LOVESAC CO Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and related notes appearing elsewhere in this
Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal
year ended January 30, 2022. 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 in the Forward-Looking Statements section herein
and set forth below and those discussed in the sections titled "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our most recent report on Form 10-K filed with the Securities and
Exchange Commission.

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.

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, and their associated home decor accessories. 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-feel points in the
form of our own showrooms, which include our newly created mobile concierge and
kiosks, online directly at www.lovesac.com, and through shop-in-shops and online
pop-up-shops with third party retailers. 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.

Impact of COVID-19

Although there has been a general improvement in conditions related to the
COVID-19 pandemic, there continues to be significant uncertainties around the
scope and severity of the pandemic, its impact on the global economy, including
supply chains, and other business disruptions that may impact our operating
results and financial condition. We continue to follow the guidance issued by
federal, state and local governments and health organizations and have taken
measures to protect the safety of our associates and customers.

While the COVID-19 pandemic has led to shifts in the way in which we operate, we
continue to serve our customers through our omni-channel platform as our
products can be easily configured in our touchpoints, shopped online and
delivered quickly in a touchless way, coupled with consumers' demand for home
related products and solutions. We continue to experience growth as our net
sales increased $46.5 million, or 56.0% to $129.4 million for the thirteen weeks
ended May 1, 2022, compared to $82.9 million for the thirteen weeks ended May 2,
2021. Retail sales drove an increase of $32.3 million, or 65.9%, to $81.3
million for the thirteen weeks ended May 1, 2022, compared to $49.0 million for
the thirteen weeks ended May 2, 2021. Our internet sales (sales made directly to
customers through our ecommerce channel) also increased $6.1 million or 24.1% to
$31.3 million for the thirteen weeks ended May 1, 2022, compared to
$25.2 million for the thirteen weeks ended May 2, 2021. New customers increased
by 8.2% for the thirteen weeks ended May 1, 2022 as compared to 3.9% for the
thirteen weeks ended May 2, 2021.

Product Overview

Our products serve as a set of building blocks that can be rearranged, restyled
and re-upholstered with any new setting, mitigating constant changes in fashion
and style. They are built to last and evolve throughout a customer's life.

•Sactionals. Our Sactional product line currently represents a majority of our
net sales. We believe our Sactionals platform is unlike competing products in
its adaptability yet is comparable aesthetically to similarly priced premium
couches and sectionals. Our Sactional products include a number of patented
features relating to their geometry and modularity, coupling mechanisms and
other features. Utilizing only two, standardized pieces, "seats" and "sides,"
and approximately 200 high quality, tight-fitting covers that are removable,
washable, and changeable, customers can create numerous permutations of a
sectional couch with minimal effort. Customization
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is further enhanced with our specialty-shaped modular offerings, such as our
wedge seat and roll arm side. Our custom features and accessories can be added
easily and quickly to a Sactional to meet endless design, style, storage and
utility preferences, reflecting our Designed for Life philosophy. Sactionals are
built to meet the highest durability and structural standards applicable to
fixed couches. Sactionals are comprised of standardized units and we guarantee
their compatibility over time, which we believe is a major pillar of their value
proposition to the consumer. Our Sactionals represented 88.9% and 89.3% of our
sales for the thirteen weeks ended May 1, 2022 and May 2, 2021, respectively.

During October 2021, we introduced the new Sactionals StealthTech Sound + Charge
product line. This unique innovation features immersive surround sound by Harman
Kardon and convenient wireless charging, all seamlessly embedded and hidden
inside the adaptable Sactionals platform. The System includes two Sound + Charge
Sides each with embedded front- and rear-firing Harman Kardon speakers, a
Subwoofer that easily integrates into a Sactionals Seat Frame and a Center
Channel, all working in unison to deliver captivating surround sound that is
completely hidden from view.

•Sacs. We believe that our Sacs product line is a category leader in oversized
beanbags. The Sac product line offers 6 different sizes ranging from 22 pounds
to 95 pounds with capacity to seat 3+ people on the larger model Sacs. Filled
with Durafoam, a blend of shredded foam, Sacs provide serene comfort and
guaranteed durability. Their removable covers are machine washable and may be
easily replaced with a wide selection of cover offerings.

•Accessories. Our accessories complement our Sacs and Sactionals by increasing
their adaptability to meet evolving consumer demands and preferences. Our
current product line offers Sactional-specific drink holders, Footsac blankets,
decorative pillows, fitted seat tables and ottomans in varying styles and
finishes and our unique Sactionals Power Hub, providing our customers with the
flexibility to customize their furnishings with decorative and practical add-ons
to meet evolving style preferences.

Sales Channels

We offer our products through an omni-channel platform that provides a seamless
and meaningful experience to our customers online and in-store. Our distribution
strategy allows us to reach customers through four distinct, brand-enhancing
channels.

•Showrooms. We market and sell our products through 162 retail locations at top
tier malls, lifestyle centers, mobile concierge, kiosk, and street locations in
40 states in the U.S. We carefully select the best small-footprint retail
locations in high-end malls and lifestyle centers for our showrooms. Compared to
traditional retailers, our showrooms require significantly less square footage
because of our need to have only a few in-store sample configurations for
display and our ability to stack our inventory for immediate sale. The
architecture and layout of these showrooms is designed to communicate our brand
personality and key product features. Our goal is to educate first-time
customers, creating an environment where people can touch, feel, read, and
understand the technology behind our products. We are updating and remodeling
many of our showrooms to reflect our new showroom concept, which emphasizes our
unique product platform, and is the standard for new showrooms. Our new showroom
concept utilizes technology in more experiential ways to increase traffic and
sales. Net sales completed through this channel accounted for 62.8% of total net
sales for the thirteen May 1, 2022, up from 59.1% of total net sales for the
thirteen weeks ended May 2, 2021.

•Ecommerce. Through our ecommerce channel, we believe we are able to
significantly enhance the consumer shopping experience for home furnishings,
driving deeper brand engagement and loyalty, while also realizing more favorable
margins than our showroom locations. We believe our robust technological
capabilities position us well to benefit from the growing consumer preference to
transact at home and via mobile devices. With furniture especially suited to
ecommerce applications, our net sales completed through this channel accounted
for 24.2% of total net sales for the thirteen weeks ended May 1, 2022, down from
30.4% of total net sales for the thirteen weeks ended May 2, 2021, respectively.

•Other touchpoints. We augment our showrooms with other touchpoint strategies
including online pop-up-shops, shop-in-shops, and barter inventory transactions.
We utilize in store pop-up-shops to increase the number of locations where
customers can experience and purchase our products, a low-cost alternative to
drive brand awareness, in store sales, and ecommerce sales. These in-store
pop-up-shops are staffed similarly to our showrooms with associates trained to
demonstrate and sell our products and promote our brand. Unlike the in-store
pop-up-shops which are typically 10-day shows, and pop-up locations,
shop-in-shops are designed to be in
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permanent locations carrying the same digital technology of our showrooms and
are also staffed with associates trained to demonstrate and sell our products.
Shop-in-shops require less capital expenditure to open a productive space to
drive brand awareness and touchpoint opportunities for demonstrating and selling
our products. We did not host any in-store pop-up-shops in the thirteen weeks
ended May 1, 2022. and May 2, 2021.

We operated 2 online pop-up-shops on Costco.com for the thirteen weeks ended
May 1, 2022, and 1 for the thirteen weeks ended May 2, 2021. We operated 22 Best
Buy shop-in-shops for the thirteen weeks ended May 1, 2022, up from 4 for the
thirteen weeks ended May 2, 2021. Other sales which includes pop-up-shop sales,
shop-in-shop sales, and barter inventory transactions accounted for 13.0% of our
total sales for the thirteen weeks ended May 1, 2022, up from 10.6% of our total
sales for the thirteen weeks ended May 2, 2021.

             SELECTED CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The following tables present our summary condensed consolidated financial and
other data as of and for the periods indicated. The condensed consolidated
statement of operations data for the thirteen ended May 1, 2022 and May 2, 2021,
the condensed consolidated statement of cash flow data for the thirteen weeks
ended May 1, 2022 and May 2, 2021 and the summary condensed consolidated balance
sheet data as of May 1, 2022, are derived from our unaudited condensed
consolidated financial statements included elsewhere in this Quarterly Report
filed on Form 10-Q and have been prepared on the same basis as the audited
condensed consolidated financial statements.
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The summarized financial information presented below is derived from and should
be read in conjunction with our audited condensed consolidated financial
statements including the notes to those financial statements and our unaudited
condensed consolidated financial statements including the notes to those
financial statements both of which are included elsewhere in is Quarterly Report
filed on Form 10-Q along with the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Our historical
results are not necessarily indicative of our future results.

                                                                            

Thirteen weeks ended

                                                                             May 1,                 May 2,
(amounts in thousands, except per share data and share amounts)               2022                   2021
Condensed Consolidated Statement of Operations Data:
Net sales
Showrooms                                                              $     81,254             $     48,986
Internet                                                                     31,255                   25,175
Other                                                                        16,871                    8,754
Total net sales                                                             129,380                   82,915

Cost of merchandise sold                                                     63,272                   36,839

Gross profit                                                                 66,108                   46,076
Operating expenses
Selling, general and administrative expenses                                 44,901                   30,718
Advertising and marketing                                                    15,901                   10,680
Depreciation and amortization                                                 2,661                    2,420

Total operating expenses                                                     63,463                   43,818

Operating income                                                              2,645                    2,258

Interest expense, net                                                           (35)                     (44)

Net income before taxes                                                       2,610                    2,214

Provision for income taxes                                                     (715)                    (153)

Net income                                                             $      1,895             $      2,061
Net Income Attributable to Common Stockholders                         $      1,895             $      2,061

Net income per common share:
Basic (1)                                                              $       0.13             $       0.14
Diluted (1)                                                            $       0.12             $       0.13

Weighted average number of common shares outstanding:
Basic                                                                    15,155,378               15,034,954
Diluted                                                                  16,173,339               16,073,021


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                                    Thirteen weeks ended
                                    May 1,            May 2,
(dollars in thousands)               2022              2021

EBITDA (2)(3)                 $     5,306            $ 4,678
Adjusted EBITDA (2)(3)        $     6,373            $ 5,332


                                           As of
                                  May 1,       January 30,
(amounts in thousands)             2022            2022

Balance Sheet Data:
Cash and cash equivalents       $ 64,380      $     65,740
Working capital                  106,326            75,702
Total assets                     366,576           264,603
Total liabilities                207,339           153,921
Total stockholders' equity       159,237           110,682


                                                               Thirteen weeks ended
(amounts in thousands)                                    May 1, 2022       May 2, 2021

Condensed Consolidated Statement of Cash flow Data: Net Cash Used in Operating Activities

                    $    (21,786)     $     (9,604)
Net Cash Used in Investing Activities                          (6,018)      

(3,058)

Net Cash (Used in) Provided by Financing Activities              (208)      

62

Net change in cash and cash equivalents                       (28,012)      

(12,600)

Cash and cash equivalents at the end of the period             64,380       

65,741

(1)For the calculation of basic and diluted net income per share, see Note 5 and
Note 8 to our condensed consolidated financial statements.

(2)EBITDA and Adjusted EBITDA are "Non-GAAP Measures" that are supplemental
measures of financial performance that are not required by, or presented in
accordance with, GAAP. We believe that EBITDA and Adjusted EBITDA are useful
measures of operating performance, as they eliminate expenses that are not
reflective of the underlying business performance, facilitate a comparison of
our operating performance on a consistent basis from period-to-period and
provide for a more complete understanding of factors and trends affecting our
business. Additionally, EBITDA is frequently used by analysts, investors and
other interested parties to evaluate companies in our industry. We use EBITDA
and Adjusted EBITDA, alongside GAAP measures such as gross profit, operating
income (loss) and net income (loss), to measure and evaluate our operating
performance and we believe these measures are useful to investors in evaluating
our operating performance.

These Non-GAAP Measures should not be considered as alternatives to net income
(loss) or net income (loss) per share as a measure of financial performance,
cash flows from operating activities as a measure of liquidity, or any other
performance measure derived in accordance with GAAP. They should not be
construed as an inference that our future results will be unaffected by unusual
or non-recurring items. Additionally, our Non-GAAP Measures are not intended to
be measures of free cash flow for management's discretionary use, as they do not
consider certain cash requirements such as tax payments and debt service
requirements and certain other cash costs that recur in the future. Our Non-GAAP
Measures contain certain other limitations, including the failure to reflect our
cash expenditures, cash requirements for working capital needs and cash costs to
replace assets being depreciated and amortized. In addition, our Non-GAAP
Measures exclude certain non-recurring and other charges.
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In the future, we may incur expenses that are the same as or similar to some of
the adjustments in our Non-GAAP Measures. Our presentation of our Non-GAAP
Measures should not be construed to imply that our future results will be
unaffected by any such adjustments. Management compensates for these limitations
by relying primarily on our GAAP results and by using our Non-GAAP Measures as
supplemental information. Our Non-GAAP Measures are not necessarily comparable
to other similarly titled captions of other companies due to different methods
of calculation.

(3)We define "EBITDA" as earnings before interest, taxes, depreciation and
amortization. We define "Adjusted EBITDA" as EBITDA adjusted for the impact of
certain non-cash and other items that we do not consider in our evaluation of
ongoing operating performance. These items include management fees, equity-based
compensation expense, write-offs of property and equipment, deferred rent,
financing expenses and certain other charges and gains that we do not believe
reflect our underlying business performance.

Reconciliation of Non-GAAP Financial Measures

The following provides a reconciliation of Net income to EBITDA and Adjusted
EBITDA for the periods presented:

                                                                     Thirteen weeks          Thirteen weeks
(amounts in thousands)                                              ended May 1, 2022       ended May 2, 2021
Net income                                                          $        1,895          $        2,061
Interest expense, net                                                           35                      44
Taxes                                                                          715                     153
Depreciation and amortization                                                2,661                   2,420
EBITDA                                                                       5,306                   4,678
Equity-based compensation (a)                                                1,172                     654
Other non-recurring expenses (b)                                              (105)                      -
Adjusted EBITDA                                                     $        6,373          $        5,332


(a)Represents expenses, such as compensation expense and employer taxes related
to RSU equity vesting and exercises associated with stock options and restricted
stock units granted to our associates and board of directors.

(b)Other non-recurring expenses in the thirteen weeks ended May 1, 2022
represents ($0.1) million related to a legal settlement. There were no other
non-recurring expenses in the thirteen weeks ended May 2, 2021.

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. Sales made at Company operated showrooms, including
shop-in-shops and pop-up shops, and via the web are recognized in accordance
with the guidance set forth in ASC 606, which is typically at the point of
transference of title when the goods are shipped.

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. In
September 2018, the Office of the U.S. Trade Representative began imposing a 10
percent ad valorem duty on a subset of products imported from China, inclusive
of various furniture product categories. In September 2019, the Office of U.S.
Trade Representative imposed an additional 15 percent ad valorem duty on
products imported from China.
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Selling, General and Administrative Expenses

Selling, general and administrative expenses include all operating costs, other
than advertising and marketing expense, 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; 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.

Our recent 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, as well as rent expense
associated with the opening of new showrooms, to increase as we grow our
business. We expect to leverage total selling, general and administrative
expenses as a percentage of sales as sales volumes continue to grow. We expect
to continue to invest in infrastructure to support the Company's 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 most
deleverage occurring in the first three quarters of the fiscal year, and the
greatest leverage occurring in 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 expense is expected to continue to increase as a
percentage to sales as we continue to invest in advertising and marketing which
has accelerated sales growth.

Basis of Presentation and Results of Operations

The following table sets forth, for the periods presented, our condensed
consolidated statement of operations data as a percentage of total revenues:

                                                      Thirteen weeks ended
                                                       May 1,             May 2,
                                                        2022               2021
Statement of Operations Data:
Net sales                                                      100  %      100  %
Cost of merchandise sold                                        49  %       44  %
Gross profit                                                    51  %       56  %
Selling, general and administrative expenses                    35  %       37  %
Advertising and marketing                                       12  %       13  %
Depreciation and amortization                                    2  %        3  %
Operating income                                                 2  %        3  %
Interest expense, net                                            0  %        0  %
Net income before taxes                                          2  %        3  %
Provision for income taxes                                      -1  %        0  %
Net income                                                       1  %        3  %


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Thirteen weeks ended May 1, 2022 Compared to the thirteen weeks ended May 2,
2021

Net sales

Net sales increased $46.5 million, or 56.0%, to $129.4 million in the thirteen
weeks ended May 1, 2022 as compared to $82.9 million in the thirteen weeks ended
May 2, 2021. The increase in overall net sales was driven by growth across all
channels. New customers increased by 8.2% in the thirteen weeks ended May 1,
2022 as compared to 3.9% in the thirteen weeks ended May 2, 2021. We had 162 and
116 total showrooms as of May 1, 2022 and May 2, 2021, respectively. We opened
11 additional showrooms, 5 kiosks and did not remodel or close any showrooms in
the thirteen weeks ended May 1, 2022. In comparison, we opened 8 showrooms and
did not close or remodel any showrooms in the thirteen weeks ended May 2, 2021.
Showroom net sales increased $32.3 million, or 65.9%, to $81.3 million in the
thirteen weeks ended May 1, 2022 as compared to $49.0 million in the thirteen
weeks ended May 2, 2021. This increase was due in large part to comparable net
sales increase of $22.0 million, or 53.2%, to $63.3 million in the thirteen
weeks ended May 1, 2022, compared to $41.3 million in the thirteen weeks ended
May 2, 2021, related to higher point of sales transactions with lower
promotional discounting and the addition of 31 new showrooms, 13 kiosks and 2
mobile concierges. Point of sales transactions represent orders placed through
our showrooms which does not always reflect the point at which control transfers
to the customer, which occurs upon shipment being confirmed. See Note 12 to the
condensed consolidated financial statements. We believe point of sales
transactions is a more accurate way to measure showroom performance and how our
showroom associates are incentivized. Retail sales per selling square foot
increased $113, or 23.3%, to $599 in the thirteen weeks ended May 1, 2022 as
compared to $486 in the thirteen weeks ended May 2, 2021. Total number of units
sold at point of transaction increased by approximately 17.0% driven by higher
comparable sales. The increase in comparable sales, retail sales per selling
square foot and total number of units sold over prior years is the result of a
very strong Easter campaign and some channel shift from Internet net sales.
Internet net sales (sales made directly to customers through our ecommerce
channel) increased $6.1 million, or 24.1%, to $31.3 million in the thirteen
weeks ended May 1, 2022 as compared to $25.2 million in the thirteen weeks ended
May 2, 2021 also driven by a strong Easter campaign. Other net sales, which
include pop-up-shop sales, shop-in-shop sales, and barter inventory transactions
increased $8.1 million, or 92.7%, to $16.9 million in the thirteen weeks ended
May 1, 2022 as compared to $8.8 million in the thirteen weeks ended May 2, 2021.
This increase was principally due to higher productivity of our temporary online
pop-up-shops on Costco.com and hosting 1 additional online event compared to the
prior year period. We also opened 18 additional Best Buy shop-in-shop locations
compared to the prior year period.

Gross profit

Gross profit increased $20.0 million, or 43.5%, to $66.1 million in the thirteen
weeks ended May 1, 2022 from $46.1 million in the thirteen weeks ended May 2,
2021. Gross margin decreased to 51.1% of net sales in the thirteen weeks ended
May 1, 2022 from 55.6% of net sales in the thirteen weeks ended May 2, 2021. The
decrease in gross margin percentage of 450 basis points was primarily driven by
an increase of approximately 640 basis points in total distribution and related
tariff expenses partially offset by an improvement of 190 basis points in
product margin. The increase in total distribution and related tariff expenses
over prior year is principally related to the negative impact of 630 basis
points increase in inbound transportation costs. The product margin rate
improvement is due to lower promotional discounting and continuing vendor
negotiations to assist with the mitigation of tariffs.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $14.2 million, or 46.2%,
to $44.9 million in the thirteen weeks ended May 1, 2022 as compared to
$30.7 million in the prior year period. The increase in selling, general and
administrative expenses was primarily related to an increase in employment
costs, rent, overhead expenses, and selling related expenses. Employment costs
increased by $8.3 million driven by an increase in new hires and variable
compensation. Rent increased by $2.2 million related to $1.4 million rent
expense from our net addition of 46 showrooms and $0.8 million in higher
percentage rent from the increase in Showroom sales. Overhead expenses increased
$2.2 million consisting of an increase of $1.2 million in infrastructure
investments, an increase of $0.5 million in travel expenses, an increase of $0.3
million in equity-based compensation and an increase of $0.2 million in
insurance expense related to the growth of the Company. Selling related expenses
increased $1.5 million principally due to credit card fees related to the
increase in sales.
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Selling, general and administrative expenses were 34.7% of net sales in the
thirteen weeks ended May 1, 2022 as compared to 37.0% of net sales in the
thirteen weeks ended May 2, 2021. The decrease in selling, general and
administrative expenses of 230 basis points was primarily due to higher leverage
within infrastructure investments, rent, equity-based compensation, selling
related expenses, and insurance, partially offset by deleverage in employment
costs and travel. The deleverage in certain expenses relate to the continuous
investments we are making into the business to support our ongoing growth.

Advertising and Marketing

Advertising and marketing expenses increased $5.2 million, or 48.9%, to
$15.9 million for the thirteen weeks ended May 1, 2022 as compared to
$10.7 million in the thirteen weeks ended May 2, 2021. The majority of the
increase in advertising and marketing dollars relates to the ongoing investments
in marketing spends to support our sales growth. The investment by quarter may
vary greatly. Advertising and marketing expenses were 12.3% of net sales in the
thirteen weeks ended May 1, 2022 as compared to 12.9% of net sales in the
thirteen weeks ended May 2, 2021. The majority of the decrease in advertising
and marketing as a percent of net sales is primarily due to improved performance
in our media activities which has driven an increase in net sales.

Depreciation and amortization expenses

Depreciation and amortization expenses increased $0.3 million, or 9.9%, to
$2.7 million in the thirteen weeks ended May 1, 2022 as compared to $2.4 million
in the thirteen weeks ended May 2, 2021. The increase in depreciation and
amortization expense principally relates to capital investments for new and
remodeled showrooms.

Interest expense, net

Interest expense, net which is less than $0.1 million for the thirteen weeks
ended May 1, 2022 and May 2, 2021, principally relates to the interest expense
related to unused line fees and amortization of deferred financing fees on the
asset-based loan with a slight offset of interest earned on the Company's cash
and cash equivalents balances.

Provision for income taxes

Income tax provision was $0.7 million and $0.2 million, less than 0.55% and
0.18% of sales, for the thirteen weeks ended May 1, 2022 and May 2, 2021,
respectively. The increase in income taxes is primarily driven by the
utilization of deferred tax assets of $0.5 million during the first quarter of
fiscal 2023 based on the expected generation of taxable income for the fiscal
year 2023.

Liquidity and Capital Resources

General

Our business primarily relies on cash flows from operations, supplemented as
needed by our revolving line of credit (see "Revolving Line of Credit" below),
as our primary sources of liquidity. Our primary cash needs are for advertising
and marketing, inventory, payroll, showroom rent, capital expenditures
associated with opening new showrooms and updating existing showrooms, as well
as infrastructure and information technology. The most significant components of
our working capital are cash and cash equivalents, inventory, accounts
receivable, accounts payable and other current liabilities and customer
deposits. Borrowings generally increase in our third fiscal quarter as we
prepare for the holiday selling season, which is in our fourth fiscal quarter.
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.
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