Lulu's Fashion Lounge (LVLU) - 2024 Q2 - Quarterly Report

Part I - Financial Information 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) 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 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 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 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] Notes to Condensed Consolidated Financial Statements 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][112] - 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][168] - 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][98] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) 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 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][126] Results of Operations 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] - 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] - Selling and marketing expenses for Q2 2023 decreased by 5% due to lower performance marketing spend, partially offset by higher brand marketing investments[152] - 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] Liquidity and Capital Resources 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] - 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][170] - The company was in compliance with all financial covenants under its Credit Agreement as of July 2, 2023[169] Quantitative and Qualitative Disclosures About Market Risk 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] Controls and Procedures 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] - 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] Part II - Other Information This section covers legal proceedings, risk factors, and other information, including executive trading plans Legal Proceedings 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] Risk Factors 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] Other Information 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][196]