Lulu's Fashion Lounge Holdings, Inc.

Good afternoon, and welcome to Lulu's Fashion Lounge Fourth Quarter 2025 Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn the conference over to Lulu's General Counsel and Corporate Secretary, Naomi Beckman-Strauss. Thank you. You may begin.

Good afternoon, everyone, and thank you for joining us to discuss Lulu's Fourth Quarter and Fiscal Year 2025 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 expectations, plans, strategies, goals and objectives, and their implementation. These forward-looking statements are subject to various risks, uncertainties, assumptions, and other important factors, which could cause our actual results, performance, or achievements to differ materially from results, performance, or achievements expressed or implied by these forward-looking statements. These risks, uncertainties, and assumptions are detailed in this afternoon's press release, as well as our filings with the SEC, including our annual report on Form 10-K for the fiscal year end of December 28, 2025, which can be found on our website at investors.lulus.com. During our call today, we will also reference certain non-GAAP financial information, including adjusted EBITDA, adjusted EBITDA margin, net debt, and free cash flow. Our non-GAAP measures may be different from non-GAAP measures used by other companies. Reconciliation of gap to non-gap 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. We also use certain key operating metrics, including gross margin, average order value, and total orders placed. The description of these metrics can also be found in this afternoon's press release and in our SEC filings. Joining me on the call today are our CEO, Crystal Lansom, our CFO, Heidi Crane, and our President and CIO, Mark Voss. With that, I'll turn the call over to Crystal.

Thank you, Naomi, and good afternoon, everyone. We appreciate you joining us today. 2025 was a transformational year for Lulu. We made meaningful progress strengthening our financial foundation, driving operational efficiencies, and leaning into our strengths in event dressing, resulting in gross margin expansion, a significant reduction in operating expenses, and three consecutive quarters of positive adjusted EBITDA performance. We believe our stronger, leaner, and more resilient operating model, combined with our consistently improving profitability, positions us well to return to growth as consumer and category pressures begin to stabilize. We believe our focus on event-driven categories continues to differentiate us. Bridesmaid and special occasion dressing remain strong throughout the year, with sustained demand and multi-year category growth, reinforcing our leadership position in this segment. We also saw exceptional momentum in our wholesale business in 2025, delivering triple-digit year-over-year growth as we expanded into major retail partners, further extending the reach of the Lulu's brand across channels. Operationally, we executed well on major initiatives designed to simplify and modernize the business, including completing our distribution center consolidation, streamlining operations, driving sequential improvements in inventory and assortment optimization, and steady reduction in return rates. Together, these accomplishments drove significantly improved EBITDA performance over the course of the year. With these foundational changes largely in place, we are entering 2026 with greater strategic focus, a healthier cost structure, and an assortment more aligned to our core customer and brand identity. We also continue to strengthen our financial position, with net debt expected to be between $7.5 and $8 million at the end of Q1. While work remains, particularly in repositioning our casual and footwear categories, we are confident that our disciplined execution and sharpened assortment strategy position us for continued progress as we move through the year. We believe we have entered the new year well-positioned to further accelerate our strategic priorities lean into the strength of our core business, continue to execute on the turnaround of the casual and footwear businesses, drive and enhance customer engagement, and unlock sustainable long-term growth. As part of this effort, we are sharpening our strategic focus on the initiatives we believe will drive the most impact. This includes strengthening our casual and footwear categories to improve order economics, expanding our wholesale presence to broaden reach, and leveraging technology to deepen engagement, enhance efficiency, and support our growth. Mark will discuss each of these in more detail shortly. Turning to our fourth quarter performance, we are seeing encouraging momentum across the business, reflecting the impact of our disciplined execution and strategic focus. Special occasion and event wear continues to outperform, led by strong growth and new occasion wear and both new and reorder cocktail categories, which drove healthy year-over-year net sales growth. Strength in event dressing reinforces our conviction in both the assortment strategy and value proposition and further validates our position as a leading destination for getting dressed up. Thanks to the strong contribution from our occasion categories and healthier average order value, in the fourth quarter we saw our most meaningful sequential quarterly improvement in net revenue comparisons at an approximately 5% decline. This is an improvement from a 17% decline in the first quarter 2025. Product margins improved for the fifth consecutive quarter with a 240 basis point increase in the fourth quarter compared to the prior year period and the highest product margin for the fourth quarter in four years. The improvement reflects sustained consumer demand for our higher margin categories supported by our pricing and margin enhancement initiatives and continued discipline and markdown strategy. We will continue to prioritize these initiatives to support ongoing margin gains in the year ahead. Gross margins expanded 640 basis points to 44.3% over the prior year period, our highest fourth quarter gross margin since 2021. The consistent progress we're seeing reflects our commitment to margin accretive growth. We plan to build on this momentum by further refining our assortment, strengthening sourcing, and managing pricing and cost efficiencies. Return rates improved 80 basis points from the third quarter, another quarter of sequential declines. We're proud of the enhancements we've made around customer experience in regards to improved fit and quality, as well as thoughtful adjustments to our return policy and customer abuse prevention strategies deployed throughout the year. Brand momentum is accelerating, supported by ongoing visibility efforts to broaden Lulu's exposure, reach, and relevance. We drove meaningful gains in brand awareness and engagement in the fourth quarter through a broader and higher quality media footprint, spanning earned media, cultural moments, editorial features, broadcast placements, and expanded studio stylist and talent relationships, while leaning into key holiday and event-driven moments. As a result, our brand equity score maintained its strong position, underscoring the resonance and relevance of the Lulu brand. Our wholesale business continues to gain significant traction, supported by strong interest from prospective partners and the addition of several major retailers in the fourth quarter. These additions expand our in-store and online presence to nine major retail partners. To date, this has translated into triple-digit, seven-figure growth in wholesale revenue. Importantly, in February, we announced our expansion into all Nordstrom stores nationwide, reflecting accelerating demand in brick and mortar and increased retailer confidence, reinforcing Lulu's ability to scale beyond its direct-to-consumer roots while staying deeply connected to its customers. Furthermore, earlier this month, we broadened our reach with the launch of our Amazon storefront, offering a curated, primarily exclusive assortment and enabling us to maintain full control of brand storytelling while leveraging Amazon's reach and convenience. As we grow with existing partners and add brand-accretive majors and boutiques, including the expansion into additional brands within our current major partners, as well as Victoria's Secret in the first quarter this year, We continue to expand access to Lulu's in a thoughtful, strategic way that drives profitable wholesale volume and brings our product to more customers nationwide. Rather than taking a one-size-fits-all approach, each partnership features a channel-specific assortment aligned with how different customers shop and engage with our brand. We believe these partnerships further position Lulu's as a digitally fluent brand with growing influence across the contemporary fashion and retail landscape. As 2026 progresses, we are further encouraged by our wholesale customers' requests for more year-round assortment, which will help to rebuild our brand awareness in our casual wear assortments across all sales channels. Finally, we delivered our third consecutive quarter a positive adjusted EBITDA. Our tighter cost structure and stronger product margins lifted our performance again this quarter, underscoring the disciplined operational focus that continues to support our bottom line. Our performance over the last several quarters reflects the significant strides we are making in strengthening our core business and the opportunities we see ahead of us to continue driving results. On that note, we are making steady progress resetting our footwear and casual apparel businesses, which have pressured top line performance over the last several quarters. We continue to drive the reset of casual apparel and footwear this quarter by narrowing our assortment, tightening inventory receipts to improve turns, and shifting to more elevated event adjacent and dress forward styles that better match customer preferences and where margins are strongest. We believe these steps will support the stabilization of these categories and set a stronger foundation for future growth. As we progress through this transition, we continue to expect the pressure on top line contribution from these categories to ease towards the end of the second quarter, positioning us for a healthier revenue trajectory in the back half of the year. Looking ahead, we are intentionally prioritizing profitability and the quality of our assortment over short-term revenue growth. By resetting our casual and footwear businesses towards more brand aligned and event adjacent assortments and working down less productive inventory in the first half of the year, we are laying the groundwork for a stronger, more disciplined foundation that supports higher quality and more durable performance. Turning now to our cost reduction initiatives. Our work has continued to pay off as evidenced by our third consecutive quarter of positive adjusted EBITDA performance. The improvement was driven in part by a 12% year-over-year decline in operating expenses in the fourth quarter, including a 13% reduction in fixed costs. We continue to build momentum off our streamlined cost structure and expect continued gains as we drive additional operational efficiencies and focus on returning to sustained profitable growth. As it relates to our SKU rationalization efforts, we are making meaningful progress around streamlining our assortment and reducing underperforming inventory to drive improved margins and greater operational efficiencies. As of this earnings call, in footwear and casual apparel, the SKU count owned and inventory on hand is down compared to prior year, approximately 17% and 39% respectively. While there is still work to be done, we believe the progress the team has made to date will set us up nicely for improved performance in the second half of this year. These actions are also enhancing our financial profile by promoting cash generation and fortifying our balance sheet. As it relates to tariffs, the environment remains highly uncertain, including potential changes in scope, timing, and rates. While we are closely monitoring developments, our strategy does not rely on any single external outcome. Instead, we are focused on actions within our control. These include advancing resourcing initiatives, strengthening longtime vendor partnerships, optimizing product costs, and applying disciplined pricing and assortment strategies. We also recognize that the broader environment, including potential tariff impact, freight volatility, and a still cautious consumer may continue to create variability in demand. Our approach is to remain agile, protect profitability, and adjust thoughtfully as conditions evolve. Taken together, we believe these actions position us to navigate near-term volatility while continuing to strengthen our long-term margin structure. Before I turn it over to Mark, I'd like to highlight a couple of additional updates. First, we made an important leadership update last month. After joining us as fractional CFO in the third quarter, Heidi Crane was appointed as Lulu's permanent CFO in February, a natural next step through this process. Working together over the last several months, it's clear that Heidi brings exceptional financial discipline, sharp strategic insight, and a deep understanding of our business. which will greatly support our efforts to achieve long-term sustainable growth and drive value creation. Second, our Board recently approved an amendment to our Certificate of Incorporation to decrease the number of authorized shares of our common stock from $250 million to $15 million and the number of authorized shares of our preferred stock from $10 million to $500,000, contingent on stockholder approval at our 2026 Annual Meeting. With that, I'd like to turn the call over to Mark Voss, our President and Chief Informational Officer. Mark will provide updates around progress we're seeing against strategic priorities. Mark?