Q3 2021 Lulu's Fashion Lounge Holdings Inc Earnings Call

Good afternoon, and welcome to loose third quarter 2021 earnings conference call.

Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A.

At this time I'd like to turn the conference over to Alexis P. <unk> Associate General Counsel out Lewis. Thank you you may begin.

Good afternoon, everyone and thanks for joining us to discuss <unk> third quarter 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.

<unk> made on this call that do not relate to matters of historical facts should be considered forward looking statements, including but not limited to statements regarding managements expectations plans.

Anne strategies goals and objectives, including our plans to invest in a third logistics facility and a mobile app.

Future expectations regarding financial result.

Outlook for the quarter and the year ending January back in 2022.

Market opportunities product launches and other initiatives and our growth, including with respect to our customer community.

These statements, which are subject to various risks uncertainties assumptions and other important factors could cause our actual results performance or achievements to differ materially from results performance or achievements expressed or implied by these statements.

These risks uncertainties and assumptions are detailed in this afternoon's press release as well as our filings with the SEC, including our final prospectus filed with the SEC pursuant to rule 424 before on November 12, 2021, all of which can be found on our website at investors.

We lose dotcom.

Any such forward looking statements represent managements 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 and adjusted EBITDA margin, we use non-GAAP measures and some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our business.

Yes.

The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to financial information prepared and presented in accordance with GAAP are.

Our non-GAAP measures may be different from non-GAAP measures used by other companies.

Conciliations 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.

Joining me on the call today is our CEO, David Mccreight, co President and CFO Crystal land them and co President and C. I O Mark boss.

Following our prepared remarks, we'll open the call for your questions.

With that I'll turn the call over to David.

Thank you Alyssa and good afternoon, everyone.

Thank you for joining us on our first earnings call as a public company, our IPO and gaining access to the capital markets is an important and exciting milestone for the team.

But we recognize it's merely one probe stuck on a journey to reaching our future potential as a company.

And now we are delighted to share our exceptional third quarter results with you all today and our firm.

Earnings call.

As a reminder, for those who've met US recently on the IPO Roadshow.

It was an introduction for those who are new to our business model.

As a customer driven digitally native thoughtful growth.

Primarily serving millennial and Gen Z women.

We focus relentlessly on meeting our customers' needs. We do this by using data coupled with human insight to deliver a curated.

Evolving assortment of on point affordable luxury fashion.

We aim to build authentic personal relationships with our customers.

Offer them coveted quality products, most of which they cannot purchase elsewhere.

Tap into the pulse of the customer engaging with her where she is online.

Digital channels, and social media as well as on our own platforms.

Reviews.

But surveys one on one interactions with our style advisers, who are experts in bridal called firsthand.

Our teams Hulu crew works to make our customer touch points special which ultimately leads to strong customer engagement and loyalty with our growing community of Brookfield.

A key differentiator of our model is our use of data to optimize almost all elements of our business.

The use of data and technology side much of the decision, making throughout the company from logistics planning to marketing placement.

But nowhere is it more pronounced than on our product creation and curation cycle.

Traditional merchandising approaches are both risk and capital intensive.

Characterized by extended Unhealth design cycles.

The whole assortment decisions deep buys made with limited customer feedback and often hi, Marco.

Unlike traditional retailers, we leverage our test learn and reorder strategy to bring hundreds of new products to market every week.

We pass products informed by our attribution system in small batches.

We use our algorithms to gauge customer demand and then quickly reorder winning products and higher volume to optimize revenue and profitability.

This strategy is the use of Paas information enables us to convert new products, the profitable sale consistently and with a high degree of accuracy.

While minimizing fashion and trend risk.

Our overarching vision is to be the most beloved women's brand for affordable luxury fashion.

Curated exclusive products at reasonable prices.

The Purion customer service at a personalized shopping experience, we want to be the category defining apparel brand for millennial and Gen Z are women.

A few key points about Lulu, but I'd like to highlight.

We remain focused on strengthening and deepening our relationships with customers.

Firing to address them for more occasions, and everyday of the week in order to expand our space in their closet, and thereby growing wallet share.

By increasing lose brand awareness over the next quarters and years, we expect more customers to join the Lulu community.

We launched our first ever brand awareness campaign in late Q3 focused entirely on acquiring new customers, whereas where we like to say, bringing more new friends to the party.

Over the next quarters, we will be laying a stronger foundation for potential international marketing.

International customers are already showing their interests by visiting a purchasing of Lewis as well as following and engaging with us on social media.

Even while we are not actively marketing to them.

As a digitally native brand, we continue to accelerate our competitive advantages and data driven merchandising pop.

Comparable marketing and operational efficiency.

Leading us down the path of future market share gains.

Turning to a few of our third quarter highlights.

We had another excellent quarter delivering growth in net sales and profitability achieving record results for any third quarter in our history.

Comparable net sales increased 19, 5% year over year, and adjusted EBITDA increased 126% year over year.

Crystal, we'll walk you through the finer point shortly.

We are also thrilled by our growth in active customers with sequential year on year and double L Y growth in both new and repeat customers.

With appreciably more efficient performance marketing spend as a percentage of gross sales versus last year and double L y.

Clearly our affordable luxury brand experience combined with the reach of our marketing efforts in bringing new fans to the brand.

From a merchandising perspective, we are encouraged by the broad based response to our product offering with both events and none of that category delivering double digit demand growth as compared to 2019.

We saw mid teens on that because they drive even faster growth in separate sale as compared to 2019.

Our operating results reflect our disciplined approach to spend inefficiency.

It's a testament to our model and team that we're able to achieve meaningful revenue.

With inventory turnover at a rate north of eight times.

And Mark's team has been busy implementing plans to not only expand our logistical capabilities.

Militate off fast growth, but also to find new ways to optimize an already efficient logistics system.

Finally, before Crystal walks you through our financial performance for the quarter.

I wanted to provide commentary on COVID-19 and supply chain issues.

We all can bear witness to how our daily lives have been disrupted.

And our product supply chain endured some delays.

It was not to the degree you read about daily and the business headlines, where we have been affected mostly as a reduced ability to chase in season.

Not being able to maximize the upsides in periods of exceptional demand.

And while fuel and confident we speculate on how variance might impact the economy.

But we can say is losing better prepared for disruption.

Balance sheet is now healthy our product offering is increasingly balanced with fast fastest revenue growth coming from or not of that segment.

And with approximately 70% of our revenue from algorithmic driven purchasing we're able to confidently take positions in future orders with low risk.

Again, thank you for your time.

About our future prospects and look forward to executing on our vision.

I'd like to take a moment to thank the lucrative for finding new ways daily to efficiently delight our brands yet.

Without you all none of this would be possible now.

Now, let me introduce my colleague Crystal lamps, and co president and CFO.

Thanks, David and good afternoon, everyone.

Before we dive into our results I would just like to say, how grateful I am to be part of such an amazing company and team that continues to execute on a daily basis.

As David mentioned, we delivered a very strong quarter highlighted by growth on all fronts, including net revenue gross margins profitability and cash flows we had a record number of third quarter active customers engaging with us as our customer returned to their social calendars and continue to come back to us for their everyday fashion needs.

But that said, we're very pleased with our third quarter financial results. So let's dive right in.

During Q3, we grew our net revenue by 95% to $106 3 million or 51 8 million increase over the same period in the prior year and Q3 year to date net revenues were up 43, 6% and $84 7 million increase over the same period in the prior year our top.

Line growth continues to be driven by the combination of new customers acquired in increasing loyalty from our existing customer base with an all time high number of repeat customers engaging with us during the third quarter, we're very proud of our large diverse community of loyal customers.

In the 12 months ended October three 2021, we started $2 5 million active customers compared to $2 3 million active customers in the 12 months ended September 27 2020.

In spite of the industry wide supply chain challenges our business model has enabled us to continue our path of strong growth and profitability as you can see from our successes in Q3.

Gross margins for the third quarter increased 290 basis points to 47, 7% driven by lower markdowns and discounts compared to last year as well as a shift in sales mix to higher gross margin products.

Customer demand drove faster inventory turns at a high level of net sales at full price three acceleration of event dressing demand coupled with accelerated demand in non events dressing drove year on year improvements in gross product margins across nearly all product classes.

Our a O V reached an all time high of $125 driven by increased items per car as well as lower discounts and markdowns due to lower promotional activity with a O V increasing 22% over 2020 and 12% over 2019.

Moving down the P&L to give some insight into our expense line items selling.

Selling and marketing expenses consist primarily of online performance marketing payment processing fees and other advertising.

Q3, selling and marketing expenses were $20 5 million up 11 million from the same period in the prior year due to the return of online performance marketing spend to a more normalized state spend.

Spend was depressed in 2020 in response to lower customer demand due to the pandemic and an increased focus towards liquidity and cash flows towards the end of Q3. This year. We also launched our first ever brand awareness campaign.

Our free organic and low cost initiatives, coupled with profitable performance media drive traffic to our platform, which is custom built to allow for continuous updating and personalization for each customer and our unified cross platform strategy consistently reinforces the same brand values with our marketing approach, resulting in attractive customer acquisition and stronger.

Jim.

General and administrative expenses amounted to $21 2 million for the quarter, an increase of $10 3 million compared to 2020.

It reflects increases in payroll and benefits in line with higher sales volumes higher bonus expenses due to improved business results and higher fixed head count costs as the previous years costs were suppressed due to furloughs related to the pandemic.

It also includes a $1 7 million dollar increase in equity based compensation related to stock options and Special Award.

We reported earnings per share of <unk> 13 cents up from one center in the third quarter of 2020, which is the result of our topline growth combined with efficiently manage costs and operations.

And finally adjusted EBITDA for the third quarter was $11 9 million up from $5 2 million in the same period in 2020.

Our Q3 adjusted EBITA margin was 11, 2% up from nine 6% in the same period in 2020.

We believe these non-GAAP metrics are important supplemental measures for understanding our results. We refer you to our 10-Q and earnings release issued earlier today for the required disclosures and reconciliations.

Moving to the balance sheet, our cash and equivalents amounted to $40 9 million as of October 30.

For inventory, we ended the quarter with $23 4 million, an increase of $9 9 million and 73% higher compared to $13 5 million at the end of Q3 2020.

We completed our IPO in November 15th 2021, with net proceeds of $85 6 million.

We repaid the longterm debt balance and borrowed 25 million against the new revolving facility.

Just as a reminder, we operate a highly capital efficient business that positions us to generate positive free cash flow.

In the third quarter, we generated $12 7 million in cash flow from operations.

As it relates to guidance. Since this is our first earnings call as a public company I wanted to provide a framework for our key performance metrics and how we will evaluate the business.

So I think the core financial statements, we will provide annual guidance to the updated quarterly on revenue adjusted EBITDA average order value and active customers. We will also provide annual updates on capex.

And just as a quick reminder, we're not a Q4 dependent business in Q4, typically represents a smaller quarter compared to the rest of the year.

Historically, our net revenue was highest in our second and third quarters due to higher demand for event apparel on spring and summer fashion.

Our guidance range for 2020, one isn't that revenues between 370, and 372 million, which represents growth of 49% and 50%.

Adjusted EBITDA is expected to be between $38 million and $39 million, which represents growth of 101% and 106% over 2020.

This equates to an adjusted EBITDA margin of 10, 3% and 10, 5% compared to seven 6% in 2020.

As a result of paying down our long term debt. Following the IPO, we expect interest expense of $4 million in Q4, which includes the amortization and write off of loan fees related to the term loan pay off versus $4 1 million in last year's Q4.

On an as adjusted basis for the pay down of the debt interest expense would amount to approximately $1 5 million versus $3 5 million in Q4 of 2020.

We expect that the impact of nonrecurring amortization and write off of loan fees captured in interest expense for Q4, 2021 will be $2 5 million.

Moving onto capital expenditures I'd like to highlight the following investment areas for us going forward.

Firstly, we're planning on continuing to invest in our logistics capabilities. So we're prepared to continue to serve our customers as we grow and scale. These.

These initiatives include plans to invest in a third logistics facility starting in Q4 2021.

We are also planning on continuing to improve our platforms to ensure that we maintain our customer centric shopping experience.

Our near term initiatives on this front include the launch of a new mobile App in Q4 2021.

With the rollout of these initiatives, we expect capital expenditures of roughly $3 5 million for the full 2021 fiscal year.

We believe that this guidance that we're sharing today should provide a strong sense of where we're aiming as a brand and we will share more information, including 2022 guidance when we report on Q4 earnings.

Thank you we're looking forward to hearing your questions.

At this time, we'll be conducting a question and answer session.

If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May press star two if he would like to remove your question from the queue for.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

Our first question comes from the line of Brooke Roach at Goldman Sachs. You May proceed with your question.

Good afternoon, and thank you so much for taking our question David Crystal I was wondering if you could talk a little bit to the sequential trends that you've seen in customer engagement and purchase activity throughout the third quarter and into the holiday period, how are your newly acquired customers engaging with the brand today and have you seen.

Seen any impact from these results as COVID-19 trends have started to shift nationwide.

Crystal why don't you take the Covid trends portion and Mark maybe you could talk about the customer sequential.

Yeah sure. It's a good question Brooke shields.

For me from a Covid impact perspective, I would say that we've not really experienced any noticeable changes.

And just to highlight our performance through Q2, and even into Q3, we had 69% and 95% growth respectively. So what's really great about our buying model and our business model in general is that we've been able to mitigate some of those risks and still put up some really strong numbers and that's been largely driven by new and repeat customer engagement, where we've seen an access.

<unk> sequentially for both.

Great that's really helpful and as we think about the and as we think about the initial learnings that you've had so far from your brand awareness campaign and I think I heard in the prepared remarks plans for maybe some new international marketing can you talk.

To us a little bit about how you're thinking about marketing going forward and engaging that new customer. Thank you.

Sure Mark do you want to start with international and then I'll address the.

General marketing questions.

Okay.

So in the.

Near term revenue outlook, we did not complementing kona.

Complaint any material increases in revenue from international sources.

Based on our platform traffic counts social followings data, we do see interest from international customers consumers and so therefore in the near term we are focusing on improving the international excuse it or experience to bring this up to par with our domestic brand experience.

From there on we were looking to possibly expanding marketing activities in select territories and for possible.

Partnerships in order to increase our ability to test and learn what works for us and international markets.

Great and thought and following on Mark's comments internationally that will then set us up to as we discussed.

During the Roadshows is true.

Floor that are potential in foreign markets with potential most likely initially from third party partnerships using their platforms and traffic to learn and test our product test our product appeal test pricing a number of things before we consider what we're going to do it our own and build a real infrastructure.

And the country as it relates to the brand.

Brand awareness campaign.

As we've talked about in the past, we really are a culture built on testing and learning, whether it's our test and reorder model or how we approach marketing and it goes on and we're very very good at it advances with performance marketing.

And we know like we've talked about earlier that we have this large addressable market and we're always looking for new ways to introduce new people to the brand new brand standards and so.

Brand awareness is a different discipline and some of it's different we've been doing.

And then working with our social awareness platforms, social media for quite a while.

But we we think we're gonna be learning quite a bit from NASA and we'll continue to test it in the near future or the best way to bring our message to new audiences.

Thank you very much I'll pass it on.

Our next question comes from the line of Lorraine Hutchinson with Bank of America. You May proceed with your question.

Good evening.

I wanted to follow up on your comments around the success in the non event outpacing successive event dressing can you talk about what categories have been working and then how that informs your buying decision on a go forward basis.

Crystal did you want to speak to the product performance and category performance.

Sure. So if we won't drill into specific product classes, but what we can say is that not only do we see a reacceleration in our events business, but there's definitely been continued momentum in our non events business, especially in the separate classes.

Well, our buying model has driven such that we're buying and investing into what our customer tells us that she wants our assortment is going to continue to evolve to support that and we are seeing this nice acceleration and even outperformance of our dress classes in our non events product categories, even more so pronounced in Q3.

Thank you.

Our next question comes from the line of Randy <unk> with Jefferies. You May proceed with your question.

Yes, that's what I wanted to kind of unpack a O V growth.

Been growing nicely can you just give some perspective on the drivers of that perhaps you'll mix you can see et cetera.

How you think about <unk> opportunity over the next few years and drivers of that thanks.

Sure David you want me to take that one.

Sure thing.

So our our <unk> growth has been a combination of an increase in units per transaction, just as well less markdowns and discounts and promotional activity over time and I would say on a go forward basis, we expect that to be a balance of increasing units over time of course pricing related to inflation, but only as our price.

S value generates thought it would be more so driven from her increasing her cart size, especially has been growing our non events classes of necessity categories themselves.

Understood and then I wanted to ask a follow up around.

Our systems and technology and talk to kind of where the company may have had been new.

Two years ago, where you kind of got through today and how you've been that concludes your productivity and efficiency in the business and kind of any kind of assistance.

And technology items with you on.

Yes, so it's kind of continue to enhance those productivity measures and efficiencies within the organization.

Mark do you want to jump in there.

Cool that's a broad question.

I would say that in all.

All aspects, so, especially if you look over the last couple of years.

I think in all aspects of our business, whether it's from a others talk about.

David Tourism.

Decision, making and making sure that we empower and inform ourselves with all the insights that we need in order to make the right decisions.

Continuously invested in basket over the last several years.

We have optimized from a from a logistics perspective, specifically in human centers or how do we.

Essentially allocate our orders for the multiple fulfillment centers, both from an inventory balancing perspective as well as some relationship to the shipping zones.

Shipping cost.

Then on <unk>.

Our product creation cycle are you pretty much talked about Paas shuffle.

Several several ways spoke really again, its that particular aspect of it or as it relates to those of you in time, so as to how can we.

Derive what or how can we reduce the fashion risk and make sure that we get the products and on time.

Then obviously purely from a tech stack perspective, as it relates to our website mobile app with some insurance we switched.

Platforms. There so we're on a better a more advanced.

Technical platform to basically.

Be able to continue to build off there to engage with our customers to increase conversions.

An increase of card credit card balances.

That is essentially always ongoing of course, and we have teams dedicated to that.

Lastly, I think what I can speak to is that we have started.

Robotics are.

Therefore, we are currently in the process of implementing that which is also with a purposeful.

Leasing future units.

And as for our.

Efficiencies.

Super helpful. Thanks, guys.

Our next question comes from the line of Mark Wilde Swogger with Baird. You May proceed with your question.

Thanks for taking my question.

You sound very pleased with a lot of the marketing initiatives. I'm curious are you seeing any impact from some of the iOS changes and more generally what are you seeing in terms of customer acquisition cost trends as we head into the holiday period.

Mark you want to jump in.

Yeah.

As it relates there have been various iron.

Ms changes obviously.

I was 14 changes.

Able to recalibrate.

Essentially the.

The impact on.

How things are being used and so we see all of that together with the platforms, we have been able to continue or.

Our findings out of that efficiency as it also shows in our numbers.

More reasons changes as it relates to our email impact.

The machine.

The open so that obviously helps.

Certain segments of our email.

As it relates to having a reliable open data.

We're currently assessing that impact and Triangulating essentially the performance so far in the mail.

Various ways, even though the open rates are going for a subset of the email and taxes other kidney.

Metrics slug.

Traffic with emails clicks or revenue per email.

A ball and it still allows us a combined with continuous content testing to <unk>.

Optimize our email program.

So in essence, that's you know it's adapting to the new reality, so continued sponsored devices as well for some people.

Oh, that's worked for us.

Great.

Uh huh.

What do we need in order to be successful.

Okay. Okay. Thank you and then separately here.

You give us a brief history.

How stimulus affected the business earlier this year and just your thoughts.

Puts and takes of lapping stimulus as we look into early 2022.

<unk>.

I think it's safe to say that we experienced a rapid reacceleration earlier on in 2021 related to the stimulus, but we also we're turning inventory so quickly that it's difficult to say how much of that affected our business versus having further upside and just a natural.

Return to normal business, a normal growth rate. So I think our internal view is that when we certainly had a benefit early on from a stimulus perspective, but when those monies stopped coming or business they'll continue to grow and in some cases accelerating so.

It's difficult to say, what the actual impact was but.

I think we're optimistic we could've had further upside had we had more inventory in the stimulus, there's maybe less impactful or noticeable within our our financials.

Okay.

Again, we could say that yeah, we could say that that upside in not only Q1 Q2 and Q3.

Best of luck.

Yeah.

Our next question comes from the line of Oliver Chen with Cowen You May proceed with your question.

Hi, Thank you the merchandise margins and the momentum there was also very impressive what do you see ahead in terms of maintaining the merchandise margins and also you have low levels of clearance and markdowns. So wondering about that.

Also the mobile App innovations.

I am quite positive would love your take on what are some of the key changes you'll make there, especially as you.

Pursue more context and personalization.

And then lastly on the net promoter score frontier.

Or a high net promoter score relative to competitors, but there could be opportunity for upside here, what would you articulate as key drivers to improve your net promoter score. Thank you.

Yeah.

Hey, Oliver Wyman will impact.

Three questions Mark do you want to start with App and then Christopher you can talk about.

Our margins.

Yes, we the.

As mentioned launched relaunched our app on a new platform and the primary reason to do so is that the old platform that we were on we have some limitations as it relates to what we teach too from a.

And experience perspective, as well as home and personalization.

Texas.

I would say, where we are today you start to step one was essentially a lift and shift so that we did not lose functionality so to say.

Make the switch so that we can now on this new foundation work towards.

Improving that pet brands experienced kept doesn't feel of the loose.

When you're on the web site that we can hold so I hope that's true.

Uh huh.

As well as better.

More real time personalization going forward, that's what that is I think to answer your question.

That's the reason why we made that move outs.

Which.

Yeah, Oliver I'll jump in on the net promoter score than I'm, sorry, Mark when you continue.

No. Please go ahead.

So go ahead.

I'm jumping in on the net promoter score before we get too.

Crystal address extreme margin questions yes.

Yeah. So as you highlighted we've had terrific net promoter scores, particularly as we compare ourselves to.

The core markets that when we look at it and we scored very well for values style a number of things one is customer service.

We do know there was opportunities.

We can look to improve and the callouts, we tend to hear from our primarily the largest hands down.

Outside of some some requests for additional free shipping is to be in stock.

And would be sized range offering and we are when you're growing to the pes. Louis is growing and with these kind of turns we know we have an opportunity to incur.

Increase our service levels with inventory, but yet we're both thrilled with the pace and the sell through and like you said, it's not leaving much hangover for clearance.

But at the same time, we're going to have to balance that in the future with capturing and making sure that the on site shopping experience for engagement with a customer in that space.

That we don't risk losing any.

Customer engagement through that because that has been the largest area of complaint before and so we're planning to look at that and find ways to do that in 2022.

And as it relates to two to margin and the sustainability sorry, David Williamson.

No I'm good.

Okay.

As it relates to margins and just our overall sustainability of the margins that we've been experienced I would say that our affordable luxury price points, our golf inventory turns as long as they're buying model approach really allows us to be more methodical into an intentional with our inventory purchases and in our ability to drive consistent margins over time.

The only caveat to that I would say is that as we're expanding into other less mature businesses.

And.

Trying to invest in growth and scale and prioritizing that versus trying to get every last margin dollars that there could be some fluctuation in that but it would be.

Mall and any material changes there so I would say, where we're fairly optimistic about our ability to drive some consistent margins over time.

Okay.

That's all very helpful on the interplay between inflation and pricing what are you seeing in terms of your product cost inflation.

And Labour and materials and overall and then how does that interplay with how you're thinking about pricing just to make sure you continue to offer your customer a clear value et.

Et cetera. Thank you.

So when we take a pretty surgical approach to pricing across all of our products and we find that there is quite a bit of elasticity there.

We have been.

Slightly less impacted I would say that than others in the space have talked about and I think that really comes from our already affordable luxury price point, So where are we experienced price pressure as we've been able to flex and adjust our pricing went with minimal if not any impact to our customer or her proceed value of our products, but that said I wouldn't want to.

You get the impression that we're gonna be increasing prices across the board. So it's really more of a SKU by SKU demand and price value question and and we're evaluating in a real time basis.

Thank you best regards happy holidays.

Thanks, Oliver Thank you. Thank you.

Our next question comes from the line of Ed <unk> with Keybanc. You May proceed with your question.

Hey, guys. Thanks for taking the question I guess first on the product delays you guys, obviously navigated difficult environment pretty well I guess what are the knock on effects are you having to change temporarily test and react are you seeing certain classifications, where youre seeing a lighter than expected inventory I guess, the next quarter or two and then just as a housekeeping question how should we think about share count for the fourth.

Thank you.

Yes.

Hi, David I can jump in on the the timeliness and.

Just as a reminder to everybody we for the first half of 'twenty 'twenty. One we actually saw our best on time delivery rates that we've had as a company. So in that sense, it's been a bit of a unique year for us compared to others in the space.

We saw some modest impact from the timelines and deliveries in Q3, mostly driven by smaller product classes, where the impacts to revenue would be smaller than and less noticeable from a P&L impact just given the data driven nature of how we manage our buying we've been able to mostly navigate through a lot of these delivery timing issues just by putting her in how states at with our vendors have been great partners for us and them.

At least worked with us to optimize our inventory flows and really we've been able to consistently received most of our product during desired selling windows. So in that sense. We've contemplated in the model that there would be more delays. Since then we've been experiencing.

But you know crossing your fingers and that's not going to be the case for us.

And then share count.

Our next.

Comes from the line of Dana Telsey with the Telsey Advisory Group you May proceed with your question.

Good afternoon, nice to see the progress just touching on pricing again.

Have you taken price before how much price have you taken how do you think about price and does it differ by category and the percentage of them would take and then also you mentioned in the opening remarks about you are not as affected by supply chain can you expand on that a little bit and how you're thinking about supply chain for the first half of the new calendar year. Thank you.

Yeah.

And from a pricing perspective, it certainly does differ by product class in and it is difficult to say how much we've done in total or to provide guidance on that I will say, we've taken prices up on products, we've taken prices down on products and we're really evaluating every single product based on sell through and an overall margin targets are really drove.

By the maturity of the business, so dresses, where we've been accused leader in that space for a while might have higher markup and maybe a newer category that we're trying to expand in and we're more focused on growth. So.

It's a difficult question to answer because we're looking at pricing on a real time basis outside of Covid normal business environment, We're looking at it pretty regularly across each individual SKU.

Okay.

And then he might just hitting your other question sorry about that.

Our next question comes from the line of Oliver Chen with Cowen You May proceed with your question.

Hi, Thanks again.

Your inventory composition as you think about international and also none of them, but what are your thoughts on breadth versus depth of the assortment and how it should manifest.

All right.

And attraction of growth and then second.

Your comments earlier on categories that you're unable to chase could you be more specific about which categories or was that was that broad based thank you.

Yeah.

Sure. Thank you Oliver so regarding.

The assortments.

Internationally.

We talked about it it'll be a completely test environment and it's crystal has articulated a nicely in the past we look for our customers to sort of dictate the assortment to us we'll start off with our edit that's shaped.

Shaped based on attributes and learnings from other customers and we will not take a deep positions.

Because in my experience internationally.

<unk> and the responses by country can vary.

By season as well so it is an optimal environment really for lose to enter in a test learn and reorder models, perfect and subways versus many countries when they try whether they're coming to the United States, the United States going to Asia or going to.

Europe, often stubbed their toe or actually stumbled quite severely by trying to project what those markets want to desire. So our model is perfect for that as we look at the non event dressing.

Or the whole flywheel to the test learn and reorder model works by finding new styles that we found in small batches.

And learn from them to quickly chase and Reorders reorder.

To them.

And so we will continue to do that.

With our non event categories and the goal there is getting products new products that are adopted that as the leading indicator for us. So if you were to watch our business model that success is the best predictor of future growth for this category. So when we actually are reporting progress and growth in many ways. It's a lagging indicator of success we've seen earlier.

And then remind me of the other part of your question sorry.

Thanks, David It was just about regarding the inability to chase upside Oh right right. Yeah, Yeah, absolutely absolutely. So that that was more pace when you're turning as quickly. So one of the things we can often do.

And the team has worked on has had the ability in season, let's say beginning in spring getting a read chasing into summer, we're seeing something that's tracking in summer and quickly chasing and adjusting sleeveless family.

The shape of the product into getting some early fall performance from it and so with whats gone in the marketplace.

We can't be as nimble right now.

With that and we can't necessarily get that additional upside still with a 95% year over year growth.

We can take some quite strong performance there because it looks to Chinese new year.

The team is crystal talked about had placed orders and tried to anticipate potential slides with the dating a delivery date in going on their product and plus if we're able to actually buy on the <unk>.

Deeper quantities than we should have an extra week supply product, which could also provide some upside but.

That's what we're still working through as we forecast in the near term. So it was broad based.

<unk> done fairly give that last little bit of incremental upside.

Thank you very much.

Our next question comes from the line of Erinn Murphy with Piper Sandler You May proceed with your question.

Great. Thank you good afternoon, a couple of still for me first I was curious if you could speak to what you're seeing in terms of return rates now versus pre COVID-19 levels and then secondly, just on the promotional backdrop and it'd be kind of head into the final stages of the holiday season. What are you seeing from your competition out there versus kind of the.

Or markdown levels that you've talked about within your own business. Thanks, so much.

We thank.

Thank goodness.

Oh, sorry go ahead Crystal No go after you I was just.

Just quickly on the returns front I would say, we've seen return rates normalize back to rates consistent with where we were pre COVID-19.

Interesting to report there really are pushing downwards.

And then on the promotional landscape and just what you're seeing out of your competition here.

Yeah, So erinn.

You for the question. So what we saw interestingly was particularly as we went to a let's say black Friday cyber Monday going into it we saw people still continue to pull promotions forward.

As you know Lulu actually was reducing the number of promotional days during that time period.

To last year and the year before that so it was interesting to see how much people sort of thought to pull it forward I don't know if that was driven based on confirmed grabbed share early or whether that was concerns about our logistics from EPS Fedex and other shipping challenges, but it's probably similar to in certain areas.

As you can see some people who are actually a little more promotional even with the scarcity of goods out there.

We have weeks, where we expected some of the stronger players to actually have less less promotions from last year. So overall when we look at within at around we were able to be much less many fewer promotional days.

And then we did the prior year.

Yeah.

Great. Thank you and then just last question for me is just on can you just share what you saw during the third quarter from a traffic perspective versus last year, and then conversion as well we'd love to hear those metrics. Thanks, so much.

I can speak to that in general terms I don't have the actual numbers okay.

Certainly our traffic was up significantly and.

By the way are you specifically talking about.

Cyber Monday or are you talking about Q3, sorry in the third quarter I'm, just wondering I fatality, yeah, yes, so both of them.

Yes, yeah, so both traffic and conversion rates were up compared to last year.

Okay.

Our next question comes from the line of Dana Telsey with the Telsey Advisory Group you May proceed with your question.

I just wanted to.

Follow up on the on the supply chain are there. It sounds like you don't have as many headwinds as others from what you said in the opening remarks can you expand on that please thank you.

It's really not that we don't have the headwinds or <unk> that are buying model and the way. We approach merchandising is different in the sense, it's very data driven and meticulously calculated so we're able to strategically pull inventory forward or put some buffer around on time delivery. So that we can get product on the site and the optimal selling season.

I would say that there certainly are delays everyone is experiencing it but for us we've been able to get ahead of that and just mitigate it.

So that we're not as affected in our ability to meet our plan.

Thank you.

At this time, we have reached the end of the question and answer session. I will now turn the call back over to David for any closing remarks.

Well. Thank you all for joining us on our first quarterly call.

I know many of you will be spending time with follow up questions.

In the coming hours and look forward to presenting our Q4 results in the next few months and also giving insight into our goals and strategies for.

That's why 'twenty to have.

Have a great holiday season. Thank you.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.

[music].

[music].

[music].

Good afternoon, and welcome to loose third quarter 2021 earnings conference call.

Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A.

At this time I'd like to turn the conference over to Alexis P. <unk> Associate General Counsel at Lewis.

You may begin.

Good afternoon, everyone and thanks for joining us to discuss third quarter 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 managements expectations plans strategies goals and objectives, including our plans to invest in a third logistics facility and our mobile app.

Our future expectations regarding financial results.

Outlook for the quarter and the year ending January backend 2022 market opportunities product launches and other initiatives and our growth, including with respect to our customer community.

These statements, which are subject to various risks uncertainties assumptions and other important factors could cause our actual results performance or achievements to differ materially from results performance or achievements expressed or implied by these statements.

These risks uncertainties and assumptions are detailed in this afternoon's press release as well as our filings with the SEC, including our final prospectus filed with the SEC pursuant to rule 424 before on November 12, 2021, all of which can be found on our website at investors.

Thought we lose dotcom and.

Any such forward looking statements represent managements 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 and adjusted EBITDA margin, we use non-GAAP measures and some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our busy.

Yes.

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 are.

Our non-GAAP measures may be different from non-GAAP measures used by other companies.

Conciliations 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.

Joining me on the call today is our CEO, David Mccreight, co President and CFO Crystal land them and co.

President and CIO Mark loss following our prepared remarks, we'll open the call for your question.

With that I'll turn the call over to David.

Thank you Elisa and good afternoon, everyone.

Thank you for joining us on our first earnings call as a public company.

IPO and gaining access to the capital markets is an important and exciting milestone for the team.

But we recognize it's merely one step in our journey to reaching our future potential as a company.

And now we are delighted to share our exceptional third quarter results with you all today in our first earnings call.

As a reminder, for those who let US recently on the IPO Road shows was an introduction for those who are new to our business model.

As a customer driven digitally native fashion brands.

Primarily serving millennial and Gen Z women.

We focus relentlessly on meeting our customers' needs. We do this by using data coupled with human insight to deliver a curated and continuously evolving assortment on point affordable luxury fashion.

We aim to build authentic personal relationships with our customers.

For them coveted quality products, most of which they cannot purchase elsewhere.

Tap into the pulse of the customer while engaging with her where she is online.

Digital channels, and social media as well as on our own platforms.

Her views feedback surveys one on one interactions with our style advisors and experts and bridal calls here soon.

Our team Hulu crew works to make our customer touch points special which ultimately leads to strong customer engagement and loyalty with our growing community of brand sales.

A key differentiator of our model is our use of data to optimize almost all elements of our business.

The use of data and technology does much of the decision making throughout the company.

Logistics planning to marketing placement.

But nowhere is this more pronounced than on our product creation and curation cycle.

Traditional merchandising approaches are both risk and capital intensive.

Characterized by extended in house design cycle season.

Seasonal assortment decisions.

It buys made with limited customer feedback and often high markdowns.

Unlike traditional retailers, we leverage our test learn and reorder strategy to bring hundreds of new products to market every week.

We test products informed by our attribution system in small batches.

We use our algorithms to gauge customer demand and then quickly reorder winning products and higher volume to optimize revenue and profitability.

This strategy is the use of pest information enables us to convert new products into profitable sale consistently and with a high degree of accuracy.

While minimizing fashion and trend risk.

Our overarching vision is to be the most beloved women's brand for affordable luxury fashion.

Curated exclusive products at reasonable prices.

Our superior customer service.

Personally shopping experience, we want to be the category defining apparel brand for millennial and Gen Z are women.

A few key points about Lulu, but I'd like to highlight.

We remain focused on strengthening and deepening our relationships with customers.

Aspiring to address them for more occasions, and everyday of the week in order to expand our space in their closet, and thereby growing wallet share.

By increasing <unk> brand awareness over the next quarters and years, we expect more customers to join the Lewis community.

We launched our first ever brand awareness campaign in late Q3 focused entirely on acquiring new customers, whereas where we like to say, bringing more new friends to the party.

Over the next quarters, we will be laying a stronger foundation for potential international marketing international customers are already selling their interest by visiting in purchasing that Lewis as well as following and engaging with us on social media.

Even while we are not actively marketing to them.

As a digitally native brand, we continue to accelerate our competitive advantages and data driven merchandising profitable marketing and operational efficiency.

Leading us down the path of future market share gains.

Turning to a few of our third quarter highlights.

We had another excellent quarter delivering growth in net sales and profitability achieving record results for any third quarter in our history.

Comparable net sales increased 19, 5% year over year, and adjusted EBITDA increased 126% year over year Chris.

Crystal, we'll walk you through the finer point shortly.

We are also thrilled by our growth in active customers with sequential year on year and double L Y growth in both new and repeat customers.

With appreciably more efficient performance marketing spend as a percentage of gross sales versus last year and double L y.

Clearly our affordable luxury brand experience combined with the reach of our marketing efforts in bringing new fans to the brand.

From a merchandising perspective, we are encouraged by the broad based response to our product offering with both events and none of that category delivering double digit demand growth as compared to 2019.

We saw maintains on that to the dropping even faster growth in separate sale as compared to 2019.

Our operating results reflect our disciplined approach to spend and efficiency.

It's a testament to our model and team that we're able to achieve meaningful revenue growth with inventory turnover at a rate north of eight times.

And Mark's team has been busy implementing plans to not only expand our logistical capabilities.

Filipino fast growth, but also to find new ways to optimize an already efficient logistics system.

Finally, before Crystal walks you through our financial performance for the quarter I wanted to provide commentary on COVID-19 and supply chain initiatives.

We all can bear witness to how our daily lives have been disrupted.

And our product supply chain endured some delays.

It was not to the degree you read about daily and the business headlines, where we have been affected mostly as a reduced ability to chase in season.

Not being able to maximize the upsides in periods of exceptional demand.

And while you can confidently, we speculate on how variance might impact the economy.

But we can say is losing better prepared for disruption.

Balance sheet is now healthy our product offering is increasingly balanced.

The fastest revenue growth coming from or not of that segment.

With approximately 70% of our revenue from algorithmic driven purchasing we're able to confidently take positions in future orders with low risk.

Again, thank you for your time.

Thrilled about our future prospects and look forward to executing on our vision.

I'd like to take a moment to thank the lucrative for finding new ways daily to efficiently delight our brands here.

Without you all none of this would be possible.

Now, let me introduce my colleague Crystal Atlanta, co President and CFO.

Thanks, David and good afternoon, everyone before we dive into our results I would just like to say, how grateful I am to be part of such an amazing company and team that continues to execute on a daily basis.

As David mentioned, we delivered a very strong quarter highlighted by growth on all fronts, including that revenue gross margins profitability and cash flows we had a record number of third quarter active customers engaging with us as our customer returned to their social calendars and continue to come back to us for their everyday fashion needs, but that said.

We're very pleased with our third quarter financial results, So let's dive right in.

During Q3, we grew our net revenue by 95% to $106 3 million or 50 $128 million increase over the same period in the prior year.

In Q3 year to date net revenues were up 43, 6% and $84 7 million increase over the same period in the prior year.

Our topline growth continues to be driven by the combination of new customers acquired in increasing loyalty from our existing customer base with an all time high number of repeat customers engaging with us during the third quarter, we're very proud of our large diverse community of loyal customers.

In the 12 months ended October three 2021, we started $2 5 million active customers compared to $2 3 million active customers in the 12 months ended September 27 2020.

In spite of the industry wide supply chain challenges our business model has enabled us to continue our path of strong growth and profitability as you can see from our successes in Q3.

Gross margins for the third quarter increased 290 basis points to 47, 7% driven by lower markdowns and discounts compared to last year as well as a shift in sales mix to higher gross margin products strong customer demand drove faster inventory turns on a high level of net sales at full price.

The acceleration of even dressing demand coupled with accelerated demand in non events dressing drove year on year improvements in gross product margins across nearly all product classes.

Our <unk> reached an all time high of $125 driven by increased items per car as well as lower discounts and markdowns due to lower promotional activity with <unk>, increasing 22% over 2020 and 12% over 2019.

Moving down the P&L to give some insights into our expense line items.

Selling and marketing expenses consist primarily of online performance marketing payment processing fees and other advertising Q.

Q3, selling and marketing expenses were $20 5 million up 11 million from the same period in the prior year due to the return of online performance marketing spend to a more normalized state.

Spend was depressed in 2020 in response to lower customer demand due to the pandemic and an increased focus towards liquidity and cash flows.

Towards the end of Q3. This year, we also launched our first ever brand awareness campaign.

Our free organic and low cost initiatives, coupled with profitable performance media to drive traffic to our platform, which is custom built to allow for continuous updating and personalization for each customer and our unified cross platform strategy consistently reinforces the same brand values with our marketing approach, resulting in attractive customer acquisition.

On retention.

General and administrative expenses amounted to $21 2 million for the quarter, an increase of $10 3 million compared to 2020.

It reflects increases in payroll and benefits in line with higher sales volumes higher bonus expenses due to improved business results and higher fixed head count costs as the previous years costs were suppressed due to furloughs related to the pandemic.

It also includes a $1 7 million dollar increase in equity based compensation related to stock options and Special Award.

We reported earnings per share of <unk> 13 cents up from one <unk> in the third quarter of 2020, which is the result of our topline growth combined with efficiently manage costs and operations.

And finally adjusted EBITDA for the third quarter was $11 9 million up from $5 2 million in the same period in 2020.

Our Q3 adjusted EBITDA margin was 11, 2% up from nine 6% in the same period in 2020.

We believe these non-GAAP metrics are important supplemental measures for understanding our results. We refer you to our 10-Q and earnings release issued earlier today for the required disclosures and reconciliations.

Moving to the balance sheet, our cash and equivalents amounted to $40 9 million as of October 30.

For inventory, we ended the quarter with $23 4 million, an increase of $9 9 million and 73% higher compared to $13 5 million at the end of Q3 2020.

We completed our IPO on November 15th 2021, with net proceeds of $85 6 million, we repay the long term debt balance and borrowed 25 million against the new revolving facility.

Just as a reminder, we operate a highly capital efficient business that positions us to generate positive free cash flow.

In the third quarter, we generated $12 7 million in cash flow from operations.

As it relates to guidance. Since this is our first earnings call as a public company I wanted to provide a framework for our key performance metrics and how we will evaluate the business.

So it is a core financial statements, we will provide annual guidance to the updated quarterly on revenue adjusted EBITDA average order value and active customers. We will also provide annual updates on capex.

And just as a quick reminder, we're not a Q4 dependent business in Q4, typically represents a smaller quarter compared to the rest of the year.

Historically, our net revenue was highest in our second and third quarters due to higher demand for event apparel in spring and summer fashion.

Our guidance range for 2020, one as net revenues between 370, and $372 million, which represents growth of 49% and 50%.

Adjusted EBITDA is expected to be between $38 million and $39 million, which represents growth of 101% and 106% over 2020.

This equates to an adjusted EBITDA margin of 10, 3% and 10, 5% compared to seven 6% in 2020.

As a result of paying down our long term debt. Following the IPO, we expect interest expense of $4 million in Q4, which includes the amortization and write off of loan fees related to the term loan pay offs versus $4 1 million in last year's Q4.

On an as adjusted basis for the Paydown of the debt interest expense would amount to approximately $1 5 million versus $3 5 million in Q4 of 2020.

We expect that the impact of nonrecurring amortization and write off of loan fees captured in interest expense for Q4, 2021 will be $2 5 million.

Moving onto capital expenditures I'd like to highlight the following investment areas for us going forward.

Firstly, we're planning on continuing to invest in our logistics capabilities. So we're prepared to continue to serve our customers as we grow and scale. These.

These initiatives include plans to invest in a third logistics facility starting in Q4 2021.

We are also planning on continuing to improve our platforms to ensure that we maintain our customer centric shopping experience.

Our near term initiatives on this front include the launch of a new mobile App in Q4 2021.

But the rollout of these initiatives, we expect capital expenditures of roughly $3 5 million for the full 2021 fiscal year.

We believe that this guidance that we're sharing today should provide a strong sense of where we're aiming as a brand and we will share more information, including 2022 guidance. When we report on Q4 earnings.

Thank you we're looking forward to hearing your questions.

At this time, we'll be conducting a question and answer session.

If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May press star two if he would like to remove your question from the queue for.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

Our first question comes from the line of Brooke Roach at Goldman Sachs. You May proceed with your question.

Good afternoon.

And thank you so much for taking our question.

Crystal I was wondering if you could talk a little bit to the sequential trends that you've seen in customer engagement and purchase activity throughout the third quarter and into the holiday period. How are your newly acquired customers engaging with the brand today and have you seen any impact from these results as COVID-19 trends have started to show.

<unk> nationwide.

Crystal why don't you take the Covid trends portion and Mark maybe you could talk about the customers sequential.

Yeah sure. It's a good question Brett.

For me from a Covid impact perspective, I would say that we've not really experienced any noticeable changes.

And just to highlight our performance through Q2, and even into Q3, we had 69% and 95% growth respectively. So.

Really great about our buying model and our business model in general is that we've been able to mitigate some of those risks and still put up some really strong numbers and that's been largely driven by new and repeat customer engagement, where we've seen an acceleration sequentially for both.

Great that's really helpful and as we think about the as we think about the initial learnings that you've had so far from your brand awareness campaign and I think I heard in the prepared remarks plans for maybe some new international marketing can you.

Talk to us a little bit about how you're thinking about marketing going forward and engaging that new customer.

Yeah.

Sure Mark do you want to start with international and then I'll address the.

General marketing questions.

Sure.

So in the.

Near term revenue outlook, we did not compliment.

Someplace any material increases in revenue from international sources.

Based on our platform traffic and social followings data, we do see interest from international customers consumers and so therefore in the near term we are focusing on improving the international excuse it or experience to bring us up to par with our domestic brand experience.

From there on we were looking to possibly expanding marketing activities in select territories and or possible.

Partnerships in order to increase our ability to test and learn what works for us in the international markets.

Great and thought and following on Mark's comments internationally that will then set us up to as we discussed.

During the Roadshows is true.

Floor that are potential in foreign markets with potential most likely initially some third party partnerships using their platforms and traffic to learn and test our product test our product appeal test pricing a number of things before we consider what we're going to do it our own and build a real infrastructure.

And the country as it relates to the brand.

Brand awareness campaign.

As we've talked about in the past, we really are a culture built on testing and learning whether its a test learn and reorder model or how we approach marketing and it goes on we're very very good advances with performance marketing.

And we know like we've talked about earlier that we have this large addressable market and we're always looking for new ways to introduce new people to the brand new brand fans.

No.

Brand awareness is a different discipline and some of it's different we've been doing.

And to working with our social awareness platforms, social media for quite a while.

But we think we're gonna be learning quite a bit from this and will continue to test it in the near future at the best way to bring our message to new audiences.

Thank you very much I'll pass it on.

Our next question comes from the line of Lorraine Hutchinson with Bank of America. You May proceed with your question.

Thanks, Good evening.

I wanted to follow up on your comments around the success in the non event outpacing successive event dressing can you talk about what categories have been working and then how that informs your buying decision on a go forward basis.

Crystal did you want to speak to the product performance and category performance.

Sure. So if we won't drill into specific product classes, but what we can say is that not only do we see a reacceleration in our events business, but there's definitely been continued momentum in our non events business, especially in the separate classes.

Well, our buying model has driven such that we're buying and investing into what our customer tells us that she wants our assortment is going to continue to evolve to support that and we are seeing this nice acceleration and even outperformance of our dress classes in our non events product categories, even more so pronounced in Q3.

Thank you.

Our next question comes from the line of Randy <unk> with Jefferies. You May proceed with your question.

Yes, that's what I wanted to kind of unpack Aoc growth.

Been growing nicely can you just give some perspective on the drivers of that perhaps mix you could tee et cetera.

How you think about <unk> opportunity over the next few years and drivers of that thanks.

Sure David you want me to take that one.

Sure thing.

So our our UV growth has been a combination of an increase in units per transaction just as well.

Less markdowns and discounts and promotional activity over time, and I would say on a go forward basis, we expect that to be a balance of increasing units over time of course pricing related to inflation, but only as our price value generates thought it would be more so driven from her increasing her cart size, especially as we grow in our non events classes in this FX cat.

<unk> as well.

Understood and then I wanted to ask a follow up around.

Our systems and technology and can talk to kind of where the company may have had been new.

Two years ago, where you kind of got through today and how you've been set includes your productivity and efficiency in the business and kind of any kind of assistance.

And technology items.

Yes, so it's kind of continue to enhance those productivity measures and efficiencies within the organization.

Mark do you want to jump in there.

Of course, that's a broad question on them.

I would say that in all aspects and so, especially if you look over the last couple of years.

I think in all aspects of our business, whether it's from a.

Talk about.

David Tourism.

Decision, making and making sure that we empower form ourselves with all insights that we need in order to make the right decisions.

Continuously invested in baskets over the last several years.

We have optimized from a from a logistics perspective, specifically in a human centers.

Do we.

Essentially allocate our orders for the multiple fulfillment centers, both from an inventory balancing perspective, as well as from reducing shifts to the shipping zones.

Shipping cost.

Then on our approach.

Our product creation cycle are you pretty much talked about that.

Several several ways spoke really again, its that particular aspects to that.

Thanks to those of insight as to how can we.

Derive what the how can we reduce the fashion risk.

Make sure that we get the products and on time.

Then obviously purely from a tech stack perspective, as it relates to our website mobile app with some insurance we switch.

Platforms. There so we're on a better a more advanced.

Technical platform to basically.

I'll be able to continue to build off there to engage with our customers to increase conversions.

And increased card credit card Sciences.

That is essentially always ongoing of course, and we have teams dedicated to that and then lastly, I think what I can speak to is that we have started.

Robotics are.

So I'm in centers, where we're currently in the process of implementing that which is also with a purpose.

Increasing future units or units per hour.

Your symptoms.

Super helpful. Thanks, guys.

Our next question comes from the line of Mark Wilde Swogger with Baird. You May proceed with your question.

Thanks for taking my question.

So I'm very pleased with a lot of the marketing initiatives. Im curious are you seeing any impact from some of the iOS changes and more generally what are you seeing in terms of customer acquisition cost trends as we head into the holiday period.

Mark you want to jump in.

Okay.

As it relates to that hasn't been barriers.

Exchanges obviously.

I was 14 changes we have been able to recalibrate.

Essentially the.

The impact on housing.

How things are being used and so we see all of that together with the platforms, we have been able to continue.

We are finding that that efficiency as it also shows in our numbers.

For reasons changes as it relates to our E mail impacts.

Machine.

Open so that obviously has impacted certain segments of our email.

As it relates to having a reliable open data.

We are currently assessing that impact and triangulating essentially the performance of our email.

Various ways, even though the open rates again for a subset of the email has impacted other key metrics like <unk>.

Traffic with emails so revenue for email.

So visible and it still allows us combined with continuous content testing to.

Optimize our email program.

So in that sense.

Adapting to the new.

The reality.

She was appointed otherwise.

Okay hold on.

Hum.

As of today.

What are what do we need in order to be successful.

Okay. Okay. Thank you and then separately here.

You give us a brief history on how stimulus affected the business earlier this year and just your thoughts on sort of the puts and takes of lapping stimulus as we look into early 2022. Thank you.

I think it's safe to say that we experienced a rapid reacceleration earlier on in 2021 related to the stimulus, but we also we're turning inventory so quickly that it's difficult to say how much of that affected our business versus having further upside and just a natural.

Turn to normal business and normal growth rates. So I think our internal view is that we certainly had a benefit early on for Mr. Newest perspective, but when those money stops coming our business still continue to grow and in some cases accelerating so.

And it's difficult to say, what the actual impact was but I.

I think we're optimistic we could've had further upside had we had more inventory in the stimulus is maybe less impactful or noticeable within our our financials.

Okay.

Again, we could say that yes, we could say that that upside in not only Q1 Q2 and Q3.

Best of luck.

Yeah.

Our next question comes from the line of Oliver Chen with Cowen You May proceed with your question.

Hi, Thank you the merchandise margins and the momentum there was also very impressive what do you see ahead in terms of maintaining the merchandise margins are also now you have low levels of clearance and markdowns. So wondering about that.

Also the mobile App innovations.

I'm quite positive would love your take on what are some of the key changes you'll make there, especially as you.

Pursue more context and personalization.

And then lastly on the net promoter score frontier.

High net promoter score relative to competitors, but there could be opportunity for upside here, what would you articulate as key drivers to improve your net promoter score. Thank you.

Yeah.

Hey, Oliver why don't will impact.

Three questions.

Mark do you want to start with App and then Christopher you can talk about.

Our margins.

Yes, do we the.

As mentioned launched relaunched our app on a new platform and the primary reason to do so is that the old platform that we were on we have some limitations as it relates to what we could do from a.

And experience perspective, as well as home and personalization.

Active.

I would say, where we are today is that the step one was essentially a lift and shift so that we did not lose functionality so to say.

Make the switch so that we can now on this new foundation work towards.

Improving that pet brands experienced kept doesn't feel of the loose.

Where you are on the website that we can also have gone through.

Uh huh.

As well as better.

More real time personalization going forward, that's what that is.

I think the answer to your question of attitude was absolutely. The reason why we made that make that switch.

And Oliver I'll jump in on the net promoter score than I'm, sorry, Mark when you continue.

No. Please go.

Go ahead.

Jumping in on the net promoter score before we get too.

Crystal address extreme margin questions.

Yeah. So as you highlighted we've had terrific.

A motor scores, particularly as we compare ourselves to.

The core markets that when we look at it and we scored very well for values style, a number of things wonderful customer service.

We do know there is opportunities.

We can look to improve and the callouts, we tend to hear from our primarily the largest hands down.

Outside of some some requests for additional free shipping.

It is to be in stock.

<unk> would be a size range offering and we are when you are growing to the pes looses growing and with these kind of turns we know we have an opportunity to <unk>.

Increase our service levels with inventory.

But yes, we're both thrilled with the pace and the sell through and like you said, it's not leaving a much a hangover for clearance.

But at the same time, we're going to have to balance that in the future, what's good capturing and making sure that the on site shopping experience our engagement with the customer in that space.

That we don't risk losing.

Losing any customer engagement through that because that has been the largest area of complaint by far and so we're planning to look at that and find ways to do that in 2022.

And as it relates to two to margin and the sustainability sorry, David Williamson.

They're all good.

Okay.

As it relates to margins and just our overall sustainability of the margins that we've been experienced I would say that our affordable luxury price points are cost inventory turns as long as they're buying model approach really allows us to be more methodical into an intentional with our inventory purchases and in our ability to drive consistent margins over time.

The only caveat to that I would say is that as we're expanding into other less mature businesses.

And.

Trying to invest in growth and scale and prioritizing that versus trying to get every last margin dollars there could be some fluctuation in that but it would be.

A mall and any material changes there so I would say, where we're fairly optimistic about our ability to drive some consistent margins over time.

Similar.

That's all very helpful on the interplay between inflation and pricing what are you seeing in terms of your product cost inflation.

And Labour and materials and overall and then how does that interplay with how you're thinking about pricing just to make sure you continue to offer your customer a clear value.

Et cetera. Thank you.

So we take a pretty surgical approach to pricing across all of our products and we find that there is quite a bit of elasticity there.

We have been.

Slightly less impacted I would say that than others in the space have talked about and I think that really comes from our already affordable luxury price point, So where are we experienced price pressure as we've been able to flex and adjust our pricing went with minimal if not any impact to our customer or her proceed value of our products.

I wouldn't want to give the impression that we're gonna be increasing prices across the board. So it's really more of a SKU by SKU demand and price value question and we're evaluating in a real time basis.

Thank you best regards happy holidays.

Thanks, Oliver Thank you. Thank you.

Our next question comes from the line of Ed <unk> with Keybanc. You May proceed with your question.

Hey, guys. Thanks for taking the question I guess first on the product delays you guys, obviously navigated difficult environment pretty well I guess what are the knock on effects are you having to change temporarily test and react are you seeing certain classifications. What are you seeing a lighter than expected inventory I guess, the next quarter or two and then just as a housekeeping question how should we think about share count for the fourth.

Quarter. Thank you.

David I can jump in on the the timeliness.

And.

Just as a reminder to everybody we for the first half of 'twenty 'twenty. One we actually saw our best on time delivery rates that we've had as a company so in that sense. It's Ben.

Bit of a unique year for us compared to others in the space.

And we saw some modest impact from the timelines and deliveries in Q3, mostly driven by smaller product classes, where the impacts to revenue would be smaller than and less noticeable from a P&L impact just given the data driven nature of how we manage our buying we've been able to mostly navigate through a lot of these delivery timing issues just by putting her in how states with our vendors have been great partners for us.

<unk> always worked with us to optimize our inventory flows and really we've been able to consistently received most of our product during desired selling windows. So in that sense. We've.

Contemplated in the model that there would be more delays since then we've been experiencing.

You know crossing your fingers thats not going to be the case for us.

And then share count.

Our next question comes from the line of Dana Telsey with the Telsey Advisory Group you May proceed with your question.

Good afternoon, nice to see the progress just touching on pricing again.

Have you taken price for how much price have you taken how do you think about price and does it differ by category and the percentage of them would take and then also you mentioned in the opening remarks about you are not as affected by supply chain can you expand on that a little bit and how you're thinking about supply chain for the first half of the new calendar year. Thank you.

Yeah.

And from a pricing perspective, it certainly does differ by product classes and it's difficult to say how much we've done in total or to provide guidance on that I will say, we've taken prices up on products, we've taken prices down on products and we're really evaluating every single product based on sell through and an overall margin targets are really drew.

And by the maturity of the business, so dresses, where we've been accused metered in that space for a while might have higher markup and maybe a newer category that we're trying to expand in and we're more focused on growth so and.

It's a difficult question to answer because we're looking at pricing on a real time basis outside of Covid normal business environment, We're looking at it pretty regularly across each individual SKU.

Okay.

And then do you mind repeating your other question sorry about that.

Our next question comes from the line of Oliver Chen with Cowen You May proceed with your question.

Hi, Thanks again on your inventory composition as you think about international and also none of that.

Or your thoughts on breadth versus depth of the assortment and how it should manifest to.

Generate.

Consistent attraction of growth and then second.

On your comments earlier on categories that you're unable to chase could you be more specific about which categories or was that was that broad based thank you.

Sure. Thank you Oliver so regarding.

The assortments.

Internationally as well.

We've talked about it it will be a completely test environment and it's crystal has articulated a nicely in the past we look for our customers to sort of dictate the assortment to us we'll start off with our edit that's.

Shaped based on attributes and learnings from other customers and we will not take a deep positions.

And my experience internationally.

<unk> and the responses by country can vary.

By season as well so it is an optimal environment really for lose to enter in a test learn and reorder models, perfect and subways versus many countries when they try whether they're coming to the United States, the United States going to Asia or going to.

Europe, often stubbed their toe or actually stumbled quite severely by trying to project what those markets want and desire. So our model is perfect for that as we look at the non event dressing.

Or the whole flywheel to test learn and reorder model works by finding new styles that we found in small batches.

And learn from them to quickly chase and Reorders reorder.

And so we will continue to do that.

With our non event categories and the goal there is getting products new products that are adopted that as the leading indicator for us. So if you were to watch our business model that success is the best predictor of future growth for those categories. So when we actually are reporting progress and growth in many ways. It's a lagging indicator of success we've seen earlier.

And then remind me of the other part of your question sorry.

Thanks, David It was just about regarding the inability to chase upside right right, yes, absolutely absolutely. So that that was more pace when you're turning as quickly. So one of the things we can often do.

And the team has worked on has had the ability in season, let's say beginning in spring getting a read chasing into summer, we're seeing something that's tracking in summer and quickly chasing and adjusting sleeveless handling.

The shape of the product into getting some early fall performance from it and so with whats gone in the marketplace.

We can't be as nimble right now.

With that and we can't necessarily get that additional upside still with a 95% year over year growth.

We can take some quite strong performance there is it looks to Chinese new year.

The team is crystal talked about had placed orders and tried to anticipate potential slides with the dating of delivery gating going on their product and plus if we're able to actually buy on the.

Deeper.

Quantities than we should have an extra week supply of product, which could also provide some upside but.

That's what we're still working through as we forecast in the near term. So it was broad based.

<unk> done fairly give that last little bit of incremental upside.

Thank you very much.

Our next question comes from the line of Erinn Murphy with Piper Sandler You May proceed with your question.

Great. Thank you good afternoon, a couple of still for me first I was curious if you could speak to what you're seeing in terms of return rates now versus pre COVID-19 levels and then secondly, just on the promotional backdrop it would be kind of head into the final stages of the holiday season. What are you seeing from your competition out there versus kind of the.

Lower markdown levels that you've talked about within your own business. Thanks, so much.

Okay.

Yeah.

Oh, sorry go ahead Crystal after you, but I was just.

Just quickly on the returns front I would say, we've seen return rates normalize back to rates consistent with where we were pre COVID-19.

So nothing interesting to report there really are perfect downwards.

And then on the promotional landscape and just what Youre seeing out of your competition here.

Yeah.

So Erin thank you for the question. So what we saw interestingly was particularly as we went to let's say Black Friday cyber Monday going into it we saw people still continue to pull promotions forward.

As you know Lulu actually was reducing the number of promotional days during that time period.

Compared to last year and the year before that so it was interesting to see how much people sort of thought to pull it forward I don't know if that was driven based on confirmed grabbed share early or whether that was concerned about.

Sticks out from EPS, Fedex and other shipping challenges, but it's probably similar to in certain areas. You can see some people who are actually a little more promotional even with the scarcity of goods out there.

We have weeks, where we expected some of the stronger players to actually have less less promotions from last year. So overall when we look at within at around we were able to be much less many fewer promotional days.

And then we did the prior year.

Yeah.

Great. Thank you and then just last question for me is just on can you just share what you saw during the third quarter from a traffic perspective versus last year, and then conversion as well we'd love to hear those metrics. Thanks, so much.

I can speak to that in general terms that are inherent to the actual numbers.

That's.

Certainly our traffic was up significantly and.

By the way are you specifically talking about the back side of it.

Either Monday or are you talking about Q, sorry in the third quarter I'm, just wondering I fatality, yeah, yes.

Yes, so so both of them.

Yes.

Both traffic and conversion rates were up compared to last year.

Okay.

Our next question comes from the line of Dana Telsey with the Telsey Advisory Group you May proceed with your question.

I just wanted it.

Follow up on on the supply chain are there. It sounds like you don't have many headwinds cause others from what you said in the opening remarks can you expand on that please thank you.

It's really not that we don't have the headwinds that are buying model and the way. We approach merchandising is different in the sense, it's very data driven and meticulous. They calculated so we're able to strategically pull inventory forward or put some buffer around on time delivery. So that we can get product on the site and the optimal selling season.

I would say that there certainly are delays everyone is experiencing it but for us we've been able to get ahead of that and just mitigate it.

So that we're not as affected in our ability to meet our plan.

Thank you.

At this time, we have reached the end of the question and answer session. I will now turn the call back over to David for any closing remarks.

Well. Thank you all for joining us on our first quarterly call.

I know many of you will be spending time with follow up questions.

In the coming hours and look forward to presenting our Q4 results in the next few months and also giving insight into our goals and strategies for FY.

FY 'twenty to have.

Have a great holiday season. Thank you.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.