Lulu's Fashion Lounge Holdings, Inc.

Good afternoon and welcome to Lulu's second quarter 2026 earnings conference call. Today's prepared remarks are being recorded. At this time, I'd like to turn the conference over to Lulu's General Counsel and Corporate Secretary, Naomi Beckman-Straus. Thank you. You may begin.

Good afternoon, everyone, and thank you for joining us to discuss Lulu's second quarter fiscal 2026 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, 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 ended December 28, 2025, and quarterly report on Form 10-Q for the fiscal quarter ended June 28, 2026, which can be found on our website at investors.lulus.com. During our call today, we also referenced 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 active customers. A 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 Landsem, our CFO, Heidi Crane, and our president and CIO, Mark Vos. With that, I'll turn the call over to Crystal.

Thank you, Naomi, and good afternoon, everyone. We appreciate you joining us today. During the second quarter, we remained focused on strengthening the fundamentals of the business through discipline merchandising, inventory management, and operational efficiency. While revenue trends were below our historical levels in the second quarter, we continued to prioritize the long-term health of the business over short-term volume. We continued to see encouraging momentum across several key areas of the business, including progress in our new assortment and reorder funnel, reinforcing our conviction that resetting the assortment around the categories and customers where Lulu's has historically differentiated itself is improving SKU productivity, reorder adoption rates, customer economics, and the overall quality of the business. Furthermore, we delivered another quarter of meaningful gross margin expansion, continued improvement in net loss, positive adjusted EBITDA performance, and stronger inventory productivity, reflecting continued execution against our turnaround strategy. Looking more closely at demand trends during the quarter, revenue comparisons continue to reflect assortment decisions from prior product year cohorts, particularly pronounced in the second quarter with lower reorder sales volume from 2025 styles. At the same time, the leading indicators of our assortment reset are increasingly reflecting the progress we are seeing in new styles introduced in 2026. While we are working to fully align our inventory and reorder funnel, we are very encouraged by the response to the newer assortment across both our core occasionwear and casual apparel businesses. New products introduced during the first half of 2026 are converting into reorder-eligible styles at rates well ahead of our internal targets, reinforcing our confidence that the assortment reset is working and building a stronger reorder funnel for future periods. As these styles build into our reorder revenue base, we expect they will contribute significantly to sales in future quarters and years. Within our new occasionwear assortment, which includes bridal, bridesmaids, formal, and day event categories, we delivered double-digit year-over-year top-line growth during the quarter, supported by strong regular price sales. The quarter also reflects a significant reduction in markdown sales, with total markdown sales transacted down 38% compared to Q2 2025, including a 65% decline in markdown sales within casual apparel. While this reduction pressured topline comparisons, we view the shift towards healthier regular price sales as an important part of improving the quality and profitability of the business. We expect the tough comparisons for markdown sales to continue into Q1 of next year, with regular price sales sequentially improving each quarter to offset the impact of lower markdown sales.