Earnings call transcript Q4 2022

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Operator

Good afternoon, and welcome to Lulu's Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. Today's call is being recorded, and we have allocated 1 hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Naomi Beckman-Straus, General Counsel at Lulu's. Thank you.

You may begin.

Naomi Beckman-Straus

thank and joining fiscal and Lulu's to everyone, quarter fourth year afternoon, you us for discuss Good XXXX results.

we will and matters management's fact but references including, within on statements limited this begin, this of and Act expectations, of Private historical future plans, we would do statements remind Reform to Before our made not All you goals ended to December results, transition, statements, Securities forward-looking XX, conference Litigation opportunities, regarding expectations call considered strategies, meaning initiatives other XXXX, not include growth. to, should and and objectives the statements year financial implementation, call be their XXXX. forward-looking market leadership regarding launches of our the product like the that relate to

expressed various materially These could factors achievements our other which subject statements, results, and statements. are assumptions from uncertainties, detailed performance implied to assumptions and in performance are important risks achievements this These risks, actual or or differ by uncertainties results, these cause to or our March release of can fiscal with X, investors.lulus.com. at well be filed January on year as SEC for annual filings Form all press afternoon's our ended the SEC, the the with our website XXXX XX, report on XXXX, as on including XX-K found which

of statements Any as call. this date management's such the represent forward-looking of estimates

the future, as statements no may we forward-looking required update undertake statements at to we elect law. While in to point by such except update revise some obligation information, or any or forward-looking

margin including we and reference adjusted EBITDA adjusted financial today, non-GAAP also information, call our will During net debt. EBITDA, certain

in information underlying a accordance discussions superior performance presented not in believe prepared intended be as some financial we represent more to in of non-GAAP presentation business. considered and substitute to We use The and our for the financial they or the this as of information true measures isolation our is with accurately of GAAP. financial operational results non-GAAP or

non-GAAP well measures companies. be the can as release using limitations filings. measures in press description, measures from by this afternoon's measure GAAP different may for non-GAAP non-GAAP in used SEC as our each other found be rationale Our to Reconciliations of and and

are Board, our Joining Landsem, Vos; of and me Executive and David CFO, Chairman McCreight; today CIO, CEO, President the call the our Crystal Tiffany Smith. on Mark

that, our Following the With call open we'll for to questions. I'll David. over prepared call your remarks, the turn

David McCreight

pleasing pass Thank tremendous you, who do Lulu's I to afternoon, role good Naomi, and assumed fans. to the X, millions am our delighted I March to on the of and CEO on brand to everyone. who job XXXX. begin a thanking Crystal continue want of executing strategy officially Landsem, by our baton crew, the

partner has consistently values our has scaled her as a has Crystal we've customer few together. been leadership who wonderful and of deep years and company core embodies business grown and the our a last understanding demonstrated these

thrilled to As plan in November, of business after and joined hands of I the rewarding capable this leave since years Executive communicated the part the Lulu's I the Chairman management am we've as This a team. been to CEO. few transition has long-term I've company, transitioned excellent in role

Their inspiring. is the commitment brand Lulu's the to and customer

does on wait confident make and for continue Lulu's to in and team few strides the our great brand Crystal strategy I'm next next. the future. will see go-to-market building equity can't what Over seasons, to strong evolving Lulu's I

so directly can as over you now I'll from Crystal? turn to it her CEO. Crystal hear

Crystal Landsem

leading role looking have Thank forward followed Lulu's, It's by assumed an full honored our and exceptional incredible and we and year years as first highlights the year thrilled much start to public I'm priorities like key good XXXX. some to everyone. with this as you, team X and afternoon, at dedicated following our I'm to company, so growth for to I'd CEO. our long-term execute been full continue as plans. David, far a very

of million, no and an public $XX engaging Adjusted grew position customers X-year with growth. XX% up XX% XXXX. revenue all-time developing XX.X% CAGR million million $XX.X XXXX expenses our net incurring million Active of $XXX was infrastructure company for customers over last or year-over-year with despite of $XXX to an Lulu's EBITDA brand. long-term from repeat in year record

in between distances savings implemented efficiencies, morale and order robotics customer network, automation and distribution improved operational travel pack cost by ship in shipment. vastly an orders, and and experience increased reducing the also to center We time employee driving pick, our resulting reducing by

creative of California to through in to benefits strong adjacent move our new our in seeing on office. location already, sold margin studio of product our a which average pre-pandemic And years. Southern future. merchandise more units net at of than pre-pandemic profitable on buying right And Roughly the move that completed We markdown expect sold continue higher, line we markdown, sold to units the we're with the periods. conversion, pricing, without XX% those a

continue customer year-over-year maintaining testing profitability more awareness while active growth. contribution and expanding We into brand margin order and marketing first

significant efficient brand community impactful. and be to her in occupy is with growth We grow data-driven the core, customer-led initiatives believe concept more opportunity fan remain its profitable, marketing a long. At and and runway assortment, space a Our to our believe we closet. Lulu's we continues have

brand us believe U.S. tells seeking and to our she consumer beyond outside opportunities and is feedback there experience our the Our platform, customer consumer digital demand insights we is

and a data-driven, wholesale digital do we at we capturing in will broaden to pursuing balance pursue these increase addition further Lulu's, test-and-learn, follow both wallet more by and across supported to is share Consistent distribution channels opportunities, which an space, incremental we international platforms opportunities. everything our when capital-light strategy strong the our opportunity physical sheet. digital with see In our penetration

see our our have through efficiencies across all, facilities. resilient robotics opportunity We investments is automation and adaptable. and to business Above increase from we further investments benefited continued and distribution operational believe model

and for long-term unique enable characteristics, uncertain for growth. which the us achieve to you the goals these through remind Let of our execute profitable me consumer times

foremost, are fast and a we First fashion not retailer.

a the loyal price. to uniqueness our durability, brand assortment customers whose relative are We appreciate and lifestyle of the quality

of the As items not branded. unlike apparel a does many mean excessive demand over and in reminder, sell are obsolete the markdowns. Further, Lulu's necessarily inventory industry, we shifting XX% and

components of inventory product the development carried specifically can preferences an be season from in appropriately the from marketing, back largely X half next future. our operating we a respond second, cost Also, largest risk our for as to nimble the of year. variable when is inventory do change; the have reduces brought so perspective to half product structure often of Roughly expenses, and and data-driven and remaining our costs a much reorder staffing the fashion we're product and able following

on cost inventory the our preserve So we're to in the turns adjust order a to industry. an have large part in third, basis as-needed a position in of we fastest believe profitability; of structure X we

optimization process merchandising inventory data-driven for allows Our of turns.

environments, enabling networks platforms the trajectories. ahead the approach Thanks large-scale to highly So stay balance to skilled a versus us inventory we're technology the challenging to of unknown to able our typically most sheet needing nimble our impact internal or with just react capital-light to even to time operations distribution we in our model, a operations expand flow management; we're which have demand to contract brand-friendly our macroeconomic quickly, business able growth patterns to fourth, invest or generates minimal and surgical from teams, operations. bespoke cash and take positive in in

business we on and an we any efficiencies agile further potential. continue in are brand solid as finally, growth our well nimble without structure. capitalize the bolstered have as and business operational debt, we And in sheet believe strategic well a available, balance positioned cost With a model navigate evolving liquidity by invest loan to term investments, significant to conditions future resulting with

Moving of generated revenues produced on $XX We environment. a deficit such million. modest team's a our and manage I'm to through to about the EBITDA million ability fourth of dynamic proud and evolving of $X adjusted quarter.

As unlike throughout a consumer brands, year. perspective, a is expense our levels while revenue fixed QX fairly reminder, remain quarter smallest consistent the many from

$X.X Our declined Average grow, customer fourth year LTM modestly count to the X% value order by to million. quarter. from increasing in XX% continues active last

inconsistent conversion. her traffic by shifting said, being leading to more discounts. industry, to this macro be pressures consumer others to during the quarter, we That our to by and this to marketing spending. we volatile Similar discerning with product witnessed attribute characterized customer behavior like We responded trends our spend in the peers,

Our assortment could resonated with that thought worn our customer during QX, occasions. items and she many for be

These with we beyond are in gains reinforce the our We particularly space occasion occupy opportunity in her closet categories. more non-dress conviction to our categories. wear the the pleased some core in of experienced gains

Driven customer as order and we of distribution maintaining as by is will pre-pandemic likely $XX.X are on consumer on For combined both million. be $XXX that investments the product our growth channels, future demand environment, to macro soften combination $XXX near million to million. the digital event term and meet to between merchandise XXXX, maintaining million with wedding of margins, well based in estimate to $XX.X revenues across we pricing targeting cycles, in expansion adjusted physical EBITDA brand and flexibility of the return our catalyze the temporarily to uncertain

financial Smith, and about announced and our the guidance. we CFO March will details XXXX, on of role Finance, provide of QX week, Tiffany former more last As XXXX VP Lulu's over assumed she X, intimate holistic this I financials, our of her strategic and have genuine to take Tiffany decision-making and am her thrilled to role for love customer. given approach her knowledge

that seamless for long-term collaborated transition As I has been the and given Mark the Lulu's. in expected, strategy Tiffany, leadership developing building all have

that further relationships maintain enhancing expansion new our and to existing pursuing the We broadening including physical developing product digital we've and through customers, growing expect focus communicated, and awareness company customer for category vision channels, and and previously the same brand markets. retaining, international attracting

operational and to turn efforts, our express to to an it our over our for value gratitude very on shareholders and environment. ever-changing update this relentless Mark to building I'd team creating I my dedication marketing and in provide dynamic brands to like Before their

I'd now President Mark over turn call to Chief Officer. our to Mark? And Information like Vos, and the

Mark Vos

the drive we Crystal. growth you, QX, efficiencies. and invest to foundations our operations operational to Thank further In for continued in expand

incremental and Southern go our in We facility, have as so California needed. and this setting capacity testing returns fulfillment is can capacity our finished as up live soon processing we

with also the our track of of robotics California this half Northern are year. on center introduction fulfillment in We first into the

Pennsylvania accomplish we fulfillment variable Northern Eastern our the in center. similar robotics productivity in XX% facility, of we implementation aim have results successful over facility, labor and a seen gain California that fulfillment the of in After to

some Now around color customers. our

and We of Lulu's large customers loyal are our of the about that brand. proud are passionate diverse community

end growth million double-digit reflecting year-over-year, the gains count middle the customer customers, to In X.XX QX QX active compared accessible of X.X saw income QX, active of new are XX% household At to who flat QX among lower compared to end customers. to repeat year-over-year most segments, increase a XXXX At of drawn we in the in customers. we positioning. XXXX, million had positive our XXXX, and luxury to

program in on maintained by program Customers and we higher AOV adding staying loyalty expanding customers benefits time. order and focus the our of the number loyalty to over frequency, higher in joining continue and

reminder, focused engagement, discounting. the customer a on is not loyalty As program

previous We combined compared and usage, have driven also higher requesting and years. invest and see growth just mobile than to revenue, increases rate continued rates our by elevated app marketing mobile primarily our we to brands to downloads app. that our we further efforts. will features have with conversion our with seen In remain continued retailers mentioned In continue XXXX, return customers other are a pre-pandemic mobile support in like app calls, in in

conversion Some returners, customers our be our providing existing with to made XX-day path remain return will a by for we and and excessive adjustments period. committed our return frictionless to policy safe, free heavy

gears marketing. to Switching

which contribution were than we profitability. traffic affiliate, in but earned cadence. influencer margin in and margin customer quarter a Our years, drivers pleased and and generation, acquisition QX, general, impressions, and first marketing cost we slightly the previous higher XXXX of also investments. meaningful see for also remain and QX conversions our quarters is national in marketing was marketing, comparable great focused with very positive in competitive maintained QX of and XXXX quarter expensive value supporting to social improvements media on channels, We were contribution

customer service dynamic I teams am results, order margin brand in profitable foundations the customer who first continue contribution continued marketing hog deliver to growth. this authentic experiences the marketing, of logistics, technology with Lulu's proud our expanded the and and environment of

to over discuss With Officer that, Chief I in our the will call the Financial quarter hand more Tiffany detail. financial Smith, to

Tiffany Smith

Thanks, Mark, afternoon, and good everyone.

with to CFO start look strategies. forward to Crystal, with engaging taking working Mark out continue to Let by excited me execute you I and saying how and am to closely long-term on be role. I the growth our David

the quarter. on fourth Moving to

the not we [indiscernible]. immune to were While

the On IPO.

the improvement to loss positive $X.XX of EBITDA share fourth a a is in XXXX. $X.X of the XXXX. was $X.XX, period to $X.XX the per which million quarter, the we finally, of compared adjusted per a fourth compared of adjusted For quarter And reported $XXX,XXX of loss EBITDA same share for in in loss an of quarter

QX compared XXXX. period in in to negative X.X% Our EBITDA the was positive same adjusted margin X.X% a

manage Moving on long-term balance flow statement. remains balance positions to to macro well near-term growth execute cash the uncertainty. through and strong our We plans sheet and our and believe sheet us

year offsetting We balance to assets XXX that million noting were of accounting adopted million reflected key is at worth we revolver, million. X standards XXXX, of beginning last and with liabilities fiscal of past the quarter year Similar change this the our of quarters, the on several debt cash on the reported roughly and ASC balance to not under drawn the in $XX compared $XX.X the resulting resulting ended in XXXX net a sheet. balance $XX.X on sheet lease

In important highlight is our it to of recent America. with banking corporate Bank of in maintain relationship we banking industry, light the disruptions that

million inventory growth this The intentional was from model. year. better at planned balance of was to $XX same fast-turning and last $XX period quarter Our end up million, our support majority the

also only on reminder, need us turning supply customers, specifically had over inventory, our a and XXXX, As LTM chain to China. QX we chase but better from our to from were insulate basis into more in serve risk, Xx not to indicated an

season million $XX and are in million feel QX million more XXXX. normalize annual remain in as consistent is upcoming $XXX We will growth what QX we turning or fluctuations. a inventory from for with an revenue with We levels $X.X QX. inventory our with beginning our turns. a believe way and On solid net inventory in year-over-year line were in prepare XXXX to the we year-ending XX% balance the down growth Year-ending of QX levels busy in and year end with seasonal a revenue basis, year anticipate quick comparisons very late brand be a inventory industry-leading

inventory always, minimizes levels management As we'll of be to we aim optimization balances experience to and our markdown and disciplined risk. inventory customer approach further pursue that in relentlessly continue the

markdown buying data-driven sellers proven in roughly As XX% our risk. of being a reminder, our results model buyers with lower

us New quarter conviction particularly resonated of our during pipeline. the which the in gives styles reorder well, strength

across We mostly concept, are a fashion, fast fresh products fashion of not are many consists years. which inventory relevant means multiple cases, that in and seasons for our

markdown on So we're which non-pandemic with XX.X% normal number to between Nothing no units markdown and units more sold this sold XX.X% XX%. pricing. less exception ensuing to exposed our to speaks to was average were risk. inventory the markdown, a year, of roughly that with XXXX consistently in that, obsolescence of

for roughly have years. products increased higher over points Said merchandise margin with noting, were being worth gross differently, XX on markdown approximately pre-pandemic than sold percentage XXXX Also XX% time, of pricing. sold units our without markdown

We that operate capital-efficient generate positions highly continue business flow. to to us cash positive a

Moving guidance. on to

and net We $XXX are between revenues year expecting $XXX million. XXXX full million

year. net As business, revenue the demand event about you year, revenue quarters QX is a third second quarter our dressing representing in due fiscal highest revenue fiscal lowest think our for to our typically our in modeling profit for with normalized of typically seasonality and net and

a in We season other volume gifting our not in are participate not do retailers proportionately space. like typically peak sales holiday destination and

growth, to wedding-related expected from XXXX. as quarters return customer and constraints to COVID-related QX last demand pent-up refreshed as comparisons, X XXXX her as it are benefited reflected As social net relates which XX% XX% year-over-year QX year wardrobe ease, calendar events revenue her in half including those our respectively, to to and decline

the are in as declines wedding-related decline attributed previously our Recent in revenue environment as general mid- to the comps quarter the X when first trends with to primarily to events. compared QX the cited to the macroeconomic high weeks of teens pacing in XX% negative well 'XX,

of For EBITDA million. comps EBITDA Adjusted expected X.X% X%. an between adjusted our to second and positive to expect $XX.X XXXX. million half between to and This in purposes, is to contemplates margin the equates we modeling guidance $XX.X that of turn be

adjusted investments Our longer-term support captures initiatives. guidance EBITDA incremental of in

for year Our full are guidance targets the XXXX.

similar modeling margin quarterly expectations purposes, fluctuations the and above have as revenues or To depending set rate for rates our seasonality on EBITDA guidance below full quarter. our adjusted our net likely fluctuate will year

continue our outstanding million, lower following IPO, interest rates. higher by of at credit, revolver. expect approximately with line on result have by We debt long-term balance million XXXX, million paying we modest a on of of As levels $XX revolving the offset a $X.X driven $XX down interest our for in our drawn currently expense to line XXXX

QX of Our by guidance and paying will net free that to XXXX. debt begin be revolver in contemplates down the we end XXXX the

$X.X Stock-based million compensation $XX is to be million prior tied performance-based expense in captures in to the associated base forfeiting compensation to QX for potential Stock-based net IPO-related stock primarily $X.X approximately accelerations expense down the unvested McCreight options bonuses cash million his conversion to financial revenue stock-based with equity was voluntarily expected $XX year. expenses of to EBITDA which expense criteria. certain for the compensation XXXX, adjusted from and due David XXXX XXXX, from in quarter accelerated QX and in million

For XX.X diluted fully share approximately expect XXXX, we average a count shares. million weighted of

capital on expenditures. Moving to

future further customer expect setting opportunities, We're focused $X $X driving invest efficiencies. the experience for the on between stage growth million. operating We to enhancing million and and

distribution will automation invest robotics expected efficiencies. further are drive which in we to to XXXX, and continue capabilities, For center labor

for closing Crystal remarks. pass And with that, to I'll back it

Crystal Landsem

support work on to continue of Board shareholders to With as moment continued Thank to it we brand questions you, thank to towards executing for and crew, our Lulu's customers. we'll our you, fans, each Tiffany. and a our delighting We'd strategy to their over that, now. turn take like

Operator

[Operator Instructions].

of Sachs. Roach Goldman from comes first Our question with the Brooke line

Brooke Roach

outlook? bit have was assumptions the wondering and are you contemplated then and in talk half assumptions the margin within if reacceleration be can following what second in others? I among promotionality Crystal, XH, a appears And little your expense puts to for in what your you driving takes talk What do outlook the of you that shipping revenue can for for confidence more about year? a to growth improved tough Tiffany,

Crystal Landsem

thanks Brooke, for question. the

For us so be to we business QX, into large to not not similar very continued QX, to this QX, X. typically is year runs, going about, but and the large in we've that also that. and way we're as talked -- our so get in X going And think we that momentum

Our not for guidance macro normalization more is contemplating and better, level, a us. more any promotional normalized the and getting a markdowns but cadence discounts really of

it think the last second was I outsized year half. in

normalization So to to of back as more from be it's second usual we our perspective, usual business the for us in what with as business the expect half.

Tiffany Smith

question. a year, in half Sure. up in on takes terms your margin, that a some improvement second in terms on of the half period relatively we're the would probably year with the our against first to of anticipated say, of Nice going most and in of pressure Tiffany. the And year in you. Brooke, merch just margins Basically, with, the X for margins. I flat in is second this anticipating non-promotional merch under gross fairly This given be last of we're of puts terms year the follow meet to point to margin. Overall, half

have that cost where is experienced a actively. lever very gross working shipping As key there We're through with pressures. we flows costs margin, to

got making the pressures continue year, and cost regard into tweaks and year. sort diversification mitigate terms last year, teams should we we to Our feel modifications mitigate those. those increases to in with plans us are in we managing help to felt costs that of carrier we've where this like of place to And this can shipping those good

Brooke Roach

physical I year? wholesale. you perhaps script, more? planning in a a that and couple think X into you you're about physical times the little bit channels, ask pivot that just talk of channels mentioned I Can for the more for plans Could

Crystal Landsem

originally will about while necessarily would us wouldn't that, to she her in And couple about And in-person so. way in say X quarterly that guess wherever of prefers when I engage in-person be the we an public. also doing with investments we engage would ago is be call But for we're going I around Is went next Brooke. to be is we're pivot, us. and we've will like of next will talk experience. What from to and investing it the that experiences wants talk we to I direct quarters, years more customer of we a had spoken got what our with year, the we'll that investing our it's where answer -- feedback continued our updates she or details strategically providing not be be in manifests and the is how more call. over ready X.X

Operator

of Our Stitcher with from line comes BTIG. Janine next the

Janine Stichter

that, you're QX of it can to and QX seeing the within driven elaborate active seeing within about like quarter little in as in Hoping progressed the being date then how what environment sales the seeing environment? on date. in on the you're you that you're in What orders growth customer you're seeing promotionality in what to look And terms the by does is a would more then like versus more AOVs. much what bit trends, hear to in broader I QX

Crystal Landsem

question. Thank you the Yes. for

XX%, mid-teens comping X guidance a during is roughly really as quarter. We this against which with line expected. setting in So my comp challenging very last high negative far, is comp what in we the our are to weeks we prepared of remarks, noted QX I in for in had cited XX in so XX% year, the anticipated up

terms that to overall as say, very strategies move what's that forward. macro less continued -- pressures more macroeconomic would or that's driving comp as our subsided. So we negative overall, With the said, wholly in not contemplated I it's confident have of it's in, are far yet

can back pull us structure where nimble a an have structure allows really adjustments make extremely as that of variable pull We and lot we needed. back to cost cost

Janine Stichter

promotional just you're what Great. on broad environment And and then the seeing quarter-to-date?

Mark Vos

basically speak role QX. also is in promotional see we need in continuation -- -- to to I We to say, can environment. a that not so getting it's or play that doing loud of We type offers. and kinds is single we Everybody sure that. just need of now all And also It's are every that that ways. do make the and a of promo. in sense, and And then. we to play not less, X heard various

diverse execute We that of set have a promos we against.

They whether have on reengagement on that is groups, our that different particular or So whether is of outcomes, goals, certain customers engagement simply app, rewarding of increasing different variety or there's wide whether a focused in driving that. that categories right? downloads customer is sell-through or

to we surgically always, specifically set forward say, welcome the to that do. working we possible we're but across now as hitting I -- that make And Janine, with coverage. have to to Look not as the use sure out things so would you. all that

Operator

Mark line with the Baird. next from Our question comes from Altschwager

Mark Altschwager

guess I just first, to the EBITDA clarify was hoping of on some commentary. adjusted I

for the first any expect the gross QX, more more just maybe margin profitability margin typical in sales would be But you're to still is or intense pointing should just in which said how case thinking seasonality, think we quarter? I follow granularity you on given the pressure year be adjusted maybe the EBITDA about QX. and that that lower to you

Crystal Landsem

question. Yes. the for Thanks, Mark,

sales of lowest just their do group and So and quarter we're more I lowest of typically the good we comp this for challenged. I negative sales call little because say is year would of say, out highlight year giving XX% of worthy little QX the QX. terms a the up be year a a we're comp from QX. promotional highlighting comps and that year QX, having last that to in the profitability I this money in XX% environment in the That's against for in normal a QX a year run think and would that's QX is our

with may year be so bit those month. lowest at profit, than And we a you our little QX prior lowest little between look a they've that QX, this years. of distinction see what similar to may But being moderated bit sort and more been in sales

to as as We peak still expect you've maintain in historically what being still season far QX QX there. our see that seen

Mark Vos

was dissimilar Mark, we that's had ahead than have QX. QX what of just always not for

it of QX. So shift shoulders are the it's and business flow the big seem and that not as may as QX dramatic through a

Mark Altschwager

Okay. then And was how follow we've on should address? quarter-over-quarter wanted give Is color trend trend for the - changes the we think seen. about a to on It's be that there. up I curious a just of bit could hoping X way I'm XXXX. AOV. seeing I you're more you bigger to as behavior that about thinking this level dish good the consumer

Crystal Landsem

single-digit quarters. say in we as half and year-over-year coming start think Yes. the is markdowns the Good back relatively sequential the growth Figure higher really being comp question. with discounts. some would in of QX of I flat impacts AOV just generally context, speaking, to year-over-year gains

Operator

with from Cowen. question the line comes next Our Jonna Kim of

Jonna Kim

puts last in as would we curious dresses rates year, Just our some think And we strong return then year non about as you're from from all that demand takes consider locking demand having for last key should are as be about this helpful. of what and addressed your a year. you're model strategy lot that

Crystal Landsem

Yes.

a of non-dress over now across new conversions have event increasing been So what's seen and apparel. customer us in right most interesting years lot our our great have is categories. pre-pandemic our for And our we progress non-event

product we're of specific categories reiterating great doing and and classes share our to environment, we area. have the more our for we confidence going we're a events the that making take So right dress really other non-event our right thesis while job can we business the our still that barring macro performance investments in believe that still forward, wallet with apparel the is in just general,

think great driving buying about I is the the model our our thing customer is assortment.

product So say, I flex classes, specifically and right nonevent non-wedding success in other pivot wanting we're our in of rompers to drive wherever event-related many us. And and seeing should non-bridal we're she's but able classes. dresses, jumpsuits, our, now, in also to or

Tiffany Smith

return jump rate in the And question. I'll on

out, And also the and can just point to return so I of classes, driven by not want promotions impact are only markdowns rates. return product rates but impact meaningful on our have

last the we've X so which year, really first return being in promotional we that by, a expectations rates year. modeled the relative to just I'd return half half lower are the driven say, lower -- decrease to more due for year-over-year, in rates is of And year, increased slightly modest

making I be ability also weeks. her we roll want help customer-centric, free dressing different product the her because styles important into really level, really want preserving With aimed sizes out rolled but the rates, to some period, at coming to to excessive to policy changes want just pending to room return us to out and kind very of our out to point maintain do try is we're curb high in we her and be which regard out, at-home to to behavior. return coming able some have return changes

a to in in changes. policy We conservative. But things keep explicitly trying return rates modeled result those of decreases as haven't just

the in rates our year.. are We expecting a for slight decrease

Operator

Noah Zatzkin Our line comes the of with KeyBanc next question Markets. Capital from

Noah Zatzkin

your you inventory your second, could speak approach model QX. could couple. and a navigate you and then uncertain composition, some just you bringing as benefits line was that of test reorder comfortability and I provide of of to to macro. by in level color kind Just hoping model the hoping an that there And just on your

Tiffany Smith

impactful the the of in with an part in now. approach. test-and-learn particularly benefits our to first regard we're right environment that take I'll It's

years. to lean proven So over this flex up heavily a like ability into the down. difficult in we environment this, flex and our We've

decide we approach in it when into we're gives the It able our reorder we had a lean is voting thing new way approach. the of nimble ending with on do then those terms COVID by we what those low-risk -- terms is build to of We're think products year, that and use essentially pipeline We've data-driven and But us for COVID how out. move demand that to the the to able that to after return, the -- want really COVID buying is I critical really in really regard funnel. reorder introduce our styles. into new our to into she year enter to to other

our with think expect whole lower on model to don't see us then models. to fact our -- inventory risk that really we may that just becomes is lower have that you inventory this, we risk the future having So and levels in the markdowns as gross margin of ability based other that sets see same because nicely obsolete retail the and that up do merchandise around that, to all

Crystal Landsem

As size inventory meet it in on ratios strategically the the feel disproportionately year. I slow and challenges our have the with risk our just been better And maybe better we we're pleased calls, say positioning, to China how turns we're as have trying to customer relates to inventory navigate ended we previous supply chain demand, generally we and exposed stock and we to. that signaled

sleep Most of lot don't of it. was about We And a it strategic. not that candidly, lose inventory. over at our night we're concerned

We those are are tried that areas, areas some tested true. and heavy in and reorder but are products

we inventory that's pretty just our risk we normally what something than really sense, reviewed. obsolescence based would in of weeks or or be So in model not feel about Candidly, concerns we markdown might heavier X optimized environment, an levels. but in that inventory we the on just supply good us be feel X terms is that that of

Operator

of next Our comes with question line Randy from Jefferies. Konik the

Randal Konik

impacting relates as kind helpful it be this pieces super volatility in structure. That XXXX with reminder margin the would give just maybe the of look would all you margins normalized sustainable margin of about what Yes, with like. here gross think different long-term time how structure. EBITDA and us some year just your a in on this to Maybe margin

So if you could do be that, great. would

Crystal Landsem

I Yes, as Randy. think the for question,

dynamic in environment of these pricing, we has last So over actually -- X and not our which lot management of our a optimize cost goods flow-through, years. X where been of we've pushed our margin to over such vendors haven't a invested own

So what we to just we started that. is internally do hiring for say can teams

meaningful a to there's invest our benefit feel we our control profile we margin more term, supply chain. longer as in So to over start taking

as progresses. the updating all few So we're you forward to next looking that over quarters

Randal Konik

kind be levels there of to want you or should any think point that out the to normalizing is kind gross And that of margin the you margins? that EBITDA

Crystal Landsem

able on our baseline. pre-COVID a and I better continue would grow we levels be than to based to that perform say should as

at Tiffany have first I the think between through markdowns year, last lows spoke being and I for our of noise historical about half XXXX. a of think there's lot XXXX

look improvements So at yes. for I years, would pre-pandemic

Randal Konik

question... last Got you. May

Mark Vos

scale, approach. as grow the a will is stay to and top we've things believe that the help to going that into line there's and customers structure model this to continue still we It built and that we close our Randy. flow-through scale, is

So we go to market.

Randal Konik

I just you Mark, ask to Yes. about want marketing.

some go the how We Apple versus on dollars, years so them changes the forward? You think in forth. years and you maybe moving know you When give acquisition about some get deployed that to next standpoint so gone do how think How us or you the marketing privacy changing so in that of about X perspective things about the on different the cost you all kind allocating how perspective dollars call. allocation doing on of next think be same lower from on and about about gave in have -- of you of kind going years. X the that of to those marketing last different the or few

Mark Vos

Great Yes. question.

taken So right. position the we have you're

the it marketing marketing. from switching privacy for perspective, performance much have us feel technology as other years because relates as and performance longer performance really well that with of response obviously. perspective at say, benefits more long from have perspective, well a a from from you awareness term, towards direct that do, of we we've done the the let's brand the or that marketing run, grow historically, Not as we look but marketing dollars also If will certainly heavily X help so reasons, faster and efficiency that leaned the still past to and the

a side. side awareness that start marketing switching in performance into the so And is you overall we on side. the put to brand to into path been marketing if the seen awareness shifts we to ourselves our so have able have dollars what do And -- very will, those from far measured, the controlled expense, away deeper have without way that thus raising that we make to

good on trajectory, growth and we also levers key that is would that achieve trajectory pursue we're that So we feel to of that to what the a X that like to business awareness continue and with low, feel brand we us opportunity future. is relatively increasing that presents huge our in a the has, our it growth because business in and is our the that that

Operator

Our Piper line next question of Sandler. comes the from with Edward Yruma

Edward Yruma

results of just pressuring the seeing as number comp of some then clear, today? into kind cohorts? lower a in new And first, guess, is follow-up, build some for guide? Are some of believe kind how in same so the the extra SG&A indicated do the I saw you that baked you I assumed repeat is you what back middle-income the guess, customers in your know I'm cohort. I of 'XX 'XX? lack growth historical incentive you that of or of and that's behavior growth And much

Mark Vos

it's either for basically order or frequently take out said, order projected lots that spend waiting in like discerning or is more out I'll of couple or also And deal there's customers. with I part. less is because promotions What the quarters over there. have the forward and frequency our some wants to that a of slower -- reduction the last play seen frequency first we've

also certainly as due the that impacting is of seen other frequency. course, the the there then And order result hand, see So also can We've that. mixture choices, then mostly there's we fact of come on AOVs the the is, made. lower obviously be promotions. other to what a Whatever out

necessarily that primarily the in so reduction And customers, the it's we've more when so you but frequency purchases of active -- seen think a it's impact. not about it

Crystal Landsem

more anything signal else. It's the of macro versus a environment

Tiffany Smith

And range jump -- in compensation, that and to question it, then but give on some in you perspective from year-over-year low to going free we're million had -- with I'll for chime you to a about going stock the a 'XX year. would into on stock comp misheard just provided terms $XX in I say, if at range feel $XX I'm I 'XX for a end, million I of expectations this And the 'XX. of

For probably, say, X that lightly our employees to for that's One -- performance shifting away put place we're year, bonus cash-based is would main into a stock-based a plan this bonus a we've restructured main I reason bonus. reason. from

And adjusted [indiscernible]. based have and financial tied performance bonus -- for performance other entirely to EBITDA. eligible is This for our executives metrics, key revenue we'll similar

in So terms flex there's some terms of range. we high in go that going to how there of be

that range getting around I remain comp with say, stock X why into to there. a But acceleration with relatively I year-over-year 'XX that forfeited, absence from that's would in of was So you related 'XX Davis our that's would flat accelerated otherwise, provided plan, exception some to options highlighted were that QX.

would That's year, more loaded say. just the most that being throughout I of of normally have into sort However, year. front course of the the been recognized would

Let me answers if your that question. know

Operator

of line question Lorraine Hutchinson comes from the next with Our Bank of America.

Unidentified Analyst

Tiffany. This And Alex congrats, is for [indiscernible] Lorraine.

adjusted how sales cause initiatives will the you full have flexibility And expenses key which any elaborate there investments that referring just you then observe can EBITDA in guidance, growth of pressure? you're kind the as you year On the out? on play to on trends do

Crystal Landsem

It's so happy answer a Thank to great question you much. and this.

So just start terms Bruce. -- second in of your from of question, the kind I'll

is able where variability to quick come are There terms sales than adjustments we've in needed lot a better our or in structure, cost as as of what make of worse we anticipated.

year. in of the able EBITDA investments regards there in pull. levers the and have that are deleveraging resulting overall that adjusted some cost We we're the fixed And to this to

us, initiatives, it's I committed to ones to lot really strategic as like would provide important employee-related to IPO were with original a long where of growing but for our can't laid that which remains forward. a payroll you company, for have it moving just key that, very specifics, costs, critical the I term, be say things our to costs, includes continue out the

of sort any our making changes not we're to so And strategy.

We're and fully bought who going. into where we're are we

economy, the growth. downturn And in where positioned of for that this we're not wanting investments, keep those a spot we come maintain out we're and so we're not to moving in poised so initiatives forward

So for turnaround poised committed economy. in future the remaining really in the to and we're what's ultimate the

Operator

the turn now for Crystal call reached I'll over of closing the have end question-and-answer we And remarks. And question. back to the

Crystal Landsem

looking and support great call. time continued next and a We appreciate forward of your to Thanks, our everybody. your night. Have rest

Operator

lines may Thank conference, participation. today's disconnect concludes for you and this And this your at your you time.

Lulu's Fashion Lounge (LVLU) 14 Mar 232022 Q4 Earnings call transcript