Lulu's Fashion Lounge Holdings, Inc. [LVLU] Filings

10-Q 1 tmb-20240630x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

Commission File Number: 001-41059

Lulu’s Fashion Lounge Holdings, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware	20-8442468
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
195 Humboldt Avenue Chico, California	95928
(Address of principal executive offices)	(Zip Code)

(530) 343-3545

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value per share	LVLU	Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 9, 2024, there were 41,771,889 shares of the registrant’s common stock, par value $0.001, outstanding.

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TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023	5
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the thirteen and twenty-six weeks ended June 30, 2024 and July 2, 2023	6
	Condensed Consolidated Statements of Stockholders’ Equity for the twenty-six weeks ended June 30, 2024 and July 2, 2023	7
	Condensed Consolidated Statements of Cash Flows for the twenty-six weeks ended June 30, 2024 and July 2, 2023	8
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
Signatures		43

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to statements regarding our future results of operations and financial position, industry and business trends, stock compensation, business strategy, plans, market growth and our objectives for future operations.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the risk factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 and our other filings with the Securities and Exchange Commission (the "SEC”). The forward-looking statements in this Quarterly Report on Form 10-Q are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. 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.

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BASIS OF PRESENTATION

On August 28, 2017, we executed a reorganization of our corporate structure. Our original parent company was called Lulu’s Holdings, LLC. This entity was converted to Lulu’s Holdings, L.P. (the “LP”). We formed two new subsidiaries, Lulu’s Fashion Lounge Holdings, Inc. and Lulu’s Fashion Lounge Parent, LLC, to sit between the LP and our operating company. Our operating company, previously known as Lulu’s Fashion Lounge, Inc., was converted from a California corporation to a Delaware limited liability company, Lulu’s Fashion Lounge, LLC, an indirect wholly-owned subsidiary of Lulu’s Fashion Lounge Holdings, Inc. In connection with our initial public offering, the LP was liquidated. Unless otherwise indicated or the context otherwise requires, references in this Quarterly Report on Form 10-Q to the terms “Lulus,” “we,” “us,” “our,” or the “Company” refer to Lulu’s Fashion Lounge Holdings, Inc. and its consolidated subsidiaries.

Our fiscal year is a “52-53 week” year ending on the Sunday closest in proximity to December 31, such that each quarterly period will be 13 weeks in length, except during a 53-week year when the fourth quarter will be 14 weeks. References herein to “fiscal 2024” and/or “2024” relate to the year ending December 29, 2024 and “fiscal 2023” and/or “2023” relate to the year ended December 31, 2023. The fiscal years ending December 29, 2024 and ended December 31, 2023 consist of 52-weeks.

Throughout this Quarterly Report on Form 10-Q, we provide a number of key performance indicators used by management and typically used by our competitors in our industry. These and other key performance indicators are discussed in more detail in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating and Financial Metrics.” In this Quarterly Report on Form 10-Q, we also reference Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow which are non-GAAP (accounting principles generally accepted in the United States of America) financial measures. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for a discussion of Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow, as well as a reconciliation of net loss to Adjusted EBITDA and a reconciliation to non-GAAP Free Cash Flow from net cash provided by operating activities. Net loss is the most directly comparable financial measure to Adjusted EBITDA and net cash provided by operating activities is the most directly comparable financial measure to Free Cash Flow, required by, or presented in accordance with GAAP.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

LULU’S FASHION LOUNGE HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)


	June 30,		December 31,
	2024		2023
Assets
Current assets:
Cash and cash equivalents	$	1,781	$	2,506
Accounts receivable		3,786		3,542
Inventory, net		37,667		35,472
Assets for recovery		3,644		3,111
Income tax refund receivable		2,559		2,510
Prepaids and other current assets		5,752		5,379
Total current assets		55,189		52,520
Property and equipment, net		4,693		4,712
Goodwill		35,430		35,430
Tradename		18,509		18,509
Intangible assets, net		2,968		3,263
Lease right-of-use assets		26,863		29,516
Other noncurrent assets		1,602		5,495
Total assets	$	145,254	$	149,445

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	11,890	$	8,900
Accrued expenses and other current liabilities		27,664		18,343
Returns reserve		11,623		7,854
Stored-value card liability		15,143		13,142
Revolving line of credit		—		8,000
Lease liabilities, current		5,662		5,648
Total current liabilities		71,982		61,887
Lease liabilities, noncurrent		22,460		25,427
Other noncurrent liabilities		2,101		1,179
Total liabilities		96,543		88,493
Commitments and Contingencies (Note 7)

Stockholders' equity:
Preferred stock: $0.001 par value, 10,000,000 shares authorized, and no shares issued or outstanding		—		—
Common stock: $0.001 par value, 250,000,000 shares authorized; and 41,739,875 and 40,618,206 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively		42		41
Additional paid-in capital		258,493		254,116
Accumulated deficit		(209,737)		(193,205)
Treasury stock, at cost, 47,850 shares and zero shares as of June 30, 2024, and December 31, 2023, respectively		(87)		—
Total stockholders' equity		48,711		60,952
Total liabilities and stockholders' equity	$	145,254	$	149,445

The accompanying notes are an integral part of the condensed consolidated financial statements.

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 30,		July 2,		June 30,		July 2,
	2024		2023			2024		2023
Net revenue	$	91,966	$	106,122	$	169,225	$	197,098
Cost of revenue		50,083		58,726		94,696		111,741
Gross profit		41,883		47,396		74,529		85,357
Selling and marketing expenses		24,914		24,670		42,607		44,159
General and administrative expenses		21,436		24,396		42,547		48,744
Loss from operations		(4,467)		(1,670)		(10,625)		(7,546)
Interest expense		(270)		(426)		(653)		(949)
Other income, net		272		373		498		446
Loss before provision for income taxes		(4,465)		(1,723)		(10,780)		(8,049)
Income tax provision		(6,331)		(874)		(5,752)		(166)
Net loss and comprehensive loss		(10,796)		(2,597)		(16,532)		(8,215)

Basic loss per share	$	(0.26)	$	(0.07)	$	(0.40)	$	(0.21)
Diluted loss per share	$	(0.26)	$	(0.07)	$	(0.40)	$	(0.21)
Basic weighted-average shares outstanding		41,356,780		39,680,908		41,188,150		39,457,607
Diluted weighted-average shares outstanding		41,356,780		39,680,908		41,188,150		39,457,607

The accompanying notes are an integral part of the condensed consolidated financial statements.

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(unaudited)


	For the Twenty-Six Weeks Ended June 30, 2024
				Additional							Total
	Common Stock			Paid-In		Accumulated		Treasury Stock			Stockholders'
	Shares	Amount		Capital		Deficit		Shares	Amount		Equity
Balance as of December 31, 2023	40,618,206	$	41	$	254,116	$	(193,205)	—	$	—	$	60,952
Issuance of common stock for vesting of restricted stock units (RSUs), net of forfeiture	983,460		—		—		—	—		—		—
Issuance of common stock for employee stock purchase plan (ESPP)	52,043		—		167		—	—		—		167
Shares withheld for withholding tax on RSUs	(396,708)		—		(660)		—	—		—		(660)
Forfeited shares of restricted stock	(1,035)		—		—		—	—		—		—
Equity-based compensation	—		—		3,023		—	—		—		3,023
Net loss and comprehensive loss	—		—		—		(5,736)	—		—		(5,736)
Balance as of March 31, 2024	41,255,966	$	41	$	256,646	$	(198,941)	—	$	—	$	57,746
Issuance of common stock for vesting of RSUs	575,697		1		—		—	—		—		1
Issuance of common stock under 2023 Bonus Plan	95,588				10							10
Shares withheld for withholding tax on RSUs	(151,001)		—		(280)		—	—		—		(280)
Shares withheld for withholding tax on 2023 Bonus Plan	(36,375)				(54)							(54)
Equity-based compensation	—		—		2,171		—	—		—		2,171
Repurchase of common stock	—		—		—		—	(47,850)		(87)		(87)
Net loss and comprehensive loss	—		—		—		(10,796)	—		—		(10,796)
Balance as of June 30, 2024	41,739,875	$	42	$	258,493	$	(209,737)	(47,850)	$	(87)	$	48,711


	For the Twenty-Six Weeks Ended July 2, 2023
				Additional							Total
	Common Stock			Paid-In		Accumulated		Treasury Stock			Stockholders'
	Shares	Amount		Capital		Deficit		Shares	Amount		Equity
Balance as of January 1, 2023	39,259,328	$	39	$	238,725	$	(173,871)	—	$	—	$	64,893
Issuance of common stock for vesting of RSUs	491,769		1		—		—	—		—		1
Issuance of common stock for special compensation award	208,914		—		—		—	—		—		—
Issuance of common stock for ESPP	47,502		—		269		—	—		—		269
Shares withheld for withholding tax on RSUs	(277,606)		—		(662)		—	—		—		(662)
Forfeited shares of restricted stock	(2,720)		—		—		—	—		—		—
Equity-based compensation	—		—		4,892		—	—		—		4,892
Net loss and comprehensive loss	—		—		—		(5,618)	—		—		(5,618)
Balance as of April 2, 2023	39,727,187	$	40	$	243,224	$	(179,489)	—	$	—	$	63,775
Issuance of common stock for vesting of RSUs	634,567		—		—		—	—		—		—
Shares withheld for withholding tax on RSUs	(220,843)		—		(558)		—	—		—		(558)
Equity-based compensation	—		—		4,054		—	—		—		4,054
Net loss and comprehensive loss	—		—		—		(2,597)	—		—		(2,597)
Balance as of July 2, 2023	40,140,911	$	40	$	246,720	$	(182,086)	—	$	—	$	64,674

The accompanying notes are an integral part of the condensed consolidated financial statements.

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Twenty-Six Weeks Ended
	June 30,		July 2,
	2024		2023
Cash Flows from Operating Activities
Net loss	$	(16,532)	$	(8,215)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		2,710		2,306
Noncash lease expense		1,956		1,753
Amortization of debt discount and debt issuance costs		78		78
Equity-based compensation expense		4,128		9,029
Deferred income taxes		3,802		(1,569)
Changes in operating assets and liabilities:
Accounts receivable		(244)		797
Inventories		(2,195)		(3,046)
Assets for recovery		(533)		(859)
Income taxes (receivable) payable		(50)		1,653
Prepaid and other current assets		(373)		(497)
Accounts payable		2,980		3,916
Accrued expenses and other current liabilities		15,221		4,756
Operating lease liabilities		(1,928)		(1,635)
Other noncurrent liabilities		1,617		(116)
Net cash provided by operating activities		10,637		8,351
Cash Flows from Investing Activities
Capitalized software development costs		(738)		(1,026)
Purchases of property and equipment		(885)		(726)
Net cash used in investing activities		(1,623)		(1,752)
Cash Flows from Financing Activities
Proceeds from borrowings on revolving line of credit		20,000		5,000
Repayments on revolving line of credit		(28,000)		(15,000)
Proceeds from issuance of common stock under employee stock purchase plan (ESPP)		167		269
Principal payments on finance lease obligations		(1,056)		(497)
Withholding tax payments related to vesting of RSUs and 2023 Bonus Plan		(763)		(637)
Repurchase of common stock		(87)		—
Other		—		(6)
Net cash used in financing activities		(9,739)		(10,871)
Net decrease in cash, cash equivalents and restricted cash		(725)		(4,272)
Cash and cash equivalents at beginning of period		2,506		10,219
Cash and cash equivalents at end of period	$	1,781	$	5,947
			(Continued)

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Twenty-Six Weeks Ended
	June 30,		July 2,
	2024		2023
Supplemental Disclosure
Cash paid during the period for:
Income taxes, net	$	386	$	82
Interest	$	593	$	918
Operating leases	$	2,800	$	2,595
Finance leases	$	1,110	$	549

Supplemental Disclosure of Non-Cash Investing and Financing Activities
Right-of-use assets acquired under operating lease obligations	$	—	$	17
Assets acquired under finance lease obligations	$	31	$	983
Purchases of property and equipment included in accounts payable and accrued expenses	$	262	$	29
				(Concluded)

The accompanying notes are an integral part of the condensed consolidated financial statements.

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1.Description of Business, Organization and Liquidity

Organization and Business

Pursuant to a reorganization, Lulu’s Fashion Lounge Holdings, Inc., a Delaware Corporation (“Lulus”, “we”, “our”, or the “Company”), was formed on August 25, 2017 as a holding company and its primary asset is an indirect membership interest in Lulu’s Fashion Lounge, LLC (“Lulus LLC”). Prior to the Company’s initial public offering, the Company was majority-owned by Lulu’s Holdings, L.P. (the “LP”). In connection with the Company’s initial public offering, the LP was liquidated.

Lulus LLC was founded in 1996, starting as a vintage boutique in Chico, CA that began selling online in 2005 and transitioned to a purely online business in 2008. The LP was formed in 2014 as a holding company and purchased 100% of Lulus LLC’s outstanding common stock in 2014. The Company, through Lulus LLC, is a customer-driven, digitally-native, attainable luxury fashion brand for women, offering modern, unapologetically feminine designs at accessible prices for all of life’s fashionable moments.

Impact of Macroeconomic Trends on Business

Changing macroeconomic factors, including inflation, interest rates, student loan repayment resumption, as well as world events, wars and domestic and international conflicts, affect overall consumer confidence with respect to current and future economic conditions and continue to impact our sales as discretionary consumer spending levels and shopping behavior fluctuate with these factors. We continue to respond to these factors, as needed, by taking appropriate pricing, promotional and other actions to stimulate customer demand. These factors may 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. During the thirteen and twenty-six weeks ended June 30, 2024, the Company incurred net losses of $10.8 million and $16.5 million, respectively.

In November 2021 the Company entered into a Credit Agreement (the “2021 Credit Agreement”) with Bank of America to provide a Revolving Facility (the “2021 Revolving Facility”) that provided for borrowings up to $50.0 million. The 2021 Credit Agreement contained various financial covenants and had a maturity date of November 15, 2024 as described in Note 5, Debt. As of June 30, 2024, the Company had total cash and cash equivalents of $1.8 million and no amounts due under the 2021 Revolving Facility.

On July 22, 2024, the Company entered into an amendment to the 2021 Credit Agreement (the “2024 Amended Credit Agreement”) as described in Note 13, Subsequent Events.

The Company continues to take certain cash conservation measures, including adjustments to marketing and other variable and capital spend to meet its obligations as needed. As the ability to raise additional debt financing is outside of management’s control, we cannot conclude that management’s plans will be effectively implemented within twelve months from the date the condensed consolidated financial statements are issued. Accordingly, we have concluded that these plans do not alleviate substantial doubt about our ability to continue as a going concern. The condensed consolidated financial statements do not reflect any adjustments relating to the outcome of this uncertainty.

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

2.Significant Accounting Policies

Basis of Presentation and Fiscal Year

The Company’s fiscal year consists of a 52-week or 53-week period ending on the Sunday nearest December 31. The fiscal years ending December 29, 2024 and ended December 31, 2023 consist of 52-weeks.

The condensed consolidated financial statements and accompanying notes include the accounts of the Company and its wholly owned subsidiaries, after elimination of all intercompany balances and transactions. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the Unites States of America (“GAAP”) and the requirements of the SEC for interim reporting. As permitted under these rules, certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. The interim condensed consolidated financial statements are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position as of June 30, 2024 and its results of operations for the thirteen and twenty-six weeks ended June 30, 2024 and July 2, 2023 and its cash flows for the twenty-six weeks ended June 30, 2024 and July 2, 2023. The results of operations for the twenty-six weeks ended June 30, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending December 29, 2024 or for any other future annual or interim period.

The condensed consolidated balance sheet as of December 31, 2023 was derived from the Company’s audited consolidated financial statements, which are included in the Company’s Annual Report on Form 10-K as filed with the SEC on March 6, 2024.

Significant Accounting Policies

The significant accounting policies used in preparation of these condensed consolidated financial statements are consistent with those discussed in Note 2 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, except as noted below and within the "Recently Issued Accounting Pronouncements" section.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The significant estimates and assumptions made by management relate to sales return reserves and related assets for recovery, lease right-of-use assets and related lease liabilities, income tax valuation allowance and fair value of equity awards. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods. As future events and their effects cannot be determined with precision, actual results could materially differ from those estimates and assumptions.

Concentration of Credit Risks

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents and restricted cash. Such amounts may exceed federally insured limits. The Company reduces credit risk by

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

depositing its cash with a major credit-worthy financial institution within the United States. To date, the Company has not experienced any losses on its cash deposits. As of June 30, 2024 and December 31, 2023, no single customer represented greater than 10% of the Company’s accounts receivable balance. No customer accounted for greater than 10% of the Company’s net revenue during the thirteen and twenty-six weeks ended June 30, 2024 and July 2, 2023.

Leases

Contracts that have been determined to convey the right to use an identified asset are evaluated for classification as an operating or finance lease. For the Company’s operating and finance leases, the Company records a lease liability based on the present value of the lease payments at lease inception. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its incremental borrowing rate (“IBR”). The determination of the IBR requires judgment and is primarily based on publicly-available information for companies within similar industries and with similar credit profiles. The Company adjusts the rate for the impact of collateralization, the lease term and other specific terms included in each lease arrangement. The IBR is determined at the lease commencement and is subsequently reassessed upon a modification to the lease arrangement. The right-of-use asset is recorded based on the corresponding lease liability at lease inception, adjusted for payments made to the lessor at or before the commencement date, initial direct costs incurred and any tenant incentives allowed for under the lease. The Company does not include optional renewal terms or early termination provisions unless the Company is reasonably certain such options would be exercised at the inception of the lease. Lease right-of-use assets, current portion of lease liabilities, and lease liabilities, net of current portion are included on the condensed consolidated balance sheets.

Fixed lease expense for operating leases is recognized on a straight-line basis, unless the right-of-use assets have been impaired, over the reasonably assured lease term based on the total lease payments and is included in operating expenses in the condensed consolidated statements of operations and comprehensive loss. Fixed and variable lease expense on operating leases is recognized within operating expenses in the condensed consolidated statements of operations and comprehensive loss. Finance lease expenses are recognized on a straight-line basis. Fixed and variable expenses are captured within interest expense and depreciation expense, which has components within general and administrative expenses and cost of revenue. The Company’s non-lease components are primarily related to maintenance, insurance and taxes, which varies based on future outcomes and is thus recognized in lease expense when incurred.

Revenue Recognition

The Company generates revenue primarily from the sale of merchandise products directly to end customers. The sale of products is a distinct performance obligation, and revenue is recognized at a point in time when control of the promised product is transferred to customers, which the Company determined occurs upon shipment based on its evaluation of the related shipping terms. Revenue is recognized in an amount that reflects the transaction price consideration that the Company expects to receive in exchange for those products. The Company’s payment terms are typically at the point of sale for merchandise product sales.

The Company elected to exclude from revenue taxes assessed by governmental authorities, including value-added and other sales-related taxes, that are imposed on and concurrent with revenue-producing activities. The Company has elected to apply the practical expedient, relative to e-commerce sales, which allows an entity to account for shipping and handling as fulfillment activities, and not a separate performance obligation. Accordingly, the Company recognizes revenue for only one performance obligation, the sale of the product, at shipping point (when the customer gains control). Shipping and handling costs associated with outbound freight are accounted for as fulfillment costs and are included in cost of goods sold. The Company has elected to apply the practical expedient to expense costs as incurred for incremental costs to obtain a contract when the amortization period would have been one year or less.

Revenue from merchandise product sales is reported net of sales returns, which includes an estimate of future returns based on historical return rates, with a corresponding reduction to cost of sales. There is judgment in utilizing historical

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

trends for estimating future returns. The Company’s refund liability for sales returns is included in the returns reserve on its condensed consolidated balance sheets and represents the expected value of the refund that will be due to the Company’s customers. The Company also has corresponding assets for recovery that represent the expected net realizable value of the merchandise inventory to be returned.

The Company sells stored-value gift cards to customers and offers merchandise credit stored-value cards for certain returns. Such stored-value cards do not have an expiration date. The Company recognizes revenue from stored-value cards when the card is redeemed by the customer. The Company has determined that sufficient evidence exists to support an estimate for stored-value card breakage. Subject to requirements to remit balances to governmental agencies, breakage is recognized as revenue in proportion to the pattern of rights exercised by the customer, which is substantially within thirty-six months from the date of issuance. The amount of breakage recognized in revenue during the thirteen and twenty-six weeks ended June 30, 2024 and July 2, 2023 was not material.

The Company has two types of contractual liabilities: (i) cash collections from its customers prior to delivery of products purchased (“deferred revenue”), which are initially recorded within accrued expenses and recognized as revenue when the products are shipped, (ii) unredeemed gift cards and online store credits, which are initially recorded as a stored-value card liability and are recognized as revenue in the period they are redeemed.

The following table summarizes the significant changes in the contract liabilities balances included in accrued expenses and other current liabilities during the thirteen and twenty-six weeks ended June 30, 2024 and July 2, 2023 (in thousands):


	Deferred		Stored-Value
	Revenue		Cards
Balance as of December 31, 2023	$	50	$	13,142
Revenue recognized that was included in contract liability balance at the beginning of the period		(50)		(1,549)
Increase due to cash received, excluding amounts recognized as revenue during the period		230		1,616
Balance as of March 31, 2024		230		13,209
Revenue recognized that was included in contract liability balance at the beginning of the period		(230)		(1,042)
Increase due to cash received, excluding amounts recognized as revenue during the period		89		2,976
Balance as of June 30, 2024		89		15,143


	Deferred		Stored-Value
	Revenue		Cards
Balance as of January 1, 2023	$	69	$	10,828
Revenue recognized that was included in contract liability balance at the beginning of the period		(69)		(1,720)
Increase due to cash received, excluding amounts recognized as revenue during the period		122		2,022
Balance as of April 2, 2023		122		11,130
Revenue recognized that was included in contract liability balance at the beginning of the period		(122)		(1,129)
Increase due to cash received, excluding amounts recognized as revenue during the period		98		2,355
Balance as of July 2, 2023		98		12,356

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Selling and Marketing Expenses

Advertising costs included in selling and marketing expenses were $20.0 million and $19.5 million for the thirteen weeks ended June 30, 2024 and July 2, 2023, respectively, and $33.1 million and $34.5 million for the twenty-six weeks ended June 30, 2024 and July 2, 2023, respectively.

Net Loss Per Share Attributable to Common Stockholders

Basic net loss per share attributable to common stockholders is computed using net loss attributable to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted net loss per share attributable to common stockholders represents net loss attributable to common stockholders divided by the weighted average number of common shares outstanding during the period, including the effects of any dilutive securities outstanding. Due to the net loss for all periods presented, no potentially dilutive securities had an impact on diluted loss per share for any period.

The following securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive (on an as-converted basis):


	Thirteen Weeks Ended		Twenty-Six Weeks Ended
	June 30, 2024	July 2, 2023	June 30, 2024	July 2, 2023
Stock options	161,397	161,397	161,397	161,397
Unvested restricted stock	9,140	57,287	9,140	57,287
Unvested RSUs	4,327,969	4,033,576	4,327,969	4,033,576
PSUs	2,161,571	1,811,571	2,161,571	1,811,571
ESPP shares	103,766	137,847	103,766	137,847
2023 Bonus Plan	—	210,381	—	210,381
Total	6,763,843	6,412,059	6,763,843	6,412,059

2024 Stock Repurchase Program

On May 3, 2024, the Company's Board of Directors authorized a stock repurchase program to repurchase up to $2.5 million of our common stock (the “2024 Repurchase Program”). The actual timing, number, and value of shares repurchased in the future will be determined by the Company in its 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.

As of June 30, 2024, $2.4 million remained available under the 2024 Repurchase Program authorization. The table below summarizes the share repurchase activity during the thirteen and twenty-six weeks ended June 30, 2024 under our 2024 Repurchase Program:


						Maximum Dollar Value
	Total Number	Weighted		Aggregate		of Shares that May Yet
	of Shares	Average Price		Purchase		Be Purchased Under
Period	Purchased ⁽¹⁾	Paid Per Share		Price ⁽²⁾		the Plan
Thirteen and twenty-six weeks ended June 30, 2024	47,850	$	1.82	$	87,243	2,412,757

(1)

The shares of common stock were purchased in open market transactions pursuant to a 10b5-1 purchase plan entered into by the Company.

(2)

Amount includes broker commissions

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Goodwill and Intangible Assets

The Company tests for goodwill impairment at the reporting unit level on the first day of the fourth quarter of each year and between annual tests if significant indicators exist that would suggest the Company's goodwill and intangible assets could potentially be impaired. The Company monitors changing business conditions as well as industry and economic factors, among others, for events which could trigger the need for an interim impairment analysis. The Company concluded that a sustained decline in its stock price coupled with continuing net losses, were significant enough factors to warrant an impairment analysis of its goodwill, tradename and intangible assets (which constitutes the Company's sole reporting unit) during the thirteen weeks ended March 31, 2024.

Accordingly, the Company performed an interim quantitative assessment as of March 31, 2024 using a market-based quantitative assessment utilizing a combination of the (i) the guideline public company method applying revenue and EBITDA multiples of similar companies and (ii) the discounted cash flow method. The fair value determination used in the impairment assessment requires estimates of the fair values based on present value or other valuation techniques or a combination thereof, necessitating subjective judgments and assumptions by management. These estimates and assumptions could result in significant differences to the amounts reported if underlying circumstances were to change. The results from the quantitative assessment indicated that the fair value exceeded the carrying value by approximately 17%.

As of June 30, 2024, the Company performed a qualitative assessment of its goodwill, tradename and intangible assets and determined that it is more likely than not that the fair value of its reporting unit exceeds the carrying value of the reporting unit. As a result, there was no impairment relating to the goodwill, tradename and intangible assets as of June 30, 2024.

Recently Adopted Accounting Pronouncements

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recently Issued Accounting Pronouncements

In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. We are currently evaluating the effects of this pronouncement on our consolidated financial statements and related disclosures.

In December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which amends existing income tax disclosure guidance, primarily requiring more detailed disclosure for income taxes paid and the effective tax rate reconciliation. ASU 2023-09 is effective for annual reporting periods beginning

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

after December 15, 2024, with early adoption permitted and can be applied on either a prospective or retroactive basis. We are currently evaluating this pronouncement to determine its impact on our income tax disclosures.

In March 2024, FASB issued ASU 2024-01, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards, which is intended to reduce complexity in determining whether a profits interest award is subject to the guidance in Topic 718 and existing diversity in practice. ASU 2024-01 is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted and can be applied on either a prospective or retroactive basis. We are currently evaluating this pronouncement to determine its impact on our stock compensation.

In March 2024, FASB issued ASU 2024-02, Codification Improvements—Amendments to Remove References to the Concepts Statements, which is intended to simplify the Codification and draw a distinction between authoritative and nonauthoritative literature. ASU 2024-02 is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted and can be applied on either a prospective or retroactive basis. We are currently evaluating this pronouncement to determine its impact on our stock compensation.

3.Fair Value Measurements

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts payable, accrued expenses and revolving line of credit. As of June 30, 2024 and December 31, 2023, the carrying values of cash and cash equivalents, restricted cash, accounts payable and accrued expenses and other current liabilities approximate fair value due to their short-term maturities. The fair value of the Company’s 2021 Revolving Facility that provides for borrowings up to $50.0 million (see Note 5, Debt) approximates its carrying value as the stated interest rates reset daily at the daily secured overnight financing rate (“SOFR”) plus an applicable margin and, as such, approximate market rates currently available to the Company. The Company does not have any financial instruments that were determined to be Level 3.

4.Balance Sheet Components

Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):


	Estimated Useful Lives	June 30,		December 31,
	in Years	2024		2023
Leasehold improvements	3 – 9	$	4,888	$	4,314
Equipment	3 – 7		3,773		3,053
Furniture and fixtures	3 – 7		2,019		2,151
Construction in progress			49		688
Total property and equipment			10,729		10,206
Less: accumulated depreciation and amortization			(6,036)		(5,494)
Property and equipment, net		$	4,693	$	4,712

Depreciation and amortization of property and equipment for the thirteen weeks ended June 30, 2024 and July 2, 2023 was $0.8 million and $0.7 million, respectively, and for the twenty-six weeks ended June 30, 2024 and July 2, 2023, was $1.6 million and $1.4 million, respectively.

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


	June 30,		December 31,
	2024		2023
Accrued compensation and benefits	$	4,928	$	5,057
Accrued marketing		7,880		5,002
Accrued inventory		8,746		4,151
Accrued freight		1,727		1,940
Other		4,383		2,193
Accrued expenses and other current liabilities	$	27,664	$	18,343

5.Debt

2021 Credit Agreement and 2021 Revolving Facility

On November 15, 2021, we entered into the 2021 Credit Agreement with Bank of America to provide the 2021 Revolving Facility that provided for borrowings up to $50.0 million. During the term of the 2021 Credit Agreement, the Company could have increased the aggregate amount of the 2021 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 2021 Credit Agreement, including obtaining the consent of the administrative agent and an increased commitment from existing or new lenders. In addition, the 2021 Credit Agreement could have been used to issue letters of credit up to $7.5 million. During the twenty-six weeks ended June 30, 2024, the Company borrowed $20.0 million under the 2021 Revolving Facility and repaid $28.0 million of the outstanding balance. The 2021 Revolving Facility had a maturity date of November 15, 2024. On July 22, 2024, we entered into the 2024 Amended Credit Agreement as described in Note 13, Subsequent Events. As of June 30, 2024, the Company had $0.3 million outstanding under the Letter of Credit. Subject to the satisfaction of certain conditions under the 2021 Credit Agreement, as of June 30, 2024, the Company had $49.7 million available for borrowing under the 2021 Revolving Facility and $7.2 million available to issue under letters of credit.

All borrowings under the 2021 Credit Agreement accrued interest at a rate equal to, at the Company’s 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 2021 Revolving Facility contained 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. Additionally, a commitment fee of 37.5 basis points was assessed on unused commitments under the 2021 Revolving Facility, taking into account the sum of outstanding borrowings and letter of credit obligations. As of June 30, 2024, the interest rate for the 2021 Revolving Facility was 7.2%, and during the thirteen and twenty-six weeks ended June 30, 2024, the weighted average interest rate for the 2021 Revolving Facility was 10.1% and 8.8%, respectively.

Amounts borrowed under the 2021 Credit Agreement were collateralized by all assets of the Company. The 2021 Credit Agreement contained various financial and non-financial covenants for reporting, protecting and obtaining adequate insurance coverage for assets collateralized and for coverage of business operations, and complying with requirements, including the payment of all necessary taxes and fees for all federal, state and local government entities. Immediately upon the occurrence and during the continuance of an event of default, including the noncompliance with the above covenants, the lender could have increased the interest rate per annum by 2.0% above the rate that would be otherwise applicable. As of June 30, 2024, management determined that the Company was in compliance with all financial covenants.

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Debt Discounts and Issuance Costs

Debt discounts and issuance costs are deferred and amortized over the life of the related loan using the effective interest method. The associated expense is included in interest expense in the consolidated statements of operations and comprehensive loss. Debt issuance costs related to the 2021 Revolving Facility, are included in other non-current assets in the consolidated balance sheets. As of June 30, 2024 and December 31, 2023, unamortized debt issuance costs recorded within other non-current assets were $0.1 million and $0.1 million, respectively.

6.Leases

On January 3, 2022, the Company adopted ASC 842 using the alternative transition method and applied the standard only to leases that existed at that date. Under the alternative transition method, the Company did need to restate the comparative periods in transition and will continue to present financial information and disclosures for periods before January 3, 2022, in accordance with FASB ASC 840, Leases. The Company elected the practical expedient package, which among other practical expedients, includes the option to retain the historical classification of leases entered into prior to January 3, 2022, and allows entities to recognize lease payments on a straight-line basis over the lease term for leases with a term of 12 months or less. The Company also elected the practical expedient to combine lease and non-lease components.

The Company is a lessee under various lease agreements. The determination of whether an arrangement contains a lease and the lease classification is made at lease commencement (date on which a lessor makes an underlying asset available for use by the lessee). At lease commencement, the Company also measures and recognizes a right-of-use asset, representing the Company’s right to use the underlying asset, and a lease liability, representing the Company’s obligation to make lease payments under the terms of the arrangement. The lease term is defined as the noncancelable portion of the lease term plus any periods covered by an option to extend the lease if it is reasonably certain that the option will be exercised. For the purposes of recognizing right-of-use assets and lease liabilities associated with the Company’s leases, the Company has elected the practical expedient of not recognizing a right-of-use asset or lease liability for short-term leases, which are leases with a term of 12 months or less. The Company has multiple finance leases and operating leases that are combined and included in the lease right-of-use assets, lease liabilities, current, and lease liabilities, noncurrent on the Company’s condensed consolidated balance sheets.

The Company primarily leases its distribution facilities, corporate offices and retail stores under operating lease agreements expiring on various dates through December 2031, most of which contain options to extend. In addition to payment of base rent, the Company is also required to pay property taxes, insurance, and common area maintenance expenses. The Company records lease expense on a straight-line basis over the term of the lease. The Company had immaterial remaining obligations for the base rent related to the short-term leases as of June 30, 2024 and July 2, 2023.

The Company also leases equipment under finance lease agreements expiring on various dates through April 2029.

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

As of June 30, 2024, the future minimum lease payments for the Company’s operating and finance leases for each of the fiscal years were as follows (in thousands):


Fiscal Year:		Operating Leases	Finance Leases		Total
2024 (remaining six months)	$	2,839	$	673	$	3,512
2025		6,264		1,512		7,776
2026		4,970		259		5,229
2027		5,138		82		5,220
2028		5,252		13		5,265
Thereafter		6,380		2		6,382
Total undiscounted lease payment		30,843		2,541		33,384
Present value adjustment		(5,159)		(103)		(5,262)
Total lease liabilities		25,684		2,438		28,122
Less: lease liabilities, current

Lulu's Fashion Lounge Holdings, Inc. [LVLU] Filings
10-Q	[2024-08-14]
10-Q	[2024-05-08]
10-K	[2024-03-06]
10-Q	[2023-11-08]
10-Q	[2023-08-08]
10-Q	[2023-05-09]
10-K	[2023-03-14]
10-Q	[2022-11-15]
10-Q	[2022-08-16]
10-Q	[2022-05-17]
10-K	[2022-03-31]
10-Q	[2021-12-16]
S-1	[2021-10-12]