Lulu's Fashion Lounge Holdings, Inc. Q3 FY2024 earnings call

• Special occasion and bridesmaid dress categories saw record growth, driving dress sales back to positive year-over-year growth. • Casualwear segment faced softness, prompting reassessment and efforts to rightsize the cost structure. • Implemented strategic initiatives and cost-reduction efforts, including headcount reduction, executive and management pay cuts, renegotiating vendor contracts, and reducing top-of-funnel marketing spend. • Actively pursuing alternative debt financing options. • Proactively managed inventory via markdowns and promotions, achieving a 7% reduction in inventory balances. • Launched impactful third-party brand and influencer collaborations, with positive year-over-year reacquisition of lapsed customers. • Wholesale business expanded, with wholesale gross revenue increasing 28% compared to Q3 last year, including a strategic collaboration with Dillard's. • Separates and shoe business challenged, with reevaluation of strategy to shift towards dressier assortments and reduction of SKU count for improved profitability. • Implemented AI in demand predictions, saw return rate improvements from fit-related efforts, and progress in the introduction of size XXL.

In Q3, the special occasion and bridesmaid dress categories achieved record growth, boosting overall dress sales which returned to positive year-over-year growth. The casualwear segment was soft. Net revenue was $81 million, 3% lower than the prior period. Adjusted EBITDA was a $3.6 million loss compared to $1 million in the prior year period. Inventory balances were reduced by 7% over last year, outpacing the 3% net revenue decline. Gross margin decreased 220 basis points in the third quarter versus the prior year due to higher markdown sales and damages.

• Anticipates Q4 net revenue to be between approximately $67.5 million and $70 million, a year-over-year decline of between 7% and 10%. • Seeks a 10% to 15% reduction in operating expenses for the second half of 2024. • Reduced the capital expenditure plan for the year to approximately $3.2 million, a $300,000 decrease from the previous expectation of $3.5 million. • Refrains from providing guidance on adjusted EBITDA for Q4.

• Macro-economic environment impact on consumer demand. • Higher markdown sales and damages due to underperforming categories and abusive customer behavior. • Potential increases in import tariffs from China, with efforts underway to diversify sourcing beyond China while managing the impact if tariffs arise.

Q: Brooke Roach asked about the reevaluation of the strategy to focus more on event wear versus casual wear, including the expected SKU cut, implementation time, and impact on profitability.

A: Crystal Landsem stated it's about narrowing the assortment, with a SKU cut ranging from 10% to 25% depending on the season, expected to take place from Q4 into Q1, and intended to be more profitable and improve the customer experience.

Q: Brooke Roach followed up on liquidity levers and additional cost optimization efforts.

A: Tiffany Smith mentioned headcount reduction, executive and management pay cuts, board size reduction, top-of-funnel marketing pullback, and internal process changes like refunding to store credit.

Q: Janine Stichter asked about levers to generate liquidity and physical retail performance.

A: Tiffany Smith discussed ongoing cost optimization efforts, and Crystal Landsem mentioned wholesale growth and the Melrose store's positive role but no near-term extra stores.

Q: Dana Telsey asked about consumer health, competitive landscape, and China tariffs.

A: Mark Vos talked about diversifying sourcing from China, working with vendors to share tariff impact, and Tiffany Smith discussed assortment reset, while Mark Vos addressed the competitive landscape and inventory reset efforts.