LVLU

Good afternoon, and welcome to Lulu's Fashion Lounge first quarter 2026 earnings call. Today's call is being recorded. At this time, I'd like to turn the conference over to Lulu's General Counsel and Corporate Secretary, Naomi Beckman-Straus. Thank you. You may begin.

Good afternoon, everyone, and thank you for joining us to discuss Lulu's first quarter fiscal 2026 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's expectations, plans, strategies, goals and objectives, and their implementation.

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 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 28th, 2025, which can be found on our website at investors.lulus.com. During our call today, certain non-GAAP financial information, including adjusted EBITDA, adjusted EBITDA margin, net debt, and free cash flow. Our non-GAAP measures may be different from non-GAAP measures used by other companies.

Reconciliation of GAAP to non-GAAP measures, as well as the description, limitations, and rationale for using each measure can be found in this afternoon's press release and in our SEC filing. We also use certain key operating metrics, including gross margin, average order value, and active customers. The description of these metrics can also be found in this afternoon's press release and in our SEC filing.

Joining me on the call today are our CEO, Crystal Landsem, our CFO, Heidi Crane, 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 Crystal.

Thank you, Naomi, and good afternoon, everyone. We appreciate you joining us today. In the first quarter, we continued to make meaningful progress across the business as we executed against the operational and merchandising initiatives supporting our reset. We exited 2025 and the first quarter of 2026, having completed much of the foundational reset work and are now positioning the business for recovery and re-acceleration in the second half of the year.

We believe the continued strength of our higher-margin, event-driven categories, combined with our assortment optimization efforts, have improved order economics, deepened customer engagement, and further reinforced our position as a special occasion brand. Lulus remains a trusted destination for life's most meaningful moments, from graduations and weddings to birthdays, vacations, date nights, and the everyday social moments in between.

These emotionally resonant purchase occasions continue to support strong customer engagement, repeat purchasing behavior, and full price demand across our core Gen Z and millennial customer base. What differentiates the Lulus brand is our ability to combine elevated feminine fashion with accessible price points while helping customers feel confident and photo ready for the moments that matter most.

While we took targeted actions during the quarter to further optimize portions of our casual apparel and footwear assortments, we continue to see encouraging momentum across key areas of the business, including sustained strength in event-driven categories, significantly improved assortment productivity, expanding gross margins, and continued progress against our operational efficiency initiatives. To that end, let me share some additional detail on key positive developments during the first quarter of 2026.

We continue to see healthy demand for special occasion, led by reorder cocktail dresses and supported by color adds across occasion wear assortment, as well as chase into high-performing, newly introduced styles. Additionally, sell-through for new product introductions improved significantly during the quarter, leading to reorder eligibility rates that nearly doubled year-over-year, highlighting the effectiveness of our more refined assortment strategy and identifying styles that better align with what the Lulus customer is looking for.

Gross margins expanded by 480 basis points to 45.1%, marking our highest first quarter gross margin percentage since 2022. The continued expansion in gross margin reinforces that the structural improvements we have made across sourcing, assortment discipline, and inventory productivity are driving healthier order economics and improving the earnings profile of the business.

We have seen great brand momentum to start the year, supported by growing engagement across experiential marketing, influencer partnerships, earned media, and social channels, all while maintaining disciplined marketing efficiency. Our brand marketing strategy remains focused around culturally relevant moments that resonate with our customer, including weddings, graduations, prom, vacations, and other social occasions where customers turn to Lulus with confidence.

During the quarter, our 2026 prom event, creator collaborations, influencer and celebrity placements, and seasonal occasion dressing stories generated strong engagement and visibility across channels. We also announced our 2026 brand campaign in early April, which we anticipate will further drive awareness, positioning the business well to build momentum and scale as we celebrate moments that matter to our customers and that align with our brand identity.

We also continue to benefit from the scale and authenticity of our community, which now includes more than 9 million social media followers and a broad network of influencers and ambassadors that help amplify the brand organically. Combined with the launch of our brand campaign, we believe these efforts further reinforce Lulus attainable luxury positioning. Our wholesale channel is scaling rapidly, with revenue in the quarter doubling year-over-year as it complements and amplifies our D2C business by meeting our customers where they already shop.

Increasing awareness of the Lulus brand across new audiences and new channels. The in-store experience allows customers to engage directly with the quality, fit, and value of our product assortment, helping deepen trust and engagement with our brand. We continue to view wholesale as a highly strategic and capital-efficient growth channel, expanding brand awareness and driving incremental customer acquisition.

Last, adjusted EBITDA improved significantly year-over-year, highlighting our progress prioritizing profitability, maintaining a lean cost structure, and driving operational focus. Despite dipping negative in the first quarter, as anticipated, driven by our planned inventory reset, we expect to see a return to positive adjusted EBITDA in the second quarter and for the full year.

Importantly, during the first quarter, we made significant progress on the reset of our casual apparel and footwear businesses, as we discussed on our last call, while intentionally prioritizing profitability and assortment quality to support a faster and healthier return to growth. During the quarter, we intentionally maintained disciplined inventory receipts and a tighter, more curated assortment within casual apparel and footwear as we continue optimizing these categories around productivity, customer alignment, and profitability.

These actions contributed to a meaningfully cleaner inventory position exiting the quarter, and that positions us well to reintroduce higher quality, more productive newness through the balance of the year. We will continue to iterate on new product in the coming quarters, identify top performers, and build back reorder momentum behind the styles that resonate with customers most.

Inventory at the end of Q1 was down meaningfully year-over-year, including a 39% reduction in casual apparel categories, nearly 46% reduction in footwear, while markdown exposure exiting the quarter was also substantially lower.

As expected, return rates increased year-over-year during the quarter, driven primarily by a greater mix of elevated occasion product and higher average unit retails. We expect return trends to improve as casual apparel and footwear assortments normalize through the back half of the year, positioning us for healthier revenue trajectory and improving return rates.

We are encouraged by the progress we made in the first quarter, including improved margins, stronger inventory productivity, continued wholesale momentum, and meaningful balance sheet improvement. We see opportunities to deepen engagement and grow revenue per customer by expanding further into wedding-related occasions and other event-adjacent categories that naturally extend the customer life cycle, increase purchase frequency, and support continuous engagement throughout the year.

Most importantly, we remain deeply focused on serving our customers, strengthening the emotional connection they have with our brand, and continuing to deliver the confidence, quality, and experience they expect from Lulus during life's most meaningful moments. 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 our strategic focus areas. Mark?

Thank you, Crystal Landsem. I'll start by sharing an update on our progress against our latest key strategic priorities, which center on the highest impact drivers of the business. 1, improving order economics. 2, expanding our wholesale channel. 3, leveraging technology to enhance engagement and operational efficiency. Starting with strengthening our casual apparel and footwear categories to drive improved order economics.

Our casual apparel and footwear segments play a key role in broadening the Lulus customer relationship beyond occasion-driven purchases, which tend to be more seasonal and episodic in nature.

While occasion wear anchors our brand, casual apparel and footwear create opportunities for more consistent everyday engagement, supporting higher purchase frequency and repeat behavior over time. These categories also deliver lower return rates, making them an important lever for improving overall order profitability and marketing efficiency as they scale.

At the same time, we took more aggressive steps in late 2025 and into the first quarter to reset our casual apparel and footwear assortment. We limited new product introductions, focusing only on items with high conviction and strong alignment to our brand and customer. As a result, casual apparel and footwear new product launches were down more than 50% in the first quarter versus the prior year period, and the occasion wear mix subsequently increased.

We expect this reset will translate into significantly improved performance through the remainder of the year. SKU productivity in these categories has already strengthened meaningfully, with a 56% increase in units transacted per new product launched in Q1 2026 compared to Q1 2025, and up sequentially from 21% in Q4 2025.

These signals reinforce our confidence that as we move into the back half of the year, casual apparel and footwear product launch volume will normalize and begin to return to growth. As casual apparel and footwear regain momentum in the second half of the year, supported by our focus on strategic customer-aligned new buys, we expect their share of revenue to increase, providing a tailwind to return rate performance, overall order economics, and customer retention metrics.

Just as importantly, these categories support more frequent year-round purchasing behavior and play a critical role in both repeat purchases and new customer acquisition, further boosted by our efforts to improve the shopping experience across the website and strengthen our brand image.

While new customer contribution from casual apparel and footwear has and will remain pressured in the first half of the year due to our targeted reset. We expect improvement and momentum to build in Q3 and Q4. As a reminder, Lulus revenue model is not dependent on hitting the fashion trends as they develop in season.

Drives the majority of revenue. Lulus revenue model is built on building longer-running assortments that make up the majority of our revenue. New assortment success, besides its revenue contribution in season, is mostly to test, learn, and adopt those winning styles into the future recurring revenue equation of the business.

Consequently, just as we are currently experiencing the revenue pressures of past new assortment performance issues in casual apparel and footwear, and firstly, the current successes with the significantly improved sell-through of new products launched, we believe are strong indicators of future revenue contribution of those products cohort. In other words, within the Lulus revenue model, we are right now creating the product cohort that we expect will drive revenue for multiple years to come.

In summary, the performance improvements in casual apparel and footwear, combined with the continuing strength in occasion wear, gives us conviction in the revenue turnaround we're working towards. Additionally, the stronger performing casual apparel and footwear revenue contribution directly favors our overall return rates and lower smart markdown sales, which should drive significant improvements in order economics and new customer acquisition.

As a result, we believe our marketing efficiency will improve, our ability to for customer reach will expand, and a positive revenue cycle will commence. From a phasing perspective, we expect more and better new assortment in Q3 and Q4, 2026 to drive higher in-season revenue contribution, which would have a positive impact on overall return rate and new customer acquisition, such that we anticipate our total active customers to stabilize in the second half of this year.

Starting in 2027, we expect the stronger product foundations and assortment productivity improvements established during 2026 increasingly support improved revenue trends, expanding profitability, and stronger adjusted EBITDA performance year-over-year. We're very excited about our current momentum and are looking forward to keeping you apprised of our progress. Turning to wholesale expansion. Our wholesale expansion continues, and I'm happy to report the following statistics.

As of 2025 Q1 last 12 months, we shipped to 4 major accounts, and by 2026 Q1 last 12 months, that expanded to 10 major accounts. In 2026 Q1 last 12 months, our overall wholesale revenue increased by 112%, and our same majors account revenue was up 94% compared to 2025 Q1 last 12 months. As we have previously announced, Lulus is now available in all Nordstrom doors, and we also doubled our presence to 100 doors with our prom assortment at Dillard's.

The continued growth of our wholesale channel is validation that the Lulus brand resonates with our customers who are also shopping in store. Finally, let me walk through how we're leveraging technology to drive engagement and efficiency. Let me start with an update on our cost reduction initiatives.

In the first quarter, we saw a 13% year-over-year decline in operating expenses, including an 8% reduction in fixed cost. One great example of how we achieve this is through our distribution center efficiency gains, which include increased efficiencies in inbound and returns processing, lower refurbishment costs, and improvements in our click-to-ship time and on-time delivery.

These major performance improvements have supported our cost efforts, thanks to the great work of our operations teams. Deeply deserved kudos. On tariffs, uncertainty around rates, refunds, and timing is ongoing. As we discussed previously, we successfully managed incremental tariff impacts through a combination of vendor collaboration, strategic pricing, and assortment optimization. As a result, we are not expecting large swings due to the potential refunds, which have not been factored into guidance to date.

We continue to monitor market developments while progressing our sourcing diversification efforts, deepening strategic vendor relationships, managing product cost, and maintaining disciplined pricing and assortment strategy. We also remain mindful that ongoing freight cost variability and a value-conscious consumer may contribute to uneven demand patterns. However, our approach is centered on staying agile, protecting margins, and making measured adjustments as conditions evolve.

We believe these actions enable us to navigate near-term volatility while continuing to reinforce a stronger and more resilient long-term margin profile. To that end, I'm happy to announce that our customers are now enjoying the benefit of having the option to return items via Happy Returns without the need for shipping materials or printing label hassles. Our customers are adopting Happy Returns at high rates and are clearly appreciative of this service.

The consolidated return shipping to our distribution centers will help offset the mentioned increases in fuel surcharges. A shout-out to the Happy Returns and Lulus teams who, in a relatively short period of time, made this integration a reality with a smooth go live and rollout. We're also very happy about our updated complete the look functionality, which our customers love.

Where we've not only revamped how we algorithmically merchandise various looks, but we've also made the shopping experience smoother and add to cart easier. As our casual apparel and footwear assortments evolve and improve, we see this as an opportunity to further expand our economics and increase customer lifetime value. Taken together, these strategic focus areas reflect our deliberate and targeted approach to accelerating our path to growth in the year ahead.

By repositioning and re-accelerating our underperforming but strategically important categories, expanding our brand presence through wholesale, managing our cost, and removing friction across the customer journey through targeted technology investments, we are strengthening our operational performance while reinforcing the long-term durability of our business model. I'll now pass it over to Heidi Crane, Lulus Chief Financial Officer, to provide more color on our financial performance.

Thank you, Mark. In the first quarter, net revenue was $57.5 million, a decrease of 10% year-over-year, driven by a 15% decrease in total orders placed and the impact of higher return rates, partially offset by a 4% increase in average order value and an increase in wholesale revenue.

Gross margin for the quarter was 45.1%, up 480 basis points year-over-year due to a shift in the sales mix to higher margin categories, as well as improved outbound shipping costs due to freight rate savings, partially offset by increased markdowns in casual apparel and footwear. On the expense side, selling and marketing expenses in the first quarter totaled $14 million, down $1.9 million year-over-year due to lower marketing costs and merchant processing fees.

General and administrative expenses decreased $2.6 million to $15.5 million in Q1, a 14.3% decline year-over-year, primarily due to ongoing cost control initiatives, including a decrease in variable labor and benefits associated with lower sales volume and enhanced productivity realized from our distribution center consolidation efforts, a decrease in equity-based compensation expense, and a decrease in fixed labor and benefit costs due to a reduction in fixed headcount.

Our net loss for the first quarter improved to $4.1 million from an $8 million loss in the same period last year. Adjusted EBITDA in Q1 was a loss of $1.5 million compared to a $4.7 million loss in Q1 2025, a $3.1 million improvement year-over-year. Adjusted EBITDA margin was -2.7% versus -7.3% in the prior year period. Interest expense in Q1 totaled $394,000 versus $577,000 in Q1 2025.

Diluted loss per share for the quarter was $1.44 compared to a diluted loss per share of $2.86 in Q1 2025. For the first quarter, net cash provided by operating activities was $6.9 million compared to $8.3 million in the same period last year, with the year-over-year variance negatively impacted by $2.2 million related to a large prior year income tax refund. Year-over-year, net cash provided by operating activities, excluding income tax refunds, improved by $800,000 in the first quarter.

Free cash flow in the first quarter was $6.5 million, compared to free cash flow of $7.8 million in the same period last year. Total debt decreased by $1.1 million to $13.3 million, and net debt decreased by $5.8 million to $5.9 million during the first quarter. Our inventory balance at quarter end was $33.1 million, a decrease of $6.6 million, or 17% year-over-year.

We remain focused on strengthening the foundation of our business, prioritizing higher quality demand and disciplined order economics. We also continue to realign our casual apparel and footwear assortment to better meet customer demand and margin optimization. We are taking targeted actions to work through the remaining slower-moving inventory and reposition our assortment and prioritizing ongoing cost optimization.

With that in mind, we feel confident in the positive momentum we are seeing year-over-year with our disciplined execution, which positions us well as we prepare for the upcoming peak selling periods. We expect positive adjusted EBITDA in the second quarter of 2026 to outperform results for the same period of last year. We remain focused on improving profitability and strengthening our financial position with improvements to our balance sheet and cash generation.

For the full year of fiscal 2026, we continue to expect adjusted EBITDA to inflect to positive compared to -$1.2 million in 2025, and the net revenue growth trend to improve year-over-year compared to a decrease of 11% in 2025. We also continue to expect capital expenditures to be between $2 million and $2.5 million, inclusive of capitalized software, which is comparable to 2025. Now I'll turn it back over to Crystal for closing remarks.

Thank you, Heidi. Overall, we are encouraged by the progress and momentum we saw in the first quarter as we execute against our strategic priorities and continue strengthening the foundation of the business. While there is still important work ahead as we optimize portions of the assortment through the balance of the year, we believe the actions we have taken are creating a structurally stronger business, improving operational discipline, enhancing customer alignment, and positioning Lulus for more sustainable, profitable long-term growth.

We remain excited about the opportunities ahead, including expanding our presence across wedding-related occasions and event-adjacent categories, deepening customer engagement with the Lulus brand, continuing to scale wholesale as both a growth driver and a customer acquisition engine.

Most importantly, none of this would be possible without the passion, resilience, and commitment of our team. I wanna sincerely thank the entire Lulus organization for their hard work, their dedication, and also thank our shareholders for their continued support and confidence in our long-term vision.

This concludes today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.

Good afternoon, and welcome to Lulu's Fashion Lounge fourth quarter 2025 earnings conference call. Today's call is being recorded. At this time, I'd like to turn the conference over to Lulus' General Counsel and Corporate Secretary, Naomi Beckman-Straus. Thank you. You may begin.

Good afternoon, everyone, and thank you for joining us to discuss Lulus fourth quarter and fiscal year 2025 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. 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 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 28, 2025, which can be found on our website at investors.lulus.com. 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. Our non-GAAP measures may be different from non-GAAP measures used by other companies. Reconciliation of GAAP to non-GAAP measures as well as the description, limitations, and rationale for using each measure can be found in this afternoon's press release and in our SEC filings. We also use certain key operating metrics, including gross margin, average order value, and total orders placed. The description of these metrics can also be found in this afternoon's press release and in our SEC filings.

Joining me on the call today are our CEO, Crystal Landsem, our CFO, Heidi Crane, and our President and CIO, Mark Vos. With that, I'll turn the call over to Crystal.

Thank you, Naomi, and good afternoon, everyone. We appreciate you joining us today. 2025 was a transformational year for Lulus. We made meaningful progress strengthening our financial foundation, driving operational efficiencies, and leaning into our strengths in event dressing, resulting in gross margin expansion, a significant reduction in operating expenses, and three consecutive quarters of positive adjusted EBITDA performance. We believe our stronger, leaner, and more resilient operating model, combined with our consistently improving profitability, positions us well to return to growth as consumer and category pressures begin to stabilize. We believe our focus on event-driven categories continues to differentiate us. Bridesmaid and special occasion dressing remained strong throughout the year with sustained demand and multi-year category growth, reinforcing our leadership position in this segment.

We also saw exceptional momentum in our wholesale business in 2025, delivering triple-digit year-over-year growth as we expanded into major retail partners, further extending the reach of the Lulus brand across channels. Operationally, we executed well on major initiatives designed to simplify and modernize the business, including completing our distribution center consolidation, streamlining operations, driving sequential improvements in inventory and assortment optimization, and steady reduction in return rates. Together, these accomplishments drove significantly improved EBITDA performance over the course of the year. With these foundational changes largely in place, we are entering 2026 with greater strategic focus, a healthier cost structure, and an assortment more aligned to our core customer and brand identity. We also continue to strengthen our financial position, with net debt expected to be between $7.5 million and $8 million at the end of Q1.

While work remains, particularly in repositioning our casual and footwear categories, we are confident that our disciplined execution and sharpened assortment strategy position us for continued progress as we move through the year. We believe we have entered the new year well-positioned to further accelerate our strategic priorities, lean into the strength of our core business, continue to execute on the turnaround of the casual and footwear businesses, drive and enhance customer engagement, and unlock sustainable long-term growth. As part of this effort, we are sharpening our strategic focus on the initiatives we believe will drive the most impact. This includes strengthening our casual and footwear categories to improve order economics, expanding our wholesale presence to broaden reach, and leveraging technology to deepen engagement, enhance efficiency, and support our growth. Mark will discuss each of these in more detail shortly. Turning to our fourth quarter performance.

We are seeing encouraging momentum across the business, reflecting the impact of our disciplined execution and strategic focus. Special occasion and event wear continues to outperform, led by strong growth and new occasion wear in both new and reorder cocktail categories, which drove healthy year-over-year net sales growth. Strength in event dressing reinforces our conviction in both the assortment strategy and value proposition and further validates our position as a leading destination for getting dressed up. Thanks to the strong contribution from our occasion categories and healthier average order value, in the fourth quarter, we saw our most meaningful sequential quarterly improvement in net revenue comparisons at an approximately 5% decline. This is an improvement from a 17% decline in the first quarter 2025.

Product margins improved for the fifth consecutive quarter, with a 240 basis points increase in the fourth quarter compared to the prior year period and the highest product margin for the fourth quarter in four years. The improvement reflects sustained consumer demand for our higher margin categories, supported by our pricing and margin enhancement initiatives and continued discipline and markdown strategy. We will continue to prioritize these initiatives to support ongoing margin gains in the year ahead. Gross margins expanded 640 basis points to 44.3% over the prior year period, our highest fourth quarter gross margin since 2021. The consistent progress we're seeing reflects our commitment to margin accretive growth. We plan to build on this momentum by further refining our assortment, strengthening sourcing, and managing prices, pricing and cost efficiencies.

Return rates improved 80 basis points from the third quarter, another quarter of sequential declines. We're proud of the enhancements we've made around customer experience in regards to improved fit and quality, as well as thoughtful adjustments to our return policy and customer abuse prevention strategies deployed throughout the year. Brand momentum is accelerating, supported by ongoing visibility efforts to broaden Lulus' exposure, reach, and relevance. We drove meaningful gains in brand awareness and engagement in the fourth quarter through a broader and higher quality media footprint, spanning earned media, cultural moments, editorial features, broadcast placements, and expanded studio stylists and talent relationships, while leaning into key holiday and event-driven moments. As a result, our brand equity score maintained its strong position, underscoring the resonance and relevance of the Lulus brand.

Our wholesale business continues to gain significant traction, supported by strong interest from prospective partners and the addition of several major retailers in the fourth quarter. These additions expand our in-store and online presence to nine major retail partners. To date, this has translated into triple-digit, seven-figure growth in wholesale revenue. Importantly, in February, we announced our expansion into all Nordstrom stores nationwide, reflecting accelerating demand in brick-and-mortar and increased retailer confidence, reinforcing Lulus' ability to scale beyond its direct-to-consumer roots while staying deeply connected to its customers. Furthermore, earlier this month, we broadened our reach with the launch of our Amazon storefront, offering a curated, primarily exclusive assortment and enabling us to maintain full control of brand storytelling while leveraging Amazon's reach and convenience.

As we grow with existing partners and add brand accretive majors and boutiques, including the expansion into additional brands within our current major partners, as well as Victoria's Secret in the first quarter this year, we continue to expand access to Lulus' in a thoughtful, strategic way to drive profitable wholesale volume and bring our products to more customers nationwide. Rather than taking a one-size-fits-all approach, each partnership features a channel-specific assortment aligned with how different customers shop and engage with our brand. We believe these partnerships further position Lulus' as a digitally fluent brand with growing influence across the contemporary fashion and retail landscape. As 2026 progresses, we are further encouraged by our wholesale customers' requests for more year-round assortment, which will help to rebuild our brand awareness and our casual wear assortments across all sales channels.

Finally, we delivered our third consecutive quarter of positive adjusted EBITDA. Our tighter cost structure and stronger product margins lifted our performance again this quarter, underscoring the disciplined operational focus that continues to support our bottom line. Our performance over the last several quarters reflects the significant strides we are making in strengthening our core business and the opportunities we see ahead of us to continue driving results. On that note, we are making steady progress resetting our footwear and casual apparel businesses, which have pressured top-line performance over the last several quarters. We continue to drive the reset of casual apparel and footwear this quarter by narrowing our assortment, tightening inventory receipts to improve turns, and shifting to more elevated event adjacent and dress-forward styles that better match customer preferences and where margins are strongest.

We believe these steps will support the stabilization of these categories and set a stronger foundation for future growth. As we progress through this transition, we continue to expect the pressure on top-line contribution from these categories to ease towards the end of the second quarter, positioning us for a healthier revenue trajectory in the back half of the year. Looking ahead, we are intentionally prioritizing profitability and the quality of our assortment over short-term revenue growth. By resetting our casual and footwear businesses towards more brand-aligned and event adjacent assortments and working down less productive inventory in the first half of the year, we are laying the groundwork for a stronger, more disciplined foundation that supports higher quality and more durable performance. Turning now to our cost reduction initiatives. Our work has continued to pay off, as evidenced by our third consecutive quarter of positive adjusted EBITDA performance.

The improvement was driven in part by a 12% year-over-year decline in operating expenses in the fourth quarter, including a 13% reduction in fixed costs. We continue to build momentum off our streamlined cost structure and expect continued gains as we drive additional operational efficiencies and focus on returning to sustained profitable growth. As it relates to our SKU rationalization efforts, we are making meaningful progress around streamlining our assortment and reducing underperforming inventory to drive improved margins and greater operational efficiencies. As of this earnings call, in footwear and casual apparel, the SKU count owned and inventory on-hand is down compared to prior year, approximately 17% and 39% respectively. While there is still work to be done, we believe the progress the team has made to date will set us up nicely for improved performance in the second half of this year.

These actions are also enhancing our financial profile by promoting cash generation and fortifying our balance sheet. As it relates to tariffs, the environment remains highly uncertain, including potential changes in scope, timing, and rates. While we are closely monitoring developments, our strategy does not rely on any single external outcome. Instead, we are focused on actions within our control. These include advancing resourcing initiatives, strengthening long-time vendor partnerships, optimizing product costs, and applying disciplined pricing and assortment strategies. We also recognize that the broader environment, including potential tariff impacts, freight volatility, and a still cautious consumer, may continue to create variability in demand. Our approach is to remain agile, protect profitability, and adjust thoughtfully as conditions evolve. Taken together, we believe these actions position us to navigate near-term volatility while continuing to strengthen our long-term margin structure.

Before I turn it over to Mark, I'd like to highlight a couple of additional updates. First, we made an important leadership update last month. After joining us as fractional CFO in the third quarter, Heidi Crane was appointed as Lulus' permanent CFO in February, a natural next step through this process. Working together over the last several months, it's clear that Heidi brings exceptional financial discipline, sharp strategic insight, and a deep understanding of our business, which will greatly support our efforts to achieve long-term sustainable growth and drive value creation.

Second, our board recently approved an amendment to our certificate of incorporation to decrease the number of authorized shares of our common stock from 250 million to 15 million, and the number of authorized shares of our preferred stock from 10 million to 500,000, contingent on stockholder approval at our 2026 annual meeting. 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're seeing against strategic priorities. Mark?

Thank you, Crystal. As Crystal highlighted earlier, we have refined our areas of strategic focus to concentrate on the highest impact drivers of the business. I'll spend a few minutes today providing more detail on the progress we're making across these three key areas. One, enhancing our casual and footwear categories to improve order economics. Two, expanding wholesale. And three, leveraging technology to drive engagement and efficiency. Starting with strengthening our casual and footwear categories to drive improved order economics. Casual and footwear are lower return rate categories, which contribute to a more favorable overall return rate profile. Additionally, casual wear drives repeat purchase frequency, which in turn improves marketing efficiencies. Let me unpack these dynamics. As we discussed on prior calls, Lulus has demonstrated measurable strength in event wear over the past several years.

At the same time, we have seen non-event wear product classes decline in both unit sales and revenue. As a result, event wear as a percentage of revenue has grown from approximately 48% in Q4 2022 to 56% in Q4 2024, and further to 61% in Q4 2025. The increasing concentration of event wear as a percentage of total revenue creates upward pressure on our overall return rate. However, the core return rate within event wear, measured on non-markdown sales and adjusted for volume, in 2025 has decreased by more than 5% year-over-year as a result of our continued investments in product quality and anti-buy-and-wear return measures, more than offsetting that upward pressure.

In Q4 2025 and into Q1 2026, working closely with our vendor partners, we strategically trimmed our new casual and footwear assortment buys, limiting introductions to products we have high conviction will resonate with our customer, while also improving the shopping experience across the website and strengthening our brand image. As a result, new product introductions in casual and footwear were 28% lower in Q4 2025 compared to Q4 2024, and tracking to 50% lower in Q1 2026 compared to Q1 2025. Currently, we are focusing our new buys for the latter part of Q2 and Q3 2026 with our renewed merchandising focus.

Given the fewer but higher quality product launches in casual and footwear, we expect the event wear mix to continue increasing in the first half of 2026 relative to the first half of 2025, and therefore, no immediate improvement in return rate percentage is anticipated in the first half this year. However, as we move into Q3 and Q4 2026, we expect our casual and footwear launches, featuring better resonating products, to normalize and begin to return to growth. As a result, casual and footwear revenue as a percentage of total revenue is expected to increase beyond normal seasonal trends and above last year, which should translate to favorable overall return rate comparisons in the second half of this year and better overall order economics and customer retention metrics. Importantly, we are already seeing clear early signals of this turnaround.

In Q4 2025, units transacted per new product launched increased to 21% year-over-year. In Q1 2026, the units transacted per new product launched is tracking toward a 50% improvement over Q1 2025. A very encouraging trend. We are pleased with the strong position we have built in event wear and the growth opportunity ahead of us. Strengthening our casual and footwear categories in the event adjacent space is expected to also serve as a catalyst for regrowing customer repeat purchase frequency. Event wear customer purchases tend to be more seasonal and episodic in nature, whereas casual and footwear lend themselves to year-round purchasing, which in addition to driving repeat purchases, also supports new customer acquisition.

Casual and footwear as a share of new customer acquisition was approximately 41% in Q4 2022, declining to 31% in Q4 2024, and holding at 31% in Q4 2025. This underscores the opportunity ahead of us, an improved casual and footwear assortment that aligns well with our core offerings in event wear can materially contribute to new customer acquisition. Given the deliberate pullback in new casual and footwear product launches in the first half of 2026, in order to more aggressively reset the assortment, we expect the new customer acquisition contribution from these categories to remain pressured before beginning to improve and build momentum in Q3 and Q4 of 2026. We will be monitoring repeat order frequency closely and look forward to reporting on our progress in future quarters. Turning to wholesale expansion.

As Crystal mentioned, our wholesale channel continues to deliver steady growth. To provide more color around this wholesale expansion, I'll share the following statistics. In 2024, we shipped to four major accounts. In 2025, that expanded to nine major accounts, and we expect to add several more in 2026. In 2025, our overall wholesale revenue increased by 143%, and our same major revenue was up 62% compared to 2024. We believe this is a clear indicator of brand strength at existing retailers, as well as expansion into new retailers. This growth is a validation that the Lulus brand resonates in-store retail where our customer is also shopping. Lulus wholesale expansion complements and amplifies our direct-to-consumer business model. Our customers find Lulus brand where she shops, whether online, in the Lulus app, or in the store.

The in-store experience, where our customers can feel the quality and fit of our products and be pleasantly surprised by the accessible price points of our products, builds trust and connection with our customers for years to come across channels. Finally, let me walk through how we're leveraging technology to drive engagement and efficiency. In previous calls, I have spoken about various AI initiatives, go lives, and usage in product recommendations and search, demand and trend forecasting, marketing and marketing creative, as well as merchandising. This time, I would like to also highlight some initiatives that are not predominantly AI-driven and yet have real, tangible, and positive impact on enhancing the customer experience to drive stronger engagement, greater ease of use, and ultimately, higher customer retention and repeat purchases. Return feedback optimization. We have redesigned our return initiation flow to make it seamless for customers to provide detailed product feedback.

This gives us significantly deeper insight into return drivers, including fit experience and individual fit needs. This data forms the foundation for AI and non-AI driven improvements in product selection, fit specifications, and truly personalized fit and product recommendations. We believe we have a significant opportunity in front of us to reduce return rates, improve product curation, and create more successful and enjoyable shopping experiences, leading to customer delight, higher repeat purchases, increased word of mouth, and better order economics. Happy Returns integration. We are currently implementing Happy Returns as a return shipping solution, scheduled to go live in the first part of Q2 2026. We believe this will improve the return experience for eligible customers through expanded drop-off locations and the elimination of printed return shipping labels. Additionally, the consolidated nature of return shipping will reduce return shipping costs, which have been steadily increasing year-over-year.

Enhanced product descriptions. We are actively testing on-site product descriptions that improve the clarity and value of product detail information, reducing customer friction, and increasing purchase confidence. Beyond streamlining the customer decision-making process, these enhancements also better support AI data consumption and interpretation to facilitate feasibility in AI and agentic shopping experiences. Simplified account creation. We've improved the account creation process by enabling alternative login methods through various third-party authentication providers. Early results are very encouraging, showing significant adoption of these new login methods alongside notable increases in account creations, demonstrating reduced friction at a critical point in the shopping journey. AI-powered review summaries. Lastly, we are testing AI-generated customer product review summaries that help our customers navigate the extensive and often detailed reviews our customer community provides.

By making these confidence-building social signals easier to digest, we are aiding our customers in their purchase decisions and helping them find the right products, continuing to deliver the Lulus brand hug and reinforcing our position as the shopping destination for all of life's moments. Taken together, these strategic focus areas reflect our deliberate and targeted approach to accelerating our path to growth in the year ahead. By strengthening our underperforming but strategically important categories, expanding our presence through wholesale, and removing friction across the customer journey through targeted technology investments, we are addressing both near-term execution and the long-term durability of the model. I'm excited about the momentum we are building. Our teams continue to bring energy, discipline, and customer focus to their work. I thank the Lulus team for their dedication and care for our customers.

Next up is Heidi Crane, Lulus' CFO, and she'll walk you through the numbers.

Thank you, Mark. I'm excited to have joined the team in a permanent capacity last month, and I look forward to continuing to advance our strategy for profitable growth and strengthening operational and financial discipline across the organization. Now to our results. In the fourth quarter, net revenue was $63 million, a decrease of 5% year-over-year, driven by an 11% decrease in total orders placed, partially offset by a 6% increase in average order value. For the full year, net revenue totaled $282.3 million, a decrease of 11% versus 2024 due to a 15% decrease in total orders placed, partially offset by a 2% increase in average order value.

Gross margin for the quarter was 44.3%, up 640 basis points year-over-year due to a higher mix of full price sales and higher margin product categories, as well as improved outbound shipping costs, which resulted in over $700,000 of cost savings. For the full year, gross margin increased 200 basis points to 43.2% when compared to 2024. On the expense side, Q4 selling and marketing expenses totaled $11.8 million, down $0.9 million year-over-year due to lower marketing costs and merchant processing fees. For the full year, selling and marketing expenses were $66.6 million, a decrease of $6.3 million versus 2024.

General and administrative expenses decreased $2.8 million to $16.1 million in Q4, a 15% decline year-over-year, primarily due to our ongoing cost control initiatives, including lower fixed labor and benefit costs driven by reduced fixed overhead, a decrease in equity-based compensation expense, a decrease in variable labor and benefits from a combination of lower sales volume and increased productivity, a decrease in liability insurance, legal and professional fees, and a decrease in software occupancy, depreciation and amortization expenses. For the full year, general and administrative expenses were $68 million, down $13.3 million or 16% from $81.3 million in 2024.

Our net loss for Q4 improved to $0.4 million from a $31.9 million loss in the same period last year, or a net loss of $3.5 million, excluding a non-cash goodwill impairment charge of $28.4 million in the same period last year. For the full year, our net loss was $13.7 million compared to $55.3 million in 2024, or a net loss of $26.9 million excluding the non-cash goodwill impairment charge. It should be noted that during the fourth quarter, we refined our methodology for estimating breakage related to store credits to better reflect changes in customer redemption patterns. This refinement increased breakage reported for the fourth quarter and full year beyond historical levels. As we continue to evaluate redemption patterns, adjustments to the breakage estimate may be recorded from time to time.

Q4's adjusted EBITDA was positive $2.6 million compared to a $3.3 million loss in Q4 2024, a $5.9 million improvement year-over-year, and the adjusted EBITDA margin was +4.2% versus -5% in the prior year period. For the full year, adjusted EBITDA was -$1.2 million compared to -$9.7 million, with a full-year adjusted EBITDA margin of -0.4% versus -3.1% in 2024. Interest expense in Q4 totaled $487,000 versus $313,000 in Q4 2024. For the full year, interest expense totaled $2.5 million compared to $1.3 million in 2024.

The increase is primarily attributable to higher average borrowings, along with a $0.9 million write-off of loan amendment fees related to the prior credit agreement with Bank of America. Diluted loss per share for the quarter was $0.14, compared to diluted loss per share of $11.44 in Q4 2024. For the full year, our diluted loss per share was $4.90, which was $15.10 better than 2024 after adjusting for the one-for-15 reverse stock split, which was effective as of July 7, 2025. For the fourth quarter, net cash used in operating activities was $3.8 million, compared to $2.5 million of cash used in the same period last year.

For the full year, net cash provided by operating activities was $1.4 million, compared to $2.6 million in 2024. Our inventory balance at quarter end was $32.4 million, a decrease of $1.6 million, or 4.7% year-over-year. With the decline in 2025 sales, this inventory reduction reflects our disciplined approach to inventory management as we work to reposition our casual wear and continue our focus on curating a higher margin assortment for our high demand categories. Free cash flow used in the fourth quarter was $4.3 million, compared to free cash flow used of $3 million in the same period last year. Free cash flow used for the year was $0.8 million, compared to free cash flow used of $0.3 million in 2024.

We ended the year with total debt of $14.4 million, an increase of $1.3 million, and net debt of $11.7 million, an increase of $3.1 million compared to 2024. The outstanding debt, along with a $0.3 million letter of credit, is secured under our new credit agreement with White Oak Commercial Finance. As a reminder, we entered into this agreement in August 2025, which consists of an asset-based revolving credit facility with a $20 million commitment, a $5 million uncommitted accordion, and a $1 million sublimit for letters of credit. As we enter 2026, our focus is on driving profitability while continuing to strengthen the business. We are prioritizing higher quality demand and disciplined order economics while more aggressively resetting the assortment of our casual apparel and footwear categories.

While the first quarter of the fiscal year is typically our seasonally low selling period, we made it a priority to use this quarter to specifically work through a slower moving inventory. In addition, we capitalized on the end of year clearance sale, which occurred in the first week of fiscal year 2026 versus the last week of the year in fiscal year 2024. The seasonal impact of these actions to sales and margins, along with the impact of the annual audit fees and ramping up performance marketing spend in March to kick off the spring season, we expect adjusted EBITDA to be negative for the first quarter, but significantly improved year-over-year.

We believe these early actions will better align our assortment with customer demand, position the business for improved profitability during our peak selling periods, which typically occur in Q2 and Q3, and deliver stronger cash flows for the full year, as well as an improvement in adjusted EBITDA year-over-year. For the full year of fiscal 2026, we expect adjusted EBITDA to inflect to positive compared to -$1.2 million in 2025, and the net revenue growth trend to improve year-over-year compared to -11% in 2025. We expect capital expenditures to be between $2 million and $2.5 million, inclusive of capitalized software, which is comparable to 2025. Now I'll turn it back over to Crystal for closing remarks.

Thank you, Heidi. Our fourth quarter capped a year of steady improvement and rising momentum for Lulus. The progress we've made reflects the strengths of our strategy, the power of our brand, and the discipline of our team. We have entered 2026 with a stronger foundation, and we're energized by the opportunities ahead. We remain committed to delivering a more focused, connected, and resilient business while driving enduring profitable growth. As always, I wanna thank the Lulus team for the continued effort, trust and passion for our brand and love for our customer. Thank our stockholders for their ongoing support.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. Please disconnect your lines and have a wonderful day.