Lulu's Fashion Lounge (LVLU) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Net revenue for Q2 2024 was $92 million, a 13% decrease year-over-year, driven by a 14% decrease in total orders and higher return rates [6][29] - Adjusted EBITDA for Q2 2024 was a loss of$ 0.2 million, compared to a gain of $4.2 million in Q2 2023, reflecting elevated fixed costs and reduced revenue [6][33] - Gross margin improved by 80 basis points year-over-year to 45.5%, driven by lower markdown sales and a shift toward higher-margin product categories [9][30] - Inventory levels declined by 19% year-over-year, exceeding the 13% net revenue decline, indicating improved inventory management [9][36] - Net loss for Q2 2024 was$ 10.8 million, worsening by $8.2 million compared to Q2 2023, impacted by a$ 5.4 million noncash tax provision and a $423,000 legal accrual [32] Business Line Performance - Special occasion and bridesmaids net sales grew over 30% year-over-year, surpassing pre-pandemic levels and setting a record for these categories [8] - Casual business experienced significant declines, contributing to the majority of the year-over-year net sales decrease [13] - Third-party brand and influencer collaborations, including partnerships with Levi's and Vans, drove increased media interest and social traffic [10][25] - Wholesale business showed steady progress, with new developments based on best-selling items and streamlined fulfillment processes [12] Market Performance - International sales achieved high double-digit growth in units sold in the top 15 countries outside the US, including Canada, the UK, and Mexico [18] - Average unit retail (AUR) increased year-over-year, driving higher average order value (AOV) and total order value per customer [17] Strategic Direction and Industry Competition - The company is focusing on long-term growth initiatives, including data-driven merchandising, brand awareness, and customer engagement [7] - Investments in proprietary technology and analytics platforms aim to improve customer insights and operational efficiency [7][20] - The company is implementing cost reduction measures, including a 10% to 15% reduction in operating expenses for the second half of 2024 [14][37] - Capital expenditures for the year are expected to decrease by$ 1.5 million to $2.5 million, with a revised projection of$ 3.5 million for the fiscal year [14][38] Management Commentary on Operating Environment and Future Outlook - Management views current challenges as temporary and remains committed to long-term growth despite macroeconomic pressures [6][7] - The company withdrew its full-year net revenue and adjusted EBITDA outlook due to slower-than-expected recovery and macroeconomic uncertainty [15][36] - Early Q3 sales trends show sequential improvement, suggesting positive momentum in strategic initiatives [10][36] Other Important Information - The company extended its revolving credit agreement with Bank of America, reducing the facility from $50 million to$ 15 million, with a future reduction to $10 million by March 31, 2025 [34] - Free cash flow for Q2 2024 was$ 3 million, a $900,000 decrease year-over-year, with$ 3.7 million generated from operating activities [35] - The company repurchased approximately $87,000 worth of common stock under its$ 2.5 million stock repurchase program [35] Q&A Session Summary Question: Consumer health and competitive landscape - The company noted ongoing macroeconomic pressures impacting consumer demand, with a slower-than-expected recovery [41] - Management is focusing on driving engagement and profitability while managing cash flow prudently [41][43] Question: Adjusted EBITDA framework - The company is working through cost reductions, with some measures having immediate benefits and others longer-term impacts [42] - Management is cautious about aligning cost reductions with the slower sales recovery to maintain business momentum [42][43] Question: Plans to drive engagement and marketing expenses - The company plans to optimize marketing spend, markdowns, and discounts based on consumer behavior and macro conditions [45][46] - Investments in brand equity will continue, but with a focus on near-term payoffs [45][46] Question: Cost reduction levers and profitability - The company has implemented headcount reductions and executive pay cuts, with limited additional headcount reductions possible due to an already lean team [47][48] - Further cost reductions may focus on G&A spend, but specifics are not yet finalized [48] Question: Category trends and casual business challenges - The casual business faced significant pressure, while special occasion and bridesmaids categories performed strongly [51] - The company is investing in the recovery of the casual business, but the reorder funnel is taking longer to rebuild due to competitive and consumer pressures [51]