The Lovesac Company disclosed it expects to restate certain of its 2023 financial statements after an internal investigation uncovered accounting errors related to its recording of last mile freight expenses.
The furniture retailer confirmed its financial statements for the fiscal year ended Jan. 29, 2023, and the quarter ended April 30, 2023, should no longer be relied upon as part of its regulatory filing Wednesday. The company said it is working to complete the restatements and expects to file the amended forms following the completion of its analysis.
Shareholder rights law firms were quick to announce investigations into the company after its share price fell 8 percent during after-hours trading Wednesday.
Lovesac said it believes its previously reported operating income and net income were overstated by approximately $1.5 million to $2.5 million and $1.0 million to $2.0 million, respectively, for FY2023 due to the accounting errors. Those values might change following the end of the company’s ongoing review, which it described as “substantially complete.”
“The preliminary estimated impact of the identified errors on the prior financial statements are management’s current estimates and are subject to change in connection with the completion of the restatements,” it said. “The company is also evaluating the impact of the identified errors on its internal control over financial reporting and disclosure controls and procedures.
“Although the evaluation is not yet complete, the company expects it will likely result in one or more material weaknesses in the company’s internal control over financial reporting and that its disclosure controls and procedures were ineffective during the applicable periods related to the prior financial statements. The company continues to evaluate and implement remedial measures to address such material weaknesses.”
Lovesac’s audit committee launched its investigation after the discovery of a recorded journal entry in the quarter ended April 30, 2023, to capitalize $2.2 million of shipping expenses that related to the fiscal year ended Jan. 29, 2023, according to the filing. The company’s management and audit committee are discussing the matter with its outside auditor, Deloitte.