Key Takeaways:
Lulus shares fell 24.5% after Q2 revenue dropped 17% to $67.8 million on lower order volume and elevated returns.
"Revenue is still being affected by the runoff of older product cohorts and the assortment decisions made in prior years that did not align with our core customer," Chief Executive Officer Crystal Landsem said. "But the leading indicators are moving in the right direction."
Gross margin expanded 330 basis points to 48.6%, the highest second-quarter gross margin since 2021, according to Chief Financial Officer Heidi Crane. Net loss narrowed to $1.5 million from $3 million a year earlier, and adjusted EBITDA turned positive at $1 million. Diluted loss per share was $0.52, compared with $1.08. Inventory fell 23% to $28.6 million, with casual apparel down 43% and footwear down nearly 58%.
The stock decline reflects investor concern that the top-line contraction points to deteriorating demand fundamentals. Management maintained its expectation for positive adjusted EBITDA in fiscal 2026 and said the board formed a special committee of independent directors to evaluate strategic alternatives, including a potential transaction.
Total markdown sales fell 38% from the second quarter of 2025, including a 65% decline in casual apparel markdowns. The company said the shift toward regular-price sales should improve profitability, though difficult markdown comparisons are expected to persist into the first quarter of next year.
Occasion-wear, which includes bridal, bridesmaids, formal and day-event categories, posted double-digit year-over-year sales growth during the quarter, supported by regular-price sales. Wholesale revenue nearly doubled, with trailing 12-month wholesale revenue up 130%. Lulus is now available in all Nordstrom stores and doubled its prom assortment presence at Dillard's to 100 stores.
Operating expenses declined 14% as the company achieved distribution-center efficiencies in outbound and returns processing. Selling and marketing expense fell $3.6 million to $18.4 million, while general and administrative expense declined $1.7 million to $15.8 million.
After the quarter ended June 28, Lulus amended its credit facility and secured access to equity lines totaling up to $10 million. Total debt fell $3.2 million to $10.1 million.
The company expects return rates to improve as casual apparel and footwear assortments normalize in the second half of the year. Management forecasts capital expenditures of $2 million to $2.5 million for fiscal 2026.
The sharp selloff shows the market's skepticism about the turnaround timeline, with revenue still contracting even as margins improve. Investors will watch the third-quarter report for evidence that new product assortments can stabilize active customers by year-end.
This article is for informational purposes only and does not constitute investment advice.
