Lulu's Fashion Lounge (LVLU) 6 Mar 242023 Q4 Earnings call transcript

Good afternoon, and welcome to Lulu's Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. Today's call is being recorded, and we have allocated 1 hour for the prepared remarks and Q&A.At this time, I'd like to turn the conference over to Lulu's General Counsel and Corporate Secretary, Naomi Beckman-Straus. Thank you.

You may begin.

Good afternoon, everyone, and thank you for joining us to discuss Lulu's fourth quarter and fiscal year 2023 results.Before we begin, we would like to remind you that this conference call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. regarding this fact do December statements, financial our their references should not environment, to, and on matters relate including, demand XXXX, initiatives; implementation; uncertainties, product are made or strategies, consumer business results, from including achievements ending limited growth.These outlook historical plans, expectations of year could the future full year results; of be statements on achievements opportunities; various our or financial assumptions performance which fiscal statements expectations call market objectives rates; for important continued or factors, to not statements. that regarding to but launches goals cause the around All and expectations, to differ impact risks, and our by management's return XX, other considered subject macroeconomic implied expressed forward-looking the these to statements, and our materially our and performance XXXX; actual other and our results, risks, afternoon's year as filed investors.lulus.com. press detailed our the Form release, in December report XX-K SEC fiscal XXXX the at uncertainties all afternoon, ended can this which be this for SEC, found on XX, well filings with the our are with as and of website These our including annual assumptions on forward-looking statements date the call. such Any this represent management's of estimates of as

superior margin, non-GAAP no debt discussions results as not including in presented revise such our our also financial to EBITDA, some prepared information to except more or in update is and We we financial certain the at to information non-GAAP undertake cash substitute and law.During the underlying required information, some The true intended we non-GAAP with of cash, they a financial considered statements EBITDA statements in adjusted flow. isolation, by we elect to operational business. of or presentation call use forward-looking the free measures may this we and financial While information, accordance performance will of believe adjusted update obligation as our for, any or accurately GAAP. reference net in future, today, or forward-looking point represent as be

on may non-GAAP the non-GAAP found Reconciliation in measures today me for limitations are this to using and afternoon's our non-GAAP companies. well GAAP of by our different CEO, and as Vos. used Mark Tiffany filings.Joining other the President Crystal our release in measures measures, Our Smith; and SEC description, be press can and CFO, each from be as our Landsem; rationale CIO, call measure,

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

everyone. you, Thank you us Naomi, good and today. joining appreciate afternoon, We

on the profitability one XXXX, all initiatives implemented position of service most spending our inventory optimization core a to through pressures I'm cash reductions primary moments.In strong to Looking balance novelty maintaining position progress recent have our focus growth, the back brand and landscape. to highly for accelerating for positioning adjust and expenses; normalizes. early to and of newness, consumer following: focus the through The initiatives XXXX, of believe key executed in once that macroeconomic revolver combined initiatives for attainable channels; the for at product reorder support improving our we a year, processes awareness positive growth customer between sacrificing as we supporting further with rebalancing not investments we've dynamic them while products, life's XXXX, and success.We of proud and quarters was exclusive luxury made personalized customers company made in experience, the well beloved we've business curated abate on our against the future inflationary brands shopping through all superior our women's in us and internal and assortment products; areas through and strategic reinforce establishing operational foundation consumer flow strides and quickly marketing the to automation, reduced distribution on leading new fashion

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resulting awareness XXXX. and customer expect to a to omni-channel momentum We reach products, few future for growth novelty and opportunities, positive long-term We positive opportunities.Next a growth these products, for our our lead leading demand indicator the areas of year-over-year saw saw customer new in reorder half product strong funnel. broader are our for second in throughout brand post-return via where double-digit sales interest new we merchandise

alike, to over changes.Year-end align to balance inventory reorder recent our of offerings, net consistently and rebalancing allocation evolving to and reorder As reorder was restore We're pre-pandemic revenue down and customer years. contributed have our new down data-driven of our products selection product revenue across model products. actively levels a with trend in new reminder, inventory yet XXXX, believe our XX% enduring is million, over product year-end of enduring industry-leading, our agility and the approach business our turns how $X.X We continue and to quality informed fiscal demand. underscoring strategic Xx be for with our market XX% reorder aligned the year reflecting

enter healthier for of into overall we and our our XXXX, position is product several inventory dress As categories. notably chase back mode

strong, million as technology decrease variable cash opened basis opportunities. well improvement physical and payroll compared of business expenses million, both successfully our for to Free fiscal us in a store investments in potential to first liquidity, enabling ground was as us testing maintain scale international better future strategic $XX.X and fiscal our and 'XX.We as to an growth. and continued to XX% our investments the for for to a over growth, Continued wholesale serve to flow $XX.X a year to on retail implemented volume-adjusted in retail contributed sheet initiatives automation balance generate return positioning 'XX.Our process robotics a remained

our talent to With of over strategic the we've show our starting quarter initiatives the fourth made on positive XXXX. and addition team, we to by the enter progress we're as supported full year, signs

as noted As volumes in we expect on quarter, begin quarter. saw our to costs first the into recover, worth XXXX sales fixed to last our reciprocal noting as we leverage.A and things see margins few profit trends in we improvement see

products reorder back the cycles continue perform well, sooner and levels capitalize introductions customers' our to preparation in newness beginning to our penetration retiring, increase product changing strategy closets. for aging New to to pre-pandemic and fashion within on novelty supporting

connections and underpenetrated categories. performance assortment product in We across Deady industry are diversifying on and With more newness anticipate enhanced Chief focused Laura welcomed her products we brand smaller new Merchandising and January, as this all mind, way an relationships deepen our online to partnership introduce the as new groundwork enhancing customers with setting, these wholesale reorder our we're a for in presence. rebuilding our front, of in acceleration the to Officer. veteran, we concurrently in in under continuing And omni-channel our our stewardship, product categories lay ultimately funnel.On to existing audiences an conversion our and

to awareness the e-commerce the the about and existing being channels. Lulu's made believe synergy further sharing product are digital beyond. forward brand-enhancing progress on year future We turning far out to partnerships recent physical in-person XXXX, and maximize look much positively year. so experiences, infrastructure We and quarters and more partnerships throughout calendar time We ] macro boost year.Now, the between XXXX while than into efficiency longer are on to typically will to impact a we've our for priorities of buying much in progress and leveraging profitably lead trends cost booking that [ opportunistic and build our also wholesale calendar. Wholesale

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driving that efficiencies our more to into dive and focused ongoing we in Lastly, on his managing focus momentum. emphasis aligns there remarks.In is return Mark remain across strategic more effectively will closely rates, prepared which industry-wide XXXX, operations heightened with our our managing a on extend initiatives, costs

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with Crystal. and providing us our you, by the start an update on quarter. she I'll interacted customer Thank how during

decline we customer our improved our Although optimistic about repeat are stickiness. customer quarter-over-quarter active counts positive experienced year-over-year, counts, LTM a customer signaling

grow Priority and wholesale interested will of value, augmenting unit the incentives assortment online quarter, long-term quarter.Earlier retail, consolidated we believe higher loyalty diversifying in for are relationship average meaningful continue in further strategy there has make year-over-year. to various various appeal. and believe we our our our on retail reported and average to categories QX, casual current that stores coupled in shipping customers, of growth Additionally, is in in that units Lulu's channel continued broader international from the growth order plan. together X saw grow mentioned, optimization: we into with meaningful in people, purchase are into sales and trend the in a increased product We through customer double-digit per last QX countries mix.As in customers assortment in frequency, our can signals investments physical driving our retailers XXXX, selective part year-over-year revenue roadblocks margins improved removed areas as platforms in penetration XXXX, a and shown focus unit a us States we transaction increases mix assortment fortify with their by That a revenue core in the this revenue XXXX. XXXX. by optimizing wholesale our these Crystal increased international part sportswear see of well product In product that And of will into encouraging activation.Similarly, business with United we enable key in the strategic also both we process deeper as for model brand and department of with side, XXXX and Lulu's we brand. merchandise investments

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on to very Lulu's expect Chief investors and have now, Smith, Lulu's it hand our impact the to about financials. crew our and Lulu's customers, the opportunities going forward.And over positive Financial executing I'll are into Officer, will on We these Tiffany excited you deep dive we

and Mark, good everyone. Thanks, afternoon,

revenue approximately down XX% line million, fourth $XX was for expectations was year-over-year, quarter. for which the our net quarter the in with Our

Our return-related fourth saw of shift quarter wear fell expectations.While our with sales guidance higher increased the our we resonate to due strongly rates our customer in see mix QX, adjusted sales short larger million part costs. we EBITDA rates, loss with of these and comprise a $X our mix occasion which return to higher of toward return were QX encouraged products

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to our lower labor driven sales including costs, lower XXXX. reduction million, increased professional adjusted and higher fourth EBITDA top-of-funnel about X% a $X.X with volume in noted, our in the opened Melrose associated and insurance compensation costs, store.Adjusted expenses loss of software compared impact we decrease for costs programs.General QX more by marketing, was primarily million As QX a expenses $X partly services ambassador administrative to was offset $XX.X brand of $X decline our have increased operational loss newly and The variable efficiencies, driven approximately to EBITDA by decreased stock-based by as investments by influencer expense, XXXX's as quarter and and the well million million. compared

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debt total a QX of net on $X.X XXXX. $X.X million in net free $XX drawn of to with million improved net amount and of it was year-over-year in debt on year revolver, by our by our repaid the $X.X million, down. of cash in on XXXX quarter used in position to XXXX Similarly, million Our $XX.X the of improved revolver million cash the about resulting operating operating cash a plan which pay to million basis.We balance continue cash million used with basis, for year-over-year million. We quarter used of the ended flow $X during of in a QX for and activities compared $X.X activities $X.X

the bringing $X.X $XX.X in was period decrease million alignment inventory fourth at Our quarter from our sales. our same year, year-end with million, down direct balance inventory last about

to margin remain we markdown are enhance inventory $XXX experience. top is optimizing As goal in be disciplined to integrity customer to always, our we year prioritizing in management expecting inventory guidance, and our approach, preserving and brand strive our efficiency an risk upon remain and Upholding on full levels, successful $XXX buying between levels to XXXX and build million. gross million revenue model.Moving already as we priorities net balancing

high between equates net event an elevated and and range a restore EBITDA baseline across quarters, our fiscal result grow offering longer which macro rate half; a net profitability adjusted and our compared across including of third typically driven lowest $X concentration margin casual year, Our customer and assumes: the throughout drive to and behavior range dress efforts customer, margin to X.X% events and products taking separates will assumes: and revenue full XXXX is XXXX; recovers is the $XXX,XXX pre-pandemic without the net materialize sourcing range, deceleration top-of-funnel and million. and optimization margins end in to in product a positioned income QX expansion, top of revenue result separates not slight recover contemplates for growth; of for ] the into growth to rates items, XXXX, purchasing headwinds improvement to than guidance range between a category on traffic costing rebalancing more pre-pandemic price including top growth demand for modeling a role. make to back promos line return year.Adjusted investment the and higher modeled our seasonality our significant assumes increases in and potentially wedding the million anticipates continued to conversion to actively transpires midpoint; in sales return we a face anticipated.The wedding-related inventory profit by price initiatives shorter guidance $XX,XXX casual casual awareness important typically lead than return returns to could allows back for decline wider improving compared XXXX.With levels; revenue our that reorder position continue time our net line wear reflective higher [ heightened In from of be midpoint that who improvement with product separates in year in including to by year.The of heavily of and return by throughout diversification stemming category initiatives to same demand grow and guidance assortment top initiatives, taking business, initiatives of $X on modest point driven potentially the This of initiatives revenue category materializing net guidance top and dressing in partly representing core time highlighted range, diversifying of observed the within our progress trends more diversification, second line product quarter our levels rate support to product in in by wear, replicating returns product and guidance has half plays remaining our our benefits marketing fiscal more the persisting of year-over-year a the our healthier to in the stabilization rates in than revenue, of mind, potentially diversification.Our XXXX; and half second our brand year, and year-over-year resulting as in X.X%, our the AUR of earlier sales. efforts conservatively the from return focus through as on range XXXX to lower markdowns first base initiatives which in EBITDA current impede of more continues and and us half coming line continued year.When product rebalance guidance expected allocations our mix, with quickly peaks in second an anticipated; new is expected, the our revenue returns guidance; wear previously support and product of revenue inventory normalized end

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XXXX Secondly, contemplated investments partly retention, approximately increases reinforcing being well guidance point improve as and differentiation. to acquisition customer levels technology testing Also basis initiatives, over and a brand our brand considers increase net of are in the Modest investments as marketing our support investments and in elements year, total enablement. a revenue. initiatives as guidance are resulting our continued election in shopping various to our brand site as in well percentage creative support to experience.Lastly, ad our support activations expense in to due XX spend marketing made includes as that performance

general and to administrative compared anticipates guidance XXXX. our such, higher expense technology As spend

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for With $XXX,XXX. balances, approximately lower interest year XXXX be expected revolver expense the we expect impact of full the to

capabilities at XXXX, We customer share expected includes customer opportunities, between average diluted experience key supports expect in for XXXX the roughly distribution capital end with expenditures future in remarks. efficiencies million $X well for be the XX expenditures, is fiscal of our what it million was additional closing technology on the capital and shares.Moving long-term it enhancing weighted that, success.And to approximately investing in channels, our which our in customer multiple our to We automation stock-based be $X year, expect that centers. our count to as million and to back engagement, driving of compensation and XXXX experience for believe as across fully we Crystal half expense I'll to pass enablement are growth

Thank you, Tiffany.

shareholders a model, business trends.Thank our our in now. we the luxury coupled to to optimizing Before well and our in positions dynamic navigate Lulu's deliver I'll adeptness customers, growth. mission you on balance fast return with landscape our not that, next and us testing, to want we to questions the our ability look believe to that earnings questions, brand near-term fans, I confidence supporting us We and retail it the to updating forward fresh, our in our to to over it within turn instability to crew healthy DXC all and sheet, to turn for attainable firmly you profitable learning call.With and emphasize our

Brooke Our Instructions] is Goldman Roach [Operator question Sachs. first with from

could you outlook and important this in year? What help elaborate the can returning guardrails growth the as Lulu's most the hoping that wholesale you channels in the some are you I versus brand international, retail you're for like-for-like of confidence XXXX. business?And drivers cadencing from provide and on physical perhaps in throughout within Tiffany, on the how your growth expecting online revenue was direct such then, to new about growth contribution thinking

question. the for thanks Brooke,

we've as small still international, and wholesale segments not to to guide relates business very indicated our it previously, these As ready yet. of and are

it's not positive, about growth the still momentum, has guide bases. on numbers to we're meaningful the big While on and small been excited

white near to tempering base. small expectations be us, very ahead but while these to and term, the though, just interest the seeing. proactive space we're fans about has and been of encouraging. are, And the that in We with channels Lulu's engage we're and in to new existing convert numbers total optimistic going still are It's comparison the through brand our these opportunity early traction significant

So seeing our will return DXC we're business the grow. a side to guidance new our momentum that of normalization to is reorder side within eventually that the business contemplating more and the of

you're you cadencing improvement about any with how concert the throughout in Tiffany, of on XXXX? in provide momentum revenue months year, perhaps the then, guardrails on thinking that you sequential X the the can first upward with that the And comments provided

Sure.

I broadly, question you cadencing Sorry, of think talk to regarding Brooke, a was to out kind we've just year. of there, I kind give -- international. just more seen some it of But looks I through would how to wholesale that can sense date progress the and guidance of the this of that for and thought balance the it's we've your I revenue put say

But see We've which tempered each return rev On particularly moving is is higher improving we we into during rate of that in seen our the because basis, continuing mix the with months a month, saw post-return little product. and of seeing QX revenues, with of start QX comps things QX line the bit from much occasion this encouraging that in the top to February, are improve. X to did in typically have pace continued end we the QX. pre-returns a One was prominence the revenues transacted said, that there of particularly in in our of around we're still comps back first so just expectations to January half improvements wear, so special though, year. more

So more then would start are comps like mid-to-late through the towards move say comp see beyond territory as into the progress we comps year. QX positive expecting QX to I improve and we QX. to into steadily the and

is question BTIG. with next Janine from Our Stichter

the think been for? And casual return would casual the bit I could and the for versus drive then, like, how expand lower just potential customer into return on these into the about this look category to sportswear. to your category? Love about you this since thoughts you be return wanted rate percentages on a dress into rates, Is kind the asking a what that's rate expansion I categories. might something drove expansion assume your down to of big what how timing and has ask

specifically shown event have and very We see rate Janine. does our typically do a what the of has into customer and opportunity is over time than And us a question, the much that absolutely our sportswear. we're that for wear known lot our lower for. Thanks return dresses casual in

performance, Laura we're and product area separates enthusiastic accelerator end, I I is to lacking, to in within we've knowledge think, an been that the we've our about oversight addition those that of customers going just the our comes online Lulu's the us wealth with her desire to more in not a novelty their giving but get that's lot wear. also in more And our in setting. actual doubles with core of think and resonance and area our of is we So see a be, guidance very seen and that to feedback in team. a what separates She separates brick-and-mortar only and in confidence, store with classes. unique to our And

we seeing the got just being business, little focusing to we really how about excited our the we've we're in newness opportunity. consumer bit So of growth It cautious newness really that is novelty. where on But in positive economically spend to is have forward concentration about We're and future actually been optimistic more QX a a our what pressured about we're of suffered, growth. most is her where in terms specifically in very separates candidly, guide introducing. that we're

benefits through about color then, next on question been how flowing more how be the INU sounds Great. to benefits. that the seeing. you've over several should Any one Okay. starting And it think on It quarters? some and those could you're like just of [ ] see that meaningful just more we

Yes.

there. from year, costing and of improvements the enhancements we saw we towards So, half started a the second perspective last initial

or to going around deployed, can in about with each activities -- pencil a year, this fabric individual vendor vendor a be relates I and are we As various to think, also from there otherwise. negotiate, for to consolidation position be orchestrate, but better mostly our so increasing perspective that it to

improvements punching it beyond the of guidance. have to of think takes because are that I 'XX say, and are through immediately not that additional And inventory really in these so or so, existing get we the be efforts inventory have part deeper, the some we to we'll time moderate reflective in.

rest just the of rolling the through will that be So, XXXX. year into

Telsey Telsey Group. Dana from is question with Advisory next Our

return on what the the should up could do the forecast new last from return the up putting year, returns? what ticked just introducing, -- about rate, of what's quarter, be categories normal with in, then, third in and ticked do And a terms about you how like? think it AOV, And with for you then, you're your think the you're you a Or which follow-up. from how AOV new the that that rates? categories As look

Dana. questions, Great Tiffany. is Okay. Great. This

to grow throughout regards we with expect XXXX to the So, basis AOV on year to AOV continue relative question, to XXXX. full do a see

to the However, dress-oriented. the be concentrated typically around is -- typical seasonality it's there's AOV, quarters more where heavily kind first year. the more X of in Occasion wear of expected middle

markdowns sprinkled whole to into coming of which healthier year for throughout be that highest balance position, lower us we're typically, out going assumption the the where inventory year. the even AOV the So, and sort expectation that's of will AOVs year, their at is point. an discounts the with But mean is this throughout

that of to a improve year. shipping-related just that also to do few guidance So because overall, are half the rates, factors or in relates to increase, rates AOV.As not the to but one we they'll other assuming baked we promotions our but start bit quite we call, return maintain have expectations into whether around or our the is the on a component things of some just of do to things a continue is AOV it flexibility rev we like back in to that's spoken expect the more our assumptions, shipping return

also benefit. And factors through rate fit rate sort is and fit is of consistency, return start the return to a of to that's around we've so that as we of mix on category-specific one the benefit decelerating we initiatives into So see of And we're this QX in-depth, Mark in the year. mind, growth to spoke Also call in positive that Getting on key penetration as we call, and the year-over-year the lot where noted to QX separates a could year, rate. progress return dresses. the areas meaning, of that you that potentially drivers, we less more have basically, expect beneficial one we'll to is as expecting few see keep move it. highlighted and a shifts

for better we Yes. to can customers tailor -- that, fit And about much have that our use with to to experience essentially better ability into very our fit turn then, basically we're and our excited decisions. around from because so adding their products customers really make that something is on data

but working how give and that And we're through also how to that to and to just advice. really intelligently how consume AI methods so, to on present that that, other not service

very and I rate. our more it's that front accurate -- And in return help customers our a hone us so, think subsequently, itself over hopefully, opportunity time, exciting there also that is and of will,

it. Got

Just you that on one are thing on how customer of it level profile about reduced thinking the What's the has active active products, What's churn given getting rate? now basically? also? and terms changed customers. new And the customers? How happening are active of in customers, customers you new

question. great Yes,

are [ our -- stabilization, a adding if not engagement. quarters although counts that customer customer we signals that, return What demand comparisons. do we we and this from decline a see support off the with that a as yes, very pent-up not experienced and still And active all perspective, fall together, year-over-year optimistic are So to is in ] Those you customer speaks the to about quarter-over-quarter, will where for will example, from efforts think from if increase that our adding that those stickiness. perspective. also part other repeat that customers LTM already to which that is the perspective growth but just we've I and Also, that be a what UPT customer an -- AUR doing to improved, points if up year put then that spoken XXXX. engagement marketing to a

question Jefferies. next [indiscernible] Ryan is from with Our

I'm where it novelty, products to currently and prior the curious mix to product would get that reorder and rebalancing across compares what portfolio, moving portfolio of this how relates kind is As the just new kind of years core and like you forward. to mix

goal specifically pandemic products. products, reorder our for pre-pandemic. the say core where aging reorder by during towards was and guided very to get would between that it outpaced consumer our novelty buying was demand much Our I our mix core that back reorder new our demand is

varies back goal driven much introduce, based we is consumer given And also reorders right and to We around XX% enduring previously was of get it drive. our had we So that class, going candidly, business, to that they The it drive sub-XX%. our on to styles be time, can it product volume last demand information pre-pandemic how long mix balance levels. how pre-pandemic, varies. is by and over though XX% the our and how and towards

that will So is, our target. new know some or novelty guidance she over that any more across and for ebb I'm across number classes. we do reverting reorder product what hesitant of each time, looking What flow that around to and give is is clear back And newness today. and and

at questions Thank you. no this further time. There are does This today's conclude conference.

participation. You may lines Thank at your you your for disconnect this time.