Lulu's Fashion Lounge Holdings, Inc.

Good afternoon, and welcome to Lulu's third quarter 2021 earnings conference call. Today's call is being recorded, and we have allocated one hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Alexa Pizak, Associate General Counsel at Lulu's. Thank you. You may begin.

Good afternoon, everyone, and thanks for joining us to discuss Lulu's third quarter 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. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including but not limited to statements regarding management's expectations, plans, strategies, goals and objectives, including our plans to invest in a third logistics facility and a mobile app, our future expectations regarding financial results, outlook for the quarter and year ending January 2nd, 2022, market opportunities, product launches and other initiatives, and our growth, including with respect to our customer community. These statements, which are subject to various risks, uncertainties, assumptions, and other important factors, could cause our actual results, performance, or achievements to differ materially from results, performance, or achievements expressed or implied by these statements. These risks, uncertainties, and assumptions are detailed in this afternoon's press release, as well as our filings with the SEC, including our final perspective filed with the SEC pursuant to Rule 424 on November 12, 2021. all of which can be found on our website at investors.lulus.com. Any such forward-looking statements represent management's estimates as of the date of this call. While we may elect to update such forward-looking statements at some point in the future, we undertake no obligation to revise or update any forward-looking statements or information except as required by law. During our call today, we will also reference certain non-GAAP financial information, including adjusted EBITDA and adjusted EBITDA margins. We use non-GAAP measures in some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our business. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to the financial information prepared and presented in accordance with GAAP. Our non-GAAP measures may be different from non-GAAP measures used by other companies. Reconciliations of GAAP to non-GAAP measures, as well as the description, limitations, and rationale for using each measure can be found in this afternoon's press release and in our SEC filings. Joining me on the call today is our CEO, David McCrate, co-president and CFO, Crystal Lansom, and co-president and CIO, Mark Voss. Following our prepared remarks, we'll open the call for your questions. With that, I'll turn the call over to David.

Thank you, Alexa, and good afternoon, everyone. Thank you for joining us on our first earnings call as a public company. Our IPO and gaining access to the capital market is an important and exciting milestone for the team. But we recognize it's merely one proud step in our journey to reaching our future potential as a company. And now, we are delighted to share our exceptional third quarter results with you all today in our first earnings call. As a reminder for those who've met us recently on the IPO roadshows, or as an introduction for those who are new to our business model, Lulu's is a customer-driven, digitally native fashion brand primarily serving millennial and Gen Z women. We focus relentlessly on meeting our customers' needs. We do this by using data coupled with human insight to deliver a curated and continuously evolving assortment of on-point affordable luxury fashion. We aim to build authentic personal relationships with our customers and offer them coveted quality products, most of which they cannot purchase elsewhere. We tap into the pulse of the customer by engaging with her where she is online, through digital channels and social media, as well as on our own platforms, through reviews, feedback surveys, one-on-one interactions with our style advisors, fit experts, and bridal concierge team. Our team, the Lou Crew, works to make our customer touch points special, which ultimately leads to strong customer engagement and loyalty with our growing community of brand fans. A key differentiator of our model is our use of data to optimize almost all elements of our business. The use of data and technology guide much of the decision-making throughout the company, from logistics planning to marketing placement. But nowhere is this more pronounced than on a product creation and curation cycle. Traditional merchandising approaches are both risk and capital-intensive, characterized by extended in-house design cycles, seasonal assortment decisions, deep buys made with limited customer feedback, and often high markdowns. Unlike traditional retailers, we leverage our test, learn, and reorder strategy to bring hundreds of new products to market every week. We test products informed by our attribution system in small batches. We use our algorithms to gauge customer demand and then quickly reorder winning products in higher volume to optimize revenue and profitability. This strategy and use of test information enables us to convert new products into profitable sales consistently and with a high degree of accuracy while minimizing fashion and trend risk. Our overarching vision is to be the most beloved women's brand for affordable luxury fashion. through curated, exclusive products at reasonable prices, with superior customer service, and a personalized shopping experience. We want to be the category-defining apparel brand for millennial and Gen Z women. A few key points about Lulu that I'd like to highlight. We remain focused on strengthening and deepening our relationships with customers, aspiring to address them for more occasions and every day of the week. in order to expand our space in their closet and thereby growing wallet share. By increasing Lulu's brand awareness over the next quarters and years, we expect more customers to join the Lulu's community. We launched our first ever brand awareness campaign in late Q3, focused entirely on acquiring new customers, or as we like to say, bringing more new friends to the party. Over the next quarters, we will be laying a stronger foundation for potential international marketing that international customers are already showing their interest by visiting and purchasing at Lulu's, as well as following and engaging with us on social media, even while we're not actively marketing to them. As a digitally native brand, we continue to accelerate our competitive advantages and data-driven merchandising, profitable marketing, and operational efficiency. leading us down the path of future market share gains. Turning to a few of our third quarter highlights, we had another excellent quarter delivering growth in net sales and profitability, achieving record results for any third quarter in our history. Comparable net sales increased 95% year over year, and adjusted EBITDA increased 126% year over year. Crystal will walk you through the finer points shortly. We are also thrilled by our growth in active customers with sequential year-on-year and double-LY growth in both new and repeat customers, with appreciably more efficient performance marketing spend as a percentage of gross sales versus last year and double-LY. Clearly, our affordable luxury brand experience, combined with the reach of our marketing efforts, is bringing new fans to the brand. From a merchandising perspective, we are encouraged by the broad-based response to our product offerings with both event and non-event categories, delivering double-digit demand growth as compared to 2019. We saw maintained momentum addresses and even faster growth in separate sales as compared to 2019. Our operating results reflect our disciplined approach to spend and efficiency. It's a testament to our model and team that we're able to achieve meaningful revenue growth with inventory turnover at a rate north of eight times. And Mark's team's been busy implementing plans to not only expand our logistical capabilities to facilitate our fast growth, but also to find new ways to optimize an already efficient logistics system. Finally, before Crystal walks you through our financial performance for the quarter, I wanted to provide commentary on COVID and supply chain issues. We all can bear witness to how our daily lives have been disrupted, and our product supply chain endured some delays, but it was not to the degree you read about daily in the business headlines. Where we have been affected mostly is our reduced ability to chase in season, not being able to maximize the upside in periods of exceptional demand. And while few can confidently speculate on how variance might impact the economy, what we can say is Lulu's is better prepared for disruption. Our balance sheet is now healthy. Our product offering is increasingly balanced with fastest revenue growth coming from our non-event segment. And with approximately 70% of our revenue from algorithmic-driven purchasing, we're able to confidently take positions in future orders with low risk. Again, thank you for your time. We are thrilled about our future prospects and look forward to executing on our vision. I'd like to take a moment to thank the Lew crew for finding new ways daily to efficiently delight our brand fans. Without you all, none of this would be possible. And now let me introduce my colleague, Crystal Lanson, co-president and CFO.