Lulu's Fashion Lounge Holdings, Inc.: Form 10-Q for the period ended Sep 28, 2025

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 29, 2024, filed with the Securities and Exchange Commission (“SEC”) on March 27, 2025 (the “2024 10-K”). This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Item I, Part 1A, “Risk Factors” in our 2024 10-K and Part II, Item 1A, “Risk Factors” in the Quarterly Reports on Form 10-Q for the quarters ended March 30, 2025 and June 29, 2025. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.

Overview

Lulu’s Fashion Lounge Holdings, Inc., a Delaware Corporation (“Lulus”, “we”, “our”, or the “Company”) is a customer-driven, digitally-native attainable luxury fashion brand for women, offering modern, unapologetically feminine designs at attainable prices for all of life’s fashionable moments. Our goal is to become the most trusted and number one destination for dresses, helping every woman feel confident and celebrated, supporting her for all of life's occasions. Lulus primarily serves a large, diverse community of Millennial and Gen Z women, who typically meet us in their 20s and stay with us through their 30s and beyond. We focus relentlessly on giving our customers what they want by using direct consumer feedback and insights to refine product offerings and elevate the customer experience. Lulus’ world class personal stylists, bridal concierge, and customer care team share an unwavering commitment to elevating style and quality and bring exceptional customer service and personalized shopping to customers around the world.

Recent Developments

Appointment of Fractional Chief Financial Officer

On October 11, 2025, our Board of Directors appointed Heidi Crane as our fractional Chief Financial Officer (“Fractional CFO”), effective October 13, 2025.

Effective October 13, 2025, Crystal Landsem is no longer serving as Interim Chief Financial Officer, but will continue to serve as Chief Executive Officer. Ms. Landsem also continued to serve as the Company’s principal financial officer and principal accounting officer through the filing of this Quarterly Report on Form 10-Q for the third quarter ended September 28, 2025 with the Securities and Exchange Commission.

2025 Credit Agreement

On August 14, 2025, the Company and its subsidiaries (collectively, the “Borrowers”) entered into a Loan and Security Agreement with White Oak Commercial Finance, LLC, as Administrative Agent, and the lenders party thereto (the “2025 Credit Agreement”). The 2025 Credit Agreement is comprised of an asset-based revolving credit facility with a $20.0 million commitment, a $5.0 million uncommitted accordion and a $1.0 million sublimit for letters of credit. The initial funding of the 2025 Credit Agreement occurred on August 14, 2025, and the proceeds were used in part to repay approximately $6.0 million outstanding under the 2021 Credit Agreement. The 2025 Credit Agreement matures on August 14, 2028. On October 28, 2025, the Company entered into an amendement to the 2025 Credit Agreement, which included some clarifying and non-material changes to certain terms in the 2025 Credit Agreement.

Impact of Macroeconomic Trends on Business

Changing macroeconomic factors, including inflation, interest rates, student loan repayment resumption, tariffs or bans, world events, wars and domestic and international conflicts, existing and future laws, regulations and directives and executive orders, and overall consumer confidence with respect to current and future economic conditions have directly impacted our sales as discretionary consumer spending levels and shopping behavior fluctuate with these factors. We have responded to these factors by taking appropriate pricing, promotional and other actions to stimulate customer demand. These factors are expected to continue to have an impact on our business, results of operations, our growth and financial condition.

Liquidity

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We alleviated the substantial doubt about our ability to continue as a going concern as a result of successfully entering into the 2025 Credit Agreement, as disclosed in Note 5, Debt in the accompanying Notes to the Condensed Consolidated Financial Statements, among other factors.

Key Operating and Financial Metrics

We collect and analyze operating and financial data to assess the performance of our business and optimize resource allocation. The following table sets forth our key performance indicators for the periods presented.

(in thousands, except percentages and Average Order Value)

(1) For a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measure and why we consider them useful, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures.”

Gross Margin

We define Gross Margin as gross profit as a percentage of our net revenue. Gross profit is equal to our net revenue less cost of revenue. Certain of our competitors and other retailers may report cost of revenue differently than we do. As a result, the reporting of our gross profit and Gross Margin may not be comparable to other companies.

Active Customers

We define Active Customers as the number of customers who have made at least one purchase across our platform in the prior 12-month period. Active Customer count is measured as of the last day of the relevant period. We consider the number of Active Customers to be a key performance metric on the basis that it is directly related to consumer awareness of our brand, our ability to attract visitors to our primarily digital platform, and our ability to convert visitors to paying customers. Active Customers counts are based on deduplication logic using customer account and guest checkout name, address, and email information.

Average Order Value

We define Average Order Value (“AOV”) as the sum of the total gross sales before returns across our platform in a given period, plus shipping revenue, less discounts and markdowns, divided by the Total Orders Placed (as defined below) in that period. AOV reflects the average basket size of our customers. AOV may fluctuate as we continue investing in the development and introduction of new Lulu’s merchandise and as a result of our promotional discount activity.

Total Orders Placed

We define Total Orders Placed as the number of customer orders placed across our platform during a particular period. An order is counted on the day the customer places the order. We do not adjust the number of Total Orders Placed for any cancellation or return that may have occurred subsequent to a customer placing an order. We consider Total Orders Placed as a key performance metric on the basis that it is directly related to our ability to attract and retain customers as well as drive purchase frequency. Total Orders Placed, together with AOV, is an indicator of the net revenue we expect to generate in a particular period.

Non-GAAP Financial Measures

We report our financial results in accordance with generally accepted accounting principles in the U.S. (“GAAP”). However, management believes that certain non-GAAP financial measures provide investors with additional useful information in evaluating our performance and that excluding certain items that may vary substantially in frequency and magnitude period-to-period from net loss provides useful supplemental measures that assist in evaluating our ability to generate earnings and to more readily compare these metrics between past and future periods. These non-GAAP financial measures may be different than similarly titled measures used by other companies.

Adjusted EBITDA, Adjusted EBITDA Margin, and Free Cash Flow

Adjusted EBITDA is a non-GAAP financial measure that we calculate as net loss before interest expense, income taxes or benefit, depreciation and amortization adjusted to exclude the effects of equity-based compensation expense and other non-routine expenses. Adjusted EBITDA is a key measure used by management to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. We believe that Adjusted EBITDA and Adjusted EBITDA Margin provide useful information to investors and others in understanding and evaluating our operating results and in comparing operating results across periods. We view Free Cash Flow as an important indicator of our liquidity because it measures the amount of cash we generate.

To supplement our condensed consolidated financial statements which are prepared in accordance with GAAP, we use “Adjusted EBITDA,” “Adjusted EBITDA Margin” (collectively referred to as “Adjusted EBITDA”) and “Free Cash Flow” which are non-GAAP financial measures. Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP. There are several limitations related to the use of our non-GAAP financial measures as compared to the closest comparable GAAP measures. Some of these limitations include:

• Adjusted EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
• Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
• Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt;
• Adjusted EBITDA does not reflect our tax expense or the cash requirements to pay our taxes;
• Adjusted EBITDA does not reflect certain non-routine expenses that may represent a reduction in cash available to us;
• Adjusted EBITDA excludes equity-based compensation which has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy.
• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any cash requirements for such replacements;
• Free Cash Flow does not represent the total residual cash flow available for discretionary purposes; and
• Other companies in our industry may calculate such measures differently than we do, limiting their usefulness as comparative measures.

Due to these limitations, Adjusted EBITDA, Adjusted EBITDA Margin, and Free Cash Flow should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP measures only supplementally. As noted in the table below, Adjusted EBITDA includes adjustments to exclude the impact of depreciation and amortization, interest expense, income taxes, and equity-based compensation. It is reasonable to expect that some of these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and may complicate comparisons of our internal results of operations and results of operations of other companies over time. In addition, Adjusted EBITDA includes adjustments for other items that we do not expect to regularly record. Each of the normal recurring adjustments and other adjustments described in this paragraph and in the following reconciliation table help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations. Adjusted EBITDA Margin is a non-GAAP financial measure that we calculate as Adjusted EBITDA (as defined above) as a percentage of our net revenue.

The following table provides a reconciliation for Adjusted EBITDA and Adjusted EBITDA Margin:

(in thousands)

(in thousands)

(1) The thirteen and thirty-nine weeks ended September 28, 2025 include equity-based compensation expense for performance stock units (“PSUs”) and restricted stock units (“RSUs”) granted during the period and prior periods. The thirteen weeks ended September 29, 2024 include equity-based compensation expense for RSUs granted during the period and prior periods, PSUs, and equity-based awards granted in prior periods, as well as forfeitures partially offset by accelerated vesting expense associated with the resignation of directors during the period. The thirty-nine weeks ended September 29, 2024 include equity-based compensation expense for RSUs and PSUs granted during the period and prior periods, equity-based awards granted in prior periods, as well as forfeitures partially offset by accelerated vesting expense associated with the resignation of directors during the period.

(2) The thirteen and thirty-nine weeks ended September 29, 2024 include adjustments to previously accrued non-routine expenses related to a legal accrual net of insurance.

Free Cash Flow

Free Cash Flow is a non-GAAP financial measure that we calculate as net cash provided by operating activities less cash used for capitalized software development costs and purchases of property and equipment. We view Free Cash Flow as an important indicator of our liquidity because it measures the amount of cash we generate.

A reconciliation to non-GAAP Free Cash Flow from net cash provided by operating activities for the thirteen and thirty-nine weeks ended September 28, 2025 and September 29, 2024 is as follows:

Factors Affecting Our Performance

Our financial condition and results of operations have been, and will continue to be, affected by a number of factors that present significant opportunities for us but also pose risks and challenges, including what is discussed below. See Part I, Item 1A, “Risk Factors” in our 2024 10-K and Part II, Item 1A, “Risk Factors” of our Quarterly Reports on Form 10-Q for the quarters ended March 30, 2025 and June 29, 2025.

Customer Acquisition

Our business performance depends in part on our continued ability to cost-effectively acquire new customers. We define customer acquisition cost (“CAC”) as our brand and performance marketing expenses attributable to acquiring new customers, including, but not limited to, agency costs and marketing team costs but excluding any applicable equity-based compensation, divided by the number of customers who placed their first order with us in a given period. As a primarily digital brand, our marketing strategy is primarily focused on brand awareness marketing and digital advertising in channels like search, social, and programmatic – platforms that enable us to engage our customer where she spends her time, and in many cases also quickly track the success of our marketing, which allows us to adjust and optimize our marketing spend.

Customer Retention

Our continued success depends in part on our ability to retain and drive repeat purchases from our existing customers. We monitor retention across our entire customer base. Our goal is to attract and convert visitors into Active Customers and foster relationships that drive repeat purchases. During the trailing 12 months ended September 28, 2025, we served 2.4 million Active Customers compared to 2.7 million for the trailing 12 months ended September 29, 2024.

Inventory Management

We utilize a data-driven strategy that leverages our proprietary reorder algorithm to manage inventory as efficiently as possible. Our “test, learn, and reorder” approach consists of limited inventory purchases followed by the analysis of proprietary data including real-time transaction data and customer feedback, which then informs our selection and customization of popular merchandise prior to reordering in larger quantities. While our initial orders are limited in size and financial risk and our supplier partners are highly responsive, we nonetheless purchase inventory in anticipation of future demand and therefore are exposed to potential shifts in customer preferences and price sensitivity over time. As we continue to grow, we will adjust our inventory purchases to align with the current needs of the business.

Investment in Our Operations and Infrastructure

We will continue to invest in our operations and infrastructure to facilitate further operational efficiencies and growth of our business, while managing expenses to align with our net revenue expectations and goals to return to profitability. We will continue to set a high bar for any new investments or capital spending initiatives as we believe that a disciplined approach to capital spending will enable us to generate positive returns on our investments over the long term.

Components of Our Results of Operations

Net Revenue

Net revenue consists primarily of gross sales, net of merchandise returns, international duties and taxes and promotional discounts and markdowns, generated from the sale of apparel, footwear, and accessories. Net revenue excludes sales taxes assessed by governmental authorities. We recognize net revenue at the point in time when control of the ordered product is transferred to the customer, which we determine to have occurred upon shipment.

Cost of Revenue and Gross Margin

Cost of revenue consists of the product costs of merchandise sold to customers; shipping and handling costs, including all inbound, outbound, and return shipping expenses; rent, insurance, business property tax, utilities, depreciation and amortization, and repairs and maintenance related to our distribution facilities; and charges related to inventory shrinkage, damages, and our allowance for excess or obsolete inventory. Cost of revenue is primarily driven by growth in orders placed by customers, the mix of the product available for sale on our site, and transportation costs related to inventory receipts from our suppliers. We expect our cost of revenue to fluctuate as a percentage of net revenue primarily due to how we manage our inventory and merchandise mix.

Gross profit is equal to our net revenue less cost of revenue. We calculate Gross Margin as gross profit as a percentage of our net revenue. Our Gross Margin varies across Lulus, exclusive to Lulus, and third-party branded products. Exclusive to Lulus consists of products that we develop with design partners and have exclusive rights to sell across our platform, but that do not bear the Lulus brand. Gross Margin on sales of Lulus and exclusive to Lulus merchandise is generally higher than Gross Margin on sales of third-party branded products, which we offer for customers to “round out” the shopping basket. As we continue to optimize our distribution capabilities and gain more negotiation leverage with suppliers as we scale, our Gross Margin may fluctuate from period to period depending on the interplay of these factors.

Selling and Marketing Expenses

Our selling and marketing expenses consist primarily of payment processing fees, advertising, targeted online performance marketing and customer order courtesy adjustments. Selling and marketing expenses also include our spend on brand marketing channels, including compensation and free products to social media influencers, events, and other forms of online and offline marketing related to growing and retaining the customer base. As discussed in “Net Revenue” above, in any given period, the amount of our selling and marketing expense can be affected by the use of promotional discounts in such period.

General and Administrative Expenses

General and administrative expenses consist primarily of payroll and benefits costs, including equity-based compensation for our employees involved in general corporate functions including finance, merchandising, marketing, and technology, as well as costs associated with the use by these functions of facilities and equipment, including depreciation, rent, and other occupancy expenses. General and administrative expenses are primarily driven by increases in headcount required to support business growth and meet our obligations as a public company.

Interest Expense

Interest expense consists of interest expense related to the 2021 Credit Agreement and the 2025 Credit Agreement, as amended.

Income Tax Provision

The provision for income taxes represents federal, state, and local income taxes. The effective rate differs from the statutory rate primarily due to the establishment of a deferred tax asset valuation allowance as the Company could not provide sufficient positive evidence that the deferred taxes will be more-likely-than-not realized in the future. Our effective tax rate will change from quarter to quarter based on recurring and nonrecurring factors including, but not limited to, enacted tax legislation, state and local income taxes, and tax audit settlements.

The Company regularly assesses the realizability of deferred tax assets and records a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized. In assessing the realizability of our deferred tax assets, we weigh all available positive and negative evidence. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. Due to the weight of objectively verifiable negative evidence, the Company established a valuation allowance of $14.9 million as of December 29, 2024 and the same position for the period ended September 28, 2025.

Our Results of Operations

The following tables set forth our condensed consolidated results of operations for the periods presented and as a percentage of net revenue and net loss:

(in thousands)

Comparisons for the Thirteen Weeks Ended September 28, 2025 and September 29, 2024

Net Revenue

Net revenue decreased in the thirteen weeks ended September 28, 2025 by $6.9 million, or 9%, compared to the same period of the prior year, primarily due to a 14% decrease in Total Orders Placed and higher return rate driven by higher mix of full price products and mix shift to assortment with higher return rates, partially offset by the impact of higher AOV.

Cost of Revenue

Cost of revenue decreased in the thirteen weeks ended September 28, 2025 by $7.6 million, or 15% compared to the same period of the prior year, primarily driven by the impact of lower net revenue, reduced sales volumes of markdown and discounted items, and improved costs.

Gross Profit

Gross profit increased in the thirteen weeks ended September 28, 2025 by $0.7 million, or 2% compared to the same period of the prior year, primarily driven by higher product margin driven from lower markdown sales and discounts, improved product costing, and higher sales mix driven from higher margin product assortment, partially offset by the impact of the lower volume of sales.

Selling and Marketing Expenses

Selling and marketing expenses, which are correlated to sales, decreased in the thirteen weeks ended September 28, 2025 by $0.7 million, or 4%, compared to the same period of the prior year, primarily due to lower online marketing costs and merchant processing fees of $0.8 million, partially offset by an additional campaign shoot and marketing software spend of $0.1 million.

General and Administrative Expenses

General and administrative expenses decreased in the thirteen weeks ended September 28, 2025 by $3.5 million or 18%, compared to the same period of the prior year. The decrease was primarily due to a $1.7 million decrease in fixed labor and benefits costs driven by reduced fixed headcount, a $1.1 million decrease in equity-based compensation expense, a $0.5 million decrease in variable labor and benefits associated with lower sales volume, a $0.4 million decrease in liability insurance and legal and professional fees and a $0.3 million decrease in software, occupancy, depreciation and amortization. The foregoing was partially offset by a $0.4 million increase in non-routine items accruals, and a $0.1 million increase in board-related fees.

Interest Expense

Interest expense increased in the thirteen weeks ended September 28, 2025 by $0.2 million, or 79%, compared to the same period of the prior year. The increase is primarily attributable to higher average borrowings and write-off of the 2021 Credit Agreement amortization.

Income Tax Provision

Income tax provision in the thirteen weeks ended September 28, 2025 increased by $0.1 million to a provision of $0.1 million, compared to an immaterial provision in the thirteen weeks ended September 29, 2024. The increase was primarily due to state income taxes and change in naked credits.

Comparisons for the Thirty-nine weeks ended September 28, 2025 and September 29, 2024

Net Revenue

Net revenue decreased in the thirty-nine weeks ended September 28, 2025 by $30.5 million, or 12%, compared to the same period of the prior year. The decrease is primarily the result of a 16% decrease in Total Orders Placed, partially offset by the impact of higher AOV and lower return rates.

Cost of Revenue

Cost of revenue decreased in the thirty-nine weeks ended September 28, 2025 by $19.4 million, or 13%, compared to the same period of the prior year, which was primarily driven by the impact of lower net revenue.

Gross Profit

Gross profit decreased in the thirty-nine weeks ended September 28, 2025 by $11.0 million, or 11% compared to the same period of the prior year, which was primarily driven by the impact of the lower volume of sales.

Selling and Marketing Expenses

Selling and marketing expenses, which are corelated to sales, decreased in the thirty-nine weeks ended September 28, 2025 by $5.4 million, or 9%, compared to the same period of the prior year, due to lower marketing costs of $4.7 million and lower merchant processing fees of $0.7 million.

General and Administrative Expenses

General and administrative expenses decreased in the thirty-nine weeks ended September 28, 2025 by $10.5 million or 17%, compared to the same period of the prior year. The decrease was primarily due to a $4.1 million decrease in fixed labor and benefits costs due to reduced headcount, a $2.6 million decrease in equity-based compensation expense, a $1.5 million decrease in variable labor and benefits costs primarily associated with lower sales volume and operational efficiencies, a $1.3 million decrease in liability insurance and legal and professional fees, a $0.6 million decrease in software expenses, and a $0.4 million decrease in occupancy, depreciation and amortization.

Interest Expense

Interest expense increased in the thirty-nine weeks ended September 28, 2025 by $1.0 million, or 106%, compared to the same period of the prior year. The increase is primarily attributable to higher average borrowings and write-off of the 2021 Credit Agreement amortization.

Income Tax Provision

Our income tax provision in the thirty-nine weeks ended September 28, 2025 was $0.1 million, which was a decrease of $5.7 million compared to a provision of $5.8 million in the thirty-nine weeks ended September 29, 2024. The decrease was primarily due to the establishment of a valuation allowance in 2024.

Quarterly Trends and Seasonality

We experience moderate seasonal fluctuations in aggregate sales volume during the year. Seasonality in our business does not follow that of traditional retailers, such as a typical concentration of revenue in the holiday quarter. Our net revenue is typically highest in the second and third quarters due to the increased demand for event dresses in the spring and summer. Net revenue is typically the lowest in the first and fourth quarters when event dresses are less in demand. The seasonality of our business has resulted in variability in our total net revenue quarter-to-quarter. We believe that this seasonality has affected and will continue to affect our results of operations.

Our quarterly gross profit fluctuates primarily based on how we manage our inventory and merchandise mix and has typically been in line with fluctuations in net revenue. When quarterly gross profit fluctuations have deviated relative to the fluctuations in sales, these situations have been driven by non-recurring, external factors, such as global pandemics or trade wars.

Selling and marketing expenses generally fluctuate with net revenue. Further, in any given period, the amount of our selling and marketing expense can be affected by the use of promotional discounts in such period. In addition, we may increase or decrease marketing spend to assist with optimizing inventory mix and quantities.

General and administrative expenses consist primarily of payroll and benefit costs and vary quarter to quarter due to changes in the number of seasonal workers to meet demand based on our seasonality.

Liquidity and Capital Resources

Our primary sources of liquidity and capital resources are cash generated from operating activities and our 2025 Credit Agreement, as amended. Our primary requirements for liquidity and capital are inventory purchases, payroll and general operating expenses, capital expenditures associated with our distribution facilities, capitalized software and debt service requirements.

Credit Facilities

On November 15, 2021, we entered into the 2021 Credit Agreement with Bank of America (the “lender”) to provide a revolving facility that provided for borrowings up to $50.0 million with a maturity date of November 15, 2024. The 2021 Credit Agreement was amended subsequently by five amendments which modified a number of terms, including extending the maturity date to August 22, 2025, reducing and ultimately prohibiting further borrowings, revising the applicable interest rates, revising or providing limited waivers of compliance with certain financial covenants, and adding covenants related to achieving a refinancing transaction. The interest rates in effect under the 2021 Credit Agreement, as amended, during the thirteen and thirty-nine weeks ended September 28, 2025 were as follows: (a) in the case of Base Rate Loans, the Base Rate plus (i) 5% (increased from a margin of 4%), (b) in the case of Term SOFR Loans, Term SOFR (subject to a credit spread adjustment of 10 basis points) plus (i) 6% (increased from a margin of 5%), and (c) the Letter of Credit Fee of (i) 6% (increased from 5%).

On June 23, 2025, we entered into a Forbearance Agreement (the “Forbearance Agreement”) related to the 2021 Credit Agreement with the lenders party thereto and Bank of America, N.A., as administrative agent (the “Administrative Agent”), and Swing Line Lender and an L/C Issuer (the “Lenders”). Pursuant to the terms of the Forbearance Agreement, the Administrative Agent and Lenders agreed that they would forbear, during the Forbearance Period (as defined in the Forbearance Agreement), from exercising any and all rights and remedies with respect to or arising out of the events of default that occurred as a result of the Company’s failure to comply with certain Refinancing Transaction Milestones by the specified dates under Sections 6.19(a), (c) and (d) of the 2021 Credit Agreement (collectively, the “Acknowledged

Defaults”). On August 11, 2025, we entered into an amendment to the Forbearance Agreement and the fifth amendment to the 2021 Credit Agreement which extended the Forbearance Period and maturity date to August 22, 2025. Under the terms of the Forbearance Agreement, as amended, the Refinancing Transaction Milestones were due on the maturity date. No fees were paid in connection with the forbearance. The agreement was not entered into as a result of financial distress, but rather to provide additional time to finalize and execute the 2025 Credit Agreement.

On August 14, 2025, we entered into the 2025 Credit Agreement. The 2025 Credit Agreement is comprised of an asset-based revolving credit facility with a $20.0 million commitment, a $5.0 million uncommitted accordion and a $1.0 million sublimit for letters of credit. The amount that the Borrowers may borrow under the 2025 Credit Agreement is based on a borrowing base calculated based on advance rates for various assets serving as collateral for the 2025 Credit Agreement. Borrowings under the 2025 Credit Agreement bear interest at a rate equal to the 30-day SOFR rate plus 3.95%. The 2025 Credit Agreement is secured by a first-priority security interest in and lien upon all tangible and intangible personal property of the Borrowers now owned or acquired in the future. The 2025 Credit Agreement includes covenants that limit the Borrowers’ ability to incur indebtedness, to create liens or other encumbrances, to make certain payments and investments, to engage in transactions with affiliates, to guarantee indebtedness and to sell or otherwise dispose of assets and merge or consolidate with other entities. The 2025 Credit Agreement also includes a financial covenant for minimum excess availability under the 2025 Credit Agreement. It also requires us to maintain lockbox accounts and cash management arrangements under the control of the Administrative Agent, who has full dominion and control over each Collection Account and all Deposit Accounts (except Excluded Accounts). Outstanding borrowings are classified as current liabilities, however, the 2025 Credit Agreement does not mature until August 14, 2028. On October 28, 2025, we entered into an amendment to the 2025 Credit Agreement, which clarified the terms related to the manner in which interest is calculated, provides us greater flexibility with respect to the location of our corporate headquarters and extends the amount of time to produce our borrowing base reports (the "Amendment to the 2025 Credit Agreement"). The foregoing description of the Amendment to the 2025 Credit Agreement is qualified in its entirety by reference to the full text of the Amendment to the 2025 Credit Agreement, a copy of which is filed as Exhibit 10.3 to this Quarterly Report on Form 10-Q and incorporated herein by reference.

The initial funding of the 2025 Credit Agreement occurred on August 14, 2025, and the proceeds were used in part to repay approximately $6.0 million outstanding under the 2021 Credit Agreement. In connection with entering into the 2025 Credit Agreement and the repayment in full of all outstanding obligations under the 2021 Credit Agreement, the 2021 Credit Agreement, along with the related Forbearance Agreement, as amended, were terminated.

As of September 28, 2025, under the 2025 Credit Agreement, the outstanding borrowing was $9.2 million, and after giving effect to the excess availability covenant, the unused availability was $6.8 million. During the thirty-nine weeks ended September 28, 2025, we borrowed $51.4 million and repaid $42.2 million under the 2025 Credit Agreement and had a weighted average interest rate of 8.3%. As of September 28, 2025, we had a $0.3 million letter of credit outstanding with Bank of America. See Note 5, Debt within the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for further information on the 2025 Credit Agreement, as amended.

Availability and Use of Cash

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We alleviated the substantial doubt about our ability to continue as a going concern as a result of successfully entering into the 2025 Credit Agreement, among other factors. Actual results of operations will depend on numerous factors, many of which are beyond our control, as further discussed in Part I, Item 1A, “Risk Factors” included in our 2024 10-K and Part II, Item 1A, “Risk Factors” of our Quarterly Reports on Form 10-Q for the quarters ended March 30, 2025 and June 29, 2025.

Repurchases Pursuant to the 2024 Repurchase Program

On May 3, 2024, our Board of Directors authorized a stock repurchase program to repurchase up to $2.5 million of our common stock (the “2024 Repurchase Program”). During the thirteen and thirty-nine weeks ended September 28, 2025, we repurchased 34,463 shares and 123,934 shares, respectively, of common stock in open market transactions pursuant to a 10b5-1 purchase plan. As of September 28, 2025, there was $1.1 million available under the 2024 Repurchase Program authorization.

The actual timing, number, and value of shares repurchased in the future will be determined at our discretion and will depend on a number of factors, including market conditions, applicable legal requirements, our capital needs, and whether there is a better alternative use of capital. Repurchases will be funded from our existing cash and cash equivalents, or future cash flow. The 2024 Repurchase Program may be modified, suspended, or terminated at any time. For further information on the 2024 Repurchase Program, see Note 2, Significant Accounting Policies, within the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Cash Flow Analysis

The following table summarizes our cash flows for the periods indicated:

(in thousands)

Operating Activities

Net cash provided by operating activities consists primarily of net loss adjusted for certain non-cash items, including depreciation, amortization, equity-based compensation, the effect of changes in working capital and other activities.

During the thirty-nine weeks ended September 28, 2025, net cash provided by operating activities was $5.1 million, which consisted of a net loss of $13.3 million, partially offset by non-cash charges of $11.1 million and a net change of $7.3 million in operating assets and liabilities. The non-cash charges were primarily comprised of $3.9 million of depreciation and amortization, $3.6 million of equity-based compensation expense, and $3.4 million of non-cash lease expense. The net change in operating assets and liabilities was primarily driven by a $10.6 million increase in accrued expenses primarily driven by increase in returns reserve and stored-value card liabilities; a $7.4 million increase in accounts payable related to purchases in line with the increase in sales; and a $3.0 million decrease in income tax receivable due to the receipt of state income tax refunds. These increases were partially offset by a $4.4 million increase in inventory, a $3.3 million decrease in operating lease liabilities, a $2.8 million decrease in assets for recovery and a $2.6 million increase in accounts receivable pertaining to higher credit card receivables.

During the thirty-nine weeks ended September 29, 2024, net cash provided by operating activities was $5.1 million, which consisted of a net loss of $23.4 million, partially offset by non-cash charges of $17.2 million and a net change of $11.3 million in operating assets and liabilities. The non-cash charges were primarily comprised of $6.2 of equity-based compensation expense, $4.1 million of depreciation and amortization, $3.8 million of deferred income taxes, and $3.0 million of non-cash lease expense. The net change in operating assets and liabilities was primarily driven by a $19.2 million increase in accrued expenses primarily driven by an increase in return reserve of $7.5 million, an increase in stored value liabilities of $2.9 million due to lower redemption rates, an increase in our non-routine legal reserve accrual of $4.8 million, increase in accrued inventory of $4.0 million related to purchases in line with the increase in sales, and an increase in miscellaneous accruals of $1.3 million offset by a decrease in accrued compensation and benefits of $1.4 million, and a $2.5 million increase in accounts payable due to the timing of payments. These increases were partially offset by a $3.3 million increase in prepaid and other assets, a $3.0 million increase in inventory, a $2.9 million decrease in operating lease liabilities and a $1.7 million decrease in assets for recovery.

Investing Activities

Our primary investing activities have consisted of purchases of equipment to support our overall business growth and internally developed software for the continued development of our proprietary technology infrastructure. Purchases of property and equipment may vary from period to period due to the timing of the expansion or contraction of our operations. We have no material commitments for capital expenditures.

During the thirty-nine weeks ended September 28, 2025, net cash used in investing activities decreased by $0.8 million as compared to the same period in 2024, primarily due to lower purchases of property and equipment.

Financing Activities

Financing activities consist primarily of borrowings and repayments related to our revolving facility under our 2021 Credit Agreement and 2025 Credit Agreement.

During the thirty-nine weeks ended September 28, 2025, cash used in financing activities was $6.0 million, primarily due to $42.2 million of repayments under our 2025 Credit Agreement, $13.1 million of repayments under our 2021 Credit Agreement, $0.9 million used in the repurchase of our common stock, and $1.0 million of principal payments on finance lease obligations, partially offset by $51.4 million of proceeds from borrowings under our 2025 Credit Agreement.

During the thirty-nine weeks ended September 29, 2024, cash provided by financing activities was $1.1 million, primarily due to $31.5 million of proceeds from borrowings under our 2021 Credit Agreement which was partially offset by $28.0 million of repayments under our 2021 Credit Agreement, $1.4 million of principal payments on finance lease obligations, and $1.0 million of withholding tax payments related to the vesting of equity-based awards and $0.3 million used in the repurchase of our common stock.

Contractual Obligations and Commitments

There have been no other material changes to our contractual obligations and commitments as disclosed in our 2024 10-K.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” in our 2024 10-K and the notes to the audited consolidated financial statements appearing elsewhere in our 2024 10-K. There have been no significant changes to our critical accounting policies and estimates as disclosed in our 2024 10-K.

Recent Accounting Pronouncements

See Note 2, Significant Accounting Policies - Recently Issued Accounting Pronouncements, in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial position and our results of operations.

JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. Accordingly, our consolidated financial statements and our unaudited interim condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Limitations on effectiveness of controls and procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer (principal executive officer, principal financial officer and principal accounting officer), evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer concluded that, as of September 28, 2025, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 28, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

For detailed information about certain risk factors that could materially affect our business, financial condition or future results see “Risk Factors” in Part I, Item 1A of our 2024 10-K and in Part II, Item 1A of our Quarterly Reports on Form 10-Q for the quarters ended March 30, 2025 and June 29, 2025. There have been no material changes to the risk factors previously disclosed in the 2024 10-K and the Form 10-Qs for the quarters ended March 30, 2025, and June 29, 2025.