Lovesac taps contract freight to navigate higher fuel costs

Dive Brief:

• Lovesac used cargo partnerships to secure freight capacity at a contractual rate in Q1 as a shield against spot market volatility, President and COO Mary Fox said during a June 11 earnings call.
• Through Lovesac’s “beneficial cargo partnership,” the furniture retailer was able to help offset higher freight costs, resulting from increasing oil prices, the COO told analysts.
• On the domestic shipping side, including last mile, Fox said that Lovesac planned for rates based on the trailing 30-day oil prices.

Dive Insight:

Lovesac is among the many companies facing fuel pressures and resulting higher freight costs due to the Iran war. In turn, shippers have been working with carriers to navigate resulting surcharges, with the Iran conflict weighing on ocean contract negotiations. Although the U.S. and Iran reached a ceasefire pact in June, a recovery in ocean shipping capacity and leveling out of rates aren’t expected until at least September 2026.

Besides Lovesac, Burlington has also leaned on contract rates to save freight costs. In June, EVP and CFO Kristin Wolfe told analysts that the retailer secured ocean and domestic contracts for the next year at “favorable rates,” which are expected to help control freight costs.

Bob’s Discount Furniture also recently told Supply Chain Dive that it plans to manage fuel-related pressure by talking with vendors and ocean freight carriers on possible mitigation plans.

In Lovesac’s case, securing capacity through contracts “provides us with meaningful insulation through times like these where spot market prices spike,” Fox said. The COO added that the company plans to continue leveraging its cargo partnerships in the year ahead.

During the quarter, gross profit dropped 3.2% year over year to $2.4 million, according to an earnings report. Gross margin, meanwhile, decreased 160 basis points YoY to 52.1% of net sales, primarily driven by a 380 basis point increase in inbound transportation and tariff costs. Other drivers include outbound transportation and warehousing costs, which saw a 110 basis point drop.

Lovesac has also used other tactics to offset logistics pressures. For instance, the furniture brand has worked to improve transit times, on-time delivery metrics and processing, Fox said.

“Our ongoing network efficiency gains help deliver better customer experience consistency and lower cost to serve, which helped offset some of the external cost pressure we saw in the quarter, owing to geopolitical uncertainty in oil and freight inputs,” the COO said.

Lovesac has also been adjusting its manufacturing footprint and plans to begin U.S. production of its Sactionals line of modular sofas this summer, CEO and Director Shawn Nelson told analysts. Among other benefits, the onshoring initiative is expected to help decrease dependency on long international freight cycles and reduce overall cost volatility.