Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to ___________________ Commission File Number: 001-41059 Lulu's Fashion Lounge Holdings, Inc. (Exact Name of Registrant as Sp ...

Lulu's Fashion Lounge Holdings, Inc. (NASDAQ:LVLU) Q3 2023 Earnings Conference Call November 8, 2023 5:00 PM ET Company Participants Naomi Beckman-Straus - General Counsel & Corporate Secretary Crystal Landsem - CEO Tiffany Smith - CFO Mark Vos - President & CIO Conference Call Participants Brooke Roach - Goldman Sachs Amy Teske - Baird Ethan Saghi - BTIG Dana Telsey - Telsey Advisory Group Operator Good afternoon, and welcome to Lulu's third quarter 2023 earnings conference call. Today's call is being reco ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 1, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to ___________________ Commission File Number: 001-41059 Lulu's Fashion Lounge Holdings, Inc. (Exact Name of Registrant ...

Financial Data and Key Metrics Changes - The company reported net revenue of $106 million for Q2 2023, a 19% decline year-over-year, primarily due to lower top-line demand and higher-than-expected return rates [26][58] - Gross margins for Q2 2023 were 44.7%, down 110 basis points year-over-year but improved sequentially by 300 basis points from Q1 2023 [28][26] - Adjusted EBITDA for Q2 2023 was $4.2 million, compared to $14.8 million in Q2 2022, reflecting lower demand and higher returns [33][65] - The company ended the quarter with cash of approximately $6 million and net debt of roughly $9 million, expecting to reduce net debt to less than $5 million by year-end [34][41] Business Line Data and Key Metrics Changes - Active customer count decreased to 3.1 million at the end of Q2 2023, down 5% from Q2 2022 and 3% from Q1 2023 [60][13] - The company observed a higher return rate in Q2, attributed to a shift in product mix towards items like dresses, which typically have higher return rates [19][27] Market Data and Key Metrics Changes - The competitive environment has intensified, particularly at entry price points, but the company aims to maintain its focus on attainable luxury products rather than competing in fast fashion [3][4] - The company is adapting to macroeconomic pressures, including inflation and student loan repayments, which are expected to impact discretionary spending among its target demographic [4][72] Company Strategy and Development Direction - The company is shifting marketing spend from performance marketing to brand awareness to enhance customer engagement and brand positioning [14][68] - A new retail location on Melrose Avenue in Los Angeles is being opened to enhance in-person customer engagement and test the physical retail model [69][70] - The company is diversifying its global carrier networks to optimize shipping costs and improve customer experience [67][66] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing volatility in consumer demand due to macroeconomic factors, leading to a reduction in full-year 2023 guidance [72][38] - The company remains focused on managing costs and driving efficiencies while investing in long-term growth opportunities [61][72] Other Important Information - The company is leveraging AI across various business aspects, including customer lifetime value and inventory optimization, to enhance competitive advantage [23][24] - The company plans to invest between $5 million and $6 million in capital expenditures for the year, focusing on distribution center automation and new retail locations [43][42] Q&A Session Summary Question: Update on competitive environment and consumer engagement - Management acknowledged increased competition, particularly at lower price points, but emphasized a focus on attainable luxury products [3] Question: Details on revenue guidance and macro assumptions - Management highlighted the impact of student loan repayments on discretionary spending and adjusted revenue guidance accordingly [4] Question: Gross margin expectations for the back half of the year - Management expects gross margins to improve year-over-year in Q3 and Q4 due to shipping cost rationalization [9] Question: Insights on customer behavior and product performance - Management noted a gradual improvement in year-over-year revenue comparisons throughout Q2, with a focus on novelty and newness in product offerings [77][79] Question: International market opportunities - Management indicated that international sales are currently small but present significant growth potential as barriers are removed [82][85]

[Part I - Financial Information](index=5&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This section provides the unaudited condensed consolidated financial statements, management's discussion and analysis, and disclosures on market risk and internal controls [Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the thirteen and twenty-six weeks ended July 2, 2023, including balance sheets, statements of operations, statements of stockholders' equity, and statements of cash flows [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This subsection details the company's financial position as of July 2, 2023, and January 1, 2023, highlighting changes in assets, liabilities, and equity Balance Sheet Highlights (in thousands) | Account | July 2, 2023 | January 1, 2023 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $5,947 | $10,219 | | Inventory, net | $46,232 | $43,186 | | Total current assets | $67,602 | $69,019 | | Total assets | $164,702 | $167,204 | | **Liabilities & Equity** | | | | Revolving line of credit | $15,000 | $25,000 | | Total current liabilities | $57,037 | $47,646 | | Total liabilities | $100,028 | $102,311 | | Total stockholders' equity | $64,674 | $64,893 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20(Loss)%20Income) This subsection presents the company's financial performance, including revenue, gross profit, and net income/loss, for the thirteen and twenty-six weeks ended July 2, 2023 Statement of Operations Highlights (in thousands, except per share data) | Metric | Thirteen Weeks Ended July 2, 2023 | Thirteen Weeks Ended July 3, 2022 | Twenty-Six Weeks Ended July 2, 2023 | Twenty-Six Weeks Ended July 3, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $106,122 | $131,512 | $197,098 | $243,414 | | Gross profit | $47,396 | $60,167 | $85,357 | $113,145 | | (Loss) income from operations | $(1,670) | $10,924 | $(7,546) | $14,182 | | Net (loss) income | $(2,597) | $5,999 | $(8,215) | $8,042 | | Diluted EPS | $(0.07) | $0.15 | $(0.21) | $0.21 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This subsection outlines the company's cash inflows and outflows from operating, investing, and financing activities for the twenty-six weeks ended July 2, 2023 Cash Flow Summary (in thousands) | Cash Flow Activity | Twenty-Six Weeks Ended July 2, 2023 | Twenty-Six Weeks Ended July 3, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $8,351 | $10,588 | | Net cash used in investing activities | $(1,752) | $(2,738) | | Net cash used in financing activities | $(10,871) | $(10,909) | | **Net decrease in cash** | **$(4,272)** | **$(3,059)** | - The decrease in cash from operating activities was primarily due to a shift from net income of **$8.0 million** in the prior year period to a net loss of **$8.2 million** in the current period, partially offset by favorable changes in working capital, such as a significant decrease in inventory purchases[174](index=174&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of accounting policies, debt facilities, lease obligations, and equity-based compensation plans - Changing macroeconomic factors, including inflation and interest rates, have directly impacted sales in the first half of 2023 by affecting discretionary consumer spending levels[33](index=33&type=chunk)[112](index=112&type=chunk) - The company has a **$50.0 million** revolving credit facility. As of July 2, 2023, **$15.0 million** was outstanding, with **$34.7 million** available for borrowing. The facility matures on November 15, 2024[60](index=60&type=chunk)[168](index=168&type=chunk) - In Q1 2023, the company granted **1,811,572 RSUs** and **1,811,571 Performance Stock Units (PSUs)** to the new CEO, Crystal Landsem. The PSUs vest based on stock price targets and continued employment[95](index=95&type=chunk)[98](index=98&type=chunk) - The company's effective tax rate calculation method was changed from a discrete method in Q1 2023 to an estimated annual effective tax rate method in Q2 2023 due to updated financial projections, requiring a true-up adjustment[104](index=104&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=36&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a challenging quarter with a 19% year-over-year revenue decline due to macroeconomic pressures, impacting key metrics and leading to a focus on inventory management and liquidity [Key Operating and Financial Metrics](index=36&type=section&id=Key%20Operating%20and%20Financial%20Metrics) This subsection presents key operating and financial metrics, including Active Customers, Average Order Value, Gross Margin, and Adjusted EBITDA, for Q2 2023 versus Q2 2022 Key Metrics Comparison (Q2 2023 vs Q2 2022) | Metric | Thirteen Weeks Ended July 2, 2023 | Thirteen Weeks Ended July 3, 2022 | Change | | :--- | :--- | :--- | :--- | | Active Customers (in thousands) | 3,080 | 3,250 | (5.2)% | | Average Order Value | $135 | $137 | (1.5)% | | Gross Margin | 44.7% | 45.8% | (1.1) p.p. | | Adjusted EBITDA (in thousands) | $4,219 | $14,793 | (71.5)% | | Adjusted EBITDA Margin | 4.0% | 11.2% | (7.2) p.p. | - Adjusted EBITDA is reconciled from net (loss) income by adding back depreciation & amortization, interest expense, income taxes, and equity-based compensation expense[121](index=121&type=chunk)[126](index=126&type=chunk) [Results of Operations](index=46&type=section&id=Results%20of%20Operations) This subsection provides a detailed comparison of financial results for Q2 and the first half of 2023 versus the same periods in 2022, highlighting revenue decline and expense changes - **Q2 2023 vs Q2 2022:** Net revenue decreased by **$25.4 million (19%)**, primarily from a **16% decrease in Total Orders Placed**, a **1% decrease in Average Order Value (AOV)**, and higher markdowns[149](index=149&type=chunk) - **YTD 2023 vs YTD 2022:** Net revenue decreased by **$46.3 million (19%)**, driven by a **15% decrease in Total Orders Placed** and a **2% decrease in AOV**[156](index=156&type=chunk) - Selling and marketing expenses for Q2 2023 decreased by **5%** due to lower performance marketing spend, partially offset by higher brand marketing investments[152](index=152&type=chunk) - General and administrative expenses for Q2 2023 increased by **4% ($1.0 million)**, mainly due to **$1.6 million** in higher equity-based award costs and increased fixed payroll[153](index=153&type=chunk) [Liquidity and Capital Resources](index=52&type=section&id=Liquidity%20and%20Capital%20Resources) This subsection details the company's liquidity sources, including cash from operations and its revolving credit facility, and assesses their sufficiency for future needs - Primary liquidity sources are cash generated from operations and borrowings under the **$50.0 million Revolving Facility**[167](index=167&type=chunk) - As of July 2, 2023, the company had **$5.9 million** in cash and cash equivalents and **$15.0 million** outstanding on its revolving line of credit[168](index=168&type=chunk)[170](index=170&type=chunk) - The company was in compliance with all financial covenants under its Credit Agreement as of July 2, 2023[169](index=169&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=55&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section reports no material changes in the company's exposure to market risk compared to previous disclosures - There has been no material change in the company's exposure to market risk from that discussed in the 2022 10-K[183](index=183&type=chunk) [Controls and Procedures](index=55&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that as of July 2, 2023, the company's disclosure controls and procedures were effective[187](index=187&type=chunk) - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[188](index=188&type=chunk) [Part II - Other Information](index=57&type=section&id=PART%20II%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, and other information, including executive trading plans [Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) The company states it is not currently involved in any legal proceedings that would materially adversely affect its business or financial condition - The company is not presently a party to any legal proceedings that it believes would materially and adversely affect its future business or financial condition[190](index=190&type=chunk) [Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) The company reports no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the company's 2022 Form 10-K[191](index=191&type=chunk) [Other Information](index=57&type=section&id=Item%205.%20Other%20Information) This section discloses that several executive officers and directors have adopted Rule 10b5-1 trading plans for the orderly disposition of their securities - Several executive officers and directors have adopted Rule 10b5-1 trading plans to permit the orderly disposition of their holdings[195](index=195&type=chunk)[196](index=196&type=chunk)

Financial Data and Key Metrics Changes - Revenues for Q1 2023 amounted to $91 million, representing a 19% decline compared to Q1 2022, but a 32% increase compared to Q1 2021, aligning with expectations given tough comparisons from the previous year [18][46] - Adjusted EBITDA was breakeven, compared to $9.9 million in Q1 2022, reflecting the impact of a challenging macro environment [18][48] - Gross margin for Q1 2023 declined by about 560 basis points from Q1 2022 to 41.7%, but improved sequentially by 440 basis points [27] Business Line Data and Key Metrics Changes - The dress category performed consistently, with non-wedding related special occasion categories showing strength, while wedding-related products met expectations despite tough comparisons from last year [8] - Bridal and special occasion dresses net sales in Q1 2023 were up roughly 80% compared to Q1 2021 and up 29% compared to Q1 2019, indicating market share gains [8] Market Data and Key Metrics Changes - Active customer count increased year-over-year to 3.2 million, up 6% from Q1 2022, demonstrating brand loyalty [7][11] - Customer acquisition was strongest in lower household income brackets, reflecting the effectiveness of the company's affordable luxury positioning [11][39] Company Strategy and Development Direction - The company is focused on long-term growth initiatives while managing expenses judiciously, with a strong balance sheet and capital-efficient cash flow model [6][7] - Plans include expanding international growth and enhancing the customer experience through improved digital channels and operational efficiencies [19][20] - The company aims to shift marketing spend from direct response to brand awareness, enhancing overall marketing efficiency [24][66] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the macroeconomic challenges but noted a soft upward trend in demand as Q2 progressed, with improvements in weekly year-over-year gross revenue comparisons [26][34] - The company expects to maintain revenue guidance of $410 million to $430 million for the year, with adjusted EBITDA projected between $23.1 million and $25.6 million [10][51] Other Important Information - The company has implemented robotics in its distribution centers to improve operational efficiency and reduce costs [13] - Inventory levels at the end of Q1 were $52 million, up about $10 million from the same period last year, with plans to reduce inventory levels sequentially and year-over-year by the end of Q2 [29][49] Q&A Session Summary Question: Improvement in trend quarter to date - Management noted a soft upward turn in demand with noticeable week-over-week improvements, attributing it to a longer selling period for fall/winter products [34][35] Question: Customer acquisition costs and margin outlook - Customer acquisition costs increased due to a focus on brand awareness marketing, but management remains confident in margin improvement through reduced promotions and proactive product costing efforts [37][38] Question: Customer behavior across income brackets - The company observed strong performance in middle to lower income brackets, with new customer acquisition driven by a mix of promotions and brand interest [39] Question: Expectations for shipping costs and return rates - Management expects shipping-related costs to moderate and return rates to follow seasonal trends, with higher rates anticipated in Q2 and Q3 [40][42]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 2, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to ___________________ Commission File Number: 001-41059 Lulu's Fashion Lounge Holdings, Inc. (Exact Name of Registrant a ...

Financial Data and Key Metrics Changes - In Q4 2022, the company reported an adjusted EBITDA margin of negative 1.1%, a significant decline from a positive 6.6% in Q4 2021 [3] - The year-ending inventory balance was $43 million, reflecting a 13% decrease from Q3 2022 levels, while cash at quarter end was $10.2 million with net debt of approximately $14.8 million [4][6] - For the full year 2022, net revenue was $440 million, an increase of 17% year-over-year from $376 million in 2021 [96] Business Line Data and Key Metrics Changes - The company experienced a 17% year-over-year increase in active customers, reaching 3.2 million, with a notable record of repeat customers [96][121] - Average order value (AOV) declined modestly by 2% in Q4 2022 compared to the previous year [98] Market Data and Key Metrics Changes - Recent revenue trends in the first nine weeks of Q1 2023 are pacing to negative mid- to high teens compared to a 62% year-over-year increase in Q1 2022, attributed to macroeconomic pressures and a decline in wedding-related events [12][11] - The company anticipates a return to positive comps in the second half of 2023, with guidance for full-year net revenues between $410 million and $430 million [10][13] Company Strategy and Development Direction - The company aims to maintain flexibility in product pricing to meet customer demand while investing in future growth and expansion across digital and physical distribution channels [99][107] - The focus remains on growing brand awareness, attracting new customers, and enhancing customer engagement through a loyalty program [100][102] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current macroeconomic environment, emphasizing a nimble cost structure that allows for adjustments based on sales performance [22][76] - The leadership transition has been seamless, with a commitment to long-term growth strategies despite current challenges [114][78] Other Important Information - The company has implemented automation and robotics in its distribution centers to drive operational efficiencies and improve customer experience [89][108] - Stock-based compensation expense for 2023 is expected to be between $16 million and $19 million, reflecting changes in performance-based bonuses [15][73] Q&A Session Summary Question: How is the company addressing the promotional environment? - Management noted that the promotional environment remains competitive, and they are actively managing shipping costs to mitigate pressures [20][22] Question: What are the expectations for revenue growth in the second half of 2023? - Management anticipates a return to positive comps in the second half, with guidance reflecting a normalization of markdowns and discounts [12][29] Question: Can you elaborate on the margin outlook for the year? - The company expects gross margins to be relatively flat, with some pressure in the first half due to a non-promotional period last year [30][51] Question: What is the strategy for customer acquisition moving forward? - The company plans to shift marketing dollars from performance marketing to brand awareness to enhance long-term growth [61][62] Question: How is the company managing inventory levels? - Management is pleased with inventory positioning, indicating that most inventory is strategic and not a concern for obsolescence [49][50]

Financial Data and Key Metrics Changes - The company generated revenues of $105 million, a slight decrease of 1% or $1 million compared to the same period last year [41][42] - Adjusted EBITDA for the third quarter was $5.4 million, down from $11.9 million in the same period in 2021, with an adjusted EBITDA margin of 5.1% compared to 11.2% in the previous year [52] - Gross margins fell about 560 basis points to 42.1%, primarily due to higher discounting and increased shipping costs [44] Business Line Data and Key Metrics Changes - Active customer count increased by 29% year-over-year to 3.2 million [41] - Average order value rose by 6% to $133, reflecting an increase in units per transaction [42] - The company experienced elevated return levels, particularly in formal wear and event dressing categories, which typically have higher return rates [43] Market Data and Key Metrics Changes - The apparel industry is experiencing increased promotional activity, impacting the company's pricing strategies [30] - Consumer behavior showed volatility, with a deceleration in order frequency across all income segments [33][130] - The company noted that all household income segments responded favorably to promotions, indicating broad brand appeal [35][130] Company Strategy and Development Direction - The company plans to reduce revenue and adjusted EBITDA guidance due to macroeconomic uncertainties, now expecting revenues of $425 million to $440 million [25][59] - The leadership transition is aimed at ensuring a successful handoff to the next generation, with Crystal Landsem set to become CEO [12][40] - The company emphasizes a data-driven approach to inventory management and customer acquisition, focusing on maintaining a strong balance sheet [24][58] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging macroeconomic environment but expressed confidence in the company's long-term growth potential [23][25] - The company views current challenges as part of a temporary economic cycle and remains committed to profitable growth [23] - Management expects Q4 to continue being promotional, with a cautious approach to inventory and marketing strategies [81][82] Other Important Information - The company ended the quarter with cash of $12.5 million and net debt of approximately $2.5 million [54] - Inventory levels increased to $49.4 million, up $26 million from the previous year, as part of a strategy to hedge against inflation and supply chain issues [54][56] - The company reported a diluted earnings per share of $0.02 compared to $0.13 in the third quarter of 2021 [51] Q&A Session Summary Question: Promotional environment and inventory management - Management indicated that they are comfortable carrying over spring/summer inventory into next year, as 70% of revenue typically comes from reorder products [73] - The cost of customer acquisition remains stable, attributed to a data-driven marketing approach [74] Question: Q4 promotional cadence and markdowns - Management expects to be more surgical in their promotional approach for Q4, leveraging data to optimize customer acquisition [81][82] Question: Inventory progression and robotics impact - The company is taking a data-driven approach to inventory management, aiming for a balanced inventory level to mitigate risks [92] - Robotics implementation is expected to reduce variable costs and enhance margins over time [99] Question: Differences in consumer behavior - Consumer behavior has been consistent across income levels, with a slight reduction in order frequency noted [130] Question: Performance of special occasion versus everyday clothing - The company continues to perform well in the event and special occasion categories, while everyday clothing has seen a pullback in demand [135]

PART I FINANCIAL INFORMATION [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) Unaudited condensed consolidated financial statements for Lulu's Fashion Lounge Holdings, Inc. as of October 2, 2022, and for the thirteen and thirty-nine week periods then ended are presented [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets significantly increased to **$180.2 million** from **$113.8 million** as of October 2, 2022, primarily due to higher inventory and new lease right-of-use assets, with a corresponding rise in total liabilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Oct 2, 2022 | Jan 2, 2022 | Change | | :--- | :--- | :--- | :--- | | **Assets** | | | | | Cash and cash equivalents | $12,465 | $11,402 | +$1,063 | | Inventory, net | $49,416 | $22,176 | +$27,240 | | Lease right-of-use assets | $31,627 | $0 | +$31,627 | | **Total Assets** | **$180,159** | **$113,776** | **+$66,383** | | **Liabilities & Equity** | | | | | Revolving line of credit | $15,000 | $25,000 | -$10,000 | | Lease liabilities, noncurrent | $28,554 | $0 | +$28,554 | | **Total Liabilities** | **$113,254** | **$69,254** | **+$44,000** | | **Total Stockholders' Equity** | **$66,905** | **$44,522** | **+$22,383** [Condensed Consolidated Statements of Operations and Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Net revenue for the thirteen weeks ended October 2, 2022, slightly decreased by **1%**, while net income declined to **$0.9 million**, and for the thirty-nine weeks, net revenue grew **25%** to **$348.7 million**, but net income decreased to **$9.0 million** due to margin pressure Statement of Operations Summary (in thousands, except per share data) | Metric | Thirteen Weeks Ended Oct 2, 2022 | Thirteen Weeks Ended Oct 3, 2021 | Thirty-nine Weeks Ended Oct 2, 2022 | Thirty-nine Weeks Ended Oct 3, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $105,275 | $106,320 | $348,689 | $278,861 | | Gross profit | $44,333 | $50,767 | $157,478 | $133,300 | | Income from operations | $559 | $9,062 | $14,741 | $26,856 | | Net income | $929 | $3,850 | $8,971 | $10,819 | | Diluted EPS | $0.02 | $0.13 | $0.23 | $0.37 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities for the thirty-nine weeks ended October 2, 2022, significantly decreased to **$16.3 million** from **$41.8 million**, primarily due to increased inventory investment, while net cash used in financing activities was **$11.4 million** Cash Flow Summary for the Thirty-nine Weeks Ended (in thousands) | Cash Flow Activity | Oct 2, 2022 | Oct 3, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $16,333 | $41,788 | | Net cash used in investing activities | ($3,868) | ($1,587) | | Net cash used in financing activities | ($11,401) | ($14,828) | | **Net increase in cash** | **$1,064** | **$25,373** | - The significant decrease in operating cash flow was largely driven by a **$27.2 million** increase in inventories, compared to a **$6.5 million** increase in the prior year period[27](index=27&type=chunk)[198](index=198&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies and financial statement components, highlighting the impact of macroeconomic trends on sales, the adoption of ASC 842, and changes in the company's debt structure and equity-based compensation plans - Changing macroeconomic factors, including inflation and interest rates, have directly impacted sales in fiscal 2022, prompting the company to use pricing and promotional actions to stimulate demand[36](index=36&type=chunk) - The company adopted the new lease accounting standard ASC 842 on January 3, 2022, resulting in the recognition of lease right-of-use assets of **$28.0 million** and lease liabilities of **$28.6 million** upon adoption[65](index=65&type=chunk)[86](index=86&type=chunk) - In November 2021, the company entered into a new credit agreement for a **$50.0 million** revolving facility, which was used along with IPO proceeds to repay its previous **$105.8 million** term loan, with **$15.0 million** outstanding on the new facility as of October 2, 2022[75](index=75&type=chunk)[80](index=80&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, highlighting **25%** year-over-year revenue growth for the first thirty-nine weeks of 2022, despite a **1%** revenue decline in the third quarter due to macroeconomic pressures and compressed gross margins [Key Operating and Financial Metrics](index=30&type=section&id=Key%20Operating%20and%20Financial%20Metrics) Key operating metrics show mixed results, with Active Customers growing to **3.23 million** and Average Order Value increasing to **$131** for the thirty-nine weeks ended October 2, 2022, while Adjusted EBITDA Margin significantly declined to **5.1%** for the third quarter Key Performance Indicators | Metric | Thirteen Weeks Ended Oct 2, 2022 | Thirteen Weeks Ended Oct 3, 2021 | Thirty-nine Weeks Ended Oct 2, 2022 | Thirty-nine Weeks Ended Oct 3, 2021 | | :--- | :--- | :--- | :--- | :--- | | Gross Margin | 45.2% | 47.7% | 45.2% | 47.8% | | Adjusted EBITDA | $5,364K | $11,885K | $30,068K | $35,050K | | Adjusted EBITDA Margin | 5.1% | 11.2% | 8.6% | 12.6% | | Active Customers (in thousands) | 3,230 | 2,500 | 3,230 | 2,500 | | Average Order Value | $133 | $125 | $131 | $120 | [Results of Operations](index=35&type=section&id=Results%20of%20Operations) Net revenue decreased **1%** to **$105.3 million** in Q3 2022, while for the thirty-nine week period, it increased **25%** to **$348.7 million**, though gross profit fell due to faster growth in cost of revenue and increased operating expenses - **Q3 2022 vs Q3 2021:** Net revenue decreased **1%** due to a **1%** decrease in total orders and higher return rates, partially offset by a **6.4%** increase in Average Order Value[169](index=169&type=chunk) - **YTD 2022 vs YTD 2021:** Net revenue increased **25%** driven by a **23%** increase in total orders and a **9%** increase in Average Order Value[175](index=175&type=chunk) - General and administrative expenses for the 39-week period increased by **$18.2 million** (**32%**), primarily due to **$6.7 million** in higher equity-based compensation and **$4.7 million** in increased insurance and professional services costs related to being a public company[179](index=179&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is primarily supported by cash from operations and a **$50 million** revolving credit facility, with **$12.5 million** in cash and **$34.8 million** available for borrowing as of October 2, 2022, despite a decrease in operating cash flow to **$16.3 million** due to increased inventory - As of October 2, 2022, the company had **$12.5 million** in cash and cash equivalents and **$34.8 million** available for borrowing under its New Revolving Facility[190](index=190&type=chunk)[193](index=193&type=chunk) - Net cash provided by operating activities decreased by **$25.5 million** year-over-year for the 39-week period, primarily due to a **$20.7 million** higher investment in inventory balances to support sales volume[198](index=198&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There have been no material changes in the company's exposure to market risk compared to the disclosures in its Annual Report on Form 10-K for the fiscal year ended January 2, 2022 - There has been no material change in the company's exposure to market risk from that discussed in the 2021 10-K[209](index=209&type=chunk) [Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of October 2, 2022, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[211](index=211&type=chunk) - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[212](index=212&type=chunk) PART II OTHER INFORMATION [Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various legal proceedings in the ordinary course of business but does not anticipate any material adverse effect on its financial condition or results of operations from current matters - The company is not currently a party to any legal proceedings that it believes would materially and adversely affect its business or financial condition[214](index=214&type=chunk) [Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended January 2, 2022 - No material changes have occurred to the risk factors previously disclosed in the 2021 Form 10-K[215](index=215&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None[216](index=216&type=chunk) [Exhibits](index=44&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - The report includes certifications from the CEO and CFO as required by Rule 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350, as well as XBRL data files[221](index=221&type=chunk)