Lovesac announces settlement in shareholder derivative lawsuit

STAMFORD, Conn. - The Lovesac Company (NASDAQ:LOVE), a furniture retailer with a market capitalization of $242 million, announced today it has reached a settlement agreement in a consolidated shareholder derivative lawsuit related to the company’s financial restatements and alleged internal control weaknesses. According to InvestingPro data, while the company maintains profitable operations with a P/E ratio of 18.8, it currently operates with a significant debt burden.

The settlement, which requires court approval, stems from the case "In re the Lovesac Company Derivative Action" filed in the United States District Court for the District of Connecticut. Unlike a separate securities class action that seeks relief for certain shareholders, this derivative action sought relief for the company itself.

Under the proposed settlement, Lovesac will implement and maintain specific corporate governance reforms for at least four years. The company has also agreed to pay $335,000 in attorneys’ fees and expenses, subject to court approval. The plaintiffs will each receive a $2,500 service award to be paid from the attorneys’ fees. The settlement comes as the company’s stock has experienced significant volatility, with shares down 15% in the past week to $16.65, though InvestingPro analysis suggests the stock is currently undervalued.

The lawsuit alleged breaches of fiduciary duty and other violations related to Lovesac’s restatement of certain financial statements, admitted weaknesses in internal controls, and allegedly misleading statements about financial results. Lovesac and the defendants have denied all claims and wrongdoing.

A fairness hearing is scheduled for October 1, 2025, at 10:00 a.m. ET before Judge Victor A. Bolden to determine whether to approve the settlement. Securities holders may object to the settlement by September 5, 2025, following procedures outlined in the settlement agreement. For investors seeking deeper insights into Lovesac’s financial health and future prospects, InvestingPro offers exclusive access to 12 additional ProTips and comprehensive analysis through its detailed Pro Research Report, one of 1,400+ available for top US stocks.

The settlement agreement details are available through the court’s electronic filing system and on Lovesac’s investor relations website.

This article is based on a press release statement from The Lovesac Company.

In other recent news, The Lovesac Company reported first-quarter earnings that surpassed expectations, with revenue slightly below the consensus estimate at $138.37 million. Despite the revenue shortfall, the company’s earnings per share loss of $0.73 was better than the forecasted loss of $0.80. Lovesac maintained its full-year guidance, projecting revenue between $700 million and $750 million, and earnings per share ranging from $0.80 to $1.36. This guidance, however, fell short of analyst expectations, contributing to a 12% decline in the company’s stock.

The company also introduced its new EverCouch product line, which has been well-received and is expected to expand to approximately 100 showrooms. Lovesac’s strategic focus on showrooms has resulted in a significant 18% year-over-year growth in showroom net sales. Canaccord Genuity reiterated its Buy rating with a $30 price target, citing the company’s market share gains and evolving product portfolio as positive indicators.

Additionally, Lovesac ended its partnership with Best Buy to concentrate on showrooms and its partnership with Costco. DA Davidson maintained a Buy rating, noting the company’s mixed outlook for the second quarter with revenue expectations in line but a lower EBITDA forecast. Despite these challenges, Lovesac’s management remains optimistic about future growth and product innovation.

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