Luvu Brands Announces Fiscal 2018 Second Quarter Results

Atlanta, Georgia, February 14, 2018 – Luvu Brands, Inc., (OTCQB: LUVU), a manufacturer and marketer of lifestyle consumer brands in the categories of sexual wellness, comfort top-of-bed accessories and fashion beanbags and sofas, yesterday reported financial results for the three and six months ended December 31, 2017.

Operating highlights for the quarter ended December 31, 2017:

  • Net sales decreased 10% to $4.6 million for the second quarter of fiscal 2018, as compared to $5.1 million for the comparable prior-year period. The decrease was driven by a $894,000 decrease in the sales of Tenga products and was partially offset by higher sales of the Company’s own branded Jaxx and Avana products, which increased 30% and 26%, respectively, from the prior year second quarter.
  • Total gross profit decreased 12% to $1.4 million, as compared to $1.5 million for the comparable prior-year period.
  • Net income decreased 63% to 149,000 from $399,000 reported in the prior year second quarter.
  • EBITDA, as adjusted, for the second quarter decreased by 41% to $342,000, as compared to $579,000 in the second quarter of fiscal 2017.

Operating highlights for the six months ended December 31, 2017:

  • Net sales decreased 11% to $8.3 million for the six months ended December 31, 2017, as compared to $9.2 million for the comparable prior-year period. This decrease was due to a $1.7 million decrease in the sales of Tenga products and was partially offset by a $722,000 increase in sales of the Company’s Jaxx and Avana products. Jaxx sales increased 29% from the prior year to $1.9 million and Avana sales increased 44% from the prior year first half to $955,000.
  • Total gross profit decreased 7% to $2.3 million, as compared to $2.5 million for the comparable prior-year period.
  • The net loss was $44,000 during the six months ended December 31, 2017, as compared to net income of $222,000 for the comparable prior-year period.
  • EBITDA, as adjusted, for the first half of fiscal 2018 declined by 44% to $341,000, as compared to $612,000 in the comparable period of fiscal 2017.

Louis Friedman, Chairman and Chief Executive Officer, commented, “Although we have not completely replaced the Tenga sales with sales of our own unique branded products, we are well on our way to doing so. We were pleased with the rapid growth in sales of our Jaxx and Avana product lines during the three and six months ended December, 31, 2017. During the first six months of fiscal 2018, we shipped over 13,000 Jaxx products and almost 10,000 Avana products. We expect to see continued growth from both of these brands during the remainder of calendar 2018”.

LUVU BRANDS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

12/31/20176/30/2017
(unaudited)
Assets:(in thousands, except share data)
Current assets:
Cash and cash equivalents$567$742
Accounts receivable, net708631
Inventories, net1,5671,545
Prepaid expenses5480
Total current assets2,8962,998
Equipment and leasehold improvements, net851869
Other assets129
Total assets $3,759$3,876
Liabilities and stockholders’ deficit:
Current liabilities:
Accounts payable $2,393$2,177
Current debt1,8662,115
Other accrued liabilities502535
Total current liabilities4,7614,827
Noncurrent liabilities:
Long-term debt1,0961,094
Deferred rent payable126147
Total noncurrent liabilities1,2221,241
Total liabilities5,9836,068
Commitments and contingencies (See Note 15)
Stockholders’ deficit:
Preferred stock, 5,700,000 shares authorized, $0.0001 par value none issued and outstanding
Series A Convertible Preferred stock, 4,300,000 shares authorized $0.0001 par value, 4,300,000 shares issued and outstanding with a liquidation preference of $1,000 at December 31, 2017 and June 30, 2017
Common stock, $0.01 par value, 175,000,000 shares authorized, 73,452,596 shares issued and outstanding  at December 31, 2017 and June 30, 2017735735
Additional paid-in capital6,0916,079
Accumulated deficit(9,050)(9,006)
Total stockholders’ deficit(2,224)(2,192)
Total liabilities and stockholders’ deficit $3,759$3,876

LUVU BRANDS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(unaudited)

Three Months Ended
December 31,
Six Months Ended
December 31,
2017201620172016
(in thousands, except share data)
Net Sales$4,635$5,134$8,258 $9,239
Cost of goods sold3,2773,5935,9216,721
Gross profit1,3581,5412,3372,518
Operating expenses
Advertising and promotion126124219206
Other selling and marketing273281558566
General and administrative6225631,2311,147
Depreciation and amortization5452106103
Total operating expenses1,0751,0202,1142,022
Income from operations283521223496
Other Income (Expense):
Loss on disposal of assets(1)(1)
Interest expense and financing costs(134)(121)(267)(273)
Total Other (Expense)(134)(122)(267)(274)
Income (loss) before income taxes149399(44)222
Provision for income taxes– – 
Net income (loss)$149$399$(44)$222
Net income (loss) per share:
         Basic$0.00$0.01$(0.00)$0.00
         Diluted$0.00$0.01$(0.00)$0.00
Shares used in computing net income (loss) per share
         Basic73,452,59672,496,07473,452,59671,974,335
         Diluted74,641,65972,922,61573,452,596 72,352,420

Use of Non-GAAP Measure – *Adjusted EBITDA

Luvu Brands management evaluates and makes operating decisions using various financial metrics. In addition to the Company’s GAAP results, management also considers the non-GAAP measure of Adjusted EBITDA. While Adjusted EBITDA is not a measure of performance in accordance with GAAP, management believes that this non-GAAP measure provides useful information about the Company’s operating results.  The table below provides a reconciliation of this non-GAAP financial measure with the most directly comparable GAAP financial measure.

As used herein, Adjusted EBITDA income represents net income (loss) before interest income, interest expense, income taxes, depreciation, amortization, and stock-based compensation expense.

Reconciliation of net income (loss) to Adjusted EBITDA income for the six months ended December 31, 2017 and 2016:

 (Dollars in thousands)Six months ended December 31,
20172016
Net (loss) income$(44)$222
Less interest income
Plus interest expense, net267273
Plus depreciation and amortization expense106103
Plus stock-based compensation1214
Adjusted EBITDA income$341$612

Forward-Looking Statements

Certain matters discussed in this press release may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Such matters involve risks and uncertainties that may cause actual results to differ materially, including the following: changes in economic conditions; general competitive factors; acceptance of the Company’s products in the market; the Company’s success in obtaining new customers; the Company’s success in product development; the Company’s ability to execute its business model and strategic plans; the Company’s success in integrating acquired entities and assets, and all the risks and related information described from time to time in the Company’s filings with the Securities and Exchange Commission (“SEC”), including the financial statements and related information contained in the Company’s Annual Report on Form 10-K and interim Quarterly Reports on Form 10-Q.  Examples of forward-looking statements in this release include statements related to new products, anticipated revenue and profitability.  The Company assumes no obligation to update the cautionary information in this release.

About Luvu Brands

Luvu Brands, Inc. is an Atlanta, Georgia based designer, manufacturer and brand based marketer of consumer products that offers a growing number of product categories including:  Liberator® sexual positioning furniture, Avana™ top-of-bed comfort pillows and Jaxx® casual fashion furniture, child, teen and adult beanbags, outdoor loungers, loveseats and daybeds. These products are sold through the Company’s websites, concept factory store, online mass merchants and retail stores worldwide. Many of our products are offered flat-packed and vacuum compressed to save on shipping and reduce our carbon footprint.

The Company is headquartered in a 140,000 square foot vertically-integrated manufacturing facility that employs over 160 people. Bringing sewn products manufacturing back to the USA and creating innovative vacuum-compressed consumer products are core to the Company’s operating principles. As the majority of the Company’s products are constructed of polyurethane foam, sustainable manufacturing practices are used including re-purposing of foam trim into beanbag fill to reduce our overall carbon footprint.

Luvu Brands promotes its products globally in a variety of distribution channels including mass market web retailers, catalogers and specialty retail stores. The Company’s brand sites include: liberator.comjaxxliving.comavanacomfort.com plus other global e-commerce sites. For more information about Luvu Brands, please visit luvubrands.com.

Company Contact:

Luvu Brands, Inc.

Ronald Scott

Chief Financial Officer

770-246-6426

ron@LuvuBrands.com