Luvu Brands, Inc., OTC:LUVU Q1 2023 Earnings Transcript

Luvu Brands, Inc.LUVU) Q1 2023 Earnings Call Transcript November 18, 2022

Operator: Ladies and gentlemen, greetings and welcome to the Luvu Brands, Inc. Fiscal Second Quarter 2023 Conference call. All participants are now in listen-only mode. The formal presentation will be followed by a question and answer session. The conference call has been recorded. It’s my pleasure to introduce Alex Sannikov (the company’s Chief Financial Officer). Mr. Sannikov, you may begin.

Alexander Sannikov: Holly, thank you for joining us at the Luvu Brands fiscal 1Q conference call. Louis Friedman is our founder, President, Chief Executive Officer, and Jordan Friedman is our Sales Director. Monday saw us file our quarterly report on Form 10Q for the three month ended September 30, 2022. We also issued an earnings statement that highlighted the company’s first quarter performance. We look forward to speaking with you about a variety of topics, including Luvu Brands financial results from the three-months ended September 30, 2022. Also, we will be discussing recent developments in Luvu Brands operations as well as the company’s near-term plans.

In conclusion of this call, we will be answering questions during the brief Q&A session. Before we start, I’d like to remind everyone that some of this information will contain forward-looking statements concerning future events or our financial performance. These statements include statements regarding our future plans, financial projections, and products and plans. Actual results could differ from the ones stated in these statements. You can read the filings of the company with the SEC. We also have a press release. Forward-looking statements should not be interpreted as predictions of future events. All forward-looking statements made on the call are based upon assumptions and beliefs that were in effect as of today. We do not assume any obligation to update them, unless required by law.

Today’s discussion will also include non-GAAP financial metrics, such as EBITDA or adjusted EBITDA. These non-GAAP financial metrics should be considered as an addition to, and not as a replacement for, or in isolation from, our GAAP results. As supplemental financial information, we have provided a reconciliation of the most directly comparable GAAP financial measures to such non-GAAP Financial Measures. After that, I’d like you to open the call with a few words by Louis Friedman, Luvu Brands’ founder and CEO. Louis?

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Louis Friedman Good morning everyone! We are grateful that you joined us for the Luvu Brands’ first quarter conference call. We had a great quarter in a dynamic operating environment. Our record sales for the three months ending September 30, 2022 were $8.1 million. That’s a 29.5% increase on the previous year. Our company is driven to creativity and innovation. Our balanced and diverse direct-to-consumer company, as well as multiple growth channels, is what has made us successful. We also have outstanding digital marketing execution. We expect macroeconomic headwinds will continue in the calendar year and 2023. However, we believe our brands, growth strategy, and product development initiatives will position us to rise strongly from these periods.

We continue to implement initiatives, as announced last quarter. These include material cost savings, simplified workflows, and lower operating costs. While we strive to drive increased sales in this environment we also have a laser-focused focus on profitability and higher profit margins. We are confident that the team will continue to work hard into the holiday season. Jordan will then take the presentation. She’ll discuss our digital mass-market approach to sales, brand awareness, and branding.

Jordan Friedman Louis, we are grateful. Good morning to everyone. It’s been an exciting year so far, and it has been a strong start. We are seeing results from our marketing efforts as consumers demand continues to grow and online distribution has made it possible for our customers to locate our products in more places than ever. We increased awareness online by using a multichannel marketing strategy and making our products available on all the major ecommerce sites that are related to our categories. There are three main brands, Jaxx, Liberator and Avana. Each brand has a range of product categories. Jaxx is a lifestyle brand that offers luxury beanbags, modular outdoor furniture and daybeds as well as children’s play seating.

Avana, our comfort product brand, combines style and unmatched lounging experiences. Some of our products are able to grow sales naturally through Amazon and other marketplaces. Other products can be sold through mass retailers such as Wayfair, regional furniture chains, and specialty shops. They also play a vital role in keeping business flowing throughout the year, as do commercial outdoor furniture and education accounts. Each product is able to find the right customer base thanks to our extensive product range and distribution network. This leads to steady and consistent sales growth. E-commerce is a success with any channel that allows us access to their data and media content. We are able to edit the data and media content of customers directly.

Our creative team works hard to create the highest quality content possible every day. Consumer demand will increase year after year, as long as there is great photography, innovative product designs and enhanced content. Our distribution network is constantly expanding. We are adding new ecommerce stores and retailers, as well as large resorts, schools, and hospitality clients. Every day, we research and add wholesalers. Our innovative product designs and well-crafted media content have resulted in new clients for wholesale and commercial. We are able to place and be seen more in existing channels because of our long-standing relationships.

Advertising and marketing are our main focus. We have tested and deployed many mediums such as Google PPC, Amazon PPC and print ads. Strong e-mail campaigns, Retargeting, Adopted Cart e-mails and strong email campaigns. There are also many social channels advertising like Reddit and Pinterest. Advertising initiatives that convert at a high rate are kept under constant surveillance, AB testing, site placements carefully and clever long-tail keywords. We are proud to continue being an American-made company. Wholesale partners and customers regularly look us up and praise our American-made commitment. Our domestic manufacturing was a huge advantage as we were able quickly to respond to changes in demand. Due to the increased awareness of sexual health products, Liberator business saw a huge surge. We were able to adapt quickly and provide the inventory customers required at a moment when international producers were still waiting for the next ocean container.

Our growth potential is greater than ever, and we are looking forward to the next months and years. Alex Sannikov is Luvu Brands Chief Financial Officer. He will summarize some financial highlights for the quarter 2023.

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Alexander Sannikov: Jordan, we are grateful. Let me briefly mention some financial highlights for the fiscal first quarter ending September 30, 2022. Net sales increased by 29.5% to $8.1million from $6.2million in the previous year’s fiscal first quarter. From $2.7 million the year before, Liberator sales increased 86% by $5.1 million to $5.1 million. Jaxx product sales fell 5% to $1.8million from $1.9 million. Avana’s product sales dropped 25% to $0.6million from $0.7million a year earlier. The fiscal quarter’s first quarter gross profit totaled $2million, which is $1.5m less than the year before. Despite the company’s continuing labor and material cost increases gross profit as an percentage of net sale increased slightly to 24.5%, from 24.1% in prior year’s quarter.

Operating expenses were approximately 17% or $1,397,000 for the first three months, compared with 19% or $1,176,000 for the prior year. The net income for the first quarter of fiscal year was $492,000, compared with $227,000 in prior years. The adjusted EBITDA was $675,000, compared with $398,000 for the first quarter of the previous year. Our contractor in Mexico continues to expand the number of products it owns. It currently accounts for approximately 35% in total of our sewn products. The cash and cash equivalents at September 30, 2022 were $1,348,000, compared with $859,000 on June 30, 2022. Working capital increased from $774,000 to $1,025,000 at fiscal first quarter 2023.

Now, I’d like Louis to make some comments on current developments. Louis?

Louis Friedman Alex, thank you. We are continuing to increase brand awareness and build our community by telling our story and launching new product launches. Liberator began in 2002 with just one offering, the Wedge/Ramp Combo. We have been the only company that exclusively focuses on sex furniture for over 20 years. This market was created by us. More than 60 new products are now available across all categories of the sexual wellness and erotica lifestyle. Liberator products can enhance intimacy for couples of any age, shape, or sexual orientation. The strong consumer demand through our digital and retail channels, accelerated by the exposure to Netflix’s How to Build a Sex Room, drove Liberator sales to increase 86% in this quarter.

Innovation and product development are on the rise like never before. We’re also introducing new retail distribution strategies across all major market channels. We have incorporated sustainable designs, methods, and practices across all of our brand portfolios as a result of climate change. Our formal presentation is now complete. Operator, we’ll now open the call for Q&A. After the Q&A, we’ll have some additional closing comments.

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