Q1 2025 Lulu’s Fashion Lounge Holdings Inc Earnings Call
Operator: Good afternoon and welcome to Lulu's first quarter 2025 earn Today's call is being recorded and we have allocated one hour for the prepared...
Good afternoon, and welcome to lose first quarter 2025 earnings Conference call. 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 lose General Counsel and corporate Secretary Naomi Beckman Straws. Thank you you may begin.
Naomi Beckman: At this time, I'd like to turn the conference over to Lulu's General Counsel and Corporal Naomi Beckman.
Naomi Beckman: Good afternoon, everyone, and thank you for joining us to discuss Lulu's first quarter fiscal 2025 results.
Good afternoon, everyone and thank you for joining us to discuss <unk> first quarter fiscal 2025 for adults.
Naomi Beckman: 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's expectations, plans, strategies, goals and objectives and their implementation, opportunities for growth and a return to positive adjusted EBITDA in the coming quarter, the long-term growth trajectory of our business, our expectations around the continued impact of the macroeconomic environment, including as a result of the imposition of tariffs, consumer demand, and return rates on our business, our future expectations regarding financial results, our ability to realize the intended impact of cost reduction measures, our ability to pursue alternative debt financing options, references to the fiscal year ending December 28, 2025, including our financial outlook for fiscal year 2025, market opportunities, buying strategies, product launches, view management, the use of AI for enhancing product discovery and personalized shopping, and other initiatives.
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.
Oh, jeez goals and objectives in their implementation opportunities for growth and a return to positive adjusted EBITDA in the coming quarter, our long term growth trajectory of our business.
Our expectations around the continued impact of the macroeconomic environment.
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Consumer demand in return rates on our business.
Our future expectations regarding financial resort results.
Our ability to realize the intended impact of cost reduction measure our ability to pursue alternative debt financing options.
References to the fiscal year, ending December 28, 2025, including our financial outlook for fiscal year 2025 market opportunities buying strategies product launch of.
You manage the use of AI for it I think product discovery and personalized shopping and other initiatives.
Naomi Beckman: These forward looking statements are subject to various risks, uncertainties, assumptions, and other important factors, which could cause our actual results, performance or achievements to differ materially from results, performance or achievements expressed or implied by these forward looking statements.
These forward looking statements are subject to various risks uncertainties assumptions and other important factors, which could cause our actual results performance or achievements to differ materially from results performance or achievements expressed or implied by these forward looking statements.
Naomi Beckman: 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 29, 2024, and our quarterly report on Form 10-Q for the fiscal quarter ended March 30, 2025, filed with the SEC this afternoon, all of which can be found on our website at www.investors.lulus.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 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 29, 2024, and our quarterly report on Form 10-Q for the fiscal quarter ended March 30 of 2025 filed with SEC. This afternoon, all of which can be found on our website at investor <unk> Dot.
Com.
Any such forward looking statements represent managements estimates as of the date of this call.
While we may elect to update such forward looking statements at some point in the future. We undertake no obligation to revise or update any forward looking statements or information, except as required by law.
Naomi Beckman: During our call today, we will also reference certain non-GAAP financial information, including adjusted EBITDA, adjusted EBITDA margin, net debt, and pre-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-gap measures may be different from non-gap measures used by other companies.
During our call today, we will also reference certain non-GAAP financial information, including adjusted EBITDA, adjusted EBITDA margin net debt and free cash flow we.
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 measure.
Naomi Beckman: Reconciliation of gap to non-gap 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.
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.
Naomi Beckman: We also use certain key operating metrics, including gross margin, average order value and total orders placed. The description of these metrics could also be found in this afternoon's press release and in our SEC filings.
We also use certain key operating metrics, including gross margin average order value and total orders placed.
A description of these metrics can also be found in this afternoons press release and in our SEC filings.
Naomi Beckman: Joining with 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.
Speaker Change: Joining with me on the call today are our CEO christal anthem, our CFO, Tiffany Smith, and our president and CIO Mark Parr.
Speaker Change: Following our prepared remarks, well open the call for your questions without I'll turn the call over to Crystal.
Crystal Landsem: With that, I'll turn the call over to Crystal. Thank you, Naomi. And good afternoon, everyone. We appreciate you joining us today. In the first quarter, we saw a steady monthly improvement in our year-over-year net revenue comparisons, and sales momentum remained strong in occasion dresses, particularly in our bridesmaid category. At the same time, performance in our casual wear and footwear remained under pressure. Efforts to reposition these categories to better align with our strengths and event-focused apparel are underway with more curated collections and casual and separates launching this quarter. We entered the year with a clear focus on strengthening our financial foundation, and in the first quarter we exceeded our expectations for both cash flow and net debt reduction.
Speaker Change: Thank you Naomi and good afternoon, everyone. We appreciate you joining us today.
Speaker Change: In the first quarter, we saw steady monthly improvement in our year over year net revenue comparisons and sales momentum remained strong and occasion dresses, particularly in our bridesmaid category.
Speaker Change: At the same time performance in our casual wear and footwear remained under pressure.
Speaker Change: It hurts to reposition these categories to better align with our strengths and event focused apparel are underway with more curated collections in casual and separates launching this quarter.
Speaker Change: We entered the year with a clear focus on strengthening our financial foundation and in the first quarter, we exceeded our expectations for both cash flow and net debt reduction.
Crystal Landsem: These improvements to our balance sheet, combined with our streamlined cost structure, positioned us well for the year, allowing us to continue key brand investments, growing our wholesale presence, and product margin optimization. Operationally, our strategic priorities remain in focus, which aim to drive cost efficiency, optimize our business, and broaden our customer base.
These improvements to our balance sheet combined with our streamline cost structure position us well for the year, allowing us to continue key brand investments growing our wholesale presence and product margin optimization.
Speaker Change: Operationally, our strategic priorities remain in focus which aimed to drive cost efficiency optimize our business and broaden our customer base.
Crystal Landsem: Mark will talk through our Q1 progress against these efforts short. Before that, I'll highlight our key positive developments in the first quarter. Our Special Occasion and Bridesmaids categories continued their positive momentum in the first quarter, driving healthy year-over-year net sales growth and contributing to another strong quarter for these categories, reaffirming that Lulu's is a go-to dress destination. First time reorders of new products saw sequential and year-over-year growth, indicating that our reorder funnel continues to work with our refined strategy and new product investments driving demand. Inventory management remained in focus during the quarter, resulting in a 4% year-over-year inventory reduction through measured markdowns and promotions to maintain these healthy levels of inventory.
Speaker Change: Mark will talk through our Q1 progress against these efforts shortly.
Speaker Change: Before that I'll highlight our key positive developments in the first quarter.
Speaker Change: Our special occasion, and bridesmaids categories continued their positive momentum in the first quarter driving healthy year over year net sales growth and contributing to another strong quarter for these categories reaffirming that lose as they go to dress destination.
Speaker Change: First time Reorders of new products saw sequential and year over year growth, indicating that our reorder funnel continues to work with our refined strategy and new product investments driving demand.
Speaker Change: Inventory management remains focused during the quarter, resulting in a 4% year over year inventory reduction through measured markdowns and promotions to maintain these healthy levels of inventory.
Crystal Landsem: Product margins increased sequentially for the second consecutive quarter and also increased 100 basis points versus the prior year period. Gross margin also saw a sequential increase to 40.3% in Q1 2025 versus 37.9% in Q4 2024, resulting in $900,000 gross margin growth quarter over quarter. Return rates improved by 170 basis points, our third consecutive quarter of improvement after eight quarters of year over year increases, giving us continued confidence that our improvements in fit and quality are paying off.
Speaker Change: Product margins increased sequentially for the second consecutive quarter and also increased 100 basis points versus the prior year period.
Speaker Change: Gross margin also saw a sequential increase to 43% in Q1, 'twenty 'twenty five versus 37, 9% in Q4 'twenty 'twenty four.
Speaker Change: <unk> and $900000 gross margin growth quarter over quarter.
Speaker Change: Return rates improved by 170 basis points, our third consecutive quarter of improvement after eight quarters of year over year increases, giving us continued confidence that our improvements in fit and quality are paying off.
Crystal Landsem: On the brand front, we executed a number of successful campaigns, partnerships, and activations in the first quarter that drove measurable improvements in customer engagement and brand awareness. In addition to the We Are Lulu's brand campaign that we highlighted on our last call, we hit a new record for influencer collaborations, driving significant traffic, reach, and discovery, hosted our first-ever prom event, and delivered unique content tied to seasonal moments, all resulting in our highest brand equity score to date, which we are on pace to beat in Q2.
Speaker Change: On the brand front, we executed a number of successful campaigns partnerships and activations in the first quarter that drove measurable improvements in customer engagement and brand awareness.
Speaker Change: In addition to the we are lose brand campaign that we highlighted on our last call. We hit a new record for Influencer collaborations driving significant traffic reach and discovery.
Hosted our first ever problem event and delivered unique content tied to seasonal moments all resulting in our highest brand equity score to date, which we are on pace to beat in Q2.
Crystal Landsem: In wholesale, Q1 revenue had triple-digit year-over-year growth driven by continued growth among major partners and strong momentum in specialty retail. These growing partnerships reflect our focus on reaching customers across diverse shopping channels while maintaining an efficient, scalable growth model. Given our strong momentum, we expect continued wholesale growth throughout 2025.
Speaker Change: And wholesale Q1 revenue had triple digit year over year growth driven by continued growth among major partners and strong momentum in specialty retail.
Speaker Change: These growing partnerships reflect our focus on reaching customers across diverse shopping channels, while maintaining an efficient scalable growth model.
Speaker Change: Given our strong momentum we expect continued wholesale growth throughout 2025.
Crystal Landsem: Now shifting to a few of our challenges during the quarter. Our shoes and separates businesses continue to be a drag on overall results, accounting for most of the year-over-year decline in net sales. In response, we've taken deliberate steps over the last several quarters to refine our merchandise strategy, which is well underway, moving away from broader casual offerings and instead leaning into our brand's core identity and occasion wear.
Now shifting to a few of our challenges during the quarter.
Speaker Change: Our shoes and separates businesses continue to be a drag on overall results accounting for most of the year over year decline in net sales.
Speaker Change: In response, we've taken deliberate steps over the last several quarters to refine our merchandise strategy, which is well underway.
Speaker Change: Moving away from broader casual offerings, and instead leaning into our brands core identity indication where.
Crystal Landsem: By narrowing our assortment and reducing SKU complexity, we aim to deliver a more cohesive and elevated experience that improves brand alignment and supports profitability. To that end, and as I alluded to earlier, starting in the second quarter, we are launching a more curated casual and separates collections, which reflect the actions we've taken to streamline our assortments in these categories. In shoes, we are closely reviewing our sourcing and merchandising strategies to address the continued soft sales we see in this category.
Speaker Change: By narrowing our assortment and reducing SKU complexity, we aim to deliver a more cohesive and elevated experience that improves brand alignment and supports profitability.
Speaker Change: To that end and as I alluded to earlier starting in the second quarter, we are launching a more curated casual and separates collections, which reflect the actions we've taken to streamline our assortment in these categories.
Speaker Change: And choose we are closely reviewing our sourcing and merchandising strategies to address the continued soft sales we see in this category.
Speaker Change: Yeah.
Crystal Landsem: Profitability also remained pressured during the quarter related to the timing of consolidation of our California distribution centers and related one-time costs in January and February as expected. However, we saw a marked improvement in March, supporting our expectations for a return to positive adjusted EBITDA in the second quarter of this year.
Profitability also remain pressured during the quarter related to the timing of consolidation of our California distribution centers and related one time costs in January and February as expected.
Speaker Change: We saw a marked improvement in March supporting our expectations for a return to positive adjusted EBITDA in the second quarter of this year.
Crystal Landsem: Turning to our cost reduction initiatives. As a reminder, in the second half of 2024, we implemented targeted cost reduction measures alongside our strategic initiatives in an effort to improve profitability and position the company for sustainable growth. With the implementation of these cost initiatives now behind us following the completion of our consolidation of our West Coast Distribution Centers in Q1, we are seeing the benefits in our operating expenses. OPEX declined 12% year-over-year in the first quarter in spite of the non-recurring DC consolidation costs, with fixed costs down 16%. We expect this improvement will continue, reflecting ongoing efficiencies, while also strengthening profitability and supporting our operating model performance.
Speaker Change: Turning to our cost reduction initiatives as a reminder, in the second half of 'twenty 'twenty four we implemented targeted cost reduction measures alongside our strategic initiatives in an effort to improve profitability and position the company for sustainable growth.
Speaker Change: With the implementation of these cost initiatives now behind US following the completion of our consolidation of our West coast distribution centers in Q1, we are seeing the benefits in our operating expenses.
Speaker Change: Opex declined 12% year over year in the first quarter in spite of the nonrecurring D C consolidation costs with fixed costs down 16%.
Speaker Change: We expect this improvement will continue reflecting ongoing efficiencies, while also strengthening profitability in supporting our operating model performance.
Crystal Landsem: In light of the uncertain and highly dynamic macroeconomic environment and potential for unstable consumer sentiment and demand as a result of current international trade policies and related tariffs, we are taking additional steps to rationalize our cost structure, doubling down on our efforts to support cash generation and bolster our balance sheet. On the product side, a key focus area is SKU management. We continue to be focused on shifting our buying strategy back towards deeper buys on a narrower, more curated SKU set supported by Data Insights, which we believe will allow us to buy more efficiently, leading to improved margins, reduced excess inventory, and cost savings.
Speaker Change: In light of the uncertain and highly dynamic macroeconomic environment and potential for unstable consumer sentiment and demand as a result of current international trade policies and related tariffs, we're taking additional steps to rationalize our cost structure doubling down on our efforts to support cash generation and bolster our balance sheet.
Speaker Change: On the product side, a key focus area is SKU management, we continue to be focused on shifting our buying strategy back towards deeper buys on a narrower more curated SKU set supported by data insights, which we believe will allow us to buy more efficiently leading to improved margins reduced excess inventory and cost savings.
Crystal Landsem: With the recent escalation of international trade disputes and tariffs imposed by the US and other governments, we are thoughtfully accelerating our efforts around direct sourcing, evaluating our geographic mix, and taking other proactive mitigating actions. As a reminder, most of our buys for the first half of the year have already been finalized, which largely insulates us from tariff exposure through Q2. China remains a key sourcing market for us today, and we continue to have conviction in our direct sourcing strategy in that market for a subset of our assortment. Direct sourcing presents significant upside given less than 5% of our sales come from products sourced directly from factories today.
Speaker Change: With the recent escalation of international trade disputes and tariffs imposed by the U S and other governments, we are thoughtfully accelerating our efforts around direct sourcing evaluating or geographic mix and taking other proactive mitigating actions.
Speaker Change: As a reminder, most of our buys for the first half of the year have already been finalized, which largely insulates us from tariff exposure for Q2.
Speaker Change: China remains a key sourcing market for us today, and we continue to have conviction in our direct sourcing strategy in that market for a subset of our assortment.
Speaker Change: Direct sourcing presents significant upside given less than 5% of our sales come from products sourced directly from factories today.
Crystal Landsem: We expect our percent of sales from directly sourced products to double by Q4 of 2025 and continue to grow in 2026. That said, we are simultaneously working to reduce our reliance on China and other areas of our supply chain and are actively evaluating or sourcing plans to diversify our supply base. Despite the recent pause on US-China reciprocal tariffs, we maintain our conviction around our supply chain diversification and direct sourcing strategies, which better position our business for the long term. We are also taking a proactive approach managing any incremental tariff effects, as we have successfully done in the past, through a combination of vendor collaboration, strategic pricing, and assortment optimization.
Speaker Change: We expect our percentage of sales from directly source products to double by Q4 of 2025 and continue to grow in 2020 six.
Speaker Change: That said, we are simultaneously working to reduce our reliance on China and other areas of our supply chain and are actively evaluating our sourcing plans to diversify our supply base.
Speaker Change: Fight the recent pause on U S. China reciprocal tariffs, we maintain our conviction around our supply chain diversification and direct sourcing strategies, which better position our business for the long term.
Speaker Change: We're also taking a proactive approach managing any incremental tariff effects as we have successfully done in the past through a combination of vendor collaboration strategic pricing and assortment optimization.
Crystal Landsem: Our team remains focused and agile, monitoring developments closely, and executing on mitigation strategies that balance cost efficiency and customer value.
Speaker Change: Our team remains focused and agile monitoring developments closely and executing on mitigation strategies that balance cost efficiency and customer value.
Crystal Landsem: In summary, we believe we are well positioned to navigate the current landscape, all while keeping our long-term growth strategy firmly in view. Despite these macro headwinds, we remain firmly committed to maintaining positive cash flow, protecting brand integrity, and investing in our long-term objectives to support our return to growth.
Speaker Change: In summary, we believe we are well positioned to navigate the current landscape all while keeping our long term growth strategy firmly in view.
Speaker Change: Despite these macro headwinds we remain firmly committed to maintaining positive cash flow protecting brand integrity and investing in our long term objectives to support a return to growth with that I'd like to turn the call over to Mark Foss, Our president and Chief Information Officer.
Mark Vos: With that, I'd like to turn the call over to Mark Vos, our President and Chief Information Officer. Mark will provide updates around progress we are seeing against strategic priorities.
Speaker Change: Mark will provide updates around progress we are seeing against strategic priorities Marc.
Mark Vos: Bye. Thank you, Crystal. Active customers increased quarter-over-quarter despite a year-over-year decline, reflecting the success of our recent brand efforts during the quarter. Our Love Rewards Loyalty Program membership also continued to see double-digit growth, driving an overall increase in total membership. In Q1, we also continued with positive year-over-year reactivation rates of lapsed customers.
Speaker Change: Thank you Crystal.
Speaker Change: Active customers increased quarter over quarter, despite a year over year decline, reflecting the success of our recent brand efforts during the quarter.
Speaker Change: Our love rewards loyalty program membership also continued to see double digit growth driving an overall increase in total membership.
In Q1, we also continues with positive year over year reactivation rates of lapsed customers.
Mark Vos: These consistent quarterly improvements across these metrics give us continued confidence in our initiatives to improve customer engagement, brand, and to I'll now share some progress updates around our strategic initiatives during the. starting with our product assortment optimization and related margin expansion efforts. We continue to focus on enhancement of product discovery and personalized shopping with AI. AI-driven site merchandising to further optimize product discovery and personalization and better connect with our customer has shown positive customer engagement and purchase intent and we have broadened and further refined our offering throughout the shopping experience. These efforts are most evident in the increased sell-through in new product launch towards the end of the quarter, as well as further acceleration of sales for our newly introduced reorder products.
Speaker Change: These consistent quarterly improvements across these metrics give us continued confidence in our initiatives to improve customer engagement brand anthem, Switzerland.
Speaker Change: I'll now share some progress updates around our strategic initiatives during the quarter.
Speaker Change: Starting with our product assortment optimization and related margin expansion efforts.
Speaker Change: We continue to focus on enhancement of product discovery and personalized shopping with AI.
Speaker Change: I drink and site merchandising to further optimize product is covering and personalization.
Speaker Change: Connect with our customer has shown positive customer engagement and purchase intent and we have brought of and further refined our offering throughout the shopping experience.
Speaker Change: These efforts are most evident in the increased sell through and new product launched towards the end of the quarter.
Speaker Change: As well as further acceleration of sales for our newly introduced to reorder products a task.
Mark Vos: a positive sign for our future reorder product funnel and margin builders across the assortment.
Speaker Change: Sign for our future reorder product funnel and margin builders across the assortment.
Mark Vos: Our FIT enhancement efforts continue to deliver results with return rates improving for the third consecutive Our holistic approach focused on enhancing fit, flexibility and consistency across key categories. Improving the fit information available. and the Supportive Return Policy remains a priority as we work to further reduce FIT-related Following the launch of our updated return policy earlier in Q1, we've shifted to a flat fee rather than a per-unit return. We see early signals that customer returns related to damaged items are decreasing. and we will continue to monitor closely the effects of our return policy change on customer return behavior.
Speaker Change: Our fifth enhancement efforts continue to deliver results with return rates improving for the third consecutive quarter.
Speaker Change: Our holistic approach focused on enhancing fifth flexibility and consistency across key categories.
Speaker Change: Improving the fit information available for customers.
Speaker Change: And so the supportive for return policy remains a priority as we work to further reduce fifth related returns.
Speaker Change: Following the launch of our updated return policy earlier in Q1, which shifted to a flat fee rather than a per units returned she received early signals that the customer returns related to damaged items are decreasing.
Speaker Change: We will continue to monitor closely the effects so far our return policy change on customer return behavior.
Mark Vos: The rollout of size XXL continues to progress according to plan regarding assortment coverage, new customer acquisition, and reduced return rates. We see favorable return rates when comparing return rates of Extra Large in 2024 versus Extra Large plus XXL combined in 2025. Beyond the generally lower return rates we have been experiencing across our assortment. Indicating that we are able to serve a broader range of customers with a better shopping experience. We also see continued growth in new customer acquisition based on size XXL and expect that the addition of this size over time will contribute to expanding our active customer base.
Speaker Change: The rollout of size double XL continues to progress. According to plan regarding assortments coverage, new customer acquisition and reduced return rates.
Speaker Change: We see favorable return rates when comparing return rates of extra large 2024 first as extra large plus double XL combined in 2025 and.
Speaker Change: The answer is generally lower return rates, we have phoenix experiencing across our assortment.
Speaker Change: Indicating that we are able to serve a broader range of customers with a better shopping experience.
Speaker Change: We also see continued growth in new customer acquisition based on size double XL unexpected. The addition of this size over time will contribute to expanding our active customer accounts.
Mark Vos: We are also expanding extra, extra small sizing to more products. resulting in a broader size range from XXL to XXL across various products. and additional extended sizing from 1x to 3x in predominantly bridesmaid dresses. This extended size range supports the notion that Lulu's is the address destination for all of life's moments. And the healthy sell-through we see across the newly introduced sizes underscores the demand across our customer base.
Speaker Change: We are also expanding extra extra small size them to more products.
Speaker Change: Resulting in a broader science precise range from extra extra small to double XL across various product classes.
Speaker Change: And additional extended sizing from onex to three X and predominantly bridesmaid dresses.
Speaker Change: This extended size range supports the notion that Lucius the dress destination for all of life's moments and healthy sell through we see across the newly introduced sizes underscores the demand across our customer base.
Mark Vos: Turning to our investments in strengthening brand awareness and customer engagement.
Speaker Change: Turning to our investments in strengthening brand awareness and customer engagement.
Mark Vos: As we discussed last quarter, in March, we launched our Out of Home, We Are Lulu's campaign. followed by our globetrotter and bridal brand campaigns, featuring women behind the Lulu's brand to drive connectivity with our customers and empower women for all of life's moments. The campaign was supported with prime billboards in Times Square in New York City and in key college cities across the United States. Through this campaign, we aim to engage with our audiences beyond digital and create relationships with new customers, which has seen further amplified by our successful influencer events and activations. Our brand trackers show how well the campaign resonated with our target audiences with notable brand equity improvements across Gen Z and renewed momentum among our millennial audience.
Speaker Change: We discussed last quarter in March we launched our out of home we are loose campaign.
Speaker Change: All of those by our Globetrotter in bridal brands campaigns, featuring women behind to Louis brands to drive connectivity with our customers and empower women for all of life's moments.
Speaker Change: The campaign was supported with Prime Billboards in times Square in New York City and in key college cities across the United States.
Through this campaign, we aim to engage with our audience with some beyond to digital and create relationships with new customers, which has seen further amplified by our successful influencer events and Activations.
Speaker Change: Our brand trackers to show, how well the campaign resonated with our target audiences with notable Brent equity improvements across Genesee and renewed momentum among our millennial audience.
Mark Vos: In Q1, we executed several third-party collaborations that delivered excellent feasibility, including Frankie's Bikinis by Bella Hadid. Partnership with Jessica Simpson, and a sweepstakes with ABC's The Bachelor. These strategic partnerships highlight our efforts to be the one-stop shop for our customers. The number of influencer and ambassador partnerships also hit a new record in the first quarter. featuring high-profile creators on key social platforms, as well as in-person influencer events, which drove significant traffic, reach, and earned media value.
Speaker Change: In Q1, we executed several third party collaborations that delivered excellent FES disability, including Frankie stickiness, but have Bella hadid.
Speaker Change: Our partnership with Jessica Simpson, and a sweepstakes with a b sees the Bachelor.
Speaker Change: These strategic partnerships highlight our efforts to be the one stop shop for our customers.
The number of Influencer and ambassador partnerships also hit a new record in the first quarter.
Speaker Change: Featuring high profile creators on key social platforms as well as in person influencer events, which drove significant traffic reach and earned media value.
Mark Vos: These efforts around brand and customer engagement culminated in Lulu's brand equity hitting an all-time high in Canada. and strong growth in our social media follow. We are continuing our momentum and investments in these critical marketing areas to drive Lulu's brand.
Speaker Change: These efforts around brands and customer engagement culminate with him loose Brent equity hitting an all time high in Q1 and strong growth in our social media following.
Speaker Change: We are continuing our momentum in investments in these critical marketing areas to drive brand awareness.
Mark Vos: The third initiative focuses on driving technology enablement to improve decisioning, efficiencies, and create a seamless customer experience across channels. We successfully completed the consolidation of our West Coast Distribution Center operations into our Southern California Distribution Facility during the quarter. We continue to see exceptional operational performance following the move. We released support for various return policy updates and enabled robotics-driven fulfillment in our Southern California distribution facility.
Speaker Change: A third initiative focuses on driving technology enablement to improve decisioning efficiencies and create a seamless customer experience across channels.
Speaker Change: We successfully completed the consolidation of our West Coast distribution center operations into our southern California distribution facility during the quarter.
Speaker Change: And we continue to see exceptional operational performance following the move.
Speaker Change: We released support for various return policy updates and enables robotics driven fulfillment in our southern California distribution facility.
Mark Vos: We also launched a Lulu's and Poshmark integration, and we are very excited that our customers can now list their high-quality Lulu's products on Poshmark directly and effortlessly from their Lulu's order history page, and in that way extend the life and usage of Lulu's We remain focused on building momentum across our strategic initiatives as we enhance cost efficiency and more effectively expand our reach to a broader customer base.
We also launched the Lucent posh Mark integration and we are very excited that our customers can now list of their high quality loose products on posh Mark directly and effortlessly from their Lewis order history page and in that way extent, the life and usage of Google's products.
Speaker Change: We remain focused on building momentum across our strategic initiatives as we enhance cost efficiency and more effectively expand our reach to a broader customer base.
Tiffany Smith: And now I'll hand you over to Tiffany Smith, Lulu's Chief Financial Officer, to provide more color on our financials. Thanks, Mark, and good afternoon, everyone. In the first quarter, net revenue was approximately $64.2 million, a decrease of 17% year-over-year, driven by a 17% decrease in total orders placed and a 5% decrease in average order value, partially offset by the impact of lower return rates, which improved for the third consecutive quarter on a year-over-year basis. Growth margin for the quarter was 40.3%, down 200 basis points versus the prior year. Continued strength in product margin, underscored by 100 basis point improvement compared to the prior year, was offset by lower efficiency in our shipping costs.
Speaker Change: And now I'll hand, you over to Tiffany Smith, Who's the Chief financial officer to provide more color on our financials.
Thanks, Mark and good afternoon, everyone.
Tiffany Smith: In the first quarter net revenue was approximately $64.2 million a decrease of 17% year over year, driven by a 17% decrease in total orders placed and a 5% decrease in average order value, partially offset by the impact of lower return rates, which improved for the third consecutive quarter on a year over year basis.
Speaker Change: Yeah.
Speaker Change: Gross margin for the quarter with 43% down 200 basis points versus the prior year continue.
Speaker Change: Continued strength in product margin underscored by a 100 basis point improvement compared to the prior year was offset by lower efficiency in our shipping costs.
Tiffany Smith: On the expense side, Q1 selling and marketing expenses totaled $15.9 million, down about $1.8 million year-over-year due to lower marketing costs and lower merchant processing fees on lower sales volume. Despite lower marketing costs, we have seen record-breaking brand equity metrics in the first quarter. General and Administrative Expenses decreased $3.1 million to $18 million in Q1, a 15% decline year-over-year, due primarily to reduced fixed labor costs resulting from the impact of our cost reduction measures, along with reduced variable labor costs on lower sales. Other areas of savings included equity-based compensation expense and insurance costs. Our net loss for Q1 worsened to $8 million from $5.7 million in the same period last year, driven primarily by the impact of lower gross profit, partially offset by $4.8 million or 12%, savings in selling and marketing, and general and administrative expenses resulting from our leaner operating cost structure.
Speaker Change: On the expense side, Q1, selling and marketing expenses totaled $15 $9 million down about $1.8 million year over year due to lower marketing costs and lower merchant processing fees on lower sales volume.
Speaker Change: Despite lower marketing costs, we have seen record breaking brand equity metrics in the first quarter.
Speaker Change: General and administrative expenses decreased $3 $1 million to $18 million in Q1, a 15% decline year over year due primarily to reduced fixed labor costs, resulting from the impact of our cost reduction measures along with reduced variable labor costs on lower sales.
Speaker Change: Other areas of savings included equity based compensation expense and insurance costs.
Speaker Change: Our net loss for Q1 worsen to $8 million from $5 $7 million in the same period last year, driven primarily by the impact of lower gross profit, partially offset by $4 8 million or 12% savings in selling and marketing and general and administrative expenses, resulting from our leaner operating cost structure.
Tiffany Smith: Q1's adjusted EBITDA loss was approximately $4.7 million compared to a $2.7 million loss in Q1 2024. Adjusted EBITDA margin was negative 7.3% versus negative 3.4% in the prior year period. Interest expense in Q1 totaled $577,000 versus $383,000 in Q1 2024. Diluted loss per share for the quarter was $0.19 compared to a diluted loss per share of $0.15 in Q1 2024.
Speaker Change: Q1's, adjusted EBITDA loss was approximately $4 $7 million compared to a $2.7 million loss in Q1 2024, adjusted EBITA margin was negative seven 3% versus negative three 4% in the prior year period.
Speaker Change: Interest expense in Q1 totaled $577000 versus $383000 in Q1, 'twenty 'twenty four.
Speaker Change: Diluted loss per share for the quarter was 19 cents compared to a diluted loss per share of 15 cents in Q1 2020 for.
Tiffany Smith: This quarter, we meaningfully improved our liquidity position. In Q1, net cash provided by operating activities was $8.3 million, a $1.4 million improvement from $6.9 million in the same period last year. Free cash flow during Q1 was $7.8 million, reflecting a $1.8 million increase year-over-year. Net debt was $1.5 million at the end of Q1, a $7.2 million reduction from our net debt position of $8.6 million at the end of the fourth quarter 2024. For further context on our credit facility, we had $10.1 million borrowed under our revolving line as of the end of Q1, reflecting a $3 million repayment since the end of Q4 2024.
Speaker Change: This quarter, we meaningfully improved our liquidity position in.
Speaker Change: In Q1 net cash provided by operating activities was $8 $3 million or one 4 million dollar improvement from $6 9 million in the same period last year free cash flow during Q1 was $7.8 million, reflecting a $1.8 million increase year over ear.
Speaker Change: Net debt was one and a half million dollars at the end of Q1, a $7.2 million reduction from our net debt position of $8 $6 million at the end of the fourth quarter 2024.
Speaker Change: For further context on our credit facility, we had some point $1 million borrowed under our revolving line as of the end of Q1, reflecting a 3 million dollar repayments since the end of Q4 2024.
Tiffany Smith: As of the date of this call, we have made approximately $2.8 million in further repayments and have $7.3 million outstanding under our revolving line. As outlined in both our recent 10-K and latest 10-Q, we executed a fourth amendment to our credit agreement with Bank of America, which suspended the measurement of certain financial covenants for the first quarter while we continue to pursue alternative financing. The amendment contemplates that we will complete a refinancing and exit the credit agreement by June 15, 2025. Our inventory balance at quarter end was $39.7 million, a $1.6 million or 4% decrease year-over-year.
Speaker Change: As of the date of this call. We have made approximately $2 8 million in further repayments and have $7.3 million outstanding under our revolving line.
As outlined in both our recent 10-K and latest 10-Q, we executed a fourth amendment to our credit agreement with Bank of America, which suspended the measurement of certain financial covenants for the first quarter, while we continue to pursue alternative financing.
Speaker Change: The amendment contemplates that we will complete a refinancing and exit the credit agreement by June 15th 2025.
Speaker Change: Our inventory balance at quarter end was $39 $7 million or $1.6 million or 4% decrease year over year.
Tiffany Smith: Inventories reflected a normal sequential build from Q4 2024 to Q1 2025 as we built our inventory levels to support a healthy Q2 2025 peak selling season.
Speaker Change: Inventories reflected a normal sequential build from Q4 2024 to Q1 2025, as we built our inventory levels to support a healthy Q2 2025 peak selling season.
Tiffany Smith: Moving on to guidance.
Speaker Change: Moving onto guidance give.
Tiffany Smith: Given the heightened uncertainty related to international trade policy, tariffs, and the macroeconomic environment, even in light of the recent temporary pause on certain tariffs, we are withdrawing our previously issued fiscal year 2025 guidance for net revenue and adjusted EBITDA while maintaining our full year guidance on capital expenditures. For the second quarter, we expect to generate positive adjusted EBITDA and we are committed to continuing the work we have started on strengthening our liquidity position and focusing on driving the success of our business. We will continue to evaluate and take necessary steps to mitigate the potential impacts of recent tariffs through a combination of vendor collaboration, sourcing diversification, strategic pricing, and assortment optimization.
Speaker Change: Given the heightened uncertainty related to international trade policy tariffs and the macroeconomic environment, even in light of the recent temporary pause on certain tariffs. We are withdrawing our previously issued fiscal year 2025 guidance for net revenue and adjusted EBITDA, while maintaining our full year guidance on capital expenditures.
Speaker Change: Yeah.
Speaker Change: For the second quarter, we expect to generate positive adjusted EBITDA and we are committed to continuing the work we have started on strengthening our liquidity position and focusing on driving the success of our business.
Crystal: We will continue to evaluate and take necessary steps to mitigate the potential impacts of recent tariffs through a combination of vendor collaboration sourcing diversification strategic pricing and assortment optimization and with that I'll pass it back to crystal for closing remarks.
Crystal Landsem: And with that, I will pass it back to Crystal for closing remarks.
Crystal Landsem: Thank you, Tiffany. We remain confident that our focus strategy centered on assortment optimization, brand awareness to deepen customer engagement, and continued investment in our tech-enabled operating model positions us well for sustainable growth and margin improvement. We believe our disciplined approach to cost management and ongoing business model refinement support our ability to navigate this dynamic macro environment with cash flow generation and securing refinancing remaining top priorities.
Crystal: Thank you Tiffany we remain confident that our focused strategy centered on assortment optimization.
Speaker Change: And awareness to deepen customer engagement and continued investment in our tech enabled operating model positions us well for sustainable growth and margin improvement.
Speaker Change: We believe our disciplined approach to cost management and ongoing business model refinement support our ability to navigate this dynamic macro environment with cash flow generation and securing refinancing remaining top priorities well.
Crystal Landsem: While we recognize the impact that trade policy and tariff shifts and broader macro uncertainty may have in the near term, our teams are working to manage these variables through strategic sourcing, pricing discipline, and deep vendor collaboration, all with an eye towards long-term profitability and resilience.
Speaker Change: While we recognize the impact of trade policy and tariffs shifts and broader macro uncertainty may have in the near term. Our teams are working to manage these variables through strategic sourcing pricing discipline and deep vendor collaboration all with an eye towards long term profitability and resilience.
Crystal Landsem: I want to take a moment to thank our incredible Lou crew for their dedication to our brand and customers, our loyal community of shoppers for their ongoing trust, and our valued shareholders for their continued support.
Speaker Change: I want to take a moment to thank our incredible Lou crew for their dedication to our brands and customers are loyal community of shoppers for their ongoing trust and our valued shareholders for their continued support with that I'll turn it over to questions now.
Operator: With that, I'll turn it over to questions now. 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
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Now be conducting a question and answer session.
Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: For me from tone will indicate your line it in the question queue.
Speaker Change: You May press star two to remove yourself from the queue.
Speaker Change: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: And there are no questions at this time.
Speaker Change: This does conclude today's conference and we thank you for your participation. Thank you and have a great day.
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