UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October ~~2, 2022~~1, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

Commission File Number: 001-41059

Lulu’s Fashion Lounge Holdings, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware	20-8442468
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
195 Humboldt Avenue Chico, California	95928
(Address of principal executive offices)	(Zip Code)

(530) 343-3545

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value per share	LVLU	Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐,	Accelerated filer	☒
Non-accelerated filer	☐
~~Non-accelerated filer~~	☒	Smaller reporting company	☐☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November ~~11, 2022,~~3, 2023, there were ~~39,099,462~~40,473,551 shares of the registrant’s common stock, par value $0.001, outstanding.

Table of Contents

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of October ~~2, 2022~~1, 2023 and January ~~2, 2022~~1, 2023	5
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen and thirty-nine weeks ended October ~~2, 2022~~1, 2023 and October ~~3, 2021~~2, 2022	6
	Condensed Consolidated Statements of ~~Redeemable Preferred Stock, Convertible Preferred Stock and~~ Stockholders’ Equity ~~(Deficit)~~ for the thirty-nine weeks ended October ~~2, 2022~~1, 2023 and October ~~3, 2021~~2, 2022	7
	Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended October ~~2, 2022~~1, 2023 and October ~~3, 2021~~2, 2022	8
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2927
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4238
Item 4.	Controls and Procedures	4238

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	4338
Item 1A.	Risk Factors	4338
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4339
Item 3.	Defaults Upon Senior Securities	4339
Item 4.	Mine Safety Disclosures	4339
Item 5.	Other Information	4339
Item 6.	Exhibits	4440
Signatures		4541

Table of Contents

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to statements regarding our future results of operations and financial position, industry and business trends, stock compensation, business strategy, plans, market growth and our objectives for future operations.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the following: our ability to successfully maintain our desired merchandise assortment or manage our inventory effectively and attract a sufficient number of customers or sell sufficient quantities of our merchandise; ~~the unpredictability and adverse effects of the COVID-19 pandemic;~~ our ability to anticipate, identify, measure, and respond quickly to new and rapidly changing fashion trends, customer preferences and demands, and other factors; our efforts to acquire or retain customers; our ability to maintain a high level of engagement with our customers and increase their spending with us; our ability to provide high-quality customer support; our ability to maintain a strong community around the Lulus brand with engaged customers and influencers; our ability to operate in the highly competitive retail apparel industry; our ability to successfully implement our growth strategy; our reliance on third parties to drive traffic to our platform; our use of social media, influencers, affiliate marketing, email, text messages, and direct mail; our exposure to international business uncertainties, including inflation, interest rates and fuel prices; our reliance on consumer discretionary spending; system security risk issues, including any real or perceived failure to protect confidential or personal information against security breaches and disruption of our internal operations or information technology systems; any disruption caused by continual updates, augmentation and additions to our technology systems; our reliance on email and other messaging services; risks associated with sourcing, manufacturing, and warehousing; any disruptions to our three distribution facilities; our reliance on independent third-party transportation providers for substantially all of our merchandise shipments and any disruptions or increased transportation costs; risks associated with infringement upon the trademarks, copyrights or other intellectual property rights of third parties, including the risk that we could acquire merchandise from our suppliers without the full right to sell it; the unpredictability and adverse effects of the COVID-19 pandemic; and the other important factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K and our other filings with the ~~SEC.~~Securities and Exchange Commission(the "SEC”). The forward-looking statements in this Quarterly Report on Form 10-Q are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.

Table of Contents

BASIS OF PRESENTATION

On August 28, 2017, we executed a reorganization of our corporate structure. Our original parent company was called Lulu’s Holdings, LLC. This entity was converted to Lulu’s Holdings, L.P. (the “LP”). We formed two new subsidiaries, Lulu’s Fashion Lounge Holdings, Inc. and Lulu’s Fashion Lounge Parent, LLC, to sit between the LP and our operating company. Our operating company, previously known as Lulu’s Fashion Lounge, Inc., was converted from a California corporation to a Delaware limited liability company, Lulu’s Fashion Lounge, LLC, an indirect wholly-owned subsidiary of Lulu’s Fashion Lounge Holdings, Inc. In connection with our initial public offering, the LP was liquidated. Unless otherwise indicated or the context otherwise requires, references in this Quarterly Report on Form 10-Q to the terms “Lulus,” “we,” “us,” “our,” or the “Company” refer to Lulu’s Fashion Lounge Holdings, Inc. and its consolidated subsidiaries.

Our fiscal year is a “52-53 week” year ending on the Sunday closest in proximity to December 31, such that each quarterly period will be 13 weeks in length, except during a 53-week year when the fourth quarter will be 14 weeks. References herein to “fiscal 2023” and/or “2023” relate to the year ending December 31, 2023 and “fiscal 2022” and/or “2022” relate to the year ended January 1, 2023. The fiscal years ending December 31, 2023 and ended January 1, 2023 ~~and “fiscal 2021” and/or “2021” relate to the year ended January 2, 2022.~~consisted of 52-weeks.

Throughout this Quarterly Report on Form 10-Q, we provide a number of key performance indicators used by management and typically used by our competitors in our industry. These and other key performance indicators are discussed in more detail in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating and Financial Metrics.” In this Quarterly Report on Form 10-Q, we also reference Adjusted EBITDA, Adjusted EBITDA Margin and ~~Net Debt~~Free Cash Flow which are non-GAAP (accounting principles generally accepted in the United States of America) financial measures. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for a discussion of Adjusted EBITDA, Adjusted EBITDA Margin and ~~Net Debt,~~Free Cash Flow, as well as a reconciliation of net income (loss) to Adjusted EBITDA and a reconciliation to non-GAAP ~~Net Debt~~Free Cash Flow from ~~Total Debt.~~net cash provided by operating activities. Net income (loss) is the most directly comparable financial measure to Adjusted EBITDA and ~~Total Debt~~net cash provided by operating activites is the most directly comparable financial measure to ~~Net Debt,~~Free Cash Flow, required by, or presented in accordance with GAAP.

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

LULU’S FASHION LOUNGE HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)


	October 2,		January 2,		October 1,		January 1,
	2022		2022		2023		2023
Assets
Current assets:
Cash and cash equivalents	$	12,465	$	11,402	$	12,866	$	10,219
Accounts receivable		5,545		5,649		3,438		3,908
Inventory, net		49,416		22,176		41,490		43,186
Assets for recovery		6,685		3,754		5,743		3,890
Income tax refund receivable		—		748		2,869		4,078
Prepaids and other current assets		4,596		5,364		3,049		3,738
Total current assets		78,707		49,093		69,455		69,019
Restricted cash		507		506
Property and equipment, net		3,995		3,231		4,438		4,391
Goodwill		35,430		35,430		35,430		35,430
Tradename		18,509		18,509		18,509		18,509
Intangible assets, net		2,892		2,244		3,256		3,090
Lease right-of-use assets		31,627		—		30,857		32,514
Other noncurrent assets		8,492		4,763		5,431		4,251
Total assets	$	180,159	$	113,776	$	167,376	$	167,204

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	6,349	$	4,227	$	8,919	$	5,320
Income taxes payable		3,183		—
Accrued expenses and other current liabilities		28,477		21,948		21,203		17,976
Returns reserve		18,827		9,731		15,694		9,066
Stored-value card liability		8,812		7,240		12,669		10,828
Lease liabilities, current		3,932		—		5,419		4,456
Total current liabilities		69,580		43,146		63,904		47,646
Revolving line of credit		15,000		25,000		11,000		25,000
Lease liabilities, noncurrent		28,554		—		26,780		29,042
Other noncurrent liabilities		120		1,108		956		623
Total liabilities		113,254		69,254		102,640		102,311
Commitments and Contingencies (Note 7)

Stockholders' equity:
Preferred stock: $0.001 par value, 10,000,000 shares authorized, and no shares issued or outstanding as of October 2, 2022 and January 2, 2022		—		—
Common stock: $0.001 par value, 250,000,000 shares authorized, and 39,095,778 and 38,421,124 shares issued and outstanding as of October 2, 2022 and January 2, 2022, respectively		39		38
Preferred stock: $0.001 par value, 10,000,000 shares authorized, and no shares issued or outstanding						—		—
Common stock: $0.001 par value, 250,000,000 shares authorized; and 40,464,483 and 39,259,328 shares issued and outstanding as of October 1, 2023 and January 1, 2023, respectively						40		39
Additional paid-in capital		235,491		222,080		250,671		238,725
Accumulated deficit		(168,625)		(177,596)		(185,975)		(173,871)
Total stockholders' equity		66,905		44,522		64,736		64,893
Total liabilities and stockholders' equity	$	180,159	$	113,776	$	167,376	$	167,204

The accompanying notes are an integral part of the condensed consolidated financial statements.

Table of Contents

LULU’S FASHION LOUNGE HOLDINGS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except share and per share amounts)

(unaudited)

Thirteen Weeks Ended

Thirty-nine Weeks Ended

October 2,

October 3,

October 2,

October 3,

2022

2021

2022

2021
Net revenue

$
105,275

$
106,320

$
348,689

$
278,861
Cost of revenue

60,942

55,553

191,211

145,561
Gross profit

44,333

50,767

157,478

133,300
Selling and marketing expenses

19,356

20,509

67,093

49,008
General and administrative expenses

24,418

21,196

75,644

57,436
Income from operations

559

9,062

14,741

26,856
Other income (expense), net:

Interest expense

(329)

(3,612)

(694)

(11,036)
Other income, net

21

16

102

74
Total other expense, net

(308)

(3,596)

(592)

(10,962)
Income before benefit (provision) for income taxes

251

5,466

14,149

15,894
Income tax benefit (provision)

678

(1,616)

(5,178)

(5,075)
Net income and comprehensive income

929

3,850

8,971

10,819
Allocation of undistributed earnings to participating securities

—

(1,574)

—

(4,322)
Net income attributable to common stockholders

$
929

$
2,276

$
8,971

$
6,497
Net income per share attributable to common stockholders:

Basic

$
0.02

$
0.13

$
0.23

$
0.37
Diluted

$
0.02

$
0.13

$
0.23

$
0.37
Weighted average shares used to compute net income per share attributable to common stockholders:

Basic

38,711,915

17,462,283

38,448,656

17,462,283
Diluted

38,898,416

17,462,283

38,699,110

17,462,283


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 1,		October 2,		October 1,		October 2,
	2023		2022		2023		2022
Net revenue	$	83,118	$	105,275	$	280,216	$	348,689
Cost of revenue		49,593		60,942		161,334		191,211
Gross profit		33,525		44,333		118,882		157,478
Selling and marketing expenses		16,825		19,356		60,984		67,093
General and administrative expenses		21,575		24,418		70,319		75,644
Income (loss) from operations		(4,875)		559		(12,421)		14,741
Interest expense		(442)		(329)		(1,391)		(694)
Other income, net		270		21		716		102
Income (loss) before provision (benefit) for income taxes		(5,047)		251		(13,096)		14,149
Income tax provision (benefit)		(1,158)		(678)		(992)		5,178
Net income (loss) and comprehensive income (loss)	$	(3,889)	$	929	$	(12,104)	$	8,971

Basic earnings (loss) per share	$	(0.10)	$	0.02	$	(0.31)	$	0.23
Diluted earnings (loss) per share	$	(0.10)	$	0.02	$	(0.31)	$	0.23
Basic weighted-average shares outstanding		40,103,152		38,711,915		39,672,938		38,448,656
Diluted weighted-average shares outstanding		40,103,152		38,898,416		39,672,938		38,699,110

The accompanying notes are an integral part of the condensed consolidated financial statements.

Table of Contents

LULU’S FASHION LOUNGE HOLDINGS, INC.

Condensed Consolidated Statements of ~~Redeemable Preferred Stock, Convertible Preferred Stock and~~ Stockholders’ Equity~~(Deficit)~~

(in thousands, except share amounts)

(unaudited)


	For the Thirty-nine Weeks Ended October 2, 2022															For the Thirty-Nine Weeks Ended October 1, 2023
										Additional				Total					Additional				Total
	Redeemable Preferred Stock			Convertible Preferred Stock			Common Stock			Paid-In		Accumulated		Stockholders'		Common Stock			Paid-In		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Deficit		Equity		Shares	Amount		Capital		Deficit		Equity
Balance as of January 2, 2022	—	$	—	—	$	—	38,421,124	$	38	$	222,080	$	(177,596)	$	44,522
Balance as of January 1, 2023																39,259,328	$	39	$	238,725	$	(173,871)	$	64,893
Issuance of common stock for vesting of restricted stock units (RSUs)	—		—	—		—	228,387		1		(1)		—		—	491,769		1		—		—		1
Issuance of common stock for special compensation award							208,914		—		—		—		—	208,914		—		—		—		—
Shares withheld for withholding tax on RSUs	—		—	—		—	(28,295)		—		(265)		—		(265)
Offering costs related to Initial Public Offering	—		—	—		—	—		—		(290)		—		(290)
Settlement of distributions payable to former Class P unit holders	—		—	—		—	—		—		2,648		—		2,648
Equity-based compensation expense	—		—	—		—	—		—		5,126		—		5,126
Net income and comprehensive income	—		—	—		—	—		—		—		2,043		2,043
Balance as of April 3, 2022	—		—	—		—	38,830,130		39		229,298		(175,553)		53,784
Issuance of common stock for vesting of RSUs	—		—	—		—	196,808		—		—		—		—
Issuance of common stock for employee stock purchase plan (ESPP)																47,502		—		269		—		269
Shares withheld for withholding tax on RSUs	—		—	—		—	(73,195)		—		(805)		—		(805)	(277,606)		—		(662)		—		(662)
Forfeited shares of restricted stock	—		—	—		—	(22,693)		—		—		—		—	(2,720)		—		—		—		—
Equity-based compensation expense	—		—	—		—	—		—		3,447		—		3,447	—		—		4,892		—		4,892
Net income and comprehensive income	—		—	—		—	—		—		—		5,999		5,999
Balance as of July 3, 2022	—		—	—		—	38,931,050		39		231,940		(169,554)		62,425
Net (loss) and comprehensive (loss)																—		—		—		(5,618)		(5,618)
Balance as of April 2, 2023																39,727,187		40		243,224		(179,489)		63,775
Issuance of common stock for vesting of RSUs	—		—	—		—	181,868		—		—		—		—	634,567		—		—		—		—
Shares withheld for withholding tax on RSUs	—		—	—		—	(17,140)		—		(80)		—		(80)	(220,843)		—		(558)		—		(558)
Equity-based compensation expense	—		—	—		—	—		—		3,631		—		3,631	—		—		4,054		—		4,054
Net income and comprehensive income	—		—	—		—	—		—		—		929		929
Balance as of October 2, 2022	—	$	—	—	$	—	39,095,778	$	39	$	235,491	$	(168,625)	$	66,905
Net (loss) and comprehensive (loss)																—		—		—		(2,597)		(2,597)
Balance as of July 2, 2023																40,140,911	$	40	$	246,720	$	(182,086)	$	64,674
Issuance of common stock for vesting of RSUs																505,172		—		—		—		—
Issuance of common stock for employee stock purchase plan (ESPP)																52,775		—		218		—		218
Shares withheld for withholding tax on RSUs																(232,465)		—		(467)		—		(467)
Forfeited shares of restricted stock																(1,910)		—		—		—		—
Equity-based compensation expense																		—		4,200		—		4,200
Net (loss) and comprehensive (loss)																—		—		—		(3,889)		(3,889)
Balance as of October 1, 2023																40,464,483	$	40	$	250,671	$	(185,975)	$	64,736


	For the Thirty-nine Weeks Ended October 3, 2021															For the Thirty-Nine Weeks Ended October 2, 2022
										Additional				Total					Additional				Total
	Redeemable Preferred Stock			Convertible Preferred Stock			Common Stock			Paid-In		Accumulated		Stockholders'		Common Stock			Paid-In		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Deficit		Deficit		Shares	Amount		Capital		Deficit		Equity
Balance as of January 3, 2021	7,500,001	$	16,412	3,129,634	$	117,038	17,462,283	$	18	$	10,622	$	(179,641)	$	(169,001)
Series B-1 redeemable preferred stock issuance, net of issuance costs of $23	1,450,000		2,908	—		—	—		—		—		—		—
Equity-based compensation expense	—		—	—		—	—		—		432		—		432
Net loss and comprehensive loss	—		—	—		—	—		—		—		(1,375)		(1,375)
Balance as of April 4, 2021	8,950,001		19,320	3,129,634		117,038	17,462,283		18		11,054		(181,016)		(169,944)
Balance as of January 2, 2022																38,421,124	$	38	$	222,080	$	(177,596)	$	44,522
Issuance of common stock for vesting of restricted stock units (RSUs)																228,387		1		(1)		—		—
Issuance of common stock for special compensation award																208,914		—		—		—		—
Shares withheld for withholding tax on RSUs																(28,295)		—		(265)		—		(265)
Offering costs related to Initial Public Offering (IPO)																—		—		(290)		—		(290)
Settlement of distributions payable to former Class P unit holders																—		—		2,648		—		2,648
Equity-based compensation expense	—		—	—		—	—		—		681		—		681	—		—		5,126		—		5,126
Net income and comprehensive income	—		—	—		—	—		—		—		8,344		8,344	—		—		—		2,043		2,043
Balance as of July 4, 2021	8,950,001		19,320	3,129,634		117,038	17,462,283		18		11,735		(172,672)		(160,919)
Balance as of April 3, 2022																38,830,130		39		229,298		(175,553)		53,784
Issuance of common stock for vesting of RSUs																196,808		—		—		—		—
Shares withheld for withholding tax on RSUs																(73,195)				(805)		—		(805)
Forfeited shares of restricted stock																(22,693)				—		—		—
Equity-based compensation expense	—		—	—		—	—		—		775		—		775	—		—		3,447		—		3,447
Net income and comprehensive income	—		—	—		—	—		—		—		3,850		3,850	—		—		—		5,999		5,999
Balance as of October 3, 2021	8,950,001	$	19,320	3,129,634	$	117,038	17,462,283	$	18	$	12,510	$	(168,822)	$	(156,294)
Balance as of July 3, 2022																38,931,050		39		231,940		(169,554)		62,425
Issuance of common stock for vesting of RSUs																181,868		—		—		—		—
Shares withheld for withholding tax on RSUs																(17,140)				(80)		—		(80)
Equity-based compensation expense																—		—		3,631		—		3,631
Net income and comprehensive income																—		—		—		929		929
Balance as of October 2, 2022																39,095,778	$	39	$	235,491	$	(168,625)	$	66,905

The accompanying notes are an integral part of the condensed consolidated financial statements.

Table of Contents

LULU’S FASHION LOUNGE HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Thirty-nine Weeks Ended				Thirty-Nine Weeks Ended
	October 2,		October 3,		October 1,		October 2,
	2022		2021		2023		2022
Cash Flows from Operating Activities
Net income	$	8,971	$	10,819
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)					$	(12,104)	$	8,971
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		2,980		2,116		3,546		2,980
Noncash lease expense		2,390		—		2,699		2,390
Amortization of debt discount and debt issuance costs		118		2,041		117		118
Interest expense capitalized to principal of long-term debt and revolving line of credit		—		2,074
Equity-based compensation expense		12,245		5,522		13,366		12,245
Deferred income taxes		(3,757)		(2,144)		(2,281)		(3,757)
Loss on disposal of property and equipment		11		—		—		11
Changes in operating assets and liabilities:
Accounts receivable		103		(2,557)		470		103
Inventories		(27,240)		(6,505)		1,696		(27,240)
Assets for recovery		(2,931)		(5,126)		(1,853)		(2,931)
Income taxes payable		3,931		3,852		2,243		3,931
Prepaid and other current assets		5		(315)		527		5
Accounts payable		2,174		(1,989)		3,620		2,174
Accrued expenses and other current liabilities		19,544		34,836		11,636		19,544
Operating lease liabilities		(1,806)		—		(2,464)		(1,806)
Other noncurrent liabilities		(405)		(836)		(118)		(405)
Net cash provided by operating activities		16,333		41,788		21,100		16,333
Cash Flows from Investing Activities
Capitalized software development costs		(1,869)		(919)		(1,550)		(1,869)
Purchases of property and equipment		(1,902)		(668)		(1,393)		(1,902)
Other		(97)		—		(66)		(97)
Net cash used in investing activities		(3,868)		(1,587)		(3,009)		(3,868)
Cash Flows from Financing Activities
Proceeds from borrowings on revolving line of credit		20,000		—		10,000		20,000
Repayments on revolving line of credit		(30,000)		(8,580)		(24,000)		(30,000)
Repayment of long-term debt		—		(7,595)
Payment of debt issuance costs		—		(61)
Proceeds from the issuance of redeemable preferred stock, net of issuance costs		—		1,427
Proceeds from issuance of common stock under employee stock purchase plan (ESPP)						487		—
Principal payments on finance lease obligations		(541)		—		(726)		(541)
Payment of offering costs related to Initial Public Offering		(832)		—
Payment of offering costs related to the IPO						—		(832)
Withholding tax payments related to vesting of RSUs						(1,199)		—
Other		(28)		(19)		(6)		(28)
Net cash used in financing activities		(11,401)		(14,828)		(15,444)		(11,401)
Net increase in cash, cash equivalents and restricted cash		1,064		25,373
Net decrease in cash, cash equivalents and restricted cash						2,647		1,064
Cash, cash equivalents and restricted cash at beginning of period		11,908		16,059		10,219		11,908
Cash, cash equivalents and restricted cash at end of period	$	12,972	$	41,432	$	12,866	$	12,972

Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	12,465	$	40,927	$	12,866	$	12,465
Restricted cash		507		505		—		507
Total cash, cash equivalents and restricted cash at end of period	$	12,972	$	41,432	$	12,866	$	12,972

			(Continued)				(Continued)

Table of Contents

LULU’S FASHION LOUNGE HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Thirty-nine Weeks Ended				Thirty-Nine Weeks Ended
	October 2,		October 3,		October 1,		October 2,
	2022		2021		2023		2022
Supplemental Disclosure
Cash paid for income taxes, net	$	4,834	$	3,631
Cash paid for interest	$	542	$	6,996
Cash paid during the period for:
Income taxes, net					$	82	$	4,834
Interest					$	1,325	$	542
Operating leases					$	3,885	$	—
Finance leases					$	807	$	—

Supplemental Disclosure of Non-Cash Investing and Financing Activities
Addition of right-of-use assets, including prepaid rent, net of deferred rent recorded upon adoption of ASC 842	$	28,018	$	—	$	—	$	28,018
Addition of lease liabilities recorded upon adoption of ASC 842	$	28,599	$	—	$	—	$	28,599
Right-of-use assets acquired under operating lease obligations	$	1,839	$	—	$	1,053	$	1,839
Assets acquired under finance lease obligations	$	4,750	$	—	$	983	$	4,750
Purchases of property and equipment included in accounts payable and accrued expenses	$	53	$	20	$	98	$	53
Shares withheld for withholding tax on restricted stock units	$	1,150	$	—
Debt issuance costs included in accrued expenses	$	—	$	917
Paid-in-kind interest added to principal balance of long-term debt and revolving line of credit	$	—	$	2,074
Deferred offering costs in accounts payable	$	—	$	1,654
				(Concluded)
								(Concluded)

The accompanying notes are an integral part of the condensed consolidated financial statements.

Table of Contents

LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1.Description of Business, Organization and Liquidity

Organization and Business

Pursuant to a reorganization, Lulu’s Fashion Lounge Holdings, Inc., a Delaware Corporation (“Lulus”, or the “Company”), was formed on August 25, 2017 as a holding company and its primary asset is an indirect membership interest in Lulu’s Fashion Lounge, LLC (“Lulus LLC”). Prior to the sale of the Company’s Series A convertible preferred stock in April 2018, the Company was wholly-owned by Lulu’s Holdings, L.P. (the “LP”). Prior to the Company’s initial public offering in November 2021, the Company was majority-owned by the LP.

Lulus LLC was founded in 1996, starting as a vintage boutique in Chico, CA that began selling online in 2005 and transitioned to a purely online business in 2008. The LP was formed in 2014 as a holding company and purchased 100% of Lulus LLC’s outstanding common stock in 2014. The Company, through Lulus LLC, is an online retailer of women’s clothing, shoes and accessories headquartered in Chico, CA.

~~Initial Public Offering~~

On November 10, 2021, the Company’s registration statement on Form S-1 relating to its initial public offering (“IPO”) was declared effective by the Securities and Exchange Commission (“SEC”) and the shares of its common stock began trading on the Nasdaq Global Market on November 11, 2021. The IPO closed on November 15, 2021, pursuant to which the Company issued and sold 5,750,000 shares of its common stock at a public offering price of $16.00 per share. On November 15, 2021, the Company received net proceeds of approximately $82.0 million from the IPO, after deducting underwriting discounts and commissions of approximately $6.1 million and other issuance costs of approximately $3.9 million. Immediately prior to the completion of the IPO, all shares of the Series A Preferred Stock then outstanding were converted into 15,000,000 shares of common stock. Additionally, 215,702 shares of common stock were issued to the LP immediately prior to the completion of the IPO. All shares of the Series B Preferred Stock and the Series B-1 Preferred Stock were redeemed and extinguished for a total payment of approximately $17.9 million on November 15, 2021.

~~Impact of the COVID-19 Pandemic~~

While there continues to be uncertainty related to the COVID-19 pandemic, we believe the significant impact of the pandemic on the demand for our product, related to social distancing mandates, lockdowns, cancelled social events and travel, has largely subsided. However, we are still susceptible to broader COVID-19 risks globally, especially in relation to our supply chain. We continue to take actions to anticipate changes in the business environment and supply chain pressures, including placing orders earlier than pre-pandemic times, leveraging our “test, learn and reorder” approach to test small order quantities and then graduate successful styles to our re-order algorithms and diversifying our supply chain network to mitigate rising costs and service delays. We have modified our business practices in response to the COVID-19 pandemic and plan to continue to take proactive measures.

Impact of Macroeconomic Trends on Business

Changing macroeconomic factors, including inflation, interest rates, ~~fuel prices,~~ and overall consumer confidence with respect to current and future economic conditions, have directly impacted our sales in ~~fiscal 2022~~the third quarter of 2023 as discretionary consumer spending levels and shopping behavior fluctuate with these factors. During ~~fiscal 2022,~~the first nine months of 2023, we have responded to these factors by taking appropriate pricing, promotional and other actions to stimulate customer demand. These factors are expected to continue to have an impact on our business, results of operations, our growth and financial condition.

Liquidity

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of October 1, 2023, the Company had total cash and cash equivalents of $12.9 million and amounts due under the revolving line of credit of $11.0 million.

In November 2021 the Company entered into a Credit Agreement to provide the Revolving Facility that provides for borrowings up to $50.0 million. The credit agreement contains various financial covenants and matures on November 15, 2024 as described in Note 5, Debt.

The Company is evaluating sources of debt financing. However, the Company believes the cash on hand and cash provided by operations in conjunction with certain cash conservation measures to be taken as necessary, including adjustments to marketing and other variable and capital spend, will enable the Company to meet its obligations as they become due within one year. The condensed consolidated financial statements do not reflect any adjustments relating to the outcome of this uncertainty.

2.Significant Accounting Policies

Basis of Presentation and Fiscal Year

The Company’s fiscal year consists of a 52-week or 53-week period ending on the Sunday nearest December 31. The fiscal years ending December 31, 2023 and ended January 1, 2023 consisted of 52-weeks.

Table of Contents

LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

2.~~Significant Accounting Policies~~

~~Basis of Presentation and Fiscal Year~~

~~The Company’s fiscal year consists of a 52-week or 53-week period ending on the Sunday nearest December 31.~~

The condensed consolidated financial statements and accompanying notes include the accounts of the Company and its wholly owned subsidiaries, after elimination of all intercompany balances and transactions. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the Unites States of America (“GAAP”) and the requirements of the SEC for interim reporting. As permitted under these rules, certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. The interim condensed consolidated financial statements are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position as of October ~~2, 2022~~1, 2023 and its results of operations for the thirteen and thirty-nine weeks ended October ~~2, 2022~~1, 2023 and October ~~3, 2021~~2, 2022 and its cash flows for the thirty-nine weeks ended October ~~2, 2022~~1, 2023 and October ~~3, 2021.~~2, 2022. The results of operations for the thirty-nine weeks ended October ~~2, 2022~~1, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending ~~January 1,~~December 31, 2023 or for any other future annual or interim period.

The condensed consolidated balance sheet as of January ~~2, 2022~~1, 2023 was derived from the Company’s audited consolidated financial statements, which are included in the Company’s Annual Report on Form 10-K as filed with the SEC on March ~~31, 2022.~~14, 2023.

Significant Accounting Policies

The significant accounting policies used in preparation of these condensed consolidated financial statements are consistent with those discussed in Note 2 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended January ~~2, 2022,~~1, 2023, except as noted below and within the "Adopted and Recently Issued Accounting Pronouncements" section.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The significant estimates and assumptions made by management relate to sales return reserves and related assets for recovery, lease right-of-use assets and related lease liabilities, and income tax valuation allowance. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods. As future events and their effects cannot be determined with precision, actual results could materially differ from those estimates and assumptions.

Concentration of Credit Risks

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents and restricted cash. At times, such amounts may exceed federally insured limits. The Company reduces credit risk by depositing its cash with a major credit-worthy financial ~~institutions~~institution within the United States. To date, the Company has not experienced any losses on its cash deposits. As of October 1, 2023 and January 1, 2023, a single wholesale customer represented 6% and 15%, respectively, of the Company’s accounts receivable balance. No customer accounted for greater than 10% of the Company’s net revenue during the thirteen and thirty-nine weeks ended October 1, 2023 and October 2, 2022.

Table of Contents

LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

has not experienced any losses on its cash deposits. As of October 2, 2022 and January 2, 2022, a single wholesale customer represented 23% and 24%, respectively, of the Company’s accounts receivable balance. No customer accounted for greater than 10% of the Company’s net revenue during the thirteen and thirty-nine weeks ended October 2, 2022 and October 3, 2021.

Leases

~~Prior to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 842 on January 3, 2022~~

Leases were reviewed for classification as operating or capital leases. For operating leases, the Company recognized rent on a straight-line basis over the term of the lease. The Company recorded the difference between cash payments and rent expense recognized as a deferred rent liability included in other accrued and current liabilities and other noncurrent liabilities on the condensed consolidated balance sheets. Incentives granted under the Company’s facility leases, including allowances to fund leasehold improvements, were deferred and are recognized as adjustments to rental expense on a straight-line basis over the term of the lease. The Company changed its method of accounting for leases as of January 3, 2022 due to the adoption of FASB ASC 842, Leases (“ASC 842”).

~~Subsequent to the adoption of ASC 842 on January 3, 2022~~

Contracts that have been determined to convey the right to use an identified asset are evaluated for classification as an operating or finance lease. For the Company’s operating and finance leases, the Company records a lease liability based on the present value of the lease payments at lease inception. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its incremental borrowing rate (“IBR”). The determination of the IBR requires judgment and is primarily based on publicly-available information for companies within similar industries and with similar credit profiles. We adjust the rate for the impact of collateralization, the lease term and other specific terms included in each lease arrangement. The IBR is determined at the lease commencement and is subsequently reassessed upon a modification to the lease arrangement. The right-of-use asset is recorded based on the corresponding lease liability at lease inception, adjusted for payments made to the lessor at or before the commencement date, initial direct costs incurred and any tenant incentives allowed for under the lease. The Company does not include optional renewal terms or early termination provisions unless the Company is reasonably certain such options would be exercised at the inception of the lease. Lease right-of-use assets, current portion of lease liabilities, and lease liabilities, net of current portion are included on the condensed consolidated balance sheets.

Fixed lease expense for operating leases is recognized on a straight-line basis, unless the right-of-use assets have been impaired, over the reasonably assured lease term based on the total lease payments and is included in operating expenses in the condensed consolidated statements of operations and comprehensive ~~income.~~income (loss). Fixed and variable lease expense on operating leases is recognized within operating expenses in the condensed consolidated statements of operations and comprehensive ~~income.~~income (loss). Finance lease expenses are recognized on a straight-line basis. Fixed and variable expenses are captured within interest expense and depreciation expense, which has components within general and administrative expenses and cost of revenue. The Company’s non-lease components are primarily related to maintenance, insurance and taxes, which varies based on future outcomes and is thus recognized in lease expense when incurred.

Revenue Recognition

The Company generates revenue primarily from the sale of merchandise products directly to end customers. The sale of products is a distinct performance obligation, and revenue is recognized at a point in time when control of the promised product is transferred to customers, which the Company determined occurs upon shipment based on its evaluation of the related shipping terms. Revenue is recognized in an amount that reflects the transaction price consideration that the

~~Table of Contents~~

~~LULU’S FASHION LOUNGE HOLDINGS, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Company expects to receive in exchange for those products. The Company’s payment terms are typically at the point of sale for merchandise product sales.

The Company elected to exclude from revenue taxes assessed by governmental authorities, including value-added and other sales-related taxes, that are imposed on and concurrent with revenue-producing activities. The Company has elected to apply the practical expedient, relative to e-commerce sales, which allows an entity to account for shipping and handling as fulfillment activities, and not a separate performance obligation. Accordingly, the Company recognizes revenue for only one performance obligation, the sale of the product, at shipping point (when the customer gains control). Shipping and handling costs associated with outbound freight are accounted for as fulfillment costs and are included in cost of goods sold. The Company has elected to apply the practical expedient to expense costs as incurred for incremental costs to obtain a contract when the amortization period would have been one year or less.

Revenue from merchandise product sales is reported net of sales returns, which includes an estimate of future returns based on historical return rates, with a corresponding reduction to cost of sales. There is judgment in utilizing historical trends for estimating future returns. The Company’s refund liability for sales returns is included in the returns reserve on its condensed consolidated balance sheets and represents the expected value of the refund that will be due to the Company’s customers. The Company also has corresponding assets for recovery that represent the expected net realizable value of the merchandise inventory to be returned.

Table of Contents

LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company sells stored-value gift cards to customers and offers merchandise credit stored-value cards for certain returns. Such stored-value cards do not have an expiration date. The Company recognizes revenue from stored-value cards when the card is redeemed by the customer. The Company has determined that sufficient evidence exists to support an estimate for stored-value card breakage. Subject to requirements to remit balances to governmental agencies, breakage is recognized as revenue in proportion to the pattern of rights exercised by the customer, which is substantially within thirty-six months from the date of issuance. The amount of breakage recognized in revenue during the thirteen and thirty-nine weeks ended October ~~2, 2022~~1, 2023 and October ~~3, 2021~~2, 2022 was not material.

The Company has two types of contractual liabilities: (i) cash collections from its customers prior to delivery of products purchased (“deferred revenue”), which are initially recorded within accrued expenses and recognized as revenue when the products are shipped, (ii) unredeemed gift cards and online store credits, which are initially recorded as a stored-value card liability and are recognized as revenue in the period they are redeemed.

The following table summarizes the significant changes in the contract liabilities balances included in accrued expenses and other current liabilities during the thirteen and thirty-nine weeks ended October 1, 2023 and October 2, 2022 (in thousands):


	Deferred		Stored-Value
	Revenue		Cards
Balance as of January 1, 2023	$	69	$	10,828
Revenue recognized that was included in contract liability balance at the beginning of the period		(69)		(1,720)
Increase due to cash received, excluding amounts recognized as revenue during the period		122		2,022
Balance as of April 2, 2023		122		11,130
Revenue recognized that was included in contract liability balance at the beginning of the period		(122)		(1,129)
Increase due to cash received, excluding amounts recognized as revenue during the period		98		2,355
Balance as of July 2, 2023	$	98	$	12,356
Revenue recognized that was included in contract liability balance at the beginning of the period		(98)		(631)
Increase due to cash received, excluding amounts recognized as revenue during the period		71		944
Balance as of October 1, 2023	$	71	$	12,669

Table of Contents

LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)


	Deferred		Stored-Value
	Revenue		Cards
Balance as of January 2, 2022	$	145	$	7,240
Revenue recognized that was included in contract liability balance at the beginning of the period		(145)		(1,786)
Increase due to cash received, excluding amounts recognized as revenue during the period		315		1,838
Balance as of April 3, 2022		315		7,292
Revenue recognized that was included in contract liability balance at the beginning of the period		(315)		(2,330)
Increase due to cash received, excluding amounts recognized as revenue during the period		101		3,140
Balance as of July 3, 2022		101		8,102
Revenue recognized that was included in contract liability balance at the beginning of the period		(101)		(3,568)
Increase due to cash received, excluding amounts recognized as revenue during the period		42		4,278
Balance as of October 2, 2022	$	42	$	8,812

Selling and Marketing Expenses

Advertising costs included in selling and marketing expenses were $12.4 million and $14.8 million for the thirteen weeks ended October 1, 2023 and October 2, 2022, respectively, and $46.9 million and $52.0 million for the thirty-nine weeks ended October 1, 2023 and October 2, 2022, respectively.

Net income (loss) Per Share Attributable to Common Stockholders

Basic net income (loss) per share attributable to common stockholders is computed using net income (loss) attributable to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share attributable to common stockholders represents net income (loss) attributable to common stockholders divided by the weighted average number of common shares outstanding during the period, including the effects of any dilutive securities outstanding.

Table of Contents

LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

~~The following table summarizes the significant changes in the contract liabilities balances during the thirteen and thirty-nine weeks ended October 2, 2022 and October 3, 2021 (in thousands):~~

Deferred

Stored-Value


Revenue

Cards
Balance as of January 2, 2022

$
145

$
7,240
Revenue recognized that was included in contract liability balance at the beginning of the period

(145)

(1,786)
Increase due to cash received, excluding amounts recognized as revenue during the period

315

1,838
Balance as of April 3, 2022

315

7,292
Revenue recognized that was included in contract liability balance at the beginning of the period

(315)

(2,330)
Increase due to cash received, excluding amounts recognized as revenue during the period

101

3,140
Balance as of July 3, 2022

101

8,102
Revenue recognized that was included in contract liability balance at the beginning of the period

(101)

(3,568)
Increase due to cash received, excluding amounts recognized as revenue during the period

42

4,278
Balance as of October 2, 2022

$
42

$
8,812

Deferred

Stored-Value


Revenue

Cards
Balance as of January 3, 2021

$
792

$
4,973
Revenue recognized that was included in contract liability balance at the beginning of the period

(792)

(792)
Increase due to cash received, excluding amounts recognized as revenue during the period

5,949

741
Balance as of April 4, 2021

5,949

4,922
Revenue recognized that was included in contract liability balance at the beginning of the period

(5,949)

(542)
Increase due to cash received, excluding amounts recognized as revenue during the period

1,259

1,307
Balance as of July 4, 2021

1,259

5,687
Revenue recognized that was included in contract liability balance at the beginning of the period

(1,259)

(117)
Increase due to cash received, excluding amounts recognized as revenue during the period

247

924
Balance as of October 3, 2021

$
247

$
6,494

~~Selling and Marketing Expenses~~

Advertising costs included in selling and marketing expenses were $14.8 million and $13.9 million for the thirteen weeks ended October 2, 2022 and October 3, 2021, respectively, and $52.0 million and $34.0 million for the thirty-nine weeks ended October 2, 2022 and October 3, 2021, respectively.

~~Table of Contents~~

~~LULU’S FASHION LOUNGE HOLDINGS, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~Net Income Per Share Attributable to Common Stockholders~~

The Company calculates basic and diluted net income per share attributable to common stockholders in conformity with the two-class method required for participating securities as the application of the if converted method is not more dilutive. The two-class method requires income available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

The Company considered its redeemable preferred stock and convertible preferred stock outstanding during fiscal 2021 to be participating securities. In accordance with the two-class method, net income is adjusted for earnings allocated to these participating securities and the related number of outstanding shares of the participating securities, which include contractual participation rights in undistributed earnings, have been excluded from the computation of basic and diluted net income per share attributable to common stockholders. The redeemable preferred stock and convertible preferred stock contractually entitle the holders of such shares to participate in dividends but do not contractually require the holders of such shares to participate in the Company’s losses. As such, where applicable, net losses were not allocated to these securities.

Basic net income per share attributable to common stockholders is computed using net income attributable to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted net income per share attributable to common stockholders represents net income attributable to common stockholders divided by the weighted average number of common shares outstanding during the period, including the effects of any dilutive securities outstanding.

The following table presents the calculation of basic and diluted weighted average shares used to compute net income (loss) per share attributable to common stockholders:

Thirteen Weeks Ended

Thirty-nine Weeks Ended

October 2, 2022

October 3, 2021

October 2, 2022

October 3, 2021
Weighted average shares used to compute net income per share attributable to common stockholders – Basic
38,711,915

17,462,283

38,448,656

17,462,283
Dilutive securities:

Unvested restricted stock
38,845

-

67,197

-
Unvested restricted stock units
61,330

-

79,745

-
Special compensation awards
86,326

-

103,512

-
Weighted average shares used to compute net income per share attributable to common stockholders – Diluted
38,898,416

17,462,283

38,699,110

17,462,283

~~Table of Contents~~

~~LULU’S FASHION LOUNGE HOLDINGS, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~


	Thirteen Weeks Ended		Thirty-Nine Weeks Ended
	October 1, 2023	October 2, 2022	October 1, 2023	October 2, 2022
Weighted average shares used to compute net income (loss) per share attributable to common stockholders – Basic	40,103,152	38,711,915	39,672,938	38,448,656
Dilutive securities:
Unvested restricted stock	—	38,845	—	67,197
Unvested restricted stock units (RSUs)	—	61,330	—	79,745
Special compensation awards	—	86,326	—	103,512
Weighted average shares used to compute net income (loss) per share attributable to common stockholders – Diluted	40,103,152	38,898,416	39,672,938	38,699,110

The following securities were excluded from the computation of diluted net income (loss) per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive (on an as-converted basis):


	Thirteen Weeks Ended		Thirty-nine Weeks Ended		Thirteen Weeks Ended		Thirty-Nine Weeks Ended
	October 2, 2022	October 3, 2021	October 2, 2022	October 3, 2021	October 1, 2023	October 2, 2022	October 1, 2023	October 2, 2022
Series A convertible preferred stock	—	3,129,634	—	3,129,634
Stock options	322,793	322,793	322,793	322,793	161,397	—	161,397	—
Unvested restricted stock	164,547	—	164,547	—	36,167	322,793	36,167	322,793
Unvested restricted stock units	1,151,584	—	918,593	—
Unvested RSUs					3,772,622	164,547	3,772,622	164,547
Performance stock units					1,811,571	1,151,584	1,811,571	918,593
Employee stock purchase plan shares	46,494	—	46,494	—	117,511	46,494	117,511	46,494
2023 stock-based bonus plan					202,307	—	202,307	—
Total	1,685,418	3,452,427	1,452,427	3,452,427	6,101,575	1,685,418	6,101,575	1,452,427

Recently Adopted Accounting Pronouncements

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

In ~~February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~~~, as amended, which requires lessees to recognize a right-of-use asset and lease liability on their condensed consolidated balance sheets for all leases with a term longer than 12 months.~~ Under the new lease standard, the Company determines if an arrangement is a lease at inception. Lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date if the rate implicit in the lease is not readily determinable. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record right-of-use assets and lease liabilities for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases today and are not recorded on the Company’s balance sheet. The Company adopted the new standard as of January 3, 2022 on a modified retrospective basis under the alternative transition method. The Company elected to take the practical expedient to not separate lease and non-lease components as part of the adoption. Lease agreements entered into after the adoption of Topic 842 that include lease and non-lease components are accounted for as a single lease component. Beginning on January 3, 2022, the Company’s operating leases, excluding those with terms less than 12 months, were discounted and recorded as assets and liabilities on the Company’s balance sheet. As of the effective date of adoption, the Company recognized lease right-of-use assets of $28.0 million, which included $0.4 million previously recorded as prepaid rent net of $1.0 million previously recorded as deferred rent, $2.2 million of current lease liabilities and $26.4 million in lease liabilities, net of current portion, related to its operating leases.

~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This standard is effective for fiscal periods beginning after December 15, 2021, including interim periods

~~Table of Contents~~

~~LULU’S FASHION LOUNGE HOLDINGS, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted this guidance on January 3, 2022, and it did not have a material impact on its condensed consolidated financial statements.

~~Recently Issued Accounting Pronouncements~~

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,, as amended, which amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities from an incurred loss methodology to an expected loss methodology. For assets held at amortized cost basis, the guidance eliminates the probable initial recognition threshold and instead requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses are recorded through an allowance for credit losses, rather than a write-down, limited to the amount by which fair value is below amortized cost. Additional disclosures about significant estimates and credit quality are also required. The guidance is effective for the Company for fiscal years

Table of Contents

LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

beginning after December 15, 2022. The Company ~~is currently assessing the potential~~adopted this guidance on January 2, 2023, and it did not have a material impact ~~of adopting ASU 2016-13~~ on its ~~condensed~~ consolidated financial statements ~~and does not expect the adoption~~or disclosure requirements.

Recently Issued Accounting Pronouncements

There are no new recent accounting pronouncements that are expected to have a material ~~impact.~~

~~In March 2020, the FASB issued ASU 2020-04,~~ ~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform~~impact on ~~Financial Accounting~~, which, as amended, provides optional guidance for a limited period of time to ease the potential burden in accounting for (or reorganizing the effects of) reference rate reform on financial reporting. This standard can be adopted immediately, however, the guidance will only be available until December 31, 2022. The Company is currently evaluating the potential impact of adopting this guidance on its condensedour consolidated financial statements.

3.Fair Value Measurements

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts payable, accrued expenses and revolving line of ~~credit and long-term debt.~~credit. As of October ~~2, 2022~~1, 2023 and January ~~2, 2022,~~1, 2023, the carrying values of cash and cash equivalents, restricted cash, accounts payable and accrued expenses approximate fair value due to their short-term maturities. The fair value of the Company’s ~~New~~ Revolving Facility that provides for borrowings up to $50.0 million (see Note 5, Debt) approximates its carrying value as the stated interest rates reset daily at the daily secured overnight financing rate (“SOFR”) plus an applicable margin and, as such, approximate market rates currently available to the Company. The Company does not have any financial instruments that were determined to be Level 3.

~~Table of Contents~~

~~LULU’S FASHION LOUNGE HOLDINGS, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

4.Balance Sheet Components

Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):


	Estimated Useful Lives	October 2,		January 2,		Estimated Useful Lives	October 1,		January 1,
	in Years	2022		2022		in Years	2023		2023
Leasehold improvements	3-8	$	3,686	$	3,502	3 – 9	$	4,075	$	3,802
Equipment	3-7		2,127		3,278	3 – 7		3,019		2,659
Furniture and fixtures	3-7		1,765		2,123	3 – 7		2,032		1,880
Construction in progress			82		107			432		36
Total property and equipment			7,660		9,010			9,558		8,377
Less: accumulated depreciation and amortization			(3,665)		(5,779)			(5,120)		(3,986)
Property and equipment, net		$	3,995	$	3,231		$	4,438	$	4,391

Depreciation and amortization of property and equipment for the thirteen weeks ended October 1, 2023 and October 2, 2022 ~~and October 3, 2021~~ was ~~$0.7~~$0.8 million and ~~$0.3~~$0.7 million, respectively and for the thirty-nine weeks ended October 1, 2023 and October 2, 2022, was $2.2 million and ~~October 3, 2021, was~~ $1.7 million, ~~and $0.9 million, respectively.~~respectively.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


	October 2,		January 2,		October 1,		January 1,
	2022		2022		2023		2023
Accrued compensation and benefits	$	4,890	$	8,136	$	4,380	$	6,751
Accrued distributions payable to former Class P unit holders		—		2,648
Accrued marketing		6,059		3,621		4,371		3,206
Accrued inventory		8,857		2,928		6,770		3,411
Other		8,671		4,615		5,682		4,608
Accrued expenses and other current liabilities	$	28,477	$	21,948	$	21,203	$	17,976

Table of Contents

LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

5.Debt

~~New~~ Revolving Facility

During November 2021, the Company entered into a Credit Agreement with Bank of America (the “Credit Agreement”) to provide the ~~New~~ Revolving Facility that provides for borrowings up to $50.0 million (the ~~"New Revolving~~"Revolving Facility"). During the term of the Credit Agreement, the Company can increase the aggregate amount of the ~~New~~ Revolving Facility up to an additional $25.0 million (for maximum aggregate lender commitments of up to $75.0 million), subject to the satisfaction of certain conditions under the Credit Agreement, including obtaining the consent of the administrative agent and an increased commitment from existing or new lenders. In addition, the Credit Agreement may be used to issue letters of credit up to $7.5 million (“Letter of Credit”). During the thirty-nine weeks ended October ~~2, 2022,~~1, 2023, the Company borrowed ~~$20~~$10.0 million under the ~~New~~ Revolving Facility and repaid ~~$30.0~~$24.0 million of the outstanding balance. The ~~New~~ Revolving Facility matures on November 15, 2024, while the Letter of Credit matures on November 8, 2024. As of October ~~2, 2022,~~1, 2023, we had $0.3 million outstanding under the Letter of Credit. As of October ~~2, 2022,~~1, 2023, we had ~~$34.8~~$38.7 million available for borrowing under the ~~New~~ Revolving Facility and ~~$7.3~~$7.2 million available to issue letters of credit.

~~Table of Contents~~

~~LULU’S FASHION LOUNGE HOLDINGS, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

All borrowings under the Credit Agreement accrue interest at a rate equal to, at the Company’s option, either (x) the term daily SOFR, plus the applicable SOFR adjustment plus a margin of 1.75% per annum or (y) the base rate plus a margin of 0.75% (with the base rate being the highest of the federal funds rate plus 0.50%, the prime rate and term SOFR for a period of one month plus 1.00%). Additionally, a commitment fee of 37.5 basis points will be assessed on unused commitments under the ~~New~~ Revolving Facility, taking into account the sum of outstanding borrowings and Letter of Credit obligations. As of October ~~2, 2022,~~1, 2023, the interest rate for the ~~New~~ Revolving Facility was ~~4.8%~~7.2%. During the thirteen and thirty-nine weeks ended October ~~2, 2022,~~1, 2023, the ~~effective~~weighted average interest rate for the ~~New~~ Revolving Facility was ~~4.7%~~8.0% and ~~3.7%~~7.5%, respectively.

Amounts borrowed under the Credit Agreement are collateralized by all assets of the Company and contains various financial and non-financial covenants for reporting, protecting and obtaining adequate insurance coverage for assets collateralized and for coverage of business operations, and complying with requirements, including the payment of all necessary taxes and fees for all federal, state and local government entities. Immediately upon the occurrence and during the continuance of an event of default, including the noncompliance with the above covenants, the lender may increase the interest rate per annum by 2.0% above the rate that would be otherwise applicable. As of October ~~2, 2022,~~1, 2023, management has determined that the Company was in compliance with all financial covenants.

~~Term Loan~~

In August 2017, the Company entered into a term loan with a principal amount of $135.0 million (the “Term Loan”) and a revolving credit facility of $10.0 million (the “Revolving Facility”) with certain financial institutions for which Credit Suisse acted as an administrative agent (the “Credit Facility”).

During April 2021, the Company entered into the sixth amendment to the Credit Facility (“Sixth Amendment”), which: 1) Amended the minimum liquidity covenant from $2.5 million to $10.0 million, 2) Extended the due date for the 2020 audited consolidated financial statements to September 30, 2021, and 3) Upon receipt of proceeds from an IPO, Special Purpose Acquisition Company transaction, or other liquidity transaction that involves the equity of Lulus or its affiliates, the Company was required to pay off the outstanding obligations under the Credit Facility before any proceeds were utilized by the Company. There was no gain or loss arising from the Sixth Amendment as it was considered to be a debt modification.

During November 2021, the Company utilized the proceeds from the IPO and the New Revolving Facility to repay the $105.8 million of outstanding principal and $1.4 million of accrued interest related to the Term Loan. The Credit Facility was terminated on November 15, 2021 and no prepayment penalties were incurred.

~~The effective interest rate on the Term Loan was 13.0% and 12.9% for the thirteen and thirty-nine weeks ended October 3, 2021.~~

~~Revolving Facility~~

Outstanding amounts under the Revolving Facility bore interest at variable rates with a minimum of 7.00%. The Revolving Facility was terminated on November 15, 2021. The effective interest rate for the Revolving Facility was 11.3% for the thirty-nine weeks ended October 3, 2021. No amounts were outstanding under the Revolving Facility as of October 3, 2021.

Debt Discounts and Issuance Costs

Debt discounts and issuance costs are deferred and amortized over the life of the related loan using the effective interest method. The associated expense is included in interest expense in the condensed consolidated statements of operations and comprehensive ~~income.~~income (loss). Debt discounts and issuance costs are presented as a reduction of long-term debt

~~Table of Contents~~

~~LULU’S FASHION LOUNGE HOLDINGS, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

with the exception of debt issuance costs related to the ~~New~~ Revolving Facility, which are included in other non-current assets in the condensed consolidated balance sheets. As of October ~~2, 2022~~1, 2023 and January ~~2, 2022,~~1, 2023, unamortized debt issuance costs recorded within other non-current assets were $0.2 million and $0.3 million, ~~and $0.4 million,~~ respectively.

~~Future minimum payments of principal on the Company’s outstanding debt were as follows (in thousands):~~

Fiscal Year Ending

Amounts
2022 (remaining thirteen weeks)

$
—
2023

—
2024

15,000
Total principal amount

$
15,000

6.Leases

~~Subsequent to the adoption of ASC 842~~

On January 3, 2022, the Company adopted ASC 842 using the alternative transition method and applied the standard only to leases that existed at that date. Under the alternative transition method, the Company did need to restate the comparative periods in transition and will continue to present financial information and disclosures for periods before January 3, 2022, in accordance with FASB ASC 840, Leases. The Company elected the practical expedient package, which among other practical expedients, includes the option to retain the historical classification of leases entered into prior to

Table of Contents

LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

January 3, 2022, and allows entities to recognize lease payments on a straight-line basis over the lease term for leases with a term of 12 months or less. The Company also elected the practical expedient to combine lease and non-lease components.

The Company is a lessee under various lease agreements. The determination of whether an arrangement contains a lease and the lease classification is made at lease commencement (date ~~upon~~on which a lessor makes an underlying asset available for use by the ~~Company takes possession of the asset)~~lessee). At lease commencement, the Company also measures and recognizes a right-of-use asset, representing the Company’s right to use the underlying asset, and a lease liability, representing the Company’s obligation to make lease payments under the terms of the arrangement. The lease term is defined as the noncancelable portion of the lease term plus any periods covered by an option to extend the lease if it is reasonably certain that the option will be exercised. For the purposes of recognizing right-of-use assets and lease liabilities associated with the Company’s leases, the Company has elected the practical expedient of not recognizing a right-of-use asset or lease liability for short-term leases, which are leases with a term of 12 months or less. The Company has ~~one~~multiple finance ~~lease~~leases and ~~multiple~~ operating leases that are combined and included in the lease right-of-use assets, lease liabilities, current, and lease liabilities, noncurrent on the Company’s condensed consolidated balance sheets.

The Company primarily leases its distribution facilities and corporate offices under operating lease agreements expiring on various dates through December 2031, most of which contain options to extend. ~~As of January 3, 2022, the Company had various operating leases with a lease term of less than 12 months for its office spaces.~~ In addition to payment of base rent, the Company is also required to pay property taxes, insurance, and common area maintenance expenses. The Company records lease expense on a straight-line basis over the term of the lease. ~~As of October 2, 2022, the~~The Company had immaterial remaining obligations for the base rent related to the short-term ~~leases.~~leases as of October 1, 2023 and October 2, 2022.

The Company also leases equipment under ~~one master~~ finance lease ~~agreement, with two equipment leases that commenced in March 2022 and August 2022, and both expire in March 2026 with~~agreements expiring on various dates through May 2028.

As of October 1, 2023, the future minimum lease payments ~~due quarterly through December 2025.~~for the Company’s operating and finance leases for each of the fiscal years were as follows (in thousands):


Fiscal Year:		Operating Leases	Finance Leases		Total
2023 (remaining three months)	$	1,307	$	575	$	1,882
2024		5,627		1,504		7,131
2025		6,263		1,504		7,767
2026		4,970		252		5,222
2027		5,138		73		5,211
Thereafter		11,632		8		11,640
Total undiscounted lease payment		34,937		3,916		38,853
Present value adjustment		(6,473)		(181)		(6,654)
Total lease liabilities		28,464		3,735		32,199
Less: lease liabilities, current		(3,779)		(1,640)		(5,419)
Lease liabilities, noncurrent	$	24,685	$	2,095	$	26,780

Under the terms of the remaining lease agreements, the Company is also responsible for certain variable lease payments that are not included in the measurement of the lease liability, including non-lease components such as common area maintenance fees, taxes, and insurance.

2018

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

~~As of October 2, 2022, the future minimum lease payments for the Company’s operating and finance leases for each of the fiscal years were as follows (in thousands):~~

Fiscal Year Ending:

Operating Leases

Finance Leases

Total
2022 (remaining thirteen weeks)

$
1,200

$
271

$
1,471
2023

4,487

1,252

5,739
2024

4,636

1,252

5,888
2025

5,217

1,252

6,469
2026

4,516

—

4,516
Thereafter

16,604

—

16,604
Total undiscounted lease payment

36,660

4,027

40,687
Present value adjustment

(8,010)

(191)

(8,201)
Total lease liabilities

28,650

3,836

32,486
Less: lease liabilities, current

2,779

1,153

3,932
Lease liabilities, noncurrent

$
25,871

$
2,683

$
28,554

The following information represents supplemental disclosure of lease costs, components of the statement of cash flows related to operating and finance leases and components of right-of-use assets (in thousands):

Thirteen Weeks Ended

Thirty-nine Weeks Ended

October 2,

October 2,

2022

2022
Finance lease cost

Amortization of ROU assets
$
303

$
617
Interest on lease liabilities

30

62
Operating lease cost

1,177

3,440
Short-term lease cost

188

583
Variable lease cost

188

555
Total lease cost
$
1,886

$
5,257

Cash paid for amounts included in the measurement of
lease liabilities

Operating cash flows from operating leases
$
491

$
3,399
Operating cash flows from finance leases
$
—

$
—
Financing cash flows from finance leases
$
197

$
541

Right-of-use assets obtained in exchange for new finance
lease liabilities
$
987

$
4,750
Right-of-use assets obtained in exchange for new
operating lease liabilities
$
—

$
1,839

Weighted-average remaining lease term - finance leases

42 months

42 months
Weighted-average remaining lease term - operating leases

93 months

93 months
Weighted-average discount rate - finance leases

3.00%

3.00%
Weighted-average discount rate - operating leases

6.54%

6.54%

~~Table of Contents~~

~~LULU’S FASHION LOUNGE HOLDINGS, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~



		Thirteen Weeks Ended		Thirty-Nine Weeks Ended
		October 1,		October 1,
		2023		2023
Finance lease cost
Amortization of ROU assets	$	364	$	1,012
Interest on lease liabilities		35		96
Operating lease cost		1,403		4,099
Short-term lease cost		—		12
Variable lease cost		212		638
Total lease cost	$	2,014	$	5,857

Lease cost included in cost of revenue	$	1,645	$	4,656
Lease cost included in general and administrative expenses	$	369	$	1,201

Weighted-average remaining lease term - finance leases		33 months		33 months
Weighted-average remaining lease term - operating leases		77 months		77 months
Weighted-average discount rate - finance leases		3.63%		3.63%
Weighted-average discount rate - operating leases		6.49%		6.49%

~~Prior to the adoption of ASC 842~~

Rent expense for non-cancelable operating leases was $0.7 million and $2.2 million for the thirteen and thirty-nine weeks ended October 3, 2021, respectively, and was included within general and administrative expenses in the condensed consolidated statements of operations and comprehensive income.

~~Future minimum lease payments under non-cancelable operating leases as of January 2, 2022 were as follows (in~~

~~thousands):~~

Fiscal Year Ending:

Amounts
2022

$
4,899
2023

4,263
2024

3,879
2025

4,017
2026

2,427
Thereafter

5,037
Total

$
24,522

7.Commitments and Contingencies

Litigation and Other

From time to time, the Company may be a party to litigation and subject to claims, ~~incurred~~including employment claims, wage and hour claims, intellectual property claims, privacy claims, contractual and commercial disputes and other matters that arise in the ordinary course of our business ~~including personal injury and indemnification claims, labor and employment claims, threatened claims, breach of contract claims, and other matters.~~. The Company accrues a liability when management believes information available prior to the issuance of the condensed consolidated financial statements indicates it is probable a loss has been incurred as of the date of the condensed consolidated financial statements and the amount of loss can be reasonably estimated. The Company adjusts its accruals to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Legal costs are expensed as incurred.

During the normal course of business, the Company may be a party to claims that ~~are~~may not be covered wholly or partially by insurance. While the ultimate liability, if any, arising from these claims cannot be predicted with certainty, management does not believe that the resolution of any such claims would have a material adverse effect on the Company’s condensed consolidated financial statements. ~~The Company has recorded an immaterial reserve as of October 2, 2022 for contingencies where a loss is considered probable and can be reasonably estimated.~~ As of October ~~2, 2022,~~1, 2023, the Company was not aware of any ~~other~~ currently pending legal matters or claims, individually or in the aggregate, that are expected to have a material adverse impact on its condensed consolidated financial statements.

Indemnification

The Company also maintains director and officer insurance, which may cover certain liabilities arising from its obligation to indemnify the Company’s directors. To date, the Company has not incurred any material costs and has not accrued any liabilities in the condensed consolidated financial statements as a result of these provisions.

2219

Table of Contents

LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

8.Preferred Stock

Pursuant to the Company’s amended and restated certificate of incorporation, the Company is authorized to issue 10,000,000 shares of preferred stock having a par value of $0.001 per share. The Company’s board of directors has the authority to issue preferred stock and to determine the rights, preferences, privileges, and restrictions, including voting rights, of those shares. ~~In connection with the Company’s IPO, all convertible preferred stock was converted to the Company’s common stock.~~ As of October ~~2, 2022~~1, 2023 and January ~~2, 2022,~~1, 2023, no shares of preferred stock were issued and outstanding.

~~Series B-1 Redeemable Preferred Stock Issuance~~

During March 2021, the Company issued and sold 1,450,000 shares of Series B-1 Preferred Stock at $1.00 per share to current executives of the Company. In connection with the offering, the Company filed an amended and restated certificate of incorporation which authorized the issuance of up to 2,500,000 shares of Series B-1 preferred stock with the same rights, preferences and privileges of the Series B redeemable preferred stock and increased the authorized shares of common stock to 24,000,000.

The Company received gross cash proceeds of $1.5 million and incurred nominal issuance costs associated with the Series B-1 Preferred Stock issuance. For accounting purposes, the Company determined the fair value of the Series B-1 Preferred Stock to be $2.02 per share at issuance. The Series B-1 Preferred Stock shares were recorded at fair value and the excess of the fair value over the consideration paid was recorded as equity-based compensation expense of $1.5 million.

9.Common Stock

The Company has authorized the issuance of 250,000,000 shares of common stock, ~~with a~~ $0.001 par value ("common stock") as of October ~~2, 2022~~1, 2023 and January ~~2, 2022.~~1, 2023, respectively. Holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders of the Company. Subject to the preferences that may be applicable to any outstanding share of preferred stock, the holders of common stock are entitled to receive dividends, if any, as may be declared by the board of directors. No dividends have been declared to date. As of October ~~2, 2022,~~1, 2023, the Company has reserved ~~322,793~~161,397 shares of common stock for issuance upon the exercise of stock options, ~~208,914 shares of common stock to settle the CEO Special Compensation Awards in March 2023,~~ and ~~4,289,116~~1,850,835 shares of common stock available for future issuance under the Lulu's Fashion Lounge Holdings, Inc. Omnibus Equity Plan (the “Omnibus Equity Plan”) and 1,420,331 shares of common stock available for future issuance under the 2021 Employee Stock Purchase Plan (the “ESPP”), respectively. Both equity plans are further described in Note 10, Equity-Based Compensation.

10.Equity-Based Compensation

Omnibus Equity Plan and Employee Stock Purchase Plan

In connection with the closing of the IPO, the Company adopted the Omnibus Equity Plan ~~(the “Omnibus Equity Plan”)~~ and ~~the 2021 Employee Stock Purchase Plan (the “ESPP”).~~ESPP.

Under the Omnibus Equity Plan, incentive awards may be granted to employees, directors, and consultants of the Company. The Company initially reserved 3,719,000 shares of common stock for future issuance under the Omnibus Equity Plan, including any shares subject to awards under the 2021 Equity Incentive Plan (the “2021 Equity Plan”) that are forfeited or lapse unexercised. The number of shares reserved for issuance under the Omnibus Equity Plan will automatically increase on the first day of each fiscal year, starting in 2022 and continuing through 2031, by a number of shares equal to (a) 4% of the total number of shares of the Company’s common stock outstanding on the last day of the immediately preceding fiscal year or (b) such smaller number of shares as determined by the Company’s board of directors.

~~Table of Contents~~

~~LULU’S FASHION LOUNGE HOLDINGS, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Under the ESPP, the Company initially reserved 743,803 shares of common stock for future issuance. The number of shares of common stock reserved for issuance will automatically increase on the first day of each fiscal year beginning in 2022 and ending in 2031, by a number of shares equal to (a) 1% of the total number of shares of the Company’s common stock outstanding on the last day of the immediately preceding fiscal year or (b) such smaller number of shares as determined by the Company’s board of directors.

On April 1, 2022, the Company filed a Registration Statement on Form S-8 ~~(the “Form S-8”)~~ with the SEC for the purpose of registering an additional 5,921,056 shares of the Company’s common stock, inclusive of 1,536,845 and 384,211 shares associated with automatic increases that occurred on January 3, 2022 under the Omnibus Equity Plan and ESPP, respectively. ~~An additional~~This registration also included 3,200,000 and 800,000 shares ~~were registered in the Form S-8~~ for the Omnibus Equity Plan and the ESPP, respectively, ~~which represents~~representing two years’ worth of estimated future automatic increases in availability for these plans.

On March 8, 2023, the Company’s board of directors approved the Fiscal 2023 Bonus Plan (“2023 Bonus Plan”) that will grant RSUs to eligible employees, instead of the typical cash bonus. For the thirteen and thirty-nine weeks ended October 1, 2023, equity-based compensation expense for the 2023 Bonus Plan was $0.1 million and 0.2 million

Table of Contents

LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

respectively. As of October 1, 2023, the unrecognized equity-based compensation expense for 2023 Bonus Plan is $0.4 million and will be recognized over a weighted-average period of 0.54 years.

On June 29, 2023, the Company filed a Registration Statement on Form S-8 with the SEC for the purpose of registering an additional 2,000,000 shares of the Company's common stock under the Omnibus Equity Plan corresponding to the increase in shares approved by stockholders at the 2023 annual meeting of stockholders.

As of October ~~2, 2022,~~1, 2023, the Company had ~~3,161,102~~1,850,835 and ~~1,128,014~~1,420,331 shares available for issuance under the Omnibus Equity Plan and ESPP, respectively. The compensation committee of the Company’s board of directors (the ~~“compensation committee”~~“Compensation Committee”) administers the Omnibus Equity Plan and determines to whom awards will be granted, the exercise price of any options, the ~~rates at which awards vest~~vesting schedule and the other terms and conditions of the awards granted under the Omnibus Equity Plan. The ~~compensation committee~~Compensation Committee may or may not issue the full number of shares that are reserved for issuance.

The Company’s initial ESPP offering period commenced on August 26, 2022. The ESPP consists of consecutive, overlapping 12-month offering periods that begin on each August 26 and February 26 during the term of the ESPP, and end on each August 25 and February 25 occurring 12 months later, as applicable. Each offering period is comprised of two consecutive six-month purchase periods that begin on each August 26 and February 26 within each offering period and end on each February 25 and August 25, respectively, thereafter. The duration and timing of offering periods and purchase periods may be changed by the Company’s ~~board~~Board of ~~directors~~Directors or ~~compensation committee~~Compensation Committee at any time. The ESPP allows participants to purchase shares of the Company’s common stock at a 15 percent discount from the lower of the Company’s stock price on (i) the first day of the offering period or on (ii) the last day of the purchase period and includes a rollover mechanism for the purchase price if the stock price on the purchase date is less than the stock price on the offering date. The ESPP also allows participants to reduce their percentage election once during the offering period, but they cannot increase their election until the next offering period.

The Company recognizes equity-based compensation expense related to shares issued pursuant to the ESPP on a graded vesting approach over each offering period. For the thirteen and thirty-nine weeks ended October ~~2, 2022,~~1, 2023, equity-based compensation expense related to our ESPP was ~~$16 thousand.~~immaterial and $0.2 million, respectively. During the thirteen weeks ended April 2, 2023, and October 1, 2023 the Company issued 47,502 shares and 52,775 shares, respectively, pursuant to the ESPP six-month purchase period ended February 25, 2023 and August 24, 2023, respectively.

The Company used the Black-Scholes model to estimate the fair value of the purchase rights under the ESPP. For the thirteen and thirty-nine weeks ended October ~~2, 2022,~~1, 2023, the Company utilized the following assumptions:


Expected term (in years)		0.50 to 1.00
Expected volatility		~~63.80~~93.84 to ~~78.05~~99.95	%
Risk-free interest rate		~~3.26~~5.44 to ~~3.36~~5.61	%
Dividend yield		-
Weighted average fair value per share of ESPP awards granted	$	~~2.72~~0.60 to ~~2.93~~0.98

2021 Equity Plan

In April 2021, the Company’s ~~board~~Board of ~~directors~~Directors adopted the 2021 Equity Plan. The 2021 Equity Plan provides for the issuance of incentive stock options, restricted stock, restricted stock units and other stock-based and cash-based awards to the Company’s employees, directors, and consultants. The maximum aggregate number of shares reserved for issuance under the 2021 Equity Plan was 925,000 shares. The options outstanding under the 2021 Equity Plan expire ten years from the date of grant. The Company issues new shares of common ~~shares~~stock to satisfy stock option exercises. In connection with the closing of the IPO, no further awards will be granted under the 2021 Equity Plan.

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Former CEO Stock Options and Special Compensation Awards

In April 2021, the Company entered into an Employment Agreement (the ~~“Employment~~“McCreight IPO Employment Agreement”) with the former CEO, David McCreight, and granted stock options under the 2021 Equity Plan to purchase 322,793 shares of common stock with an exercise price of $11.35 per share, which vest based on service and performance conditions. 275,133 of these stock options have only service vesting conditions, and 47,660 of these stock options have both service and performance vesting conditions. In addition, a portion of these stock options were subject to accelerated vesting conditions upon the occurrence of certain future events, which were satisfied upon the closing of the IPO. As previously disclosed on a Form 8-K filed on February 13, 2023 (the “February 13 8-K”), Mr. McCreight voluntarily forfeited 161,396 unvested stock options of the Company. During the thirteen weeks ended July 2, 2023, the forfeiture of 161,396 unvested stock resulted in immediate acceleration of the remaining $1.2 million of compensation expense which was recorded to general and administrative expense. As previously disclosed in the February 13 8-K, the Company and David McCreight also entered into the First Amendment to Lulu’s Fashion Lounge Holdings, Inc. 2021 Equity Incentive Plan Stock Option Agreement that extends the post-termination exercise period of 161,397 vested stock options from 90 days to three (3) years from a termination of service other than for cause, death or disability.

Under the McCreight IPO Employment Agreement and subject to ongoing employment, and in light of the closing of the IPO, the former CEO ~~will receive~~received two bonuses which ~~will be~~were settled in fully-vested shares of the Company’s common stock equal to $3.0 million each ($6.0 million in aggregate) on March 31, 2022 and March 31, 2023. The Company initially concluded that the two bonuses were subject to the guidance within ASC 718 and were liability-classified upon issuance. Upon the completion of the IPO, the two bonuses became equity-classified as they no longer met the criteria for liability classification. The Company ~~records~~recorded the equity-based compensation expense on a straight-line basis over the requisite service periods through March 31, 2022 and March 31, 2023. ~~During the thirteen and thirty-nine weeks ended October 2, 2022, the~~The Company ~~recognized~~recorded equity-based compensation expense related to the two bonuses of zero and $0.4 million during the thirteen and thirty-nine weeks ended October 1, 2023, respectively, and $0.4 million and $1.9 million ~~respectively. During~~for the thirteen and thirty-nine weeks ended October 2, 2022. During the thirteen weeks ended April 2, 2023 and April 3, 2022, the Company issued ~~zero~~208,914 and 208,914 of fully-vested shares, respectively, upon satisfaction of the service performed through March 31, ~~2022.~~ On2023 and March 31, ~~2023,~~ ~~the Company will issue 208,914 fully-vested shares~~ ~~to the CEO upon satisfaction of the requisite service period.~~2022, respectively.

Stock Options

~~Stock Options~~

A summary of stock option activity is as follows (in thousands, except per share amounts and years):


		Weighted-		Weighted-				Weighted-		Weighted-
		Average		Average				Average		Average
		Exercise		Remaining	Aggregate			Exercise		Remaining	Aggregate
	Options	Price per		Contractual	Intrinsic		Options	Price per		Contractual	Intrinsic
	Outstanding	Option		Life (years)	Value		Outstanding	Option		Life (years)	Value
Balance as of January 2, 2022	322,793	$	11.35	9.29		—
Balance as of January 1, 2023							322,793	$	11.35	8.29
Granted	—		—	—			—		—	—
Outstanding as of October 2, 2022	322,793	$	11.35	8.54	$	—
Exercisable as of October 2, 2022	161,397	$	11.35	8.54	$	—
Vested and expected to vest as of October 2, 2022	322,793	$	11.35	8.54	$	—
Forfeited							(161,396)	$	(11.35)	—
Outstanding as of October 1, 2023							161,397	$	11.35	7.54
Exercisable as of October 1, 2023							161,397	$	11.35	7.54	$	—
Vested and expected to vest as of October 1, 2023							161,397	$	11.35	7.54	$	—

~~There were no options granted during the thirteen and thirty-nine weeks ended October 2, 2022. There were 322,793 options granted during the thirteen and thirty-nine weeks ended October 3, 2021.~~

During the thirteen and thirty-nine weeks ended October 2, 2022, equity-based compensation expense of $0.3 million and $0.9 million, respectively, and during the thirteen and thirty-nine weeks ended October 3, 2021, equity-based compensation expense of $0.3 million and $0.6 million, respectively, was recorded to general and administrative expense related to the stock options. As of October 2, 2022, total unrecognized compensation cost related to unvested stock options was $1.4 million, which is expected to be recognized over a weighted average remaining service period of 1.5 years.

~~Class P Units~~

384,522 of the outstanding Class P units included both a service condition and a performance condition, while the remainder of the Class P units only included a service condition. The performance-based vesting condition was satisfied upon completion of the IPO. Equity-based compensation expense of $0.4 million and $1.3 million related to the Class P

~~Table of Contents~~

~~LULU’S FASHION LOUNGE HOLDINGS, INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

units was recorded to general and administrative expense in the condensed consolidated statements of operations and comprehensive income for the thirteen and thirty-nine weeks ended October 3, 2021, respectively.

During October 2021, the LP modified the vesting schedule related to 763,178 outstanding Class P units for two senior executives to accelerate vesting if the two senior executives perform service after the completion of the IPO over the subsequent 12-month period. The Company concluded that the amendment to the Class P units was a modification under ASC 718 and there was no incremental equity-based compensation expense to recognize. With the completion of the Company’s IPO, the remaining unrecognized expense associated with the restricted stock, received in exchange at the IPO for the modified Class P units, is being recognized over the subsequent 12-month period through November 2022.

~~Class P Distributions~~

With the completion of the IPO, the performance condition for the distributions related to the Class P units was met and the Company recognized a cumulative catch-up to equity-based compensation expense. Such amounts payable to the former Class P unit holders (“FCPUs”) were included in accrued expenses and other current liabilities as of January 2, 2022. The distributions payable to the FCPUs were determined to be settled in the thirteen weeks ended April 3, 2022 as a result of agreements reached with the FCPUs, and were recorded as an increase to additional paid-in capital as such amounts were related to the shares of common stock received by the FCPUs as part of the liquidation of the LP in November 2021. The agreements provided for payments to the FCPUs of up to $0.6 million (if future sales of shares of common stock held by the FCPUs during 2022 occur at a price less than the threshold stated in the agreements), which were recorded as equity-based compensation expense in the thirteen weeks ended April 3, 2022 and in accrued expenses and other current liabilities as of April 3, 2022. During the thirteen weeks ended July 3, 2022 the $0.6 million accrual was reversed as the period in which the FCPUs were eligible for this payment expired on June 20, 2022 with one immaterial payment being triggered under this agreement and the remainder being reversed out of equity-based compensation expense.

Restricted Stock and Restricted Stock Units (“RSUs”)

Immediately before the completion of the IPO, the LP was liquidated and the Class P unit holders of the LP (current and former employees or service providers of the Company) received shares of the Company’s common stock in exchange for their units of the LP. The Class P unit holders received 1,964,103 shares of common stock, comprised of 1,536,304 shares of vested common stock and 427,799 shares of unvested restricted stock. Any such shares of restricted stock received in respect of unvested Class P units of the LP are subject to vesting and a risk of forfeiture to the same

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

extent as the corresponding Class P units. The Company recorded equity-based compensation expense of $0.2 million and $0.6 million during the thirteen and thirty-nine weeks ended October 1, 2023, respectively, and $0.7 million and $2.2 million during the thirteen and thirty-nine weeks ended October 2, 2022, respectively, related to the exchanged restricted stock. AAss of October ~~2, 2022,~~1, 2023, the unrecognized equity-based compensation expense for all restricted stock is ~~$1.5~~$0.5 million and will be recognized over a weighted-average period of ~~1.44~~1.08 years.

The following table summarizes the rollforward of unvested restricted stock during the thirty-nine weeks ended October 1, 2023:


	Unvested	Weighted-
	Restricted	Average Fair
	Stock	Value per Share
Balance at January 1, 2023	78,303	$	5.38
Restricted stock granted	—		—
Restricted stock vested	(37,506)		4.39
Restricted stock forfeited	(4,630)		4.27
Balance at October 1, 2023	36,167	$	4.54

During the thirteen weeks ended April 2, 2023, the Company entered into employment agreements with Crystal Landsem, the Chief Executive Officer, (the “CEO Employment Agreement”) and Tiffany Smith, the Chief Financial Officer, (the “CFO Employment Agreement”), under which 1,811,572 and 161,088 RSUs were granted, respectively. Under the CEO Employment Agreement, Ms. Landsem received a grant of 1,811,572 RSUs, which vest in quarterly installments beginning on June 30, 2023 through December 31, 2026 and are subject to continued service requirements. Under the CFO Employment Agreement, Ms. Smith received 161,088 RSUs, granted in two parts, with 118,025 and 43,063 RSUs granted on March 17, 2023 and April 30, 2023, respectively, which in combination will vest in three equal installments on March 8, 2024, March 7, 2025 and March 6, 2026, and are subject to continued service requirements. On March 5, 2023, Mr. McCreight received a grant of 25,873 RSUs pursuant to the McCreight IPO Employment Agreement. These RSUs vest in 12 equal installments from April 30, 2023 through March 31, 2024, and are subject to continued service requirements. In addition, under Mr. McCreight’s employment agreement for his Executive Chairman role, entered into on November 11, 2022 (the “Executive Chairman Employment Agreement”), Mr. McCreight was entitled to receive a grant of RSUs equivalent to $2 million. The Company initially concluded that the award was subject to the guidance within ASC 718 and was liability-classified upon issuance. On March 17, 2023, the number of RSUs associated with the award became determinable, and the award became equity-classified as it no longer met the criteria for liability classification. Mr. McCreight’s 836,820 RSUs were granted in two parts, with 613,116 RSUs granted on March 17, 2023 and 223,704 RSUs granted on April 30, 2023, the combination of which vest in equal, quarterly installments on the date immediately following the last day of each calendar quarter, starting April 1, 2023, and are subject to continued service requirements.

During the thirteen and thirty-nine weeks ended October 1, 2023, the Company granted 141,000 RSUs and 2,908,901 RSUs (inclusive of the aforementioned RSU grants to Ms. Landsem and Ms. Smith), respectively, to certain executives and employees which vest over a three-year service period, and 128,248 RSUs and 1,263,378 RSUs (inclusive of the aforementioned RSU grants to the Executive Chairman) to certain directors which are subject to various vesting schedules as set forth in the Company’s Non-Employee Director Compensation Program and the Executive Chairman Employment Agreement. The Company recognized equity-based compensation expense of $3.2 million and $9.2 million during the thirteen and thirty-nine weeks ended October 1, 2023, and $2.2 million and $6.5 million during thirteen and thirty-nine weeks ended October 2, 2022, respectively, related to the RSUs. As of October 1, 2023, the unrecognized equity-based compensation expense is $11.9 million and will be recognized over a weighted-average period of 2.19 years.

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

~~During~~The following table summarizes the ~~thirteen and~~roll forward of unvested RSUs during the thirty-nine weeks ended October ~~2, 2022,~~1, 2023:


		Weighted-
	Unvested	Average Fair
	RSUs	Value per Share
Balance at January 1, 2023	1,336,674	$	8.94
RSUs granted	4,172,279		2.67
RSUs vested	(1,631,508)		5.68
RSUs forfeited	(104,823)		5.70
Balance at October 1, 2023	3,772,622	$	3.51

Performance Stock Units (“PSUs”)

Under the ~~Company granted zero RSUs and 2,063,444 RSUs, respectively, to certain executives and employees~~CEO Employment Agreement, Ms. Landsem received a grant of 1,811,571 PSUs on March 5, 2023 which vest ~~over a~~ ~~two- or~~ in three~~- year service period, and 49,297 RSUs and 149,929 RSUs, respectively, to certain directors which vest over a six-month to three-year service period pursuant~~ equal annual installments of 603,857 subject to the achievement of trailing ten day volume-weighted average price targets of the Company’s ~~Non-Employee Director Compensation Program.~~ common stock and her continued employment on the vesting dates. The Company recognized equity-based compensation expense of ~~$2.2~~$0.6 million and ~~$6.5~~$1.5 million during the thirteen and thirty-nine weeks ended October ~~2, 2022, respectively,~~1, 2023, related to the ~~RSUs.~~PSUs. As of October ~~2, 2022,~~1, 2023, the unrecognized equity-based compensation expense is ~~$12.7~~$3.2 million and will be recognized over a weighted-average period of ~~1.55~~2.43 years.

The following table summarizes the rollforward of unvested PSUs during the thirty-nine weeks ended October 1, 2023:

Weighted-

Restricted

Average Fair

Stock

Value per Share
Balance at January 2, 2022

381,612

$
5.39
Restricted stock granted

—

—
Restricted stock vested

(172,725)

5.40
Restricted stock forfeited

(22,693)

5.39
Balance at October 2, 2022

186,194

$
5.38

Unvested

Weighted-

Restricted

Average Fair

Stock Units

Value per Share
Balance at January 2, 2022

—

—
Restricted stock units granted

2,213,373

$
9.54
Restricted stock units vested

(607,063)

10.06
Restricted stock units forfeited

(158,180)

10.02
Balance at October 2, 2022

1,448,130

$
9.27


		Weighted-
	Unvested	Average Fair
	PSUs	Value per Share
Balance at January 1, 2023	—	$	—
PSUs granted	1,811,571		2.65
PSUs vested	—		—
PSUs forfeited	—		—
Balance at October 1, 2023	1,811,571	$	2.65

Class P Units

~~11.~~~~Income Taxes~~

~~Beginning in fiscal 2022,~~384,522 of the ~~Company’s quarterly tax provision is calculated using an estimated annual effective tax rate (“ETR”), adjusted for discrete items arising~~outstanding Class P units included both a service condition and a performance condition, while the remainder of the Class P units only included a service condition. The performance-based vesting condition was satisfied upon completion of the IPO. Equity-based compensation expense of $0.4 million and $1.3 million related to the Class P units was recorded to general and administrative expense in the ~~period. In each quarter, this estimated annual ETR is updated,~~condensed consolidated statements of operations and ~~a year-to-date calculation~~comprehensive income for the thirteen and thirty-nine weeks ended October 3, 2021, respectively.

During October 2021, the LP modified the vesting schedule related to 763,178 outstanding Class P units for two senior executives to accelerate vesting if the two senior executives perform service after the completion of the ~~provision is made. Prior~~IPO over the subsequent 12-month period. The Company concluded that the amendment to ~~fiscal 2022,~~ the ~~Company’s quarterly tax provision~~Class P units was ~~calculated using~~ a ~~discrete approach, as allowed by FASB~~modification under ASC ~~740,~~ ~~Income Taxes~~~~. The discrete method~~718 and there was ~~previously applied when it was not possible~~no incremental equity-based compensation expense to ~~reliably estimate~~recognize. With the ~~annual effective tax rate.~~

~~All~~completion of the Company’s ~~income before income taxes is from~~IPO, the ~~United States. The following table presents~~remaining unrecognized expense associated with the ~~components of~~restricted stock, received in exchange at the ~~benefit (provision)~~IPO for ~~income taxes (in thousands):~~the modified Class P units, was recognized over the subsequent 12-month period through November 2022.

Thirteen Weeks Ended

October 2,

October 3,

2022

2021

Income before benefit (provision) for income taxes

$
251

$
5,466

Benefit (provision) for income taxes

678

(1,616)

Effective tax rate

270.1
%

(29.6)
%

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LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Class P Distributions

Distributions payable to former Class P unit holders (“FCPUs”) triggered upon the completion of the Company’s 2021 IPO were determined to be settled in the thirteen weeks ended April 3, 2022 as a result of agreements reached with the FCPUs, and were recorded as an increase to additional paid-in capital. The agreements provided for contingent payments to the FCPUs of up to $0.6 million if certain conditions were met, which were recorded as equity-based compensation expense and accrued expenses and other current liabilities in the thirteen weeks ended April 3, 2022. The $0.6 million accrual was subsequently reversed during the thirteen weeks ended July 3, 2022, when the timeframe for the payment conditions expired.

11.Income Taxes

All of the Company’s income (loss) before income taxes is from the United States. The following table presents the components of the provision (benefit) for income taxes (in thousands):


	Thirty-nine Weeks Ended						Thirteen Weeks Ended
	October 2,			October 3,			October 1,			October 2,
	2022			2021			2023			2022
Income before provision for income taxes	$	14,149		$	15,894
Provision for income taxes		(5,178)			(5,075)
Income (loss) before provision (benefit) for income taxes							$	(5,047)		$	251
Provision (benefit) for income taxes								(1,158)			(678)
Effective tax rate		(36.6)	%		(31.9)	%		22.9	%		(270.1)	%


	Thirty-Nine Weeks Ended
	October 1,			October 2,
	2023			2022
Income (loss) before provision for income taxes	$	(13,096)		$	14,149
Provision (benefit) for income taxes		(992)			5,178
Effective tax rate		7.6	%		36.6	%

~~For~~The Company’s provision (benefit) for income taxes during interim reporting periods has historically been calculated by applying an estimate of the annual effective tax rate for the full year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. When projected “ordinary” income or loss for the full year is close to breakeven, the estimated annual effective tax rate can become volatile due to small changes, resulting in an unreliable estimate of tax for the reporting period. In such instances, the Company will calculate the interim income tax provision or benefit using a discrete effective tax rate method, as allowed by ASC 740-270 “Income Taxes, Interim Reporting,” based solely on the year-to-date pretax income or loss as adjusted for permanent differences on a pro rata basis.

We utilized a discrete effective tax rate method to calculate taxes for the thirteen weeks ended April 2, 2023 due to circumstances described above where the estimated annual effective tax rate did not provide a reliable estimate. In the second and third quarters of fiscal 2023, the Company determined that due to updated projected pre-tax results for fiscal 2023 the estimated annual effective tax rate method was no longer subject to the volatility computed in the first quarter.

The Company’s pre-tax loss for the period ended October 1, 2023 relative to the Company’s projected pre-tax income for fiscal 2023 yielded an annual effective tax rate, which was deemed to be appropriate or meaningful. Based on this fact, the Company determined that the historical estimated annual effective tax rate method would provide a reliable estimate and was used for calculating the interim benefit for the period ended October 1, 2023.

The effective tax rate for the thirteen and thirty-nine weeks ended October ~~2, 2022, the Company’s effective tax rate~~1, 2023 differs from the federal income tax rate of 21% primarily due to ~~increases in state taxes,~~ non-deductible executive compensation and non-deductible equity-based compensation ~~expenses. For the thirteen weeks ended October 2, 2022, the benefit for income taxes was the result of an accrual for a prior year amended tax return offsetting the aforementioned increases in tax.~~

expense. The ~~Company’s~~ effective tax rate for the thirteen and thirty-nine weeks ended October ~~3, 2021,~~2, 2022 differs from the federal income

Table of Contents

LULU’S FASHION LOUNGE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

tax rate of 21% primarily due to state taxes, non-deductible executive compensation, and non-deductible equity-based compensation expenses.

12.Related Party Transactions

Significant Shareholders

The Company identified three shareholders with aggregate ownership interest in the Company greater than 10%. The Company reviewed the respective investment portfolio holdings of these shareholders and identified investments in other entities that the Company engages in business with. All of these business relationships were obtained without the support of these shareholders, and as such, are believed to be at terms comparable to those that would be obtained through arm’s length dealings with unrelated third parties.

~~Transactions with the LP~~13.Subsequent Events

~~Certain of the Company’s transactions with the LP are classified as a component within additional paid-in capital~~No material events have occurred that required recognition or disclosure in ~~the condensed consolidated~~these financial statements of redeemable preferred stock, convertible preferred stock and stockholders’ equity (deficit) as there are no defined payments or other terms associated with these transactions. Such transactions included equity-based compensation expense related to outstanding Class P units of $0.4. ~~million and $1.3 million during the thirteen and thirty-nine weeks ended October 3, 2021, respectively.~~

~~Series B-1 Redeemable Preferred Stock Issuance~~

As discussed in Note 8, the Series B-1 Preferred Stock shares purchased by current executives in March 2021 resulted in equity-based compensation expense of zero and $1.5 million in the thirteen and thirty-nine weeks ended October 3, 2021, respectively.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K for the fiscal year ended January ~~2, 2022,~~1, 2023, filed with the Securities and Exchange Commission (“SEC”) on March ~~31, 2022~~14, 2023 (the ~~“2021~~“2022 10-K”). This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Item I, Part 1A, “Risk Factors” of the ~~2021~~2022 10-K and other factors set forth in other parts of this Quarterly Report on Form 10-Q. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.

Overview

Lulus is a customer-driven, digitally-native fashion brand primarily serving Millennial and Gen Z women. We focus relentlessly on giving our customers what they want. We do this by using data coupled with human insight to deliver a curated and continuously evolving assortment of on-trend, affordable luxury fashion. Our customer obsession sets the tone for everything we do, from our personalized online shopping experience to our exceptional customer service.

~~Initial Public Offering~~

On November 10, 2021, our registration statement on Form S-1 relating to our initial public offering (“IPO”) was declared effective by the SEC and the shares of our common stock began trading on the Nasdaq Global Market on November 11, 2021. The IPO closed on November 15, 2021, pursuant to which we issued and sold 5,750,000 shares of our common stock at a public offering price of $16.00 per share. On November 15, 2021, we received net proceeds of approximately $82.0 million from the IPO, after deducting underwriting discounts and commissions of approximately $6.1 million and other issuance costs of approximately $3.9 million. Immediately prior to the completion of the IPO, we filed an amended and restated certificate of incorporation, which authorized a total of 250,000,000 shares of common stock at $0.001 par value per share, and 10,000,000 shares of preferred stock, $0.001 par value per share. Immediately prior to the completion of the IPO, all shares of the Series A Preferred Stock then outstanding were converted into 15,000,000 shares of common stock. Additionally, 215,702 shares of common stock were issued to the LP immediately prior to the completion of the IPO. All shares of the Series B Preferred Stock and the Series B-1 Preferred Stock were redeemed and extinguished for a total payment of approximately $17.9 million on November 15, 2021.

~~Impact of the COVID-19 Pandemic~~

For additional discussion of risks related to the COVID-19 pandemic and the impact of the COVID-19 pandemic on our Company, see “Risk Factors—Risks Related to our Business—The COVID-19 pandemic has had and may in the future have an adverse effect on our labor workforce availability, supply chain, business, financial condition, cash flows, and results of operations in ways that remain unpredictable” in the 2021 10-K.

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Impact of Macroeconomic Trends on Business

Changing macroeconomic factors, including inflation, interest rates, ~~fuel prices,~~ and overall consumer confidence with respect to current and future economic conditions, have directly impacted our sales in ~~fiscal 2022~~the first nine months of 2023 as discretionary consumer spending levels and shopping behavior fluctuate with these factors. During ~~fiscal 2022,~~the first nine months of 2023, we have responded to these factors by taking appropriate pricing, promotional and other actions to stimulate customer demand. These factors are expected to continue to have an impact on our business, results of operations, our growth and financial condition.

Liquidity

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Key Operating and Financial Metrics

We collect and analyze operating and financial data to assess the performance of our business and optimize resource allocation. The following table sets forth our key performance indicators for the periods presented.

Thirteen Weeks Ended

Thirty-nine Weeks Ended

October 2,

October 3,

October 2,

October 3,

2022

2021

2022

2021

(in thousands , except percentages and Average Order Value)
Gross Margin

42.1
%

47.7
%

45.2
%

47.8
%
Net income

$
929

$
3,850

$
8,971

$
10,819

Adjusted EBITDA (1)

$
5,364

$
11,885

$
30,068

$
35,050

Adjusted EBITDA Margin (1)

5.1
%

11.2
%

8.6
%

12.6
%
Active Customers (2)


3,230


2,500


3,230


2,500

Average Order Value

$
133

$
125

$
131

$
120


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 1,			October 2,			October 1,			October 2,
	2023			2022			2023			2022

	(in thousands , except percentages and Average Order Value)
Gross Margin		40.3	%		42.1	%		42.4	%		45.2	%
Net income (loss)	$	(3,889)		$	929		$	(12,104)		$	8,971
Adjusted EBITDA (1)	$	972		$	5,364		$	5,207		$	30,068
Adjusted EBITDA Margin (1)		1.2	%		5.1	%		1.9	%		8.6	%
Active Customers		2,960			3,230			2,960			3,230
Average Order Value	$	133		$	133		$	133		$	131

(1)	For a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measure and why we consider them useful, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Financial Measures.”

~~(2)~~

Active Customers count is based on de-duplication logic using customer account and guest checkout name, address, and email information. Active Customer count is as of the last day of the relevant period.

Active Customers

We define Active Customers as the number of customers who have made at least one purchase across our platformin the prior 12-month period. Active Customer count is as of the last day of the relevant period. We consider the number of Active Customers to be a key performance metric on the basis that it is directly related to consumer awareness of our brand, our ability to attract visitors to our primarily digital platform, and our ability to convert visitors to paying customers. Active Customers counts are based on de-duplication logic using customer account and guest checkout name, address, and email information.

Average Order Value

We define Average Order Value (“AOV”) as the sum of the total gross sales before returns across our platform in a given period, plus shipping revenue, less discounts and markdowns, divided by the Total Orders Placed (as defined below) in that period. AOV reflects average basket size of our customers. AOV may fluctuate as we continue investing in the development and introduction of new Lulus merchandise and as a result of our promotional discount activity.

Total Orders Placed

We define Total Orders Placed as the number of customer orders placed across our platform during a particular period. An order is counted on the day the customer places the order. We do not adjust the number of Total Orders Placed for any cancellation or return that may have occurred subsequent to a customer placing an order. We consider Total Orders Placed as a key performance metric on the basis that it is directly related to our ability to attract and retain customers as well as drive purchase frequency. Total Orders Placed, together with AOV, is an indicator of the net revenue we expect to generate in a particular period.

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Gross Margin

We define Gross Margin as gross profit as a percentage of our net revenue. Gross profit is equal to our net revenue less cost of revenue. Certain of our competitors and other retailers may report cost of revenue differently than we do. As a result, the reporting of our gross profit and Gross Margin may not be comparable to other companies.

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Non-GAAP Financial Measures

We report our financial results in accordance with generally accepted accounting principles in the U.S. (“GAAP”). However, management believes that certain non-GAAP financial measures provide investors with additional useful information in evaluating our performance and that excluding certain items that may vary substantially in frequency and magnitude period-to-period from net income (loss) provides useful supplemental measures that assist in evaluating our ability to generate earnings and to more readily compare these metrics between past and future periods. These non-GAAP financial measures may be different than similarly titled measures used by other companies.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA is a non-GAAP financial measure that we calculate as income (loss) before interest expense, income taxes, depreciation and amortization, adjusted to exclude the effects of equity-based compensation expense, and management fees. Adjusted EBITDA is a key measure used by management to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital.

To supplement our condensed consolidated financial statements which are prepared in accordance with GAAP, we use “Adjusted EBITDA” and “Adjusted EBITDA Margin” which are non-GAAP financial measures (collectively referred to as “Adjusted EBITDA”). Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP. There are several limitations related to the use of our non-GAAP financial measures as compared to the closest comparable GAAP measures. Some of these limitations include:

●

Adjusted EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;

●

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

●

Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt;

●

Adjusted EBITDA does not reflect our tax expense or the cash requirements to pay our taxes;

●

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any cash requirements for such replacements; and

●

other companies in our industry may calculate such measures differently than we do, limiting their usefulness as comparative measures.

Due to these limitations, Adjusted EBITDA and Adjusted EBITDA Margin should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP measures only supplementally. As noted in the table below, Adjusted EBITDA includes adjustments to exclude the impact of depreciation and amortization, interest expense, income taxes, ~~management fees~~ and equity-based compensation expense. It is reasonable to expect that some of these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and may complicate comparisons of our internal results of operations and results of operations of other companies over time. In addition,

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Adjusted EBITDA includes adjustments for other items that we do not expect to regularly record. Each of the normal recurring adjustments and other adjustments described in this paragraph and in the following reconciliation table help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations. Adjusted EBITDA Margin is a non-GAAP financial measure that we calculate as Adjusted EBITDA ~~(as defined above)~~ as a percentage of our net revenue.

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The following table provides a reconciliation for Adjusted EBITDA and Adjusted EBITDA Margin:

Thirteen Weeks Ended

Thirty-nine Weeks Ended

October 2,

October 3,

October 2,

October 3,

2022

2021

2022

2021

(in thousands)

(in thousands)
Net income

$
929

$
3,850


$
8,971

$
10,819

Depreciation and amortization

1,130

695

2,980

2,116

Interest expense

329

3,612

694

11,036

Income tax (benefit) provision

(678)

1,616

5,178

5,075

Management fees (1)

—

165

—

482

Equity-based compensation expense (2)

3,654

1,947

12,245

5,522

Adjusted EBITDA

$
5,364

$
11,885

$
30,068

$
35,050

Adjusted EBITDA Margin

5.1
%

11.2
%

8.6
%

12.6
%


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 1,			October 2,			October 1,			October 2,
	2023			2022			2023			2022

	(in thousands)						(in thousands)
Net income (loss)	$	(3,889)		$	929		$	(12,104)		$	8,971
Depreciation and amortization		1,240			1,130			3,546			2,980
Interest expense		442			329			1,391			694
Income tax provision (benefit)		(1,158)			(678)			(992)			5,178
Equity-based compensation expense (1)		4,337			3,654			13,366			12,245
Adjusted EBITDA	$	972		$	5,364		$	5,207		$	30,068
Net income (loss) margin		(4.7)	%		0.9	%		(4.3)	%		2.6	%
Adjusted EBITDA margin		1.2	%		5.1	%		1.9	%		8.6	%

(1)

~~Represents management fees~~The thirteen weeks ended October 1, 2023 and ~~expenses paid pursuant to~~October 2, 2022 include equity-based compensation expense for RSU awards granted during the ~~professional services agreement~~period, as well as equity-based awards granted in prior periods. The thirty-nine weeks ended October 1, 2023 include equity-based compensation expense for performance stock units and RSU awards granted during the period, accelerated expense associated with ~~H.I.G. Capital, LLC~~the voluntary forfeiture of stock options, and ~~Institutional Venture Partners~~equity-based awards granted in prior periods. The thirty-nine weeks ended October 2, 2022 include equity-based compensation expense for ~~consulting and other services. All outstanding management fees were settled and~~RSU awards granted during the ~~management agreement was terminated at the time of the Company’s initial public offering~~period, as well as equity-based awards granted in ~~2021.~~prior periods.

(2) The thirteen and thirty-nine weeks ended October 2, 2022, include equity-based compensation expense for restricted stock units granted during the thirteen- and thirty-nine-week periods, as well as equity-based awards granted in prior periods. The thirteen and thirty-nine weeks ended October 3, 2021, include equity-based compensation expense for equity-based awards granted during the thirteen- and thirty-nine-week periods and in prior periods, as well as the excess of fair value over the consideration paid for Series B-1 Preferred Stock that was issued to certain employees in March 2021.

~~Net Debt~~

Free Cash Flow

Free Cash Flow is a non-GAAP financial measure that we calculate as ~~total debt, which includes the revolving line of credit,~~net cash provided by operating activities less cash used for capitalized software development costs and ~~cash equivalents.~~purchases of property and equipment. We ~~consider Net Debt to be~~view Free Cash Flow as an important ~~supplemental measure~~indicator of our ~~financial position, which is used by management to analyze our leverage, and which~~liquidity because it measures the amount of cash we believe is helpful to investors in order to monitor leverage and evaluate the balance sheet. A limitation associated with using Net Debt is that it subtracts cash and cash equivalents and therefore may imply that there is less Company debt than the most comparable GAAP measure indicates. Our non-GAAP financial measures, including Net Debt, should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with GAAP.generate.

A reconciliation to non-GAAP ~~Net Debt~~Free Cash Flow from ~~Total Debt as of~~net cash provided by operating activities for the thirteen and thirty-nine weeks ended October 1, 2023 and October 2, 2022 ~~and January 2, 2022, respectively,~~ is as follows:


	As of				Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 2, 2022			January 2, 2022	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022

	(in thousands)
Revolving line of credit, long term	$	(15,000)	$	(25,000)
Total debt		(15,000)		(25,000)

Cash and cash equivalents		12,465		11,402
Net Debt	$	(2,535)	$	(13,598)
Net cash provided by operating activities					$	12,749	$	5,745	$	21,100	$	16,333
Capitalized software development costs						(524)		(622)		(1,550)		(1,869)
Purchases of property and equipment						(667)		(508)		(1,393)		(1,902)
Free Cash Flow					$	11,558	$	4,615	$	18,157	$	12,562

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Factors Affecting Our Performance

Our financial condition and results of operations have been, and will continue to be, affected by a number of factors that present significant opportunities for us but also pose risks and challenges, including what is discussed below. See Part I, “Item 1A. Risk Factors” in our ~~2021~~2022 10-K.

Customer Acquisition

Our business performance depends in part on our continued ability to cost-effectively acquire new customers. We define customer acquisition cost ~~(“CAC”)~~ as our brand and performance marketing expenses attributable to acquiring new customers, including, but not limited to, agency costs and marketing team costs but excluding any applicable equity-based compensation, divided by the number of customers who placed their first order with us in a given period. As a primarily digital brand, our marketing strategy is primarily focused on brand awareness marketing and digital advertising in channels

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like search, social, and programmatic - platforms that enable us to engage our customers where they spend their time, and in many cases also quickly track the success of our marketing, which allows us to adjust and optimize our marketing spend.

Customer Retention

Our continued success depends in part on our ability to retain and drive repeat purchases from our existing customers. We monitor retention across our entire customer base. Our goal is to attract and convert visitors into ~~active customers~~Active Customers and foster relationships that drive repeat purchases. During the trailing 12 months ended October ~~2, 2022,~~1, 2023, we served ~~3.2~~3.0 million Active Customers compared to ~~2.5~~3.2 million for the trailing 12 months ended October ~~3, 2021.~~2, 2022.

Inventory Management

We utilize a data-driven strategy that leverages our proprietary reorder algorithm to manage inventory as efficiently as possible. Our “test, learn, and reorder” approach consists of limited inventory purchases followed by the analysis of proprietary data including real-time transaction data and customer feedback, which then informs our selection and customization of popular merchandise prior to reordering in larger quantities. While our initial orders are limited in size and financial risk and our supplier partners are highly responsive, we nonetheless purchase inventory in anticipation of future demand and therefore are exposed to potential shifts in customer preferences and price sensitivity over time. As we continue to grow, we will adjust our inventory purchases to align with the current needs of the business.

Investment in Our Operations and Infrastructure

We will continue to invest in our operations and infrastructure to facilitate further growth of our business. While we expect our expenses to increase accordingly, we will harness the strength of our existing platform and our on-trend fashion expertise to make informed investment decisions. We intend to invest in headcount, inventory, fulfillment, logistics, and our software and data capabilities in order to improve our platform, expand into international markets, and drive operational efficiencies. We cannot guarantee that increased spending on these investments will be cost effective or result in future growth in our customer base. However, we set a high bar for approval of any capital spending initiative. We believe that our disciplined approach to capital spending will enable us to generate positive returns on our investments over the long term.

Components of Our Results of Operations

Net Revenue

Net revenue consists primarily of gross sales, net of merchandise returns, international duties and taxes and promotional discounts and markdowns, generated from the sale of apparel, footwear, and accessories. Net revenue excludes sales taxes assessed by governmental authorities. We recognize net revenue at the point in time when control of the ordered product is transferred to the customer, which we determine to have occurred upon shipment.

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Cost of Revenue and Gross Margin

Cost of revenue consists of the product costs of merchandise sold to customers; shipping and handling costs, including all inbound, outbound, and return shipping expenses; rent, insurance, business property tax, utilities, depreciation and amortization, and repairs and maintenance related to our distribution facilities; and charges related to inventory shrinkage, damages, and our allowance for excess or obsolete inventory. Cost of revenue is primarily driven by growth in orders placed by customers, the mix of the product available for sale on our site, and transportation costs related to inventory receipts from our suppliers and shipping product to our customers. We expect our cost of revenue to fluctuate as a percentage of net revenue primarily due to how we manage our inventory and merchandise mix.

Gross profit is equal to our net revenue less cost of revenue. We calculate Gross Margin as gross profit as a percentage of our net revenue.

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Selling and Marketing Expenses

Our selling and marketing expenses consist primarily of payment processing fees, advertising, targeted online performance marketing and customer order courtesy adjustments. Selling and marketing expenses also include our spend on brand marketing channels, including compensation and ~~free~~gifted products to social media influencers, events, and other forms of online and offline marketing related to growing and retaining the customer base. As discussed in “Net Revenue” above, in any given period, the amount of our selling and marketing expense can be affected by the use of promotional discounts in such period. We expect our selling and marketing expenses to increase in absolute dollars as we continue to invest in increasing brand awareness.

General and Administrative Expenses

General and administrative expenses consist primarily of payroll and benefits costs, including equity-based compensation for our employees involved in general corporate functions including finance, merchandising, marketing, and technology, as well as costs associated with the use by these functions of facilities and equipment, including depreciation, rent, and other occupancy expenses. General and administrative expenses are primarily driven by increases in headcount required to support business growth and ~~meeting~~meet our obligations as a public company.

Since our IPO, we have incurred significant legal, accounting, and other expenses that we did not incur as a private company. We expect that compliance with the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC, will continue to increase our legal and financial compliance costs and will make some activities more time consuming and costly. We expect our general and administrative expenses to increase in absolute dollars as we continue to grow our business.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest expense and other miscellaneous income.

~~Benefit (Provision)~~Provision (Benefit) for Income Taxes

The ~~benefit (provision)~~provision (benefit) for income taxes represents federal, state, and local income taxes. The effective rate differs from the statutory rate primarily due to state taxes, non-deductible executive compensation, and non-deductible equity-based compensation expenses. Our effective tax rate will change from quarter to quarter based on recurring and nonrecurring factors including, but not limited to, the geographical mix of earnings, enacted tax legislation, state and local income taxes, the impact of permanent tax adjustments, tax audit settlements, and the interaction of various tax strategies.

3432

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Our Results of Operations

The following tables set forth our consolidated results of operations for the periods presented and as a percentage of net revenue and net ~~income:~~income (loss):


	Thirteen Weeks Ended				Thirty-nine Weeks Ended				Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 2,		October 3,		October 2,		October 3,		October 1,		October 2,		October 1,		October 2,
	2022		2021		2022		2021		2023		2022		2023		2022

		(in thousands)							(in thousands)
Net revenue	$	105,275	$	106,320	$	348,689	$	278,861	$	83,118	$	105,275	$	280,216	$	348,689
Cost of revenue		60,942		55,553		191,211		145,561		49,593		60,942		161,334		191,211
Gross profit		44,333		50,767		157,478		133,300		33,525		44,333		118,882		157,478

Selling and marketing expenses		19,356		20,509		67,093		49,008		16,825		19,356		60,984		67,093
General and administrative expenses		24,418		21,196		75,644		57,436		21,575		24,418		70,319		75,644
Income from operations		559		9,062		14,741		26,856

Other income (expense), net:
Income (loss) from operations										(4,875)		559		(12,421)		14,741
Interest expense		(329)		(3,612)		(694)		(11,036)		(442)		(329)		(1,391)		(694)
Other income, net		21		16		102		74		270		21		716		102
Total other expense, net		(308)		(3,596)		(592)		(10,962)

Income before income taxes		251		5,466		14,149		15,894
Income tax benefit (provision)		678		(1,616)		(5,178)		(5,075)
Net income	$	929	$	3,850	$	8,971	$	10,819
Income (loss) before income taxes										(5,047)		251		(13,096)		14,149
Income tax provision (benefit)										(1,158)		(678)		(992)		5,178
Net income (loss)									$	(3,889)	$	929	$	(12,104)	$	8,971


	Thirteen Weeks Ended				Thirty-nine Weeks Ended				Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 2,		October 3,		October 2,		October 3,		October 1,		October 2,		October 1,		October 2,
	2022		2021		2022		2021		2023		2022		2023		2022
Net revenue	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%
Cost of revenue	58		52		55		52		60		58		58		55
Gross profit	42		48		45		48		40		42		42		45

Selling and marketing expenses	18		19		19		18		20		18		21		19
General and administrative expenses	23		20		22		21		26		23		25		22
Income from operations	1		9		4		9

Other income (expense), net:
Income (loss) from operations									(6)		1		(4)		4
Interest expense	—		(3)		—		(4)		—		—		—		—
Other income, net	—		—		—		—		—		—		—		—
Total other expense, net	—		(3)		—		(4)

Income before income taxes	1		6		4		5
Income tax benefit (provision)	1		(2)		(1)		(2)
Net income	2	%	4	%	3	%	3	%
Income (loss) before income taxes									(6)		1		(4)		4
Income tax provision (benefit)									(1)		(1)		-		1
Net income (loss)									(5)	%	2	%	(4)	%	3	%

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Comparisons for the Thirteen Weeks Ended October ~~2, 2022~~1, 2023 and October ~~3, 2021~~2, 2022

Net Revenue

Thirteen Weeks Ended

Change

October 2,

October 3,

2022

2021

Amount

%

(in thousands, except percentages)

Net revenue

$
105,275

$
106,320

$
(1,045)

(1)
%

Net revenue decreased ~~slightly~~ in the thirteen weeks ended October ~~2, 2022~~1, 2023 by ~~$1.0~~$22.2 million, or 1%21%, compared to the thirteen weeks ended October ~~3, 2021.~~2, 2022. The decrease is primarily the result of a 1%19% decrease in Total Orders Placed, as well as higher markdowns and return rates incompared to the ~~third quarter of 2022 offset by a 6.4% increase in AOV, net of higher promotions and discounts.~~thirteen weeks ended October 2, 2022.

Cost of Revenue

Thirteen Weeks Ended

Change

October 2,

October 3,

2022

2021

Amount

%

(in thousands, except percentages)

Cost of revenue

$
60,942

$
55,553

$
5,389

10
%

Cost of revenue ~~increased~~decreased in the thirteen weeks ended October ~~2, 2022~~1, 2023 compared to the same period of the prior year by ~~$5.4~~$11.3 million, or ~~10%~~19%, compared to the same period last year, which was primarily driven by ~~sales mix shifts into higher product cost categories, higher outbound and returned product shipping costs, as well as~~ the impact of ~~higher depreciation and allocated facility~~lower revenue along with favorability in shipping costs, ~~related to our Southern California distribution facility that was not in place until late 2021.~~which decreased with the lower revenue.

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Selling and Marketing Expenses

Thirteen Weeks Ended

Change

October 2,

October 3,

2022

2021

Amount

%

(in thousands, except percentages)

Selling and marketing expenses

$
19,356

$
20,509

$
(1,153)

(6)
%

Selling and marketing expenses decreased in the thirteen weeks ended October ~~2, 2022~~1, 2023 by ~~$1.2~~$2.5 million, or 6%13%, compared to the thirteen weeks ended October ~~3, 2021~~2, 2022 due to lower performance marketing spend and favorability in merchant processing fees, partially offset by higher brand marketing spend as we invested more to increase brand awareness.

General and Administrative Expenses

General and administrative expenses decreased by $2.8 million in the thirteen weeks ended October 1, 2023, or 12%, compared to the thirteen weeks ended October 2, 2022. The decrease was primarily due to $0.8 million decrease in fixed labor, due to delayed hiring of fixed headcount, $1.8 million decrease in variable labor and benefits associated with lower sales volume and operational efficiencies, $0.7 million decrease in D&O insurance costs, professional services and supplies. This was partially offset by $0.7 million related to equity-based awards issued through October 1, 2023.

Interest Expense

Interest expense increased in the thirteen weeks ended October 1, 2023 by $0.1 million, or 34%, compared to the thirteen weeks ended October 2, 2022. The increase is attributable to higher interest rates driving increased interest expense and unused fees related to the Revolving Facility offset by lower average borrowings.

Income Tax Benefit

Our income tax benefit in the thirteen weeks ended October 1, 2023 increased by $0.5 million to a benefit of $1.2 million, compared to a benefit of $0.7 million in the thirteen weeks ended October 2, 2022. The decrease was primarily due to a decrease in our income to a loss before benefit for income taxes.

Comparisons for the Thirty-nine Weeks Ended October 1, 2023 and October 2, 2022

Net Revenue

Net revenue decreased in the thirty-nine weeks ended October 1, 2023 by $68.5 million, or 20%, compared to the thirty-nine weeks ended October 2, 2022. The decrease is primarily the result of a 17% decrease in Total Orders Placed, and higher markdowns and return rates, partially offset by a 2% increase in AOV compared to the thirty-nine weeks ended October 2, 2022.

Cost of Revenue

Cost of revenue decreased in the thirty-nine weeks ended October 1, 2023 compared to the thirty-nine weeks ended October 2, 2022 by $29.9 million, or 16%, which was primarily driven by the impact of lower revenue along with favorability in shipping costs, which decreased with the lower revenue.

Selling and Marketing Expenses

Selling and marketing expenses decreased in the thirty-nine weeks ended October 1, 2023 by $6.1 million, or 9%, compared to the thirty-nine weeks ended October 2, 2022 due to lower performance marketing costs as we utilized a higher mix of promotions and discounts ~~during~~as well as lower merchant processing fees. This was partially offset by higher brand marketing spend through the ~~quarter.~~thirty-nine weeks ended October 1,2023 as we invested more in brand awareness.

General and Administrative Expenses

Thirteen Weeks Ended

Change

October 2,

October 3,

2022

2021

Amount

%

(in thousands, except percentages)

General and administrative expenses

$
24,418

$
21,196

$
3,222

15
%

General and administrative expenses ~~increased~~decreased by ~~$3.2~~$5.3 million in the ~~thirteen~~thirty-nine weeks ended October 1, 2023, or 7%, compared to the thirty-nine weeks ended October 2, ~~2022, or 15%, compared to the thirteen weeks ended October 3, 2021.~~2022. The ~~increase~~decrease was primarily due to ~~higher equity-based compensation expense of $1.7~~a $5.1 million ~~related to equity-based awards issued through October 2, 2022. Additionally, there was a $1.2 million increase in insurance~~lower variable labor and benefits costs ~~and professional services, which was~~ primarily ~~driven by a $1.0 million increase in director and officer insurance costs~~ associated with ~~being a public company.~~lower sales volume and operational efficiencies, which was

3634

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partially offset by higher equity-based compensation expense of $1.1 million related to equity-based awards issued through October 1, 2023. Additionally, there was a $1.5 million decrease in D&O insurance costs, professional services, supplies and recruiting costs.

Interest Expense

Interest expense ~~decreased significantly~~increased in the ~~thirteen~~thirty-nine weeks ended October 1, 2023 by $0.7 million, or 100%, compared to the thirty-nine weeks ended October 2, ~~2022 by $3.3 million, or 91%, compared to the thirteen weeks ended October 3, 2021.~~2022. The ~~decrease~~increase is attributable to ~~the repayment of our Term Loan with the proceeds from our IPO in November 2021, which was partially offset by~~higher interest rates and higher average borrowings driving increased interest expense and unused fees related to the ~~New~~ Revolving ~~Facility, under which $15.0 million of borrowings remained outstanding as of October 2, 2022.~~Facility.

Income Tax ~~Benefit (Provision)~~Provision (Benefit)

Our income tax benefit ~~(provision)~~ in the ~~thirteen~~thirty-nine weeks ended October ~~2, 2022~~1, 2023 increased by ~~$2.3~~$6.2 million ~~or 142%,~~ to a benefit of ~~$0.7~~$1.0 million, compared to a provision of $1.6 million in the thirteen weeks ended October 3, 2021. The increase to an income tax benefit from an income tax provision was primarily due to lower income before taxes and a prior year tax return amendment related to disaster recovery credits accrued in the thirteen weeks ended October 2, 2022.

~~Comparisons for the Thirty-nine Weeks Ended October 2, 2022 and October 3, 2021~~

~~Net Revenue~~

Thirty-nine Weeks Ended

Change


October 2,

October 3,

2022

2021

Amount

%

(in thousands, except percentages)

Net revenue

$
348,689

$
278,861

$
69,828

25
%

Net revenue increased in the thirty-nine weeks ended October 2, 2022 by $69.8 million, or 25%, compared to the thirty-nine weeks ended October 3, 2021. The increase is primarily due to an increase in the following key revenue drivers: 23% increase in Total Orders Placed and a 9% increase in the AOV which was partially offset by higher sales returns in the thirty-nine weeks ended October 2, 2022.

~~Cost of Revenue~~

Thirty-nine Weeks Ended

Change


October 2,

October 3,

2022

2021

Amount

%

(in thousands, except percentages)

Cost of revenue

$
191,211

$
145,561

$
45,650

31
%

Cost of revenue increased in the thirty-nine weeks ended October 2, 2022 by $45.7 million, or 31%, compared to the thirty-nine weeks ended October 3, 2021, which was primarily driven by the increase in our net revenue. Additionally, we recognized higher returned product shipping costs and higher outbound shipping costs due to fuel surcharges in the thirty-nine weeks ended October 2, 2022 compared to the same period of the prior year.

~~Selling and Marketing Expenses~~

Thirty-nine Weeks Ended

Change


October 2,

October 3,

2022

2021

Amount

%

(in thousands, except percentages)

Selling and marketing expenses

$
67,093

$
49,008

$
18,085

37
%

~~Table of Contents~~

Selling and marketing expenses increased in the thirty-nine weeks ended October 2, 2022 by $18.1 million, or 37%, compared to the thirty-nine weeks ended October 3, 2021. We increased our online marketing expenses to acquire new customers and retain existing customers by $15.8 million, or 44%, compared to the same period in the prior year. In addition, merchant processing fees increased by $2.4$5.2 million in the thirty-nine weeks ended October 2, ~~2022 compared to the same period of the prior year due to the increase in net revenue.~~

~~General and Administrative Expenses~~

Thirty-nine Weeks Ended

Change


October 2,

October 3,

2022

2021

Amount

%

(in thousands, except percentages)

General and administrative expenses

$
75,644

$
57,436

$
18,208

32
%

~~General and administrative expenses increased by $18.2 million in the thirty-nine weeks ended October 2, 2022, or 32%, compared to the thirty-nine weeks ended October 3, 2021.~~2022. The ~~increase~~decrease was primarily due to ~~higher equity-based compensation expense of $6.7 million related~~a decrease in our income to equity-based awards issued through October 2, 2022. Our fixed labor costs increased by $2.4 million, driven by higher outsourced labor mainly in support of our technology areas, along with higher medical benefits; however, fixed labor costs as a ~~percentage of net revenue decreased to 7.5%~~loss before provision for the thirty-nine weeks ended October 2, 2022, compared to 8.5% for the same period in the prior year. Our variable (direct) labor costs increased by $3.8 million, an increase of 23% from the same period in the prior year, due to higher sales partially offset by labor efficiencies. Additionally, there was a $4.7 million increase in insurance costs and professional services, which was primarily driven by a $3.0 million increase in director and officer insurance costs due to being a public company. The remaining increases to our general and administrative expenses were due to increases in shipping supplies, hardware, software and travel costs to support our higher sales during the period. These increases were partially offset by a $0.6 million reduction in management fees as our management agreement was terminated at the time of our IPO in 2021.

~~Interest Expense~~

Interest expense decreased significantly in the thirty-nine weeks ended October 2, 2022 by $10.3 million, or 94%, compared to the thirty-nine weeks ended October 3, 2021. The decrease is attributable to the repayment of our Term Loan with the proceeds from our IPO in November 2021, which was partially offset by interest expense and unused fees related to the borrowings outstanding under the New Revolving Facility as of October 2, 2022.

~~Income Tax Provision~~

~~Our~~ income tax provision in the thirty-nine weeks ended October 2, 2022 increased by $0.1 million, or 2%, to $5.2 million, compared to the thirty-nine weeks ended October 3, 2021. The increase in the income tax provision was primarily due to an increase in non-deductible equity-based compensation expenses and non-deductible executive compensation expenses, partially offset by the prior year amended tax return accrual related to disaster recovery credits.taxes.

Quarterly Trends and Seasonality

We experience moderate seasonal fluctuations in aggregate sales volume during the year. Seasonality in our business does not follow that of traditional retailers, such as a typical concentration of revenue in the holiday quarter. ~~Historically, our~~Our quarterly net revenue isin 2022 reflected the highest concentrations in ~~our~~the first and second ~~and third~~ fiscal quarters compared to the rest of the year, ~~due to higher~~as customer demand remained strong for ~~special event~~ dresses and ~~spring~~event wear, carrying forward the trend seen in 2021 with the resurgence of events and ~~summer fashion.~~ special occasions. The third and fourth fiscal quarters of 2022 were impacted by a worsened macroeconomic environment where consumers generally lowered their spending levels and sought higher levels of promotions and discounts which has continued into the first nine months of 2023. The seasonality of our business has resulted in variability in our total net revenue quarter-to-quarter. We believe that this seasonality has affected and will continue to affect our results of operations.

Our quarterly gross profit fluctuates primarily based on how we manage our inventory and merchandise mix and has typically been in line with fluctuations in net revenue. When quarterly gross profit fluctuations have been unfavorable relative to the fluctuations in sales, these situations have been driven by non-recurring, external factors, ~~as well~~such as the COVID-19 pandemic and the ensuing macroeconomic slowdown that begun in ~~fiscal 2020 and fiscal 2021,~~mid-2022, which led to increased promotional discounts and higher markdowns

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in order to optimize our inventory mix and quantities. Additionally, gross profit has recently been impacted by decreases in discretionary consumer spending as a result of inflation and macroeconomic conditions, increased promotions and discounts in response to decreases in consumer spending, and trends observed regarding the levels of returns.

Selling and marketing expenses generally fluctuate with net revenue. Further, in any given period, the amount of our selling and marketing expense can be affected by the use of promotional discounts in such period. In addition, we may increase or decrease marketing spend to assist with optimizing inventory mix and quantities.

General and administrative expenses consist primarily of payroll and benefit costs and vary quarter to quarter due to changes in the number of seasonal workers to meet demand based on our seasonality.

Liquidity and Capital Resources

Our primary sources of liquidity and capital resources are cash generated from operating activities and borrowings under our ~~New~~ Revolving Facility. Our primary requirements for liquidity and capital are inventory purchases, payroll and general operating expenses, capital expenditures associated with distribution, network expansion and capitalized software and debt service requirements.

~~Initial Public Offering~~35

~~On November 15, 2021, we completed our IPO, in which we issued and sold 5,750,000 shares~~Table of our common stock at a price to the public of $16.00 per share and raised net proceeds of approximately $82.0 million, after deducting the underwriting discounts and commissions of approximately $6.1 million and other issuance costs of approximately $3.9 million.Contents

Credit Facilities

During November 2021, we entered into a Credit Agreement with Bank of America (the "Credit Agreement") to provide a revolving facility that provides for borrowings up to $50.0 million (the ~~"New Revolving~~"Revolving Facility"). During the term of the Credit Agreement, we may increase the aggregate amount of the ~~New~~ Revolving Facility up to an additional $25.0 million (for maximum aggregate lender commitments of up to $75.0 million), subject to the satisfaction of certain conditions under the Credit Agreement, including obtaining the consent of the administrative agent and an increased commitment from existing or new lenders. In addition, the Credit Agreement may be used to issue letters of credit up to $7.5 million (the “Letter of Credit”). As of October ~~2, 2022,~~1, 2023, we had ~~$15.0~~$11.0 million outstanding under the ~~New~~ Revolving Facility and had utilized $0.3 million under the Letter of Credit. As of October ~~2, 2022,~~1, 2023, we had ~~$34.8~~$38.7 million available for borrowing under the ~~New~~ Revolving Facility and ~~$7.3~~$7.2 million available to issue letters of credit.

The ~~New~~ Revolving Facility matures on November 15, 2024, and borrowings thereunder will accrue interest at a rate equal to, at our option, either (x) the term daily SOFR, plus the applicable SOFR adjustment plus a margin of 1.75% per annum or (y) the base rate plus a margin of 0.75% (with the base rate being the highest of the federal funds rate plus 0.50%, the prime rate and term SOFR for a period of one month plus 1.00%). The ~~New~~ Revolving Facility contains a financial maintenance covenant requiring a maximum total leverage ratio of no more than 2.50:1.00, stepping down to 2.00:1.00 after 18 months. We were in compliance with our debt covenants under the Credit Agreement as of October 1, 2023. While we expect to continue to be in compliance with our debt covenants, any failure to remain in compliance with our debt covenants may materially adversely affect our liquidity. A commitment fee of 37.5 basis points will be assessed on unused commitments under the ~~New~~ Revolving Facility.

With the net proceeds from the IPO and borrowings from the New Revolving Facility, we repaid our Term Loan of $107.2 million on November 15, 2021, which comprised of $105.8 million in principal and $1.4 million of accrued interest. The Credit Facility was terminated on November 15, 2021 and no prepayment penalties were incurred.

Availability and Use of Cash

As of October ~~2, 2022,~~1, 2023, we had cash and cash equivalents of ~~$12.5 million and restricted cash of $0.5~~$12.9 million. We believe that our cash and cash equivalents, cash flows from operations and the available borrowings under our ~~New~~ Revolving Facility, will be sufficient to meet our capital expenditures, working capital needs and debt repayments for at

~~Table of Contents~~

least the next 12 months from the date of this Quarterly Report on Form 10-Q. However, we cannot ensure that our business will generate sufficient cash flow from operating activities or that future borrowings will be available under our borrowing agreements in amounts sufficient to pay indebtedness or fund other working capital needs. Actual results of operations will depend on numerous factors, many of which are beyond our control, as further discussed in Part I, Item 1A, “Risk Factors” included in our ~~2021~~2022 10-K.

Cash Flow Analysis

The following table summarizes our cash flows for the periods indicated:


	Thirty-nine Weeks Ended				Thirty-Nine Weeks Ended
	October 2,		October 3,		October 1,		October 2,
	2022		2021		2023		2022

	(in thousands)				(in thousands)
Net cash (used in) provided by:
Net cash provided by (used in):
Operating activities	$	16,333	$	41,788	$	21,100	$	16,333
Investing activities		(3,868)		(1,587)		(3,009)		(3,868)
Financing activities		(11,401)		(14,828)		(15,444)		(11,401)

Net increase in cash, cash equivalents and restricted cash	$	1,064	$	25,373
Net decrease in cash, cash equivalents and restricted cash					$	2,647	$	1,064

Operating Activities

~~Cash from~~Net cash provided by operating activities consists primarily of net income (loss) adjusted for certain non-cash items, including depreciation, ~~and~~ amortization, ~~amortization of debt discount and debt issuance costs, interest expense capitalized to principal of debt,~~ equity-based compensation, ~~expense, and~~ the effect of changes in working capital and other activities.

InDuring the thirty-nine weeks ended October 1, 2023, net cash provided by operating activities increased by $4.8 million, as compared to the same period in 2022. The increase was largely a result of a decrease of $28.9 million in

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inventory purchases as a result of lower sales in the current year due to the impact of increased macroeconomic pressures, along with an increase of $1.4 million in accounts payable. This was partially offset by a $21.1 million decrease in net income, from net income of $9.0 million during the thirty-nine weeks ended October 2, 2022 to net ~~cash provided by operating activities decreased by $25.5~~loss of $12.1 million to $16.3 million from $41.8 million in the same period of the prior year. The decrease in cash provided by operating activities was primarily driven by a decrease of $1.8 million in net income to $9.0 million forduring the thirty-nine weeks ended October 2, 2022 compared to net income of $10.8 million for the thirty-nine weeks ended October 3, 2021. In addition, there was an increase of $4.4 million of non-cash items which led to a net increase of $14.0 million in the thirty-nine weeks ended October 2, 2022 from a net increase of $9.6 million in the thirty-nine weeks ended October 3, 2021. This was primarily driven by a $6.7 million increase in equity-based compensation expense, a $2.4 million increase in non-cash lease expense as a result of the adoption of ASC 842 in 2022, and a $0.9 million increase in depreciation and amortization, offset by a reduction of $1.9 million in amortization of debt discount and debt issuance costs and a $2.1 million reduction in interest capitalized to principal of long-term debt and revolving line of credit, and an increase of $1.6 million in deferred income taxes for the thirty-nine weeks ended October 2, 2022 from the thirty-nine weeks ended October 3, 2021.1, 2023. There was also a ~~net decrease in cash of $28~~$7.9 million attributed to changes in operating assets and liabilities which resulted in a $6.6 million net decrease for the thirty-nine weeks ended October 2, 2022 from a $21.4 million net increase for the thirty-nine weeks ended October 3, 2021. This was driven primarily by $20.7 million higher inventory balances to support a higher sales volume, a $15.3 million decreasereduction in accrued expenses and other current liabilities, ~~and~~mainly related to a decrease in operating lease liabilities of $1.8 million; these were partially offset by $4.2 million higher accounts payable, $2.7 million lower accounts receivable, a $2.2 million lower decline in assets for recovery, a $0.4$2.1 million decrease in ~~other non-current liabilities, and~~accrued inventory due to lower inventory purchases, a ~~$0.3~~$1.9 million decrease in ~~prepaid~~accrued compensation and ~~other assets for the thirty-nine weeks ended October 2, 2022 compared~~benefits due to reductions in medical insurance reserves, accrued bonuses and deferred withholding taxes related to the ~~thirty-nine weeks ended October 3, 2021.~~CARES Act. In addition, there was a $1.7 million reduction in accrued marketing due to reduced performance marketing spend as we utilized a higher mix of promotions and discounts.

Investing Activities

Our primary investing activities have consisted of purchases of equipment to support our overall business growth and internally developed software for the continued development of our proprietary technology infrastructure. Purchases of property and equipment may vary from period-to-period due to timing of the expansion of our operations. We have no material commitments for capital expenditures.

~~Table of Contents~~

InDuring the thirty-nine weeks ended October 2,1, 2023, as compared to the same period in 2022, net cash used in investing activities decreased by $0.9 million. This was ~~$3.9~~attributable to $0.3 million ~~which was a $2.3~~less invested in capitalized software development costs and $0.6 million ~~increase from $1.6 million~~lower capital expenditures for leasehold improvements, construction in progress, and purchases of computer hardware and equipment for our general operations.

Financing Activities

During the thirty-nine weeks ended October ~~3, 2021. This was attributable to capital expenditures related~~1, 2023, as compared to the ~~opening of our new distribution facility~~same period in ~~Ontario, California as well as equipment for our general operations, software and hardware purchases, and internally developed software.~~

~~Financing Activities~~

~~Financing activities consist primarily of borrowings and repayments related to our Credit Facility and New Revolving Facility and issuance of preferred stock.~~

~~In the thirty-nine weeks ended October 2,~~ 2022, net cash used in financing activities ~~was $11.4~~increased by $4.0 million ~~which was a $3.4~~primarily due to $10.0 million decrease from $14.8 million in the thirty-nine weeks ended October 3, 2021. This decrease was attributable primarily to a reduction of $7.6 million in repayments of long-term debt, and $20 million from borrowinglower borrowings on ~~the revolving line of credit; offset by a $21.4 million increase in net repayments on~~our revolving line of credit ~~a $0.8 million increase~~facility in ~~payments of offering costs related~~the current year as compared to the ~~IPO, a $0.5~~same period in 2022 offset by $6 million ~~increase~~lower repayments on our revolving line of ~~finance lease payments and a reduction of $1.4 million~~credit facility in ~~proceeds from issuance of redeemable preferred stock.~~the current year as compared to the same period in 2022.

Contractual Obligations and Commitments

~~Except for the adoption of FASB ASC 842,~~ ~~Leases~~, on January 3, 2022 and the related lease obligations as a result of such adoption as described in “Note 6 – Leases” in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q, thereThere have been no other material changes to our contractual obligations and commitments as disclosed in our ~~2021~~2022 10-K.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” in our ~~2021~~2022 10-K and the notes to the audited consolidated financial statements appearing elsewhere in our ~~2021~~2022 10-K. ~~Except for the change in accounting principle related to our accounting for leases upon the adoption of FASB ASC 842, Leases, there~~There have been no significant changes to our critical accounting policies and estimates as disclosed in our ~~2021~~2022 10-K. Refer to “Note 2 - Significant Accounting Policies: Leases,” “Note 2 - Significant Accounting Policies: Recently Adopted Accounting Pronouncements,” and “Note 6 – Leases” in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for more information on the change in our accounting for leases.

Recent Accounting Pronouncements

See Note 2, “Significant Accounting Policies-Recently Issued Accounting Pronouncements,” in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial position and our results of operations.

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JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. Accordingly, our consolidated financial statements and our unaudited interim condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There has been no material change in our exposure to market risk from that discussed in our ~~2021~~2022 10-K.

Item 4. Controls and Procedures.

Limitations on effectiveness of controls and procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of October ~~2, 2022,~~1, 2023, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended October ~~2, 2022~~1, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Table of Contents~~

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are from time to time subject to various legal proceedings and claims, including employment claims, wage and hour claims, intellectual property claims, privacy claims, contractual and commercial disputes and other matters that arise in the ordinary course of our business. While the outcome of these and other claims cannot be predicted with certainty, we do not believe that the outcome of these matters will have a material adverse effect on our business, financial condition, cash flows, or results of operations. We are not presently a party to any legal proceedings that we believe would, if determined adversely to us, materially and adversely affect our future business, financial condition, cash flows, or results of ~~operations.~~operations.

Item 1A. Risk Factors.

For detailed information about certain risk factors that could materially affect our business, financial condition or future results see “Risk Factors” in Part I, Item 1A of our ~~2021~~2022 10-K. There have been no material changes to the risk factors previously disclosed in our ~~2021~~2022 10-K.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

~~Recent Sales of Unregistered Securities; Purchases of Equity Securities by the Issuer or Affiliated Purchaser~~

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

~~None.~~Amendment to the Company's Non-Employee Director Compensation Program

On November 3, 2023 the Board of Directors of the Company (the "Board") approved an amendment to the Company's Non-Employee Director Compensation Program to increase the amount of compensation paid to the Nominating and Corporate Governance Committee chair and to incorporate compensation for the members and chair of the Company's new Technology and Innovation Committee. Some additional changes were made to clarify the timing of payment of the quarterly cash retainers and RSU awards in lieu of quarterly cash retainers.

The full text of the Non-Employee Director Compensation Program is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and incorporated hereto by reference.

Establishment of the Technology and Innovation Committee

On November 3, 2023, the Board authorized and established the Technology and Innovation Committee, effective January 1, 2024, to oversee cybersecurity risks with the Audit Committee. The Board appointed Anisa Kumar to serve as Chair of the Technology and Innovation Committee, and Dara Bazzano, Caroline Sheu and Kira Yugay to serve as committee members.

Securities Trading Plans of Directors and Executive Officers

During the thirteen weeks ended October 1, 2023, none of the Company’s directors or officers adopted, modified, or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement”, as such terms are defined under Item 408 of Regulation S-K.

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Item 6. Exhibits.

		Incorporated by Reference				Filed/
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Furnished Herewith
10.1	Amendment to Lulu's Fashion Lounge Holdings, Inc. Non-Employee Director Compensation Program.						*
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).					*
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).					*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.					**
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.					**
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document					*
101.SCH	Inline XBRL Taxonomy Extension Schema Document					*
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document					*
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document					*
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document					*
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document					*
104	Cover Page Interactive Data File (as formatted as Inline XBRL and contained in Exhibit 101)					*

*Filed herewith.

**Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	LULU’S FASHION LOUNGE HOLDINGS, INC.

Date: November ~~15, 2022~~8, 2023	By:	/s/ ~~David McCreight~~Crystal Landsem
		~~David McCreight~~Crystal Landsem
		Chief Executive Officer
		(Principal Executive Officer)


Date: November ~~15, 2022~~8, 2023	By:	/s/ ~~Crystal Landsem~~Tiffany R. Smith
		~~Crystal Landsem~~Tiffany R. Smith
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

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Fiscal Year Ending	Amounts
2022 (remaining thirteen weeks)	$	—
2023		—
2024		15,000
Total principal amount	$	15,000


Fiscal Year Ending:		Operating Leases	Finance Leases		Total
2022 (remaining thirteen weeks)	$	1,200	$	271	$	1,471
2023		4,487		1,252		5,739
2024		4,636		1,252		5,888
2025		5,217		1,252		6,469
2026		4,516		—		4,516
Thereafter		16,604		—		16,604
Total undiscounted lease payment		36,660		4,027		40,687
Present value adjustment		(8,010)		(191)		(8,201)
Total lease liabilities		28,650		3,836		32,486
Less: lease liabilities, current		2,779		1,153		3,932
Lease liabilities, noncurrent	$	25,871	$	2,683	$	28,554


Fiscal Year Ending:		Amounts
2022	$	4,899
2023		4,263
2024		3,879
2025		4,017
2026		2,427
Thereafter		5,037
Total	$	24,522


	Thirteen Weeks Ended				Change
	October 2,		October 3,
	2022		2021		Amount		%

	(in thousands, except percentages)
Net revenue	$	105,275	$	106,320	$	(1,045)	(1)	%