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Operator
Good afternoon, and welcome to Lulu's fourth quarter and full year 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 Naomi Beckman-Strauss, General Counsel at Lulu's. Thank you. You may begin.
Lulu
Good afternoon, everyone, and thank you for joining us to discuss Lulu's fourth quarter and full year 2021 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, or future expectations regarding financial results. outlook for the quarter and year ending January 1, 2023, market opportunities, product launches, and other initiatives, and our growth. 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. Uncertainties and assumptions are detailed in this afternoon's press release, as well as our filings with the SEC, including our final prospectus 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, adjusted EBITDA margin, and net debt. 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 filing. Joining me on the call today is our CEO, David McCraece, our 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.
Lulu
Thank you, Naomi, and good afternoon, everyone. I am proud to address you today with my partners and co-presidents, Mark and Crystal. We've had an exceptional first quarter as a newly public company. As you know, we completed our IPO during this past fourth quarter and fully paid off our long-term debt. With that milestone behind us and a strong balance sheet, we are well positioned to build on our momentum and success through 2022 and beyond. During Q4, we generated $96.7 million of revenue, a growth of 77% year over year. And our adjusted EBITDA was $6.4 million versus a deficit of about $100,000 over prior year's fourth quarter. For the year, our revenues increased 51% to $376 million, and our adjusted EBITDA amounted to $41 million, which represented a 119% gain from 2021. We are thrilled by the tremendous growth in active customers from both new and repeat customers reaching 2.8 million. All achieved with appreciably more efficient performance marketing spend and even more impressive is that it was accomplished despite a dramatic reduction in promotional activity. Clearly, our brand experience combined with our efficient marketing efforts and relevant assortment is resonating with our brand fans. From a merchandising perspective, we continue to be encouraged by the broad-based response to our product offerings in FY21, with both event and non-event categories again delivering double-digit demand growth. We have identified material ways to further expand our pivotal event dressing category, and our team continues to make inroads in our closet by evolving our non-event categories. We're in a strong moment for LVLU, where both the fashion direction and her return to pre-pandemic social activities are providing helpful tailwinds. And the vital new product pipeline KPI is robust and on plan for achieving our future growth targets for 2022 and beyond. These excellent results in FY21 underscore the attractiveness of our digitally native model, which offers fresh fashion to millennial and Gen Z women at an affordable price point. We win brand fans and deliver strong results by using data to optimize almost all elements of our business. The use of data and technology guides decision-making throughout the company, from logistics to product planning to marketing placement. but nowhere is this more pronounced than in our product creation and curation cycle. About 70% of our revenue is from algorithmic-driven purchasing. Our test, learn, and reorder approach, where nearly 100% of the assortment enters as a test in small order quantities, then successful styles graduate to our reorder algorithms. Our model, refined over years, decreases fashion risks, reduces markdowns, and drives increased profitability. We stay connected with the pulse of our customer by engaging her where she is online, throughout digital channels and social media, as well as on our own platforms through reviews, feedback surveys, and one-on-one interactions with our exceptional customer service team. The Lu Crew works every day to make our customer touchpoint special. which ultimately leads to stronger customer engagement and loyalty and increases word-of-mouth introductions to a growing community of Lulu's brand fans. I still will delve into 2022 guidance in greater detail, but I wanted to express my excitement about our outlook for this year, both from financial and capability perspectives. For FY22, we are targeting net revenue growth north of 28%, and adjusted EBITDA to rise above $48 million, even while continuing to invest for growth and incurring the costs of being a newly public company. We are keenly aware of the uneasiness in the markets due to Russia's invasion of Ukraine, the ever-present headlines about new coronavirus strains, and the mounting impact of supply chain pressures on inflation. If you don't mind, I'd like to address a few of the clouds over the market and how they relate to Lulu's. Firstly, the coronavirus. We recognize the status of the coronaviruses ever evolving and perhaps due to increased confidence in immunities from vaccines or previous infection or general fatigue with safety precautions. Unlike early in the pandemic, we did not notice a material change in traffic or conversion during the Delta and Omicron variant outbreak stages. the supply chain. As many others have articulated in recent weeks, supply chains remain constrained, and we expect these constraints to continue for the balance of the year. What is so great about our market position and model is that we are not scrambling for air freight. To compensate, we now place orders about four weeks earlier than pre-pandemic times. The additional lead time does not impact our brand as much as others, because the vast majority of our orders are placed for previously tested product. Moreover, we are not a fast fashion company, so we have less product trend risk and are less sensitive to delays. The current state of the global supply chain does, however, impede our ability to chase the small quantity of in-season reorders for longer lead time products. But this was also the case for most of 2021, where we still posted exceptional results despite this constraint. Inflation. We are aware of and have a decent line of sight into inflationary pressures impacting most lines of our P&L for the first half of 2022. We expect there to be continued pressure on shipping, labor, materials, and digital marketing costs throughout 2022. The guidance we're providing today is informed to the degree visible and accounts for those anticipated headwinds. And though we are a brand positioned in affordable luxury, our frequent testing indicates we continue to have strong product pricing power, which provides some protection for near-term inflation. And were these inflationary pressures to move from transitory to structural We still have ample room in our business model to reduce costs in FY23 and beyond to offset much of any increases. Notwithstanding those macro concerns, we are quite pleased with how the first quarter of 22 is shaping up. Demand looks robust. Many of the metrics we monitor indicate the consumer continues the disruptive shift to digital shopping channels. and the apparel, footwear, and accessory sectors seem to have regained momentum. We are pleased with the quality of our customer file and our basket economics. Based on the trends we've seen thus far, we have confidence in our 2022 guidance. To deliver on our guidance and continue to delight our brand fans, I'd like to share a few of our key initiatives for the year. Customer insights. We will dedicate more resources this year to helping our decision makers better understand her mindset and desires, and find new ways to delight our existing brand fans, increasing lifetime value, and our first-party data collection. Next, introduce new customers to our brand. We know there are vast pools of untapped customers who have yet to meet our brand, and by mining insights learned from our rigorous performance marketing testing, cautiously building awareness capabilities, and encouraging more word-of-mouth introductions, we are optimistic about our file growth for years ahead. Product expansion. Many a fan's introduction to Lulu's has come through event dressing. And while event dressing continues to dominate mind share when discussing our brand, based on the work started in 2019, accelerated in 2020, and the results seen in 2021, we know we can continue to expand successfully into non-event dressing. Not only will this provide meaningful revenue opportunity, but it will shape her engagement with Alulu's brand as she moves from less frequent to more frequent brand engagement occasions. Said differently, we're even better positioned to own more of her closet and engagement. Conversion. We will invest even more in our on-site experience to improve conversion and overall customer satisfaction with deeper and more frequent conversion funnel analysis and a goal of reducing our size out-of-stock ratios. ESG. Whether it is support for women or reducing waste, social and environmental issues have always been important to our internal stakeholders at Lulis. In 2022, we are committed to increasing insights into our social and environmental impacts. We have already engaged third-party partners to evaluate our current practices and identify ways we can become better business stewards. We look forward to sharing our progress as we advance in our ESG journey. Technology and innovation. We already have an impressive tech stack. And analytics is part of Lulu's DNA, driving much of the decision-making. But in 2022, we will invest even more in analytics, technology, and machine learning to open new opportunities for revenue growth and increase our efficiency in areas like distribution, allocation of marketing spend, and better modeling of future product demand. Mark Voss, our co-president and chief information officer. and his team have architected much of our approach to technology, algorithmic decisioning, and distribution strategies. He will share with you our plans for further optimizing an already efficient logistics system and support our continued growth, as well as increasing customer insight and engagement. I will now turn the call over to Mark to discuss some of the key initiatives in greater detail. Mark?
Naomi
Thank you, David, and thank you, everyone, for joining us today. we are relentlessly focused on developing our infrastructure to continue supporting our long-term growth plans and continuing to delight our customers. A key enabler of our affordable luxury positioning and customer delight is continuous improvement in our service levels and efficiency across our supply chain. In Q4 2021, we started operations from our new Lulu's operator Southern California facility, which will be a key step in achieving these objectives. The first milestone, which we completed in Q1 of this year, was taking our vendor inbound inventory receiving and product quality control activities back in-house, as well as optimizing our shipments from Southern California to our Northern California and Eastern Pennsylvania fulfillment centers. We have already observed higher units per trailer shipped to our fulfillment centers, which reduces the transportation cost per unit. We have also observed shorter dock to available for sale cycle times, which further improves our available time to sell a product in season and ultimately lower seasonal markdowns. Throughout 2022, we expect to add additional logistics capabilities to our Southern California facility to further optimize inventory across our network, as well as order fulfillment, and thereby improving our service levels at a lower shipping expense and environmental impact. In Q1 of 2022, we also started our implementation of robotics in our Eastern Pennsylvania fulfillment center. Robotics will not only provide us with productivity gains, but also help us better attract and retain warehouse associates. And after a successful implementation and optimization phase, we will consider a robotics rollout in our Northern California Logistics Center, for which CapEx budget is allocated in our 2022 guidance. As David mentioned, we were able to deliver strong results as a result of using data to support all aspects of our business. From an assortment planning perspective, data helps us reduce fashion risk and the ensuing gross margin risk. We follow a test and learn philosophy with everything we do, and this is particularly evident in our reorders. Q4 showed further improvements in sales attributable to reorder products compared to both 2020 and 2019, and was roughly 70% for the full year 2021. In other words, approximately 70% of our sales came from previously tested products. This high percentage of revenue generated by our reorder products allows us to place purchase orders with more optimal quantity and timelines, reduce supply chain impacts, optimize our assortment, and ultimately delight our customer. Switching to our customers, We are very proud of the record engagement of our repeat customers in Q4, as well as all of 2021. That repeat engagement, together with healthy numbers of new customers acquired in 2021, sets us up for continued momentum in 2022. Record AOVs fueled by more items per basket, as well as lower discounts and markdowns, showed our customers' growing desire for Lulu's assortment. In the fall of 2021, we launched a Lulu's brand campaign, and we gained some great learnings in new marketing channels, as well as new ad formats in existing channels. Based on brand monitoring information, our campaign resonated well with millennial women and especially well with Gen Z women. And we feel confident we have a runway for access to untapped and engaged audiences. Successful learnings from this campaign have been incorporated in our baseline awareness marketing program, and we will continue to test and learn new marketing channels and ad formats throughout 2022. As a reminder, and as presented in our S1, or for those that are not familiar with Google's marketing expenses and customer contribution margin over time, Lulu's has been and is first order contribution margin profitable. In other words, our cost of acquiring a new customer is below the first order contribution margin after selling and fulfillment expenses. And despite the changes and challenges that iOS tracking limitations and privacy regulations in general have introduced, Lulu's remains effective and efficient in attracting new customers and reengaging existing customers. Our proprietary data sets, tooling, and analytics have continued to provide us with effective lines of sight on what's spent in which channel for each audience is incrementally beneficial. As a result, our selling and marketing expenses as a percentage of net revenue remain in line with recent years, and we will continue to iterate and adapt to try to keep it that way. In Q4, we finalized the replatforming of our mobile app and successfully pushed this to our customers' devices. We have been focused on further improving the customer experience and have already seen improved engagement and conversion as a result of updating the app. The immediate benefit of the app replatform is that the personalization and product experiences in the app are now identical to the lulus.com website. which was highly desired by our customers and making for a seamless experience and reduces shopping friction. We are very proud of our customer support team that is always 100% focused on providing our customers the best possible experience, whether we are responding to shipment-related questions or providing style and fit advice. In 2021, our customer satisfaction scores, aka CSAT, exceeded our 2020 scores. And top CSAT scores are not only a wonderful measurement of the Lulu's brand hug we provide our customers, they are also a leading indicator for high net promoter scores and continued customer word of mouth advertising. Lastly, in Q1, we relaunched our Love Rewards loyalty program. Whereas our previous reward program was a coupon discount program The new Love Rewards program is focused on rewarding customers for their engagement with Lulu's. Customers can earn points through purchases, providing us with first party data, and following Lulu's on various social media channels. Points earned count towards four customer loyalty levels. Member, Insider, Icon, and All Access. And each level has increased benefits like priority back-in-stock notifications, and exclusive deals. The flexibility of a points program offers us more ways to deepen the relationship with our customers, increase a customer's lifetime value, and to occupy a larger share of her closet. We are looking forward to building out our loyalty program in 2022 and beyond. And now, let me introduce my colleague, Crystal Lansom, co-president and CFO, who will discuss the quarter in greater detail. Crystal?
David
Thanks, Mark, and good afternoon, everyone. Our first quarter as a new public company has certainly been exciting for us, and as expected, we're pleased to be reporting continued strong financial results. As David mentioned, we delivered an outstanding quarter, highlighted by year-over-year growth across key financial metrics, including net revenue, gross margins, profitability, and cash flows. We also set new records for the number of active customers engaging with us in the fourth quarter as our customers returned to their social calendars and continued to come back to us for their everyday fashion needs, most reflected in our increases in average units per order, average order value, and average spend per customer. During Q4, we grew our net revenue by 78% to $96.8 million, a $42.2 million increase over the same period and the prior year. Our top-line growth continues to be driven by the combination of new customers acquired and increasing loyalty from our existing customer base with an all-time high number of repeat customers engaging with us during the fourth quarter. We're very proud of our large, diverse community of loyal customers. In the 12 months ended January 2nd of 2022, we served 2.8 million active customers compared to 2 million active customers in the 12 months ended January 3rd, 2021, representing growth of 38%. Despite industry-wide supply chain challenges, our business model has enabled us to continue our path of strong growth and profitability, as you can see from our success in Q4. Growth margins for the fourth quarter increased 200 basis points to 44.9%, driven by two key factors. First, fewer markdowns and discounts compared to last year, driving more sales at full price. And second, the reacceleration of event dressing demand coupled with accelerated demand and non-event everyday dressing categories. Along with strong customer demand, our agile merchandising process facilitated inventory turn rates at an annualized rate of over eight times. While we delivered a very strong Q4, we believe we left demand on the table, just given how quickly we turned our inventory. Our AOV reached an all-time high of $121, driven by increased items per cart, as well as lower discounts and markdowns due to lower promotional activity, with AOV increasing 22% over 2020 and 12% over 2019. Moving down the P&L to give some insights into expense line items, our selling and marketing expenses consist primarily of marketing expenses, payment processing fees, and other advertising. Q4 selling and marketing expenses were $17.7 million, up $5.8 million from the same period in the prior year, due to the return of online performance marketing spend to a more normalized state, and in line with the increase in our net revenue. And as Mark mentioned earlier, we also launched our first ever brand awareness campaign. General and administrative expenses amounted to $30.3 million for the quarter, an increase of $17.3 million compared to the prior year. This increase reflects higher fixed headcount costs as the previous year's costs were suppressed due to furloughs related to the COVID-19 pandemic. Variable payroll and benefits expenses were in line with higher sales volumes, higher bonus expenses due to improved business results, and an $8 million increase in equity-based compensation primarily related to stock options and special awards were vesting with a one-time acceleration triggered by the IPO. We also began to incur increased insurance and professional service costs and other public company related expenses that we did not have in Q4 of the prior year. Interest expense fell by $2.4 million to $1.7 million, the result of paying off our long-term debt with proceeds from the IPO. Following the IPO, we had $25 million of debt outstanding, representing a draw against our $50 million revolver. For the quarter, we reported a loss per share of $4.69, down from a loss per share of 24 cents in the fourth quarter of 2020, primarily due to a one-time deed dividend due to an anti-dilution feature included in the preferred stock and triggered at the time of our IPO. The dilution associated with this transaction only impacted shareholders and management who held shares prior to the IPO. Removing the impacts of the one-time non-cash items, the deemed dividend, $122.9 million, the stock dividend, $3.5 million, and other non-recurring stock-based compensation of $8 million related to our initial public offering, our adjusted diluted net loss per share was $0.03 for the fourth quarter. Our full-year 2021 loss per share of $6.08 was greater than the prior period loss per share of $1.13. However, removing the impact of the aforementioned non-recurring non-cash items in connection with our IPO Our adjusted diluted earnings per share was $0.57 compared to the prior year adjusted diluted net loss per share of $0.13. And finally, adjusted EBITDA for the fourth quarter was $6.4 million, swinging to a positive from our $98,000 loss in the same period of 2020. Our Q4 adjusted EBITDA margin was 6.6% up from a 0.2% loss in the same period in 2020. Moving on to the balance sheet and cash flow statement. During the fourth quarter, we continue to invest in building up our inventory balance to better serve and meet our increasing customer demand and to prepare for our upcoming spring and summer peak season. We completed our IPO on November 15th of 2021 with net proceeds of $82 million after underwriting discounts and commissions and other issuance costs. We repaid 100% of the long-term debt balance and borrowed $25 million against the new revolving facility. repaying our long-term debt positions as well to focus on our growth initiatives. We closed the year with net debt of $13.6 million, comprised of a cash balance of $11.4 million and revolver balance of $25 million as of January 2nd. For inventory, we ended the quarter with $22 million, an increase of $5.3 million, or 31% higher compared to $16.9 million at the end of Q4 2020. We're able to combine high revenue growth with fast inventory turns due to our data-driven approach to buying for both new and reorder products and considerably reduce fashion risk as a result. In Q4 and also the full year 2021 overall, we believe our inventory turns were industry leading. We operate a highly capital efficient business that positions us to generate significant positive free cash flow. For the year, we generated $26.9 million in cash flow from operations. Capital spending for the year amounted to $3 million as we invested in equipment for our general operations, software and hardware purchases, and internally developed software. Moving on to guidance, I'll walk you through our expectations on the upcoming year. As we continue to build on the successes in 2021, we see tremendous opportunity for growth in the years ahead. The strong start to 2022 gives us great confidence in our ability to continue attracting new customers to our brand as well as re-engaging our existing loyal customer base at even higher levels. We have deep conviction in our product merchandising model, the Louvre crew, and our ability to navigate the current macro environment. We're expecting 2022 full-year net revenues between $480 and $490 million, which represents year-over-year growth of 28% to 30%. As you think about modeling revenue for our business, in a normalized year, our net revenue is typically highest in our second and third fiscal quarters due to demand seasonality for event dressing. Adjusted EBITDA is expected to be between $48.5 million and $50 million, which represents growth of 17 to 21% over 2021. This equates to an adjusted EBITDA margin of 10.1 to 10.2% compared to 11% in 2021. Our adjusted EBITDA margin rate guidance captures a decrease over the prior year, primarily driven by roughly 4.5 million of expected incremental expenses related to being a public company for the 2022 fiscal year, compared to the less than two months of public company expenses recognized in 2021. Our guidance targets are for the full year of 2022. However, to set expectations for modeling purposes, Our quarterly adjusted EBITDA margin rates have similar seasonality fluctuations as our net revenues and will likely fluctuate above and below our full-year guidance rate depending on the quarter. Additionally, we expect adjusted EBITDA margins to be somewhat lower in the second and third quarters this year compared to the second and third quarters of last year, directly related to higher public company expenses as well as timing of expenses for infrastructure investment initiatives, which will require some redundant operations. As a result of paying down our long-term debt following the IPO, we expect interest expense of less than $1 million for the year compared to $14.2 million last year, which included a $1.4 million loss on extinguishment of debt. We expect a weighted average fully diluted share count of 40.6 million shares, which is higher than the prior year as the prior year included three and a half quarters of lower shares outstanding leading up to our IPO date. This year's share count includes a full year of higher post-IPO share counts weighted across all four quarters. Moving on to capital expenditures, I'd like to highlight the following investment areas going forward. First, we're planning to continue investing in our logistics capabilities to even more efficiently serve our customers as we grow and scale. These initiatives include plans to continue investment in our third logistics facility, which began in Q4 of 2021. We expect some inefficiencies in distribution center operations during the first half of the year while we continue to ramp up those operations with efficiencies and cost savings beginning in the second half of the year. Once we've completed a successful robotics implementation in our East Coast Fulfillment Center, we will evaluate the return on investment and consider launching robotics in our Northern California facility. We're also planning to continue improving our platform to ensure that we maintain and improve our customer-centric shopping experience and marketing personalization with investments in our customer data platform and customer insights. And lastly, we're planning to further invest in internal and external software and technology to enhance our operational efficiencies. With the rollout of these initiatives, we expect capital expenditures of between $5 to $7 million for the full 2022 fiscal year.
Lulu
On behalf of Crystal, Mark, and I, we'd like to thank the Lou Crew, brand fans, board, and of course, our shareholders. Without your support, we could not have delivered such a successful fourth quarter and fiscal 2021. We believe Lulu's is a high-growth, capital-light business with fast inventory turns, a strong balance sheet, and growing EBITDA, and a merchandising model that obviates much of the concerns with fashion risks. We are quite pleased with the start to the year and look forward to building new capabilities and setting new performance records in FY22. We have the chance to do something quite special here at Lewis. Thank you for your time. We look forward to hearing your questions.
Operator
Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing any star keys. In the interest of time, we ask that you limit yourself to one question and one follow-up, please. Thank you. One moment, please, while we poll for questions. Our first question comes from the line of Mark Altschwager with Baird. You may proceed with your question.
Mark Altschwager
Thanks. Good afternoon and congrats on the strong close to the year. With respect to the revenue growth guidance, plus 28% to 30%, how are you thinking about growth in active customers versus revenue per customer? And then bigger picture, back half of 21, revenue growth was up about 16% versus 2019. So the 2022 guide implies a pretty big step up in the growth rate. Maybe just talk a little bit more about what's giving you confidence in that acceleration.
David
Let's say from a revenue generation perspective, we're anticipating sales to come from both re-engagement of repeat customers because we're seeing a very healthy improvement in that as well as the spend per repeat customer. But we're also seeing really great trends across our new customers acquired. where their average order value, average transactions per year, and basically all of the economics around how frequently they're transacting with us is improving equally, right in line with our repeat customers. So we're seeing improvements across the board there. And from our product class expansion and our non-event classes, we're also gaining momentum, which is driving up UPTs just across the board as well. So it's a combination of basically everything hitting all at once really effectively.
Mark Altschwager
That's great. And a quick follow-up, it's great to see the healthy growth and active customers. The year-end figure, pretty much back in line with where you were in 2019, I believe. Curious how much of the growth this year was reactivation of some of the lapsed customers from COVID versus new customers to the platform.
Naomi
It was both, really. Like Crystal was saying, we had a slower start in 2021 due to lower inventory levels, how we got into the year. But then progressing through 2021, we clearly saw that re-engagement as well as that new customer acquisition, both performing in a healthy manner.
Mark Altschwager
Thank you. Best of luck.
Operator
Thanks, Mark. Our next question comes from the line of Randy Koenig with Jefferies. You may proceed with your question.
Mark
Hey, guys. Sorry I'm in an airport, but just wanted to kind of just elaborate on the inventory turns, really great turns there. Crystal, you talked about leaving a little on the table, I think, in the third quarter and then in the fourth quarter as well. It's a great problem to have. How are you thinking about inventory kind of growth throughout the year of 2022? How do you want to think about that? And, you know, are you kind of thinking about inventory terms staying at the same rate going down a tad or, you know, continuing to move a little bit higher? How should we be thinking about that? Thanks.
David
Yeah, that's a good question. So we do have the luxury problem where we turn inventory pretty fast and we're able to generate some pretty interesting growth rates. With that said, With our test, learn, and reorder buying model, we're continuously testing into slowing down our turns to capitalize on that upside in demand. But we do everything in a low-risk testing way. So as we think about 2022, we do plan to slow turns, but we have this really nice problem where the more we buy, the more we sell. So I'd hate to commit to permanently slowing our turns down, but we are looking at ways to continue to push upside in growth and potentially slow those turns down a little bit.
Mark
Super helpful. My, I guess my last question would be if you can kind of unpack marketing a little bit more, obviously it sounds like there's a very successful response to your first ever brand marketing campaign. So can you just give us some perspective on, you know, different things you saw in the business related to that campaign, how you're thinking about, uh, you know, altering or keeping the campaign kind of the same going into 2022. You're just, your general marketing expense levels would be helpful. And then I think the last quarter you touched on thinking about at some point a little bit of international marketing spend. So just wanted to be curious about how you're thinking about that as well, given you're seeing a really good response to what happened, I guess, in the fourth quarter. Thanks, guys.
Naomi
Sure. So when it comes to the brand campaign that we started in the fall, we had, like I said, some great learnings there. And Basically, you can bucket those learnings in three areas. That's learnings around content, there's learnings around new channels, and there's learnings around new app formats in existing channels. And the learnings, you've got to think along the lines of, for example, with content, is to better understand what type and format of content works well, in which channel versus approaching generic audiences or targeted or more specific audiences. And so what we've done with that is to better understand also from the channels, but for example, the brand lifts are and applying that and incorporating that into our, we call it our evergreen awareness marketing that we were always doing. And in that way, we have incorporated that going forward. But also, obviously, we will be continuing to test and learn in 2022. That will not stop. I think the reason why we talked about a brand campaign or formulated a brand campaign is because it was really the first time for Lulu's to talk about Lulu's instead of specifically about the products. So that was a content change that we had last year. which was, like I said, very, very successful and very interesting to see how that resonated both with Millennial as well as Gen Z. Hey, Randy, let me add on to Mark's comments on that.
Lulu
You know, as you know, we've grown primarily through word of mouth and friends and family. And so that's still important for us and we're continuing to push on it. And we've been absolutely outstanding with our efforts in performance marketing. But based on the capital structure previously, it wasn't brand building, wasn't brand marketing, wasn't a muscle we were able to exercise and develop. So this was really our first forays into it. And still the spend year over year will be heavily weighted towards, if you have to think about the performance versus brand, which we're not necessarily certain we do, it still will be weighted much more to spend with what we've been doing for years. and continuing, as Mark said, to test and learn our way into those disciplines and build up the capabilities. But we were pretty happy with the response.
Mark
Super helpful. Thanks, guys.
David
Safe travels, Randy.
Operator
Our next question comes from the line of Oliver Chen with Cowan & Company. You may proceed with your question.
Oliver Chen
Hi. Thank you. The average order value was very impressive. As we look ahead, particularly as we think about new versus existing customers and any factors. Do you expect that momentum to continue, you know, amongst the UPT and AURs and transactions? And then on better modeling to predict future demand, I know you have a pretty advanced artificial intelligence bench there. So I was curious about what better modeling is feasible there. And a follow-up on infrastructure investments and logistics. There's a lot happening at Lulu's. What's the customer impact in terms of the biggest unlock as you pursue those, I assume, at speed?
David
Thank you. I'll tackle the average order value question. So what we experienced was really an increase in UPTs as well as a reduction in markdowns and discounts compared to prior years. And our expectation is that will remain relatively stable. It wasn't an... But I would consider a non-recurring item for last year, with the exception of pushing potentially higher UPTs around product class expansion in our non-events areas with the separate tops and bottoms and so forth. I also wouldn't expect a massive increase in AOV either, as we're trying to push strategically growth in other product classes, where we're not going to be aggressively looking at pricing versus more wanting to push growth in those product class areas. From an AOV perspective, again, yes, we're expecting continued momentum, but I would temper expectations to give us some room to grow and take more mindshare versus going after every dollar from our customer. As it relates to modeling and being able to forecast demand, we are always evolving how we look at our business, and we like to triangulate from different areas and functions within the business, whether from marketing, planning, or FP&A team. And I would say it's a constantly evolving process as well as integrating with our data team to continue optimizing on how we can capture that demand, especially in these challenging supply chain times where we're not as sensitive to lead times as maybe others might be. So I'd say there's plenty of room for optimization. I think we're pretty good at it, but I think we can become really great at it. So I still feel a lot of upside in that area.
Naomi
And then your last question, Oliver, as it relates to our infrastructure and investments that we're making there, it's indeed all about speed and service levels. That's why we took essentially the activities that we had outsourced to 3PL as it relates to the receiving of our goods from our vendors, as well as the quality control back in-house so that we have essentially data sooner and can also better control essentially the outflow of product from the Southern California facility to the Northern and California and Eastern Pennsylvania facilities. And we've already seen basically faster time that we get products on online available for sale, which is about speed. And it's also about essentially reducing markdowns, ultimately, because we have a longer selfie selfie window. And then when we Add to the logistics capabilities further to that facility throughout this year, then also from a fulfillment perspective, we will be closer to a nice size of the population where we deliver orders in Southern California, Nevada, and those regions.
Oliver Chen
Thank you. Great quarter. Best regards.
Naomi
Thank you. Thank you.
Operator
Thank you. Our next question comes from the line of Brooke Roach with Goldman Sachs. You may proceed with your question.
Brooke Roach
Good afternoon and thank you so much for taking our question. I'd love to hear a little bit more about some of the trends that you've seen to date throughout 2022. I'd love to hear if you could unpack your expectations of the growth sequence for the year in a little more detail and perhaps provide some context to how you've seen customer engagement trend as you've navigated the January Omicron variant, and also some of the rising wallet pressures that we've seen on the consumer the past couple of months.
David
So we're happy to report that we're less sensitive to some of the inflation pressures that everyone is speaking about in the market. And that really comes from our affordable luxury and price value perception from our customer. And we take a surgical approach to pricing. We always have, we always will. And in that sense, we feel we have room, of course, to adjust pricing, but We're also optimizing for sell-through and value perception for our customer. I can't say we're not affected by the inflation because we certainly are, but as we continue to grow and get scale and economies of scale from our purchasing process, we're possibly less exposed to that than maybe others would be. And the beautiful thing about our customer is that if we do change prices and we take them up, a lot of times it increases sell-through versus reducing it. So we're We're really grateful for her for that. But in that sense, we're not really seeing any of those pressures, at least not to the extent that others are talking about in the market. And again, it goes back to our product, how we do our buying, and how surgical we are with our pricing, as well as when we're bringing in inventory and at what quantities.
Brooke Roach
Great. Thank you. And then just a follow-up for me on the enhanced loyalty program. I'd love to hear a little bit more about some of the early reads that you're getting from that program. and maybe the biggest opportunities that you see for that program to contribute to better consumer engagement over time. Thank you.
Naomi
As it relates to loyalty, early learnings would be too early. It literally was rolled out two or three weeks ago. So I cannot speak to that. Other than that, the rollout itself went successful. Our customers received it well. There were not too many questions. or, you know, the issues that popped up. So in that sense, we're very happy about that particular aspect. As it relates to the opportunity, yeah, I think that is what we really are talking about. The previous Love Rewards program was kind of, you know, there was not a lot of options to use that as for, for example, to broaden our customers' closet, for example, because it was purely just transactional and discount coupon oriented And now we can truly focus on that engagement with our customers or for that engagement, whether that is buying more or buying different products or talking about us, word of mouth advertising, et cetera. So the flexibility and the opportunity that provides us to do so is what we're really excited about. And we're happy to have laid now that foundation on which we can build.
David
And so far, she's responding well to the offering.
Lulu
Yeah, she is, Brooke. And if you think of, yeah, as Mark was talking about it, the early program was very transactional. And this one is being, the foundation is being laid so that it can become more of that brand hug and a great engagement tool that Mark alluded to, where, again, it also gives us a great deal more first-party data, a number of things that this is going to help us do, again, from an advertising expense, loyalty tracking is going to be great for a company that's so focused on the customer. We sort of had one hand behind our back by not having a really robust plan. So this is phase one, and I suspect the plan Mark shares with you next year this time about what, you know, phase two and phase three look like built on the learnings. You'll see it metamorphosize pretty dramatically.
Brooke
Thank you so much.
Operator
Our next question comes from the line of Lorraine Hutchinson with Bank of America. You may proceed with your question.
Lorraine Hutchinson
Hi, this is Alice Xiao on for Lorraine Hutchinson. Thanks for taking our question. Since 1Q is pretty much concluded, I know you're not guiding specifically to that, but could you please give some color on how that went? Which non-event categories have been outperforming in particular? and if 1Q trends are largely consistent with 4Q or if there's anything specific to call out.
David
So generally speaking, we're all very optimistic about Q1 and things have been progressing very nicely. As it relates to product classes, we're not sharing details in terms of overall penetration for each business, but Because we're known for our dresses and more specifically event dresses, we do believe we're experiencing a bit of a disproportionate benefit from our customers' return to their social calendar, especially in Q1. And as we run into Q2, the expectation would be the same. That said, the concentration of sales from our non-events classes also increase in 2021 and continue to increase over pre-pandemic years. We're just gaining traction and building more awareness in all of our affordable luxury offering for that everyday wear. We're firing on all cylinders. We're very optimistic about the business, and things are going great.
Brooke
Thank you. Our next question comes from the line of Dana Telsey with the Telsey Advisory Group. You may proceed with your question. Dana, your line is live.
Dana Telsey
Hi. It's Dana. I'm here now. Hi, congratulations on the nice progress with the quarter. As you think about the tech investments that you're making, what are the markers that we should be watching for that shows it's on track? How should we be evaluating it? And it sounds like it's multi-year, so what is the journey that we're on that what do we accomplish this year or next year? How do you think of the markers?
Lulu
So before Mark jumps in, Let me just – I mean, so the way we're thinking about them are we have some things we have to do structurally that add capability for growth, right? We're a high-growth company, and we've always sort of built just in need and just in time. And along the way, Mark and team have been not only doing that but enhancing the capability sets in this. And there's a great deal of work he and team are doing around customer insight, analytics, data analytics capabilities, a number of things. But I could do nothing – I'll give it short shift if I try to answer, so Mark, jump in.
Naomi
It's an interesting question. I'm trying to think about the markers that you were looking for, because that's not necessarily the way I think about it.
David
I think it's inventory. It's marketing efficiency. I mean, tech and data is in everything we do. So I would say our financial performance would be an indication of the advances we're making on our tech.
Naomi
Financial performance. I think that would be the main marker.
David
Tech supports everything we do.
Lulu
You may see, we believe over time, through all some of the programs we're doing, I wouldn't be surprised if we start to see that AOV creep up beyond our current price points because we have better insights and we're gonna start, the offering will change, the frequency, purchasing over the year, you'll start to see change. The sort of behavioral economics that were very, from a purchase behavior, were biased towards events will start to move as well.
Naomi
And I think the other part is our OPEX, right? I mean, the technology is really there. Besides on the sales side, it's also the operations side. And it's really about how do we scale more efficiently over time? That's why we're introducing, for example, robotics. And there's other things that we will be implementing in order to scale that more efficiently as our volume increases.
Lulu
Yeah, and as we learn, as we tap into these sort of The untapped pools, knowing that we're a young brand and not as well-known, we may be able to scale growth faster where some people would be worried. So the capabilities Mark's talking about, whether it could be inventory purchasing, right? With these turns, it's very hard to fulfill and have size and integrity with these blistering fast turns in the market. So those are all kinds of things you're going to see, Dana, markers that will support the growth in the near term.
Dana Telsey
Got it. And then just following up on the AOV, with the category extensions, how do you think about the impact on AOV and what would impact AOV the most in terms of category extensions in your view?
David
I would say that the biggest impact is going to be UPTs. Early reads are showing that as she shops more of our non-events classes, we're seeing those UPTs creep up. It's a different shopping behavior than shopping seasonally for events. And so UPTs would be the biggest factor affecting a UB, at least in the near term.
Dana Telsey
Thank you.
Operator
Thank you, Dana. Our next question is a follow-up from Oliver Chen with Cowan & Company. You may proceed with your question.
Oliver Chen
Hi. Thanks a lot. Non-event dressing is a really nice opportunity. It continues to be. Would just love some points around how that's advancing in a key focus area. And second and finally, as you bring on new customers, how are you thinking about LTV relative to CAC and the nature of that behavior, if it's an interesting or relevant distinction in terms of churn and acquisition costs? Thank you.
David
So our merge teams are doing an exceptional job of building out our non-events classes, and we are seeing, in spite of this massive reacceleration of our events business, we are gaining share in overall contribution to our business and our non-events. We're not guiding anywhere towards actual numbers, but I will tell you we are making strides in building out that overall concentration of non-events, apparel, shoes, and accessories, especially compared to pre-pandemic levels.
Lulu
And something else that's going on, Oliver, as we do that, if you think about our history and legacy as a company with event dressing, we had a preponderance, and this is on the softer side of the question, we had a preponderance of neutral, safe colors. And you're seeing the team recently begin to broaden that. And as we move into, so in dresses, as well as non-event dressing, we're seeing that as well. So we're learning how to outfit, we're understanding the relationships and the power of seasonal color expressions. We also have a history of being very dominantly solid versus using print patterns. and you're going to see us grow. So when you think about the ability for us to grow in those spaces, these are real nascent stages. But so heartwarming and, I guess, confidence instilling is that we're continuing to grow. And we know we have the fashion tailors behind us in dresses, but there are subcategories in dresses that remain untapped for us as well. So again, this is going to be a great ride and big pools of resources coming.
Naomi
And then as it relates to your question around CAC and LTC, If you look at the initiatives that we have taken and started to put ourselves on a different foundation, for example, with the loyalty program, when we're looking at expanding our assortment and getting also awareness around the everyday wear, that all leads to more opportunities for customers to engage with us. We've already spoke about higher UPTs, but there's also, of course, frequency, there's a higher repeat, and all those initiatives are essentially driving towards a higher LTC, uh, for, uh, the customers, both, um, um, uh, sorry, from a repeat perspective as well. And then as it relates to the customer acquisition costs, uh, obviously the, the, the, the market is certainly in flux, right? With all the privacy changes and iOS and tracking changes. And it's our job to maintain, and what we will try to do is maintain that historical cost of acquisition that we have had over the last couple of years to keep that also going forward so that we can truly leverage the benefits of the increases of our LTC going forward.
David
And we continue to be contribution margin profitable on a first order. I think that's pretty special with Wooloo.
Mark
Thank you.
Operator
Thank you, everyone. At this time, we have reached the end of the question and answer session, and I would now like to turn the call back over to Mr. McCreight for any closing remarks.
Lulu
Thank you all. You obviously can hear our pride in what the LUCREU achieved this past year and quarter. And again, we've already mentioned we're thrilled with the start of the year and look forward to updating you further. So thank you for your time.
Operator
This concludes today's conference. You may disconnect your lines at this time. Thank you everyone for your participation and have a great day.
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