News Overview

  • Lovesac President and COO Mary Fox said during the June 11 earnings call that the company secured freight capacity at contract rates in Q1 through a "beneficial cargo partnership" to hedge against spot market volatility.
  • Through this partnership, the furniture retailer partially offset increased freight costs driven by rising oil prices.
  • Regarding domestic transportation (including last-mile), Fox revealed that the company plans rates based on oil price trends over the past 30 days.

In-Depth Analysis

Lovesac is one of many companies facing fuel cost pressures and resulting higher freight costs due to the Iran war. Shippers are working with carriers to address surcharges, while the Iran conflict has also affected ocean freight contract negotiations. Although the U.S. and Iran reached a ceasefire in June, recovery of ocean capacity and stabilization of rates are not expected until after September 2026.

Besides Lovesac, Burlington also relies on contract rates to save on freight costs. In June, its EVP and CFO Kristin Wolfe told analysts that the company had locked in ocean and domestic contracts for the next year at "favorable rates," which is expected to help control freight costs.

Bob's Discount Furniture also recently told Supply Chain Dive that it plans to manage fuel-related pressures by discussing possible mitigation options with suppliers and ocean carriers.

In Lovesac's case, locking in capacity through contracts "provided us meaningful protection, especially during periods when spot market rates surged," Fox said. The COO added that the company plans to continue leveraging its cargo partnership over the next year.

According to the earnings report, gross profit fell 3.2% year-over-year to $2.4 million in the quarter. Gross margin declined 160 basis points year-over-year to 52.1% of net sales, primarily due to a 380 basis point increase in inbound freight and tariff costs. Other factors included a 110 basis point decrease in outbound freight and warehousing costs.

Lovesac has also adopted other strategies to ease logistics pressure. For example, the furniture brand is working to improve transit times, on-time delivery metrics, and handling processes, Fox said.

"Our ongoing network efficiency improvements help provide a more consistent customer experience and lower service costs, which partially offset external cost pressures from geopolitical uncertainty in oil and freight inputs this quarter," the COO said.

Lovesac is also adjusting its manufacturing footprint, planning to begin U.S. production of its Sactionals modular sofa line this summer, CEO and Director Shawn Nelson told analysts. Among other benefits, this localization effort is expected to help reduce reliance on long international freight cycles and lower overall cost volatility.