Q4 2021 Lulu's Fashion Lounge Holdings Inc Earnings Call
[music].
Good afternoon, and welcome to lose fourth quarter and full year 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 Naomi Beckman Strauss General Counsel at Lewis. Thank you you may begin.
Good afternoon, everyone and thank you for joining us to discuss fourth quarter and full year 'twenty 'twenty. One 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 90 to 95.
All statements made on this call, but 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, our future expectations regarding financial results and outlook for the quarter and year end.
January 1st 2023.
Opportunities product launches and other initiatives and our growth.
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.
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 don't 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, adjusted EBITDA margin and net debt.
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.
The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information prepared and presented in accordance with GAAP.
Our non-GAAP measures may be different from non-GAAP measures used by other companies.
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, our co president and CFO , Christos anthem and co President and CIO Mark Foss. Following our prepared remarks, we'll open the call for your questions with that I'll turn the call over to David.
Thank you Naomi and good afternoon, everyone I'm proud to address you today with my partners and co presidents marketing Crystal.
We've had an exceptional first quarter as a newly public company.
As you know we completed our IPO during this past fourth quarter and fully paid off our long term debt.
With that milestone behind us and a strong balance sheet, we are well positioned to build on our momentum and success through 2022 and beyond.
During Q4, we generated $96 $7 million of revenue a growth of 77% year over year.
And our adjusted EBITDA was $6 $4 million versus a deficit of about $100000 over prior year's fourth quarter.
For the year, our revenues increased 51% to $376 million and our adjusted EBITDA amounted to $41 million, which represented a 119% gain from 2021.
We are thrilled by the tremendous growth in active customers from both new and repeat customers, reaching two 8 million.
All achieved with appreciably more efficient performance marketing spend and even more impressive is that it was accomplished despite a dramatic reduction in promotional activity.
Clearly our brand experience combined with our efficient marketing efforts and relevant assortment is resonating with our brands.
From a merchandising perspective, we continue to be encouraged by the broad based response to our product offerings in FY 'twenty, one with both event and nonevent categories again, delivering double digit demand growth.
We have identified material ways to further expand our pivotal event dressing category.
And our team continues to make inroads in her closet by evolving our non event categories.
We are in a strong moment for LDL you were both fashion direction and her return to pre pandemic social activities are providing helpful tailwind.
And the vital new product pipeline GPI is robust and on plan for achieving our future growth targets for 2022 and beyond.
These excellent results in FY 'twenty, one underscores the attractiveness of our digitally native model, which offers fresh fashion to millennial and Gen Z women at an affordable price point.
We win brands and deliver strong results by using data to optimize almost all of our almost all elements of our business.
The use of data and technology guides decision, making throughout the company.
Logistics to product planning to marketing placement, but nowhere is it more pronounced than in our product creation and curation cycle.
About 70% of our revenue is from algorithmic driven purchasing.
Our test learn and reorder approach, where nearly 100% of the assortment enters as a test in small order quantities than successful styles graduate to our reorder algorithms.
Our model refined over a year's decreases fashion risks reduces markdowns and drives increased profitability.
We stay connected with the pulse of our customer by engaging her where she is online throughout digital channels and social media as well as on our own platforms through reviews feedback surveys and one on one interactions with our exceptional customer service team.
Look through work every day to make our customer touch points special which ultimately leads to stronger customer engagement and loyalty.
The increase is word of mouth introductions to a growing community of movies branches.
I still will delve into 2022 guidance in greater detail, but I wanted to express my excitement about our outlook for this year.
Both from financial and capability perspective.
For FY 'twenty, two we are targeting net revenue growth north of 28%.
And adjusted EBITDA to rise about $48 million.
While continuing to invest for growth and incurring the costs of being a newly public company.
Yeah.
We are keenly aware of the uneasiness in the market due to Russia's invasion of Ukraine, the ever present headlines about new Corona virus strains and the mounting impact of supply chain pressures on inflation.
Don't mind I'd like to address a few of the clouds over the market and how they were related to Lewis.
Firstly, the Corona virus, we recognize the status of the Corona virus is ever evolving and perhaps due to increased competence in immunities from vaccines or previous infection or general fatigue with safety productions. Unlike early in the pandemic, we did not notice a material change in traffic or conversion during the delta.
Upon baram outbreak stages.
The supply chain.
As many others have articulated in recent weeks supply chains remain constrained and we expect these constraints to continue for the balance of the year.
What is so great about our market position and model is that we're not scrambling for airfreight.
To compensate we now place orders about four weeks earlier than pre pandemic times.
The additional lead time does not impact our brand as much as others because the vast majority of our orders are placed for previously tested product.
Moreover, we are not a fast fashion company. So we have less product trend risk and are less sensitive to delays.
The current state of the global supply chain does however, impede our ability to chase the small quantity of in season Reorders for longer lead time products. But this was also the case for most of 2021, where we still posted exceptional results. Despite this constraint.
Inflation.
We are aware of and have a decent line of sight into inflationary pressures impacting most lines of our P&L for the first half of 2022.
We expect there to be continued pressure on shipping labor materials and digital marketing costs throughout 2022.
The guidance, we're providing today is informed to the degree visible and accounts for those anticipated headwinds and though we are brand positioned in affordable luxury are frequent testing indicates we continue to have strong product pricing power, which provides some protection for near term inflation.
And where are these inflationary pressures to move from transitory to structural we still have ample room in our business model to reduce costs in FY 'twenty, three and beyond to offset much of any increases.
Notwithstanding those macro concerns we are quite pleased with how the first quarter of 'twenty. Two is shaping up demand looks robust many of the metrics. We monitor indicate the consumer continues the disruptive shift to digital shopping channels and the.
Apparel footwear and accessories sectors seem to have regained momentum we're pleased with the quality of our customer file and our basket economics.
Based on the trends we've seen thus far we have confidence in our 2022 guidance.
To deliver on our guidance.
<unk> to delight, our brand stands I'd like to share a few of our key initiatives for the year.
Customer insight, we will dedicate more resources this year to helping our decision makers better understand her mindset and desires.
And find new ways to delight, our existing branch ads, increasing lifetime value and our first party data collection.
Next introduce new customers to our brand. We know there are vast pools of untapped customers, who have yet to meet our brand and by mining insights learned from our rigorous performance marketing testing cautiously building awareness capabilities and encouraging more word of mouth introduction, we are optimistic about our file.
Growth for years ahead.
Product expansion many of fans introduction to lose who's come through event dressing and while it's interesting continues to dominate mindshare when discussing our brand based on the work started in 2019 accelerated in 2020 and the results seen in 2021, we know.
We can continue to expand successfully into non event dressing.
Not only will this provide meaningful revenue opportunity, but it will shape her engagement with the loose brand as she moves from less frequent more frequent brand engagement occasions.
Said differently, we're even better positioned more for a closet engagement.
Conversion.
We will invest even more in our onsite experience to improve conversion and overall customer satisfaction with deeper and more frequent conversion funnel analysis and a goal of reducing our size out of stock ratios.
ESG, whether it is support for women or reducing waste social and environmental issues have always been important to our internal stakeholders have Louis in 'twenty 'twenty. Two we are committed to increasing insights into our social and environmental impact we have already engaged third party partners to evaluate.
Our current practices and identify ways, we can become better business stewards, we look forward to sharing our progress as we advance in our ESG journey.
Technology and innovation.
We already have an impressive tech stack and analytics as part of <unk> DNA driving much of the decision making.
But in 2022, we will invest even more in analytics technology and machine learning to open new opportunities for revenue growth and increase our efficiency in areas like distribution allocation of marketing spend and better modeling of future product demand.
Mark Foss, our co president and Chief Information Officer, and his team have Architected bunch of our approach to technology algorithmic Decisioning and distribution strategies. He will share with you our plans for further optimizing an already efficient logistics system and support our continued growth as well as increasing customer in.
Site engagement I will now turn the call over to Mark to discuss some of the key initiatives in greater detail Mark.
Thank you David and thank you everyone for joining us today.
We are relentlessly focused on developing our infrastructure to continue supporting our long term growth plans and continuing to delight our customers.
A key enabler of our affordable luxury positioning and customer to Hawaii is continuous improvement in our service levels and efficiency across our supply chain.
In Q4 2021, we started operations from our new loose operated southern California facility.
Which will be a key step in achieving these objectives.
The first milestone, which we completed in Q1 of this year was taking our vendor inbound inventory receiving and product quality control activities back in house.
As well as optimizing our shipments from southern California to our northern California, and Eastern Pennsylvania fulfillment centers.
We have already observed higher units for trailer shifts to our fulfillment centers, which reduces the transportation cost per unit.
We have also observed shorter dock to available for sale cycle times, which further improves our available time to sell a product in season.
Ultimately lower seasonal markdowns.
Throughout 2022, we expect to add additional logistics capabilities to our southern California facility.
Further optimize inventory across our network.
Well as order fulfillment.
And thereby improving our service levels at a lower shipping expense and environmental impact.
In Q1 of 2022, we also started our implementation of robotics, and our eastern Pennsylvania fulfillment Center.
Robotics will not only provide us with productivity gains.
Also help us better attract and retain warehouse associates.
And after a successful implementation and optimization phase, we will consider a robotics rollout in our northern California Logistics Center.
Your Capex budget is allocated in our 2022 guidance.
As David mentioned, we were able to deliver strong results as a result of using data to support all aspects of our business.
From an assortment planning perspective data helps us reduce fashion risk and the ensuing gross margin risk.
We follow a test and learn philosophy.
Everything we do.
This is particularly evident in our rewards.
Q4 showed further improvements in sales attributable to reorder trucks compared to both 2020 and 2019.
And was roughly 70% for the full year 2021.
In other words, approximately 70% of our sales came from previously tested products.
This high percentage of the revenue generated by our reorder products allows us to place purchase orders with more optimal quantity and timelines.
Reduced supply chain impacts.
Optimize our assortment and ultimately delight our customer.
Switching to our customers. We are very proud of the record engagement are repeat customers in Q4 as well as a 2021.
That with pizza engagement together with healthy numbers of new customers acquired in 2021 sets us up for continued momentum in 2022.
Record a obese.
Fueled by more items per basket as well as lower discounts and markdowns shows our customers growing desire for loose assortment.
In the fall of 2021, we launched a loose brand campaign and we gained some great learnings in new marketing channels, as well as new AD formats and existing channels.
Based on brand monitoring information archon pain, resonated, well with millennial women, and especially well with Gen Z women.
And we feel confident we have a runway for access to untapped and engaged audiences.
Successful learnings from this campaign has been incorporated in our baseline awareness marketing program and we will continue to test and learn new marketing channels and AD formats through throughout 2022.
As a reminder.
As presented in our S. One or for those who are not familiar with loose marketing expenses and customer contribution margin over time.
This has been and is first order contribution margin profitable.
In other words, our cost or acquiring a new customer is below the first order contribution margin after selling and fulfillment expenses.
And despite the changes and challenges that iOS tracking limitations and privacy regulations in general that's introduced moves.
Moves remains effective and efficient in attracting new customers and re engaging existing customers.
Our proprietary datasets tooling and analytics continue to provide us with effective lines of sight on what spend.
<unk> channel for each audience is incrementally beneficial.
As a result, our selling and marketing expenses as a percentage of net revenue.
In line with recent years, and we will continue to iterate and adapt to try to keep it that way.
In Q4, we finalized the re platforming of our mobile App a.
Successfully pushed this to our customers' devices.
We have been focused on further improving the customer experience and have already seen improved engagement and conversion as a result of updating the app.
The immediate benefit of the Apple REIT platform is that the personalization and product experiences in the App are now identical to the loose dot com website.
Which was highly desired by our customers and making for a seamless experience and reduces shopping friction.
We are very proud of our customer support team that is always 100% focused on providing our customers. The best possible experience. What are we are responding to shipments related questions or providing style and fit advice.
In 2021, our customer satisfaction scores like a cease that exceeded our 2020 sports.
The top six at scores are not only a wonderful measurement or lose brand. How can we provide our customers. They are also a leading indicator for high net promoter scores and continue with customer word of mouth advertising.
Lastly in Q1, we relaunched our loved rewards loyalty program.
Whereas our previous reward program was a coupon discount program. The new Love rewards program is focused on rewarding customers for their engagement with loose.
<unk> can earn points through purchases, providing us with first party data and following loose on various social media channels.
Points earned counter awards for customer loyalty levels.
Remember.
Insider.
Icon and all access and each level has increased benefits like priority.
Back in stock notifications and exclusive Skus.
The flexibility of a points program offers us more ways to deepen the relationship with our customers.
Increase our customer's lifetime value adds to occupy a larger share of her closet.
We are looking forward to building out our loyalty program in 2022 and beyond.
And now let me introduce my colleague Crystal Lamson, co President and CFO , who will discuss the quarter in greater detail.
Okay.
Thanks, Mark and good afternoon, everyone.
First quarter as a new public company has certainly been exciting for us and as expected we're pleased.
To be reporting continued strong financial results.
As David mentioned, we delivered an outstanding quarter highlighted by year over year growth across key financial metrics, including net revenue gross margins profitability and cash flow.
We also set new records for the number of active customers engaging with us in the fourth quarter as our customers return to their social calendar and continued to come back to us for their everyday fashion most reflected in our increases and average units per order average order value and average spend per customer.
During Q4, we grew our net revenue by 78% to $96 8 million or $42 2 million increase over the same period in the prior year.
Top line growth continues to be driven by the combination of new customers acquired and increasing loyalty from our existing customer base with an all time high number of repeat customers engaging with us during the fourth quarter.
Very proud of our large diverse community of loyal customers.
And the 12 months ended January 20th want me to let me serve $2 8 million active customers compared to 2 million active customers in the 12 months ended January 2021, representing growth of 38%.
Despite industry wide supply chain challenges our business model has enabled us to continue our paas strong growth and profitability as you can see from our success in Q4.
Gross margin for the fourth quarter increased 200 basis points to 44, 9% driven by chips and factors.
First fewer markdowns and discounts compared to last year driving more sales at all right.
Second the Reacceleration of Eventbrite in demand, coupled with accelerated demand in non event everyday dressing category.
Along with strong customer demand, our agile merchandising process.
Inventory turn rates and annualized rate of over eight times.
<unk> delivered a very strong Q4, we believe we left them out on the table just given how quickly we turned our inventory.
Or have you reached an all time high of $121 driven by increased items per car as well as lower discounts and markdowns due to lower promotional activity with ANV, increasing 22% over 2020 and 12% over 2019.
Moving down the P&L to get some insights into the expense line items.
Selling and marketing expenses consist primarily of marketing expenses payment processing fees and other advertising.
Q4, selling and marketing expenses were $17 7 million up 5.8 million from the same period in the prior year due to the return of online performance marketing spend to a more normalized state and in line with the increase in our net revenue and as Mark mentioned earlier, we also launched our first ever brand awareness campaign.
General and administrative expenses amounted to $30 3 million for the quarter, an increase of $17 3 million compared to the prior year.
This increase reflects higher fixed head count costs as the previous years costs were suppressed due to furloughs related to the COVID-19 pandemic variable payroll and benefits expenses were in line with higher sales volumes higher.
Higher bonus expenses due to improved business results and an $8 million increase in equity based compensation, primarily related to stock options and special awards, we're investing with a one time acceleration triggered by the IPO.
We also began to incur increased insurance and professional service costs and other public company related expenses that we did not have in Q4 the prior year.
Interest expense fell by $2 4 million to one 7 million a result of paying off our long term debt with proceeds from the IPO.
Following the IPO, we had $25 million of debt outstanding representing a draw against our $50 million revolver.
For the Florida, we reported a loss per share of $4 69 down.
Down from a loss per share at 24 cents in the fourth quarter of 2020, primarily due to a one time deemed dividend due to an anti dilution feature included in the convertible preferred stock and triggered at the time of our IPO.
The dilution associated with this transaction only impacted shareholders and management, who held shares prior to the IPO.
Removing the impact of the onetime noncash items, the deemed dividend $122 9 million stock dividend, three and a half million and other nonrecurring stock based compensation of $8 million related to our initial public offering.
Our adjusted diluted net loss per share was three cents for the fourth quarter.
Our full year 2021 loss per share of $6.08 with greater than the prior period loss per share of $1.
However, removing the impact of the aforementioned nonrecurring noncash items in connection with our IPO. Our adjusted diluted earnings per share was <unk> 57 compared to the prior year adjusted diluted net loss per share of 13 cents.
And finally adjusted EBITDA for the fourth quarter was $6 4 million swinging to a positive from our $98000 loss in the same period of 2020.
Our Q4 adjusted EBITDA margin was six 6% up from 8.2% locked in the same period in 2020.
Moving onto the balance sheet and cash flow statement.
The fourth quarter, we continued to invest in building up our inventory balance to better serve and meet our increasing customer demand and to prepare for upcoming spring and summer peak season.
We completed our IPO on November 15th of 2021 with net proceeds of 82 million after underwriting discounts and commissions and other issuance costs.
We repaid 100% of the long term debt balance by 25 million against the new revolving facility.
Our long term debt positions as well on our growth initiatives.
They closed the year with net debt of $13 6 million comprised of a cash balance of $11 4 million and revolver balance of 25 million as of January .
For inventory, we ended the quarter with 22 million, an increase of 5.3 million or 31% higher compared to $16 9 million at the end of Q4 2020.
We're able to combine high revenue growth with fast inventory turns into a data driven approach to buying for both new and reorder products and considerably reduced fashion risk as a result.
In Q4, and also the full year 'twenty 'twenty. One overall, we believe our inventory turns were industry leading.
We operate a highly capital efficient business that positions us to generate significant positive free cash flow for the year, we generated $26 9 million in cash flow from operations.
Capital spending for the year amounted to 3 million has been invested in equipment for our general operations software and hardware purchases and internally developed software.
Moving onto guidance I'll walk you through our expectations on the upcoming year.
As we continue to build on these successes in 2020 , one we see tremendous opportunity for growth in the years ahead. The strong start to 2022 it gives us great confidence in our ability to continue attracting new customers to our brand as well as re engaging our existing loyal customer base at even higher levels.
We have deep conviction in our product merchandising model to look through and our ability to navigate the current macro environment.
We're expecting 2022 full year net revenues between 480, and $490 million, which represents year over year growth of 28% to 30%.
Think about modeling revenue for our business in a normalized year. Our net revenue is typically highest in our second and third fiscal quarters incidentally on seasonality for event dressing.
Adjusted EBITDA is expected to be between 48, 5 million and $50 million, which represents growth of 17% to 21% over 2021.
Equates to an adjusted EBITDA margin of 10, one to 10, 2% compared to 11% in 2021 are.
Our adjusted EBIT margin rate guidance captures a decrease over the prior year, primarily driven by roughly 4 million four 5 million.
Incremental expenses related to being a public company or the 2022 fiscal year compared to the less than two months of public company expenses recognized in 2021.
Our guidance targets for the full year of 2022.
However to set expectations for modeling purposes, our quarterly adjusted EBITDA margin rates have similar seasonality fluctuations as our net revenues and will likely fluctuate above and below our full year guidance rate depending on the quarter.
Additionally, we expect adjusted EBITDA margins to be somewhat lower in the second and third quarters. This year compared to the second and third quarters of last year directly related to higher public company expenses as well as timing of expenses for infrastructure investment initiative, which will require some redundant operation.
As a result of paying down our long term debt. Following the IPO, we expect interest expense of less than $1 million for the year compared to $14 $2 million last year, which included a $1 $4 million loss on extinguishment of debt.
We expect our weighted average fully diluted share count of 46 million shares which is higher than the prior year as the prior year included three and a half quarters of lower shares outstanding leaving us for Ikea D.
Is your share count includes a full year of higher post IPO share count weighted across all four quarters.
Moving onto capital expenditures I'd like to highlight the following investment areas going forward.
First.
Lanny to continue investing in our logistics capabilities to even more efficiently serve our customers as we grow in scale.
These initiatives include plans to continue investment in a logistics facility, which began in Q4 2021 .
We expect some inefficiencies and distribution center operations during the first half of the year, while we continue to ramp up those operations with the efficiencies and cost savings beginning in the second half of the year.
Once they've completed a successful robotics implementation and our east coast fulfillment Center.
The return on investment and consider launching robotics in our northern California facility.
We're also planning to continue improving our platform to ensure that we maintain and improve our customer centric shopping experience and marketing personalization with investments in our customer data platform and customer insight.
And lastly, we're planning to further invest in internal and external software and technology to enhance our operational efficiency.
But there were a lot of these initiatives, we expect capital expenditures of between $5 million to $7 million for the full 2022 fiscal year.
On behalf of Crystal Mark and I, we'd like to thank the lube crude brand fans board and of course our shareholders.
Your support we could not have delivered such a successful fourth quarter in fiscal 2020 one.
We believe lose as a high growth capital light business with fast inventory turns and a strong balance sheet and growing EBITDA.
I had a merchandising model that obviates much of the concerns with fashion risk.
We are quite pleased with the start to the year and look forward to building new capabilities and set a new performance records in FY 'twenty two.
We have the chance to do something quite special here at Louis. Thank you for your time, we look forward to hearing your questions.
Thank you at this time, we will be conducting a question and answer session.
Like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. You May press star two if he would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing any star keys.
In the interest of time, we ask that you limit yourself to one question and one follow up. Please. Thank you one moment, please while we poll for questions.
Our first question comes from the line of Mark All Swaggart with Baird. You May proceed with your question.
Thanks, Good afternoon, and congrats to the on a strong close to the year.
With respect to the revenue growth guidance to plus 28% to 30%. How are you thinking about growth in active customers versus revenue per customer and then bigger picture back half of 'twenty. One revenue growth was up about 16% versus 2019, so the 2022 .
It implies a pretty big step up in the growth rate, maybe just talk a little bit more about what's giving you confidence in that acceleration.
Let's say from a revenue generation perspective, we're anticipating sales to come from both a reengagement of repeat customers because we're seeing a very healthy improvement in that as well as the spend per repeat customers, but we're also seeing really great trends across our new customers acquired where their average order value average.
Actions are here and basically all of the economics around how frequently they're transacting with us is improving.
Right in line with our repeat customers so were seeing improvements across the board there and from our product class expansion in our non event classes. We're also gaining momentum which is driving up into the teens just across the board as well. So it's a combination of basically everything hitting all at once really effectively.
That's great.
Quick follow up just it's great to see the healthy growth in active customers at the year end figure pretty much back in line with where you were in 2019 I believe I'm curious how much of the growth. This year was reactivation of some of the lapsed customers from COVID-19 versus new customers to the platform.
It was both really like like Crystal was saying.
Had a slower start in 2021 due to lower inventory levels, how we got into the year, but then progressing through 2021.
Clearly saw that the re engagement as well as net new customer acquisition.
Both.
We're performing in a healthy manner.
Thank you best of luck.
Thanks Mac.
Our next question comes from the line of Randy <unk> with Jefferies. You May proceed with your question.
Hey, guys.
Sorry, I'm at an airport, but just wanted to kind of just elaborate on the inventory turns really great turns there Chris.
Crystal you talked about maybe a little on the table I think in the third quarter and then in the in the fourth quarter as well, it's a great problem to have how do you. How are you thinking about inventory kind of growth.
Throughout the year of 2022, how do you want to think about that and are you kind of thinking about inventory turns staying at the same rates going down.
Continuing to move a little bit higher how should we be thinking about that thanks.
Yeah. That's a good question. So we do have a luxury problem of returned inventory pretty fast and we're able to generate some pretty interesting growth rates without sad with our test learn and reorder buying model, where we're continuously testing into slowing down our turns to capitalize on that upside in demand, but we do everything in a low risk testing ways, though.
Do you think about 2022, we do plan to slow turns but we have this really nice problem, where the more we buy them or we sell so I'd hate to commit to permanently pulling our turns down but we are looking at ways to continue to push upside in growth and potentially other turns down a little bit.
Super Helpful. My I guess my last question would be it.
If you can kind of unpack marketing a little bit more obviously it sounds like there's a very successful response to your first ever brand marketing campaign. So can you just give us some perspective on different things you saw in the business related to that campaign, how youre thinking about oh, altering or keeping the campaign kind of the same going into two.
22, you just your general marketing expense levels would be helpful. And then I think last quarter you touched on thinking about at some point a little a little bit of international marketing spend so I just wanted to be curious about how you were thinking about.
That as well given we're seeing really good response to what happened in I guess in the fourth quarter. Thanks, guys.
Sure.
So when it comes to the brand campaign that we started in the fall we have like I said, some great learnings there.
Basically you can bucket those learnings we areas that's learnings around content those learnings around some new channels and there's learning surrounds new ad formats and existing channels.
And wondering if you could go to think along the lines of.
For example with content.
To better understand what type and format of content works, well and which channel versus CEO .
Approaching generic audiences or targeted or or more specific audiences and so what we've done with that is to better understand also from the channels, but for example to Brent lifts are and applying that and incorporating that into our we called our evergreen.
Evergreen awareness marketing that we were you know.
Oh I see.
There are always doing and that way, we have incorporated thoughts going forward, but also obviously, we will be continuing to test and learn in 2022 that that will not stop I think the reason why we talked about our brand campaign was formulated in a brand campaigns because we were because we were the first time for googles to talk about Google.
Instead of specifically about the products. So that was a content change that we had last year.
Which was like I said, it's very very successful and were very interesting to see how that resonated both with.
Millennial as well as GNC GNC.
Hey, Randy let me, let me add onto <unk> comments on that.
As you know we've grown primarily through a word of mouth from friends and family and so that's been that's still important for us and we're continuing to push on it and we've been absolutely outstanding with our efforts in performance marketing.
On the capital structure previously it wasn't brand building wasn't brand marketing wasn't a muscle we were able to exercise would develop so this was really our first forays into it and still the spend year over year will be heavily weighted towards if you have to think about the performance versus brand, which we're not necessarily certain we do.
It still will be weighted much more of the spend will with what we've been doing for years and continuing as Mark said to test and learn our way into those disciplines and build out the capabilities, but we were pretty happy with the response.
Super helpful. Thanks, guys.
Examples Andy.
Our next question comes from the line of Oliver Chen with Cowen and company. You May proceed with your question.
Alright. Thank you the average order value was very impressive as we can look ahead, particularly as we think about new versus existing customers and any factors do you expect that momentum to continue you know amongst the U P T in AUR or.
Transactions and then on and.
Better modeling to predict future demand I know you have a pretty advanced artificial intelligence.
Bench there so I was curious about.
What better modeling is feasible.
And a follow up on infrastructure investments in logistics, there's a lot happening at loose.
What's the customer impact in terms of.
The biggest unlock as you pursue those I assume its speed. Thank you.
Well and I'll tackle the average order value question. So what we experienced was really an increase in U P cheese as well as a reduction in markdowns and discounts compared to prior years and our expectation is that will remain relatively stable. It wasn't an private consider a nonrecurring item for last year with the exception of pushing.
Actually higher U P Ts around product class expansion in our non events areas with a separate tops and bottoms and so forth. So.
I wouldn't I also wouldn't expect a massive increase in EOD either as we're trying to play strategically growth in other product classes, but we're not going to be aggressively looking at pricing versus more wanting to push growth in those product cost area. So I'm familiar with the perspective again, yes, we're expecting continued momentum, but I would temper expectations to give us.
Room to grow and take more mind share versus going after every dollar from a customer.
Okay.
So as it relates to modeling in and being able to forecast demand and we are always evolving how we look at our business and we like to triangulate from different areas and functions within the business, whether from marketing planning or F. N. A team and I would say, it's a constantly evolving process as well as integrating with our data team to continue optimizing and how we can capture that.
Demand, especially in these challenging supply chain times, but we're not as sensitive to lead times as maybe others might be so there's I think there's plenty of room for optimization I think we're pretty good at it but I think we can become really great at it and so I still see a lot of upside in that area.
And then your last question Oliver as it relates to our infrastructure and investments that we're making there its indeed, all about speed and service levels.
That's why we took essentially the activities that we had to outsource to a three P. L. As it relates to the receiving off our goods from our vendors as well as the quality control back in house. So that we have essentially data sooner and can also better control essentially the outflow of a product from the southern California.
Facilities in the northern and southern California, and Eastern Pennsylvania facilities, and we've already seen basically faster time that we kept products on online available for sale for sale, which is about speed and it's also about essentially reducing markdowns ultimately because we have a long.
[noise] itself themselves through email and then when we add capabilities further to that facility. Throughout this year. Then also from a fulfillment perspective, we will be closer to a a nice a nice size of the population, where we can look at orders in southern California, and Nevada and south regions.
Thank you great quarter best regards.
Thank you.
Thank you. Our next question comes from the line of Brooke Roach with Goldman Sachs. You May proceed with your question.
Good afternoon, and thank you so much for taking our question.
I'd love to hear a little bit more about some of the trends that you've seen to date throughout 2022, I'd love to hear if you could.
Pat your expectations of the growth sequence for the year and a little more detail and perhaps provide some context, how you've seen customer engagement trend as you've navigated. The January omicron variant and also some other rising wallet pressures that we've seen on the consumer the past couple of months.
Okay.
So we're at we're happy to report that we are less sensitive to some of the inflation pressures that that time, everyone is thinking about it in the market and that really comes from our affordable luxury and price value perception from our customer and when we take a surgical approach to pricing. We always have we always will and and in that sense. We feel we have a room of course to adjust pricing, but we're also opt in.
And I think for sell through and value perception for our customer.
I can't say, we're not affected by the inflation because we certainly are but if we continue to grow and get scale and economies of scale from our purchasing process, where possibly less exposed to that than maybe others would be and.
The beautiful thing about our customer as that or if we do change prices and we take them up a lot of times it increase the sell through versus reducing it to where we're really grateful for her for that but nothing where we're not really seeing any of those pressures at least not to the extent that others are talking about in the market and again it goes back to our product how we do our buying and how search but we are.
With our pricing as well is that when we're bringing in inventory and in what quantities.
Great. Thank you and then just a follow up for me on the enhanced loyalty program, but I'd love to hear a little bit more about some of the early reads that you're getting from that program and maybe the biggest opportunities that you see for that program to contribute.
To better consumer engagement over time, thank you.
And as it relates to loyalty that has.
Early learnings would be too early and it literally was rolled out two or three weeks ago.
I cannot speak to that other than that the rollout itself wins successful our customers received it well, but we're not too many questions.
Or you know the issues that have popped up so in that sense, we're very happy about that particular aspect.
As it relates to the opportunity Yeah, I think that is what we really are talking about the previous love rewards program was.
Kind of it wasn't.
A lot of options to.
Use the S. Four for example to broaden our.
Our customers are.
<unk> for example, because it was purely just transactional and discount coupon oriented and now we can truly focus on that engagement with our with our customers worth over four four that engagements, whether that is buying more or buying different products or.
I'm talking about is word of mouth advertising et cetera, so the flexibility and the opportunity that provides us to do so what we really exciting about what we're excited about and we're happy to have laid that foundation on which we can do.
And so far she is responding well to the offering.
Yes. She is broken if you think of yes as Mark was talking about the early program was very transactional and this one is being.
The foundation is being laid so that it can become more of that Brent hug and a great engagement tool that mark alluded to.
Where.
Again, it also gives us a great deal more first party data a number of things that this is going to help us to again from an advertising expense loyalty trucking, it's going to be great for company that so focus on the customer.
We sort of had one hand behind our back by not having a really robust plan. So this is phase one and I suspect the plan Mark shares with you next year at this time about what phase two and phase three of them both on the learnings you'll see it.
On a more precise pretty dramatically.
Yeah.
Thank you so much.
Our next question comes from the line of Lorraine Hutchinson with Bank of America. You May proceed with your question.
Hi, This is Alex on for Lorraine Hutchinson. Thanks for taking our question since <unk> is pretty much concluded I know youre not guiding specifically to that but could you. Please give some color on how that went in which non event categories have been outperforming in particular.
And if one key trends are largely consistent with <unk> or if there is anything specific to call out.
So generally speaking where we're all very optimistic about Q1 and things have been progressing very nicely and as it relates to product classes and what we're not sharing details in terms of overall penetration for each business, but because we're known for our dresses and more specifically even dress.
We do believe we're experiencing a bit of a disproportionate benefit from our customers return to their social calendar, especially in Q1, and then as they run into Q2, because the expectation would be the same that said the concentration of sales from our non events classes also increase in 2021 and continue to increase and over prevent that make years, where it is.
Gaining traction in building more awareness in all of our affordable luxury offering for that everyday wear so I'd say, we're we're firing on all cylinders, we're very optimistic about the business and things are going great.
Thank you.
Our next question comes from the line of Dana Telsey with the Telsey Advisory Group you May proceed with your question.
Dana Your line is live Ah Hi, it's David I'm here now.
Hi, congratulations on the nice progress with the quarter.
You think about the tech investments that you're making what are the markers that we should be watching for that shows it's on track.
How should we be evaluating it and the and it sounds like its multi year. So what is the journey that we're on that what do we accomplish this year or next year, how do you think of the markers.
So I think before Bob jumps in let me just I mean.
So we were thinking about them or we have some things we have to do structurally that add capability for growth right. We're a high growth company and we've always sort of built just in need and just in time and along the way Mark and team have been not only doing that but enhancing the capabilities estimates.
There's a great deal of work your team are doing around customer insight analytics data analytics capabilities, the number of things, but I could do nothing I'll give it short shift if I try to answer some mark jump in.
Okay.
It's an interesting question I'm trying to think about the markers that you were looking for it because that's not necessarily the way I think about it I think inventory if marketing efficiency I mean tech and data as in everything we do so I would say our financial performance would be an indication of the advancements we're making.
Our financial performance I think that would be then the domains that supports everything we do.
You May have you may see.
We believe over time too often the parents are there wouldn't be surprised if we start to see that.
Oh, the creep up beyond our current price points, because we had better insights and we're gonna start the offering will change the frequency purchasing over the year, you'll start to see changed but sort of behavioral economics that we're very.
From a purchase behavior or bias towards events will start to move as well.
Okay, and I think the other part is our is our Opex right I mean, the technology is really there. Besides on the sales side and it's also the operation side and it's really about how do we scale more efficiently over time.
That's why we're introducing for example, robotics in there the other things that we will be implementing in order to scale that's more efficiently.
As our volume increases and as we've learned as we tap into the sort of the untapped pool, knowing that we're a young brand and not as well known we may be able to scale grow faster, where some people would be worried so that the capabilities smartphone whether it be inventory purchasing right now.
It's very hard to fulfill.
Phil and have sized in socks integrity with these blistering faster turns in the market. So those are all kinds of things youre going to see Dana Mercury's that'll support the growth.
In the near term.
Got it and then just following up on the E. L D with the category extensions. How do you think about the impact on on a L V and what would impact a L V. The most in terms of category extensions in your view.
I haven't seen that the biggest impact is going to be U P teams, but early reads are showing that as she shops more of our non events classes are seeing those you'd be teeth creep up its a different shopping behavior than shopping seasonally for events and so E. P teams would be the biggest the biggest factor affecting U V. L. A at least in the near term.
Thank you.
Thank you Dana.
Our next question is a follow up from Oliver Chen with Cowen and company. You May proceed with your question.
Alright, Thanks, a lot and none of that dressing is a really nice opportunity continues to be would just love some points around how that's advancing at a key focus areas and second and finally as you bring on new customers. How are you thinking about L. T V relative to CAC in the car.
Sure of that behavior.
Ah interesting or relevant distinction in terms of churn and.
Acquisition costs. Thank you.
Sorry merge teams are doing an exceptional job of building out our non events classes and we are seeing in spite of it not the reacceleration of our events business. We are gaining share in overall contribution to our business and our non event. So we're not guiding anywhere towards actual numbers, but I will tell you we are making strides in building out that overall concentration of nine events.
She was in accessories.
Especially compared to pre pandemic levels and something else that's going on Oliver as we do that if you think about our history and legacy as a company with the vet dressing we had a preponderance. So this is on the software side of the question we had a preponderance of.
Neutral safe colors, and Youre seeing the team recently began too.
Broaden that and as we move into <unk> and dresses as well as none of that dressing.
Seeing that as well so we're learning how to.
Outfit, where understanding the relationships and the power of seasonal color expressions. We also have a history of being very dominantly.
<unk> versus using print patterns, and you're going to see us grow. So when you think about the ability for us to grow in those spaces is a real nascent stages, well, so heartwarming I guess confidence in Sterling.
That we're continuing to grow and we know we have the fastest hillary's bond was addresses but where there are subcategories within dresses that remain untapped for us as well so.
Again, this is going to be a great ride and big pools of resources.
And then as it relates to your question around comprehensive LTC. If you look at the initiatives that we have taken and started to put ourselves on a different foundation for example, with the loyalty program when we're looking at expanding our.
Our assortment and getting also awareness around the everyday where is that.
All leads to more and more opportunities to for customers to engage with us.
Already spoke about higher <unk>, but there's also of course the frequency there is a higher repeat and all those initiatives are essentially driving towards a higher LTC.
The customers.
Hum.
Oh, I'm, sorry, I'm talking from a repeat your growth perspective, as well and then as it relates to the customer acquisition costs. Obviously, the the market is certainly influx right with all the privacy changes in iOS and tracking changes and it's our job to maintain.
We'll try to do is maintain that historical cost of acquisition that we have had over the last couple of years to keep that are also going forward. So that we can truly leverage the benefits of the increases of our LTC going forward.
I mean, it was very helpful.
Contribution margin profitable on a first order.
That's pretty special.
Yeah.
Thank you.
Thank you everyone. At this time, we have reached the end of the question and answer session and I would now like to turn the call back over to Mr. Mccreight for any closing remarks.
Thank you all you obviously can hear our pride in what the look through achieved this past year and quarter and again, we've already mentioned, we're thrilled with the start of the year and look forward to updating you further so thank you for your time.
This concludes today's conference you may disconnect. Your lines at this time. Thank you everyone for your participation and have a great day.
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