Q4 2023 Lulu’s Fashion Lounge Holdings Inc Earnings Call

Operator: and Bob Kolb. Good afternoon, and welcome to Lulu's fourth quarter and fiscal year 2023 earnings conference. 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 Lulu's General Counsel and Corporate Secretary, Naomi Beckman-Strauss. Thank you. Good afternoon, everyone.

Good afternoon, and welcome to loose fourth quarter and fiscal year 2023 earnings Conference call. Today's call is being recorded and we've allocated one hour for their prepared remarks and Q&A at this time I'd like to turn the conference over to Luiz General Counsel and corporate Secretary Naomi Backman Strauss. Thank you you may begin.

Good afternoon, everyone and thank you for joining us to discuss <unk> fourth quarter and fiscal year 2023 in adults before.

Naomi Beckman: And thank you for joining us to discuss Lulu's fourth quarter and fiscal year 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. 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 expectations, plans, strategies, goals, and objectives and their implementation; our expectations regarding the continued impact on our business of the macroeconomic environment, consumer demand, and return rates, our future expectations regarding financial results, references to the fiscal year ending December 29, 2024, including our financial outlook for the full year 2024, market opportunities, product 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.

Before we begin we would like to remind you that this conference call will include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

All statements made on this call that do not relate to matters of historical fact should be considered forward looking statements.

Including but not limited to statements regarding managements expectations plans strategies goals and objectives in their implementation or expectations around the continued impact on our business if the macroeconomic environment consumer demand in return rates, our future expectations regarding financial result references.

The fiscal year, ending December 29, 2024, including our financial outlook for full year 'twenty 'twenty four.

Market opportunity product launches and other initiatives and our growth.

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

Naomi Beckman: 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 December 31, 2023, filed with the SEC this afternoon, all of which can be found on our website at investors.lulu.com. Any such forward-looking statements represent management's 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.

These risks uncertainties and assumptions are detailed in this afternoon's press release as well as our filings with the SEC, including our annual report on Form 10-K for the fiscal year ended December 31st 2023 filed with the SEC. This afternoon, 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 have watched the 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.

Naomi Beckman: 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 Flow. 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. 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, and non-gap measures may be different from non-gap measures used by other companies.

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

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.

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.

Naomi Beckman: 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 SEC file. Joining me on the call today are our CEO, Crystal Landsem, our CFO, Tiffany Smith, and our President and CIO, Mark Vos. Following our prepared remarks, we'll open the call for your questions. With that, I'll turn the call over to you.

A 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 are our CEO christal anthem, our CFO, Tiffany Smith, and our president and CIO Mark Paul.

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

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

Crystal Landsem: Thank you, Naomi, and good afternoon, everyone. We appreciate you joining us today. Looking back at 2023, I'm proud of the strides we made to adjust our business quickly to a highly dynamic consumer and macroeconomic. The initiatives we have implemented in recent quarters and the early progress we've made against them to reinforce our position as one of the most beloved women's brands for attainable luxury fashion. Curated, exclusive products, superior customer service, and a personalized shopping experience. Supporting our customers through all of life. In 2023, our primary focus was on the fall.

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

Looking back at 2023, I'm proud of the strides we've made to adjust our business quickly so a highly dynamic consumer and macroeconomic landscape.

The initiatives, we have implemented in recent quarters and the early progress we've made against them to reinforce our position as one of the most beloved women's brands for attainable luxury fashion, the curated exclusive products superior customer service and a personalized shopping experience supporting our customers through all of life's moments.

In 2023, our primary focus was on the following.

Crystal Landsem: Rebalancing inventory assortment between newness, novelty, and core reorder products. Improving internal processes through optimization and automation, leading to reduced operational costs. Establishing a foundation for accelerating brand awareness through new marketing initiatives and products and maintaining a cash flow positive year while not sacrificing investments and strategic initiatives that support, combined with revolver balance reductions to further position the company. We believe we've executed well on all of our key focus areas in 2020, positioning us for strong growth and profitability once inflationary pressures abate and consumer spending increases. Additionally, our strategy has been and continues to be focused on customers who seek out quality over quantity and enduring styles that last beyond a moment in time, allowing us to optimize inventory without the same obsolescence risk that other retailers have.

Balancing inventory assortment between newness and novelty and core reorder product.

Improving internal processes through optimization and automation, leading to reduced operational expenses, establishing the foundation for accelerating brand awareness through new marketing initiatives and product distribution channels and maintaining a cash flow positive year, while not sacrificing on investments in strategic initiatives that support future growth.

Combined with a revolver balance reductions to further position the company for success.

We believe we've executed well on all of our key focus areas in 2023 positioning us for strong growth and profitability once inflationary pressures abate and consumer spending normalizes.

Our strategy has been and continues to be focused on customers, who seek out quality over quantity and enduring styles that last beyond a moment in time, allowing us to optimize inventory without the same obsolescence risk that other retailers face. Additionally.

Crystal Landsem: Traction with broader price ranges, including higher-priced items in our legacy categories throughout Q4, as reflected in our Q4 Gross Margin Expansion of 180 bases, combined with an 18% year-over-year reduction. As a business focused on enduring quality versus relying on predicting trends, it can take a few quarters to adapt to more meaningful trends. As a result, while we expect to continue rebuilding our assortment in 2022, we believe we will benefit from early assortment updates during the, We have already seen encouraging sequential upward revenue momentum building at the end of 2020, with further improvements into the first two months of 2020. I'll now briefly touch on our fourth-quarter results before discussing the full year in more detail, followed by our 2024. As our business is not driven by seasonal gifting, Q4 results were consistent with seasonal trends for Lulu.

Additionally.

Traction with broader price ranges, including higher priced items in our legacy categories. Throughout Q4 reinforced this as reflected in our Q4 gross margin expansion of 180 basis points combined with an 18% year over year reduction of inventory balances.

As a business focused on enduring quality versus relying on predicting trends. It can take a few quarters to adopt a more meaningful trend changes.

As a result, while we expect to continue rebuilding our assortment in 'twenty 'twenty four we believe we will benefit from early assortment updates during the year.

We have already seen encouraging sequential upward revenue momentum building at the end of 'twenty to 'twenty three with further improvements into the first two months of 'twenty 'twenty four.

I'll now briefly touch on our fourth quarter results before discussing the full year in more detail followed by our 'twenty 'twenty four priorities.

As our business is not driven by seasonal gifting Q4 results were consistent with seasonal trends for lose which is typically our smallest quarter in terms of both sales and profit.

Crystal Landsem: It's typically our smallest quarter in terms of both sales and profits. Our special occasion segment continued to be a steadfast driver of sales, constituting a large component of our diversified product. We saw positive performance in our new and reordered dresses, with notable success in special fabrications and new holiday styles. Occasion Dresses have continued to outperform other categories, with particularly strong demand for new and novelty dresses, and this is historically a leading indicator of future growth. With shoppers craving more out-of-home experiences, the December opening of our first retail location in decades is a start towards bridging the gap between URL and IRL. Our Melrose Avenue location in Los Angeles underscores our presence among premium retailers and helps position us as a quality-first, attainable luxury. To that end, in the latter half of January, we opened our first ever bridal boutique within the Lulu's on Melrose Lodge.

Our special occasion segment continue to be a steadfast driver of sales constituting a large component of our diversified product mix.

We saw positive performance in our new and reorder dresses with notable success and special fabrications and new holiday silhouette.

Occasion dresses have continued to outperform other categories with particularly strong demand for new and novelty dresses and it's historically, a leading indicator of future growth momentum.

With shoppers craving more out of home experiences. The December opening of our first retail location in decades is it start towards bridging the gap between U R L and I R. L.

Our Melrose Avenue location in Los Angeles underscores our presence among premium retailers and helps position us as a quality first attainable luxury brand.

To that end in the latter half of January we opened our first ever bridal boutique within the loose on Melrose location.

Crystal Landsem: Rounding out a full end-to-end shopping experience, positive customer response to the Bridal Store launch instills confidence in the brand activation potential for 2020. Furthermore, Lulu's on Melrose has affirmed the opportunity for new customer engagement and marketing strategies, with the potential to drive interesting new growth. We will continue to take a disciplined and calculated approach to physical retail, applying our test, learn, and optimize philosophy to the Lulu's on Melrose store to seamlessly integrate our D2C e-com customer experience across all sales channels and optimize how we apply our industry-leading inventory turn. The Melrose store opening has also been a great catalyst for momentum in our potential wholesale partnership. Major retailers, both international as well as domestic, have proactively expressed interest in carrying Lulu's products in-store and online.

Rounding out a full end to end shopping experience.

Positive customer response to the bridal store launch instills confidence in the brand activation potential for 'twenty 'twenty four.

Furthermore, lose on Melrose has affirmed the opportunity for new customer engagement and marketing strategies with potential to drive interesting new growth prospects. We will continue to take a disciplined and calculated approach to physical retail applying our test learn and optimized philosophy to the Luzon Melrose store to seamlessly integrate our D.

E com customer experience across all sales channels and optimize how we apply our industry, leading inventory turns in a physical space.

The Melrose store opening has also been a great catalyst for momentum and our potential wholesale partnership opportunities.

Major retailers, both international as well as domestic proactively expressed interest in carrying lose products in store and online.

Crystal Landsem: We expect interest to lead to long-term growth opportunities. Brand awareness and broader customer reach via these omni-channels. Next, here are a few of the areas where we saw positive momentum throughout 2020. We saw strong customer demand for our new and novelty products, resulting in positive double-digit year-over-year growth in our post-return second-half merchandise sales for new products, a leading indicator for our future reorder products. As a reminder, our reorder products have consistently contributed over 70% of our net revenue. We're actively rebalancing our product offerings, new and reorder alike, to restore revenue allocation across new and reorder to pre-pandemic levels and align with evolving, yet enduring customer trends. Year-end inventory balance was down 18% over year-end fiscal 2022, down $7.7 million, underscoring the agility of our data-driven business model and the enduring quality of our reorder.

We expect interest will lead to long term growth opportunities brand awareness and broader customer reach via these omnichannel opportunities.

Next are a few of the areas, where we saw positive momentum throughout 2023.

We saw strong customer demand for our new and novelty products, resulting in positive double digit year over year growth in our post returned second half merchandise sales for new products are.

A leading indicator for our future reorder product funnel.

As a reminder, our reorder products have consistently contributed over 70% of our net revenue in recent years, we're actively rebalancing our product offerings, new and reorder alike to restore revenue allocation across new and reorder to pre pandemic levels and align with evolving yet enduring customer trend changes.

Year end inventory balance was down 18% over year end fiscal 2022 down 7.7 million.

Underscoring the agility of our data driven business model and enduring quality of our reorder products. We believe our five times inventory turns for the year continue to be industry, leading reflecting how our strategic and informed approach to product selection is aligned with market demand.

Crystal Landsem: We believe our five-times inventory turns for the year continue to be industry-leading, reflecting how our strategic and informed approach to product selection is aligned with, As we enter 2024, our overall inventory position is notably healthier and back into chase mode for several of our dress products. Continued investments in process automation and robotics contributed to a 15% decrease in variable payroll, on a volume-adjusted basis compared Our business continued to generate liquidity, and our balance sheet remained strong, enabling us to maintain our investments in strategic initiatives and positioning us for a return, Free cash flow for the year with $11.5 million, an improvement of $10.3 million over fiscal, We successfully implemented technology to better scale both international and wholesale growth as well as opened our first physical retail store to serve as a testing ground for potential future retail operations.

As we enter 2024, our overall inventory position is notably healthier and back into chase mode for several of our dress product categories.

Continued investments in process automation and robotics contributed to a 15% decrease in variable payroll expenses on a volume adjusted basis compared to fiscal 'twenty two.

Our business continued to generate liquidity and our balance sheet remains strong, enabling us to maintain our investments in strategic initiatives and positioning us for a return to growth free.

Free cash flow for the year was 11.5 million an improvement of 10.3 million over fiscal 'twenty two.

We.

That's fully implemented technology to better scale, both international and wholesale growth as well as opened our first physical retail store to serve as a testing ground for potential future retail opportunities.

Crystal Landsem: The progress we've made on our initiatives over the fourth quarter and full year, supported by the strategic addition of talent to our team, is starting to show positive signs as we enter 2020. 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. A few things worth noting on trends we saw in 2023 and into the first quarter. New product introductions continue to perform well, supporting our strategy to increase newness and novelty penetration back to pre-pandemic levels in preparation for retiring aging reorder products sooner and beginning to capitalize on the changing fashion cycles within our customers. We are concurrently focused on diversifying product assortment and conversion in our smaller and more underpenetrated categories. With this in mind, in January, we welcomed industry veteran Lauren Detty as our new Chief Merchandising Officer.

The progress we've made on our initiatives over the fourth quarter and full year supported by the strategic addition of talent to our team are starting to show positive signs as we enter 2024.

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.

A few things worth noting on trends, we saw in 2023 and into the first quarter.

New product introductions continue to perform well supporting our strategy to increase newness and novelty penetration Baxter pre pandemic levels in preparation for retiring aging reorder product sooner and beginning to capitalize on the changing fashion cycles within our customers' closets.

We are concurrently focused on diversifying product assortment and conversion in our smaller and more underpenetrated categories with this in mind in January we welcomed industry veteran lorenzetti as our new Chief merchandising officer and under her stewardship, we anticipate enhance performance across all product categories and an acceleration.

Crystal Landsem: And under her stewardship, we anticipate enhanced performance across all product categories and an acceleration of rebuilding newness in our reorder product funnel. On the wholesale partnership front, we're continuing to lay the groundwork for these relationships as a way to deepen our connections with existing customers and introduce our brand to new audiences in an omni-channel setting. Ultimately Enhancing our online presence, we are being opportunistic about brand-enhancing wholesale partnerships to profitably boost awareness and in-person product experiences, while also leveraging existing infrastructure to maximize cost efficiency and Build Synergy Between Digital and Physical. Wholesale partnerships are typically on a longer lead time calendar and book much further out in the year than Lulu's e-commerce.

Rebuilding newness in our reorder product funnel.

Yeah.

On the wholesale partnership front, we're continuing to lay the groundwork for these relationships as a way to deepen our connections with existing customers.

And introduce our brand to new audiences in an omnichannel setting.

Ultimately enhancing our online presence.

We're being opportunistic about brand enhancing wholesale partnerships to profitably boost awareness and in person product experiences, while also leveraging existing infrastructure to maximize cost efficiency and build synergy between digital and physical channels.

Wholesale partnerships are typically on a longer lead time calendar and booking much further out in the year than lose E. Commerce buying calendar, we believe that much of the progress. We've made so far will positively impact future quarters into 'twenty 'twenty four and beyond.

Crystal Landsem: We believe that much of the progress we've made so far will positively impact future quarters into 2024. We look forward to sharing more on our progress throughout the year. Now turning to 2024 recent macro trends and our priorities for the year. As we position for the year ahead, a few industry trends come. Firstly, for D to C brands like Lulu's, a digital presence extends beyond direct sales and also captures added benefits of improved margins and broader brand value. Lulu's is a brand that has spent 25-plus years supporting women during pivotal moments in their lives. We believe Lulu's has a competitive edge over fast fashion retailers over the long term, who are less loyalty driven and have more transactional relationships. Secondly, the volume of engagements and special events in 2024 is increasing, as is the average cost of a wedding. Special Occasion and Bridal Categories continue to be the Areas of Opportunity.

We look forward to sharing more on our progress throughout the year.

Now turning to 2024 recent macro trends and our priorities for the year.

As we position for the year ahead, a few industry trends come into focus.

Firstly for DTC brands like lose a digital presence extends beyond direct sales and also captures added benefits of improved margins and broader brand value.

As a brand that has spent 25 plus year supporting women during pivotal moments in their lives. We believe Lulu has a competitive edge over fast fashion retailers over the long term, who are less loyalty driven and have more transactional relationships with customers.

Secondly.

The volume of engagements and special events in 'twenty 'twenty four are increasing as is the average cost of weddings.

Special occasion, and bridal categories continue to be areas of opportunity for Lulu.

Mark Vos: As events become more prevalent and consumers become more discerning about their spending, Lulu's has an opportunity to take market share within the. Lastly, there is a heightened industry-wide emphasis on more effectively managing. A focus that aligns with our ongoing strategic initiatives, which Mark will dive into more in his prepared statement. In 2024, we remain focused on closely managing costs and driving efficiencies across our operations to extend our reach. We are seeing early traction with our optimizations and new customer engagement initiatives that we believe will benefit our brand. This year, our primary focus will be on Continued Product Assortment Optimization, including initiatives that support margin expansion, product category diversification, Geographical Diversification, and Product Sourcing to further reduce the potential impacts of external factors related to geopolitical and other uncertainties that could impact our supply chain and return rate stabilization through product fit optimizations and financial impact mitigation.

As events become more prevalent and consumers become more discerning about their spending lose has an opportunity to take market share within this environment. Lastly, there is heightened industry wide emphasis on more effectively managing return rates a focus that aligns with our ongoing strategic initiatives, which mark will dive into more in his prepared remarks.

And 'twenty 'twenty four we remain focused on closely managing costs and driving efficiencies across our operations to extend our momentum.

We are seeing early traction with our optimization and new customer engagement initiatives that we believe will benefit our brand long term.

This year, our primary focus will be on <unk>.

Continued product assortment optimization, including initiatives that support margin expansion product category diversification.

Geographically diversification and product sourcing to further reduce potential impacts of external factors related to geopolitical and other uncertainties that could impact our supply chain.

And return rate stabilization through product fit optimizations and financial impacts of mitigation tactics.

Mark Vos: Continued investments in brand initiatives and activations that support customer acquisition and retention, as well as reinforcing brand differentiation, and lastly, further technology enablement that supports customer engagement and customer experience across. As the year progresses, we expect to stay laser focused on adapting to the dynamic market changes. Brand, Driving Cost Efficiencies to Meet Our Near-Term Targets, and Positioning Ourselves for a Return to positivity. I'm confident in our 2024 initiatives, and I'm further bolstered by our talented and experienced team, which has adeptly navigated the ebbs and flow of our business for the past several years. With that, I'd like to turn the call over to Mark Vos, our President and Chief Information Officer. He will share an update on customer engagement and a deeper dive into our 2024 priorities. Mark.

Continued investments in brand initiatives, and Activations that support customer acquisition and retention as well as reinforcing brand differentiation and lastly, further technology enablement that supports customer engagement and customer experience across multiple channels.

As the year progresses, we expect to stay laser focused on adapting to the dynamic market changes building the Lulu brand driving cost efficiencies to meet our near term targets and positioning ourselves for a return to positive growth.

I'm confident in our 'twenty 'twenty four initiatives and further bolstered by our talented and experienced team, which is a definitely navigated the ebbs and flow of our business for the past several years.

With that I'd like to turn the call over to Mark Foss, Our president and Chief Information Officer.

He will share an update on customer engagement and a deeper dive into our 'twenty 'twenty four priorities Marc.

Mark Vos: Thank you, Crystal. I'll start by providing an update on our customer and how she interacted with us during the call. Although our active customer counts experienced a decline year-over-year, we are optimistic about our positive quarter-over-quarter LTM repeat customer count, signaling improved customer. Additionally, in Q4, we saw year-over-year increases in units per transaction and average unit retail, together driving a higher average order value. Coupled with increased merchandise margins in the, earlier in 2023, we removed various roadblocks for our international customers. And last quarter, we reported that various countries had shown double-digit growth in unit sales year over year. And that trend continues in Q4. 2020

Thank you Crystal.

I'll start by providing an update on our customer and how she interacts with us during the quarter.

Although our active customer accounts experienced the decline year over year, we are optimistic about our positive quarter over quarter LTM repeat customer counts signaling improved customer stickiness.

Additionally, in Q4, we saw year over year increases in units per transaction and average unit retail together driving a higher average order value coupled with increased merchandise margins in the quarter earlier.

Earlier in 2023, we removed various roadblocks for our international customers and last quarter, we reported that various countries have shown double digit growth in unit sales year over year.

That trend continues in Q4 2023, and we believe that we can grow international revenue into a meaningful part of our revenue mix by 2026 by optimizing our current business model shipping from the United States with selective investments and brand activation.

Mark Vos: And we believe that we can grow international revenue into a meaningful part of our revenue mix by 2026 by optimizing our current business model of shipping from the United States with selective investments in brand activation. Similarly, on the wholesale side, we see encouraging signals that both department stores, as well as retailers, are interested in augmenting their physical retail and online assortment. In 2024, we will continue to make strategic investments in people, process, and platform to further enable this channel and also grow Wholesale into a meaningful part of our consolidated revenue mission. As Crystal mentioned, there are three core areas of focus. 6,000.

Similarly on the wholesale side, we see encouraging signals that both department stores as well as retailers are interested in augmenting their physical retail and online assortment with sprint.

In 2024, we will continue to make strategic investments in people process and platforms to further enable this channel and also grow wholesale to a meaningful part of our consolidated revenue mix.

As Christal mentioned there are three core areas of focus for us in 2024.

Mark Vos: Priority Product Assortment Optimization. Diversifying our product assortment into casual and sportswear is a key growth strategy in Lulu's long-term plan. We believe deeper penetration in these product categories will fortify our relationship with our customers through increased purchase frequency, improved loyalty incentives, and broader customer appeal. Additionally, we are excited about the people investments we have made, including the recent appointment of Chief Merchandising Officer Laura Detty, as well as investments in tooling and insights to further support product category expansion. Currently, we are actively refining our test, learn, and reorder model by incorporating advanced machine learning and predictive AI models.

Priority product assortment optimization.

Diversifying our product assortment into cashless sportswear is a key growth strategies and looses longterm plan.

We believe deeper penetration in these product categories will fortify the relationship with our customers through increased purchase frequency improved loyalty incentives and broader customer appeal.

Additionally, we are excited about the people and investments we have made.

<unk> the recent appointment of Chief merchandising Officer, Laura Daddy as well as investments in tooling and insights to further supports product category expansion.

Currently we are actively refining our test learn and reorder model by incorporating advanced machine learning and predictive modeling.

Mark Vos: This integration combines diverse external data with our product and customer data, improving our ability to predict demand, optimize inventory levels, and better navigate trends. In previous quarterly calls, we have spoken about our investments in product costing, which has resulted in initial product margin improvements today. We anticipate additional margin expansion in 2024, which is contemplated in our guidance. Additionally, we are consolidating our... Balance Our Purchasing Power Per Vendor for Improved Product Cost Diversify geographical product sourcing to reduce dependencies on one or more countries of origin and improve consistency in our fabrics and, Our goal is to improve on the modest margin expansion in 2024 guidance in 2025 and beyond. Training investments will be made to stabilize our return rates and reduce the financial impact of returns on our net contribution margin.

This integration combines divers external data sources with our products and customer data, improving our ability to predict demand optimizing inventory levels and better navigate trend cycles.

On previous quarterly calls, we have spoken about our investments and our product costing team, which have resulted in initial product margin improvements to date.

We anticipate additional margin expansion in 2024, which is contemplated in our guidance.

Additionally, we are consolidating our center network to balance of our purchasing power presenter for improved product costs.

Diversified geographical product sourcing to reduce dependency on one or more countries of origin.

And improved consistency in our fabric since it.

Our goal is to improve on the modest margin expansion in 2020 for guidance.

2025 and beyond.

Future investments will be made to stabilize our return rates and reduce the financial impact of returns through our net contribution margin.

Mark Vos: On the fit front, we are seeking to reduce fit-related returns by implementing a holistic approach that optimizes the customer shopping experience as well as our bottom line. We have streamlined our product-fit collaboration and communication process with major vendors to reduce potential fit discrepancies and design products with enhanced fit tolerance while preserving the Lulu's fit expression. Additionally, we have rolled out enhanced fit specifications to our vendors, which further increases the fit consistency of Lulu's apparel.

On the fifth front, we are seeking to reduce fifth related returns by implementing a holistic approach that optimizes the customer shopping experience as well as our bottom line.

We have streamlined our product fits collaboration and communication process with major vendors to reduce potential fits discrepancies and design products with enhanced fifth tolerance, while preserving the lose fifth expression.

Additionally, we have rolled out enhanced fit specifications to our vendors to further increase the fifth consistency of Lucas apparel.

Mark Vos: And we expect the benefits of these enhancements to begin arriving in Q2 of 2021. We're also excited about potential opportunities to use predictive and generative AI and customer community feedback to improve the fit communication to our customers as they shop on Lulu's platform, enabling them to make more informed decisions about science. We also continue to monitor, evaluate, and enhance our return, including excessive return, further reduce abusive return behavior, and minimize unprofitability. Priority continued investments in the Lulu's brand. With the opening of the Lulu's on Melrose store, the brand comes to life for new and existing customers alike, providing an exceptional venue for in-person brand activism.

And we expect the benefits of these enhancements to begin arriving in Q2 of 2024.

We're also excited about the potential opportunities to use predictive and generative AI and customer community feedback to improve the fifth communication to our customers as they shop on the loose platforms, enabling them to make more informed decisions regarding the sizing.

We also continue to monitor evaluate and enhance our return policy.

Excluding the excessive return policy to further reduce abuse of return behavior and minimize unprofitable customers.

Priority continued investments into lose brand.

With the opening of the loose on Melrose store the brand comes to life for new and existing customers alike for fighting an exceptional venue for in person brand Activations.

Mark Vos: In the last few months, we have hosted various in-store events, including the Bridal Boutique Open House and our first ever 100 Dresses for 100 Brides giveaway, which led to long lines of customers around the store and many influencers and customers sharing their love and excitement for the brand on social media. In fact, December 2023, at the highest earned media value generation in recent Lulu's, building on the success of our brand activations at Lulu's on Melbourne. We are considering additional ways to activate the Lulu's brand in person, including the possibility of: The people investments we have made in 2023 with SVP of Brand Marketing Patrick Buchanan and VP of Communications Abigail Reyes have already led to higher levels of consistency in our brand communication. 2024.

In the last few months, we have hosted various in store events, including the bridal boutique open house in our first ever 100 dresses for 100, Bryce giveaway, which led to long lines of customers around the block and many influencers and customers sharing their love and excitement for the brand on social media.

No.

In fact December 2023 at the highest earned media value generation, who recently whose history.

Building on the success of our brand activation Seth loose on Melrose, we are considering additional ways to activate a news brand in person, including the possibility of pop ups.

The people and investments we have made in 2023 with SVP of brand marketing, Patrick Buchanan and C. P of communications Abigail rays have already led to higher levels of consistency in our brand communication.

In 2024, we look to further refine the loose brands in a holistic way developing a deeper connection between our customers our products introduces packaging and diverse range of price points.

Mark Vos: We look to further refine the Lulu's brand in a holistic way, developing a deeper connection between our customers, packaging, and diverse range of products. The goal is for Lulu's imagery, messaging, or products to be instantly recognizable as, fostering a profound understanding and appreciation for the. By building on Lulu's strong brand foundation, we can differentiate ourselves from other brands, including various domestic and foreign transactional shopping experiences and improve the efficiency and effectiveness of our performance marketing. Priority Technology Enablement.

Always for loose imagery messaging or products to be instantly recognizable as loose fostering a profound understanding and appreciation for the brand by building on loose a strong brand foundation, we can differentiate ourselves from other brands, including various domestic and foreign transactional shopping experience.

This and improve the efficiency and effectiveness of our performance marketing program.

Priority technology enablement.

Mark Vos: As Lulu's activates across multiple channels, including retail, wholesale, and other activation, 2024, our platform capabilities need to be enhanced in order to provide the Lulu's brand hug across these various consumer channels. As usual, make, buy, and rent decisions will be driven by time to market. Return on Investment, First-Party Data Insights, and Competitive Advantage Development. As I have already mentioned, we will also expand our investments in predictive and generative AI to drive operational efficiency. Scale, Creative Assets Creation

As Louis active sites across multiple channels, including retail wholesale and other activation points in 2020 for our platform capabilities need to be enhanced in order to provide to lose brand hunk across these various consumer channels.

As usual make buy and rent the decisions will be driven by the time to market return on investments first party data insights and competitive advantage development.

As I already mentioned, we will also expand our investments in predictive in general if AI to drive operational efficiencies scale creative assets creation improved accuracy of demands predictions and further enhance our proprietary reorder data models and algorithms.

Tiffany R. Smith: Improved Accuracy of Demand Prediction, and further enhance our proprietary reorder data models and algorithms. We also intend to implement various customer experience enhancements in our web and app shopping platform, with the goals to improve product discovery, create additional ways customers can interact with each other, and to foster Lulu's community interaction, including about how our products. We are very excited about executing on these opportunities and the positive impact we expect it will have on Lulu's customers, the Lulu crew, and our investors going forward. Now, I'll hand you over to Tiffany Smith, Lulu's Chief Financial Officer, to do a deep dive into our finances. Thanks, Mark, and good afternoon, everyone.

We also intend to implement various customer experience enhancements in our web and App shopping platforms with our goals to improve product discovery create additional ways customers can interact with each other and to foster Lewis community interactions, including about how our products fit.

We are very excited about executing on these opportunities and the positive impact we expect it will have on Lulu as customers, the Lou crew and our investors going forth.

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

Thanks, Mark and good afternoon, everyone.

Tiffany R. Smith: Our net revenue for the fourth quarter was approximately $75 million, down 18% year-over-year, which was in line with our expectations. Our fourth-quarter adjusted EBITDA loss of $2 million fell short of our Q4 guidance. While we were encouraged to see Occasionwear resonate strongly with our customers and comprise a larger part of our sales, 4, we saw higher return rates due to the sales mix shift toward these products with higher return rates, which increased our return-related costs. We also saw a higher concentration of expedited orders, which drove up our outbound shipping costs.

Our net revenue for the fourth quarter was approximately $75 million down 18% year over year, which was in line with our expectations for the quarter.

Our fourth quarter adjusted EBITDA loss of $2 million fell short of our Q4 guidance expectations. While we were encouraged to see occasion wear resonate strongly with our customer and comprise a larger part of our sales mix in Q4, we saw higher return rates due to the sales mix shift towards these products with higher return.

Rates, which increased our return related costs.

We also saw a higher concentration of expedited orders, which drove up our outbound shipping costs.

Tiffany R. Smith: Lastly, marketing cost is a percentage of net revenue. We skew higher due to the impact of higher returns, but this was offset by Discipline Management of General and Administrative.

<unk> marketing cost as a percentage of net revenue skewed higher due to the impact of higher return rate, but this was offset by disciplined management of general and administrative expenses.

Tiffany R. Smith: Moving on to the Q4 P&L line comparisons to last year, the 18% decline in net revenue year over year was driven by a decrease in total orders of 22% compared to the prior year, coupled with an increase in return rates that was offset by higher AOVs this quarter. As our customers' preferences in Q4 leaned more toward newness and novelty, and in particular occasion wear, the resulting product mix and lower final sale ratios drove our overall return rate in the fourth quarter above that of the prior year. However, return rates were lower on a sequential basis, in line with typical trends from... Gross Margin ended the quarter at 39.1%, an increase of 180 basis points.

Moving on to the Q4 P&L line comparisons to last year.

The 18% decline in net revenue year over year was driven by a decrease in total orders of 22% compared to the prior year, coupled with an increase in return rates that was offset by higher <unk> this quarter.

As our customers' preferences in Q4, it leaned more toward newness and novelty and in particular occasion, where the resulting product mix and lower final sale ratios drove our overall return rate in the fourth quarter above that of the prior year. However return rates were lower on a sequential basis in line with typical.

Trends from Q3 to Q4.

Gross margin ended the quarter at 39.1% an increase of 180 basis points compared to the same period last year, driven by higher margin product mix as newness novelty and our occasion wear continue to resonate very well with our customers.

Tiffany R. Smith: Compared to the same period last year, driven by higher-margin product mix, as newness, novelty, and our occasion wear continue to resonate very well with our customers. Moving down the P&L to give some insights into expense line items, Q4 2023 selling and marketing expenses were $15.3 million, down about $1.1 million from Q4 2020.

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

Q4, 2023, selling and marketing expenses were $15.3 million down about 1.1 million from Q4 2022, due to lower performance marketing spend and merchant processing fees, partially offset by higher brand awareness investments, including activation spend for the Melrose store opening.

Tiffany R. Smith: Due to lower performance marketing spend and merchant processing, although partially offset by higher brand awareness investment. Including the Activation Fund for the Melrose-Stor, As noted, we have increased our investments in more top-of-funnel brand marketing, including our Influencer and Ambassador program. General and administrative expenses decreased by about $1.7 million. $21.8 million, a 7% decline compared to Q4. The decrease was primarily driven by a reduction in variable labor costs, driven by the impact of lower sales volume and increased operational efficiency.

As noted we have increased our investments and more top of funnel brand marketing, including our Influencer and ambassador programs.

General and administrative expenses decreased by about 1.7 million to $21.8 million, a 7% decline compared to Q4 2022.

The decrease was primarily driven by a reduction in variable labor costs, driven by the impact of lower sales volume and increased operational efficiencies as well as lower professional services and insurance costs, partly offset by higher stock based compensation expense software expenses and costs associated with our newly <unk>.

Tiffany R. Smith: As well as lower professional services and insurance costs, partly offset by higher stock-based compensation expense, software expenses, and costs associated with our newly-opened Melrose. Adjusted EBITDA loss for the fourth quarter was approximately $2 million, compared to Q4 2022's adjusted EBITDA loss of $1 million. Our Q4 adjusted EBITDA margin was negative 2.6% compared to negative 1.1% in the same period last year. Interest expense for the quarter was approximately $337,000 compared to $409,000 in Q4 2016. For the quarter, we reported a diluted loss per share of $0.18.

Opened Melrose store.

Adjusted EBITDA loss for the fourth quarter was approximately $2 million compared to Q4, 2020, twos adjusted EBITDA loss of $1 million.

Our Q4, adjusted EBITDA margin was negative 2.6% compared to negative one 1% in the same period last year.

Interest expense for the quarter was approximately $337000 compared to $409000 in Q4 2022.

For the quarter, we reported a diluted loss per share of <unk> 18 cents, which is a decrease of four cents compared to a diluted loss per share of 14 cents in the fourth quarter of 2022.

Tiffany R. Smith: Decrease of $0.04 compared to a diluted loss per share of $0.14 in the fourth quarter of 2023. Throughout the fourth quarter of 2023, our balance sheet remained resilient, positioning us to execute our long-term growth plans with agility while adeptly navigating any new or lingering macroeconomic headwinds. Our net cash used in operating activities for the quarter improved by $4.4 million on a year-over-year basis. 5.7 million of net cash used in operating activities in Q4 of 2020, compared to 10.1 million used in Q4 of 2020. Similarly, free cash flow for the quarter improved by $4.7 billion on a year-over-year basis. We repaid $17 million of our revolver during 2023 and plan to continue to pay it down. We ended the year with cash of about two and a half million dollars. Total debt position of $8 million. This was the amount drawn on our revolver, resulting in a net debt balance of $5.5 million.

Throughout the fourth quarter of 2023, our balance sheet remained resilient positioning us to execute our long term growth plans with agility, while it definitely navigating any new or lingering macroeconomic headwinds.

Our net cash used in operating activities for the quarter improved by $4.4 million on a year over year basis with $5 7 million of net cash used in operating activities in Q4 of 2023 compared to 10.1 million used in Q4 of 2022, Similarly free cash flow for the quarter.

Prove by $4 $7 million on a year over year basis.

We repaid $17 million of our revolver during 2023 and plan to continue to pay it down.

We ended the year with cash of about $2 $5 billion in total debt position of $8 million, which was the amount drawn on our revolver, resulting in a net debt balance of $5 $5 million.

Tiffany R. Smith: Our inventory balance at year-end was $35.5 million, down about $7.7 million from the same period last year, bringing our fourth-quarter inventory decrease in direct alignment with our sales. As always, our goal is to remain disciplined in our inventory management approach, and we strive to enhance efficiency in optimizing inventory levels, balancing markdown risk, and prioritizing customer experience. Upholding brand integrity and preserving gross margin levels remain our top priorities as we build upon an already successful buying model. Moving on to Guided. We are expecting full year 2024 net revenue to be between $350 million and $370 million. Our baseline guidance anticipates that our core customer, who is heavily positioned within the $50,000 to $150,000 income range. We'll continue to face macro headwinds throughout.

Our inventory balance at year end was 35, and a half million dollars down about $7.7 million from the same period last year, bringing our fourth quarter inventory decrease in direct alignment with our sales.

As always our goal is to remain disciplined in our inventory management approach and we strive to enhance efficiency and optimizing inventory levels balancing markdown risk and prioritizing customer experience uphill.

Upholding brand integrity and preserving gross margin levels remain our top priorities as we build upon an already successful buying model.

Moving onto guidance, we are expecting full year 2024, net revenue to be between $350 million and $370 million.

Our baseline guidance anticipates that our core customer who is heavily position within the 50000 to $150000 income range will continue to face macro headwinds throughout 2024 with that in mind. The lower end of our net revenue guidance range contemplates a slight year over year decline in that realm.

Tiffany R. Smith: With that in mind, the lower end of our Net Revenue Guidance Range contemplates a slight year-over-year decline in net revenue and is reflective of our returns initiatives in 2024 potentially taking longer to materialize with our customer base and return rates remaining elevated compared to our guidance. Continued efforts to actively rebalance our product offering to restore pre-pandemic revenue allocations across new and reorder products potentially taking more time than expected, which could impede our top length, and initiatives to grow the top line by diversifying the product category mix, including separates and casual wear, not materializing by the second half of the year. The midpoint of our Net Revenue Guide. A healthier inventory position coming into 2024 allows us to focus on improving margins and profitability without replicating the same levels of sales driven through markdowns and promos observed in 2020. Current Trends in Purchasing Behavior Across a Wider Price Point Range Including higher AUR items continues throughout the year, partly as a result of higher dress content. Assisting in the first half.

<unk>, which is reflective of our returns initiatives in 2020 for potentially taking longer to materialize with our customer base, our return rates remaining elevated compared to our guidance midpoint.

Efforts to actively rebalance our product offering to restore pre pandemic revenue allocations across new and reorder products potentially taking more time than expected, which could impede our topline growth and initiatives to grow topline by diversifying product category mix, including separates and casual wear not materializing by the second half of the.

Year as anticipated.

The midpoint of our net revenue guidance range assumes health.

The healthier inventory position coming into 'twenty 'twenty four allows us to focus on improving margins and profitability without replicating the same levels of sales driven through markdowns and promos observed in 2023.

Current trends and purchasing behavior across a wider price point range, including higher AUR items continues throughout the year, partly the result of higher dress concentration persisting in the first half.

Tiffany R. Smith: Returns Initiatives result in a deceleration in year-over-year return ratings by the second half. Wedding and wedding-related events recover back to pre-pandemic levels, and Topline Growth stemming from product category diversification efforts to grow casual wear and separates transpires in the back half. High end of our guidance. Awareness and Brand Marketing Return on Investment as a shorter lead time for top of funnel traffic and conversion than conservatively modeled in our guidance. Top-line growth for casual wear and separates recovers more quickly than anticipated, and returns initiatives drive more significant improvement in return and potentially. When Modeling Revenue for Our Business, Seasonality of Demand plays an important role In a normalized year, our net revenue typically peaks in the second and third fiscal quarters, driven by heightened demand for event-driven, with Q4 typically representing the lowest net revenue and profit quarter of our, The adjusted EBITDA is expected to This equates to an adjusted EBITDA margin of between 1.5% and 2.2%, a modest improvement compared to 2023 as we make progress on our previously highlighted initiatives, including Continued Product Assortment Optimization in Support of Margin Expansion and Product Category Diversity.

Returns initiatives result in a deceleration in year over year return rate increases by the second half of 2024.

Wedding and wedding related events recover back to pre pandemic levels.

And topline growth stemming from product category diversification efforts to grow casual or casual wear and separates transpires in the back half of the year.

The high end of our guidance range assumes awareness and brand marketing return on investment as a shorter lead time for top of funnel traffic and conversion and conservatively modeled in our guidance.

Topline growth for casual wear and separates recovers more quickly than anticipated.

And returns initiatives drive more significant improvement in return rates and potentially earlier in the year.

When modeling revenue for our business seasonality of demand plays an important role in a normalized year. Our net revenue typically peaks in the second and third fiscal quarters, driven by heightened demand for event dressing with Q4, typically representing the lowest net revenue and profit quarter of our fiscal year.

Adjusted EBITDA is expected to be between five and $8 million. This equates to an adjusted EBITDA margin of between one 5% and two 2% a modest improvement compared to 2023. So we make progress on our previously highlighted initiatives, including continued product assortment optimization and <unk>.

Support of margin expansion product category diversification return rates stabilization and product sourcing diversification.

Tiffany R. Smith: Turn Rate Stabilization and Product Sourcing Diversity. Our guidance range assumes benefits resulting from our product costing initiatives and rebalancing of inventory to support more full price. As noted previously, our guidance also anticipates a deceleration in the year-over-year increase in return rates by the second half of next year. Additionally, our guidance considers continued investments in brand initiatives and activations that support customer acquisition and retention, as well as reinforcing brand differentiation. Also contemplated are increases in performance marketing ad spend due to the election year, partly resulting in approximately a 20 basis point increase over 2023 levels in total marketing expense as a percentage of net.

Our guidance range assumes benefits, resulting from our product costing initiatives and rebalancing of inventory to support more full price sales.

As noted previously our guidance also anticipates, a deceleration and a year over year increase in return rates by the second half of the year.

Secondly, our guidance considers continued investments in brand initiatives and Activations that support customer acquisition and retention as well as reinforcing brand differentiation.

Also contemplated or increases in performance marketing AD spend due to the election year, partly resulting in approximately a 20 basis point increase over 2023 levels and total marketing expense as a percentage of net revenue.

Tiffany R. Smith: Modest investments in creative are being made to support our brand initiatives as well as testing various elements to improve our site and shopping. Lastly, our guidance includes investments to support our technology enablement. As such, our General and Administrative Expense Guidance anticipates higher technology spend compared to the previous year.

Modest investments in creative are being made to support our brand initiatives as well as testing various elements to improve our site and shopping experience.

Lastly, our guidance includes investments to support our technology enablement as such our general and administrative expense guidance anticipates higher technology spend compared to 2023.

Tiffany R. Smith: As a result of the technology investment, as well as general and administrative expenses more broadly, we will continue to prudently manage these expenses, and we further expect these costs to leverage over time as our sales... In order to set expectations for modeling purposes, our quarterly adjusted EBITDA margin rates have similar seasonality flex as our net revenues and will likely fluctuate above or below our full year guidance rate depending on the quarter. We incur modest levels of interest expense associated with our operating revolver and equipment leases for our distribution, with the impact of a lower expected revolver balance. We expect interest expense for the full year 2024 to be approximately $600,000.

As a result of the technology investment as well as general and administrative expenses more broadly we will continue to prudently manage these expenses and we further expect these costs to leverage over time as our sales increase.

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

We incur modest levels of interest expense associated with our operating revolver and equipment leases for our distribution facilities with the impact of lower expected revolver balances. We expect interest expense for the full year 2024 to be approximately $600000.

Tiffany R. Smith: We expect our stock-based compensation expense in 2024 to be roughly half of what it was in fiscal 2023, and our weighted average fully diluted share count at the end of 2024 is expected to be approximately $40,000. Moving on to capital expenditures. We expect between $5 and $6 million for the year, which includes capital expenditures for technology enablement that supports customer engagement and customer experience across multiple channels, as well as additional automation capabilities in our distribution center. 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 her closing remarks. Thank you, Tiffany.

We expect our stock based compensation expense in 2024 to be roughly half of what it was in fiscal 2023, and our weighted average fully diluted share count at the end of 2024 is expected to be approximately 40 million shares.

Moving on to capital expenditures, we expect between five and $6 million for the year, which includes capital expenditures for technology enablement that supports customer engagement customer experience across multiple channels as well as additional automation capabilities in our distribution centers, we believe investing in our future growth.

<unk> 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.

Thank you Tiffany before we turn it to questions I want to emphasize our confidence in our ability to return to profitable growth. We firmly believe that our fresh not fast D to C business model, coupled with our indebtedness and testing learning and optimizing within a dynamic retail landscape and a healthy balance sheet positions us well to navigate the near term.

Crystal Landsem: Before we turn it to questions, I want to emphasize our confidence in our ability to return to profitable growth. We firmly believe that our fresh, not fast, B2C business model, coupled with our adeptness at testing, learning, and optimizing within the dynamic retail landscape and a healthy balance sheet, positions us well to navigate the near-term instability and Thank you to our brand fans, the Lou crew, and shareholders for supporting us in our mission to deliver attainable luxury to our customers, and we look forward to updating you all on our next earnings. With that, I'll turn it over to questions. Thank you. We will now be conducting a question and answer session. 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 question area. You may press star 2 to remove your question.

And stability and trends.

Thank you to our brand fans, the Lou crew and shareholders for supporting Us in our mission to deliver attainable luxury to our customers and we look forward to updating you all on our next earnings call with that I'll turn it over to questions now.

Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd 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, one moment, please while we poll for.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll for questions. Our first question is from Brooke Roach with Golden. Please proceed with your questions. Good afternoon. I was hoping you could elaborate on the most important drivers and your confidence in returning the Lulu's brand to growth in 2024. Webster, all of the bodies.

Questions.

Our first question is from Brooke Roach with Goldman Sachs. Please proceed with your question.

Good afternoon, and thank you for taking our question.

Hoping you could elaborate on the most important drivers on your confidence in returning to lose brand to growth in 2024, what contribution from new channels, such as international wholesale in physical retail are you expecting within this outlook versus like for like growth in the direct online business and perhaps for Tiffany can you help provide some guardrails on how youre thinking.

Operator: Thank you for watching. ____________________________________________________________ going ourselves all the time near Marybeth Coleman. Copyright goes to point.

Operator: Perhaps for Tiffany, can you help provide some guardrails on how you're thinking about the cadencing of that revenue growth throughout the year? Hi Brooke. Thanks for the question. As it relates to wholesale and international, as we've indicated previously, these are still very small segments of our business and not ready to guide yet. While the growth has been positive, and we're excited about the momentum, it's still not meaningful to guide on big numbers on small bases. We are, though, optimistic about the early traction that we're seeing and The proactive interest just through these channels and the opportunity to engage and convert with new and existing Lulu's brand fans has been very encouraging. There is significant white space ahead of us, but we're going to be tempering expectations in the near term while these are still small numbers in comparison to our total base.

About the cadence of that revenue growth throughout the year.

Hey Brook. Thanks for the question as it relates to wholesale and international and as we've indicated previously these are still very small segments of our business and not ready to guide yet while the growth has been positive and we're excited about the momentum its still not meaningful took the guide on big number.

On small pieces, we are optimistic about the early traction that we're seeing and.

The proactive interest just through these channels and the opportunity to engage and convert with new and existing.

Existing Louis brand fans has been very encouraging and significant white space ahead of us, but we're gonna be tempering expectations in the near term. While these are still small numbers in comparison to our total base. So our guidance is contemplating more of a normalization to our D to C business and momentum that we're seeing within the new site will eventually return the reorder side of the business to grow.

Operator: So our guidance is contemplating more of a normalization to our D2C business and the momentum that we're seeing within the new side that will eventually return the reorder side of the business to growth. And then, Tiffany, any guardrails that you can provide on how you're thinking about cadencing the revenue throughout the year, perhaps? Conte, comments that you provided on the upward side. Sure, sure. Yeah, sorry, Brooke.

Yeah.

And Tiffany any any guardrails that you can provide on how youre thinking about cadence in the revenue throughout the year, perhaps in concert with the comments that you provided on the upward sequential momentum with improvement in the first two months of 2023rd sure. Yeah, Sorry broke I thought your question was regarding wholesale and international.

Tiffany R. Smith: I thought your question was regarding wholesale and international, but just revenue more broadly. I would say for the guidance that we've put out there, I think it's, I can kind of talk to some of the cadencing that we've seen to date and kind of just give you a sense of how it looks to progress through the balance of this year. One of the things that we saw during Q4 that was particularly encouraging was revenues did start to pace with comps improving each month, particularly in the back half of Q4. We've continued to see top line transacted revenue, so pre-returns in January and February, continuing to improve. On a post-return basis, though, we were a little bit more tempered there in our expectations, just because we had seen so much prominence in the mix around special occasion wear, which typically is our higher return rate product.

But just revenue more broadly.

I would say for the for the guidance that we've put out there.

I think it's it's.

I can kind of talk to some of the cadence thing that we've seen to date and kind of just give you a sense of how it looks to progress through the balance of this year one of the things that we saw during Q4 that was particularly encouraging is our revenues bad start too.

Pace with comps improving each month, particularly.

Particularly in the back half of Q4, we've continued to see topline transacted revenue so pre return.

In January and February continuing to improve on a post return basis, though we were a little bit more tempered there in our expectations just because we have seen so much prominent in the mix around.

Special occasion wear which typically is our higher return rate product, but with that said we are still seeing improvements in the Rev comps.

Tiffany R. Smith: But with that said, we are still seeing improvements in rev comps moving from the end of Q4 into the first two months of Q1 of this year. So we are expecting to see the comps steadily improve as we progress through the year. I would say the comps start to move into more positive comp territory towards mid to late Q2 and then beyond into Q3 and Q4.

Moving from the end of Q4 into the first two months of of Q.

Q1 of this year. So we are expecting to see the comps steadily improve as we progress through the year I would say the comps start to move into more like positive comp territory them towards mid to late Q2.

And then beyond into Q3 and Q4.

Operator: Our next question is from Janine Stichter with BTIG. Please proceed with your question. Hi, I wanted to ask a bit about the expansion into casual sportswear.

Great. Thanks, so much I'll pass it on.

Yeah.

Our next question is from Janine Stichter with <unk>. Please proceed with your question.

Hey, I wanted to ask a bit about the expansion into casual sportswear love your thoughts on how big this could be and what the timing might look like and just kind of what drove you to expand into these categories isn't something your customers been asking for and then on the return rates and you know how you think about potential for expansion into casual to dry.

Crystal Landsem: What are your thoughts on how big this could be, what the timing might look like, and just kind of what drove you to expand into these categories? Is this something your customers have been asking for? And then on the return rates, how do you think about the potential for expansion into casual to drive down the return rate percentages, since I would assume that's a lower return rate category versus the dress category? Thank you.

Down the return rate percentages since I would assume that that have lower return rate category versus the the the dress category. Thank you.

Crystal Landsem: Thanks for the question, Janine. We do absolutely see a lot of opportunity in the casual and sportswear categories, and what our customers have shown us over time is that they typically have a lower return rate than our dresses and specifically our event wear that we're very much known for. So, we're very enthusiastic about the addition of Laura to our team.

Yeah.

Thanks for the question Janine, we do absolutely see a lot of opportunity and the casual and sportswear and what our customer has shown us over time as that does typically have a lower return rate than our dresses and specifically into our event where that we're very much known for but we're very enthusiastic about the addition of Laura to our team. She comes with a wealth of knowledge and a separate area.

Crystal Landsem: She comes with a wealth of knowledge in the separate areas that I think we've been lacking, and just her guidance and oversight in that area is going to be, I think, an accelerator within those product classes. And to that end, what we've seen in our store is a lot more resonance in our separates with our customers in a brick-and-mortar setting, and that's giving us confidence not only in actual performance but also doubles with the feedback we get online and their desire to see more of our novelty and unique Lulu's separates and core wear. So, we're actually really excited about that opportunity.

I think we've been lacking in just for guidance oversight in that area is going to be I think an accelerator within those product classes and to that end what we've seen in our store is a lot more rather that's in our separate with our customers and our brick and mortar setting and that's giving us confidence not only an actual performance, but also doubles with the feedback we get online.

And their desire to see more of our novelty and unique to Lulu separates and core where so we're actually really excited about that opportunity. It is where we suffered candidly most in Q4 in terms of concentration of business, where our consumers a little bit more pressured economically and as really focusing our spend on just the newness got to have a novelty.

Mark Vos: It is where we suffered candidly most in Q4 in terms of concentration of business, where our consumer is a little bit more pressured economically and is really focusing her spend on just the newness, got to have a novelty, serving very cautious about how we guide towards future separates growth. But we're optimistic about what we're seeing specifically in the positive growth in our newness that we've been introducing. Okay, great. And then just one more question on some of the I&U benefits that you've been seeing. It sounds like you're starting to see the benefits.

So we're being very cautious about how we guide towards future suffers growth we're optimistic about what we're seeing specifically in that positive growth and argue that that we've been introducing.

Okay, Great and then just one more question on some of the ITU benefits that you've been seeing it sounds like you're starting to see those benefits any more color on just how meaningful that could be and how we should think about it flowing through over the next.

Mark Vos: Any more color on just how meaningful that could be and how we should think about it flowing through over the next several quarters? Yeah, so we started the, you know, enhancements from a crossing perspective towards the second half of last year, and we saw, you know, initial improvements there. As it relates to this year, various activities there are going to be deployed, mostly around vendor consolidation and increasing our pencil with each individual vendor so that we can be in a better position to negotiate but also to orchestrate, I think, from a fit from a fabric perspective or otherwise, and so we have some moderate improvements are part of the guidance. I really think that we're punching through deeper, so to say, into 25 and beyond because these efforts are Thanks so much.

Rob waters.

Yeah. So we started the year.

Enhancements from a costing perspective.

Towards the second half of last year, and we saw no initial improvements there.

As it relates to for this year various activities there are going to be.

Ploys, mostly around <unk>.

Then the consolidation in.

Increasing our pencil with each individual vendors. So that we can be in a better position to negotiate but also two to orchestrate that think about the ultimate fit.

From a fabric perspective or otherwise.

We have some moderate improvements.

A part of the guidance I really think that we're probably punching through deeper so to say.

25, and beyond because these efforts are not.

Immediately were reflective of the existing inventory that you have that we have at the time it takes to get to additional inventory in so that will just be rolling through the rest of the year into 2024.

Great. Thanks, so much.

Operator: Our next question is from Dana Telsey with the Telsey Advisory Group. Please proceed with your question. Hi, good afternoon, everyone.

Our next question is from Dana Telsey with Telsey Advisory Group. Please proceed with your question.

Hi, Good afternoon, everyone. As you think about the a O V, which ticked up from the third quarter ticked up from last year with the new category is that you're putting in how do you think about the a O V and what it look what it could look like and then on the return rate with the categories that you're introducing how do you what's your forecasts.

Tiffany R. Smith: As you think about the AOV, which ticked up from the third quarter and ticked up from last year, with the new categories that you're putting in, how do you think about the AOV and what it could look like? And then on the return rate, with the categories that you're introducing, what's your forecast for return rates, or what should be a new normal in terms of return? And then just a follow-up. Okay, great. Great questions, Dana. This is Tiffany.

Return rates, so what should be a new normal in terms of return and then just a follow up.

Okay, great great questions. Dana This is Stephanie so with regards to the a O V question we.

Tiffany R. Smith: So with regard to the AOV question, we do expect to see AOV continue to grow throughout 2024 on a full-year basis relative to 2023. However, there's expected to be kind of typical seasonality around AOV where it's typically a more dress-oriented occasion where it's more heavily concentrated in the first, the middle two quarters of the year. So typically, that's where the AOVs will be at their highest point, but sort of sprinkled out throughout the whole year. The assumption is that we're coming into this year with an even healthier inventory position, which is going to mean lower markdowns and discounts for us throughout the balance of the year. So overall expectations around AOV are that they'll continue to increase. But we do like to also maintain some flexibility in our assumptions, just assuming whether or not we do more shipping-related promotions or other things, just because shipping rep is a component of our AOV.

We do expect to see <unk> continue to grow throughout 2020 for them on a full year basis relative to 2023.

However, there is expected to be kind of typical seasonality around <unk>, where it's typically more.

Dressed oriented occasion, where is more heavily concentrated in the first the <unk>.

Two quarters of the year, so typically that's where the <unk> will be at their highest point, but sort of sprinkled out throughout the whole year a ob.

<unk> is the assumption that we're coming into this year with a even healthier inventory position, which is going to mean lower markdowns and discounts.

For us throughout the throughout the balance of the year. So overall expectations around year over year that they'll continue to increase but we do like to also maintain some flexibility in our assumptions, just assuming whether or not we do more shipping related promotions or other things just because shipping is a component of our a O.

Tiffany R. Smith: As it relates to return rates, we have spoken about quite a few things on the call, but one of the factors that's baked into the guidance is that we expect our return rates to start to improve over the next year. So we expect to see sort of decelerating year over year growth in the return rate as we progress into Q3 and Q4 of this year. And as you noted, a lot of that is potentially category-specific drivers.

As it relates to return rates are we have spoken to quite a few things on the call, but one of one of the factors that's baked into the guidance is that we expect a return rate.

To start to improve a bit in the back half of the year.

So we expect to see sort of decelerating year over year growth and the return rate as.

As we progress into Q3, and Q4 of this year and as you noted that a lot of that is is potentially category specific drivers.

Mark Vos: So, meaning less dresses getting more penetration on separates is one of the key areas where we could see mixed shifts start to benefit the return rate. Also, keep in mind, we've highlighted a few initiatives on the call. Mark spoke to in depth about fit and fit. Fit Consistency, basically, we'll call it.

The drivers so meaning a less dresses getting more penetration on separate is one of the key areas, where we could see mix shift starts to benefit the return rate.

Also keep in mind, we've highlighted a few initiatives on the call are mark spoke to in depth around fit and fit.

That consistency and basically we'll call it and that's one of the factors that is also beneficial to return rate as we move through the year and we're expecting that to have a positive benefit.

Mark Vos: And that's one of the factors that is also beneficial to the return rate as we move through the year. And we're expecting that to have a positive effect. Yeah, and adding on to that, we're very excited about our ability, because we have so much data, essentially, from our customers around their fit experience with our products, to really turn that into something that customers can use and better tailor for basically to make better decisions. And so we're working on not just how to present that and how to service that, but also how to intelligently consume that through AI and other methods to really give that advice.

And then adding onto that said, we're very excited about our ability because we have so much data essentially from our customers around their fit experience with our products is to really.

I'll turn that into something that the customers can use and better tailor. Our report basically can make better decisions and so we're working on not just how to present that and how to service that but also without too.

Since we are consumed that through.

Through AI and other methods to really give that advice and so that's just I think it's very exciting.

Mark Vos: And so I think there's a very exciting opportunity in front of us that will, over time, hone itself more accurately and help our customers and, subsequently, hopefully, also our return rate. One thing about active customers, how are you thinking about active customers given the reduced level of active customers, what's happening with that customer turn rate, and in terms of the new products, are you getting new customers also? What's their profile now and how has it changed basically? Thank you. Great question!

Opportunity there in front of us that will overtime.

So for more accurate.

And help our customers and subsequently hopefully also a return on that.

But just one thing on active customers. How are you thinking about active customers given the reduced level of active customers.

What's happening on that on that customer churn rate and in terms of the new products are you getting new customers also what's the profile now and how's the change basically thank you.

Yeah, Great question. So, yes, so although our active customer accounts, so they experienced a decline year over year quarters with pent up demand to fall off the comparisons what.

Mark Vos: So, yes, although our active customer accounts experienced a decline year over year as quarters with pent-up demand fall off the comparisons, what we do see and are very optimistic about is that, for example, quarter over quarter, our, you know, LTM repeat customers improved, which, you know, points to that stickiness. Also, you know, the other part we've already spoken about is the increase, not just from a AUR perspective but also from a UPT perspective. Those are signals that still, you know, speak to that customer engagement.

What we do see and are very optimistic about is that for example quarter over quarter or.

LTM repeat customers improves.

<unk> points to that stickiness.

Also youngsters.

The other part where we already spoken to is the increase not just from a U R perspective, but also from our UPC perspective, those are signals that still speaks to that customer engagement.

Mark Vos: And if we could then add up, add to that, what we will be doing this year from a customer engagement and marketing perspective, I mean, I think that if you put that all together, those efforts will support a stabilization, if not a return to customer growth in 2024. Thank you. Thanks, Dana.

And if we could then adding up adding to that.

What we would be doing this year from a new customer engagement and marketing perspective, I think that if you put that altogether that those efforts will support a stabilization if not returned to.

Customer growth in 2024.

Thank you.

Operator: Thank you. Our next question is from Ryan Lompsis. Jeffreys.

Thanks, Dan Thank you.

Our next question is from Ryan Lumb with Jefferies. Please proceed with your question.

Operator: Please proceed to the next question. You know, as it relates to rebalancing the product portfolio, I'm just curious, kind of, you know, what the portfolio mix is currently across novelty, new, and core reorder products and kind of, you know, how that compares to prior years and where you would like to get this mix moving forward. Thank you.

Hi, Thanks for taking my question you know as it relates to rebalancing the product portfolio I'm, just curious kind of what the portfolio mixes currently across novel novelty, new and core reorder products and kind of how that compares to prior years, and where you would like to get this <unk>.

Moving forward. Thank you.

Crystal Landsem: Our goal is to get our mix between new novelty and core reorder back to where it was pre-pandemic. I would say that our buying during the pandemic was guided very much by consumer demand that outpaced demand for our core reorder products, specifically our aging reorder products. So our goal is to get that mix back to pre-pandemic levels. And candidly, it varies by product class, and over time, it also varies. We had given information previously around 70 to 75% of our reorders drive our business, and pre-pandemic, it was sub-60. The right balance, though, is going to be driven based on consumer demand and the enduring styles that we introduce, how long they last, and how much volume we can drive. So I'm hesitant to give any clear guidance around that number or that target. What we do know is that reverting back to more newness and novelty is what she's looking for today. And over time, that will ebb and flow across new and reorder and across each of our product classes.

Our goal is to get our mix between new novelty and core reorder back towards where it was pre pandemic lets say that are buying during the pandemic with guided very much by consumer demand that outpaced demand for our core reorder products, specifically, our aging reorder products. So our goal is to get that mix back towards pre pandemic levels.

And candidly it varies by product class and over time. It also varies we'd given information previously around 70% to 75% of our Reorders drive our business and the pre pandemic. It was sub 60.

The balance that was gonna be driven based on consumer demand and how the enduring styles that we introduced how long they last and how much volume we can drive from hesitant to give any clear guidance around that number or that target well. We do know is reverting back some more newness and novelty is what she's looking for today and overtime that will ebb and flow across new and reorder and across each of our product.

Yes.

Operator: Great, thank you. Thank you. There are no further questions at this time. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Great. Thank you.

Yeah.

Thank you there are no further questions at this time. This does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.