Earnings call transcript: Lulu's Q3 2025 shows financial improvement, stock rises

Lulu's Fashion Lounge Holdings Inc (LVLU) reported its Q3 2025 earnings, revealing a net revenue of $73.6 million, a decrease of 9% year-over-year. Despite missing the revenue forecast of $75.68 million, the company showed financial improvements, including a reduced net loss of $2.3 million and a positive adjusted EBITDA of $0.4 million. The stock rose 4.94% to close at $4.66, reflecting investor optimism about the company's strategic focus and cost-cutting measures.

Key Takeaways

• Revenue for Q3 2025 was $73.6 million, below the forecast.
• Net loss improved to $2.3 million from $6.9 million year-over-year.
• Stock price increased by 4.94%, closing at $4.66.
• Strong performance in event wear categories.
• Continued focus on operational efficiency and profitability.

Company Performance

Lulu's Fashion Lounge showed significant financial improvement in Q3 2025, despite a 9% decrease in net revenue year-over-year. The company reduced its net loss from $6.9 million to $2.3 million and achieved a positive adjusted EBITDA of $0.4 million, compared to a loss of $3.6 million in the same quarter of the previous year. The company attributes these improvements to its strategic focus on special occasion and event wear categories and successful cost reduction initiatives.

Financial Highlights

• Revenue: $73.6 million, a decrease of 9% year-over-year.
• Net loss: Improved to $2.3 million from $6.9 million.
• Adjusted EBITDA: $0.4 million positive, compared to a $3.6 million loss.
• Gross margin: 42.6%, a 450 basis point improvement year-over-year.
• Net debt reduced to $7.3 million.

Market Reaction

The stock of Lulu's Fashion Lounge Holdings Inc saw a 4.94% increase, closing at $4.66 following the earnings announcement. This positive market reaction suggests investor confidence in the company's strategic initiatives and financial improvements, despite the revenue miss. The stock's performance is notable within its 52-week range of $2.98 to $25.50.

Outlook & Guidance

Lulu's expects significant year-over-year improvement in Q4 2025 adjusted EBITDA. The company plans to maintain its focus on operational efficiency and profitability, with projected full-year capital expenditures of $2.5 million. The company anticipates moderating top-line pressure in casual and shoe categories by Q2 2026.

Executive Commentary

Crystal Landsem, CEO, expressed confidence in the company's trajectory, stating, "We believe we are on a solid path with another quarter of material sequential improvement." She also highlighted the success of the company's refined reorder and merchandising strategies, emphasizing a commitment to enhancing performance and driving long-term growth.

Risks and Challenges

• Decline in total orders placed by 14%.
• Weakness in casual wear and footwear categories.
• Potential supply chain disruptions affecting inventory.
• Competitive pressure in the fashion retail market.
• Economic uncertainties impacting consumer spending.

Q&A

No questions were asked during the Q&A session of the earnings call, indicating either comprehensive presentation coverage or limited analyst participation.

Full transcript - Lulu's Fashion Lounge Holdings Inc (LVLU) Q3 2025:

Heidi Crane, Fractional CFO, Lulu's: Good afternoon and welcome to Lulu's Third Quarter 2025 earnings conference call. Today's call is being recorded, and we have allocated one hour for the prepared remarks and Q&A. At this time, I'd like to turn the conference over to Lulu's General Counsel and Corporate Secretary, Naomi Beckman-Straus. Thank you. You may begin.

Naomi Beckman-Straus, General Counsel and Corporate Secretary, Lulu's: Good afternoon, everyone, and thank you for joining us to discuss Lulu's Fiscal Third Quarter 2025 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, opportunities for growth in the coming quarter, the long-term growth trajectory of our business, our expectations around the continued impact of the macroeconomic environment, including as a result of the imposition of tariffs, consumer demand, and return rates on our business, our future expectations regarding financial results, our ability to realize the intended impact of cost reduction measures, references to the fiscal year ending December 28, 2025, including our financial outlook for fourth quarter and fiscal year 2025, market opportunities, buying strategies, product launches, SKU management, our technology enablement initiative, and personalized shopping and other initiatives.

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 29, 2024, and our quarterly reports on Form 10-Q for the fiscal quarters ended March 30, 2025, and June 29, 2025, all of which can be found on our website at investors.lulus.com. Any such forward-looking statements represent management's estimates as of the date of this call. While we may elect to update such forward-looking statements at some point in the future, we undertake no obligation to revise or update any forward-looking statements or information except as required by law.

During our call today, we will also reference certain non-GAAP financial information, including adjusted EBITDA, adjusted EBITDA margin, net debt, and free cash flow. We use non-GAAP measures in some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our business. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information prepared and presented in accordance with GAAP. 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 the 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 total orders placed.

The 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 fractional CFO, Heidi Crane, and our President and CIO, Marc Vos. Following our prepared remarks, we'll open the call for your questions. With that, I'll turn the call over to Crystal.

Crystal Landsem, CEO, Lulu's: Thank you, Naomi, and good afternoon, everyone. We appreciate you joining us today. Our third quarter results reflect the meaningful progress we are making, strengthening and optimizing key areas of the business through consistent execution of our strategic priorities and an eye towards more occasionally focused assortment. We believe we are on a solid path with another quarter of material sequential improvement in our quarterly year-over-year net revenue comparisons and another consecutive quarter of positive adjusted EBITDA in line with our expectations. Special occasion and bridesmaids categories continue to outperform, giving us confidence in our event attire strategy and reinforcing the strength of our attainable luxury value proposition. The outperformance in special occasion was offset by continued weaker performance in casual wear and footwear assortments, which we are actively realigning towards a more curated event-focused assortment.

Importantly, we entered into a credit agreement with White Oak Commercial Finance in the third quarter, which strengthens our liquidity position and significantly improves our financial flexibility. Combined with another quarter of positive adjusted EBITDA performance, a more efficient cost structure, and a healthier balance sheet with the closing of our new ABL facility, we believe we are well-positioned to continue executing against our strategic priorities, which are geared towards strengthening our foundation, driving customer engagement, and setting us up for sustainable long-term growth. I'd like to highlight a number of key positive developments from the quarter, which showcase the continued momentum we're seeing across the business as a result of our strong execution against our strategic initiatives. Special occasion continues to lead outperformance, with formal and bridesmaid categories driving ongoing year-over-year net sales growth on top of a double-digit comparison in the prior year period.

Our continued strong performance in event dressing gives us increased confidence in our assortment strategy and value proposition and further supports our conviction that we are a leading destination for getting dressed up for under $200. Worth noting, these product classes year to date had a three-year CAGR of 6.7% and in Q3 2025 had a three-year CAGR of 9.5%, showing the growth acceleration throughout 2025. First-time reorders of new products once again saw sequential and year-over-year growth. Our refined reorder and merchandising strategies are working, and we are investing in areas of our new product assortment where there is demand to build upon in our successes in these areas.

Total reorder business inflected a positive in the back half of the quarter, led by success across our reorder and debut reorder event dress businesses and validating our strategy to lean into optimizing fewer SKUs with color additions and fabrication ads to build out our winning programs that customers tell us they love. Product margins improved for the fourth consecutive quarter. This is reflected in approximately 500 basis point increase compared to the prior year period and 25 basis points higher than our pre-pandemic third quarter merchandise margin high point, illustrating the gap we've closed from a margin recovery perspective. The improvement highlights the continued consumer demand for our higher margin product categories, further supported by our pricing and margin enhancement initiatives and fewer markdown sales, which we remain focused on to drive steady margin improvement going forward.

Gross margins expanded 450 basis points to 42.6% over the prior year period, with monthly sequential improvement through the quarter. Our focus on selling profitably and at higher margins is yielding results, and we remain focused on continuing to optimize gross margins through a mix of SKU optimization, sourcing, price, and cost efficiencies. Return rates improved 110 basis points from Q2, underscoring the ongoing impact of our improved fit and quality efforts and measured return policy adjustments. Brand momentum continues to build as we lean further into visibility initiatives to drive discovery and relevance. During the third quarter, we launched our first fall brand campaign and leveraged editorial and influencer engagement around cultural moments and through talent partnerships. Our brand equity score has remained strong throughout the year, reflecting growing brand recognition and connection despite a more competitive market.

Our wholesale business is ramping up with vigor, with an exciting pipeline of interest and several new major partners and boutiques added during the third quarter, resulting in our in-store and online wholesale presence expanding to six major retailers in Q3. As a result, we have achieved triple-digit, seven-figure year-over-year growth in wholesale revenue year to date. The strong engagement we're seeing in this channel reinferred the meaningful opportunity we see in the near and long term as we expand our footprint with existing partners and add brand accretive majors and boutiques to drive profitable wholesale volume and put Lulu's products in the hands of more consumers nationwide. Last, we sustained positive adjusted EBITDA in the third quarter, consistent with our expectations. Our leaner cost structure and improved product margins supported our performance, resulting from our team's discipline and focus around streamlining operations and strengthening our bottom line.

I'm incredibly proud of our consistent improvements in business performance over the last several quarters as we optimize our core business while also navigating a dynamic macro environment. We are keenly focused on addressing areas of our business that remain under pressure, namely our shoes and casual apparel businesses, which have continued to weigh on top-line performance. As we have discussed on prior calls, we are actively resetting our merchandising strategy in casual apparel and shoes to stabilize these categories and reposition them for growth. By reducing SKU count and pulling back on inventory receipts near term to improve turns, while also leaning into more elevated dressier styles, we believe we are able to rebuild with a more focused and productive assortment that better aligns with consumer demand and margin goals.

As we work through inventory, we expect top-line pressure from these categories to moderate towards the end of Q2 2026, allowing us to see more meaningful improvements in our revenue performance. To further support our realignment efforts, we made the strategic decision to optimize our team structure, including narrowing our team, eliminating the Chief Merchandising Officer role, and streamlining our operations to leverage the success we have seen with our occasion wear buying. As we look ahead, we remain committed to evaluating all options to enhance performance and drive sustained, profitable, long-term growth, focusing on process optimization and operational efficiency, and positioning the brand as a key destination for special occasions and dressing up. Shifting to our cost reduction initiatives, we continue to reap the benefits of our cost-saving actions initiated last year.

In the third quarter, OPEX declined 11% year-over-year, and within that, fixed costs were down 18%, enabling another quarter of positive adjusted EBITDA performance. We expect to continue to benefit from our leaner cost structure and the additional actions we're taking to drive operational efficiency, optimize performance, and sustained profitability. More recently, in response to heightened macro uncertainty related to trade policy actions in the first half of the year, we took action to further promote cash generation and fortify our balance sheet through SKU rationalization. Our SKU rationalization initiative is bearing fruit with improved efficiencies in margins, reduced excess inventory, and incremental cost savings through a more curated assortment. As it relates to direct sourcing, we are on track with our direct-from-factory approach for select, mostly entry price point product category segments.

In parallel, we are optimizing and diversifying our supply chain through reducing supply chain costs and close collaboration with our long-standing vendor partnerships. Furthermore, we are leveraging price strategy and assortment optimizations as incremental mitigation levers. On the home office front, I'm very excited to formally welcome Heidi Crane to our team as our fractional CFO. Heidi brings a wealth of experience leading financial strategy for high-growth consumer companies, which will be tremendously valuable to our team as we position for sustainable, long-term, profitable growth. With that, I'd like to turn the call over to Marc Vos, our President and Chief Information Officer. Marc will provide updates around progress we are seeing against our strategic priorities. Marc?

Marc Vos, President and Chief Information Officer, Lulu's: Thank you, Crystal. Our brand engagement initiatives continued to resonate, strengthening visibility and deepening awareness across key markets, despite a decline in our active customer counts year over year. Our Love Rewards Loyalty Program membership continues to grow steadily, contributing to higher reactivation rates amongst elapsed customers. We also saw a meaningful uplift in average order value during the third quarter, which supported our strong comp performance for the period. With continued progress across key engagement metrics, we're optimistic about the impact our strategic initiatives are having in accelerated brand momentum for Lulu's. To that end, let me share more specifics around the progress we're seeing against our three strategic initiatives. Starting with our product assortment optimization and related margin expansion efforts. We delivered another quarter of sequential improvements in return rates and damages related to customer returns.

The shift to a flat fee return policy in Q1, introduced to better align with industry standards, has proven effective in enhancing the customer experience and preserving margins. We continue to monitor customer behavior and will adapt our policy to support the customer experience and the financial impact of returns. Across event categories, we observed several positive trends that reinforce our confidence in our refined merchandising and product assortment strategy. In first-time reorder, our positive performance, led by event gowns, supports our ongoing reorder strategy of investing more into recently tested new products and retiring older reorder products. In cocktail dresses, we saw progressive sales comp improvements throughout the quarter, supported by very strong top performers in both our new product and reorder product assortments, demonstrating the impact of our new merchandising strategy and assortment optimization initiatives.

While our best-selling new assortments saw early sell-through, we are taking advantage of opportunities to increase depth in styles that are working, setting us up well for the year ahead. In our reorder programs, our disciplined and data-driven buying decisions allowed us to maintain stock levels throughout homecoming season, minimizing lost sales and allowing us to more effectively meet elevated demand. Turning to our investments in strengthening brand awareness and customer engagement. In Q3, we launched our first fall brand campaign, The It List, supported by out-of-home placements, influencer activations, and paid partnerships, maintaining our cultural relevance and organic reach. We continued to show up in culture through high-impact moments such as our New York Fashion Week showroom, girls' night out events, and ambassador-led initiatives, including Ladies of the Table and Dime. These activations expanded our audience and strengthened earned media value.

On social media and content performance, TikTok views increased 46% quarter over quarter with top-performing content such as try-ons and wedding guest hauls, reaching millions. YouTube Shorts also saw a significant spike driven by paid amplification and a refined content strategy. Our ambassador programs scaled meaningfully with year-over-year growth in creator count, reach, and engagement. These programs continue to be a key driver of community expansion and brand resonance. Marketing and promotional efficiency also improved, supported by refined spend allocation and smarter execution across channels. Additionally, enhanced automation and more precise audience targeting contributed to positive engagement outcomes during the quarter. Looking ahead, we remain highly encouraged by the sustained strength of our brand and the effectiveness of our engagement strategies. The sequential gains in brand equity, coupled with strong performance across social and creator channels, reinforce our confidence in the scalability of our approach.

Our third initiative focuses on driving technology enablement to improve decisioning efficiencies and create a seamless customer experience across channels. During the quarter, we revamped customer feedback collection via exit surveys, enabling us to capture more actionable quality signals and experience feedback from customers. Additionally, we made several user interface enhancements around returns and store credit options in the quarter to reduce friction and improve conversion rates, while also improving Lulu's data insights for various purchase journey decisions. In summary, we remain very focused on progress against our key strategic priorities, which we believe positions the business for a return to profitable, sustainable growth. With that, I'll turn it over to Heidi, our Fractional CFO, to provide more color on our financial performance.

Heidi Crane, Fractional CFO, Lulu's: Thank you, Marc. I'm excited to join during this transformational time in Lulu's journey and contribute to its path to profitable growth. I've been incredibly impressed by the talent, engagement, and hands-on culture here. The team's deep passion for the Lulu's brand was palpable from day one. Over the next few months, I'll be focused on getting up to speed and deepening my knowledge of our operations, strategy, and culture. I'm looking forward to collaborating across the organization and engaging with the investment community as we continue driving Lulu's growth and value over the long term. Now to our results. In the third quarter, net revenue was approximately $73.6 million, a decrease of 9% year-over-year, driven by a 14% decrease in total orders placed, partially offset by an 8% increase in average order value.

Gross margin for the quarter was 42.6%, up 450 basis points year-over-year due to notable improvement in product-related margins driven from a higher mix of full-price sales and higher margin product categories, in addition to further progress on direct sourcing initiatives driving improved margins, specifically in our entry price point product assortment. On the expense side, Q3 selling and marketing expenses totaled $16.9 million, down about $0.7 million year-over-year, primarily due to lower marketing and merchant processing fees and lower revenues. General and administrative expenses decreased $3.5 million to $16.4 million in Q3, an 18% decline year-over-year, primarily due to a decrease in fixed labor costs driven by reduced head count, lower variable labor costs and lower sales volume, as well as lower equity-based compensation expense, reduced insurance costs, and lower travel, supplies, and other discretionary expenses, all the result of our ongoing cost control initiatives.

Our net loss for Q3 improved to $2.3 million from a $6.9 million loss in the same period last year, driven primarily by a $0.7 million improvement in gross profit and a $4.2 million reduction in our operating expenses, slightly offset by a $0.3 million increase in net interest expense. Q3's adjusted EBITDA was approximately $0.4 million positive compared to a $3.6 million loss in Q3 2023, a $3.9 million improvement year-over-year for the third quarter. Adjusted EBITDA margin was positive 0.5% versus negative 4.4% in the prior year period. Interest expense in Q3 totaled $544,000 versus $305,000 in Q3 2023. Diluted loss per share for the quarter was $0.84 compared to a diluted loss per share of $2.47 in Q3 2023.

In the third quarter, net cash used in operating activities was $1.8 million, a $3.7 million improvement from $5.5 million of cash used in the same period last year, primarily reflecting the improvement in our P&L. Turning to the balance sheet and liquidity. In August, we announced a new credit agreement with White Oak Commercial Finance, comprised of an asset-based revolving credit facility with a $20 million commitment, a $5 million uncommitted accordion, and a $1 million sublimit for letters of credit, with the facility maturing on August 14, 2028. The proceeds from the initial funding of the agreement were used to repay approximately $6 million outstanding under our prior credit agreement with Bank of America. At the end of the quarter, we had $9.2 million in outstanding borrowings under the new facility, with the facility's higher credit limit providing us with enhanced financial flexibility and a stronger liquidity position.

Free cash flow during Q3 was negative $2.4 million, reflecting a $3.9 million improvement year-over-year. Year-to-date, Q3 free cash flow was $3.5 million, compared to prior year Q3 year-to-date free cash flow of $2.7 million. Net debt was $7.3 million at the end of Q3, a $1.4 million reduction from our net debt position of $8.6 million at the end of the fourth quarter 2024. Our inventory balance at the end of the quarter was $38.4 million, $0.1 million, or less than a 1% decrease year-over-year. Turning to our outlook for the remainder of the year. Similar to third quarter 2025, we expect significant year-over-year improvement in adjusted EBITDA in the fourth quarter 2025. We also continue to expect full-year capital expenditures to be approximately $2.5 million. Additionally, we remain focused on driving strong operational execution to support our progress towards profitable growth.

As it relates to tariffs and mitigation strategies, we are actively executing a multifaceted strategy that includes vendor collaboration, diversified sourcing, strategic pricing actions, and optimizing our product assortment. These initiatives are being carefully managed and are already helping to offset our tariff-related costs. I will turn it back to Crystal for closing remarks.

Crystal Landsem, CEO, Lulu's: All in all, I am proud of the clear progress we've made, driving positive momentum across key areas of our business. We continue to demonstrate the impact of our strategic and cost-saving initiatives on optimizing our operations, driving a return to profitability, and delivering a more aligned and curated occasion wear offering to our customers at an attractive price point. We remain firmly committed to maintaining positive year-to-date cash flow, protecting brand integrity, and investing in our long-term objectives to support our return to growth. To our Lulus team and partners around the world, thank you for your tireless effort, trust, and passion for our brand. Thank you to our shareholders for your ongoing support. With that, I'll open it up for questions.

Marc Vos, President and Chief Information Officer, Lulu's: Thank you. Ladies and gentlemen, we will now be conducting the question and answer session. If you'd like to ask a question, please key in STAR and then 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may key in STAR and then 2 to leave the question queue. We will pause a moment. Thank you. Ladies and gentlemen, with no questions in the question queue, it brings us to the end of this event. Thank you for attending, and you may now disconnect your line.

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