Net Revenue of $106.1 million, down 19% from Second Quarter 2022, up 2.5% from Second Quarter 2021
Significant Sequential Improvement in Gross Margin Rate of 44.7%, up 300bps from First Quarter 2023
CHICO, Calif., Aug. 08, 2023 (GLOBE NEWSWIRE) -- Lulu’s Fashion Lounge Holdings, Inc. (“Lulus” or the “Company”) ( LVLU) today reported financial results for the second quarter ended July 2, 2023, and updated its full-year 2023 financial guidance.
Crystal Landsem, CEO of Lulus, said:
“As previously disclosed in our preliminary release, during the second quarter of 2023, we experienced headwinds related to choppiness in consumer demand, macroeconomic uncertainties and elevated return rates that led to year-over-year net revenue and Adjusted EBITDA declines that missed our expectations. Topline demand fell short of our expectations and return rates increased by more than anticipated, which drove a 19% year-over-year decline in net revenue in the second quarter. Nevertheless, we are pleased with the progress that was made in the quarter with a 300bps sequential Gross Margin rate improvement as a result of higher merchandise margin and improved per order shipping costs driven by the actions we have taken to optimize our shipping network. Our business continued to generate liquidity as evidenced by a $14 million year-over-year increase in quarterly cash provided by operating activities and a $15 million year-over-year increase in quarterly Free Cash Flow. During the second quarter, we paid down our revolving line of credit by $5 million and reduced our Net Debt by approximately $3.1 million.
We have also accelerated efforts to adapt to changing consumer behaviors and meet our customer where and how they shop. In early July, as part of our strategy to explore new growth opportunities and strengthen our brand awareness, we signed a short-term lease for a retail location on Melrose Avenue in Los Angeles to connect with our customers in-person. We are excited to find new and creative ways to engage and delight our customers, enhance our brand’s reputation and further support our growth.”
Second Quarter 2023 Highlights:
- Net revenue of $106.1 million, a 19% decrease compared to the second quarter of 2022, driven by a 16% decrease in Total Orders Placed, a 1% decrease in Average Order Value (“AOV”), as well as higher markdowns and return rates. Net revenue increased 2.5% from the second quarter of 2021.
- Active Customers of 3.1 million, a 5% decrease compared to the second quarter of 2022 and a 45% increase from the second quarter of 2021.
- AOV of $135, a decrease of 1% compared to $137 in the second quarter of 2022 and a 12% increase from the second quarter of 2021.
- Gross Margin decreased 110 basis points to 44.7% and gross profit decreased 21%, in each case compared to the second quarter of 2022 and improved sequentially compared to the first quarter 2023 by 300 basis points and 25%, respectively.
- Interest expense of $0.4 million, compared to $0.2 million in the second quarter of 2022.
- Net loss of $2.6 million, compared to net income of $6.0 million in the second quarter of 2022.
- Adjusted EBITDA of $4.2 million, compared to $14.8 million in the second quarter of 2022.
- Net cash provided by operating activities was $4.6 million, compared to $9.7 million of net cash used by operating activities in the second quarter of 2022. Free Cash Flow was $4.0 million, compared to ($10.7) million in the second quarter of 2022.
- Revolving line of credit balance decreased by $5 million and $10 million during the thirteen and twenty-six weeks ended July 2, 2023, respectively, from the balance as of January 1, 2023. Net Debt decreased by $3.1 million and $5.7 million during the thirteen and twenty-six weeks ended July 2, 2023, respectively, from the balance as of January 1, 2023.
| Thirteen Weeks Ended | |||||||||||
| July 2, 2023 | July 3, 2022 | YoY Change | |||||||||
| (In thousands, except percentages) | |||||||||||
| Net revenue | $ | 106,122 | $ | 131,512 | (19 | )% | |||||
| Gross profit | $ | 47,396 | $ | 60,167 | (21 | )% | |||||
| Gross Margin* | 44.7 | % | 45.8 | % | (110 | )bps | |||||
| Net (loss) income | $ | (2,597 | ) | $ | 5,999 | NM | |||||
| Adjusted EBITDA* | $ | 4,219 | $ | 14,793 | (71 | )% | |||||
| Diluted net (loss) income per share attributable to common stockholders | $ | (0.07 | ) | $ | 0.15 | NM | |||||
| Active Customers* | 3,080 | 3,250 | (5 | )% | |||||||
| Net cash provided by (used in) operating activities | $ | 4,646 | $ | (9,660 | ) | NM | |||||
| Free Cash Flow* | $ | 3,963 | $ | (10,725 | ) | NM | |||||
| NM – not meaningful * Note: Refer to “Use of Non-GAAP Financial Measures and Other Operating Metrics” section below for definitions of these metrics. | |||||||||||
Updating Financial Outlook for Full Year 2023:
We continue to view the current macroeconomic headwinds as temporary factors impacting our business. We remain highly confident in the long-term growth trajectory of our business and are as committed as ever to growing our brand. However, in light of our soft year-to-date results and our expectations of a continued choppy macroeconomic environment, we are providing a more cautious outlook for the full year 2023.
- We expect net revenue between $355 million and $375 million, a decline of between 19% and 15% compared to 2022.
- Adjusted EBITDA is expected to be between $5 million and $10 million, a decline of between 83% and 66% compared to 2022, reflecting investments in key growth opportunities.
- We expect reported interest expense to be approximately $1.6 million, a 45% increase compared to 2022, which reflects the impact of higher interest rates offsetting lower expected revolver balances.
- We expect capital expenditures to be between $5.0 million and $6.0 million, an increase of between 0% and 20% compared to 2022.
Forecasting future results or trends is inherently difficult for any business, and actual results or trends may differ materially from those forecasted. Lulus’ outlook is based on current indications for its business. Lulus’ outlook factors in our current best estimates for anticipated headwinds, including those related to the level of demand, spending and returns by our customers, macroeconomic uncertainties, inflation, supply chain pressures, and shipping costs. Given the volatile nature of current consumer demand and potential for further impacts to consumer behavior due to pockets of continued inflation, higher interest rates, the resumption of student loan interest and payments, combined with less predictable consumer purchasing behavior, Lulus’ financial outlook is subject to change.
LULU’S FASHION LOUNGE HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME (Unaudited) (In thousands, except share and per share data) | ||||||||||||||||
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
| July 2, | July 3, | July 2, | July 3, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net revenue | $ | 106,122 | $ | 131,512 | $ | 197,098 | $ | 243,414 | ||||||||
| Cost of revenue | 58,726 | 71,345 | 111,741 | 130,269 | ||||||||||||
| Gross profit | 47,396 | 60,167 | 85,357 | 113,145 | ||||||||||||
| Selling and marketing expenses | 24,670 | 25,851 | 44,159 | 47,737 | ||||||||||||
| General and administrative expenses | 24,396 | 23,392 | 48,744 | 51,226 | ||||||||||||
| (Loss) income from operations | (1,670 | ) | 10,924 | (7,546 | ) | 14,182 | ||||||||||
| Interest expense | 426 | 157 | 949 | 365 | ||||||||||||
| Other income, net | (373 | ) | (27 | ) | (446 | ) | (81 | ) | ||||||||
| (Loss) income before provision for income taxes | (1,723 | ) | 10,794 | (8,049 | ) | 13,898 | ||||||||||
| Income tax provision | 874 | 4,795 | 166 | 5,856 | ||||||||||||
| Net (loss) income and comprehensive (loss) income | $ | (2,597 | ) | $ | 5,999 | $ | (8,215 | ) | $ | 8,042 | ||||||
| Basic earnings per share | $ | (0.07 | ) | $ | 0.16 | $ | (0.21 | ) | $ | 0.21 | ||||||
| Diluted earnings per share | $ | (0.07 | ) | $ | 0.15 | $ | (0.21 | ) | $ | 0.21 | ||||||
| Basic weighted-average shares outstanding | 39,680,908 | 38,535,409 | 39,457,607 | 38,316,895 | ||||||||||||
| Diluted weighted-average shares outstanding | 39,680,908 | 38,992,901 | 39,457,607 | 38,555,919 | ||||||||||||
| LULU’S FASHION LOUNGE HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share and per share data) | ||||||||
| July 2, | January 1, | |||||||
| 2023 | 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 5,947 | $ | 10,219 | ||||
| Accounts receivable | 3,111 | 3,908 | ||||||
| Inventory, net | 46,232 | 43,186 | ||||||
| Assets for recovery | 4,749 | 3,890 | ||||||
| Income tax refund receivable | 3,459 | 4,078 | ||||||
| Prepaids and other current assets | 4,104 | 3,738 | ||||||
| Total current assets | 67,602 | 69,019 | ||||||
| Property and equipment, net | 4,134 | 4,391 | ||||||
| Goodwill | 35,430 | 35,430 | ||||||
| Tradename | 18,509 | 18,509 | ||||||
| Intangible assets, net | 3,212 | 3,090 | ||||||
| Lease right-of-use assets | 31,119 | 32,514 | ||||||
| Other noncurrent assets | 4,696 | 4,251 | ||||||
| Total assets | $ | 164,702 | $ | 167,204 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 9,235 | $ | 5,320 | ||||
| Accrued expenses and other current liabilities | 18,394 | 17,976 | ||||||
| Returns reserve | 11,998 | 9,066 | ||||||
| Stored-value card liability | 12,356 | 10,828 | ||||||
| Lease liabilities, current | 5,054 | 4,456 | ||||||
| Total current liabilities | 57,037 | 47,646 | ||||||
| Revolving line of credit | 15,000 | 25,000 | ||||||
| Lease liabilities, noncurrent | 27,187 | 29,042 | ||||||
| Other noncurrent liabilities | 804 | 623 | ||||||
| Total liabilities | 100,028 | 102,311 | ||||||
| Stockholders' equity: | ||||||||
| Preferred stock: $0.001 par value, 10,000,000 shares authorized, and no shares issued or outstanding | — | — | ||||||
| Common stock: $0.001 par value, 250,000,000 shares authorized, and 40,140,911 and 39,259,328 shares issued and outstanding as of July 2, 2023 and January 1, 2023, respectively | 40 | 39 | ||||||
| Additional paid-in capital | 246,720 | 238,725 | ||||||
| Accumulated deficit | (182,086 | ) | (173,871 | ) | ||||
| Total stockholders' equity | 64,674 | 64,893 | ||||||
| Total liabilities and stockholders' equity | $ | 164,702 | $ | 167,204 | ||||
| LULU’S FASHION LOUNGE HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) | ||||||||
| Twenty-Six Weeks Ended | ||||||||
| July 2, | July 3, | |||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net (loss) income | $ | (8,215 | ) | $ | 8,042 | |||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 2,306 | 1,850 | ||||||
| Noncash lease expense | 1,753 | 1,545 | ||||||
| Amortization of debt discount and debt issuance costs | 78 | 79 | ||||||
| Equity-based compensation expense | 9,029 | 8,591 | ||||||
| Deferred income taxes | (1,569 | ) | (1,298 | ) | ||||
| Loss on disposal of property and equipment | — | 6 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 797 | (858 | ) | |||||
| Inventories | (3,046 | ) | (26,399 | ) | ||||
| Assets for recovery | (859 | ) | (1,637 | ) | ||||
| Income taxes payable | 1,653 | 2,845 | ||||||
