Top Trades for Wed, 08 Jun 2022 09:56 – LOVE

    LOVE -22.08%Jun. 08, 2022 7:47 AM ET

    The Lovesac Company (NASDAQ:LOVE) gained in early trading on Wednesday after reporting a 42.2% rise in comparable sales during Q1 with strong growth seen across showrooms and on the Internet.

    Total sales rose 56% during the quarter to outpace the 44.8% increase in operating expenses. Gross margin fell to 51.1% of sales from 55.6% a year ago as distribution costs and tariff expenses dragged. Adjusted EBITDA was up 19.5% to $6.4M.

    The increae in comparable showroom sales during the quarter was tied to higher point of sale transactions with lower promotional discounting, a strong Easter promotional campaign and the addition of 31 new showrooms, 13 kiosks, and 2 mobile concierges compared a year ago.

    Net income was $1.9M in Q1 vs. $2.1M a year ago.

    Lovesac (LOVE) ended the quarter with an inventory position of $123M vs. $56.0M a year ago. The co,pany said the higher inventory position was to support growth and maintain industry leading in-stock positions, coupled with an increase in freight capitalization related to an increase in inbound freight expense.

    CEO outlook: "Looking ahead, we continue to focus on product innovation, most obviously represented by our still-new StealthTech invisible home audio solution, efficient and targeted marketing and campaigns, channel expansion with new and existing partners, and a focus on operational excellence."

    Shares of Lovesac (LOVE) were up 1.55% premarket to $38.59 following the earnings topper.

    I like these guys but they are getting sold heavily on this news.  They sell modular furniture and $28 is just $430M in Market Cap and they expect to make $50M this year and $70M next, which is on-par with their growth track.  Let's take advantage of this silly reaction and add them to our Future Is Now Portfolio:

    • Sell 5 LOVE Jan (as far as they go) $25 puts for $5 ($2,500)
    • Buy  10 LOVE Jan $22.50 calls for $10.50 ($10,500) 
    • Sell 10 LOVE Jan $30 calls for $7 ($7,000) 

    That's net $1,000 on the $7,500 spread so $6,000 of upside potential if they can just hold $30.

    In the Earnings Portfolio, let's:

    • Sell 10 LOVE Jan $25 puts for $5 ($5,000) 
    • Buy 25 LOVE Jan $22.50 calls for $10.50 ($26,250) 
    • Sell 25 LOVE Jan $35 calls for $5.50 ($13,750) 

    Here we're taking a bigger position as this portfolio has more cash and is way ahead.  It's net $7,500 on the $31,250 spread so we have $23,750 (316%) in upside potential – but that's for just 6 months, so very nice.