Lulu's Fashion Lounge Q2 Earnings Call Highlights

Key Points

• Revenue fell 17% year over year to $67.8 million, pressured by lower order volume, elevated returns and reduced markdown sales as Lulu’s reset its product assortment. However, gross margin expanded 330 basis points to 48.6%, adjusted EBITDA turned positive at $1 million, and the net loss narrowed to $1.5 million.
• The company reported progress in inventory and operations, with inventory down 23% to $28.6 million and operating expenses down 14%. Occasion-wear and wholesale sales grew strongly, while management expects improved casual apparel and footwear assortments to support customer stabilization and lower return rates.
• Lulu’s maintained its expectation for positive adjusted EBITDA in fiscal 2026 and formed a special committee to evaluate strategic alternatives, including a potential transaction. To bolster liquidity, it amended its credit facility and secured access to equity lines totaling up to $10 million.

Lulu's Fashion Lounge NASDAQ: LVLU reported second-quarter fiscal 2026 revenue of $67.8 million, down 17% from a year earlier, as lower order volume and higher return rates weighed on sales. The company said it continued to prioritize merchandise assortment changes, inventory discipline and operating efficiency, while reporting improved gross margin, a narrower net loss and positive adjusted EBITDA.

Chief Executive Officer Crystal Landsem said revenue comparisons remained affected by assortment decisions tied to prior product-year cohorts, particularly lower reorder sales from 2025 styles. However, she said new products introduced during the first half of 2026 have been reaching reorder eligibility at rates ahead of the company's internal targets.

“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,” Landsem said. “But the leading indicators are moving in the right direction.”

Margin Expansion and Lower Inventory

Gross margin increased 330 basis points year over year to 48.6%, which Landsem described as the company’s highest second-quarter gross margin percentage since 2021. Chief Financial Officer Heidi Crane attributed the improvement to a sales shift toward higher-margin products and freight savings from improved shipping rates.

The company’s net loss improved to $1.5 million from $3 million in the prior-year quarter. Adjusted EBITDA was positive $1 million, compared with $0.5 million in the second quarter of 2025. Diluted loss per share was $0.52, compared with a diluted loss per share of $1.08 a year earlier.

Selling and marketing expense fell $3.6 million year over year to $18.4 million, while general and administrative expense declined $1.7 million to $15.8 million. Crane said the G&A reduction reflected lower variable labor and benefit costs tied to sales volumes, lower equity-based compensation expense and reduced fixed headcount, partly offset by higher other G&A expenses.

Inventory ended the quarter at $28.6 million, down $8.7 million, or 23%, from a year earlier. Landsem said the largest reductions were in slow-turning markdown inventory. Casual apparel inventory declined 43%, while footwear inventory was reduced by nearly 58%.

Total markdown sales fell 38% from the second quarter of 2025, including a 65% decline in markdown sales in casual apparel. While the decline pressured reported revenue, management said the movement toward regular-price sales should improve the quality and profitability of the business. The company expects difficult markdown-sales comparisons to continue into the first quarter of next year.

Assortment Reset and Customer Trends

Lulus said its occasion-wear assortment, which includes bridal, bridesmaids, formal and day-event categories, posted double-digit year-over-year sales growth during the quarter. That growth was supported by regular-price sales, according to Landsem.

The company also cited improving new-product productivity. In casual apparel and footwear, the number of new product launches was 48% lower than in the prior-year period, while units transacted per new product launch rose 28% year over year and 29% sequentially from the first quarter.

President and Chief Information Officer Mark Vos said casual apparel and footwear remain important to increasing customer engagement outside event-driven purchases, though the categories remain below historical levels in aggregate. Management expects more and better new assortment in the third and fourth quarters to increase in-season revenue contribution, help improve return rates and support stabilization in active customers by year-end.

Return rates remained elevated during the quarter, driven by a greater mix of occasion products and higher average unit retail prices. The company expects return rates to improve as its casual apparel and footwear assortments normalize in the second half of the year.

Wholesale, Operations and Liquidity

Wholesale revenue nearly doubled during the quarter, according to Landsem. Vos said wholesale revenue over the trailing 12 months ended in the second quarter increased 130%, while non-specialty same-account revenue rose 61% from the comparable 2025 trailing-12-month period. Lulus is now available in all Nordstrom stores and has doubled its prom assortment presence at Dillard’s to 100 stores. The company also added two major wholesale accounts after the start of the third quarter, though it did not identify them.

The company opened a Mall of America pop-up during the quarter and launched its first Disney collaboration tied to The Devil Wears Prada 2. Landsem said the collaboration generated high conversion, higher average order values and new-customer acquisition.

Operating expenses declined 14% in the second quarter, Vos said, as the company realized distribution-center efficiencies in outbound and returns processing, refurbishments, click-to-ship times and on-time delivery. Lulus also introduced Happy Returns and additional product-exchange options, which management said have encouraged more customers to exchange products rather than return them.

After the quarter ended June 28, Lulus amended its credit facility to provide additional borrowing availability during key periods of the year. It also entered an equity line of credit allowing it to sell up to $4.5 million of equity and has an option for a second equity line of credit of up to $5.5 million. Total debt fell $3.2 million to $10.1 million at quarter-end, while net debt increased $70,000 to $6 million.

Outlook and Strategic Review

For fiscal 2026, Lulus maintained its expectation that adjusted EBITDA will turn positive, compared with negative $1.2 million in 2025. The company also expects its net revenue growth trend to improve from the 11% decline reported in 2025 and forecasts capital expenditures of $2 million to $2.5 million, including capitalized software.

Management said the tariff environment remains uncertain but does not expect potential tariff refunds to materially affect its outlook or guidance.

Landsem also noted that the board has formed a special committee of independent directors to evaluate strategic alternatives intended to maximize stockholder value. The review could include a potential transaction involving the company as well as continued execution of its standalone strategy. The company said it does not intend to comment further unless additional disclosure becomes appropriate.

About Lulu's Fashion Lounge (NASDAQ:LVLU)

Lulu's Fashion Lounge, Inc is a publicly traded e-commerce apparel retailer that specializes in women's fashion. Headquartered in Chico, California, the company operates under the “Lulus” brand, offering a curated selection of apparel, footwear and accessories designed to meet the trends and needs of a diverse female audience. Since completing its initial public offering and listing on the NASDAQ under the ticker symbol LVLU, Lulu's has focused on expanding its direct-to-consumer business model and enhancing its online platform to drive global reach.

The company's core product portfolio includes dresses, tops, denim, swimwear, jumpsuits and outerwear, complemented by a range of shoes, jewelry and handbags.

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