Good afternoon, and welcome to Lulu’s Fourth Quarter and Full Year 2021 Earnings Conference Call. Today’s call is being recorded and we have allocated one hour for prepared remarks and Q&A. At this time, I’d like to turn the conference over to Naomi Beckman-Straus, General Counsel at Lulu’s. Thank you. You may begin

Good afternoon, everyone, and thank you for joining us to discuss Lulu’s fourth quarter and full year 2021 results. Before we begin, we would like to remind you that this conference call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including but not limited to statements regarding management’s expectations, plans, strategies, goals, and objectives. Our future expectations regarding financial results. Outlook for the quarter and year ending January 1, 2023, market opportunities, product launches and other initiatives, and our growth, these statements, which are subject to various risks, uncertainties, assumptions, and other important factors could cause our actual results, performance or achievements to differ materially from results, performance, or achievements expressed or implied by these statements. These risks, uncertainties and assumptions are detailed in this afternoon’s press release as well as our filings with the SEC including our final prospectus filed with the SEC pursuant to Rule 424(b)(4) on November 12, 2021. All of which can be found on our website at investors.lulus.com. Any such forward-looking statements represent management’s estimates as of the date of this call. While we may elect to update such forward-looking statements at some point in the future, we undertake no obligation to revise or update any forward-looking statements or information, except as required by law. During our call today, we will also reference certain non-GAAP financial information including adjusted EBITDA, adjusted EBITDA margin and net debt. We use non-GAAP measures in some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our business. The presentation of this non-GAAP financial information is not intended to be considered in isolation or is a substitute for or superior to the financial information prepared and presented in accordance with GAAP. Our non-GAAP measures may be different from non-GAAP measures used by other companies. Reconciliations of GAAP to non-GAAP measures, as well as the description, limitations and rationale for using each measure can be found in this afternoon’s press release and in our SEC filing. Joining me on the call today is our CEO, David McCreight; our Co-President and CFO, Crystal Landsem; and Co-President and CIO, Mark Vos. Following our prepared remarks, we’ll open the call for your questions. With that, I’ll turn the call over to David.

Thank you, Naomi, and good afternoon, everyone. I am proud to address you today with my partners and Co-Presidents, Mark and Crystal. We’ve had an exceptional first quarter as a newly public company. As you know, we completed our IPO during this past fourth quarter and fully paid off our long-term debt. With that milestone behind us and a strong balance sheet, we are well-positioned to build on our momentum and success through 2022 and beyond. During Q4, we generated $96.7 million of revenue, a growth of 77% year-over-year and our adjusted EBITDA was $6.4 million versus a deficit of about a $100,000 over prior year’s fourth quarter. For the year, our revenues increased 51% to $376 million and our adjusted EBITDA amounted to $41 million, which represented a 119% gain from 2021. We are thrilled by the tremendous growth and active customers from both new and repeat customers reaching $2.8 million. All achieved with appreciably more efficient performance marketing spend, and even more impressive is that it was accomplished despite a dramatic reduction in promotional activity. Clearly, our brand experience combined with our efficient marketing efforts and relevant assortment is resonating with our brand fans. From a merchandising perspective, we continue to be encouraged by the broad based response to our product offerings in FY2021 with both event and non-event categories again delivering double-digit demand growth. We have identified material ways to further expand our pivotal event dressing category, and our team continues to make inroads inner closet by evolving our non-event categories. We’re in a strong moment for LVLU where both fashion direction and her return to pre-pandemic social activities are providing helpful tailwinds and the vital new product pipeline KPI is robust and on plan for achieving our future growth targets for 2022 and beyond. These excellent…

Thank you, David, and thank you everyone for joining us today. We are relentlessly focused on developing our infrastructure to continue supporting our long-term growth plans and continuing to delight our customers. A key enabler of our affordable luxury positioning and customer delight is continuous improvement in our service levels and efficiency across our supply chain. In Q4 2021, we started operations from our new Lulu’s operated Southern California facility, which will be a key step in achieving these objectives. The first milestone, which we completed in Q1 of this year was taking our vendor inbound inventory receiving and product quality control activities back in-house, as well as optimizing our shipments from Southern California, to our Northern California and Eastern Pennsylvania fulfillment centers. We have already observed higher units per trailer shift to our fulfillment centers, which reduces the transportation cost per unit. We have also observed shorter dock to available for sale cycle times, which further improves our available time to sell a product in season and ultimately lower seasonal markdowns. Throughout 2022, we expect to add additional logistics capabilities to our Southern California facility to further optimize inventory across our network, as well as order fulfilment and thereby improving our service levels at a lower shipping expense and environmental impact. In Q1 of 2022, we also started our implementation of robotics in our Eastern Pennsylvania fulfillment center. Robotics will not only provide us with productivity gains, but also help us better attract and retain warehouse associates. And after a successful implementation and optimization phase, we will consider a robotics rollout in our Northern California logistics center for which CapEx budget is allocated in our 2022 guidance. As David mentioned, we were able to deliver strong results as a result of using data to support all aspects of our…

Thanks, Mark. And good afternoon, everyone. Our first quarter as a new public company has certainly been exciting for us and as expected, we're pleased to be reporting continued strong financial results. As David mentioned, we delivered an outstanding quarter highlighted by year-over-year growth, across key financial metrics, including net revenue, gross margins, profitability and cash flows. We also set new records for the number of active customers engaging with us in the fourth quarter, as our customers returned to their social calendars and continued to come back to us for their everyday fashion needs, most reflected in our increases in average units per order, average order value and average spend per customer. During Q4, we grew our net revenue by 78% to $96.8 million, a $42.2 million increase over the same period and the prior year. Our top line growth continues to be driven by the combination of new customers acquired and increasing loyalty from our existing customer base with an all time high number of repeat customers engaging with us during the fourth quarter. We're very proud of our large diverse community of loyal customers. In the 12 months ended January 2, 2022 we served 2.8 million active customers compared to 2 million active customers in the 12 months end of January 3, 2021. Representing growth of 38%. Despite industry-wide supply chain challenges our business model has enabled us to continue our path of strong growth and profitability as you can see from our success in Q4. Gross margins for the fourth quarter increased 200 basis points to 44.9% driven by two key factors. First, fewer markdowns and discounts compared to last year, driving more sales at full price. And second, the reacceleration of event dressing demand coupled with accelerated demand and non-event everyday dressing categories. Along with…

On behalf of Crystal, Mark and I, we’d like to thank the LuCrew brand fans board and of course our shareholders. Without your support, we could not have delivered such a successful fourth quarter and fiscal 2021. We believe Lulu's is a high growth capital light business with fast inventory turns, a strong balance sheet and growing EBITDA. And a merchandising model that obviates much of the concerns with fashion risk. We are quite pleased with the start to the year and look forward to building new capabilities and setting new performance records in FY 2022. We have the chance to do something quite special here at Lulu's. Thank you for your time. We will look forward to hearing your questions.

Thank you. Our first question comes from the line of Mark Altschwager with Baird. You may proceed with your question.

Thanks. Good afternoon and congrats to the – on the strong close to the year. With respect to the revenue growth guidance plus 28% to 30%, how are you thinking about growth and active customers versus revenue per customer? And then, bigger picture, back half of 2021 revenue growth was up about 16% versus 2019. So the 2022 guide implies a pretty big step up in the growth rate. Maybe just talk a little bit more about what’s giving you confidence in that acceleration?

To say from a revenue generation perspective, we’re anticipating sales to come from both re-engagement and repeat customers because we’re seeing a very healthy improvement in that as well as the spend per repeat customer. But we’re also seeing really great trends across our new customers acquired where their average order value, average transactions per year, and basically all of the economics around how frequently they’re transacting with us is improving equally right in line with our repeat customers. So we’re seeing improvements across the board there. And from our product class expansion and our non-event classes, we’re also gaining momentum, which is driving up new PTS just across the board as well. So it it’s a combination of basically everything hitting all at once really effectively.

That’s great. And quick follow up, just it’s great to see the healthy growth and active customers, the year end figure pretty much back in line with where you were in 2019. I believe curious how much of the growth this year was reactivation of some of the lapsed customers from COVID versus new customers to the platform?

It was both really like Crystal was saying, we had a slower start in 2021 due to lower inventory levels, how we got into the year, but then progressing through 2021. We clearly saw that the reengagement, as well as that new customer acquisition both performing in a healthy manner.

Thank you. Best of luck.

Thanks, Mark.

Our next question comes from the line of Randy Konik with Jefferies. You may proceed with your question.

Hey guys, sorry. I’m an airport, but just wanted to kind of just elaborate on the inventory terms really great turns there. Crystal, you talked about leaving a little on the table, I think in the third quarter and then in the fourth quarter as well. It’s a great problem to have. How are you guys – how are you thinking about inventory kind of growth throughout the year of 2022? How do you want to think about that? And are you kind of thinking about inventory turns staying at the same rate, going down a tad or continuing to move a little bit higher. How should we be thinking about that? Thanks.

Yes, that’s a good question. So we do have the luxury problem where we turn inventory pretty fast and we’re able to generate some pretty interesting growth rates. With that said with our test learn and reorder buying model where we’re continuously testing into slowing down our turns to capitalize on that upside and demand, but we do everything in a low risk testing way. So as we think about 2022, we do plan to slow turns, but we have this really nice problem where the more we buy, the more we sell. So I’d hate to commit to permanently slowing our turns down, but we are looking at ways to continue to push upside and growth and potentially, so those turns down a little bit.

Super helpful. I guess my last question would be, if you can kind of unpack marketing a little bit more, obviously it sounds like there’s a very successful response to your first ever brand marketing campaign. So can you just give us some perspective on, different things you saw in the business related to that campaign, how you’re thinking about altering or keeping the campaign kind of the same going into 2022, you’re just – your general marketing expense levels would be helpful. And then I think the last quarter you touched on thinking about at some point a little bit of international marketing spend. So just want to be curious about how you’re thinking about that as well. Given you’re seeing a really good response to what happened in, I guess in the fourth quarter. Thanks guys.

Sure. So when it comes to the brand campaign that we started in the fall, we had, like I said, some great learnings there. And basically you can bucket those learnings in three areas. That’s learnings around content, there’s learnings around new channels, and there’s learnings around new app formats in existing channels. And the learners you’ve got to think along the lines of when, for example with content is to better understand what type and format of content works well, in which channel versus approaching generic audiences or targeted or more specific audiences. And so what we've done with that is to, to better understand also from the channels, but for example, the Brent lifts are, and applying that, and incorporating that into our – we call it our evergreen awareness marketing that we were always doing. And in that way we have incorporated that going forward, but also obviously we will be continuing to test and learn in 2022, that that will not stop. I think the reason why we talked about a brand campaign or formulated in a brand campaign is because we were – it was really the first time for Lulu's to talk about Lulu's instead of, specifically about the products. So that was a content change that we had last year, which was like I said, very, very successful and very interesting to see how that resonated both with millennial as well as Gen Z.

Hey, Randy, let me add on to Mark's comments on that. As you know, we've grown primarily through a word of mouth and friends and family, and so that's still important for us and we're continuing to push on it. And we've been absolutely outstanding with our efforts in performance marketing, but based on the capital structure previously it wasn't brand building, it wasn't brand marketing, it wasn't a muscle we were able to exercise and develop. So this was really our first forays into it and still the spend year-over-year will be heavily weighted towards – if you have to think about the performance versus brand, which we're not necessarily certain we do, it still will be weighted much more of the spend with what we've been doing for years. And continuing, as Mark said to test and learn our way into those disciplines and build up the capabilities, but we're pretty happy with the response.

Super helpful. Thanks guys.

Safe travel, Randy.

Our next question comes from the line of Oliver Chen with Cowen & Co. You may proceed with your question.

Hi. Thank you. The average order value was very impressive as we look ahead, particularly as we think about new versus existing customers in any factors, do you expect that momentum to continue amongst the UPT and AUR transactions? And then on – on better modeling to predict future demand, I know you have a pretty advanced artificial intelligence bench there. So I was curious about what better modeling is feasible? And a follow up on infrastructure investments and logistics, there's a lot happening at Lulu's. What's the customer in terms of the biggest unlock as you pursue those, I assume its speed? Thank you.

So I'll tackle the average order value question. So what we experienced was really an increase in UPTs, as well as a reduction in markdowns and discounts compared to prior years. And our expectation is that will remain relative stable. It wasn't an – I would consider a non-recurring item for last year with the exception of pushing potentially higher up UPTs around product class expansion in our non-event areas with a separate tops and bottoms and so forth. So I wouldn't – I also wouldn't expect a massive increase in AOV either as we're trying to push strategically growth in other product classes. But we're not going to be aggressively looking at pricing versus more wanting to push growth in those product class areas. So from AOV perspective, again, yes, we're expecting continued momentum, but I would temper expectations to give us some room to grow and take more mind share versus going after every dollar from our customer.

With model?

So as it relates to modeling and being able to forecast demand. We are always evolving how we look at our business and we like to triangulate from different areas and functions within the business, whether from marketing, planning or our P&A team. And I would say its constantly evolving process as well as integrating with our data team to continue optimizing on how we can do capture that demand, especially in these challenging supply chain times but we're not as sensitive to lead times as maybe others might be. So there's – I'd say there's plenty of room for optimization. I think we're pretty good at it, but I think we can become really great at it. So I still feel it a lot of upside in that area.

And then your last question also as it relates to our infrastructure and investments that we're making there, it's indeed all about speed and surface levels. That's why we took essentially the activities that we had outsourced through 3PL as it relates to the receiving of our goods from our vendors, as well as the quality control back in house. So that we have essentially data sooner and can also better control essentially the outflow of product from the Southern California facility to the Northern and California and Eastern Pennsylvania facilities. And we've already seen basically faster time that that we kept products online available for sale, which is about speed. And it's also about essentially reducing markdowns ultimately because we have a longer sellable than window. And then when we add the logistics capabilities further to that facility throughout this year, then also from a fulfilling perspective, we will be closer to a nice size off the population where we deliver orders in Southern California, Nevada, and in those regions.

Thank you. Great quarter, best regards.

Thank you, Oliver.

Thank you.

Thank you. Our next question comes from the line of Brooke Roach with Goldman Sachs. You may proceed with your question.

Good afternoon, and thank you so much for taking our question. I'd love to hear a little bit more about some of the trends that you've seen to date throughout 2022. I'd love to hear if you could unpack your expectations of the growth sequence for the year in a little more detail, and perhaps provide some context as to how you've seen customer engagement trend, as you've navigated the January omicron variant and also some of the rising wallet pressures that we've seen on the consumer in the past couple of months?

So we're happy to report that we are – we're less sensitive to some of the inflation pressures that everyone is speaking about on the market. And that really comes from our affordable luxury and price value persecution from our customers. And we take a surgical approach to pricing. We always have, we always will. And in that sense, we feel we have room of course, to adjust pricing, but we're also optimizing for sell through and value perception for our customer. I can't say we're not affected by the inflation because we certainly are, but as we continue to grow and get scale and economies of scale from our purchasing process, we're possibly less exposed to that than maybe others would be. And the beautiful thing about our customer is that our, if we do change prices and we take them up a lot of times it increases sell through versus reducing it. So we're really grateful for her for that, but in that sense we're not really seeing any of those pressures. At least not to the extent that others are talking about in the market. And again, it goes back to our product, how we do our buying and how surgical we are with, with our pricing, as well as when we're bringing in inventory and at what quantities.

Great. Thank you. And then just a follow up for me on the enhanced loyalty program; I'd love to hear a little bit more about some of the early reads that you're getting from that program? And maybe the biggest opportunity that you see for that program to contribute to better consumer engagement over time? Thank you.

As it relates to loyalty that has early learning's would be too early, and it literally was rolled two or three weeks ago. So I cannot speak to that. Other than that the rollout itself went successful. Our customers received it well. There were not too many questions or issues that popped up. So in that sense, we're very happy about that particular aspect. As it relates to the opportunity, yes, I think that is what we really are talking about. The previous LOVELULUS rewards program was kind of, there was not a lot of options to use that as for, for example, to broaden our customers process for example, because it was purely just transactional and discount upon oriented. And now we can truly focus on that engagement with our customers, worth wait for that engagement, whether that is buying more or buying different products or talking about us, word of mouth advertising, et cetera. So the flexibility and the opportunity that provides us to do so is what we're really excited about. And we are happy to have laid that – now that foundation on which we can build.

And so far she's responding well to the offering.

Yes, she is, but if you think of, as Mark was talking about it. The early program was very transactional and this one is being the foundation's being laid so that it can become more of that brand hug and a great engagement tool that Mark alluded to where, again it also gives us a great deal, more first party data, a number of things that this is going to help us to, again from an advertising expense, loyalty tracking is going to be great for a company that's so focused on a customer. We sort of had one hand behind our back, we are not having a really robust plan. So this is Phase 1, and I suspect the plan Mark shares with you next year this time about what Phase 2 and Phase 3 look like both on the learnings, you'll see kind of morphic size pretty dramatically.

Thank you so much.

Our next question comes from the line of Lorraine Hutchinson with Bank of America. You may proceed with your question.

Hi, this is Alice Xiao on for Lorraine Hutchinson. Thanks for taking our question. Since 1Q is pretty much concluded. I know you're not guiding specifically to that, but could you please give some color on how that went? Which non-event categories have been outperforming in particular, and if 1Q trends are largely consistent with 4Q or if there's anything specific to call out?

So generally speaking, we're all very optimistic about Q1 and things have been progressing very nicely. As it relates to product classes what, we're not sharing details in terms of overall penetration for each business, but because we're known for our dresses and more specifically event dresses. We do believe we're experiencing a bit of a disproportionate benefit from our customers return to their social calendar, especially in Q1 and as we run into Q2, that the expectation would be the same. That said the concentration of sales from our non-events classes also increase in 2021, continue to increase and over pre-pandemic years. We're just gaining traction and building more awareness in all of our affordable luxury offering for that everyday wear. So I say, we're firing off on all cylinders. We're very optimistic about the business and things are going great.

Thank you.

Our next question comes from the line of Dana Telsey with the Telsey Advisory Group. You may proceed with your question. Dana, your line is live.

Hi, this is Dana. I'm here now. Congratulations.

Hi, Dana.

Hi, congratulations on the nice progress with the quarter, as you think about the tech investments that you're making, what are the markers that we should be watching for that shows it's on track? How should we be evaluating it? And that, and it sounds like it's multi year. So what is the journey that we're on that? What do we accomplish this year or next year? How do you think of the markers?

So, and before Mark jumps in, let me just, I mean, so way we're thinking about them are we have some things we have to do structurally that add capability for growth, right? We're a high growth company and we've always sort of built just in need and just in time and along the way, Mark and team have been not only doing that, but enhancing the capability sets in those. Then there's a great deal of work and team are doing around customer insight, analytics, data analytics capability, the number of things. But I could do nothing. I'll give it short shift if I try to answer, so Mark jump in.

I think it's an interesting question. I'm trying to think about the markers that you were looking for, because that's not necessarily the way I think about it. I think, well.

Its inventory – is marketing efficiency. I mean, tech and data is an everything we do. So I would say our financial performance would be an indication of the, the advancements we're making on our tech. So…

Okay, financial performance, I think that would be then, the main

Tech supports everything we do.

You may see may, we believe over time through all, some of the programs we're doing. I wouldn't be surprised if we start to see, that AOV creep up beyond our current price points because we have better insights and we're going to start the offering will change the frequency purchasing over the year. You'll start to see change the sort of behavioral economics that were very from a purchase behavior for bias towards event will start to move as well. Okay.

Yes. And I think the other part, is our OpEx, right? I mean the technology is really there besides on the sales side, it's also the operation side and it's really about, how do we scale more efficiently overtime? Know that's why we're introducing for example, robotics. And there's other things that we we'll be implementing in order to scale. That's more efficiently, as our volume increases.

Yes. And as we've learned, as we tap into these sort of the untapped pools, knowing that we're a young brand and not as well known, we may be able to scale growth faster where some people be worried so that the capabilities Mark talk about whether it could be inventory purchasing, right. But these turns, it's very hard to fulfill and have size and talks, integrity with these, blistering fast turns in the market. So those are all kinds of things you're going to see Dana markers that'll support the growth in the near term.

Got it. And then just following up on the AOV with the category extensions, how do you think about the impact on AOV and what would impact AOV the most in terms of category extensions in your view?

I would say that the, the biggest impact is going to be UPTs what early reads are showing that see shops more of our non-events classes. We're seeing those up UPTs creep up. It's a different shopping behavior than shopping seasonally per event. And so UPTs would be the biggest, the biggest factor affecting AOV at least in the near term.

Thank you.

Thank you, Dana.

Our next question is a follow up from Oliver Chen with Cowen and Company. You may proceed with your question.

Hi, thanks a lot. Non-event dressing is a really nice opportunity. It continues to be, would just love some points around how that's advancing in a key focus areas. And second and finally as you bring on new customers, how are you thinking about LTV relative to CAC and the nature of that behavior, if it's interesting or relevant distinction in terms of churn and acquisition costs. Thank you.

So our merge teams are doing an exceptional job of building out our non-event classes, and we are seeing in spite of this massive reacceleration of our events business, we are gaining share and overall contribution to our business and our non-events, we're not guiding anywhere towards actual numbers, but I will tell you, we are making strides and building out that overall concentration of non-events apparel, shoes and accessories especially compared to pre-pandemic levels

And something else that's going on Oliver, as we do that, if you think about our history and legacy as a company with event dressing, we had a preponderance and this is on the softer side of the question. We had a preponderance of neutral safe colors, and you're seeing the team recently begin to broaden that. And as we move into, so in it in dresses, as well as the non-event dressing we're seeing that as well. So we're learning how to outfit, we're understanding the relationships and the power of seasonal color expressions. We also have the history of being very dominantly solid versus using print patterns, and you're going to see us grow. So when you think about the ability for us to grow in those spaces, these are real nice stages. What's so heartwarming and I guess confidence instilling is – that we're continuing to grow. And we know we have the fashion retail responders in dresses, but there are subcategories of dresses that remain on tap force as well. So again, this is going to be a great ride in big pools of resources coming in the market.

And then as it relates to your question around CAC and LTV, if you look at the initiatives that we have taken and started to put ourselves on a different foundation for example, with the loyalty program when we are looking at expanding the, our assortment and getting also awareness around, the everyday where that all leads to more, more opportunities to, for our customers to engage with us. David already spoked about higher UPTs, but there's also, of course the frequency there's a higher repeat and all those initiatives are essentially driving towards a higher LTV for the customers both, sorry from a repeated apparel perspective as well. And then as it relates to the customer acquisition cost obviously, the market is certainly influx right with all the privacy changes and iOS and tracking changes and our, it's our job to maintain. And what we will try to do is maintain that, that historical cost of acquisitions that we have had over the last couple of years, to keep that’s also going forward so that we can truly leverage the benefits of the increases of our LTV going forward.

And we need be contribution margin profitable, on a first order. So I think, that's pretty special with Lulu’s.

Thank you.

Thank you everyone. At this time, we have reached the end of the question-and-answer session and I would now like to turn the call back over to Mr. McCreight for any closing remarks.

Thank you all. You obviously can hear our pride and what the LuCrew achieved this past year and quarter. And again, we've already mentioned, we're thrilled with the start of the year. As I look forward to updating you further. So thank you for your time.

This concludes today's conference. You may disconnect your lines at this time. Thank you everyone for your participation and have a great day.