Lulu's Fashion Lounge Holdings, Inc.

We observed positive signals five weeks into Q2 with sequentially improving year-over-year gross revenue comparisons. Note that April 2022's year-over-year net revenue was up 43%, which was a high mark in Q2 22, so comparisons should improve. We are further encouraged that demand has improved in the first five weeks of the quarter without the assistance of significant promotions or discounting, yielding higher merchandise margins. While we remain confident in our net revenue guidance range for the year, our full year net revenue is pacing to the lower end of the guidance range given the softness observed in Q1 sales and a slower start to our peak spring selling season. 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. Q4 typically represents our lowest net revenue and profit quarter of the fiscal year as we are not a gifting destination and typically do not participate proportionately in holiday peak season sales volume like other retailers in our space. This year we expect Q4 net revenue to be moderately higher than Q1. As it relates to 2023 first half comparisons, please keep in mind that Q1 and Q2 last year reflected 62% and 27% year-over-year net revenue growth, respectively, as those quarters benefited from pent-up demand as our customer refreshed her wardrobe and returned to her social calendar. Our guidance contemplates that we expect the second quarter to continue with negative net revenue comps, moving into flat to positive comps in the second half of 2023. In addition to easing comparisons, our confidence in our guidance is supported by the strong performance of new products that have tested well in recent months. As a reminder, our data-driven buying model means that roughly 70% of our buys are proven sellers. We continue to forecast full-year adjusted EBITDA between $23.1 million and $25.6 million. This equates to an adjusted EBITDA margin of between 5.6% and 6%. Our adjusted EBITDA guidance captures incremental investments in support of longer-term initiatives including broadening distribution and expanding in-person activations. Offsetting these investments are expectations of moderating transportation-related costs as a result of easier fuel surcharge comparisons in the latter part of the year, coupled with our proactive carrier diversification actions. 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 or below our full-year guidance rate, depending on the quarter. As a result of paying down our long-term debt following the IPO, we continue to expect modest levels of interest for 2023 at approximately $1.1 million in line with 2022, driven by a lower outstanding balance on our revolving line of credit, partially offset by higher interest rates. As of today, we have $15 million drawn on our $50 million revolver. We plan to pay off our revolver by the end of 2023. Stock-based compensation expense for the quarter was down $1 million from Q1 of 2022. We continue to forecast stock-based compensation expense of approximately $16 to $19 million in 2023. For 2023, we expect a weighted average fully diluted share count of approximately 40 million shares. Moving on to capital expenditures, our plan remains investing between $5 million and $6 million for the year. We're focused on setting the stage for future growth opportunities, enhancing the customer experience, and driving further operating efficiencies. For 2023, we will continue to invest in distribution center automation and robotics capabilities, which are expected to drive further labor efficiencies. And with that, I'll pass it back to Crystal for closing remarks.

Thank you, Tiffany. We'd like to take a moment to thank each of you, the Lou Crew, our brand fans, shareholders, and our board for their continued support as we continue to work towards executing our long-term strategy and delighting our customers. With that, I'll turn it over to questions now.

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