Q3 2023 Lulu’s Fashion Lounge Holdings Inc Earnings Call

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Speaker 1: Good afternoon and welcome to Lulu's third quarter 2023 earnings.

Good afternoon, and welcome to lose third quarter 2023 earnings Conference call. Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A.

Speaker 1: Today's call is being recorded and we have allocated one hour for the prepared remarks and Q&A.

At this time I'd like to turn the conference over to Luiz General Counsel and corporate Secretary Naomi Beckman Strauss. Thank you you may begin.

Speaker 2: Good afternoon, everyone, and thank you for joining us to discuss Lulu's third quarter 2023 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.

Good afternoon, everyone and thank you for joining us to discuss <unk> third quarter 2023 result.

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.

Speaker 2: All statements made on this call that do not relate to matters of historical fact should be considered forward looking statements, including but not limited to statements regarding management's expectations, plans, strategies, goals and objectives and their implementation, our expectations around the continued impact of the macroeconomic environment, consumer demand and return rates on our business, our future expectations regarding financial results.

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 in their implementation or expectations around the continued impact of the.

Nick environment.

Or demand in return rates on our business.

Our future expectations regarding financial result.

Speaker 2: References to the year ending December 31, 2023, including our financial outlook for full year 2023, market opportunities, product launches and other initiatives and our growth.

References to the year ending December 31, 2023, including our financial outlook for full year 2023 market opportunities product launches and other initiatives and our growth.

Speaker 2: 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 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.

Speaker 2: These risks, uncertainties and assumptions are detailed in this afternoon's press release, as well as in our filings with the SEC, including our annual report on Form 10-K for the fiscal year ended January 1, 2023, filed with the SEC on March 14, 2023, all of which can be found on our website at investors.lulus.com.

These risks uncertainties and assumptions are detailed in this afternoon's press release as well as in our filings with the SEC, including our annual report on Form 10-K for the fiscal year ended January 1st 2023 filed with the SEC on March 14th 2023, all of which can be found on our website an investor.

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Speaker 2: Any such forward-looking statements represent management's estimates as of the date of this call.

Any such forward looking statements represent managements estimates as of the date of this call.

Speaker 2: 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.

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.

Speaker 2: During our call today, we will also reference certain non-GAAP financial information, including adjusted EBITDA, adjusted EBITDA margin, net cash, debt, and free cash.

During our call today, we will also reference certain non-GAAP financial information, including adjusted EBITDA, adjusted EBITA margin net cash debt and free cash flow.

Speaker 2: We use non-GAAP measures in some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our business.

We use non-GAAP measures in some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our business.

Speaker 2: 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.

The presentation does 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.

Speaker 2: Are non-GAAP measures maybe different from non-GAAP measures used by other companies?

Our non-GAAP measures may be different from non-GAAP measures used by other companies reconciliation of GAAP to non-GAAP measures as well as the description limitations and rationale for using each measure can be found in this afternoon's press release and in our SEC filings.

Speaker 2: Reconciliation of GAP 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 FCC filing.

Speaker 2: Joining me on the call today are our CEO , Crystal Anson, our CFO , Tiffany Smith, and our President and CIO, Mark Fauci.

Joining me on the call today are CEO Crystal Anderson, our CFO, Tiffany Smith, and our President and CIO Mark Paul.

Speaker 2: Following our prepared remarks, we'll open the call for your questions. With that, I'll turn the call over to Chris.

Following our prepared remarks, we'll open the call for your questions with that I'll turn the call over to Crystal.

Speaker 3: Thank you, Naomi, and good afternoon, everyone. We appreciate you joining us today.

Thank you Naomi and good afternoon, everyone. We appreciate you joining us today.

Speaker 3: Before we delve into our results, I'd like to thank our team for their steadfast commitment in nurturing our brand and delivering an exceptional experience to Lulu.

Before we delve into our results I'd like to thank our team for their steadfast commitment and nurturing our brand and delivering an exceptional experience to lose fans.

Speaker 3: I'll begin with the recap of our third quarter results. Follow by highlights of important growth and efficiency initiatives. We believe we'll strengthen the company's long-term financial success in branding.

I'll begin with a recap of our third quarter results followed by highlights of important growth and efficiency initiatives. We believe will strengthen the company's long term financial success and brand expansion.

Speaker 3: Setting Mako headwind aside for a moment as we reflect on our performance in the third quarter. There are things we did well and things we needed to adjust to position us for sustained long-term success. Let's jump into the thing.

That any macro headwinds aside for a moment as we reflect on our performance in the third quarter. There are things, we did well and things we needed to adjust to position us for sustained long term success, but something to the things that we did well in the quarter.

Speaker 3: Our new product introductions continue to resonate with our customer during the quarter. With single to double digit positive net revenue comps across many product classes, including wedding related apparel, most dress classes, as well as a few other smaller but growing product classes, resulting in our total new product net revenue for the quarter, comping up high single digits compared to Q3 last year, giving us further confidence in our future Reorder.

Our new product introductions continue to resonate with our customer during the quarter with single to double digit positive net revenue comps across many product classes, including wedding related apparel, most stress classes as well as a few other smaller but growing product classes, resulting in our total new product net revenue for the quarter coughing up high.

Single digits compared to Q3 last year.

A further confidence in our future reorder funnel.

Speaker 3: Of the previously mentioned growth product classes, we're most proud of re-accelerating growth metrics across wedding, special occasion, and event apparel, with new product net revenue growth of high double digits over Q3 last year.

Of the previously mentioned growth product classes. We're most proud of re accelerating growth metrics across wedding special occasion any of that in apparel with new product net revenue growth up high double digits over Q3 last year.

Speaker 3: New technologies and investments in site experience across the website, mobile app, and mobile web results in increased engagement metrics across all device platforms.

New technologies and investments in site experience across the web site mobile App and mobile web resulted in increased engagement metrics across all device platforms.

We successfully reduced our revolving line of credit by $4 million as intended and decrease our net debt by approximately $5 9 million and in the quarter and a net cash positive position.

Speaker 3: We successfully reduced our revolving line of credit by $4 million as intended and decrease our net debt by approximately 10.9 million, ending the quarter in a net cash positive.

Speaker 3: Our business continues to generate liquidity and our balance sheet remains strong, enabling us to maintain our investments in strategic initiatives and sustainable long-term growth.

Our business continues to generate liquidity and our balance sheet remains strong, enabling us to maintain our investments in strategic initiatives and sustainable long term growth.

Speaker 3: Three cash flows for the quarter was 11.6 million compared to prior year Q3 at 4.6.

Free cash flow for the quarter was $11 6 million compared to prior year Q3 at $4 6 million.

Speaker 3: Year-to-date free cash flow is 18.2 million compared to year-to-date 2022 12.6 million. Reinforcing the agility of our business.

Year to date free cash flow is $18 2 million compared to year to date 2020 to $12 6 million reinforcing the agility of our business model.

Speaker 3: Inventory balances continue to decline with a balance at quarter end of 41.5.

Inventory balances continue to decline with the balance at quarter end of 41, 5 million down about $7 9 million or 16% from the same period last year and down $4 7 million or 10% on a quarterly sequential basis due to efficient inventory management.

Speaker 3: down about 7.9 million or 16% from the same period last year, and down 4.7 million or 10% on a quarterly sequential basis due to efficient inventory management.

Speaker 3: Transitioning the challenges we fall during the quarter where there were key learning from

Transitioning to challenges we saw during the quarter, where there were key learnings from the team.

Speaker 3: First, as our customers looked more towards newness and novelty, consistent with broader retail trends, we did not capture demand slowly in the third quarter due to our conservative initial test order quantities, being too small compared to the demand for many of the products we introduced during.

First as our customers look more towards newness and novelty consistent with broader retail trends, we did not capture demand fully in the third quarter due to our conservative initial test order quantities being too small compared to the demand for many of the products we introduced during the quarter.

Speaker 3: Given the consumer health and macroeconomic headwind facing many retailers, we have been more conservative in our initial product buys and warranted, resulting in less than optimal use of our highly effective buying model and leaving potential revenue opportunities on top.

Given the consumer health and macroeconomic headwinds facing many retailers you've been more conservative in our initial product by its unwarranted, resulting in less than optimal use of our highly effective buying model and leaving potential revenue opportunities on top of the quarter.

Speaker 3: Second, in response to shifting consumer behavior during the quarter, we reallocated resources from plans for performance marketing investments towards markdowns and promotional pricing in order to compete for some of the systems.

Second.

In response to shifting consumer behavior during the quarter, we reallocated resources from plans performance marketing investments towards markdowns and promotional pricing in order to compete for some of this demand.

Speaker 3: We attribute pressure for more promotional pricing to the general elevated promotional retail environment and intensified price competition from aggressive fast fashion retailers seeking to expand their presence.

We attribute pressure for more promotional pricing to the general elevated promotional retail environment and intensified price competition from aggressive fast fashion retailers seeking to expand their presence in the U S.

Speaker 3: Third, we're experiencing a shift back to pre-pandemic levels in the lifespan of our reorder process.

Third we're experiencing a shift back to pre pandemic levels and the lifespan of our reorder products.

Speaker 3: Over the last few years, catalyzed by the pandemic, we have benefited from extended lifespan of our reorder products, with many products maintaining high productivity for two to three years longer than normal.

Over the last few years catalyzed by the pandemic, we have benefited from extended lifespans of a reorder products with many products maintaining high productivity for two to three years longer than normal.

Speaker 3: More recently, we've realized we need to return to the multi-year reorder buying strategy that was successful pre-pandemic.

More recently, we realize we need to return to the multi year reorder buying strategy that was successful pre pandemic.

Speaker 3: This reversion was most apparent in the third quarter, where we saw softening demand in some of our legacy high volume reorder products.

It's for version was most apparent in the third quarter, where we saw softening demand in some of our legacy high volume reorder products, while still productive in selling at healthy volumes demand for these products are tapering sooner than expected.

Speaker 3: While still productive and selling at healthy volumes, demand for these products are tapering sooner than expected.

Speaker 3: Our business model is built around testing and prioritizing timeless quality versus being excessively trend driven. We've set this up to effectively capitalize on the middle of a fashion cycle.

Our business model is built around testing and prioritizing timeless quality versus being excessively trend, driven which sets us up to effectively capitalize on the middle of a fashion cycle. Consequently, it can take a few quarters to test and optimize for shifting consumer preferences for more enduring and lasting trends, leaving us more.

Speaker 3: Consequently, it can take a few quarters to test and optimize for shifting consumer preferences for more enduring and lasting trends, leaving us more exposed at the beginning and the end of a fashion cycle.

[noise] exposed at the beginning and the end of a fashion cycle shift.

Speaker 3: With Reorder product life cycles returning to averages, more consistent with longer term historical levels we've seen, we're confident about our ability to deliver a recalibrated Reorder strategy.

With reorder product life cycles, returning to averages more consistent with longer term historical levels, you've seen we're confident about our ability to deliver a recalibrated reorder strategy going forward.

Speaker 3: Of course, we saw a delay in the demand for fall products similar to trends we experience in the spring.

Fourth we saw a delay in the demand for fall product similar to trends we experienced in the spring.

Speaker 3: Demand for fall products only recently started to gain momentum, leaving our separates and shoes business, which typically drive a larger impact in third and fourth quarter revenue falling short of our original expectation.

Demand for fall product only recently started to gain momentum, leaving our separate and shoes business, which typically drive a larger impact in third and fourth quarter revenue falling short of our original expectations while.

Speaker 3: While we did not effectively anticipate the seasonal weather shifts, we have reinforced our internal planning and operating procedures to better address these shifts going.

While we did not effectively anticipate the seasonal weather shifts we have reinforced our internal planning and operating procedures to better address these shifts going forward.

Speaker 3: Lastly, we believe shoppers are currently craving more out of home in-person experiences than has been the case for the last few years.

Lastly, we believe shoppers are currently craving more out of home in person experiences than has been the case for the last few years, causing what we believe to be temporary headwinds for us as they primarily D to C retailer.

Speaker 3: Causing what we believe to the temporary headwind for us is a primarily D to C

Speaker 3: While this may be temporarily limiting the extent of our customer engagement and acquisition.

Well this may be temporarily limited the extent of our customer engagement and acquisition opportunities. We remain confident in our D to C positioning and approach while remaining opportunistic with our test learn and reorder approach to other physical retail channels.

Speaker 3: We remain confident in our DBC positioning and approach while remaining opportunistic with our test, learn and reorder approach to other physical retail channels.

Speaker 3: The end result was our financial results deviated from our initial process.

The end result was our financial results deviated from our initial projections.

Speaker 3: Net revenue was 83.1 million for the third quarter 2023, representing a 21% decline compared to Q3.

Net revenue was $83 1 million for the third quarter 2023 representing a 21% decline compared to Q3 2022.

Speaker 3: Our adjusted EBITDA was $1 million for the third quarter 2023, compared to $5.4 million in Q3 2020.

Our adjusted EBITDA was 1 million for the third quarter 2023, compared to $5 4 million in Q3 2022.

Speaker 3: Our active customer count was 3 million at the end of Q3 2023, down 4% sequentially from Q2 2023, and down 8% from Q3 last year.

Our active customer count was 3 million at the end of Q3, 2023 down 4% sequentially from Q2, 2023 and down 8% from Q3 last year.

Speaker 3: We are actively pursuing strategic initiatives and optimization efforts to drive efficiencies in the near term, while also laying the groundwork and making key investments so that we are well positioned to drive growth for the longest.

We are actively pursuing strategic initiatives and optimization efforts to drive efficiencies in the near term, while also laying the groundwork and making key investments. So that we are well positioned to drive growth for the long term.

Speaker 3: These are a few of the actions we are taking in response to our Q3.

Is there a few of the actions we are taking in response to our Q3 insights.

It will be re implementing a tiered based approach to our initial order quantity purchasing strategy for a subset of our new product tests, where data supports higher confidence in larger initial order quantity.

Speaker 3: We will be re-implementing a tier-based approach to our initial order quantity purchasing strategy for a subset of our new product tests, where data support higher confidence and larger initial order.

Speaker 3: While the increases will remain conservative and consistent with our test and learn approach, we expect to reduce the occurrence of stockouts, capture demand from initial test orders, and increase...

Well the increases will remain conservative and consistent with our test and learn approach, we expect to reduce the occurrence of stock outs capture demand from initial test orders.

And increase customer satisfaction.

Speaker 3: We believe a subset of our customers across all income levels have shifted spend to low priced, aggressive fast fashion retailers who have recently been gaining traction with US.

We believe a subset of our customers across all income levels have shifted spend to low priced aggressive fast fashion retailers, who have recently been gaining traction with U S consumers.

Speaker 3: We will be increasingly focusing our assortment and marketing efforts around an offering that is further differentiated from the fast fashion retailers.

We will be increasingly focusing our assortment and marketing efforts around an offering that is further differentiated from the fast fashion retailers.

Speaker 3: Additionally, in anticipation of retiring aging reorder products sooner, we will be increasing our newness and novelty penetration back to pre-pandemic levels, where we have already seen encouraging performance from our test and learn.

Additionally, in anticipation of retiring aging reorder products sooner, we will be increasing our newness and novelty penetration Baxter pre pandemic levels or we have already seen encouraging performance from our test and learn orders.

Speaker 3: Finally, we will be making measured investments in our merchandising leadership, expanding expertise specifically in separates and non-event apparel, shoes, and accessories, as well as elevating experience in merchandising strategy across multiple customer interactions.

Finally, we will be making measured investments in our merchandising leadership expanding expertise specifically in separate a nonevent apparel shoes and accessories as well as elevating experience in merchandising strategy across multiple customer interaction points.

Speaker 3: Alongside our optimization initiatives, our focus extends to new customer acquisition and engagement strategies that unlock fresh opportunities for visibility and growth and further support our core D2C business.

Alongside our optimization initiatives, our focus extends to new customer acquisition and engagement strategies, but unlock fresh opportunities for visibility and growth and further support our core D to C business.

Speaker 3: As we approach 2024, we remain committed to offering innovative means for customers to interact with our brand, which is driven by customer insights, indicating their desire for additional channels to connect.

As we approach 2024, we remain committed to offering innovative means for customers to interact with our brand, which is driven by customer insights, indicating their desire for additional channels to connect with us.

Does that and we are excited to welcome customers, who are new retail location on Melrose Avenue in Los Angeles. This December.

Speaker 3: To that end, we are excited to welcome customers to our new retail location on Melrose Avenue in Los Angeles this December .

Speaker 3: where they will be greeted with an immersive brand experience that we believe showcases Lulu's exceptional product quality and unparalleled customer service.

They will be greeted with an immersive brand experience that we believe showcases lula's exceptional product quality and unparalleled customer service.

Speaker 3: Grant opening is scheduled for December 1st with brand activations planned in the week leading up to the opening.

Grand opening is scheduled for December 1st with brand Activations planned in the week, leading up to the opening.

Speaker 3: The launch timing positions as well for holiday events, with particular emphasis on dress and special occasion products for holiday and New Year's parties.

The launch timing positions us well for holiday events with particular emphasis on dress and special occasion products for holiday and new year's parties.

Speaker 3: Consistent with all our endeavors, we believe the test, learn, and reorder approach also applies to physical retail, as this store will allow us to experiment with various brand engagement strategies in 2024, while we evaluate how to apply our fast turning buying model to a brick and mortar experience.

Consistent with all our endeavors, we believe the test learn and reorder approach also applies to physical retail as this store will allow us to experiment with various brand engagement strategies in 2024, while we evaluate how to apply our fast turning buying model to a brick and mortar experience.

Speaker 3: On the wholesale partnership front, as highlighted on our Q2 call, our partnership with an online wholesale B2B platform broadened our product offerings for potential partners, deepening our reach into brick-and-mortar retail and attracting new customers through a multi-channel strategy.

On the wholesale partnership front.

As highlighted on our Q2 call our partnership with an online wholesale b to B platform broadened our product offerings for potential partners deepening our reach into brick and mortar retail and attracting new customers through our multichannel strategy.

Speaker 3: We're confident in our ability to facilitate wholesale growth with select retailers following our nearly seven years of wholesale partnerships with retailers such as Nordstrom and

We're confident in our ability to facilitate wholesale growth with select retailers. Following our nearly seven years of wholesale partnerships with retailers such as Nordstrom and stitch fix we believe wholesale relationships will provide a brand and customer halo effect that will deepen our relationships with our existing customers and introduce our brand to new customers.

Speaker 3: We believe wholesale relationships will provide a brand and customer halo effect that will deepen our relationships with our existing customers and introduce our brand to new customers, which will ultimately be accreted to our online...

Which will ultimately be accretive to our online presence.

Speaker 3: We will continue to be optimistic about brand-enhancing wholesale partnership to profitably boost awareness and in-person product experience.

We will continue to be optimistic about brand enhancing wholesale partnership to profitably boost awareness and in person product experiences, while leveraging existing infrastructure to maximize cost efficiency and build synergies between digital and physical channels.

Speaker 3: We will continue to update you on our progress over the next several quarters as it relates to our growth.

We will continue to update you on our progress over the next several quarters as it relates to our growth initiatives.

Speaker 3: In response to the temporary macro headwinds impacting our business and our softer year-to-date performance, we are adjusting our full year 2023 guidance to be more in line with our latest...

In response to the temporary macro headwinds impacting our business and our softer year to date performance. We are adjusting our full year 2023 guidance to be more in line with our latest expectations were.

Speaker 3: We are laser focused on adapting to the dynamic market changes, building the loose brand, optimizing inventory turnover, and driving cost-efficient fees to need our near-term targets and position ourselves for a return to positive growth trends and creating careholder value.

We are laser focused on adapting to the dynamic market changes building the lose brand.

The amazing inventory turnover and driving cost efficiencies to meet our near term targets and position ourselves for a return to positive growth trends and creating shareholder value.

Speaker 3: As noted last quarter, as we see our sales volumes recover, we expect to see reciprocal improvement in profit margins as our fixed costs begin to leverage.

As noted last quarter as we see our sales volumes recover we expect to see a reciprocal improvement in profit margins as our fixed costs begin to leverage.

Speaker 3: We are confident that the investments and actions we have taken and are taking now will position as well to emerge on a strong path to our goal of double-digit growth and profitability over the long.

We are confident that the investments and actions we have taken and are taking now will position us well to emerge on a strong path to our goal of double digit growth and profitability over the long term.

Speaker 3: We believe we are well-equipped to reinforce our business with a healthy balance sheet, strong foundation, and strategic vision for our future.

We believe we are well equipped to reinforce our business with a healthy balance sheet strong foundation and strategic vision for our future.

Speaker 3: We remain optimistic about our calculated growth levels and believe our long-term investment thesis is still intact.

Remain optimistic about our calculated growth levers and believe our long term investment thesis is still intact. We.

Speaker 3: We believe that increasing brand awareness and attracting new customers, retaining and enhancing existing customer relationships, continuing category expansion, and expanding into new and existing channels to engage with our customer where she is, will return us to a path of double-digit revenue growth and EBIT them.

We believe that increasing brand awareness and attracting new customers, retaining and enhancing existing customer relationships, continuing category expansion and expanding into new and existing channels to engage with our customer where she is will return us to a path of double digit revenue growth and EBITDA margins.

Speaker 3: Now, I'd like to turn the call over to Mark Voss, our president and chief information officer. He will share an update on key operational, technological, and analytical efforts throughout the last quarter and currently underway. Mark.

Now I'd like to turn the call over to Mark Foss, Our President and Chief Information Officer, He will share an update on key operational technological and analytical efforts throughout the last quarter and currently underway.

Yeah.

Thank you Crystal.

Speaker 4: First, I'd like to start by providing an update on our customer and how she interacted with us during the quarter.

First I'd like to start by providing an update on our customer and how she.

Your interactions with us during the quarter.

Speaker 4: You'll repeat the customer accounts for down Q3 year of

New and repeat customer counts were down Q3 zero for year.

Speaker 4: new customers coming in lighter than repeat customers during the pandemic.

With new customers coming in lighter than repeat customers during the quarter.

Speaker 4: Unit's per transaction on the other end was up sequentially from Q2 2020.

Units per transaction on the other hand was up sequentially from Q2 2023.

Speaker 4: decreased only marginally compared to Q3 of last year.

Decreased marginally compared to Q3 of last year.

Speaker 4: This was primarily the result of the shift from performance marketing spend towards markdowns and promotional pricing in response to the customer's bias towards promotional pricing during the

This was primarily the result of a shift from performance marketing spend towards markdowns and promotional pricing in response to the customers bias towards promotional pricing during the quarter.

Speaker 4: Despite increased promotions in markdowns, we saw slightly improved average unit retail at slightly lower units per transaction compared to Q3 2022. Resulting in a near identical $133 average order value compared to Q3 2022.

Despite the increased promotions and markdowns, we saw slightly improved average unit retail slightly lower units per transaction compared to Q3 2022.

Resulting in a near identical hundred and $33 average order value compared to Q3 2022.

Speaker 4: Although the active customer account of the client here over here, the decline was less than our net revenue, meaning that at a comparable Q3, $133 average water value year over year, we were able to retain customer...

Although the active customer count declines year over year.

Corning was less than our revenue meaning.

Meaning that had a comparable Q3 hundred $33 average order value year over year.

We were able to retain customers, but with a slightly lower purchase frequency driven by we believe primarily discretionary income pressure experienced by our customers leading to more discerning purchase decision making.

Speaker 4: but with a slightly lower purchase frequency, driven by, we believe, primarily discretionary income pressure experienced by our customers, leading to more discerning.

Speaker 4: In reviewing the various customer household income segments, purchasing behavior across the various price tiers, we did not see clear trading up or down.

In reviewing the various customer household income seconds purchasing purchasing behavior across the various price tiers, we did not see clear trading up or down.

Speaker 4: From a marketing perspective, we redirected a part of our performance marketing dollars towards markdowns and discount to drive better conversion and inventory cell-throughs in various product classes and to manage the seasonal shifts.

From a marketing perspective, we redirect as a part of her performance marketing dollars towards markdowns and discounts to drive better conversion and inventory sell throughs and various product classes and to manage the seasonal shifts.

Speaker 4: Our primary focus remains on expanding brand awareness.

Our primary focus remains on expanding brand awareness marketing.

Speaker 4: Overall marketing, efficacy, and spend as a percent of revenue within our targeted ranges to remain first order contribution in margin profit.

Overall marketing efficacy and spend as a percent of revenue within our targeted range to remain first order contribution margin profitable.

Speaker 4: This strategy allows us to introduce the loose to more consumers and improve the overall efficiency of our marketing investments.

This strategy allows us to introduce loops to more consumers.

Proof of the overall efficiency of our marketing investments, including the cost of new customer acquisition over the long term.

Speaker 4: closing the cost of new customer acquisition over the long term.

He got point in Q3, 2023, we continue to expansion of marketing investments and more top of funnel brand marketing.

Speaker 4: In Q3 2023, we continue the expansion of marketing investments in more top of the funnel brand marketing and our influencer and ambassador-generated brand reach, impressions, and earned media value. To support the loses word of mouth mark.

Our influencer and ambassador generated the brand reach.

Prescience and earned media value.

Sports solutions word of mouth marketing.

Speaker 4: Based on our social media and brand data tracking, we saw continued year-over-year gains in brand familiarity, including what you can see, which gave us confidence that we're on the right brand growth.

Based on our social media and Brent data tracking we saw continued year over year gains brand familiarity.

With Cherokee, which gave us confidence that we're on the right brands gross baths.

Speaker 4: We see much growth potential ahead of us, especially fueled by dedicated blank marketing and communications resources with our new senior vice president of brand marketing and vice president of communication.

We see much growth potential ahead of us.

Specialty fuels like dedicated brand marketing and communications resources with our new senior Vice President of marketing and Vice President of Communications, who will continue to be on the offense and build out these programs consistent with the test and learn data driven approach useful.

Speaker 4: who will continue to the only offense and build out this place.

Speaker 4: with the test and learn data driven approach used for everything we do at LUNE.

We do have loose.

Speaker 4: Throughout 2023, we made strategic investments to improve the international shopping experience, resulting in less friction and improved conversion.

Throughout 2023, we made strategic investments to improve international shopping experience, resulting in less friction and improve conversion rates.

Speaker 4: which we expect will continue to improve over time as we test and iterate on their shopping experience.

We expect we will continue to improve overtime as we test and iterate on their shopping experience.

Speaker 4: In the third quarter, we were able to broaden our marketing reach abroad. It has now seen year-to-date double digits unit sale growth numbers in 12 out of the top 15 countries.

In the first quarter, we were able to broaden our marketing reach abroad and have now seen year to date double digits units show gross numbers and 12 out of the top 15 countries we ship to.

Speaker 4: While it's still early days and a small portion of our overall revenue, we are exploring more targeted efforts to share the Louis Brands internationally, a proof international search ring.

While it's still early days and a small portion of our overall revenue we are exploring more targeted efforts to share the loose brands internationally.

Proofing International search rankings.

Speaker 4: Fortunately, testing to InfoNser and other paid active activations in Select region.

As we test into Influencer and other pay to me too.

Insurance in select regions.

Notably, we launched an updated mobile app in September which were eager to build upon to drive customer engagement and retention.

Speaker 4: After the launch of the new app version, we have seen improvements in customer exit survey ratings and increases in conversion rate and average order value, leading to a meaningful increase in revenue per visit.

After the launch of the new App version, we have seen improvements in customer exit survey ratings.

Greetings and conversion rates and average order value leading to a meaningful increase in the revenue per visit.

Speaker 4: By bringing app development in-house, we are not only better able to expand our customer potential.

But bringing after yourself.

Yes, we are not only better able to expand our customer insights analytics promotions deep linking capabilities, but also to develop out first.

Speaker 4: analytics, promotions, and deep-winking capabilities, but also to develop at first and at only functionalities quicker.

Have a whole new functionalities quicker.

Moving onto product return behavior.

Speaker 4: So a slight increase in return rate compared to Q3 2022 and a slight improvement in return rate over Q2 2023.

So on a slight increase in return rate compared to Q3 2022.

And a slight improvement in return rates over Q2 2023.

Speaker 4: As mentioned in earlier commentary, we continue to embrace returns as we see returns as an opportunity to showcase more of the loose quality and value, gain insights into our customers' style pressure.

As mentioned in earlier commentary, we continue to embrace return so as we see returns as an opportunity to showcase more of to lose quality in fountain.

Gain insights into our customer style preferences.

Speaker 4: And generally consider the integral parts of the online shopping experience.

And generally considered an integral part of the online shopping experience.

Speaker 4: That said, we are rolling out FIT process changes with our fender bag.

That said, we are rolling out fits process changes with our vendor base, which we believe will contribute to enhancements you know a suite.

Speaker 4: which we would leave will contribute to enhancements in our state and improve the grading consistency of Louis Brandt's brother.

Anthony improves creating consistency of loose Brandon folkes.

Speaker 4: affecting most of those products by Q2 2020.

Affecting mostly whose products by Q2 2024.

Speaker 4: We also made improvements in the fit information displayed at the product level and continue to consider additional return policy enhanced.

We also made improvements in the city information displays at the product level and continue to consider additional return policy enhancements to counter abuse of increase was from insurance and the related costs.

Speaker 4: counter, abuse of increases in returns, and they're related.

Speaker 4: From an operational perspective, in Q3, we further expanded our outbound shipping carrier network, which allowed us to offset some of the increases in outbound shipping costs by other carriers.

From an operational perspective in Q3, we further expanded our outbound shipper shipping carrier network, which allowed us to offset some of the increases in outbound shipping costs by other carriers.

Speaker 4: So, optimize margin. You're actively working to reduce return shipping costs across our now.

So optimize margin we are actively working to reduce returns shipping costs across our network.

Speaker 4: Additionally, in Q3, automated order packing went live in our Northern California fulfillment.

Additionally, in Q3 automated order packing rent life in our northern California fulfillment Center.

Speaker 4: And due to the learnings required from the automated water packing implementation in our Pennsylvania Film and Center, the team quickly skilled to expect a decision to see it through.

Due to the learnings requirements from the automated water packing implementation.

Sylvania fulfillment center.

The team quickly skills to expect with efficiency improvements.

Speaker 4: As a result of our water packing automation, our fulfillment of water packing labor costs pre-unit has structurally decreased.

As a result of our water packing automation, our fulfillment order packing labor costs per unit are structurally decreased.

Last but not least.

Our operations customer support data marketing and engineering teams. That's always have worked exceptionally hard to deliver superior customer experiences and a relentless in finding ways to drive down our unit costs were.

Speaker 4: We are proud of everything the Rukru has accomplished and we would like to thank all the Rukru team.

We are prompt.

The Leu crew has accomplished and we would like to thank all loop boutiques.

Speaker 4: And now I'll hand you over to Tiffany Smith, Louisus Chief Financial Officer, to deep dive into our financial.

And now I'll hand, you over to Tiffany Smith, Who's the Chief financial officer to deep dive into our financials.

Speaker 3: Thanks Mark, and good afternoon everyone. We consider the current macroeconomic pressures of temporary headwinds and acknowledge the impact of shifting consumer spending and purchase behavior on our third quarter results.

Marc and good afternoon, everyone.

We consider the current macroeconomic pressures as temporary headwinds and acknowledge the impact of shifting consumer spending and purchase behavior on our third quarter results.

Speaker 3: Our net revenue of $83.1 million was down 21% year over year, falling short of our expectations for the court.

Our net revenue of $83 $1 million was down 21% year over year falling short of our expectations for the quarter.

The decline was primarily driven by a decrease in total orders of 19% compared to the prior year as well as Mark Downs in return rates that were higher in the quarter.

Speaker 3: The decline was primarily driven by a decrease in total orders of 19% compared to the prior year as well as markdowns and return rates that were higher in the quarter.

Speaker 3: While our overall return rate in the third quarter was 50 basis points higher than the prior year, primarily due to product mix shifts and final sale ratios, it was 50 basis points lower on a sequential basis.

While our overall return rate in the third quarter was 50 basis points higher than the prior year, primarily due to product mix shifts and final cell ratios. It was 50 basis points lower on a sequential basis.

Speaker 3: Roast margins for the third quarter declined by about 180 basis points from the same period last year to 40.3%.

Gross margins for the third quarter declined by about 180 basis points from the same period last year to 43%.

Speaker 3: Elevated markdown rates during the quarter drove the margin decline compared to prior year. And their customers sought value and we leveraged more markdowns to move through spring and summer inventory that was heavier coming into the third quarter due to the late start to spring.

Elevated markdown rates during the quarter drove the margin decline compared to prior year as our customer saw value and we leveraged more markdowns to move through spring and summer inventory that was heavier coming into the third quarter due to the late start to spring.

Speaker 3: We were more aggressive with markdowns on these products, resulting in a cleaner transition out of the third quarter from a spring and summer inventory perspective, which was approximately 40% lower compared to the prior year.

We were more aggressive with Mark Downs on these products, resulting in a cleaner transition out of the third quarter from a spring and summer inventory perspective, which was approximately 40% lower compared to the prior year.

Speaker 3: Moving down the P&L to give some insights into expense line items.

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

Speaker 3: Q3 2023 selling and marketing expenses were $16.8 million, down about $2.5 million from Q3 2022 due to lower performance marketing spend and favorability and merchant processing fees, partially offset by higher price steadily rising from Q3.

320, 23, selling and marketing expenses were $16 $8 million down about two and a half million from Q3 2022 due to lower performance marketing spend and favorability in merchant processing fees, partially offset by higher brand awareness investments.

Speaker 3: As already noted, we invested more heavily in markdowns and discounts, which was offset with lower performance marketing fees.

As already noted we invested more heavily in markdowns and discounts, which was offset with lower performance marketing spend.

Speaker 3: General and administrative expenses decreased by about $2.8 million to $21.6 million, a 12% decline compared to Q3 2020.

General and administrative expenses decreased by about $2.8 million to $21 6, million% to 12% decline compared to Q3 2022.

Speaker 3: The decrease was primarily driven by a $2.6 million decrease in fixed and variable labor costs due to delayed hiring of fixed headcount, as well as the impact of lower sales volume and increased operational efficiencies on our variable labor costs.

The decrease was primarily driven by a $2 6 million dollar decrease in fixed and variable labor costs due to delayed hiring of fixed head count as well as the impact of lower sales volume and increased operational efficiencies on our variable labor costs.

Speaker 3: Interest expense for the quarter was approximately $400,000 compared to $300,000 in Q3 2022.

Interest expense for the quarter was approximately $400000 compared to $300000 in Q3 2022 for.

Speaker 3: For the quarter, we reported a diluted loss per share of 10 cents, which is a decrease of 12 cents compared to diluted earnings per share of 2 cents in the third quarter of 2020.

For the quarter, we reported a diluted loss per share of 10 cents, which is a decrease of 12 cents compared to diluted earnings per share of two cents in the third quarter of 2022.

Speaker 3: And finally, adjusted EBITDA for the third quarter was approximately $1 million compared to Q3 2022 adjusted EBITDA of $5.4 million.

And finally adjusted EBITDA for the third quarter was approximately $1 million compared to Q3 2022, adjusted EBITDA of $5 $4 million.

Speaker 3: Our Q3 adjusted e but the margin was 1.2% compared to 5.1% in the same period last.

Our Q3, adjusted EBITDA margin was one 2% compared to five 1% in the same period last year.

Our balance sheet remains strong and we believe we are still positioned well to execute our long term growth plans and managed through the ongoing near term macro uncertainty.

Speaker 3: Our balance sheet remains strong, and we believe we are still positioned well to execute our long-term growth plans and manage through the ongoing near-term macro insert.

Speaker 3: Our net cash provided by operating activities for the quarter was $12.7 million compared to $5.7 million in Q3 of 2020.

Our net cash provided by operating activities for the quarter was $12 $7 million compared to $5 7 million in Q3 of 2022.

Speaker 3: We also generated $11.6 million in free cash flow in the quarter compared to $4.6 million in Q3 of 2020.

We also generated $11 $6 million and free cash flow in the quarter compared to $4 6 million in Q3 of 2022.

Speaker 3: We ended the quarter with cash of about $12.9 million, with a balance of $11 million drawn on our revolver, resulting in a net cash balance of $1.9 million.

We ended the quarter with cash of about $12 $9 million with a balance of $11 million drawn on our revolver, resulting in a net cash balance of $1 $9 million.

Speaker 3: We repaid $4 million of the revolver during the third quarter and plan to continue to pay it down through the end of the...

We repaid $4 million of the revolver during the third quarter and plan to continue to pay it down through the end of the year.

Speaker 3: Our inventory balance at quarter end was $41.5 million. Down about $7.9 million from the same period last year, and down $4.7 million on a quarterly sequential basis.

Our inventory balance at quarter end was $41.5 million down about $7 9 million from the same period last year and down $4 $7 million on a quarterly sequential basis.

Speaker 3: During the third quarter, we may not fully reduce the sales growth to inventory growth spread, indicating that our inventories continue to be better aligned with our sales.

During the third quarter, we meaningfully reduced the sales growth the inventory growth spread indicating that our inventories continue to be better aligned with our sales.

Speaker 3: With respect to inventory, I would like to elaborate on some points that Crystal raised earlier in the call.

With respect to inventory I would like to elaborate on some points that crystal raised earlier in the call.

Speaker 3: Our seasonal transitions have proven to be challenging this year, which puts some pressure on growth margins in the third quarter and may pressure fourth quarter margins given the late start for sales of fall and winter products.

Our seasonal transitions have proven to be challenging this year, which put some pressure on gross margins in the third quarter and may pressure fourth quarter margins given the late start for sales of fall and winter products.

Speaker 3: That said, we ended the third quarter with lower fall winter inventory levels compared to Q3 and last.

That said, we ended the third quarter with lower fall winter inventory levels compared to Q3 of last year.

Speaker 5: Also note that approximately half of our inventory of saltment is seasoned list, which maintains relevance from season to season, and can be sold year round, as it is not as impacted by seasonal trends.

Also note that approximately half of our inventory assortment and seamless which maintains relevance from season to season and can be sold year round as it is not as impacted by seasonal transitions.

Speaker 5: We are also seeing the impact of more accelerated fashion cycles, which may impact the lifespan of our reorder merchandise. As we've highlighted in prior quarters, our data-driven buying model results in roughly 70% of our buys being reorder products. We remain confident in our buying model that centers around these proven sellers with lower markdown risk, given the following points.

We are also seeing the impact of more accelerated fashion cycles, which may impact the lifespan of our reorder merchandise as we've highlighted in prior quarters, our data driven buying model results in roughly 70% of our buys being reorder products, we remain confident in our buying model that centers around these proven sellers.

Lower markdown risk given the following points.

Speaker 3: First, there continues to be optimism around the new products that are resonating with our customer. As these products will become the foundation for larger reorder programs in future quarters.

First there continues to be optimism around the new products that are resonating with our customer as these products will become the foundation for larger reorder programs in future quarters.

Speaker 5: Second, our existing Reorder Inventory continues to be productive as evidenced by our still healthy inventory turns, which we believe are in-

Our existing reorder inventory continues to be productive as evidenced by our still healthy inventory turns which we believe are industry, leading Furthermore, much of our seasonal reorder product is multi season and can be brought back year. After year, which means we are not forced into aggressive markdowns of this product at the end of it.

Speaker 5: Furthermore, much of our seasonal reorder product is multi-season and can be brought back year after year, which means we are not forced into aggressive markdowns of this product at the end of a season, even if it is turning a bit slower than in the past.

Season, even if it is turning a bit slower than in the past.

Speaker 5: And lastly, as we've noted on prayer calls, we are a fresh, fashion concept, not a fast fashion.

And lastly, as we've noted on prior calls we are a fresh fashion concept Naughty fast fashion business, we see an opportunity to evolve our business to further capture the newness and novelty our customers seem to desire, but we by no means intend to transition into a fast fashion by model or short term unproven trends are.

Speaker 5: We see an opportunity to evolve our business to further capture the newness and novelty our customers seem to desire. But we by no means intend to transition into a fast fashion buying model or short term, unproven trends. Our

Taste.

Speaker 5: Overall, we remain confident in our buying model and our Continuitability to move through inventory levels in a way that minimizes growth, margin, risk, and ultimately preserves brand integrity. As always, we aim to be disciplined in our inventory management approach and will continue to relentlessly pursue for their optimization of inventory levels that balances the customer experience and minimizes markdown risk.

Overall, we remain confident in our buying model and our continued ability to move through inventory levels in a way that minimizes gross margin risk and ultimately preserves brand integrity as always we aim to be disciplined in our inventory management approach and we'll continue to relentlessly pursue further optimization of inventory levels.

<unk> is the customer experience and minimizes markdown risk.

Moving onto guidance.

Speaker 5: With third quarter results below our expectations and continued choppiness early in the fourth quarter, we are tightening our full year 2023 guidance range.

The third quarter results below our expectations and continued choppiness early in the fourth quarter, we are tightening our full year 2023 guidance ranges.

Speaker 5: We will continue to take actions to manage costs, drive operational efficiencies, and make targeted investments to adapt to changing consumer behavior.

We will continue to take actions to manage costs and drive operational efficiencies and make targeted investments to adapt to changing consumer behaviors.

Speaker 5: Our guidance anticipates that our customer will continue to be discerning with her spend through the balance of the year and reflects continued macroeconomic.

Our guidance anticipates that our customer will continue to be discerning with her spend through the balance of the year and reflects continued macroeconomic headwinds.

Speaker 5: We expect 2023 full year net revenues between $350 million and $360 million, compared with the prior range of $350-55-375 million.

We expect 2023 full year net revenues between 350 million and $360 million compared with the prior range of $355 million to $375 million.

Speaker 5: We expect 2023 full year adjusted EBITDA to be between 4.5 and 5.5 million dollars compared with the prior range of 5 to 10 million dollars. Reflecting the impact of a lower net revenue rate.

We expect 2023 full year adjusted EBITDA to be between four and a half and five and a half million dollars compared with the prior range of $5 million to $10 million, reflecting the impact of a lowered net revenue range.

Speaker 5: The set expectations for modeling purposes are quarterly adjusted but the margin rates have similar seasonality fluctuations in our net revenues and will likely fluctuate above or below our full-year guidance rate depending on the quarter.

Does that expectations for modeling purposes, our quarterly adjusted EBITDA margin rates have similar seasonality fluctuations as our net revenues and will likely fluctuate above or below our full year guidance rate depending on the quarter as.

Speaker 5: As we have noted previously, historically, Q4 has been our smallest revenue quarter as we are not a holiday gifting destination.

As we have noted previously historically Q4 has been our smallest revenue quarter as we are not in holiday gifting destination.

Speaker 5: As a reminder, as a result of paying down our long-term debt, following the IPO, we incur modest levels of interest expense associated with our resolver and equipment leases for our distribution facility.

As a reminder, as a result of paying down our long term debt. Following the IPO, we incur modest levels of interest expense associated with our revolver and equipment leases for our distribution facilities.

Speaker 5: We anticipate interest expense for full year 2023 to be approximately $1.6 million consistent with our previous outlook and an increase compared to 2022 levels, which reflects the impact of higher interest rates offsetting lower average revolver balance.

We anticipate interest expense for full year 2023 to be approximately $1 $6 million consistent with our previous outlook and an increase compared to 2022 levels, which reflects the impact of higher interest rates offsetting lower average revolver balances.

Speaker 5: As of today, we have $11 million drawn on our $50 million revolts.

As of today, we have $11 million drawn on our $50 million revolver, we plan to continue paying down our revolver and anticipate ending 2023 with a net debt balance of less than $4 million.

Speaker 5: Plan to continue paying donor revolver and anticipate ending 2023, they net debt balance of less than $4 million.

Speaker 5: As a reminder, we anticipate that we will be able to maintain positive free cash flow for the full fiscal year as well as an increase over the previous.

As a reminder, we anticipate that we will be able to maintain positive free cash flow for the full fiscal year as well as an increase over the previous year.

Speaker 5: We expect our stock-based compensation expenses and our weighted average fully diluted share count to be unchanged from what was reported last court.

We expect our stock based compensation expenses and our weighted average fully diluted share count to be unchanged from what was reported last quarter.

Speaker 5: Moving on to capital expenditures. We expect between $4.5 and $5 million for the year, compared with the previous range of $5 to $6 million, which includes capital expenditures for our new retail store, as well as other investments.

Moving on to capital expenditures, we expect between four and a half and $5 million for the year compared with the previous range of $5 million to $6 million, which includes capital expenditures for our new retail store as well as other investments.

Speaker 5: We believe investing in our future growth opportunities, driving efficiencies, and enhancing the customer experience are key to our long-term success. And with that, I'll pass it back to Crystal for closing room.

We believe investing in our future growth opportunities driving efficiencies and enhancing the customer experience are key to our long term success.

And with that I'll pass it back to Crystal for closing remarks.

Speaker 3: Thank you Tiffany. On a final note, I'd like to reaffirm our confidence in our long-term growth as we strengthen our business model amidst these near-term heads.

Tiffany on a final note I'd like to reaffirm our confidence in our long term growth as we strengthen our business model and its these near term headwinds for the past two decades, we prioritize timeless quality versus being excessively trend driven and we believe our ability to test learn and optimized positions us well for enduring growth. This.

Speaker 3: For the past two decades, we've prioritized timeless quality versus being excessively trend driven, and we believe our ability to test, learn, and optimize positions as well for enduring...

Speaker 3: This wouldn't be possible without the incredible work of our Loot Crew, our brand fans, and our stakeholders who support us in our mission to deliver attainable luxury to our customers and be the online destination for all of life's fashionable moments. With that, I'll turn it over to questions now.

This wouldn't be possible without the incredible work of our leu crew, our brand fans and our stakeholders, who support us in our mission to deliver attainable luxury to our customers and do the online destination for all of life's fashionable moment with that I'll turn it over to questions now.

We will now be conducting a question and answer session. If you would like.

Speaker 1: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2.

To ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the queue. You May press star two if you 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 the star keys.

A moment, while we poll for questions.

Speaker 1: and the first question comes in the line of Brook Roach with Goldman Sachs. Please proceed with your question.

And the first question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.

Good afternoon, and thank you for taking our question.

Speaker 6: Crystal, I was hoping you could discuss what you're seeing in the competitive environment more broadly and how that has impacted your view of sales trends in the quarter versus your expectations relative to other exogenous factors that we saw in the quarter, like a weather transition or macro headwinds on the consumer.

Crystal I was hoping you could discuss what you're seeing in the competitive environment more broadly and how that has impacted your view of sales trends in the quarter versus your expectations relative to other exogenous factors that we saw in the quarter like a weather transition or macro headwinds on the consumer.

Speaker 6: Further, can you elaborate on what actions you plan to take to differentiate your brand and product from some of these fast growing online fast fashion retailers? Thanks.

Further can you elaborate on what actions you plan to take to differentiate your brand and product from some of these fast growing online fast fashion retailers. Thank you.

Speaker 3: Hey, bros, thanks for the question. So I think I'd like to just address this in a very, very direct way, where we don't believe that she and or team-o, or any of the other fast fashion giants that are out there, cause our negative comp in the quarter.

Hey, Brad Thanks for the question. So I think I'd like to just addressed this and are very very direct way, where we don't believe that sheehan or T mo or any of the other fast fashion Giants that are out there caused our negative comp in the quarter.

Speaker 3: They've probably nibbled on the edges of our customer base, but it's not what drove the negative comp for us in the quarter. And outside of obvious macro headwinds, being underinvested in newness and over-reliant on our older reorder products that have been driving so much of our business for us over the last two years is really the biggest driver of our negative comps. And in our opinion, that's really easy to fix. It just might take a couple quarters to fix it.

They probably nibble around the edges of our customer base, but it's not what drove the negative comp for us in the quarter.

Outside of obvious macro headwind being underinvested in newness and overreliance on our older reorder products that had been driving so much of our business for us over the last two years is really the biggest driver of our negative comps and in our opinion, that's really easy to fix it just might take a couple of quarters to fix it.

Speaker 3: We do, however, recognize a shift in the competitive environment as aggressive fast fashion retailers are gaining more traction with U.S. consumers, especially over the last few years, as well as more dynamic shifts in general within our customer base and her spending. In Q3 compared to Q2, for example, our customers shifted to a larger percent of spend from full price products towards promotionally priced products. That's probably more macro within our customer set.

We do however, recognize the shift in the competitive environment is aggressive fast fashion retailers are gaining more traction with U S consumers, especially over the last few years as well as more dynamic shifts in general within our customer base and her spending in.

In Q3 compared to Q2 for example, our customers shifted to a larger percent of spend from full priced products towards promotional price products.

That's probably more macro within our customer set.

Speaker 3: And while we possess the agility to adapt to consumer demand changes, we're not looking to compete in the faster disposable fashion race at all. We believe in the resilience of our business model, and we're dedicated to upholding the quality and integrity that we've built over the last two decades. Our strategy has been and continues to be very focused on customers who are seeking quality over quantity and enduring styles that last beyond a moment in time.

And while we possess the agility to adapt to consumer demand changes, we're not looking to compete in the fast or disposable fashion race at all we believe in the resilience of our business model and we're dedicated to our holding the quality and integrity that we built over the last two decades. Our strategy has been and continues to be very focused on customers, who are seeking quality over quantity.

And enduring styles that last beyond a moment in time.

Speaker 3: Our existing customers recognize the value not only in our quality product offering, but also in our brand and in our community. So we see this as a competitive advantage over fast fashion retailers who are less loyalty driven and have more of a transactional relationship with their customers.

Our existing customers recognize the value not only in our quality product offering but also in our brand and in our community. So we see this as a competitive advantage over fast fashion retailers, who are less loyalty driven and have more of a transactional relationship with their customers.

Speaker 3: So that end, we're focused on continuing to cost effectively build awareness for our attainable luxury product offering and further set ourselves apart from excessively trenching brand.

And we're.

We're focused on continuing to cost effectively build awareness for our attainable luxury product offering and further set ourselves apart from excessively trend chasing brand.

Speaker 3: Given the increase in the amount for our new and now fresh styles, we're leaning into those designs in a very measured and thoughtful way, and we believe that's going to continue to be a differentiator for us.

Given the increased demand for our new and now fresh styles, we're leaning into those designs in a very measured and thoughtful way and we believe that's going to continue to be a differentiator for us.

Speaker 6: Thanks, Crystal. And secondly, for Tiffany, there was a lot of discussion about the engagement the customers have with promotions recently. And indeed, you leaned into markdowns as a driver this quarter. Can you talk about your expectations for promotions and investing in markdown dollars for the next couple of quarters as you look to reposition some of the merchandising assortment in the next year? Thanks.

Thanks Crystal.

Lee for Tiffany there was a lot of discussion about the engagement that customers have with promotions.

Recently, and indeed, you leaned into Mark Downs.

As a driver this quarter can you talk about your expectations for promotions and investing in markdown dollars for the next couple of quarters as you look to reposition some of the merchandising assortment in the next year. Thank you.

Sure. Thanks for the question broke them so as we as we oftentimes say, we do look at markdowns and discounts.

Speaker 5: Thanks for the question, Brooke. So as we oftentimes cite, we do look at markdowns and discounts as

Speaker 5: one of our levers alongside of performance marketing spend, where we're able to shift back and forth as needed based on what the customer is telling us.

One of our levers alongside of performance marketing spend.

Where we're able to shift back and forth as needed based on what the customer is telling us so for the third quarter. As you all heard that was an important moment for our customer to be seeking out value. We also leverage the opportunity to take what was a heavier spring summer inventory coming into Q3.

Speaker 5: So for the third quarter, as you all heard, that was an important.

Speaker 5: moment for our customer to be seeking out value. We also leverage the opportunity to take.

Speaker 5: what was a heavier spring summer inventory coming into Q3 and move through that so that we ended the season with a cleaner, 40% less in fact, spring summer balance compared to the prior year. So as always, I think we don't wanna give out specifics on markdown rates going forward or performance marketing spend and anticipation going forward. We'll continue to leverage sort of our internal models to ensure that we're...

And move through that so that we ended the season with a cleaner 40% less in fact spring summer balance compared to the prior year. So as always I think we we don't want to give out specifics on markdown rate going forward or a performance marketing spend and anticipation going forward, we'll continue to leverage them.

Our internal models to ensure that we're working through all of those avenues and those levers in the most contribution margin positive way I think historically, if you look back on on prior years, you'll see Q4 is typically a tie in particularly in December where we will pull back on performance marketing relative to.

Speaker 5: through all of those avenues and those levers in the most contribution margin positive way. I think historically, if you look back on prior years, you'll see Q4 is typically a time, particularly in December , where we'll pull back on performance marketing relative to competitors, just given we aren't a gifting destination in Q4. We may follow suit with that this year, but again, I'm not going to give any real specifics around that because I think we are gonna continue to follow where the customer is leading us in terms of.

<unk> competitors, just given we arent a gifting destination in Q4, we may follow suit with that this year, but he got I'm not going to give any real specifics around that because I think we are going to continue to follow where the customer is leading us in terms of promotions markdowns in and how we want to leverage those.

Speaker 5: promotions, markdowns, and how we want to leverage those.

Thank you so much I'll pass it on.

Thanks Brook. Thank you.

Speaker 1: And the next question comes from the line of Mark Alschwager with Baird.

And the next question comes from the line of Mark <unk> with Baird. Please proceed with your question.

Speaker 5: Hi, this is Amy on Sir Mark. Thank you for taking her question. To start, can you please speak a bit more to the month-to-month top line cadence for the quarter?

Hi, This is Amy on for Mark. Thank you for taking our question.

To start could you please speak a bit more to the month to month top line cadence for the quarter and.

Speaker 5: give us any color on differences in shopping behavior by income group.

Give us any color on differences in shopping behavior by some group.

Speaker 5: Hi, Amy, this is Tiffany. I'll start with just sort of the quarterly

Sure Hi, this is Tiffany I'll I'll start with just sort of the quarterly cadence that we typically provide them. The the quarter itself ended on a stronger note from a year over year comp basis, we were our weakest in the early part of the core early to mid part of the quarter.

Speaker 5: cadence that we typically provide. The quarter itself ended on a stronger note from a year over year comp basis. We were weakest in the early part of the court, early to mid part of the quarter. And...

Speaker 5: started to see improving comps towards through September . Also, I can just give a little highlight on sort of...

<unk> started to see a improving comps towards through September also I can just give a little highlight on the on sort of our view of the first five weeks into Q4, we've continued to see some gradual continued improvement in our overall transacted our comps year over year I'm sorry.

Speaker 5: our view the first five weeks and to Q4, we've continued to see some gradual continued improvement in our overall transacted comp year over year, starting to improve their, that's on a pre-return basis just because we haven't.

To improve their up on a pre return basis, just because we haven't fully rolled up all of our return estimates yet through the first five weeks, but we have continued to see some good topline.

Speaker 5: fully rolled up all of our returns estimates yet through the first five weeks, but we have continued to see some good top line, gross year over year improvement on the cost. And I'll hand it to Mark to talk a little about the household income and cohort question.

Gross year over year improvement on on the call and I'll I'll hand, it to Mark to talk a little about the household income and cohort question.

Speaker 4: Yeah, when reviewing the various customer household and confectments and their purchasing behavior across multiple price tiers in our assortment, we actually did not see clear trading up or down between the segments and the revenue contributions in each price tier across those household incomes remain stable compared to Q3 of 2022.

Reviewing the various customer household income segments in their purchasing behavior across multiple price tiers in our assortment.

We actually did not see clear trading up or down between the segments.

The revenue contribution in each price tier across those household incomes remained stable compared to Q3 of 2022.

Speaker 4: So from that perspective, there were no specific shifts there. As I mentioned, our new customer acquisition was compared to existing customers there. What we saw is that the new customers as a percent of our customers,

So from that perspective there.

There were no specific shifts there.

As I mentioned, our new customer acquisition was.

Compared to existing.

Customers there what we saw is that the new customers as a percent of our total active customers was slightly lower compared to Q3, 'twenty two but overtime that is obviously expected to land.

Speaker 4: Total active customers were slightly lower compared to Q3 2022. But over time, that is obviously expected when you see, you know, when we are successful in retaining customers. But from an absolute perspective, we did see that new customers compared to Q3 2022 were lagging compared to our existing customers. And shifting a portion of our performance marketing expense into markdown and discounts certainly played a role into that. I hope that answers your question.

Yeah, when we were successful in retaining customers.

But from an absolute perspective, we did see that new customers compared to Q3, 2022 were lagging compared to our existing customers and shifting a portion of our performance marketing expense into markdown and discounts that certainly played a role a role into that.

I hope that answers your question.

Yeah. Thank you for the detailed very helpful I'll pass it on.

Yeah.

Speaker 1: And as a reminder, if you 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 queue.

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Speaker 1: The next question comes from the line of Jeanine Stichter with BTIG.

The next question comes from the line of Janine Stichter with BTG. Please proceed with your question.

Speaker 7: Hey Janine. Hey, you got Ethan Sagi on for Janine. Thanks for taking our questions. First off, just on increasing newness and novelty to pre-pandemic levels, just curious how quickly we should expect that to take.

Hey, Julien.

Hey, you Gotta, Ethan saggy on for Jeanine and thanks for taking our questions first off just on increasing newness and novelty to pre pandemic levels. Just curious how quickly we should expect that to take.

Speaker 3: I would expect it to evolve over the next several quarters. We want to remain true to our touch, learn and react model and we don't want to over swing in any direction. So I would say that could take a couple of quarters if not two to three.

I would expect it to evolve over the next several quarters, we want to remain true to our test learn and react model them you don't Wanna Overswing in any direction. So I would say that could take a couple of quarters, if not two to three.

Speaker 7: Got it. Okay. And then next question. Just going back to returns. I know you guys talked about the new return policies in place. Sounds like it's good to hear the sequential improvement. I'm just curious, you know, how your customers are responding to those. Do you give any color there. Thanks.

Got it Okay and then next question.

Just going back to returns I know you guys talked about the new return policies in place.

It's like it's.

It's good to hear the sequential improvement I'm just curious how your customers are responding to those if you could give any color there. Thanks.

Speaker 5: Thanks for the question, Ethan. So returns continues to be a key area focused prize.

Sure. Thanks for the question even yeah. So returns continues to be a key area of focus right and frankly, it's an area that we would have accepted as a very integral part of the business model in E. Com are without physical stores, its really important to give our customer the competence that she needs to bring.

Speaker 5: And frankly, it's an area that we have accepted as a very integral part of the business model in e-comm without physical stores, it's really important to give our customer the confidence that she needs to bring her purchases home to her at home fitting room. So we want to continue to maintain flexibility and all of our subtle, I would say, return policy changes that we've made this year have maintained a free 10 day return period that our customer does leverage, certainly. We've continued to improve some of the back of the house.

Her purchases home to her at home City room. So we want to continue to maintain flexibility in all of our subtle I would say return policy changes that we've made this year have maintained a free 10 day return period that our customer does leverage certainly we you know.

Continue to improve some of the back of the house metrics are our data insights around returns, adding some technology enablement as well for us to be able to learn more about our customers return behavior also tackle some of the issues with customers who have a more excessive return rate oven.

Speaker 5: metrics or data insights around returns, adding some technology enablements as well for us to be able to learn more about our customers' return behavior, also tackle some of the issues with customers who have a more excessive return rate and try to work with them to improve their shopping behavior and return behavior. Overall, the policy changes that we've

To work with them to improve their shopping behavior and return behavior. Overall are the policy changes that we've read there has actually been quite a few where we see customers who are citing how they love our flexible policy that we maintain a room for them to be able to initiate a free.

Speaker 5: Red, there's actually been quite a few where we see customers who are citing how they love our flexible policy that we maintain room for them to be able to initiate a free return where a lot of other companies are starting to take those things away. So I think that's an important element of the policy that we've maintained. We have an experienced significant amount of friction or complaint on the customers part with regards to some of the changes that we've made around changes to the shipping, return shipping costs, the structure either.

The return are where a lot of other companies are starting to take those things away. So I think that's an important element of the policy that we've maintained them, we haven't experienced a significant amount of friction or complaint on the customer's part with regards to some of the changes that we've made around changes to the shipping return shipping.

Cost fee structure either.

Speaker 7: Got it. Appreciate the color. I'll pass it on.

Got it appreciate the color I'll pass it on.

Speaker 1: And the next question comes from the line of Dana Telsey with the Telsey Advisory Group.

And the next question comes from the line of Dana Telsey with the Telsey Advisory Group. Please proceed with your question.

Speaker 8: Hi, good afternoon, everyone. As you're thinking about the metrics, whether it's active customers orders, AOV, and the AOV increased just a tiny bit compared to last year, how are you seeing the promotional environment and how are you planning going forward? And then when you look at category performance, any updates on categories as compared to last quarter or what you're seeing from the consumer? Thank you.

Hi, good afternoon, everyone as you're thinking about the metrics, whether it's active customers orders a O V and the a O V increased just a tiny bit compared to last year.

How have you seen the promotional environment and how you're planning going forward and then when you look at category performance any updates on categories as compared to last quarter, what you're seeing from the consumer. Thank you.

Speaker 5: Sure, Dana, this is Tiffany. As it relates to AOV, your correct, there was a slight uptick actually in our AOV year over year, which Mark broke down pretty well, I think in his section during the call, where we did see a bit of an increase in AUR, offset a bit by UBT's sort of whole pretty steady or increase year over year. I think one thing to note is the AOV does move for us in somewhat of a seasonal fashion. Kai over Share with Officer Matthew J weight gain and level veterans.

Sure Dan This is Tiffany as it relates to a O V. You're you're correct. There was a slight uptick actually in our a O V year over year, which mark broke down pretty well I think in his section during the call where we did see a bit of an increase in AUR offset a bit by U P Ts sort of.

Hold pretty steady or increase year over year I think one thing to note is the Ob does move for us and somewhat of a seasonal fashion. So when.

Speaker 5: certain product classes are more predominant that carry higher AURs, we may see that impact AOV as well as during promotional timeframes that we typically see in Q4, we would typically see AOVs come down. So I'm not gonna give any real specifics around that, but that's a fairly seasonal metric for us, and we would continue to plan for it to react accordingly to what we've seen AOV movements look like in the past.

Certain product classes are more predominant that carry a higher AUR than we may see that impact E O V as well as during promotional time frames that we typically.

Typically see in Q4, we would typically see a obese come down and so I'm not going to give any real specifics around that but that's a fairly seasonal metric for us and we would continue to plan for it to react accordingly to what we've seen E. O V movements look like in the past.

Yeah.

Speaker 8: and on the category slide anything convention?

Got it and on the category side anything to mention.

Speaker 3: In terms of category specifics, I would say we're very happy with the momentum that we're seeing building again across our wedding and wedding related event categories and specifically across all of our address categories. That's been very encouraging to see some normalization there versus what we experienced from the previous quarter. And generally speaking, the newness and novelty that we've been introducing has been checking really well across the majority of our product classes.

In terms of category specifics I would say, we're very happy with the momentum that we're seeing building again across our wedding and wedding related Ethernet categories, and specifically across all of our dress categories. That's been very encouraging to see some normalization there versus what we experienced from the previous quarter and generally speaking the newness and novelty that we'd been interim.

<unk> has been checking really well across the majority of our product classes.

Got it and initial framework as you think about the upcoming year any pushes and pulls on margins that we should be thinking about as you're thinking about qualitatively 'twenty 'twenty four.

Speaker 6: An initial framework as you think about the upcoming year, any pushes and pulls on margins that we should be thinking about as you're thinking about qualitatively 2024?

Speaker 5: So we haven't shared any expectations yet around 2024. In fact, we're pretty heavily focused on internally kind of building out.

So we haven't shared any expectations yet around 'twenty 'twenty four in fact, we're we're pretty heavily focused on internally kind of building out our.

Speaker 5: our plans and framing the plans for the next year. So we haven't changed anything. I think what stays true for us next year is we're continuing to lay the groundwork.

Our plans and framing the plans for next year, So we haven't changed.

Changed anything I think what stays true for US next year as we're continuing to lay the groundwork make the necessary investments and adjustments that we've already started on this year to position us well going into next year, we have spoken about the some investments that we've made with our product costing team getting those folks hired.

Speaker 5: make the necessary investments and adjustments that we've already started on this year to position us while going into next year. We've spoken about the some investments that we've made with our product costing team getting those folks hired in this year. That we've spoken to in the past is being an opportunity for us to improve upon our product costing, but that's going to be a

And this year that we've spoken to in the past as being an opportunity for us to.

Improve upon our our product costing but that's going to be a multi quarter or potentially multiyear effort for us I don't know if mark do you have anything to elaborate there, but I think that that's a that's an important lever that I think could have some effect for next year.

Speaker 5: multi-quarter, potentially multi-year.

Speaker 5: effort for us. I don't know if Mark you have anything to elaborate there but I think that.

Speaker 5: That's an important lever that I think could have some effect for next year.

Speaker 4: Yeah, so we were able to hire the team and we're very excited with the talent that we have. We're right now focused on, as far as the low hanging fruit and at the same time, start working on some medium-term improvements that are kind of layer on top of that. And obviously we need to balance the needs of our buying model with the possibility of reducing those costs.

Yes. So for the we are we were able to hire a good team and we're very excited with the talented behalf.

We're right now focused on.

Let's call it the low hanging fruit and at the same time.

We're working on some medium term.

Yeah.

Movements that aren't kind of layer on top of that and.

And obviously, we need to balance our the needs of our buying model with the with you as a possibility.

Reducing those those costs I would say from an affected that won't have we've already seen some positive impacts there. So we're encouraged by that and we will see how that.

Speaker 4: I would say from an effect that that will have. We've already seen some positive impacts there, so we're encouraged by that. And we'll see how that.

Speaker 4: based upon what the extra margin potential that there is, how we apply that. In some cases, we will apply that to be more price competitive, for example, so that would not immediately lead to a higher margin per se, but more margin dollars. In other cases, it will be applied to expand the margin. We'll make those decisions and trade-offs based upon what Lulus Brand needs at that moment in time. Thank you.

Based upon what the extra margin potential that there is work.

How we apply that in some cases, we will apply that to be more price competitive for example, so that would not usually leads to a higher.

Margin per se.

Where more margin dollars.

Other cases, it will be a quieter.

Spencer the margin, we'll make those soon.

<unk> and trade offs.

Upon whatsoever to whose brands.

So at that moment in time.

Thank you.

Speaker 1: At this time, there are no further questions, and that concludes today's teleconference. You may disconnect your lines at this time. Thank you for your...

At this time there are no further questions and that concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

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Speaker 9: Mar the.