stipulate when and whether or not the options shall vest. The 495,366 stock options were modified in fiscal 2022 to extend the term of the options through June 5, 2024. This resulted in additional compensation of approximately $0.9 million, of which, $0.3 million was recorded upon modification with the remaining expense to be recognized over the remaining expected term. The market condition was met on June 5, 2021, which was the date on which the average closing price of the Company’s common stock had been at least $75 for 40 consecutive trading days. The options vested and became exercisable on June 5, 2022 as the officers were still employed on that date.

LOVE US Equity

LOVE · 10-K · period ended 2025-02-02

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Item 9A. Controls and Procedures

Item 9B. Other Information.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Item 10. Directors, Executive Officers and Corporate Governance.

Item 11. Executive Compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Item 14. Principal Accountant Fees and Services.

Item 15. Exhibits, Financial Statement Schedules.

Item 16. Form 10-K Summary.

LOVE US Equity☆

LOVE · 10-K · period ended 2025-02-02

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Item 9A. Controls and Procedures

Item 9B. Other Information.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Item 10. Directors, Executive Officers and Corporate Governance.

Item 11. Executive Compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Item 14. Principal Accountant Fees and Services.

Item 15. Exhibits, Financial Statement Schedules.

Item 16. Form 10-K Summary.

LOVE US Equity