Lulu's Fashion Lounge Holdings, Inc. Q1 FY2026 earnings call

Business Reset & Assortment Optimization

• Most foundational reset work for the business was completed in Q1 2026, positioning the company for recovery and reacceleration in H2 2026.
• The company's refined assortment strategy cut low-productivity new launches in casual apparel and footwear by over 50% year-over-year, leading to a 56% increase in units transacted per new product launched in Q1 2026 compared to Q1 2025, up from 21% sequential growth in Q4 2025.
• End-of-quarter total inventory was down 17% year-over-year to $33.1 million, with significantly reduced markdown exposure and a cleaner overall inventory position.
• New product sell-through improved sharply, with reorder eligibility rates nearly doubling year-over-year, validating the new assortment strategy's alignment with customer preferences.

Brand & Marketing

• Gross margin expanded 480 basis points year-over-year to 45.1%, the highest Q1 gross margin since 2022, driven by mix shift to higher-margin occasion wear, sourcing improvements, and freight cost savings.
• The brand maintains over 9 million social media followers, and Q1 2026 events including the prom campaign and creator/celebrity collaborations generated strong cross-channel engagement. A new 2026 brand campaign launched in early April to further drive awareness.
• Marketing remains disciplined, with focused spending on culturally relevant customer occasions (weddings, prom, graduations) that align with the brand's special-occasion positioning, while maintaining marketing efficiency.

Strategic Channel Expansion

• Wholesale is viewed as a highly strategic, capital-efficient growth channel that complements the core D2C business, expands brand awareness to new audiences, and drives incremental customer acquisition. As of Q1 2026, the brand is available in all North American Doors locations and doubled its prom assortment footprint to 100 doors at Dillard.

Operational & Technology Improvements

• Total operating expenses declined 13% year-over-year, with fixed costs down 8%, driven by distribution center efficiency gains, cost control initiatives, and headcount reductions.
• New customer-facing technology rollouts include Happy Returns (in-store, no-label return options) which has seen high customer adoption and will help offset fuel surcharge increases, and an updated complete-to-look algorithmic merchandising feature to improve the shopping experience and boost add-to-cart rates.
• Return rates increased year-over-year as expected, driven by a higher mix of higher-priced occasion wear; management expects return rates to improve as casual/footwear assortments normalize in H2 2026.

Financial Performance

• Net loss improved to $4.1 million in Q1 2026 from $8 million in Q1 2025. Adjusted EBITDA was a loss of $1.5 million, a $3.2 million year-over-year improvement, with an adjusted EBITDA margin of -2.7% versus -7.3% in the prior year.
• Net debt decreased $5.8 million quarter-over-quarter to $5.9 million, reflecting ongoing balance sheet improvement.
• Free cash flow was $6.5 million in Q1 2026, and operating cash flow (excluding prior-year large income tax refund) improved $800,000 year-over-year.

Total net revenue for Q1 2026 was $57.5 million, a 10% year-over-year decrease. 1. Occasion Wear: This segment saw strong sustained demand, particularly for cocktail dresses and other special occasion styles. Reorder eligibility rates for new occasion styles nearly doubled year-over-year, and the category carries higher margins that drove overall gross margin expansion. Occasion wear's revenue contribution increased during the quarter due to intentional assortment reductions in other segments. 2. Casual Apparel: Revenue was pressured by an ongoing intentional assortment reset, with new product introductions down over 50% year-over-year. End-of-quarter inventory was down 39% year-over-year as the company worked to reduce low-productivity stock. 3. Footwear: Revenue also faced pressure from the ongoing assortment reset, with new product launches cut by more than 50% year-over-year. End-of-quarter inventory was down 46% year-over-year. 4. Wholesale: Wholesale revenue doubled (increased 112%) year-over-year, growing from 4 major partner accounts to 10 major accounts in the trailing 12 months ending Q1 2026. Same-major-account revenue was up 94% year-over-year.

• Adjusted EBITDA is expected to return to positive territory in Q2 2026, and full-year 2026 adjusted EBITDA is expected to turn positive, compared to a negative $1.2 billion adjusted EBITDA in 2025. This guidance is maintained from prior outlooks.
• Full-year 2026 net revenue decline is expected to narrow compared to the 11% year-over-year revenue decrease reported in 2025, representing an improving year-over-year growth trend. This guidance is maintained.
• Total active customers are expected to stabilize in H2 2026 as the casual apparel and footwear assortment reset concludes and new product launch volume normalizes.
• Starting in 2027, the stronger product foundations and assortment productivity improvements built in 2026 are expected to drive improving revenue trends, expanding profitability, and year-over-year adjusted EBITDA growth.
• Full-year 2026 capital expenditures are expected to range between $2 million and $2.5 million (including capitalized software), consistent with 2025 spending levels.

• Forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from management expectations, as detailed in the company's SEC filings, including the FY2025 10-K.
• Ongoing uncertainty around tariff rates, potential refunds, and timing remains; while the company has mitigated current impacts via vendor collaboration, pricing, and assortment optimization, unanticipated changes could impact margins.
• Freight cost variability and continued consumer demand sensitivity due to macroeconomic conditions could lead to uneven demand patterns.
• The ongoing assortment reset in casual apparel and footwear pressured new customer acquisition and total revenue in H1 2026, and a slower than expected recovery in these categories could impact full-year results.
• Higher return rates in the near term pressure revenue and profitability, though management expects improvement in H2 2026.

No questions were asked during the Q&A portion of this earnings call, as the prepared remarks concluded the call before opening for audience questions.