Lulu's Fashion Lounge (LVLU) - 2024 Q4 - Annual Report

Part I Business Lulus is a digitally-native fashion brand for Millennial and Gen Z women, employing a data-driven 'test, learn, and reorder' model to offer attainable luxury apparel and drive growth - Lulus is a digitally-native, online fashion brand for Millennial and Gen Z women, offering attainable luxury products[26] - The company employs a "test, learn, and reorder" strategy, using data to test new products in small batches and reordering successful items in higher volumes to optimize profitability and reduce fashion risk[28][33] - Key growth strategies include increasing brand awareness through marketing, enhancing relationships with its 2.6 million active customers, expanding product categories, and pursuing international markets[37][39][41][42] - The company collaborates with a network of around 300 suppliers without long-term volume commitments, providing flexibility[43] - Technology is central to the business, with proprietary systems for website management, merchandising, order processing, and warehouse management, all driven by data analytics and predictive modeling[44][45][46] - As of December 29, 2024, Lulus had 580 full-time and part-time employees. The company emphasizes a culture defined by its core values: "All Voices, All In, Always Evolving"[67][68] Risk Factors The company faces significant risks including recurring net losses, a Nasdaq delisting notice, substantial doubt about its going concern ability, supply chain dependencies, and reliance on social media platforms - The company has a history of net losses, including a $55 million loss in fiscal 2024, and may not achieve or maintain profitability[129] - On February 27, 2025, the company received a delisting notice from Nasdaq for its common stock's closing bid price falling below $1.00 per share for 30 consecutive trading days[256] - The company's financial condition, including recurring net losses and reliance on amended credit facilities, raises substantial doubt about its ability to continue as a going concern[123][425] - The business is highly dependent on its brand image and ability to engage customers and influencers. Negative publicity or failure to meet expectations could harm the business[77][80] - A significant portion of merchandise is manufactured in China, exposing the company to risks from international trade disputes, tariffs, and political instability. The U.S. government imposed new tariffs on Chinese, Canadian, and Mexican imports in February 2025[108][161][204] - The company relies on social media for marketing and faces risks from platform changes or bans, such as the potential U.S. ban on TikTok, which is a key channel for engaging Gen Z customers[89][91][103] - A goodwill impairment charge of $28.4 million was recorded in the fourth quarter of 2024 due to a sustained decline in stock price and continuing net losses[270] Unresolved Staff Comments The company has no unresolved staff comments from the SEC - Not applicable[301] Cybersecurity Lulus manages cybersecurity through a layered, cross-departmental strategy overseen by the Audit Committee, with no material threats identified in fiscal 2024 - Cybersecurity risk is managed through a cross-departmental approach overseen by the Board's Audit Committee, with the President and CIO leading the program[302][303][305] - The company utilizes a layered cybersecurity strategy and regularly conducts external penetration tests, bug bounty hackathons, and maturity assessments to maintain a robust program[304] - In fiscal year 2024, no cybersecurity threats were identified that have materially affected or are reasonably likely to materially affect the company's business strategy, operations, or financial condition[308] Properties Lulus leases all its facilities, including corporate headquarters, office space, and two distribution centers, having recently consolidated its Chico distribution operations - The company does not own any real property and leases all its facilities[309] Leased Facilities | Location | Type | Square Footage (approximate) | | :--- | :--- | :--- | | Chico, California | Retail space | 5,600 | | Los Angeles, California | Retail space | 6,400 | | Chico, California | Corporate headquarters | 7,600 | | Los Angeles, California | Office and studio space | 26,800 | | Chico, California | Distribution facility and office space | 100,000 | | Ontario, California | Distribution facility | 140,400 | | Easton, Pennsylvania | Distribution facility | 258,200 | Legal Proceedings The company is involved in ordinary course legal proceedings, none of which are expected to have a material adverse effect on its business or financial condition - The company is not currently a party to any legal proceedings that are expected to have a material adverse effect on its business or financial condition[312] Mine Safety Disclosures This item is not applicable to the company - Not applicable[313] Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Lulus common stock trades on Nasdaq, the company does not plan future cash dividends, and a $2.5 million stock repurchase program was authorized in May 2024 - The company's common stock is listed on Nasdaq under the symbol "LVLU" and began trading on November 11, 2021[315] - The company does not anticipate paying any cash dividends in the foreseeable future and intends to retain funds for business development[317] - On May 8, 2024, the Board authorized a $2.5 million stock repurchase program. During Q4 2024, the company repurchased 161,178 shares for approximately $220,000[319] Reserved This item is reserved and contains no information - This item is reserved[320] Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2024 saw an 11% net revenue decline to $315.9 million and a $55.3 million net loss, raising substantial doubt about the company's going concern ability due to liquidity issues and amended credit facilities - Changing macroeconomic factors, including inflation and reduced consumer discretionary spending, directly impacted sales in fiscal 2024[322][447] - The company's financial condition, with a net loss of $55.3 million in 2024 and limited cash, raises substantial doubt about its ability to continue as a going concern. Management is seeking alternative debt financing and implementing cash conservation measures[323][324][448][449] - A goodwill impairment charge of $28.4 million was recorded in Q4 2024, triggered by a sustained decline in the company's stock price and continuing net losses[326][363][412] Key Financial and Operating Metrics (2024 vs. 2023) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net revenue (in thousands) | $315,887 | $355,175 | | Net income (loss) (in thousands) | $(55,286) | $(19,334) | | Adjusted EBITDA (in thousands) | $(9,738) | $3,231 | | Active Customers (in thousands) | 2,620 | 2,830 | | Average Order Value | $137 | $133 | - Net revenue decreased by 11% in 2024 compared to 2023, primarily due to a 12% decline in Total Orders Placed[357] - The company has amended its 2021 Revolving Facility four times, securing waivers for financial covenants but facing reduced borrowing capacity, increased interest rates, and other restrictions. The Fourth Credit Amendment, in March 2025, prohibits further borrowings[372][373][374][375] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks primarily from floating-rate debt and inflation, while foreign currency risk is currently not significant - The company is exposed to interest rate risk due to its floating-rate borrowings under the 2021 Revolving Facility[416] - Foreign currency risk is not currently material as most sales and expenses are denominated in U.S. dollars[417] - The company has experienced inflationary pressures in its supply chain and operating costs, which also impacts customer spending[418] Financial Statements and Supplementary Data This section presents audited financial statements, with the auditor's report highlighting substantial doubt about the company's going concern ability due to recurring losses and insufficient liquidity - The Report of Independent Registered Public Accounting Firm includes a "Going Concern" paragraph, citing the company's recurring net losses and insufficient access to liquidity as factors that raise substantial doubt about its ability to continue as a going concern[425] Consolidated Balance Sheet Summary (as of Dec 29, 2024) | Metric | Value (in thousands) | | :--- | :--- | | Assets | | | Cash and cash equivalents | $4,460 | | Inventory, net | $34,036 | | Goodwill | $7,056 | | Total Assets | $108,198 | | Liabilities & Equity | | | Revolving line of credit | $13,090 | | Total Liabilities | $94,830 | | Total Stockholders' Equity | $13,368 | Consolidated Statement of Operations Summary (Fiscal Year 2024) | Metric | Value (in thousands, except per share) | | :--- | :--- | | Net revenue | $315,887 | | Gross profit | $130,248 | | Goodwill impairment | $28,374 | | Net income (loss) | $(55,286) | | Diluted earnings (loss) per share | $(1.33) | Consolidated Statement of Cash Flows Summary (Fiscal Year 2024) | Metric | Value (in thousands) | | :--- | :--- | | Net cash provided by operating activities | $2,601 | | Net cash used in investing activities | $(2,874) | | Net cash provided by financing activities | $2,227 | | Net increase in cash and cash equivalents | $1,954 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[624] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 29, 2024, with no material changes reported - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 29, 2024[626] - Management determined that the company's internal control over financial reporting was effective as of December 29, 2024, based on the COSO framework[629] - The company is an emerging growth company, and therefore this annual report does not include an attestation report on internal controls from its independent registered accounting firm[630] Other Information On March 27, 2025, the company entered a Fourth Amendment to its Credit Agreement, providing covenant waivers, prohibiting further borrowings, and setting refinancing milestones - On March 27, 2025, the company entered into a Fourth Amendment to its Credit Agreement, which provided a limited waiver for financial covenants for the quarter ended Dec 31, 2024, and suspended certain covenant tests for Q1 2025[632] - The Fourth Credit Amendment prohibits further borrowings, reduces future commitment amounts, increases interest rates, and sets a timeline for a refinancing transaction[632] - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the fourth quarter of 2024[634] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - Not applicable[635] Part III Directors, Executive Officers, and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the Company's Proxy Statement for its 2025 Annual Meeting of Stockholders[638] Executive Compensation Information regarding executive compensation is incorporated by reference from the 2025 Proxy Statement - Information regarding executive compensation is incorporated by reference from the Company's Proxy Statement for its 2025 Annual Meeting of Stockholders[639] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of beneficial owners and management is incorporated by reference from the 2025 Proxy Statement - Information regarding security ownership is incorporated by reference from the Company's Proxy Statement for its 2025 Annual Meeting of Stockholders[640] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2025 Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the Company's Proxy Statement for its 2025 Annual Meeting of Stockholders[641] Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the 2025 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the Company's Proxy Statement for its 2025 Annual Meeting of Stockholders[642] Part IV Exhibit and Financial Statement Schedules This section lists the consolidated financial statements and a detailed index of all exhibits filed with or incorporated by reference into the Form 10-K - This section contains the list of financial statements and the exhibit index for the Form 10-K filing[644][647] Form 10-K Summary The company provides no summary in this section - None[653]