Lulu's Fashion Lounge Holdings, Inc. Common Stock 2026 Q2 Earnings Call

Good afternoon, everyone, and thank you for joining us to discuss Lulus second quarter fiscal 2026 results. Before we begin, we would like to remind you that this conference call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including, but not limited to, statements regarding management's expectations, plans, strategies, goals and objectives, and their implementation. These forward-looking statements are subject to various risks, uncertainties, assumptions, and other important factors, which could cause our actual results, performance, or achievements to differ materially from results, performance, or achievements expressed or implied by these forward-looking statements.

These risks, uncertainties, and assumptions are detailed in this afternoon's press release, as well as our filings with the SEC, including our annual report on Form 10-K for the fiscal year ended December 28, 2025, and quarterly report on Form 10-Q for the fiscal quarter ended June 28, 2026, which can be found on our website at investors.lulus.com. During our call today, we also reference certain non-GAAP financial information, including adjusted EBITDA, adjusted EBITDA margin, Net Debt, and Free Cash Flow. Our non-GAAP measures may be different from non-GAAP measures used by other companies. Reconciliation of GAAP to non-GAAP measures, as well as a description, limitations, and rationale for using each measure can be found in this afternoon's press release and in our SEC filings. We also use certain key operating metrics, including gross margin, Average Order Value, and active customers.

A description of these metrics can also be found in this afternoon's press release and in our SEC filings. Joining me on the call today are our CEO, Crystal Landsem, our CFO, Heidi Crane, and our President and CIO, Mark Vos. With that, I'll turn the call over to Crystal.

Thank you, Naomi, and good afternoon, everyone. We appreciate you joining us today. During the second quarter, we remained focused on strengthening the fundamentals of the business through disciplined merchandising, inventory management, and operational efficiency. While revenue trends were below our historical levels in the second quarter, we continued to prioritize the long-term health of the business over short-term volume. We continued to see encouraging momentum across several key areas of the business, including progress in our new assortment and reorder funnel, reinforcing our conviction that resetting the assortment around the categories and customers where Lulus has historically differentiated itself is improving SKU productivity, reorder adoption rates, customer economics, and the overall quality of the business. Furthermore, we delivered another quarter of meaningful gross margin expansion, continued improvement in net loss, positive adjusted EBITDA performance, and stronger inventory productivity, reflecting continued execution against our turnaround strategy.

Looking more closely at demand trends during the quarter, revenue comparisons continue to reflect assortment decisions from prior product year cohorts. Particularly pronounced in the second quarter was lower reorder sales volume from 2025 styles. At the same time, the leading indicators of our assortment reset are increasingly reflecting the progress we are seeing in new styles introduced in 2026. While we are working to fully align our inventory and reorder funnels, we are very encouraged by the response to the newer assortment across both our core occasion wear and casual apparel businesses. New products introduced during the first half of 2026 are converting into reorder eligible styles at rates well ahead of our internal targets, reinforcing our confidence that the assortment reset is working and building a stronger reorder funnel for future periods.

As these styles build into our reorder revenue base, we expect they will contribute significantly to sales in future quarters and years. Within our new occasion wear assortment, which includes bridal, bridesmaids, formal, and day event categories, we delivered double-digit year-over-year top-line growth during the quarter, supported by strong regular priced sales. The quarter also reflects a significant reduction in markdown sales, with total markdown sales transacted down 38% compared to Q2 2025, including a 65% decline in markdown sales within casual apparel. While this reduction pressured top-line comparisons, we view the shift towards healthier regular priced sales as an important part of improving the quality and profitability of the business. We expect the tough comparisons for markdown sales to continue into Q1 of next year, with regular priced sales sequentially improving each quarter to offset the impact of lower markdown sales.

With that, let me highlight some of the key positives during the second quarter of 2026. New SKU productivity improved during the quarter with a significantly higher percentage of styles reaching reorder thresholds, more comparable to levels we saw in 2021 and prior. These results underscore the impact of our ongoing assortment refinement efforts and provide further evidence that we are improving alignment between our product offering and customer demand. Gross margins expanded by 330 basis points to 48.6%, our highest second quarter gross margin percentage since 2021. Ongoing gross margin expansion reflects the structural progress we've made across sourcing, assortment optimization, and inventory management, driving healthier order economics and supporting improved profitability. We continue to strengthen brand awareness and customer engagement through a series of impactful marketing and experiential initiatives during the quarter.

We successfully launched our first Disney collaboration featuring The Devil Wears Prada 2, which drove strong customer response and delivered high conversion, high Average Order Values, strong new customer acquisition, and one of our most meaningful brand moments of the quarter. We also opened our Mall of America pop-up, giving customers an opportunity to experience the Lulus brand in person while introducing new arrivals and hosting community-focused events. To further amplify these initiatives, we strategically activated influencer partnerships to support these campaigns, extend our reach, drive customer acquisition, and reinforce awareness of the Lulus brand across both digital and physical touch points. In April, we launched our 2026 brand campaign, anchored by our summer weekend wedding edit, which brought our occasion assortment to life through destination wedding storytelling and elevated brand focus creative.

The campaign reinforced our position as a destination for all of life's occasions while supporting brand awareness and customer engagement across all channels. Our wholesale channel continues to see meaningful growth, nearly doubling revenue during the quarter versus the previous year period. Wholesale continues to complement and amplify our D2C business by meeting customers where they already shop while introducing the Lulus brand to new audiences. Since the start of Q3, we have launched with two additional major partners, further broadening our reach and brand visibility. The in-store experience we gain through these retail partners allows customers to experience firsthand the quality, fit, and value of our assortment, helping deepen brand engagement and trust. We continue to view wholesale as a highly strategic and capital-efficient growth channel that drives awareness and incremental customer acquisition.

Inventory composition improved meaningfully during the quarter, down 23% versus the prior year, with the largest reductions occurring in slow-turning markdown inventory while maintaining a more balanced level of reorder inventory. We believe this reflects the resonance of our newer assortment, combined with a more disciplined approach into inventory planning and a healthier balance between newness and proven winning styles, positioning us to respond more effectively to customer demand. Finally, we delivered positive adjusted EBITDA of $1 million, which improved significantly year over year, reflecting our continued focus on profitability, a lean operating model, and disciplined execution across the business. Importantly, the actions we have taken over the last several quarters within casual apparel and footwear are beginning to translate to improved productivity, supported by a cleaner and more focused assortment. This progress reinforces our confidence in the long-term opportunity within these categories.

In the second quarter, we continued to refine our casual apparel and footwear assortments with a disciplined focus on productivity, customer relevance, and profitability. We saw encouraging improvements in SKU productivity and regular price selling trends, reflecting the benefits of a more curated assortment. In footwear, we further reduced lower-performing inventory and are selectively investing behind top-performing styles. Inventory ended the quarter significantly lower year over year, including declines of 43% in casual apparel and nearly 58% in footwear, with markdown exposure also meaningfully reduced. While return rates remain elevated, driven by higher mix of occasion products and higher average unit retails, we continue to expect improvement as our casual apparel and footwear assortments normalize through the back half of the year.

All in all, we believe the positive strides made during the quarter further reinforces that we are moving in the right direction and building a stronger foundation for the future. We continue to see opportunities to drive long-term growth by serving our customers across a broader range of occasions and life moments, particularly within wedding-related and adjacent categories that align naturally with the Lulus brand. Above all, we remain committed to serving our customers, deepening their connection to the brand, and delivering the style, quality, and experience they rely on for life's most meaningful moments. In summary, product is getting better. More new SKUs are reaching reorder thresholds, and new occasion wear demand grew double digits across multiple product classes. The reorder funnel is rebuilding quickly. Order economics are getting better.

Gross margin is up 330 basis points, adjusted EBITDA doubled, and our net losses improved significantly in the quarter compared to last year. Inventory is getting healthier, down 23% compared to last year, driven primarily from decreases in slow-turning markdown inventory. The brand continues to reach customers in new ways. Wholesale nearly doubled in the quarter, and there were two new major retail wholesale accounts added. We are collaborating with new brand partners and increasing our physical activations presence. Taken together, these results give us increasing confidence in the direction of the business. Revenue is still being affected by the runoff of older product cohorts and the assortment decisions made in prior years that did not align with our core customer, but the leading indicators are moving in the right direction. One final note before I turn it over to Mark.