Lulu’s Fashion Lounge (NASDAQ:LVLU) reported a 20% decline in third-quarter revenue and lowered its full-year outlook, as weaker sales from older product lines continued to weigh on the fashion retailer despite improved margins and inventory management.
The company also said it is negotiating additional financing and expects an October workforce reduction to generate approximately $5 million in annualized savings. Its board continues to evaluate strategic alternatives.
Revenue fell to $58.6 million in the quarter, while the net loss widened to $4.3 million from $2.3 million a year earlier. Chief Financial Officer Heidi Crane attributed the revenue decline to fewer orders and higher return rates, partially offset by increased wholesale revenue.
Earlier Assortment Decisions Weigh on Sales
Chief Executive Officer Crystal Landsem said the revenue decline primarily reflected the lingering effects of underperforming product introductions in 2025. Those styles produced fewer opportunities for reorders and for variations of successful products, such as new colors and related designs.
President and Chief Information Officer Mark Vos said the company had accounted for weaker reorder revenue in its outlook but underestimated the loss of those secondary opportunities. He estimated that the smaller reorder base resulted in a $9.8 million negative impact on transacted revenue in the third quarter from missing color and fabrication additions alone.
Vos said some pressure from weaker product cohorts is expected to carry into 2027, although it should moderate as newer products account for a larger share of the assortment. Reorder revenue is typically greatest in the year after a product launches and continues into the second year before tapering, he said.
Management pointed to stronger productivity among products introduced in 2026. Landsem said a significantly higher percentage of new styles reached reorder thresholds in the third quarter than a year earlier, with eligibility for separates more than doubling. Vos said units transacted per newly launched casual apparel and footwear product rose 39% year over year.
Even so, new product introductions remained below the company’s targets, Vos said. Compared with the third quarter of 2025, Lulu’s launched 23% fewer casual apparel and footwear products and 14% fewer occasion wear products.
Margins Improve as Loss Widens
Gross margin rose 230 basis points to 44.9%, which Crane attributed to a shift toward higher-margin products and efficiency efforts. Landsem said markdown sales fell 28% year over year as the company reduced both the number of items requiring markdowns and the depth of discounts.
Adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA, swung to a loss of $1.8 million from a positive $0.4 million a year earlier. Diluted loss per share widened to $1.48 from $0.84.
Selling and marketing expenses declined $1.4 million to $15.5 million, while general and administrative expenses fell $1.6 million to $14.7 million. The latter included approximately $500,000 in nonrecurring costs related to the strategic alternatives process, Crane said.
Quarter-end inventory was $31.9 million, down 17% year over year. The company used $2.1 million in operating cash during the quarter, compared with $1.8 million a year earlier. Free cash flow was negative $2.3 million, though Crane said it was positive for the year to date.
Financing Talks and Outlook
Crane said Lulu’s is in active negotiations with its existing lender and potential new lenders for additional financing to support liquidity needs. The company has not entered into a definitive agreement. At quarter end, total debt was $15.3 million, while net debt was $8.8 million.
The retailer expects fourth-quarter year-over-year revenue pressure comparable to the third quarter and said full-year revenue and adjusted EBITDA will be below its previously communicated expectations. It did not provide updated full-year revenue or EBITDA figures on the call. The company now expects capital expenditures of $1.5 million to $2 million for 2026.
For 2027, Crane said the company expects the rate of revenue decline to moderate as stronger 2026 products contribute more to reorders and wholesale continues to grow. Management also expects a healthier sales mix, improved inventory productivity and cost reductions to drive a meaningful improvement in profitability.
Wholesale revenue grew at a high double-digit rate in the third quarter, Landsem said, as Lulu’s expanded into Macy’s and Bloomingdale’s. For the last 12 months through the quarter, wholesale revenue rose 112%, Vos said.
Landsem said the board would not comment further on its review of strategic alternatives unless additional disclosure becomes appropriate.
About Lulu’s Fashion Lounge (NASDAQ:LVLU)
Lulu’s Fashion Lounge Holdings, Inc. is a digital-first women’s fashion retailer that operates primarily through the Lulus brand. The company offers apparel and accessories designed for a range of occasions, including dresses, tops, bottoms, shoes, handbags, jewelry and other fashion items. Its assortment places particular emphasis on event-oriented clothing, such as styles for weddings, parties, vacations and other special occasions. Lulu’s uses an e-commerce-focused business model, marketing products through its website and digital channels and serving customers primarily in the United States.
