Yahoo Finance Lulus Fashion Lounge Holdings Inc (LVLU) Q1 2024 Earnings Call Transcript Highlights: ...
Net Revenue: $77.3 million, down 15% year-over-year.
Gross Margin: Increased by 60 basis points year-over-year.
Adjusted EBITDA: Loss of $2.7 million.
Free Cash Flow: $6 million, improvement of $3.4 million over Q1 2023.
Inventory Levels: Decreased by 20% to $41.3 million.
Net Loss: $5.7 million, consistent with $5.6 million in the same period last year.
Diluted Loss Per Share: $0.15, a decrease from $0.14 in Q1 2023.
Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Gross margin improved by 60 basis points year-over-year due to lower markdown sales and a shift towards higher margin product classes.
Free cash flow increased by $3.4 million over Q1 2023, demonstrating improved financial health.
Inventory levels decreased by 20%, exceeding the net revenue decline, reflecting effective inventory management.
New and first-time reorder products continue to stimulate demand, supporting sales and margin performance.
Investments in technology and AI tools are expected to support future growth and enhance customer engagement.
Negative Points
Net revenue declined by 15% from Q1 of the previous year, primarily due to ongoing elevated return rates and top-line pressure.
Adjusted EBITDA reported a loss of $2.7 million, aligning with lowered revenue expectations.
Challenges in meeting customer demand adequately, leading to frequent stock-outs and sizing issues.
High dependency on event dresses for driving sales, which may pose risks if consumer preferences shift.
Return rates remain a significant challenge, impacting profitability despite efforts to mitigate through policy changes.
Q & A Highlights
Q: Could you elaborate on the factors that give you confidence in a return to strong healthy mid-single-digit growth for the rest of the year? A: Crystal Landsem, CEO: Several factors contribute to our confidence, including positive readings from brand activations and influencer partnerships, increased depth in our buys, momentum in casual and sportswear, and improvements in customer experience leading to lower return rates. Additionally, testing entry-level and aspirational price points has shown positive results, although we anticipate some pressure on active customer file counts due to policy changes targeting less profitable customers.
Q: You raised the low end of the EBITDA guide despite softer revenues in Q1. Can you quantify the impact of the return policy change on your profit forecast for both gross profit and adjusted EBITDA? A: Tiffany Smith, CFO: The updated guidance reflects the earlier implementation of return policy changes, expected to improve unit economics and profitability due to lower return processing and shipping costs. The policy changes, coupled with lower markdown sales, are anticipated to positively impact EBITDA flow-through.
Q: Can you provide more color on the gross margin initiatives in place that aim for a 180 to 200 bps expansion this year? A: Tiffany Smith, CFO: Initiatives include enhancing gross margin through stronger regular price selling, deeper buys of new products, and the recent return policy changes expected to reduce costs associated with returns. Early indicators suggest customers are shopping with greater intent, maintaining consistent net units per transaction, which supports more profitable unit economics.
Q: Could you discuss your plans for growing active and casual wear in the assortment? A: Crystal Landsem, CEO: The expansion into active and casual wear is progressing well, with cautious yet strategic investments in these categories. Our approach is driven by testing, learning, and repeating, guided by our new CMO and merchandising leadership.
Q: As you think about reorder categories and dresses versus event dressing, what trends are you seeing? Also, could you share insights from your Melrose store in terms of customer behavior and plans for future stores? A: Tiffany Smith, CFO & Crystal Landsem, CEO: Growth in special occasion and bridal categories remains strong. The Melrose store has been successful in enhancing brand credibility and marketing efficiency, serving as a platform for influencer and customer activations. Future store plans will be calculated, focusing on rebalancing our assortment and potentially expanding our omni-channel presence in the coming years.
Q: Can you elaborate on the cadence of Q1 and the exit rate going into Q2? A: Tiffany Smith, CFO: Q1 saw a notable drop in markdown sales towards the end, impacting revenue but improving profitability due to better gross margins from regular price selling. This trend of reduced markdown sales continues into early Q2, positively affecting margins.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
