# Lulu's Fashion Lounge Holdings, Inc.: Form 10-Q for the period ended Oct 1, 2023

- Company: [Lulu's Fashion Lounge Holdings, Inc.](/companies/lvlu.md) (CIK 1780201)
- Form: 10-Q
- Filed: 2023-11-08
- Accepted by EDGAR: Nov 8, 2023, 21:16 ET
- Period: 2023-10-01
- Accession: 0001558370-23-018280
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1780201/000155837023018280/tmb-20231001x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1780201/000155837023018280/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-10-01.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-03 to 2023-10-01 | $83.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-02 to 2023-10-01 | $280.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-03 to 2023-10-01 | $49.6m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-02 to 2023-10-01 | $161.3m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-03 to 2023-10-01 | $33.5m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-02 to 2023-10-01 | $118.9m | us-gaap:GrossProfit |
| Operating income | 3 months, 2023-07-03 to 2023-10-01 | −$4.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-02 to 2023-10-01 | −$12.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-03 to 2023-10-01 | $442.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-02 to 2023-10-01 | $1.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-03 to 2023-10-01 | −$1.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-02 to 2023-10-01 | −$992.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-03 to 2023-10-01 | −$3.9m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-02 to 2023-10-01 | −$12.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-03 to 2023-10-01 | −$0.10 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-02 to 2023-10-01 | −$0.31 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-03 to 2023-10-01 | −$0.10 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-02 to 2023-10-01 | −$0.31 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-03 to 2023-10-01 | 40,103,152 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-02 to 2023-10-01 | 39,672,938 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-02 to 2023-10-01 | $21.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-02 to 2023-10-01 | $1.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-10-01 | $12.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-10-01 | $69.5m | us-gaap:AssetsCurrent |
| Total assets | at 2023-10-01 | $167.4m | us-gaap:Assets |
| Current liabilities | at 2023-10-01 | $63.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-10-01 | $102.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-10-01 | $64.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 40,925 characters.

*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 January 1, 2023, filed with the Securities and Exchange Commission (“SEC”) on March 14, 2023 (the “2022 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” of the 2022 10-K and other factors set forth in other parts of this Quarterly Report on Form 10-Q. 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

Lulus is a customer-driven, digitally-native fashion brand primarily serving Millennial and Gen Z women. We focus relentlessly on giving our customers what they want. We do this by using data coupled with human insight to deliver a curated and continuously evolving assortment of on-trend, affordable luxury fashion. Our customer obsession sets the tone for everything we do, from our personalized online shopping experience to our exceptional customer service.

### Impact of Macroeconomic Trends on Business

Changing macroeconomic factors, including inflation, interest rates, and overall consumer confidence with respect to current and future economic conditions, have directly impacted our sales in the first nine months of 2023 as discretionary consumer spending levels and shopping behavior fluctuate with these factors. During the first nine months of 2023, 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. As of October 1, 2023, the Company had total cash and cash equivalents of $12.9 million and amounts due under the revolving line of credit of $11.0 million.

In November 2021 the Company entered into a Credit Agreement to provide the Revolving Facility that provides for borrowings up to $50.0 million. The credit agreement contains various financial covenants and matures on November 15, 2024 as described in Note 5, Debt.

The Company is evaluating sources of debt financing. However, the Company believes the cash on hand and cash provided by operations in conjunction with certain cash conservation measures to be taken as necessary, including adjustments to marketing and other variable and capital spend, will enable the Company to meet its obligations as they become due within one year. The condensed consolidated financial statements do not reflect any adjustments relating to the outcome of this uncertainty.

### 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)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ Thirteen Weeks Ended October 1, 2023 | ​ ​ ​ | ​ ​ ​ October 2, 2022 | ​ ​ ​ Thirty-Nine Weeks Ended October 1, 2023 | ​ ​ ​ | ​ ​ ​ October 2, 2022 | ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: | --- |
| Gross Margin | ​ | 40.3% |  | 42.1% | 42.4% |  | ​ 45.2% |  |
| Net income (loss) | ​ | $(3,889) ​ | ​ | $929 ​ | $(12,104) ​ | ​ | $8,971 ​ | ​ |
| Adjusted EBITDA (1) | ​ | $972 ​ | ​ | $5,364 ​ | $5,207 ​ | ​ | $30,068 ​ | ​ |
| Adjusted EBITDA Margin (1) | ​ | 1.2% | ​ | 5.1% | 1.9% | ​ | 8.6% | ​ |
| Active Customers |  | ​ 2,960 | ​ | ​ 3,230 | ​ 2,960 | ​ | ​ 3,230 | ​ |
| Average Order Value | ​ | $133 ​ | ​ | $133 ​ | $133 ​ | ​ | $131 ​ | ​ |

(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.”

### 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 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 de-duplication 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 average basket size of our customers. AOV may fluctuate as we continue investing in the development and introduction of new Lulus 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.

### 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.

### 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 income (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 and Adjusted EBITDA Margin

Adjusted EBITDA is a non-GAAP financial measure that we calculate as income (loss) before interest expense, income taxes, depreciation and amortization, adjusted to exclude the effects of equity-based compensation expense, and management fees. 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.

To supplement our condensed consolidated financial statements which are prepared in accordance with GAAP, we use “Adjusted EBITDA” and “Adjusted EBITDA Margin” which are non-GAAP financial measures (collectively referred to as “Adjusted EBITDA”). 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;
- 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; 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 and Adjusted EBITDA Margin 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 expense. 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 a percentage of our net revenue.

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

*(in thousands)*

*(in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ Thirteen Weeks Ended October 1, 2023 | ​ ​ ​ | ​ ​ ​ October 2, 2022 | ​ ​ ​ ​ ​ | ​ ​ ​ Thirty-Nine Weeks Ended October 1, 2023 | ​ ​ ​ | ​ ​ ​ October 2, 2022 | ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- |
| Net income (loss) |  | $(3,889) ​ | ​ | $929 | ​ | $(12,104) ​ | ​ | $8,971 | ​ |
| Depreciation and amortization | ​ | 1,240 ​ | ​ | 1,130 ​ | ​ | 3,546 ​ | ​ | 2,980 ​ | ​ |
| Interest expense | ​ | 442 ​ | ​ | 329 ​ | ​ | 1,391 ​ | ​ | 694 ​ | ​ |
| Income tax provision (benefit) | ​ | (1,158) ​ | ​ | (678) ​ | ​ | (992) ​ | ​ | 5,178 ​ | ​ |
| Equity-based compensation expense (1) | ​ | 4,337 ​ | ​ | 3,654 ​ | ​ | 13,366 ​ | ​ | 12,245 ​ | ​ |
| Adjusted EBITDA | ​ | $972 ​ | ​ | $5,364 ​ | ​ | $5,207 ​ | ​ | $30,068 ​ | ​ |
| Net income (loss) margin | ​ | ​ (4.7)% | ​ | ​ 0.9% | ​ | ​ (4.3)% | ​ | ​ 2.6% | ​ |
| Adjusted EBITDA margin | ​ | 1.2% | ​ | 5.1% | ​ | 1.9% | ​ | 8.6% | ​ |

(1) The thirteen weeks ended October 1, 2023 and October 2, 2022 include equity-based compensation expense for RSU awards granted during the period, as well as equity-based awards granted in prior periods. The thirty-nine weeks ended October 1, 2023 include equity-based compensation expense for performance stock units and RSU awards granted during the period, accelerated expense associated with the voluntary forfeiture of stock options, and equity-based awards granted in prior periods. The thirty-nine weeks ended October 2, 2022 include equity-based compensation expense for RSU awards granted during the period, as well as equity-based awards granted in prior periods.

### 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 October 1, 2023 and October 2, 2022 is as follows:

| ​ ​ ​ | ​ ​ ​ | ​ ​ Thirteen Weeks Ended October 1, 2023 | ​ ​ | ​ ​ October 2, 2022 | ​ ​ ​ | ​ ​ Thirty-Nine Weeks Ended October 1, 2023 | ​ ​ | ​ ​ October 2, 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Net cash provided by operating activities | ​ | $12,749 | ​ | $5,745 | ​ | $21,100 | ​ | $16,333 |
| Capitalized software development costs | ​ | ​ (524) | ​ | ​ (622) | ​ | ​ (1,550) | ​ | ​ (1,869) |
| Purchases of property and equipment | ​ | ​ (667) | ​ | ​ (508) | ​ | ​ (1,393) | ​ | ​ (1,902) |
| Free Cash Flow | ​ | $11,558 | ​ | $4,615 | ​ | $18,157 | ​ | $12,562 |

### 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 2022 10-K.

### Customer Acquisition

Our business performance depends in part on our continued ability to cost-effectively acquire new customers. We define customer acquisition cost 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 customers where they spend their 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 October 1, 2023, we served 3.0 million Active Customers compared to 3.2 million for the trailing 12 months ended October 2, 2022.

### 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 growth of our business. While we expect our expenses to increase accordingly, we will harness the strength of our existing platform and our on-trend fashion expertise to make informed investment decisions. We intend to invest in headcount, inventory, fulfillment, logistics, and our software and data capabilities in order to improve our platform, expand into international markets, and drive operational efficiencies. We cannot guarantee that increased spending on these investments will be cost effective or result in future growth in our customer base. However, we set a high bar for approval of any capital spending initiative. We believe that our 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 and shipping product to our customers. 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.

### 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 gifted 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. We expect our selling and marketing expenses to increase in absolute dollars as we continue to invest in increasing brand awareness.

### 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.

Since our IPO, we have incurred significant legal, accounting, and other expenses that we did not incur as a private company. We expect that compliance with the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC, will continue to increase our legal and financial compliance costs and will make some activities more time consuming and costly. We expect our general and administrative expenses to increase in absolute dollars as we continue to grow our business.

### Other Income (Expense), Net

Other income (expense), net consists primarily of interest expense and other miscellaneous income.

### Provision (Benefit) for Income Taxes

The provision (benefit) for income taxes represents federal, state, and local income taxes. The effective rate differs from the statutory rate primarily due to state taxes, non-deductible executive compensation, and non-deductible equity-based compensation expenses. Our effective tax rate will change from quarter to quarter based on recurring and nonrecurring factors including, but not limited to, the geographical mix of earnings, enacted tax legislation, state and local income taxes, the impact of permanent tax adjustments, tax audit settlements, and the interaction of various tax strategies.

### Our Results of Operations

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

*(in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Thirteen Weeks Ended October 1, 2023 | ​ ​ ​ | ​ ​ October 2, 2022 | ​ ​ ​ ​ | ​ ​ Thirty-Nine Weeks Ended October 1, 2023 | ​ ​ ​ | ​ ​ October 2, 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Net revenue |  | $83,118 | ​ | $105,275 |  | $280,216 | ​ | $348,689 |
| Cost of revenue | ​ | 49,593 | ​ | 60,942 | ​ | 161,334 | ​ | 191,211 |
| Gross profit | ​ | 33,525 | ​ | 44,333 | ​ | 118,882 | ​ | 157,478 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Selling and marketing expenses | ​ | 16,825 | ​ | 19,356 | ​ | 60,984 | ​ | 67,093 |
| General and administrative expenses | ​ | 21,575 | ​ | 24,418 | ​ | 70,319 | ​ | 75,644 |
| Income (loss) from operations | ​ | (4,875) | ​ | 559 | ​ | (12,421) | ​ | 14,741 |
| Interest expense | ​ | (442) | ​ | (329) | ​ | (1,391) | ​ | (694) |
| Other income, net | ​ | 270 | ​ | 21 | ​ | 716 | ​ | 102 |
| Income (loss) before income taxes | ​ | (5,047) | ​ | 251 | ​ | (13,096) | ​ | 14,149 |
| Income tax provision (benefit) | ​ | (1,158) | ​ | (678) | ​ | (992) | ​ | 5,178 |
| Net income (loss) | ​ | $(3,889) | ​ | $929 | ​ | $(12,104) | ​ | $8,971 |

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Thirteen Weeks Ended October 1, 2023 | ​ ​ ​ | ​ ​ October 2, 2022 | ​ ​ ​ ​ | ​ ​ Thirty-Nine Weeks Ended October 1, 2023 | ​ ​ ​ | ​ ​ October 2, 2022 | ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- |
| Net revenue |  | 100% |  | 100% |  | 100% |  | 100% |  |
| Cost of revenue | ​ | 60 | ​ | 58 | ​ | 58 | ​ | 55 | ​ |
| Gross profit | ​ | 40 ​ | ​ | 42 ​ | ​ | 42 ​ | ​ | 45 ​ | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Selling and marketing expenses | ​ | 20 ​ | ​ | 18 ​ | ​ | 21 ​ | ​ | 19 ​ | ​ |
| General and administrative expenses | ​ | 26 ​ | ​ | 23 ​ | ​ | 25 ​ | ​ | 22 ​ | ​ |
| Income (loss) from operations | ​ | (6) ​ | ​ | 1 ​ | ​ | (4) ​ | ​ | 4 ​ | ​ |
| Interest expense | ​ | — ​ | ​ | — ​ | ​ | — ​ | ​ | — ​ | ​ |
| Other income, net | ​ | — ​ | ​ | — ​ | ​ | — ​ | ​ | — ​ | ​ |
| Income (loss) before income taxes | ​ | (6) ​ | ​ | 1 ​ | ​ | (4) ​ | ​ | 4 ​ | ​ |
| Income tax provision (benefit) | ​ | (1) ​ | ​ | (1) ​ | ​ | - ​ | ​ | 1 ​ | ​ |
| Net income (loss) | ​ | (5)% | ​ | 2% | ​ | (4)% | ​ | 3% | ​ |

### Comparisons for the Thirteen Weeks Ended October 1, 2023 and October 2, 2022

#### Net Revenue

Net revenue decreased in the thirteen weeks ended October 1, 2023 by $22.2 million, or 21%, compared to the thirteen weeks ended October 2, 2022. The decrease is primarily the result of a 19% decrease in Total Orders Placed, as well as higher markdowns and return rates compared to the thirteen weeks ended October 2, 2022.

#### Cost of Revenue

Cost of revenue decreased in the thirteen weeks ended October 1, 2023 compared to the same period of the prior year by $11.3 million, or 19%, compared to the same period last year, which was primarily driven by the impact of lower revenue along with favorability in shipping costs, which decreased with the lower revenue.

#### Selling and Marketing Expenses

Selling and marketing expenses decreased in the thirteen weeks ended October 1, 2023 by $2.5 million, or 13%, compared to the thirteen weeks ended October 2, 2022 due to lower performance marketing spend and favorability in merchant processing fees, partially offset by higher brand marketing spend as we invested more to increase brand awareness.

#### General and Administrative Expenses

General and administrative expenses decreased by $2.8 million in the thirteen weeks ended October 1, 2023, or 12%, compared to the thirteen weeks ended October 2, 2022. The decrease was primarily due to $0.8 million decrease in fixed labor, due to delayed hiring of fixed headcount, $1.8 million decrease in variable labor and benefits associated with lower sales volume and operational efficiencies, $0.7 million decrease in D&O insurance costs, professional services and supplies. This was partially offset by $0.7 million related to equity-based awards issued through October 1, 2023.

#### Interest Expense

Interest expense increased in the thirteen weeks ended October 1, 2023 by $0.1 million, or 34%, compared to the thirteen weeks ended October 2, 2022. The increase is attributable to higher interest rates driving increased interest expense and unused fees related to the Revolving Facility offset by lower average borrowings.

#### Income Tax Benefit

Our income tax benefit in the thirteen weeks ended October 1, 2023 increased by $0.5 million to a benefit of $1.2 million, compared to a benefit of $0.7 million in the thirteen weeks ended October 2, 2022. The decrease was primarily due to a decrease in our income to a loss before benefit for income taxes.

### Comparisons for the Thirty-nine Weeks Ended October 1, 2023 and October 2, 2022

#### Net Revenue

Net revenue decreased in the thirty-nine weeks ended October 1, 2023 by $68.5 million, or 20%, compared to the thirty-nine weeks ended October 2, 2022. The decrease is primarily the result of a 17% decrease in Total Orders Placed, and higher markdowns and return rates, partially offset by a 2% increase in AOV compared to the thirty-nine weeks ended October 2, 2022.

#### Cost of Revenue

Cost of revenue decreased in the thirty-nine weeks ended October 1, 2023 compared to the thirty-nine weeks ended October 2, 2022 by $29.9 million, or 16%, which was primarily driven by the impact of lower revenue along with favorability in shipping costs, which decreased with the lower revenue.

#### Selling and Marketing Expenses

Selling and marketing expenses decreased in the thirty-nine weeks ended October 1, 2023 by $6.1 million, or 9%, compared to the thirty-nine weeks ended October 2, 2022 due to lower performance marketing costs as we utilized a higher mix of promotions and discounts as well as lower merchant processing fees. This was partially offset by higher brand marketing spend through the thirty-nine weeks ended October 1,2023 as we invested more in brand awareness.

#### General and Administrative Expenses

General and administrative expenses decreased by $5.3 million in the thirty-nine weeks ended October 1, 2023, or 7%, compared to the thirty-nine weeks ended October 2, 2022. The decrease was primarily due to a $5.1 million lower variable labor and benefits costs primarily associated with lower sales volume and operational efficiencies, which was partially offset by higher equity-based compensation expense of $1.1 million related to equity-based awards issued through October 1, 2023. Additionally, there was a $1.5 million decrease in D&O insurance costs, professional services, supplies and recruiting costs.

#### Interest Expense

Interest expense increased in the thirty-nine weeks ended October 1, 2023 by $0.7 million, or 100%, compared to the thirty-nine weeks ended October 2, 2022. The increase is attributable to higher interest rates and higher average borrowings driving increased interest expense and unused fees related to the Revolving Facility.

#### Income Tax Provision (Benefit)

Our income tax benefit in the thirty-nine weeks ended October 1, 2023 increased by $6.2 million to a benefit of $1.0 million, compared to a provision of $5.2 million in the thirty-nine weeks ended October 2, 2022. The decrease was primarily due to a decrease in our income to a loss before provision for income taxes.

### 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 quarterly net revenue in 2022 reflected the highest concentrations in the first and second fiscal quarters compared to the rest of the year, as customer demand remained strong for dresses and event wear, carrying forward the trend seen in 2021 with the resurgence of events and special occasions. The third and fourth fiscal quarters of 2022 were impacted by a worsened macroeconomic environment where consumers generally lowered their spending levels and sought higher levels of promotions and discounts which has continued into the first nine months of 2023. 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 been unfavorable relative to the fluctuations in sales, these situations have been driven by non-recurring, external factors, such as the COVID-19 pandemic and the ensuing macroeconomic slowdown that begun in mid-2022, which led to increased promotional discounts and higher markdowns in order to optimize our inventory mix and quantities. Additionally, gross profit has recently been impacted by decreases in discretionary consumer spending as a result of inflation and macroeconomic conditions, increased promotions and discounts in response to decreases in consumer spending, and trends observed regarding the levels of returns.

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 borrowings under our Revolving Facility. Our primary requirements for liquidity and capital are inventory purchases, payroll and general operating expenses, capital expenditures associated with distribution, network expansion and capitalized software and debt service requirements.

### Credit Facilities

During November 2021, we entered into a Credit Agreement with Bank of America (the "Credit Agreement") to provide a revolving facility that provides for borrowings up to $50.0 million (the "Revolving Facility"). During the term of the Credit Agreement, we may increase the aggregate amount of the Revolving Facility up to an additional $25.0 million (for maximum aggregate lender commitments of up to $75.0 million), subject to the satisfaction of certain conditions under the Credit Agreement, including obtaining the consent of the administrative agent and an increased commitment from existing or new lenders. In addition, the Credit Agreement may be used to issue letters of credit up to $7.5 million (the “Letter of Credit”). As of October 1, 2023, we had $11.0 million outstanding under the Revolving Facility and had utilized $0.3 million under the Letter of Credit. As of October 1, 2023, we had $38.7 million available for borrowing under the Revolving Facility and $7.2 million available to issue letters of credit.

The Revolving Facility matures on November 15, 2024, and borrowings thereunder will accrue interest at a rate equal to, at our option, either (x) the term daily SOFR, plus the applicable SOFR adjustment plus a margin of 1.75% per annum or (y) the base rate plus a margin of 0.75% (with the base rate being the highest of the federal funds rate plus 0.50%, the prime rate and term SOFR for a period of one month plus 1.00%). The Revolving Facility contains a financial maintenance covenant requiring a maximum total leverage ratio of no more than 2.50:1.00, stepping down to 2.00:1.00 after 18 months. We were in compliance with our debt covenants under the Credit Agreement as of October 1, 2023. While we expect to continue to be in compliance with our debt covenants, any failure to remain in compliance with our debt covenants may materially adversely affect our liquidity. A commitment fee of 37.5 basis points will be assessed on unused commitments under the Revolving Facility.

### Availability and Use of Cash

As of October 1, 2023, we had cash and cash equivalents of $12.9 million. We believe that our cash and cash equivalents, cash flows from operations and the available borrowings under our Revolving Facility, will be sufficient to meet our capital expenditures, working capital needs and debt repayments for at least the next 12 months from the date of this Quarterly Report on Form 10-Q. However, we cannot ensure that our business will generate sufficient cash flow from operating activities or that future borrowings will be available under our borrowing agreements in amounts sufficient to pay indebtedness or fund other working capital needs. 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 2022 10-K.

### Cash Flow Analysis

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

*(in thousands)*

| ​ ​ ​ ​ ​ Net cash provided by (used in): | ​ ​ ​ ​ ​ | ​ ​ Thirty-Nine Weeks Ended October 1, 2023 ​ ​ | ​ ​ ​ | ​ ​ October 2, 2022 ​ ​ | ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- |
| Operating activities | **​** | $21,100 | **​** | $16,333 | **​** |
| Investing activities | **​** | **​** (3,009) | **​** | **​** (3,868) | **​** |
| Financing activities | **​** | **​** (15,444) | **​** | **​** (11,401) | **​** |
| Net decrease in cash, cash equivalents and restricted cash | ​ | $2,647 | ​ | $1,064 | ​ |

#### Operating Activities

Net cash provided by operating activities consists primarily of net income (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 October 1, 2023, net cash provided by operating activities increased by $4.8 million, as compared to the same period in 2022. The increase was largely a result of a decrease of $28.9 million in inventory purchases as a result of lower sales in the current year due to the impact of increased macroeconomic pressures, along with an increase of $1.4 million in accounts payable. This was partially offset by a $21.1 million decrease in net income, from net income of $9.0 million during the thirty-nine weeks ended October 2, 2022 to net loss of $12.1 million during the thirty-nine weeks ended October 1, 2023. There was also a $7.9 million reduction in accrued expenses and other current liabilities, mainly related to a $2.1 million decrease in accrued inventory due to lower inventory purchases, a $1.9 million decrease in accrued compensation and benefits due to reductions in medical insurance reserves, accrued bonuses and deferred withholding taxes related to the CARES Act. In addition, there was a $1.7 million reduction in accrued marketing due to reduced performance marketing spend as we utilized a higher mix of promotions and discounts.

#### 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 timing of the expansion of our operations. We have no material commitments for capital expenditures.

During the thirty-nine weeks ended October 1, 2023, as compared to the same period in 2022, net cash used in investing activities decreased by $0.9 million. This was attributable to $0.3 million less invested in capitalized software development costs and $0.6 million lower capital expenditures for leasehold improvements, construction in progress, and purchases of computer hardware and equipment for our general operations.

#### Financing Activities

During the thirty-nine weeks ended October 1, 2023, as compared to the same period in 2022, net cash used in financing activities increased by $4.0 million primarily due to $10.0 million lower borrowings on our revolving line of credit facility in the current year as compared to the same period in 2022 offset by $6 million lower repayments on our revolving line of credit facility in the current year as compared to the same period in 2022.

### Contractual Obligations and Commitments

There have been no other material changes to our contractual obligations and commitments as disclosed in our 2022 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 2022 10-K and the notes to the audited consolidated financial statements appearing elsewhere in our 2022 10-K. There have been no significant changes to our critical accounting policies and estimates as disclosed in our 2022 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.

## Controls and procedures

As filed, 1,472 characters.

### 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 and Chief Financial 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 and Chief Financial Officer concluded that, as of October 1, 2023, 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 October 1, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 283 characters.

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 2022 10-K. There have been no material changes to the risk factors previously disclosed in our 2022 10-K.

Filed Nov 8, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-018280. Last ingested by Listed: Oct 24, 2026, 15:07 ET. No prices; not investment advice.