Lulu's Fashion Lounge Holdings, Inc. Q4 FY2025 earnings call

Strategic Focus - 2025 was transformational: Strengthened financial foundation, drove operational efficiencies, leaned into event dressing, resulting in gross margin expansion, reduced operating expenses, and 3 consecutive quarters of positive adjusted EBITDA. - 2026 strategic focus: Greater strategic focus, healthier cost structure, aligned assortment to core customer and brand identity; prioritize profitability and assortment quality over short-term revenue growth; sharpen focus on casual and footwear category turnaround, wholesale presence expansion, and technology leverage. ### Fourth Quarter Performance - Net revenue had ~5% sequential improvement in Q4 vs prior year, driven by occasion categories and higher average order value. - Product margins improved for 5th consecutive quarter, gross margins expanded to 44.3%. - Return rates improved 80 basis points. - Brand momentum accelerating with broader media footprint. - Wholesale business gained traction with expansion into major retailers and Amazon storefront launch. ### Cost Reduction and SKU Rationalization - Operating expenses decreased 12% year-over-year in Q4, including 13% reduction in fixed costs. - Making progress in SKU rationalization, with footwear and casual apparel SKU count and inventory down vs prior year. ### Technology Initiatives - Return feedback optimization, happy returns integration, enhanced product descriptions, simplified account creation, AI powers review summaries to improve customer experience and drive engagement.

In the fourth quarter, special occasion and event wear outperformed with strong growth in new occasion wear and reorder cocktail categories, driving a 5% sequential improvement in net revenue (from a 17% decline in Q1 2025). Product margins improved for the fifth consecutive quarter, with a 240 basis point increase in Q4 vs prior year and the highest Q4 product margin in 4 years. Gross margins expanded 640 basis points to 44.3% in Q4, the highest Q4 gross margin since 2021. Return rates improved 80 basis points from Q3. Wholesale business had triple-digit, seven-figure growth in 2025, with expansion into major retail partners including Nordstrom and launch of Amazon storefront. In footwear and casual apparel, SKU count owned and inventory on hand are down compared to prior year, approximately 17% and 39% respectively. Eventware as a percentage of revenue grew from ~48% in Q4 2022 to 61% in Q4 2025. Casual and footwear categories are being reset with narrower assortment, tighter inventory receipts, and focus on event-adjacent styles.

Q1 2026 - Expect adjusted EBITDA to be negative for Q1 but significantly improved year-over-year. ### Full Year 2026 - Expect adjusted EBITDA to be positive compared to negative 1.2 million in 2025. - Expect net revenue growth trend to improve year over year compared to negative 11% in 2025. - Capital expenditures expected to be between $2 million and $2.5 million, inclusive of capitalized software, comparable to 2025.

Tariffs - Environment remains highly uncertain with potential changes in scope, timing, and rates. Our strategy doesn't rely on single external outcome but focuses on actions within control like advancing resourcing, strengthening vendor partnerships, optimizing product costs, and disciplined pricing and assortment strategies. ### Broader Environment - Potential tariff impact, freight volatility, and cautious consumer may create variability in demand. Need to remain agile, protect profitability, and adjust thoughtfully as conditions evolve.