The Lovesac Company (NASDAQ:LOVE) stock dropped nearly 3% today after the company released a warning about accounting issues and said its financial statement for fiscal 2023 should no longer be relied upon.
In June 2023, the company's Audit Committee began an internal investigation related to the recording of last mile shipping expenses. This came after discovering a journal entry that incorrectly capitalized $2.2 million of shipping expenses for the quarter ending April 30, 2023. These expenses were related to the fiscal year ending January 29, 2023. The investigation also revealed errors in how the company calculated accruals for last mile freight expenses in its financial statements for the fiscal year ending January 29, 2023, and the thirteen weeks ending April 30, 2023.
The company acknowledged that due to these errors, its previously reported operating income and net income were overstated by approximately $1.5M to $2.5M and $1.0M to $2.0M, respectively, for the fiscal year 2023. With other corrective entries factored in, these figures could be overstated by around $2.0M to $3.0M for operating income and $1.5M to $2.5M for net income.
Consequently, the Audit Committee, in collaboration with the company's management, has decided to restate the affected financial statements.