Lulu's Fashion Lounge (LVLU) - 2026 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements (unaudited) The unaudited condensed consolidated financial statements for the thirteen weeks ended March 30, 2025, show a decrease in net revenue and an increase in net loss compared to the prior year period, with substantial doubt about the company's ability to continue as a going concern Condensed Consolidated Balance Sheets As of March 30, 2025, total assets increased to $114.3 million, total liabilities significantly rose to $107.8 million, and stockholders' equity decreased to $6.6 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 30, 2025 | December 29, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $8,616 | $4,460 | | Inventory, net | $39,668 | $34,036 | | Total current assets | $62,727 | $51,501 | | Total assets | $114,341 | $108,198 | | Liabilities & Equity | | | | Revolving line of credit | $10,090 | $13,090 | | Total current liabilities | $91,751 | $74,325 | | Total liabilities | $107,789 | $94,830 | | Total stockholders' equity | $6,552 | $13,368 | Condensed Consolidated Statements of Operations and Comprehensive Loss For the thirteen weeks ended March 30, 2025, net revenue decreased by 17% to $64.2 million, gross profit fell to $25.8 million, and the net loss widened to $8.0 million Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net revenue | $64,155 | $77,259 | | Gross profit | $25,841 | $32,646 | | Loss from operations | ($8,118) | ($6,158) | | Net loss | ($7,998) | ($5,736) | | Diluted loss per share | ($0.19) | ($0.15) | Condensed Consolidated Statements of Cash Flows For the first thirteen weeks of 2025, net cash provided by operating activities increased to $8.3 million, while net cash used in investing and financing activities was $0.6 million and $3.6 million respectively, resulting in $8.6 million cash at period end Cash Flow Summary (in thousands) | Cash Flow Activity | Thirteen Weeks Ended March 30, 2025 | Thirteen Weeks Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $8,322 | $6,947 | | Net cash used in investing activities | ($567) | ($959) | | Net cash used in financing activities | ($3,599) | ($3,005) | | Net increase in cash | $4,156 | $2,983 | Notes to Condensed Consolidated Financial Statements The notes disclose a going concern warning due to recurring losses and reliance on debt financing, multiple amendments to the credit facility, a stock repurchase program, and significant uncertainty regarding new U.S. trade tariffs - The company has concluded that there is substantial doubt about its ability to continue as a going concern, as management's plans to seek alternative debt financing are outside of its control and may not be effectively implemented within twelve months[36] - The company entered into a fourth amendment to its 2021 Credit Agreement on March 27, 2025, which provided limited covenant waivers, prohibited further borrowings, reduced the revolving commitment, and increased interest rates[74][76] - On May 3, 2024, the Board authorized a $2.5 million stock repurchase program During Q1 2025, the company repurchased 242,068 shares for approximately $0.2 million, with $1.8 million remaining available under the program[52][53] - Subsequent to the quarter end, the U.S. government announced significant tariffs, including a potential 145% on Chinese imports While a 90-day agreement on May 12, 2025, reduced these tariffs to approximately 30%, the potential impact on the company's results remains uncertain[125] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 17% decrease in Q1 2025 net revenue to lower orders and Average Order Value, resulting in a widened net loss and negative Adjusted EBITDA, while the company seeks alternative debt financing amid liquidity challenges Key Operating and Financial Metrics | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Gross Margin | 40.3% | 42.3% | | Net loss (in thousands) | ($7,998) | ($5,736) | | Adjusted EBITDA (in thousands) | ($4,670) | ($2,659) | | Active Customers (in thousands) | 2,550 | 2,770 | | Average Order Value | $136 | $143 | - Net revenue decreased by $13.1 million (17%) in Q1 2025 compared to Q1 2024, driven by a 17% decrease in Total Orders Placed and a lower AOV[164] - General and administrative expenses decreased by $3.1 million (15%) due to reduced headcount from cost reduction measures, lower equity-based compensation, and decreased D&O insurance and legal fees[168] - The company has no further access to borrowings under its 2021 Credit Agreement and is actively seeking alternative debt financing These conditions raise substantial doubt about the company's ability to continue as a going concern[133][176] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in its exposure to market risk since its 2024 Annual Report on Form 10-K - There has been no material change in the company's exposure to market risk since its 2024 10-K filing[202] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 30, 2025, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of the end of the reporting period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[204] - No changes occurred in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[205] PART II OTHER INFORMATION Legal Proceedings The company is subject to various legal proceedings in the ordinary course of business but does not believe any current matters will have a material adverse effect on its financial condition or results of operations - The company is not currently a party to any legal proceedings that it believes would materially and adversely affect its business or financial condition[207] Risk Factors This section highlights material changes to risk factors, focusing on the adverse impact of international trade disputes and tariffs, including recent developments with China, which could increase merchandise costs and negatively impact operating results - A significant portion of the company's merchandise is manufactured in countries like China and Mexico, making it vulnerable to international trade disputes and tariffs[209] - Recent tariff developments, including a global reciprocal tariff program announced on April 4, 2025, and a subsequent 90-day agreement with China on May 12, 2025, create significant uncertainty These tariffs could increase merchandise costs and negatively impact sales and profitability[209] Unregistered Sales of Equity Securities and Use of Proceeds During the thirteen weeks ended March 30, 2025, the company repurchased 242,068 shares of common stock for approximately $0.2 million under its 2024 Repurchase Program, with $1.77 million remaining available Common Stock Repurchases (Q1 2025) | Period | Total Shares Purchased | Weighted Average Price Paid Per Share | | :--- | :--- | :--- | | Dec 30, 2024 - Feb 2, 2025 | 178,484 | $1.02 | | Feb 3, 2025 - Mar 2, 2025 | 63,584 | $0.90 | | Mar 3, 2025 - Mar 30, 2025 | - | - | - All share repurchases were made under the $2.5 million 2024 Repurchase Program authorized on May 8, 2024[212] Other Information On April 28, 2025, the company amended its Non-Employee Director Compensation Program, eliminating the Board Chair's annual RSU award for an increased cash retainer, and subsequently approved a one-time cash payment to eligible non-employee directors in lieu of their 2025 RSU awards to reduce share dilution - The Non-Employee Director Compensation Program was amended to eliminate the Board Chair's annual RSU award and increase the cash retainer to $75,000, among other changes[215] - To mitigate share dilution, the Board approved a one-time $50,000 cash payment to each eligible non-employee director instead of the $100,000 annual RSU award for fiscal year 2025[217] Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to the credit agreement and non-employee director compensation program, lease agreements, and officer certifications - Key exhibits filed include the Fourth Amendment to the Credit Agreement, the Fourth Amendment to the Non-Employee Director Compensation Program, and CEO/CFO certifications[221]